AkzoNobel, the world’s largest paint and coatings maker, ended a tough fiscal year on a stunning low note Thursday (Feb. 16), reporting a 37 percent plunge in its 2011 net profit and an $89 million loss in the fourth quarter.
Hammered by more than $1 billion in raw-material price hikes, the European economic crisis, construction slowdowns in China and other issues, the Dutch coatings maker reported a fourth-quarter net loss of €68 million, compared to a profit of €162 million in the same quarter of 2010.
|CEO Hans Wijers expressed confidence in the future, but has already announced his retirement in April.|
In its fourth-quarter and 2011 earnings report, AkzoNobel reported €469 million (about $614.7 million US) in 2011 net income from continuing operations—a drop of nearly 30 percent from the comparable full-year 2010 figure of €664 million (about $870 million US).
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) declined 9 percent in 2011 from 2010; fourth-quarter EBITDA plummeted by 20 percent.
Full-year 2011 sales revenues rose 7 percent to nearly €15.7 billion from €14.6 billion in 2010, but the gains were built almost entirely on widespread price increases AkzoNobel imposed to absorb the shock of a €1 billion ($1.3 billion US) increase in raw material costs, the company said.
Hardest hit was the company’s Decorative Paints segment, which supplies paints to Wal-Mart and includes AkzoNobel’s well-known Dulux and Sikkens brands and other architectural coatings, wood care products and building adhesives. The segment was battered by rising costs of titanium dioxide, a key paint pigment.
The company’s coatings and chemicals arms saw relatively mild declines in operating profit, also due to rising raw materials costs.
The report followed several bruising quarters for AkzoNobel. The second-quarter report was preceded by a rare warning designed to lower investors’ expectations, and the third-quarter report was so weak that it was issued with a three-year “performance improvement program.”
On Thursday, outgoing AkzoNobel CEO Hans Wijers said that the improvement program was “on track,” with the first update due in the company’s half-year 2012 report. The program is designed to “strengthen competitiveness, enhance the company's ability to grow, simplify support structures and significantly reduce the cost base.”
Already, AkzoNobel said, it has laid off nearly 800 employees.
‘A Challenging Year’
"2011 was a challenging year against the background of weaker global economic conditions and unprecedented raw material price inflation,” said Wijers, who will retire in April as CEO. His successor will be Ton Büchner, of Swiss multinational Sulzer AG, which manufactures industrial machinery and equipment.
Wijers said the price increases had offset most of the raw-materials hit, “and for the year ahead we expect to see the full-year benefit of these increases.” The notable exception was TiO2, whose cost continues to rise and will necessitate more pass-through price hikes, he said.
Wijers noted that AkzoNobel benefits from complementary businesses. He added: “Our strong fundamentals, geographical spread and commitment to deliver—in combination with the improvement program—give us confidence in the future."
The company said its medium-term goals include growing to €20 billion in revenue, increasing EBITDA each year while maintaining a 13-15 percent margin, and paying “a stable to rising dividend.”
Still No. 1?
Despite the upbeat assessment, AkzoNobel’s challenges may well open new opportunities for other coatings companies, especially PPG Industries of Pittsburgh.
PPG, the No. 2 paint and coatings company worldwide, recently reported a record fourth quarter and a banner year, notching nearly $15 billion in sales for 2011, an 11 percent increase over 2010.
AkzoNobel seemed to feel that heat on Thursday, noting that the economic environment remains a “major uncertainty” in its future performance.
“The concerns are focused on the risk of recession in Europe, delayed recovery of the US property market, and the potential for a slowdown in China,” said Akzo Nobel. “Each of these can have a significant impact on customers in these regions that would in turn impact AkzoNobel's sales volumes.”
Perhaps most remarkable, however, was AkzoNobel’s departure from its perennial self-description as “the largest global paint and coatings company.”
On Thursday, AkzoNobel said it “aspires to be” the world's leading coatings and specialty chemicals company.