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How we created value in 2017

By bringing more value to our customers, investors, employees and society in general, we can better position ourselves for growth while accelerating profitability.

  • Economic value
  • Environmental value*
  • Social value*

Financial overview

Revenue up 2% (up 4% excluding currency impact), mainly due to volume growth and acquisitions, partly offset by unfavorable currency and price/mix effects. Volumes 2% higher; up 7% for Decorative Paints, down 1% for Performance Coatings due to adverse conditions in the marine, and oil and gas industries. at €905 million (2016: €928 million), due to higher raw material costs, partly offset by increased selling prices, continuous improvement and cost control. at 9.4% (2016: 9.8%). at 13.9% (2016: 14.4%).

Summary of financial outcomes

In € millions

20161

2017

∆%

1

Represented to present the Specialty Chemicals business as discontinued operations.

2

ROS% = EBIT/Revenue. ROI (in %) = 12 months EBIT/12 months average invested capital.

Revenue

9,434

9,612

2

EBIT

928

905

(2)

Operating income

923

825

(11)

ROS %2

9.8

9.4

 

OPI margin %

9.8

8.6

 

 

 

 

 

Average invested capital

6,422

6,494

 

ROI (in %)2

14.4

13.9

 

 

 

 

 

Capital expenditures

278

250

 

Net debt

1,252

1,951

 

Number of employees

36,300

35,700

 

 

 

 

 

Net income from continuing operations

538

443

(18)

Net income from discontinued operations

432

389

 

Net income attributable to shareholders

970

832

(14)

Earnings per share from total operations (in €)

3.87

3.31

 

Adjusted earnings per share from continuing operations (in €)

2.38

2.56

 

Adjusted earnings per share from total operations (in €)

4.15

4.40

 

Net cash from operating activities

1,291

969

 

Revenue

Revenue up 2% (up 4% excluding currency impact) and in both Business Areas, mainly due to volume growth and acquisitions, partly offset by unfavorable currencies and price/mix effects.

  • In Decorative Paints, revenue was up 2% (up 4% excluding currency impact), driven by strong volume growth, partly offset by adverse currencies and price/mix effects. Volumes were up 7% overall, with positive developments in all regions
  • In Performance Coatings, revenue was up 2% (up 4% excluding currency impact), mainly due to the acquired industrial coatings business, partly offset by adverse currencies. Volume growth for most segments and regions was more than offset by lower volumes in the marine, and oil and gas industries

Revenue development

in % versus 2016
Value creation – Economic value – Revenue development (bar chart)

Revenue by destination

in %
Value creation – Economic value – Revenue by destination (pie chart)

Revenue

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

Acquisitions

The impact of acquisitions on revenue was 3% for AkzoNobel and 5% for Performance Coatings.

  • In Q4 2017, we completed the acquisition of the business of V.Powdertech Co., Ltd., the leading Thai manufacturer of powder coatings
  • In Q3 2017, the acquisitions of Flexcrete Technologies Ltd. and Disa Technology (Disatech) were completed
  • In Q4 2016, the acquisition of BASF’s Industrial Coatings business was completed

Raw material price development

Raw material prices in 2017 were higher compared with the previous year. We are taking appropriate measures to deal with higher raw material prices in an inflationary environment. It is expected to take several quarters before the necessary mitigating impact of these measures is fully realized.

EBIT

EBIT at €905 million (2016: €928 million), impacted by higher raw material costs, partly compensated by increased selling prices, continuous improvement and cost control.

  • In Decorative Paints, EBIT was 2% lower, due to adverse currency effects. Steep increases in raw material costs were offset by continuous improvement and cost control
  • In Performance Coatings, EBIT was 12% lower, impacted by higher raw material costs and lower volumes, mainly due to adverse conditions in the marine, and oil and gas industries, partly compensated by continuous improvement and cost control
  • EBIT in Other activities improved due to lower corporate costs, including one-off items, as well as lower pension and insurance related costs

EBIT

in € millions
Value creation – Economic value – EBIT (bar chart)

Operating income

Operating income was negatively impacted by totaling €80 million, mainly related to the transformation of the Paints and Coatings organization and legal items. The identified items impacted in Other activities, as well as Decorative Paints and Performance Coatings.

In 2016, operating income was negatively impacted by identified items totaling €5 million, including acquisition and integration related costs of the acquired Industrial Coatings business, asset impairments and adjustments to post-retirement provisions.

Cash flows and net debt

Operating activities in 2017 related to continuing and discontinued operations resulted in cash inflows of €969 million (2016: €1,291 million).

Profit for the period was impacted by related to the new strategy to create a focused, high performing Paints and Coatings business, and to the separation of the Specialty Chemicals business.

In 2017, a €500 million bond was launched at attractive terms, with a two-year maturity, at a coupon of three months Euribor plus 0.2% mark-up, floored at zero percent.

At December 31, 2017, net debt was €1,951 million, versus €1,252 million at year-end 2016. The increase is mainly due to the €1 billion special cash dividend and the share repurchase program.

Invested capital

at year-end 2017 totaled €6.0 billion (year-end 2016: €10.3 billion).

Invested capital at year-end 2017 was impacted by the held-for-sale accounting of the Specialty Chemicals business.

Allocation of 2017 capital expenditures of €250 million

in % (2.6% of revenue)
Value creation – Economic value – Allocation of 2017 capital expenditures of €250 million (pie chart)

Innovation

We continue to invest in research, development and innovation to help us fulfill future customer needs and fuel our targeted growth in revenue share of eco-premium solutions with customer benefits.

