How we created value in 2014

By bringing more value to our customers, investors, employees and society in general, we can better position ourselves for growth and achieve our strategic vision of leading market positions delivering leading performance.

  • Economic value
  • Environmental value
  • Social value

Financial overview

2014 revenue was down 2 percent, with volume up 1 percent in all Business Areas, more than offset by adverse currency effects and divestments. Operating income was up 3 percent at €987 million, due to higher operating results and lower restructuring charges, offset by higher incidental charges. Excluding incidental items, ROS was 7.5 percent (2013: 6.1 percent). ROI was 10.0 percent (2013: 9.6 percent). We are on track to deliver our 2015 targets.

Summary of financial outcomes

 

 

 

 

 

 

 

In € millions

 

2013

 

2014

 

∆%

Revenue

 

14,590

 

14,296

 

(2)

Operating income

 

958

 

987

 

3

Operating income excluding incidental items

 

897

 

1,072

 

20

Operating income excl. incidental items and restructuring charges

 

1,245

 

1,325

 

6

ROS (in %)

 

6.6

 

6.9

 

 

ROS excl. incidental items (in %)

 

6.1

 

7.5

 

 

 

 

 

 

 

 

 

Average invested capital

 

10,007

 

9,871

 

 

Moving average ROI (in %)

 

9.6

 

10.0

 

 

 

 

 

 

 

 

 

EBITDA

 

1,513

 

1,690

 

12

Capital expenditures

 

666

 

588

 

(12)

Net cash from operating activities

 

716

 

811

 

13

Net debt

 

1,529

 

1,606

 

 

 

 

 

 

 

 

 

Net income attributable to shareholders

 

724

 

546

 

 

Earnings per share from total operations (in €)

 

3.00

 

2.23

 

 

Adjusted earnings per share (in €)

 

2.62

 

2.81

 

 

Number of employees

 

49,600

 

47,200

 

(5)

Revenue

Revenue was down 2 percent, with volume up 1 percent in all Business Areas, more than offset by adverse currency effects and divestments.

  • Volumes in Decorative Paints were up 1 percent. Revenue declined 6 percent compared with 2013 due to divestments, adverse currency effects and an adverse price/mix effect. The latter was mainly driven by the sale of the German stores
  • Volumes in Performance Coatings were up 1 percent, mainly from growth in Marine and Protective Coatings and Powder Coatings. Revenue was flat compared with the previous year due to adverse currencies
  • Volumes in Specialty Chemicals were up 1 percent. Revenue was 1 percent lower due to price pressure in caustic and unfavorable currency developments during the first half of the year, as well as some interruptions in supply chain and manufacturing.

Revenue development
in % versus 2013

Revenue development, in % versus 2013 (bar chart)Revenue development, in % versus 2013 (bar chart)

Revenue by region
in %

Revenue by region, in % (pie chart)Revenue by region, in % (pie chart)

Revenue
in € millions

Revenue, in € millions (bar chart)Revenue, in € millions (bar chart)

Divestments

  • On October 1, 2013, the divestment of Building Adhesives was completed, which accounts for the divestment impact in Decorative Paints. In addition, the sale of the German stores was concluded, which did not have a revenue impact in divestments but in price/mix
  • The divestment of the Primary Amides and Purate businesses was completed in 2013, and accounts for the divestment impact in Specialty Chemicals
  • Specialty Chemicals announced the intended sale of its Paper Chemicals portfolio for €153 million. The business is currently part of Pulp and Performance Chemicals. The transaction is expected to be completed in 2015, subject to regular consultation with employee representatives and satisfaction of closing conditions such as receipt of required regulatory clearances

Operating income

Operating income increased 3 percent to €987 million, due to higher operating results and lower restructuring charges, offset by higher incidental items (€85 million adverse items in 2014 and €61 million favorable items in 2013). The incidental charges in 2014 related to an external fraud suffered by one of our subsidiaries in the US, provisions for legacy items and project costs related to a divestment. Restructuring charges in 2014 were €253 million (2013: €348 million). The majority of the restructuring charges related to Performance Coatings.

  • In Decorative Paints, operating income in 2013 included the gain of €198 million from the divestment of Building Adhesives. Excluding this effect, operating income improved. Restructuring charges were lower than the previous year. In addition, costs were down following the implementation of restructuring programs and strict cost control
  • In Performance Coatings, operating income increased 4 percent compared with 2013. Improved operational effectiveness more than compensated for increased restructuring charges. A major restructuring activity was the implementation of a new organizational structure with fewer management layers and clearer accountability
  • Specialty Chemicals increased profitability over the previous year, with significant savings from restructuring programs. Operating income in 2013 was affected by €121 million incidental charges

Average raw material costs were stable compared with 2013 exit prices. In some high growth markets, currency effects on imported raw materials have affected some businesses.

