The vision for our Specialty Chemicals business is to deliver leading performance based on sustainable chemical platforms driving profitable growth in select markets. Our expected outcomes for 2015 are to achieve a return on sales level of 12 percent and a return on investment of 15 percent. To achieve these ambitions we will:
- Build on our strong chemical platforms to deliver profitable growth in selected markets
- Drive functional excellence
- Productivity of supply chain and operations
- Commercial excellence
- Talent management leveraging the AkzoNobel process
- Reduce organizational complexity and cost
- Commercialize product innovation and deliver process innovation
- Capitalize on industry changes
More details on what we achieved in 2013, and our plans for 2014 in terms of each of these actions, follow.
Build on our strong chemical platforms
The Specialty Chemicals business is inherently more capital intensive than our other two Business Areas, so if we are to achieve the expected improvements in return on investment, we must carefully allocate our capital to the opportunities that have the greatest potential for profitable growth.
Although we are positive about the robust outlook for the markets that we serve and are confident about our competitive position in these markets, we must evaluate which of the platforms provide us with the most promising opportunities and then differentially direct our capital into the best opportunities for profitable growth.
We have defined two main approaches:
- In parts of our business where there are attractive market growth opportunities and we have a strong competitive position, we aim to outgrow the market. We will do this based on organic growth. We will also ensure that while we grow we will leverage our scale so that we not only grow in terms of revenue, but we also simultaneously improve our margins through better leverage of scale. For example, in bleaching chemicals and surfactants. In bleaching chemicals, we are investing for growth in sodium chlorate chemical islands in Brazil, while in surfactants, we are investing for growth in more attractive end-user markets
- In other chemical platforms (for example the salt/chlorine chain), where the markets are more mature or offer us less growth potential, we also intend to improve our profitability, but we will do so on the basis of driving operational excellence. We will still invest in these businesses, particularly in terms of process technology. Growth investments will be selectively reviewed such as our current investment in Frankfurt, or for performance improvement (for example in automation)
Drive functional excellence
To reach our return on sales expectations, we need to develop best-in-class capabilities in vital functional areas. To leverage our scale and create these capabilities effectively and efficiently, we will do this in a consistent manner across the Business Area.
Key areas of functional focus are:
- Improvement in productivity of the supply chain and operations. As part of the company’s overall performance improvement program, we have conducted over 70 site improvement projects, with savings up to €5 million per site. In addition to cost reductions, we achieved significant improvements in operational eco-efficiency, thereby lowering our carbon footprint. We have also established a Lean Six Sigma platform within the Business Area as part of a company-wide chemicals production system designed to further optimize certain processes in operations. We will also launch programs for increased focus on yield, waste and quality to cut costs and optimize resource use. We will do this by creating a center of excellence for training and implementation of best practice processes for supply chain activities as the next step in the roll-out of our production system
- Commercial excellence. We have already introduced a margin management program in all our Specialty Chemicals businesses. This program includes standardized customer needs segmentation and pricing tools, as well as a product and service portfolio management process based on a rigorous assessment of cost-to-serve. Our next steps are to create a common customer feedback process and develop and implement a sales force productivity improvement program. Sales force improvements will be based on implementation of standardized sales processes, aligned incentive systems and training programs
- Talent management leveraging the AkzoNobel process. At AkzoNobel level, we are implementing a disciplined approach to diverse and inclusive talent development based on a consistent talent management process. At Specialty Chemicals Business Area level, we will address specific areas of concern, including the need to continue to migrate our employee base to high growth geographies
Reduce organizational complexity and cost
We have carried out substantial restructuring to date as our industry environment has changed, closing or divesting more than ten factories, including those considered non-core businesses, as well as realigning our sites in mature markets. Going forward, we will continue restructuring in line with the company’s functional excellence approach, as well as reviewing the structure in multi-site organizations and reducing non-product related spend.
Commercialize product innovation and deliver process innovation
We have already delivered significant process improvements in all of our platforms, including in electrolysis and the salt manufacturing process in the salt/chlorine platform, and offered our customers continuous initiator dosing in the organic peroxides platform. In addition, we regularly introduce new products that provide a variety of benefits, including energy reduction and functional process improvement. One example is Ecosel AsphaltProtection, an additive to de-icing brine which reduces winter damage to road surfaces by up to 50 percent. One of our newest products, it has also been classified as an eco-premium solution with downstream benefits. Going forward, we will continue to standardize and improve processes and introduce new products in new applications to help generate more value from fewer resources across all of the value chains that we serve.
Capitalize on industry changes
Over the last decade, we have aggressively invested in building production facilities in high growth countries such as China and Brazil, with the objective of aligning our capabilities with changes in the market. Clearly, we must continue to ensure that we adapt to emerging industry developments. This includes additional geographic shifts, as well as shifts in the supply base, such as increasing availability of shale gas and greater availability of renewable raw materials, including energy, as well as feedstocks. By taking a comprehensive view at the Business Area level, we will be able to ensure that we continue to stay ahead of the market, as we have done with our capacity additions in China.
Specialty Chemicals expected 2015 financial outcomes:
- Return on sales: 12%
- Return on investment: 15%