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AkzoNobel Q2 2012


Overview


Our results at a glance

  • Revenue up 8 percent, mainly driven by pricing actions and currencies
  • Volumes declined 2 percent, primarily due to the economic slowdown in Europe
  • EBITDA margin 13.5 percent (2011: 13.4 percent)
  • Net income from continuing operations €197 million (2011: €251 million), 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

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 8 percent driven by pricing actions to offset higher raw material costs and by favorable currency effects. Volumes were down 2 percent, primarily due to the economic slowdown in Europe. The EBITDA margin was 13.5 percent (2011: 13.4 percent). The performance improvement program is making good progress.

Continuing operations before incidentals

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

4,097

 

4,406

 

8

 

Revenue

 

7,859

 

8,378

 

7

551

 

593

 

8

 

EBITDA

 

988

 

1,016

 

3

13.4

 

13.5

 

 

 

EBITDA margin (in %)

 

12.6

 

12.1

 

 

401

 

423

 

5

 

EBIT

 

690

 

678

 

(2)

9.8

 

9.6

 

 

 

EBIT margin (in %)

 

8.8

 

8.1

 

 

 

 

 

 

 

 

Moving average ROI (in %)

 

10.4

 

8.3

 

 

 

 

 

 

 

 

Operating ROI (in %)

 

26.2

 

20.2

 

 

1.09

 

1.12

 

 

 

Adjusted earnings per share (in €)

 

1.82

 

1.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations after incidentals

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

428

 

375

 

(12)

 

Operating income

 

705

 

566

 

(20)

251

 

197

 

 

 

Net income from continuing operations

 

383

 

267

 

 

17

 

4

 

 

 

Net income from discontinued operations

 

13

 

5

 

 

268

 

201

 

 

 

Net income total operations

 

396

 

272

 

 

1.07

 

0.83

 

 

 

Earnings per share from continuing operations (in €)

 

1.64

 

1.13

 

 

1.14

 

0.85

 

 

 

Earnings per share from total operations (in €)

 

1.69

 

1.15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164

 

173

 

 

 

Capital expenditures

 

294

 

316

 

 

165

 

401

 

 

 

Net cash from operating activities

 

(354)

 

(360)

 

 

 

 

 

 

 

 

Interest coverage

 

7.6

 

6.3

 

 

 

 

 

 

 

 

Invested capital

 

13,115

 

14,813

 

 

 

 

 

 

 

 

Net debt

 

1,808

 

2,844

 

 

 

 

 

 

 

 

Number of employees

 

56,410

 

57,580

 

 


Revenue

Revenue was up 8 percent, driven by pricing actions to offset higher raw material costs and by favorable currency effects. Volumes were down 2 percent reflecting weaker demand across our end markets.

  • Decorative Paints revenue grew 6 percent, mainly due to favorable price/mix and positive currency effects. Revenue grew in all businesses, with the exception of South East Asia Pacific. Volumes were down, negatively affected by the euro crisis and the general slowdown in global markets (Europe and South East Asia Pacific were our hardest hit markets). However, we continue to see positive volume development in Latin America and China.
  • In Performance Coatings, revenue increased 12 percent compared with the previous year. The strongest growth came from Industrial Coatings (due to acquisitions) and Marine and Protective Coatings (from strong demand in Protective Coatings). Volume declined with significant variability between individual activities.
  • Specialty Chemicals revenue increased 6 percent due to positive price/mix developments, acquisitions and foreign currency effects. Volumes were 2 percent below the previous year reflecting a slowdown in most businesses in the quarter as customer ordering patterns became more cautious.

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

1,461

 

1,551

 

6

 

Decorative Paints

 

2,657

 

2,793

 

5

1,312

 

1,472

 

12

 

Performance Coatings

 

2,549

 

2,841

 

11

1,350

 

1,431

 

6

 

Specialty Chemicals

 

2,701

 

2,830

 

5

(26)

 

(48)

 

 

 

Other activities/eliminations

 

(48)

 

(86)

 

 

4,097

 

4,406

 

8

 

Total

 

7,859

 

8,378

 

7

Revenue development Q2 2012

AkzoNobel – Revenue development Q2 2012 (bar chart)

in % versus Q2 2011

 

Volume

 

Price/mix

 

Acquisitions

 

Exchange
rates

 

Total

Decorative Paints

 

(2)

 

5

 

 

3

 

6

Performance Coatings

 

(2)

 

6

 

3

 

5

 

12

Specialty Chemicals

 

(2)

 

2

 

2

 

4

 

6

Total

 

(2)

 

4

 

2

 

4

 

8

Volume development per quarter
(year-on-year)

 

Q2 11

 

Q3 11

 

Q4 11

 

Q1 12

 

Q2 12

Decorative Paints

 

6

 

4

 

2

 

(4)

 

(2)

Performance Coatings

 

2

 

1

 

(2)

 

(1)

 

(2)

Specialty Chemicals

 

1

 

(1)

 

(4)

 

(1)

 

(2)

Total

 

3

 

1

 

(2)

 

(3)

 

(2)

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

 

Q2 11

 

Q3 11

 

Q4 11

 

Q1 12

 

Q2 12

Decorative Paints

 

2

 

3

 

4

 

6

 

5

Performance Coatings

 

3

 

7

 

7

 

8

 

6

Specialty Chemicals

 

8

 

8

 

5

 

1

 

2

Total

 

4

 

6

 

6

 

5

 

4


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

EBITDA was 8 percent higher at €593 million. The EBITDA margin was 13.5 percent (2011: 13.4 percent).

  • In Decorative Paints, EBITDA was down 8 percent, reflecting weaker European market conditions. Restructuring continues in mature markets, particularly in Europe.
  • In Performance Coatings, margin management initiatives are ongoing in response to continued raw material price increases. In mature markets, where activity levels are lower, there is a greater focus on cost control and restructuring activity.
  • All businesses in Specialty Chemicals performed strongly and earnings and margins increased compared with 2011, except for Functional Chemicals, which remained impacted by the supply/demand imbalance in Ethylene Amines.

