akzonobel q2 2012 investor presentation

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Investor update Q2 2012 results July 19, 2012

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  • 1.July 19, 2012Investor update Q2 2012 results

2. Agenda Highlights Operational and financial review Performance improvement program Conclusion Investor update Q2 2012 results 2 3. HighlightsTon BchnerInvestor update Q2 2012 results 3 4. Our strong businessesDecorative Paints H1 2012 Revenue 2.8 billion H1 2012 EBITDA: 251 million*Performance Coatings H1 2012 revenue 2.8 billion H1 2012 EBITDA: 377 million*Specialty Chemicals H1 2012 revenue 2.8 billion H1 2012 EBITDA: 490 million* * Before incidentalsInvestor update Q2 2012 results 4 5. Solid performance in Q2 Revenue up 8 percent, mainly driven by pricing actions andcurrencies Volumes declined 2 percent, primarily due to the economicslowdown in Europe EBITDA* margin 13.5 percent (2011: 13.4 percent) Net income from continuing operations 197 million (2011: 251million), primarily due to higher incidental charges Adjusted EPS 1.12 (2011: 1.09) Performance improvement program on track The economic environment remains our principal sensitivity in 2012* Before incidentalsInvestor update Q2 2012 results 5 6. In Q2 2012 both revenue and EBITDAincreased by 8 percent million Q2 2012 % Revenue4,4068 EBITDA*5938 Ratio, %Q2 2012 Q2 2011 EBITDA* margin 13.513.4 Revenue development Q2 2012 vs. Q2 2011 10 6+2% +4%+8% 2 -2%+4%-2Volume Price/Mix Acquisitions/ Exchange Total divestments rates* Before incidentalsIncreaseDecrease Investor update Q2 2012 results 6 7. Revenue growth leads EBITDA marginimprovementsReported quarterly revenue growth in % year-on-year 20 1512% 10 8% 6% 6% 5 0 Decorative Paints Performance SpecialtyAkzoNobelCoatings ChemicalsQuarterly EBITDA* margin in %2017.8% 11.3% 14.5%13.5%151050 Decorative Paints Performance Specialty AkzoNobelCoatings Chemicals* Before incidentals 20112012 Target rangeInvestor update Q2 2012 results 7 8. Price increases coming through, volumesremain softQuarterly volume development in % year-on-year10 5 -2%-2% -2% -2% 0-5 Decorative Paints Performance SpecialtyAkzoNobelCoatings ChemicalsQuarterly price/mix development in % year-on-year10 6% 5% 4% 52% 0 Decorative Paints Performance Specialty AkzoNobelCoatings Chemicals20112012Investor update Q2 2012 results 8 9. Performance improvement program is ontrack to support EBITDAEBITDA* bridge H1 2011 H1 2012 million1.4001.200328(88)65 (201) 341.000 (110) 800 600 988 1,016 400 2000 H1 2011Currency Price/MixVolumeRaw PIPOther**H1 2012 materials* Before incidentals** Other includes wage inflation, acquisition impact and higher insurance claims IncreaseDecrease Investor update Q2 2012 results 9 10. Operational and financial reviewKeith NicholsInvestor update Q2 2012 results 10 11. Decorative Paints Q2 2012 highlights million Q2 2012 %Revenue 1,5516EBITDA* 175(8)Ratio, %Q2 2012 Q2 2011EBITDA* margin 11.313.1Revenue development Q2 2012 vs. Q2 2011 IncreaseDecrease64 0% +3%2 +6%+5%0 -2% -2 Volume Price/Mix Acquisitions/Exchange rates Totaldivestments Revenue up 6 percent on 2011, driven by favorable price/mix Weaker demand in mature and South East Asian markets negatively impacted volumes EBITDA* down 8 percent, mainly driven by weaker performance in Europe, reflectingchallenging market circumstances Improved results in North America due to a combination of strong margin management andrestructuring Restructuring continues in mature markets, particularly in Europe* Before incidentalsInvestor update Q2 2012 results 11 12. Performance Coatings Q2 2012 highlights millionQ2 2012 %Revenue1,47212EBITDA*213 25Ratio, % Q2 2012 Q2 2011EBITDA* margin14.513.0Revenue development Q2 2012 vs. Q2 2011 Increase Decrease12 +3%+5% 8 +12% 4 -2% 0 +6%-4 Volume Price/MixAcquisitions/Exchange rates Total divestmentsRevenue up 12 percent, supported by margin management, acquisitions and currency effectsUnderlying volume declined by 2 percent, with significant variability between individual marketsEBITDA* margin at 14.5 percent (2011: 13.0 percent) driven by margin management and operational efficiencyIntegration of acquired activities supporting resultsProtective Coatings and Industrial Coatings were the strongest growth contributors* Before incidentals Investor update Q2 2012 results 12 13. Specialty Chemicals Q2 2012 highlights million Q2 