Form 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Issuer
Pursuant to Rule 13 a - 16 or 15 d - 16 of
The Securities Exchange Act of 1934
Commission file number 0 - 017444
Akzo Nobel N.V.
(Translation of registrant's name into English)
76, Velperweg, 6824 BM Arnhem, the Netherlands
(Address of principal executive offices)
The following exhibit
is filed with this report
Akzo Nobel Report for the first quarter of 2004
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf of
the undersigned, thereto duly authorized.
Akzo Nobel N.V.
Name : F.H. Hensel Name : J.J.M. Derckx
Title : Senior Vice President Title : Director Corporate Control
Finance
Dated : April 20, 2004
REPORT FOR THE 1ST QUARTER OF 2004
KEY FIGURES
_______________________________________________________________________________
Millions of euros (EUR) 1ST QUARTER
----------------------------------- ---------------------------------
2004 2003* ch.%
------- -------- -------
Net income excl. nonrecurring items 176 164 7
- per share, in EUR 0.62 0.57
Net income 133 139 (4)
- per share, in EUR 0.47 0.49
Sales
Pharma 821 884 (7)
Coatings 1,231 1,262 (2)
Chemicals 1,118 1,175 (5)
Other (32) (34)
------- --------
Total 3,138 3,287 (5)
======= ========
Operating income** (EBIT)
Pharma 155 141 10
Coatings 82 70 17
Chemicals 93 97 (4)
Other (38) (34)
------- --------
Total 292 274 7
======= ========
Return on sales**, in % 9.3 8.3
Interest coverage 9.1 7.2
Gearing 0.91 0.92***
1.33****
Number of employees 64,320 64,580***
67,550****
_______________________________________________________________________________
NET INCOME** - UP 7%
- Pharma - result up in a tough quarter
- Coatings - clearly up due to strong growth and cost savings
- Chemicals - solid performance under difficult business conditions
- Chemicals divestment program on schedule
- Strong financial position
- Outlook unchanged - net income, excluding nonrecurring items and special
benefits, below 2003
* 2003 figures have been adjusted for a minor regrouping of activities
between Coatings and Chemicals.
** Excluding nonrecurring items.
*** At December 31, 2003.
**** At March 31, 2003.
1
REPORT FOR THE 1ST QUARTER OF 2004
(R) or (TM) indicates trademarks in one or more countries.
The report for the 2nd quarter of 2004 will be published on July 19, 2004.
NOTE
The data in this report are unaudited.
The 2003 comparative figures for Coatings and Chemicals have been adjusted for
a minor regrouping of activities between these two segments.
Unless indicated otherwise, discussions in this report, such as on earnings
developments, exclude nonrecurring items.
Nonrecurring items relate to income and expenses resulting from normal business
operations, 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 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 to
changed volumes and selling prices. It excludes currency, acquisition, and
divestment effects.
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, pensions, 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 Annual Report on Form 20-F filed with the United States
Securities and Exchange Commission.
* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.
2
REPORT FOR THE 1ST QUARTER OF 2004
_______________________________________________________________________________
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
Millions of euros 1ST QUARTER
--------------------------------------------------------- ------------------------------------
2004 2003 ch.%
------- ------- ----------------
Sales 3,138 3,287 (5)
Operating costs (2,846) (3,013)
------- -------
Operating income* (EBIT) 292 274 7
Financing charges (32) (38)
------- -------
Operating income* less financing charges 260 236
Taxes (82) (68)
------- -------
Earnings* of consolidated companies, after taxes 178 168 6
Earnings from nonconsolidated companies 6 6
Earnings* before minority interest 184 174
Minority interest (8) (10)
------- -------
Net income excluding nonrecurring items 176 164 7
Nonrecurring items, after taxes and minority interest (43) (25)
------- -------
Net income 133 139 (4)
======= =======
Return on sales*, in % 9.3 8.3
Interest coverage 9.1 7.2
Net income excluding nonrecurring items per share, in EUR
- basic 0.62 0.57
- diluted 0.61 0.57
Net income per share, in EUR
- basic 0.47 0.49
- diluted 0.46 0.49
EBITDA 449 437 3
Capital expenditures 107 113
Depreciation 144 152
_______________________________________________________________________________
* Excluding nonrecurring items.
3
REPORT FOR THE 1ST QUARTER OF 2004
NET INCOME* - UP 7%
Net income excluding nonrecurring items rose 7% to EUR 176 million. Earnings*
per share were EUR 0.62 (2003: EUR 0.57).
Including net nonrecurring losses of EUR 43 million, first-quarter net income
was EUR 133 million (2003: EUR 139 million). Net income per share was EUR 0.47
(2003: EUR 0.49).
