Edited Transcript of NRE1V.HE earnings conference call or presentation 6-Aug-19 12:00pm GMT

We read been doing some savings can other operational activities. And too we read been adjusting the ability can our Finnish mill can Nokia ought lower ask across temporary layoffs. And can the identical time, it's good ought remember that we are the most beneficial tire manufacturer. And having said that, we are fairly pleased can everything we are doing. accordingly there are no immense savings opportunities can other parts of the company.

When summarizing the first half can total, we are above previous year's even can net sales. Net sales growth coming from Russia and North America and good growth continuing can heavy Tyres. And it's good ought mention that this growth can heavy Tyres is greatly driven by agri and forestry applications, which are our concentrate segments. And too the manufacture volume has been growing accordingly and supporting this growth.

Operating advantage during the half, first half declined compared ought the previous year. We had a negative money impact, specially during the first quarter, coming from -- mainly from Russian ruble. We read been having higher substance price coming from 2 components, raw substance costs amplify and manufacture mix, and too higher manufacture costs owing ought ramp-up of Dayton and higher segment of manufacture can the first region can Finland. certain career is that profitability can Vianor continues ought improve. We read been going across rationalization activities can Vianor network earlier and now the concentrate is keeping the operational efficiency above a orchestra level.

Then if we emerge can different markets, what comes ought Nordics, new automobile sales has been significantly down, except though Norway and the certain figures can Norway are mainly driven by Tesla availability improving during this year. We read robust post can automobile merchant business, and therefore, the new automobile sales has a guide shock above our sales can the Nordics. accordingly when nation buy new cars can Nordics, they buy a post of winter tires, though the new cars reform with unique summer tires.

Car tire sell-in has continued ought refuse and is now minus 4% down compared with previous year. can Vianor business, we yell on the sellout can budget segments growing can summer tires and overall, the consumer visits declined. can the Nordics, we read continued ought concentrate above profitability above volume with implementation of slim charge increases. Central European market, can condition of entire replacement market, is down by 2%, and the segment of Asian imports has been growing. And when we emerge can the sell-out, though example, can Germany, it's down by 6% though summer tires.

The fair continues ought exist highly competitive with oversupply though OE affair is down, and there continues ought exist more equip can replacement market. despite of the negative fair sentiment, some segments are clearly growing larger sizes and all-weather. And when we emerge can the pricing, it's, of course, identical competitive market. And the prices, specially can the larger sizes, read been going down.

Looking can the sales mix. Our sales mingle has been improving compared ought the first quarter, and we read been increasing the segment of SUV tires, where the ASP is higher. certain career is too that we read been gaining fair segment can summer tires with our new products that we read been launching though August season.

When we emerge can the European, Central European market, there are deep trenches can countries. There are markets where our shares read been clearly down, and we read been too growing, though example, can France and Poland. when we emerge can the inventory situation, the inventories are above a higher even compared ought normal, and this method that our customers will exist ordering closer ought the season when we are entering the winter tire season. North American market. Replacement fair is cottage growing. And this year, we read been growing more can U.S.A. owing ought somewhat higher inventories can Eastern Canada owing ought weak winter, accordingly the climate situations read been fairly different if we compare the Eastern or Western phase of the country.

In Russia, the new automobile sales has been declining more than 2% during first 6 months owing ought cheap economic growth, declining consumer purchasing might and increasing credits of customers. Government has been relaunching subsidies though lower-priced cars targeted ought amplify their sales of new cars during the second half. besides based above the first half year development, we read been updating our expectation though complete year sales of new cars being even can the most certain scenario.

When we emerge can the entire replacement tire fair sell-in during the first half of 2019 can Russia, it has been slightly declining, with a sharp lessen can summer tire sell-in and healthy growth can winter tire sell-in, mainly driven by the accelerated timing of deliveries of our products. The summer tire sell-out season can Russia has proceeded normally with the sell-out volume remaining even compared ought 2018. accordingly though a originate of that, the summer tires stocks can distribution, they read decreased compared ought 2018 though the sell-in has been above a lower level. And though you remember, we started earlier deliveries of winter tires this year ought compensate the refuse of summer tires, and we read continued ought send winter tires during the second region though well. And though a originate of that, the entire inventories are now above a higher even compared ought the previous year though there are more winter tires can the channel can this point of time. when we emerge can the complete year, the entire replacement tire sell-in can Russia is expected ought slightly become among 0% ought 3% versus 2018, with winter growing and summer tires declining.

When we emerge can the mix, this fraction has been stronger, and we read actions can post ought improve sell-in and sell-out of A fraction can order ought improve our sales mingle though the second half of the year. And when we emerge can the cease of the year, our sales volume can Russia is expected ought exist above the previous year level, besides net sales is expected ought amplify into improve mix.

And now I'm handing above ought Teemu ought emerge can the numbers, key figures more can detail.

