Keith Nichols, CFO September, 2008 Credit Investor Meetings
Safe Harbor Statement This presentation 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 forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, changes in the final purchase price allocation for ICI, 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. Credit Investor Meetings - September 2008 2
Agenda AkzoNobel history and business today 4 Financial results 11 Business line overviews 17 Financing strategy 35 Appendix 40 Credit Investor Meetings - September 2008
AkzoNobel history and business today Credit Investor Meetings - September 2008 4
History of AkzoNobel AkzoNobel s history goes back to 1777. Through the years, innovative individuals, mergers between companies and outstanding growth has formed what today is one of the world s most successful industrial companies Key dates in AkzoNobel recent history: 1994 - Akzo and Nobel Industries merge to form AkzoNobel 1998 - AkzoNobel acquires UK company Courtaulds 1999 AkzoNobel divests 79% of Acordis 2007 - AkzoNobel sells Organon BioSciences NV to Schering-Plough Corporation 2008 - AkzoNobel acquires Imperial Chemical Industries PLC (ICI) 2008 - Sale of ICI s adhesives business to Henkel AG Credit Investor Meetings - September 2008 5
The new AkzoNobel key facts Pro forma 2007* Revenue 14.4 billion Around 60,000 employees EBITDA: 1.9 billion EBIT: 1.4 billion Net income: 0.9 billion Pension under funding 1.5 billion *Before incidentals and fair value adjustments Revenue by segment Decorative Paints Specialty Chemicals Performance Coatings 32% 31% 37% Credit Investor Meetings - September 2008 6
Diversified brand portfolio Decorative Paints Specialty Chemicals Performance Coatings Credit Investor Meetings - September 2008 7
Geographical diversified revenues 21% North America (incl. 7% US Deco) 49% Europe (incl. 7% Emerging Europe) 19% Asia Pacific 8% Latin America 3% Other regions Emerging market revenues are 35% of total revenue *Pro forma 2007 Credit Investor Meetings - September 2008 8
2008 and beyond: actions and targets Well on track to capture 340mln of synergies from the ICI acquisition. 55% by 2009 85% by 2010 Completed by 2011 Done: On-sale to Henkel completed Closed former ICI HQ Integrated ICI financial reporting and consolidation flows Management structures in place In progress / on going: Delivery of remaining ICI related synergies Margin management Maximize leadership and scale Roll out Brand program => Outgrow our markets => EBITDA margin to rank in upper half of our peer group Credit Investor Meetings - September 2008 9
Peer Group EBITDA Performance Peer Group EBITDA Margins 2007 Begin 2008 August 2008 2009 DuPont 19.5 % 19.0 % 18.3 % 18.7 % Hercules Inc. 18.3 % 19.1 % 17.6 % 19.4 % BASF AG 17.7 % 17.3 % 17.2 % 16.7 % PPG Industries Inc. 14.7 % 15.2 % 13.6 % 15.1 % Sherwin- Williams Co. 14.3 % 14.3 % 11.9 % 14.0 % Dow Chemical Co. 13.7 % 12.6 % 10.4 % 12.2 % Kansai Paint Co.Ltd. 12.7 % 12.9 % 12.6 % 13.2 % RPM International; Inc. 12.7 % 12.7 % 11.0 % 12.4 % Kemira Group 12.4 % 10.9 % 9.9 % 11.6 % CIBA 12.1 % 13.7 % 11.7 % 14.1 % Valspar Corp. 11.7 % 11.4 % 11.7 % 11.6 % Arkema Sa 8.8 % 9.7 % 9.9 % 10.6 % Average 14.1 % 14.1 % 13.0 % Median 13.2 % 13.3 % 11.8 % AkzoNobel (1) 12.9 % 13.1 % 12.1 % 14.1 % 13.6 % (1) Sources from IBES Estimates and Capital IQ. Ranked by 2007 EBITDA Credit Investor Meetings - September 2008 10
Financials Credit Investor Meetings - September 2008 11
Financial summary key figures In millions 1H08 1H07 Δ% pro forma FY2007 pro forma Revenue 7,376 7,277 1 14,442 Cost of sales (4,634) (4,492) (3) (9,050) Gross profit 2,742 2,785 (2) 5,392 EBITDA* 924 945 (2) 1,870 EBITDA margin* (in %) 12.5 13.0 12.9 EBIT 405 523 924 Profit before tax 348 475 869 Profit for the period from continuing operations 237 341 622 * Before incidentals Credit Investor Meetings - September 2008 12
Resilient performance in 1H08 Credit Investor Meetings - September 2008 13
1H08: Strong autonomous revenue growth % Total Volume Price Currency Acq./div. Decorative Paints (4) 1 (6) 1 Performance Coatings 2 3 (7) 2 Specialty Chemicals 6 5 7 (6) AkzoNobel 1 3 4 (7) 1 Versus H1, 2007 pro-forma Revenue EBITDA before incidentals 4,200 3,800 3,400 In millions 3,486 3,791 3,715 3,450 3,506 3,870 4,136 Constant currencies 800 600 400 200 In millions 542 403 517 408 398 526 568 Constant currencies 3,000 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 0 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 Credit Investor Meetings - September 2008 14
