Nokian Renkaat Oyj ($TYRES)

Good afternoon, and welcome to Nokian Tyres First Quarter 2026 Results Audiocast. I am Anne Kauranen from [indiscernible] Investor Relations. And together with me in this call, I have our President and CEO, Paolo Pompei and our new CFO, Timo Koponen. As usual, Paolo and Timo will run through the presentation. And after that, we will open the line for questions. But before we start, I would like to ask you Timo a couple of questions. You have been with us only a few days. And first of all, welcome to the company.

Thank you.

It's great to have you here. With the short but intense experience with the company, what are your first impressions?

Yes. Well, it has been very, very busy start as everybody can anticipate then. First of all, I'm very excited to be on board finally. It's been a long wait and kind of looking back when we started discussions with Paolo and the other people in the company, I got really intrigued by the momentum and drive the Nokian has. And obviously, that in treatment remains. And you only need to look at the just ended first quarter, and you see many product launches and so on, and you can really see that we have a second gear on. It's good to be here.

Good to hear. Maybe if you can also briefly say a few words about [ your ] background.

Sure, sure. Yes, as I think it was already mentioned in the announcement, I have a long background in a Finnish industrial equipment companies, Konecranes, Hakman Mets, Valtille and last couple of years at Normet and have been working in finance as well as in the line management roles both in Finland and overall, France, China and U.K. and now in Finland.

Thank you. And with that, I will now hand over to you, Paolo, for the first quarter results.

