Think Tank: AkzoNobel reflects coatings contrasts

28 February 2011 00:00  [Source: ICB]

It's when the chemicals business meets the consumer that the strains begin to show. End-use product demand growth in the fourth quarter of last year in some markets was not as strong as many would like.

Yes, the commodity markets powered ahead - with prices rising strongly - and demand from Asia and other emerging markets continued to expand but closer to the consumer in Europe, North America and Japan, the story is different. The world's largest coatings maker, Dutch group AkzoNobel, has provided a glimpse of that reality, as did Belgian vinyls maker Solvay. It is hardly surprising AkzoNobel wants to expand its decorative coatings business in China, India and Brazil. It is doing this on the back of brands such as Dulux, Glidden and Sikkens, or with new product offerings.

This is a €5bn ($6.8bn) revenue ­business and will play a major role in helping the company to target doubled revenues in China, along with strong top-line growth in India, Brazil, the Middle East and sub-­Saharan Africa.

AkzoNobel is not alone in facing tough trading conditions in parts of Europe. Solvay highlighted the still difficult construction market for vinyls in some countries in the fourth quarter of 2010.

AkzoNobel said that its fourth-quarter and full-year decorative paint sales were down 1% in constant currency exchange rate terms in Europe. Operating earnings for the segment were down in the latest quarter due to a weak performance in Europe, excluding the UK.

Not surprisingly, the focus had to be on "operational efficiency, complexity reduction, margin management and working capital improvement."

The situation was worse in North America in 2010, but appeared to be somewhat better in the fourth quarter, when year-on-year profits improved.

But this was the third year in a row of declining paint demand in the US, with nonresidential markets especially weak.

In the final quarter of the year, AkzoNobel began to ship branded paints to Walmart after it was selected as the ­primary paint supplier to the retail giant's US stores. The business in these mature economies − hard hit by the financial crisis and recession − is difficult, but in clear contrast to that in Latin America and other emerging markets.

The constant currency increase in sales for the paints maker in Latin America last year was 10% and in Asia 22%. "In Southeast Asia and Pacific, we had a record year," AkzoNobel said.

By: Nigel Davis
+44 20 8652 3214

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