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Media update Ton Büchner and Maëlys Castella February 15, 2017
Q4
20 16
Ton Büchner CEO
Media update
2
Delivering on our strategy
Media update
3
Strong track record of performance improvement €200+ Record ROS and ROI
Volume growth
Employee engagement
up for 6th year
Acquisition of BASF’s Industrial Coatings business
Continuous improvement
million savings
75% sites
20%
Progress on a new model for support services
300+
Eco-premium solutions Carbon
Footprint reduced
Human Cities projects
Strategy focused on delivering continuous improvement and growth Hardwire new organization model
Deliver continuous improvement culture
Build further operational excellence
Drive organic growth and innovation
Pursue value generating acquisitions
Next steps
Culture Core principles, purpose and values Sustainability – Planet Possible Society – Human Cities
Operational review
Media update
5
Structurally improved to achieve record levels of financial performance in 2016 Return on sales %
Return on investment %
Continuous improvement
€200+ million savings Delivering
13-16.5 9-11
Engagement
7.5
2014
9.8
14.0
10.6
15.0
4.17
10.9
(2015 4.03) 2015
2016
Guidance 2016-2018
2014
2015
2016
Guidance 2016-2018
Hardwiring new organization model ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Operational review
Media update
6
In 2016, seized opportunities for growth and adapted to challenging markets China
EMEA Latin America
Specialty Chemicals Oil and gas industries
Marine industry
~
Automotive and Specialty Coatings
South and SE Asia
Powder Coatings
Updated expected growth rates for our relevant markets 2017 <0%
Marine and Protective Coatings
0-3%
>3%
Mature Europe Latin America
Asia Emerging Europe and Africa
Industrial Coatings Automotive and Specialty Coatings
Powder Coatings
Bleaching chemicals Salt-chlorine chain Ethylene oxide network Surfactants
Polymer chemistry
Clear aim to build on the foundation we have created and grow in line or faster than our relevant market segments Highlights 2016
Investor update
8
Value generating acquisitions and joint ventures supporting growth Joint Ventures:
BASF’s Industrial Coatings business
Completed for €425
million
Portion of production transferred
2017
#1 in coil coatings
Cooperation for Salt production in Spain Partnership with Atul to produce MCA in India
Revenue
~€280 million
Acquired outstanding shares in Eko Peroxide
Synergies and production efficiencies
Production JV with Evonik for Chlorine in Germany Acquired controlling share in Egypt JV for Powder Coatings
Full profitability by end 2018
Operational review
Media update
9
€634 million invested in sites to support organic growth and operational excellence Ashington, UK
Shanghai, China
Strongsville, U.S.
Pasadena, U.S.
Ibbenburen, Germany
Chengdu, China Mumbai, India
Decorative Paints Performance Coatings Specialty Chemicals
Chonburi, Thailand
Gujurat,India
Los Reyes, Mexico
Operational review
Cikarang, Indonesia
Ningbo, China
Media update 10
€363 million invested in driving innovation to support organic growth
Launched AquaSilk in China, an innovative waterborne anti-scuff
Introduced Dissolvine M-40 for the detergent industry
Launched forest breath in China. It contains anti-bacterial properties that improve indoor air quality
Visualizer App – over 13 million downloads
Virtual reality customer Centre in the UK
Intertrac Vision, an award winning digital tool which predicts hull performance
Operational review
Media update 11
Further progress made towards our 2020 sustainability ambitions Eco-premium solutions with downstream benefits (in % of revenue)
17
18
19
19
20
Cradle-to-Grave, Carbon Footprint
REI – Resource Efficiency Index
(% reduction CO2(e) per ton of sales from 2012)
(Gross margin/CO2(e) indexed)
20
0
2
3
25-30
100
98
96
2020
2012
2013
2014
113
112
2015
2016
6
-4 2012
2013
2014
2015
2016
…
2020
2012
2013
2014
2015
2016
…
Progress on our Planet Possible agenda Shipping industry’s largest ever number of carbon credits
Consortium exploring waste-to-chemicals facilities in Europe
Leading a consortium for purchase of wind power
Sustainable steam delivered from a project in Delfzijl (NL)
