Commenting on the results, CEO Hans Wijers said: "We've had a good start to 2010, particularly in higher growth markets, where our performance was strong. While revenue growth across all AkzoNobel's businesses has been solid, our Q1 performance compares with a particularly weak first quarter in 2009."
Added Wijers: "We expect pressure from further raw material cost increases during the year and remain cautious about the strength of the recovery. AkzoNobel will continue to focus on customers, cost reduction and cash generation, but we will also prioritize investments and initiatives to ensure that the company is able to capture growth."
AkzoNobel has received renewed expressions of interest in National Starch, which has accordingly been reclassified as a discontinued operation. Details of the reclassification can be found on page 18 of our Q1 2010 Report.
Decorative Paints - Significant growth in higher growth markets
Revenue up 7 percent; volumes up 5 percent
- EBITDA at €82 million (2009: €48 million)
- EBITDA margin 7.8 percent (2009: 4.9 percent)
- Significant growth in higher growth markets; mature markets stable
The Decorative Paints business got off to a good start in 2010, with revenue up 7 percent due to a 5 percent increase in volume. In higher growth markets, revenue growth was strong (Asia increased 30 percent), while revenue remained stable in the mature markets compared with the previous year. Synergies and restructuring benefits contributed to better results in the mature economies. The closure and integration of multiple sites across Europe is running according to plan.
The EBITDA margin was 7.8 percent, an improvement of close to 3 percent compared with 2009, despite severe winter conditions in the Northern Hemisphere and a weak commercial property market. In line with its strategy, Decorative Paints increased investments in advertising and promotion by 0.5 percent of sales to accelerate growth in key high growth markets.
Performance Coatings - Strong volume recovery continues
Revenue increased by 6 percent; volumes up 8 percent
- EBITDA up 36 percent at €143 million (2009: €105 million)
- EBITDA margin at 13.6 percent (2009: 10.6 percent)
- Lower Marine maintenance activity
- Restructuring programs continue to deliver savings
It was a strong first quarter for Performance Coatings, with revenue increasing 6 percent. After a difficult Q1 last year - with reduced volumes for most businesses - there has been a recovery in 2010, although most businesses are still below pre-recession levels. During Q1, volume recovery was evident in all businesses, with the exception of the late cycle Marine and Protective Coatings business.
Overall margins improved during the quarter, but declined from the levels of Q4 2009. The higher growth markets displayed the most visible signs of recovery. All businesses benefited from margin management and cost reduction programs, resulting in an EBITDA of €143 million, 36 percent higher than in Q1 2009. The EBITDA margin was 13.6 percent, 3 percent ahead of Q1 last year.
Specialty Chemicals - Improved demand in mature and high growth markets
Revenue increased by 6 percent, with volumes up 15 percent
- Broad demand improvement in both mature and high growth markets
- EBITDA increased 37 percent to €207 million (2009: €151 million)
- EBITDA margin 17.9 percent (2009: 13.8 percent)
- Strong results, most notably Functional Chemicals and Surface Chemistry
- National Starch activities reported as discontinued operation
The increase in demand evident in late 2009 gained momentum during the first quarter of 2010. Nearly all businesses experienced a recovery in demand in the mature markets, while strong growth also returned to higher growth markets. Accordingly, the combination of restocking, market share gains and improved fundamental demand led to a volume increase of 15 percent in the quarter. Average pricing was relatively stable versus Q4 2009, but was 6 percent below Q1 2009 levels.
Product mix and sustained margin management efforts led to margin improvement for the quarter, although raw material costs increased due to higher oil and feedstock prices. EBITDA was €207 million, 37 percent above Q1 last year. As percentage of revenue, the EBITDA margin was 17.9 percent, more than 4 percent ahead of 2009.
Operating activities in Q1 resulted in a cash outflow of €525 million (2009: €317 million) as higher operating results were offset by payment of €159 million of accrued interest on refinanced bonds, higher pension top-up payments of €67 million and a seasonal working capital outflow. Expressed as a percentage of revenue, operating working capital was 15.6 percent (Q1 2009: 19.1 percent).
Outlook and medium-term targets
AkzoNobel remains on track to achieve its medium-term target of an EBITDA margin of 14 percent by the end of 2011. The focus on customers, cost reduction and cash generation continues, while investments to capture growth remain a priority, particularly in higher growth markets. Although volumes remain below pre-recessionary levels in most businesses, increases in volume, first evident in Q2 2009, have continued more broadly and are a reason for cautious optimism.