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Protective Blunts AkzoNobel $3.1B Loss

Thursday, October 18, 2012

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Double-digit revenue increases and growing demand in Protective and Marine Coatings provided some much-needed good news for AkzoNobel N.V. in a third quarter battered by a massive impairment in Decorative Paints.

Already reeling from a shaky financial year and the extended sick leave of its new CEO, the parent company of International Paint, Interpon and Sikkens reported a €2.4 billion ($3.1 billion US) loss for its third quarter, “primarily due to the economic slowdown in Europe.” About 45 percent of the company’s revenues came from European markets in 2011.

 Sales volumes in protective coatings increased in all regions, especially in the oil and gas segments, AkzoNobel reported.

 AkzoNobel

Sales volumes in protective coatings increased in all regions, especially in the oil and gas segments, AkzoNobel reported.

An impairment loss is a reduction in the value of an asset because it no longer generates the benefits expected. Impairments are typically recorded when the value is unlikely to recover.

The charge crushed Decorative Paint’s third-quarter revenues of €1.46 billion ($1.9 billion US), which were broadly unchanged from the same quarter of 2011.

Restructuring Accelerated

“Revenue was down across all [European] regions, reflecting severe weakness of demand,” the company’s third-quarter report said Thursday (Oct. 18).

“We are speeding up our restructuring and cost reduction actions across Europe in response to the difficult market circumstances we are facing.”

The weakness in the European and Latin American markets were largely offset by strong revenue and volume growth in China and Northern Asia, the company said, adding: “Despite the volume decline, AkzoNobel has been able to maintain or increase its relative market share in most of its markets.”

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of €147 million was down 1 percent on 2011.

The Decorative Paints business includes Glidden, Dulux, Sikkens and other brands.

Overall Results

The world’s large paint and coatings company reported a 6 percent decline in sales volume in Decorative Paints from the third quarter of 2011, a 2 percent decline in Specialty Chemicals, and flat volumes overall in Performance Coatings, with mixed showings among segments.

Overall, however, the company reported a 6 percent increase in third-quarter revenue compared with the same period of 2011, due largely to favorable exchange rates and higher selling prices. EBITDA for Q3 was 7 percent higher at €540 million ($707 million US).

AkzoNobel quarterly earnings

In all, the report showed a sharp stumble from a fair second quarter. The company said its year-old performance improvement plan was “on track,” but it warned of unspecified “additional restructuring activities ... to further reduce costs in the businesses that are most affected.”

“AkzoNobel has undertaken a prudent review, excluding restructuring benefits, of the balance sheet, taking into account lower expected market growth rates,” the company said. The “economic environment remains our principal sensitivity.”

Performance Coatings Grows

The Performance Coatings segment offered a bright spot in Thursday’s report. Revenues increased by 13 percent from the prior-year period. The strongest growth came from industrial coatings (due to acquisitions) and from strong demand in protective coatings.

Revenue was up 18 percent over the year-ago period in Marine and Protective Coatings. Sales volumes in protective coatings increased in all regions, especially in the oil and gas segments. In Korea, an order was secured for Shell’s Prelude, the world’s largest floating LNG platform.  Marine volumes continued to be impacted by the slowdown in the new construction market.

 The Protective Coatings segment has a contract for the Shell Prelude, the world’s largest floating LNG platform.

 Shell

The Protective Coatings segment has a contract for the Shell Prelude, the world’s largest floating LNG platform.

Revenues in Automotive and Aerospace Coatings increased by 6 percent, although performance was affected by continuing weak demand in Vehicle Refinish in the U.S. and Europe. Revenues in Powder Coatings increased by 7 percent but, again, suffered from shakiness in Europe.

Industrial Coating revenues increased by 25 percent, mainly through acquisitions. Coil Coatings construction-related business showed similar revenues levels as 2011, while Packaging Coatings increased, especially in Asia. Automotive and consumer electronics drove gains in Specialty Finishes.

Specialty Chemicals revenue increased 3 percent, but EBITDA fell 5 percent to €227 million ($297 million US), impacted by lower volumes and margin weakness in Functional Chemicals. Surface Chemistry and Pulp and Performance Chemicals delivered the strongest EBITDA growth during the quarter.

The cost of raw materials, which hit the company hard in its first quarter, has begun to level off, the company said.

‘Solid Operational Results’

“Despite the unavoidable impact of the economic slowdown, the business portfolio of AkzoNobel remains resilient, and we have reported solid operational results for the quarter,” said Chief Financial Officer, who is filling in for CEO Ton Büchner.

“Many of our business units are performing well, maintaining high margins and market share. The impact of the slowdown is primarily being felt in the more consumer-facing businesses.

 AkzoNobel CFO Keith Nichols
“As we cannot expect quick recovery of the economy, we also will continue to implement our ongoing improvement agenda in order to increase our profitability," said CFO Keith Nichols.

“Looking forward, the principal concern remains the decorative paint markets in Europe. The impairment taken in this quarter is a reflection of these concerns and our realistic assessment of the markets going forward. As we cannot expect quick recovery of the economy, we also will continue to implement our ongoing improvement agenda in order to increase our profitability.”  

Board Member Resigns

The company also announced Thursday that the Supervisory Board and Board member Leif Darner, who oversees Performance Coatings, “have mutually agreed that Leif will step down” at the company’s annual general meeting in April.

Conrad Keijzer, Managing Director of AkzoNobel Industrial Coatings, will succeed Darner at Performance Coatings. Keijzer will join the Executive Committee on Jan. 1. Keijzer’s successor was not announced.

Darner has been with AkzoNobel since 1998. He was Business Unit Manager of Marine and Protective Coatings from 1999 to 2004, then was appointed to the Board of Management as member responsible for Chemicals. In May 2008, he assumed responsibility for Performance Coatings.
 
Werner Fuhrmann, the Executive Committee member responsible for Supply Chain and Sourcing, will officially also become responsible for Specialty Chemicals, a duty he has had on an interim basis.

“On behalf of Ton Büchner and the Supervisory Board, I would like to wish Leif well and wish Werner and Conrad every success in their new roles,” said Karel Vuursteen, chairman of the Supervisory Board. “We are confident that their knowledge and skills will be of great benefit to the company in the years to come.”

   

Tagged categories: AkzoNobel; Business operations; Decorative finishes; Earnings reports; Finance; Marine Coatings; Market; Protective coatings

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