AkzoNobel Report 2009
AkzoNobel at a glance in 2009
Revenue by Business Area
Our geo-mix and employees
37%
34%
34%
Total revenue
Business Areas
€13.9 billion
29%
29%
Decorative Paints
Performance Coatings
Specialty Chemicals
Employees by Business Area
39%
3%
23%
Total
employees
57,060
35%
Decorative Paints
Performance Coatings
Specialty Chemicals
Other
11,100
North
America
21%
22,400
Mature
Europe
39%
3,100
Emerging
Europe
7%
13,700
Asia
Pacific
20%
4,500
Latin
America
9%
2,300
Other
countries
4%
Geo-mix revenue
by destination
Employees
by region
Employees
Revenue (in billion)
57,060
€13.9
Key performance indicators
Statement of income in € millions
Dividend and earnings per share
Cash flows in € millions
Ratios in %
Revenue
2008
15,415
2009 13,893
EBITDA
2008
2009
1,927
1,768
EBITDA margin
as a % of revenue
Dividend basis in € millions
Net debt
Moving average ROI
-10%
2008
2009
865
547
-37%
2008
2009
2,084
1,744
-16%
2008
2009
8.6
8.4
-0.2
Dividend per share, in €
Operating working capital
Operating working capital as a % of revenue
-8%
2008
2009
1.80
1.35
Pay-out ratio
-25%
2008
2009
2,359
1,826
-23%
2008
2009
16.5
13.7
-2.8
Net cash from operating activities
2008
2009
12.5
12.7
+0.2
2008
2009
48%
57%
+9.0
Net income/(loss)
attributable to shareholders
Earnings per share from
continuing operations in €
2008
2009
91
1,240
Capital expenditures
2008
2009
(1,086)
285
2008
2009
(4.47)
1.20
2008
2009
534
534
0%
Research and development expenses
as a % of revenue
2008
2009
2.3
2.4
+0.1
Interest coverage
after incidentals
2008
2009
–
2.1
EBIT and EBITDA
in € millions
Equity and EBITDA per common share
in €
Operating cash flows
in € millions
Net debt (cash) and group equity
in € millions
13.4
2,042
12.5
12.7
1,927
3,500
2,800
2,100
1,400
700
1,375
1,315
2007
2008
EBIT
EBITDA
EBITDA as a % of revenue
1,768
1,151
2009
15
12
9
6
3
75.00
60.00
45.00
30.00
15.00
7.85
42.06
8.32
7.61
32.21
33.48
10
8
6
4
2
2008
2009
(534)
91
(534)
1,240
Net capital expenditure
Operating cash flows
2007
2008
2009
Stockholders equity per common share
EBITDA per common share
2007
2008
2009
12,091
2,910
7,913
2,084
8,245
1,744
Group equity
Net debt
Sustainability
Decorative Paints
Performance Coatings
Specialty Chemicals
Total reportable rate of injuries
Revenue in € millions
Revenue in € millions
Revenue in € millions
2008
2009
4.6
3.7
-20%
2008
2009
5,006
4,677
-7%
2008
2009
4,575
4,038
-12%
2008
2009
5,687
5,209
-8%
Eco-premium solutions in % of sales
EBITDA in € millions
EBITDA in € millions
EBITDA in € millions
no change
positive development
negative development
2008
2009
18
20
+2%
Key value chains carbon
footprint assessment
2008
2009
598
492
EBITDA margin
as a % of revenue
-18%
2008
2009
11.9
10.5
-1.4
Total reportable rate of injuries
per million hours
2008
2009
566
587
EBITDA margin
as a % of revenue
+4%
2008
2009
12.4
14.5
+2.1
Total reportable rate of injuries
per million hours
-10%
2008
2009
909
814
EBITDA margin
as a % of revenue
2008
2009
16.0
15.6
-0.4
Total reportable rate of injuries
per million hours
-12%
2008
2009
4.9
4.7
-4%
2008
2009
4.8
3.3
-31%
2008
2009
3.7
2.8
-24%
2009
158
Total waste
in kilo tons
2008
2009
285
249
Total reportable rate of injuries
per million hours
Revenue breakdown in %
Revenue breakdown in %
Revenue breakdown in %
2005
2006
2007
2008
2009
7.4
6.8
5.3
4.6
3.7
Eco-premium solutions
in % of sales
2007
2008
2009
18
18
20
A Europe
B Americas
C Asia Pacific
54
32
14
100
C
B
A
A Industrial Finishes
B Powder Coatings
C Marine and
41
E
D
Protective Coatings 31
D Car Refinishes
20
E Packaging Coatings 8
100
C
A Functional Chemicals 18
B Pulp and Paper
G
F
A
A+B
Chemicals
18
C Industrial Chemicals 18
E
D National Starch
E Surface Chemistry
16
13
F Polymer Chemicals 10
G Chemicals Pakistan
7
100
B
D
C
Total revenue high growth markets vs mature
Total revenue high growth markets vs mature
Total revenue high growth markets vs mature
> 35%
100%
> 45%
100%
> 30%
100%
What’s inside?
For the second year in a row, we have combined our annual
financial report and sustainability report into one publication.
Case studies
1
33
32
Strategy
Chairman’s statement
Our Board of Management
Report of the Board of Management
Strategic ambitions
Strategy agenda
Business performance
AkzoNobel Decorative Paints
AkzoNobel Performance Coatings
AkzoNobel Specialty Chemicals
Governance and compliance
Report of the Supervisory Board
Corporate governance statement
Remuneration report
Risk management
AkzoNobel on the capital market
Financial statements
Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Segment information
Notes to the consolidated financial statements
Company financial statements
Other information
Sustainability facts and figures
2009 key figures
Sustainability framework
Managing our values
Stakeholder activity
Invent
Manage
Improve
Reporting principles
Independent assurance report
Sustainability performance summary
Additional information
Financial summary
Index
Glossary
Disclaimer
Financial calendar
3
4
6
8
16
18
25
26
34
44
57
58
61
67
73
78
81
82
82
83
84
85
86
87
124
129
131
132
132
134
135
136
138
139
148
149
150
152
152
156
157
159
160
No place like home
Adding color to people’s lives
42
On solid ground
Staying connected
54
43
55
Cleaner and greener
Building on a relationship
Cover image: The picture on the cover signifies our colorful approach to innovation, our ambitious
spirit and our creative drive to deliver Tomorrow’s Answers Today.
For an explanation of terms and phrases used in this report please refer to the glossary on page 157.
Strategy
This Strategy section provides an overview of our
strategic priorities, highlights key performance areas
and gives details of the medium-term targets to which
we aspire. You will also find the Chairman’s Statement
and the Report of the Board of Management.
y
g
e
t
a
r
t
S
Chairman’s statement
Our Board of Management
Report of the Board of Management
Strategic ambitions
Strategic agenda
4
6
8
16
18
4 | Chairman’s statement | Strategy | AkzoNobel Report 2009
Dear stakeholder
It’s safe to say that 2009 was a year few of us will easily forget.
We experienced the most severe global financial and economic
crisis since the crippling Great Depression of the late 1920s
and 1930s. Companies all over the world faced enormous
challenges due to the inevitable impact on markets and many
struggled to remain competitive as the recession began to bite.
Our aim was to emerge an even stronger company.
It was a unique and extremely tough situation which demanded
a swift and effective response. I’m proud to say that our
employees across the world displayed tremendous commitment
and spirit to ensure that AkzoNobel remained strong during
such testing economic times. Our ability to quickly adapt to
the new reality was crucial. We overcame the virtual standstill
at the beginning of the year, negotiated the gradual stabilization
mid-year and then experienced some rebounding of growth
in selected markets as 2009 came to an end. This carefully
planned and disciplined response to the downturn means we
have maneuvered ourselves into a robust position where we
can take full advantage of any opportunities that may present
themselves.
Solid performance
Our rigorous efforts to maintain our competitiveness were
underpinned by a strict focus on operational effectiveness,
specifically concentrated on “Customers, Costs and Cash”.
In fact, many of our businesses forged even stronger links
with customers to help them weather the storm caused by the
ongoing crisis. Close collaboration of this nature is integral to the
way we do business and it resulted in even deeper relationships
being formed, which subsequently led to higher market shares.
The emphasis we have placed on margin management in
recent years also paid off, illustrated by our gross profit margin
improving from 36.4 percent in 2008 to 39.3 percent in 2009.
“Although the economic situation demanded most of our attention,
we never allowed it to distract us from making progress in other
vital areas of our operations. Investing in the future of AkzoNobel
remained a priority.”
AkzoNobel Report 2009 | Strategy | Chairman’s statement | 5
Another key achievement was the realization of €508 million
cumulative annualized savings in 2009. This was the result
of accelerated synergies from the ICI acquisition and a
fundamental cost-reduction program introduced throughout
the portfolio. The success of our company-wide operational
focus also led to improvements in operating working capital
(OWC). We significantly exceeded our medium-term ambition
of a 0.5 percent OWC reduction per year by ending 2009 with
a percentage of 13.7, compared with 16.5 percent in 2008.
Due to the severity of the financial crisis, our 2009 revenue fell
10 percent, but thanks to the disciplined approach to customers,
costs and cash, our EBITDA margin improved to 12.7 percent.
But 2009 wasn’t just about focusing on our operational
performance. Although the economic situation demanded most
of our attention, we never allowed it to distract us from making
progress in other vital areas of our operations. Investing in the
future of AkzoNobel remained a priority, even though we were in
the grip of financial turmoil. A number of acquisitions were made
across the business, while our commitment to innovation and
sustainable growth was highlighted by our continued funding for
R&D and capital expenditures such as plants, sites, equipment
and information technology. A particular highlight was the start-
up of our new site in Ningbo, China, which includes facilities for
multiple businesses and is a shining example of our commitment
to investing in profitable growth in high growth markets.
We also continued to invest in our people, successfully rolling
out new training programs and introducing a Diversity and
Inclusion initiative designed to increase the number of roles for
women and non-Westerners at all levels within the company.
Product development was another area where we never lost
focus, with all of our businesses introducing new technologies
or eco-premium innovations to the market.
Gathering momentum
Our sustainability agenda also gathered momentum. I took
great pride in the fact that AkzoNobel was again listed among
the world leaders in the Chemicals sector on the Dow Jones
Sustainability Index, with a second place rating. Our clear
objective is to remain in the top three. Safety – just one part of
our broader sustainability agenda – also remained paramount
and continuous step-by-step improvements have been made in
our performance. In fact, the total reportable rate of injuries for
our employees and contractors improved by around 20 percent
during 2009, while we are still striving to achieve our ambitious
2010 target of two or less injuries per one million hours worked.
I feel confident that we will get there.
‘‘Customers, Costs and Cash’’. In terms of overall strategy, we
will continue to focus on growing market share, improving our
EBITDA margin towards 14 percent by the end of 2011, further
reducing OWC and becoming a true leader in sustainability,
safety and talent development. This commitment to constant
improvement will ensure that we remain inspired and continue
to deliver Tomorrow’s Answers Today.
My colleagues on the Board of Management and I take great
pride in leading this great company. We would like to express
our sincere gratitude and admiration to all the great teams and
individuals who are leading AkzoNobel with such commitment
through this difficult and challenging period.
Despite the challenges we faced during 2009, there can
be no doubt that it was a year in which we demonstrated
the fundamental strength of our company. We have the
utmost confidence in that strength, and in the ability of our
management to successfully guide AkzoNobel into the future.
We will therefore propose a dividend at the upper end of the
dividend policy range to our shareholders at the forthcoming
Annual General Meeting.
Focus on improvement
Of course, while most of our markets now seem to have
stabilized and are even showing some signs of growth –
particularly in high growth markets – we still lack clear visibility
about developments in 2010. We are, however, optimistic
about our ability to embrace any growth opportunities in high
growth markets and will allocate our resources accordingly.
The situation in most mature economies is somewhat different.
There has been almost no robust volume growth and as a
consequence we will maintain our focus in these regions on
Hans Wijers
CEO and Chairman of the Board of Management
6 | Our Board of Management | Strategy | AkzoNobel Report 2009
AkzoNobel Report 2009 | Strategy | Our Board of Management | 7
Rob Frohn
Keith Nichols
Hans Wijers
Leif Darner
Tex Gunning
Board member responsible
for Specialty Chemicals
(1960, Dutch)
Chief Financial Officer
(1960, British)
Keith Nichols joined AkzoNobel
in December 2005 from Corus
Group plc, where he held the
position of Group Treasurer. Prior
to joining Corus in 2004, he held
a number of senior finance
positions within TNT NV, bringing
extensive international finance
experience.
Mr. Nichols played a key senior
role in the sale of Organon
BioSciences to Schering Plough
and in the structuring, financing
and completion of the acquisition
of ICI. He is a member of the
Association of Corporate
Treasurers and holds the MCT
Advanced Diploma.
Having graduated from the
University of Groningen, Rob
Frohn joined AkzoNobel as a
business analyst in 1984. After
several jobs in control and
finance in the Netherlands and
the US, he made the switch to a
management position in 1994.
Following several General
Manager positions within Surface
Chemistry, part of the company’s
chemicals operations, he was
appointed in 2000 to lead the
business unit, based in Sweden.
He returned to the Netherlands in
2004 when he was appointed
CFO and member of the Board
of Management of AkzoNobel.
Mr. Frohn assumed responsibility
within the Board of Management
for Specialty Chemicals as of
May 1, 2008. He is a non-
executive director at Nutreco NV.
Chief Executive Officer and
Chairman of the Board of
Management
(1951, Dutch)
A graduate of the University of
Groningen and Assistant
Professor of Economics at the
Erasmus University of Rotterdam
in the Netherlands (where he
received his PhD in economics).
A former Minister for Economic
Affairs in the Dutch government,
prior to joining AkzoNobel, he
was senior partner and chairman
of the Dutch office of The Boston
Consulting Group.
He is a non-executive director at
Royal Dutch Shell, Chairman of
the Oranje Fonds and Chairman
of the Ubbo Emmius Fund
Foundation at the University of
Groningen. In addition, Mr. Wijers
is a member of the Board of
Directors of the Concert gebouw,
a member of the European
Round table of Industrialists and
the Conference Board.
Board member responsible
for Performance Coatings
(1952, Swedish)
Board member responsible
for Decorative Paints
(1950, Dutch)
Tex Gunning holds a degree in
economics from the Erasmus
University Rotterdam.
His business career has included
more than 25 years at Unilever,
where his final position was as
Business Group President Asia
Foods.
In September 2007, he was
appointed CEO of Vedior, a
global company in HRM services.
After a successful merger with
Randstad, he joined AkzoNobel
in 2008 as Managing Director of
Decorative Paints.
After graduating from
Gothenburg University, Leif
Darner held several management
positions before being appointed
General Manager of Powder
Coatings Scandinavia at
Courtaulds in 1985.
In 1993, he was appointed Chief
Executive of Coatings Northern
Europe. Then in 1997 he served
as Worldwide Director of Yacht
Paint and Protective Coatings.
In 1998, Courtaulds became part
of AkzoNobel and Mr. Darner
was appointed Manager of
AkzoNobel Marine and Protective
Coatings, a post he held from
1999 until 2004, when he was
appointed to the Board of
Management of AkzoNobel as
the member responsible for
Chemicals, a position he held
until April 2008.
8 | Report of the Board of Management | Strategy | AkzoNobel Report 2009
•
•
•
•
Revenue in 2009 declined by 10 percent to
€13,893 million
2009 EBITDA before incidentals 8 percent lower
at €1,768 million, margin at 12.7 percent
(2008: 12.5 percent)
Operating working capital reduced to
13.7 percent of revenue (2008: 16.5 percent)
Net cash from operating activities €1,240 million
(2008: €91 million)
•
Restructuring and synergies: ahead of schedule
•
Net income: €285 million (2008: €1,086 million loss)
•
•
•
Weak demand in mature economies; stronger in
high growth markets
Investments in strategic growth opportunities
continue
Final dividend of €1.05 per share proposed
making a total dividend of €1.35 (2008: €1.80)
being a 57 percent pay-out (2008: 48 percent)
Financial highlights in € millions
Continuing operations before incidentals
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Moving average ROI (in %)
After incidentals
Operating income/(loss)
Net income/(loss) from continuing operations
Net income/(loss) from discontinued operations
Net income/(loss) total operations
Earnings per share from continuing operations (in €)
Earnings per share from total operations (in €)
Capital expenditures
Net cash from operating activities
Interest coverage
Invested capital
Net debt
Number of employees
1 Not meaningful as operating income is a loss.
2008
2009
Δ%
15,415
1,927
12.5
1,315
8.5
8.6
(577)
(1,109)
23
(1,086)
(4.47)
(4.38)
534
91
– 1
13,424
2,084
60,040
(10)
(8)
(12)
13,893
1,768
12.7
1,151
8.3
8.4
870
278
7
285
1.20
1.23
534
1,240
2.1
13,204
1,744
57,060
AkzoNobel Report 2009 | Strategy | Report of the Board of Management | 9
Revenue
Volumes were 10 percent lower than last year.
However, some recovery and growth became
visible in early cycle businesses. Pricing pressure
became more evident during the year.
Acquisitions and divestments
Acquisitions and divestments did not impact
total revenue for 2009. During the year, however,
acquisitions and divestments affected revenue
in the individual business areas:
Revenue in € millions
2007
2008
2009
5,191
5,006
4,677
4,609
4,575
4,038
5,400
5,687
5,209
Decorative Paints
Lower demand in Decorative Paints for the
full-year resulted in 9 percent lower volumes
than 2008.
Performance Coatings
Revenue in Performance Coatings was down
12 percent, due to lower demand across all
businesses.
Specialty Chemicals
For the full-year, Specialty Chemicals experi-
enced lower demand across all businesses,
resulting in 9 percent lower volumes.
Decorative Paints
In Decorative Paints, we acquired two distrib-
utors in Continental Europe.
Decorative Paints
Performance Coatings
Specialty Chemicals
Performance Coatings
In Performance Coatings, we divested Chemcraft
Brazil and the non-stick businesses. We com-
pleted the acquisitions of SABA and Kronospan
and announced the acquisition of the Dow
Powder Coatings assets. This business has
global revenue of several hundred million
dollars and employs around 700 employees.
It will further strengthen our Powder Coatings
business in Europe and North America and will
bring key technological know-how and sig nif-
icant synergy potential. The transaction is
expected to close during the second quarter
of 2010, subject to customary closing con-
ditions, including regulatory approvals.
Specialty Chemicals
In Specialty Chemicals we acquired LII Europe
and Penford Australia and additional interests
in joint ventures. We divested PTA Pakistan.
Total revenue growth year 2009 vs 2008
0
-2
-4
-6
-8
-10
-12
-10%
-10%
+2%
-2%
Decrease
Increase
Volume
Price
Acquisitions/
divestments
Exchange
rates
Total
Revenue development in % versus 2008
Volume
Price
Acquisitions/
divestments
Exchange
rates
Decorative Paints
Performance Coatings
Specialty Chemicals
AkzoNobel
(9)
(13)
(9)
(10)
3
2
–
2
1
–
2
–
(2)
(1)
(1)
(2)
Total
(7)
(12)
(8)
(10)
10 | Report of the Board of Management | Strategy | AkzoNobel Report 2009
EBITDA
For the full-year, EBITDA totaled €1,768 million, 8 percent lower
than in 2008, with the EBITDA margin at 12.7 percent (2008:
12.5 percent). In Q4, EBITDA was €396 million, 4 percent
higher than in 2008 (€381 million), due to continued margin
management and cost reduction programs.
EBITDA AkzoNobel 2007 – 2009 in € millions
2007
2008
2009
635
598
492
586
566
587
945
909
814
Decorative Paints
In Decorative Paints, Europe achieved a mixed performance,
while North America continued to be strongly impacted by a
further decline in the US paint market and investments in
advertising and promotion costs from the Glidden relaunch.
Latin America and Asia delivered an increasingly strong
performance during the year, with Q4 starting to outperform the
relatively weak final quarter of 2008.
Decorative Paints
Performance Coatings
Specialty Chemicals
Performance Coatings
It was an excellent year for Performance Coatings. Despite lower
revenue, EBITDA improved by 4 percent for the year. Marine and
Protective Coatings and Packaging Coatings performed well in
2009 despite lower volumes in Marine. The EBITDA margin for
the year increased to 14.5 percent (2008: 12.4 percent).
Specialty Chemicals
For the full-year, EBITDA for Specialty Chemicals decreased by
10 percent, mainly due to the net high input costs for National
Starch during the first half of the year. Industrial Chemicals’
performance was below 2008 levels due to the drop in demand
for chlorine and caustic. The EBITDA margin for the full-year
was 15.6 percent (2008: 16.0 percent).
EBITDA Decorative Paints 2007 – 2009 in € millions
EBITDA Performance Coatings 2007 – 2009 in € millions
EBITDA Specialty Chemicals 2007 – 2009 in € millions
12.2
635
11.9
598
1,000
800
600
400
200
10.5
492
15
12
9
6
3
1,000
800
600
400
200
12.7
12.4
14.5
586
566
587
15
12
9
6
3
1,500
1,200
900
600
300
17.5
945
16.0
909
15.6
814
20
16
12
8
4
2007
2008
2009
2007
2008
2009
2007
2008
2009
EBITDA before incidentals in € millions
EBITDA margin (in %)
EBITDA before incidentals in € millions
EBITDA margin (in %)
EBITDA before incidentals in € millions
EBITDA margin (in %)
AkzoNobel Report 2009 | Strategy | Report of the Board of Management | 11
Incidental charges included in operating income in € millions
Impairment of ICI intangibles
Restructuring costs
Costs of pensions and post-retirement
Transformation costs
Results related to major legal, antitrust and environmental cases
Results on acquisitions and divestments
Other incidental results
Fair value adjustments of acquired inventories
2008
(1,275)
(275)
(38)
(190)
(32)
(23)
(5)
(54)
2009
–
(353)
58
(14)
(38)
48
18
–
Incidentals included in operating income
(1,892)
(281)
Restructuring costs in € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Other
Total restructuring costs
2008
(189)
(20)
(29)
(37)
(275)
2009
(158)
(55)
(103)
(37)
(353)
Interest
The net financing charges increased by
€177 million to €409 million:
•
•
•
Financing income decreased by €92 million
to €62 million (2008: €154 million) due to
significantly lower market interest rates and
cash utilized for the share buyback program
in 2008
Financing expenses on pensions increased
by €125 million to €174 million (2008:
€49 million) due to lower expected returns
on plan assets
Other financing expenses decreased by
€40 million to €297 million (2008:
€337 million). Higher interest expense for
our refinanced debt during 2009 was offset
by lower costs for fair value changes of
financial instruments.
Restructuring costs
•
Major restructuring projects in Decorative
Paints during 2009 were related to supply
chain and integration projects in Europe,
Canada and Latin America, and to closing
stores in the US
In Performance Coatings, we incurred costs
for headcount reduction programs in all
businesses, the most significant being in
Industrial Activities and Car Refinishes
In Specialty Chemicals, we announced the
closure of four sites including the Skoghall
site in Sweden and the Mo I Rana site
in Norway
Corporate cost savings are on track.
•
•
•
Incidental items included
in operating income
Apart from restructuring costs, incidental items
were related to a fine imposed by the European
Commission. Incidental gains were realized
from changing conditions in certain pension
plans (€58 million) and the divestment of PTA
Pakistan (€23 million).
12 | Report of the Board of Management | Strategy | AkzoNobel Report 2009
EBIT in “other” in € millions
Corporate costs
Pension costs
Insurances
Other
2008
2009
(128)
20
(13)
(37)
(99)
31
(9)
(69)
EBIT in “other”
(158)
(146)
Earnings per share total operations
2007
2008
2009
(4.38)
2.16
1.23
Dividend
2007
2008
2009
1.80
1.80
1.35
Tax
Our year-to-date effective tax rate was 26 percent (2008:
31 percent excluding the impact of the impairment of goodwill/
intangibles and derecognition of deferred tax assets). In Q3, we
received €75 million on a contingent basis as part of ongoing tax
litigation. We recorded a net gain of €57 million on the tax line.
Several other adjustments have been made with regard to tax
liabilities from prior years. In addition, we recorded several tax-
exempt or low tax gains, such as the PTA Pakistan divestment,
as well as some incidental non-deductible expenses. Excluding
the incidental items and prior years adjustments, the year-to-
date tax rate would have been 29 percent (2008: 27 percent).
The “other” category
In the category “other” we report activities which are not
allocated to a particular business. The 2008 figures have been
restated and are lower due to a number of special items related
to the ICI integration and a new corporate cost allocation method.
Corporate costs are the unallocated costs of the AkzoNobel
head office and shared services center in the Netherlands.
The corporate costs showed a considerable improvement on
last year due to restructuring and cost-saving programs. Our
captive insurance companies generated an overall result better
than the previous year, which also included a number of general
product and liability claims. Other costs included, among others,
share-based payments, the result from two small businesses
and some holding companies, treasury results and legacy
operations.
Economic Value Added (EVA)
EVA is calculated by deducting from net operating profit after
tax (NOPAT) a capital charge representing the cost of capital
calculated on the basis of an average return investors expect.
The elements of the EVA calculation cannot be derived directly
from the financial statements, as it takes into account certain
adjustments such as the amortization of incidentals to capital.
EVA for 2009 totaled a negative amount of €492 million (2008:
€1,723 million negative).
Dividend proposal
We will propose to pay a total dividend of €1.35 per share to the
Annual General Meeting on April 28, 2010. An interim dividend
of €0.30 per share was paid in November. Our dividend policy
is based on an annual pay-out ratio of at least 45 percent of net
income before incidentals and fair value adjustments for the ICI
acquisition. This proposed full-year dividend of €1.35 per share
represents a 57 percent payment under our policy.
AkzoNobel Report 2009 | Strategy | Report of the Board of Management | 13
(1,044)
2,042
(356)
(560)
9
(534)
(10,113)
106
(433)
(581)
(1,437)
(42)
20081
11,067
91
(10,541)
(2,493)
(12,943)
3,519
(9,424)
(194)
1,449
355
680
639
(497)
63
(534)
(55)
40
175
(454)
–
4
2009
1,449
1,240
(549)
(275)
416
19
435
35
1,919
Cash and debt management
For the full-year, operating cash resulted in a cash inflow of
€1,240 million (2008: €91 million). The main change comes
from operating working capital management, which released
€533 million cash, while we maintained investment levels
during 2008.
Condensed cash fl ow statement in € millions
Cash and cash equivalents opening balance
Profi t for the period from continuing operations
Amortization, depreciation and impairments
During 2009, we refinanced our debt portfolio and extended
payment terms.
•
In March 2009, a €750 million bond was issued,
maturing in six years, with an interest rate of 7.25 percent
In April 2009, a pound sterling bond of £250 million was
issued, maturing in seven years, with an interest rate
of 8.0 percent
In May 2009, bonds totaling €1,000 million matured
In June 2009, new private debt of €150 million was issued
In December 2009, we redeemed €215 million, due in 2011,
and issued new debt of €225 million, maturing in five years,
by means of extending our existing bond issued in
March 2009.
•
•
•
•
Changes in working capital
Changes in provisions
Other changes
Net cash from operating activities
Capital expenditures
Acquisition and divestments 2
Other changes
Net cash from investing activities
Changes from borrowings
Dividends 3
Buyback of shares
Other changes
Operating working capital
Operating working capital decreased €533 million due to
working capital management. Expressed as a percentage of
revenue, operating working capital was 13.7 (year-end 2008:
16.5 percent).
Operating working capital in € millions
2008
2009
2,359
1,826
Net cash from fi nancing activities
Net cash used for continuing operations
Cash fl ows from discontinued operations
Net change in cash and cash equivalents of total
operations
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at December 31
1 Reclassifi ed for comparative presentation.
2 Net of cash.
3 In 2008 including dividends to ICI shareholders.
14 | Report of the Board of Management | Strategy | AkzoNobel Report 2009
Invested capital
Invested capital at December 31, 2009, totaled
€13.2 billion, €0.2 billion lower than year-end
2008. Invested capital was impacted by the
following items:
•
•
•
•
•
Foreign currency effects on intangibles
and property, plant and equipment, mainly
from a strengthening pound sterling
Increase of €77 million of long-term
receivables related to pension funds in
an asset position
An increase of €206 million due to
acquisitions and divestments
An increase of accrued interest of
€82 million on a bond issued in
December 2008
The decrease of operating working capital
of €533 million due to working capital
management. Expressed as a percentage
of revenue, operating working capital
was 13.7 percent (year-end 2008:
16.5 percent).
Shareholders’ equity
Shareholders’ equity as at December 31, 2009,
increased to €7.8 billion, due to:
•
Net income of €285 million
Cumulative translation reserves of
•
€353 million, mainly due to the stronger
pound sterling
Dividend payments of €395 million.
•
Pensions
The funded status of the pension plans at
December 31, 2009, was estimated to be a
deficit of €1.9 billion (year-end 2008: €1.0 billion).
The movement is due to:
•
Lower discount rates and higher inflation
expectations, both increasing the pension
obligation, partly offset by:
Increased asset values
Top-up payments into certain UK defined
benefit pension plans.
•
•
Workforce
At year-end 2009, our workforce had decreased
to 57,060 employees (year-end 2008: 60,040
employees). The net decrease was due to:
•
•
Acquisitions adding 980 employees
3,960 employees leaving during 2009,
mainly due to continued restructuring and
realized synergies.
Condensed balance sheet in € millions
2008
2009
7,172
3,357
1,848
1,781
2,924
1,595
57
2,787
2,341
1,338
2,985
1,370
12,377
6,357
18,734
7,913
5,128
5,693
18,734
7,388
3,474
1,783
1,441
2,564
2,128
102
2,593
3,488
384
2,866
1,304
12,645
6,235
18,880
8,245
6,081
4,554
18,880
Intangible assets
Property, plant and equipment
Other fi nancial non-current assets
Total non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Total current assets
Total assets
Total equity
Provisions and deferred tax liabilities
Long-term borrowings
Total non-current liabilities
Short-term borrowings
Trade and other payables
Other current liabilities
Total current liabilities
Total equity and liabilities
Invested capital in € millions
2007
2008
2009
15,480
13,424
13,204
Statement of the Board of Management
AkzoNobel Report 2009 | Strategy | Report of the Board of Management | 15
The Board of Management’s statement on the
financial statements, the management report
and on internal controls
We have prepared the 2009 annual report of AkzoNobel and the
undertakings included in the consolidation taken as a whole in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the EU and additional Dutch disclosure
requirements for annual reports.
To the best of our knowledge:
1 The financial statements in this 2009 Report give a true and
fair view of our assets and liabilities, our financial position at
December 31, 2009, and of the result of our consolidated
operations for the financial year 2009.
2 The management report in this 2009 Report includes a fair
review of the development and performance of the businesses
and the position of AkzoNobel and the undertakings included
in the consolidation taken as a whole, and describes the
principal risks and uncertainties that we face.
The Board of Management is responsible for the establishment
and adequate functioning of internal controls in our company.
Consequently, the Board of Management has implemented a
broad range of processes and procedures designed to provide
control by the Board of Management over the company’s
operations. These processes and procedures include measures
regarding the general control environment, such as a Code of
Conduct including Business Principles, Corporate Directives
and Authority Schedules, as well as specific measures, such as
a risk management system, a system of controls and a system
of letters of representation by responsible management at
various levels within our company.
All these processes and procedures are aimed at a reasonable
level of assurance that we have identified and managed the
significant risks of our company and that we meet our operational
and financial objectives in compliance with applicable laws
and regulations. The individual components of the above set
of internal controls are in line with the COSO Enterprise Risk
Management framework. With respect to support to, and
monitoring of, compliance with laws and regulations including
our Business Principles, a compliance committee has been
established. Internal Audit provides assurance to the Board
whether our internal risk management and control systems,
as designed and represented by management, are adequate
and effective.
While we routinely work towards continuous improvement of
our processes and procedures regarding financial reporting, the
Board of Management is of the opinion that, as regards financial
reporting risks, the internal risk management and control
systems:
•
Provide a reasonable level of assurance that the financial
reporting in this 2009 Report does not contain any errors of
material importance
Have worked properly in the year 2009.
•
For a detailed description of the risk management system
with regard to the strategic, operational and compliance risks
and the principal risks identified, reference is made to the
Risk Management chapter (see page 73 onwards). We have
discussed the above opinions and conclusions with the Audit
Committee, the Supervisory Board and the external auditor.
Outlook and medium-term targets
The economic recovery remains uncertain, particularly in mature
markets. However, AkzoNobel remains on track to achieve its
medium-term target of an EBITDA margin of 14 percent by the
end of 2011. The results of the actions that the company has
taken, and will continue to take, underpin our confidence in
achieving this target.
The focus on customers, cost reduction and cash generation
will continue, but investments to capture growth will remain a
priority, particularly in high growth markets.
Amsterdam, February 16, 2010
The Board of Management
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
16 | Strategic ambitions | Strategy | AkzoNobel Report 2009
Strategic ambitions
Value ambition
Progress 2009
Overview 2009
Plans 2010
Outgrow our markets
A measure of growth.
Measured by growing faster
than the markets we
participate in.
EBITDA margin
> 14 percent by end 2011
A measure of operational
effectiveness. On a corporate
level, we use 14 percent as a
proxy measure performance for
top quartile.
Operating working capital
percent of sales level
decreasing by 0.5 per annum
A measure of capital efficiency
and operational effectiveness.
Revenue growth in %
-3
-6
-9
-12
-15
(7)
(8)
(12)
Decorative
Paints
Performance
Coatings
Specialty
Chemicals
(10)
Total
EBITDA margin as a % of revenue
20
16
12
8
4
14.1
11.9
13.0
14.4
15.1
11.9
10.7
9.0
Q1 Q2 Q3 Q4
2008
Q1 Q2
Q3 Q4
2009
Target
Operating working capital as a % of revenue
20
16
12
8
4
16.5
13.7
2008
2009
•
•
•
•
A difficult year from a volume
perspective due to the market downturn
and de-stocking effects
Some market share gains; limited
evidence of market share loss
Strong performance from margin
management
Continued to invest in future growth
in high growth markets.
•
•
•
Ensure delivery of volume growth
expectations from significant
investments (for example in China
and in technology)
Continue to aggressively invest in
high growth markets
Continue to redirect investment to
bigger research and development
projects.
•
•
•
Exceeded the 14 percent EBITDA
margin target in two quarters, despite
the difficult economic climate
Strong performance in gross profit
margins due to margin management
Major cost reductions delivered from ICI
synergies and other restructuring.
•
•
•
•
Continue to focus on the three Cs
(Customers, Costs and Cash)
Continue to professionalize the
procurement function and ensure
we best leverage our scale
Deliver remaining ICI synergies and
restructuring savings
Increase focus on absolute EBITDA
growth, consistent with the focus on
volume and market share gains.
•
•
•
With a reduction of operating working
capital as a percentage of revenue by
2.8 basis points, outperformed our
ambitions
Control of inventory levels and
receivables particularly noteworthy
Achieved improvements virtually across
the board with 13 of the 15 businesses
showing improvement.
•
•
Continue to reinforce and leverage
processes, systems and tools for
operating working capital improvement
Increase focus on inventory
improvement through greater emphasis
on complexity reduction.
AkzoNobel Report 2009 | Strategy | Strategic ambitions | 17
Value ambition
Progress 2009
Overview 2009
Plans 2010
Remain in the top three
on the Dow Jones
Sustainability Index
A measure of long-term
performance potential.
Measured by external
assessment of performance
versus our peer group by
Dow Jones.
Top quartile safety
performance
A measure of how we look after
our people and operational
effectiveness. Best-in-class
performance in total reportable
injuries for employees and
contractors per million hours
worked; proxy for best-in-class
performance defined as 2.
DJSI position Chemicals sector
2005
2006
2007
2008
2009
DJSI position
Top 10%
2nd
1st
2nd
2nd
Total reportable injuries per million hours
10
8
6
4
2
7.4
6.7
5.7
4.5
3.7
2005
2006
2007
2008
2009
Target
Step change in people
development
A measure of how we look after
our people and long-term
performance potential.
Measured by improvement on
key metrics in our employee
engagement survey.
Employee opinion in % favorable
Engagement
Diversity and inclusion
Integrity and responsibility
Developing our people
80
74
73
56
•
•
•
Remained in the top three (top two)
Key areas of strong performance were
corporate governance, risk management,
supplier aspects and climate policy
Key areas for improvement identified as
operational eco-efficiency improvement,
aspects of people development and
implementation of R&D processes.
•
•
•
Focus strongly on operational
eco-efficiency improvement
(e.g. energy, raw materials efficiency,
waste, water, emissions)
Embed the Carbon Policy
Pursue safety and people development
actions as identified below.
•
•
•
Significantly improved performance
versus 2008; nearing our target of 2
Greatly increased number of sites using
behavior-based safety
Began to implement safety leadership
training and enhanced HSE&S
(Health, Safety, Environmental and
Security) audits.
•
•
Continue roll-out of behavior-based
safety, safety leadership training
and HSE&S audits to fully cover
AkzoNobel sites
Develop and roll out a more consistent
and professional approach to
process safety.
•
•
•
•
•
Strong performance in many employee
engagement measures
Improvement required in our people
management focus
Agreed a comprehensive company-
wide strategy agenda for HR
Continued to deliver key management
development training programs
Began taking irreversible steps in
diversity and inclusion.
•
•
•
•
Roll out new leadership development
series for our senior executives and
executive potentials
Implement the Talent Factory scorecard
and monitor and drive action plans for
improvements on key metrics
Continue activities to significantly
enhance diversity and inclusion levels
Establish regular company-wide
employee engagement survey.
18 | Strategic agenda | Strategy | AkzoNobel Report 2009
Strategic agenda
•
Successfully integrate ICI
•
Deliver profitable growth by leveraging our strong
emerging market and technology positions,
augmenting growth by bolt-on acquisitions
•
Improve gross profit margins through
margin management
In 2008, we devised a strategic agenda to map out the performance improvement plans which
would enable us to achieve the “value” and “values” of our strategic ambitions (described on the
previous two pages). During 2009, we stuck to this agenda (see left) and firmly believe it has
helped to ensure that we are well positioned for the future. We measure the company’s progress
against our strategic ambitions and agenda using a strategy dashboard which incorporates both
leading and lagging indicators and a balance of financial and non-financial metrics.
Successfully integrate ICI
We are on track to deliver on the promises we made with regard to the ICI synergies, which have
become more aggressive in terms of size and timing, as shown in the box below.
Late 2007
April, 2008
Sept, 2008
Today
What we said in
Where we are
•
Increase operational effectiveness, partly through
restructuring, particularly in mature markets
Amount of
synergies
€280 million
€340 million
(20 percent
increase)
€340 million
€300 or ~90
percent of the
€340 million target
already delivered
•
Embed the AkzoNobel values
•
Create an industry-leading Talent Factory
•
Strive for world class levels of sustainability and safety
Timing of delivery
85 percent
delivered
by end 2010
85 percent
delivered
by end 2010
100 percent
delivered
by end 2010
100 percent
delivered
by end 2010
Outside of Decorative Paints (for example at the corporate center), virtually all the synergy savings
have been delivered. In 2010, the Decorative Paints agenda will begin to evolve from integration to
transformation. The integration agenda has been focused on bringing together the two businesses
and optimizing the cost base. The transformation agenda has started to concentrate more on
building a global business from our strong, but “multi-local” businesses.
AkzoNobel Report 2009 | Strategy | Strategic agenda | 19
is directed
As well as meeting our customer and market needs, our
research
towards addressing societal and
environmental aspirations, such as more sustainable housing
and transportation. Eco-premium solutions help to create value
for our business and for our customers. They provide top line
growth opportunities because of their improved performance in
areas such as raw material use, manufacturing processes and
product innovation.
Sustainability as a key driver of innovation
Rediset WMX is a new asphalt binder developed by our Surface
Chemistry business which not only improves the durability of road
pavings, but also enables the transportation and laying of asphalt
at lower temperatures. This results in significant energy savings and
greatly reduced noxious fume generation.
Energy saving and a lower carbon footprint also apply to our Dulux
Ecosure Matt Light & Space range of decorative paints, which won
the UK Green Business Awards’ Green Product Award for 2009.
The launch of our low carbon footprint Dulux Ecosure range in 2008,
together with the energy saving potential of Dulux Light & Space’s
Lumitec technology, means we have created unique products that
deliver unparalleled consumer and environmental benefits. High
Light Reflectance Value colors in the new range lead to significant
energy cost savings of up to 22 percent on average, versus the use
of more conventional paints. Lights can also be switched on up to
20 minutes later every day, all of which equates to turning off one
in every five 60W filament bulbs.
Last year, our Packaging Coatings business introduced its Aquabase
353 washcoat to a major can customer in Europe. The coating –
which is used to protect the exterior of two-piece steel food cans
from corrosion – has a lower solvent content than the product it
replaced. It can also be applied at much lower film weight to provide
the required level of protection, resulting in lower VOC emissions and
materials usage.
Deliver profitable growth
Our profitable growth agenda is based on leveraging our strong
technology and positions in high growth markets, augmented
by bolt-on acquisitions.
Leveraging our strong technology positions
AkzoNobel’s Research, Development and Innovation (RD&I)
strategy is focused on creating bigger, bolder innovations to
drive profitable growth. It’s about ensuring that we pioneer
technologies with major potential and putting the right resources
behind them. To do this, we are directing a greater proportion of
our expenditure towards major innovations.
Specifically, we have identified the 50 largest innovation projects
with the highest potential impact currently being carried out by
our businesses. Major programs on water-based decorative
and protective coatings, next generation antifouling coatings,
self-healing coatings, low energy curing, delivery systems, bio-
renewable raw materials and advanced processing technologies
all feature in this list of exciting developments.
Using all available resources
To support these projects, we have introduced the scientific
expertise of Expert Capability Groups (ECGs). These teams
work with our businesses to help accelerate project delivery and
enhance their impact. This partnership approach is enhanced
by networks called Communities of Practice (CoPs). They bring
together our leading experts, who contribute their knowledge
from across the entire RD&I function – and elsewhere within
AkzoNobel – to transfer best practices and utilize all our
technical knowledge in order to deliver the highest level of
product functionality to our customers.
Beyond using our internal resources to their best advantage,
we also strive to look beyond AkzoNobel to help further explore
and develop other opportunities. To encourage a more open
approach, we have established a Networked Innovation Program
in partnership with NineSigma. The program is based on a
structured methodology for defining technology and know-how
needs and then creating strategies for locating and acquiring
solutions that may exist beyond our company boundaries.
We expect the program to substantially enhance our rate of
innovation by accelerating our access to new technologies.
Using all available resources for technology development
The Networked Innovation Program is complemented by a family
of Communities of Practice (CoPs). Existing CoPs for bio-renewable
materials, waterborne technologies and corrosion protection will
soon be joined by new CoPs in process efficiency and low
energy curing.
The bio-renewables CoP has already been instrumental in sharing
latex technology based on bio-monomers. The technology,
developed by Decorative Paints in partnership with two of our Expert
Capability Groups (ECGs), is currently being explored by Functional
Chemicals’ Elotex business as a possible building block for novel
re-dispersible polymer powders used in dry mortar mixes.
Car Refinishes applied an open innovation approach for the
development of its new StickerFix do-it-yourself (DIY) repair
and protection solution. Working with a global leader in films
and pressure sensitive technology, they have introduced a new
approach to covering minor scratches on vehicles using AkzoNobel
paint technology.
The output of innovation is protected by Intellectual Property
rights. In many of our businesses, maintaining inventions as
trade secrets is preferred to seeking patent protection. However,
full patent protection is occasionally pursued. In doing so, we
focus on quality rather than quantity. In 2009, patent protection
was sought for 79 inventions, bringing the company’s patent
portfolio close to 10,000 applied and granted patents.
Sustainability – always a key driver
A few years ago, we announced a company target of generating
30 percent of revenue from eco-premium solutions. We
measure whether a product is eco-premium using quantitative or
qualitative analyses focusing on six categories: toxicity, energy
efficiency, use of natural resources/raw materials, emissions
and waste, land use and risks (of accidents, for example). The
eco-premium solution must be significantly better than currently
available solutions in at least one criterion, and not significantly
worse in any.
The 2009 assessment indicates that the proportion of eco-
premium products in our portfolio increased to 20 percent of
sales (2008: 18 percent). Businesses made progress identifying
opportunity areas for eco-premium solutions and are building
these into development programs as they draw up forward
plans to achieve the 2015 target. This process will be further
embedded in 2010.
20 | Strategic agenda | Strategy | AkzoNobel Report 2009
Examples of development in high growth markets
2
4
3
5
1
1 Brazil
•
•
•
In Brazil, Packaging Coatings increased its
reactor capacity
In Decorative Paints we are investing in our “Tudo de
Cor” (Everything in Color) program. This aims to build
strong relationships with local communities and add color
to people’s lives by, for example, painting buildings in
deprived neighborhoods
Investment continued at our Pulp and Paper Chemicals
business’ Chemical Island at Três Lagoas in Brazil to
support local pulp production facilities.
4 China
•
•
•
•
In China, the roll out of 184 new controlled Decorative
Paints stores was completed
The new Protective Coatings factory in Suhzou, China,
which opened in late 2008, is already running at
full capacity
A new technology center for Powder Coatings opened
in Ningbo, China
Continued investment in our Specialty Chemicals
multi-site in Ningbo, China. Full production is expected
to begin in 2010.
2 Emerging Europe
•
Our new solvent-based Decorative Paints plant in Pilawa,
Poland, has been successfully scaled up
Bolt-on acquisitions were completed for Wood
Adhesives in the Czech Republic/Romania and Slovakia.
•
5 Asia Pacific
•
Investment in a new R&D laboratory in Singapore made
by our Marine and Protective Coatings business
Investment in increased distribution and sales strength
in Decorative Paints Indonesia and Vietnam.
•
3 India
•
Plans were announced to build new capacity for
Specialty Plastics and Coil Coatings in India.
Leveraging our strong positions in high growth markets
One of our key successes has been – and will continue to be –
our truly global profile. A particular area of strength is our position
in high growth markets, where we have leading positions in all
three of our business areas. Today, more than 35 percent of
our sales and employees originate from high growth markets.
We take pride in the fact that these strong positions are based
on the same high standards we apply in the more mature
markets with regard to sustainability, corporate governance and
corporate social responsibility.
Every year, we continue to build these strong positions in
high growth markets and 2009 was no exception. Despite
the difficult economic climate, we continued to invest in high
growth markets in all of our businesses, as described in the
accompanying map above.
Augmenting our growth through bolt-on acquisitions
In 2009, we continued to add to our profitable organic growth
by investing in selective bolt-on acquisitions. One of these key
acquisitions, which is due to be completed in 2010, is described
on the right.
Augmenting our growth through bolt-on acquisitions
The general industrial market for coating metal is large and
fragmented. We intend to focus on powder coatings because this is
the most sustainable form of coating for metal in this particular market.
In November 2009, we announced the acquisition of the Dow Chemical
Company’s powder coatings business, which they had purchased
as part of their acquisition of Rohm & Haas. Our acquisition of this
business (subject to regulatory approvals) will complement our
existing powder coatings activities and boost our global capability
to develop innovative new technologies, products and services.
The integration of the two businesses will provide a solid platform for
building sustainable relationships with customers over the long term.
We expect great things from this acquisition and from our Powder
Coatings business in general.
AkzoNobel Report 2009 | Strategy | Strategic agenda | 21
Improve gross profit margins
Although 2009 was a difficult year, it was successful from a
gross profit margin perspective. This was largely due to a
combination of our strong product portfolio, a disciplined margin
management program – which we began implementing prior
to the economic downturn – and an increasingly professional
approach to procurement.
From a procurement perspective, the emphasis as we move
forward will be on rolling out processes across the company.
Procurement best practice is not just about unit cost reduction,
but also implementing programs to ensure suppliers will be
able to support AkzoNobel in meeting the future demands
of our customers. The AkzoNobel Vendor Policy sets out the
environmental and social standards we expect.
We are also planning to go beyond implementation of our
existing best practice margin management and procurement
take a more cross-functional, proactive
processes and
approach to rationalizing our product architectures in order to
deliver appropriate products to our customers at lower cost
levels. An example from Decorative Paints is shown below.
Product architectures approach to gross profit
margin improvement
We are in the process of analyzing our Decorative Paints formulations
using a rigorous product architecture approach. Early results indicate
that there may be potential to reduce our portfolio of tens of thousands
of formulations to fewer than 100 architectures. Reducing our
formulations will allow us to operate with a far less complex mix of raw
materials, as well as eliminating duplicate development efforts. It will
also allow us to deliver faster roll-out of new products at competitive
margins into our global markets.
Increase operational effectiveness
In September 2008, we announced planned restructuring
savings of €100 million, which was increased by an additional
€100 million in savings announced in early 2009. We are on track
to deliver this €200 million in cost savings and the improvements
we have made are already visible in our 2009 results. In
fact, during the year, we realized €300 million of cumulative
annualized restructuring savings. Given the uncertainty in the
market environment, we will continue to look for opportunities
to improve our processes and performance.
A particular focus for improvement is in mature markets, where
we continue to consolidate manufacturing and distribution
facilities. The cost savings brought about by this consolidation
will help us to generate the financial flexibility we need to invest in
high growth markets where the growth prospects are stronger.
Operational effectiveness goes beyond restructuring to cover
all aspects of cost and cash management. Our operating
working capital (OWC) initiative aims to realize a structural and
sustainable improvement in the level of working capital in our
businesses. We have increased our management focus on this
important topic and are encouraging the application of best
practices. An example is shown on the right.
Another key area for operational effectiveness is energy and
waste reduction. Work in this area provides two important
benefits: reduced costs and improved environmental footprint.
OWC improvement efforts in Industrial Chemicals
•
•
•
Targeted incentives
OWC champions at key decision points
Development of OWC dashboard including detailed targets for
the OWC components
OWC manual
OWC challenge (competition) to harvest our BU best practices.
•
•
Operating working capital development per quarter
Dec ’08
Mar ’09
Jun ’09 Sep ’09
Dec ’09
Absolute OWC in € millions
Relative OWC as a percentage of revenue
Non-reusable waste reduction at Surface Chemistry
Surface Chemistry has been able to reduce its non-reusable waste
by more than 20 percent by switching to higher purity raw materials
and eliminating a product purification step using clay, which was
previously treated as non-reusable waste.
Non-reusable waste in million tons
2007
2008
2009
11,489
9,810
8,973
22 | Strategic agenda | Strategy | AkzoNobel Report 2009
Embed the AkzoNobel values
We refined our core values in 2008. They define who we are
and what we aspire to become. The values are:
•
•
•
•
•
Focusing on our customers’ future first
Embracing entrepreneurial thinking
Developing the talents of our people
The courage and curiosity to question
Integrity and responsibility in our actions.
