NKRKF - Nokian Renkaat Oyj (NKRKF) Q4 2022 Earnings Call Transcript
Nokian Renkaat Oyj (NKRKF)
Q4 2022 Earnings Conference Call
February 7, 2023 08:00 PM ET
Company Participants
Paivi Antola - Head, Investor Relations
Jukka Moisio - President and Chief Executive Officer
Teemu Kangas-Karki - Chief Financial Officer
Conference Call Participants
Michael Jacks - Bank of America
Akshat Kacker - JPMorgan
Thomas Besson - Kepler Cheuvreux
Artem Beletski - SEB
Giulio Pescatore - BNP Paribas Exane
Christoph Laskawi - Deutsche Bank
Presentation
Operator
Hello and welcome to the Nokian Tyres Q4 Conference Call. My name is, Francois, and I will be your operator for today's event. Please note that this conference is being recorded. And for the duration of the call, your lines will be on listen-only. However, you will have opportunity to ask questions. [Operator Instructions]
I will now hand you over to your host Paivi Antola to begin today's conference. Thank you.
Paivi Antola
Thank you. Good afternoon from Helsinki and welcome to Nokian Tyres Q4 and full year results conference call. My name is Paivi Antola. I'm the Head of Investor Relations in Nokian Tyres. And together with me in the call, I have Jukka Moisio, the President and CEO of Nokian Tyres and Teemu Kangas-Karki, the CFO.
In this call, we will go through our Q4 and full year results and more importantly discuss our plans for 2023 and beyond and the new start for Nokian Tyres. But now I am handing over to Jukka and team. Please go ahead.
Jukka Moisio
Thank you, Paivi, and welcome on my behalf as well. So, first of all, I would go through the prepared presentation. The heading is resilient performance in 2022 and 2023, a new start for Nokian Tyres and indeed we could also say about 2022, that was an eventful year.
I move to Page two, and there we reflect the first steps we've taken to build the new Nokian Tyres. The most important thing is that, we made a decision in 2022 to build the new factory in Romania. We went through more than 35 sites in Europe in about six months’ time, prepared the investment proposal, decided and announced that in November. So, quite a rapid action to [indiscernible] our capacity. First tires will be rolling out in second half of 2024 and we aim for commercial production in 2025. Right now, we have various actions ongoing including land purchases, permitting processes and indeed, we've ordered the first production equipment already in late 2022.
Financing will be taken care with our own cash flow and leveraging the strong balance sheet. We are not looking to raise new equity to finance this factory. Actions also to increase capacity in Finland and in the US are proceeding in line with the plan. So we had a plan to go all the way up to 4 million tires in Dayton, that plan is very much ongoing, equipment’s will be installed this year and ramping up of those equipment’s will be taken place this year and early 2024, to achieve that 4 million tire capacity or capability.
Also in Nokia, increasing capacity, we decided that those investments on new equipment late 2021 and early 2022, they are being installed as we speak and also we are increasing ramping up the capacity increases in Nokia. Right now, first contract manufacturing agreements were signed in Q4 and negotiations with other manufacturers are ongoing. So the first off take volumes we expect in the second half of 2023, and the sale process in Russia is ongoing.
Move to Page three. Despite an eventful year, we had a resilient performance and I want to highlight some of the key achievements. First of all, heavy tires had all-time high net sales, all-time high profitability and productivity. Vianor delivered all-time high net sales. In North America, we achieved the highest ever sales in terms of volume in passenger car tires and also, of course, production records in our Dayton factory which progressed in 2022 according to plan or actually ahead of the plan in 2022. Important achievement was also on new products, which are high performing and we had strong partnerships with our customers, which drove our net sales in 2022 despite demanding year and eventful year because of the war in Ukraine.
I go to Page four, so Q4 is impacted by lower supply volumes, net sales at EUR411 million. This is 22% behind 2021 fourth quarter in comparable currencies and the most impacting reason for that was the lower passenger car tire supply volumes. Segment operating profit at EUR13.5 million was EUR88 million a year ago. We had the same reasons, lower passenger car tire volumes also changed factory mix and -- but also had price increases to combat cost inflation and we had higher net selling price or average selling price. Teemu will talk more about the profitability impacting our factory mix and supply volume impacts soon.
