property divestment program · • quality management, including product portfolio management...

Property Divestment Program“Harvesting value through creative measures and processes”

Global Real Estate

Meet AkzoNobelLeading market positions delivering leading performance

AkzoNobel today• Revenue €15.4 billion• 50,610 employees• 44% of revenue from high growth markets• Major producer of Paints, Coatings and

Specialty Chemicals• Leadership positions in many markets

*2012 excluding impairment (€2.1 billion) **New definition including incidentals and after IAS19

38%

15%

47%

PerformanceCoatings

DecorativePaints

SpecialtyChemicals

48%

8%

44%37%

27%

36%

Revenue by Business Area

Operating income*by Business Area

EBITDA** by Business Area

5.4% Growth

2012 vs. 2011

5.9% Return on sales

(operating income/revenue)

10.4% EBITDA/revenue

High growth markets are 44% of revenue and their importance will increase

Our goal: Greater than 50% of revenues from high growth markets

% of 2012 revenue, excluding Decorative Paints North America38%

Mature Europe

26%Asia Pacific2%

Middle Eastand Africa

11%Latin America

15%North America

8%Emerging Europe

Market segments

~43% of revenuesNew Build ProjectsMaintenance, Renovation and RepairBuilding Products and Components

~16% of revenuesAutomotive OEM, Parts and

AssemblyAutomotive Repair

Marine and Air Transport

~16% of revenuesConsumer DurablesConsumer Packaged Goods

~25% of revenuesNatural Resource and Energy

Industries Process Industries

BA-level core processes and capabilities• Branding• Distributor, wholesaler, retail management• Understanding and serving professional painters• Consumer inspiration• Quality management, including product portfolio management

Revenue by geographic region

Decorative Paints overview

€ million 2012*

Revenue 4,297 EBITDA 284 Operating income 94Return on sales 2.2%Return on investment 3.0%# Employees 17,020

Revenue by end-usersub-segment

*After the divestment of Decorative Paints North America, excluding impairment (€2.1 billion)

Decorative Paints key figures(new definition)

49%

25%

14%

8%4% Mature Europe

Asia Pacif ic

Latin America

Emerging Europe

Other regions84%

16% Maintenance, renovation and repair

New build projects

Decorative PaintsArchitectural coatings

• Interior and exterior wall paints and trim paints (lacquers)

Woodcare and specialty products• Lacquers and varnishes for wood protection and decoration• Specialty coatings for metal, concrete and other critical building materials

Industry leading brands

Pre-deco products• Fillers, wall treatments, sealants and putties for consumers and professional

Adhesives for the building and renovation industry• Tile and floor adhesives and floor leveling compounds used for

building and renovation

27%

20%30%

11%

8%4%Mature Europe

North America

Asia Pacific

Emerging EuropeLatin America

Other regions

36%

27%

23%

14% Transportation

Consumer GoodsBuildings and InfrastructureIndustrial

Performance Coatings overview

Performance Coatingskey figures (new definition)

Revenue by end-user segment Revenue by geographic region

€ million 2012

Revenue 5,702EBITDA 673Operating income 542Return on sales 9.5%Return on investment 21.7%# Employees 21,310

BA-level core processes and capabilities• Industrial key account management• Technical support and service• Design, color and color matching• Continuous innovation in functionality and ease-of-use• Sustainable, safe solutions

Marine and Protective Coatings

Automotive and Aerospace Coatings

Industrial Coatings

AkzoNobel Industrial Coatings protect and enhance thousands of products made from steel, aluminum and wood

Wood Finishes and Adhesives

Finishes and adhesives for everything wood!

