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2013 Buffets AkzoNobel's Bottom Line

Friday, February 7, 2014

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AkzoNobel’s volatile 2013 struggled to a close with declining revenues and a leaner (if not meaner) outlook on 2014.

Divestments, adverse currency translations, and softened demand led the company to report a 5 percent decline in both fourth-quarter and full-year 2013 revenues, according to its earnings report released Thursday (Feb. 6).

By segment, revenues declined by 2 percent in Performance Coatings, by 3 percent in Decorative Paints, and by 11 percent in Specialty Chemicals.

Pivoting Performance

The company said it had accelerated some restructuring activities and announced several changes in its Supervisory Board, which will decrease from nine members to eight.

Ton Buchner
Photos: AkzoNobel

CEO Ton Büchner said the company had completed its performance improvement program a year ahead of schedule.

The good news, said Büchner: Some market conditions began to stabilize in the second half of the year, and the company's multi-year performance improvement program has wrapped up "a year ahead of schedule and above target."

The program, announced in October 2011, achieved €545 million ($741 million USD) in savings, the company reported.

2013 was also the year when AkzoNobel retained the top spot as Materials Industry Group leader in the Dow Jones Sustainability Indices (DJSI).

Results at a Glance

AkzoNobel highlighted these results:

  • Revenue for both Q4 and full-year 2013 declined 5 percent;
  • Q4 saw "positive" volume development across all three business areas, excluding restructuring costs;
  • 2013 operating income was €958 million ($1.30 billion USD), or €897 million ($1.22 billion USD) excluding incidentals; compared with €908 million in 2012, excluding impairment;
  • 2013 net income attributable to shareholders was €724 million ($984 million USD) and adjusted EPS was €2.62 ($3.56 USD), compared with €386 million (excluding impairment) and €2.55 in 2012;
  • Total dividend for 2013 was proposed at €1.45 ($1.97 USD), the same as in 2012.

With its performance improvement program completed, AkzoNobel said it was "on track to deliver 2015 targets," despite the likelihood of a "fragile economic environment" and "volatile foreign currencies" in 2014.

2013 AkzoNobel chart

Segment results were as follows.

Performance Coatings

Full-year revenues declined by 2 percent across the business, saddled by declines in Marine and Protective Coatings, Powder Coatings and Industrial Coatings. Revenues inched up 2 percent in Automotive and Aerospace Coatings.

Aviation Coatings

Aerospace Coatings gained, and Protective Coatings performed well in the oil and gas segment. Marine Coatings declined.

Marine and Protective Coatings revenues dropped 5 percent for the year, due to adverse currencies and price/mix. Volumes ended flat, with growth in Protective Coatings (especially in the oil and gas segment) and declines in Marine and Yacht. Fourth-quarter volumes increased.

Automotive and Aerospace Coatings gained from volume increases in the North American vehicle refinishes market and continued growth in Latin America and China. The consumer electronics and aerospace markets also saw strong demand.

Adverse currencies nixed gains from Powder Coatings volume increases in Europe and the Americas. Transportation and general metal finishes performed well in Europe. The company announced in the fourth quarter that it would close three powder coatings sites.

Industrial Coatings revenue also took a hit from adverse currencies and declines in overall volumes. Growth in Coil Coatings more than offset declines in Packaging and Wood, the company said. AkzoNobel announced in the fourth quarter that it would close four industrial coating sites.

Decorative Paints

It was a volatile year for AkzoNobel's architectural coatings business.

Major divestments—in its North American paints business, its Building Adhesives business, and its German paint stores—as well as restructuring in Germany left the company with a 3 percent decline in revenues at year's end. Q4 revenue declined 6 percent due mainly to the Building Adhesives sale, the company said.

Architectural coatings

Despite the year-long volatility in AkzoNobel's Decorative Paints business, sales volume increased in all regions except Europe in 2013.

The Decorative Paints business changed leadership in February 2013, with Ruud Joosten of the Pulp and Performance Chemicals business replacing Tex Gunning, who retired. In October, AkzoNobel announced that it would introduce a streamlined management structure and new operating model for the remaining Decorative Paints business.

Amid all of the changes, AkzoNobel notched a 3 percent volume increase for the year, with increases in all regions except Europe, where volumes were flat.

Full-year revenue in Europe was down 5 percent, despite some strength in Turkey and Russia. Fourth-quarter revenue dropped by 10 percent.

In Latin America, revenue declined 7 percent for the fourth quarter and 2 percent for the year.

Asia saw a 1 percent uptick in fourth-quarter revenue and a 3 percent gain for the year.

Specialty Chemicals

A year of softened demand, especially in construction-related products, saw Specialty Chemicals revenues decline by 9 percent in the fourth quarter and 11 percent for the full year.

Salt silo

Soft demand in construction-related products hurt revenues in Specialty Chemicals.

The business divested Chemicals Pakistan at the end of 2012 and its Primary Amides and Purate water treatment businesses in 2013. Specialty Chemicals also announced the impending closure of a plant in Deventer, the Netherlands.

Revenues in:

  • Functional Chemicals dipped 2 percent for the fourth quarter and 5 percent for the full year;
  • Industrial Chemicals were up 1 percent for the fourth quarter but down by the same percentage for the year;
  • Surface Chemistry declined 7 percent of the year, despite inching up 2 percent in the last quarter; and
  • Pulp and Performance Chemicals declined 10 percent for the year amid a generally slow market.

Changes at the Top

AkzoNobel also announced Thursday that it would be reshuffling its Supervisory Board and reducing the size of the board by one member.

Antony Burgmans

Antony Burgmans is next in line to lead AkzoNobel's Supervisory Board.

If the changes are approved as proposed at the shareholders meeting in April:

  • Chairman Karel Vuursteen will retire;
  • Antony Burgmans will be appointed to a third term and succeed Vuursteen as chair;
  • Louis Hughes will be appointed to a third term; and
  • Byron Grote will join the board and succeed Sir Peter Ellwood, who will retire.

The Road Ahead

Despite a rocky first half to 2013, Büchner cited "early signs of stabilization in several end markets" toward the end of the year.

If the trend continues, combined with the performance improvement changes, AkzoNobel "will continue to improve our ability to leverage our strong brands and leading market positions" in 2014, Büchner said.

"We will further restructure our business, reduce our costs and drive organic growth. I am confident that we are on track to deliver on our 2015 strategic goals."

A transcript of the Fourth Quarter Earnings Call is available here.

 

   

Tagged categories: AkzoNobel; Architectural coatings; Coatings manufacturers; Earnings reports; Industrial powder coating; Marine Coatings; Market

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