Polisan Holding CEO Erol Mizrahi Answers Our Questions

In the interview we conducted, Erol Mizrahi, Chief Executive Officer of Polisan Holding, answered our questions. Mizrahi explained the process of the agreement between Polisan and Kansai. Mizrahi also provided detailed information about their newly developed Earthquake-Resistant Paint.

Could you briefly tell our readers about yourself, your education and professional background?

I was born in Edirne in 1954. I graduated from Istanbul University Faculty of Law in 1977. Since 1976, I have held positions at various levels within Polisan. From the second half of 1998 onwards, I have served as Group General Coordinator and General Manager of Polisan Paint Industry and Trade Inc., and since 2005 as Chief Executive Officer of Polisan Holding. In addition to board memberships at Polisan Holding and its subsidiaries, following last year's partnership between our Polisan Paint company and Kansai Paint, Japan's leading company and one of the world's top 10 firms, I also serve as General Manager and Board Chairman of Polisan Kansai Paint. Currently, I continue to serve as Member of Polisan Holding Executive Board, Board Chairman of Polisan Kansai Paint, and Board Member of Polisan Holding, Polisan Chemistry, Polisan Agriculture, Polisan Construction, Şark Mensucat, Poliport, Rohm and Haas, Polisan Hellas, as well as Board Member of BOSAD. My history with Polisan exceeds 40 years.

Could you provide information about the establishment process of Polisan Kansai Paint and its current structure? Could you provide detailed information about the agreement process between Polisan and Kansai?

The commercial activities of the Bitlis Family, which began with textiles in the 1920s, continued with retail operations until the establishment of Şark Mensucat in 1956, which operated as integrated fabric dyeing and weaving facilities. Entry into the chemical industry was realized with the establishment of Polisan Chemistry in 1964, which produced emulsion resins. In 1985, the Polisan brand began paint production, and significant milestones have been achieved over the years. Polisan Kansai Paint, with over 250 product varieties under the Polisan brand excluding packaging and color variants and over 7,000 sales points, holds the position of the most comprehensive product range in the decorative paint market and the most widely distributed paint company in the sector. The premium interior surface paint under the Elegans brand is among the most preferred products in its market segment. With Turkey's first equivalent of "oil paint," the X1 Odorless Gloss—a water-based gloss topcoat paint—Polisan Kansai Paint demonstrates its commitment to human health, environmentally friendly and innovative identity. It holds ISO 9001, ISO 14001, ISO 18001, ISO 10002, ISO 50001, ISO 27001 and ISO 17025 certificates. Since 1997, the company has been part of the Responsible Care program applied worldwide by the chemical industry for occupational health and safety, environmental protection and technical safety matters. Our company in 2017, earned the "Authorized Economic Operator Certificate" granted by the Ministry of Customs and Trade to companies meeting requirements in line with the "Easiest, Safest Trade" mission, and has begun benefiting from the rights and facilitations provided by this status. With a 59-person R&D team continuously investing in the development of innovative products, our company has become an institution that obtained Turkey's 159th R&D Center Certificate from the Ministry of Science, Industry and Technology. Polisan Kansai Paint, conducting regular activities since 2012 to be a pioneer in the sector in combating climate change, continues to reinforce its environmentally friendly identity and pursuit of sustainability by being included in the Istanbul Stock Exchange Sustainability Index, to which 44 companies under the Holding's roof have been admitted.

At the same time, Polisan Kansai Paint has become the first company in Turkey's paint sector to receive environmental label and awards.

