Nokian Renkaat Oyj (TYRES) Earnings Call Transcript & Summary

Ladies and gentlemen, hello from Ivalo, Finland, and welcome to the Media Information Call celebrating the launch of the new Nokian Tyres Hakkapeliitta 01, the world's first studded winter tire to feature on-demand grip. My name is Wes Boling. I'm Nokian Tyres Brand Content Manager. Pleased to moderate this call alongside company leadership as we introduce media to this exciting new studded winter tire. In just a few moments, we will get to a presentation that allows you to familiarize yourself with the product. You should have received a press release about it in the materials bank connected to that press release are photos and videos as well as press releases in a number of different languages if you need those. At the end of the call, we will have time for your questions, and there will be instructions related to that here in a few moments. But first, let's celebrate the Nokian Tyres Hakkapeliitta 01 with a brief introductory video. [Presentation]

There are tire launches and there are revolutions, and today represents both. We look forward to familiarizing you now over the next few minutes with the Nokian Tyres Hakkapeliitta 01. First, with a few words from Nokian Tyres President and CEO, Paolo Pompei, about the significance of this moment and how it ties into our business strategy to be a leader in winter. Then we'll have a product presentation with a mastermind behind the product, development manager, Mikko Liukkula and Director of Marketing of North America, Hans Dyhrman. And then we'll ask a couple of questions of each of them before turning it to you for your questions. And with that, one reminder again, this QR code here is to access the public press room that contains the press releases. We assume you've seen the press release if you were on this call. But if you need to give this QR code a quick scan, you're welcome to do so. We'll have it for you during the question-and-answer session in a few moments as well. And now I will hand things off to Nokian Tyres President and CEO, Paolo Pompei.

[Technical Difficulty] Wes. And good afternoon, everyone, and thank you for connecting together with us this afternoon. This is, as West has already anticipated, it's really a sort of a memorable day. It's a sort of revolution. And because our team was able actually to transform a vision in a project that will transform completely the winter type business in the next decade. But I would like to start from our headline when we say that we make unpredictable journey -- an unpredictable journey in a predictable journey in any weather condition. This is what we are doing every day. We try to work in the direction of providing safety to our customers. And that has been always in the last 90 years our top priority when we talk about winter tire business. And in some ways, related to our own history, when we made an unpredictable journey also recently that was the one related to the war in Russia to an extremely predictable and even more successful journey resetting our manufacturing footprint and building a new platform that is still stronger than what it was before. We have 128 years of history and a big part of the history has been fully dedicated to the development of winter tires. And when we look at our recent history, and as said, we are moving to a predictable and sustainable future. In the last few years, we have been focusing really on resetting our manufacturing footprint and building what we talk today -- what we call a new Nokian Tyres platform. But now we are really focusing our journey on sustainable value-driven growth journey for our customers. We have now a platform that is providing lower risk profile compared to the past greater flexibility and, of course, higher added value for our own customers. Also, what we are doing at the moment, we are really refocusing our position where we can make the difference. We are refocusing on the segments that made Nokian Tyres a strong player, in particular, in 3 segments. First of all, we want to reinforce, and we are enforcing our leading position in the winter tire business. And today is one of those days where we are setting actually a new level in the winter tire driving business. So then, of course, we are expanding our presence strongly in segments that are in some way getting closer to the winter tire business, meaning all season and all weather, but it's very important to deliver products and solutions that are delivering safety to our own customers. And then last but not least, we maintain our strong leadership in the forestry tire business worldwide, and we are expanding above-market growth in the agricultural tire business. The winter tire business is growing year-on-year. Of course, the weather conditions are changing continuously, but they are extreme weather condition that are requesting safer solution to be delivered to the market. And this is also possible through regulations that are requesting companies like Nokian Tyres really to provide additional safety and to protect even more the drivers while driving in extreme weather conditions. We've 90 years of history and in the winter tire business. We delivered first winter tire solution in 1934. But more importantly, more than 90 years ago, we developed the first Hakkapeliitta winter tire that was introduced in the market at that time. So we are really the maker of a safer journey when we talk about winter tire application. And today, we are presenting our Hakkapeliitta 01 in our test center White Hell here in the Lapland in the extreme north of Finland. And we are here since 40 years. So this place is not only a place where to develop tires, but it's a place where we have a lot of know-how, we have a lot of expertise that was transmitted by our own engineer through different years. It's a site with over 700 hectares. It's a site where we test every year more than 5,000 passenger car and every tire every year. When you look at our journey recently, I mean, we have a [indiscernible] plan, we will deliver approximately EUR 1.5 billion cumulative in the next 4 years and then -- of new products. And when you look at passenger car tire business, 90% of the new products that we are going to release will be actually fully focused on winter tire and all season, all weather. So this is really confirming that we want to remain a strong specialist in the winter tire and all season tire industry. And really, this is where we are investing 3% of our total revenues year-on-year in order to innovate, in order to reinforce our own position. Thank you very much for this attention, and I will now really leave the honor to my colleagues Hans and Mikko really to describe in more details what Hakkapeliitta 01 is all about.

