AkzoNobel’s Q1 Results Show 31 Percent Profitability Improvement, Despite Headwinds From COVID-19

Akzo Nobel N.V. (AKZA; AKZOY) publishes results for first quarter 2020

Highlights Q1 2020

• Adjusted operating income1 up 31 percent at €214 million (2019: €163 million), despite impact from COVID-19

• Return on Sales, excluding unallocated costs,2 increased to 12.4 percent (2019: 9.1 percent) with price/mix up 2 percent

• Operating income up 65 percent at €187 million (2019: €113 million); OPI margin improved to 9.1 percent (2019: 5.2 percent)

• Transformation and other savings delivered €44 million lower costs (compared with the first quarter of 2019)

• €408 million of €500 million share buyback program executed during Q1 2020

• Revenue 6 percent lower and 5 percent lower in constant currencies3, with positive price/mix of 2 percent more than offset by 7 percent lower volumes, mainly due to the impact of COVID-19

• Operating income at €187 million includes €27 million negative impact from identified items, related to transformation costs (2019: €113 million, including €50 million negative identified items related to transformation costs and non-cash impairments); OPI margin improved to 9.1 percent (2019: 5.2 percent)

• Net income from total operations at €114 million (2019: €65 million)

• Adjusted EPS from continuing operations up 54 percent at €0.71 (2019: €0.46), EPS from total operations at €0.59 (2019: €0.28)

Q1 2020 (compared to Q1 2019)

AkzoNobel CEO, Thierry Vanlancker, commented:

“Just like many around the world, we’re dealing with challenges from COVID-19. Our top priority at AkzoNobel is the health and safety of our colleagues. As a business, we’re also taking all reasonable steps to continue serving our customers and make sure AkzoNobel remains in a strong position to weather the storm.

“Our results for the first quarter demonstrate our transformation was fully on track, even though COVID-19 already had a significant impact, especially in China and later in the quarter other regions of the world. Our performance improvement accelerated, resulting in business return on sales 330 basis points higher at 12.4 percent. These results were possible due to the passion and commitment of everyone at AkzoNobel who have been working – and winning – together during unprecedented circumstances.

“While things are gradually returning to normal in China, COVID-19 headwinds are increasing for most of the world and will have a significant impact during Q2. Although we’ve been forced to pause key parts of our transformation and suspend our 2020 financial ambition, we’re eager to quickly resume our positive momentum once markets normalize.”

Recent highlights

Ultimate rust-busting metal paint launched A new wave of exterior water-based paint has been launched by AkzoNobel which offers superior metal protection. Hammerite Ultima can be applied directly onto any metal surface – as well as rust – without the need for a primer. Suitable for anything from gates and fences to railings and garden furniture, the new product is now available in Germany, Spain and France and is scheduled to be launched onto other markets in due course.

Community healthcare project in India switches focus to COVID-19 response

Villagers living near Bangalore are receiving initial screening for COVID-19 through an existing e-health initiative which had been set up as part of the company’s AkzoNobel Cares program. Following the outbreak, the focus of the community healthcare project was changed to help tackle the virus. More than 1,000 people have been tested to date.

Rapid response contributes to construction of hospital in China

When Chinese authorities announced they were about to rapidly construct a hospital in Yinchuan – capital city of the Ningxia Hui Autonomous Region – the local AkzoNobel organization sprang into action. The facility was being built as an expansion project at the existing Fourth People's Hospital of Ningxia. However, as the work was taking place during the Spring Festival in February, paint was in short supply. AkzoNobel moved quickly to donate 450 tins of Dulux Pro interior emulsion during the early days of the project. It helped to ensure that the new buildings could be completed on time (in just 15 days) as part of an urgent local response to the COVID-19 outbreak.

Supply deal secured with leading car manufacturer

The BMW Group has chosen AkzoNobel to be a trusted supplier of vehicle refinish products and services to a large part of its distribution network around the world. The deal came into effect on February 1, 2020. Covering 44 locations, the agreement means that the company’s premium Sikkens and Lesonal brands are now approved for paint repairs of BMW and Mini passenger cars at authorized dealers, repairers, importers and national BMW Group branches.

Automotive training center in Poland doubled in size

One of the company’s automotive training centers has been given a new lease of life. Now restored and expanded, the new facility in Pruszków, Poland, has doubled in size and is the company’s most advanced automotive training center in Europe. Featuring state-of-the-art equipment, it will serve as a hub of learning and collaboration, hosting more than 1,000 people a year.

First wave of sustainability ambitions for 2030 announced

The first in a series of challenging sustainability ambitions has been announced by AkzoNobel, designed to accelerate the newly focused paints and coatings company towards zero waste and cut carbon emissions in half by 2030. These two key ambitions – and their related targets – are the first in a wave of measures and focus on the “Planet” element of the company’s new “People. Planet. Paint.” approach to sustainability. The associated targets for 2030 include a 30 percent reduction in energy use, 100 percent renewable electricity, 100 percent water reuse at the company’s most water intensive sites and zero non-reusable waste.

Outlook:

AkzoNobel has paused key parts of the company’s transformation and suspended its 2020 financial ambition in response to the significant market disruption resulting from the COVID-19 pandemic. Headwinds related to COVID-19 are increasing for most parts of the world and will have a significant impact during Q2. Demand trends differ per region and segment in an uncertain macro-economic environment. Raw material costs are expected to have a moderately favorable impact for the first half of 2020. Continued margin management and cost-saving programs are in place to address the current challenges. Once markets normalize, AkzoNobel intends to resume its positive momentum and drive performance in line with industry frontrunners. The company targets a leverage ratio of 1-2 times net debt/EBITDA by the end of 2020 and commit to retain a strong investment grade credit rating.

The report for the first quarter 2020 can be viewed and downloaded at https://akzo.no/Q12020