Nokian Renkaat Oyj (TYRES) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Nokian Tyres Q3 Interim Report Conference Call. Please note, this call is being recorded. [Operator Instructions] I'll now hand you over to Paivi Antola. Please go ahead.

Thank you. Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 results conference call. My name is Paivi Antola and I'm 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-Karki, the CFO of Nokian Tyres. In this call, we will go through the Q3 results and discuss the recent events, i.e., the agreement for the sale of the Russian operations, which was signed last week and also the new factory, which will be built in Romania, which we announced earlier today. And what I can inform you about already now is the Capital Markets Day and the timing of it, together with new financial targets. We will organize a Capital Markets Day once the Russian exit deal has been closed. But now I'm handing over to Jukka and Teemu.

Thank you, Paivi. Good afternoon on my behalf and welcome to this call. And I would like to go through the presentation -- prepared presentation, the heading is building new Nokian Tyres. Starting in the factory in Romania, agreement for the sale of Russian operations. I move to Page 2 and, indeed, taking the first steps to build the new Nokian Tyres. So we announced earlier today that we will build a new greenfield factory in Romania. All in all, the investment is EUR 650 million. Annual capacity for that amount is 6 million tires. And we have the site which has potential to expand further in terms of capacity and number of tires. We expect that the first tires will be manufactured in the second half of 2024. And we aim that commercial production will start in 2025. And construction of the site will begin in early 2023. This will be the first greenfield zero CO2 emission factory in the tire industry. We also are adding further supply capacity. So we are increasing capacities at Finnish Nokia factory and also in the contractor in the U.S. as early announced, and this continues according to our plans and according to our earlier communication. We have also acquired land and property in Finland to secure opportunity to develop further the Nokian site. This means that property nearby the factory has been acquired by us. This will allow us to open the capacity in Nokia. Those plans are in the development phase at this point of time. And when we are ready, and we are clear with the plans, we will then announce what kind of steps will be taken in Nokia. Also at the same time, we are developing outsourcing options to supply, especially Central European markets. A final point of building new Nokian Tyres is that exit decision, controlled exit from Russia was made in June and during the third quarter, lots of discussion, negotiations and also in the early part of the fourth quarter, they have conducted. And then we announced an agreement for sale on October 28, then we signed the agreement and the debt free cash free purchase price is expected to be around EUR 400 million. The final purchase price is affected by net cash working capital adjustments and changes, of course, in the ruble-euro exchange rate. I move to Page 3. Just highlighting the Q3 net sales and profit. First of all, the net sales were EUR 466 million, minus 6.4% with comparable currencies. Obviously, we see that the currency tailwind was quite strong because our headline sales were higher than in third quarter 2021. Lower passenger car tire supply volumes there -- effect as the imports from Russia to Europe and North America ended in July. Heavy Tyres also had slightly lower net sales due to supply constraints. Segments operating profit in the quarter, EUR 54.9 million versus EUR 96.9 million in 2021. Main reasons lower passenger car tire supply volumes, of course, the factory mix and lower production in Russia impacted our profitability. But at the same time, we were able to increase prices to combat cost inflation. And therefore, we had a higher average selling price of tires. Coming to Page 4, there are some key financial numbers. I call out the few numbers here. First of all, the segment's operating profit percentage in the third quarter 11.8% versus 21.8% in '21. And the first 9 months segment's operating profit at 15.2% versus 19.7% in '21 corresponding period. Segments EPS at EUR 0.26 in the quarter and year-to-date at EUR 1.19. Full year in 2021, we had EUR 1.84. Our balance sheet remains strong. So equity ratio is 64% versus 65.7% in 2021. Cash flow from operations was slightly weaker in third quarter '22. And the year-to-date, minus EUR 323 million versus minus EUR 96 million in '21. Big impact on the working capital is higher raw material cost and also quite high inventory of ready-made tires, which is still in our distribution network. Gearing at 22% versus 15.9% in '21. Interest-bearing net debt at EUR 374 million and capital expenditure at the same level in '22 versus '21 in the first 9 months. Now I hand over to Teemu, and Teemu will talk about passenger car, Heavy Tyres, Vianor financials, and look at the outlook and assumptions. Teemu, please go ahead.

