FINANCIAL REVIEW 2019 Contents 1 CONTENTS Nokian Tyres in brief . 2 Parent company income statement and balance sheet . 61 Key figures 2019 . 3 Parent company statement of cash flows . 62 Highlights of the year 2019 . 4 Accounting policies for the parent company . 63 President & CEO’s review . 5 Notes to the financial statement of Strategy . 7 the parent company . 64 Report by the Board of Directors . 9 Key financial indicators . 69 Financial statements . 21 Information on Nokian Tyres’ share . 71 Consolidated income statement . 22 Nokian Tyres Group structure . 73 Consolidated statement of financial position . 23 Signatures . 74 Consolidated statement of cash flows . 24 Auditor’s Report . 75 Consolidated statement of changes in equity . 25 Corporate Governance Statement . 78 Accounting policies for the consolidated Salaries and remunerations 2019 . 87 financial statements . 26 Board of Directors . 91 Notes to the consolidated financial statements. 31 Management Team . 92 Investor information and investor relations . 94 Nokian Tyres in brief 2 NOKIAN TYRES IN BRIEF Nokian Tyres develops and manufactures We instill our premium tires for people who value safety, Net sales Winter tires sustainability, and innovative products . We Scandinavian offer peace of mind in all conditions and instill our Scandinavian heritage in every tire heritage in every tire 1,596 71% we make for passenger cars, trucks, and heavy machinery . we make for passenger EUR million of total sales Our business is divided into three units: Passenger Car Tyres, Heavy Tyres and Vianor, cars, trucks and heavy which is our chain of tire and car service centers . machinery. We are headquartered in Nokia, Finland, –51% and our factories are located in Finland, Lost Time Injury 4,700 Russia and the US . The North American Nokian Tyres is the inventor of the winter employees factory started commercial tire production in tire . With our professional and innovative Frequency (LTIF) January 2020 . team, we can take safety to a new level in Intensive tire testing is a vital part of our summer, all-season, and all-weather tires as product development . Therefore, we own and well . We are the market leader in premium operate two tire testing centers in Finland tires in the Nordic countries and Russia and and are building a new one in Spain . are strengthening our position in North Products Safe, America and Central Europe . sold in Sustainability is an essential part of our sustainable business . We aim for sustainable safety and and innovative eco-friendliness throughout the product 61 life cycle . Taking care of people and the products environment is in our very DNA . countries In 2019, the company’s net sales were approximately EUR 1,6 billion and it employed some 4,700 people . Nokian Tyres is listed on Nasdaq Helsinki . Key figures 2019 3 KEY FIGURES 2019 CC 1) NET SALES, OPERATING PROFIT EARNINGS PER SHARE AND Change Change EUR million 2019 2018 % % AND OPERATING PROFIT % DIVIDEND PER SHARE Net sales 1,595.8 1,595 .6 0 .0% –0 .3% EUR million Operating pro t % EUR 2,000 50 Operating profit 316.5 372 .4 3.03,0 Operating profit % 19.8% 23 .3% 1,600 40 2.52,5 Profit before tax 336.7 361 .7 2.02,0 1,200 30 Profit for the period 399.9 295 .2 1,51.5 Earnings per share 2), EUR 2.89 2 .15 800 20 1.01,0 ROCE, % 17.6% 23 .3% 400 10 0.50,5 Equity ratio, % 75.9% 71 .0% 0 0 0.00,0 Cash flow from operating activities 219.8 536 .9 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Gearing, % 2.3% –21 .2% Net sales Operating Operating Earnings Dividend pro t pro t % per share per share Interest-bearing net debt 41.1 –315 .2 Capital expenditure 299.6 226 .5 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 Personnel (at the end of year) 4,730 4,719 Net sales, EUR 1,360 .1 1,391 .2 1,572 .5 1,595 .6 1,595.8 Earnings per share, EUR 1 .80 1 .87 1 .63 2 .15 2.89* LTIF 3) 4.3 8 .3 Operating profit, EUR 296 .0 310 .5 365 .4 372 .4 316.5 Dividend per share, EUR 1 .50 1 .53 1 .56 1 .58 1.58** 4) Operating profit % 21 .8 22 .3 23 .2 23 .3 19.8 Rolling resistance , % 8.3% 8 .2% * EPS 2019 excl . the impact of the rulings on the tax disputes of EUR 1 .08 were EUR 1 .81 1) Comparable currencies ** The Board’s proposal to the Annual General Meeting 2) EPS 2019 excl . the impact of the rulings on the tax disputes of EUR 1 .08 were EUR 1 .81 3) Lost Time Injury Frequency: the number of lost time injuries occurring in a workplace per RETURN ON CAPITAL EMPLOYED, % NET SALES BY GEOGRAPHICAL AREA, % 1 million hours worked . Levypyörä (acquired in August 2019) will be included in the safety figures as of 2020 . 