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AkzoNobel Volumes Inch Up

Wednesday, July 20, 2016

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Amsterdam-based AkzoNobel released its second-quarter earnings report Tuesday (July 19), revealing good news in each of its three main business lines, but noting challenges stemming from unfavorable currency effects and a volatile market.

The paint, coatings and chemicals company indicated in the report that overall volumes were up 1 percent, primarily as a result of activity in the Decorative Paints and Performance Coatings areas, according to its Q2 earnings report.

Ton Buchner
Images: AkzoNobel

“During the quarter we increased volumes while improving profitability across all business areas, showing the ongoing resilience of our business," CEO Ton Büchner said of AkzoNobel's Q2 performance.

Earnings before interest and taxes (EBIT) grew by 9 percent to €491 million (about $540 million) from 2015, which the manufacturer attributed to continuous improvement initiatives and lower costs, though the increase was partially offset by adverse currency effects, it said.

Revenue fell 6 percent to €3.7 billion ($4.07 billion) because of unfavorable currency pressures, it added.

The company also saw a 13.2 percent improvement in return on sales, as well as a 15.1 percent growth in return on investment. ROS and ROI improved for all business areas, it noted.

Q2 Accomplishments

“During the quarter we increased volumes while improving profitability across all business areas, showing the ongoing resilience of our business," said AkzoNobel CEO Ton Büchner.

“We were delighted to open our largest technology center in China, which will support product innovation and the development of next-generation paints, coatings and specialty chemicals,” he added.

“We were also ranked number one in our industry on the influential FTSE4GOOD index of sustainable companies, reinforcing our commitment to embedding sustainability at the heart of our business strategy.”

The FTSE4GOOD index was designed to measure the performance of companies demonstrating strong environmental, social and governance (ESG) practices. Investors use the indices to help identify companies that meet these globally recognized corporate responsibility standards.

Akzo Shanghai center

Büchner called out the recent launch of the company's paint and coatings research and development facility in Shanghai among its major second quarter accomplishments.

Results for each of the three business areas follow.

Decorative Paints

The company’s Decorative Paints division showed that positive developments in the Asia market contributed to an increase in volumes and drove a 2 percent improvement in EBIT. However, these gains were reported to be “more than offset by unfavorable currency effects.”

In Latin America, volumes continued to be down, and they proved to be slightly lower in Europe as well. Overall revenue for this area was down 7 percent.

Performance Coatings

In the Performance Coatings area, demand differed per region, the company noted. Here, too, higher volumes were reported to be more than offset by adverse currencies. This resulted in a revenue decrease of 5 percent.

Performance Coatings saw an increase in EBIT as a result of higher volumes, continuous improvement initiatives and lower costs, although this was limited to 1 percent due to unfavorable currencies.

Akzo Q2 infographic

Despite achieving positive developments in all three of its business areas in the second quarter, the manufacturer acknowledges that the market outlook remains uncertain and currency pressures are likely to continue.

For this area, the manufacturer highlighted completion of phase one of the expansion of its protective coatings facility in Cikarang, Indonesia. The expansion is expected to increase capacity at the facility by 40 percent to help it meet growing domestic demand, it said.

Specialty Chemicals

In the Specialty Chemicals division, volumes were flat overall. Positive developments in some business segments balanced out by lower demand in oil-related segments, the company said.

Revenue was down 7 percent, mainly due to the 2015 divestment of its Paper Chemicals business, adverse currency effects and price deflation in several segments.

EBIT reportedly rose 10 percent as a result of operational efficiencies and lower costs.

Outlook

Looking ahead to the second half of 2016, AkzoNobel noted that the market environment remains uncertain and challenging conditions are expected to persist in several countries and segments.

“Deflationary pressures and currency headwinds are expected to continue,” Büchner noted. However, he added, the company’s ongoing focus will remain on driving continuous improvement and organic growth across its business areas.

   

Tagged categories: AkzoNobel; Coatings manufacturers; Decorative coatings; Earnings reports; Finance; Market trends

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