Note 4: Alternative performance measures

In presenting and discussing AkzoNobel’s segmental operating results, management uses certain alternative performance measures not defined by IFRS, which exclude the so-called identified items. ldentified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges, and charges and benefits related to major legal, environmental and tax cases. These alternative performance measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used as supplementary information in conjunction with the most directly comparable IFRS measures. Alternative performance measures do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Where a non-financial measure is used to calculate an operational or statistical ratio, this is also considered an alternative performance measure. The following tables reconcile the alternative performance measures used in the segment information (Note 3) to the nearest IFRS measure.

Transformation costs

Transformation costs include costs related to the strategy to create a focused high-performing Paints and Coatings business and primarily relate to costs for restructuring activities.

Brazil ICMS case

In May 2021, the Brazilian Supreme Court (STF) recognized the right to deduct state tax on goods and services (ICMS) from the calculation basis of the Social Integration Program-PIS (Programa de Integração Social) and the Financing of Social Security-COFINS (Contribuição para Financiamento da Seguridade Social). This STF decision covers a multi-year period prior to 2018. As a result, a full-year net gain of €64 million was recognized in net income, of which €42 million in Other results (in operating income), €28 million in interest income, €14 million in income tax (loss) and (net) €8 million in discontinued operations.

UK pensions past service credit

Following a court decision in April 2021, which allows the amendment of the scheme documentation of one of the company’s UK pension funds, a past service credit (gain) was recognized.

APM adjustments to interest

Adjustments on interest includes an interest gain of €28 million from the Brazil ICMS case.

APM adjustments to income tax
UK ACT case

APM adjustments to income tax include a €29 million net tax benefit for the UK Advanced Corporation Tax (ACT) case. In July 2021 the UK Supreme Court issued a further decision in a group litigation case the company participates in (“Franked Investment Income”; filed in 2003). The company assessed the consequences of this judgement and performed a further file review which, taking into account legal advice, resulted in the recognition of a net tax benefit of €29 million.

APM adjustments to income tax
Other items

Furthermore, APM adjustments to income tax include a gain of €12 million for the (net) re-recognition of deferred tax assets, as well as €8 million of tax benefits related to transformation costs. These gains were partly offset by the income tax (loss) related to the Brazil ICMS case (€14 million) and the impact from tax rate changes (€19 million).

Leverage ratio is calculated as net debt/EBITDA. For the calculation of net debt, refer to Note 21. Leverage ratio is included in Note 27 in the paragraph on capital risk management.