2019 2018 4) Reduction of rolling resistance since 2013 . Rolling resistance refers to the energy lost when % Nordic countries 40 39 a tire rolls against the road surface . Russia 19 25 19 Other Europe 26 27 20 North America 13 12 15 Other Countries 2 2 10 NET SALES BY BUSINESS UNIT*, % 5 2019 2018 0 2015 2016 2017 2018 2019 Passenger Car Tyres 71 72 Heavy Tyres 13 12 2015 2016 2017 2018 2019 Vianor 21 21 Return on Capital Employed, ROCE, % 20 .3 19 .9 22 .4 23 .3 17.6 * Including internal sales Highlights of the year 2019 4 HIGHLIGHTS OF THE YEAR THE FIRST VIANOR NOKIAN TYRES INTUITU BROUGHT TEST TIRE CONTINUED TO WE WERE IMPROVE ITS WAS MANUFACTURED DIGITAL AGAIN PROFITABILITY INCLUDED IN IN NEW US FACTORY CONNECTIVITY TO TIRES DJSI WORLD AND DJSI EUROPE SUSTAINABILITY INDICES WE RETAINED OUR STRONG MARKET POSITION IN RUSSIA AND THE NORDIC COUNTRIES WE REDUCED ROLLING NEW SUMMER TIRES RESISTANCE BY 8% FOR CENTRAL EUROPEAN DRIVERS ON AVERAGE IN 2013–2019 SHOWED GOOD COMMERCIAL SUCCESS HEAVY TYRES REACHED OVER 10 TEST TRACKS A FULL YEAR WITH IN OUR NEW TESTING CENTER IN SPAIN ZERO LOST-TIME INJURIES STARTED TO TAKE SHAPE President & CEO’s review 5 STRATEGIC PROJECTS ARE BUILDING A FOUNDATION FOR OUR LONG-TERM COMPETITIVENESS In 2019, we made good progress on our strategic journey and took important steps to deliver future growth, despite the weak market conditions. Our key projects – the new US factory, the testing center in Spain, and the Heavy Tyres capacity expansion – proceeded according to plan. We, once again, received recognition for our important work on sustainability and reached new levels in occupational safety. These achievements lay an important basis for our future. In 2019, the car and tire markets continued product portfolio both in Central Europe to be soft in Europe, which resulted in and North America . Along with winter tires tightening competition . During the year, that represent approximately 70% of our the Russian market declined against the Passenger Car Tyres business, we continued expectations . In spite of this, our net sales to develop competitive products in the in 2019 were on the previous year’s level . summer and all-season segments for market Operating profit, however, decreased due to specific needs . I am especially proud of the the weaker markets and expansion costs in great performance and commercial success Passenger Car Tyres . Heavy Tyres made good of our new range of Central European progress and delivered a strong result, driven summer tires . In our product offering, we by new products and healthy demand for have a specific focus on the most profitable agricultural and forestry tires, in particular . tire segments, which are winter tires and Vianor also delivered further positive larger sizes in all product categories . financial performance . Our new testing center under Nokian Tyres has a construction in Spain enables us to test We are making good tires all year round in various tracks and valued brand and progress on our strategy conditions, complementing our existing competitive advantages During 2019, we retained our strong position winter tire testing facilities in the Northern as the market leader in premium tires in the Finland . The foundation work for the test to build on. Nordic countries and Russia, and continued tracks was completed during 2019, and the to strengthen our distribution network and center is scheduled to open at the end of 6 2020 . Rigorous and continuous testing capacity expansion, we will increase Heavy and new customers both in the summer and In 2020, we is a fundamental part of our product Tyres’ capacity by 50% . At the same time, we all-season segments in addition to our core continue to development . We want all our products to be will more than double the number of products business in winter products . In Russia, we will safe, durable, and sustainably manufactured . launched per year, which supports the growth focus on sell-out activities in order to reduce build a more balanced This allows us – as our mission implies – to in our core product groups of agricultural and high carry-over stocks of B segment winter offer peace of mind in all conditions . forestry tires . Last year, we also opened our tires in the distribution channel . portfolio across Heavy Tyres’ R&D center, which will speed up All in all, in 2020, we continue to build a Global production platform the development and launch of new products . more balanced portfolio across the Nordics, the Nordics, Russia, increases flexibility Russia, Central Europe, and North America, In line with our strategy announced in 2018, Significant advances in occupational which will lead to a sustainable, positive Central Europe, and we are pursuing growth also in North America safety and sustainability impact on our long-term performance .