Akzo Nobel Hit by Paint Loss .
Category: Industry News
Date: 2012-10-26
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Thursday said it swung to a net loss for the third quarter as the Dutch chemicals supplier wrote down the value of its paints business by €2.48 billion ($3.25 billion) having encountered tougher than expected trading conditions in Europe which it expects to persist this quarter.

The company reported a net loss of €2.38 billion in the three months to Sept. 30, a turnaround from the €149 million profit a year earlier, on a 5.6% rise in revenue to €4.28 billion, partly helped by the euro's weakness against major currencies.

The unexpectedly heavy impairment charge at Akzo, whose paint brands include Dulux and Coral, underscores how many European industrial companies have been wrong-footed by the severity of the economic slowdown in the region this year as the enduring euro-zone sovereign debt crisis, rising unemployment, and increasing taxes have sapped consumer demand. Akzo Nobel's paints and coating businesses are dependent to a large degree on the construction and automotive sectors, particularly badly hit by Europe's economic crisis.

Akzo Nobel's poor results follow a series of bearish outlooks on the outlook for business in Europe, ranging from British engineering group GKN GKN.LN -0.44%PLC and Swedish ball-bearing supplier SKF AB SKF-B.SK -0.61%to French yogurt-maker Danone BN.FR +0.77%SA. Germany's flagship industrial group Siemens AG SIE.XE -0.08%warned earlier this month it will have to accelerate its cost-cutting efforts having underestimated the severity of the decline in economic activity in Europe.

"Results were most hit in consumer-driven markets in Europe,"said Akzo Nobel's Chief Financial Officer Keith Nichols.

Mr. Nichols attributed the scale of the charges—Akzo Nobel has written down goodwill related to the group's 2008 acquisition of U.K. rival Imperial Chemical Industries Ltd. for £8 billion ($12.92 billion)—to the bleak outlook for the paints market in Europe. "It is unlikely that markets will rebound in the fourth quarter," he said.

Akzo said higher selling prices failed to offset the decline in volumes at its decorative-paints unit, responsible for a third of group revenue and dependent on Europe for 40% of its sales, while overall profitability was squeezed by larger than expected restructuring charges as the company has stepped up its efforts to reduce costs because of slack demand.

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