On October 23, AkzoNobel released its third-quarter operating performance report for the 2024 fiscal year. In the first three quarters of this year, sales amounted to €8.092 billion, a year-on-year decrease of 1%; price/combination-driven growth was 1%, while adverse currency effects reduced sales by 3%. Operating profit was €790 million, a 3% year-on-year decline, primarily due to identified projects resulting in a negative €96 million. Excluding identified projects, gross margin expansion was sufficient to offset operating cost inflation. Adjusted EBITDA was €1.157 billion, a 4% increase year-on-year; net profit attributable to the parent company was €521 million, a 29.93% year-on-year increase.
AkzoNobel stated that due to an increase in sales volume and a rise in price/combination, organic sales grew by 2% in the first three quarters of this year, while sales revenue declined by 1%. The high-performance coatings segment saw a 2% increase in sales volume, while the decorative paints segment remained flat. The growth in sales volume in the high-performance coatings segment was driven by mid-single-digit growth in powder coatings and strong growth in most of the company's paint business in China. The decorative paints segment's sales volume was flat, with sales growth in the SESA region offset by weak demand in China. Decorative paints in both EMEA and LATAM regions were flat.
According to the financial report, AkzoNobel achieved sales of €2.668 billion in the third quarter of 2024, a year-on-year decrease of 3%; organic sales increased by 1% driven by sales volume growth. Operating profit was €259 million, down 27% year-on-year, significantly impacted by a negative €44 million and an increase in operating costs compared to the previous year, indicating a continued decline in cost metrics this quarter. Adjusted gross margin expanded. Adjusted EBITDA was €394 million, a year-on-year decrease of 5%; net profit attributable to the parent company was €163 million, down 13.76% year-on-year.
Organic sales growth of 1% in the third quarter was attributed to an increase in sales volume of marine coatings, single-digit growth in protective coatings, and single-digit growth in powder coatings. The sales volume of decorative paints remained flat, with growth in both the SESA and LATAM regions and flat sales volume in EMEA, while the market environment in China continued to face challenges. Price/combination remained flat, with positive pricing impacts in the decorative and high-performance coatings segments offset by negative regional combinations. Adverse currency impacts on revenue were 3%, while other currencies (mainly related to hyperinflation accounting) were 1%.
AkzoNobel CEO Greg Poux-Guillaume commented, “We continue to demonstrate our ability to grow in a flat market, achieving sales growth for the fourth consecutive quarter. Despite an increase in operating costs compared to the previous year, costs are still on a downward trend while gross profits continue to grow. We have initiated further cost and product portfolio plans to ensure we meet our mid-term goals. For 2024, we expect adjusted EBITDA to be around €1.5 billion.”
On September 24 of this year, AkzoNobel announced the next steps to reduce costs and improve efficiency. This initiative aims to streamline operations, accelerate decision-making, and simplify the company's management structure. A key element of this plan is to lay off approximately 2,000 employees globally. The restructuring plan is expected to be completed by the end of 2025. Greg Poux-Guillaume stated, “Our goal is to become more agile in turbulent markets by optimizing our functional organization and offsetting adverse factors such as rising labor costs, thereby accelerating profit growth.”
On October 3, AkzoNobel announced a strategic review of its portfolio to redeploy capital and develop its core paint business. The review will explore various strategic options, including establishing partnerships, seeking mergers, or selling assets. The company stated that the initial focus will be on its decorative paint market in South Asia. Given this unique market position, the company is positioned to engage further in the vibrant South Asian decorative paint market, where the timing for consolidation has matured. AkzoNobel CEO Greg Poux-Guillaume said, “We are focused on enhancing our global coatings business, which is supported by a strong combination of high-performance brands and technologies. This strategic review represents a critical step towards focusing our product portfolio of varying scales in key coatings markets, which will help accelerate our profit growth.”
The decorative paints segment achieved sales of €1.089 billion in the third quarter of 2024, a year-on-year decrease of 3%, driven by pricing, with organic sales increasing by 1%. The organic sales growth was due to positive pricing. Sales volume remained flat, with double-digit growth in the SESA region, median growth in the LATAM region, and lower sales in China. Sales volume in the EMEA region for decorative paints remained flat. Adverse currency impacts on revenue were 3%, while other currencies (mainly related to hyperinflation accounting) were 1%.
Operating profit was €127 million, down 19% year-on-year, primarily due to identified projects resulting in a negative €23 million. Excluding identified projects, gross margin expansion was offset by higher operating expenses. Adjusted EBITDA was €188 million, a year-on-year decrease of 4%. The adjusted EBITDA margin was 17.3%, compared to 17.5% in the same period last year.
In the EMEA region, organic sales grew by 2% in the third quarter of 2024, with revenue increasing by 1% to €635 million. The growth in organic sales was driven by positive pricing. Higher sales were seen in the UK, Benelux, and sub-Saharan Africa, while lower sales were recorded in Southeast Europe, Central Europe, and France.
