How we created value in 2015

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

We delivered on our 2015 targets. Revenue was up 4 percent, due to 6 percent favorable currency effects, partly offset by divestments and lower volume. was up 59 percent at €1,573 million, reflecting the positive effects of process optimization, lower costs, reduced restructuring expenses, favorable currency developments and the impact of incidental items. increased to 10.6 percent (2014: 6.9 percent). increased to 15.0 percent (2014: 10.0 percent).

Summary of financial outcomes

 

 

 

 

 

 

 

In € millions

 

2014

 

2015

 

∆%

Revenue

 

14,296

 

14,859

 

4

 

987

 

1,573

 

59

Operating income excluding incidental items

 

1,072

 

1,462

 

36

(in %)

 

6.9

 

10.6

 

 

ROS excluding incidental items (in %)

 

7.5

 

9.8

 

 

 

 

 

 

 

 

 

Average

 

9,871

 

10,475

 

 

Moving average (in %)

 

10.0

 

15.0

 

 

Moving average ROI excluding incidentals (in %)

 

10.9

 

14.0

 

 

 

 

 

 

 

 

 

 

1,690

 

2,088

 

24

Capital expenditures

 

588

 

651

 

 

Net cash from operating activities

 

811

 

1,136

 

40

 

1,606

 

1,226

 

 

 

 

 

 

 

 

 

Net income attributable to shareholders

 

546

 

979

 

79

from total operations (in €)

 

2.23

 

3.95

 

 

(in €)

 

2.81

 

4.02

 

43

Number of employees

 

47,200

 

45,600

 

 

Revenue

Revenue was up 4 percent, due to 6 percent favorable currency effects, partly offset by divestments and lower volumes.

  • Revenue in Decorative Paints was up 3 percent. Revenue was up in Asia, flat in Europe and down in Latin America. Volumes were down 1 percent overall for the full-year, with positive developments in Asia offset by Latin America and Europe
  • In Performance Coatings, revenue was up 7 percent, driven by favorable price/mix and currencies. Volumes were down 2 percent across the segments, impacted by market developments in Brazil and ongoing spending declines in the global oil and gas industry
  • In Specialty Chemicals, revenue was up 2 percent due to favorable currency effects, partly offset by divestments and adverse price effects. Overall volumes were flat. Growth in some segments compensated for lower demand in oil drilling segments, impacting Surface Chemistry and Functional Chemicals. Growth in China was subdued and demand remained stable in Europe

Revenue development
in % versus 2014

Value creation – Economic value – Revenue development (bar chart)Value creation – Economic value – Revenue development (bar chart)

Revenue by destination
in %

Value creation – Economic value – Revenue by region (pie chart)Value creation – Economic value – Revenue by region (pie chart)

Revenue
in € millions

Value creation – Economic value – Revenue by Business Area (bar chart)Value creation – Economic value – Revenue by Business Area (bar chart)

Divestments

The divestment of the Paper Chemicals business was completed in Q2 2015 and accounts for the divestment impact in Specialty Chemicals.

Operating income

increased 59 percent to €1,573 million, reflecting the positive effects of process optimization, lower costs, reduced restructuring expenses, favorable currency developments and the impact of incidental items.

  • In Decorative Paints, operating income increased by 39 percent as a result of the new operating model, lower costs, reduced restructuring expenses and currency developments
  • In Performance Coatings, operating income increased 45 percent due to performance improvement initiatives, management delayering, lower costs, reduced restructuring expenses and currencies
  • In Specialty Chemicals, operating income increased by 20 percent, with significant savings from continuous improvement programs, and incidental items

Raw material prices were lower, although in certain regions foreign currency effects adversely impacted raw material costs in local currencies.

Operating income
in € millions

Value creation – Economic value – Operating income (bar chart)Value creation – Economic value – Operating income (bar chart)

Cash flows and net debt

Operating activities in 2015 resulted in cash inflows of €1,136 million (2014: €811 million). The change was mainly due to higher profit for the period and improved working capital, partly offset by higher cash outflow from restructuring programs.

Net debt at year-end 2015 was lower at €1,226 million compared with year-end 2014 (€1,606 million).

In 2015, a €621 million bond was repaid from existing resources.

Invested capital

Invested capital at year-end 2015 totaled €9.8 billion, slightly down on year-end 2014, mainly as a result of lower operating working capital, driven by improvements in inventories.

In 2015, we invested €651 million in property, plant and equipment.

Allocation of 2015 capital expenditures of €651 million
in % (4.4 percent of revenue)

Value creation – Economic value – Capital expenditures 2015 (pie chart)Value creation – Economic value – Capital expenditures 2015 (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 with customer benefits.

Innovation investments
research and development expenses in € millions

Value creation – Economic value – Innovation investments (bar chart)Value creation – Economic value – Innovation investments (bar chart)

Eco-premium solutions

Revenue from remained stable at 19 percent of sales. Revenue increased from sales growth of new and existing eco-premium solutions in all Business Areas. This was offset by “mainstreaming” of a few of our coatings products and revenue growth from products which are not eco-premium.

