media release

AkzoNobel Publishes Q4 and FY 2008 Results

Akzo Nobel N.V. (AkzoNobel) today announced its results for the fourth quarter and for the full-year 2008. The company reported 2008 revenue in constant currencies of €16.2 billion, 6 percent ahead of last year (reported: 1 percent).

Brief Overview

  • 2008 revenue in constant currencies up 6 percent (reported: 1 percent)
  • 2008 EBITDA before incidentals and National Starch, in constant currencies, in line with guidance
  • Q4 slowdown evident in all three business areas, in all geographies, with EBITDA down 12 percent in constant currencies (reported: 17 percent)
  • Non-cash Q4 impairment of ICI intangibles of €1.2 billion after tax and incidental charges of €0.6 billion lead to full year loss of €1.1 billion
  • Restructuring to be deeper and faster
  • 2007 dividend level of €1.80 maintained
  • Balance sheet is strong, but prudence dictates share buyback program will not be completed
  • Long-term fundamentals of AkzoNobel remain solid

Financial highlights

Q4 2008Q4 2007*%EUR mlnFY 2008FY 2007*%
3,6693,656-Revenue in constant currencies**16,20215,2556
391444(12)EBITDA in constant currencies**1,9872,011(1)
356408(13)EBITDA in constant currencies**
. National Starch
10.312.1 EBITDA margin, in %**12.213.2 
121196(38)Net income from continuing operations742859(14)
(1,486)56 Net income/loss from total operations

* Pro forma
** Continuing operations before incidentalsbHighlights for the year

Akzo Nobel N.V. (AkzoNobel) today announced its results for the fourth quarter and for the full-year 2008. The company reported 2008 revenue in constant currencies of €16.2 billion, 6 percent ahead of last year (reported: 1 percent).

However, while the figures for the full year reveal that the company achieved revenue growth during 2008, the severity of the deteriorating global economy became apparent towards the end of Q4.

“Our fourth quarter results reflect the impact of the economic climate in many of our businesses,” said CEO Hans Wijers. “The fact that we have implemented a significant level of restructuring is a clear indicator that action is being taken across the company to mitigate the effects of the current global crisis.

“The fundamentals of AkzoNobel remain sound,” he continued. “We have strong market positions in a number of highly attractive sectors with a wide geographical spread. We have a strong balance sheet with manageable 2009 refinancing needs.

The actions we are taking mean that our company is well positioned to meet the current challenges and, as a result, will be in good shape to take advantage of the recovery when it comes.”

Added Wijers: “We are acutely aware that global market conditions and lack of visibility do not allow for any certainty. The harsh trading conditions experienced towards the end of the fourth quarter have continued into 2009 and, as a result, we expect this year to be very challenging. Nevertheless, we remain focused on achieving our medium-term target of an EBITDA margin of 14 percent by the end of 2011; on continuing to deliver the €340 million ICI synergies; on driving margin management programs across the company; and on rigorous cost management.”

Revenue growth for 2008 developed as follows:

2008VolumePricesAcquisitions/Exchange RatesTotal

growth for Q4 2008 developed as follows:

Q4VolumePricesAcquisitions/Exchange RatesTotal
Decorative(10)%8% (4)%(6)%
Performance(6)%4% (2)%(4)%

Paints – margin management partly compensated for volume decline
2008 revenue increased in constant currencies by 2 percent, with pressure on margins being mitigated by pricing management across all regions, which compensated for increased raw material costs. Higher than expected synergy benefits offset cost inflation, while double-digit constant currency growth was booked in Asia.

In the fourth quarter, Decorative Paints saw a slowdown in the emerging markets. Revenue in constant currencies for the quarter was slightly below last year, with price increases and a stronger product mix not able to offset fully the volume drop. EBITDA margin at 7.9 percent declined, compared with 10.5 percent last year.

Performance Coatings – stable performance, significant weakening in Q4
was a mixed year for the Performance Coatings business, which had to contend with volatile raw material pricing and currencies. Our Marine & Protective Coatings business had a very good 2008, while the impact of the economic downturn took full effect on our Industrial Activities in the fourth quarter. Volumes in 2008 were stable, but revenue was 1 percent lower than 2007, with margins remaining almost flat.