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

191

 

175

 

(8)

 

Decorative Paints

 

281

 

251

 

(11)

170

 

213

 

25

 

Performance Coatings

 

313

 

377

 

20

220

 

255

 

16

 

Specialty Chemicals

 

461

 

490

 

6

(30)

 

(50)

 

 

 

Other activities/eliminations

 

(67)

 

(102)

 

 

551

 

593

 

8

 

Total

 

988

 

1,016

 

3


Performance improvement program

The performance improvement program announced in October 2011 is making good progress. Conceptually, it consists of three main building blocks, being operational professionalization, functional standardization and business unit specific adaptations. Operational professionalization addresses issues such as product complexity reduction, procurement, manufacturing and distribution excellence, and margin management. Business unit adaptations and operational professionalization are expected to contribute around 90 percent of the expected 2012 benefits of €200 million, while functional standardization will primarily be an important enabler. The combined cost of the program in the first half year equals €90 million, booked under incidentals.

The benefits of the program included in the first half year results, both in contribution margin and in cost savings, equal €65 million. Since the announcement of the program, around 1,000 people have left the company, of which around 800 left in 2012. The program is on track, with the main benefits for 2012 occurring in the second half of the year.


Raw materials

We have continued to see inflation in our overall raw materials portfolio, although less than last year. The main driver of input cost inflation is TiO2. In the second quarter, there has been increased availability from China and a reduction in global demand. However, in total, we still expect an increased average cost for the year.


Incidental items

We incurred higher restructuring costs across the businesses, mainly in mature markets, as we implement the performance improvement program. In addition, the previous year included favorable non-recurring items.

2nd quarter

 

 

 

January - June

2011

 

2012

 

in € millions

 

2011

 

2012

(20)

 

(44)

 

Restructuring costs

 

(29)

 

(90)

21

 

3

 

Results related to major legal and environmental cases

 

22

 

(19)

26

 

 

Results on acquisitions and divestments

 

26

 

 

(7)

 

Other incidental results

 

(4)

 

(3)

27

 

(48)

 

Incidentals included in operating income

 

15

 

(112)


Outlook

We are moving ahead with the implementation of our performance improvement program which should bring clear benefits in 2012 and beyond, supporting 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 Asia. Each of these can have a significant impact on our customers in these regions, that would in turn impact our sales volumes.

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.

We will be providing an update on strategy around the publication of our Q3 results.


Financial calendar

October 18, 2012
Report for the 3rd quarter 2012

February 20, 2013
Report for 2012 and the 4th quarter


Decorative Paints – Overview

  • 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, reflecting challenging market conditions
  • Improved results in North America due to a combination of margin management and restructuring
  • Restructuring continues in mature markets, particularly in Europe

Decorative Paints revenue grew 6 percent, mainly due to favorable price/mix and positive currency effects. Revenue grew in all businesses, with the exception of South East Asia Pacific. Volumes were down, negatively affected by the euro crisis and the general slowdown in global markets (Europe and South East Asia Pacific were our hardest hit markets). However, we continue to see positive volume development in Latin America and China. EBITDA was down 8 percent, reflecting weaker European market conditions. Restructuring continues in mature markets, particularly in Europe.

Revenue development Q2 2012

Decorative Paints – Revenue development Q2 2012 (bar chart)
Decorative Paints – Brands (logos)

Decorative Paints – Key figures

Revenue

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

777

 

780

 

 

Decorative Paints Europe

 

1,384

 

1,398

 

1

423

 

502

 

19

 

Decorative Paints Americas

 

822

 

905

 

10

262

 

276

 

5

 

Decorative Paints Asia

 

454

 

498

 

10

(1)

 

(7)

 

 

 

Other/intragroup eliminations

 

(3)

 

(8)

 

 

1,461

 

1,551

 

6

 

Total

 

2,657

 

2,793

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

Before incidentals

191

 

175

 

(8)

 

EBITDA

 

281

 

251

 

(11)

13.1

 

11.3

 

 

 

EBITDA margin (in %)

 

10.6

 

9.0

 

 

141

 

117

 

(17)

 

EBIT

 

180

 

136

 

(24)

9.7

 

7.5

 

 

 

EBIT margin (in %)

 

6.8

 

4.9

 

 

 

 

 

 

 

 

Moving average ROI (in %)

 

5.2

 

2.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After incidentals

137

 

110

 

 

 

Operating income

 

174

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42

 

48

 

 

 

Capital expenditures

 

84

 

85

 

 

 

 

 

 

 

 

Invested capital

 

6,550

 

7,097

 

 

 

 

 

 

 

 

Number of employees

 

22,580

 

22,200

 

 

Revenue

in € millions

Decorative Paints – Revenue (bar chart)

EBITDA

in € millions

Decorative Paints – EBITDA (bar chart)

Europe

Revenue was flat. Demand was weak in all our European markets, especially the Southern region. We are continuing our restructuring and cost reduction efforts across Europe in response to the difficult market conditions we are facing.


Americas

North America experienced significant revenue growth. Glidden DUO and Ultra-Hide product launches, the 75th SICO Anniversary promotion, price gains, and favorable mix in the retail channels drove the results. Stores Canada delivered a strong quarter due to continued growth in the Dulux brand. Stores US revenue was lower due to pricing and segmentation strategies and the impact of service levels. The business has also started to benefit from its restructuring efforts. Revenue in Latin America was up, reflecting strong margin management and volume growth amid a general economic slowdown in the region and currency devaluation. In Brazil, the volume growth outpaced the market growth, fueled by the successful Tudo de Cor campaign. We will continue to invest in our brands and distribution channels.


Asia

China’s revenue increased due to margin management and strong volume growth, especially in project and professional channels.Revenue was down in the South East Asia Pacific markets, reflecting weak conditions in Indonesia and Vietnam. Strong cost control in the region partially compensated for the negative volume trends.

In India, revenue continued to grow on the back of volume growth and strong margin management , partly offset by weak markets in the rest of the region. Cost control measures are implemented to mitigate cost inflation.


