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Performance coatings
market overview


End-user segment and market sector outlook

The Performance Coatings market represents around 55 percent of the €75 billion global paints and coatings market. It is growing and profitable. However, growth rates and levels of cyclicality and profitability differ somewhat across end-user segments and sub-segments.

Transportation

Transportation is the largest end-user segment for our Performance Coatings Business Area. For all end-user segments, apart from marine, the outlook is positive in the short to medium term, due to strong automotive demand, recovery from the recession and continued high demand levels in high growth markets. Going forward, growth rates are not expected to reach the levels experienced prior to the economic downturn. However, in this end-user segment, growth rates for coatings can outstrip overall demand where products provide sustainable or other performance benefits. For example, there is strong demand for coatings solutions that reduce energy use and/or help to enhance production efficiency for our customers. It is also possible to differentiate products in terms of functionality for high-end customers, leading to higher margins.

Taking each of the three sub-segments in Transportation in turn:

Automotive OEM, parts and assembly

This sub-segment is fairly cyclical and has been recovering well from the substantial market downturn. The large (roughly €7 billion) automotive OEM coatings market sector serves this end-user sub-segment. AkzoNobel’s participation is limited, however, as we do not sell liquid automotive body coatings for original equipment manufacture. Our involvement is focused on commercial vehicle OEM coatings, powder coatings and specialty finishes, generally for plastic automotive components. We expect these sectors to experience above average growth due to underlying end-user segment growth.

Automotive repair

This is a more stable and less cyclical sub-segment, but has lower growth rates. We sell automotive refinishes into this sub-segment and our expectation is that growth rates will remain average in this market sector, as the vehicle car park increases while repair rates decrease.

Marine and air transport

This sub-segment can be highly cyclical as shipping rates and air travel tend to reduce dramatically during economic downturns. However, given the long lead times involved in shipbuilding and aircraft construction, downturns in new construction often occur quite late in the cycle and some balance in demand is created by the existence of both new build and maintenance markets. Currently, very low shipping rates are putting pressure on demand for marine coatings, even for maintenance. We sell both marine and aerospace coatings into this end-user sub-segment and expect little or no growth in the marine coatings market sector, while in aerospace, we anticipate average to above average growth.

Consumer Goods

The Consumer Goods end-user segment is only slightly smaller than Transportation for our Performance Coatings Business Area. The outlook is relatively positive, as we see some demand growth in mature markets and reasonably high demand growth in high growth markets, driven by increases in wealth and population. Growth rates vary, however, with higher growth in consumer electronics and domestic appliances and lower growth in furniture and food and beverage. In addition, as is the case in Transportation, our expectation is that growth rates will be lower in the short to medium term than they were prior to the recession.

There are two sub-segments in Consumer Goods – Consumer durables and Consumer packaged goods.

Consumer durables

Consumer durables can be relatively cyclical, but the outlook for growth is generally positive, with some growth in mature regions and higher growth rates elsewhere. Growth levels can be tempered by the switch in product mix – in both mature and high growth countries, the highest growth levels tend to be in lower end segments. Growth rates also vary, with some consumer durables (such as consumer electronics) enjoying a very positive outlook, while others (such as furniture) have much lower growth expectations. As a result of these differing underlying segment growth patterns, we expect above average growth in the powder coatings and specialty finishes market sectors and lower growth (average at best) in the wood finishes market sector.

Consumer packaged goods

This is a slower growing, but less cyclical, sub-segment. We sell packaging coatings into this sub-segment and expect growth in this market sector to be somewhat below the average for the performance coatings market.

Buildings and Infrastructure

Many parts of this end-user segment have been badly affected by the recent recession. The expectation is that the underlying issues will continue to exist in the short to medium term, particularly in mature regions in Europe. However, growth rates are increasing in the United States and will remain high in high growth regions.

