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AkzoNobel Q1 2012


Overview


Our results at a glance

  • Revenue up 6 percent, mainly driven by pricing actions
  • EBITDA 3 percent lower at €423 million (2011: €437 million) as weaker end markets and cost inflation impacted results
  • Cash from operating activities was impacted by a one-time pension payment and the seasonal build-up of operating working capital
  • Net income from continuing operations €70 million (2011: €132 million), due to higher incidental charges
  • Adjusted EPS €0.63 (2011: €0.72)
  • Performance improvement program on track
  • The economic environment and certain raw materials remain our principal sensitivities in 2012

Revenue

in € millions

AkzoNobel – Revenue (bar chart)

EBITDA

in € millions

AkzoNobel – EBITDA (bar chart)

Returns on invested capital

Returns on invested capital (bar chart)

AkzoNobel around the world
Revenue by destination

(40 percent in high growth markets)
 AkzoNobel around the world – Revenue by destination (pie chart)


Financial highlights

Revenue was up 6 percent, mainly driven by pricing actions to offset higher raw material costs. However, weaker end markets and cost inflation adversely impacted our results, with EBITDA 3 percent lower at €423 million. Cash from operating activities was impacted by a one-time pension payment and the seasonal build-up of operating working capital. The performance improvement program is on track.

Continuing operations before incidentals

 

1st quarter

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Revenue

 

3,762

 

3,972

 

6

EBITDA

 

437

 

423

 

(3)

EBITDA margin (in %)

 

11.6

 

10.6

 

 

EBIT

 

289

 

255

 

(12)

EBIT margin (in %)

 

7.7

 

6.4

 

 

Moving average ROI (in %)

 

10.9

 

8.4

 

 

Operating ROI (in %)

 

27.6

 

20.8

 

 

Adjusted earnings per share (in €)

 

0.72

 

0.63

 

 

 

 

 

 

 

 

 

After incidentals

1st quarter

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Operating income

 

277

 

191

 

(31)

Net income from continuing operations

 

132

 

70

 

 

Net income from discontinued operations

 

(4)

 

1

 

 

Net income total operations

 

128

 

71

 

 

Earnings per share from continuing operations (in €)

 

0.57

 

0.30

 

 

Earnings per share from total operations (in €)

 

0.55

 

0.30

 

 

 

 

 

 

 

 

 

Capital expenditures

 

130

 

143

 

 

Net cash from operating activities

 

(519)

 

(761)

 

 

Interest coverage

 

5.9

 

4.5

 

 

Invested capital

 

13,013

 

14,681

 

 

Net debt

 

1,578

 

2,860

 

 

Number of employees

 

56,100

 

57,320

 

 


Revenue

1st quarter

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Decorative Paints

 

1,196

 

1,242

 

4

Performance Coatings

 

1,237

 

1,369

 

11

Specialty Chemicals

 

1,351

 

1,399

 

4

Other activities/eliminations

 

(22)

 

(38)

 

 

Total

 

3,762

 

3,972

 

6

Revenue development Q1 2012

AkzoNobel – Revenue development Q1 2012 (bar chart)

in % versus Q1 2011

 

Volume

 

Price/mix

 

Acquisitions/ divestments

 

Exchange
rates

 

Total

Decorative Paints

 

(4)

 

6

 

1

 

1

 

4

Performance Coatings

 

(1)

 

8

 

2

 

2

 

11

Specialty Chemicals

 

(1)

 

1

 

2

 

2

 

4

Total

 

(3)

 

5

 

2

 

2

 

6

Volume development per quarter
(year-on-year)

 

Q1 11

 

Q2 11

 

Q3 11

 

Q4 11

 

Q1 12

Decorative Paints

 

9

 

6

 

4

 

2

 

(4)

Performance Coatings

 

7

 

2

 

1

 

(2)

 

(1)

Specialty Chemicals

 

6

 

1

 

(1)

 

(4)

 

(1)

Total

 

7

 

3

 

1

 

(2)

 

(3)

Price/mix development per quarter
(year-on-year)

 

Q1 11

 

Q2 11

 

Q3 11

 

Q4 11

 

Q1 12

Decorative Paints

 

1

 

2

 

3

 

4

 

6

Performance Coatings

 

2

 

3

 

7

 

7

 

8

Specialty Chemicals

 

6

 

8

 

8

 

5

 

1

Total

 

3

 

4

 

6

 

6

 

5


Acquisitions

In the beginning of 2012, we closed the acquisition of Boxing Oleochemicals in Specialty Chemicals, the leading supplier of nitrile amines and derivatives in China and throughout Asia. The Schramm/SSCP acquisition accounted for the acquisition effect in Performance Coatings as these activities were consolidated from Q4 2011.


EBITDA

1st quarter

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Decorative Paints

 

90

 

76

 

(16)

Performance Coatings

 

143

 

164

 

15

Specialty Chemicals

 

241

 

235

 

(2)

Other activities/eliminations

 

(37)

 

(52)

 

 

Total

 

437

 

423

 

(3)


Raw materials

Overall raw material prices remain a challenge. Looking forward, we expect the higher oil and TiO2 prices on average to have an inflationary impact.


