media release

Akzo Nobel reports higher results for first quarter 2005

Press Release - Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports higher financial results for the first quarter of 2005. Net income of EUR 287 million was up 116% on the corresponding period of 2004, while revenues increased 3% to EUR 3.0 billion.

  • Net income up 116% – EUR 287 million (2004: EUR 133 million)
  • EBIT excluding one-off results was up slightly at EUR 274 million
  • Organon – slightly up; boosted by EUR 149 million Risperdal® benefit
  • Intervet – healthy revenues growth and 23% EBIT rise
  • Coatings – revenues flat; raw material pressure
  • Chemicals – strong performance, EBIT up 14%
  • Outlook unchanged

Arnhem, the Netherlands, April 19, 2005 – Akzo Nobel (Euronext Amsterdam: AKZ; NASDAQ: AKZOY), the international pharmaceuticals, coatings and chemicals company, reports higher financial results for the first quarter of 2005. Net income of EUR 287 million was up 116% on the corresponding period of 2004, while revenues increased 3% to EUR 3.0 billion.

Commenting on the Company’s first quarter 2005 figures, Rob Frohn, Akzo Nobel’s CFO, said: “We delivered solid performance in mixed market conditions. Organon successfully protected margins and the recent Risperdal® deal boosted the result for the quarter. Intervet delivered healthy autonomous revenue growth and double-digit profit improvement. Coatings revenues were flat despite a 4% price increase, but as expected, the steep rise in raw material costs negatively impacted our margins. Chemicals sustained strong performance on all fronts.”

Revenues at EUR 3.0 billion were up 3% on last year, excluding divestments. Autonomous growth was 3% – with 2% coming from price increases and 1% from higher volumes. EBIT was up 64% at EUR 419 million. Excluding one-off items and divestments, EBIT improved slightly to EUR 274 million. First quarter net income was up 116% at EUR 287 million, and earnings per share were EUR 1.00 (2004: EUR 0.47).

Organon profited from a pre-tax benefit of EUR 149 million related to the termination of the Risperdal® copromotion with Johnson & Johnson’s Janssen–Cilag. Organon also successfully defended its EBIT margin in the quarter. Intervet improved on last year, achieving 3% autonomous growth and reaping the benefits from cost savings to deliver a 20% EBIT margin and 23% EBIT growth. Coatings revenues were flat, while EBIT margin declined from 6.8% to 5.0% as the impact of higher raw material costs could only partly be passed on. Chemicals’ ongoing operations delivered 14% growth in EBIT, benefiting from 6% autonomous growth and cost savings.

Organon (human healthcare products) – EBIT margins slightly up; Akzo Nobel executing strategy to support renewed top-line growth and protect margins

  • Revenues: EUR 576 million (2004: EUR 591 million)
  • EBIT: EUR 236 million (2004: EUR 68 million)
    • Revenues decline bottoming out
    • Termination Risperdal® copromotion – EUR 149 million benefit
    • Cost savings contributing
    • NuvaRing® – steadily expanding
    • Remeron® – gradually declining outside U.S.
    • Infertility products – renewed growth
    • Livial® – remaining under pressure
    • Pharmaceutical ingredients – still struggling with overcapacity

Organon revenues in the first quarter of 2005 were 3% lower at EUR 576 million, 1% of which was due to negative currency effects. The rate of sales decline of Remeron® and Remeron® SolTab® is now slowing. Livial® sales continue to be impacted by the ongoing discussions of studies on hormone therapies. Revenues of muscle relaxants are under pressure from generic competition. Encouragingly, several areas are experiencing growth. Contraceptives revenues increased by 6% compared with first quarter 2004, led by 70% growth of NuvaRing® (contraceptive ring), whose revenues have increased five-fold over the past two years. Revenues of Puregon®/Follistim® are back on track, rebounding 28% thanks to the resolution of manufacturing issues last year.

At the end of March, Organon and Johnson & Johnson’s Janssen–Cilag mutually agreed to end their copromotion with regard to the antipsychotic drug Risperdal® as a result of Organon’s development of its own antipsychotic products, notably asenapine through an alliance with Pfizer. This resulted in a one-time benefit of EUR 149 million in the first quarter of 2005, which was already factored into Organon’s 2005 budgeting process for higher R&D and pre-marketing costs. As a consequence, Organon’s EBIT rose from EUR 68 million to EUR 236 million year on year. Excluding one-off items, EBIT improved on last year, with margins also being higher. In the first quarter of 2004, Organon received EUR 44 million for the Arixtra® transfer and the marketing license for Remeron® in Germany. In addition, 2004 operating income included charges of EUR 56 million for the closure of the West Orange site and legal settlements.

