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Tikkurila's Business Review for January–September 2018

Tikkurila Oyj
Stock Exchange Release
October 26, 2018 at 9:00 a.m. (CET+1)

26.10.2018

Tikkurila's Business Review for January–September 2018

Sales volumes were on the rise in almost all key markets, currencies significantly decreased revenue and profitability. Contrary to expectations, raw material inflation continued to be strong, weakening profitability and reducing the impact of increases in sales prices. Measures to improve cost-efficiency continued.  

Tikkurila’s revenue for the third quarter decreased by 5 percent to EUR 152.2 million (7–9/2017: EUR 159.9 million). Revenue grew by 2 percent, excluding currency effects and divestments. Adjusted operating profit decreased to EUR 19.2 (21.9) million, i.e. 12.6 (13.7) percent of revenue.

Revenue for January–September decreased by 5 percent to EUR 456.0 million (1–9/2017: EUR 480.2 million). Revenue grew by 2 percent, excluding currency effects and divestments. Adjusted operating profit decreased to EUR 44.3 (47.1) million, i.e. 9.7 (9.8) percent of revenue.

Elisa Markula, CEO:

“The market situation remained challenging due to the weakening of the Russian ruble and the Swedish krona and the continuing raw material inflation. The negative effect of currencies on revenue in the third quarter was almost EUR 8 million and in January-September EUR 23.5 million. The prices of raw materials kept rising, in particular the prices of raw materials connected to oil prices, such as binders and solvents, continued to rise sharply.  

Our profitability was significantly influenced by the raw material inflation, which continued contrary to previous expectations, as well as by currencies. The increases we have made to our sales prices in all our markets have not been sufficient. We have launched further measures to improve profitability.  

Our comparable sales volumes grew by one percent in the third quarter. The volumes grew in all our key markets except in Russia. Volumes grew in Finland by 3 percent, in Sweden by 2 percent and in Poland by 4 percent. 

We continued to take strong measures to streamline our operations. In October, we announced that our total personnel of around 3,000 (year-end 2017) will be reduced by 500 employees. We also continued with the optimization of our production network and very strict cost control.  

Tikkurila’s profitability in the last quarter of last year was exceptionally low due to the costs and problems associated with the introduction of the ERP system. At the end of last year, we also saw a significant increase in the prices of several raw materials and packaging materials. Our fixed expenses are now on a clearly lower level than last year. Despite the continued strong raw material inflation, we believe that the adjusted operating loss for the last quarter of the current year will be lower than a year ago.

Our profitability level is unsatisfactory and thus we will continue to further streamline our operations and to cut fixed expenses. In the prevailing challenging market conditions, increasing the efficiency of the raw and packaging material sourcing and optimizing the portfolio remains our key focus areas. We will invest heavily in boosting our sales by developing customer management e.g. by utilizing customer data even better and by digitalizing sales management and customer processes. In addition, we will continue to renew our customers’ pricing and agreement conditions.”

Key figures
(EUR million) 7–9/2018 7–9/2017 Change % 1–9/2018 1–9/2017 Change %
Group data
Revenue 152.2 159.9 -4.8% 456.0 480.2 -5.0%
Adjusted operating profit 19.2 21.9 -12.2% 44.3 47.1 -5.8%
Adjusted operating profit margin, % 12.6% 13.7% 9.7% 9.8%
EPS, EUR 0.22 0.36 -39.2% 0.52 0.77 -32.6%
Net interest-bearing liabilities (at period-end) 94.6 99.8 -5.2% 94.6 99.8 -5.2%
Total equity (at period-end) 159.6 203.5 -21.6% 159.6 203.5 -21.6%
Total assets (at period-end) 451.4 473.1 -4.6% 451.4 473.1 -4.6%
Segment data
SBU West revenue 97.7 101.6 -3.8% 313.3 318.5 -1.6%
SBU West adjusted operating profit 14.2 13.8 2.8% 37.8 36.5 3.6%
SBU East revenue 54.4 58.4 -6.7% 142.7 161.7 -11.7%
SBU East adjusted operating profit 5.7 8.7 -34.4% 9.9 14.2 -30.3%
Revenue by country
Sweden 31.1 35.4 -12.0% 104.3 114.0 -8.5%
Russia 41.2 42.3 -2.8% 107.4 116.2 -7.5%
Finland 22.7 22.7 -0.1% 80.4 80.9 -0.6%
Poland 24.2 22.3 8.8% 69.7 61.7 13.0%

