media release

Annual Results: 2005 Net Income Improves

Main highlights

  • Net income up at EUR 961 million
  • Growth in all units—revenues from present operations up 6%
  • Organon—returning to growth, investing in future product sales and pipeline
  • Intervet—excellent growth
  • Coatings—picked up in second half after challenging start
  • Chemicals—strong performance following successful portfolio realignment
  • Positive contribution from incidentals
  • Dividend maintained—EUR 1.20

Arnhem, the Netherlands, February 7, 2006 — Akzo Nobel (Euronext Amsterdam: AKZ; NASDAQ: AKZOY) today reported net income of EUR 961 million for the full-year 2005, slightly ahead of the 2004 figure of EUR 945 million. Effective implementation of the company’s global strategy is driving growth in all units, with revenues from present operations up 6%.

Commenting on the company’s financial performance, CEO Hans Wijers said: “Our strategy is effectively overcoming challenges and driving positive developments throughout Akzo Nobel’s businesses. The company is in a strong financial position and we are well positioned for investments in growth.

“Organon achieved its major objective for 2005 with a return to topline growth, while Intervet had an excellent year as good revenue growth and lower costs contributed to a strong double-digit profit increase. After a tough start to the year, Coatings recovered well in the second half, boosted by successful price increases and rapid growth, particularly in the emerging markets. The benefits of the portfolio realignment at Chemicals were also clearly evident as our focused activities improved revenues and profits.”

The 2005 figures show that total EBIT for the year decreased 3% to EUR 1,486 million. The company’s R&D expenses were EUR 834 million, which is 6.4% of sales, up 2% from last year.

The fourth quarter figures for 2005 were also announced today, with Akzo Nobel reporting that revenues from present operations rose 10%, mainly due to strong sales across the board, especially at Organon and Coatings. EBIT rose substantially as a result of special benefits received by Organon, partially offset by higher R&D and marketing expenditures and restructuring and impairment charges. Net income more than doubled year on year to EUR 317 million, boosted by net incidental gains.

Organon—return to topline growth
Organon’s return to topline growth signaled an achievement of its major 2005 objective. The business ended 2005 with positive trends across most treatment areas driving a 3% increase in revenues to EUR 2,425 million for the year. Sales of contraceptive vaginal ring NuvaRing® grew autonomously 58% in 2005, while fertility treatment Puregon® /Follistim®  became Organon’s biggest selling product with sales rising 24% to EUR 355 million. Organon’s EBIT increased 51% to EUR 415 million, representing a 17.1% margin for the year. This included the receipt of major special benefits, partly offset by settlements and impairment charges. Organon’s fourth quarterly results were impacted by relatively high R&D and sales and marketing expenses.

Intervet—excellent growth
Intervet produced strong results in 2005 with revenues increasing by 7% to EUR 1,094 million. The business’ performance was boosted by efficiency improvements in manufacturing, supply chain, and marketing, resulting in an EBIT of EUR 238 million, up 29% from 2004 and equivalent to an operating margin of 21.8%. Intervet expanded its strong market position in Europe, while in North America, sales were buoyed by new product introductions in the companion animal sector. Business is also growing in Asia, where large areas have been severely affected by outbreaks of avian influenza.

The development of human influenza vaccines by biotech unit Nobilon, in cooperation with Intervet and Organon, is progressing on schedule.

Coatings—good recovery after challenging start
Coatings revenues grew by 6% in 2005 as the business achieved 5% average price increases for the year. Growth was mainly fueled by expansion in the emerging markets of Asia Pacific, Eastern Europe, and the Middle East. The company continued to improve its portfolio through selective acquisitions. Operating income declined 5% in 2005 to EUR 384 million, mainly due to steeply rising raw material prices and difficult economic conditions in mature markets, especially in Western Europe. These were offset in the second half of the year by price increases, cost measures, and growth initiatives. At the end of 2005, emerging markets represented 34% of worldwide sales.

Chemicals—successful portfolio realignment
Akzo Nobel Chemicals made good progress in 2005 as the company successfully realigned its portfolio into five growth platforms. Overall, revenues increased by 4% and the present operations delivered a strong performance in the face of raw material price hikes and rising energy costs. The company’s streamlined focus resulted in Base Chemicals and Functional Chemicals turning in strong performances, while Surfactants showed a clear improvement. Pulp & Paper Chemicals and Polymer Chemicals had a mixed year due to margin pressure. The divestment program is progressing on schedule, and the company aims to have all the planned divestments finalized during the first half of 2006. The investment program has been accelerated to meet the growth plans set for the refocused business. 

Outlook
Added Wijers: “We expect to deliver continued sales improvements across our portfolio and we aspire to further grow earnings at Intervet, Coatings and Chemicals. As in the last quarters of 2005, at Organon we will try and find the right balance between the required expenditures in R&D and marketing and sales for new products with the ambition to protect our margin.

We are in excellent financial shape and the company is in a strong position to significantly accelerate its growth plans and build on the positive developments of 2005. We will continue to manage our balance sheet in a highly disciplined manner, whereby other options for shareholder value creation, such as a share buy-back program, are evaluated against investments and acquisitions for growth.”

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