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Akzo Nobel N.V. — Earnings Release 2017
Oct 18, 2017
3806_iss_2017-10-18_a403faad-d070-4028-ab05-dcff266c1494.pdf
Earnings Release
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Media release
October 18, 2017
Revenue and volumes up despite strong headwinds;
Transformation plan to deliver €110 million savings in 2018
AkzoNobel publishes Q3 2017 results
Akzo Nobel N.V. (AKZA.AS; AKZOY)
Q3:
- Volumes 2% higher driven by Decorative Paints and Performance Coatings
- Revenue up 1%, mainly due to volume growth and acquisitions, partly offset by unfavorable currencies
- EBIT1 at €383 million (2016: €442 million), impacted by unfavorable currencies, temporary disruption to the manufacturing and supply chain, continued headwinds for Marine and Protective Coatings and margin pressure from raw material cost inflation
- Direct impact of around €25 million on EBIT related to Hurricane Harvey and other events
- Adjusted EPS at €1.07 (2016: €1.20)
- Initiating phase one of transformation plan to create a fit for purpose Paints and Coatings organization to deliver €110 million savings in 2018 contributing towards the 2020 financial guidance
- Extraordinary General Meeting (EGM) to be held on November 30, 2017
- Creating two focused high-performing businesses:
- o Separation of Specialty Chemicals is on track to be completed by April 2018
- o €1 billion special cash dividend as advance proceeds to be paid on December 7, 2017, following shareholder approval for the separation
- Capacity expansions in the UK (Decorative Paints), China (Performance Coatings) and Sweden (Specialty Chemicals)
- Number one in the Chemicals Industry Group on the Dow Jones Sustainability Index, for the fifth time in six years
CEO Thierry Vanlancker, commented:
"We have continued to grow our business with higher volumes and increased revenues despite challenging market conditions in selected areas of our business, especially in Marine and Protective Coatings.
"We have also initiated phase one of our transformation plan to create a fit for purpose Paints and Coatings organization which will deliver €110 million annual savings in 2018 contributing towards our 2020 financial guidance.
"EBIT for 2017 is now expected to be in line with 2016, due to adverse foreign exchange, ongoing industry specific headwinds and supply chain disruptions, including the adverse impact of Hurricane Harvey in the US.
"There continues to be significant interest in our Specialty Chemicals business and we look forward to the separation process officially kicking off in the coming weeks. We have announced several capacity expansions to accelerate growth for the business, including a €20 million investment to increase production at Sundsvall, Sweden for our Expancel expandable microspheres."
1077 WW Amsterdam E [email protected]
Outlook:
We anticipate positive developments for EMEA (excluding the UK), North America and Asia, while Latin America is expected to stabilize.
Industry specific headwinds continue, including higher raw material prices and challenges for marine and protective coatings.
We are implementing various measures to mitigate current market challenges, including increased selling prices and additional cost control.
EBIT for 2017 is now expected to be in line with 2016, due to ongoing industry specific headwinds and supply chain disruptions.
Q3 2017 in € million
| Q3 2016 | Q3 2017 | Δ % | |
|---|---|---|---|
| Revenue | 3,600 | 3,624 | 1 |
| EBIT1 | 442 | 383 | (13) |
| Return on sales (ROS)2 % | 12.3 | 10.6 | |
| Net income attributable to shareholders | 285 | 216 | (24) |
| Year-to-date January – September 2017 in € million | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| YTD 2016 | YTD 2017 | Δ % | |||||||
| Revenue | 10,741 | 11,070 | 3 | ||||||
| EBIT1 | 1,267 | 1,220 | (4) | ||||||
| Return on sales (ROS)2 % | 11.8 | 11.0 | |||||||
| Return on investment (ROI)3 % | 15.2 | 14.2 |
Net income attributable to shareholders 837 757 (10)
Decorative Paints
Third quarter volumes increased by 5% due to positive developments in Asia. Revenue was down 1%, with positive volume development more than offset by adverse currency and price/mix effects. EBIT was adversely impacted by continued higher raw material costs in the paints and coatings industry, not yet fully compensated, and geographical/product mix effects. Appropriate measures are being taken to address higher raw material costs, including increased selling prices and additional cost control.
AkzoNobel opened a new facility in Ashington, UK, which is the world's most advanced and sustainable paint factory. This hi-tech plant is the new center of production for Dulux, the world's leading decorative paint brand.
Performance Coatings
Volumes were up by 1% in the third quarter, with growth for Industrial and Powder Coatings, partly offset by adverse conditions in the marine and oil and gas industries. Revenue was up 2%, due to volume growth and the acquired Industrial Coatings business, partly offset by currency effects. EBIT was adversely impacted by ongoing weakness in the marine and oil and gas industries, as well as increased costs of raw materials in the paints and coatings industry and adverse currency effects. Measures being implemented to mitigate current industry specific headwinds include increased selling prices and additional cost control.
The company opened a facility in Dongguan, China, dedicated to producing aerospace coatings for the North and South Asian aviation market. This new facility will offer improved and faster service to existing, as well as new, customers in this rapidly-growing market.
Specialty Chemicals
Third quarter volumes were flat, despite significant global supply chain disruptions including Hurricane Harvey in the Houston area of the US. Revenue was up 1% due to positive price/mix effects, mostly offset by adverse currencies. EBIT was up 1% with favorable price/mix developments and cost savings partly offset by unfavorable currencies and global supply chain disruptions. Positive price/mix reflects the successful pass through of raw material price inflation.
During Q3, AkzoNobel announced a novel technology platform for producing a wide range of ethylene amines and their derivatives from ethylene oxide. The process involves lower raw material consumption and has an improved cost and sustainability profile when compared with existing processes. Construction of a demonstration unit will start next year.
Business Area highlights in € million
| Decorative Paints | ||||||
|---|---|---|---|---|---|---|
| Q3 2016 | Q3 2017 | Δ% | YTD 2016 | YTD 2017 | Δ% | |
| 1,021 | 1,007 | (1) | Revenue | 2,937 | 2,975 | 1 |
| 123 | 95 | (23) | EBIT1 | 306 | 293 | (4) |
| 12.0 | 9.4 | ROS2 % | 10.4 | 9.8 | ||
| Performance Coatings Q3 2016 Q3 2017 1,406 1,428 |
||||||
| Δ% | YTD 2016 | YTD 2017 | Δ% | |||
| 2 | Revenue | 4,267 | 4,403 | 3 | ||
| 199 | 147 | (26) | EBIT1 | 607 | 536 | (12) |
| 14.2 | 10.3 | ROS2 % | 14.2 | 12.2 | ||
| Specialty Chemicals | ||||||
| Q3 2016 | Q3 2017 | Δ% | YTD 2016 | YTD 2017 | Δ% | |
| 1,202 | 1,209 | 1 | Revenue | 3,614 | 3,757 | 4 |
| 168 | 169 | 1 | EBIT1 | 511 | 524 | 3 |
| 14.0 | 14.0 | ROS2 % | 14.1 | 13.9 |
1. Operating income excluding identified items
2. ROS% is EBIT divided by revenue
3. Moving average ROI% is 12 months EBIT divided by 12 months average invested capital
The Q3 report can be viewed and downloaded at www.akzonobel.com/quarterlyresults
About AkzoNobel
AkzoNobel creates everyday essentials to make people's lives more liveable and inspiring. As a leading global paints and coatings company and a major producer of specialty chemicals, we supply essential ingredients, essential protection and essential color to industries and consumers worldwide. Backed by a pioneering heritage, our innovative products and sustainable technologies are designed to meet the growing demands of our fast-changing planet, while making life easier. Headquartered in Amsterdam, the Netherlands, we have approximately 46,000 people in around 80 countries, while our portfolio includes well-known brands such as Dulux, Sikkens, International, Interpon and Eka. Consistently ranked as a leader in sustainability, we are dedicated to energizing cities and communities while creating a protected, colorful world where life is improved by what we do.
