28 November 2019Reading time: 3 minutes

For many years, AkzoNobel is one of the largest paint manufacturers worldwide. After PPG and Sherwin Williams, the Dutch paint manufacturer takes the third place and exploits brands such as Flexa and Sikkens. In the third quarter, AkzoNobel realized a revenue increase of 3 percent on an annual basis to 2,4 billion euro. With a revenue contribution of 34 percent, Europe is the largest market for AkzoNobel, followed by Asia with 31 percent. The ebitda rose with 12 percent to 334 million euro, while the paint manufacturer also improved their profit margin to 13,8 percent.

The achieved revenue increase of AkzoNobel however, was not the result of an sales increase. The volumes of sold litres of paint regarding both the Decorative Paints division, as well as the Performance Paints division, plummeted with 5 percent. According to the paint manufacturer, this was caused by a worldwide trend in which important buyers are less quick with replenishing their paint stock. It remains to be seen whether this development is an omen for the possible arrival of a new recession.  

The fact that AkzoNobel nevertheless achieved better third quarter results, was partly due to cost reductions. Both for this year and next year, the Dutch paint manufacturer has ambitious plans to reduce their costs considerably. In the last quarter the company achieved a cost reduction of 19 million euro, which brings the total cost reduction number for this year at 90 million euro. AkzoNobel still has a long way to go however, because their goal is to reach a total cost reduction of 200 million euro by the end of 2020. Last year the paint manufacturer already stated, that job losses are unavoidable in all probability during this process. 

Another method of AkzoNobel to maintain their margins is through price increases. In the first nine months of this year, the company has continuously increased its product prices. According to AkzoNobel, these prices increases where necessary in order to compensate the increased raw material costs. However, in the third quarter it seems that the paint manufacturer has reached the limit of what is possible. It remains to be seen how AkzoNobel is going to guard its margins in the following period. 

AkzoNobel did already announced to look for both small and medium-sized acquisitions, in order to strengthen their market position. A relatively modest share buyback program of 500 million euro, must ensure that AkzoNobel has enough cash for possible acquisitions and at the same time keeps investors satisfied. Axalta, amongst others, is already pointed out as a possible acquisition candidate by the market. For AkzoNobel it is very important to avoid being a prey for new takeover attempts. In 2017 AkzoNobel already managed to successfully dodge a takeover attempt by PPG. 

AkzoNobel maintains their outlook for 2020, to achieve a profit margin of 15 percent. After the presentation of the third quarter results, the stock price of AkzoNobel increased that same day with 2 percent. At the moment of writing (November 18th, 2019), the stock price of AkzoNobel is 88,21 euro, which is the highest level this year so far. 

The future price of the stock is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses. 

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20/01/2021 02:12:27