ANNUAL REVIEW 20 17 LOREM IPSUM P E A C E O F M I N D NOKIAN TYRES PLC 2 ANNUAL REVIEW 2017 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC Ou r high -qua lity tyres offer reli ability, per fo rma nce, and peace of mi nd from winter bliz zards to heavy summer rain. We m ake go od o n o ur promise on the road, ever y day. NOKIAN TYRES PLC 3 ANNUAL REVIEW 2017 LOREM IPSUM CONTE NTS Nokian Tyres in brief ________________________ 5 World on wheels ___________________________ 24 Key figures and highlights for 2017 _________ 6 Passenger Car Tyres ____________________ 26 Review by the President & CEO _____________ 8 Nokian Heavy Tyres _____________________ 28 Business environment and trends _________ 10 Product development and testing ______ 30 Strategy ____________________________________ 12 Working responsibly _______________________ 32 Close to the customer _____________________ 16 Hakkapeliitta Spirit _____________________ 34 Consumers ______________________________ 18 Sustainability ___________________________ 36 Customers ______________________________ 19 Personnel _______________________________ 40 Market areas ____________________________ 20 Board of Directors ______________________ 42 Sales and distribution ___________________ 21 Management Team _____________________ 43 Vianor ___________________________________ 22 Why invest in Nokian Tyres ________________ 44 This report is a translation. The original Finnish is the authoritative version. 4 ANNUAL REVIEW 2017NOKIAN TYRES PLC NO KI A N TYRES IN BRIEF PEAC E OF M IN D FROM THE WOR LD’S N ORT HERNMOST TYRE MAN UFACTURER As an expert in demanding conditions, we have spent decades promoting and a strong distribution network, expertise in logistics, and innovative personnel. facilitating safe driving in winter storms and summer rains alike. Today, our Central Europe and North America are also important markets for us in terms unique expertise can be felt in people’s everyday lives as the safest, highest- of profitable growth. quality products as well as services that offer comprehensive peace of mind. Vianor, which is a part of our group, is a chain of service centers focusing We develop high-quality innovative tyres for passenger cars, trucks, and on motoring and tyre services; its mission is to maintain Nokian Tyres’ market heavy machinery, while aiming for sustainable safety and eco-friendliness share and to support its brand in the Nordic countries. Our own factories throughout the product life cycle. In addition to sustainable product are located in Finland and Russia. The new factory under construction in the development and products, we care for the environment, people, and the high United States will be completed in 2020. Between 2007 and 2017, we have quality of our operations. Sustainability is an essential part of our business. invested more than EUR 1 billion in our factories, and the facilities represent Nokian Hakkapeliitta has been the leading winter tyre brand for over 80 the absolute best in the industry in terms of productivity and quality. years. Our position as the market and price leader in the Nordic countries In 2017, our net sales were approximately EUR 1.6 billion, and we employed and Russia is established by our key competitive advantages: a quality image approximately 4,600 people at the end of the year. Nokian Tyres’ stock is listed based on state-of-the-art technology, safety, and genuine user experience, on Nasdaq Helsinki. NOKIAN TYRES PLC 5 ANNUAL REVIEW 2017 KE Y F I GURES A ND HIGHLIGHTS FOR 2017 K E Y F I G U R E S 2 0 1 7 EUR million Net sales Operating profit % of net sales Profit before tax % of net sales Return on capital employed (ROI), % Return on equity (ROE), % Interest bearing net debt % of net sales Gross investments % of net sales Net cash flow from operating activities Earnings per share (EPS), EUR Cash flow per share (CFPS), EUR Shareholders equity per share, EUR Equity ratio, % Personnel, average during the year 2017 2016 change% 1,572.5 1,391.2 365.4 23.2 332.4 21.1 22.4 15.1 -208.3 -13.2 134.9 8.6 234.1 1.63 1.72 10.74 78.2 4,630 310.5 22.3 298.7 21.5 19.9 18.7 -287.4 -20.7 105.6 7.6 364.4 1.87 2.70 10.75 73.8 4,433 13.0 17.7 11.3 27.5 27.8 -35.6 -13.0 -36.3 -0.1 6 ANNUAL REVIEW 2017NOKIAN TYRES PLC H I G H L I G H T S O F T H E Y E A R 243 OUR TEAM GR EW BY 243 PROFESSIO NALS NET SALES GREW BY 13 % 346 NEW VIANOR, 36 % W E AIMED FOR A 20% NAD, AND N-TYRE DECR EASE IN CO2 STORES EMI SSION S F ROM OU R THE LEADING SCIENCE MAGA ZIN E POPULA R SC IEN CE HONORED THE NO KI AN HAKKAP ELIITTA 9 WITH THE B EST OF WHAT ’S NE W AWARD NEW FACTORY WE STARTED THE CONSTRUCTION OF A NEW FACTORY IN THE UNITED STATES FAC TOR IES’ PROD UCT ION BE TWEE N 20 13 AND 2020, B UT TH E ACTUAL R EDU CTIO N BY TH E E ND O F 20 17 WAS AN ASTO NISH ING 36% CUSTO MER SATI SFACTIO N WAS U P BY 2.6 % NOKIAN HEAVY TYRES REPORTED THAT IT IS INCREASING PRODUCTION CAPACITY BY THE MOST SUSTAINABLE 50% TYRE MAN UFACT URER IN T HE DJSI WORLD INDEX 7 THE AVERAGE 7% REDUCTION OF TH E RO LL IN G R ESISTAN CE OF O UR TYRE S SOL D IN 2 01 7 W IL L R EDU CE CO2 E MISSION S E AC H YE AR BY AS MU CH AS 54,000 PASSEN GE R CARS CR EATE ANN UAL LY ANNUAL REVIEW 2017NOKIAN TYRES PLC R EVI EW BY THE PRESIDENT & CEO G ROWI NG TOGETHER WI TH OU R CUSTOMERS Last year was one of financial success, positive news and developments. We achieved strong performance across all of our main markets, successfully launched new products, implemented price increases in different market areas, and increased production volumes. The sales of our Passenger Car Tyres unit grew thanks to the progress Strategic projects are proceeding made in sales and marketing in Central Europe and North America as well One of our strategic goals is to double our sales in North America by as the introduction of new products for all regions. In Russia we exceeded 2022. We have extensive experience in the North American market, and the market growth thanks to our competitive product portfolio, price our goal is to grow alongside our current customers as well as attract positioning and supply capability. For production, both of our factories new customers. Our new Dayton, TN factory supports our North America met the growing demand in a timely and efficient manner. The renewal strategy by expanding the product selection and increasing our overall of the Hourly working agreement for 2018 as well as investments in the manufacturing and storage capacity for North America. In the fall of 2017 production of passenger car tyres and heavy tyres strengthened the Nokia we held a groundbreaking ceremony in Dayton while progress continues factory’s role as a competitive production and development center. The toward completion in 2020 with a focus on eco-friendliness, efficiency, Russian factory produced its one hundred millionth tyre and commissioned employee well-being and a sense of community within the area. Our achievements in 2017 were the a new production line last fall. Supporting the growth and business of our customers is also a strategic result of our employees’ determined efforts, and commitment to working together, achieving our goals with Nokian Heavy Tyres set records in productivity, production, and sales focus area in Central Europe. In 2017, as part of these efforts, we launched alike. Sales were especially strong in agricultural tyres, while forestry a digital B2B application in the region that allows our customers to interact tyre sales continued to grow. We saw good development in market areas, with us 24/7 through a single online channel. The new digital service with remarkable 30% growth in North America. At the end of the year, we enables customers to order products, download marketing materials, Hakkapeliitta Spirit. announced an investment of EUR 70 million, increasing production capacity complete training, and contact our customer service. In 2018, we will for heavy tyres by 50% in Nokia. At the same time, we signed a competitiveness expand this service to our other main markets. agreement with our personnel that encourages employee multi-skilling in Our product innovations and their performance under all conditions order to increase production flexibility. The aim of the production capacity helps to grow our market shares in Central Europe as well as North America. investment is to support our own growth while helping our customers grow. In 2017, we launched over 20 new products to supplement our passenger car Vianor’s net sales growth was modest due to a downturn in the Nordic and heavy tyre ranges. Our new Nokian Hakkapeliitta 9 winter tyre received tyre market, particularly in Finland. However, the profitability improvement special attention when Popular Science, the world’s leading science and program proceeded according to plan, continuing into this year. Our goal technology magazine, honored it with the 2017 Best of What’s New Award. is to turn Vianor, an equity-owned subsidiary, into a profitable company. In Our strong winter tyre expertise is built on innovativeness as well as on 2017, we also grew our branded distribution network by 346 new Vianor, relentless testing performed around the world and at the true home of winter NAD, and N-Tyre stores. tyres – Ivalo, Finland. At over 700 hectares it is the world’s largest winter tyre 8 ANNUAL REVIEW 2017NOKIAN TYRES PLC GROWING TOGETHER WITH OUR CUSTOMERS testing site. Our investments in 2017 allow for even more where we are building our new testing and technology Our brand evolution can be seen in our redesigned versatile testing. The new outdoor test track is over one center. Our goal is to study the utilization of high-quality Scandinavian brand image and stronger value-based kilometer long and up to 40 meters wide, and it is suited natural rubber in the manufacture of our tyres. brand behavior that