Slide 1: Resilient performance underlines fundamental strength
Keith Nichols, CFO Investor update, October 29, 2008 Resilient performance underlines fundamental strength
Slide 2: The new AkzoNobel: Key facts
The new AkzoNobel: Key facts Revenue by segment Pro forma 2007 Decorative Paints • Revenue €14.4 billion Specialty Chemicals Performance Coatings • Around 60,000 employees • EBITDA: €1.9 billion 32% • EBIT: €1.4 billion 31% • Net income: €0.9 billion 37% Q3 Results 2008 | The new AkzoNobel 2
Slide 3: Excellent geographic spread of both revenue and profits
Excellent geographic spread of both revenue and profits Emerging markets are important (35% of revenue) . . . % of revenue, 2007 pro forma 42% 21% 7% ‘Mature’ Europe 20% North America ‘Emerging’ Europe Asia Pacific 8% Latin America 2% Rest-of-world Emerging markets profitability is strong (39% of EB
Slide 4: AkzoNobel is the world's largest Coatings supplier
AkzoNobel is the world’s largest Coatings supplier € billion, 2007 pro forma 10 8 6 4 2 0 s ex el nt t ar nt co G SF in am ob PP o ai lsp Pa om as uP BA iP illi N M Va C on zoo D -W a kkz ns p n AA ip Ka wi N er Sh Q3 Results 2008 | The new AkzoNobel 4
Slide 5: Leadership positions are more profitable positions
Leadership positions are more profitable positions Revenue EBIT No. 2 No. 2 or 3 or 3 30% 35% No. 1 position No. 1 53% position Other 63% 7% Other 12% Q3 Results 2008 | The new AkzoNobel 5
Slide 6: We have strong brands across the full spectrum of our business
We have strong brands across the full spectrum of our business Biggest brands, per business area % of revenue, 2007 pro forma 18% of Specialty Chemicals 23% of Performance Coatings 25% of Decorative Paints Q3 Results 2008 | The new AkzoNobel 6
Slide 7: Strong emerging markets growth potential
Strong emerging markets growth potential Mature Emerging Per Capita Per Capita Architectural 8 liters < 2 liters Paint Industrial and Special Purpose 13 liters < 6 liters Coatings Plastics ~100 kg ~20 kg ~170 ~170 kg kg ~25 ~25 kg kg Paper Source: Food & Agriculture Organization of the UN, 2005 data
Slide 8: We serve many sectors, creating stability
Pa in t an R d 0 1 2 3 4 5 ub va b rn R er i sh es an i de d nt pl ia as lc tic on s € billion, 2007 pro forma N s tru on Pu ct - re lp io sid an n e nt d ia pa lc p er on st ru Decorative Paints c tio Fo Au n od to ,b m ev ot er ive ag e, W ca oo re d, M fu rn ar in i tu Ph e re Performance Coating
Slide 9: Low end market cyclicality
Low end market cyclicality Very low – Low (74%) cyclicality end markets, e.g., • Food and beverage • Paper, printing, and publishing • Automotive aftermarket Mod - • Paints and varnishes High • Rubber and plastics 26% • Furniture • Soaps and detergents Mod – High (26%) cyclicality end markets, e.g.,
Slide 10: Resilient Coatings margins
Resilient Coatings margins € billion Akzo Nobel Coatings % 7 20 6 5 15 4 10 3 2 5 1 0 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Sales EBITDA margin € billion ICI Paints % 3 14 12 2 10 8 6 1 4 2 0 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Turn
Slide 11: Low fixed costs as a percentage of revenue
Low fixed costs as a percentage of revenue % of revenue, indicative 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 Q3 Results 20
Slide 12: Q3 operational performance
Q3 operational performance Q3 Results 2008 | The new AkzoNobel 12
Slide 13: Q3 2008 highlights
Q3 2008 highlights • Q3 revenue, at constant currencies, ahead 8 percent (reported: up 3 percent) • All business areas delivered resilient EBITDA performance • Higher one-off charges impacted EBITDA • Net income down 23 percent, impacted by one-off items • Incidental charges of €79 million before ta
Slide 14: Q3: Resilient performance
Q3: Resilient performance € mln 2008 Δ% Revenue constant currencies 4,007 8 Revenue reported 3,820 3 EBITDA constant currencies 492 (5) EBITDA reported 477 (8) Net income before fair value adjustments 219 (15) Ratio 2008 2007 EBITDA margin constant currencies, % 12.3 13.9 EBITDA margin reported, % 1
