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Akzo Nobel withstands rising raw material costs to improve profit

FILE PHOTO: General view of the outside of AkzoNobel's new paint factory in Ashington, Britain September 12, 2017. REUTERS/Phil Noble/File Photo

By Bart Meijer

AMSTERDAM (Reuters) - Dutch paints and coatings maker Akzo Nobel improved its third quarter operating profit by some 8 percent despite the impact from raw material inflation, which it said on Wednesday had peaked.

More expensive materials such as oil left Akzo Nobel struggling in the first half of this year, after a stand-off with disgruntled shareholders in 2017 over a rejected 26 billion euros ($30 billion) takeover offer from rival PPG Industries.

But the company managed to offset rising input costs in the third quarter, by charging higher prices to customers and reducing costs elsewhere. Adjusted operating profit rose to 243 million euros, narrowly beating the average expectation in a Reuters poll of analysts.

Chief Executive Thierry Vanlancker said raw material inflation was expected to continue in the remainder of 2018, but "at a slower rate than during the start of the year."

Earlier this month, a profit warning by PPG sent Akzo shares down sharply, as the U.S. company warned of disappointing third quarter results and continuing increases in raw material prices.

"After the recent profit warning from PPG and the pressure this has also put on Akzo’s share price, we believe that Akzo’s Q3 figures and outlook comments on raw materials might come as a mild relief," KBC Securities analyst Wim Hoste said in a note, maintaining his 'hold' rating for the stock with an 80 euros price target.

Akzo shares traded up 3.7 percent at 76.80 euros at 0920 GMT, making them one of the strongest gainers in the blue chip AEX index in Amsterdam.

Despite the gain, Akzo's share price was still almost 5 percent lower than before PPG's profit warning on Oct. 8.


The maker of Dulux paints said it would implement additional annual savings of 200 million euros by 2020, to meet promises made to shareholders as it fought off PPG's unwanted bid.

At the time, Akzo said it would improve its return on sales to 15 percent by 2020 and increase the return on investments to above 25 percent, after it had sold its specialty chemicals division.

That business was sold earlier this year for 10.1 billion euros to a group of buyers led by Carlyle Group, with the proceeds distributed to shareholders in the form of dividends and share buybacks.

Although the return on sales only improved to 10.4 percent in the third quarter, and the return on investments fell to 12.6 percent, Vanlancker said the company was still on track to meet the targets.

Meanwhile, lower volumes and adverse currency effects drove down Akzo's sales 4 percent in the third quarter, to 2.33 billion euros, continuing the trend from the weak first half of 2018.

($1 = 0.8648 euros)

(Reporting by Bart Meijer; Editing by Muralikumar Anantharaman and Elaine Hardcastle)