Tikkurila’s Business Review for 1-9/2020: Revenue and profitability increased
Tikkurila Oyj, Business Review Q3, October 29, 2020 at 9.07 a.m. (EET)
Tikkurila’s Business Review for January-September 2020:
Revenue and profitability increased
July−September 2020 highlights
- Revenue increased by 4.6 percent to EUR 164.3 (157.1) million. Comparable revenue* increased by 9.7 percent.
- Operating result (EBIT) increased by 21.1 percent to EUR 27.3 (22.5) million and was 16.6 (14.3) percent of revenue.
- Adjusted operating result increased by 20.8 percent to EUR 27.3 (22.6) million and was 16.6 (14.4) percent of revenue.
- EPS increased by 11.7 percent to EUR 0.43 (0.39).
- On 28 October 2020, the Board of Directors decided to pay the second dividend tranche of EUR 0.25 per share, based on authorization given at the Annual General Meeting on June 9, 2020
January−September 2020 highlights
- Revenue increased by 2.9 percent to EUR 469.1 (455.9) million. Comparable revenue* increased by 6.1 percent.
- Operating result (EBIT) increased by 33.6 percent to EUR 68.9 (51.6) million and was 14.7 (11.3) percent of revenue.
- Adjusted operating result increased by 30.5 percent to EUR 70.5 (54.0) million and was 15.0 (11.8) percent of revenue.
- EPS increased by 22.8 percent to EUR 1.13 (0.92).
* Comparable revenue excludes currency effects.
Elisa Markula, CEO
Tikkurila’s third quarter was strong as consumer spending on home improvement remained high. Following the exceptionally strong June, the DIY (Do-It-Yourself) market expectedly normalized during the quarter, but demand remained seasonally strong also between July and September. As a result, Tikkurila’s reported revenue increased by 5 percent during the quarter – and by 10 percent excluding currency effects. Adjusted operating result increased by 21 percent to EUR 27.3 million.
We saw strong revenue growth in Sweden and Poland, and revenue increased also in Finland. Excluding the impact of the weakening Ruble, our paint sales grew by double-digits in Russia. Across all key markets, our sales mix continued to develop positively as premium products increased their share of sales, despite the general economic downturn.
With over 80 percent of our revenue coming from the decorative paint business, Tikkurila has clearly benefited from recent demand trends, which we have further reinforced with our own targeted marketing efforts. In industry paints, revenue was below previous year’s level, but our performance continued to be mixed. We saw good growth in wood industry paints, both gaining new customers and expanding existing accounts. At the same time, demand decreased in the metal industry paint market.
During the pandemic, we have continued and partly even accelerated our strategic actions to improve efficiency, while successfully maintaining a tight grip on costs. This combined with our good performance in the decorative paints driven by the DIY boom has continued to increase our profitability. During the first nine months, we have now generated an adjusted operating result of EUR 70.5 million, an increase of 31 percent from the previous year. At the same time, our cashflow has continued to further improve.
I am very pleased with how we have managed our sales, operations, and sourcing during exceptionally turbulent times. I want to thank all our employees for the hard work they have done for our customers. Likewise, I want to thank our partners, customers, and shareholders for the trust you have bestowed upon us.
