Decorative Paints Teach-In, 1 Dec 2011

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AkzoNobel China Shanghai, 5 March 2012

Introduction and welcome Jonathan Atack Lin Liangqi

Netherland China

AkzoNobel China – March 2012

2

Agenda 1. 2. 3.

China overview China growth strategy Business Areas introduction  Decorative Paintings  Performance Coatings  Specialty Chemicals 4. Q&A

Lin Liangqi Lin Liangqi

Lin Liangqi Mike Cash Steve Hunt Lin Liangqi Mike Cash Steve Hunt Felix Jiang

AkzoNobel China – March 2012

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China overview Lin Liangqi

AkzoNobel China key facts 2011 2011 • Revenue € 1.38 billion (up 11% YoY in constant currency) • EBIT before incidentals: € 124 million

• Operating income: € 118 million • Capital expenditures: € 96 million • A leader in sustainability Revenue by business area

23%

29% Deco Performace Coatings Specialty Chemicals 48%

AkzoNobel China – March 2012

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Current AkzoNobel footprint in China with a history and future • 7,400 employees

1

• 29 sites 2

Beijing Langfang

Tianjin Binzhou

Suzhou Chengdu

Wuhan

Taixing Changzhou Shanghai Ningbo

Jiaxing Guangzhou, Dongguan Shenzhen

Decorative Paints Performance Coatings Specialty Chemicals Notes: 1. At year end 2. Sites in operation AkzoNobel China – March 2012

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Products and brands Business Area

Business Unit

Sub Business Unit

Manufacturing sites (main land China)

Market leadership position

Decorative Paints

Deco China

N/A

3

2

Performance Coatings

Automotive & Aerospace Coatings

CR, Aerospace's Coating

2

1

Industrial Coatings

Coil, Specialty &

3

1

Product and brand logos

Packaging Coating Marine and Protective Coatings

Marine coatings, Protective Coatings

2

1

Powder Coatings

Interpon & Resicoat

6

1

3

1

PA, EA/EO, Chelates, Cellulosic & Additives, XTP

6

1 - Sulfur, polysulfides,

Industrial Chemicals

MCA

1

1

Pulp & Paper Chemicals

N/A

2

3

Surface Chemistry

Personal Care &

1

1 – Industrial Agricultural

Wood Finishes and Adhesives Specialty Chemicals

Functional Chemicals

Surfactants

organic peroxides

2 - Chelates, EA, Metal alkyls, PA

2 – Home & Personal care MeetAkzoNobel AkzoNobelChina China –– March March 2012

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China Research, Development & Innovation  Nearly 500 researchers and technologists based in China.  Located in laboratories in Baoan, Donguan, Jiaxing, Langfang, Ningbo, Songjiang/Shanghai, Suzhou and Tianjin.  AkzoNobel China RD&I Center in Songjiang was opened in late 2007, and became the home of three of our ECGs as well as three of our Business Unit R&D groups.  China RD&I Center is one of the four AkzoNobel global shared laboratories contributing to the company’s profitable growth through value creation capabilities.

 The first AkzoNobel China Chemical Sciences Awards were presented in July, 2010 in partnership with Chinese Chemical Society

China RD&I Center

Winners of AkzoNobel Chemical Sciences Award 2010

Meet AkzoNobel China – March 2012

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China growth strategy Lin Liangqi

One AkzoNobel ONE AKZONOBEL USD 3bn

Mission

Key Initiatives

Stretch product portfolio to Mid-tier

Aggressively drive inland

Actively engage in M&A

Cross BU selling

Sustainability

Enablers

Branding & Communication HR

RD&I

Fin

Regional Approach

IT

SC

Government Relationship

AkzoNobel China – March 2012 Meet AkzoNobel China – March 2012

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We are embarking on the next chapter of our journey in China Every three years China has doubled revenue (20% CAGR)

Portfolio transformation

Integration & restructuring

Accelerated and sustainable growth

USD mn 3,500

% 16

Specialty Chemical Performance Coating

3,000

14

Deco China GDP growth

12

2,500

10 2,000

AkzoNobel takes over of ICI

8

1,500 6 1,000

4

500

2

0

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 *Figures not adjusted for exchange rate fluctuations

