Akzo’s 4Q12 results were operationally slightly below our and consensus forecasts, with EBITDA before incidentals (on comparable figures, excluding North American Deco from 4Q/FY11) up by 3% y/y to € 363m (KBCS € 375m, CSS € 369m). Revenue grew by 3% to € 3,673m (KBCS € 3,617m, CSS € 3,643m), broken down as follows: volume -1%, pricing +2% and FX +2%. Net profit landed at € -59m (KBCS € 82m, CSS € 147m).
Decorative Paints saw revenue increase by 3% to € 995m (KBCS € 933m, CSS € 969m), with volumes +2%, price/mix flat and FX +1%. REBITDA evolved from € 61m in 4Q11 (note published figure last year including North American Deco was € 11m) to € 47m (KBCS € 49m, CSS € 45m).
Performance Coatings grew revenue by 5% to € 1,394m (KBCS € 1,423m, CSS € 1,426m), with volumes -2% price/mix +3%, FX +3% and M&A +1%. Revenue increased in all segments: +5% for Marine & Protective, +12% in Industrial Coatings, +4% for Powder Coatings, +1% for Wood Finishes, +3% in Automotive & Aerospace Coatings. REBITDA increased by 35% to € 190m which was better than our/cons. forecasts (KBCS € 172m, CSS € 173m).
Specialty Chemicals grew revenue by 3% to € 1,320m (KBCS € 1,309m, CSS € 1,290m), with volumes -1%, price/mix +1%, FX +2% and M&A +1%. REBITDA declined by 17% to € 172m (KBCS € 201m, CSS € 198m), due to weak demand and unfavourable market conditions in Functional Chemicals.
Update on pensions and net debt: The pension deficit increased from € 0.9bn at the end of 3Q12 to € 1.1bn at year-end which is slightly higher than expected. The recent CPS actuarial funding review will result in a reduction of top-ups of € 40m per annum (€ 240m in total over the remaining six years of the recovery funding plan). Net debt declined from € 2.6bn at the end of 3Q12 to € 2.3bn which is slightly better than expected (€ 2.45bn). The dividend will be kept stable at € 1.45 (KBCS estimate was € 1.50).
Cost savings update: (49,77 EUR, -4,48%) announced to have achieved € 250m cost savings by year-end 2012 (excluding € 26m realized in Deco Paints North America). The group now expects to realize its € 500m savings target one year earlier than previously targeted, i.e. by 2013.
Strategy update: The group will focus on four end-user segments, i.e. Building & Infrastructure, Transportation, Industrial and Consumer Goods. issued following new financial targets, to be realized by 2015:
Return on sales (operating income/revenue) targeted at 9% by end 2015 (ROS before impairment was 5.6% in 2012 while EBIT margin (also excluding other incidentals was 8.3%). Our model currently already assumes ROS to pass 9% by 2014.
ROI target of 14% by end 2015 (2012: 10.0%)
Net debt/EBITDA of less than 2x by the end of 2015 (vs. 1.2x at year-end 2012 and KBCS est. of 0.2x for 2015).
4% sales CAGR between 2012-2015 (KBCS est. 3.0% CAGR).
Guidance: did not issue a precise guidance on FY13 but commented that the economic environment remains challenging and that it expects to see no fundamental changes to the trends seen recently.
Conclusion: 4Q12 operational results were slightly below but still close to our and consensus forecasts. The key 2015 ROS target of the strategy update is already in our model as from 2014. We will decide upon rating/target price after today’s conference call/presentations.