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Tikkurila Investor PresentationMAY 2020
▪ Tikkurila in brief
▪ Tikkurila’s strong market position and chosen market segments
▪ Key trends in the industry and competitors
▪ Tikkurila strategy
▪ Financial turnaround in 2017-2019
▪ Q1/2020 and market update
Content
2
Tikkurila in brief
3
Tikkurila in brief
Tikkurila is a leading Nordic paint company with expertise that spans decades. We operate in eleven
countries and have 2,700 dedicated professionals. In 2019, our revenue totaled EUR 564 million.
The company is listed on Nasdaq Helsinki. Nordic quality from start to finish since 1862.
REVENUE BY
MARKET SEGMENT
REVENUE BY
REGION
EXAMPLES OF CUSTOMER CHAINS
CORE PREMIUM BRANDS
OTHER(121M, +0%)40+ countries
RUSSIA(EUR 144M, +7%)
SWEDEN(EUR 119M, -7%)
FINLAND(EUR 91M, -3%)
POLAND(89M, +6%)
DECORATIVE(83%)
INDUSTRIAL(17%)
KEY FIGURES
IN 2019
TOP10 customers equal 1/3 of revenue
RevenueEUR 564 M+0.4% yoy
Adj. EBITEUR 46 M
+19.5% yoy
ROCE15.4%
+6.1%-p yoy
Gearing45.6%
-11.4%-p yoy
4
Tikkurila has been the consolidator in the Baltic Sea region
TIKKURILA
PRODUCTION UNITS
(7 sites in 6 countries)
COUNTRIES WITH
TIKKURILA’S OWN
OPERATIONS
In total Tikkurila’s
products are sold to
40+ countries
Brief history of Tikkurila’s current operations
1862 Tikkurila founded in Finland
1970s Export to Russia and the former Soviet Union started
1992 Paint production started in Estonia
1994 Sales company in Russia
2001 Acquisition of Alcro-Beckers in Sweden and Poland
2006 Acquisition of Kraski Teks in Russia
2006 Sales company established in Kazakhstan
2007 Sales company established in China
Operations divested or closed since 2010
2012 Hungary, Czech, Slovakia, Romania
2016 Ukraine, Belarus
2017 Serbia, Macedonia
2018 Germany
5
Adjusted EBIT (MEUR)
Tikkurila has made a clear turnaround
Failed ERP implementation
Global raw material inflation
Ti02Increasing currency fluctuation
in key markets
Challenges faced in 2017-2018
“Holding company”
style management culture
59
54
29
9,4%
4,9%
3,9%
6,9 %
8,2 %
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
10
20
30
40
50
60
46
20172016 20192015 2018
39
% of revenue EUR million
6
A dedicated highly-professional management team is executing the turnaround
Elisa Markula
CEO
Since 2018
Fredrik Linde
SVP, Operations
Since 2019
(In Tikkurila
from 2010)
Markus Melkko
CFO
Since 2019
Meri Vainikka
SVP, Offering
Since 2017
Oskari Vidman
SVP, Sales
Since 2019
Anders Rotkirch
SVP, Transformation & ICT
Since 2018
Melisa Bärholm
SVP, Human Resources
Since 2017
7
Tikkurila’s strong market position and chosen market segments
8
We are the market leader in decorative paints in most of our key markets
62% 34% 18% 21% 24%
Finland Sweden Russia Poland Baltics
16% of revenue
EUR 91M
21% of revenue
EUR 119M
25% of revenue
EUR 144M
16% of revenue
EUR 89M
Sources: VTY, SVEFF, Chem Courier, GFK, company financials
Data: Market shares represent most recent data in value for 2019 (comparison 2018)
In industrial paints our market share is ~15-17 %
(63%) (37%) (19%) (20%) (24%)
1. 1. 1. 4. 1.
9
Tikkurila AkzoNobel PPG Local significant competitors Other
Premium brands are Tikkurila’s core strength
Share of value increasingWe focus on our key brands
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2015 20192016 2017 2018
Share of total
Premium
Medium
Economy
EconomyPremium Medium
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
20182017 2019 2020TARGET
2016
Number of SKUs cut in half
10
We have focused on the customer segments where we are the strongest
ConsumersProfessional
painters
Wood
industryOEM
Protective
coatings
83% of revenue* 17% of revenue*
Decorative paints Industrial paints
Core brands
in decorative
Core brand
in industry
11 *2019
Consumers Professionals Industrial
Renovators
Decorators
Gardeners
Home and garden builders
Professional
Contractors & subcontractors
Man & Van entrepreneurs
Designers
Developers & property owners
Industry
Wood industry
OEM
Protective coatings
Customers segments
17% of revenue*83% of revenue*
* 2019
12
Key trends in the industry & competitors
13
We operate in a large global market driven by stable structural growth
N. America
23 €B~4-5%CAGR
Europe
31 €B~3%
CAGR
APAC
72 €B~6-7%CAGR
Africa & Middle East
11 €B~5%
CAGR
World wide paintings &
coatings market, 2018
>145 €B44M Liters
World wide market growth
~5.4%(~4.5% in volume)
S. America
10 €B~5%
CAGR
Note: Market size for 2018, based on production; Compounded annual growth rate forecast 2019-2024 period.