support our mission of peace of for testing heavy tyres as well as passenger car tyres. We promoted sustainability across our company by mind in all conditions and our sales, especially in our In 2019, we will boost our year-round product devel- updating and implementing our ethical guidelines and growth markets. opment activities as we will begin testing our range of providing sustainability online training for our personnel In December 2017, we communicated that we are summer, All-Season, and winter tyres at our new testing in the Hakkapeliitta eAcademy. accelerating profitable growth, customer orientation, and technology center in Spain. This location will feature I am convinced that the importance of sustainability and innovative future solutions by updating our leader- a state-of-the-art technology and training center that will will continue to grow, based on both the needs of ship and operating model. This change will reinforce our be used for customer events and trainings. stakeholders as well as companies’ own desire to market-driven approach, create a structure that supports improve their operations and products. We have worked our future growth, and increase the efficiency of our oper- Sustainability strengthens our business many years to improve our corporate sustainability and ations through global functions and common processes. Sustainability is an integral part of our company, and it is intend to continue this development in the future. With these changes, we want to maintain our flexible and visible across the product life cycle – from raw material innovative way of working and our ability to quickly react purchasing via factories and Vianor service centers to the We are responding to the changing to changes in the operating environment. consumer. In 2017, we were honored for our inclusion in business environment Nokian Tyres is a valued company, and our work on the DJSI World sustainability index. This demonstrates Nokian Tyres has a strong and well-known brand in the sustainability, along with our updates of the organizational our success in the field of sustainability and shows our Nordic countries and Russia, where we are especially structure, strategy, and brand, create added value for our employee commitment. The best part is that we were known for our innovative tyres, carefully developed for shareholders and other stakeholders. ranked as the leading tyre company within our category. extreme winter conditions and safe travel regardless The changes that we are implementing with our Sustainability requires actions across all fields. One of of the weather. From a brand perspective, we are in committed personnel lay a strong foundation for our our sustainability goals for 2020 was to reduce the rolling an excellent position to grow in other strategic market future success. Our strong expertise, desire to develop resistance of our tyres by 7%, thereby reducing CO2 areas. With the target of growth, we reviewed our brand our company, new opportunities, and growth targets emissions from traffic by 500 million kg. This goal was strategy in latter half of 2017 to better enable growth push us to improve our results in the future. met in 2017, three years ahead of schedule, as well as the in the premium summer and All-Season categories I would like to thank our customers, personnel, and goal to reduce CO2 emissions from production by 20%. alongside our core competence of winter tyres, and to other stakeholders for the year 2017. Our inspiring Furthermore, in our Nokia factory, 100% of production offer comprehensive peace of mind for consumers as teamwork enabled us to achieve excellent results, and waste is already being recycled and in our Russian reflected in our Scandinavian values. we are committed to continue building our success factory we achieved the recycling rate of nearly 90% in High-quality products are our number one priority. together in the coming years. 2017. Another one of our key sustainability initiatives In order to maintain our pioneering position, we are was supporting the construction of a test plantation for also investing in services that make it even easier for the cultivation of guayule plant in Santa Cruz de la Zarza, consumers to take care of everything related to tyres. Hille Korhonen 9 ANNUAL REVIEW 2017NOKIAN TYRES PLC B USI NE SS E NVIRONMENT AND TRENDS A CHANGING OPERATI NG ENVIRONMENT OFFERS NE W OPPORTUNITI ES The business environment in the car and tyre industry is changing through new business models, consumer behavior, and increased competition made possible by digitalization and new technologies. New business models in the car industry, tyre manufacturing, and retail offer us several opportunities for creating new business. 10 ANNUAL REVIEW 2017NOKIAN TYRES PLC TRENDS AFFECTING THE CAR INDUSTRY HOW THESE TRENDS ARE SEEN IN THE TYRE INDUSTRY HOW WE ACT Growth of the SUV and crossover segments ■ Demand for larger, more profitable tyres will continue ■ We have the leading selection of safe winter tyres in to grow. large sizes. We are also focusing on the development of a competitive selection of summer tyres and All-Season tyres. Evolving role of car manufacturers selection of original equipment tyres. manufacturers. ■ Premium vehicle brands will strengthen their position in the ■ We will continue and strengthen our cooperation with car ■ The role of manufacturer approvals will also grow on the replacement tyre market. Digitalization & Shared mobility ■ Online retail sales of tyres will increase. ■ Electric cars, self-driving cars, and digital innovations in the tyre industry will increase. ■ Car sharing services and the use of mobility services with a ■ We support our partners’ business both online and in stores and offer first-class digital solutions for supporting sales. ■ We will increase the selection of safe tyres with a low rolling resistance designed for electric and hybrid vehicles. monthly fee will grow in the long term. ■ We create new forms of cooperation between car manufacturers, retailers, and technology companies in order to remain pioneers in the tyre industry. ■ We develop new, smart solutions for products and services. ■ People are making more and more choices in support of ■ We ensure that our products are safe, sustainable, and of Sustainability & Security sustainable development by purchasing sustainable and safe high-quality products from companies whose values they can relate to. high quality. ■ As a good corporate citizen, we care about the environment and people, base our way of thinking on circular economy, and come up with innovative solutions in order to promote sustainable development in the tyre industry. Climate change ■ The demand for All-Season and All-Weather tyres will ■ Our expertise in demanding conditions gives us a good increase due to the varying weather conditions brought about by climate change. starting point for expanding our selection and developing tyres that work under all conditions. ■ The use of non-studded tyres will become more ■ We are focusing even more on product development. We commonplace even in the southern parts of the Nordic countries. are developing a more extensive selection of non-studded winter tyres and All-Season tyres. 11 ANNUAL REVIEW 2017NOKIAN TYRES PLC ST R ATEGY STRATEGY GUIDES OUR CHOICES Nokian Tyre s is a life driven company. Our m issio n is to give you peace of min d in a ll con diti ons. 12 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC Our strategy helps to differentiate ourselves, supports profitable growth, and guides us in the changing business environment while paving the way for future development. OU R DIFFERENT IATORS OUR AMBI TI ON SAFEST TYRES FOR ALL CONDITIONS CONSUMER-TRUSTED PREMIUM BRAND PREFERRED PARTNER FOR CUSTOMERS WE ARE THE MARKET LEADER IN SELECTED SEGMENTS IN THE NORDIC COUNTRIES AND RUSSIA WE INCREASE OUR SALES BY 50% IN CENTRAL EUROPE IN FIVE YEARS WE DOUBLE OUR SALES IN NORTH AMERICA IN FIVE YEARS OU R T YRES ARE AVAILAB LE IN ALL MAJOR WINTER T YRE MARKETS FO R E R U N N E R I N RESPONSIVE S E LEC TE D S PEC IALT Y AND EFFICIENT T YR E PRO D U C TS SUPPLY CHAIN HIGH-PERFORMING ENGAGED TEAM WE INCREASE THE EBITDA OF EQUITY-OWNED VIANOR TO +3% BY THE END OF 2019 WE INCREASE THE SALES OF HEAVY TYRES BY 50% IN FOUR YEARS FIN ANCIAL GOALS 2016–201 8 * G ROW I N G FA S TE R THAN TH E MAR KET: AVE R AG E AN N UAL SALE S G ROW TH H E ALTHY PRO FITAB I LIT Y: G O O D R ETU R N S FO R O U R S HAR E H O LD E R S: TH E B E S T O PE R ATI N G PRO FIT LE VE L I N D IVI D E N D O F AT LE A S T 5 0% O F N ET O F 4 – 5% AT A M I N I M U M TH E I N D U S TRY, A M I N I M U M O F 22% E AR N I N GS *at stable currency exchange rates 13 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC SA FE S T T Y R E S FO R A LL CO N D ITI O N S CO N S U M E R-TR U S TE D P R E M I U M B R A N D P R E FE R R E D PA R TN E R FO R C U S TO M E R S We operate within the premium passenger car tyre segment and focus on the replace- ment tyre market. We offer the world’s best winter tyres on all major winter tyre markets. As pioneers in challenging conditions, we can successfully expand into other segments. Our competitive summer tyres, All-Season tyres, and All-Weather tyres take safety to a new level under all conditions. Our Scandinavian heritage speaks to consumers We support our customers’ business by means who value sustainable business and products as of controlled distribution, shared development well as pioneering technology and services. Our of business models, and an offer of effortless innovations for promoting sustainable devel- cooperation at all levels. Vianor’s mission is to opment within the tyre industry build trust and maintain Nokian Tyres’ market share and to strengthen our quality image. We make good on support its brand in the Nordic