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AkzoNobel: Grim Q1 with No Quick Fix

Friday, April 19, 2013

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AkzoNobel reported first-quarter declines across the board Thursday (April 18) and warned candidly that the troubled company’s fortunes were unlikely to turn around any time soon.

"The economic environment remains challenging, and we do not expect an early improvement in the trends that we see in our businesses,” Keith Nichols, chief financial officer of the world’s largest paint and coating company, said in releasing a first-quarter report laced with red ink.

Keith-Nichols
Photos, graphics: AkzoNobel

"We do not expect an early improvement in the trends that we see in our businesses,” said CFO Keith Nichols.

The Amsterdam-based paint, coating and chemical multinational reported a 7 percent decline in overall revenues, largely due to weak demand in Europe and the divestment of its North American Decorative Paints business. That transaction was completed April 1, a day after the first quarter closed.

Geographically, most of AkzoNobel’s revenues comes from mature markets, and 38 percent—the largest single share—comes from mature markets in Europe, where the economic crisis continues to shake the continent.

‘Further Efficiencies’

The company said it would accelerate the performance improvement program it first announced in October 2011, and it warned of “further efficiencies and cost reductions.” AkzoNobel has already laid off thousands of people since that program began, in addition to the staff shed with the Decorative Paints North American sale.

The company said it would adhere to its new strategies and financial targets announced in February. Those moves included changes in executive compensation and a smaller executive committee.

AkzoNobel Q1 chart AkzoNobel Q1

Heavily dependent on revenues from mature markets in Europe, the Dutch-based paint, coating and chemical giant saw revenue declines across all three businesses.

The report was released just days before the company’s Annual General Meeting, set for April 26, closing out a volatile first year for new CEO Ton Büchner, who spent several months of the year on medical leave. The shareholders’ meeting will include a discussion of the company’s remuneration policy and its disappointing 2012 Report.

Revenue Declines

In addition to the 7 percent decline in overall revenues, AkzoNobel reported an 8 percent drop in overall operating income from the prior-year quarter and a 9 percent decline in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

The company also reported declines in its moving average return on investment. By segment, AkzoNobel reported:

  • An 11 percent decline in Specialty Chemicals’ revenues and a 29 percent decline in that business’s operating income, due in part to the divestment of Chemicals Pakistan;
  • A 3 percent revenue decline in Performance Coatings, which includes protective and marine coatings, industrial coatings, and automotive and aerospace coatings; and
  • A 5 percent revenue decline in Decorative Paints.

Specialty Chemicals made up 36 percent of the company’s revenue in 2012; Performance Coatings, 37 percent; and Decorative Paints, 27 percent. The result of the Decorative Paints divestment will not be reported until the second quarter.

The company’s cash position improved slightly, due to lower pension payments.

Performance Coatings

Declining sales volume, especially in Europe, led to a 3 percent decline in revenue, compared with the first quarter of 2012. “The slowdown in Europe impacted all businesses,” AkzoNobel reported.

New marine coatings HQ Protective Coatings - Oil & Gas

International Paint celebrated the February opening of a new Marine Coatings global headquarters in Singapore (left), but declining new build activity hurt volumes. Protective coatings for the oil and gas sector fared better.

Revenue in Marine and Protective Coatings declined by 5 percent, due to lower volumes and currency translation declines. Marine Coatings was also impacted by the global decline in new build activity.

In Protective Coatings, high activity levels continued in oil and gas, while sales volumes in the Yacht division declined over the prior-year period.

Automotive and Aerospace Coatings saw a 3 percent increase in revenues, buoyed by increasing customer demand in specialty finishes and aerospace. “Cost reduction initiatives are ongoing throughout the business,” the company said.

Revenue in Powder Coatings declined 6 percent—weakened by European markets, but offset slightly by the Asian market. Sales volumes declined across the board.

Industrial Coatings saw a 3 percent decline in revenues from 2012, with declines in Wood Finishes and Packaging Coatings in Europe. Coil Coatings were flat.

Specialty Chemicals

Divestments, declining sales, and unseasonal cold combined to cut revenues by 11 percent and operating income by 29 percent over the first quarter of 2012, AkzoNobel said.

Functional Chemicals struggled, especially in performance additives and other construction-related products. Volume and margins both declined in Industrial Chemicals, and lower sales volumes were felt in both Surface Chemistry and Pulp and Performance Chemicals.

Decorative Paints

The beleaguered business actually reported an increase in operating income over Q1 of 2012, but revenues continued to decline. Revenues were off 6 percent in Europe, with “substantial volume declines” across all regions.

Dulux - School

Revenues declined 5 percent in Decorative Paints, but the full effect of the North American unit's recent sale to PPG Industries won't be reported until the second quarter.

Latin America revenues were flat, although volumes and prices improved slightly. Revenues in Asia were down 4 percent overall, although sales and revue in China grew by double-digit percentages, the company said.

Outlook

Forgoing its usual upbeat outlook, the company said it expected no improvement soon, although it did update its 2015 targets.

“The acceleration of our performance improvement program and the strategic priorities announced in February are the right focus to have in these markets,” AkzoNobel said.

   

Tagged categories: Aerospace; AkzoNobel; Automotive coatings; Business matters; Decorative coatings; Finance; Industrial powder coating; Marine Coatings; Oil and Gas; PPG

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