Coatings - AkzoNobel

REPORT OF THE BOARD OF MANAGEMENT
GENERAL
STRATEGY
Our strategy is well understood inside the Company, in
the investment community, and in the business
environment in which we operate. Our actions in 1998,
in particular our acquisitions, investments, and
divestments as discussed in this report, should be
viewed in the light of that strategy.
We aspire to leadership positions with structural
profitability in world markets in the areas of healthcare,
coatings, specialty chemicals, and fibers. Our activities
should have the critical mass needed to play an active
role in the restructuring of the industries in which we
operate. We give priority to growth of our Pharma and
Coatings operations, while Chemicals first focuses on
improving returns and portfolio composition. We intend
to create an independent fibers company, thus
participating in the restructuring of that industry
in Europe.
Specific financial targets have been set in terms of
return on sales (ROS) and return on invested capital
(ROI), which will be stated in the appropriate sections of
this report.
The acquisition of Courtaulds—1998’s main event
In April 1998, Akzo Nobel made a public offer for
Courtaulds plc of GBP 4.50 per ordinary share. Early in
July, the offer was declared unconditional and by the
end of September the buyout procedure was
completed. The total acquisition price for all ordinary
shares was NLG 6.1 billion. The related goodwill of
NLG 4.8 billion was written off against equity.
The former Courtaulds accounts have been
consolidated since the beginning of July 1998.
The acquisition of Courtaulds enables us to realize two
important strategic objectives:
• to become the world’s number one in coatings;
• to form a stand-alone fibers company to be prepared
for demerger.
The integration of the former Courtaulds activities is
progressing well. We are confident that we will realize
the strategic objectives as planned in the acquisition
process.
AKZO NOBEL ANNUAL REPORT 1998
9
FINANCIAL PERFORMANCE
Earnings slightly higher
Net income excluding nonrecurring items of NLG 1,630
million slightly exceeded the previous year’s record of
NLG 1,613 million. This translated into per share
amounts of NLG 5.71 and NLG 5.66, respectively.
Nonrecurring charges of NLG 287 million (after taxes),
mainly relating to various restructurings and asset
write-downs, reduced net income to NLG 1,343 million
(1997: NLG 1,615 million).
Fritz W. Fröhlich,
Deputy Chairman
and CFO
The first half of the year was marked by significant
gains in earnings. However, in the second half of 1998,
our growth in operating earnings began to stagnate,
and together with financing charges—related to the
acquisitions made during the year—this caused a
decline in net earnings relative to the corresponding
period of 1997. Including acquisition financing charges,
the former Courtaulds activities rendered a net
negative contribution of NLG 55 million, mainly as a
consequence of the unexpected decline in the fibers
markets.
Operating income before nonrecurring items of
NLG 2,737 million exceeded the previous year’s figure
by 11 percent, to which the former Courtaulds activities
contributed 5 percent. The remaining rise was mainly
attributable to Pharma. Currency translations had a
slight net negative effect.
Operating income in 1998 included nonrecurring items
of NLG 364 million (after taxes: NLG 238 million),
principally relating to the consequences of the
discontinuation of corporate funded research and
development as well as various restructurings and asset
write-downs at Chemicals, Acordis, and Coatings.