Performance Coatings – Overview

  • Revenue up 12 percent, supported by margin management, acquisitions and currency effects
  • Underlying volume declined by 2 percent, with significant variability between individual markets
  • EBITDA margin at 14.5 percent (2011: 13.0 percent) driven by margin management and operational efficiency
  • Integration of acquired activities supporting results
  • Protective Coatings and Industrial Coatings were the strongest growth contributors

Revenue increased 12 percent compared with the previous year. The strongest growth came from Industrial Coatings (due to acquisitions) and Marine and Protective Coatings (from strong demand in Protective Coatings). Volume declined with significant variability between individual activities. Margin management initiatives are ongoing in response to continued raw material price increases. In mature markets, where activity levels are lower, there is a greater focus on cost control and restructuring activity.

Revenue development Q2 2012

Performance Coatings – Revenue development Q2 2012 (bar chart)
Performance Coatings – Brands (logos)

Performance Coatings – Key figures

Revenue

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

357

 

411

 

15

 

Marine and Protective Coatings

 

681

 

780

 

15

201

 

215

 

7

 

Wood Finishes and Adhesives

 

389

 

417

 

7

265

 

268

 

1

 

Automotive and Aerospace Coatings

 

524

 

523

 

238

 

255

 

7

 

Powder Coatings

 

469

 

499

 

6

258

 

330

 

28

 

Industrial Coatings

 

501

 

635

 

27

(7)

 

(7)

 

 

 

Other/intragroup eliminations

 

(15)

 

(13)

 

 

1,312

 

1,472

 

12

 

Total

 

2,549

 

2,841

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

Before incidentals

170

 

213

 

25

 

EBITDA

 

313

 

377

 

20

13.0

 

14.5

 

 

 

EBITDA margin (in %)

 

12.3

 

13.3

 

 

142

 

180

 

27

 

EBIT

 

257

 

312

 

21

10.8

 

12.2

 

 

 

EBIT margin (in %)

 

10.1

 

11.0

 

 

 

 

 

 

 

 

Moving average ROI (in %)

 

24.2

 

22.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After incidentals

155

 

171

 

 

 

Operating income

 

261

 

298

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30

 

25

 

 

 

Capital expenditures

 

46

 

43

 

 

 

 

 

 

 

 

Invested capital

 

2,231

 

2,534

 

 

 

 

 

 

 

 

Number of employees

 

21,030

 

21,920

 

 

Revenue

in € millions

Performance Coatings – Revenue (bar chart)

EBITDA

in € millions

Performance Coatings – EBITDA (bar chart)

Marine and Protective Coatings

Revenue was up 15 percent on 2011, positively supported by price/mix and currencies. Overall volumes declined, with Marine volumes impacted by the slowdown in the new shipbuilding market. Protective Coatings achieved increased volumes across most regions, with especially good growth coming from the oil and gas businesses. Activities in Yacht increased in North America, partially offset by a small decline in Asia and Europe. We achieved notable success in Q2 with coatings supplied to “mega” projects commissioned by the oil majors Chevron, Total and Shell.


Wood Finishes and Adhesives

Revenue increased 7 percent compared with the previous year, positively supported by currencies and price/mix. Demand levels improved in North America, while they softened in Europe and Asia. We continue to further develop our position in the high growth domestic markets of China and India. We had the official opening of our new plant in Vietnam to supply coatings to the high growth markets of South East Asia.


Automotive and Aerospace Coatings

Revenue remained flat due to weak demand in Vehicle Refinish in the US and Europe. Lower volumes were compensated by currency and price/mix. Cost controls mitigated the impact of reduced volumes. During the quarter, Chinese car manufacturer FAW Haima Automobile chose Automotive and Aerospace Coatings as its exclusive vehicle refinishes paint provider. The business was selected for its state-of-the-art color technology, top quality products and outstanding customer service.


Powder Coatings

Revenue was up 7 percent, supported by price/mix and currencies. Lower European demand was partially mitigated by growth in other regions. Domestic Appliance and Furniture continued to suffer from the weaker economic situation. Architectural activities continued to be strong in our key growth markets and recorded marginal growth even in Europe. Our Automotive activities also remained strong in all regions, with good growth compared with the previous year. Our Resicoat product was used on the Beyneu-Shymkent gas pipeline, which connects the north and south of the Ukraine, with further links to the Central Asia–China pipeline.


Industrial Coatings

Revenue was up 28 percent, mainly due to acquisition activity. Coil Coatings’ construction related business achieved strong growth in the high growth markets of Turkey and Russia. Packaging Coatings’ beverage and food related business continued to increase its top line, with Asia being the main driver for growth. Specialty Finishes showed growth in its automotive and consumer electronics markets. Delivery of synergies from acquisition of Schramm/SSCP is on track and the integration is progressing well.


Specialty Chemicals – Overview

  • Revenue increased 6 percent, due to margin management, the Boxing Oleochemicals acquisition and currency effects
  • Volumes in most businesses slowed down during the quarter and customer ordering patterns became more cautious
  • EBITDA margin improved to 17.8 percent (2011: 16.3 percent), based on improved margins and continued cost restructuring

Specialty Chemicals margins improved due to positive price/mix developments and currency effects. These stronger margins, combined with cost control and continued restructuring, are compensating for weaker demand – volumes in the quarter remained 2 percent below the previous year. All businesses performed strongly and earnings and margins increased compared with 2011, except for Functional Chemicals, which remained impacted by the supply/demand imbalance in Ethylene Amines. Surface Chemistry and Pulp and Performance Chemicals increased their earnings substantially compared with last year, while Industrial Chemicals also performed well. Despite difficult domestic market conditions, Chemicals Pakistan was able to improve its profitability.

