Analysts see costs, volumes impact on AkzoNobel's H2 performance

19 July 2012 10:55  [Source: ICIS news]

By Nigel Davis

AkzoNobel headquartersLONDON (ICIS)--The key earnings drivers for coatings and specialties maker, AkzoNobel, are volumes, possible input cost moderation and cost savings, financial analysts said on Thursday.

The Netherlands-headquartered company reported second quarter net profits down 25% year on year at €201m ($245m) partly due to higher incidental charges.

Sales were up 8% at €4.41bn and recurring earnings before interest, tax, depreciation and amortisation (EBITDA) up 8% at €593m.

Higher titanium dioxide (TiO2) costs continued to be a burden in the quarter and hit profitability in the firm’s coatings segment. But the company said that the rate of cost inflation in the second quarter had eased although over the year average raw material costs would be higher.

Recurring EBITDA was 2% ahead of its expectations and 4% ahead of market consensus, analysts at Credit Suisse said.

They noted that, divisionally, AkzoNobel’s decorative paints business continues to struggle on weak volumes but that coatings’ revenues were helped by marine and automotive demand. The specialty chemicals performance remains robust, they said.

JP Morgan Cazenove highlighted that the company notes weak demand for decorative paints in Asia and Europe, a delayed recovery in the US property market and “muted order patterns in selected businesses".

“The outlook remains cautious,” they said.

AkzoNobel’s performance coatings and specialty chemicals had a strong quarter while the performance of decorative paints was “slightly weaker than expected,” Bernstein Research said.

“Key uncertainties remain around the macro environment, with a risk of a European recession, a delayed recovery in the US property market and the potential of a slowdown in Asia,” its London-based analysts added.

Credit Suisse cautioned investors to expect further volume weakness in the second half but forecast that cost inflation moderation should start to benefit AkzoNobel from late in the third quarter and that the retention of costs savings will play a part in future performance.

“The overall performance in our Q2 [second quarter] results is solid given the increasingly difficult economic environment,” AkzoNobel's new CEO Tom Buchner said in a statement

“The opportunity remains to increase return on capital, cash generation and margins, which is why the immediate priority for me and the leadership team is performance improvement.”

($1 = €0.82)


By: Nigel Davis
+44 20 8652 3214



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