Thank you, Jukka. Let's start with the Passenger Car Tyres performance in Q3, especially our net sales was on a level of EUR 348 million. Reported growth was on a level of 5.6% (sic) [ 5.3% ] growth. And with comparable currencies, the change was negative of 9.5%. Our segment operating profit for the quarter was on a level of EUR 55 million. As we have been commenting already earlier, the lower tire supply will impact and has impacted our net sales negatively, especially in the Central Europe. We have been able to increase our average sales prices with comparable currencies. And especially in Russia, the increases have been significant. Our customers have been securing their availability of tires and now the inventories in the distribution are on a high level. In terms of our segment operating profit, naturally, the lower sales volumes have an adverse impact as well as the changed factory mix due to the lower production in Russia. We started adjusting our cost base in Central Europe, and now we have aligned resources there for the coming quarters sales. Then moving to the net sales development by quarters, you can see here the trend lines -- the sales volume drop is clearly visible there and is significant. And then when we move to the price mix, we can see strong positive development for the full PCT business as well as in the call-out boxes, you can see price mix without Russia, which is also on a strong level. And then in the third quarter, another positive factor to impact that is the changing region mix with the share of Nordic and is increasing and Central Europe is decreasing. Then moving to the bridges. And here, we can see the net sales components, sales volumes minus almost 32%, price mix 22%, and then a strong currency tailwind of almost 15%. And then if we look at our segment operating breakdown, you can see the impact from sales volume and the positive development from the price mix worth of EUR 73 million. It's -- then offsets the material headwind but don't offset fully the -- both material and supply chain impact. And the currency impact for the third quarter in passenger car tire was plus EUR 17 million on the segment operating profit level. And then moving to the Heavy Tyres. Our net sales in the Heavy Tyres business unit was EUR 68 million. Reported development was minus 0.9%. And with comparable currencies, it was minus 3.3%. Here, we can see that the supply constraints impacted the net sales in the quarter. Our segment operating profit was on a level of EUR 9 million. Here we can see the same factors as in Passenger Car Tyres, lower sales volume and then raw materials and cost inflation, so in a headwind in the business. Then moving to the Vianor business unit. As we all know, the third quarter is a seasonally low quarter. And if we look at our top line, we can see that we reached net sales of EUR 76 million, change in comparable currencies 9.3%. And as always in the quarter, we saw a loss of this time, EUR 5 million. Top line is driven with the price increases to combat the inflation. Moving to the assumptions for the full year. As we all know, the war in Ukraine and sanctions have a severe adverse impact on our supply capacity. And it will hit, especially, our Central European area. Overall, the demand for both passenger car tire and Heavy Tyres is estimated to be healthy this year and the raw material and logistic costs continue to be on a high level. Then moving to our updated guidance that we announced last week, Friday, we increased our top line outlook. Now the new guidance is that the net sales is expected to be at previous year's level or increase. No change in the segment operating profit guidance, which has decreased significantly compared to year 2021. And I'm handing back to you, Jukka.

