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SICO Increases Its Sales in the First Quarter of 2006 Although Net Earnings Decrease Due to Inflated Raw Material and Transportation Costs and Exceptional Expenses Associated With the AKZO NOBEL nv Takeover Bid

Published on 2006-05-11. Author : SpecialChem

Longueuil, -- For the first quarter of 2006, consistent with management's expectations, SICO INC. ("SICO" or "the Company", ticker symbol SIC/TSX) was faced with a more challenging business environment than during the same period in 2005, which led to an increase in manufacturing and distribution costs in the Architectural Sector and a decrease in the Industrial Sector's market share. For the three-month period ended March 31, 2006, SICO therefore recorded net earnings of $0.3 million or $0.02 per share (basic and diluted), compared with $2.7 million or $0.20 per share in the same quarter of 2005. However, consolidated sales grew by 2.0% to $69.4 million.

The decline in net earnings is primarily attributable to the ARCHITECTURAL SECTOR, whose profit margins were affected by a series of factors, including the rise in some raw material prices as of the second quarter of 2005.which were partially offset by the selling price increases implemented in 2005 and the first quarter of 2006.along with higher delivery costs, resulting primarily from soaring fuel prices since the summer of 2005 and the geographic expansion of its distribution network. However, this sector's sales increased by 5.2% due to the acquisition of Mills Paint Sales Ltd. on October 1, 2005 and the organic growth generated by the expansion of its distribution network in the retail segment, coupled with selling price increases.

The INDUSTRIAL SECTOR sustained a decline of close to 20% in its first-quarter sales as a result of fiercer competition from U.S. manufacturers since the summer of 2005, due especially to the strong Canadian dollar. This sector implemented several measures to improve its profitability in late 2005 and early 2006, including a staff reduction, selling price increases and a partial rationalization of its product line. Some of these measures entailed non-recurring costs in the first quarter, consisting mostly of severance pay, but should generate significant savings as of subsequent quarters.

SICO incurred exceptional expenses of $0.8 million during the first quarter, consisting mainly of professional fees associated with the takeover bid presented by the European multinational AKZO NOBEL nv. The bid aims to acquire all of SICO's issued and outstanding common shares at a cash price of $20.00 per share, for an aggregate consideration of approximately $284 million (based on 14,198,387 common shares outstanding on a fully diluted basis). AKZO NOBEL is the world's largest coatings manufacturer.

On April 5, 2006, SICO's Board of Directors announced that the Company had signed an agreement with AKZO NOBEL supporting its takeover bid, according to which the purchase price offered per common share represents a premium of 44% over the 20-day average closing price of SICO's common shares prior to the agreement.

The Company's principal shareholders, who hold approximately 34% of the fully diluted outstanding SICO common shares and all of the SICO Class B preferred shares, have agreed with AKZO NOBEL through a hard lock-up agreement to tender their shares to the offer. AKZO NOBEL's takeover bid circular was mailed to SICO's shareholders on April 25, 2006, concurrently with its directors' circular, unanimously recommending that shareholders accept AKZO NOBEL's cash offer.

The transaction is subject to certain conditions to be satisfied prior to take-up and payment by AKZO NOBEL, including, but not limited to, the tender of at least 66 ¨ø% of the total number of SICO common shares calculated on a fully diluted basis, and compliance with necessary regulatory requirements. The transaction is expected to close in the second quarter of 2006.


On the business front, Pierre Dufresne, President and Chief Executive Officer, indicated that SICO remains focused on its growth and earnings objectives for 2006. "Although high raw material costs and further increases in fuel prices remain a major concern, we will continue to drive the Company's performance by banking primarily on efficient operating cost management, the pursuit of dynamic marketing strategies to foster the organic growth of our architectural paint sales, and the optimization measures recently or soon to be put in place to improve the Industrial Sector's profitability."

Dividend Payment

Effective May 8, 2006, SICO's Board of Directors declared a quarterly dividend of $0.08 per common share and a dividend of $0.01922 per Class B preferred share. These dividends will be paid on May 26, 2006 to the Company's registered shareholders as at May 17, 2006.


In business since 1937, SICO is the largest company in Canada specializing in the development, manufacture and marketing of paints, coatings and related products. In the architectural market, its core business, SICO stands out for its innovative, high-quality products, strong brand recognition and the scope of its distribution network, which includes some 2,500 points of sale from coast to coast. In North America, SICO also markets industrial coatings primarily for metal, and mostly intended for the transportation equipment industry, the heavy machinery industry and other specialized applications. SICO employs more than 1,000 people in Canada, the United States and Mexico.

Source: SICO

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