Revenue growth expected to be higher than volume growth due to shift to higher value-add coating products.
Source: Markets & Markets P&C market analysis.
14
Urbanization, consolidation and customer needs drive the industry
Raw material
availability
Sustainability,
health & safety
UrbanizationDigitalization and
e-commerce
Changes in distribution,
"Professionalization" shift
from DIY to "do-it-for-me"
Increasing need for
efficiency and
sustainability
Increasing need for
premium products and
functional solutions
Increasing need for
understanding the
customer
Impact on painting industry:
Regulation will
continue to tighten Fragmented
needs, preference
for premium
15
Market split to two types of paint companies
Global top 945% market share globally
20% in our markets
Locals55% market share globally,
80% in our markets
10B€ average
revenue
1.5B€ average
EBITDA
~800M€ avg. peer
revenue
60M€avg. peer
EBITDA
~15% average
EBITDA%
~8% avg. peer
EBITDA%
Each with distinct competitive advantages – there is room for both local and
global players. Tikkurila is among the TOP25 paint producers globally.
16
Source: Capital IQ
80
400
20
60
60
100
40
01008020
65%
Aerospace
Wood
60%
Powder
40%35%
60%
Other
80%
60%
30%
40%
OEMDecorative
40%
40%
80%
Auto OEM
20% 20%
Auto refinish
Protective
70%
60%
20%
Marine
58%
42%
Share of total market (%)in value
80%
Tikkurila’s focus markets
Market
share of
global
players
(% of total
segment)
Decorative- Low global consolidation
Industry- Low global consolidation
~ 40 % ~ 40 % ~ 20 %
Industry- High global consolidation
Market
share of
local stars
(% of total
segment)
We focus on segments where local players are strong
17Source: IHS P&C market study, Redburn, BCG analysis
Tikkurila is operating in two different kind of markets
Mature markets
Flat total markets
Tikkurila’s market share
already strong
Opportunities to grow
especially in Industry
Growth markets
More room to improve
Tikkurila’s market share
Faster market growth
Continued premiumization
Opportunities to grow in both
decorative and Industry
18
1 094 1199 1 138
946 1 0101 405
Growth slowing down in our key markets– But growth expectations still from +2.0% to +3.5%
94 99 11080 83 90
174
20242017 2019
182 201
Total market value (deco and industry), M€
Finland
234 246 284
289 301338
20192017 2024
523 548622
2 504 2 7183 237
2 758
2 949
3 405
2017 2019 2024
5 261
5 667
6 641
+3.8% +3.2%
20242017 2019
2 040
2 542
2 209
+4.1%+2.9%
746983
2017
9278
88
20242019
133 142 169
+3.6%
Sweden Russia Poland Baltics
Source: Markets and Markets, Tikkurila
Deco Industry
+3.5%
+2.2% +2.0%
+2.3% +2.6%
19
Note: Data for different countries not in the same scale
Examples of key competitors
20
Based in USA
Revenue 2019: EUR 15.9 billion
Geography: Global
Segments: Decorative with focus on
Professionals, Industry (Protective & Marine,
Coil, Automotive, General Industrial, Wood,
Packaging)
Acquisition of Valspar in 2017 accelerated the
S-W global growth strategy and made the
company the global leader in paints and
coatings.
The company has a strong position in North
America and operates its own outlet network.
It is building a new HQ and R&D center in the
US.
Based in USA
Revenue 2019: 13.5 EUR billion
Geography: Global
Segments: Decorative, Industry (Automotive,
Aerospace, Packaging, Protective & Marine,
Specialty)
PPG’s strategy is focused on aggressively
managing the cost structure and also optimizing
business portfolio. In 2019 it completed four
acquisitions.
PPG invests heavily in R&D with strong focus
on innovation, especially functional coatings.
Based in the Netherlands
Revenue 2019: EUR 9.3 billion
Geography: Global
Segments: Decorative, Industry (performance
coatings)
AkzoNobel sold its Specialty Chemicals unit in
2017
to be a focused paints & coatings company.