Excellent. Thank you very much, Anne Kauranen and also from my side, welcome on board, Timo. Let's start immediately with the headlines, where you can see that sales increased across all regions and operating profit improved significantly driven by disciplined strategy execution. But let's move to the agenda. We will start with the quarterly highlights, moving to the financial performance, then Timo will come and the business unit performance as well as our cash flow and financial position and that we will close this call with assumption and guidance. And of course, at the end, there will be question and answer. Moving directly to Slide #4. Operating profit improved significantly. This was really supported by volume, price mix improvement and lower manufacturing and material costs. Operating profit improved by more than 50% and we had really good also price and mix improvement during this quarter. effective working capital management, lower CapEx has contributed to improve our cash flow by over EUR 50 million in quarter 1 and this is also important and important achievement in this quarter. We keep working on our continuous improvement initiative that are really supporting strongly our strategic plan and our EUR 220 million EBITDA improvement by 2029. And this was also an exciting quarter when we talk about product innovation. We were able -- actually we were releasing 2 important flagship in our product range for the Nordics and the Central European market and also a new tire for EBITDA division line for truck tires. Moving to Slide #5. As I said, this was an exciting quarter and it's worth really to spend a few words about our achievements because we were able to release once again the new disruptive technology, the Catlin with start with -- that is actually delivering a tire that is able to operate and to adapt to the change of temperature will start on or start off depending on the driving condition in with different temperatures. This is really a great achievement. It's a disruptive innovation. We're really proud about the achievement of our R&D team and what our company has been able to develop through intense R&D work as well as interest testing in the last few years. We're also releasing the Nokian Tyre no-proof 3P. This is also an extremely high-performing product dedicated to the Central and South Europe and Southern European markets. that is beating actually the key competitors in many parameters. And of course, we are extremely excited about our strong improvement in the product performance in a strategic market, a growing market for all of us. We have invited to cast our tariff solution more than 500 customers during the month of March in our center right down in Ivano. And this is obviously the best way to promote our product to make sure that our customers can really experience the good performance and good and the good capabilities of our own facilities as well of our own products. Now let's move to the financial performance. So moving directly to Slide #7. When we look at the market, we see actually market declining, both in Europe and North America. This is making us even more satisfied with our existing journey because, obviously, in passenger Carter, we be able to outperform the market in quarter 1. So the market is estimated to be at this stage, minus 3% in Europe in passenger car tire and minus 8%, so significantly down in North America. Truck tyre business has been positive actually in quarter 1. And we can say that the agriculture and cost business was flat, both in the OE and the replacement market in the same period. Moving to Slide #8. We see that net sales increased by 4.9% in quarter 1 I would like to highlight the strong performance of Arch's passenger car tire that was plus 9% in comparable currency. We were growing in all the regions, and this is also very important in our existing journey. We improved segment EBITDA to EUR 30.2 million, so plus almost EUR 18 million compared to previous year, and this is representing finally 2-digit EBITDA, 10.8% of net sales compared to 4.6% in 2025. We improved our segment operating profit by more than EUR 14 million. This is a growth moving to minus EUR 4.3 million, so very close to the breakeven coming from EUR 18.5 million in 2025. And finally, we improved our operating profit by 50% to minus EUR 17.8 million versus almost minus EUR 36 million in 2025. The numbers are improving according to plan, and we are really pleased about these developments. Moving to Slide #9. You will see, as we have anticipated that sales are growing in any region. Obviously, this in comparable currency, we see a growth of 1.4% in the Nordics strong growth in Central and Southern Europe with 9.1% and also very good growth in comparable currency in North America with plus 7.8%. I remind you in a market that is declining by 8% in quarter 1. So passenger [ quarter ]was outperforming the market. EBIT higher. The sales were down by 1.6% and but if we're improving the profit was improving significantly above 15% of 15.7%, and B&O was slightly positive with 1.7%. Moving to Slide #10. This is a new slide that we are presenting in this deck that is giving you a better understanding of the mix development of the company. You will see that in quarter 1 we were growing in terms of a percentage of sales in the whole season and summer tire business, while we were declining from 27% to 30% in the winter tire business. Just a reminder, obviously, quarter 1 is not a winter tire quarter in our industry. And also second reminder is that obviously, we are leveraging this year the product launches that we did last year in 2025 in Central Europe for the whole season and summer tire business as well also in North America for the old weather. We are also happy about the progress we are doing on 18 inches plus larger tire diameters when we are reaching -- they are reaching today 51% in value of our total sales. So I would say, from the mix development point of view, we are developing the business in line with the plan and in line with the strategic targets that we released in February 2026. Moving to Slide #11. Of course, we see more or less the same numbers, but I would like to focus your attention on 3 main KPIs: One, obviously, the reduction of the debt by approximately EUR 45 million, and Tmall tell you more about that, the reduction of the capital expenditure to EUR 7.3 million from EUR 52 million last year, obviously, we say that we were ending a very heavy investment period, and now we'll get back to normal. And then, of course, the cash flow from operating activities has been also improving by more than EUR 50 million. Moving to Slide #12, you will see that we are targeting this year an investment level more or less in line with depreciation of approximately EUR 130 million at this stage. So we get back really to a normal investment level which is obviously supporting our strategic plan journey moving forward to 2029. Then I leave the stage to Timo for the business or comments.

