Akzo Nobel Earnings in Line with Expectations; Solid Overall Performance Impacted by Currencies, Pensions and Remeron Competition in U.S.Business Editors/Health/Medical Writers ARNHEM Arnhem (är`nəm), Ger. Arnheim, city (1994 pop. 133,670), capital of Gelderland prov., E Netherlands, a port on the Lower Rhine. It is an industrial, transportation, and tourist center. , the Netherlands--(BUSINESS WIRE)--July 18, 2003 Akzo Nobel Akzo Nobel is a multinational company, active in the fields of healthcare products, coatings and chemicals. Headquartered in Amsterdam, the Netherlands, the company has activities in more than 80 countries, and employs approximately 62,000 people. , the international pharmaceuticals, coatings and chemicals company, reports second quarter net earnings(a) of EUR EUR In currencies, this is the abbreviation for the Euro. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 201 million, 20% below the second quarter of 2002. In presenting the report, Akzo Nobel's CFO See Chief Financial Officer. Fritz fritz n. Informal A condition in which something does not work properly: Our television is on the fritz. [Perhaps from German Fritz Frohlich said: "All groups were under continued pressure from currencies and pensions. Pharma sales were impacted by generic competition to our key drug Remeron Remeron® Mirtazipine, see there in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Net income may be down, but given the challenging business conditions, results are quite acceptable. Coatings achieved a solid overall performance and Chemicals managed to keep up volumes and prices in weak markets. We are working hard to bring costs in line with lower sales. The headcount head count or head·count n. 1. The act of counting people in a particular group. 2. The number of people counted in this way. Noun 1. reduction program for the Company is on schedule. For the remainder of the year we assume no real improvement in the business conditions. Our outlook is unchanged, with net income(a) significantly below last year." Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (a) for the Company in the second quarter lagged behind the previous year's figure by 20%. Excluding currency and pension factors operating income(a) was down 3% (EUR 12 million). Pharma felt the impact of strong generic Remeron(R) competition in the United States, being the most important catalyst catalyst, substance that can cause a change in the rate of a chemical reaction without itself being consumed in the reaction; the changing of the reaction rate by use of a catalyst is called catalysis. for a 25% lower operating income. Coatings and Chemicals were down 12% and 14%, respectively. Their operational performance was again more than offset by currencies and pensions. At all three groups this impact was partially compensated compensated /com·pen·sat·ed/ (kom´pen-sa?tid) counterbalanced; offset. by the results of cost-saving and restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). programs. Pharma - under continued pressure; cost savings contributing Pharma sales were down 2%, excluding currency translations. Frohlich: "Generic competition to our antidepressant antidepressant, any of a wide range of drugs used to treat psychic depression. They are given to elevate mood, counter suicidal thoughts, and increase the effectiveness of psychotherapy. Remeron in the United States has led to pressure on Pharma. Our cost-saving programs are progressing well, with a workforce reduction of 440 so far this year. In addition to our ongoing restructuring program, we are pushing new products. The new contraceptive contraceptive /con·tra·cep·tive/ (-sep´tiv) 1. diminishing the likelihood of or preventing conception. 2. an agent that so acts. NuvaRing NuvaRing® Gynecology An intravaginal contraceptive ring that releases low doses of progestins for 3 wks, followed by a ring-free wk. See Contraception. is gathering momentum and our antithrombotic antithrombotic /an·ti·throm·bot·ic/ (-throm-bot´ik) 1. preventing or interfering with the formation of thrombi. 2. an agent that so acts. antithrombotic 1. Arixtra received fast-track fast track n. Informal The quickest and most direct route to achievement of a goal, as in competing for professional advancement: "Making complaints against the public is hardly the fast track to elective office" government approval for extended application in the United States. Animal healthcare business Intervet saw its decline in the United States almost offset by better performance in the rest of the world. Diosynth Diosynth is a company that develops manufacturing processes for active ingredients for pharmaceutical companies all over the world. The company started in 1923 with the extraction of insulin from bovine pancreas, which is still one of their main products. showed a strong performance." Coatings - growth and restructuring produce solid overall performance Akzo Nobel's Coatings' operating performance was slightly up, excluding the impact of pensions and currencies. Autonomous sales growth was 2%, mainly due to product mix improvement. Frohlich: "Our worldwide number one Coatings business showed a solid overall performance, based on a mix of sales growth and cost-cutting in the various businesses. However, we were not able to fully compensate the negative impact of currencies and pensions. The restructuring programs are progressing well. Workforce expansion in emerging markets was more than offset by restructuring and divestments. This resulted in a net decrease of 650 in the number of employees. Marine & Protective Coatings maintained an excellent performance and Powder Coatings Powder coating is a type of dry coating, which is applied as a free-flowing, dry powder. The main difference between a conventional liquid paint and a powder coating is that the powder coating does not require a solvent to keep the binder and filler parts in a liquid suspension improved further. Decorative Coatings was under pressure from the weak business conditions in Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). , while the industrial activities are
