(36,45 EUR, 1,59%) hosted a Decorative Paints teach in yesterday in Amsterdam. Here are some key take-aways:
On current trading conditions : The company commented that the deteriorating trends seen in the third quarter are continuing in the fourth quarter. The company flagged that one-offs including inventory write-downs etc would impact 4Q results by some € 15-20m negatively.
On raw materials prices and pricing initiatives : As was indicated already at the time of the 3Q results release, expects titanium dioxide prices to continue to increase in 2012 as well, while overall raw materials costs are levelling off. indicated that further price increases are implemented in the fourth quarter and the company has agreed on new price increases in Deco with big box retailers which should start to land in January 2012.
On cost savings : We remind that has announced a € 500m savings program (by 2014) at the time of the 3Q11 results release of which about € 200m should be achieved next year. Overall Deco savings should represent at least 40% of total savings, and will come from a wide array of measures like the further roll out of SAP, further SKU rationalisation, sharing best practices, lowering the variety of formulations etc
On the key strategic directions : is investing in sustainable solutions with the goal of increasing the share of Eco+ solutions from around 22% today to 30% by 2015. The company is also focussing on growing in emerging markets, with the ambition to increase their share of group sales from around 40% today to 50% by 2015. In China the group aims to increase the number of outlet points from about 4000 today to 7000 by 2016 with growth not only coming from the move into tier3-4 cities but also the anticipated emergence of a renovation market in the Eastern provinces, where the company is already market leader. In the business unit India & South Asia (Sri Lanka) the company aims to increase Deco revenue from € 185m in 2010 to roughly € 470m in 2015, with a market share growing in premium from roughly 20% today to 28% by 2016.
Our View:
The deteriorating trend in volumes itself is no major surprise given recent macro data like consumer confidence. One can question however whether the statement was meant to further lower the analyst consensus or not. We forecast overall 2% revenue growth in Deco Paints in 4Q11 (3Q11: +5% y/y) with positive pricing and volume growth in emerging markets offsetting a decline in Europe. On group level we forecast 4% revenue growth to € 3762m (css € 3731m) and a 5% reduction in Normalized EBITDA to € 359m (css € 356m). We stick to our Accumulate rating for now and although we do not see any short term triggers we still like for its global market leadership position, significant emerging markets exposure and attractive valuation.