Akzo Nobel N.v. · EURONEXT:AKZA
Akzo Nobel — Q2 2013 Earnings Presentation
73 slides from Akzo Nobel's earnings presentation, Jul 18, 2013
Slide 1: Investor Update Q2 2013 results
Investor Update Q2 2013 results Ton Büchner & Keith Nichols July 18, 2013
Slide 2: Agenda
Agenda 1. Q2 2013 highlights 2. Operational review 3. Financial review 4. Performance improvement program 5. Conclusion 6. Questions Investor Update Q2 2013 results 2
Slide 3: Introduction
Introduction Ton Büchner Investor Update Q2 2013 results 3
Slide 4: Revenue by end-use markets
~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 5: Q2 2013 highlights
Q2 2013 highlights • Revenue down 4 percent, mainly due to divestments • Operating income at €322 million (2012: €388 million) driven by adverse price/mix developments • Net income attributable to shareholders €429 million (2012: €219 million) due to recognition of a deferred tax asset and the dives
Slide 6: Challenging Q2 2013
Challenging Q2 2013 € million Q2 2013 % Revenue 3,865 -4 Operating income 322 -17 Ratio, % Q2 2013 Q2 2012 Return on sales 8.3 9.6 Return on sales (excluding PIP costs) 9.3 10.6 Moving average return on investment 7.7 8.7 Increase Revenue development Q2 2013 vs. Q2 2012 Decrease 0% -1% -2% -4% -1% V
Slide 7: Market conditions impacting Specialty Chemicals and Europe in particular
Market conditions impacting Specialty Chemicals and Europe in particular Quarterly volume development in % year-on-year 2012 2013 6 +4% 2 0% -5% 0% -2 -6 Decorative Paints Performance Coatings Specialty Chemicals AkzoNobel Quarterly price/mix development in % year-on-year 7 4 1 -2% 0% -2% -1% -2 Dec
Slide 8: Raw Materials
Raw Materials • During Q2 we experienced some relief from lower raw material spend due to lower TiO2 costs and oil price • FY 2013 raw material costs expected to be down marginally year-on-year – TiO2 expected to remain stable for the rest of the year – Potentially some benefit from oil prices in 2H
Slide 9: Decorative Paints Q2 2013 highlights
Decorative Paints Q2 2013 highlights € million = Q2 2013 % • Revenue 1 percent down impacted by price/mix and adverse currency Revenue 1,179 -1 effects Operating income 102 -9 • Volumes are stabilizing but market conditions in Europe remain challenging Ratio, % Q2 2013 Q2 2012 • Operating income dow
Slide 10: Performance Coatings Q2 2013 highlights
Performance Coatings Q2 2013 highlights € million Q2 2013 % • Revenue down 1 percent, primarily down to currencies Revenue 1,458 -1 Operating income 163 -5 • Slowdown in Europe impacting all businesses Ratio, % Q2 2013 Q2 2012 • Operating income down 5% due to investments in growth and Return on sal
Slide 11: Specialty Chemicals Q2 2013 highlights
Specialty Chemicals Q2 2013 highlights • Revenues down 12 percent due € million Q2 2013 % to lower volumes and the Revenue 1,253 -12 Chemicals Pakistan divestment Operating income 121 -21 • Operating income down 21 percent, due to unfavorable Ratio, % Q2 2013 Q2 2012 market conditions and some Retur
Slide 12: 1H 2013 Operating Income bridge
1H 2013 Operating Income bridge Operating Income bridge 1H 2012 – 1H 2013 Increase € million Decrease (17) 7 600 (64) (55) 131 (103) 16 624 400 539 200 0 1H 2012 Currency / Volume Price/Mix Raw Additional Additional Other costs 1H 2013 Acq / Div materials PIP benefits PIP costs * Other costs include
Slide 13: Financial targets – progress made to date
Financial targets – progress made to date Return on sales – 2015 target 9.0% Return on investment – 2015 target 14.0% 12 16 AkzoNobel FY2012 7,4 12 8 5,9 8,9* 7,7 1H2013 8 4 4 0 0 % FY2012 1H2013 % FY2012 1H2013 Return on sales 16 12 9,5 10,5 9,0 8,8 6,9 8 4 2,2 Business 0 Areas % Decorative Paints
Slide 14: Financial review
Financial review Keith Nichols Investor Update Q2 2013 results 14
Slide 15: Q2 2013 financial highlights
Q2 2013 financial highlights • Sale of Decorative Paints North America completed, resulting in a cash inflow of € 779 million and a net profit of € 115 million • Unfavorable currency impacted our results, particularly in Decorative Paints and Performance Coatings • Net financing expenses decreased b
Slide 16: Summary – Q2 2013 results
Summary – Q2 2013 results € million Q2 2013 Q2 2012 EBITDA 474 554 Amortization and depreciation (152) (155) Incidentals - (11) Operating income 322 388 Net financing expenses (33) (67) Minorities and associates (19) (17) Income tax 38 (89) Discontinued operations 121 4 Net income attributable to sh
Slide 17: Cash flows Q2 2013 improved on last year due to positive one-offs
Cash flows Q2 2013 improved on last year due to positive one-offs € million Q2 2013 Q2 2012 Profit for the period from continuing operations 333 237 Amortization and depreciation 152 155 Change working capital (123) (80) • Pension provisions (19) (21) • Restructuring (16) (4) • Other provisions (3)
