Annual report 2018
The Group consistently implements a long-term development strategy consisting in the concentration of operations in selected countries of Central, Eastern and Western Europe and building the leader position on those markets as regards the decorative paints segment.
In the opinion of the Company's Management Board, the main factors that will affect the results achieved by the Group in the following years are as follows:
In 2019, the Company's Management Board anticipates that the value of the paints and varnishes market will increase in Poland and Ukraine - even in the case of sales volumes remaining at similar levels.
The anticipated increase in the value of the paints and varnishes market in Poland and Ukraine is based on the assumption that in the future the trend of selecting more expensive products by customers (value for money and premium segments), featuring higher quality, will be sustained. If this trend continues, even if the value of the paints and varnishes market increases, small changes in sales volumes are possible since premium products are characterized by higher efficiency and thus fewer litres of product are needed to paint a particular surface, and the effect is more durable.
On the Belarusian market, the Company anticipates the trends observed in 2018 to continue, i.e. the increased demand for low-cost products (due to the low purchasing power of a significant number of local consumers) and the selection of premium products by wealthier Belarusian consumers.
On the Hungarian market of paints and varnishes, which in 2019 (after the assumed acquisition of shares in Poli-Farbe Vegyipari Kft.) will generate a significant part of the Group's sales revenues, the Company anticipates the continuation of trends from the past year. Customer preferences in Hungary are similar to those in Poland and Ukraine, i.e. there is an increase in demand for high quality products sold under premium brands.
As a result of new European Parliament regulations, which aim at increasing the level of health and environmental protection, there is a need to change selected raw materials needed for the production of paints and varnishes. It is necessary for the producers to find new, usually more expensive substitutes that are more environmentally friendly.
The Company assumes that in 2019 the prices of titanium white will be stable.
In 2019, however, electricity prices are to be risen. However, they will not have a significant impact on the costs incurred by the Company and its subsidiaries, as their business is relatively energy-efficient. In addition, the Company has already contracted energy prices for 2019.
The Group consistently implements a long-term development strategy consisting in the concentration of operations in selected countries of Central, Eastern and Western Europe and building the leader position on those markets as regards the decorative paints segment.
The most important strategic objectives of the Group for 2019 and subsequent years are as follows:
By implementing objectives described in subsequent sections of the report.
The new Logistics Centre will be built on a 15-hectare plot purchased in 2018 in Zawada near Dębica. It will be a warehouse and office facility with an area of over 44 thousand m2, which will allow the Company to provide its business partners and customers with a great deal better service. The ability to handle distribution from one location (compared to several locations currently) will ultimately contribute to greater efficiency and lower costs incurred by the Company.
The Logistics Centre will be fully adapted to handle various types of shipments - both low and high-volume as well as fragmented in terms of different types of products in one shipment. The new warehouse will take over the functions of the existing warehouse of finished products in Brzeźnica, Lubzina and Pustków. As far as the organization of working time is concerned, the investment will enable Śnieżka to perform tasks in the 3-shift pattern system and to skip weekends. The dimensions of the facility will allow to combine the teams from three existing locations and to divide the current four teams into three larger ones.
Oddanie Centrum Logistycznego w Zawadzie zostało zaplanowane na 2021 rok.
FFiL Śnieżka SA and Poli-Farbe Vegyipari Kft. intend to achieve synergy benefits in the area of purchases - including raw materials and packaging - research and development (and thus in the production area, including formulation optimization, i.e. processes of development and improving product recipes) as well as in the area of marketing and sales. After completing the acquisition of shares in Poli-Farbe Vegyipari Kft., the Company will take steps to integrate Poli-Farbe Vegyipari Kft. within the Śnieżka Group. The objective of these steps will be primarily to obtain the abovementioned synergy effects.
After completing the integration and achieving the anticipated synergy effects, most likely in the next few years, the Company will analyse together with the management of Poli-Farbe markets geographically similar to the Hungarian one, to recognize the possibilities of increasing export sales on the Southern European markets.
On the Polish market, the Group intends to continue its development in the two largest segments:
The Company's strategy on the independent market for 2018 assumed the sales development and increasing market shares. It was implemented primarily through activities focusing primarily on product categories:
The sales development in 2018 in the independent market channel was preceded by extensive market research of individual distribution links. As a result of the research, the Company introduced a new cooperation model with distributors (including a new incentive program) and implemented it in commercial contracts.
The new cooperation model of FFiL Śnieżka SA with distributors is aimed at building the availability of a wide range of the Company's products. Consequently, the availability built by so-called “distribution quality" is supposed to shorten efficiently the delivery time of a wide range of products to retailers and to build more advantageous service for the end customer.
The process of changes adopted by the Company in 2018 included the following elements:
The above-mentioned activities were positively reflected on the market power of FFiL Śnieżka SA.
The sales development strategy on the independent market in 2019 will be based on the continuation of the solutions implemented in 2018. The company will put emphasis on the systematic development of numerical distribution, i.e. an increase in the number of stores where ready-to-use paints can be purchased from the portfolio of FFiL Śnieżka SA (including new products). In addition, the Company will continue its cooperation with distributors and retailer. The Company plans, i.a. to further develop the network of "Company Stores" and "Company Showrooms" in partnership with business partners, based on a fixed business cooperation model.
The strategy will also include strengthening market shares in the segment of specialty metal products sold under the Rafil brand.
In the DIY channel an important factor of the Company’s development in 2019 and subsequent years is the planned increase in the number of points of sale in the so-called Polish sales networks, e.g. PSB Mrówka (up to 450 stores in 2023) and Bricomarché network (this network intends to achieve the third position in the Home and Garden stores segment). Furthermore, the Company is to develop cooperation with Leroy Merlin, Castorama, which, according to the previous assumptions, envisage an increase in the number of branches, and Obi (which, according to the new strategy, also plans expansion in smaller cities).
Additionally, each participant of the DIY market develops an e-commerce channel (online sales), which can reflect higher sales of paints and varnishes, including the Company's products.
Taking into account the plans related to the dynamic development of the DIY networks, the Company plans to continue its current activities with particular emphasis on the focus on the final customer service.
Bearing in mind the current condition of the Belarusian and Ukrainian market, as well as the results of the analysis, the Group will continue activities initiated in 2018 that will involve further development of numerical distribution in the retail sales network. The activities will be supported by:
The implemented changes should improve the level of customer service and availability of the product they are interested in. Additional activities that the Group intends to continue in Ukraine and Belarus are:
The Group's long-term strategy in the area of sales development on other, smaller foreign markets assumes optimization within brand and product management taking advantage of the Group's full production potential. One of the most important point is to adapt products to local requirements and to adjust marketing communication.
The markets such as Sweden, France, Ireland and Croatia, where the total share in consolidated revenues does not exceed 1%, the Group has so far cooperated with one company or sold small amounts of products on an irregular basis. At the same time, they are the markets where the Group looks for business partners and opportunities to increase sales.
The Group commenced to restructure the Export Department in order to make it more functional. New processes have been developed to improve the efficiency of operations.
The Group constantly monitors the situation in the paints and varnishes sector on crucial markets, which provides the opportunity to anticipate changes in consumer attitudes and to adapt its offer to altering competitive conditions in individual countries. Simultaneously, the Group is looking for new and stable markets that can ensure development opportunities.
The Group’s strategy is described in item 3.1.8 of the report.