Slide 15: Q3: Revenue growth in constant currencies of 8 percent
Q3: Revenue growth in constant currencies of 8 percent % Total Volume Price Currency Acq./div. Decorative Paints - (1) 5 (5) 1 Performance Coatings - - 5 (5) - Specialty Chemicals 5 (3) 12 (5) 1 AkzoNobel 3 (1) 8 (5) 1 Versus Q3, 2007 proforma Q3 Results 2008 | The new AkzoNobel 15
Slide 16: Q3 other and incidental costs
Q3 other and incidental costs Other costs in EBITDA of €72 million (2007: €37 million) include: • Lower results in captive insurance companies of €30 million • Fair value changes from energy derivatives of €18 million • Corporate and pension costs of €24 million Incidental charges of €79 million ( 2
Slide 17: Decorative Paints
Decorative Paints Q3 Results 2008 | The new AkzoNobel 17
Slide 18: Decorative paints around the world
Decorative paints around the world % of revenue by origin, 2007 pro forma 59% 29% 12% Europe Americas Asia Pacific Q3 Results 2008 | The new AkzoNobel 18
Slide 19: Leading Deco positions in all regions with strong brands
Leading Deco positions in all regions with strong brands AkzoNobel market positions 1 2/3 >3 Export countries Source: Euromonitor basis; AkzoNobel analysis Q3 Results 2008 | The new AkzoNobel 19
Slide 20: Q3 Decorative Paints: good results
Q3 Decorative Paints: good results • Revenue up 5 percent in constant currencies (reported: stable) • EBITDA in constant currencies up 8 percent • Double-digit growth in Asia and Latin America • Revenue growth of 3 percent achieved in Europe, despite a difficult UK market • Challenging market condit
Slide 21: Q3 Decorative Paints
Q3 Decorative Paints € mln 2008 Δ% Revenue constant currencies 1,483 5 Revenue reported 1,413 - EBITDA constant currencies 218 8 EBITDA reported 207 3 Ratio, % 2008 2007 EBITDA margin constant currencies 14.7 14.2 EBITDA margin reported 14.6 14.2 Before incidentals; 2007 pro forma Q3 Results 2008 |
Slide 22: Performance Coatings
Performance Coatings Q3 Results 2008 | The new AkzoNobel 22
Slide 23: Performance Coatings around the world
Performance Coatings around the world % of revenue, 2007 pro forma 40% 22% North America 27% Europe Asia Pacific 7% Latin America 4% Other Regions Q3 Results 2008 | The new AkzoNobel 23
Slide 24: Performance Coatings Business Units
Performance Coatings Business Units % of revenue, 2007 pro forma 100% = €4.5 billion Packaging Coatings Industrial 8% Finishes Powder 28% Coatings 17% 20% Car Refinishes 27% Marine & Protective Coatings Q3 Results 2008 | The new AkzoNobel 24
Slide 25: Q3 Performance Coatings: a solid quarter
Q3 Performance Coatings: a solid quarter • Revenue in constant currencies up 5 percent (reported: stable) • EBITDA in constant currencies increased by 1 percent • Good quarter for Marine & Protective, Powder Coatings and Packaging Coatings • Industrial Finishes continues to face pressure on margins
Slide 26: Q3 Performance Coatings
Q3 Performance Coatings € mln 2008 Δ% Revenue constant currencies 1,196 5 Revenue reported 1,138 - EBITDA constant currencies 146 1 EBITDA reported 143 (1) Ratio, % 2008 2007 EBITDA margin constant currencies 12.2 12.7 EBITDA margin reported 12.6 12.7 Before incidentals; 2007 pro forma Q3 Results 20
Slide 27: Specialty Chemicals
Specialty Chemicals Q3 Results 2008 | The new AkzoNobel 27
Slide 28: Specialty Chemicals around the world
Specialty Chemicals around the world % of revenue, 2007 pro forma 50% 19% 20% Europe North America Asia Pacific 8% Latin America 2% Other Regions Q3 Results 2008 | The new AkzoNobel 28
Slide 29: Many global market leadership positions
Many global market leadership positions 1 Retention Pulp 2 and sizing Bleaching chemicals & Paper chemicals (globally) 1 1 Chlorine Base Monochloroac Merchant 2 Caustic etic acid & salt* merchant Chemicals (MCA) (Europe) (Europe) 1 Chelates & Functional micronutrients, 2 3 Salt sulfur products Ethyl