Thank you so much, Paolo. Very excited to be able to introduce you to Nokian Tyres Hakkapeliitta 01. 90 years ago, Nokian Tyres revolutionized the tire industry with the launch of the very first Hakkapeliitta product. And we've continued that legendary journey right through a new era of winter today, the Nokian Tyres Hakkapeliitta 01, the world's first winter tire with on-demand grip. Let's go ahead and dive a little bit into the details of what we've built into this new tire. [ Let's begin ] with the tread pattern, the tread pattern is a symmetrical and directional tread pattern that we've used throughout the lives of many Hakkapeliitta products. Compared to the Hakkapeliitta 10, we have smaller tread blocks to provide increased biting edges on the ice, but to be able to support those tread blocks in between each, there's a little bit of a support bar to make sure that they can maintain the high speeds. In all of the tires 18 inches and above, we have our Aramid sidewalls. Aramid is a cut fiber cord that provides reinforcement and increased durability, making sure that we can improve resistance to cuts and impacts that can otherwise disable the tire. If we dive a little bit further into the tread pattern, we see a number of 3D interlocking sipes. On the shoulders represented by the blue sipes, you can see increased steering precision and snow grip. Through the middle, there provides close sipes for stability represented by the green color. Looking at the tread compound, we utilized a brand-new Nordic winter tread compound. The engineering team set out on a goal to increase the wet performance of this tire giving it 5% better wet grip compared to the award-winning Nokian Tyres Hakkapeliitta 10. Now of course, this is a studded tire, and so the stud is a major feature of what we've done to make sure that this is ready to move forward. The pins on each one of the Hakkapeliitta 01s is the same as the Nokian Tyres Hakkapeliitta 10. However, each color has been reformed to make sure that, that pin can have increased by the edge. We continue with our double stud technology represented by the green, where we have the lateral studs that provide increased precision for braking and accelerating as well as the shoulder studs, that are pointed to the center for cornering. If we look a little bit at the installation process of these studs, each one is placed by a robot in our factory with incredible precision. In this slow motion footage, you're seeing it slowed down 60x slower than real life. And after each one of these tires is completed with its studding journey, each one is scanned and recorded to make sure that the stud is perfectly placed according to our precise standards. We also have a number of features built into this tire. Our winter safety indicator makes it very easy for consumers to understand the tread depth that they have left on their tire, 8, 6 and 4 millimeters. The info field increasingly important on a winter tire due to the cold air, makes that easy to follow along and make sure you've got it all set. Electric fit is our indication that to the consumers that we have tested each one of these tires on electrical vehicles. We've been testing on electrical vehicles for well over a decade. And finally, of course, the ice grip symbol in the Three-Peak Mountain Snowflake are our tests according to the standards and meet and exceed winter safety traction requirements. In 24 sizes of the Nokian Tyres Hakkapeliitta 01, we had our silent drive technology and acoustic foam that lowers the noise in the cabin for each and every one of those sizes. But there is a little bit more to this tire than just these smart innovations. There's one more thing. We are excited to introduce a winter tire reinvented. This is the new era of winter, the Nokian Tyres Hakkapeliitta 01 with adaptive base technology.

