Akzo Nobel N.v. · EURONEXT:AKZA
Akzo Nobel — Q3 2011 Earnings Presentation
58 slides from Akzo Nobel's earnings presentation, Oct 20, 2011
Slide 1: Investor update Q3 2011 results
October 20, 2011 Investor update Q3 2011 results
Slide 2: Agenda
Agenda • AkzoNobel at a glance • Strategic ambitions • Performance improvement program • Q3 2011 value highlights • Q3 2011 innovation highlights • Financial review Investor update Q3 2011 results 1
Slide 3: AkzoNobel key facts
AkzoNobel key facts 2010 • Revenue €14.6 billion • 55,590 employees • EBITDA: €2.0 billion* • Net income: €0.8 billion • 39 percent of revenue from high growth markets • A leader in sustainability Revenue by business area EBITDA* by business area 33% 33% 30% Performance Coatings 44% Decorative Paint
Slide 4: The global paints and coatings market is around €70 billion
The global paints and coatings market is around €70 billion % of market 100% is around €70 billion Wood Finishes 6% General Industrial Coatings 10% Car Refinishes 7% Decorative 44% Performance 3% Marine and Yacht 56% 6% Protective coatings 2% 9% Special purpose 8% 2%3% Auto OEM, metal, plastics Coil
Slide 5: AkzoNobel is the world's largest coatings supplier
AkzoNobel is the world’s largest coatings supplier 2010 revenue in € billion 12 10 8 6 4 2 0 Investor update Q3 2011 results 4
Slide 6: Excellent geographic spread of both revenue and profits
Excellent geographic spread of both revenue and profits High growth markets are important (39% of revenue) % of 2010 revenue 39% “Mature” Europe 6% 20% “Emerging” Europe North America 4% 21% Middle East Asia Pacific and Africa 10% Latin America High growth markets’ profitability is above average Inv
Slide 7: Leading positions and strong brands
Leading positions and strong brands 2010 Revenue by market position Some of our strong brands 27% of Decorative Paints No. 2 or 3 37% No. 1 23% of Performance Coatings position 60% Other 3% 18% of Specialty Chemicals Investor update Q3 2011 results 6
Slide 8: Successful customer focus
Successful customer focus Dulux® Weathershield SunReflect™ Lowers the temperature of external walls by up to 5° C and reduces the need for air conditioning by reflecting up to 90 percent more infrared radiation than comparable exterior paints. Compozil® Fx A wet end management system for the largest
Slide 9: Strategic ambitions
Strategic ambitions Investor update Q3 2011 results 8
Slide 10: Our strategic ambition
Our strategic ambition Investor update Q3 2011 results 9
Slide 11: Our medium term strategic goals
Our medium term strategic goals • Top quartile safety performance • Top 3 position in sustainability • Top quartile performance in diversity, employee engagement, and talent development • Top quartile eco-efficiency improvement rate • Grow to €20 billion revenues • Increase EBITDA each year, maintai
Slide 12: How we will expand in both mature and high growth markets
How we will expand in both mature and high growth markets Organic growth • Expand focus from high to mid-market segments • Fueling growth in high growth markets Innovation pipeline • Spend of around 2.5 percent of revenue makes us the clear leader of our peers in absolute spend • Emphasis on bolder,
Slide 13: Aspirations for high growth markets
Aspirations for high growth markets (currently around 40 percent of our revenue) Double revenues in China • Grow from $1.5 to $3 billion of revenues • Already the biggest paint, coatings and specialty chemicals company in China Create significant footprint in India • Grow from €0.25 to €1 billion in
Slide 14: High growth markets will become significantly more important
High growth markets will become significantly more important % of revenue, indicative 32% “Mature” Europe 9% 18% “Emerging” Europe North America 25% 5% Asia Pacific Middle East and Africa 11% Latin America High growth markets will be around 50% of revenue in this decade Investor update Q3 2011 resul
Slide 15: Exciting RD&I pipeline with innovative solutions for key market segments
Exciting RD&I pipeline with innovative solutions for key market segments How innovation will support our Revenue by key market growth agenda: segment • Functional solutions in key market segments 12% • Increase spend in big R&D • >15 percent of revenue from 13% 43% “breakthrough” innovations* • >30
Slide 16: Clear sustainability focus
