1 state of the global coatings industry

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The State of the Global Coatings IndustryThe State of the Global Coatings IndustryThe State of the Global Coatings Industry

THE COATINGS SUMMITMunich, Germany

February 17, 2009

THE COATINGS SUMMITTHE COATINGS SUMMITMunich, GermanyMunich, Germany

February 17, 2009February 17, 2009

Prepared by:Prepared by:

Charles E. Bangert, Jr.Charles E. Bangert, Jr. PartnerPartner

Orr & Boss, Inc.Orr & Boss, Inc. Corporate HeadquartersCorporate Headquarters

44450 Pinetree Drive44450 Pinetree Drive Plymouth, Michigan 48170Plymouth, Michigan 48170

U.S.A.U.S.A.

http://www.ippic.org/index.htm

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Orr & Boss, Inc. Strategy Consultants

International management consulting firm.Focus on the specialty chemicals industry.

Founded in London, England in 1947. Headquartered in Detroit since 1984.

Offices throughout North America & Europe.Associates in South America and Asia.

Our multi-disciplined staff of consultants:Address immediate operating needs of clients.

Assist in long-term strategic positioning of clients.

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http://www.terragalleria.com/asia/china/hong-kong/picture.chin4801.html

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Orr & Boss, Inc. Three Categories of Service Offerings

CORPORATE REPOSITIONING

MARKETING & SALES

OPERATIONS IMPROVEMENTProductivity Improvements & Cost Reductions

• Plant & Warehouse Efficiencies• Supply Chain Optimization• Reduction of Working Capital Requirements

Top Line Growth Opportunities• Market Opportunity Assessments• Industry & Geographic Expansion• Technology Fit Assessment & Innovation

Improved Corporate Performance• Strategic Planning• Corporate Restructuring• Mergers & Acquisitions

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Representative List of ClientsPaint & Coatings

Ace Hardware CorporationAmeron InternationalAkzo NobelBASF CorporationBehr Process CorporationBenjamin Moore & CompanyCIN, SAConsorcio Comex, SADuPont Performance CoatingsDyrupEllis Paint CompanyHempelICI PaintsInversiones MundialMaterisNippon PaintPachin PaintsPPG Industries, Inc.Red Spot Paint RPM, Inc. - StonCor GroupRPM -- Rust-OleumRPM – Carboline CompanySamuel Cabot IncorporatedSherwin-Williams CompanySigma-KalonTrueValue CorporationValspar Corporation

Chemicals / Raw MaterialsKemiraKerr-McGee CorporationMillennium/ Cristal GlobalMorton International, Inc.Reichhold Chemicals, Inc.Rohm and Haas CompanySartomer

Diversified IndustriesABB Flexible Automation Alberto CulverAmbrosia Chocolate CompanyAvery DennisonEli LillyEstee LauderFord Motor CompanyGenCorp Polymer ProductsGeneral Motors CorporationHershey Foods CorporationImperial FoodsITW RansburgLafarge MortarsMcKechnie Plastic ComponentsNabisco BrandsStanley FurnitureUS Gypsum CorporationWeber Knapp CompanyWorld’s Finest Chocolate

Adhesives & SealantsADCO AdhesivesAshlandAvery DennisonCasco AdhesivesFranklin InternationalITW Fibre Glass-EvercoatReichholdRoman AdhesivesShurtapeScapa Tapes3M CompanyTremco, Inc.TruSeal TechnologiesWatson Standard

Chemicals / Raw MaterialsAshland ChemicalBASF CorporationBayer MaterialScienceCelaneseCook Composites & PolymersDow Building SolutionsDow Coating SolutionsDow CorningDuPont Titanium TechnologiesEastman Chemical CompanyEvonik DegussaHuntsmanTioxide

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IPPIC The Sponsoring Organization

IPPIC provides a forum for information exchange and cooperation related to the major issues and priorities facing the global coatings and printing ink industries.

IPPIC’s members are paint and printing ink associations representing:

AustraliaBrazilCanadaChinaEuropeFranceGermanyIndiaJapanMexicoUnited States

IPPIC sponsored the intensive research effort that resulted in the Global Paint and Coatings Industry Market Analysis report on which this presentation is based.


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High Level Report Overview Four Phased Methodology

Published InformationGovernmental Data & StatisticsIndustry Trade AssociationsIndustry Journals & ReportsOn-Line Sources In-house databases

In-Depth Interviews & Surveys:Raw Materials SuppliersCoatings ManufacturersCoatings CustomersContractors & ApplicatorsSpecifiers & ArchitectsDistributors, Equipment Mfrs, etc.

