================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
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REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
FEBRUARY 04, 2005
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AKZO NOBEL N.V.
(Translation of registrant's name into English)
76, Velperweg, 6824 BM Arnhem, the Netherlands
(Address of principal executive offices)
0 - 017444
(Commission file number)
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Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
================================================================================
Report for the year 2004 and the 4th quarter
Key Figures
----------------------------------------------------------------------------------------
Millions of euros (EUR) Full year
----------------------------------------------- ---------------------------------------
2004 2003* change %
---------- --------- --------------
Net income excl. nonrec. items 770 811 (5)/4***
- per share, in EUR 2.69 2.84
Net income 856 602 42
- per share, in EUR 3.00 2.11
Sales
Pharma 3,246 3,550 (9)
Coatings 5,249 5,160 2
Chemicals 4,305 4,470 (4)/1****
Other (112) (129)
---------- ----------
Total 12,688 13,051 (3)
========== ==========
Operating income** (EBIT)
Pharma 522 692 (25)/(14)***
Coatings 421 414 2
Chemicals 354 341 4/21****
Other (87) (100)
---------- ----------
Total 1,210 1,347 (10)
========== ==========
Return on sales**, in % 9.5 10.3
Interest coverage 9.8 8.1
Number of employees***** 61,450 64,580
----------------------------------------------------------------------------------------
- Net income up 42%
- Net income excluding nonrecurring items 5% lower
- Autonomous growth 2%
- Restructurings paying off
- Divestments completed - EUR 1 billion proceeds; EUR 0.5 billion pretax
book profit
- Significant nonrecurring charges - restructuring, antitrust and
Remeron (R) cases
- Pharma - margin protection program mitigating effect top-line decline
- Coatings - shift to growth mode; raw materials impact increasing in
the fourth quarter
- Chemicals - strong performance improvement; new strategic focus
- Dividend maintained - EUR 1.20
- Outlook - aspiring to achieve net income** within the range of 2004
* 2003 figures have been adjusted for a minor regrouping of activities
between Coatings and Chemicals.
** Excluding nonrecurring items.
*** Excluding the initial Pfizer payment for the asenapine cooperation of
EUR 88 million received in 2003 (EUR 70 million after taxes).
**** Continued operations.
***** At December 31.
1
Report for the year and the 4th quarter of 2004
(R) or (TM) indicates trademarks in one or more countries.
This report is based on Netherlands GAAP, as applied by Akzo Nobel. As of 2005
Akzo Nobel will report its financial statements in accordance with IFRS. For the
impact of IFRS on the Company's statement of income and balance sheet in the
first three quarters of 2004 reference is made to "IFRS-based reporting Q-1 -
Q-3 2004" published on the Company's website (www.akzonobel.com). The IFRS-based
reporting for the full year 2004 will be published on April 7, 2005.
The 2004 Annual Report will be published on February 17, 2005, in print and as
PDF file on the Akzo Nobel website.
The Report for the 1st Quarter of 2005 will be published on April 19, 2005.
Note
The 2003 comparative figures for Coatings and Chemicals have been adjusted for a
minor regrouping of activities between these two groups.
Autonomous sales growth is defined as the change in sales attributable to
changed volumes and selling prices. It excludes currency, acquisition, and
divestment effects.
Operational performance is defined as the change in operating income excluding
effects from currency translation, divestments, and change in pension charges.
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 restructuring and impairment charges, significant gains
and losses on the disposal of businesses, and costs related to major law suits
and antitrust cases, not meeting the requirements for extraordinary items.
Operating income before nonrecurring items is one of the key figures management
uses to assess the Company's performance, as this figure better reflects the
underlying trends in the results of the activities.
Unless indicated otherwise, discussions in this report, such as earnings
developments, exclude nonrecurring items.
Invested capital, as also used in the calculation of ratios, excludes amounts
related to the minimum pension liability.
EVA is calculated by deducting from net operating profit after taxes (NOPAT) a
capital charge representing the cost of capital calculated on the basis of an
average return investors expect. The elements of the EVA calculation cannot be
derived directly from the data given in the financial statements, as it takes
into account certain adjustments such as addition of nonrecurring items to
capital, inclusion of service costs for pensions only, and special treatment of
strategic investments and acquisitions.
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 for 2005", 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 see 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.
* Pursuant to the U.S. Private Securities Litigation Reform Act 1995.
2
Report for the year and the 4th quarter of 2004
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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
4th quarter Millions of euros Full year
------------------------------------ ------------------------------------------------------ -----------------------------------
2004 2003 Ch. % 2004 2003 Ch. %
------------ ---------- --------- ---------- -----------
3,040 3,111 (2) Sales 12,688 13,051 (3)
(2,786) (2,670) Operating costs (11,478) (11,704)
------------ ---------- ---------- -----------
254 441 (42) Operating income* (EBIT) 1,210 1,347 (10)
(28) (38) Financing charges (123) (166)
------------ ---------- ---------- -----------
226 403 Operating income* less financing charges 1,087 1,181
(72) (130) Taxes (323) (366)
------------ ---------- ---------- -----------
154 273 (44) Earnings* of consolidated companies, after taxes 764 815 (6)
18 6 Earnings* from nonconsolidated companies 41 36
------------ ---------- ---------- -----------
172 279 Earnings* before minority interest 805 851
(7) (11) Minority interest (35) (40)
------------ ---------- ---------- -----------
165 268 (38) Net income excluding nonrecurring items 770 811 (5)
(75) (163) Nonrecurring items, after taxes and minority interest 86 (209)
------------ ---------- ---------- ----------
90 105 (14) Net income 856 602 42
============ ========== ========== ==========
8.4 14.2 Return on sales*, in % 9.5 10.3
9.1 11.6 Interest coverage 9.8 8.1
Net income excl. nonrecurring items per share, in EUR
0.58 0.94 - basic 2.69 2.84
0.58 0.93 - diluted 2.69 2.83
Net income per share, in EUR
0.31 0.37 - basic 3.00 2.11
0.31 0.37 - diluted 2.99 2.10
Dividend, in EUR 1.20 1.20
EVA 430 520
389 607 (36) EBITDA 1,803 1,999 (10)
172 201 Capital expenditures 551 581
121 148 Depreciation 540 599
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* Excluding nonrecurring items.
