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Akzo Q3 Profits Fight Headwinds

Wednesday, October 22, 2014

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Mixed, yet ultimately flat, sales in Decorative Paints offered little help to AkzoNobel in a third quarter that showed an increase in profit built more on efficiencies than revenues.

The Dutch-based global paint and coatings maker reported a 32 percent year-over-year increase in profits, despite a 2 percent decline in revenues, in third-quarter results announced Tuesday (Oct. 21).

AkzoNobel_DecoPaints
Photos, graphics: AkzoNobel

AkzoNobel announced in the third quarter that it would participate in the Rockefeller Foundation's 100 Resilient Cities initiative, which includes work on Maracaña Stadium in Rio de Janeiro.

CEO Ton Büchner called the quarter's performance "solid" and said the company remained on track to deliver its 2015 targets.

Key Indicators

Highlights from the full third-quarter report show:

  • Operating income increased 11 percent, to €335 million ($426.4 million USD), boosted by operational efficiency programs and lower restructuring charges;
  • Revenue dipped two percent;
  • Volume inched up one percent, a gain "more than offset by negative currency effects and divestments";
  • Return on sales (ROS) increased year-over-year to 9.1 percent from 8.0 percent, the fifth consecutive quarter of improvement for that indicator;
  • Profits climbed by 32 percent to €205 million ($262.4 million), due to "higher operating income and lower finance expenses"; and
  • Adjusted EPS increased 24 percent to €0.92 ($1.17 USD).

"AkzoNobel delivered a solid Q3 performance, despite continued economic uncertainty," said Büchner.

AkzoQ3SegmentSummary

Profits increased year over year, but revenues declined across all three businesses.

"...Conditions continue to be challenging, but we have a resilient strategy focused on stimulating organic and sustainable growth."

The company reported these business area results.

Decorative Paints

Volumes in Decorative Paints were flat compared with 2013, with declines throughout the European market and stronger volumes in Asia, led by China and Vietnam. Revenue was down 8 percent due to the divestment of Building Adhesives and the adverse price/mix effect driven by the sale of the company's German stores.

Operating income improved over 2013, mainly due to lower restructuring expenses. Restructuring charges for the quarter were lower than in 2013, but restructuring programs will continue for the rest of 2014, AkzoNobel said.

Decorative PaintsAkzoQ3_DecoPaints

In Latin America, the business saw increased revenues built largely on higher selling prices.

Performance Coatings

Volumes were up, driven by Marine and Protective Coatings and Powder Coatings, partially offset by lower volumes at Automotive and Aerospace Coatings. Revenue was flat year-over-year. Cost control measures continued, including the shrinking of the management structure, which increased restructuring costs for the quarter.

Sales volumes in both Marine and Protective Coatings increased. Marine delivered growth in new construction and deep-sea maintenance, while Protective grew in heavy industry and the oil and gas sectors. Revenue increased two percent.

Volumes in Automotive and Aerospace Coatings declined from the previous year. In Vehicle Refinishes, volumes increased in China and North America, but declined in South America and Europe.

Performance CoatingsPerfCtgsQ3

Specialty Finishes showed strong growth in Asia, offset by slowness in other regions. Volumes in Aerospace grew, with revenues nudging up one percent.

In Powder Coatings, volumes increased in European markets and the Americas, while sales slowed in China. Growth varied by segment: stronger in automotive and functional and softer in construction. Revenue increased two percent.

Volumes in Industrial Coatings remained flat, with growth in Packaging and declines in Wood and Coil. Regionally, volumes grew in Asia, declined in Europe, and remained flat in the Americas. Revenue dipped two percent.

Specialty Chemicals

Overall, segment volumes were similar to 2013. On a year-to-date basis, volumes increased two percent from 2013, while revenue declined.

AkzoMarineCoatings

Marine Coatings sales volumes rose, driven by both new construction and deep-sea maintenance.

Regionally, market conditions in Europe have slowed "after a promising start to the year," the company said. Conversely, activity in the U.S. has picked up over the same period. Business in Asia-Pacific generally improved in the third quarter.

Volumes in Functional Chemicals was a bright spot for the company, with significant increases in the quarter; all regions showed growth and certain segments showed recovery, AkzoNobel said.

"The benefits of the restructuring program that was announced in 2013 are coming through," the company reported.

Volumes in Industrial Chemicals decreased overall, along with revenues. Margins continued to be affected by low caustic prices. Surface Chemistry revenue was similar to last year, with scattered segment increases but weakness in Asian markets. Revenue in Pulp and Performance Chemicals was similar to 2013.

Notables and Outlooks

Beyond the bottom-line report, "Q3 was also notable for several achievements, including being ranked first in our industry on the Dow Jones Sustainability Index for the third year running," said Büchner.

AkzoQ3_AtAGlance

He also noted the company's recent commitment to the Clinton Global Initiative and partnership with the Rockefeller Foundation's 100 Resilient Cities program.

"We also developed coatings technology for the world's first fully recyclable and compostable paper cup, and we broke ground on a new Decorative Paints site in Chengdu, China," he said.

"Coupled with the benefits from our ongoing operational efficiency programs, we are on track to deliver on our 2015 targets."

   

Tagged categories: AkzoNobel; Architectural coatings; Business matters; Earnings reports; Marine Coatings

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