Key figures for the Group
| EUR million | 7-9/2020 | 7-9/2019 | Change, % | 1-9/2020 | 1-9/2019 | Change, % | 1-12/2019 |
| Revenue | 164.3 | 157.1 | +4.6% | 469.1 | 455.9 | +2.9% | 563.8 |
| Excl. currencies | +9.7% | +6.1% | |||||
| Operating result | 27.3 | 22.5 | +21.1% | 68.9 | 51.6 | +33.6% | 43.9 |
| Operating result margin, % | 16.6% | 14.3% | 14.7% | 11.3% | 7.8% | ||
| Adjusted operating result | 27.3 | 22.6 | +20.8% | 70.5 | 54.0 | +30.5% | 46.4 |
| Adjusted operating result margin, % | 16.6% | 14.4% | 15.0% | 11.8% | 8.2% | ||
| Net result for the period* | 19.1 | 17.1 | 11.7% | 49.9 | 40.6 | 22.8% | 33.2 |
| Earnings per share (EPS), EUR* | 0.43 | 0.39 | 11.7% | 1.13 | 0.92 | 22.8% | 0.75 |
| Interest-bearing net liabilities (at period-end) | 18.8 | 77.7 | -75.8% | 78.4 | |||
| Cash and cash equivalents | 98.3 | 41.8 | +134.9% | 47.0 | |||
| Total equity (at period-end) | 186.4 | 176.8 | +5.4% | 171.9 | |||
| Total assets (at period-end) | 482.6 | 472.3 | +2.2% | 437.1 | |||
| Gearing | 10.1% | 43.9% | 45.6% | ||||
| ROCE, %, rolling | 23.0% | 15.2% | 15.4% | ||||
| Cash flow after capital expenditure | 79.3 | 74.0 | +7.1% | 73.3 | 44.0 | +66.9% | 52.7 |
*Exchange rate differences on internal loans had an adverse impact on net result for the period and EPS.
Main drivers (Q3)
The decorative paint market stabilized during the third quarter, but demand remained relatively strong for July-September. Demand for premium products increased in all core markets.
In industry paints total revenue declined, but performance was mixed. Revenue declined in metal industry paints but increased in wood industry (especially in Sweden).
Currencies had a clear negative impact on revenue during the quarter. The rapid decline of the Russian Ruble made euro-denominated revenue decline in SBU East, whereas in local currency revenue was in strong growth.
Operating result continued to be mainly driven by good demand in decorative paints and positive development with price/mix in all Tikkurila’s core markets. Profitability improvement was additionally driven by continued efficiency improvements. Fixed costs were on a normalized level, slightly above the previous year.
Segment data
| EUR million | 7-9/2020 | 7-9/2019 | Change, % | 1-9/2020 | 1-9/2019 | Change, % | 1-12/2019 |
| SBU West revenue | 106.7 | 97.3 | +9.7% | 323.1 | 302.0 | +7.0% | 370.0 |
| Excl. currencies | +9.6% | +8.1% | |||||
| SBU West operating result | 19.6 | 12.7 | +54.5% | 55.0 | 38.0 | +44.7% | 30.4 |
| SBU West adjusted operating result | 19.6 | 12.8 | +53.5% | 55.3 | 38.2 | +44.8% | 30.7 |
| SBU East revenue | 57.6 | 59.7 | -3.5% | 146.1 | 153.9 | -5.0% | 193.8 |
| Excl. currencies | +9.8% | +2.1% | |||||
| SBU East operating result | 10.0 | 11.1 | -10.0% | 18.7 | 18.2 | +3.1% | 20.0 |
| SBU East adjusted operating result | 10.1 | 11.2 | -9.7% | 20.1 | 20.3 | -0.8% | 22.0 |
| Common operating result | -2.4 | -1.3 | -79.9% | -4.9 | -4.6 | -5.2% | -6.5 |
Effects of various factors on revenue
| Group | SBU West | SBU East | ||||
| EUR million | % | EUR million | % | EUR million | % | |
| Revenue in Q3/2019 | 157.1 | 97.3 | 59.7 | |||
| Volume | 7.8 | 4.9% | 5.9 | 6.1% | 1.9 | 3.1% |
| Price/mix | 7.4 | 4.7% | 3.5 | 3.6% | 4.0 | 6.7% |
| Currencies | -7.9 | -5.0% | 0.0 | 0,0% | -7.9 | -13.3% |
| Divestments | - | - | - | - | - | - |
| Revenue in Q3/2020 | 164.3 | +4.6% | 106.7 | +9.7% | 57.6 | -3.5% |
|
Group |
SBU West | SBU East | ||||
| EUR million | % | EUR million | % | EUR million | % | |
| Revenue in 1-9/2019 |
455.9 | 302.0 | 153.9 | |||
| Volume | 6.3 | 1.4% | 15.5 | 5.1% | -9.1 | -5.9% |
| Price/mix | 21.3 | 4.7% | 8.9 | 3.0% | 12.4 | 8.1% |
| Currencies | -14.4 | -3.2% | -3.4 | -1.1% | -11.1 | -7.2% |
| Divestments | - | - | - | - | - | - |
| Revenue in 1-9/2020 |
469.1 | +2.9% | 323.1 | +7.0% | 146.1 | -5.0% |
Main drivers (Q3)
Increasing volumes were driven by exterior and interior decorative paints. Volumes of exterior paints increased especially in all main markets Volumes for interior paints increased especially in Poland.
