Akzo Nobel N.V. · EURONEXT:AKZA
Akzo Nobel — ICI — FY2006 Earnings Presentation
50 slides from Akzo Nobel's earnings presentation, Feb 8, 2007
Slide 1: Fourth Quarter and Full Year 2006 Results Presentation
Fourth Quarter and Full Year 2006 Results Presentation 8 February 2007
Slide 2: Agenda
Introduction Agenda Opening remarks Peter Ellwood Full year highlights John McAdam Q4 review and outlook Alan Brown Strategic update John McAdam Q&A 2
Slide 3: Opening remarks
Opening remarks Peter Ellwood
Slide 4: Chairman's Comments
Opening Remarks Chairman’s Comments Good progress in mixed market conditions Major strategic developments - divestment of Uniqema and Quest Good reduction in net debt, increased financial flexibility 2006 share price growth of 36%, outperformed FTSE Dividend (full year declared) up 1.2p to
Slide 5: Full Year Highlights
Full Year Highlights John McAdam
Slide 6: Highlights – Full Year
Full year highlights Highlights – Full Year Comparable Group sales up 6% Comparable Group trading profit 5% ahead Continuing Group adjusted profit before tax £407m, up 8% Adjusted earnings per share 31.6p up 17% Uniqema divestment completed, gross consideration £410m Announced sale of Qu
Slide 7: Business Review
Full Year Highlights Business Review Relative performance Specialty Starches + Decorative Asia Adhesives Decorative Latin America Specialty Polymers Packaging Coatings Electronic Materials Decorative UK and Ireland Decorative Continental Europe Regional & Industrial Decorative North America 7
Slide 8: Sales by business
Full Year Highlights Sales by business Continuing operations National Starch 41% ICI Paints 50% Electronic Materials Decorative Coatings 4% of ICI 45% of ICI Specialty Polymers 5% of ICI Specialty Starches 10% of ICI Adhesives Packaging Coatings 22% of ICI 5% of ICI Regional & Industrial 9% of ICI P
Slide 9: Q4 Operating and Financial Review
Q4 Operating and Financial Review Alan J Brown
Slide 10: Group Results: Sales
Operating and financial review Group Results: Sales Q4 2006 Growth % FY 2006 Growth % Comparable1 Group Sales2 6% 6% Foreign exchange translation effects (6)% - Business acquisitions and divestments (1)% (1)% Reported Sales2 £1.2bn (1)% £4.8bn 5% £/$ Q1 Q3 Q3 Q4 Average £/€ Q1 Q3 Q3 Q4 Average 2006
Slide 11: Group Results: Sales by Region
Operating and financial review Group Results: Sales by Region Continuing Group Comparable Continuing Group Sales by Region growth1 FY Sales Q4 FY Europe Asia 30% 27% Asia 9% 10% - Decorative Paint 19% 16% - National Starch2 11% 13% Latin America 11% 8% Latin America 8% North America 1% 4% - Decorati
Slide 12: Paints
Operating and financial review Paints % of FY 2006 Comparable % continuing reporting segments Q4 2006 FY 2006 Q4 FY Sales Trading Profit Sales £558m £2,414m 6% 5% Trading Profit1 £46m £257m (14)% 2% 50% 48% Trading Margin 8.2% 10.6% Q4 Performance Decorative UK & Republic of Ireland: Sales grew 7%
Slide 13: Paints
Operating and financial review Paints % of FY 2006 Comparable % continuing reporting segments Q4 2006 FY 2006 Q4 FY Sales Trading Profit Sales £558m £2,414m 6% 5% Trading Profit1 £46m £257m (14)% 2% 50% 48% Trading Margin 8.2% 10.6% Q4 Performance Decorative Asia: Sales up 19% with strong volume g
Slide 14: National Starch
Operating and financial review National Starch % of FY 2006 Comparable % continuing reporting segments Q4 2006 FY 2006 Q4 FY Sales Trading Profit Sales £497m £2,011m 8% 8% Trading Profit1 £61m £242m 10% 13% 41% 45% Trading Margin 12.4% 12.0% Q4 Performance Adhesives: Sales up 6% with all regions a
Slide 15: National Starch
Operating and financial review National Starch % of FY 2006 Comparable % continuing reporting segments Q4 2006 FY 2006 Q4 FY Sales Trading Profit Sales £497m £2,011m 8% 8% Trading Profit1 £61m £242m 10% 13% 41% 45% Trading Margin 12.4% 12.0% Q4 Performance Specialty Polymers: Sales ahead 16% led b
Slide 16: Regional and Industrial
Operating and financial review Regional and Industrial % of FY 2006 Comparable % continuing reporting segments Q4 2006 FY 2006 Q4 FY Sales Trading Profit Sales £107m £431m (1)% 5% Trading Profit1 £8m £37m (34)% (26)% 9% 7% Trading Margin 7.3% 8.5% Q4 Performance Comparable sales broadly in line wi
Slide 17: Quest
Operating and financial review Quest Discontinued operation Comparable % Q4 2006 FY 2006 Q4 FY Sales £143m £588m 8% 5% Trading Profit1 £15m £61m 45% 19% Trading Margin 10.4% 10.4% Q4 Performance Sales grew 8%. Both fragrance and flavours delivered good growth and sales were ahead in all regions, n
Slide 18: Group Results
Operating and financial review Group Results Group trading profit to adjusted profit before tax As reported growth Q4 2006 FY 2006 Q4 2006 FY 2006 Continuing reporting segments £115m £536m Corporate and other £(6)m £(34)m Group trading profit1 £109m £502m (2)% 5% Income from associates2 - £2m Net fi
Slide 19: Group Results