The strategy Winning together: 15 by 20 has
focused on improved profitability and especially
value over volume strategy. Now the focus is
aimed more on growth.
The company has a strong position in Europe.
Based in Poland
Revenue 2019: EUR 168 million
Geography: Eastern Europe
(Poland, Hungary, Ukraine and Belarus)
Segments: Decorative, Industry
Śnieżka's strategy is to focus on its key
markets.
It acquired Hungarian Poli-Farbe in 2019 and
will investstrongly in successful integration and
improving
Poli-Farbe’s profitability.
In Poland Śnieżka is investing in new
warehouse andlogistics centers.
Based in Norway
Revenue 2019: EUR 1,992 billion
Geography: Global
Private company, 40% owned by Orkla ASA
Jotun’s strategy is to grow organically in its four
segments. Strong in premium Decorative Paints
and intumescent steel protection coatings.
Jotun has strong partnerships in Asia. Largest
part of the revenue in all its business segments
comes from Middle East or South-East Asia.
Based in Denmark
Revenue 2019: EUR 1,534 billion
Geography: Global
Owned by the Hempel foundation
Segments: Decorative, Wind, Marine,
Protective, Yacht, Services
Journey to Excellence strategy 2016-2019 to
modernize the company; ready for the next
phase with a new CEO as of July 2019:
Hempel plans to double in size and is actively
exploring M&A opportunities, after the
European decorative acquisition, J.W
Ostendorf, has now fully integrated.
Based in Denmark
Revenue 2019: EUR 243 million
Geography: Scandinavia, Poland
Segments: Decorative with focus on
Professionals
Flügger’s strategy, Securing the Legacy,
launched in August 2017 aims to consolidate
position in Scandinavia, assess potential
acquisitions in the existing market and to
improve efficiency.
Flügger expects its paint production to be 100%
water-based by 2021. It has removed all
Swedish production of water-based paints to
Denmark.
Based in Finland
Revenue 2019: EUR 398 million
Family business
Geography: Mainly Europe
Segments: Decorative, Industry (Wood, Metal,
Powder)
Teknos’ new strategy for 2019-2025 aims to
ensure fast and profitable growth and to reach
EUR 1 billion revenue by 2025 both with
organic growth and through M&A in Eastern
Europe and also outside Europe.
Stronger focus on industrial coatings (especially
functional coatings) than in decorative
paintings.
Acquired Powder coatings unit from Śnieżka in
2017. Market leader in European Wood
Coatings.
Tikkurila well-positioned to benefit from distribution shift
33% 31% 29% 7%
Big boxes (DIY)▪ E.g. K-Rauta, Bauhaus,
Leroy Merlin
▪ Big boxes are increasing
their market share
▪ As a market leader,
Tikkurila is preferred by
customers and chains
Distributors▪ Key partners to secure
scale and availability,
especially in Russia and
Poland
▪ Vital for industry and
export
Specialized paint stores▪ Continue to be preferred
by professionals, but are
loosing market share with
consumers
▪ Personal customer service
critical competitive
advantage
Own stores▪ Only in Sweden, Norway
and Denmark
▪ Retains a niche position in
direct selling to
professionals
Share of various distribution channels, % of Tikkurila revenue (2018)
21
Share of water-borne paints grows in decorative paints
76%
78%
82%83% 83%
60
70
80
2018 20192016 20172015
Share of water-borne paints in
Tikkurila’s decorative business*
* % of Tikkurila’s total gross revenue
22
1.7%
3.3%
2.5%
1.6%
1.4%
2.4%
1.7% 1.8%
Water-borne Solvent-borne
RUSSIA POLAND
SWEDEN FINLAND
WB WBSB
WB WBSB
SB
SB
CAGRs in 2019-2024 for decorative paints
in Tikkurila’s core market areas Source: Markets&Markets
Tikkurila’s strategy
23
This is our strategy
Tikkurila is committed to creating value by improving
efficiency and accelerating organic growth
Market leader in
North-Eastern Europe.
Among TOP20 globally.
