Akzo Nobel N : Q1 2021 Quarterly Report

Q1

Polar Pod partnership to push boundaries of scientific exploration

A pioneering expedition, which will send a manned oceanographic platform drifting around Antarctica, has brought AkzoNobel on board as exclusive paints and coatings partner. The Polar Pod will enable scientists and researchers to study the Antarctic Circumpolar Current, which has a major influence on the Earth's climate. AkzoNobel will support the 1,000-ton platform for the next five years, from project construction through to the completion of its three-year mission, which is expected to start in December 2023.

AkzoNobel  I  Report for the first quarter 2021 2

Our results at a glance

Highlights Q1 2021

•	Revenue up 10% and 16% higher in constant currencies with strong growth in Asia
•	ROS1 increased to 13.6% (Q1 2020: 10.4%)
•	€300 million share buyback completed on April 16, 2021; €1 billion share buyback starts April 27, 2021
•	Acquisition of Titan Paints in Spain completed in March 2021

Q1 2021 (compared with Q1 2020)

•	Revenue up 10% and 16% higher in constant currencies, with volumes up 16% and price up 2%, mainly due to strong end market
	demand. Compared with Q1 20192, revenue was up 10% in constant currencies
•	Operating income up 62% at €303 million (2020: €187 million); OPI margin improved to 13.4% (2020: 9.1%)
•	Adjusted operating income up 43% at €307 million (2020: €214 million) and excludes €4 million negative impact from identified
	items, mainly related to transformation initiatives (2020: €27 million negative identified items related to transformation initiatives)
•	Net cash from operating activities improved by €129 million to an outflow of €31 million (2020: outflow of €160 million)
•	Net income from total operations up 90% at €217 million (2020: €114 million)
•	EPS from total operations up 95% at €1.15 (2020: €0.59); adjusted EPS from continuing operations up 66% at €1.18 (2020: €0.71)
	1 ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.
	2 Q1 2019 comparatives are included in this report to allow for proper comparison in light of the COVID-19 impact in 2020.

Outlook 2021

AkzoNobel targets to grow at least in line with its relevant markets. Trends differ per region and segment with raw material disruption and inflation expected, especially in Q2 and Q3. Margin management and cost discipline are in place to deliver 50 basis points increase in return on sales. The company targets a leverage ratio of 1-2 times net debt/EBITDA and commits to retain a strong investment grade credit rating.

Alternative performance measures (APM)

Summary of financial outcomes

First quarter
in € millions / %		2020		2021		∆%
Revenue	2,058	2,263	10%
EBITDA¹	277	388	40%
Adjusted EBITDA¹	302	391	29%
Operating income	187	303	62%
Identified items¹	(27)	(4)
Adjusted operating income¹	214	307	43%
OPI margin (%)¹	9.1	13.4
ROS (%)¹,²	10.4	13.6
Average invested capital¹	7,071	6,726
ROI (%)¹	14.7	17.7
Capital expenditures	46	57	24%
Net debt	1,496	1,408
Leverage ratio (net debt/EBITDA)¹	1.2	1.0
Number of employees		33,500		32,700
Net cash from operating activities	(160)	(31)
Net income attributable to shareholders	114	217	90%
Weighted average number of shares	194.0	188.8
Earnings per share from total operations (in €)	0.59	1.15	95%
Adjusted earnings per share from continuing operations (in €)¹	0.71	1.18	66%

• Alternative performance measures; please refer to reconciliation to the most directly comparable IFRS measures on pages 12 and 13.

• ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.

AkzoNobel uses APM adjustments to the IFRS measures to provide supplementary information on the reporting of the underlying developments of the business. A reconciliation of the alternative performance measures to the most directly comparable IFRS measures can be found in the tables on pages 12 and 13.

AkzoNobel  I  Report for the first quarter 2021 3

Financial highlights

Revenue

Q1 2021

Revenue was up 10% and 16% higher in constant currencies (com- pared with Q1 2019: up 10% in constant currencies) due to strong end market demand. Volumes were up 16%. Price was up 2% while price/ mix was 1% lower overall due to geographic and segment mix.

