Coatings Word June 2015

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COATINGS WORLD (ISSN 152-711-29) is published monthly by Rodman Media Corp., 70 Hilltop Road, Ramsey, NJ 07446 USA. Phone: (201) 825-2552; Fax (201) 825-0553. Periodical postage paid at Ramsey, NJ 07446 USA and additional mailing of ces. Publications Mail Agreement No: 40028970. Return Undeliverable Canadian Addresses to Circulation Dept. PO Box 1051, Fort Erie, On L2A 6C7, [email protected]. POSTMASTER: Send address changes to: Coatings World, 70 Hilltop Rd. Ramsey, NJ 07446. Free subscriptions to Coatings World are available to quali ed individuals. Others are as follows: U.S. one year $75; two years $120. Outside U.S. and overseas: one year $95 (U.S.), two years $160 (U.S.), foreign airmail: one year $195 (U.S.). 5% GST required on Canadian orders. GST #131559148. The publisher reserves the right to determine quali cation of free subscriptions. Printed in the USA. Coatings World is used under license from Whitford Worldwide. Coatings Worlds circulation is audited by BPA International.

Table of Contents

4 | Coatings World www.coatingsworld.com June 2015

32 Latin America Report35 Metallic Pigments38 Q&A with DAP40 British Coatings Federation Holds Annual Meeting

June 2015 Vol. 20, No. 6

ADVERTISING SECTIONSClassi ed Ads.......................................................48 Advertising Index .................................................49

COLUMNSiPaint ....................................................................16

Death, Taxes, Trade Secrets and Other Certainties

International Coatings Scene ...............................22Europe Tinting Systems Among Fastest Growing Segments

Business Corner ...................................................24Customer StickinessOr Customer Loyalty Is It Profi table?

DEPARTMENTSEditorial .................................................................6As We Go to Press .................................................8Fresh Paint ...........................................................10Market Reports ....................................................18New Products ......................................................21Industry News ......................................................42Suppliers Corner ..................................................45People..................................................................46Meetings ..............................................................47Final Coat .............................................................50

25 Industrial Coatings Market

Photo courtesy: HKS, Inc./Blake Marvin

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A Rodman Media Publication 70 Hilltop Road Ramsey, NJ 07446 USA

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ART DEPARTMENT Michael Del Purgatorio

[email protected] Sara Downing, [email protected]

INTERNATIONAL CORRESPONDENTSSean Milmo (Europe)

Charles W. Thurston (Latin America/Americas)

CONTRIBUTING EDITORS Phil Phillips

Steve McDaniel

EDITORIAL ADVISORY BOARDJim Berry (Berry Environmental)

Joseph Cristiano (consultant) Thomas Frauman (consultant)

Joseph Prane (consultant)Isadore Rubin (consultant)

Richard M. Tepper (PPG Industries)Shelby F. Thames (University of So. Mississippi)

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According to figures from Chemark Consulting Group, industrial coatings comprised approximately 35 percent of total coatings consumption globally. The market for industrial coatings is a high-ly segmented market that includes such diverse segments as offshore oil and gas, commercial architecture, general industrial and industrial main-tenance. Industrial coatings manufacturers interviewed by Coatings World reported that while growth rates have slowed in some segments, others such as oil and gas, are driving growth.

In Industrial Coatings Market (page 25), we interview a number of major industrial coatings manufacturers. Executives from Axalta, Hempel, PPG, and Sherwin-Williams offer their insight into this diverse and com-plex market.

Each application segment presents unique growth opportunities, said Shelley J. Bausch, vice president, Global Industrial Coatings, PPG. Globally, expansions in oil and gas and transportation of these commodi-ties provide multiple coatings opportunities. Trends in electronic materi-als and their use beyond computers and mobile phones to automobiles, commercial buildings, and homes provides a diverse growth opportunity for coatings. And as a macro trend, the continued expansion of the trans-portation market personal and commercial vehicles gives a robust op-portunity for growth. This is particularly apparent in developing regions.

Michael Cash, senior vice president and president, industrial coatings, Axalta Coating estimated based on aggregated third party data that the global industrial coatings end markets grew by three to four percent in 2014. By working closely with our customers, and by welcoming many new customers to the Axalta family in 2014, we were able to grow faster than the overall size of a number of our end use markets last year.

Our correspondent Charles Thurston offers his analysis on the state of the Latin America Coatings Market in his report Latin America Paint Outlook Mixed, But Growing (page 32).

Thurston reports that the estimated $10 billion demand in Latin America for paints and coatings is mixed this year, as the economies in some of the largest countries including Brazil and Colombia slow down, while others like Mexico, Peru and the Caribbean accelerate modestly.

According to Thurston, overall, a regional expansion of 0.9 percent is estimated by the International Monetary Fund (IMF) this year, while the forecast for 2016 is 2.0 percent. This makes for difficult investment plans and more costly importation of raw and finished materials, although some paint markets in some countries are still growing at a few percentage points above gross domestic product (GDP), a tendency during growth years.

Outlook Mixed for Latin America Market &

Industrial Coatings Market

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AkzoNobel to Build 30 Million Performance Coatings Facility in Thailand

AkzoNobel has announced plans to invest more than 30 million in a manufacturing facility in Thailand to support regional growth of its Performance Coatings busi-ness. The project, which is being support-ed by the Thailand Board of Investment, involves constructing a 120,000m2 site within the Hemaraj Eastern Seaboard Industrial Estate in Chonburi. Earmarked for an initial capacity of 45,000 tons per year, production is due to start in the third quarter of 2016.

The new plant will support several Performance Coatings businesses, includ-ing Metal Coatings, Protective Coatings, Specialty Coatings and Marine Coatings, as well as certain products from the com-panys Decorative Paints business.

By investing in this new facility we are supporting our continued growth within Thailand, as well as making prog-ress with our regional business expansion strategy, explained AB Ghosh, managing director of AkzoNobels Metal Coatings business. A number of existing opera-tions will be consolidated into the new site, allowing us to achieve world class operational standards.

Added Conrad Keijzer, AkzoNobels executive committee member responsible for Performance Coatings: Thailand is a key market for our growth strategy and this investment will enable us to further strengthen our position as a leading sup-plier, both within Thailand and as a hub to support the supply network through the region.

Our business in Asia has experienced strong growth during the last several years, he went on. As demand and volumes con-tinue to rise, the new site will enable us to better serve our customers whenever and wherever they need our products.

Troy Acquires Industrial Biocides Business from AshlandTroy Corporation recently signed a defin-itive agreement to acquire the industrial

biocides business from Ashland Inc. The transaction is expected to close within 60 days, contingent on standard closing conditions and completion of required employee information and consultation processes, the company stated. Financial terms were not disclosed.

Ashland Specialty Ingredients in-dustrial biocides business was formerly owned and operated by ISP, Inc., and includes the Fungitrol brand of dry-film preservatives and Nuosept brands, which are supplied to the paint and coatings industry, as well as allied markets. The companys Consumer Specialties business unit, which includes preservatives for the personal care market, is not part of the agreement with Troy.

Troy prides itself on innovation and premium service to its customers,

said W. Brian Smith, vice president, Troy Corporation. With the addition of Ashlands industrial biocides business, Troys premier portfolio of preservatives will be enhanced, delivering even more value, performance, and sustainability to the marketplaces served.

Troy Corporation develops and manufactures specialty materials that enhance the properties and performance of its customers products and process-es, and states it is committed to helping manufacturers meet global require-ments for compliance and sustainabil-ity. Troy is headquartered in Florham Park, New Jersey with sales offices throughout the U.S., Canada, Europe, Asia and Latin America. Troy materials are used and available in more than 100 countries worldwide. CW

Index to Companies

This index gives the starting page for a department or feature with a sig-nificant reference to a manufacturer of paint, coatings, adhesives and sealants Subsidiaries are indexed under their own names.

