Jotun Paints sales increase 40%

Jotun Paints says its sales has increased by 40 per cent during the first four months of 2009 compared to the same period last year but warned that 2010 could be a difficult year for paint companies world over.

A senior industry official said the boom in Abu Dhabi is compensating for the slowdown in Dubai. In an interview, Eric Aaberg, Executive Group Vice-President at Jotun Paints, said the company has submitted prequalification tenders for a major development in Abu Dhabi and is hopeful of winning the contract.

Compared to the rest of the world, the markets in the GCC and the Middle East would grow at a faster pace and 2011 could be the revival year for the paint industry. The company, according to him, is going ahead with expansion plans in Saudi Arabia and Libya and hopes to tighten spending in Thailand.



How has the paint industry as a whole been performing?

Profits are tumbling across the board. Several large US-based companies – large because of the size of the US market – have been struggling. It also depends on the industry you are serving. A lot of them are into supplying products for the automobile industry and the automobile industry has been struggling.

If you look at the Far East, they too are affected but not to the extent of those in the United States. Many of the paint manufacturers in Japan and Korea cater to the automobile industry and they too are affected a bit. The Far East paint manufactures also cater to industrial coatings for appliances for air conditioners and refrigerators, which has also been affected.

The segment that seems to be holding up best across the board seems to be Performance Coatings, and both Akzo and PPG reported that this was a segment that saw double-digit growth for them in 2008.

How has Jotun's performance been?

Jotun is not too much into serving the automobile sector. We are mainly focused on marine paints, protective coatings , serving oil and gas sector and decorative paints. We are mainly focused on Scandinavia, where the economy is pretty good; in the Middle East where the construction industry was booming until last year; in South East Asia and the Far East.

The most risky exposure we have in the Far East is the ship building industry. There is an over capacity of ships in the world today. But we have several existing contracts mostly in China and Korea. So our business is still good as far as marine industry is concerned.

If you look at the Middle East, construction industry was really doing well until last year. However, the existing contracts is still keeping us busy. For us, last year was one of the best years in the Jotun's history worldwide. In the Middle East and South East Asia, we have had about 20 per cent growth compared to 2007.

How has 2009 been so far for the company and what has the second half in store for the sector?

Within the Middle East, the first four months of 2009 has been better than last year. We have grown by more than 40 per cent compared to last year. However, we are concerned about the coming months. There are a lot of cancelled projects. Most probably we will witness a drop in revenues during the second half. So by the end of 2009, our turnover could be similar to that of last year.

The economic situation in the Middle East has been more stable. In the beginning of the year, we saw some countries spending less and more carefully. But that situation has improved. There will be a drop in Dubai but that will be made up by contracts in Abu Dhabi. However, we are concerned about 2010 which will be more difficult compared to 2009.

In South East Asia, we have been struggling in Thailand. The political situation in Thailand has been unstable, the foreign investments have reduced and unemployment has increased and that's where our problems lie.

In other markets such as Vietnam and Indonesia, where we recently entered with decorative paints, the market looks promising. We had our presence there although it was limited to marine paints. We need to put in more manpower and investment to give an impetus to these markets.

Cost of construction materials have dropped significantly during the last six to eight months. What's the situation as far as the paint industry is concerned?

Paint prices have not dropped much. It has just gone down by about five to six per cent after the peak in the third quarter of 2008. Everyone is expecting prices to go down drastically because of the slowdown. The raw material prices are slightly lower compared to November and December last year [about 10 per cent] but the prices are still 30 per cent higher compared to April last year. We are still struggling to deal with the growth in the cost. There has been a small reduction in the prices here. The raw material cost is not the basis for reduction. But given the circumstances you need to operate with reduced margins.

What is the current status of your order book in the UAE?

The orders are healthy at the moment but we have conservative expectations for the next quarter. We have about $200 million (Dh734m) worth of contracts which we are currently working on and are scheduled to start.

Some of the current projects we are working on are Dubai Metro (Decorative and Protective), Burj Dubai (Decorative and Protective), Meydan at the Nad Al Sheba (Decorative), Jumeirah Park and Village (Decorative), Furjan Villas (Decorative) and eight Offshore New builds (Protective). Jotun's current market share for mega projects in the UAE is about 40 per cent.

Have you tendered for any new projects?

Jotun Paints products are specified by consultants for most of the major infrastructure projects in the UAE ensuring a steady flow of enquiries received by the Jotun sales team. We have submitted pre-qualification tenders for a major development in Abu Dhabi. We are hopeful of winning the contract.

Saudi has emerged as a major market within the region. What are your plans for the Kingdom?

The economy in Saudi Arabia seems to be quite stable. They have five or six large economic cities that they plan to develop. We are already in the King Abdulla Economic City. Moreover, the population in the Kingdom is increasing and they need more houses. We are building a new facility in Saudi Arabia which will double our capacity. Currently, we have the capacity to produce about 110 million litres annually. Although we may not need an increased capacity immediately, we are going ahead with the expansion as we will require it in the future.

Qatar is really doing well. We registered a 20 per cent growth in the market during the past three to four years. They are developing many sustainable projects. The market in Kuwait has been a bit difficult though and we have not been able to grow as per our expectations. Oman and Bahrain are however doing well.

Are you reconsidering any of your expansion plan?

We just opened a new factory in Korea. We need the facility. The factory in Dubai is very flexible. It was built in 2004 but we can still produce more paint by adding more machinery within the existing facility. We are going ahead with some plans. In Saudi as I said we are finishing our facility construction and it will be ready by November. We recently upgraded our facility in Oman. One of our new markets include North Africa. We have decided to built a new factory in Libya. Although the decision was made last year, it got delayed because of bureaucracy. We are now planning to start construction within the next two months and it will be up and running within the next one and a half years.

What are the challenges you are facing?

If there is no growth in the market, everyone fights for a smaller market share. This results in smaller cash flow. Some of our customers are tight on cash. They are not getting payments from developers and main contractors. Paint is very far down in the chain of a construction project and so there are a lot of people who have to get paid before we get our payments. We have quite a large amount of outstanding dues. The payment problems are being faced not just in the UAE but across the Middle East. It is a challenge, which all of us have to go through given the present circumstances.

What are the measures Jotun has adopted to overcome the crisis?

We have started taking measures early. Among the measures include more manpower freeze and stricter credit policy. We have reduced our credit days as well. We are going through our whole value chain from suppliers to transport companies and are adopting various measures. Fortunately, we are a strong company with a favourable equity ratio and therefore can survive the present condition compared to several others.

But we are taking selective measures. In some countries we are very much in a growing phase whereas in others we are in a market that is more matured. So we have different measures for different markets.

Is Jotun working on any new product?

Innovation is one of our four focus elements that is enabling us to lead the markets. Some of the products are answers to green concept requirements, water based substitutes to solvent based products and improving products that are already there in the market. The list of some of our new products are: Fenomastic Gold (GS11 compliant), Sens, Lady Essentials with low VOC, Water based enamel and Pearl improved formula.

Has the demand for eco-friendly paints/coatings increased in the Middle East?

Jotun has been in the forefront of developing eco-friendly products and follow strict European regulations and the major environmental standards around the world; constantly focusing on R&D. It has invested $25 million (Dh91.76m) for product innovations. The demand for the eco-friendly products has increased due to government regulations (Abu Dhabi's Pearl Rating), growing environmental concerns and projects like Masdar.

Jotun is the only paint firm, which is a founding member of the Emirates Green Building Council which started in 2006 and which aims to create sustainable built environment and protecting the eco-system which could be a model for the region to follow.

 

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