spotlight on decorative paints amsterdam, 1 december 2011
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Spotlight on Decorative PaintsAmsterdam, 1 December 2011,
Keith Nichols
Welcome
Spotlight on Decorative Paints – 1 December 2011 2
1. Introduction Keith Nichols2. Spotlight on Decorative Paints Tex Gunning3. Marketing Sucheta Govil
Today’s program
4. Innovation David O’BrienLunch
5. Europe, Middle East & Africa Richard Stuckes6. North America BobTaylor
Q&ABreak
7. South East Asia & Pacific Jeremy Rowe8. India & South Asia Amit Jain9. China & North Asia Liangqi Lin10. Latin America Benito Berretta
Q&A11. Wrap up & closing Tex Gunning
Spotlight on Decorative Paints – 1 December 2011 3
AkzoNobel key facts
2010• Revenue €14.6 billion• 55,590 employees• EBITDA: €2.0 billion*
33%33%
• Net income: €0.8 billion• 39 percent of revenue from high growth markets• A leader in sustainability
Revenue by business area EBITDA* by business area
30% Performance Coatings33%
34%
33%
* Before incidentals
26%
44% Decorative Paints
Specialty Chemicals
Spotlight on Decorative Paints – 1 December 2011 4
We want to be the world’s leading Coatings and Specialty Chemicals company
• Top quartile safetyperformance
• Top 3 position in sustainability
• Grow to €20 billion revenues
• Increase EBITDA each year, maintaining 13-15 percent margin
• Reduce OWC/revenues by 0 5
• Top quartile performance in diversity, employee engagement, and talent development
• Top quartile eco-efficiency improvement rate
• Reduce OWC/revenues by 0.5 p.a. towards a 12 percent level
• Pay a stable to rising dividend
Spotlight on Decorative Paints – 1 December 2011 5
Lowered 2012 global growth expectations
6,5%
6 0%
7,0%
Downward revisions in growth forecasts globally
3,6%
2,0%
6,0%
2 0%
3,0%
4,0%
5,0%
6,0%
Fore
cast
GD
P g
row
th
1,5%
0,4%
0,0%
1,0%
2,0%
EU US EM
Source: Deutsche Bank research, Oct-11
July 2011E October 2011E
Spotlight on Decorative Paints – 1 December 2011 6
Economic headwind in Europe expected
3,1%
3,0%
3,5%The market is expecting a European recession
Annual GDP growth
0,6%
0,2%
0,8%
1,7%1,8%
0,5%
1,0%
1,5%
2,0%
2,5%
GD
P ()
% Q
-0-Q
, ann
ualis
ed)
2011E: 1.5%2012E: 0.4%
(0,4)% (0,4)%
(1,0)%
(0,5)%
0,0%
Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12
Source: Deutsche Bank research, Bloomberg
Spotlight on Decorative Paints – 1 December 2011 7
AkzoNobel has strong fundamentals
Our key strengths:
• Leading market positions and brands• Scale
10%4%
Mature EuropeEmerging Europe
• Strong balance sheet• Diverse geographical spread• High operational leverage
Diverse geographical revenue spread
9%Raw materials, energy & other var. production cost Fixed production cost
High operational leverage
39%
6%21%
20%
Emerging EuropeAsia PacificNorth AmericaLatin AmericaOther countries
47%
12%
32%
Fixed production cost
Selling, advertising, administration, R&D costEBIT margin
Spotlight on Decorative Paints – 1 December 2011 8
Our performance improvement program: the next step in the evolution of AkzoNobel
Portfolio transformation
Integration & restructuring
Accelerated and sustainable
growthg
• Divestiture of fibersand pharma
• Restructuring of chemicals portfolio
• Acquisition of ICI• Building global scale
in paint and coatings• Onward sales of
• Integration of ICI• €340 million structural
synergies achieved by Q2 2010
• Footprint rationalized, key people retained
• More than €200 million in cost savings f t t i
• New Value and Values growth strategy Sept. ‘10
• Performance improvement program logical next step
• Combination of driving operational excellence and restructuring underperforming parts ofNational Starch
completedfrom restructuring underperforming parts of
the business
Spotlight on Decorative Paints – 1 December 2011 9
Stepping up operational and functional excellence
Underpin our growth and margin objectives• Enhance our ability to grow• Expected to bring us at or above the mid-point of our 13-15 percent EBITDA
i idmargin guidance.
Deliver structural competitive advantage• Leveraging scale, simplify support structures, reduce cost base• Transfer best practices, standardize key processes• Restructuring of underperforming parts of the portfolio
Full EBITDA impact of €500 million in 2014• Expected total incidental costs €425 million• 2012: €200 million EBITDA, incidental costs of €200 million• Reporting on program deliverables every six months
Spotlight on Decorative Paints – 1 December 2011 10
A comprehensive program
• Comprehensive – all functions, all businesses
• Margin management, R&D and restructuring (~50%)
Decorative Paints
Perf. Coatings
Specialty Chemicals
• Supply Chain and Sourcing projects (~40%)
• Improvements implemented over three years (2012 to 2014)
• All business areas contribute to delivering the €500 million
• >40 percent Decorative Paints
Finance
Human Resources
Information Management
Research, Dev’t & Innov.
Integrated Supply Chain
Margin Management40 percent Decorative Paints
• >30 percent Performance Coatings
• Close to 25 percent Specialty Chemicals
Academy
Spotlight on Decorative Paints – 1 December 2011 11
Performance improvement initiatives examples
Supply Chain – Creating a sustainable, customer-driven supply chain thatoperates at world-class safety, operational and customer service levels:• Improve the efficiency of all of our 225 factories
R d th t f h i d t t ti• Reduce the cost of warehousing and transportation
RD&I – Delivering bigger, bolder, better and faster innovation by focusingon four key areas: • Rationalizing RD&I’s footprint in Europe and North America • Reducing the number of raw materials we use • Improving the efficiency of our manufacturing processes• Linking customers’ needs more effectively to our research activities
Decorative Paints – Restructuring will continue in mature markets:• In North America and Europe, focus will be placed on reducing product
complexity, optimizing distribution and increasing employee productivity
Spotlight on Decorative Paints – 1 December 2011 12
Organization and governance
• Joint responsibility of the Executive Committee, led by CEO• The Executive Committee Support Office (ESO) will operate the
implementation to track progress, intervene where necessary and support th ll
20Masterplans • Set priorities and identify improvement potential from design stages, build into a business case and action plan
• ExCo members to lead each plan
• Defined measures to address priority opportunities• Clear objectives and deliverables identified
the overall program
100Initiatives• Clear objectives and deliverables identified• Risks and dependencies identified• ExCo member still accountable, execution assigned to
operational management
Spotlight on Decorative Paints – 1 December 2011 13
Decorative Paints 2010 key financials and regional breakdown
2010• Revenue: €5.0 billion• 21,950 employees
EBITDA* €548 illi• EBITDA*: €548 million• 38 percent of revenue from high growth markets• Operating ROIC: 32%
7%6%4%
Europe, Middle East and Africa
Revenue by business area
* Before incidentals
52%
21%
10%Europe, Middle East and AfricaNorth AmericaLatin AmericaChina and North AsiaSouth East Asia and PacificIndia and South Asia
Spotlight on Decorative Paints – 1 December 2011 14
Decorative Paints EBITDA* margins excluding US are in group ambition range
14%15%1000
€ million
4%5%6%7%8%9%10%11%12%13%14%
300
400
500
600
700
800
900
0%1%2%3%
0
100
200
2008 2009 2010
Total EBITDA* Total EBITDA* margin* Before incidentals
EBITDA* margin excl. US
Spotlight on Decorative Paints – 1 December 2011 15
Raw material pressure is currently holding back Decorative Paints EBITDAEBITDA* bridge Q3 2010 – Q3 2011
€ million
(89)
1,964
98
198148
Q3 10 Currency Volume Price Raw materials
Mix Other Q3 11
Increase Decrease* Before incidentals
Spotlight on Decorative Paints – 1 December 2011 16
Year-to-date trends in Decorative Paints continue into seasonally weak Q4
14%15%1000
€ million
4%5%6%7%8%9%10%11%12%13%14%
300
400
500
600
700
800
900
0%1%2%3%
0
100
200
FY 2008 FY 2009 FY 2010 FY 2011E
Total EBITDA* Total EBITDA* margin* Before incidentals
EBITDA* margin excl. US
Spotlight on Decorative Paints – 1 December 2011 17
Decorative Paints is low in capital intensity and high in operating ROIC*
35% 31.5% • Attractive operating
10%
15%
20%
25%
30% 26.9% 26.0%ROIC*
• 2010 capex around €154 million
• Capex requirement going forward around 4% of revenue
0%
5%
2008 2009 2010
Total ROIC %
Operating ROIC* %
4.7%5.6%
9.7%
* Operating ROIC is calculated as EBIT before amortization divided by average invested capital excluding intangible assets
5.2%
Spotlight on Decorative Paints – 1 December 2011 18
Spotlight on Decorative PaintsTex GunningTex Gunning
The Decorative Paints market is attractive – it is big and it will get bigger
Global Decorative Paint sales,
30 32 33 34 36 37
1015202530354045
,2010 to 2015 (€ billions)
Asia PacificLatin America
• Demand growth closely correlated with GDP growth, consumer expectations
• In high-growth markets, tends to outstrip GDP growth by up to 1.5x
• Used for decoration as well as protection
05
10
2010 2011 2012 2013 2014 2015
Latin AmericaNorth AmericaEMEA
well as protection
• Consumption per capita driven primarily by the frequency of repainting
Source: Orr & Boss, AkzoNobel analysis Spotlight on Decorative Paints – 1 December 2011 20
There is still significant market upside in the high growth markets
100%2.3 2.2 3.0 6.8 6.8
Current = 10 BlnHigh case = 21 Bln
Global paint market by volume (billion litres)
20
40
60
80
100%
CurrentMedium caseHigh case
• As high growth markets approach mature-market consumption levels, paint consumption per capita could eventually grow to double or triple their current levels
• Construction activity
Source: AkzoNobel analysis
0North
AmericaWesternEurope
LatinAmerica
& EasternEurope
China &South East Asia
India & South Asia
6.8 5.8 4.0 1.5 0.8Per capitacons. (litres)
340 380 605 1,363 1,368Population (mlns)
Note: Medium case is based on bringing consumption up to 2.5 litres per person (e.g. Taiwan is currently 2.6); high case is based on bringing consumption up to 5 litres per person. Based only on markets where AN has a presence.
