European Paint & Resin News - Executive Briefings 2001
EPRN EXECUTIVE BRIEFING - December 2001
Editor:- Tim Watt
A telephone survey carried out for the Deutsche Lackinstitut
in September 2001, reported in Farbe Lack, sheds some light on
the perception of paints and the German attitude to DIY
activities. Whereas 72% of the respondents had a positive image
of paint products, only 62% judged the paint industry in a
positive light.
Germans emerged as enthusiastic DIYers on the whole.
The criteria on which consumers based their paint purchases
ranged from technical excellence to having the Blue Angel label. Purchasing criteria
given in the survey were "quality, covering power,
weathering resistance, durability", "health
considerations", "ecological considerations", "price", "easy to handle, quick-drying", "aqueous or not", "having the Blue
Angel Label" and "odour".
Nine out of ten respondents felt that regulations in Germany
were appropriate or not strict enough. Hardly anyone thought that
they should be less strict.
According to a recent study by the Mafo-Institute on behalf of
the German Wallpaper Institute, wallpapering continues to attract
German DIY enthusiasts. Indeed the use of professional decorators
is largely shunned.
The frequency of repapering varies regionally: every five and
a quarter years in the old German states, but every four years in
the new East German ones. Nonetheless, wallpapers overall
represent a declining market.
The UK wallcovering market also continues to decline. Painting, on the other hand, is gaining in popularity in the UK, particularly among the young.
EPRN Executive Briefing - November 2001
According to CEPE, the year 2000 was governed by strong
economic growth and a steep rise in oil prices. At its Annual
Press Conference on 15 November, CEPE announced its estimates for
2000 volume growth in Europe.
Sixty percent of the paint market represent
architectural coatings by volume. General industrial coatings at
is the runner-up, with industrial wood coatings
following and both automotive OEM and powder coatings
trailing. In terms of Europe-wide market growth,
however, protective and general industrial coatings had the
highest growth. Can coatings, wood finishes and vehicle
refinishes recorded negative growth.
Twelve countries in Europe managed volume increases (Belgium,
Germany, Greece, Spain, France, Italy, Norway, Austria, Portugal,
Finland, Sweden and UK), two suffered decreases (The Netherlands
and Switzerland) and three (Denmark, Ireland and Luxembourg)
stood still.
Printing inks domestic sales increased in volume.
EPRN Executive Briefing - October 2001
Two forecasts, based on US Census Bureau findings, paint
similar cautiously optimistic forecasts for the US paint industry
over the next five years.
The 2001 Rauch Guide to the US Paint Industry points to growth
below that of the national economy, with paint shipments between
1989 and 2000 increased.
Orr & Boss's US Paint & Coatings Market Analysis
reminds us that the coatings industry is nearing the end of its
second consecutive year of depressed sales and profits. However,
the authors believe that the mid- to long-term outlook for
prosperity greatly outweighs the recent and near-term earnings
weakness.
Clearly there is great uncertainty after the September 11
terrorist attacks in the short-term for the economy. Some Wall
Street analysts predict an extended period of weakening in
consumer confidence and important industries such as
construction, housing and automotive. Alternatively, others are
saying that the renewed sense of patriotism will translate into
the beginnings of an economic recovery by the first quarter of
2002. Whichever scenario proves to be closer to the truth, the
coatings industry will likely mirror the country's economy. The
mid- to long-term outlook remains bright and steady.
Recent third quarter results include Dow Chemical reporting a
decline in third quarter sales, unfavourably impacted by merger expenses and
restructuring and costs related to the events of September 11.
Arch Chemicals announced a new loss.
Nonetheless, a Coatings Agenda Americas survey of current
trading conditions and future prospects carried out prior to
September 11 showed optimism prevailed. These CEOs will hope America will emulate New York
City's spirit of reconstruction with its new slogan for visitors
to "Paint the Town Red, White & Blue".
EPRN Executive Briefing - September 2001
The International Monetary Fund (IMF) forecasts for Europe,
released just before the devastating events of September, revise
downwards earlier predictions.
The economic downturn seems to have most dramatically affected
the German economy. The largest market, according to the
IMF, will have the lowest growth of any of the 12 eurozone
economies. Germany's manufacturing sector is of crucial
importance.
The German paint industry is the largest in Europe.
EPRN Executive Briefing - August 2001
The shape of the powder coatings market is far from clear-cut
and conflicting figures abound. Regional market shares and growth
varies considerably according to Akzo Nobel as reported in Farbe
Lack.
Although a recent Skeist Survey "Powder Coatings IV"
predicts an annual increase in sales of US powder coatings over
the next five years, current industrial reality suggests
otherwise according to industry expert Sid Harris. Indeed, a
downturn in powder coatings sales in the year to date is reported
by US producers, particularly automotive suppliers.
The European powder coatings market, which had fallen in 2000 in spite of increased
shipments, is predicted to grow by 2006, according to
Frost & Sullivan. A fall in prices was the cause of this
drop. The European market leaders are Akzo Nobel, DuPont, Rohm
& Haas, Ferro.
Over-capacity is a problem, with attendant pressure on prices.