Operating income
in € millions

Operating income, in € millions (bar chart)Operating income, in € millions (bar chart)

1 Excluding goodwill impairment.

Cash flows and net debt

Operating activities in 2014 resulted in cash inflows of €811 million (2013: €716 million). Profit from continuing operations was lower in 2014, however, the comparative for 2013 included a non-cash gain from deferred tax of €124 million. Net debt at year-end 2014 of €1,606 million was slightly up on 2013 (€1,529 million). Cash outflows for discontinued operations of €88 million mainly related to a settlement of a case following the divestment of Organon BioSciences in 2007.

Early in 2014, a €825 million bond was repaid from existing resources. In November 2014, a €500 million bond was issued with a ten-year maturity, at a coupon of 1.75 percent. The new bond issue extends the duration of the overall bond portfolio, taking advantage of favorable market conditions and historically low interest rates. We are committed to maintaining a strong investment grade credit rating. Currently, the company has a BBB+ rating with Standard & Poor’s and a Baa1 rating with Moody’s.

Invested capital

Invested capital at year-end 2014 totaled €9.9 billion, up €0.6 billion on year-end 2013. Invested capital was primarily impacted by foreign currency effects of €0.4 billion due to the weaker euro.

We are prioritizing our investments given our focus on cash and return on investment. During 2014, we invested an amount of €588 million (2013: €666 million), or 4.1 percent of revenue (2013: 4.6 percent). We intend to align our future capital expenditures with depreciation, and to invest 40-50 percent in growth.

Capital expenditures 2014
100% = €588 million (4.1% of revenue)

Capital expenditure 2014, 100% = €588 million (4.1% of revenue) (pie chart)Capital expenditure 2014, 100% = €588 million (4.1% of revenue) (pie chart)

Innovation

We continue to invest in Research, Development and Innovation to fulfill future customer needs and fuel our targeted growth in revenue share of eco-premium solutions with customer benefits.

Innovation investments
research and development expenses in € millions

Innovation investments, research and development expenses in € millions (bar chart)Innovation investments, research and development expenses in € millions (bar chart)

Eco-premium solutions

We maintain our intention to lead by example in the area of improving the sustainability and environmental performance of our products and processes, which we measure through our development of eco-premium solutions. They are a fundamental driver of our Planet Possible agenda for creating more value from fewer resources and minimizing the environmental impact/footprint of the products we sell and the processes we use to manufacture them.

Eco-premium solutions with customer benefits
in % of revenue Target

Eco-premium solutions with customer benefits, in % of revenue (bar chart)Eco-premium solutions with customer benefits, in % of revenue (bar chart)

Although it may appear that we are already close to realizing our 2020 target of 20 percent of revenue, it should be noted that our year-on-year progress will be impacted not only by our own innovation drive, but also by competitor activity and legislation changes. Furthermore, the introduction of new products into the market whose performances equal those of our current eco-premium solutions offering will redefine the standards that we will have to surpass, to acquire future eco-premium solutions status. For more details see Sustainability statements Note 4.

Dividend

Our dividend policy is to pay a stable to rising dividend. We will propose a 2014 final dividend of €1.12 per share, which would make a total 2014 dividend of €1.45 (2013: €1.45) per share. There will be a stock dividend option with cash dividend as default.

Dividend
in €

Dividend, in € (bar chart)Dividend, in € (bar chart)

Earnings per share total operations
in €

Earnings per share total operations, in € (bar chart)Earnings per share total operations, in € (bar chart)

Interest

Net financing expenses decreased, mainly due to lower interest expenses on net debt as a result of repayment of high interest bonds. This positive effect is partly offset by (non-cash) higher interest on provisions. For the full-year, net financing expenses decreased by €44 million to €156 million.

Income tax

The full-year effective tax rate was 30 percent (2013: 30 percent adjusted for an incidental non-cash tax gain of €124 million and several non-taxable items).

Income tax paid
in € millions

Income tax paid, in € millions (bar chart)Income tax paid, in € millions (bar chart)

Outlook

We anticipate that significant developments in raw material prices, combined with relevant exchange rate movements and lower growth rates in high growth economies, will principally determine the dynamics of 2015. The preparations, made in 2013 and 2014 will form a sound basis for further improvements in 2015. The company remains on track to deliver its targets for 2015.

Cradle-to-grave carbon footprint

Our ambition is to reduce our cradle-to-grave carbon footprint by 25-30 percent per ton of sales between 2012 and 2020. We have made some good improvements. New power contracts in, for example, Moses Lake and Columbus, US, and increased production in our Chemical Islands (using renewable power) have reduced the footprint significantly. Energy efficiency has been improved at several production sites, such as Ningbo in China and Columbus in the US. However, these improvements have been outweighed by changes in product mix, a deterioration of power mix in Germany and lower utilization of our Combined Heat and Power (CHP) unit in the Netherlands, leading to the use of more power from the Dutch grid.

