Ton Büchner: 2015, even though market conditions were challenging, was the year in which we successfully delivered our 2015 financial targets.
For our Decorative Paints business, we made significant progress and have the right strategy in place to continue the momentum we have built up. ROS was up 8.6 percent, ROI was up 11.7 percent and RD&I investments have resulted in 28 percent of revenue derived from eco-premium solutions with customer benefits. In addition, we saw a 4 percent decrease of CO2(e) per ton of sales from 2012 cradle-to-grave carbon footprint.
For our Performance Coatings business, we delivered a step change in profitability and positioned ourselves for profitable organic growth. ROS was up 13.3 percent, ROI was up 29.4 percent and RD&I investments have resulted in 15 percent of revenue derived from eco-premium solutions with customer benefits.
John Falder: Generally good but some of it at the expense of the key suppliers to our industry. The current and we are told unsustainable pricing of raw materials such as titanium dioxide is not healthy. The price of oil and its derivatives are similarly in a peculiar position Yes the short term gains are welcome but we need our suppliers to invest too. HMG’s approach is that our supply chain is vital part of our business. We see the world market as fragile. HMG is tiny in global terms but even at our scale affected by the confidence of the market overall.
Markus Kamieth: About 80 percent of BASF’s global Coatings sales relate to the automotive sector. The automotive industry developed very heterogeneously in 2015. While especially North America and Western Europe showed robust growth, other markets such as South America and Russia saw steep declines. Automotive production in China as the most important growth market did not live up to our expectations, but we have again managed to outgrow the market based on new innovative Coatings systems and by opening our new production facilities.
Michael McGarry: In 2015, our customers have placed continuing emphasis on the true value that coatings bring to them and their products in the form of protecting and beautifying their assets.
Abhijit Roy: We operate in the Indian subcontinent with operations in India, Bangladesh and Nepal and also have a presence in Poland and Russia. The Indian sub-continent fared reasonably well registering good revenue growth rates and profit for most companies operating in this market. Poland also had a reasonable growth. Russia fared poorly on the back of shrinkage of demand.
Charles W. Shaver: The many sectors served by coatings products continued to provide a good balance for overall industry performance. The market for automotive coatings continued to be strong in all major regions with western Europe showing renewed stability. Industrial markets in general showed strength as well. Selected emerging markets such as Brazil and China grew at a slower rate than in prior years. Finally, foreign exchange rates were a key factor for global coatings manufacturers affecting both revenues and potentially driving up prices in selected local currency markets.
Claudio Rodriguez: Coatings total market grew in 2015 around 5 percent while decorative paints increased 6 percent in liters. During 2015, Sinteplast´s decorative lines grew 12 percent and is now leading the paint market with a 23 percent share.
CW: Did your company see an increase in revenue in 2015?
Büchner: Yes, for the full-year 2015, revenue was up 4 percent to €14,859 million. A record year for AkzoNobel, with return on sales at 10.6 percent and return on investment at 15 percent.
As I look back on 2015, I take great pride in the fact we continued to be successful doing what we do best – creating everyday essentials to make people’s lives more liveable and inspiring. We are using our key strengths – essential ingredients, essential protection and essential color – to help build a solid foundation for the next phase of the company’s strategy. Although conditions were challenging during the year, we made significant progress towards our vision of leading market positions delivering leading performance. We are now a stronger, leaner, more agile company.
Falder: Yes, in line with our objective to grow organically. We try to grow at the pace we can improve our business and this year we grew at just over 6 percent.
Kamieth: BASF’s Coatings division has increased sales by 6 percent compared to 2014. Our sales of automotive OEM coatings saw considerable growth, driven both by currency effects and by higher volumes in Europe, North America and Asia. For automotive refinish coatings, we were able to more than offset weaker demand in South America and Asia through pricing and positive currency effects. The rise in sales in the industrial coatings business was partly attributable to positive currency effects. Sales fell sharply in the decorative paints business in Brazil. This was predominantly the result of a struggling Brazilian economy in which negative currency effects and overall weak demand offset increased prices.
McGarry: PPG’s business performed well in 2015 in a challenging economic environment. Full-year 2015 net sales from continuing operations were $15.3 billion, consistent with the prior year. The company’s 2015 full-year reported net income from continuing operations was $1.41 billion, or $5.14 per diluted share, versus $1.13 billion, or $4.05 per diluted share, in 2014. Full-year 2015 adjusted net income from continuing operations was $1.56 billion, representing an increase of 17 percent.
Roy: Yes, our company registered double digit growth in 2015 in the Indian sub-continent, comprising of India, Bangladesh and Nepal. The growth in profit was much higher and was in excess of 25 percent, largely due to the drop in raw material prices.
