Hi, everyone, and welcome to the AkzoNobel Investor Update on Growth & Deliver. My name is Marije, and I'll be your moderator today. Thank you all so much for being here and for taking the time to learn more about AkzoNobel. Now, please note that the presentation slides, as well as a replay of today's event, will be made available on the website, akzonobel.com. Now, let's have a look at what we have in store for you today. We will start with an overview of where the company currently stands, and then we'll zoom in on AkzoNobel's plans for growth. Part of that journey, of course, is the strategy for sustainable innovation. After a 10-minute break, we'll go into the second part of the strategy, and we'll focus on how AkzoNobel will deliver the financial improvements in the coming years.
Next, we're going to have a look at capital allocation, and then we'll take another short break and a recap, and then it's time for the interactive part of today's session, and this is the Q&A where we would like to hear from you. Just a small disclaimer: I would like to draw your attention to the safe harbor statement and the disclaimer. Both apply to this event, including the presentations as well as the Q&A. Now, this is a full program, as you can see, so let me get started by introducing today's speakers. And I think most of you will already be familiar with CEO Thierry Vanlancker, and the CFO, Maarten de Vries. In addition to them, you will also be hearing from Michael Friede, who joined AkzoNobel as Chief Commercial Officer for Performance Coatings last year in July.
Michael joined from Covestro and Bayer, where he worked for 20 years, and most recently, he was responsible for the business unit, Coatings, Adhesives, and Specialties. Now, a person with a long track record at AkzoNobel is Klaas Kruithof. He holds a PhD in organic chemistry from Amsterdam University, and he's been with the company since 1984. He is AkzoNobel's Chief Technology Officer since 2017. Last but not least, I would also like to welcome Karen- Marie Katholm, who joined AkzoNobel last September 2021, as Chief Integrated Supply Chain Officer. Karen-Marie comes from DuPont, where she was the Integrated Operations Leader for DuPont Nutrition and Biosciences. She has over 20 years of experience at various large and international food manufacturers such as Orkla, United Biscuits, and Arla Foods.
I would now like to start things off and invite Thierry to the stage to kick off this event by setting the stage.
Good morning, good afternoon, good evening also from my side, and a very warm welcome to this event. It's about two years ago since we last had an investor update, and that was, in fact, in exactly February 2020, when we were still kidding about a little virus that was detected somewhere and was never going to hit us. So two years later, it's probably appropriate to give you an update on where we are and where we're going with the company. Let's start, like in every good session, from the very beginning, for those who don't know us very well, and then to sketch out where we are on the journey and then dive into the gory details to get you to the bridge on 2023. For those of you who know us somewhat less, we are a EUR 9.6 billion company.
We have about half of our business in Europe, Middle East, Africa, about 30% in Asia, and 20% in the Americas. You can see the data here, and we have about 33,000 proud colleagues in the company. We do believe that we have the strongest brands in the industry, and in fact, you will see that for a company that is 230 years old, we are reinventing ourselves and hopefully to your liking. This is the hard data, but of course, the real heart of the company sits in the purpose statement. We've been chiseling and modifying this over the couple of last years, but frankly, this is where we landed. The purpose for the company, which is an engine, not only just to feel good, but to drive the business, is People. Planet. Paint.
People, obviously, everything to do with how we operate in our communities, everything to do with safety, health, environmental items for our people, but also how we really thrive on diversity, inclusion, and how we manage the talent and our workers. Planet is deep in the DNA of the company. It is using sustainability, again, not as a boundary for what we do, but as basically a driver for getting to stronger results, but more on that later. And of course, paint. The company has a long legacy on inventing many categories over the two centuries that it existed, but we want to be at the forefront to really bring the newest, the highest performing products at the highest quality and with the highest service levels for our customers. People, Planet, Paint is our purpose statement.
It's easy to remember, even for people like myself, but it's really a rallying cry for our organization, really around the world. Where are we in our industry, and what is our industry? The paints market, the paints and coatings market, is about a EUR 140 billion market worldwide.... About half of that market is being occupied by the top 12 companies that you see here. That means that the other EUR 70 billion or so from the market is really taken by literally thousands of companies in all sorts of special corners, decorative, specialty coatings, et cetera, et cetera. So there is a lot of opportunity still for consolidation, but as always, when there are lots of opportunities, it's also how you make the choice and which choices you don't make, that define where you have success and don't have success.
In this whole market, AkzoNobel is the third largest company worldwide, and you've seen what our footprint is, and frankly, has been spending a lot of time on getting the muscles in place to keep thriving and working on the bottom line. The journey from 2017. In 2017, it's probably fair to say that the company was a promising teenager hanging on the couch at home, eating potatoes and drinking beverages, whining about how much talent that was unrecognized, and spending a lot of time explaining why not versus why it could. I think these graphs are pretty self-explanatory. We embarked back then on 15 by 20, by promising to deliver 15% return on sales by our businesses by 2020. Despite a huge curveball that was thrown with the pandemic, we delivered 15 by 20.
And you see how we came here from a couch potato, whining about why the world didn't recognize us, although we did a lot of innovations, to really getting aligned, starting to work on the basics, on processes and systems, and frankly, catching up with the best in our industry. And we didn't do that in the sweatshop fashion. Next to it is our organization health index, that we religiously have been doing every quarter, and where our employees can voluntarily participate in a survey on how they feel, how things are going in the company. If I go back to 2017, 2018, the participation rate was really low, and we scored about 56 in this metric.
Today, 86% of our employees are participating, from a salesperson in Brazil all the way to an operator in China, and the satisfaction score is 72, which is an all-time high for the company, but is also extremely high for a manufacturing industrial company like we are. So 15 by 20 was getting the couch potato teenager out of the sofa, get it him or her in the gym, starting to work out, create muscles, systems, processes, really starting to do the mandates on which segments that we want to be in and where not. Really starting to get serious and really driving ourselves into the front of the group and really being, having the right muscle to perform.
Now we're at 2021, and in fact, as I said, the pandemic, of course, in our industry, has been an enormous rollercoaster from markets that were severely down in 2020, mostly on the Performance Coatings side, to markets that were unexpectedly up, like, for example, in the Decorative market in EMEA, to everything in between, raw materials and excess availability, and then in 2021, all the reverse. Demand coming back, but the raw materials inflation not being available, et cetera. Despite all of that, we landed in 2021 exactly where we hoped and where we wanted to be on our journey to 2023. We landed at EUR 1.44 billion of Adjusted EBITDA, almost the same EBIT number as we had last year, despite having to absorb EUR 770 million of raw material expenses.
But that is on what happened until yesterday. This is all about going to 2023. As you know, we've pledged, just like in fashion of 15 by 20, to go to the next trip of our or next leg of our journey, getting the company to EUR 2 billion adjusted EBITDA in 2023, and also promising 150 basis points increase in our return on sales versus where we were in 2020. And we're going-doing that not by just the muscular gym work as we did on 15 by 20, but really starting to use the body that we have created, really getting in the game, on the field, and to compete with the best, because we think we have some good assets there to do.
So all of our conversation in the next couple of hours is really around how are we going to deliver the 2023 number? And I apologize in advance, we will try to take you into the fine art of paint making, because that's where we feel there is still a lot on the table. Maarten and I have been boring some of you in our one-on-one visits to talk about, well, we're halfway the journey. But exactly, this chart shows we are halfway the journey, and let us now give you a first look at how the rest of the journey looks like. What we will attempt to do in this session is really to bring you the bridge. You know we like bridges, there's a lot of water in the Netherlands. You have to have bridges to get across it.
And by the way, if I would forget it, our CFO is a bridge maniac, so he would actually try to get everything into a bridge that he can get his hands on. From the EUR 1.44 billion to the EUR 2 billion EBITDA, these are the building blocks that we're going to go into much more detail. About EUR 350 million of the bottom line, the EBITDA impact, will come from the growth section. About EUR 200 million will come from the deliver results, really getting under the hood of the car, really starting to see how we can get the self-inflicted complexity and inefficiencies out of the system. A couple of words on the growth segment. If you will research the predicted growth for our markets by companies like Orr & Boss-...
You will find that a compounded average growth rate for our markets is about 8%. You will see throughout the presentation that we've basically taken a haircut on all those numbers and bring it back to 6%. So all the growth, market growth numbers that you will see in the presentation are not taking the Orr & Boss numbers, which add up to 8%, but actually goes to the 6%. And why did we do that? Well, times are always pretty turbulent. A plan that only gets you to the EUR 2 billion, if all goes according to plan, is probably not strong enough. So we took a haircut on those numbers.
Instead of the 8, we brought it back 25% to 6% growth, to really take into account potential issues around inflation, potential pricing elements that we may have to give in, and really bring it back on a conservative case to try to get to the EUR 2 billion. So the big block here, the first big block, is really around the compounded average growth rate. In fact, what we see in our markets, it is on track a bit more with the Orr & Boss numbers, but we still have kept a haircut in place. Of course, the margin initiatives, it's probably broader than pricing initiatives, the margin initiatives to keep working on the margin expansion over the next two years.
Last but not least, in the growth revenue element, there's also the growth in the segments where we're particularly high growth and where we have a particular strong position. So in the next session, we'll walk you through some of these areas with some videos on how we're doing and how we, in fact, are delivering on what we told you in the February 2020 session. On the deliver results part, you'll see an enabler, product management being mentioned, and then all the details around what we're doing in our end-to-end Integrated Supply Chain.
Product management, more on that, of course, later, but product management was only able to be put in place after we put all our ERP systems in place, having our organizations reset a different operating model, getting the capabilities in place, really starting to get track on where we are, and this will be an enormous complexity reduction factor and therefore an enabler for us. With this, we get to EUR 2 billion, and in fact, there is wiggle room over and above it. So there is, of course, an up and a downside. I know what you're going to ask around the downside. Well, if there's a macroeconomic collapse, well, of course, there's no plan that sustains, but we feel very confident on delivering the EUR 2 billion EBITDA going forward. And why do we feel confident?
Because it's fair to say that the whining teenager on the sofa has reinvented him or herself. This is a chart that we are particularly proud of in Amsterdam. If you look how long it took us in the previous raw material inflation cycle to get above the line, so where our price increases were offsetting the raw material increases, it took us almost a year and a half. First of all, it took us a year to wake up, and it took us another six to nine months to frankly get above the line and offset the raw materials. Although back then, the headwind was serious, it was frankly dwarfed by what happened in 2021.
If you now look at that muscle that we have developed on what happened in the Grow & Deliver in 2021, it is fair to say that in our whole industry, that was severely impacted by raw material inflation, we were the first to react, and we were the most principled and the most determined to react. So the new AkzoNobel est arrivé , as they say, for some French wines, that means that within a year, we will be in this quarter on top of our game again and having offset the raw material inflation. A true testimonial on how the AkzoNobel worldwide team has waken up from the sofa in the gym and is now using the muscles in Grow & Deliver to deliver.
Well, thank you very much, Thierry, for starting us off. I would like to invite you to join me here at the table so we can continue to talk a bit more about where AkzoNobel currently stands. Hi, Thierry. Thank you for joining me here at the table.
Hi.
It really looks like AkzoNobel has gone through quite the transformation in the last years, and it's really an impressive improvement of profitability that you showed us. Where would you say, I wonder, is the key cultural change between your earlier plan, 15 by 20, and your current strategy, Grow & Deliver?
I would say, Marie, the biggest difference is, as I try to put in an analogy, is, in fact, the muscle building was in 2015-2020, was around the heavy lifting around cost. It was putting ERP systems in, it was getting processes in place, a lot of capability building, but also capability exchanging. A lot of the heavy lifting. Now, it's. And in fact, I would say we were very, not so much focused on growing the company. It was really on getting ourselves into shape.
Getting the basics, right. Yep.
And now it's really to use those tools to really grow, defend, attack, really being assertive in the market, and at the same time, don't lose the discipline on our internal complexity reduction and hygiene.
Right. And why would you say, Thierry, is this raw material pricing cycle different from previous ones?
Well, first of all, the order of magnitude was completely different on it.
Different, yeah.
I think we were already devastated when it was single-digit increases. Now, we have the more than 30% raw material increase in a year.
Yeah.
For businesses and paints and coatings that are typically around 50% margin, that is a huge shock to go through. So that was a big change-
Yeah
... the speed and the size of which came rolling in. But I think for what AkzoNobel is concerned, I do believe that we surprised friends and enemies, but sometimes also ourselves, on how we really, in a very methodical way, with the data that we now have in hand, have been pushing for a timeline to get at par. So I think that decisiveness is probably the biggest difference.
The key to success.... Okay, thank you very much, Thierry. We'll be hearing from you later on, because I think now would be a good moment to zoom in on AkzoNobel, how AkzoNobel is growing, and how it plans to continue to grow. So Thierry, may I invite you back to the stage to present to us the grow part of the Growth and Deliver strategy?
For those of you who are nearing despair, this is going to be just me talking. There is a relief in sight for all of you. Let me do a short introduction on the first block that you saw, the EUR 350 million delivery to the bottom line, which comes to the growing. So what are we going to do on margin by growing the volumes, but also growing the margins in there? And that's going to be a bit of a tag teaming between myself and Michael Friede, our Chief Commercial Officer for Coatings. Again, maybe good to make sure that we understand where we are in our businesses. And again, I want to point out that all the numbers that you see around the growth are two percentage points lower, and that's on this chart here.
You see the market growth as is indicated by external consultancy, and then you see the next line, which is our adjusted growth rate. So that is what's underpinning our plan. So we have based all of our plans on this reduced number. Again, most of you know this, but just for those of you who want to have a refresher, we have four big parts of the company in coatings. In total, it's about a EUR 6 billion business in coatings. Powder Coatings, where we are clear number one in the market, and frankly, also not only having the right quality, network, impact, but also being driven forward by mega trends that just support it. Michael will walk you through all those details. Industrial Coatings, Wood Coatings, Coil Coatings, packaging, beverage Packaging Coating, there we are a clear number two worldwide.
Markets that are driven by a number of elements, sustainability being a lot of that, product stewardship. You'll hear more around it. But also the fact that a lot of the construction markets around the world are bubbling up. So it's been a relatively good market for us, and we think that's going to stay going forward. Marine and Protective Coatings is the, I would say, the prodigy child in the organization that had a bit of a rough time the last four or five years. Marine and Protective Coatings has extremely strong brands, is a very strong performer, is a very technical business. But in addition, the last four or five years, both the shipbuilding, but also the Protective Coatings related to oil and gas, have been relatively slow markets.
As a result, this business has only been a fraction of the profitability that it used to be in the past. However, we have clear signs that that is changing, and that is extremely good news for us, because that used to be the highest performing business in this portfolio. So we've been doing 15 by 20, with frankly, one of our strongest performers sitting on the bench. Automotive and Specialty Coatings is then there we are number three. As you know, we're not that focused on the automotive industry. This is, of course, vehicle refinish, it's electronics, but also aerospace, and you will see from Michael some of the examples of what we do as exciting businesses there.
Leading positions, but a clear choice on where we want to play and where we don't want to play, and an extremely strong revival in total over the past years. On Decorative Paints, again, the same haircut we took, same downsizing of what the expected growth in the markets is. There, we basically have the three big blocks. There is the Paints EMEA, so Europe, Middle East, Africa. We were a clear number one in that market. Very strong positions in the countries that we are in, a very strong business, and lots of things unlocked in a positive way through the pandemic for that business. Paints Asia, a number three position. There is almost a country-by-country play, very high margin businesses for us.
And in fact, after a clean out we have done in those businesses, until about three years ago, you will see some proof points of how these businesses are really taking off. Again, we're somewhat slowed down by COVID and lockdowns, et cetera, but really clear a lift off in those businesses. And last but not least, Paints Latin America, not going to bore you with the whole stories, but there we are a clear number one, and in fact, very excited by the nearing closing of the Grupo Orbis acquisition that will solidify our number one position. A very adventurous area, specifically if you look at exchange rates, et cetera, but our local team has done a fantastic job to stay ahead of the curve and keep performing.
Talking about performance, in 2020, we said that as of 2021, we were going to grow in line with the markets, and in fact, do 1% more than that. Well, that is exactly what happened organically in 2021. The market data shows that on revenue, the paints and coatings market relevant for us grew 11.9%, and we have grown ourselves exactly 12.9%. So year one out of our three-year journey is a tick in the box on where we are. What you also see on volume, that organically on volume growth, we've been staying in line with the market. Again, I want to remind you, in 2015-2020, volume was really not that important to us. It was getting the company in shape.
In 2021, despite having the lead on pricing, despite everything that we did on our portfolio, we really have been able to keep at par here. Again, this will come up. You will hear us talk about volume, but I want to repeat one more time that in our industry, volume is not the key determinant for us, because sustainability is actually pushing product lines into less volume, but better margin. In fact, powder coatings is a fantastic trend for us, for the bottom line, but it is less volume than liquid, et cetera. So it's a metric that, frankly, we only talk about once every quarter when we talk to our investor base, because that's not how we look at the market. But a fantastic tick in the box for the first, first year of our three-year journey in G row & Deliver...
