Akzo Nobel takes hit from weak demand in Europe, China

1 min read
FILE PHOTO: AkzoNobel's logo is seen in Amsterdam

By Valentine Baldassari and Elitsa Gadeva

(Reuters) -Post-lockdown travelling in Europe and COVID-19 resurgence in China weighed on Akzo Nobel’s second-quarter earnings, the Dulux paint maker said on Wednesday, dismissing higher prices as the reason for slowing demand.

Demand in China took a hit from coronavirus restrictions, while sales in Europe were weaker due to a combination of an “enthusiastic” inventory at the start of the quarter and a general reversal of do-it-yourself trends, Chief Executive Office Thierry Vanlancker said in a call with reporters.

“One of the leading ideas is that people were travelling or had other stuff to do than hanging around the house for once after the COVID period,” Vanlancker said. “It was a pretty brutal reset of the inventory that was triggered by a very slow April and beginning of May and had nothing to do with pricing, people were just not showing up.”

Akzo Nobel increased prices by 16% year-on-year in order to offset raw material and other variable costs – such as freight – which increased by 321 million euros ($328.29 million).

Over the last six quarters, the Dulux paint maker has had to absorb cumulative inflation adding up to 1.4 billion euros, Vanlancker said.

Raw material costs are expected to peak in the third quarter, he added, as availability improves.

Akzo Nobel has targeted 100 million euros in margin management, 100 million euros in cost reduction and 300 million euros in working capital reduction by 2023.

The company missed expectations with an adjusted operating income of 249 million euros ($254.65 million) versus an analysts’ forecast of 261 million euros for the second quarter, while its revenues improved by 14% to 2.85 billion euros from a year earlier.

Shares in the company fell 1.9% at 0757 GMT.

Analysts’ expectations were already lowered due to a profit warning last month.

($1 = 0.9778 euros)

(Reporting by Valentine Baldassari and Elitsa Gadeva in Gdansk; editing by Milla Nissi and Elaine Hardcastle)

tagreuters.com2022binary_LYNXMPEI6J05P-BASEIMAGE

tagreuters.com2022binary_LYNXMPEI6J05O-BASEIMAGE