Nokian Renkaat Oyj (OTCPK:NKRKF) Third Quarter 2022 Results Conference Call November 1, 2022 9:00 AMm. ET
Participating companies
Paivi Antola – Manager, Investor Relations
Jukka Moisio – President and CEO
Teemu Kangas-Karki – Chief Financial Officer
Conference Call Participants
Michael Jacks-Bank of America
Akshat Kacker – JPMorgan
Giulio Pescatore – BNP Paribas Exane
Christoph Laskawi – Deutsche Bank
Thomas Besson – Kepler Cheuvreux
Panu Laitinmäki – Danske Bank
Pierre Quémener – Stifel
Artem Beletski – SEB
Operator
Good morning, gentlemen, welcome to the convention call of Nokian Tires’ third quarter interim report. Please note that this call is recorded. [Operator Instructions] Now I will hand it over to Paivi Antola. Please continue.
Paiví Antola
Hello from Helsinki and welcome to the call of the third quarter earnings convention of Nokian Tires. My name is Paivi Antola, I am the director of investor relations for Nokian Tyres. And on this call I have Jukka Moisio, president and CEO of the company, and Teemu. Kangas-Karki, CFO of Nokian Tyres.
On this call, we will review the effects of the third quarter and talk about recent events, namely the agreement to sell Russian operations, which was signed last week, as well as the new plant, to be built in Romania, which we announced today. . And what I can tell you now is Capital Markets Day and its calendar, as well as new monetary targets. We will hold a Capital Markets Day once Russia’s withdrawal agreement has been concluded.
But now I hand over the command to Jukka and Teemu.
Jukka Moisio
Thank you Paivi. Hello from me and welcome to this call. And I would like to pass the presentation: the presentation ready, whose name is Construction of new Nokia tires, from the factory in Romania, agreement for the sale of Russian operations. .
I turn to page 2 and, in fact, I’m taking the first steps to build the new Nokian Tyres. So today we announced that we were going to build an absolutely new factory in Romania. In total, the investment amounts to 650 million euros. . The annual capacity for this amount is 6 million tires. And we have the site that has the prospect of growing more in terms of capacity and number of tires. We expect the first wheels to be manufactured at this time part of 2024. And the goal is for ad production to begin in 2025. And the structure of the site will begin in early 2023. It will be the first author of a CO2 emission plant in the tire industry.
We are also adding additional source capacity. We are expanding the capacity of Nokia’s Finnish plant and also the Dayton plant in the United States, as we have announced, and this is being done in accordance with our plans and our previous communication. We also acquired land and real estate in Finland to secure the opportunity to further expand Nokian’s share. This means that assets near the factory were acquired through us. This will allow us to expand the capacity of Nokia. These plans are lately in the phase of progression. The plans are clear, then we will announce the kind of measures that will be taken through Nokia. At the same time, we are outsourcing features to the source, specifically in the Central European markets.
An end point of the structure of the new Nokia tires is this exit formula: in June a controlled exit from Russia was carried out, and in the third quarter many negotiations were held with consumers and also at the beginning of the fourth quarter. And then we announced a sale agreement on October 28 and signed the agreement and the repurchase value of debt-free money is expected to be around €400 million. Euro exchange rate.
Turning to page 3, I’m just pointing out net sales and third-quarter profits. First, net sales amounted to €466 million, minus 6. 4% on a like-for-like basis. Overall sales were higher than in the third quarter of 2021. Lower source volumes of passenger car tires had an impact, with imports from Russia to Europe and North America ending in July. Heavy tyres also recorded a slight decrease in net sales due to source constraints.
The operating profit of the segment in the quarter, 84. 9 million euros compared to 96. 9 million euros in 2021, the main reasons for the decrease in the source volumes of passenger car tires, of course, the combination of categories and the decrease in production in Russia affected our profitability. But at the same time, we were able to raise prices to combat tariff inflation. And as a result, we had a higher average selling price of tires.
