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Costs


The “other” category

Activities not allocated to a particular business area are reported in the “other” category. The Decorative Paints businesses which were divested according to the commitment packages agreed with European and Canadian authorities were also reported here.

The 2008 results in “other” were in line with expectations. Corporate costs are unallocated costs of the headquarters and shared service center in Amsterdam and Arnhem respectively. Pension cost for retired employees, among others in the UK and Germany, amounted to €30 million. The full-year results were impacted by €16 million from fair value changes from energy derivatives, which we use for hedging our energy costs and for which we do not apply hedge accounting. In addition, we incurred a €13 million charge due to the results in our captive insurance companies.

Costs in “Other”

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In € millions

 

 

2008

 

 

Corporate costs

(62)

Pension costs

(30)

Technology costs not allocated to the businesses

(29)

Share-based payments

(20)

Energy derivatives

(16)

Insurances

(13)

Other

6

 

 

Total costs in “Other”

(164)

Other incidental items

Transformation costs include the closure of the London-based ICI headquarters (€59 million) and an impairment loss of €65 million for Decorative Paints businesses which were sold due to the commitment packages agreed with European and Canadian authorities. In addition, transformation costs include costs of external advisors related to the ICI acquisition and costs to establish our new corporate identity.

Other incidental charges came from the fair value step-up for inventories acquired from ICI (€54 million, non-cash) and additional costs for the settlement of a claim related to postretirement healthcare benefits for retired employees. Furthermore, we incurred a charge of €29 million due to foreign currency results on a provision in the UK. The mandatory divestment of the Decorative Paints businesses in Canada, the UK, Ireland and Belgium resulted in a loss of €23 million.

Incidental charges included in operating income

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In € millions

 

Full year

1

Pro forma and unaudited.

 

2008

2007 PF1

 

 

 

Impairment of ICI intangibles

(1,275)

Restructuring costs

(275)

(172)

Transformation costs

(190)

Fair value adjustments

(54)

(60)

Special benefits/(charges)

(43)

(91)

Charges related to major legal, antitrust and environmental cases

(32)

(29)

Results on divestments

(23)

(13)

 

 

 

Total incidentals included in operating income

(1,892)

(365)

Impairment of ICI intangibles

As a consequence of the current market conditions and the continuing lack of visibility of future global demand, we have assessed the recoverable amount of our assets against lower growth rates which we now expect. This has resulted in a non-cash impairment charge of €1.2 billion after tax, covering the value of ICI intangibles related to the Decorative Paints and National Starch businesses.

Restructuring costs

Restructuring costs related to the ICI integration and synergy realization program and profit protection measures in Performance Coatings and Specialty Chemicals. In Decorative Paints, the charges include termination benefits for employees in Europe and impairments for European logistic and manufacturing activities, mainly in Germany. We have assessed strengths and opportunities of all sites in the region in order to increase production efficiency and realize cost savings. Non-integration restructuring projects were implemented in the US, such as a closure of a manufacturing site to reduce capacity given the current market conditions. In addition, our US store business went through a broad based redesign of store locations, resources and associated overhead structure in order to improve the overall profitability. As the slowdown became more apparent, activity to realign the cost base accelerated in Performance Coatings and Specialty Chemicals. The majority of the restructuring is in the mature markets of Western Europe and North America, but there have also been cost reductions in other regions, including China. At year-end, the continuing businesses employed 1,660 employees less than last year. In September 2008, we announced that further cost savings and delivering ICI synergies will result in a total reduction of 3,500 jobs by 2011. We have a strong restructuring track record and, as always, we will work closely with our social partners in this process.

Restructuring costs

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In € millions

 

Full year

1

Pro forma and unaudited.

 

2008

2007 PF1

 

 

 

Decorative Paints

(189)

(96)

Performance Coatings

(20)

(27)

Specialty Chemicals

(29)

(25)

Other

(37)

(24)

 

 

 

Total restructuring costs

(275)

(172)

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