AkzoNobel, the world's largest paint maker, today gave warning that profits would fall short of earlier expectations because of the slowdown in the US and UK housing markets and rising raw material costs.

The owner of the Dulux brand of decorative paints reported profits down 3 per cent in the second quarter. It added that earnings before interest, tax, depreciation and amortisation (Ebitda) would fall short of the €1.87 billion (£1.48 billion) reported in 2007.

Net income in the quarter fell to €184 million in the three months to June 30, far below analysts' expectations of €242 million. Shares in the Amsterdam-based company plunged by 12 per cent to €37.69 today.

Akzo’s decorative paints business, which accounts for a third of its revenue, is facing tough conditions in the US and Britain as fewer people move house because of the slump in mortgage lending on both sides of the Atlantic.

US sales of decorative paints fell 7 per cent in the second quarter while UK revenue declined by 3 per cent.

However, decorative paints achieved double-digit growth in Asia and Latin America, contributing to a revenue increase of 2 per cent in those markets.

Keith Nichols, chief financial officer of Akzo Nobel, said demand was slowing in its UK decorative markets in May and June and the US decorative paints market was still soft. “We expect this situation will continue into 2009,” he said.

Mr Nichols said: "For the remainder of the year, we anticipate weaker economic conditions in some of our mature markets and raw material and energy price increases show no signs of easing.

"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, although we expect to be close in constant currencies.”

He said the integration of ICI, which Akzo bought for £8 billion in January this year, is ahead of schedule.“We are making good progress in capturing the €340 million of synergies which we communicated earlier,” Mr Nichols said.

The ICI acquisition made Akzo the second-largest paint-maker in the US, after Sherwin-Williams. Both Sherwin-Williams and rivals PPG Industries have also been hit by falling demand.

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