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Safe Harbor Statement
This press release contains statements which address such key issues such as AkzoNobel's growth strategy, future financial results, market positions, product development, products in the pipeline and product approvals. Such statements should be carefully considered, and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business please see our latest annual report, a copy of which can be found on our website: www.akzonobel.com.
17
Our results at a glance
Q3:
- Volumes 2% higher overall, driven by Decorative Paints and Performance Coatings while flat for Specialty Chemicals despite significant global supply chain disruptions
- Revenue up 1%, mainly due to volume growth and acquisitions, partly offset by adverse currency effects
- EBIT at €383 million (2016: €442 million), impacted by unfavorable currencies, temporary disruption to the manufacturing and supply chain, continued headwinds for Marine and Protective Coatings and margin pressure from raw material cost inflation
- Operating income at €338 million (2016: €454 million), adversely impacted by identified items, mainly related to the separation of Specialty Chemicals
- ROS at 10.6% (2016: 12.3%); ROI at 14.2% (2016: 15.2%)
- Net income attributable to shareholders at €216 million (2016: €285 million)
- Adjusted EPS at €1.07 (2016: €1.20)
- Net cash inflow from operating activities at €416 million (2016: €600 million)
- Interim dividend up 51% to €0.56 per share (2016: €0.37)
Creating two focused high-performing businesses:
- Initiating phase one of transformation plan to create a fit for purpose Paints and Coatings organization to deliver €110 million savings in 2018, contributing towards the 2020 financial guidance
- New management structure for Paints and Coatings
- Extraordinary General Meeting (EGM) to be held on November 30, 2017
- €1 billion special cash dividend as advance proceeds to be paid on December 7, 2017, following shareholder approval for the separation
- Separation of Specialty Chemicals on track to be completed by April 2018
- AkzoNobel #1 in the Chemicals Industry Group on the Dow Jones Sustainability Index, for the fifth time in six years
Outlook:
We anticipate positive developments for EMEA (excluding the UK), North America and Asia, while Latin America is expected to stabilize.
Industry specific headwinds continue, including higher raw material prices and challenges for marine and protective coatings.
We are implementing various measures to mitigate current market challenges, including increased selling prices and additional cost control.
EBIT for 2017 is now expected to be in line with 2016, due to ongoing industry specific headwinds and supply chain disruptions.
Financial highlights
Volumes were 2% higher overall, driven by Decorative Paints and Performance Coatings while flat for Specialty Chemicals despite significant global supply chain disruptions. Revenue was up 1%, mainly due to volume growth and acquisitions, partly offset by adverse currency effects. EBIT at €383 million (2016: €442 million) was impacted by unfavorable currencies, temporary disruption to the manufacturing and supply chain, continued headwinds for Marine and Protective Coatings and margin pressure from raw material cost inflation. ROS at 10.6% (2016: 12.3%) and ROI at 14.2% (2016: 15.2%). Net cash inflow from operating activities at €416 million (2016: €600 million).
AkzoNobel around the world Revenue by destination
(Based on the full-year 2016)
Summary of financial outcomes
| Third quarter | January-September | |||||
|---|---|---|---|---|---|---|
| 2016 | 2017 | ∆% in € millions | 2016 | 2017 | ∆% | |
| 3,600 | 3,624 | 1 Revenue | 10,741 | 11,070 | 3 | |
| 442 | 383 | (13) EBIT | 1,267 | 1,220 | (4) | |
| 454 | 338 | (26) Operating income | 1,302 | 1,155 | (11) | |
| 12.3 | 10.6 | ROS% * | 11.8 | 11.0 | ||
| 12.6 | 9.3 | OPI margin% | 12.1 | 10.4 | ||
| Average invested capital | 10,084 | 10,227 | |||
|---|---|---|---|---|---|
| Moving average ROI (in %) * | 15.2 | 14.2 | |||
| 128 | 137 | Capital expenditures | 403 | 406 | |
| 600 | 416 | Net cash from operating activities |
717 | 441 | |
| Net debt | 1,119 | 1,691 | |||
| 285 | 215 | (25) Net income from continuing operations |
838 | 757 | (10) |
| – | 1 | Net income from discontinued operations |
(1) | – | |
| 285 | 216 | (24) Net income attributable to shareholders |
837 | 757 | (10) |
| 1.13 | 0.86 | Earnings per share from total operations (in €) |
3.34 | 3.01 | |
| 1.20 | 1.07 (11) Adjusted earnings per share (in €) |
3.50 | 3.48 | (1) | |
| Number of employees | 45,800 | 46,100 |
* ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Financial highlights
Revenue
Volumes were 2% higher, driven by Decorative Paints and Performance Coatings. Revenue increased 1%, mainly due to volume growth and acquisitions, partly offset by adverse currency effects.
- In Decorative Paints, volumes were up 5% due to positive development in Asia. Revenue was down 1%, with positive volume development more than offset by adverse currency and price/mix effects, mostly due to strong growth in Asia
- In Performance Coatings, volumes were up 1%. Revenue was up 2%, driven by the acquired Industrial Coatings business, as well as positive volume development in Industrial and Powder Coatings, partly offset by adverse currency effects. Adverse conditions persisted in the marine and oil and gas industries
- In Specialty Chemicals, volumes were flat despite significant global supply chain disruptions, including Hurricane Harvey. Revenue was up 1%, due to positive price/mix effects, partly offset by adverse currencies. Positive price/mix reflects the successful pass through of raw material price inflation
Raw material price development
Raw material prices were higher compared with the same period in 2016. We are taking appropriate measures to deal with higher raw material prices in an inflationary environment. These measures were already effective for Specialty Chemicals, while for Decorative Paints and Performance Coatings it is expected to take several quarters before the necessary mitigating impact is fully realized.
