Strategic direction

Already the global leader in terms of size, our vision is to become the leading global decorative paints company in size and performance. We are strongly focused on improving our performance to achieve return on sales of 7.5 percent and return on investment of more than 12 percent by 2015.

Key to our success in achieving this vision of leading size and performance is the implementation of a new operating model. This will be based on a simplified organization with standardized and simplified processes, functional excellence and optimized ways of working. It will be underpinned by clear accountability and a harmonized set of key performance indicators.

We are nearing completion of our work to carefully map out our new model and the processes that support it, as well as identifying responsibilities and developing a set of indices to allow us to measure and monitor improvement versus expectations. We have established a program management office to maximize the likelihood of successful delivery on all of the key components of our strategy, as outlined below.

Beyond the implementation of our new organizational model, the actions we are taking to deliver on these targets are to fix Europe; grow profitably in high growth markets; leverage investments in marketing, sales and innovation; and improve supply chain performance. Here is a brief look at what we accomplished in 2013 and what we are planning for 2014.

Fix Europe

We successfully implemented considerable restructuring-based cost improvements from 2008 to 2012. However, given the substantial market downturn, these measures are no longer sufficient, so we are taking more stringent and comprehensive measures to reduce costs and prepare ourselves for the future.

We continue to consolidate our manufacturing and distribution footprint, but our supply chain is only the starting point. We are also undertaking significant organizational changes in marketing and sales in Europe and reducing the cost base, while ensuring that our customer-facing teams are better equipped to focus on addressing the needs of local customers by using efficient platforms and solutions. In addition, we are carrying out a major program of process redesign in back office functions to drive back office consolidation and restructuring.

While we align our cost base to the new market reality, we are also maintaining a strong focus on our customers and markets. This includes further building on one of our traditional strengths – understanding and serving professional painters – as well as consolidating our strong position in large-scale retail operations and continuing to build a robust approach to digital marketing. Once growth returns, we believe that the combination of rigorous efficiency improvement and these market-facing initiatives will mean that we are uniquely positioned for profitable growth.

Grow profitably in high growth markets

We are proud of our strong positions in many high growth markets, such as China, Brazil, Indonesia, Turkey, Vietnam, Poland and South Africa. We continued to invest in 2013 and plan to grow further in 2014, and are seeing the benefits of this in terms of top line growth.

However, with lower growth rates predicted in high growth geographies, we must also ensure that all of our growth is profitable growth. Central to this will be the success we achieve in the mid-market. Our high growth market positions are generally based on the premium sector, so mid-market growth is a key component of our strategy. In order to deliver this growth profitably, we must ensure that we have appropriate value propositions, based on appropriate cost-value trade-offs.

Beyond the mid-market, most of our market-facing initiatives are based on learning from a more global approach. So in high growth markets, we will benefit from repeatable models in terms of understanding and serving professional painters and digital marketing. Eventually, we will also utilize the same approach to back office efficiency currently being implemented in Europe, as well as continuing to take a consistent approach to supply chain efficiency and effectiveness across the globe.

To grow profitably in high growth markets, we will need to continue attracting, developing and retaining people in what is a highly competitive labor market. To address this, we are focusing on university recruitment and offering challenging opportunities for graduates to gain experience and develop in a highly professional environment.

Leverage investments in marketing, sales and innovation

Branding and consumer inspiration are core capabilities for our Decorative Paints business. To ensure that we benefit from our scale and make our size an asset, we will continue to develop models regionally or globally and roll these models out in relevant countries. During 2013, good examples of this principle were the global launches of Dulux Ambiance, Dulux Colours of the World and Dulux Weathershield.

Furthermore, we are continuing to invest heavily in our global “Let’s Colour” brand, both commercially and through our community programs. In the UK, our “Let’s Colour” programs have led to improved share and profit, while we are experiencing the same impact in China. Together, with our professional trade partners, we have rolled out successful store, specification and loyalty programs and this will continue. In addition, we are rolling out our global web platform across successive markets.

Improve supply chain performance

Since the ICI acquisition in 2008, we have extensively restructured our operations footprint in Europe in order to leverage our scale and address the considerable market contraction from the recession. Specifically, we have closed 13 manufacturing units and nearly 50 warehouses. At the same time, we are also investing for the future. For example, we recently completed a new factory in India, have significantly expanded our plant in Southern China and are planning a new facility in Western China. In the UK, we are consolidating our manufacturing activities from Slough and Prudhoe into a new, state-of-the-art greenfield plant in Ashington. All of this construction is based on new, more efficient paint manufacturing technology.

We will continue to review our supply chain footprint to ensure we adapt our facilities to best fit the market we serve. Once current restructuring plans are complete, we plan to move away from a project mindset and pursue a continuous improvement approach, aiming for ongoing year-on-year cost savings.

With this in mind, in 2013 we embarked on a large-scale roll-out of a training and development plan across our European factories to drive the “lean” (i.e. waste reduction) approach to manufacturing excellence. The lead sites are already showing good improvement from harvesting low hanging fruit.

Generate more value with fewer resources

Embedded sustainability is a core component of our Decorative Paints strategy. As is the case with all three AkzoNobel Business Areas, our focus is on generating more value from fewer resources as part of our Planet Possible sustainability strategy. To implement this, we are working internally across functions and externally with suppliers and customers. Specific areas of focus are volatile organic compound (VOC) reduction, eco-premium solutions, packaging/end-of-life and own operations.

VOC reduction

Traditional solvent borne products have high levels of VOCs. The introduction of new technologies such as “water in oil” and improvements in water-borne products have already led to a reduction in average VOC per liter of 20 percent from 2009 to 2012. We continue to push for further reductions in this area from both new technological innovation and market education – a real challenge in some markets.

Eco-premium solutions

Eco-premium products with downstream benefits account for 27 percent of our Decorative Paints sales. Examples of such products are Dulux Trade Light & Space (which makes rooms feel brighter); Dulux Forest Breath (which has been specially developed to enhance air quality); and Cetol HLS Plus, which uses our “water in oil” technology to help reduce solvent use and lower emissions during application. For more information about our eco-premium solutions, see Note 4 of the Sustainability statements.

Packaging and end-of-life

We continue to look for ways to optimize our packaging to ensure that it protects the product, while minimizing packaging material. We have a program of work to lightweight cans and increase the amount of recycled content in cans.

These two aspects are interrelated as, for instance, recycled content in cans often results in less robust cans. So the challenge is to optimize the balance between weight and recycled content. We also have a number of trials underway looking at how waste paint can be used. Potential solutions range from diverting materials to community projects to reincorporating leftover paint into new paints.

Own operations

The environmental impact of our own operations is a relatively small amount compared with the whole value chain, but we continue to look for ways to minimize our resource use. This means building footprint reduction activities (which generally also result in cost savings) into our supply chain continuous improvement program.

It also means ensuring that we optimize resource use in new build facilities. For example, our new UK site will be our most sustainable, as it will use half the energy and generate half the waste of the plants that it will replace.

Decorative Paints expected 2015 financial outcomes:

  • Return on sales: 7.5%
  • Return on investment: 12%