Coatings - AkzoNobel

Continued earning gains at Pharma and Coatings;
Chemicals almost at exceptionally high 1997 level;
Acordis results improved
Pharma’s operating income before nonrecurring items
of NLG 1,058 million was up 14 percent from the
previous year. This gain was largely attributable to a
further increase in earnings at Organon and a better
performance of Organon Teknika, both favored by
strong volume growth. Intervet achieved excellent
results, while Diosynth’s earnings remained strong but
failed to reach the previous year’s figure. Chefaro’s
earnings were slightly lower.
Coatings’ operating income of NLG 883 million, before
nonrecurring items, was 18 percent higher than in
1997. Of this gain, 14 percent was due to the
contribution made by the former Courtaulds activities
from July 1998. Overall, Coatings’ return on sales was
8.4 percent, against 9.0 percent in 1997. Car
Refinishes, Industrial Products, and Resins had a strong
year. Results of Aerospace Coatings and Sealants were
up. Decorative Coatings’ results were flat, while
Industrial Coatings and Printing Inks did not match
1997 performance. Protective Coatings were negatively
affected by the crisis in Asia. Earnings of Coil Coatings
were lower.
Excluding the divestment of Salt America in 1997,
Chemicals’ operating income before nonrecurring items
of NLG 705 million was virtually on a par with the prior
year. Results of Polymer Chemicals and Functional
Chemicals surpassed the previous year’s record levels.
Base Chemicals also did better. Surface Chemistry’s
earnings were unchanged from 1997. Operating income
of Pulp & Paper Chemicals was lower. Catalysts suffered
from the continuing decline in its markets. The results
of Plastics and Processing Additives weakened.
Earnings of Salt were also lower but remained
satisfactory.
Acordis’ operating income before nonrecurring items
grew to NLG 141 million (1997: NLG 93 million).
The income gain was principally attributable to a better
performance of Industrial Fibers, a turnaround for
10
Textile Fibers’ Viscose Filament, and the contribution
from the former Courtaulds activities. Nonwovens also
did better. Results of Aramid Products were negatively
impacted by the crisis in Asia. Membrana’s results were
slightly lower than in 1997. Overall earnings
performance of Viscose Staple was similar to that of the
previous year. Tencel® fiber results were depressed due
to overcapacities. Acrylic Fibers’ margins were impacted
by a sharp price fall in the second half of 1998. Results
of Acetate Chemicals were down from 1997.
These developments are reflected in the return on sales
percentages (before nonrecurring items) shown below.
1998 1997
Pharma 20.7 20.2
Coatings 8.4 9.0
Chemicals 9.4 9.6
Acordis/Fibers 3.3 2.6
Akzo Nobel 10.0 10.3
Sales of NLG 27.5 billion were up 14 percent from
1997. On balance, acquisitions and divestments added
12 percent, with former Courtaulds accounting for
11 percent. Volumes gained 3 percent, while average
selling prices were at the 1997 level. Currency
translations had a negative effect of 1 percent.
The increase in financing charges from NLG 274 million
in 1997 to NLG 456 million in 1998 was almost entirely
due to interest on debt assumed in the context of
acquisitions, predominantly Courtaulds. Interest
coverage (based on operating income before
nonrecurring items) decreased from 9.0 to 6.0.
Income taxes averaged 31 percent, somewhat higher
than in 1997. The utilization of tax loss carryforwards
from previous years, mainly in Sweden, reduced the tax
charge by NLG 85 million, both in 1998 and 1997.
Earnings from nonconsolidated companies before
nonrecurring charges were NLG 99 million, compared
with NLG 119 million in 1997. The decrease was mainly
due to lower results from Methanor. Flexsys recorded
higher results. The nonrecurring write-down in 1998 of
NLG 49 million relates to Akzo Nobel’s share in Enka de
Colombia.