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Akzo Nobel N.V. — Interim / Quarterly Report 2013
Oct 21, 2013
3806_ir_2013-10-21-081000_da884141-4134-49c5-b823-ae15c7f18557.pdf
Interim / Quarterly Report
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Report for the third quarter
2013
(44 percent in high growth markets) AkzoNobel around the world Revenue by destination
| % | F | |||
|---|---|---|---|---|
| A North America | 15 | E | A | |
| B Emerging Europe | 8 | B | ||
| C | Mature Europe | 38 | ||
| D | Asia Pacific | 26 | D | |
| E | Latin America | 11 | ||
| F | Other regions | 2 | C | |
| 100 | ||||
(Based on the full year 2012)
Our quarterly results at a glance
- Revenue down 5 percent, mainly due to adverse currency effects and divestments
- Operating income at €303 million (2012: €248 million excluding impairment), mainly driven by lower restructuring costs and higher volumes
- Net income attributable to shareholders €155 million (2012: €110 million excluding impairment)
- Adjusted EPS stable at €0.74
- Interim dividend of €0.33 declared
- AkzoNobel ranked first in the Dow Jones Sustainability Index in the Materials industry group
- Divestment of Building Adhesives completed on October 1
- Performance improvement program on track with estimated €160 million restructuring charges in Q4
- Expected higher restructuring charges, and continued weak markets, mean that full-year operating income before incidental items is unlikely to exceed €908 million
| Summary of financial outcomes | |||||
|---|---|---|---|---|---|
| 3rd quarter | January - September | ||||
| 2012 | 2013 | ∆% in € millions | 2012 | 2013 | ∆% |
| 3,966 | 3,778 | (5) Revenue | 11,717 | 11,108 | (5) |
| 248 | 303 | 22 Operating income (excluding impairment) | 872 | 842 | (3) |
| 6.3 | 8.0 | ROS% (excluding impairment) | 7.4 | 7.6 | |
| Invested capital | 10,414 | 9,842 | |||
| Moving average ROI (in %) | 8.0 | 8.6 | |||
| 428 | 456 | 7 EBITDA | 1,392 | 1,305 | (6) |
| 195 | 133 | Capital expenditures | 496 | 432 | |
| 460 | 552 | Net cash from operating activities | 107 | 407 | |
| Net debt | 2,597 | 1,817 | |||
| 130 | 154 | 18 Net income from continuing operations (excluding impairment) | 455 | 558 | 23 |
| (20) | 1 | Net income from discontinued operations (excluding impairment) | (42) | 115 | |
| 110 | 155 | 41 Net income attributable to shareholders (excluding impairment) | 413 | 673 | 63 |
| (2,368) | 155 | Net income attributable to shareholders (including impairment) | (2,065) | 673 | |
| (9.94) | 0.64 | Earnings per share from total operations (in €) | (8.66) | 2.79 | |
| 0.74 | 0.74 | Adjusted earnings per share (in €) | 2.45 | 2.63 | |
| Number of employees | 52,310 | 50,420 | |||
Financial highlights
Revenue was down 5 percent, mainly due to adverse currency effects and divestments. Operating income was significantly higher than the previous year at €303 million, mainly driven by lower restructuring charges and higher volumes. The performance improvement program is on track with estimated €160 million restructuring charges in Q4. Cash from operating activities was €552 million (2012: €460 million), mainly due to higher operating income and lower payments from provisions.
Revenue
- Q3 revenue in Decorative Paints was flat. Volumes in Q3 were higher in all our markets, offset by 7 percent adverse currency effects
- Q3 revenue in Performance Coatings declined 4 percent compared with the previous year, due to adverse currency effects which more than offset positive volume development. Weak demand in Europe continues to impact all businesses
- Q3 revenue in Specialty Chemicals declined due to divestments and adverse currency effects. Volumes were stable overall but lower in the construction and agriculture segments
Investments and divestments
- Our Powder Coatings and Decorative Paints businesses are investing a total of more than €50 million in western China to build two new manufacturing facilities to meet growing demand
- The divestment of Building Adhesives was completed on October 1, 2013. The result of that transaction as well as the cash inflows will be recorded in Q4
- The divestment of Chemicals Pakistan in 2012 accounts for the divestment impact in revenue
Revenue
| 3rd quarter | January - September | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | ∆% in € millions | 2012 | 2013 | ∆% | ||||
| 1,141 | 1,136 | – Decorative Paints | 3,302 | 3,240 | (2) | ||||
| 1,467 | 1,415 | (4) Performance Coatings | 4,308 | 4,204 | (2) | ||||
| 1,393 | 1,252 | (10) Specialty Chemicals | 4,223 | 3,749 | (11) | ||||
| (35) | (25) | Other activities/eliminations | (116) | (85) | |||||
| 3,966 | 3,778 | (5) Total | 11,717 | 11,108 | (5) |
Revenue development Q3 2013
Increase Decrease
| 4 | 1% | -2% | |||
|---|---|---|---|---|---|
| 2 | 2% | -6% | |||
| 0 | -5% | ||||
| -2 | |||||
| -4 | |||||
| -6 |
| in % versus Q3 2012 | Volume | Price/mix | Divestments | Exchange rates |
Total |
|---|---|---|---|---|---|
| Decorative Paints | 5 | 2 | – | (7) | – |
| Performance Coatings | 2 | – | – | (6) | (4) |
| Specialty Chemicals | – | – | (6) | (4) | (10) |
| Total | 2 | 1 | (2) | (6) | (5) |
Volume development per quarter (year-
| on-year) | Q3 12 | Q4 12 | Q1 13 | Q2 13 | Q3 13 |
|---|---|---|---|---|---|
| Decorative Paints | (6) | 2 | (1) | 4 | 5 |
| Performance Coatings | – | (2) | (3) | – | 2 |
| Specialty Chemicals | (2) | (1) | (4) | (5) | – |
| Total | (3) | (1) | (3) | – | 2 |
Price/mix development per quarter
| (year-on-year) | Q3 12 | Q4 12 | Q1 13 | Q2 13 | Q3 13 |
|---|---|---|---|---|---|
| Decorative Paints | 1 | – | (1) | (2) | 2 |
| Performance Coatings | 3 | 3 | 1 | – | – |
| Specialty Chemicals | (1) | 1 | (2) | (2) | – |
| Total | 1 | 2 | (1) | (1) | 1 |
Operating income
In Q3 2012, the ongoing businesses of Decorative Paints recorded a goodwill impairment of €2,106 million. An amount of €372 million was recorded for the Decorative Paints business in North America in results from discontinued operations. In this report, impairments from the 2012 numbers are excluded from operating income to present comparable financial outcomes.
