Bloomberg News

Akzo CEO to Appease Investors Kept Waiting for Savings Blueprint

February 18, 2013

Akzo Nobel NV Chief Executive Officer Ton Buechner

Akzo Nobel NV Chief Executive Officer Ton Buechner has kept investors waiting four months for his vision. Photographer: Tessa Posthuma de Boer/Akzo Nobel NV via Bloomberg

Akzo Nobel NV Chief Executive Officer Ton Buechner will tomorrow deliver his long-awaited strategy that investors and unions say should provide the gel to patch the chemical and paint-maker together.

The Dutch supplier of Dulux paint, Jozo table salt and Amaze hair mousse polymers continues to operate as a disparate group of businesses, said Corne van Zeijl, a fund manager at SNS Asset Management, who oversees $1.3 billion in investments, including Akzo Nobel. Buechner, scheduled to address the investor community at a capital markets day in London tomorrow, needs to outline how he will cut costs, the fundmanager said.

“What we should get from Buechner is a strategy that tries to make Akzo operate as one company instead of a group of small businesses,” said van Zeijl. “There are still a lot of synergies to win.”

Buechner, 48, has kept investors waiting four months for his vision. Upon taking over in April, Buechner threw himself into a strategic review with such zeal that he needed three months of leave for exhaustion. After selling the struggling Glidden brand to PPG Industries Inc (PPG:US). for $1.1 billion, the CEO’s focus will be on streamlining Akzo Nobel’s European business. For a start, he could combine purchasing units and human- resources departments, van Zeijl said.

The view is echoed by Chris van Loon, a Unie union official, who says divisions are under pressure and more cost cuts are “inevitable,” especially at the corporate level. Akzo Nobel has the potential to cut European paint costs by 15 percent by 2014, adding 150 million euros ($200 million) to earnings, according to JP Morgan (JPM:US) analysts Neil Tyler and Martin Evans.

Keeping Up

Buechner played down the prospect for grandiose change when he arrived and undertook a whirlwind tour of operations from China to Brazil, a schedule that contributed to his leave. Yet he surprised investors with the U.S. paint exit on Dec. 14.

Tomorrow’s strategy announcement will be accompanied by fourth-quarter figures, against the backdrop of improving earnings at rival paintmakers PPG Industries Inc., Valspar Corp (VAL:US). and Sherwin-Williams Co (SHW:US)., as well as specialty chemical peers such as BASF SE and Clariant AG.

While total sales at the Amsterdam-based company may have risen about 3 percent to 16.11 billion euros last year, paint revenue in Europe probably fell about 3 percent, according to JP Morgan. Akzo Nobel’s earnings before interest, taxes, deprecation and amortization probably increased about 7 percent to 1.92 billion euros in 2012, according to an average of analyst estimates compiled by Bloomberg.

‘Strong Signal’

Buechner is poised to update the savings program initiated in 2011 by predecessor Hans Wijers, who was criticized for not doing enough to bond the different pieces. Wijers set a goal of boosting earnings by 500 million euros.

“Buechner’s decision to exit North American paints sends a strong signal that sacred cows will not be spared in his strategic overhaul,” said JP Morgan’sTyler. “We believe signifant scope remains to scale back the cost base of the European decorative paints business.”

“My feeling is that they will increase the cost savings target by at least 100 million euros,” said Jaideep Pandya, an analyst at Berenberg.

Akzo Nobel shares gained 33 percent in 2012, while Valspar (VAL:US) increased 60 percent, PPG surged 62 percent and Sherwin-Williams (SHW:US)added 72 percent.

Fewer Factories

Akzo Nobel’s European deco paints business will take the brunt of any downsizing measures as it’s one of the primary causes of underperformance, Pandya said. The number of factories in Europe could be slimmed down from the current 20, given rival PPG operates from 12 plants, and some warehouses may close, he said. Akzo Nobel’s stock is up 16 percent since the CEO’s Dec. 7 return., giving the company a market value of 12.5 billion euros.

“Akzo did do cost cutting in that area, but they didn’t do a proper integration for Europe’s deco businesses as a region,” the analyst said, adding there’s potential for a 7 percent chop to the workforce, equal to 1,500 jobs.

Buechner last week replaced the head of decorative paints, with Ruud Joosten given a mandate to review operations in mature markets and bring them in line with the current market situation, following a 2.5 billion-euro writedown last year.

Joosten, who takes over from Tex Gunning, said he will be looking to tackle the challenge “pretty quickly.” Demand has weakened since Wijers unveiled his blueprint, and the latest forecasts from PPG and Valspar point to subdued markets in Europe. Equally important will be to push growth in China, India and Brazil and together “those will be my top priorities,” Joosten said in an interview on Feb. 14.

Joosten said his two years leading the pulp-chemicals division will provide valuable expertise in the retail- orientated environment of paint, where advertising and distribution are key.

“Chemicals is a completely different world,” said Joosten. “Chemicals is much more capital intensive and focused on filling factories and making good use of investments. That is an important experience I’m bringing with me.”

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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