Revenue development Q2 2012

Specialty Chemicals – Revenue development Q2 2012 (bar chart)
Specialty Chemicals – Brands (logos)

Specialty Chemicals – Key figures

Revenue

2nd quarter

 

 

 

 

 

 

 

January - June

2011

 

2012

 

Δ%

 

in € millions

 

2011

 

2012

 

Δ%

493

 

518

 

5

 

Functional Chemicals

 

979

 

1,017

 

4

291

 

293

 

1

 

Industrial Chemicals

 

589

 

594

 

1

245

 

293

 

20

 

Surface Chemistry

 

482

 

577

 

20

276

 

289

 

5

 

Pulp and Performance Chemicals

 

550

 

571

 

4

78

 

72

 

(8)

 

Chemicals Pakistan

 

168

 

141

 

(16)

(33)

 

(34)

 

 

 

Other/intragroup eliminations

 

(67)

 

(70)

 

 

1,350

 

1,431

 

6

 

Total

 

2,701

 

2,830

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

Before incidentals

220

 

255

 

16

 

EBITDA

 

461

 

490

 

6

16.3

 

17.8

 

 

 

EBITDA margin (in %)

 

17.1

 

17.3

 

 

151

 

177

 

17

 

EBIT

 

325

 

338

 

4

11.2

 

12.4

 

 

 

EBIT margin (in %)

 

12.0

 

11.9

 

 

 

 

 

 

 

 

Moving average ROI (in %)

 

19.4

 

17.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

After incidentals

147

 

154

 

 

 

Operating income

 

320

 

294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

95

 

 

 

Capital expenditures

 

154

 

182

 

 

 

 

 

 

 

 

Invested capital

 

3,515

 

3,815

 

 

 

 

 

 

 

 

Number of employees

 

11,420

 

11,980

 

 

Revenue

in € millions

Specialty Chemicals – Revenue (bar chart)

EBITDA

in € millions

Specialty Chemicals – EBITDA (bar chart)

Functional Chemicals

Overall volumes were flat, driven by lower volumes for Sulfur Derivatives and Performance Additives. The business is facing a general weakening of demand in Europe, with North America showing some recovery and Latin America showing growth. The current market overcapacity in Ethylene Amines continues to put sales prices under pressure.


Industrial Chemicals

Industrial Chemicals delivered a good performance, driven by results in Chlor Alkali, as well as strong volumes in the Salt and Monochloroacetic business, the latter especially in China. The market conditions in the Netherlands for our gas-fired co-generation units of our Energy business remain challenging.


Surface Chemistry

Surface Chemistry had a very good quarter, with higher revenues being mainly attributable to the acquisition of Boxing Oleochemicals in China and a favorable currency impact. Structurally, business demand remains sound and capacity utilization is high. Effective margin management was one of the key drivers behind the performance during the quarter.


Pulp and Performance Chemicals

The business recorded another strong quarter due to a solid performance of the Bleaching Chemicals business, although demand in Asia and Europe softened. Revenues were higher than last year on the back of price/mix, supported by the strengthening of the US dollar versus the euro. Overall result improvements were driven by margin management actions.


Chemicals Pakistan

The energy crisis continues to affect the downstream industry for the Soda Ash and Polyester businesses. Furthermore, demand in the Polyester market remains soft. The divestment process of Chemicals Pakistan is progressing, with the separation having been completed.


Condensed financial statements


Board of Management’s statement

We have prepared the half-yearly financial report 2012 of AkzoNobel and the undertakings included in the consolidation taken as a whole in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Dutch disclosure requirements for half-yearly financial reports.

To the best of our knowledge:

  1. The condensed financial statements in this half-yearly financial report 2012 give a true and fair view of our assets and liabilities, financial position at June 30, 2012, and of the result of our consolidated operations for the first half year of 2012.
  2. The interim management report in this half-yearly financial report includes a fair review of the information required pursuant to section 5:25d, subsections 8 and 9 of the Dutch Act on Financial Supervision.

Amsterdam, July 19, 2012
The Board of Management

Ton Büchner, Chief Executive Officer
Keith Nichols, Chief Financial Officer
Leif Darner, Board member, responsible for Performance Coatings
Tex Gunning, Board member, responsible for Decorative Paints


Consolidated statement of income

2nd quarter

 

 

 

January - June

2011

 

2012

 

in € millions

 

2011

 

2012

 

 

 

 

 

 

 

 

 

Continuing operations

4,097

 

4,406

 

Revenue

 

7,859

 

8,378

(2,467)

 

(2,675)

 

Cost of sales

 

(4,736)

 

(5,140)

1,630

 

1,731

 

Gross profit

 

3,123

 

3,238

(861)

 

(932)

 

Selling expenses

 

(1,682)

 

(1,792)

(294)

 

(322)

 

General and administrative expenses

 

(594)

 

(675)

(86)

 

(99)

 

Research and development expenses

 

(171)

 

(193)

39

 

(3)

 

Other operating income/(expenses)

 

29

 

(12)

428

 

375

 

Operating income

 

705

 

566

(64)

 

(82)

 

Net financing expenses

 

(127)

 

(147)

8

 

5

 

Results from associates and joint ventures

 

15

 

9

372

 

298

 

Profit before tax

 

593

 

428

(99)

 

(80)

 

Income tax

 

(172)

 

(126)

273

 

218

 

Profit for the period from continuing operations

 

421

 

302

 

 

 

 

 

 

 

 

 

Discontinued operations

17

 

4

 

Profit for the period from discontinued operations

 

13

 

5

290

 

222

 

Profit for the period

 

434

 

307

 

 

 

 

 

 

 

 

 

Attributable to

268

 

201

 

Shareholders of the company

 

396

 

272

22

 

21

 

Non-controlling interests

 

38

 

35

290

 

222

 

Profit for the period

 

434

 

307


Consolidated statement of comprehensive income

2nd quarter

 

 

 

January - June

2011

 

2012

 

in € millions

 

2011

 

2012

290

 

222

 

Profit for the period

 

434

 

307

 

 

 

 

 

 

 

 

 

Other comprehensive income

(71)

 

204

 

Exchange differences arising on translation of foreign operations

 

(368)

 

131

(18)

 

2

 

Cash flow hedges

 

(40)

 

(13)

8

 

(9)

 

Tax relating to components of other comprehensive income

 