Construction activity will continue apace, driven by population growth and by changing demographics
Spotlight on Decorative Paints – 1 December 2011 21
The next stage of value creation will be in the mass markets
Absolute paint market revenue(Asian country example) Asian country example:
• Spending power of the middle
2010 2015 2020
PremiumMassEconomy
100%
Relative paint market revenue by segment(Asian country example)
Spending power of the middle class in high-growth markets will increase dramatically through the decade
• Middle class estimated to go from around 40% of total household expenditure to nearly 60% by 2020
• We estimate mid-tier revenue will account for 48% of the
Source: Euromonitor, AC Neilsen, Perbanas, management estimates
0%20%40%60%80%
100%
2010 2015 2020
PremiumMassEconomy
will account for 48% of the total by 2020
• Similar picture with mid-tier contribution which will grow to 45% by 2020
Spotlight on Decorative Paints – 1 December 2011 22
This is a profitable market to be in, despite current economic climate
M t iTotal EBITDA (€m) EBITDA %
• Most companies are generating returns above 10% (green lines)
• AkzoNobel is generating the greatest absolute EBITDA
200
400
600
5
10
15
20%548
321
199
100
Source: Annual reports and company presentations
0 0AkzoNobel
SherwinWilliams
Asian Paints PPG DecoEMEA
100
Nippon Paint
75
DAW
43
Spotlight on Decorative Paints – 1 December 2011 23
It is also a market in which brand strength really matters
Consumer Drivers of Consideration for Paint(Asian market example)
0%
5%
10%
15%
20% • Brand reputation is the single most important category of factors driving consideration in this Asian market example
• The Emotion and Colour categories are also best addressed by strong brands
Source: Millward Brown factor analysis of consumer drivers of consideration for paint, 2011
* Factors that fall into the Emotion category include statements like “Inspires me to paint and decorate more often”, “Helps me to achieve my dreams”, and “Understands/meets my needs”** Factors that fall into the Colour category relate mostly to making both colour selection and painting easier
brands
Spotlight on Decorative Paints – 1 December 2011 24
AkzoNobel has solid positions in some of the most exciting markets in Asia
CHINAPopulation: 1.34 billion(world ranking: 1)
GDP per capita (PPP): $8,620( ld ki 70)(world ranking: 70)
GDP 2011 Growth rate projection: 9%
2010 Paint market size: €3.4 billion
Paint consumption per capita: 1.4 ltr
AkzoNobel position: #2
INDONESIAPopulation: 238 million
VIETNAMPopulation: 86 million(world ranking: 13)
GDP per capita (PPP): $3 380
Source: EIU, AkzoNobel analysis
(world ranking: 4)
GDP per capita (PPP): $4,560(world ranking: 80)
GDP 2011 Growth rate projection: 6.5%
2010 Paint market size: €300 million
Paint consumption per capita: 1.1 ltr
AkzoNobel position: #1
GDP per capita (PPP): $3,380(world ranking: 84)
GDP 2011 Growth rate projection: 6%
2010 Paint market size: €150 million
Paint consumption per capita: 1.5 ltr
AkzoNobel position: #1
Spotlight on Decorative Paints – 1 December 2011 25
We have outpaced our competitors in the biggest market in Latin America
BRAZILPopulation: 191 million(world ranking: 5)
GDP per capita (PPP): $11,920(world ranking: 57)
GDP 2011 Growth rate projection: 3.6%
2010 Paint market size: €940 million
Paint consumption per capita: 4.6 ltr
AkzoNobel position: #1
ARGENTINAPopulation: 40 million
Source: EIU, AkzoNobel analysis
(world ranking: 31)
GDP per capita (PPP): $17,370(world ranking: 41)
GDP 2011 Growth rate projection: 8.5%
2010 Paint market size: €175 million
Paint consumption per capita: 3.2 ltr
AkzoNobel position: #1Spotlight on Decorative Paints – 1 December 2011 26
We are the leader in Europe and have exciting positions in its fastest-growing markets
EUROPEPopulation: ~600 million
RUSSIAPopulation: 143 million(world ranking: 8)
GDP per capita (PPP): $16 710
TURKEYPopulation: 74 million
p
GDP per capita (PPP): $34,810*
GDP 2011 Growth rate projection: 1.5%
2010 Paint market size: €9.2 billion
Paint consumption per capita: 5.6 ltr
AkzoNobel position: #1
GDP per capita (PPP): $16,710(world ranking: 43)
GDP 2011 Growth rate projection: 4%
2010 Paint market size: €620 million
Paint consumption per capita: 3.4 ltr
AkzoNobel position: #2
(world ranking: 18)
GDP per capita (PPP): $14,310(world ranking: 49)
GDP 2011 Growth rate projection: 7.5%
2010 Paint market size: €500 million
Paint consumption per capita: 2.3 ltr
AkzoNobel position: #1
Source: EIU, AkzoNobel analysis
* Eurozone only (Eastern Europe: $17,960)
Spotlight on Decorative Paints – 1 December 2011 27
None of our competitors has the global scale or position that we do
4
5
6 2010 Global Decorative Paints revenues*Top 14 companies (€ billions) • We are the clear leader in
EMEA (biggest market), and either #2 or #3 in the
0
1
2
3
4 other main regions (North America, Latin America and Asia)
• Only 2 of our major competitors have a significant presence in more than one region; neither has the global scale of AkzoNobel
Concentrated in 2 or 3 regions
Concentrated in 1 region only
Strong positions in all 4 major regions
• Our primary competitors in the emerging markets of Asia and Latin America are regional or national only
• Estimated for competitors where data is not disclosed• Source: Company presentations and annual reports, AkzoNobel analysis
Spotlight on Decorative Paints – 1 December 2011 28
AkzoNobel has the people, brands and competencies to win globally
• We can offer the best development opportunities in the industry, helping us to Peopleattract and retain the best talent
• We can invest more to develop and support more powerful brands and global brand identities and industry-leading, game-changing innovations
Brands
• We can build and leverage experience and learning across markets and develop repeatable models to increase efficiency and effectiveness
Competencies
Spotlight on Decorative Paints – 1 December 2011 29
We have built a very strong leadership team at the top end
Amit JainIndia &
South Asia
Jeremy RoweSouth East
Asia & Pacific
Bob TaylorNorth America
Jaap KuiperLatin America
Liangqi LinChina &
North Asia
Richard StuckesEurope, Middle East & Africa
Sucheta GovilMarketing
David O’BrienBusiness Innovation
Spotlight on Decorative Paints – 1 December 2011 30
We have also brought in the expertise we need at more operational levels
Senior* appointments split by origin
• Of all the senior management appointments made within Decorative Paints since the beginning of 2009, over half were external hires
– One third of these came from the Consumer Packaged Goods industry20%
40%
60%
80%
100%
– Another 8% came from the Retail industry0%
EMEA North America
Latin America
China & NA
India & SA
SEAP BA
InternalNon CPG/TotalCPG/Total%* Appointments at one and two levels
below Business Unit Managing Director
Spotlight on Decorative Paints – 1 December 2011 31
We have many strong brands in trade and retail, and in multiple product categories
• We have a number of powerful, relevant b d ibrands occupying a number of positions across different markets
• Examples include Dulux (consumer), Sikkens(professional), Coral (Brazil), and Sadolin(woodcare)
• Where it makes sense, ti li iwe are rationalizing our
brand portfolio –concentrating our investment behind fewer, bigger, better brands
Spotlight on Decorative Paints – 1 December 2011 32
Strong brands generally command a price premium (multiple categories example)
Average price premium for manufacturers’ brands relative to store brands
• Even where consumers think store branded
10%20%30%40%50%60%
brands relative to store brands think store-branded products are better than manufacturer-branded products (Qm < Qs), the average manufacturers’ brand premium is 21%
• This premium jumps to 56% where consumers think manufacturer-branded products are
0%Qm < Qs Qm = Qs Qm > Qs
Note: Based on a study of 3,900 French consumers across 75 consumer packaged goods categoriesSource: N. Kumar and J-B. Steenkamp, Private Label Strategy, Harvard Business School Press, 2007 (p 98)
Qm – perceived quality of manufacturers’ brandsQs – perceived quality of store brands
superior in quality to store-branded products (Qm > Qs)
Spotlight on Decorative Paints – 1 December 2011 33
Part of leveraging our scale is having a single global identity where possible
Spotlight on Decorative Paints – 1 December 2011 34
We are supporting our brand and growth ambitions with increased A&P spend
Advertising & Promotion spendas a percentage of revenue
• We have increased our overall A&P spend in
6%
8%
10%
12%as a percentage of revenue overall A&P spend in
proportion to revenue
• Higher spend % in the markets with the greatest growth potential
• Investing in the North American market as part of our US turnaround / Glidden
0%
2%
4%
EMEA NA LATAM ASIA Global
200920102011 (Est)2012 (Est)
turnaround / Glidden relaunch strategy
Spotlight on Decorative Paints – 1 December 2011 35
Our scale means we can outspend our competitors on Research and Development
Research & Development spend (total and %)
• AkzoNobel’s R&D spend in 2010 higher than that of our major competitors
• We leverage technological capabilities across Business Areas
Source: Company annual reports and presentations Spotlight on Decorative Paints – 1 December 2011 36
We combine in-house technology and 3rd
party supply to best advantage
Core Technological Ingredients in paint manufacture
• Having in-house technology gives us
Latex
Resins
Colourants
With in-house technology:
With external supply:
both product and cost advantages
• Unlike most paint companies, we do not rely heavily on third-party suppliers for our technological ingredients
• We can produce to the specification of our
• We can take advantage of price
Opaquepolymers
the specification of our end formulations
• We can develop AkzoNobel patented, truly differentiatedproducts
advantage of price opportunities
Spotlight on Decorative Paints – 1 December 2011 37
We address and solve end-user problems common to multiple markets
• Different markets have more innovation
“I want to be sure that all products I use are
“How can I get the right colour for my room when there are so many to choose from…?”