I turn to page 4. There are some key monetary figures. First, the segment’s operating profit percentage in the third quarter was 11. 8% versus 21. 8% in 21. And segment operating profit for the first nine months was 15. 2% compared to 19. 7% for the corresponding era of 2021. Segment EPS at €0. 26 in the quarter and year-to-date at €0. 0119. In a full year in 2021, we had €0. 0184.
Our balance sheet remains solid. Therefore, the capital ratio is 64% compared to 65. 7% in 2021. Operating cash flow was slightly weaker in the third quarter of 2022 and year-to-date, minus €323 million versus minus €96 million in 21. Having an effect on current capital is the top rate of uncooked fabrics and also a much higher inventory of ready-to-use tires, found in our distribution network. net financial debt of €374 million; and capital expenditures at the same point at 22 compared to 21 in the first nine months.
Now I will pass it on to Teemu, and Teemu will communicate about passenger cars, heavy tires, Vianor’s finances and take a look at customers and assumptions. Teemu, please move on.
Teemu Kangas-Karki
Let’s start with the functionality of passenger tires in the third quarter, specifically, our net sales amounted to 348 million euros. Reported expansion of 5. 6%. And in comparable terms, substitution is negative up to 9. 5%.
Our segment’s operating income source for the quarter was €55 million. As discussed above, the reduction in the source of tyres will have an effect and has had a negative effect on our net sales, especially in Central Europe. We were able to build our average selling costs with similar currencies. And especially in Russia, the increases were significant. Our consumers have ensured their tire availability and now distribution stocks are at a higher level.
In terms of operating profit of our segment, of course, the reduction in sales volumes has a negative effect, as well as the substitution in the combined plant due to the reduction in production in Russia. We have begun to adjust our charging base in Central Europe and have now aligned our resources there for sales in the next quarter.
Moving on to the progression of net sales throughout the quarter, you can see here the trend lines, the decrease in sales volume is obviously visual and significant. And then, when we move to the value mix, we can see the positive evolution of all PCT activity, as well as in the call boxes, you can see the combined value without Russia, which is also at a higher level. And then, in the third quarter, another positive thing with an impact is the evolution of the regional mix with the percentage of the Nordic countries expanding and Central Europe declining.
Then let’s move on to the bridges and here we can see the shares of net sales, sales volumes minus 32%, combined value 22% and then a strong tailwind of almost 15%. And then, if we take a look at the operating breakdown of our segment, you can see the impact on sales volume and the positive evolution of the combined value value 73 million euros, which then compensates for the headwind of the curtains, but does not fully compensate for the – whether curtains and has an effect on the chain of origin. And the impact of the currency in the third quarter on passenger tires amounted to more than 17 million euros in the operating income of the segment.
And then, switching to heavy tires, our turnover in the truck business unit amounted to 68 million euros. The reported replacement was minus 0. 9%. And on a comparable currency basis, it was minus 3. 3%. Here, we can see that source constraints affected net sales for the quarter. The operating income source for our segment was EUR 9 million. Yes, we can see the same points as in passenger cars. tires, decreasing sales volume, then raw fabrics and load inflation, so a headwind in the company.
So let’s move on to the Vianor business unit, as we all know, the 3rd quarter is a low season quarter. And if we take a look at our revenue, we can see that we reached a net turnover of 76 million euros, a replacement in comparable currencies of 9. 3%. And as in the quarter, we recorded a loss this time of five million euros. The most sensible line is driven by price hikes to fight inflation.
Returning to the assumptions of the whole year, as we all know, the war in Ukraine and the sanctions are having a serious negative effect on our capacity of origin and this will be in our region of Central Europe. In general, demand for passenger cars and It is estimated that truck tires will be healthy this year and the prices of logistics and raw curtains remain at a higher level.
Then, by moving to our updated address we announced on Friday last week, we increased our cash outlook. Now, the new direction is for net sales to be in the past year or increase. the operating profit of the steering segment, which has declined particularly compared to 2021.
And I give you back, Jukka.