Operating and financial review Group Results Adjusted profit before tax to net profit As reported growth Q4 2006 FY 2006 Q4 2006 FY 2006 Adjusted profit before tax1 £90m £407m 1% 8% Tax £(4)m £(70)m Effective tax rate 17% Discontinued operations2 £14m £62m Special items – Continuing3 £(20)m £(38)m S
Slide 20: Net Cash from Operating Activities
Operating and financial review Net Cash from Operating Activities FY 2006 FY 2005 £m £m EBITDA 730 724 Working capital movements (5) 60 Post-retirement benefit charges in EBITDA 46 41 Post retirement benefit payments (238) (153) Cash flows from special items (68) (53) Interest and tax (160) (153) Di
Slide 21: Net Cash from Investing Activities
Operating and financial review Net Cash from Investing Activities FY 2006 FY 2005 £m £m Sale of fixed assets 26 17 Purchase of fixed assets (150) (159) Net disposal proceeds 324 108 Tax paid in relation to disposals (1) (2) Payments in respect of disposals prior to 2004 (41) (47) Acquisitions (31) (
Slide 22: Movement in Net Debt
Operating and financial review Movement in Net Debt FY 2006 FY 2005 £m £m Net debt (opening, restated) (763) (1,006) Net cash flow from operating activities 191 359 Net cash flow from investing activities 110 (112) Cash flow before financing 301 247 ESOP share purchase redemption (6) - Non-cash impa
Slide 23: Impact on Post-retirement benefits
Operating and Financial Review Impact on Post-retirement benefits Adjustments to Balance Sheet Deficit £m 31 December 2005 post-retirement benefit liabilities (1,688) Top-up contributions in 2006 134 1 Net actuarial and foreign exchange gains/(losses) 122 2 Uniqema deficits disposed 95 Other contrib
Slide 24: Proforma Pension Deficit and Net Debt
2006 Q4 Results Proforma Pension Deficit and Net Debt £m Year end net pension deficit (1,225) Quest completion adjustments 190 Uniqema adjustments 45 Proforma year end net pension deficit (990) Year end net debt (329) Quest net proceeds 900 Uniqema adjustments (90) Proforma year end net cash
Slide 25: National Starch Enhanced segmental disclosure
National Starch Enhanced segmental disclosure 2006 Full Year Sales Trading Profit Trading £m £m Margin Adhesives 1,052 83 7.9% Specialty Starches 502 60 11.9% Specialty Polymers 266 48 18.3% Electronic Materials 203 51 25.1% Intra National Starch Revenue (12) National Starch 2,011 242 12.0% 25
Slide 26: Outlook
Outlook Outlook Outlook remains positive Little sign of improvement in North American decorative paints market Businesses in developing markets look set to deliver solid performance Restructuring initiatives are progressing satisfactorily ICI expects to make further progress in 2007 26
Slide 27: Strategic Review: Towards Transformation
Strategic Review: Towards Transformation John McAdam
Slide 28: 2003 turnaround strategy
Strategic Context 2003 turnaround strategy Realistically assess top line growth prospects on a differentiated basis Aggressively pursue internally orientated cost and capital effectiveness improvements Simultaneously address the cash flow situation 28
Slide 29: Strategic Progress 2006
Strategic Context Strategic Progress 2006 2003-2007 Objectives Sales growth at or slightly above GDP growth On average half a percentage point improvement in trading margins per annum - i.e. around 2% over 4 years On average one percentage point improvement in ROCE per annum - i.e. around 4% o
Slide 30: Strategic Progress 2006: Results so far
Strategic Context Strategic Progress 2006 2003-2007 Objectives Results so far Sales growth at or slightly above GDP growth On average half a percentage point Up 6% on average per annum 3 improvement in trading margins per 3 annum Up 0.5% on average per annum - i.e. around 2% over 4 years On av
Slide 31: 2006 status report
Towards transformation 2006 status report Profitable growth at or just above GDP levels but… Aim to accelerate profitable growth Support services and supply chains slightly more efficient but… Effectiveness of processes all have scope for improvement Now operating at industry average standards but…
Slide 32: Strategic Objectives
Towards transformation Strategic Objectives Accelerating Profitable Growth Improved Operational Effectiveness Culture of Sustainable Improvement 32
Slide 33: Accelerating Profitable Growth
Towards transformation Accelerating Profitable Growth Stronger market leadership positions + Focus on higher growth developing markets + Innovation through formulation science + Strategic acquisitions = Accelerating Profitable Growth 33
Slide 34: Decorative Paints Market Positions
Towards transformation Accelerating Profitable Growth: Decorative Paints Market Positions* Europe Asia “Grow selectively” “Grow aggressively” North America China #2 “Maintain aggressively” UK #1 India #3 Canada #1 Rep of Ireland #1 Indonesia #2 USA #2 France #3 Malaysia #1 Poland #3 Pakistan #1 Spai
Slide 35: National Starch Market Positions
