Akzo Workers Brace for Job Cuts as Wijers Tries Last Fix

Akzo Nobel NV (AKZA) workers are bracing for a fresh round of job cuts in the coming weeks as Chief Executive Officer Hans Wijers makes a last push to revive the Dutch company’s household paint sales before stepping down.

Sales, marketing and administration departments across the company will likely take the brunt of cutbacks as Akzo already streamlined factories after its $16.5 billion purchase of Imperial Chemical Industries in 2008, said union official Chris van Loon. The Amsterdam-based maker of Glidden and Dulux paint last week announced 100 jobs will go at its Benelux operation.

“There is definitely more to come,” said van Loon of the VHP Akzo Nobel union representing white-collar workers. Akzo spokesman Tim van der Zanden declined to comment on job cuts.

Wijers, 60, is spending his final months at the helm battling sputtering demand for paint and inflated prices for titanium dioxide. Armed with the advice of former employer Boston Consulting Group, his task before stepping down in April is to restore margins. Analysts have lowered third-quarter estimates and are already writing off Akzo’s goal of holding 2011 earnings steady, according to a survey by Bloomberg.

Akzo dropped as much as 3 percent in Amsterdam trading and they were down 2.9 percent at 35.99 euros as of 11:15 a.m. The stock has lost 23 percent this year, reducing the market value to 8.42 billion euros ($12 billion).

The former Dutch economy minister may unveil his moves alongside quarterly results on Oct. 20, preparing the ground for a capital markets day for investors and analysts next month that’s focused on decorative paints. The division employs more than 20,000 people. Reductions to factory workforces are difficult as they can jeopardize safety, van Loon said.

Worst-Case Scenario

After setting a target to at least match 2010’s result this year, with the caveat of markets holding up, Akzo is now facing its worst-case scenario. Third-quarter earnings before interest, taxes, depreciation and amortization will drop 8 percent to 528.6 million euros, according to a Bloomberg survey of 10 analysts. Profit is poised to drop to 509 million euros, based on a Vara Research figure on Akzo’s website. For 2011, the prediction is 1.87 billion euros versus 1.96 billion euros.

“Operationally, we believe this result will be impacted by soft volumes and margin weakness,” said Chris Counihan, an analyst at Credit Suisse, who started covering Akzo with an underperform-rating today. “Additional cost-outs are required over the next six to 12 months.”

‘Stringent’ Budgets

Crown Paints, the British rival of Dulux acquired by Danish coatings maker Hempel AS, is enforcing “stringent” budgetary controls amid tougher-than-expected market conditions, a person close to the company said. The maker of Sadolin wood-care treatment still expects to increase sales and earnings this year as it boosts marketing, said the person, who declined to be identified because the details are private.

Akzo needs paint demand to hold up if it’s to meet mid-term targets of boosting annual sales to 20 billion euros, with margins of 13 percent to 15 percent.

“Wijers will have to cut several hundreds of millions of euros to keep track on targets,” said Mark van der Geest, an analyst at ABN Amro. The 100 job cuts announced last week in the Benelux region won’t be enough, he said.

Efficiency Drive

In the last round of job cuts during the integration of ICI, Akzo closed 29 factories and eliminated about 3,500 positions to save 642 million euros. This time around, measures will focus on improving efficiency and will affect all cost layers, analysts said.

Wijers, who plans to become the chairman of a charity seeking to protect Dutch countryside, has so far indicated measures will include restructuring in parts of Europe and the U.S. as well as supply chain improvements. Details will be revealed in the second half, spokesman van der Zanden said.

Ton Buechner, the former CEO of Swiss pumpmaker Sulzer AG (SUN), will succeed Wijers, who over the course of a decade transformed Akzo by selling a drug unit and buying ICI.

The civil engineer will probably face the decision on what to do with the Glidden decorative paint operation in the U.S., where the company holds the No. 2 position behind Sherwin- Williams Co. Akzo has striven to make the former ICI brand profitable and Wijers has vowed to examine strategic options for it once an overhaul is completed.

Akzo, which also makes specialty chemicals and coatings, this week introduced a new “Let’s Colour” global marketing strategy to expand its share of consumer paint sales worldwide. The initiative came too soon for Glidden to adopt, as its image was repackaged two years ago. Decorative paint currently generates annual revenue of about 5 billion euros.

“Demand in end markets is falling and pressure on margins at Decorative Paints is rising, they won’t be hitting their mark this year,” said Michel Veul, an Amsterdam-based analyst at SNS Securities. Veul downgraded Akzo to accumulate from buy last week.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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