Giving the firm-a fresh coat of paint

04 July 1997 00:00  [Source: ICB]

German paints company Herberts is shifting its focus towards Asia and America to help it meet its customers' needs - but will further success mean separation from its parent group, Hoechst? Grace Williams reports.

In his Wuppertal office on the day Herberts' 1996 financial performance was announced, Herberts president Jürgen Ritz is outlining his vision of the company's future. 'I would like to decrease, over the years, the percentage of our business that is in Europe to 50%, and have the other 50% outside western Europe,' he says.

Herberts, the paints business of German chemical multinational Hoechst, currently makes just under 80% of its sales in western Europe, but Ritz wants to change this. In 2000, he would like to see 50% of sales in Europe, around 34% in the Americas and 16% in Asia. Total sales should rise to more than DM3bn ($1.9bn) from today's DM2.3bn.

Customer demand and growth rates are the reason for these ambitious targets. As Herberts' customers, including most of the world's major car producers, globalise, they want their coatings suppliers close by. Like most paint manufacturers, ever-closer relationships with customers is a key part of Herberts' business strategy.

But Herberts' strategy for the future is also based on technologically advanced, environmentally friendly products. About 80% of turnover is accounted for by water-borne, high-solids and powder coatings. The market for some of these products in Asia is still smaller than in Europe - although growing at a much faster rate - which accounts for what might appear to be a modest target for the Asian business. Environmental legislation in Asia still lags behind western Europe.

On current figures, the company is performing very well. It reported sales of DM2.3bn in 1996, up 9% on the previous year. Operating profit improved 24% to DM120m and net profit was up DM57m. These figures represent a profitability of some 5.5-5.6%. But Ritz is not satisfied: 'I am pretty pleased with what we have achieved, but... we will have to increase our profit substantially above that level,' he says. Based on benchmarking against competitors, he has set a target of 9-10% profitability by 1999-2000, on estimated sales of more than DM3bn.

Herberts has four business divisions: powder coatings; automotive systems, or 'OEM' (original equipment materials) paints for vehicle manufacturers; vehicle refinishing paints and liquid industrial coatings.

Powder coatings, which accounted for 19% of sales in 1996, has already achieved the 50:34:16 regional breakdown at which Ritz is aiming. Last year, Herberts bought two US powder coatings producers, O'Brien of Texas and Dexter Powder Products of Alabama; and last month the company reached agreements for two joint ventures with Chinese companies: Lang Fang Yanmei and Huajia Powder and Chemical Co (ECN 24 March).

Ritz sees powder coatings as a key focus for Herberts and expects it to grow faster than other parts of the business. His division head, Gerd Petzinger, expects the division to be making 11-12% profit by the turn of the century.

Herberts' high-technology focus and global raw materials sourcing will be especially important for the two recently announced Chinese jvs, he says. 'Chinese and similar markets have a tendency, when they build new businesses, to always take the latest technology... [and] we can give them a much safer basis for raw materials sourcing.' The two Chinese jvs could double their current turnover to around DM100m by the turn of the century, at 'good profitability', he adds.

Ritz points to the automotive systems division as an area where the need for globalisation is very great. Over the past year the company has been working to create more enterprises outside Europe.

In North America, it has set up Herberts Automotive Systems. Ritz says: 'We are working hard to get the approvals of the North American car manufacturers and we have a possibility to supply the European car producers.' A jv in Southeast Asia should be announced by the end of this year, covering India, Indonesia, Thailand and 'other countries'. Herberts already has a licensing agreement with Berger Paints in India. Customers including Peugeot, Mercedes, Fiat, Ford, GM, Hyundai and Daewoo are investing in manufacturing capacity in India and have asked Herberts to follow suit, according to automotive systems head Horst Hölzlein.

###3047###

Jvs in China are also being considered - Herberts already exports into the Chinese market. A company is being set up in Brazil, serving Renault, Toyota, VW and Mercedes, which will build its new 'A-class' car in Brazil using Herberts' water-borne coatings.

A jv with Akzo Nobel exists in Poland and one is being considered in South Africa. Ritz says: 'We could not do this without having a convincing technology... we are very strong in water-based coatings and our decision to concentrate on these kinds of systems years ago pays off more and more.'

Hölzlein says Herberts is only building new production facilities for water-borne products, with solvent-borne products supplied via investments in existing facilities and toll manufacturing. Meanwhile, a system of 'core' and 'satellite' sites has been worked out to keep costs down. Satellite locations, aimed at new markets, source additives locally but are supplied with pigment pastes and resins by the core sites. The Brazillian, South African and US ventures will operate as 'satellites'. Herberts hopes for a market share of around 20%, or 5000 tonne, in Brazil.