• Decorative Paints revenue increased 23% and was up 31% in constant currencies, driven by 28% higher volumes, mainly due to continued strong demand. Price was up 4% while mix was 3% lower due to geographic mix. Acquisitions added 2%
• Performance Coatings revenue was up 3% and increased 8% in constant currencies. Revenue was positively impacted by 10% higher volumes. Price was up 1% while mix was 3% lower due to geographic and segment mix
• Other activities revenue mainly includes service revenue

Cost of sales

Raw material and other variable costs in the first quarter of 2021 increased €38 million, in addition to the impact of higher volumes, compared with the first quarter of 2020. The increase was mainly driven by raw material inflation and mix.

Acquisitions

In March 2021, the acquisition of Titan Paints in Spain was completed.

Revenue development Q1 2021
Increase	Decrease
20	16%		-1%	1%	16%	-6%
15
						10%
10			Price: 2%
5			Mix: -3%
0
-5	Volume	Price/	Acq./	Total	Exch.	Total
			mix	div.	in CC	rates

Revenue

First quarter
																						∆%
in € millions									2020		2021		∆%		CC*
Decorative Paints								754		930	23%	31%
Performance Coatings								1,295		1,332	3%	8%
Other activities								9		1
Total								2,058		2,263	10%	16%
* Change excluding currency impact.
								Price/			Acq./	Exchange
in % versus Q1 2020			Volume				mix				div.		rates		Total
Decorative Paints			28			1			2				(8)			23
Performance Coatings	10		(2)					-			(5)			3
Total	16		(1)			1				(6)			10
Volume development per quarter
(year-on-year) in %		Q1 20			Q2 20				Q3 20		Q4 20			Q1 21
Decorative Paints	(9)	(10)		14			12			28
Performance Coatings	(7)	(23)		(5)			1			10
Total	(7)	(18)		3			6			16

AkzoNobel around the world					Paint the Future leads to investment in application technology from Qlayers
				We've invested in pioneering coatings application technology from Qlayers - one of the winners in our 2019
Revenue by destination
				Paint the Future startup challenge. Their innovative industrial system offers a fully automated solution that
					is safer, more consistent and faster than the manual coating processes currently being used. By eliminating
	%				overspray, it's a sustainable solution that also saves costs.
			E
A North Asia	18		A
D
B South Asia Pacific	11
C EMEA	51			B
D North America	13
E South America	7
	100

C (Based on the full-year 2020)

Price/mix development per
quarter (year-on-year) in %		Q1 20		Q2 20		Q3 20		Q4 20		Q1 21
Decorative Paints		1		4		(4)		2		1
Performance Coatings	3		-	1		-	(2)
Total	2	2		(1)	1		(1)
Currency development per quarter
(year-on-year) in %		Q1 20		Q2 20		Q3 20		Q4 20		Q1 21
Decorative Paints	(2)	(4)		(7)	(10)		(8)
Performance Coatings	-	(1)		(5)	(5)		(5)
Total	(1)	(2)		(6)	(7)		(6)

AkzoNobel  I  Report for the first quarter 2021 4

Financial highlights

Q1 2021

Operating income

Operating income increased 62% to €303 million (2020: €187 million), driven by significant volume increases and cost discipline. OPI margin improved to 13.4% (2020: 9.1%).

• Decorative Paints performance improved due to strong demand across all regions, with volumes up 28% compared with Q1 2020. ROS was up at 15.9% (2020: 8.5%)
• Performance Coatings operating income increased, mainly due to volume increases of 10%. ROS remained 14.7% (2020: 14.7%)
• Other activities improved €15 million to €38 million negative (2020: €53 million negative), mainly resulting from lower negative identified items

Adjusted operating income

Adjusted operating income was 43% higher at €307 million (2020: €214 million) and excludes identified items of €4 million negative, mainly related to transformation initiatives (2020: €27 million negative identified items relating to transformation initiatives). ROS1 was up at 13.6% (2020: 10.4%).

Net financing income/(expenses)

Net financing expenses decreased to €8 million (2020: €13 million), mainly due to lower interest on provisions.

Income tax

The effective tax rate was 24.2% (2020: 29.8%, which included several non-recurring items). Excluding identified items, the effective tax rate in Q1 2021 was 24.2% (2020: 28.4%).

Net income

Net income attributable to shareholders was €217 million (2020: €114 million). Earnings per share from total operations increased to €1.15 (2020: €0.59). Adjusted earnings per share from continuing operations increased to €1.18 (2020: €0.71), including the impact of the share buyback programs.

1 ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.