- In Decorative Paints, restructuring costs were below the previous year, resulting in operating income of €107 million, more than double Q3 2012 (€48 million excluding impairment)
- In Performance Coatings, operating income improved due to lower restructuring costs in 2013 compared with the previous year
- In Specialty Chemicals, operating income in the quarter was lower mainly due to restructuring costs in Functional Chemicals
Average raw material costs are expected to be stable in the remainder of the year.
Performance improvement program
The performance improvement program announced in October 2011 is on track to deliver the full €500 million in EBITDA at the end of the year. Further efficiency and cost reduction measures have also been identified as restructuring activities are stepped up, the benefits of which will be realized in 2014 and beyond. As previously indicated, the majority of the restructuring charges for the second half of 2013 will be taken in the fourth quarter. Year-todate restructuring costs are €144 million of an expected full-year total of around €300 million (2012: €292 million). In Q3, restructuring costs amounted to €75 million (2012: €101 million). The return on sales in the quarter, before restructuring charges, has improved in all three business areas.
Operating income in Other activities
Operating income in Other activities in the quarter was lower than the previous year, mainly due to incremental project-related costs.
Net financing expenses
Net financing expenses increased by €6 million to €56 million, mainly due to lower discount rates for pensions.
Operating income (excluding impairment)
| 3rd quarter | January - September | ||||
|---|---|---|---|---|---|
| 2012 | 2013 | ∆% in € millions | 2012 | 2013 | ∆% |
| 48 | 107 | 123 Decorative Paints | 185 | 252 | 36 |
| 130 | 160 | 23 Performance Coatings | 428 | 452 | 6 |
| 133 | 107 | (20) Specialty Chemicals | 427 | 327 | (23) |
| (63) | (71) | Other activities/eliminations | (168) | (189) | |
| 248 | 303 | 22 Total | 872 | 842 | (3) |
Operating income in Other activities
| 3rd quarter January - September |
|||||||
|---|---|---|---|---|---|---|---|
| 2012 | 2013 in € millions | 2012 | 2013 | ||||
| (28) | (40) Corporate costs | (90) | (101) | ||||
| 2 | (2) Pensions | 16 | (7) | ||||
| 5 | 1 Insurances | (6) | 4 | ||||
| (42) | (30) Other | (88) | (85) | ||||
| (63) | (71) Operating income in Other activities | (168) | (189) |
Operating income to net income
| 3rd quarter | January - September | ||
|---|---|---|---|
| 2012 | 2013 in € millions | 2012 | 2013 |
| 248 | 303 Operating income (excluding impairment) | 872 | 842 |
| (2,106) | – Impairment | (2,106) | – |
| (1,858) | 303 Operating income (including impairment) | (1,234) | 842 |
| (50) | (56) Net financing expenses | (167) | (152) |
| 5 | 4 Results from associates and joint ventures | 14 | 13 |
| (1,903) | 251 Profit/(loss) before tax | (1,387) | 703 |
| (64) | (83) Income tax | (219) | (90) |
| (1,967) | 168 Profit/(loss) from continuing operations | (1,606) | 613 |
| (392) | 1 Profit/(loss) from discontinued operations | (414) | 115 |
| (2,359) | 169 Profit/(loss) for the period | (2,020) | 728 |
| (9) | (14) Non-controlling interests | (45) | (55) |
| (2,368) | 155 Net income | (2,065) | 673 |
Tax
The Q3 effective tax rate is 33 percent (2012: 34 percent excluding the impact of the impairment in the Decorative Paint business). Excluding one-off and non–deductible costs, the tax rate is 29 percent.
Decorative Paints
- Revenues stable, with adverse currency effects (7 percent) compensated by higher volume
- Positive volume development in Asia and Latin America, offsetting the adverse currency effects
- Operating income above the previous year, due to lower costs and lower restructuring charges
- Streamlining management structure to increase competitiveness
Q3 revenue in Decorative Paints was flat. Volumes in Q3 were higher in all our markets, with no significant mix effect, however offset by 7 percent adverse currency effects. Costs and restructuring charges were below the previous year, resulting in operating income of €107 million, more than double Q3 2012.
Europe
Revenue in Europe was up 1 percent. Volumes were stronger in the southern region (Greece, Spain and Italy), but most countries continued to be affected by weak European demand. We continued to grow in countries such as the UK, Russia and Turkey. Restructuring measures and various operational efficiency improvement programs led to a lower cost base. As a result, operating income was higher than the previous year.
