Akzo Nobel N.v. · EURONEXT:AKZA
Akzo Nobel — Q3 2013 Earnings Presentation
59 slides from Akzo Nobel's earnings presentation, Oct 21, 2013
Slide 1: Investor Update Q3 2013 results
Investor Update Q3 2013 results Keith Nichols October 21, 2013
Slide 2: Agenda
Agenda 1. Q3 2013 highlights 2. Operational and financial review 3. Conclusion 4. Questions Investor Update Q3 2013 results 2
Slide 3: Q3 highlights
Q3 highlights Keith Nichols Investor Update Q3 2013 results 3
Slide 4: Q3 2013 highlights
Q3 2013 highlights • Revenue down 5 percent, mainly due to adverse currency effects and divestments • Operating income at €303 million (2012: €248 million excluding impairment), mainly driven by lower restructuring costs and higher volumes • Net income attributable to shareholders €155 million (2012
Slide 5: Q3 2013 revenue and operating income: End markets remain fragile
Q3 2013 revenue and operating income: End markets remain fragile € million Q3 2013 Δ% Revenue 3,778 -5 Operating income 303 22* Ratio, % Q3 2013 Q3 2012* Return on sales 8.0 6.3 Return on sales (excluding PIP costs) 10.0 8.8 Moving average return on investment 8.6 8.0 Increase Revenue development Q3
Slide 6: Market conditions remain challenging but volumes are stabilizing
Market conditions remain challenging but volumes are stabilizing Quarterly volume development in % year-on-year 2012 2013 +5% 6 +2% +2% 0% 2 -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel Quarterly price/mix development in % year-on-year 7 4 +2% 0% +1% 1 0% -2 Decorative
Slide 7: Foreign exchange rates negatively impacted our Q3 revenues
Foreign exchange rates negatively impacted our Q3 revenues Quarterly foreign exchange rate development in % year-on-year 2012 2013 6 2 -7% -6% -4% -6% -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel • The 5 percent decrease in revenues in Q3 was mainly driven by adverse cu
Slide 8: Operational and financial review
Operational and financial review Keith Nichols Investor Update Q3 2013 results 8
Slide 9: Decorative Paints Q3 2013 highlights
Decorative Paints Q3 2013 highlights = • Revenues stable with adverse € million Q3 2013 Δ% currency effects compensated by Revenue 1,136 - higher volume Operating income 107 123 • Operating income more than doubled compared to the previous year, due to lower costs and lower restructuring Ratio, % Q3
Slide 10: Performance Coatings Q3 2013 highlights
Performance Coatings Q3 2013 highlights • Revenue down 4 percent, due to € million Q3 2013 Δ% adverse currency effects Revenue 1,415 -4 • Slowdown in Europe continued to Operating income 160 23 impact all businesses • Operating income up 23 percent due Ratio, % Q3 2013 Q3 2012 to lower restructuring
Slide 11: Specialty Chemicals Q3 2013 highlights
Specialty Chemicals Q3 2013 highlights • Revenues down 10 percent due to € million Q3 2013 Δ% Chemicals Pakistan divestment and Revenue 1,252 -10 adverse currency effects Operating income 107 -20 • Volumes during the quarter were stable compared to the previous year Ratio, % Q3 2013 Q3 2012 • Operat
Slide 12: Summary – Q3 2013 results
Summary – Q3 2013 results € million Q3 2013 Q3 2012* EBITDA 456 428 Amortization and depreciation (153) (156) Incidentals - (24) Operating income 303 248 Net financing expenses (56) (50) Minorities and associates (10) (4) Income tax (83) (64) Discontinued operations 1 (20) Net income attributable to
Slide 13: Cash flows Q3 2013 improved on last year due to positive one-offs
Cash flows Q3 2013 improved on last year due to positive one-offs € million Q3 2013 Q3 2012* Profit for the period from continuing operations 168 139 Amortization and depreciation 153 156 Change working capital 183 246 • Pension provisions (29) (25) • Restructuring 13 9 • Other provisions (21) (118)
Slide 14: Conclusion
Conclusion Keith Nichols Investor Update Q3 2013 results 14
Slide 15: Conclusion
Conclusion • Foreign exchange rates were a major headwind in Q3 • Demand remains soft, however Performance Improvement actions are contributing to improved return on sales before restructuring charges in all Businesses Areas • Performance Improvement Program is on track, with estimated €160 million
Slide 16: Questions
Questions Investor Update Q3 2013 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 Q3 2013 results 18
Slide 19: Performance Improvement Program – Restructuring charges per quarter
Performance Improvement Program – Restructuring charges per quarter FY FY € million Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 2013 Decorative Paints 23 8 35 74 140 7 24 8 Performance 4 9 36 41 90 11 5 9 Coatings Specialty 0 15 17 10 42 1 0 46 Chemicals Other 7 10 13 -10 20 10 11 12 Total 34 42 101 115 292 29 40 75
Slide 20: Q3 2013 Operating income – Cash bridge
Q3 2013 Operating income – Cash bridge € million Q3 2013 Q3 2012* Operating Income 303 248 Incidentals - 24 Depreciation & amortization 153 156 EBITDA before incidentals 456 428 Other 26 7 Change working capital 183 246 Change provisions (37) (134) Interest paid (25) (10) Income tax paid (51) (77) N
Slide 21: Pension deficit increases to €0.7 billion
Pension deficit increases to €0.7 billion Key pension metrics Q3 2013 Q2 2013 Discount rate 4.2% 4.4% Inflation assumptions 2.9% 2.8% Pension deficit development during Q3 2013 € million Decrease Increase (371) 139 13 (717) (321) (58) (119) Deficit end Q2 Top-ups Increased plan Discount rates Inflat
Slide 22: Performance Improvement Program delivers €131 million benefits in 1H2013
Performance Improvement Program delivers €131 million benefits in 1H2013 € million FY 2011 1H 2012 FY 2012 1H 2013 2013 Target Decorative Paints 12 24 85 49 Performance Coatings - 14 100 50 Specialty Chemicals - 18 53 33 Other - - - - Total Incremental 12 56 238 131 250 Total Cumulative 12 250 500 •
Slide 23: Operational efficiency progress across all Business Areas