Okay. Thank you, Paolo. So as it has already been mentioned a couple of times, we are very pleased about the performance we had in passenger car tyres. Net sales increasing by 9.1% on comparable currencies. At the same time, the pricing continued improving. And very importantly, we operated with the lower manufacturing and as well as material costs and this logically all resulted results in significantly improved segment operating profit. And as we can see, we moved from losses a year ago, EUR 6.2 million, up to EUR 10.2 million or 5.5%. Moving on to Page 15, when looking at different components in the passenger car tires in net sales, volume contributed EUR 10 million of that increase, plus 5.7% and price/mix, EUR 6 million plus 3.4%. -- headwind we had related to currencies, minus 2.1%, and that comes from mainly from the North American sales. In the lower part, in segment operating profit level, lower material cost was the biggest lever we had by EUR 11 million sales volume and price mix having also a significant positive effect of EUR 5 million and EUR 6 million respectively. And as we already anticipated in the Capital Markets Day during the period may have made significant investments in our brand and marketing. And that shows as a higher SG&A. And it's needless to say the growth always takes some money. Moving on then and looking at the also the picture that we are very happy about sales volume turned to growth after 2 declining coming quarters, growing by 5.7% on quarter 1. And regarding the price mix we can see the price increase continuing also on the quarter this time by 3.4% and currencies we already commented earlier. Then moving to Heavy Tyres. There, the net sales decreased by 1.6%, and that was due to lower demand in [ forest ] segment. And this part of the segment that -- despite of that, the segment operating profit improved by EUR 8.6 million, and that is thanks to good pricing disabling. Percentage-wise, as Paolo already mentioned, we are back above 15% level at 15.77%. And as it has been our target already in this business is to fix profitability, and we are very happy to see that happening. And then finally, on the business units, the Vianor there, we had a disappointing first quarter, as already mentioned, and this part of the increased net sales, it went up by 1.7%. The segment operating profit declined and was minus EUR 17.1 million and the main cost there was the 2 factors, basically, the cost inflation and then one-off inventory revaluation, which both had a negative effect. And then as a reminder, as most of you already know, Q1 is seasonally low for Vianor so nothing new there. And then moving to cash flow and financial positions. positive cash flow development was already mentioned, 2 main contributors there. First of all, thanks to very effective working capital management we were able to improve. And there, the factors are, as we have previously communicated, we have several initiatives ongoing. Improve our position, inventories, payables and so on. Another big improvement compared to a year ago was the lower CapEx. There are some seasonalities on that, but we also have to remember that we have very routine on new investments, what we are taking in and focusing on improving cash flow. And then Finally, on a debt position, as I mentioned, net debt went down by EUR 45 million on the quarter on the liquidity at the moment or end of the quarter, it was EUR 441 million. consisting of cash and then the EUR 304 million undrawn cash credit facilities. And regarding the debt maturities on the right-hand side, as we already commented in the report, during the period, we executed an extension of 1 year for EUR 100 million loan, and that was the only event that we had on the quarter.

Excellent. Thank you very much, Timo. And let's move now to the assumption and guidance. So if we can move to Slide #23, you will see that we are actually not changing the assumption for this year. We believe the market will remain plus and minus 2% pretty stable, impacting car tyre as well as in Agri and forestry tires where we see actually the demand pretty stable and low level in the OE market and slightly positive in the aftermarket for the rest of the year. So moving to Slide #24 and looking at the guidance, there are no changes to our previous guidance. We believe that in 2026, the entire sales will grow compared to previous year. And obviously, operating profit as a percentage of net sales will be between 8% to 10%. The tire demand is expected to remain flat. Obviously, we are continuously watching the evolution of the existing conflict in Middle East. This is an important part of the assumption. But at the moment, we are able looking at the outlook and considering our continuous improvement plan, we are able to confirm that our guidance is pretty strong and stable. The profitability, obviously, will improve, supported by new products, but also by price and mix, as you can see also in quarter 1 and continuous efficiency in Poland. So I would like to close the this quarterly presentation reminding that our long-term objective, we remain focused, and we want to remain fully focused in our leading position in winter keeping our leading position in winter time, we are targeting to grow above market level in the old season or weather segment as well as in the Agri and Forest retirees. Three different 3 different journeys in -- by geography in Nordic is about strengthening our first position while in Central Europe as well as in North America is about growing above market average. We will do that always supporting value premium value positioning and mix enhancement -- we will do that, expanding our B&L network in Europe and focusing more and more on B2B and B2C, in particular, consumers -- we have a strong product innovation in the pipeline. Actually, we are counting by 2029. I remind you in the passenger car tire to release a new product in all the segments where we operate, 90% of those new products will be dedicated to winter tire and all season in all weather consumer focus to add investments in marketing, in particular, and then we will keep working on operational excellence where we see great opportunities to improve significantly our cost structure. Our local to local business model will enable us to be less vulnerable in front of geopolitical tensions and of course, we can count more and more in an experienced and engaged team, we will be able to achieve our financial target. So our long-term financial targets remain the same. EUR 1.8 billion within 2029, segment EBITDA above 25% and segment operating profit above 15% reducing the debt level to a ratio between net debt and segment EBITDA below 2. We can now move on to the question and answer, and thank you for your attention.