Acquisitions
- For Q3 2017, the impact of acquisitions on revenue was 2% for AkzoNobel and 5% for Performance 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
Revenue development Q3 2017
Increase Decrease
| Revenue Third quarter |
January-September | ||||
|---|---|---|---|---|---|
| 2016 | 2017 | ∆% in € millions | 2016 | 2017 | ∆% |
| 1,021 | 1,007 | (1) Decorative Paints | 2,937 | 2,975 | 1 |
| 1,406 | 1,428 | 2 Performance Coatings | 4,267 | 4,403 | 3 |
| 1,202 | 1,209 | 1 Specialty Chemicals | 3,614 | 3,757 | 4 |
| (29) | (20) | Other activities/eliminations | (77) | (65) | |
| 3,600 | 3,624 | 1 Total | 10,741 | 11,070 | 3 |
| Creating two focused high-performing businesses | |||
|---|---|---|---|
On April 19, 2017, we unveiled a new strategy to create two focused, high-performing businesses with sustainable growth plans within 12 months. Having two separate businesses will enable us to deliver growth and value, with enhanced cash returns to shareholders. The separation of Specialty Chemicals remains on track for April 2018.
| in % versus Q3 2016 | Volume Price/mix | Acquisitions/ divestments |
Exchange rates |
Total | |
|---|---|---|---|---|---|
| Decorative Paints | 5 | (3) | – | (3) | (1) |
| Performance Coatings | 1 | – | 5 | (4) | 2 |
| Specialty Chemicals | – | 4 | – | (3) | 1 |
| Total | 2 | 1 | 2 | (4) | 1 |
| Volume development per quarter (year-on-year) |
Q3 16 | Q4 16 | Q1 17 | Q2 17 Q3 17 | |
|---|---|---|---|---|---|
| Decorative Paints | 3 | 2 | 9 | 3 | 5 |
| Performance Coatings | (2) | (1) | – | (4) | 1 |
| Specialty Chemicals | 1 | 4 | 5 | 2 | – |
| Total | – | 2 | 4 | – | 2 |
Price/mix development per
| quarter (year-on-year) | Q3 16 | Q4 16 | Q1 17 | Q2 17 | Q3 17 |
|---|---|---|---|---|---|
| Decorative Paints | (1) | (2) | (3) | (3) | (3) |
| Performance Coatings | (2) | (3) | (1) | 1 | – |
| Specialty Chemicals | (3) | (4) | – | 2 | 4 |
| Total | (2) | (3) | (1) | – | 1 |
EBIT
- In Decorative Paints, EBIT was adversely impacted by higher raw material costs, not yet fully compensated, and geographical/ product mix effects
- In Performance Coatings, EBIT was adversely impacted by ongoing weakness in the marine and oil and gas industries, as well as increased costs of raw materials and adverse currency effects
- In Specialty Chemicals, EBIT was up 1% with favorable price/mix developments and cost savings, partly offset by adverse currencies and global supply chain disruptions
- EBIT in other activities improved, due to lower corporate costs including one-off items, as well as lower pension and insurance related costs
The direct impact of disruptions to the manufacturing and supply chain was around €25 million on EBIT in Q3 2017, related to Hurricane Harvey and other events, with the majority of the impact in Specialty Chemicals.
Operating income
Operating income was negatively impacted by identified items totaling €45 million, mainly related to the implementation of the new strategy to create two focused high-performing businesses. The identified items impacted operating income in other activities.
In Q3, 2016, operating income was positively impacted by identified items with a net effect of €12 million, including adjustments to provisions, among others for post-retirement benefits, and asset impairments. The identified items impacted operating income of Decorative Paints, Performance Coatings and the operating income in Other activities.
Net financing expenses
Net financing expenses increased, mainly as a result of lower interest income.
Tax
The year-to-date effective tax rate was 26% (2016: 28%), impacted by adjustments to previous year and geographical mix.
EBIT (operating income excluding identified items)
| Third quarter January-September |
||||||
|---|---|---|---|---|---|---|
| 2016 | 2017 | ∆% in € millions | 2016 | 2017 | ∆% | |
| 123 | 95 | (23) Decorative Paints | 306 | 293 | (4) | |
| 199 | 147 | (26) Performance Coatings | 607 | 536 | (12) | |
| 168 | 169 | 1 Specialty Chemicals | 511 | 524 | 3 | |
| (48) | (28) | Other activities/eliminations | (157) | (133) | ||
| 442 | 383 | (13) Total | 1.267 1.220 | (4) |
Operating income
Third quarter January-September 2016 2017 ∆% in € millions 2016 2017 ∆% 132 95 (28) Decorative Paints 315 293 (7) 192 147 (23) Performance Coatings 600 536 (11) 168 169 1 Specialty Chemicals 511 524 3 (38) (73) Other activities/eliminations (124) (198) 454 338 (26) Total 1,302 1,155 (11)
Net income
Year-to-date net income attributable to shareholders was €757 million (2016: €837 million). Net income attributable to shareholders in Q3 2017 was €216 million (Q3 2016: €285 million). Q3 2017 was adversely impacted by identified items totalling €34 million, mainly related to the implementation of the new strategy to create two focused high-performing businesses.
Leading the way in sustainability
We are at the top of the influential Dow Jones Sustainability Index within the Chemicals Industry Group, underlining our commitment to making a positive impact on the whole value chain.
Operating income to net income
| Third quarter | January-September | ||
|---|---|---|---|
| 2016 | 2017 in € millions | 2016 | 2017 |
| 454 | 338 Operating income | 1,302 | 1,155 |
| (33) | (36) Net financing expenses | (82) | (77) |
| 10 | 5 Results from associates and joint ventures |
38 | 21 |
| 431 | 307 Profit before tax | 1,258 | 1,099 |
| (131) | (82) Income tax | (355) | (287) |
| 300 | 225 Profit from continuing operations |
903 | 812 |
| – | 1 Profit from discontinued operations |
(1) | – |
| 300 | 226 Profit for the period | 902 | 812 |
| (15) | (10) Non-controlling interests | (65) | (55) |
| 285 | 216 Net income | 837 | 757 |
Decorative Paints
Our 2018 Color of the Year
Heart Wood was unveiled as our latest Color of the Year, following continuous expert research into trends, insights and consumer behavior.
| Revenue | |||||
|---|---|---|---|---|---|
| Third quarter | January-September | ||||
| 2016 | 2017 ∆% in € millions | 2016 | 2017 ∆% | ||
| 583 | 561 | (4) Decorative Paints Europe, Middle East and Africa |
1,722 | 1,652 | (4) |
| 134 | 129 | (4) Decorative Paints Latin America | 339 | 366 | 8 |
| 307 | 318 | 4 Decorative Paints Asia | 880 | 961 | 9 |
| (3) | (1) | Other/intragroup eliminations | (4) | (4) | |
| 1,021 | 1,007 | (1) Total | 2,937 | 2,975 | 1 |
| 123 | 95 (23) EBIT | 306 | 293 | (4) | |
| 132 | 95 (28) Operating income | 315 | 293 | (7) | |
| 12.0 | 9.4 | ROS% * | 10.4 | 9.8 | |
| Average invested capital | 2,820 | 2,771 | |||
| Moving average ROI (in %) * | 12.5 | 12.4 | |||
| 9 | 26 | Capital expenditures | 61 | 71 | |
|---|---|---|---|---|---|
| Number of employees | 14,800 14,700 |
* ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
- Volumes increased 5% due to positive developments in Asia
- Revenue down 1%, with volume growth more than offset by currency effects and price/mix effects
- EBIT was adversely impacted by continued higher raw material costs in the Paints and Coatings industry, not yet fully compensated, and geographical/product mix effects
- ROS at 9.4% (2016: 12.0%); ROI at 12.4% (2016: 12.5%)
- Measures being implemented to mitigate current market challenges
Volumes were up 5% due to positive developments in Asia. Revenue was down 1%, with positive volume development more than offset by adverse currency and price/mix effects, mostly due to strong growth in Asia.
