Performance Coatings strategy
We delivered at the higher end of our 2016-2018 performance range, with return on sales (ROS) of 13.4 percent and return on investment (ROI) of 29.4 percent. Despite headwinds in the market, we remained focused on building on the solid performance foundation we have created and growing in line with, or faster than, our relevant market segments.
Although the year was not without its challenges, we managed to offset continued weakness in new ship construction and oil and gas capital spending, while we achieved growth in areas such as our Powder Coatings and Vehicle Refinishes businesses. It was also a year of exploration and growth – new additions to our product portfolio, new digital technologies to support our customers and new opportunities in growing segments and geographies.
We remain committed to our strategy of pursuing differentiated growth strategies, delivering business-specific innovation plans and driving overarching performance improvement initiatives.
Pursue differentiated growth strategies
We drive growth in Performance Coatings by assessing the attractiveness of market segments and our ability to win in those segments. This strategic segmentation allows us to identify and prioritize growth opportunities across our businesses. The priority segments in our portfolio are expected to outgrow their end-markets, while lower priority segments should grow in line with their underlying markets. Each year, we review and update our analysis of market segment growth potential in order to reallocate resources to those segments with the best growth prospects.
Drive overarching performance improvement initiatives
Embed commercial excellence
During the period of restructuring that took place prior to 2016, we focused on sales force efficiency and margin management to support improvement in bottom line performance. With that process now complete, our commercial excellence focus is on sales force effectiveness. We have introduced a global program which incorporates:
- Best practice tools and processes for relevant go-to-market models
- Sales force training for both the front line sales force and first line managers
- Customer relationship management (CRM) processes
- Customer satisfaction measurement (including Net Promoter Score metric) and corresponding improvement action planning
A winning sales and marketing organization is being developed which aims to better serve our customers through strong relationships. In addition, we are continuously building the competencies of our sales organization. In 2016 alone, we reached more than 1,000 employees with our training programs – Selling Essentials and First Line Sales Management. Selling Essentials teaches basic consultative selling skills, covering our new sales process. First Line Sales Management focuses on the Performance Coatings strategy, market segment planning, the use of our resource planner, coaching and performance management.
We are continuously identifying best practices to improve our go-to-market models, bringing us closer to our customers in all segments. We have launched a new Customer Relationship Management tool and way of working called OneCRM, involving all businesses in Performance Coatings and training all levels in the organization. Most importantly, we are listening to our customers and collecting their input through our customer satisfaction survey. Via online surveys and telephone interviews, we reached almost 23,000 customers worldwide and across all segments. The input of this survey is a key driver of our business plans and continued collaboration with our customers. Meanwhile, we continue to implement operational and process improvements to help elevate our businesses to world class levels.
Reduce external spend
In recent years, we have seized the opportunities created by implementing annual external spend reduction programs, and by having common raw materials and suppliers. In order to take further advantage of this, we are developing and implementing differentiated commodity strategies to maximize value and reduce risk. For example, for certain high margin impact products, we have prioritized the development of alternative sources, with a special focus on the best sources identified locally in our emerging markets.
Improve our operations
The last few years have seen a reduction in the number of manufacturing plants we operate, from 102 in 2013 to 87 by the end of 2016. Meanwhile, we are optimizing our manufacturing footprint for growth. For example, we invested in a new powder coatings plant in Chengdu, China, and are building a new production facility for powder coatings near Mumbai in India and another in Changzhou, China. A new site supporting all our businesses is being built in Thailand, which will serve as a manufacturing hub for nearby growth markets in South-East Asia, such as Myanmar. Our footprint optimization is helping to drive higher asset utilization, as well as enabling us to shift production closer to our customers.
In addition, we continue to roll out our continuous improvement program, the AkzoNobel Leading Performance System (ALPS). Around half our sites are achieving a high maturity level, resulting in year-on-year operational improvements. Customer service (measured through on-time in-full delivery), remains a key priority, with significant improvements having been delivered to date through the implementation of a consistent approach to sales and operations planning. We also aim to make further improvements with the roll-out of globally consistent quality management processes. As one of our core principles, safety remains a top priority. Our performance further improved in 2016 as we made progress towards zero injuries.
Deliver business-specific innovation plans
Innovation in products, services, processes and tools is fundamental to our success. We are prioritizing innovation around strategic segments. We target those innovations that specifically benefit key customers, either through offering them higher operational efficiency in their business (such as a higher production rate through product design or application process), or additional benefits in terms of sensory perception, substrate protection and coating functionality. When developing these innovations, we harness new technologies and address global trends such as digitization, connectivity, sustainability, climate change and scarcity of natural resources.
Vehicle body shops can now cut their energy costs thanks to new ultraviolet clear coat technology developed by AkzoNobel. The technology, which is available in both Sikkens and Lesonal brands, cuts drying time to just 12 minutes without baking – enabling body shops to cut energy costs in the clearcoat drying process by up to 80 percent.
Where appropriate, we also carry out research and development work across the Business Area and across AkzoNobel. For example, we are seeing increased opportunities for innovations that take advantage of digitization, including digital tools such as Mixit (an online application for reliable vehicle refinish color retrieval), and the Interpon customer app (an online application for powder coatings customers). For this type of digital innovation, we build on successful platforms that have already been developed and are being used by our Decorative Paints business. There are also many cases where the specific areas for innovation differ, depending on the customer segment. In these instances, we develop tailored solutions.
- Intercept 8500 LPP and Intersleek 1000 next generation fouling control technologies, which deliver sustainable, enhanced vessel performance
- Our Aquasilk water-based wood coating, designed to help the Chinese furniture industry transition from solvent-based systems
- Further development of our award-winning Intertrac Vision digital tool, which predicts hull performance and enables ship owners to control costs by making informed choices about the coatings technology they use
- Next generation Chartek technology, offering jet fire resistance and passive fire protection for structural steel
- New UV clear coat technology, which enables car repair body shops to cut their energy costs by up to 80 percent
- The Intergard 250g/ltr primer range of protective coatings, which have a higher volume of solids and help customers increase productivity by using less paint and reducing waste
- Our new Autocoat BT topcoat color platform for the commercial vehicles segment
- High performance products for the huge Yamal LNG project, located inside Russia’s Arctic Circle, which will provide protection in some of the planet’s harshest conditions
- A mobile app version of our boat paint guide to support IT savvy do-it-yourself customers with painting their boats
- Bisphenol-free spray coatings for protecting the inside of beverage cans
- Sustainable linings for underground storage tanks
- A new digital Bonding Process Manager system which helps customers in the structural wood segment to improve production efficiencies
Looking ahead, we intend to continue strengthening our innovation portfolio with a focus on sustainable and digital solutions. We also aim to build on the newly acquired technologies from BASF’s Industrial Coatings business, and continue to monitor global trends and collaborate with our customers to drive our innovation agenda.
This is a key profitability measure and is calculated as EBIT as a percentage of revenue.
This is a key profitability measure and is calculated as EBIT as a percentage of average invested capital.
AkzoNobel Leading Performance System.