requirements in common than they do differences
• Coming up with a solution in one market and then leveraging it into others makes our innovation process faster and more efficient
• We have made this ibl b f l i
I want to be sure that all products I use are safe for my family and for the environment”
“I want my home to look unique and reflect who I am, but I’m not sure where to start”
“I would love to paint my bedroom, but I don’t
“I want to use products that are kinder to the
i t b t I d ’t possible by reformulating some 80% of our product base, reducing the number of formulations and raw materials
y bed oo , but do tdo DIY and can’t afford a decorator”
“Painting the outside of my home is expensive and difficult so, when I do a job, I want it to look good for at least 10 years”
Source: Consumer research across 28 countries
environment but I don’t want to compromise on quality”
Spotlight on Decorative Paints – 1 December 2011 38
We are building global competencies by codifying and rolling out our best practises
Sales • Category management• Pricing excellence
S f ff
Research & Development
• Stage Gate process for pipeline management
Repeatable models within specific functions
• Sales force effectiveness• Global glossary
p
Marketing • Insight generation• Communications
development & evaluation• Point-of-Sale marketing
IntegratedSupply Chain
• LEAN methodology for manufacturing excellence
• Purchasing back-end processes
Storesoperations
• Stores management• Estate management
Support • Project management• Underlying culture of high
performance and employee engagementg g
• The multi-year implementation of a global ERP system, to be completed by early 2013 (70% rolled out already)
Key enablers
• Product Market Review process for prioritizing and reviewing innovation projects
• Integrated Business Planning for aligning short and medium term sales forecasts with manufacturing planning
Cross-functional repeatable models
Spotlight on Decorative Paints – 1 December 2011 39
These efforts are a critical aspect of the journey we have been on since our transformational merger in 2008
the ICI business (eliminate overlap reduceIntegrate the ICI business (eliminate overlap, reduce complexity, build a common culture)
underperforming businesses (e.g. US, Germany)
from our multi-local, fragmented history into a global company with global scale
Turnaround
Transform
By growing market share in both mature and emerging markets
Grow
Spotlight on Decorative Paints – 1 December 2011 40
We are transforming from a multi-local to a global company
Multi-local company (our past)
Global company(our present and future)
• Full-function country organizations operate largely independently from one another and compete locally
• A global company develops and deploys global people, brands and competencies to win in local markets
Spotlight on Decorative Paints – 1 December 2011 41
This involved reducing complexity to support fewer, bigger and better assets
Area Beginning 2008 End 2011
Cost reductions n/a ~ €210 millionCost reductions n/a ~ €210 million
FTE reductions* 25,800 ~ 4,000
Brands 100 75
SKUs >90,000 75,000
Raw materials >8,000 5,000
Factories 80 55
Warehouses 160 120
Packaging types >900 500
* Clearly, we are adding FTEs, particularly in the high growth markets, to support growth. The reductions are estimated reductions due to integration, complexity reduction and related restructuring
Spotlight on Decorative Paints – 1 December 2011 42
Our productivity has also improved steadily in all regions
Personnel cost as a % of revenueIndex 100=2009 Q2
O d ti it i
70
80
90
100
110
EuropeAmericasAsia
• Our productivity is increasing in all three major regions
• Increase is highest in Asian markets, reflecting higher pace of growth
• Increase in 2010 Q2 Americas reflects in estment in
602009 Q2 2010 Q2 2011 Q2
investment in Walmart account
Spotlight on Decorative Paints – 1 December 2011 43
We have integrated our mature markets businesses and sharpened our focus in Asia
• We have further consolidated our mature
Decorative Paints Business Units
2009
Decorative Paints Business Units
2011market businesses to maintain our drive for synergies and streamlining
• Having the Asian business split out into different units keeps the focus on positioning and investing for growth
• Overall there is a clear shift
UK, Ireland and South Africa
Northern and Eastern Europe
Continental Europe
Canada
EMEA
North America
Latin America
China and North Asia
in emphasis from mature markets to high growth markets
United States
Latin America
Asia
South East Asia & Pacific
India and South Asia
Largely mature market businessesLargely high-growth market businesses
Spotlight on Decorative Paints – 1 December 2011 44
The Performance Improvement Program is the logical next step in our transformation
• Decorative Paints will account for some 40% of the overall target of €500m
• The bulk of that will come from EMEA and North America
• 90% of the EBITDA improvement will come from cost savings, and the rest from revenue and margin growth
Spotlight on Decorative Paints – 1 December 2011 45
Current trading conditions are tough
Mature markets High growth markets
Demand factors • Macroeconomic factors (GDP, growth, employment)
• Consumer confidence• Housing slowdown
• GDP growth & consumer confidence
• Urbanization and economic development, which drives construction and mobility
• One exception may be China,as government acts to cool d t k tdown property market
Supply factors • Raw materials pricing • Raw materials pricing• Squeeze on talent
Spotlight on Decorative Paints – 1 December 2011 46
Regional TiO2 Pricing – in USD/tonne
TiO2 prices are a challenge
4.000USD/Tonne
H1 2011 Decorative Paints raw material spend
(Total = €1.1 billion)
3.500
2.500
3.000 +91%
2.000
1.500
1.000
500Europe
Asia
North America
29%
17%20%
16%
8%10%
Resins & BindersPackaging MaterialsTitanium Dioxide
Source: ICIS Pricing
2003 20112009200720010
2005
• Pricing has gone up steadily in USD over the last decade, across all regions
• TiO2 accounts for 1/5th of our total raw materials spend (up from 17% in 2008)
Titanium DioxideAdditivesSolvents & DiluentsOther
Spotlight on Decorative Paints – 1 December 2011 47
There has been a lag in new extraction capacity coming onstream
Global supply & demand outlook for Ti mineral 2000 – 2020F
Alth h th i• Although there is no shortage of feedstock in the ground (mostly ilmenite and rutile), the market fears an expected shortage in TiO2 supply
• High current prices are bound to drive
Source: TZMI
new investment in capacity – we have already seen ample evidence of this, particularly in ChinaConsumption
Likely new projects (not yet approved)
Approved new projects
Existing production
Spotlight on Decorative Paints – 1 December 2011 48
We are actively working both to increase security of supply and reduce dependence
• Leveraging strong relationships with major suppliers, including the
• Using our formulating science expertise and our high-throughput experimentation
Sourcing Research & Development
major suppliers, including the emerging suppliers in China
• Maintaining a safety margin of stock
• Partnering with China-based Guangxi CAVA Titanium Industry to manufacture and distribute titanium dioxide
– With this deal a new titanium dioxide facility will be developed in Qinzhou with
g g p pcapability to reduce our TiO2 dependence in 3 ways:
– Using existing replacement technology
– Working with key suppliers to develop new technology
– Increasing efficiency of use through formulation improvements
• Combined, these initiatives mean we can d t t l TiO2 hilfacility will be developed in Qinzhou with
a production capacity of 100,000 tons, slated to begin operation in the beginning of 2014
– Further guarantees security of supply for the Asian market
reduce our total TiO2 usage while maintaining cost efficiency and product attributes
Spotlight on Decorative Paints – 1 December 2011 49
Raw material inflation drives price increases
10 Quarterly price development in % year-on-year(excluding mix effect)
2
0
2
4
6
8( g )
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-2
2008
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2009 2010 2011
Spotlight on Decorative Paints – 1 December 2011 50
We expect to emerge from the current storm with an even stronger position
• With industry-leading R&D and innovation, we are delivering the right products and services to meet the needs of consumers better and faster than our competitorsand faster than our competitors
• We are implementing focused and powerful marketingprograms, strengthening our brands’ positions in every major region of the world
• We continue to invest in the quality, extent and distribution of our production and distribution capacity
• We are continuously developing our people for personal growth• We are continuously developing our people, for personal growth and community engagement as well as business growth
Spotlight on Decorative Paints – 1 December 2011 51
In Summary – Winning Globally
• Our markets will continue to grow, especially in Asia, Eastern Europe and Latin America
• AkzoNobel is the best placed to benefit from this growth
– We have solid growth platforms in all key markets
– We have a very attractive position in EMEA, the world’s biggest market
– We have the best people, brands and competencies
We can leverage our global scale in way others cannot– We can leverage our global scale in way others cannot
• We will pursue share growth in all major markets, through superior functional execution and with opportunistic market consolidation
Spotlight on Decorative Paints – 1 December 2011 52
MarketingSucheta GovilSucheta Govil
Our vision & plans
• Adding Colour to People’s Lives through inspiring and enabling decoration
• Fewer, Clearly Positioned Stronger brandsSpotlight on Decorative Paints – 1 December 2011 54
End the tyranny of grey, dull spaces
Spotlight on Decorative Paints – 1 December 2011 55
Adding Colour to People’s Lives
Spotlight on Decorative Paints – 1 December 2011 56
What business are we in?
BEAUTIFUL HOMESSpotlight on Decorative Paints – 1 December 2011 57
Our brands will inspire beautiful homes, spaces
To Increase Penetration and
Access for our Brands so Improving Spaces
becomes easy
To Increase Frequency of Painting and Decoration with
Our Brands
“We will Inspire Consumers and Painters to Create Beauty and fight the opportunity cost of grey and shabby”
Source: 3D qualitative research, July 2009 Spotlight on Decorative Paints – 1 December 2011 58
Consumers and professionals are equally important to us
Res. New Build 11%Residential re‐painting 70% Public
7%Commer.
12%
Non‐Residential
Consumers 53% Professionals 47%
What’s being painted
Who’s specifying
HID 17%
Spotlight on Decorative Paints – 1 December 2011 59
Let me introduce you to some home makers…
Sarah from Bristol
Kajol from Mumbai Fabi from Rio
Meili from Beijing
Noor from Lahore
Jeni from TorontoIneke from Indonesia
Spotlight on Decorative Paints – 1 December 2011 60
All say "me and my home are one"
Improving our home is important to feel better
Home is an extension of ourselves
“For all cultures, the home is an expression of the people who live there”
Source: 3D qualitative research, July 2009 Spotlight on Decorative Paints – 1 December 2011 61
Deep consumer insight: one universalpoint in the decorating journey For all:
pride/satisfaction in final end result
Decision to decorate
Finding inspiration,
gathering ideas exciting
Anticipatio
HO
PES
ARS
to decorate
PPR
DMVHMFMS
Satisfaction in doing something you’re good at or that appeals to
your nature
Anxiety about making the
right style/colour
Recognition that there is
physical work
Anticipation of a job well done
Source: Based on Global 3D qualitative research, July 2009
FEA y /
choice
Realisation of everything that could go wrong (buy the wrong product, bad colour choice, lack of
physical skill, disruption, family dissatisfaction)
More difficulties emerge as job starts:
prep, colour looks wrong, takes longer than anticipated, etc.
p ys ca o(boring/
difficult/disruptive) to do
Segment namesDMV: Deliver My VisionPPR: Perfect Professional ResultsHMFMS: Help Me Find My Style
Spotlight on Decorative Paints – 1 December 2011 62
The fundamental elements of our global brand strategy
Strong Visual Identities
Be easily thought of
Be easy to buy
Be accessible
Build distinctive mental assets
Our vision : Addingcolour to people’s lives
Our products and communications
Spotlight on Decorative Paints – 1 December 2011 63
We leverage our global scale and we keepthe customer at the center
GLOBAL MARKETING LOCAL MARKETS
Global Brand Objectives Local Business Objectives
Brand Idea Comms Platform
Campaign Idea
Comms and Activation
Plan
Universal Market
Relevant Insight
(B d
Brand Guidelines
(Brand Territory)
Comms Guidelines
Spotlight on Decorative Paints – 1 December 2011 64
Our main competitive advantage: a greatglobal brand
• Dulux (cluster) sold in more than 50 countries in the world
A l b l b d lAs a global brand we can leverage:• A powerful positioning & strategy• Strong brand assets• Global Big Idea• Innovation products and concepts
Spotlight on Decorative Paints – 1 December 2011 66
Fewer powerful,
Our brands will also be the preferred partner of the professional painter
Fewer powerful, insight driven, business winning brands:• Sikkens
‘Sensations’• Dulux Trade ‘No.1• Herbol – ‘Schnell
Sicher Prod cti ’Sicher Productiv’
Spotlight on Decorative Paints – 1 December 2011 67
Our vision and plans
Adding Colour to People’s Lives through inspiring and enabling decoration• Leadership in Colour• The Art, Science, Delivery • Lock-in• Bigger innovations• Leveraged faster• Sustainability Leadership
Spotlight on Decorative Paints – 1 December 2011 68
InnovationDavid O’BrienDavid O Brien
Innovation will play a major part inachieving our growth objectives
• Growing our share through competitive advantage
• Growing our categories by encouraging frequency and penetration
• Locking professional users and specifiers into our brands
• Improving our margins by adding value and enabling us to compete
‘More people, More often, More money......’