EBIT was adversely impacted by continued higher raw material costs in the Paints and Coatings industry, not yet fully compensated, and geographical/product mix effects. Appropriate measures are being taken to address higher raw material costs, including increased selling prices and additional cost control.
Operating income in the previous year was positively impacted by identified items.
Europe, Middle East and Africa (EMEA)
Revenue reduced 4%, mainly due to unfavorable currencies, most notably the pound sterling, and price/mix effects. Demand trends differed per country in the region and uncertainty continued in some markets. Growth was visible across much of EMEA, while the UK was affected by lower consumer confidence. In Q3, we opened a highly efficient plant at Ashington that will be the production center for Dulux.
Latin America
Revenue development Q3 2017
Revenue decreased 4%, mainly due to adverse currency effects and lower volumes, partly offset by improved price/mix. While some markets showed signs of slight recovery, overall volume and revenue was down. Growth continued for distribution and new product launches, including a premium product line in Brazil and Ultralavable (EasyCare) in Argentina.
Asia
Revenue increased 4%, despite adverse currency effects. Strong volume growth was partly offset by price/mix. Significant growth was realized in the premium and mass market segments. India recovered from the new goods and services tax implementation, while China growth was impacted by environment control in the entire supply chain. In Q3, there were new product launches for Dulux, including Forest Breath BioCare in China.
Performance Coatings
- Volumes up 1% with growth for Industrial and Powder Coatings, partly offset by adverse conditions in the marine and oil and gas industries
- Revenue up 2%, due to volume growth and the acquired Industrial Coatings business, partly offset by currency effects
- EBIT and operating income were adversely impacted by ongoing weakness in the marine and oil and gas industries, as well as increased costs of raw materials in the Paints and Coatings industry and adverse currency effects
- ROS at 10.3% (2016: 14.2%); ROI at 24.8% (2016: 30.9%)
- Measures being implemented to mitigate current market challenges
Volumes were up 1%. Revenue was up 2%, driven by the acquired Industrial Coatings business, as well as positive volume development in Industrial and Powder Coatings, partly offset by adverse currency effects. Adverse conditions persisted in the marine and oil and gas industries.
EBIT was adversely impacted by ongoing weakness in the marine and oil and gas industries, as well as increased costs of raw materials in the Paints and Coatings industry and adverse currency effects. Measures being implemented to mitigate current industry specific headwinds include increased selling prices and additional cost control.
Marine and Protective Coatings
Revenue was down 10% due to weak demand from the marine and oil and gas industries, as well as adverse currency effects. Volumes in Marine Coatings continued to be impacted by the slowdown of new build activity and an increasingly competitive pricing environment. Volumes in Protective Coatings were lower, mainly due to the conclusion of existing oil and gas projects. Volumes for Marine and Protective Coatings were also affected by Hurricane Harvey. Improvement actions and cost measures remain a focus of this segment.
Automotive and Specialty Coatings
Revenue was up 1%, mainly due to favorable price/mix effects, partly offset by adverse currencies. Growth was visible in most regions for Vehicle Refinishes and Specialty Coatings.
Revenue development Q3 2017
Industrial and Powder Coatings
Revenue was up 8%, driven by volume growth, the acquired Industrial Coatings business and positive price/mix effects more than offsetting adverse currencies. Volumes for Powder Coatings maintained growth momentum and volumes for Industrial Coatings grew across all regions.
Integration of the acquired Industrial Coatings business
We are integrating the respective parts of the acquired Industrial Coatings business into our Performance Coatings businesses. The acquired revenues impacted multiple reporting segments, the largest impact is visible in Industrial and Powder Coatings. During 2017 and 2018, a portion of the production volume will be transferred to existing nearby AkzoNobel manufacturing facilities. The full profitability of the acquisition will be realized by the end of 2018.
China aerospace unit takes off
Our new aerospace coatings facility in Dongguan will offer faster service to customers in the region and significantly reduce delivery times.
| Revenue | |||||
|---|---|---|---|---|---|
| Third quarter | January-September | ||||
| 2016 | 2017 ∆% in € millions | 2016 | 2017 ∆% | ||
| 364 | 327 (10) Marine and Protective Coatings | 1,116 | 1,014 | (9) | |
| 369 | 372 | 1 Automotive and Specialty Coatings 1,127 |
1,161 | 3 | |
| 683 | 741 | 8 Industrial and Powder Coatings | 2,053 | 2,260 10 |
| 199 | 147 (26) EBIT | 607 | 536 (12) | |||
|---|---|---|---|---|---|---|
| 192 | 147 (23) Operating income | 600 | 536 (11) | |||
| 14.2 | 10.3 | ROS% * | 14.2 | 12.2 | ||
| Average invested capital | 2,586 | 2,781 | ||||
| Moving average ROI (in %) * | 30.9 | 24.8 | ||||
| 35 | 32 | Capital expenditures | 106 | 87 | ||
| Number of employees | 19,400 19,900 |
(10) (12) Other/intragroup eliminations (29) (32) 1,406 1,428 2 Total 4,267 4,403 3
* ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Specialty Chemicals
- Volumes flat, despite significant global supply chain disruptions, including Hurricane Harvey
- Revenue up 1% due to positive price/mix effects, mostly offset by adverse currencies
- EBIT up 1% with favorable price/mix developments and cost savings, partly offset by adverse currencies and global supply chain disruptions
- ROS at 14.0% (2016: 14.0%); ROI at 17.9% (2016: 17.2%)
Volumes were flat despite significant global supply chain disruptions, including Hurricane Harvey. Excluding the impact of supply chain disruptions, volume growth would have been around 3%. China and Brazil continued to grow. Revenue was up 1%, due to positive price/mix effects, partly offset by adverse currencies. Positive price/mix reflects the successful pass through of raw material price inflation.
EBIT was up 1%, with favorable price/mix developments and cost savings mostly offset by adverse currencies and global supply chain disruptions. The EBIT impact from the supply chain disruptions was around €20 million.
Functional Chemicals
Revenue was up 3% mainly due to improved price/mix, partly offset by adverse currency effects. Volumes were up 1% despite supply chain disruptions, including Hurricane Harvey. Volumes in Asia were also impacted by the industry-wide inspections in China driven by enforcement of environmental regulations. Underlying demand continued to be strong, mainly driven by the ethylene value chain and the contribution of our new organic peroxides facility in China.
Industrial Chemicals
Revenue was up 2% due to positive price/mix effects, partly offset by lower volumes caused by continued supply chain disruptions in the Rotterdam cluster. The global supply and demand balance for caustic continued to tighten, leading to strengthening caustic prices.