I go to Page five and which is reflecting the full year 2022 performance. So all-in-all, our net sales, EUR1.78 million, which is all time high. Last year, we achieved EUR1.71 billion – sorry, EUR1.78 billion, net sales in 2022 and EUR1.71 billion in 2021. So, actually 2022 despite it being an eventful year had the all-time high net sales of Nokian Tyres. However, in comparable currencies they're slightly behind 2021 net sales.
We had lower budget car tire volumes as the sanctions came into force and the tire imports from Russia to Europe and North America ended in July. However, we had also record year in heavy tires in Vianor. This shows a strong performance by our Nokian Tyres team and also the resilience under very demanding circumstances in 2022.
Segment's operating profit EUR221 million versus EUR325 million in 2021, again supply of -- the lower passenger car tire supply volumes, as very as changed factory mix had most important impact on the profitability. We are facing from price increases and they helped to combat the cost inflation. Based on 2022 performance, the Board proposal on the dividend payment is as follows, EUR0.35 to be paid in May, and also the Board will seek authorization to decide on the second dividend payment of maximum EUR0.20 per share in second half of the 2023. So, all-in-all, the dividend pay proposal is up to EUR0.55 per share.
On Page six, we have the highlights of the financial performance. I call out some key numbers here, cash flow in the final quarter, cash flow from operating activities EUR390 million, capital expenditure EUR70 million. In that EUR70 million, we have about slightly below EUR40 million of new equipment for the Romania factory. Our EBITDA -- segments EBITDA, a new profitability measurement, segments EBITDA at 12.5% and segments operating profit at 2.3%. Full year net sales at EUR1.78 billion versus EUR1.71 billion in 2021 as I mentioned earlier, segments EBITDA in 2022, 21% at EUR367 million versus EUR455 million or 26% in 2021. Equity ratio remained strong. So, we have 65% equity ratio and interest-bearing net debt at the end of the year at EUR141 million. Capital expenditure for the year at almost EUR130 million.
And on Page seven. Just to highlight those achievements in sustainability. We had excellent safety performance. Lost time incident frequency was record low at 3.2, at 1 million hours worked. We also started to build the first CO2 emission factory in Romania in tire industry, introduce the most sustainable concept target yet with 93% of the materials in the site being recycled or renewable and also an important achievement in 2022, we were included in the Dow Jones Sustainability Europe Index, being one of the top scoring companies in the Automobiles and Automotive components industry.
With those highlights, I hand over to Teemu to give more color to financial performance and financial details. Teemu, please go ahead.
Teemu Kangas-Karki
Thank you, Jukka, and let's start with the passenger car tire business. And as we see in Q4 net sales, which was on a level of EUR236 million clearly declined from comparison period because of the lower supply of volumes from our factories. The segment operating profit was negative in the fourth quarter of EUR14 million. Then looking at the full year numbers, the net sales for passenger car tire was on a level of EUR1.233 billion, increase of close to 3% with reported numbers and with comparable currencies, a decline of around 5%.
Then the segment operating profit for the full year, EUR179 million and clearly down from the comparison period. As we knew the lower tire supply had a negative impact, especially in Central Europe and in Russia. The inventories are on a high level in the distribution that will have an impact than to sell in. The segment operating profit, it declined as expected, but we have been able to increase prices to offset the headwind from raw materials and other cost inflation.
Then if we look the net sales by quarters, here you can clearly see the volume impact already declined after the third quarter being the biggest decline in the fourth quarter and then price -- positive price mix development, but due to the fact that we have been able to increase prices that we started already in year 2021 in the second half. Then currency has given us tailwind during the year 2022 and most likely year 2023 looks like that we will have a headwind from currencies.
Then looking at the performance of our PCT slightly more in detail and focus to the segment operating profit bridge you can see here the impact from volume some EUR120, price mix significantly up almost EUR240 million and then, which is clearly offsetting the material headwind of EUR130 million. Then if we zoom into the supply chain bucket, which shows a negative development of EUR134 million, half of that is coming from the lower production in Russia and then the other half of that headwind is coming from higher logistics, warehouse and custom duties from North America. So, good to remember 50/50 split of this headwind.
Then moving to the heavy tires. They had a record year that we are really proud of. The net sales in the fourth quarter was on a level of EUR65 million and the segments’ operating profit EUR6 million. Full year numbers EUR274 million almost is all-time high as is the segment operating profit almost EUR44 million. In the fourth quarter, the net sales decreased slightly due to supply constraints. And as an example, the sick leaves were on a high level in the fourth quarter in our Nokian factory. A stated all-time high full year net sales and profitability in year 2022.
