Paolo Pompei: Thank you, Annukka, and good afternoon, and good evening for those who are connected from Europe and Asia, and good morning for those who are connected from North America. Let us start with the headline. Strong profitability improvement continued in the third quarter. We are once again delivering a strong quarter that is well reflecting our strategic plan journey and in line or even a bit above our own original plan. Moving to slide number 2, let us see the agenda today. We will focus on the quarterly highlights, then we will briefly analyze the financial performance, and then Timo will guide us through the business unit performance, our cash flow, and financial position. Of course, we will close the call with the assumptions and guidance. After that, we will have obviously the Q&A. Let us move directly to slide number 4, and let us start with the market.
Paolo Pompei: The market is still pretty negative when we look at the development of passenger car tire and light truck in Europe as well as in North America. To say in North America, we see a gradual recovery of the market in Q3, while still negative, while in Europe we see obviously still the market down compared to previous year level. The truck tire business at the opposite is growing two-digit up to 11%, and the Agri and Forest tire segment is pretty flat to +2%. A different trend between Agri, that is slightly growing, and Forestry, that is at the moment presenting a stable or negative outlook in some cases. Moving to slide number 5, let us look at the highlights of the Q3. Operating profit, as we said, improved significantly, and that was driven by price repositioning and lower manufacturing cost.
Paolo Pompei: The good news is also that sales grew across all regions despite price repositioning, and this is reflecting really the high customer trust in our brand in a declining market. We are also very pleased to see the development of the new flagship winter tires that are now available to the consumer both in Nordics, in Canada, as well as in Central and South Europe. The Hakkapeliitta 01 for the Nordic market, and the Snowproof 3P for the Central and South European market. We also had this quarter a record high share of larger rims, and this is supporting a higher value product mix that was reaching 54%. Our group-wide efficiency improvement plans are progressing in line with our plan, and they are contributing significantly to our bottom line. Moving to slide 6.
Paolo Pompei: We are extremely proud of achievements that we were able to see in the market with our Hakkapeliitta 01 and also our product release for the Central and South European market as well as North America, were actually indicated to be in the top ranking of several magazines or several specialists of the segment. But in particular, the Hakkapeliitta 01 was rewarded as the best studded tires both in Finland, Norway, and also as well as in Sweden. So we are really pleased to see that our innovation capabilities are also well reflected in the testing performance of our tire within the leading magazine of the industry as well as external bodies. We also had good improvements where we talk about a Hakkapeliitta R5 studless tires that was also indicated to be number 1 out of 6 in a test in Finland as well as in Sweden.
Paolo Pompei: Snowproof 3P, our new winter tire available for the Central and South European market also was evaluated to be, in Germany in particular, number 2 out of 9 finalists, one of the best winter tires, and then also other success in the all-weather segments in North America as well as in the all-season business in Central and South Europe. So we are really pleased about the development of our product performance and at the same time we are very pleased to see that our innovation capability are well recognized by specialists of the segments. Moving directly to slide 8, let's look at the key metrics of Q3. Net sales grew by 4.4% or 2.9% in comparable currency. We were able to grow in all regions and of course we were well supported by pricing and mix. Segment EBITDA grew by 22% to €80.1 million.
Paolo Pompei: This is now today 22.3% of net sales, very close to our long-term target of 24%. It is a great improvement compared to previous year where we were at 19%. Segment operating profit, and this is also the extremely good development, increased by 45% to €47 million, and this is corresponding to 13.1% of net sales. A strong improvement again, compared to previous year. Once again, the improvement was driven by price repositioning and lower manufacturing cost in particular. Last but not least, operating profit improved to €37.9 million. This is an improvement of 74% compared to previous year. We are very pleased to see the development of the operating profit as well. Moving to slide 9, as you can see from the slide, we were able to grow sales in all the regions where we operate.