In 2009, we integrated these values into our global performance
appraisal system, known as the Performance and Development
Dialog (P&D Dialog), using a model which describes the
behaviors associated with each value. We also used our Global
Employee Survey to gather feedback from a representative
sample of employees regarding the extent to which our company
delivers on its values. The results reconfirmed the collaborative
culture that the majority of employees are experiencing across
AkzoNobel. Even in 2009’s challenging economic climate, we
saw a positive trend in engagement.
Integrity and responsibility, for example, is embedded in
our Code of Conduct and Business Principles. This value
incorporates fundamental principles on issues such as business
integrity, labor relations, health, safety and environment and
community involvement.
Beyond being a starting point for developing our employees and
our corporate culture, we also use our values to guide everything
we do. One example of how we are putting our values into
action is to recognize and reward scientific development – both
internally within AkzoNobel and externally within the science
base upon which we depend.
Outstanding people, tremendous ideas, great outcomes
The internal AkzoNobel Innovation Award, presented for the successful
introduction of new innovations to the market, was won in 2009 by
the team which developed Intersleek 900. Introduced by our Marine
and Protective Coatings business in 2007, the revolutionary foul
release coating is based on novel fluoropolymer technology and has
now been applied to the hulls of almost 300 ocean-going vessels.
The AkzoNobel Science Award
This annual award has been presented in recognition of ground-
breaking interdisciplinary research alternately in Sweden and the
Netherlands since 1970. In order to reflect our position as a global
leader in coatings and specialty chemicals, at the end of 2009 we
extended the scope of the award and introduced a new AkzoNobel
Chemical Sciences Award in China, which was established in
partnership with the Chinese Chemical Society.
Self-managed leadership journeys
As part of the Decorative Paints integration process, we identified
a strong need to build a new culture within the business. Through
a series of journeys, the organization embarked on a process to
strengthen the common culture and increase understanding of the
business strategy, while simultaneously providing the opportunity
for employees’ individual development. More than 1,200 senior and
middle managers have successfully completed the program to date.
Roll out will continue in 2010.
Enablers
In 2009 we initiated an HR council with the participation of key
business and functional leaders within AkzoNobel. This council will
help to set and guide the Talent Factory agenda going forward.
A new drive to significantly improve HR capability was launched
in 2009 in our top nine countries, where close to 70 percent
of our employees are based. This will allow us to reduce the
existing fragmentation of HR support and ensure that the Talent
Factory runs efficiently and effectively.
We have simultaneously embarked on a program to consolidate
our current HR data and payroll systems across all businesses
and countries. This will help to improve data quality, reduce
costs and, most importantly, support human resources initiatives
going forward.
To measure whether we are delivering on our Talent Factory
aspirations, we have established clear targets and a quarterly
reporting mechanism which we call the Talent Factory score-
card. The key metrics from this scorecard are included in our
strategy dashboard.
Create an industry-leading Talent Factory
Creating an industry-leading Talent Factory is fundamental
to delivering our strategic ambitions. We use the term Talent
Factory because we believe the attraction, development and
retention of great people is just as important to the success of
our company as the development, production and sale of great
products. In 2009, our Global Employee Survey indicated that
we can be proud of our achievements in this area, but there is
still room for improvement.
Diversity and Inclusion
A core program which gained significant momentum in 2009
was our renewed focus on Diversity and Inclusion (D&I).
Following a global D&I workshop held at the end of 2008, which
was attended by representatives from all our businesses, we
defined a set of irreversible steps to improve our performance.
Our initial focus is on improving gender and cultural diversity.
We have set clear and stretching ambitions for improvement in
these areas.
Four businesses have now taken these ambitions and made a
detailed and business-specific analysis of the D&I challenges for
their part of the company. During 2010, we expect to develop
detailed plans for all businesses.
Management and leadership development
The successful roll-out of our two standardized global
is continuing. The
management development programs
Management Essentials Program
is designed to
provide state-of-the-art people management basics for all
first-line people managers across the company, while the
Advanced Management Program (AMP) caters for senior
managers. Both programs include specific training on the use
and application of our values on a day-to-day basis.
(MEP)
Strive for world class levels of sustainability
and safety
Building a sustainable, successful business is embedded in
all aspects of our strategic agenda, because at AkzoNobel,
our commitment to sustainability goes substantially beyond
managing risks, governance and compliance. To us, sustain-
ability involves creating opportunities for value creation through
process excellence, innovation and talent development. We
have developed a framework to demonstrate the essential
relationship between all these elements, which is described in
the Sustainability facts and figures section (see page 131).
The good progress we have made in this respect was recognized
externally in 2009 when we maintained our position in second
place on the Dow Jones Sustainability Index for 2010. The
assessment confirmed areas of strength in corporate governance,
risk management, supplier aspects and climate policy. In the
area of innovation management, improvement opportunities
were identified consistent with the way our RD&I processes are
developing. Other focus areas for improvement are operational
eco-efficiency and aspects of talent attraction and retention.
Our Sustainability Framework includes a number of key areas
described earlier:
•
Employee engagement and people development
(see page 22)
Integrity (see page 22)
Integrating sustainability into sourcing and R&D strategy
(see page 19).
•
•
Additional key components of our framework are described below.
Safety
We are very pleased to have made a noticeable improvement
in our total reportable injury rate for employees and supervised
contractors. We achieved a total reportable injury rate of 3.7
injuries per million hours worked in 2009, down from 4.6 in
2008. This improvement was due, in part, to the continued roll-
out of our behavior-based safety program at all our sites. We
also piloted a new Safety Leadership Program targeted at senior
business leaders. The first sessions were held in the Netherlands
and involved all members of the Board of Management and
the corporate directors. Both programs will continue to be
implemented throughout the company during 2010.
AkzoNobel Report 2009 | Strategy | Strategic agenda | 23
customer applications to gain a better view of the downstream
footprint of our products. Details of the company cradle-to-gate
footprint are included in the Sustainability facts and figures
section.
Beyond carbon, during 2009, we started to estimate the total
eco-footprint of our businesses in order to prioritize future
improvement areas in all parts of the lifecycle. We have engaged
external support from German professor Michael Braungart
and EPEA to review the cradle-to-cradle opportunities in our
businesses. The aim is to integrate this approach into innovation
processes and accelerate the changes required to reduce the
footprint of our products.
Improving the eco-footprint in Pulp and Paper Chemicals
At our facilities in Québec, Canada, Pulp and Paper Chemicals reduced
its electricity consumption per ton of product through technology
improvement. In total, power consumption has decreased by more
than 20,000 MWh per year.
Sustainable fresh water supply is essential to life – and to the
sustainability of our business. During 2009, 99 percent of our
production sites (our target is 100 percent) carried out a risk
assessment of the sustainability of their fresh water supply
and use, taking into account both the societal impact and the
business continuity aspects. The results show that 38 percent of
sites already have sustainable fresh water management in place.
The remainder will develop plans to achieve this status by 2015.
Behavior-based safety (BBS) in Functional Chemicals
Our Functional Chemicals site in LeMoyne, Alabama, in the US has
a long history in BBS which dates back to 1996. The facility has an
excellent track record, achieving three million hours without a lost
time injury. Employees are very active in sharing best practices with
other AkzoNobel sites, having notably partnered with a nearby Pulp
and Paper Chemicals plant to host a networking meeting with eight
US manufacturing sites.
Our sites around the world have been implementing enhanced
standards for process safety and occupational health, and an
improved Health, Safety, Environment and Security (HSE&S)
audit process. This new process has raised the bar to deliver
a step change in performance during the next five years. It
focuses on site-based improvement targets and sharing good
practice across the company, with corporate HSE&S audits to
review progress.
Product stewardship
A newly-formed Global Product Stewardship and Regulatory
Affairs Council, with representatives from all Business Areas,
is responsible for ensuring that AkzoNobel goes beyond all
legal and ethical requirements for our products on the global
market. The council will integrate the good practice from
across the company into a product stewardship framework
and subsequently ensure that resources, training and audits are
optimized.
The regulatory focus has been on implementing a range of
notification, classification and labeling regulations around the
world. We are working towards the 2010 REACH registrations
in Europe; a range of new notification requirements in Asia; as
well as implementation of the Globally Harmonized System of
Classification and Labeling of Chemicals (GHS).
Managing scarce resources
Managing the carbon footprint of our products not only
creates more value for our customers, but is also a societal
imperative. Following the 2008 pilots, we have assessed the
cradle-to-gate carbon footprint of the 159 key value chains
across our businesses, with the aim of identifying focus areas
for improvement. Each business is developing a carbon
management plan and improvement targets, while sourcing
managers have started working with suppliers to reduce raw
material footprints. During 2010, we will continue to assess key
Business performance
The following chapter gives a detailed summary of how
each of our Businesses Areas performed during 2009.
Information on market characteristics, key brands and
revenue comparisons is also provided.
e
c
n
a
m
r
o
f
r
e
p
s
s
e
n
i
s
u
B
AkzoNobel Decorative Paints
AkzoNobel Performance Coatings
AkzoNobel Specialty Chemicals
26
34
44
26 | Decorative Paints | Business performance | AkzoNobel Report 2009
“Armed with a new global strategy,
we can confidently move forward
and reap the rewards of our stronger,
more focused organization.”
Tex Gunning
Board member responsible for Decorative Paints
‘
There can be no doubt that 2009 was a challenging year for
AkzoNobel Decorative Paints, following the exciting and historic
events of 2008. The ongoing integration activities and tough
business climate certainly concentrated our focus. But we were
determined to turn the economic crisis into an opportunity and
used it as an additional drive for change and reinvention as we
maintained our push to develop winning businesses in all regions.
Integration on track
So while we had to cope with the strong impact of the downturn
and carefully manage our margins, particularly in Europe and
the US, we remained on track with integrating the former ICI
activities and continued to capture the expected savings
resulting from the synergies associated with the acquisition.
In this respect, our “best of both” approach – looking for the best
talent, processes and products – clearly paid off.
Transforming the organization
Our primary focus in Europe during 2009 was on rationalization
and removing complexity. We further reduced the number of
brands and stock keeping units and made good progress in
integrating the supply chain and becoming a more regional/
global organization, as opposed to being organized on a purely
local basis. In Asia, we reorganized and created three distinct
regional businesses. This now gives us a more direct focus on
high growth markets and will help to deliver better profitability in
the medium to long term as we target further growth and allocate
more resources to our Asian activities. It was a challenging
year in the US, but the relaunch of our Glidden brand proved
to be highly successful and strengthened our relationship with
The Home Depot. In Latin America, the downturn had less of an
impact and we achieved good profit levels.
Of course, innovation remained a priority despite the adverse
impact of the global economy and we continued to launch
eco-premium products in all our markets. This included the
introduction of Dulux All Round Guard throughout China, a
product which absorbs and decomposes harmful elements
from the air to create a safer home environment. Customer
innovation was another key focus area, highlighted by a special
program in India which involved educating around 100,000
painters about our Dulux brand portfolio. Dulux also won several
awards – notably in the UK – honoring the sustainable nature of
our products. This recognition helped to underline our status as
the first major paint manufacturer to make a significant move
towards creating credible environmentally sustainable paint
products for the consumer and professional markets. I’m also
proud to mention a special “Tudo de Cor” project in Brazil, which
saw our Coral brand – and our employees – help to revitalize
old neighborhoods in São Paolo and Rio de Janeiro.
Cohesive community
This year was also extremely important in terms of continuing
to create the right high performance culture. We have a major
transformation agenda committed to creating a cohesive
community and we made great strides with our ongoing
leadership program. The feedback we have received from
employees has been extremely positive and this journey towards
providing meaning and inspiration to the whole organization will
continue during 2010.
Armed with a new global strategy, we can confidently move
forward and reap the rewards of our stronger, more focused
organization. There is still some progress to be made, but there
is no doubt that we will emerge from the downturn in better
shape to capture the growth opportunities that a revitalized
economy will present.
’
www.akzonobel.com/paints
AkzoNobel Report 2009 | Business performance | Decorative Paints | 27
Strong brands from our portfolio
Key developments and deliverables 2009
Key fi gures in € millions
Employees by region at year-end
•
Revenue: €4.7 billion, down 7 percent
•
EBITDA of €492 million, down 18 percent
•
More than 35 percent of revenue from high
growth markets
•
Largest global supplier of decorative paints
•
Global portfolio of strong and leading brands
•
More than 1,200 managers participated in
a major leadership program
•
Integration and restructuring continued to
streamline portfolio
Revenue
EBITDA
EBITDA margin (as a % of revenue)
EBIT
EBIT margin (as a % of revenue)
Operating income/(loss)
Revenue breakdown by business unit in %
2009
4,677
492
10.5
302
6.5
137
2008
5,006
598
11.9
401
8.0
(669)
C
US and Canada
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
UK
Other European countries
Other regions
Total
2008
5,700
1,900
700
2,600
1,100
1,700
600
2,300
5,700
1,300
2009
5,200
1,700
1,200
2,200
1,000
1,600
600
2,200
5,400
1,100
23,600
22,200
A Decorative Paints Europe
B Decorative Paints Americas
C Decorative Paints Asia
54
32
14
100
Geo-mix revenue by destination
31%
Americas
50%
Europe
19%
Asia
B
A
Product: Eco-premium solutions as % of sales
2007
2008
2009
15
15
22
Key value chains with carbon
footprint assessment
2009
32
Total reportable rate of injuries per million hours
2006
2007
2008
2009
6.3
5.7
4.9
4.7
28 | Decorative Paints | Business performance | AkzoNobel Report 2009
Decorative paints market overview
Our Decorative Paints business supplies a full range of interior and exterior
decoration and protection products for both the professional and do-it-yourself
(DIY) markets, including paints, lacquers and varnishes, as well as products for
surface preparation (pre-deco products).
Market and business characteristics
The size of the global market for decorative paints is around
€30 billion.
homeowners) to independent dealers (serving both homeowners
and professionals) and company-owned stores focused on
serving professionals.
Architectural coatings
Interior and exterior wall paints and trim paints (lacquers) for
consumers and professionals.
Woodcare and specialty products
•
•
Lacquers and varnishes for wood protection and decoration
Specialty coatings for metal, concrete and other critical
building materials.
Pre-deco products
Fillers, wall treatments, sealants and putties for consumers and
professionals.
•
•
•
•
•
•
Global market drivers and developments
•
•
Growing populations and GDP growth
Activity of residential and commercial new-build and
home sales
Global increase in importance of home and
interior decoration
Rise of middle class in high growth markets
Legislative/regulatory pressures on environmental and
health issues (VOC, REACH) driving innovation
Increasing importance of large scale outlets
Growth of importance of women as decision-makers
Increasing importance of internet.
Building adhesives
•
Tile and floor adhesives and floor leveling compounds used
in the building and renovation industry
Supplied for professional workers such as tile, floor and parquet
layers, interior decorators and painters
Direct to medium-sized enterprises, wholesalers,
specialized retailers.
•
•
Customers
Our end-users can broadly be segmented into homeowners
(either DIY or BIY – buy it yourself), professional painters serving
homeowners and commercial contractors. They are served
through a variety of outlets ranging from big box chains
such as The Home Depot, B&Q and Leroy Merlin (serving mainly
Key raw materials
•
Binders/resins
•
Titanium dioxide
•
Packaging materials
Price drivers
•
Energy, oil and raw
material prices
Steel prices
•
Drivers for buying decision
Retailers
•
•
•
Strong brands that attract customers
Innovation that drives demand and basket spend
Category management capability.
•
•
•
Trade customers
•
•
•
•
Product quality, consistency and innovation
Product availability and service
Technical and business support
Strong brands supporting loyalty.
Innovations
Making decoration easy – convenience of application
•
•
Cuprinol Sprayable – sprayable fence treatment
Hammerite Metalmaster – unique “wrap-around” metal
protection spray coating
Dulux PaintPod – automated, easy-to-use wall paint
application system.
•
•
•
•
•
Market leadership positions
Americas
Europe
Asia
(cid:116)(cid:1)(cid:36)(cid:66)(cid:79)(cid:66)(cid:69)(cid:66)
(cid:116)(cid:1)(cid:34)(cid:83)(cid:72)(cid:70)(cid:79)(cid:85)(cid:74)(cid:79)(cid:66)
1
2/3
(cid:116)(cid:1)(cid:35)(cid:83)(cid:66)(cid:91)(cid:74)(cid:77)
(cid:116)(cid:1)(cid:54)(cid:52)
1
(cid:116)(cid:1)(cid:54)(cid:44)
2/3
(cid:116)(cid:1)(cid:40)(cid:70)(cid:83)(cid:78)(cid:66)(cid:79)(cid:90)
2/3
(cid:116)(cid:1)(cid:36)(cid:73)(cid:74)(cid:79)(cid:66)
(cid:116)(cid:1)(cid:42)(cid:79)(cid:69)(cid:74)(cid:66)
Support professional painters with tailor- made products
and services
•
Sikkens object analysis, design support and marketing
programs for painters
The Dulux Trade Environmental Wash System and DDC
(Dulux Decorator Centres) Paint Can Recycling – professional
paint waste management systems
Herbol Façade Certification Program
Glidden SpeedWall – highly efficient interior wall paint with
superior properties for the professional painter.
Eco-premium portfolio
Recent initiatives:
•
Dulux Trade Ecosure – water-based, high performance
professional paint
Sikkens Rubbol XD – VOC-reduced, ultra durable
professional trimpaint
The Freshaire Choice – zero-VOC consumer wall paint
Dulux Light & Space – highly light reflective, energy-saving
wall paint
Herbol Symbiotec – nanotechnology based, dirt repellent
wall paint.
AkzoNobel Report 2009 | Business performance | Decorative Paints | 29
AkzoNobel Decorative Paints Europe
1 Antoine Fady
Managing Director Continental Europe
2 Ruud Joosten
Managing Director Northern and Eastern Europe
3 Richard Stuckes
Managing Director UK, Ireland and South Africa, Building Adhesives
1
2
3
Revenue in € millions
2007
2008
2009
2,791
2,711
2,533
Key brands
Overview
Despite the significant market decline, AkzoNobel Decorative
Paints Europe performed well in many regions, maintaining or
increasing market share. Most of the negative impact of lower
volumes was offset by tight cost control and restructuring.
The integration of the former ICI businesses continued, with the
related synergy benefits being achieved earlier – and in some
cases to a higher extent – than originally expected.
Analysis
The early part of 2009 was particularly difficult, although there
was some improvement evident as the year came to an end.
Streamlining the portfolio – reducing the number of products
to concentrate on key strategic brands – had a positive affect,
while active margin management helped boost results in many
countries, notably Sweden, Turkey and Poland. Although
market conditions were unfavorable, we continued to invest in
promoting our brands and in new innovations and this helped
to protect margins and grow market share.
Downturn
Sales across Europe were heavily impacted by the downturn.
The Baltics and the Ukraine were among the worst hit, while
Ireland, South Africa and the Nordics also faced very tough
trading conditions. The UK do-it-yourself market probably
performed better during the recession in 2009 than any other
major market in Europe. Our results there were driven by
inspirational advertising and communication campaigns and
new product launches. Furthermore, despite the challenging
economy, we continued to expand our integrated approach to
sustainability in all aspects of our business.
Actions
We completely refocused our activities in Continental Europe,
where the economic climate forced us to reorganize deeper
and broader than first anticipated. This was part of the strategic
plan to move away from localized operations to a more Europe-
wide organization. We shut down factories in the Ukraine and
the Czech Republic and announced additional closures in
Poland and France. There are also plans to continue reducing
the number of product brands and formulations, which will bring
about more savings and simplify our business. This will result in
a further improvement in operating working capital, which fell
significantly during the year.
Developments
The Dulux PaintPod Compact was introduced, while the Flexa
brand was successfully relaunched in the Netherlands and a
new range of Dulux trim paints went on sale in France. This year
also saw the introduction of the unique Dulux online color
testers service, which enables customers to choose from more
than 1,900 colors online and then have tester pots delivered
to their door. We also launched a variety of VOC compliant
paints across the region ahead of the 2010 deadline. In Poland,
we successfully scaled up our Pilawa plant, strengthening its
position as one of the company’s key European sites. We also
benefited from preparations for forthcoming high profile events,
having supplied products for venues being used at the 2010
soccer World Cup in South Africa and the London Olympics
in 2012. In addition, approval was obtained for a single one kit
Schönox building adhesive waterproofing system which enables
us to sell in all our European markets.
30 | Decorative Paints | Business performance | AkzoNobel Report 2009
1
2
3
AkzoNobel Decorative Paints Americas
1 Pierre Dufresne
Managing Director Canada
2 Erik Bouts
Managing Director United States
3 Jaap Kuiper
Managing Director Latin America
Revenue in € millions
2007
2008
2009
1,768
1,615
1,487
Key brands
Overview
AkzoNobel’s Decorative Paints activities in the Americas were
heavily impacted by the global recession in 2009, particularly
in North America. Volumes dropped in the US and Canada,
resulting in lower revenue compared with 2008, but the market
was rather more buoyant in Latin America, where a strong focus
on merchandising and customers helped to boost sales.
Analysis
In the US, the paint market declined throughout the year.
The volume shortfall negatively affected revenue, although market
share held steady. Lower sales volumes and higher raw material
costs also hit profitability in Canada, where there was a slight
loss of market share. The decorative paint market in Brazil
remained more or less flat in terms of volume, and while a fall off
was evident in Argentina and Uruguay, bottom line results for the
Latin American region improved by a double digit percentage.
Downturn
The recession brought about the predicted shift of some
professional volume to the do-it-yourself sector in the US, with
no catalyst to help increase total demand in evidence before the
end of the year. In Canada, the impact of the economic climate
varied by region, although overall the Canadian economy was
not as severely impacted as the US due to government stimulus
programs. Sales to professional painters suffered more as few
new construction projects started during the year. Latin America
went somewhat against the trend of the global economy. We
gained market share in Brazil and performance improved across
the South American region propelled by better-than-expected
sales, higher margins and rigid efficiency measures.
Actions
In Canada we worked to align our cost structure to the lower
sales volumes and closed down three plants between the
end of 2008 and the end of 2009, transferring production to
other sites. The headcount was also reduced in the US, where
the company-owned stores network was rationalized. Margin
management played a key role in mitigating the volume pressure,
along with synergy benefits, the latter helping to counter the
downturn in Latin America in particular. The management
teams in Argentina and Uruguay were merged into one, while
we closed our Raposo Tavares site in Brazil and transferred
production capacity to the nearby Mauá facility.
Developments
The relaunch of our Glidden brand in North America proved to
be successful. Towards the end of the year, we also became the
exclusive manufacturer of a new paint line sold under the Martha
Stewart Living brand within The Home Depot. The revamp of
our Sparlack woodcare range in Brazil proved to be a success,
as was a special project involving our Coral brand designed
to help restore and revitalize rundown areas of São Paolo
and Rio de Janeiro, the latter as part of preparations for the
2016 Olympic Games. Our Metalmaster electrostatic gun was
successfully introduced in Canada, where we also ran the first
ever national advertising campaign for our Sico brand, which
covered 40 major markets and helped to boost sales despite
the declining market. Several new products highlighting our
innovative expertise and environmental commitment are due for
launch in 2010.
AkzoNobel Report 2009 | Business performance | Decorative Paints | 31
AkzoNobel Decorative Paints Asia
1 Jeremy Rowe
Managing Director South East Asia & Pacifi c (SEAP)
2 Amit Jain
Managing Director India and South Asia (ISA)
3 Peter Chen
Managing Director China & North Asia (CNA)
1
2
3
Revenue in € millions
2007
2008
2009
635
682
659
Key brand
Overview
Despite the global economic slowdown, AkzoNobel Decorative
Paints’ overall business performance in Asia was relatively good.
Revenue increased and market share grew in several countries,
including China, Indonesia, Vietnam and Thailand. Conditions
proved to be more testing in India, where the decorative market
was impacted by the recession.
Analysis
Revenue picked up strongly in the second half of the year in
China, where integration activities designed to realize the benefits
from the 2008 ICI acquisition remained a priority. Low demand
in India resulted in a slight loss in market share, but aggressive
investment in Southern Asia brought higher growth and
additional market share was captured. There was also some
improvement in Sri Lanka. Elsewhere, the retail market proved
challenging in the largely export-driven economies of Malaysia
and Singapore, while record volume levels were achieved in
Papua New Guinea, mainly due to several ongoing projects
in the mining, oil and gas industries. Growth in South East Asia
was driven by a strong performance by the Dulux brand. Cost
management and brand rationalization were key areas of
attention across the entire region.
especially helpful in Singapore and Malaysia. In other parts of
South East Asia, we responded quickly to the changing market
conditions and reinvested when the situation improved in the
middle of the year. Particular attention was paid to improving
channel penetration and brand rationalization. In India, we
launched three aggressive programs to help increase sales,
which included contacting around 100,000 painters to educate
them about the Dulux brand portfolio. A major consumer
promotion was also launched.
Developments
Dulux All Round Guard was introduced throughout China.
The product absorbs and decomposes harmful elements from
the air to create a safer home environment. Our Easy Paint
service – which simplifies the painting experience for consumers
– was also piloted in several major Chinese cities. In addition,
we launched Malaysia’s first ever complete range of low odor,
low VOC Green Label certified interior emulsion paint, as well
as introducing Dulux EasyClean, Dulux Power Plus primer and
World of Weathershield across the whole of South East Asia.
In Vietnam, our Decorative Paints business was awarded the
Golden FDI Enterprise – Friendly With the Environment award
by the Ministry of Planning and Investment.
Actions
There was a strong focus on customers, cost and cash due to
the challenging economic conditions. Cost saving opportunities
were identified in all countries and various operational excellence
programs were introduced designed to improve profitability.
Various government stimulus packages designed to give lagging
economies a boost also brought some benefits. This was
Environment
Together with 20 other corporate members, we formed the
Green Building Council of Indonesia and launched an Indonesian
initiative designed to establish a program of zero waste from
manufacturing. Total recycling of solid waste was achieved by the
fourth quarter and the total recycling of liquid waste is projected
to have been completed during the first quarter of 2010.
No place
like home
We’ve been working with The Home Depot in North America – the world’s largest
home improvement specialty retailer – since 1979. It’s an extremely successful
partnership which enables their customers to choose from a complete portfolio
of quality decorative paints.
The strength of this relationship was reinforced during 2009 thanks to the successful
relaunch of our Glidden brand and a joint collaboration to develop and produce
a Martha Stewart Living range of paints.
“Successfully relaunching Glidden paint helped us capture incremental market share
during a period of unprecedented decline across all home improvement categories,”
says Lyne Castonguay, merchandising vice-president and project leader for the
Martha Stewart Living brand at The Home Depot. “It also restored one of the great
American brands – a brand we’ve proudly stood behind since opening our first home
improvement center.”
Following on from the Glidden relaunch, The Home Depot turned to AkzoNobel
to produce a range of products for the Martha Stewart Living brand.
“This new program, which is part of a larger merchandising effort across multiple
categories of products, is a core strategic priority for our organization and one
we believe will allow us to attract a new set of customers to The Home Depot,”
adds Castonguay.
“Clearly, AkzoNobel delivered in 2009 and we look forward to building upon
that momentum. We see numerous opportunities as together we work to
deliver Tomorrow’s Answers Today.”
Adding color to
people’s lives
As the world’s largest coatings company, we believe that color has the power
to change people’s lives. This belief has been underlined by employees working
for our Coral decorative paints brand in Brazil, who volunteered their time and
donated products to help revitalize a neighborhood in São Paulo.
Organized as part of a unique community initiative called Everything in Color, the
project involved renovating and repainting run-down buildings in Bixiga. It proved
so successful that another three neighborhoods have also been lined up for a
colorful facelift. “Bixiga is bursting with joy because up to now, nobody had done
anything like this for us,” said Walter Taverna, President of the Defense Society
of the Traditions and Progress of Bella Vista and the Bixiga Heritage Center.
Added São Paulo City Mayor, Gilberto Kassab: “May this AkzoNobel action
be an example to other companies and I gratefully acknowledge Coral and the
Coral family.”
34 | Performance Coatings | Business performance | AkzoNobel Report 2009
“We are not only committed to
supporting growth markets, but are
also serious about investing in and
developing sustainable technologies.”
Leif Darner
Board member responsible for Performance Coatings
‘
AkzoNobel’s Performance Coatings activities entered 2009
surrounded by uncertainty, having experienced a rapid decline in
sales volumes across most sectors during the last quarter of 2008.
The focus immediately shifted to short-term operational efficiency
and through a combination of cost and margin management and
attention to cash flow we emerged from a difficult year in good
shape and ready to take advantage of any upturn.
Balanced portfolio
The recession had a harsh and immediate impact on our
industrial businesses, notably Industrial Finishes and Powder
Coatings. But the balance we have in our portfolio meant that
some activities were less affected by the sales slump, such as
Marine and Protective Coatings and Packaging Coatings. These
businesses have different cycles, and while there was some fall
off in volumes, it was much less dramatic.
Operational efficiency
We had already increased our focus on margin management
at the end of 2008, but the severity of the downturn required
us to take further steps to improve operational efficiency during
the first quarter of 2009. This included taking a closer look
at our manufacturing footprint in order to right-size – without
cutting back on our capabilities – which led to a rationalization,
particularly in Europe and North America. We also focused
on cash flow and were able to more than finance capital
expenditure and incidental costs for restructuring by releasing
cash in operating working capital. As a result, we generated an
operational cash flow in 2009 higher than our EBITDA.
However, 2009 was by no means all about cost saving and
cutting back in production. Providing support in regions where
growth was still taking place remained critical and all our
activities, apart from Wood Coatings, made progress in high
growth markets, particularly in China and India. A number of
investments were made in these regions in order to step up
production levels, while we also made a significant acquisition,
agreeing to take over the former Rohm and Haas powder
coatings business from the Dow Chemical Company. This deal
was another indication that we are not only committed to
supporting growth markets, but are also serious about investing
in and developing sustainable technologies.
Commitment to excellence
At no point during the economic crisis did we lose focus
on our customers or compromise on our drive to improve
sustainability. On the contrary, I think it helped to escalate
our efforts because we’re fully aware that when the economy
begins to recover, markets and customers will be more focused
on sustainable products. We therefore maintained our focus on
R&D and product stewardship and continued to concentrate
on innovations in the field of sustainable technology. Safety
performance was another parameter which improved and I’m
proud to say that we never wavered from our commitment
to excellence in all these areas. Credit for this should go to
our people, who worked extremely hard during a testing and
stressful year and adopted a very open, collaborative and
flexible attitude in difficult circumstances.
One additional development of major significance during the
year was our decision to rearrange the portfolio. We wanted to
create a better balance in terms of technologies and markets,
size and complexity, so that our businesses and activities are
better equipped for growth. The new set-up is also more logical
for customers and the supply chain and we now have a much
better focus as we look to see where the real growth will come
from, because that is what will drive us forward and bring
success in the longer term.
’
www.akzonobel.com/coatings
AkzoNobel Report 2009 | Business performance | Performance Coatings | 35
Strong brands from our portfolio
Key developments and deliverables 2009
Key fi gures in € millions
Employees by region at year-end
•
Revenue: €4 billion, down 12 percent
•
Operational costs down 7 percent
•
EBITDA of €587 million, up 4 percent
•
•
Acquisition of the Dow Chemical Company’s
powder coatings activities
More than 45 percent of sales in high
growth markets
Revenue
EBITDA
EBITDA margin (as a % of revenue)
EBIT
EBIT margin (as a % of revenue)
Operating income/(loss)
2008
4,575
566
12.4
467
10.2
444
•
Steady improvement of safety performance
Revenue breakdown by business unit in %
•
New eco-premium solutions including
waterborne coatings
A Industrial Finishes
B Powder Coatings
41
D
C Marine and Protective Coatings 31
D Car Refinishes
E Packaging Coatings
20
8
100
Geo-mix revenue by destination
E
C
2009
4,038
587
14.5
486
12.0
427
A+B
US and Canada
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
UK
Other European countries
Other regions
Total
2008
3,300
1,800
4,600
2,900
1,000
900
1,000
1,700
3,100
1,100
2009
3,000
1,700
3,800
3,000
1,000
1,000
900
1,500
2,900
1,100
21,400
19,900
Product: Eco-premium solutions as % of sales
2007
2008
2009
17
19
18
Key value chains with carbon
footprint assessment
2009
52
20%
North America
41%
Europe
25%
Asia Pacific
Total reportable rate of injuries per million hours
8%
Latin America
6%
Rest of world
2006
2007
2008
2009
6.1
5.7
4.8
3.3
36 | Performance Coatings | Business performance | AkzoNobel Report 2009
Performance coatings market overview
Our Performance Coatings business is represented in
most market segments of this industry, holding many
leading positions.
Market and business characteristics
The size of the global market for performance coatings is around
€40 billion.
General industrial coatings
Metal and plastic coatings for a wide range of applications
– from huge industrial equipment to the latest mobile phones
and music players, computers, espresso machines and
sporting goods.
Protective coatings
Corrosion and fire protection across a range of industries includ-
ing upstream and downstream oil and gas facilities, chemical
and petrochemical installations, high value infrastructure such
as airports and stadia and power generation stations.
Automotive
Vehicle refinishes
Refinishing or recoating of automobile bodies when vehicles
are repaired.
OEM
Coatings for commercial vehicles (trucks and busses) and
automotive plastic components.
Aerospace coatings
Coatings for small and large aircraft. Primers for structural
components and coatings for high performance exterior finishes.
Powder coatings
Powder technology involves a coating being applied electro-
statically, either in a fluidized bed, or it can be sprayed and then
subsequently cured by applying heat, either in an oven or by
using infrared or UV light irradiation.
Wood coatings and adhesives
Wood coatings beautify and protect anything made from wood,
including home and office furniture, flooring, kitchen and bath
cabinetry, windows and doors. Adhesives are the bonding
agents for wood composites and laminates used in these
applications.
Marine coatings, including yacht
Coatings for marine vessels, including commercial tankers,
ferries and leisure craft, have been developed to act as a salt
water barrier and to minimize the build-up of organic material.
Coil and extrusion coatings
Coil coatings are applied to coiled steel for HVAC and appliances,
and in commercial and residential construction to protect
metal roofs and building components. Extrusion coatings give
aluminum lasting beauty when used on metal building fascias
and window frames and provide protection from the elements.
Market leadership positions
Industrial
Finishes
Powder
Coatings
Marine and
Protective
Car
Refinishes
Packaging
Coatings
(cid:116)(cid:1)(cid:56)(cid:80)(cid:80)(cid:69)
(cid:116)(cid:1)(cid:36)(cid:80)(cid:74)(cid:77)
(cid:116)(cid:1)(cid:34)(cid:69)(cid:73)(cid:70)(cid:84)(cid:74)(cid:87)(cid:70)(cid:84)
(cid:116)(cid:1)(cid:52)(cid:81)(cid:70)(cid:68)(cid:74)(cid:66)(cid:77)(cid:85)(cid:90)(cid:1)(cid:81)(cid:77)(cid:66)(cid:84)(cid:85)(cid:74)(cid:68)(cid:84)
1
1 (cid:116)(cid:1)(cid:49)(cid:80)(cid:88)(cid:69)(cid:70)(cid:83)
(cid:116)(cid:1)(cid:46)(cid:66)(cid:83)(cid:74)(cid:79)(cid:70)
(cid:116)(cid:1)(cid:49)(cid:83)(cid:80)(cid:85)(cid:70)(cid:68)(cid:85)(cid:74)(cid:87)(cid:70)
(cid:116)(cid:1)(cid:58)(cid:66)(cid:68)(cid:73)(cid:85)
1
2
(cid:116)(cid:1)(cid:34)(cid:70)(cid:83)(cid:80)(cid:84)(cid:81)(cid:66)(cid:68)(cid:70)
(cid:116)(cid:1)(cid:51)(cid:70)(cid:109)(cid:79)(cid:74)(cid:84)(cid:73)
(cid:116)(cid:1)(cid:36)(cid:80)(cid:78)(cid:78)(cid:70)(cid:83)(cid:68)(cid:74)(cid:66)(cid:77)
(cid:1) (cid:87)(cid:70)(cid:73)(cid:74)(cid:68)(cid:77)(cid:70)(cid:1)
(cid:1) (cid:48)(cid:38)(cid:46)
5
3
(cid:116)(cid:1)(cid:34)(cid:86)(cid:85)(cid:80)(cid:78)(cid:80)(cid:85)(cid:74)(cid:87)(cid:70)
(cid:1) (cid:81)(cid:77)(cid:66)(cid:84)(cid:85)(cid:74)(cid:68)
(cid:1) (cid:68)(cid:80)(cid:66)(cid:85)(cid:74)(cid:79)(cid:72)(cid:84)
(cid:116)(cid:1)(cid:35)(cid:70)(cid:70)(cid:83)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:1) (cid:67)(cid:70)(cid:87)(cid:70)(cid:83)(cid:66)(cid:72)(cid:70)
1
(cid:116)(cid:1)(cid:39)(cid:80)(cid:80)(cid:69)(cid:1)(cid:68)(cid:66)(cid:79)(cid:84)
(cid:116)(cid:1)(cid:48)(cid:85)(cid:73)(cid:70)(cid:83)
2
Packaging coatings
Coatings for packaging which are applied to the internal and
external surfaces for food and drink cans, caps and closures
and cardboard and plastic packaging.
High growth markets
Projected industry growth is strong, particularly in Asia Pacific.
Around 45 percent of our Performance Coatings revenue is in
high growth markets.
Customers
We serve a large range of customers including ship and yacht
builders and architects, consumer electronics and appliance
companies, steel manufacturers, the construction industry,
furniture makers, aircraft, bus and truck producers, bodyshops
and can makers.
Innovations
•
•
•
•
•
Automobile scratch repair systems
Low-bake powder coatings
Self-repairing clearcoat
Foul release coatings
Waterborne coatings technology.
Global market drivers
•
•
•
•
•
Growing populations and GDP growth
Steel production
Consumer confidence
Infrastructure development
Housing market activities.
Key raw materials
•
•
•
•
Resins
Coatings additives
Solvents
Pigments
Price drivers
•
Energy, oil and raw materials
AkzoNobel Report 2009 | Business performance | Performance Coatings | 37
AkzoNobel Industrial Finishes
“We are well positioned for the rebound from a structural cost perspective,
in terms of our global capacity footprint and the markets we’ve penetrated.”
Bob Taylor
Managing Director
Revenue in € millions
2007
2008
2009
1,351
1,283
1,075
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
45
34
21
100
C
B
Overview
We entered 2009 under extremely weak market conditions
and experienced significant erosion in demand during the year.
However, thanks to a global effort to manage costs, focus on
working capital and right-size our capacity, we successfully
managed a soft landing through the most severe manufacturing
downturn in 50 years.
Analysis
We were able to remain financially sound despite the stressful
market conditions and volume pressure. We removed a lot
of costs from the business, both in terms of headcount and
capacity, resulting in a significant reduction in our structural
cost base. Our capacity and cost base have therefore been
successfully aligned with the shift in the global economy.
A
Main products
•
•
Wood coatings
Wood adhesives and
board resins
Coil and extrusion coatings
Specialty plastics coatings
•
•
Key brand
Key markets
•
•
Furniture and flooring
Consumer electronics such
as cell phones and laptops
Construction industry
•
Downturn
The first indications of the impending recession alerted us at the
end of 2007 and it wasn’t until the end of 2009 that the wood
markets started to show signs of stabilizing. In many industries,
Asia began to recover first, but we experienced a different
scenario. The Industrial Finishes business has a heavy wood
coatings footprint in Asia which is closely tied to the US market,
so our Asian wood business actually remained as depressed as
North America due to this link with US housing. It will only recover
in a meaningful way once US housing comes back. Coil markets,
on the other hand, clearly started to improve during the second
half of the year, while the plastics market also began to stabilize.
Actions
We reduced headcount and streamlined the number of sites we
operate around the world in order to right-size and stabilize the
business. This realignment enabled us to remove underutilized
capacity in mature markets and manage our capital down, while
continuing to focus on technology and strategic investments in
high growth markets such as China, India, Vietnam and Russia.
We never took our eye off the marketplace and towards the end
of the year our results started to improve as we increased our
share in new market sectors and gained new customers. As a
result, we are well positioned for the rebound from a structural
cost perspective, in terms of our global capacity footprint and
the markets we’ve penetrated. This means we have the ideal
capacity to meet the requirements of an upturn once the
economy recovers.
Developments
We acquired the Kronospan wood adhesives business in the
Czech Republic, Romania and Slovakia and purchased two
wood coatings distributors – SABA in Russia and ICLA in
Romania. In addition, we fully integrated the US Lord acquisition
from 2008 and started driving that floor coatings technology
into high growth markets, primarily China. We also started
supplying one of the largest domestic furniture manufacturers in
China with eco-premium technologies. Our expertise will enable
them to convert to UV-curable coatings technology from
traditional solvent-based coatings. On the product side, sales of
our Cool Chemistry line of coil coatings for metal roofs doubled
in the US, despite the depressed market conditions. This was
mainly due to the tax credit the US government allowed
homeowners who made “green” improvements to their homes.
We were also successful with the introduction of a new wood
grain finish for coil coatings used to make garage doors. Other
notable developments included a further improvement in
our excellent safety performance and significant progress in our
training and management development.
38 | Performance Coatings | Business performance | AkzoNobel Report 2009
AkzoNobel Powder Coatings
“Our emphasis on developing more sustainable technologies will put us in
a strong position to grow further as the environmental benefits of powder
coatings continue to become more attractive to customers around the world.”
Rob Molenaar
Managing Director
Revenue in € millions
2007
2008
2009
778
727
597
Geo-mix revenue by destination in %
A EMEA
B Americas
C Asia Pacific
Main products
•
Powder coatings
Key brands
58
15
27
100
C
B
A
Key markets
•
Appliances
•
Architectural
•
Automotive
•
Furniture
•
General industrial
Overview
The global economic downturn has had a major impact on
the powder market, leading to a substantial reduction in
volume and severe pressure on prices. In this context, our
business performed well. We produced satisfactory results and
maintained course on our strategic growth agenda.
Analysis
We have been steadily investing in building a global position,
especially in high growth markets – notably China and Eastern
Europe. This policy paid off in 2009 as the economies in
these high growth markets bounced back faster than the
rest of the world, which had a positive impact on our sales.
We maintained our strategy of focusing on defined market
segments and developing segment-specific value propositions
which offer customers a complete service package rather than
just a product. Our sites are also becoming more dedicated
by concentrating on specific technologies and segments. This
approach has been the foundation of our market share growth
and has strengthened our ability to resist price pressure and
maintain margins.
Downturn
We responded to the downturn in market volumes by
implementing extensive cost-cutting programs, especially in the
mature markets, which mainly involved workforce reductions.
This included the announced closure of our site in Fombio, Italy.
These actions played a significant role in helping us to maintain
our financial performance, although part of this improvement
will not be realized until 2010.
Developments
We continued to expand in high growth markets and announced
plans to open another factory in China, which will be inaugurated
in early 2010. Our new plant in Russia also had an extremely
good year. We are the only international company supplying
powder coatings from within Russia and the facility is well on
its way to becoming very successful. In addition, we secured
supply agreements with Dell, Hewlett Packard, Whirlpool, Volvo
and NCR, as well as being specified by McDonald’s to coat the
interior furniture in their European restaurants. Meanwhile,
a safety campaign launched throughout the business at the end
of 2008 proved to be highly successful as our performance
greatly improved during the course of this year. In early 2009,
we divested our non-stick coatings activities, while towards the
end of the year we boosted our global presence and technology
portfolio by signing an agreement to acquire the former
Rohm and Haas powder coatings activities
the
Dow Chemical Company. This will add notable MDF and
thermoplastic capabilities to our existing expertise.
from
Technology
Our commitment to sustainable innovation was underlined by
the opening of a new research facility in Ningbo, China, and our
plans to open a new resin technology laboratory in Felling, UK,
where we are conducting applied research on lower temperature
curing, new substrates and different resin formulations. This
emphasis on developing more sustainable technologies will
put us in a strong position to grow further as the environmental
benefits of powder coatings continue to become more attractive
to customers around the world, especially in high growth
markets, where there is a high level of interest.
AkzoNobel Report 2009 | Business performance | Performance Coatings | 39
AkzoNobel Marine and Protective Coatings
“The weakness in some markets and in some geographies was offset by
continued rising demand in marine newbuilding and protective coatings.”
Bill McPherson
Managing Director
Overview
It was another highly successful year, despite our first fall
in revenue (6 percent overall) for a number of years. We
experienced relatively healthy demand, particularly in China,
the Middle East, India and other parts of Asia. This was
accompanied by the twin benefits of new product introductions
and lower raw material costs, which, coupled with internal cost-
cutting, underpinned a strong set of results. The performance
remained robust.
Analysis
Overall sales revenue held steady during the first half of the year
compared with the first half of 2008. The weakness in some
markets and in some geographies was offset by continued
rising demand in marine newbuilding and protective coatings.
But in the second half, revenue fell by around 10 percent as
the weakness in Europe and the Americas more than offset the
growth elsewhere.
Downturn
There was great uncertainty about the level of demand, the
financial solidity of some customers, the direction of a number
of volatile currencies and the movement in raw material prices
– particularly metals such as copper and zinc. During this
turbulence it was important to reduce our costs without reducing
our customer service levels, or our ability to take advantage of
some limited growth opportunities. Due to the deteriorating
financial climate, we needed to reduce our operating working
capital and generate cash. We had been improving our position
gradually – but continuously – for a number of years, but
a quantum change in performance was required. A thorough
review of processes and procedures resulted in a number
of breakthroughs in performance level and the achievement of
the stretch targets. Operating working capital as a percentage
of sales now stands at an historic low.
Action
We saw some weakening in our yacht and aerospace markets
in mid-2008 and, in response, took action to reduce our cost
base during the following months. In September 2008, we
activated the initial phase of our contingency plans for all market
sectors, which were then implemented over a six-month period.
Developments
We completed the acquisition and integration of the Enviroline
specialist protective coatings business in the US. This has
increased our capability in the high performance tank linings
market for oil and gas, chemical processing and the waste and
water industries. We also purchased the remaining shares in our
joint venture company in South Africa from Freeworld, and
reached an agreement to acquire the assets of a privately run
distributor in Canada. In addition, we secured the supply of
specialist coatings for five of the main stadia being used for the
2010 soccer World Cup, and invested in a new antifouling
development laboratory in Singapore. With regards to sustainability,
we recorded significant improvements in our HSE metrics
overall, along with reductions in VOC emissions and in waste.
Products
Our groundbreaking Intersleek 900 foul release coating won the
prestigious Lloyd’s List Global Award in the Clean Seas category
and was featured in the Discovery Channel series Industrial
Junkie. Our Aerospace Coatings business also introduced
a novel peelable coating, Intergard 10220, for military use as
a temporary camouflage coating with chemical agent absorbing
properties. Although developed for the military, the product is
likely to have a much wider impact on civil protection techniques
and urban environmental projects in the future, ranging from
protecting infrastructure such as stadia or government buildings
against contamination, to cutting the cost of removing graffiti.
We also have a very strong flow of new products in the pipeline.
Revenue in € millions
2007
2008
2009
1,251
1,355
1,274
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
35
20
45
100
C
A
B
Main products
•
•
•
•
Marine coatings
Yacht paints
Protective coatings
Aerospace coatings
Key brands
Key markets
•
•
•
Ship building
Oil and gas facilities
High value infrastructure such
as airports, stadia and bridges
Power generation
installations
•
40 | Performance Coatings | Business performance | AkzoNobel Report 2009
Revenue in € millions
2007
2008
2009
944
919
809
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
51
35
14
100
C
B
A
Main products
•
Primers, basecoats, topcoats
and clearcoats for vehicle
refinishes
Automotive plastic coatings
Customer service technology
•
•
Key brands
Key markets
•
Collision repairers and
commercial vehicle refinishers
Bus, truck, specialty vehicle
OEMs
Automobile insurer networks
Fleet owners and operators
Automotive OEMs
aftermarkets
•
•
•
•
AkzoNobel Car Refinishes
“Because we maintained our focus on our key capabilities – service, availability,
quality and innovation – we were a port in a storm for our customers.”
Jim Rees
Managing Director
Overview
It proved to be a good year in difficult times. We were clearly
impacted by the economic downturn, primarily as a result
of lower demand in all of our market segments. But through
various business improvement projects and cost-cutting we
weathered the storm and were able to pick up on some uplift in
the market towards the end of the year.
Analysis
The downturn had the most significant affect on our Commercial
Vehicles and Automotive Plastic Coatings businesses, which
are closely related to the automotive OEM (original equipment
manufacturers) segment. Our vehicle
refinishes activities
also suffered, but to a lesser extent, because they are more
connected to the aftermarket. So we did experience lower
demand, which resulted in lower revenue, the hardest hit
regions being North America and Western Europe. But due to
our strength in brands and distribution, focus on customers and
operational excellence, we negotiated the hostile climate.
Downturn
Because we maintained our focus on our key capabilities
– service, availability, quality and innovation – we were a port
in a storm for our customers; a safe place for them to come
in difficult times. We therefore not only ended the year with a
higher customer retention rate than ever, but also attracted
a number of strategic new customers. We devoted more
resources to the training and development of our employees
than in previous years, despite the downturn. This helped to
continue their career development and enhance their ability to
serve customer requirements.
Actions
Various operational issues were addressed to bring costs more
in line with the current volumes. This included restructuring
the business, which resulted in a reduction in headcount. The
organization is now leaner and more efficient. We also made
significant strides, even in a downturn, in terms of lowering
our working capital and were able to redeploy resources into
key growth markets. This helped us to take advantage of the
bounce back in regions such as China, India, Brazil and Turkey.
But even in light of restructuring to align costs and increase
synergies, we did not let up on quality or availability and
innovation was as robust this year as any other.
Developments
Early in the year we announced that we had become the official
supplier of paint solutions to the McLaren Mercedes Formula 1
team through our Sikkens brand. We signed a deal to coat 1,000
electric buses in China, while further contracts were signed with
various manufacturers, including Toyota, Kia, GM, Honda and
Mazda. In terms of products, our UV LED gun proved to be a
success in the markets where it was launched, and there was
very high market acceptance – both in the aftermarket and the
OEM markets – for our StickerFix adhesive do-it-yourself repair
and protection system. This year also saw the launch of our first
self-repairing clearcoat, Autoclear Exclusive. Another important
development was the fact that we made significant strides in
increasing the strength of our distribution footprint in vehicle
refinishes across the globe. Major progress was also made
in the area of safety and we recorded a significant reduction
in incidents.
AkzoNobel Report 2009 | Business performance | Performance Coatings | 41
AkzoNobel Packaging Coatings
“We clearly benefited from being a global business and gained in regions less
affected by the economic crisis, particularly parts of Asia and South America.”