Moving to the Vianor, which recorded all-time high net sales and we had a strong finish to the year in the fourth quarter, reaching EUR129 million in the fourth quarter and the segment operating profit almost EUR11 million. The full year numbers are EUR362 million and segment operating profit EUR3 million. As you might remember, we had a weak first quarter and now, strong fourth quarter and therefore we landed almost on the same level than in 2021.
In Vianor, we have continued to improve our operational efficiency as well as to offset the cost inflation in 2022. Today, we also announced our alternative non-IFRS figures excluding Russia, and here you can see the figures 2022 and 2021, our segments net sales and segments operating profit look in those years. This year, we have now introduced the new segments net sales that we will guide in 2023 excluding Russia due to the fact that the sales process is still ongoing.
And if we look the year 2022 and 2021 net -- segments net sales figures, you can see that they have been on a level of EUR1.35 million in 2022 and EUR1.39 million in 2021. And then looking at the segments’ operating profit for 2022, here you can see the segments’ operating profit on a level of EUR18 million and here good to remember the headwinds from the supply chain last year some EUR60 million due to that extra cost relating to moving tires out of Russia closer to customers.
Then moving to the assumptions for this year 2023, we are expecting that the first half will be weak due to the constraint capacity and the seasonality and then the second half is supported by the winter tires all season sales and the off take volume that we are getting in the second half. In heavy tires sets all-time high net sales and segment operating profit last year. Now, we see the market softening, so the most likely it is a short-term headwind even though overall we believe that the market is going in the right direction.
Then the guidance for this year. Now, we decided to guide with absolute numbers, unlike earlier years. So, the net sales will be between EUR1.3 billion and EUR1.5 billion, the segments net sales and segments operating profit percentage of net sales between 6% and 8%. And I like to highlight the seasonality, especially in the segments’ operating profit, meaning that the profit is generated in the second.
And then handing back to you, Jukka.
Jukka Moisio
Thank you, Teemu. So, we go back to looking at 2023 and it will be a new start for Nokian Tyres. So, what will happen, what is important for us. First of all, we count on our team. We've been through 2022, which has been quite a demanding year. We look optimistically into 2023. We have our agenda quite full. First of all, the work on the new factory in Romania. We have a very tight schedule to build it and to get the first tires dropping out, which is the latter part of 2024 and then commercial production starting in 2025.
The second one is that the Nokia factory capacity increase is ongoing. So, right now, we are ramping up new equipment as we speak and increase the capacity, same with the Dayton, new equipment is coming, and we are ramping them up and we have factories fully utilized at this point of time, both the tires, we can make are being made and being shipped in the second half, mostly as Teemu was saying about due to seasonality and focus on winter tires are our core products.
We have also already made an agreement to have contract manufacturing. We keep on negotiating additional contract manufacturing opportunities so that we complement our product portfolio in late 2023 and especially in 2024, 2025. And as you may remember, we announced in December that we have already concluded one agreement that will help us to supply winter tires in Central Europe.
At the same time, it's important that we provide our customers with world class products and services. It's important that we'll process from our factories to our customers and consumers, continue uninterrupted. We will [indiscernible] safety, product quality and sustainability, building on our achievements in 2022 in sustainability and safety, which were -- safety was at record level and also the including Dow Jones Sustainability Index in 2022, we aim to do the same 2023. We also will use this opportunity to improve our processes and build our systems and capabilities for the next stage of Nokian Tyres growth and this is important when the new factory in Romania comes on stream.
And I move to Page 18, which is capturing all these key initiatives and actions that we see. We have an investment phase in 2023, 2025. So new factory Romania, capacity increase in Nokia, Dayton factory completion and growing contract manufacturing. In 2026, 2027, we will see a significant growth phase. And based on the new products and invested capability and we target to have EUR2 billion net sales at the end of that period or during that period. Obviously, many of you remember that when we had the Capital Markets Day in 2021, we were aiming to be a EUR2 billion company mid-term. Now we still aim for the EUR2 billion company mid-term with some important hits in 2022 and it was a demanding year. However, we [indiscernible] we focused on key actions, we are confident that implementation will be successful. Financially, we are able to do it and we have strong cash flow, strong balance sheet to rely on and that will allow us to build the new Nokian Tyres.
This is the end of the prepared presentation. And the final page says it's a new journey and it will be a new journey.
