Akzo Nobel net income 7 percent down from strong first quarter of 1998

Akzo Nobel net income 7 percent down from strong first quarter of 1998 Millions of euros (EUR) First quarter 1999 1998 % Net income 173 186 (7) Net income per share, in EUR 0.61 0.65 Net sales 3,423 2,776 23 Operating income: - Pharma 125 113 11 - Coatings 88 66 33 - Chemicals 91 88 3 - Acordis 4 17 (76) - Total Akzo Nobel 311 280 11 Return on sales 9.1 10.1 Number of employees: - at end 85,500 of quarter 85,900 - at year-end 1998 Highlights: Net income : EUR 173 million, down 7 percent Sales : EUR 3.4 billion, up 23 percent Pharma : Healthy double-digit growth continued; Organon key value driver Coatings : Performance enhanced through acquisitions Chemicals : Robust margins sustained; sales and earnings up despite soft market conditions Acordis : Major restructurings planned Acquisitions: Kanebo improving Pharma's position in Japan Divestments : Contract signed with Solutia for the sale of Performance Films Akzo Nobel net income slightly down from strong first quarter of 1998 Arnhem, the Netherlands, April 21, 1999. - In the first quarter of 1999, Akzo Nobel net income was slightly down, 7 percent, from the strong first quarter of 1998. Net income was EUR 173 million compared to EUR 186 million in 1998. Increased contributions from Pharma, Coatings and Chemicals did not offset higher financing charges, resulting from last year's acquisitions, and lower Acordis results. Sales were up 23 percent and operating income 11 percent, driven by acquisitions, predominantly Courtaulds, and Pharma. Net income per share amounted to EUR 0.61, compared with EUR 0.65 in the first quarter of last year. "Given the relatively strong performance of the first quarter of 1999, we are not dissatisfied with the results we have achieved. The Company made good progress in most areas. The slight decrease in results is a consequence of higher financing charges and the cyclical downturn in the worldwide textile fibers markets-this time aggravated by Asia", said Fritz Fröhlich, Akzo Nobel's Chief Financial Officer. Sales and operating income clearly up - driven by acquisitions and Pharma Sales of EUR 3.4 billion were up 23 percent from the 1998 first-quarter level. Acquisitions (principally Courtaulds) caused an increase of 24 percent. Sales volumes were up 3 percent, with average selling prices down 1 percent. Currency translations had a negative effect of 3 percent. First-quarter operating income amounted to EUR 311 million, up 11 percent from the previous year. Acquisitions added 10 percent, while changed currency exchange rates had a negative effect of 3 percent. Pharma, in particular, did better. Return on sales was 9.1 percent against 10.1 percent in the prior year first quarter, mainly reflecting the changed portfolio mix after last year's acquisitions. Pharma @ Healthy double-digit growth continues @ Organon again key growth driver @ Unbroken sales boost - particularly USA Pharma's operating income increased 11 percent, to which all business units contributed. Organon was again the major growth driver, spurred by the continuing success-especially in the United States-of Remeron@, Puregon@, oral contraceptives, and Livial@. Organon actively pursues its internal growth strategy by further expanding its sales force and R&D program. The pill restrictions in the United Kingdom were lifted. Organon Teknika and Intervet also attained healthy growth in sales and earnings. Early April 1999, Organon acquired the ethical pharmaceutical activities of Kanebo Ltd., Japan, a business with annual sales of EUR 80 million. Coatings @ Acquisitions enhance performance @ Promising start to the season in Decorative Coatings @ Industrial coatingsactivities hampered by soft market conditions Coatings' operations mainly grew through acquisitions (predominantly Courtaulds). These acquisitions caused a gain in sales of 37 percent and in operating income of 40 percent. For Decorative Coatings the first two months of the quarter were relatively weak, but performance improved in March. Car Refinishes continues to do well and achieved volume gains. The industrial activities are still hampered by soft market conditions in a number of regions. This also goes for Marine & Protective Coatings. The integration of the Akzo Nobel and former Courtaulds coatings activities has been largely completed and the new business unit structure is in place. Chemicals @ Robust margins sustained @ Emphasis on specialties pays off @ Sales up despite soft market conditions Despite soft market conditions, Chemicals was able to achieve an operating income that surpassed the first quarter of 1998. Results of Catalysts were up, reflecting higher sales volumes for both fluid-cracking and hydroprocessing catalysts. Polymer Chemicals continued its strong performance, while Salt's results were up, aided by favorable winter conditions. Pulp & Paper Chemicals continues to feel the negative impact from the depressed market situation for bleaching chemicals in North America. Functional Chemicals and Base Chemicals did not match last year's strong first quarter because of pressure on selling prices. Acordis @ Acordis in the black, despite textile cycle @ Demerger preparation on track @ Major restructuring announced The cyclical downturn of the fibers industry-aggravated by the crises in Asia-caused a significant decline in earnings, mainly in the textile businesses. Nevertheless, Acordis managed to close the quarter clearly in the black. The acquisition of Courtaulds led to an increase in Acordis' sales of EUR 210 million. Acetate Yarns, Acrylics, and