Thank you, Teemu. And just recapping the discussion and presentation also the material in the quarterly release. In the past 8 months since the war started in Ukraine, lots of activities and actions have taken place in the past 8 months in terms of, first of all, to secure that we keep on supplying our customers; secondarily, to secure controlled exit from Russia and working on that; also simultaneous and parallel to that, to identify a site for the new plant and figure the investment plans for the new factory in Romania as well as expansion opportunities in Nokia and keeping on increasing capacity in Dayton as well as increasing capacity in Nokia. All of those have taken place simultaneously parallel during the past 8 months. Now when we have announced that the transaction has been signed in Russia, we're moving to securing the closing of the transaction as well as now that we announced that the plan for Romanian plant is approved, and they will go into an implementation. So there will be a time and period of implementation of these announcements and plans that will come in the coming quarters, of course, quite important. So first of all, to secure that we are able to supply customers keep us supplying them. So we keep on adding capacity and making sure that both Nokia and Dayton plans are running well and adding capacity as planned and also then the new greenfield factory project that will get to a good start as well as that we secure offtake volumes to help our revenue development and customer service in Central Europe. Then closing the transaction to exit Russia, quite an important implementation steps in coming months. We will also ensure that our Vianor and our operations over the world be supplied successful winter tires. Hakkapeliitta 10 is a test winner, is a strongly performing studded winter tire. And our new product R5 -- Hakkapeliitta R5 is also an excellent product, and that has come to market is autumn, and we will ensure that the volumes and capacities of that tire is available to our customers. Business units and business areas continue to implement specific plans in Nordic. It's a high season and important winter season right now, North America, the same and then Central Europe. We have -- as Teemu mentioned, we have reduced our costs, and we've taken cost actions and there also adjusted headcount and the cost level to expected volumes. Heavy Tyres are working on the expansion plans, including Nokia site expansion and Vianor has the high season in this quarter. While doing all that, it's important that we keep cost in strict control and we protect our cash flow. And we are pleased of the achievements of the quarter and year-to-date that at this point of time, when we go forward, we can say that we will focus on building new Nokian Tyres. And the new Nokian Tyres will be a company. Once we exit -- sign the agreement -- close the agreement to exit Russia, we have no operations in Russia, we will be a company that operates in Western Europe and North America. And that is a significant change to our company and building that company will be an exciting journey in coming quarters and years. So thank you for your attention. And I now hand over back to Paivi. Paivi?

Thank you, Jukka. Thank you, Teemu. And now operator, we would be ready to move to the Q&A.

[Operator Instructions] We'll take the first question from Michael Jacks from Bank of America.

I have a few questions, if I may. The first one, could you please provide the current net working capital position on the Russia balance sheet, including cash? And just give us a sense for how much of this, if any, is already factored in redisposal value of EUR 400 million. I'll stop there.

So the EUR 400 million value, that is the enterprise value without debt and without cash. And then there is a factor that I don't -- I cannot comment what is -- then the additional cash and working capital component. But the current net asset as we have indicated in the release, excluding net debt is on a level of EUR 480 million, which majority is our working capital, and that fluctuates during the year because of the seasonality. And then the cash, what we have been commenting already in our earlier quarterly calls at the end of Q3, it was some EUR 50 million.

Clear. And then just with regards to the remaining inventory balance, are ready-made tires exported from Russia that is sitting outside of Russia, are you able to provide some information on the balance -- the remaining balance there?

We can basically comment that in the Passenger Car Tyres, the finished good inventory at the end of quarter 3 was roughly at the same level as it was a year ago.

Understood. And then just with regards to the fixed cost savings or the cost savings in Central Europe that you mentioned, could you give us a sense then, please, for the magnitude of these cost savings that have been implemented and whether or not that we should expect any cash restructuring impacts attached to these?

So the cash restructuring impact is visible in our release, some EUR 5 million to EUR 6 million coming in the coming months. And then the saving is roughly double of that annual saving.

Clear. And then my final question, what will be the earliest date that you will begin to disclose the Russian operation is discontinued?

First, we need to close the deal and then Q3 is naturally in the earliest point.

Okay. Understood. And in the interim, are you able to give us any kind of a sense for the underlying profitability of the group ex Russia, as it currently...

What we have been saying and commenting that Russia has a significant impact on our profit, and it has a twofold effect. First is the supply effect that we have been saying that now when we lose the supply, the cost per tire is some EUR 10 per tire higher without Russia. So there, you can get the supply impact estimate. And then the commercial business impact in Russia is then the second one. And traditionally, it has been also a significant portion.

The final impact on -- especially in 2022 is that we have a quite extraordinary high logistic costs because we took extraordinary measures to transport tires from Russia to Western Europe and North America. And those costs are also in the P&L of 2022 required an adjustment elimination so that we have the Western Europe -- Western Europe profitability.

The next question comes from Akshat Kacker from JPMorgan.

Three from my side, please. The first one on greenfield investments announced in Romania. Can you just talk about the phasing of that capital expenditure over the next 3 to 4 years and also the time frame in which you expect to hit the 6 million tire annual capacity? That's the first one. The second one is on contract manufacturing. How quickly we can access to contract manufacturing for the tires that you cannot produce going into 2023? And are these arrangements already in place? And also, it would be great to understand if you will use contract manufacturing only for summer and all-season tires or for winter tires as well?

