It proved to be a mixed year for our portfolio, as 2008 was particularly volatile. However, the profitability level for the year remained close to 2007. Raw material pressure, volatile currencies, shifts in demand and setbacks in mature markets did not offset growth in the emerging markets.
The strength of our performance was mainly due to the wide spread of our activities. We are not overly dependent on any particular industry segment, we have a diverse customer base and a truly global distribution of activities. Close to 50 percent of our sales are in emerging markets, and those markets are still growing, so we closed 2008 confident and proud of what we have achieved as a portfolio.
Of course there were challenges and we did feel the impact of the downturn, notably in the wood furniture industry – which is related to a large extent to the US housing market – and in the coil and specialty plastic coatings markets. Escalating raw material prices were a major issue in the first three quarters, with suppliers requesting significant increases. Much of our attention, therefore, was concentrated on managing margins. This was mainly handled in two ways. As a company, we established a far more stringent and professional procurement organization.
For example, spend area managers were appointed who are responsible for key raw material groups. It means we present one face to the supplier and can maximize the scale of AkzoNobel being the biggest coatings company in the world. We have also been working hard to establish longer term key supplier agreements. So as we succeed and our businesses grow, our suppliers grow with us. These focused efforts – along with a continued drive towards better operational efficiency – meant that we were able to maintain margins, despite the tough environment that we are operating in.
A major event during the year was obviously the acquisition of ICI in January. This added the Packaging Coatings business to our portfolio, which has a particularly strong position in the beverage can market. We also added the strong Devoe high performance coatings brand. But in acquiring ICI we gained more than just a business. The transaction resulted in many additional benefits. Our new colleagues brought with them a very efficient working capital program for example, as well as a strong health and safety track record and major investment in research and development in Asia. All of this can be used to our advantage throughout the organization.
Aside from ICI, we did conclude a handful of other deals in 2008, which included acquiring the Enviroline protective coatings business, decorative films company Soliant LLC and the global floor coatings business of Lord Corporation. It was otherwise a relatively quiet year in terms of acquisitions, with our main focus now turning to identifying where we can step up our growth organically. Eastern Europe is certainly one area we are looking at. In 2008, we achieved growth in all areas and we’re also looking to expand our manufacturing footprint in the region.
But it was our continued success in growing our business in Asia, notably China, which proved particularly pleasing. Not just within Performance Coatings, but across the company. Having established ourselves in China in the early 1980s, we are now leaders in marine, protective, industrial and powder coatings. Growth there is still very high, there is more focus on environmental issues and several of our state-of-the-art facilities have been recognized for their HSE performance. Our latest plant, a protective coatings production site, was opened in Suzhou in August and by the end of the year was already running at planned capacity due to the high demand.
This heightened awareness in China for all aspects of sustainable operations is something that can be said of the chemical and coatings industry in general. The focus on our sector is high and we have to work harder than many other industries when it comes to sustainability targets because of this increased attention. It’s partly driven by legislation, but in a world where people are looking at what could happen if we don’t manage our resources well, there’s also an increasingly strong business case for embedding enhanced sustainability into the products and services we offer. For example: using less hazardous materials, reducing emissions to air and water in manufacturing and the application of our products, using less energy. All of them are part of the business plans we are developing and 2008 was full of great examples of our achievements in all these areas.
“We see an increasingly
strong business case for embedding enhanced sustainability into our products and services”
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