Nokian Renkaat Oyj (TYRES) Earnings Call Transcript & Summary

Good afternoon from Helsinki, and welcome to Nokian Tyres Capital Markets Update 2023. My name is Paivi Antola. I am heading Nokian Tyre's Investor Relations, and I will be hosting this event today. Today, on the agenda, we will have 3 speakers. We will start with Jukka Moisio, the President and CEO of Nokian Tyres, who will talk about how we are building the new Nokian Tyres. Jukka will be followed by Adrian Kaczmarczyk, Senior Vice President, Supply Operations, who will be talking about capacity, supply chain and sustainability. And the third speaker will be Teemu Kangas-Karki, CFO, and he will talk about our financial ambitions and delivering sustainable shareholder value. [Operator Instructions]. We are finishing the event around 5:00. So after the presentation, we will take the questions on Q&A session. But before going to the prepared presentation, let's quickly cover the Q1 results. So Jukka, please go ahead.

Thank you, Paivi. Welcome on my behalf as well to Nokian Tyres Capital Market Update. And indeed, let's start with the Q1 results and our net sales segment. Net sales were EUR 236 million, and that's 25.1% down in comparable currencies. Segment's operating profit at minus EUR 14 million versus EUR 34 -- EUR 35 million in 2022. The main topic, of course, was the sale of Russian operations that was completed in March. And at the end of the quarter, when we look at our balance sheet it continues to be strong. So that's in summary, our quarter 1.

And then we could go through the Q1 a little bit more in detail, taking some questions that we have received during the quarter after the full year results of kind of the most frequently asked questions. And here, I would like Teemu to join the Q&A.

First, about the guidance, what we have Teemu, can you explain the logic why the second half is expected to be stronger than the first half?

Happy to do so. As we have been discussing the lack of supply in our earlier call, that is the main reason that we don't have, as an example, in the first half, summer tires available that we could sell to our customers. Then in the second half, we are, in addition to our own capacity getting from our contract manufacturing partners supply for Q3 and Q4, that will then help to increase our top line and improve our profit as well.

And then if we continue with the outlook. And maybe this is for you, Jukka, Heavy Tyres. How would you describe Heavy Tyres outlook for 2023?

Heavy Tyres started the year strongly. So the top line net sales increased, profitability at 14%. However, the volumes were down. So the net sales progress came predominantly from higher net selling prices. We see that the outlook is getting more uncertain, and this is driven by the fact that economic -- macroeconomic outlook is more uncertain and at the same time, the interest rates are going up. So therefore the investments in capital equipment Heavy Tyres supplying is more uncertain.

And still on the outlook, raw material prices, Teemu how do you expect raw material prices to develop this year?

On a full year basis, the raw material unit cost for Nokian Tyres that is expected to increase from year '22. If we then look at on a quarterly level as reported in our release, we have already gone through that peak quarter. So in the first quarter, the material unit cost started to decrease, but we are still clearly on a much higher level than in the first quarter in '22. Then looking to the balance of the year, we are -- or the cost level will be plateauing on this level. And remembering that in the first half, we still have the raw material in our inventories that we purchased in the year '22.

And still staying in the guidance, Teemu, what's your guidance for CapEx this year?

The CapEx guidance is clearly above EUR 300 million level as we are starting to invest to the Romania factory in the later part of the year.

And one more question before we go to the actual capital markets update presentations. Jukka, now after the sale of Russian operations has been completed, how about the second dividend installment payment? Is that now more likely?

As I said, at the end of quarter 1, our balance sheet is strong. So we did a very successful exit in terms of getting money to our balance sheet from Russia. So therefore, when we start the year after quarter 1, we are in a solid position that dividends are being proposed and secured. And also, as we indicated in our long-term ambitions, we want to remain as a good dividend payer, and this is very much what we want to do, and this is our ambition.

Thank you, Jukka. Thank you, Teemu. [Operator Instructions]. But let's now move on to the actual capital markets update.

