Nokian Tyres' (NKRKF) CEO Hille Korhonen on Q4 2017 Results - Earnings Call Transcript

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About: Nokian Tyres Plc. (NKRKF)
by: SA Transcripts

Nokian Tyres Plc. (OTCPK:NKRKF) Q4 2017 Earnings Conference Call February 2, 2017 3:00 AM ET

Executives

Hille Korhonen - Interim President and CEO

Anne Leskelä - VP, Finance and IR

Analysts

Panu Laitinmäki - Danske Bank

Artem Beletski - SEB

Thomas Besson - Kepler Cheuvreux

Mattias Holmberg - DNB Markets

Henning Cosman - HSBC

Robert Bonte - BlueCrest Capital

Victoria Greer - Morgan Stanley

Ashik Kurian - Jefferies

Kai Mueller - Bank of America Merrill Lynch

Edoardo Spina - Exane BNP Paribas

Hille Korhonen

Good morning, everybody, and welcome to Helsinki. We will be going through Nokian Tyres result for 2017. And I will first go through all the material, and then we will take questions, first, from the audience here in Helsinki, and then from you who are on the line.

Nokian Tyres had very successful year 2017 in all aspects. I am extremely proud of our people, our products and our performance in all our main markets. And when looking forward to 2018, we also see very positive outlook for this year as well. We have been seeing positive economic growth in all our main markets, finally also Russia. GDP was positive throughout the whole year and that has been of course supporting the new car sales, which has been, especially in Russia, growing by 12%.

Despite of the fact that consumers financial situation is still quite weak in Russia, the car replacement tyre selling has been growing a lot during last year and this plus 20% growth has been driven by the fact that people who bought new cars three to four years ago, now it was time to change the tyres and it was also backed by relatively low summer tyre channel inventories in 2016.

All heavy tyre segments have been also growing very positively in all our main markets, especially forestry in Nordic countries and agri in Europe. The currency impact on our net sales from last year has been positive, backed by Russian ruble development and then also there was some negative currency development in Nordic countries. However, the total impact is plus €21 million on net sales.

So Nokian Tyres had strong performance in all our main markets, as you can see from the positive figures, especially our strategic growth areas, North America and other Europe have been improving well and we saw significant growth in our sales in Russia, so plus 46%. And out of that, two-thirds are related with volume growth and one-third related with price and mix impact.

Our market shares have been growing in all other market areas, except Europe outside Nordics. When we look at the profitability, we have been improving our productivity through the volume growth, plus 15% and raw material cost has been - cost increase has been compensated also by increased average sales prices. So we have been able to increase our sales prices in all our main markets.

We have had lot of focus on developing our distribution further, and in our own equity, Vianor, we have been working on the kind of the normal retail distribution development so optimizing the network and we have been increasing the number of partners, both in Russia in entire chain and also increasing the number of Nokian authorized dealer in other markets.

So I would say that we are proceeding overall according to our strategy and these numbers really validate the fact. As said, the year was financially very successful. So we increased our net sales by 13% and our operating profit by 17.77%. Profit for the period was slightly lower compared to previous year and this is due to the fact that we have been paying this extra additional taxes, punitive taxes last year.

Cash flow is slightly less than compared to last year, still very, very strong, and it's mainly due to the fact that we have increased business volume and more working capital. Capital expenditure was slightly less compared to what we stated earlier and this is coming from the fact that some of the projects will be executed this year instead of last year.

When looking at the operating profit per quarter, we were quite cautious about the fourth quarter after third quarter, and however the summer tyre sales in Russia, which was very strong in quarter four 2016, it was less than 2016 but the total sales has been improving very positively in other markets. So that's why the full quarter four was improving from previous year.

When we look at our net sales by market area, our total picture is very balanced despite of the fact that the Russian sales was growing significantly during last year. So this picture is very much in line with our strategy and plans going forward.

We estimated the raw material cost to be on the level of 20% in 2017. The actual increase was 17.5%, and we are estimating that the raw material cost will remain on the same level 2018 compared to 2017. 2018 will be big investment year as we are ready to start construction works of our Dayton factory in Tennessee in USA and we are estimating that that investment will be representing €110 million this year.