Conrad Keijzer
Managing Director
Overview
Despite the challenging operating conditions and lower revenue,
we were able to sustain and improve our results through a
combination of successful cost and margin management and
value engineering. We clearly benefited from being a global
business and gained in regions less affected by the economic
crisis, particularly parts of Asia and South America. At the same
time, we continued to invest in growth markets, from where we
believe long-term sustainable growth will come.
adjusted and focused on supporting our customers with
improved service and supply delivery. We also focused our
efforts on cash, with a particular emphasis on stock levels,
while maintaining best-in-class service. We reduced our costs
in response to the new demand level, despite the residual
inflation in some of the regions that we operate in. This required
us to reduce staffing levels at some of our operations to ensure
our sustained competitiveness, while we continued to invest
in innovation, management and R&D.
Analysis
We entered 2009 on the back of recent performance
improvement. But while consumer demand was quite robust,
the year began with an unprecedented global de-stocking in
the supply chain. This included temporary line closures at some
of our beer and beverage customers. The situation recovered
somewhat from Q2. Volumes held up much better in South
America and – later in the year – in Asia, when compared with
Europe and North America, clearly driven by local demand.
But we finished the year with overall revenue down on 2008.
Downturn
There was an extraordinary contrast to 2008, which was a year
of market growth, when customers were increasing capacity
through investments, particularly in high growth markets.
In 2009, many of these trends – at least temporarily – were put
into reverse. In fact, some of our customers were seeing double
digit decreases in the early part of the year. We therefore had to
react to significant fluctuations in demand and adaptation and
flexibility were the main characteristics of 2009.
Actions
Our focus throughout the year was on customers, cost and cash.
Faced with a difficult trading environment – customers adapting
to the lower demand and a lack of forward visibility – we quickly
Developments
We took steps to counter the recession by making additional
investments – rather than cuts – in R&D to prepare ourselves for
the economic upswing. We continued to drive basic innovation
out of our global R&D center in Strongsville in the US, while
also developing an increasing number of successful localized
products at facilities in various high growth markets. In response
to the growing market for energy drinks, and coffee and tea
products packed in beverage cans in Asia, we introduced
a waterborne white basecoat and overprint varnish which can
withstand the heat treatment process used for these beverages.
The system, Aquaprime 200/250, is the only water-based
product on the market which meets the strict performance
requirements and replaces the existing solvent-borne technology.
We also introduced an innovative range of UV varnishes into
South America. We continued to grow our position in South
America by leveraging the AkzoNobel infrastructure in countries
such as Chile, Colombia and Argentina, as well as increasing
reactor capacity in Brazil. We are also using similar footprint
opportunities in India, China and Australia. Overall, we are
satisfied that the clear response we made to the difficult trading
conditions was successful and is reflected in our solid 2009
performance. We are upbeat about the strengths that we have
developed during this period and the opportunities this will give
us in the market as the global upswing reappears.
Revenue in € millions
2007
2008
2009
340
344
322
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
57
29
14
100
C
B
A
Main products
•
Coatings and inks for
beverage, food, aerosol
and general line cans
Key markets
•
Beer and beverage
can producers
Food can producers
Producers of crowns, pilfer
proofs and vacuum closers
Metal packaging industry
•
•
•
Key brands
Aquabase
Aqualure
Icimar
Marlux
Vitalac
Vitalure
On solid ground
You don’t have to look far before coming across a massive infrastructure project,
and chances are that when you find one, our Marine and Protective Coatings
business and market-leading International brand are involved.
Trusted around the world having built a global reputation for outstanding quality
and service, one of the latest projects to solely specify an International Paint
coatings system is the ongoing seismic overhaul of the San Francisco to Oakland
Bay Bridge in the US.
The multi-billion dollar project involves completely replacing the existing east span
on the Oakland side, with coating of the new steelwork – using 400,000 liters of
International Paint products – being carried out in China.
“The new San Francisco-Oakland Bay Bridge is a milestone project for us,”
explained a representative from Shanghai Zhenhua Heavy Industry Co. Ltd, who
are building the steel structures for the new east span section. “In view of its high
technical and engineering standards, we have imposed stringent requirements in
selecting suppliers for this assignment and only work with world class companies.
AkzoNobel has been providing us with quality solutions and professional advice,
which are of great value to this project.”
The first batch of steel structures for the east span has already been shipped
to the US after being coated in Shanghai with an International Paint system
which meets the rigourous requirements for anti-corrosion, abrasion and impact
resistance, gloss and color retention. The system also carries a 20-year warranty.
Staying connected
Major international projects rely heavily on trusted suppliers with world class
products and global capability. Which is why Europipe and Mülheim Pipe Coatings
turned to AkzoNobel to provide coatings for the 1,223-kilometer long Nord Stream
gas pipeline.
Due to become operational in 2012, the pipes have been coated with
a Resicoat≈primer for a three-layer system supplied by our Powder Coatings
business. In total, 1,500 tons of coatings were delivered for the project, which
involves laying a pipeline from Russia, through the Baltic Sea to northern
Germany. Gas will then be delivered to other connected European countries.
“The pipeline project has adhered to strict environmental guidelines to ensure
that no damage is done to the ecosystem of the Baltic Sea,” explained Senior
Technical Manager of Europipe GmbH, Peter Gronsfeld. “Sourcing sustainable
powder coatings from the world’s leading supplier ensures that we are using the
latest technology, and because the products contain no solvents, the integrity
of the marine environment is assured.”
Once operational, the Nord Stream pipeline – being constructed to secure gas
supply to Europe – will transport 55 billion cubic meters of gas per year and
supply more than 26 million households.
44 | Specialty Chemicals | Business performance | AkzoNobel Report 2009
“Our robust performance this year
has certainly proved that the
portfolio has strength to carry us
forward as we look to pursue
further growth.”
Rob Frohn
Board member responsible for Specialty Chemicals
‘
The biggest challenge we faced in Specialty Chemicals in
2009 was how to respond to the sudden change in the world
economy and the impact it had on the chemicals industry. The
shift from record pace in 2008 to almost a complete standstill
during Q1 was dramatic and we showed remarkable resilience
in adjusting to the new situation.
Great achievement
Our top line inevitably suffered due to the significant volume
loss caused by the recession, but the bottom line was much
less impacted. We were able to maintain margins at a very
acceptable level across the board thanks to stringent margin
management and cost control. It was a great achievement by
all our employees and I am very proud and grateful for their
efforts. We created significant cash flow despite the lower
earnings because we reduced working capital and our capital
expenditures, throttling back on new projects in particular.
Commercial success
As well as improving margins, we also concentrated on
operational effectiveness and restructured in the mature markets,
taking out cost and reducing headcount. Delivering profitable
growth proved difficult given the depressed economic climate,
but we did not divert from our efforts to expand in high growth
markets and continued to spend on technology and R&D.
The success of our GLDA green chelate is just one example of
how maintaining this focus on innovation has paid off.
Throughout the year, we never lost our focus on the market or
our customers. In fact, when customers started to consider
their supply risk maps and saw that some suppliers weren’t
financially strong, many of them came to us. So our global
reputation helped us to attract more business and improve
customer relationships. One positive side effect of the recession
was the fact that some customers had more time and capacity
to run trials for new products. This had particular benefits for our
Pulp and Paper Chemicals and Polymer Chemicals businesses.
High growth markets
Our sustainability agenda did not suffer as a result of the
downturn. As well as continuing to work on talent development,
our businesses made major progress with regard to safety.
We had an excellent year in this respect and while we realize
that further improvements can be made, our enhanced safety
performance underlined our commitment to achieving the
ambitious targets we have set. Another major highlight of 2009
was the start up of the first unit at our new Ningbo site in China.
Operations there are being brought on stream gradually and all
the plants should be fully operational by the end of 2010. Our
growing presence in high growth markets was also boosted
by the inauguration of two new Pulp and Paper Chemicals
facilities in Brazil. In addition, Polymer Chemicals took a majority
position in an existing joint venture in Japan, while Industrial
Chemicals completed an acquisition in chlor-alkali in Europe.
One organizational change we made was the merger of our
Polymer Chemicals activities into our Functional Chemicals
business. This will take out cost and complexity and in many
ways the recession was a good catalyst for helping us to come
to this decision. With the integration of a number of former ICI
activities into AkzoNobel Specialty Chemicals now complete,
we can give full attention to market opportunities.
In many ways, 2009 saw us reap the benefits of the strategic
realignment of Specialty Chemicals which began several years
ago. Over time, the portfolio has demonstrated resilience and
is better placed to grow. On the one hand, we have to make
sure we capture the growth in high growth markets and
position ourselves properly, while in mature markets, it’s more
about operational excellence and productivity gains to ensure
we remain competitive. Our robust performance this year has
certainly proved that the portfolio has the strength to carry us
forward as we look to pursue further growth.
’
www.akzonobel.com/chemicals
AkzoNobel Report 2009 | Business performance | Specialty Chemicals | 45
Strong brands from our portfolio
Key developments 2009
•
Revenue: €5.2 billion, down 8 percent
•
EBITDA of €814 million, down 10 percent
•
More than 32 percent of sales in high growth
markets
•
Start of chelate production in Ningbo, China
•
Inaugurated two new Pulp and Paper Chemicals
facilities in Brazil
•
Decision to merge Functional Chemicals and
Polymer Chemicals
•
Acquired LII Europe
•
Sold stake in Pakistan PTA
•
Strong improvement of our safety record
•
Eco-premium solutions such as Dissolvine GL,
Rediset WMX and Compozil Fx continued to
gain momentum
Key fi gures in € millions
Employees by region at year-end
Revenue
EBITDA
EBITDA margin (as a % of revenue)
EBIT
EBIT margin (as a % of revenue)
Operating income/(loss)
2008
5,687
909
16.0
605
10.6
130
2009
5,209
814
15.6
509
9.8
436
Revenue breakdown by business unit in %
G
F
A
E
B
D
C
A Functional Chemicals
B Pulp and Paper Chemicals
C Industrial Chemicals
D National Starch
E Surface Chemistry
F Polymer Chemicals
G Chemicals Pakistan
18
18
18
16
13
10
7
100
Geo-mix revenue by destination
23%
North America
44%
Europe
US and Canada
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
UK
Other European countries
Other regions
Total
2008
2,800
1,100
900
2,300
1,900
900
2,100
100
1,100
100
2009
2,700
1,100
1,100
2,200
1,900
1,200
2,000
100
800
200
13,300
13,300
Product: Eco-premium solutions as % of sales
2007
2008
2009
23
21
20
Key value chains with carbon
footprint assessment
2009
74
21%
Asia Pacific
Total reportable rate of injuries per million hours
9%
Latin America
3%
Rest of world
2006
2007
2008
2009
6.2
6.0
3.7
2.8
46 | Specialty Chemicals | Business performance | AkzoNobel Report 2009
Specialty chemicals market overview
We are a major supplier of specialty chemicals with
leading positions in selected market segments.
Market and business characteristics
The chemicals industry can be described as a value chain.
Our businesses serve customers throughout the value chain
with different products.
Our Industrial Chemicals business, for example, mines salt
through vacuum extraction. It’s used as a raw material for our
own activities, as well as being an end product found in grocery
stores under brand names such as Jozo and Nezo.
Base chemicals are chemicals produced from raw materials.
For us, this means products such as chlorine (Industrial
Chemicals) or chlorate (Pulp and Paper Chemicals).
Derived from these base chemicals are chemical intermediates,
such as the ethylene amines supplied by our Functional
Chemicals business.
Performance chemicals offer specific functionality to a product
or process, examples being the surfactants used in fabric care
softeners (Surface Chemistry), and the Compozil retention
systems (Pulp and Paper Chemicals) used to make paper.
Very few of the products we supply are actual end products,
with salt (Functional Chemicals) being the most prominent.
Raw
materials
Base
chemicals
Chemical
intermediates
Performance/
functional
chemicals
End
products
Industrial Chemicals
Pulp and Paper Chemicals
Functional Chemicals
Surface Chemistry
National Starch
Chemicals Pakistan
The strategy for each of our businesses varies depending on
where they are in the value chain and which customers they
serve. For example, in terms of geographic focus, Industrial
Chemicals is mainly focused on Western Europe, with an
emphasis on operational effectiveness.
Pulp and Paper Chemicals and National Starch are both global
businesses, with a specific emphasis on serving one industry.
Surface Chemistry and Functional Chemicals are also global
businesses, and primarily pursue a customer intimacy model
for each specific product group.
Chemicals Pakistan, on the other hand, is a national business
with a broad product offering within areas such as chemicals,
coatings, fibers and pharmaceuticals.
Customers
Our products are used in a wide variety of everyday products
such as ice cream, soups, disinfectants, plastics, soaps,
detergents, cosmetics, paper and asphalt. There are more than
2,000 items in our portfolio.
Global market drivers and developments
•
•
•
•
•
•
Growing populations and GDP growth
Infrastructure developments
Building activities
Global paper and board production
Environmental regulations
Sustainability.
High growth markets
Projected industry growth is strong, particularly in Asia Pacific
and Brazil. More than 35 percent of revenue is in high growth
markets.
Market leadership positions
Pulp and
Paper
Industrial
Chemicals
(cid:116)(cid:1)(cid:35)(cid:77)(cid:70)(cid:66)(cid:68)(cid:73)(cid:74)(cid:79)(cid:72)
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1
Functional
Chemicals
Surface
Chemistry
Polymer
Chemicals
1
1
1
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1
2
1
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3
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(cid:116)(cid:1)(cid:36)(cid:83)(cid:80)(cid:84)(cid:84)(cid:14)(cid:77)(cid:74)(cid:79)(cid:76)(cid:74)(cid:79)(cid:72)(cid:1)
(cid:1) (cid:85)(cid:73)(cid:70)(cid:83)(cid:78)(cid:80)(cid:84)(cid:70)(cid:85)(cid:1)
(cid:1) (cid:81)(cid:70)(cid:83)(cid:80)(cid:89)(cid:74)(cid:69)(cid:70)(cid:84)(cid:1)
(cid:1) (cid:66)(cid:79)(cid:69)(cid:1)(cid:66)(cid:69)(cid:69)(cid:74)(cid:85)(cid:74)(cid:87)(cid:70)(cid:84)
(cid:116)(cid:1)(cid:41)(cid:80)(cid:78)(cid:70)(cid:1)(cid:66)(cid:79)(cid:69)
(cid:1) (cid:81)(cid:70)(cid:83)(cid:84)(cid:80)(cid:79)(cid:66)(cid:77)(cid:1)(cid:68)(cid:66)(cid:83)(cid:70)
(cid:116)(cid:1)(cid:48)(cid:83)(cid:72)(cid:66)(cid:79)(cid:80)(cid:14)
(cid:1) (cid:78)(cid:70)(cid:85)(cid:66)(cid:77)(cid:77)(cid:74)(cid:68)
(cid:1) (cid:84)(cid:81)(cid:70)(cid:68)(cid:74)(cid:66)(cid:77)(cid:85)(cid:74)(cid:70)(cid:84)
3
2
Innovations
•
Biodegradable, aqueous cleaning formulations reducing use
of organic solvents
Polymer based on renewable feedstock, improving
the efficiency of fabric softeners
Green alternative to EDTA, NTA, phosphonates and
phosphates
Sustainable breakthrough in corrosion protection and chrome
replacement in automotive industry
One Grain Technology – full salt replacement which brings
pure NaCl and salt replacers into a single salt grain
More sustainable anti-caking agent for salt
Nano-particle retention systems for high speed paper machines
CID technology to help increase PVC reactor capacity
Water treatment technology replacing traditional biocides.
•
•
•
•
•
•
•
•
Price drivers
•
Energy, oil and raw materials
Some key raw materials
•
•
•
•
•
•
•
•
Salt
Energy
Ammonia and ethylene
Corn
Ethylene oxide
Acetic acid
Polymers
Sulfur
AkzoNobel Report 2009 | Business performance | Specialty Chemicals | 47
AkzoNobel Functional Chemicals
“The start of production at our new facility in Ningbo, China, will add more
capacity to serve our customers and will help us to optimize our supply chain.”
Bob Margevich
Managing Director
Overview
Conditions were tough. Our sales volumes were down across
all of our business activities. But our pricing held up quite well
and, combined with good use of margin management and on
average lower raw material costs, we were able to keep our
profitability at a higher level than in 2008.
Analysis
We initiated substantial cost saving initiatives, some of which
had already been started in the latter part of 2008. Exchange
rates were also favorable over the course of the year, thanks to a
stronger US dollar and a weaker Swedish krona. In addition, we
started selling some of our newer innovative products, which have
relatively higher margins. So despite the tough conditions and
volumes falling sharply compared with 2008, our EBIT was higher.
Downturn
We were most affected by the global downturn in construction,
automotive and mining. Polysulfides was one of the most
impacted in terms of volumes. It’s used as the insulating material
around double and triple paned glass windows and production
of those windows nose-dived worldwide. We even felt the
pressure in China, certainly in Europe and also the US. There
was a slight recovery, but we expect some stabilization before
there’s any steady improvement. Elotex also experienced tough
conditions in Eastern Europe, which is a key strategic region
for them, while our Micronutrients business was impacted as
well, partly due to the overall demand swing and partly because
customers were de-stocking.
Action
Managing our margins was critical to our performance. We
noticed the slowdown coming in some of our businesses
towards the end of 2008 and we proactively started to
restructure and reorganize, especially at Elotex, which we took
over as part of the ICI acquisition. Aggressive restructuring
took place in Germany, Switzerland and the US. Our Sulfur
Derivatives business, especially in Argentina, was also very
aggressive, having been impacted by a downturn in the mining
industry. Cellulosic Specialties – which is a major supplier to
the paint industry – was heavily impacted too and again major
restructuring was needed.
Performance
Our Ethylene Amines, Salt Specialties and Chelates businesses
performed very well. We are leaders in these markets and due
to the diverse applications our products are used in, we perhaps
didn’t feel the economic pressure as badly in these areas. The
strategic growth in most of our product lines is coming from Asia –
especially China – as well as India, but this is particularly applicable
in the case of our Ethylene Amines and Chelates activities.
Developments
We announced that the company’s Polymer Chemicals business
will be merged into Functional Chemicals as of January 2010.
It’s a strong business, and we’ll be integrating their activities
as two separate businesses alongside our current portfolio of
six. We also made good progress with our global sustainability
checks and have identified areas where we need to improve,
while we are continuing to develop our green chemistry offering.
The start of production at our new facility in Ningbo, China,
towards the end of the year was another notable highlight,
which will add more capacity to serve our customers and will
help us to optimize our supply chain.
Revenue in € millions
2007
2008
2009
1,057
1,147
959
Geo-mix revenue by destination in %
A EMEA
B Americas
C Asia Pacific
58
24
18
100
C
B
A
Main products
•
•
•
Cellulosic additives
Chelates
Additives for the mortar
industry
Ethylene amines
Salt specialties
Sulfur derivatives
•
•
•
Key brands
Key markets
•
Detergents
•
Personal care
•
Crop protection
•
Micronutrients
•
Building materials
•
Paint
•
Pharmaceutical
•
Food
48 | Specialty Chemicals | Business performance | AkzoNobel Report 2009
Revenue in € millions
2007
2008
2009
993
1,008
935
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
45
40
15
100
C
B
A
Main products
•
Pulp and paper chemicals
Key markets
•
Pulp and paper
Key brand
AkzoNobel Pulp and Paper Chemicals
“The fact that we are a global business – offering the most advanced pulp and
paper chemical technology everywhere – was a major advantage and softened
the impact of the downturn.”
Jan Svärd
Managing Director
Overview
After a strong ending to 2008 there was a dramatic drop in
demand at the beginning of the year, particularly in Europe
and North America. Volumes picked up gradually from the
second quarter, however, and with the help of careful margin
management and substantial cost-reducing measures we had
a satisfactory 2009 in terms of performance while maintaining
our market share.
Analysis
There was a slow recovery in demand as the year progressed,
with the pick up in volumes being led by Asia and South America
in the second quarter. However, the recession had a major
impact on our activities and we had to cut costs significantly
in order to mitigate the loss in revenue. Business improvement
projects therefore played a major role, while favorable currency
swings during the early part of the year also proved beneficial.
Downturn
The fact that we are a global business – offering the most
advanced pulp and paper chemical technology everywhere –
was a major advantage and softened the impact of the downturn.
Europe and North America suffered the most, but we were
helped by the fact that Asia was impacted to a lesser extent,
while there was hardly any fall off in volumes in South America.
So the major investments we have made in South America in
recent years really paid off. Most notably, in April we inaugurated
both of our new facilities in Brazil – the Chemical Island at
Três Lagoas and the expanded chlorine dioxide plant in Jundiaí
– which were an immediate success. Our specialty activities had
mixed results. The Kromasil business continued to grow and
the Expancel business improved, supported by a substantial
productivity program.
Actions
We launched a number of restructuring programs which
reduced both capacity and headcount. Our Mo I Rana plant in
Norway was closed and we had to shut down production lines
in Sweden, France, Finland and the US for part of the year, while
in Germany we rationalized our research organization. Various
investment projects at customer locations were also delayed or
even cancelled due to the economic climate, mainly in Asia and
South America.
Developments
We inaugurated two facilities at Suzhou in China, one for our
Expancel microspheres and one for Purate production. We also
launched a new silica sol, starting in North America, called Eka
NP 2180, which has proved to be extremely successful. It’s
based on a new molecule which offers several major benefits to
the customer such as improved efficiency, increased machine
speed and, perhaps more importantly, cost savings. This
product is now being rolled out in other regions. It was also
a very good year for our Compozil Fx concept, which helps
our customers achieve extremely high speed and reduces fiber
and energy consumption. It was introduced to several new
machines in Asia and is ideal for large paper machines. We
also made excellent progress with our safety performance this
year and, despite the tough economic climate, continued to
concentrate on product development focused on reducing fiber
use and energy consumption.
AkzoNobel Report 2009 | Business performance | Specialty Chemicals | 49
AkzoNobel Industrial Chemicals
“The market dynamics vary in each of our activities, but we were able to
manage the business under extremely volatile conditions and kept our
financials in good shape.”
Werner Fuhrmann
Managing Director
Overview
Our results were adversely affected by the unprecedented drop
in demand, although we managed to keep our financial ratios at
a relatively healthy level. There was some recovery in volumes
towards the end of the year.
Analysis
Early in the year our businesses experienced volume drops of
between 15 and 30 percent, mainly due to the downturn in
the construction and automotive sectors. During the first few
months we maintained relatively good margins due to falling raw
material prices and strong sale prices for some of our products.
But we later faced margin pressure because of the imbalance in
supply and demand. The market dynamics vary in each of our
activities, so they were impacted in different ways, but we were
able to manage the business under extremely volatile conditions
and kept our financials in good shape. Cash management was
important and we recorded our lowest ever operating working
capital figures both in absolute and relative terms.
Actions
The lack of visibility and economic uncertainty required close
attention and we were forced to react to the volume drop. We
therefore embarked on a swift and comprehensive profit and
cash improvement plan – without losing sight of our customers.
This helped mitigate the adverse impact of the drop in volumes
significantly, with around half the shortfall in margins being offset
by countering actions. One tough decision we took was to
close our Skoghall site in Sweden, where our employees have
done a tremendous job. This decision involved the closure of
the MCA, chlor-alkali and ferric chloride plants, and was mainly
triggered by the falling demand in MCA. We concluded that
the drop in demand for MCA was not only being caused by
de-stocking and recession, there was actually a structural shift
to Asia taking place, resulting in diminished European customer
base. We can serve existing MCA demand with fewer sites, so
we realigned our global supply chain. We are ramping up our
Delfzijl location in the Netherlands (the biggest MCA plant in the
world) and completed an ongoing expansion of our Taixing plant
in China. So shutting down Skoghall won’t affect our customers.
Our market position for caustic in the Nordics will be maintained
based on imports.
Developments
We integrated our Ecosystems activities into other areas of
the organization, largely into Chlor-Alkali. Early in the year we
finalized the acquisition of the business and assets of German
company LII Europe, which particularly strengthened our position
in the European caustic market. In addition, we acquired the
remaining shares in the Salinco co-generation unit in Hengelo,
the Netherlands. We also made progress with our concept for
small salt conversion plants to reduce chlorine transportation,
and launched mTA (Fe-meso-Tartrate), an innovative anti-caking
agent for salt, which has a better environmental profile than
current alternatives.
Sustainability
There’s a big challenge for the chemical industry to contribute to
some major global issues, notably climate change. This presents
opportunities in the areas of green chemistry, new products and
carbon capture. As we are at the beginning of the chain, we
believe we can play a prominent role. We therefore stepped
up our research and innovation efforts, despite the adverse
business conditions. Our Carbon Policy was recognized as one
of the top three innovations by the Association of the Dutch
Chemical Industry (VNCI).
Revenue in € millions
2007
2008
2009
877
966
949
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
93
4
3
100
C
B
A
Main products
•
•
•
•
•
Salt
Energy
Chlorine
Caustic lye
Monochloroacetic acid (MCA)
Key markets
•
Chemical
•
Detergent
•
Construction
•
Food
•
Pulp and paper
•
Plastic industries
Key brand
50 | Specialty Chemicals | Business performance | AkzoNobel Report 2009
AkzoNobel Surface Chemistry
“Having already restructured over the last few years, we were well prepared
for the recession. Subsequently, we fared better than some of our
competitors, gaining market share in Europe and South America.”
Frank Sherman
Managing Director
Revenue in € millions
2007
2008
2009
770
821
701
Geo-mix revenue by destination in %
A Europe
B Americas
C Asia Pacific
38
51
11
100
C
B
A
Main products
•
Surfactants
Synthetic and natural
•
polymers
Key brands
Armeen
Arquad
Berol
Morwet
Key markets
•
Agriculture
•
Asphalt
•
Personal care
•
Petroleum
•
Water treatment
•
Household cleaning
•
Mining
Amphomer
Naviance
Alcogum
Alcosperse
Overview
After a difficult start to the year, which was dominated by a
dramatic drop in market demand, our shipments began to
improve by the third quarter as de-stocking ended and demand
started to slowly recover. The sales volume shortfall was partially
offset by declining raw material prices and a stringent cost
control program. We ended the year close to our 2008 results,
a very good performance given the severe economic climate.
Analysis
Our key challenge was to balance cost and cash initiatives by
planting the seeds for future growth. Having already restructured
over the last few years – which included the successful
integration of AkzoNobel’s surfactants business with the specialty
polymer activities from National Starch – we were well prepared
for the recession. Subsequently, we fared better than some of our
competitors, gaining market share in Europe and South America.
Downturn
Our Asian activities were the first to be affected by the recession
in mid-2008 and then led the recovery in the second quarter
of 2009. The situation was similar but less dramatic in the US,
while the recovery in Europe was much slower. A number of
the market segments we serve were severely impacted by the
recession, including the mining industry, which suffered from
lack of infrastructure spending (iron ore). Paper production
(calcite) and fertilizer use (potash) were also affected. Oil and
gas drilling dropped by half, while agrochemical sales fell during
the first half year when there was de-stocking throughout the
value chain. Asphalt road paving had a slow start due to weather
conditions, but picked up later in the year thanks to government
stimulus spending. Consumer-based markets, such as personal
care, fabric care and home care, were less impacted and even
grew during the year.
Actions
Operating costs were lowered further with a salary and hiring
freeze, along with staffing level adjustments to align capacities
with demand. Inventories and receivables were also trimmed to
reduce working capital.
Developments
In the middle of the economic storm we developed a new
winning strategy for the future based on three technology
platforms – surfactants, synthetic polymers and biopolymers –
and a consumer intimacy business model. We aim to drive
growth by promoting sustainable solutions, investing in high
growth regions and pursuing bolt-on acquisitions and alliances.
Sustainability is a growth driver as well as differentiator, with
nearly 50 percent of our product sales based on renewable
feedstocks.
During 2009, we introduced several new products, including
asphalt additives that enable road paving at lower temperatures,
thus saving energy and reducing VOC emissions. We
commercialized biopolymer hair gels and developed starch-
based oil and gas well fracturing fluids. In the meantime, our
operations have improved by obtaining third party verification
the Responsible Care® management systems at all
of
our manufacturing sites. Emissions were reduced beyond
regulatory requirements through the use of enhanced vapor
recovery systems and high efficiency thermal oxidizers. Diligent
implementation of behavior-based safety processes also
resulted in a significant improvement in safety performance, with
a record low total recordable injury rate of less than 1.0 injury
per million work hours. Our people are passionate about our
business and excited about the future.
AkzoNobel Report 2009 | Business performance | Specialty Chemicals | 51
AkzoNobel Polymer Chemicals
“We kept ourselves relevant and competitive in the market and
responded very well to the global downturn.”
Alan Kwek
Managing Director
Revenue in € millions
2007
2008
2009
524
521
521
Geo-mix revenue by destination in %
A EMEA
B Americas
C Asia Pacific
38
32
30
100
C
A
B
Main products
•
•
•
Organic peroxides
Metal alkyls
Thermosets and elastomers
Key markets
•
Plastics
•
PVC
Key brands
Trigonox
Perkadox
Overview
We had a very slow start to the year, but there was a major
improvement during all of the remaining three quarters, notably
Q3, when we posted a record profit. Overall, our results for the
year were back to pre-crisis levels. We kept ourselves relevant
and competitive in the market and responded very well to the
global downturn.
activities were the least affected because they are more geared
towards consumer markets such as polyethylene, rubber tires
and food packaging. By the second half of the year there were
signs of a recovery in the US, while Asia – especially China –
recovered earlier. We have a good presence in Asia thanks to
our focus on the BRIC countries and these regions made an
important contribution to our profit levels.
Analysis
We were very effective at taking out costs and improving our
margins. Crucially, we reacted very quickly to the recession. By
mid-2008, we’d already started a cost reduction and business
improvement program. This allowed us to continue serving
our customers well and prepared us to take full advantage of
any renewed growth. We also started taking a more holistic
approach, reorganizing and changing the business model and
substantially reducing our credit risk. In addition, this was the
first full year that the 2008 Jiangsu QiangSheng deal contributed
to our results. Combined with acquiring a majority interest in our
Kayaku Akzo Co. Ltd (KAC) joint venture – which we completed
in January 2009 – we saw a positive impact in terms of the top
line. The KAC transaction was a strategic deal which gives us a
good position in Japan and we believe we can still realize a lot
of synergies.
Downturn
We serve a lot of industries involved in the housing, durable
goods and automotive sectors and these nose-dived once the
recession kicked in. Our High Polymer Specialties (HPS) business
suffered most, because it mainly supplies PVC manufacturers,
with most of the PVC produced going into housing and
infrastructure. Our Cross-Linking Peroxides business was also
impacted, although to a lesser extent, because it serves a wide
variety of sectors, while our Organometallic Specialties (OMS)
Action
We reduced the complexity of the business and reorganized to
focus resources more on our customers. This included merging
our HPS and OMS activities. They were sharing a lot of common
customers and used the same sales forces in some parts of the
world, so it didn’t make sense to have two separate businesses.
We were therefore able to take out a whole layer of costs and
have made our organization much stronger.
Developments
Our patented continuous initiator dosing (CID) technology
– which helps increase PVC reactor capacity – continued
to gather momentum. We secured a number of European
contracts by the end of the year within the PVC market and are
now looking to expand into the expandable polystyrene (EPS)
market. There are clear opportunities for a further roll-out of this
technology into the US and Asia and this will enable us to further
differentiate ourselves from our competitors. Sustainability
remained a key priority throughout the year, with good progress
being made in several areas, notably on customer testing
of the new, heavy metal-free corrosion protection technology
– known as Fuzebox – which we are developing. It was also
announced that Polymer Chemicals will be merged into the
Functional Chemicals business unit. This is a move which will
streamline the organization and make our business even more
cost competitive.
52 | Specialty Chemicals | Business performance | AkzoNobel Report 2009
Revenue in € millions
2007
2008
2009
504
470
377
Main products
•
•
•
•
•
Polyester fiber
Soda ash
Life sciences
Chemicals
Paints
Chemicals Pakistan
Waqar A Malik
Chief Executive ICI Pakistan
Chairman Pakistan PPTA
Chemicals Pakistan
Chemicals Pakistan is part of AkzoNobel’s 75.8 percent
stake in ICI Pakistan Limited, a listed company in Pakistan
(the company’s stake in Pakistan PTA Limited was divested
during 2009). The company focuses primarily on the Pakistan
domestic market and has a diversified portfolio, serving a broad
industrial spectrum. Main products include soda ash, polyester
fiber, pharmaceutical and agricultural products and a host of
specialty chemicals.
Overview
Despite a difficult business environment, Chemicals Pakistan
out performed 2008 in local currency, mainly due to higher
volumes in the Polyester and Life Sciences businesses. Margin
management and other operational efficiencies also contributed
to a 15 percent improvement in EBITDA in local currency.
During 2009, AkzoNobel divested its 75.8 percent stake in the
PTA activities of the Chemicals Pakistan business to Korean
company KP Chemical Corporation (KPC). The holding in
Pakistan PTA Limited was acquired by AkzoNobel in 2008 as
part of its acquisition of ICI.
AkzoNobel Report 2009 | Business performance | Specialty Chemicals | 53
National Starch
James P. Zallie
Managing Director
Revenue in € millions
2007
2008
2009
813
894
878
Main products
•
Specialty starches
Key brand
Key markets
•
•
•
Food
Papermaking
Industrial
National Starch
National Starch is the leading global supplier of specialty
starches, with a principal focus on supplying the food industry.
We also serve niche papermaking markets and supply high
value industrial starches for use in a variety of other consumer
and industrial products and processes.
Overview
The global corn wet milling industry experienced tough trading
conditions in 2009, primarily caused by increased net corn
costs. This was brought about by a collapse in by-product
pricing and soft demand in both industrial and food sectors.
The decline in demand in the food segment was prompted by a
combination of factors, including de-stocking across customers’
supply chains, rationalization of brands and changes in
consumer choices regarding eating away from the home. The
papermaking segment experienced a more pronounced decline
due to its more cyclical nature and negative market drivers.
National Starch recovered from the softness in sales and finished
2009 strongly, with overall sales in line with the previous year.
High input costs and unfavorable currencies were a dominant
theme in 2009 and they impacted margins. Overall, costs were
well controlled as a result of focused profit protection plans,
including staff reductions and the closure of a manufacturing
facility. We performed strongly on cash delivery due to a focused
working capital reduction program.
Strategic progress was also made in expanding our market
leadership position. We acquired the Australian specialty
starch business of Penford to strengthen our supply network in
support of the growing Asia-Pacific markets. We also launched
innovative food texture solutions, a major factor in the consumer
appeal of new products. Work in understanding the science
of texture earned us an innovation award at the Institute of
Food Technologists Food Expo in the US, while we also picked
up the prestigious Food Innovation of the Year Award at the
Food Ingredients Europe Expo.
The ability of our specialty starches to replace synthetic
compounds is a source of new market opportunities, particularly
as manufacturers seek to raise the levels of sustainable content
in their products and packaging.
We continued our strong HSE performance, earning recognition
for two of our largest facilities from our peer trade group
in the US. In Thailand, we received the Outstanding Labor
Relations and Welfare Award from the Thai Ministry of Labor
and Welfare for our commitment to safety, fair and equal
treatment and employee development. In addition, 2009 saw
significant activity and progress towards the completion of the
self-sufficiency agenda which separates National Starch from
the former ICI infrastructure.
Cleaner
and greener
Customers and regulatory bodies around the world are making increasing
demands for products with better environmental profiles. Which is why we
try to stay one step ahead when it comes to developing new technologies
for the markets we serve.
A prime example is Berol ENV226, supplied by our Surface Chemistry business.
It’s a new generation of readily biodegradable materials which can be used as
the key cleaning component in powerful, water-based degreasers/cleaners.
It’s commonly used in products such as vehicle cleaners, all-purpose cleaners,
façade cleaners and many other industrial cleaning products.
“The new generation of the well-known Berol 226 line has allowed me to continue
providing excellent cleaning while meeting the regulations of the European Union
and the need for products that are better for the environment,” said K.G. Wangel,
Managing Director of distributors AmphoChem.
Based on a special process for surfactants, one of the secrets of the Berol
ENV226 system lies in its ability to remain highly effective, even after diluting.
Building on
a relationship
Sustainability is not only a top priority for AkzoNobel, it’s also essential to most
of our customers. This shared commitment to safeguarding the environment was
brought into sharp focus when leading building material producers Knauf wanted
to develop hydrophobizing solutions for their gypsum building systems.
Their researchers worked together with our Elotex business and the result was
Elotex BNSEAL712, a water repellent in powder form which enables Knauf to
extend the technical performance, water resistance and durability of its innovative
gypsum building products.
“By combining our own know-how and the technology developed by Elotex, it’s
now possible to market complete eco-designs in Europe for wet areas (kitchens,
bathrooms, cellars) based on environmentally-friendly and water-resistant building
systems,” said Joachim Haas, R&D Head of Department Plasters and Joint
Compounds at Knauf.
“It also offers numerous advantages for both professional and seasonal applicators,
such as reducing the complexity and cost of applying wall systems.”
Gypsum is an infinitely recyclable and low energy intensive building raw material
which is playing an increasingly important role in the reduction of carbon emissions
in the construction and building environment.
Governance and compliance
In this section we introduce our Supervisory Board and present
their Report for 2009, as well as describing our remuneration and
risk management policies. Details of our corporate governance
structure can also be found, along with information about
AkzoNobel on the capital market.
Report of the Supervisory Board
Corporate governance statement
Remuneration report
Risk management
AkzoNobel on the capital market
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58 | Report of the Supervisory Board | Governance and Compliance | AkzoNobel Report 2009
The Supervisory Board hereby submits to shareholders the financial
statements and the report of the Board of Management of
Akzo Nobel N.V. for the financial year 2009, as prepared by the
Board of Management and approved by the Supervisory Board in
its meeting of February 16, 2010.
Main 2009 activities
•
•
•
•
Advising the Board of Management during
the economic downturn
Strategic discussions at company and Business Area level
Human resources and succession planning
Board visit to India.
The 2009
financial statements were audited by KPMG
Accountants N.V. and the Auditor’s Report appears on page 129.
The financial statements were discussed extensively with the
auditors by the Audit Committee, and in the presence of the
Chairman of the Board of Management (CEO) and the Chief
Financial Officer (CFO). In addition, the 2009 financial statements
were discussed by the full Supervisory Board with the full
Board of Management, in the presence of the auditors. Based
on these discussions, the Supervisory Board is of the opinion
that the 2009 financial statements of Akzo Nobel N.V. meet all
requirements for correctness and transparency, and that they
form a good basis to account for the supervision provided.
We recommend that the Annual General Meeting of shareholders
adopts the 2009 financial statements as presented in this 2009
Report. We recommend that the Annual General Meeting of
shareholders resolves that the total dividend for 2009 on each
of the common shares outstanding will be €1.35 and that this
amount, less the interim dividend of €0.30 which was payable in
November 2009, will be payable on May 11, 2010. Additionally,
we request that shareholders discharge the members of the
Board of Management of their responsibility for the conduct of
business in 2009 and the members of the Supervisory Board
for their supervision of management.
Supervisory Board activities
The Supervisory Board met six times during 2009, including
a one-day meeting fully dedicated to the company’s strategy.
All meetings were plenary sessions with the full Board of
Management present. These meetings were also attended by
all the Supervisory Board members. In addition, a separate
meeting was held – attended in part by the CEO – during
which the Supervisory Board conducted a self-assessment and
appraised its committees, working methods, procedures and
performance, as well as evaluating the functioning of the Board
of Management and its members. The Supervisory Board also
assessed its relationship with the Board of Management and
discussed the composition of the Supervisory Board and its
committees. For this purpose, questionnaires were sent to the
Supervisory Board. The answers were used as a framework for
the evaluation discussion. This discussion was minuted and the
conclusions and actions were discussed and confirmed at the
next meeting of the Supervisory Board. The Chairman of the
Supervisory Board prepared the meetings with the assistance
of the CEO.
risks and the mechanisms for controlling financial risks. Other
topics included:
•
•
•
Integration of ICI
Additional cost savings at the company
Governance of the company, including the implementation
of the new Dutch Corporate Governance Code (the “Code”)
Risk management
Sourcing
Strategy for the company in certain high growth economies
Operating working capital management
Human resources and succession planning
Sustainability
Remuneration policy
Approval of major investments, acquisitions and divestments.
•
•
•
•
•
•
•
•
Regular agenda items included financial and operational
performance, share price development, operational planning,
course of business and the annual financing and investment
plan. Business unit Managing Directors and Staff Directors are
regularly invited to give presentations to the Supervisory Board.
During 2009,
the Supervisory Board again devoted
considerable time to discussing the company’s strategy and
reviewing strategic options with the Board of Management.
This included detailed discussions on objectives, associated
In September 2009, the full Supervisory Board and Board of
Management met in India. The visit included meetings with local
management, customers, suppliers and other stakeholders, as
well as a tour of AkzoNobel’s Bangalore multi-site.
AkzoNobel Report 2009 | Governance and compliance | Report of the Supervisory Board | 59
1
2
3
4
5
6
7
8
1
Karel Vuursteen
(1941, Dutch) Chairman
Initial appointment 2002
Current term of office 2006 – 2010
2
Uwe-Ernst Bufe
(1944, German) Deputy Chairman
Initial appointment 2003
Current term of office 2007 – 2011
3
Virginia Bottomley
(1948, British)
Initial appointment 2000
Current term of office 2008 – 2012
4
Dolf van den Brink
(1948, Dutch)
Initial appointment 2004
Current term of office 2008 – 2012
Former CEO of Heineken; Deputy Chairman
and member of the Board of Directors of
Heineken Holding; Chairman of the Supervisory
Board of TOMTOM N.V.; member of the
Supervisory Boards of ING Group and
Henkel AG.
•
•
Chairman of the Nomination Committee
as of March 5, 2009
Member of the Remuneration Committee
Former CEO of Degussa AG; member of the
Supervisory Boards of Solvay SA, Umicore SA
and Kali + Salz AG; non-executive Director of
SunPower Inc.
Former Secretary of State for Health and
member of the British Cabinet; former
Secretary of State for National Heritage;
member of the House of Lords; Chancellor of
the University of Hull; Governor of the London
School of Economics; Governor of the Ditchley
Foundation; non-executive Director of BUPA;
executive Director of Odgers Ray & Berndtson;
Trustee of the Economist newspaper.
•
•
Member of the Remuneration Committee
Member of the Nomination Committee
Former member of the Managing Board of
ABN AMRO Bank; Professor Financial
Institutions University of Amsterdam; Chairman
of the Supervisory Board of Nyenrode
University.
• Chairman of the Audit Committee
as of January 1, 2006
5
Peggy Bruzelius
(1949, Swedish)
Initial appointment 2007
Current term of office 2007 – 2011
6
Peter Ellwood
(1943, British)
Initial appointment 2008
Current term of office 2008 – 2012
7
Antony Burgmans
(1947, Dutch)
Initial appointment 2006
Current term of office 2006 – 2010
8
Louis Hughes
(1949, American)
Initial appointment 2006
Current term of office 2006 – 2010
Former CEO ABB Financial Services; former
Executive Vice-President SEB; Vice-Chairman
AB Electrolux; non-executive Director of Scania
AB, Axfood AB, Syngenta AG, Husqvarna AB
and Diageo plc; Chairman of the Board of
Directors of Lancelot Asset Management;
Director of Axel Johnson AB; Governor of Stock-
holm School of Economics; Chairman of the
Swedish National Agency for Higher Education.
•
Member of the Audit Committee
Former Chairman of ICI plc; former Group Chief
Executive of Lloyds TSB Group; Chairman of
Rexam plc.
•
•
Member of the Remuneration Committee
Member of the Nomination Committee
Former Chairman and CEO of Unilever N.V. and
plc; non-executive Director of BP plc; member
of the Supervisory Boards of SHV Holdings N.V.
and AEGON N.V.
•
•
Member of the Nomination Committee
Chairman of the Remuneration Committee
as of March 5, 2009
Former President and COO of Lockheed
Martin; former Executive Vice-President of
General Motors; Chairman and CEO of In
ZeroSystems LLC; member of the Boards of
Directors of ABB AG and Alcatel-Lucent SA;
Executive Advisor of Wind Point Partners.
•
Member of the Audit Committee
60 | Report of the Supervisory Board | Governance and Compliance | AkzoNobel Report 2009
The Board of Management keeps the Supervisory Board regularly
informed of intended organizational changes and appointments
of senior managers. The main topic for the Supervisory Board
meeting in October 2009 was human resources, including
succession planning.
Composition and profile
of the Supervisory Board
The Supervisory Board – which currently consists of eight
members – aims for an appropriate level of experience among
its members in marketing, manufacturing, finance, economics,
sustainability, human resources and other aspects of international
business. Consequently, the current members have a diverse
and appropriate mix of knowledge and experience of the
markets in which AkzoNobel operates, as well as insights from
different markets and non-operational areas. A further aim of
the Supervisory Board – which its members believe is currently
being met – is that at least one-third of the membership should
meet the diversity criteria of gender (female) and/or nationality
(outside of the European Union). This is in compliance with
provision III.3.1 of the Code, which ensures that its composition
better reflects society at large and the markets in which the
company operates. In the Supervisory Board’s view, the Code’s
provision III.2.1 (regarding independence) has been fulfilled.
On February 23, 2009, Mr. Van den Bergh resigned as
Chairman of the Supervisory Board and Mr. Vuursteen was
appointed Chairman with immediate effect. On March 5, 2009,
Mr. Bufe was appointed Deputy Chairman. The terms of office of
Messrs. Vuursteen, Burgmans and Hughes expire on May 1, 2010.
Messrs. Vuursteen, Burgmans and Hughes are available for
reappointment. It will be proposed at the 2010 Annual General
Meeting of shareholders that Messrs. Vuursteen, Burgmans and
Hughes should be reappointed for a second term of four years.
Audit Committee
The Audit Committee consists of three members and is
chaired by Mr. Van den Brink. With effect from March 5, 2009,
Mr. Bufe resigned from the Audit Committee. On the same
date, Mrs. Bruzelius was appointed as a member of the Audit
Committee. Seven meetings were held during 2009. As a rule,
the CEO, the CFO, the director of corporate control, the internal
auditor and the lead partner of the external auditor, KPMG,
attend all regular meetings. After every Audit Committee
meeting, the three members hold a separate meeting with
only the internal auditor present, and one meeting with only
the external auditor present. In addition, the Audit Committee
met once without members of the Board of Management being
present to conduct a self-evaluation and appraise performance.
Discussions regularly focus on financial statements, internal and
external control procedures, risk management, internal auditing
reports, planning, tax, pensions and the external auditor’s
performance and independence. Before each announcement
of the company’s quarterly results, the Audit Committee was
informed of the figures and consulted on the reports and press
releases to be published. The Audit Committee also discussed
topics including:
•
•
•
The quality of internal audit
Internal audit strategy
KPMG’s approach to auditing the company, engagement
letter, fees and audit plan
The company finance policy
Operating working capital management
Tax strategy
Compliance at the company.
•
•
•
•
Issues discussed in Audit Committee meetings are reported
back to the full Supervisory Board in subsequent meetings of
this Board.
Remuneration Committee
The Remuneration Committee consists of four members and is
chaired by Mr. Burgmans. Mr. Ellwood was appointed to the
Remuneration Committee with effect from March 5, 2009. Four
meetings were held in 2009. Recommendations were made on
the remuneration and remuneration policy for members of the
Board of Management, including personal targets. Information
on the remuneration of the Board of Management and the
Supervisory Board can be found on pages 115 onwards in the
Supervisory Board’s remuneration report.
Nomination Committee
The Nomination Committee consists of four members and
is chaired by Mr. Vuursteen. Messrs. Burgmans and Ellwood
were appointed as members with effect from March 5, 2009.
During the year, proposals were made for the reappointment
of Messrs. Vuursteen, Hughes and Burgmans
the
Supervisory Board.
to
Changes in the composition
of the Board of Management
At the 2009 Annual General Meeting of shareholders, Mr. Gunning
was appointed to AkzoNobel’s Board of Management for a
four-year term, commencing May 1, 2009.
The Supervisory Board wishes
the Board of
Management, as well as all employees, for their dedication and
hard work for the company in 2009.
thank
to
Amsterdam, February 16, 2010
The Supervisory Board
AkzoNobel Report 2009 | Governance and compliance | Corporate Governance | 61
Akzo Nobel N.V. is a public limited liability company (“Naamloze
Vennootschap”) established under the laws of the Netherlands.
Its common shares are listed on NYSE Euronext Amsterdam.
The company’s management and supervision structure is
organized in a so-called two-tier system, comprising a Board
of Management, solely composed of executive directors, and
a Supervisory Board, solely composed of non-executive
directors. The two Boards are independent of each other and
are accountable to the Annual General Meeting of shareholders
for the performance of their functions.
Our corporate governance structure is based on the require-
ments of the Dutch Civil Code, the company’s Articles of
Association and the rules and regulations applicable to compa-
nies listed on the NYSE Euronext Amsterdam stock exchange,
complemented by several internal procedures. These proce-
dures include a risk management and control system, as well as
a system of assurance of compliance with laws and regulations.
Over the last decade, we have been consistently enhancing and
improving our corporate governance standards in accordance
with applicable laws and regulations. Most notable were the
Dutch Corporate Governance Code adopted in 2003 and
amended in 2008 (the “Code”) and the US Sarbanes-Oxley
Act of 2002 and its implementation rules. Although we have
delisted from NASDAQ and deregistered from the SEC, we
continue to build on the improvements we have been making to
our corporate governance.
The Code contains principles and best practices for Dutch
companies with listed shares. We agree with both the general
approach and the vast majority of its principles and best
practice provisions. Corporate governance at AkzoNobel
was placed on the agenda at our Annual General Meeting
of shareholders in 2004 and 2005 as a separate item for
Governance structure
Shareholders
External auditors
Supervisory Board
Board Committee Pensions
Board of Management
Corporate
Business Area Board
Decorative Paints
Business Area Board
Performance Coatings
Business Area Board
Specialty Chemicals
Business units
Business units
Business units
Major external regulations
•
•
•
•
Dutch Civil Code
Dutch Act on financial supervision
NYSE Euronext listing rules
Dutch Corporate Governance Code
Major internal regulations
•
•
•
•
•
•
Articles of Association
Code of Conduct
Rules of Procedure for the Supervisory Board
Rules of Procedure for the Board of Management
Corporate Directives and Policies
Authority schedules
62 | Corporate Governance | Governance and Compliance | AkzoNobel Report 2009
discussion. This specifically included a number of aspects
where our corporate governance deviates from the Code, as
explained in the 2004 Annual Report. The Board of Management
and the Supervisory Board have taken these discussions into
account in formulating a position on AkzoNobel’s corporate
governance. One of the outcomes was an amendment to the
Articles of Association, which was approved by the Annual
General Meeting of shareholders in 2005. The company
agrees with all amendments introduced in the revised Code
of 2008. To the extent necessary, most changes to the Code
have been implemented through an amendment to the Rules
of Procedure of the Board of Management and Supervisory
Board respectively, as well as through additions to the text in
this 2009 Report. The introduction of a claw back provision (in
accordance with the Code’s provision II.2.11) will be initiated
by proposing an amendment to the remuneration policy on this
subject at the 2010 Annual General Meeting of shareholders.