Shaver: Although overall revenue in 2015 declined slightly to $4.1 billion, Axalta finished the year with a strong fourth quarter performance, highlighted by 4.5 percent net sales growth year-over-year excluding currency and continued margin improvement. Moreover, our 2015 earnings expressed in EBITDA increased to $867 million from $841 million in 2014 despite headwinds from unfavorable currency exchange rates.
Rodriguez: In 2015, our company had a significant revenue increase as we had optimized production; we also worked to keep the prices of raw materials without changes, in a country with an inflation rate of 2 percent per month. Mainly, Sinteplast grew in sales due to the acquisition of decorative BASF business (Casablanca brand).
CW: What areas of the paint and coatings market represent the most growth opportunities for your company?
Büchner: For our decorative paints business, we have a unique portfolio of businesses with potential for higher growth levels, while allowing for diversification of individual country risk. It also means we have to compete successfully and win in markets that are very different in terms of value chain, competitive environment and customer and consumer behavior. In the UK for example, our focus is on increasing the overall market size by improving the painting experience. One way we are achieving this is through the launch of the Dulux Amazing Paint service. We are also continuing our strong focus on innovation, introducing new products with clear customer benefits in terms of energy savings and well-being.
In our decorative paints business overall, we continue to reduce the environmental impact of our own operations and products and are increasingly working with our suppliers to do the same. We are focusing in particular on reducing our carbon footprint (including VOCs), identifying opportunities to promote waterborne paints where possible, and offering products with additional sustainability benefits.
For our Performance Coatings business, having completed our major restructuring activities, the next step in delivering our leading performance vision is to deliver profitable organic growth and continuous improvement. We are focusing and prioritizing our growth activities by pursuing differentiated growth strategies. In Marine Coatings, for example, we will continue to invest in fouling control, sustainable innovation and enhanced services. Another example is our Protective Coatings business, in which we are continuing to build our business beyond upstream oil and gas. In other parts of our Performance Coatings portfolio – where our position is often strong, but the headroom for growth more limited – we want to grow with our markets while driving operational excellence and controlling costs.
Falder: We try to operate as a very bespoke and highly technically capable supplier so we look for niched business areas combined with our overall policy of working smart and hard to create customized and tailored specific products for our customer base. Making what our customers want.
Kamieth: We will continue to push for profitable growth in our all our businesses with a clear strategy to focus on emerging markets. Besides China, markets like Mexico and ASEAN play an important role. In addition, we see substantial growth opportunities by launching both product and process innovations that serve our customers’ needs for sustainable solutions.
McGarry: As we enter 2016, we anticipate global economic growth will continue, but at a varied pace and mixed by major economies. In the Asia-Pacific region, growth will most likely remain mixed throughout the year, but solid on a full year basis. Some of this 2016 year-over-year variation will be due to uneven 2015 regional volume patterns. A primary driver for growth in Asia is increased consumer spending, which is beneficial to PPG as this effects the majority of our products sold in the region.
Economic expansion in North America is likely to continue at a modest pace, comparable to 2015, supported by multiple sectors. We anticipate continued improvement in construction markets in the U.S. and for Canada to stabilize a lower activity level realized in the second half of 2015.
Overall, industrial activity is expected to remain modest, but positive in comparison to the lower than anticipated 2015 level. We continue to expect solid organic growth in Mexico, supplemented by revenue related acquisition synergies. During 2016, we will be working with our major national retail or DIY customers on various branding initiatives and continue to build our PPG Paints brand in our U.S. company-owned stores.
In South America, where our business is relatively small at about 3 percent of total sales, demand in that region is expected to remain erratic and subdued. In Europe, we expect the economy to build on the broadening growth rates achieved in 2015, which would be beneficial to PPG as nearly 30 percent of our total sales are in that region. Favorable end-use market trends are expected to continue in 2016 particularly in automotive OEM coatings. Industry build growth rates in Europe and in aggregate globally are expected to be positive for the year. Given that we have substantially reduced our cost structure in Europe, we expect incremental margins in that region to be in the 35 percent to 40 percent range.
Roy: As of now, the Decorative market (architecture) and the Automotive market are the the two big growth opportunities for us.
Shaver: We look for growth opportunities across all the segments we serve. While some economies have slowed, our global footprint means we can capitalize on strong markets elsewhere. For example, we’ve won important new business among multi-shop operators (MSOs) in the refinish segment in North America. Axalta also will benefit as the number of shops managed by our MSO partners increases in 2016. Our acquisition in the U.S. of ChemSpec USA will help increase our penetration in the mainstream refinish market. In the Benelux, we acquired Metalak which will continue as our Spies Hecker distributor and continue to produce its Paint Plus portfolio of products. In the OEM transportation arena, we announced plans to double production capacity in India to meet anticipated OEM demand. Our industrial offerings cut across hundreds of end-use markets. That diversity provides exciting opportunities for growth. Last year, for example, we launched Ganicin, a coating for highly corrosive environments such as water parks.
