Akzo Nobel 2002 Third Quarter Net Income 3% Down; Outlook Confirmed.

Business Editors

ARNHEM, The Netherlands--(BUSINESS WIRE)--Oct. 23, 2002

Akzo Nobel, the international pharmaceutical, coatings and chemicals company, today announced a third quarter net income of EUR 232 million, 3% below last year. The outlook for 2002 was confirmed.

Highlights:

- All groups achieved autonomous growth

- Sales and operating income significantly affected by unfavorable currency movements

- Pension charges EUR 20 million per quarter higher than in 2001

- Pharma: growth temporarily slowing; investing in new products and cutting costs

- Coatings: continued strong performance

- Chemicals: stable performance in difficult business conditions

- Major restructuring programs at Coatings and Chemicals on schedule

- Strong operational cash flow

- Debt reduction program on target

- Interim dividend unchanged - EUR 0.30

- Outlook confirmed: net income1 slightly below 2001

Fritz Frohlich, Akzo Nobel's CFO, said: "Third-quarter net income for the Company declined 3% compared to last year. On the one hand, the Company had to absorb the impact of currencies and pension costs. On the other hand, we were able to grow the sales volume of all three business groups."

"Pharma's performance reflects a temporarily slowing growth," Frohlich added. "Autonomous sales growth was 5%. Pharma's operating income declined 9%, also due to heavy investments in important new products to secure future growth. Expenses for R&D and launch costs were significantly up.

Coatings continued its strong performance with autonomous sales growth of 4% and an operating income increase of 5%. Chemicals' results were again stable despite difficult business conditions. In both these sectors, performance is clearly benefiting from the aggressive restructuring measures we initiated last year."

"Of course, we too are facing difficult business conditions in major parts of the world. However, Akzo Nobel's performance gives us confidence in our outlook that net income for 2002 will end slightly below last year's level."

Pharma: growth temporarily slowing; investing in new products and cutting costs

Pharma generated 5% autonomous growth. Currency translation had a significant negative effect of 6%. Operating income decreased 9%. Earnings were affected by weaker currencies, which had a negative impact on sales of 6%, and higher pension charges.

Frohlich commented: "In human healthcare, Organon achieved autonomous growth of 7%, while key currencies had a negative impact on sales of 6%. Our top products Remeron(R) and Livial(R) grew 12% and 11%, respectively. Generic competition for oral contraceptives resulted in somewhat lower sales, but we successfully launched our innovative NuvaRing(R) contraceptive. The introduction of the antithrombotic Arixtra(R) and the approval procedure for our new antidepressant gepirone ER need more time. Pharma's growth is slowing temporarily. Therefore, we are implementing a cost-saving program which will have an impact on the workforce at Organon of some 300 jobs. Further details will be announced shortly."

Earnings of the animal healthcare activities (Intervet) were under pressure from soft market conditions, particularly in Latin America, and the weak currencies. Diosynth achieved a strong performance with healthy sales and earnings growth.

Coatings: continued strong performance

In the third quarter, Coatings achieved autonomous growth of 4%. Sales decreased 4% due to weaker currencies. Frohlich said: "Results of almost all businesses were up due to cost savings. The implementation of the restructuring programs is on schedule. So far the workforce has been reduced by 700 employees. Earnings of Decorative Coatings were significantly up. The industrial activities also improved, although the business climate remains weak. Car Refinishes achieved a stable performance in the face of deteriorating market conditions. Marine & Protective Coatings turned in an excellent performance, particularly in Asia, mainly benefiting from cost savings."

Chemicals: stable performance in difficult business conditions

Third-quarter sales for Chemicals were unchanged from the previous year. An organic growth of 2% was offset by lower prices and currency translation. Operating income was 4% below 2001. Frohlich: "Benefits from the restructuring programs and lower raw material prices could not fully offset the impact of the weak economic conditions, lower exchange rates for key currencies and higher pension costs."

Pension cost and premiums - pressure from stock market developments

Regarding pensions Frohlich stated: "The negative developments of the stock markets have an impact on our pension funds. With regard to the results, we have to absorb additional costs of EUR 20 million per quarter, or a total of EUR 80 million for the year.

Cash-wise we expect to pay, in addition to the normal contributions to the pension funds, approximately EUR 100 million in the fourth quarter to restore our global funding positions. Cash savings cover the additional outflow."

