June 26, 2017 / 1:21 PM / 2 months ago

Akzo Nobel chemicals CEO craves independence and capital

FILE PHOTO -- Akzo Nobel's logo is seen in Amsterdam, Netherlands, February 16, 2012.Robin van Lonkhuijsen/United Photos/File Photo

AMSTERDAM (Reuters) - Akzo Nobel's specialised chemicals division would expand quickly and profitably if it gets an injection of capital after being sold or listed, its chief executive Thierry Vanlancker told Reuters.

As part of its successful defence against a takeover by U.S. rival PPG Industries, Akzo said it would create value for shareholders by splitting off its speciality chemicals business by April next year.

The Dutch company, best known for its paint brands such as Dulux, also forecast increases in earnings and sales for chemicals that left some analysts scratching their heads as to how a standalone company would achieve them.

"If we came across as pretty self confident it's because we are," Vanlancker said in his office in Amsterdam, arguing that major improvements could come about through independence.

The division produces an array of chemicals used in plastic packaging, tissue paper, cleaning materials, pharmaceuticals, food products, salts and adhesives, among others, and reported earnings before interest, tax, depreciation and amortisation (EBITDA) of 953 million euros ($1.1 billion) last year.

Vanlancker said the parent company was constrained in how much capital it could allocate to chemicals, which accounts for about a third of Akzo's sales and profits, but an injection of funds would produce significant returns.

"As a paints and coatings company, as Akzo Nobel is seen, there's a certain limit to how much you can shift to one third of the company, because you also need capital allocation for the paints and coatings business," Vanlancker said.

The chemicals division reckons it can boost EBITDA by 200 million euros a year by 2020 by spending 100 million annually from 2018-2022 to boost capacity at existing plants running at near full tilt. That's in addition to a target to boost EBITDA by 250 million euros through a mix of growth and cost cutting.

Major competitors include the likes of Solvay, Clariant, Huntsman, BASF, Croda, Evonik, Kemira and others, depending on the product category.

"HIGH PAYBACK"

Vanlancker said the company had a clear view of the needs of its customers, who often depend exclusively on Akzo for products that are hard to manufacture, and was confident that customers would buy more if it could supply more.

"Why is the pay-back that high? ... Because it goes into the products that are getting close to capacity utilisation," he said. "We also see that the businesses have a unique competitive position where you see it's almost curtailing demand."

Among the predictions that have raised eyebrows are forecasts for 4 percent annual revenue growth in 2017-2020, as revenue fell 4 percent in 2016. That forecast outstrips IMF economic growth forecasts of 2 percent for Europe, where the chemicals division does more than 40 percent of its business.

The division has also said it will increase its EBIT (earnings before interest and tax) margin to 16 percent in 2020 from 13 percent in 2016, by saving money in procurement and on capital spending through partnerships with chemicals companies.

Overall, it expects EBITDA to rise 47 percent, or by 450 million euros, from 953 million now, by 2022.

Vanlancker said Akzo's confidence about annual revenue growth - 3 percent of which would come from volume increases - was down to its close relationship with customers, many of which are physically attached to Akzo plants by pipeline.

"They really share full-book what their expansion plans are," he said. "It's not so much blue sky, 'we think we're going to do this', it's very much based on direct input from customers."

Analysts say the chemicals business is worth eight to 12 times 2016 EBITDA, giving it a price tag of roughly 10 billion euros. They say it would be valued on the low side if Akzo Nobel opted for an initial public offering but on the high side if the business was sold outright, depending on the terms.

Akzo has said it will consider both strategic and private equity buyers.

($1 = 0.8945 euros)

Editing by David Clarke

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