[Operator Instructions] The next question comes from Artem Beletski from SEB.

Paolo and Timu, I actually have 3 to be asked. So the first one is relating to raw materials and Paolo, you also mentioned conflict and Middle East. Could you maybe comment whether you have been doing already for some price increases due to this topic have seen competitors acting -- and maybe just in terms of time lag, when you need -- when this type of higher oil-related raw material costs will start to increase for you? Maybe I'll start with that one.

Yes. Thank you for the question. This is an important one, really relevant, of course. So when we talk about raw material, there is time gap, as you know very well, I mean, we are estimating to see the impact of the raw material changes more through the end of the year, meaning end of quarter 3, beginning of quarter 4. Clearly, we are not concerned about compensating this effect that will come up. As you can see, our pricing are moving up despite we have a favorable trend at the moment of the raw material trends. So clearly, prices is the tool to compensate the raw material trend long term. Obviously, we don't comment about competitors. But I can only say in 30 years in our industry, the market is very disciplined in transferring this cost, obviously, when they are coming.

Yes. This is very clear. And maybe the second question, what I would like to ask is relating to heavy tires and indeed, you delivered quite nice profitability improvement in Q1. Do you see that this level is now sustainable and maybe you can update us with your view what comes to market recovery. Do you still expect it potentially to happen in second half of this year?

Yes. This is also a very good question actually. The retail business is improving because, obviously, good price discipline. As we said, it's keeping and, of course, some internal operational efficiency actions that we have activated. I think the Eviti business is now at the end of a very long negative cycle. So we expect the market, obviously, to move up. It's difficult for any an to say, particularly today with existing crisis in Middle East to say really when the market. The OE market in particular will pick up because the replacement market I think, is already moving in a better direction. It's more about understanding when the OE market for us, as you know, is very important, the forestry market as well. So my original estimation was the market will improve in the second half of the year. But of course, this, at the moment, is not yet visible. At least we don't have any visibility about this potential improvement already in the second half of the year, but we will keep you updated by step.

Yes, great. And then the last one that I had was relating to SG&A expenses and so went up EUR 6 million in Q1 year-over-year. And I fully understand that it has to relate to this very interesting new products that you introduced to the market. Is it fair to say that the increase during the remainder of the year will be much smaller given the fact that product introductions and presumably, big events are behind us.

Yes, of course. Don't forget in quarter 1, 2025, we were coming out from a very, very difficult 2020, building a company, stretching everything at minimum, not really investing too much in our future. And then now we are investing in our future with growing sales force and growing marketing investments and of course, a big product launches that we did in March 2026. Clearly, we will keep investing in growth, but it has to be a profitable growth. So as I said, of course, you should not expect a 12% SG&A increase every quarter, but otherwise, this will not be sustainable, but you should expect that, obviously, we will keep investing on our brand for the future.

[Operator Instructions] The next question comes from Thomas Besson from Kepler Chevreux.

Thank you very much. Good afternoon. I hope you can hear me. The quality of the line was disastrous during the previous question. So I may ask a question for almost the second time, but I'd like to make sure I understood correctly. I think, Paolo, you said that the industry has basically been raising prices to offset higher energy and in good cost historically. But my question was really to try to have a view on what you're assuming in terms of energy and raw materials headwind for the year or Nokian in 2026. And when the energy and raw materials are going to turn from a tailwind into a headwind? And what kind of price hike you need to be able to offset this assumed headwind. That's my first question. I have more questions that I'll ask later.