Additionally, we continued to increase automation in our other factories and we are taking ahead our global development projects, as well as investing in heavy tyres sales companies and Vianor chain.

We announced in December that our operating model and organization structure will be renewed starting 1 January in 2018, and this is the reason for renewing the organization is that we want to have a structure that is market-driven, scalable, and also we want to increase our efficiency through implementing global functions and processes, especially now that we are building the factory and our operations in North America.

The business unit structure itself including passenger car tyres, heavy tyres and Vianor, remains the same and our external reporting model will continue to include, both the business units and geographical areas, as we have had so far.

We also announced towards the end of December that we will be investing in Nokian Heavy Tyres business by adding capacity 50% during the coming three years' time. The total investment amount is €70 million. Also at the same time, we made a local agreement with the labor union by agreeing about the increasing flexibility and motivating also personal to create multiple skills. And we feel that this is excellent thing in order to be able to meet the future competitive advantage.

I have here the business unit structure. There are no major changes here. However the important message is that both passenger car tyres and heavy tyres have been growing during last year and also improving profitability. What comes to passenger car tyres, we only have positive news, so we have been able to increase our prices. We have had competitive product portfolio. We have been able to increase our production volumes and also productivity.

We took into use the one additional production line in Russia during the third and fourth quarter in 2017, and that will add 1.5 million tyres annual capacity for the future. And in Nokian tyres factory in Nokia, we are, at the moment, recruiting more people to support our growth in terms of increasing production volumes.

Here you can see the EBIT bridge and this is according to what we have been showing earlier, so no major changes in this picture.

Naturally one of the core things behind our success is competitive excellent new tyres and we have been launching several products during the last year and continue to do so. And for example, this Hakkapeliitta R3 non-studded new winter tyre has been launched now in January. So we continue to support our market growth in different geographical areas by bringing competitive new products to the market.

In heavy tyres, we also have been investing in developing new products to different our core segments. Heavy tyres was also able to increase prices due to the raw material cost increase and they had very good year overall having net sales, operating profit and increase in production volumes.

What comes to Vianor, we are continuously optimizing the network of Vianor shops in the Nordics. We are moving forward with the profit improvement program also this year, and our ambition level is to be EBITDA positive 2019. The pricing environment continues to be quite challenging in our core markets with Vianor.

Our branded distribution network is growing, has been growing and will be growing as we are entering new markets with, for example Nokian tyres authorized dealers network and this NAD network is especially supporting our brand awareness in the new markets, for example, this year in North America. So we further continue to build this network.

Regarding outlook for 2018, we see positive development and growth in our main markets, which is then of course visible in the replacement market expectations, and also we see that heavy tyres segments will be showing positive growth numbers in 2018. And we are, assuming and expecting, that our position will improve in all our key markets. And also in Russia, we are expecting to retain and further strengthen our market leader position in our core A+B segments. And naturally we will come even stronger with new flagship products that we will be launching this year.

Profitability is being continuously supported by our efficient cost structure and our strong facilities in Russia especially. So our guidance for 2018 is that with the current exchange rates, our net sales and operating profit are expected to grow compared to 2017.

Then I have here the board's proposal to annual general meeting, so the board of directors proposes the annual general meeting that the dividend of €1.56 per-share will be paid for the fiscal year 2017. So thank you and now we will first take questions from the audience here in Helsinki.

Question-and-Answer Session

Q - Panu Laitinmäki

It's Panu Laitinmäki from Danske Bank. I would have a couple of questions. Firstly on Russia, the outlook of 3% to 5% sales in market volume and down in the summer tyres. How conservative is this and is it still because you actually feel the inventories last year with higher selling and then sell-out? And could you also describe that Russian market outlook, overall how does the competition look like and pricing environment?

Hille Korhonen

Okay, so I will estimate for this replacement market growth is based on the fact that in 2017, there was deferred demand from previous years and inventories of summer tyres were on a very low level. Now our view is that inventories are back on normal level, so this is now following the normal consumer demand and reflecting that. And our position is there very strong because we have fantastic product range like last year. We have optimal pricing structure and we have the supply capability. So I would say that we were, last year, able to supply based on the demand not everybody - not all the other competitors were able to supply the market.