20

 

(2)

(81)

 

197

 

Other comprehensive income for the period (net of tax)

 

(388)

 

116

209

 

419

 

Comprehensive income for the period

 

46

 

423

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to

197

 

384

 

Shareholders of the company

 

46

 

385

12

 

35

 

Non-controlling interests

 

 

38

209

 

419

 

Comprehensive income for the period

 

46

 

423


Condensed consolidated balance sheet

in € millions

 

December 31, 2011

 

June 30, 2012

Assets

 

 

 

 

Non-current assets

 

 

 

 

Intangible assets

 

7,392

 

7,427

Property, plant and equipment

 

3,705

 

3,749

Other financial non-current assets

 

2,198

 

2,759

Total non-current assets

 

13,295

 

13,935

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

1,924

 

2,008

Trade and other receivables

 

2,917

 

3,422

Cash and cash equivalents

 

1,635

 

1,313

Other current assets

 

98

 

100

Assets held for sale

 

 

145

Total current assets

 

6,574

 

6,988

Total assets

 

19,869

 

20,923

 

 

 

 

 

Equity and liabilities

Total equity

 

9,743

 

9,995

 

 

 

 

 

Non-current liabilities

 

 

 

 

Provisions and deferred tax liabilities

 

2,284

 

2,324

Long-term borrowings

 

3,035

 

3,067

Total non-current liabilities

 

5,319

 

5,391

 

 

 

 

 

Current liabilities

 

 

 

 

Short-term borrowings

 

494

 

1,089

Trade and other payables

 

3,349

 

3,487

Other short-term liabilities

 

964

 

961

Total current liabilities

 

4,807

 

5,537

Total equity and liabilities

 

19,869

 

20,923


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

 

 

 

 

 

396

 

396

 

38

 

434

Other comprehensive income

 

 

 

(30)

 

(320)

 

 

(350)

 

(38)

 

(388)

Comprehensive income for the period

 

 

 

(30)

 

(320)

 

396

 

46

 

 

46

Dividend paid

 

 

 

 

 

(253)

 

(253)

 

(19)

 

(272)

Equity-settled transactions

 

 

 

 

 

16

 

16

 

 

16

Issue of common shares

 

1

 

14

 

 

 

 

15

 

 

15

Balance at June 30, 2011

 

468

 

23

 

(1)

 

(363)

 

8,681

 

8,808

 

506

 

9,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2012

 

469

 

47

 

(9)

 

4

 

8,701

 

9,212

 

531

 

9,743

Profit for the period

 

 

 

 

 

272

 

272

 

35

 

307

Other comprehensive income

 

 

 

(12)

 

125

 

 

113

 

3

 

116

Comprehensive income for the period

 

 

 

(12)

 

125

 

272

 

385

 

38

 

423

Dividend paid

 

5

 

90

 

 

 

(263)

 

(168)

 

(13)

 

(181)

Equity-settled transactions

 

 

 

 

 

19

 

19

 

 

19

Issue of common shares

 

2

 

4

 

 

 

 

6

 

 

6

Acquisitions and divestments

 

 

 

 

 

(7)

 

(7)

 

(8)

 

(15)

Balance at June 30, 2012

 

476

 

141

 

(21)

 

129

 

8,722

 

9,447

 

548

 

9,995


Condensed consolidated statement of cash flows

2nd quarter

 

 

 

 

 

January - June

2011

 

2012

 

in € millions

 

2011

 

2012

1,986

 

905

 

Cash and cash equivalents at beginning of period

 

2,683

 

1,335

 

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile earnings to cash generated
from operating activities

 

 

273

 

218

 

Profit for the period from continuing operations

 

421

 

302

153

 

186

 

Amortization, depreciation and impairments

 

303

 

359

(204)

 

(38)

 

Changes in working capital

 

(594)

 

(456)

(70)

 

(30)

 

Changes in provisions

 

(428)

 

(576)

13

 

65

 

Other changes

 

(56)

 

11

165

 

401

 

Net cash from operating activities

 

(354)

 

(360)

(164)

 

(173)

 

Capital expenditures

 

(294)

 

(316)

16

 

(13)

 

Acquisitions and divestments net of cash acquired

 

24

 

(12)

1

 

2

 

Other changes

 

3

 

13

(147)

 

(184)

 

Net cash from investing activities

 

(267)

 

(315)

(538)

 

22

 

Changes from borrowings

 

(550)

 

512

(271)

 

(178)

 

Dividends

 

(272)

 

(181)

5

 

1

 

Other changes

 

10

 

(9)

(804)

 

(155)

 

Net cash from financing activities

 

(812)

 

322

(786)

 

62

 

Net cash used for continuing operations

 

(1,433)

 

(353)

11

 

0

 

Cash flows from discontinued operations

 

11

 

(6)

(775)

 

62

 

Net change in cash and cash equivalents of total operations

 

(1,422)

 

(359)

(17)

 

26

 

Effect of exchange rate changes on cash and cash equivalents

 

(67)

 

17

1,194

 

993

 

Cash and cash equivalents at June 30

 

1,194

 

993


Notes to the condensed financial statements


Quarterly statistics

2011

 

 

 

 

 

 

 

2012

Q1

 

Q2

 

Q3

 

Q4

 

year

 

in € millions

 

Q1

 

Q2

 

year-to-date

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

1,196

 

1,461

 

1,435

 

1,204

 

5,296

 

Decorative Paints

 

1,242

 

1,551

 

2,793

1,237

 

1,312

 

1,295

 

1,326

 

5,170

 

Performance Coatings

 

1,369

 

1,472

 

2,841

1,351

 

1,350

 

1,349

 

1,285

 

5,335

 

Specialty Chemicals

 

1,399

 

1,431

 

2,830

(22)

 

(26)

 

(28)

 

(28)

 

(104)

 

Other activities/eliminations

 

(38)

 

(48)

 

(86)

3,762

 

4,097

 

4,051

 

3,787

 

15,697

 

Total

 

3,972

 

4,406

 

8,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

90

 

191

 

