Back in the 1800s, Lord Tennyson once wrote: “The old order changeth, yielding place to new.” It''s a phrase which still rings true more than 200 years later, because your company is in the midst of a transformation to a focused paints and coatings business.
Looking back, the year FY2019 started on an upbeat note with Q1 GDP growth driven by strong performance in the manufacturing, construction and agriculture sectors. Part of the spurt in growth could be linked to a low base effect as the economy went through the twin shocks of demonetization and GST implementation.
However, in the subsequent quarters,
India''s economy slowed down due to declining growth in private consumption, a tepid increase in investment and muted exports. The paints and coatings industry witnessed a modest year, with volumes growing in the low teens. The GST rate cut in July 2018 helped the expansion of the “organized” part of the paints and coatings industry. Profitability/gross margins of paint companies declined for the second consecutive year in FY2019 by 100-200 bps, mainly due to hardening input prices resulting from higher crude prices and currency depreciation.
Demand from real estate remained subdued, which impacted the building material segment the most. Growth in affordable housing is likely to be the key driver of industry performance. Profitability in the economy remained under pressure for most of the year. Liquidity tightening and concerns over worsening credit risks - combined with fears of a sub-par monsoon and higher crude prices - are additional risks for the economy. Clearly, there are many domestic headwinds that the economy is battling.
Expectations of a stable government have created a wave of positive market sentiment, which is good for business. We expect sectors such as real estate, sanitation, railways, smart cities and high value infrastructure projects to get a boost, which will also have a positive impact on the overall Indian economy and give much-needed momentum to the paints and coatings industry.
Given the fact that the environment has substantial uncertainties, your company will need to stay agile and focused to keep up with this changing environment. We will focus on increasing customer centricity, drive further operational excellence and build greater momentum and speed across the business. This also means higher value engineering and an unrelenting focus on costs to maintain our profitability.
As we speed up the implementation of creating our fit-for-purpose organization, it gives me great pleasure to inform you that the Specialty Chemicals business has now been successfully separated from your Company. This gives us the bandwidth to channel our energy into the core competency of making and marketing paints and coatings.
Sustainability is at the heart of everything we do at Akzo Nobel. Our sustainability agenda was brought into sharper focus with Dulux Weather shield solar reflective paint; our Rediset additives that allow asphalt to be mixed at lower temperatures and our Inters leek marine coatings that help ships to reduce fuel consumption. Your Company focuses on resource productivity as key drivers of sustainability, with explicit goals.
Your Company is also committed to making a difference in the communities where we operate. We have been focusing on the education of underprivileged children, skill development of young people, road safety awareness among school children and providing healthcare services to the needy in different parts of India, all as part of Akzo Nobel Cares. Your Company''s commitment to going beyond the fulfillment of corporate social responsibility has been recognized globally, with some of the initiatives winning prestigious awards.
I would like to take this opportunity to formally welcome Mr Rajiv Rajgopal as the Managing Director of your Company since November 1, 2018. Rajiv has been with Akzo Nobel in leadership roles for more than six years. I am confident that his leadership will bring dynamism and momentum to steer your Company to greater heights. I also want to welcome on board Mr Lakshay Kataria as Chief Financial Officer and Mr Hemant Sahai as the new Independent member on the Board. Their expertise will help us to delivering our strategy, good governance and drive organic growth and innovation.
Akzo Nobel India has always believed in generating sustainable total shareholder return (TSR). In line with this belief, a share buyback programme was launched in mid-2018, which received overwhelming participation from shareholders. This has been followed by a higher dividend recommendation of RS,24 per share, reflecting the Board''s clear intent to share the benefits with all its shareholders.
Your Company has the unique opportunity to fundamentally transform itself to become the reference in the paints and coatings industry in the country. This is the time to prioritize and speed up delivery of the transformation initiatives. We all need to act with urgency, have a laser-sharp focus and always live and deliver our core values.
I would like to thank you all for your continued loyalty, trust and support.
Amit Jain
Chairman
