Hello, and welcome to the Nokian Tyres Third Quarter 2023 Conference Call. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Päivi Antola, to begin today's conference. Thank you. Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2023 Results Conference Call. My name is Päivi Antola. I am from Nokian Tyres Investor Relations, and together with me in this call, I have Jukka Moisio, the President and CEO of the company, and Niko Haavisto, Nokian Tyres CFO, who joined the company in the beginning of October. So welcome to Nokian Tyres, Niko. Thank you, Päivi. Pleased to be here. And, we also have Adrian Kaczmarczyk, Senior Vice President, Supply Operations, who will give an update on how the expansion of Nokian Tyres manufacturing footprint and rebuilding, capacity is proceeding. And, that is the topic we will be starting this call with. So Adrian, welcome, and, please go ahead. Thank you, Päivi. Welcome to our call today. Good morning, good afternoon to everybody. As Päivi said, my name is Adrian Kaczmarczyk, and I will be talking about the expansion and the rebuilding of the Nokian Tyres capacity and the progress as such. When we start with the Oradea project, we have basically started the project, the Romania factory project in May. This year was a great groundbreaking event, and since then, the progress has been quite substantial. So we have really completed the site cleaning and the site preparation work, and the main utility building and the main production building has progressed according to plan. So we are currently, and you will see it also on some pictures later, well into 85% of the completion rate at this point of time. And as we speak now, the contractors are really continuing also with the fit-out of the building inside, pouring concrete and doing all the preparation work needed to start the machine installation as planned, beginning or early 2024. So the main equipment obviously is now being built and everything's been ordered. And that said, we are planning to start the installation of our first equipment in the first quarter next year. The recruiting process has started. We kicked off the recruiting process, which basically will ramp up in the fourth quarter and reach its peak in the first half of next year, when, where we plan and target to produce our first tire in the second half, and then, during the second half of next year, we will commercialize and qualify all needed production and products to be ready to start producing and commercializing our production in the beginning of 2025. In addition, obviously, we also applied for investment subsidy of EUR 99.5 million, which basically has been filed through the Romanian government and is currently under review and under investigation by the EU Commission. On the next slide, you will see the pictures on the left-hand side, the production building, as said, which is almost 80% finished. You see on the right-hand side how it looks like inside, and obviously, facade and also roofing has been almost concluded and completed. So overall, I have to say that despite all those challenges those projects bring along, we've been able to maintain our very tight timeline up till now. Next, please. On the overall capacity, Nokian Tyres capacity, I can only say that we have been successfully concluded our capacity expansion in Nokia, Finland, for our passenger car tire production, and we are currently finalizing the installation in our Dayton, Tennessee, facility, and currently commissioning the equipment. So installations are finalizing as we speak, and the ramp-up of the equipment is planned in parallel with the new product introductions we are currently doing in the first half of next year, and then Dayton will operate at its full capacity in the second half of 2024, where we will then finally conclude the expansion and have also our full product portfolio ready for the North American market. On the contract manufacturing side, we've been able to secure approximately 1.5 million tires for mainly the Central European market, and they are split between two families, mainly winter and all season, and will be followed by summer products beginning next year. If you look at our footprint, and this is the final stage as it will look like. As you can see, we will continue with contract manufacturing as part of our portfolio, so we call it virtual factory. But we'll operate three factories, Dayton in Tennessee, U.S. As I said, finalizing the expansion in the first half next year, with the complete portfolio being available for the North American market. Nokian Finland, currently operating at its capacity, and Romania Oradea new factory, well, in schedule, to be ready to produce first tire in the second half of 2024. And with that, I will thank you, and we'll hand over back to Päivi. Thank you, Adrian. For the audience, Adrian will be on the line the whole call, so he will be available for your questions at the end of this call. But let's, then we'll continue to the actual results. Jukka, please go ahead. Thank you, Päivi, and welcome on my behalf as well, and thank you, Adrian, to take us through the capacity development stages. One year ago, pretty much, we signed the agreement to divest our Russian factory to Tatneft, and also about one year ago, we announced our decision to invest in Oradea. So, quite a milestone one year ago, and we've come a long way, and we are actually closer to starting the factory in Oradea, and actually, it's a longer time from the decision. So we are more than halfway on our way to rebuilding Nokian Tyres. We started with about 19 million tires in 2021, when Russia was at full speed, and then in 2022, we had an eventful year with war in Ukraine, and then various steps, and we are heading towards 15+ million capacity when investments have been completed, plus the virtual factory between one and three million. So all in all, that rebuild journey is continuing, and step by step, we'll achieve