akzonobel q2 2010 investor presentation

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AkzoNobel Q1 2010 Investor Presentation

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  • 1.July 23, 2010Investor Update Q2 2010 results

2. Agenda AkzoNobel at a glance Strategic ambitions and action plans Q2 2010 highlights and operational review Financial review Sustainability review Outlook 3. AkzoNobel key facts2009 Revenue 13.0 billion 54,738 employees EBITDA: 1.7 billion* EBIT: 1.1 billion* Net income: 285 million Credit ratings: BBB+ (S&P) and Baa1 (Moodys)Revenue by business areaEBITDA* by business area33% 32%32% 41%Performance Coatings Decorative Paints 35%27%Specialty Chemicals * Before incidentals. All data after reclassification of National Starch Investor update Q2 2010 results3 4. The global paints and coatings market is around 70 billion 70% of market 100% is around 70 billionWood FinishesGeneral Industrial Coatings 6%10%Car Refinishes Decorative 7% Decorative44% Performance 3% Marine and Yacht 56%6%Protective coatings2% 9% Special purpose 8%3%2% Auto OEM, metal, plasticsCoil Coatings Packaging Coatings Powder Coatings Source: Company ReportsInvestor update Q2 2010 results 4 5. AkzoNobel is the worlds largest Coatings supplier 2009 revenue in billion10 8 6 4 2 0 Investor update Q2 2010 results 5 6. Excellent geographic spread of both revenue and profitsHigh-growth markets are important (37% of revenue) growth % of 2009 revenue39% 21%7%Mature Europe20% North America High-growth EuropeAsia Pacific9% Latin America 4% Rest-of-world High-growth markets profitability is above averagegrowth Investor update Q2 2010 results 6 7. Strong high-growth markets potential growthMatureHigh-growthPer CapitaPer CapitaArchitectural 8 liters< 2 liters PaintIndustrial and Special Purpose 13 liters < 6 liters Coatings Plastics~100 kg ~20 kg~170 kg ~25 kg Paper Source: Food & Agriculture Organization of the UN, 2005 data for paper and paperboard; Plastic Europe Market Research Group (PEMRG) 2005 plastics data; Euromonitor 2007 coatings data; WorldBank population dataInvestor update Q2 2010 results 7 8. We have strong brands across the full spectrum of our business Biggest brands, per business area % of 2009 revenue25% of Decorative Paints23% of Performance Coatings18% of Specialty ChemicalsInvestor update Q2 2010 results 8 9. Sustainability is integrated in everything we doWe have set ambitious sustainability targets: Remain in the top three in the Dow Jones Sustainability Indexes Reduce our total recordable injury rate* to 2 Deliver a step change in people development We focus on long-term performance. By 2015 our ambition is: term That Eco-premium** products will make up 30 percent of sales premium** To reduce our cradle-to- -gate carbon footprint by 10 percent To achieve sustainable fresh water use on all our sitesWe have linked remuneration to these targets and ambitions: Our executive bonuses are linked to performance in the leadingsustainability index (DJSI) * Total recordable injury rate refers to amount of incidents per million hours worked** Higher eco-efficiency than main competitive productefficiencyInvestor update Q2 2010 results 9 10. Strategic ambitions and action plans 11. AkzoNobel strategic ambitionsLeading in value creation Outgrow our markets EBITDA margin > 14 percent by end 2011 0.5 percent improvement in operatingTied to incentives, working capital (OWC) as % of revenue, p.a.both for value creation and Leading in sustainabilitysustainability Top 3 Dow Jones Sustainability indexes Reduction in total recordable injury rate* to 2 Step change in people development * Total recordable injury rate refers to amount of incidents per million hours worked Investor update Q2 2010 results 11 12. Delivering on our strategic ambitionsEBITDA margin target reached 14% EBITDA margin delivered, 1.5 year ahead of schedule Performance driven by margin management, ICI synergies and additional restructuring measures ICI fully integrated, synergies achieved 340 million structural cost savings will be achieved in 2010340 Footprint rationalized and combined, key people retained Portfolio optimized after divestment of National Starch Operating Working Capital structurally improves As % of