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AkzoNobel investor update The Premium Review 2016 Maëlys Castella December 1, 2016
Global paints, coatings and specialty chemicals company €14.9 billion revenue (2015) €2.1 billion EBITDA (2015) 80+ countries
45,600 employees (2015) Leadership positions in many markets
Revenue by Business Area
33%
40%
Performance Coatings
Operating income by Business Area
3% 17%
27%
35%
Specialty Chemicals
10%
45%
Decorative Paints 27%
Revenue by geographic region North America Latin America Mature Europe Emerging Europe 7%
20%
36%
Asia Pacific Other
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Buildings and infrastructure New build projects Maintenance, renovation & repair Building products and components
Consumer durables Consumer packaged goods
Transportation
43% 17% of revenue
Consumer goods
Automotive OEM, parts and assembly Marine and air transport
of revenue
18% 22% of revenue
Automotive repair
Natural resource and energy industries Process industries
of revenue
Industrial All percentages based on 2015 revenue
Strategy delivering results and building foundation for continuous improvement Transformation | New operating models for all Business Areas Realignment of the functions
Achievements
Operational optimization; reduction in: – Factory footprint – Enterprise Resource Planning systems – SKUs Portfolio optimization with selected divestments Proactive management of pension liabilities Continued focus on sustainability Core principles and values | Human Cities
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We delivered all 2015 financial targets Return on sales %
Return on investment %
(Operating income/revenue)
(Operating income/average 12 months invested capital) 15.0 16 14.0 14.0
12
9.8
10.6 9.0
12
8
5.9*
6.6
6.9
8.9*
9.6
10.0
2013
2014
8
4
4
0
0 2012
2013
2014
2015**
2015
2015 Target
2012
2015**
2015
2015 Target
Net debt/EBITDA = 0.6 (target: <2.0) Exceeded 2015 targets * Excluding impairment (€2.1 billion) and after IAS19
** Excluding incidental items
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Strategy will be maintained and move towards the next phase Historical issues Return on sales below peers Not earning our cost of capital Inadequate free cash flow
Building the foundation Vision and strategy: Organic growth
Continuous improvement
Limited economic recovery
Organic growth
Operational excellence Sustainability
Operating expenses too high
Not leveraging scale
External environment
Slowing emerging markets
2015 targets: ROS 9%; ROI 14% Aligned remuneration Core principles and values
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Focus will shift towards continuous improvement and growth Hardwire new organization model
Deliver continuous improvement culture
Build further operational excellence
Drive organic growth and innovation
Pursue value generating bolt-on acquisitions
Next steps
Culture Core principles and values Sustainability – Planet Possible Society – Human Cities
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Vision confirmed; financial guidance 2016-2018 Vision: Leading market positions delivering leading performance
Guidance 2016-2018: Return on sales: Return on investment:
9-11% 13-16.5%
Clear aim to build on the foundation we have created and grow in line or faster than our relevant market segments
Key assumptions: Currencies versus €: $1.1, £0.71, ¥7.1 Oil price ~$60/bbl ; no significant market disruption ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
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Mixed volume development for 2016 and deflationary pressures continue Performance Coatings
Decorative Paints
Specialty Chemicals
AkzoNobel
Quarterly volume development in % year-on-year 6 4
3%
2
1%
0% 0 -2
-2%
2015 2016
-4
Quarterly price/mix development in % year-on-year 2 0 -2
-1% -2%
-2% -3%
-4
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Acquisition of BASF Industrial Coatings will strengthen market leading positions Agreed offer to acquire BASF's Industrial Coatings business for €475 million Business generated revenue of about €300 million in 2015 Will strengthen our position in the Coil Coatings market Supplies products for a number of end uses, including coil, furniture foil and panel coatings, wind energy, general industry and commercial transport Fits well with our existing business Expected to be completed before end 2016
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Profitability continues to improve, despite adverse currency and price/mix effects Revenue (€ million)
3,760
Q3 2015
EBIT* (€ million)
ROS %**
Moving average ROI %**
3,600
Q3 2016
436
442
Q3 2015
Q3 2016
11.6
12.3
13.0
Q3 2015
Q3 2016
Q3 2015
15.2
Q3 2016
*EBIT = Operating income excluding incidentals **ROS% = EBIT/revenue and Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
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Q3 profitability improved overall and for all Business Areas Volume growth in Decorative Paints and Specialty Chemicals Revenue down, due to adverse currency and price/mix effects EBIT and operating income higher ROS* and ROI* improved Net income attributable to shareholders was €285 million
Net cash inflow from operating activities up at €600 million Interim dividend up 6 percent to €0.37 per share Outlook
Outlook unchanged. The market environment remains uncertain with challenging conditions in several countries and segments. Deflationary pressures and currency headwinds are expected to continue.
