Specialty Chemicals strategy

We delivered our stated objective of growing in line with, or faster than, our markets, although volume growth has been modest. Our volumes saw an upward momentum in the second half of the year. Markets showed very mixed growth levels and the overall sector was stable at best. In this business environment, we remain highly focused and will continue with our approach to build on the foundations we have created. We aim to deliver our performance range by continuing to focus on our strategic actions.

Build on our strong chemical platforms to deliver profitable growth in selected markets

We prioritize resources and investment capital towards the most attractive opportunities in each of our chemicals platforms. These are based on where we have strong competitive positions, with a specific focus on faster growing geographical markets, such as Latin America, India and China. In these businesses, we are investing to outgrow the market. Examples include:

• Our Bleaching Chemicals platform is expected to benefit from continued growth in the chemically bleached pulp segment in Latin America. Although there are challenges in many sectors of the Brazilian economy, our unique Chemical Island business model delivers a robust performance from both a cost and sustainability perspective. In our niche technologies of expandable microspheres (Expancel) and colloidal silica (Levasil), we are targeting attractive growth and expect this to continue as new applications are being researched and developed
• We are investing selectively in the Surfactants platform. In 2016, the continued low oil prices affected demand in the oil and gas drilling sector. At the same time, in sectors such as personal care and cleaning, we experienced solid growth. Because our surfactants are centered on a few key technology platforms, we can effectively and efficiently leverage our production capacity across all segments and redirect towards growth
• Our north-western Europe Salt-Chlorine platform has a strong position, albeit in a stable market. In this reality, our main strategic focus is on efficient capital expenditure, successful plant utilization and operational excellence. We are also pursuing creative growth opportunities to reinforce our position, particularly where we can utilize our process technology know-how in an asset-light construction. A recent example is our cooperation for salt in Spain, which will enable us to further improve our leadership position in chemical transformation salt, while also offering specialty salt growth opportunities. The business also offers a strong sustainability profile, as it draws on salt-based waste streams. The second example is a 50/50 joint venture we formed with Evonik Industries to convert our Ibbenbüren plant in Gemany from mercury to membrane technology for the production of potassium hydroxide, chlorine and hydrogen. In MCA (monochloroacetic acid), we signed an agreement for a new joint venture in India
• We have a number of leading positions in our Polymer Chemistry platform. Here we aim to grow and improve our performance by focusing on specific applications and leveraging our global reputation for safety. For example, we are continuing to gain traction in the market with our Continuous Initiator Dosing (CiD) technology. Designed to reduce energy use and deliver higher PVC quality, it also helps to increase the capital productivity of our customers by up to 30 percent while improving safety levels
• In the Ethylene Oxide platform, our emphasis is on increasing the operational leverage of existing assets to further improve performance. We have been successful in investing for growth in specific applications, such as specialty chelates and Bermocoll cellulosic products

Drive functional excellence

We focus on increasing productivity and efficiency across our business, both in supply chain and operations, as well as commercial excellence. A strong talent management approach utilizing AkzoNobel’s global HR processes underpins our efforts. Having delivered significantly on efficiency in recent years, we are redirecting our functional excellence programs to also drive organic growth:

• Specialty Chemicals continues to implement the AkzoNobel Leading Performance System (ALPS) in supply chain and operations. This operational excellence program drives targeted improvements in customer satisfaction and safety, as well as key value metrics, and also creates increased capabilities at our capacity constrained operations to unlock new volumes
• Our commercial excellence program supports our organic growth strategy. We target four commercial growth drivers: customer retention, key account management, higher growth markets and new channels to (new) customers
• We recruit and engage high quality individuals and drive programs to develop a strong and diverse talent pipeline. We see tangible gains from new learning and development programs and our new performance management approach. Across all functions and geographies, there are increasing levels of professionalism and diversity. Our employees are highly engaged, which is underpinned by our further improved score in the annual ViewPoint engagement survey

Strengthen product and process innovation

Our product and process innovation agenda is robust and builds on a number of key trends and customer requirements. These include resource preservation, increasing end-use demands, accelerated technology development and changing demographics/spending patterns. We have overarching technology programs around process technology, shared applications and bio-based chemicals, as well as specific development programs supporting our platforms. Our R&D approach has a major sustainability focus, in line with our Planet Possible agenda. We also foster collaborative approaches. A letter of intent for the creation of a multi-stakeholder Deventer open innovation center in the Netherlands was signed on June 16, 2016.

Some examples of product and process innovations are:

• Improved agricultural adjuvants (Surfactants platform) that enhance the effectiveness and eco-profiles of crop protection to key customers
• An enhanced production, properties and environmental profile for our Expancel product range. For example, adding Expancel microspheres to wine corks delivers the water-tight barrier, elasticity and resilience of natural cork, with lower impurities and absorption, reducing cork taint and helping wine last longer

Capitalize on industry changes

We are externally focused and adjust our strategy and footprint to respond to changing environments, including the following:

• Although growth rates are lower than they have been, China is still growing at high levels. We are responding to changes by strengthening our existing local production capacity with new investments to serve local markets
• We are continuing to respond to growth in pulp production in Brazil by constructing closed loop, highly sustainable, local production capacity for our Bleaching Chemicals business
• We are building a stronger local organization and presence in India to capitalize on new demand

Continued drive for stronger sustainability profile

We aim to reduce carbon emissions through a combination of improved energy efficiency, higher use of renewable energy and higher use of bio-based raw materials. As an example of the type of improvements we are making, we have increased renewable energy use by nearly 20 percent since 2013. We have also engaged in a long-term commitment to source power from the Krammer wind park being constructed in the Netherlands. Renewable energy accounts for 40 percent of AkzoNobel’s overall energy consumption.