Paolo Pompei: Obviously, we had a higher growth in the Nordics and in North America, where the winter tire season is developing better than Central and Southern Europe, where winter has to come probably in Q4. Generally, we had also a very good improvement in all the regions of the price as well as the mix. Passenger car tire grew by 5.6% or 4.3% in comparable currency. Heavy tire also delivered an excellent performance in term of profitability, remained growing moderately by 2.4% or 1.7% in comparable currency, but we will see later on improving significantly in term of profitability. Vianor remained pretty stable in comparable currency and overall was growing by 3%. Moving to slide number 10. This is also great development, I would say, because winter tire in Q3 is representing 76% of our total sales, very coherent with our own strategy.
Paolo Pompei: We are growing by 3 percentage points compared to Q3 2025. The all-season, all-weather segment at the same time is slightly lower than Q3 2025, stable at level of 19%, 20% in the last few quarters, while summer tire remains stable at 4% to 5%. A great development is the record high level for Nokian Tyres of the 18-plus inches. We were able to reach 54% of our sales in this segment of 18-plus. This is also a good development improving of our price and mix positioning. Moving to slide number 11, we can focus on the year-to-date performance here starting from the segment operating profit that was up to 8.6% versus 4.2% the same period of last year. The segmented EBITDA at 18.4% versus 14.1% compared to last year.
Paolo Pompei: Operating profit as a consequence is today 5.4% compared to almost zero, 0.1% last year. So strong improvement as you can see year to date of the operating profit. On the bottom, you will see that obviously we are investing significantly less after several years of strong investments. The cash flow from operating activities was improving in the quarter by EUR 21.6 million and year to date by EUR 53.3 million. So excellent development also of the operating cash flow. Moving to slide number 12, CapEx significantly below last year at this stage. This was obviously planned. We invested significantly, as you know very well in the last four years, and now obviously we can leverage the investments and leverage a new state-of-the-art manufacturing platform, in particular when we talk about Central and Southern Europe as well as North America.
Paolo Pompei: I will now pass the word to Timo for the comment about the business units.
Timo Koponen: Okay. Let's look at the different business unit performance, and we switch to page 14, starting with the Passenger Car Tyres. PCT prevailed its very strong performance also in Q3, and was once again the biggest contributor in Nokian Tyres' entire Q3 profit improvement. Net sales was up by 4.3% on comparable currencies, and 8.8% on a year-to-date basis. This, as already mentioned, was supported and driven by the higher average sales prices or improvement there, and also then as mentioned, a record high 18 plus inches product share. On segment operating profit, we reached EUR 50.8 million or 20.5% in Q3, EUR 96.5 million or 14.4% on a year-to-date basis. Once again, this was driven by price, the repositioning, lower manufacturing, and lower material costs. New products, as mentioned, Hakkapeliitta 01 and Snowproof 3P, were the ones supporting the pricing development.
Timo Koponen: Looking at the Passenger Car Tyre bridge, net sales growth was almost entirely driven by the price mix, for the quarter, whereas the sales volume development was slightly negative, versus year ago. That has to be said, was happening on a rather challenging market. On sales segment operating profit, the price mix and the continuously lower material costs were the main contributors, which is once again reflecting our strong focus on value over volume strategy. Switching to page 16 and looking at it on the quarterly time series view, there we can see once again that the sales volumes were leveled on a Q3, or being slightly negative, -0.9. On the other hand, the price mix effect accelerated with 5.2% on a quarter. Once again, I have to highlight that this is now the sixth consecutive quarter, with significant positive price mix.
Timo Koponen: Currencies were also having a small tailwind, in this quarter. Going to page 17, and looking at Heavy Tyres. Heavy Tyres, we gained a moderate growth on a quarter by 1.7% on comparable currencies or 3.6 on a year-to-date basis. Agri segment was continuously the driver for the growth there. On the contrary, segment operating profit grew significantly, being once again more than 15% on this quarter, and also the same 15.3% on a year-to-date basis. As in the earlier quarters, disciplined pricing and very tight cost management were the main factors here. On business units, finally, Vianor, we had a flat quarter this year for Q3 in net sales on comparable currencies.