In the LATAM region, organic sales grew by 13% in the third quarter of 2024 due to increased sales volume and positive pricing, while revenue decreased by 3% to €207 million. Revenue was significantly impacted by currency devaluation. Strong growth in Brazil was partially offset by weak demand in the Colombian market. Higher prices included inflation-related pricing in Argentina.
In the Asia region, organic sales decreased by 11% in the third quarter of 2024, with revenue declining by 11% to €247 million, driven by competitive pricing in China and parts of SESA. Double-digit sales growth in the SESA region was driven by strong performance in India, Vietnam, and Indonesia, while sales in China declined due to market environment challenges.
The decorative paints segment achieved sales of €3.284 billion in the first three quarters of 2024, a year-on-year decrease of 1%, with organic sales growing by 1%. Organic sales growth was attributed to positive pricing. Sales volume remained flat, with high single-digit growth in the SESA region, lower sales in the Chinese market, and flat sales volume in the decorative paints EMEA region. Sales increased by 1% due to the acquisition of China Resources’ architectural paint business, while adverse currency impacts resulted in a 3% negative effect on sales revenue.
The decorative paints segment achieved an operating profit of €364 million in the first three quarters of 2024, a year-on-year decrease of 9%, primarily due to identified projects resulting in a negative €47 million. Excluding identified projects, profit margin expansion offset operating cost inflation. Adjusted EBITDA was €522 million, flat compared to the same period last year. The adjusted EBITDA margin was 15.9%, compared to 15.8% in the same period last year.
Sales revenue of decorative coatings in Europe/Middle East/Africa increased by 2% year-on-year to 1.935 billion euros in the first three quarters of 2024. Sales revenue in Latin America decreased by 2% year-on-year to 574 million euros. Sales revenue in Asia decreased by 7% year-on-year to 775 million euros. In contrast, the demand for decorative coatings in Asia is sluggish, especially in the Chinese market, where sales of decorative coatings are low.
The high-performance coatings segment achieved sales of €1.579 billion in the third quarter of 2024, a year-on-year decrease of 3%, with organic sales growing by 2% driven by sales volume growth. Organic sales growth was mainly attributed to increased sales volume of marine and protective coatings, particularly new build marine coatings and powder coatings. Price/combination remained flat, with positive pricing and negative regional combinations. Adverse currency impacts on sales revenue were 3%, while other currencies accounted for 2%.
Operating profit was €171 million, down 30% year-on-year, primarily due to identified projects resulting in a negative €10 million. Identified projects mainly included restructuring-related costs, while identified projects in 2023 were impacted by asset divestiture benefits. Excluding identified projects, operating profit declined due to reduced sales revenue and increased operating expenses. Adjusted EBITDA was €225 million, a year-on-year decrease of 8%; the adjusted EBITDA margin was 14.2%, compared to 15.1% in the same period last year.
The high-performance coatings segment achieved sales of €4.808 billion in the first three quarters of 2024, flat compared to the previous year, with organic sales growing by 2%. Organic sales growth was driven by increased sales volume across most businesses, including mid-single-digit growth in powder coatings and strong growth in most businesses in China. Price/mix pricing remained flat. Adverse currency impacts on sales revenue were 2%.
Operating profit was €529 million, a year-on-year decrease of 3%. The increase in gross margin was offset by inflation in operating costs and higher identified projects. Operating income included identified projects with a negative €22 million, mainly due to restructuring-related costs. Adjusted EBITDA was €683 million, a year-on-year increase of 6%; the adjusted EBITDA margin was 14.2%, compared to 13.4% in the same period last year.
Net cash inflow generated from operating activities in the third quarter was €294 million (2023: €297 million), stable compared to last year, mainly due to lower tax payments of €106 million and lower changes in working capital of €64 million. Free cash flow for the third quarter of 2024 was lower than for the third quarter of 2023, as lower free cash flow inflows due to working capital changes and higher capital expenditures were only partially offset by lower tax payments.
As of September 30, 2024, net debt was €4.069 billion, compared to €3.785 billion at the end of 2023, primarily due to capital expenditures and dividends, partially offset by net cash generated during the same period. As of September 30, 2024, the net debt/EBITDA leverage ratio was 3.0 (December 31, 2023: 2.7).
Based on current market conditions and fixed exchange rates, AkzoNobel expects adjusted EBITDA to be approximately €1.5 billion in 2024. In the medium term, AkzoNobel aims to expand profitability, achieving an adjusted EBITDA margin exceeding 16% and a return on investment reaching between 16% and 19%. The company targets to reduce its leverage ratio to 2.7 times net debt/EBITDA by the end of 2024, aiming for approximately 2 times in the medium term while remaining committed to maintaining a strong investment-grade credit rating.
