nesct coatings presentation oct 27_2011

8/3/2019 NESCT Coatings Presentation Oct 27_2011

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Reference: 11-003

Brave New World in Paints & Coatings

More of the Same, Only Different

Presentation by David Hurwitz to the

New England Society for Coatings Technology

NESCT Fall Symposium

October 27, 2011

Edica GARNETT Edica GARNETT

9 Mohawk DriveFramingham, MA 01701

Tel 508.877.3804

41 N. 8th AveHighland Park, NJ 08904

Tel 732,393.9234


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1DAH11-003 Ctgs Pres PSCT 092211Edica GARNETT Edica GARNETT

Edica-Garnett Partners Who We Are

Business Strategy

Growth Strategy Corp and SBU Globalization Particularly India & China

Sustainability-Driven Strategy Hands-On Strategy Execution

Technology Strategy

Strategic Management of Technology Big Hit Innovation R&D Portfolio Optimization Open Innovation

Corporate Development

Merger & Acquisition Strategy and Search Due Diligence/Transaction Post-Merger Integration Planning

Divestment-Positioning and Buyer ID

Commercial Development

Market Entry Strategy and Implementation Rapidly Developing Economies Market-Technology Assessment

Hands-On Execution Support

Strategy&E

xecution

Tech

nology&

Inn

ovation

We are a global management consultant boutique working with clientsto achieve profitable growth, improve performance and effect change


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Highlights of Presentation

The Global Coatings Market in 2010

and the U.S. Coatings Market

Key Participants

Trends and Drivers

Technical Needs and Challenges

Looking AheadSame Thing Only Different


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Coatings Industry Value Chain

BasicPetrochemical

Feedstock

BasicPetrochemical

Feedstock

ChemicalChemicalIntermediatesIntermediates

Mining andMining andMineralsMinerals

MonomersMonomers

SolventsSolvents

FineFineOrganicOrganic

Chemicalsand ResinIngredients

Chemicalsand ResinIngredients

InorganicInorganicChemicalsChemicals

ResinsResinsandand

EmulsionsEmulsions

Pigments,Extenders,Additives& Cross-linkers

Pigments,Extenders,Additives& Cross-linkers

SpecialPurposeSpecialPurpose

PaintsPaints

IndustrialIndustrial

OEM PaintsOEM Paints

ArchitecturalArchitecturalPaintsPaints

CompanyCompanyStoresStores

PaintPaintDistributorsDistributors

LargeLargeNationalNationalChainsChains

Contractorand

Industrial

Users

Contractorand

Industrial

UsersDistributors andDistributors andManufacturing RepsManufacturing Reps

Direct SalesDirect Sales

IndependentIndependentStoresStores

Consumers&Professional

Contractors

Consumers&Professional

Contractors

Raw MaterialsRaw Materials IntermediatesIntermediates ProductsProducts End UsersEnd UsersDistributionDistributionIngredientsIngredients

Source: EGP Analysis


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The Way Things Are. . .

Source: EGP research (Coatings World, ICIS Chemical Business, Chemical Week)

Pressured by a combination of environmental,consumer and regulatory concerns, paints andcoatings manufacturershave been pushedtoward increasingly low VOC content

Greener solutions that address VOC regulationscontinue to be an area of focus for the coatingsindustrycoatings based on renewable raw materialshave potential as firms seek out LEED certification

Compliance with VOC emission regulationscontinues to be the major trendthe best solution formeeting stiffer VOC requirements is the use of WB

customers are looking for both cost reduction andperformance differentiation opportunities

The greatest challengeis providing environmentallysustainable products that achieve the correct balance

between coating properties & performance attributes


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Source: ACA/Chemark: US Paint and Coatings Industry Analysis, 2008-2013,Valspar, PPG and AkzoNobel Investor Presentations and EGP Analysis

Global Paints and Coatings - 2010

2010 Value~$90 billion

12%

2%

9%

25%

28%

Other

US

22%

Canada

Latin America

Asia Pacific

EuropeMexico

2%


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Global Paint and Coatings - Segmentation

Source: Valspar_Citi Investors Conference Nov 2010 and AkzoNobel Bank of America MerrillLynch European Chemicals Conference Dec 2010, PPG Investor Presentation and EGP Analysis

