Akzo reports huge hike in net profit

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Related tags: Net income, Investment, Generally accepted accounting principles, Currency, Akzo nobel

Dutch chemicals and drugs group Akzo Nobel saw its net income
accelerate in the third quarter of this year, to the surprise of
analysts and investors, and helped by cost reductions and a big
gain from the divestment of its coatings business.

Net income rose 193 per cent to €521 million, or €1.82 euros per share, with €308 million coming from asset sales. To date the group has raised close to €1 billion from divestments, although this restructuring process is now close to completion.

Nevertheless, the news prompted a hike in Akzo's share price of 4 per cent to €29.42, although this was probably more to do with the company's statement that 2003 profit levels would be in line with 2003, despite the continuing problems with high raw material costs and softening demand.

The group has raised its guidance, forecasting that full-year net income, excluding non-recurring items, will be on par with that achieved for 2003 at around €740 million.

Sales from the pharmaceuticals division were down 9 per cent, due to a lower contribution from the Organon and Diosynth units, as well as a negative effect from currency exchange rates, the company said. However, cost-saving programs buffered up margins to hike operating income in these units by 9 per cent, it noted.

The pharma business has been hit by a lacklustre drug pipeline, regulatory setbacks and increased competition from generic rivals, most recently to its antidepressant Remeron (mirtazepine), as well as the continuing effects of a weak dollar.

For this reason, Akzo does not expect pharmaceuticals to match its performance for the year-ago period.

Chief Financial Officer Rob Frohn said the company plans to use its cash pile of around €1.6 billion in cash to pay down debt and invest in high-growth segments, including possible acquisitions in the coatings and animal-health sectors.

The group's chemicals business delivered autonomous sales growth of 8 per cent, and operating income jumped 36 per cent. Frohn said: "Almost all businesses turned in higher results as our cost savings programs paid off."

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