Akzo Nobel in the Third Quarter

Akzo Nobel in the Third Quarter Millions of guilders (NLG) Third quarter January - September pro pro 1998 forma 1997 1998 forma 1997 1998 1998 430 437 455 Net income 1,323 1,330 1,254 Net income per 1.51 1.53 1.60 share, 4.64 4.66 4.40 in NLG 7,530 6,183 6,098 Net sales 20,067 18,720 18,124 Operating income: 253 253 246 - Pharma 759 759 677 307 251 245 - Coatings 728 672 622 171 171 209 - Chemicals 551 551 585 43 22 14 - Fibers 113 92 52 765 682 700 - Total Akzo Nobel 2,114 2,031 1,912 10.2 11.0 11.5 Return on sales 10.5 10.8 10.5 Number of employees: rd - at end of 3 87,500 70,800 quarter 1998 - at year end 1997 68,900 Highlights: Courtaulds acquisition completed: - Coatings integration well under way - Fibers / Acordis on schedule - Divestment of noncore assets on short term Performance restrained by Asia, Russia and currencies Interim dividend of NLG 0.65 per common share 1998 outlook: slightly higher full-year net income, excluding nonrecurring 1 items Akzo Nobel Third-Quarter Net Income NLG 430 Million Performance restrained by Asia, Russia and currencies Acquistions boost sales and operating income Arnhem, the Netherlands, October 28, 1998. - Akzo Nobel N.V. announced today that its net income for the third quarter slipped 5 percent to NLG 430 million, or NLG 1.51 per share, reflecting softer economic conditions, particularly in Asia, Russia, and Latin America. The result compares with a net income of NLG 455 million, or NLG 1.60 per share, for the same period last year. "Though Akzo Nobel's businesses are generally performing well, due to the worsening general economic climate, profits in the third quarter came in slightly below the record levels seen in the corresponding 1997 period," said Fritz Fröhlich, Deputy Chairman and Chief Financial Officer of Akzo Nobel. "Pharma, Coatings, and Fibers achieved earnings gains, partially from acquisitions," 1. This expectation is based on the assumption that economic conditions will not decline further and that no additional major changes in our key currency exchange rates will occur. Mr. Fröhlich said. "Chemicals failed to match the prior year's exceptionally high third-quarter results. The net contribution from Courtaulds in this first quarter of integration was slightly negative. Developments in Southeast Asia, Russia, and Latin America had a negative impact on the growth of our businesses. In addition, the strengthening of the currencies in the Euro also had an adverse effect." The offer for all ordinary shares of Courtaulds plc was declared unconditional on July 7, 1998. On September 24, 1998, Akzo Nobel completed the buyout procedure and now controls all ordinary shares of Courtaulds. Results of Courtaulds have been consolidated since the beginning of July 1998. Purchase accounting had an earnings-enhancing impact. Goodwill on the acquisition is written off against equity. In this first quarter after the acquisition, Akzo Nobel actively started to implement its strategy. The integration of the Courtaulds Coatings activities into the Akzo Nobel organization is well under way. The combination of the Fibers activities into an independent company, named Acordis, is making good progress, as does the preparation for its spin-off. Akzo Nobel expects that the divestment of the packaging and U.S. decorative coatings businesses as well as of the various Polymer Products operations will be concluded in the near term. "We are confident that we will realize the strategic objective envisaged in the acquisition process," said Mr. Fröhlich. "The acquisition of Courtaulds will significantly enhance Akzo Nobel's long-term prospects through our global leadership in the coatings market. In addition, we are focused on value creation through the spin-off of the combined fibers business, Acordis. We believe that the creation of Acordis will be highly motivating for our Fibers employees because they will be working again for a company where Fibers is a core business." Akzo Nobel is in the process of refinancing the acquisition by means of various debt instruments. "Our refinancing strategy is based on Akzo Nobel's financial and operational strengths, coupled with our determination to create shareholder value in all economic circumstances," Mr. Fröhlich said. Third-Quarter Sales Rise 23% to NLG 7.53 Billion, Operating Income