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Tyre maker Nokian reports strong profits as Russia recovers

Finnish tyre maker Nokian Tyres raised its profit forecast on Tuesday after beating second quarter forecasts on higher Russian demand and a stronger rouble.

Operating profit rose 21.5 percent to 94 million euros ($111 million), topping a market consensus of 85 million euros.

Shares in the company, which has a large tyre plant in Russia and a smaller one in Finland, jumped by 8 percent after its results.

“We were able to increase our market shares in our main markets. The growth was driven by Russia due to its stronger currency, price increases and low carry-over stocks from 2016,” Chief Executive Hille Korhonen said in a statement.

The company reiterated that its costs this year would rise by about 20 percent for raw materials such as rubber but said cost pressures were now easing with the benefit of tyre price increases already implemented expected to emerge in the second half.

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The company said it now expects sales and profit to grow by at least 10 percent in 2017, compared with a previous guidance of at least 10 percent sales growth and more than 5 percent profit growth.

“Their performance seems to be in contrast with the competition… they have clearly found new markets for the brand in regions like North America and Europe,” said Petri Kajaani, analyst at Inderes Equity Research, who holds an “accumulate” rating on the stock.

German rival Continental last week raised its estimates on raw material cost headwinds.

Nokian’s early investments in Russia and focus on high-margin winter tyres have helped it outperform rivals in profitability, but high exposure to Russia cut into its bottom line after the Ukraine crisis and a slowdown in the Russian economy.

Recovery in Russian demand and the value of the rouble is now helping to improve its outlook. Second-quarter sales from Russia more than doubled while total sales rose 16.5 percent to 393 million euros.

Nokian said it would start a new production line at the Russian plant by the end of the year.

It is also looking to boost growth outside Russia and Europe with a plan to build a $360 million plant in the United States.

($1 = 0.8467 euros) (Reuters)

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