So starting the presentation. Indeed, we promised that we will have a capital markets update when we've completed the exit from Russia. So now this has been achieved in the month of March. The money is on our balance sheet, and we can conclude that at the end of the quarter, our balance sheet is strong. And so therefore, it's a good moment to reflect that what our ambition's going forward and how will Nokian Tyres build the new Nokian Tyres in coming months and quarters and years. But the main line is that we want to go back to EUR 2 billion growth track. So we were about to achieve that in 2022 before the war in Ukraine broke out. However, this is a very important target for us, and we go for that growth in coming years. We have a clear strategy, being focused on our core markets and core products and to reinstall the growth. We believe an experience at all that the best way to have a profitable growth and profitable strategy is to focus on the core product, and this is very much what we want to do. And so therefore, serving the markets in Western Europe, Nordics and North America, based on our new investments. And new investments and opportunities will be dedicated to these markets. The new capacity, which we have initiated, will include comprehensive measures to build new capacity. It's consisting of a new plan as well as increase in Nokia as well as the completion of Data Factory. We have a strong team, and that team has been through very demanding times, not only in 2022 when we had the war in Ukraine, which continues even today. But also in 2020, when we had COVID and strong recovery after the COVID and the strong demand for tires in late 2020 as well as in -- throughout the year 2021. Our team is capable, experienced and have been through multiple situations and changes and has been responding in a very good way to these challenges. And that team is very much intact. And so therefore, ready to go to next battles and next opportunities to grow the company. Then we have -- when we look at the 2022, the reported net sales were EUR 1.8 billion. But if we look at the restated numbers, we were at about EUR 1.35 billion. In terms of segment operating profit reported was 12.5%, but restated number was EUR 18 million, 1.3% of net sales. We had some extraordinary costs included in our segment operating profit. And Teemu will come back to those ones in his presentation. When we look at the personnel at the year in 2022, including now the Russian team, we had 4,500 employees. But when we restate and exclude the Russian operations, we start -- the starting foundation, the starting team is 3,300 employees at the end of 2022. The important thing about our financial situation balance sheet is that our gearing is at the end of March, 2023, 3.3%. Equity ratio is almost 68%. Our interest-bearing net debt at EUR 47 million, which includes about EUR 130 million of leasing -- IFRS leasing liabilities. So practically, we are debt free when we start our voyage to build the new Nokian Tyres. In terms of net sales, again, restated segment's net sales. Passenger Car Tyres in 2020 were about EUR 800 million. Heavy Tyres at about EUR 271 million and Vianor EUR 362 million. In addition, we had about EUR 93 million of internal sales between the units. So all in all, EUR 1.35 billion in external net sales. If you look at in the countries which we serve, Nordics is 54% of our net sales; other Europe, 22%; and Americas, 23%; Canada being a very significant market for us going forward. Other countries account for 1%. Our journey towards EUR 2 billion net sales and strong profits will consist of important steps in Heavy Tyres as well as in Vianor and most importantly, in Passenger Car Tyres. Heavy Tyres, our sales estimated, we want to continue that above market level growth. We've been able to achieve that in the past years, and we have an ambition to grow the Heavy Tyres net sales to approximately EUR 400 million by 2027. Also Vianor at EUR 360 million in 2022. We expect that, that number will be EUR 400 million or more in 2027. And then in Passenger Car Tyres, where we start in 2022 at the level of EUR 800 million, we expect that, that number will be approximately EUR 1.3 billion in 2027. Now we have divided the Passenger Car Tyre voyage into two different phases, one is the investment phase and the second one is the growth phase. The investment phase has started already in the beginning of this year. In fact, some of the decisions were announced already in 2022, and some of them are ongoing since -- before the time of last year. So the important steps in investment phase are the capacity increase in Finland, which is very much ongoing in Nokia. In fact, the equipment has been installed, and we are now achieving improvement and increase in volumes in Finland. U.S. factory completion, and Adrian will talk about that. Indeed, we are installing the equipment and hiring people in the U.S. right now in order to complete that growth phase during this year and then achieving increasing number of tires and higher volumes in 2024. New factory in Romania. This has announced -- this we announced late last year, and we are in the phases to initiate and start the investment activities in Romania in terms of installing or ordering the equipment and starting the construction. And Adrian will come back to this one little bit later. And the fourth element of our investment phase in Passenger Car Tyres is growing contract manufacturing. Late last year, we announced the first contract, and we are working on developing other opportunities and alternatives to increase contract manufacturing in 2023 and in '24, so that we get significant volume out of that in coming months and quarters. In growth phase, from 2026 to 2027, we will increase our market penetration, build our new products. This increased capacity, which I mentioned and enhanced operational capabilities, which means that we will improve our operational efficiency, our cost efficiency and that we ensure that when we get to higher volume and bigger net sales, we also have a corresponding cost efficiency in our company. We have updated our financial targets for the next 5 years. And if I start with the net sales in 5 years' time, our net sales -- our ambition is EUR 2 billion. Between now and that time, we will grow sales in line with the capacity increase. So step by step when the capacity becomes available, and we are able to make more tires, we will then increase the sales. Also, as I mentioned, the contract manufacturing will help us to drive the top line. Profitability. Our ambition is segment's operating profit at 15%. We have also -- we will also target segment's EBITDA in the range of 23% to 25% in 5 years' time. That shows that when we hit our 25% target, indeed, our depreciation load is quite significant because we have invested in 2 new factories. So Dayton ongoing and Oradea, Romania, ongoing. We have a significant depreciation amount between the segment's EBITDA and segment's operating profit. However, when we hit 25% segment's EBITDA, it means that our absolute EBITDA will be EUR 500 million. And that means that it's the highest number that we, as a company, have ever achieved. In between, when we start in '23, and we have our journey towards '27, we aim to have a segment's EBITDA more than 15% starting this year. That also means that our segment's operating profit will be high single digit, again, reflecting that the depreciation load in our company is quite significant between EBITDA and segment's operating profit. We have also a new target, which is capital structure. Our net debt segment's EBITDA. Our ambition is to be between [indiscernible] 1 and 2 starting this year. And then also when we achieve our growth phase '27, we expect to be at the same level. So looking at the numbers and if -- and when our EBITDA is 25%, so EUR 500 million. So net debt will be somewhere between EUR 500 million and EUR 1 billion. That will secure that we are in a position to pay dividends. So our dividend policy is unchanged. Our target is to pay at least 50% of net earnings. We are creating a balanced and scalable manufacturing network for Passenger Car Tyres, and this is a reflection, of course, that the Russian operation has been divested. And we need to recreate the capacity and capability in Passenger Car Tyres. So we will have a USA data factory, which is about 25% of total own production. In Finland, Nokia, about 35% of own production; and in Romania, Oradea, about 40% of own production. Own capacity is targeted to be about 15 million or higher tires in 2027. Obviously, we invest in capital equipment, and then we work on continuous improvement, productivity gains, waste reductions, scrap reduction, throughput improvements and all those important elements of manufacturing excellence that will help us to create more capacity and supply more tires. We will also have a virtual factory, which is contract manufacturing. And we will complement and expect to complement our own manufacturing in -- with the virtual factory. We target about between 1 million and 3 million tires in coming years, and that will be remaining element of our manufacturing network in the future. This way, we create a more balanced and scalable network. It is also more diversified, and it's a learning from the Russian situation where all our eggs lay in one basket. Now we will work with the manufacturing network that is more diversified, more capable and can supply continuously in years to come. Our company is very much proud of its product portfolio. Right now, as we speak, we have one of the best product portfolio's ever. We have leading winter tire products in Hakkapeliitta 10, in R5, [ friction ] tire, also very successful summer tire lineup in Finland. And we -- and very good products in our Heavy Tyres. And we want to ensure that, that continues. And therefore, here, I have a short video talking about the products and product excellence. [Presentation]

