Akzo Treads Water in China as CEO Raises Prices for Paint

(Bloomberg) -- Akzo Nobel NV’s growth in China stuttered as Europe’s biggest coatings maker opted to push through higher prices for household paint at the expense of losing some customers.

“After really sharp growth in China, we made a more deliberate choice to hit the pause button on growth,” Chief Executive Officer Thierry Vanlancker said on a media call on Wednesday. That led some customers to “shop around.”

The owner of the Dulux brand increased paint prices by 5 percent globally in the second quarter as it sought to offset higher expenses for raw materials, such as the whitening agent titanium dioxide, the Amsterdam-based company said in a statement.

More than ever, Akzo Nobel needs price gains to stick. The 10 billion-euro ($11.6 billion) sale of its specialty chemicals division this year has left the company focused solely on coatings, and Vanlancker is under pressure to counter rising input costs in order to meet targets set for 2020, including a 15 percent return on sales. He’s also relying on cost-cutting and efficiency gains, which helped the return on sales figure in decorative paint climb to 12.2 percent in the second quarter.

The Dutch company’s shares gained 2.3 percent to 76.52 euros as of 9:46 a.m. in Amsterdam, giving it a market value of 19.6 billion euros.

Additional Costs

Raw-material inflation could translate into an additional cost of 300 million euros in 2018, on top of a similar burden Akzo Nobel had to absorb last year, Vanlancker said in a Bloomberg TV interview.

With the U.K. in troubled waters due to Brexit preparations, the CEO said he’s prepared to invest more to extend Akzo Nobel’s No. 1 position in that market after a rebound in demand.

Akzo Nobel reported second-quarter operating profit of 225 million euros, missing a 245 million-euro estimate in a Bloomberg survey of analysts. Vanlancker said 20 million euros in one-time costs related to the company’s transformation accounts for the void.

©2018 Bloomberg L.P.

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