AkzoNobel N.V. (AKZOY.PK, AKZOF.PK), a Dutch paints, coatings, and specialty chemicals group, Wednesday reported lower profit for third quarter, hurt mainly by higher incidental charges and "other" expenses, despite a resilient performance across all business segments. In an aim to cut costs and improve EBITDA margin target to 14%, the company said it will slash over 3 thousand jobs by 2011.
The Amsterdam, Netherlands-based company's third-quarter reported profit declined to 174 million euros from 288 million euros in the third-quarter of 2007. Reported profit attributable to equity holders decreased to 157 million euros from 281 million euros in the year-ago quarter. Reported earnings per share amounted to 0.64 euro, down from 1.04 euros in the previous-year quarter.
Allowing for the hypothetical situation that AkzoNobel acquired ICI on January 1, 2007, the company's pro-forma profit was 216 million euros, attributable profit was 203 million euros, and earnings per share was 0.76 euro.
Profit for the period from discontinued operations was 31 million euros, significantly down from the 145 million euros reported a year earlier. Excluding this, profit for the period from continuing operations came in flat with last year's 143 million euros, while income per share from continuing operations slightly rose to 0.51 euro from 0.50 euro last year.
Net income from continuing operations before incidentals and fair value adjustments was 219 million euros, compared to 258 million recorded on a pro forma basis in the year-ago quarter. The decline was due to costs in the "other" category, which impacted earnings before income tax, depreciation, and amortization, or EBITDA, by 72 million euros.
However, income per share from continuing operations, before incidentals, rose to 0.83 euros from 0.58 euros last year, helped by the share buyback program in 2007 and 2008. As at the end of September, the company had completed the repurchase of 3 billion euros of its shares.
The company also recorded higher incidental charges of 79 million euros that reduced operating income after incidentals to 262 million euros.
Third-quarter reported revenue increased to 3.820 billion euros from 2.600 billion euros reported last year. Pro forma revenue, after adjustments, amounted to 3.715 billion euros.
Segment-wise, the company reported that all three business areas achieved underlying growth, especially from the emerging markets that represented 35% of total revenue. The Decorative Paints division revenues totaled 1.413 billion euros, contributing 37% of revenue. Divisional revenue grew by 5% percent in constant currencies, and the successful implementation of price increases compensated for the higher raw material costs.
The Performance Coatings segment registered a solid quarter, representing 31% of total revenue, at 1.138 billion euros. Segmental revenue in constant currencies grew by 5%. The company noted that for the Marine & Protective, Powder, and Packaging Coatings section this was good quarter, but its Industrial Finishes section continued to face pressure on margins. The company's car refinishes were impacted by market conditions in mature economies.
In Specialty Chemicals, revenues totaled 1.212 billion euros, giving 32% of revenue. Here, quarterly performance was in line with last year's, despite a currency headwind and pockets of weak demand. The division recorded a 9% autonomous growth that was driven by price increases.
For the January-September period, AkzoNobel posted a profit of 512 million euros, down from 823 million euros reported last year. Attributable profit decreased to 459 million euros from 797 million euros in the year-ago period. Income per share amounted to 1.80 euros, down from 2.82 euros in the previous year.
Year-to-date reported revenue increased to 11.196 billion euros from 7.786 billion euros reported last year. Pro forma profit was 557 million euros, while attributable profit was 506 million euros. Income per share was 1.82 euros with revenue of 10.992 billion euros.
AkzoNobel further stated it is maintaining its interim dividend of 0.40 euro, which will be paid on November 10. Its shares will trade ex-dividend from October 30. Regarding ICI, the company noted that integration was proceeding ahead of schedule.
In addition, given the current financial market conditions and the economic downturn, the company announced a series of measures. AkzoNobel stated that it is aiming for an EBITDA margin target of at least 14% by 2011 end, which will be achieved through several avenues. This includes, among others, a thorough cost management at both corporate and business level, leading to at least an additional 100 million euros in net cost savings. The cost cutting effort will further result in slashing of 3,500 jobs by 2011.
The company also noted that the planned sale of National Starch, which is the former ICI Specialty Starch business, is not expected to occur in 2008. National Starch is a worldwide supplier of specialty starches, mainly to the food industry. The company is also postponing its remaining 1.6 billion share buy-back program till the completion of the refinancing.
Looking ahead, the global paints and coatings company confirmed its fiscal 2008 outlook. The company sees year-to-date EBITDA before incidentals, in constant currencies, to be in line with 2007's. Therefore, fiscal 2008 EBITDA before incidentals, in constant currencies, is expected to be nearly at the 2007 pro forma level of 1.870 billion euros.
AKZOY.PK closed Tuesday's regular trading at $31.00, down $0.55, or 1.74%, on a volume of 44,905 shares.
AKZOF.PK closed last trade on October 21 at $38.65.
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