In 2017, we announced the decision to create two focused, high performing companies – Paints and Coatings, and Specialty Chemicals – with separation due to take place by April 2018. Pursuing this strategy will drive a step-change in growth and value creation and enable both businesses to become more agile, while accelerating profitability. Increased financial guidance was also announced for the two new businesses.
1 Excluding unallocated corporate center costs; assumes no significant market disruption
2 Excluding unallocated corporate center costs and invested capital; assumes no significant market disruption
3 Specialty Chemicals separation
4 Based on reported figures, excluding unallocated corporate costs and other carve-out adjustments which are expected to lead to downward adjustments of ROS and ROI. Exchange rates from April 2017
The creation of two focused, high performing companies is the logical next step for AkzoNobel. With strong financial and operational foundations having been put in place in recent years, now is the time for us to achieve our full potential and deliver a step-change in long-term value creation by separating our Paints and Coatings, and Specialty Chemicals activities.
Our focused strategy for Paints and Coatings will accelerate growth and profitability, while increasing returns to all our stakeholders. We are creating a fit-for-purpose organization with clearer customer focus, continued cost discipline, a performance culture and simplified ways of working. Our financial guidance for this refocused business is 15% return on sales1 and more than 25% return on investment2 by 2020. See below and Paints and Coatings for further details.
Our world class Specialty Chemicals business has been on a dual-track process, with two possible separation scenarios – legal demerger or private sale – still being considered as this Report 2017 was being published. The business has developed a single, clear road map to deliver its 2020 financial guidance4 of 16% return on sales and more than 20% return on investment. See Specialty Chemicals for further details.
At our investor update held in London in April, we gave full details of the new strategy for the company – including the separation of Specialty Chemicals – and announced updated financial guidance for 2020.
The clear focus for AkzoNobel Paints and Coatings is to become the preferred choice for customers and grow faster than relevant markets. This will ensure we further strengthen the market positions we have in all our geographic regions.
In order to support this, we have put a new Executive Committee structure in place designed to not only drive operational synergies and standardization, but also leverage expertise across the business. To enable a more efficient and faster way of working, we have separated our commercial activities (led by Chief Operating Officer, Ruud Joosten) from those in our supply chain (led by Chief Supply Chain Officer, David Allen), while maintaining close cooperation between the two (see page 38 for more operational insight).
On the commercial side, this new structure will enable a clearer focus on our customers, delivering our new financial targets and achieving sustainable, profitable growth. To ensure maximum customer focus and agility, our paints and coatings activities have been consolidated into eight business units from the start of 2018, all reporting to the Chief Operating Officer directly.
Meanwhile, by centralizing all supply chain responsibilities – including manufacturing and procurement – into a single, global function with dedicated experts, we can further drive progress across a number of key areas. We can achieve faster standardization, build functional excellence, leverage scale and expertise across our businesses and accelerate our ALPS continuous improvement program.
To help connect these teams and drive delivery, we are rolling out Integrated Business Planning across the company. This will provide the heartbeat for achieving alignment and delivering a common operating plan. It will further drive efficiency, improve transparency and be the driving force to help us lower the cost of getting products to our customers. Operational excellence and continuous improvement programs also remain at the heart of our plans across all functions – we aim to realize €150 million a year in savings from continuous improvement, which will contribute significantly to achieving our 2020 financial guidance.
In addition, we have introduced a new role of Chief Technology Officer to sharpen our medium to long-term innovation road map and drive opportunities closer to our customer needs. One of the key responsibilities of this role is to help realize synergies across Paints and Coatings and drive clearer benefits from our innovation efforts, including building on our increasing focus on digital business innovation.
Going forward, we will continue to develop our world class portfolio of brands and products – including Dulux, International, Sikkens and Interpon – with a focus on sustainable and digital solutions which will help bring us closer to our customers. Remaining open to exploring relevant opportunities, including bolt-on acquisitions, also continues to be part of our strategy.
By creating a high performance, fit-for-purpose organization with a clear and single focus, we intend to accelerate our growth momentum and enhance profitability. We are committed to increasing returns to shareholders, while continuing to invest in growth, creating sustainable value for all our stakeholders to become a truly global paints and coatings leader.
Total assets (excluding cash and cash equivalents, investments in associates, the receivable from pension funds in an asset position, assets held for sale) less current income tax payable, deferred tax liabilities and trade and other payables.
This is a key profitability measure and is calculated as EBIT as a percentage of revenue.
This is a key profitability measure and is calculated as EBIT as a percentage of average invested capital.
AkzoNobel Leading Performance System, a company-wide continuous improvement program.