Building products and components

The vast majority of our revenues in the Buildings and Infrastructure end-user segment come from this sub-segment. In terms of outlook, we expect continued growth in high growth geographies, but not at pre-recession levels. In more mature regions, a very moderate return to growth is expected, created by maintenance rather than new build demand, and oriented towards non-residential building components. For example, we are expecting some mature market growth in areas such as doors and windows, which are maintenance-oriented and used in a broad range of building applications. We also expect reasonable growth rates in coil and powder coatings from high growth geographies due to the non-residential profile of these market sectors. Growth rates for the more residentially-oriented wood finishes and adhesives market sector will be lower.

New build projects and Maintenance, renovation and repair

In the other two sub-segments of New build projects and Maintenance, renovation and repair, the general outlook is for low levels of growth as housing markets continue to experience considerable issues, particularly in mature Europe. However, our Performance Coatings revenues in these two end-user sub-segments generally come from large building projects and infrastructure (e.g. bridges, stadia, airports), rather than housing. Typically, investments in infrastructure continue, and even accelerate, during economic downturns as governments use these kinds of projects as an economic stimulus. Furthermore, many high value infrastructure projects are over multiple years and are difficult to bring to a halt during a recession. Demand is, therefore, generally expected to remain strong for protective coatings, which are sold into these two sub-segments for non-residential applications.

Industrial

Many parts of this end-user segment can be quite cyclical. However, domestic high growth market demand means that, on a global basis, the downturn had less of an impact than might be expected due to the recent recession. Oil, gas, energy and utilities were particularly strong and growth is expected to continue at above GDP levels going forward in all geographies. We serve this end-user segment through protective coatings and some powder coatings, both of which are strongly oriented towards the higher growth applications. As a result, we are expecting above average market sector growth in this segment.

Strategic direction

Our vision for Performance Coatings specifically is to be the leading business-to-business coatings company. To us, leadership in business-to-business coatings means that we must have strong processes and capabilities in terms of:

  • Industrial key account management
  • Technical support and service
  • Design, color and color matching
  • Continuous innovation in terms of functionality and efficiency in use
  • Sustainable and safe product and service solutions
  • Product and margin management

To capture market opportunities while ensuring that we continue to have strong processes and capabilities in the above areas, we have four main strategic priorities. These strategic priorities are:

  1. Given the breadth of opportunities for this Business Area, we plan to grow organically in all market sectors and countries/regions. This is likely to mean different things for different market sectors.
  2. To ensure that our end-user segment focus provides true benefits on a market sector level, we will need to pursue a cross-business approach for key segments and accounts. This means that we will need to work across Powder Coatings and Specialty Finishes, for example, to provide the best solution for our customers in the domestic appliance and consumer electronics areas of the Consumer Goods end-user segment.
  3. We must continue to focus our RD&I agenda on improving functionality and sustainability. In practice, this will mean focusing and prioritizing innovations that reduce the use of materials of concern, that increase the renewability of our raw materials and that help our customers to use less energy, improve their carbon footprint, increase safety and health and wellness, increase their market share and/or improve their process efficiency.
  4. We will continuously improve operational excellence across all functions and businesses. This includes everything from capabilities in terms of pricing and formulation management (which are key components of product and margin management), to manufacturing and distribution network optimization, integrated business planning and purchase-to-pay processes.

Key actions going forward

  • Complete manufacturing expansion for automotive refinish in China
  • Complete Schramm/SSCP integration
  • Launch various new projects
  • Continue product line rationalization
  • Continue ERP consolidation

Key raw materials

  • Resins
  • Titanium dioxide
  • Pigments
  • Solvents

Price drivers

  • Oil/energy prices
  • Construction demand
  • Metals, base chemical prices

Market leadership positions

 

 

Marine and Protective Coatings

1st

Marine coatings

 

Protective coatings

 

Yacht coatings

 

 

Automotive and Aerospace Coatings

2nd

Aerospace coatings

3rd

Vehicle refinish

4th

Automotive plastic coatings

 

 

Industrial Coatings

1st

Coil and extrusion coatings

 

Specialty plastics coatings

2nd

Packaging coatings

 

 

Powder Coatings

1st

Powder coatings

 

 

Wood Finishes and Adhesives

1st

Industrial wood finishes

2nd

Industrial wood adhesives

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