MeetAkzoNobel AkzoNobelChina China –– March March 2012

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Business Areas introduction Lin Liangqi Mike Cash Steve Hunt

Decorative Paints Lin Liangqi

AkzoNobel China – March 2012 13

Decorative Paints China - Key facts 2011 • Established in 1990 as a JV with Swire Pacific (AN share 70%) for China paints • Revenue: €437million • 1,600 Employees • High profitability with negative OWC • 4 factories (3 in China and 1 in Taiwan) • Leading business in Hong Kong & Taiwan • Strong Dulux Brand

* Small-scale outlets selling to both consumers and professionals ** Larger -scale, ‘big box’ retailers, more consumer-oriented Meet AkzoNobel China – March 2012 AkzoNobel China – March 2012

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The market for Decorative Paints in China measures some €3.5 billion 2011 China Decorative Paints market (€ millions)

Project Market 41%

Retail woodcare 935

Project 1,416

Retail emulsion 1,100

• Strong project market driven by infrastructure investment and affordable house expansion plan • Retail market is slightly stagnated owing to estate macro control policy • Growth in redecoration will increase market size

Retail Market • AN/Nippon relative market share is 0.75 59%

Note: This figure differs from previous market size estimates given because we are now addressing a broader market in terms of cities and projects. Exchange rate: 1 Euro = 9.00RMB Source: Internal market sizing analysis AkzoNobel China – March 2012

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The central government has imposed measures to cool down the property market •

Extended curbs on home purchases

–

42 more cities imposed propertypurchasing restrictions in September 2011

–

Growth turning negative in property transaction volumes and prices

•

5-year residency requirement for Beijing before non- permanent residents can buy

•

PBOC cut the reserve requirement ratio by 50 basis points, effective on 24 Feb 2012, the second RRR cut since the tightening cycle in 2011

•

Central bank interest rate increases

–

Further 0.25% in July 2011

–

Third rate hike in 2011, fifth since October 2010 (total 125bps) AkzoNobel China – March 2012

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GDP growth expected to remain strong while paints market growth falls behind

• Overall GDP growth in China expected to remain in the high single digits • Paints market growth expected to be dampened in 2011/2012 and then recover in 2013

Market Size (€ millions)

3358

3428

3528

3775

Note: Paint market includes exterior paints, interior paints, floor paints and roof paints. Exchange rate : 9.05731

Source: Oxford Economics, China National Coatings Industry Association & Industrial Research Institution with adjustment (1)外墙涂料，(2)内墙涂料，(3)顶棚涂料，(4)地面涂料，(5)屋面涂料 AkzoNobel China – March 2012

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Interior Walls –Trend & Drivers Consumer Behaviours - repainting • However, the market is still of low painting frequency, with expressed desire to repainting more frequently, while hindered by the hassle involved Repainting Frequency (yrs)

Total

Class A

Class B

Class C

Yr 2009

6.5

7.1

7.8

5.3

Yr 2010

6

6.6

6.1

5.7

By City Class (Yrs)

Data source: 2010 China Consumer U&A

AkzoNobel China – March 2012

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The repainting rate for old house is around 20% Decoration Type

Base: all respondents

Total

New House

Old House

%

%

%

1,650

1,000

782

437

868

563

AkzoNobel China – March 2012

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We are investing to accelerate growth and further improve our position in the market

Revenue trend

Past – Build the foundation for growth

Now – Invest and build the momentum to further accelerate the growth

2005 2006 2007 2008 2009 2010

Future – Sustain the momentum and increase profitability

2011

2012 2013 2014 2015

AkzoNobel China – March 2012

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We are focusing our investment on fewer, bigger, more powerful brands • We are continuing to rationalize our brand portfolio to reduce complexity • We have one major brand for each end user segment that cuts across the main product categories

Paint Woodcare Pre-Deco generalist

Other specialist

Consumer – Super premium to Mass (Traditional & Modern channels)