Jukka Moisio
Thank you Teemu. Et for summarizing the discussion and presentation, as well as the draping of the quarterly publication, in the last 8 months since the beginning of the war in Ukraine, many activities and movements have positioned themselves in the last 8 months in terms of, first of all, making sure we continue to supply our customers; secondly, to ensure a controlled exit from Russia and paint there; also and in parallel, to identify a site for the new plant and determine investment plans for the new plant in Romania, as well as expansion opportunities at Nokia and continue to develop capacity in Dayton, as well as capacity building at Nokia. All those occasions have taken positions in parallel during the last 8 months. Now that we have announced that the transaction has been signed in Russia, we are rushing to ensure the end of the transaction and now that we have announced that the plan for the Romanian plant is approved and they will make contributions for its implementation.
So there will be a time and an era of implementation of those announcements and plans in the coming quarters. This is, of course, very important. So, first of all, to make sure that we can get our visitors, continue to make them. Therefore, we continue to increase capacity and ensure that the Nokia and Dayton plants run smoothly and add capacity as planned, as well as the new green plant allocation that will have a smart start and safe collection volumes for our profit progression and visitor service in Central Europe.
Then, the end of the transaction to exit Russia, a vital implementation step in the coming months. We will also ensure that our Vianor and our operations around the world have high-performance winter tyres. Hakkapeliitta 10 is a winners’ test, it is a winter tyre with high-performance studs. And our new R5 product, Hakkapeliitta R5, is also a wonderful product that hit the market this fall and we will make sure that the volumes and capacities of this tire are available. to our customers. Trade sets and commercial lines continue to implement express schemes in the Nordic countries. It’s a peak season and a vital winter season right now, North America, the same, and then Central Europe. We have, as Teemu mentioned, we have reduced our prices and taken load reduction measures and there we also adjust the template and the loading point to the expected volumes.
Heavy tires are running on expansion plans, adding Nokia’s site expansion and Vianor has peak season this quarter. In doing all this, it is vital that we strictly set prices and protect our money flow. And we’re excited about the achievements of the quarter and year-to-date, because at this point, as we move forward, we can say that we will concentrate on building new Nokia tires. And the new Nokia tires will be a business. Once we sign the agreement, conclude the agreement to leave Russia, we have no activity in Russia, we will create a company operating in Western Europe and North America.
And this is a replacement for our business and building this business will be an exciting adventure in the coming quarters and years. So thank you for your attention. And now I hand over the baton to Paivi. Paivi?
Paiví Antola
Thank you Jukka. Thank you Teemu. Now, operator, we would be able to move on to questions and answers.
Q&A session
Operator
Thank you. [Operator Instructions] We will respond to the first of Michael Jacks of Bank of America.
Michel Jacks
Good morning, good afternoon. Jukka, Teemu, Paivi and thanks for the introduction. I have a couple of questions, if I may. First, could you provide us with the existing net current capital position on Russia’s balance sheet by adding cash?there.
Teemu Kangas-Karki
So, the price of 400 million euros is the commercial price without debt and without money. And then there’s one thing I don’t know: I can’t comment on what it is, and then the additional money and the current capital component. The asset as indicated in the press release, excluding net debt, stands at a point of 480 million euros, most of which is our current capital, and which fluctuates throughout the year due to seasonality. And then the money, which we already mentioned in our last quarterly calls at the end of the 3rd quarter, was about 50 million euros.
Michel Jacks
So, just with regard to the balance of the remaining stocks, ready-made tires, exported from Russia that are outside Russia, can you provide data on the balance, the balance left there?
Jukka Moisio
We can necessarily say that in passenger car tires, the stock of finished products at the end of the third quarter is about the same level as a year ago.
Michel Jacks
Entendu. Merci. Et then, just with respect to the constant load savings or the load savings in Central Europe that you mentioned, can you give us an idea, please, of the extent of those load savings that have been implemented and whether or not we are expecting money restructuring effects similar to those?
