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TiO2 Tab, Other Costs Put Dent in AkzoNobel’s Q4 and 2011 Bottom Line

Thursday, February 16, 2012

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The euros flowed but profits failed to keep pace in 2011 for global coatings colossus AkzoNobel, as “unprecedented” raw-materials cost increases and continued economic uncertainties took a toll, the Netherlands-based company said.

 Hans Wijers
 Hans Wijers
 AkzoNobel CEO

The company reported total 2011 revenue of €15.7 billion ($20.6 billion), a gain of 7% from €14.6 billion in 2010, with the increase attributed primarily to pricing actions. Net income from continuing operations, meanwhile, fell to €469 million ($616 million) from €664 million in 2010.

For the fourth quarter, the company reported a net loss from continuing operations of €62 million, compared to income of €130 million for the same quarter of 2010. Excluding one-time items, fourth-quarter earnings before interest and taxes was €222 million, up from €133 million for the same period a year earlier.

CEO Hans Wijers said “2011 was a challenging year against the background of weaker global economic conditions and unprecedented raw material price inflation. The absolute impact of increased raw material prices for the year was approximately €1 billion.” AkzoNobel

Wijers said pricing actions “have now offset most of this, and for the year ahead we expect to see the full-year benefit of these increases.”

The one-time charges against earnings included restructuring actions, acquisition and divestment costs, and costs related to legal, antitrust and environmental cases.

Meanwhile, Wijers said, the company’s recently launched performance-improvement program is on track “to further reduce our cost base and improve our competitiveness.” He added: “Our strong fundamentals, geographical spread and commitment to deliver—in combination with the improvement program—give us confidence in the future.”

Business Segments: Revenue up, Earnings Dip

For the company’s Decorative Paints segment, revenue for the year was €5.3 billion ($6.97 billion), a gain of 7% from €4.97 billion in 2010. EBITDA (earnings before interest, taxes, depreciation and amortization) for the segment fell 20%, from €548 million in 2010 to €440 million in 2011.

AkzoNobel

For the fourth quarter, Decorative Paints revenue was €1.2 billion, a 6% increase from €1.14 billion for the same quarter a year earlier. Segment EBITDA for the quarter was €11 million, down from €63 million in 2010.

The company said Decorative Paints revenue turned in double-digit gains in Asia and the Americas, primarily driven by price increases and a new retailing contract with Walmart. Demand fell in Europe, while the strongest growth rates were recorded in China and Southeast Asia. The pace of revenue growth in those area slackened, however, in the second half of the year.

In the U.S. Decorative Paints demand was described as “essentially flat versus the prior year, primarily driven by weakness in the trade market.” The company says it “continued to invest in the Glidden brand,” with the introduction of the Glidden Duo and Glidden Trim and Door products at The Home Depot. Decorative Paints profit results in the U.S. were down due in part to raw-material cost increases and the investment in the Walmart business.

Performance Coatings revenue for the year was €5.2 billion ($6.8 billion), up 8% from €4.8 billion in 2010. Segment EBITDA for the year was €611 million, down 6% from €647 million in 2010.

AkzoNobel

Fourth-quarter Performance Coatings revenue was €1.3 billion a gain of 7% from €1.2 billion for the fourth quarter of 2010. Fourth-quarter EBITDA for the segment was €141 million off 4% from €147 million for the same quarter of 2010.

Setting the pace for revenue growth in the Performance Coatings segment were industrial coatings, driven by the strength of packaging and coil coatings. Wood finishes and adhesives recorded lower volumes due to weakness in the housing market.

The company said raw-material cost escalation figured prominently in lower earnings for coatings businesses, with cost increases for titanium dioxide (TiO2) a major factor. The company in 2011 announced a partnership agreement with Quangxi CAVA Titanium Industry Co. Ltd. of China “to help ensure supply of titanium dioxide.”

‘Performance Improvement’ Tops Agenda

Wijers said the company’s performance improvement program, launched in October 2011, “will strengthen competitiveness, enhance the company's ability to grow, simplify support structures and significantly reduce the cost base.

“This implies a significant change in the operating model and business culture,” he said. The comprehensive three-year plan is designed to deliver EBITDA of €500 million in 2014, with EBITDA of €200 million forecast for 2012.

Restructuring activities are ongoing in the Decorative Paints businesses in Europe and the U.S., the company said.

“The major uncertainty remains the economic environment,” the company said. “The concerns are focused on the risk of recession in Europe, delayed recovery of the U.S. property market and the potential for a slowdown in China. Each of these can have a significant impact on customers in these regions that would in turn impact AkzoNobel's sales volumes. These, together with certain raw materials, remain the key sensitivities in 2012.”

   

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

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