Akzo’s 1Q13 EBITDA was below our and consensus forecasts, down by 9% y/y to € 375m (KBCS € 397m, CSS € 383m). Revenue declined by 7% to € 3,465m (KBCS € 3,662m, CSS € 3,685m), broken down as follows: volume -3%, price/mix -1%, FX -1% and divestments -2% (Chemicals Pakistan). Operating income declined by 8% to € 217m (no separate incidentals were reported whereas restructuring charges included in EBIT were said to be in line with last year – around € 33m). Operating income compares to our and consensus forecast of € 208m and € 205m, respectively, but which included assumptions of additional incidental charges of € 30m and € 13m, respectively. Net result was up 6% to € 89m (KBCS € 102m, CSS € 95m).
Decorative Paints saw revenue decline by 5% to € 925m (KBCS and CSS € 974m), with volumes down 1%, price/mix -1% and FX -3%. Volumes were lower in Europe and South East Asia, and higher in Latin America and China. EBITDA increased by 29 % to € 88m (KBCS € 73m, CSS € 68m), on cost savings, and we assume also on lower titanium dioxide prices.
Performance Coatings saw revenue decline by 3% to € 1,331m (KBCS € 1,396m, CSS € 1,391m), with volumes -3%, price/mix +1% and FX -1%. Revenue decreased by 5% for Marine & Protective, by -3% in Industrial Coatings and by -6% in Powder Coatings. Revenue was up 3% for Automotive & Aerospace Coatings. EBITDA increased by 3% to € 163m which compares to our and consensus forecasts of € 168m and € 161m.
Specialty Chemicals saw revenue decline by 11% to € 1,244m (KBCS € 1,330m, css € 1,351m), with volumes -4%, price/mix -2%, FX flat and divestments -5%. EBITDA declined by 26% to € 174m, which was well below our and consensus forecasts (KBCS € 205m, CSS € 198m). The company commented that the key elements explaining the lower result were difficult market conditions in the construction related businesses (performance additives, polysulfides), polymer initiators, continued weakness for ethylene amine, a production interruption in a US Functional Chemicals plant, maintenance stops (Industrial Chemicals plant) and lower volumes in Surface Chemistry following the exit of the merchant fatty acids business in China.
Update on pensions and net debt: The pension deficit decreased from a restated € 0.9bn at year-end 2012 to € 0.6bn. Net debt increased from € 2.3bn at year-end 2012 to € 2.88bn, in our opinion mainly on the back of usual seasonal working capital outflow and usual 1Q pension top-ups.
Raw materials costs were said to be stable y/y which is no surprise.
Guidance: As expected, (47,04 EUR, 0,00%) does not provide a clear guidance on 2013. The company hinted that the economic environment remains challenging and that it does not expect an early improvement inthe trends seen so far. The focus remains on implementation of the performance improvement program (recall € 250m savings target for 2013) and the other strategic priorities as announced in the strategy update of February.
Conclusion:
1Q13 operational results were below our forecasts and consensus mainly as better than expected results in Decorative Paints were more than offset by weakness in the Specialty Chemicals division. As the company sees no short term improvement in trading conditions, the only benefit to expect in the short term is coming from the implementation efficiency initiatives. We stick to our Hold rating and € 49 target price for now.