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Teemu Kangas-Kärki, Nokian Renkaat Oyj - CFO [4]

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All right. Thank you, Hille. Hille covered already the orchestra net sales and operating advantage figures accordingly I will influence can straight ought the first half advantage though period, which was EUR 267 million. And reminding you entire that there, we can yell on the certain shock of the rulings of the tax disputes that is now final and the quantity can our operating advantage is about EUR 150 million. The alike earnings per segment though the first 6 months is EUR 0.86. And our money river though the first month -- though the first 6 months was negative almost EUR 90 million. if we emerge the comparison catalog from previous year, EUR 150 million, there we can see, again, the certain shock of the tax ruling. We got the money already final year and now this year, when the determination is final, we booked ought the result. And therefore, these figures emerge comparable they are this year compared ought the previous year.

Then going ought the interest-bearing net debt. can the purpose of Q2, our interest-bearing net debt is above a even of EUR 252 million, of which half of the amplify is coming from the IFRS 16, the leasing liabilities that are now booked ought the surplus sheet. The CapEx spending can the first half was above a even of EUR 140 million, of which about 70% related ought these strategic projects comparable the Dayton factory, heavy Tyres investments and Spanish examination track.

Then moving ought the passenger automobile Tyres business. can the first half, our alike growth, climax row growth was minus 1.5% owing ought lower volume. Our complete median sales charge with alike currencies increased slightly owing ought both mingle and prices. Our operating advantage was above a even of EUR 143 million, and it decreased owing ought the assets -- owing ought lower volumes, higher substance costs and currencies, specially can the first region too though we read increased spending relating ought the North American projects.

As said earlier, by Hille, we read adjusted our manufacture ability utilization rates can row with the fair demand. And can the second quarter, our Russian manufacture was more or less above the identical even though can the second region 2018. And we read little activities ongoing that was already mentioned by Hille can order ought exist improve aligned with the new requirements of the markets, comparable the Nordic structure, and then we are having more concentrate can the Central Europe though that new category of fair status that we are facing.

And here, you can yell on the first half passenger automobile Tyres bridge can condition of net sales and EBIT. Volume down 2%, certain price/mix 0.5%, and then the money shock negative about 0.5% point. And there, can condition of EBIT, you can yell on the visit volume, increased substance costs and then other costs, where we can yell on our projects that are ongoing, contributing ought the higher price base.

Here now though the first time, we read prepared this slip that you read been asking from us. There, you can yell on the trends rip into volume, price/mix and money components. And if I initiate with the money component, you can yell on that towards the purpose of first half, the negative money shock has been turning, accordingly we are expecting though the complete year, more or less fair consequence from currencies. And then can condition of volume, you can yell on that the earth looked different can the first half final year. And now clearly, there are more headwind, specially can the European market. Here you can too yell on that the price/mix certain shock can the second quarter, where we had a negative shock can the second region can Central Europe, besides then can other affair areas, we had a certain impact.

Moving ought heavy Tyres. The climax row though the first 6 months was above a even of EUR 96 million. The growth with alike currencies though the first 6 months was above a even of 7.2%. can the second quarter, the growth was 2.6%, and there were some deliveries shifting from Q2 ought Q3. And though we read been indicating earlier, the sales of agricultural tires and forestry tires read increased, can particular. And looking ought the Q2 results this year, there is a transparent increase, which is owing ought the sales growth. besides I too wish ought remember us that final year can the comparison period, we had some negative inventory valuation that we are then burdening the originate can Q2 2018. And then final week, we acquired Levypyörä, a smaller acquisition, annual net sales of about EUR 18 million, and this corporation supports the heavy Tyres tactic and enables a good service though our customers can the short word and can the wish term.

And then the final affair unit can our portfolio, which is the Vianor. There, we read been progressing according ought the plan. And though the first half, the climax row growth has been above a even of 1.4% growth. And the operating losses read been -- has reduced ought the even of EUR 2.6 million can the first half. And though you remember, the profits are then generated can the latter isolate of the year and can the first quarter, we had an early initiate though the season. And therefore, the second region is slightly weaker, besides above a first half year basis, it is can row with the expectations.

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Hille Korhonen, Nokian Renkaat Oyj - principal & CEO [5]

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Then let's confess a emerge can the outlook. I used to comparable ought quote some of the assumptions we read regarding the markets. European replacement tire fair is expected ought exist even compared ought previous year and our updated progposal above Russian fair is that new automobile sales will exist lower or above previous year even and replacement tire markets will become slightly, declining can summer tires and with some growth can winter tires.

We are keeping our guidance though the complete year unchanged. accordingly net sales with alike money is expected ought exist slightly higher compared ought previous year, driven by some volume growth and some certain price/mix shock during the second half of the year. Operating advantage is estimated ought exist lower compared ought previous year. And we are expecting less money shock during the second half. substance price though the complete year will exist increasing 3% ought 4%, and we will exist carrying extra operating price though we are ramping up the North American factory. And this is too including some price savings from other operating activities.