We maintain our intention to lead by example by improving the environmental/social performance of our products and processes, which we measure through our development of . They are a fundamental driver of our Planet Possible agenda for creating more value from fewer resources and minimizing the environmental footprint of the products we sell and the processes we use to manufacture them. For more details see Sustainability statements Note 4.

Eco-premium solutions with customer benefits
in % of revenue

Value creation – Economic value – Eco-premium solutions with customer benefits (bar chart)Value creation – Economic value – Eco-premium solutions with customer benefits (bar chart)

We may appear to be close to realizing our 2020 target, however, we measure our performance across the whole value chain, against solutions available in the marketplace. Our year-on-year progress is impacted not only by our own innovation drive, but also by competitor activity and legislation changes.

Dividend

Our dividend policy is to pay a stable to rising dividend. We will propose a 2015 final dividend of €1.20 per share, which would make a total 2015 dividend of €1.55 (2014: €1.45) per share, up 7 percent. There will be a stock dividend option with cash dividend as default.

Dividend
in €

Value creation – Economic value – Dividend (bar chart)Value creation – Economic value – Dividend (bar chart)

Earnings per share total operations
in €

Value creation – Economic value – Earnings per share total operations (bar chart)Value creation – Economic value – Earnings per share total operations (bar chart)

Interest

Net financing expenses decreased, mainly due to lower interest expenses on as a result of repayment of high interest bonds and lower interest on provisions.

Income tax

The full-year effective tax rate was 28 percent (2014: 30 percent). The tax rate was lower as a result of non-taxable income such as the gain on the divestment of the Paper Chemicals business and prior year adjustments.

Income tax paid
in € millions

Value creation – Economic value – Income tax paid (bar chart)Value creation – Economic value – Income tax paid (bar chart)

Outlook

We expect 2016 to be a challenging year. Difficult market conditions continue in Brazil, China and Russia. No significant improvement is anticipated in Europe, particularly in the Buildings and Infrastructure segment. Deflationary pressures continue and currency tailwinds are moderating.

Cradle-to-grave carbon footprint

Cradle-to-grave carbon footprint is our prime measure of resource efficiency. Carbon footprint per ton of sold product has decreased 3 percent since 2012. Absolute footprint is down 10 percent. We achieved solid improvements due to lower footprint energy sources, including renewables, efficiency gains at our energy intensive facilities, and increased sales of lower coatings products.

Our 2020 ambition – to reduce our cradle-to-grave carbon footprint by 25-30 percent per ton of sales between 2012 and 2020 – remains a challenge, although we continue to focus on working with suppliers and customers to deliver improvements across the value chain. For more details see Sustainability statements Note 5.

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

Value creation – Environmental value – Cradle-to-grave carbon footprint (bar chart)Value creation – Environmental value – Cradle-to-grave carbon footprint (bar chart)

Energy

Renewable energy is an important aspect of the improvements required to achieve our 2020 strategic carbon footprint ambition. The proportion of renewable energy in our operations increased to 38 percent (2014: 34 percent).

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. In 2015, we took steps to increase the share of renewables in our energy supplies. This included a significant contract for renewable steam in the Netherlands; record production at the Nordic VindIn wind parks in which AkzoNobel participates; and a contract for wind energy at 14 of our sites in the Netherlands, including the new AkzoNobel Center in Amsterdam, which has 100 percent green energy. For more details see Sustainability statements Notes 5 and 15.

Total energy
in % by source

Value creation – Environmental value – Total energy by source (pie chart)Value creation – Environmental value – Total energy by source (pie chart)

Raw materials

Bio-based (renewable) materials also contribute 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.

In 2015, 11 percent of all our organic raw materials came from bio-based (renewable) sources (2014: 13 percent). This is 5 percent (2014: 7 percent) of the total volume of raw materials purchased, including other raw materials such as salt, minerals and clays. The decrease was mainly the result of divestments in our Specialty Chemicals businesses.

We also made progress with our existing partnerships to tap into alternative feedstock sources which are coming on line, as well as announcing additional collaborations involving a number of our key raw materials. For more details see Sustainability statements Note 5.

Total volume of raw materials
in % per source

Value creation – Environmental value – Total volume of raw materials (pie chart)Value creation – Environmental value – Total volume of raw materials (pie chart)

Operational eco-efficiency program

The focus of the (OEE) agenda is to increase raw material efficiency, reduce consumption of energy, decrease emissions and production of waste.

Our company indicator combines energy, water, waste and air emissions, as well as cost elements.

In 2015, we achieved a footprint measure improvement of 23 percent (since 2009). Many of our businesses achieved eco-efficiency footprint improvements. However, due to product mix changes and the consolidation of a joint venture, the results are lower compared with the previous year for the first time since we started monitoring performance. Additional programs are being put in place to accelerate progress towards our 40 percent ambition.

Improvements include many small site contributions, upgrading of existing processes, rationalization of the manufacturing footprint and application of best available technology for new investments. For more details see Sustainability statements Notes 15-19.

