Tikkurila Q1/2020: Revenue and profitability increased in the first quarter
Tikkurila Oyj, Business Review Q1, April 29, 2020 at 9.10 a.m. (EEST)
Tikkurila Q1/2020: Revenue and profitability increased in the first quarter
- Tikkurila’s financial performance was as planned during the first quarter.
- Revenue increased by 3.0% from the previous year, amounting to EUR 133.0 million (1-3/2019: 129.1). Excluding currency fluctuations, revenue increased by 3.6%.
- Adjusted operating result increased by 4.4% to EUR 8.5 (8.2) million and amounted to 6.4% (6.3%) of revenue.
- Earnings per share (EPS) decreased by 48.9% to EUR 0.09 (0.17) due to exchange rate differences related to internal loans.
- On March 27, Tikkurila withdrew its guidance for 2020 due to the increased uncertainty and weakened visibility.
Elisa Markula, CEO
Tikkurila’s performance during the first quarter was according to expectations, and revenue increased by 4% excluding the currency impacts. Adjusted operating profit also improved slightly to EUR 8.5 million due to the positive price/mix development, while currencies had a clear negative impact on profitability.
We saw strongest growth in Russia, where our performance was driven by the increasing share of premium products in all customer channels and regions, especially in Moscow. Revenue increased also in Finland, and in Sweden we came very close to the previous year’s level despite headwind from the weak Swedish Krona. In Poland, our revenue decline was expected, and it reflected a strong comparison period during which volumes had increased ahead of price increases.
During the pandemic, our priority has been to take all necessary precautions to ensure the safety of our employees. Throughout the year, we have been fully operational, except for the temporary closing of production in Russia between March 30 and April 7 due to nationally imposed restrictions. Going forward, our revenue will be mostly impacted by how much restrictions authorities impose locally on the mobility of people and the opening hours of retailers’ stores restrictions affect customer demand.
We expect that in the coming months market demand will increasingly be negatively impacted by restrictions, and impacts will differ regionally. That said, in decorative paints, customers place their orders at a relatively short notice, so any forecasting can only be done based on current demand. Thus, visibility is now exceptionally weak.
Our liquidity and funding position are solid. To prepare for possible near-term risks, we have executed temporary cost savings and are carefully managing our cash flow – both in the short and long-term. To safeguard our profitability, we are prepared to rapidly adjust our cost structure to match the demand if necessary.
|EUR million||1-3/2020||1-3/2019||Change %||1-12/2019|
|Adjusted operating result||8.5||8.2||+4.4%||46.4|
|Adjusted operating result margin, %||6.4%||6.3%||8.2%|
|Operating result margin, %||6.4%||6.1%||7.8%|
|Net result for the period*||3.8||7.4||-48.9%||33.2|
|Earnings per share (EPS), EUR*||0.09||0.17||-48.9%||0.75|
|Net interest-bearing liabilities (at period-end)||95.6||131.1||-27.1%||78.4|
|Cash and cash equivalents||70.5||17.1||+311.3||47.0|
|Total equity (at period-end)||166.3||160.5||+3.7%||171.9|
|Total assets (at period-end)||486.5||470.3||+3.4%||437.1|
|ROCE, %, rolling||15.8%||12.1%||15.4%|
|Cash flow after capital expenditure||-17.4||-18.0||+3.7%||52.7|
*Exchange rate differences on internal loans had an adverse impact on net result for the period and EPS.Segment data
|SBU West revenue||96.9||97.2||-0.3%||370.0|
|SBU West adjusted operating result||10.4||10.6||-2.0%||30.7|
|SBU West operating result||10.4||10.5||-1.1%||30.4|
|SBU East revenue||36.0||32.0||+12.8%||193.8|
|SBU East adjusted operating result||-0.9||-0.7||-38.0%||22.0|
|SBU East operating result||-0.9||-0.7||-37.9%||20.0|
|Common operating result||-0.9||-2.0||+52.8%||-6.5|
Effects of various factors on revenue
|SBU West||SBU East|
|EUR m||%||EUR m||%||EUR m||%|
|Revenue in Q1/2019||129.1||97.2||32.0|
|Revenue in Q1/2020||133.0||+3.0%||96.9||-0.3%||36.0||+12.8%|
Main drivers (Q1)
Volumes of exterior paints and wood industry paints increased in all key countries, but this was offset by lower volumes in interior paints, mainly in Poland. Decline in Poland reflected a strong comparison period, during which decorative paint volumes had increased ahead of price increases.
The positive effect from price/mix changes was driven by the increasing share of premium products especially in Russia.
The weakening Swedish Krona had a clear negative impact on the revenue in SBU West, where as the strengthening of the Russian Ruble since Q1/2019 had a slight positive effect on revenue growth in SBU East. Russian Ruble devaluated markedly in March and has remained on the same level after the reporting period.
Revenue by region
* Tikkurila’s products are available in over 40 countries.
Main drivers (Q1)
Overall, revenue increased during the first quarter, driven by strong growth in SBU East. Towards the end of March local authorities tightened Covid-19 related restrictions in all key markets, but these did not have a major impact on first quarter’s financials.
In Russia (SBU East), revenue increased driven by positive changes in our product mix in decorative paints. Growth was particularly strong in the Moscow region. Sales in DIY stores increased supported by a new DIY retail chain customer.
In Sweden (SBU West), revenue was close to previous years’ level driven by sales of exterior paints which improved compared to the previous year. Revenue from wood industry paints was in strong growth supported by Tikkurila’s new competitive product portfolio. Sales continued to increase also in DIY stores. Weakening Swedish Krona and lower demand in the construction industry had a negative impact on revenue.
