Akzo Pushes Ahead With Cost Savings as Raw Materials Soar
(Bloomberg) -- Akzo Nobel NV is intensifying efforts to lower costs as the Dutch paint and coatings maker grapples with rising prices for raw materials and tries to improve profitability.
- The Amsterdam-based company said Wednesday in a statement that its key profit margin indicator, called return on sales, for paints and coatings widened in the third quarter to 12.3 percent from 10 percent, still short of the goal to reach 15 percent by 2020.
- The target -- called ambitious by analysts -- was set by the predecessor of Chief Executive Officer Thierry Vanlancker as part of the manufacturer’s successful defense against a hostile 2017 approach from rival PPG Industries Inc.
- The company said it deliberately sold lower volumes and raised product prices in the latest quarter in a bid to improve margins. It made 35 million euros ($40 million) in cost savings and aims to deliver another 200 million euros by 2020.
- Akzo Nobel has transformed into a focused coatings company following the $12.5 billion sale on Oct. 1 of its more-profitable chemicals business. The CEO says he remains focused on executing bolt-on acquisitions, rather than transformative deals.
- Akzo shares jumped as much as 4.4 percent, the most in almost six months, and traded 4.2 percent higher at 77.16 euros as of 9:18 a.m. in Amsterdam. The stock is up about 5 percent this year, compared with a 2.3 percent decline by the benchmark AEX Index.
- The market was expecting weaker results after a warning last week from PPG about rising expenses and soft demand from China. Baader Helvea analyst Markus Mayer said in a note that Akzo’s earnings were in fact ahead of expectations as its efficiency program “is bearing fruit.”
- Third-quarter adjusted operating income rose 8 percent to 243 million euros, below an average 248 million-euro estimate in a Bloomberg survey of analysts. The negative impact from the rising cost of raw materials was 108 million euros during the quarter, with the increase expected at a “slower rate” for the rest of the year, the company said.
- “The paint and coatings business is seasonal but in the medium term, and definitely for 2020, we feel much more encouraged to getting to those targets, specifically because the third quarter had a significant amount of headwinds that we were able to overcome,” the CEO said in an interview with Bloomberg TV.
- As part of its chemicals unit sale, the Dutch company is set to hand out an additional 5.5 billion euros to shareholders after a 1-billion-euro special dividend in December, following a shareholder vote on November 13.
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