End-user segment and market sector analysis
The decorative paints market is roughly 45 percent of the €75 billion global paints and coatings market. Decorative Paints differs from our other Business Areas in that all revenues come from just one end-user segment – Buildings and Infrastructure. All revenues also come from only two of the three sub-segments – New build projects, and Maintenance, renovation and repair.
Buildings and Infrastructure
All three sub-segments of the Buildings and Infrastructure end-user segment were negatively affected by the recent economic slump. This was due not only to normal economic cycles, but also resulted from the global boom within the Buildings and Infrastructure sector prior to the recession. The crisis prompted both a normal cyclical downturn and a massive global correction in property and property-related markets. For our Decorative Paints Business Area, the Maintenance, renovation and repair sub-segment is more important than the New build projects sub-segment. This is positive news in terms of the relevant market growth for our business, as the recovery in New build projects has been even weaker than in Maintenance, renovation and repair. Taking each of the sub-segments in turn:
Maintenance, renovation and repair
For the important residential component of this sub-segment, the market is strongly correlated to house moves, as people often renovate both before and after moving home. House moves are, in turn, related to house sales, which are connected to factors such as mortgage availability and general consumer confidence. Due to the recent recession, issues involving the housing market have been considerable and some geographic regions have yet to recover. We are seeing signs of a recovery in North America, but given the divestment of our North American Decorative Paints business to PPG Industries, Inc., we are expecting modest growth in this sub-segment. This modest recovery is reflected in the outlook for our Business Area, as is the buoyant forecast for this sub-segment in high growth markets. In these regions, growth reflects both the underlying general economic outlook and an emerging cultural shift towards maintenance and renovation. It is also worth noting that, for Decorative Paints, while residential markets have been badly affected by the recession, the impact on commmercial and infrastructure markets has been somewhat different. Commercial markets experienced a negative impact, but often late in the cycle, as this market takes longer to adjust than the residential sector. The Infrastructure market (for example, airports, stadia, railway stations) is often somewhat counter-cyclical, as governments invest to support economic development. The outlook for these markets also assumes modest growth going forward.
New build projects
Although the vast majority of our revenues in Decorative Paints come from the Maintenance, renovation and repair sub-segment, this sub-segment represents a significant proportion of the Business Area. This is important because the New build projects end-user sub-segment has been badly affected by the recent recession. Some question whether a full recovery is underway, particularly in the residential component of the sub-segment, with analysts forecasting flat growth at best, evidenced by projections for residential housing units completion. The outlook for non-residential sections of this market is better, but only in high growth markets.
The vision for our Decorative Paints Business Area is to be the leading decorative paints company globally by inspiring consumers and customers around the world to transform dull grey spaces into colorful environments, lifting people’s spirits and satisfying their need for constant renewal.
Achieving this will require us to have strong processes and capabilities in terms of:
We have five strategic priorities for the Decorative Paints Business Area. These are:
Key actions going forward
Key raw materials