Europe

will focus on organic growth and innova-
tion and, where applicable, will consider
value-generating bolt-on acquisitions, in
line with our focus on market leading and
profitable positions.”
For BASF Coatings, the divestment
will offer a chance, according to the com-
pany, to “further strengthen its focus” on
its core automotive OEM and automotive
refinish coatings businesses in which it is
among the global leaders both in terms of
market shares and technologically. It will
also be seeking to fortify the position of
its South American decorative paint busi-
ness in its domestic market of Brazil.

For the European coatings industry, the broad performance and industrial coatings sector, including coatings for transportation, wood products, appliances and machinery, as well as coil and protective coatings, has been presenting big opportunities for higher sales growth and greater profitability.

Last year’s financial results of coatings companies in Europe are showing that industrial coatings and related coatings businesses have been performing better than operations in decorative paints.

Not surprisingly companies are looking for ways to reinforce their positions in an area in which there is a lot of scope for high-margin sales.

The financial results of AkzoNobel’s Performance Coatings segment has in recent years been, on the whole, much more impressive than those of its Decorative Paints operation and its third segment of Specialty Chemicals.

In four out of the last five years,
the returns on sales of Performance
Chemical has exceeded those of both
of the other operations, while in all five
years its return on investment (ROI) has
been much higher.

In comparison to the decorative business, which is the market leader in Europe, the ROI of Performance Chemicals has been, in most years, more than double that of Decorative Paints. Since 2012, its ROI has consistently been higher than the AkzoNobel’s group ROI guidance target for 2016-18 and, for the last two years, that for return on sales as well.

Last year its return on sales was 13 percent and ROI 29 percent, its highest in the last five years. Total sales of its three sectors – marine and protective coatings, automotive and specialty and industrial and powder coatings – went up 7 percent to € 5. 95 billion and operating income up 45 percent to €792 million.

The transaction with BASF will considerably bolster AkzoNobel’s position in coil coatings in which it is already world leader. Since BASF is also a major coil coatings producer this part of the deal could run into difficulties with competition authorities.

The agreement also brings AkzoNobel into two new business areas – wind turbine blades and furniture foils. BASF has been a pioneer in the development of weather resistant coatings for blades of offshore wind turbine, especially those in locations with frequent stormy conditions, like the North Sea.

“This part of the deal will be a good
fit for us because we have a leading po-
sition in provision of coatings for the
bases of the offshore wind turbines,”
said an AkzoNobel spokesman. “Also
the foil coatings activity in the furni-
ture market will be a useful addition to
the effects supplied by our wood coat-
ings business.”
As part of the agreement, AksoNobel
will be taking over two of BASF’s coat-
ings plants – one in Deesside in the UK
and the other in Vanderbijlpark, South
Africa. The Deesside unit will reinforce
the company’s presence in the UK where
it has a major, recently-commissioned
coatings plant at Ashington, northeast
England where it also has one of its main
coatings R&D units.

Coil coatings account for a high proportion of the output at Deesside, which is near a site of Tata Steel, formerly British Steel, its biggest customer for the coatings.

BASF and Tata are among the leading private sector participants in a £ 20 million ($28 million) research project in south Wales on the use of nano-scale structures within coil and other coatings for solar energy conversion, particularly on the outside of buildings. AkzoNobel, which has had a lesser role in the project, will not comment on its future position in the scheme.

“However, we are interested in the
potential of developing coatings systems
that can harness solar energy, “ said the
company’s spokesman. “ We are already
active in the renewable energy sector via
our coatings for wind, wave and tidal
systems, and we also produce low solar
absorption coatings that help keep build-
ings cool.”
Meanwhile BASF, with its attention
now closely directed at a single sector,
will be targeting its efforts at realizing
the potential of new resins and color
systems in the automotive market. A
big competitive advantage in the OEM
sector is its expertise in particle and dis-
persion technologies to create innovative
colors and effects which set new trends
in the market.

A major influence behind likely future acquisitions and divestments in the European performance and industrial coatings sector will be a need to develop and commercialize new cutting edge technologies. CW