ton büchner and maëlys castella february 15, 2017… · 2017-06-08 · akzonobel bullets only use...

Investor overview

Ton Büchner and Maëlys Castella

February 15, 2017

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Strong track record of performance improvement

ALPS Continuous improvement

75% sites

20% Eco-premium

solutions Carbon

Footprint

reduced

300+ Human Cities

projects Safer operations

Progress

on a new GBS

model

Acquisition of BASF’s Industrial Coatings business

Record ROS

and ROI

€200+ million

savings

Employee

engagement

up for 6th

year

Volume

Growth

3

Financial topics

Integrated Supply Chain

Business Areas

AkzoNobel at a glance

Full-year and Q4 2016 results

Agenda

Investor overview 3

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Investor overview

Building on our strong foundation of operational excellence to drive growth


Decorative Paints Performance Coatings Specialty Chemicals

Higher volumes

and profitability

Dulux Academy and virtual reality

customer center, UK

Fourth Decorative Paints plant in

China (Chengdu)

Visualizer app upgraded and

downloaded 13+ million times

Dulux Forest Breath – sustainable

interior paint - introduced in China

Maintained structurally

higher profitability

Acquisition of BASF’s Industrial

Coatings business

New Specialty Coatings and

Powder Coatings facilities in India

Launch of Aquasilk, water-based

wood coating, in China

Launched colorvation, digital

technology that increases speed

and accuracy in color matching

Volume and profitability

improvement

Largest plant for organic peroxides

in cross-linked rubber, China

Partnership with Atul to produce

MCA in India

Dissolvine M-40 more sustainable

chelating agent for detergents

Launch of Berol DR-B1; surfactant

for “Safer Choice” cleaning products

4

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Investor overview Full-year and Q4 2016 results

Profitability improved further and EBIT was up despite adverse currencies

Revenue

(€ million)

Moving average

ROI %**

EBIT* (€ million) ROS %**

FY 2015 FY 2016

14,197 14,859

1,462

FY 2016

1,502

FY 2015 FY 2016

14.0

FY 2015

15.0

10.6

FY 2016

9.8

FY 2015

*EBIT = Operating income excluding incidentals **ROS% = EBIT/revenue and Moving average ROI (in %) = 12 months EBIT/12 months average invested capital

1,136

FY 2015

1,297

FY 2016

Net cash from

operating activities

5

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Investor overview

Full-year Volumes 1% higher

Revenue down 4%, due to unfavorable currency and price/mix effects

EBIT* up 3% at €1,502 million, positively impacted by volume growth, continuous improvement and lower costs

ROS** up at 10.6 % and ROI** up at 15.0 %

Adjusted EPS up 3% at €4.15

Total dividend proposed for 2016 up 6.5% to €1.65

Net cash inflow from operating activities up 14%

Q4 Volumes up 2%, driven by Decorative Paints and Specialty Chemicals

EBIT at €235 million, mainly due to higher restructuring expenses and weakness in the marine and oil and gas industries

Adjusted EPS at €0.66

Completed acquisition of BASF’s Industrial Coatings business

Share repurchase program announced; anticipated to be concluded by the end of April 2017


Record ROS, ROI, adjusted EPS and net cash inflow from operating activities

*EBIT = Operating income excluding incidentals **ROS% = EBIT/revenue ROI = 12 months EBIT/12 months average invested capital

Strong track record of performance improvement

6

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China

South and SE

Asia

Powder Coatings

Specialty Chemicals

Oil and gas

industries

In 2016 seized opportunities for growth and adapted to challenging markets

Automotive and

Specialty Coatings

EMEA

~ Marine industry

Latin America

7

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Updated expected growth rates for our relevant markets 2017

Clear aim to build on the foundation we have created and grow in line or faster than our relevant market segments

Investor overview

<0% 0-3% >3%

Mature Europe

Latin America

Asia

Emerging Europe and Africa

Marine and Protective

Coatings

Industrial Coatings

Automotive and Specialty

Coatings

Powder Coatings

Bleaching chemicals

Salt-chlorine chain

Ethylene oxide network

Surfactants

Polymer chemistry

8

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Strategy focused on delivering continuous improvement and growth

Next steps

Culture

Core principles and values

Sustainability – Planet Possible

Society – Human Cities

Drive organic growth and innovation

Pursue value generating acquisitions

Build further operational excellence

Deliver continuous improvement culture

Hardwire new organization model


9

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Investor overview

Structurally improved to achieve record levels of financial performance in 2016

Hardwiring new organization model


Guidance

2016-2018

9-11

2016

10.6

2015

9.8

2014

7.5

13-16.5

Guidance

2016-2018

2016

15.0

2015

14.0

2014

10.9

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

Return on investment* % Return on sales* %

Engagement

4.17 (2015 4.03)

Total reportable injury rate

1.4 (2015 1.6)

Continuous improvement

Delivering €200+

million savings

10

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Investor overview

€200+ million savings from continuous improvement and operational excellence

ALPS

AkzoNobel Leading Performance System

75% of sites

85% KPI’s

improved

GBS

Global Business Services

Standardized

processes

>70% payables

Serving

66% people ALPS

Deliver

starts in 2017

Engagement

OTIF

>96%


5

regional hubs

Finance

HR

>90%

Receivables

Increased

transparency

IM

All

Business

Areas

Delivering

benefits

Expanding into

support functions

11

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ALPS delivering continuous improvement and capacity for organic growth

5S Implemented, Latin America ALPS in action, Asia

12

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Investor overview

€634 million invested in sites to support organic growth and operational excellence


Chengdu, China

Decorative Paints

Performance Coatings

Specialty Chemicals

Shanghai, China Ashington, UK

Los Reyes, Mexico Cikarang, Indonesia

Pasadena, U.S.

Gujurat,India

Mumbai, India

Strongsville, U.S.