So innovation comes from new product, new materials, but as we rely on our growth and on our future organic investments, so hand-in-hand with that will go excellent products, continued product development and being at the forefront in product performance. Now look at the Passenger Car Tyres, Nordics and North America, are on track. And now I compare it to 2021 Capital Markets Day which we held in August, if I remember right, August 2021, where we said that the Nordics will strengthen our #1 position. This is very much on track. It is based on high quality products, best possible product availability, strong distribution via our Vianor and customer loyalty. The same way the North American ambitions are on track. So we said at that time that we will grow the sales by 100%. We are on track on that. It will be driven by safeguarding the Snowbelt business, growing in all season and expanding data and capability to produce the North American products. In Central Europe, ambitions have changed from 2021. And in the beginning, we want to safeguard our market presence. So our own products, our manufacturing subcontracted products. So our partner network supplying them and then grow later on when we have our own capacity capability available. So there is a revised target. We will prioritize customers and channels. We clarify distribution and product portfolio, and we have streamlined the operations. In Heavy Tyres, we want to continue on a strong growth track. We had in the previous Capital Markets Day 2021. We -- one, we had a target to increase our capacity to 32 million kilos by the end 2023, 50% up from 2018. Now we have a new device target for Heavy Tyres. We want to grow the sales to EUR 400 million by 2027. That means that we strengthen our distribution in Central Europe and North America. We will widen our product portfolio, focus on forestry, agri and on road and develop our digital capabilities. On the back of that, we also seek to invest on capacity expansion in Nokia to supply that volume that is needed to EUR 400 million net sales target to be achieved in 2027. Vianor is an important contributor to our strong Nordic positioning. We aim to have EUR 400 million net sales in Vianor by 2027. We will maximize Nokian Tyres sales. We also delivered positive results on a stand-alone basis. And we aim that Vianor remains the largest distributor for Nokian Tyres in the Nordics. And right now, we have 173 owned service centers, and we expand our tire hotel business, which is an important part of Vianor. And the ambitions and targets for Vianor are on track. Industry benchmark, we want to set industry benchmark on sustainability. So we have important targets, main targets in sustainability. One is safe and ecofriendly tires. So our ambition is to ensure that the share of recycled and renewable material -- raw material in our tires will be 50% by 2030. And new recycled material has taken into production use in 2022, and that's carbon black. Climate. We reduced our CO2 emissions from tire production by 50% by 2030, and we achieve net zero greenhouse gas emissions by 2050. And 43% decrease from base year of 2015 has been achieved in 2022. In safety, we want to decrease the accident frequency. So LTIF from 8.3 in 2018 to 1.5 in 2025. In 2022, we had 3.2, which is a record low level. And that means 3.2 accident per 1 million hours worked, 3.2 accidents that led to hours away from work in -- per million hours worked. In human rights, sustainability audit of 100% of significant high-risk suppliers by 2025 and 83% of those audited in 2022. And then final important target personnel well-being. We want to develop that topic -- that item and equality score in the personnel survey was 66 versus 65 in 2021. So building new Nokian Tyres, in summary, we have a solid foundation at the end of quarter 1. We had a solid balance sheet, and we have a strong clear plans to get back to EUR 2 billion growth track. We have ambitious new targets in financials. We have ambitious targets in sustainability and want to maintain our leadership and sustainability. And most importantly, and no plans will be executed without a strong team. We have a strong Nokian Tyres team. We've been through demanding times in 2020, also in 2022. And we are ready to have new plans and new opportunities in '23, and we aim to have EUR 2 billion of net sales in 2027 in 5 years' time, strong profitability and also remains as a good dividend payer throughout these years. And here, I pause and let Adrian to continue with his presentation.

Good afternoon, and also welcome on my behalf. What I would like to tell you and show you is, what we are doing in supply operations to support our growth ambition. So basically, we are having 3 distinct priorities. And what is important here is that we are expanding our capacity in our existing factories and are building a new factory in Romania. Furthermore, we will renew our supply chain processes and upgrade a more than 20-year old ERP system to create end-to-end visibility. And we are committed to sustainability and want to remain the leader in the industry. We are particularly proud of building the first zero CO2 emission factory in the tire industry. The Romania factory will have a capacity of 6 million pieces, and we have options to further expand our capacity in the future. The tires produced will be winter, all-season and summer and will meet customer demand and requirements for CE market. for example, larger rim sizes for EV and SUV cars. Furthermore, the Romania factory is designed for high productivity and automation and has the flexibility to respond to market requirements. We will employ around 500 individuals in the -- at the end of the first phase expansion. When looking at the time line, I would like to share with you the high-level milestones. We will have our groundbreaking ceremony on March 11, and the target is to build the first tire in the second half of '24 and start commercial production in '25. Why are we confident to achieve this? First, the machine ordering took place in the end 2022 to ensure that long lead time machine deliveries are secured; second, we are already partnering with recruiting agency to prepare for the hiring process; third, our permit application is filed, and we expect our first construction permit to be approved still in April, although it means this month; and last but not least, we have a very proactive risk management process in place, and the staffing plans are ready and support from Nokia and Dayton will be organized to ensure we are able -- or we will be able to meet this challenging and tight time line. So as we heard from Jukka already, we just finished our capacity phase 1 expansion in Finland in Passenger Car Tyre production. And Nokia will remain key supply factory for Nordics market and North America winter tires. And Nokia is also our main hub for R&D activities. Recent land and property acquisitions enable further expansion options, both in Heavy Tyres and PCT. As you can see, we are currently expanding our capacity in Dayton. We will finalize our first investment phase in the U.S. by end of this year and ramp up our U.S. factory to full capacity starting in 2024. The expansion will improve our production capabilities to support growth in the U.S. market. Our U.S. factory will continue to reduce CO2 emissions and is the sustainability benchmark in our manufacturing footprint. As we continue with contract manufacturing -- and as we heard already, contract manufacturing is -- or our contract manufacturing strategy is supporting the CE market with dedicated winter, all-season and summer products. Two contracts have been already signed. So we announced the cooperation with Century last year in December, and we have signed already a contract on the all-season product. Summer product testing negotiations are ongoing. And as we are known and recognized for our tire quality and performance, our contract manufacturing partner are following and adhering to our quality standards and requirements. Our partner are audited on a regular basis. And rigorous tire quality checks are in place to ensure the quality we expect. When -- on our supply chain side, we are moving away from manual activities, which are not connected and digitalized with no end-to-end visibility. We are replacing a 20-year-old ERP system, applying state-of-the-art technology to improve efficiencies and costs. And this ultimately will also improve our ability to better service our customer. Operational activities will complement process work, for example, aligning logistics networks to improve service to customers. Customer and supplier collaboration will create early visibility on demand changes and therefore, enable supply chain teams to become more agile. What this means is that we are and will improve cost efficiency and lower working capital requirements, means to improve our inventory situation and inventory terms. We have been doing a lot in sustainability over the last years. And sustainability has been one of our key priorities for a long time already. As you can see, some of the achievements over the last years. But now we will build the first zero CO2 emission factory in the world, and this is what makes us very proud to achieve and to deliver. When talking about safety, we heard our improvement from Jukka on what we have done. And people and safety is our main priority. And we have done an excellent job to reduce the number of incidents and will continue to do so. Why has this improved? We have made safety a key priority and engage with our workforce in a collaborative way to positively impact safety behavior. Obviously, the journey continues. Let's talk about products. We have -- you've seen the concept tire. And we have proven to build this concept tire out of 93% recycled and renewed material. The target obviously is to increase the amount of renewable and recycled materials by 2030, up to 50%, and we are very confident that we will achieve this. When talking about climate and reducing CO2 emissions, we are proud to be a front runner in sustainability in the industry and reducing CO2 emission has been really a priority for us. This is a great motivation to raise our ambition and continue to reduce our carbon footprint. Our new factory in Romania will be a lighthouse for the industry and will help Nokian Tyres to further reduce our CO2 emissions and carbon footprint in the future. So let me now briefly recap and summarize. So we are -- first, we are aggressively expanding our capacity in Dayton and Nokia, and we'll build a new factory in Romania; second, contract manufacturing agreements will complement our growth strategy; and third, our supply chain processes will be upgraded and will make us more agile and cost-effective; and last but not least, sustainability is an integral part to our business, and we are committed to remain the leader in sustainability in the industry. And with that, I will hand over now to Teemu.

