Coatings World - April 2015

“Coatings production in Germany
grew by two percent in 2014 and sales by
2.6 percent (since) business development
was less positive than anticipated,” said
Michael Bross, VdL director. “Decorative
coatings especially did not perform well
in the second half, whereas industrial
coatings and wood-finishes (were flat)
over the twelve months.”
The German decorative market, which
is expected to decline by a further two
percent this year, has been hit by uncer-
tainties about governments rules on en-
ergy efficiency in buildings.

“This is a severe handicap, since house
owners postpone their investment wait-
ing for better conditions in the future,”
said Bross. “(Better economic conditions)
in the second half of 2015 than the first
half of the year would help the decora-
tive coatings sector.”
Confidence levels have dipped slight-
ly in the UK’s coatings sector despite
the country recording the fastest grow-
ing GDP among the leading Western
European economies.

In a regular survey by the British Coatings Federation (BCF) of its members, 70 percent were feeling reasonably or very confident about their short term futures early this year compared with 80 percent last summer.

“The sector has had a promising start
to the year with confidence levels still in
pretty good shape,” said Tom Bowtell,
BCF’s chief executive. Confidence has
been high in the decorative sector where
professional sales have been going up by
seven percent in volume terms against
two percent in the retail segment.

In what could turn out to be Western Europe’s most rapidly expanding coatings market the competitive intensity is shown in the way overall sales by value are trailing those by volume.

While volume sales of all coatings rose by five percent last year, they increased by only 2.5 percent by value. “There’s been more price pressure as customers continue to squeeze their suppliers,” said Bowtell.

Multinational coatings companies in Europe been reporting pricing pressures in the region and its periphery, which together with currency changes have affected revenues levels. But profits have been increased or have remained intact due to the companies having leaner operations.

Most of them are expecting that their restructuring and cost-cutting exercises over the last years will help to improve margins this year.

AkzoNobel’s decorative paints business, the European market leader, recorded a 10 percent decrease in sales in the region in 2014. Since Europe accounts for 60 percent of total sales, its global decorative revenues went down by six percent to € 3. 9 billion ($4.25 billion). However, EBITDA (earnings before interest tax depreciation and amortization ) for the business rose by 12 percent to €405 million.

Its performance coatings business, for which it does not give regional breakdowns of results, had flat sales of € 5. 6 billion, but a four percent rise in EBITDA to €687 million.

In both the decorative and the performance coatings business, which includes marine, protective, powder, automotive refinishing and industrial coatings, AkzoNobel has been cutting costs through measures such as shortening supply chains, eliminating management layers and centralizing certain activities.

The lower-cost structures in both operations should form “a sound basis for further improvements in 2015,” said AkzoNobel’s chief executive officer Ton Büchner.

Europe’s international players in coat-
ings are generally upbeat about profitabil-
ity, if not sales, because of their success with
cost decreases and also their involvement in
markets with disparate growth rates.
“We are delivering the best results
ever (and) margins have been good
throughout the whole year,” commented
Morten Fon, Jotun’s chief executive offi-
cer, when reporting the company’s 2014
results in February.
Hempel, which like Jotun is active in
marine, protective and decorative coatings,
also delivered a record EBITDA last year.

“This was partly due to favorable raw material prices, but was also thanks to the efficiency measures we have taken over the last few years,” said Pierre-Yves Julien, Hempel’s group president and chief executive officer. He was confident the company would meet its objective of continued growth without “ compromising cash generation or efficiency.”

A conspicuous exception to the bullishness of European international coatings operators is Tikkurila of Finland. It has been suffering badly from its reliance on the Russian market where it has production plants and a network of sales offices.

Russia, whose economy has been battered by low oil prices and economic sanctions triggered by its involvement in the insurgency in neighboring Ukraine, accounts for approximately 40 percent of Tikkurila’s sales.

The country’s economic troubles last year contributed to a 5 percent fall in the company’s sales and a 11 percent drop in operating profit. With the country sliding into even greater difficulties in 2015, Tikkurila conceded that both sales and operating profit would be below 2014 levels.

“The uncertain economic situation and consumers’ reduced purchasing power will decrease paint demand in Russia,” said Erkki Jaervinen, Tikkurila’s president and chief executive officer.

The country’s Economy Ministry is forecasting a drop of ten percent in real wages and six percent in disposable income this year, making a deep recession inevitable.

Russia could be the major challenge this year to coatings companies and their customers in Germany and Scandinavia, as well as Eastern European members of the EU, which do a lot of business in the country. CW