AkzoNobel 2011 coatings, paints earnings hit by raw material rises

16 February 2012 15:32  [Source: ICIS news]

by Cuckoo James

LONDON (ICIS)--Earnings before interest, tax, depreciation and amortisation (EBITDA) at AkzoNobel’s decorative paints segment fell by 20% year on year in 2011, while EBITDA at its performance coatings business decreased by 6%, driven primarily by raw material price inflation, the chemicals producer said on Thursday.

Revenue rose by 7% at the Dutch company's decorative paints segment, and by 8% at the performance coatings division, mainly through price increases and increased volumes.

Referring to the company’s decorative paints segment, CEO Hans Wijers said: "This business has been particularly impacted by the raw material price inflation.”

Raw material price increases were a significant concern in all its business segments in 2011, putting the weighted average increase in raw material prices for the year at 16%, the company said.

“The absolute impact of increased raw material prices for the year is approximately €1bn [$1.3bn], accounting for almost the entire increase in cost of sales,” said AkzoNobel.

However, Wijers added: "In many of the raw materials we see stabilisatiion. It might still go up, but not to the degree we have seen in the last year. But the other uncertainty is oil… because of the Iran situation, again if you have a political situation that would drive feedstock prices up, it will affect feedstock prices."

Revenue was up in both the decorative paints and performance coatings business units, mainly because of pricing actions to offset raw material cost inflation, he said.

The full-year revenue increase of 7% at the company's decorative paints segment was partly due to volume and price increases of 5% and 3% respectively, while there was an adverse impact from currencies of 1%.

"It [volume growth] is a mixed picture across the globe. China has a good growth. Volume growth in western Europe is negative,” said Wijers.

In performance coatings, the full-year revenue growth of 8% was partly due to volume and price increases of 2% and 5% respectively.

The company did not released region-specific volume figures for either segment.

Wijers stressed the need for investment in innovation if cash-strapped customers were to continue purchasing higher-priced products: "It is not just about putting up prices to meet our raw material costs, it is about performance, how we manufacture, can we price as competitively as we can?"

Demand for decorative paints declined in Europe in 2011, while growth rates achieved in China and southeast Asia outpaced market growth. However, the pace of market growth slowed down even in these markets in the second half of the year, the company said.

In the performance coatings sector, industrial coatings showed the largest volume increase, driven by good performances in packaging and coil coatings, while wood finishes and adhesives had lower volumes because of weaker demand in the housing market.

Looking at 2012, Wijers highlighted the need for strong political leadership in Europe.

"You can't continue to kick the can forward and have another summit. It is not rocket science, you need some courage to do it, but it is quite clear that it has to happen now," he said.

“Also in certain Asian markets, people have been using the breaks. There is also ongoing wage inflation, not only in Europe and [the] US but also in countries like China and Brazil. It will be an interesting year,” he added.

($1 = €0.77)

By: Cuckoo James
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