Outlook confirmed - net income1 slightly below 2001

"We confirm our earlier expressed expectation to achieve a net income for 2002 that is slightly below 2001," Frohlich said. "This is based on the present currency exchange rates and conditions in those sectors of the economy which are most important to us."

Note for the editor

Akzo Nobel, based in the Netherlands, serves customers throughout the world with healthcare products, coatings and chemicals. Consolidated sales for 2001 totaled EUR 14 billion. The Company currently employs over 67,000 people in more than 80 countries. Financial results for the full year 2002 will be published on February 11, 2003.

Internet: www.akzonobel.com

Third-quarter net income 3% below last year

- Sales and operating income significantly affected by weaker

currencies

- Pension charges EUR 20 million per quarter higher than in 2001

- All groups achieved autonomous growth

- Pharma - investing in new products

- Coatings - continued strong performance

- Chemicals - stable performance in difficult business

conditions

- Major restructuring programs at Coatings and Chemicals - on

schedule

- Strong operational cash flow

- Debt reduction program - on target

- Interim dividend unchanged - EUR 0.30

- Outlook confirmed - net income1 slightly below 2001

The final results for 2002 will be published on February 11, 2003.

Note

The data in this report are unaudited.

The 2001 figures have been restated for the change in accounting principles in respect of pensions and other postretirement benefits.

Unless indicated otherwise, discussions in the report, such as earnings developments, exclude extraordinary and nonrecurring items.

Safe Harbor Statement*

This report contains statements which address such key issues as Akzo Nobel's growth strategy, future financial results, market positions, product development, pharmaceutical products in the pipeline, and product approvals. Such statements, including but not limited to the "Outlook", should be carefully considered and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to price fluctuations, currency fluctuations, developments in raw material and personnel costs, physical and environmental risks, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies.

* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.

Third-quarter net income 3% lower

Third-quarter net income of EUR 232 million was 3% below last year. Per share this was EUR 0.81 (2001: EUR 0.83). Earnings contributions from autonomous growth by all three groups and lower financing charges were more than offset by the impact of higher pension charges and the weakening of certain key currencies.

January-September net income1 of EUR 716 million was 1% higher than last year, which is EUR 2.50 per share (2001: EUR 2.48).

Autonomous sales growth more than offset by negative currency effects

Third-quarter sales decreased 1% to EUR 3.5 billion. Autonomous growth was 4%, with 3% volume growth and 1% higher selling prices, while currency translation had a negative effect of 5%. The latter mainly related to the U.S. dollar, the Brazilian real, and various Asian currencies. Sales development per group was as follows:

In the first nine months of 2002, sales aggregated EUR 10.6 billion, a 1% decrease.

Operating income on balance down 6%

At EUR 381 million, operating income for the third quarter was down 6%. Earnings were affected by a negative currency translation effect of some EUR 25 million, while quarterly pension charges were EUR 20 million higher. Earnings of Coatings were up 5%, while Chemicals operating income was somewhat below last year. Pharma's results suffered most from weaker currencies and were under pressure from high expenses for future growth.

Over January-September 2002, operating income1 aggregated EUR 1,178 million (2001: EUR 1,211 million).

Return on sales was 10.9%, compared with 11.5% in the third quarter of 2001. For January-September this ratio decreased from 11.3% to 11.1%.

Financing charges were significantly lower, as a result of lower short-term interest rates and reduced net borrowings. Furthermore, due to the weaker U.S. dollar, interest denominated in this currency translated into lower financing charges. Interest coverage in the third quarter improved from 6.4 to 7.5.

The income tax charge in the third quarter was unchanged at 31%.

Earnings from nonconsolidated companies decreased from EUR 16 million to EUR 14 million, due to lower results for ECI Elektro-Chemie and Nippon Ketjen, partially offset by higher earnings of Methanor.

Restructuring programs at Coatings and Chemicals - on schedule

At September 30, 2002, the number of employees was 67,200, compared with 66,300 at the end of 2001.

In order to structurally improve earnings, the Company is executing the major restructuring programs at Coatings and Chemicals initiated in 2001. So far the work force reduction totaled 1,300, of which 1,100 in 2002.

Autonomous growth of activities, mainly at Pharma and Coatings, resulted in an increase of 1,200, while acquisitions added 800.

Pension cost and premiums -pressure from stock market developments

The poor performance of the stock markets in 2001 had a negative influence on the investment results of Akzo Nobel's pension funds. In accordance with the rules of SFAS 87, this resulted in an increase of 2002 pension costs of EUR 20 million per quarter, affecting all groups.