18%

38%

44%Architectural/Decorative

OEM (Industrial)

Special Purpose

2010Volume

~5.4B Gallons24MM MT

Market Shares, %

2010Value~$90B

518

7

4

33 2

2 1

9

10

Arch/Deco

Gen Indl

Powder

Wood

Protective

Auto OEM

Marine

Coil

Veh Ref

Metal Pkg

Aero


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44.0

1.7

1.8

2.2

2.3

2.6

3.2

3.8

5.8

9.8

12.8

BASF

All Others

Jotun

Nippon

Kansai

Valspar

DuPont

Sherwin Williams*

PPG

AkzoNobeI

RPM*

2010 Global Sales(Billions of dollars)

Global Paints and Coatings - Top 10 Global Formulators

2010 Global Sales Breakdown by Region & Key Market Segments

12%

17%

16%

13%

16%

24%

10%13%

21%

North America Europe Asia Pacific Other

Valspar 59% 18%

BASF 14% 45%

DuPont 26% 46%

Sherwin Williams 76% 13%

PPG33% 20%

AkzoNobel 22% 41%

11%

34%

Sources:; EGP Analysis* Note: RPM and Sherwin Wms estimates are Paint only

Key: Global PlayerLarge in NA

Global PlayerLimited in NA

Other regionalPlayers/MNCs

Source: CEH SRI Consulting: Paint and Coatings Industry Overview, January 2009,2010 company annual reports and analyst presentations and EGP Analysis


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8DAH11-003 Ctgs Pres PSCT 092211Edica GARNETT Edica GARNETT 8

The 2010 US Paint Market - ~$20.3B and ~1.13B Gallons

Source: U.S. Census Bureau - Paint and Allied Products 2009. Published July 2010 and EGP AnalysisSummary of Estimated United States Quantity and Value of Shipments of Paint and Allied Products: 2005-2009Note: 2009r (revised) and 2010e (estimated)

US Paint and Coating Shipments (MM Gallons)(excluding Misc Allied Products)

-7% +6.5%

210 207 178 154 166211

2008

341

682

2007

1,354

370

777

2006

1,360

382

768

2005

1,380

410

759Architectural Coatings

2009r

1,057r

286

617

OEM (Industrial)Coatings

1,201

Special Purpose Coatings

300

660

2010e

1,126e


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The 2010 US Paint Market - highly concentrated. Top 10 ~85% share

2.8

0.4

0.6

1.0

1.0

1.2

1.7

1.9

2.4

3.1

4.2

BASF

DuPont

RPM

Benjamin Moore

Masco

Valspar

Comex

PPG

AkzoNobel

Sherwin Williams

All Others

2010 U.S. Sales Estimates(Billions of dollars)

Source: Valspar Citi Basic Materials Conference, Nov 30, 3010;Company Financial Reports and Investor Presentation, and EGP AnalysisNote: Comex total sales reported at $1.43 billion including MX and CN

~500 total establishments

Key: Primarily NA Player

True Global Player


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Raw Materials& Pricing

Rising raw material (and energy) costs Effective sourcing plans

Focus on formula costs, ingredient choices

Raw Materials& Availability

Reliability and responsiveness Green and sustainable Globalization of sourcing

Key Drivers and Trends

Materials

Technology

Shifting technology - elimination of ingredients

Aesthetics color and styling, tactile Smart features functionality and effects

Innovation Paint formulators relying on ingredient suppliers Materials that enable customer demands & regs Innovation in resins & multi-functional additives

EvolvingRegulations

VOC and HAPS emissions Product Stewardship LEED and Sustainability


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Key Drivers and Trends - Regulations

End Users:

Field Applied

Clean Air Act (VOC/HAPS)AIM National RuleOzone TransportProduct Stewardship

Clean Air Act (VOC/HAPS)Site Emission - CTGTSCA hazardous chemsOSHA and EPA

AIM, OTC, HAPS& VOCExempt Solvents

OSHAEPA & TSCA

PaintFormulators

OSHAEPA / TSCA / PMNVOC and HAPSElimination of toxicmaterials

Raw MaterialSuppliers

End Users:Factory Applied

Key Regulatory IssuesStart Here

Paint Mfg. is about safeoperations and evolvingcompliant formulations

Ingredient supply is aboutsafe operations and new

enabling technologies


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Needs and Challenges Overview

Improved low/zero VOC emulsion systems that perform as wellas SB/HS (and 2K) products and bring better

handling in manufacturing and storage

application characteristics and efficiency

final film properties

cost-performance balance

Chemistries that are greener to replace traditional products

Broader use of exempt solvents and low reactivity solvents thatbalance VOC targets and OTC goals

Binders vs additives to achieve performance winner / loser?