Panu Laitinmäki

Okay, thanks. My second question would be about the raw material cost guidance. You expect the cost to remain at the same level as this year but we have seen like the rubber price collapse from the peak where it was a year ago. So you don't see any relief in that and maybe kind of how conservative is this guidance as well, and how do you see this timing-wise? Do you expect the cost to be lower in the first half and then you have expectation of them going up in the second?

Hille Korhonen

Well, that's our best understanding at the moment. And what comes to natural rubber, we are buying that raw material like five to six months ahead. However, then the chemical prices, they have been going up quite a lot from last year. So overall, our assumption is that it's flat.

Panu Laitinmäki

Okay, thanks. Just one final question on pricing. How do you see this raw material volatility impacting industry pricing in '18 versus last year? Thanks.

Hille Korhonen

You are referring to sell-in prices, average sales prices? Well, that's always a competitive situation what is driving the pricing. Of course, we are - where we are market leaders, we are then setting the prices in other markets. We are carefully also following what is the competitive situation. But slight price increases will be taken this year.

Artem Beletski

Artem Beletski from SEB. Maybe just continuing on the same topic and looking at 2017, you had quite substantial pressure on earnings from raw materials, not fully compensated by price increasing. Is it fair to assume that the impact, net impact in 2018 will be at least neutral or positive?

Hille Korhonen

Neutral. I would say neutral.

Anne Leskelä

Yes, perhaps a little bit in more detail. So when talking about like Russia and Nordic countries, of course we were there and increasing the prices already in the beginning of the year. So that price increase we already saw in the results last year. Then of course when talking about North America and Central Europe, there we were later on because we are not price set at that area. And that price increases were somewhat delayed but then it's good to remember that when going through to 2018, the share of that sales of our total one is not - you could say decisive, so that it's marginal the effect we will be seeing on that.

In 2018, taking into consideration that those price increases were already done in timing where the raw material prices already had started slightly declining from the peak.

Hille Korhonen

Yes, it has a lot to do with the timing.

Artem Beletski

Okay. And the second question regarding Dayton CapEx development. So it's €110 million in 2018. Could you maybe talk about the profile for 2019, 2020, how it looks like and also USD has been weaken and will it impact, so let's say, euro-denominated CapEx level?

Hille Korhonen

Anne, you will take this.

Anne Leskelä

Yes, in the coming year or 2019 is strictly pretty similar, actually slightly higher than this year and then the last two years are smaller ones already. So there is only the end payments of machinery, etc. Then looking at like all in all effect, of course the majority of the machinery which we are purchasing are coming from the European site. So from the local manufacturers, we are using also in our Finnish and Russian factories. And of course that ends up at this currency rates to be high in the US dollar and then actually then reported in euros, the end result in euro is pretty much the same.

Artem Beletski

And just the last one from my side in terms of capacity utilization in 2018, and you mentioned about Finnish factory that you are recruiting people, so what would be production volume what you're planning for in Finland for this year compared to last year? And I guess Russia will be flat out in terms of production.

Hille Korhonen

Well, I guess it will be slightly higher compared to last year. And of course we can add number of people and shifts according to the demand.

Anne Leskelä

And I'd like to state that according to our current plans, we are not having a problem in the capacity when talking about the sales amount.

Artem Beletski

Okay, very clear. Thank you.

Unidentified Analyst

My name is Ban Tanderwault [ph] and first of all congratulations to an excellent result last year and to you and your team.

Hille Korhonen

Thank you.

Unidentified Analyst

I would ask about the factory in Dayton. When is the production and what speed is it being ramped up there? Can you elaborate a little bit on the timing?

Hille Korhonen

Okay, thank you. We are planning to start production of first tyres beginning of 2020 and estimated total volume into 2020 will be like 1 million tyres. And gradually then increasing the total volume within two years' time according to what is needed. So the maximum capacity will be then 4 million tyres towards 2022.