Paivi Antola
That it will be. Thank you Jukka, thank you Teemu. Before going to the questions from the audience, Jukka mentioned on Capital Markets Day in 2021 and then there is a question about the next Capital Markets Day as announced earlier, that will be arranged once the Russia exit has been finalized and that, as said, the process is on growing.
And now operator, we would be ready for the questions from the audience please.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question comes from the line of Michael Jacks from Bank of America. Please go ahead.
Michael Jacks
Hi. Good afternoon Jukka, Teemu. Thanks for taking my questions. I have three. The first -- first of all, thank you for providing more specific guidance ranges on revenue and EBIT, but could you please also provide some steer on the building blocks for cash flow in 2023? I think the dividend send a somewhat confident message in this regard, but just wanted to understand the moving parts to that.
Secondly on heavy tires, your guidance flags risks from general economic development. Just curious, is this based on trends that you are currently observing or are you taking a view on the macro development for the year? And then finally, with reference to your restated segments operating profit figures, what are the main reasons for the wide margin gap between the 2021 ex-Russian margin of 15% and your 2023 guide of 6% to 8%? Thank you.
Jukka Moisio
So Teemu, if you take the cash flow building blocks, please go ahead.
Teemu Kangas-Karki
Yeah. As you stated, the dividend proposal to the AGM should send a clear signal to investors how we see our cash flow developing, not only in year 2023, but also in the coming years. Good to remember that we have now a heavy investment program in the coming years and the first two years are the biggest in terms of investments and as we have stated that the investment in Romania is some EUR650 million. So if you divide that by two, taking into account that we have maintenance CapEx of some-EUR100 million, so that might be a good proxy for year 2023. So dividing EUR650 million by two, meaning that Romania investment is not yet completed in two years, because in three years, but then taking into accountant maintenance CapEx on a level of some- -- close to EUR100 million. Then in terms of working capital changes, most likely, no major changes there in this year.
Jukka Moisio
Yeah. And then if you look at the net debt EBITDA ratios, we see that we can [indiscernible] clear the situation in 2024, 2025 and not having too higher leverage based on net debt EBITDA, despite these investments.
Heavy tires, we basically talk about the heavy tires that what we see right now. Obviously, the general economic situation it's a concern and we need to pay attention, but right now, of course, the -- as Teemu was saying that inventories and pipeline is relatively full and we see current situation, which appears to be softer. However that may change, of course, depending on how the economic momentum evolves over the year. And then the restatement, Teemu?
Teemu Kangas-Karki
And the question was about the range, did I…
Michael Jacks
Yes. I just want to understand the main reasons for the difference in the margin between the 2021 ex-Russia margin of 15% and the guide for between 6% and 8% for 2023 given that that one is also excluding Russia.
Teemu Kangas-Karki
So if we start with 2022. And as I said we should bear in mind that there we have this headwind from logistic, warehouse and custom duties some-EUR60 million, so on the EUR80 million, you can put that on top. And then if we looked at 2021, there we should remember that we get the benefit of lower production cost in Russia. So if we take that into account, then we come closer to the guidance of 2023 indicating the range of 6% to 8%.
Michael Jacks
That's very clear. Thank you very much.
Operator
Your next question comes from the line of Akshat Kacker from JPMorgan. Please go ahead.
Akshat Kacker
Hi, Jukka. Hi, Teemu. Akshat from JPMorgan. Three questions from my side [indiscernible]. The first one on the deal with [indiscernible] on the Russian plant. Obviously, you mentioned that the process is still ongoing. Is it possible to give us some more clarity in terms of the timeline or the next steps in this process please? And how have things really evolved in the last three months from when this was announced. And I’ll ask other two later.
Jukka Moisio
As we stated already in -- was it in late October when we announced the deal that the Russia exit has substantial uncertainties related to timing terms and conditions and the closing of the transaction and the situation definitely has not got any better. So it is a demanding topic and environment and therefore I would love to give you more clarity, but I don't have that either. So therefore, I cannot comment that unfortunately.
Jukka Moisio
But maybe if I just add something which you didn't ask, but nevertheless I add. So, despite the ongoing Russian process, the rebuild of the company in terms of building the new factory in Romania and advancing with capacity rebuild is not dependent on the Russian exit. So that these are two separate things. Russian exit is one, it's a close its own and then the other part is that we build new Nokian Tyres independently how it goes and when it comes to conclusion. So therefore, these two things are not dependent, just as an addition to your question.
