Russia Andrei Pantioukhov VP, Russian operations

Capital Markets Day 2015

Contents

1. Operational review (market / business / production)

2. Strategy update and long-range plan

2

Russia’s economy has declined as expected First cautious signs of stabilization Annual change (%) of key indicators of real economy (1Q14–3Q15 & consensus estimates 2015–2016) 10

10 GDP

5

5

0

0

Industrial production Fixed investment Construction

-5

-5

-10

-10

Source: Rosstat, MoE, Consensus economics, East Office

Manufacturing

Extraction of minerals

2016-E

2015-E

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

-15

1Q14

-15

Retail

3

Ruble clearly follows oil price Impact of other exchange rate factors limited

Oil price impact on RUB exchange rate

Urals oil price USD/bbl

RUB/USD

40

77-80

50

61-65

60

52-55

Source: CBR, EIA, East Office

90

9000

80

8000

70

7000

60

6000

50

5000

40

4000

30

3000

20

2000

RUB/EUR (LHS)

RUB/USD (LHS)

Brent RUB/bbl (RHS)

Budget 2016

4

Inflation is slowing down Given no further devaluation, it should be under control Russia's CPI inflation % YoY, Russia’s Central Bank key rate 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3

CPI Consensus Forecast (Oct-2015) CBR Key rate Minfin Estimate

20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3

Sep 2015 % YoY CPI*

+15.7

Food

+17.4

Non-food

+15.2

Services

+13.8

* CPI – consumer price index

Source: CBR, Consensus Economics, gazeta.ru, East Office

5

Weak consumer confidence and retail turnover Driven by low purchasing power

Retail turnover development as a % to monthly average of 2012

Consumer confidence index

2007

2008

Source: Rosstat

2009

2010

Quarters 2011 2012

2013 total turnover

2013

2014

2014 eliminated seasonality

2015 trend

2015

6

Sales of new cars remain sluggish Monthly sales on 2009 level MONTHLY CAR AND LCV SALES 250 000

100% 80%

200 000

60%

units

40%

150 000 20% 0%

100 000

Foreign brands Local brands Foreign change y-o-y

-20%

Local change y-o-y

-40%

50 000

-60%

2015/9

2015/7

2015/5

2015/3

2015/1

2014/9

2014/11

2014/7

2014/5

2014/3

2014/1

2013/9

2013/11

2013/7

2013/5

2013/3

2013/1

2012/9

2012/11

2012/7

2012/5

2012/3

2012/1

2011/9

2011/11

2011/7

2011/5

2011/3

2011/1

2010/9

2010/11

2010/7

2010/5

2010/3

2010/1

2009/9

2009/11

2009/7

2009/5

2009/3

-80%

2009/1

0

ANNUAL CAR AND LCV SALES 4 000 000

units

3 000 000 2 000 000

Local brands

1 000 000

Foreign brands

0

Source: AEB, Global Insight

2009

2010

2011

2012

2013

2014

2015 e

7

Russia’s tyre market declining for three years

Car, SUV and van tyre replacement market (volume)

Car, SUV and van tyre replacement market (value)

50

110

45

100

40

90

35

80 A

30 25

B 20 15

A

70

Value (BRUB)

Volume (million tyres) x

Reflecting new car sales and overall consumer demand

60 50

B

40 30

10

C

20

5

10

0

0

'08

'09

10

Source: Nokian Tyres estimates

11

12

13

14

15e

C

'08

'09

10

11

12

13

14

15e 8

Lower volume, weak ruble drive revenue down Product mix and average price improved

9

Nokian tyres remains clear market leader In A+B segments, both in winter and summer tyres Market share (sell-in), 2015e

VOLUME A+B

VA L U E Total

A+B

Total

Summer

Winter

Total

Source: Nokian Tyres estimates

10

Marketing and sell-out support program Aimed at keeping market share on sell-out level CONVINCING MAGAZINE TEST VICTORIES

EFFECTIVE ADVERTISING

LIFE-LONG EXTENDED GUARANTEE FOR ALL HAKKAPELIITTA PRODUCTS

‘TYRE MOUNTING FOR FREE’ CAMPAIGNS

11

Vsevolozhsk factory – main production base 10 years of success     

 



Production capacity increased from 1 m (2005) to 15.5. m units / year Biggest car tyre factory in Russia: over 70 million tyres produced since 2005 The most modern tyre factory in Europe: high level of automation The best efficiency in the industry: only ~1,000 employees at the factory Wide product range for all markets: over 1,300 SKUs in production Export to over 40 countries: ~70% of the factory’s production output in 2015 Biggest exporter of consumer goods in Russia Significant tax benefits 12

Contents

1. Operational review (market / business / production)

2. Strategy update and long-range plan

13

Strategic goal intact: continue to be #1 Keep market leader position and outperform market Vision

