deutsche bank analyst meeting… · text bk l2 hyper f. hyper text d2 text l2 agenda main agenda...

Deutsche Bank analyst meeting

March 6th 2014, Shanghai

Deutsche Bank Analyst Meeting Shanghai

Jonathan Atack – Netherlands

Lin Liangqi – China

Introduction and welcome

2


1. AkzoNobel China overview

Lin Liangqi

2. China growth strategy

Lin Liangqi

3. Business Area introduction - Decorative Paintings

Lin Liangqi

Business Area introduction – Performance Coatings

Ethan Hou

Business Area introduction – Specialty Chemicals

Paul Radlinski

4. Q&A

Lin Liangqi

Ethan Hou

Paul Radlinski

Jonathan Atack

Felix Jiang

Helenna Han

Agenda

3

AkzoNobel China Overview Lin Liangqi

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AkzoNobel today

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• Revenue €14.6 billion

• 49,560 employees

• 44% of revenue from high growth markets

• Major producer of Paints, Coatings and

Specialty Chemicals

• Leadership positions in many markets

43%

33%

24% Performance Coatings

Decorative Paints

Specialty Chemicals

38%

28%

34%

Revenue by

Business Area

Operating income

by Business Area

6.6%

Return on sales

(operating income/revenue)


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6 Deutsche Bank Analyst Meeting Shanghai

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

% of 2013 revenue

38%

Mature Europe

25%

Asia Pacific*

3%

Other regions

11%

Latin America

15%

North America 8%

Emerging Europe

* Relative growth offset by the sale of Chemicals Pakistan and adverse currency movements


32%

46%

22%

Decorative Paints

Performance Coatings

Specialty Chemicals

Revenue by Business Area

%

AkzoNobel China: Key facts 2013

2013

• Revenue: €1.64 billion

• Capital expenditures: €104 million

• A leader in sustainability

• Number of employees: ~ 7400

Current AkzoNobel footprint in China with a history and future

Decorative Paints 装饰漆

Performance Coatings 高性能涂料

Specialty Chemicals 专业化学品

Guangzhou广州

Dongguan 东莞

Suzhou 苏州 Shanghai 上海

Langfang 廊坊

Beijing 北京

Shenzhen 深圳

Ningbo 宁波

Jiaxing 嘉兴

Tianjin 天津

Chengdu 成都

Taixing 泰兴

Wuhan 武汉

Changzhou 常州

Boxing 博兴

8

• China contributed to 11% of the

global revenue in 2013 (€ 1.643

million)

• 15% of AkzoNobel global

employees are hired in China

(7,400 employees)

• 25 sites in operation

• 3 sites being built


Products and brands

* Of which one being built: Chengdu (DP), Changzhou (A&AC), Dicumyl peroxide Ningbo (FC)

** Ningbo counted as 1 9 Deutsche Bank Analyst Meeting Shanghai

Business Area Business Units Sub-Business Units

# of

sites**

Market

position

Product & brand

logos

Decorative

Paints Deco China N/A 4* 2

Performance

Coatings

Automotive &

Aerospace Coatings

Car Refinishes, Aerospace Coatings,

Specialty Finishes 2* 2

Industrial Coatings Coil Coatings, Packaging Coatings, Wood

Finishes & Adhesives 4 1

Marine & Protective

Coatings

Marine Coatings, Protective Coatings,

Yacht Coatings 2 2

Powder Coatings Interpon, Resicoat 6 1

Specialty

Chemicals

Functional

Chemicals

Performance Additives, Organic

Peroxides, Sulphur Derivatives, Chelates

& Micronutrients, Organometallic

Specialties

6* 1/2

Industrial Chemicals MCA 1 1

Pulp & Paper

Chemicals N/A 2 3

Surface Chemistry Personal Care, Surfactants 1 1

China growth strategy Lin Liangqi


Building AkzoNobel as a leading painting, coating & chemicals brand with leading performance in China


Care for the customer

Reduction of complexity

Cash and return on investment

Embedded safety and sustainability

Diverse and inclusive talent development

• End-user segmentation analysis

• Key accounts management

• Cross BUs initiatives

• Attract and build up talent pool

• Talent development

• Shared Service Centers (Finance & HR)

• Centralization of execution (Treasury)

• Optimize country capital structure (Tax)

• Behavior and Process Based Safety

• ISC / HSE Faculty

BA introduction - Decorative Paints Lin Liangqi


The market for Decorative Paints in China measures some €4.1 billion

13 Deutsche Bank Analyst Meeting Shanghai * Small-scale outlets selling to both consumers and professionals ** Larger -scale, ‘big box’ retailers, more consumer-oriented

