The world’s largest paint and coating company AkzoNobel believes that there is a more positive impression around India in the global arena. In an exclusive chat with CNBC-TV18's Malvika Jain, AkzoNobel Global’s CEO Ton Buchner said that though the first quarter of 2015 have been impacted by several global movements, he is confident that sales will pick up in 2015.Below is the verbatim transcript.Q: How do you see year 2015 pan out for AkzoNobel?A: In 2014 we saw growth in volumes. In Q1 of 2015 if we look at it globally we have of course been subject to many movements, Europe has not recovered very much, the situation in Russia is quite difficult, even China is slowing down in its growth. India is actually the positive exception in all of the global developments but in Q1 it was quite tough globally. We haven’t seen Q1 yet but we are quite confident with all the things we have done that we will certainly also see some growth in various areas in the world in 2015.Q: We have a change in guard at the Centre in India, there is a new government in place and it has almost completed a year. As a foreign investor do you see any change in perception at a global level when one talks about India and as an investor in India do you think things have changed on the ground?A: What I see very clearly is that the mood inside India has changed and also the mood about India from the outside has changed. We see much more positive thoughts in general when you read the newspapers whether it is in Europe or the United States, you see a much more positive impression of the way India is expected to develop and we see it as well when we travel in the country. I have been here now for several days, I have spoken with customers in all of our business, I have spoken with officials, the feeling is very different from two or three years ago. I do believe that the change will be gradual, it will not be a very quick change but India as it is right now has all potential to be poised for future growth that is faster than it has been in the last years and AkzoNobel is well positioned to also benefit and of course combine benefit together with India itself.
Q: My question to you is about the crude prices which is a raw material and has an impact on your pricing strategies. Though the prices continue to be on the lower side, in recent times, we have seen an upswing. What do you think is the impact of this fallen crude price on your revenues and do you think the time is now ripe to pass on this cut on to the consumers?
A: The oil price globally has been in a freefall at the end of last year and it has two effects on AkzoNobel. We actually supply it to customers that are in the oil and gas industry. So many of their ships, platforms, their production units even some of the chemicals that we manufacture get supplied into the oil and gas industry. We feel that these customers are reducing their activities. On the market customer side, some of our end user segments are actually responding negatively to this and as a result we feel it on the market side.
On the positive side, we do see that some of the raw materials that we buy are in a very slow manner. It is not very quick. It takes quite a while for reduced oil price to go into our raw materials. We do see that some of these raw materials are in the process of getting a little cheaper and of course, that market dynamics that well determine what the impact that will have in pricing.
Q: You did say at the end of your results last year that fallen crude prices and also our currency fluctuations have had a positive impact on the company’s revenues, but going forward you are also seeing an uptake in volumes because eventually it is the fundamentals of the business which will make it more sustainable? A: In 2014, we actually saw a growth in volumes. In the first quarter of 2015, if we look globally, we have been subject to many movements. Europe has not recovered much; the situation in Russia is quite difficult. Even China is slowing down in its growth; India is actually the positive exception in all of the global developments. However, in the first quarter it was quite tough globally. The growth that we saw in 2014, we haven’t seen in the first quarter yet, we were quite confident with all the things we have done that we will certainly also see some growth in various areas of the world in 2015.
Q: Are you seeing improvement in consumption demand globally as well as in India?
A: What we see in most areas is that the growth is actually less than what has been last year. If we look at Latin America, at Europe, at Russia or at China, we actually see slowing growth. The only two exceptions where the growth looks faster than last year are the United States and India. Therefore, it is wonderful to be here and see that it is happening. It is also happening slowly in India. It is not going very quick and that is what is having an impact on our business as well.
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Q: If you look at the overall organised paint market in India, AkzoNobel on a consolidated basis have only 11 percent market share. You may or may not confirm at this figure, but what are the go to market strategies that you are adopting in light of the fact that India seems to be one of the most attractive markets for you?