Powder Coatings

Specialty Chemicals overview

Specialty Chemicals key figures (new definition)

Revenue by end-user segment Revenue by geographic spread

€ million 2012

Revenue 5,543

EBITDA 830

Operating income 500

Return on sales 9.0%

Return on investment 13.6%

# Employees 10,750

18%

6%

18%58%

Buildings and InfrastructureTransportation

Consumer GoodsIndustrial

40%

21%

22%

10%4%3% Mature Europe

North America

Asia Pacific

Latin America

Emerging Europe

Other regions

BA-level core processes and capabilities• Management of integrated value chains• Continuous technological advancement • Engineering and project management• Process safety• Product and margin management• Managing capital intensive businesses and expansions

Functional Chemicals

Pulp and Performance Chemicals

Industrial Chemicals

Surface Chemistry

What is in a Company’s History

HistoryAkzoNobel has a long history of mergers and divestments. Parts of the current company can be traced back to 17th century companies.[6]

The milestone mergers and divestments are the formation of AKZO in 1969, the merger with Nobel Industries in 1994 forming Akzo Nobel,

and the divestment of its pharmaceutical business and the merger with ICI in 2007/2008 resulting in current day AkzoNobel.

AKZO 1792–1994 (Group) AKZO 1792–1969 (original AKZO companies)

AKZO 1969-1994 Bofors 1646-1984

KemaNobel 1841-1984 Nobel Industries 1984-1993

Eka 1895-1986 Casco Nobel 1987

Sadolin & Holmblad 1777-1987 Berol Kemi 1937-1988

Akzo Nobel 1994–2007/2008 Crown Berger 1770-1990 (entered Nobel Industries, 1990)

Courtaulds 1826–1998 Imperial Chemicals Industries (ICI) 1926–2007/2008

AkzoNobel 2008 and later

2009, Akzo Nobel divests Chemicals Pakistan to KP Chemical.

2010, AkzoNobel's rebrand was formally recognised when they appeared on the shortlist of the Transform Awards for rebranding and brand

transformation.[12]

June 2010, AkzoNobel divests National Starch business to Corn Products International.

December 2012, AkzoNobel agrees to sell its North American Architectural Coatings business to PPG Industries[13]

Board MemoOrganizing REAL ESTATE in AKZONOBEL

Amsterdam, June 23, 2010

Consensus

• No coherent structured approach to Real Estate Management

• Leads to missing opportunities and creation of potential liabilities

• Need to align with the business and identify key stakeholders

• Determine short term quick wins

• Medium term – Developing a Real Estate Policy (incl. governance)– Structure relationship with external advisors

Real Estate Strategy

In 2010 our Director developed;

VisionAchieve the optimal footprint for AkzoNobel in order to support the

business units in achieving their goals

MissionTo effectively manage the lease portfolio aiming at cost reduction

and flexibilityManaging purchase and sale of manufacturing and other sites

maximizing the value for AkzoNobel.

RE/FM Action Approved/Funded

RE/FM Approved Action Implemented

Original Business Need Changes

• Final Real Estate Negotiations/ Documentation

• Final Design/Engineering

• PO Process/ Material Acquisitions

• Project/Construction Management

• Project Commissioning

Quadrant 1 -PlanningBusiness Need (s) Translated Into Facility Specifications/Drawings and Recommended Solution Approved for Implementation

Quadrant 2 -ImplementationApproved Facility Solution Implemented - Physical Facility Assets Created

Quadrant 3 –Maintenance and OperationsPhysical Assets Maintained To Ensure Reliability (Meet Business Needs) and Optimize Operating Cost Efficiency

Quadrant 4 –Re-Deployment/ DispositionPhysical Facility Assets Obsolete and/or No Longer Meet Business Need (s)

2

•Scope of Work

• Real Estate Analysis/ Negotiations

• Preliminary Design and Engineering – Legal Codes, FMC Specs and Standards

• Cost Analysis/ Recommendation

• Approval – Customer and Management

•Code/Corporate Inspection/Permits

• Asset Protection -Scheduled Maintenance-Preventive/Predictive

• Unscheduled Repair

• Facility Management

• Operating Cost Efficiency/ Optimization Actions

• Real Estate Disposition/Re-Use Plans/Actions

•De-Commissioning

• Asset Redeployment/Sale

1

3

4

The RE/FM Operating System Framework is a fully scalable business model for the acquisition, management and disposition of real estate and facility-related site, building and equipment assets.

Framework for Real Estate Deliverables

Realized divestmentsJan 2011 - July 2013 (EUR 130 mln)

Current real estate divestmentsJuly 2013 (EUR 150 mln 3 years)

North American Disposition Plan

The Challenge• What did we have?

• Who did it belong to?

• Was it being actively worked on and who really cared?

• What would be the profile of the team to address the opportunity?

