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AkzoNobel Logs Dismal Quarter

Friday, July 19, 2013

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With revenues and volumes decreasing across all segments, AkzoNobel’s second quarter report echoed trends from the coating manufacturer’s dim first quarter and renewed a call for restructuring.

"Conditions remain tough and, as we have previously indicated, we do not expect an early improvement in the external trends our businesses are facing," said CEO Ton Büchner in announcing the Q2 results on Thursday (July 18).

AkzoNobel Ton Buchner
Photos, graphics: AkzoNobel

"We do not expect an early improvement in the external trends our businesses are facing," said CEO Ton Büchner, echoing a similar statement about the company's Q1 financials.

The Amsterdam-based global coatings giant reported a 4 percent decrease in revenues in the second quarter, primarily because of divestments and adverse currencies coupled with challenging market conditions, the company said. For the first half of 2013, revenue declined 5 percent compared to the first half of 2012.

Focus on Restructuring

Operating income for Q2 was 17 percent lower at €322 million, and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) decreased by 14 percent. Operating income for the first half of 2013 declined by 14 percent over the same period in 2012; EBITDA was down 12 percent for the first half of the year.

Net debt decreased from €2,888 million in Q1 to €2,197 million in Q2, largely from cash inflow from discontinued operations, primarily the divestment of Decorative Paints North America.

Mature markets in Europe represent the largest chunk of AkzoNobel's revenues, followed by Asia Pacific.

Büchner and CFO Keith Nichols confirmed the company's 2015 targets based on the operational focus of a strategy update announced in February, saying it "is the right approach for continuing challenging market conditions."

The company plans to step up its restructuring activities, part of its previously announced performance improvement program, putting the company on track to deliver €500 million EBITDA by the end of 2013.

Since implementing the program, the company has reduced its number of employees by 2,500; 800 of which were in 2013.

In the first half of 2013, the company has spent €69 million on restructuring activities and expects the full year costs to be around €325 million. This means that full year operating income is unlikely to exceed 2012, when it was €908 million.

Markets 'Remain Challenging'

"While I am pleased to report that our Decorative Paints and Performance Coatings businesses have reported an improved or stable return on sales for the first half of the year, our end markets remain challenging and this was particularly visible at the end of this second quarter," Büchner said.

Examples of restructuring activities include the upcoming initiatives in European Decorative Paints and Functional Chemicals, the company said.

By segment, AkznoNobel reported:

  • A 1 percent decline in Performance Coatings revenue for Q2 with a 2 percent decline for the first half of 2013, and decreased operating income for both Q2 (-5 percent) and the first half of the year (-2 percent);
  • A 1 percent decline in Decorative Paints revenue for Q2 with a 3 percent decline for the first half of the year, and a 9 percent decrease in operating revenue for Q2 and a 6 percent increase for the first half of 2013; and
  • A 12 percent decline in Specialty Chemicals revenue for both Q2 and the first half of 2013, and double-digit decreases in operating income for both Q2 (-21 percent) and the first half of the year (-25 percent).
  AkzoNobel H1 2013

Amid weaker numbers for both the second quarter and the first half of the year, AkznoNobel announced that it would step up its restructuring initiatives, calling it the "right approach for continuing challenging market conditions."

Performance Coatings

Revenue in Performance Coatings declined 1 percent on overall volumes, which were largely stable compared with the previous year because of adverse currency effects. Operating income was down five percent at €163 million due to investments in growth and business excellence initiatives, partially mitigated by margin management and structural cost benefits.

In Marine and Protective Coatings, revenue dropped 3 percent, but was partially offset by growth in volume. A global decline in new build activity continues to impact the marine business, but high activity levels in oil and gas are continuing for protective coatings.

Revenue for Automotive and Aerospace Coatings was up 3 percent. There was some volume growth, particularly in the Aerospace and Specialty Finishes segment.

Revenue in the Powder Coatings segment dropped 1 percent due to currencies, but was partially offset by favorable price/mix. Volumes declined in Europe, grew in Asia, and remained in line with 2012 in the Americas.

Industrial Coatings saw its revenue decrease by 2 percent because of currencies and volume, but was partially offset by favorable price/mix. Asia saw growth in Coil and Packaging, and the Americas in Wood Finishes; however, a visible decline in all segments in Europe partially offset the growth.

Specialty Chemicals

Revenue in Specialty Chemicals was 12 percent lower as a result of the divestment of Chemicals Pakistan, lower overall volumes and production outages. Operating income was down 21 percent at €121 million, mainly because of lower volumes and the conclusion of value chain issues from the previous quarter.

During the quarter, the Functional Chemicals business unit initiated a large restructuring program as part of the performance improvement program, which will be implemented as of Q3. This will lead to further employment reductions of more than 350 employees, or 8 percent of the business' total workforce.

General market conditions remained difficult for Functional Chemicals, with volumes under pressure in construction-related products (performance additives, polysulfides), polymer initiators and ethylene amines.

Industrial Chemicals, Surface Chemistry, and Pulp and Performance Chemicals all saw volume declines.

Decorative Paints

Decorative Paints second quarter revenue declined 1 percent, mainly due to negative price/mix and unfavorable currency effects. Operating income totaled €102 million in Q2, down nine percent from the previous year, mainly as a result of restructuring costs in mature markets.

 

All segments reported revenue declines for the second quarter of the year; Decorative Paints was the only segment to post a revenue increase for the first half of the year.

The slowdown in global markets continues to affect the top line. In general, volumes stablized, with some markets, particularly China, making a positive contribution in the quarter.

All European regions continue to be affected by the economic crisis, but a strong quarter in the UK brought volumes up by 1 percent. Ongoing restructuring increased total operational costs, resulting in lower operating income than the previous year.

Revenue in Europe was down 6 percent, and countries such as Germany, Austria, Belgium and the Netherlands were most affected. However, growth was evident in some countries, such as Russia. In Germany, the company decided to divest stores to independent wholesalers.

In Latin America, revenue increased by 4 percent and volumes and prices were also up, but at lower margins due to currency devaluation.

Asia's revenue increased by 10 percent thanks to strong volume developments in China and South East Asia. In China, volume and revenue continue to grow by double digits.

Raw Materials

AkzoNobel saw lower input prices in the second quarter as a result of lower titanium dioxide costs and lower oil prices, which has started to impact some raw materials. Overall, raw materials costs for the year are expected to be down marginally compared to 2012.

   

Tagged categories: Aerospace; AkzoNobel; Asia Pacific; Automotive coatings; Business matters; Decorative coatings; EMEA (Europe, Middle East and Africa); Europe; Finance; Industrial powder coating; Latin America; Marine Coatings; North America; Oil and Gas

Comment from Jeff Longmore, (7/19/2013, 9:15 AM)

IP seems to have missed the boat. Plenty of excuses with “external factors” blamed for reducing profits however PPG and SW are doing quite well in the same world...


Comment from Fritz Herrmann, (7/19/2013, 1:09 PM)

Akzo Nobel is infamous for shuffling inept Senior managers and cutting loose the people who actually know what they are doing. I worked for 7 managers in 6 years and the good managers were always forced out while the inept or unethical were promoted.


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