Nokian Renkaat Oyj (TYRES) Earnings Call Transcript & Summary

Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2020 Results Conference Call. My name is Päivi Antola, and I am the Head of Investor Relations in Nokian Tyres. And together with me in this call, I have Jukka Moisio, the President and CEO of the company; and Teemu Kangas-Kärki, the CFO. You have now been some 5 months the CEO of Nokian Tyres. What are your key impressions so far?

Thank you, Päivi, for the question. And first of all, on my behalf also welcome to this results call. So what are my feelings or thoughts right now. I would say that we are very much on track on doing things that we set out to do. So first of all, to try to sell more tyres and focus on that. And also launch new products because that is lifeline of the company and allows then the future volumes and better price points. But at times like this, when COVID is still around and hasn't disappeared, it's really important that we have been focusing on cost and cash flow. And I think that important continued focus in that area will help us also in the fourth quarter and early into 2021. But my summary is that we are very much on track on doing things and executing the actions that we set out to do.

Very good. And then let's move on to Q3. And as usual, start with the presentation, what we have prepared and then continue with the Q&A. So Jukka, please go ahead.

Okay. Thank you, Päivi. So I move to Page 2 in our presentation and just reflect on the sales development. So our net sales at slightly below EUR 350 million, somewhat behind 2019 third quarter. But if we take comparable currencies, we are about 3.3% ahead of prior year. Obviously, the market developed minus 2% in the third quarter in Europe. And when we went into the quarter, we didn't quite expect that our revenues and net sales would develop so favorably. In fact, when we thought about the second half in the connection of the second quarter results announcement, we were expecting that volumes and revenues will not recover to a level that we achieved in 2019 in the second half. And even though we had a very strong quarter in the third quarter, we are still quite cautious about the full second half and the season hasn't really started yet. So obviously, there are a number of uncertainties in there in terms of what to expect from the fourth quarter. But having said that, we are pleased on the second (sic) [ third ] quarter performance. Passenger Car Tyre growth was driven by North America, Central Europe, and we had relatively good performance in all business units in this volatile environment. Also in the third quarter, what was helping our net sales development was that some of the sales that we had in 2019 in the second quarter shifted into third quarter in 2020. So there is some tailing in the third quarter, which came from the second quarter 2020. Operating profit at EUR 69.3 million segments operating profit versus EUR 74.9 million, slightly behind in 2019 performance. And obviously, we had some help from the raw materials clearly, strong manufacturing performance and then cost cutting helped our cost side. And then currencies were providing some headwind and also the beat volumes in Russia. Also after quarter, the Board decided the payment of a second dividend installment of EUR 0.35 per share. If I move to Page 3, there is a summary of our financial performance. So things to point out from here is that cash flow from operating activities was positive EUR 7.1 million versus EUR 89 million negative in 2019. And also main reason to achieve that, you see below, capital expenditure in the quarter, EUR 31 million versus EUR 88 million in 2019. And a very good development of segments operating profit under the circumstances at 19.8% in the quarter versus 21.1% in 2019. A top line advancement in the third quarter, 3.3% in constant currencies. And as I said, just to want to reiterate that when we went into the second half of the year, we didn't quite expect that the volumes would recover so strongly. Still of the opinion that when we look at the fourth quarter, there are lots of uncertainties in the area. And so therefore, we are of the opinion that the second half is unlikely to be stronger than previous year. But obviously, still, the final quarter is ahead of us. So uncertainties there, and we will see what we can do, but obviously, aim for the best possible performance. From our point of view, of course, the key to achieve results and the performance right now is to focus on cost. Surely, we sell as may tires and want to sell as many tires as possible, and we focus on the revenue plan. And then working capital cash flow is something that is very, very important in this year. This essentially is the summary of financials. And now I hand over to Teemu -- okay, I have still, sorry, the Page #4, where we have a little bit of the statistics in terms of new car sales, car tire sell-in and Heavy Tyre segments. And as you look at through the various geographic areas, it is in the first 9 months of 2020, a negative development. As I mentioned, the car tire sales in the third quarter was minus 2% in volume versus 2019 and our progress was 3.3%. That's in summary the financial and the market. And I hand over to Teemu to talk about the business segments. Go ahead, Teemu.