Financial development in July–September 2018

Tikkurila Group's revenue in the third quarter of 2018 decreased by 5 percent from the comparison period. Revenue grew by 2 percent, excluding currency effects and divestments. Weakening of the Russian ruble and the Swedish krona as well as divestments had a significant negative impact on revenue. Higher sales volumes increased revenue by 2 percent. Sales price increases had a positive effect on revenue.

Despite strict cost control and clearly lower fixed expense level the profitability declined in the third quarter due to continuously rising raw material costs.

In the third quarter of 2018, the other operating income includes EUR 0.8 million insurance compensation linked to raw material sourcing and EUR 0.7 million compensation related to arbitration proceedings.

Financial development in January–September 2018

Tikkurila Group's revenue decreased in January–September 2018 by 5 percent. Revenue grew by 2 percent, excluding currency effects and divestments. Higher sales volumes increased revenue by one percent. Depreciation of the Russian ruble and the Swedish krona as well as divestments had a significant negative impact on revenue. The revenue of the Russian business operations increased by 5 percent in local currency. In Russia, the sales mix developed favorably due to the increased demand for premium products. Particularly the changes in the distribution channels in Sweden and the growth in professional sales had a weakening effect on the sales mix. 

The relative profitability was at the comparison period’s level in January-September. Fixed expenses were clearly lower than in the comparison period, but the raw material inflation increased the variable cost level.

In January-September 2018, the other operating income includes EUR 1.3 million insurance compensation linked to raw material sourcing and EUR 0.7 million compensation related to arbitration proceedings.

Proceeding of the efficiency program

In 2017, Tikkurila initiated an extensive program to boost profitability. The program is aimed at generating at least EUR 30 million in savings.

At the beginning of October 2018, Tikkurila announced that the divestments and closing down of business operations and production units as well as other headcount reductions will result in the reduction of 500 employees compared to the end of 2017. In addition, Tikkurila announced that it will close down a small production unit in Denmark and relocate the production to the site in Finland during 2019.

In the third quarter, the items affecting comparable operating profit totaled EUR 5.2 million and they were related to the headcount reductions and impairment losses related to the closing down of the production unit in Denmark. As a result of discontinuing the German business, a provision of EUR 3.6 million for liabilities was recorded in the first quarter. All in all, in financial year 2018, the costs and impairments affecting comparable operating profit are estimated to amount to approximately EUR 10 million. 

Guidance for 2018 intact

Tikkurila’s revenue is expected to remain at last year’s level and adjusted operating profit to improve.

Press conference

Tikkurila will hold a press conference regarding the Business Review for the media and analysts today on Friday, October 26, 2018, starting at 13:00 p.m. Finnish time at Tapahtumatalo Bank’s cabinet 24-25 (address: Unioninkatu 20, Helsinki). The conference will be held in Finnish. The Business Review will be presented by Elisa Markula, CEO, and Jukka Havia, CFO.

Tikkurila Oyj

Elisa Markula, CEO

For further information, please contact:

Elisa Markula, CEO, mobile +358 50 596 0978, elisa.markula@tikkurila.com

Jukka Havia, CFO, mobile +358 50 355 3757, jukka.havia@tikkurila.com 

Minna Avellan, Director, Communications and Investor Relations, mobile +358 40 533 7932, minna.avellan@tikkurila.com  

Sustainable Nordicness

Tikkurila is a leading Nordic paint company with expertise that spans decades. We develop premium products and services that provide our customers with quality that will stand the test of time and weather. We operate in around ten countries and our 3,000 dedicated professionals share the joy of building a vivid future through surfaces that make a difference. In 2017, our revenue totaled EUR 582 million. The company is listed on Nasdaq Helsinki. Nordic quality from start to finish since 1862.

www.tikkurilagroup.com 

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