This chapter describes AkzoNobel’s corporate governance. Any
deviations from the Code are explained, in accordance with the
Code’s “apply or explain” principle.
The Board of Management and the Supervisory Board are of
the opinion that the company’s corporate governance structure,
as described here, is the most appropriate for AkzoNobel at
this point in time. With the exception of those aspects of our
governance structure which can only be amended with the
approval of the Annual General Meeting of shareholders, the
Board of Management and the Supervisory Board may make
adjustments to the way the Code is applied as described below,
if this is considered to be in the interest of the company. If
adjustments are made, they will be published and reported in
the annual report for the relevant year.
Board of Management
General
The Board of Management is entrusted with the management of
the company, which means that – among other responsibilities
– members define the strategic direction, establish the policies
and manage the company’s day-to-day operations. They
collectively manage the company and are responsible for its
performance. Members are jointly and individually accountable
for all decisions made by the Board of Management. All
major investments, all acquisitions and all major functional
initiatives are discussed and decided, if applicable, subject to
Supervisory Board approval. In performing its duties, the Board
of Management is guided by the interests of the company and
its affiliated enterprise, taking into consideration the relevant
interests of the company’s stakeholders. Board of Management
meetings are held once a fortnight.
The tasks and responsibilities, as well as internal procedural
matters for the Board of Management, are addressed in the
Rules of Procedure for the Board of Management. These Rules
of Procedure have been adopted by the Supervisory Board and
are available on our corporate website.
leads
(CEO)
The Chief Executive Officer
the Board of
Management in its overall management of the company to
achieve its performance goals and ambitions. He is the main
point of liaison with the Supervisory Board. The Chief Financial
Officer (CFO) is specifically responsible for the company’s
financial affairs. Members also have specific responsibilities
for the company’s main business areas: Decorative Paints,
Performance Coatings and Specialty Chemicals.
The Managing Directors of our businesses, and the Staff
Directors in charge of the different functions, report to individual
Board members with specific responsibility for their activities and
performance. To safeguard consistency and coherence for the
total organization, the Board of Management has established
corporate directives.
To effectively steer the strategy of our businesses and their
operations, the Board of Management has established Business
Area Boards for each of our business areas: Decorative Paints,
Performance Coatings and Specialty Chemicals. In addition,
a Board Committee Pensions oversees the general pension
policies (to be) implemented in the various pension plans of
the company.
Business Area Boards are chaired by the member of the Board
of Management responsible for that business area. The CFO
chairs the Board Committee Pensions. The authority of the
Business Area Boards and the Board Committee Pensions
is laid down in an internal authority schedule. Business Area
Board meetings are held once a fortnight. The Business Area
Boards provide a forum for a more in-depth discussion on all
possible subjects relevant to that business area.
Representative authority, including the signing of documents, is
vested in at least two members of the Board of Management
jointly. Corporate agents may be appointed, whose powers of
attorney will be determined by the Board of Management.
Appointment, conflicts of interest
Board of Management members are appointed to, and removed
from, office by the Annual General Meeting of shareholders.
As of 2004, members of the Board of Management are appointed
for four-year terms, with the possibility of reappointment at the
expiry of each term. This is in line with the Code’s provision
II.1.1. However, the contract of Mr. Wijers – who was appointed
before 2004 – was not renegotiated, as this was not felt to be in
the interest of the company.
The Meeting of Holders of Priority Shares has the right to make
binding nominations for the appointment of members of the
Board of Management and the Supervisory Board. The priority
shares are held by the Foundation Akzo Nobel. The Board of the
Foundation Akzo Nobel consists of members of the Supervisory
Board who are not members of the Audit Committee.
According to the Code’s recommendation (provision IV.1.1),
the Annual General Meeting of shareholders should be able to
pass a resolution to cancel the binding nature of a nomination
for the appointment of the Supervisory Board or the Board of
Management. Under the Articles of Association, the binding
nature of the nominations by the holders of priority shares cannot
be canceled by the Annual General Meeting of shareholders.
The company subscribes to the Code’s principle in general.
Therefore (as described in the 2004 Annual Report and
discussed at the Annual General Meeting of shareholders
in 2005) it has been decided that in normal circumstances,
Supervisory Board and Board of Management members will
be appointed on the basis of a non-binding nomination by the
Supervisory Board. The Board of the Foundation Akzo Nobel
has confirmed its intention to use its binding nomination rights
only in the case of exceptional circumstances, such as in the
event of a (threatened) hostile takeover. (Reference is made to
the description of anti-takeover provisions and control, see page
66). In normal circumstances, resolutions to appoint a member
of the Supervisory Board or Board of Management will therefore
AkzoNobel Report 2009 | Governance and compliance | Corporate Governance | 63
require a simple majority of the votes cast. Shareholders meeting
the requirements laid down in the Articles of Association are also
entitled to nominate Supervisory Board or Board of Management
members. According to the Articles of Association, such
appointments will require a two-thirds majority, representing at
least 50 percent of the outstanding share capital.
Although a deviation from provision IV.1.1. of the Code, the
Supervisory Board and the Board of Management are of the
opinion that these provisions will enhance the continuity of
the company’s management and policies.
Members of the Board of Management are allowed to hold
a maximum of two supervisory board memberships or non-
executive directorships in other listed companies. This is in line
with the Code (provision II.1.8). The exception to this rule is
that in the year prior to their retirement, Board of Management
members are allowed to hold more than two supervisory board
memberships or non-executive directorships in order to allow
them to prepare for retirement. But only if this does not interfere
with the performance of their tasks as members of the Board
of Management. Acceptance of external supervisory board
memberships or non-executive directorships is subject to
approval by the Supervisory Board, with authority having been
delegated to the Chairman of the Supervisory Board. During
2009, Mr. Wijers was appointed a non-executive Board Member
of Royal Dutch Shell plc, while Mr. Frohn was appointed a
member of the Supervisory Board of Nutreco N.V.
The handling of (potential) conflicts of interest between the
company and members of the Board of Management is governed
by the Rules of Procedure for the Board of Management.
Decisions to enter into transactions under which Board of
Management members have conflicts of interests that are of
material significance to the company, and/or to the relevant Board
of Management member, require the approval of the Supervisory
Board. Mention will also be made in the annual report for the
relevant year. In 2009, no transactions were reported under
which a member of the Board of Management has had a conflict
of interest that is of material significance to the company.
Remuneration
In line with the remuneration policy adopted by the Annual
General Meeting of shareholders, the remuneration of the
members of the Board of Management is determined by
the Supervisory Board on the advice of its Remuneration
Committee. The composition of the remuneration of Board of
Management members, and the remuneration policy itself, are
described in the Remuneration Report (see page 67) and the
Financial Statements (see note 23 on page 115).
The main elements of the employment contracts of Board
of Management members are available on our corporate
website. For appointments starting from 2004, the maximum
remuneration in the event of dismissal is in principle one year’s
base salary. In the event of the dismissal of the Board member
appointed before 2004, the Supervisory Board will determine
a severance payment upon the advice of the Remuneration
Committee. Since it is not believed to be in the interest of the
company to renegotiate the existing contracts of the members
of the Board of Management, the company decided in 2004 not
to follow Code provision II.2.8 for appointments made before
2004. However, the Supervisory Board intends to take the
provisions of the Code as guidance for establishing severance
payments. The contracts of the members of the Board of
Management do not contain change of control provisions.
Risk management and (financial) reporting
Internal risk management and control systems are in place. Our
risk management system is explained in more detail in the Risk
Management chapter (see page 73).
We have strict procedures for internal and disclosure controls
and auditor independence. The Disclosure Committee monitors
the procedures established by the company and advises the
Board of Management to ensure adequate and timely disclosure
of material financial and non-financial information.
Though not subject to SOX requirements, an “in-control”
department is operational to secure compliance.
Reference is made to the Board of Management’s report
(see page 8) for the statements in respect of the internal risk
management and control systems.
Supervisory Board
General
The Supervisory Board’s overall responsibility is to exercise
supervision over the policies adopted by the Board of
Management and over the general conduct of the business
of the company. This specifically includes supervision of the
achievement of the company’s operational and
financial
objectives, the corporate strategy designed to achieve the
objectives and the main financial parameters and risk factors.
The Supervisory Board also provides the Board of Management
with advice. In fulfilling their duties, members are guided by
the interests of AkzoNobel and its affiliated enterprise, taking
into consideration the relevant interests of the company’s
stakeholders.
Appointment, independence, conflicts of interest
and composition
Members of the Supervisory Board are nominated, appointed
and dismissed in accordance with procedures which are the
same as those outlined above for the members of the Board
of Management (see page 62). As a general rule, based on
the rotation schedule, a Supervisory Board member’s tenure
is four years. In principle, members are eligible for re-election
twice. However, in deviation from the Code (provision III.3.5), a
member can be nominated for re-election more often if, in a
specific case, this is considered to be in the company’s interest.
The composition of the Supervisory Board is such that members
are able to act with due objectivity and independently of one
another and of the Board of Management. All members meet
the independence requirements as stated in Code provisions
III.2.1 and III.2.2, as confirmed in the Supervisory Board’s report
in accordance with provision III.2.3.
No member of the Supervisory Board holds more than five
supervisory board memberships in Dutch listed companies.
The Supervisory Board is governed by its Rules of Procedure,
which include detailed provisions on how to deal with conflicts
of interest and potential conflicts of interest between members
of the Supervisory Board and the company. In 2009, no
transactions were reported under which a member had a conflict
of interest which was of material significance to the company.
The Supervisory Board Rules of Procedure, encompassing the
Profile and the Charters of the Committees, reflect the tasks
and responsibilities of the Supervisory Board and are available
on our corporate website.
64 | Corporate Governance | Governance and Compliance | AkzoNobel Report 2009
The Chairman of the Supervisory Board determines the agenda,
chairs the meetings of the Supervisory Board, monitors the
proper functioning of the Supervisory Board and its committees,
arranges for the adequate provision of information to its
members and acts on behalf of the Supervisory Board as the
main contact for the Board of Management. He also initiates
the evaluation of the functioning of the Supervisory Board
and the Board of Management and chairs the Annual General
Meeting of shareholders. From May 1, 2006, to February 23,
2009, the Supervisory Board was chaired by Mr. Van den Bergh.
On February 23, 2009, Mr. Vuursteen was appointed Chairman
of the Supervisory Board.
The Supervisory Board is assisted by the Secretary. All members
have access to the advice and services of the Secretary, who is
responsible for ensuring that procedures are followed and that
the Supervisory Board acts in accordance with its statutory
obligations under the Articles of Association.
Remuneration
Supervisory Board members receive a fixed annual remuneration
and attendance fee, which is determined by the Annual General
Meeting of shareholders. More information on the remuneration
of the members of the Supervisory Board can be found on
page 67.
Board appointments 2009:
•
•
Mr. Vuursteen was appointed Chairman of the Supervisory Board
Mr. Bufe was appointed Deputy Chairman of the
Supervisory Board
Mr. Burgmans was appointed Chairman of the
Remuneration Committee
Mrs. Bruzelius was appointed a member of the Audit Committee
Mr. Ellwood was appointed a member of both the
Nomination Committee and the Remuneration Committee
Mr. Gunning was appointed a member of the
Board of Management.
•
•
•
•
the Nomination Committee and
Committees
The Supervisory Board has established three committees: the
Audit Committee,
the
Remuneration Committee. Each committee has a charter
describing its role and responsibilities and the manner in which
it discharges its duties and reports to the full Supervisory
Board. These charters are included in the Supervisory Board
Rules of Procedure, published on our corporate website. The
committees report on their deliberations and findings to the full
Supervisory Board.
The Audit Committee assists the Supervisory Board
in
overseeing the quality and integrity of the accounting, auditing,
reporting and risk management practices of the company, as
well as on a number of other subjects, as included in its charter.
The Chairman of the Audit Committee is Mr. Van den Brink.
One area of particular focus in corporate governance is the
independence of the auditors. The Audit Committee has
been delegated direct responsibility for the compensation
and oversight of the auditors and the services they provide to
the company. The auditors are prohibited from providing the
company with certain non-audit services. In order to anchor
this in our procedures, the Supervisory Board adopted the
“AkzoNobel Auditors Independence Policy” and the related
“AkzoNobel Audit Committee Pre-approval Procedure on Audit,
Audit-Related and Non-Audit Services”. All these documents
and policies are available on our corporate website.
The Nomination Committee, chaired by Mr. Vuursteen, focuses
on drawing up selection criteria and appointment procedures
for Supervisory Board and Board of Management members.
The committee assesses the size and composition of both
Boards, evaluates the functioning of the individual members,
makes proposals for appointments and reappointments and
supervises the Board of Management on the selection of senior
management. When selecting candidates for appointment
to the Supervisory Board, account is taken of the need for a
balanced representation of knowledge of the markets in which
the company operates, as well as the need for insight from
different markets and non-operational areas.
The Remuneration Committee is responsible for drafting
proposals to the Supervisory Board on the remuneration policy
for the Board of Management, for overseeing the remuneration
of its individual members, and for the remuneration schemes
for AkzoNobel executives involving the company’s shares.
The committee also prepares Supervisory Board proposals
to the Annual General Meeting of shareholders concerning
the remuneration of the members of the Supervisory Board.
The Remuneration Committee is chaired by Mr. Burgmans.
Baroness Bottomley and Messrs. Vuursteen, Burgmans and
Ellwood are all members of both the Nomination Committee
and the Remuneration Committee.
Auditors
The external auditor is appointed by the Annual General
Meeting of shareholders on the proposal of the Supervisory
Board. The appointment is for an indefinite period of time
and is reviewed every four years by the Audit Committee.
The same committee advises the Supervisory Board, which
communicates the results of this assessment to the Annual
General Meeting of shareholders. The Audit Committee and
the Board of Management annually report their dealings with
the external auditor to the Supervisory Board and discuss
the auditor’s independence. The lead auditor in charge of the
AkzoNobel account is changed every seven years. KPMG’s
current lead partner, Mr. Weusten, has held this position since
July 2007. The lead auditor is present at the Annual General
Meeting of shareholders and may be questioned with regard to
his statement on the fairness of the financial statements.
The external auditor attends all meetings of the Audit Committee,
as well as the meeting of the Supervisory Board at which the
financial statements are approved. He receives the financial
information underlying reports of the quarterly figures and is
given the opportunity to respond to this information.
Inside information and insider trading,
Code of Conduct, Code of Financial Ethics
and complaints procedure
Members of the Board of Management and Supervisory Board
are subject to the AkzoNobel Rules on Inside Information
and Insider Trading, which limit their opportunities to trade in
AkzoNobel – and in certain circumstances – other company
shares. Transactions in AkzoNobel shares carried out by Board
of Management or Supervisory Board members are notified
to the Dutch Authority for Financial Markets in accordance
with Dutch law and, if necessary, to other relevant authorities.
AkzoNobel Report 2009 | Governance and compliance | Corporate Governance | 65
Certain employees are subject to the same limitations under the
AkzoNobel Rules on Inside Information and Insider Trading.
The AkzoNobel Rules on Inside Information and Insider Trading
state that carrying out transactions in AkzoNobel securities – as
well as securities other than AkzoNobel securities – is prohibited
if the person concerned has inside information regarding such
securities. Furthermore, the Compliance Officer may determine
that Board of Management and Supervisory Board members,
and certain designated employees, may not carry out
transactions in AkzoNobel securities, or other securities, both
during and outside a closed period.
Shares in the company and the options of Board of Management
members, as well as certain senior executives, may be held in an
account administered by the “Stichting Executive Management
Beheer”. This foundation acts as an independent portfolio
manager for the relevant AkzoNobel participants.
A comprehensive Code of Conduct, followed by officers and
employees committed to individual and corporate integrity, is
one of the critical foundations of good corporate governance.
AkzoNobel’s Code of Conduct, which
incorporates our
business principles, sets out the company’s position. It
guides all our employees in their daily work. We have
established several procedures to arrange for company-wide
dissemination of the Code of Conduct and training. We have
also established procedures and a Compliance Committee to
monitor compliance with the code in general, and certain of
its provisions in particular, and to provide for its enforcement.
The Board of Management has adopted a Financial Code of
Ethics for senior financial officers. Certain designated persons,
including the CEO and the CFO, have to confirm annually in
writing that they have adhered to this code. The Financial Code
of Ethics can be found on our corporate website.
A complaints procedure enables employees to file complaints
concerning practices that violate any internal or external rules
or regulations. This so-called Speak Up! procedure ensures that
employees have the opportunity to report alleged irregularities
without jeopardizing their legal position.
Relations with shareholders and other investors
AkzoNobel has three classes of shares: common shares,
cumulative preferred shares and priority shares. Common
shares are traded on the Euronext Amsterdam stock exchange.
Common shares are also traded over-the-counter on OTCQX
(organized by Pink Sheets) in the US in the form of American
Depositary Receipts. On December 31, 2009, a total of
232,253,633 common shares and 48 priority shares had
been issued, amounting to 99.996 percent and 0.004 percent
respectively of the total issued and outstanding capital.
By December 31, 2009, AkzoNobel had been notified by Capital
Research and Management Company that their participation
in the company’s share capital was more than 10 percent,
while Paulson & Co informed us that their participation in the
company’s share capital was more than 5 percent.
The priority shares are held by the Foundation Akzo Nobel.
The Foundation’s Board consists of members of AkzoNobel’s
Supervisory Board who are not members of the Audit
Committee. The Meeting of Holders of Priority Shares has
the nomination rights for the appointments of members of
the Board of Management and of the Supervisory Board (see
page 62) and the right to approve amendments to the Articles
of Association of the company.
No cumulative preferred shares have been issued to date. It
has been communicated that the cumulative preferred shares
merely have a financing function, which means that, if necessary,
they will be issued at or near to the prevailing quoted price for
common shares.
The Annual General Meeting of shareholders held on April 27,
2009, authorized the Board of Management for the period of 18
months after that date – subject to approval from the Supervisory
Board – to issue shares in the capital of the company up to a
maximum of 10 percent of the issued share capital, to restrict
or exclude the pre-emption rights for existing shareholders for
those shares, and to purchase shares of the company. At the
same meeting, the Board of Management was given a mandate
to acquire up to a maximum of 10 percent of the issued share
capital of the company.
General Meetings of shareholders are held at least once a year.
The Annual General Meeting of shareholders is convened by
public notice. The agenda, the notes to the agenda and the
procedure for attendance – including the record date and the
procedure for granting a proxy to a third party – are published
in advance and posted on our corporate website. Holding
shares in the company on the record date determines the
right to exercise voting rights and other rights relating to the
Annual General Meeting of shareholders, notwithstanding the
subsequent sale of shares thereafter. The notes to the agenda
contain all relevant information with respect to the proposed
resolutions. All resolutions are made on the basis of the “one
share, one vote” principle. All resolutions are adopted by
absolute majority, unless the law or the company’s Articles of
Association stipulate otherwise. The Annual General Meeting
of shareholders reviews the annual report and decides on
adoption of the financial statements and the dividend proposal,
as well as on the discharge of the members of the Supervisory
Board and the Board of Management. Holders of common
shares in aggregate representing at least 1 percent of the total
issued capital may submit proposals for the Annual General
Meeting agenda. These proposals must be sent in writing or
electronically to the company’s head office in Amsterdam at least
60 calendar days in advance. Such requests shall be granted
and shareholders will be provided with all relevant information,
unless the Supervisory Board and the Board of Management
are of the opinion that the request is not reasonable in the given
circumstances. The minutes of the Annual General Meeting of
shareholders (in Dutch) are made available on our corporate
website within three months of the meeting date.
The Annual General Meeting of shareholders approves or adopts,
as the case may be, among other matters:
•
•
•
•
The annual accounts
Dividends (not interim dividends)
The election of Board Members
Material changes to the remuneration policy of
the Board of Management
Other important matters such as major acquisitions
or the sale of a substantial part of the company
The issue of new shares.
•
•
66 | Corporate Governance | Governance and Compliance | AkzoNobel Report 2009
The company attaches great value to shareholder relations. We
use the Shareholders’ Communication Channel to distribute
the agenda of the Annual General Meeting, and to allow
shareholders who hold their shares through an associated bank
participation in the proxy voting at the said meeting.
In line with relevant laws and regulations, we provide all
shareholders and other parties in the financial markets with equal
and simultaneous information about matters that may influence
the share price, thereby taking into account possible exceptions
permitted by those laws and regulations. This information can be
found on our corporate website, to the extent required by law.
We actively communicate our strategy and the developments of
our businesses to the financial markets. Members of the Board
of Management and business managers regularly attend analyst
meetings in Europe and the US. The quarterly results, press
conferences and the analysts’ conference calls – as well as the
presentations at analyst meetings organized by the company –
are all announced in advance and are available as webcasts and
accessible online. Presentations to (institutional) investors are
held at regular intervals and, in principle, are announced on our
corporate website or via press releases. Other meetings with
analysts or investors are not normally announced in advance,
nor can they be followed by webcast or any other means.
Discussions at such meetings are always limited to information
which is already in the public domain. This is in line with the
requirement to ensure that all shareholders and other parties
in the financial market have equal and simultaneous access to
information that may influence the share price. In this respect,
the company complies with applicable laws and regulations.
In principle, analyst meetings, presentations to (institutional)
investors and direct meetings with investors are not held shortly
before publication our quarterly or annual results. AkzoNobel’s
outline policy on general and bilateral contacts with shareholders
can be found on our corporate website.
Anti-takeover provisions and control
According to provision IV.3.11 of the Code, the company is
required to provide a survey of its actual or potential anti-
takeover measures, and to indicate in what circumstances it is
expected that they may be used.
The priority shares may be considered to constitute a form of
anti-takeover measure. In relation to the right of the Meeting
of Holders of Priority Shares to make binding nominations
for appointments to the Board of Management and the
Supervisory Board (see page 62), the Foundation Akzo Nobel
has confirmed that it intends to make use of such rights in
exceptional circumstances only. These circumstances include
situations where, in the opinion of the Board of the Foundation,
the continuity of the company’s management and policies is at
stake. This may be the case if a public bid for the common
shares of the company has been announced, or has been
made, or the justified expectation exists that such a bid will be
made without any agreement having been reached in relation to
such a bid with the company.
The same shall apply if one shareholder, or more shareholders
acting in a concerted way, hold a substantial percentage of
the issued common shares of the company without making
an offer. Or if, in the opinion of the Board of the Foundation
Akzo Nobel, the exercise of the voting rights by one shareholder
or more shareholders, acting in a concerted way, is materially
in conflict with the interests of the company. In such cases,
the Supervisory Board and the Board of Management, in
accordance with their statutory responsibility, will evaluate all
available options with a view to serving the best interests of the
company, its shareholders and other stakeholders. In order to
allow for sufficient time to conduct such an evaluation, the Board
of the Foundation Akzo Nobel reserves the right to make use of
its binding nomination rights for the appointment of members
of the Supervisory Board and of the Board of Management in
such circumstances.
In the event of a hostile takeover bid, in general the Supervisory
Board and the Board of Management reserve the right to use all
powers available to them in the interests of the company and
its affiliated enterprise, taking into consideration the relevant
interests of the company’s stakeholders.
AkzoNobel Report 2009 | Governance and compliance | Remuneration report | 67
This report describes our remuneration policy and remuneration paid
to individual members of the Board of Management in 2009, including
amendments proposed by the Supervisory Board for 2010.
The remuneration policy and the individual service contracts
of the members of the Board of Management are determined
by the Supervisory Board within the framework of the
remuneration policy, as adopted by the Annual General Meeting
of shareholders in 2005 and amended in 2006, 2008 and 2009.
Our remuneration policy, including all structures and policies
related to the remuneration and employment contracts of the
Board of Management, is in line with the Dutch Corporate
Governance Code. In valuing our incentive plans, we are
assisted by independent external advisors.
Remuneration policy
Our remuneration policy has a clear objective, namely to
provide remuneration in a form which will attract, retain and
motivate the members of the Board of Management as top
managers of a major international company, while protecting
and promoting its mid and long-term objectives. Both the
policy itself, and the checks and balances that are applied in
its execution, are designed to avoid incidents where members
of the Board of Management – and senior executives for whom
similar incentive plans apply – act in their own interest, take
risks that are not in keeping with our strategy and risk appetite,
or where remuneration levels cannot be justified in any given
circumstance.
It is our policy to maintain overall remuneration levels that are at
the median level of the external benchmark of a peer group of
companies which, as of January 1, 2009, consists of:
•
•
•
•
•
•
Royal Ahold
Royal DSM
Royal KPN
Solvay
TNT
Wolters Kluwer
Clariant
Heineken
Philips
Randstad
Reed Elsevier
Rhodia
•
•
•
•
•
•
The Remuneration Committee consults professional independent
remuneration experts to ensure an appropriate comparison.
Remuneration elements
The total remuneration package of the members of the Board of
Management consists of:
•
•
•
•
Base salary
Performance-related short-term incentive
Performance-related shares
Pension provisions.
To ensure that remuneration is linked to performance, a
significant proportion of the remuneration package is variable
and dependent on the short and long-term performance of the
individual Board member and the company.
For communication purposes, the table on the next page presents
a summarizing overview of the remuneration of the current
members of the Board of Management. Reference is made to
note 23 on page 115 of the Financial statements for more details.
In 2009, the value of fixed and variable cash components at
target levels breaks down as follows:
CEO in %
A Base salary
B Variable compensation
36
64
100
B
Board members in %
A
A
Furthermore, all members of the Board of Management
are entitled to other benefits – such as a company car and
representation allowance – which are needed for carrying out
their duties and which are in line with market norms.
A Base salary
B Variable compensation
43
57
100
B
68 | Remuneration report | Governance and compliance | AkzoNobel Report 2009
Compensation overview members of the Board of Management 2007 – 2009
Amounts in €
Hans Wijers
Chief Executive Offi cer
Leif Darner
Board member Performance Coatings
Rob Frohn
Board member Specialty Chemicals
Tex Gunning 3
Board member Decorative Paints
Keith Nichols 4
Chief Financial Offi cer
Year
Base salary
incentive 1
Share awards 2 Option awards 2
Short-term
Pension
premium paid
Other
emoluments
Other
compensation
Total
remuneration
2009
2008
2007
2009
2008
2007
2009
2008
2007
2009
2009
2008
760,000
760,000
705,500
570,000
570,000
504,000
570,000
570,000
504,000
464,000
700,000
1,036,500
339,300
340,000
450,000
339,300
340,000
450,000
678,400
485,900
435,000
481,500
325,500
287,000
481,500
325,500
287,000
99,200
161,500
200,100
65,100
105,900
131,000
65,100
105,900
131,000
458,400
565,600
557,900
208,600
291,400
228,400
146,000
156,200
149,800
380,000
226,200
277,600
–
88,900
4,100
4,500
4,000
4,100
4,600
4,000
6,900
7,200
6,500
2,700
–
–
–
147,800
169,300
126,700
2,464,100
2,677,500
2,939,000
1,816,400
1,806,700
1,731,100
47,500
1,656,300
–
34,600
1,504,800
1,562,900
–
975,400
570,000
380,000
339,300
226,700
382,500
131,300
18,200
25,000
124,700
57,600
112,700 4
45,200
58,700
36,900
1,606,100
902,700
1 Actual short-term incentive disclosed relates to the performance in the fi nancial year. The fi gures for 2009 are the non-deferred amounts (see also page 69).
2 Costs are non-cash and relate to the expenses following IFRS 2.
3 As from May 1, 2009.
4 Social charges relate to employer’s contribution in the UK.
The table summarizes the remuneration package of the members of the Board of Management
of AkzoNobel. The elements of the remuneration package are addressed in more detail in the
paragraphs on the following pages.
Total remuneration package
Element
Vehicle
Performance measure
Pay-out at minimum
performance
Target pay-out as %
of base salary
Maximum pay-out
as % of base salary
Fixed
Base salary
Cash
Not applicable
100%
100%
100%
Short-term incentive
Cash
EBITDA: 35%
0%
EVA: 35%
CEO: 100%
CEO: 150%
Member: 65%
Member: 100%
Variable
Long-term incentive
Performance-related
restricted shares
Personal: 30%
Relative total
shareholder
return: 50%
DJSI ranking: 50%
0%
CEO: 75%
CEO: 113%
Member: 69%
Member: 104%
The target values for the shares are average expected values over the longer term. The maximum percentage for shares assumes that the share price remains unchanged.
AkzoNobel Report 2009 | Governance and compliance | Remuneration report | 69
Base salary
The base salaries of members of the Board of Management
remained unchanged in 2009.
calculated by deducting from net operating profit after taxes
(NOPAT) a capital charge representing the cost of capital
calculated on the basis of an average return investors expect.
Short-term incentive
The objectives of the short-term incentive are to reward
economic value creation (EVA) and EBITDA growth for our
shareholders and other stakeholders, to measure individual
and collective performance and to encourage progress in the
achievement of long-term strategic objectives.
Please refer to the Report of the Board of Management
section which starts on page 8 for the actual 2009 EVA and
EBITDA performance used in the short-term incentive. The
EVA of the sum of the business units is used as the basis for
calculating the EVA element of the short-term incentive for the
Board of Management.
At
the 2009 Annual General Meeting of shareholders,
the remuneration policy was amended. As of 2009, the
performance-related short-term incentive is linked to the
EBITDA of the company, in addition to EVA and the individual
and qualitative personal targets of the members of the
Board of Management. More specifically, 35 percent of the
short-term incentive opportunity is linked to EBITDA, 35 percent
is linked to EVA and 30 percent remains linked to individual and
qualitative personal targets, including non-financial targets. This
change is meant to ensure that short-term incentive measures
are also aligned with AkzoNobel’s stated EBITDA goals as part
of the company strategy. EVA and EBITDA are based on the
financials of the company in constant currencies. EVA is seen
as a measure for creating long-term value.
On the outcome of the three short-term incentive elements
(EVA, EBITDA and personal),
the Supervisory Board
applies an overall rating based on the principles of the
Performance and Development Dialog, an appraisal system
implemented throughout AkzoNobel in 2005. For the Board
of Management, the rating
includes a reasonableness
test, in which the Supervisory Board critically assesses the
actual ambition level of the performance targets in light of
the assumptions made at the beginning of the year. It also
includes an assessment of the progress made in achieving
long-term strategic objectives.
The EVA and EBITDA elements of the short-term incentive have
a performance threshold level of 80 percent and a maximum
performance level of 120 percent of the targeted EVA and
EBITDA respectively. The target EVA and EBITDA are determined
annually by the Supervisory Board and are derived from the
budget. The maximum pay-out of the short-term incentive
will never exceed 100 percent of base salary for members of
the Board of Management and 150 percent of base salary for
the CEO. Qualitative individual and collective targets are set in
the context of the medium-term objectives of the company and
qualify as commercially sensitive information. AkzoNobel will not
disclose all these targets. However, the targets included goals
set with respect to guiding the company through the crisis,
increasing operational effectiveness, management development
and the integration of ICI.
The Supervisory Board assesses the progress made in achieving
long-term strategic objectives and the actual ambition level of
the performance targets in light of the assumptions made at
the beginning of the year. The Supervisory Board ensures that
targets are realistic and sufficiently stretching. In accordance
with the requirements of the Dutch Corporate Governance
Code, the Remuneration Committee, before setting the targets
to be proposed for approval by the Supervisory Board, carried
out a scenario analysis of the possible financial outcome of
meeting target levels, as well as maximum performance levels.
This method for short-term incentive determination is also
the basis of the compensation framework for executives in the
company, as introduced in January 2005.
The EVA performance measure is used in order to encourage
the Board of Management to create long-term value for the
company’s shareholders and other stakeholders. EVA is
The Board of Management and the Supervisory Board have
considered the company’s 2009 results in light of the current
economic climate and the need to find the right balance
between short and long-term incentives. As a result, they have
decided to strengthen the link between the remuneration of the
Board of Management and the medium and long-term targets of
the company. Therefore, Mr. Hans Wijers, CEO, will defer receipt
of 50 percent of his short-term incentive for 2009. Receipt of
this deferred payment will be subject to the company achieving
its medium-term target of an EBITDA margin of 14 percent
by the end of 2011. The remaining members of the Board of
Management will defer receipt of 25 percent of their short-term
incentive for 2009 subject to the same condition. During the
course of 2010, the Remuneration Committee will reflect further
on current policy and the balance between short and long-term
compensation and the company’s targets.
Long-term incentive
The objectives of our long-term incentive plan are to encourage
long-term, sustainable, economic and shareholder value
creation – both absolute and relative to our competitors – to
align the interests of the Board of Management with those of
shareholders and to ensure retention of the members of the
Board of Management. The long-term incentive plan consists
of performance-related shares. The stock option plan was
discontinued as of January 1, 2008. Performance-related
shares are considered to provide a stronger alignment with
shareholders’ interests.
Stock option plan
Stock options were conditionally granted for the last time in 2007.
The actual number of options which the Board of Management
receives depends on the company’s performance during a
three-year vesting period. The total option term is seven years.
The performance measure used to determine the number of
options that vest is the average of the results of the comparison
between planned and realized EVA on Invested Capital (EOI),
or economic value created in relation to invested capital during
the period of three consecutive years. This measure is used to
encourage EVA performance over a longer period of time.
Stock options will not vest below 80 percent of the targeted
EOI. The number of options conditionally granted is also the
maximum number of options that vest upon achieving the
targeted performance. If targeted performance is exceeded,
there will be no increase in the number of options that vest.
The specific targets have not been disclosed as they qualify as
commercially sensitive information.
The exercise price of the stock options is the NYSE Euronext
Amsterdam opening price on the first day after the Annual
General Meeting of shareholders that the AkzoNobel share
70 | Remuneration report | Governance and compliance | AkzoNobel Report 2009
is quoted ex-dividend in the year in which the options were
conditionally granted.
Based on the EOI performance over the period 2007 to 2009,
100 percent of the stock options (conditionally) granted to the
members of the Board of Management in 2007 will become
unconditional: (19,800 to the CEO and 13,000 to the other
Board members, except for Mr. Nichols, who was appointed to
the Board of Management on May 1, 2008, and received 3,750
stock options in respect of the conditional grant to executives in
2007). Mr. Gunning did not receive stock options as he became
an employee of the company after January 1, 2008.
Performance share plan
Under the performance share plan, shares will conditionally
be granted to the members of the Board of Management.
Vesting of these shares is conditional on the achievement of
certain performance targets during a three-year period and a
continuation of the contract of employment. Achievement of the
performance targets is determined by the Supervisory Board in
the first quarter of the year following the three-year period. The
number of vested shares is increased by the dividend paid over
the three-year performance period.
Because sustainability is considered key to our long-term future,
an amendment to the remuneration policy which introduced a
sustainability element was proposed, and was subsequently
approved by shareholders. This amendment states that, as of
2009, 50 percent of the conditional grant of shares is linked to
the average ranking of the company in the relevant Dow Jones
Sustainability Index (DJSI) during the three-year performance
period. In respect of the conditional grant in 2009, the vesting
schedule has been determined by the Supervisory Board
as follows:
Average position
in DJSI during
performance period
%
Number of vested
shares (DJSI part)
1
2
3
4 – 6
7 – 10
11 – 15
Below 15
150% (= 75% of total conditional grant)
125% (= 62.5% of total conditional grant)
(= 50% of total conditional grant)
100%
75% (= 37.5% of total conditional grant)
(= 25% of total conditional grant)
50%
25% (= 12.5% of total conditional grant)
0%
It is noted that a takeover would not influence the ranking of
the company on the DJSI and therefore would dilute any share-
based remuneration to be received by the Board members as
a result of a takeover. AkzoNobel ranked second in the relevant
DJSI in 2009.
The remaining 50 percent of the conditional grant of shares
is linked to AkzoNobel’s Total Shareholder Return (TSR)
compared with the performance of the companies in our peer
group. Independent external specialists will conduct an analysis
to calculate the number of shares that will vest according to
the TSR ranking. The determination of the final ranking (and
thus the vesting of shares) will be reviewed by the company’s
auditors at the end of the performance period. In order to adjust
for changes in exchange rates, all local currencies are converted
into euros. The retention period for the shares expires five years
after the conditional grant.
As of 2007, the relative TSR performance has been compared
with the following peer group:
•
•
•
•
•
•
Arkema group
BASF
Ciba Specialty Chemicals
Dow Chemical Company
DuPont
Hercules
Kansai Paint
Kemira OYJ
PPG Industries
RPM Industrial
Sherwin-Williams
Valspar Corporation
•
•
•
•
•
•
In order to reflect both the delisting of Ciba Specialty Chemicals
and Hercules, as well as the conclusion that the former peer
group did not properly reflect the competitive environment in
which we operate, the Supervisory Board decided to amend
the peer group to be applied from 2009 onwards. Ciba
Specialty Chemicals and Hercules have been replaced by
Rhodia and Nippon Paint in the peer group from 2009 onwards.
Considering the profile of Dow Chemical Company and BASF,
the Supervisory Board decided to remove these companies
from the peer group as of 2009.
As of 2009, our peer group has therefore been determined by
the Supervisory Board as follows:
•
•
•
•
•
•
•
•
•
•
PPG Industries
Rhodia
RPM Industrial
Sherwin-Williams
Valspar Corporation
Arkema group
DuPont
Kansai Paint
Kemira OYJ
Nippon Paint
The following TSR vesting schemes apply for the conditional
grants as of 2007 and 2009 respectively:
Vesting
(as % of
conditional grant)
150%
135%
120%
100%
85%
70%
55%
40%
25%
0%
Rank
As from
2007
1
2
3
4
5
6
7
8
9
10 – 13
Vesting
(as % of half of
conditional grant)
150%
135%
120%
100%
75%
50%
25%
0%
Rank
2009
onwards
1
2
3
4
5
6
7
8 – 11
The vesting schedule changed due to the peer group adjustment,
ensuring that targets are no more difficult or easier to achieve.
The value of the share and the threshold criteria did not change.
AkzoNobel’s performance over the period 2007 to 2009 resulted
in a second position within the ranking of the peer group
companies. Consequently, the final vesting percentage of
the 2007 grant equaled 135 percent, resulting in a definitive
grant of shares (including the compounded dividend yield until
December 31, 2009 – 11.69 percent) of 34,680 shares for the
CEO and 22,768 shares for the other members of the Board of
Management, except for Mr. Nichols, who received a definitive
grant of 6,408 shares, it being noted that this conditional grant
was made when Mr. Nichols was not yet a member of the
Board of Management. Mr. Gunning has received a conditional
grant of shares from 2008 onwards.
The number of performance-related shares conditionally granted
in 2009 amounted to 36,600 for the CEO and 27,400 for the other
members of the Board of Management (face value method).
For the grants not yet vested, the following TSR performance
can be reported:
•
For the two-year period ending 2009, AkzoNobel’s position
is eighth (indicative)
For the one-year period ending 2009, AkzoNobel’s position
is fourth (indicative).
•
In accordance with provision II.2.13d) of the Dutch Corporate
Governance Code, the schedule on the following page
sets out for 2005 onwards (i) the number of at target shares
conditionally granted; (ii) the number of shares which have
vested; (iii) the number of shares held by members of the Board
of Management at the end of the lock up period; (iv) the face
value at the conditional share grant, at vesting and at the end of
the lock up period respectively.
In accordance with the company’s Articles of Association,
the Dutch Corporate Governance Code and the rules of
the performance share plan, the number of shares to be
conditionally granted to members of the Board of Management
is determined by the Supervisory Board using the face value
method. The number of shares is set within the limits of the
remuneration policy as adopted by the shareholders. The face
value method means that the number of conditionally granted
shares is set by dividing the policy level of shares by the share
price at the beginning of the year of the conditional grant.
As stated in our 2007 Annual Report, the Supervisory Board has
considered remuneration criteria which would apply in a change
of control situation. It has been decided that where, in the event
of a takeover, the pay-out under the performance share plan is
between 100 percent and 150 percent, the Supervisory Board
will, taking into account the performance of the company prior to
the takeover bid, at its discretion decide whether the projected
outcome is fair and may decide to adjust the pay upwards or
downwards within the bandwidth mentioned. This undertaking
does not affect the discretion the Supervisory Board has to
correct the variable remuneration of the Board of Management
upwards or downwards.
AkzoNobel Report 2009 | Governance and compliance | Remuneration report | 71
The notice period for the Board member is subject to a term
of three months; notice by the company shall be subject to a
six-month term.
If reappointment does not take place and the employment
agreement between the Board member concerned and
Akzo Nobel N.V. is not continued, the Board member will be
entitled to a severance payment, established in accordance
with the Dutch Corporate Governance Code. The employment
agreement for Mr. Wijers, who was appointed before 2004, has
not been adjusted in this respect (see page 62). However, the
Supervisory Board has the intention to take the provisions of
the Code as guidance for establishing severance payment if
that were to occur.
The employment contracts allow the Supervisory Board to
request a Board member to resign between the age of 60 and
the regular retirement age for effective succession planning
within the Board. In such an exceptional situation, the Board
member concerned will be entitled to fixed salary payments
until the date of retirement.
Loans
The company does not grant any personal loans to its
Board members.
The Supervisory Board will propose to the 2010 Annual General
Meeting of shareholders that a claw back provision be included
in the remuneration policy for the Board of Management. This
provision will provide the Supervisory Board with the option
to claw back variable pay components paid to members of
the Board of Management in the event that such variable pay
components were based on financial information which is
shown within a certain period of time to be materially incorrect.
The members of the Board of Management have agreed to
accept this proposed claw back provision.
Pensions
The pension plan for all members of the Board of Management
is based on an income and age-related defined contribution plan.
The available premium is invested with a pension fund. The
pension payment at pension age depends on the premiums
received and the investment results during the period. The
premium percentages to be paid for the Board member
concerned are fixed by the Supervisory Board. The premiums
are paid over the base salary in the current year and the short-
term incentive of the previous year. The premiums will therefore
vary depending on the performance in the previous year. External
reference data can be used in determining market competitive
levels of pension arrangements. If applicable, pension rights
built up in the period preceding Board membership can be
taken into account to limit the premiums to be paid to the
relevant Board member. In addition, members of the Board of
Management pay a personal contribution. Members of the
Board of Management normally retire in the year that they reach
the age of 62.
Employment agreements
Employment agreements
for members of the Board of
Management appointed in 2004 and subsequent years are
concluded for a period of four years in accordance with the
Dutch Corporate Governance Code. After this initial term,
reappointments may take place for consecutive periods of four
years each or, if applicable, up until their date of retirement if
less than four years from their reappointment.
72 | Remuneration report | Governance and compliance | AkzoNobel Report 2009
Valuation 1 shares Board of Management
Unconditional shares, vested
Number of shares
Number
Value at grant
Total
Value at vesting
Number
Value
Number
Value at grant
Total
Value at vesting
Number
Value
Conditional share grant
Number of vested shares
End of lock up period (2009)
Conditional share grant
Number of vested shares
End of lock up period (2010)
Series 2004 – 2006
Series 2005 – 2007
Hans Wijers
Leif Darner
Rob Frohn
33,000
22,000
22,000
1,009,800
14,596
673,200
673,200
9,731
9,731
674,043
449,378
449,378
14,596
7,236
9,731
429,706
213,028
286,481
33,000
22,000
22,000
1,035,540
690,360
690,360
35,898
23,932
23,932
1,966,851
1,311,234
1,311,234
26,548
20,342
11,794
1,231,827
943,869
547,242
Number of shares
Number
Value at grant
Total
Value at vesting
Number
Value
Number
Value at grant
Total
Value at vesting
Number
Value
Conditional share grant
Number of vested shares
End of lock up period (2011)
Conditional share grant
Number of vested shares
End of lock up period (2012)
Series 2006 – 2008
Series 2007 – 2009
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
23,000
15,100
15,100
4,198
900,450
591,165
591,165
164,352
17,536
11,531
11,531
3,055
516,260
339,473
339,473
89,939
8,656
7,470
11,531
1,943
NA
NA
NA
NA
23,000
15,100
15,100
4,250
1,062,140
697,318
697,318
196,265
34,680
22,768
22,768
6,408
1,609,152
1,056,435
1,056,435
297,331
NA
NA
NA
NA
Conditional shares 1, not vested
Series 2008 – 2010
Conditional share grant
at target
Number of shares
Number
Value at grant
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
Tex Gunning
16,800
11,600
11,600
8,733
3,867
920,472
635,564
635,564
478,481
211,873
1 Values based on the share price on January 1 of the relevant fi nancial year (face value).
Overview performance-related stock options Board of Management
Number of shares
Conditional stock
option grant
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
19,800
13,000
13,000
3,000
1 Share price at moment of vesting minus exercise price.
Fair value
at grant
195,200
128,200
128,200
29,600
Number of vested
stock options
19,800
13,000
13,000
3,000
Series 2009 – 2011
Conditional share grant
at target
Number
Value at grant
36,600
27,400
27,400
27,400
27,400
1,077,504
806,656
806,656
806,656
806,656
2006 – 2013
Intrinsic value
at vesting 1
Conditional stock
option grant
nil
nil
nil
nil
19,800
13,000
13,000
3,750
2007 – 2014
Fair value
at grant
235,224
154,440
154,440
44,550
Doing business inherently involves taking risks, and by taking measured risks
we strive to be a sustainable company. Risk management is a key strategic
process and an essential element of our corporate governance.
We foster a high awareness of business risks and internal
control, geared to safeguarding our risk appetite and providing
transparency in our operations. The Board of Management is
responsible for managing the risks associated with our activities
and, hence, for the establishment and adequate functioning
of appropriate risk management and control systems (see the
Board of Management’s statement on page 15).
AkzoNobel risk management framework
Through our risk management framework, shown on the right,
we want to provide reasonable assurance that our business
objectives can be achieved and our obligations to customers,
shareholders, employees and society can be met. Our risk
management framework is in line with the Enterprise Risk
Management – Integrated Framework of COSO and the Dutch
Corporate Governance Code. The Board of Management reviews
our risk management and control systems and our major business
risks, which are also discussed by the Supervisory Board.
Risk management in 2009
Scoping of our 2009 risk management activities was performed
by the Board of Management, business unit Managing Directors
and Corporate Directors, in association with the risk management
function. The emphasis has been on completing the integration
of the former ICI into the AkzoNobel risk management framework.
In addition, we improved guidance on risk appetite and enhanced
the use of risk knowledge for trend reporting.
During 2009, we held more than 100 facilitated Enterprise
Risk Management workshops, while a large number of self-
assessments were carried out with business and corporate
management and with project teams. The Enterprise Risk
Management process provides top-down coverage of the
organization and ensures that we focus on what we consider
to be the areas of major risk exposure. More than 5,000 risk
scenarios were identified and prioritized by the responsible
managers, their management teams and functional experts. All
major risks were responded to by the unit that identified them.
The outcome of all risk assessments was reported to the next
higher management level as part of our Business Planning
and Review cycle. Risk profiles were shared by managers
across the company. In the bottom-up consolidation process,
approximately 20 percent of the risks were taken to the next
management
level, where they were re-assessed, either
because of the materiality of the risk exposure and/or because
of the accumulated effect. The major risk factors for our
company, resulting from risk consolidation and the subsequent
risk assessment by the Board of Management, are presented
on the following pages.
The risks related to adaptation to economic conditions,
operations in international environment and access to funding
became more apparent during the course of 2009.
AkzoNobel Report 2009 | Governance and compliance | Risk management | 73
AkzoNobel risk management framework
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74 | Risk management | Governance and compliance | AkzoNobel Report 2009
Major risk factors
Under the explicit understanding that this is not an exhaustive list,
the major risk factors that may prevent full achievement of our
objectives are listed in detail from the next page onwards. There
may be current risks that the company has not fully assessed, or
that are currently identified as not having a significant impact on
the business, but which could at a later stage develop a material
impact on our business. The company’s risk management
systems endeavor the timely discovery of such incidents.
An overview of our major risk factors is provided in the table on
the right, where the five risks that we do currently assess as the
most significant for the forthcoming five years are indicated.
Major risk factors assessed by AkzoNobel (top five risks indicated)
Cause
Objectives
Internal
External
Strategic
Risk
•
•
•
Implementation of strategic agenda
Identification of major transforming technologies
Integration of acquisitions
Risk
•
•
•
Adaptation to economic conditions
Operations in international environment
Assuring stakeholder support
Top five risk
Top five risk
Operational
Risk
•
•
•
Attraction and retention of talent
Management of change
Production process risks
Risk
•
•
•
•
Differentiation in energy pricing
Sourcing of raw materials
Environmental liabilities
Product liabilities
Top five risk
Financial
Compliance
Risk
•
•
•
•
Contribution to pension funds
Access to funding
Decline of asset values
Fluctuations in exchange rates
Top five risk
Top five risk
Risk
•
Complying with laws and regulations
AkzoNobel Report 2009 | Governance and compliance | Risk management | 75
Strategic risks
Internal
Risk
Implementation of strategic agenda
A failure to properly and fully implement
our strategic agenda could adversely affect
our company and its businesses.
Identification of major
transforming technologies
We may not be able to identify major
transforming technologies in a timely manner,
which could lead to loss of our leadership
positions.
Risk corrective actions
The appropriateness of our strategic agenda, our performance against
this agenda and our governance structure is continuously monitored by
the Board of Management and the Supervisory Board. Specifi c attention is
paid to areas such as macro-economic developments, general and fi nancial
market developments, competitive situation, performance improvement
potential, sustainability, geographical spread, high growth markets, political
risks, acquisition and divestment opportunities.
We continuously aim for the sustainable growth of our businesses through
research and development, production and sale of new products and
regularly add new businesses and technologies through selective alliances,
ventures, or acquisitions.
Risks are minimized as we operate in attractive industries, have global
leading positions and have the right management team in place to deliver
on our ambitious targets. Remuneration systems are tied to performance
against key strategic agenda items. For example, our long-term executive
bonuses are partly linked to the relevant Dow Jones Sustainability Index
(see Remuneration report starting on page 67).
We have a global approach to innovation and are committed to sustainability
at all levels. Despite the economic downturn, we maintain stable R&D
expenses. Our emphasis is on focused, bigger and bolder innovation.
Integration of acquisitions
We may not be successful in integrating
acquired businesses and not reach the
full synergy effects.
Our company continues to participate in industry consolidation. We place
a strong focus on integration of acquisitions as this is critical to achieve the
expected results. Our policies and directives are implemented without delay
in newly-acquired businesses.
