Akzo Nobel NV Chief Executive Officer Ton Buechner delivered his long-awaited strategy that emphasizes fine tuning to simplify the chemical-and paint-maker rather than big transformational change.
Buechner, a former engineer, will accelerate an efficiency program initiated by his predecessor, bringing 500 million euros ($670 million) in added earnings a year ahead of schedule. Akzo Nobel also abandoned a goal to lift revenue to 20 billion euros by 2015, opting for quality over quantity.
Buechner is distancing himself from former CEO Hans Wijers as he focuses more on performance, tying the pay packets of some 600 managers to results. The Dutch national has kept investors waiting four months for his vision. Upon taking over in April, he threw himself into the job with such zeal that he needed leave for exhaustion. Coming from outside the company makes it easier for Buechner to execute the existing plans, Chief Financial Officer Keith Nichols said.
“We have done a lot of acquisitions in the past and with that has come a certain level of complexity,” the CEO told reporters in London. “We need to take that out.”
Buechner set new targets including a 9 percent operating margin and a 14 percent return on investment by the end of 2015. The new CEOs vision failed to appease analysts and investors who foresaw greater change. The company had the potential to increase the savings target to 600 million euros, according to Fabian Smeets, an analyst at ING Groep NV.
Akzo fell the most in four months in Amsterdam trading. Fourth-quarter earnings before interest, taxes, depreciation and amortization rose 3 percent from a year earlier to 363 million euros. Profit was less than the 385 million-euro average of 10 analyst estimates compiled by Bloomberg. Sales increased 3 percent to 3.67 billion euros, Akzo said today.
“The new financial targets for 2015 clearly disappoint,” in addition to earnings lagging behind estimates, Markus Mayer, an analyst at Kepler Capital Markets, said in a note to clients.
The stock dropped as much as 4.9 percent to 49.55 euros, the steepest intraday decline since Oct. 18, and was trading down 1.6 percent at 2:02 p.m. That pared the stock’s gain this year to 3 percent, valuing the company at 12.3 billion euros.
Buechner marked his return to work in December by announcing the sale of the 137-year-old Glidden brand to PPG Industries Inc., exiting the U.S. decorative-paint market that had been a drag on Amsterdam-based Akzo’s earnings for years.
The CEO is focusing the company on the four segments of buildings and infrastructure, transportation, manufacturing, and consumer goods, allowing him to reduce the size of the executive team. The 500 million-euro cost-savings plan, which involves improving software systems and cutting back on the number of raw materials, was introduced in 2011 by his Wijers and originally scheduled to boost earnings by 2014.
“This is not about a large transformation, or large portfolio changes, we’re not going to exit businesses, or plan major acquisitions,” said Nichols in an interview about Buechners blueprint for the future. The focus will be on continuous improvement of actions and processes, by for instance driving a global agenda for research spending, he said.
Since the announcement of the program, savings have amounted to 250 million euros, Buechner said today. That excludes 26 million euros contributed by the Decorative Paints North America unit that’s being sold.
“Specifically our decorative paints operations in Europe faced weaker demand, so we stepped up restructuring efforts in the region in the fourth quarter,” Buechner said on a conference call today. “These targets focus on the quality of earnings and are better aligned with operations than previous targets.”
Akzo wrote down 2.5 billion euros on its decorative-paint operations last year, as the company overestimated market growth, resulting in a net loss for the full year of 2.17 billion euros versus profit of 477 million euros in 2011.