Russia/CIS, taxes weigh upon Nokian Tyres in Q4 2013
Recent tax reassessments have given the Nokian Tyres Group a negative bottom line in the fourth quarter of 2013. The Finnish tyre maker’s pre-tax profit of €57.7 million (already down 44.6 per cent year-on-year) was dragged down to €-36.4 million by the additional €100.3 million in taxes and interest that Finland’s Tax Administration requires Nokian to pay for the 2007 to 2010 financial years.
At €411.8 million, fourth quarter net sales were 7.8 per cent lower than in the final quarter of 2012; higher sales in Europe (up 12.7 per cent year-on-year), North America (up 3.2 per cent) and the Nordic countries (up 0.6 per cent) were weighed down by a 21.5 per cent year-on-year sales decrease in Russia and the CIS. Operating profit declined 16.6 per cent to €93.2 million.
“Nokian Tyres’ sales in the Nordic countries were again solid, and our already strong market position was further improved by clear growth especially in Sweden,” commented company president and CEO Kim Gran. “Our market share improved to an all-time high 37 per cent of winter tyres in the Nordic region. Our sales growth in Russia took a breath, even though we managed again to grow winter tyre sales clearly in a weaker market. One of our highlights was a clear improvement in our CE (Central European) sales. The expansion of our distribution network in CE is starting to pay dividends with sales volumes increasing faster than the average market demand. We showed clear growth in Germany, Poland and France.”
A drop in net profit for the whole year was also inevitable thanks to the €100.3 million bill from the Tax Administration, however the full-year 2013 figure would have been lower than in the previous year even without the added penalty. Net profit amounted to €183.7 million, down 44.5 per cent year-on-year, and earnings per share dropped 44.8 per cent to €1.39.
“Our net profit was hit hard in Q4 by exchange rate changes and by additional taxes of €100.3 million in Finland,” Gran reported. “We strongly disagree with the tax decision, which we consider to be in conflict with legislation and tax agreements. We will appeal against this decision in all instances necessary, and trust that the decision will be revised.”
Group net sales decreased 5.7 per cent to €1,521.0 million. As was the case in the final quarter, overall sales were affected by poor performance in Russia and the CIS; sales within this region (which represents 34.2 per cent of Nokian’s total) were 4.9 per cent lower than in 2012 (-7.6 per cent for Russia alone). European sales (22.8 per cent of the total) were also down 4.0 per cent year-on-year, while sales in the Nordic countries (35.8 per cent of the total) increased 1.5 per cent and North American sales (7.0 per cent of the total) were 0.1 per cent higher than in 2012.
Sales of passenger car tyres (71.1 per cent of total sales) were down 6.8 per cent, while sales within the heavy tyres division (6.0 per cent of the total) decreased 8.4 per cent. Sales within the Vianor retail network (19.5 per cent of the total) decreased 0.9 per cent and sales from other operations (3.4 per cent) were up 2.2 per cent.
Operating profit amounted to €385.5 million, 7.1 per cent lower than a year earlier. Nokian says operating profit was negatively affected by the IFRS 2 -compliant option scheme write-off of €13.2 million and expensed credit losses and provisions of €14.3 million.
2013 developments and outlook
During the course of last year Nokian commissioned two new lines in its factory in Russia, where 80 per cent of the company’s passenger car tyres are manufactured; line 12 was commissioned in the first quarter and line 13 in the second. This took annualised capacity in Russia to more than 15 million tyres by end of 2013. Commenting on this, Gran said: “We have an inbuilt capability to increase our output rapidly without capex to meet market growth.” A further 169 outlets were added to the Vianor network in 2013, bringing the total to 1,206 in 27 countries. In Russia, Nokian dealership programmes now include nearly 3,300 tyre shops and car dealers. A new softer partner franchise model, Nokian Authorized Dealer (NAD), was also rolled out, with 432 outlets now contracted in Europe and China.
Nokian’s focus in the passenger car tyre segment this year is to increase sales at a rate that exceeds average market growth in all targeted car and SUV tyre markets, to improve price position with the newly launched products, to further expand distribution and to improve productivity and utilisation of capacities. The upgrade of the company’s heavy tyre factory is set to be completed early this year and the restructuring of heavy and truck tyre operations carried out in the final quarter of 2013 took affect at the start of the current year; Nokian says synergies are expected to materialise both in sales and in fixed costs in 2014. In the retail business, by the end of this year Nokian aims to operate a total of 1,350 Vianor outlets and to double its NAD total. The company also wants to introduce the NAD concept into four or five new national markets.
“We are looking into the future with confidence,” stated Gran. “With the expanded product range combined with the overwhelming test victories in all core markets in 2013, our product offering is the best we have ever had. Our market geography is showing signs of improving demand and our tyre chains Vianor and NAD are to be expanded further, offering us a good base to increase sales in 2014. Lower material cost and a higher share of Russian production will support our profitability.”