Towards transformation Accelerating Profitable Growth: National Starch Market Positions* National Starch Adhesives Specialty Starch Specialty Polymers Electronic Materials Asia #1 Specialty Alco #2 Ablestik #1 starch #1 Strengths in rheology Number 1 in chosen fields: North Number 1 in specialty mod
Slide 36: Focus on growth in developing markets
Towards transformation Accelerating Profitable Growth: Focus on growth in developing markets 3%1 Europe 30% Asia 27%2 12%1 Latin America 8% 14%1 4%1 North America 34% 3 year average comparable sales growth Our performance indicator will be to deliver sales growth in developing markets at on average
Slide 37: ICI's science pillars & applications knowledge
Towards transformation ICI’s science pillars & applications knowledge Fourteen Science Pillars Products with superior performance Synthetic Natural Polymers Polymers Material Effective sales and marketing Science Coating + Value for ICI’s customers Key Application Requirements Increased number of su
Slide 38: Growth from new product development
Towards transformation Accelerating Profitable Growth: Growth from new product development 25% 24% 23% Our performance indicator will be to sustain at least a 25% contribution to annual sales from new products 2004 2005 2006 Sales from products less than 3 years ~ 25% sales 38
Slide 39: Paints Innovation
Towards transformation Accelerating Profitable Growth: Paints Innovation Vietnam: Easy China: Anti-scratch woodcare clean to remove India: Pearl Glow Finish stains from walls with ingredients to automatically repair scratches Poland: Targeting professional Argentina: painter to provide perfect opaci
Slide 40: National Starch Innovation
Towards transformation Accelerating Profitable Growth: National Starch Innovation Electronic Materials: Ablestik Board on chip printable paste for high speed dynamic random access memory devices. Specialty Food Starches Critical focus on clean labelling Adhesives EasyPac, low temperature “cool melt”
Slide 41: Improved Operational Effectiveness
Towards transformation Improved Operational Effectiveness Operations cost reduction + Cost-to-serve improvements + Efficient cross-business functions = Improved operational effectiveness 41
Slide 42: 2006 Transformation Programme
Towards transformation Improved Operational Effectiveness: 2006 Transformation Programme £m Maintain our target of 200 175 £170m annualised savings 150 125 from a five year investment 100 75 of £340m 50 25 2007 savings objective of 0 -25 £38m re-confirmed -50 -75 Further projects being -100 -1
Slide 43: Top Quartile Trading Margins
Towards transformation Improved Operational Effectiveness: Top Quartile Trading Margins Paint 10.6% Paints 50% 7 12 Adhesives 7.9% Adhesives 22% 5 10 Our performance indicator is to achieve consistent top quartile performance against our international industry peers Source: Company Estimates and Com
Slide 44: Top Quartile Trading Margins
Towards transformation Improved Operational Effectiveness: Top Quartile Trading Margins Electronic Materials 25.1% Currently top quartile performance. Objective to sustain top quartile performance. Other 25% Specialty Polymers 18.3% Specialties Currently top quartile performance. Objective to sustai
Slide 45: Continuing to target average +1% ROCE pa
Towards transformation Improved Operational Effectiveness: Continuing to target average +1% ROCE pa Return on Capital Employed Good working capital % (As reported continuing group each year) + 20 Capital expenditure in line with 18 depreciation 16 + 14 Improved profitability 12 = 10 Return o
Slide 46: Culture of Sustainable Improvement
Towards transformation Culture of Sustainable Improvement s Em er pl o m oy ust ee C s The ExExterollddeersrs ICI Way En all v a iron n o n kehh e r ae t tk m Sa ent t Profitable S Responsible Business Internally, we have a programme to embed “the ICI Way” and Guiding Principles across ICI 46
Slide 47: Sustainability
Towards transformation Sustainability 4 Total reportable case rate 8 Total reportable case rate ICI employees 3 Safety Comparison2 ICI Safety Performance1 with peers 6 2 ICI 4 Independent contractors 2005 Milestone Milestone 1 2 2010 0 1990 1995 2000 2005 2010 Peer companies on the 120 Dow Jones Sus
Slide 48: Conclusions
Towards transformation Conclusions Strategic Objectives Performance Indicators Strengthen target market positions Deliver higher growth from Accelerating Profitable developing markets (3 times GDP) Growth Innovation driving growth (at least 25% of sales) Top quartile trading margins Improved
Slide 49: Leadership in formulation science
leadership in formulation science
Slide 50: Forward looking statements
Forward looking statements This document contains statements concerning the Group’s business, financial condition, results of operations and certain of the Group’s plans, assumptions, or expectations with respect to these items. These statements are intended as forward-looking statements within the