Timo Koponen: As in the previous quarters, we are suffering from the cost inflation, which is having a negative effect on the profitability segment operating profit being EUR -6.8 million on this quarter. On a year-to-date basis, we are also behind the previous year number at EUR -18.1. In this occasion, it has to be also reminded that for Vianor, we are at the start of the highest season of the market, the winter tyre season starting now in October. Looking at the cash flow and financial position, and going all the way to page 20. As mentioned, the cash flow continued its improving trend. On a year-on-year basis, free cash flow was improving by EUR 138 million. Working capital increased in line with the sales growth, but also including the measures we have taken to optimize the working capital management in the company.
Timo Koponen: As already mentioned, the investments or CapEx remained on a significantly lower level than on a previous year, contributing strongly to the improved cash flow. Finally, looking at the net debt. Net debt decreased by EUR 86 million year-on-year on a quarter. Once again, it has to be reminded that Q3 represents the deepest point in the cycle, in terms of the business and funding needs. When looking at the maturities, we had no changes in the quarter. Going back to Paolo.
Paolo Pompei: Thank you, Timo. Excellent. Let's go to the assumption and guidance, and we can move directly to slide number 23. We do not expect major changes up to the end of the year, so we believe the replacement tire market in Europe and North America will remain pretty stable between 0% to -2%. While the truck tire business will remain pretty strong, up to two digits, between 5% to 10% in Europe. The agri and forest tire business will remain also stable between 0% to +3%, with the agri business growing and the forestry business declining a bit by the end of the year. Let's move to slide number 24.
Paolo Pompei: Obviously, the good performance of Q3 is also guiding to a review of our guidance, indicating that segment operating profit will grow in terms of sales and segment operating profit in percentage of net sales will be between 9% to 10% on the higher hand, between 9% to 10%. So we are actually narrowing the guidance, and we are confident that we will get closer to the higher part of the range, between 9% to 10%. The market, as I said, is expected to remain pretty flat, following the trend we have seen in the first three quarters. Of course, we will always in consideration that geopolitical trade and tariff uncertainty may will have an impact moving forward. At the moment, we see the situation pretty stable, and we are pretty confident about the Q4 performance. Finally, moving to slide number 25.
Paolo Pompei: We keep executing our strategy and delivering on our results, focusing on the premium positioning, strengthening through brand and product and pricing. As you can see, we are extremely coherent and consistent in what we are delivering quarter by quarter, focusing on value over volume. We are also focusing as always on execution and efficiency improvement across the organization in order to deliver profitability improvements. We are releasing new product, there are new product in the market that will support higher sales and better price and mix, but also we will have new product coming up in 2027. Of course, as we said at the beginning, the investment phase is now completed, so we believe that this will lead to even stronger cash generation moving forward. Summarizing, we are very pleased about the performance of the quarter.
Paolo Pompei: In challenging market condition, we were able to upgrade our positioning, to improve our profitability, and to execute our continuous improvement plan and efficiency plan internally in the company successfully. This is obviously leading us to be optimist about the future development of the company moving towards the end of the year. Shall we move to the question and answer?
Annukka Angeria: Yes, please.
Operator: If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thomas Besson: Thank you very much. It is Thomas with Kepler Cheuvreux. I have several questions, and I would like to ask them one by one. Is that okay? I would like to start with questions about CapEx and the tax rates, please. CapEx has stayed minimal. Is it possible to have an indication from you on where we should land for this year, and whether you see a return eventually to higher levels in 2027? Some question for the tax rate. It has gone down sequentially every quarter. Where do you expect to land in 2027, please?
Timo Koponen: Starting with the CapEx. As we have said earlier, we are going to be somewhat lower than EUR 100 million. We can now narrow down also that range to somewhere between EUR 60 to EUR 80 million for full year. On tax rates, the effective tax rate is sitting somewhere in 20%, and we see no changes also either going forward on that one.
