AkzoNobel targets 50% of revenues from emerging markets

20 February 2013 17:03  [Source: ICIS news]

By Tom Brown

LONDON (ICIS)--AkzoNobel said on Wednesday that it has set its sights on higher-growth emerging markets to drive organic growth as part of the Netherlands-based chemicals company’s new strategic plan.

The company, which currently derives 44% of group revenues from markets such as China and Brazil, is seeking to increase that proportion to around 50%, to be achieved by strengthening operations and sales in the region, rather than through acquisition, according to CEO Ton Buchner.

Organic growth and efficiency also represent the key theme of AkzoNobel’s wider strategic review, which is to focus on increasing profitability through efficiency savings and simplifying production processes.

The company is also to concentrate its growth efforts on building its presence in its four key end markets – buildings and infrastructure, transportation, consumer goods and industrial clients. At 43% of group revenues in 2012, the buildings and infrastructure sector is by far the most significant of the company’s operations.

“The focus for us is not going to be on big transformational moves, it’s going to be about improving from within. If you’re talking about significant divestitures or significant acquisitions, that is not the focus of what we’re doing with this strategy,” said AkzoNobel CEO Ton Buchner at a company briefing.

Buchner also ruled out potential macroeconomic growth as a driver of growth in 2013, underlining the need for internal improvements as a means of developing at a time of stagnant markets.

“We do not expect significant winds to the back of our sails in 2013,” he added.

The company brought foward its efficiency savings programme - which has a target of €500m ($667m) in recurring earnings before interest, tax, debt and amortisation (EBITDA) savings - forward a year to 2013. To date, the company has realised EBITDA savings €250m, and anticipates the cost of achieving the remaining efficiency savings at €205m.

Part of those savings involve rationalising the sometimes overlapping product lines of various businesses acquired by the company over time, AkzoNobel said, as opposed to packaging portions of those businesses into a new organisation to be divested.

Buchner said: “We have acquired a number of companies over time, and many of those companies have overlapping product lines with different indications, with different packaging, and what we’re doing is consolidating those product lines.

“Packaging them as a new business and selling them out is not a focus, it’s simplifying what we offer to the customer and making it modular so that it also simplifies our manufacturing processes,” he added.

A notable exception to the company’s plans to avoid major acquisitions or divestments was the decision to sell its North American decorative paints business to PPG in December 2012 for $1.05bn. The rationale for this sale was that the company had decided against committing the level of investment to bring it in line with other business units, and is unlikely to be repeated with other units, according to Buchner.

“[The North America divestment] was quite significant for us. We looked at the market resources needed to making [it] into a leading [business], and decided to focus that energy elsewhere,” he said.

AkzoNobel derived 38% of its revenues from western Europe in 2012, and 15% from North America. Key high-growth regions include Asia Pacific, which generated 26% of the company’s revenue last year, and Latin America, which generated 11%.

China is likely to be a priority for the company as part of its emerging markets strategy, as demand for paints, performance coatings and speciality chemicals is starting to increase in the country, according to Akzo.

“What we see in China is that the reduction of growth we’ve seen in the last year in some of our activities is actually returning, not to the levels of the good past that we saw in the early days, but it is returning at growth levels that are significantly higher than those seen in Europe and North America,” said Buchner.

($1 = €0.75)

By: Tom Brown
+44 208 652 3214

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