Managing raw material costs Group Dealing with suppliers: - Purchasing power from our size - Centralized procurement for key raw materials - Differentiated supplier base Passing on price increases: - Leading market positions Number one coatings company by revenue - Product positioning that supports pass on of price increases Value added rather than commodity products Leading brands Credit Investor Meetings - September 2008 15
Outlook 2008 EBITDA estimated to end up close to FY2007 in constant currencies Credit Investor Meetings - September 2008 16
Business line overviews and results Credit Investor Meetings - September 2008 17
Coatings an attractive industry Credit Investor Meetings - September 2008 18
Coatings an attractive industry with strong growth potential Industry characteristics: - Strong and stable cash flow generation - Low cyclicality - Low capital intensity Industry consolidation: - Clear signs of consolidation in mature markets - Emerging markets still highly fragmented High growth potential increased exposure to emerging markets Credit Investor Meetings - September 2008 19
Stable margins through the cycle 15.0% Coatings industry average LTM EBITDA margins (1) 14.0% 13.0% 12.0% 2002 2003 2004 2005 2006 2007 2008 (1) Average LTM EBITDA Margins sourced from Capital IQ. Companies included: DuPont, Kansai Paint, PPG, RPM International, Sherwin- Willliams and Valspar Credit Investor Meetings - September 2008 20
World leader in Coatings Credit Investor Meetings - September 2008 21
Strong growth potential (1) Spent per annum Credit Investor Meetings - September 2008 22
Decorative Paints Credit Investor Meetings - September 2008 23
Decorative Paints around the world Revenue by origin 57% Europe 31% Americas (US 16%) 12% Asia Pacific Source: Actual 1H 08 Credit Investor Meetings - September 2008 24
Decorative Paints: geographical spread allows for stable margins Underlying growth and acquisitions contributed 2 percent to revenue Continued double-digit autonomous growth in Asia and Latin America Revenue in Europe in constant currencies was ahead of 2007, US and UK revenue down in local currencies Leading brands and market positions (in 15 countries # 1 and in 18 countries # 2 or 3) protect margins Stable EBITDA margin Credit Investor Meetings - September 2008 25
Decorative Paints In millions Revenue 1H08 1H07 pro forma Δ% FY2007 pro forma Decorative Paints Europe Decorative Paints Americas Decorative Paints Asia Intragroup revenue / other 1,474 786 318 (1) 1,494 897 299 (2) (1) (12) 6 2,869 1,768 669 (3) Total Before incidentals 2,577 2,688 (4) 5,303 EBITDA 297 303 (2) 630 EBITDA margin (in %) 11.5 11.3 11.9 Revenue EBITDA before incidentals 1,800 1,600 1,400 1,200 1,000 In millions 1,215 1,473 1,412 1,203 1,165 1,412 1,497 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 300 250 200 150 100 50 0 In millions 99 204 201 126 102 195 204 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 Credit Investor Meetings - September 2008 26
Performance Coatings Credit Investor Meetings - September 2008 27
Leading positions in Performance Coatings, technology driven leadership Industrial Activities: wood, coil, powder and plastic coatings. Contributes to a highly diversified range of end products Marine & Protective Coatings: marine, protective, aerospace and yacht coatings. Value-added proposition to customers is amongst others saving energy Car Refinishes: leading presence in the maintenance and repair segment of the automotive market Packaging Coatings: beverage and food. Attractive business that services distinct and different end markets Credit Investor Meetings - September 2008 28
1H08 Performance Coatings: EBITDA margin up at 12.7 percent A strong half overall EBITDA margin increased to 12.7 percent Excellent half for Marine & Protective Coatings Solid results at Car Refinishes and Powder Coatings Industrial Finishes continues to be affected by weak US market conditions Credit Investor Meetings - September 2008 29
Performance Coatings In millions Revenue 1H08 1H07 pro forma Δ% FY2007 pro forma Industrial Activities Marine & Protective Coatings Car Refinishes Packaging Coatings 999 662 455 174 1,007 632 467 174 (1) 5 (3) 2,032 1,251 910 340 Intragroup revenue/other (19) (20) (36) Total Before incidentals 2,271 2,260 4,497 EBITDA 288 284 1 566 EBITDA margin (in %) 12.7 12.6 12.6 Revenue EBITDA before incidentals 1,400 1,200 1,000 800 600 In millions 1,099 1,161 1,139 1,098 1,096 1,175 1,258 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 250 200 150 100 50 0 In millions 134 150 145 137 127 161 171 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 Credit Investor Meetings - September 2008 30
Specialty Chemicals Credit Investor Meetings - September 2008 31