Data Analysis

Draft Report Preparation

Industry Review of Draft Report

Final Report Preparation

Presentation Agenda

1. Overview of the Global Coatings Industry

2. Economic Trends & Driving Forces

3. Sector & Global Forecasts

4. Final Thoughts & Strategic Considerations

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Market Segment DefinitionsMarket Segment Definitions

1. Decorative Coatings- Professional Painters- Do-It-Yourself (DIY)

2. Transportation Coatings- Automotive, Light Truck, Vans - Heavy Duty Truck & Bus- Aerospace- Other Land Transportation

3. Wood Finishes- Wood Furniture, Cabinets, etc.- Flat Stock

4. Powder Coatings

5. Coil Coatings- Coil - Sheet and Strip- Extrusion

6. Packaging Finishes- Metal Container & Closures- Paper, Paperboard, Film & Foil

7. General Industrial Finishes- Non-Wood Furniture & Fixtures- Heavy Machinery & Equipment- Electrical Insulating- Other Industrial Products

8. Automotive Refinish

9. Industrial Maintenance & Protective Coatings

10. Marine Coatings

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10 Coatings Markets Investigated

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Geographic Regions Investigated

NorthNorthAmericaAmerica

Latin Latin AmericaAmerica

Rest Rest of Worldof World

EuropeEurope

Asia Asia PacificPacific

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Global Coatings Industry Volume by End Use Segment

25 25 -- 27 Billion Liters27 Billion Liters

Source: Orr & Boss, Inc.

Decorative 50%

General Industrial10%

Powder9%

Wood7%

IM & Protective7%

Transportation6%

Coil3%

Marine3% Auto

Refinish3%

Packaging2%

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Global Coatings Industry Value by End Use Segment

U.S. $90 U.S. $90 ---- $92 Billion$92 Billion


Decorative43%

General Industrial11%

Transportation8%

IM & Protective8%

Auto Refinish7%

Powder7%

Wood6%

Marine4%

Coil3%

Packaging3%

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Global Coatings Market Value by Geographic Region

NorthNorthAmericaAmerica

24%24%

Latin Latin AmericaAmerica

5%5%

Rest Rest of Worldof World

6%6%

EuropeEurope34%34%

Asia Asia PacificPacific31%31%


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Coatings Volume Growth Decorative vs. Industrial

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Liters M

illions

Decorative Industrial

2002 2007


5% / Year 7% / Year

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Industrial Coatings Volume Growth

-

500

1,000

1,500

2,000

2,500

3,000

Liters M

illions

Transp

ortatio

nWood

Powder Coil

Packag

ing

General In

dustrial

Automotive Refi

nish

Ind. Mainten

ance

& Protectiv

eMari

ne

2002 2007


13% / year 9% / year6% / year

< 1%/year< 1%/year

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Global Coatings Market Growth by Region (2002 – 2007)

Global Coatings Growth was nearly 8% per year during this 2002 to 2007 period.

North America showed about 3% growth. Most growth came from Architectural Coatings.

Europe posted twice the growth of NAFTA (about 7%). A lot of this growth was in Eastern Europe.

Asia grew by 13% -- OEM really contributed to this growth.

Latin America and Rest of the World (ROW) had high growth but from small bases.

0% 2% 4% 6% 8% 10% 12% 14%

Overall Market

North America

Europe

ROW

Latin America

Asia Pacific

CAGR

Coatings Market Revenue Growth by Region 2002 to 2007


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Large Market

Small Market

N. America W. EuropeAsia

C & E Europe

Latin America

Middle-EastAfrica

Emerging Mature


Market Positions -- Global RegionsVolume

Presentation Agenda





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Some Key Drivers Of the Coatings Industry

Overall Economic Activity – The major driver of coatings demand.

Gross Domestic Product (GDP) – Total value of goods and services produced over a period of time. GDP impacts nearly all coatings demand.

Construction Market – Primary driver of decorative coatings. Closely related to GDP. Construction activity drives deco, Industrial Maintenance, OEM coatings.

Housing Activity – This includes new home sales as well resale. Impacts deco, wood, coil, powder & general industrial coatings.

Vehicle Builds -- Impacts liquid OEM, powder and even refinish coatings.

General Industrial Production – A function of the health of industrial manufacturing sector. Influenced by regional economy. Drives demand for OEM coatings.

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Per Capita Coatings Demand By Region

0

2

4

6

8

10

12

14

NorthAmerica

Europe Asia Pacific Latin America ROW

Lite

rs/C

apita


21%Demand

29%Demand

36%Demand

6%Demand

8%Demand

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Decorative Coatings Consumption Compared with GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

GDP Volume

Asia Pacific Europe North America Latin America ROW


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$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ Billion

sHistorical and Forecast Global GDP

Global GDP Growth (2002 to 2007)

7.4% CAGR

Source: International Monetary Fund

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$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ Billion


Global GDP Growth (2007)

3.7% GAGR


7.4% CAGR

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Global GDP Growth (2008)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ Billion


2.2% GAGR


But in January 2009, the IMF revised its2008 GDP growth estimate downward to 1.1%

Major Slowdown in Manufacturing

Retail & Auto Sales Plummet

Consumers Not Spending

Unemployment Rate Soaring

Stock Market Tumble

Worldwide Credit Freeze

Subprime Mortgage Crisis

Current Global Financial Crisis

Global Economic Downturn

Housing Bubble Burst

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Near-Term Economic Forecast What will 2009 Look Like?

‐1% 0% 1% 2% 3% 4% 5% 6%

ROW

Latin America

Asia Pacific

Europe

North America

Forecast GDP Growth Rate by Region2008 to 2009

But IMF has just slashed its 2009 GDP growth forecast to 0.5%


In Nov. 2008, IMF forecasted a 2.2 % growth in GDP for 2009

Some are saying this may be optimistic.