Thank you, Hans. So I'm Mikko Liukkula, the Development Manager of studded winter tires at Nokian Tyres. So we have created a completely new construction, a so-called adaptive base construction for Hakkapeliitta 01 product. We have protected it with more than 10 patent applications. And the construction is a so-called 3-layer construction, where we have the tread rubber, the lock compound, which locks the stud and -- the waist of the stud and then we have adaptive base. The adaptive base is really the revolutionary part of the product. It is a compound which turns very stiff when the temperature of the compound cools down. And vice versa, when it warms up, the compound gets soft and sticky to keep the stud in the tread. So the function of adaptive base is the following. When you are driving on the icy road, the ice and snow cools down the stud and adaptive base making it stiffer and making the stud penetrate deeper in the ice and giving better bite to ice providing more ice grip. Vice versa, when you are driving on the highway, for example, 100-kilometer per hour, the stud hits dry road 14x a second, making -- with the movement of the stud, the adaptive base layer are getting warmer and warmer. And finally, it gets soft, and the stud is retracted. So what is the benefit of the adaptive base, we can maybe start from a new Traficom regulation, where the road wear was limited to 15% less than the previous legislation was. And that means that in the beginning of 2027, all the tires, which are approved to the markets and sales are to be of 15% less road wear. But we achieved with adaptive base 30% less road wear. And also, we gained 10% better ice grip. So this is really a combination which was not possible even to imagine that this could happen. I think some of our competitors have faced this issue, and they have approached it on a traditional means, meaning reducing number of studs, making the stud protrusion smaller or making the stud smaller which all lead to less ice grip and less safety. But vice versa, we gained less road wear and much better ice grip. In addition, we got also 1 decibel lower interior noise measured between 60 and 100 kilometers per hour. We have been testing the tire now, the adaptive base technology now more than 4 years. And we have gained a lot of feedback from the test drivers. Of course, according to our recent studies, we have found that it is more likely to get a positive feedback when you give the test tires free. But still we have gained a very, very good feedback. And when you look the feedback, you notice that everyone are referring to the silence of the tires. So the tires are very quiet and that leads to the same issue that I just explained that when the tire is silent, that means that there is no contact, no heavy contact between the stud and the road, which means that the studs are really retracted and they are not wearing the road as much as the traditional studded tire. Okay, Hans, maybe you explain the sizes of new Hakkapeliitta 01.

Thank you very much, Mikko. The Nokian Tyres Hakkapeliitta 01 launches to dealers today and will be available to consumers this fall. We're excited to launch with 124 sizes, all EV-ready with 24 sizes featuring our silent drive technology. The new modern size range has 86 sizes that are 18 inch and above. Now let's go ahead and look at a little bit of a summary of all the great things that we've packed in the Nokian Tyres Hakkapeliitta 01. Of course, we've got our studmode ON and OFF, our electric fit saying it's compatible for EVs, Aramid strong sidewalls and our silent drive technology that gives you on-demand grip, the first winter tire that adjusts to the weather, studs ON maximum safety on snow and ice, studs off bare road precision with minimal road wear and of course, that peaceful precision, ultra-low sound levels. Now as we launch the Nokian Tyres Hakkapeliitta 01, we view this as the winter tire reinvented. And a lot of you might be asking the question, why did we name it the 01 and not continue forward with 11 or 12 for that matter? Well, we saw this as a revolution in winter tire technology and wanted to make sure that the numbering represented that. Two times in Nokian Tyres past, we've gone to Nokian Tyres Hakkapeliitta 10 and started back over, and we view this as another one of those revelations. As we look at the 0 and 1, the 0 and 1 also represent binary code where the 0 is studmode OFF. And then when we get to the one, it represents studmode ON giving you the Nokian Tyres Hakkapeliitta 01. We're very excited to be able to bring this tire to tire dealers and consumers everywhere.

Thank you, Hans and Mikko for that information. And the deep dive into this product, again, the world's first winter tire with on-demand grip, the Nokian Tyres Hakkapeliitta 01. With that, and before we open it up to your questions, we have a pair of questions to ask each of our leaders here for starting with Paolo. Paolo, quite simply, you talk about our business strategy and one pillar of that is being a leader in winter. How important is this new tire to helping us serve as the #1 company in winter?

