Nokian Renkaat Oyj (TYRES) Earnings Call Transcript & Summary

Good afternoon, everyone, from sunny Helsinki and welcome to Nokian Tyres Second Quarter 2026 Results Call. I am Annukka Angeria from Nokian Tyres Investor Relations. And joining me today are President and CEO, Paolo Pompei; and CFO, Timo Koponen. Paolo will begin with an overview of the second quarter group level results. And after that, Timo will take us through the business unit financials. And as usual, after the presentation, we will be happy to take your questions. And with that, Paolo, please go ahead.

Thank you, Annukka, and thank you, everyone, for joining this quarterly call this afternoon. We start with the headline, strong profitability improvement driven by higher sales volumes and enhanced pricing. We are going to comment a very good quarter, I would say, in both dimensions, sales development as well as profitability. Moving to the agenda. We will start obviously with the quarterly highlights and the financial performance, then Timo will comment the business unit performance as well as the cash flow and the financial position. And now we will close the call with the assumption and guidance. And then finally, we will have our Q&A. Moving to Slide #3, quarterly highlights and moving to Slide #4. Before to start, we would like to highlight 2 important recognitions that we received during the quarter. The first one is about our -- both of them are about our sustainability journey. And the first one is about the financial time who was ranking Nokian Tyres as the first tire company in the sustainability in the climate change leadership. and we were the highest scoring tire company in this ranking, and we were ranked globally 39 among 600 companies that were selected. The second recognition came from the Time Magazine and also identifying Nokian Tyres as one of the best sustainable companies. We were ranked 100 among the top 750 companies around the world. These 2 recognitions are very important to us because they highlight the strong effort of our team and our Board in delivering sustainable operations and in improving our performance in the sustainability area day by day and year after year. Moving to Slide #5, let's comment together the highlights of quarter 2. Operating profit improved significantly by over 130%, supported by higher sales volume, price increases as well as lower manufacturing and raw material costs. We were able to grow sales in all the regions and in all the businesses and reflecting the high consumer trust on our brand. We had also good presales in June, in particular, when we talk about winter tire in the Nordic with the presales of the Nokian Tyres Hakkapeliitta 01. So we are very pleased about the development of this new flagship that is now part of our product portfolio. And then, of course, we keep improving our operation through efficiency improvement plans, and we are progressing with our own initiatives in line with our own plan. Moving to Slide #6 and Slide #7. Let's first look at the market performance. The market in Europe was the replacement market quite stable in the first half of the year. While in North America, we experienced a negative market trend, minus 5% in the replacement channel. Passenger car tire business is in some way recovering when we talk about Western producer, and there is some decline coming in particular, due to the tariff imposed by the European authorities to the Chinese production. Truck tire business is also developing well in Europe in the aftermarket. We understand the market was up by 10%. And we see a slight recovery of the agricultural and forestry business, plus 5% both OE replacement in the first half of 2026. Moving to Slide #8, going deeply in the numbers. We had quite a good growth in terms of sales in quarter 2 with a 10.6% sales increase or 9.7% in comparable currency. We were able to grow in all our regions, outperforming the market, and this was obviously driven by higher sales volumes and also price. We had also a good improvement of the segment EBITDA, plus 34%, reaching EUR 76.8 million in the quarter. And this is representing 20.2% of net sales that is not far away from our medium-term target of 24%. Segment operating profit increased significantly by 71% over EUR 45 million reach compared to EUR 26.3 million in 2025 quarter 2, and this corresponds to 11.8% of net sales compared to last year of 7.7%. As we said at the beginning, improvement was driven by higher sales volume, price increases and lower manufacturing as well as material costs. Finally, operating profit. We more than doubled our operating profit in the period, reaching EUR 34.8 million compared to EUR 14.8 million in 2025. Moving to Slide #9. We are very pleased to highlight the sales growth of the passenger car tire business overall, reaching almost 14% in comparable currency. But also Heavy Tire was able to reach 2-digit growth with 10.1% compared to the same quarter of 2025, while Vianor was remained pretty stable in terms of sales. I want to drive your attention to the significant growth we had in Central Europe. We are very pleased about this growth because it's also supported by the good improvement and improved output of our new factory in Romania. So everything is developing in this area according to plan. Moving to Slide #10. We are improving in terms of mix development. We were able to grow in many segments where we operate. However, we have been able to grow significantly in the all seasonal weather segment that, as you know very well, is growing significantly in Europe, in particular, and we were able to increase our sales also supported by our new product range of Season Proof 2. Winter tire was able to grow as well, but at a lower speed compared to the all-season business, in particular in Central Europe. And this is why the percentage is slightly lower in terms of total sales compared to the same period in previous year. Mix is improving also in terms of dimensions. We reached 50% of our sales in the segment 18 inches plus. This is also an important achievement that is highlighting how Nokian Tyres is able to focus on the premium range and obviously, in the more demanding applications. Moving to Slide #11. More or less, there are some numbers we have been already analyzed together. What we want to highlight the attention to is probably the net sales year-to-date are now up by 7.6% and the segment EBITDA is now up by 54%. Operating profit turned positive from a negative level of previous year year-to-date. Last but not least, in the bottom of the slide, you will see that in terms of capital expenditure, we were very disciplined. Of course, we have a lower level compared to previous year when we were still ramping up our operations in Romania, reaching a year-to-date EUR 24.5 million, which is significantly lower than the level of previous year that was EUR 90 million at this stage. Timo will comment shortly about the cash flow development. Moving to Slide #12. We are expecting for the full year CapEx to be significantly lower than the previous year, reaching in some way a level between EUR 100 million or even below than EUR 100 million at this stage. This is our estimate as of today. Then I hand it over to Timo for the comment about the business units.