Ningbo, China

Ibbenburen, Germany

Chonburi, Thailand

13

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Investor overview

€363 million invested in driving innovation to support organic growth


Launched AquaSilk in China,

an innovative waterborne anti-scuff

Visualizer App –

over 13 million downloads

Introduced Dissolvine M-40

for the detergent industry

Virtual reality customer Centre

in the UK

Launched forest breath in China.

It contains anti-bacterial properties

that improve indoor air quality

Intertrac Vision,

an award winning digital tool

which predicts hull performance

14

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Investor overview

Joint Ventures:

Acquired outstanding shares in Eko Peroxide

Cooperation for Salt production in Spain

Partnership with Atul to produce MCA in India

Production JV with Evonik for Chlorine in Germany

Acquired controlling share in Egypt JV for Powder Coatings

Value generating acquisitions and joint ventures supporting growth


#1 in coil

coatings

Full

profitability

by end

2018

Completed

for €425

million

BASF’s

Industrial

Coatings

business

Revenue

~€280

million 2017

Portion of

production

transferred

Synergies

and

additional

production

efficiencies

15

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REI – Resource Efficiency Index

(Gross margin/CO2(e) indexed)

Further progress made towards our 2020 sustainability ambitions

Eco-premium solutions with downstream benefits (in % of revenue)

Cradle-to-Grave, Carbon Footprint

(% reduction CO2(e) per ton of sales from 2012)

Progress on our Planet Possible agenda

Shipping industry’s largest ever number of carbon credits

Exploring feasibility of

waste-to-chemicals

Leading a consortium

for purchase of wind

power

Sustainable steam

project in Delfzijl

17 18 19 19 2020

6

-42 3

25 -30

0

100 98 96113 112

2012 2014 2015 2016 … 2020 2013 2012 2014 2015 2016 … 2020 2013 2012 2014 2015 2016 2013

Investor overview 16

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300+ projects

175,000 liters of paint

9+ million people

Making people’s lives more liveable and inspiring

17

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Investor overview

Full-year

Strong financial performance improvement continued in 2016

Q4


Volumes EBIT Record

ROS and ROI

Volumes

Completed acquisition

BASF's Industrial

Coatings business

Up 3% 1% higher

3% At €4.15

Total dividend proposed for 2016

Up 6.5% at €1.65 (2015: €1.55)

Net cash inflow from operating activities

Up 14%

€1,297 million

(2015: €1,136)

Up 2%

Announced share buyback to neutralize the dilutive effect of stock dividends paid in 2016

Adjusted EPS

ROS 10.6% (2015 9.8%)

ROI 15.0% (2015 14.0%) Up 6% excluding currencies

18

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Investor overview


Volume growth overall, driven by Decorative Paints and Specialty Chemicals

AkzoNobel

2 2

-2-1

-2-3 -3

Quarterly volume development in % year-on-year

Quarterly price/mix development in % year-on-year

-2 -2-1-1

-2-1

-4

-2

0

2

-2 -2-3

2

-1

11

-4 -4-3 -3

-2-2-1

4

11

-2 -2

2 21

-1

-1

-3-2-2-2

23

6

11-1

-3

-4

-2

0

2

4

6


2015

2016

19

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EBIT growth driven by higher volumes and continuous improvement

*ROS% = EBIT/revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital

€ million FY 2015 FY 2016 Δ%

Revenue 14,859 14,197 (4)

EBIT (Operating income excluding incidental items) 1,462 1,502 3

Operating income 1,573 1,519 (3)

Ratio, % FY 2015 FY 2016

ROS* 9.8 10.6

Moving average ROI* 14.0 15.0

Revenue development full-year 2016

0 1 -2

-3 -4

Total Exchange rates Acquisitions/Divestments Price/Mix Volume

20

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Q4 2016 impacted by restructuring and Marine and oil and gas industries

Investor overview

€ million Q4 2015 Q4 2016 Δ%

Revenue 3,559 3,456 (3)

EBIT (Operating income excluding incidental items) 268 235 (12)

Operating income 345 217 (37)

Ratio, % Q4 2015 Q4 2016

ROS* 7.5 6.8


Increase

Decrease

Revenue development Q4 2016 vs. Q4 2015

-4 -2

-2


2

-3

Total Exchange rates

-2

Acquisitions/Divestments

0

Price/Mix

-3

Volume

Full-year and Q4 2016 results 21

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Decorative Paints full-year 2016: Higher volumes and profitability

Investor overview


Revenue 4,007 3,835 (4)

EBIT (Operating income excluding incidental items) 345 357 3

Operating income 345 366 6

Ratio, % FY 2015 FY 2016

ROS* 8.6 9.3



Increase

Decrease

-5

3 Launched in Rio, our Unexpected

Courts project uses paint to create

Courts and spaces in surprising

places

Our Color of the Year,

Denim Drift, was launched

-3


3

-6

Exchange rates

-4

Total Acquisitions/Divestments

0

Price/Mix

-1

Volume

Flexa Color Tester - winner of the

Dutch Best Product of the Year 2016-

2017


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Decorative Paints Q4 2016: Another quarter of volume growth

Investor overview

€ million Q4 2015 Q4 2016 Δ%

Revenue 931 898 (4)



Ratio, % Q4 2015 Q4 2016

ROS* 4.9 5.7


Revenue development Q4 2016 vs. Q4 2015 Increase

Decrease

-5

3

-3


2

Total

-4

Exchange rates

-4


0

Price/Mix

-2

Volume

Recently launched our Dulux

Forest Breath Eco-sense range of

indoor decorative paints

23 Full-year and Q4 2016 results

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Performance Coatings full-year 2016: Maintained structurally higher profitability

Investor overview

Increase

Decrease



Revenue 5,955 5,665 (5)