Thank you, Jukka. So starting with Passenger Car Tyres, as usual. And looking our comparable net sales, the net sales increased close to 5% in the third quarter on a comparable currencies and, as such, strong performance in North America, Central Europe and also in the Nordics. In Russia, the net sales declined as planned because of the measures reducing the carryover stocks in the distribution channels, and now the stock level in the distribution in Russia has decreased and continue -- and we are expecting that to continue to decrease in the fourth quarter this year. Then moving to our segment operating profit. We were on a level of EUR 72 million, a couple of millions behind last year period there. The Russia is the main driver to that on top of the negative currency impact. And then the lower raw material unit cost then was partly offsetting the negative headwind. Then in terms of our production in Russia, September was a record-high production volume. So we start to reach the normalized level in our Russian factory. Then still in Finland, we have adjusted the production according to the demand still in the third quarter. Then moving to the net sales quarterly changes and if we focus to the price/mix development. So in the third quarter, our price/mix was negative about minus 0.3%. There, we had a favorable mix effect and then our price effect was negative, and then the aggregate number is then slightly below last year compared -- in the price/mix component. Currency in the third quarter had a major effect. And as we all know, for example, the Russian ruble is significantly weaker. And then on top of that, other currencies in the third quarter are like weaker, like Norwegian krone, USD as well as Canadian dollar. And then moving to the Passenger Car Tyres bridge impact on the segment operating profit. Here, you can see the biggest 2 components in terms of absolute euros of material tailwinds contributing about EUR 11 million to the third quarter result positively. And then the same amount we lost in the currency headwind. So all in all, PCT segment operating profit, EUR 4 million down compared to the period last year. Then moving to the Heavy Tyres business unit. In the third quarter, the comparable net sales development was minus 2%. And there, the OEM sales, meaning the forestry was clearly down, as we all know how that industry is -- has been developing in the recent months. Then the positive side in the Heavy Tyres in the third quarter was the good truck tire sales, now when we are heading to the winter season, that then offset the negative development in the forestry and agri side. The segment operating profit in the third quarter was almost on the same level than previous year's quarter on a level of EUR 8 million. And then our third business unit, Vianor, we had a good performance in a typically low season, as we all remember the seasonality of our business there. Net sales was slightly down on a level of EUR 67 million. And in percentages, about 1% on a comparable currencies. Nevertheless, the segment operating loss was smaller than in third quarter 2019 on a level of minus EUR 3 million. And there, we have been able to adjust our seasonal workers in a good way in order to offset the declining top line. And as a reminder, we divested in U.S. our small Vianor network with 10 service centers that was completed in August, and we now continue to sell the tires in the same service centers, but we are not operating those by ourselves. That was, in brief, the 3 business units in the third quarter.

Thank you, Teemu. And I move to the final page to summarize our priorities, so Page 10. So clearly, it's important that we keep on launching and developing new products, and we have a very strong pipeline. So every month and in coming quarters, we hope to introduce new products and do launch them successfully. At the same time, it's important we focus on the key core competence and an area where we can make a difference, which is to sell more tires. But also, if we think about the environment and the uncertainty related to COVID and so on, equally important it is that we keep cost in strict control and also that we protect our cash flow by making sure that we only invest what is necessary and at the same time, manage our working capital well. Some activities are not necessary right now. So we can delay them and make sure that in that sense, our organization focuses on the key activities. And some of the development activities and so on, we can delay and maybe do next year when -- if and when things look better. Season is still ahead of us. So clearly, the final quarter is season dependent. We are well prepared for the season, but it hasn't really started, some snow in Finland, other countries. And surely, we've seen demand picking up a little bit, but it's still not yet real winter. And so therefore, some excitement still ahead of us. But in summary, we can say that Q3 was good. We are pleased about that. It was better than we expected when we went into the quarter. And in that sense, at this moment, we are in a good position to enjoy what will come in the fourth quarter. But clearly, we focus on cost. We focus on cash flow, and we will make, of course, most of the season when it comes. This in a summary where we are.

Thank you. Thank you, Teemu. And now, operator, we would be ready for questions from the audience, please.