our milestones. But let's move to quarter three, and this is now comparable numbers. So this means that Russia activity has been classified as discontinued operations, and so therefore, like for like, is the comparison. Profitability improved. Net sales were EUR 276 million versus EUR 333 million in 2022, and this is a decline of 12.7% in comparable currencies. We had a demanding market environment and inventories, the distribution were on a high level, and of course, our main product offering for 2023 was really winter tires. Obviously, we had a certain number of tires from offtake and so on, but mostly we had a own manufactured winter tires. EUR 15 million negative impact from currencies. Market share gains, we have seen market share gains in premium winter tires, and this is based on the feedback from our customers. Our segment EBITDA at EUR 46 million, versus EUR 7.4 million last year. This means margin of 16.7% versus 2.2% of segments net sales compared to 2022. So clear improvement in margin and in absolute EBITDA. Segments operating profit at EUR 19.6 million versus minus EUR 17.9 million a year ago. Again, there is a clear improvement, and that's driven by passenger car tires. We also announced last week that the second dividend installment of EUR 0.20 per share will be paid in December. I move to page seven, and just to reflect that we have some balance sheet, I call out some key numbers in the balance sheet. First of all, let's start with the capital expenditure. In the quarter, we spent about EUR 70 million, EUR 69.5 million, versus about EUR 27 million a year ago. Year to date, our capital expenditure is in the range of EUR 157 million, and last year, 2022, we spent about EUR 60 million in capital expenditure. To have a forward-looking assessment of the capital expenditure this year, we expect that we land somewhere in the range of EUR 250 million for the full year. So about EUR 100 million more in the final quarter. Segments EPS, earnings per share, was EUR 0.09 in the quarter versus EUR 0.25 a year ago. This EUR 0.25 include the discontinued operations of Russia. In the nine months, our segment EBITDA was 12.2%, and that's a improvement over 9.3% a year ago. Also, in absolute euros, the EBITDA improved. The segment's operating profit at EUR 27 million in the first nine months versus EUR 17.6 million a year ago, and as you see, almost all of the segment's operating profit in the first nine months were delivered in the third quarter. Our equity ratio remains good, 60.1%. Gearing is 28.2%, and interest bearing net debt at the end of September was EUR 386 million. As you remember, our cash flow profile is such that we collect a significant cash inflow in the final quarter. With that, I hand over to Niko, our new CFO, and Niko, welcome, and on my behalf, and please, it's all yours for the first quarterly results. Yeah. Thank you, Jukka. I will go through the Q3 segment numbers a little bit more in detail. I'm on page eight now, and as you noticed in the release that we do have lower sales compared to last year, some minus 16.6% in comparable currencies, but our margins are on a good level. And the ASP with comparable currencies increased slightly. You have also noted when we released last week the profit warning guidance that we said there that the inventories at the distribution are on the high level. So that's what we are facing. But on the other hand, we see a clear profitability improvement, and our margins are so supported by lower costs. Now, on this page still, I would like to point out the segment operating profit of close to EUR 19 million and at the level of 11.1%. Maybe if you move to next page, page nine, there is the PCT bridge, which you can see that starting from the Q3 last year, roughly EUR 40 million was lower of the volumes. Price mix, we gained EUR 4 million, and that with those two elements, we were at the level of EUR 180 million in terms of sales. But we also had the negative effect from the currencies of some EUR 10 million. And with that, we landed with the segments sales of EUR 170 million. Operating profit bridge there for the PCT Q3, we started from the low -EUR 18 million level. There are the same elements, i.e., the sales volume, of course, hitting us. Price mix, we think got the gain there, and the material prices are in our favor as well. And then there was this big element of supply chain of EUR 40 million, and then the sales and general management there. There we also saved some EUR 6 million. That comes excluding the effects at the level of EUR 21 million as an operating profit. And then when you deduct the negative effects or currency impact there, we land at the EUR 19 million at the PCT segment. On page 10, you can see that the kind of trends, we were in Q1, -63% in terms of volumes, then Q2, -30%, and now we are at the level of -18%. Price mix there, as said, we had both in Q1 and Q2, i.e., H1 this year, good development. Now that development is more or that favorable development is more or less kind of achieved. So we were having some 1.7% there in terms of net sales gain. And then the currency in that right-hand column, you see that in all quarters, that has been negative for this PCT segment. Then briefly, page eleven, Heavy Tyres. There we see that the net sales decreased mainly due to the slow aftermarket, and also see the same similar thing that the inventory levels in the aftermarket are in the aftermarket distribution are on the high side. Operating profit was lower due to the fact that the volumes were a bit down, as well as the currency in this segment as well. And then during the summer, we had the temporary adaptation to our production, which reflected the lower demand in this segment. But also there, if you look at the segment's operating profit percentage, 12.1% was the number for Q3 2023. Page 12, Vianor, there, clearly see also the headwind from the currencies, some 4.2% negative. And of course, this Q3 