During 2002, stock markets have come down further. In accordance with SFAS 87, this will not lead to additional charges in the statement of income in 2002.

Based on local regulations and arrangements with Akzo Nobel's pension funds, the Company expects that it will have to pay additional premiums of approximately EUR 100 million in the fourth quarter of 2002. The Company has implemented a cash saving program to cover this additional funds outflow.

Interim dividend unchanged - EUR 0.30

Akzo Nobel will declare an interim dividend for 2002 of EUR 0.30 per common share. Starting October 24, 2002, Akzo Nobel shares will trade ex-dividend. The interim dividend will be made payable on November 7, 2002.

Outlook confirmed - net income(1) slightly below 2001

We confirm our earlier expressed expectation to achieve a net income1 for 2002 that is slightly below 2001, on the basis of the present currency exchange rates and conditions in those sectors of the economy which are most important to us.

(1) Excluding extraordinary and nonrecurring items.

- Autonomous growth 5% - negative currency effect of 6%

- Operating income down 9% - investing in future growth

- Human healthcare

- Remeron(R)- sales up 12%; U.S. patent lawsuits ongoing

- oral contraceptives - generic competition in U.S.

- NuvaRing(R)- successfully launched

- Arixtra(R)- slow take-off

- gepirone ER (previously Ariza(TM)) - U.S. filing delayed

- Animal healthcare - under pressure from soft market conditions

- Diosynth - strong performance

- Rosemont U.K. - divested

Pharma's performance reflects slowing growth. In the third quarter, autonomous growth was 5%, with 3% volume growth and 2% higher selling prices. Currency translation had a significant negative effect of 6%.

Operating income decreased 9% to EUR 183 million, with a return on sales of 18.8% (2001: 20.5%). Earnings were affected by weaker currencies, which had a negative impact of 6%, and higher pension charges. To secure future growth, expenses for R&D were increased 22% to EUR 153 million. At EUR 314 million, marketing expenses were at last year's level despite significant launch costs for NuvaRing(R) and Arixtra(R). This is the result of cost-saving measures.

The human healthcare activities (Organon) achieved autonomous growth of 7%, while weaker key currencies had a negative impact on sales of 6%. The sales development for the main products was as follows:

For tabular information please visit: http://www.akzonobel.com/misc/downloadable_detail.asp?id=78

Remeron(R) sales were up 12%. The lawsuits in the United States related to the infringement of Organon's U.S. patent covering the use of Remeron(R) with SSRIs are ongoing. The filing of additional data for the approval procedure of the antidepressant gepirone ER (previously known as Ariza(TM)) with the FDA is delayed. The Company now expects to file these data in the third quarter of 2003.

Oral contraceptives were affected by generic competition in the United States. NuvaRing(R) was successfully launched in this market, with third-quarter sales of EUR 4 million.

For the introduction of the pentasaccharide antithrombotic Arixtra(R) in the United States, the process of hospital formulary approval is time consuming. In North America, Arixtra(R) sales in 2002 aggregated EUR 2 million(1).

Earnings of the animal healthcare activities were under pressure from soft market conditions, particularly in Latin America, and the weak key currencies.

Diosynth achieved a strong performance with healthy sales and earnings growth.

Effective October 1, 2002, Rosemont Pharmaceuticals Ltd in the United Kingdom was divested for a price of GBP 64 million (EUR 100 million).

(1) Akzo Nobel will receive a royalty for the Arixtra(R) sales made by

Sanofi-Synthelabo outside North America. The activities of the

joint venture in North America are proportionally consolidated.

- Autonomous growth 4% - negative currency translation effect 4%

- Restructurings ongoing

- Decorative Coatings - sustained good performance

- Industrial activities - improvement despite continued weak

business climate

- Marine & Protective Coatings - excellent performance,

benefiting from cost savings

- Acquisition Ferro - strengthening powder coatings position in

the U.S. and Asia

In the third quarter, the Coatings operations achieved 4% autonomous growth, with volumes and selling prices each 2% higher. Sales decreased 4% due to weaker currencies. Acquisitions added 2%, while the impact of divestments, mainly Printing Inks was a 4% decrease.

Operating income rose 5% to EUR 136 million with a return on sales of 9.6% (2001: 9.0%). Results of almost all business units were up due to higher margins and cost savings, partially offset by the impact of weaker currencies and higher pension costs.

