July 19, 2012 Investor update Q2 2012 results

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July 19, 2012 Investor update Q2 2012 results

Agenda •

Highlights

•

Operational and financial review

•

Performance improvement program

•

C Conclusion l i

Investor update Q2 2012 results

2

Highlights Ton Büchner

Investor update Q2 2012 results

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Our strong businesses Decorative Paints • H1 2012 Revenue €2.8 billion • H1 2012 EBITDA: €251 million*

Performance Coatings g • H1 2012 revenue €2.8 billion • H1 2012 EBITDA: €377 million*

Specialty Chemicals • H1 2012 revenue €2.8 €2 8 billion • H1 2012 EBITDA: €490 million*

* Before incidentals Investor update Q2 2012 results

4

Solid performance in Q2

• Revenue up 8 percent, mainly driven by pricing actions and currencies • Volumes declined 2 percent, primarily due to the economic slowdown in Europe p • EBITDA* margin 13.5 percent (2011: 13.4 percent) • Net income from continuing operations €197 million (2011: €251 million), primarily due to higher incidental charges • Adjusted EPS €1.12 (2011: €1.09) • Performance improvement program on track • The economic environment remains our principal sensitivity in 2012

* Before incidentals Investor update Q2 2012 results

5

In Q2 2012 both revenue and EBITDA increased by 8 percent Q2 2012

Δ%

EBITDA*

4,406 4 406 593

8 8

Ratio, %

Q2 2012

Q2 2011

13.5

13.4

€ million Revenue

EBITDA* margin

Revenue development Q2 2012 vs. Q2 2011 10 6

+2%

2 -2

-2% Volume

* Before incidentals

+4%

+8%

+4% Price/Mix

Acquisitions/ Exchange rates divestments Increase

Total Decrease

Investor update Q2 2012 results

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Revenue growth leads EBITDA margin improvements Reported quarterly revenue growth in % year-on-year 20 15

12%

10

8%

6%

6%

5 0 Decorative Paints

Performance Coatings

Specialty Chemicals

AkzoNobel

Quarterly EBITDA* margin in % 20

11.3%

17.8%

14 5% 14.5%

13 5% 13.5%

15 10 5 0 Decorative Paints

* Before incidentals

Performance Coatings

Specialty Chemicals 2011

2012

AkzoNobel

Target range

Investor update Q2 2012 results

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Price increases coming through, volumes remain soft Quarterly volume development in % year-on-year 10 5 0

-2%

-2%

-2%

Specialty Chemicals

AkzoNobel

-2%

-5 Decorative Paints

Performance Coatings

Quarterly price/mix development in % year-on-year 10 5%

6% 4%

5 2%

0 Decorative Paints

Performance Coatings

Specialty Chemicals

AkzoNobel

2011

2012

Investor update Q2 2012 results

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Performance improvement program is on track to support EBITDA EBITDA* bridge H1 2011 – H1 2012 € million

1.400 328

1.200 34

(88)

(201)

65

1.000

(110)

800 600 400

1,016 ,

988

200 0 H1 2011

Currency Price/Mix

Volume

Raw materials

PIP

Other**

H1 2012

*B Before f incidentals i id t l ** Other includes wage inflation, acquisition impact and higher insurance claims

Increase

Decrease

Investor update Q2 2012 results

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Operational and financial review Keith Nichols

Investor update Q2 2012 results

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Decorative Paints Q2 2012 highlights € million Revenue

Q2 2012 1 551 1,551

Δ% 6

EBITDA*

175

(8)

Ratio % Ratio,

Q2 2012

Q2 2011

11.3

13.1

EBITDA* margin R Revenue d development l t Q2 2012 vs. Q2 2011

6 4 2 0 -2

0% +5%

• •

Decrease

+3% +6%

-2% 2% Volume

• • •

Increase

Acquisitions/ Exchange rates Total divestments Revenue up 6 percent on 2011, driven by favorable price/mix Weaker demand in mature and South East Asian markets negatively impacted volumes EBITDA* down 8 percent, mainly driven by weaker performance in Europe, reflecting challenging market circumstances Improved results in North America due to a combination of strong margin management and restructuring Restructuring continues in mature markets, particularly in Europe