Rodriguez: Decorative segment continues to be the area with the most opportunities.
CW: What is your business strategy for growth in 2016 and beyond?
Büchner: Achieving our 2015 financial targets represents significant progress for the company. However, we know we must continue to improve to achieve our vision of leading performance in all the markets in which we operate. So we are maintaining that same vision for the next phase of our strategy development, which includes new financial guidance. For the period 2016-2018, our guidance is: return on sales between 9 and 11 percent, return on investment between 13 and 16.5 percent and clear aim to build on the foundation we have created and grow in line with, or faster than, our relevant market segments.
Falder: We see the opportunities for us growing but we want to remain a speciality house. HMG set out to be a good company to do business with. Growth we see as a by-product of the job we do for our customers. We aim to grow at an organic or organic plus level year on year, but in business we accept we get what we deserve.
Kamieth: We expect 2016 to be another year characterized by high volatility which is why a clear focus on attractive markets as well as overall agility remains key. Our recent announcement to divest our Industrial Coatings business underlines this strategy and allows to further increase our focus on the attractive automotive coatings markets globally and on further strengthening our leading position in the Brazilian decorative paints market with our brand Suvinil.
McGarry: From an overall PPG perspective, we remain focused on delivering higher organic growth including continued commercialization of our innovative industry leading coatings technologies. Over the past several years, we have deployed many new or leading technologies for our end-used markets. These include our compact process technology for automotive OEM coatings, which has been widely adopted by customers as it reduces their facility, construction cost and ongoing operating cost.
Our water-based automotive refinish coatings is now the leading water-based product in the industry. We’ve converted more auto body repair shops at waterborne coatings than the rest of the entire coatings industry combined. Our new Innovel interior can coatings realized growing customer adoption over the past year. This allowed us to deliver mid-single-digit percentage growth, which is well above the packaging coatings industry growth rates, with more to come in 2016.
In addition to organic growth, we will continue to be aggressive on cost and productivity initiatives. This is a never-ending quest for PPG, and we are always looking for better ways to improve our cost structure.
Finally, our balance sheet remains strong, as we ended the year with cash and short-term investments of $1.5 billion. We intend to continue creating shareholders value through earnings accretive cash deployment. We remain on-pace with our prior commitments to deploy between $2 billion and $2.5 billion of cash in the years 2015 and 2016 combined, including the $1.15 billion we deployed in 2015. We expect coatings industry consolidation to continue in 2016. Our pipeline remains strong as we continue to vest potential acquisitions around the world. Share repurchases also remain an integral part of our capital allocation strategy.
Roy: The main strategy is to focus on the Indian market which is a fairly large market and most importantly growing very fast. We need to introduce innovative products and services to bolster growth in 2016 and beyond.
Shaver: We will continue to focus our resources on our existing customers in the global transportation arena, both light and commercial vehicle OEMs, and our refinish and industrial customers. Capital projects to increase capacity came on line in China and Germany, for example, and we are poised to meet increased demand across the customer based supplied out of those facilities. We will continue to expand our leading global refinish business both through our premium product lines and by further developing our offerings in the mainstream segment. At the same time, we will look at ways to broaden our offerings through acquisitions like ChemSpec and Metalak, with our increased ownership of Axalta Central America, and through product introductions with brands like Imlar, Duxone and Challenger.
Rodriguez: This year will be quite difficult, as we have a new government that has to adjust a series of macro and micro economic problems that the previous administration left.
We presume that the first half of this year’s sales may slow down, compared to previous years and hope we will end 2016 with a very little growth.
CW: In what areas are you focusing your R&D efforts?
Büchner: Our main focus is to continue to deliver sustainable innovations with clear customer benefits in terms of energy savings and well-being.
A great example of one of our more recent innovations is Dulux Easycare. Featuring stain repellent technology, it’s an interior paints which enables you to easily clean common household stains off your walls without worrying about damaging the surface. Easycare highlights how we are continuing to meet growing demand from consumers for more sustainable solutions. Many of our products and solutions lead to less energy use for our customers. Another example in Intersleek, an antifouling paint which makes ships’ hulls smoother, resulting in less drag, which means less fuel is needed and there are fewer emissions.
Falder: High-performance coatings and business areas. We are engaged in a range of areas including graphene research, high performance waterborne and a wide range of forward-looking industrial applications to try and give commercial advantage to our key accounts. Color styling and color trending work has become increasingly important for our automotive OEM customers where our speed of response and small batch sizes are appropriate.