3
Report for the year 2004
Year 2004 - net income* 5% lower; net borrowings down EUR 1.3 billion
Net income excluding nonrecurring items was down 5% to EUR 770 million, which is
EUR 2.69 per share (2003: EUR 2.84). Earnings of Coatings and Chemicals
increased, mainly attributable to growth and cost savings, partially offset by
increasing raw material and energy prices. As expected Pharma's results were
down due to the loss of Remeron (R) sales, while 2003 earnings benefited from
the initial payment of EUR 88 million from Pfizer for the asenapine cooperation.
Including a net nonrecurring gain of EUR 86 million, net income was EUR 856
million, up 42% on 2003 net income of EUR 602 million.
EVA decreased by EUR 90 million to EUR 430 million, largely due to the decline
at Pharma, as 2003 included the asenapine payment (EUR 70 million after taxes).
Coatings and Chemicals achieved EVA improvements.
Autonomous sales growth of 2%
Sales in 2004 were EUR 12.7 billion, down 3% on the previous year. Autonomous
growth was 2%, which did not fully compensate the negative effect of currency
translation (3%) and of divestments and acquisitions (on balance 2%). Sales
developed as follows:
--------------------------------------------------------------------------------------------------------------
Currency Divestments/
In % Total Volume Price translation acquisitions
-------------------- ----------- ------------- ------------ ----------- -------------
Pharma (9) (7) 1 (3) -
Coatings 2 4 1 (2) (1)
Chemicals (4) 4 1 (3) (6)
Akzo Nobel (3) 1 1 (3) (2)
--------------------------------------------------------------------------------------------------------------
The negative currency translation impact predominantly related to the weakening
of the U.S. dollar and various Asian currencies.
Acquisitions principally concerned Timpe & Mock (deco wholesaler in Germany) and
AON Motor Accident Management (United Kingdom), while divestments mainly related
to Impregnated Papers sold in 2003 and Catalysts and Phosphorus Chemicals sold
in 2004.
* Excluding nonrecurring items.
4
Report for the year 2004
Operating income - down 10%
Operating income was EUR 1,210 million, on balance 10% below 2003. Return on
sales was 9.5%, compared with 10.3% in 2003. Operating income developed as
follows:
----------------------------------------------- -----------------------------------------------------------------------------------
Change from 2003
Operating -------------------------------------------------------------------------------------
income* for Operational Currency Lower pension
Millions of euros 2004 Total performance Divestments translation charges
------------------- ------------- --------- -------------- -------------- ----------- --------------------
Pharma 522 (170) (153)** - (30) 13
Coatings 421 7 15 (5) (16) 13
Chemicals 354 13 35 (27) (7) 12
Other*** (87) 13 1 - 12
------------- --------- --------------- --------------- ------------ ---------------------
Akzo Nobel 1,210 (137) (102) (32) (53) 50
-------------------------------------- ---------- ---------------------------------------------------------------------------------
* Excluding nonrecurring items.
** Includes the effect of the initial Pfizer payment of EUR 88 million for the
asenapine cooperation, received in 2003.
*** "Other" mainly comprises pension costs related to former employees of
divested operations and results of the (intermediate) holding companies
and the captive insurance companies.
All groups felt the impact of weaker key currencies, but benefited from lower
pension costs.
Pharma's earnings were down on the previous year, when the initial Pfizer
payment of EUR 88 million for the asenapine cooperation was included. The income
decline due to the loss of the Remeron (R) market exclusivity in the United
States continued but bottomed out in the latter part of the year. In the rest of
the world, Remeron (R) held up in the first part of the year, but toward the end
sales started to erode. Sales of Puregon (R) and Livial (R) were also lower, but
picked up again in the fourth quarter of 2004. The impact of these sales
declines was partially offset by cost savings. Diosynth's result was
significantly down to break-even level.
Coatings and Chemicals clearly benefited from 5% autonomous growth for each
group and their major cost-saving programs but both were also impacted by
significantly increasing raw material and energy prices.
R&D expenses were EUR 823 million, which is 6.5% of sales. For 2003, this was
EUR 887 million and 6.8%, respectively. Pharma's R&D expenses were maintained at
16% of sales, reflecting its continuous commitment to research and development.
In 2004, Organon again spent 19% of its sales on research. For Coatings and
Chemicals this ratio remained unchanged at some 3%.
Financing charges decreased from EUR 166 million in 2003 to EUR 123 million in
2004, reflecting the substantial reduction of net borrowings as a result of
proceeds from divestments. In addition, due to the weaker U.S. dollar, interest
denominated in this currency translated into lower financing charges. Interest
coverage improved from 8.1 to 9.8. EBITDA coverage was 14.7 (2003: 12.0).
