Review by the Interim President and CEO

Andrei Pantioukhov, Interim President and CEO

Andrei Pantioukhov, Interim President and CEO (Interim Report January–March 2017):

"Nokian Tyres had a strong start of the year. We demonstrated strong performance in all our main market areas. Both our net sales and operating profit improved compared to the same period in 2016.

The first quarter was positive in many aspects. Sales in all our main markets increased compared to the same period in the previous year. All our main market areas reached growth and Russia became the biggest contributor to this growth, like in Q4/2016.

Russia’s economy started growing again after seven consecutive quarters of recession. In Russia, the market is expected to return to growth, but the pace of the recovery is likely to be quite moderate.

Our production volumes were higher than last year. Raw material costs continued to increase in Q1/2017 compared to Q4/2016. We estimate that the raw material costs will increase by approximately 20% for the full year 2017 vs. 2016. We have already implemented necessary price increases in all markets, and the full effect of these increases will be seen in the following quarters due to the seasonality of Nokian Tyres’ business model.

The cash flow from operating activities was EUR 21 million better than for Q1/2016. Investments in Q1/2017 amounted to EUR 17.3 million.

Passenger Car Tyres performed very well during the first quarter, and net sales and operating profit increased year-over-year. ASP increased mainly due to improved product mix and positive currency impact. In Heavy Tyres, net sales increased but operating profit decreased clearly year-over-year due to the raw material cost increases, timing of price increases and fixed costs, bigger share of OE sales, and continued investments into future sales and production.

Vianor’s net sales increased slightly but were affected by the delayed summer tyre season. The profit improvement program started according to plan, including equity-owned network optimization in all countries. The number of Vianor, NAD, and N-Tyre stores in our network grew by 63 in Q1/2017. Currently, the network includes 3,165 stores in total.

Our products continued to perform very well in magazine tests. The new flagship products for our winter tyre range, the Nokian Hakkapeliitta 9 and Nokian Hakkapeliitta 9 SUV, along with new value-for-money products Nokian Nordman 7 and Nokian Nordman 7 SUV, will strengthen our product portfolio for our core market areas in the Nordic countries and Russia.

The Board has made a principal decision on the investment in the third factory and authorized the management of the Company to sign a Letter of Intent with the respective authorities in the USA. The new factory will be located in Dayton (Rhea County), Tennessee, USA. The annual capacity of the factory will be 4 million tyres with an expansion potential in the future and the total investment amount at this phase is approximately USD 360 million. Construction is scheduled to begin in early 2018, and the first tyres are to be produced in 2020.

Nokian Tyres is in great shape. A strong position in the core markets, investments in growth markets, a strong distribution and competitive products give Nokian Tyres an excellent ground for future growth. The company has clearly returned to the growth track and intends to stay on this track in the future. In 2017, with the current exchange rates, net sales are expected to grow by at least 10% and operating profit is expected to grow by over 5% compared to 2016."