Tikkurila Capital Markets Day · 6/13/2012  · 1862 1950 1960 1970 1980 1990 2010 1862 An oil press was founded on the banks of the Keravanjoki River in Tikkurila. 1920s The manufacture

Tikkurila Capital Markets Day

Strategy

Erkki Järvinen, President and CEO

DisclaimerIn this presentation, all forward-looking statements in relation to the company or its business are based on the

management estimates, and actual results may differ from the expectations and beliefs such statements contain.

Macroeconomic or general industry data are based on third-party sources. Tikkurila related figures in this presentation are

based on internal accounting data. The information disclosed is unaudited except for some whole year 2011 figures. In

addition, the market information presented is based on Tikkurila management estimates unless an external source is

mentioned. All management estimates are suggestive.

June 13, 2012 2

Global megatrends and corporate actions

• Focus on growth regions

• Adapt to the 60+ age group

• Use trend labs; smart solutions are needed

Changes in demographics

• Exploit the market potential of the middle class

• Apply scenario techniques Globalization

• Reduce consumption

• Reduce dependency

• Appeal to consumers Scarcity of resources

• Establish cooperative partnerships and networking

• Watch the latest technology trends

• Think divergently and convergently

Technological changes & Innovations

• Seize new business opportunities

• Reduce CO2 emissions

• Manage climate risk

Competition for scarcer resources

June 13, 2012 3

Source: Roland Berger Strategy Consultants

Current macro environment is challenging

It seems that we are entering a world of low economic growth with

high volatility for the next years to come.

June 13, 2012 4

GDP growth, %

-10

-8

-6

-4

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F

Russia

Sweden

Finland

Poland

Source: IMF

Value of the global paints and coatings market

EUR ~73 billion

Decorative paints 44% Industrial coatings 56%

Source: IPPIC 2010, Valspar 2012

10%

6%

6%

3%3% 4%

7%

8%

8%44%Decorative paints

Metal Industrial

Coatings

Transportation

Industrial Maintenance

and Protective

Automotive

Refinish

Powder Coatings

Wood Coatings

Marine Coatings

Coil Coatings

Packaging Coatings

June 13, 2012 5

Historical and forecast sales of decorative

paints

• Global decorative paint sales is

estimated to total approximately

EUR 33 billion in 2012

• Europe represents approximately 30%

of the total value

• Demand growth is closely correlated

with GDP development

June 13, 2012 6

0

5

10

15

20

25

30

35

40

2004 2009 2014F

Europe RoW

EUR billion

Source: Orr & Boss, IPPIC

24

27

37

Paint consumption per capita

• Russia 5 liters

• Sweden 13 liters

• Finland 12 liters

• Poland 11 liters

= High (>10 liters)

= Medium (5–10 liters)

= Low (<5 liters)

Paint consumption source: Management estimates, IPPIC

Standard of living and painting habits drive

paint consumption

June 13, 2012

= Premium products

= Medium products

= Economy products

Russia

and CIS

Nordic

CEE

Drivers for paint demand

June 13, 2012 8

MATURE MARKETS EMERGING MARKETS

Demand factors in long-term • Construction styles

• Trends in interior decoration

• Economic development and

improving standard of living

• Potential for trading-up

• Local habits, e.g. frequency of

repainting

Demand factors in medium

and short-term

• GDP growth

• Consumer confidence

• Employment situation

• Activity level in new construction

and renovation

• GDP growth

• Consumer confidence

• Employment situation

• Activity level in new construction

and renovation

Supply factors • Raw material prices and availability

• Changes in regulation

• Raw material prices and availability

• Changes in regulation

Paint demand and GDP development are

clearly correlated

• In mature markets, the GDP growth has slightly exceeded Tikkurila revenue growth

• In emerging markets, Tikkurila revenue growth has clearly outpaced the GDP growth

