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October 18, 2012 Investor update Q3 2012 results
Agenda •
Update on CEO status
•
Q3 highlights
•
Operational and financial review
•
Management update
•
Conclusion
Investor update Q3 2012 results
2
Update on CEO status
by Antony Burgmans, member of the Supervisory Board
• This week, the Supervisory Board has received an update on the progress of Ton Büchner’s recovery • The medical specialists expects a full recovery and it is anticipated that Ton will return to work around year-end y • CFO Keith Nichols will continue to be the first point of contact and coordinator for the Executive Committee
Investor update Q3 2012 results
3
Q3 highlights Keith Nichols
Investor update Q3 2012 results
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Solid operational performance in Q3, despite economic slowdown • Revenue up 6 percent, mainly driven by currencies and pricing actions • Volumes declined 3 percent, primarily due to the economic slowdown in Europe p • EBITDA* up 7 percent at €540 million (2011: €507 million) • Impairment of €2.5 billion in Decorative Paints, resulting in a net loss of €2.4 billion • Adjusted EPS of €1.01 (2011: €0.91) • Interim dividend of €0.33 per share declared • AkzoNobel ranked first in the Dow Jones Sustainability Index • Performance improvement program is on track • The economic environment remains our principal sensitivity
* Before incidentals Investor update Q3 2012 results
5
In Q3 2012 both revenue and EBITDA increased Q3 2012
Δ%
EBITDA*
4,280 4 280 540
6 7
Ratio, %
Q3 2012
Q3 2011
12.6
12.5
€ million Revenue
EBITDA* margin
Revenue development Q3 2012 vs. Q3 2011 8 4 0
+2%
+1%
+6%
+6%
-3%
-4 Volume
* Before incidentals
Price/Mix
Acquisitions/ Exchange rates divestments Increase
Total Decrease
Investor update Q3 2012 results
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Prices being maintained in declining markets Quarterly volume development in % year-on-year 10 6 2
-6%
-3%
-2%
0%
-2 -6
Decorative Paints
Performance Coatings
Specialty Chemicals
AkzoNobel
Quarterly price/mix development in % year-on-year 8 5 2%
3%
2 -1
2% -1%
Decorative Paints
Performance Coatings
Specialty Chemicals
AkzoNobel 2011
2012
Investor update Q3 2012 results
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Operational and financial review Keith Nichols
Investor update Q3 2012 results
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Decorative Paints Q3 2012 highlights € million Revenue
Q3 2012 1 456 1,456
Δ% 1
EBITDA*
147
(1)
Ratio % Ratio,
Q3 2012
Q3 2011
10.1
10.3
EBITDA* margin R Revenue d development l t Q3 2012 vs. Q3 2011
2 0 -2 -4 4 -6
• • • • •
-6%
Increase
Decrease
0%
+5%
+1%
Acquisitions/ divestments
Exchange rates
Total
+2% Volume
Price/Mix
Revenue up p1p percent,, mainly y driven by y favorable p price/mix and currency y impact p Continued weak demand across most of our markets negatively affected Q3 volumes As a consequence, EBITDA* down 1 percent at €147 million Active cost containment in all our businesses to mitigate the adverse economic conditions Additional restructuring efforts being initiated in Europe
* Before incidentals
Investor update Q3 2012 results
9
Performance Coatings Q3 2012 highlights € million Revenue
Q3 2012 1 467 1,467
Δ% 13
EBITDA*
202
29
Ratio % Ratio,
Q3 2012
Q3 2011
13.8
12.1
EBITDA* margin
Increase
Revenue development Q3 2012 vs. vs Q3 2011
15 10 5 0
0% Volume
• • • • •
+3%
+7%
+13%
Acquisitions/ divestments
Exchange rates
Total
+3% Price/Mix
Decrease
Revenue up p 13 p percent supported pp by y margin g management, g , acquisitions q and currency y effects Volumes were flat with continued variability between individual markets EBITDA* margin at 13.8 percent (2011: 12.1 percent) driven by margin management and operational efficiency Integration g of acquired q activities supporting pp g results Marine and Protective Coatings and Industrial Coatings continued their strong performance
* Before incidentals
Investor update Q3 2012 results
10
Specialty Chemicals Q3 2012 highlights € million Revenue
Q3 2012 1 393 1,393
Δ% 3
EBITDA*
227