AkzoNobel .................................................................................................. 8, 10

Axalta ..................................................................................................10, 25, 50

BASF ............................................................................................................... 10

Behr ................................................................................................................ 21

Benjamin Moore ............................................................................................. 21

DAP ................................................................................................................ 38

Hempel ..................................................................................................... 21, 25

Masco ............................................................................................................. 10

PPG .....................................................................................................10, 21, 25

Sherwin-Williams ............................................................................................ 25

Valspar ...................................................................................................... 10, 25

Zircotec ........................................................................................................... 10

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Valspar Corporation has opened a new advanced manufacturing center in Tianjin, China to serve customers with a wide range of innovative paints and coat-ings products.

Valspar has experienced strong growth in China as customer demand for high-performance and specified coatings continue to increase in this large market, said Gary E. Hendrickson, Valspar chair-man and chief executive officer. This investment furthers our technology and sustainability leadership to support our customers needs in this important region.

The new Tianjin manufacturing cen-ter was designed to achieve top safety and quality performance while delivering best-in-class productivity. The facility fea-tures expanded capacity for waterborne coatings products with fully automated production and high-speed filling lines. Valspars state-of-the-art facilities are designed for high productivity, and safe,

efficient and environmentally sound man-ufacturing processes. This multi-purpose facility supports customers in the compa-nys consumer paint, wood coatings and industrial coatings businesses.

Health, safety and environmental performance has been engineered into the Tianjin site, which is important to our employees, our customers and our neighbors, said Derrick Tay, president of Valspar Asia. Valspars expanded pro-duction capacity and sustainability lead-ership positions us well to continue to grow our business in Asia.

PPG Announces Partnership with National Nonprofit to Support Independent DealersThe new PPG Pittsburgh Paints brand has announced its exclusive paint-brand partnership with Independent We Stand, a nonprofit organization dedicated to the

revival of independent, locally-owned and -operated businesses. The PPG Pittsburgh Paints brand is sold exclu-sively by independent dealers across the U.S., while the nonprofit group encour-ages consumers to shop at independent businesses to help stimulate the economy in their communities.

Through the PPG Pittsburgh Paints brand partnership with Independent We Stand, independent dealers in the U.S. that sell PPG Pittsburgh Paints products receive an immediate premium member-ship to Independent We Stand, which in-cludes access to its marketing materials, resources, signage and more.

Prior to 2015, Devoe Paint was the exclusive paint partner of Independent We Stand. In early 2015, PPG an-nounced the new PPG Pittsburgh Paints brand, which combined the Devoe Paint and PPG Pittsburgh Paints brands into one unified brand.

Valspar Corporation Opens New Advanced Manufacturing Center in China for Paints & Coatings

Axalta Coats the Worlds Second Largest Radio Telescope

Axalta Coating Systems has produced a special coating for the radio telescope in Effelsberg, Germany, one of the largest, fully-steerable radio telescopes in the world, and the most powerful for short-wave radiation. The Effelsberg telescope is used to ob-serve pulsars, cold gas and dust clusters, star formations, jets of matter emitted by black holes, and the nuclei of far-off galaxies. It is also used as part of a worldwide network of radio telescopes for astronomic observations at the highest resolutions.

Axalta helps to protect the telescope from weathering and UV radiation with a matte-white polyvinylic coating called Per-coTop CS551 Foliflex Topcoat. This specially-formulated, tailor-made coating has been applied to the telescope approximately every 18 years since it began operating in 1972.

Painting the telescope takes a minimum of six specially trained painters several weeks.

The coating is applied with rollers, with no primer, after sand-ing the surface of the telescope using large disc sanders with a diameter of approximately 20cm. The large sanders, which re-semble vacuum cleaners, allow the painters to sand and collect the dust generated simultaneously.

The work will be completed in summer 2015, and the Ef-felsberg radio telescope will continue delivering accurate mea-surements while being protected with Axaltas PercoTop CS551 Foliflex Topcoat.

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June 2015 www.coatingsworld.com Coatings World | 11

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AkzoNobel Decorative Paints Launches Two New Lets Colour Initiatives in Rios FavelasTo mark Rio de Janeiros 450th anniver-sary, AkzoNobel Decorative Paints has launched two new Lets Colour initia-tives to bring color to the citys favelas.

In Santa Marta, one of the citys larg-est favelas, the company recently unveiled a 15-meter mural created by famous Brazilian artist Paulo Consentino and lo-cal artist Swell. At the same time, the pro-grams ambassador three-time French Open tennis champion Gustavo Kuerten announced the #pintouRio450 cam-paign, inviting 450 local volunteers to paint as many houses as possible in their community by August 2015.

Since 2009, AkzoNobels Tudo de cor para voc projects in Brazil have trans-formed and improved peoples living en-vironments and communities in 11 cities, including So Paulo, Salvador and Porto Alegre. In 2012, the Santa Marta project was officially launched and has since re-painted 302 properties, bringing the total number of projects AkzoNobel has run in the country to over a thousand.

Ruud Joosten, managing director of AkzoNobel Decorative Paints, who was present at the launch of both initia-tives, said: Through our global Lets Colour program and local initiatives like Tudo de Cor para voc, we are demonstrating AkzoNobels commit-ment to improving living environments for communities around the world. The Santa Marta project is one of the many examples of our global Human Cities initiative in practice and is an excel-lent illustration of how were using our knowledge and expertise to make cities more colorful and vibrant.

As the urban population grows in Brazil, Tudo de cor para voc aims to support and promote the positive trans-formation of the countrys major cities. Through these initiatives, AkzoNobel brings together local residents, volun-teers, community ambassadors and com-pany employees. More than 3,000 local painters have also upgraded their pro-fessional skills by regenerating their sur-roundings through paint and color.

PPG Acquires Specialty Wood Care and Paint Products Manufacturer Flood AustraliaPPG Industries has completed the acqui-sition of certain assets of Flood Australia, which manufactures and distributes spe-cialty wood stain and paint additive so-lutions for consumer, commercial and

industrial applications. Financial terms were not disclosed.

The acquisition of Flood Australia allows PPG to further expand its architectural paint and coat-ings offering and establish a position in wood care in Australia, said Michael McGarry, PPG president and chief op-erating officer. We look forward to

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providing customers with the same quality products for which the Flood brand has become known in Australia.

Flood products in Australia are dis-tributed at home improvement stores, including Bunnings, Masters, Mitre 10, Danks and independent paint dealers. No manufacturing assets or facilities were in-cluded in the acquisition.

PPG currently manufactures and dis-tributes Flood wood care products in North America.

BASF Officially Opens New Master Builders Solutions Training Center in OldenburgThe new Master Builders Solutions Training Center at BASFs site in Oldenburg, Germany, has been offi-cially opened. The new training cen-ter in Oldenburg has been created to train and inform customers and BASFs Master Builders Solutions experts on

the professional application and han-dling of Performance Flooring and Waterproofing products and systems thus fostering their professionalism, knowledge and experience.

Under the brand MasterTop, BASF offers a broad portfolio of innovative flooring systems for a wide range of applications. The requirements faced by each individual floor are different therefore products have been devel-oped in such a way that they can be tailored individually to meet specific performance criteria, the technical and aesthetic requirements, as well as al-lowing fast, cost-effective application. The non-solvented MasterTop floor-ing systems feature low emissions, high strength and low maintenance ex-penses combined with high durability. Thanks to the wide variety of colors available and liquid application, these flooring systems also allow individual seamless floor designs with respect to shapes and colors.

