"2011 was a challenging year against the background of weaker global economic conditions and unprecedented raw material price inflation," said CEO Hans Wijers. "The absolute impact of increased raw material prices for the year was approximately €1 billion. Despite this significant headwind, our reported pricing actions have now offset most of this, and for the year ahead we expect to see the full-year benefit of these increases.
"In addition, to further reduce our cost base and improve our competitiveness, we recently launched a performance improvement program, which is on track," said Wijers. "Our strong fundamentals, geographical spread and commitment to deliver, in combination with the improvement program, give us confidence in the future."
AkzoNobel's performance improvement program, launched in October 2011, is designed to strengthen competitiveness, enhance the company's ability to grow, simplify support structures and significantly reduce its cost base. This implies a significant change in the operating model and business culture. The comprehensive three-year plan—designed to improve performance and deliver €500 million EBITDA in 2014—is expected to deliver €200 million EBITDA in 2012. This implies higher restructuring costs for the coming year. Restructuring activities continue in decorative paints in Europe and the United States.
AkzoNobel's medium-term ambitions are to grow to €20 billion in revenue, increase EBITDA each year while maintaining a 13 to 15 percent margin, reduce OWC percent of revenue year-on-year by 0.5 percent towards a 12 percent level, and pay a stable to rising dividend.
During 2011 AkzoNobel said it faced many challenges, most notably the rapid price increases that affected most of its raw materials and the continuing economic headwinds in many of its major markets.
For the year ahead, the company expects to see the full-year benefit of the price rises that have been achieved so far, and which it says have now offset most of the raw material price increases. Currently, AkzoNobel said it is experiencing greater price stability in most raw materials, with the exception of TiO2, which is to continue to rise in price, and for which plans are in place to pass through further price rises in the future.
The major uncertainty remains the economic environment. The concerns are focused on the risk of recession in Europe, delayed recovery of the United States property market and the potential for a slowdown in China. Each of these can have a significant impact on customers in these regions that would in turn impact AkzoNobel's sales volumes. These, together with certain raw materials, remain the key sensitivities in 2012.