Incidental items

Restructuring costs were mainly related to activities in the North American and European businesses in Decorative Paints. We also increased a provision for an environmental case in Sweden.

1st quarter

 

 

in € millions

 

2011

 

2012

Restructuring costs

 

(9)

 

(46)

Results related to major legal and environmental cases

 

1

 

(22)

Other incidental results

 

(4)

 

4

Incidentals included in operating income

 

(12)

 

(64)


Medium-term ambition and outlook

We have the aspiration to be the world’s leading Coatings and Specialty Chemicals company. Our medium-term ambitions are to grow to €20 billion revenue, increase EBITDA each year while maintaining a 13 to 15 percent margin, reduce OWC percent of revenue year-on-year by 0.5 percent towards a 12 percent level, and pay a stable to rising dividend.

The sustainability ambitions are to remain a top three leader in our industry, to be top quartile in our peer group in terms of safety performance, diversity, employee engagement and development, and eco-efficiency improvement rates.

We are moving ahead with the implementation of our performance improvement program which should bring significant benefits in 2012 and beyond, underpinning our margins.

The major uncertainty remains the economic environment. Our concerns are focused on the risk of recession in Europe, delayed recovery of the US property market and the potential for a slowdown in China. Each of these can have a significant impact on our customers in these regions, that would in turn impact our sales volumes. These, together with certain raw materials, remain our principal sensitivities in 2012.

AkzoNobel has a strong portfolio of complementary businesses, with many leading market positions and exposure to growth markets. This, combined with our ongoing management actions, means that we are confident that we can deliver medium-term growth in line with our strategic ambitions.

Amsterdam, April 19, 2012
The Board of Management


Financial calendar

April 23, 2012
Annual General Meeting

April 25, 2012
Ex-dividend date of 2011 final dividend

April 27, 2012
Record date of 2011 final dividend

April 30, 2012 – May 18, 2012
Election period cash or scrip final dividend

May 24, 2012
Payment date of cash dividend and delivery of scrip dividend

July 19, 2012
Report for the 2nd quarter 2012

October 18, 2012
Report for the 3rd quarter 2012


Decorative Paints – Overview

  • Revenue up 4 percent versus last year driven by favorable price/mix
  • Weaker volume development in most regions
  • EBITDA 16 percent behind last year, reflecting lower volumes and higher costs
  • Restructuring underway in Europe and North America

The Decorative Paints business achieved a revenue increase of 4 percent in the first quarter, primarily driven by margin management in weak markets. Lower volumes impacted EBITDA, particularly in North America which benefited last year from a one-time positive customer load-in. Restructuring and cost reduction actions are underway in Europe and North America to offset weaker demand.

Revenue development Q1 2012

Decorative Paints – Revenue development Q1 2012 (bar chart)
Decorative Paints – Brands (logos)

Decorative Paints – Key figures

Revenue

1st quarter

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Decorative Paints Europe

 

607

 

618

 

2

Decorative Paints Americas

 

399

 

403

 

1

Decorative Paints Asia

 

192

 

222

 

16

Other/intragroup eliminations

 

(2)

 

(1)

 

 

Total

 

1,196

 

1,242

 

4

 

 

 

 

 

 

 

Before incidentals

EBITDA

 

90

 

76

 

(16)

EBITDA margin (in %)

 

7.5

 

6.1

 

 

EBIT

 

39

 

19

 

(51)

EBIT margin (in %)

 

3.3

 

1.5

 

 

Moving average ROI (in %)

 

5.3

 

3.1

 

 

 

 

 

 

 

 

 

After incidentals

Operating income

 

37

 

(15)

 

 

 

 

 

 

 

 

 

Capital expenditures

 

42

 

37

 

 

Invested capital

 

6,462

 

7,067

 

 

Number of employees

 

22,280

 

22,090

 

 

Revenue

in € millions

Decorative Paints – Revenue (bar chart)

EBITDA

in € millions

Decorative Paints – EBITDA (bar chart)

Europe

Revenue was up, reflecting margin management as volumes remained negative. In particular, the Southern region was impacted due to continued weak demand and volume growth in the other regions was not enough to fully compensate for this. In the UK, our Dulux brand has achieved Top 10 Superbrands status resulting from a quantitative study across the UK population of people’s affinity with brands and their perception of their status in UK society. Dulux ranked as number 8.


Americas

Overall volume in North America was down, primarily due to prior year customer load-in. Margin management has significantly mitigated the volume shortfall. Operating costs were higher as a consequence of investments in our main distribution channels and the effects of implemented restructuring measures.

Revenue growth in Latin America was mainly driven by higher prices. Operating costs were adversely impacted by inflation and growth initiatives.


Asia

The revenue growth in China was mainly driven by favorable currency effects and continued price increases offset by an adverse mix impact. As a result of economic tightening measures of the Chinese government, market growth is being constrained, particularly in the premium segment.