Media update 12
Maëlys Castella CFO
Media update 13
Strong financial position provides foundation for growth Media update 14
Highlights from a record year Decorative Paints Full-year volumes up 3% with positive developments in Asia and EMEA Performance Coatings Volumes flat with growth in some segments offset by adverse conditions in marine and oil & gas
Increases in: Volumes EBIT
ROS ROI Adjusted EPS
Specialty Chemicals Full-year volumes up 1% with positive developments mainly driven by Asia and Europe
Dividend Cash inflow
Strong financial performance improvement continued in 2016 Full-year
Q4
Volumes
EBIT
1% higher Adjusted EPS
3% At €4.15
Record ROS and ROI
Up 3% Up 6% excluding currencies
ROS 10.6% (2015 9.8%) ROI 15.0% (2015 14.0%)
Total dividend
Net cash inflow
proposed for 2016
from operating activities
Up 6% at €1.65 (2015: €1.55)
Volumes
Up 2% Completed acquisition BASF's Industrial Coatings business
Up 14% €1,297 million (2015: €1,136)
Announced share buyback to neutralize the dilutive effect of stock dividends paid in 2016 Financial review
Investor update 16
EBIT growth driven by higher volumes and continuous improvement € million
FY 2015
FY 2016
Δ%
Revenue
14,859
14,197
(4)
EBIT (Operating income excluding incidental items)
1,462
1,502
3
Operating income
1,573
1,519
(3)
FY 2015
FY 2016
9.8
10.6
14.0
15.0
Ratio, % ROS* Moving average ROI*
Revenue development full-year 2016
1
-2
0 -3
Volume
Price/Mix
Acquisitions/Divestments
Exchange rates
-4 Total
*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital Investor update
20
Free cash flow continues to improve FY2013
FY2014
FY2015
FY2016
€ million
EBITDA Interest paid Tax paid Changes in working capital, provision* and other
1,513 -228 -230 69
1,690 -206 -258 -145
2,088 -151 -261 -224
2,108 -87 -285 -175
Capital expenditures (including intangible assets)
-695
-612
-688
-651
Free cash flow, excluding pension top-up payments Pension top-up payments Free cash flow (from operations)
429 -408 21
469 -270 199
764 -316 448
910 -264 646
448 21 2013
646
199 2014
2015
2016
*Provisions include recurring pension contributions Free cash flow (from operations) = Net cash from operating activities minus Capital expenditures and Investment in intangibles
Financial review
Media update 18
Decorative Paints full-year 2016: Higher volumes and profitability € million
FY 2015
FY 2016
Δ%
Revenue
4,007
3,835
(4)
EBIT (Operating income excluding incidental items)
345
357
3
Operating income
345
366
6
FY 2015
FY 2016
8.6
9.3
11.7
12.8
Ratio, % ROS* Moving average ROI*
Flexa Color Tester - winner of the Our Color of the Dutch Best Product of Year, the Year 2016Denim Drift, was launched 2017
Increase Decrease
Revenue development full-year 2016
3
-1
0 -6
3 Volume
Price/Mix
Acquisitions/Divestments
-5
Exchange rates
-4 -3
Total
Launched in Rio, our Unexpected Courts project uses paint to create Courts and spaces in surprising places
*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Financial review
Investor update 19
Performance Coatings full-year 2016: Maintained structurally higher profitability € million
FY 2015
FY 2016
Δ%
Revenue
5,955
5,665
(5)
EBIT (Operating income excluding incidental items)
792
759
(4)
Operating income
792
735
(7)
FY 2015
FY 2016
ROS*
13.3
13.4
Moving average ROI*
29.4
29.4
Ratio, %
Revenue development full-year 2016
0
-2
Increase Decrease
0
-2 Volume
-3 Price/Mix
Acquisitions/Divestments
Exchange rates
-2
-5 Total -6
We broke ground on a powder coatings Mumbai,Colorvationplant digitalin technology which will provide new lines, increases speed and accuracy in color matching. including products for pipes
*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Financial review
Investor update 20
Specialty Chemicals full-year 2016: Volume and profitability improvement € million
FY 2015
FY 2016
Δ%
Revenue
4,988
4,783
(4)
EBIT (Operating income excluding incidental items)
578
629
9
Operating income
609
629
3
FY 2015
FY 2016
ROS*
11.6
13.2
Moving average ROI*
16.3
17.9
Ratio, %
Increase Decrease
Revenue development full-year 2016
1
-3 -3
Volume
Inaugurated two new specialty chemicals plants at the multi-site in Ningbo, China.
