- Revenue down 4 percent, mainly due to divestments
- Operating income at €322 million (2012: €388 million) driven by adverse price/mix developments
- Net income attributable to shareholders €429 million (2012: €219 million) due to recognition of a deferred tax asset and the divestment of Decorative Paints in North America
- Adjusted EPS €1.37 (2012: €1.06)
- Performance improvement program on track to be completed in 2013, delivering €500 million EBITDA benefit a year early
- Operational focus of strategy update announced in February is the right approach for continuing challenging market conditions; 2015 targets confirmed
- Restructuring activities being stepped up, full-year charges expected to be in the order of €325 million (initial estimate: €205 million), with the benefits of these additional €120 million costs realized in 2014 and beyond
- Expected higher restructuring charges and continued weak markets mean that full-year operating income is unlikely to exceed the €908 million of 2012
Akzo Nobel N.V. (AkzoNobel) today reported a 4 percent decrease in revenues in the second quarter compared with the same period last year. This was due to divestments and adverse currencies against a backdrop of continued challenging market conditions. Operating income for Q2 was 17 percent lower at €322 million. Net income attributable to shareholders for the quarter rose to €429 million, buoyed by recognition of a deferred tax asset and profit on the divestment of Decorative Paints North America. The acceleration of AkzoNobel’s performance improvement program is on track to achieve the full EBITDA benefit of €500 million by the end of this year, whilst additional charges are expected in the second half of the year as restructuring activities are stepped up.
At Decorative Paints second quarter revenue declined 1 percent, mainly due to negative price/mix and unfavorable currency effects. The slowdown in global markets continues to affect the top line. In general volumes stabilized, with some markets, in particular China, making a positive contribution in the quarter. Operating income for the second quarter totaled €102 million, 9 percent lower than the previous year, mainly as a result of restructuring costs in mature markets.
Revenue in Performance Coatings declined 1 percent on largely stable overall volumes compared with the previous year as a result of adverse currency effects. Operating income was down 5 percent at €163 million due to investments in growth and business excellence initiatives, partially mitigated by margin management and structural cost benefits.
Revenue in Specialty Chemicals was 12 percent lower as a result of the divestment of Chemicals Pakistan and lower overall volumes. Operating income was down 21 percent at €121 million, mainly due to the lower volumes and the conclusion of value chain issues from the previous quarter. During the quarter, the Functional Chemicals Business Unit initiated a large restructuring program as part of the performance improvement program, the implementation of which will start as of Q3.
CEO Ton Büchner
“While I am pleased to report that our Decorative Paints and Performance Coatings businesses have reported an improved or stable return on sales for the first half of the year, our end markets remain challenging and this was particularly visible at the end of this second quarter. Conditions remain tough and, as we have previously indicated, we do not expect an early improvement in the external trends our businesses are facing. With this pressure on our top line, we are stepping up our restructuring activities to secure the delivery of our 2015 targets which drive cash generation and quality of earnings. As a consequence, full year restructuring costs are expected to be higher, with the benefits of these additional restructuring costs visible in 2014. These expected higher restructuring charges and continued weak markets mean that our full year operating income is unlikely to exceed last year.”
Performance improvement program
The performance improvement program announced in October 2011 is making good progress with positive impact on both variable and fixed costs. The initiatives have cumulatively resulted in €381 million savings and AkzoNobel is on track to deliver the full €500 million in EBITDA at the end of this year, a year early. The program is structured around business unit adaptations and operational excellence, which contribute the majority of the benefits, while functional excellence is an important enabler. Various actions taken in operational excellence address product complexity reduction, sourcing optimization, manufacturing and distribution excellence, and margin management across the entire organization.
Since the announcement of the program, the number of employees has been reduced by over 2,500 FTE, of which around 800 in 2013. In the first half of 2013, €69 million was spent on restructuring activities. Costs for the full year 2013 are expected to be in the order of €325 million, with the additional benefits becoming visible in 2014. Examples of additional restructuring activities include the upcoming initiatives in European Decorative Paints and Functional Chemicals.
AkzoNobel will continue to implement new opportunities to optimize performance as it moves to a culture of continuous improvement and embedded operational excellence.
In the second quarter, AkzoNobel saw lower input prices as a result of lower TiO2 costs and the lower oil price, which has begun to impact some raw materials. Overall, raw materials costs for the year are expected to be down marginally on a like for like basis compared with 2012.
The economic environment remains challenging and AkzoNobel does not expect an early improvement in the trends faced in its end-user market segments. AkzoNobel expects to increase restructuring charges in the second half of 2013 by €120 million to around €325 million to secure the delivery of its 2015 targets. This means that full year operating income is unlikely to exceed the €908 million of 2012. The acceleration of the performance improvement program and the strategic priorities announced in February are the right focus to have in these markets.