Capital outlay of the new plan will be a little bit in this year. So in terms of equipment, mostly in '23, '24, and then a tail end in '25. And we would say that about 60 to 100 in this year, about 150 to 200 next year, 150 to 200 next year and then the tail end in 2025. And expect that volumes will be running at close to full capacity towards the end of '26, early '27.

As we stated in the release, so the first tires will come out at the end of '24, commercial production starts in '25. And then we are in full speed in full calendar year '27.

And the question on contract manufacturing?

Yes, we are working on the offtake, and we expect that the first significant volumes of the offtake will be available in 2023.

And is it only for summer and all-season tires or for winter tires as well?

That we will see.

The next question comes from Giulio Pescatore from BNP Paribas Exane.

The first one on the capacity run rate that you currently have. Can you maybe remind us at what run rate would you close the year in your remaining plans in London and the U.S. And also the second question more on the deal with the Tatneft. How do you plan to get the cash out of the country? I've already spoken to the Russian authorities about this. And did you get an indication that in favor of positive signing of the transaction? Then the third question, if I may. On the winter season, it started on the weakish side so far in Europe at least. Are you worried? Or is it too early to say?

So if I start with the announcement from Friday, time flies. Now the process starts with all relevant authorities. And we expect that with a strong buyer like Tatneft, we are able to navigate through this process. As we all know, it contains a lot of uncertainties, but we do our utmost to repatriate the money according to our agreement. Along the process later, we cannot comment that at this point of time because we don't know.

In terms of capacity utilization, as we've said, that when we don't have -- as we don't have the Russian supply any more, so both the Dayton and Nokia as well as the Heavy Tyres are running flat out in available capacity. And based on our plans in 2022, Dayton is progressing towards that 4 million tires in 2024, and we are very much on track. And Nokia is progressing towards 5 million to 6 million tires, very much on track. Heavy Tyres also capacity fully utilized at this point.

Sorry, in the winter season?

The season -- so we believe that winter season is quite well covered, and we are quite optimistic about the winter season. But obviously, it's early days. So we will see how it evolves. But in terms of product-wise product availability, we are well prepared.

Sorry, can I just go back on your initial point on getting the cash outlook for Russia. In case there were any problems with the process, how do you manage to finance the expansion project? I mean, I guess if you get that EUR 400 million then, we can all see how you finance the first 2 years of CapEx. But in case there were any delays or issues with the process, what are the other options?

As you know, our balance sheet has been traditionally strong. And in this kind of a situation, that is our benefit that regardless with the money from Russia, we are able to finance this EUR 650 million investments in the coming years.

We, of course, were very much focused on the operating cash flow, EBITDA and our gross cash flow EBITDA and will be ensuring a working to make that finance also the operations and investments. So clearly, out strong focus area is EBITDA.

The next question comes from Christoph Laskawi from Deutsche Bank.

Christoph Laskawi from Deutsche. Coming back to the EUR 400 million and working capital from Russia, just to make sure I get this right, so the asset price would be roughly EUR 400 million, and then on top of that, you will get cash for the existing working capital in the plant? Could you just roughly quantify that? Or did I miss it earlier, basically? And then on the outsourced manufacturing or the contract manufacturing, you gave a comment on the business ex Russia when it comes to production cost. Could you give a comment also on how the margin profile of this outsourced capacity would look like, I guess, probably slightly dilutive to your current facilities in Europe and the U.S? And then lastly, on the heavy side, you just said the heavy production is also running flat out in terms of capacity. In the slides, you mentioned that -- in the presentation, you mentioned some problems in the supply chain for heavy. Is that comment then reflecting that all the problems are essentially already solved again and you can proceed quite nicely into Q4? Or should we expect any disruptions also in the last quarter?

Let me start with the Heavy Tyres. Basically, we have in Finland in some other countries as well, high sick leaves in terms of COVID and various things. And so that has caused a little bit of issues on the manufacturing. And this high sick leave rate has a little bit slowed down our productivity and output. We believe that those issues are behind us. And when we go in the fourth quarter, we should not have those issues anymore. But of course, it's something that we want to work on and this is also related to how we see the COVID and various flu things coming in the autumn time or in the winter time. But so far, so good.