Thomas Besson: Thank you very much. Clear. Second question please. I'd like to talk about the evolution of the various raw materials that you're using and energy cost. They've been going up very sharply in the last couple of months. Could you talk about this, please? Butadiene, styrene, natural rubber, and energy cost. Are we still within your expected impact for Q4, and how do you plan to adjust in 2027? Because you're clearly facing substantial headwinds in the first half of 2027 after seeing these moves. Do you feel that there's any risk of down trading, as I think you've clearly articulated the strategy of value over volume, so you're probably going to be able to and have to raise prices. Do you feel that volumes may be consequently lower?
Paolo Pompei: Thank you. This is a very good question. I think we are pretty under control, actually well under control when we talk about raw material cost management. The raw material cost obviously has been growing from Q1 to Q2 to Q3, obviously. So we saw the raw material growing fast, and as you can see, our pricing have been adapting quarter after quarter in order to compensate the raw material cost effect. Clearly the company has been always able to offset the raw material cost. This is the component related to adjustments necessary to compensate the market price increase.
Paolo Pompei: You may remember, the company's been reevaluating and renegotiating the supplier base in the last 12 months significantly, meaning that we were able also to achieve strong advantage through our own actions, improving our supplier base, and at the same time, being able to leverage better prices. Honestly speaking, we are not concerned at all about compensating the raw material cost. Clearly, there is the only uncertainty related always to the consumer demand, and this is valid for any business, not only for us. If the inflation is going up, of course, you should expect the consumer to be more careful in the way they spend money. At the moment, as I said, if you look at the pure technical part, we feel that we are pretty under control in more than compensating the raw material cost.
Thomas Besson: Thank you very much, Paolo. Very clear. A question concerning your comments on winter tire markets so far. I think if I understood correctly, you said that everything was fine in the Nordics and in North America, but winter is still to come in Europe. I am looking through a window in Paris and I can still see green leaves in the trees, which is very unusual. Can you talk about the trading trends in Q4? What is your scenario? I know last year was a fairly good winter tire season in Central Europe. What are your assumptions and what do you see so far in Q4 as temperatures finally fall?
Paolo Pompei: Of course, it is difficult for me to tell you the weather forecast and
Thomas Besson: Sure
Paolo Pompei: what I can say is that if you may remember in Q2, our sales in Central Europe were growing by 20%. Of course, the pre-sales of winter tire were also very important at that time. Please, let us forget Central Europe has been pretty stable in Q3. However, in Q2, we delivered an exceptional growth of 20%. So we are very happy about the development of the sales in this region at this stage. Clearly, the winter is coming earlier in the Nordics. It is coming earlier in Canada. This quarter was extremely strong in North America, I would say, compared to previous years. So a big part of the improvement were also coming from North America.
Paolo Pompei: If the winter will develop, let us say November and December, also in Central Europe, I think the picture will look quite good at the end of the year, considering that we were balancing very well the necessity to reposition our pricing and at the same time, obviously, to gain market share. But again, the weather is the weather. So obviously
Thomas Besson: Sure
Paolo Pompei: we need to see snow in Paris. Even if we don't see snow in Paris, hopefully we will see snow at least in the northern part of the country or on the Alps.
Thomas Besson: Yeah, it already happened. I am watching that very closely. Last question for me, please. Can you talk about Heavy Tyres end market trends for you in Q4 and your scenario for 2027? You have capacities that you can eventually deploy, if I understand correctly from previous CapEx plans. Can you tell us where you stand? You seem to be a bit more positive about ag markets than, for instance, Michelin. Can you remind us the share for you between truck tires, ag, and forestry, either year to date or in 2025 as well, please? Thank you.
Paolo Pompei: Yeah. About the market trend, I think we are pretty aligned with other competitors when we look at the purely demand of ag. Meaning that they see a more or less stable business at this stage. While of course, we are also in the forestry tire business, as you know very well, and the outlook of the forestry tire OEMs is not at the moment developing up, let's say, is not really too positive. It's pretty flat or even negative in case of few players. We don't disclose, as you know, the business within Heavy Tyres. We don't disclose, but of course, as you can imagine, we are strongly exposed to agri and forestry in particular, and less on truck tires. I think the agricultural business has been down for several years now.