SALES - DOWN 5%
Sales of EUR 3.1 billion were down 5% on last year. Autonomous growth was 2%,
while currency translation and divestments had a negative effect of 5% and 2%,
respectively. Sales developed as follows:
_______________________________________________________________________________
Currency
In % Total Volume Price translation Divestments
------------ -------- -------- -------- ------------ ------------
Pharma (7) (4) 1 (4)
Coatings (2) 6 1 (4) (5)
Chemicals (5) 1 (1) (5) -
AKZO NOBEL (5) 2 - (5) (2)
_______________________________________________________________________________
OPERATING INCOME - UP 7%
Operating income rose 7% to EUR 292 million. Return on sales was 9.3%, against
8.3% in the first quarter of 2003. Restructuring programs are clearly paying
off at all three groups. Pharma also benefited from its product portfolio
management actions. In addition, Coatings achieved strong sales growth.
Chemicals held up well due to cost savings, but felt pressure on margins from
increasing raw material and power prices. Earnings developed as follows:
_______________________________________________________________________________
Operating Change from 1st quarter of 2003
income for ------------------------------------------------------------
Millions of 1st quarter of Operational Currency Lower pension
euros 2004 Total performance translation charges
-------------- --------------- ------------- ------------ -------------- ---------------
Pharma 155 14 27 (16) 3
Coatings 82 12 15 (6) 3
Chemicals 93 (4) (4) (3) 3
Other** (38) (4) (7) - 3
--------------- ------------- ------------ -------------- ---------------
AKZO NOBEL 292 18 31 (25) 12
_______________________________________________________________________________
Currency translation effects were mainly caused by the weaker U.S. dollar and
various Asian currencies.
* Excluding nonrecurring items.
** "Other" mainly comprises pension costs related to former employees of
divested operations and results of the (intermediate) holding companies and
the captive insurance companies.
4
REPORT FOR THE 1ST QUARTER OF 2004
Financing charges decreased substantially, as a result of reduced net
borrowings and lower foreign currency exchange rates. Interest coverage in the
first quarter improved to 9.1 (2003: 7.2).
The income tax charge increased to 31.5% (2003: 29%), reflecting changes in the
geographic distribution of the Company's results.
NONRECURRING ITEMS
In the first quarter, the Company registered nonrecurring losses of EUR 61
million, which is EUR 43 million after taxes. These losses mainly concern
impairment and restructuring costs of the Organon production site in West
Orange, New Jersey, and the settlement in the Remeron(R) court case with generic
drug manufacturers. The cases with the direct and indirect purchasers and the
State Attorneys General are still ongoing.
WORKFORCE - DOWN 650 FROM RESTRUCTURINGS
At the end of the first quarter of 2004, the Company had 64,320 employees,
compared with 64,580 at year-end 2003 and 67,550 at March 31, 2003. Cost saving
measures at all three groups caused a decrease of 650 in the first quarter of
2004, while growth of certain businesses and seasonal influences expanded the
workforce by 390. Developments were as follows:
_______________________________________________________________________________
March 31, Other December 31,
2004 Restructurings changes 2003
---------- ------------ -------------- ------------- -------------
Pharma 20,480 (320) 120 20,680
Coatings 28,570 (180) 410 28,340
Chemicals 14,130 (140) (140) 14,410
Other 1,140 (10) 1,150
------------ -------------- ------------- -------------
AKZO NOBEL 64,320 (650) 390 64,580
_______________________________________________________________________________
OUTLOOK UNCHANGED - NET INCOME, EXCLUDING NONRECURRING ITEMS AND SPECIAL
BENEFITS, BELOW 2003
We confirm our earlier expressed expectation that full-year net income,
excluding nonrecurring items, will be below 2003. This outlook is based on our
present portfolio of activities and on 2003 earnings excluding the special
benefit from the asenapine cooperation of EUR 70 million, after taxes.
5
REPORT FOR THE 1ST QUARTER OF 2004
PHARMA - RESULT UP IN A TOUGH QUARTER
_______________________________________________________________________________
Millions of euros 1ST QUARTER
-------------------------- ------------------------------------
2004 2003 ch.%
------- ------- ----------------
Sales
Organon 507 564
Intervet 257 253
Diosynth 102 105
Intragroup sales/other (45) (38)
------- -------
Total 821 884 (7)
Operating income* (EBIT) 155 141 10
Return on sales*, in % 18.9 16.0
S&D expenses as % of sales 32.2 32.5
R&D expenses as % of sales 16.2 16.3
EBITDA 200 184 9
Capital expenditures 41 51
Invested capital 2,633 2,506**
Number of employees 20,480 20,680**
_______________________________________________________________________________
* Excluding nonrecurring items.