Herberts has also changed its relationship with its car-manufacturing customers in recent years. Ritz says: 'The car producer is interested in the whole cost of painting a car... from when a rough car body enters the paintshop to when it leaves, only about 20% of the cost is the material. We focused on the philosophy that as a big paint company we would not be successful if we only negotiated with our customer about the price of that 20%... We must be able to influence the whole process.'

Prompted by this thinking, Herberts has set up an 'application technology centre' in Wuppertal, a DM35m investment where customers can be shown painting methods and new products applied to full-size car bodies. Customer companies, equipment suppliers and Herberts can work together to develop better methods and increase the so-called 'first run OK rate' which is vital to manufacturers' costs.

Herberts has also struck a single-source supply deal with Ford for its Genk plant in Belgium, which manufactures the Mondeo car and Transit van.

A 30-strong team from Herberts supports the whole painting process for Ford and is paid per car produced. Signed two years ago, this is the first such contract, but Herberts is 'convinced this is the best way to serve our customers', says Ritz, and several other deals are in the pipeline.

Ritz sees good synergies between the automotive systems business and the vehicle refinishing division. This business, marketed under two brands, Standox and Spies Hecker, is the European and German market leader, is number four in the world and has around 36% of the German market. Again, expansion is focused on the Americas and Asia.

Herberts already has a market presence for vehicle refinishing paints in most Asian countries and is currently building a marketing, sales and production centre at Dongguan in south China. A 3000 tonne/year jv is about to be announced in Mexico and further marketing ventures with local partners are expected in Chile, Brazil and Argentina later this year. The firm's eastern European marketing focuses on Poland, the Czech Republic and Hungary, although Herberts has marketing and sales partners in 'all the countries from the Baltic to Bulgaria', says division head Vollert Halkjaer.

###3048###

In the liquid industrial coatings division, plastic coatings are Ritz's priority. These form another good fit with automotive systems, he says. 'Car producers are using more and more plastic parts and the plastic parts usually have to be coated in just the same way as the car body itself.'

Although plastic coatings is the most important part of the liquid industrial coatings business, says Ritz, he stresses 'we have other [business areas] which we are not going to leave'. Some pieces of the liquid industrial coatings business are considered 'non-core', with wood-coatings, based in Coswig, Germany and the can coatings business at Guntramsdorf, Austria, the most recently announced sell-offs. This process has not finished, Ritz says: 'We have other parts of our business which might be subject to reasonable negotiations.'

As for Herberts' future relationship with Hoechst - which chairman Jürgen Dormann wants to make into a life-sciences company - Ritz is discreet. 'We Herberts people should concentrate and focus on our special task, which is to make Herberts an even better paint company. Whether this belongs to Hoechst in the future or not is a separate question... a question which should be answered by the Hoechst board.'

There are 'certain synergies' between Hoechst and Herberts, Ritz says, especially in R&D in Germany and the US. In the powder coatings business, for example, Hoechst's plastics business can be very useful to Herberts for new ideas. Herberts' focus on environmentally friendly coatings is also 'not a bad fit' with Hoechst, Ritz feels.

But he says a spin-off via an initial public offering 'might be one possibility'. Is it a stronger possibility than other scenarios? 'That is not easy to say - for that we need the decision of our shareholders and, frankly speaking, I am looking very hard to fulfil those requirements.'

So, will Herberts still be part of Hoechst in 2000? 'I really cannot answer... that is speculation. What I would like to see is Herberts being one of the best paint companies in the world, and that is the target which we are really aiming at'.

HERBERTS' BUSINESS AREAS AND PRODUCTS
Vehicle refinishing paints preparatory materials such as primer surfacers and primer fillers; topcoat systems; mixing enamel systems; finishing systems for commercial vehicles; finishes for plastics; design and effect finishes; accessories for paint shops
Automotive systems electrocoats; fillers; basecoat, topcoat and clearcoat systems; plastic paints
Industrial coatings liquid coatings; anodic and cathodic electrocoats; paints for plastic surfaces; coil coatings. drum lacquers; adhesives; electrical insulating systems; corrosion protection systems; floor and wall coating systems for mineral substrates; fire protection systems; protective construction materials; paints for rail vehicles; paints for furniture surfaces
Powder coatings thermosetting powders, polyester powders; epoxy powders; epoxy/polyester mixing powders; polyurethanes; effect systems e.g. metallics; polymer powders; Gothalene and Flamulit coatings

By: Grace Williams
+44 208 652 3214

< previous article(VIDEO – ICIS news Americas Lunchtime Bulletin 18 January 2010)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly