AkzoNobel Decorative Paints

It has been a challenging year for our global Decorative Paints business. The worldwide financial crisis significantly impacted housing and construction markets, with newbuilds and sales of existing houses continuing to decline, particularly in Europe and North America.

Market conditions were made even more severe in 2011 by a 100 percent increase in the cost of titanium dioxide, an essential ingredient in our high quality products. Since our contractors around the world are competing for share in a stagnant or declining market, we also experienced down trading to cheaper products. We were unable to pass on all raw material cost increases during the year.

Despite these challenges, we continue to be optimistic about our industry and our ability to compete and grow our business. The successfully completed merger with ICI has created a global Decorative Paints business with a clear vision, strategy and an effective organizational model which allows scale and scope advantages where it matters, while creating powerful local profit and loss responsibilities.

In both Europe and North America, we have established integrated businesses with the main purpose of improving productivity and margins, while also focusing on building our brands and penetration. The financial crisis had a significant adverse effect on our southern European businesses and resulted in minor growth in our north European countries. Our flagship businesses in the UK and Belgium weathered the storm well and we expect that this will be sustainable.

In the US, we successfully completed the introduction of our products into Walmart, although revenue for the year was below expectations. Our business with The Home Depot continues to strengthen after the successful relaunch of Glidden and a strongly improved cooperation. In Canada, our activities suffered from a sluggish market, but we were able to consolidate our long-standing relationship with major retailer RONA. Overall, however, our North American trading result was significantly impacted by raw material cost increases and write-offs of slow moving stocks.

Looking at the high growth markets of Asia, Latin America, Turkey and Eastern Europe, we continue to outpace our competitors and are strengthening our relative market share positions. Our strategy in China to extend penetration in the mass market and the western Tier 2 and Tier 3 cities is paying dividends, while our business in India started to gain momentum following investment in our flagship Dulux brand, as well as increased penetration into the mass markets and rural cities. This follows similar investments in markets such as Indonesia, which continues to outgrow competitors. In Turkey, Brazil and Argentina, we gained market share through great customer programs and the successful Let’s Colour brand activities.

During 2011, we continued to invest in our people, brands and capabilities. Our Ignite the Spirit program has been attended by more than 15,000 employees, creating a global community which is fully aligned to achieve our ambition of adding color to people’s lives. We strengthened our top teams in Europe and the US and created a global brand identity which is currently being successfully rolled out, along with a brand campaign, under the Let’s Colour invitation. In addition, the introduction of a dedicated Innovation Director alongside our R&D teams has enabled us to benefit from the heightened focus and we now have a healthy pipeline of new propositions that are globally aligned, in particular in the ever more important area of sustainability.