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Decorative Hands AkzoNobel $3.1B Loss

Thursday, October 18, 2012

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Walloped by a massive impairment charge in its Decorative Paints sector, struggling AkzoNobel N.V. has reported a €2.4 billion ($3.1 billion US) loss for its third quarter.

Already reeling from a shaky financial year and the extended sick leave of its new CEO, the Dutch paint and coatings giant reported a third-quarter impairment of €2.5 billion in Decorative Paints, “primarily due to the economic slowdown in Europe.”

 Decorative Paints revenues were down across all European regions, “reflecting severe weakness of demand,” the company said.

 AkzoNobel

Decorative Paints revenues were down across all European regions, “reflecting severe weakness of demand,” the company said.

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 ($192 million US) 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 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.

In all, the report showed a sharp stumble from a fair second quarter. The company said its year-old performance improvement plan “is 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.”

Segment Results, Raw Materials

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

Meanwhile, revenues from Performance Coatings offered a bright spot, increasing by 13 percent from the prior-year period. The strongest growth came from industrial coatings (due to acquisitions) and strong demand in protective coatings.

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.

‘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 quarterly earnings

“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 coatings; Decorative finishes; Earnings reports; Marine Coatings; Market; Protective coatings

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