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Q1 Blues Send Out Akzo CEO on Low Note

Thursday, April 19, 2012

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AkzoNobel CEO Hans Wijers will leave behind an underwhelming final quarterly report when he retires this month from the world’s largest paint and coatings company.

Still, the report is a big improvement over its predecessor.

On Thursday (April 19), the Dutch-based multinational released a first-quarter report that showed declines in earnings and modest revenue growth built on price increases.

 AkzoNobel has struggled for the last year of Hans Wijers’ leadership. The CEO will retire from the world’s largest paint and coatings company this month.

 Images: AkzoNobel

AkzoNobel has struggled for the last year of Hans Wijers’ leadership. The CEO will retire from the world’s largest paint and coatings company this month.

On the other hand, coming off a fourth-quarter net loss of €68 million ($89.3 million US), the first quarter of 2012 wasn’t all bad.

Revenues Up, Earnings Down

The company reported a 6 percent increase in first-quarter 2012 revenue, compared with the same period in 2011, mainly due to selling price increases imposed to offset spiralling raw material costs.

“Overall raw material prices remain a challenge,” the company said. “Looking forward, the company expects the higher oil and TiO2 prices on average to have an inflationary impact.”

In the previous quarter, AkzoNobel said that it had been hit by more than $1 billion in raw material price hikes.

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) declined 3 percent in the first quarter, to €423 million, due to “weaker end markets and cost inflation,” AkzoNobel said.

Still, that was an improvement. EBITDA plunged by 20 percent in the fourth quarter of 2011 and by 9 percent for the full year, the company reported earlier.

‘Taking the Right Steps’

AkzoNobel also said that its performance improvement program, launched in mid-2011, was “on track.” That program has already spurred hundreds of layoffs at the company.

Last month, the company also announced a leadership shake-up that included the ouster of the longtime head of its struggling Specialty Chemicals business.

“We are continuing to focus on performance improvement,” said Wijers, who will be succeeded next week by Ton Büchner, of Swiss multinational Sulzer AG. “Our global margin management efforts are also proving successful as we continue to mitigate the adverse effects of higher raw material costs.”

 First-quarter revenues and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
First-quarter revenues and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) improved over the previous quarter, but the last year has been tough for AkzoNobel.

However, Wijers added, sales volumes “were down slightly, reflecting the volatile nature of the economic conditions.”

“Despite these challenges, we have solid fundamentals, renowned brands and a strong geographic spread,” said Wijers. “Furthermore, the on-going performance improvement program shows that we are taking the right steps towards achieving our medium-term ambitions.”

Performance Coatings: Bright Spot

AkzoNobel’s Performance Coatings business turned in the company’s best performance. First-quarter revenues increased by 11 percent and EBITDA by 15 percent over the prior-year period, despite an overall dip in sales volume.

Boosted by the acquisition of Schramm/SSCP, Industrial Coatings achieved the strongest growth, followed by Marine and Protective Coatings, which recorded a 14 percent increase in revenues.

Sales volumes of Protective Coatings increased in all regions, especially in the heavy industry and oil and gas segments. Marine Coatings volumes were slightly lower, due to declines in new construction, but the company tightened up margins in its yachting segment and introduced its new silyl acrylate antifouling coatings for newbuild and maintenance and repair.

Other segments had mixed performance. The quarter was slow for Automotive and Aerospace Coatings, while revenues increased in Powder Coatings and Wood Finishes.

A solid first-quarter showing by Industrial Coatings included strong growth in Coil Coatings’ construction-related business, especially in Turkey and Russia, and Packaging Coatings’ food- and beverage-related business in Asia.

Decorative Paints

Decorative Paints reported a 4 percent increase in revenues, thanks in large part to “margin management,” AkzoNobel said. The segment’s first-quarter EBITDA and operating income declined by 16 percent and 15 percent, respectively.

Decorative paint sales declined in North America and Europe, and the company said “restructuring and cost reduction actions” were underway to offset the weakening demand in those markets. Selling price increases and favorable currency translations boosted revenues in Asia.

Worldwide, the division eliminated almost 200 employees.

On the plus side, Dulux was named a “Top 10 Superbrand” in the UK.

Specialty Chemicals

Revenues in Specialty Chemicals also climbed 4 percent, due largely to the acquisition of Boxing Oleochemicals in the Surface Chemistry division.

The segment’s overall volumes and EBITDA both dipped.

Sales volumes for Functional Chemicals increased, and Pulp and Performance Chemicals also had a strong quarter. Industrial Chemicals was about flat, compared with the year-ago period, and the divestment process for Chemicals Pakistan continues.

   

Tagged categories: AkzoNobel; Coatings manufacturers; Earnings reports; Finance; Market

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