Teemu Kangas-Karki
The effect of monetary restructuring is therefore visual in our press release, between five and six million euros in the coming months. And then the economy is about twice that annual economy.
Michel Jacks
Sure, thank you. And then my last question, what will be the earliest date when they will begin to reveal Russian operations as abandoned?
Teemu Kangas-Karki
First, we want to close the deal, then Q3 is naturally the earliest point.
Michel Jacks
In the meantime, can you bien. Entendu. Et give us an idea of the organization’s underlying profitability outside of Russia, as [indistinguishable]?
Teemu Kangas-Karki
What we have said and commented is that Russia has a significant effect on our profits, and this has a double effect. The first is the source effect that we said now, when we lose source, the charge consistent with the tire is about €10 compared to the tires compared to Russia. So, there you can get the estimate of the impact on the source. And then, the impact on business in Russia is the second. And traditionally, that’s been a vital component as well.
Jukka Moisio
The end effect, especially in 2022, is that we have fairly normal logistics prices because we have taken normal steps to ship tires from Russia to Western Europe and North America. And those prices are also in the P
Michel Jacks
it is very clear Thank you very much.
Operator
Next comes from JPMorgan’s Akshat Kacker.
Akshat Kacker
Thank you. Good afternoon. Three on my side, please. The first in totally new investments announced in Romania. Can you tell us about the phase of those capital expenditures over the next 3 or 4 years and also how soon you plan to succeed in the annual capacity of 6 million tires?? This is the first one. The time is contract production. How temporarily can we contract for the production of the tire that cannot be produced until 2023?And are those arrangements already underway? And also, it would be wise to perceive whether it will use contract production only for summer and all-season tires or also for winter tires. Thank you.
Jukka Moisio
The capital finish in the new plan will be a bit this year. So, in terms of equipment, basically in 23, 24 and then a finish in 25. And we would say about 60 to a hundred this year, about 150 to two hundred next year, 150 to 200 next year, and then the end in 2025. And expect volumes to be running at almost full capacity by the end of ’26, starting in ’17.
Teemu Kangas-Karki
As we indicated in the press release, the first tires will be launched at the end of the 24th, advertising production begins on the 25th. And then we are at full speed in the middle of the calfinishar year 27.
Akshat Kacker
Thank you. What about contract manufacturing?
Jukka Moisio
Yes, we are using the tax and expect the first significant sampling volumes to be obtained in 2023.
Akshat Kacker
And is it for [indistinguishable] and all-season tires or also for winter tires?
Jukka Moisio
We’ll see.
Akshat Kacker
Well, thanks for the detail.
Operator
Next up is by Giulio Pescatore of BNP Paribas Exane. Continue.
Julio Pescatore
Hello, thank you for answering my inquiry. The first on the capacity execution rate it has had lately. Can you remind us how temporarily you would get the year in your remaining plans of Elan and USA?USA? And also the time to consult more about the agreement with the will. How do you plan to get cash out of the country? I have already talked to the Russian government about this. And did you get a favorable indication for the positive signing of the transaction?Then there is the third consultation, if I may. In the winter season, it looks weak so far. Or is it too early to tell?Thank you.
Teemu Kangas-Karki
So if I start with Friday’s announcement, [indistinguishable], now the procedure starts with all the appropriate authorities. And we hope that with a strong client like [indistinguishable], we can navigate through that procedure. As we all know, there is a lot of uncertainty about this, but we are doing everything we can to repatriate the cash in accordance with our agreement. How long will the procedure take later? We can’t comment on that right now because we don’t know.
Jukka Moisio
In terms of capacity utilization, as we said, when we don’t have, since we no longer have Russian supply, both the Dayton and Nokia and the Heavy Tires are running at full capacity. And based on our plans in 2022, Dayton is progressing toward four million tires by 2024, and we’re well on our way. And Nokia is making progress towards five or six million tires, on the right track. The capacity of heavy tires is also fully utilized at this stage. I think the winter season is pretty well covered and we’re pretty positive about the winter season. But obviously, this is the beginning. So let’s see how it develops. But in terms of product-by-product availability, we are well prepared.