Latin America
Revenue decreased 3 percent, with strong volume development offset by an adverse currency impact in Brazil. Margins improved due to lower material costs and improved formulations. Costs increased due to additional manpower to support growth.
Asia
Revenue was up 2 percent, with strong volumes offset by an adverse currency impact in the region. China saw healthy growth in all segments. Profitability increased in the region due to lower costs.
| Revenue | |||||
|---|---|---|---|---|---|
| 3rd quarter | January - September | ||||
| 2012 | 2013 | ∆% in € millions | 2012 | 2013 | ∆% |
| 698 | 705 | 1 Decorative Paints Europe | 2,096 | 2,019 | (4) |
| 160 | 155 | (3) Decorative Paints Latin America | 429 | 429 | – |
| 271 | 276 | 2 Decorative Paints Asia | 769 | 792 | 3 |
| 12 | – | Other/intragroup eliminations | 8 | – | |
| 1,141 | 1,136 | – Total | 3,302 | 3,240 | (2) |
| 48 | 107 | 123 Operating income (excluding impairment) | 185 | 252 | 36 |
| 4.2 | 9.4 | ROS% (excluding impairment) | 5.6 | 7.8 | |
| Invested capital | 3,270 | 2,799 | |||
| Moving average ROI (in %) | 3.0 | 5.4 | |||
| 97 | 146 | 51 EBITDA | 320 | 375 | 17 |
| 44 | 39 | Capital expenditures | 114 | 106 | |
| Number of employees | 17,220 | 16,860 | |||
Revenue development Q3 2013
Increase Decrease
Performance Coatings
- Revenue down 4 percent, due to adverse currency effects (6 percent)
- Volume increased 2 percent compared with the previous year
- Operating income up 23 percent due to lower restructuring costs
- Continued focus on cost control and operational efficiencies
Revenue declined 4 percent compared with the previous year, due to adverse currency effects which more than offset positive volume development. Weak demand in Europe continued to impact all businesses. Operating income improved due to lower restructuring costs in 2013 compared with the previous year.
Marine and Protective Coatings
Revenue dropped 8 percent due to currency and price/mix. In Marine, the new construction segment continued to decline, but growth was sustained in the Protective Coatings oil and gas sector.
Automotive and Aerospace Coatings
Revenue was up 1 percent, supported by price/ mix and volumes, although currencies had an adverse impact. In Vehicle Refinish, volumes in Europe showed mixed results. Growth was achieved in Eastern Europe, but conditions were challenging in Northern and Southern Europe. It was a similarly varied picture elsewhere, with growth in the US and Latin America, while Asia produced mixed results. Our Aerospace and Specialty Finishes activities both achieved volume growth. Initiatives to control costs continued during the quarter.
Powder Coatings
Revenue was in line with the previous year, with the adverse currency impact being offset by favorable volume. Volumes were up in Europe, Asia and the Americas, with growth in the automotive and architectural segments. The appliance sector was more challenging, with volumes declining. Initiatives launched in 2012 helped to control costs during the quarter. We also announced the expansion of manufacturing facilities in western China.
| 2013 | 2012 | 2013 | ∆% | |
|---|---|---|---|---|
| 373 | 1,185 | 1,124 | (5) | |
| 332 | 969 | 989 | 2 | |
| 254 | 752 | 736 | (2) | |
| 461 | 1,420 | 1,375 | (3) | |
| (5) | Other/intragroup eliminations | (18) | (20) | |
| 1,415 | 4,308 | 4,204 | (2) | |
| 160 | 428 | 452 | 6 | |
| 11.3 | ROS% | 9.9 | 10.8 | |
| Moving average ROI (in %) | 20.6 | 22.6 | ||
| 193 | 526 | 553 | 5 | |
| 26 | Capital expenditures | 66 | 78 | |
| Number of employees | 21,650 | 21,440 | ||
| ∆% in € millions (8) Marine and Protective Coatings 1 Automotive and Aerospace Coatings – Powder Coatings (5) Industrial Coatings (4) Total 23 Operating income Invested capital 18 EBITDA |
2,559 | January - September 2,439 |
Revenue development Q3 2013
Increase Decrease
Industrial Coatings
Revenue declined 5 percent due to currencies, partially offset by favorable price/mix. Europe continued to face challenging economic conditions, while the Asia Pacific region continued to grow. Conditions remained challenging in the packaging segment, however Coil posted improved results, particularly in Asia Pacific. Wood Finishes remained at 2012 levels.
Specialty Chemicals
- Revenue down 10 percent, due to Chemicals Pakistan divestment (6 percent) and adverse currency effects (4 percent)
- Total volumes during the quarter were flat with the previous year
- Operating income down 20 percent to €107 million, mainly due to restructuring costs
- Performance improvement measures continue to be carried out in all businesses
Revenue declined compared with the previous year due to divestments and adverse currency developments. Volumes were stable overall but lower in the construction and agriculture segments. Operating income was lower than in 2012, mainly due to restructuring costs in Functional Chemicals.
Functional Chemicals
Revenues were down, mainly due to an adverse currency impact. Some recovery in volumes is visible together with initial signs of stabilization in ethylene amines. Overall market conditions remained challenging in Europe for the construction market and general manufacturing.
During the quarter, plans were announced to phase out the production of organic peroxides at the Deventer site, Netherlands, and consolidate this at other facilities. Meanwhile, our new Performance Additives plant in Ningbo, China, started commercial production, which will substantially enhance our regional position.
Industrial Chemicals
Revenues were up, partly based on increased exports to the US and higher volumes for MCA. Margins, however, remain under pressure in all segments.
