Slide 1: Investor Update Q1 2013 results
Investor Update Q1 2013 results Keith Nichols April 18, 2013
Slide 2: Agenda
Agenda 1. Q1 2013 highlights 2. Operational review 3. Financial review 4. Conclusion 5. Questions Investor Update Q1 2013 results 2
Slide 3: Q1 2013 highlights
Q1 2013 highlights • Revenue down 7 percent due to weak demand in Europe and divestments • Operating income at €217 million (2012: €236 million) as weaker end markets and production issues in Specialty Chemicals value chain impacted results • Cash from operating activities improved €298 million, mai
Slide 4: Challenging Q1 2013
Challenging Q1 2013 € million Q1 2013 % Revenue 3,465 -7 Operating income 217 -8 Ratio, % Q1 2013 Q1 2012 Return on sales 6.3 6.4 Moving average return on investment 7.8 9.4 Increase Revenue development Q1 2013 vs. Q1 2012 Decrease -3% -1% -7% -2% -1% Volume Price/Mix Acquisitions/ Exchange rates To
Slide 5: Weaker demand in Europe across all Business Areas
Weaker demand in Europe across all Business Areas Quarterly volume development in % year-on-year 2012 2013 6 2 -1% -3% -4% -3% -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel Quarterly price/mix development in % year-on-year 8 5 2 -1% +1% -2% -1% -1 Decorative Paints Perfo
Slide 6: Decorative Paints Q1 2013 highlights
Decorative Paints Q1 2013 highlights € million = Q1 2013 % • Revenue 5 percent down impacted by currencies, lower Revenue 925 (5) volumes and price/mix Operating income 43 72 • Challenging market conditions in Europe negatively impacting Ratio, % Q1 2013 Q1 2012 price/mix and volumes Return on sales
Slide 7: Performance Coatings Q1 2013 highlights
Performance Coatings Q1 2013 highlights € million Q1 2013 % • Revenue down 3 percent, primarily due to volume decline Revenue 1,331 (3) in certain markets Operating income 129 2 • Operating income up 2 percent, return on sales at 9.7 percent Ratio, % Q1 2013 Q1 2012 (2012: 9.3 percent) Return on sal
Slide 8: Specialty Chemicals Q1 2013 highlights
Specialty Chemicals Q1 2013 highlights • Revenue down 11 percent, € million Q1 2013 % due to lower volumes and the Revenue 1,244 (11) Chemicals Pakistan divestment Operating income 99 (29) • Operating income down 29 percent to €99 million, due to unfavorable market conditions Ratio, % Q1 2013 Q1 201
Slide 9: Summary – Q1 2013 results
Summary – Q1 2013 results € million Q1 2013 Q1 2012 EBITDA 375 410 Amortization and depreciation (158) (153) Incidentals 0 (21) Operating income 217 236 Net financing expenses (63) (50) Minorities and associates (13) (10) Income tax (45) (66) Discontinued operations (7) (26) Net income attributable
Slide 10: Cash flows Q1 2013 clearly improved on last year
Cash flows Q1 2013 clearly improved on last year € million Q1 2013 Q1 2012 Profit for the period from continuing operations 112 124 Amortization, depreciation and impairments 158 153 Change working capital (350) (384) • Pension provisions (236) (555) • Restructuring (21) (4) • Other provisions (22)
Slide 11: Pension deficit falls to €0.6 billion
Pension deficit falls to €0.6 billion Key pension metrics Q1 2013 Q4 2012 Discount rate 3.9% 3.9% Inflation assumptions 2.9% 2.4% Pension deficit development during Q1 2013 € million Decrease Increase 14 (642) 645 (659) (1,086) ((26) 183 287 Deficit end Q4 Top-ups Increased plan Discount rates Infla
Slide 12: Conclusion
Conclusion • Economic slowdown, particularly in Europe, continues to impact our businesses • Further efficiencies and cost reductions are being delivered in line with the accelerated Performance Improvement Program • Focus remains on return on operating income and invested capital, and cash generati
Slide 13: Questions
Questions Investor Update Q1 2013 results
Slide 14: 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 15: Appendices
Appendices Investor Update Q1 2013 results
Slide 16: AkzoNobel today
AkzoNobel today • Revenue €15.4 billion • 50,610 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 C
Slide 17: 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 18: 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 19: Strategy on a page
Strategy on a page Strategic focus areas Processes Actions End-user segmentation • Care for the customer • Behavior-based • Deliver dependably • Buildings and • Reduction of product and process safety • Grow organically Infrastructure and process complexity • Operational • Innovate • Transportation
Slide 20: End-user segments by share of revenue
~43% 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 ~25% of revenues Consumer Durables Natural Resource and Energy Industries Consumer Packa
Slide 21: High growth markets are 44% of revenue