Cradle-to-grave carbon footprint
% reduction CO2(e) per ton of sales from 2012 Target

Cradle-to-grave carbon footprint, % reduction CO2(e) per ton of sales from 2012 (bar chart)Cradle-to-grave carbon footprint, % reduction CO2(e) per ton of sales from 2012 (bar chart)

For more details see Sustainability statements Note 5.

Energy

Renewable energy is an important aspect of the improvements required to achieve our 2020 strategic carbon footprint target. Our Renewable Energy Supply Strategy has three focus areas: protecting our current renewable share, participating in cost effective, large energy ventures, and exploring commercially feasible on-site renewable energy generation.

Total energy
in % by source

Total energy, in % by source (pie chart)Total energy, in % by source (pie chart)

For more details see Sustainability statements Notes 5 and Note 15.

Raw materials

Bio-based raw materials are an important contributor to our sustainability agenda; a considerable share of AkzoNobel’s environmental footprint is embodied in the raw materials we buy, and most bio-based materials exhibit lower footprints. While many of our materials are already bio-based, we are also seeing the construction and commissioning of the first commercial scale production facilities for several new additional bio-based raw materials. In order to lead the deployment of these materials in our markets, we have been setting up partnerships across our supply chain.

Total volume of raw materials
in % per source

Total volume of raw materials in % per source (pie chart)Total volume of raw materials in % per source (pie chart)

Operational eco-efficiency program

The focus of the Operational eco-efficiency (OEE) agenda is to increase raw material efficiency, reduce consumption of energy, decrease emissions and production of waste. Improvements include many small site contributions, upgrading existing processes, rationalization of the manufacturing footprint and application of best available technology for new investments.

OEE footprint improvement
(% reduction from 2009)

OEE footprint improvement, % reduction from 2009 (bar chart)OEE footprint improvement, % reduction from 2009 (bar chart)

The OEE footprint is calculated from the weighted average of nine footprint parameters and production volume. For more details see Sustainability statements Environment chapter.

Waste

Effective waste management helps to increase raw material efficiency in our manufacturing operations, while reducing both our environmental footprint and costs. We have moved our focus from managing/reducing total waste to eliminating waste by increasing material efficiency. The focus on waste over past years resulted in a reduction in waste at the majority of our sites.

Total waste
in kilotons

Total waste, in kilotons (bar chart)Total waste, in kilotons (bar chart)

Waste means any substance or object arising from our routine operations which we discard or intend to discard, or we are required to discard. Reusable waste is waste which is used e.g. for resource recovery, recycling, reclamation, direct re-use or alternative uses e.g. composting. All other waste is non-reusable waste.

For more details see Sustainability statements Note 18.

At year-end 2014, the workforce amounted to 47,200 employees (year-end 2013: 49,600 employees). The decrease was mainly due to:

  • A decrease of 400 employees due to divestments
  • A decrease of 2,000 employees due to ongoing restructuring

We continued restructuring activities during 2014 in all Business Areas. We will continue to centralize and outsource back office activities throughout the world.

Employees

47,200 at year-end 2014

Employees by Business Area

Employees by Business Area (pie chart)Employees by Business Area (pie chart)

Employee engagement

One of our key measures of progress in the area of culture is employee engagement which we measure through an employee engagement survey. Compared with last year’s results, we’ve seen an increase in engagement. In the context of our ongoing change and restructuring, this is a positive signal. Engagement has increased every year since we started the survey in 2010.

ViewPoint score employee engagement
(1 to 5 scale)

ViewPoint score employee engagement, 1 to 5 scale (bar chart)ViewPoint score employee engagement, 1 to 5 scale (bar chart)

For more details see Sustainability statements Note 12.

Safety

Overall performance indicators for people safety show that we have achieved our 2015 target a year early. Implementation of the people safety programs coincides with a continued decrease in the number of injuries to employees and supervised and independent contractors.

Employee and supervised contractors total reportable injuries
injury rate

Employee and supervised contractors total reportable injuries, injury rate (bar chart)Employee and supervised contractors total reportable injuries, injury rate (bar chart)

For more details see Sustainability statements Note 8.

Community involvement

Our Community Program encourages sites and individuals to take part in projects where our products/resources and the skills and knowledge of employees can benefit the wider community on a sustainable basis. In the past nine years, the program has become firmly embedded in our worldwide organization.

Cumulative Community Program involvement
(cumulative since 2005)

Cumulative Community Program involvement, cumulative since 2005 (bar chart)Cumulative Community Program involvement, cumulative since 2005 (bar chart)

For more details see Sustainability statements Note 14.