OEE footprint improvement
% reduction from 2009 Ambition

Value creation – Environmental value – OEE footprint improvement (bar chart)Value creation – Environmental value – OEE footprint improvement (bar chart)

The OEE footprint is calculated from the weighted average of nine footprint parameters and production volume.

Waste

Effective waste management helps to increase raw material efficiency in our manufacturing operations, while reducing both our environmental footprint and costs.

Total waste per ton of production generated and leaving our sites was up by 5 percent to 9.0 kg/ton. The total waste volume increased to 155 kilotons, an increase of 4 percent. The focus on waste over recent years has resulted in a reduction in waste at the majority of our sites. In 2015, incidental activities at some sites led to a one-off waste increase of 6 kilotons. For more details see Sustainability statements Note 18.

Total waste
in kilotons

Value creation – Environmental value – Total waste (bar chart)Value creation – Environmental value – Total waste (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 for example composting. All other waste is non-reusable waste.

At year-end 2015, our workforce totaled 45,600 employees (year-end 2014: 47,200 employees). The reduction was mainly due to divestments and continuing restructuring activities. We also added to the headcount, mainly through new hires in high growth markets.

We will continue to centralize and outsource back office activities throughout the world. For more details see Consolidated financial statements Note 4.

Employees

45,600 at year-end 2015

Employees by Business Area
in%

Value creation – Social value – Employees by Business Area (pie chart)Value creation – Social value – 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 annual employee engagement survey. We’ve seen an increase in engagement score every year since we started the survey in 2010. In 2015 we exceeded our ambition of a 4.00 engagement score. In the context of our ongoing change and restructuring, this is a positive signal. For more details see Sustainability statements Note 12.

ViewPoint score employee engagement
1 to 5 scale

Value creation – Social value – ViewPoint score employee engagement (bar chart)Value creation – Social value – ViewPoint score employee engagement (bar chart)

Safety

The overall total reportable rate (TTR) for employees and supervised contractors decreased to 1.6 (2014: 1.8). We achieved our 2015 target a year early and performance continues to improve. This improvement in the number of injuries also extends to independent contractors and coincides with continued implementation of our people safety programs. For more details see Sustainability statements Note 8.

Employee and supervised contractors total reportable injuries
frequency rate

Value creation – Social value – Employee and supervised contractors total reportable injuries (bar chart)Value creation – Social value – Employee and supervised contractors total reportable injuries (bar chart)

Community involvement

Our 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 ten years, the program has become firmly embedded in our worldwide organization. For more details see Sustainability statements Note 14.

Cumulative Community Program involvement
cumulative since 2005

Value creation – Social value – Cumulative Community Program involvement (bar chart)Value creation – Social value – Cumulative Community Program involvement (bar chart)
Operating income

Operating income is defined in accordance with IFRS and includes the relevant incidental items.

ROS (return on sales)

This is a key profitability measure and is calculated as operating income as a percentage of revenue.

ROI (return on investment)

This is a key profitability measure and is calculated as operating income as a percentage of average invested capital.

Operating income

Operating income is defined in accordance with IFRS and includes the relevant incidental items.

ROS (return on sales)

This is a key profitability measure and is calculated as operating income as a percentage of revenue.

Invested capital

Total assets (excluding cash and cash equivalents, investments in ­associates, the receivable from pension funds in an asset position, assets held for sale) less current ­income tax payable, deferred tax liabilities and trade and other payables.

ROI (return on investment)

This is a key profitability measure and is calculated as operating income as a percentage of average invested capital.

EBITDA

Operating income before depreciation, amortization and incidental items.

Net debt

Defined as long-term borrowings plus short-term borrowings less cash and cash equivalents.

Earnings per share

Net income attributable to shareholders divided by the weighted average number of common shares outstanding during the year.

Adjusted earnings per share

Basic earnings per share from continuing operations excluding incidentals in operating income, amortization of intangible assets and tax on these adjustments.

Operating income

Operating income is defined in accordance with IFRS and includes the relevant incidental items.

Eco-premium solutions (EPS)

A measure of the eco-efficiency of our products. An eco-premium solution is significantly better than competing offers in the market in at least one eco-efficiency criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other criteria.

Eco-premium solutions with downstream benefits

Provide tangible material or energy efficiency benefits for our customers, compared with competitive products.

Eco-premium solutions (EPS)

A measure of the eco-efficiency of our products. An eco-premium solution is significantly better than competing offers in the market in at least one eco-efficiency criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other criteria.

Net debt

Defined as long-term borrowings plus short-term borrowings less cash and cash equivalents.

Carbon footprint

The carbon footprint of a product or organization is the total amount of greenhouse gas (GHG) emissions caused during a defined period, or across the total or part of a product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.

Operational eco-efficiency

Refers to the eco-efficiency of our manufacturing operations. Our aim is to improve operational eco-efficiency by reducing the resources used and emissions/waste from our sites during the manufacture of our products.

Community Program

AkzoNobel’s global Community Program encourages and gives financial support for employees to get involved, hands-on, in their local communities.