countries. Our our promise on the road, as our high-quality tyres own retail chain helps in the development of offer reliability, performance, and peace of mind concepts improving our customers’ sales and from winter blizzards to heavy summer rain. provides deeper insight into our customers’ business and consumer needs. FO R E R U N N E R I N S E LEC TE D S P EC IA LT Y T Y R E P R O D U C T S R E S P O N S I V E A N D E FFI C I E NT S U P P LY C H A I N H I G H - P E R FO R M I N G E N GAG E D TE A M In the development and manufacture of heavy special tyres, we focus on carefully selected segments with high profit margins, such as tyres intended for forestry, agriculture, and material handling. Our premium tyres feature unique We have the most efficient factories in the Our open and participatory company and leader- industry. The high level of automation ensures ship culture ensures that we work, develop, and our capacity for first-class quality. Our customer- achieve great results together. Our motivated oriented deliver y chain ensures excellent and committed personnel have a continuous customer service capability even during high desire to develop their personal competence as solutions that support the business of our end season. well as our company as a whole. users, and we sell them on both the replacement and original equipment markets. We ensure the functionality of our tyres by also serving our customers under genuine conditions of use. 14 ANNUAL REVIEW 2017NOKIAN TYRES PLC OUR STRATEGIC FOC US A REAS FOR 201 7–2022 Our goal is to be the market leader in the Nordic countries and Russia and to maintain profitable growth in our other main markets: over a five-year period, we will grow our sales by 50% in Central Europe and double our sales in North America. Over the long term, we want to be a significant player on all other winter tyre markets as well. In order to reach our goals, we are concentrating on the following focus areas. We are investing in North America + We will be starting production at our factory in Dayton, TN in 2020. + We will be increasing brand awareness and improving the availability of our tyres. We are investing in new product lines in order to support profitable growth in North America and Central Europe + We are continuing our investments in product development and testing by building a new testing and technology center in Spain. + We are developing next-generation summer tyres and All-Season tyres. We support our customers’ business and develop new business models + We will introduce advanced B2B and B2C solutions that make it easier to conduct business with us. + We will develop the Vianor and NAD concepts further and expand them into new markets. + As digitalization revolutionizes mobility, we will build cooperation with car manufacturers and resellers as well as technology companies. We will make Vianor’s business profitable + We will increase the EBITDA of equity-owned Vianor to +3% by the end of 2019. We will grow the Nokian Heavy Tyres unit’s business in a profitable manner + We will increase the sales of heavy tyres by 50% within four years. + We will increase the production capacity in order to support our customers’ growth goals and to meet the growing demand. We will create a unified team with a shared vision + With our new leadership and operating model, we are reinforcing an international common way of working based on best practices and supporting competence development. + We retain our ability to make quick decisions and remain agile, innovative, and close to the customer. 15 ANNUAL REVIEW 2017NOKIAN TYRES PLC C L O S E T O T H E C U S T O M E R NOKIAN TYRES PLC 16 ANNUAL REVIEW 2017 LOREM IPSUM “ I did not expect to find a company wi th such similar values behind my tyre choice. I have been delighted by the inspiri ng and friendly Nok ian Tyres people.” J onatha n G arlan d, Ma dison , USA 17 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC CONS UME RS “ You can never spend too m uch on sh o es or tyres, since they are the o nl y two t hi ng s that keep you connected to th e groun d.” Jonathan Garland LOVE AT FIRST MIL E JO N S WEARS BY NOK IAN TYRES Jonathan Garland is a driver who steers clear of the beaten path. Whenever the opportunity arises, Jon from Madison, Wisconsin packs his family in the car and heads toward adventure. Nokian All-Weather tyres always take the family man wherever he wants, regardless of the weather or route selection. For the father of two with a love of nature and the outdoor life, the – I immediately fell in love with the new tyres. The car’s steering behind my tyre choice. I have been delighted by the inspiring and car is not only an everyday tool – it is also the key to adventure. and handling improved immediately and, best of all, the tyre noise friendly Nokian Tyres people. The Subaru Outback takes the active family from the main roads disappeared completely. The car feels perfect to drive. I feel totally The keen outdoors enthusiast is impressed by Nokian Tyres’ all the way to demanding off-road sections. Jon is not afraid to test confident and secure behind the wheel, regardless of the weather commitment to promoting ecological values within the tyre industry. the capabilities of his vehicle in Madison’s varying winter weather. or driving surface. In the future, Jon aims to supplement the Subaru’s tyre selection with Choosing new tyres was an important decision for a man who wishes News of his successful tyre choice has traveled far. An interest in a set of Nokian Hakkapeliitta winter tyres. Off-road tyres are also a to achieve a lot with his vehicle. car tuning has made Jon a popular Subaru influencer on social media. future dream for him. – A wise person once said: “You can never spend too much on On his Instagram account, Jon has nothing but praise for Nokian – After everything I have experienced, I am more than convinced shoes or tyres, since they are the only two things that keep you Tyres’ motivated attitude and immediate service. that Nokian Tyres has the right tyre for my car, regardless of the connected to the ground.” As a father, I can compromise on the tuning – I did not expect to find a company with such similar values desired destination. of my car, but never on my family’s safety. I set off to find the best possible tyres. Unbelievable driving experience Jon discovered Nokian Tyres based on a tip from his mechanic in the Subaru community. High quality materials and tested durability convinced him to purchase the Nokian WR G3 tyres. This was the right choice, as the difference was like night and day compared to his previous tyres. Q UA LIT Y P R O D U C T S TH AT D R I V E R S LOV E Trust in the durability of our tyres is earned with each successful products and services that facilitate everyday life. In 2017, we trip. We are endlessly fascinated by driver safety and smooth strengthened our product portfolio and product availability and driving. We promote mobility through new state-of-the-art quality ensured that our solutions and services exceed expectations. 18 ANNUAL REVIEW 2017NOKIAN TYRES PLC CUSTOME RS “NAVI GATE NORTH” SPEEDS UP TYRE SALES IN C E NTRAL EUROPE Seven days, 7,000 kilometers, heading north – the super-popular Navigate North car orienteering competition, sponsored since 2015 by Nokian Tyres and De Klok, its importer in the Benelux countries, promotes safe winter driving and tyre sales in Central Europe. Each team is equipped with the world’s best winter tyres as they head for the northernmost parts of Europe. S TR O N G W I N - W I N PA R TN E R S H I P S Our cooperation with dealers and importers is based on innovation and win-win thinking. We do not hesitate to do what we promise, and we will support the business growth of our clients and partners in the long term. As a flexible partner, we will quickly react to rapidly changing market situations and customer needs. In 2017, we developed our digital retailer services to be even more comprehensive and strengthened our cooperation by arranging new types of events, among other things. In January, 50 SUVs start from the Netherlands toward the unknown expect since I had never spent that long inside a car with anyone north. The local news and social media allow thousands of people in other than my wife. Of course, I already knew Teemu from a long the Benelux countries to follow as the teams make their way through time ago, but 24 hours inside the same car for a week took its toll. snow and ice for a good cause. Each year, many of the teams raise We were like an old couple; sometimes, we would argue about the tens of thousands of euros for charity. route choices – and then be laughing the next minute. It was an – Safety is the overall theme of the entire Navigate North contest; experience like no other, Zvonko says. it extends from the arrangements and rules to all of the event partners. Nokian Tyres supports the competition by ensuring that the Boosting summer tyre sales teams stay on the road and everyone gets home safely, says Teemu The next competition further strengthened the duo’s cooperation, Tirronen, who is the Managing Director for Nokian Tyres Germany not to mention the customer relationship. The most rewarding and also responsible for the Benelux region. part of the Navigate North cooperation, however, has been the A common DNA recognition from the participants. After each competition, many of them have come to say that they no longer want to use any other Teemu knows what he is talking about. He has already taken part in tyre brands than Nokian Tyres. the competition three times with Sales Manager Zvonko Tkauz from – Navigate North can be clearly seen in De Klok’s growing sales “ A dr iving competition for s even d ays and 7,000 kil ometers, drivin g on s now and i ce 24 /7 together with your b usin es s par tn