Mid-term strategic objectives (2018)

 Sales volume >5 Mpcs / revenue >20 BRUB  Market share total >14%, A+B >28%  Profitability: EBIT margin (local sales) >40%

Market leader in A+B segments, consumers’ ultimate choice of high-quality tyres, and best partner for customers

Comprehensive product portfolio with balanced price positioning

Highest brand awareness and intent to buy among consumers

Committed, loyal distribution; highest earning potential for partners

One of the most attractive employers with highly engaged and effective personnel

Strategic cornerstones 14

Fast tyre market growth is unlikely 2018 is expected to be still below 2012 peak Car, SUV and van tyre replacement market (volume)

Car, SUV and van tyre replacement market (value) 110

50

100

40

90

35

A

30 B

25 20 15

Value (BRUB) x

Volume (million tyres) x

Basic / low-growth scenario 45

Basic / low-growth scenario

A

80 70 60 B 50 40 30

C

10 5

C

20 10

0

0 11

12

13

14

15e

16f

17f

18f

11

12

13

14

15e

16f

17f

18f

Significant market potential still exists Source: Nokian Tyres estimates

15

Growth may vary depending on scenario Variation between optimistic and pessimistic up to 20% Car, SUV and van tyre replacement market (volume)

Car, SUV and van tyre replacement market (volume)

50

50

Optimistic / modest growth scenario 45

40

40

35 A

30 25

B 20 15

10

C

5

Volume (million tyres) x

Volume (million tyres) x

Pessimistic / stagnant scenario 45

A 35 30 B 25 20 15 C

10 5

0

0 11

12

13

Source: Nokian Tyres estimates

14

15e

16f

17f

18f

11

12

13

14

15e

16f

17f

18f

16

Competition has clearly intensified Key players are committed to the Russian market  Tight pricing environment, aggressive pricing policies by some competitors;

 Launch of local production facilities affecting the approach and level of activity of competitors;  Localized production and extended product range becoming key factors in shaping competitive landscape;

 Role of Japanese and Korean players growing due to increased focus and competitive pricing;  Competitive threat from Chinese and other Asian players, not established in Russia directly, weakening due to ruble devaluation;

 Russian producers gaining share due to lower competition from China;  Emerging overcapacity situation resulting in further pricing pressure. 17

Target to outperform market in any scenario Market share in A+B segments to grow from 25% to 30% A + B segments

Total market

Market share, % (volume)

Market share, % (volume)

15,0

30,0 29,0 28,0 27,0 26,0 25,0 24,0 23,0 22,0 21,0 20,0

14,0 13,0 12,0 11,0 10,0 2015e Scenarios:

Source: Nokian Tyres estimates

2016f

2017f

2018f

basic

optimistic

pessimistic

2015e Scenarios:

2016f basic

2017f optimistic

2018f pessimistic

18

Optimal product mix and price positioning key Target to maximize revenue and profit Segments

A:

A:

B:

B:

19

New business models in distribution evolving Plan to pilot various consignment schemes Manufacturer

Distributor

Retailer

Consumer

Now

Consignment sales

Meantime

Logistics

Service

Future

20

New business concepts in B2B2C e-commerce Proactive approach to digital disruption B2B  New web shop for business-tobusiness customers  State-of-the-art e-commerce platform enabling deep integration to corporate ERP systems and making new features and tools available for boosting B2B online sales  Scalable and extendable solution adjusted to specific B2B needs

B2C

vianor.ru

 Up-to-date web shop for direct sales from the manufacturer to end consumers  The new e-commerce platform bringing better user experience to online consumers  Strong prerequisite for owning the end consumer and leveraging B2C sales

 Sustainable, flexible and user-friendly marketplace adjusted to business needs of Vianor partners and preferences of online consumers  Marketplace concept expanding opportunities in selling products and services  Significant step in strategic evolvement of B2B2C model in line with strong trends in online sales

21

Nokian tyres set to remain market leader Executive summary 

Period of Russia’s tyre market fast growth is over: by 2018 the total market will still be below the peak levels of 2012 with a clearly weaker structure of segments. However, significant market potential still exists.



Competition has clearly intensified, with major manufacturers expanding their product ranges into cheaper segments, adopting aggressive pricing strategies and localizing their production.



Russia remains a key market for Nokian Tyres. The strategic target will remain intact: outperform the market and keep the market leader position.



Key strategic dimension for Nokian Tyres is the optimal product portfolio, i.e. product range and price positioning within and across A and B segments.



Big changes are taking place in the area of distribution: new concepts based on consignment approach are being developed and piloted.



Focus on consumer is increasingly important; changing consumer behavior and growing role of ecommerce will have a big impact on marketing strategies and business concepts. 22

Thank you!