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Leading market positions delivering leading performance Media Briefing by Ton Büchner and Keith Nichols February 20, 2013
Agenda 1.
Introduction
2.
Market environment
3.
Group strategic update
4.
Business Areas
5.
Financial implications
6.
Summary and conclusion Questions
Strategy Update 2013
2
2012 highlights • 2012 revenue up 5 percent driven by favorable currencies and pricing, offset by lower volumes • 2012 EBITDA* 4 percent higher at €1,901 million (2011: €1,834 million) • Performance improvement program 2012 target has been exceeded • Net loss from continuing operations €1,733 million (2011: €536 million income), due to the Q3 impairment charge of €2,106 million • Net cash from operating activities up 86 percent to €737 million • Adjusted EPS €3.26 (2011: €3.10) • Total dividend for 2012 proposed at €1.45 (2011: €1.45) • Decorative Paints North America reported in discontinued operations; Chemicals Pakistan divestment completed in 2012 • The economic environment remains challenging, especially in Europe
* Before incidentals
Strategy Update 2013
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Our proposition: 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 in high growth markets (44% of revenue) • Leadership positions in many markets • Clear leader in sustainability • Track record of delivering sustainable innovations and products • Strong brands, both in consumer and industrial markets Clear focus to deliver on our significant potential • Improved returns and cash flow • Leveraging scale • Simplification and standardization • Continued innovation
Strategy Update 2013
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AkzoNobel strategy
Strategy Update 2013
5
New and realistic 2015 financial targets focused on quality of earnings and value creation Return on sales (Operating income/revenue) %
Return on investment (Operating income/average 12 months invested capital) %
Net debt/EBITDA x
12
16
3
8
9,0 5,9 *
12
14,0 8,9 *
2
8
4
0 2012
2015
2,0
1.4
1
4
0
<
0 2012
2015
2012
2015
Assumes sales growth (CAGR) for the period of 4%
*2012 excluding impairment (€2.1 billion) and after IAS19
Strategy Update 2013
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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 Business Area
Operating income* by Business Area
EBITDA** by Business Area Performance Coatings
36%
37%
38%
44%
27%
5.4% Growth 2012 vs. 2011
48%
8%
5.9% Return on sales (operating income/revenue)
*2012 excluding impairment (€2.1 billion) **New definition including incidentals and after IAS19
Decorative Paints
47%
15%
Specialty Chemicals
10.4% EBITDA/revenue
Strategy Update 2013
7
2013 market conditions not expected to improve significantly 2012 showed challenging market conditions in most end-user segments and geographical end markets Key developments in 2012: • Divestment of Decorative Paints North America announced • Impairment of €2.1 billion on continued operations • Exceeded Performance Improvement Program intermediate targets
2013 market conditions are not expected to improve significantly • Focus will be on: – Organic growth – Operating income – Return on capital – Operating cash flow • Management remuneration has been adapted accordingly • Continue building on our end-user segments and strong high growth market positions • Key management changes
Strategy Update 2013
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2. Market environment 1. Introduction 2. Market environment 3. Group strategic update 4. Business Areas 5. Financial implications 6. Summary and conclusion
Strategy Update 2013
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~43% of revenues
~16% of revenues
New Build Projects
Automotive OEM, Parts and Assembly
Maintenance, Renovation and Repair Building Products and Components
~16% of revenues Consumer Durables Consumer Packaged Goods
Automotive Repair Marine and Air Transport
~25% of revenues Natural Resource and Energy Industries Process Industries
Strategy Update 2013 10
High growth markets are 44% of revenue and their importance will increase % of 2012 revenue, excluding Decorative Paints North America 38% Mature Europe
Three year GDP growth* 9%
6%
3%
8% Emerging Europe
15% North America
0% UK
Eurozone
USA
2013
2% Middle East and Africa
Latin America 2014
China
Developing Asia
2015
26% Asia Pacific
11% Latin America
Our goal: Greater than 50% of revenues from high growth markets
*Source: EIU: GDP year on year growth in local currency at constant prices
Strategy Update 2013 11
AkzoNobel benefits from its broad end-user segmentation and geographical presence •
AkzoNobel’s four end-user segments show a mixed picture for future development – Buildings and Infrastructure faces challenges, especially in Europe – Marine transportation shows reduced activity levels – Consumer Goods, Industrial, automotive and air transport are reasonably robust
•
High growth markets show stronger demand developments in virtually all segments
•
North America shows earlier signs of recovery compared to Europe
•
Consumer confidence varies strongly per region and has a clear influence on significant end user buying decisions (housing, cars, furniture, etc.)