is seasonally a low quarter for us. And therefore, both the sales and in terms of operating profit, they were lower than previous year, and then the coming quarter as well. And then last was the guidance that we updated a week ago, on the twenty-fourth, that night. We are saying that we expect net sales to segments, net sales between EUR 1.15 billion-EUR 1.2 billion, and operating profit between 5.5%-6%, approximately, of the net sales. With that, I hand over back to Jukka for the final conclusions. Thank you, Niko, and thank you for taking us through the financial summary. Keep on building the new Nokian Tyres. We have the long-term targets, where we want to go back to EUR 2 billion in net sales and achieve segment operating profit at 15%, and also have the balance sheet leverage at net debt EBITDA between one and 2. Underlying there is the EBITDA target that our segment EBITDA long term will be in the range of 23%-25%. You remember that in the third quarter, we had 16.7% and had a sequential improvement in 2023 until third quarter, and we expect also similar sequential improvement in the fourth quarter compared to third quarter in EBITDA margin. We have five cornerstones, safe tires, responsible and effective supply chain, consumer trusted premium brand, leader in sustainability. We make good progress in sustainability, come back later to that one, and Nokian Tyres team. Obviously, lots of things have happened since the announcement of the divestment of Russian factory to Tatneft. Final conclusion of the deal in March this year, and then continued building of new Nokian Tyres, and especially investing in Oradea, and many other things happening simultaneously. So this is Nokian Tyres in summary. This is the quarter three, and the building of the company continues. Over to you, Päivi. Thank you, Jukka. Thank you, Niko. And now, operator, we would be ready for the questions from the audience, please. Thank you. As a reminder, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally as you'll be prompted when to ask your question. Our first question comes from the line of Giulio Pescatore from BNP Paribas. Please go ahead. Hi, thanks for taking my question, and thanks for sharing the update on the construction of the Romania plant. Can you just remind us on that of how much of the EUR 650 million you target to spend have you already spent this year, and of the phasing in the coming years, if there has been any update on that? Then the second one on the winter tire, you said the inventories are still elevated. Is that still the case today, or that was more the situation in Q3? And maybe a more high-level question on this, are you seeing customers moving away from winter tires? Because this is the third winter season that is described as being weak by pretty much all players. So is there any structural changes, especially in Central Europe, that you are aware of? And what actions are you taking to make sure that the market continues to grow for you? And then the last question on the raw material costs that turned into a tailwind. Any impact on pricing, are you seeing any of your peers starting to give backs of some of the pricing that was taken in the last few years as raw material costs become a tailwind? Thank you. If we start with the CapEx question, that goes to Adrian, and then maybe Jukka continues. Yeah, the project basically is phased over the next year. So we started last year in 2022 with down payments of around EUR 50 million and some preparation work. We expect to spend EUR 100 million-EUR 120 million in 2023, reaching its peak in 2024, around EUR 300 million, and then coming down around EUR 200-EUR 180 million in 2025. And then to support, we expect a subsidy of about EUR 100 million to help our investment decision and investment process. Okay, so winter tires, inventories. Yes, we saw the inventories in the third quarter, and obviously, the sell-out is something that is expected to happen right now. In the Nordic countries, the sell-out is happening as we speak because the winter has come, and it's getting colder, and it's getting snowy and icy, and so therefore, we see that the sellout happening as we speak, and we, based on our Vianor chain, we see relatively good sellout in the winter tires. Then in Canada, North America, still, winter is coming right now, so the sellout is about to happen in the coming weeks and in the month of November. And there we see that the inventory reductions will happen when the sellout takes place. But in Central Europe, Eastern Europe, Central Europe, the winter is yet to come, so the inventories at this point of time are relatively full, but then obviously, we expect that step by step, that happens. You ask that whether there is - are people moving away from winter tires? I think that in the geographies where you clearly have icy and snowy conditions, you don't see that happening. Of course, you have the selection that people may take instead of studded winter tires, they take friction tires or better tires if you go to North America. While of course, in some of the central European markets, it's clear that the all-season is taking market share from winter tires as well as from summer tires, and then they are being used throughout the year in the cars. Most of the new cars come with summer tires and so on. In North America, new cars are coming fitted with a lot of them are coming with all-season tires, so clearly see that this all-season is a winning concept in the North American markets. But in the areas where you have a clear winter, like Canada and northern parts of the U.S., you clearly have a winter tire requirements. And so structural change is stepwise happening with the all-season, and therefore, of course, it's important for us that we have all-season product offering, and this is going to be one important element of our product portfolio. Unfortunately, this year, because of the loss of Russian factory, we just