Akzo Nobel N.v. · EURONEXT:AKZA
Akzo Nobel — FY2013 Earnings Presentation
59 slides from Akzo Nobel's earnings presentation, Feb 6, 2014
Slide 1: Investor Update Full-Year 2013 & Q4 results
Investor Update Full-Year 2013 & Q4 results Ton Büchner & Keith Nichols February 6, 2014
Slide 2: Agenda
Agenda 1. 2013 highlights 2. Operational review 3. Financial review 4. Performance improvement program 5. Conclusion 6. Questions Investor Update Full-Year 2013 & Q4 results 2
Slide 3: 2013 highlights & operational review
2013 highlights & operational review Ton Büchner Investor Update Full-Year 2013 & Q4 results 3
Slide 4: 2013 has been a year of establishing a different way forward
2013 has been a year of establishing a different way forward • New strategy, targets, team, remuneration and company values • Clear signs of making progress with our strategy: – underlying ROS and ROI improving – Net debt significantly reduced – Performance Improvement Program finalized early • This
Slide 5: FY 2013 revenue and operating income
FY 2013 revenue and operating income € million FY 2013 Δ% Revenue 14,590 -5 Operating income 958 6 Ratio, % FY 2013 FY 2012* Return on sales 6.6 5.9 Return on sales (excluding incidentals and PIP costs) 8.5 8.2 Moving average return on investment 9.6 8.9 Increase Revenue development FY 2013 vs. FY 2
Slide 6: 2013 highlights
2013 highlights • Q4 volume development positive in all three business areas and ROS% excluding restructuring costs and incidentals increased, continuing the trend from Q3 • Revenue for both Q4 and the full year down 5 percent, due to adverse currency effects and divestments • 2013 operating income
Slide 7: Q4 2013 revenue and operating income
Q4 2013 revenue and operating income € million Q4 2013 Δ% Revenue 3,482 -5 Operating income 116 222 Ratio, % Q4 2013 Q4 2012 Return on sales 3.3 1.0 Return on sales (excluding incidentals and PIP costs) 7.4 4.3 Moving average return on investment 9.6 8.9 Increase Revenue development Q4 2013 vs. Q4 2
Slide 8: Market conditions remain challenging but volumes improved in all business areas
Market conditions remain challenging but volumes improved in all business areas Quarterly volume development in % year-on-year 2012 2013 +5% 6 +4% +2% +3% 2 -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel Quarterly price/mix development in % year-on-year 7 4 0% +1% -1% -2%
Slide 9: Foreign exchange rates and divestments negatively impacted our Q4 revenues
Foreign exchange rates and divestments negatively impacted our Q4 revenues Quarterly foreign exchange rate development in % year-on-year 2012 2013 6 2 -7% -5% -4% -5% -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel • The 5 percent decrease in revenues in Q4 was mainly driv
Slide 10: Decorative Paints Q4 2013 highlights
Decorative Paints Q4 2013 highlights = • Revenues down 6% due to adverse € million Q4 2013 Δ% currency effects and divestments Revenue 934 -6 • Volumes up in all regions, against a Operating income 146 260 low base in 2012 • Operating income includes a Ratio, % Q4 2013 Q4 2012 €198 million gain on t
Slide 11: Performance Coatings Q4 2013 highlights
Performance Coatings Q4 2013 highlights • Revenues down 2 percent, due to € million Q4 2013 Δ% adverse currency effects Revenue 1,367 -2 • Volumes up 2% in Q4, with positive Operating income 73 -36 developments in all businesses • Operating income down on last year Ratio, % Q4 2013 Q4 2012 due to ad
Slide 12: Specialty Chemicals Q4 2013 highlights
Specialty Chemicals Q4 2013 highlights • Revenues down 9 percent due to € million Q4 2013 Δ% Chemicals Pakistan divestment and Revenue 1,200 -9 adverse currency effects Operating income -30 -141 • Volumes during the quarter were up 3% compared to the previous year with higher volumes in most Ratio,
Slide 13: FY 2013 Return on sales improvement
FY 2013 Return on sales improvement – underlying excluding incidentals and PIP costs Return on Sales % 12 8.5 FY2012 AkzoNobel 8 6.6 5.9* FY2013 4 0 % FY2012 FY2013 FY2013 As reported Excluding incidentals and PIP costs Return on Sales % – excluding incidentals & PIP costs 32 Business 24 Areas 16 11
Slide 14: FY2013 Operating Income bridge