(5)
R ti % Ratio,
Q3 2012
Q3 2011
16.3
17.6
Increase
Decrease
EBITDA* margin Revenue development Q3 2012 vs. vs Q3 2011
6 3 0
-2%
-1%
Volume
Price/Mix
+1%
+5%
+3%
-3 • • • • •
Acquisitions/ Exchange rates Total divestments Revenue increased byy 3 p percent,, due to margin g management g and favorable currency y effects Volumes slowed down during the quarter and customer ordering patterns remain cautious EBITDA* margin in Q3 was at 16.3 percent (2011: 17.6 percent) due to weaker markets in Functional Chemicals Integration g of the Boxing g Oleochemicals acquisition q on track Divestment Chemicals Pakistan expected to be completed towards the end of the year
* Before incidentals
Investor update Q3 2012 results
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Summary – Q3 2012 results Q3 2012 540 (172) (2,601) (66) (5) (56) (22) (2,382)
Q3 2011 507 (155) (51) (70) (9) (74) 1 149
480
409
Q3 2012
Q3 2011
EBITDA* margin (%)
12.6
12.5
Adjusted earnings per share (in €)
1.01
0.91
€ million EBITDA* EBITDA Amortization and depreciation Incidentals Net financing expenses Minorities and associates Income tax Discontinued operations Net income total operations Net cash from operating activities Ratio
* Before incidentals Investor update Q3 2012 results
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Q3 2012 incidentals impacted by impairment € million Impairment of intangibles Restructuring costs
Q3 2012 (2 478) (2,478)
Q3 2011
(101)
-
j legal, g Results related to major
((5))
(47) 2
anti-trust and environmental cases Results of acquisitions and divestments
(6)
(5)
(11)
(1)
(2,601)
(51)
Other incidental results Total •
Non-cash N h iimpairment i t charge h relates l t tto D Decorative ti P Paints i t intangible assets (€1.9 billion in Europe, €0.4 billion in North America and €0.2 billion in Latin America), reflecting deteriorating market conditions in these regions regions.
•
Higher restructuring costs across most businesses, related to implementation of performance improvement program in mature markets Investor update Q3 2012 results
13
Operating returns on invested capital reflect economic slowdown 30%
28.2%
24.4%
25%
19 6% 19.6%
20% 15% 10% 5%
11.0%
9.7%
Q4 09-Q3 10
Q4 10-Q3 11
8.3%
0% Q4 11-Q3 12
Moving average ROI % * Operating ROI is calculated as EBIT before amortization divided by average invested capital excluding intangible assets
Operating ROI %* Investor update Q3 2012 results
14
Cash flows Q3 2012 clearly improved on last year € million
Q3 2012
Q3 2011
(2,350)
166
2,672
157
256
41
Profit for the period from continuing operations Amortization, depreciation and impairments Change working capital - Pension provisions
(27)
(63)
- Restructuring
24
23
- Other provisions
(136)
13
Ch Change provisions i i
(139)
(27)
41
72
480
409
(198)
(158)
Changes from borrowings
70
-
Dividends
(8)
(10)
Discontinued operations
(4)
(7)
Other changes
(30)
5
Total cash flows
310
239
Other changes Net cash from operating activities Capital expenditures
Investor update Q3 2012 results
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Pension deficit increases to €0.9 billion Q3 2012
Q2 2012
Disco nt rate Discount
3 9% 3.9%
4 2% 4.2%
Inflation assumptions
2.1%
2.3%
Key pension metrics
Pension deficit development during Q3 2012 € billion
00 0,0 -0,2 -0,4
(589) 9
(879)
31
-0,6 -0,8
(9)
(519) 198
-1,0 -1,2 Deficit end Q2 2012
Top-ups
Increased plan assets
Discount rates
Inflation
Other
Increase
Deficit end Q3 2012
Decrease
Investor update Q3 2012 results
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Management update Keith Nichols
Investor update Q3 2012 results
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Senior management changes • Leif Darner has agreed to step down as Executive Committee member responsible for Performance Coatings at next year’s AGM in April. • He will be succeeded by y Conrad Keijzer, j , currentlyy Managing g g Director of Industrial Coatings • Werner Fuhrmann, currently ExCo member responsible for the Specialty Chemicals business area on an interim basis, will take over the Specialty Chemicals portfolio full-time.
