Factors affecting the development and performance

The Śnieżka Group monitors consumer sentiment, financial condition of consumers and their purchasing intentions in the product categories most important for the Group in its key markets (Poland and Hungary).

Demand in the coming months will be affected by weakened consumer sentiment, stagnation in purchasing power, a greater propensity to save and a temporary reduction in large expenditures resulting from the NBP monetary policy. This largely comes down to maintaining high interest rates and limiting lending, thus reducing the amount of money on the market. As analysed by the Central Statistical Office, the average annual consumer sentiment in Poland – aggregated in the current consumer confidence indicator (BWUK) – in 2024 was at a negative level (-14.0), although the average annual indicator was the highest in recent years (since 2019). However, during the year BWUK did not demonstrate a large amplitude of results. The Leading Indicator of Consumer Confidence (WWUK), describing the expected trends in individual consumption in the next 12 months, recorded deteriorating results (Q1 2024: -4.8; Q4 2024: -11.6)¹.

In the reporting period, the Group observed a decrease in demand for decorative products on the Polish market, which is responsible for over 2/3 of its sales revenues. On the Hungarian market, sales volumes also remain in a downward trend. In Ukraine, after a rebound in 2023, demand returned to a downward trend in 2024. According to the Group’s estimates, the market decreased in volume by approximately 1/3 compared to the results recorded before the outbreak of the war in Ukraine.

The group analyses the impact of global factors (e.g. the effects of the war in Ukraine) and local factors (e.g. inflation and changes in wages) on the GDP indicator in individual countries, with which the condition of the decorative paints industry is correlated. A permanent element of the analyses is the monitoring of the situation in this sector on key markets, which makes it possible to predict changes in consumer attitudes, as well as to adapt the offer and marketing and sales activities to volatile conditions.

¹Source: Central Statistical Office, Consumer sentiment – ​​January 2025, February 2025.

The reading from the Goods Trade Barometer of the World Trade Organization (WTO) in October 2024 was 102.7 points (noting a symbolic level lower than the September reading of 103 points)². According to its October forecasts, the WTO assesses the outlook for trade in 2025 as uncertain, pointing to economic uncertainty and growing geopolitical tensions that could translate into changes in global trade policy. Global merchandise trade began to recover in the first half of 2024, rising 2.3% year-on-year, which is expected to be followed by further moderate expansion in the rest of the year and in 2025. This rebound follows a -1.1% contraction in 2023, driven by high inflation and rising interest rates. Global real GDP growth at market rates is expected to remain stable at 2.7% in 2024 and 2025.

The global trade situation translates into trade on the key markets the Group operates on – and, as a result, also on the condition of the economies of the countries that constitute the core sales markets for the Group’s products.  The paint and wood products industry as well as the scale of consumption of renovation and construction products are correlated with the level and dynamics of GDP. This is particularly essential in the case of Poland (the key market of the Group from the perspective of the sales revenues generated), where private consumption remains one of the main driving forces of the economy.

²Source: World Trade Organization (WTO), WTO goods trade barometers – October 2024, February 2025.

The situation on the raw materials and packaging market is stable, however, due to the current economic and political situation in Europe and the world, including the on-going war in Ukraine, the Management Board of the Company cannot rule out an increase in the prices of raw materials, packaging and other goods..  Determining the level of prices of key raw materials used in production may be subject to a significant error. At the same time, restrictions in access to raw materials intensified work on the search for other substitutes for raw materials necessary for the production of paint and varnish products.

The Company also monitors the changes to the European Union regulations on an on-going basis, describe later in this chapter, and takes appropriate steps to adapt to them. At present, the Company does not anticipate any events related to the purchase of raw materials that could jeopardize its proper functioning.

The Group’s bottom-line may be significantly affected by changes in currency exchange rates, in particular: EUR/USD, EUR/PLN, HUF/PLN and UAH/PLN. The greatest current currency risk for the Śnieżka Group is related to the strengthening of the EUR/PLN exchange rate, which may increase the cost of purchasing raw materials used for production.

The situation on the energy and gas price market is stabilizing. It should be emphasized that the Company has low energy consumption and has secured electricity for 2025 in Poland, which allows for better cost forecasting in this area. In the current macroeconomic and geopolitical environment, a strong cost pressure sustains as regards energy prices, which affects the increased production costs.  The company’s production plant in Ukraine has a photovoltaic system that covers up to 20% of energy demand. In turn, the photovoltaic system launched in September 2024 at the Hungarian plant is to cover approximately 30% of the annual energy demand.