[Operator Instructions] Our first question comes from the line of Akshay Katkar of JPMorgan.

Akshay from JPMorgan. Three, please. The first one on the temporary layoffs in Finland. Is it possible to quantify how much benefit do you have from this temporary actions impendent this year for the first 9 months or the third quarter, specifically? And how should we think about this going into the fourth quarter and 2021? How much flexibility do you still have on these programs? That's the first one. The second one is on Dayton and recruitment of the second shift there. Does this expand capacity to 1 million tires? And what is the associated cost of this ramp-up that you forecast going into next year? And when do you plan to hit the 2 million units? And from what I remember, that was planned on 3 shifts? The third question is on the EBIT bridge for passenger cars. Can you detail out what is exactly within the minus EUR 9 million bucket linked to supply chain impacts in the quarter, please?

All right. So thank you for the questions. Let me start with the temporary layoffs in Finland. So obviously, Finland is a particular country where you can do that. We still have flexibility in the final quarter if the demand is weak and so on, we still have flexibility to do temporary layoffs, if needed. We will see how the demand continues. We are not talking about significant millions here. So my guess, and this is not scientific, in the range of EUR 3 million max, what we can get out of this one. And then you asked about Dayton. The second shift is being hired right now, so as we speak. We hope to be fully on 2 shift operations starting 2021. And then the final 2 million capacity will require 3 shifts, and we expect that during the course of 2022, assuming that the demand evolves, that we will be there. And then we have the question that, at each point, we trigger expansion equipment, so that we can actually move from 2 million to 4 million. But this is something that needs to be decided during the course of '21, '22. And there is certainly time when we get to that 4 million tires. What the cost impact of that is essentially, in direct employee, less than EUR 5 million, I would say. But then, of course, there are other operating costs and so on. Teemu, if you take the...

The bridge question and regarding the supply chain block there. As you all know, the supply -- the COGS piece, in general, that represents the biggest cost item for Nokian Tyres. And then if we take away the raw material unit cost, which is then included in the EUR 11 million positive development and then looking other components in the bridge like the volume, price/mix, SG&A, bad debts and currency, then the residual is in the supply chain bucket. And there, you can see, for example, the part -- one part of the explanation is that Nokian factory underabsorption in the third quarter. But there are also other supply chain-related costs.

Understood. If I could just follow-up on the temporary benefits. I think you said you expect a maximum of EUR 3 million in the fourth quarter. Is that right?

The full year level, maximum EUR 3 million.

Okay, the full year level in terms of temporary benefit?

Yes, because the temporary layoffs are not as such -- I mean, they are an efficient way to regulate the capacity. But in terms of how much your save in cost, it's not a significant cost item. It will help for its part, but it's not -- in absolute euros, it's not significant.

Our next question comes from the line of Mattias Holmberg of DNB.

Hello, everyone. So on the raw material side, we see in the bridge, and as you mentioned, that the prices and costs are down quite considerably. But you seem to have been able to keep this for yourself and not having to let that pass-through to your own pricing. Is this a result of a lag? Or do you believe that you will be able to maintain these lower prices yourself?

So in our forecast for the full year -- for the fourth quarter is that the raw material prices continue to be on a level as in the third quarter. And then in terms of pricing, the prices are more or less fixed for this year, and then going to next year, that's been a different story. And maybe just to share with you, the current year, the raw material prices in 2021, we are expecting to see an increase in raw material prices in '21.

Great. And a second question for me. On the dividend, just to be clear, I read in the statement that it could be, sort of the remaining EUR 0.79 that was discussed earlier this year, could be made in 1 or several installments. So just to be clear, is this EUR 0.35 announced today, is that sort of the final? Or could there be an additional installment beyond this?

I believe that this is final. So there is no additional installments this year.

Our next question comes from the line of Thomas Besson of Kepler Cheuvreux.