Investor update Q3 2012 results
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Conclusion Keith Nichols
Investor update Q3 2012 results
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Conclusion
• Solid S lid thi third d quarter, t despite d it economic i slowdown l d • Implementation of our performance improvement program on track • Focus remains on return on capital and cash generation • The major uncertainty remains the global economic environment
Investor update Q3 2012 results
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Appendix
Investor update Q3 2012 results
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AkzoNobel key facts 2011 • Revenue €15.7 billion • 57,240 employees • EBITDA: €1.8 billion* • Net income: €0.5 billion • 40 percent of revenue from high growth markets • A leader in sustainability Revenue by business area
EBITDA* by business area
31%
33%
34%
Performance Coatings Decorative Paints
46%
Specialty p y Chemicals
33%
23%
* Before incidentals Investor update Q3 2012 results
22
Decorative Paints key facts 2011 • Revenue €5.3 billion • 22,340 employees • EBITDA: €440 million* • 40 percent of revenue from high growth markets • Largest global supplier of decorative paints • Many leading positions, strong brands Some of our strong brands
Revenue by geography
12%
3% M t Mature Europe E
40% 20%
Emerging Europe Asia Pacific North America L ti A Latin America i
18%
7%
Other regions
* Before incidentals Investor update Q3 2012 results
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Performance Coatings key facts 2011 • Revenue €5.2 billion • 21,960 employees • EBITDA: €611 million* • 47 percent of revenue from high growth markets • Leading positions in performance coatings industry • Innovative technologies, strong brands Revenue by business unit
15% 27%
Marine and Protective Coatings
8%
4%
Automotive and Aerospace Coatings Industrial Coatings
18%
Revenue by geography
Mature Europe
30%
Emerging Europe Asia Pacific
20%
North America Powder Coatings
20% 20%
10% Wood Finishes and Adhesives
28%
Latin America Other regions
* Before incidentals Investor update Q3 2012 results
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Specialty Chemicals key facts 2011 • Revenue €5.3 billion • 11,510 employees • EBITDA: €906 million* • 33 percent of revenue from high growth markets • Major producer of specialty chemicals • Leadership positions in many markets Revenue by business unit
Revenue by geography
Functional Chemicals
6% 17%
35%
9% 2% Mature Europe
Industrial Chemicals Pulp and Performance Chemicals
20%
43%
21%
Chemicals Pakistan
Asia Pacific North America
Surface Chemistry
21%
Emerging Europe
Latin America
22%
4%
Other Regions
* Before incidentals Investor update Q3 2012 results
25
The global paints and coatings market is around €76 billion % of 2011 market 100% is around €76 billion
Wood Finishes General Industrial Coatings 5% 8%
Vehicle Refinish 8% 42%
Decorative
Performance 58%
5%
8%
Marine and Yacht
Protective coatings
2%
Special purpose
10% 7%
2% 3%
A t OEM & Aerospace Auto A Powder Coatings
Coil Coatings
Packaging g g Coatings g Source: Company Reports Investor update Q3 2012 results
26
AkzoNobel is the world’s largest coatings supplier 2011 revenue in € billion 12 10 8 6 4 2 0
Investor update Q3 2012 results
27
Excellent geographic spread of both revenue and profits High growth markets are important (40% of revenue) % of 2011 revenue
20% North America
38% “Mature” Europe
7% “Emerging” Europe 3% Middle East and Africa
22% Asia Pacific
10% Latin America
High growth markets’ profitability is above average Investor update Q3 2012 results
28
Leading positions and strong brands 2011 Revenue by y market p position
Some of our strong g brands
Decorative Paints No. 2 or 3 32%
Performance Coatings
No. 1 position 59% Other 9%
Specialty Chemicals • • •
Our leading market positions provide us with scale benefits Strong brands ensure customer loyalty p with key y specifiers p and regulatory g y approvals pp lead Established relationships to significant barriers to entry Investor update Q3 2012 results
29
Our strategic ambition
Investor update Q3 2012 results
30
Our medium term strategic goals •
Top quartile safety performance f
•
Top 3 position in sustainability
•
Top quartile performance in di diversity, it employee l engagement, t and talent development
•
Top quartile eco-efficiency improvement rate
•
Grow to €20 billion revenues
•
Increase EBITDA each year, maintaining 13-15 13 15 percent margin
•
Reduce OWC/revenues by 0.5 p.a. towards a 12 percent level
•
Pay a stable to rising dividend
Investor update Q3 2012 results
31
High growth markets will become significantly more important % of revenue, indicative