revenue, OWC lowered to 15.0% (Q2 2009: 16.2%) Sustainability profile confirmed Ranked #2 in 2009 Dow Jones Sustainability Index Investor update Q2 2010 results 12 13. Q2 2010 highlights and operational review 14. Q2 2010 highlights Revenue 3.9 billion (2009: 3.5 billion), up 13 percent 3.9(5 percent in constant currencies) EBITDA* 614 million (2009: 506 million), up 21 percent614(13 percent in constant currencies) EBITDA* margin 15.7 percent (2009: 14.7 percent) One year rolling EBITDA* margin: 14 percent Net income 273 million (2009: 155 million), up 76 percent273 National Starch divestment agreed * Before incidentals Investor update Q2 2010 results 14 15. Revenue growth and margin development per quarter to Q2 2010 Reported revenue in % year-onon-year19%14%13% 8% EBITDA* margin in %20.4% 14.6% 15.2%15.7% * Before incidentals 2009 2010Investor update Q2 2010 results 15 16. Volume and price development per quarter to Q2 2010Volume development Q2 09 Q3 09 Q4 09Q1 10 Q2 10 Decorative Paints (10)(9) - 5 1 Performance Coatings(19)(11)(2) 812 Specialty Chemicals (18)(6) 415 15 AkzoNobel (16)(8) 1108 Price developmentQ2 09 Q3 09 Q4 09Q1 10 Q2 10 Decorative Paints4 4(1)(1) - Performance Coatings 5 5(3)(3) (3) Specialty Chemicals 5 (5)(9) (6)(2) AkzoNobel 5 (1)(5) (4)(2) Investor update Q2 2010 results 16 17. Q2 2010 revenue and EBITDA million Q2 2010% Revenue3,907 13 EBITDA*614 21 Ratio, %Q2 2010 Q2 2009 EBITDA* margin 15.714.7 +13%* Before incidentalsIncreaseDecreaseInvestor update Q2 2010 results 17 18. Summary Q2 2010 results million Q2 2010 Q2 2009 EBITDA* 614506 Amortization and depreciation (148)(140) Incidentals (11) (55) Financial income & expense(113)(85) Minorities and associates (19) (14) Income tax(76) (71) Discontinued operations 26 14 Net income total operations 273 155 Net cash from operating activities391 309Ratio Q2 2010 Q2 2009 EBITDA* margin (%) 15.714.7 Earnings per share (in ) )1.170.67 * Before incidentalsInvestor update Q2 2010 results 18 19. Q2 2010 incidentals millionQ2 2010Q2 2009 Restructuring costs(21) (71) Results related to major legal, 87 antitrust & environmental cases Results on acquisitions & divestments 13 Other incidental results16 Total (11) (55) Restructuring activities are ongoing, mainly in Decorative Paints inEurope and Powder CoatingsInvestor update Q2 2010 results 19 20. Decorative Paints Weve been working with The Home Depot in North America since 1979. We continued to invest in the Glidden brand resulting in a healthy sales increase and share expansion of the Glidden brand in the retail segment. The Glidden Gets You Going campaign won a top US marketing award in Q2 2010. Investor update Q2 2010 results 20 21. Decorative Paints key facts2009 Revenue 4.6 billion 21,940 employees EBITDA: 487 million* 36 percent of revenue from highhigh-growth markets Largest global supplier of decorative paints Many leading positions, strong brandsSome of our strong brandsRevenue by geography4% 10% EuropeAsia Pacific 21%50% North AmericaLatin America 15% Other regions * Before incidentalsInvestor update Q2 2010 results 21 22. Leading Deco positions in all regions with strong brandsAkzoNobel market positions by value 1 2/3>3 Export countries Source: Euromonitor basis; AkzoNobel analysis 2009Investor update Q2 2010 results 22 23. Combination of channel and application mix creates a relatively stable market % of total Decorative market 2009 Market breakdownMarket breakdownby channelby application ~70%~50% ~50% ~30%Retail Trade New build MaintenanceSource: Euromonitor basis; AkzoNobel analysis Investor update Q2 2010 results 23 24. Decorative Paints Q2 2010 millionQ2 2010% Revenue1,4018 EBITDA*20520 Ratio, % Q2 2010 Q2 2009 EBITDA* margin14.613.2 0% 0%* Before incidentals IncreaseDecrease Investor update Q2 2010 results 24 25. Decorative Paints Q2 2010 highlights Revenue up 8 percent, with volumes up 1 percent EBITDA* at 205 million, up 20 percent 205 EBITDA* margin 14.6 percent (2009: 13.2 percent) Strong revenue growth and increased investment in brands and distribution in high growth markets Soft demand in the mature markets, particularly in trade Mature markets: improved results due to restructuring * Before incidentalsInvestor update Q2 2010 results 25 