Slide 18: Operating Working Capital % of revenue reduced towards 12%
Operating Working Capital % of revenue reduced towards 12% 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 2,102 12% 10.7% 1,932 1,872 10% 1.500 1,572 8% 1.000 6% 4% 500 2% 0 0% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2
Slide 19: Net debt reduced after sale of North America Decorative Paints
Net debt reduced after we received the cash proceeds from the sale of North America Decorative Paints Debt maturities € million Q2 2013 Q2 2012 billion * remainder of 2013 Net debt – April 1 (2,888) (2,860) 0,9 Net cash from 0,6 261 351 operating activities 0,3 Capex (168) (166) 0 2013*2014 2015 201
Slide 20: Pension deficit falls below €0.4 billion
Pension deficit falls below €0.4 billion Key pension metrics Q2 2013 Q1 2013 Discount rate 4.4% 3.9% Inflation assumptions 2.8% 2.9% Pension deficit development during Q2 2013 € million Decrease Increase 37 (371) (642) 7 266 (894) 855 Deficit end Q1 Top-ups Decreased plan Discount rates Inflation Ot
Slide 21: Performance Improvement Program
Performance Improvement Program Ton Büchner Investor Update Q2 2013 results 21
Slide 22: Performance Improvement Program on track to deliver €500 million by year end 2013
Performance Improvement Program on track to deliver €500 million by year end 2013 Performance Improvement Program Operational Functional Business Unit Excellence Excellence Adaptations Key summary to date Upcoming actions in 2013 • Gains of €381 million, including €131 million • Additional EBITDA be
Slide 23: 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 24: Step up in associated costs during the second half of the year
Step up in associated costs during the second half of the year € million 1H 2012 FY 2012 1H 2013 FY2013 Target Decorative Paints 32 140 31 Performance Coatings 13 90 16 Specialty Chemicals 15 42 1 Other 17 20 21 Total 76 292 69 325 • Total costs of Performance Improvement Program to date €361 millio
Slide 25: 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 – Q2 2013 Increase Decrease 52500 52000 (550) 51500 52,020 51000 (2260) 50500 50000 1290 50,500 49500 49000 48500 48000 47500 47000 year-end 2011 Acq/Div PIP* Seasonal/New hires 1H2013 * Since the
Slide 26: Gross profit margin and return on sales improvements evident
Gross profit margin and return on sales improvements evident Gross profit margin AkzoNobel Gross Profit Gross Margin % 41% • Gross profit margin % year to 4.200 39.2% date increased by 1.0 % 38.2% 39% 3.200 • Adjusted for PIP costs, return on 2,965 2,873 sales % year to date increased 2.200 37% for
Slide 27: 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 28: Impact of Performance Improvement Program initiatives on the income statement and cash flows
Impact of Performance Improvement Program initiatives on the income statement and cash flows Performance Improvement Plan initiatives Cash Flow P&L Impact Impact Margin Management Revenue Logistics initiatives OWC Vendor rationalization Gross Margin Complexity reduction Site rationalization / optimi
Slide 29: Manufacturing footprint optimization with factory closures and consolidation
Manufacturing footprint optimization with factory closures and consolidation • Increased efficiency as production is consolidated into fewer sites • 24 factory closures in 2012 and 2013 – 18 factories already closed across all business areas and geographies – 6 additional closures announced which wi
Slide 30: Decorative Paints – Complexity reduction
Decorative Paints – Complexity reduction Within Decorative Paints we are simplifying our portfolio by reducing our number of SKU’s • Detailed country plans to eliminate up to 15,000 SKU’s - whilst maintaining the customer product offering • Significant benefits: - reduces inventory levels - simplifi
Slide 31: Performance Coatings – Complexity reduction
Performance Coatings – Complexity reduction Modularization of products: • Customer product choice maintained • Fewer product designs and reduced number of raw materials, reduced stock level, significant cost saves Example 1 Example 2 Coil Coatings Europe Powder Coatings Europe Before 150 products Nu
Slide 32: Specialty Chemicals – Functional Chemicals restructuring
Specialty Chemicals – Functional Chemicals initiated the first phase of an extensive restructuring • In response to the changed market conditions • Increased alignment of the sub business units • Estimated reduction of more than 350 FTEs (8% of the workforce) • Benefits will begin to accrue in 2014
Slide 33: Continue 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 34: Conclusion
Conclusion Ton Büchner Investor Update Q2 2013 results 34
Slide 35: Conclusion
