'Sustainability in the long-term is dependent on giving back to the community,' says CEO-AkzoNobel Pakistan

BR Research recently sat down with the CEO of AkzoNobel Pakistan Mr Jehanzeb Khan to discuss the rapid growth the company has witnessed along with expansion plans for the future. With a career spanning over 30 years, Jehanzeb has a wealth of experience in heading commercial enterprises. His career started at ICI Pakistan limited, where after joining as a Management Trainee in 1983, he worked at various commercial positions before taking over the Paints Business as Vice President in 2010. He received his schooling from Burn Hall in Abbottabad, and has a BS in Auto Diesel Technology from the Oregon Institute of Technology in the US. He studied Business Administration at the Darden School, University of Virginia, USA graduating in 1981 with an MBA degree.

<B>Business Recorder Research: Could you please elaborate on the transition from ICI to AkzoNobel and the shift in strategy that it represents?</B>

<B>Jehanzeb Khan:</B> I have been working for ICI for a long time. I joined more than 30 years ago and have been associated with various ICI businesses including pharmaceutical, chemicals, agro chemicals and polyester fibre. After the demerger in June 2012 it has been a really exciting time for us.

I had just been transferred into the paint division as vice president at that time, into initially what used to be the paints business of ICI at that time. After the demerger we have made it into a company which was identical to ICI's paint business, starting with exactly the same systems and processes as we inherited from ICI. Everybody in the corporate world and most people in Pakistan know of ICI's reputation and that is basically our heritage and legacy; something we are very proud of.

Formerly our company was an isolated paints business which was mostly run by ICI Pakistan with not too much interface with the rest of ICI. Now we have become a business which is very deeply attached and aligned with AkzoNobel which is one of the leading players in most of the areas, which includes decorative paints and performance coating, and speciality chemicals.

The amount of knowledge and input and innovation that comes in from AkzoNobel into Pakistan has gone up several notches, which has really added to our strength. If you follow the performance of our company over the years especially since the demerger, there is a noticeable shift in how well we are doing. This is primarily because of the team that we have in Pakistan which is helping me run the business.

The company has a number of innovative products that we did not sell in Pakistan previously. And because of our credibility and success we have been given the headroom by AkzoNobel and especially the region that we report to which is Dubai, to be able to put in the effort, be able to invest in planning and strategizing and execute the plans that we have. So it has been a great journey, and while there have been ups and downs but I think the trend line is clearly very positive.

<B>BRR: Tell us about the rapid growth the company has witnessed over the past four years with the construction boom in the country?</B>

<B>JK:</B> You are right in terms of construction there has been impressive growth which has given opportunities to all players in the coatings industry. Let us talk about construction that utilises decorative paints which includes commercial and residential buildings. There has been growth in this segment but at the same time there are a couple of challenges for all companies. The extent to which decorative paint is used for the exterior of the building is not the same as it was a few decades ago. Now there is a lot more glass, metal and aluminium and permanent finishes which competes with our products.

Also, at the same time, national companies have had room to grow and become fairly large players. So, while we have got our share of the growth our competitors have also gained momentum. One of the side effects of the innovations that have taken place in the paints industry is that paint lasts longer. So whereas people were repainting maybe every three or four years in the past, our research shows repainting is being done after five to six years now. Partly, the reason of is better paint quality which lasts longer and also maybe because of lower disposable income.

But at the same time new construction is also increasing which is incremental business for us. Typically, about two-thirds of decorative paint goes into existing houses that are being renovated or repainted and a third goes into brand new construction.

<B>BRR: How much market share does AkzoNobel currently have? In terms of price where does your product range rank?</B>

<B>JK:</B> Market share calculations in the paints industry is something that all companies including us have not really done in the past with a credibility level that can be shared. Companies do their internal workings which may or not be biased depending on who you talk to. While we do not share market data in public, I feel the numbers that we see show us as the largest decorative paint company in Pakistan in terms of value.

We would be on the higher side in terms of price because if you look at the profile of our products and our product mix we are clearly at the premium end of the range. That is where AkzoNobel's quality, innovation, image and credibility in front of our customers come in. By definition then our price point on average would be far higher than our competitors, which is consistent with quality we offer.

<B>BRR: What kind of characteristics do your products have which differentiate it from your competitors?</B>

<B>JK:</B> There are several levels at which we are differentiated. One of course is the product quality in terms of what is in the can. We deliver to the customer what we claim we are delivering, which in itself in our market is possibly already a positive. Our paint lasts longer and the colour fastness is usually better. So in terms of physical properties and specifications we have paints that are as good as any or better. Then we have a huge range of products. We have products for the interior and exterior, enamels and emulsions, paints for special effects, paints for exteriors to keep the walls cooler.