Spotlight on Decorative Paints – 1 December 2011 70
Strategic context
• Consumer/user insight at the heart of innovation
• Major progress on leveraging our scale by moving f lti l l t l b l hfrom a multi-local to a global approach
• Focus of our resources on key initiatives (fewer, bigger, better and faster)
• Short term AND long term perspective
• Delivery of our sustainability objectives
Spotlight on Decorative Paints – 1 December 2011 71
Beautiful homes
Spotlight on Decorative Paints – 1 December 2011 72
Long lasting performance
Spotlight on Decorative Paints – 1 December 2011 73
Future Now
Spotlight on Decorative Paints – 1 December 2011 74
Developing the Trend Bank
Stage 1Research AkzoNobel and Research
Stage 2Validate
Your Future Research
Expert Panel
Stage 3Identify
Trend
Spotlight on Decorative Paints – 1 December 2011 75
Developing the platforms
Stage 3
Stage 4
Trends
Strategic Imperatives
Stage 5Innovation Platforms
Spotlight on Decorative Paints – 1 December 2011 76
Walk around
Three rooms:
1. Inspiring People Globally
2. Leading through Innovation
3. Winning in Professional Markets
Spotlight on Decorative Paints – 1 December 2011 77
Europe, Middle East & AfricaRichard StuckesRichard Stuckes
Decorative Paints EMEAKey facts
• Revenue: €2,585 million• 11 200 Employees at year end
2010
Revenue by business region
6%
• 11,200 Employees at year end• 530 stores across Europe at year end• 34 Countries in 4 Regions• Main brands include Dulux, Sikkens, Levis, Herbol,
Marshall, Glidden
Revenue by channel
23%27%30%
24%23%
17%NorthernWesternSouthernEastern & AfricanBuilding Adhesives
23%
50%
27%Large-scale outlets (LSOs)Small-scale outlets (SSOs) & otherOwn stores
Spotlight on Decorative Paints – 1 December 2011 79
EMEA will continue to represent a large proportion of the global market
Global Decorative Paint sales,2010 t 2015 (€ billi )
• Although growth will be higher in Latin America and Asia than in North America and EMEA, these will still represent a very significant proportion of the overall market
• EMEA is forecast to10152025303540
2010 to 2015 (€ billions)
Asia PacificLatin AmericaNorth America
€30 B
€37 B
EMEA is forecast to represent just under 40% of the global market by 20150
510
2010 2015
North AmericaEMEA
Note: Includes all markets, not just ones in which AkzoNobel is present
Source: Orr & Boss, management estimates Spotlight on Decorative Paints – 1 December 2011 80
There is still significant opportunity to grow share in EMEA
AkzoNobel’s Decorative Paints Market in 2010*100% = €12 billion
• Top 4 markets in pEurope represent 46% of the EMEA total
• Western Europe represents 77% of the EMEA total
• Only France and the UK are more than 50% consolidated to the top 3 players
* Markets where AkzoNobel is active. Does not include non-paints sales or integrated distribution
p y
• Opportunities to grow share include organic growth, distribution consolidation and potential opportunistic M&A
Source: Management estimates Spotlight on Decorative Paints – 1 December 2011 81
AkzoNobel have a solid overall leadership position in EMEA
2010 Decorative Paints revenues100% = €12 billion*
AkzoNobel
PPG
DAW
TikkurilaOthers
RMS = 2.4 • AkzoNobel is the largest paint manufacturer in EMEA, at more than double the size of our nearest competitor
• The top 6 competitors still only account for just under 40% of the total market
*Notes: Only includes markets where AkzoNobel is active.Does not include non-paints sales or integrated distribution.
TikkurilaJotun
Materis
total market
Source: Management estimates Spotlight on Decorative Paints – 1 December 2011 82
We hold a range of positions across individual markets
• Belgium• France retail• GreeceMarket leader
• Switzerland• Tunisia• Turkey
• AkzoNobel is the market leader in a number of countries,
• Italy trade• Netherlands
• Poland• Russia
Market leader
Competingvery closely
y• UK
• South Africa• Spain
,together accounting for nearly 40% of our total EMEA market
• Significant growth opportunities in key markets like Turkey, Poland and Russia
• In some markets we are up against strong,
• Germany• Middle East• Scandinavia
Challenger position
p g g,mostly local incumbents like Tikkurila in Russia, DAW (Caparol) in Germany and Jotun in Scandinavia and the Middle East
Spotlight on Decorative Paints – 1 December 2011 83
We are facing significant economic headwinds at the moment
Housing starts(Index 2005 = 100)
• Although construction is not the major driver of
6080
100120140160180200
(Index 2005 100)
BelgiumDenmarkFrancePolandSpain
paint demand, it reflects the broader economic environment including consumer sentiment
• Housing starts in a number of EMEA markets have yet to recover to their peak levels
• Other issues dampening
0204060 Spa
SwedenUK
consumer confidence are uncertainty about the Euro and expected cuts in government spending
Source: OECD Spotlight on Decorative Paints – 1 December 2011 84
We have already made excellent progress over the last 3 years on the integration, simplification and cost reduction agenda
Cost reduction
FTE reduction
Brand reduction
SKU reduction
Factory footprint
Reduced by >€90 million
Reduced by over 2,100 FTEs
19 brands discontinued
16,000 SKUs eliminated (nearly 30%)
11 closed sites (nearly 30%)
ImpactArea
Factory footprint
Warehouse footprint
11 closed sites (nearly 30%)
19 closed warehouses (20%)
Spotlight on Decorative Paints – 1 December 2011 85
Further operational improvements will release additional funds to invest in growth
Performance Improvement ProgramKey EMEA initiatives • Complexity reduction is a
key driver of improvement• SKU reduction to reduce cost of
complexity both in selling and at manufacturing sites – generates margin opportunities and Opex / OWC savings
• De-layering in the organisation –countries focus on selling and marketing activation and BU organisation will focus on Integrated Supply Chain and supporting processes
key driver of improvement
• The integration and simplification program have created the necessary foundation for us to transform our business further
• This further transformation willsupporting processes
• Building on SAP platform to optimise processes across the region – less complexity and more efficiency
transformation will support our growth ambitions by releasing funds to invest in production, distribution and brand strength
Spotlight on Decorative Paints – 1 December 2011 86
We have world-class assets in EMEA, strengthened by our scale
People• Unparalleled industry depth combined with exciting new
hires that bring us critical category management expertise
Brands• Market leading brands in both the Trade and Retail
segments in several markets• Strong woodcare brands in UK, Scandinavia, Russia• Marketing organization restructured to leverage scale
Distribution infrastructure• 3 mega-sites (UK, Poland and France) to produce the bulk
of our volume at highly competitive rates of efficiency• Opportunity to find distribution synergies across the
AkzoNobel portfolio
Spotlight on Decorative Paints – 1 December 2011 87
A fantastic management team has brought great retail & consumer goods experience
Guy Williams (North)• 8 years in the business• Led UK Stores turnaround in 2005/6• Pre-AN experience at major retailers p j
including Woolworths and Aldi
Peter van Campen (South)• 1 year at AkzoNobel• Brings Category Management and
Kees Ekelmans (West)• New appointment, joining from Hunter
Douglas’ Division Components & Programs• Extensive finance, ops and management
experience from nearly 20 years at Unilever
branded consumer goods expertise from Shell, Heineken and LVMH
Jan-Piet van Kesteren (East)• 18 months in AkzoNobel• Brings emerging markets
marketing expertise from 14 years at Unilever in various international roles
Frank van Buchem (Marketing)• 6 months in AkzoNobel• Brings marketing and GM
experience at Unilever, Coca-Cola and Sara Lee
Spotlight on Decorative Paints – 1 December 2011 88
The phased roll-out of the new Let’s Colour brand identity is already underway
From: To:
• Phased rollout beginning in 2011 with Austria, France and the Netherlands
• Continuing though to Q1 2013
• Combination of modes: Launch, Phased and Hybrid
Spotlight on Decorative Paints – 1 December 2011 89
We continue to implement world-class technology in our mega-factories
Pilawa, 2006
Montataire
Ashington, 2014
Mobile vessels are moved to automatic dosing and mixing stations before progressing to filling
Montataire
A purpose-built, Agile plant in the North East of England making a complex range of products for the North West of Europe• Based on the Universal
Leading-edge technology ensures accuracy and reliability in quality
€4m of investments have nearly doubled the volume of product coming out of this site
Blending Plant design developed in Pilawa
• This £100m plant will represent a step change in technology, improving energy efficiency by 60% and reducing waste by 60%
Spotlight on Decorative Paints – 1 December 2011 90
Our plan for winning in this market is based on five critical elements
Have the most
powerful & meaningful
brands
Win in stores
Be the preferred
partner of the professional
painter
Attain industry
leadership in all aspects of sustainability
Be the best employer to
work for
Areas of focus for today
Spotlight on Decorative Paints – 1 December 2011 91
There are several components to our plan for winning in stores
• Stores Excellence Making our own stores best-in-class for the channel
• Category Management Helping our biggest customers grow the category
• Point-Of-Sale competence Capturing the sale at a critical point in the buying decision
• Distribution expansion Recruiting independent store owners to join our network of soft franchiseesto join our network of soft franchisees
• Sales Excellence Developing repeatable sales models and rolling them out across the region to drive cost efficiency and revenue effectiveness
Spotlight on Decorative Paints – 1 December 2011 92
We directly operate 530 stores in Europe, and soft-franchise more than 1600
• The number of stores in our network is growing
• 1/3 of our EMEA employees• 1/3 of our EMEA employees work for our own stores
• Over 1/4 of our revenue comes from our stores
• With independent distribution channel under pressure, manufacturers’ owned/controlled stores become an increasingly
AkzoNobel owned and operated storesAkzoNobel branded stores (soft-franchised)
become an increasingly important route to market
• Stores are an excellent way to introduce and manage new product, marketing and sales initiatives
Spotlight on Decorative Paints – 1 December 2011 93
Our Stores Excellence programme will increase total EBITDA significantly
Hig
h
P1P2 • Priority areas for improvement (shorter term, higher impact)include Pricing, Assortment/ S i S t ti /
Short-term Long-termRealization of impact
Impa
ctM
ediu
m
P5P6P4
P8
P9
Specific improvement projects:
Sourcing, Segmentation/ Customer management and Outlet operations
• Organizational confidence is high due to very successful program run with the current management team in the UK in recent years
P9
Specific improvement projects:P1
P2
P5
P4
P3
P6
P7
P8
Estate managementLogisticsPromotionsCRM (including promotions)
Store coverage managementOutlet operationsSegmentation / customer management (sales)
Assortment / sourcingPricing
Spotlight on Decorative Paints – 1 December 2011 94
