UPDATE 2-Tyre maker Nokian cuts profit forecast as Russian demand falls

Thu Apr 3, 2014 7:44am EDT

* Nokian Renkaat expects 2014 profit fall

* Company had previously forecast annual growth

* Third of Nokian's 2013 sales came from Russia (Adds comments from CFO, analyst, share reaction, background)

By Jussi Rosendahl

HELSINKI, April 3 (Reuters) - Finnish tyre maker Nokian Renkaat has cut its profit forecast for the third time in eight months, in a sign that a weakening Russian economy is starting to hit company earnings.

Nokian, which made about a third of its sales in Russia last year, said on Thursday it expected sales and operating profit to fall this year, compared with its February forecast for growth.

While a several firms such as sportswear group Adidas , drugmaker Stada and Ski-Doo maker BRP have warned of a hit from the slide in Russia's currency, many have so far played down the impact on consumer demand from the diplomatic crisis over its annexation of Crimea.

"This is the first Finnish company to admit that the situation is hurting Russian consumers. Others have said the market is OK," said Sauli Vilén, chief analyst at Inderes Equity Research.

Finnish firms - such as builder YIT, department store chain Stockmann and paint maker Tikkurila - are heavily exposed to Russia and have so far said business in local currency is holding up.

"The rouble has devalued, while interest rates are high, which is having a direct impact on new car sales," Nokian chief financial officer Anne Leskela told Reuters of the situation in Russia.

She added car loans in Russia had been supported by government subsidies, but these ended at the end of last year.

At 1055 GMT, Nokian shares were down 2.6 percent at 29.89 euros.

Analysts said the warning was not a big surprise. Nokian stock has fallen 14 percent since the start of the year on fears the sliding rouble and Western sanctions against Russia could damage its business.

Nokian, whose main tyre factory is near St. Petersburg, did not give any details on how much it expected sales and operating profit to fall this year.

Vilén estimated its sales from Russia could fall around 25 percent due to the depreciation of the rouble and weak demand.

Russia's low level of car ownership compared with the rest of Europe, its cold climate and bad roads make the vast country a prime market for high-margin winter tyres - Nokian's strongest market - and the company said it remained a big opportunity.

"This year will clearly be very challenging... But it remains a big market and a great potential for us. It is just rarely stable," Leskela said.

Nokian may also face tougher competition in Russia in the future after Russian oil producer Rosneft bought a stake in Pirelli, which is expected to boost the Italian tyre maker's growth ambitions in the country. (Editing by David Goodman and Mark Potter)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.