The positive effect from price/mix changes was driven by the increasing share of premium products across all core markets in the decorative business.
The weakening Russian Ruble had a clear negative impact on the revenue in SBU East.
Revenue by region
| EUR million | 7-9/2020 | 7-9/2019 | Change, % | 1-9/2020 | 1-9/2019 | Change, % | 1-12/2019 |
| Russia | 42.5 | 45.5 | -6.5% | 109.3 | 114.6 | -4.6% | 143.6 |
| Sweden | 34.1 | 29.4 | 16.3% | 103.3 | 95.9 | 7.8% | 118.7 |
| Finland | 23.9 | 23.4 | 2.1% | 85.0 | 78.4 | 8.4% | 91.1 |
| Poland | 27.7 | 24.9 | 11.1% | 74.8 | 72.2 | 3.7% | 89.4 |
| Other countries* | 36.2 | 33.9 | 6.5% | 96.7 | 94.9 | 1.9% | 121.0 |
* Tikkurila’s products are available in over 40 countries.
Main drivers (Q3)
In Russia (SBU East), euro-denominated revenue declined due to the weakening Russian Ruble, but revenue in local currency was in double digit growth, driven by exterior paints. Sales mix continued to develop positively, as demand increased especially for premium brands (Tikkurila).
In Sweden (SBU West), revenue increased in both decorative and industry paints. Growth was driven by continued strong consumer demand for all paints, but especially for exterior paints.
In Finland (SBU West), revenue increased in decorative paints, driven by exterior paints. Revenue decreased slightly in industry paints.
In Poland (SBU West), revenue increased in decorative paints, driven by interior paints. Revenue decreased slightly in industry paints.
The revenue increase in other countries was driven by Denmark and the Baltics.
Income statement
| EUR million | 7-9/2020 | 7-9/2019 | Change % | 1-9/2020 | 1-9/2019 | Change, % | 1-12/2019 |
| Revenue | 164.3 | 157.1 | 4.6% | 469.1 | 455.9 | 2.9% | 563.8 |
| Other operating income | 0.6 | 0.7 | -2.7% | 2.0 | 1.8 | 7.5% | 3.3 |
| Expenses | -132.2 | -129.2 | 2.3% | -383.6 | -388.0 | -1.1% | -499.0 |
| Depreciation, amortization, and impairment losses | -5.6 | -6.0 | -7.5% | -18.6 | -18.1 | 2.5% | -24.2 |
| Operating result | 27.3 | 22.5 | 21.1% | 68.9 | 51.6 | 33.6% | 43.9 |
| Total financial income and expenses* | -3.5 | -0.9 | 282.7% | -6.3 | 0.5 | -1477.2% | 0.0 |
| Share of profit or loss of equity-accounted investees | 0.1 | 0.1 | 68.8% | 0.3 | 0.2 | 28.7% | 0.3 |
| Result before taxes | 23.9 | 21.7 | 10.1% | 63.0 | 52.3 | 20.4% | 44.2 |
| Income taxes | -4.8 | -4.6 | 4.3% | -13.1 | -11.7 | 12.1% | -10.9 |
| Net result for the period | 19.1 | 17.1 | 11.7% | 49.9 | 40.6 | 22.8% | 33.2 |
* Exchange rate differences related to internal loans increased financing costs.
