Slide 1: Investor Update Q1 2015 results
Investor Update Q1 2015 results Maëlys Castella April 21, 2015
Slide 2: Agenda
Agenda Highlights Operational and financial review Conclusion Questions Investor Update Q1 2015 results 2
Slide 3: Financial results Q1 2015 – improved performance in a challenging environment
Financial results Q1 2015 – improved performance in a challenging environment Revenue Operating income Return on Sales % Return on Investment % € million € million +6% +42% 3,591 10.6 9.7 8.5 3,383 306 6.4 216 Q1 2014 Q1 2015 Q1 2014 Q1 2015 Q1 2014 Q1 2015 Q1 2014 Q1 2015 • Performance improvement
Slide 4: Operational and financial review
Operational and financial review Investor Update Q1 2015 results 4
Slide 5: Q1 2015 revenue and operating income – continuing to deliver improved performance
Q1 2015 revenue and operating income – continuing to deliver improved performance € million Q1 2014 Q1 2015 Δ% Revenue 3,383 3,591 6 Operating income 216 306 42 Ratio, % Q1 2014 Q1 2015 Return on sales 6.4 8.5 Return on sales (excluding restructuring costs) 7.7 8.8 Moving average return on investmen
Slide 6: Challenging economic environment continues to impact all Business Areas
Challenging economic environment continues to impact all Business Areas Quarterly volume development in % year-on-year 2014 2015 6 2 -3% -3% 0% -2% -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel Quarterly price/mix development in % year-on-year 5 2 +1% -1% 0% 0% -1 -4 Dec
Slide 7: Decorative Paints Q1 2015 highlights
Decorative Paints Q1 2015 highlights = • Revenues up, due to favorable € million Q1 2014 Q1 2015 Δ% currency effects. Volume growth Revenue 865 890 3 in Latin America more than offset by soft demand in Europe Operating income 17 50 194 and Asia • Price/mix down largely due to impact from the sale of
Slide 8: Performance Coatings Q1 2015 highlights
Performance Coatings Q1 2015 highlights • Revenue higher in all € million Q1 2014 Q1 2015 Δ% businesses; favorable Revenue 1,319 1,430 8 currencies and price/mix offset lower volumes Operating income 126 170 35 • Volumes up in Automotive and Specialty Coatings although down in other businesses. Rati
Slide 9: Updated to segment reporting for Performance Coatings
Updated to segment reporting for Performance Coatings Old reporting New reporting – aligned with Strategic Market Units Marine & • Protective Protective • Marine Marine & • Protective Coatings Coatings • Yacht Protective Coatings • Marine Coatings Automotive & • Aerospace Aerospace • Specialty Finis
Slide 10: Specialty Chemicals Q1 2015 highlights
Specialty Chemicals Q1 2015 highlights • Revenue up, mainly due to € million Q1 2014 Q1 2015 Δ% favorable currency effects ; volumes and price/mix were flat Revenue 1,222 1,296 6 Operating income 135 163 21 • Developments in bleaching and chelates segments positive while volumes in oil drilling were
Slide 11: Income – adjusted earnings per share up 25% to €0.76
Income – adjusted earnings per share up 25% to €0.76 € million Q1 2014 Q1 2015 Δ% EBITDA 364 462 +27% Amortization and depreciation (148) (156) Operating income before incidentals 216 306 +42% Incidentals - - Operating income 216 306 +42% Net financing expenses (37) (41) Minorities and associates (1
Slide 12: Cash flows – impacted by currencies, seasonal working capital and pension top-ups
Cash flows – impacted by currencies, seasonal working capital and pension top-ups € million Q1 2014 Q1 2015 Δ% Profit for the period from continuing operations 142 181 Amortization and depreciation 148 156 Change working capital (471) (576) Change provisions (294) (410) Other changes (77) 27 Net cas
Slide 13: IAS19 pension deficit remains at €0.8 billion
IAS19 pension deficit remains at €0.8 billion, including ICI PF buy-in during Q1 2015 Key pension assumptions metrics Q1 2015 Q4 2014 Discount rate 3.1% 3.4% Inflation rate 2.8% 2.9% Pension deficit development during Q1 2015 € million Decrease Increase (844) (790) (110) 330 20 (822) 530 106 Deficit
Slide 14: Conclusion
Conclusion Investor Update Q1 2015 results 14
Slide 15: Conclusion
