Nokian Reports Strong Sales and Profits
Between January and March 2008, Nokian Tyres Group recorded net sales of 246.3 million euros (199.9 million euros), showing an increase of 23.2 per cent on the corresponding period a year earlier. Operating profit rose to 54.4 million euros (2007: 39 million euros). Compared with the previous year, the group’s net sales increased by 1.4 per cent in the Nordic countries, by 64 per cent in Russia and the CIS countries, by 33.7 per cent in North America and fell by 8.8 per cent in Eastern Europe.
In light of these figures, Nokian Tyres President and CEO, Kim Gran, pointed east in explaining the company’s sales growth: “The majority of growth in sales came from Russia and other CIS countries. Both sales of summer tyres and pre-sales of winter tyres were brisk. The average price of tyres rose as a result of a good sales mix, successfully implemented price increases and new products. Russian manufacture increased in line with targets, and the advantages thereof improved the profitability.”
Passenger car sales were also reportedly boosted by the introduction of the new studless Nokian Hakkapeliitta R winter tyre family, which will be launched to consumers in the autumn.
Deutsche Bank analysts described the results as “signalling future potential,” pointing out that net sales grew 34 per cent and margins reached a high 34 per cent. As a result the bank raised its estimates by some 6 per cent, and its target price to 37 euros. “We believe the fast growth in Russia combined with stability in Russian production were the main drivers on top of which mix seems to have improved slightly. Going forward, we believe margins could remain at the first quarter level at least when compared to history (normally second half margins are above first quarter),” the analysts commented
In a note to clients, ABN Amro said it thinks Nokian’s first quarter results last month were “surprisingly good.” This broker believes a snowy Easter in core markets will result in car and van tyres, and particularly Vianor, seeing some results shift to the second quarter.
Giving an overview of the development of the markets it operates in, Nokian representatives observed that while passenger car replacement markets in Russia and the CIS countries have grown compared with the first quarter of 2007, the Nordic markets declined slightly. Sales grew 64 per cent in Russia and CIS, generating 47 per cent of manufacturing sales.
Interestingly, despite a delay in the onset of the summer season in the Nokian’s Russian and Eastern European markets (a fact that company representatives predict will result in a bumper second quarter), recent developments mean there is a additional upside for the company’s Russian business this quarter. According to the results statement, Nokian will now experience a lower tax rate as a consequence of tax relief in Russia. The tax relief is valid “for as long as the company gains tax on yields corresponding to the amount of the Russian investment, and for two years thereafter.” According to the filing, now that the uncertainties surrounding this tax relief have been ironed out, first quarter 2008 figure contains a non-recurring 6.5 million euro tax relief from the second half of 2007.
Since the company’s last report, the Vianor retail chain has expanded in Russia and Ukraine. At the end of March, the Vianor network comprised a total of 382 sales outlets, 208 of which were partner and franchise stores. During the first quarter, a total of 16 new Vianor outlets were opened, including a branch in New Hampshire, USA and the company’s fifth outlet in Kazakhstan.
Looking forward Nokian Tyres’ expects its prospects for 2008 to be good: “Demand is increasing for winter tyres, UHP summer tyres and SUV tyres, particularly in Russia, the CIS countries and Eastern Europe. In North America, too, prospects in the winter tyre market have improved, whereas in the Nordic countries and Western Europe markets remain flat. Manufacture of forestry machinery as well as other machinery and equipment is active, and the global shortage of heavy special tyres is continuing.”