FY2013 Operating Income bridge Operating Income bridge FY2012 – FY2013 Increase € million Decrease (56) 61 295 (224) 64 (66) 61 27 (106) 55 972 958 908 897 FY 2012 Incidentals FY 2012 Currency / Volume Price/Mix Raw Additional Additional Other FY 2013 Incidentals FY 2013 OPI 2012 EBIT Acq / Div mate
Slide 15: Financial targets – progress made to date
Financial targets – progress made to date Decorative Paints and Specialty Chemicals affected by incidentals Return on sales – 2015 target 9.0% Return on investment – 2015 target 14.0% 12 16 AkzoNobel FY2012 6.6 12 8 5.9 8.9* 9.6 FY2013 8 4 4 0 0 % FY2012 FY2013 % FY2012 FY2013 Return on sales 16 12
Slide 16: Financial review
Financial review Keith Nichols Investor Update Full-Year 2013 & Q4 results 16
Slide 17: 2013 financial highlights
2013 financial highlights • Adverse currency movements impacted our results, especially during the second half of the year, but still delivering on mid-year guidance with Operating Income before incidental items coming in at €897 million • Operating working capital reduced to 9.9% at year end • Cape
Slide 18: Summary – Q4 2013 results
Summary – Q4 2013 results € million Q4 2013 Q4 2012* EBITDA 208 205 Amortization and depreciation (153) (161) Incidentals 61 (8) Operating income 116 36 Net financing expenses (48) (38) Minorities and associates (12) (19) Income tax (21) 16 Discontinued operations 16 (22) Net income attributable to
Slide 19: Cash flows Q4 2013
Cash flows Q4 2013 € million Q4 2013 Q4 2012* Profit for the period from continuing operations 48 13 Amortization and depreciation 153 161 Change working capital 277 469 • Pension provisions (133) 8 • Restructuring 79 (8) • Other provisions 13 8 Change provisions (41) 8 Other changes (128) (21) Net
Slide 20: Operating Working Capital % of revenue reduced due to working capital management
Operating Working Capital % of revenue reduced due to working capital management OWC € million Operating Working Capital OWC as % of LQ revenue*4 2.500 16% 14.8% 13.8% 13.3% 13.9% 14% 2,197 12.1% 2.000 2,227 11.8% 2,102 12% 10.7% 1,932 1,872 1,782 9.9% 10% 1.500 1,572 1,384 8% 1.000 6% 4% 500 2% 0 0
Slide 21: Net debt down to €1.5 billion
Net debt down to €1.5 billion Debt maturities € million Q4 2013 Q4 2012 billion Net debt 1,817 2,597 € bonds £ bonds Net cash from (309) (630) operating activities 800 750 Capex 234 330 825 Acquisitions & 622 (309) (132) Divestments 300 Dividends 70 67 2014* 2015 2016 2017 2018 2019 2020 2021 2022 O
Slide 22: Pension deficit decreases to €0.6 billion
Pension deficit decreases to €0.6 billion Key pension metrics Q4 2013 Q4 2012 Discount rate 4.2% 3.9% Inflation assumptions 3.2% 2.4% Pension deficit development during 2013 € million Decrease Increase (638) 640 (660) (1,086) 127 (128) (25) 183 311 Deficit end Top-ups Top-ups (US Decreased Discount
Slide 23: Performance Improvement Program
Performance Improvement Program Ton Büchner Investor Update Full-Year 2013 & Q4 results 23
Slide 24: AkzoNobel strategy
AkzoNobel strategy Investor Update Full-Year 2013 & Q4 results 24
Slide 25: Performance Improvement Program completed and delivering over €500 million
Performance Improvement Program completed and delivering over €500 million EBITDA savings Performance Improvement Program Operational Functional Business Unit Excellence Excellence Adaptations • Performance Improvement Program has been completed one year ahead of the original schedule and delivered
Slide 26: Significant FTE reductions as a result of the Performance Improvement Program
Significant FTE reductions as a result of the Performance Improvement Program FTE bridge Year-end 2011 – FY2013 Increase Decrease 52500 52000 51500 52,020 (980) 51000 50500 50000 (3190) 49500 49000 49,560 1710 48500 48000 47500 47000 year-end 2011* Acq/Div** PIP Seasonal/New hires year-end 2013 * Re
Slide 27: Capex reduced to 4.6% of revenue
Capex reduced to 4.6% of revenue Capital expenditure 2013, 100% = €666 million (4.6% of revenue) 1% 21% 52% 26% Performance Coatings Decorative Paints Specialty Chemicals Other • Significant reduction from last year (2012: €826 million, 5.4% of revenues) • Capital expenditure will be around 4% of re
Slide 28: Decorative Paints