Conclusion • Improved performance reflects benefits from improvement programs, reduced restructuring expenses, lower costs and favorable currency effects • Higher return on sales and return on investment, despite challenging market conditions in many regions • Exchange rate movements and lower growt
Slide 16: Questions
Questions Investor Update Q1 2015 results 16
Slide 17: Safe Harbor Statement
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
Slide 18: Appendices
Appendices Investor Update Q1 2015 results 18
Slide 19: Q1 2015 Operating income – Cash bridge
Q1 2015 Operating income – Cash bridge € million Q1 2014 Q1 2015 Operating Income 216 306 Incidentals - - Depreciation & amortization 148 156 EBITDA before incidentals 364 462 Other 10 (6) Change working capital (471) (576) Change provisions (294) (410) Interest paid (116) (48) Income tax paid (45)
Slide 20: Restructuring charges by quarter
Restructuring charges by quarter € million Q1 2014 Q2 2014 Q3 2014 Q4 2014 FY 2014 Q1 2015 Decorative Paints 22 23 1 34 80 5 Performance Coatings 15 17 41 75 148 6 Specialty Chemicals 7 2 6 2 17 0 Other 0 3 7 -2 8 0 Total 44 45 55 109 253 11 Investor Update Q1 2015 results 20
Slide 21: Revenue for Performance Coatings – Updated following change in business structure
Revenue for Performance Coatings – Updated following change in business structure € million Q1 2014 Q2 2014 Q3 2014 Q4 2014 FY 2014 Marine & Protective Coatings 323 362 360 369 1,414 Automotive & Specialty Coatings 343 365 357 375 1,440 Industrial & Powder Coatings 660 715 714 680 2,769 Other/intrag
Slide 22: Revenue for Specialty Chemicals – Financial reporting aligned with chemical platforms
Revenue for Specialty Chemicals – Financial reporting aligned with chemical platforms € million Q1 2014 Q2 2014 Q3 2014 Q4 2014 FY 2014 Functional Chemicals 440 447 446 423 1,756 Industrial Chemicals 322 305 308 295 1,230 Surface Chemistry 250 256 257 247 1,010 Pulp and Performance Chemicals 243 250
Slide 23: Human Cities in action
Human Cities in action A new report developed by the Economist Intelligence Unit and AkzoNobel is now available which explores how cities create optimal environments for citizens. Called Tomorrow’s cities, we worked together to collect opinions from leading city experts and executives, who share the
Slide 24: Business highlights Q1 2015
Business highlights Q1 2015 Decorative Paints Performance Coatings Specialty Chemicals Up to 10% Major Ningbo annual energy automotive investment passes savings agreement €400million signed Doing more with less Driving innovation Organic growth We supplied a low carbon We extended our official suppl
Slide 25: Innovation Pipeline Q1 2015 Decorative Paints – Visualizer App
Innovation Pipeline Q1 2015 Decorative Paints – Visualizer App Key Features Customer Benefits Growth Potential • A world first consumer • Enables users to see in real- • Downloaded ~1.3 million times application of augmented time what a room would look in 125+ countries since its launch reality tech
Slide 26: Innovation Pipeline Q1 2015 Ethylene and Sulfur Derivatives – Process Improvement
Innovation Pipeline Q1 2015 Ethylene and Sulfur Derivatives – Process Improvement Key Features Customer Benefits Growth Potential • Significant efficiency • Reduced steam consumption • Delivering structural annual improvements of our ethylene and glycol byproduct savings and a substantial Carbon ami
Slide 27: Overall market conditions remain challenging in many countries
Overall market conditions remain challenging in many countries Purchase Managers’ Index (PMI)* March 2015 60 US Sweden Manufacturing PMI India Japan UK France Germany 50 Russia China Brazil 40 *Bubble size=manufacturing value-added output, 2015e (US$bn: 2010 prices) Source: Oxford Economics Investor
Slide 28: Reference
Reference Investor Update Q1 2015 results 28
Slide 29: AkzoNobel today
AkzoNobel today • Revenue €14.3 billion • 47,210 employees • 44% of revenue from high growth markets • Major producer of Paints, Coatings and Specialty Chemicals • Leadership positions in many markets Revenue by Operating income Invested capital by Business Area by Business Area Business Area Perfor