• Established in 1990 as a JV with Swire Pacific (AN share 70%) for China paints

• 12.8% sales growth compared to 2012

• 1,885 Employees

• High profitability with negative OWC

• 4 factories (3 in China and 1 in Taiwan)

• Leading business in Hong Kong & Taiwan

• Strong Dulux Brand

25%

29% 18%

28% Premium

Mass

Economy

Woodcare &Others

Revenue by segment – Mainland China

69%

4%

6%

21% Traditional

Modern

Professional

Project

Revenue by channel – Mainland China

The market for Decorative Paints in China measures some €4.1 billion


2013 China Decorative Paints market

€ millions

2102

572

1195

Project

Retail Woodcare

Retail Emulsion

• Strong project market driven by infrastructure

investment and affordable house expansion plan

• Retail market is experiencing a continuing low

climate owing to real-estate macro control policy

• Project market: 51%

• Retail market: 49%

We are focusing our investment on fewer, bigger, more powerful brands


• We are continuing to rationalize our brand portfolio to reduce complexity

• We have one major brand for each end user segment that cuts across the main product categories

Paint

generalist Woodcare Pre-Deco Other specialist

Consumer – Super premium to Mass

(Traditional & Modern channels)

Contractor / Painter

(Professional channel)

B2B – Super premium to Mass

(Project channel)

16

We have aligned business strategies with the company strategy

China Decorative Paints vision:

A strong leader in China

decorative paints with

“winning performance”

and “adding colour to

peoples’ lives”


We will inspire our consumers to renew


We will become the market leader in redecoration in both consumer

and B2B markets, educating the market and delivering share growth

through tailored repainting solutions

To do this we will:

• Grow the market & shorten repainting frequency through powerful &

inspiring communication aimed at educating & inspiring consumers

(category growth stimulation)

• Lock in those considering redecoration through targeted BTL activity

and by providing hassle free, fast and reliable painting service through

the Easy Paint Service (Brand stimulation)

• Develop differentiated products and ranges designed for the

redecoration market

This will all be developed through the Dulux & Dulux Pro Brands

We aggressively grow in the project channel


• 2013 PJ channel achieved circa 11% growth

• We will be the leading professional solution partner to our customers

• We will drive business through:

− Developing the new residential market

− Expanding Key Accounts

− Innovation

− Superior service

− Operational Excellence

• Fast growing and profitable texture business,

34% growth compared to 2012

• Revenue from key account has increased

~17% compared to 2012

2012 2013TextureHPCEmulsion

Revenue by segment

RMB millions

280

595

Traditional trade & project channel

Key accounts

Revenue by customer type

RMB millions

Sustained profitable growth

Service level commitment

Organization capability

11% growth

The mass market is the dominant segment in China, with 41% of total value


Market potential:

• The mass segment makes slightly more

contribution in terms of share of our revenue

relative to its share of the overall market

• The mass market is the fastest growing

segment

2013 key initiatives:

• Channel expansion (numeric coverage in key

mass cities improved from 52% to 55%)

• Focus on hero platform “Guardian”

• Launch KA program for selected mass dealers 29% 34%

41%

47%

30% 20%

Market AkzoNobel

Economy Mass Premium

Revenue per product segment*

%

€ 4090 million

* Total market size includes both urban and rural markets and both retail and project channels

We have extensive geographic coverage across regions and city tiers


City coverage

% revenue by city class

32%

33%

27%

8%

Class A (13 cities) Class B (61 cities)

Class C (232 cities) Class D (379 cities)

• Expansive controlled distribution model covering

Class A to D cities (685 cities)

• We are now driving further efficiency in our

distribution

• New plant in Chengdu to support growth

• Regional headquarters in each of China’s four

main regions

• Highest growth in China is expected in the West,

where we are increasing our capacity and

investing in distribution and talent

Geographic coverage

In summary


With great brand awareness and an extended distribution network,

AkzoNobel is well positioned for accelerated growth & further share gain

• Balanced business portfolio & well positioned to deal with market uncertainty

• Clear focus on key opportunities & growth areas

• Continued investment necessary in supply chain, brand & people

• Balanced growth ambitions in the context of economic cycle

BA introduction - Performance Coatings Ethan Hou


Business Unit: Powder Coatings (PC)



China Powder Coatings facts

• We are the leading supplier of powder coatings in China

• We have 1250 employees in China

• We manufacture in 6 factories, geographically located throughout

China

• We operate a dedicated RD&I center in China, and employ more

than 100 chemists and technicians

• Powder coatings are solvent-free paints applied to metal and other

conductive surfaces; Low energy technology is becoming important

• We supply nine key market sectors – appliance, architectural,

automotive, agricultural and construction equipment, functional,

furniture, general industry, general trade coaters and IT – with our

global brands Interpon® and Resicoat®

PC China market share (based on volume)


