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Vitaliy Lehkyy, Senior Consultant, Frost & Sullivan presented on coatings market potential in Russia at CEPE Annual Conference
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COUNTRY SPOTLIGHT: RussiaCOUNTRY SPOTLIGHT: Russia
Assessment of the Coatings Market Potential
in Russia
RigaSeptember 25, 2014
Frost & Sullivan Background
� Growth consulting and market intelligence firm
� Founded in 1961
� Over 1,800 Consultants / Analysts across 40 global locations
� 10,000+ clients worldwide including:
– The global 1,000
– Emerging companies
– The investment community
2
– The investment community
– Public sector and NGOs
� Corporate HQ in Mountain View California
– Staff compliment of over 2000 analysts & consultants
� Offer an exclusive Consulting Support System including;
– Growth Partnership Services (Published Industry Research Services)
– Growth Consulting Services
A trusted growth & implementation partner with 52 years of experienceA trusted growth & implementation partner with 52 years of experience
Why Frost & Sullivan—Our industry coverage
One of Frost & Sullivan’s core competencies is our breadth of industry across four primary industry sectors, representing hundreds of individual subsectors and markets.
Automotive
&
Transportation
Aerospace & Defense Measurement &Instrumentation
Information &Communication Technologies
ConsumerTechnologies
3
HealthcareEnvironment & BuildingTechnologies
Energy & PowerSystems
Chemicals, Materials& Food
Electronics &Security
Industrial Automation& Process Control
AutomotiveTransportation & Logistics
Minerals & Mining
“No company covers as many industries in as many countries as Frost & Sullivan” Fraunhofer-Gesellschaft, Germany Source: Frost & Sullivan
Frost & Sullivan CMF Coverage
Chemicals,
Chemicals & Materials in Construction &
Utilities
Chemicals & Materials in Food, Drugs &
Cosmetics
Chemicals & Materials in Transportation
4
Chemicals, Materials & Food
Utilities
Food & Beverage Ingredients
Personal Protective Equipment (PPE)
Source: Frost & Sullivan
Mega TrendsTop Mega Trends for Coatings to 2020
Using Bio-based Feedstock
Improving Health, Safety & Security
Globalizing
Major Trends 2014 2017 2020
Making coatings from available
bio-based resources e.g. chalk
and china clay
Use of novel feedstocks e.g.
plant oils and tree resins
Crop strain developments
targeted at optimizing
coatings feedstocks
Low VOC coatings
Water-born coatings
REACH US Chemical Management Ethical manufacturing, fair REACH equivalent in
Coatings that base on the
innovative technology e.g. high
solid coatings
Environment-acceptable
coatings e.g. powder
coatings
5
Globalizing Regulations
Growth in Intelligent Solutions
Globalizing Competition
Waste Reduction
Source: Frost & Sullivan
and Eco
Labels
US Chemical Management
Program
Ethical manufacturing, fair
trade, traceability
REACH equivalent in
developing economies
Multifunctional
coatings
Significant reduction
in toxicity, improved
working conditions
Intelligent re-use of waste streams e.g.