Slide 30: High growth markets are 44% of revenue and their importance will increase
High growth markets are 44% of revenue and their importance will increase % of 2014 revenue 37% Mature Europe 15% 8% North America Emerging Europe 26% Asia Pacific 10% 4% Latin America Other regions Share of revenues from high growth markets will increase over time Investor Update Q1 2015 results 30
Slide 31: Our proposition: Leading market positions delivering leading performance
Our proposition: Leading market positions delivering leading performance AkzoNobel has gone through a significant amount of strategic change over the past five years Today, the company has • Excellent portfolio of businesses • Good long term growth potential on the basis of end-user segment growth •
Slide 32: Revenue by end-market segments
~42% of revenues ~16% of revenues New Build Projects Automotive OEM, Parts and Assembly Maintenance, Renovation & Repair Automotive Repair Building Products & Components Marine and Air Transport ~17% of revenues ~25% of revenues Consumer Durables Natural Resource and Energy Industries Consumer Packa
Slide 33: 2015 financial targets focused on quality of earnings and value creation
2015 financial targets focused on quality of earnings and value creation Return on sales Return on investment Net debt/EBITDA (Operating income/revenue) (Operating income/average x % 12 months invested capital) % 12 16 14.0 3 9.0 10.0 6.9 12 < 2.0 8 5.9 * 6.6 8.9 * 9.6 2 1.4 8 1.0 1.0 4 1 4 0 0 0 20
Slide 34: Realistic expected 2015 outcomes
Realistic expected 2015 outcomes Expected Outcomes 2012 2015 16 Return on 12,0 12,0 sales 12 9,5 9,0 7,5 8 4 2,2 0 % Decorative Paints Performance Coatings Specialty Chemicals Return on 32 25,0 investment 24 21,7 13,6 15,0 16 12,0 8 3,0 0 % Decorative Paints Performance Coatings Specialty Chemicals
Slide 35: Progress made to date
Progress made to date FY2012 FY2013 FY2014 16 12 9.5 9.5 9.4 9.8 9.0 10.4 Return on 6.3 8 6.0 sales 2.2 4 0 Decorative Paints Performance Coatings Specialty Chemicals % 32 21.7 21.3 22.0 24 13.7 13.6 14.8 Return on 16 8.8 8.2 investment 8 3.0 0 Decorative Paints Performance Coatings Specialty Chemic
Slide 36: AkzoNobel strategy introduced in 2013
AkzoNobel strategy introduced in 2013 • Organic growth • Operational excellence Investor Update Q1 2015 results 36
Slide 37: The global paints and coatings market is around €100 billion
The global paints and coatings market is around €100 billion By market sector By end-user segment 2014, 100% = ~ €100 billion 2014, 100% = ~ €100 billion Yacht Industrial Others Aerospace Consumer Buildings and Decorative Packaging Paints Goods Infrastructure Marine (43%) Spec. finishes Coil Powder
Slide 38: AkzoNobel has many leading market positions
AkzoNobel has many leading market positions No.1 Position Other key players Multiple regions outside North PPG, regional players Decorative America North America* Sherwin-Williams PPG, regional players Protective Sherwin-Williams, Jotun Powder Axalta, Jotun, regional players Auto refinish Axalta PPG
Slide 39: In aggregate variable costs represent 53% of revenue
In aggregate variable costs represent 53% of revenue Profit and loss breakdown* % of total • AkzoNobel is well positioned for economic recovery 100% • Variable costs represent 53% of revenue • Decorative Paints is more driven by personnel costs in the distribution network, while Specialty Chemicals
Slide 40: We are actively addressing all components of operating expenses
We are actively addressing all components of operating expenses Operating expenses Research, Operating expense General & Selling Expenses Development & components Administrative Innovation Global Business Addressed by Commercial Excellence Initiatives Services Drives organic growth * All costs in €
Slide 41: Drive towards continuous improvement and commercial excellence
Drive towards continuous improvement and commercial excellence • We are moving into continuous improvement which will enable us to achieve the 2015 targets – 2014 restructuring charges amounted to €253 million – From 2015 onwards, more normalized levels of restructuring costs, around 1% of revenues
