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AkzoNobel Specialty Chemicals

It was a challenging year for AkzoNobel’s Specialty Chemicals businesses. We faced incredible fluctuations in energy and raw material prices, while demand swings and the unstable economic climate made conditions even more testing. However, we coped well with the ever-changing circumstances. This was partly due to the fact that the portfolio showed resilience.

Because not only are we active in a wide range of industries, but we are also spread out across the globe, so that gave us stability. In addition, our margin management program played an important role in helping to offset the energy price hikes, which reached a record high in the first half of the year. Overall, our operational performance ended slightly below 2007. We are, however, well placed to progress with our growth strategy, which is focused on the emerging markets, especially Asia.

A particular area of attention involved our efforts to improve our safety culture – therefore improving our safety performance and making AkzoNobel an even safer place to work. All of our Specialty Chemicals sites have now gone through a BBS (Behavioral Based Safety) process. Safety remains the number one priority throughout the company and while we are improving, we have not yet achieved our targets.

Specialty Chemicals also benefited from the acquisition of ICI. We integrated Elotex, Alco and Personal Care, part of the Specialty Polymers activities from the former ICI, into our organization. These businesses are now part of our Surface Chemistry and Functional Chemicals organizations and the integration process has gone smoothly, creating the right conditions for growth opportunities. The Chemicals Pakistan business and National Starch were also added to our portfolio.

Our plant utilization across the portfolio continued to be high during most of 2008, so in order to meet growing demand for many of our products, a number of capacity expansion plans were approved, many of them in the emerging markets. The most prominent of these were our major projects in China and Brazil, which are making good progress. Construction of the company’s new multi-site in Ningbo began during the year. The Chelates facility is expected to start up in late 2009, followed by the new Ethylene Amines plant in late 2010. Our Pulp and Paper Chemicals facility in Três Lagoas – which will supply the Votorantim Celulose e Papel pulp mill – is expected to start up in early 2009.

We will actively manage our capacity in view of the decline in demand linked to the world economy. Opportunities will also arise, such as the acquisition of German-based chemicals company LII, which was announced in December (and was finalized in early 2009). In addition, during 2008 we made a handful of focused acquisitions in the areas of fatty amines, agro-chemicals, silica sols and organic peroxides.

Hurricane Ike in the US impacted a number of our sites in the south of the country in September 2008, forcing them to be out of action for a number of weeks. Thankfully, none of our employees were hurt, but we had to declare force majeure for a short time. By October, operations were back to normal.

Given the increasing importance of sustainability to all our operations, it was pleasing to remain one of the top performers on the Dow Jones Sustainability Indexes. All our businesses made good progress in areas such as energy efficiency, product innovation, lowering emissions and safety performance. Our commitment to delivering Tomorrow’s Answers Today was also emphasized by the introduction of several exciting new products, such as the Dissolvine MP chelate for the motion picture industry (which was used to process Indian prints of the latest James Bond film), and the Eka Compozil Fx silica sol, which helped one of our customers in China to set a world paper-making speed record.

Cleaner processes and lowering emissions are additional high priorities for us and we are continuing to increase our improvement efforts. A particular area of attention is carbon abatement and carbon capture. But we also have many other examples of how we endeavored to make our operations more sustainable during 2008, such as the installation of a vapor recovery unit at a Surface Chemistry site in Itupeva, Brazil, which is expected to dramatically reduce VOC emissions. Even the unit itself was recycled, having come from a former AkzoNobel site in the UK.

European legislation became more prevalent during the year and was an area which demanded particular attention. Not only did we have to meet the December 1 deadline for registering products under the REACH guidelines, but we also had to consider the implications of the EU’s proposed Emission Trading Scheme. This is a major issue for energy intensive industries and while we fully support the promotion and introduction of greener energy, we also have to ensure that we can provide competitive energy, otherwise European companies will struggle to be successful in the marketplace.

Having coped well with the demanding business environment in 2008, we will continue to look for opportunities to invest and outgrow our markets. The mature markets may offer some possibilities, but here cost efficiency is key. The developing markets, Asia in particular, remain the priority area for growth.

Rob Frohn, Board member responsible for Specialty Chemicals (photo)

Rob Frohn
Board member responsible for
Specialty Chemicals

“We made good   progress in areas   such as energy   efficiency, product   innovation,   lowering emissions   and safety   performance”


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