Teemu Kangas-Karki
And if I build on that -- If I build on that of the team, Nokian Tyres team 99.9% are focusing to the future building at the new Nokian Tyres. Myself and few -- my team members are the ones who are only focusing closing the deal in Russia.
Akshat Kacker
That is very clear.
Jukka Moisio
It's a necessity -- yeah, it's a necessity from the company point of view that, we move on we build the new company, at the same time, we value -- pay attention to that thing, of course, that we do in a best professional way, the process in Russian exit.
Teemu Kangas-Karki
Okay. [Multiple Speakers].
Akshat Kacker
Yeah. That is -- yeah and that is very clear and I believe in that that the balance sheet still is in a strong position. The second question was on the 2023 guidance and the implied passenger car margins. So you're talking about a 6% to 8% segment operating profit margin. So, firstly, in terms of your disclosure, what will be the difference between segment operating profit and operating profit in 2023? Just probably a list of items that you will still be adjusting for in 2023. Is it still the Dayton ramp-up expenses or maybe some more ramp up expenses in Romania? So some kind of details on those adjustments will be helpful. And secondly, within that group margin, can you also guide us to what kind of passenger car margins are you looking for in 2023, because your Q4 passenger car tire margin was in the negative territory. Thank you.
Teemu Kangas-Karki
Yeah. If I start with the PCT for passenger car tire guidance, we have been guiding on a Group level and we stick with that approach. Then in terms of the profitability guidance between 6% and 8% there as you said, the exclusions are not included and the exclusions in year 2023 are as you said that the Dayton ramp-up until we reach that EUR3 million level as we have been communicating. And then on top of that, we exclude now that the Russian business and that's the reason why we introduced segments net sales, because as long as they have some business there, we will report the net sales and operating profit as non-IFRS exclusion.
Jukka Moisio
So the new item in 2023 in exclusions will be Russia. [Multiple Speakers] if the process is concluded.
Akshat Kacker
Sure, understood. And for the underlying passenger car margins, like just in terms of Q4 was a negative number and what are we building for 2023? I did hear the comments in terms of the second half weighted profitability, but just in terms of how the passenger car profitability is panning out with the two underlying plants that you have today? Thank you.
Teemu Kangas-Karki
As I said in our Q3 call that you shouldn't over analyze our Q4 results, because of several activities happening in passenger car tires business and therefore I just reiterate the same comment that don't over analyze the Q4. Please look our guidance for 2023 and our comments regarding the seasonality and maybe there is a good point to give you some color you might take a look what kind of a business we had for the sake of argument in year 2000 before we started the Russia era. There you get some flavor how the seasonality was between the quarters and what kind of profitability we recorded in those quarters.
Akshat Kacker
Great. Thank you for the details and all the best.
Operator
Next question comes from the line of Thomas Besson from Kepler Cheuvreux. Please go ahead.
Thomas Besson
Thank you very much. [indiscernible] Maybe I'll be a bit blunt. You had EUR337 million exclusions in 2022, EUR57 million in 2021. Should we expect you to be closer to 2021 or 2022 levels of exclusions in 2023 assuming the process of your Russian disposal goes broadly as you imagined. So, I assume sometimes in H1?
Jukka Moisio
So the Dayton part is on the [indiscernible] market that it has been and then the Russia is the big question mark that nobody has an crystal ball at the moment. But as you can see from our numbers, we from last year, we recorded EUR300 million impairment related to Russia that is in the exclusions and we make the conclusion that impairment is still valid at the year end with the information that we had at the year-end. However, let's see what is the end result when this saga ends.
Thomas Besson
Okay. Thank you. Second question please. You present adjusted figures that you called excluding Russia. So I just want to clarify, because for me maybe I'm [indiscernible] but I'm not sure I understand what you mean -- are you talking about without Russian sales?
Jukka Moisio
Yeah.
Thomas Besson
[indiscernible] the Russian revenues as a destination, right? Would it not have made more sense to present an adjusted set of figures without Russia as a production center on top as sales [Multiple Speakers]
Jukka Moisio
Yeah.
Thomas Besson
We are completely unable to look at what your underlying performance as long as you still assuming that Russia as a production center were still there. I just want to make sure I understand that the exclusion is just Russia as a destination, right?
