22 Oct '10
Oleg Kouzbit, Online News Managing Editor
Finland’s Nokian Tyres is launching a $70m expansion of its Russian-based tire operation. Next year its factory outside St. Petersburg is expected to make more than 10 million tires a year; by 2015 the capacity may increase by another 30%. Key to its decision is the revival of the Russian auto sector and the company’s leadership position in both the new and used tire markets.
Finland’s Nokian Tyres has announced a $70m expansion to its Vsevolozhsk tire production facility in Russia, located just outside St. Petersburg.
As Marchmont reported earlier this week, the Finns expect to launch two separate $35m production lines to boost its production next year from 8 to10-11 million tires annually.
Nokian Tyres president Kim Gran said he hopes that continued upgrades will enable the plant to make up to15 million tires a year by 2015.
Since 2005, the Finnish firm has invested a total of more than $500m in the Vsevolozhsk plant, Mr. Gran said, a substantial increase from $180m it originally budgeted. As a result, its Russian capacity is already twice as big as the Finns envisioned.
Bouncing back and doubling up
Set up in 1904, Nokian Tyres has evolved into one of Europe’s leading snow tire manufacturers. The company’s three production sites (two in Finland and the other in Vsevolozhsk) racked up global 1H 2010 sales of $560m. A year earlier, during the worst of the crisis, Nokian suffered a 58% across-the-board y/y drop in sales. The company’s Russian sales also increased in the first six months of this year by a reported 71.9% to $115m after a painful 55% drop in 2009.
Nokian sells an estimated 30% of its tires in Russia and the CIS. After expansion is complete, management expects the Vsevolozhsk factory will account for 50% of the firm’s total output.
Over the next five years the company has plans to nearly double its international sales.
According to the company president, Nokian Tyres will put a lot of energy into expanding its Russian retail network, too. Today it has 350 Vianor-branded outlets here, but Mr. Gran wants double the number within a few years.
Faith in Russia’s future
RBC analysts think Nokian’s new investment is an “act of faith” in the revival of Russia’s auto sector. The industry took a real beating in late 2008 – 2009, but the RF’s massive bailout package worked. Between January and September, sales jumped an annualized 18% and soared an impressive 55% on a year-on-year basis in September alone.
According to Nokian Tyres Russia CEO Andrei Pantyukhov’s forecast, the domestic market is still on the upswing and should be back to its pre-crisis level in just two-to-three years.
Sector analysts are also bullish, estimating that 1.7 million new cars will be sold in Russia this year, up 15-20% from 2009.
Nokian isn’t just counting on its Russian business. The firm exports half of its Finnish-based production, and so does its Vsevolozhsk asset; the latter reportedly sells to 30 foreign countries. Despite Europe’s flagging economy, its tire business during 1H 2010 grew a healthy 10% y/y and is one of the key reasons the firm is investing so much on its more cost-effective Russian-based factory.
Worn, but profitable
As Nokian ramps up production of new tires, it will indirectly solidify its leadership position in Russia’s used tire market as well. According to Ernst & Young’s Ivan Bonchev, the used market already amounts to an estimated 50 million tires, of which the premium A segment accounts for a likely 35-40%.
The analyst pointed out that Nokian, a dominant player in the A segment here, has a higher profit margin in this segment than even cheaper home-grown new and used tires—no wonder the company is on such a roll.