Decorative Paints end-user segment outlook

All revenue generated by our Decorative Paints Business Area comes from 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 in and the higher growth rate outlook in maintenance in key countries such as China and Brazil. We estimate that roughly 75 percent of our revenue comes from maintenance and 25 percent from new build.

Consumer confidence is an important driver of the Buildings and Infrastructure end-user segment and trends in consumer confidence are changing. Specifically, although consumers are still pessimistic in most European countries, consumer confidence has been increasing over the last year or so. At the same time, although consumers are optimistic in most high growth countries, consumer confidence has been decreasing over the same period in most of these regions, apart from India. Due in part to these changes, we are seeing shifts in the construction outlook, with higher growth expected in mature geographies and lower growth in China.

Similar shifts are taking place in the Maintenance, renovation and repair sub-segment. Expected growth rates are somewhat higher than in New build for all geographies of importance to AkzoNobel. Overall, maintenance growth rates are expected to be higher than they have been in Europe, which indicates positive momentum for our business. However, it is worth noting that the main reason for expected higher growth rates is significant improvement in countries such as Italy and Spain. Growth in the UK is expected to continue, but at a lower pace.

In all countries, higher growth rates are expected for products that provide functional benefits, such as helping to keep buildings cool in hot climates, or making interiors feel brighter and more spacious.

The market

According to figures published by Orr & Boss in a report commissioned by the International Paints and Printing Inks Council (IPPIC), the global market for decorative paints is 42 percent of the roughly €100 billion global paints and coatings market. This share has decreased somewhat over the last few years due to the increased importance of emerging markets (where performance coatings tend to be more important), as well as issues in the European Buildings and Infrastructure end-user segment. In general, regional Buildings and Infrastructure growth rates have a high correlation with paints growth rates, although other factors also play a part.

Mature markets

Mature markets are comprised of Western Europe, the US, Canada, Japan and Oceania.