Thank you, Paolo. And let's start with the Passenger Car Tyres, which obviously was one of the main drivers behind the strong performance. And Passenger Car Tyres continued very strong performance also in Q2. Net sales was up by 13.7% in comparable currencies. Prices were further improved as well as the transfer to the bigger rim sizes as already commented by Paolo. In segment operating profit, the percentage was 15.1% for the quarter, which is almost then money-wise doubling or more than doubling the profit from previous year same quarter. In H1, the net sales grew by 11.6% and the segment operating profit stood at EUR 45.7 million. Then when breaking the performance on Page 15 to various components, in the net sales, the volume component contributed EUR 22 million or 10.5%, which, of course, is the main driver there. But that combined with the continued positive price/mix, EUR 6 million or 3.1%, we saw a very good volume or net sales development for the quarter. Then in segment operating profit, the lower material cost, as already highlighted, was the biggest lever by EUR 10 million. And the other significant elements is the lower -- the positive price/mix and the lower materials. Some negative development in terms of the supply chain and SG&A, but the main picture in this picture remains very, very green. Then looking at quarter-by-quarter, we can see now that the volume indeed increased by 10.5%. And the volume price/mix, we saw a fifth -- actually sixth consecutive quarter with a positive development, which we are extremely proud of. And currencies neutral for this quarter, some negative development in North America, but that was offset by positive development in the Nordics. Moving to Heavy Tyres on Page 17. Heavy Tyres, as mentioned, already returned to growth in the quarter, going up by 10.1%, and that was driven basically by Agri, but we saw positive development across all the end user segments. Segment operating profit improved to EUR 10.1 million, representing 15.0%, driving also the H1 then to be still above 15%, which has been the target level. And this has been supported, as we already commented in Q1 on a very disciplined pricing as well as tight cost management. And then at Vianor, top line, more or less flat. But then in terms of the profitability, we were suffering still of the cost inflation and somewhat the quarter was impacted by the early start of the spring season, meaning that the season started already the March, which then aid a little bit the volumes from Q2 as we have commented in the report. Then moving on to cash flow and financial position. Cash flow, very strong. Two main elements there, of course, the improved EBITDA as well as then the significantly lower CapEx. And when looking at the free cash flow, the improvement was roughly EUR 97 million, which then also enabled us to decrease the debt levels. The only area where we saw basically growth on a wrong direction was the working capital where the initiatives that we have had ongoing in terms of capital efficiency in inventories or on the liability, the payable side are progressing as planned. And then finally, on our net debt, there, the net debt decreased by EUR 49 million in the quarter. Liquidity remaining on a very healthy stable level. And then at the end, still a reminder on our debt maturities during the quarter, we made arrangements and executed extension on a revolving cash facility of EUR 100 million as well as then another extension on a EUR 300 million bilateral term loan facility. Handing back to Paolo.

Thank you, Timo. And let's move on the assumptions and guidance. Moving to Slide #23. We are not expecting major changes in the second half of the year. We are expecting the passenger car tire replacement market to remain pretty stable between plus/minus 2%. This is the visibility we have at the moment, while we also maintain a positive outlook when we talk about truck tires between 5% to 10% positive as well as agriculture and forestry tires, where we see the market to be between 0% to plus 5%. So a modest growth in particular, in Europe at this stage. Moving to Slide #24, we confirm our guidance for the year, where we say that we will grow and we will land with segment operating profit as a percentage of net sales between 8% to 10%. So no changes in the guidance at the moment for 2026. So moving to Slide #25 and completing our presentation of the quarterly results. So just a quick update about the strategy execution that is, as you can see also from our financial result is delivering the expected results. We keep pushing our premium positioning, strengthening our brand with strong marketing investments with new products and in particular, with better prices. Also, I have to say we are really proud of our team who was able to execute efficiently our continuous improvement plan across in the organization, and this is driving significant profitability improvement. So we are very well done from -- for our team that has been able actually to focus on what really matters to influence our improvement in our P&L. We have new products coming up. They are driving growth in our selected segments. I'd like to remind you that our selective segment remain winter tire, all-season and all-weather tire as well as agricultural and forestry tires. We have completed the investment phase. So we are creating a foundation for a stronger cash generation. We landed in quarter 2 at EUR 24 million CapEx compared to EUR 90 million last year. So you can clearly see that now we are moving forward with an efficient renewed manufacturing footprint, and we can now focus on growth. We can now move to question and answer. Going back to Annukka.