Ratio, % FY 2015 FY 2016

ROS* 13.3 13.4


-6 -2

-2 We broke ground on a powder

coatings plant in Mumbai,

which will provide new lines,

including products for pipes


0

Volume Acquisitions/Divestments Total

-5

Exchange rates

-3

Price/Mix

-2 0

Colorvation digital technology -

increases speed and accuracy in color

matching


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Performance Coatings Q4 2016: Weakness in marine and oil and gas

Investor overview

Increase

Decrease Revenue development Q4 2016 vs. Q4 2015

€ million Q4 2015 Q4 2016 Δ%

Revenue 1,482 1,398 (6)



Ratio, % Q4 2015 Q4 2016

ROS* 13.0 10.9


-6 -2

-2


Price/Mix

-3

-2 Total

0

Exchange rates

-6

Acquisitions/Divestments Volume

-1

Akzo Nobel inaugurates a first of

its kind specialty coatings facility

in India


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Specialty Chemicals full-year 2016: Volume and profitability improvement

Investor overview

Increase

Decrease Revenue development full-year 2016


Revenue 4,988 4,783 (4)



Ratio, % FY 2015 FY 2016

ROS* 11.6 13.2


-3

-1 -3


-1


-3

Price/Mix

-1 -4

Exchange rates Total Volume

1

Inaugurated two new specialty

chemicals plants at the multi-site in

Ningbo, China.


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Specialty Chemicals Q4 2016: Volumes up 4% driven by Asia and Europe

Investor overview

Increase

Decrease Revenue development Q4 2016 vs. Q4 2015

€ million Q4 2015 Q4 2016 Δ%

Revenue 1,167 1,169 -



Ratio, % Q4 2015 Q4 2016

ROS* 7.7 10.1


-3

-1 -3


4

Volume

-4

Price/Mix Acquisitions/Divestments

0 0 0 Exchange rates Total

Investments in multi-site in Ningbo

and Tianjin, China


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EBIT increased due to higher volumes, continuous improvement and lower costs

Investor overview

319

86

+3%

FY 2016 OPI

1,519

incidentals

17

FY 2016 EBIT

1,502

Other* Price/mix

-321

Volume Currency/

acq/div

-44

FY 2015 EBIT

1,462

Incidentals

-111

FY 2015 OPI

1,573

Increase

Decrease € million

* Other costs includes raw materials, restructuring benefits, wage inflation, depreciation and amortization ** Excluding currencies

+6%**


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Free cash flow continues to improve

Investor overview

€ million

FY2013 FY2014 FY2015 FY2016

EBITDA 1,513 1,690 2,088 2,108

Interest paid -228 -206 -151 -87

Tax paid -230 -258 -261 -285

Changes in working capital, provision* and other 69 -145 -224 -175

Capital expenditures (including intangible assets) -695 -612 -688 -651

Free cash flow, excluding pension top-up payments 429 469 764 910

Pension top-up payments -408 -270 -316 -264

Free cash flow (from operations) 21 199 448 646

*Provisions include recurring pension contributions Free cash flow (from operations) = Net cash from operating activities minus Capital expenditures and Investment in intangibles

646448

199

2014 2015 2013 2016

21


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Investor overview

IAS19 pension deficit €1.0 billion

Key pension financial assumptions Q4 2015 Q4 2016

Discount rate 3.5% 2.4%

Inflation rate 2.8% 3.1%

297

Deficit end

Q4 2016

(990)

Other

207

UK Buy-in

(637)

Asset return

over P &L

2,394

Inflation

on DBO

(334)

Discount

rates on DBO

(2,290)

Top-ups

Deficit end

Q4 2015

(627)

Pension deficit development in 2016

€ million Decrease Increase


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Investor overview

563 408

270 316 264 220 200 200 190 190 0

594

438

300 350 297 275

200 200 190 190

2012 2013 2014 2015 2016 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E

From escrow account

CashEstimated cash top-ups € million

Actively managing pension liabilities; lower top-ups due to foreign exchange

Further de-risking through non-cash buy-in transactions totaling €3.3 billion in 2016

Around 60 percent longevity risk and around 80 percent interest rate and inflation risk is hedged

Top-up schedule updated for actual payments 2016 and current exchange rates (2017 onwards)

Relate mainly to two UK plans: ICI Pension Fund and the Courtaulds Pension Scheme

Updated

Assumes €1: £0.86/$1.05 from 2017 Note: schedule includes non-cash transactions related to the CPS escrow account;


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Investor overview

Cash management discipline continues; Leading performance for working capital

Operating Working Capital € million

1,572 1,384 1,418

1,385 1,405

10.7% 9.9% 10.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

500

1.000

1.500

2.000

2.500

3.000

2012 2013 2014 2015 2016

9.7% 10.2%

Operating Working Capital

OWC as % of LQ revenue * 4

Capital expenditures € million

Other

Decorative Paints


Specialty Chemicals

CAPEX as % revenue

2016

634

4.5%

2015

651

4.4%

2014

588

4.1%

2013

666

4.6%

2012

826

5.4%


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€ million

FY2013 FY2014 FY2015 FY2016

Free cash flow 21 199 448 646

Dividend paid -286 -280 -281 -336

Other 66 57 29 29

Net cash generation (from continued operations) excl. acquisitions and divestments

-199 -24 196 339

Acquisitions -34 -13 -9 -416

Divestments 347 51 160 53

Net cash generation (from continued operations) 114 14 347 -24

Cash flow from discontinued operations 675 -88 -6 -6

Net cash generation 789 -74 341 -30

Investor overview

Positive net cash after dividends for second consecutive year

Other includes: Dividend from associates and joint ventures interest received and issue of shares for stock option plan and other changes

