Last updated: July 19, 2012 6:11 pm

Akzo Nobel profits hit by one-off charges

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Akzo Nobel, the Dutch coatings and chemicals company, beat analysts’ expectations with second-quarter earnings and revenues up 8 per cent year-on-year, as higher prices more than compensated for lower volumes.

The world’s largest paint and coatings company by sales reported revenues of €4.41bn and earnings before interest, taxes, depreciation and amortisation at €593m. Shares ended the day up more than 6 per cent at €43.05.

But the company warned that continued macroeconomic weakness, especially in Europe, would likely weigh on future results. Net profits fell 22 per cent to €197m because of one-off charges, the company said.

The quarter was the first results day for new chief executive Ton Büchner after taking over in April from Hans Wijers, who led the company for a decade.

Mr Büchner, who previously served as chief executive at Swiss mechanical group Sulzer, said his strategy would be to concentrate on operational improvements rather than big acquisitions or divestments.

“We are not focusing on portfolio changes,” he told the Financial Times. “Our focus going forward will remain performance improvement, margin improvement and cash flow improvement.”

Mr Büchner said further details would be provided at a strategy update in October.

Mr Wijers transformed Akzo, formerly a broad chemicals, coatings and pharmaceuticals conglomerate, into a more streamlined business. But the company has underperformed since the financial crisis against competitors such as Sherwin Williams and PPG.

Mr Büchner’s comments put to rest periodic speculation by analysts that Akzo might focus further by cutting back its consumer decorative paints or speciality chemicals businesses.

The company hopes Mr Büchner can bring some of the same concentration on efficiency he brought at Sulzer, where ebitda rose 5 per cent between 2007 and 2010 even as revenues fell from €3.5bn to €3.2bn.

AkzoNobel's revenues were hit by sharp slowdowns in Europe and in south-east Asia and by slower growth in Latin America and in China, where the company has said it aims to double its 2011 sales by 2015.

But the slowdown in China was concentrated on coastal areas, as manufacturers shift operations to central and western regions of the country, where labour is cheaper.

“We see continued growth in the inland, western side of China,” Mr Büchner said. He said the company would look to open new sales offices and factories in western China to take advantage of the trend.

The company's chief sensitivity is the ongoing recession in Europe. “We see Europe with no significant recovery going forward,” Mr Büchner said.

The results handily beat analysts' consensus of €4.34bn in revenues and €569m in ebitda. The company grew revenues in its performance coatings division by 12 per cent despite increases in the price of titanium oxide and other crucial raw materials.

The company said its cost-cutting programme, expected to deliver €200m in annual savings by the year end, was on track. The programme will cost €200m this year but is projected to add €500m to annual earnings when complete in 2014.

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