Lots of the presentation and grow, grow part will be focusing on these growth markets. You may remember that we did something similar two years ago in the February investor update, where we looked at the markets, where we are, the big markets, and where we see a really much more positive growth. So we want to give you an update on this. And I also want to remind you that this is not just a random choice of bubbles on a chart, but that it really reflects the ongoing discipline we have on managing our mandates. As you know, we have really started to look at our business about four years ago as having these performance units, 140 cells that we look at, put them in a growth mandate, put them in a maintain mandate, et cetera.
There's about four different buckets, and this is in fact the result of it. What you'll see is us talking about mostly the blue bubbles out there. Those are the ones that are gonna be growing ahead of the market. Two comments: we were also going to paint EMEA, because it is a big business for us, and it's often, given the pandemic situation, one that triggers questions, so it's probably justified to give you an update. And last but not least, Marine and Protective is a market that we, in fact, pretty enthused about for the next two years. Again, as I said, as it really comes out of hibernation, the market comes out of hibernation, and how we kept our positions to really tap into that growth. But enough introduction part here. Let's go to the session where we really start diving into the segments.
Thank you very much, Thierry. Let me walk you to the next slide here, and let me give you some more insights on the Coatings businesses. Thierry has done a great job already explaining that we run Coatings in four business units, three of them, roughly EUR 1.2 billion and EUR 1.3 billion in top line, and then the largest one, our Industrial Coatings business, with EUR 1.9 billion in top line. You can see the market growth numbers that we have assumed going forward. Again, Thierry pointed out we've taken a haircut on the externally available market forecast numbers. Just wanted to make sure that that is very clear here as well. We have very leading positions in all of those businesses here, as you have seen from Thierry, and we have extremely strong brands as well in the Coatings business units.
What I would like to do is walk you through some of the key growth drivers that will make sure that these coatings businesses will thrive over the next years. Then I will pick some of those blue bubbles you have seen before, the ones that will have extra growth for us, and we'll walk you through them one by one. Now let's move on to the next slide. Here, a couple of growth drivers that really will deliver significant extra growth to our top line here. Starting off, on the left, we have sustainability and the energy transition. All of you know that the sustainability trend is driving a lot of change in the coatings industry.
We see that impacting our powder business clearly, one of the highest growth drivers, low-VOC technology, clearly extremely competitive, total cost of ownership for the ones who apply the powder in their plants, and a lot of handling benefits. We also see our packaging business, as you will see later, benefiting from a trend to move away from plastic bottles, replacing them with aluminum cans. We also see a strong push to our protective business here, especially on the energy transition side, where a lot of new assets are being created that need to be protected by great coatings. Second part of the trend is hybrid working. All of us have been significantly impacted by corona and COVID, and a lot of our lifestyle choices have changed. There's much more hybrid work going on. We see a significant positive uptick in our consumer electronics business.
We also see this impacting the personal choice for transportation. There's a bit higher trend for individualized transportation, and that is benefiting, to a certain degree, what we do in our automotive business as well. Now, moving on to the last large trend. Clearly, we have a huge recovery and rebound going on. Some of our businesses have suffered quite dearly. Aerospace, for example, has seen a significant drop because of air traffic having had come down quite a bit as part of the crisis here, and the same holds true for our marine business, as you've heard for Thierry and a few other components that we have in our portfolio. Now, the good news, there is a clear sign of rebound, and I'll walk you through some of those significant positive trends going forward.
Now, let me take you into the first of the high growth segments that I want to shine some more light on, in detail, and that is the entire powder business. You've heard me say that this, the trend to more sustainable coatings systems is clearly benefiting what we do in powder there. Again, extremely low or no VOC technology. It allows us now to tap into significantly new substrates as well with technology that we have developed to bring down curing temperatures for the powder, so it allows us to move out of just metal or mainly metal into new substrates, like wood or some plastics as well. What you see on the slide here is that we are the clear number one in the market.
We are the market leader, and we are very, very committed to keep that position, and that's why we are tripling our CapEx, our investments into our capabilities as we see significant growth in this business, and we want to make sure that our customers can grow with us. Now, if you move to the bottom part of this chart, you see some of the sub-segments in powder, and you can see that there's a particular segment I want to point out, which is the architectural piece, where we see a lot of conversion from formerly liquid technology to powder. We saw that that started in Europe and in Asia to a certain degree and is now coming into North America more and more, and there's a huge growth potential for us going forward there. All the other segments are also growing.
What I would like to do is give you a bit more detail from our business unit leader, Daniela Vlad, who has prepared a nice video for you. Please roll the film.
We have been growing nicely with powder coatings over the past couple of years. In the future, in the coming years, we will accelerate our growth with future investments. Our customers are looking increasingly for sustainable solutions, and with powder coatings technology, we offer that. Our powder coatings offers them low VOCs, efficiency gains in application, and it protects the objects we coat, gives durability, longevity, strength, longer over the lifetime of objects. Powder coatings offer a clear advantage compared to other alternatives. We have seen over the past years, European markets, Asian markets, converting in construction, in building, for instance, facades of the buildings, converting from liquid technology to powder technologies. Now, we see also North America markets waking up for that. We are constantly innovating to expand the scope for powder coatings for new applications. When you apply powder coatings, you have to heat the surface.
Now, the lower the temperature you heat the surface on, the more applications you can uncover. An example is powder on wood. Traditionally, we would coat metals, but now we can coat also other substrates different than metals, such as wood. Our powder coatings offer customers in the automotive sector battery protection through the properties we offer. An example is powder coatings, which insulates electrically the batteries in the cars. We are investing in innovation, and we are investing in our factories. We have a multi-year CapEx program, which we are executing. An example is the recently opened our new Como factory, which is the largest in the industry and uses the most modern technology available nowadays. My personal wish is to give everybody around the world an opportunity to use a sustainable solution to coat. I would like to coat everything with powder coatings.
Well, thank you very much, Daniela. What an exciting story around powder. Maybe just to wrap it up, we're quite excited also about the opportunity that battery coatings with powder and electric vehicles bring to us. We are now qualified with seven of the largest OEMs on battery-powered vehicles or batteries for those vehicles, and we are quite proud of an IP situation that allows us to now also claim the first patent on an electric engine component that we protect with our powder solutions there. Now, moving on to the next growth bubble from the chart of TRE. I zoom in to a part of our Industrial Coatings business unit, the largest business unit within the coatings businesses.
I would like to talk a bit about Packaging Coatings, which has been a tremendous growth engine for us in the past. You can see the significant blue bars here on the chart. We've been outgrowing our market growth numbers here significantly. We are the clear number one inside cans, and we have also recently worked on the beverage and cans business, and that has delivered a significant extra growth. You see that in that bar chart with a slightly lighter blue color of 3 percentage points just in 2021. Also here, we are very committed to accompany the growth of our customers.
Just in the next 24 months, we expect around 85 new can lines to come on stream because there is such a big market trend to move out of plastic bottles, plastic packaging, into aluminum due to the recyclability. And that aluminum needs to be protected by high-Performance Coatings that also work with the high-speed lines that our customers are operating. And we're very proud of the technology we have there, not just because of the IP situation, but also because we work on constantly pushing the envelope when it comes to sustainability with, for example, our Bisphenol A-free technologies there. All right, enough about the fantastic Packaging Coatings business unit. Let me take you to the next growth area that I would like to talk about, which is our aerospace coatings. You can see here we are the clear number one globally for aerospace coatings.
We have had to digest quite a tough time, especially for our so-called MRO business, as well as the new build business for airplanes, COVID really led to a significant depression in air traffic. We have seen, especially our MRO business, return very quickly to pre-pandemic levels. You can see that in the blue chart there. So 2021 was almost already on par with the high levels that we have seen prior to the COVID pandemic. The other part of the business, which is basically new build aerospace, OEM business, which is the more purple graph here, will still take until 2023 to fully recover or come close to pre-pandemic levels. But we also see a significant turnaround in business for OEMs on the aerospace side. We are also quite proud of gaining share.
Here, you can see some indications on the bottom of the chart, and I'm very proud of our commercial teams to claim that we are now delivering to eight out of the top 10 airlines globally as the coatings partner there. We are also here pushing the envelope when it comes to sustainability. We have an extremely successful base coat, clear coat technology in the market, and then we are also working on entering the interior part of the aerospace market business with coatings, and what helped us here is the acquisition that we have done of the Mapaero business, which brings the interior coatings to our portfolio.
On sustainability, we are also commercializing new technologies like chromate-free structural coatings for aerospace, and therefore, we are very confident that we will see a continued high growth for this part of our business going forward. To give you more insights on this business, we've invited one of our team members, Tammy, from North America, to share some more info with you in a little video. Please roll the film.
I'm very proud of our achievements in our aerospace business. Despite a number of headwinds on, on a number of fronts, we've won and maintained airlines and OEM contracts through a very difficult period. In fact, I've said this before, and I'll say it again, today, we service 8 of the top 10 major airlines, which is really a great accomplishment for this business. We see an acceleration in recovery in EMEA and the Americas. Overall, the business is doing quite well, and that recovery is accelerated. More specifically, we see overall growth across the aerospace coatings sub-segment, with the MRO market coming back strongly as global air traffic picks back up. Recovery in the MRO and general aviation segments really taking the lead for us, where MRO repaints are almost to pre-pandemic levels.
This is supplemented by growth also in our film business, and this was driven mainly by our radar bright film technology. When we look into our base coat, clear coat products, they are still the only ones qualified at all major global aerospace OEMs. These products have proven themselves in service regarding color and gloss retention, where they're able to keep a gloss, wet-look finish up to three times as long as a traditional single-stage topcoat. An area that we are really making significant progress with is in the non-chrome primer innovations. One of the really neat things about this technology is the marriage of AkzoNobel and Mapaero, the end of 2019, was really a, a good gateway to accelerating these conversions. Finally, looking at how we service our customers, we provide industry-leading on-site technical service.
We also offer hands-on paint school, and we bring innovative solutions to the market with things like our touch-up kits, where we rightsize the kits in an innovative package, limiting costs and waste. I see continued growth in our industry, and I'm confident about the year ahead, and that we will continue to win in the market with our excellent products and innovations, along with providing industry-leading service to our aerospace customers.
Thank you very much, Tammy, and as you can all see, COVID and hybrid work is still very much also with AkzoNobel. A big thank you for Tammy, as she had to tape this from her house, and I think she did a fantastic job. Moving on to the last sub-segment that I wanted to bring to you. It is part of our Marine and Protective Coatings business unit. It's our yacht business, a business where we are clearly the number one and where we are enjoying a significant growth, which is helping us on our Grow & Deliver journey. You can see the market here is segmented into three discrete segments. We have the professional business, we have then the retail business, and then the business of super yachts.
What you can see in the graph below, you can see that we have seen a tremendous growth, especially on the professional side, but also in retail and super yachts. This is partially due to the fact that, as part of Corona, people have enjoyed cocooning to a certain degree on boats, doing safe vacations there, but we also see an underlying trend for Yacht Coatings to continue to show significant growth. What we have also benefited from is that with every new yacht, with every new boat that gets to be out there, we have a recurring MRO maintenance business, so it's a bit similar to what you have seen on the aerospace side, and that means every two to five years, depending on what type of boat and what type of coatings, you have a recurring business.
And with the brands that we have, and we have the strongest brands in the market, and we've just added another very strong brand, the Sea Hawk, by the acquisition of our New Nautical business in North America. We are confident that we will benefit from consumers' preferences for the best protection for their loved boats and yachts. With that, another nice movie from Bilal, our business leader here in the yacht space, and please roll the movie.
My name is Bilal Salahuddin, and I'm the global business director for Y acht Coatings. Yacht Coatings is a growing segment. Over the last few decades, it has been steadily growing. AkzoNobel is placed at the front edge of this growth with a wide portfolio of brands and widest access to the market. The Yacht Coatings is about leisure boats, small and big boats. Over the many years, there's a steady trend building up where people have invested themselves more and more in the hobby of boating, which has caused this segment to steadily grow over the last few decades. Our strong position comes primarily from having the strongest brands in the market, the widest portfolio of products in the market, and being able to serve our customers better than many of our competitors.
We have a top coat brand called Awlgrip, which is such a strong brand that it's almost become a word. People say they want their boat Awlgripped. Also, at the same time, we continue to invest to grow our portfolio of brands. So in December 2020, we acquired a well-known US brand called Sea Hawk, which is now a part of our portfolio, and it helps us serve our customers and our markets even more widely than before. At AkzoNobel, we are focusing on three main areas. One is where our products go, which is above and below the waterline on a boat. We continuously innovate to make our products better and more aesthetic. The second area is sustainability. We are continuously trying to make our products more sustainable to ensure the industry is also more sustainable.
Finally, there is the part of application of paint, where we are also investing a lot of resources to ensure this is a sustainable area, and there are better and better application techniques every year. In the future, we have to be alert to how the industry is going to be even more dynamic with the new boaters coming into the market, so it is important that we ensure we understand the insights of these customers, and we continue to deliver towards those insights in a sustainable fashion.
Well, thank you very much, Michael. Meanwhile, you have joined me here at the table, and let's talk a bit more about those growth opportunities in Performance Coatings. And I have to say, it's absolutely wonderful to see that there are so many growth opportunities that are related to sustainability. I think that's, that's wonderful. Wondering if you could maybe give us some more detail on your current electric vehicle business, and also what may that business look like, say, a year from now?
Yeah, thank you, Marije. Clearly, electric vehicles is a fantastic growth segment for us. The forecasts show that light vehicles most likely will be 30% just over the next five years in certain countries, so we see significant growth there. Fortunately, we have prepared a very comprehensive portfolio and launched that already in 2020-
Yes
to benefit from that growth.
Right.
The portfolio that we have launched encompasses parts of the powder business that you have seen earlier, but also liquid technology to protect batteries and other parts, particularly in electric vehicles or the battery powering pack. We have high hopes and are quite confident to triple that business until 2023.
Okay, stay tuned for more. Now, of course, there are also coating segments that unfortunately have not fully recovered to pre-pandemic levels. Maybe you can tell us a bit more about those businesses and also when we can expect them to fully recover again.
Yeah, absolutely. You've heard Thierry talked about it to a certain degree earlier. The marine business has suffered probably the most, and to a certain degree, the protective business. The good news is we have turned the corner, if you will.
Yes.
We see with all the, you know, aftermath of Corona and now supply chain being a critical topic, a lot of logistics happening, that there's much more traffic on the oceans globally, and that will lead to a significant uptick in dry docking, which is where we repaint those boats. So the marine business will see a very nice turnaround now. We also have the automotive business to a certain degree impacted by the chip shortage, which I'm sure you've heard of-
Yes.
In the news as well.
Yeah.
Once that chip shortage is more relaxed, which we expect for the second half of this year-
Right
... we see that part of the business turn the corner as well, and then some other smaller pieces of the business. Aerospace clearly will-
Probably picking up.
It has already seen a significant-
Yeah
Turnaround to that. But those will be the three major ones.
Right. And so we can start enjoying life again and being on our yachts and being in airplanes-
Absolutely.
-that, that your business will benefit from as well. Thank you very much, Michael, for being here with me. Now, next to Performance Coatings, AkzoNobel is also leading in Decorative Paint businesses. And I would like to invite back, Thierry to walk us through the growth opportunities of the Decorative Paint business.
Yes, let's look at the other half of the universe. For us at AkzoNobel, our Decorative Paints business, as you know, is not present in North America, but we're very much present in the rest of the world. It's about a EUR 4 billion franchise. About 60% of that sits in Europe, Middle East, Africa, where we're a clear number one. And then it's split between 3 regions. In fact, I would say the North and South Asia are sub regions, but they're all about equal size.
And I'll go to some of the regions in more detail, but you'll see that with the strong brands that you have and the unifying work that has happened on the brands, we actually are enjoying, and we're seeing significant market CAGR in those markets, but we also see us to be in a pole position to continue to take advantage of that. What are the mega trends driving the growth in paints? Well, not surprisingly, sustainability, health, and well-being is a big driver. This is, in the end, in many cases, a consumer-driven market, although, of course, we sell business to business and business to distribution. But in fact, it's the consumers who decide on what they want to have, and this goes to, first of all, footprint. It goes around indoor air quality.
It's a big driver, but also the assurance that what's marked on the can is also in the can, so that is a big driver in this market. The second element is the do- it- yourself trend. Now, as you know, do- it- yourself is half of the market in Europe. In other parts of the world, labor is somewhat less expensive, and therefore, there is more have it done for you businesses. But we do see, however, that first of all, outside of Europe, there are some do- it- yourself activities growing, but that in Europe, specifically with COVID and the pandemic, people started to do do-it-yourself work, and that is also continuing with the younger generation of do- it- yourself customers across the continent and in a very consistent way. The third element is the digital acceleration.
Yes, a lot of our products still go through the traditional distribution channels, and we expect that to be the case for many years to come. But we do see changes coming in for basically, more digitized approaches, be it on color, color development to do- it- quicker, and then basically choosing the products online to be delivered, near your home. A lot of these elements are basically in place, and that is good news for us. And why is it good news for us? Because we have the strongest brands in the industries where we operate, and as a do-it-yourself customer, when you wander in a store, well, frankly, you go to what you know. Who wants to paint a ceiling twice because the first coverage wasn't enough? And secondly, if you do a search online, well, what brand are you going to look for?
