situation kept consumers cautious,” ex-
plained Erkki Jaervinen, Tikkurila’s pres-
ident and chief executive. “Streamlining
of our operations and the slightly lower
level of raw material prices supported
our profitability.”
The company’s Scandinavia business
unit, which mainly comprises its activities
in Sweden but excludes those in its do-
mestic market in Finland, seemed to ben-
efit the most from reductions in operating
costs. Its operating profit increased by
14 percent in the first half. In Tikkurila’s
East business unit, mostly consisting of
Russia where there have been big wage
increases and disruptions to raw material
supplies, the operating result dropped by
22. 5 percent.
AkzoNobel has also been busy reducing operating costs in Europe, particularly in its hard pressed decorative paints
operation, which is the market leader in
Europe. But these have not necessarily
yet been fully reflected in higher margins
and have even decreased profits because
they have generated restructuring charges. This year the company is expecting
restructuring charges of €325 million,
close to 60 percent higher than initially
expected and which is does not envisage
being mirrored in improved earnings until 2015.
“With (the) pressure on our top line,
we are stepping up our restructuring activities to secure the delivery of our 2015
targets which drive cash generation and
quality of earnings,” said Ton Buechner,
AkzoNobel’s chief executive.
In the company’s decorative paints
business, operating income dropped by 9
percent in the second quarter mainly because of restructuring costs in Europe. In
the first half operating income in decorative paints , however, rose by 6 percent
after a sales decrease of 3 percent.
In Germany, which is one of
AkzoNobel’s major decorative paints
markets most affected by weak demand,
the company has divested its paints stores
to independent wholesalers to streamline
its distribution channels in the country.
Its biggest restructuring initiative in its
decorative paints activity in Europe has
been an agreement to sell its building adhe-
sives business, part of its decorative paints
operation, to Sika AG of Switzerland.
Last year the business which primarily
serves the professional market in north-
west Europe had sales of €185 million.
Buechner said AkzoNobel wanted to focus
its decorative paints business on “strong
strategic paint positions.”
Both AkzoNobel’s decorative paints
and performance coatings operations, as
well as its speciality chemicals activities,
have been benefitting from lower raw ma-
terial costs which the company expects
for the whole of the year will be margin-
ally lower than those in 2012.
The decrease in a large proportion of
raw material costs in the European coat-
ings sector has stemmed from softer
prices for petrochemical derivatives which
in turn has resulted from lower crude oil
prices since last year. BASF, both a coat-
ings and raw materials producer, is now
predicting that the average oil price for
2013 will be $105 per barrel against a
previous forecast by the company of $110.
There has also been a drop in other
raw material costs, particularly for inor-
ganic pigments such as titanium dioxide
and effect pigments whose producers
were impacted by both feeble demand
and lower selling prices. Altana Group
reported a 5-percent drop in sales at its
Eckart effect pigments business.
The biggest prices declines have been
for TiO2, whose price has plunged by ap-
proximately 20 percent since the first half
of last year due to weakening demand in
Europe and elsewhere in the world.
Rockwood Holdings, Princeton, NJ,
reported a 26-percent increase in sales to
$549 million at its Europe-based TiO2
business in the first half of the year, main-
ly due to an acquisition in 2012.
But as a result of lower TiO2 prices,
earnings before interest, tax, depreciation
and amortisation (EBITDA) plummeted
by 117 percent from $130 million a year
ago to a negative $9.5 million. The profit
decrease was “primarily from lower sell-
ing prices and continued lower fixed cost
absorption related to lower production
levels to reduce inventory,” according to
the company.
Nonetheless if there is a significant
upswing in demand for coatings, there is
a danger that raw material prices will
rally as well so that coatings producers
have to rely more on their own ability to
raise their selling prices to maintain or
bolster margins.
After 18 months in recession, the
17-nation eurozone is considered by politicians and economists to be on the road
to recovery after second-quarter GDP
figures showed a 0.3 percent increase
equivalent to a 1.1 percent annual rise.
In Germany, the engine of the European
economy, GDP went up 0.7 percent in the
quarter and in France 0.5 percent. In the
UK, the biggest European Union economy outside the eurozone, second-quarter
GDP increased by 0.7 percent, triggering
claims that the country’s frail economy
was now starting a revival.
Already in anticipation of improved
demand, raw material suppliers are mov-
ing to raise their prices to take advantage
of low inventories among customers.
TiO2 producers have been trying to
push through price increases in the third
quarter. Rockwood is expecting that dur-
ing the second half of the year its TiO2
business “will achieve a turn-around with
adjusted EBITDA margins trending in ex-
cess of 10 percent.”
Coatings producers will be hoping that,
admidst the possible economic resurgence
in Europe, there is not a repeat of what
happened 2-3 years ago when a rapid rise
in demand led to shortages and steep in-
creases in raw material prices. CW
“We are stepping
up our restructuring
activities to secure
the delivery of
our 2015 targets,
which drive cash
generation and
quality of earnings.”