* Before incidentals

Price/Mix

Investor update Q2 2012 results

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Performance Coatings Q2 2012 highlights € million Revenue

Q2 2012 1 472 1,472

Δ% 12

EBITDA*

213

25

Ratio % Ratio,

Q2 2012

Q2 2011

14.5

13.0

EBITDA* margin

Increase

Revenue development Q2 2012 vs. vs Q2 2011

12 8 4 0 -4

• • • • •

+3%

Decrease

+5% +12%

-2%

+6%

Volume

Price/Mix

Acquisitions/ divestments

Exchange rates

Total

Revenue up p 12 p percent,, supported pp by y margin g management, g , acquisitions q and currency y effects Underlying volume declined by 2 percent, with significant variability between individual markets EBITDA* margin at 14.5 percent (2011: 13.0 percent) driven by margin management and operational efficiency Integration g of acquired q activities supporting pp g results Protective Coatings and Industrial Coatings were the strongest growth contributors

* Before incidentals

Investor update Q2 2012 results

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Specialty Chemicals Q2 2012 highlights € million Revenue

Q2 2012 1 431 1,431

Δ% 6

EBITDA*

255

16

R ti % Ratio,

Q2 2012

Q2 2011

17.8

16.3

Increase

Decrease

EBITDA* margin Revenue development Q2 2012 vs. vs Q2 2011

6 4 2 0 -2

• • •

-2% 2%

+2%

Volume

Price/Mix

+2%

+4%

Acquisitions/ divestments

Exchange rates

+6%

Total

Revenue increased 6 percent, due to margin management, the Boxing Oleochemicals acquisition and currency effects Volumes in most businesses slowed down during the quarter and customer ordering patterns became more cautious EBITDA margin improved to 17.8 percent (2011: 16.3 percent), based on improved margins and continued cost restructuring

* Before incidentals

Investor update Q2 2012 results

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Summary – Q2 2012 results Q2 2012 593 (170) (49) (82) (16) (80) 4 201

Q2 2011 551 (150) 27 (64) (14) (99) 17 268

401

165

Q2 2012

Q2 2011

EBITDA* margin (%)

13.5

13.4

Adjusted earnings per share (in €)

1.12

1.09

€ million EBITDA* EBITDA Amortization and depreciation Incidentals Net financing expenses Minorities and associates Income tax Discontinued operations Net income total operations Net cash from operating activities Ratio

* Before incidentals Investor update Q2 2012 results

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Strong operating returns on invested capital 30%

27.5%

26.2%

25%

20 2% 20.2%

20% 15% 10% 5%

10.8%

10.4%

Q3 09-Q2 10

Q3 10-Q2 11

8.3%

0% Q3 11-Q2 12

Moving average ROI % * Operating ROI is calculated as EBIT before amortization divided by average invested capital excluding intangible assets

Operating ROI %* Investor update Q2 2012 results

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Cash flows Q2 2012 Q2 2012

Q2 2011

Profit for the period from continuing operations

218

273

Amortization, depreciation and impairments

186

153

Change working capital

(38)

(204)

€ million

- Pension provisions

(21)

22

- Restructuring

(4)

(34)

- Other provisions

(5)

(58)

Ch Change provisions i i

(30)

(70)

65

13

401

165

(173)

(164)

22

(538)

(178)

(271)

Discontinued operations

-

11

Other changes

3

6

62

(775)

Other operating cash flows Net cash from operating activities Capex Changes from borrowings Dividends

Total cash flows

Investor update Q2 2012 results

16

Pension deficit increases to €0.6 billion Q2 2012

Q1 2012

Disco nt rate Discount

4 2% 4.2%

4 5% 4.5%

Inflation assumptions

2.3%

2.7%

Key pension metrics

Pension deficit development during Q2 2012 € billion

00 0,0 -0,2

(347)

14

18

(589)

-0,4

13

-0,6

(750) 463

-0,8 -1,0 -1,2 Deficit end Q1 2012

Top-ups

Increased plan assets

Discount rates

Inflation

Other

Increase

Deficit end Q2 2012

Decrease

Investor update Q2 2012 results

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Pension cash contributions unrelated to positive IAS 19 accounting change impact € million Top-up payments • •