Slide 42: Sustainability is business; business is sustainability
Sustainability is business; business is sustainability of revenue by 2020 from products that are more sustainable for our customers than the products of our competitors more efficient resource and energy use across the entire value chain by 2020 (measured by carbon footprint reduction) (Resource Eff
Slide 43: Human Cities
Human Cities • By 2050, more than 75 percent of the world’s population will live in cities. 60 percent of our products are in the Buildings & Infrastructure and Transportation • In 2014, we launched our Human Cities initiative, which is designed to engage with the challenges and opportunities of the
Slide 44: AkzoNobel values drive cultural change
AkzoNobel values drive cultural change Investor Update Q1 2015 results 44
Slide 45: Leading performance; gaining momentum
Leading performance; gaining momentum Historical Vision 2015 Targets Culture issues & Strategy & Incentives & Values • ROS below peers • Organic growth • ROS 9% • Customer Focused • Not earning our cost • Operational • ROI 14% • Deliver on of capital excellence • Operating income - Commitments • Ina
Slide 46: Decorative Paints business at a glance
Decorative Paints business at a glance Revenue by end-user Revenue by geographic spread sub-segment 4% 8% Mature Europe 25% Maintenance, renovation and repair 14% Asia Pacific 46% Latin America New build projects Emerging Europe 75% Other regions 28% Decorative Paints key figures Key messages € mill
Slide 47: We have very strong brands linked by a global approach to branding
We have very strong brands linked by a global approach to branding • Our well-known brands are one of our key competitive advantages Consumer • We have a number of powerful, relevant brands occupying a number of positions across different markets (consumer, professional, and other such as woodcare)
Slide 48: Fix Europe
Fix Europe Objectives: • Improve performance by driving organic growth and operational excellence and changing the operating model in Europe Actions: • Implement a central operating model and simplify our organizational structure • Consolidate our manufacturing and distribution footprint • Develop a
Slide 49: Changing our operating model in Europe
Changing our operating model in Europe Action 2012 2013 2014 2015 Integrate relevant European activities and management Rationalize product portfolio and raw materials Rationalize manufacturing footprint Fully implement sales excellence Outsource certain finance businesses Implement central operatin
Slide 50: Grow profitably in high-growth markets
Grow profitably in high-growth markets Objectives: • Outgrow the market • Ensure that we leverage our (global) scale to ensure that we improve relative profitability while we grow Actions: • Develop profitable mid-market business model(s) • Build and implement a robust distribution strategy framewor
Slide 51: Performance Coatings business at a glance
Performance Coatings business at a glance Revenue by end-user segment Revenue by geographic spread 14% Buildings and 3% Mature Europe 21% Infrastructure 11% 27% North America Transportation 8% Asia Pacific 28% Consumer Latin America Goods Emerging Europe 37% 31% 20% Industrial Other regions Performa
Slide 52: We cover a uniquely broad set of markets with leading global brands
We cover a uniquely broad set of markets with leading global brands 2014 revenue by Reporting Unit • Protective Marine & • Marine Marine & Protective Protective Coatings 25% Coatings 49% • Vehicle Refinishes Automotive & Specialty Coatings Automotive & • Specialty Finishes Specialty Coatings • Aeros
Slide 53: AkzoNobel is the global market leader in Performance Coatings, excluding Automotive
AkzoNobel is the global market leader in Performance Coatings, excluding Automotive Performance Coatings revenue € billion, 2013 unless noted 6 5 4 3 2 1 0 Non-Automotive Automotive * 2012 data Source: Annual Reports; AkzoNobel analysis Investor Update Q1 2015 results 53