It is estimated that the excess capacity for hybrid polyester/epoxy
coatings may be 25-30%. As a result, hybrid systems tend to
suffer from the "C" word - commoditisation.
Demand for powder coatings in the US will rise according to market research
organisation Freedonia. Gains will be driven by environmental
benefits over non-compliant solvent-based coatings, excellent
adhesion and performance. Suppliers are also rapidly expanding
the functional range of powders into non-metal substrates such as
wood and plastics.
Powder coating technologies have been viable and successful
but prices have dropped. There may soon be a clearout for hybrid
systems, from which the less successful producers will suffer.
EPRN Executive Briefing - July 2001
Recent economic figures and company announcements appear as
enigmatic as 14th century Middle English poetry.
There is evidence in Britain of a "two-speed economy".
House prices continue to rise while other data underline a sharp
slowdown in growth. House price inflation was 9.6% in the last
year according to Halifax Bank and a Confederation of British
Industry survey suggests households remain confident about their
future incomes. But a Chartered Institute for Purchasing and
Supply survey showed the imbalances between different parts of
the economy are getting worse, with manufacturers cutting output
and employment. The index of output fell to 47, below the neutral
50 level, denoting flat output.
At the end of June, BASF announced the closure of plants
and sites worldwide in a raft of measures to protect the group
against slowing economic growth. At the same time, Bayer's share
price hit an eight month low on fears that the slowdown is
spreading from the US to Europe faster than expected. Dow,
DuPont, Rhodia and Eastman were other companies to issue profit
warnings.
Akzo Nobel is to cut jobs to counter a slump in income
caused by high raw material prices and the economic downturn. The
company took a charge in the second quarter to
restructure its coatings and chemicals units. Fritz Froehlich, chief
financial officer, said "the objective is to structurally
reduce our cost levels and improve our performance. We are
accelerating restructuring programmes, involving headcount
reductions and rationalization of production sites".
EPRN Executive Briefing - June 2001
The European Confederation of Paint, Printing Ink and Artists'
Colours Manufacturers' (CEPE) 50th Anniversary Conference, held
on 1 June in Lyon, presented practical views on current
imperatives, with profitability, added value and innovation high
on the list.
Cees van Lede, Chairman of Akzo Nobel, observed that during
the last decade, growth has come mainly from acquisitions. But it
could also come from new technology and from added value products
and services, such as training and technical trouble-shooting or
by helping customers with their process and supply integration.
Profitability has been relatively low due to fragmentation, the
buying power of large customers, lack of recognition of the value
of paint and dependence on raw materials suppliers for innovation.
The coatings industry, according to van Lede, should integrate
and consolidate further by reducing stock-keeping units,
streamlining brands and concentrating on customer profitability.
The focus has to be on added value; in van Lede's words, "We
don't just sell paint, we sell style, service, technology,
experience, problem solving and so forth".
Adding value, according to BASF's President Klaus-Peter
Loebbe, also included wider cooperation with customers. Cost
reductions should focus more on the process. Price concessions
merely put margins under pressure. Innovation offered an escape
from this trap. There are opportunities: coatings with improved
scratch resistance, additional functional properties, easier
application, accompanying services or development of more eco-efficient
products. Loebbe's final plea was "Don't sell technology,
sell emotions!"
Fashion, exemplified by brands such as Ralph Lauren and
Benetton, has become a major driver in the growth of the European
building paints market according to a new report by Frost and
Sullivan. This will not be enough to maintain steady growth; by
2007 the market will be worth $9BN compared with $8.75 BN today.
Manufacturers will have to work hard at product differentiation
beyond price and colour. R&D will not only have to work to
comply with legislation but also develop tangible benefits such
as ease of application and applicator cleaning. Environmental
factors in the buying decision are forecast to increase and a
move towards packaging and marketing of "environmentally
friendly" paints could prove important in increasing market
share.
The message from CEPE was that strong brands, emotionally
charged advertising with personalised messages are facts which
marketers could not afford to ignore.
EPRN Executive Briefing - May 2001
The European DIY market has grown much faster than the European retail sector in general.
The three largest markets - France, Germany and the UK - account
for about two thirds of total European DIY spending.
From a single store opened 30 years ago in Southampton by
Messrs Block and Quayle, B&Q has grown to be the UK's largest
home improvement retailer, with stores split between Warehouses and smaller DIY SuperCentres.
A recent merger with Castorama in France now makes B&Q number
one in Europe.
The DIY in Europe annual roundup reveals marked differences in
spending between countries. But the trend is towards larger (and
sometimes fewer) stores. Eastern Europe forms a small but fast-growing
business area for the multinationals.
The UK has the highest sales growth in Europe.
Major changes in the last year include Focus Do It All (despite a
consumer boycott) taking over Wickes and Great Mills. Sainsburys
sold its Homebase chain to Schroder Ventures and separately sold
28 large development sites to B&Q. The changes now leave
these three chains effectively controlling the UK market. Sales
in Germany's market rose. Over 100 new
stores were opened but the total number of stores fell. In France, the DIY market increased. Bricomarche has by far
the largest number of stores but Castorama has more total sales area.
