War in Ukraine – Summary of Nokian Tyres’ actions
On February 24, Russia started the war in Ukraine, which has caused high uncertainty related to Nokian Tyres’ operating environment and manufacturing capacity.
On April 8, the EU announced new sanctions against Russia, which impact Nokian Tyres’ business. The sanctions prohibit the import of tires from Russia to the EU, prohibit the export of certain raw materials from the EU to Russia, and limit transportation from and to Russia. The sanctions have a significant impact on Nokian Tyres’ ability to manufacture tires in Russia, and ability to sell tires both in Russia and in the EU, specifically in Central Europe.
In 2021, Russia represented approximately 20% of Nokian Tyres’ net sales, and approximately 80% of Nokian Tyres passenger car tires were produced in Russia. Of raw materials for tires produced in Russia, approximately half came from outside of Russia. Raw material availability and its logistics will have a significant impact on the company’s capability to continue production in Russia.
Nokian Tyres is expediting its plans to invest in new production capacity in Europe, and continues to increase production capacity at its factories in Nokia, Finland and Dayton, US. According to the plan, in the future all tires sold in the Nordic countries will be produced in Nokia, and all tires sold in North America will be produced in Dayton and in Nokia.
The Heavy Tyres business of Nokian Tyres plc is not impacted by the ban to import tires from Russia to the EU, as all Nokian Tyres’ heavy tires are produced in Finland. Sales and distribution of heavy tires to Russia were stopped due to the war. Nokian Tyres has never sold tires to the Russian army, and the Russian Federation is not a customer of Nokian Tyres.
Nokian Tyres has taken active measures, such as below, to manage the impacts of the war in Ukraine to its personnel and business:
Health and safety actions
- Continuously communicating about the situation in the organization and providing support to Nokian Tyres’ employees
- Being in daily contact with the Ukrainian colleagues to help them and their families stay safe
- Donating to humanitarian efforts in Ukraine
Operational response actions
- Ensuring compliance with applicable sanctions regime
- Establishing a crisis management team and activating contingency plans to limit the operational and financial impacts, including shipping tires closer to customers, securing the raw material supply to the factories, and transferring production of selected key product lines from Russia to Finland and the US
- Taking care of the personnel and management in Ukraine and Russia
- Securing control of the asset base in Russia (March 31, 2022: EUR 476.1 million)
- Stopping investments into the Russian production, and stopping all heavy tire sales and distribution to Russia
- Expediting plans to diversify manufacturing footprint by investing in new production capacity in Europe and continuing to increase passenger car tire capacity in the Finnish and US factories
- Implementing cost measures by cutting and delaying activities and reducing discretionary spending
Financial response actions
- On March 30, the Board of Directors decided to change its dividend proposal to the Annual General Meeting to be held on April 28, 2022 from EUR 1.32/share to EUR 0.55/share (2021: EUR 1.20). The new dividend proposal cuts the total dividend payable to shareholders by EUR 106 million to fund the new capacity in Europe
- Taking measures to secure the company’s liquidity and financial flexibility
- Leveraging the strong balance sheet to support the company in difficult times
Jukka Moisio, President and CEO:
“For the past two 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.
The war in Ukraine started to impact our operating environment in late February. However, the year began with good tire demand and in January−March, our net sales with comparable currencies increased by 21.9% and segments operating profit improved. The result was driven by price increases that we implemented in a wide range of markets and products to offset high raw material and other cost inflation.
At these difficult times, our first priority has been to help our Ukrainian colleagues and their families stay safe, and support all Nokian Tyres employees. To secure supply of our products, we immediately activated contingency plans in February, including shipping tires closer to our customers, securing the raw material supply, and transferring production of selected key product lines from Russia to our other factories. To reduce reliance on the Russian production and to diversify our manufacturing footprint, we have continued to increase capacity at our factories in Finland and in the US, and we are expediting our plans to invest in new capacity in Europe.
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. I would especially like to thank all Nokian Tyres employees for their perseverance and resilience during this difficult time.”