5
Report for the year 2004
Earnings from nonconsolidated companies at EUR 41 million were substantially up
on 2003. Flexsys did significantly better than in 2003, which more than offset
the loss of earnings from the divested Catalysts joint ventures. The Company's
remaining 20%-stake in its former Fibers activities and the Turkish printing
inks joint venture Dyo Sadolin also did better.
On balance, a significant net nonrecurring gain
The Company recorded substantial nonrecurring gains and losses during 2004, on
balance amounting to a net gain of EUR 86 million.
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Restructuring
Millions of euros Impairments charges Total
---------------------------------------------------------------- ----------------- ----------------- -------------
Pharma (31) (20) (51)
Coatings (16) (38) (54)
Chemicals (27) (63) (90)
Other (4) (4)
----------------- ----------------- -------------
Total restructuring and impairment charges (74) (125) (199)
================= =================
Gain on divestments* 509
Remeron (R) court cases** (89)
Addition to provision for antitrust cases** (110)
Other (21)
------------
Gross nonrecurring items 90
Taxes 25***
------------
Nonrecurring items consolidated companies 115
Nonrecurring items nonconsolidated companies (29)
------------
Net nonrecurring items 86
-------------------------------------------------------------------------------------- --------------------------------
* It should be noted that no final settlement has been reached yet for some
of these divestments, so that the amounts recognized at this moment are
best estimates and could change at a later stage, once the final settlement
has been reached.
** Reference is made to the disclosures on pages 98 and 99 in the Akzo Nobel
Annual Report 2003, which will be updated in the 2004 Annual Report.
*** Taxes on the net nonrecurring gain are positive, as a major part of the
gains on divestments is tax exempt, while there is a tax credit on the
restructuring charges and most other charges.
Pharma's nonrecurring restructuring losses mainly concern impairment and closure
costs of the Organon production site in West Orange, New Jersey, and other
worldwide cost reduction programs. Settlement of most of the Remeron (R) cases
resulted in a charge of EUR 89 million.
Coatings restructuring charges predominantly concern the rationalization
programs at Car Refinishes.
6
Report for the year 2004
Restructurings and impairments at Chemicals relate to the closure of a Surface
Chemistry site in the United Kingdom, the chlorine production in Bohus, Sweden,
and staff cuts at Polymer Chemicals in Germany.
The gains on divestments mainly related to Catalysts, Phosphorus Chemicals, and
Coating Resins.
Mainly due to the recently imposed fines by the European Commission for
breaching competition laws in the markets for monochloroacetic acid and choline
chloride, the Company included a EUR 60 million charge in the fourth quarter, on
top of the EUR 50 million recognized in the second quarter of 2004. The Company
is still considering to appeal the fines imposed.
Nonrecurring losses for nonconsolidated companies consist of antitrust charges
recognized at Flexsys and nonrecurring charges for Acordis.
Focus on costs continued - workforce reduction of 2,650
The number of employees developed as follows:
-----------------------------------------------------------------------------------------------------------------------
December 31, Divestments/ Other December 31,
2004 Restructurings acquisitions changes 2003
------------------ -------------------- ------------------ ----------------- ---------------- -------------------
Pharma 19,390 (1,410) (80) 200 20,680
Coatings 29,070 (660) 580 810 28,340
Chemicals 11,890 (530) (2,110) 120 14,410
Other 1,100 (50) 1,150
-------------------- ------------------ ----------------- ---------------- -------------------
Akzo Nobel 61,450 (2,650) (1,610) 1,130 64,580
-------------------- --------------------------------------------------------------------------------------------------
The Company was well prepared to face the multitude of challenges of the year.
Ongoing restructuring programs were vigorously pursued, and various new programs
were started to address pressure on our earnings. As a result, our workforce was
reduced by 2,650 people. Since the start of our major program in 2001, our
restructuring actions have resulted in a headcount reduction by almost 9,000.
Our strong focus on restructuring, costs, and cash did not prevent us from
investing in new growth opportunities in high growth regions. We are actively
participating in attractive growth in Asia, particularly China, and in Eastern
Europe.
7
Report for the year 2004
2003 divestment program at Chemicals completed - balance sheet substantially
strengthened; creating room to maneuver
During 2004, the Company divested Catalysts, Phosphorus Chemicals, and Coating
Resins from its Chemicals portfolio to strengthen the balance sheet and create
more room to maneuver. These divestments generated EUR 1.0 billion, resulting in
a pretax book profit of EUR 0.5 billion. In addition, capital expenditures and
working capital were kept under tight control. As a result, in 2004 the Company
reduced net borrowings by EUR 1.3 billion. The Company has a sound balance sheet
with a gearing of 0.36, which positions it well for future growth.
In 2005, we will continue to manage our funds in a highly disciplined manner and
expect capital expenditures in the order of magnitude of EUR 650 million, up
from 2004 due to our projects in the Netherlands and Brazil.
Pension funding status - improved in 2004
Pension charges
Under SFAS 87 pension charges trail developments in the pension funding
situation by one year. During 2003, stock markets recovered somewhat from the
drop in 2002. As a result, pension charges for 2004 decreased by some EUR 50
million compared to 2003. In 2004, financial markets recovered further, as a
result of which 2005 pension charges are expected to drop by an additional EUR
70 million.