Slide 30: Q3 Specialty Chemicals: revenue growth supports healthy margins
Q3 Specialty Chemicals: revenue growth supports healthy margins • 9 percent autonomous growth, driven by price increases • EBITDA margin remained strong at more than 16% • Functional Chemicals turned in positive volume development • Pulp bleaching holding up, paper chemicals markets softening • Poly
Slide 31: Q3 Specialty Chemicals
Q3 Specialty Chemicals € mln 2008 Δ% Revenue constant currencies 1,267 10 Revenue reported 1,212 5 EBITDA constant currencies 205 (1) EBITDA reported 199 (4) Ratio, % 2008 2007 EBITDA margin constant currencies 16.2 18.0 EBITDA margin reported 16.4 18.0 Before incidentals; 2007 pro forma Q3 Results
Slide 32: Q3 financial performance
Q3 financial performance Q3 Results 2008 | The new AkzoNobel 32
Slide 33: Strong financial position
Strong financial position € mln September 30, 2008 Dec. 31, 2007 Equity 10,443 12,155 Net debt 1,781 2,832 YTD Q3, € mln 2008 2007 Net cash from operating activities (176) 26 2007 pro forma Q3 Results 2008 | The new AkzoNobel 33
Slide 34: Q3 YTD operational performance
Q3 YTD operational performance Q3 Results 2008 | The new AkzoNobel 34
Slide 35: Q3 YTD operational performance
Q3 YTD operational performance € mln 2008 Δ% Revenue constant currencies 11,846 8 Revenue reported 11,196 2 EBITDA constant currencies 1,485 2 EBITDA reported 1,401 (4) Net income before fair value adjustments* 633 (10) Ratio 2008 2007 EBITDA margin constant currencies, % 12.5 13.3 EBITDA margin rep
Slide 36: Medium-term targets
Medium-term targets
Slide 37: We will improve our EBITDA margin to at least 14% in the next 3 years
We will improve our EBITDA margin to at least 14% in the next 3 years EBITDA margin, indicative 18 12 6 0 2008 ICI Organic Margin Operational End analyst synergies growth management effectiveness 2011 consensus 37
Slide 38: Delivering ICI synergies faster
Delivering ICI synergies faster What we said What we said What we are a year ago In April saying today Savings 280 340 340 - Deco 20% 180 180 - Corporate more 85 85 - Proc 75 75 Timeframe -2008 15% >15% -2009 55% 20% 70% -2010 85% 85% faster 100% 30% of exits in 2008 Integration Outside in Detailed
Slide 39: The "baseload" of growth will come from industry growth
The “baseload” of growth will come from industry growth Historical growth 6% AkzoNobel 4% World GDP 2% 0% 2003 2004 2005 2006 2007 6% Projected growth 4% AkzoNobel indicative World GDP projection 2% 0% 2008 2009 2010 2011 2012 Source: Oxford Economics, August, 2008 39
Slide 40: Improved pricing capability has already delivered results in Specialty Chemicals
Improved pricing capability has already delivered results in Specialty Chemicals 1. The situation • Raw material cost increases outstripping price increases • Consensus reached that pricing skill upgrade was required 2004 2005 2006 2. The action • Improvement program implemented across Specialty Che
Slide 41: Operational effectiveness: additional net cost savings of at least €100 million
Operational effectiveness: additional net cost savings of at least €100 million • Low growth, high cost inflation environment in mature economies requires even stronger focus on operational effectiveness • We are targeting at least an additional €100 million of annual net cost savings, beyond €340 m
Slide 42: Medium term targets
Medium term targets For the next 3 years, we will • Continue to outgrow our markets • Improve our EBITDA margin to at least 14% • Continue to generate year-on-year EVA growth • Remain a leader in sustainability (top 3 DJSI) 42
Slide 43: Outlook 2008 unchanged
Outlook 2008 unchanged We expect our 2008 EBITDA before incidentals, in constant currencies, to be close to the 2007 pro-forma level of €1,870 million Q3 Results 2008 | The new AkzoNobel 43
Slide 44: Annex
Annex
Slide 45: Prudent financing policy in challenging capital markets
