Europe
Sponsored by
Increasing costs
could squeeze
margins in the
coatings sector
strengthening
the trend
toward more
consolidation
in an effort
to improve
profitability.
Rising Raw Material Prices Could Spark Increased
Consolidation for European Coatings Companies
by Sean Milmo
European Correspondent
milmocw@rodmanmedia.com
Coatings producers in Europe have been protesting vociferously about steep rises in raw material costs over the last few
months as the region is threatened with a spate
of inflation in the wake of oil price rises and
currency fluctuations.
The increasing costs could squeeze margins
in the coatings sector strengthening the trend
toward more consolidation in an effort to improve profitability.
The specter of a period of inflation putting
pressure on earnings could have been a factor behind the bid by PPG Industries of the U.S. to take
over Dutch-based AkzoNobel, the European
market leader in decorative paints with a strong
position also in industrial coatings.
In February AkzoNobel reported falling sales
and profits in its fourth quarter and full year results. Its performance coatings sales dropped by
5 percent in the full year 2016 to € 5. 7 billion (
$ 6.2 billion) while its operating income fell 4
percent to €759 million. Decorative coatings
revenue decreased by 4 percent to € 3. 8 billion
but its operating income went up 3 percent to
€357 million with the help of costs controls.
PPG’s € 21 billion ($23 billion) unsolicited bid in early March was rejected by
AkzoNobel’s management, which responded
with an announcement that it would create
value itself by spinning off its speciality chemicals business which accounts for around a
third of total turnover.
Previous to PPG’s acquisition move
AkzoNobel revealed that it was planning a set
of comprehensive measures to deal with higher raw material and other input costs.
“We are likely to see higher year-over-year
