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AkzoNobel makes progress on transformation into a focused Paints and Coatings company while headwinds continue
April 24, 2018
Akzo Nobel N.V. publishes results for the first quarter 2018 (AKZA; AKZOY)
AkzoNobel (Paints and Coatings):
- Successfully completed the dual-track process for the separation of Specialty Chemicals; AkzoNobel to sell Specialty Chemicals to The Carlyle Group and GIC for €10.1 billion
- On track implementing our "Winning together: 15 by 20" strategy
- Transformation gaining momentum: program office up and running
- Robust pricing initiatives ramping up: price increase successful in Q1 2018; second wave of price increases to come in 2018
- Selling prices up 3% overall and for all businesses
- Revenue down 8%, mainly due to adverse foreign currencies (1% lower excluding currency impact) at €2,176 million
- Volumes 3% lower, mainly due to continued adverse market conditions in the marine, and oil and gas industries
- Savings from continuous improvement were €30 million and creating a fit-for-purpose organization delivered €10 million
- Adjusted operating income1 at €149 million (2017: €208 million) due to adverse foreign currencies, higher raw material costs and lower volumes not yet fully offset by increased selling prices and cost discipline
- ROS2 at 6.8% (2017: 8.8%); ROI3 at 13.2% (2017: 14.8%)4
- Adjusted EPS5 from continuing operations at €0.35 (2017: €0.50)
- Net income from total operations up 5% to €253 million (2017: €240 million), including discontinued operations at €134 million (2017: €114 million)
Akzo Nobel N.V. CEO, Thierry Vanlancker, commented:
“We delivered a key milestone in creating two focused, high performing businesses with the agreement to sell Specialty Chemicals to the Carlyle Group and GIC for €10.1 billion.
“Headwinds continue for Marine and Protective Coatings, as well as currencies and higher raw material costs. Results were lower compared to an exceptionally strong quarter last year.
“We are ramping up our pricing initiatives and have implemented various cost discipline measures to deal with higher raw material prices. Initial savings from creating a fit-for-purpose organization are also being realized. The transformation is gaining momentum and we are on track for delivering 15% return on sales by 2020.”
Outlook AkzoNobel Paints and Coatings:
Higher raw material costs and adverse effects from foreign currencies are projected to continue in 2018, especially during the start of the year. We anticipate ongoing positive developments for Decorative Paints in all regions, particularly Asia. Trends for Performance Coatings are expected to be positive for most segments and regions, while still challenging for Marine and Protective Coatings. We continue to implement various measures to mitigate current market challenges, including increased selling prices and cost discipline. Our "Winning together: 15 by 20" strategy will create a focused Paints and Coatings company and deliver our 2020 guidance.
Q1 2018 in € millions
Paints and Coatings
Q1 2017^6
2,377
Q1 2018
2,176
△%
(8)
△% Excl. Currencies
(1)
Q1 2017^6
208
Q1 2018
149
△%
(28)
△% Excl. Currencies
Q1 2017^6
8.8
Q1 2018
6.8
△%
△% Excl. Currencies
Q1 2017^6
14.8
Q1 2018
13.2
△%
△% Excl. Currencies
Q1 2017^6
240
Q1 2018
253
△%
5
△% Excl. Currencies
Paints and Coatings performance in Q1 2018
Decorative Paints revenue decreased 8% mainly due to foreign currencies (down 1% excluding currency impact). Higher selling prices were offset by adverse mix effects. Volumes were 1% lower, despite growth in Europe. Volumes were lower in China compared to an exceptionally strong first quarter last year.
Performance Coatings revenue was 9% lower, mainly due to adverse currencies (down 1% excluding currencies). Pricing initiatives have continued to gain traction, with 2% price increases in the first quarter and further increases expected in the following quarters. Volumes were 5% lower, mainly due to adverse conditions in the marine, and oil and gas industries. Volumes increased for Powder Coatings, as well as Automotive and Specialty Coatings.
Developments in Paints and Coatings in Q1 2018
- AkzoNobel has reinforced its commitment to customers in India, following the inauguration of a new €9 million facility in Mumbai for the production of Powder Coatings
- Consumers in Pakistan now have access to Dulux Promise. AkzoNobel has launched a decorative paints product for the mass market segment
- Dulux Weathershield was relaunched in Asia featuring Smart Release Technology. This protects homes and buildings with even longer lasting protection against algae and fungus
- The most eye-catching car of the new Formula 1 season – McLaren’s MCL33 – features innovative coatings supplied by AkzoNobel’s Sikkens brand. This reduces the total weight of paint and decreases processing time by more than 50%
- AkzoNobel is developing a new high performance antifouling, which uses ultraviolet light-emitting diodes to prevent marine growth. It features underlying technology developed by Royal Philips
Specialty Chemicals (reported as discontinued operations)
- Revenue 3% lower (up 4% excluding currency impact) due to positive price/mix effects more than offset by adverse currencies and lower volumes
- Volumes down 1% with lower volumes in some segments being partly offset by volume growth in Pulp and Performance Chemicals
- Adjusted operating income at €150 million (2017: €166 million). Restructuring costs of €32 million related to manufacturing network optimization projects and adverse currencies were partly offset by stronger price/mix effects and productivity improvements
- ROS at 12.0% (2017: 12.9%); ROI at 16.5% (2017: 15.6%)
Q1 2018 in € millions
Specialty Chemicals
Q1 2017^6
1,289
Q1 2018
1,252
△%
(3)
△% Excl. Currencies
4
Q1 2017^6
166
Q1 2018
150
△%
(10)
△% Excl. Currencies
Q1 2017^6
12.9
Q1 2018
12.0
△%
△% Excl. Currencies
Q1 2017^6
15.6
Q1 2018
16.5
△%
△% Excl. Currencies
Specialty Chemicals performance in Q1 2018
Revenue was 3% lower (up 4% excluding currency impact) with positive pricing impact being more than offset by adverse currencies and lower volumes. Industrial Chemicals benefited from strong pricing. Volumes were down 1%, with lower volumes in some segments, partly offset by volume growth in Pulp and Performance Chemicals
Developments in Specialty Chemicals in Q1 2018
- The company announced an investment of more than €12 million to expand capacity at Los Reyes, Mexico, for organic peroxides, which are used in the manufacture of a wide range of polymers
- A new state-of-the-art chlor-alkali joint venture plant with Evonik was inaugurated at Ibbenbüren, Germany. AkzoNobel Specialty Chemicals will receive chlorine and hydrogen from the facility
- AkzoNobel Specialty Chemicals announced a collaboration with Gasunie to study conversion of water into green hydrogen using sustainable power, and joined a partnership in Sweden to explore opportunities for both green hydrogen and “electrofuels”
- The 2018 edition of the Imagine Chemistry challenge generated 150 innovative business ideas
- The company received its first power from the Bouwdokken wind park in the Netherlands. The milestone achievement is the result of a unique green energy purchasing consortium which also includes DSM, Google and Philips
The Q1 2018 report can be viewed and downloaded here.
1 Adjusted operating income = operating income excluding identified items (previously called EBIT)
2 ROS% is adjusted operating income as a percentage of revenue
3 ROI% is adjusted operating income of the last 12 months as percentage of average invested capital
4 Calculations of ROS and ROI remain unchanged
5 Adjusted earnings per share now only excludes identified items (no adjustment for post-tax amortization is made anymore)
6 Represented to present the Specialty Chemicals business as discontinued operations
This is a public announcement by Akzo Nobel N.V. pursuant to section 17 paragraph 1 of the European Market Abuse Regulation (596/2014).
