media release

Akzo Nobel’s operational performance up in Q2 2004

PRESSRELEASE: Akzo Nobel reported second quarter net income of EUR 216 million, up 7% compared with the second quarter of 2003. Net income including nonrecurring charges was down to EUR 112 million.

Arnhem, the Netherlands, July 19, 2004 – Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports second quarter net income1 of EUR 216 million, up 7% compared with the second quarter of 2003. Net income including nonrecurring charges was down to EUR 112 million.

In presenting the report, Akzo Nobel’s new CFO Rob Frohn said: “As expected, Akzo Nobel’s Pharma business is having a rough ride. Coatings and Chemicals are clearly up due to strong growth and cost savings. The Akzo Nobel outlook for the rest of this year remains unchanged with a net income1 below 2003.”

Total sales were slightly (2%) down on last year. Autonomous growth at Coatings (5%) and Chemicals (4%) was more than offset by lower Pharma volumes (7%), negative currency translation (2%), and divestment effects (2%). In the second quarter, the Company registered net nonrecurring losses of EUR 104 million which mainly relate to impairments and restructuring costs as part of earlier announced plans, and an addition to the provision for antitrust cases recognized in 2000.

Pharma – tough times
Pharma sales were down due to lower volumes (7%) and currencies (3%). Frohn: “Cost saving programs are progressing well with a workforce reduction of 910 in the first half year. In line with expectations, Organon is facing tough times as a result of the major decline in Remeron sales due to generic competition. This effect in the United States is bottoming out. However, in the European Union we see for the first time the effect of generic competition on sales.” In the hormone therapy field, sales are under pressure due to uncertainty in the market. Fertility products came under pressure as a result of changed reimbursement policies of the healthcare providers in several important countries. It took some time before the introduction of the Follistim® PenTM in the United States started to gain momentum.

Diosynth is suffering from overcapacity in the pharmaceutical ingredients markets. The announced restructurings are progressing well. The animal healthcare business Intervet achieved 6% autonomous growth and turned in a satisfactory performance. “All in all, Pharma is having a rough ride.”

Coatings – clearly up
Coatings is clearly up due to strong growth and cost savings. Autonomous growth mainly took place in Asia Pacific and the United States. Frohn: “The combination of sales growth and restructurings resulted in a 7% increased operating income. Decorative Coatings is under pressure from a hesitant business climate in Western Europe and Turkey. Marine & Protective Coatings, Industrial Finishes, and Powder Coatings improved further. The performance of Car Refinishes is suffering from pressure on margins and announced a worldwide restructuring program.”

Chemicals – operating income up 18%
In the Chemicals business volumes and prices were both up 2%. Operating income jumped 18% as a result of cost saving. Frohn: “Most of our Chemicals businesses benefited from the active restructuring and cost saving programs. Salt’s earnings came under pressure from increased shipping costs in Asia and Base Chemicals had to contend with lower caustic prices. Our divestment program for Catalysts, Phosphorus Chemicals, and Coating Resins is on track. It will create financial room to maneuver for the Company.”

Outlook unchanged: net income1 below 2003

Frohn: “As a consequence of the ongoing negative developments in Pharma, despite somewhat more positive trends in Coatings and Chemicals, we confirm our earlier expressed expectation that full year net income, excluding nonrecurring items, will be below 2003. This outlook takes the operational impact of the announced Chemicals divestments into account. The special benefit from the asenapine cooperation of EUR 70 million, received in 2003, is excluded in this comparison.”

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1 Excluding nonrecurring items.