June 13, 2012 9

-30

-20

-10

0

10

20

2008 2009 2010 2011

Finnish GDP SBU Finland revenue

-30

-20

-10

0

10

20

2008 2009 2010 2011

Russian GDP SBU East revenue*

Mature market example Emerging market example

Growth % Growth %

*Euro-denominated revenue

Key business environment trends in

European decorative paint sector

Further structural changes are (slowly)

taking place in distribution channels for

decorative paints

June 13, 2012 10

Distribution Customers

0 %

20 %

40 %

60 %

80 %

100 %

Big boxes

Independent dealers

Company-owned stores

0 %

20 %

40 %

60 %

80 %

100 %

Professionals

DIY

Source: Orr & Boss, IPPIC

From do-it-yourself (DIY) to buy-it-yourself

(BIY) and do-it-for-me (DIFM)

Peer group profitability comparison

June 13, 2012 11

EBIT % in 2011 EBIT % 2007–2011

Source: Data published by the companies

Note: Companies may apply different reporting standards, financial periods and currencies

0

5

10

15

20

25

2007 2008 2009 2010 2011

Asian Paints

Tikkurila

Jotun

Flügger

Teknos

Akzo Nobel (decorative paints)

Helios

0

2

4

6

8

10

12

14

16

18

Asian Paints

Tikkurila Jotun Teknos Flügger Akzo Nobel

(decorative paints)

Helios

Revenue EBIT* Personnel

Tikkurila key facts 2011

• Revenue EUR 643.7 million

• EBIT (excl. non-recurring items) EUR 62.7 million

• Personnel at year-end 3,551

June 13, 2012 12

34%

30%

17%

19%

East Scandinavia Finland CEE

43%

12%

20%

25%

East Scandinavia Finland CEE

39%

37%

17%

7%

East Scandinavia Finland CEE

*Excl. non-recurring and Group items

Tikkurila key facts 2011

• Focus on decorative paint business

• Total production capacity ~300 million liters

• Water-borne paints account for two thirds of total production

June 13, 2012 13

Operations Production Water vs. solvent-borne

51%49%

Outside EU In EU

84%

16%

Decorative paints Industrial coatings

70%

30%

Water-borne Solvent-borne

RUSSIA SWEDEN FINLAND POLAND

Tikkurila market shares and positions in

decorative paints in key markets* in 2011

#1

June 13, 2012 14

19%

81%

Tikkurila Others

40%

60%

Tikkurila Others

>50%50%

Tikkurila Others

16%

84%

Tikkurila Others

#1 #1 #4*Russia accounts for 30%

of Group revenue

*Sweden accounts for 24%

of Group revenue

*Finland accounts for 17%

of Group revenue

*Poland accounts for 9%

of Group revenue

Sources: Chem-Courier (Russia, volume), SVEFF (Sweden, value), Association of Finnish Paint Industry (Finland, value), IRP Research (Poland, volume)

150 years of decoration and protection

June 13, 2012 15

1862 1950 1960 1970 1980 1990 2010

1862

An oil press was

founded on the

banks of the

Keravanjoki River

in Tikkurila.

1920s

The manufacture of

paints and lacquers

began in Tikkurila in

1919. Extensive

enlightment and

course activites

began in the 1920s.

1950s

Tikkurila introduced its

first water-borne

product, the Joker

paint. Tikkurila's

coloring service was led

by designer Yki Nummi.

1960s

Entering the

Scandinavian market

through Sweden. A

clear leading position

was obtained through

the acquisition of

Alcro-Beckers in 2001.

Tinting technology was

introduced.

1970s

Entering the Eastern

trade. Tikkurila was

known as "Firma

Miranol" in Soviet

Union. The

acquisition of Kraski

Teks in 2006 made

Tikkurila the leading

decorative paint

company in Russia.

1980s

To the Eastern

European market

and the Baltics

through Poland.

2010s

Tikkurila listed on the

stock exchange.

Tikkurila turns 150

years. The introduction

of the Social

Responsibility program

"Sustainable Beauty".