Julio Pescatore
Sorry, can I go back to your original point about the monetary outlook for Russia?If there is a problem with the process, how do you manage to finance the expansion project?everyone sees how they finance the first 2 years of CapEx. If there is a delay or in the process, what are the other options?
Teemu Kangas-Karki
As you know, our balance sheet is historically strong. And in these kinds of situations, it is our merit that no matter with Russia’s money, we are going to finance those 650 million euros of investments in the coming years.
Jukka Moisio
Of course, we focus a lot on moneyArray’s operating EBITDA and our gross EBITDA money and will ensure that this investment also finances operations and investments. So, clearly, a strong domain of interest in EBITDA.
Julio Pescatore
Okay, thank you very much.
Operator
The next one comes from Christoph Laskawi of Deutsche Bank.
Christophe Laskawi
Buenas tardes. Deutsche Bank’s Chrismost Sensitive Laskawi. Thank you also for answering my questions. Going back to the 400 million euros and the working capital of Russia, just to make sure I understood correctly, the value of the asset would be around 400 million euros, and at the most sensible of this, you will get cash for the existing working capital in the plant. ? Could you roughly quantify that? Or did I miss it earlier, basically? And then about outsourced production or contract production, I made a comment about the business outside of Russia regarding production costs. Could you also comment on what the margin profile of this outsourced capacity would look like, I guess, probably diluting your existing facilities in Europe and the US? And finally, on the heavy side, you just said that heavy production is also running at full capacity in terms of capacity. In the slides he discussed that, in the presentation he discussed some issues in the trucking supply chain. Does this comment reflect that all the problems are already solved and that you can get through the fourth quarter quite well? Or do they deserve to be expected outages in the last quarter as well? Thanks.
Jukka Moisio
Let me start with heavy tyres. Basically, we have in Finland in some other countries as well, the first in licenses for health problems in terms of COVID and various things. And that caused a little challenge in manufacturing. And this higher rate of health licenses has slowed down our productivity and functionality a bit. We know that those challenges are behind us. And when we move into the fourth quarter, we should no longer have those challenges. But of course, it’s something we need to paint on and it’s also similar to how we see COVID and various flus coming in the fall or winter. But so far everything has passed.
Teemu Kangas-Karki
As for the Russian transaction at this point, I don’t need to reveal more than the balance of money I discussed earlier on the call.
Jukka Moisio
Then, finally, in the levy. So obviously outsourcing is anything that has another margin expansion, but it’s also vital to note that they don’t buy any production assets. So in terms of deployed capital, the tax is kind of an equation, and we stick to the one based on capital used and margin expansion doesn’t tie a lot of assets. So, clearly, that’s not the kind of profitability we traditionally enjoy from our own manufactured products.
Christophe Laskawi
Is there any indication that you would like to give or that you can already give in terms of the duration of contract manufacturing, I suppose, not as big as the green factory you’re going to build lately, but it can be significant?Or is it just a small addition?
Jukka Moisio
It will be a progressive and more vital addition to our product portfolio. And eventually, our plan is to have 3 production sites. So, Romania, Nokia, USA. U. S. Dayton and a factory, we would have a virtual collection plant. Therefore, it will remain a vital component of our production or, say, an option for the product portfolio. So, gradually, we need to expand it in the long run.
Christophe Laskawi
Heard. Thank you.
Operator
The next one comes from Thomas Besson of Kepler Cheuvreux.
Thomas Besson
Thank you so much. Solid results. I have several spaces in which I would like to make inquiries. So if you agree, I’ll ask you one by one. First of all, in the quarterly numbers, there are some things that I don’t really perceive, maybe you can help me. Your sales in Russia and Asia increased in the third quarter. Can you know how that is possible? I perceive that it has considerably higher costs. And maybe he only sold a lot of tires in the first 10 days of July, but that’s hard to notice. Second inquiry on accounts, you have a record point of inventories and accounts receivable at the end of the third quarter, can you tell us more?And then, can the $7 million ForEx be encouraged and deserve that we expect something similar in the fourth quarter or if it was just a one-off event?This is the first set of queries. Thank you.