Surface Chemistry
Revenues were down, due mainly to lower sales in the agriculture and water treatment segments and the previously announced exit from the merchant fatty acids business in China. This was partly offset by growth in the personal care segment.
Pulp and Performance Chemicals
Revenues were down, mainly due to adverse currency effects and lower volumes resulting from exited paper activities. Volumes from bleaching chemicals increased due to investments in our Chemical Islands in Brazil, which partly compensated for weaker demand in Europe and the US.
| Revenue | |||||
|---|---|---|---|---|---|
| 3rd quarter | January - September | ||||
| 2012 | 2013 | ∆% in € millions | 2012 | 2013 | ∆% |
| 489 | 470 | (4) Functional Chemicals | 1,506 | 1,425 | (5) |
| 298 | 303 | (2) Industrial Chemicals | 892 | 873 | (2) |
| 279 | 256 | (8) Surface Chemistry | 856 | 778 | (9) |
| 287 | 257 | (10) Pulp and Performance Chemicals | 858 | 777 | (9) |
| 74 | – | (100) Chemicals Pakistan | 215 | – | (100) |
| (34) | (34) | Other/intragroup eliminations | (104) | (104) | |
| 1,393 | 1,252 | (10) Total | 4,223 | 3,749 | (11) |
| 133 | 107 | (20) Operating income | 427 | 327 | (23) |
| 9.5 | 8.5 | ROS% | 10.1 | 8.7 | |
| Invested capital | 3,702 | 3,617 | |||
| Moving average ROI (in %) | 15.5 | 11.0 | |||
| 208 | 185 | (11) EBITDA | 678 | 557 | (18) |
| 125 | 66 | Capital expenditures | 307 | 244 | |
| Number of employees | 11,950 | 10,580 | |||
Revenue development Q3 2013
Increase Decrease
Condensed financial statements
Consolidated statement of income
| 3rd quarter | January - September | ||
|---|---|---|---|
| 2012 | 2013 in € millions | 2012 | 2013 |
| Continuing operations | |||
| 3,966 | 3,778 Revenue | 11,717 | 11,108 |
| (2,447) | (2,296) Cost of sales | (7,233) | (6,753) |
| 1,519 | 1,482 Gross profit | 4,484 | 4,355 |
| (2,106) | – Impairment | (2,106) | – |
| (829) | (763) Selling expenses | (2,373) | (2,256) |
| (313) | (311) General and administrative expenses | (917) | (965) |
| (98) | (92) Research and development expenses | (285) | (276) |
| (31) | (13) Other operating income/(expenses) | (37) | (16) |
| (1,858) | 303 Operating income | (1,234) | 842 |
| (50) | (56) Net financing expenses | (167) | (152) |
| 5 | 4 Results from associates and joint ventures | 14 | 13 |
| (1,903) | 251 Profit before tax | (1,387) | 703 |
| (64) | (83) Income tax | (219) | (90) |
| (1,967) | 168 Profit for the period from continuing operations | (1,606) | 613 |
| Discontinued operations | |||
| (392) | 1 Profit for the period from discontinued operations | (414) | 115 |
| (2,359) | 169 Profit for the period | (2,020) | 728 |
| Attributable to | |||
| (2,368) | 155 Shareholders of the company | (2,065) | 673 |
| 9 | 14 Non-controlling interests | 45 | 55 |
| (2,359) | 169 Profit for the period | (2,020) | 728 |
| Consolidated statement of comprehensive income | ||||
|---|---|---|---|---|
| 3rd quarter | January - September | |||
| 2012 | 2013 in € millions | 2012 | 2013 | |
| (2,359) | 169 Profit for the period | (2,020) | 728 | |
| Other comprehensive income | ||||
| 3 | (164) Exchange differences arising on translation of foreign operations | 150 | (368) | |
| 7 | 18 Cash flow hedges | (6) | 2 | |
| (299) | (383) Post-retirement benefits | (1,024) | (146) | |
| 74 | (16) Tax relating to components of other comprehensive income | 250 | (50) | |
| (215) | (545) Other comprehensive income for the period (net of tax) | (630) | (562) | |
| (2,574) | (376) Comprehensive income for the period | (2,650) | 166 | |
| Comprehensive income for the period attributable to | ||||
| (2,579) | (366) Shareholders of the company | (2,693) | 142 | |
| 5 | (10) Non-controlling interests | 43 | 24 | |
| (2,574) | (376) Comprehensive income for the period | (2,650) | 166 |
Condensed consolidated balance sheet *
| in € millions | December 31, 2012 | September 30, 2013 |
|---|---|---|
| Assets | ||
| Non-current assets | ||
| Intangible assets | 4,454 | 4,237 |
| Property, plant and equipment | 3,739 | 3,636 |
| Other financial non-current assets | 2,628 | 2,499 |
| Total non-current assets | 10,821 | 10,372 |
| Current assets | ||
| Inventories | 1,545 | 1,483 |
| Trade and other receivables | 2,698 | 2,831 |
| Cash and cash equivalents | 1,752 | 2,236 |
| Other current assets | 91 | 86 |
| Assets held for sale | 921 | 112 |
| Total current assets | 7,007 | 6,748 |
| Total assets | 17,828 | 17,120 |
| Equity and liabilities | ||
| Total equity | 6,228 | 6,223 |
| Non-current liabilities | ||
| Provisions and deferred tax liabilities | 3,111 | 2,792 |
| Long-term borrowings | 3,388 | 2,684 |
| Total non-current liabilities | 6,499 | 5,476 |
| Current liabilities | ||
| Short-term borrowings | 662 | 1,369 |
| Trade and other payables | 3,242 | 3,233 |
| Other short-term liabilities | 845 | 772 |
| Liabilities held for sale | 352 | 47 |
| Total current liabilities | 5,101 | 5,421 |
| Total equity and liabilities | 17,828 | 17,120 |
Shareholders' equity
Shareholders' equity was unchanged compared to year-end 2012 at €5.8 billion, mainly due to the effect of:
• Net income of €673 million
- Offset by:
- Decrease in cumulative translation reserves of €285 million due to the stronger euro
- IAS19 actuarial loss (net of tax) of €183 million
- Dividend payments of €158 million
Dividend
An interim dividend of €0.33 per share (2012: €0.33) will be paid out, with the option to elect stock dividend. Please refer to the last page of this report for dividend payment dates.
