Paints and Coatings

Things are rarely dull when you are part of a rapidly consolidating global industry sector and so it proved in 2017. It will no doubt be remembered as one of the most eventful years in AkzoNobel’s long history, but along with that came new opportunities.

Operating in such a dynamic, competitive environment had its challenges, and while we experienced difficulties in certain markets, others proved more favorable due to a combination of regional demand, changing consumer preferences for bio-based products and ongoing technological advancements. The strength of our brands and products also drove overall performance as we leveraged our scale and continued to invest in water-based technologies and digital solutions to support the growing needs of our customers.

The Paints and Coatings organization is therefore looking ahead with confidence. We are creating a world-leading company capable of driving faster business planning and are well positioned to accelerate growth and enhance profitability. We have a clear strategy to grow our business, develop our world class brands and color expertise and continue driving our digital and innovation agendas. And we have the organization in place to enable optimal alignment between business needs and operational and supply chain delivery. We’re convinced it’s the natural next step in our evolution as we remain committed to working closely with our customers and firmly establishing ourselves as the number one choice.

Our clear strategic focus ensured we made steady progress with our growth ambitions during the year, securing three acquisitions. In July, we announced a double deal for the UK’s Flexcrete Technologies Ltd. and French manufacturer Disa Technology (Disatech). Flexcrete manufactures industry-leading technical mortars and high performance coatings for concrete, while Disatech supplies innovative adhesive films used in the aerospace, transportation and industrial equipment sectors. This was followed in November by the acquisition of the business of V.Powdertech Co., Ltd., the leading Thai manufacturer of powder coatings (see Acquisitions show new strategy in action).

One of the main 2017 highlights was the opening of our new site in Ashington in the UK – the largest ever global investment in the company’s paints activities. The world’s most advanced and sustainable paint plant, it’s the new center of production for our global mega-brand, Dulux, which is also the UK’s leading decorative paint brand. We have taken the best technology available globally, improved on it and put it all under one roof, ensuring this new facility represents a significant step forward for the whole industry. It’s also home to our second Dulux Academy, set up to help the UK painting and decorating industry meet the ever-growing demand for skilled professionals. In addition to Ashington, we opened a new €31 million coatings plant in Chonburi, Thailand, our ninth production site in South East Asia. We also inaugurated a new Aerospace Color Center in Dongguan, China, which will offer improved and faster service to existing and new customers.

The ability of these new plants to serve our customers faster and more reliably is crucial, which is why our new organizational structure is designed to not only drive operational synergies and standardization, but also leverage expertise across all our activities. The key to maximizing the power of our brands, accelerating our operational excellence benefits and working towards a lower cost to serve is Integrated Business Planning. It will be a driving force linking the needs of the business with our manufacturing capability and will be pivotal to ensuring we lower the cost of getting our products to our customers on time, in full.

This change in the way we operate will be fundamental to creating a fit-for-purpose Paints and Coatings organization (see Our strategy and Paints and Coatings for more details). It will also create an even stronger platform for us to accelerate the introduction of new products and technologies – because meeting customer needs is at the heart of what we do. In 2017, we made solid progress in this area, most notably in creating global concepts such as Easycare – a highly durable interior consumer paint featuring unique stain repellent technology – which repels liquid spills, making them easier to wash away. It’s being implemented in more and more countries and underlines our strategy of using our global leverage to win locally. For professional painters, we launched Sikkens Alpha Rezisto – which repels many common household stains – in numerous European countries. In addition, a new generation of BPANI (BPA non-intent) coatings for beer and beverage packaging was introduced, providing customers with more sustainable and innovative solutions. Automotive Coatings also deployed its 10,000^th Automatchic Vision device for perfect color matching.

Meanwhile, another digital innovation – our Visualizer decorating app – continued its remarkable success story. Downloaded nearly 20 million times to date (with 192 million visualizations being made in 2017 alone), it allows people to play with color ideas and see what rooms will look like, before anything is applied to the wall. Regularly upgraded with new features, it’s just one of the ways in which we share our global expertise in color and design with customers and consumers (see Inspiring our world with color).

Other examples of how we worked closely with customers this year to successfully deliver advanced solutions include Carbeat, an industry first digital tool for vehicle repair shops which offers significant benefits by giving a real-time overview of the repair process. We also supplied the victorious Eindhoven University of Technology team in the World Solar Challenge with high performance coatings and technical expertise.

Partnerships are another way of sharing knowledge and know-how, and two other developments in 2017 – both closely related – enabled us to highlight our long-established maritime heritage. In June, we joined forces with The Ocean Cleanup for the largest clean-up in history. For the next five years, we’ll be providing our advanced, biocide-free International coatings technology for their devices and equipment. The main aim during that time will be to remove half the plastic in the Great Pacific Garbage Patch. Our International and Awlgrip coatings also feature on all the boats in the Volvo Ocean Race, which started in October and is due to finish in June 2018. As the world’s largest producer of marine coatings, with a maritime heritage stretching back more than a century, these two partnerships are a natural fit for AkzoNobel and perfect showcases for our expertise.

Another great partnership saw us team up with global peace movement MasterPeace. With walls so often being seen as a symbol of division, we worked with local artists and residents to paint 141 “Let’s Colour” Walls of Connection in over 30 cities around the world. We also widened our partnership with SOS Children’s Villages to include six new countries in 2018, further highlighting our ongoing commitment to contributing to the societies in which we operate.

From a financial perspective, it was a mixed year, with positive developments in some areas being offset by a series of negative impacts. Although raw material prices remained high, it’s clear that our strategy to grow the Paints business is working, while in Coatings, aside from the challenges presented by the downturn in the marine, and oil and gas industries, we performed well in our other markets and made good progress while continuing to develop new and exciting products for our customers.

There were two main developments with regards to the Paints business during 2017. On a positive note, we saw volume growth in many parts of the world, especially Asia. However, the high price of raw materials impacted our results. We saw some recovery in European countries such as Turkey and Russia, while Latin America stabilized after a difficult period. There is ongoing uncertainty in the UK, but we command a strong leadership position with our Dulux brand and have signalled our intent to continue supplying the best possible products for our customers by opening the new world class plant in Ashington.

In Coatings, the Specialty, Powder and Automotive businesses all performed well, with Powder in particular benefiting from its global leadership position. The business continues to grow, with new sites under construction in India (Thane) and China (Changzhou). In fact, the Changzhou powder plant is the biggest of its kind in the world. It was a very different story for our Marine and Protective Coatings business, due to the depressed shipbuilding industry and the sluggish oil and gas segment.

As we move forward into a new era for the organization, we will continue to look for synergies in terms of sales, marketing and innovation excellence. There are clearly many benefits to be gained from learning from each other in areas such as color, product development, sales, marketing and digital innovation. For example, the work being done in Paints to convert to water-based products is clearly something we can transfer to Coatings. Similarly, pricing excellence initiatives from Coatings will be mirrored by initiatives in Paints. It will all contribute to achieving our 2020 financial guidance of 15% ROS* and ROI** in excess of 25%.

The most important factor in making all of this work will be our colleagues around the world, who take great pride in what they do. By working together as a single company with a single objective, we can realize our vision of achieving a world class, customer-driven digital supply chain which operates at top quartile operational and financial performance levels. We are engaging all our employees to deliver on the sustainable business imperatives – value selling and resource productivity – by incorporating sustainability in their personal objectives.

It’s an exciting time for the company and we’re confident that our passion for paint and focus on powerful performance will ensure we deliver for all our stakeholders.