Teemu Kangas-Karki
No, its Russia excluded completely, including all the top line, all the manufacturing everything. And then that is segment net sales and segment operating profit excluding Russia. So there is no Russian impact at all in those numbers and in the guidance...
Thomas Besson
So you...
Teemu Kangas-Karki
So can may I continue? So...
Thomas Besson
Sure.
Teemu Kangas-Karki
Yeah. EUR1.3 billion to EUR1.5 billion net sales is completely without Russia and also 6% to 8% segment operating profit is completely without Russia, no manufacturing, no net sales none whatsoever.
Thomas Besson
Okay. But you mean that the 2022 adjusted figure of EUR1.3 billion excludes the production of tires in Russia as well? So that's only what you have been in Finland and Dayton that has been recorded in your EUR1.3 billion sales for 2022? You have no tires produced in H1 in Russia, in that?
Jukka Moisio
As I tried to comment earlier, when we were looking the year 2022, there we had the impact from Russia for the stage that we generated outside Russia, because we produced those tires in Russia. And then, maybe it's more clear in year 2021, if we look our segments operating profit EUR210 million, that contains the cost of tires produced in Russia with a lower production cost.
Thomas Besson
Okay. Thank you and I have two other quick questions.
Teemu Kangas-Karki
Yeah. So again, the guidance for 2023 is completely without Russia. No Russia impact at all.
Thomas Besson
That's clear. Yeah. I think for the guidance, it's clear. Thank you. Can you guide us on the tax rates now that you don't have Russia anymore, it's been an important source of substantially the tax rate than you would have had normally? What should we assume in 2023, 2024 as your tax rates now that you don't have Russia anymore?
Jukka Moisio
So I would say that somewhere around 20%, 21% is a good ballpark number.
Thomas Besson
Okay and last question please. You have, if I looked at your -- your backup slides, 83% of your debt to be refinanced in 2023, 2024. Can you guide us on what -- how you plan to do this refinancing, you plan to use your existing and unused bank loans or you plan to issue bonds and what kind of cost should we assume for 2024, 2025 net interest charges?
Jukka Moisio
So, we are now in process to organize the financing or the funding for the company and this is now the moment where we become like a normal company, with a different kind of funding. Because in the previous years, we have been in a net cash position now. So now during this year, we will structure our funding totally different and bond is one of the sourcing of funding the investments in the coming years.
Teemu Kangas-Karki
Our profile becomes different because from now on, our net sales and our profitability and our assets are outside Russia. So they are essentially investing in Europe and in North America and so therefore our leverage and our asset base as well as our financing structure can and will change. So therefore we look different kind of a company in terms of the balance sheet in years to come.
Thomas Besson
Okay. Thank you very much.
Operator
Next question comes from the line of Artem Beletski from SEB. Please go ahead.
Artem Beletski
Yes. Good afternoon and thank you for taking my questions. A couple to be asked from my side. So, the first one is actually relating to the product mix development this year. So what is your outlook? I guess you will be capacity-constraint and that can actually improve your mix and how it actually looked like in Q4 excluding Russia.
Teemu Kangas-Karki
Yeah. Our product mix, obviously, when we look into 2023, so we'll be capacity constrained and so therefore we go back to our core, which is winter tires and all-season tires and high premium summer tires for Nordics, but basically the key driver will be winter tires. Obviously, that's why we talked about the seasonality in terms of our supply that winter tires will be supplied towards the end of the year and so therefore when we talk about our guidance, we said that the net sales will be accumulated in the second half quite strongly and this is what we do.
So therefore, clearly we prioritize those tires and those SKUs that bring us the best benefit from our current capacity and that we have seen already in the latter part of the year. Of course, Russia, if you exclude that you will see that winter tires in the latter part of the year has been the important part. And going into 2023 that will be the key. It's obviously, I mean this is I guess as nobrainer everybody that winter tires is our core and we prioritize them as well as all-season.
Artem Beletski
Yes. And then I had -- another question is relating to your cost structure and potential actions what you've taken on that front. So your EBITDA loaded -- about those funds in accordance with Q3 results, could you provide some update, let's say, you're planning for some, let's say, cost initiatives looking at this year.
Teemu Kangas-Karki
So we already took out cost in 2022 in anticipation that especially in the Central Europe we will have a lower volume, because that was supplied by Russia, so therefore, we took cost actions already in 2022. Those will bring benefits in 2023, but we also look at the spend very carefully. And under these circumstances, we regulate our cash flow quite carefully, as well as our spend and so therefore, you can expect that all kinds of actions that are needed to conserve cash and be cost efficient taken. But the major restructuring and those actions were taken already in 2022.
