UPDATE 2-AkzoNobel sees flat or lower FY results on weak China, Brazil

Thu Jul 18, 2013 3:46am EDT

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AMSTERDAM, July 18 (Reuters) - Dutch paints and chemicals firm AkzoNobel NV, owner of the Dulux brand, forecast flat or lower operating income this year as it will take additional restructuring charges to reflect deteriorating growth prospects in China, India and Brazil.

AkzoNobel, which makes performance coatings for cars, aircraft and ships as well as specialty chemicals for the pulp and paper industry, said operating income was "unlikely to exceed" the 908 million euros ($1.19 billion) seen in 2012, when results were hit by the crisis in Europe.

AkzoNobel shares fell 5.6 percent to 44.64 euros.

The firm's results over recent quarters have been hit by fragile consumer demand and weak housing markets in the United States and Europe, as well as high costs for raw materials such as titanium dioxide, a pigment used in paint.

In the past year, it has taken a huge writedown on its purchase of Dulux paint maker ICI and sold its struggling North American decorative paints arm to U.S. rival PPG Industries for $1.1 billion to focus on its larger European and fast-growing businesses and markets.

Now, slower growth in some of the biggest emerging markets is affecting sales, prompting it to increase restructuring charges to 325 million euros this year from an initial estimate of 205 million euros, and to cut another 350 jobs, mostly in Europe, on top of the 2,500 job cuts already announced.

"We're seeing clear changes, specifically in the high-growth markets" such as China, India and Brazil, Ton Buechner, chief executive, said in a conference call.

"The countries are still growing, they're just growing less fast. We expect lower growth for AkzoNobel from these markets. We will certainly feel it as an organisation."

He said some export-driven customers in China, whose exports had fallen, has already scaled back purchases of AkzoNobel's coatings.

In Brazil, AkzoNobel has been hit by exchange rate volatility, while in India it is feeling the impact of weaker confidence, he added.

Buechner, who took over as CEO in April 2012, set out new targets in February this year, which include aiming for a return on sales of 9 percent, return on investment of 14 percent, and a ratio of net debt to EBITDA - earnings before interest, tax and depreciation - of less than 2.0 times, all by the end of 2015.

AkzoNobel, which reported lower-than-expected results on Thursday, is far short of those targets; return on sales in the first half was 7.4 percent, while return on investment was 7.7 percent.

Second-quarter EBITDA was 474 million euros on revenue of 3.865 billion euros. Analysts in a poll commissioned by Reuters had expected EBITDA of 506 million euros and revenue of 3.911 billion euros.

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