Revenue development Q3 2017
Surface Chemistry
Revenue was down 4%, driven by lower volumes, due to industry-wide supply chain disruptions as a result of Hurricane Harvey, and adverse currencies. The underlying demand was strong, with a continued recovery of the oil related segments.
Pulp and Performance Chemicals
Revenue for the quarter was flat. Positive volume developments, driven by strong demand for bleaching chemicals in Brazil and performance products, were offset by adverse currency effects and the planned ending of manufacturing agreements related to the divestment of the Paper Chemicals business in 2015.
Expanding in Expancel
We are investing €20 million to boost production of Expancel, which can improve the properties of many everyday items, from running shoes to wine corks.
| Revenue | |||||
|---|---|---|---|---|---|
| Third quarter | January-September | ||||
| 2016 | 2017 ∆% in € millions | 2016 | 2017 ∆% | ||
| 424 | 437 | 3 Functional Chemicals | 1,305 | 1,379 | 6 |
| 314 | 319 | 2 Industrial Chemicals | 906 | 938 | 4 |
| 262 | 252 | (4) Surface Chemistry | 786 | 818 | 4 |
| 226 | 226 | – Pulp and Performance Chemicals | 683 | 696 | 2 |
| (24) | (25) | Other/intragroup eliminations | (66) | (74) | |
| 1,202 | 1,209 | 1 Total | 3,614 | 3,757 | 4 |
| 168 | 169 | 1 EBIT | 511 | 524 | 3 |
| 168 | 169 | 1 Operating income | 511 | 524 | 3 |
| 14.0 | 14.0 | ROS% * | 14.1 | 13.9 | |
| Average invested capital | 3,493 | 3,585 | |||
| Moving average ROI (in %) * | 17.2 | 17.9 | |||
| 81 | 77 | Capital expenditures | 228 | 241 | |
| Number of employees | 9,000 | 9,200 |
* ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital
Condensed financial statements
Consolidated statement of income
| January-September | |||
|---|---|---|---|
| 2016 | 2017 | ||
| Continuing operations | |||
| 10,741 | 11,070 | ||
| (6,137) | (6,541) | ||
| 4,604 | 4,529 | ||
| (3,337) | (3,325) | ||
| 35 | (49) | ||
| 1,302 | 1,155 | ||
| (82) | (77) | ||
| joint ventures | 38 | 21 | |
| 1,258 | 1,099 | ||
| (355) | (287) | ||
| continuing operations | 903 | 812 | |
| 2017 in € millions 3,624 Revenue (2,167) Cost of sales 1,457 Gross profit (1,085) SG&A costs (34) Other results 338 Operating income (36) Net financing expenses 5 Results from associates and 307 Profit before tax (82) Income tax 225 Profit for the period from |
Discontinued operations
| – | 1 Profit for the period from discontinued operations |
(1) | – |
|---|---|---|---|
| 300 | 226 Profit for the period | 902 | 812 |
| Attributable to | |||
| 285 | 216 Shareholders of the company | 837 | 757 |
15 10 Non-controlling interests 65 55 300 226 Profit for the period 902 812
| Consolidated statement of comprehensive income | ||
|---|---|---|
period
| Third quarter | January-September | ||
|---|---|---|---|
| 2016 | 2017 in € millions | 2016 | 2017 |
| 300 | 226 Profit for the period | 902 | 812 |
| Other comprehensive income | |||
| (112) | (112) Exchange differences arising on translation of foreign operations |
(288) | (456) |
| 17 | 16 Cash flow hedges | 34 | 9 |
| (646) | (33) Post-retirement benefits | (716) | (155) |
| (14) | (2) Tax relating to components of other comprehensive income |
141 | (22) |
| (755) | (131) Other comprehensive income for the period (net of tax) |
(829) | (624) |
| (455) | 95 Comprehensive income for the period |
73 | 188 |
| Comprehensive income for the period attributable to | |||
| (487) | 97 Shareholders of the company | 19 | 171 |
| 32 | (2) Non-controlling interests | 54 | 17 |
| (455) | 95 Comprehensive income for the | 73 | 188 |
Condensed consolidated balance sheet
| in € millions | December 31, 2016 |
September 30, 2017 |
|
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 4,413 | 4,192 | |
| Property, plant and equipment | 4,190 | 4,033 | |
| Other financial non-current assets | 1,736 | 1,676 | |
| Total non-current assets | 10,339 | 9,901 | |
| Current assets | |||
| Inventories | 1,532 | 1,628 | |
| Trade and other receivables | 2,787 | 3,093 | |
| Cash and cash equivalents | 1,479 | 1,086 | |
| Other current assets | 59 | 67 | |
| Total current assets | 5,857 | 5,874 | |
| Total assets | 16,196 | 15,775 | |
| Equity and liabilities | |||
| Group equity | 7,034 | 6,859 | |
| Non-current liabilities | |||
| Provisions and deferred tax liabilities | 2,305 | 2,077 | |
| Long-term borrowings | 2,644 | 2,642 | |
| Total non-current liabilities | 4,949 | 4,719 | |
| Current liabilities | |||
| Short-term borrowings | 87 | 135 | |
| Trade and other payables | 3,475 | 3,554 | |
| Other short-term liabilities | 651 | 508 | |
| Total current liabilities | 4,213 | 4,197 | |
| Total equity and liabilities | 16,196 | 15,775 |
Changes in equity
| Subscribed | Additional paid-in | Cashflow | Cumulative translation |
Shareholders' | Non-controlling | |||
|---|---|---|---|---|---|---|---|---|
| in € millions | share capital | capital | hedge reserve | reserves | Other reserves | equity | interests | Group equity |
| Balance at January 1, 2016 | 498 | 598 | (42) | 81 | 5,349 | 6,484 | 496 | 6,980 |
| Profit for the period | – | – | – | – | 837 | 837 | 65 | 902 |
| Other comprehensive income | – | – | 26 | (307) | (537) | (818) | (11) | (829) |
| Comprehensive income for the period | – | – | 26 | (307) | 300 | 19 | 54 | 73 |
| Dividend | 4 | 115 | – | – | (299) | (180) | (50) | (230) |
| Equity-settled transactions | – | – | – | – | 18 | 18 | – | 18 |
| Issue of common shares | 1 | (1) | – | – | – | – | – | – |
| Acquisitions and divestments | – | – | – | – | (2) | (2) | 1 | (1) |
| Balance at September 30, 2016 | 503 | 712 | (16) | (226) | 5,366 | 6,339 | 501 | 6,840 |
| Balance at January 1, 2017 | 504 | 745 | 3 | (47) | 5,348 | 6,553 | 481 | 7,034 |
| Profit for the period | – | – | – | – | 757 | 757 | 55 | 812 |
| Other comprehensive income | – | – | 7 | (421) | (172) | (586) | (38) | (624) |
| Comprehensive income for the period | – | – | 7 | (421) | 585 | 171 | 17 | 188 |
| Dividend | 3 | 125 | – | – | (320) | (192) | (39) | (231) |
| Equity-settled transactions | – | – | – | – | 28 | 28 | – | 28 |
| Issue of common shares | 2 | (2) | – | – | – | – | – | – |
| Share repurchase | (5) | (155) | – | – | – | (160) | – | (160) |
| Balance at September 30, 2017 | 504 | 713 | 10 | (468) | 5,641 | 6,400 | 459 | 6,859 |
Shareholders' equity
Shareholders' equity decreased from €6.6 billion at year-end 2016 to €6.4 billion at the end of September 2017, mainly due to the net effect of:
- Profit for the period of €757 million
- Adverse currency effects of €421 million (and related taxes)
- Dividend payments of €192 million
- The completed share repurchase program, for which a total number of 2.38 million common shares were repurchased and canceled, decreasing shareholders' equity by €160 million
- An adverse actuarial impact of €172 million (including tax) reported in Other comprehensive income, including €49 million for de-risking of pension liabilities
Dividends
An interim dividend of €0.56 per share (2016: €0.37) will be paid out, with the option to elect stock dividend.
