Akzo Nobel N.V. (AkzoNobel) today reported third quarter revenues of €3,778 million, 5 percent lower compared with the same period last year. The decrease was a consequence of adverse currency effects and divestments. Lower restructuring costs and higher volumes helped push Q3 operating income up 22 percent to €303 million.
The third quarter saw AkzoNobel divest its Building Adhesives business (completed October 1) and announce plans to drive further efficiency and performance improvements within Functional Chemicals and in Germany, as well as plans to streamline the management structure in Decorative Paints to improve competitiveness. The company also published details of investments totaling more than €50 million in two new manufacturing facilities to meet growing demand in western China. AkzoNobel furthermore maintained its number one ranking in the Dow Jones Sustainability Index, heading the Materials industry group.
Decorative Paints revenues of €1,136 million in the third quarter were stable versus the previous year, with higher volumes offset by adverse currency effects. Although conditions in Europe remained challenging in general, global volumes were up on the same quarter last year. Lower costs and lower restructuring charges contributed to increased operating income for Q3 2013 of €107 million, more than double the previous year's figure.
Quarterly revenue at Performance Coatings declined 4 percent to €1,415 million compared with last year, with the decline attributable to adverse currency effects. Whilst overall volumes were up 2 percent, weak demand in Europe continued to impact all businesses. Q3 restructuring costs were lower in 2013 than a year earlier, as a result of which operating income showed an improvement, up 23 percent at €160 million.
Revenue in Specialty Chemicals was 10 percent lower at €1,252 million, primarily as a result of the divestment of Chemicals Pakistan and negative currency effects. Overall volumes were flat compared with a year earlier. Operating income was down 20 percent at €107 million, mainly as a consequence of one-off restructuring costs incurred as part of the performance improvement program in the Functional Chemicals Business Unit.
CFO Keith Nichols
"The trading environment behind these results has not changed in that demand remains soft and on a comparative basis Q3 last year was particularly weak. Nevertheless, the actions we have taken to address the challenges our businesses are facing are starting to have a positive effect; the return on sales before restructuring charges has improved in all three Business Areas due largely to our performance improvement actions."
Performance improvement program
The performance improvement program announced in October 2011 is on track to deliver the full €500 million in EBITDA at the end of this year, a year early. Further efficiency and cost reduction measures have also been identified as restructuring activities are stepped up, the benefits of which will be realized in 2014 and beyond. As previously indicated, the majority of the restructuring charges for the second half of 2013 will be taken in the fourth quarter. Year-to-date AkzoNobel has charged €144 million of an expected full-year total of around €300 million restructuring costs, of which €75 million in Q3.
AkzoNobel will continue to implement new initiatives to optimize performance as it moves to a culture of continuous improvement and embedded operational excellence.
The economic environment remains challenging and AkzoNobel does not expect an early improvement in the trends faced in its end-user market segments. The acceleration of the performance improvement program and the strategic priorities announced in February are the right focus to have in these markets. AkzoNobel expects restructuring charges in the fourth quarter of around €160 million. This means that full-year operating income before incidental items is unlikely to exceed €908 million.