Raw Materials Costs Rise €300m for AkzoNobel Paints, Coatings in 2017

AkzoNobel absorbed an additional €300m in raw materials costs for its paints and coatings division in 2017 compared to the previous year, the CEO of the Netherlands-headquartered producer said on Thursday.

After a strong start to the year, costs in the paints and coatings sector rose throughout 2017 to an extent that Akzo chief Thierry Vanlancker characterised it as ‘unexpected’, with the impact expected to be felt into this year.

“A big factor [for the division] was the raw material cost, that was almost [an additional] €300m for the full-year 2017,” added CFO Maarten de Vries.

Division earnings before interest and taxes (EBIT) fell 2% year on year €905m, with Vanlancker attributing internal cost controls and passing on price increases, but the company conceded in its annual results statement published today that those measures could take several more months to take effect.

The fact that the impact of raw materials costs and currency headwinds was not more pronounced illustrates the underlying strength of the business, Vanlancker added, which will soon become the only space that AkzoNobel operates in

Results for specialty chemicals were stronger during the year, with EBIT rising 10% in 2017 and 40% year on year during the fourth quarter, but the business now operates as a separate entity following the separation process put in place in the run-up to the business being sold or demerged through initial public offering (IPO).

The company accomplished a degree of additional cost pass-through during the first quarter of the year, but Vanlancker that these gains may not stack up to the level of profitability seen in early 2017, which he termed ‘a nirvana quarter’.

“That is going to be a difficult comparison,” he said.

"The raw material impact will continue at a mid-single digit increase [in early 2018], so that rate is going to flatten out, but we still expect [headwinds] to be with us and the industry for the first part of the year," he added.