Arnhem, the Netherlands, October 23, 2002 – Akzo Nobel, the international pharmaceutical, coatings and chemicals company, today announced a third quarter net income of EUR 232 million, 3% below last year. The outlook for 2002 was confirmed.
· All groups achieved autonomous growth
· Sales and operating income significantly affected by unfavorable currency movements
· Pension charges EUR 20 million per quarter higher than in 2001
· Pharma: growth temporarily slowing; investing in new products and cutting costs
· Coatings: continued strong performance
· Chemicals: stable performance in difficult business conditions
· Major restructuring programs at Coatings and Chemicals on schedule
· Strong operational cash flow
· Debt reduction program on target
· Interim dividend unchanged – EUR 0.30
· Outlook confirmed: net income1 slightly below 2001
Fritz Fröhlich, Akzo Nobel’s CFO, said: “Third-quarter net income for the Company declined 3% compared to last year. On the one hand, the Company had to absorb the impact of currencies and pension costs. On the other hand, we were able to grow the sales volume of all three business groups.”
“Pharma’s performance reflects a temporarily slowing growth,” Fröhlich added. “Autonomous sales growth was 5%. Pharma’s operating income declined 9%, also due to heavy investments in important new products to secure future growth. Expenses for R&D and launch costs were significantly up.
Coatings continued its strong performance with autonomous sales growth of 4% and an operating income increase of 5%. Chemicals’ results were again stable despite difficult business conditions. In both these sectors, performance is clearly benefiting from the aggressive restructuring measures we initiated last year.”
“Of course, we too are facing difficult business conditions in major parts of the world. However, Akzo Nobel’s performance gives us confidence in our outlook that net income for 2002 will end slightly below last year’s level.”
Pharma: growth temporarily slowing; investing in new products and cutting costs
Pharma generated 5% autonomous growth. Currency translation had a significant negative effect of 6%. Operating income decreased 9%. Earnings were affected by weaker currencies, which had a negative impact on sales of 6%, and higher pension charges.
Fröhlich commented: “In human healthcare, Organon achieved autonomous growth of 7%, while key currencies had a negative impact on sales of 6%. Our top products Remeron® and Livial® grew 12% and 11%, respectively. Generic competition for oral contraceptives resulted in somewhat lower sales, but we successfully launched our innovative NuvaRing® contraceptive. The introduction of the antithrombotic Arixtra® and the approval procedure for our new antidepressant gepirone ER need more time. Pharma’s growth is slowing temporarily. Therefore, we are implementing a cost-saving program which will have an impact on the workforce at Organon of some 300 jobs. Further details will be announced shortly.”
Earnings of the animal healthcare activities (Intervet) were under pressure from soft market conditions, particularly in Latin America, and the weak currencies. Diosynth achieved a strong performance with healthy sales and earnings growth.
Coatings: continued strong performance
In the third quarter, Coatings achieved autonomous growth of 4%. Sales decreased 4% due to weaker currencies. Fröhlich said: “Results of almost all businesses were up due to cost savings. The implementation of the restructuring programs is on schedule. So far the workforce has been reduced by 700 employees. Earnings of Decorative Coatings were significantly up. The industrial activities also improved, although the business climate remains weak. Car Refinishes achieved a stable performance in the face of deteriorating market conditions. Marine & Protective Coatings turned in an excellent performance, particularly in Asia, mainly benefiting from cost savings.”
Chemicals: stable performance in difficult business conditions
Third quarter sales for Chemicals were unchanged from the previous year. An organic growth of 2% was offset by lower prices and currency translation. Operating income was 4% below 2001. Fröhlich: “Benefits from the restructuring programs and lower raw material prices could not fully offset the impact of the weak economic conditions, lower exchange rates for key currencies and higher pension costs.”
Pension cost and premiums – pressure from stock market developments
Regarding pensions Fröhlich stated: “The negative developments of the stock markets have an impact on our pension funds. With regard to the results, we have to absorb additional costs of EUR 20 million per quarter, or a total of EUR 80 million for the year. Cash-wise we expect to pay, in addition to the normal contributions to the pension funds, approximately EUR 100 million in the fourth quarter to restore our global funding positions. Cash savings cover the additional outflow.”
Outlook confirmed – net income1 slightly below 2001
“We confirm our earlier expressed expectation to achieve a net income for 2002 that is slightly below 2001,” Fröhlich said. “This is based on the present currency exchange rates and conditions in those sectors of the economy which are most important to us.”
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1 Based on present currency exchange rates and conditions in those sectors of the economy which are most important to the Company; excluding extraordinary and nonrecurring items.