holding up well."Chemicals - robust performance in no-growth environment The Akzo Nobel Chemicals business managed to protect volumes and prices in a no-growth environment. "Operating income excluding the impact of currencies and pensions was only marginally down, thanks to cost savings. A robust performance in a tough business climate," said Frohlich. "It's it's 1. Contraction of it is. 2. Contraction of it has. See Usage Note at its. it's it is or it has it's be ~have a mixed picture. Catalysts, Base Chemicals and Salt improved, while the operational performances of other businesses are still under pressure from weak market conditions. Nevertheless, cost-saving programs are progressing well and are making a clear contribution to the bottom line." In May, the Company announced a divestment divestment to strip one's investment from an entity. program, mainly in Chemicals, which should generate proceeds of EUR 500 million to create room to maneuver maneuver /ma·neu·ver/ (mah-noo´ver) a skillful or dextrous method or procedure. Bracht's maneuver a method of extraction of the aftercoming head in breech presentation. for Akzo Nobel. Frohlich: "An update on this process can be expected in the fall." Outlook for 2003 unchanged: net income(a) significantly down Frohlich: "For the remainder of the year we assume no real improvement of the business conditions. As a consequence of accelerating competition against Remeron in the United States and the negative impact of currencies and pensions, our net income will be significantly below last year." - - - Note for the editor Akzo Nobel, based in the Netherlands Netherlands (nĕth`ərləndz), Du. Nederland or Koninkrijk der Nederlanden, officially Kingdom of the Netherlands, constitutional monarchy (2005 est. pop. 16,407,000), 15,963 sq mi (41,344 sq km), NW Europe. , serves customers throughout the world with healthcare products, coatings and chemicals. Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: sales for 2002 totaled EUR 14 billion. The Company currently employs approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 66,000 people in more than 80 countries. Financial results for the third quarter will be published on October October: see month. 17, 2003. Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the : www.akzonobel.com Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. Statement(1) This press release 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, legal issues, and legislative, fiscal, and other regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. measures. Stated competitive positions are based on management estimates supported by information provided by specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. external agencies. For a more complete discussion of the risk factors affecting our business please refer to our Annual Report on Form 20-F filed with the United States Securities and Exchange Commission. A copy of which can be found on the Company's website www.akzonobel.com. (1) Pursuant to the U.S. Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 1995 Report for the 2nd quarter of 2003 Key Figures
2nd quarter Millions of euros (EUR)January-June
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2003 2002 % CHANGE 2003 2002 % CHANGE
---------------------- ------------------------
201 250 (20) Net income(a) 365 484 (25)
0.70 0.87 - per share, in EUR 1.27 1.69
Sales
888 1,025 (13) - Pharma 1,772 2,034 (13)
1,429 1,496 (4) - Coatings 2,711 2,833 (4)
1,115 1,154 (3) - Chemicals 2,270 2,330 (3)
(33) (33) - Other (67) (67)
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3,399 3,642 (7) Total 6,686 7,130 (6)
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Operating income(a)
(EBIT)
146 195 (25) - Pharma 287 405 (29)
142 161 (12) - Coatings 217 248 (12)
74 86 (14) - Chemicals 166 188 (12)
(34) (30) - Other (68) (44)
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328 412 (20) Total 602 797 (24)
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Return on sales(a), in
9.6 11.3 % 9.0 11.2
7.5 7.6 Interest coverage 7.3 7.4
Gearing 1.37 1.46(b)
Number of employees 66,360 67,880(b)
Earnings in line with expectations -- Second-quarter net income(a) down 20% - soft business conditions continued -- Pensions and currency impact of EUR 72 million on operating income -- Pharma - under continued pressure; cost savings contributing -- Coatings - solid overall performance -- Chemicals - robust performance in tough business climate -- Restructuring programs on schedule -- Divestment program with proceeds for first phase of EUR 500 million - initiated -- 4.25% EUR 750 million 2003/2011 bond - successfully placed -- Net borrowings - down EUR 0.1 billion -- Outlook unchanged - net income(a) significantly below 2002 (a) Excluding nonrecurring Non`re`cur´ring a. 1. Nonrecurrent; as, the costs of a layoff are considered as a nonrecurring expense s>. items. (b) At December December: see month. 31. The report for the 3rd quarter of 2003 will be published on October 17, 2003. Note The data in this report are unaudited. Unless indicated otherwise, discussion in this report, such as on earnings developments, exclude nonrecurring items. Nonrecurring items relate to income and expenses resulting from normal business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets , which, because of their size or nature, are disclosed separately to give a better understanding of the underlying result for the period. These include items such as restructurings and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charges, and significant gains and losses on the disposal of businesses, not meeting the requirements for extraordinary items. Operating income before nonrecurring items is one of the key figures management uses to assess the performance of the Company, as these figures better reflect the underlying trends in the results of the activities. Autonomous sales growth is defined as the change in sales attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to changed volumes and selling prices. It excludes currency, acquisition, and divestment effects. Safe Harbor Statement(1) 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, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. For a more complete discussion of the risk factors affecting our business please refer to our 2002 Annual Report on Form 20-F filed with the United States Securities and Exchange Commission, a copy of which can be found on the Company's website www.akzonobel.com. (1) Pursuant to the U.S. Private Securities Litigation Reform Act 1995.