Operational efficiency progress across all Business Areas Business Area Business Units Actions taken to date • Divestment of stores in Germany • Europe • Reduction of overhead Decorative Paints • Latin America • Continued SKU reduction • Asia • RD&I lab consolidation • Ongoing restructuring activiti
Slide 24: Additional opportunities to embed continuous improvement
We will continue to implement additional opportunities to embed continuous improvement Continuous Improvement Functional Initiatives Operational Initiatives Enablers Operational Performers Excellence • SKU reduction • ERP reduction • Margin improvement • Finance Shared Services programs • OneHR serv
Slide 25: 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 26: 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 27: 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 28: Strategy on a page
Strategy on a page Strategic focus areas Processes Actions End-user segmentation • Care for the customer • People, process and • Deliver dependably • Buildings and • Reduction of product product safety • Grow organically Infrastructure and process complexity • Operational • Innovate • Transportation
Slide 29: 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 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 30: Capital allocation policy is 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 31: 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 32: End-user segment trends, combined with sustainability, direct our 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 Q3 2013 results 32
Slide 33: Innovation Pipeline Q3 2013: Woodcare Floor Lacquer
Innovation Pipeline Q3 2013 Decorative Paints - Woodcare Floor Lacquer Key Features Customer Benefits • Water-based lacquer using a proprietary • Highly durable performance coating AkzoNobel binder • Fresh and healthy, no smell • Excellent scratch resistance • Perfect appearance • Quick drying times
Slide 34: Innovation Pipeline Q3 2013: Hammerite DualTech
Innovation Pipeline Q3 2013 Decorative Paints Specialties - Hammerite DualTech Key Features Customer Benefits • Direct-to-rust metal paint • Convenience and ease of use for DIY • Trusted Hammerite anti-corrosion painters technology • Offers two-way metal protection by • Enhanced water repellency sto
Slide 35: Innovation Pipeline Q3 2013: Interpon Align
Innovation Pipeline Q3 2013 Powder Coatings – Interpon Align™ Key Features Customer Benefits • Dual layer-powder and topcoat-application • Increased productivity requiring single cure step • Reduced cost, energy consumption & carbon foot • Provides outstanding edge coverage and print corrosion resis
Slide 36: Innovation Pipeline Q3 2013: LV Primer UHS
Innovation Pipeline Q3 2013 Commercial Vehicles – LV 251 Primer UHS Key Features Customer Benefits • Two pack, Ultra-High Solids primer – solids • Ready for use – easy & secure application content >80% w/w • Increased process efficiency due to less need for • Designed for commercial vehicles and ind
Slide 37: Innovation Pipeline Q3 2013: Berol ECO/AMC-1
Innovation Pipeline Q3 2013 Surface Chemistry – Berol® ECO/AMC-1 Key Features Customer Benefits • Concentrated surfactant blends that can be • Simple to formulate easily formulated in water-based degreasers • High cleaning performance without solvents • High grease removal without the need for using
Slide 38: Innovation Pipeline Q3 2013: LaDox
Innovation Pipeline Q3 2013 Pulp and Performance Chemicals – LaDox Key Features Benefits • An NPE*-free initiator and substitute for Laurox • Avoidance of a chemical of W40 peroxide initiators for emulsion explosives environmental concern in the used in the mining industry worldwide production proce
Slide 39: 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 40: 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 41: 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 42: Decorative Paints sees limited overall 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 43: After the divestment of North America, our focus is on adapting Europe
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 44: 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 45: 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 46: Performance Coatings sees growth in several 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 47: 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 48: 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 49: Specialty Chemicals sees limited growth in its key market sector positions
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 50: 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 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: 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 53: 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 54: 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 55: Debt duration 3.5 years and no refinancing currently required
Debt duration 3.5 years and no refinancing currently required Debt maturities* € million (nominal amounts) € bonds $ bonds £ bonds 800 750 622 825 372 299 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Strong liquidity position to support growth • Undrawn revolving credit facility of €1.8 billion
Slide 56: Sources and uses of cash remains a key challenge
AkzoNobel sources and uses of cash remains a key challenge we are addressing Cash flow sources and uses • We are not generating enough cash from € million operations to adequately meet our needs 2011 2012 • Restructuring and pension top-ups consume a Source Use Source Use significant proportion of c
Slide 57: 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 58: 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 Q3 20
Slide 59: Short and long term incentives 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