Thomas Besson of Kepler Cheuvreux. I have 2 questions, please. The first one is on your North American performance in Q3. Your volumes seemed to have jumped dramatically more than the market, while in the first half they had underperformed the market. Can you explain if that's part of what you were talking about in terms of volume elements shifting from Q2, Q3 and elaborate on whether there's any one-off linked with these Q3 volumes and whether you expect a similar development in Q4 in North America as in Q3. So basically, explain a bit more this very substantial jump in the region? The second question is about the bad debt. You reported, I think, EUR 4 million in Q3. Can you talk about that, whether you believe sort of Q4 and in 2021 or whether this is well under control and we have seen most of it now.

So the first question was regarding the North American and sales, and you rightly pointed out that partly it is the shift from Q2 to Q3. And then it's also good to remember what I've been saying in earlier discussions, that our customer base is more concentrated than maybe in other companies' customer base. So when they are doing their internal decisions, how they want to stock, that will influence our sell-in. So those are couple of the reasons explaining the North American sales development. Then in terms of the second question, the bad debt development. So as discussed in the Q2 call, these are the bad debts provision that we foresee. So they are not yet realized bad debts. But now when all the companies have introduced since 2018 the IFRS 9 approach where we need to start providing bad debt provision according to the IFRS rules. So this is the fact that we have seen now this year increase in the bad debt provision. And most likely, it continues in the fourth quarter as well.

Our next question comes from the line of Artem Beletski of SEB.

Yes, this is Artem from SEB. Three questions from my side. So first of all, you talked about some sales shift from Q2 to Q3. Would it be possible to maybe quantify what has been the magnitude of it? The second question is relating to mix side of your operations. So you stated that your mix improved year-over-year. Is it fair to assume that your mix will be also improving going forward as you are talking quite a lot about new product introductions. And maybe just a number, if you could provide, on how much your mix improved in Q3. And lastly, regarding, I should say, big focus on working capital and the cash flow of the company. So in Q3, your inventories were down by 20%, I think trade receivables more than that. Do you see much of a potential to squeeze further or basically improve your working capital in the company?

Okay. So I'll take that shift from Q2 to Q3. So clearly, there was some -- it's difficult to quantify, but I would say it's a single-digit percentage of the total volumes what we talk about. But clearly, there was some shift. Scientifically, it's difficult to quantify. But just to let everybody know that, that did happen. Mix is improving because we obviously have less sales in Russia and then other markets, which are higher value, higher ASP, and that's how the mix improvement is also visible. Currency, of course, is another one which we then see as an item, which was discussed. In terms of launching new products, I think that we are in the moment of launching them. So many of them will be introduced for the summer next year or season next year or -- and so on. So many of those launches don't have an impact right now, but they will have an impact in coming quarters.

And in terms of working capital efficiency. So clearly, that will be our focus area also, not only in short-term but also midterm because maybe in the past, the working capital component hasn't been that actively managed. But now it is in the core of our focus.

And that's part of the story that we move into return on capital employed type of a target setting. And that's why the working capital and asset velocity and all those matters are quite important, and so address them. And of course, Teemu's team has started to work with our business teams quite intensively on these matters.

Our next question comes from the line of Gabriel Adler at Citigroup.

Gabriel Adler from Citigroup. My first question is on Russia. Could you help us understand the level of wind flow in inventories in the distribution channels in Russia following the efforts you've made to normalize stock levels? Because you mentioned further declines will be required in Q4? Will this be a similar level of declines that we saw in Q3? Or are we getting close now to normal levels of inventory in the channels there? And my second question is on the comment of top line being a priority for the company. And can you comment, please, on what this means for margins in the coming years? Because clearly, margins in Q3 were very strong. But do you think midterm, the business is able to recover to, say, 20% plus margin, while at the same time prioritizing top line growth?

Yes. I think if you start with Russia, so we had a plan when we went into the year that we get to normalized inventory level in the pipeline, and we are very much on track to do that. And clearly, we made progress in the previous quarters. And we expect that by the end of the year. Of course, this assumes that the season is relatively normal. It's not -- doesn't have to be aggressively positive, doesn't -- but if it's strongly negative, so it's also has an impact. But basically, we are on track to achieve the target level by the end of the year. When it comes to the margin profile, then obviously, we, as said earlier -- and we haven't gone really looking into strategic targets at this point of time. So we believe that 20% margin can be achievable. We haven't done a lot of working at these times on that one. We will revisit the targets in 2021 when the situation with COVID hopefully is behind us, and we can go back to normalized operation. But at this point of time, we set the bar at the level that 20% can be achieved. But that -- it will be and needs to be confirmed in 2021.