Market share distribution*

%

*Total market size is approximately 100.000 tons

82%

3%

3%

6% All Others

Axalta

Aiyue

AkzoNobel

Wan'An

Meijia

Nippon

Qingtian

PC key priorities in China


• Use Segment Approach to drive growth in desired segments and to

pursue new markets

• Promote our Industry leading Technology Advantage and our

Approval portfolio

• Drive Operational Excellence by embedding continuous

improvement process and leveraging our scale

• Create a fast-paced stimulating environment that fosters individual

growth & excellence

Business Unit: Aerospace & Automotive Coatings (A&AC)


A&AC China Overview


Revenue by segment

%

* Suzhou factory

41%

16%

22%

18%

3%

Car Refinishes

Commercial Vehicle

Trade

Automotive plasticcoatings

Business supply unit*

Aerospace Coatings

• China A&AC portfolio Car Refinishes (Vehicle

Refinishes premium segment), Trade(Vehicle

Refinishes med segment), Commercial Vehicle,

Automotive Plastic Coatings, Aerospace Coatings

and Business Supply Unit

• Vehicle Refinishes-Premium:

number 1 position

• Trade: number 2 position

• Automotive Plastic Coatings:

number 6 position

• Aerospace Coatings:

number 1 position

A&AC: Market Environment


• China is already one of the biggest automotive market in the

world

• Market size of auto refinishes in China is estimated $400

millions (excluding Commercial Vehicle business)

• Over 200 auto refinishes producers, with 21% players

occupying about 73% of total refinishes market

• 85% domestic production, 15% imported

• All top automotive coating companies are trying to consolidate

and/or build up a market position

• No official VOC regulation in China yet, the level of discussion

for the need is increasing

• Expansion of OEM body shops move to tier 3&4 cities, inland

away from coastal regions

• Key market players: AkzoNobel, PPG, Axalta (Dupont), Strong,

Prime, Planet, etc

A&AC: Changzhou new site


• The site is 166,266 square meter

with an investment of RMB 560M

• Production ability of 25,000 ton in Stage 1

− Premium products

− Trade products

− APC products

− Aero products

• Production ability can be expanded in

the future

317 280

21

Automotive

ConsumerElectronics

Lifestyle


AkzoNobel

PPG

Beckers

Mankiewicz

Peter Lacke

Axalta

Others

Market size in China by segment*

€ million

Competitive landscape Asia*

%

Sub-Business Unit Specialty Finishes (SF): segments in China

• Total market size 2013: ~ € 618 million

− Consumer Electronics: ~ € 280 million

− Automotive: ~ € 225/92 million (interior/exterior)

− Lifestyle: ~€ 21 million

• CAGR 2014-2018:

− Consumer Electronics: 4%

− Automotive: 15%

• Competition varies significantly between sub

segments

• SF has a leading position in CE and Automotive

Interior, lags behind in Automotive Exterior

• All segments are highly fragmented with different

small and Global coatings suppliers

* AkzoNobel estimates

SF: Growth drivers China


Automotive

• Largest auto market in the world (19.6 mm

units produced and sold in 2013)

• Forecast to grow 10-15% per year for the next

5 years

Consumer Electronics

• Wireless:

− Shift from feature phones to smart phones

− Increasingly fast development of new models

− Asia biggest market for Smart phones. -

Total subscriptions to triple in the next 4

years (1.1 billion to 3.3 billion)

− China is still the largest producer of the

devices with Vietnam and India rising in

production

• IT

− Flat Sales

− China is still the production hub

Business Unit: Marine & Protective Coatings (M&PC)



New Building

%

Maintenance and Repair

%

M&PC: China Marine Market

AkzoNobel

COSCO Jotun

Chugoku

Hempel

Sigma

Others

Market comments:

• Total marine market value in China is around

€600M (New Building - €540M, M&R – €60M)

AkzoNobel market share is around 25%

• New building (NB): China remains global No.1,

However the NB market will soften due to global

oversupply

• M&R: Chinese fleet is growing rapidly and will

have 150 million DWT by end 2014 (133M by end

2012)

AkzoNobel Strength:

• Technology Pipeline

• Global network

• Engagement with Government and Shipbuilding

Industry on Sustainability and Legislation

• Highly trained Technical Support on the ground

• Market leader in higher technology vessels,

specifically LNG.