Teemu Kangas-Karki
If I start with Russia, the value increases there have been significant. And that’s the main explanation for why, also the main explanation for why our industry accounts receivable have higher on our balance sheet. Then, in terms of inventories, our stocks in the organization were at the same point as last year, but they are particularly higher in the most productive part. And in Russia, they are particularly inferior. So those are the comments on the issue of balance and pricing.
Jukka Moisio
Yes, a favorable wind on currencies difficult to anticipate. So again, in the case of currencies, it is: forecasting is tricky there. But so far, we have been able to take advantage of a positive wind in currencies, both in the US dollar and in the current since the beginning of the year. and in the 3rd quarter.
Thomas Besson
Thank you for that. Moving on to the topic of the moment that I sought to address, as I perceive it, with the plan, it is going to make Romania have a key new plant, plus some kind of flexible operation somewhere with its contract production operations. So don’t make plans to build a fourth factory somewhere, right?
Teemu Kangas-Karki
The existing plan is that we will have the 3 factories as indicated through Jukka, and the fourth is the virtual factory as we see it today.
Jukka Moisio
Yes, I did.
Thomas Besson
Excellent. Thank you. And finally, I would like to go back on sale. I’m sorry to ask, maybe it’s not a little clear directly. I do it where it doesn’t, there’s nothing we can do about it. You are the first company, and we are looking for many companies, that manages to sell your Russian assets to a Russian company for a significant sum of money. Most of the corporations we reviewed have moved from Russia to RUB1 and we are pleased to do so. So, can you accurately explain the legal and moral considerations of the sale you announced on Friday and accurately describe that what was left is that you hold this asset in the current quarter because you think it could be used for the long term?But now you’re promoting it. So I would like to perceive that. And also perceive what additional depreciation we can already take into account. Can we do it now? Does the difference between 480 million euros and 400 million euros deserve to be assumed that it will necessarily have to be amortized, or does it have the elements that you can comment similar to the current capital requirement?Thanks a lot.
Teemu Kangas-Karki
If I start with the last comment or query you had about the possible deterioration, as we indicated in our press release, there are so many other points that the final result we cannot estimate at this point because there are points that the process, at the time of closing, etc. Therefore, it is highly unlikely to quantify this at this stage.
Jukka Moisio
And then sell the operation and sustainability of owning a working factory in Russia after sanctions have become impossible. So, the remaining features were considered, and then we discovered a customer who is not sanctioned and we will continue to manufacture passenger car tires through gasoline. And that’s what we discovered. We’ve done a lot of groundwork and maintained growth. And here is the result.
Thomas Besson
Thank you so much.
Operator
We will now answer the following from Panu from Deutsche Bank. Sorry, Panu from Danske Bank.
Panu Laitinmaki
Yes. Thank you. I am Panu from Danske. I have 3 questions. First of all, about CapEx, thank you for guiding the plant’s investment, but what is the point of CapEx maintenance at the Russian plant going on?
Teemu Kangas-Karki
So, more or less at a point of, I would say, now a hundred million euros, more or less.
Panu Laitinmaki
It is ok. So, isn’t it much less than it has been historically?
Teemu Kangas-Karki
Panu, as Jukka previously commented, over the next few years, some of the key metrics for us are EBITDA and then we adjust our CapEx expense on long-term EBITDA cumulatively.
Jukka Moisio
So, also thanks to this, investments in molds are a vital component of CapEx in the future. This will skew our CapEx investments up.
Panu Laitinmaki
He is bien. Logique. La consultation at the moment on profitability without the Russian plant. You’ve already said it. But if you put it this way, is Q3 an even more or less representative point of what you think it can generate in terms of EBIT margin in the future?
Teemu Kangas-Karki
You draw that kind of conclusion at all. So let’s come back to that when we’ve finalized the deal and released the updated numbers. But as I said, Russia has a significant dual impact, source and trade.
