Tikkurila in Russia Danske Bank's Russia Seminar

March 12, 2013

Simo Laitala, Managing Director, Russia and

Central Asia

Disclaimer

In this presentation, all forward-looking statements in relation

to the company or its business are based on the

management judgment, and macroeconomic or general

industry data are based on third-party sources, and actual

results may differ from the expectations and beliefs such

statements contain.

March 12, 2013 2

Contents

• Tikkurila in brief

• Tikkurila in Russia

• Conclusions

March 12, 2013 3

Tikkurila in brief

March 12, 2013 5

Bringing protection, comfort and sustainable beauty to various environments

Customers:

Consumers and professionals

Market position:

Leading market position in decorative paints in

Finland, Sweden, Russia and the Baltic countries,

one of the leading in Poland

Market area:

Northern Europe, Central Eastern Europe, Russia

and other CIS countries, Ukraine

Products and services:

Decorative paints, industrial wood and metal

coatings, customer training, comprehensive

advisory service (e.g. Customer hotline), Designer

and Contractor Pool etc.

Tikkurila's locations

Tikkurila in brief

Tikkurila in a nutshell

Ukraine

China

Kazakhstan

Finland Sweden

Poland

Russia

Germany

Estonia

Production, logistics center, sales

Logistics center, sales

Distribution center, sales

March 12, 2013 6

Serbia

Revenue EBIT* Personnel

Tikkurila key facts 2012

• Revenue EUR 671.8 million

• EBIT (excl. non-recurring items) EUR 73.9 million

• Personnel at year-end 3,227

March 12, 2013 7

*Excl. non-recurring and Group items

36%

29%

16%

19%

East Scandinavia Finland CEE

42%

32%

17%

9%

East Scandinavia Finland CEE

45%

13%

17%

25%

East Scandinavia Finland CEE

RUSSIA SWEDEN FINLAND POLAND

Tikkurila market shares and positions in

decorative paints in key markets* in 2011

#1

March 12, 2013 8

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), SVEFF (Sweden), Association of Finnish Paint Industry (Finland), IRP Research (Poland)

0

2

4

6

8

10

12

14

16

0

100

200

300

400

500

600

700

800

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Revenue Revenue from acquisitions Divestments EBIT margin (excl. non-recurring)

Long term financial development

Development of sales and profitability 1996–2012

Acquisition of Alcro-

Beckers in 2001

(Revenue ~MEUR 190)

Sale of tinting business in

2000

(Revenue ~MEUR 130)

Acquisition of Kraski Teks

in 2006

(Revenue ~MEUR 80)

Acquisition of Zorka Color

in 2011

(Revenue ~MEUR 16)

Major acquisitions and divestments

Reve

nu

e, E

UR

mill

ion

EB

IT %

(e

xcl. n

on

-re

cu

rrin

g)

530

648 625

563

457 441 439

450 445

345 358 361 349

255

589

March 12, 2013 9

644 672

10%

8%

8%

7%

7%

6% 4% 3% 3%

44%

Value of the global paints and coatings market

EUR ~76 billion

Decorative paints 44% Industrial coatings 56%

Source: IPPIC 2012

Decorative paints

Metal Industrial

Coatings

Transportation

Industrial Maintenance

and Protective

Automotive

Refinish

Powder Coatings

Wood Coatings

Marine Coatings

Coil Coatings

Packaging Coatings

March 12, 2013 10

Drivers for paint demand

March 12, 2013 11

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

Tikkurila in Russia

2010 New production line in

St. Petersburg for

water-borne products

Tikkurila's key milestones in Russia

March 12, 2013 13

1862 1970 1980 1990 2000 2010

1862 Tikkurila

established

in Finland

1980’s Export to the Soviet

Union started with

industrial coatings for

automotive industry

1990’s Tikkurila is the first

western paint

company to start

promoting tinting

technology in

Russia

1995 Opening of the first

western paint factory in

St. Petersburg

2006 Acquisition of Kraski

Teks in Russia

2007 Acquisition of Gamma

and Ohtek in Russia

2009 Logistic center in

Mytischi, Moscow

2011 Divestment of Powder

Coatings business

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.

Tikkurila in Russia

March 12, 2013 14

Current demand

structure

Economy and medium segments

dominating, premium segment expected

to grow fastest

Tikkurila paint brands in Russia Facts about SBU East

Paint

consumption

~5-7 liters per capita

PREMIUM ECONOMY

Market leader in Russia in 2011*

19%

6%

5%

70%

Tikkurila

Empils

Lakra

Others

*Source: Chem-Courier 2011 (decorative paints, volume)

Russia, other CIS countries, Ukraine

Operational area

Production sites Russia (4) and Ukraine (1)

Personnel

EUR 242.8 million, 36% of Group

Russia ~90% of SBU East revenue

2012 revenue

EUR 32.5 million, 42% of Group

2012 EBIT

Retail Tikkurila's products are sold in more than

5,000 retail outlets

1,517 (on average in 2012)

Russia as part of the total coatings market

Total global coatings value is some EUR 76 billion

Russia accounts for 4% of the total value Europe accounts for 30% of the total value

Source: IPPIC (2010)

15

Europe 30% Western

Europe 22%

Other Eastern

Europe 4%

Russia 4%

ROW 7%

Latin America 7%

Asia Pacific 35%

North America 21%

March 12, 2013

Russia

~6 liters per capita

= high

= middle

= low

Paint consumption per capita

* Source: paint consumption, IPPIC

Paint consumption is still on a relatively low

level in Russia

Europe

8–15 liters per capita

Russian population

142.5 million people

March 12, 2013 16

But the paint market is growing

March 12, 2013 17

2.2 2.6

3.0 3.0

3.4

4.0

4.4 4.3

3.6

4.3 4.3

0

1

2

3

4

5

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Liters

Source: Rosstat, Chem-Courier (decorative paints)