Contractor / Painter (Professional channel) B2B – Super premium to Mass (Project channel)

Consumer – Economy (Traditional channel)

AkzoNobel China – March 2012

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We will improve our position by focusing on a few ‘must-win battles’ Depth of penetration • We will aggressively drive increase share in the key high growth cities Win in the mass market • We will win with Dulux in the dominant mass segment by building winning value propositions for the mass market Educate the market & win in Redecoration • We will grow the market & our share through inspiring people to redecorate and removing the barriers to doing so Aggressively grow the Project business • We will achieve double market growth in Projects through being a professional solution partner for key customer segments AkzoNobel China – March 2012

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We have extensive geographic coverage across regions and city tiers Geographic coverage

City coverage Revenue by city tier

Beijing Shanghai Chengdu East South North West

Guangzhou 5

• Regional headquarters in each of China’s four main regions • Highest growth in China is expected in the West, where we are increasing our capacity and investing in distribution and talent

• Expansive controlled distribution model covering Tier 1 to Tier 4 cities (670 cities) AkzoNobel China – March 2012

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The Dulux Decorator Center Network of controlled stores - the heart of channel strategy • We initiated a new store design in 2010 to: –

Strengthen color leadership

–

Inspire consumers to decorate

–

Be more interactive with consumers and enhance conversion rate

–

Better integrate emulsion and woodcare

–

Be flexible to handle real store situations

• We aim to have ~400 DDC stores by 2016 (from 250 today)

Note: DDC is for Dulux Decorator Center; CSS is for Colour Solutions Store; and ISS is for Image Solutions Store

• Overall we plan to expand our distribution from over 4,000 outlets today to ~7,000 by 2016 (with 2000 CSS and 4600 ISS) AkzoNobel China – March 2012

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The mass market is the dominant segment in China, with 44% of total value Market, revenue and CM by price segment (€ millions) Premium

Mass

Economy

3,450

437

27%

20%

43% 44%

29%

Market

37%

• AkzoNobel is weighted toward the premium segment • The mass segment is slightly underrepresented in terms of share of our revenue relative to its share of the overall market • The mass market is the fastest growing segment

AkzoNobel Revenue

Note: Total market size includes both urban and rural market and both retail and project channel Exchange rate: 9.00119

AkzoNobel China – March 2012

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We are driving the development of the redecoration segment We will become the market leader in redecoration in both consumer and B2B markets, educating the market and delivering share growth through tailored repainting solutions To do this we will: •

Grow the market & shorten repainting frequency through powerful & inspiring communication aimed at educating & inspiring consumers (category growth stimulation)

•

Lock in those considering redecoration through targeted BTL activity and by providing hassle free, fast and reliable painting service through the Easy Paint Service (Brand stimulation)

•

Develop differentiated products and ranges designed for the redecoration market

This will all be developed through the Dulux & Dulux Pro Brands AkzoNobel China – March 2012

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Our Easy Paint service addresses this emerging segment Consumers call 400 hotline 400 hotline introduces EP service Service clerk arranges site visit & consultation Surveyor gives price & product / colour advice

Painter conducts paint job on site 400 hotline calls back for service quality check

•

A high quality, one-stop painting service from Dulux • Makes re-painting hassle free and delivers the perfect end result with the minimum disruption • Operating in 25 cities with highly trained surveying and painting teams • Removes the barriers for consumers to repaint • High levels of consumer satisfaction • Pitfalls a. Painters b. Proposition AkzoNobel China – March 2012

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In Summary

With great brand awareness and an extended distribution network, AkzoNobel is well positioned for accelerated growth & share gain

• Balanced business portfolio & well positioned to deal with market uncertainty • Clear focus on key opportunities & growth areas

• Development and positioning of product portfolio remains key • Continued investment necessary in supply chain, brand & people • Balanced growth ambitions in the context of economic cycle AkzoNobel China – March 2012

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Performance Coatings Mike Cash