In South East Asia and Pacific, revenue increased driven by favorable price/mix offset by lower volumes due to the continued weak economic situation in Vietnam.

Growth in India and South Asia continued to be strong, reflective of our growth strategy.


Performance Coatings – Overview

  • Revenue up 11 percent and EBITDA up 15 percent, supported by margin management, acquisition and currency effects
  • EBITDA margin at 12.0 percent (2011: 11.6 percent)
  • Integration of acquired activities delivering results
  • Continued focus on cost control and operational efficiencies

Revenue increased 11 percent compared with the previous year. Industrial Coatings – boosted by acquisition activity – achieved the strongest growth, followed by Marine and Protective Coatings. Although overall activity levels were flat, there was significant variability between individual segments. We continue to manage our selling prices in response to the raw material cost increases. Cost control and restructuring efforts in mature markets are ongoing and continue to support performance, as do recent acquisitions.

Revenue development Q1 2012

Performance Coatings – Revenue development Q1 2012 (bar chart)
Performance Coatings – Brands (logos)

Performance Coatings – Key figures

Revenue

1st quarter

 

 

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Marine and Protective Coatings

 

324

 

369

 

14

Wood Finishes and Adhesives

 

188

 

202

 

7

Automotive and Aerospace Coatings

 

259

 

255

 

(2)

Powder Coatings

 

231

 

244

 

6

Industrial Coatings

 

243

 

305

 

26

Other/intragroup eliminations

 

(8)

 

(6)

 

 

Total

 

1,237

 

1,369

 

11

 

 

 

 

 

 

 

Before incidentals

 

 

 

 

 

 

EBITDA

 

143

 

164

 

15

EBITDA margin (in %)

 

11.6

 

12.0

 

 

EBIT

 

115

 

132

 

15

EBIT margin (in %)

 

9.3

 

9.6

 

 

Moving average ROI (in %)

 

25.6

 

22.0

 

 

 

 

 

 

 

 

 

After incidentals

 

 

 

 

 

 

Operating income

 

106

 

127

 

 

 

 

 

 

 

 

 

Capital expenditures

 

16

 

18

 

 

Invested capital

 

2,150

 

2,432

 

 

Number of employees

 

21,230

 

21,910

 

 

Revenue

in € millions

Performance Coatings – Revenue (bar chart)

EBITDA

in € millions

Performance Coatings – EBITDA (bar chart)

Marine and Protective Coatings

Revenue increased primarily due to price/mix and currencies. Marine volumes were lower due to the slowdown in the new construction market. Protective Coatings increased volumes in all regions, especially in the heavy industry and oil and gas segments. In Yacht, lower volumes were compensated by margin management activity. In Marine, we launched our Silyl acrylate antifouling coatings during the first quarter. The product is designed to improve and enhance customer choice in both newbuild and maintenance and repair markets.


Wood Finishes and Adhesives

Revenue increased positively supported by currencies and higher price/mix. Demand improved in North America, while in Europe and Asia it has further softened.


Automotive and Aerospace Coatings

The business experienced a slow quarter, with lower volumes in comparison with 2011. This was partially compensated by currencies and price/mix. Cost control measures have helped operating costs to remain flat. The Vehicle Refinish segment in the mature markets of Europe and North America showed signs of slowdown, while Aerospace Coatings achieved moderate growth.


Powder Coatings

Revenue increased supported by price/mix and currencies with volumes impacted by softer demand in Europe and Asia. On a segment level, the export sensitive segments in Asia are still suffering from the weaker demand in Europe. The 2012 Interpon F Trend ranges for furniture were launched in Shanghai. The design driven range, dedicated to the furniture segment, features a total of 30 colors that have been chosen specifically for the indoor and outdoor furniture markets.


Industrial Coatings

The business had a good first quarter mainly due to the acquisition of Schramm/SSCP. Coil Coatings’ construction related business achieved strong growth, mainly in the high growth markets of Turkey and Russia. Packaging Coatings’ beverage and food related business continues to increase its top line, with Asia being the main driver for growth. The integration of the acquired businesses is progressing according to plan.


Specialty Chemicals – Overview

  • Revenue increased by 4 percent, mainly due to the Boxing Oleochemicals acquisition
  • EBITDA decreased 2 percent to €235 million against a strong Q1 2011, driven mainly by Functional Chemicals
  • EBITDA margin remained strong at 16.8 percent (2011: 17.8 percent)

Revenue increased 4 percent, mainly due to the Boxing Oleochemicals acquisition and a positive price/mix effect. The volume dip in Q4 2011 of 4 percent appears to have been due to temporary customer destocking as we have seen some recovery, but the overall trend is still slightly negative. EBITDA came in 2 percent lower, reflecting different trading conditions across businesses. Results in Functional Chemicals declined, impacted by a supply/demand imbalance in Ethylene Amines and in Chemicals Pakistan, the domestic market conditions remain difficult. Pulp and Performance Chemicals and Surface Chemistry saw earnings improve relative to Q1 last year, while Industrial Chemicals also performed well.

