CIC Paints gets new Dutch owner

The acquisition of the UK's ICI Paints by Dutch multinational, Akzo Nobel earlier this month will open out new vistas of business for ICI’s Colombo partner, CIC Paints with the new partner also having management control of the local company, according to the latter’s Managing Director Gerald De Saram. CIC Paints is Sri Lanka’s biggest paints’ manufacturer.

ICI had 51% of the voting shares and now Akzo Nobel has management control by virtue of the fact that they own a greater majority of voting shares. Akzo Nobel has three nominees on the CIC Paints board as opposed to two under ICI. De Saram said it is still too early to say how the sale is going to impact CIC business because it does have some involvement in the market here, although very limited in the vehicle refinish market. "How Akzo Nobel will handle these various businesses remains to be seen," he said. "From our point of view (however), I think it's exciting because our new owners are a great company and they have some fantastic products and brands and sell to some of the largest companies in the world including Unilever. They are not only in coating but all sorts of other chemical and intermediary type products. The fact that the whole global paints market has now been consolidated and we are in there with them means a whole new vista of business opportunity opens us for us."

In an interview with The Sunday Times FT, De Saram described ICI’s new parent as a very large and dynamic chemical company which prior to the purchase of ICI, was the largest coating company in the world. With the acquisition of ICI Paints – the world’s largest in the decorative coating segment, used in houses for walls, gates, floors, wood and roofs - Akzo now has a grasp on that segment of the very lucrative market. "There was a natural strategic for Akzo to go for ICI," he said. After the initial two offers made by Akzo were rejected by the ICI in June 2007, the final offer was accepted by the ICI Board of Directors because there would be a huge premium on the share price. The sale and purchase of the companies Board's were unanimously accepted by the shareholders and the acquisition process began in the latter half of 2007. On January 2, 2008, the actual sale was confirmed and signed off.

De Saram said Akzo is recognized as a company which deals responsibly in terms of safety and product stewardship and responsible care. "Responsible care envisages product stewardship which is how the raw materials are purchased, how they are used, stored and disposed." The company is also concerned with safety for the environment as well as user and employer safety.

"For ICI, these things were part of the bedrock of the company," De Saram said. "They considered responsible care as a license to operate. If an operation didn't conform to their global standards, they would close the operation down. That's how seriously they take it and Akzo is the same."

De Saram said ICI Paints is 'virtually paranoid about safety and having proper monitoring processes in place. "We have regular auditing from our parent company doing detailed safety audits, going over three or four days, not only for ourselves but of contractors who supply us," he explained. "We have an outsource manufacturing operation that gets audited just as stringently as we do. If we fall short, then the possibility of the whole operation getting closed down is very real and keeps us on our toes. I'm afraid that's not universally true. Some of the other local manufacturers do make an attempt to use good raw materials but they are expensive."

De Saram said CIC has withdrawn from markets where raw materials have been found to be unsafe "We have a global agreement with ICI which has a list of dirty raw materials including pigments and solvents that are frankly not allowed in the factory premises. We have withdrawn some time back from road marking paint and the floor paint market. We withdrew from a very large and lucrative wood preservative market which we dominated at that time. We handed it overnight to our competitors. We withdrew from metal primer markets. We reformulated all our refinished top coats so they don't have lead based or heavy metal based pigments in them. We pay a premium for our solvents because they have to meet stringent standards for impurities in them. We have a price penalty on us in the market place simply by adhering to these standards but it's something that we have accepted." De Saram also said that the Central Environmental authority and the state has to drive industries that use hazardous waste to enforce best practices.

De Saram said the Paint Manufacturers Association took up an issue of cheap imports with the government and the difficulties local manufacturers faced in competing with cheaper products from overseas. "You have countries like India which has a massive home market and growing at phenomenal rates. They can obviously reduce their costs far more than we can. For one thing, we as local industry don't believe that our products are second to the products of any other country. In many instances, our products are of better quality to what we would normally find in India and other countries so I think that to an extent, the consumer would be getting shortchanged if products were brought in under the FTA because we would not be able to offer our products on a similar price scale. Secondly, the paints industry, apart from the direct employment of factory people, also provide employment through indirect means, the people who own and operate retail outlets who are aligned with our businesses. The jobs that are at stake are something we are concerned about as an association so that's what we were shouting about."

At the last budget, there was a possibility that the government would impose a cess or additional tax on local manufacturers, in additional to the existing 5% cess imposed in the 2006 budget. "That's what we were lobbying to take away," De Saram said. "Don't put cess on us because we are providing jobs but put cess on imported products. To be fair to the government, they did it. It was a breath of fresh air."

De Saram added that some BOI projects can bring in paints duty free. "On one hand, these projects are bringing in investment which is true but there are also those companies which have invested and spent millions and billions of rupees putting up factories using Sri Lankan manpower and Sri Lankan brains to produce goods here. I'm afraid that in our BOI approved projects, the playing field is not level although the local manufacturers can give better service and better flexibility." He said the waiver of duty is quite significant and his company tends to lose business there.

"We've enjoyed a very good couple of years until the middle of last year," De Saram said. "Right now, the business climate is pretty challenging. We don't envisage any kind of growth, particularly with steep escalations of prices," he said adding that certain materials such as pigment binders are derived from petroleum. "Those will be affected. Everything is imported except the water. It's all driving the cost of the product up while the consumers are getting squeezed with their day to day living expenses. So it makes it difficult for them to buy our products."