media release

Akzo Nobel’s operational performance clearly up in Q3 2004

Press Release Akzo Nobel reports third quarter net income (excluding nonrecurring items) of EUR 213 million, up 20% compared with the third quarter of 2003. Total net income amounted to EUR 521 million due to a net nonrecurring gain of EUR 308 million, mainly generated from divestments.

Arnhem, the Netherlands, October 19, 2004 – Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports third quarter net income excluding nonrecurring items of EUR 213 million, up 20% compared with the third quarter of 2003. Total net income amounted to EUR 521 million due to a net nonrecurring gain of EUR 308 million, mainly generated from divestments. Akzo Nobel will declare an unchanged interim dividend of EUR 0.30 per common share.

In presenting the report, Akzo Nobel’s CFO Rob Frohn said: “Our operational performance is clearly up. Pharma had a good quarter, mainly thanks to cost reductions. Coatings results were clearly up due to autonomous growth and acquisitions. Results from Chemicals operations were also up substantially. Based on Akzo Nobel’s performance in the first three quarters of 2004 our outlook for the year has improved, but we still expect full-year net income to be around 2003 level as Pharma’s very strong fourth quarter of 2003 is not expected to be matched.”

Pharma – cost savings contributing
Pharma sales were down due to lower volumes at Organon and Diosynth and currencies. Frohn: “Despite a 9% decline in sales, our cost saving programs shored up margins and contributed to 9% growth in operating income. In line with expectations, Organon is facing a major decline in Remeron sales due to generic competition. This effect is bottoming out now in the United States, and so far limited in the rest of the world.
Our contraceptive NuvaRing is showing strong growth. Like its peers in the pharmaceutical ingredients markets, Diosynth is under heavy pressure due to industry overcapacity. The restructuring programs are nearly complete, and we have announced the integration of Organon and Diosynth. We will leverage their combined know-how, technologies, people and facilities and capitalize on market opportunities, for example in biotech. Intervet, our animal healthcare business, turned in an improved performance, especially in Europe. Business in Asia remains somewhat under pressure due to avian influenza.”

Coatings – clearly up due to growth and acquisitions
Coatings results were clearly up due to autonomous growth and acquisitions. Autonomous growth of 4% came mainly from Asia Pacific and the United States, resulting in a 10% increase in operating income. Various bolt-on acquisitions improved distribution in Europe. Frohn: “Especially volume growth more than offset the impact of steeply increasing raw material prices. Raw materials are putting pressure on margins in all our Coatings businesses. Decorative Coatings improved its performance due to cost savings. Car Refinishes earnings are still under pressure and a worldwide restructuring program affecting 600 jobs was recently initiated to address this.”
Capital expenditures were mainly directed toward investments in high growth markets in Asia and Eastern Europe. In these emerging markets, the workforce so far this year expanded by 780 people, while in mature markets the workforce in Coatings decreased by 420.

Chemicals – substantially up
Continued Chemicals operations delivered autonomous sales growth of 8%, and operating income jumped 36%. Frohn: “Almost all businesses turned in higher results as our cost savings programs paid off and the improved business climate led to higher demand and prices. We experienced increased margin pressure from raw material and energy prices.”
Akzo Nobel divested its Catalysts and Phosphorus Chemicals businesses, resulting in a substantial nonrecurring gain. After the announced UV/EB Resins divestment, Akzo Nobel recently received an offer of EUR 110 million from Nuplex Industries Limited, New Zealand, for its Coating Resins business, free of cash and debt. Completion of this transaction is foreseen in the last quarter of 2004. At closing the total divestment program will have generated some EUR 1 billion.

Outlook: net income around 2003 level

Frohn: “Akzo Nobel has turned in a clearly improved performance in the first three quarters of 2004. However, we are facing steeply increasing raw material and energy prices and there are increasing uncertainties due to softening macroeconomic conditions. In addition, we do not expect that Pharma will be able to match its very strong fourth quarter of 2003, also in view of the developments at Diosynth.
Taking all this into account, we now expect that full-year net income, excluding nonrecurring items, will be around 2003 level. The special benefit from the asenapine cooperation of EUR 70 million, after taxes, is excluded in this comparison.”

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