Net Debt 1,529 1,606 1,226 1,252


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Investor overview

Further increase in dividend shows we are confident in our cash flow generation

* Based on year-end share price

Dividend policy is to pay a “stable to rising”

dividend each year

Final dividend paid in cash, unless

shareholders elect to receive a stock dividend

Proposed final dividend €1.28 resulting in

total dividend for 2016 up 6.5% to €1.65

Share repurchase program to neutralize the

dilutive effect of stock dividends paid in 2016

2016

1.65

0.37

1.28

2015

1.55

0.35

1.20

2014

1.45

0.33

1.12

2013

1.45

0.33

1.12

Interim dividend

Final dividend

Dividends € per share

2.6% 2.5% 2.5% 2.8% Yield*:

+7% +6.5%


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Retain strong investment grade credit rating

Limit risk and reduce uncertainty

Strategically aligned and value generating

Pay a stable to rising dividend

Innovation and capital expenditure

Cash generation restored to invest in growth and improve shareholder returns

Investor overview

2. Dividend

1. Profitable organic growth

3. Acquisitions

5. Manage pension liabilities

4. Balance sheet


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We are stronger, more agile, better able to adapt and grow

ALPS Continuous improvement

75% sites

20% Eco-premium

solutions Carbon

Footprint

reduced

300+ Human Cities

projects Safer operations

Progress

on a new GBS

model

Acquisition of BASF’s Industrial Coatings business

Record ROS

and ROI

€200+ million

savings

Employee

engagement

up for 6th

year

Volume

Growth

36

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We are stronger, more agile, better able to adapt and grow

We maintain our financial guidance for 2016-2018

We anticipate positive developments for EMEA,

North America and Asia, improving during the

year, while Latin America is expected to

stabilize.

Some economic and political uncertainty is

expected to remain.

Market trends experienced in the second part of

2016, including for marine and oil and gas

industries, are expected to continue during the

first half of 2017.

We have structurally improved our ability to

respond to developments in our markets.

We are taking appropriate measures to deal

with higher raw material prices in an inflationary

environment.

Our stronger operational and financial

foundation means we are more agile and better

able to seize growth opportunities, including

acquisitions.

37

AkzoNobel Bullets




Investor overview


38

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Global paints, coatings and specialty chemicals company

€14.2 billion revenue

€1,502 million EBIT

80+ countries

46,000 employees

Leadership positions in many markets

Revenue by Business Area

43%

21%

36% 36%

27%

17%

9%

7% 4% Mature Europe

Asia Pacific

North America

Latin America

Emerging Europe

Other

40%

27%

33%

PerformanceCoatings

DecorativePaints

SpecialtyChemicals

EBIT by Business Area Revenue by geographic region

39

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Revenue split per Business Unit

35%

25%

21%

19% Functional

Industrial

Surface

Pulp andPerformance

Specialty Chemicals

26%

26%

48%

Marine andProtective

Automotive andSpecialty

Industrial andPowder


56%

13%

31%

EMEA

LatinAmerica

Asia

Decorative Paints

40

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Buildings and infrastructure

Transportation

Consumer durables

Consumer packaged goods

Natural resource and energy industries

Process industries

Automotive repair

Automotive OEM, parts and assembly

Marine and air transport

Consumer goods

Industrial

New build projects

Maintenance, renovation & repair

Building products and components

21%

of revenue

18%

of revenue

17%

of revenue

44%

of revenue

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Investor overview

Global paints and coatings by market sector

~€100 billion, 2012 – 2015

Chemicals industry

~€3,500 billion, 2012 – 2015

Present in large and attractive markets

42%

6% 6% 6%

6%

6%

3% 2% 2% 1% 1%

16%

Decorative

Automotive OEM (metal)

Wood finishes

Vehicle refinish

Protective coatings

Powder coatings

Coil coatings

Marine

Packaging coatings

Auto plastics exterior

Wireless/IT plastics

Auto plastics interior

Aerospace

Yacht

GI/OthersPerformance

Coatings 58%

Decorative

Paints 42%

5% 5%

1% 1%

23%

17% 16%

11%

11%

9%

Manufactured fibres

Coatings

Adhesives and sealants

Synthetic rubber

Bulk petrochemical andintermediates

Plastic resins

Other specialties

Agricultural chemicals

Consumer products

Inorganic chemicals


Source: Global paints and coatings by market, Orr & Boss; Global chemical shipments by segment 2014, excluding pharmaceuticals, American Chemistry Council

42

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Investor overview

Strategy delivering results and building foundation for continuous improvement

Achievements

Transformation | New operating models for all Business Areas

Realignment of the functions

Operational optimization; reduction in:

– Factory footprint

– Enterprise Resource Planning systems

– SKUs

Portfolio optimization with selected divestments

Proactive management of pension liabilities

Continued focus on sustainability

Core principles and values | Human Cities

AkzoNobel at a glance 43

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Investor overview

Support functions are progressing towards the future operating model

Decentralized functions

Function reporting and alignment

Shared services/ outsourcing

Global Business Services

Human Resources

Information Management

Finance

Procurement (non product related)


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Core principles and values in place; Incentives aligned with strategy

We build successful partnerships with our customers

We do what we say we will do

We strive to be the best in everything we do, every day

We develop, share and use our personal strengths to win as a team

Core

principles:

Safety

Integrity

Sustainability

Customer Focus

Deliver on Commitments

Passion for Excellence

Winning Together

STI Element Metric *

20% Return on investment

20% Operating income

30% Operating cash flow

30% Personal targets – partly related to strategic targets

LTI Element Metric

35% Return on investment

35% Total Shareholder Return

30% Sustainability /

RobecoSAM - DJSI

Investor overview AkzoNobel at a glance

*A new metric, revenue growth, was approved at the AGM 2016. It has been introduced for some executives.

