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Keith Nichols, CFO London, June 12, 2008 UBS Global Basic Materials Conference
The new AkzoNobel: Key facts Pro forma 2007
Revenue by segment Decorative Paints
• Revenue €14.4 billion • Around 60,000 employees • EBITDA: €1.9 billion
Specialty Chemicals Performance Coatings
32%
• EBIT: €1.4 billion
31%
• Net income: €903 million • Pension under funding €1,475 million
37%
2
AkzoNobel around the world Revenue by destination
21% North America (incl. 7% US Deco)
49% Europe (incl. 7% emerging Europe)
19% Asia Pacific
8% Latin America
2% Other regions Pro forma 2007 3
Q1 2008 operational performance
4
Q1 2008 highlights Ongoing trend of underlying growth, in local currencies, in most business areas Autonomous growth of 6 percent offset by currency headwind Stable results in challenging economic environment Earnings per share of continuing operations up 6 percent Total net income €118 million, up €40 million New company, new brand, ICI integration underway
5
Stable performance
€ mln
2008
Δ%
Revenue
3,506
1
EBITDA
398
(1)
EBIT
257
1
Net income
136
(4)
Ratio
2008
2007
EBITDA margin, %
11.4
11.6
7.3
7.3
0.52
0.49
EBIT margin, % Earnings per share
Continuing operations before incidentals; 2007 pro forma 6
Autonomous growth of 6 percent offset by currencies % Decorative Paints
Total
Volume
Price Currency Acq./div.
(4)
(2)
3
(6)
1
Performance Coatings
–
2
2
(6)
2
Specialty Chemicals
5
4
7
(6)
–
AkzoNobel
1
2
4
(6)
1
Versus Q1, 2007 proforma 7
Integration Update
8
Status report (1)
Integration process well underway • Making good progress in preparing full integration plan • Complimentary company cultures supporting the integration process • More than 100 people active in the integration teams, strong mix of ICI and Akzo Nobel
9
Status report (2)
New management structure established • Regional & functional leadership has been appointed • Appointment of local leadership in progress Capturing synergies • Synergies of € 340 million; up 20%
10
Coatings – an attractive industry
11
Coatings – an attractive industry with strong growth potential Attractive industry • Strong and stable cash flow • Low cyclicality • Low capital intensity Fragmented industry – clear signs of consolidation High growth potential
12
Stable margins through the cycle Coatings industry – average LTM EBITDA margins (1)
15%
14%
13%
12% 2002
2003
2004
2005
2006
2007
(1) Average LTM EBITDA Margins sourced from Capital IQ. Companies included: DuPont, Kansai Paint, PPG, RPM International, Sherwin Willliams and Valspar
13
Consolidation in Coatings Industry Market share of Top 10 coatings companies
(1)
50% 44%
45% 37%
35%
32% 29%
25% 1991
1995
2000
2006
2008
Example: number of US coatings companies (2)
1,500
1,380 1,040
1,000
735 600
500 1970
1980
1990
2000 14
(1)
Sourced from Euromonitor and Akzo Nobel Internal Sources
(2)
Sourced from The ChemQuest Group and BB&T Capital Markets
15
Strong growth potential
(1)
Per annum
16
A perfect strategic fit in Decorative Paints
Presence on all continents Ability to serve customers worldwide Complementary fit across regions, markets and brands Well positioned in highly attractive platforms for growth
17
Geographic expansion into high growth markets Akzo Nobel Decorative Paints today Decorative Paints Revenues in 2007 of €2.4 billion
EMEA
84,7%
1,7% 13,6% Asia - Pacific
Americas
ICI’s leading Decorative positions in emerging markets
China
#2
India
#3
Indonesia
#2
Malaysia
#1
Pakistan
#1
Thailand
#2
Vietnam
#2
Brazil
#2
Argentina
#1
Pro Forma combined Pro forma Decorative Paints Revenues in 2007 of €5.3 billion
EMEA
53,8%
12,6%
33,6%
Asia - Pacific Americas
18
Strong international position in Coatings EMEA
Decorative
Coatings
Emerging Markets
AN
999
AN
9
AN
ICI
99
ICI
99
ICI
999
AN
999
AN
AN
999
Paints
Performance
North America
9
ICI
9 Weak
99 Moderate
999 9
ICI
ICI
9
9
999 Strong
19
U.S. decorative market Largest (25%) and most attractive coatings market worldwide Under pressure since mid-2006 New build account for 22% of Deco market Revised strategy initiated by ICI end of 2006 Improved margins and profits Conservative assumptions made
20
US Decorative paints within Akzo Nobel
Pro forma US Deco paints sales: € 1 billion or 7% of total company revenues US Deco market declined by 10% in 2007 ICI Deco sales declined by 6%, but margins were up
New construction nonresidential 10%
New contruction residential 12%
Commercial Institutional 46%
Residential 54%
Maintenance / Repaint 78%
21
Leading positions in Performance Coatings
Industrial Activities: wood, coil and plastic coatings Marine & Protective Coatings: marine, protective, aerospace and yacht coatings. Leadership in innovation Car Refinishes: technology driven Packaging Coatings: attractive new business
22
Raw materials on balance slightly up
Decorative Paint:
Packaging materials Titanium dioxide Coatings specialties
Performance Coatings:
Resins and precursors Solvents Colored pigments Metals
23
Best in class Specialty Chemicals
24
Chemicals turned into a focused best in class business One third of portfolio divested in period 2004/06 Five growth platforms with market leadership positions Best in class operational performance Investing in emerging markets
EBITDA margin
ROI 2007 2004 15%
21%
2007 2004 15%
17%
25
Leading positions in specialty chemicals markets Pulp & Paper - #1 worldwide in bleaching Base Chemicals - #1 globally in MCA regional N/W Europe leadership in chlorine alkali business Functional Chemicals - leading positions in 3 market segments Surface chemicals - making good progress in turning around Polymer Chemicals - #1 globally in organic peroxides and metal alkyls
26
Raw materials – relatively well positioned
Specialty Chemicals - most important raw materials: - energy: hydro, nuclear, own co-generation facilities one third of feedstock input linked to oil/gas prices large consumers are Pulp & Paper and Base Chemicals - ethylene - salt, largely captive produced
27
Strategy going forward
28
Strategy going forward
Accelerate organic growth, leveraging our leading positions Be an active consolidator throughout portfolio Capture the synergies of the ICI acquisition Further improve profitability through operational excellence Build a unique industrial brand
29
New AkzoNobel will be a top performer
Attractive industry Strong portfolio Operational excellence Synergies
Outgrow markets EBITDA performance to move to upper half of peer group
30
Peer group EBITDA performance Peer Group EBITDA Margins(1) 2007
2008
2009
DuPont
19.5%
19.0%
18.7%
Hercules Inc.