High growth markets are 44% of revenue and their importance will increase % of 2012 revenue, excluding Decorative Paints North America Three year GDP growth* 38% 9% Mature Europe 6% 3% 8% 15% Emerging Europe 0% North America UK Eurozone USA Latin America China Developing Asia 2013 2014 2015 26% 2% A
Slide 22: Capital allocation policy focused on high growth markets and efficiency
Capital allocation policy is focused on high growth markets and efficiency Capital expenditure Major projects underway and timing of spend 2012, 100% = €826 million (5.4% of revenue) Business Investment 2012 2013 2014 2015 Area project 2% 15% Performance China Coatings expansion Decorative UK 25% Pa
Slide 23: Sustainability is business; Business is sustainability
Sustainability is business; Business is sustainability • ‘Downstream eco-premium solutions’: 20% of our revenues by 2020 We will increase the revenue from solutions that generate direct resource and energy benefits for our customers, consumers and users • Reduction of carbon emissions 25-30% reducti
Slide 24: End-user segment trends and sustainability direct innovation spend
End-user segment trends, combined with sustainability, direct our innovation spend End-user segments Sustainability Direction of Sustainability = Business innovation Business = Sustainability spend (2.5% of 2012 revenue) Investor Update Q1 2013 results 24
Slide 25: Innovation Pipeline Q1 2013 – Sikkens Rubbol Express
Innovation Pipeline Q1 2013 Decorative Paints – Sikkens Rubbol Express Line Key Features Customer Benefits • Excellent drying times - even at low temperatures • Outdoor painting jobs can be carried out between and under high humidity conditions 3°C and 30°C, the whole year through • Based on patente
Slide 26: Innovation Pipeline Q1 2013 – Intercept 8000 LPP
Innovation Pipeline Q1 2013 Marine Coatings – Intercept® 8000 LPP Key Features Customer Benefits • Next generation biocidal antifouling, based on • Predictable fouling prevention over 60 months patented Linear Polishing Polymer (LPP) through consistent polishing performance technology • Reduced vess
Slide 27: Innovation Pipeline Q1 2013 – EvCote barrier coating
Innovation Pipeline Q1 2013 Packaging Coatings - EvCote® barrier coating Key Features Customer Benefits • Heat-sealable, high gloss, abrasion-resistant • Increased efficiency for customers through faster varnish with excellent water and grease barrier processing properties • Improved package perform
Slide 28: Innovation Pipeline Q1 2013 – EcoFill
Innovation Pipeline Q1 2013 Pulp and Performance Chemicals – EcoFill® Key Features Customer Benefits • Proprietary, engineered cellulose and charge • Better sustainability – uses fewer trees control polymer binding system for improving paper • Reduced raw material costs strength • Reduced drying tim
Slide 29: Performance Improvement Program to deliver €500 million in 2013
Performance Improvement Program to deliver €500 million in 2013, one year earlier than planned Performance Improvement Program Operational Functional Business Unit Excellence Excellence Adaptations Key summary to date 2013 Plan • Gains of €250 million, • Accelerate delivery of recurring €500 million
Slide 30: Moving from project based to continuous improvement
Moving from project based to continuous improvement will be core in 2013 • Product and margin management Operational • Consolidation of RD&I Excellence • Logistic and warehouse optimization • IT infrastructure simplification Functional • HR shared service model Excellence • Finance shared service ce
Slide 31: Our actions in 2012 have simplified the Business Areas
Our actions in 2012 have simplified the Business Areas Business Area Business Units 2012 Actions • Europe • Announced divestment Decorative Paints • Latin America of North America Decorative Paints • Asia • Reduction of business units • Marine and Protective Coatings • Wood finishes is now part of •
Slide 32: 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 33: 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 34: Decorative Paints overview
Decorative Paints overview Revenue by end-user Revenue by geographic region sub-segment Mature Europe 8%4% Maintenance, 16% renovation and repair Asia Pacif ic New build projects 14% Latin America 49% Emerging Europe Other regions 84% 25% Decorative Paints key figures (new definition) € million 2012
Slide 35: Decorative Paints sees limited market sector growth
Decorative Paints sees limited overall market sector growth in the near future End-user Geographic region Forward Revenue by Business Unit sub-segment looking trends New build Europe Europe projects North America 24% Latin America Asia Latin America Asia 14% 62% Maintenance, Europe renovation and No
Slide 36: After North America divestment, focus on Europe and high growth markets
