Note 4: Alternative performance measures

In presenting and discussing AkzoNobel’s segmental operating results, management uses certain not defined by IFRS, which exclude the so-called . ldentified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges, and charges and benefits related to major legal, environmental and tax cases. These alternative performance measures should not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used as supplementary information in conjunction with the most directly comparable IFRS measures. Alternative performance measures do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Where a non-financial measure is used to calculate an operational or statistical ratio, this is also considered an alternative performance measure. The following tables reconcile the alternative performance measures used in the segment information (Note 3) to the nearest IFRS measure.

Alternative performance measures

 

2020

2021

In € millions

Continuing operations

Discontinued operations

Total

Continuing operations

Discontinued operations

Total

Operating income

963

963

1,118

1,118

 

 

 

 

 

 

 

APM adjustments to operating income

 

 

 

 

 

 

- Transformation costs

121

121

28

28

- Brazil ICMS case

(42)

(42)

- UK pensions past service credit

(23)

(23)

- Acquisition related costs

4

4

11

11

- Other

11

11

Total APM adjustments (identified items) to operating income

136

136

(26)

(26)

 

 

 

 

 

 

 

Adjusted operating income

1,099

1,099

1,092

1,092

 

 

 

 

 

 

 

Profit for the period attributable to shareholders of the company

637

(7)

630

823

6

829

 

 

 

 

 

 

 

Adjustments to operating income

136

136

(26)

(26)

Adjustments to interest

(3)

(3)

(29)

(29)

Adjustments to income tax

(28)

(28)

(15)

(15)

Adjustments to discontinued operations

(8)

(8)

Total APM adjustments

105

105

(70)

(8)

(78)

 

 

 

 

 

 

 

Adjusted profit for the period attributable to shareholders of the company

742

(7)

735

753

(2)

751

Transformation costs

Transformation costs include costs related to the strategy to create a focused high-performing Paints and Coatings business and primarily relate to costs for restructuring activities.

Brazil ICMS case

In May 2021, the Brazilian Supreme Court (STF) recognized the right to deduct state tax on goods and services (ICMS) from the calculation basis of the Social Integration Program-PIS (Programa de Integração Social) and the Financing of Social Security-COFINS (Contribuição para Financiamento da Seguridade Social). This STF decision covers a multi-year period prior to 2018. As a result, a full-year net gain of €64 million was recognized in net income, of which €42 million in Other results (in ), €28 million in interest income, €14 million in income tax (loss) and (net) €8 million in discontinued operations.

UK pensions past service credit

Following a court decision in April 2021, which allows the amendment of the scheme documentation of one of the company’s UK pension funds, a past service credit (gain) was recognized.

APM adjustments to interest

Adjustments on interest includes an interest gain of €28 million from the Brazil ICMS case.

APM adjustments to income tax
UK ACT case

APM adjustments to income tax include a €29 million net tax benefit for the UK Advanced Corporation Tax (ACT) case. In July 2021 the UK Supreme Court issued a further decision in a group litigation case the company participates in (“Franked Investment Income”; filed in 2003). The company assessed the consequences of this judgement and performed a further file review which, taking into account legal advice, resulted in the recognition of a net tax benefit of €29 million.

APM adjustments to income tax
Other items

Furthermore, APM adjustments to income tax include a gain of €12 million for the (net) re-recognition of deferred tax assets, as well as €8 million of tax benefits related to transformation costs. These gains were partly offset by the income tax (loss) related to the Brazil ICMS case (€14 million) and the impact from tax rate changes (€19 million).

Adjusted operating income, OPI margin and ROS%

In € millions

2020

2021

Revenue from third parties

 

 

Decorative Paints

3,558

3,979

Performance Coatings

4,957

5,603

Other

15

5

Total

8,530

9,587

 

 

 

Operating income

 

 

Decorative Paints

551

640

Performance Coatings

665

650

Other

(253)

(172)

Total

963

1,118

 

 

 

Total APM adjustments (identified items)1

 

 

Decorative Paints

(22)

42

Performance Coatings

(35)

2

Other

(79)

(18)

Total

(136)

26

 

 

 

Adjusted operating income2

 

 

Decorative Paints

573

598

Performance Coatings

700

648

Other

(174)

(154)

Total

1,099

1,092

 

 

 

OPI margin%3

 

 

Decorative Paints

15.5

16.1

Performance Coatings

13.4

11.6

Other5

 

 

Total

11.3

11.7

 

 

 

ROS%4

 

 

Decorative Paints

16.1

15.0

Performance Coatings

14.1

11.6

Other5

 

 

Total

12.9

11.4

1

Adjustments for identified items to the extent these are included in operating income.

