Akzo pushes ahead with cost savings as raw materials soar

By BLOOMBERG

AMSTERDAM • Akzo Nobel NV is intensifying efforts to lower costs as the Dutch paint and coatings maker grapples with rising prices for raw materials and tries to improve profitability.

The Amsterdam-based company said yesterday in a statement that its key profit margin indicator, called return on sales, for paints and coatings widened in the third quarter to 12.3% from 10%, still short of the goal to reach 15% by 2020.

The target — called ambitious by analysts — was set by the predecessor of CEO Thierry Vanlancker as part of the manufacturer’s successful defence against a hostile 2017 approach from rival PPG Industries Inc.

The company said it deliberately sold lower volumes and raised product prices in the latest quarter in a bid to improve margins. It made €35 million (RM166 million) in cost savings and aims to deliver another €200 million by 2020.

Akzo Nobel has transformed into a focused coatings company fol lowing the US$12.5 billion (RM51.88 billion) sale on Oct 1 of its more-profitable chemicals business. The CEO said he remains focused on executing bolt-on acquisitions, rather than transformative deals.

Akzo shares jumped as much as 4.4%, the most in almost six months, and traded 4.2% higher at €77.16 as of 9:18am in Amsterdam yesterday.

The stock is up about 5% this year, compared to a 2.3% decline by the benchmark AEX Index.

The market was expecting weaker results after a warning last week from PPG about rising expenses and soft demand from China. Baader Helvea analyst Markus Mayer said in a note that Akzo’s earnings were in fact ahead of expectations as its efficiency programme “is bearing fruit”.

Third-quarter adjusted operating income rose 8% to €243 million, below an average €248 million estimate in a Bloomberg survey of analysts.

The negative impact from the rising cost of raw materials was €108 million during the quarter, with the increase expected at a “slower rate” for the rest of the year, the company said.

“The paint and coatings business is seasonal, but in the medium term, and definitely for 2020, we feel much more encouraged to getting to those targets, specifically because the 3Q had a significant amount of headwinds that we were able to overcome,” the CEO said in an interview with Bloomberg TV.

As part of its chemicals unit sale, the Dutch company is set to hand out an additional €5.5 billion to shareholders after a €1 billion special dividend in December, following a shareholder vote on Nov 13.