Price/Mix
-1 Acquisitions/Divestments
-4 -1 -1 rates Exchange
-3
Total
*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Financial review
Investor update 21
Ton Büchner CEO
Media update 22
Continued progress in Sustainability and innovation AkzoNobel has won the Dutch Best Product of the Year 2016-2017 award in the paints category for the Flexa Color Tester, a mini roller to test color choices. Also available in France, the wet tester will soon be rolled out in other markets
AkzoNobel’s Vehicle Refinishes business has launched its Colorvation digital technology which increases speed and accuracy in color matching.
In China, we recently launched our Dulux Forest Breath Eco-sense range of indoor decorative paints. It contains anti-bacterial properties that improve indoor air quality by absorbing and destroying atmospheric particles such as formaldehyde and benzene.
Media update 23
Over 9 million people positively impacted by our Human Cities program At the UN Habitat Conference III, a vertical garden was created with a hydroponic system, that uses micronutrients supplied by AkzoNobel to provide essential minerals for the plants.
Eighty artists helped to transform a neighborhood in Montevideo, Uruguay, as part of a Human Cities initiative developed by our Inca paint brand.
We will contribute to the Rotterdam Resilience Strategy with projects inlcuding repainting four primary schools, refurbishing areas of a local park and a pilot project for paint recycling.
Media update 24
We are stronger, more agile, better able to adapt and grow We anticipate positive developments for EMEA, North America and Asia, improving during the year, while Latin America is expected to stabilize. Some economic and political uncertainty is expected to remain. Market trends experienced in the second part of 2016, including for the marine and oil & gas industries, are expected to continue during the first half of 2017.
We have structurally improved our ability to respond to developments in our markets. We are taking appropriate measures to deal with higher raw material prices in an inflationary environment. Our stronger operational and financial foundation means we are more agile and better able to seize growth opportunities, including acquisitions.
We maintain our financial guidance for 2016-2018 Media update 25
We are stronger, more agile, better able to adapt and grow €200+ Record ROS and ROI
Volume growth
Employee engagement
up for 6th year
Acquisition of BASF’s Industrial Coatings business
Continuous improvement
million savings
75% sites
20%
Progress on a new services model
300+
Eco-premium solutions Carbon
Footprint reduced
Human Cities projects
And now for questions
Media update 27
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 understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business please see our latest Annual Report, a copy of which can be found on the company’s corporate website www.akzonobel.com.
Media update 28
Appendix
Media update 29
2017 Financial assumptions
A
Category
Comments / assumption
FY Revenue
FY EBIT
Acquisition
BASF’s Industrial Coatings business. The full profitability of the acquisition will be realized by the end of 2018, in line with the stated financial guidance for the Performance Coatings business
~€280 mln
Transition during 2017
Currencies
Assuming December 2016 exchange rates (€: $1.05, £0.86, RMB 7.3)
=/+
=/+
Continuous improvement
Seek year-on-year productivity gains from continuous improvement (e.g. ALPS and GBS) to at least offset inflation
N/A
€100 - €200 mln (positive effect)
Inflation
Inflation on fixed cost base around 2-3%
N/A
€100 - €150 mln (negative effect)
Restructuring
Medium term guidance 0.5 - 1% of revenue; 2017 in line with 2016
N/A
~€70 mln
Market growth
2-3% (volume and price/mix), based on relevant geographic and market presence. Market trends in marine and oil & gas experienced in the second part of 2016 are expected to continue during the first half of 2017
Raw materials
We are likely to see higher year-over-year input costs in 2017 due to the inflationary environment, while there are various supply and demand dynamics related to our raw materials basket. We are taking appropriate measures to deal with higher raw material prices in an inflationary environment
Tax rate
ETR 28-29%
Cash deployment
Capital expenditures at ~4% of revenue and RD&I at ~2.5% of revenue, share buyback of up to 2.5 mln shares (~€150 mln)
Other
WACC ~7%, interest rate ~3.3%, OWC 10-12% of revenue
Appendix
Investor update 30