A: We are in three very distinct businesses in India. We have the specialty chemicals business, which is not in the painting coatings and here we have strong number 2 position in many of our areas. Then we have what we call the business to business coating activity. There we are almost in every one of the activities whether it is in the marine business, business of packaging, coatings, coatings cans from which the people drink. Here, we actually almost have number two position and even umber one position.
In the decorative paints, we have multiple players in India. There we have number four position in aggregate. However, if we look at the premium sector we are having close to 19-20 percent market share. So, in the areas where we chose to be, we have more than what you call the aggregate market share and that makes us one of the successful companies in India. We build on the global technologies that we have on the global product lines and of course, combined with the growth that we expect in India, we have to be even more successful.
Q: Do you feel that acquisition of Imperial Chemical Industries (ICI) did not go the way the company would have wanted it to?
A: The acquisition of ICI was quite a while ago and it has taken a while to integrate. It was a large acquisition for AkzoNobel. It was a very multi segments, multi geographical acquisition. It was quite understandable that it took a little longer to integrate. Over all, it has given us some great strategic positions and we are very happy with the acquisition.
Q: There were also talks when you acquired the company that India would actually act as a HUB for South Asia. Since now you have started entering into tolling arrangements, for instance in Bangladesh, what kind of position would you give to India in your overall scheme of things?
A: We were looking at the region of South-East Asia and India combined. What we are doing there is that we are combining the strength of different areas. Some of those strengths come out of the AkzoNobel heritage; some of the strengths come out of the ICI heritage. By combining this strength, we see that India is actually a supplier into the region to different countries. We also see that technologies from other countries are coming in to India. We are doing exactly what you suggest - creating a region that can build on each other’s strength. India, being such a large market, will play a very significant role in that.
Q: What about manufacturing in India? You do have significant investments in the manufacturing sector? How well has that worked for you. There were talks about acquiring a piece of land in South India. You have completed that deal but it did take a very long time for the deal to get concluded. What were the factors that contributed to this delay and do you think the manufacturing sector in India is looking attractive?
A: We have six factories in the country and when we built them and when we executed the construction of these factories, we tried to import all of the international technology; we tried to bring the latest technology to India. These factories today are all producing and we are very happy with it. The acquisition of the land had indeed taken a little longer than may be people thought by the time from the announcements to the acquisition of the land.
We are a company that follows all the rules properly and we didn’t need the land immediately. We do have capacity for growth in other areas, so we were also not pushing it very hard. Over all we are happy with the manufacturing base we have here in India. The good part is we can grow from the existing manufacturing base and if the growth accelerates in India, we do have additional possibilities to expand. It is perfectly sufficient for what we have today.
Q: What kind of investments are you looking at when you talk about expanding in India?
A: What we have seen is that the investments that we did in the last years were in anticipation of very significant growth. The last couple of years, growth has been a bit slower than we expected. When the growth accelerates, we initially will have the capacity to accommodate that growth. India has always been receiving an open ear. For further growth, they would need further investments.
Q: Inside the company, there is a process of internal restructuring that is underway. That is one of the reasons, it is said, you were brought into the company to reorganise operations, reinvigorate the company. How successful do you feel you have been so far?
A: When I came to the company, one of the questions was to find a way to become more operationally excellent. We combined a strategy of operational excellence and organic growth. If you look at the global results of AkzoNobel, we have published a couple of weeks ago, our operating profits actually went up with 42 percent in Euros and that is a very significant jump; a very significant improvement to levels that AkzoNobel has not seen for a very long time. So, the strategy of operational excellence is working. And on top of that operational excellence, we are now starting to drive growth with a higher level of aggressiveness. And countries as India can play a big role.
Q: But, having built a leaner organisation now, are you seeing any operational efficiencies or is it too early to comment on the new organisation structure that is in place?
A: We see clear operational efficiencies. We see better deliveries to customers. We see smarter supply chain management. We see faster decision making in the organisation and the final result; the financial results show all of these improvements coming through. So, it is not just that we are working better and more efficient or that we can respond quicker to customer, but it is even visible, very tangible in our financial results that we report on a quarterly basis. The last quarterly results were the eighth consecutive quarter that AkzoNobel had an improved return on sales compared to the same quarter a year before.