Regarding the Russian transaction. At this point, I don't want to disclose more than the cash balance that I mentioned earlier in the call.

Then finally, about the offtake. So obviously, off taken outsource is something that has a different margin growth, but also maybe just, important to keep in mind, that they don't buy any manufacturing assets. So in terms of capital deployed offtake is taken kind of equation, and we follow that based on capital employed and margin growth doesn't buy a lot of assets. So -- but clearly, it's not the kind of profitability that we historically enjoy in our own manufactured products.

A brief follow-up, if I may on that. Is there an indication that you would want to give or can give already with regards to the size of the contract manufacturing I guess, not as big as the greenfield plant that you are currently looking to build, but could it be sizable? Or is it just a small addition?

It will be a stepwise more important addition of our product portfolio. And over time, our plan is that we have 3 manufacturing sites. So Romania, Nokia, the U.S. Dayton and a support factory, we would have a virtual offtake factory. So that will remain as an important element in our manufacturing or, let's say, a product portfolio alternative. And so progressively, we want to develop that long term.

The next question comes from Thomas Besson from Kepler Cheuvreux.

[Indiscernible]. I have several areas that I'd like to ask about. So if that's okay, I'll ask them one by one. First, on the quarter numbers, there are a few things that I don't really understand, maybe you can help. Your Russian and Asian sales are up in Q3. Can you explain how it's possible? I understood you raised prices substantially. And maybe you sold just a lot of tires in the first 10 days of July, but it seems to be difficult to understand. Second question on the accounts. You have record level of inventories and receivables at the end of Q3, can you elaborate on that? And then can you explain the EUR 7 million ForEx boost and whether we should expect something similar in Q4 or whether that was just a pure one-off? That's the first set of questions.

If I start with Russia, there, the price increases have been significant. And that's the main -- also main reason why our trade receivables have been increasing on our balance sheet. Then in terms of inventories, our inventories on a group level have been somewhat on the same level than prior year, but they are clearly higher in the best part. And in Russia, they are clearly lower. So those were the comments to the balance sheet OpEx and pricing.

Yes. Currency tailwind difficult to anticipate. So again, looking at the currencies, it's -- the forecasting there is difficult. But so far, we've been able to enjoy a tailwind in currencies, both in the U.S. dollar as well as the Russian ruble year-to-date and in the third quarter.

Moving to your second topic I wanted to address, if I understand clear -- clearly, with the plan, you're going to have Romania have a key new factory, plus a kind of flexible operation somewhere with your contract manufacturing operations. So you do not plan to build up a fourth factory somewhere, right?

The current plan is that we will have the 3 plants as stated by Jukka, and the fourth one is the virtual factory as we see today.

Great. And lastly, I'd like to come back to the sale. I'm sorry to ask, that's maybe a bit abruptly or directly. I often do that where it's not -- nothing we can do against that. You are the first company, and we look at a lot of companies, that manages to sell the Russian assets to a Russian company for an important sum of money. Most companies we've looked at exited Russia for RUB 1 and were happy to do that. So -- can you explain exactly both legal and ethic consideration of the sale that happened that you've announced on Friday and describe exactly what that next is. You were keeping this asset in Q2 because you feel somehow it could be used for the long end. But now you're selling it. So I'd like to understand that. And also understand what additional write-down we can already factor in. Can we already do that? The difference between EUR 480 million and EUR 400 million, should we assume that necessarily [indiscernible] are going to have to be written? Or is it dependent on the elements you can comment on linked with working capital?

If I start with the last comment or question you had about the possible write-down, as we stated in our release, there are so many different factors impacting the final outcome so that we cannot estimate at this point because there are factors impacting to the process to the timing of the closing, et cetera. So therefore, it is impossible to quantify that at this point of time.

And then selling operation and sustainability of owning an operating factory in Russia after sanctions became impossible. And so therefore, remaining options were considered and then finding a buyer that is not sanctioned and we'll continue making Passenger Car Tyres, because of essence. And we believe that, that's what we found. We did a lot of background work and keep the growth. And this is the outcome.

