media release

Q2 Net income up 24%; Pharma driving growth

Pharma, Coatings, and Chemicals operating income solidly up Arnhem, the Netherlands, July 26, 2000 – Akzo Nobel, (AEX: AKZ; NASDAQ: AKZOY) the multinational pharmaceuticals, coatings and chemicals company, delivered solid second quarter results with net income at EUR265 million, up 24% on the corresponding period of the previous year. For the half year, net income was EUR 484, up 27% on the first half of 1999.

Pharma, Coatings, and Chemicals operating income solidly up Arnhem, the Netherlands, July 26, 2000 – Akzo Nobel, (AEX: AKZ; NASDAQ: AKZOY) the multinational pharmaceuticals, coatings and chemicals company, delivered solid second quarter results with net income at EUR265 million, up 24% on the corresponding period of the previous year. For the half year, net income was EUR 484, up 27% on the first half of 1999.

Financial Highlights Second Quarter

  • Net income EUR265 million, up 24%
  • Net income per share EUR 0.93 (1999: EUR 0.75)
  • Net sales1 EUR3.6 billion, up 15%
  • Volumes1 up 5%
  • Operating income1 EUR460 million, up 22%
  • Margins increased to 12.8% (1999: 10.2%)
  • Interest coverage increased to 6.5
  • Outlook unchanged, double-digit growth for our full-year net income, albeit at a lower rate than in the first half year

Business Highlights Second Quarter

  • Pharma – product portfolio continues to drive growth
    EUR949 million, up 39%; Operating income EUR185 million, up 35%
  • Coatings – margins improved
    EUR1,474 million, up 8% ; Operating income2 EUR158 million, up 15%
  • Chemicals – strong performance continued
    EUR1,194 million, up 18%; Operating income EUR121 million, up 30%

"At EUR3.6 billion, second-quarter sales1 were up 15% on 1999. Net income, at EUR265 million, improved considerably–up 24%–with earnings growth and margin improvements continuing in all three Groups, dominated by growth at Pharma. This reflects Akzo Nobel’s successful exit from fibers and the Company’s repositioning to focus on faster growth in our Pharma businesses and further profitability improvement in our Coatings and Chemicals activities. For the first half of the year, excluding Acordis, sales and operating income grew a solid 16% and 25% respectively, further confirmation of the Company’s less volatile and more growth-oriented business mix" said Fritz Fröhlich, Akzo Nobel’s Chief Financial Officer.

1 Excluding Acordis
For the ongoing activities, excluding divestments (mainly PRC-DeSoto) and Resins, now part of Chemicals

Net income – solid upward trend continuing
quarter net income
climbed 24% to EUR 265 million. All groups, particularly Pharma, contributed to this best quarter ever. Net income per share was EUR 0.93, against EUR 0.75 in 1999.

Net income in the first half year rose 27%, aggregating EUR 484 million. The per share amount of EUR 1.69 compares with EUR 1.34 in 1999.

Sales and earnings sharply up

Boosted by growth for Pharma, second-quarter sales1 rose 15% to EUR 3.6 billion. Volumes rose 5%, with 2% higher average selling prices. The positive effect of currency translations was 6%, while acquisitions and divestments, on balance, added 2%. Sales1 in the first six months of 2000 totaled EUR 6.9 billion, up 16%.

Second-quarter operating income1 rose 22% to EUR 460 million. The largest contribution came from Pharma. Chemicals also achieved strong earnings growth. Year-to-date operating income1 increased by 25% to EUR 852 million.

Second-quarter return on sales improved from 10.2% to 12.8%. For the first half year, this ratio rose from 9.7% to 12.3%. These gains are largely a consequence of the Company’s strategic initiatives, which following the Acordis divestment are even more focused on faster growth in the Pharma businesses and further profitability improvement at Coatings and Chemicals.

Pharma: Product portfolio continues to deliver
Net sales EUR949 million (Q2 1999: EUR685 million) up 39%
income EUR185 million (Q2 1999: EUR137 million) up 35% (ROS 19.5%)

  • Human healthcare
    - US sales up 50%
    Excellent product portfolio and pipeline delivering
    Launch Implanon® contraceptive
  • Animal healthcare
    Boosted by HR Vet acquisition
    Acquisition Bayer Animal Biologicals North America
    No. 3 world ranking
  • Diosynth
    Major expansion of biotech base underway

In human healthcare, the excellent product portfolio continues to deliver. Sales were up 22% through significant growth of contraceptives, Remeron®, Puregon®, and Livial®. Sales in the United States grew 50%. The contraceptive Implanon® was launched successfully in various countries in Europe.

Earnings growth of the animal healthcare activities was boosted by the integration of Hoechst Roussel Vet. The acquisition of Bayer’s Animal Biological Products business in North America will further strengthen Intervet’s worldwide No.3 position.

Diosynth also achieved a strong increase in sales and earnings. A new and comprehensive program to expand its biotech facilities is well underway.

"Our Pharma activities continue to grow clearly ahead of the industry average, based largely on organic growth. While our human healthcare segments are well known, Intervet is clearly another jewel in our crown. Our animal healthcare business, firmly No.3 worldwide, reported substantial sales growth - 160% - in the second quarter", said Mr. Fröhlich.