did not have a very good selection of all-season tires, so therefore, we're highly dependent on the winter this year, but obviously in 2024, 2025, we'll take a new factory and new capability, we will have a much better product selection. And raw material, yes, we see a tailwind in raw material. No, we don't see a price point changes yet. We see, of course, that there may be promotions here and there and so on, but across the board, price changes, we don't see at this point of time. Perfect. Thank you very much. You're welcome. Our next question comes from the line of Christoph Laskawi from Deutsche Bank. Please go ahead. Good afternoon. Thank you for taking my questions as well. A bit of a follow-up to Julius's question, just on the heavy tire aftermarket inventory. Could you comment on when you see that easing a bit as well? And then second group of questions would be on the ramp-up of volumes into Q4 and 2024, which is just comment again on how the contract manufacturing is ramping up. And in case there would be elevated dealer inventory still towards 2024, mid-2024, how flexible are those contract manufacturing volumes? Do you have fixed volume contracts and expect to sell anything that you get anyways, or would it be flexible in terms of volatility in the market? Thank you. All right, so, I'll take the Heavy Tyres, and Adrian will talk about the contract manufacturing. So Heavy Tyres, indeed, we saw significantly high inventories in the early part of the year, and clearly the deliveries to distribution were at a low level, while at the same time in the early part of the year, we had a relatively good demand of OE. And so therefore, what we did over the summer is we took extended shut in our factory in Nokia, and that they managed our own inventories down, and then also the aftermarket inventories and Heavy Tyres started to come down in the first half of the year. Now when we go in the second half, we can run quite hard in our manufacturing because the inventories and the demand in inventories are lower and the aftermarket deliveries are better. At the same time, of course, because of the higher interest rate and situations in the economy, a number of OE customers, when they purchase expensive equipment, are considering whether they purchase or not. And so therefore, the OE demand is getting softer and perhaps into 2024, we need to wait and see how that full year will develop. But clearly, the high interest rates have an impact. But overall, on balance, we see a relatively good run rate for Heavy Tyres in the final quarter, and that our inventories are well under control, and it's driven by aftermarket and be relatively flat in the OE. But over to you, Adrian, in terms of offtake. Yeah, on the offtake side, as also shown on the virtual factory, we have purposely built sufficient flexibility in the contracts, which allow us to respond to market demand variations. So we have started the contracting with a volume of roughly 1.5 million for winter, and all season will be followed by summer. And the range we are expecting to source from contract manufacturing will be between 1.5 and three million, and this really depends on the demand development. So we have sufficient flexibility to respond to the to the market demand based on the rolling forecast, we are providing to our contract manufacturing partners. Thank you. Our next question comes from a line of Miika Ihamäki from DNB Markets. Please go ahead. Hello, thanks for taking my question. So you mentioned that based on customer feedback, you've maintained or further improved your market share in premium winter tires. Is it still fair to assume that there was still considerable downtrading to lower tier winter tires this year, meaning that as aggregate, you lost market share against lower tier players? And if yes, can you a little bit help us to understand how much of that sales decline in passenger car tires was driven by high inventory situation and distribution, and how much due to actual down trading? That particular balance is difficult to say, but it's clear that what happened is, especially, for example, the Nordics, is that, based on our own manufacturing, we had a good availability of premium winter tires, and clearly, because of the lack of capacity, we had less available to B category and so on. What happened was that, for example, now Vianor, we were able to secure third-party offering to our operations, and therefore, obviously, Vianor top line is the sell out is continuing at a good level or in a stable level, and the mix is then consisting, of course, of our premium tires, but also at the same time from purchased or outsourced tires to ensure that the outlets have a good selection and a good portfolio for all the customers. How much that is, it's difficult to say. What we can say is that when we look at the premium winter tires, our feedback is that we've gained share, but then obviously, the lack of products in the B category of our own making have been then supported by other suppliers. Thank you. Our next question comes from a line of Rauli Juva from Inderes. Please go ahead. Yes, hi, Rauli from Inderes here. I have two questions. I could take them one by one, and first is on your production. So now, when the demand obviously was weaker than you anticipated in the winter tires, how have you reacted in terms of production for that? Are you now able to produce more summer tires for next year, or have you taken down the production levels, or what's happening there? Yeah. If you mean the passenger car tires, we have not taken any downtime, so we actually allocate the production to different products, because obviously, as mentioned earlier, that yes, we had a good selection of the premium tires, and then we had no capacity for the summer tires or all-season tires, so we actually changed the direction of the production. There's no need to take downtime. Obviously, in heavy tires, we did over the summer