Unidentified Analyst

Thank you. And another question comes to the flagship product. You mentioned that new products, new flagship products will be launched this year and that will impact the result from 2018 onwards. And these products have not yet been launched, just recently launched a number of new product but we can expect new ones to come.

Hille Korhonen

So our ambition level is to have 25% of total net sales generated by new products in passenger car tyres and that target we have already exceeded during the past years in a big way, let's say. And we consider new product to be product from previous year as well as like we launched this Hakkapeliitta line in 2017 and it's still a new product and gaining more sales.

Unidentified Analyst

Thank you.

Hille Korhonen

Thank you. Then we take questions from the audience on the line.

Operator

Thank you. [Operator Instructions]. And our first question comes from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead. Your line is open.

Thomas Besson

Thank you. Good morning. I have two questions please. Can you come back to the wordings of your guidance, which I think [indiscernible] a bit some of these investors and tell us how you feel with the level of consensus expectations, which is respectively for 6% and 10% top line growth and EBIT growth. Is that something which is consistent with the wording of your guidance, or is that something you feel uncomfortable with? That's the first question.

Hille Korhonen

Anne is taking that.

Anne Leskelä

Yes, of course our guidance is when we are talking about growing, it's 1% to 20% in our language this adjective. But you're absolutely right, the consensus like estimates are not far from our like expectations.

Thomas Besson

Sorry, I may not have understand you. So you're happy with current consensus expectations that align with your guidance. Is that what you said?

Anne Leskelä

I say they are pretty much aligned with our expectations or our sales, so let's see how the market develops.

Thomas Besson

Absolutely, thank you for this precision. My second question is on the winter start season we just had. Is that a fair comment to say that after a few, what you call, black winters, we finally had snow almost everywhere and that winter dealer inventories are broadly empty in most markets. Can you give us some details on the Nordic countries, Russia and what you call Central and Eastern Europe and regions, please?

Hille Korhonen

Yes, thank you for the question. Well, this winter we could say that the winter has been back in all our markets. In Central Europe, the winter came quite already early but it was already very long winter. So I would say that after this season, the channel inventories are pretty much on a normal level in all our main markets.

Thomas Besson

Okay, is that the message for the set in season, which is about to start in Russia should start in June in the rest of Europe?

Hille Korhonen

So it's proceeding as normal I would say.

Thomas Besson

Okay, thank you very much.

Operator

Thank you. And our next question comes from the line of Mattias Holmberg from DNB Markets. Please go ahead. Your line is open.

Mattias Holmberg

Thank you very much. So I have questions on the capacity utilization and also the ramping up that you're doing in Nokia factory, where the hiring of more people. So the first part of my question is really what output rate are you currently running in Nokia and how much you expect to increase that and also what is the ultimate full potential if you were to be forced to push out the maximum amount of volume that you can from the Nokia factory? Also given the higher cost that you're having in the factory in Finland versus Russia, how do you expect this increase to impact the margin? Thank you.

Anne Leskelä

Well, last year Finnish production was less than 3 million and when looking at what we can do actually in the Finnish side, so of course we can go up with the production, so that we are producing five days instead of - or six days instead of five days and that would actually mean a production volume roughly 4.1 million, and that is actually rather marginal cost, so not an effect to our profitability as such. And of course if we are going back to the roughly 6 million production, that would then mean that we are producing 24 hour/7 days and that has an extra cost. But then looking into the matter little bit deeper and the optimization level which we have and also taking into consideration, that's still the majority of the production is in Russian side. It doesn't have a decisive effect on our productivity - sorry, profitability as such.

And then talking about the Russia, of course, now at the moment, we have all the lines installed which means that there is a theoretical capacity, which is like 70 million at the moment. We can actually go up more than like 20 million all in all with like very minor changes in our production as such.

Hille Korhonen

So we are not capacity.

Mattias Holmberg

Thank you. When we look forward to 2020, when you're expecting to give us more bump in running, how much do you believe that you will have had to increase the capacity in Nokia until we get to that point?

Anne Leskelä

Well, that is of course then depending on the fact how the Russian market and the rest of the market is developing, so it's dependent on that.