Having developed the first water-based mix machine in the sector that provides the same quality as factory production, Polisan Kansai Paint now serves consumers with a wide distribution network at 3,000 sales points where it has positioned Mix Center colorization machines, providing consumers with their desired color without extra charge and without compromising quality, while offering dealers maximum benefit through low inventory and storage area efficiency. 50 percent of the shares in Polisan Paint, a 100 percent subsidiary of Polisan Holding, a leading name in the Turkish chemical sector, were sold in 2016 to Kansai Paint, Japan's leading paint manufacturer and one of the world's top 10, for USD 113.5 million. The strategic partnership established with Kansai Paint is Polisan Holding's second partnership with a world giant. Polisan Holding realized its first foreign partnership in 2004 with Rohm and Haas, one of the world's largest chemical producers, to conduct emulsion resin operations. Following Rohm and Haas's acquisition by Dow Chemical in 2009, this partnership has continued between Polisan Holding and Dow Chemical. Since 2008, positioning its products under the "Home Cosmetics" umbrella communication registered worldwide, Polisan Kansai Paint, stating "we produce home cosmetic products, not paint" and "Polisan products, like cosmetic products, both provide aesthetic beauty and offer maintenance," adds value to living spaces. Polisan, established in 1985 with a capacity of 10,000 tons, launched a major investment in 2016 to renovate paint and storage facilities. In the Gebze Chemical Specialization Industrial Zone, on an area of 142,000 m2, with the new facility to be built to global standards with full automation, annual production currently at 180,000 tons in three shifts could increase to 180,000 tons in a single shift, and up to 540,000 tons in three shifts without additional investment requirements. This total capacity is equivalent to the size of Turkey's paint sector. Our new facility will be positioned with a capacity that could also serve as a production base for Kansai Paint.

Which industries does Polisan Kansai Paint primarily supply and what types of products? Could you provide information about Polisan Kansai Paint's products, brands and services?

Polisan Kansai Paint is among Turkey's leading, strong and innovative decorative paint brands. Introducing the "Home Cosmetics" concept to the world in 2008, Polisan Kansai Paint developed Turkey's first 7-property interior, 9-property exterior surface paints, water-based road line marking paint, wood protective spray varnish, water-based gloss topcoat paint, paint perfume, plastic spray paint and the world's first water-based metal paint. In addition to innovative products, Polisan Kansai Paint, offering innovative solution proposals to the sector, developed Insulation Comprehensive Coverage, a first in the insurance industry worldwide. Developing Turkey's first water-based mix machine that provides the same quality as factory production and the Logistics Center concept, Polisan positioned its sales channel as a production center, ensuring effective inventory management. Through the sector's first single POS loyalty program and collection application, Polisan conducts a trouble-free collection process while securing the loyalty of paint craftsmen registered in the system. With the "Polisan Shop" concept launched in 2008 to provide shopping convenience to consumers, it serves through an extensive sales network at over 1,000 sales points and a total of more than 7,000 sales points in Turkey.

Could you discuss your domestic and foreign sales activities? What types of products do you primarily sell to which regions domestically and internationally?

Currently, the domestic market constitutes the bulk of our business (97 percent). We have a strong and strengthening position in the domestic market. Our aim is to transfer our success and experience in the domestic market to foreign markets. In exports, we currently have active distributors in 13 countries. The prominent markets are Iraq, Turkmenistan and Russia. Our sales in these countries have continued for many years and show steady growth. Beyond our current markets, we identify 2-3 new target markets each year and conduct different marketing activities to introduce our products in these regions. To strengthen these activities and increase our brand awareness, we participate in trade fairs in at least 3 different countries. As the Polisan Home Cosmetics brand, we are supported by Turquality, the world's first government-backed promotion program.

What type of work do you conduct in innovation and R&D as Polisan Kansai Paint? The earthquake-resistant paint developed by Polisan Kansai Paint has attracted public interest. Could you provide information about the characteristics of this product and its development process?

Our R&D Center, employing a total of 63 people, has Decorative Paint, Industrial, Furniture and Marine Paint R&D Laboratories, Basic Research Laboratories, and Binder Laboratories. Our R&D Center, making customer satisfaction and product quality continuity a principle, while implementing this principle with the "respect and care for the environment" principle, has signed many products that were the first in Turkey in the development of environmentally friendly and sustainable products. Our R&D Center continues its work on a total of 28 projects, comprising 3 TEYDEB-TUBITAK projects, 1 SANTEZ Project and 24 self-funded projects. The main strategies of our R&D Center are: to closely follow methodological, technical and technological innovations in parallel with R&D activities conducted, to use gains obtained from R&D incentives/support as resources for richer R&D infrastructure, and to combine R&D activities with worldwide technologies using information communication networks. As Polisan Kansai Paint, backed by three giant forces along with Polisan Holding behind over half a century of experience, at the beginning of 2018 we introduced EXELANS TURBO FLEX C1, a new exterior surface paint that will pioneer the architectural coating category, to the service of Turkish paint and construction sectors. We have developed a paint that can be safely used even in demanding structures such as bridges, metros, parking garages and high-rise buildings, and extends the life of buildings. We are proud to offer a first and unique product in Turkey to our paint sector. EXELANS TURBO FLEX C1 is not just an ordinary exterior surface paint, but a collaborative intelligence product developed by our experienced and expert R&D Center team with the support of our giant partners Dow Chemical and Kansai Paint.

