Nokian Tyres Reports Growth Despite Market Challenges

image

Nokian Tyres Reports Growth Despite Market Challenges

In a recent earnings call, Nokian Tyres (TYRES.HE) reported strong performance for the third quarter of 2023 despite a challenging automotive and tire market. CEO Jukka Moisio and CFO Niko Haavisto announced a 14% increase in net sales in comparable currencies, reaching €314 million. This growth was particularly attributed to market share gains and increased availability of passenger car tires in Central Europe and Scandinavian countries.

The company's EBITDA rose to €58.8 million with an 18.8% margin, while operating profit increased to €30.4 million with a 9.7% margin. Profitability was supported by higher sales and declining raw material costs.

Key Highlights

  • Net sales in Q3 2023 increased by 14% in comparable currencies, reaching €314 million.
  • EBITDA reached €58.8 million with an 18.8% margin; operating profit was €30.4 million with a 9.7% margin.
  • Capital expenditures for the quarter amounted to €101 million, primarily for the new factory in Romania.
  • Net debt stands at €800 million, with expectations of a decrease after 2024.
  • The Romanian factory began production in July, with its official opening in September.
  • The company maintains its guidance for significant growth in net sales and operating profit for the year.

Paolo Pompei was appointed as the new Chairman and CEO, effective January 1, 2025.

Company Outlook Nokian Tyres expects significant growth in net sales and operating profit throughout the year. The Romanian factory is progressing as planned and will increase production capacity for winter and all-season tires. The company anticipates improvements in the fourth quarter due to seasonal cash flow dynamics.

Negative Factors

  • Overall demand in Europe continues to remain below pre-COVID and pre-Ukraine conflict levels.
  • Consumer trends in North America are shifting toward lower-tier brands.

Positive Factors

  • Positive trends in winter tire pre-orders have been observed, particularly in Scandinavian countries and Canada.
  • An advantageous product mix is expected to result in positive passenger car tire margins for the fourth quarter.

Challenges

  • An inventory impairment of approximately €11 million affecting summer product deliveries due to the Red Sea crisis.

Q&A Highlights

  • Raw material costs are moderately affected by oil prices, with expected increases due to new regulations.
  • High receivables and seasonal cash flow dynamics are expected to improve in Q4.
  • North American operations are focused on local manufacturing, with no exports to Europe.
  • €300 million in available liquidity, with an equal amount in unused revolving credit capacity.
  • Estimated capital expenditures for 2025 are projected to be around €200 million, primarily for new equipment at the Romania facility.

In conclusion, Nokian Tyres has managed to record an increase in net sales and profitability despite market challenges. Strategic investments, such as the Romanian factory, are preparing to enhance future production capacity. With new leadership on the horizon and a clear strategy to manage capital expenditures and liquidity, Nokian Tyres appears well-positioned for sustainable growth in the coming years.