Last updated: July 18, 2013 5:55 pm

Akzo Nobel misses earnings expectations

Akzo Nobel paints©Bloomberg

Shares in Dutch coatings and chemicals group Akzo Nobel dropped sharply after operating earnings fell 17 per cent in the second quarter compared with a year earlier, below analysts’ consensus expectations.

Akzo Nobel, still one of the world’s two largest paint companies by revenues despite recent divestments in the US and Asia, said it is on track to complete its €500m cost-cutting programme by the end of 2013, a year ahead of schedule.

In addition, the company announced new cost-cutting measures it expects will cost €120m to effect.

Weak demand held earnings down in all three of the company’s divisions: decorative paints, performance coatings and speciality chemicals. Akzo Nobel said conditions continued to worsen in Europe, and that sales were also slacking off in growth markets.

“We don't expect much improvement in 2013,” said Ton Büchner, chief executive. “At the beginning of this year you saw a lot of companies saying things will get better in the second half. We didn’t, and we think that was the right call.”

Mr Büchner said the new cost-cutting measures would mean higher restructuring charges this year, and that operating income for 2013 was unlikely to be higher than in 2012.

Revenue fell 4 per cent year on year to €3.9bn, but lower revenue was expected because of divestments.

Last year the company sold its North American decorative paints division to rival PPG for $1.1bn and divested its speciality chemicals arm in Pakistan for $150m.

But operating income fell more sharply than anticipated, coming in at €322m, 3 per cent below analysts’ consensus. Return on sales also fell, to 8.3 per cent this quarter, from 9.6 per cent a year ago.

Mr Büchner, who took over the reins last year, has said he will concentrate on making the group leaner and more profitable. That has involved major restructuring costs and more than 2,500 job cuts, with the group promising that improvements in the bottom line will become visible in 2014.

Mr Büchner detailed a long series of streamlining measures the company is carrying out, including closing 24 factories and numerous research and development facilities in 2012 and 2013, as well simplifying manufacturing processes to use similar batches of raw materials.

“At this point the closings are in the mature markets,” mainly Europe, Mr Büchner said. “We have not got to the point of mothballing facilities in high-growth markets” such as China or India, he added.

While sales of consumer decorative paints in China are growing solidly, Mr Büchner said sales to business customers manufacturing for export were suffering, reflecting the shift of the Chinese economy from exports to domestic consumption.

“That shift will not be linear,” Mr Büchner said. “Traditionally the specifications for products that were intended to be shipped to the US or Europe were much higher. Now they need to develop new products that address local consumption on a good-enough basis.”

Net profits nearly doubled to €429m, largely because of the sale of the North American decorative paints division.

Shares closed down 8 per cent to €43.50 on the Amsterdam exchange, against a 0.75 per cent rise in the AEX index.

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