It's going to be for the brands that you recognize. The classic case for us, of course, is the Dulux brand and the Dulux family of brands, which has an instant brand recognition in the markets where it's being sold. You see here, in fact, that Dulux is the only paint brand that made it into the top brands in the UK. It's a household name, and in fact, the Dulux dog is one of the national icons in that specific country. But it's not just around the touchy-feely, what is the brand? It's also what we do with leveraging the elements that we have, basically leveraging, sharing across the globe, the innovations.
The Deco market has a lot of local innovation, so we have this whole store of new stuff that comes to the market, where another continent, another business in another part of the world can start, pick and choose on what they want to put in their portfolio. You see on this slide a couple of the examples. The Easy Care has been an enormous success. The low scuff product, we were the first in the market, and it's really been taken off quite substantially. The Dulux Promise, the no-questions-asked return if you have a quality issue, has been a real launchpad in many of our markets. We trialed it out in some test markets, and then we could roll it out in other geographies.
You see some of the elements of what we really share between the different markets and what worked, what didn't work, and then, of course, the ones that worked, really try to implement them quickly around the world. And I think it is the success of what I can call a turnaround over the last 6-7 years of this business, where it came globally from a very low profitability to being a high profitable business and high growing, as you would expect from any high-branded consumer business with strong distribution.
Our Decorative Paints EMEA business was not one of these darker blue growth market bubbles, but it is almost a quarter of the company, and therefore, questions that may come up, it's probably good to tackle them here, too, because it is the big player in our portfolio, and we better be sure that it goes in the right direction. As we said, Decorative Paints EMEA operates in a EUR 24 billion market. You know what our size is, so in fact, we are at about a 10% share if you really compare it in the whole region, so there is still plenty of places to grow. The reduced market growth number that we take for this market is 5%, although currently it is definitely operating at a higher percentage top line versus what we have in these numbers.
We have leading positions around the continent or around the whole region as such, 'cause the leading position in a specific country is determinant for the profitability and the success of the product. The pandemic, for us, has in fact been a positive. Now, that sounds bizarre, but I of course mean a positive only in the confines of our business performance, here in this specific case. When we look at the brand recognition, the brand strength, and the data that we got before the pandemic, and the data we got now at the end, hopefully the end of the pandemic, you will see that in some of the key markets, we really have been able to increase significantly the choice, the preference, or the preference for our AkzoNobel Deco brands.
That is positive, again, given the do- it- yourself and given that the digitalization is there, people searching online, having your brand being preferred, of course, is a very positive way. Now, why are we so upbeat around the key growth drivers for this market? Well, first of all, we talked about the higher do-it-yourself demand. Some of this was covered in our fourth quarter 2021 results in some of the charts, but what we do see is a consistent mid-single-digit higher consumption of do- it- yourself across the region, and it's now been very consistent for nearly a year versus 2019. The younger do-it-yourself person, the people, say, 35 minus, they basically come to the store, and they've gotten the hang of it, of basically the cocooning.
They're having their own home or home office being in a better shape. The element that is a wild card for us for the growth is the Green Deal in the European Union. We believe that at a very minimum, it will be a full 1% volume growth for the market when it comes up. Later in the presentation, you will hear about specific markets where it has been much higher. It's always difficult to find out how the Green Deal is going to impact us, but it is a somewhat not recognized number in all these market share numbers and market growth numbers that we give you. Again, anything you do around the house for environmental purposes, as the European Union wants to push, ends up in a paint job at the end to bring it back into shape.
So that's not in our numbers here that we mentioned, but it is an underlying uplift for our business in the coming 2, 3, 4 years in Europe. During the pandemic, we've done a fantastic job to expand our distribution reach in the countries, and we've also been very, very effective in our brand investment. In fact, we've been able to bring the spend down on advertising and promotion, but at the same time, have more productive advertising out there. And how did we do that? Well, every country was doing their own thing. We were working with a zillion agencies around the world, to be honest, and we really went to more make it, build it your own, so you have elements that are being taken to really localize something that has been developed centrally. It gives us much more impact in our markets.
Some of the successes to mention here, we have share gains in key markets. I'll come back to that. The Spanish acquisition, we'll talk about in more detail, has been a real game changer for us in that country. We launched about 18 months ago in the U.K. the Heritage brand, the super super premium brand, very specifically tailored with earthen colors, different types of ingredients, et cetera, and it's been a fantastic success. We wouldn't have believed that we were gonna get market share increase in a country like the U.K,, where we're so prominent, but it did happen and at a good margin. The anti-scuff wall paint launch has been a roaring success across Europe. We've gained market...
Visible market share in our key markets, and in fact, our online sales, as we said, we've been using the Dulux brand very much as pulling through in the digital, still small, but growing segment in our market. So how does that look in a map? And here, I'm only focusing, in fact, on the European map to a large extent. And what you see here is the different shades of green in this specific case, where we, the lightest color is we are at market, the mid color is we are growing above the market, and then the darker green is where we are significantly outperforming the market. This is why we are very optimistic. While the market is growing, so what I'm just saying, and obviously, our team has been able to really grow above that market.
The net result, you see that on the right-hand side here, is, in fact, that although the European market has been growing and has been tapering off a bit in 2021, that we've been able to both grow volume and our revenue in that segment. We talked about how we see this actually continuing in at least 2022, which is also shaping up as we look at our forecast. This is around Paints EMEA, probably good to spend some time given the size and the dynamics in that business. Let's go to Decorative Paints in China. The Decorative Paints market relevant for us, we estimate at about a EUR 6 billion market. The market is growing at about a 6% CAGR between 2021 and 2023. As some of you may know, we really did a reset of that business about four years ago.
Profitability was not very strong. We had lots of products that didn't deliver profitability. We were dabbling in the project business besides the retail business, but the project business, high volumes, low margins, sometimes could take 18 months to 2 years to get paid for something. So we really did a complete reset with the team, cleaned out the portfolio to restart on a much more healthy basis. And I know that some of you got frustrated because you didn't see the volume growth, but it was really a reset for what is coming right now. And what's coming right now, you see that in the charts here in the middle. In fact, our Dulux offering is doing fantastically well. It has now been growing years in a row, and in fact, about 20%+ higher than it was in the basis of 2018.
Our mid-tier, the things that go outside of the major cities, is also starting to grow. And by focusing on the smaller project developers that are more regional, more local, make good money, pay their bills, we've actually been able, despite everything that's happening in that market, to stay stable in that project business and making money. The geographic expansion that is happening in China for us is important. We were the big players in Tier 1, Tier 2 cities, driven by the quality of the products and the indoor air quality that we promised. But with this expansion into other Tier 3, Tier 4 cities, we've been able to add in 2021 alone, about 100 additional cities where Dulux is available, and we added a whopping 12,000 stores, additional stores, where our product is available.
You don't really have to listen to me, but what does a gray-haired, old European guy can convey about enthusiasm around China? No better team to tell you and to inspire you than our China team in this video.
[Foreign language]
So really great work from the China team. And by the way, anybody of you who is watching, who has an off day, I would recommend you what I do is, and just have a video call with Mark Kwok, and you basically are uplifted for the whole day because the world is too small for where they want to put paint on. Interesting here from the video is that the team and for us, we've taken Deco China as our kind of lighthouse project, I would say, for digitizing in the distribution.
It's a must to be present in China, and in fact, the tools they have are so far ahead that we now start looking at how we can use them around the world, because this is really handheld, mobile, digital, digitized way of doing business that frankly is front-end and that we have to use to our advantage, given our position in China. From China, let's move on to another area, and this is our Decorative Paints business in Latin America. Latin America for Decorative Paints, again, the relative market where we operate in is about a EUR 4 billion market. It has had a relatively consistent ongoing market growth of 5%, and we see that as in a more negative case, the haircut case, I would say, is still continuing.
We have a number one position in Argentina, a number one position in Uruguay, a very close second in the meantime, in Brazil, and we have now, with the, the acquisition of Grupo Orbis, we have now a view on becoming the clear leader in Colombia, with strong distribution network in Central America, which will also, by the way, have a knock-on effect on our Performance Coatings business in that region. It's hard to say what we are not doing well in this region. The business has been looking at getting their brand architecture in place, their distribution in place. They went to a franchising system in Brazil with the blue stores that has been wildly successful in gaining market share at very good margins.
It's clear that step by step, they have really chopped away on becoming the preferred choice for painters and customers across that region, and at very good margins. Again, a real tribute to that team, given the political, given the exchange rate issues that are unfortunately so typical for that region. But again, why have me talk about Latin America? Let's look at Daniel Campos, who's our leader in that area, to explain in the video how we are driving success there.
[Foreign language]
... A very good story indeed from Latin America, and a very highly profitable business for us. And in fact, the blue stores concept that was explained in the video is so successful that, in fact, one of our large competitors there has been starting to do something similar, and for some reason, also came up with blue stores, which is a bit strange to us. Very good story, and in fact, a very high growth story. So with that, we went to the Performance Coatings growth elements that Michael has explained.
We looked at the Decorative Paints businesses and a very healthy dynamic in all of the segments that we're operating in, and this is the underlying driver for the EUR 350 million of bottom line increase to the growth that we will see in 2022 and 2023. Again, I want to remind you, whereby Orr & Boss talks about an 8% growth in the business's compounded average growth rate, we have based our full plan on 6%, and then added in the additional 1% for the specific growth markets we just ran you through. So we're very, very confident about the growth elements we just outlined for 2022, 2023, but also way beyond.
Thank you very much, Thierry, and I would like to invite you back to the table to join Michael and myself to talk a bit more. Welcome back, both gentlemen. Lots of success stories that we heard. Thierry, how do you look at the, the retail segment and the consumer health, in China, given, recent, headlines or headlines in, in recent?
Yeah, correct. So the first of all, if you look at the markets in China, I think the everybody, every observer looks at a somewhat lower GDP progression than it has been in the past, so that is part of our plans. Secondly, there's of course a big reset in the real estate project market, but as I tried to explain, we are very low exposed to that.
Yes.
If you go back to 2017 and 2018, yes, we were also somewhat wrapped up in the volume game. Large amounts of low-end putties and all sorts of fillers that we were selling. Fantastic to get the plant running, but there was no money in that.
Yeah.
We stepped out of that. In fact, we had to explain three years in a row why we weren't growing like everybody else-
Mm-hmm
... because we stepped out. That was on a volume number, but it was also then if you go on how you get paid, again, 18 months to 2-year payment terms were not an exception. So cash-wise, it became a bit of a joke, to be honest, to be present there.
Yeah.
So the team has really cleaned it out, has focused on retail, and in fact, then going to Tier 3, tier 4 cities. Now, what we do see is that the continued rise of the middle class in China, the fact that the real estate market may have basically quieted down a little bit, but that was mostly the project basis. In fact, our team locally is pretty upbeat on the ongoing growth, in fact, in the retail section.
Wonderful. Next question, maybe for both of you, but let me start with you, Michael. Given the growth opportunities, how are you equipping and investing into the business to support all this growth?
Yeah, thanks, Marije. I think partially I have touched upon that in my presentation already. So you saw me talk about us tripling our CapEx, for example, for our powder business. So clearly, a big component to accompany the growth has to do with making sure we have enough capacity. So for powder, there's a huge plan in place, something similar, maybe at a slightly smaller scale for our packaging businesses, and then for all the other parts of the puzzle.
Mm-hmm.
On top of the CapEx, we are also investing a lot into the digital space, as Thierry has alluded to, especially on the customer-facing activities. We're also investing into our advertising and promotion budgets and also into our sales force and our own teams. So, I think that covers most of the investments that we plan to do.
Okay.
Yeah.
Anything you wish to add?
Well, maybe, maybe in addition on that, I think, Marije, we, and that's actually the section on the deliver part, to be honest.
Mm-hmm.
We do come to realize now that we have a full view and that the processes are in place, we have a lot of self-inflicted constraints in our installed base that we have already. So in fact, a lot of the deconstraining of what we have over and above, indeed, the investments, et cetera, is gonna do a lot to be able to continue to fuel for this. I mean, so there we feel pretty comfortable. That's part of the plan, by the way, so it's not we're gonna do this if we can do more-
All part of the plan.
It is really part of the plan.
Yes. Another question for you, Thierry. For the growth forecast, you reduced market growth from initially 8% to 6% in your plans. Can you explain to us why did you do that?
No, it's a good question, and in effect, when, when again, as I alluded in 2022, early days, but it looks like the base growth trend that was given by external consultants might indeed be correct. But to be honest, and we had that also in 15 by 20, a plan that only delivers the promise when everything goes according to plan is not a plan. So what we did is actually take a haircut on it, a quite significant haircut. In fact, in here, we took the 2% down. We haven't really penciled in anything for the Green Deal, which we know in Europe, for Deco will have an effect.
Yeah.
You have other elements in different businesses.
Yeah.
Because we also are aware that, okay, there are assumptions around how we keep our prices and our margins, to what extent we will keep them. There's a lot of speculation around inflation. Are interest rates gonna go up? And therefore, is consumer confidence gonna go down, et cetera?... So we felt it was safe to put in maybe a bit of an over-negative haircut in the whole element, to stretch the other elements in our plan, so that we have a buffer, and don't have to come with explanations why it wasn't, but can explain why it was afterwards.
Exactly. Well, thank you very much for clarifying that, and thank you both for being here with me. AkzoNobel, a leading company in paints and coatings, but specifically also in sustainability, and the purpose of the company already says it, and we can read it right here: People. Planet. Paint. It's basically part of the way you drive the company, and I think what's also wonderful is that AkzoNobel really uses sustainability to drive innovation, and that's very remarkable. So I would now like to give the floor to Klaas Kruithof, Chief Technology Officer, who will share more about sustainable innovation.
Well, good afternoon, good morning, wherever you are. I'm really pleased, it's an honor for me to actually take you to this part of the presentation, showing to you where indeed sustainability does add value to our business, and at the same time, also actually to define how our sustainable ambitions drive actually our plans forward. We're often seen rough and cited as recognized to be the sustainability leader in our industry, and actually, that's true. I mean, if you look at this chart, it's a compilation of various external rating agencies or audit agencies, where they actually define the scores of AkzoNobel for the last past consecutive years in terms of our sustainability performance. You see, we're actually leading in all the charts. It's not a single-sided view, as I said, it's many different views from many different companies.
And I'm also happy to share that it was this week when we also got our new 2022 EcoVadis rating, and again, we scooped the Platinum Award, meaning we belong to 1% of the top performers in this particular area. And what was also included is Thierry Vanlancker was at the COP 27 in Glasgow last year, where he was handed the Terra Carta Seal by His Royal Highness, the Prince of Wales, as one of his initiatives to drive sustainability and actually underpinning and supporting what we are doing in this area, recognizing that we were the only, the one and only paints and coatings company, let alone the one chemical company, who was awarded this seal.
Thierry started already off with People. Planet. Paint., and let me start by saying that our own people are clearly our most valuable asset. Nobody comes to work to get hurt, and it's for that reason, we are very proud of our safety performance, which we developed over the years, to a record low level of injuries. It was also already mentioned, our organizational health inquiries and caring about people actually also means listening to people, listening to our employees, and apparently that's appreciated, as indeed underpinned by the high rating of participation in these inquiries. People really would like to give their opinion, and we take action on it. We love what we do. I mean, it's actually fun to work in the paint and coatings industry, but it's also nice that people like to work for us.
Our recognition as a top employer in several countries does really help us also, during the war for talent, to actually find the right talents and the right people to work for us and helping to progress our business. Planet. Planet is, to a large extent, about our own operations, and it's clear that sustainability elements drive our own operations, but on the other hand, more efficient and more effective operations operate at a lower cost, which obviously gives us an asset versus our competitors. And the most prominent here is probably our plan to reduce our own targets, our own carbon emission, by 50% in 2030, from the roughly 19% or 20% where we are today.
These KPIs also include our energy and our waste reduction plans, and as you can see from this slide, also in this case, sustainability, to some extent, is business, and like I said, it's driving the efficiency of our plants. In 2020, we saved roughly EUR 9 million by actually taking care of waste, energy, and water reuse. A few other examples you see on this slide are our renewable energy, where in Europe, we now are always, already at 100%. And a very nice example is actually from Vietnam, where we're using paint sludge, so waste of our factories, as a starter, as a raw material for roof tiles and roof coating industries. And then last but not least, paint. That's what we do, that's what we make, that's what we deliver, and that's actually what makes the fun here.
We are committed for our entire portfolio, from the 40% where we are today, to have half our product portfolio driven by or compiled by sustainable solutions in 2030. And what does that mean? What does a sustainable solution actually incorporate? And Thierry already showed you the Dulux Evolve example, using recycled paint to reformulate new paint, so another way of helping to get rid of waste in the world as a whole... But other than that, another way of looking at it is the other example on this slide, where you see a equipment we're building together with Qlayers, which is one of our winners of our Paint the Future Startup Challenge in 2019.