Reconciliation of adjusted operating result to EBIT
| EBIT by segment | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| SBU West | 19.6 | 12.7 | 55.0 | 38.0 | 30.4 |
| SBU East | 10.0 | 11.1 | 18.7 | 18.2 | 20.0 |
| Tikkurila common | -2.4 | -1.3 | -4.9 | -4.6 | -6.5 |
| Eliminations | - | - | - | - | - |
| Total | 27.3 | 22.5 | 68.9 | 51.6 | 43.9 |
| Items affecting comparable EBIT by segment | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| SBU West | 0.0 | -0.1 | -0.2 | -0.1 | -0.3 |
| SBU East | -0.1 | 0.0 | -1.4 | -2.1 | -2.0 |
| Tikkurila common | - | 0.0 | - | -0.2 | -0.2 |
| Eliminations | - | - | - | - | - |
| Total | -0.1 | -0.1 | -1.6 | -2.4 | -2.5 |
| Adjusted operating result by segment | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| SBU West | 19.6 | 12.8 | 55.3 | 38.2 | 30.7 |
| SBU East | 10.1 | 11.2 | 20.1 | 20.3 | 22.0 |
| Tikkurila common | -2.4 | -1.3 | -4.9 | -4.4 | -6.3 |
| Eliminations | - | 0.0 | - | - | - |
| Total | 27.3 | 22.6 | 70.5 | 54.0 | 46.4 |
| Items affecting comparable EBIT | |||||
| Group total | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| Divestments, changes in Group structure | 0.0 | -0.1 | -0.1 | -0.1 | -0.1 |
| Personnel related | -0.1 | 0.0 | -0.2 | -0.5 | -0.5 |
| Costs on withdrawn Russian factory investment | - | 0.0 | - | -1.8 | -1.8 |
| Impairment losses | 0.0 | - | -1.4 | - | -0.1 |
| Total | -0.1 | -0.1 | -1.6 | -2.4 | -2.5 |
| SBU West | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| Divestments, changes in Group structure | - | -0.1 | - | -0.1 | -0.1 |
| Personnel related | - | 0.0 | 0.0 | -0.1 | -0.1 |
| Impairment losses | - | - | -0.2 | - | -0.1 |
| Total | - | -0.1 | -0.2 | -0.1 | -0.3 |
| SBU East | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| Divestments, changes in Group structure | 0.0 | - | -0.1 | - | - |
| Personnel related | -0.1 | 0.0 | -0.2 | -0.3 | -0.3 |
| Costs on withdrawn Russian factory investment | - | 0.0 | - | -1.8 | -1.8 |
| Impairment losses | 0.0 | - | -1.1 | - | - |
| Total | -0.1 | 0.0 | -1.4 | -2.1 | -2.0 |
| Tikkurila common | 7-9/2020 | 7-9/2019 | 1-9/2020 | 1-9/2019 | 1-12/2019 |
| EUR million | |||||
| Divestments, changes in Group structure | - | - | - | - | - |
| Personnel related | - | - | - | -0.2 | -0.2 |
| Impairment losses | - | - | - | - | - |
| Total | - | - | - | -0.2 | -0.2 |
Market review and the impact of Covid-19
While a general decline in GDP is now evident in all markets, Covid-19 has boosted demand for decorative paints among consumers due to increasing focus on home improvement. In industrial paints the pandemic has led to weaker demand, but the effects vary significantly between different segments of the paint industry, as well as regionally.
For Tikkurila, uncertainties related to the emerging new waves of Covid-19 infections relate to whether the local governments will reinstate restrictions on the mobility of people or access to points of sales, which might impact customer demand, production and suppliers.
