Dutch AkzoNobel to further implement savings in 2014

11 March 2014 17:25 Source:ICIS News

LONDON (ICIS)--Dutch producer AkzoNobel will keep implementing its savings programme through 2014 after achieving €545m in savings in 2013, said the company’s CEO Ton Buchner on Tuesday, who expects the economic environment to remain fragile.

Buchner said the company will focus now on achieving an improvement in returns and cash flow. The company will focus on what it calls ‘high-growth’ markets - emerging markets (EM) like China, India or Brazil - despite “potential difficulties” for future growth in China.

“We are aware the impression of growth markets changed in late 2013, but [AkzoNobel’s] good position as a global company is an advantage. [Nevertheless, we have seen] consumer confidence declining in India and Brazil, as well as potential difficulties for further growth in China, and we are looking at that closely,” said Buchner.

AkzoNobel’s in February reported a 2013 operating income of €958m in 2013, up from €908m in 2012, but revenue fell 5% to €14.6bn. Earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2013 also feel slightly to €1.51bn from the €1.6bn registered in 2012.

The reorganisation the company has been undertaking also saw the workforce fall sharply from the 50,610 employees the company had in 2012 to 49,560 it closed 2013 with.

AkzoNobel’s Decorative Paints division will keep reducing its presence in Europe, although it expects the region’s market to recover as the housing market has “bottomed out” and many projects are pending complexion, said the division’s head, Ruud Joosten.

At €398m in 2013, operating income tripled what Decorative Paints achieved in 2012, although revenue fell slightly to €4.17bn in 2013 from €4.30bn in 2012. Joosten said the division’s “big jump” in its income, after a disappointing 2012 and its presence in high-growth markets, positions it to be fully profitable in the future.

AkzoNobel hosted its capital markets day in London on Tuesday and painted a rather rosy panorama of the company’s position globally in all divisions, although Europe continues to be a region in which the recovery could derail and the company expects to further reduce its presence in the region, according to Joosten.

“The European part is still slow. [We have seen] a clear pick up in the UK market in building and maintenance [and we think] the European housing market has bottomed out. [Therefore], there is no doubt Europe will pick up. After five years [of downturn], there are a lot of projects pending, a lot of maintenance which needs to be done. So Europe could be a big market for years to come,” said Joosten.

Another big market for Decorative Paints AkzoNobel is focused on is what it calls “high-growth” markets like China, Indonesia and India. The company reported €1.1bn in revenue from this region in 2013 and expects to increase the figure in coming years. It also expects growth in Brazil and Argentina.

The division has experienced deep changes in the last five years from a combination of the economic downturn and its own integration process with the acquired ICI. From 80 sites in total in 2009, the Decorative Paints division has reduced that figure to 45.

It is also putting forward what it calls mega-plants in Brazil, China, Poland, France and the UK. The Brazil plant, for example, has capacity for 200m litres/year, according to Joosten.

“These mega sites use the latest technology in paint production [and they achieve] almost continued production [making them] far more efficient than the old badge system,” said Joosten.

He added the company will try reduce TiO2 consumption, which currently accounts for 20% of raw materials at the Decorative Paintings division.

AkzoNobel is convinced brands both consumers and professional painters choose has a lot of to do with sentiment and brand recognition. Joosten said the group was “in contact with TV producers” to bring programmes back to the West’s television channelswhich show ways painting houses and business spaces.

“[These programmes] were popular in the West 15 years ago, but the downturn changed that and they all started producing cooking programmes. People have had enough of cooking, and as people get more interested in decorating and painting they will get interested again [in that type of programmes],” said Joosten, who sees the marketing and social networking as fundamental for AkzoNobel to expand.

The group's Performance Coatings division saw operating income fall slightly to €525m from the €542m posted in 2012, while revenue also fell from €5.7bn to €5.57bn. The division’s head, Conrad Keijzer, was quite critical with the division’s performance as growth has come mostly from mergers and acquisitions and pricing, but not from organic growth.

“We have grown quite nicely in recent years, but through M&A and pricing. Organic growth has been limited. We need to step up ability to grow organically as we haven’t stretched to full potential yet,” Keijzer said.

Return on sales stood at 9.4% in 2013, while return on investment at 21.3%. By 2015, the Performance Coatings division expects to achieve a return on sales of 12% and a return on investment of 25%, Keijzer added.

This division has also undertaken a reorganisation process and has closed three factories in China as well as eight large manufacturing sites.

Finally, AkzoNobel’s Specialty Chemicals division reported operating income at €297m in 2013 and revenue at €4.5bn (down 40% and 10.7% respectively), while return on sales stood at 6% and return on investment at 8.2%.

Werner Fuhrmann, responsible for the Specialty Chemicals division, said the company expects to improve those returns by 2015 to 12% in the case of sales and to 15% in revenue.

Fuhrmann was vocal about the energy disadvantage in which he thinks Europe is falling on given the shale gas revolution in the US and the addition to downstream businesses of producers in the Middle East.

“[There is] New competition coming up from the Middle East, but we look at it not as a thread but as an opportunity [as we want to] position ourselves to benefit from the changes in the region,” he said.

“In North America with the shale revolution prices [are] a third of what they are in Europe. In North America there is a positive mood in the chemical industry, while in Europe you hear sometimes [the region] is closed for business,” added Fuhrmann.

By Jonathan Lopez