the Viscose activities felt the biggest impact of the downturn. The industrial fibers activities held up better. Earnings of Tencel® improved due to higher sales volumes and margins. Following the integration of the Akzo Nobel and former Courtaulds fibers activities, Acordis now is ready for spin- off. Preparations for the demerger are on schedule. In order to ensure structural profitability for Acordis as stand-alone company, that is ensuring that all these businesses remain clearly in the black (also at the bottom of the cycle), additional major capacity reductions and cost-saving measures at various production sites are planned, notably in the textile fibers area. Currently, these measures involve 2,050 jobs worldwide, of which 850 are already known and in progress and for which provisions have already been made. In the context of the additional 1,200 jobs and the capacity reductions significant nonrecurring charges will be incurred later this year. Higher financing charges as a consequence of acquisitions The increase in financing charges from EUR 30 million in the first quarter of 1998 to EUR 70 million in 1999 was almost entirely due to interest on debt assumed in the context of last year's acquisitions. Nonconsolidated companies - lower contribution Earnings from nonconsolidated companies decreased from EUR 14 million to EUR 9 million in 1999, mainly attributable to lower results of the Chemicals joint ventures Methanor and ROVIN. Flexsys did better than last year. Capital expenditures below depreciation Although investment authorizations were significantly below last year's first quarter, expenditures for property, plant and equipment increased to EUR 160 million (1998: EUR 120 million). This was attributable to last year's acquisitions and to investment programs already under execution in 1998 at Pharma and Chemicals. Expenditures were well below the depreciation charge of EUR 180 million. Divestment program nearing completion Performance Films will be sold to Solutia Inc., United States, at the end of May 1999, thus completing the Polymer Products disposal program. Together with the earlier disposal (in 1998) of the Architectural Coatings and Packaging Coatings activities, this brings total divestment proceeds to EUR 0.6 billion. The divestment of the Aerospace Coatings and Sealants business- as from January 1999 trading as PRC-DeSoto-is on track. This divestment is in compliance with Akzo Nobel's undertaking to the European Commission. On March 23, 1999, the planned transfer of the Akzo Nobel Information Services activities to Origin B.V., the Netherlands, was announced. Personnel reductions because of divestments and cost savings At the end of the first quarter of 1999 the number of employees was 85,500, compared with 85,900 at the end of 1998. Acquisitions added 300, while divestments caused a decrease of 500. Headcount increases at Pharma did not offset reductions at Acordis. Good progress overall in first quarter The Company has made good progress in accomplishing the tasks it had set itself. In view of the uncertainties in its markets, the Company continues to refrain from giving an outlook for the remainder of the year. Much depends on the way the economy will develop during the year. Akzo Nobel, based in the Netherlands, serves customers throughout the world with healthcare products, coatings, chemicals and fibers. The fibers business, now known as Acordis, is intended to be demerged in the course of the second half of 1999. The company currently employs 85,500 people in more than 60 countries. As of 1999 the Euro is Akzo Nobel's external reporting currency. Consolidated sales for 1998 totaled EUR 12.5 billion (NLG 27.5 billion / USD 13.8 billion / GBP 8.4 billion). Financial results for the second quarter of 1999 will be announced on July 28. - - - Internet: http://www.akzonobel.com Note for the editor : ACORDIS RESTRUCTURING The reduction of the 1,200 jobs announced today by Acordis, a wholly owned subsidiary of Akzo Nobel, is the result of additional restructuring measures, mainly in Germany (570 jobs) and the Netherlands (320 jobs). These proposed measures are primarily to be seen against the background of the cyclical downturn of the textile businesses aggravated by a dramatic increase of exports by Asian producers of fibers, textiles, and apparel. In consequence, price levels have fallen sharply, resulting in a substantial deterioration in business conditions. The measures will cut capacity and cost generally and make Acordis a much more efficient company. Even without the Asian problem, Acordis operates in an increasingly competitive global market place and has to be as efficient as the best in order to retain leading positions in the industry. Acordis is a multinational group of businesses, supplying customers throughout the world with man-made fibers and specialty materials for industrial, textile, medical and hygiene applications. The Acordis group has sales of more than EUR 2.3 billion (NLG 5 billion, GBP 1.5 billion, USD 2.5 billion, DEM 4.5 billion), employs over 18,000 people worldwide and has production facilities in Germany, the Netherlands, United Kingdom, United States of America, Brazil, Italy, Spain and Poland. Acordis is a wholly owned subsidiary of Akzo Nobel N.V. For more information please contact: Akzo Nobel N.V. John C.S. Jennings, Corporate Media Relations, tel. +31 26 366 4343 Acordis Huub Verbeeten, Communication Acordis, tel. +31 26 366 3346 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/21/19990421BIT00160/bit0001.doc http://www.bit.se/bitonline/1999/04/21/19990421BIT00160/bit0002.pdf