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AkzoNobel Starts 2014 on Hopeful Note

Friday, April 18, 2014

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AkzoNobel turned in a cautiously optimistic first-quarter report card on Thursday (April 17), bringing good news on sales volume laced with warnings about the still-fragile economic environment.

The company said it remained on track toward its 2015 targets, with first-quarter volume growth across all areas a big step in the right direction.

The Dutch paint, coating and chemicals producer posted its first-quarter results, highlighting increased volume and positive price/mix development in Performance Coatings, Decorative Coatings and Specialty Chemicals.

"These results are a further step towards the delivery of AkzoNobel's 2015 targets," CFO Keith Nichols said.

However, all business areas saw a slight dip in revenue because of adverse currency effects.

AkzoNobel Q1 2014
Photos: AkzoNobel

AkzoNobel reported volume increases and revenue decreases in all business segments.

Nichols, who has been with AkzoNobel for eight years, will step down from his position at the end of June.

Q1 at a Glance

AkzoNobel's Q1 report included these highlights:

  • Operating income was €216 million ($298.7 million USD), a slight dip from €217 million in the first quarter of 2013.
  • Lower financing expenses helped boost net income attributable to shareholders to €129 million ($178.4 million USD) from €89 million in Q1 2013.
  • Adjusted EPS rose from €0.51 in the first quarter of 2013 to €0.61 ($0.84 USD) in 2014.
  • Restructuring charges (mostly related to Decorative Paints in Europe and Performance Coatings)  increased to €44 million ($60.9 million USD), compared to €29 million for the same period in 2013.

The company says it is on track to deliver its 2015 targets, despite the continued "fragile economic environment" and "volatile currencies" in 2014

High-Growth Markets

"Despite higher restructuring charges, continued adverse currency effects and ongoing weakness in Europe, our year-on-year return on sales, both before and after higher restructuring charges, improved for the third consecutive quarter," Nichols said.

High growth coatings markets

Despite a fragile economy and negative currency impacts, AkzoNobel sees significant opportunities in high-growth markets.

"Net income attributable to shareholders and adjusted EPS have both increased significantly, benefiting from lower financing costs as a result of recent debt repayments," Nichols said.

The company says its high-growth markets, which account for 44 percent of revenue, still show significant opportunities. Based on the full-year 2013 results, mature Europe led the high-growth markets in revenue with 38 percent, followed by Asia Pacific (25 percent), and North America (15 percent).

Performance Coatings

Volume in Performance Coatings saw a 3 percent gain from the previous year, with positive volume and price/mix development more than offset by a 6 percent negative impact from currencies. This resulted in a revenue decline of 1 percent compared to the first quarter of 2013. Operating income fell 2 percent due to higher restructuring costs and currency translation.

Revenue in the Marine and Protective Coatings segment gained 2 percent. Volume also increased, except for a slight downturn in Yacht. Deep-sea maintenance drove Marine gains, and the volume improvement in Protective Coatings was attributed to continued high activity levels in oil and gas.

Powder Coatings enjoyed volume increases and higher revenue (up 4 percent) in all regions, with strong performance in the Transportation segment. AkzoNobel completed the closure of one of its Italian factories at the end of the quarter.

offshore coatings industry

Specialty Chemicals was the only area to see a gain in operating income, increased by 36 percent compared to Q1 2013.

Lower volumes and currencies, partially offset by favorable price/mix, caused revenue to fall 4 percent in Industrial Coatings. Overall volumes dropped, and although the Wood segment saw growth, it was more than offset by declines in Coil Coatings and Packaging. Asia's volumes grew in Coil and Packaging, while Europe showed signs of recovery in Wood and Coil. The company announced it would close two Wood sites in the Americas.

Adverse currencies and volumes caused a 3 percent decline in revenue for the Automotive and Aerospace Coatings segment, which was partially offset by favorable price/mix. Specialty Finishes and Aerospace were flat across the board. Vehicle Refinishes volumes grew in Asia, remained stable in Europe, and declined in the Americas.

Decorative Paints

Development in Asia boosted volume for Decorative Paints compared to 2013, but conditions in Europe and Latin America remained challenging. In all three regions, price/mix development was positive.

Revenue fell 6 percent due to adverse currency effects, primarily in Latin America and Asia, and the sale of the Building Adhesives unit.

AkzoNobel CFO

CFO Keith Nichols, who steps down in June, said year-on-year sales returns improved for the third consecutive quarter.

Q1 operating income dropped 60 percent, mainly because of higher restructuring costs in mature markets, the company said.

In Europe, revenue was 8 percent lower, and overall performance was mixed, with Western and Southern Europe declining in volume and Eastern Europe seeing positive development. Overall operating income for the region was reportedly lower than in 2013.

While lower fixed costs boosted profitability in Latin America, volume fell in Q1, and revenue decreased 13 percent.

Asia saw a strong quarter, boosted by double-digit volume and revenue growth in China. Additionally, strong cost control helped increase the region's profitability.

Specialty Chemicals

Better market conditions in Functional Chemicals, combined with the absence of last year's production issues, boosted volume by 2 percent in Specialty Chemicals for Q1. Operating income jumped 36 percent to €135 million ($186.8 million USD), due to cost control and operational efficiencies. Adverse currency developments and divestments caused a 2 percent dip in revenue; however, profitability increased.

specialty chemicals market

Operating income took the biggest hit in the Decorative Paints segment, dropping by 60 percent.

Volume in the Functional Chemicals segment increased significantly, pushing up revenues by 1 percent, AkzoNobel reported. Demand in Europe improved throughout the quarter, and most of Asia's growth was achieved in China. North America, however, was impacted by severe winter weather.

Industrial Chemicals also saw increased volume and a 1 percent revenue gain, aided by enhanced capacity at the MCA plant in Taixing, China.

Winter weather in North America taxed the Surface Chemistry segment in both volume and revenue, which fell by 3 percent.

Revenue in Pulp and Performance Chemicals fell 7 percent, mainly due to currency effects and divestments. In Asia and Brazil, volumes from bleaching chemicals were strong, but Europe and North America saw weaker demand.

Q1 performance reports and webcast links can be found here.

   

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

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