Thank you, Adrian and Jukka. Let's move to my section. With those activities that were shared with Jukka and Adrian, we are committed to deliver growth and sustainable shareholder value in the coming years as well. We have a solid financial foundation on which we can build the future of new Nokian Tyres. We have a long track record of profitable growth, showing solid growth, both in Passenger Car Tyres and Heavy Tyres. To call out some of the data points. In Heavy Tyres, net combined average growth rate for the net sales was on the level of 10% between 2016 and 2022. In Passenger Car Tyres, in North America, the compound average growth rate between 2016 and '21 was on a level of 9%. And then if we take into account the year '22, it was clearly above 10%. Our Passenger Car Tyre supply was impacted already last year in '22 negatively and therefore, influencing our Passenger Car Tyre net sales accordingly. In Passenger Car Tyre business, as we all know, winter segment has been our core and will be the core in the coming years. In our strategy, we have chosen attractive niche segments where we can sustainably generate attractive margins. Due to this, our cash conversion is strong and has led to a situation where we can invest and pay solid dividends and still being in a net cash position with a strong balance sheet. This is one of the strengths when starting to build Nokian Tyres. If we briefly look the impact of exiting Russia for Nokian Tyres. You all know that we had a significant factory in Russia producing some 80% of Passenger Car Tyre products. Now with those activities discussed with Adrian and Jukka, we are ramping up and finalizing the capacity expansion in Finland, U.S. and Romania. The volumes will bottom in year 2023 and start gradually increase after that. Our average sales price will be significantly higher without Russia and, therefore, partly offset the volume decline in our total net sales. If we zoom into the transaction itself that we were able to close in the first quarter. The sales price for our Russian business was EUR 285 million. And the result for the discontinued operation was a loss of EUR 333 million. And if we break down this number, the profit from the sales itself was on a level of EUR 209 million and the result in Russia for the beginning of the year was minus EUR 2 million. On top of that, in connection with this transaction, we also then released the translation difference from -- that has been recorded in the other comprehensive income to the profit and loss statement worth of EUR 366 million. This negative EUR 366 million has been recorded in our equity in the previous year. So it didn't have any impact on our equity. These were the numbers on our group level. But if we then look at the transaction on a company level. It means that with this transaction, the distributable funds in the parent company are expected to increase approximately EUR 125 million when we have been able to move the result from our holding company to the parent company in the coming quarters. So this will increase our distributable funds, which were at the parent company at the end of Q1, EUR 710 million. Then looking at our restated financials, excluding Russia, and here, you can see what is the starting point for year 2023. Our net sales was on a level of EUR 1.3 billion. Our segment's operating profit was EUR 18 million. Good to remember, as discussed in the Q4 call, that last year, this segment operating profit was negatively impacted of the extra activities by which we were able to secure a better service level for our customers. And those extra costs were on a level of some EUR 60 million extra freight, warehousing, et cetera, logistic costs. And the personnel without Russia at the year-end last year was on a level of 3,300 employees. Then looking to Q1 numbers from the balance sheet point of view. Our equity ratio is very solid, almost 68%, and our gearing was on a level of 3%. Good to remember that our interest-bearing debt, which was on a level of EUR 47 million includes the leasing liabilities of EUR 130 million. So if we exclude those, we were in a net cash position in the -- at the end of Q1. We will return to the growth path with our 4 strategic programs, completing the capacity increase in Finland and in U.S.; and progressing in our new greenfield factory investment in Romania, which is complemented the growing contract manufacturing, as discussed. At the same time, we continue to provide world-class products and services to our customers. And we have, at the moment, most likely the strongest portfolio ever that we are able to sell to our customers. Together with these activities, we want to improve our end-to-end processes and systems to meet our customer needs that are changing, as we all know, and at the same time, improve our cost efficiency in every area where we operate. The foundation of our success relies on our product quality, our safety of the products and sustainability. Here, you can see the updated financial targets that we released today. As said, our dividend policy is unchanged and -- which is that we will pay dividends of at least 50% of our net earnings. And if we look at our track record, we have clearly exceed our dividend policy in the past years, and we want to do that in the coming years as well. If we then look at our new targets, it's good to understand these 2 phases, the investment phase that starts from year 2023 going to the '25 and then the growth phase. In the investment phase, we are growing our top line in line with our capacity expansions. At the same time, it means that we will start gradually improving our profitability. And this year, our guidance for segment operating profit as a percentage from net sales is between 6% to 8%. And during this phase, we are anticipating to be on a high single-digit level, meaning that from the segment's EBITDA point of view, we should be above 15% level taking into account our depreciation, which is some 9% point. Then in the capital structure target, we will naturally be in our net debt segment's EBITDA target from 1% to 2% due to the investments. And then going to the growth phase, where we will target this net sales of EUR 2 billion and segment's operating profit at the end of the period around 15%. It means that our segment EBITDA would be then, during this phase, in the range of 23% to 25%. And when our segment's EBITDA starts to grow, we still want to maintain our net debt to segment's EBITDA target between 1% to 2% meaning that either dividends are clearly increasing or share buybacks are introduced or other activities in order to be within this range. Here, you can see an illustrative picture of our journey, how we will go to the EUR 2 billion net sales. This picture starts from year 2021, which was the normal year before '22. As we all know, we will have a significant headwind from the volume drop, which we will then complement with the growing contract manufacturing and increasing capacity in Nokia and in Dayton and the improving price mix. We have been implementing in the previous quarters, significant price increases plus our geographical mix impact positively to our net ASP. In the growth phase, the share of contract manufacturing will be the flex item. In the past, we have been saying that our Finnish factory has been the flex factory. In the coming years, this role is given to the contract manufacturing. And that will balance possible fluctuations in the demand. In terms of ASP, we expect that to be neutral and clearly higher than in previous years. If you look at our factory mix on the left-hand side, there, you can see the development from year '21 to our target level at the end of '27. We are finalizing the expansions in Finland and U.S. And as we heard from Adrian, our U.S. factory is expected to run at full capacity next year '24. The contract manufacturing will have the role as a virtual factory. And we are expecting to get some 1 million to 3 million tires annually. This year, we are expecting to be on a level of approximately 1.5 million. And then at the end of the period in 2027, Romania will overtake Finland as the biggest factory in output volume. If we then look at our product offering development. Winter tires will remain the core category, as I said in the beginning of my presentation. And the share of all season will grow according to our plan. And now short term, the summer is decreasing due lack of supply. We all know how the product demand is developing. The share of EVs are growing and premium tires and higher rim sizes, their demand is increasing, which we clearly want to meet with our new factory setup and our product offering for the coming quarters and years. Here, you can see the slides that we have been showing you since 2018 and '21 in our CMD, Capital Markets Days. You see the development from -- through the lenses of region net ASP, region gross margin and category margin. And as said, our net ASP for the group will grow with the activities that we are performing and the changing geographical mix and then the factory mix. And lot of our Russian factory naturally then decreases our region, gross margin and category margin. Meeting the new targets that we have set for ourselves in terms of profitability being 15% at the end of the growth phase for segment operating profit. Then few words about our material cost development that I already commented in the beginning of the call. Year-on-year, we see that the material cost will increase despite the fact that in Q1, the material cost started to decline from Q4. But as I said, the Q1 in '22 was on such a low level, it will keep the full year material cost level higher than '22 with the fact that we have, in the first half, still raw materials that we have purchased last year with the higher cost. The positive thing is that in the replacement tire market, we are less price sensitive compared to the market in the OE segment. Then moving to the Heavy Tyres, that is -- that we expect to continue on a strong growth track during the coming 5 years. And the new target is to reach the net sales of EUR 400 million. The segment operating profit is expected to increase both in relative as naturally in absolute terms. The growth drivers are strengthening distribution in Central Europe and North America and focus on the aftermarket and having the right sales teams in place. We will finalize the capacity from 20 million to 32 million kilos, and we are in a process to explore possibilities to further increase capacity in Nokia. On top of that, we will widen our product portfolio and develop further digital services and our capabilities for services and product development. If you talk about our capital deployment, naturally, the new capacity is #1 priority for Nokian Tyres. Having said that, with a strong balance sheet, it enables the dividend payments also during the investment phase. We are improving the profitability with the increase in sales and our segment's EBITDA is growing more linearly than our segment's operating profit as a percentage of sales due to the fact that our segment operating profit is impacted by the increasing depreciation. And therefore, the segment operating profit margin is not developing linearly as our segment's EBITDA should be. Naturally, we continue working with our working capital. We are focusing on the balance sheet efficiency. And we are expecting that our asset velocity should be at the level of 1 at the end of the growth phase. Then looking at our taxes that are influencing our free cash flow. Approximately 21% is the right level of profit before taxes. In the investment phase, our cumulative CapEx equals roughly the cumulative segment's EBITDA. And as said, the factory investment in Romania, the gross is on EUR 650 million. And our average maintenance CapEx is around EUR 100 million and EUR 125 million. With this, cash flow components, we will generate the robust cash flow and continue to have a solid financial position to provide options to create shareholder value for our shareholders. Today, we have introduced a target for our capital structure, which is a new KPI. And the new target is to have a net debt to segment's EBITDA between [ 1% to 2% ]. Historically, we wanted to be in a net cash position due to the Russia exposure. And now when that risk exposure is gone, we have the opportunity to leverage our balance sheet without increasing the risk exposure of the company. With the proceeds from Russia, we will partly fund our Romanian factory investments and the remaining part is funded by our own cash flow and leveraging our strong balance sheet. And here below, you can see our net debt to segment's EBITDA levels in the previous year. We were clearly below 1. And now target is to be between 1% to 2%. Now we are in a new position to build a diversified debt portfolio, which we didn't have in the previous years due to the fact that we were in a net cash position. We want to build in a controlled way a portfolio, which is diversified from the financing channel and maturity point of view. Last week, we committed bank financing worth of EUR 300 million with our past banks. And on top of that, we have a EUR 3 million revolving credit facility and EUR 500 million domestic commercial paper program in place. Additional debt funding can be sourced from banks and/or debt capital markets in order to have a balanced debt portfolio. We are confident that we continue to deliver sustainable shareholder value in line with our financial targets. We will invest to support our organic growth with the help of capacity expansions in Finland and U.S., complementing with contract manufacturing and then the Romania starting to support the top line from 2025 onwards. In our journey, our absolute net profit will grow. And we continue to optimize our revenue with market relevant product mix. And naturally, we continue to keep our cost in strict control that has been our track record to protect the cash flow in the coming years. The improving segment's EBITDA will enable increasing dividends and/or share buybacks during this 5 years period. And we will have increased flexibility because our geopolitical risk exposure is clearly smaller than in the previous years. And that will support Nokian Tyres to be a good dividend payer in the coming years. Then summing up why to invest in the new Nokian Tyres. As I started my segment presentation, we have chosen to be in the attractive niche segments where we can generate good margins like winter tires with our safe and ecofriendly products. We have a clear runway to restore the growth and profitability in the Passenger Car Tyre. And Heavy Tyres is expected to continue on a strong growth track with improving profitability during the period. We have the financial means to execute our growth plan and deliver shareholder value. And with our world-class products and factories with high productivity, efficiency and quality and sustainability, Nokian Tyres is an attractive case for investors. With that, I will hand over back to you, Paivi.