Minimum pension liability
As a result of the improved funding situation in 2004, the after-tax minimum
pension liability charged against shareholders' equity decreased from EUR 816
million to EUR 749 million at December 31, 2004, increasing shareholders' equity
by EUR 67 million.
Pension premiums paid
Pension premiums to be paid by the Company are based on local regulations and
arrangements with Akzo Nobel's pension funds. In the first quarter of 2004, the
Company paid an additional EUR 50 million into the pension fund in the
Netherlands on top of normal pension premiums.
Dividend maintained - EUR 1.20
A dividend of EUR 1.20 per common share will be proposed at the General Meeting
of Shareholders of April 21, 2005. In November 2004, an interim dividend of EUR
0.30 was declared and paid. Adoption of this proposal will result in a dividend
payment of EUR 343 million, a payout ratio of 45% relative to net income*, which
is above our normal range of 35-40%.
Starting April 25, 2005, Akzo Nobel shares will trade ex-dividend. The final
dividend will be made payable on May 2, 2005.
* Excluding nonrecurring items.
8
Report for the year 2004
New strategic focus for Chemicals
We will streamline the Chemicals portfolio in order to competitively realign the
business for growth, profitability, and leadership positions in selected
markets. These efforts will result in a smaller portfolio that is stronger,
creates more value, and is better structured to meet our financial expectations.
The Chemicals activities will be concentrated in five business units: Pulp &
Paper Chemicals, Polymer Chemicals, Surfactants, Functional Chemicals, and Base
Chemicals (the latter will comprise the Chlor-Alkali, Electrolysis Salt, and
Energy businesses). We are committed to ensure that leading positions-which are
key to our new strategy-will be established or consolidated. Expansion in growth
markets such as China will also be prioritized.
As a consequence of this new focus, the Company intends to divest several
businesses that do not fit this new strategy, including Ink and Adhesive Resins,
Oleochemicals, Salt Specialties, PVC Additives, Solar Salt Australia, and Methyl
Amines/Choline Chloride. All the activities earmarked for divestment represent a
total of around EUR 750 million in 2004 sales, and any bids will be expected to
reflect the value of the businesses concerned.
Outlook for 2005 - aspiring to achieve net income* within the range of 2004
We look to the future with cautious optimism and expect that we will be able to
grow the top line of the Company in 2005 across the portfolio. Our bottom line
will benefit from this growth but will also be impacted by raw material
prices-which are still increasing-and the further weakening of currencies
against the euro. In human healthcare especially, we will have to rise to the
challenge during 2005 of finding the right balance between investing in R&D and
premarketing, while actively defending margins. In spite of the very challenging
and unpredictable economic conditions (currencies and raw material prices), we
aspire to achieve a net income* within the range of 2004.
* Excluding nonrecurring items.
9
Report for the year 2004
Pharma - margin protection program mitigating effect top-line decline
------------------------------------ ------------------------------------------- ---------------------------------------
4th quarter Millions of euros Full year
---------------------------------- ------------------------------------------- ---------------------------------------
2004 2003 Change % 2004 2003 Change %
---------- ------- ----------- ---------- --------- --------------
Sales
509 582 Organon 2,010 2,273
261 256 Intervet 1,024 1,010
83 134 Diosynth 366 479
(37) (71) Intragroup sales/other (154) (212)
---------- ------- ---------- --------
816 901 (9) Total 3,246 3,550 (9)
119 285 (58)/(40)** Operating income* (EBIT) 522 692 (25)/(14)**
14.6 31.6*** Return on sales*, in % 16.1 19.5***
30.4 30.5 S&D expenses as % of sales 31.5 31.6
18.2 14.8 R&D expenses as % of sales 16.0 15.9
EVA 189 331
158 332 (52) EBITDA 690 868 (21)
47 65 Capital expenditures 158 210
Invested capital**** 2,387 2,506
Return on invested capital, in % 21.3 27.8
Capital turnover 1.33 1.43
Number of employees**** 19,390 20,680
-----------------------------------------------------------------------------------------------------------------------------------
* Excluding nonrecurring items.
** Excluding the initial Pfizer payment for the asenapine cooperation of EUR
88 mln.
*** Excluding the initial Pfizer payment for the asenapine cooperation, return
on sales for the fourth-quarter and the full-year was 21.9% and 17.0%,
respectively.
**** At December 31.
- Sales down - due to lower volumes at Organon and Diosynth and currencies -
- Organon
- cost saving programs - successful
- Remeron (R) - major decline due to generic competition in United
States; starting to erode in rest of world during the fourth quarter
- HT products - sales pressure bottomed out
- contraceptives - NuvaRing (R) strong growth
- Diosynth - severely suffering from overcapacity; restructurings completed
- Integration of Organon and Diosynth
- Intervet - improved performance
10
Report for the year 2004
Pharma continued to work hard to reduce the complexity within its business units
and improve operational efficiencies. U.S. dollar weakness and increasingly
stiff competition made these steps all the more important. Despite Pharma's best
efforts, sales and operating income were down substantially, continuing the
downward trend triggered in December 2002 by the loss of exclusivity of Remeron
(R), which until then had been our leading antidepressant. In 2003, Pharma also
benefited from the payment of EUR 88 million for the asenapine cooperation by
Pfizer.
