Akzo Nobel N.V. ADR (AKZOY.PK)
Q1 2010 Earnings Call
April 23, 2010 11:00 am ET
Huib Wurfbain - IR
Keith Nichols - CFO
Mutlu Gundogan - RBS
Paul Walsh - Morgan Stanley
Tony Jones - Redburn
Andrew Benson - Citigroup
Jan Hein De Vroe - ING
Fabian Smeets - Rabo Securities
Mathias Cornu - Exane BNP Paribas
Christian Frates - Macquarie
Mark Van Der Geest - Fortis Bank
Amy Walker - Credit Suisse
Arun Rambocus - Kempen
Jenny Barker - Nomura
Markus Mayer - UniCredit Group
Laurent - UBS
Jan Van den Bossche - Petercam
Jaideep Pandya - Berenberg Bank
Jenny Barker - Nomura
Neil Tyler - JPMorgan
Mutlu Gundogan - Royal Bank of Scotland
Frontline Q1 2010 Earnings Call Transcript
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Good day everyone and welcome to the Akzo Nobel first quarter earnings conference call. For the duration of the presentation all lines will be placed on a listen-only mode. A question-and-answer will follow at the end of the presentation. This call is being recorded at the request of the hosting company, should you have any objections you may disconnect at this point of time. And I would like to hand the call over to the Akzo Nobel management and I'll be standing by for the Q&A session. You may now begin. Thank you.
Thank you very much. Good morning everyone and welcome to the Akzo Nobel first quarter 2010 Earnings call. My name is Huib Wurfbain and I am the head of Investor Relations. Today we have Keith Nichols available to guide you through our numbers and businesses.
A presentation that may further assist you can be found on our website akzonobel.com. A replay of this call will also be available. After an introduction by Keith a Q&A session will be opened up. Alternatively you can always contact investor relations after the call.
Before we start, I need to remind you of the Safe Harbor that is contained in the back of the presentation presented on the website. Please note that this statement is also applicable to this conference call and the answers to your questions. With this I would like hand over to Keith Nichols.
Thank you Huib. Good morning everybody, welcome to our Q1 results call. This first quarter represents a good start to the year for us although we have to remember that it compares to a particularly weak first quarter in 2009. Volume increases have continued more broadly and are reason for cautious optimism. Our outlook in terms of achieving an EBITDA margin of 14% by the end of 2011 is unchanged. Revenues are up 4% in constant currencies, 6% reported and volumes are up in all three business areas with specialty chemicals showing the strongest increase of 15%.
EBITDA before incidentals is up 38% just under €400 million, giving a margin of 12.3%. The one year rolling EBITDA margin is 13.6%. Some of you will recall that we signaled at the full year results that we expect the raw material costs to increase and we reconfirm that today. We have seen raw material prices starting to increase in the fourth quarter '09, driven by rising oil and oil derivative prices, the strengthening of the US dollar, increased demand especially in Asia-Pacific and some forced major situations leading to supply shortages to some of our basic materials. We've also seen unplanned shutdowns at some of our key role material suppliers.
We expect therefore raw material price pressure to continue into the next two quarters with an expected stabilization in Q4 albeit at a higher level when compared with Q4 2009. To remind you, raw materials, energy and other variable costs like freight, represented about half of our 2009 revenues.
No single raw material represents more than 15% of their spent. Energy is around 13% resins 11% with solvents TI02 and primary packaging all around 6%. The slide giving more detail is included in our presentation on the website.
You're also seeing the national starch as being reclassified this quarter to discontinued operations as we have received renewed expressions of interest in the business which we are pursuing. Details of the reclassification for 2009 by quarter can be found on page 18 of the Q1 report.
Incidental items were 34 million this quarter mainly comprising of ongoing restructuring costs primarily in Decorative Paints Europe. Operating income including incidental items more than doubled to €224 million.
Net financing charges decreased as the non-cash financing expenses on pensions were lower, a decrease by 20 million in the quarter. For the full year, remember these non-cash expenses are expected to be around a 105 million euros compared to the 174 million in 2009 in line with our previous guidance.
The head line Q1 year-to-date tax rate of 37% is impacted by the change in deductibility of US healthcare related cost for retirees under the recent US health care reforms which resulted in an €8 million reduction of deferred tax assets. The devaluation loss in Venezuela related to the depreciation of the Bolivar included in incidental items is also non-deductible. If you exclude these incidental items, the year-to-date tax rate would have been 29% and we're not changing our guidance.
Turning to the three business areas, firstly Deco. Deco volumes increased 5%. Revenues were 4% in constant currencies. A clear difference remains between the mature markets and the high growth markets. Mature markets in Europe were also impacted in the first two months of the year by the severe winter weather in addition to the ongoing wider weakness in the commercial property market.
March was a stronger month but continental European volumes still ended down 4%. With that said, the merger of the two businesses is clearly paying off in the marketplace. The UK retail market had a solid quarter again and we acquired two trade distributors in France increasing our market share. In total, European revenues were flat in constant currencies and the closure and integration in multiple sites across Europe is running according to plan.