* Restated for the revised IAS 19
Changes in equity *
| in € millions | Subscribed share capital |
Additional paid-in capital |
Cashflow hedge reserve |
Cumulative transla tion reserves |
Other reserves | Shareholders' equity |
Non-control ling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2012 | 469 | 47 | (9) | 4 | 8,520 | 9,031 | 529 | 9,560 |
| Profit for the period | – | – | – | – | (2,065) | (2,065) | 45 | (2,020) |
| Other comprehensive income | – | – | (6) | 153 | (775) | (628) | (2) | (630) |
| Comprehensive income for the period | – | – | (6) | 153 | (2,840) | (2,693) | 43 | (2,650) |
| Dividend paid | 5 | 90 | – – |
(263) | (168) | (28) | (196) | |
| Equity-settled transactions | – | – | – – |
30 | 30 | – | 30 | |
| Issue of common shares | 2 | 4 | – – |
– | 6 | – | 6 | |
| Acquisitions and divestments | – | – | – – |
(14) | (14) | (39) | (53) | |
| Balance at September 30, 2012 | 476 | 141 | (15) | 157 | 5,433 | 6,192 | 505 | 6,697 |
| Balance at January 1, 2013 | 478 | 174 | (17) | 59 | 5,070 | 5,764 | 464 | 6,228 |
| Profit for the period | – | – | – | – | 673 | 673 | 55 | 728 |
| Other comprehensive income | – | – | 1 | (349) | (183) | (531) | (31) | (562) |
| Comprehensive income for the period | – | – | 1 | (349) | 490 | 142 | 24 | 166 |
| Dividend paid | 4 | 106 | – | – | (268) | (158) | (59) | (217) |
| Equity-settled transactions | – | – | – | – | 33 | 33 | – | 33 |
| Issue of common shares | 2 | 11 | – | – | – | 13 | – | 13 |
| Acquisitions and divestments | – | – | – | – | 1 | 1 | (1) | – |
| Balance at September 30, 2013 | 484 | 291 | (16) | (290) | 5,326 | 5,795 | 428 | 6,223 |
Invested capital
Invested capital at the end of Q3 2013 totaled €9.8 billion, €0.2 billion lower than at year-end 2012. Invested capital was mainly impacted by the net effect of:
- An increase of operating working capital of €0.2 billion mainly due to seasonality. Expressed as a percentage of revenue, operating working capital was 11.8 percent (Q3 2012: 13.3 percent; year-end 2012: 10.7 percent)
- A decrease of €0.3 billion due to foreign currency translation, caused by the stronger euro
Pensions
The funded status of the pension plans at the end of Q3 2013 was a deficit of €0.7 billion (yearend 2012: €1.1 billion as reported, €0.9 billion on restated basis). The movement compared with year-end 2012 is primarily due to:
- Changes in accounting standard IAS 19 (effective January 1, 2013) by €183 million
- Top-up payments of €307 million into certain pension plans
- Higher discount rates in all key countries Offset by:
- Higher inflation
- Lower asset returns
Workforce
staff (year-end 2012: 50,610 employees). The net decrease was due to: • A decrease of 1,050 employees due to
At September 30, 2013, we employed 50,420
- ongoing restructuring
- An increase of 860 employees due to new hires and seasonal activity. New hires were mainly in high growth markets
Invested capital
| in € millions | September 30, 2012 | December 31, 2012 September 30, 2013 | |
|---|---|---|---|
| Trade receivables | 2,432 | 2,174 | 2,374 |
| Inventories | 1,718 | 1,545 | 1,483 |
| Trade payables | (2,048) | (2,147) | (2,074) |
| Operating working capital | 2,102 | 1,572 | 1,783 |
| Other working capital items | (914) | (870) | (982) |
| Non-current assets | 10,867 | 10,821 | 10,372 |
| Less investments in associates and joint ventures | (192) | (185) | (188) |
| Less pension assets | (967) | (842) | (723) |
| Deferred tax liabilities | (482) | (434) | (420) |
| Invested capital | 10,414 | 10,062 | 9,842 |
Operating working capital
In % of revenue
Operating working capital
| in € millions, % of revenue | September 30, 2012 | December 31, 2012 | September 30, 2013 | ||||
|---|---|---|---|---|---|---|---|
| Decorative Paints | 587 | 12.9 | 353 | 8.9 | 424 | 9.3 | |
| Performance Coatings | 857 | 14.6 | 742 | 13.3 | 840 | 14.8 | |
| Specialty Chemicals | 734 | 13.2 | 564 | 10.7 | 641 | 12.8 | |
| Other activities | (76) | (87) | (122) | ||||
| Total | 2,102 | 13.3 | 1,572 | 10.7 | 1,783 | 11.8 |
Condensed consolidated statement of cash flows
| 3rd quarter | January - September | ||
|---|---|---|---|
| 2012 | 2013 in € millions | 2012 | 2013 |
| 993 | 1,727 Cash and cash equivalents at beginning of period | 1,335 | 1,558 |
| Adjustments to reconcile earnings to cash generated from operating activities |
|||
| (1,967) | 168 Profit for the period from continuing operations | (1,606) | 613 |
| 156 | 153 Amortization and depreciation | 464 | 463 |
| 246 | 183 Changes in working capital | (218) | (290) |
| (134) | (37) Changes in provisions | (711) | (354) |
| 2,159 | 85 Other changes | 2,178 | (25) |
| 460 | 552 Net cash from operating activities | 107 | 407 |
| (195) | (133) Capital expenditures | (496) | (432) |