The MasterSeal range from BASF in-cludes high-performance impregnation and waterproofing products to protect structures against the undesired ingress of water, moisture and contaminations from their surroundings. The products include rapid-hardening waterproofing agents for manual or sprayed applica-tion that can be used for the refurbish-ment and protection of many different types of buildings. These market-leading innovative technologies are suitable for the waterproofing of all types of struc-tures, including car parks, road surfaces, industrial plants, water treatment and wastewater plants.

PPG Aerospace Solar-Control Coatings use Eggplant-Like Technology for Cooler PlaneA new solar-heat-management coat-ing system by PPG Industries aerospace business helps keep aircraft passenger cabins cooler.



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A novel PPG Aerospace solar-heat-management coating system can reduce external aircraft skin temperatures up to 25 degrees F, helping keep interior cabin temperatures cooler by 5 to 7 degrees.

Airlines often avoid dark colors for airplane liveries because they can absorb as much as 90 percent of solar energy, which in turn heats the interior while a plane is on the ground, said Mark Cancilla, PPG global director for aero-space coatings. Our innovative paint technology means airlines no longer have to avoid dark colors. In fact, the darker the color, the greater the difference there is in total solar reflectance. There is no compromise of other coating properties.

PPG solar-heat-management coat-ings technology is based on develop-ment of novel pigment dispersions, or stainers, that increase transmittance of near-infrared energy, or heat, through a dark coating and increase the subse-quent reflection from a white underlayer. Cancilla said the technology is modeled

after the eggplant, which naturally re-mains cool to the touch even when ex-posed to intense sunshine. The eggplants dark purple skin does not absorb near-IR radiation but transmits it to the white interior flesh, where it is reflected and transmitted out through the skin.

PPGs technology works in the same way. Cancilla said PPGs solar-heat-management coating system is being evaluated by several airlines and air-craft manufacturers.

Kilz Hide-All Primer Sealer Now In New Sizes at LowesMasco Coatings Groups Kilz Hide-All primer sealer is now available in the convenience of both one and five gal-lons exclusively at Lowes stores na-tionwide. This high-hiding, fast-drying, multi-surface latex primer sealer offers the ability to cover surface issuesin-cluding bold colorsat a competitive price point. Kilz Hide-All primer sealer

allows professionals to create the perfect painting canvas over a wide range of problems they may encounter on the job whether providing a base to paint on newly hung drywall or covering a graf-fiti-vandalized wall.

The high-hiding, fast-drying, latex primer sealer helps minimize issues caused by dark colors and minor sur-face marks to create a consistent canvas for the desired finish. With a multi-surface formula, Kilz Hide-All primer sealer is specifically formulated to help prepare surfaces for painting and evens permeability, and is recommended for use on interior surfaces including dry-wall, cured plaster, woodwork, mason-ry, concrete block, brick and previously painted areas.

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both protects and prolongs the life of race components has led European Le Mans Series GTE front-runners JMW

Motorsport to extend its partnership with Zircotec. In addition to ceramic coating the exhaust, JMW Motorsport will use ZircoFlex heatshield on the gearbox air regulator and bulkhead to minimize the adverse effects of heat soak in endurance racing. 2015 will see Zircotec also coat parts of the compos-ite floor for the first time, extending the service life of a costly part.

Managing heat is a key factor for the reliability in endurance rac-ing, said JMWs chief engineer Davey Nicholas. With the car running for up to 24 hours, pretty much non-stop, not having to worry about thermal management is a big attraction of us-ing Zircotec.

The benefits of using Zircotecs tech-nology also appeal to JMWs driver line up of BTCC driver Sam Tordoff and sportscar specialist George Richardson. Drivers dont need the distraction and discomfort of high temperatures in the cockpit. We are always seeking ways to reduce the rate of fatigue, said Richardson. Keeping the cockpit cool also reduces the need for the aircon that saps power. Having Zircotec on the car delivers performance and reliability is just what we need in sports car racing. Its a real advantage.

JMW Motorsports Ferrari 458 GTE will compete in the European Le Mans Series and the iconic Le Mans 24 Hours in 2015.

Axalta Unveils New Sustainable Coatings for Chinas Commercial Vehicle MarketAxalta Coating Systems has launched Imron Hydro and Imron Elite in China. The two products are part of the Imron family of coatings that are designed to help commercial vehicle manufacturers and operators meet productivity goals and increasingly challenging global and Chinese environmental regulations.

Axaltas Imron Hydro range of wa-terborne solutions provide a high-qual-ity and environmentally responsible system for manufacturers and operators of heavy-duty trucks, high-speed rail cars, buses, and agriculture, construc-tion and earth moving (ACE) equip-ment as well as other industrial goods. Imron Hydro is based on concentrated and effective tints that use the latest gen-eration pigments and dispersion technol-ogy. Combined with a variety of binders based on patented Axalta resin technol-ogy, Imron Hydro is available either as a factory package (fac-pac) or product line consisting of unique water-based mixing tints combined with quality binders that enable local preparation of any made-to-match topcoat color customers may need. Imron Hydro is formulated to provide excellent hiding capability. This improves productivity by reducing both the amount of paint required and ap-plication time while still offering excel-lent appearance, superior durability and strong chemical resistance. In addition, because Imron Hydro is a waterborne coating it generates lower levels of VOC

emissions which can help customers meet Chinas environmental regulations.

Axalta is also introducing to China its Imron Elite high solids solventborne so-lution, a simple but versatile system for high-performance, low-VOC commercial finishing. Using high solids 2K polyure-thane technology, Imron Elite provides a premium quality finish with superior durability and high chemical resistance. Imron Elite offers more than 18,000 color formulas. The higher ratio of solids to sol-vents in the formulation results in reduced VOC emissions which help make Imron Elite compliant with VOC regulations in China and a number of other markets.

Imron products are well established around the world and have been used on over three million vehicles. Globally, more than 1,000 commercial vehicle customers are using the Imron family of products to reduce paint consumption, application cost and VOC emissions. With Imron brands, Axalta said its cus-tomers enjoy sustainable coating solu-tions that are both environmentally and financially responsible, and are empow-ered to provide high quality coatings for trucks, buses, railways, and various other commercial vehicles.

PPGs CIL Paint Culinary Collection Designed to Feature Appetizing ColorsAccording to CILpaint, the color you paint your kitchen can enhance your eating expe-rience. Thats the message of CIL paint in unveiling its digital Culinary Collection of paint colors, featuring what it calls a mouth-watering palette of 20 hues, with names such



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as Adorable Peach, Bright Cherry, Cranberry Zing, Curry Spice, Lime Twist and Olive Oil.

White kitchens have been trending for a number of years, but now were see-ing a resurgence of color in the kitchen, from cabinetry to counters to walls, said Alison Goldman, brand manager for CIL paint, a brand of PPG Architectural Coatings, crediting the revival to current rich-in-color bohemian, retro and return-to-nature trends in home decor.

The kitchen is the most-used room in the house and the area where family and friends tend to gather, so its the perfect place to add color and personality to a home, Goldman said. Still, its important to choose kitchen colors wisely, she cau-tioned, as some are better suited for this multipurpose environment than others.

Warm, uplifting colors, such as yellow, red and orange, and soft shades of grey, vio-let, blue and green, are known to be more conducive to appetite-building, entertain-ing and conversation, she said, explaining that CIL paint took these findings into ac-count when developing its new palette.

CIL paints Culinary Collection brings together the brands top kitchen color recommendations from its existing paint line-up. No matter what the look or size of your space, the collection has a color recipe for everyone, Goldman said. For starters, she offered these suggestions as good choices for:

Modern kitchens: Grey is all the rage in home decor these days, and muted grey walls work especially well in a modern kitchen. Try Oyster Bay (90YY 63/044 SE48) or Barley Beige (30YY 68/024 DL50) grey from CIL paint as a base, accented on one wall or through accessories by a fa-vorite pop color, such as turquoise, tangerine or raspberry. Other striking wall color op-tions, particularly in kitchens with stainless steel appliances, are lemon yellow or apple green. If a full wall of these bright colors is too much for you, paint them above your cabinets only or even inside cabinets with glass doors to liven up the room.