Revenue development Q1 2012

Specialty Chemicals – Revenue development Q1 2012 (bar chart)
Specialty Chemicals – Brands (logos)

Specialty Chemicals – Key figures

Revenue

1st quarter

 

 

 

 

 

 

in € millions

 

2011

 

2012

 

Δ%

Functional Chemicals

 

486

 

499

 

3

Industrial Chemicals

 

298

 

301

 

1

Surface Chemistry

 

237

 

284

 

20

Pulp and Paper Chemicals

 

274

 

282

 

3

Chemicals Pakistan

 

90

 

69

 

(23)

Other/intragroup eliminations

 

(34)

 

(36)

 

 

Total

 

1,351

 

1,399

 

4

 

 

 

 

 

 

 

Before incidentals

 

 

 

 

 

 

EBITDA

 

241

 

235

 

(2)

EBITDA margin (in %)

 

17.8

 

16.8

 

 

EBIT

 

174

 

161

 

(7)

EBIT margin (in %)

 

12.9

 

11.5

 

 

Moving average ROI (in %)

 

20.6

 

17.3

 

 

 

 

 

 

 

 

 

After incidentals

 

 

 

 

 

 

Operating income

 

173

 

140

 

 

 

 

 

 

 

 

 

Capital expenditures

 

67

 

87

 

 

Invested capital

 

3,450

 

3,707

 

 

Number of employees

 

11,230

 

11,860

 

 

Revenue

in € millions

Specialty Chemicals – Revenue (bar chart)

EBITDA

in € millions

Specialty Chemicals – EBITDA (bar chart)

Functional Chemicals

Volumes were up, due to increased volumes in Ethylene Amines, High Polymers Alkyls and Organic Peroxides, offset by a slower start in other products. Due to higher product availability in the market, the margins for Ethylene Amines and HPMO (High Purity Metalorganics) have declined. Raw material prices on average stabilized in the first quarter compared with 2011 levels, but were significantly higher than in Q1 2011.


Industrial Chemicals

The performance of the Industrial Chemicals business was in line with the previous year. Energy business margins continued to suffer from the low spark spreads (the difference between gas input costs versus electricity sales prices) in the Dutch energy market. In addition, there were one-time higher outbound logistic costs in the Netherlands.


Surface Chemistry

Surface Chemistry had a strong quarter, driven by the acquisition of Boxing Oleochemicals in China, which was completed earlier in the quarter. Effective margin management was the key driver behind the strong performance of the business.


Pulp and Paper Chemicals

Pulp and Performance had a strong quarter. Margin management actions continued to improve the performance of the business throughout the quarter.


Chemicals Pakistan

Domestic market conditions remain difficult. The energy crisis affected the Soda Ash and Polyester businesses. The divestment process of Chemicals Pakistan is on track; the legal disentanglement is nearly complete and the sales process has been started.


Condensed financial statements


Consolidated statement of income

1st quarter

 

 

in € millions

 

2011

 

2012

 

 

 

 

 

Continuing operations

 

 

 

 

Revenue

 

3,762

 

3,972

Cost of sales

 

(2,269)

 

(2,465)

Gross profit

 

1,493

 

1,507

Selling expenses

 

(821)

 

(860)

General and administrative expenses

 

(300)

 

(353)

Research and development expenses

 

(85)

 

(94)

Other operating income/(expenses)

 

(10)

 

(9)

Operating income

 

277

 

191

Net financing expenses

 

(63)

 

(65)

Results from associates and joint ventures

 

7

 

4

Profit before tax

 

221

 

130

Income tax

 

(73)

 

(46)

Profit for the period from continuing operations

 

148

 

84

 

 

 

 

 

Discontinued operations

 

 

 

 

Profit for the period from discontinued operations

 

(4)

 

1

Profit for the period

 

144

 

85

 

 

 

 

 

Attributable to

 

 

 

 

Shareholders of the company

 

128

 

71

Non-controlling interests

 

16

 

14

Profit for the period

 

144

 

85


Consolidated statement of comprehensive income

1st quarter

 

 

in € millions

 

2011

 

2012

Profit for the period

 

144

 

85

 

 

 

 

 

Other comprehensive income

 

 

 

 

Exchange differences arising on translation of foreign operations

 

(297)

 

(73)

Cash flow hedges

 

(22)

 

(15)

Income tax relating to other comprehensive income

 

12

 

7

Other comprehensive income for the period (net of tax)

 

(307)

 

(81)

Comprehensive income for the period

 

(163)

 

4

 

 

 

 

 

Comprehensive income attributable to

 

 

 

 

Shareholders of the company

 

(151)

 

1

Non-controlling interests

 

(12)

 

3

Comprehensive income for the period

 

(163)

 

4


Condensed consolidated balance sheet

in € millions

 

December 31, 2011

 

March 31, 2012

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

7,392

 

7,371

Property, plant and equipment

 

3,705

 

3,720

Other financial non-current assets

 

2,198

 

2,718

Total non-current assets

 

13,295

 

13,809

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

1,924

 

2,042

Trade and other receivables

 

2,917

 