| 3 | 10 Acquisitions and divestments net of cash acquired | (10) | 4 |
| 5 | 7 Other changes | 18 | 29 |
| (187) | (116) Net cash from investing activities | (488) | (399) |
| 70 | 5 Changes from borrowings | 582 | 109 |
| (8) | (30) Dividends | (189) | (216) |
| (38) | – Other changes | (47) | 12 |
| 24 | (25) Net cash from financing activities | 346 | (95) |
| 297 | 411 Net cash used for continuing operations | (35) | (87) |
| 12 | – Cash flows from discontinued operations | (15) | 692 |
| 309 | 411 Net change in cash and cash equivalents of total operations | (50) | 605 |
| 5 | (31) Effect of exchange rate changes on cash and cash equivalents | 22 | (56) |
| 1,307 | 2,107 Cash and cash equivalents at September 30 | 1,307 | 2,107 |
Cash flows and net debt
Operating activities in Q3 2013 resulted in a cash inflow of €552 million (Q3 2012: €460 million). The change is the net impact of higher operating income (excluding impairment) and lower cash outflow from provisions partly offset by lower inflow from working capital. The movement in other changes relates to the noncash impairment, that was included in profit from continuing operations in 2012.
Net debt decreased from €2,197 million in Q2 2013 to €1,817 million in Q3 2013 as a consequence of the net impact of:
- Cash inflow from operating activities of €552 million
- Capital expenditures of €133 million
- Dividend payments of €30 million
Outlook and 2015 targets
The economic environment remains challenging and we do not expect an early improvement in the trends faced in our end-user market segments. Restructuring charges in the fourth quarter are estimated at around €160 million. This means that full-year operating income before incidental items is unlikely to exceed €908 million. The acceleration of the performance improvement program and the strategic priorities announced in February are the right focus to have in these markets:
- Achieve ROI% at 14.0 percent by 2015
- Achieve ROS% at 9.0 percent by 2015
- Maintain net debt/EBITDA lower than 2.0 by 2015
- Increase revenue from downstream eco-premium solutions to 20 percent of our revenues in 2020
- Reduce our carbon emissions through the value chain by 25 to 30 percent per ton by 2020 (base 2012)
- Improve resource efficiency across the full value chain
Amsterdam, October 21, 2013 The Board of Management
| 2012 | 2013 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Q1 | Q2 | Q3 | Q4 | year in € millions | Q1 | Q2 | Q3 | Year-to-date | |
| Revenue | |||||||||
| 974 | 1,187 | 1,141 | 995 | 4,297 Decorative Paints | 925 | 1,179 | 1,136 | 3,240 | |
| 1,369 | 1,472 | 1,467 | 1,394 | 5,702 Performance Coatings | 1,331 | 1,458 | 1,415 | 4,204 | |
| 1,399 | 1,431 | 1,393 | 1,320 | 5,543 Specialty Chemicals | 1,244 | 1,253 | 1,252 | 3,749 | |
| (35) | (46) | (35) | (36) | (152) Other activities/eliminations | (35) | (25) | (25) | (85) | |
| 3,707 | 4,044 | 3,966 | 3,673 | 15,390 | Total | 3,465 | 3,865 | 3,778 | 11,108 |
| EBITDA 68 |
155 | 97 | (36) | 284 Decorative Paints | 88 | 141 | 146 | 375 | |
| 159 | 204 | 163 | 147 | 673 Performance Coatings | 163 | 197 | 193 | 553 | |
| 235 | 235 | 208 | 152 | 830 Specialty Chemicals | 174 | 198 | 185 | 557 | |
| (52) | (40) | (40) | (58) | (190) Other activities/eliminations | (50) | (62) | (68) | (180) | |
| 410 | 554 | 428 | 205 | 1,597 | Total | 375 | 474 | 456 | 1,305 |
| 11.1 | 13.7 | 10.8 | 5.6 | 10.4 | EBITDA margin (in %) | 10.8 | 12.3 | 12.1 | 11.7 |
| Depreciation | |||||||||
| (27) | (26) | (26) | (27) | (106) Decorative Paints | (28) | (28) | (24) | (80) | |
| (23) | (25) | (23) | (24) | (95) Performance Coatings | (25) | (25) | (24) | (74) | |
| (61) | (63) | (62) | (65) | (251) Specialty Chemicals | (62) | (64) | (66) | (192) | |
| (3) | (1) | (4) | (3) | (11) Other activities/eliminations | (4) | (2) | (3) | (9) | |
| (114) | (115) | (115) | (119) | (463) Total | (119) | (119) | (117) | (355) | |
| Amortization | |||||||||
| (16) | (17) | (18) | (19) | (70) Decorative Paints | (17) | (11) | (15) | (43) | |
| (9) | (8) | (10) | (9) | (36) Performance Coatings | (9) | (9) | (9) | (27) | |
| (13) | (15) | (13) | (14) | (55) Specialty Chemicals | (13) | (13) | (12) | (38) | |
| (1) | – | – | – | (1) Other activities/eliminations | – | – | – | – | |
| (39) | (40) | (41) | (42) | (162) Total | (39) | (33) | (36) | (108) | |
| EBIT | |||||||||
| 25 | 112 | 53 | (82) | 108 Decorative Paints | 43 | 102 | 107 | 252 | |
| 127 | 171 | 130 | 114 | 542 | Performance Coatings | 129 | 163 | 160 | 452 |
| 161 | 157 | 133 | 73 | 524 | Specialty Chemicals | 99 | 121 | 107 | 327 |
| (56) | (41) | (44) | (61) | (202) Other activities/eliminations | (54) | (64) | (71) | (189) | |
| 257 | 399 | 272 | 44 | 972 | Total | 217 | 322 | 303 | 842 |