Country kitchens: Complement wood cabinetry by painting the walls cozy shades of terra cotta red, such as Burnt Pumpkin (24YR 12/447 DL08) by CIL paint, warm

orange such as Persimmon Berry (60YR 26/605 DL10), or light sage green such as Cabbage Patch (90YY 62/264 MC21), cre-ating a welcoming space reminiscent of open fires and roasted foods. Dont know which color to use? Simply identify the predomi-nant undertone of your cabinetry or flooring yellow, orange or red, for example and choose a paint color with the same base.

The new Culinary Collection by CIL paint can be viewed at www.cil.ca. Available in Canada at The Home Depot, Walmart, Canadian Tire, Rona and other indepen-dent paint dealers, CIL paint has in busi-nesses, communities, schools and homes across the Canada for 85 years, with more than 1,200 colors in its palette. CW



IPaint Protecting the P&C Industrys Intellectual Assets

by Steve McDaniel and Jon Hurt Technology Litigators

Since many of you like to take the extension to file taxes these days (we did), and you have a little time to prepare for next April, now is a good time as any to apply the early bird gets the worm strategy should any of the fol-lowing issues ring a warning bell in the back of your mind. Sure, we are not ac-countants or tax attorneys, so dont take anything we say here as tax advice. That being said, trade secrets can have tax con-sequences that you may want to discuss with your honest-to-Pete tax advisor.

Are trade secrets taxable proper-ty? Short answer, yes. What, did you think the IRS is going to miss a chance to bleed you? But like most things tax related, the specifics are somewhat buried in the forest of dead trees that make up the current tax code. Under 26 U.S. Code 170 Charitable, etc., contributions and gifts various in-tellectual properties including trade secrets are recognized as tax related as-sets: (e) Certain contributions of ordi-nary income and capital gain property (1) General rule The amount of any charitable contribution of property otherwise taken into account under this section shall be reduced by the sum of - (A) the amount of gain which would not have been long-term capital gain (determined without regard to section 1221(b)(3)) if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of the contribution), and (B) in the case of a charitable contribution - (iii) of any patent, copyright (other than a copyright described in section 1221(a)(3) or 1231(b)(1)C)), trademark, trade name, trade secret, know-how, software (other than software described in sec-tion 197(e)(3)A((ii)), or similar prop-erty, or applications or registrations

of such property, or the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value (determined at the time of such contribution). Whew! And, we thought patent law was indecipherable!

From the convoluted verbosity above, you can see why you are going to need a joint sit down with your tax advisor and your attorney to figure out the best joint tax and legal positioning to take on your trade secrets and other intellectual property. But it seems that you can get some type of tax benefit for giving trade secrets, know how and other IP assets away as a charitable contribution. Big whoop. Most people want to make money from their trade secrets rather than give them away. And honestly, can anyone think of a charity that would want or use a trade secret from the paint and coatings in-dustry? If you do, please contact us and we will be sure that our not-for-profit entity has been set up to receive them!

Another issue that arises is the dif-ference between a trade secret and know-how. The IRS has generally long viewed know-how as existing based on a trade secret status, as hav-ing or including a secret process or formula that is not necessarily patent-able, and that it can be duplicated by an employee that leaves the company. Know-how in this view falls under the trade secret umbrella and the pro-ceeds from the sale of know-how can be taxed as a capital gain. In regards to trade secrets, any benefit of the capital gains rate may be lost if the IRS rules that the confidential information did not classify as a trade secret (i.e., property), such as not being protected by adequate secrecy (hint, hint . . . . see previous iPaint articles). However, the subject of know-how has produced differing opinions between courts and the IRS in various cases. In some court rulings non-secret

information (e.g., manuals, easily re-versed engineered processes) was viewed as know-how and still taxable as prop-erty in the sale of a business. The tax issues with trade secrets and know-how gets even more complicated when your business is international, another topic

to raise during the sit-down with your advisors.

Given the treatment of trade secrets and other IP as property, there may be several ways to categorize R&D costs of their development for reducing your tax bill. The sit-down topics include the research and development (R&D) deduc-tion or the R&D tax credit (if it is cur-rently renewed the tax code is always changing). For example, based on the

Death, Taxes, Trade Secrets and Other Certainties

16-17 iPaint 0615.indd 16 6/3/15 10:28 AM


IPaintProtecting the P&C Industrys Intellectual Assets

Snow v. Commissioner U.S. Supreme Court ruling, a partnership investor may be able to deduct the expenses related to developing a product even though the product has not been offered for sale or sold. And if you wind up meeting all the various criteria for both the R&D deduc-tion and the R&D tax credit, the formula can become complicated as you need to subtract one from the other in deter-mining the final deduction. Keep good records, and hope your tax advisors computer is up to the task.

If you write a check and buy (e.g., lump sum payment, installment fees, renewal fees) intellectual property for your business, you also may be able to amortize over 15 years the cost of the purchase per 26 U.S. Code 197. The qualifying intangible property under 197(d)(1)(C)(iii) includes any patent, copyright, formula, process, design, pat-tern, know-how, format or other similar item, So trade secret is not named,

but know-how and other similar items are named. Another topic for dis-cussion at the sit-down. Intangible prop-erty that the taxpayer creates rather than purchases may also be eligible under 197(c)(2) if it was created in connection with a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof. Should 197 not be applicable, then have your ad-visor mull over the potential for counting the cost under R&D expenses ( 174),

depreciation ( 167), or even ordinary business expenses ( 162).

Now suppose you sell a trade se-cret or other intellectual property. The way you sell it can have a big impact on your tax bill, specifically whether it qualifies as ordinary income vs. a capital gain. The considerations are whether you only partly transfer (i.e., license) the property vs. exchange all substantial rights of the property; and whether the property qualifies as the provision of services or a non-capital asset vs. a capital asset (e.g., one held for more than one year). As you can guess, meeting the two later categories will get you into the capital gain brack-et, if that is desirable to you. In Pickren v. United States 378 F.2d 595 (5th Cir. 1967) the transfer of rights and inter-est of secret formula to liquid wax products and trade names were viewed by the Fifth Circuit Court of Appeals as warranting the application of the transfer of patent rights, which under current 26 U.S. Code 1235 would constitute a sale of a capital asset if all substantial rights were transferred. However, royalty payments under a li-censing agreement for the formula and trade names was viewed as ordinary in-

come. The IRS has generally categorized this secret formula type of information as know-how.

Finally, how about the situation where your trade secret was misappropriated, and you win damages and/or settle the case? Well, in Freda v. Commissioner of Internal Revenue, 2011 WL 3802707 (August 26, 2011, 7th Cir. 2011) (Freda), the way the tax rate on $15.3 million in damage payments was decided really

gives notice to all litigators. The circum-stances involved were C&F Packing Co., Inc. (C&F) freezing cooked sausages for Pizza Hut, Inc. (Pizza Hut), and provid-ing confidential disclosure of the trade se-cret for the freezing process to Pizza Hut due to quality control concerns. Pizza Hut then allegedly disclosed C&Fs trade secret to other sausage producers that partly took over production, at lower cost of course. After many legal battles over a decade, C&F won $10.9 million in damages for claims of lost profits, lost opportunities, operating costs, and expenditures. That award was reported as about $8 million in long-term gain and the rest as ordinary income. The IRS was OK with that filing. A related court case claiming trade secret misappropria-tion was settled for $15.3 million, which after expenses, legal fees, and a payment to a former shareholder, C&F reported about $6 million in cash as a long term capital gain. However, the IRS took the view that the settlement was ordinary in-come, the result being that $700,000+ in taxes were owed by C&Fs shareholders. The problem for C&F in the trade secret misappropriation case was the type of claim made. The Court indicated that if C&F sought remedy for replacement of capital destroyed or injured, then the pay-ment would have been a return of capital and not taxable, rather than ordinary income for payment of lost royalties and profits. Ouch. Goes to show that get-ting the whole team together to play war games is really key to long-term success.

