19 July 2013 16:46 [Source: ICIS news]
By Nigel Davis
LONDON (ICIS)--Restructuring is likely to drive AkzoNobel’s performance in the second half, not the market.
The second quarter was difficult the coatings and specialty chemicals producer said on Thursday, with market conditions deteriorating towards the end of the period.
One of the first European chemical companies to report on the second quarter, Netherlands-headquartered AkzoNobel said it benefitted from lower priced titanium dioxide (TiO2) and lower priced oil but not much else.
“Conditions remain tough and we do not expect an early improvement,” CEO Ton Buchner told a media teleconference.
The outlook for other European companies is likely to be similar to that from AkzoNobel. European chemicals demand, particularly into industrial markets, is poor. And demand growth in China for chemicals to help fuel the country’s export-led industrial economy has slowed. Growth expectations have been downgraded.
The slowdown, however, extends beyond China’s export engine, AkzoNobel has cautioned.
Buchner said his company had not seen any general recovery in India and that while Brazil’s economy was still active, Brazilian currency exchange rates had shifted markedly in the past six months.
“The economic environment remains challenging and AkzoNobel does not expect an early improvement in the trends faced in its end-user market segments,” Buchner said in a press statement.
The firm saw volumes rise in decorative coatings but gains were lost to lower prices and adverse exchange rates. The performance (largely industrial) coatings businesses reflected the tough industrial market environment in Europe and the weakness being shown in other parts of the world.
There was some volume growth in aerospace and marine coatings but volume contraction in other industrial segments. The mixed bag of outcomes reflected the uncertain and patchy nature of the recovery in some markets and the concerns beginning to arise in others.
Volumes declined in all businesses in the company’s specialty chemicals segment but particularly in construction, agriculture and pulp bleaching, AkzoNobel said.
“A general softening in demand was evident, notably in Europe, although manufacturing also slowed down in China and other high growth markets, impacting global supply chains and adding to the volatility in ordering patterns.”
AkzoNobel has restructured extensively lately and has improved structurally with the sale of its North America decorative paints business. But operational restructuring has to continue, Buchner stresses, with the focus now on the specialty chemicals segment, particularly on ‘functional chemicals’ - a range of industry-oriented intermediates businesses.
AkzoNobel’s is largely a restructuring story currently and that is why the firm’s stock is often tipped by investment analysts. But questions are being asked about the company’s performance prospects given that markets have slowed further and as more detail of the latest phase of restructuring is revealed.
AkzoNobel will have cut 2,500 full-time jobs between 2012 and the end of 2013 and closed 20 plants.
The cuts in functional chemicals will begin in the third quarter of 2013 and 350 more jobs will be affected, most in and around Europe.
The company’s latest performance improvement programme aims to deliver an additional €500m in earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of 2013. The programme produced EBITDA of €131m in the first half, AkzoNobel says. The costs of the programme are phased largely towards the end of this year and because it has been brought forward from 2014 is costing more.
Some financial analysts don’t think the company is going far enough on the costs front and struggle to see where the benefit of lower raw material prices and the slight volume uptick in decorative paints has been captured.
They raise concerns too about the second half and suggest that more costs savings might be required.
ICIS News reported on Thursday that JP Morgan Cazenove had called the called the results “disappointing”. This investment bank thinks that the weak showing by the specialty chemicals segment could be a bellwether for the industry.
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