Clear sustainability focus Accelerated sustainability strategy will deliver: • Safety at 2.0 injuries per million hours • 30 percent of revenue from eco-premium solutions • Sustainable fresh water management • 30 percent eco-efficiency improvement • 10 percent carbon footprint reduction (20-25 perce
Slide 17: Performance improvement program
Performance improvement program Investor update Q3 2011 results 16
Slide 18: The next step in the evolution of AkzoNobel
The next step in the evolution of AkzoNobel Accelerated Portfolio Integration & and sustainable transformation restructuring growth • Divestiture of fibers • Integration of ICI • New Value and Values and pharma • €340 million structural growth strategy Sept. ‘10 • Restructuring of synergies achieved
Slide 19: Stepping up operational and functional excellence
Stepping up operational and functional excellence Underpin our growth and margin objectives • Enhance our ability to grow • Expected to bring us at or above the mid-point of our 13-15 percent EBITDA margin guidance. Deliver structural competitive advantage • Leveraging scale, simplify support struct
Slide 20: A comprehensive program
A comprehensive program • Comprehensive – all functions, all businesses Decorative Perf. Specialty • Margin management, R&D and Paints Coatings Chemicals restructuring (~50%) Finance • Supply Chain and Sourcing projects (~40%) Information Management Research, • Improvements implemented over Dev’t &
Slide 21: Performance improvement initiatives examples
Performance improvement initiatives examples Supply Chain – Creating a sustainable, customer-driven supply chain that operates at world-class safety, operational and customer service levels: • Improve the efficiency of all of our 225 factories • Reduce the cost of warehousing and transportation RD&I
Slide 22: Organization and governance
Organization and governance • Joint responsibility of the Executive Committee, led by CEO Hans Wijers • The Executive Committee Support Office (ESO) will operate the implementation to track progress, intervene where necessary and support the overall program • Set priorities and identify improvement
Slide 23: Q3 2011 Value highlights
Q3 2011 Value highlights Investor update Q3 2011 results 22
Slide 24: Q3 2011 highlights
Q3 2011 highlights • Revenue up 5 percent driven by pricing actions to offset raw material cost inflation • Weaker economic conditions and continued raw material price inflation impact results, particularly in Decorative Paints • EBITDA* decreased to €507 million (2010: €574 million) • Net income fr
Slide 25: Q3 2011 revenue and EBITDA
Q3 2011 revenue and EBITDA € million Q3 2011 % Revenue 4,051 5 EBITDA* 507 (12) Ratio, % Q3 2011 Q3 2010 EBITDA* margin 12.5 14.8 Revenue development Q3 2011 vs. Q3 2010 10 0% -2% 5 +6% +1% +5% 0 Volume Price/Mix Acquisitions/ Exchange rates Total divestments * Before incidentals Increase Decrease I
Slide 26: Summary – Q3 2011 results
Summary – Q3 2011 results € million Q3 2011 Q3 2010 EBITDA* 507 574 Amortization and depreciation (155) (146) Incidentals (51) (47) Net financing expense (70) (70) Minorities and associates (9) (13) Income tax (74) (81) Discontinued operations 1 21 Net income total operations 149 238 Net cash from o
Slide 27: Q3 2011 incidentals
Q3 2011 incidentals € million Q3 2011 Q3 2010 Restructuring costs (47) (53) Results related to major legal, 2 - anti-trust and environmental cases Results of acquisitions and divestments (5) 15 Other incidental results (1) (9) Total (51) (47) • Restructuring is mainly related to European businesses
Slide 28: Revenue growth and EBITDA margin performance 2010-11
Revenue growth and EBITDA margin performance 2010-11 Reported quarterly revenue growth in % year-on-year 25 20 15 6% 10 5% 5% 5% 5 0 Decorative Paints Performance Specialty AkzoNobel Coatings Chemicals Quarterly EBITDA* margin in % 20 17.6% 15 10.3% 12.1% 12.5% 10 5 0 Decorative Paints Performance S
Slide 29: Price increases coming through
Price increases coming through Quarterly volume development in % year-on-year 15 10 4% 5 1% -1% 1% 0 -5 Decorative Paints Performance Specialty AkzoNobel Coatings Chemicals Quarterly price/mix development in % year-on-year 10 8% 7% 6% 5 3% 0 -5 -10 Decorative Paints Performance Specialty AkzoNobel C
Slide 30: Decorative Paints key facts
Decorative Paints key facts 2010 • Revenue €5.0 billion • 21,950 employees • EBITDA: €548 million* • 38 percent of revenue from high growth markets • Largest global supplier of decorative paints • Many leading positions, strong brands Some of our strong brands Revenue by geography 3% 11% Mature Euro
