AkzoNobel Q3 2016 Results

19 October 2016

Profitability increased in an environment of mixed volume growth
       

• Volume growth in Decorative Paints and Specialty Chemicals, while volumes were flat overall
• Revenue down 4 percent, due to adverse currency and price/mix effects
• EBIT* up 1 percent at €442 million (2015: €436 million), with continuous improvement initiatives and lower costs, partly offset by adverse currency effects
• Operating income up 4 percent at €454 million (2015: €436 million), positively impacted by incidental items
• ROS** was up at 12.3 percent (2015: 11.6 percent); ROI** improved to 15.2 percent (2015: 13.0 percent). ROS and ROI improved for all Business Areas
• Net income attributable to shareholders was €285 million (2015: €285 million)
• Adjusted EPS was €1.20 (2015: €1.24)
• Net cash inflow from operating activities up 3 percent at €600 million (2015: €583 million)
• Interim dividend up 6 percent to €0.37 per share (2015: €0.35)
• Further de-risking of pension liabilities

       
Outlook:
Outlook unchanged. The market environment remains uncertain with challenging conditions in several countries and segments. Deflationary pressures and currency headwinds are expected to continue. We maintain our financial guidance 2016-2018.

* EBIT = operating income excluding incidental items
**  ROS% = EBIT/Revenue. Moving average ROI (in %) = 12 months EBIT/12 months average invested capital

Q3 2016 highlights

• In Decorative Paints, volumes were up in Asia and EMEA, while volumes continued to be lower in Latin America. Revenue decreased 3 percent with positive volumes more than offset by unfavorable currency effects. EBIT was up 2 percent, mainly due to higher volumes and lower costs, partly offset by unfavorable currencies
• In Performance Coatings, volumes were down 2 percent affected by adverse conditions in the marine and oil and gas industries.  Demand trends differed per segment and region. Revenue was down 6 percent due to unfavorable currencies, lower volumes and adverse price/mix effects. EBIT was down 5 percent with continuous improvement initiatives and lower costs more than offset by adverse currencies and lower volumes
• In Specialty Chemicals, volumes were up 1 percent with positive developments, especially in Industrial Chemicals, partly offset by lower demand in the oil related segments. Revenue was down 3 percent, mainly due to price deflation in several markets. EBIT and operating income were up 3 percent due to improved volume and operational efficiencies
• EBIT in other activities improved due to lower costs, in particular corporate costs and pensions
• Raw material prices were lower, although in most regions foreign currency effects adversely impacted raw material costs in local currencies
• Operating income was positively impacted by primarily non-cash incidental items with a net effect of €12 million, including adjustments to provisions, amongst other for post-retirement benefits, and asset impairments. The incidental items impacted operating income of Decorative Paints, Performance Coatings and the operating income in other activities
• The net balance sheet position (IAS19) of the pension plans at the end of Q3 2016 was a deficit of €1.0 billion (year-end 2015: €0.6 billion). This was the result of the net effect of:
  • Lower discount rates in the key countries
  • De-risking of pension liabilities through non-cash buy-in transactions totaling €3.2 billion (£1.7 billion in Q3, £0.9 billion in the first half of 2016), related to the ICI Pension Fund, which led to an adverse €0.6 billion impact in Other comprehensive income

             
Offset by:

• Top-up payments of €293 million, predominantly into the UK pension plans
• Higher asset returns
   

• At September 30, 2016 net debt was €1,119 million, down 35 percent on September 30, 2015 (€1,727)

Revenue development Q3 2016