Our next question comes from the line of Henning Cosman of HSBC.

I just have a clarification really when, in your opening remarks, you said that you're still not sure you -- in fact, you expect that the second half this year will still remain below the second half last year. Now it's good, of course, to see you match the volumes virtually of last year, exceed them quite significantly in the U.S. and some regions outside of Russia. I think Teemu also said that pricing should be okay in the fourth quarter. So I was hoping if we could just explore a little bit more where your reservations lie. Obviously, the winter season last year isn't a very difficult comp. You're saying you're ready to take opportunities when the season comes. So is it really just fully attributable to uncertainty around how cold and snow the winter will be? Or are there any particular regions or product segments where your reservations are mainly attributable?

We are basically looking at the environment and, of course, very careful about the COVID and the environment. Obviously, the season hasn't started. So that is always -- but it's every year with us. So therefore, of course, everybody knows that this is something that will come either strong or weaker or normal. But at this point of time, when we went into the second half, we expected that the volumes will not fully recover to 2019 level. We are very pleased with third quarter performance. And what we are saying is that still, nevertheless, we would be happy to be pleased with the fourth quarter performance, but it's not achieved yet. So we have a number of weeks and months to -- and a couple of months to make it happen. And it's sufficient to be careful at this point, simply because the uncertainty in terms of the demand picture is there. Are we ready to grab the opportunities? Yes, we are. Do we have the cost competitiveness? Yes, we have. Do we focus on cash flow? Yes, we do. But nevertheless, the uncertainty and -- that is around us. And having said that, again, I just want to emphasize that we are very pleased with the third quarter performance.

And maybe building on what Jukka just said. We shouldn't be expecting any kind of a similar shift from Q3 to Q4 like we did in Q3 from Q2. So that needs to take into account.

Sorry, guys. That would have been my other question. So when you talked about your customer concentration, this wasn't meant to indicate that there was possibly a bit of a pull forward, where now your concentrated customers have now taken a lot of the sell-in and will potentially be taking a little bit less into Q4 in turn? That's not what you were implying then, is it?

No, we try to run pretty normally. So we have no extra push or anything of the volumes. We run as the customers run. So we match our run to our customers.

Our next question comes from the line of Pierre-Yves Quemener of MainFirst.

Yes. This is Pierre-Yves with MainFirst. I would need to come back on the price/mix versus the raw material development of the full year. Over the first 3 quarters of the year, you have a price -- a very minimal price/mix headwind of minus EUR 4 million. But you had a significant raw mat tailwind accumulative to one of EUR 20 million over the first 9 months. I just struggle to understand how that is possible to maintain and to carry over into the next quarter, into next year? Don't we have to expect at some point that some of the 2 -- 1 of the 2 buckets needs to give, either on the price/mix that needs to go down or the other raw mat that needs to go up or be a headwind. That would be my only question.

Didn't you draw the conclusions? I mean, I understand what you were saying. But didn't you draw the conclusion as well? But on the other hand, of course, it's important that the pricing of our products and the markets is aligned with the market pricing and then when we operate and have competitive raw material costs. So part of that is our own sourcing, part of that is currencies and part of that is where we operate and make the products. And of course, a significant part of our production is in Russia, where the currency is soft.

All right. So if I understand correctly what Teemu said, raw mat will be -- should become a headwind at least for the first part of 2021, correct?

So my comment was for the full year '21.

Full year '21. All right.

Yes. So far, it's difficult to say...

Yes, what will happen. I think Teemu was saying that the latter part of this year will be competitive and then early part of next year, we will see. But then full year 2021, assuming that the economies recover, there will be increased raw material.

For the full year?

Yes, the base. May not happen if things...

Okay. Just one last, just squeezing, if I may. Because the other surprising bucket in your bridge has been obviously volumes, at least for me, but obviously, for consensus as well. Can we be sure that there has not been any inventory building in the third quarter into the network, explaining the very strong 5.5% volume effect, no inventory building there. Nothing you should be concerned about?

