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From the CEO

Interim President and CEO Q4/2017

Last year Tikkurila's profitability was particularly weak due to high cost level, which was caused on the one hand by the cost of the deployment of the new ERP system, and on the other hand, by the significant increase in the raw material and packaging material prices. Our operations were also affected by one of our key raw material provider's factory being destroyed in a fire in January, and some other problems with availability. The deployment of the ERP system caused problems that had a negative impact on our operations especially in Sweden. Last year, we increased our sales prices in several market areas, but this only partially offset the increased costs.

Our revenue was at the comparison period's level. Due to the problems with the deployment of the ERP system and the availability of raw materials, we were not able to fully meet market demand. Hence, we estimate to have lost some market share in Sweden and Finland. In Poland, we continued on our steady development path. Our business operations also developed favorably in Russia, where the stronger exchange rate of the ruble had a positive impact.

In the autumn of 2017, we launched an extensive program to boost profitability with the aim of achieving savings of at least EUR 30 million and improving our cost competitiveness. As part of the program, we announced the divestment of our unprofitable business operations in the Balkan area. We are preparing further actions to optimize our future production and logistics network in all our operating countries. Based on this we have, for instance, decided to close down the production facilities in southwestern Russia and in Germany by the end of 2018. In addition, we have changed our organization model. As a result, decision-making and business development are now handled more at the group level.

In late 2017, our strategy was updated for the new five-year term 2018-2022. We are committed to improving the overall user experience of our customers and our internal efficiency. We are creating value through our customer promise: ‘Nordic quality from start to finish’.
 
The market outlook for 2018 is relatively good, although uncertainty has increased in the Swedish housing market in recent months. Economic growth is anticipated for our key markets and consumer confidence is strong. The identified problems with the deployment of the ERP system have been mostly resolved. The main challenge is that raw material and packaging material prices are estimated to continue rising during 2018. In order to compensate for increased costs, we will continue to increase our sales prices and take further actions to boost profitability. In 2018, our focus will be on improving profitability and enhancing the reliability of deliveries.