•
The optimism levels reflected in the Purchasing Managers’ Index (PMI) will have a positive impact on our Industrial segments
Strategy Update 2013 12
3. Group strategic update 1. Introduction 2. Market environment 3. Group strategic update 4. Business Areas 5. Financial implications 6. Summary and conclusion
Strategy Update 2013 13
The vision and new targets Vision: Leading market positions delivering leading performance To be a leader in: • Operating efficiency and customer service • Innovation • Sustainability
New targets • • • •
Return on sales (ROS, operating income/revenue) Return on investment (ROI, operating income/average 12 months invested capital) Carbon emissions across the value chain Eco-premium products
Strategy Update 2013 14
AkzoNobel strategy
Strategy Update 2013 15
We will drive five strategic focus areas 1. Care for the customer
1. Care for the customer
2. Reduction of product and process complexity 3. Focus on cash and return on investment
3. Cash and return on investment
4. Embedded safety and sustainability
4. Embedded safety and sustainability
5. Diverse and inclusive talent development
5. Diverse and inclusive talent development Strategy Update 2013 16
The company core processes will support our strategic focus areas Core processes
Behavior-based and process safety
Process owner
Integrated Supply Chain (HSE)
Operational control cycle
CEO/CFO
Continuous improvement
Integrated Supply Chain (Operations)
Innovation
Procurement
Talent management
RDI Integrated Supply Chain (Procurement) HR
Strategy Update 2013 17
Actions
> Deliver dependably > Grow organically > Innovate > Simplify > Standardize > Continuously improve
Strategy Update 2013 18
Strategy on a page
Strategic focus areas
Processes
Actions
End-user segmentation
• Care for the customer • Reduction of product and process complexity • Cash and return on investment • Embedded safety and sustainability • Diverse and inclusive talent development
• Behavior-based and process safety • Operational control cycle • Continuous improvement • Innovation • Procurement • Talent management
• • • • • •
• Buildings and Infrastructure • Transportation • Consumer Goods • Industrial
Deliver dependably Grow organically Innovate Simplify Standardize Continuously improve
Strategy Update 2013 19
Our sustainability strategy: Creating more value with fewer resources More customer value in our end-user segmentation
Resource scarcity across the value chain will create opportunities Scope 3 upstream
Scope 1 and 2
Raw materials
Own operations, including energy use
Scope 3 downstream
Customer operations
End-user
End of life
Scope 4 Energy/ resource benefits in use
Strategy Update 2013 20
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% reduction per ton by 2020 (2012 base) We will reduce our carbon emissions through the value chain
•
Resource efficiency As of 2014 AkzoNobel will report on an innovative new index measuring how we improve resource efficiency across the full value chain - compared to the value we generate
Strategy Update 2013 21
End-user segment trends, combined with sustainability, direct our innovation spend
End-user segments
Sustainability Sustainability = Business Business = Sustainability
Direction of innovation spend (2.5% of 2012 revenue)
Strategy Update 2013 22
AkzoNobel delivers innovation Buildings and Infrastructure Dulux Guardian
Transportation Aerobase Coating System
A premium, low-VOC and low-odor soft-sheen emulsion for interior walls
A consistently performing OEM-approved low VOC base coat/clear coat system for aerospace
Consumer goods Biostyle™ CGP
Industrial Monochloroacetic acid (MCA)
A range of sustainable hybrid polymers for consumer applications
An asset-light approach to sustainable chemical production using proprietary hydrogenation technology
Strategy update 2013 23
Performance Improvement Program to deliver €500 million in 2013, one year earlier than planned Performance Improvement Program
Operational Excellence
Functional Excellence
Business Unit Adaptations
Key summary to date
2013 Plan
• Gains of €250 million, excluding Decorative Paints North America • Costs of €292 million, excluding Decorative Paints North America • Pulled actions and associated costs forward • Added measures (including European Decorative Paints) with additional cost in 2012
