Akzo Nobel's Diosynth announces global restructuring of chemical synthesis operations

02-23-2004: Diosynth, Akzo Nobel's pharmaceutical ingredients manufacturing business, has announced a restructuring of its chemical synthesis operations across the globe. In the face of declining demand, Diosynth is reducing its worldwide chemical synthesis capacity by closing its production site in Mexico and scaling back facilities in the Netherlands. Last month a start was already made with a reduction of production capacity at Diosynth's Buckhaven (Scotland) site. Workforce reductions will directly affect a combined total of approximately 350 employees.

In 2003 Akzo Nobel's Pharma businesses introduced cost-saving measures to bring costs into line with reduced sales. "Intensive focus on costs delivered considerable savings in 2003," said Toon Wilderbeek, Member of the Board of Management of Akzo Nobel. "Nevertheless, critical evaluation of costs and results is a continual process. Cost-cutting is one of the pillars of our strategy to fix Pharma. We are experiencing a structural decline in demand at Diosynth and we have to address this accordingly," he added.

Diosynth is facing a significant rise in overcapacity as a result of a severe decline in demand for active pharmaceutical ingredients (APIs) from its customers. Third party customers are destocking to reduce working capital and there is general overcapacity in the chemical API sector. Captive demand from Akzo Nobel's human pharmaceutical business Organon is also shrinking, as a result of destocking and lower sales for some products.

"Overcapacity in our chemical synthesis operations is too high to ignore," explained Johan Evers, General Manager of Diosynth. "With no signs of improvement in the foreseeable future, it is imperative that we bring capacity into line with customer demand now."

"After taking into account the multitude of factors that influence our sector - for example, economic viability, logistics, cGMP certifications, site flexibility and safety impact - we have decided to reduce capacity at sites focused on producing starting materials or intermediate products," Evers continued. "Therefore we intend to close our site in Mexico City, which produces starting materials. This is in addition to capacity reduction already in progress at our Buckhaven site, where we produce intermediates."

The rationalization of Diosynth's production logistics will mean the transfer of some products from Mexico City and Buckhaven to our multi-purpose chemical sites, Apeldoorn and Oss, in the Netherlands. Nevertheless, overcapacity remains a problem on these sites too. Optimization of capacity and resources for late intermediates and APIs will also mean trimming our workforce in the Netherlands.

Closure of the site in Mexico City will affect virtually all its 175 employees. The workforce in the Netherlands will be reduced by 100 employees in the course of 2004 through natural attrition and expiry of the majority of temporary employment contracts. Last month Diosynth notified its employees in Buckhaven that as a result of declining demand it intends to reduce the workforce by 75 people. For each site, consultation involving unions and works councils is being, or will be, undertaken as appropriate.