Akzo Nobel Spinoff Nouryon Seeks Price Rises to Offset Higher Raw Material Costs

By Nina Trentmann 

Dutch chemicals company Nouryon BV plans to continue raising prices, boost productivity and increase production capacity in preparation for a potential stock-market listing.

Amsterdam-based Nouryon was spun out of coatings and paint maker Akzo Nobel NV and acquired by U.S. private-equity house Carlyle Group LP and Singapore's GIC Private Ltd. this year, employing about 10,000 people world-wide.

Similar to peers including German chemicals firms BASF SE and Covestro AG, Nouryon has been suffering from rising raw material and energy costs over the course of the year. The chlorine manufacturer, which also produces performance chemicals used in athletic shoe soles and wall paint, is looking to further hike prices to offset those cost increases, Chief Financial Officer Renier Vree said in an interview with CFO Journal.

Nouryon has increased prices for its products on average by 7% since the beginning of the year, said Mr. Vree, adding that these increases don't suffice to compensate for the rise in raw material costs.

"I think there is room for more," he said. "I am the type of CFO that likes to get involved in these questions." Mr. Vree declined to comment on how much the company could raise prices in 2019.

In about 80% of product categories that it is competing in, Nouryon comes first or second in terms of sales, providing the company with leverage over its customers, said Markus Mayer, an analyst at Baader Bank AG in Munich.

"Nouryon has a lot of pricing power, especially in areas like chlorine and caustic soda," he said. Caustic soda is used for manufacturing pulp, paper, soap and detergents, among other products.

A potentially worsening of the global economic outlook -- driven in part by the trade dispute between the U.S. and China and events such as Britain's exit from the European Union -- might make that task more challenging. Everyone in the industry is trying to raise prices now, Mr. Mayer said. "The move might be met with resistance from customers."

Mr. Vree next year aims to raise Nouryon's productivity and to reallocate capital spending toward new manufacturing sites for its specialty chemicals business. Forty percent of the company's plants are running at full capacity, he said. Mr. Vree didn't provide more specifics on where Nouryon could expand its footprint. The company is producing at 68 sites in countries around the world, including Brazil, the U.S., Germany, Sweden and China.

These measures could help ready the company for a change in ownership. "Down the road, the idea is that there could be an initial public offering," said Mr. Vree, adding that the listing could happen in five years or less. He didn't provide more specifics.

Capital expenditures at Nouryon are set to remain stable at about 6% of annual sales in 2019, Mr. Vree said.

Nouryon is looking for ways to offset wage inflation in the U.S. and in Europe, he said. Labor costs will rise 3% to 3.5% in 2019, according to Mr. Vree. The company has lifted wages in various countries, including the U.S., where salaries this year went up by an average of 3.3%.

Back-office functions like finance, human resources, information technology and legal contribute to the cost-saving efforts, Mr. Vree said. The chemicals maker is in the process of centralizing some of its accounting tasks in three main shared services centers in Mexico, China and the Netherlands.

Mr. Vree declined to comment on what these changes would mean for the company's nearly 500 finance employees. The company didn't disclose how many HR, IT and procurement workers it employs in its shared services centers. These are separate from the finance workers, a spokesman said.

Write to Nina Trentmann at [e-mail]

(END) Dow Jones Newswires

December 24, 2018 05:44 ET (10:44 GMT)

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