C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T O F
I N C O M E
2nd quarter Millions of euros January-June
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2003 2002 % CHANGE 2003 2002 % CHANGE
---------------------- ----------------------
3,399 3,642 (7)Sales 6,686 7,130 (6)
(3,071)(3,230) Operating costs (6,084)(6,333)
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328 412 (20)Operating income(a) (EBIT) 602 797 (24)
(44) (54) Financing charges (82) (107)
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Operating income(a) less
284 358 financing charges 520 690
(89) (111) Taxes (157) (214)
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Earnings(a) of
consolidated companies,
195 247 (21) after taxes 363 476 (24)
Earnings(a) from
14 11 nonconsolidated companies 20 24
-------------- --------------
Earnings(a) before
209 258 minority interest 383 500
(8) (8) Minority interest (18) (16)
-------------- --------------
Net income excluding
201 250 (20) nonrecurring items 365 484 (25)
Nonrecurring items, after
taxes and minority
(21) interest (46)
-------------- --------------
180 250 Net income 319 484
-------------- --------------
9.6 11.3 Return on sales(a), in % 9.0 11.2
7.5 7.6 Interest coverage 7.3 7.4
Basic/diluted net income
excl. nonrecurring items
0.70 0.87 per share, in EUR 1.28 1.69
Basic/diluted net income
0.63 0.87 per share(b), in EUR 1.12 1.69
494 577 (14)EBITDA 931 1,131 (18)
144 163 Capital expenditures 257 318
154 155 Depreciation 306 314
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(a)Excluding nonrecurring items. (b)Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. per share amounts are equal to the basic per share amounts with the exception of diluted net income per share for the first half of 2003, which was EUR 1.11. Net income(a) down 20% Net income excluding nonrecurring items in the second quarter decreased 20% to EUR 201 million. Net income(a) per share was EUR 0.70 (2002: EUR 0.87). Including net nonrecurring losses of EUR 21 million, second-quarter net income was EUR 180 million (2002: EUR 250 million). For the first half of 2003, net income excluding nonrecurring items amounted to EUR 365 million, down 25% on 2002. Taking net nonrecurring losses of EUR 46 million into account, net income ended at EUR 319 million (2002: EUR 484 million) Earnings burdened by currencies, pensions, and Remeron(R); restructurings paying off Second-quarter sales of EUR 3.4 billion were 7% lower than last year. Sales developed as follows:
Currency Acquisitions/
In % Total Volume Price translation divestments
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Pharma (13) (3) 1 (11) -
Coatings (4) - 2 (8) 2
Chemicals (3) 1 (1) (8) 5
Akzo Nobel (7) (1) 1 (9) 2
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Operating income declined 20%, due to weakening weak·en tr. & intr.v. weak·ened, weak·en·ing, weak·ens To make or become weak or weaker. weak  en·er n. key currencies,
higher pension charges, the drop in earnings at Organon or·ga·non or or·ga·numn. pl. or·ga·nons or or·ga·nums or or·ga·na 1. An organ. 2. A set of principles for use in scientific investigation. organon pl. organa [Gr.] organ. , and weak business conditions. This impact was partially offset by the results of major cost-saving and restructuring programs implemented at all three groups. Further restructurings are in preparation. Earnings developed as follows:
Operating Change from 2nd quarter of 2002
income(a) -----------------------------------------
Millions of euros for 2nd OperationalCurrency Increased
quarter of Total performance translation pension
2003 charges
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Pharma 146 (49) (19) (22) (8)
Coatings 142 (19) 5 (16) (8)
Chemicals 74 (12) (2) (2) (8)
Other (34) (4) 4 - (8)
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Akzo Nobel 328 (84) (12) (40) (32)
