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Akzo Nobel: Strong Operational Focus in Transformational Year

Akzo Nobel has reported 5% autonomous growth and a 29% rise in net income before incidentals for 2007. In what was a transformational year, the company was able to maintain a strong operational focus.

Financial highlights

Q4 2007Q4 2006%EUR mlnFY 2007FY 2006%
10.99.1 EBITDA* margin, in %12.411.0 
7,25.1 EBIT* margin, in %9.07.3 
1257762Net income*58044929
0,480.2778Net income, per share2.101.5734
8,5332303,610Net income9,3301,153709


Highlights for the year

  • 5% autonomous growth
  • EBIT up 25%; reaping the benefits of margin management and cost savings
  • EBITDA margin further improved to 12.4%
  • Pension deficit significantly down from EUR 1.8 billion to EUR 1.1 billion
  • EUR 8.5 billion profit on the divestment of Organon BioSciences
  • Start of additional EUR 3 billion share buyback program announced
  • Dividend increased 50% from EUR 1.20 to EUR 1.80 per common share
  • Incidentals – EUR 169 million loss compared with 2006 gain of EUR 126 million

Amsterdam, the Netherlands, March 6, 2008 – Akzo Nobel (Euronext Amsterdam: AKZ) has reported 5% autonomous growth and a 29% rise in net income before incidentals for 2007. In what was a transformational year, the company was able to maintain a strong operational focus.

Revenue for the year amounted to EUR 10.2 billion, up 2% on 2006, with notable contributions from emerging markets. Autonomous growth was 5%, with both Coatings and Chemicals contributing to the 2% volume growth and 3% selling price increase.

before incidentals improved 15% to EUR 1,271 million, with both Coatings and Chemicals contributing – highlighting the underlying strength of the company – while the EBITDA margin rose to 12.4% (2006: 11.0%).

“The achievements of 2007 have transformed Akzo Nobel from a conglomerate into a focused company, a truly global sustainable leader in coatings and specialty chemicals,” said CEO Hans Wijers. “Our full year results also highlight the underlying strength of Akzo Nobel in what has been a strong final quarter in challenging conditions. During all these major activities, I am very proud that our employees kept their eye on the ball.”

Net income developed as follows:

Millions of euros or % Net income before incidentals  Net income
 2007       2006 Δ%20072006
Continuing operations   580            449 29 410       715 
Discontinued operations*458   423    8,290438 

1,038                              872199,330


  * In 2007, the Organon BioSciences results were included until November 19, the date on which it was divested to Schering-Plough.

up 50%
Akzo Nobel’s dividend has been increased from EUR 1.20 to EUR 1.80 per common share, up 50%. Dividends from 2008 onwards will be a minimum of 45% payout ratio of net income before incidentals and the fair value adjustment charge related to the ICI acquisition.

Fourth quarter
Fourth quarter revenue amounted to EUR 2.4 billion, up 2% on 2006. Autonomous growth was %, while currency translation had a negative impact of 3%. Autonomous growth was especially trong at Chemicals (12%), while Coatings also performed well, achieving 3% volume growth.

Incidentals in 2007 on balance amounted to a loss of EUR 169 million, compared with a gain of EUR 126 million in 2006. The 2007 losses mainly related to restructuring and impairment charges at several Coatings and Chemicals sites. In addition, a provision of EUR 66 million was recognized for postretirement healthcare costs due to the loss of a court case in the Netherlands, a decision which the company intends to appeal.

Coatings full year/fourth quarter – excellent performance
Coatings reported an excellent performance during 2007, despite difficult market conditions in the industrial area. Revenue growth was 5%, driven by autonomous growth of 4%. Both volumes and prices were up 2%. Before incidentals, EBITDA increased 12% to EUR 737 million, with EBITDA margin improving to 11.3% (2006: 10.6%) due to autonomous growth and the benefits of margin management and restructuring programs.