Thank you, Teemu, Jukka and Adrian. And let's then move on to Q&A. We have received plenty of questions, and let's try to cover those as well as possible during the time what we have.

The first question, what I have here is about the new initial targets. Teemu, maybe you can take this. What are your biggest challenges to achieve the new growth and profitability targets. So Teemu, please?

As I said, in terms of top line, we need to execute our capacity expansions according to the plan. And while we are increasing our capacity expansions, we are able to reduce our cost base for product sold together with continuing product development, which is always fundamental to have competitive product portfolio in the market.

And the following question maybe to Jukka. Jukka, does the dividend, this year's dividend set the baseline for future years?

This dividend is clearly dependent on the starting point and the performance on our balance sheet this year. But obviously, when our EBITDA and performance improves, then this is a good starting point, and then we expect that we can grow the dividend as years come. So yes, it's a baseline at this moment, but our ambition is higher, of course.

And there are several questions about the offtake. So Adrian, Firstly, can you specify how the offtake volume of 1 million to 3 million will be split in the years and the years to come?

So currently, as already said by Teemu, we are targeting 1.5 million for 2023, which will be a composition of winter and all-season. Next year, we will complement this portfolio with the summer range, and this will go up closer to 3 million for 2024. And this is also expected to continue into 2025, and then we will review the portfolio based on the portfolio we are going to produce in Dayton, Nokia and Romania. So up to 3 million in 2024. All 3 families winter, all-season and summer mainly for the Central European market and this will continue into 2025. And then we will review and reset our strategy accordingly.

And the follow-up question here is why not more than these amounts?

Yes, there's multiple reasons to this. So first of all, we want to obviously protect IP and new developments and keep them within Nokian Tyres and not basically giving them and outsource those products; second, there is limited capacity available or there is no unlimited capacity you can tap in for contract manufacturing; and third, obviously, we would like to select the right partners, which are -- which have the abilities also to produce high-quality, safe tires according to our standards.

And there is a question about North America and the North American target. You want to grow by 100% by when? Does the lack of supply impact also your North American business? Jukka, if you can answer this one.

Yes. So we had the target in 2021 when we had the Capital Markets Day. And indeed, we set the target at that time to grow by 100%. And that target is very valid. North America initially when the Russia situation started, so the war in Ukraine started. And we had certain issues to deliver from Russia to American markets. But now we have a new production planning and capability to deliver exactly what is expected and needed in North America, including the Dayton full capacity -- installed capacity from next year as well as increased capacity in Nokia. So yes, we have the target valid, and we will achieve the target.

