Nokian Tyres shares fall as new Romanian plant fails to convince

An employee works at the Nokian Tyres factory in Vsevolozhsk
An employee works at the Nokian Tyres factory in Vsevolozhsk, near St. Petersburg, Russia September 14, 2017. Picture taken September 14, 2017. REUTERS/Gleb Stolyarov

HELSINKI, Nov 1 (Reuters) - Shares of Finland's Nokian Tyres (TYRES.HE) fell 12% on Tuesday on worries over future profitability after the company announced third-quarter earnings and plans to invest 650 million euros ($645.2 million) in a new passenger car tyre factory in Romania.

Built to make six million tyres per year, the Romanian plant is set to replace some of the lost output from Nokian's now divested Russian operation which had the annual capacity to produce 17 million passenger car tyres.

Nokian last week agreed to sell its Russian operations to local oil producer Tatneft PJSC (TATN.MM) for 400 million euros, a decision triggered by Moscow's invasion of Ukraine, although there was substantial uncertainty over the closing of the deal.

The company reported operating profits down 54% year-on-year in the third quarter to 40.7 million euros, beating analysts' average forecast of 26.6 million in a poll by Vara Research, but did not provide long-term profitability forecasts.

Danske Bank analyst Panu Laitinmaki said it was hard to predict how the company will manage without its Russian operation.

"There is quite a bit of uncertainty about the profitability of the company excluding Russia," Laitinmaki said.

Nokian is expanding production in Finland and the United States and outsourcing manufacturing to Asia but that will not be enough to cover lost capacity before the new plant is ready, its head of supply operations Adrian Kaczmarczyk told Reuters.

"We will focus on certain product families and not produce everything that was produced in Russia," Kaczmarczyk said.

Nokian's shares, which had initially risen on news of the Romanian plant, later fell to trade down 12% at 1500 GMT.

Nokian said labour cost, access to skilled workers, supportive government and proximity to key markets in central Europe were among the drivers behind its decision to choose to build a plant in Oradea in northwestern Romania.

The factory, which Nokian aims to make the industry's first zero CO2 emissions plant, will employ 500 people.

With first tyres estimated to be produced in the second half of 2024, commercial production is expected to start by early-2025 and reach full speed by early 2027, the company said.

($1 = 1.0075 euros)

Reporting by Essi Lehto in Helsinki and Jagoda Darlak and Louise Rasmussen in Gdansk, editing by Stine Jacobsen, Ed Osmond and David Evans

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