Performance Coatings key facts 2011 • Revenue €5.2 billion • 21,960 employees • 50 percent of revenue from high growth markets • Leading positions in performance coatings globally and in China • Innovative technologies, strong brands Revenue by business unit

Revenue by geography

* Before incidentals Meet AkzoNobel China – March 2012

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Powder Coatings

China Powder Coatings facts • We are the leading supplier of powder coatings in China • We have 1250 employees in China • We manufacture in 6 factories, geographically located throughout China • We operate a dedicated RD&I center in China, and employ more than 100 chemists and technicians • Powder coatings are solvent-free paints applied to metal and other conductive surfaces • We supply eight key market sectors – appliance, architectural, automotive, functional, furniture, general industry, general trade coaters and IT – with our global brands Interpon® and Resicoat® Meet AkzoNobel China – March 2012

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China Market Share (based on volume)

Meet AkzoNobel China – March 2012

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Our Key Priorities in China Use Segment Approach to Grow at High End of Market

Emphasize Technology Advantage Extend to Middle Market Build and Invest in our Talent Base Align Operations with our Growth Aspirations Managing Margins is Everyone’s Business

Meet AkzoNobel China – March 2012

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A & AC China

A&AC China Overview • China AAC portfolio VR, Trade, CV, APC, ANAC and BSU

• High growth in 2011 • VR-Premium ~30% market share(Number one position) • Trade ~10% market share(Number two position) • APC ~10% market share(Number six position) • ANAC ~50% market share(Number one position)

CR = Car Refinish = VR = Vehicle Refinish CV = Commercial Vehicle Trade = Med-segment APC = Automotive Plastic Coatings BSU = Business Supply Unit = Suzhou factory ANAC = Aerospace Coatings

Meet AkzoNobel China – March 2012

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Market Environment • China is already one of the biggest automotive market in the world • Market size of auto refinishes in China is estimated $400 millions • Over 200 auto refinishes producers, with 21% players occupying about 73% of total refinishes market • 85% domestic production, 15% imported • All top automotive coating companies are trying to consolidate and/or build up a market position • No official VOC regulation in China yet, the level of discussion for the need is increasing

• Expansion of OEM bodyshops move to tier 3&4 cities, inland away from coastal regions • Key market players: AkzoNobel, PPG, Dupont, Strong, Prime, Planet, etc Meet AkzoNobel China – March 2012

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Changzhou Prime Automotive Co Ltd • Acquisition in September 2010 • Prime were manufacturers, marketers and distributors of coatings (primarily refinish) in China. • Located in Changzhou, Jiangsu Province. • 7 shareholders; two brothers held majority share of Prime. • Around +100 employees. • Active in medium to high end of the trade segment in China. • Four VR Trade brands  Prime  Furuiya  Fute  Peilide • Distribution via independent agents • In house R&D capability

Meet AkzoNobel China – March 2012

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M&PC

China Marine Market New Building

AN 20%

DWT Output 2011

Market Comments: • Total marine market value in China is around €800M, AN market share around 21%; • NB: China remains global No.1, However the NB market will soften due to global oversupply • M&R: The Chinese fleet is growing rapidly China will have the worlds second largest fleet, behind Greece, by 2015.

Maintenance and Repair

AN 21%

Deep Sea Dry Docking Allocation

AN Strength: • Technology Pipeline • Global network • Engagement with Government and Shipbuilding Industry on Sustainability and Legislation • Highly trained Technical Support on the ground

Meet AkzoNobel China – March 2012

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China Protective Coatings Market AkzoNobel Protective Coatings • 1 mega manufacturing site in China • local and foreign management & specialist team Our competitive advantages: • leading performance products • brand reputation • quality and service • global network and global product range • well-managed on-site technical service and support AkzoNobel Competitors in Protective Coatings • 20 MNC /foreign brands…25% market share • 50 big and medium sized local and hundreds of smaller local competitors…75% market share

Market Sector

Approx. Size (million liters)

