media release

Akzo Nobel second quarter net income up 22%, revenues 6% higher

Press Release Akzo Nobel reports 6% top-line growth from present operations with revenues of EUR 3,354 mln and net income of EUR 182 mln up 22% on the corresponding period of 2004.

  • Net income up 22% at EUR 182 mln (2004: EUR 149 mln)
  • Revenues from present operations up 6% at EUR 3,354 mln (2004: EUR 3,152 mln)
  • Organon – revenue growth, R&D expenditure significantly up
  • Intervet – results jump on growth and efficiency improvements
  • Coatings – continued pressure from raw materials and slower growth in mature markets
  • Chemicals – impact of energy prices and incidentals
  • Positive one-off items of EUR 29 mln (2004: EUR 71 mln negative)
  • Strong financial position
  • Outlook unchanged

Arnhem, the Netherlands, July 20, 2005 – Akzo Nobel (Euronext Amsterdam: AKZ; Nasdaq: Akzoy), the international pharmaceuticals, coatings and chemicals company, reports 6% top-line growth from present operations with revenues of EUR3,354mln and net income of EUR 182 mln up 22% on the corresponding period of 2004. EBIT from present operations was up 25% at EUR341mln (2004: EUR272mln) due to favorable one-off items. EBIT excluding these one-offs was 9% below last year at EUR 312 mln (2004: EUR343mln). For the first half of 2005, net income jumped 66% to EUR 469 mln. This includes the EUR 149 mln pretax special benefit to Organon from the termination of the Risperdal® copromotion.

Commenting on the Company’s second quarter 2005 figures, Rob Frohn, Akzo Nobel’s CFO said, “We are seeing encouraging developments across our businesses despite lower like-for-like operating income. Organon’s top-line grew across the board and as planned R&D expenditures are being ramped up substantially. Intervet had its best quarter in three years as a result of new product introductions and major efficiency gains. Pressure on Coatings margins continued, although the impact of raw materials costs was increasingly offset by successful price increases. Market conditions in Europe were difficult; Asia continues to be a growth story. Chemicals was impacted by higher energy prices and incidentals such as the strike in the Finnish pulp industry and a scheduled stop in Rotterdam. The Chemicals divestment program is on track.”

Excluding one-off items and divestments, operating income declined EUR 31 mln or 9%, to EUR 312 mln (2004: EUR343mln). This includes the consequence of the new collective labor agreement reached with the Dutch unions, which resulted in an extra charge of some EUR25mln in the quarter, affecting all units.

Organon – revenue growth; R&D expenditure significantly up

  • Revenues: EUR 603 mln (2004: EUR 582 mln) autonomous growth 4%
  • EBIT: increased 10% to EUR 87 mln (2004: EUR 79 mln)
    • R&D expenses significantly up – investing in the pipeline
    • Asenapine – R&D milestone achieved
    • Step-up in R&D collaborations – agreements with Lexicon and Théramex -
    • NuvaRing® – sales steadily increasing
    • Infertility – strong growth

Organon saw positive or recovering sales trends across most treatment areas with revenues showing 4%-growth in the second quarter. Compared to the corresponding quarter of 2004, volumes were up in most franchises, 3% in total, and prices increased 1%. Organon’s operational performance decreased EUR 9 mln year on year, mainly as a result of the substantial planned increase in R&D expenses, which amounted to 16.6% of second quarter revenues. The EBIT margin was 14.4% (2004: 13.6%). Organon also incurred additional costs as a consequence of the new collective labor agreement in the Netherlands.

Frohn: “Organon showed encouraging top-line growth in the quarter across the board with NuvaRing and Puregon delivering strong contributions. We are investing in the future with R&D expenditures ramping up significantly as we make further pipeline progress. The R&D milestone triggered by asenapine’s progress in its clinical trials program is very encouraging.”

Intervet – results jump on growth and efficiency improvements

  • Revenues: up 9% to EUR 277 mln (2004: EUR 255 mln)
  • EBIT: increased 50% to EUR 60 mln (2004: EUR 40 mln)
    • Revenues – 8% autonomous growth in virtually all regions and franchises
    • EBIT margin of 21.7%
    • Benefiting from efficiency improvements
    • More focus – feed additives divestment announced

Intervet (animal healthcare products) revenues were up 9% to EUR277mln. Compared to the second quarter of 2004, autonomous growth was 8%, while currency translation had a positive effect of 1%. Intervet further expanded its strong market positions. Intervet’s operating income jumped 50% to EUR 60 mln, attributable to the autonomous revenues growth and efficiency improvements throughout the unit. The EBIT margin improved from 15.7% to 21.7%.