Leading positions in specialty chemicals markets and differentiation of end markets Functional Chemicals - leading positions in 3 market sectors. Products contribute to a wide range of end products. Pulp & Paper #1 worldwide in wet chlorine bleaching. On site supplier service at larger plants Base Chemicals #1 globally in MCA regional N/W Europe leadership in chlorine alkali business Surface Chemistry good progress in turning around. Value added products for attractive end markets Polymer Chemicals #1 globally in organic peroxides and metal alkyls Credit Investor Meetings - September 2008 32
Specialty Chemicals In millions Revenue 1H08 1H07 Functional Chemicals 562 531 6 1,057 Pulp & Paper Chemicals Base Chemicals Surface Chemistry Chemicals Pakistan 278 238 17 504 Polymer Chemicals 271 268 1 524 Intragroup revenue / other (67) (70) (138) Total Before incidentals EBITDA EBITDA margin (in %) Revenue 1,500 1,250 1,000 750 500 250 0 In millions 1,137 1,147 1,157 1,146 1,199 1,219 495 467 412 2,418 1,309 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08 400 16.5 492 435 390 2,284 400 17.5 Δ% EBITDA before incidentals 300 200 100 0 pro forma In millions 202 198 208 178 Credit Investor Meetings - September 2008 33 1 7 6 6 205 195 FY2007 pro forma 993 877 770 4,587 786 17.1 217 Constant currencies Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q2 08
1H08 Specialty Chemicals: securing topline growth Stable performance 12 percent underlying growth driven by significant price increases (7 percent) and higher volumes (5 percent) Higher raw materials and energy prices led to a lower EBITDA margin of 16.5 percent EBITDA, in constant currencies, up 10 percent Strong results at Surface Chemistry and Polymer Chemicals Weaker demand experienced in Pulp & Paper Chemicals Credit Investor Meetings - September 2008 34
Overview of financing strategy Credit Investor Meetings - September 2008 35
Debt profile AkzoNobel has significant liquidity headroom available Current debt profile 1200 900 600 In million (equiv.) DEM Bonds EUR Bonds USD Bonds Note: all USD bonds were originally from ICI 300 0 2008 2009 2010 2011 2012 2013 2014 $1 billion and 1.5 billion CP program backed up by 1.5 billion RCF maturing 2013 (all undrawn) 2.7 billion of cash and cash equivalents as at 1H 2008 2.9 billion (equiv.) of public bonds currently outstanding, with 852 million (equiv.) maturing by the end of 2008 Note: EUR equivalent amounts of bonds outstanding are based on exchange rates as of 29th August 2008 Credit Investor Meetings - September 2008 36
Solid credit profile AkzoNobel Rating A3 by Moody s and A- by S&P, both with negative outlook AkzoNobel is committed to maintain a strong investment grade rating through the cycle Rating agency ratios in line with A3 / A- guidance are monitored 1) Business profile is exceptionally strong - Transformational portfolio changes completed - Largest coatings company - Reduced capital intensity - Geographical revenue diversification - Product line diversification - Leading brands in Decorative Paints - Technology driven niche market positioning in Specialty Chemicals and Performance Coatings Credit Investor Meetings - September 2008 37
Solid credit profile 2) Conservative financial strategy in place - Directed towards conservative funding structure - Significant liquidity headroom 3) Board of Management commitment to financial strategy - Acquisition of ICI and share buy back program was funded from divestments, not incremental gross debt - Pro-active management of pension deficit - Commitment to optimize AkzoNobel s working capital 4) Business cash flow generation is strong and stable - Low cyclicality of end markets - Economies of scale supporting procurement - Well positioned to pass on price increases Credit Investor Meetings - September 2008 38
Questions? Credit Investor Meetings - September 2008 39
Appendix Credit Investor Meetings - September 2008 40
US decorative market Largest (25%) and most attractive coatings market worldwide Under pressure since mid-2006 New build estimated 22% of decorative market new construction - non residential new construction - residential maintenance/ repair commercial and institutional residential 78% 54% 12% 10% 46% Credit Investor Meetings - September 2008 41
US Decorative paints at AkzoNobel US Deco paints sales FY 08 estimated at 6% of total company revenues Management action new US Decorative Paints strategy Further restructuring, focus on selected end-user segments Cost reduction and margin improvement while maintaining market share. Credit Investor Meetings - September 2008 42
Resilient margins through the cycle ICI Decorative Paints GBP Billion 3.0 2.5 2.0 1.5 1.0 0.5 0.0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 14 12 10 8 6 4 2 0 % Turnover TP/Sales Akzo Nobel Coatings Billion 7 6 5 4 3 2 1 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 20 15 10 5 0 % Sales EBITDA margin Credit Investor Meetings - September 2008 43