Addressing the Remeron (R) lifecycle management issues was the biggest challenge
for Organon in 2004. Organon entered into several agreements with generic
companies to help market the product while managing Remeron (R)SolTab (R), which
remains exclusive in some markets. Also, most of the key lawsuits concerning
Remeron (R) in the United States were settled.
Sales of Organon's key products developed as follows:
------------------------------------------------------------------------------------------------------------------------
Autonomous growth
4th quarter relative to, % Autonomous
------------------------- growth relative
2004 Q-4 2003 Q-3 2004 Millions of euros or % Full year 2004 2003, %
------------ ----------- ----------- -------------------------- -------------- ---------------
9 (70) 3 Remeron (R) in U.S. 47 (75)
72 (19) (6) Remeron (R) in rest of world 316 -
132 (2) 2 Contraceptives 522 4
24 76 7 - of which NuvaRing (R) 81 115
78 (8) 15 Puregon (R)/Follistim (R) 285 (11)
41 (14) 4 Livial (R) 160 (17)
------------------------------------------------------------------------------------------------------------------------
R&D achievements help move Organon forward and the progress made in 2004 give us
confidence. Follistim (R)-AQ (TM) cartridge was approved in the United States,
which should add to sales of this key fertility product. The asenapine program
with Pfizer has made good progress. Phase III is well under way; FDA and
European EMEA submissions are planned for early 2007. The approvable letter for
the Implanon (R) birth control implant will also positively affect the second
half of 2005 in the United States. There was, however, some negative R&D news,
most notably the FDA rejection of our application for the antidepressant
gepirone ER.
Diosynth had a very difficult year with sales down 24%, reflecting the overall
situation of the contract manufacturing industry. In the biotechnology segment,
several new manufacturing contracts were awarded, some of which may prove
significant in the future.
In August, we announced the integration of Diosynth and Organon, which will
combine Pharma's know-how, especially in the biotechnology area, and simplify
supply chain management. Third-party customers of Diosynth will continue to be
served under the Diosynth name.
The major news in the animal health sector was the recurrence of avian flu.
Intervet provided support to various governments in addressing this serious
threat. It also took steps to improve operational efficiency, the first results
of which are clearly reflected in earnings.
11
Report for the year 2004
Coatings - shift to growth mode; raw materials impact increasing
--------------------------------------- --------------------------------------- --------------------------------------
4th quarter Millions of euros Full year
------------------------------------- -------------------------------------- --------------------------------------
2004 2003* Change % 2004 2003* Change %
---------- --------- ------------ --------- --------- --------------
Sales
401 374 Decorative Coatings 1,911 1,842
391 375 Industrial activities 1,592 1,489
249 211 Car Refinishes/Nobilas 927 880
213 205 Marine & Protective Coatings 875 832
(14) (1) Intragroup sales/other (56) (12)
---------- --------- --------- ---------
1,240 1,164 7 Total continued operations 5,249 5,031 4
Impregnated papers 129
---------- --------- --------- ---------
1,240 1,164 7 Total 5,249 5,160 2
56 82 (32) Operating income** (EBIT) 421 414 2
4.5 7.0 Return on sales**, in % 8.0 8.0
EVA 156 153
89 119 (25) EBITDA 556 561 (1)
39 51 Capital expenditures 122 124
Invested capital*** 2,057 2,043
Return on invested capital, in % 20.5 19.4
Capital turnover 2.56 2.42
Number of employees*** 29,070 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 5% - mainly Asia Pacific and United States
- 32% of sales realized in emerging markets
- Steep increase of raw material prices - increasing pressure on margins in
the fourth quarter
- Decorative Coatings - improved performance from cost savings
- Marine & Protective and industrial activities - further improved
- Car Refinishes - major worldwide restructuring set in motion
12
Report for the year 2004
Coatings recorded a ROI of 20.5%-a leap forward compared to the previous
year-underscoring the road map to our medium-term ROI target of 25%. This was
achieved through high volume growth and tight cost control, despite steeply
increasing raw material costs and difficult economic circumstances in Europe.
All business units achieved performance gains, except for Car Refinishes, where
a major restructuring program is being implemented to address this situation. In
the fourth quarter of 2004, margins were under pressure from increased raw
material prices, in particular in the industrial activities.
In 2004, sales grew autonomously by 5%, mainly in emerging markets, which now
represent 32% of worldwide sales. We opened two new multipurpose Industrial
Finishes sites in China and a new Non-Stick Coatings facility in Brazil. Marine
& Protective Coatings established International Paint Japan to serve Japanese
and worldwide marine coatings customers also directly in this important market.
We also completed investments in two new Powder Coatings sites in China and a
new Decorative Coatings facility in Vietnam.
During the year, we established Nobilas Claims & Fleet Solutions as a separate
business unit to fully exploit the potential to become the leading provider in
all areas of accident management services.
We continued to improve our business mix by divesting eight small noncore
businesses and making selective acquisitions, such as Rhenacoat coil coatings in
France and BASF's joinery business.
Decorative Coatings Europe remained focused on extending its distribution
channels by acquiring ten wholesalers. In Germany-the biggest coatings market in
Europe-we stepped up efforts to improve our position by acquiring Timpe & Mock
and taking a 30% shareholding in Peters.
To realign the business with changing market conditions, Car Refinishes
announced a major restructuring program, involving 10% of its global workforce.
Our main challenge continues to be a balancing act between our unwavering
commitment to reducing our cost base in mature markets and at the same time
capturing growth opportunities in emerging markets through a combination of
selective acquisitions and organic growth.
