Nokian Renkaat Oyj : Annual Report 2023

This is

Nokian Tyres

Nokian Tyres develops and manufactures premium tires

for people who value safety, sustainability, and predictability. Driven by our Nordic heritage, the company manufactures innovative products for passenger cars, trucks, and heavy machinery, providing peace of mind for all conditions.

Our Vianor chain specializes in tire and car services.

• Nokian Tyres serves its customers in its core markets: the Nordic countries, North America, and Central Europe.
• In 2023, Nokian Tyres products were sold in 55 countries.
• Nokian Tyres manufactures its tires in two factories, located in Finland and the US. A new factory is under construction in Romania. Contract manufacturing complements own production.
• Nokian Tyres' test centers are in Nokia and Ivalo, Finland, and in Santa Cruz de la Zarza, Spain.
• The company's headquarters is in Nokia, Finland, and its shares are listed on Nasdaq Helsinki.

Net sales from external customers by business unit, %

Passenger Car Tyres 52% (67)

Heavy Tyres 19% (13)

Vianor 29% (20)

NOKIAN TYRES

NET1SALES.2IN 023

EUR BILLION

Employees by geographical area, %

Nordics 78% (80)

Other Europe 6% (6)

North America 16% (14)

Net sales by geographical area, %

Nordic countries 57% (54)

Other Europe 19% (22)

Americas 23% (23)

Other countries 1% (1)

Net sales

Segments operating profit

Segments operating profit, %

Figures for 2021 and earlier years have not been restated and include Russia.

Highlights in 2023

Emission reduction target reached

In 2023, Nokian Tyres reached a key science-based emissions reduction target seven years ahead of schedule.

The world's first zero CO2 tire factory

Nokian Tyres broke ground for its new passenger car tire factory in Oradea, Romania. The factory is the world's first zero CO2 emission tire factory.

Key Flag symbol for Nokian Heavy Tyres

Nokian Heavy Tyres was awarded the Key Flag symbol for its heavy-duty tires, wheels, and retreading materials as a recognition of products manufactured in Finland, and the Design from Finland mark for products designed in Finland.

Dow Jones Sustainability Europe Index

Nokian Tyres was again included in the Dow Jones Sustainability Europe Index. The selection was based on S&P Global's Corporate Sustainability Assessment 2023, in which Nokian Tyres scored 70 points out of 100.

The target was

to decrease

the tire

factories' CO2

emissions

intensity by

52%

Direct CO2 emissions from the tire factories (Scope 1 and 2), per production ton

800 710

New long-term financial targets

Nokian Tyres published its updated long-term financial targets and confirmed its non-financial targets. The target is to reach EUR 2 billion in net sales with strong profits.

Sale of the Russian operations

Nokian Tyres completed the sale of its Russian operations, after which all Nokian Tyres operations in Russia ended.

Co-operation with

the Finnish Ski Association

Nokian Tyres started a partnership with the Finnish Ski Association, becoming the main partner of Cross-Country Ski Team Finland and junior Cross-Country Ski Team Finland for the seasons 2023-24 and 2024-25.

Accelerating growth

Nokian Tyres' future direction is clear: We are returning to growth. In line with our new long-term financial targets, we aim for EUR 2 billion net sales with strong profits. Building the new Nokian Tyres is based on organic growth in the Nordic countries, North America, and Central Europe. Expanding capacity, together with market relevant high-quality products and enhancing commercial capabilities, boost topline growth. Margin improvement is driven by increasing sales volume and average sales price.

Creating a balanced manufacturing footprint

One of our key priorities is building the world's first zero CO2 emission tire factory in Romania. Construction is progressing as planned and the first tires will be manufactured in the second half of 2024. We have also increased capacity at our factories in Finland and the US, and are supplementing our own production with carefully selected contract manufacturing partners. Nokian Tyres' manufacturing footprint will become even more diversified and balanced in the future.

Leading the industry towards net-zero

Sustainability continues to remain at the core of our operations. In reducing greenhouse gas emissions from tire production, we are a frontrunner in our industry. As an example, in 2023, we reached one of our key science-based emissions reduction targets seven years ahead of schedule. Other key sustainability initiatives include advancing safety and well-being of our employees, protecting human rights in the supply chain, and increasing the share of renewable and recycled materials in tires.

Made for demanding conditions

Going into 2024, executing on our growth strategy and improving our activities continues. Despite the current economic slowdown, we expect passenger car tire sell-in to grow in 2024, and with our increasing capacity and competitive product portfolio, we are ready to seize this opportunity. In the Heavy Tyres business, the focus is on expanding capacity and strengthening distribution. Widening product portfolio and enhanced digital capabilities support growth in the long-term. Vianor's excellent distribution capabilities strengthen our position in the Nordics.