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Investor overview

Strategy will be maintained and move towards the next phase

Return on sales below peers

Not earning our cost of capital

Inadequate free cash flow

Operating expenses too high

Not leveraging scale

Vision and strategy:

Organic growth

Operational excellence

Sustainability

2015 targets:

ROS 9%; ROI 14%

Aligned remuneration


Limited economic

recovery

Slowing

emerging markets

Historical issues Building the foundation Continuous improvement

Organic growth

External environment


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Focus will shift towards continuous improvement and organic growth

Next steps

Culture


Sustainability – Planet Possible

Society – Human Cities

Drive organic growth and innovation

Pursue value generating acquisitions

Build further operational excellence

Deliver continuous improvement culture

Hardwire new organization model

Investor overview AkzoNobel at a glance 47

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Investor overview

Vision confirmed; financial guidance 2016-2018

Guidance 2016-2018:

Return on sales: 9-11%

Return on investment: 13-16.5%


Vision: Leading market positions delivering leading performance


Key assumptions: Currencies versus €: $1.1, £0.71, ¥7.1 Oil price ~$60/bbl ; no significant market disruption

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

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Investor overview

Visions confirmed; performance ranges 2016-2018


Vision:

Leading market positions

delivering leading performance

Performance range 2016-2018: Return on sales: 12-14% Return on investment >25%

Decorative Paints

Vision:

The leading global Decorative Paints company

in size and performance

Performance range 2016-2018: Return on sales: 8-10% Return on investment: >11.5%

Specialty Chemicals

Vision:

Delivering leading performance

based on sustainable chemical platforms

driving profitable growth in selected markets

Performance range 2016-2018: Return on sales: 11.5-13% Return on investment: >16%



Key assumptions: Currencies versus €: $1.1, £0.71, ¥7.1 Oil price ~$60/bbl ; no significant market disruption

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

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Sustainability is business; business is sustainability

(Resource Efficiency Index)

A new indicator measuring how efficiently we generate value (expressed as

gross margin divided by cradle-to-grave carbon footprint)

of revenue by 2020 from products that are more sustainable for

our customers than the products of our competitors

more efficient resource and energy use across the entire value chain

by 2020 (measured by carbon footprint reduction)

Investor overview AkzoNobel at a glance 50

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A strong case for investment

Investor overview

Portfolio of businesses with leadership positions in many markets

Strong global brands in both consumer and industrial markets

Long-term growth potential from end-user segments

Balanced exposure across geographic regions

Track record of improving returns and cash flow

History of successfully commercializing innovation

Clear leader in sustainability

Commitment to Human Cities


AkzoNobel Bullets




Investor overview

Business Areas

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A global player with leading market positions

Key capabilities

Understanding customer needs

Management of integrated value chains

Continuous technological advancement

Engineering and project management

Specialty Chemicals key figures

Revenue by end-user segment

Revenue by geographic spread

€ million 2016

Revenue 4,783

EBIT 629

Operating income 629

Return on sales 13.2%

Return on investment 17.9%

Employees 9,000

50%

34%

16% EMEA

Americas

Asia Pacific

21%

6%

28%

45%

Buildings andInfrastructure

Transportation

Consumer Goods

Industrial

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– Ethylene oxide

– Ethylene amines

– Ethoxylates

– Natural oil and fat-based nitrogen surfactants

– Organic peroxides

– Metal alkyls

– Energy/Salt

– Caustic/Chlorine

– Sodium chlorate

– Hydrogen peroxide

Resilient portfolio organized in five strong chemical platforms

Our main chemical platforms Our products

Investor overview

– Monochloroacetic acid

– Chloromethanes

– Polymer additives

– Cellulosics

– Chelates/Micronutrients

Salt-chlorine chain

Bleaching chemicals

Polymer chemistry

Surfactants

Our business units

Ethylene oxide network

Pulp and Performance

Chemicals

Industrial Chemicals

Polymer Chemistry

Ethylene and Sulfur

Derivatives

Surface Chemistry

Business Areas 54

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Improve performance by driving

operational excellence ~50% of portfolio

We continue with pursuing differentiated strategies

Investor overview

Outgrow the market organically

~50% of portfolio

Actions

Capitalize on investments

Successfully commercialize

products for attractive applications

Invest when attractive growth

opportunities arise

Actions

Reduce costs and further improve

productivity in operations

Improve raw material (cost) position

Leverage existing production

capacity

Growth range

2012-2015

0 to 15% per year

Average +3%

Growth range

2012-2015

-10 to +5%

Average -3%

Business Areas

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3000

3500

4000

4500

5000

5500

60002003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015 LV

Investor overview

Quality of business improved

Customer portfolio

Product portfolio Strategic focus

Improve performance

platforms

Outgrow the market

platforms

New product introductions

Rest of the world

Current products

Strategic customers

Other accounts Europe

Geo-spread

Rest of world

CAGR

2.5%

418

508

Operating income

€ million, 2013-2014

Revenue

2003-2015

Business Areas

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Continued market growth expected over the next few years

Investor overview

Market growth**

% p.a., 2015-2018

>3%

1.5-3%

<1.5%

1.5-3%

<1.5%

Platform

Surfactants 6,7

3,9

1,9

6,6

1,7

Market size*

€ billion, 2014

Salt-chlorine

chain

Ethylene

oxide network

Polymer

chemistry

Bleaching

chemicals

Global leadership

Regional or segment

leadership

Other

Leading positions Revenue breakdown by position % of revenue, 2014

Business Areas

* Sum of sectors relevant to AkzoNobel **Related to AkzoNobel portfolio Source: AkzoNobel internal analysis

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Investor overview

We have the right strategy in place

Strategic focus areas End-user segments Action Processes

Business Area Actions

Drive functional excellence

– Supply chain and operations

– Commercial excellence

– Talent management

Reduce organizational

complexity

Strengthen product and

process innovation

Capitalize on industry changes

Build on our strong chemical

platforms to deliver profitable

growth in selected markets

Business Areas

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Dedicated RD&I resources in world class laboratories around the globe