Up 9% Third-quarter sales rose 23 percent to NLG 7.53 billion from NLG 6.10 billion in the same period a year earlier. Acquisitions and divestments, on balance, boosted sales by 25 percent, with Courtaulds accounting for 22 percent. Volumes were up by 1 percent, while average selling prices remained unchanged. Currency translations had a negative impact of 3 percent. Akzo Nobel's operating income rose 9 percent in the third quarter to NLG 765 million, mainly reflecting the inclusion of Courtaulds. Excluding this acquisition effect, Pharma, Coatings, and Fibers posted modest earnings gains. Chemicals results decreased. Lower currency exchange rates had a negative effect on earnings. Return on sales was 10.2 percent in the third quarter, against 11.5 percent in the same period a year earlier. Part of this reduction is attributable to the change in product mix after the Courtaulds acquisition. Net income for the first nine months of this year rose to NLG 1.32 billion, or NLG 4.64 per share, from NLG 1.25 billion, or NLG 4.40 per share, in the first nine months last year. Operating income for the first nine months rose to NLG 2.11 billion from NLG 1.91 billion in the same period last year. Nine-month sales rose to NLG 20.1 billion from NLG 18.1 billion a year earlier. Addressing the outlook for the full year, Mr. Fröhlich said: "We expect that net income for 1998, excluding nonrecurring items, will be slightly higher than in 1997. This expectation is based on the assumption that the economic conditions will not decline further and that no additional major changes in our key currency exchange rates will occur. Nonrecurring charges for the Acordis spin-off and other restructurings are foreseen in the fourth quarter." Pharma: Accelerated Investment in Growth Third-quarter sales volume rises 6%, boosted by Puregon and Remeron Pharma operating income at NLG 253 million in the third quarter Akzo Nobel's Pharma group in the third quarter realized an increase in sales of 5 percent to NLG 1.24 billion. Pharma volumes rose 6 percent in the third quarter. Organon was the major contributor to this growth, particularly as a result of higher sales for the fertility hormone Puregon ® (branded Follistim ® in the U.S.) and the antidepressant Remeron ®. In the pursuit of its growth strategy Pharma continued to incur additional product launching costs and higher research and development expenses. Third-quarter operating income for Pharma rose to NLG 253 million from NLG 246 million in the same period a year earlier. In the January-September period, sales for Pharma rose 12 percent to NLG 3.76 billion. Operating income for the Pharma group in the first nine months of this year rose to NLG 759 billion from NLG 677 million in the same period last year. Coatings: Acquisitions Underpin Market Leadership Third-quarter sales rise 40%. Operating income at NLG 307 million Growth in operating income, at 25%, held back by weakness in growth markets Sales at Coatings rose 40 percent in the third quarter to NLG 3.12 billion, largely reflecting the acquisition of Courtaulds, Marshall Boya in Turkey, and the European decorative coatings business of BASF. In the July-September period, operating income from Coatings rose 25 percent to NLG 307 million from NLG 245 million in the same period last year. "Most Coatings business units showed a satisfactory performance," said Mr. Fröhlich. "However, particularly Industrial Coatings, Printing Inks, and Decorative Coatings were adversely affected in their Russian markets. Results of Marine and Coil Coatings were lower due to a weakening market in Europe, while Protective Coatings suffered from the situation in Asia." In the first nine months of this year, sales of Akzo Nobel's Coatings operations rose to NLG 7.70 billion from NLG 6.42 billion in the same period a year earlier. Operating income of Akzo Nobel Coatings rose to NLG 728 million in the first nine months, up from NLG 622 million in the same period a year earlier. Chemicals: Robust Margins Third-quarter operating income falls to NLG 171 million Weakness in Catalysts and bleaches Third-quarter operating income at Akzo Nobel's Chemicals group fell to NLG 171 million from NLG 209 million in the third quarter last year. In the present economic climate, Chemicals was not able to match last year's exceptionally high