Together with this company, we are building a tool and equipment which is actually able to apply paint without overspray, so that's from an environmental protection, very handy. But at the same time, it operates at height without the risk for people effectively going up height, as you see also lower in the picture, which is the classical and traditional way of doing this. We're very proud that we pioneer it, as I said before, we're pioneering here on sustainability. In the course of last year, we gave ourselves the target, we went for the ambition, not only reducing our own carbon emission by 50%, but also taking the lead to define a program towards 2030 to reduce our, what is called Scope 3 carbon emission by the same 50%, five zero.
Scope three actually means our upstream supplier part and our downstream customer part, so we take responsibility for our products as well as for the raw materials we take on board. This is a challenge. It was recognized by the so-called Science Based Targets initiative, and we were the first paints and coatings company where this was really an approval from the SBTi organization. And clearly, I think it's more or less imperative of what I said before, we can only get there when we cooperate with our scope three partners, i.e., to cooperate and work together with our suppliers and our customers to actually achieve these ambitious goals. Which brings us more or less to what, from my perspective, is more or less the core of this presentation.
What you're looking here is actually the, if you want, the machine room of our innovation, of our technology program. Over the years, we've built our technology program on several pillars. Four pillars, to be more precise. It's productivity at our customers or at our own operations. It's asset protection, helping our customers to improve their assets and to make sure that their assets last longer, require less painting or less maintenance. Surface enhancement, pushing something onto a surface, which helps also a customer to allow his surface, if you want, his products, to be sold at a better margin or at a better price. And color is the obvious one, because a nice color surface sells better than something grayish. But fitting in this same category is the...
For instance, the example from China, where we also develop wall paint, which basically takes odors and other materials from the indoor air and actually purify indoor air through a process in the paint as such, so a functionality of a coating. And then last but not least, there's environmental protection, developing new products, less impact on the environment. And one classic example here is the water-based in our Decorative Paint, where we eliminate VOCs and actually transfer to waterborne products. And the example given on this slide is a recent launch, where we now also, as waterborne, are able to meet the tough external demands for our Deco paint for exterior high-gloss trim applications. And clearly, we do this with our own resources, our almost 3,000 technicians and scientists we have on board in our own factories, in our own laboratories all around the world.
And as a consequence, we spent in the last 5 years more than EUR 1 billion in doing this. But you can never do so much on your own, and there are always something more to know, and this was the reason why we opened up and we basically developed what we call Paint the Future. And Paint the Future is our window to the world. We kicked it off in 2019. We're building an ecosystem. We started with startups. We approached startups. We do similar programs now with the academic world, and we also do similar programs with our suppliers, inviting them to bring us solutions actually, which we then subsequently can take to our customers. It's a large success, and I think we can proudly state that the Paint the Future ecosystem is, at this moment, the largest which exists in our industry.
Nevertheless, science in a major league is working with Professor Ben Feringa. In 2016, he was awarded the Nobel Prize for Chemistry, and in that same year, we founded, together with him and a few other universities and the Dutch government, we founded the so-called Advanced Research Center for Chemical Building Blocks, a EUR 100 million initiative over 10 years, employing roughly 150 PhDs. And Ben is very outspoken on chemistry, but also Ben is very outspoken on what he feels the industry should do to come to a better world. I would like to show you that in the next video
[Foreign language]
Ja, well, I hope you like the video and Ben stating we need more guts. We actually need to stick our neck a little bit more to get where we want to be, and we are very happy to also take that challenge. And I would like also to use this opportunity for a little bit of a scoop, because as part of the Paint the Future program, what I mentioned before, we're now inventing a another industry novel approach. By mid-year, in May of this year, we will launch the what we call Collaborative Sustainability Challenge. And what's that? That's actually us inviting our value chain partners, our vendors, our suppliers, but also on the other hand, our customers.
But more than that, also opinion leaders, gov people and employees, representative from the government, even from Brussels, consultants, and we would like to bring them together for 24 hours in a pressure cooker, and we really would like to dive in the route, the journey towards sustainability, because all the examples are often there, the windmills are often there, but nobody does want a windmill in his backyard. Hence, we still have an issue to get there. So we really would like to dive into those challenges and then build together a plan forward and fill it in with solutions, and to actually then reduce our Scope 3 emissions, because that's actually where we're after. And like I said, I'm really happy for having given this presentation.
But one thing I would like to state, it's that in many cases, often sustainability is a little bit seen as a responsibility of a function or let alone for one particular director. And if there's anything I would like to point out here, it's that within Akzo, it's actually all of us, the entire group, the entire ExCo, we're committed to actually drive this innovation forward, and by doing this, obviously meet our strategic targets. Thank you very much.
Thank you very much, Klaas. Please join me at the table so we can chat a bit more. Hi, Klaas.
Hi.
Thank you for joining. Congratulations. This is fantastic, right? Especially the part that you're the first in your industry to take part in SBTi full scope, I think is very remarkable. I'm wondering, where do you see the biggest opportunity for carbon reductions in the value chain?
Yeah, well, like I just presented, the up and downstream part for us is extremely important.
Mm-hmm.
Uh, and-
Could you, could you say that again?
Yeah.
Yeah.
To be honest, if you compare them, they're probably one-on-one-
Right.
—so they're probably equal. So it actually means roughly half is at our suppliers and half is at our customers.
Mm.
There we need to act, and the plan forward with our suppliers is to actually interact with them and see to what extent they can decarbonize their products.
Mm-hmm.
or maybe increase or lower the amount of embodied carbon by, for instance, bio-based materials. So we're working together with them to actually launch these, these new products. So that's the supplier part.
Right.
With customers, it's actually bringing them new products. It could be bringing our industrial customers, particularly, products which bake at a lower cycle or can be reduced in energy uptake-
Right
... during the baking process.
Right.
If you think about the more decorative market, it's what I mentioned, the water way in deco, so the transfer from solvent-borne products containing oil-based materials to actually waterborne technology. So in the end, the keyword here is, I think, collaboration on both ends.
Right. We can only do- it- together. Now, I can imagine that, sustainability might also sometimes drive more cost or maybe more complexities. Are you dealing with that at all, or?
Yeah, well, to be really honest, I think it's the opposite.
Really the opposite?
It's really, I mean, if, if you see what we're trying to do, innovation is driving sustainable solutions, and at the same time, our innovative program is also driving complexity reduction. Less complex product range is easier to produce. If you combine the two, well, you're actually killing two birds with one stone.
Mm-hmm.
You're creating a more sustainable portfolio. So for me, that's a positive-
Yeah
-uh, tenender.
Yeah.
On the other hand, if you zoom into our own operations, less waste, less energy is actually cheaper because you need to buy less.
Mm-hmm.
Less waste also pays off at the other end because waste requires disposal. Disposal also comes at a cost, so that also disappears. And then maybe last but not least, our whole drive for renewable energy with, for instance, solar panels, has a very positive business case. And actually, if you want, particularly this moment in time, with the rather volatile energy pricing, it's a nice hedge towards that one as well, because your own solar panels is a positive to new there.
Everybody wins.
Exactly.
Thank you so much, Klaas, for being here with me. It's now time for a short break, and we'll be back here in 10 minutes. Looking forward to seeing you soon.
We all like to surround ourselves with things we love. We like to bring joy, passion, and excitement to our lives. We like to add style, color, and a sense of well-being. We pour all of that into every tin of paint we make, and we've been doing it for more than 200 years, always advancing, always innovating, so that we can bring surfaces to life. We see and touch them every day, at home, at work, when we travel. So we like to give surfaces a personality. We can even give them a superpower, helping you feel safer, better protected, and bang on trend. And as global pioneers, we never stop exploring, always searching out new and more exciting ways to make buildings greener, industries more sustainable, and life more colorful. Always making sure that we're there for you wherever you are.
This year, we need release, reinvention, and vitality. So our Color of the Year is inspired by open skies and a breath of fresh air. This was the theme that came out of our trend forecast when a team of international experts shared their insights to help us understand the mood of the moment and spot the trends that will shape the way we live. It's an event we've been running for over 19 years, and this time, our discussion went digital. We talked about the expanding role of the home, how nature is essential to all of us, how the arts can bring solace and inspiration, and how important it is to embrace new voices and ideas for a brighter future. Our color experts at the Global Aesthetic Center then set about finding a shade that brings our theme to life.
Our Color of the Year is an airy and fresh tone that opens up and revitalizes any space. Around it, we build a collection of colors with four inspiring palettes, making it easy to turn decorative dreams into reality. When home has become the office, the gym, the schoolroom, we need a reinvented do-it-all space. The Workshop palette creates colorful spaces that are flexible and multifunctional. Feeling close to nature makes us feel alive. The Greenhouse palette brings in the positive effects of nature with airy greens and blues. Sometimes we need to escape the everyday, recharge, and feel inspired. The Studio palette creates a comforting space that is soothing for the soul. We want our homes to be warm and open, somewhere where we can welcome new voices and ideas. The Salon palette provides a blank canvas for fresh opportunities. Take a breath of fresh air.
I feel very, very honored, very happy to participate in such a great project like this.
Hi, everyone, and welcome back. Before the break, Thierry, Michael, and Klaas took us through where AkzoNobel stands today. They also talked about how AkzoNobel is growing and how sustainable innovation is helping them to do this. This brings us to the next chapter of the strategy: Deliver. Maarten, Thierry, Michael, and Karen-Marie will present how AkzoNobel will be delivering on their targets. And I would like to welcome back, Maarten, to kick off this part of the session.
Yeah, and welcome back from the break, and great to be here with all of you. We're now talking about deliver, deliver part of the Grow & Deliver strategy and the deliver initiatives, which, of course, underpin the EUR 200 million in the EBITDA bridge. But before that, we do that, I think, it's important to stress the strong foundation we've laid, which enables Grow & Deliver. And that's from a systems perspective as well as from a process perspective. We are now at 94% of our revenues with four SAP platforms, and in fact, our PRISM platform covers 67% of our revenues, and our ambition is, over time, to consolidate to one ERP system. And it has helped us a lot to create the required transparency to manage the business much better.
But also from a process perspective, our six GBS hubs are now live with 3,000 team members executing our transactional processes. That covers, for instance, invoice to cash, purchase to pay, record to report, but also master data. So we have much more insights and much more transparency, and therefore also much more analytics. That all enables the deliver results and the deliver initiatives, whether that is across the end-to-end supply chain or whether that's around product management. Let's now ask Thierry to come back on stage to explain us on product management.
Thank you, Maarten. With the big enabler of systems and processes that Maarten just referred to, we actually have been diving into product management. Before, frankly, the visibility, the transparency was not there to tackle it, but it was clear to us that we had some, some issues that product management should be addressing. Complexity is not necessarily a bad thing when it's complexity that the customers are paying for, but complexity is not good if it just has started to creep up, because we were frankly, legacy-wise, not very organized. In fact, the latter part is what we are tackling. If we look at our product portfolio, and we look at the raw materials that go in our product portfolio, we see a very high procurement complexity.
We basically have way too much raw materials, different raw materials for no specific reasons, that go into similar recipes around the world. So that gives us, somewhat of an unleveraged scale, where we would be able to get better pricing, better costing and better procurement power based on what we acquire. In addition to that, because of that complexity and because of that lack of coordination, we have too many and too many single-sourced materials, simply because in legacy, through acquisitions, plans that were very much, based on a country and a country organization, people were just basically not coordinating. Too much single source materials makes it costly, but in addition, and that's what we've seen also in this, raw material, chaos we've seen in the last year, also makes our sourcing way more vulnerable than it should be.
Last but not least, when you don't do product management, we get way too many products that are proliferating, which small average batch sizes that leads to efficiency losses, yield losses, way too high production costs, et cetera. And last but not least, we really have not done really good life cycle management. Too many products that basically go off, or where a periphery product has been introduced newly with new labels, and therefore, we have too many obsolete and, inventory or slow-moving inventory. So early 2020, we saw enough light in our data, in our systems, to really start doing a systematic approach on product management. But before I get how we resolved it, let's look at a little video that explains what our daily issues around product management are for a paints and coatings manufacturer.
It's how we create products to meet our customers' needs. At the heart of each product is a recipe. Each one is translated into a set of manufacturing instructions using the correct raw materials. After it's been produced and packaged, our new product is ready for market. Over time, this process is repeated thousands of times and strengthened by new acquisitions. The number of different raw materials and manufacturing methods make it all incredibly complex. Imagine every product as a car, so a portfolio of products is like a busy highway, with each one heading to our customers. As we add cars to the highway, customers can choose from more and more different products. But as we all know, slow movers cause delays, and lots of cars cause traffic jams.
Not all of these cars belong on the road, so simplifying our portfolio is the best way to get products flowing. This is where product managers step in. A product manager's task is to ensure our products form a coherent portfolio, answering our customers' present and future needs, while taking internal goals and operations into account. Naturally, product managers can't do this alone. They take discussions and collaboration with a cross-functional team as part of the integrated business planning process. Collaborating with customer-facing teams helps us understand customer needs. We can create a clear assortment with the right value propositions, get real-time feedback, and flag up new opportunities. On the supply side, R&D optimizes formulation architecture. Procurement gives security of supply and delivers best value materials, while manufacturing is empowered to improve cost through greater flexibility. Product managers are responsible for balancing external and internal needs.
They deliver and maintain a relevant and profitable product portfolio, enabling asset network optimization. This leads to more delighted customers and better financial performance.
Now, of course, the idea is not to give you a PhD degree in product management. That was not the goal, but it is to show on what was maybe missing in our portfolio when we looked four years ago, on how do we really get a mature product management? In fact, in the past, it was often R&D talking to sales around a new product. Sounds good, but think about it. Sales always has a tendency to want to sell something new, and R&D always gets excited by making something new, so no wonder we get a proliferation in product portfolio. In some cases, it was the sales organization talking directly to the plant, which then gave all sorts of wild planning or lack of planning situations.
For us, the product management, now with the data that we get to our ERP systems, the whole cross view, the global procurement organization, we now, for the first time, in 2020, we're able to get a product management function in that really can sit in this bow tie to look at the optimum end-to-end profitability and life cycle of our products. They're not just a theoretical exercise. What it's going to do for us is basically reduce the non-valued complexity at our customers. The ones that they want to see, the recipes they need, the differentiation they want to have. In fact, we want to increase our service levels on that, but on the contrary, where we have complexity because we were simply not organized enough, we have to take out. We want to go to much less raw materials in our basket.
In fact, over time, and this is in the next couple of years, we want to get to half the amount of the raw materials that we are buying today. It's going to make it still a vast portfolio, but much more overseeable, much more standardized. We also want to go to increased batch sizes. Increased batch sizes where we really can run bigger elements. Karen-Marie later will talk around the archetypes, where we can do longer batches, really avoid yield losses that we have there, and in fact, have our plants really function as centers for supplying a much broader geography than they do today. Last but not least, we want to go to late differentiation.
If you want to buy an exotic color from us in a specific country, in many cases, it sits in a pre-labeled, specific packaging for that region, and then in that, specifically, fully formulated in a warehouse, and that results in slow-moving and obsolete inventory. Inventory is a cash item, but frankly, when it's obsolete, it's much bigger. You may remember that four or five years ago, we had about EUR 100 million a year of paint that was obsolete, not because it was bad material, but frankly, there was no customer for it anymore, and it had gone over its shelf life. We've been significantly able to reduce it, but frankly, we're kind of halfway, and there's still much more to go. It's not only a cost reduction, it's also a much faster reaction and higher service levels when our customers really ask for it.
We also want to go to a standardized packaging. We did exercises on that already, but believe it or not, in some of our places in Europe, for deco, for example, some of our paint is in a square pot, and in another country it's in a round pot. And frankly, that means if you have excess capacity in one country or you want to get all your production in one specific facility, you really can't get it from there before you start making the steps to align the packaging, put the labels on later, et cetera. And why are we doing that? Yes, it's going to give a big advantage in sourcing.
Yes, it's going to make it much more easier to plan, but it's also going to allow a really rational network optimization by taking the non-valued complexity out, but at the same time, being able to have a higher service level for our customers. But enough aroun.d this, somewhat, attempt to explain product management to non-paint people. Let me get into some of the case studies. The first case study that we're executing on right now, and that will significantly deliver in 2023 already to the bottom line, is the product management in Decorative Paints for EMEA.
Europe, Middle East, Africa is a legacy business, a big business, all sorts of acquisitions that came in with a high degree of complexity, high degree both in the raw materials, because the French plant has a different, raw material basket than the U.K. plants, than the Polish plant, than the Belgian plant, than the Dutch plant, than the Italian plant, et cetera, et cetera, for no apparent reason, but also different packaging sizes. We've already done a first attempt in reducing our packaging sizes for the plastic packaging, where we went from 289 plastic packages to less than 80. Still a lot, given the sizes and the shapes, but still a significant step down. But we really had a high complexity that really didn't allow us to move products around between plants.
On finished products, big differences that we have there, in again, the way it got brought to the customers, how the product portfolio is put together. Last, but what that gave is a very limited leverage between our plants. One painful example in 2020 was when, due to COVID, the stores were closed in France by orders of the government, but there was this boom, do-it-yourself boom happening in the U.K. At one point, we were sold out in paint in the U.K. We could simply not make enough of it anymore.