We are committed to delivering synergies and retaining key personnel.
Individuals who are central to acquisition implementation are
incited accordingly.
External
Risk
Adaptation to economic conditions –
Top five risk
Failure to adapt adequately and in time
to economic conditions can have a
harmful impact on our business and
results of operations.
Operations in international environment –
Top five risk
Because AkzoNobel conducts international
operations, we are exposed to a variety
of risks, many of them beyond our control,
which could adversely affect our business.
Assuring stakeholder support
Failure to maintain the support of our
stakeholders for our strategy and its
execution could adversely affect our
company and its businesses.
Risk corrective actions
One of the principal uncertainties facing our company is the development
of the global economy. Economic recovery remains fragile and it continues
to be diffi cult to predict customer demand. For planning and budgeting
we apply various scenarios to be best prepared for further changes in
economic conditions.
Focus continues to be placed on customers, cost reduction and cash
generation actions so that we are well positioned to meet the current
challenges and will be in good shape to take advantage of the recovery
when it comes.
We spread our activities geographically and serve many sectors to benefi t
from opportunities and reduce the risk of instability. Unfavorable political,
social or economic developments and developments in laws, regulations and
standards could adversely affect our businesses and results of operations.
Political, economic and legislative conditions are carefully monitored.
The Board of Management decides on the countries and industry segments
in which AkzoNobel conducts its business.
We endeavor to defi ne and implement a clear strategy and continuously seek
dialog with stakeholders. As an organization we are committed to helping our
customers make their business a success, enhancing relationships with
our suppliers, providing competitive returns to our investors, creating an
attractive working environment for our people and conducting all our activities
in the most socially responsible manner.
76 | Risk management | Governance and compliance | AkzoNobel Report 2009
Operational risks
Internal
Risk
Risk corrective actions
Attraction and retention of talent
Our ambitious growth plans may not be achieved
if we fail to attract and retain the right people.
Management of change
If our management of change is not
adequate, this could have a negative affect on
productivity and customer focus.
Without our people we would not have a business. Growing our business
calls for the need to develop our people. Therefore, AkzoNobel – in
the context of the company’s Talent Factory initiative – puts emphasis
on attracting, retaining, motivating and educating staff. These efforts
are supported by Human Resources instruments such as performance
appraisals, the employee survey and leadership identifi cation and review,
as well as leadership development.
We provide clarity in the working environment through information and
communication programs. Special focus is dedicated to high growth markets.
Remuneration packages may include long and short-term incentives.
However, the Board of Management (see Remuneration report, page 67),
ensures that employees are not encouraged to act in their own interest and
take risks that are not in keeping with the company’s strategy and
risk appetite.
We undertake various restructuring and investment projects that require
signifi cant change management and project management expertise.
Risk management is an integral part of project management excellence.
Senior management is involved in the management of critical projects that
are prioritized and supervised by the Board of Management.
Production process risks
Risks in production processes can adversely
affect our results of operations.
We mitigate production risks by spreading out production and operating an
adequate inventory policy. This is combined with business continuity planning
and appropriate risk transfer arrangements (for example insurances).
We have implemented enhanced process safety, asset integrity and
occupational health standards and also improved the Health, Safety,
Environment and Security audit process in 2009.
External
Risk
Risk corrective actions
Differentiation in energy pricing –
Top five risk
Differences in energy prices pose a risk to the
competitiveness of several of our chemical
businesses.
We operate some energy intensive businesses. A non-level playing fi eld for
energy and emission trading rights can affect the competitive position of
these businesses. We are pro-actively managing energy usage and costs.
We operate several cogeneration units which enable us to make effi cient
use of combined heat and power.
We are implementing our Carbon Policy, working on energy effi ciency
programs and investing in energy from waste and biomass. We have hedging
policies for energy contracts and have long-term purchase contracts in place
(see note 24 on page 119).
Sourcing of raw materials
Inability to access raw materials, growth in
cost and expenses for raw materials, energy
and changes in product mix may adversely
influence the future results of our company.
We are sensitive to price movements that may lead to erosion of margins and
allow product substitution. We may also be impacted by business interruption
or product discontinuation at one of our key suppliers. We aim to use our
purchasing power and long-term relationships with suppliers to acquire raw
materials and safeguard their constant delivery, under the best conditions.
We have inventoried single and sole sourced raw materials and are actively
pursuing plans to improve this situation. We have diversifi ed contract length
and supplier base. Our strengthened global sourcing strategy enables us to
bundle the purchasing power both in product related and non-product related
requirements. We continuously monitor the markets in which we operate for
developments and opportunities.
Environmental liabilities
Our businesses will continue to expose us
to risks of environmental liabilities.
Product liabilities
Product liability claims could adversely
affect our company’s business and results
of operations.
We use, and have in the past used, hazardous materials, chemicals and
biological and toxic compounds in several product development programs
and manufacturing processes. We have been, and can be, exposed to risks
of accidental contamination or past practices that give rise to current liabilities.
We could be exposed to events of non-compliance with environmental laws,
regulatory enforcement, property damage and possible personal injury and
property damage claims resulting therefrom.
Regulations and standards are becoming increasingly stringent. We are
committed to conducting all our activities in the most socially responsible
manner and contingency plans and assignment arrangements are in place
to seek to mitigate these risks. In addition, our policy is to accrue and
charge against earnings environmental clean-up costs when it is probable
that a liability has materialized and an amount can be reasonably estimated
(see also note 21 on page 113).
Currently, we are involved in a number of product liability cases. However,
we believe that any unexpected costs and liabilities will not have a material
adverse effect on our consolidated fi nancial position. We have a central policy
to optimize insurance coverage.
AkzoNobel Report 2009 | Governance and compliance | Risk management | 77
Financial risks
External
Risk
Risk corrective actions
Contribution to pension funds – Top five risk
Various external developments may affect
assets and liabilities of pension funds, causing
higher post-retirement charges and pension
premiums payable.
We practice pro-active pension risk management. Our pension policy
is to offer defi ned contribution schemes to new employees and,
where appropriate, to existing employees. Our biggest defi ned benefi t
schemes have been closed to new entrants since 2001 for ICI, and 2004
for AkzoNobel.
We measure and monitor our pension risks frequently and adopt investment
strategies designed to reduce fi nancial risks. We are committed to further
de-risking over time. Pension activities are overseen by the Board Committee
Pensions (see note 17 on page 108).
Access to funding – Top five risk
Inability to have access, control and visibility of
liquidity by AkzoNobel and/or its partners in the
value chain may have an adverse affect on our
business and results.
Decline of asset values
Impairments and book losses could adversely
affect our financial results.
Our debt profi le is strong. We are monitoring fi nancial markets, critical
suppliers and customers closely. We have a prudent fi nancing strategy and
a strict cash management policy, which are managed by our centralized
treasury function (see note 24 on page 119).
We are committed to maintaining strong investment grade credit ratings.
Ratings at year-end were Standard & Poor’s BBB+ (negative outlook) and
Moody’s Baa1 (negative outlook).
In view of the current fi nancial market conditions, asset value decline offers
both opportunities and threats to our company. We are actively participating
in industry consolidation. As such we may perform selective acquisitions
and may hold assets for sale. Acquisition and divestment opportunities and
the management of assets held for sale are continuously monitored by the
Board of Management.
We do impairment tests for intangibles with indefi nite lives (goodwill, some
brands) every year and whenever an impairment trigger exists. For tangibles
and other fi xed assets, we do impairment tests whenever an impairment
trigger exists (see note 1 on page 87).
Fluctuations in exchange rates
Exchange rate fluctuations can have a harmful
impact on our financial results.
We have operations in more than 80 countries and report in euros. We are
particularly sensitive to the relation between the euro and US dollar, pound
sterling, Swedish krona and Latin American and Asian currencies. We have
centralized treasury and a hedging policy is in place for certain currency
exchange rate risks (see note 24 on page 119). At a more operational level,
risks are reduced by the prevalence of local-for-local production, which is
standard in many of our businesses.
Compliance risks
External
Risk
Risk corrective actions
Complying with laws and regulations
We may be held responsible for any liabilities
arising out of non-compliance with laws and
regulations.
We are monitoring and adapting to signifi cant and rapid changes in the legal
systems, regulatory controls and customs and practices in the countries in
which we operate. These affect a wide range of areas. For instance, with
respect to antitrust laws, we are involved in investigations by the antitrust
authorities in the European Union and we are defending civil damage claims
in relation to alleged antitrust violations in the European Union and the US
(see note 22 on page 114).
We are dedicated to minimizing such risks with special emphasis on the
application of our Code of Conduct (see page 64). We operate under a
comprehensive competition law compliance program including training,
monitoring and assessment. In 2009, we launched a new company-wide
corporate complaints procedure called Speak Up!, which enables all our
employees to report irregularities in relation to our Code of Conduct.
78 | AkzoNobel on the capital market | Governance and compliance | AkzoNobel Report 2009
•
2009 share price performance 58 percent
•
Proposed dividend of €1.35 per share
•
Attractive dividend yield of 3.8 percent
Share price performance
Our share price increased 58 percent in 2009, outperforming
both the DJ Stoxx Chemicals and AEX indices. The share price
performance relative to these indices for a one-year and a
five-year period is shown in the graphs below.
Proposed dividend of €1.35 per share
The Board of Management proposes a dividend of €1.35 per
common share. AkzoNobel’s shares will be trading ex-dividend
as of April 30, 2010. In compliance with the listing requirements
of Euronext Amsterdam, the record date will be May 4, 2010.
The dividend as proposed to the 2010 Annual General Meeting
of shareholders will be payable as of May 11, 2010. The dividend
payment to holders of ADRs will be made in US $ at the $/€ rate
fixed by the European Central Bank on May 11, 2010.
The dividend paid over the last five years is shown in the graph
at the bottom of this page.
Dividend policy
AkzoNobel’s dividend policy is based on an annual pay-out ratio
of at least 45 percent of net income before incidentals and fair
value adjustments for the ICI acquisition.
Close dialog with the capital markets
We attach great value to maintaining an open dialog with
the financial community in order to promote transparency.
Management gave presentations at a number of industry
conferences, as well as during meetings with investors and
analysts. In December 2009, we gave a presentation to the
financial community at our well-attended Specialty Chemicals
Teach-In in Amsterdam.
the Netherlands, AkzoNobel uses
In
the Shareholders’
Communication Channel to distribute the agenda of the Annual
General Meeting of shareholders and to allow shareholders who
hold their shares through an associated bank to participate in
proxy voting at the AGM.
Analyst recommendations
At year-end 2009, AkzoNobel was covered by 29 equity brokers
and the following analyst recommendations were applicable:
Analyst recommendations in %
A Buy
B Hold
C Sell
38
52
10
100
C
B
A
Listings
AkzoNobel’s common shares are listed on the stock exchange
of Euronext Amsterdam. AkzoNobel is included in the AEX Index,
Share price performance 2009 AkzoNobel share price in €
Share price performance 2005 – 2009 AkzoNobel share price in €
Dividend paid in € per share
45.00
40.00
35.00
30.00
25.00
60.00
50.00
40.00
30.00
20.00
2005
2006
2007
2008
2009
0.30
0.30
0.40
0.40
0.30
0.90
0.90
1.40
1.40
1.05
9
0
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a
J
9
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1
3
Interim dividend
Final dividend
AkzoNobel
AEX index
DJ Stoxx Chemicals index
AkzoNobel
AEX index
DJ Stoxx Chemicals index
AkzoNobel Report 2009 | Governance and compliance | AkzoNobel on the capital market | 79
which consists of the top 25 listed companies in the Netherlands,
ranked on the basis of their turnover in the stock market and free
float. The AkzoNobel weight in the AEX index was 4.43 percent
at year-end 2009. In 2009, 312 million AkzoNobel shares were
traded on Euronext Amsterdam (2008: 567 million).
This information was provided in line with the Netherlands Financial
Markets Supervision Act (“Wet op het financieel toezicht”). The
most recent information can be found on the website of the AFM
under notifications substantial holdings. The Financial Markets
Supervision Act imposes a duty to disclose percentage holdings
in the capital and/or voting rights in the company when such
holding reaches, exceeds or falls below 5, 10, 15, 20, 25, 30, 40,
50, 60, 75 and 95 percent. Such disclosure must be made to the
AFM without delay, which then notifies the company.
In 2007, the company decided to delist from the NASDAQ
stock exchange and deregister from the SEC. AkzoNobel has
a sponsored level 1 ADR program and ADRs can be traded on
the international OTCQX platform in the US.
Key share data
See the table below for stock codes and ticker symbols:
Euronext ticker symbol
AKZA
ISIN common share
NL0000009132
OTC ticker symbol
AKZOY
ISIN ADR
US0101993055
Broad base of international shareholders
AkzoNobel, which has a 100 percent free float, has a broad
base of international shareholders.
An analysis of the shareholder structure carried out in January
2010 showed that at 45 percent, the US and Canada make up
the largest regional group of institutional investors, followed by
investors from the UK and Ireland, with 20 percent. Shareholders
from the Netherlands hold 12 percent of AkzoNobel shares,
while a further 11 percent are held by institutional investors from
the rest of Europe.
Year-end (share price in €)
Year-high (share price in €)
Year-low (share price in €)
Year-average (share price in €)
Average daily trade (in € millions)
Average daily trade (in millions of shares)
Number of shares outstanding at year-end (in millions)
Market capitalization at year-end (in € billions)
Net income per share (in €)
Dividend per share (in €)
Dividend yield (in %)
Pay-out ratio
Price-earnings ratio (P/E ratio)
2007
54.79
65.56
44.41
55.48
151.8
2.7
262
14.4
33.822
1.80
3.2
45.5
1.6
2008
29.44
57.11
22.85
42.57
94.0
2.2
232
6.8
(4.38)1
1.80
4.2
48.2
(6.7)1
2009
46.40
46.52
26.01
35.92
43.4
1.2
232
10.8
1.23
1.35
3.8
57.3
37.7
1 The 2008 net income per share includes the non-cash impairment of ICI intangibles of €1.2 billion after tax and incidental charges of €0.6 billion.
2 The 2007 net income per share includes the profi t on the sale of OBS, but is before the acquisition of ICI.
Distribution of shares 2008 at year-end in %
Distribution of shares 2009 at year-end in %
Around 7 percent of the company’s share capital is held by
private investors, most of whom are resident in the Netherlands.
Major shareholders
Capital Research and Management Company and Paulson & Co.
notified the Netherlands Authority for the Financial Markets
(AFM) that they held more than 10 and 5 percent respectively
of the issued shares in Akzo Nobel N.V. by December 31, 2009.
A North America
B The Netherlands
C UK/Ireland
D Rest of Europe
E Rest of world
F Undisclosed
46.1
12.1
15.5
11.7
1.3
13.3
100
F
E
D
C
B
A
A North America
B The Netherlands
C UK/Ireland
D Rest of Europe
E Rest of world
F Undisclosed
44.6
12.1
19.9
11.4
1.4
10.6
100
F
E
D
C
B
A
80 | AkzoNobel on the capital market | Governance and compliance | AkzoNobel Report 2009
Credit rating and outlook
AkzoNobel is committed to maintaining a strong investment
grade rating. Regular review meetings are held between rating
agencies and AkzoNobel senior management.
See table for present rating and outlook:
Rating agency
Long-term rating Outlook
Moody’s 1
Standard & Poor’s 2
Baa1
BBB+
negative
negative
1 Rating affi rmed on March 16, 2009.
2 Rating affi rmed on August 25, 2009, unchanged since February 25, 2009.
Bonds successfully issued
As part of our long-term financing strategy, we successfully
issued a €750 million and a £250 million bond in March and
April 2009 respectively. The proceeds of this transaction
allowed AkzoNobel to extend its debt maturity profile. The
€750 million bond offers a 7.25 percent coupon, and has a
maturity of six years. The £250 million bond offers an 8 percent
coupon, and has a maturity of seven years. Both bonds are
issued by Akzo Nobel N.V., and are listed on the Luxembourg
Stock Exchange. Furthermore, in November 2009, AkzoNobel
tendered €212 million from its 4.25 percent bond due in 2011
and added €225 million to its 7.25 percent bond due in 2015 to
lengthen its bond maturity profile.
See the graph for the maturity schedule.
Debt maturity in millions
2010
2011
2012
2013
2014
2015
2016
28
648
92
41
347
64
1000
975
280
€ Bonds
$ Bonds
GBP Bonds
Investor relations policy
We provide shareholders and other parties in the financial markets
with equal and simultaneous information about matters that may
influence our share price. The contacts between the Board of
Management on the one hand and investors and analysts on the
other are carefully handled and structured, and the company will
not engage in any acts that compromise the independence of
analysts in relation to the company or vice-versa.
AkzoNobel communicates with its investors and analysts by
organizing or attending meetings such as the Annual General
Meetings of shareholders, the
Investor & Analyst Days,
roadshows and broker conferences. More information on these
meetings, as well as the presentation materials, can be found
on our corporate website. Furthermore, AkzoNobel publishes
an annual report, quarterly reports, the AkzoNobel Fact File
and press releases, which are also available on the company’s
corporate website.
Briefings are given to update the market after each quarterly
announcement via group meetings or teleconferences, and are
accessible by telephone or via the corporate website. Meetings
with investors (bilateral and general) are held to ensure that the
investment community receives a balanced and complete view
of the company’s performance and the issues faced by the
business, while always observing applicable rules concerning
selective disclosure, equal treatment of shareholders and
insider trading.
In the period preceding the publication of the results of that
quarter, AkzoNobel will be in a “closed period”. During this
time, we will not hold meetings with analysts or investors, make
presentations at broker conferences, or hold discussions/
conference calls with investors and analysts.
Analysts’ reports and valuations are not assessed, commented
upon or corrected, other than factually, by the company.
AkzoNobel does not pay any fee(s) to parties for carrying out
research for analysts’ reports, or for the production or publication
of analysts’ reports, with the exception of credit rating agencies.
Contacts with the capital markets are dealt with by the
members of the Board of Management, AkzoNobel’s investor
relations professionals and, from time to time, other AkzoNobel
personnel specially mandated by the Board of Management.
Contact information
The corporate website www.akzonobel.com provides all
information which is required to be published. If you have
questions or comments about investor relations matters, please
contact us:
Akzo Nobel N.V.
Investor Relations
Strawinskylaan 2555
1077 ZZ Amsterdam
The Netherlands
www.akzonobel.com/investor_relations
T +31 20 502 7854
F +31 20 502 7605
E investor.relations@akzonobel.com
Holders of ADRs in the US can contact our Transfer and
Register Agent:
Deutsche Bank Trust Company Americas
c/o American Stock Transfer & Trust Company
Peck Slip Station
P.O. Box 2050
New York, NY 10272-2050
www.adr.db.com
T +1 800 749 1873 (toll-free number)
T +1 718 921 8137
E DB@amstock.com
Company fi nancial statements
Note a
Note b
Note c
Note d
Note e
Note f
Note g
Note h
Note i
Note j
General information
Net income from subsidiaries, associates and joint ventures
Financial non-current assets and provision for subsidiaries
Trade and other receivables
Cash and cash equivalents
Long-term borrowings
Short-term debt
Financial instruments
Contingent liabilities
Auditor’s fees
Other information
Auditor’s report
Profit allocation and distributions, and subsequent events
Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash fl ows
Consolidated statement of changes in equity
Segment information
Notes to the consolidated fi nancial statements
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Summary of significant accounting policies
Acquisitions and divestments
Incidentals
Other operating income/(expenses)
Financing income and expenses
Income tax
Discontinued operations
Employee benefits
Intangible assets
Property, plant and equipment
Investments in associates and joint ventures
Other financial non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Equity
Provisions
Long-term borrowings
Short-term borrowings
Trade and other payables
Contingent liabilities and commitments
Related party transactions
Remuneration of the Supervisory Board and the Board of Management
Financial risk management and financial instruments
82
82
83
84
85
86
87
87
94
94
95
95
96
99
99
102
104
105
105
105
106
106
107
108
112
112
112
113
114
115
119
81
124
126
126
126
127
127
127
127
127
128
128
129
129
130
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
F
82 | Consolidated statement of income and Consolidated statement of comprehensive income | Financial statements | AkzoNobel Report 2009
Consolidated statement of income
for the year ended December 31
Consolidated statement of comprehensive income
for the year ended December 31
Note
2008 1
2009
In € millions
Profi t/(loss) for the period
2008
(1,021)
(1,281)
444
–
134
(703)
2009
362
383
48
7
(38)
400
Other comprehensive income
Exchange differences arising on translation of foreign operations
Cash fl ow hedge reserve
Revaluation reserve related to step acquisitions
Income tax relating to components of other comprehensive income
Other comprehensive income for the period (net of tax)
Comprehensive income for the period
(1,724)
762
Comprehensive income attributable to:
Shareholders of the company
Minority interests
Comprehensive income for the period
(1,704)
(20)
(1,724)
688
74
762
In € millions
Continuing operations
Revenue
Cost of sales
Gross profi t
Selling expenses
Impairment of ICI intangibles
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Operating income/(loss)
Financing income
Financing expenses related to pensions
Other fi nancing expenses
Results from associates and joint ventures
Profi t/(loss) before tax
Income tax
Profi t/(loss) for the period from
continuing operations
Discontinued operations
Profi t for the period from discontinued
operations
Profit/(loss) for the period
Attributable to:
- Shareholders of the company
- Minority interests
Profit/(loss) for the period
Earnings per share, in €
Continuing operations:
- Basic
- Diluted
Discontinued operations:
- Basic
- Diluted
Total operations:
- Basic
- Diluted
1 Restated for comparative presentation.
(3,387)
(1,275)
(1,108)
(353)
(73)
15,415
(9,796)
5,619
(6,196)
(577)
154
(49)
(337)
25
(784)
(260)
(1,044)
23
(1,021)
(1,086)
65
(1,021)
(4.47)
(4.45)
0.09
0.09
(4.38)
(4.36)
4
5
5
5
11
6
7
16
16
16
16
16
16
(3,211)
–
(1,091)
(338)
48
13,893
(8,431)
5,462
(4,592)
870
62
(174)
(297)
22
483
(128)
355
7
362
285
77
362
1.20
1.18
0.03
0.03
1.23
1.21
AkzoNobel Report 2009 | Financial statements | Consolidated balance sheet | 83
Consolidated balance sheet
at year-end, before allocation of profit
In € millions
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Investment in associates and joint ventures
Other fi nancial non-current assets
Total non-current assets
Current assets
Inventories
Current tax assets
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Minority interests
Total equity
Non-current liabilities
Provisions
Deferred tax liabilities
Long-term borrowings
Total non-current liabilities
Current liabilities
Short-term borrowings
Current tax liabilities
Trade and other payables
Current portion of provisions
Total current liabilities
Total equity and liabilities
Note
2008
2009
9
10
6
11
12
13
6
14
15
16
17
6
18
19
6
20
17
7,172
3,357
890
201
757
1,781
53
2,924
1,595
4
7,463
450
2,072
715
2,341
1,338
525
2,985
845
12,377
6,357
18,734
7,913
5,128
5,693
18,734
7,388
3,474
793
175
815
1,441
102
2,564
2,128
–
7,775
470
1,919
674
3,488
384
507
2,866
797
12,645
6,235
18,880
8,245
6,081
4,554
18,880
84 | Consolidated statement of cash flows | Financial statements | AkzoNobel Report 2009
Consolidated statement of cash flows
for the year ended December 31
In € millions
Profi t/(loss) for the period
Income/(loss) from discontinued operations
Adjustments to reconcile earnings to cash generated
from operating activities
Amortization/depreciation
Inventory step-up
Impairment losses
Financing income and expenses
Results from associates and joint ventures
Pre-tax result on divestments
Income tax
Changes in working capital 2
Changes in provisions
Interest paid
Income tax paid
Net cash from operating activities
Capital expenditures
Interest received
Dividends from associates and joint ventures
Acquisition of consolidated companies 3
Proceeds from sale of interests 3
Other changes
Net cash from investing activities
Proceeds from borrowings
Borrowings repaid
Settlement of former ICI net investment hedges
Issue of shares for stock option plan
Buyback of shares
Dividends 4
Net cash from fi nancing activities
Net cash used for continuing operations
Cash flows from discontinued operations
Net change in cash and cash equivalents of
continued and discontinued operations
Cash and cash equivalents at January 1
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents 5
(1,021)
(23)
612
54
1,430
232
(25)
23
260
(356)
(560)
(218)
(317)
(534)
103
43
(10,187)
74
(40)
1,000
(1,433)
(49)
7
(1,437)
(581)
2008 1
2009
362
(7)
617
–
63
409
(22)
(48)
128
639
(497)
(173)
(231)
(534)
53
17
(78)
23
(30)
91
1,240
(10,541)
(549)
1,391
(1,216)
–
4
–
(454)
(2,493)
(12,943)
3,519
(9,424)
11,067
(194)
1,449
(275)
416
19
435
1,449
35
1,919
1 Restated for comparative presentation.
2 Comprises a decrease of €357 million in trade and other receivables
(2008: €19 million), a decrease of €383 million in inventories
(2008: €14 million), and a decrease of €101 million in trade and
other payables (2008: €389 million).
3 Net of cash and cash equivalents acquired or disposed of.
4 2008: including €79 million dividends to ICI shareholders.
5 Consist of €2,128 million cash and cash equivalents (2008: €1,595 million)
and €209 million debt to credit institutions (2008: €146 million).
Consolidated statement of changes in equity
In € millions
Subs cribed
share capital
Additional
paid-in capital
Cash flow
hedge reserve
Revaluation
reserve
Balance at January 1, 2008
525
363
Profi t/(loss) for the period
Reclassifi cation into the balance sheet
Other comprehensive income
Tax on other comprehensive income
Reclassifi cation into the statement of income
Comprehensive income
Dividend paid
Buyback of shares
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
Balance at December 31, 2008
Profi t for the period
Other comprehensive income
Tax on other comprehensive income
Reclassifi cation into the statement of income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
–
–
–
–
–
–
–
(64)
–
2
–
463
–
–
–
–
–
–
–
2
–
Balance at December 31, 2009
465
–
–
–
–
–
–
–
(368)
–
5
–
–
–
–
–
–
–
–
–
2
–
2
(510)
–
551
(70)
17
(37)
461
–
–
–
–
–
(49)
–
8
(5)
40
43
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
–
7
–
–
–
–
7
AkzoNobel Report 2009 | Financial statements | Consolidated statement of changes in equity | 85
Attributable to shareholders of the company
Cumulative
translation
reserve
Other (statutory)
reserves and
undis tri buted
profit
Shareholders’
equity
Minority
interests
(51)
–
–
(1,196)
117
–
(1,079)
–
–
–
–
–
10,705
(1,086)
–
–
–
–
(1,086)
(458)
(1,005)
23
–
–
11,032
(1,086)
551
(1,266)
134
(37)
(1,704)
(458)
(1,437)
23
7
–
(1,130)
8,179
7,463
–
388
(33)
(2)
353
–
–
–
–
285
–
–
–
285
(395)
15
–
–
285
403
(38)
38
688
(395)
15
4
–
97
65
–
(85)
–
–
(20)
(44)
–
–
–
417
450
77
(3)
–
–
74
(59)
–
–
5
Total
equity
11,129
(1,021)
551
(1,351)
134
(37)
(1,724)
(502)
(1,437)
23
7
417
7,913
362
400
(38)
38
762
(454)
15
4
5
(777)
8,084
7,775
470
8,245
86 | Segment information | Financial statements | AkzoNobel Report 2009
Segment information
Our Decorative Paints businesses supply a full range of interior and exterior decoration and
protection products for both the professional and do-it-yourself markets. Our Performance
Coatings businesses are represented in most markets of this industry and we serve a large
range of customers including ship and yacht builders and architects, consumer electronics and
appliance companies, steel manufacturers, the construction industry, furniture makers, aircraft,
bus and truck producers, bodyshops and can makers. Our Specialty Chemicals products are
used in a wide variety of everyday products such as ice cream, soups, disinfectants, plastics,
soaps, detergents, cosmetics, paper and asphalt.
Information per business area
In € millions
Revenue from third parties
2009
2008 2
Group revenue
2009
2008 2
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
4,962
4,537
5,636
280
4,643
4,005
5,034
211
5,006
4,575
5,687
147
4,677
4,038
5,209
(31)
2008 2
598
566
909
(146)
EBITDA 1
2009
492
587
814
(125)
Amortization and
depreciation
2009
2008
(197)
(99)
(304)
(12)
(190)
(101)
(305)
(21)
2008
(1,070)
(23)
(475)
(324)
Incidentals
2009
Operating income
2009
2008 2
(165)
(59)
(164)
107
(669)
444
130
(482)
137
427
345
(39)
870
Total
15,415
13,893
15,415
13,893
1,927
1,768
(612)
(617)
(1,892)
(281)
(577)
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
Regional information
In € millions
The Netherlands
Germany
Sweden
UK
Other European countries
US and Canada
Latin America
China
Other Asian countries
Other regions
Total
Invested capital
2009
2008
6,187
2,004
4,055
1,178
6,382
1,958
3,968
896
Total assets
2009
6,902
2,445
5,005
4,528
2008
8,569
2,793
5,252
2,120
Total liabilities
2009
690
2,153
1,242
6,550
2008
2,010
2,480
1,416
4,915
13,424
13,204
18,734
18,880
10,821
10,635
Capital
expenditures
2009
113
61
338
22
534
2008
120
89
305
20
534
2008
950
3
436
41
1,430
Impairment
2009
15
6
35
7
63
Revenue by region
of destination
2009
2008
Intangible assets and
property, plant and
equipment
2009
2008
Capital expenditures
2009
2008
867
1,141
478
1,093
3,666
3,330
1,306
1,054
1,866
614
807
1,121
428
816
3,174
2,985
1,232
1,044
1,704
582
1,000
870
414
1,182
2,141
2,353
625
911
941
92
1,079
885
422
1,242
2,174
2,265
765
1,013
905
112
86
25
50
31
81
94
49
67
43
8
15,415
13,893
10,529
10,862
534
104
21
37
22
70
68
33
144
29
6
534
1 EBITDA is operating income before incidentals and amortization/depreciation.
2 Restated for comparative presentation, see note 1.
Notes to the consolidated financial statements
Note 1 Summary of significant accounting policies
General information
Akzo Nobel N.V. is a company headquartered in the Netherlands. The address of our registered
office is Strawinskylaan 2555, Amsterdam. We have filed a list of subsidiaries and associated
companies, drawn up in conformity with sections 379 and 414 of Book 2 of the Netherlands Civil
Code, with the Trade Registry of Amsterdam.
We have prepared the consolidated financial statements of Akzo Nobel N.V. in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European Union. They also
comply with the financial reporting requirements included in Section 9 of Book 2 of the Netherlands
Civil Code, as far as applicable.
On February 16, 2010, the Board of Management authorized the financial statements for issue.
The financial statements as presented in this report are subject to the adoption by the Annual
General Meeting of shareholders.
Consolidation
The consolidated financial statements include the accounts of Akzo Nobel N.V. and its subsidiaries.
Subsidiaries are companies over which Akzo Nobel N.V. has directly and/or indirectly the power to
control the financial and operating policies so as to obtain benefits. In assessing control, potential
voting rights that are presently exercisable or convertible are taken into account. The financial
statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Minority interests in equity and in the results
are presented separately. Transactions between consolidated companies and intercompany
balances are eliminated. Accounting policies, as set out below, have been applied consistently for
all periods presented in these consolidated financial statements and by all subsidiaries.
Change in accounting policies and reclassifications
•
As from 2009, we adopted IFRS 8, “Operating Segments” and the revised IAS 1, “Presentation
of Financial Statements”.
We have changed the presentation of interest related to pensions (interest cost on defined
benefit obligations for pensions and other post-retirement benefits and the expected return on
plan assets) and have restated our 2008 figures accordingly. As from 2009, we report interest
on pensions on a separate interest line in the statement of income, as this more clearly reflects
the composition of interest. As a consequence, both operating income and the pension-related
interest expense in 2008 increased by €49 million. In the statement of cash flows, we adjusted
financing income and expenses as well as changes in provisions for 2008 by the same amount.
No restatement in the balance sheet and statement of changes in equity was necessary. Within
the segment information, aforementioned presentation adjustment for 2008 only affected EBITDA
and operating income of the business area Corporate and other.
We made reclassifications in the 2008 figures to align to our 2009 structure and presentation.
This resulted in reclassifications between the business areas Decorative Paints to Performance
Coatings in the segment information and between the cost lines in the statement of income,
which did not impact the net result.
We reclassified the divestment of Henkel into discontinued operations, consistent with the
presentation in the statement of income.
•
•
•
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 87
Discontinued operations (note 7)
A discontinued operation is a component of our business that represents a separate major line
of business or geographical area of operations that has been disposed of or is held for sale, or is
a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation
occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if
earlier. When an operation is classified as a discontinued operation, the comparative statement of
income and the statement of cash flows are reclassified as if the operation had been discontinued
from the start of the comparative period.
Assets and liabilities are classified as held for sale if it is highly probable that the carrying value will
be recovered through a sale transaction rather than through continuing use. When reclassifying
assets and liabilities as held for sale, we recognize the assets and liabilities at the lower of their
carrying value or fair value less selling costs. Assets held for sale are not depreciated but tested
for impairment. Impairment losses on assets and liabilities held for sale are recognized in the
statement of income.
Use of estimates
The preparation of the financial statements in compliance with IFRS requires management to
make judgments, estimates and assumptions that affect amounts reported in the financial
statements. The estimates and assumptions are based on experience and various other factors
that are believed to be reasonable under the circumstances and are used to judge the carrying
values of assets and liabilities that are not readily apparent from other sources. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised, or in the revision period and future
periods if the changed estimates affect both current and future periods.
The most critical accounting policies involving a higher degree of judgment and complexity in
applying principles of valuation are described below. Changes in the assumptions and estimates
as described could result in significantly different results than those recorded in the financial
statements.
Business combinations (note 2)
In business combinations, identifiable assets and liabilities, and contingent liabilities are recognized
at their fair values at the acquisition date. Determining the fair value requires significant judgments
on future cash flows to be generated. The fair value of brands, patents and customer lists
acquired in a business combination is estimated on generally accepted valuation methods. These
include the relief-from-royalty method, the incremental cash flow method and the multi-period
excess earnings method. The fair value of property, plant and equipment acquired in a business
combination is based on estimated market values. The fair value of inventories acquired in a
business combination is determined based on its estimated selling price in the ordinary course of
business less the estimated costs of completion and sale and a reasonable profit margin, based
on the effort required to complete and sell the inventories.
Impairment of intangible assets and property, plant and equipment (notes 9, 10)
We assess whether the carrying values of intangible assets and of property, plant and equipment
are recoverable. In this assessment, we make significant judgments and estimates to determine if
88 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
the future cash flows expected to be generated by those assets are less than their carrying value.
The data necessary for the impairment tests are based on our strategic plans and our estimates
of future cash flows, which require estimating revenue growth rates and profit margins. The
estimated cash flows are discounted using a net present value technique with business-specific
discount rates.
Accounting for income tax (note 6)
As part of the process of preparing consolidated financial statements, we estimate income tax
in each of the jurisdictions in which we operate. This process involves estimating actual current
tax expense and temporary differences between carrying amounts of assets and liabilities for tax
and financial reporting purposes. Temporary differences result in deferred tax assets and liabilities,
which are included in the consolidated balance sheet. We assess the likelihood that deferred tax
assets will be recovered from future taxable income.
Provisions (note 17)
By their nature, provisions and contingent liabilities are dependent upon estimates and
assessments as to whether the criteria for recognition have been met, including estimates of the
probability of cash outflows. Estimates related to provisions for environmental matters are based
on the nature and seriousness of the contamination, as well as on the technology required for
clean-up. The provisions for antitrust cases are based on an estimate of the costs, fines, and civil
damages, taking into account legal advice and the current facts and circumstances. Provisions
for other litigation are also based on an estimate of the costs, taking into account legal advice
and information currently available. Provisions for termination benefits and exit costs also involve
management’s judgment in estimating the expected cash outflows for severance payments and
site closure or other exit costs.
Accounting for pensions and other post-retirement benefits (note 17)
Post-retirement benefits represent obligations that will be settled in the future and require
assumptions to project obligations and fair values of plan assets. The accounting requires us
to make assumptions regarding variables such as discount rate, rate of compensation increase,
return on assets, mortality rates and future healthcare costs. Periodically, we consult with external
actuaries regarding these assumptions. Changes in key assumptions can have a significant impact
on the projected benefit obligations, funding requirements and periodic costs incurred.
Statement of cash flows
We have used the indirect method to prepare the statement of cash flows. Cash flows in foreign
currencies have been translated at average exchange rates. Exchange rate differences affecting
cash items are presented separately in the statement of cash flows. Receipts and payments
with respect to income tax are included in cash from operating activities. Interest payments are
included in cash from operating activities while interest receipts are included in cash from investing
activities. The costs of acquisition of subsidiaries, associates and joint ventures, and other
investments, insofar as paid in cash, are included in cash from investing activities. Acquisitions or
divestments of subsidiaries are presented net of cash and cash equivalents acquired or disposed
of, respectively. Cash flows from derivatives are recognized in the statement of cash flows in the
same category as those of the hedged item.
Earnings per share
We present basic and diluted earnings per share (EPS) for our common shares. Basic EPS is
calculated by dividing the profit or loss attributable to holders of our common shares by the
weighted average number of common shares outstanding during the period. Diluted EPS is
calculated by dividing the profit or loss attributable to shareholders of common shares by the
weighted average number of common shares outstanding, including the effects for potentially
dilutive common shares, which comprise stock options and performance shares granted to
employees.
Operating segments
As of January 1, 2009, we determine and present operating segments (“business areas”) on the
information that internally is provided to the Board of Management, the body that is our chief
operating decision maker. This change in accounting policy is due to the adoption of IFRS 8,
“Operating segments”. Previously, business areas were determined and presented in accordance
with IAS 14. The new accounting policy in respect of business area operating disclosures has not
impacted the determination and presentation of results.
A business area is a component that engages in business activities from which it may earn
revenue and incur expenses, including revenue and expenses that relate to transactions with
other business areas within the company. Operating results of a business area are reviewed
regularly by the Board of Management to make decisions about resources to be allocated to the
business area and assess its performance, and for which discrete financial information is available.
Business area results reported to the Board of Management include items directly attributable
to a business area as well as those that can be allocated on a reasonable basis. Unallocated
items comprise mainly corporate assets and corporate costs and are reported in business area
“Corporate and other”.
Translation of foreign currencies
Transactions in foreign currencies are translated into the functional currency using the foreign
exchange rate at transaction date. Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency using the exchange rates at the balance
sheet date. Resulting foreign currency differences are included in the statement of income. Non-
monetary assets and liabilities denominated in foreign currencies are translated into the functional
currency at the exchange rate at acquisition date.
The assets and liabilities of entities with other functional currencies are translated into the func-
tional currency of the parent entity, using the exchange rates at the balance sheet date. The
income and expenses of entities with other functional currencies are translated into the functional
currency, using the exchange rates at transaction date. Foreign exchange differences resulting
from translation into the functional currency of investments in subsidiaries and of intercompany
loans of a permanent nature with other functional currencies are recorded as a separate com-
ponent (cumulative translation reserves) within other comprehensive income. These cumulative
translation adjustments are reclassified to the statement of income upon disposal or liquidation of
a foreign subsidiary or redemption of an intercompany loan with a per manent nature, for the full
amount or proportionally if applicable. Before being consolidated, the financial statements of sub-
sidiaries established in hyperinflationary countries are adjusted for the effects of changing prices
of the local currency.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 89
Foreign currency differences arising on the re-translation of a financial liability designated as a
hedge of a net investment in a foreign operation are recognized in the cumulative translation
reserves (in other comprehensive income), to the extent that the hedge is effective. To the
extent that the hedge is ineffective, such differences are recognized in the statement of income.
When the hedged part of a net investment is disposed of, the associated cumulative amount in
other comprehensive income is reclassified to the statement of income as an adjustment to the
transaction result.
greater of the present value of the defined benefit obligation and the fair value of plan assets. That
portion of the actuarial gains and losses is recognized in the statement of income over the expected
average remaining working lives of the employees participating in the plan. When the benefits of
a plan are improved, the portion of the increased benefit relating to past service by employees is
recognized as an expense in the statement of income on a straight-line basis over the average
period until the benefits become vested. To the extent that the benefits vest immediately, the
expense is recognized immediately in the statement of income.
Exchange rates of key currencies
The principal exchange rates against the euro used in preparing the balance sheet and the
statement of income are:
US dollar
Pound sterling
Swedish krona
Balance sheet
Statement of income
2008
1.409
0.974
10.911
2009
1.440
0.893
10.268
2008
1.471
0.805
9.680
2009
1.394
0.890
10.608
Revenue recognition
Revenue is defined as the revenue from the sale and delivery of goods and services and royalty
income, net of rebates, discounts and similar allowances, and net of sales tax. Revenue is
recognized when the significant risks and rewards have been transferred to a third party, recovery
of the consideration is probable, the associated costs and possible return of goods can be
estimated reliably and there is no continuing management involvement with the goods. For
revenue from sales of goods these conditions are generally met at the time the product is shipped
and delivered to the customer, depending on the delivery conditions. Service revenue is generally
recognized as services are rendered.
Pensions and other post-retirement benefits (note 17)
Contributions to defined contribution plans are recognized in the statement of income as incurred.
Most of our defined benefit pension plans are funded with plan assets that have been segregated in
a trust or foundation. Valuations of both funded and unfunded plans are carried out by independent
actuaries based on the projected unit credit method. Pension costs primarily represent the increase
in the actuarial present value of the obligation for projected pension benefits based on employee
service during the year and the interest on this obligation in respect of employee service in previous
years, net of the expected return on plan assets. The discount rate used in determining the present
value of the obligations is the yield at reporting date of AA corporate bonds that have maturity
dates approximating the terms of our obligations.
In certain countries we also provide post-retirement benefits other than pensions to our employees.
These plans are generally not funded. Valuations of the obligations under these plans are carried
out by independent actuaries based on the projected unit credit method. The costs relating to such
plans primarily consist of the present value of the benefits attributed on an equal basis to each
year of service and the interest on this obligation in respect of employee service in previous years.
Actuarial gains and losses that arise in calculating our obligation in respect of a plan, are recognized
to the extent that any cumulative unrecognized actuarial gains or losses exceed 10 percent of the
Other long-term employee benefits (note 17)
Other long-term employee benefits include long-service or sabbatical leave, jubilee or other long-
service benefits, and other employee benefits payable more than 12 months after the related
service rendered. These provisions are measured at present value, using actuarial assumptions.
The discount rate is the yield at reporting date of AA corporate bonds that have maturity dates
approximating the terms of our obligations. The calculation is performed using the projected unit
credit method. Any actuarial gains and losses are recognized in the statement of income in the
period in which they arise.
An accrual is recognized for the amounts expected to be paid under short-term bonus or profit
sharing plans if a present legal or constructive obligation as a result of past services provided
exists and the obligation can be estimated reliably.
Share-based compensation (note 8)
We have a stock option plan that conditionally allows certain employees to acquire Akzo Nobel N.V.
common shares. These options generally vest in three years. As from 2008, no new options are
granted under this plan. In addition, we have a performance share plan, under which shares are
conditionally granted to certain employees. These performance-related shares vest in three years.
The number of shares which the employees will receive depends on our Total Shareholder Return
(TSR) performance over a three-year period. As from 2009, the conditional grant of shares is
linked for 50 percent to the ranking of the company in the Dow Jones Sustainability Indexes and
the remaining 50 percent to the relative TSR performance of the company compared with the
peer group.
The fair value of the options or performance shares granted is recognized as an expense with
a corresponding increase in shareholders’ equity. The fair value is measured at grant date and
amortized over the period during which the employees become unconditionally entitled to the
options or performance shares. The fair value of the options granted is measured using a binomial
model, taking into account the terms and conditions upon which the options were granted. For
the performance shares, the fair value is measured using the Monte Carlo simulation model. This
model takes into account expected dividends, as well as the market conditions expected to
impact our TSR performance in relation to selected peers. The amount recognized as an expense
is adjusted to reflect the actual number of options or performance shares that vest, except where
forfeiture or extra vesting of performance shares is due to a TSR performance that differs from the
performance anticipated at the grant of the performance shares.
Income tax (note 6)
Income tax expense comprises both current and deferred tax, including effects of changes in tax
rates. Income tax is recognized in the statement of income, unless it relates to items recognized
in other comprehensive income.
90 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
In the balance sheet, current tax includes the expected tax payable and receivable on the taxable
income for the year, using tax rates enacted or substantially enacted at reporting date, as well as
any adjustments to tax payable and receivable in respect of previous years.
Current tax assets and liabilities have been offset in cases where there is a legally enforceable right
to set off current tax assets against current tax liabilities and when the intention exists to settle on
a net basis or to realize the assets and liabilities simultaneously.
Deferred tax is recognized using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting and the amount used
for taxation purposes. We recognize deferred tax assets, including assets arising from losses
carried forward, to the extent that future probable taxable profit will be available against which the
deferred tax asset can be utilized. We do not recognize deferred tax for the following temporary
differences: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit; and differences relating to investments in subsidiaries to the
extent that they will probably not reverse in the foreseeable future. The income tax consequences
of dividends are recognized when a liability to pay the dividend is recognized. Deferred tax assets
are offset only when there is a legally enforceable right to set off tax assets against tax liabilities and
when the deferred tax assets and liabilities relate to the same tax authority.
Measurement of deferred tax assets and liabilities is based upon the enacted or substantially
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be reversed. Non-refundable dividend tax is taken into account in
the determination of deferred tax liabilities to the extent of earnings expected to be distributed by
subsidiaries in the foreseeable future. If separate tax rates exist for distributed and undistributed
profit, the current and deferred taxes are measured at the tax rate applicable to undistributed
profit. Deferred tax is not discounted.
Research cost and preparation and start-up expenses
Research cost and preparation and start-up expenses are charged to the statement of income
as incurred.
Government grants
Government grants related to costs are deducted from the relevant cost to be compensated in
the same period. Emission rights granted by the government are recorded at cost. A provision is
recorded if the actual emission is higher than the emission rights granted. Government grants to
compensate for the cost of an asset are deducted from the cost of the related asset.
Intangible assets (note 9)
Intangible assets are valued at cost less accumulated amortization and impairment charges. All
intangibles assets are tested for impairment whenever there is an indication that the intangible
asset may be impaired. In addition, intangible assets with an indefinite useful life, such as goodwill
and certain brands, are not amortized, but tested for impairment annually. In cases where the
carrying value of the intangibles exceeds the recoverable amount, an impairment charge is
recognized in the statement of income.
Goodwill in a business combination represents the excess of the consideration paid over the net
fair value of the acquired identifiable assets, liabilities and contingent liabilities. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. If
the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognized directly in the statement of income. Goodwill related to an investment in
associates and joint ventures is included in the carrying value of that investment.
Intangible assets with a finite useful life, such as certain licenses, know-how and brands, customer
relationships and intellectual property rights, are capitalized at historical cost and amortized on
a straight-line basis over the estimated useful life, which generally ranges from 10 to 40 years.
Development costs are capitalized if the costs can be measured reliably, the product or process is
technically and commercially feasible and sufficient future economic benefits will be generated, and
we have sufficient resources to complete the development. The expenditures capitalized include
the cost of materials, direct labor and overhead costs that are directly attributable to preparing the
asset for its intended use. Capitalized development costs are amortized on a straight-line basis
over the estimated useful life, which generally is up to five years. Amortization methods, useful
lives and residual values are reassessed annually.
Property, plant and equipment (note 10)
Property, plant and equipment are valued at cost less accumulated depreciation and impairment
charges. Costs include expenditures that are directly attributable to the acquisition of the asset,
including financing expenses of capital investment projects under construction. Government
grants to compensate for the cost of an asset are deducted from the cost of the related asset.
Depreciation is calculated using the straight-line method, based on the estimated useful life.
In the majority of cases the useful life of plant equipment and machinery is ten years, and for
buildings ranges from 20 to 30 years. Land is not depreciated. In the majority of cases residual
value is assumed to be insignificant. Depreciation methods, useful lives and residual values are
reassessed annually.
Parts of property, plant and equipment that have different useful lives are accounted for as separate
items of property, plant and equipment. Cost of major maintenance activities is capitalized as a
separate component of property, plant and equipment, and depreciated over the estimated useful
life. Maintenance costs which cannot be separately defined as a component of property, plant
and equipment are expensed in the period in which they occur. Gains and losses on the sale of
property, plant and equipment are included in the statement of income.
We have identified conditional asset retirement obligations at a number of our facilities that
are mainly related to plant decommissioning. We recognize these conditional asset retirement
obligations in the periods in which sufficient information becomes available to reasonably estimate
the cash outflow.
Impairments of intangible assets and property, plant and equipment (notes 9, 10)
We assess the carrying value of intangible assets and property, plant and equipment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, for goodwill and other intangible assets with an indefinite useful life, we
review the carrying value annually in the fourth quarter.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 91
The recoverable amount of an asset or its cash-generating unit is the greater of its value in use
and its fair value less costs to sell, whereby estimated future cash flows are discounted to their
present value. The discount rate used reflects current market assessments of the time value of
money and, if appropriate, the risks specific to the assets. If the carrying value of an asset or its
cash-generating unit exceeds its estimated recoverable amount, an impairment loss is recognized
in the statement of income. The assessment for impairment is performed at the lowest level of
assets generating largely independent cash inflows, which we have determined to be at business
unit level (one level below segment). We allocate impairment losses in respect of cash-generating
units first to goodwill and then to the carrying amount of the other assets on a pro rata basis.
assessments of the time value of money and, if applicable, the risks specific to the liability. The
increase of provisions as a result of the passage of time is recognized in the statement of income
under financing expenses.
Provisions for restructuring are recognized when a detailed and formal restructuring plan has
been approved, and the restructuring has either commenced or has been announced publicly.
We do not provide for future operating costs. Termination benefits for voluntary redundancy are
recognized if we have made an offer encouraging voluntary redundancy, it is probable that the
offer will be accepted and the number of acceptances can be estimated reliably.
Except for goodwill, we reverse impairment losses if and to the extent we have identified a change
in estimates used to determine the recoverable amount. We only reverse to the extent that the
carrying value of the asset does not exceed the carrying value that would have been determined,
net of amortization or depreciation, if no impairment loss had been recognized. Reversals of
impairment are recognized in the statement of income.
