For the Śnieżka Group, the Polish market is key from the standpoint of the Group’s revenues – its condition is best illustrated by the Gross Domestic Product. According to the Central Statistical Office, in 2016 the Polish economy was growing at the pace of 2.8% (yoy), compared to 3.6% recorded in 2015. The result recorded in 2016 turned out the weakest for 3 years and was accompanied by the decade’s lowest level of investments which, next to consumption, are perceived as the main factor affecting the growth of economy. Economic growth in 2016 was supported by the highest in several years internal demand whose recovery was, in the analysts’ opinion, associated with, among other things, increasing employment and salaries, family proceeds from the 500+ program, and the accompanying low inflation, leading to increase in the value of the funds at the households’ disposal. According to economists, one of the key factors that affected the economic slowdown in Poland in 2016 was the decline in investments by 5.5%. In the experts’ opinions, the slowdown of investment activity is the consequence of the delays in spending of the funds from the new EU financial perspective and the negative impact of the increased uncertainty on the investment activity of the private enterprise sector, associated with, among other things, the unstable PLN exchange rate and the geopolitical situation (including, for example the presidential elections in the US or Brexit).
The Company’s results were also affected by the situation in the construction sector and the trends in construction. According to detailed data published by GUS in March 2017, 10.2% more apartments were completed in 2016 than in the corresponding period of 2015, when a 3.2% growth was recorded. In the same period of 2016 the number of facilities for which construction permits were obtained or construction designs were submitted, was 12% higher than the year before, with a lower yoy growth rate. In 2016, also the number of started apartments increased 3.3% (compared to the 13.7% increase in the year before).
The macroeconomic prospects authorize adoption of positive forecasts for the growth of Polish economy in the years to come. Analysts indicate that the growth rate of the consumption in Poland in 2017 should continue to be positive, additionally supported by the “500 plus” program. Analysts also expect that in connection with the start of spending under the next EU perspective, the positive factors from before 2016 will recover also in investments, which, next to consumption, are the second important driver of economic growth. The positive trends in the housing market and the other factors authorize an expectation that the number of investments and renovations will increase and, consequently, the demand for construction materials will increase. 2016 was for the Ukrainian economy a period when one could observe positive trends. Following two years of decline, GDP increased in 2016 by 1.8% and inflation, which reached 43.3% in 2015, dropped to 12.4%. Also the strength of the Ukrainian currency, hryvnia, improved significantly – although its situation is still unstable, in the period in question it was not subject to as high fluctuations and devaluation as during the year before. At the same time the purchasing power of the society did not increase although in 2016 the minimum wage was raised, which undoubtedly was negatively impacted by the increases in municipal charges for gas and electricity.
According to official data, the Ukrainian market recorded an increase in industrial production in 2016 by 2.4% compared to the previous year. Also the condition of the construction sector improved. The total value of construction works completed in Ukraine in 2016 was UAH 70.9 billion, up 13.1% compared with the corresponding period of the year before. This result is attributable to the growth rate of investments: for housing construction (13% increase compared to the previous year) and for construction of non-residential facilities, where a 17.4% increase was recorded in relation to the previous year. The Group’s Management Board assumes that if the upward trend in the economy continues, there are no fluctuations of the Ukrainian currency and the situation in eastern Ukraine permanently stabilizes, which, in turn, will help to calm the social moods, the conditions for conducting activity in the market will improve significantly. Ukraine is still one of the important and prospective markets where the Group produces and sells its products.
The economic situation in Belarus can be still described as unstable and difficult. For several years the market has been facing a crisis and the country’s economy is in recession, which can be seen in the decreasing GDP level in consecutive years. According to official data, in 2016 Belarus’s GDP declined by 2.6%. In addition Belarus recorded deterioration of the negative foreign trade balance, further decline of industrial production and increase in foreign debt, as well as continuing low level of FX reserves. One of the factors contributing to the crisis situation is the inefficient model of the Belarusian economy which, without thorough reconstruction, may not count on further credit support from the International Monetary Fund. Also the continuing downtrend in the global oil markets and decreasing volume of this fuel supplied by Russia to Belarus at preferential prices have adverse impact on the economy, which, according to official data, contributed to the decline of production of the refinery industry by more than 19%. At the same time, it is pointed out that, provided that certain other conditions are fulfilled, the recovery of the Belarusian economy would be significantly helped by further development of the IT sector and support for small and medium-sized enterprises. Despite the unfavorable situation and decreasing consumer purchasing power, Belarus, just like Ukraine, is one of key foreign markets for the Group.
According to Śnieżka Group’s estimates, the paint and varnish market in Poland in 2016 did not change, neither in terms of quantity nor value. In the opinion of the Parent Company’s Management Board, despite very strong competition, the Polish market still offers growth potential, which is the basis for formulation of one of the Parent Company’s objectives – becoming the leader in the domestic paint market. In the Group’s opinion, in the Ukrainian market 2016 saw a slow recovery after the crisis of the past few years. According to Chem-Courier data, the quantity of the paints and varnishes produced in Ukraine in the reporting period increased by 14%. The positive trends result from stabilization of the geopolitical situation in the east of the country, which translates into improvement of the consumers’ moods and stimulates the willingness to invest. As opposed to Ukraine, in the opinion of the Parent Company’s Management Board, the Belarusian paint market recorded a decline in 2016. The deteriorating condition of the economy and instability of the currency undoubtedly have unfavorable impact on the consumers’ purchasing decisions. The opening of the Belarusian market to products from the Eurasian Customs Union (among others from Russia, Belarus or Kazakhstan) has increased the competition from the side of cheaper products. The distribution offers products dedicated to different price levels, but the consumers’ attention is focused mostly on low and medium price products. Belarus, just like Ukraine, despite internal problems, remains in the long run an important and prospective market for the Group because the paint consumption in these countries is still lower than in Western Europe or Poland. The Group companies analyze on an ongoing basis the situation in the paint and varnish sector in their key markets to respond to changing consumer attitudes and adapt their offering to the changing competitive conditions in individual countries. At the same time the Śnieżka Group seeks new, more stable markets offering profitable growth prospects.