Frohn commented: “The EUR 149 million benefit from Risperdal® will help offset higher 2005 R&D and pre-marketing costs. We have 5 drugs already in or just entering Phase III, in addition to plans for the roll-out of Implanon® in the United States in the second half of 2005.”

Intervet (animal healthcare products) – Solid growth, double-digit profit improvement

  • Revenues: EUR 262 million (2004: EUR 258 million)
  • EBIT: EUR 53 million (2004: EUR 43 million)
    • Revenues up – 3% autonomous growth
    • Cost savings drive strong margin increase

Intervet’s revenues were up 2% to EUR 262 million. Autonomous growth of 3% was partially offset by a negative currency translation effect of 1%. Revenues of both Biologicals and Pharmaceuticals grew. Intervet’s operating income jumped 23% to EUR 53 million, attributable to autonomous growth and cost savings throughout the business unit. Thanks to these positive developments, EBIT margin increased to 20.2% from 16.7%.

Coatings – Revenues flat despite price increases; raw material pressures

  • Revenues: EUR 1,241 million (2004: EUR 1,237 million)
  • EBIT: EUR 62 million (2004: EUR 84 million)
    • Price increases of 4% to maintain margins; volumes down 3%
    • Continuous steep rise in raw materials compresses margins, as expected
    • Marine & Protective Coatings – continuous good performance
    • Decorative Coatings – weak start in Europe
    • Industrial activities – margins under pressure

Revenues were EUR 1.2 billion, up slightly on 2004, with autonomous growth of 1% (prices up 4%, volumes down 3%). EBIT fell 26% to EUR 62 million with EBIT margin at 5.0% (2004: 6.8%). As expected, on average raw materials costs increased by 10%.

Frohn: “The first quarter is low season. Revenues will pick up in the second and third quarter. In terms of raw materials, we are working with our customers to address the issue. In the first quarter we increased prices by 4%. Passing on further cost increases will take some time in certain markets due to intense competition.”

The decorative coatings activities in Western Europe were under pressure from continued weak economic conditions and the unfavorable weather conditions in February and March, as well as the early Easter holiday. In other areas, especially Turkey, we are performing better. At the industrial activities, margins were affected by an unprecedented surge in the cost of petrochemical derivatives. While volume growth in Asia continued, results in the region were impacted by higher raw material prices and competition. Marine & Protective Coatings continues to deliver excellent performance. This business is benefiting from record levels of new ship building, particularly in Korea.

Coatings restructuring programs continued, resulting in a workforce reduction in the first quarter of 220.

Chemicals – Strong performance improvement continues

  • Revenues: EUR 957 million (2004: EUR 913 million)
  • EBIT: EUR 97 million (2004: EUR 85 million)
    • Autonomous growth of 6%
    • Cost saving programs continue to pay off
    • Pressure from energy, power, and raw material prices
    • Base Chemicals and Salt – significantly up
    • New organization in place as of April 2005; divestment program on track

First quarter revenues for Chemicals were EUR 1.0 billion, a 5% improvement on last year, mainly attributable to 6% autonomous growth, with both volumes and prices 3% higher. Currency translation had a negative effect of 1%. EBIT rose 14% to EUR 97 million with EBIT margin at 10.1% (2004: 9.3%).

“Roadmaps intended to drive more profitable growth in Chemicals have clearly delivered. In addition, our Chemicals activities benefited from the autonomous growth achieved – which more than offset the impact of higher raw material and energy prices,” said Frohn.

Base Chemicals showed substantial improvement on last year, when it was affected by weak caustic prices and maintenance stops. Salt earnings benefited from the boost in de-icing salt activities as a result of favorable winter weather.

Restructuring programs continued, resulting in a workforce reduction in the first quarter of 130. Capital expenditures were significantly higher at EUR 62 million, which is 107% of depreciation, and include major projects in the Netherlands and Brazil.

In February 2005, the Company announced that it intends to divest non-core activities –representing a total of around EUR 700 million in revenues – in order to further focus on five strategic areas with clear prospects for profitable leadership. The processes to prepare for these divestments are well on track.

Outlook unchanged

Frohn: “We confirm our earlier expressed aspiration to achieve a full-year net income within the range of 2004, which was some EUR 800 million on an IFRS-basis. This outlook is based on our current portfolio and it excludes restructuring and impairment charges, charges related to legal and antitrust cases, and results on divestments.”

Corporate Media Relations: tel. +31 26 366 4343

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press release may contain 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”, 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, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. These factors also include changes in regulations or interpretations related to the implementation and reporting under IFRS, decisions to apply a different option of presentation permitted by IFRS, and various other factors related to the implementation of IFRS, including the implementation of IAS 32 and 39 for financial instruments. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more complete discussion of the risk factors affecting our business please refer to our Annual Report on Form 20-F filed with the United States Securities and Exchange Commission, a copy of which can be found on the Company’s website.

* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.