Innovation investments

research and development expenses in € millions
Value creation – Economic value – Innovation investments (bar chart)

* 2016 is represented to present the Specialty Chemicals business as discontinued operations.

Eco-premium solutions*

We achieved 20% of total sales from eco-premium solutions with customer benefits, in line with our 2020 target of 20%.

Another 21% of sales met the eco-performer criteria, having clear sustainability features and being at least as good as mainstream alternatives.

For more details, see Note 1 of the Sustainability statements.

*Including discontinued operations.

Dividend

Our policy is to pay a stable to rising dividend. In 2017, an interim dividend of €0.56 per share (2016: €0.37), with the option to elect stock dividend, was paid. We will propose a final dividend of €1.94 per share, making a total 2017 dividend of €2.50 (2016: €1.65) per share, up 52%. A €1 billion special cash dividend was also paid on December 7 as advance proceeds for the Specialty Chemicals separation.

Dividend

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

* Proposed. Excludes special cash dividend of €4.00 per share paid as advance proceeds related to the separation of Specialty Chemicals.

Earnings per share total operations

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

Adjusted earnings per share

in €
Value creation – Economic value – Adjusted earnings per share (bar chart)

Net financing income and expenses

For the full-year, the net financing income and expenses decreased, mainly due to lower interest on provisions.

Income tax

Full-year effective tax rate for continued operations was 33% (2016: 28%), impacted by US tax reform, several adjustments to prior years and de-recognition of deferred tax assets due to the Specialty Chemicals separation. Effective tax rate going forward is expected to be 27%.

Income tax paid

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

Outlook

Headwinds experienced during 2017, including higher raw material costs and adverse effects from foreign currency, are projected to continue in 2018, especially during the start of the year.

We anticipate ongoing positive developments for Decorative Paints in all regions, particularly Asia. Trends for Performance Coatings are expected to be positive for most segments and regions, while still challenging for Marine and Protective Coatings.

We continue implementing various measures to mitigate current market challenges, including increased selling prices and cost discipline. Our “Winning together – 15 by 20” strategy will create a focused Paints and Coatings company and deliver our 2020 guidance.

Cradle-to-grave carbon footprint

Cradle-to-grave is an important measure of resource productivity. Carbon footprint per ton of sold product has reduced 7% since 2012. Emissions from our own production are 9% lower than in 2016.

We continued to work with our suppliers and have increased sales of paints with a lower in Asia.

For more details, see Note 6 of the Sustainability statements.

Energy

The energy we use at our sites contributes about 15% to our cradle-to-grave carbon footprint. Renewable energy is an important aspect of the improvements required to reduce our carbon footprint.

The proportion of renewable energy in our operations increased to 45%.

For more details, see Note 6 of the Sustainability statements.

Raw materials

A considerable proportion of our environmental footprint results from the raw materials we buy, with most of the bio-based materials exhibiting lower footprints.

In 2017, 11% of all our organic raw materials came from bio-based (renewable) sources.

For more details, see Note 6 of the Sustainability statements.

Operational eco-efficiency program

The focus of the program is to increase efficiency in the use of raw materials and energy and decrease in our own operations. It is an important way to drive out cost. In 2017, we further improved our eco-efficiency, resulting in an improvement of 31% since 2009, with significant improvements on the individual parameters, such as waste, , carbon, NOx and SOx emissions.

For more details, see Note 7 of the Sustainability statements.

Waste

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

Our target is to drive towards “zero waste to landfill” and a program is being developed to achieve this with specific projects.

Total waste per ton of production generated and leaving our sites was down 5%, while total waste volume was down by 4%.

For more details, see Note 7 of the Sustainability statements.

*Including discontinued operations.

Employees

At year-end 2017, the number of employees decreased by 1% to 45,400 people (year-end 2016: 46,000 people).

For more details, see Note 5 of the Consolidated financial statements.

Employees

45,400 at year-end 2017

Employees by Business Area

in % at December 31, 2017
Value creation – Social value – Employees by Business Area (bar chart)

Safety

The number of reportable injuries reduced by 27% compared with 2016, while the injury rate is now at the target level set for 2020 (0.20 per 200,00 hours worked).

Lost time injuries and contractor injuries also continued to go down.

For more details, see Note 9 of the Sustainability statements.

Programs

During 2017, we carried out 332 societal projects with a total budget spend of about €3 million and the support of 4,821 AkzoNobel volunteers.

In addition, we supplied 148,237 liters of paint for our social projects during the year.

For more details, see Note 1 of the Sustainability statements.

*Including discontinued operations.

EBIT

EBIT is operating income excluding identified items.

ROS (return on sales)

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

ROI (return on investment)

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

Identified items

Identified items are special charges and benefits, results on acquisitions and divestments, major impairment charges and charges related to major legal, anti-trust and environmental cases.

Operating income

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

Identified items

Identified items are special charges and benefits, results on acquisitions and divestments, major impairment charges and charges related to major legal, anti-trust and environmental cases.

Invested capital

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

Carbon footprint

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

Carbon footprint

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

Operational eco-efficiency

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

Emissions and waste

We report emissions to air, land and water for those substances which may have an impact on people or the environment: CO2, NOx and SOx, VOCs, chemical oxygen demand, hazardous and non-hazardous waste. Definitions are in the Sustainability statements section.

Eco-efficiency

Eco-efficiency means doing more with less; creating goods and services while using fewer resources and creating less waste and pollution.

VOC

Volatile organic compounds.