Artem Beletski
Okay. That is very clear. And maybe last one from my side is actually relating to Dayton ramp up and you actually mentioned that 3 million tires is the mark after which you won't be recognizing any ramp-up related costs. Is it fair to assume that you would be reaching this type of ramp up or run rate in terms of production already during this year?
Jukka Moisio
We will install the machines and equipment for that kind of a run rate this year. But then achieved run rate sometime in 2024. And then it's up to us to be as quick and as efficient in hiring the people and getting the machines up and running, but basically the machine deliveries will happen this year and this goes back to many previous discussions that when did we ordered the equipment late 2021, early 2022 and they are now being delivered during the course of 2023 and then ramped up one-by-one.
Artem Beletski
Okay. That's very clear. Thank you.
Operator
The next question comes from the line of Giulio Pescatore from BNP Paribas Exane. Please go ahead.
Giulio Pescatore
Hi. Thanks for taking my question. First one on the EUR2 billion target by 2027. I'm just wondering what are you assuming here? Are you assuming a normalization of pricing in case the material costs has to normalize? And any chance you can give us a rough indication of what the margins can do and how quickly to reach those by 2000 levels? The second question is on the inventories, you said that inventories are quite high. I was just wondering if you can specify, which are we talking about and if that's true across all segments, winter, all-seasonal and summer. Yeah, thank you.
Jukka Moisio
When we look at the EUR2 billion target, obviously, it's a combination of volume. So we ramp up volume, not only our own manufactured volume, but also off take volumes. We assume trend pricing for that. So that's how we look at the revenue plan. In terms of margins, we have not given any indication, so perhaps we wait until the Russian situation is clear and they we have the year C&D and then we will come back with the margins and details of achieving EUR2 billion, but basically it just give a high level ambition for 2026, 2027, we aim to be a EUR2 billion Company. We had that in our plans already in 2021, we were about to achieve that in 2022, but then the war between us and success. However, we want to achieve that success in the years to come, more details when the C&D will be organized and that is dependent on the conclusion of the Russian process.
Teemu Kangas-Karki
And then in terms of...
Giulio Pescatore
Can I -- if I can just follow-up on that basically, so just to make sure I have understood it correctly, you are assuming current pricing and recovery in volumes. So, you're not assuming a normalization of pricing?
Jukka Moisio
We are assuming trend pricing, so trend pricing is a normalization. So it's not the highest of the high, not the lowest of the low, but trend price.
Giulio Pescatore
Okay, thank you.
Jukka Moisio
Thus typical in industry.
Teemu Kangas-Karki
Then regarding your question about the raw material price development. So on a year-on-year comparison, we expect that to still increase in 2023, but if you look at the development by quarters, good to remember that the first half last year we had a lower raw material prices peaking towards the year-end. Now, we don't see that to increase, but we have a low comparison in the first half and therefore, the year-on-year comparison is higher. And having said that another factor that impacts our raw material price level is that, because of the situation that we went through last year we purchased high amount of raw materials in order to secure our production. Now, we have more than enough raw materials with higher prices in our inventories that we will consume in the first half and then we are on a normal level with our raw material inventories in the second half.
Jukka Moisio
Yeah. And that's a good point what Teemu saying that when we went through the eventful 2022, we wanted to secure that indeed, we will not run out of raw materials in either in Nokia or in Dayton and to have that kind of reason to not to be able to manufacture or ship tires. That was important for us to ensure that this does not happen.
Giulio Pescatore
Thank you. And sorry on inventories in the distribution. You mentioned that they are quite high, so I was wondering if you can comment on where they are high and on which products and what was the reason for that? Thank you.
Jukka Moisio
Yeah that was basically because the slowing economy in the final quarter and early in 2023 pipeline across the system is quite full. We expect that that will then clear up -- be clear out step-by-step. But towards the end of the year, the pipeline was quite full.
Giulio Pescatore
And that's a general industry comments not only on Nokian issue?
Jukka Moisio
That was a general industry comment, but relates also some of our tires. So it's not that we're immune to that.
Giulio Pescatore
Perfect. Thank you very much.
Operator
The next question comes from the line of Christoph Laskawi from Deutsche Bank. Please go ahead.