Slide 54: AkzoNobel has many leading market sector positions in Performance Coatings
AkzoNobel has many leading market sector positions in Performance Coatings Performance Coatings market sectors AkzoNobel market share x € billion, 2013 position (by value) 2013 1 7 3 1 6 5 1 4 1/2 1 3 1 2 2 1 1/2 1 0 Protective Vehicle Powder Wood Marine Specialty Coil Packaging Aerospace Yacht Refi
Slide 55: Pursue differentiated growth strategies
Pursue differentiated growth strategies Outgrow the market organically Expected outcomes • Marine • Improved market share • Protective • Costs don’t grow as fast as revenue • Powder • Improved return on sales • Specialty Finishes in percentage terms Improve performance by Expected outcomes driving o
Slide 56: Specialty Chemicals business at a glance
Business at a glance Revenue by end user segment Revenue by geographic spread 5% Buildings and Mature Europe 18% 2% infrastructure 10% North America Transportation 6% 43% Asia Pacific 18% Latin America 57% Consumer 19% goods Emerging Europe Industrial 22% Other regions Specialty Chemicals key figure
Slide 57: The chemical industry is large and growing
The chemical industry is large and growing Chemicals industry over time, by geography $ trillion • $3.5 trillion market Other China 6.3 Asia Pacific • Solution provider for society North America – manufacturing Western Europe – food production – climate change 3.4 • Continuous growth 1.3 0.9 • Stron
Slide 58: Five well positioned platforms in their industries
Five well positioned platforms in their industries Our Business Units Our Platforms Bleaching Chemicals Pulp & Performance chemicals 60% of Pulp & Performance chemicals Salt-chlorine chain Industrial Chemicals 100% of Industrial Chemicals Polymer Catalysts 40% of Functional Chemicals Functional Chem
Slide 59: Platforms operate world scale plants based on advanced technologies
Platforms operate world scale plants based on advanced technologies Our main chemical platforms Key products • Sodium chlorate Bleaching chemicals • Hydrogen peroxide • Energy/Salt • Monochloroacetic acid Salt-chlorine chain • Chlorine • Chloromethanes • Organic peroxides Polymer catalysts • Metal a
Slide 60: We have invested in the recent past and are well-prepared for future growth
We have invested in the recent past and are well-prepared for future growth BA Specialty Chemicals capital expenditure € million 500 400 300 200 100 0 2010 2011 2012 2013 2014 Capital Expenditure Depreciation and Amortization Major projects and timing of spend Investment project 2010 2011 2012 2013
Slide 61: Four operational improvement initiatives
Four operational improvement initiatives Improve Strengthen Reduce Enhance product productivity of commercial organizational and process supply chain and excellence costs innovation operations • Asset optimization • Customer value • Restructuring • New applications • Production system creation and p
Slide 62: Differentiated strategies per platform
Differentiated strategies per platform Outgrow the market organically Actions ~ 50% of portfolio • Capitalize on investments Main platforms • Grow by successfully • Bleaching chemicals • Surfactants commercializing products for attractive applications Improve performance by driving Actions operation
Slide 63: Salt-Chlorine chain: Right at the heart of the customer base
Salt-Chlorine chain: Right at the heart of the customer base Steam cracker Refinery Olefin consumer Refinery & olefin producer Pipelines* * Pipelines transporting crude oil (RAPL), nafta (PALL), industrial gasses, ethylene and propylene Investor Update Q1 2015 results 63
Slide 64: Ethylene oxide network: Capitalizing on China investments
Ethylene oxide network: Capitalizing on China investments Bio-treatment facility Chelates Surfactants Hydrogen Organic Cyanide Peroxides Ethylene Oxide Ethylene Amines Cellulosics Site plan Investor Update Q1 2015 results 64
Slide 65: Surfactants: Growing with attractive end markets
Surfactants: Growing with attractive end markets Oilfield Lubricants Mining Agriculture Investor Update Q1 2015 results 65
Slide 66: Our platforms build on value chains