Paolo Pompei: This is the longest cycle I've seen in the last 30 years, a negative cycle. So it's pretty normal that now that the market is stabilizing at low level. But of course, we are expecting a bounce back to happen already in 2027. As you know very well, when it's happening, it's happening extremely quickly. It's very difficult for machinery producer, but also for tire producer to follow up the demand. We have capacity, we are well equipped, we have a wider range at the moment. This is also giving us the possibility to grow in the agri industry and particularly on the OE side where we are doing particularly well at the moment.
Paolo Pompei: We are pretty confident that now, after being able to reset the profitability at the right level, because the improvement compared to last year is almost 6 points. We are in Q3. We are really pleased about the job that our entire team was able to make, improving the profitability through disciplined pricing, but also through manufacturing efficiency and cost efficiency. If the market is moving up, obviously we see an upside in the entire business as well.
Thomas Besson: Great. Thank you very much, Paolo. Thank you.
Operator: The next question comes from Artem Beletski from SEB. Please go ahead.
Artem Beletski: Yes, good afternoon, and thank you for taking my questions. I actually have two questions which are a bit related, I would say. The first one is relating to the mix, and as you highlighted in the report, 18-plus inch increased from 48% to 54% year over year. It has been quite a notable pickup. Could you maybe talk about the key drivers behind this nice uptick you have recorded in the quarter? The other question is relating to PCT's price mix, which was increasing by more than 5% year over year, some acceleration compared to Q2. Just if you could talk about the impact of mix versus pricing in the quarter. These two questions. Thank you.
Paolo Pompei: Thank you for your questions. The mix is improving as part of our strategy. Of course, a premium company like Nokian Tyres is fully focused on higher mix on vehicles that are demanding higher performance and higher safety levels. So clearly this is part of our strategic journey. Our team is fully focused on delivering tire solutions to vehicles that are requiring, obviously, a premium brand. So this is part of our journey. We have been extremely successful, I would say, in all the regions in this dimension. So we are very pleased about the development because as you mentioned as well, this is also reflecting and influencing or improving our margin. We had to accelerate the price and mix improvement, obviously, because of the raw material cost moving up. So we wanted to be in the position obviously to offset fully the raw material cost.
Paolo Pompei: This is why you see an acceleration between Q1 and Q2, where we were stable at around 3.2%, to Q3, where obviously we had a 5.2% increase on price and mix. So really, it is a component of mix, but it is also pure price adjustments made to compensate the raw material cost.
Artem Beletski: Great. Thank you very much. This is all from my end.
Operator: The next question comes from Miika Ihamäki from DNB Carnegie. Please go ahead.
Miika Ihamäki: Thank you for taking my question. My first one is all regions reported sales growth, but could you help us to understand whether also profitability improved in all markets? If not, why?
Paolo Pompei: Thank you for your question. The profitability improved in all three markets. I have to say that this time it was stronger in North America, where we were extremely efficient and good in executing the strategy and improving our price and mix. We had a good development also in the Nordics as well as in Central Europe. I would say that all the regions were well contributing to the profit increase. Of course, Heavy Tyres is within the regions as well at this stage and also was improving significantly.
Miika Ihamäki: Thank you. That is clear. Then on the Passenger car tire raw material impact in the EBIT bridge. My first question there is that excluding any sourcing benefits or changes and adjustments to the sourcing base, what was just the raw material impact there?
Paolo Pompei: This obviously, as you can appreciate, we do not disclose it because this was obviously an information that will be not in line with the competition rules.
Miika Ihamäki: Okay. If we then look into Q4, given the lag dynamics, how these raw material prices are actually realized, I think it is fair to assume that we see a more pronounced raw material headwind starting from Q4 onwards. Can you confirm this, please?
Paolo Pompei: Yes. Obviously, as I said, also reflecting the question of your colleagues, I do not think we are at all concerned about balancing prices and raw material costs at this stage. Actually, I think we are well under control. Action had been taken, so obviously we are not concerned about the raw material development moving to Q4.