3,298

Cash and cash equivalents

 

1,635

 

1,238

Other current assets

 

98

 

126

Total current assets

 

6,574

 

6,704

Total assets

 

19,869

 

20,513

 

 

 

 

 

Equity and liabilities

 

 

 

 

Total equity

 

9,743

 

9,742

 

 

 

 

 

Non-current liabilities

 

 

 

 

Provisions and deferred tax liabilities

 

2,284

 

2,264

Long-term borrowings

 

3,035

 

3,084

Total non-current liabilities

 

5,319

 

5,348

 

 

 

 

 

Current liabilities

 

 

 

 

Short-term borrowings

 

494

 

1,014

Trade and other payables

 

3,349

 

3,430

Other short-term liabilities

 

964

 

979

Total current liabilities

 

4,807

 

5,423

Total equity and liabilities

 

19,869

 

20,513


Changes in equity

in € millions

 

Subscribed share capital

 

Additional paid-in capital

 

Cashflow hedge reserve

 

Cumulative translation reserves

 

Other reserves

 

Share-
holders’ equity

 

Non-
controlling interests

 

Total equity

Balance at January 1, 2011

 

467

 

9

 

29

 

(43)

 

8,522

 

8,984

 

525

 

9,509

Profit for the period

 

 

 

 

 

128

 

128

 

16

 

144

Other comprehensive income

 

 

 

(16)

 

(263)

 

 

(279)

 

(28)

 

(307)

Comprehensive income for the period

 

 

 

(16)

 

(263)

 

128

 

(151)

 

(12)

 

(163)

Equity-settled transactions

 

 

 

 

 

8

 

8

 

 

8

Issue of common shares

 

 

5

 

 

 

 

5

 

 

5

Balance at March 31, 2011

 

467

 

14

 

13

 

(306)

 

8,658

 

8,846

 

512

 

9,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2012

 

469

 

47

 

(9)

 

4

 

8,701

 

9,212

 

531

 

9,743

Profit for the period

 

 

 

 

 

71

 

71

 

14

 

85

Other comprehensive income

 

 

 

(13)

 

(57)

 

 

(70)

 

(11)

 

(81)

Comprehensive income
for the period

 

 

 

(13)

 

(57)

 

71

 

1

 

3

 

4

Dividend paid

 

 

 

 

 

 

 

(3)

 

(3)

Equity-settled transactions

 

 

 

 

 

9

 

9

 

 

9

Issue of common shares

 

2

 

3

 

 

 

 

5

 

 

5

Acquisitions and divestments

 

 

 

 

 

(7)

 

(7)

 

(9)

 

(16)

Balance at March 31, 2012

 

471

 

50

 

(22)

 

(53)

 

8,774

 

9,220

 

522

 

9,742


Condensed consolidated statement of cash flows

1st quarter

 

 

in € millions

 

2011

 

2012

Cash and cash equivalents at beginning of period

 

2,683

 

1,335

 

 

 

 

 

Adjustments to reconcile earnings to cash generated
from operating activities

 

 

 

 

Profit/(loss) for the period from continuing operations

 

148

 

84

Amortization, depreciation and impairments

 

150

 

173

Changes in working capital

 

(390)

 

(418)

Changes in provisions

 

(358)

 

(546)

Other changes

 

(69)

 

(54)

Net cash from operating activities

 

(519)

 

(761)

Capital expenditures

 

(130)

 

(143)

Acquisitions and divestments net of cash acquired

 

8

 

1

Other changes

 

2

 

11

Net cash from investing activities

 

(120)

 

(131)

Changes from borrowings

 

(12)

 

490

Dividends

 

(1)

 

(3)

Other changes

 

5

 

(10)

Net cash from financing activities

 

(8)

 

477

Net cash used for continuing operations

 

(647)

 

(415)

Cash flows from discontinued operations

 

 

(6)

Net change in cash and cash equivalents of total operations

 

(647)

 

(421)

Effect of exchange rate changes on cash and cash equivalents

 

(50)

 

(9)

Cash and cash equivalents at March 31

 

1,986

 

905


Notes to the condensed financial statements


Quarterly statistics

2011

 

 

 

2012

Q1

 

Q2

 

Q3

 

Q4

 

year

 

in € millions

 

Q1

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,196 

 

1,461

 

1,435

 

1,204

 

5,296

 

Decorative Paints

 

1,242

1,237 

 

1,312

 

1,295

 

1,326

 

5,170

 

Performance Coatings

 

1,369

1,351 

 

1,350

 

1,349

 

1,285

 

5,335

 

Specialty Chemicals

 

1,399

(22)

 

(26)

 

(28)

 

(28)

 

(104)

 

Other activities/eliminations

 

(38)

3,762 

 

4,097

 

4,051

 

3,787

 

15,697

 

Total

 

3,972

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

90 

 

191

 

148

 

11

 

440

 

Decorative Paints

 

76

143 

 

170

 

157

 

141

 

611

 

Performance Coatings

 

164

241 

 

220

 

238

 

207

 

906

 