Slide 31: Decorative Paints Q3 2011 highlights
Decorative Paints Q3 2011 highlights • Revenue increased 5 percent; EBITDA* decreased 25 percent • Weaker demand, unfavorable product mix and higher raw material costs, particularly in Europe and North America • High growth markets delivered higher sales • Further price increases are being implement
Slide 32: First-ever global brand identity in the industry
First-ever global brand identity in the industry • Vision: Fewer, clearly positioned stronger brands • Delivering a consistent brand image around the world • Competing directly against local and regional players • Benefitting from current and future global platforms (i.e. advertising and sponsorship
Slide 33: Decorative Paints Q3 2011
Decorative Paints Q3 2011 € million Q3 2011 % Revenue 1,435 5 EBITDA* 148 (25) Ratio, % Q3 2011 Q3 2010 EBITDA* margin 10.3 14.4 Revenue development Q3 2011 vs. Q3 2010 10 0% +3% -2% 5 +4% +5% 0 Volume Price/Mix Acquisitions/ Exchange rates Total divestments * Before incidentals Increase Decrease In
Slide 34: Performance Coatings key facts
Performance Coatings key facts 2010 • Revenue €4.8 billion • 21,020 employees • EBITDA: €647 million* • 47 percent of revenue from high growth markets • Leading positions in performance coatings industry • Innovative technologies, strong brands Revenue by business unit Revenue by geography Marine an
Slide 35: Performance Coatings Q3 2011 highlights
Performance Coatings Q3 2011 highlights • Revenue increased 5 percent; EBITDA* decreased 5 percent • Raw material costs continue to pressure margins • EBITDA margin at 12.1 percent (2010: 13.4 percent) • Strong growth in Industrial Coatings, while weakening markets impact Marine and Wood Finishes se
Slide 36: Performance Coatings Q3 2011
Performance Coatings Q3 2011 € million Q3 2011 % Revenue 1,295 5 EBITDA* 157 (5) Ratio, % Q3 2011 Q3 2010 EBITDA* margin 12.1 13.4 Revenue development Q3 2011 vs. Q3 2010 10 0% -3% 5 +7% +1% +5% 0 Volume Price/Mix Acquisitions/ Exchange rates Total divestments * Before incidentals Increase Decrease
Slide 37: Specialty Chemicals key facts
Specialty Chemicals key facts 2010 • Revenue €4.9 billion • 11,080 employees • EBITDA: €939 million* • 32 percent of revenue from high growth markets • Major producer of specialty chemicals • Leadership positions in many markets Revenue by business unit Revenue by geography Functional Chemicals 6% 9
Slide 38: Specialty Chemicals Q3 2011 highlights
Specialty Chemicals Q3 2011 highlights • Revenue increased 6 percent, based on stable volumes; EBITDA* decreased 6 percent • Price increases are being implemented to offset increased input costs and unfavorable currency effects • Stable demand overall this quarter, but with some exceptions • EBITDA*
Slide 39: Specialty Chemicals Q3 2011
Specialty Chemicals Q3 2011 € million Q3 2011 % Revenue 1,349 6 EBITDA* 238 (6) Ratio, % Q3 2011 Q3 2010 EBITDA* margin 17.6 20.0 Revenue development Q3 2011 vs. Q3 2010 10 -1% 0% 5 -1% +8% +6% 0 -5 Volume Price/Mix Acquisitions/ Exchange rates Total divestments * Before incidentals Increase Decreas
Slide 40: Q3 2011 innovation highlights
Q3 2011 innovation highlights Investor update Q3 2011 results 39
Slide 41: Pipeline 2011
Pipeline 2011 Decorative Paints – Discovery Tinting Machine An automatic tinting machine at a breakthrough entry level price Key Features Customer Benefits • Half the cost of conventional tinting • Extends retailers’ color offers machine with similar functionalities • Improving retailers’ profitabil
Slide 42: Pipeline 2011
Pipeline 2011 Powder Coatings – Interpon A 5000 First powder coating used on a passenger vehicle in Europe Key features Customers benefits • Beautiful black matte-textured finish, • Fewer steps in process reduces both developed with OEM stylists complexity and energy consumption • Superior environme
Slide 43: Pipeline 2011
Pipeline 2011 Surface Chemistry - Biostyle™ CGP Sustainable polymers for clear hair styling gels Key Features Customer Benefits • Novel polymer • Clear hair gels with improved • Provides humidity resistance in sustainability profile hair gels and styling products • Attractive cost in use Growth pote
Slide 44: Financial review
Financial review Investor update Q3 2011 results 43
Slide 45: Strong operating returns on invested capital