Miika Ihamäki: Okay. On that same basis, have there been now any notable changes in your dealer activity starting Q4 compared to Q3?
Paolo Pompei: Well, no, as I said, not really. I mean, the raw material development is a problem of the market, it is not only a problem belonging to Nokian Tyres. What we always monitor, as I keep repeating, is the consumer demand, meaning that dealers are always very good in simply passing the increases to the end consumer, but then we need to see how much the end consumer will be able to digest the inflation. This is valid for any business, as you know very well. So let us say at the moment, we do not see any major critical development. Clearly, the inflation is keeping going up quarter by quarter. You should expect a lower demand from the market. Hopefully, we see a certain stability in some way in Q3 of the raw material cost as well as of the oil price. So hopefully, this is the peak.
Paolo Pompei: But of course, as you know, due to the geopolitical situation, anything can change any time.
Miika Ihamäki: Thank you very much. That is very clear.
Operator: The next question comes from Mika Karppinen from Danske Bank. Please go ahead.
Mika Karppinen: Yeah. Hi, this is Mika. Concerning the new Hakkapeliitta 01 tire, could you comment on the production capability of it? Have you been able to deliver all pre-orders and orders for them? Have you faced any delays in delivering the new products?
Paolo Pompei: Thank you for your question. No, I think we do not have any major critical situation. Actually, the pre-sales have gone pretty well, as I said, in particular in the Nordics as well as in Canada at this stage. At the moment, we are very pleased about the development. As you know, Q4 is more about following the demand that is coming from the day-by-day business. The pre-sales, in some way, are now completed, and now we really focus on delivering day by day. We have good capacity, so I think we are in a good position to follow the market demand at this stage.
Mika Karppinen: Okay, good. Thank you.
Operator: The next question comes from Jose Asumendi from JPM. Please go ahead.
Jose Asumendi: Hi, Paolo. It is Jose from JPMorgan. Thank you very much for the call. Can you talk a little bit about the potential there is in Passenger car tires to continue to deliver strong volume growth into 2027, and the mix improvement as well in the medium term? Maybe you can just link this with your longer-term targets that you already outlined, but just to get a little bit the trajectory, because I think this is what basically defines the investment case versus others. Thank you.
Paolo Pompei: Thank you, Jose. Good question. Obviously, we are not yet disclosing the guidance for 2027, so I cannot really deliver at this stage a guidance in term of volume for 2027. In general, as you mentioned, I think we are very pleased about the development of the plan that we described during the Capital Markets Day. In some areas, we are even above that plan, so we are very happy about the development. You can see that we say this company will get back to 15% return on sales and 24% EBITDA, and I think we are well on track. I keep repeating, I feel very strong about the profitability improvement. Sales can change in a range, because obviously we cannot really estimate at this stage well what will be the market demand up to 2028, 2029.
Paolo Pompei: But we feel very strong about the profitability improvement because I think the whole team has been able, actually, to work very efficiently and in a productive way on all the different project that we have internal in the company necessary to improve our positioning and as well our cost competitiveness.
Jose Asumendi: Paolo, for these 15% margins from here onwards, is it more mix? Is it a combination of volume and mix? What's the biggest lever two years out for the company?
Paolo Pompei: Yeah. It's obviously a bit of everything. Of course, mix is an important element. Volume are always important. Then of course, cost competitiveness, meaning cost efficiency, in particular in our factories. If I can give you one more element, I think all our facilities, all our factories were improving the cost. This is really a good sign that our continuous improvement plan are working very well and in the right direction at this stage.
Jose Asumendi: Thank you.
Operator: There are no more questions at this time. I hand the conference back to the speakers.
Annukka Angeria: It seems that there are no further questions, so it is time to finish this call. Thank you for joining us today, and we wish you a wonderful rest of the year. Bye.
Paolo Pompei: Thank you very much. Have a great evening, afternoon.
Jose Asumendi: Bye.