Q1 2012

14

322

j y of the p pension top-up p pp payments y have been made The majority in Q1 2012 Latest estimate is for additional top-up payment of approximately pp y €30 million in H2 2012 € million IAS 19 charges g in EBITDA

•

Q2 2012

2012E

2011

35

33

IAS 19 charges in interest costs

64

59

Total non-cash IAS 19 charges

99

92

Due to changes in IAS 19 from 2013, the majority of the above charges will no longer be charged in the P&L

Investor update Q2 2012 results

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Performance improvement program Ton Büchner

Investor update Q2 2012 results

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In October 2011 we committed to a €500 million performance improvement program

Operational Professionalization

• • • • •

Complexity Reduction RD&I focus Manufacturing excellence Procurement effectiveness Margin Management

Functional Excellence

• • • •

Finance Human Resources Information Management AN – Academy

Business B i U it Unit Adaptations

•

Various BUs

Investor update Q2 2012 results

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Examples of projects that are now running

Operational Professionalization

• Site optimizations at ~50 manufacturing sites (€30 million in 2012) • RD&I: technology which enables using less titanium dioxide • Product and margin management in Powder Coatings g and Functional Chemicals (~€15 million)

Functional Excellence

• Reducing the number of ERP-systems in use, to less then 10 in medium-term • Standardize purchase-2-pay process (~€15 million) • Academy: hardwiring our learning's

Business B i U it Unit Adaptations

• Decorative Paints North America restructuring (~300 FTE) • Decorative Paints Europe organizational redesign (~500 FTEs) • Performance Coatings & Specialty Chemicals BUs all have significant restructuring projects

Investor update Q2 2012 results

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Significant FTE reductions as a result of the performance improvement program FTE bridge Q4 2011 – Q2 2012 58 000 58.000 57.800 57.600

570 (870)

57.400

640

57.200 57.000

57,580

57,240

56.800 56 600 56.600 56.400 56.200 56.000 year-end 2011

Acq/Div

PIP

Seasonal/New hires

Increase

Q2 2012

Decrease

Investor update Q2 2012 results

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Performance improvement program delivers €65 million benefits in H1 2012

€ million Decorative Paints Performance Coatings Specialty Chemicals Other Total

€ million PIP costs

Q1 2012 46

H1 2012 Reported EBITDA 251 377 490 (102) 1,016

Q2 2012 44

H1 2012 Amount due to PIP 2012 target 37 13 15 65 200

H1 2012 90

2012 target 200

Investor update Q2 2012 results

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Performance improvement program on track •

Benefits: €65 million EBITDA improvement YTD

•

Total costs: €90 million YTD, included in incidentals

•

Program on track to deliver €200 million EBITDA benefits in 2012 •

•

Business unit adaptations and operational professionalization are expected to contribute around 90% of the expected 2012 EBITDA improvement

3-year program 2012-2014 • •

To deliver €500 million EBITDA in 2014 At a total cost of €425 million

Investor update Q2 2012 results

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Conclusion

Investor update Q2 2012 results

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Conclusion

• A solid lid second d quarter t • Implementation of our performance improvement program on track • The major uncertainty remains the global economic environment • We have a strong portfolio of complementary businesses, with many leading market positions and exposure to growth markets • Focus on customer satisfaction, return on capital, cash generation and organic growth • We will be providing an update on strategy on October 18 & 22nd.