18.3%
19.1%
19.4%
BASF AG
17.7%
17.3%
16.7%
PPG Industries Inc.
14.7%
15.2%
15.1%
Sherwin-Williams Co.
14.3%
14.3%
14.0%
Dow Chemical Co.
13.7%
12.6%
12.2%
Kansai Paint Co. Ltd.
12.7%
12.9%
13.2%
RPM International Inc.
12.7%
12.7%
12.4%
Kemira Group
12.4%
10.9%
11.6%
CIBA
12.1%
13.7%
14.1%
Valspar Corp.
11.7%
11.4%
11.6%
Arkema Sa
8.8%
9.7%
10.6%
Average
14.1%
14.1%
14.1%
Median
13.2%
13.3%
13.6%
Akzo Nobel (2)
12.9%
31 (1)
Sourced from IBES Estimates and Capital IQ as at 21 Febuary, figures calendarised to December year end. Ranked by 2007 EBITDA margin estimates
(2)
Pro forma AN and ICI – FY 2007
Financial Strategy
32
Strong financial position
€ mln
March 31, 2008
Dec. 31, 2007
Equity
11,735
12,155
Net debt
3,483
2,832
Q1, € mln
2008
2007
Net cash from operating activities
(400)
(426)
2007 pro forma 33
Financial strategy post-2007 transformation
Three guiding principles: - Solid capital structure - Attractive dividend payout ratio - Arm’s length position for pensions
34
Solid capital structure
Maintain investment grade rating (single A- to BBB+ range) • FFO/adjusted net debt is key ratio Drivers • Flexibility for growth strategy • Avoid over-exposure to volatility of financial markets • Continue to deal proactively with pension deficit
35
Create arm’s length position on pension matters
2007 pro forma pension under funding € 1.5 billion Committed to fund deficits over time Change to defined contribution (DC) for new entrants Ring fence other post retirement obligations
36
Return of additional cash to shareholders
Initial 2007 share buyback program of €1.6 billion completed 2008/2009 capital return program: • Share buyback program of €3.0 billion • First tranche of €1.0 billion started mid March • Completion expected by end Q1 / early Q2 2009 • YTD 14.2 million shares repurchased for €725 million
37
2007 dividend increased with 50%
2007 dividend up 50% to € 1.80 per share Higher dividend triggered by • Higher net income before incidentals • Influence of initial share buyback: shares outstanding decreased by 10% • Pay-out ratio of minimum of 45% of net income before incidentals (and fair value adjustments related to ICI deal)
38
2008 - Management Agenda
39
Management Agenda 2008 Outgrow our markets, further improve EBITDA margin Significant progress with integration ICI Capture first round of synergies Divesture of Specialty Starches Remedies divestures Roll out corporate brand program
40
Trading conditions 2008
AkzoNobel remains confident of outgrowing its markets At least maintaining results in line with 2007.
41
Questions?
42
Annex - Q1 2008 results
43
Decorative Paints
Strong top-line growth in Asia and Latin America Revenue down 4 percent, impacted by currency effects (-6 percent) US business affected by weak market conditions; US margins improved due to product mix effects and cost control programs EBITDA margin increased to 8.8 percent, ahead of 2007
44
Decorative paints
€ mln
2008
Revenue
1,165
EBITDA
Δ% (4)
102
3
52
16
2008
2007
EBITDA margin
8.8
8.1
EBIT margin
4.5
3.7
EBIT Ratio, %
Before incidentals; 2007 pro forma 45
Performance Coatings
Autonomous revenue growth of 4 percent 6 percent negative currency impact Slightly lower EBITDA margin of 11.6 percent Marine & Protective Coatings: another strong quarter Industrial Activities affected by weak US market conditions
46
Performance Coatings
€ mln
2008
Δ%
Revenue
1,096
–
EBITDA
127
(5)
EBIT
103
(6)
Ratio, %
2008
2007
EBITDA margin
11.6
12.2
9.4
9.9
EBIT margin
Before incidentals; 2007 pro forma 47
Specialty Chemicals
Strong autonomous growth of 11 percent; negative currency impact of 6 percent Pressure on margins from raw materials and energy compensated by price increases Slightly lower EBITDA margin of 17.1 percent Surface chemicals, Polymer Chemicals and Chemicals Pakistan leading improvement
48
Specialty Chemicals
€ mln
2008
Δ%
Revenue
1,199
5
EBITDA
205
1
EBIT
143
4
Ratio, %
2008
2007
EBITDA margin
17.1
17.8
EBIT margin
11.9
12.0
Before incidentals; 2007 pro forma 49
Safe Harbor Statement
This presentation contains statements which address such key issues as Akzo Nobel’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 the company’s corporate website www.akzonobel.com.
50