"Amid Turbulent Market Conditions, Akzo Nobel Continues Its Growth Trajectory"

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"Amid Turbulent Market Conditions, Akzo Nobel Continues Its Growth Trajectory"

Akzo Nobel (AKZA.AS) reported continuous volume growth for the fourth consecutive quarter during its Q3 2024 earnings call on October 25, 2024. Despite challenging market conditions, the company achieved a 1% increase in volumes and maintained a stable EBITDA margin of 15%. However, the net debt/EBITDA ratio rose to 3x due to temporarily elevated working capital.

Key initiatives, including the closure of three EMEA Deco plants and the reduction of 2,000 positions globally, aim to achieve significant cost savings. The company anticipates stable volumes in Q4, with stronger growth expected in emerging markets.

Key Highlights:

  • Akzo Nobel recorded 1% volume growth and €400 million in adjusted EBITDA for Q3.
  • The net debt/EBITDA ratio increased to 3x due to high working capital.
  • Cost-saving measures include the closure of three EMEA Deco plants and reduction of 2,000 jobs.
  • A strategic review in South Asia focuses on decorative paints, especially in India.
  • Volumes expected to remain flat in Q4, with mid-single-digit growth anticipated in emerging markets.
  • Full-year adjusted EBITDA is projected at approximately €1.5 billion, with the net debt/EBITDA ratio revised to 2.7x.
  • Interim dividend ex-date is set for October 28, with a payment date of November 7.

Company Outlook:

  • Full-year adjusted EBITDA expected to reach €1.5 billion.
  • 2024 full-year net debt/EBITDA ratio forecast revised to 2.7x.
  • Strategic focus on portfolio management in Southeast Asia and India.
  • The company remains open to partnerships or exits in markets with low consolidation potential.
  • Q4 results to be announced on January 29, 2025.

Bearish Factors:

  • Weak demand in China, particularly in the decorative paints segment.
  • Expected softening of the vehicle refinishing market due to mergers and low repair volumes.
  • No further investment planned for decorative paints in Latin America.

Bullish Factors:

  • Mid-single-digit growth in Latin America and strong double-digit growth in Southeast Asia.
  • Strategic review initiated for decorative paints in South Asia.
  • Interest in BASF's coatings business, if it becomes available for sale.

Below-Expectations Details: The company reported an increase in the net debt/EBITDA ratio, mainly due to rising working capital.

Q&A Highlights:

  • Inflation assumption for 2025 between 3% and 4%.
  • Strategic shift towards coatings rather than decorative products, emphasizing coatings.
  • Selective bidding strategy in the marine sector to focus on high-value technical vessels.
  • Mild inflation in raw materials expected as 2025 approaches.

Leading global paints and coatings company Akzo Nobel continues to achieve modest volume growth amid a complex market environment. Company management is implementing strategic initiatives, including consolidating operations and reducing the global workforce, to enhance efficiency and reduce costs. These measures are expected to contribute to the company's financial health and competitive edge in the long term.

Despite facing challenges in softening markets like the vehicle refinishing segment and difficulties in China, Akzo Nobel remains committed to disciplined pricing and cost management. The company's strategic review and potential partnerships or exits in specific markets highlight its determination to optimize its portfolio for value creation.

Investors and stakeholders can anticipate more detailed guidance for 2025 in the forthcoming full-year results as Akzo Nobel continues to make strategic decisions to maximize shareholder value amid market complexities.