What does this do to the bars on this chart?.

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Near-Term Economic Forecast What will 2009 Look Like?

“Financial markets remain under stress and the global economy is taking a sharp turn for the worse, sending global output plummeting.

“We now expect the global economy to come to a virtual halt.”

“World growth is expected to fall to just ½ percent in 2009.”

“This is the lowest growth rate since World War II.”

Oliver BlanchardChief Economist IMFJanuary 28, 2009

Near-Term Construction Forecast

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‐10% ‐8% ‐6% ‐4% ‐2% 0% 2% 4%

Europe

Japan

North America

Global

Forecast Construction Growth 2008 ‐ 2009 Global construction – forecasted to

slow to 2% annual growth.

North American construction -- will shrink by 9%.

Japan - forecast to shrink by 7%.

Europe -- will shrink by nearly 2%.

China & India -- continued construction growth, but has slowed significantly from recent years.

Coatings Markets Affected• Decorative• Wood• Coil• Industrial Maintenance


Comprise 70% of the coatings market

200723.3 Million

2009-3.5 million

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Near-Term Automotive Forecast

2008 – Vehicle production had a 5.6% decrease

2009 – CSM is predicting an 8.7% decrease for 2009

A likely decline of over 5 million vehicles in 2009

North America

Latin America

Rest of The World

Europe

Asia-Pacific

200715.5 Million

2009-2 million

20073.5 Million

2009+0.1 million

20072.2 Million

2009+0.0 million

200729.6 Million

2009+0.2 million


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A Longer-Term View of Things

Clearly, the near-term looks gloomy.

But the mid- to long-term is forecast to be more positive.

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Mid-Term Economic Outlook

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

North America Europe Asia Pacific Latin America ROW

Forecast GDP Growth 2007 to 2012


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$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$ Billion


Global GDP Growth Mid-Term Economic Outlook

5.1% CAGR

For this straight line forecast to come true, recovery must happen in 2010, and then 2011 & 2012 will need to be banner years!


Question: Does the upturn begin by the end of 2009, mid-2010 -- or later?

Presentation Agenda





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Forecast Growth by Region

0%1%2%3%4%5%6%7%8%9%

10%

North America

Europe Asia Pacific Latin America ROW

CAGR

Growth in Coatings Volumeby Region 2007 to 2012


By Region – 2008 thru 2012

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Forecast Growth by Segment

0% 1% 2% 3% 4% 5% 6% 7%

Decorative CoatingsTransportation

WoodPowder

CoilPackaging

General IndustrialAutomotive RefinishIM and Protective

Marine

CAGR

Growth in Coatings Volumeby Segment 2007 to 2012


By Segment – 2008 thru 2012

Presentation Agenda





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Final Thoughts

Good NewsThe global coatings market will prosper over the mid- to long term.Regions & sectors will grow over the next five years, although 2009 and perhaps the first half of 2010 is questionable. By 2013, the global coatings market could exceed $110 billion.

The Challenging NewsCompanies must be able to survive the short-term crisis.Orr & Boss’ research on several benchmark chemical companiesreveals that specific strategies are being used to:

Limit exposure to the market downturn.Position themselves to take advantage of the upturn.

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Final Thoughts

Strategies to Capitalize Upon the Downturn

1. Do Something – The benchmark companies know that a “do nothing” response to market upheaval is not a good response.

2. Reduce Operational Costs – Reduce operating costs by streamlining organizations, improving business process efficiencies & reducing waste.

3. Reduce Working Capital Requirements – Free up cash by better management of inventory and receivable levels.

4. Adapt Offerings to Meet Shifting Customer Needs – Change pricing strategies, product mix & service offerings to adapt to customer needs.

5. Improve Credit Worthiness – Use these strategies to improve credit worthiness -- by reducing debt & strengthening balance sheets. (Bankers may be less inclined to say “no.”)

6. Seize Upon Game-Changing Opportunities – Capitalize upon the “right opportunities” – geographic expansion, new industry sectors, `joint ventures, acquisitions – at a time when others cannot.

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Now Available in:

CD-ROM

Print Copy

Global License

Now Available in:

CD-ROM

Print Copy

Global License

Member Price: $2,500.00 (CD-ROM)

Print copies: $2,700 Member

Global Access License: $10,000

Availability: January 2009.

Order Online at www.ippic.org

http://www.paint.org/pubs/order/globalreg1.cfm

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The State of the Global Coatings IndustryThe State of the Global Coatings IndustryThe State of the Global Coatings Industry

Thank You for Your TimeThank You for Your TimeThank You for Your Time

Prepared by:Prepared by:

Charles E. Bangert, Jr.Charles E. Bangert, Jr. PartnerPartner

Orr & Boss, Inc.Orr & Boss, Inc. Corporate HeadquartersCorporate Headquarters

44450 Pinetree Drive44450 Pinetree Drive Plymouth, Michigan 48170Plymouth, Michigan 48170

U.S.A.U.S.A.


1 state of the global coatings industry

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