2

Adjusted operating income is operating income excluding identified items.

3

OPI margin is calculated as operating income as a percentage of revenues from third parties.

4

ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of revenues from third parties.

5

OPI margin and ROS% for Other activities/eliminations is not shown, as this is not meaningful.

EBITDA*

 

2020

2021

In € millions

Operating
income

Depreciation and amortization

EBITDA

Operating
income

Depreciation and amortization

EBITDA

Decorative Paints

551

(153)

704

640

(154)

794

Performance Coatings

665

(159)

824

650

(160)

810

Other

(253)

(49)

(204)

(172)

(37)

(135)

Total

963

(361)

1,324

1,118

(351)

1,469

*

EBITDA is operating income excluding depreciation and amortization.

Adjusted EBITDA*

 

2020

2021

In € millions

Adjusted operating
income

Depreciation and amortization excluding identified items

Adjusted EBITDA

Adjusted operating
income

Depreciation and amortization excluding identified items

Adjusted EBITDA

Decorative Paints

573

(141)

714

598

(147)

745

Performance Coatings

700

(154)

854

648

(159)

807

Other

(174)

(48)

(126)

(154)

(38)

(116)

Total

1,099

(343)

1,442

1,092

(344)

1,436

*

Adjusted EBITDA is operating income excluding depreciation, amortization and identified items.

Adjusted earnings per share

In € millions

2020

2021

Profit for the period attributable to shareholders of the company from continuing operations

637

823

APM adjustments to operating income

136

(26)

APM adjustments to interest

(3)

(29)

APM adjustments to income tax

(28)

(15)

Adjusted profit from continuing operations attributable to shareholders of the company*

742

753

Weighted average number of shares (in millions)

191.4

185.0

Earnings per share from continuing operations (in €)

3.33

4.45

Adjusted earnings per share from continuing operations (in €)

3.88

4.07

*

For the reconciliation to IFRS measures please refer to the first table in this Note.

ROI%

In € millions

2020

2021

Average invested capital

 

 

Decorative Paints

2,799

2,872

Performance Coatings

3,388

3,520

Other

647

437

Total

6,834

6,829

 

 

 

Adjusted operating income1

 

 

Decorative Paints

573

598

Performance Coatings

700

648

Other

(174)

(154)

Total

1,099

1,092

 

 

 

ROI%2

 

 

Decorative Paints

20.5

20.8

Performance Coatings

20.7

18.4

Other3

 

 

Total

16.1

16.0

1

For reconciliation to IFRS measures please refer to the first table in this Note.

2

ROI% is calculated as adjusted operating income (operating income excluding identified items) of the last 12 months as a percentage of average invested capital of the last 12 months. Invested capital is calculated as total assets (excluding cash and cash equivalents, short-term investments, investments in associates, the receivable from pension funds in an asset position and assets held for sale) less current tax liabilities, deferred tax liabilities and trade and other payables.

3

ROI% for Other activities/eliminations is not shown, as this is not meaningful.

is calculated as /. For the calculation of net debt, refer to Note 21. Leverage ratio is included in Note 27 in the paragraph on capital risk management.

Alternative performance measures (APM)

AkzoNobel uses APM adjustments to the IFRS measures to provide supplementary information on the reporting of the underlying developments of the business. APM include, but are not limited to, adjusted operating income, (adjusted) EBITDA, adjusted earnings per share, ROS and ROI.

Identified items

Identified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges and charges related to major legal, environmental and tax cases.

Operating income

Operating income is defined in accordance with IFRS and includes the relevant identified items. Adjusted operating income excludes identified items.

Leverage ratio

Calculated as net debt divided by EBITDA, which is calculated as the total of the last 12 months.

Net debt

Defined as long-term borrowings plus short-term borrowings less cash, cash equivalents and short-term investments.

EBITDA

Operating income excluding depreciation and amortization.