How we created value in 2022

Financial overview

Revenue was 13% higher and 11% higher in constant currencies, resulting from significant pricing initiatives, with pricing up 14%.

Volumes were 7% lower, mainly due to destocking in the distribution channels in Decorative Paints in Europe and in Performance Coatings, as well as the impact from COVID-19 in China. Furthermore, volumes were negatively impacted by supply constraints, especially in North America. Acquisitions added 4%, mainly related to Grupo Orbis.

For the full-year 2022, raw material and other variable costs (including freight), adjusted for the impact of lower volumes, increased €1,143 million compared with the full-year 2021.

Operating income was lower at €708 million (2021: €1,118 million) as a result of lower volumes, despite pricing initiatives more than compensating for raw material and freight costs inflation. Adjusted operating income at €789 million (2021: €1,092 million); ROS at 7.3% (2021: 11.4%).

Business results

Decorative Paints revenue was up 10% and 8% higher in constant currencies, with significant pricing initiatives partly offset by lower volumes, mainly due to destocking in the distribution channels in Europe and softer market demand in China due to the impact from COVID-19. Pricing was up 12%, acquisitions added 5%.

Operating income of €392 million (2021: €622 million), as pricing initiatives were more than offset by the combined impact from lower volumes, continued raw material and freight costs inflation and higher operating expenses.

Operating income included €5 million negative Identified items, mainly related to restructuring costs (2021: €42 million positive, mainly related to one-off gains from the Brazil ICMS case and UK pensions curtailment, partly offset by restructuring costs). Adjusted operating income at €397 million (2021: €580 million). ROS at 9.1% (2021: 14.6%).

Performance Coatings revenue was 16% higher and up 13% in constant currencies, driven by strong pricing initiatives in all segments, with pricing up 16%. Volumes were lower due to destocking, COVID-19 impact in China and supply chain constraints, mainly in North America.

Operating income of €444 million (2021: €616 million), as pricing initiatives were more than offset by lower volumes and the continued impact from raw material and freight costs inflation. Operating income included €49 million negative Identified items, mainly related to restructuring costs (2021: €2 million positive, related to one-off gains from the Brazil ICMS case, partly offset by restructuring costs). Adjusted operating income at €493 million (2021: €614 million). ROS at 7.6% (2021: 11.0%).

Acquisitions

In April 2022, the acquisition of Colombia-based paints and coatings company Grupo Orbis was completed. A provisional purchase price allocation is included in the figures and will be finalized in Q1 2023.

Grupo Orbis results as from the acquisition date are included in the Decorative Paints Latin America business unit, and under Other in Performance Coatings. The allocation of revenues to the Decorative Paints and Performance Coatings segments is based on the nature and products of the underlying activities. Further allocation of revenues to business unit level within the Performance Coatings segment will be available as from Q1 2023.

On December 1, 2022, the acquisition of the wheel liquid coatings business of Lankwitzer Lackfabrik GmbH was completed. Lankwitzer results as from the acquisition date are included in the Powder Coatings business unit in Performance Coatings.

On June 1, 2022, the intention to acquire Kansai Paints’ activities in Africa was announced, with an enterprise value of approximately €0.5 billion. The acquisition is expected to be completed in the second half of 2023.

Financing income and expenses

Net financing income and expenses increased by €85 million, resulting from an increase in exchange rate results of €64 million negative (which includes €20 milion expenses from Argentina and Türkiye hyperinflation accounting) and an increase in interest on net debt by €25 million due to issuance of bonds and to short-term debt related to the Grupo Orbis acquisition.

Revenue from third parties

in € millions

Innovation investment

research and development expenses
in € millions

Revenue development full-year 2022

in %

Revenue by destination

in %

Capital expenditures 2022:

total €292 million

Income tax

The effective tax rate was 35.5% (2021: 22.3%). Excluding Identified items, the effective tax rate was 32.5% (2021: 24.9%).

The high effective tax rate in 2022 is mainly related to a €13 million true-up of the tax charge related to the UK ACT case (booked as Identified item), non-deductible charges resulting from hyperinflation accounting and the impact from the UK tax rate change.

The low effective tax rate in 2021 was mainly related to the impact from the Brazil ICMS and UK ACT cases, in combination with a net re-recognition of deferred tax assets (all booked as Identified items).

Shareholders’ equity

Shareholders’ equity amounted to €4.3 billion at December 31, 2022, compared with €5.4 billion at year-end 2021. Main movements relate to profit for the period of €352 million, offset by movements from share buybacks of €660 million (including taxes), dividend of €347 million, actuarial losses of €289 million (including taxes) and currency effects of €163 million negative (including taxes).

Dividend

The dividend policy remains unchanged and is to pay a stable to rising dividend. The final 2021 dividend of €1.54 per common share was approved by the AGM in April 2022 and was paid. The total 2021 dividend amounted to €1.98 per share (2020: €1.95).

In 2022, an interim dividend of €0.44 per share (2021: €0.44) was paid. A final 2022 dividend of €1.54 (2021: €1.54) per share is proposed.

