Year-to-date report: Nokian official on pandemic headwinds, investments in capacity

In this Q&A, Nokian Tyres chief financial officer Teemu Kangas-Kärki elaborates on the effects of Covid-19 on business and how the Finnish tire maker has addressed the challenges posed by the pandemic: 

ERJ: How would you describe business thus far in 2020? 

Teemu Kangas-Kärki: Year 2020 so far has been very exceptional and volatile. While the wide-ranging restrictions caused by Covid-19 have been necessary for health and safety reasons, lockdowns in the first half and especially in the second quarter have led to a sharp drop in the global car and tire demand. This has had a negative impact on our business.

However, we believe that with our solid foundation, including a valued brand, leading position in our home markets and a strong balance sheet, we are able to navigate through this difficult situation.
 
ERJ: What are some of the key changes the company has made in response to the Covid-19 crisis? 

TKK: Since the outbreak of Covid-19, we have taken preventive actions not only to mitigate the spread of the pandemic but to safeguard health and safety of our employees.

As part of our business continuity plan, we have initiated several measures to reduce our costs, including suspending production, temporary personnel layoffs, cutting executive pay and postponing all non-critical projects.

Along with a strict cost control and efficient cash flow management, we are continuously monitoring the market situation and taking further actions accordingly.

ERJ: What positives have you seen at your company and in the wider tire industry over recent months?

TKK: I am pleased that the rapidly implemented measures we took to prevent the Covid-19 spread and to maintain business continuity have proven to be effective.

For example, our Vianor chain adapted quickly to the situation and developed a ‘Honk your horn’ service model where the tires can be changed without any contact. Furthermore, I’m thankful for the Nokian Tyres’ employees who have shown a high level of commitment and flexibility during this exceptional situation. 

ERJ: What kind of trends are you seeing in the marketplace and how have your company adjusted its product portfolio in response?

TKK: We manufacture premium tires for people who value safety and sustainability. We believe consumers increasingly value these kind of features. As our mission implies, we want to offer drivers peace of mind in all conditions.  

One of the trends we’ve seen in tire industry is the increase in average tire size, which is why we are adding more large sizes to our product families. In general in our product offering, we focus on the most profitable tire segments, winter tires and larger sizes in all product categories.

ERJ: Where do you see the industry markets heading by the yearend? What are the key developments and/or metrics to watch for over the coming months? 

TKK: The two important drivers for our demand are the new car sales and the replacement tire market, which is driven by miles driven. It is important to observe how the demand will evolve and what will happen with the lockdowns and new car sales in the second half of the year.

In some countries, we can see some post-lockdown upturn in demand, but this depends on the region. We do expect the worst being behind us but still negative development in the second half of the year.

ERJ: Is there anything else you would like to add? 

TKK: Short-term we are facing challenges but when looking beyond the current headwinds, there are many opportunities around us to develop business further.

We have invested significantly in the past quarters, and the capacity and capability now available will help us increase sales when the market rebounds. Difficulties tend to have a silver lining, too: they push us to invent new ways of working and serving our customers.