Hille Korhonen

So as said, depending on the demand, we will add the number of people and shifts.

Mattias Holmberg

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Henning Cosman from HSBC. Please go ahead. Your line is open.

Henning Cosman

Hi, thank you. Good morning, and thanks for clarifying the guidance. Of course the fact that implied growth in EBIT is higher than the implied growth in the top line that implies a margin increase. So I just wanted to check with you again what you're expecting in terms of profitability impact from the ramp up of the US plant both in the short-term and then in the medium term. I believe you said in previous calls that you're expecting a 1 to 2 percentage point negative impact during the ramp-up stage of the US plant and then ultimately smaller dilutions. Could you remind us, is that still the case. So how you're seeing that developing?

Anne Leskelä

First of all, I'd like to correct your interpretation that I'm not committed to say that the EBIT is growing more than the top line. So that of course what is the analyst expectation. I was stating that it's like hovering around the numbers we are like discussing, so it's good to remind you that that's the analyst expectations not direct like Nokian Tyres expectation.

Henning Cosman

Sure.

Anne Leskelä

And then going back to the US operation as such, yes, it's true that while we are starting the operation in US, of course we have the situation that we are still partly importing the tyres, especially the tyres from our factories in Europe and Russia, which means that we have some extra logistic cost based on that because the first - of course first like items which we are going to produce in the US factory are really the ones which are tailor-made for that market. But that is not only a negative issue because that is actually than open capacity in our other factories here in Finland and Russia, making sure that actually the utilization fee can go - can like improve because we have then less SKUs producing these factories as such.

We have been talking that for the passenger car tyres, the EBIT margin effect might be hovering rough 1%, 1.5% as such during that time. But then of course it depends totally how well we actually then succeed in really peaking the niche areas in the North American market how the margin develops onwards.

Henning Cosman

Okay. So just to clarify, what you're seeing is maybe no EBIT margin improvement in the next one or two years, just hovering around the current level due to the ramp-up in the US but then eventually you don't see a dilution from the US versus currently?

Anne Leskelä

Well, as I said, it really depends how well we are like able to target and get the target areas in the niche areas. Of course US at the moment is, for us, an area where the margin is lower than for example in Russia and in Finland and Nordics.

Henning Cosman

Okay, thank you. Second question maybe on the investigation, I think the NBI made the investigation into the tyre test a criminal investigation this morning. Are you at all able to comment on that please, and maybe if you can potential impact as far as you see it, or if you can dismiss that completely and then you don't expect much to come from that at all, any sort of comment would be appreciated?

Hille Korhonen

Okay. So first of all, that's not related to the tyre testing. It's related to - you're saying insider information. And we Nokian Tyres consider that no offence has been committed and that it's actually good that it's being investigated and we are not able to give any further comments during this preliminary investigation.

Anne Leskelä

Just really to clarify that it has nothing to do with the tyre testing issue, which as such it's really more like securities market offense which is this is related to, not like to the tyre testing is issue itself.

Henning Cosman

Okay, thanks for clarifying that. Is it addressed at current board members or previous board members as far as that insider information goes? Can you say that?

Anne Leskelä

Well, the fact of course is that nobody knows as it. It's such like an issue which has started, so we cannot comment it because we don't know nothing about it, so what and whom. No information on that.

Henning Cosman

Okay, understood. And finally, from me maybe on the market shares in Russia, so if you could please just clarify that again. I understand that your view is that some of your competitors had supply issues in Russia in 2017, and therefore you were able to outperform the market. Now that these supply issues on part of your competitor are alleviated, it's back to normal but you're not anticipating reversals in some form of this market share gains and therefore maybe growing below the market rate in Russia. Is that right?

Hille Korhonen

Well, we have a strong product portfolio there. We have excellent pricing model, and we have continuous supply capabilities. So we really believe that we can still strengthen our market position and market sales. As said, many of our competitors, they have limited their supply to Russian market but that's not the decisive factor. It's really a combination of all these competitive factors.

