Nokian posts strong Q1, but cautious looking ahead

NOKIA, Finland—Nokian Tyres P.L.C. reported double-digit gains in revenue and earnings in the quarter ended March 31, but the company cautioned shareholders that the war in Ukraine and its repercussions will impact its financial results throughout the rest of fiscal 2022

Nokian said due to "high uncertainty and dynamic environment," fiscal 2022 sales and operating profit will fall "significantly" from 2021, although at this moment the company said it is "impossible to estimate the ultimate impact" on the fiscal performance.

Business in Russia and Eastern Europe has accounted for about 20 percent of Nokian's annual sales in recent years, and the sanctions imposed on Russia by most of the world's Western nations are having a "significant" impact the firm's ability to manufacture tires in Russia and thus the ability to sell tires in Russia and in Central Europe.

Segment operating profit for the quarter was up 32.2 percent to $72.3 million on 21.9 percent higher sales revenue of $452.7 million, Nokian said.

Business in the passenger car and heavy tires units rose 28.1 percent and 16.4 percent, respectively, Nokian said, stressing that price increases implemented in a wide range of markets and products to offset high raw material and other cost inflation contributed heavily to the revenue increases.

Sales in the Americas region outpaced Nokian's other regions in the period, shooting up 76 percent to $87.5 million.

Nokian recently suspended its dividend payout for the fiscal year, choosing instead to earmark that spending ($117 million) for establishing passenger tire capacity in Europe to replace production in Russia that the company has suspended.

Nokian said 76 percent of the passenger tires it sold in the period were produced at the plant in Vsevolozhsk, Russia.

In a presentation to financial analysts, Nokian said it's considering several options for the new capacity, including contract manufacturing or a joint venture as well as a greenfield factory.

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At the same time, Nokian is expediting efforts to increase capacity at its plants in Dayton, Tenn., and Nokia, Finland, as part of its strategy to have all tires sold in North America produced either in the U.S. or Finland.

Nokian also stressed that it produces all of its heavy tires sold in Europe in Finland and that it has never sold tires to the Russian army, and the Russian Federation is not a customer of Nokian Tyres.

In comments made during the financial results presentation, Nokian Tyres President and CEO Jukka Moisio said:

"The war in Ukraine will significantly impact our financial results in 2022, especially starting from the third quarter. Due to high uncertainty and dynamic environment, it is impossible to estimate the ultimate impact on our overall performance at the moment. The sanctions have a significant impact on our ability to manufacture tires in Russia, and thus our ability to sell tires in Russia and in Central Europe.

"Our short-term focus will be on adapting to the fast-changing, highly uncertain operating environment, maintaining control of our operations in Russia and securing cash flow. We have a strong product portfolio, and although there will be difficulties in the short term, we will do our utmost to ensure supply of our products to customers.

"In the mid-term, adding new supply capability to Europe will be one of our key priorities. At the same time, the board is evaluating long-term strategic paths in the changing operating environment."