2012 %Revenue 1,4316EBITDA*25516Ratio, %Q2 2012 Q2 2011EBITDA* margin 17.816.3 Revenue development Q2 2012 vs. Q2 2011IncreaseDecrease64+2% +4% +6%2-2% +2%0 -2 VolumePrice/MixAcquisitions/ Exchange rates Totaldivestments Revenue increased 6 percent, due to margin management, the Boxing Oleochemicalsacquisition and currency effects Volumes in most businesses slowed down during the quarter and customer ordering patternsbecame more cautious EBITDA margin improved to 17.8 percent (2011: 16.3 percent), based on improved marginsand continued cost restructuring* Before incidentalsInvestor update Q2 2012 results 13 14. Summary Q2 2012 results millionQ2 2012 Q2 2011 EBITDA* 593551 Amortization and depreciation (170)(150) Incidentals(49)27 Net financing expenses (82)(64) Minorities and associates(16)(14) Income tax (80)(99) Discontinued operations 417 Net income total operations 201268 Net cash from operating activities 401 165 RatioQ2 2012 Q2 2011 EBITDA* margin (%)13.5 13.4 Adjusted earnings per share (in )1.12 1.09* Before incidentalsInvestor update Q2 2012 results 14 15. Strong operating returns on investedcapital30%27.5%26.2%25%20.2%20%15%10%5% 10.8% 10.4%8.3%0%Q3 09-Q2 10Q3 10-Q2 11 Q3 11-Q2 12 Moving average ROI %* Operating ROI is calculated as EBIT before amortization divided byaverage invested capital excluding intangible assets Operating ROI %* Investor update Q2 2012 results 15 16. Cash flows Q2 2012 millionQ2 2012 Q2 2011Profit for the period from continuing operations218 273Amortization, depreciation and impairments186 153Change working capital(38)(204)- Pension provisions (21) 22- Restructuring(4)(34)- Other provisions (5)(58)Change provisions (30)(70)Other operating cash flows65 13Net cash from operating activities401 165Capex (173) (164)Changes from borrowings 22(538)Dividends (178) (271)Discontinued operations -11Other changes3 6Total cash flows62(775) Investor update Q2 2012 results16 17. Pension deficit increases to 0.6 billion Key pension metricsQ2 2012 Q1 2012 Discount rate4.2% 4.5% Inflation assumptions2.3% 2.7%Pension deficit development during Q2 2012 billion0,0 -0,2 (347)1418(589) -0,4 13 -0,6 (750) -0,8 463 -1,0 -1,2Deficit end Top-upsIncreasedDiscount Inflation Other Deficit end Q1 2012plan assets rates Q2 2012 Increase DecreaseInvestor update Q2 2012 results17 18. Pension cash contributions unrelated topositive IAS 19 accounting change impact million Q2 2012Q1 2012Top-up payments 14 322The majority of the pension top-up payments have been made in Q1 2012Latest estimate is for additional top-up payment of approximately 30 million in H2 2012 million 2012E2011IAS 19 charges in EBITDA3559IAS 19 charges in interest costs6433Total non-cash IAS 19 charges 9992 Due to changes in IAS 19 from 2013, the majority of the abovecharges will no longer be charged in the P&L Investor update Q2 2012 results 18 19. Performance improvement programTon Bchner Investor update Q2 2012 results 19 20. In October 2011 we committed to a500 million performance improvement program Complexity Reduction RD&I focus Operational Manufacturing excellenceProfessionalization Procurement effectiveness Margin Management FinanceFunctional Human ResourcesStandardization Information Management AN AcademyBusiness Unit Various BUs AdaptationsInvestor update Q2 2012 results 20 21. Examples of projects that are now running Site optimizations at ~50 manufacturing sites(30 million in 2012) RD&I: technology which enables using less Operationaltitanium dioxideProfessionalization Product and margin management in PowderCoatings and Functional Chemicals(~15 million) Reducing the number of ERP-systems in use,to less then 10 in medium-termFunctional Standardize purchase-2-pay processStandardization (~15 million) Academy: hardwiring our learnings Decorative Paints North America restructuring(~300 FTE)Business Unit Decorative Paints Europe organizational Adaptationsredesign (~500 FTEs) Performance Coatings & Specialty ChemicalsBUs all have significant restructuring projects Investor update Q2 2012 results 21 22. Significant FTE reductions as a result ofthe performance improvement programFTE bridge Q4 2011 Q2 201258.00057.80057.600 57057.400 (870) 64057.20057.000 57,58057,24056.80056.60056.40056.20056.000 year-end 2011 Acq/DivPIPSeasonal/New Q2 2012 hiresIncreaseDecreaseInvestor update Q2 2012 results 22 23. Performance improvement programdelivers 65 million benefits in H1 