Protective Coatings

700

Power

100

OEM

160

Petro-chemical

80

Port Machinery

30

HVI

180

Regional – Others Mining & Mineral

20

O&G – Upstream

20

Bridge

60

Pipeline

30

Water & WW

10

Pulp & Paper

10

Meet AkzoNobel China – March 2012

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Industrial Coatings

Special Plastics - Asia Strategic Plans Strategic plan initiatives Market

Tablet, e-Book, Accessories, Paint film on metals Operational Optimize production/logistics lead time Strengthen Technology capability and service Functional Partnership with OEM, ODM, applicator Design or co-development with key customers Build RD &I in China. Continue Color trend and color Design

Basic Facts • Market share by AN:16.2% • 3 sites, total employees around 200

Strengths • Broad product range • Quality consistency and strong technical support. • Design/color trend services Meet AkzoNobel China – March 2012

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Packaging Coatings - China key facts 2011 • High growth in 2011 • FTE 110, +68 new hire • No. 1 volume share in the market • Manufacturing sites in Shanghai, Jiashan, Guangzhou and Taiwan • Planned investment in Songjiang site

Revenue by Product & Geography

B2I: Beverage 2-piece internal B2E: Beverage 2-piece external FCG: Food can general line INKS & PSS: Inks and powder side spray Meet AkzoNobel China – March 2012

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Coil Coatings - Market information • China coil coatings started in Suzhou in 2003 • Market size: 125k tonnes of paint • More than 200 coil coating lines • No single paint supplier dominate the market • Three main customer groups  Large Private Owned or Listed companies  Large SOE - Integrated steel producers  Taiwanese Coaters

Rainbow, 4%

Ya Tu, 4% Akzo Nobel, 8%

Others, 20% Zheng Hua, 9% Bao Xing, 4%

Nippon, 18%

Hai Ba, 4%

Valspar, 4% KCC, Beckers, 11% 10%

Ya Li, 6%

Meet AkzoNobel China – March 2012

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BU Wood Finishes and Adhesives

AkzoNobel China – March 2012 46

Overview and market share • Three plants in China, Donguan, Tianjin and Jiashan.

• Historically focused on premium export market • Strategy have been shifting to the domestic market in China Export Furniture Market Share

Akzo

20%

30%

15% 10%

25%

Valspar/ Huarun Sherwilliam

Taiho

Locals AkzoNobel China – March 2012 47

Meet AkzoNobel China – March 2012

Specialty Chemicals Steve Hunt

48

Specialty Chemicals key facts 2011 • Revenue €5.3 billion • 11,500 employees • EBITDA: €906 million* (17%), EBIT: €625 million* • ROI% 17.3%

• 32 percent of revenue from high-growth markets • Leadership positions in many markets Revenue by business unit

Revenue by geography

* Before incidentals Introduction Specialty Chemicals

49

We built many market leadership positions in attractive niches Functional Chemicals

Industrial Chemicals Pulp & Performance Chemicals

Surface Chemistry

1

Chelates, 1 Cross-linking, 2 Org Peroxides, 3 Sulfur Derivatives, Salt Specialties Metal Alkyls Ethylene Amines, (N. Europe) Performance Additives 3

1

1 Monochloroacetic acid

Caustic merchant, Chlorine merchant, Salt, DME merchant (all Europe)

1 Bleaching chemicals Expancel Colloidal Silica

1 Industrial applications Agricultural applications

3

Home & Personal care

Introduction Specialty Chemicals

50

Ningbo multisite update- euro370m investment with 2/3 already spent Utilization 2011

Utilization 2012

complete

25%

45%

Ethylene Amines

complete

65%

70%

XTP

Q1 2012

Bermocoll

2013

DCP

2014

Plant

status

Infra + waste water

complete

Chelates

65%

Total

Planned: waste water extension, metal alkyls, SC ethoxylation, MPP

Introduction Specialty Chemicals

51

Functional Chemicals

Introduction Specialty Chemicals

52

Functional Chemicals in China • All 7 sub Business Units active in China • Significant growth in 2011 • Approximately 950 employees

• 6 manufacturing locations • Cost leadership position and technology advantages over local competitors 2011 Revenue % by SBU 2%