** At December 31.
- Sales clearly down - due to currencies and lower volumes
- Cost savings and product portfolio actions more than offset impact of lower
sales
- Organon - facing tough times
Remeron(R) - rapid decline in U.S.
early entrance fee received for Remeron(R) in Germany
changed reimbursement policies affecting infertility products
Arixtra(R) - transfer to Sanofi-Synthelabo for revenue agreement
Avinza(R) co-promotion - gathering momentum closure of U.S. production
site announced
- Intervet - autonomous growth of 5%
- Diosynth - suffering from overcapacity; restructurings announced
6
REPORT FOR THE 1ST QUARTER OF 2004
Pharma is facing tough times. Sales in the first quarter decreased 7% to EUR
0.8 billion, due to weaker key currencies, generic competition in the United
States for Remeron(R), and lower sales for infertility and HT products.
Operating income rose 10% to EUR 155 million. Return on sales was 18.9% (2003:
16.0%). Cost savings at Organon are clearly paying off. This unit received more
than EUR 30 million from product portfolio management, comprising the receipt of
the payment for the Arixtra(R) transfer and the early entrance fee for a
marketing license for Remeron(R) in Germany. These actions more than offset the
negative impact from lower Organon sales and the earnings decline at Diosynth.
At the same time, Pharma's R&D expenditures were kept at well over 16% of sales.
The main products in human healthcare developed as follows:
_______________________________________________________________________________
Millions of euros SALES
------------------------------------------------- -----------------------------
AUTONOMOUS GROWTH, %
1ST QUARTER ----------------------------
2004 on Q-1 2003 on Q-4 2003
----------- ------------- -------------
Remeron(R) in U.S. 14 (79) (56)
Remeron(R) in rest of world 87 24 -
Contraceptives 126 11 (7)
Puregon(R)/Follistim(R) 66 (19) (23)
Livial(R) 39 (14) (16)
_______________________________________________________________________________
The antidepressant Remeron(R) encounters severe generic competition in the
United States, which now also affects Remeron(R) SolTab(R). In the rest of the
world, Remeron's autonomous sales growth was 24% compared to the first quarter
of 2003, and flat compared to the fourth quarter. NuvaRing(R) (contraceptive
ring) turned in first quarter 2004 sales of EUR 15 million (Q-1 2003: EUR 5
million; Q-4 2003: EUR 14 million). Sales of Puregon(R)/Follistim(R) were down,
mainly due to changed reimbursement policies in several countries and a
production interruption in the United States. In March 2004, approval from the
FDA was received for Follistim(R)-AQ(TM) cartridge in the United States. In the
meantime, this product has been launched. Livial(R) sales were impacted by the
ongoing discussions around the results of studies on hormone therapies. The
co-promotion with Ligand for their Avinza(R)-a once-daily opioid for chronic,
moderate to severe pain-is showing robust growth. In April 2004, the closure of
Organon's production site in West Orange, New Jersey, was announced, which
involves 165 jobs.
The animal healthcare activities Intervet achieved a healthy 5% autonomous
growth and turned in a satisfactory performance.
Diosynth is severely suffering from overcapacity in its industry and lower
captive demand. To address this situation restructurings have been announced
earlier in Scotland, Mexico, and the Netherlands, affecting 350 jobs.
7
REPORT FOR THE 1ST QUARTER OF 2004
COATINGS - CLEARLY UP DUE TO STRONG GROWTH AND COST SAVINGS
_______________________________________________________________________________
Millions of euros 1ST QUARTER
---------------------------- ----------------------------------------
2004 20031 ch.%
--------- --------- ----------------
Sales
Decorative Coatings 428 418
Industrial activities 373 362
Car Refinishes/Nobilas 221 218
Marine & Protective Coatings 219 204
Intragroup sales/other (10) (5)
--------- ---------
Total continued operations 1,231 1,197 3
Impregnated Papers 65
--------- ---------
Total 1,231 1,262 (2)
Operating income** (EBIT) 82 70 17
Return on sales**, in % 6.7 5.5
EBITDA 116 109 6
Capital expenditures 21 22
Invested capital 2,260 2,043***
Number of employees 28,570 28,340***
_______________________________________________________________________________
* 2003 figures have been adjusted for a minor regrouping of activities
between Coatings and Chemicals.
** Excluding nonrecurring items.
*** At December 31.
- Autonomous growth 7% - mainly Asia Pacific and U.S.