Important milestones will be reached in 2024, when we celebrate the 90th anniversary of our innovation, the winter tire. Our new factory in Romania will start production, the US investment phase will be completed, and new innovative products will be launched. Our strong balance sheet enables us to both invest in growth while continuing to reward our shareholders.

I want to warmly thank our customers and shareholders for their support, and above all, our employees for their commitment. Nokian Tyres is made for demanding conditions, which is why I am confident that we will emerge even stronger in 2024.

JUKKA MOISIO

PRESIDENT AND CEO

OUR VISION

WE LEAD THE WORLD TO DRIVE SMARTER .

A market of

600 million tires

Nokian Tyres passenger car tires are mainly sold in the replacement tire market, selling tires to consumers via dealers. According to Global Data, the size of the replacement tire market for passenger car tires, SUV tires, and pick-up truck tires in Nokian Tyres' primary markets in the Nordic countries, Central Europe, and North America amounted to approximately 600 million tires. The U.S. Tire Manufacturers Association (USTMA) estimates that the North American market covers nearly half of the total market.

According to Global Data, the demand for tires will grow moderately in Nokian Tyres' primary markets during 2024-2027. The yearly growth rate is estimated to be approximately 2 percent in the Nordic countries and North America and approximately

1 percent in Central Europe. The number of electric cars and SUVs is growing constantly, further increasing the demand for larger-size tires in all markets.

Nokian Tyres' heavy tires are sold in both the original equipment and replacement markets. Nokian Tyres estimates that the size of the global market for heavy tires was slightly over USD 30 billion in 2022. Smithers estimates that the market is expected to grow

5.5 percent per year until 2027. The growth rate is the highest, over 6 percent per year, in the market for tires used in the mining and construction industry and for harbor vehicles. The market for tires used in heavy industry vehicles will grow approximately 5 percent per year, and the market for special tires for forestry and agricultural machinery will grow approximately 4.5 percent.

MADE FOR DEMANDING CONDITIONS:

JOHANNA HORSMA

Our industry is in a state of flux; the need for renewal is here to stay

Nokian Tyres' products are made for demanding conditions. In recent years, the conditions have also been demanding for the company and its personnel. According to Nokian Tyres' Chief Transformation Officer Johanna Horsma, in the new operating environment, growth and success still stem from the things the company is already strong or the best at.

Johanna sees that Nokian Tyres is now in a good position: "We quickly had clear plans in place after it was evident that the operating conditions in Russia had became unsustainable. The exit from Russia was a significant change that required plenty of effort. We had no ready-made model for it, but we had to come up with the means along the way. The entire team did a tremendous job."

"The need for renewal has become permanent for all companies in the car and tire industry. To ensure efficient operations, industrial companies are, due to global risks, considering the relocation, capabilities, and processes of their factories."

Cross-cutting changes are always challenging. Our advantage is that in our industry, we are a fairly small, international company focusing on niche segments and offering premium products. We can operate quickly and agilely with the help of strong expertise, a good team,

and co-operation.

According to Johanna, Nokian Tyres' strengths also include the company's size and low hierarchy. "Cross-cutting changes are always challenging. Our advantage is that in our industry, we are a fairly small, international company focusing on niche segments and offering premium products. We can operate quickly and agilely with the help of strong expertise, a good team, and co-operation."

Megatrends are shaping the tire industry

Long-term megatrends are shaping the car and tire industry. Climate change mitigation, the evolving weather and driving conditions, and new technologies guide tire design and increase the demand for sustainable and innovative tires.

One of the primary industry-shaping trends is the increasing number of new car models and the more common use of SUVs and crossover models. With the electrification of driving, tires must not only be more durable and have higher load capacity but also will be quieter and have a lower rolling resistance.

Each tire type - summer tire, non-studded tire, studded tire, all-season tire, and all-weather tire - is designed to provide safe driving in different conditions. Due to the changing weather conditions caused by climate change, the demand for all-season and all-weather tires is growing.

Nokian Tyres is responding to the change in the tire industry created by the megatrends by investing and focusing on product develop- ment.

1. Digitalization and connectivity

The digital transformation of society is gaining speed, and the number of digital innovations is also increasing in the tire industry. Automation and robotics are changing design and manufacturing. The use of data and connectivity create new business models and redefine the value networks.

3. Autonomous vehicles

Many significant companies in the car industry are developing smart autonomous vehicles for various uses. Self-driving cars would be even more aware of their surroundings and could optimize driving and route selection based on maximum security.

2. Electrification

Most new cars will soon be EVs. Traditional car brands are investing in EVs, and more brands are focusing solely on EVs. The electrification of driving is also influencing tire design.

4. Environment

Climate change, the green transition, regulation, and standards encourage the development of environmentally and climate-friendly production processes and tire tech- nologies. Read more about these topics in Nokian Tyres' Sustainability Report, published in late March 2024.