Leases (notes 10, 21)
Lease contracts in which we have substantially all the risks and rewards of ownership are classified
as finance leases. Upon initial recognition, the leased asset is measured at the lower of its fair
value and the present value of minimum lease payments. Subsequent to initial recognition, the
asset is accounted for in accordance with the accounting policy applicable to the asset. Minimum
lease payments made under finance leases are apportioned between the financing expenses and
the reduction of the outstanding liability. The financing expenses are recognized as interest over
the lease term.
Payments made under operating leases are recognized in the statement of income on a straight-
line basis over the term of the lease. Lease incentives received are recognized over the term of
the lease.
Inventories (note 13)
Inventories are measured at the lower of cost and net realizable value. Costs of inventories
comprise all cost of purchase, costs of conversion and other costs incurred in bringing the
inventories to the present location and condition. The costs of conversion of inventories includes
direct labor and fixed and variable production overheads, and takes into account the stage of
completion. The cost of inventories is determined using the weighted average cost formula. Net
realizable value is the estimated selling price in the ordinary course of business, less the estimated
cost of completion and selling expenses.
Equity (note 16)
When share capital recognized as equity is repurchased, the amount of the consideration paid,
which includes directly attributable cost, is net of any tax effects, and is recognized as a deduction
from equity. Dividends are recognized as a liability in the period in which they are declared.
Provisions (note 17)
We recognize provisions when a present legal or constructive obligation as a result of a past event
exists, and it is probable that an outflow of economic benefits is required to settle the obligation.
Provisions are measured at net present value and take into account legal fees. The expected
future cash outflows are discounted at appropriate pre-tax interest rates, reflecting current market
A provision for warranties is recognized when the underlying products or services are sold. The
provision is based on historical warranty data and a weighting of all possible outcomes against their
associated probabilities.
In accordance with our environmental policy and applicable legal requirements, we recognize a
provision for environmental clean-up cost when it is probable that a liability has materialized and
the amount of cash outflow can be reasonably estimated.
Financial instruments
Regular purchases and sales of financial assets and liabilities are recognized on trade date,
which is the date we commit to purchase or sell the asset. The initial measurement of all financial
instruments is fair value adjusted for directly attributable transaction costs. Below, the accounting
policies for financial instruments are explained, relating to the following categories:
•
•
•
•
•
•
•
Derivative financial instruments
Associates and joint ventures
Other financial non-current assets
Trade and other receivables
Cash and cash equivalents
Long-term and short-term borrowings
Trade and other payables.
Derivative financial instruments (note 24)
Derivative financial instruments include forward exchange contracts, interest rate derivatives and
commodity contracts, as well as embedded derivatives included in normal business contracts. All
derivative financial instruments are recognized at fair value on the balance sheet.
Fair values are derived from market prices and quotes from dealers and brokers, or are estimated
using observable market inputs. Forward exchange and commodity contracts are reported under
trade and other receivables, or under trade and other payables.
Changes in the fair value of forward exchange and commodity contracts are recognized in operating
income, unless cash flow hedge accounting is applied. In that case, the effective part of the fair value
changes is deferred in other comprehensive income (in equity) and released to the related specific lines
in the statement of income or balance sheet at the same time as the hedged item.
Interest rate derivatives are reported under other financial non-current assets or long-term
borrowings. The changes in fair value of interest derivatives are recognized in financing income
92 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
and expenses, where the effective part is offset by the fair value changes of the underlying fixed
rate bond, in the event fair value hedge accounting is applied.
Cash and cash equivalents (note 15)
Cash and cash equivalents include all cash balances and short-term highly liquid investments that
are directly convertible into cash. Cash and cash equivalents are measured at fair value.
Both at the hedge inception and at each reporting date, we assess whether the derivatives used
are highly effective in offsetting changes in fair values or cash flows of hedged items. When a
derivative is not highly effective, we discontinue hedge accounting prospectively. In the event a fair
value hedge relationship is terminated, amortization of fair value hedge adjustments is included
in financing income and expense. When a cash flow hedge relationship is terminated, the fair
value changes deferred in other comprehensive income (in equity) are released to the statement of
income only when the hedged transaction is no longer expected to occur. Otherwise these will be
released to the statement of income at the same time as the hedged item.
Associates and joint ventures (note 11)
Associates are those entities in which we have significant influence, but no control, over the
financial and operational policies. Joint ventures are those entities over whose activities we have
joint control, established by contractual agreement and requiring unanimous consent for strategic,
financial and operating decisions.
Associates and joint ventures are accounted for using the equity method and are initially
recognized at cost. The consolidated financial statements include our share of the income and
expenses of the associates and joint ventures for the period that we have significant influence or
joint control, whereby the result is determined using our accounting principles. When the share of
losses exceeds the interest in the investee, the carrying amount is reduced to nil and recognition
of further losses is discontinued, unless we have incurred legal or constructive obligations on
behalf of the investee. Loans to associates and joint ventures are carried at amortized cost less
impairment losses.
The results from associates and joint ventures consist of our share in the results of these companies,
interest on loans granted to them and the transaction results on divestments of associates
and joint ventures. Unrealized gains and losses arising from transactions with associates and
joint ventures are eliminated to the extent of our interest in the investee.
Other financial non-current assets (note 12)
Loans and receivables are measured at amortized cost using the effective interest method, less
any impairment losses. Long-term receivables are discounted to their net present value. Interest
receivable is included in financing income.
Trade and other receivables (note 14)
Trade and other receivables are measured at amortized cost, using the effective interest method,
less any impairment loss. An allowance for impairment of trade and other receivables is
established if the collection of a receivable becomes doubtful. Such receivable becomes doubtful
when there is objective evidence that we will not be able to collect all amounts due according to
the original terms of the receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in
payments are considered indicators that the receivable is impaired. The amount of the allowance
is the difference between the asset’s carrying amount and the present value of estimated future
cash flows, discounted at the original effective interest rate. An impairment loss is recognized in
the statement of income, as are subsequent recoveries of previous impairments.
Long-term and short-term borrowings (notes 18, 19, 24)
Long-term borrowings are measured at amortized cost, applying the effective interest rate method
unless fair value interest rate hedging is applied. In that case the carrying amount is adjusted for the
fair value changes caused by the hedged risk. Short-term borrowings are measured at amortized cost,
using the effective interest method. The interest payable on borrowing is included in financing income
and expenses.
The fair value of borrowings, used for disclosure purposes, is determined on the basis of listed market
price, if available. If a listed market price is not available, the fair value is calculated based on the
present value of principal and interest cash flows, discounted at the market rate of interest at the
reporting date.
Trade and other payables (note 20)
Trade and other payables are measured at amortized cost, using the effective interest method.
New IFRS accounting standards
Several new accounting pronouncements were issued. We assessed whether our consolidated
financial statements for 2009 and beyond may be affected.
•
•
An amendment to IFRS 2, “Share-based Payment” clarifies the definitions of vesting conditions
and cancellations and became effective in 2009. The amendment did not affect the accounting
for our stock option and performance shares plans. A second amendment was issued in June
2009 and clarified how an individual subsidiary in a group should account for share-based
payment arrangements in its own financial statements. This amendment is not applicable to
our consolidated financial statements.
IFRS 3, “Business Combinations” and IAS 27, “Consolidated and Separate Financial
Statements” were revised and will be effective as from 2010. These standards will bring
significant changes to the accounting policies related to business combinations and changed
ownership interests. We do not expect a material impact on presented figures, as the carrying
amounts of any assets and liabilities that arose under business combinations prior to the
application of the revised standard are not adjusted.
•
An amendment to IFRS 7, “Financial Instrument: Disclosures” introduces a fair value hierarchy
and additional disclosures for measurement of financial instruments. The amendment became
effective in 2009 and resulted in limited additional disclosures in our financial statements.
•
IFRS 8, “Operating Segments” requires an entity to adopt the “management approach” to
reporting on the financial performance of its operating segments. Generally, the information to
be reported is what management uses internally for evaluating segment performance and
deciding how to allocate resources to operating segments. We adopted this standard in 2009,
which resulted in limited presentation changes.
•
IFRS 9, “Financial Instruments (replacement of IAS 39)” will become effective as from 2013,
with earlier adoption permitted, including for 2009. IFRS 9 introduced new requirements for
classifying and measuring financial assets. This standard encompasses an overall change of
accounting principles in that standard and will eventually replace IAS 39 – the current standard
on financial instruments. As its scope will be expanded during 2010, we will review the effects
of a comprehensive standard on financial instruments and consider adoption when
appropriate.
•
IASB’s annual improvements projects results in many smaller amendments to several IFRSs.
Most amendments will be effective as from 2010 and they are not expected to materially
impact our consolidated financial statements.
•
The revised IAS 1, “Presentation of Financial Statements” mainly introduces a statement of
comprehensive income. We adopted this standard in 2009 and changed the presentation of
our financial statements accordingly.
•
•
•
•
An amendment to IAS 23, “Borrowing Costs” removes the option of immediately recognizing
as an expense borrowing costs that relate to assets that take a substantial period of time to
get ready for use or sale. This amendment became effective in 2009 and has not impacted our
consolidated financial statements, as we already capitalized borrowing cost.
An amendment to IAS 24, “Related Party Disclosures” clarifies the definition of a related party
and provided a partial exemption from the disclosure requirements for government-related
entities. The revised standard also clarifies that disclosure is required of any commitments of a
related party to do something if a particular event occurs or does not occur in the future. The
revised standard is effective as from 2011, with earlier application permitted.
Amendments to IFRS 1 and IAS 27, “Determining the cost of an investment in the separate
financial statements” became effective in 2009. The amendments apply to company financial
statements prepared under IFRS. These amendments will not be applicable to our company
financial statements, as these are prepared under Dutch law.
An amendment to IAS 32, “Financial Instruments: Presentation” changes the classification of
some puttable financial instruments that meet the definition of a financial liability into equity
because they represent a residual interest in the net assets. A second amendment was issued
which addresses the accounting for rights issues such as options and warrants, denominated in
a currency other than the functional currency of the issuer. Our financial statements are not
affected by either amendment as we have not issued such financial instruments.
•
An amendment to IAS 39, “Financial Instruments: Recognition and Measurement” addresses
two separate hedge accounting issues. It clarifies the requirements when options are used for
hedging and it regulates inflation-linked hedge relationships. The amendment to IAS 39 will be
effective as from 2010. As we commonly use forward contracts for hedges, we do not expect
a material impact from adopting this amendment.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 93
•
•
•
•
•
An amendment to IFRIC 9 and IAS 39, “Embedded Derivatives” clarifies the accounting
treatment of embedded derivatives for entities that use the reclassification amendment to IAS
39. As the reclassification amendment is an option which we do not use, these amendments
to IFRIC 9 and IAS 39 will not affect our financial statements.
IFRIC 13 “Customer Loyalty Programmes” addresses accounting by entities that grant loyalty
award credits (such as points or travel miles) to customers who buy goods or services. We
adopted this interpretation in 2009. The interpretation has not materially affected our
consolidated financial statements.
An amendment to IFRIC 14 on minimum funding requirements corrects an unintended
consequence of the originally issued interpretation. The amendment is effective as from 2011,
with earlier application permitted. As we currently have no pension asset on our balance sheet
that falls in the scope of this amendment, we do not expect that our financial statements will
be materially affected.
IFRIC 15 “Agreements for the Construction of Real Estate” applies to companies that develop
real estate and became effective in 2009. As we do not have activities in this area, our financial
statements were not affected by this interpretation.
IFRIC 16 “Hedges of a Net Investment in a Foreign Operation” clarifies hedge accounting for
an entity which hedges the investment in its subsidiaries. We adopted this interpretation in
2009. As we already accounted for net investment hedges in line with IFRIC 16, our financial
statements were not affected by this interpretation.
•
IFRIC 17 “Distribution of Non-cash Assets to Owners” will apply prospectively as from 2010.
We do not expect impact on our financial statements as no proposal to distribute non-cash
assets to shareholders has been made.
•
IFRIC 18, “Transfers of Assets from Customers” clarifies the accounting for agreements in
which an entity receives from a customer an item of property, plant, and equipment that the
entity must then use either to connect the customer to a network or to provide the customer
with ongoing access to a supply of goods or services. The interpretation must be applied
prospectively to transfers of assets from customers received on or after July 1, 2009. This
interpretation has not materially affected our consolidated financial statements.
•
IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments” applies when a debtor
extinguishes a liability fully or partly by issuing equity instruments to the creditor. The
interpretation will be effective as from 2011. We are currently reviewing whether such
agreements exist within our businesses.
94 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Note 2 Acquisitions and divestments
In 2009, we completed several acquisitions and divestments:
•
•
In Decorative Paints, we acquired two distributors in Continental Europe.
In Performance Coatings, we divested Chemcraft Brazil and the non-stick businesses.
We completed the acquisitions of SABA and Kronospan and we announced the acquisition of
the Dow Powder Coatings assets. This business has global revenue of several hundred million
dollars and employs around 700 employees. It will further strengthen the Powder business in
Europe and North America and will bring key technological know-how and significant synergy
potential. The transaction is expected to close during the second quarter of 2010, subject to
customary closing conditions, including regulatory approvals.
In Specialty Chemicals we acquired LII Europe and Penford Australia and additional interests in
joint ventures. We divested PTA Pakistan.
•
The acquisitions in 2009, both individually and in total, were deemed immaterial in respect of
the IFRS 3 disclosure requirements. Pre-acquisition carrying amounts were not gathered.
Aggregated recognized values of acquisitions in 2009
In € millions
Recognized values at acquisition
Goodwill
Other intangible assets
Property, plant and equipment
Investments in associates and joint ventures
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Provisions
Deferred tax liabilities
Long-term borrowings
Trade and other payables
Net identifi able assets and liabilities
Minority interests
Revaluation of former investments in step acquisitions
Recognized in the statement of income
Consideration paid
Cash and cash equivalents acquired
To be paid in 2010 and later years
Net cash outflow
33
61
53
(20)
1
29
29
4
(13)
(12)
(17)
(34)
114
(6)
(7)
(10)
91
(4)
(9)
78
On January 2, 2008, we acquired 100 percent of the share capital of Imperial Chemical Industries
plc (ICI). The total cost of the acquisition, paid mostly in cash, was €11.6 billion. ICI was one of the
world’s leading coatings, adhesives, starches and synthetic polymer businesses, with products and
ingredients developed for a wide range of markets. It had operations in more than 50 countries
around the world and its customers are spread across a diverse range of product sectors.
Acquisition of ICI
In € millions
Goodwill
Other intangible assets
Property, plant and equipment
Other non-current assets
Inventories
Trade and other receivables
Assets held for sale
Cash and cash equivalents
Provisions
Deferred tax liabilities
Long-term borrowings
Trade and other payables
Liabilities held for sale
Net identifi able assets and liabilities
Minority interests
Consideration paid
Pre-acquisition
carrying amounts
Recognized values
at acquisition
413
61
1,135
545
568
977
1,200
1,088
(1,271)
(21)
(372)
(1,915)
(554)
1,854
4,465
3,763
1,382
513
622
979
4,413
1,088
(1,402)
(884)
(372)
(1,940)
(581)
12,046
(435)
11,611
In connection with the acquisition of ICI, we sold all assets and liabilities comprising the businesses
known within ICI as the Adhesives business and the Electronic Materials business to Henkel, for
€3.6 billion. The transaction took place in April 2008.
In addition, in granting clearance, the EU and Canadian authorities accepted a commitment
package from AkzoNobel involving the divestment of a number of AkzoNobel Decorative Paints
businesses in the UK, Ireland, Belgium and Canada. These businesses were sold in the course
of 2008.
Note 3
Incidentals
Incidental gains and losses included in operating income
In € millions
Restructuring costs
Costs of pensions and other post-retirement benefi ts
Results on acquisitions and divestments
Results related to major legal, antitrust and environmental cases
Other incidental results
Transformation costs
Fair value adjustments of acquired inventories
Impairment of ICI intangibles
2008
(275)
(38)
(23)
(32)
(5)
(190)
(54)
(1,275)
2009
(353)
58
48
(38)
18
(14)
–
–
Total
(1,892)
(281)
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 95
Apart from restructuring costs, incidental items in 2009 primarily related to a fine imposed by the
European Commission. Incidental gains were realized from changing conditions in certain pension
plans (€58 million) and the divestment of PTA Pakistan (€23 million).
Note 4 Other operating income/(expenses)
In € millions
In 2008, we recorded a goodwill impairment of €1,275 million after tax, covering the value of
ICI intangibles related to the Decorative Paints and National Starch businesses. In addition, we
incurred transformation costs, which included the closure of the London-based ICI headquarters
(€59 million) and an impairment loss of €65 million for the Decorative Paints businesses which
were sold due to the commitment packages agreed with European and Canadian authorities. In
addition, transformation costs included costs of external advisors related to the ICI acquisition
and costs to establish our new corporate identity. Other incidental charges in 2008 came from the
fair value step-up for inventories acquired from ICI (€54 million, non-cash) and additional costs for
the settlement of a claim related to post-retirement healthcare benefits for retired employees in the
Netherlands. Furthermore, we incurred a charge of €29 million due to foreign currency results on
a provision in the UK. The mandatory divestment of the Decorative Paints businesses in Canada,
the UK, Ireland and Belgium resulted in a loss of €23 million.
Incidental gains and losses
Results on sale of redundant assets
Currency exchange differences:
- Derivatives
- Loans and receivables
- Other fi nancial liabilities
Other items
Total
2008
(105)
2
(138)
185
(19)
2
(73)
2009
42
2
37
(43)
6
4
48
In 2009, the incidental gains reported in other operating income/(expenses) related mainly to
results from acquisitions and divestments (PTA Pakistan, LII Europe).
In 2008, the incidental losses related to costs of external advisors for the integration of ICI, the
costs of our new corporate identity as launched in April 2008 and the foreign currency results on
a legal provision in the UK.
Restructuring costs
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Other
Total
2008
(189)
(20)
(29)
(37)
(275)
2009
(158)
(55)
(103)
(37)
(353)
Major restructuring projects in Decorative Paints during 2009 related to supply chain and
integration projects in Europe, Canada and Latin America and to closing stores in the US. In
Performance Coatings, we incurred costs for headcount reduction programs in all businesses,
the most significant being in Industrial Activities and Car Refinishes. In Specialty Chemicals, we
announced the closure of four sites including the Skoghall site in Sweden and the Mo I Rana site
in Norway. We announced a 20 percent reduction of staff working at our headquarters and shared
service center in the Netherlands and recognized a provision of €11 million.
Note 5
Financing income and expenses
In € millions
Interest income:
- Interest rate derivatives
- Loans and receivables
- Other
Interest expenses:
- Net fi nancing expenses on pensions and
other post-retirement benefi ts
Incidentals per cost category
In € millions
Cost of sales
Selling expenses
Impairment of ICI intangibles
Research and development expenses
General and administrative expenses
Other operating income/(expenses)
Total
2008
(376)
(53)
(1,275)
(15)
(68)
(105)
(1,892)
2009
(146)
(94)
–
(19)
(64)
42
(281)
- Interest rate derivatives
- Other fi nancial liabilities
- Other
Fair value changes:
- Interest rate derivatives
- Other fi nancial liabilities
Other
Total
2008
2009
36
113
5
(49)
(54)
(236)
(37)
49
(46)
(13)
19
43
–
(174)
(9)
(231)
(54)
(14)
12
(1)
(232)
(409)
96 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
The net financing charges increased by €177 million to €409 million:
•
Financing income decreased by €92 million to €62 million (2008: €154 million) due to signifi-
cantly lower market interest rates and cash utilized for the share buyback program in 2008.
Net financing expenses on pensions and other post-retirement benefits increased by
€125 million to €174 million (2008: €49 million) due to lower expected returns on plan assets.
These expenses are composed of interest expenses for €770 million (2008: €851 million),
which is being offset by the expected return on plan assets of €596 million (2008: €802 million).
Other financing expenses decreased by €40 million to €297 million (2008: €337 million). Higher
interest expense for our refinanced debt during 2009 was offset by lower costs for fair value
changes of financial instruments.
•
•
Included in the interest expenses was a reduction of €6 million (2008: €3 million) due to the
capitalization of financing expenses of capital investment projects under construction. The average
interest rate used for capitalization of borrowing cost was 6 percent.
When comparing 2009 tax amounts with previous year, the following should be noted. In 2008
there was a high level of current tax expense and deferred tax gain caused by tax costs that are
related to breaking up National Starch into the part that was sold to Henkel and that was kept by
AkzoNobel. These costs were included in the ICI opening balance sheet as deferred tax liabilities
which reversed into current tax at the moment of the breakup.
The deferred tax gain in 2008 was partly offset by a €133 million derecognition of deferred
tax assets.
Based on assessments of the major deferred tax asset positions per December 31, 2009 we
concluded that no further derecognition is necessary, as we consider it probable that those
deferred tax assets can be utilized against future taxable income.
The reconciliation of the corporate tax rate in the Netherlands to the effective consolidated tax rate
is as follows:
Income tax
Note 6
Pre-tax income (including the share in profit of associates and joint ventures) amounted to a profit
of €483 million (2008: loss €784 million). Tax benefits/(charges) are included in the statement of
income as follows:
Effective consolidated tax rate
in %
Tax in the statement of income
In € millions
Tax on operating income less fi nancing income and expenses
Tax on share in profi t of associates and joint ventures
Total
2008
(259)
(1)
(260)
2009
(128)
–
(128)
The 2009 net tax charge of €128 million (2008: €260 million) related to continuing operations only.
The total tax charge, including discontinued operations was €162 million (2008: €260 million).
Corporate tax rate in the Netherlands
Net effect of different tax rates in certain countries
Non-deductible expenses/(tax-exempt income)
Non-taxable income from investment in associates and joint
ventures
Changes in enacted tax rates (reductions in tax rate)
Recognition/derecognition of previously unrecognized tax losses
Current year losses for which no deferred tax asset was
recognized
Profi ts of the year compensated with losses carried forward for
which no deferred tax asset was recognized
Under/(over)-provided in prior years
Non-refundable withholding taxes
Other
2008
25.5
(2.0)
3.9
(1.2)
(1.1)
0.2
2.4
(2.5)
2.7
4.0
(0.5)
2009
25.5
(0.6)
7.9
(1.1)
(3.0)
–
1.7
(0.3)
(6.2)
3.6
(1.1)
Classifi cation of current and deferred tax result
In € millions
Current tax expense for:
- The year
- Adjustments for prior years
Deferred tax expense for:
- Origination and reversal of temporary differences
- Changes in tax rates
- Tax losses recognized or derecognized
Total
2008
2009
Effective consolidated tax rate
31.4
26.4
In 2009, the effective rate was 26 percent (2008: 31 percent excluding the impact of the
impairment of goodwill/intangibles and derecognition of deferred tax assets). The under/(over)-
provision in prior years related to a receipt of €75 million on a contingent basis as part of ongoing
tax litigation. We recorded a net gain €57 million on the tax line. Several other adjustments have
been made with regard to the tax provisions for prior years. In addition, we recorded several tax-
exempt income items, such as the PTA Pakistan divestment, as well as certain incidental non-
deductible expenses, mainly related to antitrust costs.
(459)
(13)
(472)
341
5
(134)
212
(260)
(190)
30
(160)
24
14
(6)
32
(128)
The worldwide trend of decreasing tax rates – which seems to have come to a halt – has a
diminishing impact on the long-term tax burden. Decreases in tax rates, however, also have a
direct impact on the tax burden, because of a change in the measurement of the deferred tax
positions. The relevant changes in this respect included the decrease of the tax rate in several
countries as of 2010 and/or later. In addition, changes in the geographical mix of taxable income
affected the tax burden.
The impact of the non-refundable withholding tax is caused by the fact that the relative share of
AkzoNobel’s profit from countries that levy withholding tax on dividends is increasing. Based on
the Dutch tax system there is only a limited credit for such taxes.
For comparative reasons, the effective tax rate table presents the 2008 effective consolidated tax
rate on the results excluding the incidental impairment loss on ICI intangibles, and the tax expense
excluding the incidental derecognition of deferred tax assets of €133 million and the deferred tax
liabilities released due to the impairment of ICI intangibles. In 2008, the effective consolidated tax
rate was affected by the tax-exempt loss from the divestment of the Decorative business in the
UK and from several non-deductible expenses.
Income tax recognized directly in equity
In € millions
Current tax for:
- Currency exchange differences on intercompany loans
of a permanent nature
Deferred tax for:
- Share-based compensation
- Hedge accounting
- Other
Total
2008
2009
117
117
(13)
17
(3)
1
118
(33)
(33)
(8)
(5)
(1)
(14)
(47)
Tax in the balance sheet
Current tax assets of €102 million (2008: €53 million) represent the amount of income taxes
recoverable in respect of current and prior periods. Current tax liabilities of €507 million (2008:
€525 million) relate to the amount of taxes payable for current and prior periods.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 97
Breakdown of deferred tax assets and liabilities
In € millions
Assets
Liabilities
Assets
Liabilities
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based compensation
Provisions:
- Pensions and other
post-retirement benefi ts
- Restructuring
- Other provisions
Other items
Net loss carryforwards
Deferred tax assets not
recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
85
53
34
32
15
469
33
441
180
517
(377)
1,482
(592)
890
2008
895
237
5
16
–
21
2
53
78
–
–
1,307
(592)
715
51
72
33
29
15
346
30
457
156
685
(376)
1,498
(705)
793
2009
755
261
8
21
–
103
2
175
54
–
–
1,379
(705)
674
In the deferred tax asset for other provisions (€457 million), an amount of €194 million is related to
interest expense carried forward.
In assessing the recognition of the deferred tax assets, management considers whether it is
probable that some portion or all of the deferred tax assets will be realized. The ultimate realization
of the deferred tax assets is dependent upon the generation of future taxable income during the
periods in which unused tax losses can be carried forward, unused tax credits can be used and
temporary differences become deductible. The nature of the evidence supporting the recognition
of the deferred tax assets is the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies. The amount of deferred tax assets considered
realizable, however, could change in the near term if future estimates of projected taxable income
during the carryforward period are revised.
From the total amount of recognized deferred tax assets, €652 million (2008: €186 million)
is related to entities that have suffered a loss in either 2009 or 2008 in the tax jurisdiction to which
a deferred tax asset relates, and where utilization is dependent on future taxable profit in excess of
the profit arising from the reversal of existing taxable temporary differences.
98 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
At December 31, 2009, the loss carryforwards expire as follows:
Loss carryforwards recognized in the balance sheet
In € millions
Total loss carryforwards
Loss carryforwards not recognized in deferred tax assets
Total
2010
2011
2012
13
(8)
5
11
(8)
3
34
(24)
10
2013
740
(616)
124
2014
Later
Unlimited
28
(17)
11
446
(65)
381
976
(22)
954
Total
2,248
(760)
1,488
The deferred tax assets not recognized in the balance sheet are related to the following items:
Unrecognized deferred tax assets
In € millions
Capital losses
Tax losses
Deductible temporary differences
Total
2008
200
42
135
377
2009
220
43
113
376
Deferred tax assets not recognized on the balance sheet are partly related to capital losses
which cannot be offset against operational taxable profits.
Movement in deferred tax in 2008
In € millions
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based compensation
Provisions:
- Pensions and other post-retirement benefi ts
- Restructuring
- Other provisions
Other items
Net loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Net balance
January 1, 2008
Changes in
exchange rates
Acquisitions/
divestments
Recognized
in income
Recognized
in equity
Net balance
December 31,
2008
11
(68)
17
(6)
40
153
8
125
56
189
(28)
497
87
32
2
–
(1)
(12)
(1)
(9)
(3)
(25)
11
81
(1,020)
(204)
(18)
–
–
193
–
196
(103)
563
(223)
(616)
112
56
28
5
(11)
114
24
76
155
(210)
(137)
212
–
–
–
17
(13)
–
–
–
(3)
–
–
1
(810)
(184)
29
16
15
448
31
388
102
517
(377)
175
Movement in deferred tax in 2009
In € millions
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based compensation
Provisions:
- Pensions and other post-retirement benefi ts
- Restructuring
- Other provisions
Other items
Net loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Note 8 Employee benefits
Salaries, wages and other employee benefi ts
In € millions
Salaries and wages
Pension and other post-retirement cost
Other social charges
Total
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 99
Net balance
December 31, 2008
Changes in
exchange rates
Acquisitions/
divestments
Recognized
in income
Recognized
in equity
Net balance
December 31, 2009
(810)
(184)
29
16
15
448
31
388
102
517
(377)
175
(33)
(10)
–
(2)
–
12
1
10
(1)
(7)
9
(21)
5
6
(2)
–
–
–
–
1
(1)
1
1
11
134
(1)
(2)
(1)
8
(217)
(4)
(117)
3
174
(9)
(32)
–
–
–
(5)
(8)
–
–
–
(1)
–
–
(14)
(704)
(189)
25
8
15
243
28
282
102
685
(376)
119
2008
24,100
21,500
12,900
2,800
2009
23,200
20,200
13,400
1,800
61,300
58,600
Note 7 Discontinued operations
In results from discontinued operations, we have recorded the results from the disentanglement
of the businesses divested to Henkel in 2008 and to Schering Plough in 2007. Results from
discontinued operations consist of a gross amount of €41 million and a tax charge of €34 million
(2008: €23 million and € nil respectively).
Employees
Average number during the year
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2008
(2,322)
(242)
(458)
2009
(2,147)
(363)
(434)
At year-end 2009, our workforce had decreased to 57,060 employees (year-end 2008, 60,040
employees). The net decrease was due to:
•
•
Acquisitions adding 980 employees
3,960 employees leaving, during 2009 mainly due to continued restructuring and realized
synergies.
(3,022)
(2,944)
The average number of employees working outside the Netherlands was 53,700 (2008: 56,300).
The increase of pension and other post-retirement cost is due to the related financing expenses of
€174 million (2008: €49 million).
100 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Salaries, wages and other employee benefi ts per cost category
In € millions
Cost of sales
Selling expenses
Research and development expenses
General and administrative expenses
Net fi nancing expenses related to pensions
and other post-retirement benefi ts
Total
2008
(1,098)
(1,013)
(211)
(651)
(49)
(3,022)
2009
(870)
(1,020)
(206)
(674)
(174)
(2,944)
Share-based compensation
Share-based compensation relates to the performance-related share plan as well as the
performance-related stock option plan. Charges recognized in the 2009 statement of income
for share-based compensation amounted to €23 million and are included in salaries and wages
(2008: €20 million).
Performance-related share plan
Under the performance-related share plan, a number of conditional shares are granted to the
members of the Board of Management and executives each year. The number of participants of
the performance – related share plan at year-end 2009 was 579 (2008: 548). The actual number
of shares that will vest depends on our Total Shareholder Return (TSR) performance over a three-
year period, compared with the TSR performance of a specified peer group. Our TSR performance
over the period January 1, 2007, until December 31, 2009, resulted in a second position within
the ranking of the peer group companies. The vesting percentage of the 2007 grant amounted
to 135 percent (series 2006 – 2008: 70 percent), including dividend shares of 11.69 percent
(series 2006 – 2008: 9.09 percent), the final vesting percentage amounted to 150.78 percent
(series 2006 – 2008: 76.36 percent).
As from 2009, the conditional grant of shares is linked for 50 percent to the ranking of the
company in the Dow Jones Sustainability Indexes and the remaining 50 percent to the relative
TSR performance of the company compared with the peer group.
The fair value of the performance-related shares at grant date is amortized as a charge against
income over the three-year vesting period. The average fair value was calculated by external
specialists and amounted to €26.39 per performance-related share conditionally granted in
2009 (2008: €33.98). The 2009 charge recognized for performance-related shares aggregated
€21 million (2008: €16 million).
For further details on our performance-related share plan, see page 70.
Performance-related shares
Series
2006 – 2008
2007 – 2009
2008 – 2010
2009 – 2011
Total
Balance at
January 1, 2009
442,226
672,987
526,152
–
Granted
in 2009
–
226,766
10,422
1,127,705
Vested
in 2009
(442,226)
–
–
–
Forfeited
in 2009
–
(15,100)
(8,855)
(11,813)
Dividend
in 2009 1
Balance at
December 31, 2009
Vested on
January 1, 2010
–
59,001
26,921
56,799
–
943,654
554,640
1,172,691
–
943,654
–
–
1,641,365
1,364,893
(442,226)
(35,768)
142,721
2,670,985
943,654
1 Equivalent in shares related to accumulated dividend, which is included in the balances on balance sheet date.
The shares of the series 2006 – 2008 have vested and were delivered to the participants in 2009.
The share price of a common AkzoNobel share at December 31, 2009, amounted to €46.40
(2008: €29.44).
Stock option plans
Prior to 2008, performance-related stock options were granted to members of the Board of
Management and executives. 2007 was the last year in which stock options were granted. Stock
options cannot be exercised during the first three years. We currently do not purchase own shares
in connection with the stock option plan. No financing facilities exist for option rights or tax payable
thereon. One option entitles the holder thereof to buy one Akzo Nobel N.V. common share. The
exercise price is the Euronext Amsterdam opening price on the first day that the AkzoNobel share
was quoted ex-dividend in the year of conditional grant. For American Depositary Receipts (ADRs),
a total of 51,540 option rights, to exchange for Akzo Nobel N.V. shares, remain outstanding at
year-end (2008: 70,220).
Outstanding stock options 1
Year of issue
Unconditional options:
2001
2002
2002
2003
2004
2005
2006
Conditional options:
2007
Total
1 Including the Board of Management.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 101
Exercise
price in €
Outstanding per
January 1, 2009
Exercised
in 2009
Expired
in 2009
Forfeited
in 2009
Outstanding at
December 31, 2009
Expiry date
46.75
46.53
46.53
19.51
31.45
31.98
46.46
51,322
203,080
107,250
167,411
303,600
452,287
463,960
1,748,910
–
–
–
(71,380)
(23,200)
(41,993)
–
(136,573)
–
(196,040)
–
–
–
–
–
(196,040)
–
(7,040)
–
(4,280)
(10,400)
(3,807)
(5,189)
(30,716)
51,322
–
107,250
91,751
270,000
406,487
458,771
1,385,581
April 30, 2011
April 25, 2009
April 25, 2012
April 22, 2010
April 25, 2011
April 24, 2012
April 26, 2013
58.89
510,708
–
–
(9,449)
501,259
April 26, 2014
2,259,618
(136,573)
(196,040)
(40,165)
1,886,840
Number and weighted average exercise price stock options
Balance at January 1, 2008
Forfeited during the period
Exercised during the period
Balance at December 31, 2008
Forfeited during the period
Expired
Exercised during the period
Balance at December 31, 2009
Exercisable at December 31, 2009
Number of
options
2,457,722
(28,099)
(170,005)
2,259,618
(40,165)
(196,040)
(136,573)
1,886,840
1,385,581
Weighted
average
exercise price
in €
41.70
39.49
33.11
42.37
41.27
46.53
25.37
43.20
37.52
The stock options are equity-settled. The employee buys the shares upon exercise of the
options. The fair value is measured at grant date and amortized over the period during which the
employees become unconditonally entitled to the options.The total cost in 2009 for stock options
was €2 million (2008: €4 million).
For stock options exercised during 2009, the weighted average of the actual share prices at date
of exercise amounted to €38.59 (2008: €51.31).
102 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Note 9
Intangible assets
In € millions
Balance at January 1, 2008
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
Movements in 2008
Acquisitions through business combinations 1
Other investments – including internally developed intangibles
Divestments
Amortization
Impairments
Changes in exchange rates
Total changes
Balance at December 31, 2008
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2008
Movements in 2009
Acquisitions through business combinations
Other investments – including internally developed intangibles
Amortization
Impairments
Changes in exchange rates
Total changes
Balance at December 31, 2009
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment 2
Carrying value at year-end 2009
Goodwill
Brands
Customer lists
Other
intangibles
502
–
(39)
463
104
–
(3)
101
110
–
(40)
70
4,485
2,344
1,181
10
(3)
–
(1,215)
(176)
3,101
4,822
–
(1,258)
3,564
33
–
–
–
106
139
5,063
–
(1,360)
3,703
–
(6)
(18)
(79)
(195)
2,046
2,247
–
(100)
2
(3)
(101)
(2)
(33)
1,044
1,253
–
(139)
2,147
1,114
4
–
(16)
–
91
79
2,338
–
(112)
2,226
47
1
(106)
–
28
(30)
1,334
–
(250)
1,084
68
12
(45)
35
305
43
–
(40)
–
4
312
345
32
(30)
347
10
41
(37)
(9)
23
28
473
39
(137)
375
Total
784
12
(127)
669
8,315
55
(12)
(159)
(1,296)
(400)
6,503
8,667
32
(1,527)
7,172
94
42
(159)
(9)
248
216
9,208
39
(1,859)
7,388
1 Mainly ICI.
2 Accumulated amortization/impairment includes €1,275 million impairment recorded on ICI intangibles in 2008.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 103
Amortization and impairment charges per cost category
In € millions
Cost of sales
Selling expenses
Impairment of ICI intangibles
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Total
Goodwill and other intangibles per segment
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Total
2008
(7)
(133)
–
(14)
(5)
–
(159)
2008
2,368
541
655
3,564
Amortization
2009
(6)
(123)
–
(24)
(6)
–
2008
(21)
–
(1,275)
–
–
–
(159)
(1,296)
Impairment
2009
–
(1)
–
–
–
(8)
(9)
2008
(28)
(133)
(1,275)
(14)
(5)
–
(1,455)
Total
2009
(6)
(124)
–
(24)
(6)
(8)
(168)
Goodwill
2009
2,515
529
659
3,703
Brands with indefinite
useful lives 1
2009
2008
1,643
–
56
1,699
1,760
–
56
1,816
Other intangibles with
finite useful lives
2008
818
249
842
2009
798
213
858
1,909
1,869
1 Mainly Dulux. Due to its global presence, high recognition and strategic nature, we have determined that the useful life of the Dulux brand is indefi nite.
Other intangibles include licenses, know-how, intellectual property rights and development cost.
Both at year-end 2009 and 2008, there were no purchase commitments for individual intangible
assets. Neither were there any intangible assets registered as security for bank loans.
Impairment
Goodwill and other intangibles with indefinite useful lives are tested for impairment per business
unit (one level below segment level) in the fourth quarter or whenever an impairment trigger exists.
In 2009, no impairment was recorded for any business unit (2008: non-cash impairment charge
of €1,275 million after tax).
The impairment test is based on cash flow projections of the five-year plan The key assumptions
used in the projections are:
•
Revenue growth: based on actual experience, an analysis of market growth and the expected
development of market share
Margin development: based on actual experience and management’s long-term projections.
•
Revenue growth and margin development projections are extrapolated beyond this five-year
explicit forecast period for another five years with reduced growth rates, except for the emerging
markets.
Average revenue growth rates per forecast period per business area
In %/year
Decorative Paints
Performance Coatings
Specialty Chemicals
2010 – 2014
2015 – 2019
5.6
3.3
4.6
3.9
2.7
3.0
For virtually all business units, a terminal value was calculated using a long-term average market
growth rate that did not exceed 2 percent. The estimated pre-tax cash flows are discounted
to their present value using a pre-tax weighted average cost of capital. The discount rates are
determined for each business unit and range from 8.9 percent to 21.7 percent, with an average
of 12.8 percent.
A significant amount of goodwill is allocated to the European businesses of Decorative Paints.
The outcome of a sensitivity analysis of a 100 basis points adverse change in key assumptions
(lower growth rates or higher discount rates respectively) did not result in a different outcome of
the impairment test for the vast majority of our businesses.
104 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Note 10 Property, plant and equipment
In € millions
Balance at January 1, 2008
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
Movements in 2008
Acquisitions through business combinations 1
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairment
Changes in exchange rates
Total changes
Balance at December 31, 2008
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2008
Movements in 2009
Acquisitions through business combinations
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairment
Changes in exchange rates
Total changes
Balance at December 31, 2009
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2009
1 Mainly ICI.
Buildings and land
Plant equip ment
and machinery
Other equipment
Construction in
progress and prepay-
ments on projects
Assets not used
in the production
process
1,597
(823)
774
569
–
102
(5)
(81)
(67)
(55)
463
2,146
(909)
1,237
15
(6)
65
13
(82)
(18)
24
11
2,243
(995)
1,248
4,194
(3,100)
1,094
683
(21)
357
14
(320)
(56)
(57)
600
4,875
(3,181)
1,694
35
(19)
400
9
(327)
(36)
40
102
5,303
(3,507)
1,796
616
(471)
145
75
(9)
58
(11)
(51)
(5)
(33)
24
627
(458)
169
3
(3)
46
(26)
(48)
–
5
(23)
623
(477)
146
181
–
181
72
(6)
17
–
–
(3)
(11)
69
250
–
250
–
(2)
22
–
–
–
4
24
274
–
274
48
(39)
9
1
(1)
–
2
(1)
(3)
–
(2)
22
(15)
7
–
(1)
1
4
(1)
–
–
3
32
(22)
10
Total
6,636
(4,433)
2,203
1,400
(37)
534
–
(453)
(134)
(156)
1,154
7,920
(4,563)
3,357
53
(31)
534
–
(458)
(54)
73
117
8,475
(5,001)
3,474
In 2009, impairment charges have been recognized for an amount of €54 million (2008:
€134 million). The impairment charges have been recognized in the cost of sales. The impairment
charges related to restructuring activities in, among others, Sweden, Poland, Italy and China.
The carrying value of the property, plant and equipment financed by hire purchase and leasing
and not legally owned by the company is €17 million (2008: €17 million), €10 million of which
related to buildings and land, €3 million to plant equipment and machinery and €4 million to other
equipment.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 105
Purchase commitments for property, plant and equipment totaled €60 million (2008: €92 million).
Note 12 Other financial non-current assets
Depreciation per cost category
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Total
Note 11 Investments in associates and joint ventures
2008
(331)
(58)
(50)
(14)
(453)
2009
(317)
(72)
(54)
(15)
(458)
In € millions
Loans and receivables
Interest rate derivatives
Other than fi nancial instruments
Total
2008
315
40
402
757
2009
374
27
414
815
The loans and receivables include the subordinated loan of €90 million granted to the AkzoNobel
Pension Fund (APF) in the Netherlands and the non-current part of an escrow account of the
AkzoNobel UK pension fund amounting to €167 million, invested in bonds and cash. Under certain
conditions, the minimum annual funding of this pension fund is £25 million (€28 million).
At year-end 2009, the carrying value of investments in associates amounted to €79 million (2008:
€88 million) and in joint ventures €96 million (2008: €113 million).
Other financial non-current assets include an amount of €219 million related to pension plans in
an asset position (2008: €142 million).
Summary of fi nancial information on a 100 percent basis
In € millions
Note 13 Inventories
Associates
Joint ventures
2008
2009
2008
2009
In € millions
Information on the statement of income:
- Revenue
- Income before tax
- Net income
Condensed balance sheet:
- Current assets
- Non-current assets
Total assets
- Current liabilities
- Non-current liabilities
- Shareholders’ equity
Total liabilities and equity
304
27
17
156
67
223
44
30
149
223
95
17
6
185
25
210
71
29
110
210
668
31
23
148
237
385
116
81
188
385
600
43
32
60
205
265
–
74
191
265
In 2009, the results from associates and joint ventures amounted to a profit of €22 million (2008:
€25 million).
The most significant associates and joint ventures of AkzoNobel are: Metlac Holdings Brl
(49 percent), Metlac Spa (44 percent), Delesto B.V. (50 percent), Eka Chile SA (50 percent),
Fort Amanda Specialties LLC (50 percent) and I.C. Insurance Holdings Ltd (49 percent).
Raw materials and supplies
Work in progress
Finished products and goods for resale
Inventory prepayments
2008
522
84
1,172
3
2009
407
73
957
4
Total
1,781
1,441
Of the total carrying value of inventories at December 31, 2009, €83 million is measured at net
realizable value (2008: €73 million). In 2009, €32 million was recognized in the statement of
income for the write-down of inventories (2008: €22 million), while €10 million of write-downs was
reversed (2008: €9 million). There are no inventories subject to retention of title clauses. During
2009, an amount of €8.3 billion including direct employee benefits, depreciation and amortization
was recognized as costs of goods sold, out of finished goods (2008: €8.8 billion).
106 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Note 14 Trade and other receivables
In € millions
Trade receivables
Prepaid expenses
Tax receivables other than income tax
Receivables from associates and joint ventures
Forward exchange and commodity contracts
Other receivables
Discounted portion
Total
2008
2,097
133
107
38
29
548
2,952
(28)
2,924
2009
1,890
130
116
36
28
382
2,582
(18)
2,564
Allowance for impairment of trade receivables
In € millions
Opening balance
Additions charged to income
Release of unused amounts
Utilization
Acquisitions/divestments
Currency exchange differences
Closing balance
2008
2009
99
40
(9)
(18)
33
(8)
137
137
46
(17)
(39)
1
5
133
The additions to and release of the allowance for impairment have been included in the statement
of income under selling expenses.
Trade receivables are presented net of an allowance for impairment of €133 million (2008:
€137 million). In 2009, €46 million of impairment losses were recognized in the statement of
income (2008: €40 million).
The maximum exposure to credit risk at the reporting date is the carrying value of each class of
receivables mentioned above. We do not hold any collateral for impaired trade receivables. We do
not have a significant customer concentration.
Ageing of trade receivables
In € millions
Performing accounts receivable
Past due accounts receivables and not impaired:
< 3 months
3 – 6 months
6 – 9 months
9 – 12 months
> 12 months
Impaired accounts receivables
Allowance for impairment
Total trade receivables
2008
1,555
442
24
7
3
6
197
(137)
2009
1,592
262
19
6
2
6
136
(133)
Note 15 Cash and cash equivalents
In € millions
Short-term investments
Cash on hand and in banks
Included under cash and cash equivalents in the
balance sheet
Debt to credit institutions
Total per cash flow statement
2008
401
1,194
1,595
(146)
1,449
2009
1,171
957
2,128
(209)
1,919
2,097
1,890
Short-term investments almost entirely consist of cash loans, time deposits, marketable private
borrowings and marketable securities immediately convertible into cash. For more information on
credit risk management, see note 24.
With respect to the trade and other receivables that are neither impaired nor past due, there are
no indications as of reporting date that the debtors will not meet their payment obligations.
At December 31, 2009, an amount of €143 million in cash and cash equivalents was restricted,
mainly due to restrictions in certain countries to transfer cash.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 107
Note 16 Equity
Subscribed share capital
The holders of common shares are entitled to receive dividends as declared from time to time and
are entitled to one vote per share at the Annual General Meeting of shareholders. The holders
of the priority shares are entitled to dividend of 6 percent per share or the statutory interest in
the Netherlands, whichever is lower, plus any accrued and unpaid dividends. They are entitled
to 200 votes per share (in accordance with the 200 times higher nominal value per share) at the
Annual General Meeting of shareholders. In addition, the holders of priority shares have the right
to draw up binding lists of nominees for appoint ment to the Supervisory Board and the Board
of Management; amendments to the Articles of Association are subject to the approval of the
Meeting of Holders of Priority Shares.
Priority shares may only be transferred to a transferee designated by a Meeting of Holders of
Priority Shares and against payment of the par value of the shares, plus interest at the rate
of 6 percent per annum or the statutory interest in the Netherlands, whichever is lower. There are
no restrictions on voting rights of holders of common or priority shares. The Articles of Association
set out procedures for exercising voting rights. The General Meeting of Shareholders has in 2009
resolved to authorize the Board of Management for a period of 18 months (i) to issue shares
(or grant rights to shares) in the capital of the company up to a maximum of 10 percent, which in
case of mergers or acquisitions can be increased by up to a maximum of 10 percent, of the total
number of shares outstanding (and to restrict or exclude the pre-emptive rights to those shares)
and (ii) to acquire shares in the capital of the company, provided that the shares that will at any
time be held will not exceed 10 percent of the issued share capital. The issue or repurchase of
shares requires the approval of the Supervisory Board.
Composition of share capital at year-end
In €
Authorized
share capital
Subscribed
share capital
In 2008, we completed a share repurchase program of €1.4 billion. Under the program, we
repurchased and subsequently canceled 31.7 million shares (12 percent of the issued share
capital). We held no common shares at year-end 2009 or 2008.
Earnings per common share are calculated by dividing net income by the weighted average
number of common shares outstanding during the year.
Weighted average number of shares
Number of shares
Issued common shares at January 1
262,322,775
231,664,187
2008
2009
Effect of:
- Share buyback
- Issued common shares during the year
Shares for basic earnings per share for the year
Effect of dilutive shares:
- For stock options
- For performance-related shares
(15,542,100)
944,435
247,725,110
–
405,258
232,069,445
359,618
1,168,391
264,013
2,484,787
Shares for diluted earnings per share
249,253,119
234,818,245
Of the shareholders’ equity of €7.8 billion, an amount of €7.1 billion (2008: €6.8 billion) was
unrestricted and available for distribution – subject to the relevant provisions of our Articles of
Association and Dutch law.
Priority shares (48 with nominal value of €400)
19,200
Cumulative preferred shares
(200 million with nominal value of €2)
Common shares
(600 million with nominal value of €2)
Total
Outstanding common shares
Number of shares
400,000,000
Unrestricted reserves at year-end
In € millions
19,200
–
1,200,000,000
464,507,266
1,600,019,200
464,526,466
Shareholders’ equity at year-end
Subscribed share capital
Subsidiaries’ restrictions to transfer funds
Statutory reserve due to capital reduction
Revaluation reserve for step acquisitions
Reserve for development costs
2008
2009
Unrestricted reserves
2008
7,463
(463)
(156)
(77)
–
(3)
6,764
2009
7,775
(465)
(152)
(77)
(7)
(8)
7,066
Outstanding at January 1
262,322,775
231,664,187
Issued in connection to stock options exercised
and performance shares granted
Share buyback program
Balance at year-end
1,088,384
(31,746,972)
589,446
–
231,664,187
232,253,633
108 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
At the General Meeting of Shareholders of April 26, 2001, an amendment to the Articles of
Association was approved whereby the par value of the priority shares was decreased to €400
and of the common shares and the cumulative preferred shares to €2. As the revised nominal
values are somewhat lower than the original par values, in accordance with section 67a of Book 2
of the Netherlands Civil Code, we recognized a statutory reserve of €77 million for this reduction
in subscribed share capital. Statutory reserves also include €1 million for capitalized development
costs, as well as the reserves relating to earnings retained by subsidiaries, associates, and joint
ventures after 1983. In 2009, we acquired 70 percent equity interest in a company which we
already owned for 30 percent. The revaluation of the initital interest of 30 percent was recorded on
a revaluation reserve. Statutory and revaluation reserves are non-distributable.
Other components of shareholders’ equity
Changes in fair value of derivatives comprise the effective portion of the cumulative net change
in the fair value of cash flow hedging instruments related to hedged transactions that have not
yet occurred. In 2008, an amount of €551 million was transferred to goodwill, which related to
hedging activities for the acquisition of ICI. Tax related to cash flow hedges: 5 million negative
(2008: €17 million positive).
