Price of paint shooting up and will continue to rise, says AkzoNobel
Paint manufacturer AkzoNobel has significantly increased wholesale prices during the first quarter to compensate for the sharp rise in raw material and transport costs. The amount of paint sold was actually lower than a year earlier. During the coronavirus lockdown periods, people were more likely to tackle painting jobs in and around the house with AkzoNobel brands such as Flexa, Dulux and Sikkens.
According to the company, prices rose by 17 percent compared to last year. As a result, its turnover jumped by 12 percent to 2.5 billion euros. The sales volume decreased by 7 percent. AkzoNobel believes that the high rate of inflation will gradually ease in the second half of this year. The company will continue to increase prices to offset the more expensive costs.
The company said that costs for raw materials and transport increased by 334 million euros compared to last year. AkzoNobel referred to an "unprecedented cost inflation" for the paint industry. Recently, for example, oil has become very expensive due to the war in Ukraine.
AkzoNobel also said that the majority of its coating business in Russia has now been shut down due to sanctions against the country. The company expects more Russian activities to come to a standstill in the coming months, mainly because of the problems with the supply of raw materials.
The company had previously suspended all its activities in Ukraine due to the Russian invasion of that country. Ukraine and Russia accounted for about 2 percent of AkzoNobel 's turnover before the war broke out. The company has about 650 employees in the two countries.
AkzoNobel also said it suffered from the strict lockdowns against the spreading coronavirus in China, with people in some cities not allowed to leave the house and retailers struggling to deliver food, water, and products to customers’ homes.
In a statement, CEO Thierry Vanlancker said it had been a huge struggle for the company to absorb the increased costs. He said the price increases were necessary to "keep one's head above water.” Vanlancker also said that costs have increased by as much as 40 percent since the beginning of 2021.
He went on to say that sales in Russia are likely to fall 70 percent this year due to the suspension of operations. AkzoNobel has been active in Russia for more than thirty years. According to Vanlancker, the phasing out of Russian activities was not widely publicized in the interest of the local employees. "We did not want to make it a PR story."
AkzoNobel announcement received well by investors
AkzoNobel was the big winner on the AEX index on Thursday. Investors saw the quarterly update from the company, which countered increased costs with its own price increases. A number of other companies also opened their books, such as ASM International (ASMI), RELX, Sligro, and Basic-Fit.
AkzoNobel increased its sales by 6.2 percent despite the company selling less paint. The company raised prices by 17 percent to counter "unprecedented inflation costs.” Some products such as oil and chemicals became significantly more expensive due to the war in Ukraine. Other raw materials have also become more expensive over time.
ASMI increased by 2.7 percent. The maker of machines needed for the production of chips closed the first quarter of this year with record sales and saw the order book fill up to record levels thanks to worldwide shortages of semiconductors. Data supplier RELX fell 0.1 percent. This company is counting on faster growth in turnover and profit than the trend of recent years.
However, tech investor Prosus was last in line and lost 3.8 percent of sales, which was related to the blow that the Chinese tech company Tencent received in Hong Kong. Prosus has a large stake in Tencent.
The AEX rose 0.5 percent to 729.19 points. The MidKap gained 1 percent and stood at 1096.60 points. The stock exchanges in Frankfurt and Paris rose to 1.4 percent, and those in London remained virtually flat.
Basic-Fit was set slightly higher among the medium-sized companies. The gym chain saw many customers return in the first quarter and expanded its number of fitness centers, especially in France. PostNL quoted ex-dividend and lost almost seven percent.
Wholesale Sligro indicated that their results are almost back to pre-pandemic levels and are 4.1 percent. Ajax fell 1.2 percent in the local market after confirmation of the departure of coach Erik ten Hag to Manchester United.
In Zurich, the Swiss food producer Nestlé increased its prices by 1.4 percent. The maker of KitKat bars and Maggi stock cubes, among other things, thinks it must continue to increase prices sharply. Due to previous price increases, turnover also increased.
U.S. oil became 0.5 percent more expensive and cost $102.75 per barrel. Brent oil rose 0.8 percent in price to $107.74 a barrel. The euro was worth $1.0916. A day earlier, that was lower at $1.0852.
Reporting by ANP