Then we have a question about the long-term financial targets. Jukka, the first one is for you. I think we already answered this question during the presentation later on, but the question goes, should we consider long term in your targets as 5 years, i.e., 2028 or further out like 2030?

Long term, we said that long-term starts this year. So long term, 5 years means that 2027 is our target year. So therefore, a little bit shorter than what the question suggested. We, of course, do and try to achieve as quickly as possible, but this ambitions are set to year 2027.

And then, Teemu, you target segment operating profit at the level of 15%. Could you please hint how much adjustments should we anticipate still in '28 and '30? Well, let's now use '27, which Jukka mentioned.

On that year, there should be only limited amount of adjustments.

Then about the dividend, Jukka, you aim at paying 50% of your net income as dividend as a policy. Would you want to maintain dividend at last year's level as minimum? Or would you be prepared to pay no dividend for '23 to reflect the lack of earnings?

I think that we would be paying the dividend last year level and that would -- this year's proposed dividend would be the baseline. And from this year, in coming years, we would seek to increase the dividend. And also, what Teemu was saying that even if we go with the share buybacks, we would then continue to remain as a good dividend payer.

And Teemu, could you please elaborate the margin development from '23 to the mid term 15% goal when taking account of the third-party source volumes and the ramp earlier post launch margins in Romania?

All right. I try to understand the question, correct it. If I start with the beginning. So as I said, in the investment phase, the segment operating profit margin doesn't grow linearly because depending on the time when we start depreciation, it has a significant impact to the segment operating profitability. And therefore, we have been indicating that during this investment phase, we are in a single high-digit level. And then when the Romania factory starts to be fully in use, then we go to the targeted 15% level in terms of segment operating profit. Hopefully, I answered the question properly.

Then maybe to Teemu again, presented in the previous capital markets day, you were aiming to grow Passenger Car Tyres capacity to 26 million tires in order to reach the EUR 2 billion net sales target. You decided to keep your net sales target unchanged, although supply will be much smaller. Prices have obviously increased a lot, but could you please talk about the most important assumptions behind this target?

I would say that the main difference to the previous EUR 2 billion target is the net ASP development. Without Russia, our net ASP is clearly higher, and therefore, we are able to reach the same monetary target with a lower volume. And it means that we maintain our strong presence in the Nordics. We continue to grow in the North America to double it as said in our targets. And then we are able to grow the Central European sales in line with our capacity increase peaking at the end of the period in '27.

Maybe Paivi, maybe if I can comment here in between -- just jump in here. We were about to achieve that EUR 2 billion target already in 2022, the way the year started and the capacity utilization and so on. So obviously, 26 million tires that was discussed that gave lots of opportunity to overachieve the EUR 2 billion target.

The next question is for you, Jukka. How do you secure your market position in terms of transition and lower volumes? And how can you keep your price position once aiming to rebuild market share?

Yes. The important thing is that we have a good product portfolio. So by far, that's the most important thing that we keep on developing. What we have today is an excellent portfolio. You must keep on developing that. So that is key and backbone for us to maintain the pricing and achieve a good market penetration. In between, it's clear that we want to introduce contract manufacturing, our partners help us to ensure that distribution customers -- consumers have Nokian Tyres available. And that way, we keep our relevance in the key markets. Also the important thing is to focus on the core products, core business because that way we ensure that the success of execution implementation will be there. Another thing is that we can activate lots of the brand building and marketing activities in years to come. Right now, obviously, when we are in a situation that we don't have enough supply, so our marketing activities at this moment are relatively modest. And also keeping in mind that the costs are under control that way. But in coming quarters and years, we will clearly activate that. The most important thing is that we have a strong product portfolio now -- between now and the growth phase and especially during the growth phase.

And Jukka, the next one is for you as well. At what point in time would you be willing to keep up the margin dilutive contract manufacturing volumes?

I believe that contract manufacturing is something that is opportunity to introduce more product, whether it goes to Vianor outlets in the Nordic markets or complementing product portfolio to our distribution in Central Europe or in North America. It's maybe interesting to point out that in contract manufacturing, margins may be not as high as in our own manufacturing. But at the same time, the contract manufacturing doesn't tie any assets in terms of manufacturing. So therefore, return on capital employed in contract manufacturing can be quite attractive. And we, of course, want to do it selectively, and we want to make sure that we are not losing money or diluting our margin significantly in contract manufacturing. But having the market presence and having the ability to supply good, wide portfolio of products of various price points, contract manufacturing is a good way. We believe that developing that and practicing that in a constructive way is a good way forward. Historically, we haven't done that. And clearly, the Russian factory has been opportunity to supply the low-cost small tires, high-value large tires and everything in between. And so therefore, we didn't practice it in the past. But going forward, that's a new way to make sure that we are well represented in the minds of our distribution as well as the consumers.

And Teemu, pricing is a key portion of the initial investment phase. Do you see any signs in the market that pricing in premium tires is challenged? And which measures are you taking to safeguard that bridge assumption?

Naturally, the pricing is always a key topic for any business. And if we look our pricing environment in different markets, naturally, it varies in some markets. It's more aggressive like in North America as default which is a highly competitive market compared to the European market. And then the key measure to be competitive is always the product offering and the product development. Long term, that is the only way to be successful to have the most relevant product offering and performance in order to safeguard the pricing power of our business.

Then a little bit longer-term question. Jukka, your growth targets look well funded. Where would you seek to add capacity once Romania is fully up and running brownfield only?

When we see Romania fully up and running. So obviously now we have the luxury that we have developed capability at brownfield in -- not greenfield, but brownfield. So brownfield opportunities are across all our factories now because Nokia we've acquired real estate. And so therefore, it's not landlocked anymore. So we can expand in Nokia. Obviously, Romania has stages that we can introduce when we go forward. And then the U.S. has the same so that there is real estate space. Then if you ask about the greenfield, that how do we think about the greenfield, then there are opportunities that we can develop. Whether we do it on our own or together with a chosen partner, that remains to be seen. But that may be too early to talk about those opportunities. But luxury about our factories is that we have opportunities in all of them. And so clearly, if you start from the cost point of view U.S., Teemu was saying that Romania is by far the most competitive of all factories at this point of time. However, Nokia is very much focused on Heavy Tyres.

Then Jukka, how can you convince investors on your capabilities and know-how in all-season tires versus winter tire expertise and hence, your ability to win large share in Central Europe and North America?