Nano technology as route to better corrosion resistance, dirt andmar resistance, color innovation, conductivity, anti-microbial

Source: EGP research and analysis


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40%

10%

0%

50%

60%

70%

80%

90%

100%222

21%

24%

14%

667

76%31%

52%

26%

23%

20%

30%

7%

850

6%

20%

Architectural CoatingsOEM Special Purpose

Needs and Challenges - WB products have room for further penetration

Source: Skeist Coatings, VII, 2004 (Tables 14-19) and EGP analysis

Powder Coatings

Electrodeposition

Radiation-Cured

High Solids (SB)

Low Solids (SB)

Waterborne

Totals shown in kMT 2008e


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Needs and Challenges - Maturity & technology renewal via innovation

Architectural

Solvent based

High

solids

Solvent

Water based OEM

(Acrylic, Epoxy,

PUD)

Powder

Rad cure

Emerging Growth Mature Aging

Water Based

Architectural OEM

Solvent based

Source: EGP Analysis

Electro-

deposition

Water based Special

Purpose Coatings

100%solids2-K liquid

Maturity of PaintTechnologies


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Needs and Challenges


Lower VOCs with comparableapplication characteristics

VOC compliant, cost-effectivepaintssolvent-like durability

Product differentiation:

color/styling options,

new appearance, textured, soft-feel

Lower operational costs

Reduced maintenance

Greater painting efficiency Lower cure temp / energy use

Reduced (OSHA) risk

Product positioning - greenchemistry and renewables

Lower cost - better quality

Less maintenance Gloss and color

Corrosion

Weathering

Biologic

I am free Products

VOCs,

APEs

HAPS,

Chromates

Sustainability

Energy and material use

green / Renewable

LEED compliance

Customized color and styling

PaintApplicator

EndConsumer


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Needs and Challenges

Anti-microbial

Self-cleaning Rheology control

UV-resistance

Anti-corrosion

Anti-fouling Fire resistant

Abrasion/scratch

Lower cure temps

Tactile films


Free of hazardous and toxic

ingredients Multi-functional flow,dispersants, defoaming,rheology, etc.

Hiding and lower TiO2

Safer biocides

Green and/or renewableraw materials

Nano for properties

PaintPro

pertie

s RawMaterials


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Possible Evolution of the US Coatings Market

Recovery & Expansion in NA(>3% CAGR in OEM) overall growthin paint industry at 2-3% or more

Current Reality Continued Mfg Decline in NA(


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The future will depend upon developments in a variety of factors

Economic Recovery Pace and Focus

Future of OEM Manufacturing in North America

Requirements for VOC/HAPS Reduction

Demand for Sustainability and Green

Requirements for Product Stewardship

Innovation in Compliant and Green Technologies

Know-how in total cost reduction

Extent of Globalization and Consolidation Development of Industry Competitive Intensity

Outlook for Raw Material Availability & Cost

Management of margin compression


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The Way Things Were. . .More of the Same, Only Different!

All-out efforts to please customers with highervalue paints that offer greater efficiencies,environmental advantages, and more imaginativefeatures

The impact of the slowing economy, especiallyhousing and automotive markets has trickled downto raw material sales

Paint makers continue to battle rising raw materialcosts and their inability to pass increases onto customers

Increasingly restrictive legislation on emissions of

VOCs has brought about a sharp reduction in the use ofsolvents and an increase in waterborne formulations

Source: EGP research (Coatings World, ICIS Chemical Business, Chemical Week)


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In Conclusion!


Brave New World in Paint & Coatings

More of the Same, Only Different

New Technical Challenges and Growth Opportunitiesin Traditional Coatings Applications

A New World of opportunities driven by innovations forelectronics, solar, batteries, medical, lighting, LEED, etc.

The possibilities are end-less and exciting!

nesct coatings presentation oct 27_2011

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