Skillful employees with
close to 160 years
knowledge in surfaces
Well-known and preferred
premium brands
Revenue Growth Profitability
ROCE Gearing
EBIT > 12%
< 70%
Faster than home
market growth
> 20%
INCREASING
EFFICIENCY
ACCELERATING
PROFITABLE GROWTH
CREATING A STRONG
“ONE TIKKURILA”
CULTURE
This is Tikkurila This is our target
24
We continue to systematically execute our strategy action plan towardslong-term financial target Adjusted Operating Profit >12%
0
2
4
6
8
10
12
14
2018 Target
Market and raw
material volatility
Optimize
portfolio
Increase
efficiency in
raw materialsImprove sales
performance
management
Increase
efficiency in
operations
Adjusted Operating
Profit (%)
Grow in
Deco and
selected
industry
segments
Save in
fixed cost,
centralize
indirect
sourcing
25
• “We grow faster than the market by having the happiest customers”
• Aim is to provide the best customer experience with focus, speed, and performance
• Target is measured by NPS, customer preference, customer acquisition and
customer loyalty
Drive organic growth
Innovation based on
sustainability, functionality and
services.
Improve further cost
competitiveness
Create High Performance
Culture to execute the strategy
Tikkurila’s value creation is based to drive profitable growth and efficiency
A strong strategic target is set
for Tikkurila
Description
• Launch effective program management & projects execution
• Renew culture, implement management system and good leadership
• Develop talent and competences to deliver strategy
• Formula and portfolio harmonization
• Sourcing excellence
• Operational excellence
• Commercial excellence
• Fixed costs continuous improvement process by process
• Strong focus in Waterborne innovation, decrease usage of solvents
• Clean air and environmentally friendly products
• Wood as our special competence incl. fire protection
• Transformation from pure products to sell solutions and services
• Accelerate growth in current main markets
• Biggest growth from Industry, decorative to grow faster than the market growth
• Lead in premium & mass premium categories with international brands, local
brands to secure competitiveness in each market
26
Optimize
portfolio
Grow in Deco
and selected
industry segments
Improve sales
performance
management
Increase efficiency
in operations
Save in fixed
cost, centralize
indirect sourcing
Increase efficiency
in raw materialsActi
on
s t
o im
pro
ve p
rofi
tab
ilit
y a
nd
gro
wth
Multiple strategic actions executed in 2019
Less formulasLess raw
materialsLess sales articles
10,000 ➔ 5,000
New products
(e.g. fire retardant)
New Tikkurila
brand look rolled
out in Finland
R&D focus on
sustainability,
functionality & services
Continued price
increases to match
raw material inflation
Centralization of
core marketing
teams finalized
Sales leadership
strengthened
Continued to work
on the future Supply
Chain Footprint
Further optimized
S&OP
Fixed expenses
down by EUR
35.4M from 2017
Strict cost
discipline
continued
A large number of
cost reduction
actions identified
Commercial
negotiations with major
suppliers as planned
We continue to systematically execute our strategy action plan
27
We aim for profitable growth
Expand
partnerships
with DIY chains,
“Win with the
winners”
New products
and services:
especially for
industry customers
Expand
distribution:
strong focus on
store presence
and attraction
Successful sales
activities with
key accounts
eCommerce
28
Achieve Successful
turn-around
Fix the foundation
and feed growth
Maximize efficiency
and growth
Phase I
(2018)
Our long-term target is to achieve maximum efficiency and grow faster than the market
Phase II Phase III
29
Financial turnaround in 2017-2019
30
Increasing profitability, stable revenue
Revenue (EUR million) Adjusted operating profit (EUR million)
584 572 582562 564
0
50
100
150
200
250
300
350
400
450
500
550
600
20192015 20182016 2017
0,4%
59
54
29
39
46
0
5
10
15
20
25
30
35
40
45
50
55
60
201920162015 2017 2018
+19,5%
31
Tikkurila’s key indicators developed positively in 2019
20192018
201.3
2016 2017
215.8
185.9 180.4
2016
18.5%
2017 2018 2019
6.3%
9.3%
15.4%
Fixed costsReturn of Capital
Employed, %
2016 2017
22.7
2018 2019
4.4
36.3
52.7
Cash flow after
capital expenditure
9.4%
20172016 20192018*
4.9%
6.9%*
8.2%
Adjusted operating
result margin, %
* Including EUR 6 million of
insurance compensation for 2018
32
Q1/2020
33
➢ Revenue increased by +3.0% (+3.6% comparable currencies)
Growth in Russia and Finland, revenue stable in Sweden,
despite headwind from the weak Krona. Decline in Poland
reflected a strong comparison period.
