media release

Akzo Nobel earnings in line with expectations

Press Release - Akzo Nobel reported Q2 net earnings of EUR 201 million, 20 percent below the second quarter of 2002. The results were impacted by currencies, pensions and Remeron® competition in the U.S.

Solid overall performance impacted by currencies, pensions and Remeron competition in U.S.

Arnhem, the Netherlands, July 18, 2003 – Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports second quarter net earnings1 of EUR 201 million, 20% below the second quarter of 2002. In presenting the report, Akzo Nobel’s CFO Fritz Fröhlich said: “All groups were under continued pressure from currencies and pensions. Pharma sales were impacted by generic competition to our key drug Remeron in the United States. Net income may be down, but given the challenging business conditions, results are quite acceptable. Coatings achieved a solid overall performance and Chemicals managed to keep up volumes and prices in weak markets. We are working hard to bring costs in line with lower sales. The headcount reduction program for the Company is on schedule. For the remainder of the year we assume no real improvement in the business conditions. Our outlook is unchanged, with net income1 significantly below last year.”

Operating income1 for the Company in the second quarter lagged behind the previous year’s figure by 20%. Excluding currency and pension factors operating income1 was down 3% (EUR 12 million). Pharma felt the impact of strong generic Remeron® competition in the United States, being the most important catalyst for a 25% lower operating income. Coatings and Chemicals were down 12% and 14%, respectively. Their operational performance was again more than offset by currencies and pensions. At all three groups this impact was partially compensated by the results of cost-saving and restructuring programs.

Pharma – under continued pressure; cost savings contributing
Pharma sales were down 2%, excluding currency translations. Fröhlich: “Generic competition to our antidepressant Remeron in the United States has led to pressure on Pharma. Our cost-saving programs are progressing well, with a workforce reduction of 440 so far this year. In addition to our ongoing restructuring program, we are pushing new products. The new contraceptive NuvaRing is gathering momentum and our antithrombotic Arixtra received fast-track government approval for extended application in the United States. Animal healthcare business Intervet saw its decline in the United States almost offset by better performance in the rest of the world. Diosynth showed a strong performance.”

Coatings – growth and restructuring produce solid overall performance
Akzo Nobel’s Coatings’ operating performance was slightly up, excluding the impact of pensions and currencies. Autonomous sales growth was 2%, mainly due to product mix improvement. Fröhlich: “Our worldwide number one Coatings business showed a solid overall performance, based on a mix of sales growth and cost-cutting in the various businesses. However, we were not able to fully compensate the negative impact of currencies and pensions. The restructuring programs are progressing well. Workforce expansion in emerging markets was more than offset by restructuring and divestments. This resulted in a net decrease of 650 in the number of employees. Marine & Protective Coatings maintained an excellent performance and Powder Coatings improved further. Decorative Coatings was under pressure from the weak business conditions in Europe, while the industrial activities are holding up well.”

Chemicals – robust performance in no-growth environment
The Akzo Nobel Chemicals business managed to protect volumes and prices in a no-growth environment. “Operating income excluding the impact of currencies and pensions was only marginally down, thanks to cost savings. A robust performance in a tough business climate,” said Fröhlich. “It’s a mixed picture. Catalysts, Base Chemicals and Salt improved, while the operational performances of other businesses are still under pressure from weak market conditions. Nevertheless, cost-saving programs are progressing well and are making a clear contribution to the bottom line.” In May, the Company announced a divestment program, mainly in Chemicals, which should generate proceeds of EUR 500 million to create room to maneuver for Akzo Nobel. Fröhlich: “An update on this process can be expected in the fall.”

Outlook for 2003 unchanged: net income1 significantly down
Fröhlich: “For the remainder of the year we assume no real improvement of the business conditions. As a consequence of accelerating competition against Remeron in the United States and the negative impact of currencies and pensions, our net income will be significantly below last year.”

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1 Excluding nonrecurring items