2012H1 2012H1 2012 ReportedAmount million EBITDA due to PIP 2012 targetDecorative Paints251 37Performance Coatings 377 13Specialty Chemicals490 15Other(102) -Total 1,01665 200 millionQ1 2012 Q2 2012 H1 20122012 targetPIP costs 464490200Investor update Q2 2012 results 23 24. Performance improvement program ontrack Benefits: 65 million EBITDA improvement YTD Total costs: 90 million YTD, included in incidentals Program on track to deliver 200 million EBITDA benefits in2012 Business unit adaptations and operational professionalization are expected to contribute around 90% of the expected 2012 EBITDA improvement 3-year program 2012-2014 To deliver 500 million EBITDA in 2014 At a total cost of 425 million Investor update Q2 2012 results 24 25. Conclusion Investor update Q2 2012 results 25 26. Conclusion A solid second quarter Implementation of our performance improvement program on track The major uncertainty remains the global economic environment We have a strong portfolio of complementary businesses, with many leading market positions and exposure to growth markets Focus on customer satisfaction, return on capital, cash generation and organic growth We will be providing an update on strategy on October 18 & 22nd. Investor update Q2 2012 results 26 27. Appendix Investor update Q2 2012 results 27 28. AkzoNobel key facts2011 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 sustainabilityRevenue by business area EBITDA* by business area34%33% 31% Performance Coatings 46% Decorative Paints Specialty Chemicals23% 33%* Before incidentals Investor update Q2 2012 results 28 29. Decorative Paints key facts2011 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 brandsSome of our strong brandsRevenue by geography 3% 12% Mature Europe Emerging Europe 40% Asia Pacific 20% North America Latin America Other regions18% 7%* Before incidentalsInvestor update Q2 2012 results 29 30. Performance Coatings key facts2011 Revenue 5.2 billion 21,960 employees EBITDA: 611 million* 47 percent of revenue from high growth markets Leading positions in performance coatingsindustry Innovative technologies, strong brandsRevenue by business unit Revenue by geography Marine and Protective 15% Coatings4%8% Mature Europe 27% Automotive and 30%Emerging Europe Aerospace Coatings Industrial Coatings20%Asia Pacific18% North America Powder Coatings Latin America 20%10%20%Wood Finishes and Other regions Adhesives 28%* Before incidentalsInvestor update Q2 2012 results 30 31. Specialty Chemicals key facts2011 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 marketsRevenue by business unitRevenue by geography Functional Chemicals 6%9% 2% Mature Europe 17% Industrial Chemicals 35% Emerging Europe20% 43% Pulp and PerformanceAsia Pacific Chemicals North America21%Surface Chemistry Latin America Other Regions 21% Chemicals Pakistan 22%4%* Before incidentalsInvestor update Q2 2012 results 31 32. The global paints and coatings market isaround 76 billion% of 2011 market100% is around 76 billionWood Finishes General Industrial Coatings5% 8% Vehicle Refinish8%42%Decorative Marine and YachtPerformance5%58% 8% Protective coatings2%10% Special purpose 7% 2% 3%Auto OEM & AerospacePowder Coatings Coil CoatingsPackaging CoatingsSource: Company ReportsInvestor update Q2 2012 results 32 33. AkzoNobel is the worlds largestcoatings supplier2011 revenue in billion1210 8 6 4 2 0Investor update Q2 2012 results 33 34. Excellent geographic spread ofboth revenue and profits High growth markets are important (40% of revenue)% of 2011 revenue38%Mature Europe 7%20% Emerging Europe North America3% 22%Middle EastAsia Pacific and Africa 10%Latin AmericaHigh growth markets profitability is above averageInvestor update Q2 2012 results 34 35. Leading positions and strong brands2011 Revenue by market positionSome of our strong brands Decorative PaintsNo. 