Nokian experiencing increased demand, especially in Russia
Following the company’s recent pre-announcement of fiscal results, financial analysts have characterised them as proving “demand has continued to grow in all Nokian's key markets. According to an investor’s note published by Deutsche Bank, this is said to be especially in Russia, where foreign car sales are expected to grow by about a third in 2011 – 2012. Nokian said its sales will reach 278 million euros, with pre-tax profits (EBIT) of some 65 – 70 million euros in the first quarter of 2011. According to Deutsche Bank, the upper end of the EBIT-range was “56 per cent ahead of Reuters’ consensus estimate before the announcement.” Nokian’s management also upgraded its full year 2011 guidance: “In 2011, the company is positioned to provide strong sales growth and to improve operating profit clearly compared to 2010.” Previously the company had said: “In 2011, the company is positioned to provide strong sales growth and to improve operating profit compared to 2010.”
The addition of a single word (“clearly”) may not seem like much, but the analysts predict it signifies a greater degree of optimism than previously revealed. Nokian and the analysts’ confidence is based on two things – the rapid recovery of the Russia market and the firm’s presence and product capacity in Russia.
With regard to the recovery of the Russian market, Nokian reports that after a terrible dip between 2008 and 2009 the market picked up by around 5 million units in 2010, growing from 25 million to roughly 30 million tyres. Looking forward the company expects the same amount of growth this year and every year till 2015. At the same time the bottom-end C segment is predicted to level off at around 19 million units, with the remaining 35 million tyres of the by-then 54 million units a year tyre parc being split between the A and B segments Nokian is so strong in.
At the same time Nokian Tyres’ factory in Russia continues to grow. The latest news is that eight production lines operating. Lines seven and eight were completed in 2010, with lines nine and ten ordered for installation in second and third quarters of 2011. Theses lines are said to feature “state-of-the art machinery” and “high European quality standards.” Furthermore the Vsevolozhsk factory is said to export to over 30 countries, making it the biggest consumer goods exporter in Russia.
As of 31 December 2010 851 employees worked on site compared with 640 the year before.
Commenting on how they believe current market trends will affect Nokian’s profitability, Deutsche Bank added: “We believe average selling price growth is likely to offset higher raw material costs, driven by improving sales mix and pricing power. Potential capacity upgrades and related efficiency gains add the upside.” As a result the market watchers upgraded their target share price to 40 euros from 38.
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