Another level of differentiation for us is our trade partners who are the paint shops and paint dealers who buy from us directly and onwards sell to the homeowner. With them we have established credibility and good business practices. We feel dealing with AkzoNobel's area managers or sales representatives is an experience which is more professional for channel partners than it might be with other companies in Pakistan.

Lastly most of our customers who use our products have used the product earlier. So again there is the image, the comfort and knowledge that the products will be good, and in case something does not work out, there is a credible company standing behind this can of paint who will then fix any problems.

<B>BRR: Please tell us about your other product lines as well as revenue generation from different segments.</B>

<B>JK:</B> If I were to lump several of our decorative paint businesses together it would be performance coatings which is also referred to as industrial paints in some companies. These are the kind of products we sell into industries. So it is mostly B2B selling, as opposed to decorative, which is mostly B2C. These are used mostly by the automotive and car refinishing industry and so automotive paint is what is used by OEMs like Indus Motors, Suzuki Motors. We also have technology for metal protection so the metal frame of the car is dipped in these chemicals to clean and protect metals. We also have other top coats that are being used by tractor manufacturers in Pakistan.

Another part of that business is protective coatings which are mostly used by new industrial projects that are coming up and also for repair and maintenance of existing businesses. Oil and gas companies use our epoxy paints that have long lasting life. There was recently a ship made at the Karachi Shipyard for the Pakistan Navy which was also coated by AkzoNobel Marine paint. This was done in collaboration with a Turkish company which had the overall contract for that construction. Out of our total revenue of approximately Rs 5 billion last year the majority comes from decorative paints and the rest from performance coatings and speciality chemicals.

<B>BRR: Where do you see AkzoNobel Pakistan heading in the next five years in terms of product expansion? Also, will the product line-up be locally manufactured or mainly imported?</B>

<B>JK:</B> I look at expansion at two levels. One is what we offer to our customers and new industries. That program is continuing and like I said before with the launch of the specialty chemicals business in Pakistan four years ago, hundreds of products have become available and many of them have applications in Pakistan. As we gradually continue to develop the market these products will become available locally. In performance coatings we hope to expand product range as well including fire protection for industrial application.

In terms of market facing expansion there has been significant progress and we have introduced a number of innovative products. We have been able to rationalise our product line as compared to five years ago when we had a wide product offering but without any particular advantage for our customers. As a result of product rationalisation and improvements in productivity, we have been able to reduce to a single shift at our plant as opposed to two shifts that we used to have five years ago. Our volume at one point came down to almost half, but our profitability is twice what it used to be.

The other level is plant expansion and to service the growing opportunities in Pakistan we will expand and put in hardware and software if we have to in order to utilise market opportunities. However, at the moment we have sufficient plant capacity but given any change in market dynamics we will not be shy in making investments.

AkzoNobel also has products used in road construction; these are imported at the moment as they have recently been introduced and currently have low volumes. But as volumes pick up getting into manufacturing will certainly be evaluated. The Keep Cool product which lowers building temperatures by keeping walls at least 5-degrees cooler is being manufactured locally by bringing in AkzoNobel technology. For these we did not need to bring about hardware changes but rather changes in recipes, ingredients, and processes.

<B>BRR: AkzoNobel has been doing a lot of creative CSR initiatives that we would like to know about such as Human Cities. In addition, please tell us about how the culture of the company has changed in the transition from ICI to AkzoNobel?</B>

<B>JK:</B> Most people evaluate companies based on financial metrics only but as a company AkzoNobel is much more than that. We had started seeing some of this while we were still in ICI as AkzoNobel acquired ICI almost four years before we demerged. But now we see a lot more of how seriously the company looks at sustainability. The company is very clear that business and financial performance is necessary but sustainability in the longer term is dependent on giving back to the community. Our focus on environment, health and safety is unparalleled.

For example, I think we are the only company in Pakistan that produces lead and chrome free paint. In Pakistan we have put in a lot of effort to reduce volatile organic compounds which are harmful to human health. We have managed to reduce these compounds by up to 15 percent, and in some cases remove them to near zero levels. Our long term approach will focus on shifting the market to more products that are environmentally friendly. Sustainability also include metrics like reducing the amount of energy and water we consume to produce a litre of paint and we are bringing that number down every year.

Human Cities is an initiative where AkzoNobel is making investments in trying to make cities more liveable, colourful and inspiring. The focus is on reenergizing people and places and preserving heritage and an example is the re-painting of the inner city in Lahore. We also engage with hospitals and schools in our CSR initiatives. The policy for AkzoNobel is that you have to be a good corporate citizen also and the distinguishing factor between us and other corporate is that we value our employees giving their personal time more than financial assistance.