Nokian posts record sales after tough 2022

NOKIA, Finland—What a difference a year makes.

The arrival of 2023 found a much changed and very refocused Nokian Tyres P.L.C. And in many ways, the new year found a much stronger company, according to CEO and President Jukka Moisio.

"The year 2022 was exceptional and full of major changes," Moisio said in a statement. "I am proud of the Nokian Tyres team, who showed exceptional strength and resilience in the midst of the unprecedented events, responding to fast-changing situations while at the same time caring for customers and for each other."

Many of the challenges—and a whole lot of the changes—Nokian faced stemmed from the invasion of Ukraine and the company's subsequent decision to end production and business in Russia. It marked a major move for Nokian, one that would impact it indefinitely.

"During the year, we started to build the new Nokian Tyres without Russia, increased production in Finland and in the U.S., and launched high-performing new products in our core segments, making our product portfolio the strongest ever," Moisio said. "We also made the decision to build a new passenger car tire factory in Romania, which will be the world's first zero CO2 emission factory in the tire industry, and the decision to start collaborating with tire contract manufacturers. These actions are extremely important in terms of additional capacity and our future growth."

But to understand how Nokian plans to grow in 2023 and beyond, you have to know where Nokian was and where it's starting 2023.

Even with all of its challenges, 2022 had several bright spots, Moisio said.

For starters, the Finnish tire maker posted record-setting net sales of $1.86 billion. And while that represented a 3.6-percent increase over 2021, Moisio noted that it marked a 2.2-percent decrease when comparable currencies are considered.

Overall, operating profit came in it at a loss of $122.1 million, impacted primarily by the decrease in passenger car tire volumes, particularly in Central Europe and Russia. It marked a significant change from 2021 when the tire maker posted operating profit of $317 million.

Segments operating profit stood at around $232.5 million, while the segments EBITDA came in at $385.8 million.

Nokian was bolstered by the performance of its Heavy Tyres business unit, which saw its best sales year ever, achieving $287.5 million in net sales, marking a 7.7 percent increase over 2021 (6.6 percent for comparable currencies). Heavy Tyres also recorded operating profit at about $41.2 million, down year-over-year from 2021's $46.2 million.

The Passenger Tyres business unit, meanwhile, recorded $1.29 billion in net sales, but posted an operating loss of $156.9 million. Segment operating profit was $188.1 million, down year-over-year from $353 million in 2021.

Fourth-quarter net sales took a big year-over-year hit, dropping 19.8 percent—or 22.2 percent when comparable currencies are considered. This mainly was due to lower passenger car tire volumes, particularly as sanctions against Russia came into full force.

"In the fourth quarter, the net sales decreased slightly due to supply constraints," Chief Financial Officer Teemu Kangas-Kaerki said during an investors call Feb. 7. "And, as an example, they were not at a high level in the fourth quarter in our Nokian factory."

Nokian recorded sales of $432.4 million for the three months ended Dec. 31. The operating loss for the quarter was $14.1 million, down year-over-year from a profit of $62.6 million.

Fourth-quarter net sales for the Passenger Tyres business unit plummeted 31.2 percent (35.9 percent for comparable currencies) year-over-year to $248.1 million. The operating loss for the unit was $33.4 million, compared with a profit of $76.3 million a year earlier.

The Heavy Tyres business unit, meanwhile, saw net sales of about $68.1 million in the fourth quarter, which left it essentially unchanged year-over-year (0.8 percent). When comparable currencies are considered, net sales dropped about 1.3 percent.

Quarterly operating profit for the Heavy Tyres business unit was about $1.89 million, down from $3.4 million a year prior.

With the books officially closed on 2022, Nokian is focused on growth.

That's not to say that it is all smooth sailing ahead. It's more like Nokian is bracing for more challenges as it navigates the first half of the year. Still, the tire maker remains optimistic about what's ahead.

"Beyond expecting that the first half will be weak due to the constrained capacity and seasonality, the second half will be supported by winter tires, all-season tire sales and the offtake volume that we are targeting in the second half," Kangus-Kaerki said. "We see the market softening, so there most likely is a short-term headwind even though, overall, we believe that the market is going in the right direction."

The right direction has been laid out clearly in Nokian's plan to transition and expand its manufacturing footprint, while maintaining its focus on innovation and R&D.

"As we enter 2023, our focus will be on adding new capacity, retaining a competitive premium product portfolio and serving our customers," Moisio said. "The first half of the year will be demanding as we are lacking supply, but we expect our volumes to start picking up again from the second half of 2023 onward as we continue to progress our ongoing strategic projects. The year 2023 will be a new start for Nokian Tyres to a 2-billion-euro business long term."

And North America, of course, will play a key role in helping the company not only find its footing, but prepare it for further growth.

Upon exiting Russia, Nokian said it would shift production to its plants in Finland and Dayton, Tenn. That transition is ongoing, but significant strides already have been made in Dayton, Moisio told investors during a call Feb. 7.

"We had a plan to go up to 4 million tires in Dayton, and that plan is very much ongoing," he said. "Equipment will be installed this year, and ramping up of those equipments will be taking place this year and early 2024, to achieve that 4 million tire capacity and capability."

To this end, the tire maker already announced a $174 million investment at the facility. It's a move that will not only add manufacturing capacity, but add warehouse space there as well.

In Europe, the company's Finland factory will add capacity to help support demand for Nokian products, but it's the new factory in Romania that will have the biggest impact on the company in the years ahead.