COLCHESTER, Vt.—It's been a busy five-plus months for Finland's Nokian Tyres P.L.C.
On the heels of two major marketing initiatives in North America, sponsorships with nine Powdr Adventure Co. ski resorts and the National Football League, the tire maker announced plans to build a $360 million passenger and light truck tire plant in Dayton, Tenn.
The 830,000-sq.-ft.-plant, Nokian's third global facility, is scheduled to be completed by 2020 with full annual capacity of 4 million tires and employment of 400 workers expected by 2022. Plus there's room to grow three-fold.
The facility is part of Nokian's strategy to double sales in North America in the next five years, to roughly $330 million or so.
In its latest earnings report, Nokian reported double-digit growth in earnings and sales in the quarter ended March 31. The firm projects sales growth in 2017 of at least 10 percent, with operating profits increasing by more than 5 percent.
Tommi Heinonen, president of Nokian's North America subsidiary, sat down with Tire Business Editor Don Detore to discuss the firm's first half and take a look at what he sees as a promising future at Nokian Tyres North American headquarters in Colchester.
With the year nearing its halfway point, how would you characterize business thus far?
Definitely for us, winter tires are important. We have seen that there is a carryover with winter tires. We have been able to grow. In the all-season business, we have been growing very nice, and unfortunately, we don't share the numbers. But definitely we have had a positive year so far, and we've had positive expectations this year, so we are on the right track.
Do you see that continuing through the rest of 2017?
Yes. When we discuss things with our dealers, the feedback is very positive. There is definitely Nokian momentum on the market. We are not doing it alone. Our dealers are very committed to us and want to work with us. There is market pull for our products now, and it's the summary of many things. Feedback from the field is very good.
What kind of ongoing initiatives do you have planned?
We are working on products, availability, markets and building our own organizations. We are working all the time on those in the field, and those are mandatory to double the sales and make the factory investment profitable and make sure we have enough numbers at the bottom. We need to work with those same topics.
What kind of trends are you seeing in the industry?
Definitely consolidation is the big thing. Everybody has seen that. Almost weekly you can read that someone has been doing some acquisition somewhere. The consolidation both in wholesale and retail are the big, big things right now.
The other one we see is the growth of logistics is more and more important. It seems to be the trend that nobody wants to keep tires in the store, but everybody wants to have immediate availability. That's a little bit of a challenge for the industry.
There should be availability immediately, but everybody wants to decrease (inventory) levels to minimum levels. Logistics is very, very important for the business. Those are kind of the trends that what we are seeing. Who has availability and distribution channels, those ones are strong ones.
Could an acquisition be on the horizon for Nokian?
Of course we all the time ask what are the options. Everything is possible. Definitely. You never know. We are open for everything.
What are some of the issues that our causing you challenges?
The raw material prices have been skyrocketing, and unfortunately the industry overall hasn't been able to boost the price increases on the level of the raw materials we would need.
There has been quite a dramatic price increase, up to 8 percent. Notice the reality of that is something else; 8 percent is not what people have been able to increase prices.
We have been reading when all the public companies that even top line has been flat, or little bit increasing, the bottom line has been decreasing. The raw material prices are the dilemma of every manufacturer right now.
Another problem we see is that warehouses are getting smaller and smaller, and the SKUs are getting bigger, and the average size of the tires are getting bigger. A warehouse where you could put 100,000 tires five years ago is not able to hold 100,000 tires today.
That's definitely a dilemma for the whole industry. We need more and more warehouse space all the time to be able to store the same number of tires.
And finally, logistics can be your strength, but you have to invest in building them, so logistics costs are challenging.
How has the new administration and/or political climate impacted business thus far?
Our factory would be the same no matter who won the presidential election. Our operational business is not tied to politics, but we follow all the time what is happening. Times are changing.