• The Directive!

The Challenge

What did we have?

• Possibly the most difficult part of any real estate program.

• Globally we have something in the neighborhood of 2,400 properties.

• Prior to the disposition of our paints group, North America had 830 total facilities

• Of that figure, we have 30 locations that have been decommissioned and are / will be available for marketing and sale.

The Challenge

Who did it belong to?

• While the company has been moving towards a centralized environment, it functions in a vertical manner.

• Prior to our effort to move to a critical few operating systems, we managed finances with over 100 different ERP systems.

• Typically, when a property is decommissioned a determination is made to bring that property to one operating group – Legacy, but not all property identified for sale is held there.

• So, we may have upwards of 15 different business groups we perform service for.

The Challenge

Was it being actively worked on and who really cared?

• Active is the operative word.

• Prior to the strategic alignment noted earlier, there were few if any individuals focused on achieving value from the sale of property.

• With many locations environmentally challenged, it was considered a major effort to understand, prepare and market properties and therefore little attention was given to these opportunities.

• So the short answer was NO and no one.

The Challenge


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EnvironmentalManagement

The Challenge


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Business Unit


The Challenge


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Legacy Management

Business Unit


The Challenge


Legal

Legacy Management

Business Unit


The Challenge


Legal

Legacy Management

Business Unit


Knowledgeable and Creditable Service Provider

The Challenge

The Directive!

• The Real Estate Directive for selling property is clear.

• The Environmental one is a bit more complex requiring remediation of sites prior to sale.

• The path to review a site, obtain reports, determine costs, decide on timing (if at all depending on value or municipal code) and implementation can be years.

• We needed a creative and workable solution to drive value up and reduce time to completion.

The Creative Approach

Risk Management was the Key!

• The environmental group was typically in the lead on divestments and a very strong focus on risk avoidance.

• There was no drive for a business unit to take action on divestments as they were not incentivized.

• Our process for remediation reporting and cost evaluations was in need of enhancement.

• We began to sense that developers / investors were becoming more proficient in the evaluation and remediation of challenged properties.

• In order to “harvest” value from available properties, we needed to change the game.


The Solution!“Where is as is”

• For each available property we established a value (land and or buildings) for each type of buyer (industrial or residential).

• We then reviewed each property for phase 1 & 2 evaluations and cost.

• If the value was equal to or greater than remediation costs we targeted the location for marketing.

• We worked with legal to define a structured PSA (purchase and sale agreement) that established parameters to ensure risk was contained, due diligence was performed in a timely manner and transfer of future liability (indemnification) was achieved.


The Solution!“Where is as is”

• With this process in place we marketed the property for best reuse and timing.

• When interest in favorable markets occur, we provide a confidentially agreement in advance of providing records to the property. This ensures that bids for purchase are relevant and can be compared to our assessments and marginal adjustments are minimized later.

• A PSA is executed prior to due diligence with set time frames for evaluation.

• Upon completion an amendment is developed that includes a work plan, escrow of costs until municipal approval is obtained and establishes the right to transfer property for indemnification.


The Solution!Why would an interested party pursue this avenue?

• The land / buildings have value and are scarce in the area of need.

• More developers have found the action of remediation becoming more of a core business.

• By means of escrow pending certification of work, both parties have an interest in moving the project along in a timely manner.

• The property is not in limbo awaiting the company to perform remediation.

• If we did our home work, there are two creditable parties working together.


The Results!

• Two eight digit PSA’s have been finalized.

• From start to finish the complete cycle from offer to close is approximately 16 to 18 months.

• The multi step process, led by real estate and including all parties has achieved the goals of;

• Avoiding risk• Accelerating the timing of the transaction• Producing value in line with projections and• Appreciably reducing provisional costs to the company through lower

remediation costs.


Conclusion

• Each company with serious real estate holdings eventually faces this situation.

• Recognizing the opportunity and reverse engineering the solution is an approach real estate professionals are expected to do.

• Understanding the needs and diverse requirements of each stakeholder brought us to consensus sooner than imagined.

• The return of accounting reserves to the degree we did was a major surprise and has set the tone for all future dispositions.

Thank you

property divestment program · • quality management, including product portfolio management...

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