Sean Milmo04.04.11
Many of Europe’s large and medium-sized coatings companies, predominantly based in Western Europe, are having to grapple with the problem of operating businesses in markets with different characteristics and growth rates around the world.
Also private equity funds are now taking the opportunity to offload investments in the sector, which they made before the recession.
They have a slow-growing domestic market so that much of their increases in sales have to come from expansions in the fast-growing markets of the emerging economies of Asia, Latin America and Eastern Europe.
The contrasts between the mature and developing segments of the global coatings sector has been evident in the latest annual results of Europe’s paint producers.
AkzoNobel, the world’s biggest coatings producer, recorded 33 percent and 25 percent rises in Asia and Latin America respectively last year in decorative paints. In Europe its decorative sales increased by two percent.
Overall AkzoNobel’s sales of decorative paints went up by nine percent to €5 billion ($7.1 billion) and those of performance coatings by 16 percent to €4.8 billion. With revenue from its specialty chemicals operation, approximately 40 percent of its sales now come from fast-growing markets.
With such big differences in geographical growth rates, many European coatings companies, even SMEs, have been extending their activities outside their Western Europe base into Eastern Europe and countries on the periphery of Europe. The multinational players are now investing heavily further afield in Asia and Latin America.
European coatings companies with a global reach tended last year to be the leading performers in terms of sales increases as well as profitability. BASF Coatings, a large proportion of whose sales come from the global OEM markets, benefited from a revival in the automobile market worldwide with an 19 percent rise in sales to €2.6 billion.
Norwegian-based Jotun, which is probably the most internationalized of the top-ranking pure-play European coatings companies with non-European sales of approximately 60 percent, pushed up revenue by seven percent to 12 billion Norwegian kroner ($2.1 billion) with operating profit up 16 percent to 1.2 billion kroner.
Its combined investments in capacity, personnel, new markets and R&D were the highest last year in the company’s 80-year-old history. A large proportion of the investments were in the Middle East and Asia, which account for the vast majority of its sales outside Europe.
In the running of their increasingly internationalized businesses, European coatings companies are adopting different strategies in different regional markets. Most companies have been intent on reducing costs and raising cash flows across the world. “Our markets have not yet fully returned to pre-recession levels and raw material prices are still volatile, so discipline remains key,” said Hans Wijers, AkzoNobel’s chief executive and chairman.
However in Europe, coatings companies are continuing to be intent on running a lean operation. Some of them are undergoing a lot of restructuring and reorganizing of activities in order to keep a tight grip on costs by improving infrastructure and distribution and curbing investments to increase cash flow and strengthen margins.
With many, the majority of investment is being made outside Western Europe, particularly in Asia. While Jotun is building a new paints plant in Norway after closing two in the country, its other major projects are the construction of a production facility and distribution center in Malaysia and Singapore, two plants in China and an expansion of a powder coatings unit in the United Arab Emirates (UAE) while it has plans for a new waterborne coatings plant in neighbouring Saudi Arabia.
In decorative paints markets outside Western Europe, European companies are channelling a lot of money into building up awareness of their brands. AkzoNobel last year increased promotional expenditure by 30 percent from five percent to six percent of revenue.
In Europe coatings producers tend to concentrate on reinforcing their long-established premium brands by introducing backup services related to them, such as help with color choices and interior design. But these high-margin premium products can be relatively profitable even during periods of sluggish growth, which is a major reason for European coatings multinationals wanting to ensure they retain a firm foothold in the region.
In the global decorative market, volume outstrips value so while decorative paints account for 51 percent of output they make up only 44 percent of the value, according to the latest figures from the International Paint and Printing Ink Council (IPPIC). In Europe the position is reversed with its share of the worldwide paints market being higher by value than volume.
At Finnish-based Tikkurila, a regional player in decorative and industrial coatings covering the Nordic countries, Eastern Europe and Russia and the rest of the former Soviet Union, operating margins of approximately 11-13 percent were recorded by its Scandinavian and Russian operations. The exception was its Central and Eastern European activity, dominated by Poland, in which margins slumped to four percent, partially due to intense competition in the Polish market.
Europe does have a number of coatings sectors with comparatively high growth rates, mainly in industrial coatings, which are exported out of the region around the world. These include wood finishes and powder coatings where companies reported last year that growth was in the high single figures or even double digit
.
Jotun, whose home base in Norway is outside the European Union, is aiming to achieve a 15 percent annual growth in the 17 countries of the Eurozone by exploiting the economies of scale of centralized plants and distribution points, particularly in the protective coatings segment.
The company, which began its international expansion in 1962 with the opening of a plant in Libya, has conceded that it may have to do some reorganizing in the Middle East and North Africa because of the political unrest in the region.
After establishing a major international base in the UAE, it had decided to refocus on North Africa and the Eastern Mediterranean as an area of enlargement by building up a dealer network and recruiting personnel. Its plans have also included a new factory in Libya. Now it says that political upheaval in North Africa and the Middle East may slow future growth.