Turkey is a great growth platform for our business
• Total market size in 2010 of about €500m• Growing at approximately 2x GDP growthMarket
• Distribution to SSO via Wholesale is around 75% of the market• Other channels are LSOs and construction• SSOs are a competitive place without exclusivity• Mainly ready-mix paint, limited color variety
Distribution
• Extremely competitive: 5 players have between 10 and 25% share • Mainly ‘Buy-It-Yourself’
Market
• AkzoNobel operates with a single brand: Marshall• Marshall is the oldest and most well known paint brand• We are the market leader• Largely local supply chain, operated from Gebze (80 km from Istanbul)
AkzoNobel presence
Spotlight on Decorative Paints – 1 December 2011 95
We are pursuing an aggressive roll-out strategy with 1,000 stores in 2011 including in-store tinting equipment
From a fragmentedand messy look
To a revolutionary, exclusive store
Spotlight on Decorative Paints – 1 December 2011 96
Proven results will drive our momentum for further expansion through 2012
YTD Revenue uplift is significant, up to 50% whilst tinting sales in
Continuous upgrades of our concept provide even more strength
store increased by 500%
30
50
44
25
Realized %Target %
10
15
Corner StoresStore in StoresPerfect Stores
Spotlight on Decorative Paints – 1 December 2011 97
Operating sustainability across all aspects of our business is critically important to us
• Is the right thing to do, and protects the long-term health of the business
• Additional short-term benefits include:
• Top-line growth: revenue from our eco-premium products represent 22% of total sales and outgrew the market by a factor of 3
• Reduced costs: we have already reduced our energy use per tonne of production by 9% in two years, and by 4% in absolute terms
• Improved margins: eco-premiumImproved margins: eco premium R&D helps drive innovations
• Employee engagement:Employees have identified and pursued literally hundreds of small-scale improvement projects in every area of the business – these add up to big impact
Our ‘5 Pillar’ approach to Sustainability
Combines economic, environmental and social sustainability
Spotlight on Decorative Paints – 1 December 2011 98
We are proud of our achievements with sustainability and the recognition we have received for them
AkzoNobel is supplying London 2012’s Olympic Village2012 s Olympic Village
• Olympic Delivery Authority aiming to make 2012 “the most sustainable Games to date”
• Dulux Light & Space Diamond Matt was chosen because it combines very high durability with the ability to reflect more light back intoto reflect more light back into the room
• This allows up to 22% less light energy to be used and requires less frequent maintenance
Spotlight on Decorative Paints – 1 December 2011 99
We have leveraged a successful eco-premium product across multiple markets
• Ecosure product line developed and launched in the UK in 2007
• Carbon impact evaluated with the support of an independent agency Forum for the Futureindependent agency, Forum for the Future
• Embodies sustainability improvements while maintaining premium product quality
• Less embodied carbon (10% to 30%)
• Packaging includes at least 25% recycled material, up to 50% in some products
• Reduced VOC* content, by a minimum of 40% and as much as 80%
• Water-based
• Has received a number of industry awards
• Revenue growing at double-digit rates
• Now rolling out into multiple markets across EMEA
We call Ecosure a ‘Step Towards Greener’ because while these are the most sustainable products we have today, they are only a step on our journey toward a more sustainable future – so we need and intend to have even more sustainable products in the future
* Volatile Organic Compounds
Spotlight on Decorative Paints – 1 December 2011 100
In Summary
• EMEA is the heartland of our business and will continue to be so• We will continue to pursue significant growth opportunities:
h i i t k t d b t ti l th i E tshare gain in mature markets and substantial growth in Eastern Europe, Turkey and Africa
• Tough trading conditions will generate opportunities to drive consolidation in the market
• We have everything we need to win here: the scale, the assets, the experience and the determination
• We will not only weather the storm of current market conditions – we will emerge stronger than many of our competitors
• We can do this while still protecting the best of our experience and our heritage in local markets
Spotlight on Decorative Paints – 1 December 2011 101
North AmericaBob TaylorBob Taylor
Decorative Paints North AmericaKey Facts
• Revenue: €1,029 million• 5,100 employees at year-end
13 f t i / di t ib ti f iliti
2010
• 13 manufacturing / distribution facilities• 550+ company-owned stores• 5,000 independent dealers
24%8%5%
Revenue* by business lineRevenue* by geography
24%
35%5%
11%
17%Home DepotCompany Owned StoresCaribbeanWalmartDiversified Brands - CanadaDiversified Brands - US
62%
33%
USACanadaCaribbean**
• Charts are based on 2011 Estimates** Including Puerto Rico. Charts are based on 2011 Estimates
Spotlight on Decorative Paints – 1 December 2011 103
Executive Summary
• Relentless Focus:
− Drive profitable growth with an intense focus on margin, cost and innovation
• How:− New management team with clear priorities− Margin management – price, procurement, formulations− Capitalize on robust innovation pipeline− Drive cost synergies across North America− Invest in portfolio of strong brands− Leverage cross channel presence− Continue delivering solid Canadian performance
• Build upon strong customer relationships & retail partnerships
• A culture change underpinned by AkzoNobel’s core values
Spotlight on Decorative Paints – 1 December 2011 104
Unfavorable North American Market Trend
Economic Triggers• Prolonged US housing
750-33%
• Prolonged US housing depression also weakened Canadian market
• Persistent high unemployment
• Weak consumer confidence
250
500
MM
Gal
lons
Source: 2010 AkzoNobel Estimates
02007 2008 2009 2010e 2011e
2012 market volume expected to be flat
Spotlight on Decorative Paints – 1 December 2011 105
Market Structure
ResidentialCommercial
35% 65%
Where PROs Buy:• Stores 78%• Independent
Dealers 16%N ti l
End User: PRO (100%)
End User: DIY (70%)
PRO (30%)Where DIYers Buy: • National
Retailers 72%• Stores 16%• Independent• National
Retailers 6%
Source: 2010 AkzoNobel Estimates
• Independent Dealers 12%
•
Spotlight on Decorative Paints – 1 December 2011 106
Effectively Leverage the Glidden Brand Across All US Channels
Others
AkzoNobel
Oth
AkzoNobelOthers
AkzoNobel
AkzoNobel
SWPPG
BenjaminMoore
Valspar
BenjaminMoore
Others
PPG
Sherwin-Williams
PPG
Sherwin-WilliamsBehr
PPG
Vals
par
Behr
n sAk
zoN
obel
Sherwin-W
% o
f gal
lons
sol
d Others
AkzoNobel
Independent dealers
Company-owned stores
Sher
win
Willi
ams
Home Depot
Lowes
Wal
mar
t
Source: 2010 AkzoNobel Estimates Spotlight on Decorative Paints – 1 December 2011 107
The Glidden Portfolio:Customer and Channel-Centric Brand Promise
Portfolio Role
Hero Product
C titi
Simple Solution
Glidden Brilliance
Project Helper
Glidden Premium
Approachable Expert
Glidden SpredComplete
Valued Partner
Glidden Professional
DEALER STORES
Competitive Edge
Compares to
Step-saving products at an excellent value
Valspar Signature
Quality paint for projects big or
small, at an exceptional value
OlympicSherwin Williams
Best-in-class quality at the
most competitive price
Benjamin Moore Aura
Sherwin Williams
Customized service to deliver
solutions for every need
Sherwin WilliamsPPG
Spotlight on Decorative Paints – 1 December 2011 108
Relative Market Position - Canada
obel
Others
% o
f gal
lons
sol
d
AkzoNobel
Home Hardware
BenjaminMoore
BenjaminMoore
OthersPPG
Sherwin Williams
AkzoNobel
Behr
Oth
Akzo
Nob
el
General Paint
Cloverdale
Akzo
Nob
el
Akzo
Nob
el
Akzo
No
Independent dealers
MooreMoore
Company-owned stores
General PaintOthers
Masco
Home Depot
Rona
Wal
mar
t
Source: 2010 AkzoNobel Estimates
Can
adia
n Ti
re
Spotlight on Decorative Paints – 1 December 2011 109
Our Journey To Date
Rebuild brand
2008-2011
position
Spotlight on Decorative Paints – 1 December 2011 110
2008 – 2011 Rebuild Brand Position
Glidden reinventionreinvention
Irreplaceable partner at The Home Depot
Specialty Businesses
Stores transformation
Total cost redesign
Rebuild brand
position
New growthprograms
Focus on people and
culture
Spotlight on Decorative Paints – 1 December 2011 111
Our Journey Going Forward
Accelerate
2013-2014
US: Breakeven at EBITDA level
Rebuild Brand
Accelerate Profitable Growth
2008-2011
2012
Position
Spotlight on Decorative Paints – 1 December 2011 112
2012 – 2014 Strategy:Leverage Scale & Scope to Accelerate Profitable Growth
Changeculture
• Clear priorities & accountability
• Sense of urgency
• New management team
Protect investment
in our brands and
innovate
Drive growth
• New growth programs at The Home Depot
• Target core Walmart shopper
• Expand retail partner base• Drive PRO strategy• Expand Dulux stores in
Improve margin
• Aggressive margin management
• Improve mix• Commercialize new
products
team
• Expand Dulux stores in Canada
• Drive Caribbean growth
Reduce cost base
• Deliver supply chain & back office efficiencies
• Reduce product complexity
• Improve processes and systems productivity
• Drive North American synergies
Spotlight on Decorative Paints – 1 December 2011 113
Solution:
A collection of new Glidden programs that simplify painting for
Provide The Home Depot with industry-leading innovation
programs that simplify painting for the DIY & PRO end user
Color Palette
Spotlight on Decorative Paints – 1 December 2011 114
Solution:
A differentiated paint program for 3 400 Walmart stores in the US
Grow share among Walmart’s 140 million weekly shoppers
3,400 Walmart stores in the US
Spotlight on Decorative Paints – 1 December 2011 115
In Summary
• Relentless Focus− Clear priorities – sense of urgency
− Aggressive margin management
− Drive structural cost reduction
− Improve productivity
− Fuel growth thru innovation
• Decorative Paints North America’s strong cross channel market position is key to delivering profitable growthp y g p g
Spotlight on Decorative Paints – 1 December 2011 116
Spotlight on Decorative Paints – 1 December 2011 117
Q&A:Keith NicholsKeith NicholsTex GunningRichard StuckesBob Taylor
South East Asia & PacificJeremy RoweJeremy Rowe
Decorative Paints South East Asia & Pacific – Key Facts
• Revenue: €279 million• 1,400 Employees at year end
7 f t i it d 15 000 t il i t d
2010
Revenue by BrandRevenue By Country
• 7 manufacturing sites and 15,000 retail points served• #1 or #2 in every market served and #1 overall• High profitability• A Dulux business• JV’s in Indonesia with PT DWI Satrya Utama (AN share 55%) and in Malaysia with
Amanah Raya Berhad/Skim Amnanah Saham Bumiputra (AN share 60%)
10% I d i
70%
30%
DuluxNon-Dulux
30%
25%20%
15%
10% IndonesiaVietnamMalaysiaThailandOthers
Spotlight on Decorative Paints – 1 December 2011 120
A large, growing region
• Over 600m people, growing at around 1% per annumaround 1% per annum
• Almost 30% of the population <14 years old
• Historic GDP growth of 7-8% likely to continue in the medium-term
• Wide range of incomes, with GDP/Capita ranging from US$800 to US$43
Spotlight on Decorative Paints – 1 December 2011 121
A dynamic, colourful region
