Arnhem, the Netherlands, July 24, 2002 – Akzo Nobel, the international pharmaceutical, coatings and chemicals company, today announced its second quarter earnings.
· Second quarter net income1 2% lower
· Sales and operating income increasingly affected by weaker currencies
· Pharma growth continued, EBIT down 8%, mainly caused by one-off charges at Intervet
· Coatings operating income2 15% up
· Chemicals stable performance in difficult business conditions
· Restructuring in Coatings and Chemicals on schedule
· 2002 outlook: net income3 slightly below 2001.
Fritz Fröhlich, Akzo Nobel’s CFO, said: “Second quarter net results for the Company were 2% lower than last year. Coatings had a top quarter with strong sales and a 15% better operating income2. Chemicals was able to equalize last year, a solid performance in difficult business conditions. In these sectors we are clearly beginning to see the results of our aggressive restructuring efforts that began last year. Pharma had a mixed performance. Sales2 were up 5%, but earnings2 declined 8%. Animal healthcare Intervet had a substantially lower second quarter due to the weak economy in Latin America and significant one-off charges. On the other hand, human healthcare Organon again scored strong autonomous sales growth: up 9%. Operating income was only somewhat higher due to additional expenditures for future growth. During the last few weeks of the quarter in particular we had to deal with the increasing influence of declining key currencies. We are also experiencing a slower than expected pick-up of the economy in our most important markets. Based on these recent facts, we now expect a net income3 for 2002 that is slightly below 2001.”
Pharma: sustaining growth
Pharma sales2 increased 5% to EUR 1,025 million. Volume growth in Pharma was 6% with 1% higher selling prices, whereas weaker foreign currencies had a negative impact on sales of 4%.
Fröhlich commented: “In human healthcare we were able to realize a strong autonomous growth of 9%. Our top products Remeron® and Livial® grew 26% and 15%, respectively. Although generic competition for oral contraceptives has resulted in lower sales, innovative products in our pipeline will help us accelerate growth in the near future. The Company continues to invest in promising product launches in the United States – which accounts for one-third of our worldwide human healthcare sales. We recently launched the innovative antithrombotic Arixtra® in the US. The process of hospital formulary approvals is on track. Organon also recently introduced NuvaRing®, a revolutionary new female contraceptive. We will continue to invest in promising indications in our core treatment franchises, Reproductive Medicine, CNS, and Anesthesiology.”
“We are still awaiting the outcome of legal proceedings regarding generic competition for Remeron.” Commenting on the introduction of the new antidepressant gepirone ER (Ariza) Fröhlich added: “The FDA has addressed certain efficacy issues and Organon is cooperating fully. We expect the product will be introduced in 2003.”
Intervet, the animal healthcare business of Akzo Nobel, was severely impacted by incidental items (especially obsolete inventories), weak currencies and market conditions in Latin America. Diosynth, our manufacturer of complex active pharmaceutical ingredients, continued to invest for further growth.
Coatings results significantly improved
Commenting on the turnaround in the Coatings business Fröhlich said: “Coatings earnings2 were up 15%, mainly as a result of our aggressive restructuring efforts and lower raw material prices. We can clearly see the benefits of restructuring coming through. Our Decorative Coatings business had a top quarter and demonstrated a good performance, Marine & Protective Coatings and Car Refinishes showed strong results and our industrial activities are doing better despite tough business conditions.”
In order to further strengthen its world leading positions in Coatings, Akzo Nobel invested in high-growth regions by opening new facilities in Russia and China, and made a number of strategic bolt-on acquisitions.
Chemicals: stable performance under weak business conditions
Commenting on the performance of the Chemicals group, Fröhlich said: “Chemicals realized a stable performance in weak business conditions, resulting in a flat operating income. The benefits of the ongoing restructuring offset the impact of the difficult business climate. Catalysts and Base Chemicals showed a strong improvement in operating income, while the market conditions had the greatest impact on Pulp & Paper Chemicals, Surface Chemistry and Polymer Chemicals.”
June acquisition of Crompton Industrial Specialties (USD 95 million) further strengthened our Surface Chemistry business.
Improved balance sheet
Akzo Nobel continues to focus on strengthening the balance sheet. Net debt was down EUR 180 million since the beginning of this year. The Company issued a successful seven-year EUR 1 billion public bond to improve debt structure.
Restructuring on track
The previously announced restructuring programs continue to be implemented in Coatings and Chemicals. As a result of these measures in the first half-year, the workforce in the two groups was reduced by some 900 jobs. On balance, however, the Company increased its workforce by 1,100 jobs, from acquisitions and to support the high-growth Pharma business.
Outlook – net income3 slightly below 2001
Earlier this year, the Company expected that net income1 would exceed record year 2000 (EUR 956 million), assuming that the economy would resume growth in the second half of this year and that there would be no major changes in currency exchange rates. Fröhlich: “Going forward, we now expect to achieve a net income3 for 2002 that is slightly below 2001’s result of EUR 930 million. This new outlook is caused by the fast weakening of a number of our key currencies and the slower than expected pick up of the economy in our important markets.”
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1 Excluding extraordinary and nonrecurring items.
Excluding extraordinary and nonrecurring items. Assuming that the present currency exchange rates and the current conditions in those sectors of the economy which are most important to Akzo Nobel will prevail for the remainder of the year.