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AkzoNobel, Solvay Q4 to improve, but recovery fragile

February 17/2010
AMSTERDAM (Reuters) -- Benelux chemicals companies AkzoNobel NV  and Solvay will show the economic recovery is continuing, but cautiously and slowly as they report improving fourth-quarter results on Thursday.
Both companies are expected to show more resilient volumes, but no sharp improvement in their trading environment, hit also by pricing pressures, but partly offset by margin improvements.
AkzoNobel is expected to report a 10.5 percent rise in earnings before interest, tax, depreciation and amortisation (EBITDA) excluding one-offs of 421 million euros ($574.7 million), according to the average forecast from a Reuters poll.
In the same period last year it reported EBITDA of 381 million euros.
"We expect the company to improve margins further on the back of cost cutting, and see volumes improving year-on-year on the back of an absent destocking effect and emerging markets exposure," ING analyst Jan Hein de Vroe said.
AkzoNobel is targeting 540 million euros in operational savings and synergies from its acquisition of British paints company ICI by end-2011, but is poised to exceed that target having achieved 530 million euros in savings by its third quarter results last October.
The company - which has lagged its closest rivals for years in terms of operating margins - is targeting an EBITDA margin of 14 percent by the end of 2011, but analysts say AkzoNobel could either lift its target or exceed it.
"We expect AkzoNobel to realise an EBITDA margin of 13.8 percent in 2010, close to its target. If a recovery occurs in 2010, AkzoNobel could achieve its medium-term target a year ahead of schedule," RBS analyst Mutlu Gundogan said.
But worries still persist, with SNS Securities analyst Danny van Doesburg warning results from rival paint makers Sherwin-Williams and PPG suggest volumes remain under pressure and the recovery is slower than anticipated.
AkzoNobel was also fined 40.6 million euros in November by the European Commission for belonging to a price fixing cartel and the deadline to appeal the fine has expired. AkzoNobel could therefore book a charge, impacting its net profit.
AkzoNobel"s improved margins come after it divested its drugs unit and narrowed its focus, a move that Belgian peer Solvay has also opted for, closing the sale of its drugs unit to Abbott Laboratories on Tuesday.
On Thursday, Solvay - which is targeting acquisitions after the drugs unit sale - is expected to report a 74 percent rise in recurring earnings before interest and tax (REBIT) to 217 million euros based on the average forecast from a Reuters poll.
In the year-earlier period, however, Solvay - one of the world"s leading makers of polyvinyl chloride (PVC), heavily used in construction - reported a 53 percent slump in REBIT, hit by plunging demand for plastics and 30 million euros in inventory writedowns.
But despite the rise in group REBIT, ING"s De Vroe said PVC volumes are likely to have remained very low in the quarter, with margin pressure from U.S. imports and price competition in Europe.
Margins at the chemicals unit should be "more or less intact" with lower energy costs countering the fact that volumes will have come under pressure, De Vroe said, noting that soda ash prices will have remained fairly stable.
Solvay is the world"s leading maker of soda ash, a key raw material for glass and the outlook remains tough.
"We expect 2010 to be a difficult year in chemicals, as we expect a price decline of more than 5 percent in soda ash in 2010, resulting in approximately 3 percent lower REBIT margins," Rabo Securities analyst Fabian Smeets said.

AkzoNobel, Solvay Q4 to improve, but recovery fragile

AkzoNobel, Solvay Q4 to improve, but recovery fragile











































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