Interview: “The UK is probably the best value for money currently for buying further assets in the coatings industry“
Why have you chosen to add Thomas Howse to your portfolio?
Abubaker Sheibani: Thomas Howse was a perfect fit to the Sheibani Groups UK Coatings Business as it strengthened the portfolio of industrial products and added powder coatings to the offer. The Sheibani Group has always been keen to promote its environmental credentials and provide products which fulfil the requirements of the customers we have been working with the in UK for more than 20 years.
We feel that powder coatings which are to all intents and purposes VOC free provide a better solution to the environment than water-based coatings. There is a niche for all the coating types but as we look to the market needs, especially when we consider our other business in the Middle East, the purchase of Thomas Howse provided the best fit to our long-term environmental strategy. It complemented perfectly the existing Sheibani group holding at T& R Williamson, the oldest paint Company in the U.K. and holder of the Royal Warrant.
You want to “become the biggest and most innovative privately-owned supplier in the UK coatings industry”. Why is the U.K. such an interesting market for you?
Group Vice Chairman and Managing Director, Sheibani Group
Sheibani: I personally have lived in the UK for almost two decades as a UK citizen and hence understand the market and the culture. My children grew up in the UK and most them live there, it is a second home for us. The UK is probably the best value for money currently for buying further assets in the coatings industry and we have seen this over the last few years as other large multinationals have also strengthened their operations there.
The United Kingdom has good supply chain options for both raw materials and export outside the UK and the industrial customers are always interested in innovation whilst retaining a practical common-sense approach on its implementation. There is a ready supply of good chemistry graduates, flexible work force able to adapt to changing requirement and the production costs/social costs balance is business-friendly compared to many other countries.
The English language is also a big help with exports. When all these are put into the business equation it makes the United Kingdom a good investment opportunity. There has been a lot of comments about Brexit both positive and negative but in terms of long-term planning for business the UK seems to be much better positioned for the coming decade – whether with or without any form of trade deal as most of our business is outside the EU.
You seek to secure further acquisitions in the UK. To what extent do you have concrete plans for that?
Sheibani: As you would understand, we cannot disclose sensitive business strategies. However, the group has a 3-stage business plan in place for the next 5 years to extend the range of the Sheibani Group within the UK to enable the group to capitalise on its existing assets elsewhere in the world and to develop its business in the United Kingdom and overseas. We have concrete plans for a number of acquisitions which will extend the production and distribution capacity of the group both inside the UK and to the export markets we already have. We have been working on these plans for more than 2 years, fine tuning them to select the right potential additions to the Sheibani Group. What we can say with conviction that at least one new acquisition is already on the cards and likely to be announced in the next three months. I would say that is pretty concrete.
Do you also look for targets outside Great Britain? What countries in Europe are of interest?
Sheibani: Currently, we already have a large footprint in the Middle East and have some traction in Africa and Asia. However, the EU as mentioned previously does not currently provide the same opportunities as the U.K. for the development of our existing business model. It is possible once the current phase of our plans are completed that Spain or Portugal may be promising in the future, especially as we look towards North and West Africa. Currently however, most EU countries have more in the way of barriers to extending our business than opportunities due to their cost base and language, real or perceived, barriers.
None of these are insurmountable and would not exclude an acquisition or other arrangement with the right partner. The Sheibani Group is a broad business with opportunities in many countries, but the choice of partner also requires the mindset on environmental and business goals and clarity of communication. We have been investing in the UK for more than three decades now because of these advantages. Given the Sheibani group’s involvement in other sectors such as food and beverages, we have much wider opportunities across those sectors and new areas, too. We actively invest in organic expansion where we currently serve more than 30,000 wholesale and retail outlets covering the whole range of our activities.
The Sheibani Group is headquartered in the Middle East. How would you rate the current market situation in the Middle East?
Sheibani: The recent collapse of the oil price will inevitably reduce the available expenditure on coatings for new build and shift some of the focus towards maintenance and protective coatings. However, the rapid growth in construction markets and the shift in focus of the region’s leading powerhouse, Saudi Arabia, in its quest to delink its economy from oil is seen as a considerable long-term opportunity for powder coatings and general industrial coatings.
The civil construction market is, however, under pressure and this is unlikely to improve over the next two years or until the oil price rises again to the USD 60 – 80 mark or higher. Once those barriers are crossed the appetite for local investment grows almost in line with the oil price. As a Group we have to keep a finger on the pulse of the local markets and the politics that drives them, and we are ideally situated for that.
Where do you see differences or similarities to the markets in the U.K. and in Europe compared to the Middle East?
Sheibani: Generally speaking the Middle East and the Gulf Cooperation Council (GCC) in particular forms a more volatile market than Europe. There are advantages and disadvantages to this and understanding the drivers in the GCC are different to those in more mature markets like the EU is crucial to success. The technology is broadly similar to that in Europe, although there is much more focus on solvent-based systems still rather than water-based. Predominantly due to a difference of opinion on how environmental and economic targets are best achieved. The lack of large rail networks also means that the logistical and supply chain issues are different, and this leaves more room for local depots and stockists to thrive especially when compared to the EU where some of the bureaucracy of running these smaller entrepreneurial businesses are concerned.
The legislation is different and in some countries in the Middle East such as Saudi Arabia there are barriers to trade in place to protect local business in the form of import permissions and exemptions. However, there are fewer regulations that add little to the local economy and actually reduce the opportunities for companies to grow in the Middle East.
How do you rate the opportunities in the Middle East?
Sheibani: The implementation of REACH in the EU from 2010 and the removal of GSP support for countries such as Saudi Arabia (2014) was a great opportunity for the Middle East as it made the Middle East paint producers much more interesting than those in the EU for most of the lower cost raw material producers in Asia and Latin America and the USA. This gave the producers in the Middle East more flexibility than those solely in the EU or Turkey as they could effectively produce for both markets (with or without REACH approvals) whereas the EU producers had to comply with REACH but saw no benefits only costs and reduced investment.
The European markets as previously mentioned are generally much more mature with lower growth rates and higher cost bases effectively pushing Europe into becoming a pull economy with investment outside but consumption inside. The Middle East, sat between Europe and Asia, is at a crossroads able to utilise both systems and the American systems too – whichever one gives the best results for the business and the consumer. We expect to see more growth in the Middle East as the various conflicts currently holding back investment subside and once this happens we expect to see more convergence with the EU as had happened prior to the crash of 2008/2009.
The Middle East is slowly adopting more EU centric regulations too, we expect ADR to come to the GCC in the not too distant future and the Global Harmonised System of labelling has already been adopted. However, the Middle East is generally a more pragmatic business environment, so it is likely that the changes that are adopted will be adapted to the culture and existing legal frameworks especially on environmental issues like plastic recycling (already adopted in Saudi Arabia via SASO) and emissions, with more emphasis on high or 100% solids systems and powder coating rather than water-based systems.