• A dynamic, fast developing iregion
• Where colour is ingrained in the spirit of many diverse cultures
• With a short painting cycle of 3-5 years due to factors including the climate andincluding the climate and the importance of home renewal for festive events
Spotlight on Decorative Paints – 1 December 2011 122
A large and profitable paints market
Market Value By Category
15% • A market of around 1 billion litres and €1.5 billion value
Market Value By Country
6%
40%
30%
15%InteriorExteriorTrimOthers
• 70%+ of the market in Decorative Paints
• Relatively low consumption of ~ 1.7 litres/capita and pricing of ~ €1.50/litre
• High proportion of exteriors due to habits and climate
28%
20%16%
17%
13%6%
IndonesiaThailandMalaysiaPhilippinesVietnamSingapore & Others
• Five countries represent more than 90% of the region
• A profitable market
Spotlight on Decorative Paints – 1 December 2011 123
A market that is expected to grow in the medium term
10%• More urban households
6%
• A move from non-permanent to permanent, and unpainted to painted houses
• Increased percentage of disposable income spent on decoration
• Continued development and infrastructure investment
Inflation & price gro th
Volume Value
Expected Market Growth2010 – 2015 CAGR
• Inflation & price growth
• Highest growth in the mass market
• Growth spread across Tier 1, 2 & 3 cities
Spotlight on Decorative Paints – 1 December 2011 124
But challenged in the shorter-term
• Flood situation in Thailand will take 6 th t6 months or more to recover
• Political instability remains a feature of the region, but is improving
• Vietnam’s recovery from economic overheating will reduce growth prospects in 2012prospects in 2012
• Continued raw material price inflation
• Indonesia is best placed to weather any global recession
Spotlight on Decorative Paints – 1 December 2011 125
A consumer-driven, colour-loving but fragmented market
Market Value By Channel
21%
• A market of mostly “Buy It Yourself” (BIY) and “Have It Done” (HID) consumers
Consumer By Type
49%
19%
11%
TraditionalWholesaleModern RetailProjects & Others
( )
• High use of colour
• >55% on residential repainting
• A highly fragmented, mostly traditional channel
• In-store tinting established and growing strongly
60%
40%
BIY & HID (Use a Painter)DIY
• Modern retail only growing slowly
Spotlight on Decorative Paints – 1 December 2011 126
A market where AkzoNobel is the leader
Estimated Value Market Size and ShareTop 6 markets in South East Asia
100%
Th Th Th
28%
18%12%
42%AkzoNobelNippon PaintsTOAAll Others20
40
60
80
#1 #2 Joint#1 #1
Joint#1
#2Player
#1Player
Joint#1 #1
Player
#2Player Joint
#1
The Rest
The Rest
The Rest
The Rest
The Rest
The Rest
0Indonesia Thailand Malaysia Philippines Vietnam
Singapore
# #1
AkzoNobel
AkzoNobel also has #1 position in Brunei, Joint #1 in Papua New Guinea, and #3 in Cambodia
Spotlight on Decorative Paints – 1 December 2011 127
Leadership built on the Dulux brand
• 70% of business behind Dulux
• A well-known and highly regarded brand in terms of:- Leading- Premium- Quality
• Especially strong in- Premium segmentPremium segment- Exteriors market
• Well-know Dulux propositions such as Dulux Weathershield, the leading brand for exteriors in the region
Spotlight on Decorative Paints – 1 December 2011 128
Our winning objectives
• Ensure volume and revenue growth > 10%> 10% per annum
• Build to a Relative Market Share of 2.5x to the nearest competitor
• Continued superior profitability from brand, scale, mix and global leverageleverage
• Strong ROIC
Spotlight on Decorative Paints – 1 December 2011 129
Investment centered around the brand and winning the consumer
Mass Market Penetration Embedded Sustainability
Product Offer & Portfolio
Deep Distribution
Brand Visibility
Advertising
Partners & Advocates
One-on-One Interaction
Activation
Colour Delivery
Deep Distribution
Society
Partners & Advocates
Investment
Spotlight on Decorative Paints – 1 December 2011 130
A renewed and focused product offerand portfolio
• Focused product portfolio aligned toportfolio aligned to consumer needs
• Renewed livery across the range
• Regular innovation and renovation
• Simplification and harmonisation of product, positioning and execution
Spotlight on Decorative Paints – 1 December 2011 131
A dramatic and successful entry into the mass market
• Mass market shaped historically by competitorscompetitors
• Benchmarking to find the right price and positioning for entry
• Invest in product quality at the right price
• Leverage the Dulux brand
• “Beauty that lasts” and “easy choice” for consumers
• Dramatic success in Indonesia and Thailand to date
Spotlight on Decorative Paints – 1 December 2011 132
Embedded sustainability in all of our major products
• Low-Odour Low VOC implemented across the productimplemented across the product range and underpinned by the Singapore Green Label Standard
• Weathershield Keep Cool for exteriors
• Dulux Pure air-purifying concept for interiorsfor interiors
• Water-based versions of trim and woodcare products
• Eco-premium % well above 30%
Spotlight on Decorative Paints – 1 December 2011 133
Supported by locally-relevant and specific advertising and activation
• Increased brand investment levels towards 10% oflevels towards 10% of revenue
• Brand campaigns based on global position within a local context
• Deep local activations paround festive painting occasions
Spotlight on Decorative Paints – 1 December 2011 134
Including significant one-on-one consumer interaction
• One-on-one colour design and cons lting ser ices inand consulting services in many markets provide individualised brand experiences
• Rolled-out at scale, visiting and producing consultations for tens of thousands of consumer perthousands of consumer per year with high conversion rates
• Measurable brand and sales impact
Spotlight on Decorative Paints – 1 December 2011 135
LiveryOutdoor Shops
Brand visibility across all touch points
Shops
TintingMachines
Events
TVClubs
Collaterals
Machines
Web Sites Facebook
Clothes
Design CentresSpotlight on Decorative Paints – 1 December 2011 136
Increasing distribution depth and capability
• Increasing numeric and weighted distrib tion be ond o r c rrentdistribution beyond our current 15,000 end points
• Engaging professional distribution partners for large geographies –increasing numeric reach by 15% and weighted reach by 10%
• Improvements see in market shareImprovements see in market share, customer service, distributor stock, range completion, and overdues
• Creating enhanced in-store experiences
Spotlight on Decorative Paints – 1 December 2011 137
Deep delivery of colour through theDiscovery low-cost tinting machine
• Superior colour marketing, le eraging global capabilitiesleveraging global capabilities such as ColourFutures
• Conversion to tinting for colourdelivery, Already over 5,000 tinting machines in place across the region
• The Discovery tinting machine isThe Discovery tinting machine is an important enabler of deep rural penetration into small shops
Spotlight on Decorative Paints – 1 December 2011 138
Building professional partners & brand advocates
• Continued investment in:
- Painters
- Architects
- Professional Specifiers
- Interior Designers
- Developers
Spotlight on Decorative Paints – 1 December 2011 139
And taking the brand into society
Spotlight on Decorative Paints – 1 December 2011 140
An engaged, creative, local team supported by global capabilities
Spotlight on Decorative Paints – 1 December 2011 141
In summary
• The South East Asian and Pacific markets are attractive and offer significant growth potentialsignificant growth potential
• We are the leading Decorative Paints company in the region, with a #1 position in key markets such as Indonesia and Vietnam
• We are re-launching and further developing the Dulux brand to secure long-term leadership for AkzoNobel
• This is an integrated investment program covering our brands, capabilities and people and leveraging on global capabilities for
i i dcompetitive advantage
Spotlight on Decorative Paints – 1 December 2011 142
India & South AsiaAmit JainAmit Jain
Decorative Paints India & South AsiaKey facts
• Revenue: €185 million• 900 Employees at year end• Production Units : 3
2010
16%
Revenue by price tier
• 75 warehouses servicing 7500 retailers nationwide • Strong position in premium segment• Undisputed market leader in Sri Lanka• Main brands Dulux and ICI Paints• India : Publicly listed, AN holding 56.4%, 3 Business Units (Decorative Paints largest)
16%
Revenue by country
62%22%
PremiumMassEconomy
84%
Sri Lanka
India
Spotlight on Decorative Paints – 1 December 2011 144
We operate in the fastest growing decorative coatings market in the world
India & Sri Lanka Decorative Paints Market Progression Th k t i t d t
1,6
2,5
3.1
1
2
3
4Market Progression
(€ billions)• The market is expected to
double in the 5 years from 2009 to 2014
• Growth drivers include:• Buoyant economy• Greater prosperity• Infrastructure
investment• Consumers trading up• GDP/capita increase
CAGR ~14%
0
1
2009 2012 2014
• GDP/capita increase 3.5x by 2020
• This growth rate is sustainable – 75% of the market is for re-painting
Source: Internal Market Analysis Spotlight on Decorative Paints – 1 December 2011 145
The market is trading up to superior products
India & Sri Lanka Decorative Paints Market Progression
• The Indian market is some hat ins lated from the
1
2
3
4Progression
(€ billions)
Premium
somewhat insulated from the global economic slowdown, given the nature of its demographics and economic structure
• The premium segment is expected to grow much faster than other segments due to:• Accelerating middle class
growth• Increasing number of
18%
15%
CAGR
1.6
3.1
0
1
2009 2014
PremiumMassEconomy
Increasing number of nuclear family households
• Rapid rise in income levels• Housing demand and
outlay• Services / manufacturing
10%
Source: Internal Market Analysis Spotlight on Decorative Paints – 1 December 2011 146
Metro vs. Semi UrbanDecorative Paints Market Progression
(€ billions)
Growth is faster in the Semi-Urban Towns segment than in Metros
• One of the main drivers of growth in the semi-urban market is the incentives offered by state agencies to invest in these cities, and the economic prosperity this engenders
• This segment is largely an unaddressed market1
2
3
(€ billions)
Semi‐Urban
18%
CAGR
13%1.6
3.1
• Main operational challenges relate to supply chain / distribution0
1
2009 2014
Metro
Source: Internal Market Analysis Spotlight on Decorative Paints – 1 December 2011 147
100%Market size by segment and by manufacturer
AkzoNobel’s Dulux is a strong # 2 in the Premium market
Ak N b l h100%
Dulux(>20%)
ICI (5%)
Dulux (6%)
BergerBerger
Others OthersOthers
NerolacNerolac
NerolacBerger
• AkzoNobel has a presence in all three of the main segments of the market
• Our highest share is in the Premium end
• We are also a distinct leader in Sri Lanka with
Economy(30%)
Mass(39%)
Premium(32%)
Asian Paints Asian Paints Asian Paints
Source: Internal market analysis
Sri Lanka, with >40% market share
Spotlight on Decorative Paints – 1 December 2011 148
We have a high margin and are growing faster than our competitors
30%Q3 YoY growth %
0%
5%
10%
15%
20%
25%
RevenueGross Profit
* Estimated for non-AkzoNobel companiesSource: Published Quarterly Result
0%AkzoNobel India Ltd.