– >500 highly qualified FTE’s

– ~€100m per annum; ~2% of sales

More than 5,000 patents

Overarching technology programs

– Bio-based chemicals, Process technology, Shared applications

Co-operations with customers, suppliers, and academia

High sustainability content, in line with our Planet Possible strategy

Process and product innovation enables growth across all businesses

Resource preservation Increasing end-use

demands

Accelerated technology

development Changing demographics

and spending patterns

End-user requirements/trends

Investor overview Business Areas

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Regional opportunities enable additional growth

Investor overview

North America

Shale gas, increased investments in

petrochemicals and plastics

Growth products: Polymer Chemistry,

Surfactants

Latin America

Increased pulp production. Growing

consumer markets

Growth products: Surfactants,

bleaching chemicals

India

Specialty chemicals growth

(pharmaceutical and agriculture raw

materials) Growth middle class

Growth products: Ethylene amines,

MCA, Surfactants, Polymer Chemistry

Europe

High valued add specialties


Chelates, Performance Additives,

Expancel, Colloidal Silica

Middle East

Moving down the value chain.

Expanding petrochemicals and plastics

customers


Ethylene derivatives

China

Urbanization, growing middle class.

Improved safety and environmental

controls


Ethylene Amines, Chelates and

Micronutrients

Africa

Improved agriculture. Growing

demand for housing


Micronutrients, Performance Additives

South East Asia

Increased pulp production. Growing

consumer markets

Growth products: Bleaching chemicals,

Surfactants, Polymer Chemistry

Business Areas

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Performance Coatings at a glance

Performance Coatings key figures

Revenue by end-user segment


€ million 2016

Revenue 5,665

EBIT 759




Employees 19,700

25%

39%

21%

15% Buildings andInfrastructure

Transportation

Consumer Goods

Industrial

38%

28%

34% EMEA

Americas

Asia Pacific

Key capabilities

Industrial key account management

Technical support and service

Design, color and color matching

Continuous innovation in functionality and ease-of-use

Sustainable, safe solutions

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Performance

Coatings

To

Performance

Coatings

6 regions

7 strategic market units

New simplified organization drives operational excellence and organic growth

Investor overview

From

Accountability and collaboration

Speed of decision-making

Customer proximity

4 business units

12 sub-business units

72 regional units

Business Areas

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Vehicle Refinishes

Protective

Marine

Packaging

Yacht

Coil

Wood Finishes

Aerospace

Specialty Plastics

Powder

0 1 2 3 4 5 6

We have leading positions in the markets we serve

Investor overview

Segment size

€ billion, 2014

AkzoNobel market share

and position (by value) 2014

x

1

1

1

1

3/4

2

1

1

1/2

Segment growth

2016-2018

>3%

2-3%

<2%

1

Business Areas

Source: Orr & Boss base data for segment sizes, AkzoNobel internal analysis

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Investor overview

We have the right strategy in place

Business Area actions

Pursue differentiated growth

strategies

Drive overarching performance

improvement initiatives

• Reduce external spend

• Improve our operations

• Commercial excellence

Strategic focus areas End-user segments Action Processes

Business Areas

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We are outgrowing our markets in targeted areas

Sector Action examples

Powder Coatings • Full wheel offering including powder primer, liquid color and

powder clearcoat

Protective Coatings • Focus on downstream oil and gas and growth outside of oil and gas (Power)

Marine Coatings • Continue to invest in fouling control, sustainability innovation and enhanced

services


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Sales force effectiveness

Common processes and tools

Sales force incentives

Sales force efficiency

Margin management

Drive commercial excellence

Investor overview

We are driving overarching performance improvement initiatives

Local sourcing of raw materials

Focus on indirect material spend

Standardize product range Double/triple source raw materials

Reduce external spend

Operational excellence program focused on

customer satisfaction, reducing costs and

increasing yields

Manufacturing footprint optimization: Closed 17 factories

Improve our operations

Ambition Achievements Focus areas

Business Areas

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Investor overview

Dedicated RD&I resources

>2,000 highly qualified scientists and technicians

~3% of revenues

Strategic research groups:

– Sassenheim (NL)

– Felling (UK)

– Strongsville (US)

– Songjiang (China)

– Bangalore (India)

Growth through product, process and service innovation across all businesses

Strategic drivers

Customer efficiency

Customer benefits

Global future trends

Internal efficiency

Business Areas

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75%

25% Maintenance, renovationand repair

New build projects

Decorative Paints at a glance

Key capabilities Branding Digital Distributor, wholesale, retail management Understanding and serving professional painters Consumer inspiration Quality management, including portfolio management

Decorative Paints key figures

Buildings and Infrastructure revenue breakdown


€ million 2016

Revenue 3,835

EBIT 357




Employees 14,700

56%

13%

31% EMEA

Latin America

Asia

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Changing growth expectations in maintenance, renovation and repair

Investor overview

Maintenance and repair, excluding infrastructure and industrial construction

$ billion, output

Global Europe

2013 2014 2015 2016 2017 2018 2019

4.6% p.a.

1.7% p.a.

5.3% p.a. China 4% p.a.

Europe* 2.4% p.a.

India 5.9% p.a. 3.3% p.a.

North America**

0.4% p.a.

2013 2014 2015 2016 2017 2018 2019

4.3% p.a.

-1.3% p.a.

6.5% p.a.

-3.4% p.a.

Turkey 2.1% p.a.

Russia 1.8% p.a.

2% p.a.

-5% p.a.

France 1.2% p.a.

Germany 4.5% p.a.

Italy 1.7% p.a.

UK -0.2% p.a.

-4.7% p.a. Brazil 0.3% p.a.