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Currency translation effects were mainly caused by the weaker U.S. dollar, pound sterling, Brazilian real The real (IPA: [xe'aw] or [ʁe'aɫ], symbol: R$, ISO 4217 code: BRL, plural: reais) is the currency of Brazil. It is also the name of the earliest Brazilian currency (see from the Colonial period to 1942. , and various Asian currencies. Return on sales Return on sales A measurement of operational efficiency equalingnet pre-tax profits divided by net sales expressed as a percentage. return on sales The portion of each dollar of sales that a firm is able to turn into income. was 9.6%, against 11.3% in the second quarter of 2002. (a)Excluding nonrecurring items. Financing charges decreased substantially as a result of lower short-term interest rates Short-term interest rates Interest rates on loan contracts-or debt instruments such as Treasury bills, bank certificates of deposit or commerical paper-having maturities of less than one year. Often called money market rates. , reduced net borrowings and lower foreign currency exchange rates. Interest coverage in the second quarter was virtually unchanged at 7.5. Earnings from nonconsolidated companies improved from EUR 11 million to EUR 14 million, mainly attributable to the Chemicals joint ventures Methanor, FCC (1) (Federal Communications Commission, Washington, DC, www.fcc.gov) The U.S. government agency that regulates interstate and international communications including wire, cable, radio, TV and satellite. The FCC was created under the U.S. Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. , Eka Polymer polymer (pŏl`əmər), chemical compound with high molecular weight consisting of a number of structural units linked together by covalent bonds (see chemical bond). Latex, and Flexsys. Nonrecurring items In the second quarter of 2003 the Company registered net nonrecurring losses of EUR 21 million. The total net nonrecurring charges Nonrecurring Charge An expense occurring only once on a company's financial statement. Notes: An extraordinary item is an example of a nonrecurring charge. Also known as "nonrecurring item". for the first half year aggregate EUR 46 million and break down as follows:
Millions of euros Minority
Gross Taxes interest Net
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Pharma (22) 8 (14)
Coatings (4) 3 (9) (10)
Chemicals (35) 13 (22)
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Akzo Nobel (61) 24 (9) (46)
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Pharma's nonrecurring losses concern workforce reductions mainly at Organon in various countries all over the world. At Coatings, a catch-up catch-up n. 1. An approach or strategy intended to overcome a disadvantage or lead: The competition will be playing catch-up for the rest of the season. 2. adjustment was recognized in respect of a joint venture in Asia. Chemicals' charges relate to several restructurings at Surface Chemistry and Resins resins, n.pl complex, insoluble, sticky substances secreted by plants. Used as astringents, antimicrobials, and antiinflammatories, and are burned as incense. Can cause oral ulcers and epidermal irritations. . Workforce - strong reduction due to restructurings and divestment of underperforming activities At June June: see month. 30, 2003, the Company had 66,360 employees, compared with 67,880 at year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 2002. Restructurings at all three groups and divestment of underperforming activities caused a decrease of 2,230, while growth of certain businesses, seasonal influences, and acquisitions expanded the workforce by 710. Outlook unchanged - net income(a) significantly below 2002 Our outlook for 2003 remains unchanged. We expect that net income for 2003, excluding nonrecurring items, will be significantly below the level of 2002. (a)Excluding nonrecurring items. Pharma - under continued pressure; cost savings contributing
2nd quarter Millions of euros January-June
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2003 2002 % CHANGE 2003 2002 % CHANGE
-------------------- ------------------------
Sales
576 672 Organon 1,140 1,320
243 278 Intervet 496 553
126 123 Diosynth 231 249
(57) (48) Intragroup sales/other (95) (88)
------------ ----------------
888 1,025 (13)Total 1,772 2,034 (13)
146 195 (25)Operating income(a) (EBIT) 287 405 (29)
16.4 19.0 Return on sales1, in % 16.2 19.9
16.5 14.6 R&D expenses as % of sales 16.4 14.4
188 238 (21)EBITDA 372 491 (24)
59 77 Capital expenditures 110 145
Invested capital 2,560 2,475(b)
Number of employees 21,380 21,820(b)