er? Wi th Nokian Tyres , I woul dn’ t the Dutch importer partner De Klok. Together, the two of them have figures for summer and winter tyres for passenger cars. Positive h e si tate for a minute!” spent extensive periods of time inside a car. The long rides have experiences and word of mouth have resulted in contacts from given them time to plan projects together. businesses, even transport companies, wanting to switch from Zvonko Tkauz, Sales Manager, De Klok – When starting my first competition, I did not know what to other brands to Nokian Tyres, Zvonko says. 19 ANNUAL REVIEW 2017NOKIAN TYRES PLC MA R K ET AREAS FOUR STRONG REGIONS The global tyre market grew in 2017. The strongest growth was seen in SUV tyres and summer tyres with a high speed rating. Out of Nokian Tyres’ main markets, Russia saw the strongest increase in demand. The sales of passenger car tyres are mostly affected by the sale of new vehicles, the development of buying power, and general consumer confidence in the economy. G O O D P OS ITI O N R ETAI N E D I N TH E N O R D I C CO U NTR I E S Approximately 12 million car and van tyres are estimated to TH E R U S S IAN MAR KET I S R ECOVE R I N G As the overall economy improved and private consumption be sold each year in Finland, Sweden, and Norway, of which slowly started picking up, sales of new cars grew by 12% about half are winter tyres. In 2017, the passenger car tyre in Russia in 2017. The sell-in of summer and winter tyres market shrunk by 6% in the Nordic countries, even though also grew. Nokian Tyres was able to meet the high demand sales of new cars grew by 2%. Nokian Tyres is the only Nordic through local manufacturing and grew much faster than the tyre manufacturer and retained its stable market leadership market. The share of Russia and CIS grew to nearly 21% of within the region. In 2017, Nordic countries comprised nearly our net sales. Nokian Tyres is the largest tyre manufacturer 40% of our net sales. in Russia and the market leader for A and B segment tyres. M O R E FO CU S O N TH E G ROW I N G MAR KETS I N CE NTR AL EU RO PE Central Europe is a growth market for Nokian Tyres. B U I LD I N G FO R G ROW TH I N N O RTH AM E R I CA The United States is the world’s largest market for vehicles. NE T SALES BY MARKET AREA , % Approximately 260 million passenger car and van tyres are The sales of SUVs and pickups, in particular, are growing 4. market. In 2017, the overall tyre market in Central Europe each year in the US and Canada. North America is one of the sold each year on the European market (excluding the Nordic and increasing the demand for tyres. However, the overall countries). The region is also the world’s largest winter tyre tyre market growth is slow. Nearly 260 million tyres are sold 3. 1. 2. 1. Nordic countries 40% 2. Other Europe 28% 3. Russia and the CIS countries 21% 4. North America 11% grew moderately. We were able to increase our sales in growth markets for Nokian Tyres. In recent years, our focus Other Europe through sales and marketing investments and has been on Canada and the US snowbelt, which are also new products, in particular. In 2017, Other Europe comprised our strongest regions. Our goal is to expand our product nearly 28% of our net sales. offering and sales especially in All-Season tyres and across a more extensive geographical area. In 2017, North America accounted for nearly 11% of our net sales. 2 0 ANNUAL REVIEW 2017NOKIAN TYRES PLC SA LE S AND DISTRIBUTION E X TENSIVE DISTRIBUT IO N N ET WORK DRIVES BRA ND AWARENESS Good availability and precise, quick deliveries are increasingly important parts Nokian Tyres has customers around the world. Our own sales companies in the main of a successful tyre retail experience. We are continuously developing our logistics systems and retailer network in order to ensure efficient distribution. Vianor has a total of 1,466 service centers Nokian Tyres’ products are sold in 59 countries The branded distribution network has nearly 3,500 stores 21 markets and an extensive retailer network ensure the availability of our products and a first-class customer experience. Our comprehensive distribution network consists both of Nokian Tyres’ equity- owned Vianor service centers and service centers run by partners, the Nokian Tyres Authorized Dealer (NAD) partners, the N-Tyre retailers, and other tyre and vehicle retailers as well as online stores. The customer information available through the network offers an opportunity for improving customer insight and customer loyalty. Committed retailers gain access to Nokian Tyres’ strong brand and innovative state- of-the-art products that grow their business. V IA N O R ■ 1,466 service centers in 26 countries (194 owned by the group, 1,272 partners) ■ The number of centers decreased by 3 5 in 2017 ■ The largest tyre retail chain in the Nordic countries, the Baltic states, Russia, and the CIS countries; also operates in North America and Central Europe N O K IA N T Y R E S AUTH O R I Z E D D E A LE R S ( N A D) ■ 1,855 stores in 21 European countries and China ■ The network grew by 374 stores in 2017 N -T Y R E N E T W O R K ■ 127 stores in Russia and the CIS countries ■ The network grew by 7 stores in 2017 ANNUAL REVIEW 2017NOKIAN TYRES PLC VI ANOR SUSTAINABLE TYRE SA L ES AND CARI NG FOR YOUR VEHICLE Vianor is a chain of service centers specializing in car maintenance and tyre services. The service centers and online stores serve both consumers and corporate customers. Following years of rapid growth, Vianor is now focusing on developing quality instead of quantity. Vianor is a chain specializing in car maintenance and tyre services developing quality instead of quantity. The aim is to ensure that comprises a network of nearly 1,500 service centers in 26 future success by optimizing the network and improving the countries. Most of our centers are located in the Nordic countries, customer experience. A brand refresh was implemented Russia, and Eastern Europe. We also have service centers in during the year. This supports the Premium Customer Journey Central Europe and on the East Coast of the United States. In development program that was already started during the the Nordic Countries as well as in the US, the network consists previous year and aims at delivering a better personnel and of both equity-owned centers as well as service centers that are customer experience. By developing our activities, we can meet run by partners. In all other parts of the world, our partners offer changing consumption and customer behavior in both consumer the service. Our strength is our expertise in challenging driving and B2B relationships. conditions that stems from our Nordic roots. Our mission is to offer a strong, high-quality distribution route and to maximize Safety and quality are the main themes Nokian Tyres’ market share on the home markets. Efforts to improve occupational safety have been fruitful and Market share goals were met in the Nordic countries quality services, we offer our customers peace of mind and safe In 2017, the Nokian Tyres’ equity-owned Vianor business unit kilometers. Safety will remain a priority in 2018. was able to retain its market share well. Growth in net sales was slowed down by the poor market development across the Our own retail chain supports Nokian Tyres’ strategy industry, tough competition, and the effect of new competitors In addition to ensuring our market share, an equity-owned high- the number of accidents has reduced significantly. With high- focusing on online sales. quality retail chain offers Nokian Tyres a good testing environment for new products and services. Furthermore, the customer Focusing on service and the customer experience information accumulated by Vianor offers an opportunity for Following years of rapid growth, Vianor is now focusing on better customer insight and loyalty. 22 ANNUAL REVIEW 2017NOKIAN TYRES PLC S NAPS KA N IM PROV ES ROA D SA FET Y SnapSkan is a new, free service developed by Nokian Tyres. It is designed to make drivers aware of the condition of their tyres and the effect of tyres on road safety as well as to affect people’s driving behavior. Furthermore, the service helps Nokian Tyres differentiate from the competition as a genuinely responsible tyre manufacturer that offers a free-of-charge service at locations frequented by drivers. SnapSkan is based on state-of-the-art technology and a simple consumer user interface, and it is built in cooperation with Vianor. The tread depth of a car’s tyres is measured automatically when driving over a ramp. It can also be measured with a handheld scanner at Vianor’s service centers. Drivers can order their own report on their smartphone with a free SMS message. The report indicates the remaining tread on the tyres and its impact on road safety. The service is currently in use in Finland, and the aim is to expand it to other countries. “ SNA PSK AN IS A FREE D IG I T AL S ERV ICE F OR A L L D RI VERS. S NAPS KA N HAS BEEN BUIL T T O I MP RO VE RO AD SA FET Y.” VIANOR Net sales, Operating profit and Operating profit% EUR million 400 Operating profit% 12 300 200 100 0 9 6 3 0 -100 13 14 15 16 17 -3 Net sales Operating profit Operating profit% 2013 2014 2015 2016 2017 Net sales Operating profit Operating profit% 312.5 -1.8 -0.6 314.8 2.1 0.7 327.6 -1.9 -0.6 334.8 -8.1* -2.4 * 339.4 -5.8 ** -1.7 ** In 2016, non-recurring items amounted to EUR 3.6 million and included the write-off of ICT development projects. * Excluding non-recurring items: Operating profit EUR -4.5 million, operating profit percentage -1.3%. In 2017, non-recurring items amounted to EUR 1.8 million in total. ** Excluding non-recurring items: Operating profit EUR -4.0 million, operating profit percentage -1.2%. NOKIAN TYRES PLC 2 3 ANNUAL REVIEW 2017 LOREM IPSUM L I FE DR IVE N -TEEM A-AUKEAMA W O R L D O N W H E E L S NOKIAN TYRES PLC 24 ANNUAL REVIEW 2017 LOREM IPSUM “ As car technology develops, t he expectations for more versatile tyre features are also growing. I n t he fut ure, tyres may feature sensor technology t hat allows t he driver to receive information on changes in the road sur face and weather, for example. As t yre engi neer s, we dream that the characteri sti cs of f uture tyres could also be adjusted according to t he weather.” M ikko Liu kku la, Develop ment Man ag er 2 5 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC PAS SE NG ER CAR TYRES STA BL E PATH TO G ROWTH Nokian Tyres’ Passenger Car Tyres unit develops and manufactures high-quality summer and winter tyres for passenger cars, vans, and SUVs. In 2017, the unit’s business grew strongly across all the main markets. Russia was the biggest contributor to growth. Demand for passenger car tyres remained good in 2017. The tyre and distribution network and the improvement of availability. We market in Russia picked up following a long recession and grew responded to the growing tyre demand by increasing production substantially faster than anticipated. Demand grew slightly in volumes by 15% at our factories in Finland and Russia and by North America and Central Europe but weakened in the Nordic investing in a new production line in Russia. The combined annual Countries. The growth in car sales had a positive impact on the nominal capacity of our factories is over 20 million tyres. tyre market. New factory supports the growth goals Good performance across all markets in North America We took advantage of the favorable market developments, and our In May, we reported that we are investing approximately USD Passenger Car Tyres business grew strongly all year long across all 360 million in a new factory in North America. Construction work of our main markets. The growth was mainly driven by Russia and started according to schedule in September and the intention is the CIS countries with an increase in net sales of 46.4%. Business to manufacture the first tyres in 2020. The factory, distribution also developed favorably in North America where we achieved a center, and storage facilities in Tennessee will support our growth new sales record. goals and commitment to customers in North America. Our goal is to double our sales in North America by 2022. Healthy profitability Raw material cost pressure and a challenging pricing environment New products strengthen the market position affected margins and forced us to perform price increases across The new premium products launched by the Passenger Car Tyres all markets during the year. These increases had a positive effect unit in 2017 were well received by the market. The products on profitability. The improved product selection and production excelled in tests by international tyre magazines, creating positive efficiency also improved profitability. brand awareness and strengthening the company’s position on More production capacity for the increasing demand in the sales and distribution network create a strong platform In 2017, we continued to invest in the development of our sales for growth. the key markets. An enhanced product selection and investments NOKIAN TYRES PLC 26 ANNUAL REVIEW 2017 NET SALES BY BUSINESS UNIT, % 3. 2. 1. 1. Passenger Car Tyres 2. Heavy Tyres 3. Vianor 2016 2017 67 11 23 69 10 21 PASSENGER CAR TYRES Net sales, Operating profit and Operating profit% EUR million 1,500 Operating profit% 60 1,250 1,000 750 500 250 0 13 14 15 16 17 Net sales Operating profit Operating profit% 50 40 30 20 10 0 Net sales Operating profit Operating profit% 2013 2014 1,137.0 1,003.2 292.2 29.1 378.5 33.3 2015 951.5 285.5 30.0 2016 2017 981.1 1,138.8 305.8 359.9 31.2 31.6 N E W P R O D U C T S THE NOKIAN HAKKAPELIITTA 9 AND HAKKAPELIITTA 9 SUV winter tyres are the latest additions to the Nokian Hakkapeliitta product family, which is already over 80 years old. The innovative winter tyre was developed for the varying Northern winter conditions and it is the first tyre in the world to feature patented double stud technology. THE NOKIAN e NTYRE C/S All-Season tyre brings driving comfort, safety, and durability to North American roads. Suitable for all-year use on SUVs and crossovers. THE NEW NOKIAN HAKKA BLACK 2 AND HAKKA BLACK 2 SUV summer tyres ensure balanced and precise road contact on Northern roads. The new sturdy NOKIAN HAKKA BLUE 2 SUV offers excellent wet grip and safe driving from summer to late fall. NOKIAN HAKKAPELIITTA 9 NOKIAN HAKKAPELIITTA 9 SUV NOKIAN eNTYRE C/S NOKIAN HAKKA BLACK 2 NOKIAN HAKKA BLACK 2 SU V 27 Q 2 | 2 017 NOKIAN TYRES ANNOUNCED THAT IT IS BUILDING A NEW FACTORY IN NORTH AMERICA Q 3 | 2 017 NEW PRODUCTION LINE COMMISSIONED IN RUSSIA LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC NO KI A N HEAVY TYRES THE P IONE ER IN SPECIAL T YRE S STR E NGTHEN ED ITS POSIT ION Nokian Heavy Tyres develops and In 2017, demand for heavy special tyres grew globally. In the Western introduced several tyres suited for heavy agricultural and earthmoving manufactures special tyres for the heavy industry. In 2017, the business unit improved sales and profit with markets, the demand was good in most of Nokian Heavy Tyres’ core applications. Demand for premium truck tyres remained stable in Europe product groups: forestry tyres, agricultural tyres, machine tyres, harbor and the Nordic countries but decreased in Russia. tyres, and mining tyres. The net sales of Nokian Heavy Tyres grew by 11% year-over-year. The operating profit, production volumes and productivity Additional capacity enables sales growth support from new product innovations also improved. and positive market development. The company eliminated production bottlenecks by increasing production capacity at the Nokia factory and investing in production automation. The Demand grew across most product groups additional capacity will be fully commissioned in early 2018, providing a Demand for OEM forestry tyres remained strong and was supported by strong foundation for Heavy Tyres’ continued business growth in 2018. the strong growth of the forestry industry. Globally, Nokian Heavy Tyres In December, Nokian Heavy Tyres announced a new investment is the leading manufacturer of CTL forestry tyres and it also retained plan, amounting to approximately EUR 70 million, which will increase its stable position in 2017. The company expects the forestry sector to the capacity of the Nokia factory by 50% within the next three years. continue growing in 2018. With the additional capacity, we especially intend to meet the demand Demand for agricultural tyres grew especially in Europe and North for agricultural and forestry tyres. At the same time, an agreement was America. Nokian Heavy Tyres invested in product development and signed to encourage employee multi-skilling in order to increase flexibility. 28 ANNUAL REVIEW 2017NOKIAN TYRES PLC Systematic efforts to improve safety created visible results. Last year, Nokian Heavy Tyres was able to reduce accidents leading to absence at the Nokia factory by 80%. More sales from competitive new products Raw material costs increased in 2017. Nokian Heavy Tyres countered the challenging situation by implementing price increases and introducing several new products. The sales of new products developed well and increased the net sales for the full year. The average selling price increased slightly year-over-year, mainly due to the price increases and improved product selection. Cooperation with machine manufacturers guarantees safe and functional products Nokian Heavy Tyres continued working in close cooperation with machine manufacturers and other partners in order to improve the functionality and safety of their equipment. Product safety and sustainability have become even more important factors in product development. As a profitable and strong global manufacturer, Nokian Heavy Tyres can quickly react to the changing needs of its customers and develop its operations in a sustainable manner. N E W P R O D U C T S NOKIAN HEAVY TYRES Net sales, Operating profit and Operating profit% EUR million 200 Operating profit% 40 HAKKAPELIITTA CITY BUS – tyre for city buses NOKIAN HAKKA TRUCK STEER – All-Season tyre for freight and bus traffic NOKIAN HAKKAPELIITTA TRUCK F2 – front tyre for trucks and buses NOKIAN E-TRUCK – All-Season tyre range for trucks and buses CT TRAILER TYRES – 4 new products for agricultural machinery and heavy equipment NOKIAN CONCEPT TYRE – tractor tyre NOKIAN HTS G2 – harbor tyre ARMOR GARD 2 – excavator tyre 150 100 50 0 30 20 10 0 13 14 15 16 17 Net sales Operating profit Operating profit% Net sales Operating profit Operating profit% 2013 149.7 20.4 13.6 2014 149.1 24.6 16.5 2015 155.3 28.7 18.5 2016 155.3 28.2 18.2 2017 172.3 32.2 18.7 29 CO N C E P T T Y R E S I M P LI FI E S W O R K AT FA R M S A new concept tyre embodies Nokian Heavy Tyres’ efforts in developing products for agricultural use. The Nokian Concept Tyre, presented at Agritechnica 2017, allows for more versatile and cost-effective use of tractors and other farm equipment at farms undergoing a transitional period. The durable and versatile tyre has a pioneering tread pattern that improves mobility under varying conditions as well as an innovative structure that allows for heavier loads, among other things. ANNUAL REVIEW 2017NOKIAN TYRES PLC P RODU CT DE VELOPMENT AND TESTING NORTHERN KNOW-HOW FOR THE GLOBAL MARKE T Relentless product development and the world’s best testing expertise are the basis of our innovations. This results in solutions that promote safety, driving comfort, and eco-friendliness around the world. Our unique product development is based on know-how accumulated during over leader for future products and solutions promoting driving comfort. This