Christoph Laskawi
Hey, thank you for taking my question. Well, those will be on the ramp up of the contract manufacturing volumes that you foresee. So, the first one on that, how big is your confidence in the ramp-up, given that it's not entirely yourself operating those volumes? And then just in terms of the pricing that you assume for those volumes to go into the market? In the meantime, before you have sizable volumes from the contract manufacturing, I would assume you just technically lose market share to some degree. Obviously you have a strong brand. Do you just assume that you can go in with the market pricing that you see at that point and your premium pricing versus competition or do you need to be a bit more aggressive in order to place the volumes in the market as well? Thank you.
Jukka Moisio
Point of view that how confident we are that we can deliver those contract manufacturing volumes. We are quite confident, we tested the quality with audited or we are in the process of auditing the supply plans and we see that in terms of logistics, manufacturing quality, we are confident that we can deliver.
Now, obviously, the pricing wise, they are not as profitable as our premium tires made in Nokia or in Dayton. However, important part of making sure that we provide to our customers and our distribution Nokian products so that they have a good portfolio of products. This is of course something that all the time will evolve and we expect that the off take will be an important or more important part of our portfolio in years to come. Historically, we haven't done that, but we see that even when we start Romania factory increase capacity in Nokia and in Dayton, off take will be an important part of our portfolio. And so therefore, we invest time effort development to make sure that that is going to be successful. Now the first volumes will be in the second half of 2023. So at this point of time, these are plans. We are confident, we will deliver, but then the reality will happen then we actually deliver, but those are included in our guidance of 2023.
Christoph Laskawi
Thank you. Just a follow-up if I may, on that. You just said, to pervious question I think that inventory levels are fairly high. So, by H2 of 2023 in Europe, you would expect it to normalize and the deal were at a level where they happily take those volumes they come on stream.
Jukka Moisio
[Multiple Speakers]
Christoph Laskawi
Is it any different?
Jukka Moisio
Yeah. We expect that because the expectation of the new car deliveries will be positive in 2023 versus 2022. So, we expect that there will be an increase in demand and improvement in the plant and so therefore the inventories will be going back to normalized level during the course of 2023.
Christoph Laskawi
Thank you.
Paivi Antola
Okay, thank you very much. It's getting 4 o'clock here in Finland, so it's time to finish the call. Jukka, any closing remarks. Maybe a couple of words about building the new Nokian Tyres.
Jukka Moisio
Thank you, Paivi. Maybe if I come back to that guidance. So EUR1.3 billion to EUR1.5 billion in 2023, and that doesn’t include any Russia. So, this is based on our output in Nokia and Dayton off take as well as heavy tires Vianor, so that's the perimeter of our guidance, 6% to 8% segment operating profit and then, obviously, the segment EBITDA will be at -- with double digit kind of number or higher. And key actions for our team in 2023 are well lined out. So, it's really to achieve the Romania factory first steps, so building real estate and then starting to install machines, but being prepared for H2 2024 first tire manufacturing and then commercial production in 2025. So this is one project, the other one is to ensure that the Nokia factory ramp up, the new capacities that’s being installed right now will be delivered, as well as heavy tires expansions will be delivered and Dayton continued ramp up company machine installations will be delivered. Those are quite important things and then the off take, which is a new element or impact scale and new element to our company that the quality, delivery, the process will be impeccable and that we get the benefits in our topline profitability in the second half of 2023.
So lots of new things in our company for our teams at the same time, as Teemu was saying 99.9% of the people are working on these fronts, but we have an important professional team working on the Russia exit at the same time. And again, when the Russian exit is being achieved or concluded, the process concluded, we will then seek to organize CMD as soon as possible to give more color how we get to EUR2 billion net sales based on trend prices, not the highest of the high not lowest of the low and what kind of volumes we expect from various sources coming and what kind of margin profile can we think about achieving at that point of time.
Again, you all have been used to our Russian factory long time ago. Russia, as we knew it, at the time, delivered high margins. We don't see that Russia being there anymore. So we as a company want to move on and we have new highs, new opportunities ahead of us and we will deliver on those. That's where Nokian Tyres is right now. Thank you, Paivi.
Paivi Antola
Thank you Jukka. Thank you Teemu and thank you all for participating and this concludes the call.
Operator
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Nokian Renkaat Oyj (NKRKF) Q4 2022 Earnings Call Transcript