AkzoNobel

COSCO Jotun

Chugoku

Hempel

Sigma

Others

CGT Output 2013 estimated Deep Sea Dry Docking Allocation

M&PC: China Protective Coatings Market


AkzoNobel Protective Coatings


• 1 mega manufacturing site in China

• Local and foreign management & specialist team

Our competitive advantages:

• Leading performance products

• Brand reputation

• Quality and service

• Global network and global product range

• Well-managed on-site technical service and support

AkzoNobel Competitors in Protective Coatings


• 20 MNC /foreign brand has less than 20% market share

• 50 big and medium sized local and hundreds of smaller

local competitors (80% market share)

Market M Lt

Building and Infrastructure 280

Transport 90

Consumer 10

Industrial 300

Total 680

Business Unit: Industrial Coatings (IC)



Revenue by product

%

Revenue by geography

%

IC: sBU Packaging Coatings China key facts

40%

27%

24%

9% 2 Piece beverage

3 Piece beverage

Beverage ends

Food, cap &closure, generalline

2013

• No. 2 volume and value share in the market

• Manufacturing sites in Shanghai, Jiashan, Guangzhou and Taiwan

• Second polymer reactor in Songjiang to be commercialized

18%

37% 7%

31%

7% North

East

Central

South

Southwest

IC: China Extrusion Coatings Market


China extrusions coatings market

%

*Total market size is approximately 100.000 tons

** Suzhou factory

AkzoNobel PPG KFCC

KGE 6Nippon DGL

FKK Valspar Other

• Market size 1169 million RMB

• 50% of the market in the South

• 6 major players accounted for 80% of the market

• Only one major product family - PVDF

• Local player KFCC, KGE exist only for 3-5 years

but captured the market very quickly

• 17% top tier market, 69% mid tier and 14% low tier

• AkzoNobel only sells to top tier market

• Stake holders in the value chain:

− Developers

− Architects

− Consultants

− Curtain wall specialist

− Profile extruder

− Flat sheet panel maker

IC: China Coil Coatings Market


China coil coatings market

% AkzoNobel

Nippon

Beckers

KCC

Rainbow

Zhenhua

Other

• Coil coaters who produce coated steel suitable for

construction end use, i.e. roofing, siding, doors

and gutters of factory or commercial buildings,

airports, monumental buildings and domestic

appliance.

• Market size 3475 million RMB. 40% of the market

in the East China (Shanghai, Jiangsu and

Zhejiang) and 30% in North China (Shandong,

Hebei & Tianjin) and the remainder rest of China.

• Estimated to be more than 350 coil coating lines

running at less than 40% capacity.

• Local players dominated more than 60% of market

share supplying low end polyester and epoxy

based coatings.

• Major product family; polyester, epoxy,

polyurethane, silicone-modified polyester and

PVDF.

• 10% top tier market, 60% mid tier and 30% low

tier

• AkzoNobel has strong presence in the top and

mid-tier segment.

• Stake holders in the value chain:

− Steel manufacturer

− Steel importer and exporter

− Local distributor

IC: China Wood Finishes market


Export furniture market share

%

AkzoNobel

Valspar/Huarun

Sherwin Williams

Taiho

Locals

• Three plants in China, Donguan, Tianjin and

Jiashan.

• Historically focused on premium export market

• Strategy have been shifting to the domestic market

in China

• Topline customers e.g. Markor, Ikea, Homestar,

Larqucraft

BA Introduction - Specialty Chemicals Paul Radlinski


Business Unit: Functional Chemicals (FC)



2013 revenue by sub Business Unit

%

5%

36%

43%

6%

9%

Organomettallic Specialties

Organic Peroxides

Ethylene Amines

Chelates & Micronutrients

Sulphur Derivatives

Salt Specialties

Performance Additives

Functional Chemicals in China

• All 7 sub Business Units active in China

• Approximately 950 employees

• 4 manufacturing locations

• Cost leadership position and technology

advantages over local competitors


FC: China growth focus and investments

• Chelates & Micronutrients

sBU global HQ moved to Shanghai (August 2008)

• Performance Additives

start up production RPP plant in Songjiang (November 2008)

• Chelates & Ethylene Amines Ningbo start up in December 2009 (Chelates)

and September 2010 (Ethylene Amines)

• Ningbo inauguration (November 2010)

• Performance Additives (Bermocoll)

Ningbo ground breaking ceremony (October, 2011)

• Ningbo DCP relocation announcement (Nov, 2011)

• Ningbo Organic Peroxides multi-purpose plant

start up production (Jan, 2012)


• Ningbo Service Unit: extension waste water

treatment (Feb, 2012)

• Performance Additives (Bermocoll) Ningbo

start up (mid 2013). Inauguration September 24.