Conditions are right, according to Retail Intelligence, for
major European M&A activity. Kingfisher, already Europe's
largest DIY chain, has promised to complete its demerger by the end of July.
This is thought, by Retail Intelligence, to have two possible
outcomes; it would make a very attractive takeover target,
perhaps for Home Depot, while it may itself look to make further
acquisitions in Europe.
The clout of the DIY multiples in the UK stems from the fact
that they now hold three quarters of the retail market. Using
such power, B&Q is planning to make all its products "toxics
safe" by 2005.
EPRN Executive Briefing - April 2001
Among companies reporting first quarter 2001 results, a common
cause of blame for lower figures than last year are high raw
material costs and economic slowdown, particularly in the US
automotive and constructive markets.
The Association of European Adhesives Manufacturers (FEICA)
cites these reasons for lower profits. HB Fuller and Sovereign
were two adhesives manufacturers hit by the US downturn. ICI
blamed higher raw material costs and difficult trading conditions
in the US for a fall in first-quarter profits; their US sales
declined. RPM also blamed cold weather for reduced sales but
signalled n improvement in the current quarter.
Akzo Nobel achieved a first-quarter net income almost equal to last year, with total sales up.
The strong performance of Pharma activities was offset by
earnings pressure at Coatings and Chemicals, mainly due to
slowing demand. Coatings sales did actually rise, mainly from
newly acquired activities. Volumes were lower, while selling
prices were higher. Operating income was below
last year's first quarter. The industrial coatings activities
were impacted by the slowdown of the US economy and the weakness
of the automotive industry. Decorative coatings and car
refinishes are suffering from a levelling off in European markets
and the crisis in Turkey. However, earnings of marine and
protective coatings were up strongly, driven by the shipbuilding
boom in Asia. "Coatings has disappointing sales, leading to
lower margins" according to Fritz Froehlich, Akzo Nobel's
CFO. "The US economic slowdown and weakness of the
automotive industry are the main causes. Cost reduction programs
are being accelerated."
EPRN Executive Briefing - March 2001
The financial reporting season continues; we have more year
2000 results including those of some of the biggest chemical and
paint companies such as BASF and Bayer.
Sales and profits were hugely influenced by effects of
acquisitions and disposals as well as exposure to the downturn of
the United States market. We also report US Census Bureau figures
showing marginal growth in paint sales over 200 as a whole, but
a fall in volumes and sales in the final
quarter wiping out earlier gains.
The slump appears to have reached Europe when you consider
that new car registrations - a barometer of economic confidence -
were down in February 2001. GM Europe indicated that total
industry sales in the region could fall. It is the latest sign that Europe may, like
the US, be experiencing a sharp slowdown. However, a stronger
economy together with the return of the private buyers, after a
fall in new car prices, led to a rise in UK registrations.
Despite the uncertainties, UK spending on DIY goods is
forecast to rise this year according to Consumer Futures.
Niche markets that have contributed to this include specialist
paints and garden woodcare that grew in 2000,
ahead of the growth of the total woodcare market.
Putting the paint makers figures in to the shade, as well as
showing that growth is possible in the US through knowing and
serving its market well, is Wal-Mart. Nevertheless, the world's largest retailer has signalled that
expansion can only be sustained by thinking globally, Wal-Mart
intends to derive one third of its earning outside the US and,
already in China and South Korea, is to expand further into Asia
with "boxes" planned for the Philippines.
EPRN Executive Briefing - Febuary 2001
With most year 2000 results in, we have pored over annual
reports for the real ‘bottom line' and tabulated (as far as
possible from information released) the ‘like for like'
yearly and quarterly results of coatings companies.
In a regulatory climate promoting disclosure and with the
internet, this should be easy, but footnotes and health warnings
are required. Full reporting, and plenty else, makes full-time
investor Warren Buffet jump onto his soapbox. In his Chairman's
letter to shareholders of Berkshire Hathaway, he warned "when we read reports,
references to EBITDA make us shudder - does management think the
tooth fairy pays for capital expenditures? We're very suspicious
of accounting methodology that is vague or unclear, since too
often that means management wishes to hide something. We don't
want to read messages that a public relations department or
consultant has turned out. We expect a company's CEO to explain
in his or her own words what's happening".
Reasoning that a pin lies in wait for every bubble, Buffet
shunned technology stocks but "embraced the 21st century by
entering such cutting edge industries as brick, carpet,
insulation and paint". To shareholders used to statements
from PR departments, Mr Buffet adds ironically "Try to
control your excitement".
Berkshire's acquisition technique is simple: they answer the
phone. When 117 year old paint company Benjamin Moore called,
Buffet met them, liked them, liked the business and made a cash offer on the spot.
As our list shows, businesses have ups and downs. What matters
for Buffet though are long term results. For ‘painters' of
business Rembrandts wanting a permanent home for their companies,
Berkshire Hathaway publicise their acquisition criteria in their
annual report. However, a line from a country song expresses
Buffet's feelings about new ventures, turnarounds, or auction
like sales: "When the phone don't ring, you'll know it's me."