13
Report for the year 2004
Chemicals - strong performance improvement; new strategic focus
--------------------------------------------------------------------------------------------------------------------
4th quarter Millions of euros Full year
----------------------------------- ---------------------------------------- ---------------------------------
2004 2003* Change % 2004 2003* Change %
---------- ------- ------------ -------- ------- ------------
Sales
259 247 Pulp & Paper Chemicals 980 1,008
203 193 Surface Chemistry 863 858
150 143 Functional Chemicals 613 604
154 133 Base Chemicals 575 544
128 121 Polymer Chemicals 494 492
75 67 Salt 274 267
44 44 Energy 175 171
(76) (65) Intragroup sales/other (286) (290)
---------- ------- -------- ------
937 883 6 Total continued operations 3,688 3,654 1
70 192 Divested operations 617 816
---------- ------- -------- ------
1,007 1,075 (6) Total 4,305 4,470 (4)
89 72 24 Operating income** continued operations 315 261 21
(1) 17 Divested operations 39 80
---------- ------- -------- ------
88 89 (1) Total operating income** (EBIT) 354 341 4
9.5 8.2 Return on sales** continued operations, in % 8.5 7.1
8.7 8.3 Return on sales**, in % 8.2 7.6
EVA 101 64
147 167 (12)/4*** EBITDA 634 659 (4)/6***
88 88 Capital expenditures 269 241
Invested capital**** 2,043 2,604
Return on invested capital, in % 15.2 12.4
Capital turnover 1.85 1.63
Number of employees**** 11,890 14,410
-------------------------------------------------------------------------------------------------------------------------
* 2003 figures have been adjusted for a minor regrouping of activities
between Coatings and Chemicals.
** Excluding nonrecurring items.
*** Continued operations.
**** At December 31.
- Continued operations - autonomous growth 5%; operating income up 21%
- Most units benefiting from improved business climate
- Cost saving programs paying off
- Steeply rising raw material and energy prices - increasing pressure on
margins
- 2003 divestment program - completed
- New strategic focus
14
Report for the year 2004
Chemicals experienced healthy profit growth triggered by increased global
demand. Results were further boosted by cost savings and manufacturing
efficiency improvements, partially offset by the impact of increased raw
material and energy prices.
Sales and operating income excluding the divested businesses increased on 2003
by 1% and 21%, respectively. Improvements were achieved in particular by Polymer
Chemicals, Functional Chemicals, Pulp & Paper Chemicals, and Base Chemicals.
Earnings of Salt were under pressure.
During the year the divestments of Catalysts, Phosphorus Chemicals, and Coating
Resins were successfully carried out. The divestment program generated proceeds
of close to EUR 1 billion, which is above the annual sales of these businesses
and reflects their solid value.
Key investment projects in 2004 included the EUR 50 million Pulp & Paper
chemical factory island within the Veracel paper mill complex at Eunapolis in
Brazil and the start of the EUR 160 million relocation of Chlorine and MCAA
plants from Hengelo to Delfzijl, the Netherlands. This project is supported by
the Dutch government in order to end chlorine transports by rail in the
Netherlands.
Our investment in China now comprises seven factories covering the Polymer,
Paper, and Functional Chemicals market segments. Our combined chemicals sales in
China in 2004 aggregated some EUR 130 million and are growing rapidly.
2004 was a year of streamlining, restructuring, and consolidation of the R&D
activities in and across Chemicals' business units to improve the effectiveness
of operations. Despite these organizational changes, exciting breakthrough
technologies and products were developed.
15
Report for the year 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
Millions of euros (EUR)
2004 2003
------------------------- --------------------------
Total earnings before minority interest 891 651
Depreciation and amortization 593 652
----------- -----------
Cash flow 1,484 1,303
Pretax gain on divestments (509) (30)
Changes in working capital 156 (119)
Impairments 74 138
Changes in provisions, deferred tax assets and accrued
prepaid pension costs (1) 116
Retained income of nonconsolidated companies 71 3
Other changes (2) (14)
----------- -----------
Net cash provided by operations 1,273 1,397
Capital expenditures (551) (581)
Expenditures for intangible assets (28) (27)
Acquisitions (80) (101)
Proceeds from divestments 1,036 203
(Investments)/repayments nonconsolidated companies (29) 78
Other changes 6 (23)
----------- -----------
Net cash generated by/(used for) investing
activities 354 (451)
Dividends paid (366) (370)
------- -----
Funds balance 1,261 576
Net cash used for financing activities (169) (342)
Effect of exchange rate changes on cash and cash equivalents (8) (27)
------- -----
Change in cash and cash equivalents 1,084 207
======= =====
--------------------------------------------------------------------------------------------------------------------
16
Report for the year 2004
Strong funds balance of EUR 1.3 billion
The funds balance increased from EUR 0.6 billion to EUR 1.3 billion, mainly from
divestments and the reduction of working capital. Cash flow from operations
decreased somewhat to EUR 1.3 billion.
Capital expenditures were below the 2003 level-mainly attributable to Pharma-and
almost at depreciation level. Investments are targeted at priority businesses
and regions, particularly China and Central and Eastern Europe. In these areas,
growth continued at high rates, and we opened several new factories to
participate in this development. Chemicals' investments also include projects in
the Netherlands and Brazil.
Acquisition expenditures concerned Timpe & Mock and several other acquisitions
at Coatings.