For experienced international operators like Jotun the restructuring of a foreign activity due to political developments will not be unusual. There is still likely to be plenty of opportunities for slower but high-margin growth within Europe itself.
Also private equity funds are now taking the opportunity to offload investments in the sector, which they made before the recession.
They have a slow-growing domestic market so that much of their increases in sales have to come from expansions in the fast-growing markets of the emerging economies of Asia, Latin America and Eastern Europe.
The contrasts between the mature and developing segments of the global coatings sector has been evident in the latest annual results of Europe’s paint producers.
AkzoNobel, the world’s biggest coatings producer, recorded 33 percent and 25 percent rises in Asia and Latin America respectively last year in decorative paints. In Europe its decorative sales increased by two percent.
Overall AkzoNobel’s sales of decorative paints went up by nine percent to €5 billion ($7.1 billion) and those of performance coatings by 16 percent to €4.8 billion. With revenue from its specialty chemicals operation, approximately 40 percent of its sales now come from fast-growing markets.
With such big differences in geographical growth rates, many European coatings companies, even SMEs, have been extending their activities outside their Western Europe base into Eastern Europe and countries on the periphery of Europe. The multinational players are now investing heavily further afield in Asia and Latin America.
European coatings companies with a global reach tended last year to be the leading performers in terms of sales increases as well as profitability. BASF Coatings, a large proportion of whose sales come from the global OEM markets, benefited from a revival in the automobile market worldwide with an 19 percent rise in sales to €2.6 billion.
Norwegian-based Jotun, which is probably the most internationalized of the top-ranking pure-play European coatings companies with non-European sales of approximately 60 percent, pushed up revenue by seven percent to 12 billion Norwegian kroner ($2.1 billion) with operating profit up 16 percent to 1.2 billion kroner.
Its combined investments in capacity, personnel, new markets and R&D were the highest last year in the company’s 80-year-old history. A large proportion of the investments were in the Middle East and Asia, which account for the vast majority of its sales outside Europe.
In the running of their increasingly internationalized businesses, European coatings companies are adopting different strategies in different regional markets. Most companies have been intent on reducing costs and raising cash flows across the world. “Our markets have not yet fully returned to pre-recession levels and raw material prices are still volatile, so discipline remains key,” said Hans Wijers, AkzoNobel’s chief executive and chairman.
However in Europe, coatings companies are continuing to be intent on running a lean operation. Some of them are undergoing a lot of restructuring and reorganizing of activities in order to keep a tight grip on costs by improving infrastructure and distribution and curbing investments to increase cash flow and strengthen margins.
With many, the majority of investment is being made outside Western Europe, particularly in Asia. While Jotun is building a new paints plant in Norway after closing two in the country, its other major projects are the construction of a production facility and distribution center in Malaysia and Singapore, two plants in China and an expansion of a powder coatings unit in the United Arab Emirates (UAE) while it has plans for a new waterborne coatings plant in neighbouring Saudi Arabia.
In decorative paints markets outside Western Europe, European companies are channelling a lot of money into building up awareness of their brands. AkzoNobel last year increased promotional expenditure by 30 percent from five percent to six percent of revenue.
In Europe coatings producers tend to concentrate on reinforcing their long-established premium brands by introducing backup services related to them, such as help with color choices and interior design. But these high-margin premium products can be relatively profitable even during periods of sluggish growth, which is a major reason for European coatings multinationals wanting to ensure they retain a firm foothold in the region.
In the global decorative market, volume outstrips value so while decorative paints account for 51 percent of output they make up only 44 percent of the value, according to the latest figures from the International Paint and Printing Ink Council (IPPIC). In Europe the position is reversed with its share of the worldwide paints market being higher by value than volume.
At Finnish-based Tikkurila, a regional player in decorative and industrial coatings covering the Nordic countries, Eastern Europe and Russia and the rest of the former Soviet Union, operating margins of approximately 11-13 percent were recorded by its Scandinavian and Russian operations. The exception was its Central and Eastern European activity, dominated by Poland, in which margins slumped to four percent, partially due to intense competition in the Polish market.
Europe does have a number of coatings sectors with comparatively high growth rates, mainly in industrial coatings, which are exported out of the region around the world. These include wood finishes and powder coatings where companies reported last year that growth was in the high single figures or even double digit
.
Jotun, whose home base in Norway is outside the European Union, is aiming to achieve a 15 percent annual growth in the 17 countries of the Eurozone by exploiting the economies of scale of centralized plants and distribution points, particularly in the protective coatings segment.
The company, which began its international expansion in 1962 with the opening of a plant in Libya, has conceded that it may have to do some reorganizing in the Middle East and North Africa because of the political unrest in the region.
After establishing a major international base in the UAE, it had decided to refocus on North Africa and the Eastern Mediterranean as an area of enlargement by building up a dealer network and recruiting personnel. Its plans have also included a new factory in Libya. Now it says that political upheaval in North Africa and the Middle East may slow future growth.
For experienced international operators like Jotun the restructuring of a foreign activity due to political developments will not be unusual. There is still likely to be plenty of opportunities for slower but high-margin growth within Europe itself.
