Restructuring takes hold at Akzo; pharma still under pressure
small decline in sales in the first half of the year, although the
cost of ongoing restructuring caused net earnings to slump by
nearly a quarter to €245 million.
The company said that excluding the cost of restructuring, net income would have put in a 7 per cent rise to €392 million, and overall sales dipped 3 per cent to €6.46 billion. But the restructuring measures seem to be having an effect, with operating income up 4 per cent to €627 million, although Akzo Nobel still expects to report net income for 2004 below last year's level.
As expected, the pharma division was worst affected, with sales down 8 per cent to €1.63 billion, but there were encouraging earnings gains in the group's chemicals and coatings businesses.
Growth in the latter two units was more than offset by lower pharma volumes, the negative effects of currencies and divestments, according to Rob Frohn, Akzo Nobel's chief financial officer.
Pharma was hit the hardest by generic competition to the antidepressant Remeron (mirtazepine), with the impact in the US bottoming out, only to be replaced by the loss of patent protection in the European Union. Meanwhile, a general downturn in the market for hormone replacement products, caused by negative press about the safety of the treatment, is hitting sales of the group's Organon subsidiary.
Meanwhile, Diosynth, Akzo Nobel's active pharmaceutical ingredient (API) contract manufacturing unit, is still suffering from overcapacity in the market and a reduction in sales to the group as a whole, despite shedding 350 jobs in an ongoing restructuring drive. Overall, sales at Diosynth declined 14 per cent to €198 million.
The contract manufacturing business is expecting to benefit in the second half from a recently signed deal with Human Genome Sciences, that will see Diosynth manufacture a therapeutic monoclonal antibody.
The chemicals business saw both volumes and prices up by 2 per cent in the first half, which mitigated the sales decline to 2 per cent (€2.27 billion). Operating income jumped 6 per cent to €186 million as a result of cost savings.
"The contributions from autonomous growth and cost savings as well as lower pension costs more than offset the negative effects of higher raw material and energy process and weaker key currencies," said the company.
Akzo Nobel also noted that the divestments of its catalysts unit to Albemarle for €625 million and of phosphorus chemicals to Ripplewood Holdings for €230 million should complete in the third quarter, while the divestment of coating resins is on track to complete before the end of the year.
But while sizeable these divestments will not change the view that earnings will shrink in 2004 compared to 2003, said Frohn.
Coatings put in the best performance, managing a 3 per cent sales hike to €2.63 billion and a 10 per cent rise in operating income to €228 million.