A €1 billion special cash dividend as advance proceeds will be paid on December 7, 2017, pending shareholder approval for the separation. Please refer to the last page of this report for dividend payment dates.
Share repurchase program
In Q4 2016, we announced the repurchase of up to 2.5 million common shares to neutralize the dilutive effect of stock dividends paid in 2016. The share repurchase program was completed in April 2017. A total number of 2.38 million common shares were repurchased in the period from January 2, 2017, up to and including April 21, 2017, for a total consideration of €160 million. These shares have subsequently been canceled.
Invested capital
Invested capital at the end of Q3 2017 totaled €10.1 billion (Q3 2016: €9.9 billion), up €0.2 billion. Operating working capital was flat compared with September 30, 2016.
Pensions
The net balance sheet position (IAS19) of the pension plans at the end of Q3 2017 was a deficit of €0.8 billion (year-end 2016: €1.0 billion). The development during 2017 was the net effect of:
- Top-up payments of €273 million, predominantly into certain UK pension plans
- Lower inflation
- Increased discount rates in the key countries
Offset by:
- Lower asset returns
- De-risking of pension liabilities through non-cash buy-in transactions of £262 million in Q1, related to the ICI Pension Fund, which led to a €49 million impact in Other comprehensive income
Workforce
At September 30, 2017, the number of people employed was 46,100 people, in line with the end of December 2016.
Invested capital
| in € millions | September 30, 2016 |
December 31, 2016 |
September 30, 2017 |
|---|---|---|---|
| Trade receivables | 2,484 | 2,272 | 2,624 |
| Inventories | 1,568 | 1,532 | 1,628 |
| Trade payables | (2,252) | (2,399) | (2,439) |
| Operating working capital | 1,800 | 1,405 | 1,813 |
| Other working capital items | (910) | (730) | (768) |
| Non-current assets | 9,795 | 10,339 | 9,901 |
| Less investments in associates and joint ventures | (162) | (161) | (175) |
| Less pension assets | (310) | (220) | (276) |
| Deferred tax liabilities | (333) | (367) | (349) |
| Invested capital | 9,880 | 10,266 | 10,146 |
Operating working capital
In % of revenue
Cash flows and net debt
Operating activities in Q3 2017 resulted in a cash inflow of €416 million (2016: €600 million). At September 30, 2017 net debt was €1.7 billion versus €1.3 billion at year-end. The increase is mainly due to pension top-ups which were paid in Q1, the share repurchase program and currency effects.
Outlook
We anticipate positive developments for EMEA (excluding the UK), North America and Asia, while Latin America is expected to stabilize.
Industry specific headwinds continue, including higher raw material prices and challenges for marine and protective coatings.
We are implementing various measures to mitigate current market challenges, including increased selling prices and additional cost control.
EBIT for 2017 is now expected to be in line with 2016, due to ongoing industry specific headwinds and supply chain disruptions.
Please refer to our website for more information on our ambitions and the strategic focus areas.
Amsterdam, October 18, 2017 The Board of Management
Condensed consolidated statements of cash flows
| Third quarter | January-September | ||
|---|---|---|---|
| 2016 | 2017 in € millions | 2016 | 2017 |
| 1,254 | 877 Net cash and cash equivalents at beginning of period | 1,317 | 1,441 |
| Adjustments to reconcile earnings to cash generated from operating activities | |||
| 300 | 225 Profit for the period from continuing operations | 903 | 812 |
| 152 | 152 Amortization and depreciation | 456 | 469 |
| 202 | 146 Changes in working capital | (364) | (430) |
| (137) | (100) Changes in provisions | (475) | (450) |
| 83 | (7) Other changes | 197 | 40 |
| 600 | 416 Net cash from operating activities | 717 | 441 |
| (128) | (137) Capital expenditures | (403) | (406) |
| 8 | (25) Acquisitions and divestments net of cash acquired | 31 | (17) |
| 6 | – Other changes | 28 | (2) |
| (114) | (162) Net cash from investing activities | (344) | (425) |
| (78) | (67) Changes from borrowings | 220 | 20 |
| (22) | (15) Dividend paid | (255) | (227) |
| – | – Share repurchase | – | (160) |
| (6) | – Other changes | (7) | – |
| (106) | (82) Net cash from financing activities | (42) | (367) |
| 380 | 172 Net cash used for continuing operations | 331 | (351) |
| – | – Cash flows from discontinued operations | (4) | (1) |
| 380 | 172 Net change in cash and cash equivalents of total operations | 327 | (352) |
| (2) | (17) Effect of exchange rate changes on cash and cash equivalents | (12) | (57) |
| 1,632 | 1,032 Net Cash and cash equivalents at September 30 | 1,632 | 1,032 |
| Quarterly statistics | 2016 | 2017 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | year in € millions | Q1 | Q2 | Q3 year-to-date | ||
| Revenue | |||||||||
| 861 | 1,055 | 1,021 | 898 | 3,835 Decorative Paints | 922 | 1,046 | 1,007 | 2,975 | |
| 1,388 | 1,473 | 1,406 | 1,398 | 5,665 Performance Coatings | 1,471 | 1,504 | 1,428 | 4,403 | |
| 1,206 | 1,206 | 1,202 | 1,169 | 4,783 Specialty Chemicals | 1,289 | 1,259 | 1,209 | 3,757 | |
| (25) | (23) | (29) | (9) | (86) Other activities/eliminations | (21) | (24) | (20) | (65) | |
| 3,430 | 3,711 | 3,600 | 3,456 | 14,197 Total | 3,661 | 3,785 | 3,624 | 11,070 | |
| EBITDA | |||||||||
| 86 | 165 | 156 | 84 | 491 Decorative Paints | 109 | 152 | 124 | 385 | |
| 222 | 257 | 233 | 187 | 899 Performance Coatings | 225 | 242 | 185 | 652 | |
| 245 | 259 | 250 | 199 | 953 Specialty Chemicals | 261 | 265 | 251 | 777 | |
| (66) | (39) | (45) | (85) | (235) Other activities/eliminations | (61) | (39) | (25) | (125) | |
| 487 | 642 | 594 | 385 | 2,108 Total | 534 | 620 | 535 | 1,689 | |
| 14.2 | 17.3 | 16.5 | 11.1 | 14.8 EBITDA margin (in %) | 14.6 | 16.4 | 14.8 | 15.3 | |
| Depreciation | |||||||||