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(a) Excluding nonrecurring items. (b) At December 31. -- Organon: -- Remeron(R) - rapidly declining in U.S.; rest of world still growing -- NuvaRing(R) - gathering momentum -- Arixtra(R) - FDA FDA abbr. Food and Drug Administration FDA, n.pr See Food and Drug Administration. FDA, n.pr the abbreviation for the Food and Drug Administration. approval for supplemental application A Supplemental Application Is A Type Of Application Used By universities and Colleges From the State University Of New York(SUNY). The Supplemental Application is A common 2nd part of The 1st State-wide Application. -- cost-saving programs progressing well - workforce reduction of 440 -- Intervet - decline in U.S. almost offset by better performance in rest of the world -- Diosynth - strong performance Pharma second-quarter sales decreased 13% to EUR 0.9 billion, while operating income declined 25% to EUR 146 million. Return on sales was 16.4% (2002: 19.0%). Pharma's earnings were especially affected by weaker key currencies, higher pension charges, and generic competition in the United States for Remeron(R) and contraceptives. In order to realign re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. cost levels to lower sales volumes, cost-saving measures are actively implemented, especially at Organon, but also at Intervet and Diosynth. The workforce was reduced by 440 in the first half of 2003 and the first benefits of the restructurings were registered in this quarter. R&D expenses were virtually unchanged at EUR 147 million, which is 16.5% of sales (2002: 14.6%). The main products in Organon (Human Healthcare) developed as follows:
Sales Millions of euros or %
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2nd quarter Autonomous January- Autonomous
2003 growth, % June 2003 growth, %
---------------------- ---------------------
58 (32)Remeron(R) in U.S. 136 (21)
77 24 Remeron(R) in rest of world 148 24
129 5 Contraceptives 247 3
84 - Puregon(R) 170 (3)
51 (1)Livial(R) 98 1
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The antidepressant Remeron (R)encounters severe generic competition in the United States, while Remeron SolTab(TM) is still holding up. In the rest of the world, Remeron autonomous sales growth was 24%. Sales for NuvaRing(R) (contraceptive ring) are gathering momentum. Second-quarter sales amounted to EUR 9 million. The introduction of the antithrombotic Arixtra(R) is progressing slowly with sales of EUR 2 million in the second quarter of 2003. In June 2003, the FDA approved a supplemental new drug application of Arixtra for "Prophylaxis prophylaxis (prō'fĭlăk`sĭs), measures designed to prevent the occurrence of disease or its dissemination. Some examples of prophylaxis are immunization against serious diseases such as smallpox or diphtheria; quarantine to confine of deep venous thrombosis deep venous thrombosis n. Abbr. DVT A condition in which one or more thrombi form in a deep vein, especially in the leg or pelvis, resulting in an increased risk of pulmonary embolism. , which may lead to pulmonary embolism Pulmonary Embolism Definition Pulmonary embolism is an obstruction of a blood vessel in the lungs, usually due to a blood clot, which blocks a coronary artery. in patients undergoing hip fracture hip fracture Orthopedic surgery A femoral fracture which affects 1/6 white ♀–US during life Epidemiology 250,000/yr–US Specifics Proximal femur; 90+% femoral neck, intertrochanteric; 5-10% are subtrochanteric Risk factors Tall, thin ♀, surgery, including extended prophylaxis", allowing treatment of patients with this risk for an additional 24 days. The FDA has requested additional data for Follistim(R)-AQ Cartridge (1) See phono cartridge. (2) A removable storage module that contains magnetic disks, optical discs, magnetic tape or memory chips. Cartridges are inserted into slots in the drive, printer or computer. , which at present is already successfully marketed as Puregon Pen(TM) in Europe. Intervet (Animal Healthcare) was impacted by weak business conditions in the United States, which was almost offset by a generally improved performance in the rest of the world. Diosynth had a strong second quarter. This business unit signed a multi-year contract with Pfizer Pfizer Incorporated (NYSE: PFE) is a major research-based pharmaceutical company, which ranks number two in sales The company is based in New York City. It produces the number-one selling drug Lipitor (atorvastatin, used to lower blood cholesterol); the oral antifungal Inc. to supply Pfizer with the active pharmaceutical ingredient
An ingredient is something that forms part of a mixture (in a general sense). for the commercial production of their growth hormone growth hormone or somatotropin (sōmăt'ətrō`pən), glycoprotein hormone released by the anterior pituitary gland that is necessary for normal skeletal growth in humans (see protein). disorder drug Somavert(R). Coatings - solid overall performance
