Coatings - AkzoNobel

Expenditures for property, plant and equipment were
NLG 1.8 billion (1997: NLG 1.4 billion), including
expenditures of NLG 0.2 billion relating to former
Courtaulds. Notably Pharma and Coatings exceeded
their 1997 levels. Depreciation amounted to NLG 1.5
billion, compared with NLG 1.3 billion in 1997.
Authorizations for new projects totaled NLG 1.9 billion,
an increase of NLG 0.2 billion compared to 1997,
predominantly stemming from former Courtaulds.
The invested capital turnover ratio at year end was
1.65, practically at the previous year’s level.
Working capital as a percentage of annualized sales
(based on fourth-quarter figures) was 19.3 percent,
compared with 18.5 percent in 1997. The increase was
principally attributable to higher inventories and lower
taxes payable.
The number of employees rose from 68,900 at the end
of 1997 to 85,900 at year-end 1998. Acquisitions
added 20,200, including 16,800 employees of former
Courtaulds, while divestments caused a decrease of
2,900. Net of acquisitions and divestments, Pharma’s
personnel increased by 800, mainly at Organon, while
there were staff reductions at Acordis, Chemicals, and
Coatings.
The euro – a challenging opportunity
The introduction of the euro marks the final phase of a
process of abolishing customs barriers and fostering
free trade in Western Europe. This process, which has
been going on for many years, has made European
cross-border markets increasingly transparent. As more
than half of our activities are in Europe, the euro will
have a substantial effect on our Company. Price
transparency will stimulate competition, notably in the
consumer end of our business. However, pricing of
pharmaceuticals in euros will increase the urgency to
address the problem of divergent pricing and
reinbursement policies by national governments.
One large—and therefore more liquid—capital market
should provide opportunities for lower financing costs,
while currency risks within the euro zone have been
eliminated. We consider these developments to be
positive in the long run.
AKZO NOBEL ANNUAL REPORT 1998
13
During 1998 we continued to assess risks and
implement measures, both in operational and strategic
terms, to permit a smooth changeover to the euro.
So far the transition has been successful.
On January 1, 1999, Akzo Nobel’s in-house banking
system adopted the euro as base currency in line with
the general policy in the financial world. Although the
European rules allow for a transition period until 2002,
Akzo Nobel encourages its business units to adopt the
euro as their base currency already in 1999, but such
adoption will also depend on the timing of the
transition to the euro in their markets.
As from 1999 the euro will be Akzo Nobel’s external
reporting currency. In this report only the key figures as
stated on page 2 are also given in euros.
Attacking the millennium bug
The millennium issue relates to the risk that systems,
products, and equipment having date-sensitive
components will not recognize the year 2000. Since
1996, professional teams—guided by the Millennium
Committee and the Millennium Program Team—have
been tracing critical potential millennium problems
throughout Akzo Nobel. The identified problems and
IT-systems, as well as embedded technology, have been
investigated, and solutions have either been
implemented or are in preparation.
A similar program already being implemented at
Courtaulds has been integrated in Akzo Nobel’s
approach as of July 1998.
The investigations not only cover the Company’s
internal systems in business and functional areas but
also involve external parties with whom the Company
has direct operational contacts. The necessary
conversions or replacements of systems critical to the
business are expected to be completed on schedule
in 1999.
Akzo Nobel, like any other business enterprise, is
dependent on the environment in which it operates in
the sense that it has no direct control over third parties,
such as suppliers, customers, and infrastructure
services (including energy and water). Therefore,
potential indirect millennium risks affecting the
Company’s operations, including possible interruptions,
cannot be ruled out.