“Akzo Nobel held Pharma margins steady thanks to the benefits of our new alliances and aggressive cost-cutting, while we simultaneously prepared the business to generate top-line growth from new products. We further expanded our global number one position in Coatings and grew operating income despite major raw material price increases. The significant operating leverage we created in Chemicals has enabled this group to deliver its best results in years. Our EUR 1 billion Chemicals divestment program was successfully completed and, following a strategic review of our remaining Chemicals portfolio, we now intend to further focus – creating a platform of businesses with the strongest financial prospects.
“Akzo Nobel thus enters 2005 in excellent financial shape and faces the future from a position of strength. 2005 will be a challenging year for operating margins due to continued pressure from raw materials and negative currency impact. From a more positive perspective, our challenge will be to strike a balance between defending margins and increasing R&D and premarketing costs for Human Healthcare as we prepare for future product launches. The actions we have taken to drive growth, reduce costs and debt, and increase cash from the businesses have significantly strengthened our company, and for the coming year we aspire to achieve net income excluding nonrecurring items within the range of 2004.”
2004 Financial highlights
Sales were EUR 12.7 billion, down 3% on 2003. Autonomous growth was 2%, which did not fully offset the impact from currencies and the net effect of divestments and acquisitions while EBIT was EUR 1,210 million, down 10%. Akzo Nobel recorded a significant net nonrecurring gain of EUR 86 million resulting from restructuring charges, antitrust provisions, and the book profit generated by the major Chemicals divestment program completed in the course of the year. Net income for the year was EUR 856 million (2003: EUR 602 million) and earnings per share amounted to EUR 3.00 (2003: EUR 2.11). The Company’s balance sheet was substantially strengthened with net borrowings reduced by EUR 1.3 billion. The Company will propose a dividend of EUR 1.20 per common share, representing a 45% payout on net income excluding nonrecurring items.
Pharma – margin aggressively defended, ready for renewed top-line growth
Sales EUR 3,246 million (2003: EUR 3,550 million)
EUR 522 million (2003: EUR 692 million)
sales declined 9% in 2004 but return on sales held steady at 16% thanks to aggressive cost savings programs and a new, more focused strategic thrust. Hans Wijers commented: “We have significantly realigned Human Healthcare, focusing on core treatment areas, leveraging our pipeline through alliances, and streamlining the organization. We’re proud to say that Akzo Nobel met the challenge with excellent performance on margin protection. Organon has reached a turning point for top-line growth in 2005.”
The effect of generic competition on Remeron® in the United States slowed toward the end of 2004. In Europe, sales erosion started in the second half. Revenues from Fertility/HT products Puregon® and Livial® rebounded in the fourth quarter and sales from the contraceptive NuvaRing® doubled year on year. A major step for our Human Healthcare business was the integration of Diosynth and Organon. This will result in a simplified and focused organizational structure better able to leverage the full strengths of our Biotech capabilities and improve capital productivity. In addition, restructuring was undertaken at Diosynth to improve performance in the face of heavy pressure from industry overcapacity in active ingredients, while prospects for Biotech are improving with several new contracts awarded.
Animal Healthcare leader Intervet had a good year as a result of steps to improve operational efficiency and a strong product offering. We continue to build on our number three position in this business.
Coatings – Strong volume growth and improved efficiency offset steep rise in raw material costs
Sales EUR 5,249 million (2003: EUR 5,160 million)
EUR 421 million (2003: EUR 414 million)
delivered autonomous sales growth of 5% thanks to strong contributions from fast-growing Asia-Pacific markets and a robust U.S. economy. However, raw material costs rose dramatically in the second half of 2004, and only a portion of the increase could be passed on to customers. Nevertheless, we held return on sales steady at 8% and return on investment improved from 19.4% to 20.5% for the year. Hans Wijers said: “Most of our Coatings businesses saw healthy volume growth, particularly benefiting our industrial segments in emerging markets. Restructuring efforts contributed significantly to profitability and we expect to see increased benefits flowing through in 2005. Over the coming months we expect the steep rise in raw material costs to continue and our first priority will be to obtain better pricing.”