283 300

358

411

457

571

622 615

515

618 619 632 651

670

-20

-15

-10

-5

0

5

10

15

20

25

30

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F 2014F

Market size Growth

Development of the decorative paint market

in Russia 2001–2014F

Source: Chem-Courier, Management estimates

18

Liters (million) Growth %

March 12, 2013

Track record in SBU East

March 12, 2013 19

Development of Russian GDP and SBU East revenue* SBU East revenue and EBIT margin 2007–2012

Source: Rosstat (GDP)

*Euro-denominated revenue growth

EUR million % %

204

227

167

195

220

243 11.9%

11.3% 10.6%

12.4%

11.5%

13.4%

0

2

4

6

8

10

12

14

16

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012

Revenue East EBIT margin

-30

-20

-10

0

10

20

2008 2009 2010 2011 2012

Russian GDP growth, % East revenue growth, %

Tikkurila is one of the most well-known

brands in the St. Petersburg region

10.56

4.6

1.41

1.34

1.28

1.14

1.14

1.13

1.1

1.05

Moscow

St. Petersburg

Novosibirsk

Yekaterinburg

Nozhny Novgorod

Kazan

Samara

Omsk

Chelyabinsk

Rostov-on-Don

Good coverage of operations

Khabarovsk

Saint Petersburg

Moscow Kopeisk

Yekaterinburg

Novosibirsk Irkutsk

Stariy Oskol

Krasnodar

Samara

March 12, 2013

Production, logistic center, sales

Logististic center and sales

Distribution center and sales

Population of Russia's largest cities

Source: Global insights, Rosstat, E&Y

21

Indirect customers

Direct disributors/customers

Customer segments

Tikkurila SBU East

Consumers

DIY big boxes

Consumers

Color studios

Regional wholesalers

- Traditional retail outlets

- Professional painters

- Construction industry

Professionals

Temaspeed dealers Industry

Distribution channels in SBU East

22 March 12, 2013

• High share and number of distributors

• Chains are increasing slowly

• Both international and local, i.e. Russian, big boxes

• Located only in the central parts of Russia, i.e. in big cities

• Low coverage of regions

• Big boxes account for approximately 20% of Tikkurila sales in Russia

• Tikkurila is present in all channels and has a long history of cooperation with the

customers

Russian paint market

Sustainability Water-borne paints gaining market share

Ecological production

Competition Additional production capacity to the market

Services Need for sales consultancy

Price sensitivity Tendency to buy low-cost products

Several no-name producers

High brand awareness At the same time: low awareness of brands

and how to apply paints

Characteristics Trends

Substitutes Wall papers are still very popular

Production optimization Investigating new applications and enhancing

product performance and quality

Growing demand from the construction industry

March 12, 2013 23

Water-borne paints have clearly increased

market share in Russia

March 12, 2013 24

16%

25% 31%

36% 40% 42%

47% 47% 54% 56% 54% 57%

84%

75% 69%

64% 60% 58%

53%

53% 46%

44% 46% 43%

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

SB

WB

Source: Rosstat, Chem-Courier

Findings of a consumer survey in Russia

81%

18% 1%

Makes the finaldecision at thestore

Makes thedecision inadvance

Not able toanswer

Quality

Color palette

Price

Decision is made at the store Factors impacting the choice

53% 11% 10% 10% 9% 5%

Big boxes Big retail (Starik Hotabych, etc.)Construction market Special painting shopShopping center of construction materials Household shop

Most popular place of purchase: Big boxes (e.g. Leroy Merlin, OBI, Castorama)

Source: GFK, 2012

March 12, 2013 25

Customer service improvements

• Training centers

• Order Desk

• Customer Hotline

• Consumer Hotline

• Technical support

• for 'deco customers'

• for industrial customers

• for professionals

26 March 12, 2013

New training center in St. Petersburg

27 March 12, 2013

Showroom in Krasnodar

• In cooperation with a parquet producer (Karelia Upofloor) in Russia

• Idea: Total interior design service, including follow-up services

• Target groups: HORECA, designers, homeowners

March 12, 2013 28

New concept for Color Studios

29

• New design for the Color Studios

• New channel for working with constructors, architects and designers

• Providing service and consultancy

March 12, 2013

Conclusions

30

Opportunities exist in Russia…

March 12, 2013 31

RUSSIA IS THE WEALTHIEST BRIC COUNTRY (GDP/CAPITA)

ALL SOURCES INDICATE GROWTH ON MEDIUM AND LONG TERM

RUSSIANS REMAIN BRAND CONSCIOUS

GROWING MIDDLE CLASS MAKES RUSSIA AN ATTRACTIVE MARKET

RUSSIA IS ONE OF THE LARGEST RETAIL MARKETS

…but there are also risks

March 12, 2013 32

RUSSIAN ECONOMY IS DEPENDENT ON THE OIL PRICE DEVELOPMENT

LACK OF RUSSIAN INDUSTRY AND EXPORT PRODUCTS

CHANGES IN LEGISLATION REQUIRE CONSTANT MONITORING

FIGHT FOR TALENTS

Revenue development by segment

2009–2012

March 12, 2013 33

19% 18% 19% 19%

20% 18% 17% 16%

30% 31%

30% 29%

32%

33% 34% 36%

0

100

200

300

400

500

600

700

800

2009 2010 2011 2012

CEE Finland Scandinavia East

CAGR

13.3%

0.3%

7.4%

8.4%

EUR million

530

589

644 672

8.2%

Thank you