Jukka Moisio
We want to leave the numbers blank because there is a lot of noise in our numbers. Therefore, it will have to be done to draw conclusions and comparables.
Panu Laitinmaki
Very well. My third query has to do with the Dayton plant, essentially two things about it. I mean, now he’s saying he’s succeeding in four million in 2four. But how does it take so long than the first production?Advertising production has already begunin 2020? So did it replace plans in terms of combination or anything else in the factory?And then, in Dayton, do you have any plans to increase capacity above four million tires once you’re there?
Jukka Moisio
The Dayton boom, again, as someone pointed out, is not the benchmark in terms of immediate acceleration. And clearly, if, unfortunately, COVID came and we slowed our acceleration. However, lately the construction in volumes and so on depends on the apparatus. So all the capacity and capital, which is in the ground, is used, but then the new apparatus comes in, we install it, and then we augment device by device. But I think our plan to succeed on four million tyres by 202four has been present from the beginning.
Panu Laitinmaki
And in terms of expanding it above a million?
Jukka Moisio
I think again, as I mentioned, we have achieved the development of Nokia’s capacity, and we took a look at the expansions of Nokia’s factory, and then we built the new plant, and then we built the taxes. When we get to 2024, we will then be exploring the scenario and seeing what you want to do and what you can do. But obviously, with those movements that we have, a vital reconstruction will take place in the next 2 years, when we are in 2024 or past 2023, then we will see what remains to be done.
Panu Laitinmaki
Very well. Thank you.
Operator
The next one comes from Pierre Quéméner de Stifel. Continue.
Pierre Quemener
Just a few questions, but first of all, I missed what you say, Jukka, in relation to the finishing of the Finnish factory this year and in 2024 in relation to the capacity of passenger car tires.
Jukka Moisio
I think of the Finnish factory, I said that we acquired genuine ownership next to the factory and traditionally we had the opportunity to expand Nokia’s presence because we had limited land. We have now acquired genuine ownership and have the opportunity to expand Nokia’s factory and build its length and paints into the plans. And as soon as we have the plans ready, we receive the decisions of the Board of Directors and move on. So, there you have it, we are working a lot Nokia, its potential.
Pierre Quemener
But at the end of this year, what will Nokia’s actual capability be?
Jukka Moisio
I didn’t say anything. I said that. . .
Pierre Quemener
It is ok. Sorry, leave me then. It is ok.
Jukka Moisio
I didn’t say anything. I would say the other: five to six million euros in our plan as agreed and we are installing new machines at Nokia in the last component of this year, and then we are preparing for next year, capacity increases.
Pierre Quemener
It is ok. That’s fair enough. I have 3 questions. One on volume development, Q3, Q4, until next year. How much of the shipping volumes you made in the 3. er quarter came here out of stock and how much came here from, I would say, normal Nokia or Dayton production?
Jukka Moisio
So this year, our inventories are at the same point, around the end of the third quarter.
Pierre Quemener
No lien on shares?And despite everything in Russia, sorry, just to return to the subject, I have two questions. As discussed in a previous question, it still had significant revenue from Russia in the 3rd quarter, almost 137 million euros in revenue. How to think about the fourth quarter in relation to Russia?And next year, I guess there will be no more Russian revenues, right?
Jukka Moisio
When we signed the agreement, we still have the operation. When we conclude the deal, we have no operations and we do not consolidate anything from Russia, except, of course, the final effect on the acquisition price. But between signing and closing, everything we sell or deliver from inventory or manufacture in Russia will be part of our P.
Pierre Quemener
It is ok. So, the fourth quarter will necessarily be: Russia’s contribution in terms of earnings and profitability will be less than what we saw in the third quarter, right?
Jukka Moisio
Well, again, we return to the seasonality that some of the tires that are in inventory or in warehouses in Russia were manufactured at the beginning of the year for this year’s winter season. And those, of course, will be delivered to the retailer and distribution for the quarter. But again, this is not at the same point as last year or what has traditionally been true.