Yes, we are ready to take the questions.

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

So I actually have 2 to be asked. And the first one is relating to PCT. First, a clear profitability improvement, what you have shown in the quarter. And could you maybe comment whether these new products, as you have been commenting, for example, regarding Hakkapeliitta 01, so that preseason sales has been exceeding expectations, whether these new products have been supporting profitability of the business in the quarter? Or do you expect some of this impact to be visible, for example, in Q3? So this is the first question. And the other question is relating actually to raw materials. So could you maybe comment how you see H2 in terms of upward pressure on that front and whether you are still comfortable that you would be able to compensate the pressure through price increases when it comes to raw materials?

Thank you very much for those 2 important questions. The first one is about the new products and the profitability improvement. Clearly, we've been investing a lot, as you know, in 2025 and at beginning of 2026 in new products that are covering not only winter tire with the Hakkapeliitta 01 and Snowproof 3P in Central Europe, but also in the old season, and we had also with the season Proof 2 in the Central European market. Of course, those new products are positioned better than the previous one. So they are driving the improvement in profitability. Hakkapeliitta 01, obviously, being a product dedicated to the Nordic markets and to Canada is exposed to the presales as well. So clearly, we should expect that the new positioning will be obviously kept moving forward, and we are very pleased about this development. About the raw material, this is a complicated question in the way that, obviously, raw material will be at this stage, higher in end of quarter 3, beginning of quarter 4. It's a little bit of roller coaster, as you can appreciate, going up and down depending on the geopolitical situation. But of course, as always, we say that the task of the company is to make sure that we are able to compensate the raw material trend. So it's more a matter of understanding what will be the development in particular at the end of the year at this stage.

And maybe just a quick follow-up relating to raw material situation and pricing conditions. Is it fair to assume that antidumping duties by EU against Chinese products should be helpful and basically, we could see some impact from this topic already during this year?

It is helping to, in some way, select to reduce the pressure coming from Tier 3 and Tier 4. It's also true and we need to acknowledge that the larger part of the production made in Asia is today produced in -- outside China, talking about other countries like Thailand, Cambodia, Vietnam, so -- and now even North Africa. So obviously, we could expect a sort of rebalance of the market because obviously, there are new sources where the tires are coming from. This is not really -- I mean, I think we should look at our journey. It's a different journey. It's in a sort of premium brand segment. So obviously, we are obviously watching these dynamics, but we need to simply focus on our own segments. And as you know, our own segments are also less exposed to the mass production of the Chinese tire, in particular, when we talk about summer tires. So this is making also our strategy a bit different because we are focused really on segments where we can deliver added value and where we can be -- where we can provide a different value proposition to our own customers.

The next question comes from Thomas Besson from Kepler Cheuvreux.

It's Thomas from Kepler Cheuvreux. I hope you can hear me.

Yes, we can.

Great. First, congratulations on this quarter. I have a few questions, please. If that's okay, I'd like to ask them one by one. Firstly, I would like to start with the volume growth, which I think is impressive. Could you help us understanding what has been driving that? Talk about the ramp-up of your Romanian capacities and the potential decline of your offtake contracts. Can you maybe make some qualitative comments about that to start?

Sure. Thank you for the question. I mean the volume growth is a combination of different elements. One, as we said, is new products available in the market. Those are providing obviously good support to our sales growth. The second element is related to the possibility then to leverage our new manufacturing footprint. I keep repeating, I keep reminding everyone, the manufacturing platform is a tool, but sales is about branding and positioning and creating consumer demand. So new product, I would say it's extremely are extremely important in our strategy to drive growth. And then, of course, recovery. Don't forget, we lost a significant amount of sales when we didn't have the possibility to leverage our manufacturing facility in Russia at the end of 2022. Now obviously, we are approaching the market with a new spirit, regaining market share in all the key markets where we believe we can be successful in our own segments. And this is obviously -- it's the big effort of our sales team globally in order to make sure that we are able to promote our new products and value proposition successfully in all the key markets where we operate.

Okay. So no comment on contract manufacturing. Have you reduced that or...

We reduced the manufacturing. But as we said always, we keep 10% of our overall sales always made by manufacturing partner, in particular to producing in -- with those manufacturing partner segments or sizes where we believe those sizes are not strategic for us or where we believe we don't have a specific competitive advantage. So we will keep always our relationship with our manufacturing partners.

