• Revenues up 7% to EUR 3.6 billion, operating income up 9% to EUR 365 million
• Net income nearly doubles to EUR 361 million
• Organon – double-digit growth, excellent operational performance
• Intervet – autonomous growth of 6%
• Coatings – record quarter, strong profit growth on significantly higher revenues
• Chemicals – autonomous growth of 7%
• Divestment program close to finalization
• Preparations for the separation of our Pharma business on track; update to follow later this year as planned
• Strong financial position
Arnhem, the Netherlands, July 20, 2006 – Akzo Nobel (Euronext Amsterdam: AKZ; Nasdaq: AKZOY) today reported substantially higher revenues and operational earnings, driven by Organon and Coatings. Operating income excluding incidentals was up 9% from EUR 334 million to EUR 365 million.
Revenues were up 7% to EUR 3.6 billion (2005: EUR 3.4 billion). Autonomous growth was 8%, with all segments contributing. Volume growth was 6% and selling prices increased by 2%.
Excluding incidentals, operating income rose 9% from EUR 334 million to EUR 365 million. Including incidentals, operating income increased 3% to EUR 352 million. Incidentals in the second quarter of 2006 resulted in a net loss of EUR 13 million (2005: gain of EUR 7 million). Restructuring and impairment charges of EUR 20 million were taken, related to various restructuring activities at Coatings and Chemicals.
Net income nearly doubled from EUR 182 million to EUR 361 million as a result of improved operational earnings and one-time tax benefit. Excluding incidentals, net income was up 23% from EUR 199 million to EUR 245 million.
Commenting on the company’s performance, CFO Rob Frohn said: “Our businesses performed well in the second quarter, with both top and bottom line improving significantly, particularly at Organon and Coatings. Energy prices and raw materials remain a concern. Nevertheless, we look ahead with confidence to the second half of the year.”
Organon – double-digit growth, record quarter for Puregon®
grew 12% to EUR 675 million contributing to a 49% rise in operating income of EUR 104 million, excluding incidentals. The EBIT margin also increased year-on-year to 15.4%. R&D expenditures increased significantly with investment focused on pipeline growth.
Infertility products made a strong contribution, with Puregon®—Organon’s biggest selling product—enjoying a record quarter, up 10% to EUR 102 million. NuvaRing® also saw significant sales growth, especially in the United States, demonstrating the contraceptive ring’s strong market potential.
During the second quarter, the FDA deemed Livial® “not approvable” for the U.S. market. On July 17, the FDA approved Implanon™, which will now be introduced on the U.S. market.
Continued Frohn: “This good performance demonstrates the strength of Organon’s current product portfolio, especially our biotech product Puregon®, which enjoyed a record quarter, while the growth momentum of NuvaRing® remains impressive."
Intervet – autonomous growth of 6%, earnings slightly down due to higher selling expenses
at Intervet edged higher to EUR 280 million, while the ongoing business achieved autonomous growth of 6%. Operating income was slightly down from EUR 60 million to EUR 57 million, mainly due to higher selling expenses related to product introductions and costs for the improvement of distribution infrastructure. To further focus on core activities, Intervet divested Crina S.A., one of its remaining feed additives businesses.
The companion animals portfolio—which accounts for approximately 20% of current revenues—achieved accelerated market penetration. Double-digit revenues growth was achieved in Latin America.
Coatings – record quarter, strong profit growth on significantly higher revenues
Nobel Coatings revenues in Q2 were up 9% to EUR 1.6 billion, in particular boosted by a robust performance from the industrial activities and Marine & Protective Coatings businesses. Volume growth was 6%, with all units contributing. Operating income, excluding incidentals, rose 21% to an all-time high of EUR 175 million, while the EBIT margin improved by 1% to 10.7%. However, the rise in raw material prices continues to impact margins. The acquisition of Sico was completed in June, and earnings from its first month are included in the quarterly results.
Decorative Coatings revenues increased, while business results in Western Europe varied. Operating costs remain under continuous review. Car Refinishes is back on track after several years of decline, while the focus on costs will continue. Powder Coatings is consolidating its strong start to the year, with China being a significant growth driver.
& Protective Coatings had a record quarter in terms of revenues and operating income. Solid demand in China and Europe led to Industrial Finishes turning in a further improved financial performance.
“Our strong volume growth, especially in emerging markets, contributed to this record quarter in Coatings,” added Frohn. “It is positive to see our strong start to the year continued, however, ongoing pressure from raw materials remains an issue."
Chemicals – autonomous growth of 7%, increasing impact of energy prices
Nobel Chemicals revenues rose 2% to EUR 981 million, supported by 3% volume growth and a 4% rise in prices. Operating income, excluding incidentals, grew by 14% to EUR 80 million. The EBIT margin increased year-on-year to 8.2%, but margins continue to be impacted by higher energy costs and oil-related feedstock.
Pulp & Paper Chemicals revenues continued to grow with higher volumes, particularly in Europe and the Americas. Base Chemicals showed a strong improvement in the Chlor Alkali business, while Functional Chemicals achieved solid top line growth due to higher volumes. Surfactants’ revenues were in line with the previous year, with higher selling prices more than offsetting raw material cost increases. Polymer Chemicals again showed double-digit revenue growth during the quarter.
The divestment program, which was announced in February 2005, is close to finalization as deals have been signed for 9 out of the 14 activities to be divested. The Salt Specialties business was withdrawn from the divestment program.
Strong financial position
capital at June 30, 2006, amounted to EUR 8.4 billion, EUR 0.4 billion higher than at December 31, 2005. This increase was attributable to the seasonal increase of working capital and acquisitions, partially offset by negative currency translation effects.
Equity was up EUR 0.3 billion to EUR 3.9 billion, mainly because of first half-year retained income. Net interest-bearing borrowings increased by EUR 0.2 billion to EUR 1.7 billion, as a consequence of the seasonally negative funds balance. Gearing was 0.45 (December 31, 2005: 0.44).