Pierre Quemener
It is ok. And last consultation on the movement of assets. Honestly, I just tried to figure out how this kind of magic is used to monetize those Russian assets in a country that is subject to heavy negative sanctions of source of income, be it the EU and the US. U. S. But having said that, when you make the deal, will you be able to repatriate the cash immediately, or can we assume that you can separate somewhere in Russia until the end of the war, and then you can divide the cash into a percentage, if applicable?? Thank you so much.
Teemu Kangas-Karki
In its simplicity, we close the deal until we have the money.
Pierre Quemener
It is ok. Very clear. Thank you.
Operator
The next one comes from Artem Beletski of SEB.
Artem Beletsky
Hello and thank you for answering my questions. Maybe you can start with some questions similar to those of investment. And first of all, start with Romania, you really indicated the threat of further expansion beyond 6 million tires. So, perhaps you can tell us that it is fundamentally imaginable in this regard. in terms of Phase 2 or possible Phase 3?And can you verify that the €650 million CapEx also includes a mix of capacity investments in this regard?And then, just a quick follow-up of the discussion about what happens with the first expansion of capacity and necessarily the acquisition of land in Finland. Is it basically similar to the passenger car tires you’re looking for to increase capacity, or is it also similar to heavy tires?
Jukka Moisio
So maybe if I start with Romania, then yes, excuse me, it’s all a trading system. Therefore, add the mixture in the tire structure, as well as in all other molds, etc. , etc. So €650 million covers all of that. A smart rule of thumb is that this is €100 million for 1 million tires if you think about how the investment can be quantified. In addition, the site allows you to triple the volume if we go through this route. But I think our learning — the recent awareness of the country threat of Russia and having all our eggs in one basket — is probably a smart indication that we’re not moving on to do that kind of expansion. We can do anything else about that aspect or distribution or other things, but we will not build a new Russia in Romania. We will ensure that our production footprint is more varied and we have tire opportunities and resources from multiple geographies, also adding Virtual Pickup Factory. So I think it’s a recent learning. I hope that everyone perceives that this is a very important lesson for all of us. Then the expansion of Nokia, I think of course heavy-duty tires are the main beneficiaries of that, but at the same time, as we’re installing new gadgets at Nokia for passenger car tires right now and going forward end of the year and we will. be available for next year. So obviously the Nokia phone will perform better with both passenger tires and heavy tires.
Artem Beletsky
It’s bien. es very clear And then, maybe right after me, some inquiries to Teemu about finances. So, the first one, looking at the EBIT bridge in history, so there has been a fairly extensive negative detail similar to the origin chain of 260 million euros, maybe only you talk a little more about what this negative development is, is it still fundamentally a higher expense in logistics as you discussed in the second quarter?Perhaps you could imply what is the percentage of the combine in this development, I think it had been more selective, for example, in Central Europe what is happening through deliveries?
Jukka Moisio
Starting with the basket of the chain of origin there, the two main drivers are, as we discussed earlier, the logistics warehouse and that comes last from the factory harvester now and we are not operating our Russian plant at full speed. The negative delta is visible. Those are the two main factors. And then I would ask about the composition of the values. So, actually, the composition of values without Russia, I suspect that the regional composition has a transparent effect on the reason why I discussed earlier. So the Nordic percentage is expanding and the EC percentage is declining, but then we’ll be there highlighting what we see here in our value mix without Russia to quantify this more accurately.
Artem Beletsky
Very well. It’s very clear. Thank you.
Operator
Since there are no additional questions, I would like to speak with your host for your final comments.
End of questions and answers
Paiví Antola
If there are no more questions, I would like to thank you all for your participation and have a day. Thank you.
Jukka Moisio
Thank you. Have a day.
Teemu Kangas-Karki
Thank you.
Operator
Thank you. This will conclude the convening of today’s convention. Thank you for your participation. Ladies and gentlemen, you can now log off.