Decorative Paints end-user segment outlook

All revenue generated by the decorative paints industry comes from consumers and professional users in either the New build projects or Maintenance, renovation and repair sub-segments of the Buildings and Infrastructure end-user segment. The latter sub-segment is more important than the former for AkzoNobel, given the large size of the installed base, particularly in more mature markets.

New build projects

In Europe, the new build market grew rapidly before 2008, after which it slowed down considerably. There are some signs that the market is returning to growth, with some analysts predicting robust growth rates going forward, due mainly to market recovery. At this rate of growth, the expectation is that Europe will return to 2008 output a decade after the recession began. However, our experience is that growth is more uncertain and uneven than the rates predicted by analysts. Therefore, our internal estimates of European new build growth are much more conservative.

In high growth markets such as China, new build growth has been disproportionately high over the last five years. However, growth rates have slowed. Going forward, growth is expected to moderate further to China GDP levels, or possibly even lower. In other key countries such as Brazil and India, growth rates have been higher than mature market rates over the last five years. Going forward, these are also expected to moderate somewhat.

In all geographies, growth rates are driven by population growth and increased wealth, but also by a variety of other factors, such as the need for personalization and enhanced sustainability. Thus, products that provide functional benefits, such as helping to cool buildings or increase perceived light and space, will continue to be in higher demand.

Maintenance, renovation and repair

This sub-segment is more important for our Decorative Paints Business Area than New build projects. We estimate that around 75 percent of our revenue comes from this sub-segment, with growth tending to be lower, but steadier and less cyclical. As is the case in New build projects, demand growth will be disproportionate for products that provide sustainability and other benefits.

In Europe, analysts are predicting a significant increase in growth rates going forward, similar to levels predicted in New build projects. Our internal estimates are substantially more conservative. In key high growth countries such as China, Brazil and India, we continue to see a slow switch from new build to maintenance. Growth rates going forward are expected to be very similar to new build growth rates.

The market

According to figures recently published by Orr & Boss, in a report commissioned by the International Paints and Printing Inks Council (IPPIC), the global market for decorative paints is just under 45 percent of the roughly €100 billion global paints and coatings market. The decorative paints share of the market tends to be significantly higher in mature geographies than it is in high growth geographies. Over time, the decorative paints share of the global paints and coatings market has decreased somewhat due to the increased importance of high growth countries combined with European market issues.