2nd quarter Millions of euros January-June
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2003 2002(a)% CHANGE 2003 2002(a)% CHANGE
---------------------- ------------------------
Sales
534 549 Decorative Coatings 952 977
334 340 Industrial activities 657 654
228 246 Car Refinishes 446 481
Marine & Protective
214 217 Coatings 418 428
129 143 Industrial Products 263 280
(10) 1 Intragroup sales/other (25) 13
-------------- ----------------
1,429 1,496 (4)Total 2,711 2,833 (4)
Operating income(b)
142 161 (12) (EBIT) 217 248 (12)
9.9 10.8 Return on sales(b), in % 8.0 8.8
180 201 (10)EBITDA 295 329 (10)
27 25 Capital expenditures 50 50
Invested capital 2,426 2,264(c)
Number of employees 29,140 29,790(c)
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(a)2002 sales figures sales figures npl → cifras fpl de ventas per business unit have been adjusted for a slight regrouping of activities. (b) Excluding nonrecurring items. (c)At December 31. -- Autonomous growth 2% - negative currency effect 8% -- Operating income excluding impact of currencies and pensions - up EUR 5 million -- Marine & Protective Coatings - excellent performance maintained -- Powder Coatings - improving further -- Decorative Coatings - impacted by weak economic conditions in Europe -- Industrial activities - mixed performance -- Impregnated im·preg·nate tr.v. im·preg·nat·ed, im·preg·nat·ing, im·preg·nates 1. To make pregnant; inseminate. 2. To fertilize (an ovum, for example). 3. Papers - divested -- Cost-saving programs on schedule -- Major restructuring at Transportation Coatings In the second quarter, Coatings sales decreased 4% to EUR 1.4 billion. Under generally weak business conditions, Coatings still achieved autonomous sales growth of 2%, due to price increases. The negative currency impact was 8%, while acquisitions and divestments, on balance, added 2%. Operating income went down 12% to EUR 142 million. Return on sales was 9.9% (2002: 10.8%). The contributions from cost savings were more than offset by the negative impact of weaker key currencies and higher pension charges. Raw material prices showed an upward trend. Excluding the impact of currencies and pension charges, operating income grew EUR 5 million. The restructuring programs are progressing according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. schedule. These restructurings as well as the divestment of underperforming units resulted in a workforce reduction of 1,290 in the first half of 2003. In growth areas, like Eastern Europe Eastern Europe The countries of eastern Europe, especially those that were allied with the USSR in the Warsaw Pact, which was established in 1955 and dissolved in 1991. and Asia, and due to seasonal influences and acquisitions the workforce expanded by 640. A major restructuring of the Transportation Coatings will be implemented, affecting 275 jobs at various sites in Europe. Marine & Protective Coatings sustained its excellent performance, while Powder Coatings improved further, reaping the benefits of restructuring programs and the acquisition of Ferro's powder activities. The performance of Decorative Coatings was under pressure from the weak business conditions in Europe. The industrial activities held up well despite soft economic conditions. Capital expenditures of EUR 27 million were virtually at the previous year's level. Effective June 30, 2003, the Company divested its Impregnated Papers business for a consideration of EUR 112 million, as from a strategic perspective this activity no longer fitted within the Coatings portfolio. The consideration approximates the book value of the activities divested. The Company has launched a new business, called Nobilas, which manages the repair cycle of a car from the moment it is damaged until such time that it is ready to be returned to the owner. Nobilas has the ambition Ambition Alger, Horatio author of a series of rags-to-riches stories. [Am. Lit.: Ragged Dick] Bart, Lily sacrifices her principles and her chance for love in schemes to climb the social ladder. [Am. Lit. to become a leading provider of effective solutions in all areas of accident management services. In addition, in June 2003, Akzo Nobel has introduced a unique, easy-to-apply waterborne clearcoat for the vehicle body refinish re·fin·ish