media release

Akzo Nobel’s first quarter 2004 net income 1 up 7%

Press Release Akzo Nobel has announced first quarter net income of EUR 176 million, up 7% compared with the first quarter of 2003.

1 of EUR 176 million, up 7% compared with the first quarter of 2003. In presenting the report, Akzo Nobel’s CFO Fritz Fröhlich said: “Akzo Nobel showed a robust performance in a mixed business environment. Pharma had a tough quarter, with sales clearly down. However, results were up 10% thanks to our cost savings and product portfolio actions. In the course of this year we will have a rough ride in Pharma. Coatings is clearly up due to cost savings and strong growth, mainly in Asia Pacific and the United States. Our Chemicals business showed a solid performance in difficult business conditions. Our earlier announced program to divest three Chemicals businesses is progressing well. Akzo Nobel’s outlook for this year remains unchanged: a net income1 below 2003.”

Total sales were down 5% on last year, as a consequence of negative currency effects (-5%), higher volumes (+2%) and divestments (-2%). Financing charges decreased substantially as a result of reduced net borrowings and lower foreign currency exchange rates. First quarter net income was EUR 133 million (2003: EUR 139 million), including net nonrecurring losses of EUR 43 million. These losses mainly concern impairment and restructuring costs of the Organon production site in West Orange (New Jersey) and the settlement in the Remeron® court case with generic drug manufacturers.

Pharma – result up in tough quarter
Pharma sales were down due to currencies and lower volumes. Fröhlich: “Cost savings are clearly paying off, especially at Organon. On top of that, our human healthcare business received over EUR 30 million for the transfer of Arixtra and for an early entrance license for generic mirtazapine in Germany. These positive effects have more than offset Organon’s lower sales. Diosynth is suffering from overcapacity in the pharmaceutical ingredients markets. Restructurings were announced in Scotland, Mexico and the Netherlands. The animal healthcare business, Intervet, achieved a healthy 5% growth and turned in a satisfactory performance. In Organon, as expected, Remeron is showing a rapid decline, while fertility treatment is feeling the impact of changed reimbursement policies in major markets. In the United States, our fertility product Follistim is impacted by a production interruption. The ongoing discussions around HT are reducing overall sales in this market. On the other hand, the Avinza co-promotion deal is clearly gaining sales momentum – thus showing the success of our new strategy. All in all, Pharma is up for a rough ride this year.”

Coatings – clearly up due to strong growth and cost savings
Coatings is clearly reaping the benefits from restructuring programs and autonomous growth of its activities. Operating income jumped 17%. Fröhlich said: “Our strong position in Asia Pacific and the United States is helping us to offset the continuing pressure in the weak European markets. Marine & Protective Coatings again achieved an excellent performance, while our industrial businesses continued their upward trend. Car Refinishes is feeling pressure on margins.” In the mature markets, a workforce reduction of 180 was reached. In growth areas, such as Eastern Europe and Asia, and as a result of seasonal influences, more than 400 employees were added.

Chemicals – solid performance under difficult business conditions
The Akzo Nobel Chemicals business managed to protect volumes and prices in difficult business conditions. “We almost managed to offset negative currency effects by cost savings,” said Fröhlich. “We are also seeing raw material prices and power costs increasing. Cost savings programs could almost offset the pressure on margins. Some of our businesses, Surface Chemistry, Functional Chemicals and Catalysts, are benefiting from stronger volumes. In Pulp & Paper Chemicals, volumes were under pressure. Base Chemicals’ results were impacted by temporary stops. Our divestment program for Catalysts, Phosphorus Chemicals, and Coating Resins is on track. It will create financial room to maneuver for Akzo Nobel.”

Outlook unchanged: net income1 below 2003

Fröhlich: “We confirm our earlier expressed outlook that full year net income, excluding nonrecurring items, will be below 2003. This outlook is based on our present portfolio of activities and on 2003 earnings excluding the special benefit from the asenapine cooperation of EUR 70 million, after taxes.”

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1 Excluding nonrecurring items.