Akzob Nobel 2009 results: Strong cash flow in challenging markets
2009 revenue declined 10 percent to €13,893 million
Akzo Nobel N.V. announced its 2009 Q4 and full-year results. The company reported 2009 revenue of €13,893 million, 10 percent below the previous year.
Commenting on the results, CEO Hans Wijers said: “The fact that we can report an EBITDA margin close to 13 percent in such challenging markets is a good indication of both the underlying strength of our company, and the successful implementation of the ongoing restructuring and cost reduction programs. Our ability to adapt early and quickly to the new economic reality was crucial and we are now well placed to take advantage of the upturn when it comes.”
He went on: “Our volume development per quarter confirms that the stabilization we reported at the end of the third quarter has continued. However, we believe the recovery is fragile and will be slow. We continue to focus on customers, cost reduction and cash generation, but investments to capture growth will remain a priority – particularly in high growth markets. The management actions we have taken, and continue to implement, underpin our confidence that AkzoNobel will achieve its 2011 target of an EBITDA margin of 14 percent.”
Decorative Paints: Multi-year restructuring program on track
For the full year, volumes were down 9 percent while revenue dropped 7 percent. Volumes stabilized in Europe during Q4, whereas the high growth markets outperformed the relatively weak final quarter of 2008. Commercial markets continued to be weak, particularly in the mature markets. This was the main reason for the EBITDA margin of 10.5 percent, compared with 11.9 percent in 2008. Latin America and Asia delivered strong performances, with Asian revenue slightly below 2008, while Latin American revenue in constant currencies was slightly ahead of the previous year.
A multi-year restructuring program to eliminate or reduce complexity and duplication is underway. The program is geared towards leveraging regional scale through increased standardization and investments in people and brands. There has been significant investment in the restructuring of the US business and in the re-launch of the Glidden brand in the US.
Since the start of the integration, 29 sites have been closed, 13 of which were in Europe. While AkzoNobel remains focused on delivering the ICI synergies, the company is also committed to delivering on the promise of growth in high growth markets and will invest accordingly.
Performance Coatings: EBITDA up 4 percent, strong 14.5 percent margin
Although 2009 revenue for Performance Coatings decreased by 12 percent, all businesses benefited from cost reduction and margin management programs, with Industrial Activities closing six sites during the year. This resulted in an EBITDA margin of 14.5 percent, 2.1 percent ahead of 2008. EBITDA was up 4 percent from 2008 at €587 million.
After a difficult first quarter – which saw a large reduction in volume for most of our businesses – there was some recovery in the second half of the year. Marine and Protective Coatings and Packaging Coatings had a good year. Industrial Activities achieved a strong fourth quarter, with demand levels surpassing the previous year. However, activity remains below pre-recessionary levels. A small number of investments were completed during the year. The acquisition of the powder coatings activities of the Dow Chemical Company is expected to close in Q2 2010.
Specialty Chemicals – 2009 EBITDA margin of 15.6 percent
Revenue for the full-year was down 8 percent, driven by weak demand across all businesses, with volumes down 9 percent. Lower volumes led to EBITDA being down 10 percent, although the performance of Functional Chemicals and Pulp and Paper Chemicals improved over 2008. Management action to address the impact of the economic downturn included the closure of four production sites.
While the demand in specialty chemical markets remained below the 2008 level for the first three quarters of the year, pockets of strengthening demand emerged, particularly in those markets unfavorably impacted early in the cycle. As a result, volumes in the fourth quarter were up 4 percent compared with 2008, due to stronger demand from Asia and a modest recovery in the Americas. The customers, cost and cash focus favorably impacted the cost base and, as a result, EBITDA was €217 million in the quarter, 16 percent above 2008. The contribution from acquisitions was offset by the divestment of the PTA business in Pakistan. Towards the end of 2009, chelates production started up at the new site in Ningbo, China.
Restructuring
Restructuring costs for the year were €353 million (2008: €275 million), with Q4 costs totaling €119 million (2008: €205 million). At year-end, the continuing businesses had 2,980 employees less than in 2008. Apart from restructuring costs, Q4 incidental charges included a fine imposed by the European Commission.
Balance sheet, cash flow and dividend
During 2009, AkzoNobel refinanced part of its debt portfolio and extended its debt maturities. The balance sheet remains robust, with a reduction of net debt from €2.1 billion to €1.7 billion. There are no material refinancing requirements in 2010.
The pension plans net deficit was €1.9 billion (2008: €1.0 billion) at the end of the year. The movement is due to lower discount rates and higher inflation expectations, both increasing the pension obligations despite the improved investment return on assets. The company expects to contribute cash of €490 million (2009: €414 million) to its defined benefit pension plans in 2010, which includes an increase of €115 million in additional “top-up” payments (2010: €355 million; 2009: €240 million).
Net cash from operating activities amounted to €1,240 million (2008: €91 million). AkzoNobel’s focus on operating working capital released €533 million. Expressed as a percentage of revenue, operating working capital declined to 13.7 percent (year-end 2008: 16.5 percent).
A final dividend of €1.05 per share will be proposed to the Annual General Meeting of shareholders on April 28, 2010, making a total dividend for the year of €1.35 per share (2009: €1.80 per share). This will represent a 57 percent pay-out under the dividend policy (2008: 48 percent). AkzoNobel’s dividend policy is based on an annual pay-out ratio of at least 45 percent of net income before incidentals and fair value adjustment for the ICI acquisition.
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