Our platforms build on value chains Raw Base Chemical Performance/ materials chemicals inter-mediates functional ‘End’ products chemicals Bleaching chemicals Salt-chlorine chain Polymer catalysts Ethylene oxide network Surfactants Investor Update Q1 2015 results 66
Slide 67: Disciplined cash management
Disciplined cash management Operating Working Capital Capital Expenditures € million € million Operating Working Capital Specialty Chemicals Decorative Paints OWC as % of LQ revenue * 4 Performance Coatings Other 2.500 16% 5.4% 12.9% 14% 2.000 4.5% 4.6% 12% 10.7% 4.1% 9.9% 10.1% 3.7% € 826 10% 1.500
Slide 68: Operational cash inflow close to covering uses of cash
Operational cash inflow close to covering uses of cash Cash flow sources and uses • Restructuring and pension top-ups consume a significant 2012 2013 2014 proportion of cash • Performance improvement focus starts to address cash challenge • Remuneration metrics include cash generation • Positive cas
Slide 69: Continuously reducing costs of long term bonds
Continuously reducing costs of long term bonds Debt maturities € million Repaid 7.75% 4.00% € bonds £ bonds $ bonds 2.625% 7.25% 1.75% • Debt duration 4.8 years 825 8.00% 800 750 622 500 • Net interest expense down 320 by €74 million compared to 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Slide 70: 2015 target: net debt to EBITDA ratio of less than two
2015 target: net debt to EBITDA ratio of less than two Net debt/EBITDA x • We have a strong liquidity position to support business needs: net cash and cash equivalents 1,5 €1.7 billion* • Undrawn revolving credit facility of €1.8 billion 1,0 (2018) €1.5 and $3 billion commercial paper programs, back
Slide 71: Dividend policy unchanged – stable to rising dividend
Dividend policy unchanged – stable to rising dividend Dividends paid (€) • Our dividend policy is to pay a stable to rising dividend each year 1.08 1.12 1.12 1.12 1.12 1.05 • An interim and final dividend will be paid in cash unless shareholders elect to receive a stock dividend 0.30 0.32 0.33 0.33
Slide 72: Proactively managing or removing pension liabilities
Proactively managing or removing pension liabilities • Active management of interest rate and inflation Interest rate / exposure, with around 70% of overall defined benefit Inflation hedging obligation (DBO) risks hedged Retain and • Courtaulds (CPS) longevity swap with Swiss Re in 2012 Longevity he
Slide 73: Pension cash flow guidance
Pension cash flow guidance Defined benefit pension cash top-ups • Top-ups relate mainly to the 2 big UK plans, the ICI Pension Fund and the CPS [Status February 2013] Pension Scheme € million • Top-ups are based on prudent actuarial valuation of liabilities, which differs from 2014 actual 300 accoun
Slide 74: Both short & long term incentives are aligned with our priorities
Both short & long term incentives are aligned with our priorities Executive short term incentive 2015 Executive long term incentive 2015 STI Metric LTI Metric Element Element 20% Return on investment 35% Return on investment 20% Operating income 35% Total Shareholder Return 30% Operating cash flow 3
Slide 75: Variable costs analysis
Variable costs analysis 2014 Packaging Energy & other variable costs* Solvents Raw materials 6% 7% 26% Chemicals and intermediates*** 17% 4% Other raw materials** 5% 10% Titanium Additives 6% dioxide 3% 16% Coatings’ Pigments specialties Resins * Other variable costs include variable selling costs (
Slide 76: The net impact of a sustained lower oil price can have a positive impact in 2015
The net impact of a sustained lower oil price can have a positive impact in 2015 Freight and logistics Freight and logistics Raw materials Production Sales GDP Inventories Investor Update Q1 2015 results 76
Slide 77: Downstream oil related products have clearly different dynamics
Downstream oil related products have clearly different dynamics Feedstocks Base Intermediates and more complex molecules (petro)chemicals Intermediates Monomers, More complex Precursors, etc. molecules Solvents Crude Oil Methanol Monomers & Latex (Shale) Gas Ethylene Coal Ethanol Bio based Propylene