Specialty Chemicals

 

235

(37)

 

(30)

 

(36)

 

(58)

 

(161)

 

Other activities/eliminations

 

(52)

437 

 

551

 

507

 

301

 

1,796

 

Total

 

423

 

 

 

 

 

 

 

 

 

 

 

 

 

11.6 

 

13.4 

 

12.5 

 

7.9 

 

11.4 

 

EBITDA margin (in %)

 

10.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30)

 

(30)

 

(33)

 

(33)

 

(126)

 

Decorative Paints

 

(33)

(21)

 

(21)

 

(21)

 

(24)

 

(87)

 

Performance Coatings

 

(23)

(55)

 

(56)

 

(56)

 

(60)

 

(227)

 

Specialty Chemicals

 

(61)

(2)

 

(3)

 

(4)

 

(2)

 

(11)

 

Other activities/eliminations

 

(5)

(108)

 

(110)

 

(114)

 

(119)

 

(451)

 

Total

 

(122)

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21)

 

(20)

 

(20)

 

(23)

 

(84)

 

Decorative Paints

 

(24)

(7)

 

(7)

 

(7)

 

(8)

 

(29)

 

Performance Coatings

 

(9)

(12)

 

(13)

 

(13)

 

(16)

 

(54)

 

Specialty Chemicals

 

(13)

 

 

(1)

 

(2)

 

(3)

 

Other activities/eliminations

 

(40)

 

(40)

 

(41)

 

(49)

 

(170)

 

Total

 

(46)

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39 

 

141

 

95

 

(45)

 

230

 

Decorative Paints

 

19

115 

 

142

 

129

 

109

 

495

 

Performance Coatings

 

132

174 

 

151

 

169

 

131

 

625

 

Specialty Chemicals

 

161

(39)

 

(33)

 

(41)

 

(62)

 

(175)

 

Other activities/eliminations

 

(57)

289 

 

401

 

352

 

133

 

1,175

 

Total

 

255

 

 

 

 

 

 

 

 

 

 

 

 

 

7.7 

 

9.8

 

8.7

 

3.5

 

7.5

 

EBIT margin (in %)

 

6.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37 

 

137

 

57

 

(94)

 

137

 

Decorative Paints

 

(15)

106 

 

155

 

114

 

83

 

458

 

Performance Coatings

 

127

173 

 

147

 

169

 

133

 

622

 

Specialty Chemicals

 

140

(39)

 

(11)

 

(39)

 

(86)

 

(175)

 

Other activities/eliminations

 

(61)

277 

 

428

 

301

 

36

 

1,042

 

Total

 

191

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals per Business Area

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

(4)

 

(38)

 

(49)

 

(93)

 

Decorative Paints

 

(34)

(9)

 

13

 

(15)

 

(26)

 

(37)

 

Performance Coatings

 

(5)

(1)

 

(4)

 

 

2

 

(3)

 

Specialty Chemicals

 

(21)

 

22

 

2

 

(24)

 

 

Other activities/eliminations

 

(4)

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals included in operating income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9)

 

(20)

 

(47)

 

(55)

 

(131)

 

Restructuring costs

 

(46)

 

21

 

2

 

(33)

 

(9)

 

Results related to major legal and environmental cases

 

(22)

 

26

 

(5)

 

(11)

 

10

 

Results on acquisitions and divestments

 

(4)

 

 

(1)

 

2

 

(3)

 

Other incidental results

 

4

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals per line item

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4)

 

(5)

 

(25)

 

(18)

 

(52)

 

Cost of sales

 

(35)

(3)

 

(9)

 

(20)

 

(34)

 

(66)

 

Selling expenses

 

(9)

(1)

 

(4)

 

(1)

 

(18)

 

(24)

 

General and administrative expenses

 

(20)

 

 

(1)

 

(8)

 

(9)

 

Research and development expenses

 

(1)

(4)

 

45

 

(4)

 

(19)

 

18 

 

Other operating income/(expenses)

 

1

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation net financing expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14 

 

17 

 

14 

 

12 

 

57 

 

Financing income

 

15

(61)

 

(63)

 

(49)

 

(129)

 

(302)

 

Financing expenses

 

(57)

(47)

 

(46)

 

(35)

 

(117)

 

(245)

 

Net interest on net debt

 

(42)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other interest movements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16)

 

(13)

 

(15)

 

(15)

 

(59)

 

Financing expenses related to pensions

 

(16)

(5)

 

(12)

 

(13)

 

(16)

 

(46)

 

Interest on provisions

 

(3)

 

7

 

(7)

 

7

 

12

 

Other items

 

(4)

(16)

 

(18)

 

(35)

 

(24)

 

(93)

 

Net other financing charges

 

(23)

(63)

 

(64)

 

(70)

 

(141)

 

(338)

 

Net financing expenses

 

(65)

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly net income analysis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 

23 

 

Results from associates and joint ventures

 

(16)

 

 (22)

 

(18)

 

(8)

 

(64)

 

Profit attributable to non-controlling interests

 

(14)

221 

 

372 

 