reform 80 years in the business and the constant search for better solutions. Safety is the ensures that our product portfolio meets the needs of different markets and the main goal of our development, which is guided by the principles of sustainability, expectations of each user group. innovation, and eco-friendliness. The quality, durability, and eco-friendliness of our products are a result of careful research, structural development, and testing. Future tyres from person to person In the future, smart traffic technology and bio-based materials will revolutionize New Products and Technologies unit responds to global demand the vehicle industry. In the coming decades, tyres will remain an essential part Excellent problem-solving abilities and relentless development have made our of the safety and eco-friendliness of driving, since tyres are the only point of company a pioneer in the tyre industry. We are developing our ability to innovate contact with the driving surface. Measures for reducing rolling resistance are by means of constant renewal. From the beginning of 2018 onwards, we are important, since tyre use amounts to up to 80% of their total carbon footprint. moving the functions of Product Management and Product Development under Our company has met these challenges with effective product development a new unit. The new Products and Technologies unit creates growth by speeding processes where we utilize the latest digital technologies and innovative materials up the development of innovative, competitive, and profitable tyre technology successfully reducing rolling resistance, for example. High-quality customization solutions for all key markets. Closer cooperation between product development and comprehensive testing allow these results to be seen and felt in the everyday and product management reinforces our company’s position as an innovation lives of drivers as improved safety and efficiency. 3 0 ANNUAL REVIEW 2017NOKIAN TYRES PLC NO RTHERN KNOW-HOW FO R THE GLOBAL MARKET W H ITE H E LL E X PA N D E D – E V E N S TR O N G E R W I NTE R SA FE T Y Our winter tyres are tested under the most demanding conditions. Our White Hell testing center in Ivalo, Finland is the world’s largest and most versatile winter tyre testing area. Established in 1986, the 700-hectare testing center is used to simulate the extremes of winter driving and to defy the grip limits from November to May, day and night. Close cooperation with the automotive industry is an important part of our field testing. On the 30 test tracks in the area, our test drivers and self-driving cars test the performance and grip of the tyres under all extreme conditions and according to the test programs of the leading car manufacturers. In 2017, we expanded the testing center with a testing platform, service hall, and meeting room built on the shore of lake Pilverijärvi. The track, which is over one kilometer long and up to 40 meters wide, is the largest testing platform in White Hell in terms of surface area, and it allows for even more versatile testing of our passenger car tyres and heavy special tyres. TH E AU R O R A I NTE LLI G E NT R OA D I S U S E D TO TE S T TH E W O R LD ’ S B E S T W I NTE R T Y R E S In the future, smart traffic technologies and autonomous driving solutions will revolutionize the entire vehicle industry. Nokian Tyres is promoting the development of smart traffic under arctic conditions. The Aurora intelligent road, located in Muonio, Finland and managed by the Finnish government, is the world’s best test road for autonomous driving under winter conditions. The 10-kilometer road is equipped with modern probe and sensor technology and state-of-the-art communications connections. Our company is participating in the project as a technology pioneer partner, investigating the demands of smart traffic on the tyre industry. As the world’s northernmost tyre manufacturer, we want to ensure that future tyre technology works under the most demanding conditions without compromising on safety. TE S TI N G A N D TEC H N O LO GY C E NTE R I N S PA I N R E I N FO R C E S O U R P O S ITI O N O N TH E S U M M E R T Y R E M A R K E T We will be opening a new testing and technology center for summer and winter “NOKIAN TYRES IS tyres in Santa Cruz de la Zarza, Spain, during 2019. The testing and technology AMONG THE FIRST IN center, spanning some 300 hectares and located south of Madrid, will allow for all- EUROPE TO EXPERIMENT year product development and testing of summer and winter tyres with high speed WITH GROWING ratings on more than ten tracks. An oval track of over 7 kilometers in length will be ECOLOGICAL LATEX.” built around the area, allowing for testing tyres at speeds of up to 300 kilometers per hour. As part of the development of future tyres, we established a test plantation for cultivating guayule in Santa Cruz de la Zarza in 2017, in cooperation with the local university. The guayule bush, native to barren deserts, is a source of high-quality natural rubber. In the future, we aim to utilize even eco-friendlier raw materials in tyre manufacturing. 3 1 ANNUAL REVIEW 2017NOKIAN TYRES PLC L I FE DR IVE N -TEEM A-AUKEAMA L I FE DR IVE N -TEEM A-AUKEAMA W O R K I N G R E S P O N S I B L Y NOKIAN TYRES PLC 32 ANNUAL REVIEW 2017 LOREM IPSUM “ The best par ts of my work are the par t ici pator y culture and professional colleagues: toget her, we feel inspired to develop ourselves and t he company, and to advance toward new successes. The significance of our wor k i s also im por tant; after all, we are a life-driven, sustainable company.” M axim Pim enov, Q ua lity an d Ty re Tec h no logy Exper t 33 LOREM IPSUMANNUAL REVIEW 2017NOKIAN TYRES PLC H A KKAPE LIITTA SPIRIT “ Hakkapeliitta Spirit means exceeding yoursel f, a chievi n g to p per form ance, helping your friends , working togethe r, an d cel ebrating s uccess es. It is seen i n m a ny ways in our eve ryd ay intera ct ions and it is genu inely present in every t hi ng we d o. Sti l l , it remains difficult to put it al l into words . Ha kka pel i i tta Spi r it makes you do more; it com es ba ck to you a nd feels go o d. An d th e best par t is that it’s imposs ible to im itate.” Marju Grabovci, Global Product Manager STRO NG VALU ES GUIDE OUR ACTIVITIES We at Nokian Tyres are joined together by a belief in working with In 2018, we will be starting value discussions with our personnel others and an ability to create new things and develop our activities. with the aim of creating an even more harmonized company culture We trust in discovering things together and rolling up our sleeves to and ensuring closer international cooperation. The discussions will get the job done. We take care of each other, the environment, and be held at international supervisor events as well as in local teams safe mobility under all conditions. We call our unique company culture and online game environments alike. By reflecting our values on our the Hakkapeliitta Spirit. future needs and committing to them together, we will be able to Hakkapeliitta Spirit comprises our values, goals, leadership, and better answer the needs of a changing world and to react to the everyday work. Without solid values and value leadership, we could trends that are changing our operating environment. not achieve success or our goals for profitable growth. 3 4 ANNUAL REVIEW 2017NOKIAN TYRES PLC OU R VALUE S AR E AT T HE CO RE OF THE HAKKAPE LIITTA S PIRIT I NVE NTIVE N E SS We have the skill to survive and excel, even in the most challenging circumstances. Our competence is based on creativity and inquisitiveness, and the nerve to question the status quo. We are driven by a will to learn, develop, and create something new. 3 5 E NTR E PR E N EU R S H I P We are quick and brave. We set ambitious objectives and perform our work with persistence and perseverance. We are dynamic and punctual, and we always make customer satisfaction our first priority. TEAM S PI R IT We work in an atmosphere of genuine joy and action. We work as a team, relying on each other and supporting each other, offering constructive feedback when needed. We embrace differences, and we also encourage our team members to individually pursue winning performances. ANNUAL REVIEW 2017NOKIAN TYRES PLC S USTA IN ABILITY IMPROVEMENTS IN ALL AREAS OF SUSTAINABI LI TY Sustainability is a natural part of our business: sustainable product development, safe and eco-friendly products, and high standards of quality in what we do. We have worked in the long term for corporate sustainability in order to improve our company’s operations and the entire tyre industry. Our work was verified in 2017 when Nokian Tyres was selected for the Dow Jones Sustainability World index (DJSI). We want to be the most responsible and ethical tyre company and an industry pioneer. We ensure that our activities do not harm the Systematic management of sustainability improves our operations and company culture environment or people. Our tyres are easy on the environment Our strategy also guides our choices in terms of sustainability. All and, even under challenging conditions, they will help you reach supervisors’ duties include day-to-day leadership of corporate your destination. Our business must be profitable so that we are sustainability. The main task of the Corporate Sustainability working able to offer security, work, and well-being for our personnel, while group is to design and promote measures for better sustainability. also considering investors, customers, and other stakeholders. The head of each unit is responsible for implementing the measures Sustainability is an essential part of our daily work and leadership, according to their unit strategy. Larger topics and guidelines are which is guided by the group strategy. discussed by the management team and, if necessary, by the Board We take into account the entire product life cycle and all of our of Directors. business functions, and we strive to go beyond the minimums We have divided our company’s corporate sustainability into required by the law and applicable standards. We emphasize five clear categories: Hakkapeliitta Way describes our approach the management of sustainability in all of our functions and our and covers the principles that guide our work across the group. supply chains. We believe that the importance of sustainability will The four areas of operational sustainability management, on the continue to grow, based on both the needs of stakeholders as well other hand, describe our corporate sustainability in relation to our as companies’ own desire to improve their operations and products. products, the economy, people, and environment. 