China

Kazakhstan

Russia

Production, logistic center, sales

Logististic center and sales

Distribution center and sales

Production units in 8 countries

Sales units in 16 countries

16

Germany

Serbia

Ukraine

Poland

Finland

Estonia

June 13, 2012

Tikkurila is focused on Northern and Eastern

Europe

17

Production

set-up

Logistics

set-up

Outsourcing

of non-core

operations

Complexity

reduction

in all

operations

Supply Chain Management key themes

June 13, 2012

Examples of efficiency improvement

measures

• Headcount reductions and improved resource planning

• Reorganizing of areas and sales organizations in Russia and the Baltics

• Sale of the subsidiaries in Hungary, Slovakia, the Czech Republic and

Romania

June 13, 2012 18

RESTRUCTURING

LEAN

MANAGEMENT

SKU

MANAGEMENT

• Lean is a systematic approach to identifying and eliminating waste through

continuous improvement

• Optimizing production planning and processes, improving product quality and

occupational safety, reducing production and transportation costs, reducing

the amount of material waste and paint waste

• Measures to optimize product and raw material portfolios and to create formula,

raw material and product portfolio management models for the future

• Measures to create transparency in formulas and raw materials on Group

level; implementation of new IT applications in order to support and increase

the efficiency of R&D and Product Safety work

Growth example: the Balkan area

June 13, 2012 19

Balkan Serbia, Macedonia,

Bosnia-Herzegovina,

Croatia, Slovenia,

Montenegro, Kosovo

Tikkurila production sites Serbia

Tikkurila personnel 150

Market position #3 in Serbia

#1 Macedonia

Tikkurila in the Balkan area

60

45

24

12 11 8

0

20

40

60

80

Balkan paint market

EUR million

Paint market size EUR 160 million

Paint consumption per

capita

~5 liters

Distribution 90% traditional shops

10% big boxes

Biggest paint companies JUB, Helios,

Tikkurila Zorka

CATEGORY BRAND

Premium–

Medium

Economy

Introduction (2012/2013) of Tikkurila brand to high-end/

premium category to complement the offering and

differentiate from competitorsPaint market information source: Management estimates

Difficult to find optimal M&A targets;

focus on organic growth

• Leading market position

• Strong brands

• Focus on decorative paints

• Wide and efficient distribution network

• Good quality customer base

• Opportunities for profitable growth

• Strong track record

• Competent management and personnel

• Good governance

June 13, 2012 20

Target characteristics

Valuation

Strategic fit

• Geographic area

• Product and service portfolio

• Competitive landscape

• Key valuation metrics within Tikkurila's target range

set internally

The leading provider

of paint-related

architectural solutions

for consumers and

professionals in the

Nordic area as well as

in Russia and other

selected Eastern

European countries.

Tikkurila's strategy 2012–2014

FocusingCustomers

Geographic area

Brands

ProfitabilityResilience

Realignment

Agility

Targets:

Operating EBIT* >10%

Continuous improvement of ROCE %

GrowthOrganic

Well-targeted acquisitions

Target:

An annual organic revenue growth of >5%

June 13, 2012 21

*Excluding non-recurring items

Tikkurila offers user-friendly and

sustainable solutions for surface

protection and decoration.

Tikkurila's key growth drivers

June 13, 2012 22

GDP

SERVICES

DISTRIBUTION

WINNING

MARKET SHARE

Constant development of product and service offering with

feasible distribution set-up for each market

Evaluation of new distribution methods is a key priority for the

management

Services business provides interesting growth opportunities in

all markets

Tikkurila's growth outpaces the average GDP growth of its key

markets

Trading-up in paint demand as standard of living improve

Tikkurila key strengths

June 13, 2012 23

LEADING MARKET POSITIONS IN KEY MARKETS

STRONG CASH FLOW GENERATION ABILITY

SOLID PERFORMANCE OVER BUSINESS CYCLE

INCREASING SHARE OF SALES IS DERIVED FROM EMERGING

MARKETS

PROFITABILITY EXCEEDS THE INDUSTRY AVERAGE

COMPETENT AND DIVERSIFIED MANAGEMENT TEAM

June 13, 2012 24

FOCUSED

B2C

BRANDS

LEADING

SOLUTIONS

Q&A