 240

 

(106)

 

727 

 

Profit before tax

 

130 

(73)

 

 (99)

 

(74)

 

52

 

(194)

 

Income tax

 

(46)

148 

 

273 

 

166

 

(54)

 

533 

 

Profit for the period from continuing operations

 

84 

33 

 

27 

 

31

 

49

 

27 

 

Effective tax rate (in %)

 

35 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations (in €)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.57

 

1.07

 

0.63

 

(0.26)

 

2.01

 

Basic

 

0.30

0.56

 

1.07

 

0.63

 

(0.26)

 

1.99

 

Diluted

 

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations (in €)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.02)

 

0.07

 

 

(0.03)

 

0.03

 

Basic

 

(0.02)

 

0.07

 

 

(0.03)

 

0.03

 

Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from total operations (in €)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.55

 

1.14

 

0.63

 

(0.29)

 

2.04

 

Basic

 

0.30

0.54

 

1.14

 

0.63

 

(0.29)

 

2.02

 

Diluted

 

0.30

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares (in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

233.6

 

233.9

 

234.0

 

234.3

 

233.9

 

Weighted average number of shares

 

235.1

233.7

 

234.0

 

234.0

 

234.7

 

234.7

 

Number of shares at end of quarter

 

235.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings (in € millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

221 

 

372 

 

240 

 

(106)

 

727 

 

Profit before tax from continuing operations

 

130 

12 

 

(27)

 

51 

 

97 

 

133 

 

Incidentals reported in operating income

 

64 

40 

 

40 

 

41 

 

49 

 

170 

 

Amortization of intangible assets

 

46 

(88)

 

(107)

 

(100)

 

 

(286)

 

Adjusted income tax

 

(78)

(16)

 

(22)

 

(18)

 

(8)

 

(64)

 

Non-controlling interests

 

(14)

169 

 

256 

 

214 

 

41 

 

680 

 

Adjusted net income for continuing operations

 

148 

0.72 

 

1.09 

 

0.91 

 

0.17 

 

2.91 

 

Adjusted earnings per share (in €)

 

0.63 


Notes to the statement of income

EBIT in “other”

Corporate costs are higher due to some one- off items. A higher number of claims compared to previous year has had a negative impact on the Insurance result. The level of other costs is higher than previous year, when there were favorable legacy items.

1st quarter

 

 

in € millions

 

2011

 

2012

Corporate costs

 

(25)

 

(32)

Pensions

 

(2)

 

(1)

Insurances

 

3

 

(1)

Other

 

(15)

 

(23)

EBIT in “other”

 

(39)

 

(57)

Net financing expenses

Net financing charges for Q1 2012 increased €2 million to €65 million due to a one-time prior year expense of €4 million, offset by lower interest on provisions due to higher discount rates, and a decrease in capitalized interest due to completion of the Ningbo project in China .

Tax

The Q1 tax rate is 35 percent (2011: 33 percent). The higher tax rate is mainly due to several adjustments for prior years and the impact of changes in tax rates on the measurement of deferred tax. Excluding this and other one-off factors, the tax rate would have been 30 percent. In 2011, the Q1 tax rate was also high because of the impact of changes in tax rates on the measurement of deferred tax.


Shareholders’ equity

Shareholders equity remained stable at €9.2 billion, compared with year-end 2011, mainly due to the net effect of:

  • Net income of €71 million.
  • Decreased cumulative translation reserves by €57 million due to the strengthening euro.

Pensions

The funded status of the pension plans at Q1 2012 was estimated to be a deficit of €0.3 billion (year-end 2011: €0.5 billion). The movement in the quarter is primarily due to:

  • Top-up payments of €322 million into certain UK and US defined benefit pension plans
  • An additional one-time payment of €239 million into the UK ICI Pension Fund

Off set by:

  • Lower discount rates increasing the pension obligation
  • Higher inflation in the UK increasing the pension obligation
  • Asset returns lower than expectation.

Workforce

At March 2012, we employed 57,320 staff (year-end 2011: 57,240 employees). The net increase was due to:

  • A decrease of 660 employees due to ongoing restructuring
  • An increase from acquisitions of 560 employees
  • An increase of 180 employees, mainly due to seasonal activity.

Invested and operating working capital

Invested capital

in € millions

 

March 31, 2011

 

December 31, 2011

 

March 31, 2012

Trade receivables

 

2,439

 

2,368

 

2,672

Inventories

 

1,781

 

1,924

 

2,042

Trade payables

 

(2,065)

 

(2,213)

 

(2,212)

Operating working capital in Business Areas

 

2,155

 

2,079

 

2,502

Other working capital items

 

(911)

 

(901)

 

(887)

Non-current assets

 

12,504

 

13,295

 

13,809

Less investments in associates
and joint ventures

 

(177)

 

(198)

 

(195)

Deferred tax liabilities

 

(558)

 

(567)

 

(548)

Invested capital

 

13,013

 

13,708

 

14,681

Invested capital at the end of Q1 2012 totaled €14.7 billion, €1.0 billion higher than at year-end 2011. Invested capital was impacted by the net effect of:

  • An increase of €0.6 billion of long-term receivables related to increases in pension funds in an asset position (where plan assets exceed defined benefit obligation and unrecognized actuarial gains and losses).
  • An increase of operating working capital of €0.4 billion mainly due to seasonality, more expensive raw materials and actions to ensure supply of TiO2. Expressed as a percentage of revenue, operating working capital was 15.6 percent (Q1 2011: 14.2 percent; year-end 2011: 13.6 percent).
  • An increase of €0.1 billion from the Boxing Oleochemicals acquisition.
  • Payments of accrued interest of €0.1 billion.
  • Foreign currency effects on intangibles and property, plant and equipment, due to the strengthening euro. In total, invested capital decreased by €0.1 billion due to the currency translation impact.

Operating working capital

in € millions, % of revenue

 

March 31, 2011

 

December 31, 2011

 

March 31, 2012

Decorative Paints

 

689

 

14.4

 

622

 

12.9

 

896

 

18.0

Performance Coatings

 

782

 

15.8

 

772

 

14.6

 

852

 

15.6

Specialty Chemicals

 

684

 

12.7

 

685

 

13.3

 

754

 

13.5

Total

 

2,155

 

14.2

 

2,079

 

13.6

 

2,502

 

15.6

In % of revenue

AkzoNobel – Operating working capital (bar chart)

Cash flows and net debt

Operating activities in Q1 2012 resulted in a cash outflow of €761 million (2011: €519 million). The change is due to a net effect of:

  • Lower profit from continuing operations
  • Higher cash outflows from working capital mainly due to a higher autonomous increase in operating working capital
  • Higher payments related to pension provisions primarily due to the additional one-time payment of €239 million into the UK ICI Pension Fund.

As a consequence, net debt increased from €1,895 million at, year-end 2011 to €2,860 million at the end of Q1 2012.


General information

Accounting policies and restatements

This interim financial report is in compliance with IAS 34 “Interim Financial Reporting”. This report is unaudited. The accounting principles are as applied in the 2011 financial statements.

Operating working capital is defined as the sum of inventories, trade receivables and trade payables in the Business Areas. We have adjusted the definitions of trade receivables as well as trade payables to include supplier related receivables and customer related payables. The 2011 figures have been adjusted accordingly.

Seasonality

Revenue and results in Decorative Paints are impacted by seasonal influences. Revenue and profitability tend to be higher in the second and third quarter of the year as weather conditions determine whether paints and coatings can be applied. In Performance Coatings, revenue and profitability vary with building patterns from original equipment manufacturers. In Specialty Chemicals, the Functional Chemicals and the Surface Chemistry businesses experience seasonal influences. Revenue and profitability are affected by developments in the agricultural season and tend to be higher in the first half of the year.

The “other” category

In the category “other” we report activities which are not allocated to a particular business area. Corporate costs are the unallocated costs of our head office and shared services center in the Netherlands. Pensions reflects pension costs after the elimination of interest cost (reported as financing expenses). Insurances are the results from our captive insurance companies. Other includes the cost of share-based compensation and company projects, the results of treasury and legacy operations as well as the unallocated cost of some country organizations.


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

Comprehensive income is the change in equity during a period resulting from transactions and other events other than those changes resulting from transactions with shareholders in their capacity as shareholders.

Constant currencies information excludes foreign currency translation effects assuming foreign currency exchange rates have not changed between the prior year period and the current period.

EBIT is operating income before incidentals.

EBIT margin is EBIT as percentage of revenue.

EBITDA is EBIT before depreciation and amortization and refers to EBITDA before incidentals.

EBITDA margin is EBITDA as percentage of revenue.

Emerging Europe: Central and Eastern Europe (excluding Austria), Baltic States and Turkey.

Incidentals are special charges and benefits, results on acquisitions and divestments, restructuring and impairment charges, and charges related to major legal, anti-trust, and environmental cases. EBITDA and EBIT before incidentals are key figures we use to assess our performance, as these figures better reflect the underlying trends in the results of the activities.

Interest coverage is operating income divided by net interest on net debt.

Invested capital is total assets (excluding cash and cash equivalents, investments in associates, assets held for sale) less current income tax payable, deferred tax liabilities and trade and other payables.

Mature markets comprise of Western Europe, the US, Canada, Japan and Oceania.

Moving average ROI is calculated as EBIT of the last twelve months divided by average invested capital.

Net debt is defined aslong-term borrowings plus short-term borrowings less cash and cash equivalents.

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

Operating ROI is calculated as EBIT before amortization of the last twelve months divided by average invested capital excluding intangible assets.

Operating working capital is defined as the sum of inventories, trade receivables and trade payables in the Business Areas. Starting 2012 we have changed the definitions of trade receivables as well as trade payables. Trade receivables now include supplier related receivables while in trade payables customer related payables have been included. The 2011 figures have been adjusted to align with the 2012 definitions. When expressed as a ratio, operating working capital is measured against four times last quarter revenue.