Akzo swings to Q4 profit, revenue down on currencies, divestments

(updates with division details, analyst comment, additional detail throughout)

LONDON (ICIS)–Netherlands-based coatings major AkzoNobel on Thursday posted fourth-quarter 2013 net income of €51m compared with a €27m loss for the corresponding quarter in 2012, despite a drop in revenue as a result of currency effects and divestments.

Revenue fell by 5% year on year to €3.48bn in the fourth quarter of 2013, with divestments over the course of 2013 including the sale of its Building Adhesives business to Sika in October 2013, which it said resulted in €198m cash gains and cash flows of €247m, and the sale of most of its German decorative paints stores in late 2013.

The $1.05bn sale of AkzoNobel’s North American decorative paints business to PPG was also completed in April 2013, after being announced in December 2012.

Earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter was up 1.46% year on year at €208m, the company said in a statement.

Operating profit for the year was €958m excluding €61m of incidentals, or €897m taking those into account. The company had predicted early in January 2013 that its full-year operating income was unlikely to exceed the €908m posted for 2012.

CEO Ton Buchner said that after a sluggish first half of the year, the second half of the year showed some improvement as the global economy started to stabilise.

“While the first half of 2013 was impacted by weaker trading conditions and specific one-off events in Specialty Chemicals, the second half has shown early signs of stabilisation in several end markets,” Buchner said.

“We will further restructure our business, reduce our costs and drive organic growth. I am confident that we are on track to deliver on our 2015 strategic goals,” he added.

Buchner also noted that AkzoNobel has completed its performance improvement programme a year ahead of schedule, although further cost-cutting and related restructuring is ahead. The cost of restructuring in 2014 is expected to run to at least €250m.

Fourth-quarter operating income for the company’s Decorative Paints business was €146m compared with a €91m loss in the corresponding period in 2012, while revenue was down 6% year on year to €934m. Volumes increased 3% for the full year on the back of increased demand in all regions with the exception of Europe, which remained flat, the company said.

The division’s operating income bounce was buoyed by the €198m gain booked on the sale of AkzoNobel’s Building Adhesives business.

The Performance Coatings division’s operating income slumped 36% year on year for the quarter to €73m, while revenue dropped 2% to €1.37bn, on flat volumes and currency effects.

Full-year volumes dropped compared with 2012, attributed to difficult trading conditions, but a gradual strengthening of demand over the course of the year led to a 2% year-on-year rise in volumes for the closing quarter of 2013. Margins were stable despite higher restructuring costs.

Operating income for the Specialty Chemicals division slumped to a €30m loss compared with a €73m profit for the fourth quarter of 2012, while revenue fell 9% year on year to €1.2bn on the back of continued soft demand, AkzoNobel said, particularly in the construction products, pulp bleaching and plastics industry end markets.

The impact of weak demand was exacerbated by new plant start-ups and extended maintenance stops impacting production. Division income was also hit by a €139m impairment charge on a business held for sale, the company added.

US-headquartered analyst Bernstein Research said the results were above in-house and consensus estimates, noting that volume growth continued to be positive in the fourth quarter of the year. The firm maintained its ‘Outperform’ rating for AkzoNobel and its target share price at €68, compared with the €56 price tag the shares are currently trading for.

Bernstein called AkzoNobel “a turnaround case”, noting that it operates in fundamentally attractive businesses but tends to lag behind competitors, and that Buchner – who joined the company in April 2012 – had made encouraging initial steps in repositioning the company.

For the full year of 2013, the company’s net income surged by 88% year on year to €724m, while revenue slipped by 5% to €14.6bn. EBITDA was down by 5% year on year at €1.51bn in 2013.

AkzoNobel noted the stabilisation of several of its businesses was an encouraging sign for 2014, but noted that “the economic environment remains fragile and foreign currencies volatile”.

Additional reporting by Nurluqman Suratman