Bloomberg News

Akzo Profit Beats Estimates as Buechner Advances With Revamp

July 19, 2012

Akzo Nobel NV (AKZA), the world’s largest paintmaker, reported second-quarter earnings ahead of analysts’ estimates as Chief Executive Officer Ton Buechner drives ahead with a revamp to improve profitability.

Earnings before interest, taxes, depreciation and amortization increased 8 percent to 593 million euros ($728 million), the Amsterdam-based company said today. Analysts predicted 569 million euros.

Buechner, who took the helm in April, is picking up the mantle to streamline Akzo’s operations five years after its $16.5 billion purchase of Imperial Chemical Industries transformed the Dutch company into the world’s biggest paintmaker. The maker of Dulux and Glidden paint has cut about 800 jobs this year, targeting 200 million euros in improvements.

“My initial observations are that we have solid businesses and many strong market positions,” Buechner said in a presentation. “The opportunity remains to increase return on capital, cash generation and margins, which is why the immediate priority for me and the leadership team is performance improvement.”

Sales climbed 8 percent to 4.41 billion euros, in line with a Bloomberg estimate from a survey of analysts.

Akzo shares rose 5.7 percent to 42.84 euros at 4:08 p.m.

Strategy Update

Investors and analysts will gather in the fall to hear what strategic tweaks Buechner has in mind. Decorative paints head Tex Gunning has pledged to eliminate losses at the U.S. operation this year, amid an overhaul of the Glidden brand and a struggle to maximize earnings from a commercial agreement with Wal-Mart Stores Inc. (WMT:US) to sell its products. Buechner reiterated that the U.S. deco division will break even in 2012.

In a video presentation today, Buechner distanced himself from “large portfolio changes or large acquisitions” as he prepares the ground for the October capital markets day, saying the focus is on operational improvements and cash generation. His predecessor Hans Wijers said the strategic options for the U.S. decorative paint business would be looked at after the reorganization.

“I’m having regularly updates with the team almost on monthly basis,” Buechner said in an interview, referring to the U.S. deco business. “Those updates and the plan between now and the end of the year give me confidence we that we are going to be making that Ebitda neutral position by the end of the year. It certainly isn’t going to be the end of where we want to be of course, we are gonna driving this further than that.”

Speculation Persists

The upcoming strategy update “could create some speculation on some corporate action for the group,” though drastic moves are unlikely, Petercam said in a note to investors.

Akzo’s household paint business increased revenue by 6 percent in the second quarter, bolstered by price increases and currency gains. Ebitda declined 8 percent as construction in Europe slowed.

The performance improvement program is on track and Akzo is budgeting for the majority of this year’s boost to profitability from cost cutting and efficiency gains to arrive in the second half, Buechner said in the presentation.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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