2or 332% No. 1 Performance Coatingsposition59% Other9% Specialty Chemicals Our leading market positions provide us with scale benefits Strong brands ensure customer loyalty Established relationships with key specifiers and regulatory approvals leadto significant barriers to entryInvestor update Q2 2012 results 35 36. Our strategic ambition Investor update Q2 2012 results 36 37. Our medium term strategic goals Top quartile safetyperformance Top 3 position in sustainability Top quartile performance indiversity, employee engagement,and talent development Top quartile eco-efficiencyimprovement rate Grow to 20 billion revenues Increase EBITDA each year, maintaining 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 Q2 2012 results 37 38. How we will expand in both mature andhigh growth marketsOrganic growth Expand focus from high to mid-market segments Fueling growth in high growth marketsInnovation pipeline Spend of around 2.5 percent of revenue makes us the clear leaderof our peers in absolute spend Emphasis on bolder, focused, sustainable innovationAcquisitions Wide range of opportunities All business areas qualify Value created in less than three years Investor update Q2 2012 results 38 39. Aspirations for high growth markets(currently around 40 percent of our revenue)Double revenues in China Grow from $1.5 to $3 billion of revenues Already the biggest paint, coatings and specialty chemicals company inChinaCreate significant footprint in India Grow from 0.25 to 1 billion in revenue Increasing footprint for all business areasOutgrow the competition in Brazil Grow from 0.75 to 1.5 billion in revenue Become clear market leader in all our activitiesExpand in the Middle East Investor update Q2 2012 results 39 40. High growth markets will becomesignificantly more important% of revenue, indicative32% Mature Europe 9% 18%Emerging EuropeNorth America 25% 5% Asia Pacific Middle Eastand Africa11% Latin AmericaHigh growth markets will be around 50% of revenue in this decadeInvestor update Q2 2012 results 40 41. Exciting RD&I pipeline with innovativesolutions for key market segmentsHow innovation will support ourRevenue by key marketgrowth agenda: segment Functional solutions in key marketsegments 12% Increase spend in big R&D >15 percent of revenue from 13% 43%breakthrough innovations* >30 percent of revenue fromeco-premium solutions**32%Our more centrally led RD&I effortsaim at delivering solutions for the future needs of our end marketsResidential constructionConsumer goodsNon-residential constructionOur scale leads to superior absoluteTransportspend versus our peers* Major innovations that result in a significant competitive advantage** Higher eco-efficiency than competing comparable productInvestor update Q2 2012 results 41 42. Clear sustainability focusAccelerated 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 Q2 2012 results 42 43. Pipeline 2012 Q2Packaging Coatings - Beverage Inside Spray Coating Water-based Bisphenol A-free spray liner for beverage cansKey features Customers benefits Bisphenol A-free Improved environmental profile compared Waterborne product with 38%with epoxy-based coatingsreduction in carbon footprint Interior can coating not compromising Wide application window and robust taste & quality of beverageoverall performance Compliant with demanding FDAstandards Growth potential To be launched in NA in Q3 2012; other regions to follow in Q1 2013 Potential to fully replace current product platform, depending on market & legislation dynamics It will strengthen and potentially grow our current position within the beverage can coatings market Investor update Q2 2012 results 43 44. Pipeline 2012 Q2Decorative Paints- Three-in-One More convenient and faster paintingKey featuresCustomers benefits Fills, primes and paints in a single Takes the preparation and priming stepsoperation out of painting Covers nail holes and hair line cracks. Saves time and money, allowing the job to Excellent coverage over dark colors,be completed fasterscuff marks and stains Eliminates the flashing/shadowingfound with spackleGrowth potential True Innovation - the first of its kind Goes beyond the 2-in-1 products already inthe market place Drives added value for both AN and TheHome Depot Helps grow the Glidden brand Investor update Q2 2012 results 44 45. Pipeline 2012 Q2Functional Chemicals - StimWell Breakthrough technology for the Oil and Gas IndustryKey featuresCustomers benefits A bio-based stimulation aid for oil and A stimulation solution for deep, highnatural gas recoverytemperature wells with critical corrosion Non-corrosive, thermally stable,needsbiodegradable product with excellent Less damage to well casings than existingstimulation performance technology Applicable in both fracking and shale Ability to stimulate wells that are beyondformationsthe reach of existing technologyGrowth potential Significant global sales potential for both oil& gas recovery, once proof of principleestablished