Proceeds from divestments principally related to the sale of Catalysts,
Phosphorus Chemicals, and Coating Resins.
17
Report for the year 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 December 31, 2004 December 31, 2003
----------------------------------------------------------- ------------------------- ---------------------------
Intangible assets* 561 590
Property, plant and equipment 3,535 3,967
Deferred tax assets 351 429
Deferred tax asset for minimum pension liability 354 361
Other financial noncurrent assets 1,048 1,076
Inventories 1,978 2,133
Receivables 2,767 2,671
Cash and cash equivalents 1,811 727
--------------------------- --------------------------
Total 12,405 11,954
=========================== ==========================
Capital and reserves 3,795 3,326
Minimum pension liability** (759) (824)
--------------------------- --------------------------
Akzo Nobel N.V. shareholders' equity 3,036 2,502
Minority interest 140 140
--------------------------- --------------------------
Equity 3,176 2,642
Provisions 2,479 2,581
Provision for minimum pension liability 1,240 1,342
Long-term borrowings 2,694 2,717
Short-term borrowings 258 441
Current liabilities 2,558 2,231
--------------------------- --------------------------
Total 12,405 11,954
=========================== ==========================
Gearing 0.36 0.92
Invested capital 7,227 8,117
Return on investment, in % 15.8 16.0
Capital turnover 1.65 1.55
Shareholders' equity per share, in EUR 10.62 8.76
Number of shares outstanding, in millions 285.8 285.7
-------------------------------------------------------------- ---------------------------- -------------------------
* Intangible assets include capitalized prior service costs related to the
minimum pension liability of EUR 137 million at December 31, 2004, and of
EUR 165 million at December 31, 2003.
** Includes minimum pension liabilities for nonconsolidated companies of EUR
10 million at December 31, 2004 (December 31, 2003: EUR 8 million).
18
Report for the year 2004
--------------------------------------------------------------------------------------------------------------------
C H A N G E S I N E Q U I T Y
Minimum Share-
Capital 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 856 856 35 891
Dividends (343) (343) (23) (366)
Changes in exchange rates (42) (42) (4) (46)
Employee and Board share plan (2) (2) (2)
Change in minimum pension liability 65 65 65
Changes in minority interest
in subsidiaries (8) (8)
----------- ----------- ------------ ---------- ---------
Balance at December 31, 2004 3,795 (759) 3,036 140 3,176
=========== =========== ============ ========== =========
* Includes minimum pension liabilities for nonconsolidated companies of EUR
10 million at December 31, 2004 (December 31, 2003: EUR 8 million).
Net borrowings down EUR 1.3 billion - balance sheet significantly further
strengthened
Invested capital at December 31, 2004, amounted to EUR 7.2 billion, down EUR 0.9
billion on year-end 2003, mainly due to divestments, lower working capital
needs, and negative currency translation effects.
Net interest-bearing borrowings were down EUR 1.3 billion to EUR 1.1 billion,
which was mainly attributable to the proceeds from divestments. Equity increased
EUR 0.5 billion as a result of retained 2004 income. As a consequence, year-end
gearing improved to 0.36 (December 31, 2003: 0.92).
Arnhem, February 3, 2005 The Board of Management
19
Report for the year 2004
Auditors' Report
We have audited the full-year condensed consolidated statement of income, the
condensed consolidated statement of cash flows, the condensed consolidated
balance sheet as well as the statement of changes in equity, included on pages
3, 16, 18, and 19, respectively, which have been derived from the 2004 financial
statements of Akzo Nobel N.V. as audited by us. We issued an unqualified
auditors' report on these financial statements on February 3, 2005.
The statements and balance sheet referred to before are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
statements and balance sheet based on our audit.
In our opinion, these statements and balance sheet are consistent in all
material respects with the financial statements from which they have been
derived.
For a better understanding of the financial position and results of the Company
and the scope of our audit, these statements and balance sheet should be read in
conjunction with the complete financial statements from which they have been
derived and the auditors' report we issued thereon.
Arnhem, February 3, 2005 KPMG Accountants N.V.
20
Report for the 4th quarter of 2004
Key Figures
Key Figures
---------------------------------------------------------------------------------
Millions of euros 4th quarter
-------------------------------------------- -----------------------------------
2004 2003* Change %
--------- ------- -------------
Net income excl. nonrec. items 165 268 (38)/(17)***
- per share, in EUR 0.58 0.94
Net income 90 105 (14)
- per share, in EUR 0.31 0.37
Sales
Pharma 816 901 (9)
Coatings 1,240 1,164 7
Chemicals 1,007 1,075 (6)/6****
Other (23) (29)
-------- ------
Total 3,040 3,111 (2)
======== ======
Operating income** (EBIT)
Pharma 119 285 (58)/(40)***
Coatings 56 82 (32)
Chemicals 88 89 (1)/24****
Other (9) (15)
-------- -------
Total 254 441 (42)
======== =======
Return on sales**, in % 8.4 14.2
Interest coverage 9.1 11.6
---------------------------------------------------------------------------------
* 2003 figures have been adjusted for a minor regrouping of activities
between Coatings and Chemicals.
** Excluding nonrecurring items.
*** Excluding the initial Pfizer payment for the asenapine cooperation of EUR
88 million received in 2003 (EUR 70 million after taxes).
