Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nokian Tyres PLC (NKRKF, Financial) reported a net sales increase of 11.2% with comparable currencies in Q2 2024.
- The company's segment EBITDA improved to EUR 46.8 million from EUR 41.3 million in 2023.
- The new factory in Romania is on schedule and within budget, with commercial production expected to start in early 2025.
- The US factory in Dayton has completed its investment phase and is now fully operational, including a new finished goods warehouse.
- Nokian Tyres PLC (NKRKF) has made significant progress in using renewable materials, including a new lignin-based material that could replace carbon black in tires.
Negative Points
- The company faced a EUR 20 million impact on EBITDA due to political strikes in Finland during the first half of 2024.
- Raw material costs are expected to increase in the second half of the year, potentially impacting profitability.
- The heavy tires segment experienced a 10% decrease in sales due to weak market demand, particularly in the OE sector.
- Operating profit for the Vianor business decreased by EUR 2 million, with inflation posing challenges to pricing.
- The company is still awaiting the European Commission's decision on government subsidies for the Romanian plant, adding uncertainty to future financial planning.
Q & A Highlights
Highlights from Nokian Tyres PLC (NKRKF) Q2 2024 Earnings Call
Q: You're expecting raw materials to increase in the second half of the year. Can you quantify in absolute basis how much higher this would be year over year? And then secondly, do you expect to offset these costs with higher prices?
A: We are not quantifying that. But we are expecting moderation. There is a lot of fluctuation currently with the raw material prices. We don't see the same type of price decreases as before, so the expectation is that they will moderate going forward. (Niko Haavisto, CFO)
Q: With your US facility fully ramped up, what is your capacity utilization at the moment out of the roughly [4 million] nominal? And is it right to assume that there will be no further ramp-up-related costs from the US?
A: The ramp-up is done, meaning all the equipment and facilities are complete, including the warehouse. There will still be some exclusions during this year related to first-time products, and we will have full capacity available going into 2025. (Niko Haavisto, CFO)
Q: What kind of impact, if at all, could the recent concerns over tariffs on Chinese electric vehicles have on Nokian Tyres?
A: We don't expect any immediate impacts on our performance as we are in the replacement tire market. However, we need to pay attention to political and legislative developments that could affect us in the future. (Jukka Moisio, CEO)
Q: Can you give us a broad indication of the amount of contract manufacturing volumes you are projecting now for 2024, 2025? Is there any risk that your contract manufacturing volumes may be impacted by changes in import duties?
A: Initially, we projected up to 3 million tires for contract manufacturing. Currently, we are between 2 million and 3 million. We expect our volumes to go up in 2025, with part of that coming from our commercial production. Contract manufacturing will remain part of our future strategy. (Jukka Moisio, CEO)
Q: Could you share your latest projection for CapEx in '24 and '25?
A: The CapEx for this year is roughly EUR350 million, with EUR160 million spent in H1. It will be a little north of EUR200 million next year. (Niko Haavisto, CFO)
Q: Could you say if you are ramping up the production as fast as you can at the moment towards the EUR4 million next year? Or is the limiting factor more for the supply or the demand?
A: We have new equipment and a new production plan. We are focusing on operations only, with all equipment installed. We are able to sell everything we produce in Dayton, so it's up to us to improve throughput and productivity. We expect to be at full speed by the end of the year. (Jukka Moisio, CEO)
Q: Could you clarify how much of the 2 million to 3 million tires from contract manufacturing was already done in the first half?
A: We don't disclose the split between winter, all-season, or summer tires. However, the major part of Central European growth is based on contract tires, with a lesser degree in Nordics. (Jukka Moisio, CEO)
Q: Could you provide some indication of volume development in the second half of this year for passenger car tires?
A: A year ago, we did not have off-take and only had winter tires. This year, we have better availability and opportunities based on targeting historical volumes. We expect growth to continue based on improved product availability. (Jukka Moisio, CEO)
Q: What could be the expected sales volumes coming out from the Romania factory next year?
A: We have a significant ramp-up plan but will not comment on exact volumes. We are prepared to service the European markets based on volumes from the Romania factory. (Jukka Moisio, CEO)
Q: Could you share any color on how demand for the Nokian brand is developing in the US, particularly for summer and all-season categories?
A: Our volumes in North America are defined more by availability and production capability rather than demand. We are focusing on improving productivity and throughput. (Jukka Moisio, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