32% “Mature” Europe
18% North America
9% “Emerging” Europe 5% Middle East and Africa
25% Asia Pacific
11% Latin America
g growth g % of revenue in this decade High markets will be around 50% Investor update Q3 2012 results
32
Exciting RD&I pipeline with innovative solutions for key market segments How innovation will support our growth agenda: g g
Revenue by key market segment
• Functional solutions in key market segments 12%
• Increase spend in big R&D • >15 percent of revenue from “breakthrough” innovations*
13% 43%
• >30 percent of revenue from eco-premium solutions** 32%
Our more centrally led RD&I efforts aim at delivering solutions for the future needs of our end markets
Residential construction Consumer g goods
Our scale leads to superior absolute spend versus our peers
Non-residential construction Transport
* Major innovations that result in a significant competitive advantage ** Higher eco-efficiency than competing comparable product Investor update Q3 2012 results
33
Clear sustainability focus Accelerated sustainability strategy will deliver: • Safety at 2.0 injuries per million hours • 30 percent of revenue from eco-premium solutions • Sustainable fresh water management • 30 percent eco-efficiency improvement • 10 percent carbon footprint reduction (20-25 percent by 2020) • 20 percent of executives will come from high growth economies • Key supplier partnerships will deliver footprint reduction
Embed safety and sustainability in everything we do
Investor update Q3 2012 results
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Innovation in Decorative Paints Dulux Guardian
A premium interior paint that’s good for your family and the environment
Key Features
Customer Benefits
• A premium, low-VOC and low-odor • Offers a ‘good for my family and the soft-sheen emulsion for interior environment’ well-being proposition at an walls affordable price • Contains Bacteria Shield, a best- • Best-in-class for washability and stain and in-class bactericide fungus resistance IMSL, UK and proven • Tested by IMSL effective against six harmful bacteria, including MRSA, E.coli and salmonella
Growth potential • Initial launch in India where the health and well-being category is expected to grow by 35-40% per annum • Significant potential for use in public buildings where hygiene matters (hospitals, care homes, hotels, restaurants, kitchens, schools)
Investor update Q3 2012 results
35
Innovation in Performance Coatings Wood Adhesives - Forward Integration
Intelligent software package allowing effective control and optimization of the gluing process
Key features
Customers benefits
• Patent pending technology allowing effective optimization of glue amount and pressing conditions during gluing process
• Increased productivity and reduced production costs per unit • Reduced glue consumption and waste • Active logging of production parameters for future use
• Accurate quality control by reacting to real-time fluctuations in the production process • Offers integral customer solution by combining world-class adhesives with effective p process control
Growth potential • Launched in Central Europe and Russian Federation in H1 2012; Other regions to follow in H2 2012 • It will strengthen and potentially grow our current leading position in the Structural Elements market • Use of Forward Integration tools to be expanded into Furniture and Flooring markets
Investor update Q3 2012 results
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Innovation in Specialty Chemicals Surface ChemistryChemistry Armovis® EHS
A biodegradable thickening agent for enhancing oil and gas recovery
K F Key Features t
C t Customer B Benefits fit
• A thermally stable viscosity modifying system for oil and gas recovery
• Improved oil and gas extraction under challenging field conditions
• Based on renewable feedstocks, readily biodegradable and very low aquatic toxicity
• Easy handling and good flow flow, even at low temperatures • Excellent environmental profile
Growth potential • Acidizing is an increasingly employed technique in oil and gas fields globally. • As fields deplete, higher performing thickening agents will be needed, particularly ti l l th those th thatt d do nott cause formation damage which limits extraction
Investor update Q3 2012 results
37
Variable costs represent 54.3% of revenue % of 2011 annual revenue* 100% Raw materials, energy, and other variable costs Fixed production costs Selling, advertising, administration, R&D costs EBIT margin
0% Decorative Paints
Performance Coatings
Specialty Chemicals
AkzoNobel
* Rounded percentages, all data excluding incidentals Investor update Q3 2012 results