Investor update Q2 2012 results

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Appendix

Investor update Q2 2012 results

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AkzoNobel key facts 2011 • Revenue €15.7 billion • 57,240 employees • EBITDA: €1.8 billion* • Net income: €0.5 billion • 40 percent of revenue from high growth markets • A leader in sustainability Revenue by business area

EBITDA* by business area

31%

33%

34%

Performance Coatings Decorative Paints

46%

Specialty p y Chemicals

33%

23%

* Before incidentals Investor update Q2 2012 results

28

Decorative Paints key facts 2011 • Revenue €5.3 billion • 22,340 employees • EBITDA: €440 million* • 40 percent of revenue from high growth markets • Largest global supplier of decorative paints • Many leading positions, strong brands Some of our strong brands

Revenue by geography

12%

3% M t Mature Europe E

40% 20%

Emerging Europe Asia Pacific North America L ti A Latin America i

18%

7%

Other regions

* Before incidentals Investor update Q2 2012 results

29

Performance Coatings key facts 2011 • Revenue €5.2 billion • 21,960 employees • EBITDA: €611 million* • 47 percent of revenue from high growth markets • Leading positions in performance coatings industry • Innovative technologies, strong brands Revenue by business unit

15% 27% 18%

Revenue by geography

Marine and Protective Coatings

8%

4% 30%

Automotive and Aerospace Coatings Industrial Coatings

Mature Europe

20%

Emerging Europe Asia Pacific North America

Powder Coatings

10%

20% 20%

Wood Finishes and Adhesives

28%

Latin America Other regions

* Before incidentals Investor update Q2 2012 results

30

Specialty Chemicals key facts 2011 • Revenue €5.3 billion • 11,510 employees • EBITDA: €906 million* • 33 percent of revenue from high growth markets • Major producer of specialty chemicals • Leadership positions in many markets Revenue by business unit

Revenue by geography

Functional Chemicals

6% 17%

35%

9% 2% Mature Europe

Industrial Chemicals Pulp and Performance Chemicals

20%

43%

21%

Chemicals Pakistan

Asia Pacific North America

Surface Chemistry

21%

Emerging Europe

Latin America

22%

4%

Other Regions

* Before incidentals Investor update Q2 2012 results

31

The global paints and coatings market is around €76 billion % of 2011 market 100% is around €76 billion

Wood Finishes General Industrial Coatings 5% 8%

Vehicle Refinish 8% 42%

Decorative

Performance 58%

5%

8%

Marine and Yacht

Protective coatings

2%

Special purpose

10% 7%

2% 3%

A t OEM & Aerospace Auto A Powder Coatings

Coil Coatings

Packaging g g Coatings g Source: Company Reports Investor update Q2 2012 results

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AkzoNobel is the world’s largest coatings supplier 2011 revenue in € billion 12

10

8

6

4

2

0

Investor update Q2 2012 results

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Excellent geographic spread of both revenue and profits High growth markets are important (40% of revenue) % of 2011 revenue

20% North America

38% “Mature” Europe

7% “Emerging” Europe 3% Middle East and Africa

22% Asia Pacific

10% Latin America

High growth markets’ profitability is above average Investor update Q2 2012 results

34

Leading positions and strong brands 2011 Revenue by y market p position

Some of our strong g brands

Decorative Paints No. 2 or 3 32%

Performance Coatings

No. 1 position 59% Other 9%

Specialty Chemicals

• • •

Our leading market positions provide us with scale benefits Strong brands ensure customer loyalty p with key y specifiers p and regulatory g y approvals pp lead Established relationships to significant barriers to entry Investor update Q2 2012 results

35

Our strategic ambition

Investor update Q2 2012 results

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Our medium term strategic goals •

Top quartile safety performance f

•

Top 3 position in sustainability

•

Top quartile performance in di diversity, it employee l engagement, t and talent development

•

Top quartile eco-efficiency improvement rate

•

Grow to €20 billion revenues

•

Increase EBITDA each year, maintaining 13-15 13 15 percent margin

•

Reduce OWC/revenues by 0.5 p.a. towards a 12 percent level

•

Pay a stable to rising dividend

Investor update Q2 2012 results

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How we will expand in both mature and high growth markets Organic growth • Expand focus from high to mid-market mid market segments • Fueling growth in high growth markets Innovation pipeline • Spend of around 2.5 percent of revenue makes us the clear leader of our p peers in absolute spend p • Emphasis on bolder, focused, sustainable innovation Acquisitions • Wide range of opportunities • All business areas qualify • Value created in less than three years

Investor update Q2 2012 results

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Aspirations for high growth markets (currently around 40 percent of our revenue) Double revenues in China • Grow from $1 $1.5 5 to $3 billion of revenues • Already the biggest paint, coatings and specialty chemicals company in China

