Financial highlights

Revenue

Q4 2019:

Revenue was 3% lower, and 4% lower in constant currencies. Price/mix was up 1% overall. Volumes were 4% lower mainly due to softer end market demand.

• Decorative Paints revenue was 2% lower, with positive price/mix up 2%, more than offset by 4% lower volumes mainly due to softer end market demand
• Performance Coatings revenue was 3% lower and 4% lower in constant currencies. Volumes were 4% lower mainly due to softer end market demand
• Other revenue includes royalty and service revenue related to continued services to the former Specialty Chemicals business

Revenue development Q4 2019

Full-year 2019:

Revenue was flat. Price/mix was up 4% overall, mainly driven by pricing initiatives. Acquistions contributed 1%. Volumes were 5% lower due to our value over volume strategy.

• Decorative Paints revenue was flat, and up 1% in constant currencies, with positive price/mix up 4%. Pricing initiatives and acquisitions more than offset lower volumes due to our value over volume strategy
• Performance Coatings revenue was flat and 1% lower in constant currencies. Price/mix was up 4%, driven by pricing initiatives, while volumes were 5% lower
• Other revenue includes royalty and service revenue related to continued services to the former Specialty Chemicals business

Revenue development 2019

Raw materials

Raw material costs in 2019 were €64 million higher compared with 2018. In Q4 2019 raw material costs were €42 million lower compared with Q4 2018.

Acquisitions

The impact of acquisitions on revenue was 2% for Decorative Paints and 1% for AkzoNobel overall. The acquisition of Mapaero was completed in Q4. The intended acquisition of Mauvilac Industries was announced on December 12, 2019.

Adjusted operating income

Q4 2019:

Adjusted operating income was up at €223 million (2018: €181 million), driven by margin management and cost-saving programs. Continuous improvement initiatives successfully offset inflation, while cost savings resulting from the ongoing transformation delivered €10 million in the quarter. ROS was up 2.1% at 9.9% (2018: 7.8%).

• Decorative Paints continued to improve. Price/mix effects, margin managment and cost savings more than compensated for lower volumes. ROS was up at 9.9% (2018: 5.8%)
• Performance Coatings improved as margin management and cost savings more than offset lower volumes. ROS was up at 11.7% (2018: 10.9%)
• Other activities/eliminations improved €1 million to €23 million (2018: €24 million) and included cost for claims, offset by one-off gains on disposals

Full-year 2019:

Adjusted operating income was up at €991 million (2018: €798 million), driven by pricing initiatives and cost-saving programs. ROS was up 2.1% at 10.7% (2018: 8.6%).

• Decorative Paints continued to improve. Price/mix effects and cost savings more than offset raw material inflation and lower volumes. ROS was up at 11.3% (2018: 9.4%)
• Performance Coatings improved as pricing initiatives and cost savings more than offset higher raw material costs and lower volumes. ROS was up at 12.4% (2018: 11.3%)
• Other activities/eliminations improved €62 million to €115 million (2018: €177 million), mainly due to lower costs and one-off gains on disposals

Operating income

Q4 2019:

Operating income increased to €173 million (2018: €68 million) and included negative identified items of €50 million, mainly related to transformation costs and non-cash impairments, following the implementation of our strategic portfolio review (2018: €113 million negative identified items, mainly related to transformation costs (€56 million) and one-off pension costs (€57 million). OPI margin improved to 7.7% (2018: 2.9%)

Full-year 2019:

Operating income was up 39% at €841 million, and includes €150 million negative impact from identified items, mainly related to transformation costs and non-cash impairments partly offset by a gain on disposal of €54 million following asset network optimization (2018: €605 million, including €193 million negative impact from identified items). OPI margin improved to 9.1% (2018: 6.5%)

Net financing income/(expenses)

Net financing expenses increased by €24 million to €76 million, mainly due to an interest benefit on a tax settlement in 2018 and the inclusion in 2019 of interest on lease liabilities, following adoption of IFRS 16 per January 1, 2019.

Income tax

The 2019 effective tax rate was 29% (2018: 21%). Excluding identified items the effective tax rate in 2019 was 25%. The 2018 income tax expenses were positively impacted by a net re-recognition of deferred tax assets and a tax settlement.

Profit from discontinued operations

Profit from discontinued operations was €22 million. In 2018, the profit after tax on the sale of the Specialty Chemicals business (€5.8 billion) was included as profit from discontinued operations.

Net income

Net income attributable to shareholders was €539 million, of which €22 million was attributable to discontinued operations. In 2018 net income attributable to shareholders was €6,674 million, of which €6,264 million was attributable to discontinued operations and related to the divested Specialty Chemicals business. Adjusted earnings per share from continuing operations increased to €3.10 (2018: €1.91), including the impact of 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 liabilities (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. Further details are provided in Notes to the condensed financial statements.