So, repeating the disclaimer here that your authors have any tax expertise whatsoever, do yourself a favor. Know enough to know how little you know (the mark of the truly educated). And, beware of tax advice regarding taxable consequences of trade secret develop-ment, ownership, protection, licensing and sale. Such advisers will need to be of a special sort, and have demonstrable expertise in the area. There are certainties in life death, taxes. Dont smoke, our best advice (as non-doctors), for the for-mer. Pay what you owe, but dont forget to consider the tax consequences of your trade secrets, our best advice (as non-tax specialists), for the latter. CW

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IRL has launched a new edition of its regional title, A Profile of the Central Asian Paint Industry. This fully updated report provides market data for 2013 and forecasts for 2018, and gives an overview of the paint industry trends across six countries in the region.

The total market for paints and coat-ings in Central Asia was over 271 thou-sand tons in 2013, and is forecast to rise to more than 307.9 thousand tons by 2018. This is equivalent to an average an-nual growth rate of 2.6 percent.

On a country-by-country basis, Kazakhstan and Uzbekistan are the two largest consumers of paints and coatings in the region, with almost equal demand for these products, estimated at 43 per-cent and 41 percent of the total Central Asian paints demand, respectively. As the majority of the markets is represented by architectural paints, their evolution de-pends to a great extent on the fortunes of the local construction industries. Notably, underpinned by the growth in the con-struction sector, the Kazakhstani paints and coatings market will be growing at a slow pace and the Uzbekistani market will reveal higher growth rates.

Out of the smaller countries, Turkmenistan is the most attractive mar-ket for investors due to low levels of com-petition and fast growing downstream industries; and Tajikistan is the least at-tractive market for paint suppliers, attrib-utable to high logistics costs associated with the transportation of the products to the region and low levels of demand from the underfinanced local industry.

Architectural and decorative coatings for consumer and professional uses ac-count for approximately 76 percent of the total market, although this propor-tion varies from country to country. This percentage is typically high for develop-ing regions like Central Asia, where agri-culture contributes a substantial portion to GDP and the manufacturing sector is stagnating, emerging or developing.

In the industrial coatings segment, the highest growth is forecast for the mate-rials with special protective properties, as there are significant resources of oil and gas in the region as well as of min-eral commodities. The growing demand for general industrial coatings in Central Asia springs from its machine building, metal working industries and road mark-ing applications. The demand for refin-ishes is justified by the growing car fleet

in the region on one hand, and a genuine interest in car maintenance among ordi-nary citizens, common for the regions of Eastern Europe and Central Asia, on the other. The level of popularity of powder coatings is different for the various coun-try markets.

A Profile of the Central Asian Paint Industry gives an insight into the mar-ket changes in the past few years, as well as outlining the key trends affecting

IRL Releases Profile of Central Asian Paint Industry

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the decorative and industrial coatings segments for each individual country covered. The scope of the study covers Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. It provides 2013 market data on nine mainstream paints and coatings seg-ments: architectural/decorative, indus-trial wood coatings, protective coatings, marine coatings, automotive OEM coat-ings (only for Uzbekistan), automotive refinishes, powder coatings, general in-dustrial coatings and plastic coatings. Forecasts on these are also presented for the year 2018. The cost of the full report is 1,500.

Research and Markets Releases Top 10 Technologies in Materials & Coatings 2015Research and Markets has an-nounced the addition of the 2015 Top Technologies in Materials & Coatings report to their offering.

The research service provides an in-depth analysis of the top 10 materials and coatings technologies that are expected to have the highest impact across indus-tries and applications. Each technology is analyzed in terms of its market poten-tial, application segmentation, innovation landscape and IP landscape.

Key funding deals and the innova-tion ecosystem along with the technology

development and adoption scenario are also highlighted. The research service also provides a trend analysis of the materials and coatings sector and the key challeng-es that are prevalent in the sector.

Innovations in materials and coatings sector is focused towards multi-function-ality and high performance attributes. While cost effective technologies with value for money is still prominent, reduc-tion of raw material use and more energy efficient processes are also noticeable.

The lightweight composites technol-ogy is established in the automotive and aerospace sectors with its use is emerging in sectors such as offshore, transporta-tion, oil and gas and construction market. The need for reducing carbon emissions and increasing fuel efficiency are the major factors that help in increasing the adoption of lightweight composites.

Need for materials with tunable prop-erties and high functionality are the major factors that help in increasing the poten-tial of polymer chameleons. The ability of the materials to react to external stimuli and retain their original shape once the stimulus is removed helps its adoption in healthcare, protective coatings and self-healing structures.

Waterborne Epoxy Resin Market Forecast to Reach $1,221.75 Million by 2020The report, Waterborne Epoxy

Resin Market by Application (Coatings, Composites, Adhesives, Others), by End-User Industry (Automotive, Construction, Textiles, Furniture, Packaging, Others) & Region - Global Trends & Forecasts to 2020, defines and segments the waterborne epoxy res-ins market with analysis and forecast of the market size. The global waterborne epoxy resin market value is projected to reach $1,221.75 million by 2020.

The waterborne epoxy resin mar-ket in Asia-Pacific is one of the fastest-growing consumers across the globe and the trend is expected to continue in the near future. Asia-Pacific is the big-gest market for waterborne epoxy res-in, and accounted for a share of more than 51.11 percent of the total market size in terms of volume in 2014 which was majorly contributed by China. It is also estimated that China is the fastest-growing market of waterborne epoxy resin in the region. The high growth in this region is mainly driven by growing population, vast economies developed as well as developing, favorable invest-ment policies, and government initia-tives to promote industrial growth.

The coatings market is one of the largest types globally and the trend is expected to continue in the near future. Asia-Pacific region constitutes a major share in coating application in the year



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2014. It is also estimated that China is the fastest-growing market of coatings industry in the Asia-Pacific region.

The U.S. and China are at the forefront of waterborne epoxy resins consumption, while Germany, South Korea France, Japan, UK and Russia are other key markets for waterborne epoxy resin consumption. China is the key market in Asia-Pacific, consuming more than half of the demand for the waterborne epoxy resins, followed by Japan, Taiwan and South Korea where consumption is growing at a steady rate. Increase in the consumption of waterborne epoxy resins in automo-tive, construction, textiles, furniture and packaging has been observed in Asia-Pacific due to continued industri-alization and rise in the manufactur-ing sector of the region. Construction is projected to be the fastest-growing application segment followed between 2015 and 2020.

Technavio Predicts Powder Coatings Market in Italy Will GrowTechnavio, an independent tech-focused global research firm, has announced the publication of its market research report on the powder coatings market in Italy 2015-2019. One of the latest trends emerging in the market is the increased demand from coil coatings applications. Such applica-tions are relatively new and account for a minor share of the powder coatings mar-ket in Italy, since alternative technologies are predominantly used for coil coating purposes. The powder coatings market in Italy is expected to grow at a CAGR of 1.61 percent during the forecast period 2014-2019.

Increase in demand for application on medium-density fiberboard (MDF) is ex-pected to drive the market growth during the forecast period. Vendors of MDF are increasingly opting for thermoset powder coatings over liquid-based alternatives, as

they offer durability and design freedom.The powder coatings market in Italy

has recently seen the introduction of various types of functional coatings like flexible elastic coatings, thin-film coat-ings, scratch resistant coatings, stress cracking coatings, and anti-graffiti coat-ings, said Faisal Ghaus, vice president of p Research.

