The operating profit was virtually static at 115.8 million euros, up from 115.6 million euros in 2004, and the net result was up over 11% to 82.2 million euros vs. 73.8 million the year prior.
Nokian said that growth in the European passenger car tyre market was slower than expected, with sales of winter tyres in the Nordic countries and Eastern Europe beginning exceptionally late, thus shortening the sales season. The strongest growth was experienced in Russia, Eastern Europe and North America, with sales of new cars growing significantly in Russia.
Deutsche Bank analysts showed signs of relief that the results were “not that bad after all.” The margin dip in 2005 can mostly be explained by the new plant in Russia, the market watchers continued, adding: “We have raised our margin assumptions in car tyres, while slightly cut our top-line assumptions.” Deutsche Bank raised its 2006 and 2007 earnings per share estimates by 6% and 3%, respectively, on hearing Nokian’s results.
Sales of heavy tyres were impressive, totalling 76.2 million euros, a 28% rise over 2004. This sector was boosted by increased manufacture of forestry and other heavy machinery and Nokian increased heavy tyre production by 27% over 2004. Original equipment sales accounted for 49% of the heavy tyre unit’s sales. Looking at other operations, the net sales from retreading business and truck tyre sales were down slightly, at 30.1 million euros vs. 31.0 million in 2004.
The Vianor retail chain showed growth too, with sales rising five per cent for the year to 235.1 euros. The number of outlets rose to 197, including 22 in Russia, 20 of which operate on a franchise basis. Further expansion in Russia is expected, mainly through franchising.
Also in Russia, the tyre factory rolled out its first Nokian Hakkapeliitta winter tyres in June and the plant’s production for the year amounted to around 300,000 tyres. The first production line operates continuously in three shifts and a second production line came on-stream at the turn of the year. Nokian invested some 60.4 million euros in the factory in 2005 and the total investment from 2004 to 2007 will total 150 million euros.
Raw material prices continued to rise up 7.5% over the year and it will become increasingly difficult to pass these on to the customer. The outlook for this year, says Nokian, "will remain challenging and competition will continue to be tough." The company plans to release "a record number" of new products on to the market and increase its market share in the Nordic countries. The greatest sales efforts, however, will be made in the growing markets of Russia, Eastern Europe and North America.
Nokian makes the point that the seasonal nature of its sales, with strong winter tyre activity, means that the majority of its sales and profits are generated in the latter part of the year, notably the fourth quarter. As such, the company warns of weaker results early in the year, although it is confident of reaching its target for 2006 of achieving a steady growth in sales.