Note 4: Alternative performance measures

In presenting and discussing AkzoNobel’s (segmental) operating results, management uses certain alternative performance measures not defined by IFRS, which exclude the so-called identified items. 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.

Operating income, adjusted operating income, EBITDA and adjusted EBITDA (and related measures) per segment for 2021 have been updated to reflect changes in the financial reporting structure related to a narrower definition of corporate activities and corporate costs in corporate and other activities.

The tables in this note reconcile the alternative performance measures used in the segment information (Note 3) to the nearest IFRS measure.

Restructuring costs

Restructuring costs primarily relate to costs for accruals for certain employee benefits and for costs which are directly associated with plans to exit or cease specific activities and closing down of facilities.

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. In 2021, a full-year net gain of €64 million was recognized in net income, of which €42 million in Other results (in operating income), €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 allowed the amendment of the scheme documentation of one of the company’s UK pension funds, a past service credit (gain) was recognized in 2021.

APM adjustments to interest

In 2022, interest income of €10 million was recognized related to the UK ACT case, refer to a description of the ACT case below. Adjustments to interest in 2021 included an interest gain of €28 million from the Brazil ICMS case.

APM adjustments to income tax: UK 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 in 2021 and performed a further file review which, taking into account legal advice, resulted in the recognition of a net tax benefit of €29 million in 2021. In 2022, upon finalization of the full assessment, a net tax charge of €13 million was recognized.

APM adjustments to income tax: Other items

In 2022, €19 million of tax benefits related to restructuring costs were recognized (2021: €8 million). The tax benefits have been partly offset by the €13 million net tax charge related to the UK ACT case.

In 2021, a gain of €12 million was included for the (net) re-recognition of deferred tax assets. This gain was partly offset by the income tax (loss) related to the Brazil ICMS case (€14 million) and the impact from tax rate changes (€19 million).

Leverage ratio

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