Akzo Nobel N.V. ( AKZOY.PK )

Q2 2010 Earnings Call Transcript

July 23, 2010 4:30 am ET

Executives

Hans Wijers – Chairman & CEO

Keith Nichols – CFO

Presentation

Hans Wijers

Yes, good morning, this sounds better. Welcome to the presentation of our second quarter results. A very good quarter of AkzoNobel on track and let me elaborate on that, ladies and gentlemen. I would like to go to an agenda where we talk about AkzoNobel what it currently is, its ambitions and plans, then the highlights, and then Keith will give you more granularity about our performance, the financial review. And then I will take it back talking about sustainability and the outlook. And at the end I have a couple of other remarks to make.

First, for those of you who are not aware of it, we are by far the largest coatings and paints supplier in the world and we have fantastic leading position in the area of specialty chemicals. What is probably also extremely important to remember, if you think about our company is that we are proud to be based in the Netherlands, but we have a very global spread and particularly our exposure to high growth markets. We used to call those in the past emerging markets. Because many of these countries have emerged, so we don’t talk about emerging markets anymore. Actually it’s considered to be an insult by some of the people living in countries like Korea and Mexico and Turkey if you talk about emerging countries. So, high growth markets are very important to us. It’s now close to 40% of or total revenue and it’s not only important for us in terms of revenue it’s also important in terms of profitability because these markets have an above average profitability in our company.

Close to 40% is in the high growth areas. This would mean the 60% is an important – very important. We are very proud to have leading positions and strong brands in Europe and North America and we’ll continue to invest in it, but you could say we are wherever the action is or the action could be, and that is very important world changing so rapidly.

Now, let’s talk about where we are with our agenda, our strategy agenda first. When we acquired ICI in 2007, we set a set of strategic ambitions. Now, we said we want to leading in value creation and that should be illustrated by outgrowing our markets, an EBITDA of 14% by the end of 2011 and a significant investment of working capital, about 0.5% per year on average.

That’s not enough. We also want to be a leader in sustainability and that should be illustrated by having on average over the full – over the different years a top three position as Dow Jones Sustainability Indexes. We want to improve safety in our company, move to a recordable injury rate of 2. And also make a step change in how we develop our people. We have a concept of the talent factory in our company.

Now, we do not incentivize our people only on the financials, we also incentivize them around the sustainability area because that’s what we feel is necessary to create a right balance between the short term and the longer term value creation.

Where are we with this agenda? Well, we have been delivering much faster on our agenda than we initially anticipated. First of all, talking about EBITDA margin, we proudly announced in our Q2 results that we have delivered one year and a half in advance on our EBITDA margin target. Not only did we surpass that target this quarter, that we surpassed over the first half year, but also if you take a trailing average of four quarters, so including some pretty tough quarters last year, we have achieved a 14% target.

How have we achieved this? By focusing on margin management, using the scale of our company on the raw materials side but also investing heavily in the skills of our people on the pricing side, building our brands, make our brands more relevant is also being very important. Of course, delivering on the ICI synergies and additional restructuring measures as the economic crisis hit us beginning of last year. But it’s a tick in a box.

Then talking about the ICI integration, we promised around 340 million of synergies, structural cost savings. That will be achieved in 2010. Still something to do this year, but we were very, very much on track. We’ll be done by the end of this year. Probably just as important if you look at the quality of the integration process, the footprint rationalization particularly in Europe of the whole supply chain is a very advanced change – a very advanced stage and even more important, if you look at the key people that we wanted to retain, it’s close to 95% of the retention of key people compared to the moment that we started.

Now, further, there was another piece of work as a consequence of the ICI integration, which was the divestment of bits [ph] of National Starch and as you have seen in the second quarter we successfully signed a deal with CPI. They will acquire the last element of National Starch. We expect that deal to close in the second part of the year. Another tick in the box.

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