Well positioned for a sustainable future

Case study: Marine & Protective Coatings

Case study: Functional Chemicals

Case study: Car Refinishes

New Akzo Nobel: a leading coatings and specialty chemicals company

Akzo Nobel is fit for the future and on course to create one of the world’s leading industrial companies. We have a strong portfolio of businesses in attractive growth markets. Our Chemicals business has been restructured into a highly profitable portfolio. ROI, calculated on an internal basis, increased by 4 percent, from 18 percent to 22 percent in the period 2004 through 2007. In that time, the EBITDA-margin – calculated excluding incidentals – increased 2 percent to 17 percent.

We are currently transforming our Coatings activities into the world’s leading Coatings business with a global market share of 14 percent. The Akzo Nobel-ICI combination gives global presence and a complementary fit across regions, markets and brands. The net present value of the synergies of the ICI integration is estimated at EUR 2.5 billion. In addition to this, we have plans in place to build a unique industrial brand.

The new-look company will be the global leader in coatings and specialty chemicals and will have a strong presence on all continents.

While we are taking a transformational step, we remain committed to financial discipline, continue to create medium-term value for our shareholders, will deliver on sustainability and will actively anticipate changes in the world in which we operate.

Strong fit between Akzo Nobel and ICI sustainability capabilities

Akzo Nobel and ICI have concluded that the new company will benefit from our combined sustainability capabilities. An analysis on HSE and sustainability aspects was part of the acquisition.

The conclusions of the first assessments are:

• Sustainability is an integral part of business strategy and operations
• The focus is on embedding sustainability in the value chain
• A wide range of sustainable solutions for customers has already been developed
• The Akzo Nobel-ICI carbon footprint is the lowest of its peer group
• Both companies have been included in leading sustainability indices.

Full integration of sustainability strategy, organization, monitoring systems and reporting will be realized in 2008.

Creating sustainable value: a strategic necessity

As global GDP will continue to grow, with double digit growth in emerging markets, the necessity to deal with an increasing scarcity of natural resources and to contribute to a low carbon future has become ever more apparent. In addition to these global trends, our customers are increasingly looking for suppliers who can deliver eco-efficient solutions. Competitively priced products with top performance, a positive impact on their operational efficiency and a superior ecological profile. Companies with distinctive capabilities to create eco-efficient sustainable value will be the winners in the ever more demanding global market place.

As a result, we are challenged to create value for our shareholders and society at large while reducing significantly environmental impact. Across this report, selected cases illustrate how our businesses in Coatings and Chemicals are creating sustainable value through top line growth, capital efficiency and operational efficiency.

Emerging markets focal point for accelerating growth

With low per capita consumption of paint, chemicals, plastics and paper, emerging markets are our focal point for future growth. Building on current market shares from 20-25 percent, we have set ambitious targets to accelerate significantly our growth in emerging economies. The average per household spent on paint and coatings annualy is USD 10 in India and USD 20 in China versus USD 130 and USD 170 in Europe and the U.S. respectively. Whereas Akzo Nobel already has strong positions in industrial coatings in emerging markets, ICI has a high market share in emerging markets for decorative coatings. The combination of high growth potential and strong market positions makes emerging countries such as Brazil, China, India and Turkey very attractive markets for Akzo Nobel. We are further expanding our capital base and workforce in these markets.

Expanding capital base

• Ningbo (Chemicals)
• Guangdong (Industrial Finishes)
• Moscow (Powder Coatings)
• Brazil (Pulp & Paper Chemicals)
• Tiaxing (Functional Chemicals)
• Delfzijl (Base Chemicals, Functional Chemicals)

Investment level 2008-2010 10 to 20 percent above depreciation.

New regulations

The partnership’s advice to Chinese shipyards has taken the form of a free consultancy or “gap analysis”. It compares existing processes for coating a ship’s water ballast tanks with those that will be required under the new PSPC regulations adopted in 2006 by the International Maritime Organization (IMO). The marine industry looks to increase vessel safety and lifecycle by preventing corrosion, which targets extending the coating lifecycle of vessels to 15 years. The main objective is to help the shipyard understand that the PSPC regulation needs to be taken into consideration not only by the paint department but also by all departments involved in vessel production.