tr.v. re·fin·ished, re·fin·ish·ing, re·fin·ish·es To put a new finish on (furniture). re·fin market. Sikkens Autoclear(R) WB is the world's first waterborne refinish clearcoat, which dries in just 35 minutes. It enables Car Refinishes customers to increase efficiency and productivity and reduce costs. This product completes the Sikkens waterborne refinish system - comprising primer prim·er n. A segment of DNA or RNA that is complementary to a given DNA sequence and that is needed to initiate replication by DNA polymerase. , filler fill·er 1 n. One that fills, as: a. Something added to augment weight or size or fill space. b. A composition, especially a semisolid that hardens on drying, used to fill pores, cracks, or holes in wood, plaster, , basecoat and clearcoat. Chemicals - robust performance in tough business climate
2nd quarter Millions of euros January-June
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2003 2002(a)% CHANGE 2003 2002(a)% CHANGE
---------------------- ------------------------
Sales
217 240 Pulp & Paper Chemicals 467 491
212 211 Surface Chemistry 416 404
202 216 Functional Chemicals 410 428
143 118 Base Chemicals 277 225
122 147 Polymer Chemicals 252 299
100 109 Resins 199 211
88 87 Catalysts 179 194
65 65 Salt 142 135
43 39 Energy 86 78
(77) (78) Intragroup sales/other (158) (135)
-------------- ----------------
1,115 1,154 (3)Total 2,270 2,330 (3)
Operating income(b)
74 86 (14) (EBIT) 166 188 (12)
6.6 7.5 Return on sales(b), in % 7.3 8.1
157 167 (6)EBITDA 327 350 (7)
55 57 Capital expenditures 91 117
Invested capital 2,747 2,850(c)
Number of employees 14,670 15,050(c)
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(a)2002 sales figures per business unit have been adjusted for a slight regrouping of activities. (b) Excluding nonrecurring items. (c) At December 31. -- Volumes and prices successfully protected in a no-growth environment -- Negative currency effect on sales of 8% -- Operating income excluding impact currencies and pensions - only marginally down due to cost savings -- Catalysts, Base Chemicals, and Salt - strong performance -- Pulp pulp: see paper. & Paper Chemicals - benefiting from cost savings -- Surface Chemistry, Functional Chemicals, and Polymer Chemicals - earnings still under pressure -- Restructuring Surface Chemistry - announced -- Divestment program with EUR 500 million proceeds - preparations progressing well Chemicals' second-quarter sales of EUR 1.1 billion were 3% lower than last year. Despite the soft business conditions volumes and prices where virtually unchanged from last year. Currency translation had a negative effect of 8%, while acquisitions, mainly Crompton's Industrial Specialties and ECI ECI Employment Cost Index ECI Election Commission(er) of India ECI Enterprise Content Integration ECI Early Childhood Intervention ECI Environmental Change Institute Elektro-Chemie, added 5%. Operating income was down 14% to EUR 74 million. Return on sales was 6.6% (2002: 7.5%). The contributions from cost savings were more than offset by the negative effects of weaker key currencies, increased pension charges, and somewhat higher raw material and energy prices. The major cost-saving programs are progressing well and resulted in a workforce decrease of 450 in the first half of 2003. During the second quarter, a restructuring of Surface Chemistry activities in the United States and Europe was started, which will affect 200 jobs. Since July July: see month. 1, 2003, production at the Salt site at Stade n. 1. A stadium. 1. A landing place or wharf. , Germany Germany (jûr`mənē), Ger. Deutschland, officially Federal Republic of Germany, republic (2005 est. pop. 82,431,000), 137,699 sq mi (356,733 sq km). , has been terminated ter·mi·nate v. ter·mi·nat·ed, ter·mi·nat·ing, ter·mi·nates v.tr. 1. To bring to an end or halt: and closure of the site is in progress. Catalysts achieved strong volume growth. Salt turned in a better performance, while Base Chemicals benefited from the acquisition of ECI Elektro-Chemie. Pulp & Paper Chemicals did better as a result of cost-saving measures. Surface Chemistry, Functional Chemicals, and Polymer Chemicals continued to suffer from weak market conditions. Capital expenditures were EUR 55 million, which is 71% of depreciation. In May 2003, the Company announced a divestment program, mainly in Chemicals, which should generate proceeds of EUR 500 million. Further announcements are to be expected in the fall of 2003.