Henning Cosman

And as far as inventories go, you don't have the impression that within now normalized level the Nokian shelf inventories is above the usual rate and that would have to normalize there? That's not what you're seeing?

Hille Korhonen

No, not at all. It's on a normal level.

Henning Cosman

Thank you.

Hille Korhonen

We are all the time following also the sell-out and we know the inventory levels there.

Henning Cosman

All right, that's great. Thank you.

Operator

Thank you. Our next question comes from the line of Robert Bonte from Blue Cross Capital. Please go ahead. Your line open.

Robert Bonte

Hi, Hille. It's Robert at BlueCrest. Listen, thank you for your presentation and for your typically optimistic guidance for 2018. I wanted to perhaps just drill down a bit on some of the previous questions and turn specifically on the rubber cost again. My Bloomberg is telling that rubber right now is, I don't know, 40% down on where that it was a year ago. Can you remind me what rubber price have you put into your cost guidance for this year? What's your assumption on the rubber price?

Anne Leskelä

Well, of course we are not giving that out but when talking about natural rubber, that is roughly 25% of our material cost as such and we are like buying raw material five to six months ahead, so we know the first like six months for this year and the rest is of course an estimate, and of course quite a lot also depends on the fact that the oil price is slightly increasing and what happens to the chemicals and metals as such [indiscernible].

Robert Bonte

I'm not asking any insight information, just what is the rubber price that you're assuming for the year. I don't think that something you couldn't disclose.

Anne Leskelä

Well, we have not disclosed that number as such. Of course, it's insider information in a way that only we know what is the price for first like six months.

Robert Bonte

But I think it would be if you said our budget is this and we are forecasting our price of, I don't know, $250, $260. I don't think that would be anything non-public.

Anne Leskelä

As I said…

Robert Bonte

If you could consider that maybe if you disclose that, that would be a great help. Going on, can you tell us, Hille please, what is your ruble euro forecast for 2018 or what exchange rate has your guidance based on?

Anne Leskelä

Well, as we are talking about the current levels, so it's hovering around 70.

Robert Bonte

Around 70, okay. Thank you. And the last question from me. Was there any one-off costs, such as bonuses or something else beyond what you already disclosed in the fourth quarter specifically?

Hille Korhonen

No. We did not have any credit losses either.

Robert Bonte

Okay. Wonderful. Thank you very much.

Operator

Thank you. Our next question comes from the line of Victoria Greer from Morgan Stanley. Please go ahead. Your line is open.

Victoria Greer

Good morning. Two questions from me please. And the first, just to come back to Russia and we've totally somewhat - we discussed the market a lot and you obviously commented that are range your inventories. I guess looking at where Russia revenues were in Q4, looks like 1% in Q4. Obviously the comps are getting very tough. Could you talk a bit about what your expectations are for your own revenue in next year, not in FX common but just underlying as the comps get tougher through Q1 to Q3 and what level of growth could be expect for the Russia business in terms of revenue? And then secondly, when I look at the Q4 passenger margin, just to be very slightly down year-over-year still at very high levels, but you've had margin expansion for all the rest of the quarters when the price versus raw materials dynamic was much tougher. So I'm just wondering why the margin expansion go down in Q4 and representing to think about there for next year? Thanks.

Hille Korhonen

So if I first answer the first question. So we believe that we can grow in Russia more than the market is growing.

Victoria Greer

Okay, thank you.

Hille Korhonen

Anne is taking the next.

Anne Leskelä

Yes, when talking like the last quarter of the year and looking at the geographical mix, of course they are the biggest areas where - well, let's say Central Europe actually performed very well also price increases actually really like shown at that area in Q4. Of course in Russian side, we had a little bit different kind of situation as the people really don't have money. It meant for us that we were, actually in Q4 and the latter part of the year, selling a little bit like more sizes and also like the segment share of B segment was like higher and it affected on the profitability as such.

Victoria Greer

Okay, thank you. And do you think that the Russian market was also slower in Q4 because obviously we are getting into some very tough comps for next year? Did you grow ahead of the market in Q4 for example in Russia?

Anne Leskelä

We did. It was not slower but the comparable volume in 2016 was very high because of the low inventory levels in 2016.