36 ANNUAL REVIEW 2017NOKIAN TYRES PLC T N E M E G A N A M Y T I L I B A N I A T S U S VA LU E S , S TR ATEGY, A N D G OA L S Sustainability is part of our company’s culture, strategy, and goals. We manage our sustainability in five areas. H A K K A P E L I IT TA WAY The principles that guide our operations throughout the group ■ Transparent and comprehensive reporting ■ Conducting business ethically, in compliance with laws and regulations ■ Sustainable purchasing from raw materials to services ■ Good corporate citizenship ■ Active partnership with stakeholders Our group’s business is guided by our Ethical Guidelines, whistleblowing policy; Environment, Safety, and Quality policy; purchasing and communication policy, GRI reporting, and the UN Global Compact initiative. A R E A S O F O P E R ATI O N A L S U S TA I N A B I LIT Y M A N AG E M E NT W O R L D O N W H E E L S E C O N O M Y P E O P L E P L A N E T We develop and manufacture eco-friendly, safe, and high-quality tyres that reach their destination safely even under demanding conditions. Through profitable growth, we enable the further development of our operations and ensure financial security, work, and well-being for our stakeholders. We emphasize the eco-friendliness of our products. We want our customers to be highly satisfied with our products and services. We develop and maintain a company culture that promotes fair and equal treatment, caring, and respect. We guarantee a safe working environment for our employees and partners. We ensure that our actions do not harm the environment or people; instead, our objective is promoting well-being in general. We are a tyre industry pioneer in environmental aspects. 37 ANNUAL REVIEW 2017NOKIAN TYRES PLC SU CCES S AND NEW DEVE LOPMEN T NEEDS For each area of corporate sustainability, we have set goals that provide clear guidelines for our operations. In 2017, we also CORPORATE SUSTAINABILIT Y MILE STONES IN 20 17 O U R S E LE C TI O N FO R TH E D J S I W O R LD I N D E X In terms of corporate sustainability, 2017 was a year of success, topped off by our inclusion in Dow Jones’ Sustainability World index (DJSI). With planned a new road map that a total sustainability score nearly twice as high as the industry average, provides more detailed guidance we significantly improved our results in the assessment. We were the for our work on corporate sustainability. We completed the projects of our previous road map successfully in 2017. We have set our sustainability goals and road map goals for 2020. The road map projects are guided by the Corporate Sustainability working group, which comprises experts from various units. Among other things, our development tasks involve the development of our supply chain, products, and services as well as human rights, risk management, the environment, and value creation. We track the completion of the processes on a monthly basis. best tyre manufacturer in the index, and our score was only one point behind the best company in the Auto Components sector. D R I V I N G S U S TA I N A B I LIT Y I N TH E S U P P LY C H A I N As part of our efforts for improving supply chain sustainability, we have set a goal to audit all of our major rubber processor partners (at least 80% of our natural rubber purchasing volume) by 2020. In 2017, we audited four natural rubber processors together with an external auditor. For our company, the audits guarantee that our requirements are followed in the best possible way, and they provide an opportunity for the audited companies to improve their activities and occupational safety. N O P R O D U C TI O N WA S TE G O E S TO L A N D F I LL S Our goal for 2020 is that no waste generated in production is taken to a landfill. We aim for a 100% utilization rate. In 2016 and 2017, 100% of factory waste was sent to utilization in Nokia. In Vsevolozhsk, 89% of waste was utilized (86% in 2016). 33% In 2017, we made an effort to develop our company’s safety culture and managed to improve the accident frequency rate by 33% year over year. 2.6% Overall customer satisfaction was up by 2.6%. 7% We had set a goal for 2020 to reduce the rolling resistance of our product range by 7% compared to the 2013 baseline, creating an annual decrease of 500 million kg in CO2 emissions from traffic, and reached this target in good time. Plans for 2018 In the coming year, our corporate sustainability work will focus on the factory that we are constructing in the United States. We are planning to make our factory in Dayton, TN a pioneer in sustainability, as well. We will also focus on safety improve- ment s concerning our personnel and products, continue auditing our processing partners in purchasing, and create a consistent business culture for our company. All in all, we will continue our work on the corporate sustainability tasks and projects in all areas. We have worked in the long term for corporate sustainability and intend to continue this development in the future as well. As a responsible tyre company, we want to set an example for the entire industry. For more information, see our sustainability report at www.nokiantyres.com/sustainability NOKIAN TYRES PLC 3 8 ANNUAL REVIEW 2017 SUSTAINABLE TYRE DEVE LOPMEN T Careful laboratory testing, solid expertise in chemistry, and an open mind to new compounds – we ensure the technical quality of our premium tyres by testing and studying each raw material used in tyre production and by continuously improving our rubber compounds. Development Manager Harri Myllymaa and Material Manager Anne Ojala boldly use their experience and inventiveness in the development of our safe and eco-friendly tyres. Together with their teams, they further the introduction of bio-based raw materials and ways of reducing our tyres’ rolling resistance. – It is exciting to create something new and, here, future legislation and the quality classification of Materials development work s in close Anne actively looks for, studies, and tests new you get to do that every day. Our work involves tyres affect the use of raw materials. We do not collaboration with the other product development bio-based raw materials in all of the raw material the constant development of the compounds, use any toxic raw materials and we are constantly units in order to improve the rolling resistance categories. The criteria are tight because the new applying our knowledge, seeking new raw striving to replace synthetic raw materials with category of all products. Our company aimed to raw materials must guarantee the tyre’s safety, materials, and using them in completely new ways. bio-based ones, Anne Ojala explains. reduce the rolling resistance of our products by durability, and driving comfort characteristics in In our production, we only use raw materials that have been carefully approved by our laboratory, Harri Myllymaa says. Close collaboration for a lower rolling resistance in CO2 emissions from traffic. We met this goal – A change in raw materials must not degrade already in 2017, well ahead of target. the properties of rubber compounds in any way. 7% by 2020, creating a decrease of 500 million kg all possible driving scenarios. According to Harri and Anne, sustainability Uncompromising development has been – Our job is very interesting because the work It is great that new raw material combinations has become increasingly important over the successful. As one of the first companies in the on lowering the rolling resistance is becoming often yield positive effects. For example, the new years. Green choices guide all of the decisions world, we have introduced to the market more increasingly harder. It is not just about changing one bio-based softener that we are using in last year’s made in the department and, in particular, new products that utilize bio-based raw materials raw material. The challenge is being able to combine new winter products improves the tyres’ safety future development efforts. In addition to its and minimize the environmental impacts during the different areas in chemistry and finding new characteristics, Anne says. own development and quality assurance, the use. In 2015, we launched the world’s first winter combinations of characteristics, Harri says. We do our work with an open mind and company actively follows the development of tyre with the EU tyre label’s best class AA rating. patience. New bio-based raw materials are sought environmental and safety regulations in Finland Last year, the proportion of tyres that reduce fuel Aiming for a fully bio-based tyre from sources around the world and developed and the international market. consumption through ultra-low rolling resistance Bio-based raw materials are changing the entire in joint projects with universities and research – Our team is responsible for anticipating how was up to 90% of our tyre range. tyre industry globally. Together with her team, centers in various countries. 