Akzo’s 2Q13 results were lower than our forecast and consensus, with EBITDA down by 14% y/y to € 474m (KBCS € 505m, CSS € 516m). Operating income was down 17% y/y to € 322m (KBCS 341m, CSS € 335m). Revenue declined by 4% to € 3,865m (KBCS € 3,909m, CSS € 3,919m), broken down as follows: volume flat (1Q13: -3% y/y), price/mix -1% (1Q13: -1% y/y), FX -1% and M&A -2%. Net result increased by 96% to € 429m (KBCS € 199m, CSS € 196m) due to the recognition of a deferred tax asset and the capital gain on the sale of the North American Deco Paints business.
Decorative Paints saw revenue decline by 1% to € 1,179m (KBCS € 1,151m, CSS € 1,156m), with volumes up by 4%, price/mix -2% and FX -3%. Revenue was down 6% in Europe, while being up in Latin America (+4%) and Asia (+10%). EBITDA was down by 9%% to € 141m (KBCS € 155m, CSS € 153m).
Performance Coatings saw revenue decline by 1% to € 1,458m (KBCS € 1,465m, CSS € 1,476m), with volumes and price/mix flat and FX -1%. Revenue increased by 3% in Automotive and Aerospace Coatings, while being down in the other segments : -3% in Marine & Protective, -1% in Powder Coatings and -2% in Industrial Coatings. EBITDA declined by 3% in to € 197m (KBCS € 198m, CSS € 206m).
Specialty Chemicals saw revenue decline by 12% to € 1,253m (KBCS € 1,331m, CSS € 1,327m), with volumes -5%, price/mix -2%, FX flat and M&A -5%. EBITDA declined by 16% to € 198m (KBCS € 200m, CSS € 201m). Results were mainly down due to lower volumes and production outages.
Update on pensions and net debt: The pension deficit decreased from € 0.6bn at the end of 1Q13 to € 0.4bn at the end of 2Q13. Net debt decreased from € 2.88bn at the end of 1Q13 to € 2.2bn at the end of 2Q13, mainly on the back of the proceeds from the divestment of North American Deco Paints.
Update on rawmats: Raw materials costs were down in 2Q13 as a result of lower titanium dioxide and the lower oil price. Akzo expects the titanium dioxide price to remain stable for the rest of the year (meaning slightly less benefit in the second half). Overall raw materials costs for the year are expected to be marginally down on a like for like basis.
Guidance: The company commented to be on track with the targeted completion of the Performance Improvement Program in 2013 (recall € 500m savings target by end 2013 after € 250m savings were captured in 2012 and € 381m by mid 2013). However, restructuring initiatives are being stepped upped with FY charges now expected to be around € 325m (vs € 205m before) with the additional benefits to be realized in 2014 and beyond. € 69m restructuring costs were taken in 1H13 (of which about € 36m in 2Q13). The company repeated earlier comments that the economic environment remains challenging. The company stated it is unlikely that the FY operating income will exceed the € 908m posted in 2012 (excluding Deco Paints impairment). This compares to our and analyst consensus of € 997m and € 1,061.5m. The difference is mostly (but not fully) explained by the € 120m step-up in restructuring charges (included in operating numbers).
Conclusion: Akzo has been able to stabilize volumes in 2Q13 after a 3% decline in 1Q13, with an unchanged price/mix compared to the 1Q trend (-1% y/y). However, end market conditions remain tough.