**** Continued operations.
- Net income down 14%
- Net income excluding nonrecurring items down 38%
- Pharma - earnings in line with expectations
- Coatings - impacted by raw material prices
- Chemicals - strong performance
21
Report for the 4th quarter of 2004
Net income down 14%
Net income excluding nonrecurring items in the fourth quarter was down 38% to
EUR 165 million, which is EUR 0.58 per share (2003: EUR 0.94). 2003 earnings
benefited from the EUR 70 million after-tax initial payment from Pfizer for the
asenapine cooperation. Contributions from growth, cost savings, and lower
pension costs did not offset the impact of higher raw material prices,
divestments, and weaker key currencies.
Including a net nonrecurring loss of EUR 75 million, fourth-quarter net income
was down 14% to EUR 90 million (2003: EUR 105 million). This loss mainly
concerned an addition to the antitrust provision of EUR 60 million.
Autonomous growth of 4%
Fourth-quarter sales of EUR 3.0 billion were down 2% on the previous year.
Autonomous growth was 4%, with 3% stemming from higher volumes and 1% from
increased selling prices. This growth did not offset the net negative effect of
currency translation and of divestments and acquisitions, which each had an
impact of 3%. Sales developed as follows:
-------------------------------------------------------------------------------------------------------------
Currency Divestments/
In % Total Volume Price translation acquisitions
--------------------- ----------- ------------ ------------- ----------- ----------------
Pharma (9) (8) 2 (3) -
Coatings 7 3 2 (2) 4
Chemicals (6) 8 1 (3) (12)
Akzo Nobel (2) 3 1 (3) (3)
-------------------------------------------------------------------------------------------------------------
The negative currency translation impact predominantly related to the weakening
of the U.S. dollar and various Asian currencies.
Acquisitions principally concerned Timpe & Mock (deco wholesaler in Germany) and
AON Motor Accident Management (U.K.), while divestments mainly related to
Catalysts and Phosphorus Chemicals.
22
Report for the 4th quarter of 2004
Operating income down 42%
Operating income for the fourth quarter declined 42% to EUR 254 million. It
developed as follows:
-------------------- ----------------- -----------------------------------------------------------------------------------
Change from 4th quarter of 2003
Operating -----------------------------------------------------------------------------------
income* for 4th Operational Currency Lower pension
Millions of euros quarter of 2004 Total performance Divestments translation charges
------------------- --------------- -------- ----------- ----------- ----------- -------------
Pharma 119 (166) (164)** - (6) 4
Coatings 56 (26) (28) - (2) 4
Chemicals 88 (1) 14 (15) (3) 3
Other*** (9) 6 3 - 3
---------------- -------- ----------- ----------- ----------- -------------
Akzo Nobel 254 (187) (175) (15) (11) 14
------------------------------------------------------------------------------------------------------------------
* Excluding nonrecurring items.
** Includes the effect of the initial Pfizer payment of EUR 88 million for the
asenapine cooperation, received in 2003.
*** "Other" mainly comprises pension costs related to former employees of
divested operations and results of the (intermediate) holding companies
and the captive insurance companies.
As expected, Pharma's operating income substantially declined as the group in
2003 benefited from the receipt of the initial payment from Pfizer of EUR 88
million for the asenapine cooperation. In addition, Organon earnings were
impacted by the loss of Remeron (R) revenues due to generic competition in the
United States and also increasingly in the rest of the world. Sales of Puregon
(R) and Livial (R) were also under pressure, although they were growing again
compared to the third quarter of 2004. The impact of lost sales was partially
offset by forceful cost saving measures. Intervet turned in a healthy
performance with solid earnings growth. Diosynth's operating income declined to
break-even level under the pressure from difficult market conditions. To address
this situation Diosynth also implemented cost saving programs. All in all,
Pharma's operating income in the fourth quarter was in line with earnings in the
previous quarters of 2004.
Coatings performance benefited from 5% autonomous growth, cost control, and
lower pension cost. However, this did not offset the impact of steeply
increasing raw material prices and weaker currencies. On balance, fourth-quarter
operating income dropped 32% to EUR 56 million.
Excluding divestments, the Chemicals operations achieved a distinctly higher
operating income, reaping the benefits from growth and restructuring programs,
although the businesses were also impacted by increasing raw material and energy
prices.
Operating income disclosed as "Other" was positively influenced by decreased
pension costs and lower additions to corporate provisions.
23
Report for the 4th quarter of 2004
Earnings from nonconsolidated companies jumped to EUR 18 million (2003: EUR 6
million), mainly attributable to higher results for Flexsys, Eka Polymer Latex,
Methanor, and the Company's remaining 20%-stake in its former Fibers activities.
The Turkish printing inks joint venture Dyo Sadolin also did better.
Successful focus on cost - workforce down due to divestments and restructurings
During the fourth quarter the Company continued its implementation of cost
saving programs, which resulted in a workforce decrease of 740 people during
this quarter. Divestments, predominantly Coating Resins, led to a decrease of
920.
Arnhem, February 4, 2005 The Board of Management
Additional Information
The explanatory sheets used by the CEO during the press Akzo Nobel N.V.
conference can be viewed on Akzo Nobel's Internet site at: Velperweg 76
www.akzonobel.com/news/presentations.asp P.O. Box 9300
6800 SB Arnhem
The Netherlands
Tel. + 31 26 366 4433
Fax + 31 26 366 3250
E-mail ACC@akzonobel.com
Internet www.akzonobel.com
24
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 : FEBRUARY 04, 2005