Vendors in the market collaborate closely with customers and provide cus-tomized powder coatings for niche ap-plications. It is expected that the use of functional powder coatings in Italy will expand, as compared to other powder coating categories.

To define the market conditions in the next three to four years, Technavio analysts have conducted in-depth anal-ysis of the impact of market drivers, challenges and trends featuring data on product segmentations, vendor shares, growth rate by revenue and an evalu-ation of the different buying criteria in the order of importance. CW

Protection of Trade Secrets-It's Elemental

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Youve spent years developing your products. Wherewould your business be if someone walked off with yoursecret formula? Your client lists? Your confidentialbusiness strategy?At McDaniel and Associates, not only are we skilled in

protecting your trade secrets, but at the core of our businessare scientists who have long been involved in the specialtychemicals industry. We understand the challenges specific toour industry and can assist you in safeguarding anddefending the security of yourmost valuable assets.

Tech Lit:Layout 1 4/1/13 9:38 AM Page 1



New

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Benjamin Moores Aura Grand Entrance is designed to bring rich, vivid color and exceptional durability to exterior doors and trim. Inspired by fine European door and trim enamel, Aura Grand Entrance cures to a lus-trous finish that gives a look of elegance and luxury, accord-ing to the com-pany. Specially formulated to retain color in-tegrity and gloss, this enamel is easy to apply, has excellent hide and is available in unlimited colors.

This exterior door paint is available in thousands of colors and in two finishes: Satin and High Gloss. It is environmentally friendly with low VOC and very low odor.

Aura Grand Entrance is available exclusively at Benjamin Moore retailers across the U.S. and Canada. To locate a retailer, visit benjaminmoore.com. MSRP is $46.99 quart; prices vary per retailer.

Behr Paints Introduces BEHR PRO Professional-Grade LineBehr Paints has introduced its new BEHR PRO professional-grade line formu-lated specifically with the professional in mind for both interior and exterior projects. The series offers advanced ap-plication properties such as superior touch-up, excellent hide and maximum coverage for high-turnover and price-driven environments.

The new BEHR PRO paint series is available at The Home Depot and includes:

i100 Series Interior PaintsDesigned for production environments found on high-turnover property manage-ment projects such as multifamily and sin-gle-family rentals, BEHR PRO i100 offers a great value while still delivering high hide

and strong brush and roll performance.BEHR PRO i100 paints are available

in 500 off-whites and pastels from BEHR color palettes in addition to a wide range of color matching capabilities.

Available in gallon and 5 gallon sizes; retail prices start at $13.97.

i300 Series Interior PaintsDelivering solid application properties such as high hide with excellent spray, brush and roll characteristics, minimal sag and superior touch-up, this interior paint series is very versatile and performs well in commercial settings, such as office spaces, retail, warehouses and more. It also offers good scrub resistance for paint at this price point.

BEHR PRO i300 paints are available in over 1,400 pre-formulated colors from BEHR color palettes in addition to a wide range of color matching capabilities.


e600 Series Exterior PaintsOffers exceptional sprayability, uniform finish, with minimal surfactant leaching and high-caliber touch-up. This exterior paint series is versatile for projects rang-ing from residential to commercial exteri-ors, including single family, multifamily, tilt-up and parking structures.

BEHR PRO e600 paints are available in more than 1,400 pre-formulated colors from BEHR color palettes in addition to a wide range of color matching capabilities.


OLYMPIC Brand by PPG Expands RESCUE IT! Resurfacer + Sealant in One LineOLYMPIC Paint and Stain announced a new addition to the RESCUE IT! line with the launch of RESCUE IT! Light Resurfacer + Sealant in One. Designed for use on

hairline cracks and unsightly imperfections on lightly-worn wood and concrete surfac-es, the RESCUE IT! Light resurfacer helps conceal early signs of wear and tear.

With one gallon covering up to 100 square feet in two coats, the RESCUE IT! Light resurfacer is ideal for structur-ally-sound decks, stairs, porches, patios and sidewalks. This high-performance coating is 100 percent acrylic, provides waterproofing protection and helps prevent splinters by providing a finely-textured, slip-resistant finish that is barefoot-friendly.

As warmer weather arrives this spring, many homeowners look to their decks, patios and other outdoor spaces as an extension of their home and living areas, said Susan Uram, senior manager, Olympic exterior stains, a brand of PPG Architectural Coatings. The RESCUE IT! Light resurfacer is the perfect solution to give lightly-worn wood and concrete a refreshed look and create beautiful out-door living spaces where homeowners want to spend the summer.

Starting at $32 per gallon contain-er, the RESCUE IT! Light resurfacer is the latest addition to the RESCUE IT! line, joining the RESCUE IT! Moderate Resurfacer + Sealant in One. The RESCUE IT! Moderate resurfacer is for use on worn or weathered wood or con-crete. It fills cracks up to 1/4 inch, locks down splinters and provides two coats for up to 75 square feet with a one-gallon container. The RESCUE IT! resurfacers tint to more than 110 colors.

The RESCUE IT! Light and Moderate resurfacers can help complete-ly transform peoples outdoor spaces, but the key to a great result is proper preparation, Uram said. Before pick-ing up a brush, consumers are encour-aged to visit the Olympic Paint and Stain website for best practices on preparing worn and weathered wood and concrete surfaces and achieving stunning results with RESCUE IT! resurfacer. CW

Benjamin Moores Aura Grand Entrance Paint Now Available

21 products 0615.indd 21 6/2/15 2:36 PM


International Coatings Scene Europe

Tinting Systems Among Fastest Growing Segments in Europe

by Sean Milmo European Correspondent [email protected]

One of the fastest growing segments in the European coatings sector at the moment is tinting systems.The main players behind the growth are spe-

cialists in pigments and colorants, dispersions, color management and the manufacture of tint-ing machinery.

Not much of the momentum, in terms of providing the tinting hard and software and their accessories, is coming from the coatings producers themselves, who historically have been the ones responsible for establishing tint-ing in the marketplace.

The current strong demand for anything to do with tinting was evident at the recent European Coatings Show (ECS) at Nuremberg,

Germany, where many exhibitors outside the segment were offering technologies or products related to color shading in the final stages of the coatings supply chain.

A major driving force has been the need among coatings producers and distributors to cut costs by streamlining their processes.

With some smaller coatings producers cost-savings pressures are forcing them to abandon colorants manufacture altogether.

Chromaflo Technologies, Ashtabula, Ohio, a leading operator in the European colorants and tinting systems market, dis-tributed at the ECS its own study on prof-itability of in-house colorants production. This showed that a big financial burden was not just production costs but the expense of the chemical expertise and extensive labo-ratory testing needed to deal with a bur-geoning variety of color nuances and more intricate formulations.

The current

strong demand

for anything to

do with tinting

was evident at the

recent European

Coatings Show.

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International Coatings Scene Europe

The core business of paint produc-tion generates three times the gross profit margin contribution of colorant produc-tion, the study claimed.

An increasing number of coatings producers are opting just to make the relatively small number of most used col-orants which make up the vast majority of the output of a traditional in-house operation. This can cut a significant pro-portion of storage, transportation and other costs.

Currently demand for tinting equip-ment and systems is growing at a double digit rate in Europe, said Dipankar Bhattacharjee, a key account manager at the Italian-headquartered tinting equip-ment makers Corob. A major influence has been the desire among coatings produc-ers to cut storage costs by reducing inven-tories. Another trend has been a strategy of keeping close to customers through second-ary plants with tinting facilities.