26. Performance Coatings AkzoNobel Industrial Coatings signed an agreement to acquire Lindgens Metal Decorating Coatings & Inks a proof point of ourInks- selective growth acquisition strategy. It will enhance our market position and complements our own packaging coatings business with products and expertise. This deal adds market positions in Russia, Turkey, Northern Africa and Australia.Investor update Q2 2010 results 26 27. Performance Coatings key facts2009 Revenue 4.1 billion 19,940 employees EBITDA: 594 million* 45 percent of revenue from high growth markets Leading positions in performance coatings Innovative technologies, strong brandsRevenue by business unit Revenue by geography6%15%8%Marine andEuropeProtective Coatings30%Car Refinishes 41%Asia Pacific17%20%North AmericaIndustrial CoatingsLatin AmericaWood Finishes and 20%Adhesives 18% 25% Other regionsPowder Coatings* Before incidentals Investor update Q2 2010 results27 28. Many market leadership positions1 Marine andMarine, 2 Protective, ProtectiveYacht1 2 Car 3 Refinish, Automotive OEM plastic RefinishesAerospace commercial 5 coatingsCoil, 1 Specialty Industrial2 Plastics, CoatingsBeer & beverageFood cans1 Wood Wood Finishes coatings, 2 Wood and Adhesives adhesives1 2 Powder CoatingsPowder Investor update Q2 2010 results 28 29. Performance Coatings Q2 2010 million Q2 2010% Revenue 1,26019 EBITDA* 19115 Ratio, %Q2 2010 Q2 2009 EBITDA* margin 15.215.6+1% * Before incidentals IncreaseDecreaseInvestor update Q2 2010 results 29 30. Performance Coatings Q2 2010 highlights Revenue up 19 percent, with volumes up 12 percent EBITDA* at 191 million, up 15 percent 191 EBITDA* margin at 15.2 percent (2009: 15.6 percent) Broad demand improvement in all industrial businesses Powder Coatings started integration of acquired activities * Before incidentalsInvestor update Q2 2010 results 30 31. Specialty Chemicals More protection and convenient product application - an innovation within the Personal Care business of Surface Chemistry provides manufacturers of sunscreen products with polymer technology and customized formulation expertise, together with specialized sensory/consumer testing. Our products make continuous spray sunscreen product possible, delivering long lasting protection, higher SPF, all in a easy to apply package.Investor update Q2 2010 results 31 32. Specialty Chemicals key facts2009 Revenue 4.4 billion 11,140 employees EBITDA: 738 million* 32 percent of revenue from highhigh-growth markets Major producer of specialty chemicals Leadership positions in many markets Revenue by business unit Revenue by geography4%Functional Chemicals 9% 9%EuropeIndustrial Chemicals 16%33%20%48% North AmericaPulp and PaperChemicals Asia PacificSurface Chemistry 21% Latin AmericaChemicals Pakistan21% 19%Other regions * Before incidentals Investor update Q2 2010 results 32 33. Many market leadership positions Chelates, Ethylene1 1 sulfur products,amines, Functional 2 polysulfides, Saltmetal alkyls,3 Chemicals organic Specialties Elotex, peroxides,(N. Europe) Bermocoll 5 CMC11 Chlorine merchant, IndustrialMonochloro- Monochloro2 Caustic merchant, Chemicals acetic acid Salt (MCA) (all Europe)1 Pulp 3Retention and Paper Bleaching and sizing chemicals chemicals1 Surface3 Chemistry IndustrialHome & AgriculturalPersonal careChemicals Pakistan holds strong positions in various markets in PakistanInvestor update Q2 2010 results 33 34. Specialty Chemicals Q2 2010 millionQ2 2010% Revenue1,25814 EBITDA*25728 Ratio, % Q2 2010 Q2 2009 EBITDA* margin20.418.2 -2% -6% +7%+15%+14%* Before incidentals IncreaseDecrease Investor update Q2 2010 results 34 35. Specialty Chemicals Q2 2010 highlights Revenue increased 14 percent, with volumes up 15 percent Broad demand improvement and favorable currency effects (7 percent) drive top line EBITDA* at 257 million, up 28 percent 257 EBITDA* margin 20.4 percent (2009: 18.2 percent) All units contribute to strong results, particularly Functional Chemicals and Surface Chemistry Closing National Starch divestment expected this year * Before incidentalsInvestor update Q2 2010 results 35 36. Financial review 37. Cash management disciplineFocus on OWC reduction Capex prioritization cash Selective acquisitions Dividend policy unchanged