Akzo Nobel Posts Massive Loss in Q4

24/02/09 Akzo Nobel NV has reported a euro1.52 billion loss for the fourth quarter, due mostly to writedowns on the value of a British company it bought last year which was hit hard by the global economic downturn. The loss compares to a euro56 million profit in the fourth quarter a year earlier. Operating profit fell 21 percent to euro219 million, while sales were down 2.7 percent to euro3.56 billion.

AkzoNobel said that in light of current market conditions and the continuing lack of visibility regarding future global demand, the company has assessed the fair value of its assets against lower growth rates which it now expects. This has resulted in a non-cash impairment charge of €1.2 billion after tax in Q4, covering the value of ICI intangibles related to the Decorative Paints businesses and of National Starch.

“Our fourth quarter results reflect the impact of the economic climate in many of our businesses,” said CEO Hans Wijers. “The fact that we have implemented a significant level of restructuring is a clear indicator that action is being taken across the company to mitigate the effects of the current global crisis.

“The fundamentals of AkzoNobel remain sound,” he continued. “We have strong market positions in a number of highly attractive sectors with a wide geographical spread. We have a strong balance sheet with manageable 2009 refinancing needs.The actions we are taking mean that our company is well positioned to meet the current challenges and, as a result, will be in good shape to take advantage of the recovery when it comes.”

Added Wijers: “We are acutely aware that global market conditions and lack of visibility do not allow for any certainty. The harsh trading conditions experienced towards the end of the fourth quarter have continued into 2009 and, as a result, we expect this year to be very challenging. Nevertheless, we remain focused on achieving our medium-term target of an EBITDA margin of 14 percent by the end of 2011; on continuing to deliver the €340 million ICI synergies; on driving margin management programs across the company; and on rigorous cost management.”

2008 revenue increased in constant currencies by 2 percent, with pressure on margins being mitigated by pricing management across all regions, which compensated for increased raw material costs. Higher than expected synergy benefits offset cost inflation, while double-digit constant currency growth was booked in Asia.

In the fourth quarter, Decorative Paints saw a slowdown in the emerging markets. Revenue in constant currencies for the quarter was slightly below last year, with price increases and a stronger product mix not able to offset fully the volume drop. EBITDA margin at 7.9 percent declined, compared with 10.5 percent last year.

It was a mixed year for the Performance Coatings business, which had to contend with volatile raw material pricing and currencies. Our Marine & Protective Coatings business had a very good 2008, while the impact of the economic downturn took full effect on our Industrial Activities in the fourth quarter. Volumes in 2008 were stable, but revenue was 1 percent lower than 2007, with margins remaining almost flat.

Margin management offset the increase in raw material costs, but currencies had a downward effect of 5 percent. Acquisitions and divestments contributed to a 1 percent growth. The EBITDA margin for 2008 was 12.2 percent (2007: 12.6 percent), a satisfactory performance given the economic circumstances.

Volumes in the last quarter were down by 6 percent on the previous year, but were partly counterbalanced by product mix and margin management. In addition, Performance Coatings incurred a negative currency impact of 2 percent. Multiple cost saving initiatives have been put in place in order to align our cost structure to the changed market environment and limit the impact on margins. The broad geographic spread and the range of industries served gave us some protection against the effects of individual market fluctuations.

Specialty Chemicals delivered a solid 2008 performance and a respectable fourth quarter, despite weakening demand and volatile feedstock costs. Revenue was up 5 percent compared with 2007, while autonomous growth was 9 percent. Before incidentals, EBITDA for 2008 amounted to €891 million.

Market weakness intensified as Specialty Chemicals approached year-end, which fueled customer de-stocking momentum and resulted in an 11 percent decline in volume in our business in the fourth quarter. However, the volume decline was more than offset by effective margin management, producing revenue growth of 3 percent. Before incidentals, EBITDA for the quarter amounted to €183 million, 13.1 percent of revenue.

On September 29, 2008, AkzoNobel announced actions to accelerate the synergies of the enlarged company and improve operational effectiveness, leading to additional cost savings of at least €100 million. This has led to incidental charges of €205 million, bringing the 2008 total to €275 million. In response to reduced demand in Q4 and poor visibility, AkzoNobel has undertaken further action to reduce costs and protect margins, with a particular focus on Decorative Paints in Continental Europe.

At year-end, the continuing businesses employed approximately 1,660 employees less than last year. Cost measures taken include reducing third party spend, a 2009 salary freeze for the Board of Management and more than 500 executives, and where possible for most other employees.