We had plenty of capacity in our French site because, frankly, their customers were closed, and we could not get a product from France to the U.K. because of the packaging size, because it was pre-labeled, because it was slightly different in behavior than the paint in the U.K., et cetera, et cetera, et cetera. So that is basically something we definitely want to resolve. That results in our Europe, Middle East, Africa, in today, 8,400 semi-finished products in our portfolio, formulations with slow-moving and lots of obsolete inventory. So we did a real deep dive, methodical view on the whole portfolio now that the data is available, and where we will, are moving towards is getting an EMEA catalog of formulations and packaging, where every country then can pick from that catalog what they want to have.
In fact, the customer will probably get more choice instead of less choice where before. 2, late differentiation. We are aggressively investing in equipment that really makes those exotic products at the real end, and put a customized label on near the very end, and therefore reducing, of course, what we need to keep in inventory. This will reduce significant complexity in raw materials, 'cause we really want to go to raw material slate, where basically all the formulations have to come from. And last but not least, as I've indicated, it will really help in the leveraging of the manufacturing network to the archetypes, and in very much in optimization in our working capital. So what are the deliverables from this Deco EMEA product management - Decorative Paints EMEA product management case? We will be reducing the amount of formulations by 40%.
40% less different formulations out there. We will be able to reduce our packaging variants by about a quarter, a quarter less different packaging variations, and that will result in 2023 already in about a EUR 30 million EBITDA improvement, and more to come as some of the other benefits roll in. Now, that will, of course, also then move on to other businesses, but Decorative Paints is really deep diving, taking our own clutter out of the system, so that we, in fact, can offer a broader portfolio to our customers and deliver already in 2023 to the bottom line. The second case history will be presented by Michael Friede, and that has to do with the resins. Michael?
Thank you very much, Thierry. Another important element of delivering according to our 2023 promise has to do with one of our key raw materials, our resins. Our resins are used within paints as well as within our coatings formulations, and we do produce a share of the resins that we need in-house in 23 different factories right now, but we buy the vast majority on the open market. Now, it will not be a surprise if I tell you that during the supply chain constraints of 2020 and 2021, we would have loved to get our hands on more resins and other raw materials, but we couldn't. And we have quite some capacity available in resins in-house, and I'll walk you through a couple of the ideas that we will implement as part of our deliver component in Grow & Deliver.
Resins are also important for our sustainability promise that you have heard Klaas talk about, because they do represent a pretty sizable share of our Scope 3 emissions right now, where we buy the largest share of the resins outside. Now, zooming in a bit onto the 23 plants that we have in-house, and the value that we think we can generate by increasing the asset utilization of those assets, on the next slide. You can see here two graphs. On the top, you see how we have already improved the utilization of our 23 units from 2018 to 2021. We've made a nice jump from 50% to 60%. Yet 60% asset utilization for a chemical unit is not super impressive. There are fixed costs that can be diluted significantly further.
So by bringing in more externally sourced resins into in-house production, we plan to increase the asset utilization there to 75% by 2023 already. And at the bottom of the chart, you can see the split of what we source externally right now for this key raw material versus what we produce in-house, and you can see how that has progressed. And right now, we buy roughly 40%, 37% we produce in-house, and roughly 60% we buy on the open market. And until 2023, we plan to tip the scale here a bit, and we plan to buy not the majority anymore on the open market, but to produce the majority of our resins in-house, thereby spreading out fixed costs and sweating the assets a bit harder.
That also has sustainability benefits, because it will allow us to optimize our network. It will allow us to not ship around stuff and optimize networks, also with the external partners out there, our suppliers and other network partners, that we can optimize regional capacities, optimize cross-regional, cross-continental networks, and significantly reduce shipping times, shipping costs, and also increase the security of supply for this key component of our raw materials. That being said, that's the case study number two that Thierry has promised, and it's now my pleasure to hand over to my colleague, Karen-Marie, to take you through the next section of Deliver.
Thank you very much, Michael. So let's now take a look into the fascinating world of Integrated Supply Chain in AkzoNobel. So as you can see here, we are around 14,000 employees spread across the globe. We are managing around 120 manufacturing sites, more than 330 warehouses, and also supplying to customers on an ongoing basis. And we are really having thousands of customers, thousands of orders to manage. As we take a look into our ambitions for the strategy period, we have 4 main areas that we have a sharp focus on, and constantly having our customers in mind. One is really to keep the strong performance of our safety, but also to remain best in class in that area.
Clearly, also to have a good focus on remaining top quartile with the organizational health of our employees, that we really consider as our, as our most important asset. Also being clear about our service levels, again, increase service levels for our customer services, and also continue to work with our efficiencies, taking out costs across our operations in general terms. And we'll really do that by having a number of enablers, as you can see here, mainly in relation to optimizing our network, digitalization, but also working with improving our integrated business planning processes, and that's really end-to-end planning all the way from demand through to supply. And really also take it to the next level of maturity in relation to customer segmentation, as an example.
So it becomes very clear to us what is really that is the need, the requirements, the wishes of our customers in the different industries, in the different countries where we operate, and really also take advantage of some of the complexity reduction that you have just heard Terry refer to as part of our product management. But again, all of that to the advantage and the benefits of our customers. So let's now try to deep dive further into the four areas that we are working with inside Integrated Supply Chain. First, we have the planning area. That's really where we are working now to become more strategic, and again, we are building on a strong foundation that was part of the 15 by 2020 strategy.
We now also work towards, as you heard, Maarten already make reference to having an ERP platform that is really strong foundation for where we want to be heading in relation to our planning optimization. And pretty much also going from having different set of numbers, having a very manual approach, now really also to utilize the systems, having more aligned processes, and therefore, also be more agile into our planning, and also finally deliver it to our customers. From a sourcing perspective, also quite some work to be done in that area. It is really also taking the next step into the digital transformation. As we look into making, that's our manufacturing, you already heard me make reference to having more than 100 manufacturing sites to manage.
And again, also really there, taking it to the next level of digitalization, taking a look at how can we further optimize, continuously take a look at cost out, but also taking a look into what digitalization can bring for us. And then in relation to delivery, really working on our order fulfillment in relation to making sure we deliver everything on time and in full, but also using our network of warehousing, both inside our plants but also the external warehouses, again, to make sure we have very competitive lead times. So why don't we try to deep dive into each of those four areas? So if we start with the planning area, we're really coming from a situation with a very manual approach.
We had different set of numbers, all kind of discussed as it, you know, this number or that number, and now it's really getting into a situation where we're working towards one set of numbers. We are going to use a state-of-the-art planning suite for doing that, and that is really what our integrated business planning is about. It's both improving our processes end-to-end, demand through to supply, but clearly also the IT technology to make sure that we are doing things in a much more optimized manner, and really clearly moving away from Excel file-based planning. And where we want to be heading, that is clearly having a much more agile approach.
We can also more quickly turn around, but also really have planning seen as as a key advantage and competitive from that angle as well. And also from an inventory aspect, clearly make sure that we have the right products in the right places at the right point in time. And all in all, I expect that we'll be able to lower with about 20%, the days of inventory, again, optimizing, as I just outlined. And all in all, from an EBITDA improvement, that is expected to bring around EUR 30 million by 2023. If we go to the next area, so in relation to sourcing, we have indeed, as you have already heard, too, and also I've heard from quite many other industries and companies, had massive challenges here during the COVID pandemic.
It's really been everything from shortage of containers, shortage of raw materials, but also logistics constraints, and all kind of different challenges that we have had. So what we wish to do now as part of our digital procurement transformation, that is really to optimize our operating model. It is really to improve significantly our in-house forecasting capabilities, again, using a much more up-to-date toolbox, and also working with transformation in general in the procurement space. It is also clearly, as you have already heard, reference being made to making sure that we are working more towards dual sourcing, reducing the number of raw materials in general that we use. You already heard me refer to thousands of different raw materials, and we can definitely go to a much lower level and still have a competitive portfolio.
So overall, the procurement area really plays as a key enabler role for the product improvement as we go forward and for product management in particular. If we move to the make area, this is really the manufacturing space. And here we have three different archetypes identified. That's really where we take a look at the different product characteristics that we have, and really try to utilize the asset and bring more of the similar products together or similar technologies, you can say. We have a kind of one archetype that is simple and efficient, with around 60%.
We also have a managed complexity archetype with around 35%, and then we have, last but not least, agile and adaptive, which is around 5%, on a volume term basis. And what we are really doing here is, again, trying to make sure that we utilize the capacity we have, we utilize it even better. We are focusing a lot on our make to stock, make to order, make sure that we don't have constant start and stop clean, but really go into much more of a virtuous cycle, I would say, in relation to how we work out in our plants. That's really also a way to get a better throughput, get a better yield, a higher uptime, et cetera, et cetera.
Then also, really, this will obviously also require investments, and as you can also see on the chart here, we definitely are also being very clear with where we're investing our capital, in relation to supporting the growth, of the company. So very much capital is shifting also from maintenance to growth. And we also expect by 2025 that we would have around 70%, 75% of the volume, in each of the different archetypes, that you have, on the slide here. So taking a look at driving operational efficiency, continuous improvement, we can say cost out, there's many different names we can put to this, but really what we are looking to do here clearly is, on an ongoing basis, on average, to take around 3% efficiency gains out year by year.
Really to offset cost inflation. Clearly, we are on a very good trajectory here, more to be done. We are expecting to bring significantly more, as you can also see outlined here, and also take the next steps of OPI in relation to comparison with our sites versus our peers. So a number of more things to come here, and also expecting this to bring EBITDA improvements of around EUR 60 million by 2023. Still in the manufacturing area. Sorry, moving on to the improved customer service, so deliver. There are kind of three main areas to zoom in on here. One is really to make sure that we utilize the more than 300 warehouses that we have, some internally, some externally.
Again, closeness, proximity to customers, lead time, competitiveness, et cetera, is very important, but also using more modern technology in the different warehouse areas. But also making sure from a transportation perspective, especially the network design, how do we utilize and actually improve in relation to the network that we have? How do we both take our plants, we take our different vendors, we also take our warehouses, we take our customers, and then really get the best out of that network? That requires quite some effort, but also provides significant improvements. And then also really very, very key, as I already alluded to, improving our service levels to customers. Make sure we understand really what it takes in the different industries for different customers.
Let's say that best-in-class order fulfillment, raising our on time in full to 93%, that is really where we're heading, and expecting this to give around EUR 60 million in EBITDA improvements. So trying to wrap up now, let's say the deliver part, as you have heard me make reference to here, as part of our adjusted EBITDA bridge, which is really composed of two main blocks. We aim to deliver in total EUR 200 million. Around EUR 50 million is related to product management, as you already heard Thierry refer to, and around EUR 150 million out of the EUR 200 million is indeed to the Integrated Supply Chain initiatives that I was just referring to. The continuous improvement, network optimization, working capital improvement, et cetera.
With that said, then I'm wrapping up the growth part of our strategy journey.
Thank you very much, Karen-Marie, and I would like to invite you at this table to join Thierry and Michael.
Thank you so much.
Welcome, Karen-Marie.
Thank you very much.
Integrated Supply Chain. It seems to encompass a very broad range of processes, of complexities, initiatives, and I can imagine maybe some people watching are wondering, what are the, the key metrics that they should focus on when they measure progress on your Grow & Deliver strategy?
Yeah, thank you for your question. It is indeed a fascinating space to work in. And as we talk about metrics, I would say that there's a number of different areas to take a close look at. But actually, while the Integrated Supply Chain is mainly contributing or being a key enabler for the growth part of our strategy, then actually the vast majority of the benefits is under deliver, as I just alluded to.
Mm-hmm.
So I would clearly say, take a close look at the margin improvements, so Return on Sales being a very important metric.
Yeah
... thanks to the significant operational excellence, and also working capital improvements we'll bring.
Mm-hmm.
Also, another metric I would say is really take a good look at the working capital, so number of inventory days. That in particular is also another good metric to take a look at.
Margin improvements-
Yeah
... and working capital.
Absolutely.
Thank you, very much. Gerry, a question for you? Why is product management at the forefront now?
Yeah, it's a key enabler. I think, Maarten talked about the ERP systems, the data systems. I think he was somewhat underselling the vast amount of work that he and his team is doing on master data.
Mm-hmm.
Which was really high time to get it done. We have that now, the transparency is there. We now know what our products cost to make, we know all the—what they make, et cetera, et cetera. And then the next logical step is to get product management, where we brought the capabilities in.
Right.
That is, in fact, the hygiene, the big enabler. And we described the Deco EMEA situation, where the product portfolio has grown organically over decades, and it's a mess if you look at it. So how can you bring it behind the scenes back? I think Michael described the same for resins. We still have a lot of resin manufacturing, but also that was not optimized. Now that we have that data, making sure that Integrated Supply Chain knows what the business wants, having some structure in that portfolio is an unbelievable enabler for the plants. And I give an example for that. Some people who followed us for a number of years, they may be aware of the acquisition we did of the BASF Industrial Coatings in end of 2016.
It was a bit before our time. What happened then is that whole complex portfolio, with completely different raw materials, was pushed into two of our existing plants-
Mm-hmm
... in the acquisition.
Mm-hmm.
That basically made two plants almost wobble in their knees because they couldn't handle the batch sizes anymore, the complexity, the systems weren't there. What we came to figure out, in fact, in 2019, is that by trying to push the same complexity through the channel, we're never gonna get to the network optimization, the archetypes, et cetera.
Mm-hmm.
And that is therefore why product management is such a fantastic enabler to get there. And the analysis we did on Deco EMEA was raising eyebrows also by the business team around how much pain we had inflicted on ourselves.
Mm-hmm
... without having an argument on why we had done that in the past.
Right.
That's why we're going to product management as an enabler for all that work.
Right.
Yeah.
It was truly a lot of information that we just got, but I know that everyone is looking forward to the Q&A session later on, where, of course, the both of you will be present as well. So thank you for being here with me now. We are moving on to capital allocation, and for this item, I would like to invite back Maarten.
Yes, last but not least on the agenda, capital allocation. And let's first look at the total shareholder returns, because if you look at that, we have unlocked significant value since 2017. 102%, of which 58% through the appreciation of the share price, and on top of that, of course, the regular dividends and special returns to shareholders. And we are delivering on our capital allocation priorities, and we are delivering consistently on those priorities. And maybe it's important to repeat it again, we are investing in organic, profitable growth with roughly 3% CapEx. We have a dividend policy, stable to rising. We're executing on our bolt-on acquisition strategy and make sure that they are value creative.
We do share buybacks, and that all in a framework of a leverage ratio between 1 and 2, and retaining a strong investment-grade credit rating. Now, Thierry talked about it already, we are on the way to our EUR 2 billion adjusted EBITDA target. It's good to take us back to 2018. At the time, we were at EUR 1 billion, and meanwhile, we have made a step to EUR 1.4 billion. But the EUR 1.4 billion in 2021 was in extremely difficult circumstances and in pretty volatile circumstances from a supply chain perspective, but also from a raw material perspective, with a headwind of EUR 770 million in terms of raw material price inflation. In that context, we still realized an adjusted EBITDA of EUR 1.4 billion in 2021.
As said, with the adjusted EBITDA bridge, which we have shared with you on the growth side as well as the deliver side, we are confident in realizing EUR 2 billion by 2023. It's also good to mention how we have progressed from a return on investment perspective. Coming from 12.6% in 2018, we have now improved to 16% return on investment. Let's now talk about working capital and free cash flow. Because if we compare ourselves to comparable peers, our working capital performance is lower compared to these peers. It's important to mention that during 2021, the raw material inflation had a significant impact on our working capital. In fact, if we just correct for the raw material price inflation, that impact is roughly 2%.
So from the 9.9% where we ended in 2021, 2% is due to the raw material price inflation, and that obviously has also impacted the free cash flow delivery in 2021. But overall, over the past years, we have made incremental improvements in terms of our accounts receivable, and specifically focused on our overdues, as well as incremental improvements in terms of our payables. And as you heard Karen-Marie talking earlier, we are now very much focused on our inventory levels, and with the supply chain initiatives, and also with the product management initiatives, we see an opportunity to decrease our days inventories with 20% versus where we are in 2021, and the 20% is by the end of 2023.
So overall, I like to stress and reiterate that this business is a highly cash generative business, given the relatively low CapEx intensity. And talking about CapEx, here you see the development of our capital expenditures from 2018 onwards. And in fact, step by step, we have been investing more in the business and in growth, leading to a CapEx level of EUR 288 million by 2021, which is roughly 3% of revenues. And you heard Karen-Marie talking that we have shifted, in terms of CapEx, from maintenance to growth. But also, if you look at a regional level, you see that we are investing more and more in the Asian region, from 27% of the total CapEx in 2018, to 33% by 2021.
That is, of course, driven by investments in our powder business, but also driven by investments in our large-scale plants in the regions, which then cover the multiple products for multiple business units. Now talking about shareholder returns. Yes, we have, post the chemical divestments, we have returned EUR 2.5 billion. But if we take since the end of 2019 till early this year, we have deployed EUR 1.8 billion in share buybacks, and that has resulted in a 29% reduction in terms of our shares, from 256 million to 182 million. And with the recently announced share buyback of another EUR 0.5 billion, which we will execute till the beginning of next year, at current share price, the number of shares will go down to 172 million shares.
