Śnieżka after a demanding Q1: strong position in Poland and Hungary

In the Q1 of 2022, the Śnieżka Group focused on strengthening its position on two main markets: Polish and Hungarian. In both key markets, its revenues increased significantly. At the same time, both the paints and varnishes industry and the global economy were found under intense pressure. The effects of the war in Ukraine have and will probably have a serious impact on the Group’s bottom line in the coming quarters.

The total sales revenues of the Śnieżka Group for the first three months of 2022 reached PLN 190.0 million and were 4.0% higher than in the first quarter of last year. This growth was supported by sales in Poland, amounting to PLN 137.6 million (+ 8.7% y/y), and in Hungary, where it amounted to PLN 34.6 million (+11.7% y/y). The two core markets currently account for over 90% of revenues. The consolidated results were affected by the Group’s revenues from the war-torn Ukrainian market, which decreased to PLN 8.8 million (-44.2% y/y).

– In the finished quarter, we maintained our market share in Poland, our most important market We generated solid sales results on the Hungarian market. We consider the beginning of the year successful for Śnieżka in key markets, although the war in Ukraine has already left its mark on it due to the strong pressure on our performance – comments Joanna Wróbel-Lipa, Vice President of the Management Board of FFiL Śnieżka SA.

In the Q1, notable increases in raw material prices continued to adversely affect the Group’s profits. The financial costs related to higher interest rates were also markedly higher, and hence the costs of debt servicing. They were only partially compensated by demand for premium brand products in Poland. The net profit of the Śnieżka Group amounted to PLN 12.0 million (-30.9% y/y), whereas the operating profit was PLN 17.8 million (-19.1% y/y), and the EBITDA was PLN 26.6 million (-13.6% y/y). The net profit attributable to the shareholders of the parent company reached PLN 11.1 million (-32.0% y/y).

The Management Board of Śnieżka positively assesses the revenues obtained in the Q1 of 2022, but emphasizes that due to the seasonality of sales and the uncertainty on the eastern markets, forecasts regarding the recently started spring-autumn season 2022 ought not be based on them, and the Group’s financial performance should be weight up after the end of the entire year.

Exposure to the East

Following the outbreak of the war, the manufacturing facility of the Śnieżka-Ukraina company of the Śnieżka Group temporarily suspended its operations between February 25 and April 11 this year. The facility has been back in operation for a month, albeit to a limited extent. The property of the Ukrainian company is not at risk due to its location approx. 20 km from the Polish-Ukrainian border – in Yavoriv (Lviv region). In Śnieżka’s opinion, there are currently no indications that the company will no longer be able to operate in this location. The Group also provides comprehensive support to its employees.

The Management Board anticipates that the hostilities in Ukraine and the Group’s exposure to eastern markets will affect the Group’s revenues, financial performance and margins in many areas. A very likely scenario for the Ukrainian market is at least a significant drop in revenues and profits at the minimum in 2022.

Also, there have been changes recently in terms of other eastern markets. The Belarusian market has been included in the “Other” segment due to the decline in its share in the revenues of the entire Group below 2%. In turn, since March this year the Group has completely ceased its operating activities in Russia, where it generated approx. 1% of revenues in previous seasons.

Challenges without impact on Śnieżka’s approach to dividend payment

The on-going economic recovery after the pandemic was halted by the outbreak of violent war in Ukraine, which is beginning to have an increasing impact on all economies of the world. The expected fall in GDP growth and price increases are also potential challenges the Group is to come up against. We can see, inter alia, increased cost pressure, including further pressure on raw material prices, as well as boosting logistics costs. On the contrary, the impact of rapid tightening of the monetary policy translated into an abrupt increase in debt servicing costs and it is possible that in the coming quarters it will be one of the factors contributing to declining consumer purchasing power. The first signs of this phenomenon, including a more cautious approach to spending than before, are already noticeable in Poland in consumer sentiment surveys.

In the teeth of numerous challenges, diversification of the main markets and additional investments -following the largest investment cycle in the history of Śnieżka Group in recent years – improve the Group’s security.

– The economy has been struggling with challenges for over two years – first, these were the effects of the COVID-19 pandemic, then the result of the war outbreak in Ukraine, which is close to us. We are well prepared for them, but they affect the operations of our entire industry and the revenues and margins generated. Now we are prudent up against increased uncertainty and our long-term plans include reducing the level of the Group’s expenses to the amortization level. At the same time, in the near future, as the Management Board, we intend to recommend our shareholders a dividend payment of 50% of the Group’s consolidated net profit – emphasizes Joanna Wróbel-Lipa.