Business Areas

*Europe includes Russia and Turkey ** North America Excludes Mexico Source: IHS/Construction IC

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0 2.500 5.000

Market size

€ million, 2014

AkzoNobel has a strong 1 or 2 market position in all regions where present

Investor overview

UK & Ireland

North & West Europe

Eastern & Southern

Europe & Africa

South East & South

Asia & Middle East

x AkzoNobel market share

position* (by value) 2014

Segment growth

% p.a., 2015-2018

2

AkzoNobel

regions*

South America

1.5 – 3.0% 1

2

China & North Asia

1

1

1

>3%

0 – 1.5%

>3%

>3%

>3%

Business Areas

*Arranged by market size. Containing the countries where AkzoNobel is present

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Unique competitive positioning demonstrating resilient business model

Investor overview

Diversified,

exposure outside

mature

geographies

Diversified,

mostly mature

geography

Focused,

exposure outside

mature

geographies

Focused,

mature

geography

2014 revenues

€ millions

PPG

AkzoNobel

Sherwin-Williams

Nippon

Asian Paints

Cromology

Tikkurila

Valspar

Jotun

Masco (Behr)

Business Areas

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Investor overview

We have updated our strategic actions to reflect our new priorities

Business Area actions

Win locally

Leverage our scale:

• Innovation

• Commercial excellence

• Digital

• Painters

• Color

• Supply chain

• Brands

• Sustainability

Strategic focus areas End-user segments Actions Processes

Business Areas

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Winning locally by leveraging our scale

Consumer and Professional

Link to other AkzoNobel

brands and programs

Brands Building on our award-winning

Visualizer global launch Digital

Products and services Innovation

Leverage our credentials

through Planet Possible and

lead market to water-based

Sustainability Global needs-based research

Next steps as appropriate,

including digital

Painters

Multi-functional approach

Recognized as passionate

color expert

Color

Menu to facilitate

winning locally

Commercial

excellence

Continued emphasis on

procurement (including

localization)

Continuous improvement

Supply chain


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Decorative Paints innovation agenda

Mass market growth (emerging markets)

End-user segment requirements/trends

Well-being

Regulatory

compliance

Differentiation in

large scale outlets

(LSOs)

Energy-efficient

solutions

Beyond

commoditization of

color (aesthetics)

Innovation agenda implication

Lower cost solutions Waterborne trim

and other wood

solutions

Zero volatile

organic compounds

(VOC) and zero

emissions

Customization at

point of order or

purchase

Coatings that help

manage energy use

Highly differentiated

color

Significant focus on sustainability


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Transforming Integrated

Supply Chain to deliver

leading performance

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Investor overview

Our supply chain is fundamental to our success

Largest function in the company, with close to 22,000 colleagues across our three Business Areas

Backbone of company, responsible for processes to design, deploy and deliver our products

We deliver to our customers from over 200 manufacturing sites

Each Business Area has different supply chain characteristics and customer service model

We contribute to our long-term sustainability goals by improving energy/material efficiency across the value chain

Integrated Supply Chain 76

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Investor overview

The Supply Chain vision and targets support delivering leading performance

World class safety, operational and customer service performance Cost position creates competitive advantage in our industry Leveraging size and infrastructure to serve most effectively Create sustainable value through standard, best-in-class, work processes Building a global performance-based continuous improvement culture Taking pride and ownership in delivering leading performance

World class metrics

Safety TRR

Zero process safety incidents

Service OTIF

Lean six sigma quality

Capital Days Inventory

Cost Cost productivity

Supply Chain cost – % of revenue Procurement effectiveness

People Top quartile in engagement

Strategic imperatives


TRR = Total reportable injury rate OTIF – On-time in-full

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Investor overview

Leading performance is gaining momentum

Objective:

Functional excellence and capability transformation to operate at peak performance

Initiatives (launched 2014):

New organization model

ALPS deployment - Plan, Source,

Make and Deliver

Objective:

Delivering leading and sustainable performance in functional and operational excellence

Initiatives (launch 2016 onwards):

Advanced manufacturing excellence

ALPS continuous improvement

Commitment-based safety culture

Objective:

Delivering world class functional and operational excellence

Initiatives (launch 2016 onwards):

World scale integrated production

World class Supply Chain

Internal best performance Industry best performance World class

performance

1 – 3 years 3 – 6 years 7+ years

Today


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We are implementing the AkzoNobel Leading Performance System (ALPS)

Enablers

Capability development

Leading edge principles,

methods and IT systems

Organization

Clear roles and

responsibilities

Lean organization structure

Processes

Standard and integrated work processes

Clear goals and metrics

ALPS

Organization

Processes

Enablers Behaviors

Behaviors

Performance-driven,

continuous

improvement culture

Change management

Investor overview Integrated Supply Chain

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Robust organization utilizing rigorous process

Boot camp Assessment Foundational

Processes Primary

Processes Embed and

mature

Continuous

improvement

Process optimization 12-18 months 4-13 weeks 3-6 months 3 days 4 days

Design Deploy Deliver

200+ sites worldwide 100+ CI team members 5 CI experts

Governance process Maturity audit

GO

LIVE

Decorative Paints

deploy team


deploy team

Specialty Chemicals

deploy team

Center of

Excellence

Investor overview Integrated Supply Chain

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Investor overview

Decorative Paints: ALPS improvement in productivity

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

ALPS

implementation

Oct 2014

2014

2015

Weeks

Avera

ge c

ycle

tim

e

ALPS

implementation

Batch production time reduced by 11% + less variation Filling line down-time dropped 79% after ALPS implementation


Source : AkzoNobel analysis

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Investor overview

Performance Coatings: ALPS improvement in on-time in-full

Actual 2015

On-time in-full target

60%

75% 80%

85% 90% 92% 93% 94% 95% 95% 95% 95%

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

ALPS

implementation

On-time in-full improved 58% after ALPS implementation



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(8.000)