• Feasibility studies for expansion of site utilities

and relocation of part of Deventer NL organic

peroxide production to Ningbo

FC: China growth focus and investments

Ningbo site



• AkzoNobel’s largest ever one-site investment at one moment, inaugurated in

November 2010

• Located in the Ningbo Chemical Industrial Zone,

occupying a 50-hectare plot

• 400 employees (as of 2013)

• Total investment of just under €400 million (as of March, 2013)

• Accommodate 4 plants, Chelates and micronutrients, EA/EO,

Organic peroxides and cellulose derivatives

• Space available for additional production units

• One of the biggest multi-sites of AkzoNobel in the world

AkzoNobel Ningbo multi-site

Ningbo update


Plant Capital Expenditure* Status Utilization 2013

Infrastructure and waste water 47 complete

Chelates 65 complete 70-75%

Ethylene Amines 145 complete 80-85%

Organic Peroxides 17 complete 80-85%

Bermocoll 54 2013 start-up

OP-DCP 45 2015 ----

Total 370

Planned: waste water extension, SC ethoxylation

* Millions of euro

Business Unit: Surface Chemistry (SC)


Surface Chemistry: Boxing


• Global leader supplier of

specialty surfactants

• Product and application

knowhow

• Expertise and experience

as solutions provider

• Portfolio of new,

innovative, eco-premium

technologies

• State of the art

manufacturing technology

• Leadership position in

China and Asia

• Expertise in fatty acids,

amines, glycerin, amines

and derivatives

• Ester-amines and ester-

quats facility

• Strong local

manufacturing operation

in the region

Boxing Surface Chemistry AkzoNobel

• Uniquely positioned to

provide local customers

with customized solutions

to meet their specific

needs

• Broader portfolio of

sustainable products and

technologies

• Superior process and

production capabilities at

Shandong site

50

Integration finalized and synergies will boost new product introductions to the Asian

marketplace and ultimately the progress of local customers


SC: Strengthening our growing surfactant business in Asia

• Strengthens our global leadership position in specialty surfactants, with #1 position and 500 employees

in China

• Reinforces our commitment to our customers by providing local production and minimal reliance on

western imports

• With a third of the Asian demand for amines coming from China alone, Asia will grow to 25% of the

business

• Reemphasizes our focus on bringing innovative products and solutions to local mid-tier markets

Business Unit: Industrial Chemicals



IC: Leading position in high growth market

• Expansion Taixing from 60,000 to 100,000 tons has

been finished, it has been running flat out since

day one

• Lowest cost producer

• Scale and technology advantage

2013 market per region

%

25%

66%

9%

Yangtze delta

North China

The rest of China

265 338 363

435 464 491 520 553 588

2009 2010 2011 2012 2013 2014 2015 2016 2017

MCA market size China

kT/yr

• Annual growth for last 13 years: > 12%

• Expected growth rate 2014-2017: 6%

Map in AN

colors

Swap graphs

above below

and below

above

Business Unit: Pulp & Performance Chemicals (P&PC)


P&PC: Market share in China


Market share

%

AkzoNobel

BASF

Nalco

Kemira

Local others

Eka Suzhou plant:

Total area: 40,000 square meters

Employees: 88 employees

Eka Guangzhou plant

Total area: 20,035 square meters

Employees: Total is 34 employees

Summary


AkzoNobel has a long term commitment to China

• Well established and profitable

• Long history

• In line with our other strong positions in high growth markets

We have a broad range of activities

• Most BUs are represented

• They have leading market positions

• We benefit from scale and efficiencies

AkzoNobel is well placed to capture growth

• Continuing investment in Inland China (eg Deco/Powder/A&AC)

• Innovation

• Competitive positioning

Our business is diverse and resilient

• Addressing a wide variety of end consumer markets

56

Q&A China Management Team

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Agenda main 2nd

Safe Harbor Statement


This presentation contains statements which address such key issues as

AkzoNobel’s growth strategy, future financial results, market positions, product development, products in

the pipeline, and product approvals. Such statements should be carefully considered, and it should be

understood that many factors could cause forecasted and actual results to differ from these statements.

These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw

material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative,

fiscal, and other regulatory measures. Stated competitive positions are based on management estimates

supported by information provided by specialized external agencies. For a more comprehensive discussion

of the risk factors affecting our business please see our latest Annual Report, a copy of which can be found

on the company’s corporate website www.akzonobel.com.

58

http://www.akzonobel.com/

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