’ fourth quarter revenue was 2% up, despite currency headwinds of 2%. Autonomous growth was 3%, driven by Marine & Protective and Powder Coatings. Before incidentals, EBITDA rose 25% to EUR 143 million, with an EBITDA margin of 9.4% (2006: 7.6%). The Decorative Coatings business improved significantly. Programs on complexity reduction and brand clustering are being implemented worldwide, resulting in brand synergies, improved sharing of best practices, stronger market impact and further efficiency improvements.

Chemicals full year/fourth quarter – record ROI performance
Chemicals reported a record performance in 2007, reflecting its improved overall portfolio after the restructuring of activities implemented during 2006. Autonomous growth was 7%, with prices up 4% and a volume increase of 3%. Currencies had a negative impact of 2%, primarily attributable to the U.S. dollar.

continuous rise of raw material and energy prices was more than offset by autonomous growth, margin management and cost savings. Before incidentals, EBITDA increased 9% to EUR 610 million, with an EBITDA margin of close to 17%, a full percentage point above 2006. The moving average ROI rose to a record 21.7%.

reported a strong fourth quarter with revenue growth of 7%. Autonomous growth was 12%, with volumes and prices both rising 6%. This more than compensated for the negative currency impact of 4%, which was primarily attributable to the U.S. dollar and the 1% negative effect from outsourcing of services.

incidentals, EBITDA increased 5% to EUR 137 million, with an EBITDA margin of 15.1% (2006: 15.5%). EBIT was up 16% to EUR 87 million. Pulp & Paper Chemicals, Functional Chemicals, and Surface Chemistry in particular are operating at a significantly improved level compared with the same quarter in 2006. This is due to autonomous growth, as well as further margin management and cost saving actions.

ICI fourth quarter – strong performance
ICI realized autonomous growth of 6%, led by the emerging markets. EBIT of continuing operations improved by 27%, with all regions contributing. ICI Paints revenue increased 3% by strong growth in emerging markets. EBIT of ICI paints improved by 54%, with all regions contributing. Revenues in the U.S. were down 6%, with EBIT margins significantly improved because of cost savings. Specialty Polymers and Regional & Industrial also reported strong results. The ICI pension deficit was significantly down, from GBP 1.2 billion in 2006, to GBP 0.3 billion in 2007.

Pro forma results of the new Akzo Nobel
The integrated organization will operate in three business areas - Decorative Paints, Performance Coatings and Specialty Chemicals. Pro forma 2007 figures before incidentals showed EUR 14.4 billion revenues, with an EBITDA of EUR 1.9 billion. Total EBIT before incidentals and the fair value adjustment charge related to the ICI acquisition amounted to EUR 1.4 billion. Pro forma net income before incidentals and the fair value adjustment was EUR 942 million. The fair value adjustment charge related to the ICI acquisition amounted to EUR 146 million before tax.

Start of EUR 3 billion share buyback
As stated previously, Akzo Nobel intends an additional return of capital to its shareholders of EUR 3 billion. Following recent changes in the Dutch tax rules regarding share buyback capacity, Akzo Nobel intends to return the full EUR 3 billion by way of share buybacks.

the European Commission clearance of the on sale to Henkel, Akzo Nobel confirms that it will commence the additional capital return mid-March, by way of an initial EUR 1 billion share buyback under existing shareholder approval. The remainder of the share buyback program will be subject to shareholder approval at the company's Annual General Meeting of April 22, 2008.

Integration update
Since Akzo Nobel has finalized plans for the new segments of the company, the relevant management and the integration teams have been appointed. The company is pleased to report that the synergy identification is well on track.

Building momentum – management agenda 2008
The ongoing pressure created by raw material prices, volatility in major currencies and a slowdown in overall growth in North America and Europe will make for a testing environment.

, Akzo Nobel is confident that the strategic transformation has maneuvered the company into a position of strength. In the years to come, Akzo Nobel will deliver on its promise of outgrowing its markets and further improving the bottom line.

of the company’s energy during 2008 will be devoted to successfully integrating ICI’s businesses into Akzo Nobel’s organization and achieving the first round of synergies.

“Report for the year and 4th quarter of 2007” and the “2007 pro forma combined financial information for Akzo Nobel and ICI” can be read in the Reports & Presentations section.

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