Strengthening presence

In Korea, many shipyards have already begun accepting PSPC-compliant contracts for new vessels. China’s shipbuilding industry is growing and International Paint has ensured that this new method of introducing customers to PSPC is the best way to share important legislative and product information. By bringing solutions and advice to the shipyards directly, International Paint is positively strengthening its presence in emerging markets, enhanced via the partnership with Lloyd’s Register. International Paint’s initiative is proof that environmental and regulatory concerns can have a positive effect, not only on shipbuilding, but also on building sustainable relationships.

Market conditions

More than 80 percent of chelating agents produced are used in the detergent industry, as binding agents in applications which frequently involve everyday human contact. Detergent formulators are looking to improve the environmental profile of their products and, increasingly, are coming under pressure to demonstrate that all detergent ingredients, such as chelating agents, present no risk to people or the environment.

Creating sustainable value

One of the most commonly used chelating agents is
ethylene-diamine tetra-acetic acid (EDTA). A dedicated business development team coordinated the technical and commercial development of Dissolvine® GL. Its basic ingredient, GLDA, is a biodegradable alternative to EDTA. It differs from other potential replacements, because it is based on a natural amino acid raw material and possesses strong chelating power and unusual physical chemical properties. Dissolvine® GL is safer for people to use, ecologically superior and possesses significant business potential.

As a whole, Dissolvine® GL can be defined as a sustainable value proposition: a product which combines added value with a brighter, environmentally-friendly future.

Applications in key segments

• For automatic dishwashing detergents, a special low NTA grade of GLDA has been developed which functions as a calcium remover and works as a replacement for phosphates
• For automotive cleaning detergents, GLDA functions as a remover of calcium scale and dirt build-up and works as a replacement for NTA
• For the dairy industry, GLDA is a substitute for EDTA. It functions as a remover of calcium scales in yoghurt and milk processing plants.

Dissolvine® GL: a sustainable value proposition for key stakeholders

Car Refinishes is well aware of the shifting expectations of its customer base. The market has moved from independent bodyshops to international repair networks selected by insurance companies. The modern customer requires a high performance, environmentally-friendly clearcoat which enhances the quality of the finish.

Anticipating change on a worldwide scale

In recent years, Sikkens® Car Refinishes’ premium brand – has focused on reducing volatile organic compounds. The development of Sikkens Autoclear® UV and Autoclear® LV Superior is part of a strategy to promote the use of waterborne base coats not only in Europe – where tighter environmental regulations make it an absolute necessity – but also in North America and Asia, where current regulations are generally less strict (but certain to become stricter), and where overcoming customer skepticism about waterborne basecoats has proved challenging. In fact, by the end of this year, all users in Western Europe will have changed to waterborne basecoats. With the U.S. and Canada now embarking on the path to change as well – 60 percent of car refinishers will have converted to waterborne by 2010 – Sikkens® has given itself the opportunity to promote its entire product range and increase its market share by taking a pro-active approach to more environmentally-friendly products.

Sikkens Autoclear® UV – the leading light in an innovative range

The emergence of new key customers such as large insurance companies is playing a significant role in how products are developed. Sikkens Autoclear® UV is a breakthrough product based on the use of ultraviolet light to cure the paint in as little as six minutes (versus 30 minutes for conventional clearcoats) with just a fraction of the energy required for traditional systems. Not only is this innovative product cleaner and safer, but it also reduces the amount of material required for adequate coverage by about half and increases efficiency on the shop floor.

Sikkens Autoclear® UV is proving to be a real door opener for customers looking for quality, efficiency, and environmentally-friendly products, and who view Akzo Nobel Car Refinishes as a leader in providing innovative solutions.

Sikkens Autoclear® LV Superior – outperforms competition

While Sikkens Autoclear® LV Superior is not quite as revolutionary as Autoclear® UV, it is nonetheless a giant step forward in conventional clearcoats. This “second-generation” clearcoat meets the most stringent environmental standards, and far outpaces competitive products in terms of ease of application, system speed and drying times, material required, and the quality of the finish.

Clear savings, added value

What Sikkens® has shown with these two products is that investments in technologies that are good for the environment can also find acceptance in the marketplace – even when the prices are higher than competitors are charging for their less advanced products. Sikkens® has made its reputation as a premium brand, and these two additions to its line only enhance that reputation. Large customers looking to reduce production costs and increase efficiency understand that the advantages justify higher product costs. Clearly, with these two products, Akzo Nobel Car Refinishes has assumed pole position in the contest to deliver on quality and environmental friendliness in the car refinishes business.