• Accelerate delivery of recurring €500 million EBITDA gain in 2013, which was originally intended in 2014 • Associated cost is estimated at €205 million • Guidance of €500 million remains even though North America Decorative Paints will be divested • Added measures included
Strategy Update 2013 24
Moving from project based to continuous improvement will be core in 2013 Operational Excellence
• • •
Product and margin management Consolidation of RD&I Logistic and warehouse optimization
Functional Excellence
• • •
IT infrastructure simplification HR shared service model Finance shared service centers
•
Organizational redesign of Marine and Protective Coatings, Wood Finishes and Adhesives, and Pulp and Performance Chemicals Additional restructuring of Decorative Paints Europe
Business Unit Adaptations
Embedding
• •
During 2013, we will embed continuous improvement in our businesses
Strategy Update 2013 25
AkzoNobel strategy
Strategy Update 2013 26
4. Business Areas 1. Introduction 2. Market environment 3. Group strategic update 4. Business Areas 5. Financial implications 6. Summary and conclusion
Strategy Update 2013 27
The global paints and coatings market is around €75 billion By market sector 2011, 100% = €75 billion
Aerospace Yacht Packaging Coil Marine Wood
By end-user segment 2011, 100% = €75 billion
Industrial
Decorative Paints (43%)
Consumer Goods
Buildings and Infrastructure
Vehicle Refinish Powder
Transportation
Protective
Performance Coatings (57%)
General Industrial
Source: Orr & Boss; management analysis
Automotive OEM
Strategy Update 2013 28
AkzoNobel has many leading market positions No.1 Position
Decorative
Multiple regions outside North America North America*
Other key players PPG, regional players
Sherwin-Williams
PPG, regional players
Protective
Sherwin-Williams, Jotun
Powder
Axalta, Jotun, regional players
Auto refinish
Axalta
PPG, AkzoNobel
Wood
Sherwin-Williams, Valspar
Marine
Jotun, Chugoku
Coil
PPG, Beckers
* AkzoNobel not present with North America divestment to PPG
Strategy Update 2013 29
Decorative Paints overview Revenue by end-user sub-segment
Revenue by geographic region
New build projects
Mature Europe
8%4%
Maintenance, renovation and repair
16%
Asia Pacif ic
14%
Latin America
49% 84%
25%
Emerging Europe Other regions
Decorative Paints key figures (new definition)
€ million
2012*
BA-level core processes and capabilities
Revenue
4,297
• • • • •
EBITDA Operating income
284 94
Return on sales
2.2%
Return on investment
3.0%
# Employees
Branding Distributor, wholesaler, retail management Understanding and serving professional painters Consumer inspiration Quality management, including product portfolio management
17,020
*After the divestment of Decorative Paints North America, excluding impairment (€2.1 billion)
Strategy Update 2013 30
Performance Coatings overview Revenue by end-user segment
Revenue by geographic region Mature Europe
8% 4%
Transportation
14%
36% 23%
Consumer Goods
11%
27%
Asia Pacific
Buildings and Infrastructure Industrial
North America
30%
20%
27%
Emerging Europe Latin America Other regions
Performance Coatings key figures (new definition) € million
2012
BA-level core processes and capabilities
Revenue
5,702
• • • • •
EBITDA
673
Operating income
542
Return on sales
9.5%
Return on investment
21.7%
# Employees
21,310
Industrial key account management Technical support and service Design, color and color matching Continuous innovation in functionality and ease-of-use Sustainable, safe solutions
Strategy Update 2013 31
Specialty Chemicals overview Revenue by end-user segment
18% 6% 58%
18%
Buildings and Infrastructure Transportation Consumer Goods Industrial
Revenue by geographic spread
3% 4% 10%
Mature Europe
North America 40%
Asia Pacific Latin America
22%
Emerging Europe Other regions
21%
Specialty Chemicals key figures (new definition) € million
2012
BA-level core processes and capabilities
Revenue
5,543
• • • • • •
EBITDA
830
Operating income
500
Return on sales
9.0%
Return on investment
13.6%
# Employees
10,750
Management of integrated value chains Continuous technological advancement Engineering and project management Process safety Product and margin management Managing capital intensive businesses and expansions
Strategy Update 2013 32
5. Financial implications 1. Introduction 2. Market environment 3. Group strategic update 4. Business Areas 5. Financial implications 6. Summary and conclusion
Strategy Update 2013 33
Historical EBITDA profitability shows stable results in challenging economic times EBITDA as reported*