148

 

11

 

440

 

Decorative Paints

 

76

 

175

 

251

143

 

170

 

157

 

141

 

611

 

Performance Coatings

 

164

 

213

 

377

241

 

220

 

238

 

207

 

906

 

Specialty Chemicals

 

235

 

255

 

490

(37)

 

(30)

 

(36)

 

(58)

 

(161)

 

Other activities/eliminations

 

(52)

 

(50)

 

(102)

437

 

551

 

507

 

301

 

1,796

 

Total

 

423

 

593

 

1,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.6

 

13.4

 

12.5

 

7.9

 

11.4

 

EBITDA margin (in %)

 

10.6

 

13.5

 

12.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation

(30)

 

(30)

 

(33)

 

(33)

 

(126)

 

Decorative Paints

 

(33)

 

(34)

 

(67)

(21)

 

(21)

 

(21)

 

(24)

 

(87)

 

Performance Coatings

 

(23)

 

(25)

 

(48)

(55)

 

(56)

 

(56)

 

(60)

 

(227)

 

Specialty Chemicals

 

(61)

 

(63)

 

(124)

(2)

 

(3)

 

(4)

 

(2)

 

(11)

 

Other activities/eliminations

 

(5)

 

(1)

 

(6)

(108)

 

(110)

 

(114)

 

(119)

 

(451)

 

Total

 

(122)

 

(123)

 

(245)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization

(21)

 

(20)

 

(20)

 

(23)

 

(84)

 

Decorative Paints

 

(24)

 

(24)

 

(48)

(7)

 

(7)

 

(7)

 

(8)

 

(29)

 

Performance Coatings

 

(9)

 

(8)

 

(17)

(12)

 

(13)

 

(13)

 

(16)

 

(54)

 

Specialty Chemicals

 

(13)

 

(15)

 

(28)

 

 

(1)

 

(2)

 

(3)

 

Other activities/eliminations

 

 

 

(40)

 

(40)

 

(41)

 

(49)

 

(170)

 

Total

 

(46)

 

(47)

 

(93)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBIT

39

 

141

 

95

 

(45)

 

230

 

Decorative Paints

 

19

 

117

 

136

115

 

142

 

129

 

109

 

495

 

Performance Coatings

 

132

 

180

 

312

174

 

151

 

169

 

131

 

625

 

Specialty Chemicals

 

161

 

177

 

338

(39)

 

(33)

 

(41)

 

(62)

 

(175)

 

Other activities/eliminations

 

(57)

 

(51)

 

(108)

289

 

401

 

352

 

133

 

1,175

 

Total

 

255

 

423

 

678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7.7

 

9.8

 

8.7

 

3.5

 

7.5

 

EBIT margin (in %)

 

6.4

 

9.6

 

8.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

37

 

137

 

57

 

(94)

 

137

 

Decorative Paints

 

(15)

 

110

 

95

106

 

155

 

114

 

83

 

458

 

Performance Coatings

 

127

 

171

 

298

173

 

147

 

169

 

133

 

622

 

Specialty Chemicals

 

140

 

154

 

294

(39)

 

(11)

 

(39)

 

(86)

 

(175)

 

Other activities/eliminations

 

(61)

 

(60)

 

(121)

277

 

428

 

301

 

36

 

1,042

 

Total

 

191

 

375

 

566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals per Business Area

(2)

 

(4)

 

(38)

 

(49)

 

(93)

 

Decorative Paints

 

(34)

 

(7)

 

(41)

(9)

 

13

 

(15)

 

(26)

 

(37)

 

Performance Coatings

 

(5)

 

(9)

 

(14)

(1)

 

(4)

 

 

2

 

(3)

 

Specialty Chemicals

 

(21)

 

(23)

 

(44)

 

22

 

2

 

(24)

 

 

Other activities/eliminations

 

(4)

 

(9)

 

(13)

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

(48)

 

(112)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals included in operating income

(9)

 

(20)

 

(47)

 

(55)

 

(131)

 

Restructuring costs

 

(46)

 

(44)

 

(90)

1

 

21

 

2

 

(33)

 

(9)

 

Results related to major legal and environmental cases

 

(22)

 

3

 

(19)

 

26

 

(5)

 

(11)

 

10

 

Results on acquisitions and divestments

 

 

 

(4)

 

 

(1)

 

2

 

(3)

 

Other incidental results

 

4

 

(7)

 

(3)

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

(48)

 

(112)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Incidentals per line item

(4)

 

(5)

 

(25)

 

(18)

 

(52)

 

Cost of sales

 

(35)

 

(10)

 

(45)

(3)

 

(9)

 

(20)

 

(34)

 

(66)

 

Selling expenses

 

(9)

 

(21)

 

(30)

(1)

 

(4)

 

(1)

 

(18)

 

(24)

 

General and administrative expenses

 

(20)

 

(10)

 

(30)

 

 

(1)

 

(8)

 

(9)

 

Research and development expenses

 

(1)

 

(2)

 

(3)

(4)

 

45

 

(4)

 

(19)

 

18

 

Other operating income/(expenses)

 

1

 

(5)

 

(4)

(12)

 

27

 

(51)

 

(97)

 

(133)

 

Total

 

(64)

 

(48)

 

(112)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation net financing expense

14

 

17

 

14

 

12

 

57

 

Financing income

 

15

 

17

 

32

(61)

 

(63)

 

(49)

 

(129)

 

(302)

 

Financing expenses

 

(57)

 

(65)

 

(122)

(47)

 

(46)

 

(35)

 

(117)

 

(245)

 

Net interest on net debt

 

(42)

 

(48)

 

(90)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other interest movements

(16)

 

(13)

 

(15)

 

(15)

 

(59)

 

Financing expenses related to pensions

 

(16)

 

(16)

 

(32)

(5)

 

(12)

 

(13)

 

(16)

 

(46)

 

Interest on provisions

 

(3)

 

(18)

 

(21)

5

 

7

 

(7)

 

7

 

12

 

Other items

 

(4)

 

 

(4)

(16)