| 6.9 | 9.9 | 6.9 | 1.2 | 6.3 | EBIT margin (in %) | 6.3 | 8.3 | 8.0 | 7.6 |
| Operating income | |||||||||
| 25 | 112 | (2,058) | (91) | (2,012) Decorative Paints | 43 | 102 | 107 | 252 | |
| 127 | 171 | 130 | 114 | 542 | Performance Coatings | 129 | 163 | 160 | 452 |
| 140 | 154 | 133 | 73 | 500 | Specialty Chemicals | 99 | 121 | 107 | 327 |
| (56) | (49) | (63) | (60) | (228) Other activities/eliminations | (54) | (64) | (71) | (189) | |
| 236 | 388 | (1,858) | 36 | (1,198) Total | 217 | 322 | 303 | 842 | |
| 6.4 | 9.6 | 6.3 | 1.0 | 5.9 ROS% before impairment | 6.3 | 8.3 | 8.0 | 7.6 |
| Quarterly statistics | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | ||||||||
| Q1 | Q2 | Q3 | Q4 | year in € millions | Q1 | Q2 | Q3 | Year-to-date | |
| Incidentals per Business Area | |||||||||
| – | – | (2,111) | (9) | (2,120) Decorative Paints | – | – | – | – | |
| – | – | – | – | – Performance Coatings | – | – | – | – | |
| (21) | (3) | – | – | (24) Specialty Chemicals | – | – | – | – | |
| – | (8) | (19) | 1 | (26) Other activities/eliminations | – | – | – | – | |
| (21) | (11) | (2,130) | (8) | (2,170) Total | – | – | – | – | |
| Incidentals included in operating income | |||||||||
| – | – | – | – | – Restructuring costs | – | – | – | – | |
| – | – | (2,106) | – | (2,106) Impairment | – | – | – | – | |
| (21) | 2 | (1) | – | (20) Results related to major legal and environ mental cases |
– | – | – | – | |
| – | – | (5) | (25) | (30) Results on acquisitions and divestments | – | – | – | – | |
| – | (13) | (18) | 17 | (14) Other incidental results | – | – | – | – | |
| (21) | (11) | (2,130) | (8) | (2,170) Total | – | – | – | – | |
| Reconciliation net financing expense | |||||||||
| 15 | 17 | 16 | 11 | 59 Financing income | 9 | 8 | 6 | 23 | |
| (57) | (65) | (58) | (59) | (239) Financing expenses | (56) | (57) | (54) | (167) | |
| (42) | (48) | (42) | (48) | (180) Net interest on net debt | (47) | (49) | (48) | (144) | |
| Other interest movements | |||||||||
| (1) | (1) | – | (1) | (3) Financing expenses related to pensions | (5) | (5) | (5) | (15) | |
| (3) | (18) | (9) | 1 | (29) Interest on provisions | (12) | 15 | (8) | (5) | |
| (4) | – | 1 | 10 | 7 Other items | 1 | 6 | 5 | 12 | |
| (8) | (19) | (8) | 10 | (25) Net other financing charges | (16) | 16 | (8) | (8) | |
| (50) | (67) | (50) | (38) | (205) Net financing expenses | (63) | (33) | (56) | (152) | |
| Quarterly net income analysis | |||||||||
| 4 | 5 | 5 | (1) | 13 Results from associates and joint ventures | 3 | 6 | 4 | 13 | |
| (14) | (22) | (9) | (18) | (63) Profit attributable to non-controlling interests |
(16) | (25) | (14) | (55) | |
| 190 | 326 | (1,903) | (3) | (1,390) Profit before tax | 157 | 295 | 251 | 703 | |
| (66) | (89) | (64) | 16 | (203) Income tax | (45) | 38 | (83) | (90) | |
| 124 | 237 | (1,967) | 13 | (1,593) Profit for the period from continuing operations |
112 | 333 | 168 | 613 | |
| 35 | 27 | (3) | 533 | (15) Effective tax rate (in %) | 29 | (13) | 33 | 13 |
| Quarterly statistics | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | ||||||||
| Q1 | Q2 | Q3 | Q4 | year | Q1 | Q2 | Q3 | Year-to-date | |
| Earnings per share from continuing operations (in €) | |||||||||
| 0.47 | 0.90 | (8.29) | (0.02) | (6.98) Basic | 0.40 | 1.28 | 0.64 | 2.31 | |
| 0.46 | 0.90 | (8.29) | (0.02) | (6.98) Diluted | 0.40 | 1.27 | 0.64 | 2.30 | |
| Earnings per share from discontinued operations (in €) | |||||||||
| (0.11) | 0.02 | (1.65) | (0.09) | (1.84) Basic | (0.03) | 0.50 | - | 0.48 | |
| (0.11) | 0.02 | (1.65) | (0.09) | (1.84) Diluted | (0.03) | 0.50 | - | 0.47 | |
| Earnings per share from total operations (in €) | |||||||||
| 0.36 | 0.92 | (9.94) | (0.11) | (8.82) Basic | 0.37 | 1.78 | 0.64 | 2.79 | |
| 0.35 | 0.92 | (9.94) | (0.11) | (8.82) Diluted | 0.37 | 1.77 | 0.64 | 2.77 | |
| Number of shares (in millions) | |||||||||
| 235.1 | 236.9 | 238.2 | 238.6 | 237.2 Weighted average number of shares | 239.4 | 241.0 | 242.1 | 240.8 | |
| 235.6 | 238.2 | 238.2 | 239.0 | 239.0 Number of shares at end of quarter | 239.8 | 242.1 | 242.1 | 242.1 | |
| Adjusted earnings (in € millions) | |||||||||
| 190 | 326 | (1,903) | (3) | (1,390) Profit before tax from continuing opera tions |
157 | 295 | 251 | 703 | |
| 21 | 11 | 2,130 | 8 | 2,170 Incidentals reported in operating income | - | - | - | - | |
| 39 | 40 | 41 | 42 | 162 Amortization of intangible assets | 39 | 33 | 36 | 108 | |
| (84) | (103) | (82) | (5) | (274) Adjusted income tax | (57) | 28 | (93) | (122) | |
| (14) | (22) | (9) | (18) | (63) Non-controlling interests | (16) | (25) | (14) | (55) | |
| 152 | 252 | 177 | 24 | 605 Adjusted net income for continuing operations |
123 | 331 | 180 | 634 | |
| 0.65 | 1.06 | 0.74 | 0.10 | 2.55 Adjusted earnings per share (in €) | 0.51 | 1.37 | 0.74 | 2.63 |