Strong operating returns on invested capital 30% 28.2% 24.4% 25% 22.2 20% 15% 10% 5% 8.9% 11.0% 9.7% 0% Q4 2008 - Q3 2009 Q4 2009 - Q3 2010 Q4 2010 - Q3 2011 Moving average ROI % * Operating ROI is calculated as EBIT before amortization divided by average invested capital excluding intangible assets
Slide 46: Operating Working Capital % of revenue to be reduced towards 12%
Year-on-year Operating Working Capital % of revenue to be reduced towards 12% OWC € million 2500 18% 17% 15.6% 15.0% 16% 14.6% 15.3% 2000 14.9% 14.1% 14.5% 15% 13.9% 13.7% 14% 13% 1500 12% 2,007 1,691 2,037 2,346 2,191 2,016 2,317 2,389 2,433 11% 1000 10% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2009 2010 20
Slide 47: Capital expenditure prioritization for growth
Capital expenditure prioritization for growth • Capex 2010 was €534 million (including Ningbo €100 million and excluding National Starch) • Medium term: Capex level to be at least 4 percent of revenues Capex as a % of revenue 2010 Capex split 5 4% 16% 4 3 51% 29% 2 1 Specialty Chemicals 0 Decorative
Slide 48: Dividend increases
Dividend increases Our policy is to pay a stable to rising dividend • An interim and a final dividend will be paid • Cash dividend default, stock dividend optional Intended 2011 total €1.20 dividend €1.45 per€1.80 €1.20 share – up 3 percent €1.35 • 2011 interim dividend €0.33 per share, up 3 percent
Slide 49: EBITDA – Cash bridge
EBITDA – Cash bridge € million Q3 2011 Q3 2010 EBITDA before incidentals 507 574 Incidentals (cash) (51) (43) Change working capital 41 105 Change provisions (27) (128) Interest paid (6) (18) Income tax paid (55) (112) Net cash from operating activities 409 378 Improved net cash from operating activ
Slide 50: Unchanged ambition to maintain strong balance sheet
Unchanged ambition to maintain strong balance sheet € million Sep 30, 2011 Dec 31, 2010 Total equity 9,589 9,509 Net debt* 1,595 936 • Credit ratings unchanged at BBB+/Baa1, outlook stable • Net debt increased mainly due to capital expenditures of €452 million and dividend payments of €282 million •
Slide 51: Pension deficit increases to €0.7 billion
Pension deficit increases to €0.7 billion Key pension metrics Q3 2011 Q2 2011 Discount rate 5.0% 5.5% Inflation assumptions 2.7% 3.1% Pension deficit development during Q3 2011 € billion 0,0 -0,2 (432) 51 5 (661) -0,4 15 -0,6 -0,8 (860) 560 -1,0 -1,2 -1,4 Deficit end Top-ups Increased Discount Infla
Slide 52: Lower 2011 cash out for pensions expected
Lower 2011 cash out for pensions expected • 2004 pro forma (including ICI) pension underfunding was around €4 billion • Defined Benefits (DB) closed to new entrants, major plans closed in 2001 (ICI) and 2004 (AkzoNobel) • Total DB pension plans cash contribution expected to be €500 million (2010: €5
Slide 53: Debt duration of close to three years and no refinancing needed in 2011
Debt duration of close to three years and no refinancing needed in 2011 Debt maturities* € million (nominal amounts) 1.200 800 400 0 2011 2012 2013 2014 2015 2016 € bonds $ bonds £ bonds Strong liquidity position to support growth • Undrawn revolving credit facility of €1.8 billion (2016) or €1.5 an
Slide 54: Low fixed costs as a percentage of revenue
Low fixed costs as a percentage of revenue % of 2010 annual revenue* 100% Raw materials, energy, and other variable production costs Fixed production costs Selling, advertising, administration, R&D costs EBIT margin 0% Decorative Performance Specialty AkzoNobel Paints Coatings Chemicals * Rounded pe
Slide 55: Raw material costs represent a little over 1/3 of revenue
Raw material costs represent a little over 1/3 of revenue H1 2011 Packaging Regional and/or Energy local approach Solvents 6% Centrally managed 12% 7% Other Chemicals and variable 15% costs* intermediates*** 15% 4% Other raw materials** 9% 8% Additives 2% 8% Titanium 14% dioxide Pigments Coatings’ R
Slide 56: Raw materials have continued to rise in the quarter
Raw materials have continued to rise in the quarter • Raw material prices have continued to rise in the third quarter and have particularly impacted Decorative Paints • They are now around 2 percent higher than Q2 2011 and around 15 percent higher than a year ago • For the coming quarters we anticip
Slide 57: In summary
In summary • Strong fundamentals with leading positions and brands • Diverse geographical spread • Delivering on price increases • Medium-term strategic ambitions unchanged • Actions underway to further unlock value potential Investor update Q3 2011 results 56
Slide 58: 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