Akzo Nobel expects earnings12003 significantly below last year
Arnhem, the Netherlands, February 11, 2003 – Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports net earnings1 in line with the outlook of EUR 892 million, slightly (4%) below 2001. It also reported that an unchanged dividend of EUR 1.20 will be proposed to the shareholders. In presenting the report on the 4th quarter and the year 2002, Chairman of the Board Cees van Lede said: “We delivered an almost stable performance in difficult market conditions, with the added adverse effects of currency headwinds and higher pension costs. Nonetheless, we realized a substantial net debt reduction of EUR 800 million.
“The fourth quarter clearly sets the trend we are facing, heading into this year. Higher pension charges, negative currency developments and lower momentum for Pharma could not be compensated by substantially improved Coatings and Chemicals results.” Looking forward to 2003, Van Lede continued: “2003 will be a tough year. We again have to deal with increased pension costs and the strong euro will further impact results. In Pharma we face generic competition for our antidepressant Remeron. Against this background earnings1 will be significantly below last year, therefore we will continue to focus on cost and cash. In this context we have increased our restructuring program to 5,500 employees.”
Operating income for the Company in the fourth quarter lagged behind the previous year’s figure by 13%. Pharma businesses Organon and Intervet were under strong pressure resulting in a Pharma earnings decline of 20%. Coatings and Chemicals delivered a strong performance with 23% and 7% higher operating income, mainly thanks to restructuring results.
Pharma – priority on current profitability and long-term value
For the full year 2002, Akzo Nobel’s Pharma group showed slowing growth. After a slow start for anti-thrombotic Arixtra® and contraceptive NuvaRing®, together with a further delayed introduction of the new antidepressant VarizaTM, generic competition for key product Remeron® came closer after a negative court ruling in December. Intervet, an animal healthcare leader, was under pressure in Latin America. On top of that, Akzo Nobel Pharma reported revenues are adversely affected by a negative currency impact of 4%. Van Lede said: “Our Pharma business is temporarily under pressure. For the short-term we are dealing with generic competition and product delays. We continue to build the value of Pharma, by stepping up our R&D effort to exploit our pipeline. At the same time we will cut costs to preserve our current profitability. A personnel restructuring plan has been announced involving 500 extra jobs. In addition, we will push the top-line by filing for new clinical indications to broaden the applications for Arixtra, and we are looking for partners to further develop new products.”
Coatings – strong performance
Restructuring to reduce cost levels at Akzo Nobel’s Coatings business was already initiated in mid-2001. These plans were stepped up last year, affecting a total of 2,500 jobs. As the world’s No.1 coatings company, Akzo Nobel’s goal is to deliver industry-leading efficiency and financial performance. Van Lede: “Coatings is more and more reaping the benefits of its global scale. Operational performance has been further improved in 2002 (ROS up from 7.6% to 8.4%) in spite of higher pension charges. Restructuring was extended and accelerated, the portfolio upgraded and working capital substantially reduced. Industrial activities improved despite a continued weak business climate. World leader Marine & Protective Coatings delivered an excellent performance.”
Chemicals – stable performance in tough climate
As with Coatings, the Akzo Nobel Chemicals businesses have accelerated their cost savings programs since 2001. A total of 2,200 job cuts was announced and is fully on schedule. Operational working capital was reduced and investments remain well below depreciation. “We went into action early and it is now paying off,” says Van Lede. “In this area, with fierce price competition, we experienced autonomous growth of 2%, offset by a negative currency impact of 3%. Raw materials at group level tend to balance out. Catalysts had a great year, Salt and Base Chemicals showed a solid performance, while Pulp & Paper, Surface and Polymer Chemicals experienced tough business conditions. Continuous focus on costs to deal with the economic circumstances remains necessary.”
The poor performance of the stock markets had a negative influence on the investment results of Akzo Nobel’s pension funds. In accordance with the (U.S.) rules of SFAS 87, this resulted in an increase in the 2002 pension charge of EUR 80 million, a non-cash item. Compared with 2002, Akzo Nobel has to increase this charge in 2003 with an additional EUR 130 million.
Company has, also according to SFAS 87, reduced shareholders' equity by EUR 1.1 billion after-tax, principally to reflect a decline in the market value of its pension assets. This accounting adjustment does not affect cash or earnings and can be reversed at some point in the future, assuming stock markets recover.
from the accounting regulations, and in order to comply with local rules, Akzo Nobel paid EUR 100 million cash in the fourth quarter, in addition to the normal contributions to the pension funds, to restore global funding positions.
Outlook for 2003: earnings1 significantly down
“In 2003 earnings will be down significantly,” Van Lede said. “The strong euro against the dollar and other currencies, higher pension charges, and generic competition for Remeron will have a negative effect on our reported results. An Iraq war might further affect economic circumstances in the world. Akzo Nobel has a strong balance sheet, with net debt down EUR 800 million, and a good mix of solid businesses. We will do what is necessary to drive the best returns while building the value of the Company. In Coatings and Chemicals we have shown our ability to adapt, and in Pharma we are actively managing current profitability while maintaining our healthy growth prospects for the future.”
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1 Excluding extraordinary and nonrecurring items
Safe Harbor Statement*
This press release contains statements which address such key issues as Akzo Nobel’s growth strategy, future financial results, market positions, product development, pharmaceutical products in the pipeline, and product approvals. Such statements, including but not limited to the “Outlook for 2003”, should be carefully considered and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to price fluctuations, currency fluctuations, developments in raw material and personnel costs, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies.
* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.