Notes to the condensed financial statements
Accounting policies and restatements
This interim financial report is in compliance with IAS 34 "Interim Financial Reporting". This report is unaudited. Except for the implementation of the revised IAS 19 "Employee Benefits", the accounting principles are as applied in the 2012 financial statements.
As of 2013, we apply stricter rules to qualify items as incidental items and have restated the relevant performance measures. In addition, invested capital was restated to exclude the receivable from pension funds in an asset position. Further, moving average ROI is now to be calculated with use of last twelve months operating income instead of, the so far used, EBIT. Operating working capital now comprises the total company and therefore includes, besides the inventories, trade receivables and trade payables in the Business Areas, the same items for the other activities.
Comparative numbers for 2012 have been restated accordingly. Please refer to our website for the details of these restatements, as issued at the time of our Strategy update on February 20, 2013.
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.
The "other" category
In the category "other" 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. Pensions reflects pension costs after the elimination of interest cost (reported as financing expenses). Insurances are the results from our captive insurance companies. Other includes the cost of share-based compensation
and company projects, the results of treasury and legacy operations as well as the unallocated cost of some country organizations.
Glossary
Adjusted earnings per share are the basic earnings per share from continuing operations excluding incidentals 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 before incidentals.
EBIT margin is EBIT as percentage of revenue.
EBITDA is EBIT before depreciation and amortization and refers to EBITDA before incidentals.
EBITDA margin is EBITDA as percentage of revenue.
Emerging Europe: Central and Eastern Europe (excluding Austria), Baltic States and Turkey.
Incidentals are special charges and benefits, results on acquisitions and divestments, restructuring and impairment charges, and charges related to major legal, anti-trust, and environmental cases. As of 2013, we apply stricter rules to qualify items as incidental.
Invested capital is total assets (excluding cash and cash equivalents, investments in associates, the receivable from pension funds in an asset position, assets/liabilities 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.
Moving average ROI is calculated as operating income of the last twelve months divided by average invested capital. For this calculation operating income has been adjusted for the Q3 2012 impairment of the Decorative Paints business of €2,106 million.
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 relevant incidental results.
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.
ROS% is operating income as percentage of revenue.
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.
Brands 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. Strawinskylaan 2555 P.O. Box 75730 1070 AS Amsterdam, the Netherlands Tel: +31 20 502 7555 Fax: +31 20 502 7666 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
AkzoNobel Corporate Communications Tel: +31 20 502 7833 Fax: +31 20 502 7604 E-mail: [email protected]
AkzoNobel Investor Relations Tel: +31 20 502 7854 Fax: +31 20 502 7605 E-mail: [email protected] Financial calendar Ex-dividend date of 2013 interim dividend October 23, 2013 Record date of 2013 interim dividend October 25, 2013 Election period cash or stock interim dividend October 28, 2013 -
Payment date of cash dividend and delivery of new shares November 26 Report for the year 2013 and the 4th quarter February 6, 2014 Report for the 1st quarter 2014 April 17, 2014 Annual General Meeting of shareholders April 29, 2014 Report for the 2nd quarter 2014 July 23, 2014 Report for the 3rd quarter 2014 October 21, 2014
November 19, 2013
www.akzonobel.com
AkzoNobel is a leading global paints and coatings company and a major producer of specialty chemicals. We supply industries and consumers worldwide with innovative products and are passionate about developing sustainable answers for our customers. Our portfolio includes well-known brands such as Dulux, Sikkens, International and Eka. Headquartered in Amsterdam, the Netherlands, we are consistently ranked as one of the leaders in the area of sustainability. With operations in more than 80 countries, our 50,000 people around the world are committed to delivering leading products and technologies to meet the growing demands of our fast-changing world.
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