➢ Adjusted EBIT also slightly improved to EUR 8.5 M (8.2)
Positive price/mix development
Currencies had a clear negative impact on profitability in Q1
➢ Tikkurila is fully operational
Restrictions did not have a major direct impact on Q1 financials,
Liquidity and funding positions are solid
➢ Visibility forward is now exceptionally weak
Increasing negative impact on demand expected due to
restrictions in coming months, regionally trends will differ
Key takeaways from Q1/2020
34
EUR million 1-3/2020 1-3/2019 Change, % 1-12/2019
Revenue 133.0 129.1 +3.0% 563.8
Excl. currency
effects+3.6%
Adjusted operating result 8.5 8.2 +4.4% 46.4
Adjusted operating result margin, % 6.4% 6.3% 8.2%
Operating result (EBIT) 8.5 7.9 +8.4% 43.9
Operating result (EBIT) 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 debt at period-end 95.6 131.1 -27.1% 78.4
Cash and cash equivalents 70.5 17.1 +311.3 47.0
Gearing,% 57.5% 81.7% 45.6%
ROCE, % 15.8% 12.1% 15.4%
Cash flow after capital expenditure -17.4 -18.0 +3.7% 52.7
-0.7%
Volume
-1.5%
Price/mix
+5.1%
Currency effect
0.0%
Divestments and
closures
+3.0%
Total
Key figures – Tikkurila Group
The effects of various factors on revenue (y-o-y)
*Exchange rate differences on internal loans had an adverse impact on net result for the period and EPS.
35
Value continues to drive Tikkurila’s revenue
5.1%
0.6%
10.1%
3.3%2.8%
4.8%
3.7%
1.7%
-0.7%
0.9%
-6.3%
-1.5%-2.0%
-1.5%
-4.9%-4.3%
-3.1%
-0.4%
1.0% 1.2%
-0.7%
Q3/18 Q4/18 Q1/19 Q2/19 Q3/19
Impact of price/mix on revenue Impact of volume on revenue Impact of currencies on revenue
Q4/19 Q1/20 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20
Currencies had a more negative impact on
Adjusted EBIT
36
Country-specific development impacted by currencies, differences between mature and growth markets
2017
134.4
2018 2019 Q1/20
143.6143.4
27.7
89.4
76.8
20192017 2018 Q1/20
84.6
21.4
91.1
2019
27.6
2017 2018
94.3
Q1/20
92.8
2017 2018
31.0
127.6
2019 Q1/20
136.8
118.7
+27%
yoy-9%*
yoy
+4%
yoy-1%**
yoy
Revenue per country, EUR million
* Strong comparison period ** Revenue increased in SEK37
We are fully operational, demand expected to be impacted
Sourcing Operations Sales Finance
▪ Close cooperation with all
suppliers
▪ Managed to avoid critical
shortages
▪ Fully operational throughout
the year, except for Russia
between March 30 and April 7
due to nationally imposed
restrictions
▪ Restrictions having most impact
in Russia, where curfews have
closed most stores in large
cities
▪ In the Nordics consumer
mobility mostly not impacted by
restrictions
▪ Poland also easing restrictions
▪ Liquidity and funding position
solid
▪ Temporary cost savings
executed
▪ Prepared to rapidly adjust our
cost structure to match the
demand if necessary
38
Market demand is now driven by how the restrictions impact consumer behavior
CHINA
EXPORT
TIKKURILA’S
PRODUCTION
UNITS
39
Low impact
Moderate impact
High impact
Impact* on mobility and market demand
* Management estimate
➢ 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.
Guidance withdrawn for 2020
40
0
100
300
200
400
500
600
Price development of
oil (Brent), 2016-
Price development of
titanium dioxide, 2016-
0
500
1 000
1 500
2 000
2 500
3 000
EUR/TnEUR/Tn
2018 20192017
Raw material prices remain volatile
20202018 20192017 2020
41
Source: ICIS
Management focus during Covid-19
Health & Safety of employees
Customer & supplier relations
Daily internal coordination
Costs savings & financial controls
Digital transformation
Key activities
▪ Temporary savings
▪ Sales receivables
▪ Demand driven
planning
▪ Scenarios per each
Business Unit
(base case and worst
case)
Temporary savings
▪ Investments prioritized
▪ Indirect spending
scrutinized
▪ Recruitments freeze
▪ Travel ban
▪ Customer events, trade
fairs stopped
▪ All projects prioritized
▪ Marketing campaigns
heavily digitalized and
prioritized
▪ Strong restrictions to
use external consulting
42
Solid liquidity and funding position
Cash and cash equivalents
at end of period (Eur M)
14 17
71
Q1/18 Q1/19 Q1/20
Net interest-bearing debt at
period end (EUR M)
134 131
96
Q1/18 Q1/19 Q1/20
Gearing (%)
7782
58
Q1/18 Q1/19 Q1/20
Cash flow after capital
expenditure (EUR M)
-46
-18 -17
Q1/18 Q1/19 Q1/20
At the end of the quarter:
➢ 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.
43
44
Our strong values