in various applications Investor update Q2 2012 results 45 46. Variable costs represent 54.3% of revenue % of 2011 annual revenue*100%Raw materials,energy, andother variablecostsFixed productioncostsSelling, advertising,administration, R&DcostsEBIT margin0% Decorative Performance SpecialtyAkzoNobelPaints Coatings Chemicals* Rounded percentages, all data excluding incidentals Investor update Q2 2012 results 46 47. Variable costs analysis 2011 Energy & other Packagingvariable costs*SolventsRaw materials7% 7% 28% Chemicals andintermediates***13%8%7%AdditivesOther raw materials** 2% 8%Pigments12% 8% Titaniumdioxide ResinsCoatingsspecialties* 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 Q2 2012 results 47 48. Capital expenditure prioritization forgrowth Capex 2011 was 708 million (including Ningbo 45) Guidance for the medium term: Capex level to be at least 4 percentof revenuesCapex as a % of revenue 2011 Capex split5 3% 16%4352% 29%21 Specialty Chemicals0Decorative Paints2008 2009 2010 2011 Performance CoatingsBase capex Ningbo National StarchOther Investor update Q2 2012 results 48 49. Year-on-year Operating Working Capital %of revenue to be reduced towards 12%OWC million300020% 15.6%18%250014.3% 13.8%16% 14.2% 14.2% 13.6%14%200012%150010% 2,155 2,279 2,341 2,079 2,5022,5378%10006%4%5002% 00%Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012OWC OWC as % of LQ revenue*4 Investor update Q2 2012 results 49 50. Debt duration 3.3 years and no refinancingneeded in 2012Debt maturities* million (nominal amounts) 1.200 800 400 0 2012 20132014 2015 2016 20172018 bonds$ bonds bonds Strong liquidity position to support growth Undrawn revolving credit facility of 1.8 billion (2016) or 1.5 and $3billion commercial paper programs Net cash and cash equivalents 1.0 billion** At the end of Q2 2012 Investor update Q2 2012 results 50 51. Unchanged ambition to maintain strongbalance sheet million Jun 30, 2012Jun 30, 2011 Total equity 9,995 9,314 Net debt*2,844 1,808 Credit ratings unchanged at BBB+/Baa1, outlook stable Net debt increased due to pension top-ups and an additionalpension payment in Q1, as well as higher operating working capital In September 2011, we renewed our five year multi-currencysyndicated revolving credit facility for 1.8 billion (previously 1.5billion)* Before net pension deficit of 0.6 billion June 30, 2012 (June 30, 2011 0.4 billion) Investor update Q2 2012 results 51 52. Q2 2012 incidentals million Q2 2012 Q2 2011Restructuring costs (44) (20)Results related to major legal, 321anti-trust and environmental casesResults of acquisitions and divestments-26Other incidental results (7)-Total(48) 27 Increase in restructuring costs due to provisions in relation tothe performance improvement program Restructuring costs mainly related to Decorative Paints in NorthAmerica and EuropeInvestor update Q2 2012 results 52 53. Q2 2012 EBITDA Cash bridge millionQ2 2012 Q2 2011EBITDA before incidentals593551Incidentals (cash)(28)8Change working capital(38)(204)Change provisions (30)(70)Interest paid (42)(58)Income tax paid (54)(62)Net cash from operating activities 401165 Lower cash outflows from working capital mainly due to a lower autonomous increase in operating working capital Together with an improved EBITDA performance, there is a significant improvement in net cash from operating activitiesInvestor update Q2 2012 results 53 54. Safe Harbor StatementThis presentation contains statements which address such key issues asAkzoNobels growth strategy, future financial results, market positions, productdevelopment, products in the pipeline, and product approvals. Such statementsshould be carefully considered, and it should be understood that many factors couldcause forecasted and actual results to differ from these statements. These factorsinclude, but are not limited to, price fluctuations, currency fluctuations, developmentsin raw material and personnel costs, pensions, physical and environmental risks, legalissues, and legislative, fiscal, and other regulatory measures. Stated competitivepositions are based on management estimates supported by information provided byspecialized external agencies. For a more comprehensive discussion of the riskfactors affecting our business please see our latest Annual Report, a copy of whichcan be found on the companys corporate website www.akzonobel.com. Investor update Q2 2012 results 54