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Nokian Tyres says war to hurt profit, seeks alternatives for Russian output

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FILE PHOTO: Nokian tyres are stored at a tyre centre and shop in Moscow
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HELSINKI (Reuters) -Finland's Nokian Tyres on Wednesday warned that it would not be able to replace reduced capacity from its Russian production facility this year, as it posted a stronger-than-expected first-quarter operating profit amid rising prices.

Having previously withdrawn its forecast for the year due to the sanctions on Russia, Nokian now said it expects 2022 revenue and operating profit to decrease significantly compared to 2021.

"The war in Ukraine will significantly impact our financial results in 2022, especially starting from the third quarter," Chief Executive Jukka Moisio said in a statement.

Chief Financial Officer Teemu Kangas-Karki said this year's results could be similar to 2020 when the pandemic dented profits.

Nokian, which used to make 80% of its passenger car tyres in neighbouring Russia, has been scrambling to find production facilities elsewhere to overcome European Union sanctions that blocked shipments.

Chief Executive Jukka Moisio said transferring equipment or moulds from the Russian factory to, for example, Finland, was not possible at the moment due to Russia's counter sanctions.

"Perhaps that can be possible at a certain point in time and that would help us tremendously," he told a conference call.

The company in March cut its dividend to less than half to free up money for investing in new production in Europe but gave no details on its plans on Wednesday.

Moisio said tyre production at the Russian factory would continue in order to prevent it from ending up in "wrong hands" but its capacity was in decline due to increasing difficulties in importing necessary raw materials into Russia.

The company is looking at all options, such as subcontracting, but will not be able to replace lost capacity in time for the second half of the year when its reserves will start running out and when a wind-down transition period of the sanctions end.

The tyre maker said its January-March operating profit rose to 59.3 million euros ($62.9 million) from 44 million a year ago, beating the 40.5 million mean estimate in a Refinitiv poll of analysts.

"The year began with good tyre demand and in January−March, our net sales with comparable currencies increased by 21.9%," Moisio said.

Shares in the company were up 2.5% in the afternoon trade.

($1 = 0.9425 euros)

(Reporting by Anne Kauranen and Essi Lehto, Editing by Louise Heavens and Bernadette Baum)

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