I move to my second question. When I look at your operating profit breakdown and I look at the contribution from passenger cars, heavy cars and Ben and others, I noticed that the others has become substantially bigger. It was in the first half last year, EUR 7.5 million negative. in the first half this year, EUR 19.4 million negative. So can you explain that big jump? I don't think historically, there has been such a big other element. And I mean, to some extent, it does also positively impact the margins you're reporting for passenger cars and EBITDA. So I would like to understand that better, just to also know what we should model for the future in terms of relative offset of your manufacturing performance through this line.

Thank you, I mean. Basically, those operational eliminations, you are mentioning this one, I guess, are related obviously between the selling activities between Vianor and the passenger car tire sales. And obviously, more Vianor is reducing the stock, more the interlamination will be lower and the vice versa. I think this is what you are referring to or is there anything else? Yes, it's more about the sell-in and sellout of Vianor. We are eliminating obviously the sales in order to not double count the same sales in our P&L.

Understood. So it's really linked to the decisions you're taking at Vianor level then?

It's not really about decision. It's part of the dynamics. Vianor is acting as a sort of independent chain. So obviously, it's all about the movement of stock that we have in Vianor while selling out Nokian Tyres products.

Understood. I have 2 questions to finish about the cash flow, please. You've made comments about the CapEx to be somewhat lower. I mean I think it's clear when we see what you've spent in H1. I think initially, the comment was it was going to be a triple-digit million figure for the year. Now it's probably going to be -- it looks like it's going to be a double-digit million figure. Can you give us even a range for CapEx? Is it going to be like more EUR 50 million, EUR 60 million, EUR 80 million, EUR 90 million, something like that? Or you let us guess?

No, yes, I think last quarter, we said around about EUR 100 million. And now Paolo said that it's going to be probably below that. So not going to give you an exact range, but it's lower than EUR 100 million, and then you can pick the number.

Okay. I will pick a number. Last question, your receivables have jumped substantially. It's partly a reflection of your higher volumes, but the increase in number of days of sales is quite sharp. Can you help us understanding that? Are you coming back to the Nokian of the old times being the bank of your dealers? Are you taking any risk? Or is that completely safe? And that was my last question.

Yes. It is completely sales growth driven. Definitely, we haven't done any payment terms weakenings or change that to a worse direction. On the contrary, actually, -- but it is definitely only growth related. And we have to remember that the -- when looking at inside the quarter, it was very much driven by the June sales, so which also have an effect on that. So end of June balance sheet is rather a snapshot and indication of a longer trend line.

The next question comes from Christoph Laskawi from Deutsche Bank.

The first one, I'm sorry to come back to that, will be on raw materials again. Obviously, in the year-to-date bridge in pass cars, you're showing a EUR 19 million tailwind. And I think the overall market expectation also from other companies will clearly to be negative in H2. Could you provide a comment if it should be more like neutral for the full year or how it should trend in Q3, Q4? I guess, with the sourcing that you already did, you should have decent visibility on that? And related to that, also, how should we think about the price to cost phasing in Q3, Q4? Will any potential negative in materials be directly offset in Q3 already? Or is it more ramping up towards Q4, and then potentially overcompensating there? And then another question just on tariffs, actually. Is there any EFR benefits that you expect to book? Or have you booked one already year-to-date? And my last question will be basically a housekeeping one. Could you just confirm again that the contract manufacturing volumes that you have with your China are not subject to antidumping tariffs and potentially also not produced in China itself?

Thank you very much. I think we can reply to all the questions. First of all, when we talk about the raw material, please remember what we presented also during the Capital Market Day. Raw materials are obviously moving up and down depending on the market trend, but also we made a very important internal review of our raw material supplier at the end of 2025, beginning of 2026, and we've been able to achieve significant saving resourcing or working very closely with our team in this area. So the improvement that you see are partially driven by the market trend, partially driven also by our own effort to reduce and to improve the cost through the homologation of new suppliers. The trend is expected to go up, as I said, in our P&L because we need to think about there is always a time lag when we talk about the moment we buy and the moment we sell, but it's expected to go up in quarter 4. Clearly, we cannot comment about our future pricing due to the competitive rules, the competition rules. But of course, our policy is always about compensating whatever additional cost in positioning our product in compensating the additional cost. Moving to the second question about tariff. Clearly, I'm not sure what you mean when we talk about benefit. Tariffs are obviously redirecting the market flow, as I said, to other countries. At the moment, China has been obviously subject to tariff up to 50% actually from June. But as I said, a larger part of the Asian products are coming from other countries, including -- and we go to the question number 3, our offtakes that are not coming from China at this stage, but they are coming from other countries. So we don't see at this stage any risk of new tariff in our existing offtake contract manufacturing activities.