(6.000)

(4.000)

(2.000)

-

2.000

4.000

6.000

8.000

10.000

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

Investor overview

Specialty Chemicals: ALPS improvement in productivity

Productivity YTD %

Productivity value YTD

--- Productivity target %

0

Q1 Q2 Q3 Q4

Productivity offsets inflation after ALPS implementation

ALPS

implementation



83

Building a strong financial

foundation to deliver

leading performance

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1.61

1.23 1.25

1.0

0.6 0.6

0

0,5

1

1,5

0

0,5

1

1,5

2

2,5

3

3,5

4

2014 2015 2016

Net debt (€ billion)/EBITDA

Average cost of long-term bonds %

Seek to maintain investment grade rating of BBB+ (currently A-)

Net debt at €1.25 billion (0.6 x EBITDA)

Average interest rate reduced with repayment of high interest debt

Renewal of €1.8 billion undrawn credit facility Debt maturities € million (average debt duration 5 years 6 months)

Investor overview

Strong financial position provides foundation for growth

Financial topics

500500

750800

2026 2025 2024 2023 2022 2021 2020 2019 2018 2017

4.000% 2.625%

1.750% 1.125%

2016 2015

2.9

2014

3.6

2.6

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Investor overview

Further de-risking of pension liabilities including £2.8 billion non-cash buy-ins*

Various activities to reduce liabilities

£8.5 billion insurance buy-ins for UK schemes (2014-16). $0.7 billion buy-out relate to a US scheme (2013)

Active management of interest rate and inflation exposure, with around 80 percent of overall defined benefit obligation risks hedged

Almost 60 percent of longevity risk is covered by insurance contracts and hedging

Financial topics

80

6061

21

16

Longevity hedging Interest and

inflation hedging

Defined benefit

obligations

100 2

Other post-retirement benefits

ICI PF UK

Other pension plans

CPS UK

*Total year to date December 2016

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9%

22%

15%

5%

23%

8%

8%

10%

Breakdown of total raw material spend

2016

Investor overview

Titanium

dioxide

Latex and monomers

Resins

Pigments

Additives

Solvents Chemicals and

intermediates*

Packaging

Financial topics

*Chemicals and intermediates include caustic soda, acetic acid, tallow, ethylene, ethylene oxide, sulfur, amines etc.

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The net impact of a sustained lower oil price can have a positive impact

Investor overview Financial topics

Inventories

GDP

Fre

igh

t an

d lo

gis

tics

F

reig

ht a

nd

log

istic

s

Sales Raw materials Production

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Investor overview

Downstream oil related products have clearly different dynamics

Financial topics

Monomers,

Precursors, etc.

Feedstocks Base (petro)chemicals

Intermediates and more complex molecules

Methanol

Ethylene

Ethanol

Propylene

Benzene

Xylenes

Etc.

Intermediates More complex

molecules

Monomers & Latex

Resins

Packaging

Additives

Solvents

Crude Oil

(Shale) Gas

Coal

Bio based

Renewables

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Financial topics

Category Comments / assumption FY Revenue FY EBIT

Acquisition

BASF’s Industrial Coatings business. The full profitability of the acquisition will be

realized by the end of 2018, in line with the stated financial guidance for the

Performance Coatings business

~€280 mln Transition during

2017/2018

Currencies Assuming December 2016 exchange rates (€: $1.05, £0.86, RMB 7.3) = / + = / +

Continuous

improvement

Seek year-on-year productivity gains from continuous improvement (e.g. ALPS and

GBS) to at least offset inflation N/A

€100 - €200 mln

(positive effect)

Inflation Inflation on fixed cost base 2.5- 3%

Restructuring Medium term guidance 0.5 - 1% of revenue; 2017 in line with 2016 N/A ~€70 mln

Market growth 2-3% (volume and price/mix), based on relevant geographic and market presence. Market trends in marine and oil & gas

experienced in the second part of 2016 are expected to continue during the first half of 2017

Raw materials

We are likely to see higher year-over-year input costs in 2017 due to the inflationary environment, while there are various supply and

demand dynamics related to our raw materials basket. We are taking appropriate measures to deal with higher raw material prices in

an inflationary environment

Tax rate ETR 28-29%

Cash deployment Capital expenditures at 4- 4.5% of revenue and RD&I at ~2.5% of revenue

Other WACC ~7%, interest rate ~3.3%, OWC 10-12% of revenue

2017 Financial assumptions

Investor overview 90

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Purchase Managers’ Index (PMI)*

Figures below 50 indicate pessimism

Purchase Managers’ Index (PMI)*

December 2016

Manufacturing indices up in all regions and countries

Financial topics

Investor overview

*Bubble size=manufacturing output, 2016e (US$bn: 2010 prices) Sources: Oxford Economics, Markit (incl. US)

40

50

60

Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

US

Eurozone

ChinaBrazil

Indonesia

India

Japan

China

Vietnam

France

Russia

US

Germany

UK

Netherlands

Sweden

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Consumer confidence up in many European countries

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858890100101102108112

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Russia France S Africa Brazil Poland Turkey Netherlands Germany UK China Vietnam Indonesia US India

Recent trends compared to Q4 2015

Consumer confidence, Q4 2016

Figures below 100 indicate some degree of pessimism

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Foreign exchange a headwind in 2016

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5

-2-5-4

-2

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Quarterly foreign exchange rate development in % year-on-year

-3

35

86

-2 -1

8

-2-5

-3

9

-2

34

-7-5 -4

7

-7

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2016

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-20%

-10%

0%

10%

Q1 '15 Q2 '15 Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16

USD GBP CNY SEK BRL

Financial topics 93

ton büchner and maëlys castella february 15, 2017… · 2017-06-08 · akzonobel bullets only use...

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