I think that this is probably one of the areas where we have tried to be very careful, extraordinary conservative, not shipping into pipeline our inventory. And it's been one of the most important things that we've paid attention throughout our system that the inventories in the pipeline should be quite competitive and at a good level.

Our next question comes from the line of [ Boston Marrokonen ] of Nordea.

Yes. Would it be Pasi Väisänen, Nordea? But -- well, can you please say something regarding the market demand now in October? So has it been about the same than already seen in September or maybe a bit weaker in October, which actually could be the reason for your cautious view for the fourth quarter? And how this in October now is compared to the year earlier period in last year? And maybe, if I may, a couple of more related to the third quarter. I mean, were there any kind of extra items related to corona. So have you actually received some corona support from the state in the third quarter? And if there were, what was the figure? And lastly, regarding the dividend payment. I mean, I hear that you're saying that no further dividend payments is going to be there before the year-end. But is there kind of a technical, kind of, chance to pay something before the next AGM still after the year changes?

The 2 last questions, I can respond. The answer is, on the dividend, no. And also any support for corona, the answer is no. Teemu, October?

So in the -- I would say that in the fourth quarter, the November is also a key sales month. So I wouldn't like to comment one specific month within the quarter.

Our next question comes from the line of Peter Testa One Investments.

Just a couple of questions, please. One is on Central Europe. If you could just talk a bit about the good performance in Central Europe for you and the extent to which this is a broader distribution or how the product mix has worked on there? And then, whether you're getting any comment on reorders or sell-throughs as you serve your sort of Central Europe? And then the second question is just on working capital. You had quite a good move in payables, helping the cash flow this quarter. And you've had brought inventories down from a year ago. If you could just give a sense on what your -- you think you can achieve working capital wise as we go into the year-end. And then lastly, just if there's any comment you can make on the mark-to-market of FX, just to take that uncertainty out as people try and understand the FX at current rates?

So if I start with the working capital part and you mentioned the payables, that is an area where we have been focusing this year in order to improve the payment terms, and that still continues. So we are in the beginning of the journey. And then in terms of working capital, as you know, we have the high seasonality there and especially our trade receivables will go down towards the year-end when the payments are due. So there is a clear change.

Then you asked about the Central Europe, reasons behind the good volume. So obviously, what happened was that we historically didn't have such a good product offer. So obviously, now when some of the products have been launched prior, past year and even before, those are now carrying us today. And based on the work we've done with focusing and improving our activities in the sell-out and helping our customers and the distributions in sell-out has helped our volumes as well. We are quite pleased with the performance, and we expect that the Central European performance continued at a strong level. So in that sense, of course, there was some shift from the second quarter to the third quarter, but overall, the improvements that we have done in our Central Europe with -- under the leadership of Bahri who joined in late 2019, those improvements and benefits are now starting to come visible in our performance, especially Eastern Europe, so clearly, Poland and Czechia and so on, those were good performance.

Right. Okay. And then on the FX, is there any mark-to-market you can give just so you've got some -- you can just take that out of the bridge and just don't have the uncertainty in Q4?

The Q4, there, I think the Russian ruble is the biggest swing factor. And I don't want to comment where the ForEx is going.

Obviously, the ruble is related a little bit on the oil price and so on. So it appears that when the oil price goes up, so ruble gets stronger. And so -- but it's really difficult to anticipate. Maybe the best is to anticipate that they are at the level where they are right now.

That's how I tend to be, that I don't try to guess the coming quarters or months.

No, indeed. That was my question. If you take the current levels, just so we understand what it is here, and then whatever happens, happens, but at least as people try to model the FX impact, if you knew, say, where we are now and the ruble were to stay, what that would mean for FX in Q4?

More or less what you see is what ruble does at current levels.

And we have a follow-up from Thomas Besson of Kepler Cheuvreux.

I understand you don't want to talk about monthly developments. But when we look at Q3, it seems that July and August developed more or less as everybody expected. And then September was phenomenal. Is that true for you as well? Or is it -- has it been a more linear development?