Decorative paints account for slightly over 80 percent (2019) of Tikkurila’s total revenue, including consumer and professional customers. The pandemic has changed the dynamics of the decorative market: during the lockdowns, consumers have temporarily turned to Do-It-Yourself (DIY) from Do-It-For-Me (DIFM) trend. Also, consumers’ increasing interest towards renovation has clearly boosted their online activity. Overall, the home improvement boom has maintained the overall demand for decorative paints on a relatively high level. In the construction sector, demand for professional painters has depended on the continuation of construction projects, and the availability of construction workers. Our professional business is very diverse, and recent trends have differed regionally and per customer segment. Overall, in decorative paints customers place their orders at a relatively short notice. Thus, any forecasting can only be done based on current demand and visibility remains weak.
Industry paints represent less than 20 percent of Tikkurila’s revenue. Our industry customer base is fragmented, and customers are diverse. Overall, industrial paint demand has reflected the development of our customers’ business, including the availability of other resources necessary for their production activities. Following the decreased production activity of OEM (original equipment manufacturers) customers, demand for metal industry paints has declined. At the same time, demand for wood industry paints has remained more stable.
Approximately 70 percent of Tikkurila’s revenue comes from outside the Euro-zone, and hence currency fluctuations are expected to continue to have an impact on Tikkurila’s revenue. During the third quarter, the Russian Rouble had a clear negative impact on revenue.
Overall, Tikkurila is well-positioned to provide its customers with high-quality goods and services in all subsegments of its business. Tikkurila is a solid market leader for decorative paints in Russia, Sweden, Finland, and the Baltics. In Poland, the four leading players are quite equal, and Tikkurila is currently aiming towards being the third largest paint producer.
Sources: Markets & Markets, Euromonitor, Oxford Economics, Chem Courier, GFK, SVEFF and VTY.
Outlook
Guidance for 2020 remains unchanged
-
Full year adjusted operating result is expected to continue to improve (2019: EUR 46.4 million).
- Tikkurila will not give guidance for the revenue for 2020 due to expected fluctuations in demand in all segments.
Assumptions behind the guidance
On 27 March 2020, Tikkurila withdrew its original guidance for 2020 due to increased uncertainty and weakened visibility, as the global coronavirus pandemic (Covid-19) and the related local restrictions were rapidly changing Tikkurila's business environment.
On 24 July 2020, the guidance for profitability was restored after a strong Q2/2020.
During the third quarter, the decorative paint market stabilized, but demand remained relatively strong for July-September. Overall, the quarter was strong, both in terms of revenue and profitability.
However, uncertainties remain concerning the development of demand for paint as well as the general macroeconomic development. Specifically, the professional and industry businesses are expected to continue to be impacted by the forecasted negative GDP development in all key markets. Also, in decorative paints, customers place their orders at a relatively short notice. Thus, any forecasting can only be done based on current demand and visibility remains weak.
Events after period-end
Dividend
On 29 October 2020, Tikkurila announced that the Board of Directors had decided on the payment of the second dividend tranche of EUR 0.25 per share, based on the decision of the Annual General Meeting on June 9, 2020. The dividend will be paid to a shareholder who is registered in the company’s shareholder register maintained by Euroclear Finland Ltd on the record date of 30 October 2020. The dividend payment date will be 6 November 2020.
Following this dividend payment, Tikkurila will have distributed a total dividend of EUR 0.50 per share in 2020, the maximum amount authorized by the decision of the Annual General Meeting.
Webcast
CEO Elisa Markula will present the report in English for investors, analysts, and the media in a live webcast, which starts at 1:30 p.m. (EET). CFO Markus Melkko will join the Q&A.
Webcast
Dial-in
- Finland: +358 9 8171 0310
- Sweden: +46 85 66 42 651
- UK: +44 33 33 00 08 04
- USA: +1 63 19 13 14 22
- PIN: 60297005#
This 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.
Contact information:
Elisa Markula, CEO
+358 50 596 0978
elisa.markula@tikkurila.com
Markus Melkko, CFO
+358 40 531 1135
markus.melkko@tikkurila.com
DISTRIBUTION
Nasdaq Helsinki Ltd
Main news media
www.tikkurilagroup.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 eleven 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.
www.tikkurilagroup.com