Conclusion • Decorative Paints and Performance Coatings reported an improved or stable return on sales for the first half of the year • Our end markets remain challenging and this was particularly visible at the end of this second quarter • Conditions remain tough and, as we have previously indicate
Slide 36: Questions
Questions Investor Update Q2 2013 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 Q2 2013 results 38
Slide 39: Q2 2013 Operating income – Cash bridge
Q2 2013 Operating income – Cash bridge € million Q2 2013 Q2 2012 Operating Income 322 388 Incidentals - 11 Depreciation & amortization 152 155 EBITDA before incidentals 474 554 Other 14 2 Change working capital (123) (80) Change provisions (38) (29) Interest paid (27) (42) Income tax paid (39) (54)
Slide 40: 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 41: 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 42: 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 43: 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 44: 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 45: 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 46: 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 47: End-user segment trends 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 Q2 2013 results 47
Slide 48: Innovation Pipeline Q2 2013 – Coral Super Washable
Innovation Pipeline Q2 2013 Decorative Paints – Coral Super Washable Key Features Customer Benefits • Hydro-repellent additive, repels liquids from • Prevents stains fixation the surface. • Easy to clean • Better dry opacity than previous formula • Zero odor (after 3 hours) • 50% less VOC emission a
Slide 49: Innovation Pipeline Q2 2013 – Beverage Inside Spray Coating
Innovation Pipeline Q2 2013 Packaging Coatings – Beverage Inside Spray Coating Key Features Customer Benefits • Green can liner • Enables the brand owner to utilize a protective layer for brand promotion • Enables marketing campaign by Grolsch to specifically promote the can as innovative • Can make
Slide 50: Innovation Pipeline Q2 2013 – Intersleek 900 SR
Innovation Pipeline Q2 2013 Marine Coatings – Intersleek® 1100 SR Key Features Customer Benefits • Unique slime release coating based on proprietary • Reduced hydrodynamic drag and improved vessel fluoropolymer technology efficiency due to ultra-smooth surface • Enhanced slime release properties wit
Slide 51: Innovation Pipeline Q2 2013 – Bermocoll Cellulose Ethers
Innovation Pipeline Q2 2013 Functional Chemicals - Bermocoll™ Cellulose Ethers Features Customer Benefits • Rheology modifiers based on renewable • Bermocoll EHM Extra has improved hiding cellulosic materials power (enabling TiO2 savings) and excellent application properties, such as • Designed for
Slide 52: Innovation Pipeline Q2 2013 – CiD technology
Innovation Pipeline Q2 2013 Functional Chemicals - CiD technology implementation Features Customer Benefits • A very fast initiator is continuously dosed • Shorter polymerization times, resulting in throughout the polymerization instead of a slower 20-40% higher capacity with very limited initiator
Slide 53: Innovation Pipeline Q2 2013 – Dry Flo TS Starch
Innovation Pipeline Q2 2013 Surface Chemistry – Dry Flo® TS Starch Key Features Customer Benefits • Aesthetic modifier for skin and sun care • Luxurious feel imparted to personal care emulsions and powders products from a natural-based product • Based on a tapioca starch / • Non-greasy feel polymeth
Slide 54: 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 55: 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 56: 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 57: 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 58: After the 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 59: 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 60: 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 61: 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 62: 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 63: 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 64: 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 65: 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 66: 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 67: 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 68: 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 69: 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 70: 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 920 750 622 825 390 296 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Strong liquidity position to support growth • Undrawn revolving credit facility of €1.7 billion
Slide 71: 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 72: 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 Q2 20
Slide 73: Short term incentives 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