In Poland, preparations are underway to install further systems, the construction of which is, inter alia, dependent on obtaining appropriate funding. Thanks to these investments, the impact of energy costs on the Group’s performance will be gradually reduced. These activities are part of Śnieżka Sustainable Development Strategy.

The regulatory environment for the Śnieżka Group includes laws and regulations that influence the way business is conducted and define obligations and responsibilities in various areas. Śnieżka constantly monitors legal changes that apply to it.

Below are presented which of the regulations mentioned above affect the operation of the Śnieżka Group:

Environmental regulations: The Śnieżka Group, as a manufacturer of paints and varnishes, is subject to environmental protection regulations, including emissions of harmful substances into the atmosphere, waste management, water consumption and principles of conducting business in nature protection areas. The introduction of new environmental regulations may require adjustment of production processes, increased investment in cleaning and environmental protection technologies, and changes in the procurement policy of raw materials and packaging.

National regulations on key markets: The Śnieżka Group operates on many domestic and foreign markets, therefore national regulations on these markets may have a material impact on its operations.
This applies to both the markets where Śnieżka Group companies are located and sales markets (e.g. Poland, EU countries). The regulations in question may cover various areas such as trade, taxes, consumer protection, antitrust laws, etc.

Regulations regarding suppliers and raw materials: The Śnieżka Group cooperates with a diversified group of suppliers, and in the production of paints and varnishes it takes advantage of a wide selection of raw materials, monitoring published regulations and adapting its formulations to existing and future legal requirements. Further changes in regulations regarding the availability, price, quality and sustainable use of raw materials may have a material impact on the operations of the Śnieżka Group. This may include the introduction of new restrictions on chemicals, changes in raw material prices, and the need to vet suppliers to ensure they meet new regulatory requirements. All these changes require the Śnieżka Group to adapt to new legal requirements, which leads to greater organizational effort.

The European Union regulations on paints and varnishes:  The Śnieżka Group is subject to complex and increasingly restrictive legal regulations of the European Union. For example, legal regulations are becoming more and more stringent regarding the content of biocides allowed in paints, as well as other substances used in production that pose health and environmental hazards.  The greater emphasis is placed on the use of natural components in paints, which on the one hand are responsible for the safety of the product, but on the other hand shorten its shelf life. Adaptation works ensuring compliance with European Union requirements therefore focus on ensuring that pro-ecological properties are accompanied by equally high durability and quality of products.

The Group constantly monitors legal changes that may affect production and implements measures to dynamically accommodate the technological process to these changes.  Currently amended legal acts that require attention in the near future are Regulation No. 1272/2008 of the European Parliament and of the Council on the classification, labelling and packaging of substances and mixtures (the so-called CLP Regulation) together with amending regulations (the so-called ATP), related to classification of products and their appropriate labelling, depending on the content of biocidal substances in the final product.

In the coming years, the situation on the market of construction chemicals, including paints and agents for wood protection and decoration, may also be influenced by actions aimed at stopping unfavourable climate change, including regulatory and stimulating actions as part of the implementation of the Paris Agreement and the EU strategy European Green Deal.

The Group does not conduct high-emission activities, and the paint and varnish production is low-energy-consuming.

However, a certain part of the entire value chain is high-emission activity (e.g. production of packaging based on petroleum products and extraction or production of certain raw materials used by the Group) and it cannot be ruled out that future regulations on reducing emissions and energy consumption of production plants located in the European Union will affect the business model and the Group’s results.

The Śnieżka Group is aware of the importance of issues related to climate change. As part of the Śnieżka Sustainable Development Strategy, it has committed to managing and reducing GHG emissions, increasing energy efficiency and using green energy on a larger scale.  The goals adopted and actions implemented are in line with the assumptions of the climate change mitigation transition plan. FFiL Śnieżka SA and Śnieżka ToC have committed to reducing their Scope 1 and 2 GHG emissions by 50% by 2025. Scope 3 targets have not been set yet, but their determination in the medium to long term is planned for the coming years. The Group commits to preparing such a transition plan and setting targets consistent with limiting global warming to 1.5°C, which will be in line with the requirements of the Paris Agreement, by the end of 2026.