AkzoNobel has earned right to pursue bolt-ons – CEO

AMSTERDAM (ICIS)–After several years of streamlining management, increasing efficiency and realigning the company, AkzoNobel has earned the right to pursue bolt-on acquisitions to augment earnings in a tepid macroeconomic environment, CEO Ton Buchner said on Wednesday.

In 2015, the company met the targets of a three-year programme to cut debt and increase returns, leaving it in a position to pay dividends out of its own operational cashflow for the first time in several years.

With net debt to earnings down to 0.6 times as of the end of 2015, the company is in a position to pursue bolt-on acquisitions, according to Buchner.

“Now that we are cashflow positive, we have earned the right to participate in bolt-on acquisitions… which would allow us to build the company further,” Buchner said, speaking at the company’s Amsterdam headquarters.

“Our focus would be in areas where we can either geographically add strength to our portfolio… or [add] a technical or an innovative product,” he added.

The focus remains on organic growth. Acquisitions would be dependent on what opportunities emerge, which is not predictable enough to function as a major part of the company’s strategy, Buchner said.

“[Dealflow] is so opportunity-driven that it could never be a core strategy,” he noted.

The company also has some flexibility in its financial obligations for the year depending on what acquisition opportunities come into play, according to AkzoNobel CFO Maelys Castella.

A €300m bond matures this year that does not necessarily need to be renewed, but could be depending on the favourability of financial terms and acquisition opportunities that may emerge, Castella said.

Earlier on Wednesday, AkzoNobel said its net income surged to €203m in the fourth quarter of last year from €7m in the same period of 2014 on the back of higher operating earnings. Profits rose for the quarter and the year as a whole compared to 2014, but the company predicts a tough 2016 with limited support from key markets.

“We expect 2016 to be a challenging year. Difficult market conditions continue in Brazil, China and Russia. No significant improvement is anticipated in Europe, particularly in the Buildings and Infrastructure segment. Deflationary pressures continue and currency tailwinds are moderating,” AkzoNobel said in its full-year report.

Fourth-quarter revenue rose by 1% year on year to €3.56bn in the fourth quarter while operating income surged to €345m from €83m in the same period of 2014, the company said.

For the full year of 2015, the company’s net income rose by 79% year on year to €979m while operating income was 59% higher at €1.57bn, it said

The jump in operating income in 2015 was “a result of process optimisation, lower costs, reduced restructuring expenses, favourable currency developments and incidental items”, the firm said.