Frohn commented: “Intervet is Akzo Nobel’s quiet success story. The efficiency improvements we made in manufacturing are now paying off, resulting in Intervet’s strongest quarter in three years. We are growing in virtually all regions and franchises, and are expanding in profitable areas such as biologicals. The earlier announced divestment of feed additives further increases our focus.”

Coatings – continued pressure from raw materials and slower growth in mature markets

  • Revenues: up 7% to EUR 1,502 mln (2004: EUR 1,403 mln)
  • EBIT: decreased 6% to EUR 140 mln (2004: EUR 149 mln)
    • Autonomous growth 4% – prices up 6%; volumes down 2%
    • Continued increases of raw material prices – particularly in the industrial businesses
    • Decorative Coatings – slow market conditions in Europe; rest of world doing better
    • Industrial activities – coil and wood coatings in Europe under pressure
    • Car Refinishes – some signs of recovery; restructuring ongoing
    • Acquisition of Swiss Lack announced

Coatings revenues continued to grow in the second quarter, up 7% to EUR 1.5 bln. Compared to the second quarter of 2004, prices were up 6%, but volumes were down 2%, mainly in Europe. Acquisitions added 3% to revenues. EBIT fell 6% to EUR 140 mln. The EBIT margin was 9.3% (2004: 10.6%).

Frohn commented: “As expected, we’ve seen a pick-up in revenues in the second quarter. We were able to largely offset the impact of higher raw material prices by successfully increasing our selling prices. Raw materials price increases continued to affect our oil-based products particularly in our Protective Coatings business. Economic conditions in Europe remain difficult, but Asia continues to be a growth story, especially in the Marine and Protective and Decorative segments.”

Chemicals – impact of energy prices and incidentals

  • Revenues present operations: up 2% to EUR963mln (2004: EUR941mln)
  • EBIT present operations: up 12% to EUR 77 mln (2004: EUR 69 mln)
    • Autonomous growth of 3% – mainly higher selling prices
    • More pressure from raw material and energy prices and slowing economy – affecting most units
    • Base Chemicals – scheduled maintenance stop at Rotterdam site
    • Pulp & Paper Chemicals – impacted by a two-month strike in the pulp & paper industry in Finland
    • Divestment program – on track

Chemicals’ second-quarter revenues of EUR 963 mln were 2% higher than last year. With more uncertain economic conditions in the various regions and markets, volumes were flat, while prices were up 3% from last year. Currency translation had a negative effect of 1%. The EBIT margin was 8.0% (2004: 7.3%). The operational performance of the Chemicals activities decreased EUR 11 mln, mainly reflecting the impact from higher energy and raw material prices–affecting almost all businesses–and the effects of some incidents. Base Chemicals was affected by a scheduled maintenance stop at the Rotterdam site, while Pulp & Paper Chemicals felt the impact of a two-month strike in the pulp & paper industry in Finland.

Frohn: “Clearly there are stronger headwinds from energy and raw materials prices this quarter and sluggish economic conditions have not helped. Looking beyond these factors, and the incidentals, the strategy to focus on five new chemicals platforms is in place, the underlying businesses are focused on their performance roadmaps and divestments are on track.”

Outlook unchanged

We confirm our earlier expressed aspiration to achieve a full-year net income within the range of 2004, which was some EUR 800 mln on an IFRS basis. This outlook is based on our current portfolio and excludes restructuring and impairment charges, charges related to major legal, antitrust and environmental cases, results on divestments, and the impact of the new pension scheme in the Netherlands.

Corporate Media Relations, tel. +31 26 366 4343

Safe Harbor Statement*
press release may contain statements which address such key issues as Akzo Nobel’s growth strategy, future financial results, market positions, product development, pharmaceutical products in the pipeline, and product approvals. Such statements, including but not limited to the “Outlook”, should be carefully considered and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. These factors also include changes in regulations or interpretations related to the implementation and reporting under IFRS, decisions to apply a different option of presentation permitted by IFRS, and various other factors related to the implementation of IFRS, including the implementation of IAS 32 and 39 for financial instruments. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more complete discussion of the risk factors affecting our business please refer to our Annual Report on Form 20-F filed with the United States Securities and Exchange Commission, a copy of which can be found on the Company’s website.

* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.

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