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AKZO NOBEL: 3Q11 results

AKZO NOBEL: 3Q11 results

20.10.2011 11:45

Akzo’s 3Q11 results were in line with our and consensus forecasts, with REBITDA declining by -12% y/y to € 507m (KBCS € 500m, css € 509m). Revenue grew by 5% to € 4,051m (KBCS € 3,993m, css € 4,008m), broken down as follows: volume +1%, pricing +6% and FX -2% which means a slightly softening volume trend (2Q11 : +3% y/y) but a slightly firming pricing trend (2Q11 : +4% y/y). Net profit declined by 37% to € 149m (KBCS € 185m, consensus € 183m), mainly due to incidentals (restructuring provisions).
Decorative Paints grew revenue by 5% to € 1,435m (KBCS € 1,405m, css € 1,413m), with volumes up 4%, price/mix +3% and FX -2%. Revenue (inconstant currencies) grew by 4% in Europe, by 10% in Asia and by 4% in the US. REBITDA declined by 25% to € 148m (KBCS € 162m, css € 169m) given continued high raw materials costs and downtrading.

Performance Coatings grew revenue by 5% to € 1,295m (KBCS € 1,288m, css € 1,282m), with volumes up 1%, price/mix +7% and FX -3%. REBITDA declined by 5% to € 157m (KBCS € 157m, css € 155m). Marine was affected by a decline in newbuild and Wood was affected by weak construction markets in mature markets, which is no surprise.
Specialty Chemicals grew revenue by 6% to € 1,349m (KBCS € 1,313m, css € 1,336m), with volumes down -1%, price/mix +8% and FX -1%. REBITDA declined by 6% to € 238m, which was better than our and consensus forecasts (KBCS € 217m, css € 221m), given better pricing.

FY guidance scrapped: We remind that Akzo (35,7 EUR, 2,34%) had lowered its initial FY guidance calling for an at least 5% higher REBITDA at the end of June to an EBITDA at least in line with 2010. Akzo no longer gives guidance on 2011 which is no majorsurprise as we and consensus were already expecting an approximately € 100m lower figure (KBCS € 1,862m, css € 1,866m vs € 1,964m in 2010). Important are the outlook comments on raw materials. Raw materials costs were up 2% sequentially in 3Q11 (no surprise) and management anticipates further increases (previously they commented of a levelling off of rawmats in 3Q), which should be moderate except for titanium dioxide (still tight supply/demand balance). Medium term ambitions of a € 20bn revenue figure and a 13-15% EBITDA margin were maintained.

New costs savings program announced: Akzo Nobel announced a new savings program with a € 500m target by 2014 (€ 200m in 2012). This announcement itself is no major surprise as already hinted at at the time of the 2Qresults release, although the size is clearly bigger than we anticipated (€ 200-300m). We have seen some anecdotal evidence already of new savings measures like the scrapping of about 65 jobs at the Belgian Deco Paints business. Note that Akzo hinted at incidental costs of about € 425m.

Conclusion:
3Q11 results were in line with our and consensus forecasts. The scrapping of FY guidance is no major surprise and was already incorporated in our and consensus forecasts prior to the 3Q results release. Despite the sticking delay in offsetting raw materials price hikes and weak construction markets in Western Europe and North America, we decided to stick to our Accumulate rating as we still like Akzo for its leadership position in the low-capital intensive coatings industry with good emerging markets exposure and a clear valuationdiscount vs coating speers.


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