Coatings World - February 2009

who produce their own waterborne coatings is under threat. “In a poorly performing construction market like Spain a lot of these micro coatings businesses could disappear,” said one consultant.

Coatings SMEs in troubled sectors are have their financial strains compounded by restrictions on credit insurance for businesses in the supply chains of these markets.

“Credit insurers are virtually condemning whole sectors because parts of them might be having financial difficulties,” said an executive of one supplier to coatings producers. “It puts suppliers in a difficult position because without credit insurance you have to ask coatings and other customers for cash up front. It is the small companies which suffer when credit has to be withdrawn in this way.”

Coatings SMEs have also been facing shortages of supplies of raw materials as a result of chemical companies closing down their plants because of the slump in sectors like automobiles and construction.

“These chemical producers are shutting plants because their large customers have been doing the same but this decline in output is affecting coatings and other SMEs who are still trying to maintain their own production levels,” said Peter Fields, chief operating officer of the pan-European chemicals distributor Azelis, which is a major supplier to small coatings companies.

An additional difficulty confronting SMEs in the UK, which is not a member of the eurozone, is a sharp drop in the value of the pound sterling, the country’s currency. Between the middle of last year and January it has depreciated against the U.S. dollar by approximately 30% and against the euro by approximately 40%.

Non-UK suppliers of raw materials for the making of coatings and other products have been reluctant to trade in the country or have been hiking up their prices to compensate for the devaluation.

“SMEs in the UK coatings and other sectors have great difficulty in the current economic climate passing on these big rises in the prices of imported materials,” said Fields, who is also chief executive of Azelis UK.

Insolvency experts are warning SMEs not to delay taking remedial measures once they are in trouble. “In this climate managers must be willing to take decisive action as soon as the business gets into difficulty,” said Paul Reeves, director of Leonard Curtis, business rescue specialists in Burnley, England. “Getting control of cash flow is important but so is identifying a path through recession.”

Leonard Curtis was called in to deal with a local coatings company, Dexter Paints, when it went into adminis-

International Coatings Scene
EUROPE

tration late last year only a short time after celebrating its 100th anniversary. The company, which had approximately 40 employees made decorative and industrial paints.

Staff at Dexter has been trying to organize management buyouts of parts of the company in a restructuring exercise, which could be repeated across Europe this year.

“Restructuring of the SME sector in coatings to achieve consolidation rather than fragmentation is likely to be accelerated as a result of the recession,” said Michael Gerstenberger, chairman of Cheminvest consultancy, Waldorf, Germany.

Already over the last few months a number of acquisitions of SMEs in coatings or raw materials has taken place in Germany, Europe’s largest paint and coatings market. But the number of take-overs in the country and elsewhere in Europe will inevitably increase as the downturn begins to put severe pressure on SME’s finances. CW

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