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Akzo Chief Holds True to Savings After Beating Targets

Feb. 6 (Bloomberg) -- Akzo Nobel NV, Europe’s largest paintmaker, exceeded its savings target last year and Chief Executive Officer Ton Buechner pledged to stick to his restructuring plan this year as profitability is brought in line with peers such as PPG Industries Inc.

Cutting costs in administration, relocating plants and other measures gave a 545 million-euro ($737 million) boost to 2013 profit, the Amsterdam-based company said today. Akzo had targeted 500 million euros, and Buechner said the extra progress won’t be rolled over into plans for 2014. The maker of Dulux paint climbed as much as 8.3 percent, the most since Oct. 21, in Amsterdam trading.

Buechner has been spearheading the drive to create a cohesive company whose interests span household paint, pulp-bleaching chemicals and cosmetic ingredients. The 250 million euros in revamp costs planned for this year are needed to make 2015 targets for margins and Akzo’s lagging return on sales, Buechner said.

“We’re moving from this project improvement culture that we had in the past to saying we need to take out 150 to 200 million euros on a regular basis because that’s simply inflation in the system,” Buechner told journalists. A large part of the cost pressure is wage inflation -- about 5 percent to 10 percent in emerging markets, and 0 percent to 3 percent in mature ones.

Acceleration

Buechner brought forward a slew of cost cuts by one year, switching from his predecessor’s strategy of global expansion to a more forensic examination of Akzo’s inflated cost base following its $17 billion acquisition of Imperial Chemical Industries in 2008.

Since taking-on the top job, the CEO has largely replaced the top level management team. Seven out of nine members of the executive committee are new, and Chief Financial Officer Keith Nichols has chosen to depart in June to pursue a career elsewhere.

“Not only the top 8 or 9, but the top 40, 50, 60 absolutely need to be people that can draw the rest in the same direction,” Buechner said talking to Bloomberg News. “Those people underwrite the strategy completely, brought their strategy in line with the company’s, and are now working hard to make it happen.”

Akzo announced several changes to its supervisory board, and a return to eight seats from a current nine. Chairman Karel Vuursteen will leave after the annual general meeting after serving three full terms, with board member Antony Burgmans as a replacement. Peter Ellwood will leave the board after six years, replaced by Byron Grote.

Improving Ratios

Efficiency is the cornerstone of Buechner’s vision and the former CEO of Swiss pumpmaker Sulzer said he’s confident about reaching goals for next year. Last year’s restructuring led to an improvement in Akzo’s return on sales including incidentals to 6.6 percent from 5.9 percent in 2012. The company is aiming for a 9 percent return in 2015.

It’s also targeting a return on investment of 14 percent and a net debt to Ebitda ratio of below 2 percent.

Earnings before interest, taxes, depreciation and amortization of 208 million euros in the fourth quarter, met analysts’ predictions, and Akzo shares traded 6.5 percent higher at 56.37 euros as of 5:18 p.m. in the Dutch capital.

“It looks like the company is slowly improving,” on an underlying earnings basis, said Tom Muller, an analyst at Theodoor Gilissen Bankiers.

To contact the reporter on this story: Elco van Groningen in Amsterdam at vangroningen@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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