period, so we took a downtime to manage the inventory, but in PCT, this is not needed. Obviously, we will have a normal maintenance shutdown at the end of the year, but this is scheduled and it's normal. Yeah, that's, that's very clear. And then secondly, you mentioned that you are planning to finish the ramp-up of the U.S. factory next year. So could you talk a bit to how, kind of how, how you are able planning to utilize all that capacity given the weak markets? I guess the expanded product range versus this year is one factor, but is there something else? Yeah. First of all, the technical part and how we ramp up is on at the end of the test, but basically the product selection is, of course, all season, all weather, and then we go into light truck, so we start the light truck production. Yeah. But technically, how does it go, Adrian? Most of that will happen this year. Yeah. The remainder will be in early part of next year. Yeah. So technically, the technical capabilities and equipment, the installation and commissioning will be finalized this year, then we will need the time next year to utilize the equipment with the new portfolio and new product introductions to then fully utilize the factory in the second half of 2024. Yeah. Maybe just an anecdote or not anecdote, but just an observation about the product portfolio in Dayton was that originally when we invested in Dayton, we had an idea that we would be supporting Dayton North American market with certain production from Russia. Now, obviously, when the Russia is not there anymore, so we have a little bit a change in the production portfolio there, and then need to have a virtual factory way of supporting our North American product selection over time. Okay, very clear. Thank you. Our next question comes from a line of Mika Karppinen from Danske Bank. Please go ahead. Yeah, hi, this is Mika from Danske. Could you comment on the Central European market? Have you lost any distribution in those market areas after you lost Russian production, or was it just the availability of certain products for this season? No, we haven't lost. I mean, we did, what we did a year ago is that we actually reduced the team quite significantly, and we also looked at the markets where we don't have any product to sell, which is basically summer markets. So therefore, we've kept the distribution and the distribution network in the areas where we have a winter tire, all season and summer tire in combination. Now, we haven't lost anything, but we were, and we've gained a market, we've gained market share in the premium winter tire selling, but this is all we had. So no availability issues, simply high inventories and slow start into the winter season. Okay, good. Thank you. Before we proceed to the next question, a final reminder, if you would like to ask a question, please press star one. Our next question comes from the line of Artem Beletski from SEB. Please go ahead. Yes, good afternoon, and thank you for taking my questions. Maybe I can start with downgraded output for this year. I think you mentioned that you didn't take any downtime in terms of passenger car tire manufacturing this year, so volume outlook should be unchanged. Is it really price mix picture that has changed to weaker versus your initial expectations, or are you planning to have a bit high inventories, for example, by the end of this year? I think that, right now, the production actually focuses on next year already. So obviously, what will happen is it depends on when the deliveries will happen, whether it's late this year or early next year, so that will dictate a little bit the inventory. But I think there's maybe most of the inventory change at this point of time is with the contract manufacturing, that when they come in and how they are being supplied to customers. And most of those products are mostly now, when we look at the coming season, they will be summer 2024 as well as all season 2024. In raw materials, the inventories have come down, so we are actually quite at a good level in terms of raw materials. Okay, this is very clear. And, and maybe two shorter questions from my side. Could you maybe comment on startup-related costs, what comes to next year? I think you had some costs already relating to Romania also in this quarter. And also the second one is on CapEx for next year. I appreciate comments what you made relating to Romania. Could you make some indication what will be the level for next year on the group level? The startup ramp-up costs, difficult to anticipate at this point of time. We still are in the budgeting season and so on. Obviously, we've said about the date, and then once we hit the equivalent three million, then we will eliminate that. But, of course, when we go into Romania, so we'll have certain items there, but we don't know yet how much that will be, so we'll have a look. And we'll get back to that in connection of the fourth quarter and starting of the next year in order to anticipate what they might be. But, Niko? Yeah, in terms of CapEx, we are anticipating somewhere around EUR 350 million next year. And then we are expecting at least part of the Romanian government subsidy of the EUR 99 million to land next year as well. So if you net that against the 350, you land somewhere, you know, around 300. This is the best guess we have now. Okay. If you remember- It's very clear. If you remember, our ambition is that we expect that the EBITDA of 2023, 2024, 2025 ought to be covering the investment of those three years. Yeah, that's very good to keep in mind. But, yeah, thank you for these good answers. There are no further questions, so I will hand you back to your host to conclude today's conference. Thank you. If there are no additional questions, that means that we will be ending the call. Thank you for participating, and have a good day. Thank you. Thank you. Thank you for joining today's call. You may now disconnect your lines.