Create significant footprint in India • Grow from €0.25 to €1 billion in revenue • Increasing footprint for all business areas

Outgrow g the competition p in Brazil • Grow from €0.75 to €1.5 billion in revenue • Become clear market leader in all our activities

Expand in the Middle East

Investor update Q2 2012 results

39

High growth markets will become significantly more important % of revenue, indicative

32% “Mature” Europe

18% North America

9% “Emerging” Europe 5% Middle East and Africa

25% Asia Pacific

11% Latin America

g growth g % of revenue in this decade High markets will be around 50% Investor update Q2 2012 results

40

Exciting RD&I pipeline with innovative solutions for key market segments How innovation will support our growth agenda: g g

Revenue by key market segment

• Functional solutions in key market segments 12%

• Increase spend in big R&D • >15 percent of revenue from “breakthrough” innovations*

13% 43%

• >30 percent of revenue from eco-premium solutions** 32%

Our more centrally led RD&I efforts aim at delivering solutions for the future needs of our end markets

Residential construction Consumer g goods

Our scale leads to superior absolute spend versus our peers

Non-residential construction Transport

* Major innovations that result in a significant competitive advantage ** Higher eco-efficiency than competing comparable product Investor update Q2 2012 results

41

Clear sustainability focus Accelerated sustainability strategy will deliver: • Safety at 2.0 injuries per million hours • 30 percent of revenue from eco-premium solutions • Sustainable fresh water management • 30 percent eco-efficiency improvement • 10 percent carbon footprint reduction (20-25 percent by 2020) • 20 percent of executives will come from high growth economies • Key supplier partnerships will deliver footprint reduction

Embed safety and sustainability in everything we do

Investor update Q2 2012 results

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Innovation in Decorative Paints Coral Rende Muito

Value for money paint, without compromising quality of finish

Key Features

Customer Benefits

• A concentrated paint emulsion y up p to 80% • Paint can be diluted by • More coverage per liter paint with same quality finish

• Higher value for money for our customers p g rate • Best-in-class spreading • Lower transport costs for better sustainability performance

Growth potential • Six-fold increase in product line sales since it was launched • High expectations for global mid-tier markets

Investor update Q2 2012 results

43

Innovation in Performance Coatings Marine Coatings - Interline® 9001

Next generation low absorption, easy-to-clean lining for chemical cargo tanks

Key features

Customers benefits

• New coating for chemical cargo tanks

• Greater efficiency and flexibility in operation of chemical tankers • Increased vessel earning potential due to extended coating lifetime • Reduced risk of contamination between (high purity) cargoes

• Low chemical absorption enables reduction in cleaning time and materials

Growth potential • Launched globally in 2011 with high expectations • Potential penetration into high purity chemical tanker trade • Potential extension into other protective coatings markets where chemical resistance is required q

Investor update Q2 2012 results

44

Innovation in Specialty Chemicals

Pulp and Performance Chemicals – Bindzil CC Improving the quality of waterborne coatings

K F Key Features t

C t Customer B Benefits fit

• Solves stability and compatibility issues in waterborne coatings

• Enables paint and lacquer producers to up-grade their products in a cost-effective and more sustainable way

• Reduces dirt pick pick-up up in waterborne deco paints • Improves weather resistance in silicate paints • Complies with eco-labeling regulations

• Better ease of application for users • Approved in Europe for direct food contact applications

Growth potential • Market expected to exceed 1000 tons in 2012 • New applications in concrete floor polishing and non-stick coatings for cookware k under d d development l t • Longer term potential for application in laminate floorings and kitchen work-tops

Investor update Q2 2012 results

45

Variable costs represent 54.3% of revenue % of 2011 annual revenue* 100% Raw materials, energy, and other variable costs Fixed production costs Selling, advertising, administration, R&D costs EBIT margin 0% Decorative Paints

Performance Coatings

Specialty Chemicals

AkzoNobel

* Rounded percentages, all data excluding incidentals Investor update Q2 2012 results