- Negative currency effect - 4%
- Restructurings paying off - operating income up 17%
- Decorative Coatings - improved performance; Europe still under pressure
- Marine & Protective Coatings - star performer
- Industrial activities - solid growth
- Car Refinishes - pressure on margins
8
REPORT FOR THE 1ST QUARTER OF 2004
Coatings sales were down 2% to EUR 1.2 billion. Autonomous sales growth was 7%,
primarily attributable to increased volumes as a result of our strong positions
in Asia Pacific and the United States. The negative currency impact was 4%,
while divestments, mainly Impregnated Papers, resulted in a 5% decrease.
Operating income jumped 17% to EUR 82 million. Return on sales was 6.7% (2003:
5.5%). Coatings is clearly reaping the benefits from the restructuring programs
and growth of its activities. Raw material prices show an upward tendency.
The performance of Decorative Coatings improved, although business conditions
in Europe remain weak. Marine & Protective Coatings again turned in an
excellent performance, while the industrial activities continued their growth
pattern. Car Refinishes suffers from pressure on margins.
The restructuring programs are progressing well, resulting in a workforce
reduction of 180 in the first quarter of 2004. In growth areas, such as Eastern
Europe and Asia, and due to seasonal influences the workforce increased by 410.
Capital expenditures were reduced slightly to EUR 21 million, which is 69% of
depreciation.
In March 2004, Akzo Nobel opened its new non-stick coatings facility in Sao
Paulo, Brazil. As well as supplying non-stick coatings for the Brazilian
cookware industry, the factory also produces coatings for a range of
specialized industrial applications, such as automotive pistons and copier
rolls.
Early in April 2004, the Company divested its industrial polyurethane (PUR)
adhesives and system business to the Sika Group. This unit's 2003 sales
amounted to EUR 17 million.
9
REPORT FOR THE 1ST QUARTER OF 2004
CHEMICALS - SOLID PERFORMANCE UNDER DIFFICULT BUSINESS CONDITIONS
_______________________________________________________________________________
Millions of euros 1ST QUARTER
------------------------ ----------------------------------------
2004 2003* ch.%
--------- --------- ----------------
Sales
Pulp & Paper Chemicals 237 276
Surface Chemistry 216 224
Functional Chemicals 200 208
Base Chemicals 135 134
Polymer Chemicals 120 130
Catalysts 91 91
Resins 73 73
Salt 73 77
Energy 43 43
Intragroup sales/other (70) (81)
--------- ---------
Total 1,118 1,175 (5)
Operating income**(EBIT) 93 97 (4)
Return on sales**, in % 8.3 8.3
EBITDA 168 176 (5)
Capital expenditures 44 36
Invested capital 2,629 2,604***
Number of employees 14,130 14,410***
_______________________________________________________________________________
* 2003 figures have been adjusted for a minor regrouping of activities between
Coatings and Chemicals.
** Excluding nonrecurring items.
*** At December 31.
- Sales volumes and prices - almost flat
- Negative currency effect of 5%
- Raw material and power prices - increasing
- Cost saving programs paying off - almost offsetting pressure on margins
- Surface Chemistry, Functional Chemicals, and Catalysts - benefiting from
stronger volumes
- Pulp & Paper Chemicals - volumes under pressure
- Divestment programs - on schedule
10
REPORT FOR THE 1ST QUARTER OF 2004
Chemicals' first-quarter sales of EUR 1.1 billion were 5% below last year,
entirely attributable to weaker currencies. Autonomous growth was flat, a
satisfactory performance in difficult economic conditions. In general, the
business climate in the United States is picking up again, while conditions in
Europe remained weak.
Operating income was down 4% to EUR 93 million, while return on sales was
unchanged at 8.3%. Contributions from actively pursued cost saving programs did
not offset the negative effects of weaker key currencies and higher raw
material and power prices.
Surface Chemistry, Functional Chemicals, and Catalysts benefited from increased
sales volumes, while Pulp & Paper Chemicals was under pressure from reduced
demand. Base Chemicals is affected by weak caustic prices and felt the
temporary impact from stops at one of its own sites and at a major customer's
site.
The restructuring programs are progressing well, resulting in a workforce
reduction in the first quarter of 140.
The divestment processes for Catalysts, Phosphorus Chemicals, and Coating
Resins are on schedule.
Capital expenditures were slightly higher at EUR 44 million, which is 63% of
depreciation.
In March 2004, Surface Chemistry opened its new facility for the production of
surfactants on Jurong Island, Singapore. The plant will support growing demand
for Surface Chemistry's product line of quaternary ammonium compounds and
specialty surfactants.