Victoria Greer

Only Russia overall market maybe we got that in Q4, and so for you guys to be growing plus 1%, plus 2% taking out the currently is actually still ahead of the market. Is that right?

Anne Leskelä

Sorry, could you repeat?

Victoria Greer

So if I look at just your Russia revenue growth for Q4, it was like plus 1%, plus 2% some time out of year. Was the market down and you outperformed in Q4 in Russia? Is that right?

Hille Korhonen

We were selling mainly summer tyre - we are selling mainly summer tyres in Russia in the fourth quarter, some winter replacement towards the year-end. But I would say that the market was not down as such but the comparable quarter in 2016 was very strong.

Victoria Greer

Okay. And it's more skewed to summer tyres in Q4 just so - anyway you have [indiscernible] summer tyres.

Hille Korhonen

But what comes to Nokian Tyres business, yes.

Victoria Greer

Yes, okay. That makes sense. Thank you.

Operator

Thank you. Our next question comes from the line of Ashik Kurian from Jefferies. Please go ahead. Your line is open.

Ashik Kurian

Good morning. A couple of questions. First is just a clarification on your volume growth for 2018. You practical ran flat out in '17 with a 15% volume increase. I know you mentioned about the increase in Finland and Russia and gave a 21 million number. Is that for 2018? Can you produce 21 million tyres in 2018, if you had to?

Anne Leskelä

We will be producing as much as is needed in 2018.

Ashik Kurian

Sure. Okay. Thank you. Then just trying to understand your profitability by the different plans because a few years back, you decided to lower the size of the Finnish production, which I presume was based on the assumption that producing in Russia was more profitable and think your recent commentary seems to suggest that there is no impact in profitability from ramping up the Finnish plant in '18. So does that apply to certain volumes or can you ramp back up to say 5 million tyres in Finland and still have no impact on profitability? And then next - adjacent to that, you're basically guiding over time for your margins in the North American plan to reach the same levels as the group margins, and I'm just struggling to understand why that would be the case because of course right now you benefit from the low cost of the Russian plan and also the 15 million - more than 15 million size, both of which will now be the case in North America and also like Russia, I don't see you having a big price premium in North America as well. So maybe if you can refresh us as to why you should be doing around 30% margins once the North American factory is ramped up?

Anne Leskelä

Well, first of all, coming back to the Finland, I was stating that going up to 4.1 million, that has practically no impact on our profitability. As such, then going about that, of course we have the extra cost from Sunday, so that's the fact. And going back to the like discussing about North America, I'm not saying that North America is doing the same profitability as the rest of the group. No. I was stating that - and discussing about PC and passenger car tyre, overall like 80% and discussing the effect on that being 0.5 million percentage during the phase when we are ramping up the US manufacturing plant. So that was - I was referring to not like North American EBIT margin alone.

Ashik Kurian

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Kai Mueller from Bank of America Merrill Lynch. Please go ahead. Your line is open.

Kai Mueller

Thank you very much for taking my questions. Two, if I may. The first one is on your CapEx spending. I remember you delayed some projects last year in 2017 and pushed them into 2018. Now we are looking at sort of the €260 million in total spending, a big part being Daytona. Can you just elaborate again how that impacts your balance sheet going forward? How do you plan it to fund it? You just plan to tap in your cash balances or issue debts? And also put that into perspective to your dividends that you've only raised price by 2 percentage points year-on-year, what's your dividend policy going forward given you've changing your balance sheet structure? And secondly, again touching back on the guidance not the one you set up as such but when we look at the split between summer and winter times going forward and your profitability levels between them, can you outline again exactly how much the difference is between the two and also then put that into perspective as you said you're selling more summer tyres also to Russia, how that impacts your margins going forward?

Hille Korhonen

So if I start from the product mix, we are still - our core is the winter tyres, and in 2017, the share of winter tyres was 69% and what comes to selling summer tyres, we naturally sell summer tyres to all our markets and its - when referring to Russian quarter four sales, it's the timing issue. So we start shipping summer tyres already during the Q4. So depending on the quarter, the weight and share between winter and summer are different depending on the market that we supply.

