Semi annual report on coatings market in EU countries

The European economy is being affected by the global recession. But for European paint makers, it's an opportunity to show how they can restructure themselves to cope with economic pressures. In the first half of this year, the demand for coatings in the downstream application industry has been stagnant, and some industries have even declined. However, although the sales volume of coating companies at home and abroad has been declining, or at most only a small increase, their profits are growing, some even reaching double-digit levels. Paint companies are seeing the benefits of adopting a strategy focused on improving profitability by streamlining their product mix, introducing cost cutting plans and implementing operational efficiencies. Although economic analysts expect economic growth in Europe and the world to slow down this year, paint companies expect 2019 to be a year of weak sales growth but increased profitability. The European Commission's economic and Financial Affairs Bureau, the European Commission's executive arm in Brussels, predicted in its forecast this summer that GDP growth in the EU would fall to 1.2 per cent this year from 1.9 per cent in 2018. It blamed factors such as trade frictions for the slowdown, such as tensions between China and the US, and continued weakness in global industrial output. An EU Industrial confidence index, based on a company survey, showed the biggest decline in eight years. The main reason for this decline in confidence is the difficulty of Germany's export-oriented economy, with output in the second quarter down 0.1% compared with the previous three months. In the fall, economic growth in the 19 countries of the eurozone halved in the second quarter to 0.2%. Germany is the economic stronghold of Europe, and has the largest coating industry. Its export of coating products is almost three times of the import.

Most of the economic slowdown in Europe occurred in western countries, while the GDP of central and Eastern European countries continued to maintain relatively strong growth, and the coating industry was booming. Britain's paint business also appears to be doing well, with the UK's departure from the EU to the end of October 2019 delayed in late March despite uncertainty over brexit. From April to June this year, the UK economy shrank by 0.2%, the first contraction since 2012. Generally, the British paint industry follows the trend of GDP, so when the domestic economy is in recession, the production of the paint industry will also decline, usually along with the sales. In fact, this year has been the opposite. In the first half of 2017, the sales volume of decorative coatings in the UK increased by 5% in terms of sales volume and 8% in terms of value, while the annual sales volume in 2017 and 2018 decreased or remained the same. "This is the reserve effect of brexit," said Tom bauter, chief executive of the British paint Federation (BCF) "Companies are worried about tariff and customs delays after brexit"... Once brexit, supply chain difficulties may become a problem in some markets, especially in northern Europe, where the UK is currently the European supply center for finished products and raw materials. According to BCF, 84% of paint and ink imports in the UK come from other parts of Europe. However, for most parts of Europe, the main challenge is to offset the slowdown or decline in sales caused by the current economic downturn, as well as the rise in prices and the cost reduction of production and other businesses. Akzo Nobel, a European coatings multinational company, is the market leader in the decoration and key industrial coatings industry in Europe. In the first half of 2019, the impact of flat or low sales revenue was offset by higher operating revenue. Adjusted operating income in the second quarter increased by 25%, compared with a 36% increase in the first half of the year.

Akzo Nobel has more than 40% of sales in Europe, and most of the rest are in the Asia Pacific region. He has been focusing on price, discount, credit and other price combination initiatives, using price increases to tap the value of its high-quality products, so as to prevent sales from falling. In the decoration business, sales fell 5% in the first half of the year, mainly due to the decline in the Chinese market, but offset by a 5% increase in the price mix. There is a similar strategy in high-performance coatings, that is, the decline of production is mainly compensated by the increase of 6% price combination. The company is striving to achieve an average return on sales (ROS) of 15% by 2020. In the second quarter, the ROS of Akzo Nobel decorative coatings business was 13.5%, compared with 12.2% in the same period of 2018; the ROS of high-performance coatings business was 13.6%, compared with 11.8% in the same period. BASF lags behind Akzo Nobel in terms of sales, but it is also a leading raw material supplier, following a similar strategy to make up for sales decline through price rise and cost control. This year, the company was hit by slowing car sales in Europe and the rest of the world. According to BASF, global auto production fell by 6% in the first half of the year, while the Chinese auto market, BASF's main exporter, fell by 13%. Despite this, the company has achieved a "significant" increase in paint prices, which has helped its surface technology division (including its paint business) to grow its EBITDA (EBITDA) by 7%. Paint companies serving the European market are following similar goals. Tikkurila, headquartered in Finland, is the leader of the Nordic and Eastern markets, covering Scandinavia, Poland and Russia, and operating in Central Asia and China. After adjustment in the first half of the year, operating profit increased by 25% and revenue decreased by 1.7%. "Digura focuses on high-end brands and prioritises value over volume," said ELISA markula, the company's chief executive. "In Russia and Poland, the growth driven by the growth of demand for high-end products has been positively reflected in our sales mix. The decline in sales was partially offset by higher prices and positive developments in the sales mix. " European coating companies hope that, in addition to providing innovative and high-quality products, raw material cost reduction due to the weak oil price will continue to help them expand their profit margin at least in the next few years.