Margin management offset the increase in raw material costs, but currencies had a downward effect of 5 percent. Acquisitions and divestments contributed to a 1 percent growth. The EBITDA margin for 2008 was 12.2 percent (2007: 12.6 percent), a satisfactory performance given the economic circumstances.

Volumes in the last quarter were down by 6 percent on the previous year, but were partly counterbalanced by product mix and margin management. In addition, Performance Coatings incurred a negative currency impact of 2 percent. Multiple cost saving initiatives have been put in place in order to align our cost structure to the changed market environment and limit the impact on margins. The broad geographic spread and the range of industries served gave us some protection against the effects of individual market fluctuations.

Specialty Chemicalssolid performance but demand declined
Chemicals delivered a solid 2008 performance and a respectable fourth quarter, despite weakening demand and volatile feedstock costs. Revenue was up 5 percent compared with 2007, while autonomous growth was 9 percent. Before incidentals, EBITDA for 2008 amounted to €891 million.

Market weakness intensified as Specialty Chemicals approached year-end, which fueled customer de-stocking momentum and resulted in an 11 percent decline in volume in our business in the fourth quarter. However, the volume decline was more than offset by effective margin management, producing revenue growth of 3 percent. Before incidentals, EBITDA for the quarter amounted to €183 million, 13.1 percent of revenue.

Restructuring and impairment
September 29, 2008, AkzoNobel announced actions to accelerate the synergies of the enlarged company and improve operational effectiveness, leading to additional cost savings of at least €100 million. This has led to incidental charges of €205 million, bringing the 2008 total to €275 million. In response to reduced demand in Q4 and poor visibility, AkzoNobel has undertaken further action to reduce costs and protect margins, with a particular focus on Decorative Paints in Continental Europe.

At year-end, the continuing businesses employed approximately 1,660 employees less than last year. Cost measures taken include reducing third party spend, a 2009 salary freeze for the Board of Management and more than 500 executives, and where possible for most other employees.

In light of current market conditions and the continuing lack of visibility regarding future global demand, the company has assessed the fair value of its assets against lower growth rates which it now expects. This has resulted in a non-cash impairment charge of €1.2 billion after tax in Q4, covering the value of ICI intangibles related to the Decorative Paints businesses and of National Starch.

“Our regular periodic assessment of the fair value of our assets has been undertaken against the background of markedly changed market conditions and as a result we have adjusted the value of ICI related intangibles downward,” commented CFO Keith Nichols. “This non-cash adjustment relates to the Decorative Paints businesses and the re-classification of National Starch, which was originally recorded in our books as an asset held for sale.”

Earnings per share and dividend
income from continuing operations before incidentals declined by 14 percent to €742 million. The effect on earnings per share was mitigated to a decline of 4 percent due to the share buyback programs in 2007 and 2008.

An interim 2008 dividend of €0.40 per common share was paid on November 10, 2008. AkzoNobel proposes to pay a final dividend of €1.40, resulting in a total dividend for 2008 of €1.80 (2007:€1.80).

Pension funding status improved
funded status of the pension plans at year-end 2008 was a deficit of €988 million, compared with €1,510 million (pro forma) at year-end 2007. The impact of lower returns on plan assets and the acquisition of ICI was more than offset by additional contributions (mainly in the UK) and the effect of increased discount rates. However, a non-cash increase in pension costs of approximately €115 million is to be expected in 2009, as the company has to take into account lower returns on plan assets due to their decrease in value in 2008.

Share buyback
is confident it will complete its 2009 refinancing needs. The company will not complete its share buyback program in view of the unprecedented uncertainties across the world.

The Report for 2008 and the 4th quarter can be read on
figures in this press release come from the Report for 2008 and the 4th quarter. The full year 2008 financial figures of AkzoNobel included in the primary statements in the Report for 2008 and the 4th quarter are derived from the financial statements 2008. These financial statements have been authorized for issue. The financial statements have not yet been published by law and still have to be adopted by the general meeting of shareholders. In accordance with section 2: 393 BW, KPMG Accountants N.V. has issued an unqualified auditors’ opinion on these financial statements, which will be published early March 2009. All quarterly and pro forma figures are unaudited.

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