Cumulative translation reserves comprise all foreign exchange differences arising from the
translation of the financial statements of foreign operations, as well as from the translation of
intercompany loans with a permanent nature and liabilities and derivatives that hedge the net
investments in a foreign subsidiary. Tax related to exchange differences arising on translation of
foreign operations were €33 million negative (2008: €117 million positive).
Equity-settled transactions include the stock option program and the performance-related share
plan whereby options or shares are granted to the Board of Management and other executives.
For details of the performance-related stock option plan and the performance-related share plan
for the Board of Management and other executives, see note 8.
Dividend
We will propose to pay a total dividend of €1.35 per share to the Annual General Meeting on
April 28, 2010. An interim dividend of €0.30 per share was paid in November 2009. Our dividend
policy is based on an annual pay-out ratio of at least 45 percent of net income before incidentals
and fair value adjustments for the ICI acquisition. This proposed full-year dividend of €1.35 per
share represents a 57 percent payment under our policy. In May 2009, we paid €1.40 as final
dividend for 2008.
Note 17 Provisions
Movements in provisions
In € millions
Balance at January 1, 2009
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions/divestments
Pension plans changing to net asset position
Changes in exchange rates
Balance at December 31, 2009
Non-current portion of provisions
Current portion of provisions
Total
Pensions and other
post-retirement
benefits
Restructuring
of activities
Environmental
costs
1,626
179
(451)
–
–
1
77
7
1,439
1,200
239
1,439
165
263
(198)
(12)
2
–
–
6
226
40
186
226
318
40
(31)
(24)
32
–
–
17
352
280
72
352
Total
2,917
648
(961)
(64)
60
6
77
33
2,716
1,919
797
2,716
Other
808
166
(281)
(28)
26
5
–
3
699
399
300
699
Provisions for pensions and other post-retirement benefits
We have a number of defined benefit pension plans. The largest pension plans are the ICI Pension
Fund and the AkzoNobel (CPS) Pension Scheme in the UK which together account for 78 percent
of our pension plan obligations. The benefits of these and other plans are based primarily on
years of service and employees’ compensation. The funding policy for the plans is consistent
with local requirements in the countries of establishment. Obligations under the defined benefit
plans are systematically provided for by depositing funds with trustees or separate foundations,
under insurance policies, or by balance sheet provisions. Plan assets principally consist of
long-term interest-earning investments, quoted equity securities and real estate. Valuations of
the obligations under the pension and other post-retirement plans are carried out regularly by
independent qualified actuaries.
We also provide certain healthcare and life insurance benefits to retired employees, mainly in the
US and the Netherlands. We accrue for the expected costs of providing such post-retirement
benefits during the service years of the employees.
The main changes in 2009 related to our pension and other post-retirement obligations were:
During the year changes were made to the pension and post-retirement plans in the US
•
resulting in reductions in the defined benefit obligations of those plans. The freezing of certain
defined benefit pension plans resulted in a curtailment gain of €25 million and an amendment
to the post-retirement healthcare plans resulted in a gain of €49 million.
During the year, the obligation of the Dutch Noblesse pension plan was transferred to an
external insurer. This transfer was accounted for as a plan settlement, with the obligation and
associated assets removed from the balance sheet. As the assets had been restricted under
accounting interpretation IFRIC 14 to the value of the obligation, there was no net gain or loss
on this settlement.
•
The table opposite shows a summary of the changes in the pension and the other post-retirement
benefit obligations and plan assets for 2009 and 2008.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 109
Movements in provisions for pension and other post-rirement benefi t obligations
In € millions
Defi ned benefi t obligation
Balance at beginning of year
Acquisitions/divestments
Settlements/curtailments
Plan amendment
Service costs
Contribution by employees
Interest costs
Benefi ts paid
Actuarial gains/(losses)
Changes in exchange rates
Pensions
2009
2008
Other post-
retirement benefits
2008
2009
(4,628)
(11,477)
136
(21)
(76)
(7)
(827)
968
1,477
2,987
(11,468)
(32)
222
(28)
(50)
(5)
(746)
943
(1,703)
(821)
(286)
(136)
–
(28)
(7)
(2)
(24)
47
–
(5)
(441)
–
–
48
(7)
(3)
(24)
40
(7)
1
Defi ned benefi t obligation at year-end
(11,468)
(13,688)
(441)
(393)
Plan assets
Balance at beginning of year
Acquisitions/divestments
Settlements
Contribution by employer
Contribution by employees
Benefi ts paid
Expected return on plan assets
Actuarial gains/(losses)
Changes in exchange rates
Plan assets at year-end
3,502
11,093
(111)
560
7
(968)
802
(1,445)
(2,960)
10,480
10,480
31
(217)
414
5
(943)
596
614
841
11,821
–
–
–
45
2
(47)
–
–
–
–
–
–
–
37
3
(40)
–
–
–
–
Funded status
(988)
(1,867)
(441)
(393)
Unrecognized net loss/(gain)
Unrecognized past service costs
Restriction on asset recognition
Medicare receivable
35
–
(34) 1
–
1,065
4
–
–
(11)
(13)
–
(32)
(4)
(20)
–
(5)
Net balance pension provisions
(987)
(798)
(497)
(422)
Recorded under:
-
Provisions for pensions and other post-
retirement benefi ts
- Other fi nancial non-current assets
Total
(1,129)
142
(987)
(1,017)
219
(798)
(497)
–
(497)
(422)
–
(422)
1 In 2008, pension prepayments of €34 million were not recognized as an asset as they did not meet the recognition
criteria of IAS 19 and IFRIC 14.
110 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Funded and unfunded pension plans
In € millions
Wholly or partly funded plans
Unfunded plans
Total
2008
2009
11,145
323
13,347
341
11,468
13,688
Funded status in earlier years at December 31
In € millions
Pensions
Other post-retirement benefits
2005
2006
2007
2005
2006
2007
Defi ned benefi t obligation
Plan assets
(5,510)
3,596
(5,760)
3,942
(4,628)
3,502
(508)
–
(292)
–
(286)
–
Funded status
(1,914)
(1,818)
(1,126)
(508)
(292)
(286)
The difference between the actual and the expected return on plan assets was a gain of €614 million
in 2009, a loss of €1,445 million in 2008, a loss of €29 million in 2007, a gain of €214 million in
2006 and a gain of €736 million in 2005. The actuarial gains and losses on the defined benefit
obligation over the period 2006 – 2009 break down as follows:
Actuarial gains and losses
In € millions
2006
2007
2008
Pensions
2009
2006
Other post-retirement benefits
2009
2008
2007
2
90
(147)
331
74
Due to
experience
Due to change
in assumptions
(199)
166
1,624
(2,034)
Total
(197)
256
1,477
(1,703)
(3)
6
3
(5)
5
–
5
(12)
(7)
19
93
The remaining plans primarily represent defined contribution plans. This includes, among others,
the AkzoNobel Pension Fund in the Netherlands. Expenses for these plans totaled €118 million in
2009 (2008: €112 million).
Weighted average assumptions for pensions
In %
Pension benefi t obligation at December 31:
- Discount rate
- Rate of compensation increase
Net periodic pension costs:
- Discount rate
- Rate of compensation increase
- Expected return on plan assets
Pensions
2009
2008
6.3
3.5
5.8
4.4
6.0
5.6
4.6
6.3
3.5
5.2
Other post-
retirement benefits
2008
2009
6.0
5.3
5.8
6.0
The table below illustrates the weighted average life expectancy of the persons participating in the
defined benefit pension plans.
Life expectancy
In years
Currently aged 60
Male
Female
Currently aged 45, at age 60
Male
Female
At December 31
2008
2009
25.4
27.5
26.8
28.8
25.3
27.8
26.8
29.1
Net periodic pension cost
In € millions
Pensions
Other post-
retirement benefits
2008
2009
2008
2009
Service costs for benefi ts earned during the period
Interest costs on defi ned benefi t obligations
Expected return on plan assets
Amortization of unrecognized losses/(gains)
Amortization of past service costs
Change of restriction of asset recognition
Settlement/curtailment gain
(76)
(827)
802
(32)
(20)
31
(4)
(50)
(746)
596
(12)
(23)
(1)
21
(7)
(24)
–
–
(25)
–
–
Total
(126)
(215)
(56)
(7)
(24)
–
–
41
–
–
10
The assumptions for the expected return on plan assets were based on a review of the historical
returns of the asset classes in which the assets of the pension plans are invested. The historical
returns on these asset classes were weighted based on the expected long-term allocation of the
assets of the pension plans.
The primary objective with regard to the investment of pension plan assets is ensuring that each
individual scheme has sufficient funds available to satisfy future benefit obligations. For this purpose
so-called asset and liability management (ALM) studies are made periodically at each pension
fund under responsibility of the fund managers. For each of the pension plans an appropriate mix
is determined on the basis of the outcome of these ALM studies, taking into account the national
rules and regulations.
Pension plan assets principally consist of long-term interest-earning investments, quoted equity
securities and real estate. On December 31, 2009 and 2008, plan assets did not include financial
instruments issued by the company, nor any property occupied or other assets used by it. The
weighted average pension plan asset allocation at December 31, 2009 and 2008, and the target
allocation for 2010 for the pension plans by asset category are as follows:
In the US, the Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced
prescription drug benefits for retirees, as well as a federal subsidy to sponsors of post-retirement
healthcare plans, which both began on January 1, 2006. We have recognized this reimbursement
right as an asset under other financial non-current assets, measured at fair value. Due to the
amendment of our US post-retirement healthcare plans, this value decreased to €5 million at
December 31, 2009 (December 31, 2008: €32 million).
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 111
Plan asset allocation
In %
Equity securities
Long-term interest earning investments
Real estate
Other
Total
Plan assets at
December 31
2008
2009
Target
allocation
2010
23
72
2
3
100
17
72
2
9
100
15 – 20
70 – 75
0 – 5
5 – 10
100
At year-end 2009, an amount of £174 million (€195 million; 2008: £184 million or €189 million)
remained in an escrow account on behalf of the AkzoNobel (CPS) Pension Scheme in the UK.
The present minimum annual funding of this pension fund from the escrow account is £25 million.
The current portion is included in trade and other receivables, and the non-current part in other
financial non-current assets. For the latter see also note 12.
Expected benefi t payments
In € millions
2010
2011
2012
2013
2014
Cash flows
We expect to contribute €490 million to our defined benefit pension plans in 2010. This includes
additional payments of £175 million (€196 million) for the ICI Pension Fund and £85 million
(€95 million) for the AkzoNobel (CPS) Pension Scheme of which £25 million (€28 million) will be
paid out of the escrow account. For other post-retirement benefit plans the contribution for 2010
is expected to be €34 million.
Other post-
retirement
benefits
34
34
34
33
33
152
Pensions
929
923
915
918
924
4,723
Weighted average assumptions for the other post-retirement benefit plans were as follows:
2015 – 2019
Weighted average assumptions
In %/year
Assumed healthcare cost trend rates at December 31:
- Healthcare cost trend rate assumed for next year
- Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
2008
2009
6.3
4.0
5.8
3.8
Provisions for restructuring of activities
Provisions for restructuring of activities comprise accruals for certain employee benefits and for
costs which are directly associated with plans to exit or cease specific activities and closing down
of facilities. For all restructuring provisions a detailed formal plan exists and the implementation
of the plan has started or the plan has been announced before the balance sheet date. Most
restructuring plans are expected to be completed within two years from the balance sheet date.
For more information, see note 3.
- Year that the rate reaches the ultimate trend rate
2014 – 2016
2015 – 2024
Provisions for environmental costs
For details on environmental exposures, see note 21.
Assumed healthcare cost trend rates can have a significant effect on the amounts reported for the
healthcare plans. A one percentage point change in assumed healthcare cost trend rates would
have the following effects:
Sensitivity healthcare cost trends
In € millions
(Increase)/decrease on total of service and interest cost
(Increase)/decrease on post-retirement benefi t obligations
1% point
increase
1% point
decrease
(1)
(12)
1
10
Other provisions
Other provisions relate to a great variety of risks and commitments, including provisions for
antitrust cases, claims, other long-term employee benefits such as long-service leave and jubilee
payments. At year-end 2009, the provision for antitrust cases amounted to €188 million (2008:
€289 million), see note 21.
The majority of the cash outflows related to other provisions are expected to be within one to five
years. In calculating the other provisions, a pre-tax discount rate of on average 5 percent has
been used.
112 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Note 18 Long-term borrowings
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2008
2,245
12
84
2,341
2009
3,276
7
205
3,488
On December 31, 2009 and 2008, the total amount of long-term credit facilities arranged by
AkzoNobel was €1.5 billion, maturing in 2013. Both at year-end 2009 and 2008, this facility
had not been drawn. On December 31, 2009 and 2008, none of the borrowings was secured
by collateral.
Finance lease liabilities are included in other borrowings and aggregated €14 million. An amount of
€3 million will mature within one year and €11 million will mature in the period 2011 through 2014.
Note 19 Short-term borrowings
The amounts due within one year are presented under short-term borrowings. For details on the
exposure to interest rate and foreign currency risk, see note 24.
In € millions
In March 2009 a bond was issued of €750 million, maturing in six years, with an interest rate of
7.25 percent. In April 2009, a bond was issued of £250 million, maturing in seven years, with an
interest rate of 8.0 percent. In June 2009, new private debt was issued of €150 million. In December
2009, we redeemed €215 million of debt due in 2011 and issued new debt of €225 million,
maturing in five years by means of extending our 7.25 percent bond issued in March 2009.
Commercial paper
Debt to credit institutions
Borrowings from associates and joint ventures
Current portion of long-term borrowings
Total
2008
20
146
28
1,144
1,338
2009
–
209
61
114
384
Debt issued
In € millions
41/4 % 2003/11 (€750/€539 million)
5 5/8 % 2003/13 ($500 million)
7 3/4 % 2008/14 (€1 billion )
7 1/4 % 2009/15 (€750 million)
7 1/4 % 2009/15 (€225 million)
8 % 2009/16 (£250 million)
Other
Total
2008
756
395
997
–
–
–
97
2009
533
347
993
746
259
278
120
2,245
3,276
During 2009, the average effective interest rate was 5.87 percent (2008: 5.13 percent).
Aggregate maturities of long-term borrowings
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2011 – 2014
After 2014
1,994
7
174
2,175
1,282
–
31
1,313
In May 2009, bonds totaling €1.0 billion matured which were classified as short-term borrowings
at year-end 2008.
AkzoNobel has a $1.0 billion commercial paper program and a €1.5 billion euro commercial
paper program. On December 31, 2009, the commercial paper programs were not used (2008:
€20 million). The commercial paper programs can only be used to the extent that the equivalent
portion of the revolving credit facility is not used. See also note 24.
Note 20 Trade and other payables
In € millions
Suppliers
Amounts payable to employees
Derivatives
Taxes and social security contributions
Prepayments by customers
Dividends
Payable to related parties
Other liabilities
Total
2008
1,584
221
213
183
16
8
8
752
2009
1,522
230
112
209
23
17
3
750
2,985
2,866
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 113
Note 21 Contingent liabilities and commitments
Environmental matters
We are confronted with substantial costs arising out of environmental laws and regulations, which
include obligations to eliminate or limit the effects on the environment of the disposal or release
of certain wastes or substances at various sites. Proceedings involving environmental matters,
such as the alleged discharge of chemicals or waste materials into the air, water, or soil, are
pending against us in various countries. In some cases this concerns sites divested in prior years
or derelict sites belonging to companies acquired in the past.
It is our policy to accrue and charge against earnings environmental clean-up costs when it is
probable that a liability has materialized and an amount is reasonably estimable. These accruals
are reviewed periodically and adjusted, if necessary, as assessments and at clean-ups proceed
and additional information becomes available. Environmental liabilities can change substantially
due to the emergence of additional information on the nature or extent of the contamination, the
necessity of employing particular methods of remediation, actions by governmental agencies or
private parties, or other factors. Cash expenditures often lag behind the period in which an accrual
is recorded by a number of years.
As stated in note 17, the provisions for environmental costs accounted for in accordance with
the aforesaid policies aggregated €352 million on December 31, 2009 (December 31, 2008:
€318 million). The provision has been discounted using an average pre-tax discount rate of
4.3 percent (2008: 5.5 percent).
While it is not feasible to predict the outcome of all pending environmental exposures, it is
reasonably possible that there will be a need for future provisions for environmental costs which, in
management’s opinion, based on information currently available, would not have a material effect
on the company’s financial position but could be material to the company’s results of operations
in any one accounting period.
Antitrust cases
AkzoNobel is involved in investigations by the antitrust authorities in the European Union into
alleged violations of the respective antitrust laws for some products in these jurisdictions. We are
fully cooperating with the authorities in these investigations. In addition, we are defending civil
damage claims in relation to alleged antitrust violations in the European Union and the US.
In November 2009, Akzo Nobel was fined by the European Commission in the Heat Stabilizers
investigation initiated in 2003 and we recognized a provision for this fine. The total provision for
the various antitrust cases at December 31, 2009, amounted to €188 million (2008: €289 million).
Two cases are pending in appeal by the company with the EU General Court against decisions
by the EU Commission to impose fines on the company for violations of EU competition laws
regarding the following products: soda ash (€10 million) and metacrylates (€91 million). Our appeal
against the European Commission’s decision to fine the company for violation of the European
competition laws regarding monochloracetic acid (€84 million) was dismissed by the EU Court
of First Instance (EU CFI, now called the General Court) in 2009. We decided not to appeal this
judgment. The European Court of Justice dismissed our appeal of the EU CFI’s 2007 judgment in
choline chloride (€21 million) and we paid the fine. Finally, we have withdrawn our appeal of the EU
Commission’s decision in hydrogen peroxide and also paid the corresponding fine of €25 million.
It should be understood that, in light of possible future developments, such as (a) the outcome
of investigations by the various antitrust authorities, (b) potential additional lawsuits by (direct
or indirect) purchasers, (c) possible future civil settlements, and (d) rulings or judgments in the
pending investigations or in related civil suits, the antitrust cases are likely to result in additional
liabilities and related costs. At this point in time, we cannot estimate any additional amount of loss
or range of loss in excess of the recorded amounts with sufficient certainty to allow such amount
or range of amounts to be meaningful. Moreover, if and to the extent that the contingent liabilities
materialize, they are typically paid over a number of years and the timing of such payments cannot
be predicted with confidence. The company believes that the aggregate amount of any additional
fines and civil damages to be paid will not materially affect the company’s financial position. The
aggregate amount, however, could be material to our results of operations or cash flows in any
one accounting period.
Other investigations and litigation
In 1986, an ICI subsidiary acquired a business that manufactured and sold paint in the US and
Canada, and named the company the Glidden company (“Glidden”). Glidden was renamed as
Akzo Nobel Paints LLC and is an indirect subsidiary of the company. The seller, a predecessor of
Millennium Holdings LLC (the “seller”), now a subsidiary of LyondellBasell Industries, continued
to manufacture and sell pigment. An alleged predecessor of Glidden and the seller manufactured
lead pigment until the 1950s and lead pigment-based paint until the 1960s. Beginning in the late
1980s, both Glidden and the seller were named as defendants along with former producers of
lead pigment and lead pigment-based paint in a number of lawsuits in the United States. These
lawsuits sought damages for alleged personal injury caused by lead pigment-based paint or the
costs of removing lead pigment-based paint. As the suits progressed, the plaintiffs shifted their
focus to manufacturers of lead pigment. As a result, Glidden was dismissed from most of the
pending cases and is currently a defendant in only two pending lawsuits, The City of New York
v Lead Industries Association, Inc, et al and Smith v Lead Industries Association, Inc, et al (filed
in 1989 and 1999 respectively). Glidden is indemnified by the Seller against the City of New York
lawsuit. Glidden believes that it has strong defenses to the two remaining cases and will continue
to defend all such actions. We have determined that the risk of cash outflow is approaching zero
and we have not recognized a provision for this case.
Under the sale agreement by which Glidden was acquired, the seller agreed to indemnify
Glidden against claims relating to certain pre-completion liabilities, and Glidden also gave certain
indemnities to the seller. While Glidden did not acquire any assets or liabilities relating to the
manufacture or sale of pigments, the Seller has asserted that it is entitled to indemnification under
the sale agreement for certain liabilities it may have relating to lead pigment and/or lead pigment-
based paint litigation. In its public disclosures, the Seller states that it continues to defend against
a number of lead-based lawsuits although it asserts that the claims are without merit. On March
28, 2008, the seller filed suit against Glidden in New York Supreme Court seeking to establish
the alleged indemnification obligation. Glidden, which has assumed all of the purchaser’s rights
and obligations under the sale agreement, believes that it has no such obligation to indemnify the
Seller and is defending against the claim. We are unable to reliably estimate any possible loss.
From the early 1970s until 1999, ICI Americas Inc. (“ICIA”) operated and maintained two
manufacturing facilities on behalf of the US Army. Employees at each facility were employed by
ICIA and were members of ICIA pension plans. The US Army reimbursed to ICIA the cost of
contributions to each pension plan until such time as the plans had a surplus. Upon termination of
114 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
the contract in 1999, each of the schemes continued to carry a surplus. In September 2004, the
US Army Contracting Officer issued a final determination holding that termination of the contract
triggered a refund to the US Government of an amount equal to the value of the 1999 pension
surplus. ICIA filed an appeal of the final determination to the Armed Services Board of Contract
Appeals (“Appeals Board”) on January 26, 2005. April 22, 2005, the US Army re-issued its final
determination, amended to include an additional theory of liability. ICIA filed an appeal of the new
final determination on July 14, 2005. In a decision dated May 24, 2007, the Appeals Board ruled
in favor of the US Army on liability. The Appeals Board has agreed to stay further proceedings
while the parties discuss a settlement. The company has taken a provision with respect to this
matter.
A number of other claims are pending, all of which are contested. We are also involved in disputes
with tax authorities in several jurisdictions. While the outcome of these claims and disputes cannot
be predicted with certainty, we believe, based upon legal advice and information received, that
the final outcome will not materially affect our consolidated financial position but could be material
to our result of operations or cash flows in any one accounting period.
Commitments
Purchase commitments for property, plant and equipment aggregated €60 million on December
31, 2009 (2008: €92 million). In addition, we have purchase commitments for raw materials and
supplies incident to the ordinary conduct of business, for a total of €1.2 billion (2008: €1.5 billion).
Long-term commitments contracted in respect of leasehold, rental, operational leases, research,
etc. aggregated €572 million on December 31, 2009 (December 31, 2008: €566 million).
Maturity of long-term commitments
In € millions
Payments due within one year
Payments between one and fi ve years
Payments due after more than fi ve years
Total
2008
166
312
88
566
2009
169
289
114
572
Guarantees related to investments in associates and joint ventures totaled €12 million
(December 31, 2008: €16 million).
In connection with the Organon BioSciences divestment to Schering-Plough, AkzoNobel has
limited its maximum exposure to claims to €850 million. The provided guarantees and indemnities
have varying maturity periods. We have not recognized a provision in relation to this exposure.
Note 22 Related party transactions
We purchased and sold goods and services to various related parties in which we hold a
50 percent or less equity interest (investment in associates and joint ventures). Such transactions
were conducted at arm’s length with terms comparable to transactions with third parties. In
2009, a significant related party transaction was a €218 million gas supply (2008: €258 million) by
the company to Delesto, a joint venture of AkzoNobel and Essent. Delesto transforms gas into
steam and electricity. The steam is used in our production processes and the electricity is sold to
the market.
We have contracts with several pension funds, for which the financial impact is disclosed in
note 17.
•
At year-end 2009, AkzoNobel had a loan to the AkzoNobel Pension Fund in the Netherlands
of €90 million (2008: €89 million). In recognition of a funding deficit at the ICI Pension Fund in
the UK, the company has agreed to make top-up contributions of £175 million in the years
2010 and 2011 and of £195 million in each year from 2012 to 2017.
A subsidiary of the company, Imperial Chemicals Industries Limited has provided an asset-
backed guarantee, via another wholly owned subsidiary, ICI Receivables Funding Ltd (ICI RF),
specifically incorporated to provide the guarantee, for £250 million to support its commitment
for the ICI Pension Fund (also see note 17). The guarantee is backed by the cash balances of
ICI RF of €224 million and the remainder by means of letters of credit.
In recognition of a funding deficit at the Akzo Nobel (CPS) Pension Scheme in the UK, the
company has agreed to make top-up contributions of £60 million in the years 2010 and 2011
and of £75 million in each year from 2012 to 2018. In addition, contributions of at least £25m
will be paid each year from the escrow account (see notes 12 and 17) until 2017 or the earlier
date on which the escrow account is exhausted.
In recognition of a funding deficit at the ICI Specialty Chemicals Fund in the UK, the company
has agreed to make top-up contributions of £11 million in the years 2010 and 2011 and of
£5 million in each year from 2012 to 2017.
•
•
•
We consider the members of the Board of Management and the Supervisory Board to be the key
management personnel as defined in IAS 24 “Related parties”. For details on their remuneration,
as well as on shares and options held, see note 23. In the ordinary course of business, we have
transactions with various organizations with which certain of the members of the Supervisory
Board or Board of Management are associated, but no related party transactions were effected
in 2009. Likewise, there have not been any transactions with members of the Supervisory Board
or Board of Management, any other senior management personnel or any family member of such
persons. Also no loans have been extended to members of the Supervisory Board or Board of
Management, any other senior management personnel or any family member of such persons.
Note 23 Remuneration of the Supervisory Board
and the Board of Management
Total compensation to key management personnel amounted to €9.2 (2008: €7.6 million), €5.7
relates to short term employee benefits (2008: €4.9 million), €1.0 million to post-employment
benefits (2008: €1.1 million) and €2.5 million to share-based compensation (2008: €1.6 million).
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 115
Supervisory Board
In €
Karel Vuursteen, Chairman 2,4
Maarten van den Bergh 3
Uwe-Ernst Bufe, Deputy Chairman 2,5
Virginia Bottomley 4
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans 4
Peter Ellwood 4
Louis Hughes
Total
1 Restated for employer’s charges.
2 As from March 5, 2009.
3 Until March 5, 2009.
4 Also member of the Nomination committee.
5 Until March 5, 2009 member of the Audit committee.
Remuneration
Attendance fee Audit committee
Remuneration
committee
Nomination
committee
Employer’s
charges
Total
remuneration
Committee allowance fee
Total
remuneration
2008 1
82,300
132,300
82,300
77,300
77,300
69,800
60,000
42,300
92,300
93,300
16,700
58,300
50,000
50,000
50,000
50,000
50,000
50,000
5,000
–
22,500
20,000
5,000
20,000
5,000
20,000
50,000
715,900
468,300
147,500
–
–
–
10,000
–
–
14,200
8,300
–
15,000
2,500
–
–
–
–
–
–
–
2,200
–
2,200
2,200
2,200
2,200
–
2,200
2,200
2009
115,500
19,200
85,500
82,200
77,200
84,700
69,200
80,500
117,200
32,500
17,500
15,400
731,200
–
–
2,500
–
20,000
12,500
–
–
15,000
50,000
Members of the Supervisory Board receive a fixed remuneration: €100,000 for the Chairman,
€60,000 for the Deputy Chairman and €50,000 for the other members. Members of committees
receive an extra compensation. Members living outside the Netherlands receive an attendance
fee dependent on the country of residence. Members who are resident in the Netherlands do not
receive an attendance fee except for meetings held outside the Netherlands.
In accordance with the Articles of Association and good corporate governance practice, the
remuneration of Supervisory Board members is not dependent on the results of the company.
We do not grant share-based compensation to our Supervisory Board members, neither do we
grant loans. Travel expenses and facilities for members of the Supervisory Board are borne by
the company and reviewed by the Audit Committee.
The shares in the company owned by Supervisory Board members serve as a long-term
investment in the company.
Shares held by the members of the Supervisory Board
Number of shares at year-end
Karel Vuursteen
Virginia Bottomley
Peggy Bruzelius
Peter Ellwood
2008
400
1,758
500
–
2009
400
1,758
500
500
Former members of the Supervisory Board did not receive any remuneration.
116 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Board of Management
Active members
The individual contracts of the members of the Board of Management are determined by the
Supervisory Board within the framework of the remuneration policy adopted by the Annual General
Meeting of shareholders. For more detailed information on the decisions of the Supervisory Board
with respect to the individual contracts of the members of the Board of Management, see the
Remuneration report.
Overview of remuneration
The members of the Board of Management received the following remuneration:
Board remuneration
In €
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning 1
Keith Nichols 2
2008
760,000
570,000
570,000
–
380,000
Salary
2009
760,000
570,000
570,000
380,000
570,000
Short-term incentives
Other short-term benefits
Post-employment benefits
Share-based compensation
Total remuneration
2008
2009
2008
2009
2008
2009
2008
2009
2008
2009
700,000
340,000
340,000
–
226,700
464,000
339,300
339,300
226,200
339,300
4,500
173,900
7,200
–
82,100
4,100
151,900
54,400
2,700
171,400
565,600
291,400
156,200
–
57,600
458,400
208,600
146,000
88,900
124,700
647,400
431,400
431,400
–
156,300
777,600
546,600
546,600
277,600
400,700
2,677,500
2,464,100
1,806,700
1,504,800
–
1,816,400
1,656,300
975,400
902,700
1,606,100
Total
2,280,000
2,850,000
1,606,700
1,708,100
267,700
384,500
1,070,800
1,026,600
1,666,500
2,549,100
6,891,700
8,518,300
1 As from May 1, 2009.
2 As from May 1, 2008.
Short-term incentive
The Board of Management and the Supervisory Board have considered the company’s 2009
results in light of the current economic climate and the need to find the right balance between
short and long-term incentives. As a result, they have decided to strengthen the link between
the remuneration of the Board of Management and the medium and long-term targets of the
company. Therefore, Mr. Hans Wijers, CEO, will defer receipt of 50 percent of his short-term
incentive for 2009. Receipt of this deferred payment will be subject to the company achieving
its medium-term target of an EBITDA margin of 14 percent by the end of 2011. The remaining
members of the Board of Management will defer receipt of 25 percent of their short-term incentive
for 2009 subject to the same condition. During the course of 2010, the Remuneration Committee
will reflect further on current policy and the balance between short and long-term compensation
and the company’s targets.
Other short-term benefits
Other short-term benefits include employer’s charges and other compensations.
Employer’s charges refer to social contributions and healthcare contributions. The social charges
of Mr. Nichols (€112,700) related to employer’s contribution in the UK, including a subsequent
payment for the year 2008 (€51,300).
A compensation for living expenses and home leave allowances was paid to Mr Darner (€147,800)
and Mr. Nichols (€58,700). Mr. Frohn received a contractual salary payment for 25 years service
with AkzoNobel.
Post-employment benefits
We pay the pension contributions to a pension insurance company. Investments are at participant’s
risk. Amounts stated are after deduction of any contributions made by members of the Board of
Management.
Share-based compensation
The costs for share-based compensation are non-cash and mainly related to the performance-
related share plan following IFRS 2.
Stock options
As from 2008, no conditional, performance-related stock options were granted to the members
of the Board of Management. The aggregate numbers of (conditional) stock options held by the
members of the Board of Management were as follows:
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 117
Number of options
Hans Wijers
Value of outstanding options (in €)
Leif Darner
Value of outstanding options (in €)
Rob Frohn
Value of outstanding options (in €)
Keith Nichols 1
Value of outstanding options (in €)
1 As from May 1, 2008.
Year of issue
Exercise
price in €
Outstanding at
January 1,
2009
Exercised
in 2009
Expired
in 2009
Outstanding
at December
31, 2009
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
2006
2007
46.53
19.51
31.45
31.98
46.46
58.89
46.53
19.51
31.45
31.98
46.46
58.89
46.53
19.51
31.45
31.98
46.46
58.89
46.46
58.89
14,850
29,700
23,000
23,000
19,800
19,800
4,950
4,950
15,000
15,000
13,000
13,000
4,950
4,950
15,000
15,000
13,000
13,000
3,000
3,750
–
–
–
–
–
–
–
(4,950)
–
–
–
–
–
(4,950)
(15,000)
(15,000)
–
–
–
–
–
–
–
–
–
–
(4,950)
–
–
–
–
–
(4,950)
–
–
–
–
–
–
–
14,850
29,700
23,000
23,000
19,800
19,800
1,853,300
–
–
15,000
15,000
13,000
13,000
628,100
–
–
–
–
13,000
13,000
187,600
3,000
3,750
48,500
Expiry date
April 25, 2012
April 22, 2010
April 25, 2011
April 24, 2012
April 26, 2013
April 26, 2014
April 25, 2009
April 22, 2010
April 25, 2011
April 24, 2012
April 26, 2013
April 26, 2014
April 25, 2009
April 22, 2010
April 25, 2011
April 24, 2012
April 26, 2013
April 26, 2014
April 26, 2013
April 26, 2014
118 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
Performance-related shares
With regard to the performance-related shares granted to the members of the Board of Management
in 2007, the final vesting percentage of the 2007 grant equaled 135 percent (series 2006 – 2008:
70 percent), including dividend shares 150.78 percent (series 2006 – 2008: 76.36 percent). The
members of the Board of Management will retain the shares for a minimum period of five years.
Number of performance-related shares
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning 2
Keith Nichols 3
Series
2006 – 2008
2007 – 2009
2008 – 2010
2009 – 2011
2006 – 2008
2007 – 2009
2008 – 2010
2009 – 2011
2006 – 2008
2007 – 2009
2008 – 2010
2009 – 2011
2008 – 2010
2009 – 2011
2006 – 2008
2007 – 2009
2008 – 2010
2009 – 2011
Balance at
January 1,
2009
Granted
in 2009
17,564
24,444
17,464
–
11,531
16,048
12,058
–
11,531
16,048
12,058
–
4,020
–
3,055
4,517
9,078
–
–
8,050
–
36,600
–
5,285
–
27,400
–
5,285
–
27,400
–
27,400
–
1,488
–
27,400
Vested
in 2009
17,564
–
–
–
11,531
–
–
–
11,531
–
–
–
–
–
3,055
–
–
–
Forfeited
in 2009
Dividend
in 2009 1
Balance at
December 31,
2009
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,186
888
1,863
–
1,435
614
1,395
–
1,435
614
1,395
204
1,395
–
403
462
1,395
–
34,680
18,352
38,463
–
22,768
12,672
28,795
–
22,768
12,672
28,795
4,224
28,795
–
6,408
9,540
28,795
Vested on
January 1,
2010
–
34,680
–
–
–
22,768
–
–
–
22,768
–
–
–
–
–
6,408
–
–
1 Equivalent in shares related to accumulated dividend, which is included in the balances at year-end.
2 As from May 1, 2009.
3 As from May 1, 2008.
The shares of the series 2006 – 2008 have vested in 2009 and were delivered to the individual
Board members in 2009.
Shares held by the Board of Management
Number of shares at year-end
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
2008
49,578
29,003
25,525
1,500
2009
58,234
36,473
33,056
3,443
Shares in the company and options of the members of the Board of Management are held in
an account, administered by the Stichting Executive Management Beheer. This foundation acts
as an independent portfolio manager for AkzoNobel participants. We do not provide loans to
members of the Board of Management.
Former members of the Board of Management
In 2009, charges for former members of the Board of Management of €66,600 (2008: €700,000),
related to pension expenses.
Note 24 Financial risk management and financial instruments
Our activities expose us to a variety of financial risks: market risk (including: currency risk, fair
value interest rate risk and price risk), credit risk and liquidity risk. These risks are inherent to
the way we operate as a multinational with a large number of locally operating subsidiaries. Our
overall risk management program seeks to identify, assess, and – if necessary – mitigate these
financial risks in order to minimize potential adverse effects on our financial performance. Our
risk mitigating activities include the use of derivative financial instruments to hedge certain risk
exposures. The Board of Management is ultimately responsible for risk management. Day-to-day
risk management activities are carried out by a central treasury department (Corporate Treasury)
in line with clearly identified and formalized corporate policies and in line with the Treasury Statute.
Corporate Treasury identifies, evaluates and hedges financial risks at a corporate level, and
monitors compliance with the corporate policies approved by the Board of Management, except
for commodity risks, which are subject to identification, evaluation and hedging at business unit
level rather than at corporate level. We have a Corporate Finance & Treasury Committee in place
that advises the CFO in respect of the financial policy and evaluates the scope and performance
of liquidity, interest, credit and currency risk management.
The businesses play an important role in the process of identifying financial risk factors. Within the
boundaries set in the corporate policies, the subsidiaries execute the appropriate risk management
activities. We have treasury hubs which provide treasury services on behalf of Corporate Treasury
to subsidiaries in their region. These treasury hubs are located in Brazil (São Paulo), Asia
(Singapore/Shanghai) and the United States (Chicago) and are primarily responsible for local cash
management and short-term financing.
The Treasury Statute does not allow for extensive treasury operations to be executed at subsidiary
level directly with external parties. It is corporate policy that derivatives are entered into through
Corporate Treasury.
Corporate Treasury is responsible for reporting to the Board of Management on company-wide
exposures on a number of financial risks. This includes information regarding liquidity, foreign
exchange, interest rate, capital and credit risk. In addition, Corporate Treasury is responsible
for maintaining a robust set of internal controls over treasury operations. We use a well-known
treasury management system to support our treasury activities.
Foreign exchange risk management
Trade and financing transactions
Our subsidiaries operate in a large number of countries, and as such have clients and suppliers
in many countries. Many of these subsidiaries have clients and suppliers that are outside of their
functional currency environment. This creates currency exposure which is partly netted out on
consolidation.
The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual
functional currency net cash flows resulting from trade or financing transactions are adversely
affected by changes in exchange rates. It is our policy to fully hedge our transactional foreign
exchange rate exposures from recognized assets and liabilities. Cash flow hedge accounting is
applied by exception.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 119
Corporate Treasury enters into derivative transactions with external parties and is bound by
overnight limits per currency. Where hedging through Corporate Treasury is not feasible under
local legislation, local hedging may take place.
In general, forward exchange contracts that we enter into have a maturity of less than one year.
When necessary, forward exchange contracts are rolled over at maturity. Currency derivatives are
not used for speculative purposes.
Translation risk related to investments in foreign subsidiaries associates and joint ventures
We have subsidiaries with a functional currency other than the euro. Therefore our consolidated
financial statements are exposed to translation risk related to equity, intercompany loans of a
permanent nature and earnings of foreign subsidiaries and investment in associates and joint
ventures. In principle, we do not use financial instruments to hedge this risk.
In the following cases, we apply net investment hedge accounting. We have forward contracts
to sell $780 million and buy £405 million, maturing in December 2011. This contract hedges the
foreign currency risk on $780 million of net investments in foreign operations held by a pound
sterling subsidiary. Net investment hedge accounting is also applied on hedges of pound sterling
net investments in foreign operations which were hedged by a pound sterling bond. The hedge
started at inception of the £250 million bond issued in April 2009. In 2009, both of the hedges
were fully effective.
Foreign currency transaction risk
The table below presents a breakdown of the notional amounts of outstanding foreign currency
contracts for entities with other functional currencies than the euro.
Hedged notional amounts at year-end
In € millions
US dollar
Pound sterling
Swedish krona
Other
Total
Buy
58
747
101
138
Sell
2008
1,201
97
36
951
Buy
241
848
270
296
1,044
2,285
1,655
Sell
2009
1,474
144
91
252
1,961
Sensitivity analysis
We perform foreign currency sensitivity analysis by applying an adjustment to the spot rates
prevailing at year-end. This adjustment is based on observed changes in the exchange rate in the
past and management expectation for possible future movements. We then apply the expected
possible volatility to revalue all monetary assets and liabilities (including derivative financial
instruments) in a currency other than the functional currency of the subsidiary in its balance sheet
at year-end.
120 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
At December 31, 2009, if the euro had weakened/strengthened by 10 percent against the US dollar
with all other variables held constant, post-tax profit for the year would have been €6 million
(2008: €9 million) lower/higher. At December 31, 2009, if the euro had weakened/strengthened by
10 percent against the pound sterling with all other variables held constant, post-tax profit for the
year would have been €1 million (2008: €1 million) higher/lower.
Price risk management
Commodity price risk management
We use commodities, gas and electricity in our production processes and we are particularly
sensitive to energy price movements.
Our Specialty Chemicals companies in the US hedge the price risk on natural gas through buying
natural gas futures on the New York Mercantile Exchange. At year-end 2009, the notional amounts
of these futures are 1.7 million dekatherms, spread over all 12 months of 2010 (2008: 1.6 million
dekatherms, spread over all 12 months of 2009). The total fair value of these futures is € nil at
year-end (2008: €2 million negative). No hedge accounting is applied to the changes of the fair
value of these contracts.
Sensitivity analysis
We perform our commodity price risk sensitivity analysis by applying an adjustment to the forward
rates prevailing at year-end. This adjustment is based on observed changes in commodity prices
in the previous year and management expectations for possible future movements. We then apply
the expected volatility to revalue all commodity-derivative financial instruments in the applicable
commodity in our balance sheet at year-end. For the purpose of this sensitivity analysis, the
change of the price of the commodity is not discounted to the net present value at balance sheet
date.
On December 31, 2009, if a parallel adjustment of the price curve of natural gas by €14,000 per
10,000 dekatherms up/down as compared with the market prices prevailing at that date had
occurred, with all other variables held constant, post-tax profit would have been €2 million (2008:
€2 million) higher/lower. This is due to the fair value changes of natural gas derivatives.
On December 31, 2009, if the price of oil had weakened/strengthened by €5 per barrel (10 percent)
as compared with the market prices prevailing at that date, with all other variables held constant,
post-tax profit would have been € nil higher/lower (2008: € nil).
To hedge the price risks related to energy supply in the Netherlands, we operate one power plant
in joint venture with Essent/RWE in Delfzijl of 520 MW. AkzoNobel power plants are located
in Hengelo (80 MW), Rotterdam (20 MW) and Mariager, Denmark (20 MW). The power plants
transform natural gas into steam and electricity. The steam is used in our production facilities and
excess electricity is sold on the market. The price for natural gas in our purchase contracts is a
fixed or floating price. In order to hedge the price risk of natural gas in these contracts, we have
partly entered into option contracts for the underlying oil price. At year-end 2009, the notional
amount of oil call options is 41,700 barrels per month until September 2010. Income volatility
caused by energy prices of the unit in Denmark has been hedged by an electricity price swap,
concluded for 16,133 MWh per month until December 2010. We do not apply hedge accounting
to the changes of the fair value of the hedge contracts.
To hedge the price risk of electricity that is used for the Specialty Chemicals plants in Sweden
and Finland, we entered into future contracts on the power exchange Nord Pool Spot, based on
expected use of electricity over the period 2009 – 2014. We apply cash flow hedge accounting
to these contracts in order to mitigate the accounting mismatch that would otherwise occur. The
effective part of the fair value changes of these contracts amounted to a €12 million loss net of
deferred taxes in equity (2008: €25 million deferred loss). In 2009, nothing was recorded in cost of
goods sold due to ineffectiveness (2008: €2 million loss). The amounts deferred in equity at year-
end are expected to affect operational cost within the next five years.
We hedge our agricultural commodities for our specialty food and industrial starch businesses
with futures and options contracts purchased at the Chicago Mercantile Exchange. We apply
cash flow hedge accounting to these contracts and have operated an effective hedging program
throughout 2009. The futures and cash markets for agricultural commodities have experienced
volatility in 2009. Price peaks occurred in the second and fourth quarters of 2009 when adverse
weather delayed the planting and harvest of crops in the American Midwest. Our standard practice
is to hedge a substantial portion of our 2009/2010 crop. The deferred loss on January 1, 2009
was €24 million. During the year, we deferred a gain of €3 million in equity and recognized a loss
of €27 million in inventories. At year-end 2009, we deferred a gain of €6 million.
On December 31, 2009, if the forward price of electricity on the Nord Pool exchange had
weakened/strengthened by €4 per MWh (10 percent) as compared with the market prices
prevailing at that date, with all other variables held constant, equity would have been €8 million
(2008: €9 million) higher/lower. This is due to the fair value changes of electricity futures which
have been accounted for under cash flow hedge accounting.
On December 31, 2009, if the forward prices of agricultural commodities were 10 percent weaker/
stronger than the market prices actually prevailing at that date, with all other variables held
constant, equity would have been €2 million higher/lower. This is due to the fair value changes of
agricultural derivatives which have been accounted for under cash flow hedge accounting.
Cash flow and fair value interest rate risk management
We are partly financed with debt in order to obtain more efficient leverage. Fixed rate debt results
in fair value interest rate risk. Floating rate debt results in cash flow interest rate risk. The fixed/
floating rate of our outstanding bonds shifted from 56 percent fixed at year-end 2008 to 85 percent
fixed at year-end 2009. The large increase in fixed/floating percentage is mainly due to maturing
bonds in 2009 which were classified as floating in 2008.
We have entered into a number of interest rate swap contracts. A total of $500 million fixed rate
liabilities with an interest rate of 5.625 percent were swapped with a three-month floating rate
US dollar Libor plus an average of 1.1056 percent liabilities maturing in 2013. We have classified
these interest rate swaps as fair value hedges and record them at fair value.
We apply fair value hedge accounting to the above-mentioned interest rate swaps and fixed rate
bonds. During 2009, an amount of €14 million has been accounted for in the statement of income
for fair value changes of the interest rate swaps and an amount of €14 million has been accounted
for in the statement of income as an adjustment to the carrying amount of the hedged bond for
fair value changes attributable to the hedged risk. During 2009, these hedge relationships were
fully effective.
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 121
Liquidity risk management
The primary objective of liquidity management is to provide for sufficient cash and cash equivalents
at all times and any place in the world to enable us to meet our payment obligations. We aim for a
well-spread maturity schedule of our long-term borrowings and a strong liquidity position.
At year-end 2009, we had €1.9 billion available as cash and cash equivalents (2008: €1.4 billion),
see note 15. In addition, we have a €1.5 billion multi-currency revolving credit facility expiring in
2013. Both at year-end 2009 and 2008, this facility had not been drawn. We have a commercial
paper program in the US, which at both year-end 2009 and 2008 had a maximum of $1.0 billion
and a euro commercial paper program, which at both year-end 2009 and 2008 had a maximum
of €1.5 billion. At December 31, 2009, the commercial paper programs were not used (2008:
€20 million). The commercial paper programs can only be used to the extent that the equivalent
portion of the revolving credit facility is not used.
In May 2009, bonds with an amount of €1.0 billion matured. In March 2009, a bond was issued
of €750 million, maturing in six years, with an interest rate of 7.25 percent. In April 2009, a pound
sterling bond was issued for £250 million, maturing in seven years, with an interest rate of 8 percent.
In June 2009, new private debt was issued for €150 million. In December 2009, we refinanced
€215 million of debt which matures in 2011. New debt of €225 million was issued, maturing in
five years by means of extending the existing 7.25 percent bond issued in March 2009.
The effective interest rate (excluding hedge results) over 2009 was 6.33 percent. Combined with
the hedge result (interest rate swaps), the effective interest rate was 5.87 percent.
Sensitivity analysis
At December 31, 2009, if EURIBOR interest rates had been 100 basis points higher/lower with all
other variables held constant, post-tax profit for the year would have been €6 million higher/lower
(2008: €6 million lower/higher).
At December 31, 2009, if US Libor interest rates had been 100 basis points higher/lower, with all
other variables held constant, post-tax profit for the year would have been € 3 million lower/higher
(2008: €4 million lower/higher) .
At December 31, 2009, if GBP Libor interest rates had been 100 basis points higher/lower, with all
other variables held constant, post-tax profit for the year would have been €2 million higher/lower
(2008: €2 million higher/lower).
Credit risk management
Credit risk arises from financial assets such as cash and cash equivalents, derivative financial
instruments with a positive fair value, deposits with banks and financial institutions, and trade
receivables.
We have a credit risk management policy in place to limit credit losses due to non-performance
of financial counterparties and customers. We monitor our exposure to credit risk on an ongoing
basis at various levels. We only deal with counterparties that have a sufficiently high credit rating.
Generally, we do not require collateral in respect of financial assets.
Investments in cash and cash equivalents and transactions involving derivative financial instruments
are entered into with counterparties that have sound credit ratings and good reputation. Derivative
transactions are concluded mostly with parties with whom we have contractual netting agreements
and ISDA agreements in place. In the Treasury Statute limits are set per counterparty for the
different types of financial instruments the company uses. Due to the global credit crisis in 2009,
both the acceptable counterparty credit ratings and credit limits have been closely monitored and
revised where required in line with the market circumstances. We have no reason to expect non-
performance by the counterparties for these financial instruments.
Due to our geographical spread and the diversity of our customers, we were not subject to any
significant concentration of credit risks at balance sheet date. Generally, the maximum exposure
to credit risk is represented by the carrying value of financial assets, including derivative financial
instruments, in the balance sheet. At year-end 2009, the credit risk on consolidated level was
€5.0 billion (2008: €4.7 billion) for long-term borrowings given, trade and other receivables and
cash. Our credit risk is well spread amongst both global and local counterparties. Our largest
counterparty risk amounted to €224 million at year-end 2009. The credit risk from trade receivables
is measured and analyzed at a local operating entity level, mainly by means of ageing analysis.
see note 14.
Capital risk management
Our objectives when managing capital are to safeguard our ability to satisfy our capital providers
and to maintain a capital structure that optimizes our cost of capital. For this we maintain a
conservative financial strategy, with the objective to remain a strong investment grade company
as rated by the rating agencies Moody’s and Standard & Poor. The credit rating at year-end 2009
was Baa1/BBB+ with a negative outlook (year-end 2008: A3/A- with a negative outlook). The
capital structure can be altered, among others, by adjusting the amount of dividends paid to
shareholders, return capital to capital providers, or issue new debt or shares.
Consistent with others in the industry, we monitor capital on the basis of funds from operations
in relation to our net borrowings level (FFO/NB-ratio). The FFO/NB-ratio for 2009 at year-end
amounted to 0.23 (2008: 0.29). Funds from operations are based on net cash from operating
activities, which is adjusted, among others, for the elimination of changes in working capital,
additional payments for pensions and for the effects of the underfunding of pension and other
post-retirement benefit obligations. Net borrowings is calculated as a total of long- and short-term
borrowings less cash and cash equivalents, adding an after-tax amount for the underfunding of
pension benefit obligations and lease commitments.