C O N D E N S E D C O N S O L I D A T E D S T A T E M E N T O F
C A S H F L O W S
Millions of euros January-June
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2003 2002
--------------------
Earnings before minority interest 346 500
Depreciation and amortization 329 334
----- -----
Cash flow 675 834
Changes in working capital(325) (265)
Changes in provisions and deferred tax assets 118 (5)
Retained income nonconsolidated companies (16) 23
Other items - 2
----- -----
Net cash provided by operations 452 589
Capital expenditures(257) (318)
Acquisitions (89) (136)
Proceeds from divestments 40 66
Repayments nonconsolidated companies 84 2
Other changes (1) (7)
----- -----
Net cash used for investing activities (223) (393)
Dividends paid (268) (268)
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Funds balance (39) (72)
Net cash generated by financing activities 624 90
Effect of exchange rate changes on cash and cash
equivalents (13) (29)
----- -----
Change in cash and cash equivalents 572 (11)
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Funds balance slightly better than last year The funds balance in the first half of 2003 was an outflow of EUR 39 million, slightly better than the EUR 72 million in the previous year. Better control over investment and acquisition spending more than offset the decline in cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses , which was primarily due to the Company's lower earnings. As a result of the Company's focus on cash, capital expenditures were reduced to EUR 257 million (2002: EUR 318 million), which is 84% of depreciation. Acquisition expenditures mainly related to payments in the first quarter for CIRS CIRS Composite Infrared Spectrometer CIRS Circles (street type) CIRS Currency Interest Rate Swap CIRS Contractor Inventory Redistribution System CIRS Critical Incidents Reporting System CIRS Customer Infrastructure Readiness Survey and the final settlement for the acquisitions in 2002 of ECI Elektro-Chemie and Crompton's Industrial Specialties. Proceeds from divestments were generated through the sale of idle office buildings and several relatively small activities. The proceeds from the divestment of Impregnated Paper were received in the beginning of July, 2003. Net cash generated by financing activities predominantly pre·dom·i·nant adj. 1. Having greatest ascendancy, importance, influence, authority, or force. See Synonyms at dominant. 2. concerned the receipt of the proceeds of the EUR 750 million bond, placed in June 2003, partially offset by the redemption of short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. borrowings.
C O N D E N S E D C O N S O L I D A T E D B A L A N C E
S H E E T
Millions of euros June 30, December
2003 31, 2002
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Intangible assets(a) 632 629
Property, plant and equipment 4,141 4,402
Deferred tax assets 343 405
Deferred tax asset for minimum pension liability 478 503
Other financial noncurrent assets 1,148 1,309
Inventories 2,245 2,206
Receivables 3,152 2,815
Cash and cash equivalents 1,092 520
----------------------
Total 13,231 12,789
----------------------
Capital and reserves 3,233 3,216
Minimum pension liability (1,061) (1,118)
----------------------
Akzo Nobel N.V. shareholders' equity 2,172 2,098
Minority interest 145 137
----------------------
Equity 2,317 2,235
Provisions 2,570 2,574
Minimum pension liability 1,712 1,794
Long-term borrowings 3,436 2,797
Short-term borrowings 825 979
Current liabilities 2,371 2,410
----------------------
Total 13,231 12,789
----------------------
Gearing 1.37 1.46
Shareholders' equity per share, in EUR 7.60 7.34
Number of shares outstanding, in millions 285.7 285.7
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(a)Intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. include capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. prior service costs related to the minimum pension liability of EUR 173 million.
C H A N G E S I N E Q U I T Y
Capital Minimum Share-
and pension holders'Minority
Millions of euros reserves liabilityequity interestEquity
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Situation at December 31,
2002 3,216 (1,118) 2,098 137 2,235
Income 319 319 27 346
Dividends (257) (257) (11) (268)
Changes in exchange rates (45) 57 12 (4) 8
Changes in minority interest
in subsidiaries (4) (4)
------------------------------------------
Situation at June 30, 2003 3,233 (1,061) 2,172 145 2,317
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Balance sheet - net borrowings down by EUR 0.1 billion Invested capital at June 30, 2003 amounted to EUR 9.4 billion, EUR 0.1 billion higher than at December 31, 2002. The decrease caused by currency translation did not fully offset the seasonal increase of working capital. Equity increased EUR 0.1 billion, while net interest-bearing Adj. 1. interest-bearing - of financial obligations on which interest is paid borrowings were reduced by EUR 0.1 billion. As a result, gearing improved to 1.38 (December 31, 2002: 1.46). It is the Company's ambition to reduce net borrowings in 2003 by at least EUR 250 million. In order to create financial room to maneuver, the Company announced in May 2003 that it intends to implement a divestment program mainly at Chemicals, which should generate proceeds of EUR 500 million in its first phase. In June 2003, the Company successfully placed a EUR 750 million bond, due in 2011 and with a coupon A certificate evidencing the obligation to pay an installment of interest or a dividend that must be cut and presented to its issuer for payment when it is due. Coupons are usually attached to a document, such as a promissory note, bond, share of stock, or a bearer of 4.25%. As a consequence of the receipt of the proceeds from this bond, the cash and cash equivalents balance temporarily increased to EUR 1.1 billion. This cash balance will decrease over the course of the second half of 2003 through redemption of long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. and short-term borrowings. Arnhem, July 18, 2003 The Board of Management Additional Information The explanatory ex·plan·a·to·ry adj. Serving or intended to explain: an explanatory paragraph. ex·plan 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 |
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