AkzoNobel, the global paints and coatings giant, has long touted a "volume agnostic" approach, prioritizing profitability over market share. This strategy, while successful in boosting margins, has also led to stagnating volumes, particularly in their Performance Coatings division. However, whispers from their recent earnings calls, combined with the unveiling of their ambitious Industrial Transformation plan, suggest a subtle yet significant shift. Is AkzoNobel quietly gearing up to reclaim its volume crown, leveraging operational efficiency to fuel aggressive growth?

The evidence is compelling. During the Q3 2023 earnings call, CEO Gregoire Poux-Guillaume repeatedly emphasized missed volume opportunities due to operational inefficiencies, particularly in high-growth segments like Marine & Protective, Powder Coatings, and Vehicle Refinish. These are not the pronouncements of a company content with maintaining the status quo.

Consider Poux-Guillaume's revealing statement: "We are missing out in Europe... We miss out significant volumes every month because we are not able to react... because we are not able to balance or load, to juggle our production in ways that allow us to free up capacity... because our business is not set up to transfer volume from one place to the next. So as we enable that, we'll be able to claim those volumes even as we're reducing capacity overall."

This is a clear acknowledgement that AkzoNobel's operational constraints have hindered their ability to capitalize on existing demand. The Industrial Transformation plan, a three-year program with a projected recurring benefit of €250 million by 2027, aims to address these shortcomings head-on.

While the plan includes elements of network rationalization, particularly within their Deco Europe business, the emphasis is on efficiency enhancements, especially for their coatings operations. Poux-Guillaume candidly admitted, "On the coatings side, if you want to make it simple, we're really not a very lean business and there's an opportunity to be much leaner."

The plan involves a significant investment of €150 million in CapEx over the next three years, aimed at debottlenecking production processes, increasing automation, and implementing "late-stage differentiation" strategies. This approach suggests a focus on optimizing existing assets to increase throughput, rather than simply shrinking the footprint.

This proactive approach to reclaiming lost volumes is further underscored by Poux-Guillaume's statements regarding their Marine & Protective business. He acknowledged their previous strategic misstep of deemphasizing new build in favor of higher-margin dry docking, a strategy that backfired as they lost market share and subsequently dry docking business.

Now, AkzoNobel is actively rebuilding their new-build presence, leveraging their technical expertise and sustainability offerings to regain a dominant position in a market poised for significant growth. Importantly, Poux-Guillaume highlighted the increasing profitability of the new-build market, driven by the demand for technical solutions and biocide-free antifouling, areas where AkzoNobel excels.

These developments paint a picture of a company poised for a volume resurgence. By addressing their operational limitations and strategically targeting high-growth segments, AkzoNobel appears ready to move beyond simply maintaining profitability and towards actively pursuing market share gains.

The success of this shift will depend on their ability to execute the Industrial Transformation plan effectively. The back-end loaded nature of the program, with only 50% of the benefits realized by 2027, raises questions about the speed of implementation. However, the recurring nature of the anticipated benefits (€250 million annually by 2027) underscores the long-term impact of this operational overhaul.

Hypothetical Revenue Projection (2023-2027)

This chart illustrates a hypothetical revenue projection for AkzoNobel, assuming a conservative 2% annual volume growth in Paints and a more aggressive 5% annual volume growth in Performance Coatings, driven by operational improvements.

This volume-driven growth, coupled with the anticipated €250 million in recurring operational benefits, could translate into an adjusted EBITDA of €2 billion by 2027, exceeding their mid-term ambition of a 6% CAGR.

Conclusion

AkzoNobel's recent actions suggest a departure from their strictly "volume agnostic" approach. Their focus on operational efficiency, coupled with their renewed emphasis on volume growth in key segments, could herald a new era for the company, one where they leverage operational excellence to reclaim their volume leadership position while simultaneously driving substantial profitability improvements. The next few years will be crucial for AkzoNobel as they execute on their ambitious transformation plan. The market will be watching closely to see if this stealthy shift translates into tangible results.

"Did you know that AkzoNobel's Dulux brand is the most popular paint brand in the UK? In fact, it's estimated that one in four homes in the UK is painted with Dulux paint!"