3 9 ANNUAL REVIEW 2017NOKIAN TYRES PLC P ER SONNE L A MOTIVATE D TEAM AC HI EVES TOP RESULTS Our open and participatory company and leadership culture ensure that our working environment remains inspiring. Together, we are developing a results-driven working community where engaged employees are committed to their work as well as to building the success of our company. 40 ANNUAL REVIEW 2017NOKIAN TYRES PLC “ Our work has a special purpos e. At Noki an Tyres, everyone is doing their par t in promoting s afe driving in any weather. This motivates me to do my best every day.” Kalle Mikkonen, Development Technician The purpose of goal-oriented HR management is to What we will work on in 2018 ensure the competence, well-being, and equal treatment of our committed, motivated, and professional personnel. Super visors implement our company and leadership culture in our common everyday work in a natural and consistent way. In 2017, the key focus areas were supervisor work and improving of leadership, strengthening the safety culture and taking steps toward global leadership practices. In 2018, with the continuing internationalization and the new operational model, we will continue to focus on people leadership, supervisor work, and the development of global operational models. How we succeeded in 2017 ■ Accident frequency was down by 33% from the previous year. ■ Trainings were used to influence supervisor work, the leadership culture, well-being at work, and occupational safety as well as for committing the personnel and maintaining unified leadership practices. ■ 91.3% of our global personnel responded to the Drive! personnel survey (in 2016, the response rate was 88.7%). ■ Sustainability became an even more important part of our company culture; 55% of our personnel took the online course on sustainability in 2017. ■ Based on our new operational model, we will be harmonizing practices with a focus on improving leadership as well as global processes and practices, including recruiting, induction, performance leadership, and compensation. ■ We will reduce the number of accidents by 30% compared to 2017. We will focus on personnel competence development, supervisor work, and various corrective actions. ■ We will encourage our personnel to make safety observations; the goal is to have, on average, two safety observations per employee. ■ We will be commissioning a global HR data system that supports the development and implementation of harmonized, equal, and transparent management practices within our group. ■ We are creating and implementing global framework for defining and evaluating jobs. Our personnel’s ambition, shared development of ideas, active participation, and caring attitude all support the development of competence, profitable growth, sustainability, and the implementation of our strategy. At Nokian Tyres, everyone has an opportunity to grow and learn. 41 ANNUAL REVIEW 2017NOKIAN TYRES PLC B OA R D OF DIRECTORS JA NUA RY 1, 20 18 PETTERI WALLD ÉN b. 1948 Master of Science (Engineering) Member of the Board since 2005, Chairman of the Board Chairman of the Personnel and Remuneration Committee Independent of the company Shares: 19,517 RAI MO LI N D b. 1953 Master of Science (Economics) Member of the Board since 2014, Deputy Chairman Chairman of the Audit Committee Member of the Personnel and Remuneration Committee Independent of the company Shares: 2,851 H E I KKI ALLON EN b. 1954 Master of Science President and CEO, Hemmings Oy Ab Member of the Board since 2016 Member of the Audit Committee Independent of the company Shares: 1,193 VERON ICA LI N D HOLM b. 1970 Master of Economics CEO, Finnkino Oy Member of the Board since 2016 Member of the Personnel and Remuneration Committee Independent of the company Shares: 1,193 I N K A M ERO b. 1976 Master of Economics Co-Founder and Chairman, Pivot5 Oy Member of the Board since 2014 Member of the Audit Committee Independent of the company Shares: 2,586 GEORGE RI ETB ERGEN b. 1964 Master, Business Administration Partner of 5Square Committed Capital Member of the Board since 2017 Member of the Audit Committee Independent of the company Shares: 530 See the details for the Board of Directors at www.nokiantyres.com/ board-of-directors 42 ANNUAL REVIEW 2017NOKIAN TYRES PLC MANAGEMENT TEAM JANUARY 1, 2018 H I LLE KORHON EN b. 1961 President and CEO Licentiate of Science (Technology) Member of the Board 2006-04/2017 and President and CEO since 06/2017 AN D R E I PANTIOU KHOV b. 1972 Executive Vice President, Russia and Asia business area MBA With the company since 2004 and Interim President and CEO 01–05/2017 ESA ERON EN b. 1957 Supply Chain and Sustainability Technology Engineer With the company since 1988 TOM M I H E I NON EN b. 1976 Americas business area Bachelor of Science (Economics) With the company since 2000 and a member of the management team since 01/2018 AN NA HY VÖN EN b. 1968 Vianor business unit Licentiate of Science (Technology) With the company since 2016 TARJA K AI PIO b. 1962 Human Resources Master of Psychology With the company since 2016 AN N E LES KELÄ b. 1962 Finance and IR Master of Economic Sciences With the company since 1997 MAN U SALM I b. 1975 Nokian Heavy Tyres business unit Master of Military Sciences, Master of Economic Sciences, MBA With the company since 2001 PONTUS STEN B ERG b. 1966 Europe business area (interim) Products and Technologies unit Master of Economic Sciences With the company since 2010 TI MO TERVOLI N b. 1977 Strategy and M&A Master of Economic Sciences, Master of Science With the company since 2016 SUSAN NA TUSA b. 1972 Legal and Compliance Master of International Business Law With the company since 2007 and a member of the management team since 01/2018 ANTTI -J USS I TÄHTI N EN b. 1965 Marketing and Communications Master of Arts With the company since 2005 FRAN S WESTERLU N D b. 1966 IT and Processes Master of Economic Sciences With the company since 08/2017 43 Members of the management team until December 31, 2017 TEPPO HUOVILA b. 1963 Quality and Sustainability Master of Science, MBA With the company since 1989 JUHA PIRHONEN b. 1963 Research and Development Master of Science With the company since 1991 See the details for the management at www.nokiantyres.com/management ANNUAL REVIEW 2017NOKIAN TYRES PLC W HY I NVE ST IN NOKIAN TYRES SUSTAINABL E INV ESTMENTS Nokian Tyres’ ability to generate value for shareholders and other stakeholders is based on profitable growth and a strong position within the selected business areas. Our strengths include innovative, pioneering products, a trusted brand, lasting customer relationships, and the most efficient and flexible production facilities in the industry. Healthy profitability and faster-than-market growth are made possible by our competent and motivated personnel and satisfied customers. D I S TR I B UTE D R I S K of growth, we have continued to improve our competitiveness by Global operation on two different end markets (passenger car tyres increasing our global delivery capacity, expanding our product and heavy special tyres for the industry) and our own Vianor network offering, and developing the customer focus of our activities and provide stability. The different business functions in various markets services. balance the geographical risk and the seasonal nature of the passenger car tyre business. TR E N D S S U P P O R TI N G G R O W TH Global megatrends create new, interesting opportunities for growth. S TR O N G M A R K E T P O S ITI O N We are a strong player in selected markets. Our goal is to be the Digitalization, changes in mobility, and increased attention to safety increase the demand for responsible actors such as Nokian Tyres market leader in the Nordic countries and Russia and to maintain and enable new types of business models. profitable growth in our other main markets: over a five-year period, we will grow our sales by 50% in Central Europe and double our sales in North America. In the long term, we want to be a significant actor S U S TA I N A B LE A N D FI N A N C IA LLY S TR O N G Our good business results and solid financial foundation provide us on all winter tyre markets. TA R G E TE D G R O W TH P R OJ EC T S We are aiming to grow faster than the market with strategically with excellent opportunities for developing sustainable business, implementing selected growth projects and paying good dividends. We continue to work systematically toward top results. Nokian Tyres was the most sustainable tyre manufacturer in the DJSI sustainability selected projects. In addition to investing in markets and areas index in 2017. 4 4 ANNUAL REVIEW 2017NOKIAN TYRES PLC A VERA GE ANNU AL SALES GROWTH OF A MINIMUM OF 4–5% 50 % MINIMUM DIVIDEND SH ARE PRIC E DEV ELOPME NT ON NASDAQ H EL SIN KI JAN 1, 2 01 3–DEC 31 , 2 01 7 EUR 45 40 35 30 25 20 15 10 5 0 13 14 15 16 17 22 % AT A MINIMUM, BEST OPERATING PRO FIT LEVEL IN THE INDUSTRY FI NA NCIA L GOA LS FOR 2016 –2018 * PRO FITAB LE G ROW TH FA STE R THAN TH E MAR KET Growing faster than the market: Average annual sales growth of 4–5% in 2016–2018 Healthy profitability: EBIT > 22% The aim is to maintain the best operating profit level in the Good returns for our shareholders – dividend at least 50% Our goal is to reach an average annual growth that is higher industry, a minimum of 22%. than the growth on the target market. This means that our aim is to organically outgrow the tyre replacement market. With the current market outlook, this would result in an average annual growth in sales of 4–5% for the period of 2016–2018. Our goal is to offer stable or higher absolute dividend per share in 2016–2018 (despite the investments in the third factory). Dividend policy: The company aims to pay out at least 50% of its net earnings as dividends. *at stable currency exchange rates 45 ANNUAL REVIEW 2017NOKIAN TYRES PLC W W W. N O K I A N T Y R E S .CO M