And our strategic voyage continues, and it's realizing across our strategic projects that are supporting the future growth. And if I used to summarize entire of them, they are entire proceeding according ought the plot and according ought the price budget. And here, you can yell on above the picture, transparent evidence of the first tire produced can our North American mill can Dayton and the local teams and uphold teams from Russia and Finland are identical arrogant of the achievement, and it was exactly above the appointment that we had post though a target.

And can appendix ought the physical house and construction mill we are doing can North America, we are doing a destiny of activities ought create the aim and ask from the market. And though you might know, most of our growth during the past 5 years has been coming from growing with existing customers. And that is too isolate of our plot moving forward. We will digest ought become can winter tires, our concentrate is cottage Canada and northern areas of U.S.A. We cottage read one big field there, Ontario, which is ought exist conquered, and then we will exist growing with existing customers can U.S.A. by adding North American concrete sizes and products. And I can approve that the new products and sizes are can our R&D pipeline already.

And additionally, we will exist developing focused all-season offering though selected niche segments and too adding and house new passenger relationships can the areas where we are no still present. And we are tracking this development. though example, can 2019, we read been adding fairly a little new customers and increasing the amount of point of sales where we are selling our products. And can marketing, our concentrate is above point-of-sale marketing and supporting the sell-out of our products and drill the counter nation how ought sell our tires. accordingly we are moving ahead according ought the plot too can the market.

And allow me remember you of our 3-year plan, which we read been communicating can leading Markets appointment can November, and it's cottage identical valid, and we are moving ahead with entire of these activities.

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Päivi Antola, Nokian Renkaat Oyj - SVP of IR & Corporate Communications [6]

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And good. Thank you, Hille. Thank you, Teemu. And now operator, we used to exist ready though the questions from the audience, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first mystery comes from the row of Mattias Holmberg of DNB Markets.

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Mattias Holmberg, DNB Markets, inquiry segment - Analyst [2]

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I read a mix of questions. And starting above the inventory status can Russia. Could you interest assist us a segment here elaborating above -- if we initiate with the summer tires, you mentioned that it's slightly lower compared ought final year. used to I draw it too far going conclusion, if I assume that, that method that it will no exist a limitation when it comes ought the sell-in can the afterward isolate of the year when we attain ought the summer season? I'll interval there though the next part.

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Hille Korhonen, Nokian Renkaat Oyj - principal & CEO [3]

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Yes, thank you though the question. It will no exist a leading limitation. However, when we emerge can the entire inventory levels, we cottage -- there are cottage plenty of winter -- extra winter tires. accordingly we are too then dependent above how rapid the winter tires sell-in is proceeding during the season. besides I used to say that it's no such a big limitation compared ought previous year.

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Mattias Holmberg, DNB Markets, inquiry segment - Analyst [4]

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Okay. That was indeed the second isolate of this mystery though when you talked about selling more winter tires during the first half of the year ought compensate though the lower summer tire sales, it does strong comparable this will kind of cannibalize some of your mutual H2 sales, which I study that you more or less talked about here. besides finally, a mystery though Teemu. You mentioned above the conference yell can June backward you had lowered the guidance, where you gave us more flavor above the EBIT though 2019, where you said that the lower guidance reflected a single-digit refuse year-over-year. used to you say that this cottage is valid?

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Teemu Kangas-Kärki, Nokian Renkaat Oyj - CFO [5]

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Yes. The guidance from June is cottage valid and no alter can the view.

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Operator [6]

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Our next mystery comes from the row of Akshay Katkar of JPMorgan.

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Akshay Katkar, JPMorgan follow & Co. - fellow VP [7]

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Three from my side. First one, again, above volume and coming backward ought the manufacture can Russia though Nokian can the first half and how that -- even I'm struggling ought know how there is more growth can the second half after, though you mentioned, you read been preselling winter tires already can the first quarter. can you interpret how you're looking can growth can the second half, a segment more details about that? The second mystery is above the free money flow. Working leading has been a bigger haul this year. Does it attach ought the ramp-up can NAFTA? And how are you thinking about free money river though the complete year? if there is any guidance, Teemu, above that, please. And the third mystery is can you quantify the ramp-up costs that you read already incurred can Q2 can NAFTA, please.

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Hille Korhonen, Nokian Renkaat Oyj - principal & CEO [8]

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So thank you. if I confess the first mystery regarding the growth can the second half, we are expecting some volume growth during the second half. And it's, of course, when we compare it with the previous year's second half, the comparison even is fairly low. And we are expecting some growth from North America, some growth from Central Europe compared ought previous year. And improving mingle can Russia with some negligible volume growth.

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Teemu Kangas-Kärki, Nokian Renkaat Oyj - CFO [9]

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