Dividends, we have been executing on our dividend policy, which is stable to rising, and it has delivered a 2.3% dividend yield over the past years. But maybe more significant is the adjusted earnings per share growth of 113% over the period 2018 to 2021. Of course, on the back of our earnings growth, but also on the back of the significant lower share count. And that brings indeed together the execution on our capital allocation priorities, because some of you might remember that back in 2018, we had quite a number of discussions on the low leverage ratio of the company. And at that time, we said we will lever up, and we have used a target leverage ratio of between 1 and 2.
At the end of 2021, we were sitting at a leverage ratio of 1.6, and if you look at our cash deployment over 2020, 2021, roughly 75% of the cash deployment has been to shareholder returns, and the remainder in CapEx and in M&A. Talking about M&A, we have been executing on our bolt-on acquisition strategy and done that in a very much in value-accretive way. Here you see on the left of the slide, you see the whole list of bolt-on acquisitions in the period 2018 till now, and we will see this quarter, Orbis becoming part of the Akzo family. You might well know that we do this all to make our business better.
So we have mapped our total portfolio, and we have created a pipeline to improve the business from a geographic perspective, from a product perspective, and from a technology perspective. These acquisitions over the past years have delivered a 1% CAGR inorganic top line growth. If you look at the value creation part of these acquisitions, then the value weighted multiple after synergies sits below 11.5, so below our own multiple... but this may be much better to just go to an example of an M&A case. Let's therefore go to Spain, the Decorative Paints business in Spain, because when we looked at the Decorative Paints business in Spain, early 2018, it was a small business with a small market share, with a single-digit return on sales.
Over the past years, we have created a strong and a leading position in the Spanish market with our Deco business. On the back of the Xylazel acquisition, and more recently, the Titan acquisition, and currently we are well positioned with three leading brands, including the Bruguer brand, with a very strong distribution network, a very strong commercial team, leveraging the platform which we had already in Spain. And that has delivered the synergies and in fact, half of the synergies for the Titan acquisition will be delivered in 2022, and the remainder part, post 2022 in 2023. But maybe I can talk about it, but it's much, much better if I asked the leader in Spain to talk about it. So let's go to the video, and let's ask Michelangelo to talk about Spain and what he has done there.
Well, first of all, I feel very proud to lead what we can really call a transformation in Iberia. After one year of activity as one company, we have the first result, and I can confirm that we have an upside versus our acquisition business case of about 5% in top line sales revenues and of about EUR 3.4 million in EBITDA. Customers essentially recognized our leading role in Iberia, and even more important, they recognized the value we can provide them as one combined company in the market. After the acquisition, we represent more than the 20% of the full market, three times the size of the second competitor in a very fragmented market with 300 local producers. It really means that we lead in size and performance, and we can leverage on our local and global scales.
One of the main drivers of our performance is sustainability and the focus we have on sustainable products, both under a customer as well as a legislative perspective. I lead also the Italian Decorative Paints market, and last year we had a substantial growth in exterior wall paints by 70%. There are some countries where we expect similar dynamics happen, taking place in the future. With this acquisition and with this focus on sustainable products, I can see for 2022 and also for the following years, even an acceleration in the speed. Finally, with our one team, one dream mindset, it is really impossible not to be confident in the future.
Thank you very much, Maarten. You've joined me-
My pleasure.
Meanwhile, here at the table. Maarten, we've heard from other speakers that the Deliver initiative can lead to improvement in inventory. Given these initiatives and also inflation too hopefully stabilize, what can we expect in terms of working capital by 2023?
Yeah, from a working capital perspective, the focus is really on the inventories, and we see quite some improvement opportunities given the initiatives in the end-to-end supply chain, but also the initiatives in product management. So from that perspective, I only like to reiterate what Karen-Marie said, that we focus on an improvement of 20% in terms of inventory days. And meanwhile, we will continue our incremental improvements from a receivable perspective, and it's mainly over dues as well as payable perspective. So yes, there are still opportunities from a working capital perspective. Yeah.
Okay. For M&A, there's been more paints acquisitions than there have been, coatings acquisitions. Is that something we can expect to move the same going forward?
Yeah, indeed, we have seen a little bit more paints acquisitions, but if I do a step back, we have a very healthy pipeline, in terms of, possible targets we are looking at. We have mapped those against our portfolio, and finally, it is more the availability of the targets, because most of those companies are privately held, and then it is more a matter of timing and when the target will become available. Good that we've seen more activity in the M&A markets. So, it's not that we have a stronger preference for Deco versus coatings targets. It's more the timing and the availability.
Right. I look forward to also seeing you at the Q&A, Maarten, together with all the other speakers that presented today. This brings us at the end of the presentation part, but I would now like to invite back Thierry, who will do a recap of everything that we've heard this afternoon.
... So as they say, time flies when you're having fun, and that not only applies to this 2.5-hour presentation, maybe fun for us, maybe less for you in front of the screen, but we hope you enjoyed it. But time flies when you're having fun, also in respect to the journey that the company did since 2018. The somewhat lazy, self-complaining teenager on the couch I was describing in 2018, great ideas, but very little action. If you look on what we did over in 15 by 20, we brought the company by 2020 really on what we promised to be on par with our competitors and with our best competitors.
We did that through really relooking at our costs, by really looking at the mandates by business on where we could win or where we had to make big changes, by really looking at our processes and putting the systems in place to get where we needed to go. We also were very disciplined on our capital allocation, and we assume a pretty shareholder-friendly capital allocation. Despite everything that happened in 2020, despite everything that happened in 2021, we stayed on course, and in fact, in the fourth quarter of 2022, we were above what our US peers were delivering as a collective group.
With all the pricing work we did, with having a high engagement in the organization and a clear purpose and North Star on where we go, wanna go with the business and strong franchises around the world, we feel we're extremely good position to really now in 2022 and 2023, deliver on our promise to bring EUR 2 billion EBITDA to the bottom line, and by growing faster than the markets that we operate in. That makes us, as we believe, an attractive case for an investor. Our multiples that we have are still significantly below where others, specifically our U.S. peers, are sitting. We are performing at the same level, and we feel we have the right dynamic, the tailwind going into the next period.
In fact, it's not, it's not a surprise, therefore, that we feel, in case of any doubt, that for us to invest in our own shares is probably the best place where we can put our money. What we did in this 2.5-hour journey is showing you the elements that we are busily working on to get us from this EUR 1.44 billion EBITDA that we delivered in a very tough year in 2021, to get us to this EUR 2 billion target that we have for 2023.
What you saw is an element that comes from growth, growth driven by market growth as such, and what we indicated is that the number that is out there, that is given by Orr & Boss, which is probably the most, reliable, firm out there, in the past has been pretty credible on what their market forecast was. They come up with 8% volume and revenue together, and 8% growth, close to what our own numbers would say, but we took a 2% haircut on that. So we took a 25% haircut to make sure that our business case to get to the EUR 2 billion is still in place.
We do that by continuing to build our franchises, but also to keep investing in the growth in those elements of our portfolio where we are clearly leading and where we see the markets coming back again. At the same time, it's probably fair to say that we've been extremely disciplined on our margin management over the last years, and that will continue to be the case. We've really worked hard to get on top of that wave of raw material inflation, and that is really, as has been in the past, an opportunity to do a very nice margin expansion. So that's on the growth element.
The second element, where we had to take you deep under the hood of the car of a, a paint maker, is really around using now the information, the capabilities, and the processes we build up to really get product management as an enabler to drive all the things we wanted to do in our end-to-end supply chain. Many people are working on that, many things are delivering, and frankly, we think that this is an, a very credible case for delivering EUR 200 million to the bottom line. With that, we feel good where we are. We feel we have the momentum. We feel we're gonna deliver EUR 2 billion EBITDA.
We have a habit of really making sure that we keep our promises, and in fact, with that, we not only wanna be a reference in our market, but we really want to start getting to that point of being a front runner in our industry. People. Planet. Paint. being the one that propels us on for delivering in 2023 and way more in the tank beyond that. Thank you for watching.
Thank you, Thierry, for this recap. With this, we wrap up the presentation part of today. We're now going into a short break, after which we will be back for the Q&A session. We look forward to seeing you back here in 10.
So there's never, like, a perfect formula. There's always more things to learn and to improve on. But I know the most important things for me to have success. So I know that the more fun I have, the more I enjoy working with my team, you know, meeting everyone, the harder I work, and the more I want to achieve a good result, you know?
Around 10 years ago, the business started looking at the impact that our products had after use and found that around 13% of all paint that we sell doesn't actually get used. Clearly, that's not particularly acceptable for a brand like ours, who has sustainability at heart, and it's not great for the planet that we're not using the resources in the way they're meant to be. So clearly, we need to find a use for that. I think the biggest challenge developing Dulux Trade Evolve was actually trying to convince people it was possible. Paint recycling isn't the norm, and because of that, people generally jump to a negative conclusion of the quality of a product that's recycled, based on past experiences generally. So there was a lot of convincing people, both internally and externally. The partnership with Veolia started in 2015.
Timing worked at the same, right time, so we were already looking at this. Veolia started looking at it, and obviously it worked with a nice synergy between the two companies, and they've also got access to lots of leftover paint.
We collect waste paint from householders at our household waste recycling centers. We then transport all that paint back to our Stewartby Remanufacturing Plant, whereby suitable paint is segregated out, depackaged, then blended and filtered, reblended back to a state where it can be used as a brand new paint product.
35% of the Dulux Trade Evolve is the recycled content, 65% is Dulux Trade technology and our own products that we, we reengineer and blend those two together to create a final new product. Dulux Trade Evolve's been on the market for a few months now. It's been really well received. Our customers think it's a, a brilliant idea. We've also had lots of inquiries from other countries around Europe, so it's obviously got a little bit of interest.
Evolve is a game changer. It's the first time a mainstream brand has developed a paint with remanufactured content. People are always painting, so there will always be waste paint and leftover paint. I think now we've demonstrated that there's a pathway for leftover paint to be remanufactured. We think we've just scratched the surface in terms of being able to encourage people to recycle their paint.
My big ambition for Dulux Trade Evolve is that, you know, it grows, it gets bigger. We have a larger product range to start with, but eventually, I would like to see 2% or 3% recycled content in every single Dulux Trade product that we make.
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Hi, everyone, and welcome back to the interactive part of the session. There's actually two ways in which you can join this Q&A. Either you can do so via the chat on the platform and ask your question, or you can do it via Zoom. Now, if you're watching via Zoom, please make sure that you turn on your camera. We love to see your beautiful faces. Raise your virtual hand if you have a question. You will then get a signal from the director when it's your turn to ask the question. And of course, don't forget to unmute yourself so we can also hear you. Now, if you're watching the live stream via the platform, but you would maybe rather ask your question in person, you can also join the Zoom. That's not a problem. So then you can switch to the other system.
So look at the Zoom link in the chat if you wanna ask your question via the Zoom. That's it for now. I'm ready to start the Q&A. I'm just gonna see who's already there in the Zoom. I see some faces already, and again, asking everyone who's joining us via Zoom to turn on their cameras, because it's so much more fun if we can see your faces. So please turn on your cameras and unmute yourself when, when it's your turn to ask a question. I'm gonna start with some of the questions that are in the platform, and welcome back, everyone. I forgot almost about welcoming you back. You're, you're here to support, and I, and I really need you to answer all these questions. Let's get straight into it.
First question, someone would like to know: Can you give us more color on how EUR 350 million EBITDA uplift from growth is split by, one, leverage from volume growth and, two, net price versus raw material impact?
Yeah, Marije, thank you for the question. I think, since we always handle the bridges to, to Maarten, maybe, Maarten, you want to give a comment on that?
Yeah, thank you. So indeed, if we look at the three hundred and fifty million EBITDA uplift from growth, it contains three elements. First of all, it contains the element, indeed, the growth and the drop-down based on the growth, and we use normally an approximate of roughly 40% gross margin. Secondly, it is the pricing versus raw material and how that will evolve over the coming quarters. And thirdly, it is also the investments we are making in growth, and that contains advertising and promotion, but also investments we do in the sales force and in, for instance, digital solutions. And in fact, Michael was alluding to that earlier. So these three elements, the drop-down from growth, margins expansion, price versus raws, as well as the investments, are part of the EUR 350 million.
Thank you very much, Maarten. Another question: for the market value CAGR assumption of 6%, what is the assumed pricing CAGR? And is it more than half, or is your 2% haircut on price or on volume, Thierry?
It's probably not very would go long in what all the assumptions are, but basically, when we did the analysis to the businesses, by the way, bottom up, we came to a growth rate that was slightly higher, and in fact, more in line with the Orr & Boss one. We then basically took a haircut. In effect, it's less pricing and it's margin. I think Maarten already alluded to that. What we said is, okay, and we've been talking about this before, we do believe there is a high amount of stickiness in about 60% of our portfolio on the current pricing, so we actually did an analysis on where we were gonna go. And secondly, on volume, it was pretty aligned.
But given the remarkable situations in the economy, we actually took a haircut on the volume because of inflation. What might... Is there, I would say, a recession case is probably too big a word, but a more negative case on that. So it was on both sides that we actually took a step back, and that miraculously was in fact our own roll up, rather, was very much aligned with what external consultants came up with, and that's why we took the haircut on both sides. So it's margin and volume.
Right. Another question. Someone says, Matthew Yates, Bank of America, "The plan looks like it's based on the Orr & Boss study. First question, did Akzo pay for the survey? And secondly, what is their track record in successfully forecasting the market growth?
That's a good question. No, we did not pay for the Orr & Boss survey.
You did not pay for this.
If you really wanna go to the genesis of it, as I indicated, the businesses, of course, came up with their two-year plan, and that gets scrubbed by all of us, I mean, on where do the numbers come from.
Mm-hmm.
It's also because we come out of a very special situation where some businesses really, we talked about Marine and Protective, we talked about the Aerospace, so we saw the dynamics in it. Orr & Boss is probably one in our industry for paints and coatings, the most reputed company who comes with it.
Right.
They are pretty much on the money when it comes on their forecasts. So our own roll-up when the Orr & Boss view came out, and we looked at the segments where we're in, so for example, we excluded Deco North America, we excluded Car OEM, because we're not playing in that. In fact, those numbers were very much matching up to our own numbers, and then we actually reduced it down. That track record, and I've already implied to that, is actually pretty accurate for our industry.
Right. Just one more question from the same person to follow up. Put another way, is it fair to say coatings has historically been a GDP-minus industry in volumes, and you now think GDP plus, and why is that? Is it because innovation, execution?
Yeah, well, let me hand this over also to Michael, but don't forget where we come from in the last two years. I mean, I just want to point out that some of these segments, like Aerospace, is the natural grower. That wasn't happening, given everything that happened with travel, so that is gonna be an overcompensation. Marine Protective, we talked about, has been... Now we see basically it coming. So you have to see it in the dynamic of where we come from. But, Michael, maybe you wanna give more comment on that.
Yeah. And again, the numbers we've shared are not volume numbers, but top line. So that's the first statement I would like to make on this one. And what you also have to know is that, you know, we really don't steer that much by volume, because a lot of what we do is increasing the efficiency of the great solutions we offer to our markets, and that oftentimes means 20% less volume if you have a coating that is just working better with a thinner layer. So from that angle, volumes really do not play such a big role in our own internal plan. Quite the opposite, especially when it comes to sustainability. A lot of our customers are also interested in achieving the same fine finish and the same protection with a slightly thinner layer.
Thank you very much, Michael. I'm gonna turn to the Zoom environment, because I do see we have a guest there. Hi, hello. Could you please state your name and tell us where you're from?
Brian, yes, you've got Charlie Webb from Morgan Stanley. So maybe my question would first be on the cost savings, the EUR 200 million that you've announced today. Can you help us just understand the phasing of that? As in, when should we start to see that materialize in the P&L? And likewise, also, what is the associated cost, if there is any, to those savings? That's kind of the first question. And the second one, probably for Maarten, around cash deployment. You put out an interesting wagon wheel showing the cash deployment of Akzo over the last few years. How do you see that on the next two? You know, how is that gonna evolve in the coming two years in terms of allocation to M&A, which perhaps was rather small in that wagon wheel?
You know, do you expect that to increase, and vice versa, share buybacks obviously playing a large part? You know, how do you think that will evolve, in the coming two years from your perspective?
Let's start with you, Thierry.
Yeah, let's start maybe with the first part on the phasing. It really depends on bucket to bucket, obviously. Let me maybe address the product management side, and then maybe, Karen-Marie, you can talk about your part of the village-
Sure.
Where you're operating. I would say on the product management, both on the Deco EMEA and for the Resin side, it's. You'll see things coming in already in 2022, but it's fair to say that the vast majority will probably be in 2023 of that. And the reason for it being that, Deco EMEA is rolling their product portfolio plans out right now. There is always a time to implement it, so I think it's gonna be the latter part of 2022 when that starts rolling in, but then you're past the season, so I think you'll have the full amount of it in 2023. Our resins, Michael, I don't know if you wanna give a line which you think we will come in?
We're working already on the implementation, so we expect to see first results trickle in already in 2022, and then progressing into 2023, where we aim to hit the EUR 15 million-EUR 20 million EBITDA improvement.
