Akzo Nobel NV (AKZA), the world’s biggest paint maker, is looking to quadruple sales in the Middle East to about $1 billion as its European volumes are threatened by dwindling demand and rivals such as the U.S.’s Valspar Corp. (VAL:US)
The Dutch company is accelerating expansion in the Middle East after concluding that it was under-represented there 18 months ago, Regional Director Peter Tomlinson said in an interview with Bloomberg News. The maker of Dulux paint a week ago announced a deal to expand a joint venture with Bahrain- based Yusuf Bin Ahmed Kanoo to distribute more products.
“Compared to other regions, there are still good opportunities to grow in the Middle East,” Tomlinson said.
Growth in emerging markets is becoming more important, given Akzo’s looming cutbacks in a weakening Europe. Chief Executive Officer Ton Buechner is returning to his job after sick leave for fatigue, to continue working on his strategic plan that was to mark his debut year. During his three-month absence, Valspar won a contract to supply tinting machines at U.K. home improvement chain B&Q, replacing Akzo’s.
Akzo’s focus in the Middle East will boost its range of products sold through Yusuf. That will include woodcare coatings, automotive refinish, protective and powder coatings, as nations pour money into building a manufacturing base to diversify economies away from oil and gas.
Closer to home, Buechner will have to fight attacks on Akzo’s market share in Europe. He plans to hold a conference call with analysts on Dec. 14 to try to reassure investors that the Amsterdam-based company remains on schedule to refocus on efficiency and productivity in hard-hit areas. Akzo shares have fallen about 5 percent in the past three months.
While tinting machines, which allow customers to create bespoke paint shades on a white base, represent only about 1 percent or 2 percent of Akzo’s sales in the U.K., its a symbolic contract to lose in one of its more profitable markets in the region, according to Fabian Smeets, an analyst at ING. B&Q accounts for 20 percent of Akzo’s U.K. paint sales, he said.
The change at the British do-it-yourself chain also highlights how formerly U.S.-centric paintmakers have enjoyed more resilient sales in their home market, boosting confidence to expand overseas.
“It doesn’t help and isn’t good for sentiment around Akzo,” said Smeets. “Even though it is a small part, it could accelerate the downturn, and really shows that Europe is a difficult market. I think you could even see some pricing pressure, something that is also rare for the paint markets.”
The Valspar B&Q contract was just small and limited to paint machines and the chain remains an important customer, spokesman Tim Van Der Zanden said. Akzo’s European sales of decorative paint total 2.7 billion euros in 2011, according to data compiled by Bloomberg.
Valspar spokespeople weren’t immediately available for comment.
Spain and Portugal will again lead a drop in volumes of decorative paint sales in southern Europe next year as construction and renovation work continues to slump, according to Materis Paints, owned by French buyout firm Wendel SA. Volumes may decline 18 percent in the two countries in 2013, following a 50 percent drop from 2008 to 2012, Bertrand Dumazy, head of Europe’s third-largest maker of decorative paint, said yesterday.
Akzo already had to write down the value of its decorative paint business by 2.5 billion euros in October and the company is deepening cost cuts to counter the slowdown. Akzo is rolling out restructuring measures which includes reducing IT systems and cutting back on the number of raw materials, to boost earnings by 500 million euros by 2014.
’’The near-term outlook for this region is far from encouraging,’’ said HSBC analyst Sebastian Satz, who lowered his recommendation on Akzo shares to underweight this week. “All in all, it seems it will get worse before its gets better, for now at least.”
To contact the reporter on this story: Maaike Noordhuis in Amsterdam at firstname.lastname@example.org
To contact the editor responsible for this story: Benedikt Kammel at email@example.com