Lower costs help lift AkzoNobel’s Q3 profit, but sales down 2%

Jonathan Lopez

21-Oct-2014

(Adds information on divisions’ performance)

AkzoNobel headquartersLONDON (ICIS)–AkzoNobel’s third-quarter net profit increased 32% year on year to €205m, backed by lower costs and a strong performance from its specialty chemicals segment, the Dutch producer said on Tuesday.

However, the strong profit growth comes despite a general fall in revenues for the three months ending in September, slipping 2% to €3.69bn, the company said.

The growth in third-quarter profit in various divisions came on the back of lower costs on the back of AkzoNobel’s restructuring programme.

The company’s largest division, Performance Coatings, sold products worth €1.4bn during the third quarter of 2014, flat compared with the the same period of 2013, and both its operating income and its earnings before interest, taxes, depreciation and amortisation (EBITDA) suffered as a consequence: €135m (down 16% year on year) and €170m (down 12%), respectively.

Among the Performance Coatings subdivisions Industrial Coatings, the largest, saw sales declining 2% to €454m in the third quarter, while Marine and Protective Coatings registered higher sales, 2% up to €379m. 

Powder Coatings managed to increase its sales, up 2% to €260m during the third quarter of 2014 compared to the third quarter of 2013, and Automotive and Aerospace Coatings increased sales 1% during the third quarter to €336m.  

Although volumes for the division as a whole were up 2% compared to the third quarter of 2013, prices and negative exchange rates took off 1% each, offsetting the growth in volumes.

“Cost control measures [at Performance Coatings] continued in all businesses. The new organisational structures reduces the number of management layers, resulting in higher restructuring costs in the quarter,” said the company.

The decrease in revenue was also repeated in the company’s second largest division, Specialty Chemicals, with €1.2bn, down 1% compared to the third quarter of 2013. EBITDA stood at €232m in the September quarter, up 25% year on year, with operating income at €156m, up 46%.

The largest subdivision within Specialty Chemicals, Functional Chemicals, registered sales of €477m during the third quarter of 2014, up 1% compared to the third quarter of 2013 but the other three either remained flat or decreased their sales. 

Industrial Chemicals saw sales down 8% to €279m during the third quarter of 2014, Surface Chemistry’s sales stood flat at €257m and Pulp and Performance Chemicals were also flat at €258m.

“[At Specialty Chemicals] Revenue declined due to adverse currency developments and price pressure in some segments, such as caustic. In general, the market conditions in Europe have slowed after a promising start to the year. The US gained further momentum after a slow start to the year,” said the company.

However, it conceded the growth in profitability came on the back of the “benefits from restructuring activities and cost savings, as well as lower restructuring costs.”

AkzoNobel’s Decorative Paints division’s revenue stood at €1bn during the third quarter of 2014, down 8% compared to the third quarter of 2013, although operating income managed to grow 6% to €113m and EBITDA did so by 3% to €150m.  

The main subdivision at Decorative Paints, Deco Europe, Middle East and Africa’s, registered a notable fall in revenue during the third quarter, 13% down to €616m, with the other two divisions registering a slight increase in revenue. 

Decorative Paints Latin America’s sales were up 1% to €157m during the third quarter, year on year, and Decorative Paints Asia was up also 1% to $278m.

“In Europe, volumes fell slightly [at Decorative Paints], while revenue was lower due to the divestment of Building Adhesives and the sale of the German stores. Markets in continental and Eastern Europe were challenging,” said the company.

AkzoNobel posted a nine-month net profit of €539m for the first nine months of 2014, representing a 20% decline from the previous corresponding period, with sales down 3% to €10.8bn, the company said, although it assured it is confident it can hit its own 2015 targets.

The company’s CEO said he was satisfied with a “solid Q3 performance” taking into account the economic uncertainty although he conceded the market conditions are still a challenge.

“Conditions continue to be challenging, but we have a resilient strategy focused on stimulating organic and sustainable growth. Coupled with the benefits from our ongoing operational efficiency programs, we are on track to deliver on our 2015 targets,” he said.

UK-investment bank JP Morgan Cazenove said AkzoNobel’s results were in line with forecasts thanks to lower costs, although it said trading remains “tough” with a 0% organic growth. The bank kept its ‘Neutral’ recommendation on its share purchasing recommendation for the company’s stock.

“The result has been boosted by stronger margins (particularly in the Decorative Paints and Specialty Chemical businesses), buoyed by cost savings and lower restructuring charges. However, organic sales growth of 0% (volumes +1%, prices -1%) demonstrates trading has remained tough and the operational leverage of the Group has yet to be demonstrated following around two years of cost cutting,” said JP Morgan Cazenove.

Additional information by Pearl Bantillo

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