In Finland (SBU West), revenue increased in all main customer segments, in both decorative and industrial paints.
In Poland (SBU West), business developed as expected as the revenue decline reflected a strong comparison period, during which decorative paint volumes had increased ahead of price increases. Industry sales were at previous years’ level, despite continued headwinds affecting the Polish export sector in general.
The decline in revenue in other countries was due to China, where our exposure is limited.
|Other operating income||0.8||0.6||+34.2%||3.3|
|Depreciation, amortization and impairment losses||-5.8||-6.1||-3.9%||-24.2|
|Total financial income and expenses*||-3.8||1.8||-308.1%||0.0|
|Share of profit or loss of equity-accounted investees||0.1||0.1||+9.2%||0.3|
|Result before taxes||4.8||9.7||-50.4%||44.2|
|Net result for the period||3.8||7.4||-48.9%||33.2|
* Exchange rate differences related to internal loans increased financing costs.
Tikkurila’s business environment and risk mitigation activities related to Covid-19
Throughout the year, Tikkurila has been fully operational, except for the temporary closing of production in Russia between March 30 and April 7, due to restrictions imposed nationwide. Raw materials have been supplied without disruptions. Overall, during the first quarter, Tikkurila’s financial performance was as planned.
Current business environment
For Tikkurila, uncertainties related to the pandemic are mainly related to the timing, extent and duration of the impacts which local regulations may have on mobility of people, customer demand, production and suppliers.
Slightly over 80% of Tikkurila’s total revenue is generated from decorative paints, consumer and professional customers. Demand is dependent on restrictions authorities impose locally on the mobility of people and the opening hours of retailers’ stores. These restrictions have differed widely between regions. In Sweden and Finland, retail stores have remained open and consumer mobility has mostly not been restricted. In Poland and Russia, the restrictions have started to have more impact. Particularly in Russia, curfews were imposed in major cities in April, and most retail stores have been closed. In the construction sector, demand for professional painters will depend on the continuation of construction projects, and the availability of construction workers. So far, impacts on construction projects have been quite limited in our core countries. Overall, our professional business is very diverse, and recent trends differ regionally and per customer segment.
Industry paints represent less than 20% of Tikkurila’s revenue. Our industry customer base is fragmented, and customers are diverse. Industrial paint demand will depend on the overall impacts on our customers’ business, including the availability of other resources necessary for their production activities. With OEM customers, paint demand is already being impacted by customers’ decreased production activity.
Tikkurila expects that in the coming months market demand in both decorative and industrial paints will increasingly be negatively impacted by restrictions, and impacts will differ regionally.
Tikkurila’s mitigation activities
We have continued and accelerated our strategic efforts to increase efficiency in sales, operations and sourcing, which supports the mitigation of Covid-19 related impacts.
We have executed temporary cost savings, including reductions in indirect spending as well as adjustments in personnel costs in all countries by reducing working time. All measures have been implemented in a way that secures uninterrupted operation of all functions. Optimization of the company’s supply chain footprint and logistics has also continued. As a part of the footprint strategy, we have decided to close of a small solvent-borne industrial paint production unit (Gamma) in St. Petersburg. Costs related to the closing will be recognized in the second quarter, and they are estimated to amount to approximately EUR 1.2 million. This decision reflects our continued focus on water-borne paints.
At the end of the quarter, our liquidity and funding position was solid: cash and cash equivalents were at EUR 70.5 million. Out of EUR 150 million commercial paper program 51% were in use at end of quarter. Revolving credit facility (EUR 100 million) remained unused. In addition, Tikkurila has other short-term financing instruments at its disposal. Controls were further strengthened to manage potential risks related to credit losses and customer receivables. Tikkurila will continue to monitor financial risks and take proactive measures to ensure sufficient liquidity. Currency rate volatility will continue to impact financial performance.
No guidance for 2020
As announced on March 27, Tikkurila has withdrawn its guidance for 2020 due to increased uncertainty and weakened visibility, as the global coronavirus pandemic (Covid-19) and the related local regulation and restrictions are changing Tikkurila's business environment. Management continues to closely monitor the situation.
The company’s long-term financial targets remain unchanged.
CEO Elisa Markula will present the report for investors, analysts and the media in a live webcast (Microsoft Teams), which is held in English today at 11:00 a.m. (EEST).
It is recommended to participate in the webcast using the link below.
Alternative dial-in details:
Finland: +358 9 85626619
- US: +1 312-667-7144
- UK: +44 20 3855 4234
Conference-ID: 663 744 083#
Q1 Business Review and related presentation material will be available before the live event at http://www.tikkurilagroup.com/investors. A recording of the webcast will be made available.
Elisa Markula, CEO
+358 50 596 0978
Markus Melkko, CFO
+358 40 531 1135
Tapio Pesola, Director, Communication and Investor Relations
+358 44 373 4693
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 2,700 dedicated professionals share the joy of building a vivid future through surfaces that make a difference. In 2019, our revenue totaled EUR 564 million. The company is listed on Nasdaq Helsinki. Nordic quality from start to finish since 1862.
Nasdaq Helsinki Ltd
Main news media
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 seven countries and our 2,700 dedicated professionals share the joy of building a vivid future through surfaces that make a difference. In 2018, our revenue totaled EUR 562 million. The company is listed on Nasdaq Helsinki.
Nordic quality from start to finish since 1862.