Decorative Paints • Further reduction of inventory based on SKU reduction program and introduction of Manufacturing Integrated Business Planning Process for Europe improvements • 5 manufacturing site closures in 2012 and 2013, moving towards mega plant concept in Europe • Restructuring of regional p
Slide 29: Performance Coatings
Performance Coatings • Site optimization processes continued with knowledge transfer of best practices, Manufacturing resulting in FTE reductions, capacity increases, and reduced operating costs improvements • 7 additional manufacturing site closures were communicated in Q4 2013 • Product portfolio
Slide 30: Specialty Chemicals
Specialty Chemicals • Conducted over 70 site improvement projects Manufacturing • Announced closure of Organic Peroxides manufacturing facility in Deventer improvements • Merged the engineering organizations and established the Engineering Excellence ISC function Center improvements • Established th
Slide 31: Drive towards continuous improvement and commercial excellence
Drive towards continuous improvement and commercial excellence • Restructuring activities to continue into 2014, moving into continuous improvement which will enable us to achieve the 2015 targets – 2014 restructuring charges expected to total at least €250 million – more normalized levels of restru
Slide 32: AkzoNobel values
AkzoNobel values Investor Update Full-Year 2013 & Q4 results 32
Slide 33: Dividends and governance
Dividends and governance Dividends • Our dividend policy is to pay a stable to rising 1.12 1.12 1.12 dividend each year 1.05 1.08 1.12 1.12 1.05 1.08 • 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 0.33 0.30 0.32 0.33 0.3
Slide 34: Conclusion
Conclusion Ton Büchner Investor Update Full-Year 2013 & Q4 results 34
Slide 35: Conclusion
Conclusion • Early signs of stabilization in the second half of 2013, economic environment remains fragile and foreign currencies volatile • Performance Improvement Program successfully completed, moving towards continuous improvement • We will continue to significantly restructure our businesses in
Slide 36: Questions
Questions Investor Update Full-Year 2013 & Q4 results 36
Slide 37: 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 38: Appendices
Appendices Investor Update Full-Year 2013 & Q4 results 38
Slide 39: Performance Improvement Program – Benefits by quarter
Performance Improvement Program – Benefits by quarter FY FY FY € million 2011 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Decorative Paints 12 9 15 24 37 85 23 27 29 32 111 Performance - 3 11 40 46 100 25 25 21 26 97 Coatings Specialty - 7 11 19 16 53 16 17 28 28 89 Chemicals Other - - - - - - - - -2 - -2 Tot
Slide 40: Performance Improvement Program – Restructuring charges by quarter
Performance Improvement Program – Restructuring charges by quarter FY FY € million Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Decorative Paints 23 8 35 74 140 7 24 8 66 105 Performance 4 9 36 41 90 11 5 9 77 102 Coatings Specialty 0 15 17 10 42 1 0 46 27 74 Chemicals Other 7 10 13 -10 20 10 11 12 34 67 Total
Slide 41: Q4 2013 Operating income – Cash bridge
Q4 2013 Operating income – Cash bridge € million Q4 2013 Q4 2012 Operating Income 116 36 Incidentals (61) 8 Depreciation & amortization 153 161 EBITDA before incidentals 208 205 Other 21 41 Change working capital 277 469 Change provisions (41) 8 Interest paid (62) (62) Income tax paid (94) (31) Net
Slide 42: Cash flows FY2013
Cash flows FY2013 € million FY 2013 FY 2012* Profit for the period from continuing operations 661 513 Amortization and depreciation 616 625 Change working capital (13) 251 • Pension provisions (417) (593) • Restructuring 55 9 • Other provisions (33) (119) Change provisions (395) (703) Other changes
Slide 43: Pension deficit decreases to €0.6 billion
Pension deficit decreases to €0.6 billion Key pension metrics Q4 2013 Q3 2013 Discount rate 4.2% 4.2% Inflation assumptions 3.2% 2.9% Pension deficit development during Q4 2013 € million Decrease Increase (638) (717) 92 127 (209) 4 (18) 83 Deficit end Top-ups Top-ups (US Increased Discount Inflation
Slide 44: AkzoNobel today
AkzoNobel today • Revenue €14.6 billion • 49,560 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 EBITDA by Business Area by Business Area Business Area Performance 24%