Yeah, and Charlie, just to put, to finish on that point, on the costing side, there is really not much costing involved. I think Michael has been indicating it's getting organized around it, because it was a bit of the neglected part of our portfolio. So it's, it's actually relatively limited, I would say, and the product management is actually just getting our act together, so there is no specific cost associated with that. I don't know, Karen-Marie, if you want to talk about the other part of the delivery.
Yeah, I can do that, absolutely. As we talk about the continuous improvement, we are already executing. We already have programs in place that are delivering. We are having a good constant follow-up on those for 2022, and obviously also very much looking into what is it then we'll have in the plan for 2023. So, so very clear plans in place and being executed as we speak.
On the cost side, Maarten-
Yes
... maybe you can do that before you get in the second question, then, around what is, provisions that we will, kind of the order of magnitude-
Yeah
-to think about?
Yeah, because I think it's important, first of all, to think about the EUR 200 million. It's OpEx and margin, so don't see this as a pure OpEx number. But indeed, some of the initiatives which are driving, especially on the asset network optimization, that requires restructuring costs. And to give an indication, that would be for this year as well as next year, roughly between EUR 75-100 million per year. But again, their timing is always of the essence in terms of what we execute by when.
On your other question, on your cash deployment, we've always said that, and, and that's where the word modular share buybacks come from, that we look at our opportunities we have in, in M&A, and if not in M&A, then we basically have more opportunities from a share buyback perspective. So I would not say that what you've seen in 2020 and 2021 is immediately, the same for or similar for 2022 and 2023, because again, it depends very much also on the deployment from an, M&A perspective.
Yes, if I may just add on that, Charlie, I think, again, M&A is, for us, less neurotic. We have to do this. It really goes back to the assets are available and are they solving an issue in our portfolio? So it's very difficult to foresee. And frankly, if the valuation goes out of the window like we have in certain cases, then frankly, there's other ways of solving and creating more value that we feel.
The other element or on the share buyback, I would say, try to summarize it a bit in our closing comment, but if you look at the amount of shares we will have outstanding in 2023, by the time we have done this latest module that we've announced on share buybacks, if you look whether you're an optimist or a pessimist, around 2 billion, depending on how you buy into our story, and then you look at our multiple, frankly, it is probably the best use of our money right now, if you see what in fact the underlying value is and what the current valuation is. So that is a pretty steep hurdle for any M&A project to basically compete with that.
Thank you very much.
Very helpful.
I hope that answers your questions, Charlie. Thank you so much for, for joining us.
Thank you.
As another slide, another question that came in through the platform. On slide 17, where Marine and Protective are mentioned, they are so low on the attractiveness axis, and this person says, "I understood it, that it was just a very attractive business. So, why is this?" Peter Clark.
It is, it is. No, no, it is, and I think if you allow me, Michael, to jump in ahead of the front lines there, the attentive spectator will have seen that there was an arrow on those two bubbles. It is indeed, and I think I pointed it out, that Marine and Protective, within AkzoNobel, with International, is one of the strongest. In fact, it was one of the highest performing businesses in margin. But it is a very technical business that needs a lot of resources in the market. And in fact, the volume, the market was down significantly. So I think we've cost reduced as much as we can without doing damage on the business. So that's why I think you also alluded to that.
That's why we have the arrow. It should come back to its former glory.
Okay.
We see it moving in that direction.
Good to know.
I don't know, Michael, if-
Anything you would add?
Yeah, no, I think just technically, I mean, the chart was a 2021 year-end position chart, and that explains where the bubbles were. And then again, as Thierry rightly pointed out, because we saw that coming, we put that little arrow in there to indicate that we see that to change quite quickly and quite significantly.
And positively.
And positively.
We could have done it the other way around, but then people would have said: "Okay, but why it hasn't been performing the last year? So, okay." So but that's, that's the story behind it.
Clarified.
Yeah.
Thank you very much. I'm moving back to the Zoom because I see we have our next guest. Would you please introduce yourselves and tell us from which company you are?
Hi, this is Jaideep from Onfield. The main question really I have is, Thierry, and Maarten actually as well, on the, as you said, you know, you do love doing bridges, so on the bridge itself, you know, how should we really think about the cadence for 2022 into 2023? Because 2023 is not really far away. So the EUR 200 million that you're talking about, is it gonna be sort of evenly split in 2022 and 2023, and the EUR 350 million is more so coming through as we see pricing catch up on raws and growth coming through, and therefore, there's gonna be a sharp hockey stick in 2023? Or do you actually see growth in 2022 and sort of taking a baby step in 2022 towards the EUR 2 billion, and then a big step into 2023 towards the EUR 2 billion?
If you can just give us some, you know, let's say, cadence of that, that'd be very helpful.
No, no, thank you, Jaideep. It's on the... Let me maybe handle the top line, or I'd say, the margin point, and then maybe Maarten-
Yeah
... you can chime in on the, on the cost side. Indeed, I think for the first quarter of this year, we don't expect necessarily too much. I think you'll see some markets coming back, but as, as we already said, they still have to get over the hurdle of the raw materials. We do expect that, in fact, to start widening up that margin expansion that we talked about as of somewhere in the middle of this year. And then I would say it's probably, well, nothing is ever linear, but it would probably be a relatively linear situation. You have to take seasonality in place getting into 2023. So that would be-
... in the next 3-4 months, I think you would start seeing that gradually opening up. So not a hockey stick, but a line that starts at that moment of time. On the costs, Maarten?
Yeah, it's a good question, but let me take us back, because most of the initiatives we've been talking about, we have been already initiating these initiatives from, from 2020 onwards. So, Thierry talked about product management. That initiative started in, in 2020 already, and some of the initiatives have been ramping up. So in general, you will see an pretty equal split between, 2022 and 2023. Some initiatives might be a little bit more into 2023, but again, this, these initiatives have been part of our Grow & D eliver strategy and is, are not, not started up, kind of yesterday or, or today.
Great, thank you.
Great, thank you very much for asking your question. Moving on to the next, Alex Stewart says: In the 15 by 20 management, compensation was linked to the targets, so management compensation linked to targets. Will this be the same for the EUR 2 billion targets?
It actually is. For the large group of the management in the company, it is. The exception is actually the board of management, Maarten and myself, we do it pro bono. No, I'm just kidding. But it's. No, but that feeling was, given the shareholdership, that is a different way of remuneration.
Mm-hmm.
It is fair that for a large group, like we did for 15 by 20, there is an incentive indeed linked to those targets.
There is an incentive. Our next guest, Chetan Udeshi, if I read correctly, says: "I'm very surprised that a company as big as Akzo has a high level of single sourcing. Can you give us some examples of such raws?
Yeah. Good question, Chetan, and it's a legitimate comment. But I think you would see that with many large companies, by the way, are probably the biggest sinners on single source products. But before you think that we, that we are completely in the past were asleep at the steering wheel, that's not correct either. What it often is, is either we have single sourced, and don't forget that you have the 80/20 rule. You have 80% of our volume sits with a number of big resins, TiO2s, et cetera. Yes, sure, there we have different options and multi-sourced, but then you have an enormous rat's tail of additives, specific pigments, et cetera, et cetera, and that's in fact where the issue is.
By the way, in 2021, for our whole industry, by the way, the not being able to supply because of raw material shortages was often due because there was wiffle dust XYZ was not available, and you had to reformulate the whole thing to actually do it without a specific product. So it is... In numbers, it's actually not that surprising. So if you ask for what examples are, it sits in rheology modifiers, it sits in special pigments, it sits in specific waterproofing elements, et cetera, et cetera, that go in there. In specific cases, though, and that is important, and take TiO2, of course, we have multiple titanium dioxide suppliers, but in many cases, we had only qualified one specific TiO2 for one specific product.
And in a technical market, when there's an issue with a Tier 2, now you have to reformulate, and there's always slightly different things. So there we want to buy or we want to really dial in much more flexibility, so we would have, in that specific case, two or three TiO2s or two or three rheology modifiers to solve an issue. By the way, 2021, to echo a bit what Maarten has been saying, has been an enormous jump-start of doing that because our R&D organization has been reformulating products all over. And the nice thing is that we did that product development, product management work, so they could be developing and, and modifying and reformulating in the direction of the best product portfolio for the future. So-
Okay.
I understand you're surprised, but it is what it is.
It is what it is. Moving back to Zoom, I see we have our next guest. Hi there. Could you please state your name and company?
Hi, it's Mubasher Choudhry from Citi. Thank you for taking my questions. I just have a couple. Firstly, a clarification. I assume the Orbis deal makes up part of the EUR 350 million of the growth side of things, so that EUR 30 million sits within that. And could you just clarify which bucket within the 350 that you talked about it sits within? And then the second question is around, I think, in the Marine and Protective Coatings, you were number one as of the previous slide deck in February 2020, and now that seems to have dropped to number two in terms of your market position.
Could you please provide some color as to what's driving that, and, and is there any particular part of the market that you're losing share in?
Yep.
If I could, sorry, just look at the screens in a third. Can you please talk about the return on sales trend, how that's trending in China? I know that's a big kind of a growth initiative for you, so just interested to know how that's moving on in profitability. Thank you.
Yeah. I know. Very good. Maarten, you want to address the first question?
Yeah, sure. Your question on Orbis. In fact, the EUR 2 billion Adjusted EBITDA target is based on organic growth, and Orbis is not part of the EUR 2 billion.
So it's excluded from it.
It's excluded.
Now, I'm not sure, Mubasher, if you're stunned or if the screen is frozen, but it is not part of that. So it isn't. So just as the answer. The second thing, it's a legitimate question on Marine and Protective. Michael, it's probably good to say how we have been keeping the discipline and what the effect is on that.
... Yeah, so Marine and Protective is indeed, as you've heard me talk about earlier, is the one where we expect the highest growth now going forward. We had to do a couple of things in-house in order to address topics that were not going the right way. We think we have completed that, and now we're quite optimistic about the future of that business.
And then the last question was on the return on sales in China. Suffice it to say that it has been trending gradually upwards, but it continues to be the top quartile of our businesses by far, I would say, on profitability. And that has to do with the fact how the strength in the distribution, also, the Dulux name in China is a real recognized brand name. But also the fact that the team has done a fantastic job to launch anti-asthma products, air quality products, bio-resin-based products, et cetera, which are in extremely high demand in the Chinese market. So it is one of our highest return on sales businesses in the company, and actually has been trending upwards.
We hope that-
Thank you very much.
Thank you.
Thank you very much, indeed. Moving to the next question that came in through the platform, again, from Titan. Can you give any examples of progress with Scope 3 reduction targets, and how is the progress with your upstream suppliers in terms of their emissions reduction?
Yep. Klaas, you wanna take that?
Yeah, well, let me, let me give an example, actually, starting with the customers. Because some of you might actually following this, this conference through a, piece of equipment on the backside, most likely, where our paint is actually located, i.e., a Dell computer. We basically were awarded by Dell, for our, transfer of their entire product range from solvent-borne to water-borne. I think a better example I probably cannot give.
Mm-hmm.
And as far as the suppliers is concerned, yes, over the years, we already active in particularly working on the more bio-based raw materials. But I would say, it's clear that this is still a starting point, and I do know that particularly also together with our CPO, we are now literally approaching our suppliers, and particularly look into the decarbonization and the transfer to other energy sources. So that program is ongoing as we speak.
Thank you very much, Klaas. Moving again to the Zoom environment, where we have our next guest. Hello, could you kindly state your name and company, please?
Yeah, thanks. Thanks for having me. Christian Faitz, Kepler Cheuvreux. Two questions, please. I think I'm asking this question at every single Akzo event, but now that Michael Friede is on board, I might try again, and we might get a different perspective. Why do you believe you don't need to be in the automotive OEM space, since you're a rather big refinish player? Any synergies there you could identify? The second question, on Deco. What happened in Brazil, with you now being only a close number two, as you labeled it, Thierry? Your key competitor in this market is not exactly a prototype of a globally acting Deco company. So how do you plan to fight back in this biggest Latin American market? Thanks.
Yeah, all right. So let me take the Deco one, and then, Michael, you can address it. Maybe there's a misunderstanding. We... The company who is the number one has been the number one there forever. We were a relatively distant number two, then we were a closer number two, and now we are number two, that for four months this year was actually selling same amounts as the number one in the market. So in fact, we're catching up. It's not falling behind. It's actually catching up, so that might be a bit of a misunderstanding. In Argentina-
I obviously thought you had 20% you and 20% the-
No, no, no, no.
Company starting with the B.
No, no, no, no.
No?
No, Argentina is a different case. Argentina, we are by far the market leader there. Brazil, we've always been in a number two position, but the team there is very much swearing expensive oaths on taking over the lead position there. Doing a pretty good job on it. So it's actually catching up.
Mm-hmm.
It's not falling behind. Michael, on, on automotive?
Yeah. Hi, Christian. Thanks for the question. Yeah, indeed, we are supplying into the automotive OEM business as well. We are more in the plastic coatings there, so it's not like we don't have any automotive OEM business. We stayed away from the metal coatings. It is a very commoditized bulk type of activity, and at this point in time, we have no interest, even though technically we can probably produce a coating that would work on a car. It's not, it's not in our interest to enter that game.
Yeah. Christian, maybe one other thing on the vehicle refinish versus OEM. There is no synergy between the two. It's different products, it's different customers, and maybe on a long winter night, you can try to do a correlation on who is supplying the OE... Well, which paint supplier is supplying the OEM paint and which one is supplying the aftermarket refinish paint to that same network, and there's no correlation whatsoever. So it's a different product, different channel, different distribution. Fair to say that we feel very comfortable in the distribution market there, because that is actually, given our Deco background, a very strong part of the DNA. In OEM, I think it's I can only 100% agree with what Michael has just said.
Okay, thanks.
Thank you very much for asking your question. Another question from Lucy, from Bernstein, who asks: Why don't you give an ROIC target, and how confident are you that growth investment, investments won't overrun? What is a reasonable ROIC target by 2023?
Yep, thanks, Marije. Maarten?
Yeah, so let me first take a step back, because in Grow & Deliver, there are a few elements we are very much focused on. That's of course, one is growth, the other one is the realization of our EBITDA target, the EUR 2 billion EBITDA.
... and of course, working capital translating in, in cash. In terms of ROI, I must say that there is an enormous discipline in the organization, not only on the M&A side, but also internally on the, on the capital investment side. That's why there is less focus in terms of our external communication on ROI, as well as with our Grow & Deliver strategy, we will see incremental step-ups automatically from an ROI perspective.
Thank you very much, Maarten. Going back to Zoom, because we have our next guest waiting for us. Please state your name and company. And turn on-
Hi.
Hi there.
Sorry. Hi, it's Georgina from Goldman. Thank you for taking my question. It was really noticeable in your presentation that you were highlighting the strength of Akzo's brands. I think it's fair to say that the brand that most investors are familiar with is Dulux. So there's this perception that Akzo's been over-earning from DIY trends during lockdowns. Can you remind us of your group exposure to DIY, and what gives you confidence that that's not going to be a major drag on volumes for the group over the next year or two?
Yeah, I'd gladly do so, Georgina. I think we covered it to some extent in our fourth quarter results, but the DIY exposure in the revenue number is about half of the European part of Deco EMEA. So that would probably, taking here, I'm doing the calculation in the back of my mind. But you probably have to look at something between EUR 700 million and EUR 900 million as the DIY exposure for the company, so it's relatively limited. I think we've... There was a chart in our fourth quarter deck, which I think we tried to explain it, that the DIY was indeed in Europe, up. Now, for some reason, everybody seems to have forgotten that the Performance Coatings was down in 2020. That seems to have been forgotten.
Everybody focuses, "Oh my God, what's gonna happen?" Although we pointed out. But secondly, also in Europe, while DIY was up in some markets, the trade business, the professional business, was down significantly in all of the markets. Again, people were bored at home, started painting. At the same time, they didn't want to have a painter, a professional painter, around the house. And in fact, as these things are balancing out, what we see now almost a year now, we've seen that the do-it-yourself in Europe is balancing out at about 4% higher than 2019. And by the way, that came down at the end of the first quarter last year to that level and has stayed there.
But that the trade business is back to what it was before the pandemic, and that therefore, we are pretty optimistic around the underlying market demand. But there is notable market share gains, and I talked about the UK as an example. I think, Georgina, you have probably some estimate in your mind around how big our market share in the UK is. But surprisingly so, we have clear evidence that we've gained market share. And by the way, the Heritage brand, which is the super premium brand, targeting an already existing brand that we could not acquire because of our market share, is making very fast inroads into that segment. So we've even in a market like the UK, we actually have been gaining market share.
So in that sense, there's really no worry on our side around do-it-yourself is gonna do something bizarre, and it's gonna be a big negative. That has already happened, and it actually hasn't been noticed by anybody, because the other dynamics were making up for that.
Does that answer your question, Georgina? Thank you very much. We—you froze, but I think you... It, it satisfies you. The answer was satisfying. We have our next guest on the Zoom. Could you please state your name and company?
Hi, good afternoon. It's Rob Hales, Morningstar. I had a couple questions on powder. I was just wondering, what's your market share now? My understanding is that the market's still very fragmented. And, when did you start using powder on different substrates? And is this, is this unique Akzo IP, or are your competitors also doing this now?
