CFO Froehlich -Akzo Nobel- : 'Successful Focus on Cost and Cash'; Earnings in Line With Expectations, Outlook Unchanged

Business Wire, Oct 17, 2003

Business Editors

ARNHEM, the Netherlands--(BUSINESS WIRE)--Oct. 17, 2003

Akzo Nobel, the international pharmaceuticals, coatings and chemicals company, reports third quarter net earnings of EUR 178 million, 23% below the third quarter of 2002.

In presenting the report, Akzo Nobel's CFO Fritz Froehlich said: "Our focus on cost and cash has proven to be successful. Earnings are in line with expectations. Forceful restructurings are increasingly contributing to the bottom line. All groups were impacted by negative currency translation effects and pensions. Net income may be down, but in these challenging business conditions the results are quite acceptable.

As expected, Pharma sales were impacted by generic competition to our key drug Remeronin the United States. Coatings and Chemicals continued their solid performance. The headcount reduction program for the Company is clearly ahead of schedule with 3,400 this year. I am very pleased with our EUR 0.5 billion net debt reduction. For the remainder of the year we assume no real improvement in the business conditions. Our outlook is unchanged, with net income(1) significantly below last year."

Operating income for the Company in the third quarter (EUR 304 million) lagged behind the previous year's figure by EUR 77 million (20%). Currency and pension impact on operating income was EUR 62 million. As expected, Remeron(R) sales are rapidly declining in the

United States. Generic competition for Remeron is the most important catalyst for a 34% lower operating income for the Pharma group. Coatings and Chemicals were down 6% and 5% respectively, entirely attributable to currency translation and pensions. The Company announced an unchanged interim dividend of EUR 0.30.

Pharma - under continued pressure

Pharma sales were down 4%, excluding 6% currency translations. Froehlich: "Generic competition to our antidepressant Remeron in the United States is the main driver for this decline. The SolTabTM version is a notable exception, it is holding up quite well and getting stronger in Europe. Cost-saving programs are ahead of schedule, with a workforce reduction of 800 so far this year. In addition to our ongoing restructuring, we are pushing new products like the contraceptive NuvaRing(R). Animal healthcare business Intervet has a strong exposure to the U.S. dollar, but almost managed to offset this by better performance in the rest of the world. Diosynth has to deal with a general slowdown in the supply to the pharmaceutical industry, including Organon."

Coatings - solid performance

Akzo Nobel's Coatings businesses achieved autonomous sales growth of 2%. However, including currencies and divestments, sales were down 5%. Froehlich: "In difficult market conditions, our worldwide number one Coatings business showed a solid performance. Restructuring is contributing clearly and costs are well under control. Return on sales margins in the quarter were on a par with last year's third quarter. Workforce decreased more than 1,000 employees on a net basis, despite continuous growth in the emerging markets. The Marine & Protective Coatings, Powder Coatings and industrial activities were particularly strong. Decorative Coatings is feeling the pressure from weak business conditions in Europe."

Chemicals - robust performance continued

The Akzo Nobel Chemicals business again managed to protect volumes and prices in a no-growth environment. "Of the 5% operating income decline, 4% is attributable to currency translation," said Froehlich. "Chemicals was able to defend its volume and price level in a tough business climate, which is a robust performance. Cost-saving programs are progressing well and are clearly contributing. The various businesses showed a mixed picture. Also in Chemicals, return on sales margins were on a par with last year's third quarter." In May this year, the Company announced a divestment program in Chemicals, which was specified and expanded in September. Catalysts, Coating Resins and Phosphorus Chemicals, with total sales of some EUR 1 billion, will be divested.

Froehlich: "It should generate proceeds of well over EUR 500 million to create room to maneuver for Akzo Nobel. We are fully on schedule in this process."

Outlook for 2003 unchanged: net income(1) significantly down

Froehlich: "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(1) will be significantly below last year."

Note for the editor

Akzo Nobel, based in the Netherlands, serves customers throughout the world with healthcare products, coatings and chemicals. Consolidated sales for 2002 totaled EUR 14 billion. The Company currently employs approximately

65,200 people in more than 80 countries. Financial results for 2003 will be published on February 3, 2004.

Internet: www.akzonobel.com

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