Akzo’s 4Q11 results were lower than our and consensus forecasts, with REBITDA declining by -20% y/y to € 301m (KBCS € 325m, css € 315m). Revenue grew by 5% to € 3,787m (KBCS € 3,762m, css € 3,717m), broken down as follows: volume -2%, pricing +6%, M&A +1% and FX flat which means a softening volume trend (3Q11 : +1% y/y) and an unchanged pricing trend (3Q11 : +6% y/y). Net income declined from € 162m in 4Q10 to € -68m (KBCS € -86m, consensus € -65m).
Decorative Paints grew revenue by 6% to € 1204xm (KBCS € 1,167m, css € 1,172m), with volumes +5%, price/mix +3% and FX -1%. 4Q Revenue (in constant currencies) was flat in Europe, +9% in Asia and by +17% in the Americas. REBITDA declined by 83% to € 11m (KBCS € 26m, css € 23m) given continued high raw materials costs, downtrading and stock-write offs in the US (for about € 17m).
Performance Coatings grew revenue by 7% to € 1326m (KBCS € 1,283m, css € 1,269m), with volumes down -2%, price/mix +7% and M&A +2%. REBITDA declined by 4% to € 141m (KBCS € 145m, css € 133m). Akzo commented about signsof reductions in the rate of raw materials price increases. Revenue growth was the strongest for Industrial Coatings (+23% on the back of the Schramm and SSCP acquisitions). All segments reported positive revenue growth.
Specialty Chemicals grew revenue by 2% to € 1285m (KBCS € 1,338m, css € 1,302m), with volumes down -4%, price/mix +5% and FX +1%. REBITDA declined by 6% to € 207m, which was slightly better than our and consensus forecasts (KBCS € 201m, css € 202m). Akzo reported some destocking effect at customers. Raw materials prices were said to stabilize towards the end of the year.
Net debt increased from € 1.6bn at the end of September to € 1.9bn at year-end 2011 (KBCS estimate was € 1.2bn). The pension deficit decreased from € 0.7bn in September to € 0.5bn at year-end. Top up payments will decline by about GBP 62m per annum in 2012-13 (vs around € 345m top ups in total in 2011). As already guided for, Akzo proposed to increase the dividend by € 0.05 to € 1.45.
Outlook:
Akzo did not issue a precise FY12 guidance, although the company reiterated its medium term ambitions calling for a € 20bn revenue figure and a 13-15% EBITDA margin were maintained. Raw materials costs, which were up 16% in 2011 (4Q11 was up just over 10%) were hinted to see a stabilization going forward, except for titanium dioxide. The company claims that the price increases implemented should offset most of the raw materials price increase seen so far, and plans to pass on further TiO2 price increases.
Conclusion:
4Q11 results were below our and consensus forecasts. The market conditions are expected to remain difficult in the short term with probably downtrading continuing to be an issue and some further increases in titanium dioxide prices (albeit other raw materials prices are stabilizing). Although the € 500m savings program is eventually expected to offset the negatives mentioned above, the lack of visibility on timing prompt us to reiterate our Hold rating.