We would say that from our point of view, the development has been more linear than in previous years. So quite a linear development. But yes, typically, there, historically, has been quarter end push, but now there was a more linear development in July, August, September. And that helps, of course, the supply chain in terms of cost and so on, not ideal, but improved.

Our next question comes from the line of Michael Jacks at Bank of America Securities.

Michael from Bank of America Securities here. If I can please just go back to the discussion around raw materials and working capital, notwithstanding the improvement in cash flow from operations against the comparative period, can you please just try to help unpack the seemingly low cash conversion in Q3. I'm starting to reconcile the working capital outflows in the cash flow statement with fairly substantial decreases in inventories and trade receivables. So if you could please just provide some color on that? And then my second question is just in relation to the disposal of the U.S. units in Vianor. Can you just give us an indication of what sort of contribution this made to group EBIT in 2020 year-to-date?

The working capital receivables.

Yes, so the receivables in the third quarter, as you know, the pattern that the receivables are peaking at the end of Q3 and then going down in the Q4 when we collect the money. And then this year what has impacted our receivable development is naturally our sales, which is slightly different than in prior year. So I don't know if that answers your question. But if not, then I will continue.

Perhaps it's on that raw material question. Maybe if I can just ask it another way. Should we then expect a much stronger cash flow from operating performance in Q4 relative to the operating profit result. i.e., will there be some catch-up from Q3?

So we are expecting to have a strong cash flow development towards the year-end.

Yes. Typically, we collect receivables towards the year-end. That's why it's also beneficial to pay the dividend in December.

Our next question comes from the line of [ Mariola Rekki ] of Danske Bank.

Yes. It's Panu Laitinmäki from Danske Bank. I have 3 questions. So firstly, just to understand why the volumes increased in Q3. Can you talk about what products actually were that you served in Q3? Was it summer, all-season or winter preorders? And then secondly, if it was winter that was driving volumes up, as I believe based on your mix, then what's your view? Why did you perform better than your peers who have generally commented that demand for winter tires is lower, especially in Europe this year? And then thirdly, on Russia, I believe there is a change in the tire marking regulation that will be implemented quite soon. What's your view on the impact on the markets from this?

If I start with the mix development, as we commented in our release that the share of winter tire sales decreased, that means that then the summer and all-season were increasing. And that is the case, both summer and all-season increased. And then in the winter, there was a mix between regions. So Russia was down and then North America was up, even though the absolute volume in winter was then flat.

And then you were asking about the competition, talking about the winter season and so on. So obviously, those companies were early -- they made earlier. So I think that that's something that how they saw the market development. We -- at this point of time because the season hasn't really started, so we haven't really seen any strong weakness or any strong upside in the winter. So we are prepared to take the opportunity when it comes. We surely have -- expect to have availability in case it comes in strong and so on. Cannot comment on the competitors we have, that -- what their availability is and so on. But we are relatively well positioned for the winter.

And then you had the question regarding the tire market in Russia. So yes, that is coming into force in a few weeks' time. And even though midterm, as we have said that, it is a positive thing for the established players but at least in the beginning, it will be an operational headache for all the players because of the new regulations and how we can implement those.

More work to ship the tires to distribution and customers.

So you don't expect much benefit for this season yet from that? Or how should we think about that, like in terms of reduced competition and reduced exports to the country?

Maybe not immediately. I think immediately is probably to get the shipments and volumes and then maybe later on when the certain competitors or people cannot meet the regulations, then there may be a benefit. But immediately, no.

[Operator Instructions] And we've got one question coming for you so far. That's a follow-up from Artem Beletski of SEB.

One follow-up from my side. So as you're talking about second half being weaker compared to last year, could you maybe clarify whether you are talking about volume development or basically EBIT level versus 2019?

Talk about the volume development first and then we look at the EBIT with cost and raw materials and prices and so on. But really, what we talk about is the market momentum that how did we see the market momentum when we went into the second half? And so in the second -- in the third quarter, the market was about minus 2% versus prior year. We will see how that evolves in the final quarter.

And as there are no further questions coming through at this time, I'll hand back to our speakers for the closing comments.

Thank you for everybody for participating in this call. Thank you, Jukka, and thank you Teemu. And this ends today's conference call. Have a good day.

Thank you.

Thank you.