EXELANS TURBO FLEX C1 extends the life of buildings while, through its anti-carbonization property and flexibility, reducing the destructive effect of earthquakes on buildings.

EXELANS TURBO FLEX C1 was designed in Polisan Kansai Paint's R&D Center with an anti-carbonization property formula enriched with Nano Silica, featuring organic-inorganic hybrid and pure acrylic binders. Through its special formula, "EXELANS TURBO FLEX C1" possesses high flexibility and elasticity capability that, in buildings where it is applied, prevents concrete cracking due to weather conditions and delays aging, thereby reducing the destructive effect of potential earthquakes.

Could you provide information about Polisan Kansai Paint's environmental policy and sustainability approach? What can you say about your work related to worker health and safety?

Polisan adopts integrating the concept of sustainability into its brand and services, and with this purpose, creates its strategies and investments at each stage with environmentally sustainable production principles that generate added value economically, environmentally and socially, and secures these activities through the management systems it has established. We view our long-term development and stability in sectors as a result of our conscious approach to sustainability issues, and during our activities, not only do we have a strategy focused solely on economic profitability, but we have also made fighting environmental and social problems that threaten our world a management strategy. EPD certificates, as defined according to ISO 14025, quantitatively evaluate and declare a product's environmental performance according to pre-determined categories based on parameters specified within the ISO 14040 series framework (including procurement of raw materials, energy use and efficiency; material and chemical content; emissions to air, water and soil; waste generation). The declaration method used in these activities is validated impartially by international experts, so certificates are valid worldwide. Polisan Kansai Paint, through this declaration method, obtained 4 Environmental Product Declaration (EPD) certificates for interior and exterior surface products and became the only company in its sector in Turkey and one of the first three manufacturers in Europe to hold this certificate. This achievement was awarded at the EPD Panel of the SBE 2016 conference, held for the first time in Turkey.

Could we learn your thoughts on the decorative paint sector in Turkey? What do you think are Turkey's advantages and disadvantages for this sector?

Water-based paints constitute 85 percent of decorative paint production. Thanks to newly developed production techniques, it is possible to produce human and environmentally health-conscious and at the same time long-lasting paints. Additionally, there is growing interest in more durable, easy-to-apply, high-performance paint products with rich color variety and reduced environmental impacts (containing lower volatile organic compounds (VOC), free of heavy metals, etc.). In the sector, there has been a shift from solvent-based to water-based paints. Due to seasonality, high working capital is required. In the paint sector, April - September are the periods of highest demand. Due to seasonality, not only is high working capital required, but also 80-90 percent of raw materials not produced in Turkey and used as main and auxiliary inputs for the sector are imported, so costs rise particularly during periods when the Turkish Lira loses value against foreign exchange rates. Do-It-Yourself trends are gaining importance. In Turkey's paint sector, the customer base is comprised of distribution channels (wholesalers, retailers, building markets), households and paint craftsmen. In recent years, particularly in decorative paints, with paint applicators and end consumers prioritizing color preference and quality, instead of producing every type of color and delivering them to retail sales points, the service of producing base colors and presenting products to consumers in colors and shades that meet their preferences through mix system machines at retail points has gained importance. I can clearly state that due to changing habits, developing needs and production capabilities capable of meeting these needs, Turkey's paint market is open to growth. It has the potential to gain a larger share from the world market.

When investment plans for Polisan Kansai Paint are being formulated, which criteria are prioritized? Does Polisan Kansai Paint have investment plans for the coming periods, and if so, what are they?

With the responsibility that comes from being a publicly traded company, we make investment decisions always with the motivation of creating profitable income growth for our investors. We made our investments in logistics centers, Polisan Shops, and mix machines always with this motivation. The new paint facility I just mentioned is also a result of our goal to expand into export markets that we consciously deprioritized due to capacity constraints. We believe that our EUR 45 million investment will be self-financing within a period of about 8 years through the operational advantages provided after our facility becomes fully operational. Beyond this, considering the income growth that will arise from the synergies created by our partnership, I can say that we do not foresee investment needs of this scale in the short term, but we can always evaluate investments aimed at increasing efficiency in the R&D field and our business processes.