4%

10%

EA 41%

HP XTP 31% PA

21%

18%

SD Chelates Salt

51%

22% Introduction Specialty Chemicals

53 53

Functional Chemicals China growth focus and investments • Polysulfides production in Taixing (April 2007) • Chelates & Micronutrients and XTP sBU global HQ moved to Shanghai (August 2008) • Performance Additives start up production plant in Songjiang (November 2008) • Chelates & Ethylene Amines Ningbo start up in December 2009 (Chelates) and September 2010 (Ethylene Amines) • Ningbo inauguration (November 2010)

• Performance Additives (Bermocoll) Ningbo ground breaking ceremony (October, 2011) • Ningbo XTP DCP announcement (Nov, 2011) • Ningbo XTP start up production (Jan, 2012) • Feasibility studies for Metal Alkyls plant and expansions XTP and Ethylene Amines Introduction Specialty Chemicals

54 54

Surface Chemistry

Boxing Oleochemicals acquisition – completed in January 2012 Surface Chemistry • Global leader supplier of specialty surfactants • Product and application knowhow • Expertise and experience as solutions provider • Portfolio of new, innovative, eco-premium technologies • State of the art manufacturing technology

AkzoNobel Uniquely positioned to provide local customers (mid-tier markets) with customized solutions to meet their specific needs Broader portfolio of sustainable products and technologies Superior process and production capabilities at Shandong site

Boxing • Leadership position in China and Asia • Expertise in fatty acids, amines, glycerine and derivatives • Ester-amines and esterquats facility • Strong local manufacturing operation in the region

Integration and further synergies will boost new products introduction to the Asian marketplace and ultimately the progress of local customers.

AkzoNobel China – March 2012

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Strengthening our growing surfactant business in Asia • Strengthens our global leadership position in specialty surfactants, with #1 position and 500 employees in China • Reinforces our commitment to our customers by providing local production and minimal reliance on western imports • With a third of the Asian demand for amines coming from China alone, Asia will grow to 25% of the business • Reemphasizes our focus on bringing innovative products and solutions to local mid-tier markets

Shandong, China. AkzoNobel China – March 2012

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Industrial Chemicals (MCA)

Leading position in high growth market MCA 100% market size China (kT/yr)

338

333

290

355

373

393

415

438

• 100,000 tons capacity in Taixing is planned • Lowest cost producer

265

• Scale and technology advangtage

2007 • •

2008

2009

2010

2011

2012

2013

2014

2015

2010 based on actuals Q1-2010 From 2011 based on 8% annual growth rate on 2010 actuals f or Chinese MCA market with no growth f or glycine f or glyphosate (123 kT 100%)

Market breakdown in region

Yangtze delta North China rest of China Meet AkzoNobel China – March 2012

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Pulp and Paper Chemicals

Market Share for Paper Chemicals in China (2010) 12%

AN 17%

47%

BASF Nalco Kemira

9%

Local others

15%

Eka Guangzhou Plant Total Area: 20,035 square meters. Employees: Total is 33 employees

Eka Suzhou Plant: Total Area: 40,000 square meters. Employees: 90 employees AkzoNobel China – March 2012

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Summary AkzoNobel has a long term commitment to China •

Well established and profitable

•

Long history

•

In line with our other strong positions in high growth markets

Our target is to reach USD3bn sales in 2015 We have a broad range of activities •

Most BUs are represented

•

They have leading market positions

•

We benefit from scale and efficiencies

AkzoNobel is well placed to capture growth •

Continuing investment

•

Innovation

•

Competitive positioning

Our business is diverse and resilient •

Addressing a wide variety of end consumer markets AkzoNobel China – March 2012

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Q&A Lin Liangqi Mike Cash Steve Hunt Felix Jiang

Safe Harbor Statement

This presentation contains statements which address such key issues as AkzoNobel’s growth strategy, future financial results, market positions, product development, products in the pipeline, and product approvals. Such statements should be carefully considered, and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business please see our latest Annual Report, a copy of which can be found on the company’s corporate website www.akzonobel.com.

Meet AkzoNobel China – March 2012

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