Coatings Predicted That Growth in Sales and Profits Will Be Much The Same Overall

In their annual results for 2011, coatings producers in Europe have been predicting that 2012 will be much the same overall as last year in terms of growth in sales and profits. There would, nonetheless, be one major difference between the two years. Whereas 2011 started relatively strongly and ended weakly with sluggish demand and squeezed margins, 2012 would start with feeble sales and profits but finish much more positively. This would lead the way to an accelerated recovery in 2013 when sales levels in volume terms would start to return to what they were before the 2008 financial crisis. However it already appears that sales of coatings and other higher-value chemical segments in the first quarter of 2012 could be better than expected. "So far the figures look good so that we can be reasonably confident about a positive outcome for the first quarter, " said Moncef Hadri, chief economist at the European Chemical Industry Council (Cefic), whose statistics covers both upstream and downstream sectors like coatings. "A good first quarter can provide the basis for a continued upturn though the rest of the year. " Overall production of chemicals, which includes coatings, expanded in the European Union in January for the second consecutive month after four straight months of contraction, according to the latest Cefic figures, issued by its statistics unit Cefic Chemdata International. With paints, production was marginally higher than a year ago whereas with chemicals overall they were lower. Total chemicals sales have been rising relatively strongly. While output levels were 2.3 percent lower than those in early 2011, the sales figures at the start of 2012 were almost certainly higher. In December they were almost two percent higher than a year ago. But the improved sales performance, continues to be driven mainly by prices, which for the chemicals sector as a whole, including paints, rose by an average nine percent in the EU. Demand for coatings and other downstream chemical products is being boosted by the resolution by EU governments, at least temporarily, of the crisis with the euro, the EU currency used by 17 member states, after Greece avoided a serious default on its huge national debt. With a more stable euro, business and consumer confidence in Europe is improving. In February for the second month in a row the EU’s Economic Sentiment Indicator (EIS), based on surveys of companies and consumers, went up by 1.1 points to just under 94, although it was still well below the long-term average. "We hope that a positive attitude among consumers will now lead to them buying more decorative paints to renovate their homes, " said Erkki Jaervinen, president and chief executive of Tikkurila of Finland, which has decorative and industrial coatings operations in Scandinavia, and Eastern Europe, including Russia. Tikkurila is expecting that, for its business, 2012 will be a repeat of 2011, which it regarded as a relatively good year with sales up 9.4 percent and operating profit up 9.7 percent. "We are feeling quite optimistic about this year, especially about the prospects for returning as good a profit as last year, which at around 10 percent is not bad for a coatings business, " said Jaervinen. Coatings companies, particularly in the decorative paints sector, have been anticipating an end to a destocking period early this year, which began in the third quarter of 2011 after a brief surge in demand. AkzoNobel, the leader in the European decorative market, reported that in the European sector there was "a solid start to the year but a significant slow-down in the second half of 2011 in those countries most impacted by the euro crisis. " However the destocking activities in the decorative sector is linked to a new tendency among the larger retail chains to cut back their inventories permanently. "They are ordering the quantities they need in the light of existing demand, " said Jaervinen. "They are not speculating any more by buying more than they require at any one time in order to take advantage of existing prices. " Instead retailers are investing in data processing and modelling of demand patterns to predict more efficiently short-term sales. They are also reducing the number of paint brands they buy while at the same time buying direct from coatings manufacturers rather than through wholesalers in order to reduce logistics costs. These retailers are looking to paints producers and other suppliers to help make cost savings. Kingfisher plc, a UK-based leading pan-European home improvement chain, recorded a 20 percent rise in pre-tax profit in the 2011/12 year to the end of January on a 3.6 percent increase in sales. Ian Cheshire, Kingfisher's chief executive, said amid "challenging times for our customers" the rise in profits had stemmed from cost-cutting and efficiency initiatives. Kingfisher even managed to lift retail profit by 11.6 percent on flat sales in the UK, which is its main market with 572 stores but whose DIY sector has been in the doldrums since a sharp drop in house prices after the 2008 financial crisis. "The outlook for the decorative paints market in the UK this year is quite pessimistic because it won't recover until there is an upturn in construction which we can't see any sign of at the moment, " said Tony Mash, chief executive of the British Coatings Federation (BCF). However the picture is much brighter with industrial coatings both in the UK and elsewhere in Europe due to a pickup in exports of engineering products and the start of a revival in capital investment. "We saw increases in sales in various industrial coatings segments last year and this upwards movement is continuing so far this year, mainly because of demand from UK exporters, " said Mash. In Germany, which is the only EU country in which business and consumer confidence is currently above the long-term average, companies appear to be starting a new round of capital expenditure. "We've seen fairly strong sales of coatings for machinery and heavy equipment after customers have now gone head with investments postponed since 2008, " said one German-based industrial coatings manager. Coatings producers in Europe are hoping that demand this year will be robust enough to offset the continued impact of rising raw material costs. Jotun of Norway blamed high raw material prices for a 14 percent fall in operating profit last year despite a nine percent sales increase. "High raw materials prices remain a challenge for us and the industry as a whole, " said Morten Fon, Jotun's president and chief executive. Higher demand this year will give coatings companies a better chance of pushing through rises in their selling prices to increase or at least maintain profitability in the face of persistently high raw material costs. Source: coatingsworld