Thank you, Wes. It is really important. There is no leadership if you don't have innovation capabilities. And obviously, this new innovation is setting again a new benchmark when we talk about the winter tire industries, and this is very important to us, obviously, being a leader in the industry, the best way we can raise the brand awareness, the best way we can manage -- grow our sales, is really to deliver products and solutions that are making the journey of our customers safer in any winter condition.

And finally, for you Paolo, the 2 primary markets for this product are the Nordics and North America. How is Nokian Tyres planning to position this product in those main 2 markets?

As I said, this product is going to be a premium product for both markets, not only for North America as well as Nordics. I think it's going to be a benchmark for the global market. The position will be premium because obviously, we are delivering added value to our customers and the total value of ownership will increase significantly. So we believe that with this product, we are going to simplify the life of many drivers around the world, and we will make sure they will be safer. And at the same time, they will have a solutions that are giving them the flexibility to be extremely safe when they are driving both in icy condition as well as in dry conditions.

Thank you, Paolo. And now a pair of questions for the leading mind behind this product, Mikko, over to you. First, can you tell us a little bit more about how this double action stud technology works in practice? This is a new concept for a lot of people. It's a new concept for our industry. How fast do the studs go in and out as the vehicle goes between either dry roads and icy roads or quick changes in temperature?

Yes. Maybe I can approach this by explaining some of our tests we are doing. We have here in Ivalo a test facility where we have a warm garage and right after that, we have an icy surface in a tunnel, which we can do icebreaking and acceleration test. And when we come out with the warm tires and start accelerating and breaking immediately, we still get better results that with the conventional tires we have. And as well, that explains that when you start from your garage -- warm garage, you don't have to worry about the grip. It is better than with a normal studded winter tire. Then when you go out on the highway and you start from icy road, you can hear the difference when the studs are pressed in, when the adaptive base warms and the studs are pressed in and they don't make, let's say, ignite the air cavity noise anymore. You can feel that difference, and the tire is really, really silent on dry road. So the time is difficult to say, it depends on various things, how much there is moisture, how much there is ice, how cold the road is, how long you have driven and everything like this affects to that. But anyway, it happens quite fast.

And then finally for you, you mentioned Traficom and some of the changing regulations that, in some ways, may be influence the development of this tire or at the very least that this tire exceeds. Can you provide an example of those regulations around studded tires and explain how this new tire then conforms with those laws?

Yes. So first of all, I have to say that I'm quite pleased of this new regulation because it really put us against the wall. We had to reinvent the winter tire. We had to make the -- reduce the road wear, this 15%. But at the same time, we know that all the traditional approaches will be bad for our customers. They will never accept that our tire will be worse in ice grip. So we had to invent something else. And this Traficom regulation is -- like I said, it is taking place for all tires, which are manufactured after this year. So beginning of 2027, all passenger car tires, the [ van ] car tires are a bit later affected by this. But it is a very important regulation for studded tire business. Traficom also makes market surveillance every year. They are picking up randomly the tires from market and testing them, which makes every player in the market to follow the rules. The means how to wear -- measure the wear are the overrun test, and that is -- it's a standardized test by ISO and SFS. So if we can maybe point out 3 points like our President always does. So adaptive base makes the tire 30% less road wear, 10% extra ice grip and 1 decibel less tire noise.

Thank you, Mikko. Paolo and Hans, thanks to you as. Now it is time to go to your questions, and you'll hear some brief instructions before that process begins. [Operator Instructions] We can say that we have been here at White Hill today, the Ivalo test center testing the Nokian Tyres Hakkapeliitta 01 and exploring its capabilities, and it is a very impressive tire, the studmode ON, very clear on the frozen lake that we -- for multiple frozen lakes that we tested on today, studmode OFF on dry road makes for a very quiet and comfortable ride. Still no questions, and so we may just go ahead and wrap the call here. Then, a reminder, though, the QR code on the top right of the screen links to the public press room where you can access the media kit and a variety of different languages. There are also images and videos available as well. And we certainly encourage you to reach out to our media team if you have follow-up questions, interview requests. And we look forward to reading your coverage and appreciate your time, joining us today on an exciting day in the life of Nokian Tyres and in the history and future of winter driving, the Nokian Tyres Hakkapeliitta 01, the world's first studded winter tire with on-demand grip. For all of us here, Nokian Tyres, I'm Wes Boling. Thank you so much for your time.