Slide 45: Leading market positions delivering leading performance
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 • Strong positions
Slide 46: Revenues by end-market segment
~44% 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 ~16% of revenues ~24% of revenues Consumer Durables Natural Resource and Energy Industries Consumer Packa
Slide 47: 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 2013 revenue, excluding Decorative Paints North America 38% Mature Europe 8% 15% Emerging Europe North America 25% 3% Asia Pacific* Middle East and Africa 11% Latin America Our goal: Greater than 50% of revenues from high
Slide 48: The global paints and coatings market is around €75 billion
The global paints and coatings market is around €75 billion By market sector By end-user segment 2011, 100% = €75 billion 2011, 100% = €75 billion Aerospace Yacht Packaging Industrial Coil Marine Decorative Consumer Buildings and Wood Paints Goods Infrastructure (43%) Vehicle Refinish Powder Transpo
Slide 49: 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 50: New and realistic 2015 financial targets
New and realistic 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 < 2,0 12 8 5,9 * 8,9 * 2 1.4 8 4 1 4 0 0 0 2012 2015
Slide 51: 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 52: Variable costs analysis
Variable costs analysis 2013 (excluding Decorative Paints North America) Packaging Energy & other variable costs* Raw materials Solvents 6% 7% 29% Chemicals and intermediates*** 17% 3% Other raw materials** 10% 5% Additives 6% Titanium 2% dioxide 15% Pigments Coatings’ specialties Resins * Other var
Slide 53: Variable costs represent 53% of revenue
Variable costs represent 53% of revenue Profit and loss breakdown* % of total 100% • Decorative Paints is more driven by personnel costs in the distribution network, while Specialty Chemicals has more production costs • Operating expense growth is primarily due to wage inflation 0% Decorative Perfor
Slide 54: 2014 gross debt will be reduced by a €825 million bond repayment
2014 gross debt will be reduced by a €825 million bond repayment Debt maturities* € million (nominal amounts) € bonds £ bonds 800 750 825 622 300 2014** 2015 2016 2017 2018 2019 2020 2021 2022 Strong liquidity position • Undrawn revolving credit facility of €1.8 billion (2018) • €1.5 and $3 billion
Slide 55: Pension cash flow guidance
Pension cash flow guidance Defined benefit pension cash top-ups • Top-ups relate mainly to the UK € million 2011 actual 353 • Top-ups are based on prudent actuarial valuation of liabilities, which differs from accounting liability 2012 actual* 355 • Actuarial pension deficit of the 2 main UK 2013 ac
Slide 56: Both short & long term incentives have been aligned with our priorities
Both short & long term incentives have been aligned with our priorities Executive short term incentive 2013 Executive long term incentive 2013 STI Metric LTI Metric Element Element 20% Return on investment 35% Return on investment 20% Operating income 35% Total Shareholder Return 30% Operating cash
Slide 57: Decorative Paints – Coral Coralit Zero
Innovation Pipeline Q4 2013 Decorative Paints – Coral Coralit Zero Key Features Customer Benefits • Premium waterborne with excellent finish • Odorless, quick drying and non-yellowing • Very fast drying – 2 hours between coats • Improved open time – better spreading and • High blocking resistance “s
Slide 58: Wood Finishes – Duritan fire retarding, high-gloss system
Innovation Pipeline Q4 2013 Wood Finishes – Duritan® fire retarding, high-gloss system Key Features Customer Benefits • High-gloss wood coating for luxury interiors based • Market-leading finish setting the industry on proprietary technology (joint Lufthansa Technik/ benchmark AkzoNobel patent) • Ex
Slide 59: Industrial Chemicals – Ecosel Asphalt Protection
Innovation Pipeline Q4 2013 Industrial Chemicals – Ecosel® AsphaltProtection Key Features Customer Benefits • Additive to de-icing brine in small amounts • Up to 50% less winter damage to road • Prevents formation of hard ice inside asphalt surface pores • Substantial savings on road • Reduces frost