Paint Industry Review

The COVID-19 pandemic has deeply affected our economy as it has all world economies. The paints and raw materials sector, which is part of the chemical main industry, is a sector that interacts with many industries at varying intensities. This has differentiated the pandemic's impact on our sector in terms of sub-production areas. When viewed generally, there are two different situations regarding construction paints. In 2020, demand for new residential construction in the construction sector contracted in a manner similar to the contraction experienced in demand for other goods and services. Of course, this situation was reflected in demand for construction paints. However, the pandemic process positively affected end-user demand for renovation-purpose paints. The pandemic process, combined with increased time spent at home, positively affected demand for interior paints. The performance of the industrial sector, which is in a fundamental determining position in our economy, was reflected in paint production for this sector. For this reason, the increase in paint production for the industrial sector has been limited. Furthermore, when we evaluate domestic demand for the paints and raw materials sector in terms of industrial paint components, the differences in development performance of industrial sub-sectors have again been reflected in our sector. In the industrial paints product group, the relatively limited production increases in product groups such as automotive paints and wood furniture paints are a result of this differentiation. To summarize 2020, which was determined by the pandemic process, in terms of production areas, in the industrial paints group, one of our sector's main production areas, contractions were experienced in automotive paints, OEM, metal, wood and powder sub-production areas, while in another important production area, construction paints, consumer demand increased. Another important development in our sector's production dimension in 2020 concerns exchange rates. The use of imported inputs in the paints and raw materials sector has significant intensity. This situation causes exchange rates to create important pressure on production costs. Therefore, the increases in exchange rates in 2020 caused significant cost pressure and financing problems in the sector. With the effect of new measures to be taken by economic management, 2021 is expected to be a year with more positive developments compared to the previous two years. 2021 is projected to be a year in which, alongside positive domestic demand-driven developments, cost increases will be balanced. In the domestic paint industry, product diversity for environmentally friendly products is steadily increasing. Our sector is responding rapidly to the increase in demand in this area. In the periods ahead, further development of environment and human-focused production understanding is expected. Along with the process of adaptation to environmental regulations, significant progress will continue to be made in recovery and transformation matters. In Turkish paint industry, which constitutes approximately 2% of the global paint sector, the increasingly important exporter structure has shown significant developments in recent times in turning toward foreign markets. In 2020, with the effect of the pandemic process on the world economy, our total sectoral exports experienced a relative contraction. However, despite this contraction, it is seen that the sector has added new countries to those to which it exports and diversified its export markets. Our sector, with a short-term export target of USD 1.5 billion, carries out approximately 10% of its production for foreign markets and currently exports to more than 160 countries. 2021 will be a year in which positive developments in sector exports will occur, parallel to the reduction of the pandemic's effect on the world economy.

M. Akın Akçalı Board Chairman Bosad (Paint Manufacturers Association) ************* As a Polisan Holding Group company, from the first day of the pandemic announcement, we closely monitored the statements of the Ministry of Health and relevant authorities through a board we established within the Holding. Prioritizing human health, we continue to apply measures for the medium and long-term interests of all our stakeholders. From the first day, we immediately implemented action plans to ensure the continuity of our operations and the uninterrupted continuation of the services we provide to our customers. We halted production activities at two Polisan Kansai Boya factories as of 31 March, and resumed them as of 17 May at the Dilovası facility and 16 June at the GEBKİM facility, observing necessary health precautions due to the revival in demand. We continue to guide our production processes by closely monitoring market dynamics, manage our working capital optimally, implementing actions that will prevent potential liquidity problems and cost reduction measures. To minimize the effects of the pandemic, we took necessary actions for all identified risk factors and prepared new action plans for different scenarios. Research shows that before the COVID-19 period, most people spent most of their days outside and very little time at home. But now, due to the pandemic, people are mostly at home. Making homes more comfortable and enjoyable has therefore increased. COVID showed us how valuable and important our homes are. During this period, there was a large increase in sales of decorative products as well as antibacterial paint demands. As Polisan Kansai Boya, we focused on developing special products according to changing consumer behavior. According to the nine-month financial results made public, Polisan Kansai Boya's revenues and EBITDA margin increased compared to the previous year. Polisan know-how, production and sales network, financial strength and brand value that correctly interprets the needs of its customers make us enter 2021 very strong. As Polisan Kansai Boya, we will focus on developing special products to reach our consumers. The most important factors that distinguish us from our competitors are our R&D strategy focused on producing environmentally respectful, consumer comfort-oriented, quality, standard-compliant, competition-differentiating and value-for-money products that meet the consumer's today and future needs. In the following period, we will continue our "human"-focused work in line with the same philosophy as a company. As the company using the most advanced technology in the sectors we operate in, in 2021 we will also ensure the integration of digital in all our processes to bring customer experience and satisfaction to the highest level. By focusing, developing, perfecting, we will develop sustainable systems that contribute to the dynamic nature of commerce in an effective and efficient manner. By designing early warning systems that can move rapidly within operations, we will provide solutions that smile with expertise befitting our "smiling face" emblem. In this way, by creating a strong and respected brand both in Turkey and in the global arena, we will contribute to our company's sustainable profitability target.

Mehmet Hacıkamiloğlu General Manager Polisan Kansai Boya

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It is an undeniable fact that 2020 was an extremely challenging year for the entire world. At Jotun, thanks to very serious measures we took starting from our factory from the first day, we continued production without interruption. With the advantage of being a global brand, from the moment the crisis began in Turkey, we communicated with other countries and exchanged details of best practices. We particularly obtained current information from colleagues in countries like the Far East and Italy that had to deal with the pandemic process much earlier than us about what they did and what difficulties they faced. First, we elevated our hygiene measures both in the factory and in our regional offices to the highest level adapted to new conditions. We changed our shift system, increased the number of shifts and reduced the number of workers per shift. We reorganized not only production but all our processes down to meal and transportation arrangements. First, colleagues in the risk group transitioned to working from home, and a few days later we completely moved our working conditions to homes. In this sense, I can say we were among the first companies in Turkey to transition to remote work. Still, we did not close the office for colleagues who had to come to the office. For matters such as signatures and documents, the office was periodically visited in a controlled manner. Our sales and technical service colleagues continued to visit our dealers while taking all hygiene measures. Thanks to the measures we took, fortunately, we had no serious cases. Behind our ability to take measures so quickly lies the strides we have made for a long time in the area of digitalization. Thanks to this, we continued to work with high productivity without any disruption in our processes. We see that we have passed this nearly one-year period as successfully as possible and adapted to the situation, despite everything. Looking back at the past year, I can say that we did not experience a decline in our company productivity; on the contrary, we closed the year with good results through correct steps. We are pleased to have encountered such a result during the crisis period. I also want to express that I am proud of all our colleagues. At Jotun, we serve in four segments: Decorative Paints, Industrial Paints, Marine Paints and Powder Coatings. This gives us the opportunity to experience and analyze the sector from a much wider perspective. We closely monitor developments in all segments. For example, in the decorative segment, changes in consumer habits specific to this period occurred. We observed a trend toward home decoration due to increased time spent at home. Consumers began to view walls, the largest surface in homes, as part of decoration. Accordingly, the rate of consumers colorizing their walls increased. We know that 2021 will not be an easy year, but with the right steps, we can manage the market fluctuations with minimal impact. Whatever we face, with our large Jotun family made up of our employees, dealers and business partners, by working hand in hand, I am confident we will emerge from this process growing stronger. Şükrü Ergün Vice Chairman Eastern Europe and Central Asia Region Jotun