Outstanding share capital

The outstanding share capital was 174.4 million common shares at the end of December 2022. This included 3.9 million shares acquired in the share buyback programs not yet cancelled. The weighted average number of shares for the full-year 2022 was 174.7 million shares. The weighted average number of shares excludes shares bought back and not yet cancelled and is the basis for the calculation of earnings per share.

Share buyback

In February 2021, a €1 billion share buyback program was announced, which was completed in January 2022.

In February 2022, a €500 million share buyback program was announced, which was completed in December 2022.

Cash flow and net debt

Net cash from operating activities decreased to an inflow of €263 million (2021: inflow of €605 million), mainly driven by lower profit for the period. Net cash from investing activities resulted in an outflow of €1,095 million (2021: outflow of €134 million). The increase in outflow mainly relates to a higher outflow for acquisitions (mainly related to the Grupo Orbis acquisition) and the 2022 net outflow from investments in short-term investments (2021: net inflow).

Net cash from financing activities resulted in an inflow of €1,141 million (2021: outflow of €974 million). The change from outflow to inflow is mainly related to the inflow in 2022 of €2,189 million from changes from borrowings (including the dual-tranche bond of €1.2 billion in Q1 2022), and the lower outflow from the share buyback.

At December 31, 2022, net debt was €4,089 million versus €2,340 million at year-end 2021, mainly due to the share buyback programs (€669 million), acquisitions (€661 million), dividend (€379 million) and capital expenditures (€292 million). The net debt/EBITDA leverage ratio at December 31, 2022, was 3.8 (December 31, 2021: 1.6).

Invested capital

Invested capital at December 31, 2022, totaled €8.1 billion, up €1.0 billion from year-end 2021. This increase was mainly caused by higher intangible and tangible fixed assets (included in non-current assets; largely resulting from the Grupo Orbis acquisition), higher operating working capital (trade) and FX impact.

Operating working capital

Operating working capital was €1.8 billion at December 31, 2022 (December 31, 2021: €1.2 billion). This increase in operating working capital was mainly due to increased raw material prices, higher pricing and currency impact. Payables decreased, mainly as a result of destocking initiatives in the second half of the year.

Pensions

The net balance sheet position (according to IAS19) of the pension plans at December 31, 2022, was a surplus of €0.7 billion (December 31, 2021: surplus of €1.1 billion). The development during 2022 was mainly the result of the net effect in key countries from higher discount rates, lower plan asset returns and higher other results, including FX.

Sustainability progress

Guided by our People. Planet. Paint. approach, we’ve identified three key global topics – climate change, circularity and health and well-being. During 2022, we made further progress towards our 2030 key sustainability ambitions. This progress is highlighted in charts throughout this section and further detailed in the Sustainability statements.

Employees

At December 31, 2022, the number of people employed was 35,200 (December 31, 2021: 32,800).

Impact from the war in Ukraine and sanctions on Russia

Our business in Ukraine and Russia combined represents about 2% of our revenue (2021: 2%), of which the vast majority concerns Russia.

Following the EU sanctions, the majority of our Performance Coatings activities in Russia was suspended and the residual Russian business is locally operated. AkzoNobel has assessed the potential accounting impact from the localization of the Russian business. Taking into account the applicable IFRS standards, we’ve concluded that our Russian business can still be included in our scope of consolidation.

No significant impairments of assets occurred in Russia; in Ukraine, the value of the assets is immaterial.

Impact from hyperinflation accounting (Türkiye and Argentina)

We have retrospectively applied IAS 29 hyperinflation accounting for Türkiye as from January 1, 2022. For Argentina, hyperinflation accounting was already applicable from January 1, 2018. In addition, and in line with IAS 21, foreign currency rates at the end of the reporting period are used to translate both balance sheet and the statement of income into euros.

The impact from hyperinflation accoun­ting is included in all IFRS-based measures; no Identified item treatment is applied.

The application of hyperinflation accounting and the use of end of month rates to translate the statement of income into euros resulted in a €5 million positive impact on revenues, a €46 million negative impact on operating income and a €63 million negative impact on net income for the year.

2023 Outlook*

AkzoNobel expects the ongoing macro-economic uncertainties to continue and weigh on organic volume growth. The company will focus on margin management, cost reduction, working capital normalization and de-leveraging.

Cost reduction programs are expected to mitigate the ongoing pressure from inflation in operating expenses for 2023. AkzoNobel expects declining raw material costs to have a favorable impact on profitability.

Based on current market conditions, AkzoNobel targets to deliver €1.2 to €1.5 billion adjusted EBITDA. The company aims to lower its leverage ratio to less than 3.4 times net debt/EBITDA, including the impact of the Kansai Paint Africa acquisition, by the end of 2023 and return to around 2 times post-2023.

Targets are based on organic volumes and constant currencies, and assume no significant market disruptions. This outlook contains APMs. Please refer to reconciliation to the most directly comparable IFRS measures in Note 4 of the Consolidated financial statements.