We will now take the next question from Panu from Danske Bank.

It's Panu from Danske. I have 3 questions. Firstly, on CapEx, thanks for guiding to factory investment well, but what is the maintenance CapEx level without the Russian factory going forward?

So roughly on a level of, I would say, now EUR 100 million, give or take.

Okay. So it's not that much lower than it's been historically?

Panu, as Jukka was commenting earlier, in the coming years, some of the key metrics for us is the EBITDA and also then we match our CapEx spend according to the EBITDA going forward on a cumulative basis.

So also through that mold investments are an important part of CapEx going forward. That will actually skew our investments on CapEx higher.

Okay. Makes sense. The second question was on profitability without the Russian factory. You already commented that. But if I ask it this way that is Q3 a level that's even roughly representative of what you think you could kind of generate in terms of EBIT margin going forward?

You cannot draw that kind of conclusion at all. So let's now come back to that when we have closed the deal and published the restated figures. But as I stated, Russia has a significant impact, twofolds, supply and the commercial side.

We need to clean the numbers because there are lots of noise in our numbers. So that will have to be done for -- conclusions and comparables can be drawn.

All right. My third question is on the Dayton factory, basically, 2 things about it. I mean, you are now saying that you should reach 4 million in '24. But how is it taking so long as the first production -- commercial production started in 2020 already? So have you kind of changed plans in terms of mix or something else in the factory? And then secondly on Dayton, do you have any plans of increasing the capacity above 4 million tires once you get there?

Dayton ramp-up, again is, as somebody was pointing out, it's not a benchmark in terms of a quick ramp up. And clearly, if you remember that, unfortunately, the COVID came and we slowed down our ramp-up. Now currently increasing the volumes and so on are dependent on the equipment. So we are running flat out in Dayton. So all the capacity and capital, which is on the floor is being used, but then the new equipment come in, and we install them and then we ramp up machine by machine. But I think that our plan to achieve 4 million tires in 2024 has been there all along.

Okay. And on the plan of increasing it above 4 million?

I think that, again, as I mentioned, that we basically achieved that the increased capacity in Nokia, and look at the Nokia factory expansions and then we build the new factory and then increased offtake. When we get to 2024, we will then explore the situation and see what needs to be done and what can be done. But obviously, with these actions that we have a significant rebuild in the coming 2 years will take place. When we are in 2024 or late 2023, then we will see what is to be done.

The next question comes from Pierre Quemener from Stifel.

Just a couple of questions, but first off, data, I missed -- what is you say, Jukka, regarding the Finnish factory end of this year and in 2024 regarding the Passenger Car Tyres capacity?

I think the Finnish factory, I said that we have acquired real estate next to the factory and that, historically, we didn't have the opportunity to expand the footprint in Nokia because we were land restricted. Now we have acquired real estate and we have opportunity to expand the Nokia factory and increasing the size of it and working on the plans. And as soon as we have the plan ready, then we'll get the Board decisions and then we go ahead. So this is -- we are working very much on Nokia expansion.

Yes. But end of this year, what will be the actual capacity of Nokia?

I didn't say anything. I said that it was -- but...

Okay. I'm Sorry, I didn't [Indiscernible] anything.

I didn't say anything. I would say we are working towards EUR 5 million to EUR 6 million in our plan as agreed and we are installing new [ inventories ] in Nokia in the latter part of this year and then prepare for next year, capacity increases.

Okay. That's fair enough. I have 3 questions. One on volumes development, Q3, possibly Q4, and into next year. How much of the volumes of the shipments you made in Q3 were made out of inventories and how much were made out of, I would say, regular production from Nokia or Dayton?

So far this year, our inventories are at the same level at -- roughly at the end of Q3.

There is no drawdown on inventories? No draw down on inventories? Okay. And last on Russia -- sorry, just to go back to the topic again, I would have 2 questions. Like raised in a previous question, you still had significant revenues from Russia in the third quarter, close to EUR 137 million in revenues. How should we think about the fourth quarter regarding Russia? And next year, I would suppose that there will be no longer Russian revenues, right?