 

(18)

 

(35)

 

(24)

 

(93)

 

Net other financing charges

 

(23)

 

(34)

 

(57)

(63)

 

(64)

 

(70)

 

(141)

 

(338)

 

Net financing expenses

 

(65)

 

(82)

 

(147)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarterly net income analysis

7

 

8

 

9

 

(1)

 

23

 

Results from associates and joint ventures

 

4

 

5

 

9

(16)

 

(22)

 

(18)

 

(8)

 

(64)

 

Profit attributable to non-controlling interests

 

(14)

 

(21)

 

(35)

221

 

372

 

240

 

(106)

 

727

 

Profit before tax

 

130

 

298

 

428

(73)

 

(99)

 

(74)

 

52

 

(194)

 

Income tax

 

(46)

 

(80)

 

(126)

148

 

273

 

166

 

(54)

 

533

 

Profit for the period from continuing operations

 

84

 

218

 

302

33

 

27

 

31

 

49

 

27

 

Effective tax rate (in %)

 

35

 

27

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from continuing operations (in €)

0.57

 

1.07

 

0.63

 

(0.26)

 

2.01

 

Basic

 

0.30

 

0.83

 

1.13

0.56

 

1.07

 

0.63

 

(0.26)

 

1.99

 

Diluted

 

0.30

 

0.82

 

1.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from discontinued operations (in €)

(0.02)

 

0.07

 

 

(0.03)

 

0.03

 

Basic

 

 

0.02

 

0.02

(0.02)

 

0.07

 

 

(0.03)

 

0.03

 

Diluted

 

 

0.02

 

0.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share from total operations (in €)

0.55

 

1.14

 

0.63

 

(0.29)

 

2.04

 

Basic

 

0.30

 

0.85

 

1.15

0.54

 

1.14

 

0.63

 

(0.29)

 

2.02

 

Diluted

 

0.30

 

0.84

 

1.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares (in millions)

233.6

 

233.9

 

234.0

 

234.3

 

233.9

 

Weighted average number of shares

 

235.1

 

236.9

 

236.0

233.7

 

234.0

 

234.0

 

234.7

 

234.7

 

Number of shares at end of quarter

 

235.6

 

238.2

 

238.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings (in € millions)

221

 

372

 

240

 

(106)

 

727

 

Profit before tax from continuing operations

 

130

 

298

 

428

12

 

(27)

 

51

 

97

 

133

 

Incidentals reported in operating income

 

64

 

48

 

112

40

 

40

 

41

 

49

 

170

 

Amortization of intangible assets

 

46

 

47

 

93

(88)

 

(107)

 

(100)

 

9

 

(286)

 

Adjusted income tax

 

(78)

 

(106)

 

(184)

(16)

 

(22)

 

(18)

 

(8)

 

(64)

 

Non-controlling interests

 

(14)

 

(21)

 

(35)

169

 

256

 

214

 

41

 

680

 

Adjusted net income for continuing operations

 

148

 

266

 

414

0.72

 

1.09

 

0.91

 

0.17

 

2.91

 

Adjusted earnings per share (in €)

 

0.63

 

1.12

 

1.75


Notes to the statement of income

EBIT in “other”

Corporate costs are in line with the previous year. The result of our captive insurance companies was negative mainly due to higher claims compared to the prior year. Other costs were higher than last year when there were favorable non-recurring items.

2nd quarter

 

 

 

January - June

2011

 

2012

 

in € millions

 

2011

 

2012

(25)

 

(24)

 

Corporate costs

 

(50)

 

(56)

(5)

 

 

Pensions

 

(7)

 

(1)

5

 

(9)

 

Insurances

 

8

 

(10)

(8)

 

(18)

 

Other

 

(23)

 

(41)

(33)

 

(51)

 

EBIT in “other”

 

(72)

 

(108)

Net financing expenses

Net financing charges for Q2 2012 increased by €18 million to €82 million driven by:

  • Interest on provisions which increased by €6 million to €18 million mainly due to lower discount rates
  • Other items decreased €7 million reflecting lower interest income from foreign currency results of hedged future interest cash flows.

Tax

The Q2 tax rate is 27 percent (2011: 27 percent). It is slightly lower than normal due to the fact that we benefitted from the recognition of a previously unrecognized loss. The year-to-date tax rate is 29 percent (2011: 29 percent).


Shareholders' equity

Shareholders’ equity as at the end of Q2 2012 increased to €9.4 billion, due to the net effect of:

  • Net income of €272 million.
  • Increased cumulative translation reserves by €125 million due to the weakening euro.
  • Dividend payments of €168 million.

Pensions

The funded status of the pension plans at the end of Q2 2012 was estimated to be a deficit of €0.6 billion (year-end 2011: €0.5 billion; Q1 2012: €0.3 billion).

The movement compared with year-end 2011 is primarily due to:

  • Top-up payments of €336 million into certain UK and US defined benefit pension plans
  • A payment from a contingent asset structure of €239 million into the UK ICI Pension Fund
  • Lower inflation in the UK decreasing the pension obligation

Offset by:


Workforce

At June 30, 2012, we employed 57,580 staff (year-end 2011: 57,240 employees). The net increase was due to:

  • A decrease of 870 employees due to ongoing restructuring
  • An increase from acquisitions of 570 employees
  • An increase of 640 employees due to new hires and seasonal activity. New hires were mainly in high growth markets.