profit. Especially, Surface Chemistry, Functional Chemicals, and the bleaching business in North America were negatively impacted. Catalysts' results remained disappointing due to continued low demand for petroleum catalysts. Sales for Chemicals in the third quarter decreased to NLG 1.79 billion from NLG 1.84 billion in the same period a year earlier. In the January-September period, operating income for Akzo Nobel Chemicals declined to NLG 551 million from NLG 585 million in the first nine months of last year. The lower results from Chemicals in this period reflect the divestment of Salt America in April 1997. Chemicals sales decreased to NLG 5.58 billion from NLG 5.73 billion in the first nine months of last year. Fibers: Preparing to Spin Off Acordis Third-quarter operating income rises as cost reductions pay off Acordis created through rapid integration of Courtaulds fibers business At Fibers cost-reduction programs resulted in higher earnings, especially for Industrial Fibers. Textile Fibers also did better as a result of higher sales volumes for viscose textile. Contributions of Aramid Products were down due to lower volumes, particularly in Asia. Earnings of the acetate tow, acrylic fibers, and Tencel@ cellulose fibers businesses showed a decrease due to weakened demand. Third-quarter operating income at Fibers rose to NLG 43 million from NLG 14 million a year earlier. Third-quarter sales rose to NLG 1.26 billion from NLG 860 million. In the first nine months of this year, Fibers sales rose to NLG 2.99 billion from NLG 2.65 billion in the same period last year. Operating income increased to NLG 113 million from NLG 52 million in the January-September period of 1997. In preparation for their split-off, the group has organized the combined fibers businesses of Akzo Nobel and Courtaulds into a new company, Acordis. The integration of these operations is moving ahead rapidly. "With a strong and stable cash flow, Acordis will be in a good position to play an active role in the restructuring of the fibers industry," said Mr. Fröhlich. Fibers Spin-Off and Soft Economy Call for Restructuring The integration of the Courtaulds operations and the withdrawal from the Fibers business necessitate a restructuring of corporate level functions. In addition, as a consequence of the changing economic environment, a number of operational cost-saving programs are being accelerated. Financing Charges Rise Financing charges rose to NLG 159 million in the third quarter of 1997 from NLG 67 million in the same period a year earlier. The increase mainly relates to interest on the bridge loan for the Courtaulds acquisition. Lower Earnings from Nonconsolidated Companies Earnings from nonconsolidated companies decreased during the third quarter to NLG 23 million from NLG 30 million, mainly due to lower results for the Chemicals joint ventures Methanor and ROVIN. The Flexsys joint venture did better. On October 8, 1998, Akzo Nobel announced that it had signed a letter of intent with Shin-Etsu of Japan for the sale of its 50-percent interest in ROVIN. Akzo Nobel owns ROVIN together with Shell Chemicals. Workforce Increases to 87,500 After Courtaulds Acquisition Akzo Nobel employed a total of 87,500 people at the end of the third quarter, compared with 68,900 at the end of last year. Acquisitions led to an increase of 18,600, while divestments resulted in a decrease of 300. The acquisition of Courtaulds added 16,800 people to Akzo Nobel's workforce. During the third quarter, headcount increases, mainly at Pharma, were partly offset by reductions at Fibers. Interim Dividend of NLG 0.65 per Common Share Akzo Nobel will pay an interim dividend for fiscal 1998 of NLG 0.65 per common share. This dividend is not indicative of the total dividend for 1998. For 1997, before the four-for-one stock split that took place on July 1, 1998, Akzo Nobel paid a total dividend of NLG 8.50 per share. Of this total dividend, NLG 2.50 was paid as interim dividend. Starting October 29, 1998, Akzo Nobel shares will be traded ex-dividend on the Amsterdam Stock Exchange. The interim dividend will be made payable November 16, 1998. - - - ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are ready for download: http://www.bit.se/bitonline/1998/10/28/19981028BIT00050/bit0001.doc http://www.bit.se/bitonline/1998/10/28/19981028BIT00050/bit0002.pdf