When we sign the deal, but we still have the operation. When we close the deal, then we have no operation and we do not consolidate anything from Russia, except, of course, the final impact of the purchase price. But between signing and closing whatever we sell or deliver from inventory or manufacture in Russia will be part of our P&L. But sufficient to say that volumes, as you see, that the first 9 months, the share of Russian factory in our production has significantly reduced and will be at low levels at the end of the year -- towards the end of the year and until the closing.

Okay. So Q4 should be basically the contribution from Russia in terms of revenues and profitability should be lower than what we saw in Q3, right?

Well, again, we come back to the seasonality that some of the tires that are in inventory or warehouses in Russia were made in early part of the year for winter season of this year. And those, of course, will be delivered to retail and distribution during the quarter. But again, it's not at the same level as previous year or what has been historically true.

Okay. And last question regarding the asset transfer. Honestly, I just tried to understand how you manage that kind of magic to monetize those Russian assets in a country which is under heavy sanctions in minus income, both the EU and the U.S. But having said this, when you close the deal, will you be able to immediately repatriate the cash? Or can we assume that it could be segregated somewhere in Russia until the war ends and then after you will be able to repatriate the cash, if at all?

In its simplicity, we don't close the deal before we have the money.

The next question comes from Artem Beletski from SEB.

Maybe I can start with a couple of questions related to investments. And firstly, starting with Romania. So you actually stated the risk scope for further expansion beyond 6 million tires. So could you maybe talk about this basically possible at that side when it comes to potential Phase 2 or Phase 3? And could you also confirm that CapEx of EUR 650 million also includes mix in capacity investments on that side? And then just a quick follow-up relating to the discussion what comes to first capacity expansion and basically land acquisition in Finland. Is it basically relating to Passenger Car Tyres where you're looking potentially to increase capacity? Or is it also Heavy Tyres related?

So maybe if I start with Romania, so yes, it's a full business system. So including mix in tire building as well as all the other distribution, et cetera, et cetera, at year end. So EUR 650 million covers all that. A good rule of thumb is that is EUR 100 million per 1 million tires if you think about how the investment can be quantified. Also, the site allows tripling the volume if we go that route. But I think that our learning -- recent learning from Russia country risk and having all the eggs in one basket is probably a good guidance that we will not do that kind of an expansion. We may consider something else on that side or distribution or other things, but we will not build a new Russia in Romania. We will make sure that our production footprint will be more diversified, and we have alternatives and sources of tires from multiple geographies, including also then the virtual factory offtake. So I think this is the recent learning. Hopefully, you all understand that this is a very important learning for all of us. Then Nokia expansion, I believe that, of course, Heavy Tyres is a main beneficiary of that, but at the same time, as we are installing new equipment in Nokia for Passenger Car Tyres right now and towards the year-end and be available for next year. So obviously, the combined of Nokia will then have a higher output of the Passenger Car Tyres as well as Heavy Tyres.

Okay. That is very clear. And then maybe just following me some questions to Teemu relating to financials. So the first one, looking at the EBIT bridge in Q3. So there has been quite substantial negative item relating to supply chain of more than [ EUR 50 million ]. Could you maybe a bit more discuss what is behind this negative development? Is it still basically higher logistical expenses as you have mentioned in Q2? And then the second question is relating to price mix development, excluding Russia, up 28% year-over-year. Could you maybe indicate what is a portion of the mix in this development as I guess you have been more selective, for example, in Central Europe when it comes to deliveries.

Starting with the supply chain basket there, the 2 biggest drivers are, as we have been discussing earlier, the logistic warehouse and that kind of stuff, plus the factory mix now when we don't run our Russian factory with full speed, the negative delta is visible there. Those are the 2 main factors. And then you were asking about the price mix.

Price mix.

Yes. So in the price mix without Russia, as I stated, that the region mix has clear impact due to the reason I said earlier, so when the share of Nordics is increasing and the share of CE is decreasing. That will be then the end result that we see here in our price mix without Russia, not to quantify that more precisely.

As there are no further questions, I would like to hand the call back over to your host for closing remarks.

Thank you. If there are no additional questions, then I would like to thank you all for participating, and have a good day. Thank you.

Thank you. Have a good day.

Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.