Invested and operating working capital

Invested capital

in € millions

 

June 30, 2011

 

December 31, 2011

 

June 30, 2012

Trade receivables

 

2,582

 

2,368

 

2,792

Inventories

 

1,880

 

1,924

 

2,008

Trade payables

 

(2,183)

 

(2,213)

 

(2,263)

Operating working capital in Business Areas

 

2,279

 

2,079

 

2,537

Other working capital items

 

(881)

 

(901)

 

(902)

Non-current assets

 

12,449

 

13,295

 

13,935

Less investments in associates and joint ventures

 

(182)

 

(198)

 

(202)

Deferred tax liabilities

 

(550)

 

(567)

 

(555)

Invested capital

 

13,115

 

13,708

 

14,813

Invested capital at the end of Q2 2012 totaled €14.8 billion, €1.1 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
  • An increase of operating working capital of €0.5 billion mainly due to seasonality, more expensive raw materials and actions to ensure supply of titanium dioxide. Expressed as a percentage of revenue, operating working capital was 14.2 percent (Q2 2011: 13.8 percent; year-end 2011: 13.6 percent)
  • A decrease of €0.2 billion due to the reclassification of Chemicals Pakistan to assets held for sale
  • An increase of €0.1 billion from the Boxing Oleochemicals acquisition
  • Payments of accrued interest of €0.1 billion
  • An increase due to foreign currency effects on intangibles and property, plant and equipment of €0.1 billion, due to the weakening euro.

Operating working capital

in € millions, % of revenue

 

June 30, 2011

 

December 31, 2011

 

June 30, 2012

Decorative Paints

 

784

 

13.4

 

622

 

12.9

 

883

 

14.2

Performance Coatings

 

801

 

15.3

 

772

 

14.6

 

871

 

14.8

Specialty Chemicals

 

694

 

12.9

 

685

 

13.3

 

783

 

13.7

Total

 

2,279

 

13.8

 

2,079

 

13.6

 

2,537

 

14.2

In % of revenue

AkzoNobel – Operating working capital (bar chart)

Cash flows and net debt

Operating activities in Q2 2012 resulted in a cash inflow of €401 million (2011: €165 million). The change is mainly due to a net effect of:

  • Lower cash outflow from working capital and
  • Lower payments related to provisions.

Net debt remained flat compared with Q1 2012 as the cash inflow from operating activities in Q2 2012 was balanced with the cash outflows, of which capital expenditures and dividend payments are the main items.

As disclosed in note 21 to the 2011 financial statements, two antitrust cases were pending with the EU General Court regarding Metacrylates and Heat Stabilizers. In Metacrylates the General Court has rendered a judgment in June 2012 and this will result in cash outflows of approximately €100 million in Q3. This case has been fully provided for.


Principal risks and uncertainties

In our 2011 Report we have extensively described our risk management framework and our major risk factors which may prevent full achievement of our objectives within the forthcoming five years. In respect of the principal risks for the second half of 2012, we consider that these top 5 risks are still valid.

Risk

 

Risk description

 

Risk corrective actions

Adapt to economic conditions

 

Failure to adapt adequately and in time to weak and volatile economic conditions can have a harmful impact on our business and results of operations.

 

The Executive Committee has defined a comprehensive performance improvement program to deliver €500 million EBITDA by 2014. Conceptually, the program consists of three main building blocks, being operational professionalization, functional standardization and business unit specific adaptations. Operational professionalization addresses issues such as product complexity reduction, procurement, manufacturing and distribution excellence, and margin management. Business unit adaptations and operational professionalization are expected to contribute around 90 percent of the expected 2012 benefits of €200 million, while functional standardization will primarily be an important enabler.

 

 

 

 

 

International operations

 

Because AkzoNobel conducts international operations, we are exposed to a variety of risks like unfavorable political, social or economic developments and developments in laws, regulations and standards which could adversely affect our business.

 

We spread our activities geographically and serve many sectors to benefit from opportunities and reduce the risk of instability. Political, economic and legislative conditions are carefully monitored. The Executive Committee decides on all significant investments and the countries and industry segments in which AkzoNobel conducts its business.

 

 

 

 

 

Attraction and retention of talent

 

Our ambitious growth plans may not be achieved if we fail to attract and retain the right people.

 

Growing our business calls for the need to grow our people. Therefore, AkzoNobel puts emphasis, not only on attracting and retaining employees, but also on their motivation, development and building capability. To strengthen these efforts, we have a dedicated Executive Committee member for the Human Resources function and have implemented an employee engagement program. The Human Resources function is also part of the comprehensive three-year performance improvement plan, launched in October 2011. HR instruments such as performance appraisals, the employee survey and leadership identification and review, as well as leadership development, are used to optimize support to our business. We provide clarity in the working environment through information and communication programs. Special focus is dedicated to high growth markets. Remuneration packages may include long and short-term incentives. However, the Executive Committee ensures that employees are not encouraged to act in their own interest and take risks that are not in keeping with the company’s strategy and risk appetite.

 

 

 

 

 

Sourcing of raw materials

 

Inability to access sufficient raw materials, growth in cost and expenses for raw materials, energy and changes in product mix may adversely influence the future results and growth of our company.

 

We aim to use our purchasing power and long-term relationships with suppliers to acquire raw materials and safeguard their constant delivery in a sustainable manner, to secure volumes and to cooperate on innovation and sustainability. We have made an inventory of single and sole sourced raw materials and are actively pursuing plans to improve this situation. We have diversified contract length and our supplier base. Our strengthened global sourcing strategy enables us to bundle the purchasing power, both in product related and non-product related requirements. We continuously monitor the markets in which we operate for developments and opportunities and adapt our purchasing strategy accordingly.

 

 

 

 

 

Cash flow

 

The threat of a European sovereign crisis, exposure to potentially worsening economic conditions, raw material price increases, and funding of pension schemes may lead to insufficient free cash flow generation to support our growth strategy.

 

We are committed to maintaining strong investment grade credit ratings. Ratings at mid-year were Standard & Poor’s BBB+ (stable outlook) and Moody’s Baa1 (stable outlook). We have launched a comprehensive performance improvement program to deliver €500 million EBITDA by 2014. We have a prudent financing strategy and a strict cash management policy, which are managed by our centralized treasury function (see Note 24 in the Financial statements of our 2011 Report).


General information

Accounting policies

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.

As from 2013, the amended IAS 19 on pensions will become effective and the impact will be disclosed in our 2012 financial statements. Implementation of this amendment will result in including the pension deficit, as disclosed in Pensions, in other comprehensive income in shareholders’ equity. In addition, we expect a limited positive effect on EBITDA and financing expenses.

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.

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.