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Q: But now having achieved whatever you have, what are the top-three priorities on your mind for the company as on date?
A: Now that we have become so fit and have trained ourselves into a lean and fit organisation, growth will be a very important driver for AkzoNobel. Those countries which grow themselves, we want to participate in that growth, but we certainly have the leanness and the fitness to drive growth as a very major aspect. We can do that both geographically, by introducing new innovations because innovation is going to be a very important second pillar of the growth that we are going to be driving. One of the key issues is the fitness that we have achieved, that we do not lose it and we maintain the strength that we have developed.
Q: But what about consolidating your operations? One gets a sense that you do want todivest non-core and non-performing businesses. Globally, are there any parts of your business that you want to let go of and what would be the new priorities of your company going forward?
A: We have only done a number of divestures of what we perceive to be non-strategically strong positions. We want to be a number one, two or three positions world-wide in any of the businesses that we can. So, actually in 2012, we did a significant divesture.
Q: But, what are the businesses that you are going to be focusing on?
A: The three business areas that we have - the specialty chemicals business area, the performance coatings business area and the decorative paints business area. Those are the three businesses that we as a portfolio focus on. These are three legs of the portfolio. They all are approximately USD four to five billion in size. AkzoNobel is a USD 16 billion in terms of its revenue.
And it is these three pillars that we have made fit and are the pillars that we want to continue to focus on. We have done a lot of factory consolidations. We have done a lot of optimisation of the process and we are getting to the end of the big transformations that makes the company so ready for growth in these three areas of the corporation.
Q: It is also being said that 75 percent of the world’s population is now going to be living in cities by 2050. There is a Human Cities Initiative that AkzoNobel has also initiated. And back home in India, we are talking about building 100 smart cities. How do you think that the two can actually be integrated and what kind of role can companies like yours play in building infrastructure in India in the near future?
A: Urbanisation is a fact everywhere in the world. Indeed in 2050, when we have nine billion people on this earth, people believe that 75 percent of the people will live in cities which is a lot more than the number who live in cities today.
As a result, what many of the mayors of the cities want to do is that they want to make sure that they have the possibility for the people to actually live in large urbanised areas. And the focus of most of these people is how can we get the power and how can we get the water and how can we get the infrastructure to the places?
And what very often is forgotten is to say how do we actually make these particular urbanisation trends not just functional but also enjoyable, liveable, fun to be? And that is where AkzoNobel comes in; we of course bring a lot of colour to people’s lives, we bring enjoyment, we bring kind of a better feeling, we protect heritage and we really together with the populations try to make sure that the things that are old and aged and people have a very strong emotional value to, that they actually be uplifted to something that is fun to be around and in with.
So, we as AkzoNobel actually contribute to a lot that makes the city more human, more enjoyable, more liveable, and more exciting as opposed to just functional. And that is where the smart cities of India are actually something that matches really well with what we do on the human cities front. We are also subscribed to what people call the 100 Brazilian cities; Rockefeller foundation has put that initiative in, in many places in the world. So, we have also teamed up with them. We do not do it alone, we do it with many people that are actually trying to make cities a more fun place to be and that of course where AkzoNobel can do a lot, not only in India but also in other places in the world.
Q: My last question for you is, we have a change in guard at the Centre in India, there is a new government in place and it has almost completed a year. As a foreign investor do you see any change in perception at a global level when one talks about India and as an investor in India do you think things have changed on the ground?
A: What I see very clearly is that the mood inside India has changed and also the mood about India from the outside has changed. We see much more positive thoughts in general when you read the newspapers whether it is in Europe or the United States, you see a much more positive impression of the way India is expected to develop and we see it as well when we travel in the country. I have been here now for several days, I have spoken with customers in all of our business, I have spoken with officials, I have talked with of course our employees, the feeling is very different from two or three years ago. I do believe that the change will be gradual, it will not be a very quick change but India as it is right now has all potential to be poised for future growth that is faster than it has been in the last years and AkzoNobel is well positioned to also benefit and of course combine benefit together with India itself.
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