46

Variable costs analysis 2011

Energy & other variable costs*

Packaging Solvents

Raw materials

7% 7%

Chemicals and intermediates***

28% 13%

8%

Additives

7%

Other raw materials** 2% 8%

Pigments

12%

Resins

8%

Titanium dioxide

Coatings’ specialties i lti

* Other variable costs include variable selling costs (e.g. freight) and products for resale ** Other raw materials include cardolite, hylar etc. *** Chemicals and intermediates include caustic soda, acetic acid, tallow, ethylene, ethylene oxide, sulfur, amines etc. Investor update Q2 2012 results

47

Capital expenditure prioritization for growth • Capex 2011 was €708 million (including Ningbo €45) • Guidance for the medium term: Capex level to be at least 4 percent of revenues Capex as a % of revenue

2011 Capex split 5

3% 16%

4 52%

3 2

29%

1 Specialty Chemicals

0 2008

2009

B Base capex

Ni b Ningbo

2010

2011

N ti National l St Starch h

Decorative Paints Performance Coatings Other

Investor update Q2 2012 results

48

Year-on-year Operating Working Capital % of revenue to be reduced towards 12% OWC € million

20%

3000 2500

14.2%

13.8%

18%

15.6%

14 3% 14.3%

14.2%

13.6%

16% 14%

2000

12% 1500

2,155

2,279

2,341

2,079

2,502

2,537

10% 8%

1000

6% 4%

500

2% 0

0% Q1 2011

Q2 2011

Q3 2011

Q4 2011

OWC

Q1 2012

Q2 2012

OWC as % of LQ revenue*4 Investor update Q2 2012 results

49

Debt duration 3.3 years and no refinancing needed in 2012 Debt maturities* € million (nominal amounts)

1.200 800 400 0 2012

2013 € bonds

2014

2015 $ bonds

2016

2017

2018

£ bonds

Strong liquidity position to support growth • Undrawn revolving credit facility of €1.8 billion (2016) or €1.5 and $3 billion commercial paper programs • Net cash and cash equivalents €1.0 billion* * At the end of Q2 2012 Investor update Q2 2012 results

50

Unchanged ambition to maintain strong balance sheet € million Total equity Net debt*

Jun 30, 2012 9 995 9,995 2,844

Jun 30, 2011 9 314 9,314 1,808

• Credit ratings unchanged at BBB+/Baa1, BBB+/Baa1 outlook stable • Net debt increased due to pension top-ups and an additional pension payment in Q1, as well as higher operating working capital • IIn September S t b 2011, 2011 we renewed d our five fi year multi-currency lti syndicated revolving credit facility for €1.8 billion (previously €1.5 billion)

* Before net pension deficit of €0.6 billion June 30, 2012 (June 30, 2011 €0.4 billion) Investor update Q2 2012 results

51

Q2 2012 incidentals € million Restructuring costs

Q2 2012 (44)

Q2 2011

Results related to major legal,

3

(20) 21

anti-trust and environmental cases Results of acquisitions and divestments

-

26

(7)

-

(48)

27

Other incidental results Total

•

IIncrease in i restructuring t t i costs t due d to t provisions i i iin relation l ti tto the performance improvement program

•

Restructuring g costs mainly y related to Decorative Paints in North America and Europe

Investor update Q2 2012 results

52

Q2 2012 EBITDA – Cash bridge € million

Q2 2012

Q2 2011

EBITDA before incidentals

593

551

Incidentals (cash)

(28)

8

Change working capital

(38)

(204)

Change provisions

(30)

(70)

Interest paid

(42)

(58)

Income tax paid

(54)

(62)

Net cash from operating activities

401

165

•

Lower cash outflows from working capital mainly due to a lower autonomous increase in operating p g working g capital p

•

Together with an improved EBITDA performance, there is a significant improvement in net cash from operating activities

Investor update Q2 2012 results

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Safe Harbor Statement

This presentation Thi t ti contains t i statements t t t which hi h address dd such h kkey iissues 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 f t d and d actual t l results lt to t differ diff from f these th statements. t t t These Th factors f t 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 iti are b based d on managementt estimates ti t supported t db by iinformation f ti provided id d b 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.

Investor update Q2 2012 results

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