Leif Darner (Board member responsible for Performance Coatings, second from left) and the Managing Directors of Performance Coatings (photo)

Coming off the back of a strong 2010, when growth kicked in following the earlier recession, 2011 proved to be more challenging than expected. The major hurdle we faced was an incredible increase in raw material costs, which had an impact on margins, even though we were able to push through price increases. Crucially, most of our businesses maintained good demand from customers – particularly in high growth regions – a positive reflection on the diversity of our portfolio, which sits in different cycles. As a result, we were able to continue growing, despite the volatility of the global economy.

The majority of this growth was achieved by the Packaging Coatings and Coil Coatings activities, along with our Powder and Protective Coatings businesses. It was a more testing year for Wood Finishes – due mainly to the depressed North American housing market – while Marine Coatings also encountered difficulties following a downturn in ship newbuild activity. From a geographical perspective, it was very much a story of two-speed progress. We performed very well in high growth regions, notably China, where growth was achieved in all segments, with the exception of wood finishes. Turkey, where we have a strong footprint, was another highlight. We have been achieving excellent growth there and continued to invest, adding capacity for powder coatings while also benefiting from the Lindgens Metal Decorating Coatings and Inks acquisition we made in 2010. Our activities in Russia continued to do well and we are looking to further build our presence in the Middle East following the company’s strategic consolidation of its businesses in the region. Demand was weaker in North America and Europe – where we have had to respond with restructuring and cost reduction programs – but we are now able to look at where the pockets of opportunity do exist.

By way of underlining our strategy to capture accelerated growth, our key M&A activity during the year involved the acquisition of Schramm Holding AG and the coatings activities operated by Schramm’s largest shareholder, Korean company SSCP. Focused on consumer electronics and automotive plastic interior coatings, this deal gives us important global leadership positions and in particular will strengthen our fast growing business in Asia. The year was also very much about integrating two of 2010’s major acquisitions – the Rohm & Haas powder coatings activities and the Changzhou Prime Automotive Paint Co. Ltd business, which opened up the Chinese market for refinish products. We set ourselves ambitious targets on synergies and growth and that has been going very well. Further to the Prime deal, in October we announced an investment of around €60 million which will include constructing a new production facility in Changzhou. This will give us an important base of operations, enabling us to meet growing local demand and boost our market share.

Our efforts in the area of sustainable technology also intensified as we continued to invest in our research, development and innovation activities. Two new labs were opened in 2011, both in Felling in the UK. One is dedicated to developing and testing fire protection technology, while the other is a state-of-the-art powder resin polymer facility which has a special focus on resins for low temperature cure. Technology and performance is also at the heart of our successful partnership with the Vodafone McLaren Mercedes Formula 1™ team, which was further strengthened during the course of the year.

Absolute EBITDA margins were down, so 2011 proved to be a more challenging trading environment compared with the previous year. The combination of the significant increase in raw material costs and weaker demand in specific geographies impacted our results. We have been actively addressing these challenges, using our scale to manage profitability, while continuing to make progress with our strategic agenda.

“We continued to strengthen our market positions”

Leif Darner
Board member responsible for Performance Coatings

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