DIY made simple thanks to new Dulux range

With the UK firmly bitten by the DIY bug, we recently launched our new Dulux Simply Refresh range, which refreshes walls in a single coat. It's available in two carefully curated color collections - One Coat and Feature Wall - for both neutral and bold palettes. As well as removing the hassle from decorating, the new products will also help to save valuable time.

Operating income

First quarter

in € millions		2020		2021		∆%
Decorative Paints	58		147	153%
Performance Coatings	182		194	7%
Other activities	(53)		(38)
Total	187		303	62%

Adjusted operating income

First quarter

in € millions		2020		2021		∆%
Decorative Paints	64		148	131%
Performance Coatings		190		196		3%
Other activities	(40)		(37)
Total	214		307	43%

ROS¹

First quarter

in %		2020			2021
Decorative Paints	8.5		15.9
Performance Coatings	14.7		14.7
Other activities²
Total	10.4		13.6

• ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.

² ROS for Other activities is not shown, as this is not meaningful.

Operating income to net income

First quarter

in € millions		2020		2021
Operating income	187		303
Net financing income/(expenses)	(13)		(8)
Results from associates and joint ventures	7		7
Profit before tax	181		302
Income tax	(54)		(73)
Profit from continuing operations	127		229
Profit/(loss) from discontinued operations	(1)		(2)
Profit for the period	126		227
Non-controlling interests	(12)		(10)
Net income	114		217

AkzoNobel  I  Report for the first quarter 2021 5

Decorative Paints

Highlights Q1 2021

•	Revenue up 23% and increased 31% in constant currencies, driven by strong demand across all regions
•	ROS up at 15.9% (2020: 8.5%)

Q1 2021

•	Revenue up 23% and increased 31% in constant currencies (compared with Q1 2019: up 20% in constant currencies);
	volumes up 28%. Price up 4% and price/mix 1% higher overall. Acquisitions added 2%
•	Operating income improved to €147 million (2020: €58 million) driven by volume growth and continued focus on cost control
•	Adjusted operating income increased to €148 million (2020: €64 million)

Q1 2021

Revenue was up across all regions. Volumes were up 28%, while acqui-	South America
sitions added 2%. Price was up 4% while mix was 3% lower due to	Revenue in Q1 was up 14% and 56% higher in constant currencies
geographic mix.	(compared with Q1 2019: up 62% in constant currencies), mainly driven
	by significant volume increases due to strong demand. Strong perfor-
Operating income increased to €147 million (2020: €58 million), driven	mance was driven by pricing initiatives and volume growth, offset by
by volume growth and continued focus on cost control.	currency impact driven by the Brazilian real and Argentinian peso.

Adjusted operating income increased to €148 million (2020: €64 million),	Asia
and excludes identified items of €1 million negative. In 2020, adjusted	Revenue in Q1 was up 33% and increased 41% in constant currencies
operating income of €64 million excluded identified items of €6 million	(compared with Q1 2019: up 4% in constant currencies). In 2020, rev-
negative related to transformation initiatives. ROS was up at 15.9%	enues were impacted by lower demand due to COVID-19, particularly
(2020: 8.5%).	in China. Compared with the previous quarter, volumes continued to
	recover in South East Asia, driven by India, Malaysia and Pakistan.
Europe, Middle East and Africa
Revenue in Q1 was up 21% and 24% higher in constant currencies
(compared with Q1 2019: up 22% in constant currencies), due to con-
tinued strong demand, especially in the DIY segment.

Revenue

First quarter

									∆%
in € millions		2020			2021		∆%		CC*
Decorative Paints Europe, Middle East and Africa	491		596	21%	24%
Decorative Paints South America	85		97	14%	56%
Decorative Paints Asia	178		237	33%	41%
Total	754		930	23%	31%
* Change excluding currency impact.

Revenue development Q1 2021

Increase Decrease
35			2%	31%	-8%
30	28%	1%
25						23%
20		Price: 4%
15		Mix: -3%
10
5
0
	Volume	Price/	Acq./	Total	Exch.	Total
		mix	div.	in CC	rates

Key financial figures

First quarter

in € millions / %		2020		2021		∆%
Operating income	58	147	153%
Identified items*	(6)	(1)
Adjusted operating income*	64	148	131%
OPI margin (%)*	7.7	15.8
ROS (%)*	8.5	15.9
Average invested capital*	2,993	2,776
ROI (%)*	14.1	23.7

• Alternative performance measures; please refer to reconciliation to the most directly comparable IFRS measures on pages 12 and 13.