All right. Michael?
Michael.
Yeah. Thank you for the question. So, market shares first, so you saw us putting a clear number one position on that chart. I think it's fair to say that we are, by far, the clear number one, globally. It depends a bit on the region you look at. I would say it's a fair assessment to look at the Asian market being a bit more fragmented than the rest of the world. So our, our market share, outside of Asia is probably higher than within Asia, but even including Asia, we are by far the global number one in powder. Now, on the substrate question, we've been experimenting with different substrates, for years, if not decades.
So classically, of course, metal was the starting point there, and we've tried to open up, in fact, new substrates like wood or plastic, which just need lower baking temperature. Otherwise, you destroy the substrate while you bake the powder. And we have indeed had breakthrough innovation and IP to move into those segments now, and we have started doing that, already two years ago with wood, and slightly before that already with certain plastic applications. But the growth is significant, and we have high hopes for opening up a totally new field for our powder business with them.
And there is technology protection on it?
There's IP. Yeah, there's IP protection on the technologies there for low bake.
That satisfy your answer? Your question, sorry.
Great.
Yeah. Thanks so much for joining.
Yeah, thank you very much.
Thank you. While we're with you, Michael, another question coming in from Laurent Favre, who says: It seems that the payback on the ERP investment is less than three years. Are there other areas where you would consider integration?
Yeah, bonjour, thank you for the question. Yeah, indeed, the payback is fairly quick. You've heard me say that this is not about us investing into new vessels, creating new sites. This is about using what we have in a smarter way with a fairly limited CapEx and some OpEx that we invest in. Therefore, indeed, it is a fairly attractive turnaround for us here. We right now have no plans to build additional assets to increase our backward integration. I guess that's what the question is trying to get at. That's not the plan. We really are looking here at efficiency to a certain degree and security of supply with the assets that we have by managing them a bit more smartly and sweating the assets a bit more.
All right. Maybe let's take another question from Laurent while we're at it. He says, "In the bridge, where would you assign the headwind from fixed cost inflation? Do you still assume separate productivity efforts can offset that?
Yeah, Marije, good, good question from Laurent. So I think it's probably good for you, Maarten, to sketch that. I think it—there was answers across the presentation-
Yeah.
It'd probably be good to summarize it.
Yeah, I think that we go back to the presentation of Karen-Marie, and Karen-Marie has been talking about the productivity efforts, the continuous improvement initiatives, ALPS. And these, all these initiatives, and by the way, the productivity of 3%, these initiatives drive the offset against the fixed cost inflation. So indeed, in the deliver part, you see that, fixed cost inflation is, is offset by the productivity efforts.
Just maybe one other additional comment on that is on the because there is, of course, a wage bill pressure that's actually mounting. Also there, by the way, also for 2022, we do have the efforts in place to offset that to other means. So the whole idea is around the inflation offset remains core to our whole exercise, and that is gonna be a bit more of a hump this year than it usually is, but we are determined to offset it too, yes.
Great. I know there's another Zoom question ready, but just to finish off, because I see Laurent had three questions, so let's just treat them all. He asks: When you look at slide 72, I hope you know what's on slide 72, what do you think the market is missing about Akzo, and why reduce the buyback envelope when your own stock is relatively more attractive?
I don't think we... Well, first of all, what is the market missing? Well, I think you are the analyst, so you tell us what's missing. Yeah, it's a good question, though, but I do believe it's a long overhang from the history of the company. We often have a huddle in our offices on some of the reactions that are happening or some announcements that some competitors make, which we believe we wouldn't necessarily be allowed to make without being laughed out of the building. So I think it's just an overhang. To be honest, 15 by 20 was seen as, yeah, right. That's never gonna happen. It did happen.
Mm-hmm.
I do believe that we make it as a core value for the company to stick to the promises, so we wouldn't make the promise if there isn't a plan behind it. If you then do the calculation, yes, it is a bit bizarre, the discrepancy between what the valuation is and where we are. But that, frankly, is a good thing. As long as it resolves itself, that's fine. So we're not too worried about it. The second element around the buyback, Laurent, there is not really a reduction of the buyback. What we announced, and Maarten already alluded to that, is the modular share buybacks, where we want to do this.
What we don't want to do is start announcing big buybacks, and then all of a sudden in the middle say, "Oh, we were just kidding. We're going to do something else with our money and M&A plan, et cetera." So I think what we've been explaining is that we want to have these tranches, which give certainty to the shareholders, but also doesn't tie us up completely for not having any freedom to work on any project that comes back. So just, we see that as good parenting for the company. So it's not exactly a reduction. You may remember that in the past, we've done a number of slices, keep me honest here-
Yeah
... around EUR 500 million.
Correct.
The last one was the EUR 1 billion over a longer period of time, but that was more the exception than the rule, I would say.
Thank you very much. Sorry to keep you waiting, and thank you so much that you're here. With your question in Zoom, could you please state your name and company?
Yeah, hi. It's Geoff Haire from UBS. I just had a very quick question, actually. I think, Maarten, you're increasing your CapEx to sales guidance for the period to 3% from 2.5%, when I look back at the presentation in July. Could you just explain what that's for?
Yeah, Chris, that is very much to...G eoff, sorry. That's very much to support our growth plans. And you saw that, that we are, on one hand, moving much more CapEx to growth initiatives, and on the other hand, also regionally drive more CapEx to the Asian region. And powder is an, is an, is a great example. We have a leading position in powder. We have very strong growth plans in powder, and that's why we, we put our money where our mouth is, and that is also the investments we are making there.
Yeah. Maybe if you allow me maybe to build on that a little bit, and Michael, chime in here. When we did the analysis on the growth of the powder coatings market, it was clearly there. Then, when we looked at how we were performing, in fact, it became clear in the analysis we did, end of 2020, beginning of 2021, that we were often constraining ourselves. We were waiting until the assets were filled up to a certain percentage before doing the investment, and then we were too late with the investment. And that is, I think, what you explained, the cycle, and maybe you want to comment on that some more.
No, absolutely, and that's why we have come up with a multi-year, very dedicated investment program that is going to really create another step up in our ability to serve the market. We wish we would've been able to produce much more this year. We could have easily sold significantly more volumes, and that's why we have stepped up our game here.
Hope that answers your question. Thank you very much.
Thank you.
Moving straight to the next person. Oh, we've seen you before. Hi, you're back. The floor is yours.
Hi. Thank you. I have two questions, actually. First one, Thierry, just on pricing. So very well done on, you know, the lead that you have versus the, you know, Americans and the public companies, and hopefully also the private companies. But at least for me and a lot of your peers, even, like, the lead that you have is a little bit, you know, almost unbelievable, really. So is there any surcharge element in this pricing element that you push through, there, where if raws do go down in the second half of 2022 into 2023, that actual pricing will be actually on the other way around, even, you know, more volatile? Or rather, if not volatile, it will go down more.
Or do you think that actually you've done a phenomenal job and whatever we see, the 12%-14% pricing is real pricing? And then I have one follow-up question as well, I wish I'd ask after.
Yeah. No, Jaideep, a good question. I think... But it goes back to the question we had from Laurent Favre: What is the market missing? So when we actually are outperforming clearly competitors who are asleep at the steering wheel, the question is: Where's the catch? So frankly, we were ahead of the others, and that's full stop. So the surcharges are a minimum part. In fact, I can't even remember where we would have done it. So if it is, it is a minor part that, frankly, is negligible. So there is no surcharge that was implemented that's going to go away when something else changes. What we have been saying is that in our distribution businesses, we will likely hold on to virtually all of that price, even when the raw materials start normalizing.
There are some bigger industrial businesses where there are indexes that are related to raw materials, and there, in fact, every single time, after three months, we had to eat the raw materials for three months before we get our prices up. Given the contract, that's going to work in our favor on the way down. But there are, of course, in the big industrial segments, we are also realistic, that that becomes related to what your raw material market is doing. And hence, the statement that we believe in about 60+% of our portfolio, we see a significant margin expansion coming our way as we change our management model to actually hold on and keep expanding that margin.
And I think there was a second question.
Just, yeah.
Yeah.
Thank you. And, this is now... You're going to love this theory. So if Cleveland does wake up, one day, when they do wake up, do you now see that, you know, you are sort of at par with Cleveland, i.e., you are sort of best in class or, you know, going towards the reference, as you sort of said, and therefore, Cleveland will have to put what they are trading at on the table for you to talk? Or are you never going to talk - and keep buying your stock?
Well, okay, so it's going be... Things are going to happen as they happen, I would say. So that's. And if there is anybody knocking on the door, we have a fiduciary responsibility to look at it, obviously. But I'm also not a big believer in being remaining so ugly that nobody ever wants to talk to you, so that's not a good business model either. That is actually the furthest of our minds. I think it's not, it's not around who is, who is stronger than who. I think for us, I think the only thing that drives us is actually having a portfolio of businesses that is delivering with the best, is growing with the best. Again, 15 by 20 is not around growing, and then creating a valuation for a company that it deserves.
And then, Jaideep, the rest is actually just speculation on who might be talking to whom about what, but that's really not on our mind. It's not a fair point, but it's not on our mind either at all.
Thanks a lot.
Thank you. Back to the platform with a question from Tony Jones. For the resins opportunity on slide 51, why is the target for utilization only 75%, which internalizing supply is an evident gain?
Michael, you want to take that one?
Oh, absolutely. So clearly, you, you saw that all of our slides were geared towards 2023. And it's fair to say that we will probably not stop at the 75% in 2023, and that there's more room to to move forward with internalizing parts of the resins. We will take that decision when it comes in 2023. But the step up from 60 to 75, that's already a logistical challenge, and it doesn't happen overnight. So it's a quite ambitious target to get to 75%, but we're quite committed to get there. We will probably not stop there.
That sounds firm and a good, a good answer. We have another question coming in from Eric, if I see correctly, Eric Wilmer from ABN AMRO. On the migration to one ERP system, how many savings would you expect from this step, and how much are the associated costs? By when do you expect completion?
Maarten?
Yeah, I think it's important to realize that the ultimate migration to one ERP is really beyond 2023. So the steps we are now making is to further consolidate our landscape, and ultimately, the one ERP solution is beyond 2023. That will give additional investments to do that, but also will give, again, additional benefits, especially from a transactional processing perspective and additional transparency perspective. But I think it's a little bit too far away to go here into details, because we have made already major steps, given where we came from. I don't know if you remember, we came from more than 40 different ERP systems in 2018, and now we are in a much better state, compared to where we were before.
So step by step, we execute on this roadmap.
Thank you. Moving to our next guest in Zoom. Hi there. Could you state your name and company?
... Yeah, hi, it's Martin Evans, HSBC. Following on actually from Maarten there, on the ERP and such like, on your deliver target, the EUR 200 million, a lot of the themes are pretty familiar. Raw material standardization, planning optimization, reduced complexity, both, I guess, from you, with various restructurings at AkzoNobel, and also from other manufacturers. What is new here that hasn't been tried before? Because is there not a finite level of cost savings and efficiencies that you can extract from this business? Thanks.
Well, yeah, I would say it's always finite, I would say, but the ERP and the product management, the ERP gives us the data transparency, because first of all, you have to see where the issues are. The product management gives us the methodology that we didn't have to really then start acting on that. So you could theoretically say, is it finite? I would say theoretically yes, when you have it full optimized, but to be honest, we can keep ourselves gainfully employed for the next foreseeable future to keep optimizing that. To be honest, Karen, it may be good, and it's maybe not good to go into the gory details, but-
Mm.
Are you afraid you're gonna run out of opportunities in the next couple of years?
No, I would put it like this: I joined 5 months ago, have really now rolled up the sleeves. There's lots of opportunities, as, as you have already heard me allude to. There's a number of also areas that we have not really been looking into, but I think one of the clear prerequisites from exactly improving, utilizing, running the asset, even harder than what we've done currently, is really dealing with some of the complexity. Needless also to say that end-to-end planning optimization will, will give us much, let's say, different ways of, of discussing and also working with scenario planning, and then also, let's say, embarking on the digital journey. That is for sure also all of the one of the ways to go as we go forward, and utilizing the, the global network that we have, no doubt.
Thierry, when you joined four years ago or so, was it obvious to you then, when you had a look at the business, that there was all this opportunity that you're now focusing, or have you had an epiphany during the COVID period that has opened up all these amazing new opportunities for you in terms of reducing cost and efficiencies?
Yeah, no, despite the rumors, I've not taken up smoking marijuana in Amsterdam, if that's the question on that. But the... No, in fact, here's the story. When starting this, my first reaction was to start putting product management in, because it stares you at the face on how this product portfolio, the complexity, was a kind of a giant heap of opportunities that was in front of us. Back then, and Maarten is my witness on that, I stopped from pushing that because it was clear we didn't have the systems and the transparency to do so.
Just want to remind, we had no integrated business planning in place, so frankly, we were a little bit like the butcher around the corner: when somebody walks in for a steak, they cut a steak, but that's not something that you can keep doing. That is actually working very well. I, I may point out that in 2021, despite everything that happened, our planning was actually pretty accurate, despite all the turbulence. So I think we got to a certain level of maturity in our planning. We didn't have the systems, we didn't have the master data, the system. So first you have to know what does it cost, what is the complexity of it, et cetera. And in many cases, we didn't even have the transparency four, five years ago to figure out what—who buys what raw material from whom, at what price.
That was kind of the situation. So then I folded my product management idea back in my, in my pocket, because it was a waste of time to try to do it. And therefore, when we were at the end of 2019, and in fact, in 2020, beginning of 2020, we identified the people who could do product management. We actually attracted a number of top product management profiles from the outside. And in fact, in 2020, we started working, and then through 2021, doing the work. So the plan was always there. It just takes a lot of viscosity to get to it. And I just want to point out, and in fact, that's a compliment to, to Maarten here, the...
I would say, the founder's work in just getting structure and having a system and having transparency that now allows us to build on that. And I think, Karen-Marie, in your role-
Mm.
It actually helps a lot to understand what is the productivity, what is the profitability of a site, et cetera.
Mm-hmm.
Believe it or not, it took us a couple of years to get that transparency to the table.
Thank you, Thierry. Does that answer your question? Yes, I think that's a yes. I will take it for a yes. Thank you. I'm moving back to the platform because there's actually two more questions from Chetan Udeshi, and I thought, let's just do all three of them at the same time. Will there be a premium for a low-carbon raw material?
The answer is a very clear no, unless we can make more margin on it. So I'll give an example. I am a big believer, and I'm happy that my management team is a big believer also, in sustainability should not be a boundary condition on your business. It has to be the way how you drive your business forward. I think, Klaas, you've been instrumental in your CTO role to not make that a trade-off that you have to make in the business. So, just because it's low carbon, paying more, that is not a good business model, and that doesn't. It's not sustainable for the company.
Mm-hmm.
There is one big difference, though: if our customers are willing to pay more for it, and there are examples of that. I mentioned that some of our deco paint, for example, in China, when the risk less around low carbon, it's more bio-based materials, where the consumer is willing to pay considerably more for that product. That's what we have to do. I think we really have to see sustainability as how it strengthens the business and not a self-created heaven. And I also honestly see no reason for doing that. So, our suppliers who go to low carbon, to renewable energy, do not have to make the trade-off necessarily on them costing more, et cetera. So that is a clear boundary we have set ourselves.
Very clear.
We're gonna stick to.
Very clear. Which are the key reasons that Akzo produces the most of... Yeah, I think that's the question. Acrylic, pure, VAE, et cetera, and which resins is Akzo expanding the capacity?
Yep. Michael is the self-declared king of resins.
King of resins.
Yeah. Let's not have that stick. But, yeah, we have the capability to master many of the technologies that have been mentioned in the question here. We have 23 sites where we already produce resins, all kinds of different resins. When it's about what we plan to in-source a bit more or work with our supply partners to optimize networks more, it is much more towards the, I would say, bulk resins rather than the specialty resins.
Thank you very much. There's one more on resins, if you don't mind.
No problem.
Is resin supply the key issue or the upstream resins raw material supply? How does expanding internal resins capacity help solve the upstream supply issue?
Yeah, clearly, the biggest pain point that we have had was with the resins supply. It depends a bit on which upstream material you talk about. So clearly, there have been also shortages for some of the upstream materials that are needed to produce resins, but the bigger bottleneck clearly was, and still to a certain degree, is with the resins, and therefore, we have high hopes to improve the bottom line here also by solving some of our sourcing issues.
Thank you very much. I'm just gonna check in with the director to see if there's any more Zoom questions. There's no more Zoom questions. We're gonna wrap up this session. I think you were amazing. A full hour of answering questions. Very well done. I would like to thank all of you, Michael, Karen-Marie, Thierry, Klaas, and Marije, for being here. I would like to thank you at home for being with us or in your office for being a part of today's session. We hope that all the information shared here today will leave you as confident as everyone here on the Grow & Deliver strategy. As I said in the beginning, the presentation and the playback will be made available via the website, akzonobel.com.
For my part, and I think I'm sure on behalf of everyone here, thank you again for watching. Enjoy your evening or enjoy your afternoon. Bye-bye.