I'm sorry if the line was not -- I hope it's better now, but that is an important question. As we said, I mean, the raw material effect of the current situation will probably be visible end of quarter 3, beginning of quarter 4. And of course, this is changing every day, as you know very well. I mean it's depending on different announcements that are happening every day. But let's say, in our assumption, we consider the existing raw material level, the one that we will see moving forward. Then the -- obviously, we are expecting to see some impact end of quarter to beginning of quarter 4. I think the pricing action we have in place are able to compensate this raw material effect. I will keep repeating that the problem is not about transferring the cost is always about evaluating the consumer behavior at the end. So tyre industry, we were always very disciplined in managing price and raw material we tried in the last -- actually in the last couple of years now, 15 years to improve also our positioning through new products and to price increases. But in general, I would say that I will not be concerned about the balance between prices and raw material. We need to see how the demand will evolve. But at the same time, we need to say that our journey is a little bit in particular, outside of the Nordic, it's a little bit independent, meaning that we come from a niche position, it's more position. So we still have plenty of opportunity to manage our growth.

Second question, your Q1 volumes in passenger cars were up 5.7%, while your reference markets in Europe and the U.S. were both done. And it comes against Q1 25, where you already had a strong jump in volumes. Can you elaborate on what has been allowing this? Where have you gained share? And whether you do expect to be able to continue to largely outperform your end markets in Q2 and the rest of 26.

Sure. We are growing in terms of market share, as we said in the I would say, new market, we could not even say new because obviously, we were before the crisis in Russia, we were already pretty present in Central Europe. But we are regaining obviously market share in Central Europe, we are growing market share in North America. And this is driven by a combination of elements, as we know very well. First of all, we have a completely new manufacturing footprint that is giving the possibility to have dedicated factories for dedicating markets, meaning that we can really focus on the development of specific market with dedicated manufacturing capabilities. Secondly, a lot of new products. We are releasing a lot of new products that are giving also the possibility to our team to promote our innovation capabilities. And of course, we are enforcing the team as well at the same time, also exploring new channels, reinforcing our B2B and B2C channels. So it's a combination. Clearly, for us, it's a continuous journey. And -- but it's very important that this journey is going to be profitable. So in Q1 2025, you saw an important growth 22%, but you didn't see an improvement of profitability. Now if you notice, you see a different journey in the last few quarters, we focus more on profitability improvement at this stage of our life. And then, of course, we are happy to see, like in quarter 1, when profitability and growth are moving together in the same direction because this is really what any healthy company should provide to investors every quarter.

Card, can you just say a few words about what you expect in the coming quarters about your share gains, do you think it can continue? Or this was the best outperformance you're going to show during the year?

The guidance is about growth. So what I mean is that we keep guiding single-digit growth, and that is really important. So we are not guiding 2-digit growth, but we are guiding single-digit growth.

Understood. Last question for me, please. You -- I mean, I think it's fantastic, but you barely spent any money in Q1 on CapEx million. So obviously, driving an unusually big decline in debt over the quarter. Can you explain why this is the case? Are you chasing something very slowly? Or do you still think you're going to need to spend EUR 120 million, EUR 130 million for the year? Or did you get some of the Romanian state aid that you wanted?

Timo has already anticipated very well that clearly, when you look at CapEx, you need to see also a sort of seasonality. Normally, for reasons, we do maintenance during factory closing. So obviously, the CapEx level in quarter -- end of quarter 1, beginning of quarter 2 will increase because it's the maintenance period for many of our own operations. As I said, I would consider EUR 130 million, the maximum roof. Actually, we are targeting less than this EUR 130 million. For us, it's very important to be capital efficient, meaning to be able really to invest whatever is needed in terms of maintenance, but also wherever we see a clear and faster return. So I will not take quarter 1 as a reference. But in general, of course, we have projects, we have maintenance projects. We have a small operational project to complete the Oradea plant that is not fully completed yet. But of course, we are guiding, as I said, at this stage, EUR 130 million and probably a bit less, but we will guide you better in the second quarter.

There are no more questions at this time, so I hand the conference back to the speakers.

If there are no further questions, this concludes today's call. Thank you, Paolo, and Timo and all for joining this call. and we wish you a great rest of the day. Thank you very much.

Thank you.