Annual report 2019
As a result of the current pandemic of the COVID-19 disease (caused by the SARS-CoV-2 coronavirus), in the absence of available reliable and complete information and data on its effects, as at the date of preparing the annual report, the Śnieżka Group - similarly to all entities conducting business activity both in Poland and worldwide - is currently unable to forecast the consequences of the pandemic for the macroeconomic and market environment. Therefore, the possibility of assessing the Group's development prospects in the future is limited as at the date of preparing the annual report for 2019.
In the future, the Company's Management Board will monitor the potential impact of the COVID-19 pandemic and will take all possible steps to mitigate its possible negative effects on the Group, if any. However, due to the inability to obtain reliable assumptions as at the date of this report, all forecasts regarding the future contained in the Group's annual report for 2019 - especially the description of development perspectives of FFiL Śnieżka SA’s activities (the issuer) at least in the next financial year - must be analysed taking into account the above said assumption.
Key factors relevant to the Group's prospects include:
In view of the pandemic of COVID-19 disease caused by the SARS-CoV-2 coronavirus, there are no reliable sources to predict the consumer behaviour, although this factor will most likely have an impact on customer behaviour in markets where the Group companies operate. In the years to come, however, climate change may affect the situation in the construction materials market, including paints and varnishes. Weather conditions, such as those currently observed, favour the extension of the season of construction and renovation works.
Individual companies of the Śnieżka Group continue to increase the numerical distribution of its products and carry out scheduled marketing and sales activities tailored to local markets to support the sales of products comprising the Group's brand portfolio. The Company 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.
The Company's Management Board takes into account possible decisions of public authorities in connection with the COVID-19 pandemic, as well as long-term trends regarding the use of raw materials, social changes or environmental regulations as well as their implications for the process of goods production and sales.
In view of the pandemic of COVID-19 disease caused by the SARS-CoV-2 coronavirus, it is currently not possible to predict the prices of key raw materials used for production as well as oil and electricity.
The Group consistently implements a long-term development strategy consisting in the concentration of its operations in selected countries of Central, Eastern and Western Europe and building the market leadership in the sector of decorative paints on its four key markets: Polish, Hungarian, Ukrainian and Belarusian.
The Company’s Management Board stipulates that it cannot be ruled out that the COVID-19 disease pandemic, caused by the SARS-CoV-2 coronavirus, and its effects - unpredictable at the time of preparing the Group's annual report for 2019 - may in the future necessitate changes or total review of the strategy and strategic objectives of the Company and the Group.
The most important strategic objectives of the Group and FFIL ŚNIEŻKA SA for 2020 and subsequent years are as follows:
The Group's strategy for the coming years assumes concentration on its four key markets (Poland, Hungary, Ukraine, Belarus). On the paints and varnishes market in Poland, FFiL Śnieżka SA remains one of the four largest players, and one of the strategic objectives for the upcoming years is to maintain its leadership position.
On other major foreign markets, the Group will work on maintaining or strengthening its market position. In Hungary, the Group will strive for improving the profitability of its subsidiary - Poli-Farbe Vegyipari Kft. In Ukraine and Belarus, the Group will carry out work on matching the portfolio and distribution of products - related to long-term political and macroeconomic uncertainty on both markets and competition from producers offering low-quality products in Belarus.
The integration process of Poli-Farbe with the Group has been implemented since May 2019. In the course of these works, synergies are planned to be achieved over the next few years: primarily in the area of raw materials purchase and R&D, marketing and sales as well as management controlling and accounting.
Poli-Farbe Vegyipari Kft., by joining the Group, has already gained access to the supply of raw materials for production at more attractive price terms and conditions than before. Currently, the Hungarian company, in cooperation with Śnieżka's research and development department, is working on optimizing the portfolio and applying new raw materials to previously used formulations (recipes). The Company's Management Board expects that for the most important products comprising the Poli-Farbe portfolio, this process is to be completed by the end of 2020.
Ultimately, synergies should positively affect the margins achieved by Poli-Farbe Vegyipari Kft. In the Management Board's opinion, the profitability of the Hungarian company should improve gradually from 2020. The Management Board does not identify any obstacles for Poli-Farbe's profitability to increase to the level achieved in the past by FFiL Śnieżka SA.
The new Logistics Centre is being built on a 15-hectare plot in Zawada near Dębica. It will be a warehouse and office facility with an area of over 44 thousand m2, which will take over the function of Finished Goods Warehouses located in Brzeźnica, Lubzina and Pustków. The investment - whose aim is even more efficient and cheaper supply of the market with Śnieżka products - is to be put into use in the first quarter of 2022.
Modernization (including automation) and expansion of production departments in Pustków and Lubzina will be completed in the second quarter of 2020.
At the beginning of 2020, the Company completed the main implementations planned as part of the Change IT digital transformation introduced in cooperation with SAP Polska. The new software is to provide Śnieżka with further competitive advantages in the field of modern sales management methods and customer relations.
The Company’s Management Board stipulates that the COVID-19 disease pandemic, caused by the SARS-CoV-2 coronavirus, and its effects - unpredictable at the time of preparing the Group's annual report for 2019 - may in the future necessitate changes or total review of the strategic objectives of the Group.
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 2019 assumed the sales development and increasing market shares. It was implemented primarily through activities focusing primarily on product categories:
The sales development in 2019 in the independent market channel was preceded by extensive market research of individual distribution links. As a result of the research, the Company continued the cooperation model with distributors developed in 2018 (including a new incentive program). At the same time, 2019 was devoted to developing a new value offer, in the form of partnership programs, which were announced in January 2020.
The 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 lead time of a wide range of products to retailers and as a result to build more favourable service for the end customer.
The process of changes adopted by the Company in 2018 was continued in 2019 and 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 2020 will be based on the continuation of the solutions implemented in 2019. 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 intends, 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). In addition, the Company is to develop cooperation with Leroy Merlin, Castorama, Obi networks which, according to the previous assumptions, envisage an increase in the number of branches. These networks are copying solutions from Western Europe into the Polish soil in the form of stores, which are a bit smaller and at the same time are more focused on inspiring and comprehensive solutions for the final customer.
Additionally, each participant of the DIY market develops an e-commerce channel, often in the form of click&collect service, which may additionally translate into 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. At the same time, the Company's activities aimed at building a value offer for business partners in this channel will be continued. An example is a partnership program inaugurated in February 2019 called “Leader” - an innovative project dedicated to owners, managers and sales teams of DIY stores. Thanks to it, the Company offers the participants access to numerous benefits supporting their businesses’ operations.
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. Also, the aforementioned activities will be implemented on the Hungarian market.
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 on the said market are as follows:
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. At the same time, the Group's strategy for the coming years assumes concentration on its four key markets, generating the majority of sales revenues (Poland, Hungary, Ukraine, Belarus). At that time, the most important task will be the further integration of Poli-Farbe Vegyipari Kft. with the Group.
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 herein.