Asian Paints
Berger Kansai Others Industry
Decorative Paints share of total Revenue*
~90% ~ 90% ~80% ~55% n/a n/a
Spotlight on Decorative Paints – 1 December 2011 149
We are aiming for significant growth
• We plan to increase revenue 2.5x in 5 years while ensuring good margins
We are aiming for a strong #2
Net Revenue(€ Millions)
400
500 CAGR ~20%
• We are aiming for a strong #2 position in the market overall, and a #1 position in the Premium category
• Our strategy is based on three components:
• Being selective about where we will aim to grow (Premium and Mass)
185
~ 340~ 470
0
100
200
300
2010 2013 2015
35%Premium Category Market Share
• Changing the rules of the game in distribution
• Leveraging our global repeatable models in innovation and marketing (Let’s Colour)
20% 24% 28% 30%
0%5%
10%15%20%25%30%
2011 2013 2016 2018Spotlight on Decorative Paints – 1 December 2011 150
Using breakthrough innovation we are creating a new proposition in Premium
• We have leveraged a global innovation to address a clear market need / opportunity
• Weathershield has been certified by India’s Centre of Energy Studies & Research
• It has won the Economic Times Acetech Green Innovation of the Year award
• North Delhi Power Ltd uses Weathershield in its facilities to save on electricity spend
Advertisement…
• 24 of 28 states in India are hot for more than 8 months in a year
• Temperatures regularly reach 40 to 48°Celsius
• Even a marginal respite from heat is of great benefit
Spotlight on Decorative Paints – 1 December 2011 151
Our volume growth with WeatherShieldhas more than doubled since launch
25%
WeatherShield volume growth
10%
21%
10%
15%
20%• We launched the
improved Weathershieldproduct featuring the innovative SunReflecttechnology in May 2010
• As a result we have gained 1% share in the Premium Exterior category in the last 12 months
0%
5%
12 months pre-launch 12 months post-launch
May ‘09 – April ‘10 May‘10 – April ‘11
Spotlight on Decorative Paints – 1 December 2011 152
We are raising the bar substantially in terms of the mass market offering
• The number of middle class households is expected to reach
100 illi b 2015over 100 million by 2015
• This market tends to be treated as one homogenous mass by competitors
• This class is made up of value conscious consumers – they are not willing to compromise on finish, colour and the final economics of usage
• We are addressing this marketWe are addressing this market with new propositions:
1. Promise of great finish, high coverage and no colour fade
2. Magic of emulsion finish at price of distemper (economy paint)
Source: NCAER, SOI, India, EIU market dat, BCG analysis Spotlight on Decorative Paints – 1 December 2011 153
Our mass market launches are growing at 3-4x category growth rates
60%
Dulux Promise Exterior Paint Annual volume growth • We have launched two products in
the mass market this past year
ICI Paints Magik Interior PaintY Y l th
‐3% 5%
60%
2009 2010 2011
€1.50/ltr
Launched Jan 2011
the mass market this past year
• Dulux Promise is growing 3x as fast as the category (mass exterior emulsion), and has gained 1% of market share this year
• ICI Paints Magik has been placed in 50% of retailers in just 3 months, and is present in 700 towns across India (growing 4x as fast as the economy interior market)
YoY volume growth
‐1% ‐11%30%
€1.00/ltr
Launched Aug 2011 Q1 Q2 Q3
Spotlight on Decorative Paints – 1 December 2011 154
Innovation helps us create a product ladder to maintain brand relationship with consumers as they evolve
> € 5
€ 2.50
€3
• We have innovated &
Price per Ltr < € 1
€ 1.30
€ 1.50 • We have innovated &
renovated 70% of our portfolio over last 1.5 years
• We align the brand to consumer needs and then ensure we have the right value equation behind specific offerings at each price point
Spotlight on Decorative Paints – 1 December 2011 155
• More than 500 Semi-urban towns with over 50 million households
• Growing faster than larger towns
We are changing the rules of the game in distribution: expanding our footprint with a differentiated model
• Growing faster than larger towns
• Located far from major warehouses (service a need)
• We are setting-up a ‘Distribution Network’ to expand availability to 400 towns – for the first time in the paints industry
• Pilot Test: 2010 – 2011
• These exclusive AkzoNobel distributors will i 2000 t il tl tservice over 2000 retail outlets
• This raises the customer service benchmark
• AkzoNobel delivers in 1 day versus competitors taking 2 -3 days
• We are building an IT system to manage stocks of our distributors
Spotlight on Decorative Paints – 1 December 2011 156
50%
Semi-urban towns revenue growth(year on year)
Our plan is to grow at double the rate of the Semi-Urban market
21%
35%40%
10%
20%
30%
40%
50%• We entered 200 new towns
in 2011 through 16 new distributors
• We will enter into 200 new towns in 2012 through another 16 distributors
0%2010 2011 Plan 2012
Spotlight on Decorative Paints – 1 December 2011 157
Our growth profile is gaining momentum
35%
Decorative Paints revenue growth(year on year)
30%
25%26%
18%
14%
5%
10%
15%
20%
25%
30%
‐5%
0%
5%
H1 2009 H2 2009 H1 2010 H2 2010 Q1 2011 Q2 2011 Q3 2011
Spotlight on Decorative Paints – 1 December 2011 158
AkzoNobel India shareholder value has doubled in the last 2 years
600Market Value
(€ millions)
200
300
400
500
600 (€ millions)
-
100
Mar/2009 Mar/2010 Mar/2011 Oct/2011
External shareholders
Akzo Nobel
Spotlight on Decorative Paints – 1 December 2011 159
In Summary
• The Decorative Paints market in India & Sri Lanka is very attractive, embedded in a broader economic context driven by demographics and i t l tiinternal consumption
• Within this market, we remain focused on the premium segment while also building share in the growing mass market of South Asia
• Over the past 18 months we have built a strong foundation through
− Innovative product portfolio offering strong & distinct consumer proposition
− Breakthrough service proposition for retail g
− Distribution expansion
• This translates into a profitable growth model which positions the business to grow ahead of market growth rates
Spotlight on Decorative Paints – 1 December 2011 160
China & North AsiaLiangqi LinLiangqi Lin
Decorative Paints China & North Asia Key Facts
• Established in 1990 as a JV with Swire Pacific (AN share 70%)• Revenue: €377 million• 1,600 Employees at year end
2010
1,600 Employees at year end• High profitability with negative OWC• 4 factories (3 in China and 1 in Taiwan) • Leading business in Hong Kong & Taiwan• Strong Dulux Brand
16%
Revenue by channel
31%23%
Revenue by segment
73%
6%5%
Traditional*Modern**ProfessionalProject
31%
28%
18%
PremiumMassEconomyWoodcare & Others
* Small-scale outlets selling to both consumers and professionals** Larger -scale, ‘big box’ retailers, more consumer-oriented
Spotlight on Decorative Paints – 1 December 2011 162
The market for Decorative Paints in China measures some €3.4 billion
• Strong project market d i b i f t t
2010 China Decorative Paints market(€ millions)
Project Market37%
driven by infrastructure investment
• Retail market driven by Emulsion
• Woodcare is shrinking due to increasing of pre-fabrication in wood
• Growth in redecoration will increase market
Retail woodcare
909 Project1.239
Source: Internal market sizing analysis
Retail Market63%
will increase market size
• AN/Nippon relative market share is 0.7
Retail emulsion
1.210
Note: This figure differs from previous market size estimates given because we are now addressing a broader market in terms of cities and projects.Exchange rate: 1 Euro = 9.05731RMB
Spotlight on Decorative Paints – 1 December 2011 163
The central government has imposed measures to cool down the property market
• Extended curbs on home purchases
– 42 more cities imposing property-purchasing restrictions in Septemberrestrictions in September
– Growth turning negative in property transaction volumes and prices
• 5-year residency requirement for Beijing before non- permanent residents can buy
• Central bank interest rate increases
– Further 0.25% in July
– Third rate hike this year fifth since October– Third rate hike this year, fifth since October 2010 (total 125bps)
– Capital reserve ratio raised in June, for the 12th time since 2010
Spotlight on Decorative Paints – 1 December 2011 164
GDP growth expected to remain strong while paints market growth falls behind
12%China growth expectations
• Overall GDP growth in China expected to remain in the high single digits
• Paints market growth expected to be dampened in 2011/2012 and then recover in 2013
0%
2%
4%
6%
8%
10%
GDPPaint market
Note: Paint market includes exterior paints, interior paints, floor paints and roof paints.Exchange rate : 9.05731
Market Size 3358 3428 3528 3775(€ millions)
2010 2011 2012 Est. 2013 Est.
Source: Oxford Economics, China National Coatings Industry Association & Industrial Research Institution with adjustment (1)外墙涂料,(2)内墙涂料,(3)顶棚涂料,(4)地面涂料,(5)屋面涂料
Spotlight on Decorative Paints – 1 December 2011 165
Given challenging market conditions, redecoration is crucial for future growth
60 70%
RMB Billions % of total
Emulsion sales in China by end useAbsolute value and % of total
20
30
40
50
20
30
40
50
60
% Redecoration
0
10
0
10
20
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
RMB New build
RMB Redecoration
% New build
% Redecoration
Source: McKinsey, Synovate, internal analysis Spotlight on Decorative Paints – 1 December 2011 166
Revenue trend
We are investing to accelerate growth and further improve our position in the market
Past – Build the foundation for
growth
Now – Invest and build the momentum to further accelerate
the growth
Future – Sustain the momentum and increase profitability
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Spotlight on Decorative Paints – 1 December 2011 167
Paint generalist Woodcare Pre-Deco Other
specialist
We are focusing our investment on fewer, bigger, more powerful brands
• We are continuing to rationalize our brand portfolio to
Consumer –Super premium to Mass(Traditional & Modern channels)
Contractor / Painter (Professional channel)
B2B –
reduce complexity
• We have one major brand for each end user segment that cuts across the main product categories
Super premium to Mass(Project channel)
Consumer –Economy(Traditional channel)
Spotlight on Decorative Paints – 1 December 2011 168
This investment reinforces our mission: Adding Colour to People’s Lives
• We have used high profile, high-impact campaigns in 2010 and 2011 to introduce this mission to a range of stakeholder groups (customers, consumers designers architects and employees)consumers, designers, architects and employees)
• These have consisted of a number of coordinated projects across multiple cities, generating very high impact and driving brand preference
Spotlight on Decorative Paints – 1 December 2011 169
We will improve our position by focusing on a few ‘must-win battles’
• Depth of penetration
– We will aggressively drive increase share in the key high growth citieshigh growth cities
• Win in the mass market
– We will win with Dulux in the dominant mass segment by building winning value propositions for the mass market
• Educate the market & win in Redecoration
– We will grow the market & our share through inspiring people to redecorate and removing the barriers to doingpeople to redecorate and removing the barriers to doing so
• Aggressively grow the Project business
– We will achieve double market growth in Projects through being a professional solution partner for key customer segments
Spotlight on Decorative Paints – 1 December 2011 170
We have extensive geographic coverage across regions and city tiers
Geographic coverage City coverageRevenue by city tier
EastSouthNorthWest
5
Beijing
Chengdu
Shanghai
Guangzhou
36%
29%
27%
8%
Tier 1 (12 cities)Tier 2 (60 cities)Tier 3 (233 cities)Tier 4 (364 cities)
• Regional headquarters in each of China’s four main regions
• Highest growth in China is expected in the West, where we are increasing our capacity and investing in distribution and talent
• Expansive controlled distribution model covering Tier 1 to Tier 4 cities (670 cities)
Spotlight on Decorative Paints – 1 December 2011 171
The Dulux Decorator Center Network of controlled stores is at the heart of our channel strategy
• We initiated a new store design in 2010 to:
– Strengthen color leadershipg p
– Inspire consumers to decorate
– Be more interactive with consumers and enhance conversion rate
– Better integrate emulsion and woodcare
– Be flexible to handle real store situationssituations
• We aim to have ~400 DDC stores by 2016 (from 250 today)
• Overall we plan to expand our distribution from over 4,000 outlets today to ~7,000 by 2016 (with 2000 CSS and 4600 ISS)
Note: DDC is for Dulux Decorator Center; CSS is for ColourSolutions Store; and ISS is for Image Solutions Store