In DIY and professional retail out-lets for coatings where tinting machines have already been available at the point of sale (POS), sometimes for decades, there has been a rising demand for more sophisticated equipment combined with color matching and management soft-ware and instrumentation.

As a result new tinting machines have been introduced which are highly computerized and automated so that the staff operating them need little training. Many can be operated by tab-lets via the internet.

Traditionally many POS tinting facili-ties have been provided and maintained by coatings companies. Now this task is increasingly being done by colorants and tinting specialists.

In contrast to the fragmented ap-proach of many coatings producers to the supply of tinting products and services, some of the leading specialists have been following strategies aimed at integrat-ing all the stages from pigments supply through to the provision of color man-agement services.

A merger two years ago between Chromaflo and CPS Color, previously the tinting business of the Finnish coatings producer Tikkurila, gave the U.S. com-pany a powerful platform in Europe for

the expansion of its integrated colorants and tinting systems. Some of which cover customer purchase histories and other market data.

At the ECS Chromaflo added a new tool to its Innovatint software package linking it to the analysis of an even broad-er range of market as well as social data.

The main purpose of Innovatint has been to bring together data on colorants and their formulations with that on sales, creating what the company says is a seamless flow of information between paint factory and paint customer.

The latest extension of the software enables the tinting itself to be more per-sonalized in meeting customers needs by enabling cross-referencing of colorants data with that on demographics.

For in-house tinting plants, Chromaflo was promoting at the exhibition colorant products which ensure batch-to-batch consistency and provide ways of includ-ing low-cost colorants to achieve a good price/performance balance.

Clariant, the Swiss-based special-ity chemicals producer which is another pace-setter in Europe in the integration of colorant, tinting and color management services, announced at the exhibition a new integrated POS tinting system based on matchmycolors Colibri color manage-ment software and the color management instruments of Japans Konica Minolta. The Japanese company already acts as a Colibri distributor.

The system will provide customers with a tinting facility capable of reaching a first-time color match rate of 97 percent with the help of a cloud-based software able to calculate color collections central-ly in seconds, according to Clariant.

At the ECS, the company, one of the few tinting specialists which is also a ma-jor pigments manufacture, launched a small and fast POS colorants dispenser with 24 canisters in three and six liter sizes able to provide up to six colorants at a time.

We have been making the final steps in completing the integration of the value chain from pigments to the POS stage, said Eugenio Saraullo, Clariants European marketing manager for tint-ing systems.

The model being pursued by com-panies like Clariant and Chromaflo in the tinting segment is not just being ap-plied in Europe but across the world. A major reason for Clariants choice of matchmycolor and Konica Minolta for its new POS system is that they already have in place a global sales and sup-port network.

Nonetheless there still seems to be plenty of potential for further growth of tinting systems in Europe, not just in the in-house plant segment but also in retailing.

Its surprising how many coatings retailers in Europe are still sticking to the traditional way of stocking pre-tinted cans of paint on their shelves in the belief that this is what their customers prefer, said Esa Ylimaula, sales manager at Xemec, a Finnish manufacturer of automation products, which launched a fully automated tint-ing machine at the show. There is still a lot of educational work to be done among retailers and their customers, he added.

In addition, as large specialists in colorants and tinting systems spread themselves across the world, there will inevitably be a lot of opportunities for niche players, particularly those able to offer exclusive ranges of colors. CW

An increasing number of coatings producers are opting to just make the relatively small number of most used colorants which make up the vast majority of the output...

22-23 Europe 0615.indd 23 6/3/15 10:52 AM


Business Corner Strategies & Analysis

Research

performed by

HBR, Reinartz &

Kumar indicates

that long-

term customer

loyalty does

not necessarily

produce high

profits from that

group.

by Phil Phillips, PhD Contributing Editor [email protected]

Research performed by a noted organi-zation (HBR, Reinartz & Kumar) in-dicates that long-term customer loyalty (customer stickiness) does not necessarily produce high profits from that group.

We have this built-in notion that a loyal cus-tomer over the years provides for higher than average profit contributions. Subordinated in this belief are certain claims or truisms. Here are those truisms:

Long-term loyal customers cost less to serve. Those who support this theory argue that loyal customers have lower overall costs since the up-front costs of acquiring them are amortized over a large number of dealings. That argument presupposes that these loyal customers have been profitable in those historical transactions. A more plausible argument for this loyalty link is lower maintenance costs could be built on the fact there should be less hand-holding over the years.

These long-term loyal customers pay higher prices versus other customers. If loyalty does not necessarily lower costs, then perhaps it generates more revenue. There are those who might debate that their loyal customers realize the cost of switching to another supplier is too high, therefore, the loyal customer is willing to accept higher prices.

Reality says that long-term customers in fact pay lower prices than do newer custom-ers . . . between five percent and seven per-cent lower. In general, then, it seems that a loyal customer is actually more price sensitive than an occasional one. There is evidence of a strong resentment against companies that attempt to leverage price increases and profit from loyalty.

Loyal customers market the company. Some feel that the more frequent custom-ers are also the strongest advocates for your company. There is a belief that loyal cus-tomers (by word-of-mouth) help bring in new customers. Evidence says that the link

between customer longevity and the propen-sity to market by word-of-mouth was not that strong.

Choosing a LOYALTY StrategyWhen choosing a loyalty strategy we segment four types of customers into high and low profit contributors and then into short-term and long-term customers. Each has a particular strategy for handling successfully:

Humming Birds: Are quick to change, never staying in one place very long. These are short-term high profit customers. Challenge is to cease investing soon eough.

Great Friends: Long-term good fit; highest profit potential; investment is encouraged

Alien: This customer has little compa-ny fit and low profitability; no invest-ment is recommended.

Crustacean: limited company fit; low profit potential; these customers many times become long-term loyal custom-ers and tend to slow the organization in the process.

The conclusion from these inputs basically says... No company should ever take for grant-ed the idea that managing customers for loy-alty is the same as managing them for profits. Loyalty is nice to have because it provides some since of security as a solid continuum base but it should never be assumed to provide extraor-dinary profits. CW

Dr. Phil Phillips is owner and managing direc-tor of CHEMARK Consulting Group, a global management consulting firm specializing in coatings, paints, adhesives, sealants and special-ty chemicals industries. Dr. Phillips strengths lie in strategic planning and implementation; M&A methodologies; value chain development and management best practices. For more in-formation go to www. chemarkconsulting.net.

Customer Stickiness...Or...Customer Loyalty...Is It Profitable?

24 Business Corner 0615.indd 24 6/2/15 3:26 PM


FEATURE

While some areas in the diverse market for industrial coatings have slowed, there are some bright spots and the market grew by an estimated three percent in 2014.

The IndustrialCoatings Market

Kerry Pianoforte, Editor

The market for industrial coatings is a highly segmented market that includes such diverse segments as offshore oil and gas, commercial architecture, general industrial and industrial maintenance. Industrial coatings manufacturers interviewed by Coatings World reported that while growth rates have slowed in some segments, others segments, such as oil and gas, are driving growth.

We track the external market trends in a number of our global end use markets such as industrial production, commercial construction new builds, transportation builds, electrical motor production and pipeline miles constructed, said Michael Cash, senior vice president and president, industrial coatings, Axalta Coating Systems. Our best estimate based on aggregated third party data is that the global industrial coatings end markets grew by three to four percent in 2014. By working closely with our customers, and by welcoming many new customers to the Axalta family in 2014, we were able to grow faster than the overall size of a number of our end use markets last year.

The industrial coatings market covers a large and diverse range of segments and applications, said Shelley J. Bausch, vice president, Global Industrial Coatings, PPG. While growth rates have slowed in some of these segments due to end market reduc-tions (such as heavy duty equipment), others continue to deliver strong growth performance. With PPGs global capabilities, we have been able to leverage these areas of growth to continue to outpace the market.

