AkzoNobel has undertaken a prudent review, excluding restructuring benefits, of the balance sheet, taking into account lower expected market growth rates, the company reports. This has resulted in a non-cash impairment charge against the Decorative Paints businesses' assets, primarily in Europe.
Decorative Paints generated revenue of €1.46 billion, broadly unchanged on the comparative period. The difficult market conditions in Europe and Latin America were largely offset by strong revenue and volume growth in China and Northern Asia. Despite the volume decline AkzoNobel has been able to maintain or increase its relative market share in most of its markets. EBITDA of €147 million was down 1% on 2011.
In Performance Coatings, revenue increased 13% to €1.47 billion, driven by acquisitions in Industrial Coatings and strong demand in Protective Coatings. Volumes were flat with continued variability between markets. EBITDA increased 29% to €202 million as a result of margin growth from all business areas.
Specialty Chemicals revenue increased 3% €1.39 billion. EBITDA fell 5% to €227 million impacted by lower volumes and margin weakness in Functional Chemicals. Surface Chemistry and Pulp and Performance Chemicals delivered the strongest EBITDA growth during the quarter.
The cost of AkzoNobel's raw materials in Q3 was slightly above last year, but has leveled off versus Q2. The price of TiO2 has reduced, but is still higher than the previous year and there has been some volatility from oil-related feedstock. The company expects average raw material costs for the year slightly up due to the oil price increase in Q2.
Performance improvement program
Announced in October 2011, AkzoNobel's performance improvement program is focused on three main building blocks: operational professionalization, functional standardization and business unit specific adaptations. The program is on track to achieve the previously announced €200 million EBITDA by the end of 2012.
"Despite the unavoidable impact of the economic slowdown, the business portfolio of AkzoNobel remains resilient, and we have reported solid operational results for the quarter,” said CFO Keith Nichols. “Many of our business units are performing well, maintaining high margins and market share. The impact of the slowdown is primarily being felt in the more consumer facing businesses. Looking forward, the principal concern remains the decorative paint markets in Europe. The impairment taken in this quarter is a reflection of these concerns and our realistic assessment of the markets going forward. As we cannot expect quick recovery of the economy, we also will continue to implement our ongoing improvement agenda in order to increase our profitability."
During the year, the economic slowdown, particularly in Europe, is having an adverse impact on AkzoNobel's volumes. Additional restructuring activities are therefore being initiated to further reduce costs in the businesses that are most affected. In addition, the company's performance improvement program is on track.
AkzoNobel has a strong portfolio of complementary businesses with many leading market positions and exposure to growth markets. The company is confident with regard to the long-term growth of its business, but remains cautious over the shorter term development of its markets.
The 2012 Q3 report can be downloaded via the AkzoNobel Report iPad app http://bit.ly/obljrf or read online at www.akzonobel.com/quarterlyresults.