| (23) | (25) | (23) | (24) | (95) Decorative Paints | (23) | (23) | (23) | (69) | |
| (26) | (25) | (25) | (27) | (103) Performance Coatings | (25) | (27) | (26) | (78) | |
| (69) | (68) | (70) | (69) | (276) Specialty Chemicals | (73) | (73) | (71) | (217) | |
| (2) | (2) | (3) | (1) | (8) Other activities/eliminations | (3) | (2) | (2) | (7) | |
| (120) | (120) | (121) | (121) | (482) Total | (124) | (125) | (122) | (371) | |
| Amortization | |||||||||
| (11) | (9) | (10) | (9) | (39) Decorative Paints | (9) | (8) | (6) | (23) | |
| (10) | (10) | (9) | (8) | (37) Performance Coatings | (13) | (13) | (12) | (38) | |
| (12) | (12) | (12) | (12) | (48) Specialty Chemicals | (12) | (13) | (11) | (36) | |
| – | – | – | – | – Other activities/eliminations | – | – | (1) | (1) | |
| (33) | (31) | (31) | (29) | (124) Total | (34) | (34) | (30) | (98) | |
| EBIT (operating income excluding identified items) | |||||||||
| 52 | 131 | 123 | 51 | 357 Decorative Paints | 77 | 121 | 95 | 293 | |
| 186 | 222 | 199 | 152 | 759 Performance Coatings | 187 | 202 | 147 | 536 | |
| 164 | 179 | 168 | 118 | 629 Specialty Chemicals | 176 | 179 | 169 | 524 | |
| (68) | (41) | (48) | (86) | (243) Other activities/eliminations | (64) | (41) | (28) | (133) | |
| 334 | 491 | 442 | 235 | 1,502 Total | 376 | 461 | 383 | 1,220 | |
| 9.7 | 13.2 | 12.3 | 6.8 | 10.6 ROS (in %) | 10.3 | 12.2 | 10.6 | 11.0 |
| Quarterly statistics | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2017 | ||||||||
| Q1 | Q2 | Q3 | Q4 | year in € millions | Q1 | Q2 | Q3 year-to-date | ||
| Operating income | |||||||||
| 52 | 131 | 132 | 51 | 366 Decorative Paints | 77 | 121 | 95 | 293 | |
| 186 | 222 | 192 | 135 | 735 Performance Coatings | 187 | 202 | 147 | 536 | |
| 164 | 179 | 168 | 118 | 629 Specialty Chemicals | 176 | 179 | 169 | 524 | |
| (45) | (41) | (38) | (87) | (211) Other activities/eliminations | (64) | (61) | (73) | (198) | |
| 357 | 491 | 454 | 217 | 1,519 Total | 376 | 441 | 338 | 1,155 | |
| Identified items per Business Area | |||||||||
| – | – | 9 | – | 9 Decorative Paints | – | – | – | – | |
| – | – | (7) | (17) | (24) Performance Coatings | – | – | – | – | |
| – | – | – | – | – Specialty Chemicals | – | – | – | – | |
| 23 | – | 10 | (1) | 32 Other activities/eliminations | – | (20) | (45) | (65) | |
| 23 | – | 12 | (18) | 17 Total | – | (20) | (45) | (65) | |
| Reconciliation net financing expenses | |||||||||
| 5 | 11 | 8 | 4 | 28 Financing income | 6 | 6 | 5 | 17 | |
| (27) | (23) | (25) | (23) | (98) Financing expenses | (24) | (24) | (23) | (71) | |
| (22) | (12) | (17) | (19) | (70) Net interest on net debt | (18) | (18) | (18) | (54) | |
| Other interest movements | |||||||||
| (2) | (2) | (2) | (4) | (10) Financing expenses related to pensions | (5) | (5) | (4) | (14) | |
| (11) | (8) | (14) | (7) | (40) Interest on provisions | (3) | (3) | (16) | (22) | |
| 8 | – | – | (2) | 6 Other items | 4 | 7 | 2 | 13 | |
| (5) | (10) | (16) | (13) | (44) Net other financing charges | (4) | (1) | (18) | (23) | |
| (27) | (22) | (33) | (32) | (114) Net financing expenses | (22) | (19) | (36) | (77) | |
| Quarterly net income analysis | |||||||||
| 20 | 8 | 10 | 5 | 43 Results from associates and joint ventures | 8 | 8 | 5 | 21 | |
| (23) | (27) | (15) | (17) | (82) Profit attributable to non-controlling interests | (21) | (24) | (10) | (55) | |
| 350 | 477 | 431 | 190 | 1,448 Profit before tax | 362 | 430 | 307 | 1,099 | |
| (86) | (138) | (131) | (39) | (394) Income tax | (101) | (104) | (82) | (287) | |
| 264 | 339 | 300 | 151 | 1,054 Profit for the period from continuing operations | 261 | 326 | 225 | 812 | |
| 25 | 29 | 30 | 21 | 27 Effective tax rate (in %) | 28 | 24 | 27 | 26 |
| Quarterly statistics | |
|---|---|
| -- | ---------------------- |
| 2016 | 2017 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | year | Q1 | Q2 | Q3 year-to-date | ||
| Earnings per share from continuing operations (in €) | |||||||||
| 0.96 | 1.24 | 1.13 | 0.53 | 3.88 Basic | 0.96 | 1.20 | 0.86 | 3.01 | |
| 0.96 | 1.24 | 1.13 | 0.53 | 3.86 Diluted | 0.95 | 1.20 | 0.85 | 2.99 | |
| Earnings per share from discontinued operations (in €) | |||||||||
| – | – | – | – | (0.01) Basic | – | – | – | – | |
| – | – | – | – | (0.01) Diluted | – | (0.01) | – | – | |
| Earnings per share from total operations (in €) | |||||||||
| 0.96 | 1.24 | 1.13 | 0.53 | 3.87 Basic | 0.96 | 1.20 | 0.86 | 3.01 | |
| 0.96 | 1.24 | 1.13 | 0.53 | 3.85 Diluted | 0.95 | 1.19 | 0.85 | 2.99 | |
| Number of shares (in millions) | |||||||||
| 249.5 | 250.6 | 251.6 | 251.9 | 250.9 Weighted average number of shares | 251.3 | 251.1 | 251.9 | 251.4 | |
| 249.6 | 251.6 | 251.6 | 252.2 | 252.2 Number of shares at end of quarter | 252.6 | 254.3 | 251.9 | 251.9 | |
| Adjusted earnings (in € millions) | |||||||||
| 350 | 477 | 431 | 190 | 1,448 Profit before tax from continuing operations | 362 | 430 | 307 | 1,099 | |
| (23) | – | (12) | 18 | (17) Identified items reported in operating income | – | 20 | 45 | 65 | |
| 33 | 31 | 31 | 29 | 124 Amortization of intangible assets | 34 | 34 | 30 | 98 | |
| (95) | (149) | (132) | (55) | (431) Adjusted income tax | (111) | (120) | (102) | (333) | |
| (23) | (27) | (15) | (17) | (82) Non-controlling interests | (21) | (24) | (10) | (55) | |
| 242 | 332 | 303 | 165 | 1,042 Adjusted net income from continuing operations |
264 | 340 | 270 | 874 | |
| 0.97 | 1.32 | 1.20 | 0.66 | 4.15 Adjusted earnings per share (in €) | 1.05 | 1.35 | 1.07 | 3.48 |
Notes to the condensed financial statements
Accounting policies
This interim financial report is in compliance with IAS 34 "Interim Financial Reporting". This report is unaudited. The IFRS changes applicable as from January 1, 2017 do not have any or only an immaterial effect on our Consolidated financial statements. Otherwise the accounting principles are as applied in the 2016 financial statements.