Growth was led by Marine & Protective and Powder Coatings, where Akzo Nobel benefited from its leadership, ability to offer customers technologically advanced solutions, and expanding presence in growth regions. Decorative Coatings delivered satisfactory performance despite sluggish European market conditions. Industrial activities bore the brunt of the steep rise in raw material costs during the second half of 2004, while Car Refinishes, which had been under pressure for the first nine months of 2004, began to see the benefits of its restructuring program towards the end of the year.
Hans Wijers: “We’re in great shape to capitalize on our number one position in coatings. The business is both dynamic and efficient, and we’ve followed our customers into the growth regions of the world. We intend to increase the pace of healthy autonomous growth while raising returns and enhancing our leadership through acquisitions.”
Chemicals – Strong performance, further focused platform
Sales EUR 4,305 million (2003: EUR 4,470 million)
EUR 354 million (2003: EUR 341 million)
delivered its best performance in several years, with a 21% increase in operating income from continuing operations for 2004, while return on investment for the group rose from 12.4% to 15.2%. Hans Wijers said: “The significant cost savings programs we undertook have paid off, enabling most Chemicals units to benefit from an improved business climate and deliver superior financial performance.” Polymer Chemicals greatly improved its operating income, Functional Chemicals delivered a very strong performance, while Pulp & Paper Chemicals, Base Chemicals, and Surface Chemistry were up as well.
The divestment program was successfully completed, realizing approximately EUR 1 billion in proceeds. As a result of the strategic review of Chemicals initiated in August 2004, Akzo Nobel today announced that it will further focus its portfolio and is committed to supporting the growth of five strategic areas with clear prospects for profitable leadership. The new-look Chemicals organization will be structured as follows: Pulp & Paper Chemicals, Polymer Chemicals, a new focused Surfactants business, Functional Chemicals, and a reconstituted Base Chemicals (comprised of the current Chlor-Alkali, Electrolysis Salt, and Energy businesses).
As a consequence of the strategic review, Akzo Nobel intends to divest businesses with 2004 sales of EUR 750 million, including Ink and Adhesive Resins, Oleochemicals, Salt Specialties, PVC Additives, Solar Salt Australia, and Methyl Amines / Choline Chloride. Works councils and unions, where applicable, will be fully consulted in accordance with normal practices in this regard.
the General Meeting of Shareholders to be held on April 21, 2005, Maarten van Veen (70) will retire from the Supervisory Board having reached the statutory age limit. Mr. van Veen, currently Deputy Chairman, served seven years on the Supervisory Board and rendered outstanding services to the Company.
At the same meeting, Maarten van den Bergh (62), non executive Chairman of the Board of Lloyds TSB and former President of Royal Dutch Petroleum Company will be proposed for appointment to the Supervisory Board, effective May 1, 2005 for a four year term.
Abraham Cohen (68) will step down in accordance with the rotation schedule and will be proposed for reappointment for a further four year term.
Board of Management
an outstanding career spanning 32 years with the Company and having served on the Board for 12 years, Rudy van der Meer (60) will retire on May 1, 2005. Mr. van der Meer joined the Board in 1993 with the responsibility for Chemicals. After integrating the two Akzo chemical divisions and subsequently the acquired chemical activities of Nobel Industries, he extended Chemicals’ leading positions in selected segments of specification, functional and specialty chemicals by pruning the portfolio and increasing productivity. In 2000 he assumed responsibility for Coatings and successfully enhanced Akzo Nobel’s global Coatings leadership position by increasing profitability and expanding market positions, especially in Asia and Eastern Europe.
Mr. Van der Meer’s Coatings responsibilities will be assumed by Hans Wijers (54), in addition to his function as Chief Executive Officer.
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