Nokian poised to immediately exit Russia

NOKIA, Finland—Nokian Tyres P.L.C. has initiated a plan to immediately and completely exit the Russian market.

The Nokia-based tire maker said June 28 that its board of directors had approved a "controlled exit" from Russia, noting that the country's ongoing war on Ukraine and subsequent sanctions make it "no longer feasible nor sustainable" to continue operating there.

"After a thorough consideration and assessment of various options, we have decided to rebuild Nokian Tyres without a presence in Russia and focus on growth opportunities in our other core markets," Jukka Moisio, Nokian president and CEO said in a statement. "This was not an easy decision given we have over 1,600 dedicated employees in Russia whose expertise we highly value as well as many long-standing customer and supplier relations built over the past 17 years."

The company said it will make the move with its employees and legislation in mind.

This move is a significant one for Nokian, best known for its winter tires. The Russian market—along with Asia—represented 20 percent of the company's net sales. Last year, 80 percent of Nokian's passenger car tires were made made in Russia.

Earlier this year—and shortly after Russia launched its attack on Ukraine—Nokian said it would move some of its production out of Russia, transferring those operations to manufacturing sites in Nokia and Dayton, Tenn.

Those operations are likely to continue playing a key role as Nokian works out how to best manage its assets and move forward, given the most recent decision.

"For the past months, we have witnessed shocking events in Ukraine. We have followed the situation with great sadness and we, along with the whole international community, unequivocally condemn the war, which has caused unspeakable suffering to so many," Moisio said. "Our short-term focus has been on adapting to the fast-changing, highly uncertain operating environment, and maintaining control of our operations in Russia."

Nokian does have room to grow at its headquarters, which also includes tire production, in Nokia. The tire maker, just last week, said it purchased three hectares of land—about 7.5 acres—near the facilities.

And, although Nokia does intend to grow in the European market, the company said that the acquired property was not intended to be part of the initial plan to transfer production from Russia.

In April, Nokian said its commitment to the European market would be solidified in the establishment of a second tire plant on the continent. At the time, the tire maker said the move would help to replace the capacity at its Russian plant, the future of which was uncertain at that point.

To expedite the decision to build a second plant, management cut the dividend payment this year completely and planned to reallocate the $118 million it would have paid out toward the construction of a new plant in Europe.

As a result of its exit from Russia, Nokain expects to take a $315 million hit in the second quarter. These will be recorded as non-IFRS exclusions. Taking these impairments into account, Nokian said the value of its net assets in Russia and Belarus total about $420 million on May 31.

Overall, it's been a tough year for Nokian, which posted strong first quarter results, but felt strong impacts from Russia's Ukraine attacks. In its most recent financial report, it cited "significant uncertainty" in operations as a reason for its expected decrease in net revenue this year, compared to 2021.

The decision to leave Russia is a complete reversal of an earlier stance by the tire maker. Russian President Vladimir Putin earlier this year threatened to nationalize the assets of companies that ceased operations in the country. At that time, Nokian said it would continue to operate in Russia in an effort to maintain control of its assets.