Kamieth: We continuously develop new products and processes in order to ensure highest quality for our customers and to help our customers become more successful. Especially the demand for sustainable and environmentally friendly solutions is significantly increasing. Consequently, we are increasing the share of R&D investment for sustainable solutions even further. Another key focus area is digitalization. We are convinced that digitalization will enable us to identify new business models and to optimize costs, for instance, in the area of development, production, and logistics. Digitalization will clearly change almost all areas of our value chain within the next years.
McGarry: We see a variety of high-level trends that are driving growth across each segment, and where we are focusing our research investments. One key driver for research and development investment is energy. Changes in energy are driving a revolution in the materials and processes used to manufacture products in a number of industries served by the coatings and specialty materials sector. Coatings will serve a key role in meeting the demand for more efficient operations for buildings, lighter and more efficient modes of transportation, and lower-cost manufacturing processes. For example, PPG’s coatings technologies help automakers lower energy use by eliminating steps in the manufacturing process.
In 2015, more than a quarter of PPG product sales came from coatings and materials that addressed our customers’ most pressing challenges, such as energy and asset protection. PPG is integral in helping our customers create more sustainable products - from coatings that contribute to lighter, more fuel-efficient vehicles to paint systems that assist our customers in reducing water use and waste production during their manufacturing processes. Across markets, PPG technologies such as waterborne liquid, chromate-free, powder, low-VOC and high-solids coatings formulations are helping our customers exceed environmental guidelines and manage sustainability.
Roy: Our R&D effort is mainly focused on producing greener paint with very low VOC and low solvent content. R&D is also focused on producing innovative products which are more relevant in India and the neighboring countries.
Shaver: Technology at Axalta cuts across our value chain, from product development and ways to improve manufacturing processes to providing customers with the best possible service. Looking at products, we expect continue to respond to environmental concerns which will demand coatings with reduced environmental footprints. For example, liquid coatings will need to perform seamlessly on non-metal substrates to support light weight plastic and composite vehicle substrates. Powder products like Alesta already have virtually no intrinsic environmental impact. After-sale services run the gamut from evolving color formulations and application tools to training resources designed to help our customers succeed. To accomplish these and fulfill other customer commitments in the future, last year we announced construction of two new technology centers, a new Global Innovation Center at The Navy Yard in Philadelphia and a new Asia Pacific Technology Center in Shanghai that will serve the entire region and also include a customer training center.
Rodriguez: We are seeking to improve our waterproof line of products and also developing new products related to previous steps in construction as mortars, special putties, etc.
CW: What is your company’s long-term plans?
Büchner: Our long term plans include our plans to continue to improve to achieve our vision of leading performance in all the markets in which we operate. We are maintaining that same vision for the next phase of our strategy development, which includes new financial guidance. For the period 2016-2018, our guidance is:
In addition, we remain committed to our strategy, including our core principles and values, strategic focus areas and core processes. In the next phase of our strategy, our action focus will switch to a greater emphasis on organic growth and innovation. The next steps we have identified are: hardwire new organization model, deliver continuous improvement culture, build further operational excellence, drive organic growth and innovation and pursue value generating bolt-on acquisitions.
Falder: To build an overall security for the company of HMG. To roll out what we do into new markets to create new opportunities. To make a great coatings and to create long-term partnerships with our key customers and suppliers. And to have fun doing it... we really do LOVE making great paint!
Kamieth: We aim to achieve further profitable growth in all regions. To this end, we rely in particular on our innovation power and closeness to the customer. This is why continuing globalization and investments especially in emerging regions is a key target for us. Thereby, we not only invest in production plants but above all in research and development and the education of our employees worldwide. The recent opening of our R&D campus in Shanghai is just one example underlining this strategy.
McGarry: Our focus will be on consistently delivering high-quality, innovative and sustainable solutions. Our customers will continue to rely on PPG to protect and beautify their products and surroundings. We believe that by maintaining our role as a leading coatings company, shareholders will benefit from growing industry trends, strong PPG operating cash flows, and disciplined capital allocation that have become hallmarks for us and the coatings industry overall.
Roy: We plan to continue to innovate and grow our market share in our home country. In the long term, we would like to be among the top 15 companies of the world.
Shaver: This is a big year for Axalta because 2016 marks the 150th anniversary of the company. We’re celebrating this milestone. But we’re also using the occasion think large and look ahead to the next 150 years. To be effective in our business across so many decades past and future, what will be key is to continue to maintain consistent focus on the markets we serve and ensure our customers know they can rely on us. We will do this, as we have done in the past, through organic growth fueled by new product developments.
Rodriguez: Since 2015, we have been increasing our participation in other countries of South America. Today we have production plants in Bolivia, Uruguay, Paraguay and Brazil (San Pablo and Rio de Janeiro). We plan to increase our sales in Brazil, and continue to position the brand in this entire region.