After the divestment of North America, our focus is on adapting Europe, and investing in high growth markets Europe High growth markets • European organization de-layered • Additional investment in China • Better proximity to customers • Continuously expanding the franchise network in China, India,
Slide 37: Decorative Paints strategic direction
Decorative Paints strategic direction Noteworthy events 2012 • Launched “Let’s Color” brand and campaign globally • Global campaigns to inspire customers • Expanded store network in China and India • Announcement divestment of Decorative Expected 2015 financial outcomes Paints North America • Realig
Slide 38: Performance Coatings overview
Performance Coatings overview Revenue by end-user segment Revenue by geographic region Mature Europe 14% Transportation 8% 4% 27% North America 36% Consumer 11% Goods Asia Pacific 23% Buildings and Emerging Infrastructure Europe Industrial 30% 20% Latin America 27% Other regions Performance Coatings
Slide 39: Performance Coatings sees growth in key market sectors
Performance Coatings sees growth in several key market sectors Revenue by Business Unit End-user Performance Coatings Forward looking segment market sectors serving trends Marine and the segment Protective Coatings Transportation Automotive and air 32% 28% Automotive and Aerospace Marine transport C
Slide 40: Performance Coatings strategic direction
Performance Coatings strategic direction Noteworthy events 2012 • Schramm acquisition integration on track • Opened a new manufacturing facility in Vietnam • Multiple sport stadium contracts for London Olympics and Brazil’s future events Expected 2015 financial outcomes • McLaren partnership expande
Slide 41: Specialty Chemicals overview
Specialty Chemicals overview Revenue by end-user segment Revenue by geographic spread Buildings and 3% 4% Mature Europe 18% Infrastructure 10% North America Transportation 40% 6% Asia Pacific Consumer 22% Latin America 58% 18% Goods Emerging Europe Industrial 21% Other regions Specialty Chemicals ke
Slide 42: Specialty Chemicals sees limited growth in key market sectors
Specialty Chemicals sees limited growth in its key market sector positions Specialty Chemical Forward Revenue by Business Unit End -user market sectors serving looking trends segment the segment Functional Industrial Surface Chemistry, Chemicals 21% Industrial Chemicals, Industrial Chemicals 37% Fun
Slide 43: Specialty Chemicals strategic direction
Specialty Chemicals strategic direction Noteworthy events 2012 • Acquired Boxing Oleochemicals, China • Further expansion in Ningbo, China multisite • MCA expansion in Taixing, China • Opened bleaching chemical Island in Brazil Expected 2015 financial outcomes and further investment in another site
Slide 44: 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 45: Incidentals now included in EBITDA as part of ongoing business
Incidentals now included in EBITDA* as part of ongoing business € million 2010 2011 2012 Restructuring costs (104) (129) (324) Impairment Deco - - (2,106) Results related to major legal, (49) (9) (36) anti-trust and environmental cases Results of acquisitions and divestments 33 10 (45) Other inciden
Slide 46: Variable costs represent 54% of revenue
Variable costs represent 54% 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% • The performance
Slide 47: Variable costs analysis
Variable costs analysis 2012 (excluding Decorative North America) Packaging Energy & other variable costs* Raw materials Solvents 6% 7% 30% Chemicals and intermediates*** 16% 3% 9% Additives Other raw materials** 7% 3% 5% Pigments 14% Titanium Resins dioxide Coatings’ specialties * Other variable co
Slide 48: Debt duration 4.0 years and no refinancing currently required
Debt duration 4.0 years and no refinancing currently required Debt maturities* € million (nominal amounts) € bonds $ bonds £ bonds 920 750 622 43 825 390 296 15 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Strong liquidity position to support growth • Undrawn revolving credit facility of €1.7 b
Slide 49: 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 es
Slide 50: Dividends
Dividends • Our dividend policy is to pay a stable to rising dividend each year 1.08 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 2009 2010 2011 2012 Final dividend Interim dividend Investor Update Q1 20
Slide 51: Short term incentives have been aligned with our priorities
Short term incentives have been aligned with our priorities Executive short term bonus 2013 Bonus Metric • Financial targets are set based on Element – Return on investment – Operating income 20% Return on investment – Operating cash flow 20% Operating income • More than 600 executives are affected