chemical industry supplying heat and CO2
to other industries
Investments and growth in
developing economies
Rise of global coatings
manufacturers originated in
BRICS
Development of
recycling technology
More effective use of
natural resources such as
water and oil
Real “cradle-to-cradle”
solutions
Russian Economy at a Glance
After a swift recovery from 2009 crisis, the Russian economy has entered into recession, however is expected to return to 2.5% growth
beyond 2015
10.0
Key Socio-economic Indicators, Russia (2010-2019)
Real GDP Inflation Unemployment
6
4.5 4.33.4
1.3
0.21.0
2.5 2.5 2.5 2.5
0.0
2.0
4.0
6.0
8.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
%
Source: IMF
Russian Coatings Market Overview
1.5
1.6
Russian Coatings Market Volume, 2009~2015
digit growth in 2013, the market is expected to stall in 2014 After double-digit growth in 2013, the market is expected to stall in 2014 and rebound to a moderate growth in 2015 and onwards
Market value (2013) ~ EUR 4 billion
7
1.15 1.18 1.21.25
1.4 1.41.5
1
1.1
1.2
1.3
1.4
1.5
2009 2010 2011 2012 2013 2014F 2015F
‘000 t
on
nes
Example – Automotive market as a benchmark of industrial growth
2.46
2.75
2.53 2.45
41%
40%
50%
2.5
3
Veh
icle
Sale
s (
mil
lio
n u
nit
s)
Passenger Vehicle Sales - Russia, 2009~2018
Industrial sectors, like automotive, are expected to slow down in 2014-2015 and thus negatively impact the coatings market in Russia
8
1.37
1.74
2.46 2.53
2.192.1
2.22.32
2.4527%
12%
-8%
-13%
-4%
5% 5% 6%
-20%
-10%
0%
10%
20%
30%
0
0.5
1
1.5
2
2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F
Gro
wth
rate
Veh
icle
Sale
s (
mil
lio
n u
nit
s)
Source: LMCA
Market Segmentation and Competition
� Despite the existence of over 200 coatings producers in Russia, themarket is consolidated and dominated by foreign companies
� Increasing presence of Asian (mainly – China) manufacturers
� Industrial segment to grow towards global average 45%-55% split
Competition (value terms) Market segmentation
9
40%
60%
Russian Foreign
60%30%
5%5%
Decorative
Industrial
Automotive
Other
Source: F&S
Example (segment analysis) – Automotive Refinish Market
� 3-5% annual car park growth; nearly half vehicles > 10 years old
� After 12-15% growth in 2012, slowdown due to ASP decrease
� Key competitors: Polish manufacturers (Novol, Solid, Troton), PPGIndustries, HB Body, AkzoNobel, DuPont, Roberlo SA
Market value (2013): EUR 53 million
10
75%
20%
5%
Acryllics Alkyd Other
35%
16%13%
22%
14% Putties
Clearcoat
Basecoat
Hardener
Filler
Source: F&S
Dri
vers
Short-term Impact Long-term ImpactLow per capita
consumption Consumer purchasing
powerInfrastructure
development Revival of manufacturing
Market Drivers and Restraints
11
Restr
ain
ts
Short-term Impact Long-term Impact
Worsening economic
environment
Substitute products
(decorative paints
market)
Multifunctional coatings
longer product lifetimeLow quality/falsified
products
Drivers Explained – Infrastructure Modernization
Investment: $ 57 billion
�Construction/modernization of ~20,000 km of roads“Fools and Roads”
Up in the Air
Investment: $ 3.5 billion
�New and modernization of existing airports
�Acquisition (lease) of 450 airliners
�Air traffic passenger turnover is forecast to double
12
�Construction/modernization of ~20,000 km of roads
�Localization of automotive manufacturers and
component suppliers
“Fools and Roads”
Investment: $ 13.5 billion�20,000 km of new railway links by 2030
�The dawn of high-speed railway: St-Petersburg–
Moscow– Yekaterinburg
�Modernization of rolling-stock (passenger and cargo)
Back on Track
Total Investment 2012-2019: ~ $ 400 billion
Localization and Expansion
Both foreign and Russian producers are expanding their manufacturing Both foreign and Russian producers are expanding their manufacturing capacities in light of the market’s growth
13
Coatings and Sanctions
� The first real example – AkzoNobel stopped supplying its
aerospace coatings to Kazan Helicopters (September)
� 35% of total coatings export from Russia was destined for
Ukraine in 2013, but constitutes only 39 th. tonnes (~3% of
14
Ukraine in 2013, but constitutes only 39 th. tonnes (~3% of
market volume)
� Overall trend in construction materials industry – re-
orientation towards domestic production and supplies from
Asia
Top Opportunities Across Coatings Market
Top Growth Sales channel:
Business models:• Localization
• M&A/partnerships
15
Top Growth Opportunities
Sales channel:• Do-it-Yourself
Market segments:• Powder coatings
(automotive, pipes)
Key success factors: optimal pricing, sales and marketing strategy
Q & A
Vitaliy Lehkyy
Senior Consultant – Russia, CIS and CEEBrussels / Moscow
+32 489 508 896
Thank You!Спасибо!
16
Dr Leonidas Dokos
Research Director - Chemicals, Materials & Food (CMF); Oxford
+44 (0)1865 398 685