That is, of course, an area that, first of all, as we talked about the winter tires. So that's our bread and butter. And so therefore, it's an important category. Now all-season is a growing category. We've been working in that and introducing tires that have been more and more successful. We have to work on the innovation. And what it takes is that we have a dedicated innovation team that works on a particular offering to Central European markets and not building on what we have done in the Nordics or not using that capability, but really starting from the [indiscernible] paper as how do we develop a competitive all-season tire for European markets. While we do this, obviously, we source with our manufacturing partners, and we will be present in the all-season markets. In North America, I believe that we made already good progress in introducing new tires for particularly North American markets, and we've been quite successful in introducing Nokian One, for example, and similar tires in North America. So we've demonstrated that we can do that when we focus and do the right work. But it is something that we have to dedicate time, resources and very much be committed to do it in a right way. I believe that when we start the Romania factory, we will want to make sure that the product offer from Romania factory is dedicated and well-designed for Central European markets. And it's not necessarily something that is based on summer tires in Nordics or winter tires in Nordics, but it's specifically designed for Central European needs. That's what we did in the U.S., and that's what made us successful in terms of penetrating the U.S. markets.

Let's stay in Central Europe for a while, Jukka. Based on your revised targets in Central Europe in the near term, can you talk about your distribution strategy in the region? How will you make sure you are able to win back the lost market share in the next couple of years?

The secret, of course, is that we have to work and focus on the core. So which markets have we been successful all along, dedicate all the volumes and prioritize auto volumes and also the distribution in those markets where we have been historically successful. So starting with Eastern Europe, starting with the winter tires. So that is the prioritized area. And therefore, when we think about the partner manufacturing, also their products and products made by them will be dedicated to these particular markets. And then, of course, the country, the geographic distribution will come accordingly. And we will go with the selective distribution so that, again, trying to do our utmost for the selected partners and distributors and make sure that they have a good product portfolio coming from Nokian Tyres. Some of them, many of them made by us in the beginning, many of them coming from our contract manufacturing partners and increasingly more when the Romania starts coming from Romanian factory.

And the next one goes to Teemu. Do you plan to release detailed Q1 accounts and detailed restated '22 accounts that would help us modeling '23 forecasts?

I think the detailed level that we have been providing so far, I think it's the most useful information. If we could give more information, it would make, most likely your life more confusing.

The next question is for Adrian. In the presentation, you state that in '27 Romania will overtake Finland as the biggest factory in input volumes. This suggests that you will not aim to achieve 6 million Passenger Car Tyres in Nokia, Finland. What will you do with the land and real estate purchased in '22?

So the expansion options with the land purchase are currently being reviewed. And yet we have a clear plan as we have seen also to grow the Heavy Tyres business. So it's a natural conclusion that we are currently working on plans to expand the Nokian factory with [ OTR ] or Heavy Tyres capabilities. We have further options to obviously to expand the Passenger Car Tyre production, which we have done in the first phase already from 4 million up to close to 5 million, which has been finalized right now. And then there is more, let's say, expansion possibilities up to 6 million, which also requires some upstream investments in mixing capability, which are now at capacity. So we are currently looking at what is the best feasible option? What is the option which creates best return on capital employed for us? And obviously, Dayton and Romania factory are a greenfield where the planning and also the factory allows us more flexibility in the future.

And let's take -- let's stay in Nokia and continue talking about the capacity a little bit. Teemu, how significant growth investments and growth in capacity beyond '23 are needed in Heavy Tyres in order to reach EUR 400 million sales target by '27?

We are in the process of detailing our plans. So whenever we have a more concrete in plans, we will come out with that kind of information. But at this point of time, the plans are still in the works.

But as Teemu was saying, in terms of the asset velocity target, we expect that the asset velocity is 1. So at least 1 in net sales, 1 in the investment. So that's our ambition.

And Jukka, if you continue, there is a question about Heavy Tyres profitability. Can you please talk about the long-term margin target for Heavy Tyres?

We are aiming the Heavy Tyres -- Heavy Tyres has been performing in the range of 14% to 16% segment operating profit, and we are aiming to achieve that level and then gradually -- and we increase the capacity and capability, and we aim to have an incremental benefit so that we don't replicate the full P&L by expanding the operation in Nokia. So we expect that, that margin gradually goes higher. But they will be at or above our segment operating profit target for the whole company.

Then Teemu, cash flow from discontinued operations was EUR 199 million positive in Q1. Will there be any further positive cash flow impact from Russian divestment?

The Russia is done for us. So we don't expect any negative or positive impact for Nokian Tyres anymore.

And the next question. You partially covered, Teemu, already, but let's take it again. What are the non-IFRS exclusions in the coming years? Can you provide some guidance regarding the magnitude? And can we expect these to disappear after the growth phase?

So then as far as exclusions, they have been on a level of EUR 25 million relating to Dayton factory, and they will gradually disappear when we reached the 3 million capacity in Dayton. Having said that, then the Romanian factory comes into play. But at the end of the growth phase, we are expecting those to be minimal.

And, Teemu, for you again, within the Passenger Car Tyres business, what kind of margin levels can Dayton and Nokia reach at full capacity?

If I answer this from a different angle, through different lenses, if we talk about the product cost per item, at the end of the growth phase when Romania factory is up and running, the cash cost for Romanian factory is the lowest. And then in our U.S. and in our Finnish factory, they are roughly on a same level without depreciation. Then depending what is the market net ASP, et cetera, then that creates a different angle to this one.

And again, for Teemu please, could you please give a guidance for average CapEx over the 2 phases, '23, '25 and '26, '27?

So if we take the investment phase first, as we have indicated that the Romania factory is some EUR 650 million over the investment phase. And then the maintenance CapEx is some EUR 100 million there, you get ballpark number that EUR 300 million is the average level over the 3 years time, if it's split it by 3. Then in the growth phase, it will be significantly lower. And then depending what is the future for Nokian site, that we don't know yet that will have a positive impact in terms of top line and then investments related to that. But in the investment phase, clearly, EUR 300 million plus. And then growth phase, clearly below that.

And Teemu, the next question is again for you. I don't know how much you can comment on this, but when do you plan to be at the peak of debt-to-EBITDA ratio?

As I said, during the investment phase, we will naturally be on that range and '24, '25, most likely is the peak.

Then Adrian, please, can you confirm that you are likely to receive a EUR 100 million investment subsidy to the new factory from the state of Romania?

So obviously, we have filed the application now. It's in the hand of the European Commission and those competition councils, which are in place in Europe -- or in Brussels and from Romania, delegates who are reviewing the case. So we are quite confident that we have put a very strong case together. And -- but I cannot comment on when and how much we will receive as a final approved application we filed. So we are aiming for the EUR 99.5 million. And as we are currently in the process of providing more information as we receive, still some questions here and there. We are -- the first indications and the first feedback has been very positive and the councils and the councils and the body who is reviewing our application has been quite pleased with the documents and the application we have filed so far. But we expect the final answer within the next 6 to 9 months latest.

