Financial highlights

Q1 2019:

Revenue

Revenue was flat, and up 1% in constant currencies. Price/mix was 6% overall, mainly driven by pricing initiatives. Volumes were 7% lower due to our value over volume strategy, lower volumes in China, and order pattern and lower demand for Automotive and Specialty Coatings. Excluding China, volumes were 5% lower.

• Decorative Paints revenue was up 2% in constant currencies, with positive price/mix of 6%. Pricing initiatives and acquistions offset lower volumes
• Performance Coatings revenue was flat, and 1% lower in constant currencies. Price/mix was 7% positive, driven by pricing initiatives, while volumes were lower, especially for Automotive and Specialty Coatings
• Other revenue includes service revenue related to continued services for the former Specialty Chemicals business

Revenue development Q1 2019

Raw material price development

Raw material inflation continued in Q1 2019, although at a lower rate than in 2018, adding €77 million of additional costs for the quarter. Pricing initiatives and cost-saving programs continue being implemented to deal with these higher raw material costs.

Acquisitions

The impact of acquisitions on revenue was 2% for Decorative Paints and 1% for AkzoNobel overall.

Adjusted operating income

Adjusted operating income was up at €163 million (2018: €149 million, which includes gains on disposals), driven by pricing initiatives and cost-saving programs. Savings from continuous improvement succesfully offset inflation and creating a fit-for-purpose organization delivered €38 million in the quarter. We are on track to deliver €200 million of savings planned for 2020. ROS was up 0.7% at 7.5% (2018: 6.8%).

• Decorative Paints continued to improve. Price/mix effects and cost savings more than compensated for increased raw material costs and lower volumes. ROS was up at 7.1% (2018: 6.6%)
• Performance Coatings improved as a result of pricing initiatives and cost savings more than offsetting higher raw material costs and lower volumes. ROS was up at 10.3% (2018: 10.0%)
• Other activities/eliminations had €6 million lower costs at €35 million (2018: €41 million).

Operating income

Operating income increased to €113 million and included identified items of €50 million, mainly relating to one-off costs for the transformation and non-cash impairments in Performance Coatings, following the implementation of our strategic portfolio review. In 2018, operating income of €108 million was adversely impacted by identified items of €41 million.

Net financing income/(expenses)

Net financing expenses increased by €32 million, mainly due to an interest benefit on a tax settlement in 2018.

Income tax

The effective tax rate was 29.5% (2018: 0.8% negative). Income tax expenses in Q1 2018 were positively impacted by a re-recognition of deferred tax assets and a tax settlement.

Profit from discontinued operations

Profit from discontinued operations was nil. In Q1 2018, the results of the Specialty Chemicals business, divested per October 1, 2018, were included as profit from discontinued operations.

Net income

Net income attributable to shareholders in Q1 2019 was €65 million (2018: €253 million), of which all was attributable to continuing operations. In 2018, €119 million was attributable to continuing operations and €134 million to discontinued operations relating to the divested Specialty Chemicals business. Q1 2018 net income was positively impacted by the before mentioned interest and tax benefits.

Adjusted earnings per share from continuing operations increased to €0.46 (2018: €0.35) due to higher adjusted net income from continung operations of 20% and the lower average number of shares due to the share consolidation and share buyback program.

Adoption IFRS 16 “Leases”

IFRS 16 “Leases” was adopted per January 1, 2019, applying the modified retrospective method. The 2018 comparative figures have not been restated. As a result, right-of-use assets and lease liabilities have been recognized on the balance sheet. In the P&L, the operating lease expenses in operating income have been replaced by depreciation of the right-of-use assets (operating income) and interest on the lease liability (net financing expenses). In the cash flow statement, the payments for operating leases are now recognized in the net cash from financing activities instead of net cash from operating activities. The table below reflects the impact from adoption of IFRS 16 on the Q1 2019 figures.

ROS%, OPI margin, ROS% excl. unallocated costs and ROI% for Q1 2019 include the impact from adoption of IFRS 16. Excluding the impact of IFRS 16, these measures would have been: ROS% 7.4%; OPI margin 5.1%, ROS% excl. unallocated costs 9.0% and ROI% 12.7%. 2018 comparative figures have not been restated.