The market demand for replacement car tyres is expected to show growth in the Nordic countries, Central Europe and North America in 2014. In Russia the clearly devalued Rouble has hurt the economy, thus weakening growth in GDP, sales of new cars and tyre demand. Heavy industrial tyre demand is recovering in Nokian core products and is expected to improve clearly. The pricing environment for 2014 remains tight for all tyre categories.
The sales volume of Nokian Tyres is expected to show growth and the market position to improve in all end-user markets in 2014. Net sales, however, is expected to decrease due to currency devaluations and a weaker sales mix in Russia and CIS. Nokian Tyres continues to have competitive advantages from having manufacturing inside Russia. Of the Russian production 55% is exported and the margin between production costs in Roubles and export sales in Euros has improved. A decline of raw material costs is estimated to provide a tailwind of EUR 50 million full year 2014 supporting profitability. However, this is not enough to fully compensate for the weaker market conditions in Russia and CIS in 2014.
Kim Gran, President and CEO:
“Nokian Tyres managed to show solid sales volume improvement and outperformed market growth in all key markets in Q1. Our strong market leader position in Russia and Nordic countries is intact and we managed again to increase both market share and our distribution footprint. Despite the drop in sales value, we improved the Gross margin percentage, maintained a reasonably good level of profitability and improved cash flow. The company is debt free with a strong balance sheet, which together with inbuilt capacity reserves gives us a good platform to further develop our business. In 2014 we see a recovery in our western markets in Central Europe, Nordic countries and North America. We aim to continue to improve our market position and to provide healthy margins on the back of our renewed successful product lines, expanding distribution, efficient industrial structure and decreasing raw material cost.
Despite volume growth our Net sales declined due to devalued currencies, especially the Russian Rouble. Growth, however, in summer tyre sales in the Nordic countries and Central Europe, as well as a solid pre-sales volume of winter tyres in Russia secured a reasonably good top line for us.The expansion of our distribution network in CE is now starting to pay dividends with sales volumes increasing faster than the average market demand. We managed to increase our sales volume in CE by 21% against a market growth of 10%, giving away only 1% in ASP reduction. Our market shares improved again in all key market areas, which we expect to reward us as the markets continue to recover.
Our ASP was hit by currency rate effects and an increase in the share of mid-segment winter tyres sales in Russia. Our Gross margin percentage, however, improved with the help of a strong tailwind from material cost and improved production volumes. An improved utilization rate and a high share of Russian production improved productivity and reduced production costs.
We continue to develop our growth engine and expand our distribution network spearheaded by Vianor and a softer partner franchise model, Nokian Tyres Authorized Dealer (NAD). We added 29 Vianor shops during the first quarter and the network consists presently of 1,235 stores in 27 countries.The NAD network grew by 104 outlets in Q1 to 536 shops contracted in Italy, Germany, Ukraine, China, Denmark and Bulgaria. In Russia our dealership programs include 3,400 tyre stores and car dealers.
In 2014 we target to excel on the back of our renewed tyre range, expanding distribution and our strong industrial structure. Every cloud has a silver lining and despite tougher times and present headwind we remain confident that also Russia, as many times before, will kick back to healthy growth in due course and that our Hakkapeliitta team is again able to capitalize on the changing market conditions.