Operating Working Capital reduced to 15.0% of revenue (Q2 2009: 16.2%) Careful prioritization of capital expenditures We continue to look for attractive acquisitions Dividend policy: at least 45 percent of net income before incidentals and fair value adjustments related to the ICI acquisitionInvestor update Q2 2010 results 37 38. Continued focus on Operating Working Capital is delivering results OWC million 19.1% 16.2%15.6% 14.6%15.0%13.7% 2,341 2,238 2,007 1,6912,037 2,346 OWC OWC as % of revenue Investor update Q2 2010 results 38 39. Capital expenditures remain disciplined Capex 2009 actual spend was 534 million, unchanged from 2008 Capex 2010 expected to approach 600 million (incl. Ningbo 100 million) OWC split at year-end 2009 end2009 Capex splitOtherPerf4%Deco12%30%SpecCh 38% Deco 21%Spec Ch 63% Perf 32% Data includes National Starch Investor update Q2 2010 results 39 40. Dividend policy Dividend policy remains at least 45 percent of net income beforeincidentals and fair value adjustments related to the ICI acquisition per share 257% 60%55% 1,848% 50% 1,6 45%40% 1,440% 1,2 130% 0,8 1.20 1.201.801.80 1.3520% 0,6 0,410% 0,2 00% 20052006 20072008 2009 Total dividendPay-out ratioInvestor update Q2 2010 results 40 41. EBITDA Cash bridge million Q2 2010 Q2 2009EBITDA before incidentals614506 Incidentals (cash)(4) (54) Change working capital 262 Change provisions (137) (25) Interest paid(45) (111) Income tax paid(39) (69) Net cash from operating activities 391309 Higher net cash driven by higher operating results Change in provisions mainly impacted by higher cashcash-out from provisions for pensions and restructuring Interest paid impacted by different interest payment terms during 2009 Investor update Q2 2010 results 41 42. Ambition to maintain strong balance sheet & credit rating unchanged millionJun 30, 2010 Dec 31, 2009 Total Equity9,4448,245 Net debt 2,339 1,744 million Q2 2010 Q2 2009 Net cash from operating activities391 309 Equity impacted by currency translation ( (1,035 million), net income ( 354 million) and dividend ( (244 million) Net debt increased mainly due to toptop-up payments (314 million) and increased working capital ((349 million) Pension deficit estimated at 1.8 billion (year-end 2009: 1.9 billion)Investor update Q2 2010 results 42 43. Pension deficit unchanged at 1.8 billionKey pension metricsQ2 2010 Q1 2010 Discount rate5.2%5.4% Inflation assumptions2.9%3.3% Pension deficit development during Q2 2010 billion0 -0.5(1,820)(1,793)-1.0 -1.5 532(402) (101) 23(25)-2.0DeficitTop-upsInflation Discount DecreasedOther Deficit end Q1 2010 rates plan assets end Q2 2010Data includes National StarchDecreaseIncrease Investor update Q2 2010 results 43 44. Pro-active pension risk management active 2004 pro forma (including ICI) pension under funding was around 4 billion Defined Benefits closed to new entrants, major plans closed in 2001 (ICI) and 2004 (Akzo Nobel) Committed to further dede-risk over time Total defined benefit pension plans cash contribution expected to reach 490 million in 2010 (2009: 414 million), which includes 490 an increase of 125 million in additional top 125 top-up payments (2010 355 million; 2009 240 million)240 Non-cash IAS19 financing expenses related to pensions andcash other post-retirement benefits expected to be 105 million inretirement 2010 (2009: 174 million)174Investor update Q2 2010 results 44 45. No 2010 refinancing needsDebt maturity, million (nominal amounts)1.200800400 02009 201020112012 201320142015 2016 bonds$ bondsGBP bondsSignificant liquidity headroom Undrawn revolving credit facility of 1.5 billion available (2013)* 1.5 & $1 billion commercial paper programs in place1.5 Net cash and cash equivalents 1.5 billion** At the end of Q2 2010 Investor update Q2 2010 results 45 46. Credit ratingsAkzoNobel is committed to maintaining a strong investment grade rating Standard & Poors: BBB+ (negative outlook) Rating affirmed on August 25, 2009, unchanged since FebruaryRating 25, 2009 AkzoNobel continues to benefit from its business positionAkzoNobel Moodys: Baa1 (negative outlook) Rating affirmed on March 16, 2009Rating Downgrade reflects changed growth assumptionsDowngrade The rating continues to reflect the company's global reach