1 Excluding Acordis

Coatings1: Margins improved
Net sales EUR1,474 million (Q2 1999: EUR1,442 million)
income EUR158 million (Q2 1999: EUR153 million)

  • Ongoing business
    Sales2 up 8%; Operating income2 up 15% (ROS 10.7%)
  • Industrial Coatings
    Upward trend sustained
  • Marine & Protective
    - Benefiting from strong presence in Asia
  • Car Refinishes
    - Excellent performance continued
  • Decorative Coatings
    - Higher raw materials prices call for increase in selling prices

Coatings’ sales and operating income were up 2% and 3%, respectively. Adjusted for divestments, however, sales and operating income of the ongoing Coatings activities rose by 8% and 15%, respectively. On this adjusted basis, return on sales increased from 10.0% to 10.7%.

"We continue to benefit from our leadership position in the coatings arena. In the Industrial Coatings activities, the upward trend of recent quarters continued. Marine & Protective Coatings, world leader in its industry segment, clearly benefited from our strong presence in Asia, where the economy continues to recover. Car Refinishes again delivered an excellent performance. Higher raw material costs call for selling price increases" said Mr. Fröhlich.

1 Resins is now included in Chemicals. The 1999 figures have been adjusted accordingly.
For the ongoing activities, excluding divestments (mainly PRC-DeSoto)

Chemicals: Strong performance continued
Net sales EUR1,194 million (Q2 1999: EUR1,013 million) up 18%;
income EUR121 million (Q2 1999: EUR93 million) up 30% (ROS: 10.1%)

  • Volumes up 6%, with selling prices up 4%
  • Surface Chemistry, Catalysts restructurings paying off
  • Base Chemicals benefiting from improved VCM/PVC market
  • Continued improvement in bleaching chemicals North America
  • Salt facing increased competition in specialties

Chemicals again achieved major earnings growth. Sales increased 18%, predominantly due to 6% higher volumes with prices up 4%. Operating income rose 30%.

"Our active restructuring programs are clearly paying off with strong earnings improvements, especially at Surface Chemistry and Catalysts. Base Chemicals achieved significantly higher earnings supported by the improved market conditions for the VCM/PVC industry. The bleaching chemicals activities did better in North America. Salt’s operations suffered from increased competition for its specialty products", said Mr. Fröhlich.

Higher earnings from nonconsolidated companies

from nonconsolidated companies increased to EUR 18 million from EUR 13 million in the 1999 second quarter. Flexsys’ results were better, while Acordis also contributed.

Financial ratios improved

charges for the second quarter were unchanged from the prior year. The positive effect of the reduced debt level was offset by the impact of higher currency exchange and interest rates. Interest coverage improved to 6.5.
Gearing decreased, improving to 1.85.
Capital expenditures aggregated EUR 286 million in the first half year of 2000, somewhat below depreciation.

To facilitate future growth and further cost containment, investment authorizations rose to EUR 370 million, predominantly stemming from Pharma and Chemicals.

Outlook – double-digit growth

outlook for the full year remains unchanged. We continue to expect double-digit growth for our full-year net income, albeit at a lower rate than in the first half year. This expectation assumes that the present favorable economic circumstances continue and excludes extraordinary and nonrecurring items.

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Akzo Nobel, based in the Netherlands, serves customers throughout the world with healthcare products, coatings, and chemicals. Consolidated sales for 1999 (excluding Acordis) totaled some EUR 12 billion (USD 13 billion, GBP 8 billion). The Company employs some 68,300 people in 75 countries. Financial results for the third quarter of 2000 will be announced on October 25, 2000.

The Company’s strategy focuses on growing market share and creating value in all its core business areas, with priority on the Pharmaceutical businesses. The Company seeks to actively build on its leadership position in Coatings and to continue to improve profitability in its Chemicals activities. 1999 total R&D expenditures were EUR 725 million with more than half the amount committed to pharmaceuticals, ensuring that the Company’s healthy drug development pipeline remains full.

Akzo Nobel has leadership positions in Pharmaceuticals, where its Organon business is a global market leader in women’s health treatments - contraceptives (including Marvelon® and Desogen® ,Mercilon® and Mircette®, Implanon®), infertility (including Puregon® and Follistim®) and menopause/hormone replacement therapy (Livial®) - and Psychiatry (central nervous system treatments such as Remeron®). Organon Teknika has leading positions in muscle relaxants and in certain diagnostic test systems. Intervet, the veterinary business, is a global leader in Animal health care.

Akzo Nobel is the world’s leading coatings company, producing decorative coatings for professional and DIY use (trading under the brands including Astral®, Crown®, Flexa Herbol®, Levis®, Nordsjö®, Procolor®, Sadolin® and Sikkens®); Car Refinishes with the renowned Sikkens® brand; Marine & Protective Coatings with the world’s leading brand International®; Industrial Coatings, including Powder, Aerospace, Transportation, Wood and Coil Coatings.

The Chemicals Group is a leading producer of a wide range of specialty chemicals, including chemicals for the pulp and paper industries; surfactants for a wide variety of uses; polymerization chemicals and additives for the plastics industry; flame retardents for the automotive and electronics sectors; salt; Chlorine for the PVC sector; and catalysts for the refining industry.

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