Kai Mueller

And that ratio remains, or is that ratio going to go down because I understand you're also doing those cross car tyres.

Hille Korhonen

Yes, the share of all season is roughly 20%, 21%.

Anne Leskelä

All season is like 10% and summer.

Hille Korhonen

Sorry, so summer 20% and all season roughly 10%. And as we grow in North America, the share of all season tyres will be naturally then growing. But we are intending to grow further also in the winter areas. So we don't see any big change in the mix in the coming years.

Kai Mueller

And can you remind us is all season similar margin to winter tyres or slightly below?

Hille Korhonen

Well, it's market specific, so all season in Central Europe or North America, they have different margins.

Anne Leskelä

Yes, but it's a pretty healthy margin as such.

Kai Mueller

Okay. And then on your CapEx funding and dividend policy going forward?

Anne Leskelä

Yes, of course we are again like having more than 300 million in our cash account at the moment, so we are still handling the investment pretty much by like cash flow as such, and of course if you look at our balance sheet, you're absolutely right. It's very strong and we don't mind that that's really the gearing ratio is going to go a little bit lower. Our equity ratio is almost like 80, so we are happy to take some other loans or debt market when the time is there. Then talking about the dividends, we have actually said that the dividend per share is not going down, and based on that, we also increase the dividend per share. This year despite the fact that we are going to have rather big investments yes, this and next year.

Kai Mueller

Okay. So we understand this should be possibly a slight increase but maybe a lower rate then what you've done before?

Anne Leskelä

That's too busy [ph].

Kai Mueller

Okay. Thank you very much.

Operator

Thank you. [Operator Instructions]. And our next question comes from the line of Edoardo Spina from Exane. Please go ahead. Your line is open.

Edoardo Spina

Good morning. Thank you for taking. I have three questions. The first on OE. I saw that you won a contract with BMW X1 for winter tyre. I was wondering if you are changing in anyway your strategy for OE. Are you working on summer OE? Can you give us an update? Thank you.

Hille Korhonen

Thank you for the question. We have not changed our strategy to work in OE. This is more or less related to having approvals for selling the car manufacturers tyres in the distribution channel.

Edoardo Spina

Okay. So it's not to the OE?

Hille Korhonen

No.

Edoardo Spina

To the dealer.

Hille Korhonen

Yes, it's related to other distribution channel. But naturally we are working in close cooperation with car manufacturers to ensure that our tyres are performing well with all cars.

Edoardo Spina

Second question is on the tax especially for US. If you can give us - if you are in a position to give us an indication about the tax rate in the US, given the recent tax reform, and if you can put in to context of the group?

Anne Leskelä

Yes, of course. We will have sales operation and it's a fact that of course there in US you have had like 35% like corporate tax rate and now it's supposed to go back down to 21%. Of course that then depends on what kind of like profits we are going to show in North America, and of course in the beginning of the period we are - let's say we are not selling from those like entities. We are really ramping up the production and building the factory as such. So in the first two, three years now ahead that will not be an issue in that respect that we are not showing huge process in the manufacturing side?

Edoardo Spina

So if we think about 2020 and beyond when also the rational tax benefit should maybe run out, can we say this is definitely a positive for you? You can definitely use this new tax rate?

Anne Leskelä

Well, of course it's good change in the legislation for us, but it's good to remember that in Finland we have a tax rate which - corporate tax level which is 20, and so it's very near on that. And in Russia the normal corporate tax rate is also 20, so that's pretty much the rate which like is relevant when talking about Nokian Tyres Group.

Edoardo Spina

Thank you. That's very helpful. Then the very last one on investigation, the criminal investigation. Sorry to ask about, I wanted to check if you need or think that you will take any provision for this?

Hille Korhonen

No, we are not planning to take any provision on this because it's not - it's related on insider information.

Anne Leskelä

It's not related to the company itself.

Edoardo Spina

Valid, okay. That's pretty good. Thank you very much.

Operator

Thank you. As there are no further questions, I'll return the conference to our speakers.

Hille Korhonen

Thank you for all the questions.