11
REPORT FOR THE 1ST QUARTER OF 2004
_______________________________________________________________________________
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 1ST QUARTER
----------------------------------------------- ---------------------------------------
2004 2003
------------------ ------------------
Total earnings before minority interest 141 158
Depreciation and amortization 157 163
-------- --------
Cash flow 298 321
Changes in working capital (214) (138)
Impairments 24
Changes in provisions, deferred tax assets, and
accrued prepaid pension costs (124) 23
Other changes 9 (2)
-------- --------
Net cash (used for)/provided by operations (7) 204
Capital expenditures (107) (113)
Acquisitions (16) (84)
Proceeds from divestments 20
Other changes 5 18
-------- --------
Net cash used for investing activities (118) (159)
Dividends paid (2) (4)
-------- --------
Funds balance (127) 41
Net cash used for financing activities (100) (173)
Effect of exchange rate changes on cash and
cash equivalents 8 (8)
-------- --------
Change in cash and cash equivalents (219) (140)
======== ========
_______________________________________________________________________________
12
REPORT FOR THE 1ST QUARTER OF 2004
Operational cash flow lower due to growth of working capital
The first-quarter funds balance was EUR 127 million negative (2003: EUR 41
million positive).
Cash flow from operations in 2004 was slightly negative, compared with an
inflow of EUR 204 million in 2003. The seasonal increase of working capital
exceeded last year's figure due to higher sales in March. In addition, payments
from provisions rose, including an additional payment of EUR 50 million to the
pension fund in the Netherlands.
Capital expenditures were reduced to EUR 107 million (2003: EUR 113 million),
which is 74% of depreciation.
Net cash used by financing activities predominantly concerned the redemption of
short-term borrowings.
13
REPORT FOR THE 1ST QUARTER OF 2004
_______________________________________________________________________________
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 MARCH 31, 2004 December 31, 2003
------------------------------------------------ ---------------- -----------------
Intangible assets* 598 590
Property, plant and equipment 3,889 3,967
Deferred tax assets 419 429
Deferred tax asset for minimum pension liability 371 361
Other financial noncurrent assets 1,130 1,076
Inventories 2,181 2,133
Receivables 2,990 2,671
Cash and cash equivalents 508 727
---------------- -----------------
Total 12,086 11,954
================ =================
Capital and reserves 3,549 3,326
Minimum pension liability (853) (824)
---------------- -----------------
Akzo Nobel N.V. shareholders' equity 2,696 2,502
Minority interest 145 140
---------------- -----------------
Equity 2,841 2,642
Provisions 2,446 2,581
Provision for minimum pension liability 1,382 1,342
Long-term borrowings 2,741 2,717
Short-term borrowings 356 441
Current liabilities 2,320 2,231
---------------- -----------------
Total 12,086 11,954
================ =================
Gearing 0.91 0.92
Shareholders' equity per share, in EUR 9.44 8.76
Number of shares outstanding, in millions 285.7 285.7
_______________________________________________________________________________
* Intangible assets include capitalized prior service costs related to the
minimum pension liability of EUR 166 million at March 31, 2004 and of EUR 165
million at December 31, 2003.
14
REPORT FOR THE 1ST QUARTER OF 2004
_______________________________________________________________________________
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 liability equity interest Equity
---------------------------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2003 3,326 (824) 2,502 140 2,642
Income 133 133 8 141
Dividends (2) (2)
Changes in exchange rates 90 (29) 61 4 65
Changes in minority interest
in subsidiaries (5) (5)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 2004 3,549 (853) 2,696 145 2,841
========== ========== ========== ========== ==========
_______________________________________________________________________________
STRONG FINANCIAL POSITION
Invested capital at March 31, 2004, amounted to EUR 8.3 billion, EUR 0.2
billion higher than at December 31, 2003, mainly due to the seasonal increase
of working capital and currency translation effects.
Equity increased EUR 0.2 billion, mainly as a result of first-quarter income
and currency translation effects, while net interest-bearing borrowings also
increased by EUR 0.2 billion. Gearing improved slightly to 0.91 (December 31,
2003: 0.92; March 31, 2003: 1.33).
Arnhem, April 20, 2004 The Board of Management
15
REPORT FOR THE 1ST QUARTER OF 2004
ADDITIONAL INFORMATION Akzo Nobel N.V.
---------------------- Velperweg 76
The explanatory sheets used by the CFO during the P.O. Box 9300
press conference can be viewed on Akzo Nobel's 6800 SB Arnhem
Internet site at: The Netherlands
www.akzonobel.com/news/presentations.asp Tel. + 31 26 366 4433
Fax + 31 26 366 3250
E-mail ACC@akzonobel.com
Internet www.akzonobel.com
16