EBITDA margin
€ billion 2.0
% 14
12 1.5
10 8
1.0 1.8
2.0 1.7
1.8
1.9
6 4
0.5
2 0.0
0 2008
2009
2010
EBITDA margin *All years excluding National Starch
2011
2012
EBITDA Strategy Update 2013 34
Targets for 2015 are focused on increased cash generation and value creation New targets
Old targets
Change driver
Increase return on sales (ROS, operating income/ revenue) to 9%
Grow to €20 billion revenues
• Increased focus on delivery of operating profit after incidentals
Achieve return on investment (ROI) to 14%
Increase EBITDA each year, maintaining 13-15% margin
• Ultimate driver of value creation • Deliver returns above the cost of capital
Net debt/EBITDA <2.0 times
Reduce OWC/revenues by 0.5 p.a. towards a 12% level
• Fuller measure of cash generation; not just one component
Deadline: end 2015
Deadline: medium term
• Shorter term • Defined point in time • Increased focus on delivery and accountability
Strategy Update 2013 35
Incidentals are now included in EBITDA* as part of our ongoing business € million
Incidentals as reported
2010
2011
• Incidentals are now included in EBITDA unless genuinely one-off and not related to normal business (2,520) 2012
(139)
(126)
(32)
3
0
0
(2,170) • Restructuring charges are now considered an ongoing business activity and are not reported as incidentals 6
(107)
(129)
• Performance improvement program restructuring charges are also now included in (344) EBITDA
13
12
40
2,009
1,834
1,901
14.8%
12.6%
12.4%
Restated EBITDA
1,915
1,717
1,597
Restated EBITDA %
14.1%
11.8%
10.4%
Total restated incidentals Restated IAS19 incidentals with no impact on EBITDA
Total incidental EBITDA adjustment: IAS19 EBITDA adjustment EBITDA as reported
EBITDA %
*Restated for IAS19 adjustments which impact the other line
Strategy Update 2013 36
New focus to improve performance and drive value creation € million
Revenue EBITDA Depreciation, amortization Restated incidentals Operating income EBITDA margin Return on sales Invested capital** Return on investment
2010
2011
2012*
2015 Target
13,605 14,604 15,390 1,915
1,717
1,597
(590)
(563)
(625)
(32)
3
(64)
1,293
1,157
908
14.1%
11.8%
10.4%
9.5%
7.9%
5.9%
• Benefits of new targets – Clear focus on value creation – Linked to remuneration of senior management
9.0%
11,467 11,537 10,238 11.3%
10.0%
8.9%
14.0%
*2012 excluding impairment (€2.1 billion) ** Average 12 month invested capital excluding full year impairment
Strategy Update 2013 37
6. Summary and conclusion 1. Introduction 2. Market environment 3. Group strategic update 4. Business Areas 5. Financial implications 6. Summary and conclusion
Strategy Update 2013 38
New and realistic 2015 financial targets focused on quality of earnings and value creation Return on sales (Operating income/revenue) %
Return on investment (Operating income/average 12 months invested capital) %
Net debt/EBITDA x
12
16
3
8
9,0 5,9 *
12
14,0 8,9 *
2
8
4
0 2012
2015
2,0
1.4
1
4
0
<
0 2012
2015
2012
2015
Assumes sales growth (CAGR) for the period of 4%
*2012 excluding impairment (€2.1 billion)
Strategy Update 2013 39
Summary • Clear end-user segment focus providing forward looking indicators and direction for our market initiatives and innovation spend • Challenging market conditions expected in the near future • Operational strategy on the basis of: – Well defined strategic focus areas – Core processes – Clear set of actions aimed at continuous efficiency improvements • Clear sustainability strategy and sustainability targets • Guidance and targets defined • A number of new management team members • Focus on operating income, return on investment and cash generation: remuneration aligned
Strategy Update 2013 40
Leading market positions delivering leading performance Today, the company has • Excellent portfolio of businesses • Good long term growth potential on the basis of end-user segment growth • Strong positions in high growth markets (44% of revenue) • Leadership positions in many markets • Clear leader in sustainability • Track record of delivering sustainable innovations and products • Strong brands, both in consumer and industrial markets Clear focus to deliver on our significant potential • Improved returns and cash flow • Leveraging scale • Simplification and standardization • Continued innovation
Strategy Update 2013 41
Thank you for your attention
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.
Strategy Update 2013 43