2Q11 EBITDA landed at € 551m (-10% y/y) which was in line with the guidance given at the end of June when the company issued a profit warning, thereby hinting at a 2Q11 EBITDA of € 550m (about € 100m below our and consensus forecast at that time) and a FY11 EBITDA being at least flat (vs previous guidance of at least 5% growth). The 2Q11 EBITDA was in line with the reduced css (€ 551m) and also our estimates (€ 550m).
Slightly surprising was the revenue performance, with growth of +5% in 2Q11 vs the +7% guidance previously indicated. FX accounted for -3% as guided, and M&A +1%. Pricing contributed +4% which was only a marginally higher than the +3% y/y trend seen in 1Q11 but this was also hinted at (note that the push towards mid tier segments in emerging markets in Deco Paints is denting the price component there with about 2%). Volumes were the main culprit for the slightly lower than expected revenue, growing by 3% y/y, which is a slowdown from the +7% trend seen in 1Q11. Deco Paints saw revenue growing by 4% to € 1,461m (KBCS 1,502m, css € 1,496m) with volume up 6%, price mix +2% and FX -4%. EBITDA declined by 7% to € 191m (KBCS and css € 195m). Europe saw a 3% revenue growth in constant currencies, with increased revenue in Russia and Turkey but lower demand in the mature markets. The important UK-market was impacted by downtrading.
Akzo plans additional price increase in Europe in the second half to offset rising raw materials costs. Revenue in the US was up 12% in constant FX (growth fully coming from the Wal-Mart contract). Revenue declined by 5% (constant FX) in Canada, while increasing 19% in Latin America. Revenue increased by 26% (constant FX) in Asia. Performance Coatings saw revenue increase by 4% to € 1,312m (KBCS € 1,326m, css € 1,341m) with EBITDA down 11% to € 170m (KBCS € 172m, css € 174m). Volume grew 2%, price/mix +3%, M&A added 3% while FX was negative at -4%. Wood Finishes and Adhesives is still the weakest part (-5%). Specialty Chemicals saw revenue increasing by 7% to € 1,350m (KBCS € 1,357m, css € 1,364m) while EBITDA was down 14% to € 220m (in line). Volume was up 1%, Price/mix +8% and FX -2%.
Guidance : Akzo reiterated the FY11 guidance given at the time of the profit warning of at least in line EBITDA vs 2010, assuming no further deterioration in economic conditions. The company is implementing additional savings measures which it claims should ensure that the company’s growth ambitions are delivered at or above the mid-point of the 13-15% EBITDA margin guidance (which sounds to us as a return to the old 14% EBITDA margin guidance given prior to last year’s Capital Market Days in September).
Conclusion:
2Q EBITDA was in line with the profit warning although top line came in lower than expected, due to decelerating volume growth. After 4 consecutive quarters of margin pressure due to high rawmats (up about 20% y/y at the end of 2Q11), visibility on when Akzo can fully recover the higher rawmats still remains limited. Combining this with the decelerating volume growth means there is no imminent trigger for the shares. However, we decided to stick to our Accumulate rating and € 55 target price, as we continue to like Akzo for its leadership position in the global coatings market, with excellent emerging markets exposure (40% of revenue) and attractive valuation.