European chemical companies warned on Tuesday of rising raw material and energy prices against a weakening economic backdrop and their results reflected sharp differences in how they were coping. Shares in Dutch chemicals group Akzo Nobel NV and Germany's Symrise, the world's fourth-largest flavours and fragrances maker, suffered after the companies cut their outlooks, blaming the weaker economy.
In contrast, Dutch vitamins and chemicals producer DSM and British speciality chemicals company Croda International showed they were weathering the tougher economies well, thanks to their diversified businesses and niche products. DSM raised its outlook and Croda said it was confident of making further progress in the rest of the year.
Akzo, the world's biggest paint company, was the biggest decliner in the DJ Stoxx European chemical index after falling 12.3 percent to near 2-1/2 year lows while Symrise shares fell 7 percent in Frankfurt.
Akzo, which makes household paint brands such as DuLux, Sikkens and Flexa, said it will not reach its 2008 earnings before interest, taxes, depreciation and amortisation (EBITDA) target of 1.87 billion euros ($3 billion) after previously saying it would exceed that level.
DSM was the biggest gainer among European chemicals after upgrading its full-year core earnings outlook by 100 million euros to around 970 million euros, with shares up 9.2 percent. "The earnings quality is astonishing," said Petercam analyst Jan van den Bossche. British speciality chemicals company Croda International was also up 2.2 percent after it reported a 64 percent rise in first-half core profit and gave an upbeat outlook. DSM said that benefits from the vitamins business it acquired in 2003 were spreading throughout the group.
"The changes that have driven improved profitability in vitamins are expected to benefit the nutrition business for the rest of the year and beyond," DSM said. Analysts said that DSM and Corda would be well-positioned to pursue acquisition targets.
"This is a tough market for other companies, so it could be that there are assets around the world going cheap that we might be interested in," said Croda Finance Director Sean Christie, adding that the company was not in a hurry to buy anything and that it was "very picky."
Meanwhile, Swiss specialty chemicals company Clariant AG said first-half net profit rose on currency effects and confirmed its full-year forecast for an improved operating margin and strong cash flow. Its shares were down 3.3 percent.
NOT READY FOR TOUGH TIMES: Akzo Nobel Chief Financial Officer Keith Nichols said weaker economic conditions and higher material prices would hurt 2008 core profit. "Based on our latest forecast, we do not expect our reported 2008 EBITDA before incidentals to match the 2007 pro forma level of 1.87 billion euros, although we expect to be close in constant currencies," Nichols said.
Both Akzo Nobel and DSM have tried to make themselves less vulnerable to the economic cycle. In 2003 DSM acquired the vitamins division of Swiss firm Roche, while Akzo Nobel sold its pharmaceutical unit last year and bought British peer Imperial Chemical Industries (ICI).
Analysts said that DSM was ready to weather a tougher economic environment while Akzo has yet to wring out cost savings and sales benefits from its 8 billion pound ($16 billion) ICI acquisition. Symrise reported second-quarter earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 1.6 percent to 71.4 million euros, just shy of the average forecast of 72 million euros in a Reuters poll of 10 analysts.
Symrise competes with Givaudan, International Flavors and Fragrances (IFF) and Firmenich in the 15 billion euro market to supply the food industry and designs perfumes for firms such as Donna Karan and Givenchy. "With the weaker economic environment and the projected slowing in consumer spending in the remaining six months of the 2008 fiscal year, we do not anticipate any significant recovery in the fragrance market," the company said.
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