Spotlight on Decorative Paints – 1 December 2011 172
The mass market is the dominant segment in China, with 44% of total value
Market and Revenue by price segment, 2010(€ millions)
44%42%
29% 40%
Premium
3400 377 • AkzoNobel is weighted toward the premium segment
• The mass segment is slightly underrepresented in terms of share of our revenue relative to its share of the overall market
Th k t i th
Note: Total market size includes both urban and rural market and both retail and project channelExchange rate: 9.05731
28% 19%
Market AkzoNobel
PremiumMassEconomy
• The mass market is the fastest growing segment
Spotlight on Decorative Paints – 1 December 2011 173
Dulux is closing the gap with our competitor in the mass segment
• Mass market range (Guardian) launched in 2005 – 10 years after Nippon, though they still have substantial leading position
• Successful launch of Dulux Guardian odorless range in 2007 has gradually closed the gap with Nippon in the mass segment while building leadership in Super Premium and Premium
• Proposition for mass segment is clearly differentiated from Super Premium in terms of product portfolio, city and channel focus, minimizing cannibalization
Spotlight on Decorative Paints – 1 December 2011 174
We aim to win in the mass segment with product, communications & channel initiatives
Integrated communication to
Win in Mass Market
Continuous product innovation & price
rationalization
communication to drive preference &
purchase
Aggressive growth in Mass channel
Spotlight on Decorative Paints – 1 December 2011 175
We are driving the development of the redecoration segment
We will become the market leader in redecoration in both consumer and B2B markets, educating the market and delivering share growth through tailored repainting solutions
To do this we will:
– Grow the market & shorten repainting frequency through powerful & inspiring communication aimed at educating & inspiring consumers (category growth stimulation)
– Lock in those considering redecoration through targeted BTL activity and by providing hassle free, fast and reliable painting service through the Easy Paint Service (Brand p g g y (stimulation)
– Develop differentiated products and ranges designed for the redecoration market
This will all be developed through the Dulux & Dulux Pro Brands
Spotlight on Decorative Paints – 1 December 2011 176
Our Easy Paint service addresses this emerging segment
• A high quality, one-stop painting service from Dulux
Consumers call 400 hotline
400 hotline introduces EP service
• Makes re-painting hassle free and delivers the perfect end result with the minimum disruption
• Operating in 25 cities with highly trained surveying and painting teams
• Removes the barriers for consumers to repaint
Service clerk arranges site visit & consultation
Surveyor gives price & product / colour advice
consumers to repaint• High levels of consumer
satisfactionPainter conducts paint job on site
400 hotline calls back for service quality check
Spotlight on Decorative Paints – 1 December 2011 177
In Summary
• With great brand awareness and an extended distribution network, Ak N b l i ll iti d f l t d th & h iAkzoNobel is well positioned for accelerated growth & share gain– Balanced business portfolio & well positioned to deal with market uncertainty
– Clear focus on key opportunities & growth areas
– Development and positioning of product portfolio remains key
– Continued investment necessary in supply chain, brand & people
Spotlight on Decorative Paints – 1 December 2011 178
Latin AmericaBenito BerrettaBenito Berretta
Decorative Paints Latin AmericaKey facts
• Revenue: €513 million• 1,800 Employees at year end
Coral (Paints) and Sparlack (Woodcare) leading brands in the
2010
4%4%
Revenue by country
• Coral (Paints) and Sparlack (Woodcare) leading brands in the Brazilian Paints Market
• #1 position in Argentina and Uruguay with Alba and Inca brands• 4 production facilities in 3 countries, including the world’s largest
decorative paints factory (Mauá)
12%
Revenue by Channel
74%
18%
BrazilArgentinaUruguayOther
60%28%
Paint ShopsOther IndependentsHome Centers
Spotlight on Decorative Paints – 1 December 2011 180
Brazil is a largely consumer market, with a large share of ‘Mom & Pop’ stores
Brazilian market by value
• Roughly two-thirds of paint is purchased by consumers
• Independent paint shops account for the majority of the market
• Home Centres have a relatively small and stable share of the market
Consumers Paint shops
Builders' Merchants
Home Centres
40%
60%
80%
100%
Professionals
Source: Shopper research (2010)
0%
20%
By end user By channel
Spotlight on Decorative Paints – 1 December 2011 181
Middle class consumers in Brazil are growing as a proportion of the total
Number of consumers in Brazil by household income level
(millions) • The middle class in Brazil (‘C’ class consumers) is growing faster than any other segment
• Drivers of this include:• Sustained GDP growth• Reduced inflation• Government income
redistribution policies
(millions)
Source: IBGE / FGV Spotlight on Decorative Paints – 1 December 2011 182
The Brazilian market is largely driven by emotional / aesthetic considerations
• Roughly 2/3 of our consumers are emotional
Types of decorative paints market
buyers with aesthetic motivations; this is reflected in per capita consumption
• We are positioning ourselves clearly in the aesthetic / renewal space; historically, most brands have focused more on conventional / maintenance drivers.
Maintenance driven
Renewal driven
Emotional
3 litres per it
5-6 litres per capita
• We are aiming to grow the overall market and our own share by leveraging our distinctive brand assets
Conventional
capita
Colour as % of total market
Source: Shopper research (2010) and consumer segmentation research (2008) Spotlight on Decorative Paints – 1 December 2011 183
This fits beautifully with our mission: Adding Colour to People’s Lives
Spotlight on Decorative Paints – 1 December 2011 184
We have developed a powerful program to do this – Tudo de Cor
Spotlight on Decorative Paints – 1 December 2011 185
We started in the Bixiga neighbourhoodof São Paulo in August 2009
Houses painted20p
Employees involved
1502000
Spotlight on Decorative Paints – 1 December 2011 186
Litres of paint2000
We had a champion supporter from the community – Mr. Walter
Spotlight on Decorative Paints – 1 December 2011 187
The results we achieved with this first effort were phenomenal
High quality media coverage
Mayor of São Paulo support
ed a co e ageworth €1 million
Spotlight on Decorative Paints – 1 December 2011 188
Gilberto Kassab
Massive engagement from our people
We have since replicated it in a number of key markets across the countryBixiga‐SP Aug/09
Salvador‐BA Jan/10
Sta. Marta‐RJ Apr/10
Ouro Preto‐MG Oct/10
Florianópolis SC Jul/11
Fundição Progresso‐RJ Nov/09
Olinda‐PE Mar/10
Porto Alegre‐RS Aug/10
Porto Seguro‐BA Feb/11
Fortaleza‐CE Aug/11
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We use our own footage of each event to produce TV advertising copy
Florianópolis SC Jul/11
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258300
Copy Effectiveness Index Pre-Test
These advertisements significantly outperform the industry average
• People are more likely to58
50
100
150
200
250
Normative range
People are more likely to recall the Tudo de Corfilms than they are most other advertisements
• The advertisement scores extraordinarily high on Persuasion, which reflects its power to drive consideration of the brand in consumers’ next purchase
0Tudo de Cor film Paint market
averageRecall indexPersuasion index
138
187
93
66
• Measured impact of our Tudo de Cor program in terms of press coverage is estimated to be worth 3 TV campaigns*
* 6000 GRPs at 3+ frequency on 55% of coverageSource: Ipsos Next TV Research, Perspectiva, Digital Top Clip
Spotlight on Decorative Paints – 1 December 2011 191
Nearly two-thirds of the shopping decision is made in-store
37%31%
Consumer purchase intention at store entry
Skip
Switch
• Over 60% of consumer purchase decisions can be strongly influenced by the sales attendant’s recommendation in the store (Switch and Undecided consumers)
• This means that winning at the point of sales is the other side of the coin.
B ildi b d it d
32%
Undecided • Building brand equity and winning at the POS must be done hand-in-hand to drive revenue
Source: Shopper research (2010) Spotlight on Decorative Paints – 1 December 2011 192
We are converting brand equity into share growth by winning at the Point of Sale
Strong Brand
Winning at Point of
Sale
Strong BrandMake them
proud
Trusted Partner
Commercial policy
Trade marketing
Driving Customer
Growth
• We have an integrated program that leverages our brand equity with elements on the commercial, product and promotion side
• We are also progressing with our distribution expansion strategy, both deepening our existing relationships and
InnovationUnique
propositions
pbroadening our network
Spotlight on Decorative Paints – 1 December 2011 193
Our innovations have supported our offer across the main segments
Total market by value and by segment
• Coral has a solid position across all three of the major
Premium(~R$20)
Mass(~R$15) Economy
(~R$10)
CoralCoral
Coral
Segment and average price points per litre
three of the major segments, and is particularly strong in Mass
• A specific product offering for each segment allows us to operate across the spectrum while leveraging the benefits of a single brand
Main product offering for
each segment
brand
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Our mass market product is the only one to offer up to 500m2 of coverage
• Our ‘Rende Muito’ product has been a great success with retailers and shoppers alike
• The graphic on the left shows the difference between how much can be painted with RendeMuito compared to a competitor product
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Our brand equity has improved on every dimension with both shoppers and retailers
Consumer (shopper) brand equity Relative strengths and changes over time
Customer (retailer) brand equity Relative strengths and changes over time
Quality
RelevancePopularity
Solid
ModernMarketLeader
g g g g
20092010
DifferentiationFamiliarity
20082010
ConsumersAsk For It
Leader
A&PSupport
Source: Shopper research (2009 and 2010) and retailer research (2008 and 2010) Spotlight on Decorative Paints – 1 December 2011 196
The program has yielded substantial results in market share growth
20% 21%23%
25%
Coral market share
50%
Absolute revenue growth 2008 to 2011
2008 2009 2010 2011
26%
Market Coral
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Financial results have been equally impressive
EBITDA in Brazil
100122
145
185
EBITDA in BrazilIndex 2008 = 100
2008 2009 2010 2011
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Community sustainability is an important feature of the Tudo de Cor program
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Edimar is a great example, someone who embodies what we are trying to achieve
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In summary
• We have a great position in the biggest market in Latin America
• We are accelerating our growth by g g y
– building brand equity through the activation of our mission: Adding Colour to People’s Lives
– converting that brand equity into market share and profit through our superior Point-of-Sale and innovation execution
• The Tudo de Cor program is a compelling repeatable model that taps into a emotional and aesthetic markettaps into a emotional and aesthetic market
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Q&A:Keith NicholsKeith NicholsTex GunningJeremy RoweAmit JainLiangqi LinBenito BerrettaBenito Berretta
In Summary – Winning Globally
• Our markets will continue to grow, especially in Asia, Eastern Europe and Latin America
• AkzoNobel is the best placed to benefit from this growth
– We have solid growth platforms in all key markets
– We have a very attractive position in EMEA, the world’s biggest market
– We have the best people, brands and competencies
We can leverage our global scale in way others cannot– We can leverage our global scale in way others cannot
• We will pursue share growth in all major markets, through superior functional execution and with opportunistic market consolidation
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Safe Harbor Statement
This presentation contains statements which address such key issues as AkzoNobel’s growth strategy, future financial results, market positions, product development, products in the pipeline, and product approvals. Such statements p p p p p ppshould be carefully considered, and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business please see our latest Annual Report, a copy of which can be found on the company’s corporate website www.akzonobel.com.
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