Akzo Nobel NV (AKZOF) Q2 2025 Earnings Call Highlights: Strategic Moves and Margin Expansion ...

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Gross Margin: Increased by 40 basis points year-on-year.
EBITDA Margin: Expanded by 60 basis points to 15%.
Free Cash Flow: Generated EUR162 million in the quarter.
Organic Sales: Flat for the quarter.
Volume Change: Declined by 1% year-on-year.
Price/Mix Impact: Pricing up 2%, offset by a negative 1% mix impact.
Adjusted EBITDA: EUR393 million, or EUR417 million adjusted for ForEx.
ForEx Impact: 5% negative impact on revenue.
Net OpEx Savings: EUR35 million year-on-year.
Adjusted Leverage Ratio: Stands at 2.9 times.
Return on Investment: 13.2%, lower year-on-year.
Operating Working Capital: Improved to 17% of revenue.
Sale of Indian Businesses: Sold for EUR1.4 billion at 25 times 2025 EBITDA.
Site Closures: Announced five additional site closures in the first half of 2025.
Warning! GuruFocus has detected 10 Warning Signs with AKZOF.
Release Date: July 22, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Akzo Nobel NV (AKZOF) achieved a 60 basis point increase in EBITDA margin to 15%, reflecting pricing discipline and structural benefits from SG&A and industrial programs.
The company generated EUR162 million of free cash flow in the quarter despite EUR49 million of cash-out related to restructuring.
Akzo Nobel NV (AKZOF) successfully sold most of its Indian businesses at 25 times 2025 EBITDA for EUR1.4 billion, while maintaining a royalty stream for Coatings.
The SG&A program announced last year is fully implemented, delivering over EUR150 million of recurring savings, with potential for further efficiency improvements.
The company is on track to reduce leverage to around 2.3 times by year-end, reflecting current ForEx rates and expected deleveraging proceeds from India.
Negative Points
Volumes declined by 1% year-on-year, primarily due to continued softness in the North American Coatings markets.
Foreign exchange rates posed a significant headwind, with a 5% negative impact on revenue, resulting in a total revenue decline of 6%.
The Turkish deco market has slowed down significantly, with volumes down double digits, impacting the company's performance in the region.
North American refinish demand remains soft, with consumers delaying car repairs due to increased insurance premiums and reduced disposable income.
The automotive market remains complicated, with ongoing challenges in the Powder Coatings segment due to tariff uncertainties.
Q & A Highlights
Q: Can you unpack the next steps in your strategic review and M&A, especially in light of recent reports about interest in BASF Coatings? A: We are focused on disposals rather than acquisitions. The sale of Akzo Nobel India was a first step in our strategic review, and we are assessing other businesses where we are not market leaders. Regarding BASF, we are not committed to their main process as they seek a cash transaction, which we are not pursuing.
Q: How is the North American market developing, and what are your assumptions for the second half of the year? A: The North American market remains weak due to customer uncertainty, partly driven by tariff discussions. We do not expect a change in dynamics for Q3, with Protective being the only segment showing strong growth.
Q: Can you describe the main moving parts on mix that impacted the quarter and your expectations for the rest of the year? A: The mix was mainly driven by a strong rebound in China Deco and weakness in North America. We expect a similar negative mix impact in Q3 due to these factors.
Q: How is your raw materials basket shaping up for the second half of the year, and how are competitors behaving in terms of pricing? A: Our raw material basket is improving and is expected to be flat for the year. Pricing has been positive, with a 2% increase in Q1 and Q2, despite competitive pressures, particularly in Coatings.
Q: Can you elaborate on the impact of service levels (OTIF) on financial performance? A: OTIF is an enabler of industrial health, translating into lower costs over time. It ensures efficient operations and customer service, which supports volume resilience and cost management.
Q: What gives you confidence in your second-half guidance, given seasonality and FX headwinds? A: We expect margin expansion due to a softening raw material environment and benefits from operational actions. SG&A savings and industrial excellence actions will also contribute positively.
Q: Can you explain the royalty streams following the divestment of the Indian business? A: We will collect a 4.5% licensing fee on Coatings sales in India, as we continue to provide technology and innovation to JSW Group, ensuring Akzo products remain available globally.
Q: How is the Western Europe Deco business performing, and what are the drivers? A: Western Europe Deco has returned to growth, driven by improved weather and a pickup in the professional segment, particularly in the UK and Benelux, where we have strong market positions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.