andThe leadership positions Please note that the Fitch rating is unsolicited Investor update Q2 2010 results 46 47. Low fixed costs as a percentage of revenue % of 2009 annual revenue* 100%Raw materials, energy, and other variable production costs Fixed production costs Selling, advertising, administration, R&D costsEBIT margin 0% DecorativePerformance SpecialtyAkzoNobel Paints Coatings Chemicals* Rounded percentages, all data excluding incidentalsInvestor update Q2 2010 results 47 48. Raw materials, energy and other variable costs represent around half of revenuePrimary packaging EnergySolvents 6% 13%Chemicals &6% intermediates10% Regional and/orlocal approach OtherAdditives 24% Variable 10%Global markets, Costs* global strategy3%Hybrid Pigments centralized/BU 11% 3% 6% approach 8%Other raw materials** ResinsTitanium Coatings DioxideSpecialties Around 2/3 of total spend is managed centrally to maximizescale advantages * Other variable costs include a/o variable selling costs costs (e.g. freight) and products for resale ** Other raw materials include cardolite, hylar etc.Investor update Q2 2010 results 48 49. Sustainability review 50. We see sustainability as a business opportunity Examples Level of developmentEnvironmentalEconomicSocial Invent Integrate Carbon andEco-premium sustainable valuewater policies propositions Manage Include Sales sustainability Market InvestmentManu-andSourcing R&D in all aspectsresearch decisionsfacturingmarketi of the value ng Required Supportive chaineco-analysisanalysis supplier visits Improve Continue to Code ofStretched comply andConductsafety targets ensure a license to operateAspect of sustainability (linked to DJSI)Investor update Q2 2010 results 50 51. Our Research Development & Innovation has a significant sustainability focus 4,000 people employed globally Over 60 percent of projects sustainability driven 2009: 2.4 percent of revenue spent (> 300 million) on RD&I Geographic spread of RD&I 57%21% 22%Europe Asia Pacific AmericasInvestor update Q2 2010 results 51 52. Sustainability focus paying offDulux Weathershield SunReflect Lowers the temperature of external walls by up to 5 C5 and reduces the need for air conditioning by reflecting up to 90 percent more infrared radiation that comparable exterior paints . Intergard 10220 Waterborne Peelable Coatings The right balance between elasticity and strength has resulted in a peelable coating that can be easily removed without the use of cleaning chemicals a more sustainable solution for the temporary coating of vehicles.mTA-SaltAn Industrial Salt with an eco eco-efficient anti-caking agentthat could save up to 5% of a chlorine production plantstotal energy consumption. Other features are less waste,increased production and enhanced product quality of ourcustomers.Investor update Q2 2010 results 52 53. Our sustainability commitment has been recognized externally2004 No ranking 2005 Top 10% 2006 2nd Place 2007 Super sector leader 2008 Joint 2nd place 2009 2nd placeInvestor update Q2 2010 results 53 54. Outlook 55. Well positioned for growthSound fundamentals Strong market positions and brands Diverse geographic spread in highly attractive sectors Low cyclicality due to resilient portfolio Sustainability is integrated in everything we do Strong track record Operational excellence Strong operating cash flow Strong balance sheet Ability to adapt quickly to changing marketsInvestor update Q2 2010 results 55 56. Outlook We are emerging from the global economic crisis in bettershape underlined by the early achievement of our 2011EBITDA margin target of 14 percent The developed markets remain challenging, but we arecautiously optimistic despite the economic uncertainty We remain focused on accelerating our growth agenda and ourpresence in key markets Our emphasis on customers, cost reduction and cashgeneration continues We will provide an update on our medium medium-term ambitionsduring our capital markets day on September 28 in London Investor update Q2 2010 results 56 57. Safe Harbor Statement This presentation contains statements which address such key issues as AkzoNobels 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 companys corporate website www.akzonobel.com.Investor update Q2 2010 results 57