38
Variable costs analysis 2011
Energy & other variable costs*
Packaging Solvents
Raw materials
7% 7%
Chemicals and intermediates***
28% 13%
8%
Additives
7%
2%
Other raw materials**
8%
Pigments
12%
Resins
8%
Coatings’ specialties i lti
Titanium dioxide
* Other variable costs include variable selling costs (e.g. freight) and products for resale ** Other raw materials include cardolite, hylar etc. *** Chemicals and intermediates include caustic soda, acetic acid, tallow, ethylene, ethylene oxide, sulfur, amines etc. Investor update Q3 2012 results
39
Capital expenditure prioritization for growth • Capex 2011 was €708 million (including Ningbo €45) • Guidance for the medium term: Capex level to be at least 4 percent of revenues Capex as a % of revenue
2011 Capex split 5 4
3% 16%
3 2
52% 29%
1 0 2008
2009
B Base capex
Ni b Ningbo
2010
2011
N ti National l St Starch h
Specialty Chemicals Decorative Paints Performance Coatings Other
Investor update Q3 2012 results
40
Year-on-year Operating Working Capital % of revenue to be reduced towards 12% OWC € million
20%
3000 15.6%
2500
14.2%
13.8%
14.2%
14 3% 14.3%
13 9% 13.9%
13.6%
18% 16% 14%
2000
12% 1500
2,155
2,279
2,341
2,079
2,502
2,537
2,391
10% 8%
1000
6% 4%
500
2% 0
0% Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
OWC
Q2 2012
Q3 2012
OWC as % of LQ revenue*4 Investor update Q3 2012 results
41
Debt duration 4.4 years and no refinancing needed in 2012 Debt maturities* € million (nominal amounts)
1.200 800 400 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 € bonds
$ bonds
£ bonds
Strong liquidity position to support growth • Undrawn revolving credit facility of €1.7 €1 7 billion (2017) and €0.1 €0 1 billion (2016) • €1.5 and $3 billion commercial paper programs, backed by the revolving credit facility • Net N t cash h and d cash h equivalents i l t €1.3 €1 3 billi billion** * At the end of Q3 2012 Investor update Q3 2012 results
42
Revenue growth leads EBITDA margin improvements Reported quarterly revenue growth in % year-on-year 20 13%
15 10 5 0
3%
1%
Decorative Paints
Performance Coatings
Specialty Chemicals
6%
AkzoNobel
Quarterly EBITDA* margin in % 20
10.1%
15
16.3%
13 8% 13.8%
12 6% 12.6%
10 5 0
Decorative Paints
* Before incidentals
Performance Coatings
Specialty Chemicals 2011
2012
AkzoNobel Target range
Investor update Q3 2012 results
43
Pension cash contributions unrelated to positive IAS 19 accounting change impact € million Top-up payments • •
Q3 2012
Q2 2012
Q1 2012
9
14
322
j y of the p pension top-up p pp payments y have been made The majority in Q1 2012 Latest estimate is for additional top-up payments of approximately pp y €10 million in Q Q4 2012 € million IAS 19 charges g in EBITDA
•
2012E
2011
36
33
IAS 19 charges in interest costs
64
59
Total non-cash IAS 19 charges
100
92
Due to changes in IAS 19 from 2013, the amortization charges in EBITDA will cease and the charges in interest costs are expected to be significantly lower than in 2012 Investor update Q3 2012 results
44
Unchanged ambition to maintain strong balance sheet € million Total equity Net debt*
Sep 30, 2012 Sep 30, 2011 7 590 7,590 9 589 9,589 2,597 1,595
• Credit ratings unchanged at BBB+/Baa1, BBB+/Baa1 outlook stable • Total equity mainly decreased by the net loss • Net debt increased y-o-y mainly due to pension top-ups and an additional dditi l pension i paymentt iin Q1 • In Q3 we issued a 10-year bond of €750 million at a coupon of 2.625 percent
* Before net pension deficit of €0.9 billion September 30, 2012 (September 30, 2011 €0.7 billion) Investor update Q3 2012 results
45
Q3 2012 EBITDA – Cash bridge € million
Q3 2012
Q3 2011
EBITDA before incidentals
540
507
Incidentals (cash)
(90)
(51)
Change working capital
256
41
(139)
(27)
Interest paid
(10)
(6)
Income tax paid
(77)
(55)
Net cash from operating activities
480
409
Change provisions
•
Higher cash inflows from operating working capital
•
Higher payments related to provisions. provisions Following the judgement in the Metacrylates case by the General Court in June 2012 we paid €113 million in Q3
Investor update Q3 2012 results
46
Safe Harbor Statement
This presentation Thi t ti contains t i statements t t t which hi h address dd such h kkey iissues 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 f t d and d actual t l results lt to t differ diff from f these th statements. t t t These Th factors f t 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 iti are b based d on managementt estimates ti t supported t db by iinformation f ti provided id d b 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.
Investor update Q3 2012 results
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