Currency effects, raw materials weigh on AkzoNobel Q2 profit

LONDON (ICIS)–AkzoNobel’s second-quarter net income fell by 10% year on year to €271m amid adverse currency effects and non-recurring costs, the Dutch paints and coatings major said on Wednesday.

Revenue fell by 3% year on year to €2.45bn in the second quarter, while operating income declined 27% to €192m, the company said.

Operating income for the period was weighed by €21m in currency translation effects and €33m in identified costs, mostly related to the restructuring of the company, it added.

The move to reduce costs and increase profitability, with a target return on sales of margin of 15% by 2020 compared to 10.6% in 2017, delivered a €25m uplift during the quarter, but this was offset by the costs of the restructuring.

Pricing initiatives intended to claw back margins in the performance coatings division have started to pay off, with return on sales rallying to 11.8%.

Despite the improvement, profitability of the division continued to lag the 13.4% generated during the same period in 2017, the company added.

Production prices in the paints and coatings sector jumped dramatically last year, with the Netherlands-based producer reporting a €300m increase in feedstock costs for the division through 2017.

“Disciplined execution on the first phase of our transformation into a focused paints and coatings company is creating a fit-for-purpose organisation and delivering cost savings,” said AkzoNobel CEO Thierry Vanlancker.

“Revenue in constant currencies increased in all performance coatings segments except marine and protective coatings. Decorative paints delivered a particularly strong performance with pricing initiatives and cost savings compensating for higher raw material costs,” he added.

Decorative paints adjusted operating income during the quarter rose €2m year on year to €123m as higher pricing and costs controls balanced out currency headwinds and raw material costs.

Performance coatings’ adjusted operating income fell €30m to €172m as a result of adverse foreign exchange impact, lower volumes and higher costs.

Losses from other activities and charges rose to €70m during the quarter compared to €29m during the second quarter of 2017.

For the first half of the year, the company’s net income fell by 3% year on year to €524m, with revenue down 6% at €4.62bn.

“For the remainder of 2018, we expect positive developments for Decorative Paints and Performance Coatings, excluding Marine and Protective Coatings, where market conditions are still challenging,” AkzoNobel said.

“Raw material inflation is projected to continue for the remainder of 2018, although at a slower rate than during the start of the year.”

Conditions are expected to improve for paints and coatings through 2018, with the exception of laggard end markets for marine and protective coatings, but raw material inflation is likely to continue to be a factor, according to Akzo.

The company demurred from forecasting any rise or fall in earnings year on year.

(Update, adds detail throughout)

Picture source: AkzoNobel