We maintain our financial guidance 2016-2018
AkzoNobel collaborating with Shanghai’s Jing’an District to revitalize local communities
*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
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Support functions are progressing towards the future operating model Decentralized functions
Function reporting and alignment
Shared services/ outsourcing
Global Business Services
Human Resources Information Management Finance Procurement (non product related)
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Further de-risking of pension liabilities, including £2.6 billion non-cash buy-ins* Other post-retirement benefits
Various activities to reduce liabilities
Other pension plans CPS UK
100 £8.2 billion insurance buy-ins for UK schemes (2014-16). $0.7 billion buy-out relate to a US scheme (2013)
ICI PF UK
2 16 21
Active management of interest rate and inflation exposure, with around 80 percent of overall defined benefit obligation risks hedged
80 61
60
Almost 60 percent of longevity risk is covered by insurance contracts and hedging Defined benefit obligations
Interest and Longevity hedging inflation hedging
*Total year to date September 2016
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Interim dividend up 6 percent and policy of “stable to rising” Dividend policy is to pay a “stable to rising” dividend each year
Dividends € per share
Dividend paid in cash, unless shareholders elect to receive a stock dividend (normal uptake 35-40 percent)
1.12 1.12
1.12
1.12
1.20
2015 dividend up 7 percent to €1.55 per share 0.33
0.33
0.33
0.33
0.35
0.37
Interim dividend 2016 up 6 percent to €0.37 per share (2015: €0.35) Final dividend
2012
2013
2014
2015
2016
Interim dividend
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Recent highlights from our Human Cities, innovation and sustainability activities
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A strong case for investment Portfolio of businesses with leadership positions in many markets
Strong global brands in both consumer and industrial markets Long-term growth potential from end-user segments Balanced exposure across geographic regions Track record of improving returns and cash flow
History of successfully commercializing innovation Clear leader in sustainability Commitment to Human Cities
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Appendix
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Core principles and values in place; Incentives aligned with strategy Customer Focus
Core principles: Safety Integrity Sustainability
Deliver on Commitments
We do what we say we will do
Passion for Excellence
We strive to be the best in everything we do, every day
Winning Together STI Element
We build successful partnerships with our customers
Metric *
We develop, share and use our personal strengths to win as a team LTI Element
Metric
20%
Return on investment
35%
Return on investment
20%
Operating income
35%
Total Shareholder Return
30%
Operating cash flow
30%
30%
Personal targets – partly related to strategic targets
Sustainability / RobecoSAM - DJSI
*A new metric, revenue growth, was approved at the AGM 2016. It has been introduced for some executives.
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Visions confirmed; performance ranges 2016-2018 Specialty Chemicals
Performance Coatings
Decorative Paints
Vision:
Vision: Leading market positions delivering leading performance
Vision: The leading global Decorative Paints company in size and performance
Performance range 2016-2018: Return on sales: 12-14% Return on investment >25%
Performance range 2016-2018: Return on sales: 8-10% Return on investment: >11.5%
Delivering leading performance based on sustainable chemical platforms driving profitable growth in selected markets Performance range 2016-2018: Return on sales: 11.5-13% Return on investment: >16%
Clear aim to build on the foundation we have created and grow in line or faster than our relevant market segments Key assumptions: Currencies versus €: $1.1, £0.71, ¥7.1 Oil price ~$60/bbl ; no significant market disruption ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
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