Prudent financing policy in challenging capital markets €1.8 billion debt maturing in the coming 18 months… Debt maturity, € million 1.200 800 400 0 2008 2009 2010 2011 2012 2013 2014 DEM bonds € bonds $ bonds Objective is to refinance and lengthen the maturity profile • Capital markets are currentl
Slide 46: Pro-active pension risk management
Pro-active pension risk management • 2004 pro forma (including ICI) pension under funding was around €4 billion • 2007 pro forma pension under funding €1,475 million • Mid-2008 pension under funding estimated at €1,355 million • Committed to fund deficits and further de-risk over time • Defined Bene
Slide 47: Well diversified revenue by currency
Well diversified revenue by currency 49% 21% € 36% $ 17% ₤ 9% CAD 4% SEK 4% Europe 20% North America $ / CNY related 19% ¥ 1% Asia Pacific 8% $ related 8% 2% Latin America $ related 2% Other Regions 36% • Majority of production is 27% “local for local” 19% USA Latin Asia 9% 9% • H1 2008 translationa
Slide 48: Leveraging raw material purchasing power
Leveraging raw material purchasing power Raw materials, energy, and other variable costs represent slightly more than half of revenue* Primary packaging Energy Industrial chemicals** 4% 12% 15% Other Regional and/or variable local approach 17% production Solvents costs 6% Global markets, global stra
Slide 49: Diversified contract length and supplier base
Diversified contract length and supplier base Contract length Supplier breakdown consolidation % of raw material spend, indicative % of raw material spend, indicative (Bi-)annual Short-term (1 month Top 10 or less) 30% 30% 30% 55% 15% 40% Next 15 Others Quarterly Q3 Results 2008 | The new AkzoNobel
Slide 50: Attractive capital returns to shareholders
Attractive capital returns to shareholders Dividend policy • 2007 dividend up 50% to €1.80 per share - sets a new floor • Pay-out ratio of minimum of 45% of net income before incidentals and fair value adjustments related to ICI deal Share Buy Back - total program €4.6 billion • 2007: €1.6 billion c
Slide 51: Maintain solid capital structure
Maintain solid capital structure Maintain strong investment grade rating (single A- / A3 through the cycle) Key ratio’s are • FFO/adjusted net debt >35% • RCF/ adjusted net debt >30% • EBITDA/interest >10 times • Adjusted net debt / EBITDA <2.5 times Drivers • Flexibility for growth strategy • Avoid
Slide 52: Managing Corporate and financial costs
Managing Corporate and financial costs • Tax rate expected to be around 27 - 28% through 2011 • Financial charges of €130 - 150 million through 2011 • Adjusted net debt expected around €2 billion through 2011 • Allocation of Corporate costs is being reviewed • Besides corporate costs, the “other” li
Slide 53: Operating working capital better than most peers, but considerable upside potential
Operating working capital better than most peers, but considerable upside potential Operating working capital % of revenue, year-end 2007 28 24 20 16 12 8 4 0 s I on tura B A nt l l s Ka er c ts Ar aint W ia nt M ge zo ar K e nt n Pa w a Du M Cl ir a V G ba Ni hem F be be IC am ns ule ia m ian Do H
Slide 54: Disciplined capital expenditure
Disciplined capital expenditure € million “Old” Akzo Nobel 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Depreciation Coatings Deprecation Chemicals Capex Total Capex Coatings £ million ICI Paints 100 80 60 40 20 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Depreciation
Slide 55: Maintain focus on disciplined capital allocation
Maintain focus on disciplined capital allocation • 2008 expect €550 - 600 million (Ningbo €95 million) • 2009 expect €700 million (Ningbo €150 million) • 2010 expect €600 million (Ningbo €50 million) • 2011 expect around depreciation level (€500 million) • Focus: maintain in mature markets, expand i
Slide 56: Safe Harbor Statement
Safe Harbor Statement This presentation contains statements which address such key issues as Akzo Nobel’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 b