Our expectations regarding the potential impact of IFRS standards and interpretations thereof not yet in force, as mentioned in the 2016 financial statements are unchanged. For IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts with Customers" we do not expect, based on the assessment performed so far, these new standards to have a significant impact on our Consolidated financial statements. Based on the results of our assessment so far with respect to IFRS 16 "Leases", we expect total assets to increase between 5% and 10%. It should be noted that the actual impact will depend on the number, size and remaining duration of lease contracts and any expected renewals at the moment of implementation. We do not expect the impact on operating income to be significant.
Related parties
We purchased and sold goods and services to various related parties in which we hold a 50% or less equity interest (associates and joint ventures). Such transactions were conducted at arm's length with terms comparable with transactions with third parties.
We considered the members of the Executive Committee and the Supervisory Board to be the key management personnel as defined in IAS 24 "Related parties". In the ordinary course of business, we have transactions with various organizations with which certain of the members of the Supervisory Board and Executive Committee are associated.
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.
Other activities
In other activities, 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 and also include country holdings. Pensions reflects certain pension costs after the elimination of interest cost (reported as financing expenses). Insurances are the results from our captive insurance companies. Other costs include the cost of share-based compensation, the results of treasury and legacy operations.
Glossary
Adjusted earnings per share are the basic earnings per share from continuing operations excluding identified items 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 excluding identified items.
EBITDA is operating income excluding depreciation, amortization and identified items.
EBITDA margin is EBITDA as percentage of revenue.
Emerging Europe: Central and Eastern Europe (excluding Austria), Baltic States and Turkey.
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 is 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.
Mature markets comprise of Western Europe, the US, Canada, Japan and Oceania.
Net debt is defined as long-term borrowings plus short-term borrowings less cash and cash equivalents.
Operating income is defined in accordance with IFRS and includes the identified items.
Operating working capital is defined as the sum of inventories, trade receivables and trade payables of the total company. When expressed as a ratio, operating working capital is measured against four times last quarter revenue.
OPI margin% is operating income as percentage of revenue.
ROI is calculated as EBIT of the last twelve months as percentage of average invested capital.
ROS is EBIT as percentage of revenue.
SG&A costs includes selling and distribution expenses, general and administrative expenses and research, development and innovation expenses.
Safe Harbor Statement
This report contains statements which address such key issues as AkzoNobel's growth strategy, future financial results, market positions, product development, products in the pipeline and product approvals. Such statements should be carefully considered, and it should be understood that many factors could cause forecast and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more comprehensive discussion of the risk factors affecting our business, please see our latest Annual Report.
Brand and trademarks
In this report, reference is made to brands and trademarks owned by, or licensed to, AkzoNobel. Unauthorized use of these is strictly prohibited.
Akzo Nobel N.V.
Christiaan Neefestraat 2 P.O. Box 75730 1070 AS Amsterdam, the Netherlands T +31 88 969 7555 Internet: www.akzonobel.com
For more information:
The explanatory sheets used during the press conference can be viewed on AkzoNobel's corporate website www.akzonobel.com/quarterlyresults AkzoNobel Global Communications T +31 88 969 7833 E [email protected]
AkzoNobel Investor Relations T +31 88 969 7856 E [email protected]
Financial calendar
| Ex-dividend date of 2017 interim dividend Record date of 2017 interim dividend Election period cash or stock interim dividend Determination of exchange ratio Payment of cash dividend and delivery of new shares |
October 20, 2017 October 23, 2017 October 24,2017 – November 15, 2017 November 16, 2017 November 22, 2017 |
|---|---|
| Extraordinary General Meeting (EGM) | November 30, 2017 |
| Ex-dividend date of special cash dividend Record date of special cash dividend Payment of special cash dividend |
December 4, 2017 December 5, 2017 December 7, 2017 |
| Report for the full-year and the fourth quarter 2017 * Report for the first quarter 2018 Annual General Meeting of shareholders Report for the second quarter 2018 Report for the third quarter 2018 |
March 8, 2018 April 24, 2018 April 26, 2018 July 18, 2018 October 17, 2018 |
* Publication date of Report for the full-year and the fourth quarter 2017 has been changed to March 8, 2018 as a result of the process to separate Specialty Chemicals
www.akzonobel.com
AkzoNobel creates everyday essentials to make people's lives more liveable and inspiring. As a leading global paints and coatings company and a major producer of specialty chemicals, we supply essential ingredients, essential protection and essential color to industries and consumers worldwide. Backed by a pioneering heritage, our innovative products and sustainable technologies are designed to meet the growing demands of our fast-changing planet, while making life easier. Headquartered in Amsterdam, the Netherlands, we have approximately 46,000 people in around 80 countries, while our portfolio includes wellknown brands such as Dulux, Sikkens, International, Interpon and Eka. Consistently ranked as a leader in sustainability, we are dedicated to energizing cities and communities while creating a protected, colorful world where life is improved by what we do.
© 2017 Akzo Nobel N.V. All rights reserved.
Focused on customers, growth and performance
We continued to make good progress with our strategic ambitions during Q3. Here are just a few highlights from the quarter.
LANDMARK UK PLANT OPENED
We recently opened the world's most sustainable paint factory in Ashington, UK. It will be the production center for Dulux, the world's leading paint brand.
2018 COLOR OF THE YEAR ANNOUNCED
Heart Wood was unveiled as Color of the Year for 2018. Chosen after extensive research, the grown-up pink embodies comfort and ease and is inspired by the warm tones of leather and wood.
EXPANDING OUR EXPANCEL CAPACITY
Specialty Chemicals is investing €20 million to boost production of Expancel microspheres, which can improve the properties of many everyday items, from running shoes to wine corks.
LEADING THE WAY IN SUSTAINABILITY
AkzoNobel is at the top of the Chemicals Industry Group on the influential Dow Jones Sustainability Index– our fifth number one ranking in six years.
AEROSPACE BUSINESS EXPANDS IN ASIA
We opened a new aerospace color center in Dongguan, China. It supplies the aviation market in north and south Asia and will offer improved service to new and existing customers.
A STEP CLOSER TO BECOMING CARBON NEUTRAL
All our paint and coatings production in the Netherlands is now powered by green energy. An agreement with energy company Eneco means that four Dutch sites are entirely using electricity generated by wind power.