The implementation of the restructuring programs is on schedule. So far the work force has been reduced by 700 employees, which compares with the target of 2,000.

Earnings of Decorative Coatings were significantly up, mainly attributable to cost savings and higher margins. The business in Turkey did somewhat better, but remains vulnerable. Earnings of the industrial coatings activities improved, although the business climate remains weak. Marine & Protective Coatings turned in an excellent performance, particularly in Asia, also benefiting from cost savings. Car Refinishes achieved a stable performance in the face of deteriorating market conditions.

Capital expenditures decreased to EUR 24 million (2001: EUR 44 million).

Effective October 1, 2002, the Company acquired the powder coatings business in the Americas and Asia Pacific from Ferro Corporation, which posted USD 100 million sales in 2001. The transaction value was USD 73 million, on a debt and cash free basis. This acquisition resolved the strategic gap in the Company's global powder coatings business, as the U.S. powder operations were relatively small. This acquisition not only brought a top 3 position in this single largest powder coatings market, it also further strengthened the Company's position in China and Korea.

To further expand the powder coatings activities, early in October 2002, the Company announced the purchase of a 50%-stake in the leading Mexican powder coatings producer Industrial de Acabados, S.A. de C.V. (INDA). The new joint venture will manufacture and market powder coating products under the global Interpon(R) brand from the existing INDA facilities in Monterrey, Mexico.

- Autonomous growth 2% - currency translation effect 4% negative

- Restructurings - on schedule

- Catalysts, Base Chemicals, and Salt - continued sound

performance

- Pulp & Paper Chemicals and Polymer Chemicals - under pressure

- Capital expenditures 72% of depreciation

- Acquisition of Crompton's Industrial Specialties - completed

Third-quarter sales of EUR 1.1 billion were unchanged from previous year. Autonomous growth was 2%, with 4% higher volumes but 2% lower selling prices. Currency translation had a negative effect of 4%. Acquisitions, predominantly Crompton's Industrial Specialties, added 3%, while divestments caused a 1% decrease.

At EUR 77 million, operating income was 4% below 2001 despite difficult business conditions. Return on sales was 6.8% (2001: 7.0%). Benefits from the restructuring programs and lower raw material prices could not fully offset the impact of the weak economic conditions, lower exchange rates for key currencies, and higher pension costs.

Catalysts again turned in a better performance, benefiting from cost savings and an improved product portfolio. Base Chemicals also did better, while Salt turned in a stable performance.

At Pulp & Paper Chemicals, results remained under pressure, mainly in the United States. Polymer Chemicals and Surface Chemistry suffered from weak market conditions.

At EUR 56 million, capital expenditures were 72% of depreciation.

Strong operational cash flow

Cash flow from operations for January-September improved from EUR 1.0 billion, to EUR 1.1 billion in 2002, mainly due to better control over working capital.

Capital expenditures were down 12%, totaling EUR 482 million (103% of depreciation) with key focus on growth of Pharma.

Acquisition expenditures primarily related to Crompton's Industrial Specialties and the powder coatings activities of Ferro Corporation, while proceeds from divestments principally stemmed from the sale of Printing Inks and Rosemont Pharmaceuticals.

The net inflow of funds (funds balance) of EUR 267 million was virtually at a par with last year, as lower proceeds from divestments were offset by the higher cash flow from operations and reduced acquisition and capital expenditures.

Net cash used for financing activities was the net effect of the placement of the EUR 1 billion public bond in May 2002 and the redemption of short-term borrowings. .

Debt reduction program - on target

Invested capital at September 30, 2002, amounted to EUR 9.2 billion, unchanged from year-end 2001. Seasonal working capital effects added EUR 0.2 billion, while acquisitions caused an increase of EUR 0.2 billion. Due to lower currency exchange rates invested capital decreased EUR 0.4 billion.

Equity increased EUR 0.5 billion due to January-September income, partially offset by negative currency translation effects. Net interest-bearing borrowings were down EUR 0.5 billion on year-end 2001, due to the positive funds balance and the lower U.S. dollar exchange rate. Gearing improved to 1.07 (December 31, 2001: 1.47).

Arnhem, October 23, 2002 The Board of Management

Additional Information

The explanatory sheets used by the CFO during the press conference can be viewed on Akzo Nobel's Internet site at: www.akzonobel.com/news/presentations.asp

All tabular information can be found by visiting: http://www.akzonobel.com/misc/downloadable_detail.asp?id=78