Teemu, can you please elaborate on differences in your COGS per tire in different factories Romania, Finland, U.S. compared to Russia?

I said when all the factories are running with full capacity, Romania is the lowest tires produced in terms of cost and U.S. and Nokia, almost on the same level. Then if we compare Romania to [indiscernible] as we have been discussing, there is a significant difference still due to the size of the production volume in Russia, 17 million with 6 million. And this is the volume gain. The more you can produce the lower is the cost per product. And maybe the good indication that we gave last fall already between Russia and rest of the group was this EUR 10 per tire cost advantage when we were moving the production from Finland to Russia. Now when we are losing the buffer production, we will lose the EUR 10 per tire cost advantage in a ballpark.

And Teemu, if you continue -- yes, Jukka, please go ahead.

And Romania is between [indiscernible] and EUR 10 in Western Europe. And in Nokia and in the U.S., and so Romania id somewhere halfway between and fully utilized.

And Teemu, if you continue, can you please elaborate on the positive mix differences arising from increasing rim size and SUV and EV penetration? How big are the ASP premiums for bigger rim sizes and SUV, EV tires? And how fast can we expect replacement market mix to develop?

Well, I would say that in terms of production cost, they are -- that they aren't that big cost differences. I think it comes from the product performance. And the product performance drives the profitability. So there is a significant benefit when sales is moving to EVs and bigger rim sizes.

Then about the targets or PCT targets, can you share more details on the Passenger Car Tyre margin target in the long-term? Teemu?

We have now given the overall group target. And as you can see, the Heavy Tyres, then you can calculate the PCT as a residual, if you do the math.

And Teemu, if you continue, what can we expect related to working capital requirements in both phases in relation to revenues?

If we compare the situation with Russia and without Russia, there should naturally be a benefit that we don't have this business model that we used to have in Russia. Then going forward, as I said in my presentation, the asset velocity and the working capital efficiency is critical to -- for us in the coming years, not only to fund the investments but to be sure that we create shareholder value with all the levers that we can maneuver.

And Jukka, did you lose any strategic assets in conjunction with the Russia exit? Are there any concerns regarding this?

In the Russia exit, basically, Russia was a cost center. So in that sense, lots of the Russian operation is related to investment, hardware, et cetera. All of that we lost, of course, but if you ask that did we lose any of the capability to operate tire factories or innovation capability or similar? No, we did not. But of course, we lost the hardware, which was in Russia. But it's important to keep in mind that Russia was a cost center. So it wasn't a business unit as such, but it was a cost center.

And Teemu, what is your target return on capital employed by the end of '27?

There, I can only refer to asset velocity and our segment operating profit. So there, you can calculate the return on capital employed. Clearly, 15 with asset velocity of 1.

And Teemu, if you continue, what assumptions with regards to the development of raw material costs did you use in your '27 targets?

There we -- our assumption was that the net ASP and the cost development, there shouldn't be any major changes, which is a planning assumption. So the development should be stable or improving.

Then Adrian, how do you protect IP while dealing with contract manufacturing? Is there any transfer of compound know-how to the contract manufacturer and risks related to product quality or damages arising are responsibility of the contract manufacturer or will remain with Nokian Tyres?

So the contract manufacturing as such is, I would say, it's a common practice in the tire industry. We are not the only one who are using contract manufacturing to complement existing product portfolios. The partners we have selected, very serious partners doing business, not just for Nokian Tyres also for well-known other tire manufacturing -- manufacturers in the world. Obviously, we are using all the available legal and contractual means to protect our intellectual property and are auditing the factories on a regular basis to ensure quality, safety and performance of the tires.

And Teemu, please, what is your working capital inflow assumption for '23, please?

There, we don't expect any major changes in '23. That's the planning assumption.

And Teemu,if you continue, how do you see marketing and distribution costs to develop over the next upcoming years? Is there any major upfront investment that dilute your profitability?

I would say that the biggest change is coming from accounting treatment because now, as we all know, the IT investments are no longer capitalized. They are expensed as we speak. And when we are developing our systems for the future, there will be increase in our IT expenses that we have previously capitalized. But from the cash flow point of view, no changes, but that will have a headwind impact on our profitability that we need to overcome.

Then again, a question about the non-IFRS adjustments. What will be the annual non-IFRS adjustment in the investment phase from Romania?

If I give you the data point from Dayton, and that has been on a level of EUR 25 million, EUR 30 million for Dayton. So that is some kind of proxy for Romania.

And then Jukka, maybe you can take the next one. Why don't you buy some of the contract manufacturers?

I believe that at this point of time, it's important to dedicate our capital to rebuild our own capability. Then later on, of course, when we come to a growth phase, and we -- our generation of cash is stronger, and then we have the capability to look at the M&A opportunities, then let's see. That is, of course, something that is long term. Short term, our funds are dedicated to build what we need to rebuild how -- Nokian Tyres' own capability to deliver.

And I think it is time for our last question before Jukka's closing remarks. Teemu, can you please talk about the financing costs today?

So the margin level for Nokian Tyres, they are somewhere on a level of 125, 150 basis points. And then normal 6 years -- 6 months [indiscernible] on top of that.

Thank you. So 2 hours speaking about building the new Nokian Tyres, Jukka any closing remarks?

Thank you, Paivi. Thank you to you all for participating and being part of this discussion today, and thank you for excellent questions. I would want to, first of all, to pay attention to sustainability that when we start building the new Nokian Tyres, started already last year, we will build net zero ambition for 2050. And we start with building a zero carbon -- CO2 emission factory in Romania. We do a lot of work on the sustainability area. We reduced CO2 emissions. We improved health and safety. We will introduce recycled and renewable materials to our tires, and we do all that work in order to remain at the forefront of sustainability. And in 2022, we were included in Dow Jones Europe Sustainability Index. Our ambition is to remain part of that. But then if we look at the financial targets, yes, we want to go back to EUR 2 billion top line. We want to have a strong profitability, 23% to 25% EBITDA, meaning EUR 500 million of EBITDA in 2027. We also aim to have a 15% segment operating profit. And we will keep our balance sheet at net debt EBITDA at the level of between 1 and 2. That allows us to remain a strong payer of dividends this year and in years to come and also potentially introduce share buybacks while maintaining a strong dividend. And all the reasons to stay on board with Nokian Tyres and to become an active investor in Nokian Tyres. Welcome to join our journey to EUR 2 billion in 2027.

And these targets, of course, there is the capacity, which we will need for reaching the targets then we have the excellent products, and we have the Nokian Tyres team.

Indeed, all that.

Thank you, Jukka. Thank you, Teemu. Thank you, Adrian, and thank you all for joining our event today.

Thank you, Paivi. Thank you, everybody.