Additionally, as customers continue to look for ways to improve performance and provide new functionality to their end products, new areas of growth are evolving for coatings, Bausch added. High performing coatings can be used to meet multiple needs, reducing the need for speci c substrates or re-placing mechanical solutions.

Sherwin-Williams has seen growth in several areas, including wood nishing, general nishing, heavy equipment and build-ing products. One market that were particularly excited about is OEM pre nished residential and commercial wood ooring

Photo credit: Sherwin-Williams

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FEATURE Industrial Coatings


coatings market in which we just announced our participa-tion, said Nick Bartoszek, global marketing director liquid and powder products, Sherwin-Williams. In all of the markets we serve, customers are asking for products that offer low or zero-VOC solutions, as well as ways to improve their finishing processes. We look for ways to become a true partner with our customers, providing expertise that offers guidance well beyond the product.

According to Klaus Moller, Hempel group vice president of marketing and business development, the general market for in-dustrial coatings grew by approximately three percent between 2013 and 2014. In general, the industry was boosted by gov-ernment investment in infrastructure projects, especially in the Middle East and Asia, he said. We expect the overall industrial coatings market to grow inline with global GDP. We foresee that commercial architecture will show a growth rate above that of the overall market while oil and gas growth rates look more uncertain due to the current low oil and gas prices. The industrial coatings market comprises many diverse seg-ments each offering its own set of opportunities and challenges. Each application segment presents unique growth opportu-nities, said Bausch. Globally, expansions in oil and gas and transportation of these commodities provide multiple coatings opportunities. Trends in electronic materials and their use be-yond computers and mobile phones to automobiles, commercial buildings, and homes provides a diverse growth opportunity for coatings. And as a macro trend, the continued expansion of the transportation market personal and commercial vehicles gives a robust opportunity for growth. This is particularly apparent in developing regions.

Trends in construction segments are mixed, both geograph-ically and by application segment, Bausch added. However, the need for coatings in these segments continues to be robust. And finally, new and increased performance requirements also are driving growth opportunities. As an example, we see tre-mendous opportunity for growth on frames and chassis in the automotive and transportation segments through their growing demand for improved corrosion resistance. With the continued strength of the automotive sector, this will be positive for indus-trial coatings.

Sherwin-Williams is witnessing and responding to growth opportunities across all segments. For wood finishing, Sherwin-Williams introduced our Ultra-Cure Waterborne UV Topcoats for our wood finishing customers who are looking for flatline finishing technology to help meet regulatory requirements while also increasing productivity, said Bartoszek. Recently, formal-dehyde in wood finishing has also been in the news; we offer a full line of formaldehyde-free lacquers, conversion varnishes, primers and surfacers for manufacturers that wish to address this issue. In some cases, use of these products has helped end users meet LEED certification.

In general finishing applications, new resin developments can yield lower VOCs and reduced HAPs in polyurethane coat-ings, which help finishers meet sustainability goals, save money on energy and equipment, without sacrificing appearance,

added Bartoszek. Heavy equipment manufacturers typically have firm coating specifications in place, so helping them and their tier suppliers take cost out of the coating process by work-ing with them to gain efficiency continues to be paramount. In building products, architects and specifiers need to meet stringent AAMA 2605-13 specifications for coatings to meet long-lasting performance standards in a variety of weather con-ditions. As the only U.S. licensee for Arkema Kynar 500 FSF PVD Resin, we think we are in a good position to help them meet those standards, using 100 percent Kynar in our SHER-NA 5000 Fluorosurfactant-free architectural coating. And for the prefinished wood flooring market, were offering a new fam-ily of prefinish coatings that includes UV-curable wood flooring coating systems.

Cash said that one of the strengths of Axaltas industrial business is the global product portfolio it offers which, com-bined with strong sales teams around the world, can match potential growth distribution in different regions. This is key because end use segments can grow at different rates in different economic regions, said Cash. For example, theres anticipated growth in drilling, albeit at different rates of growth in differ-ent geographies, which provides markets for our Nap-Gard FBE products. Similarly, faster rates of industrialization in China and elsewhere in Asia suggest room for growth in commercial con-struction and the industrial maintenance market. Industrial coatings manufacturers continue to be challenged to meet cost and performance requirements. First and foremost, customers expect their coatings to meet the most stringent per-formance requirements.

The coating has to work; thats a given, said Bartoszek. Youre really not in the game if the coating doesnt meet the customers needs. We see our differentiator as the ability to pro-vide expertise and improvement beyond the sale of the product. In some cases, that may actually mean selling less of a coat-ing through process improvements. But helping a customer take costs out of the process through collaboration, or helping them meet sustainability goals, is a worthwhile endeavor. We seek to partner with our customers because we know that if they suc-ceed in all aspects of their finishing process, well be working together for a long time to come.

To meet their business demands, they need us to provide coatings that improve corrosion performance, provide addition-al functionality and support light-weighting or other substrate changes, said Bausch. From a cost and efficiency perspective, they need us to provide solutions that accelerate production throughput, enable faster cure times, utilize lower cure tempera-tures, and reduce process steps. Continual improvement of en-vironmentally friendly coatings represents another key area for increasing performance and delivering our customers a competi-tive advantage. PPG is pursuing advances in each of these areas, regardless of industry, geography or legislation.

Our industrial coating customers are looking for a paint company that will become natural extensions of their business and offer a true understanding for what will help them become successful, said Cash. This can happen through superior

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FEATUREIndustrial Coatings


product performance as well as the technical service and sup-port we provide onsite to help our customers achieve their per-formance goals. It is one thing to provide superior, innovative products, but it is truly an achievement to help our customers benefit from the full capability of our products in the unique coating application environments of their businesses.

Customers needs are dependent on the specific application. Owners and engineering companies typically look for long-term corrosion performance verified according to recognized performance standards, such as ISO or NORSOK, Moller said. In addition, specific performance criteria, such as chemical and heat resistance, can play an important role for customers when selecting coatings for more demanding and specialised applica-tions. Fabricators and applicators usually focus on the applica-tion properties of the coating, such as drying time, over-coating intervals and surface preparation requirements.

Moller added that all customers would like to reduce their overall costs. End users, therefore, look for a longer lifecycle for their investments and a lower total coating cost, including costs associated with application and surface preparation. Many ap-plicators, particularly in shipyards and fabrication factories, can reduce costs by increasing productivity through the use of more surface-tolerant coating systems or faster drying systems. These systems also enable applicators and owners to reduce their car-bon footprint. Fast-curing products enable steel fabricators to

reduce the energy used to heat drying halls, for example.Industrial coatings manufacturers have launched a diverse lineup of products. This year PPG has introduced four new in-dustrial coatings that the company believes represent significant advances in the industrial coatings industry.

One example is our new VERSABOND pretreatment sys-tem, said Bausch. This product features a proprietary hyper-nucleation technology that improves the corrosion resistance of mixed-metal substrates on auto parts and accessories while enabling manufacturers to extend bath life, reduce sludge and lower process temperatures to save energy. By enabling the use of lighter mixed-metal substrates, Versabond pretreatment also supports the broader industry strategy to make vehicles lighter.

PPG launched ENVIROCRON HTE (high-transfer-efficien-cy) powder coatings. These products feature a cross-link poly-mer that enables them to penetrate and apply evenly to metal parts and product assemblies with complex surfaces such as refrigerator racks, patio tables and architectural components.

PPG also launched PERFORMALOC advanced productivity coatings. These coatings represent an entirely new category of products because they cure fast and hard without baking or forced drying, which makes them ideal for OEMs with limited or no oven-cure capabilities, added Bausch.

Over the past year Axalta has launched or expanded the glob-al footprint of quite a few products designed for the industrial

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Coatings Word June 2015

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