122 | Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2009
The table below analyzes our cash outflows per maturity group based on the remaining period at
balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Maturity of liabilities and cash outfl ows
In € millions
At December 31, 2008:
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Forward foreign exchange contracts (hedges):
- Outfl ow
- Infl ow
Interest rate swaps:
- Outfl ow
- Infl ow
Other derivatives:
- Outfl ow
- Infl ow
Total
At December 31, 2009:
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Forward foreign exchange contracts (hedges):
- Outfl ow
- Infl ow
Interest rate swaps:
- Outfl ow
- Infl ow
Other derivatives:
- Outfl ow
- Infl ow
Total
Less than
1 year
Between
1 and 5 years
Over 5 years
1,338
138
4
2,985
2,147
(1,328)
16
(20)
31
(21)
1,296
490
17
–
653
(495)
57
(90)
50
–
1,028
78
–
–
–
–
–
–
–
–
5,290
1,978
1,106
381
236
3
2,866
2,372
(2,068)
12
(20)
103
(28)
2,163
771
11
–
569
(477)
47
(68)
26
(18)
1,313
93
–
–
–
–
–
–
–
–
3,857
3,024
1,406
Fair value of financial instruments and IAS 39 categories
The carrying values and estimated fair values of financial instruments are as follows:
Fair value per fi nancial instruments category
In € millions
2008 year-end:
Other fi nancial non-current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
2009 year-end:
Other fi nancial non-current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
Loans and receivables and other liabilities are recognized at amortized cost, using the effective
interest method. We estimated the fair value of our long-term borrowings based on the quoted
market prices for the same or similar issues or on the current rates offered to us for debt with
similar maturities.
The carrying amounts of cash and cash equivalents, receivables less allowance for impairment,
short-term borrowings and other current liabilities approximate fair value due to the short maturity
period of those instruments.
We have not applied the fair value option allowed under IFRS. As from 2009, we have reported
certain energy purchasing contracts as held for trading. The only financial instruments accounted
for at fair value through profit or loss are derivative financial instruments and the short-term
investments included in cash. The fair value of foreign currency contracts, swap contracts,
forward rate agreements, oil contracts and gas futures was determined by valuation techniques
AkzoNobel Report 2009 | Financial statements | Notes to the consolidated financial statements | 123
Carrying value per IAS 39
category
Carrying
amount
Out of scope
of IFRS 7
Loans and
receivables/
other liabilities
At fair value
through profit
or loss
Total
carrying
value
Fair value
757
2,924
1,595
5,276
2,341
1,338
2,985
6,664
815
2,564
2,128
5,507
3,488
384
2,866
6,738
402
240
–
642
–
–
1,188
1,188
414
246
–
660
–
–
1,231
1,231
315
2,655
–
2,970
2,341
1,338
1,584
5,263
374
2,290
–
2,664
3,488
384
1,523
5,395
40
29
1,595
1,664
–
–
213
213
27
28
2,128
2,183
–
–
112
112
355
2,684
1,595
4,634
2,341
1,338
1,797
5,476
401
2,318
2,128
4,847
3,488
384
1,635
5,507
355
2,684
1,595
4,634
2,376
1,286
1,797
5,459
416
2,318
2,128
4,862
3,848
384
1,635
5,867
using market observable input (such as foreign currency interest rates based on Reuters) and by
obtaining quotes from dealers and brokers.
The following valuation methods for financial instruments carried at fair value through profit or loss
are distinguished:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
•
All fair values of financial instruments carried at fair value through profit or loss in the table above
are level 2 valuation methods.
124 | Company financial statements | Financial statements | AkzoNobel Report 2009
Company financial statements
Statement of income
In € millions
Net income/(loss) from subsidiaries, associates and joint ventures
Other net income
Total net income
Balance sheet as of December 31, before allocation of profi t
In € millions
Assets
Non-current assets
Financial non-current assets
Loans to associates and joint ventures
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Subscribed share capital
Additional paid-in capital
Change in fair value of derivatives
Revaluation reserve
Other statutory reserves
Cumulative translation reserves
Other reserves
Undistributed profi t
Shareholders’ equity
Non-current liabilities
Provision for subsidiaries
Long-term borrowings
Total non-current liabilities
Current liabilities
Other short-term debt
Total current liabilities
Total equity and liabilities
Note
b
b
2008
(992)
(94)
(1,086)
2009
355
(70)
285
Note
2008
2009
c
c
d
e
c
f
g
14,076
19
676
452
463
–
(49)
–
236
(1,130)
9,122
(1,179)
444
5,819
1,497
15,418
11
14,095
15,429
1,128
15,223
976
16,405
201
775
465
2
(6)
7
237
(777)
7,632
215
7,463
7,775
481
7,744
6,263
8,225
1,497
15,223
405
405
16,405
Movements in shareholders’ equity
Statutory reserves
AkzoNobel Report 2009 | Financial statements | Company financial statements | 125
In € millions
Balance at January 1, 2008
Changes in fair value of derivatives
Reclassifi cation into the balance sheet
Changes in exchange rates in respect of
subsidiaries, associates and joint ventures
Net income/(loss)
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Buyback of shares
Addition to other reserves
Changes in statutory reserves
Balance at December 31, 2008
Changes in fair value of derivatives
Revaluation related to step acquisitions
Changes in exchange rates in respect of
subsidiaries, associates and joint ventures
Net income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Addition to other reserves
Changes in statutory reserves
Subscribed
share
capital
Additional
paid-in
capital
525
363
Cash flow
hedge reserve
Revaluation
reserve
(510)
(90)
551
–
–
461
–
–
–
–
–
–
(49)
43
–
–
–
43
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
–
–
–
7
–
–
7
–
–
–
–
–
7
–
–
–
–
–
–
–
5
(368)
–
–
–
–
–
–
–
–
–
–
2
–
–
2
Other
statutory
reserves
189
–
–
–
–
–
–
–
–
–
–
47
236
–
–
–
–
–
–
–
–
–
1
Cumulative
translation
reserves
Other
reserves
Undistri-
buted
result
Share-
holders’
equity
(51)
–
–
(1,079)
–
(1,079)
–
–
–
–
–
–
(1,130)
–
–
353
–
353
–
–
–
–
–
1,291
9,225
11,032
–
–
–
–
–
–
23
–
(1,005)
8,860
(47)
9,122
–
–
–
–
–
–
15
–
(1,504)
(1)
7,632
–
–
–
(1,086)
(1,086)
(458)
–
–
–
(8,860)
–
(90)
551
(1,079)
(1,086)
(1,704)
(458)
23
7
(1,437)
–
–
(1,179)
7,463
–
–
–
285
285
(395)
–
–
1,504
–
215
43
7
353
285
688
(395)
15
4
–
–
7,775
–
–
–
–
–
–
–
2
(64)
–
–
463
–
–
–
–
–
–
–
2
–
–
Balance at December 31, 2009
465
237
(777)
126 | Notes to the company financial statements | Financial statements | AkzoNobel Report 2009
Note a General information
The financial statements of Akzo Nobel N.V. have been prepared using the option of section 362 of
Book 2 of the Netherlands Civil Code, meaning that the accounting principles used are the same
as for the consolidated financial statements. Foreign currency amounts have been translated,
assets and liabilities have been valued, and net income has been determined, in accordance with
the principles of valuation and determination of income presented in note 1 to the consolidated
financial statements.
Subsidiaries of Akzo Nobel N.V. are accounted for using the equity method.
As the financial data of Akzo Nobel N.V. are included in the consolidated financial statements, the
statement of income of Akzo Nobel N.V. is condensed in conformity with section 402 of Book 2 of
the Netherlands Civil Code. The remuneration paragraph is included in note 23 of the consolidated
financial statements.
Note b
For further details on net income from subsidiaries, associates and joint ventures, see note c.
Net income from subsidiaries, associates and joint ventures
Note c Financial non-current assets and provision for subsidiaries
Movements in fi nancial non-current assets
In € millions
Balance at January 1, 2008
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries, associates and joint ventures
Equity-settled transactions
Change in fair value of derivatives
Loans granted
Repayment of loans
Changes in exchange rates
Other changes
Transfer to provision for subsidiaries
Balance at December 31, 2008
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries, associates and joint ventures
Equity-settled transactions
Change in fair value of derivatives
Loans granted
Repayment of loans
Changes in exchange rates
Other changes 2
Change to provisions for subsidiaries 3
Balance at December 31, 2009
1 Loans to these companies have no fi xed repayment schedule.
2 Including €7 million revaluation reserve for step acquisitions.
3 At year-end 2009, the provisions for subsidiaries amounted to €481 million.
Total
Share in capital
7,200
12,470
(4,715)
(992)
23
(66)
2,015
(833)
(1,261)
(190)
444
14,095
3,167
(3,769)
355
15
43
3,377
(2,210)
366
(47)
37
2,777
12,470
(4,715)
(992)
23
(66)
–
–
(1,246)
(190)
444
8,505
3,127
(3,769)
355
15
43
–
–
271
(47)
37
15,429
8,537
Subsidiaries
Loans 1
4,314
–
–
–
–
–
2,015
(832)
(16)
–
–
5,481
–
–
–
–
–
3,377
(2,202)
104
–
–
6,760
Other financial
non-current assets
Loans to associates
and joint ventures
89
–
–
–
–
–
–
–
1
–
–
90
40
–
–
–
–
–
–
(9)
–
–
121
20
–
–
–
–
–
–
(1)
–
–
–
19
–
–
–
–
–
–
(8)
–
–
–
11
AkzoNobel Report 2009 | Financial statements | Notes to the company financial statements | 127
At year-end 2009 and 2008, the total amount of long-term credit facilities arranged by AkzoNobel
was €1.5 billion, maturing in 2013. Both at year-end 2009 and 2008, this facility had not been
drawn. At year-end 2009 and 2008, none of the borrowings was secured by collateral. Borrowings
from subsidiaries have no fixed repayment schedule. Interest charged on these borrowings
averaged 1.0 percent in 2009 (2008: 4.5 percent).
Note g Short-term debt
In € millions
Current portion of long-term borrowings
Debt to subsidiaries
Borrowings from associates and joint ventures
Commercial paper
Short-term bank loans
Other liabilities
Total
2008
1,114
47
30
20
7
279
1,497
2009
64
23
62
–
5
251
405
Akzo Nobel N.V. has a euro commercial paper program, which at year-end 2009 and 2008 had a
maximum of €1.5 billion. At December 31, 2009, the commercial paper program was not used
(2008: €20 million).
Note h Financial instruments
At December 31, 2009, Akzo Nobel N.V. had outstanding foreign exchange contracts to buy cur-
rencies for a total of €1.6 billion (December 31, 2008: €1.0 billion), while contracts to sell currencies
totaled €1.6 billion (December 31, 2008: €2.3 billion). The contracts mainly related to US dollars,
Swedish krona, Norwegian kronor, and Japanese yen, and all have maturities within one year.
These contracts offset the foreign exchange contracts concluded by the subsidiaries, and the
fair value changes are recognized in the statement of income to offset the fair value changes on
the contracts with the subsidiaries. For information on risk exposure and risk management, see
note 24 of the notes to the consolidated financial statements.
Note d Trade and other receivables
In € millions
Receivables from subsidiaries
Other receivables
Total
Note e Cash and cash equivalents
In € millions
Short-term investments
Cash on hand and in banks
Total
Note f Long-term borrowings
In € millions
Debentures
Debt to subsidiaries
Other borrowings
Total
2008
625
51
676
2008
136
316
452
2008
756
5,063
–
5,819
2009
157
44
201
2009
704
71
775
2009
1,842
5,752
150
7,744
For the fair value of the debenture loans and the related interest-rate derivatives, see note 24 of
the notes to the consolidated financial statements.
Debentures
IN € MILLIONS
4 1/4 % 2003/11 (€750/€539 million)
71/4 % 2009/15 (€750 million)
71/4 % 2009/15 (€225 million)
8 % 2009/16 (£250 million)
Other
Total
2008
756
–
–
–
–
2009
533
746
259
278
26
756
1,842
128 | Notes to the company financial statements | Financial statements | AkzoNobel Report 2009
Note i Contingent liabilities
Akzo Nobel N.V. is parent of the group’s fiscal unit in the Netherlands, and is therefore liable for
the liabilities of said fiscal unit as a whole.
Akzo Nobel N.V. has declared in writing that it accepts joint and several liability for contractual
debts of certain Dutch consolidated companies (art. 403 of Book 2 of the Netherlands Civil Code).
These debts, at December 31, 2009, aggregating €0.5 billion (2008: €0.4 billion), are included in
the consolidated balance sheet. Additionally, at December 31, 2009, guarantees were issued on
behalf of consolidated companies for an amount of €2.8 billion (2007: €1.7 billion).
The debts and liabilities of the consolidated companies underlying these guarantees are included
in the consolidated balance sheet or in the amount of long-term liabilities contracted in respect
of leasehold, rental, operational leases, research, etc. as disclosed in note 21 of the notes to the
consolidated financial statements. Guarantees relating to associates and joint ventures amounted
to €12 million (2008: €16 million).
Note j Auditor’s fees
In € millions
In the Netherlands
Network outside
the Netherlands
Total
In the Netherlands
Network outside
the Netherlands
Audit
Audit-related
Tax
Other services
Total
4.8
0.1
–
–
4.9
9.5
1.0
0.6
–
11.1
2008
14.3
1.1
0.6
–
16.0
Amsterdam, February 16, 2010
The Board of Management
The Supervisory Board
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
Karel Vuursteen
Uwe-Ernst Bufe
Virginia Bottomley
Dolf van den Brink
Peggy Bruzelius
3.4
0.5
–
–
3.9
6.9
0.1
0.4
0.3
7.7
Antony Burgmans
Peter Ellwood
Louis Hughes
Total
2009
10.3
0.6
0.4
0.3
11.6
AkzoNobel Report 2009 | Financial statements | Other information | 129
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion with respect to the consolidated financial statements
In our opinion, the consolidated financial statements give a true and fair view of the financial
position of Akzo Nobel N.V. as at December 31, 2009, and of its result and its cash flows for the
year then ended in accordance with International Financial Reporting Standards as adopted by
the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.
Opinion with respect to the company financial statements
In our opinion, the company financial statements give a true and fair view of the financial position of
Akzo Nobel N.V. as at December 31, 2009, and of its result for the year then ended in accordance
with Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under 2:393 sub 5 part f of the Netherlands Civil Code, we
report, to the extent of our competence, that the management board report as set out on pages
2 to 80 is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands
Civil Code.
Amsterdam, February 16, 2010
KPMG ACCOUNTANTS N.V.
E.H.W. Weusten RA
Other information
Auditor’s report
To the Supervisory Board and the Annual General Meeting of shareholders
of Akzo Nobel N.V.
Report on the financial statements
We have audited the accompanying financial statements 2009 of Akzo Nobel N.V., Amsterdam
as set out on pages 81 to 128. The financial statements consist of the consolidated financial
statements and the company financial statements. The consolidated financial statements
comprise the consolidated balance sheet as at December 31, 2009, the consolidated statements
of comprehensive income, changes in equity and cash flows for the year then ended, and the
notes, comprising a summary of significant accounting policies and other explanatory information.
The company financial statements comprise the company balance sheet as at December 31,
2009, the company statement of income for the year then ended and the notes.
Management’s responsibility
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards as adopted by the European Union
and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the management
board report in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility
includes: designing, implementing and maintaining internal control relevant to the preparation and
fair presentation of the financial statements that are free from material misstatement, whether due
to fraud or error; selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial statements based on our audit. We
conducted our audit in accordance with Dutch law. This law requires that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial
statements.
130 | Other information | Financial statements | AkzoNobel Report 2009
Profit allocation and distributions, and subsequent events
Article 43
43.6
The Board of Management shall be authorized to determine, with the approval of the Supervisory
Board, what share of profit remaining after application of the provisions of the foregoing paragraphs
shall be carried to reserves. The remaining profit shall be placed at the disposal of the Annual
General Meeting of shareholders, with due observance of the provisions of paragraph 7, it being
provided that no further dividends shall be paid on the preferred shares.
43.7
From the remaining profit, the following distributions shall, to the extent possible, be made as
follows:
(a) to the holders of priority shares: 6 percent per share or the statutory interest referred to
in paragraph 1 of article 13, whichever is lower, plus any accrued and unpaid dividends
(b) to the holders of common shares: a dividend of such an amount per share as the remaining
profit, less the aforesaid dividends and less such amounts as the Annual General Meeting of
shareholders may decide to carry to reserves, shall permit.
43.8
Without prejudice to the provisions of paragraph 4 of this article and of paragraph 4 of article 20,
the holders of common shares shall, to the exclusion of everyone else, be entitled to distributions
made from reserves accrued by virtue of the provision of paragraph 7b of this article.
43.9
Without prejudice to the provisions of article 42 and paragraph 8 of this article, the Annual General
Meeting of shareholders may decide on the utilization of reserves only on the proposal of the
Board of Management approved by the Supervisory Board.
Article 44
44.7
Cash dividends by virtue of paragraph 4 of article 20, article 42, or article 43 that have not been
collected within five years of the commencement of the second day on which they became due
and payable shall revert to the company.
Proposal for profit allocation
With due observance of Dutch law and the Articles of Association, €285 million of net income
is carried to the other reserves. Furthermore, with due observance of article 43, paragraph 7, it
is proposed that dividend on priority shares of €1,152 and on common shares of €314 million
(to be increased by dividend on shares issued in 2010 before the ex-dividend date) will be distributed.
Following the acceptance of this proposal, the holders of common shares will receive a dividend
of €1.35 per share of €2, of which €0.30 was paid earlier as an interim dividend. The final dividend
of €1.05 will be made available from May 11, 2010.
Special rights to holders of priority shares
The priority shares are held by “Stichting AkzoNobel” (Foundation Akzo Nobel), whose board
is composed of the members of the Supervisory Board who are not members of the Audit
Committee. They each have one vote on the board of the Foundation.
The Meeting of Holders of Priority Shares has the right to draw up binding lists of nominees
for appointment to the Supervisory Board and the Board of Management. Amendments to the
Articles of Association are subject to the approval of this meeting.
131
132
132
134
135
136
136
136
136
138
138
138
138
139
139
140
142
143
144
144
146
148
149
150
p19
p21
p21
p22
p22
p23
p32-33, 42-43, 54-55
p73
p78-80
The Sustainability facts and fi gures sections (pages 131 to 151) of the 2009 Report is
separate from and does not in any way form part of the company’s annual fi nancial report
(“jaarlijkse fi nanciële verslaggeving”), as defi ned in article 5:25c of the Dutch Financial
Markets Supervision Act for 2009. These sustainability sections contain summarized
Key Performance Indicators (KPIs) relating to sustainability performance.
Further information on AkzoNobel’s sustainability strategy, activities and results
can be found in the Sustainability section of our corporate website:
www.akzonobel.com/sustainability/
s
e
r
u
g
i
f
d
n
a
s
t
c
a
f
y
t
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i
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s
u
S
Contents
2009 key figures
Sustainability framework
Managing our values
Stakeholder activity
Invent: integrate sustainable value propositions
Eco-premium solutions
Cradle to Cradle studies
AkzoNobel Carbon Policy
Manage: include sustainability in all aspects of the value chain
Research, Development and Innovation
Manufacturing
Sourcing
Improve: continue to comply and ensure our license to operate
Integrity management
Employees
Community
Health, Safety, Environment and Security management
Product stewardship
Health and Safety performance
Environmental performance
Reporting principles
Independent assurance report
Sustainability performance summary
Other links to this report:
Deliver profitable growth
Improve gross profit margins
Increase operational effectiveness
Embed the AkzoNobel values
Create an industry-leading Talent Factory
Strive for world class levels of sustainability and safety
Business case studies
Risk management
Investor relations
132 | Key fi gures | Sustainability facts and fi gures | AkzoNobel Report 2009
2009 key figures
•
Eco-premium solutions: 20 percent of revenue
(2008:18 percent)
•
Employee
1 injury rate: down 20 percent
•
CO
2 emissions: first measurement cradle to gate
•
2 emissions (own operations): up 11 percent
CO
per ton of production
•
Total waste: down 3 percent per ton of production
•
Fresh water use: 99 percent of assessments complete
up 1 percent per ton of production
•
VOC emissions: up 16 percent per ton of production
•
•
•
Code of Conduct training: completed by approximately
95 percent of employees
Management training programs: 3,235 participants
across 32 countries
Employee engagement: 80 percent positive,
continuous upward trend
•
Community Program: more than 1,100 projects since 2005
1 Includes supervised contractors in 2009.
All comparisons are with 2008 data.
Refer to reporting principles for details on comparability of data.
Sustainability framework
Introduction
Sustainability topics and data have been integrated into all sections of AkzoNobel’s
2009 Report. This summary focuses on sustainability processes and activities
that span our businesses. A more comprehensive overview of AkzoNobel’s
sustainability strategy, activities and results can be found in the Sustainability
section of our corporate website: www.akzonobel.com/sustainability/
Sustainability framework
The framework (opposite) maps out the sustainability topics covered in this
report. See also the index on page 156.
The AkzoNobel framework has three levels. Each includes environmental,
economic and social aspects, which together map out the journey towards
sustainability.
Improve: continue to comply and ensure our license
to operate
Our management processes include directives and standards, management
systems, improvement objectives, training and auditing. They are underpinned by
AkzoNobel’s risk management process, which integrates environmental, social
and governance issues.
Economic
•
. The Code of Conduct details the requirements
Integrity management
on employees and on the company to operate with integrity. There is a
compliance management process in place. In parallel, a global complaints
procedure allows employees to report any violations which they encounter.
Environmental and social
•
. HSE&S
Health, Safety, Environment and Security management
management systems are based on international and internal company
standards. Implementation is executed by trained, experienced employees;
improvement actions are driven by objectives; and verification achieved
through internal and external audits.
Product stewardship
control the safety and environmental impact of our products throughout the
lifecycle and to manage compliance with international and local regulation.
Employment practices
. HR systems are set up to meet business and local
needs, within the framework of the global HR policy, which sets out principles
for development, education and training, and compensation and benefits.
. Management systems and processes are in place to
•
•
AkzoNobel Report 2009 | Sustainability facts and fi gures | Sustainability framework | 133
Manage: integrate sustainability in all aspects of
the value chain
Based on the foundations of compliance and license to operate,
we are now integrating sustainability into all areas of the value
chain, from market research through to sales and marketing.
Research, Development & Innovation groups focusing on
•
product design for eco-efficiency, applying clever chemistry
•
•
•
Sourcing managers working in partnership with suppliers to
control business integrity issues, and to help us deliver
sustainable value to our customers
Manufacturing sites optimizing processes, improving yields,
improving energy efficiency
Sales and marketing teams working with customers to
develop eco-premium solutions.
Invent: integrate sustainable value propositions
As we move forward, we are identifying and managing those
issues which provide long-term opportunities for our businesses.
•
Working in partnership with customers and suppliers to
deliver eco-premium solutions
Managing long-term resource and environmental issues
Developing our people to lead and deliver innovative solutions
And increasingly working in partnership with a range of
stakeholders to achieve transformational change.
•
•
•
Sustainability framework
Invent
Integrate sustainable
value propositions
Manage
Include sustainability
in all aspects of the
value chain
Improve
Continue to comply
and ensure a license
to operate
Environmental
Economic/Governance
Social
Climate change
Carbon Policy p136
Energy, greenhouse gases p146
Scarce resources
Managing scarce resources p23
Fresh water availability p147
Products
Eco-premium solutions p19, 136
External partnerships
Deliver profitable growth p19
Sourcing p138
Leadership development
Talent Factory p22
Employees p140-142
Market
research
R&D
Investment
decisions
Sourcing
Manufacturing
Sales and
Sales and marketing
marketing
Research and development
Deliver profitable growth p19
RD&I p138
Eco-premium solutions p136
Sourcing
Improve gross profit margins p21
Sourcing p138
Manufacturing
Increase operational
effectiveness p21
Manufacturing p138
Sales and marketing
Eco-premium solutions p136
Stakeholder engagement
Investors p78; Customers p32-33, 42-43, 54-55; Suppliers p135, 138; Communities p32, 135, 142; Employees p140-142; Other stakeholders p135
Environmental management
HSE&S management p143
Emissions, waste p146
Raw material efficiency p147
Energy, greenhouse gases p146
Land remediation p147
Product stewardship
Product stewardship p23, 144
Distribution p144
Integrity management
Code of Conduct
Competition compliance
Anti-bribery
Vendor Policy
Embed AkzoNobel values p22
Sourcing p138
Integrity management p139
Health, Safety, Environment and
Security management
HSE&S management p143
H&S performance p144-145
Process safety p145
Employment practices
Development programs p140
Diversity and Inclusion p141
Restructuring p141
Community involvement
Community p32, 135, 142
Risk management p73
134 | Sustainability | Sustainability facts and fi gures | AkzoNobel Report 2009
Managing our values
Strategic focus
The importance of sustainability to running our business is firmly
integrated into AkzoNobel’s strategy. We have set 2015 targets
for sustainable value creation in order to support our overall
goals. Members of the Board of Management will monitor the
company’s financial and non-financial performance – using the
strategic dashboard – on a quarterly basis.
Our specific sustainability objectives are:
•
Remain in the top three of the
Dow Jones Sustainability Index
Achieve top quartile safety performance (against peer group)
Deliver a step change in people development, in part through
substantively improving the diversity of the company.
•
•
The dashboard specifies indicators, both leading and lagging,
against each objective. Most key performance indicators have
corporate improvement targets for 2015; other short and long-
term targets are set at business level. Performance against the
corporate targets is described in the following pages.
Sustainability framework
The way we manage sustainability continues to evolve. The
focus has shifted away from an emphasis on risks – working
on integrity, governance and compliance – towards creating
opportunities for value creation through process excellence,
innovation and talent development. We have developed a
framework which demonstrates the essential relationship
between all these elements (see page 132-133). It has three
levels – each one including environmental, economic and social
aspects – which together map out our sustainability journey.
1 Improve: continue to comply and ensure a license to operate
– the foundations of how we operate as a company.
2 Manage: include sustainability in all aspects of the value chain.
3 Invent: integrate sustainable value propositions, providing
long-term strategic value.
Management structure
We have established a Sustainability Council, which advises
the Board of Management on strategy developments, monitors
the integration of sustainability into management processes
and oversees the company’s sustainability targets and overall
performance. The Council includes representatives from the
Board of Management, Managing Directors from our businesses
and Corporate Directors. The Corporate Director of Sustainability
(including Health, Safety, Environment and Security) reports
directly to the CEO and has a small central team.
The Managing Director of each business defines their respective
non-financial targets and reports on progress every quarter. All
businesses have also appointed a Sustainability Focal Point to
support the embedding of sustainability throughout their opera-
tions. They bring together an appropriate team to develop and
implement the sustainability agenda for the business. Focal Points
from across the company have regular meetings to exchange
best practices and identify opportunities for further development.
A Compliance Committee also exists to foster awareness of, and
monitor compliance with, the Code of Conduct. Members include
the General Counsel and Corporate Directors of Internal Audit,
Control, Compliance and Human Resources. Each business
has appointed a member of the management team to act as the
Compliance Focal Point, to manage the roll-out of compliance
projects and to monitor compliance with the Code of Conduct.
Objective
Metric
Top three on DJSI
Position on DJSI
2015 target
Top three
Eco-premium solutions (percent of sales)
30%
Cradle-to-gate carbon footprint
(per ton of product)
Sustainable fresh water (percent of sites)
Reduce 10% from 2009
Reduce 20 – 25% by 2020
100%
Top quartile safety performance
Total reportable injury rate
2.0
Step change in people development
Employee engagement
Improvement in employee survey index
Meanwhile, each element of the value chain has identified
focus areas for sustainability, with targets where appropriate.
Functional councils – such as HR, Sourcing and RD&I – compris-
ing corporate and business representatives, are in place to
support the implementation of functional strategy, including the
sustainability elements.
Management processes
We include key sustainability issues in our corporate and
business planning processes, as well as in our risk management
and compliance processes. Where
there are specific
“sustainability” risks or issues of concern to stakeholders, we
develop position papers and an improvement plan owned by a
corporate staff member.
Implementation is monitored using:
•
. At the end
Non-financial Letter of Representation
of the year, the Managing Director of each business signs
the non-financial Letter of Representation to confirm
compliance with the Code of Conduct and other corporate
non-financial requirements, as well as indicating any
material non-compliance. The outcome is reviewed with
the responsible Board member and General Counsel and
the results are reported to the Board of Management and
the Audit Committee.
Corporate audits
compliance issues. The outcomes are shared with the
Compliance Committee and Sustainability Council.
. These include sustainability and
•
We strive to empower all employees to contribute and be
accountable for the company’s sustainability performance. This
responsibility is increasingly anchored in the personal targets
and remuneration packages of managers and employees. From
2009, half of the conditional grant of shares for Board members
and all executives is based on AkzoNobel’s performance on
the Dow Jones Sustainability Index over a three-year period
(see page 68).
Our processes for managing sustainability were again reviewed
as part of our 2009 external assurance activity.
Stakeholder activity
We have established engagement processes and activities
with many stakeholder groups, which are described in other
sections of this report: employees (pages 140-142); customers
(business reports pages 32-33, 42-43, 54-55); suppliers (page
138); investors (page 78); communities (page 142).
Processes for engagement and collecting feedback from other
external stakeholders will be improved in 2010. We currently
engage in this dialog through a range of external projects and
partnerships, which align with our sustainability ambitions for
now and the future. This section highlights some examples
covering different aspects of the sustainability agenda.
Sustainability in the supply chain
In November 2009, the Dutch Association of Investors for
Sustainable Development (VBDO) recognized AkzoNobel for
good sustainability practices in supply chain management.
VBDO researched more than 40 Dutch companies as part of the
study, which looks at areas such as transparency, to what extent
sustainability has been embedded into daily business and how
much effort is put into ensuring that suppliers follow sustainable
behavior and practices. AkzoNobel was also commended for
linking sustainability achievement to executive bonuses and
merging sustainability reporting into its annual report.
Human rights
UN Global Compact project
AkzoNobel and nine participants in the UN Global Compact
network in the Netherlands have taken part in a review of human
rights practices within multinationals. This was in support of
research into the implications of a report by Professor John
Ruggie – the UN Secretary General’s special representative on
business and human rights. This research was adopted by the
Human Rights Council in Geneva as an authoritative statement
regarding the responsibilities of business with respect to
human rights. As a follow-up to the research, the group in the
Netherlands is focusing on sharing good practice implementation
of various aspects, such as grievance procedures.
AkzoNobel Report 2009 | Sustainability facts and fi gures | Sustainability | 135
Suppliers and sustainable trade
The Accelerating Sustainable Trade conference – organized
by the Dutch Sustainable Trade Initiative (IDH), the Dutch
Association of Procurement Managers (NEVI) and AkzoNobel –
attracted more than 600 participants. Our CEO, Hans Wijers,
was a keynote speaker. This was the second conference of its
type supported by AkzoNobel.
focused on sustainable sourcing and
The 2009 event
procurement from a range of perspectives – consumer demands,
retail, traders and SMEs (small and medium enterprises). We
were able to use this event to invite many suppliers, customers
and other stakeholders, raising their awareness of sustainable
sourcing issues.
Partnerships for malnutrition
The Amsterdam Initiative on Malnutrition aims to eradicate
malnutrition in 100 million people in Africa by 2015. It was
formed in May 2009 as a partnership between the Global
Alliance for Improved Nutrition (GAIN), the Dutch Ministry of
Foreign Affairs, Unilever, DSM, AkzoNobel and Wageningen
University. The project focuses on reducing malnutrition among
women and children in South Africa, Mozambique, Kenya and
Tanzania. AkzoNobel is contributing technical expertise and
training in products for combating iron deficiency.
This complements an agreement between AkzoNobel and the
World Food Program to reduce iron deficiency by fortifying
atta wheat flour in rural areas of the Betul district of Madhya
Pradesh, India. AkzoNobel is supporting the WFP-run project
by donating its bioavailable iron, Ferrrazone (recommended
by the World Health Organization as the only suitable iron for
fortification of atta flour), as well as providing technical support.
The two-year program is expected to reach more than 500,000
individuals in the district.
Eco-systems services
Working with the World Resources Institute and the World
Business Council for Sustainable Development, AkzoNobel
is piloting new tools to measure environmental impacts and
opportunities for improvement.
Our involvement with the Eco-system Valuation Initiative started
in 2008, when we took part in the WBCSD Future Leaders
Team. That program explored how the Ecosystems Services
Review (ESR) assessment tool could be incorporated into
corporate decision-making processes. The objective of the ESR
is to identify risk and opportunities by evaluating a business’
dependence, and impact on, natural resources. The valuation
initiative started in 2009 and will take this work further towards
a quantitative economic valuation stage.
We have also taken part in developing the GHG Protocol
Accounting and Reporting Guidelines for product lifecycles and
corporate value chains (Scope 3) and will road test the drafts
in 2010.
Partnerships and endorsements
We support a number of external organizations and charters to
demonstrate our commitment to sustainability issues. These
include the UN Global Compact – we are also an active member
of the network in the Netherlands – and the Global Responsible
Care Charter.
In order to contribute to and keep up-to-date with developments
in the sustainability agenda, we continue to support the work of
the World Business Council for Sustainable Development, the
World Resources Institute and Forum for the Future in the UK.
136 | Sustainability | Invent | Sustainability facts and fi gures | AkzoNobel Report 2009
Invent
Integrate sustainable value propositions
Eco-premium solutions
Eco-premium solutions help to create value for our business
and our customers. They provide top line growth opportunities
because of improved performance in areas such as raw material
use, manufacturing processes and product innovation.
Our target is to increase the share of turnover from eco-premium
solutions to at least 30 percent in 2015. This is a challenging
objective because the measurement will be taken against the
mainstream product in the market, which is a moving target.
One particular area of focus during 2009 was on developing
desktop tools to help R&D and marketing groups develop
solutions for customers which have excellent functionality, and
which will also be eco-premium.
We also use this analysis to identify products that may not be
sustainable in the longer term due to competitive or regulatory
pressures. This is an important element of portfolio management,
a topical example being the reduction of solvents in coatings
products.
Cradle to Cradle studies
During 2009, we signed an umbrella contract with German
professor Michael Braungart and his EPEA organization which
allows all our businesses to explore the opportunities of the
Cradle to Cradle (C2C) concept. The challenge is to design and
produce chemicals or coatings that can be readily recovered
as raw materials once a product’s useful life has ended. Two
businesses have identified opportunities which are being
explored in detail. Five other “ideation” stage activities are
in progress, during which businesses identify possible C2C
product/market combinations.
Our Marine and Protective Coatings business’ Environmental
Scorecard assesses products against nine parameters important
to stakeholders in their markets. Decorative Paints also has an
Environmental Impact Analyzer, developed in the UK with the
NGO Forum for the Future, which is being extended ready for
implementation across all regions.
AkzoNobel Carbon Policy
Early in 2009, the Board of Management approved the
company’s Carbon Policy, including 2015 and 2020 improvement
targets and ambition levels. This was the culmination of work
initiated in 2008, which showed that the impact of carbon on
our business extends well beyond emissions from our own
production processes. Our energy-intensive businesses have
a track record of improving energy efficiency and adapting
fuel mix to reduce greenhouse gas emissions and potential
carbon costs. However, we recognized that managing carbon
along the supply chain and during product application by our
customers would provide even greater opportunities across the
total business.
In addition to internal activity to reduce energy use and
greenhouse gas emissions, we support transparent disclosure
and business initiatives calling for urgent inter-governmental
action. Our CEO, Hans Wijers, was asked to join the CNBC
Carbon Council in November 2009. We are also signatories
of the UN Global Compact’s Caring for Climate platform, and
communiqués from the Prince of Wales’ Corporate Leaders
Group on Climate, which urged action towards an international
UN Climate Change treaty at the 2009 Copenhagen conference.
We advocate the implementation of global cap-and-trade
mechanisms on carbon emissions as a requirement to
accelerate transition towards a low carbon economy. We will
continue to press for this outcome.
Our businesses carry out an annual assessment of their
portfolio. Total eco-premium sales are more than €2.5 billion.
The proportion of eco-premium solutions has increased to
20 percent (2008:18 percent) against the interim milestone of
22 percent in 2009. This is divided between Specialty Chemicals
(20 percent), Performance Coatings (18 percent) and Decorative
Paints (22 percent). The 2009 analysis shows that sales growth
in eco-premium solutions is ahead of the total product portfolio.
For 60 percent of these solutions, the eco-efficiency benefit is
realized by our customers as they use our products.
You can read about some of our eco-premium solutions in the
Strategy sections (page 19) and Business performance (pages
43 and 54).
Refer to reporting principles for details on comparability of data
Eco-premium solutions 1 in % of sales
Cornerstones of policy
18
18
20
30
2007
2008
2009
2015
Milestone
1 An eco-premium solution is measured using a quantitative analysis or a
qualitative assessment focusing on six categories: toxicity, energy effi ciency,
use of natural resources/raw materials, emissions and waste, land use and
risks (eg accidents). The eco-premium solution must be signifi cantly better
than currently available solutions in at least one criterion, and not signifi cantly
worse in any.
Measurement
Measure and report on a
cradle-to-gate basis and manage
carbon along the value chain
Reduction
Use a structured and consistent
carbon reduction approach, aligned
with business objectives
Communication and
advocacy
Actively communicate approach and
performance to staff, customers,
suppliers, investors and the general
public and encourage dialog
Best practices
Promote activities to share good
practice, generate efficiencies and
accelerate improvement
AkzoNobel Report 2009 | Sustainability facts and fi gures | Invent | Sustainability | 137
We have assessed Scope 1 and 2 emissions for several years.
However, the Scope 3 assessment is new. We have used
current best practice methods – but there is more uncertainty
in these figures.
This preliminary view of the company cradle-to-gate footprint
indicates:
•
More than 70 percent of the footprint is from raw materials
extraction, processing and transport (Scope 3 upstream)
The remaining 25 to 30 percent is from our own direct
emissions and indirect emissions from energy use (Scope 1
and Scope 2).
•
The total cradle-to-gate footprint amounts to about 13.5 million
tons CO2 equivalent. The assessment will be further refined
in 2010.
This confirms that the reduction of carbon footprint of our key
raw materials is fundamental to achieving our objectives – an
issue already reflected in our sourcing programs. Energy
sourcing and related emissions are of particular importance for
our Specialty Chemicals businesses.
Our carbon management and performance is reported through
the Carbon Disclosure Project. We have taken part in developing
the GHG Protocol Accounting and Reporting Guidelines for
product lifecycles and corporate value chains (Scope 3) and will
road test the drafts in 2010. At country level, we are involved in
various local initiatives. In the UK, for example, our Decorative
Paints business worked with a large customer to pilot a new
carbon footprinting standard.
Our framework for measuring the carbon footprint of products
and facilities is based on the international Greenhouse Gas
Protocol and lifecycle assessment. It was tested with the World
Resources Institute and several Dutch NGOs. During 2009, our
businesses identified and assessed the cradle-to-gate carbon
footprint of key value chains representing between 68 and 100
percent of the production/sales of the business – 158 across
AkzoNobel. The objective of this work was to understand the
high carbon areas where improvements will deliver financial and
environmental benefits. Customer use is a significant element
of footprint for many of our coatings businesses. We have not
yet set CO2 reduction targets on the end-user application of our
products, but we do measure key applications with customers
to identify joint reduction opportunities.
Cradle-to-gate carbon footprint 1 in million tons of CO2 (e)
Scope 3 upstream
Scope 1
Scope 2
9.7
1.3
2.5
1 The carbon footprint of the six main greenhouse gases is measured from
xx
cradle-to-gate based on the international Greenhouse Gas (GHG) Protocol
and Life Cycle Assessment ISO 14040-44. See Assessment method.
Assessment excludes Chemicals Pakistan and National Starch. Additional
footprint from new acquisition (approximately 0.5 million tons) will be reported
next year.
Ambitions and targets
•
•
•
•
Reduce our cradle-to-gate (Scope 1, 2 and 3 upstream) carbon
footprint per ton of product by 10 percent by 2015 (2009 baseline)
Reduce cradle-to-gate carbon footprint per ton of product
between 20 and 25 percent by 2020 (2009 baseline)
Control absolute Scope 1 and 2 greenhouse gas emissions below
2008 levels
Our existing objective to increase eco-premium solutions to
30 percent of sales will track the provision of carbon-efficient
solutions to customers, reducing our downstream footprint.
These will be achieved though a mix of innovation, energy efficiency
and fuel mix improvements.
Assessment method
The assessment uses boundaries in line with financial reporting and
definitions in line with the Greenhouse Gas Protocol. It is carried out
using recognized tools and staff experienced in lifecycle assessment.
Scope 3 (upstream) includes GHG emissions from the extraction,
production and transport of raw materials. Where possible, raw
material data has been obtained from raw material suppliers,
otherwise we have used recognized data sources and identified
the best-fit proxy. The focus for 2010 will be to work with suppliers
to refine the data for significant raw materials, and seek footprint
improvements.
Scope 1 includes direct GHG emissions from our production and
owned transport. Emissions from our sites are assessed from
measured fuel use and process emissions. Transport is assessed
from fuel use and/or estimated distance traveled.
Scope 2 includes the indirect GHG emissions from purchased
electricity and heat. Energy use is collected from site measurements,
with emissions assessed using supplier or country grid factors and
fuel mix. We have included upstream emissions from fuel extraction
in Scope 2 rather than Scope 3.
The individual business footprint was calculated by extrapolating
from these value chains, or from assessing the total raw material
footprint from the main materials purchased, and total production
and transport energy use.
Refer to reporting principles for details on comparability of data
138 | Sustainability | Manage | Sustainability facts and fi gures | AkzoNobel Report 2009
Manage
Include sustainability in all aspects of the
value chain
Including sustainability in all aspects of the value chain is making
good progress – and increasingly the focus is on integrating this
activity across the value chain.
Research, Development and Innovation
Sustainability and the reduction of our ecological footprint
is a key driver for AkzoNobel’s new strategy for Research,
Development and Innovation (RD&I), as described in the Strategy
section on page 19.
We use our eco-premium solutions metric – which considers the
whole lifecycle – as the key performance indicator for our product
sustainability performance (see page 136). Once again, two im-
portant focus areas have been VOC reduction and raw materials.
RD&I has set itself a zero VOC challenge. A cross-business
group including R&D, marketing and product stewardship
representatives is driving the work to achieve the current target
of our combined coatings businesses of a 25 percent reduction
of VOC in our products. They are also evaluating the feasibility
of greater reductions and total elimination of VOCs.
Renewable
raw materials are already used extensively
throughout the company. A substantial proportion of our Surface
Chemistry business’ products is derived from natural materials,
while the Decorative Paints and several Performance Coatings
businesses are beginning to substitute renewable raw materials
in their formulations. RD&I is working with the Sourcing group
to identify areas for raw material rationalization and substitution,
and to develop supplier partnerships. A cross-business group
is looking for opportunities to replace petrochemical derived
materials, ensuring we maintain product performance while
achieving a cost-effective reduction in environmental footprint
and continuity of supply. Decorative Paints is also implementing
a new raw materials strategy to both reduce the number of raw
materials it uses and help drive the move towards raw materials
with lower ecological footprints.
We are continuing our efforts to reduce and eliminate specific
materials of concern
include
chromates for the protection of metal surfaces; biocides
in marine antifouling coatings; isocyanates in polyurethane
production; and cobalt as an auto-drier in decorative paints.
from our products. These
Manufacturing
For most businesses, the footprint of our direct activity is low
compared with the impact of raw materials and use of our
products. However, improving operational eco-efficiency is an
important element of our manufacturing processes. We need to
keep our focus on cost reduction, environmental protection and
more effective use of raw materials, water and energy.
During the last few years of portfolio change, the operational
efficiency performance of the overall company has essentially
remained static. We have therefore developed expert groups for
waste and waste water, energy and fresh water to accelerate
this improvement activity. They provide support for site
assessment and improvement activities, and provide a means
of sharing good practice across the company.
This work operates on several levels:
•
Incremental improvements focusing on reducing waste,
energy, water or raw materials by more efficient operations.
Engineers work with procurement professionals to find
alternative uses for waste and waste water, for example
as a raw material for another process, or to find more
cost-effective disposal routes
Process or product design improvements providing
scope for eliminating waste at source and more
energy-efficient operations
Working to develop new, inherently low footprint technology.
•
•
During 2010, we will review more than 70 priority sites to form
the basis of coherent improvement plans.
Waste improvements and energy opportunities
•
Using the principles of reduce, reuse and recycle, our Packaging
Coatings plant in Spain has reduced waste cleaning solvent use
by 25 percent in one year and saved €64,000.
One of our Surface Chemistry plants in Sweden has reduced
the chemical oxygen demand of its waste water by 75 percent
by installing a continuous monitor and improving employee
awareness training.
An Industrial Chemicals plant in the Netherlands has saved
€0.6 million in product and reduced the chemical oxygen demand
of its waste water by more than 50 percent by improving operating
practices.
Recent detailed energy efficiency diagnostics have identified
improvement opportunities of between 30 and 35 percent over
three years at a Specialty Chemicals plant in the US and a
coatings plant in Germany.
•
•
•
Sourcing
AkzoNobel has been recognized for its sustainability practices in
supply chain management by the Dutch Association of Investors
for Sustainable Development (VBDO). See page 135.
Business Principles
Our Business Principles have been used in the company’s
Vendor Policy to set out the environmental and social standards
expected of our suppliers. In the meantime, 85 percent of our
product related suppliers have signed our Vendor Policy. The
target for 2010 is 90 percent. This is complemented by support
visits for suppliers in high growth countries. In 2009, AkzoNobel
Sourcing identified 200 strategic suppliers who will be included
in the company’s supplier support visits (SSV). The number of
SSVs will be expanded to 220 in 2010. The majority of these
visits result in improvement plans with progress reviews as
required. Most suppliers are enthusiastic about this approach,
which has led to improved cooperation between our companies.
A few have not been willing, or able to, live up to the responsibility
criteria, so we have stopped our sourcing relationship.
In order to further develop SSVs, we have trained 150 procurement
and HSE&S professionals in Asia Pacific and Latin America.
In 2010, we will further standardize the reporting to improve
shared learning and support the development of the second tier
supplier assessments.
Examples of sustainability projects in sourcing
Carbon footprint
Sourcing has an important role to play in improving the eco-
efficiency and carbon footprint of our products, since raw
materials account for more than 70 percent of our cradle-to-
gate footprint, and up to 95 percent in our coatings businesses.
As part of the Carbon Policy roll-out, we have started working
with suppliers to collect footprint information and to identify
improvement opportunities – for example by using renewable
raw materials. Product footprint information, the willingness to
share data and to cooperate on improvements will play a major
role in selecting future suppliers.
A new car lease policy (covering 9,000 cars) is being introduced
which includes improved technical safety requirements and fuel
efficiency and particulate standards. The target is a weighted
average of 130g CO2(e) per kilometer by 2013.
AkzoNobel Report 2009 | Sustainability facts and fi gures | Improve | Sustainability | 139
Improve
Key supplier management
In 2009, we developed a Key Supplier Management program.
This involves cooperating with suppliers to work on value
creation and innovation, focusing on sustainability issues such
as enhancing eco-premium solutions for our customers. These
programs – which involve multi-year agreements – are being set
up with 15 global leading chemical players.
Talent management
The AkzoNobel Procurement Faculty provides standardized
training for our worldwide procurement professionals. To date,
we have trained more than 300 purchasers in Strategic Sourcing
Methodology and Negotiations & Influencing in Sao Paulo,
Shanghai, Chicago, London and Amsterdam. In 2009, we
trained the Procurement Council – the business and corporate
Sourcing leaders – on supplier relationship management, while
in 2010 we plan to extend the negotiation and communications
skills of this group.
Remuneration
Within Sourcing, the sustainability agenda is linked to individual
remuneration. Every member of the Procurement Council and
regional procurement councils has at least one sustainability
target within their top five personal targets.
Continue to comply and ensure our license
to operate
Integrity management
Integrity and responsibility in our actions is one of AkzoNobel’s
core values, embedded in our Code of Conduct and Business
Principles.
We approach compliance issues by:
1 Assessing the main risks that could have an economic
and/or reputational impact on our company
2 Developing clear norms and guidance
3 Providing support and training for those responsible for
day-to-day compliance
4 Monitoring compliance with our norms.
Assessment and clear norms
AkzoNobel has worldwide standards and clear directives
when it comes to compliance. Our Code of Conduct – which
was updated in 2007 – incorporates fundamental principles
on issues such as business integrity, labor relations, health,
safety, environment and security and community involvement. It
provides overall guidance on who we are and how we work.
We have also conducted a risk assessment specifically on
compliance issues. The main risks identified were competition
law and anti-bribery. For each of these, we have defined a clear
norm and prepared a manual and training material for relevant
employees. For 2010, we will continue to focus on these main
risks before extending guidance to the next priority risks.
Organizational structure on compliance
Compliance relies heavily on communication and having a
network within the company which understands the importance
of the topic. The structure is described in Managing our values
on page 134.
Compliance systems
By the end of 2009, approximately 95 percent of employees had
received Code of Conduct training. The Code will now be a spe-
cific element in all Performance and Development Dialog discus-
sions. Additional courses on competition law and anti-bribery are
available online for specific groups of employees. Legal Managers
supplement this with face-to-face training for business manage-
ment, sales, controllers and procurement teams. Employees
who are most exposed to competition law issues (around 10,000
in 2009) are trained annually and sign a declaration to confirm
adherence to the Competition Law Compliance Manual.
At business unit level, the annual non-financial Letter of
Representation monitors compliance with the Code of Conduct
and other corporate requirements. The outcome is reviewed
with the responsible Board member and General Counsel and
the results are reported to the Board of Management and the
Audit Committee.
Supplier engagement
Key Performance Indicators – integrity
Compliance type
% of spend
2007
2008
2009
81
82
85
Raw material suppliers
Vendor Policy signed
NPR 1 business suppliers
Vendor Policy signed
NPR 1 centrally
contracted suppliers
Vendor Policy signed
Suppliers visited since 2007
(cumulative number)
1 Non-product related.
80
89
100
100
152
185
220
Target
2010
90
50
2008
2009
Target
2010
Code of Conduct incidents confi rmed
Code of Conduct trained
(% employees)
Competition law certifi cation
84
31
198
~95
10,000
Business integrity: fraud/bribery,
use/protection of assets
Misconduct
100
Equal and fair treatment
Confl ict of interest
Health and safety
Free market competition
Other
Total
2007
2008
2009
14
11
5
3
3
0
62
7
6
5
1
3
53
40
53
10
18
6
18
36
84
198
Refer to reporting principles for details on comparability of data
140 | Sustainability | Improve | Sustainability facts and fi gures | AkzoNobel Report 2009
We launched a new whistle-blowing procedure in 2009 called
Speak Up!, which is operated by a global, external organization.
It encourages employees to voice any concerns to their manager
or local HR management. If this is not possible, the employee
may report the concern by telephone or via the internet. Each
report is dealt with confidentially, with the results being fed back
to the caller and reviewed by the Compliance Committee.
In total, 198 (2008: 84) alleged violations of the Code of Conduct
were reported through a variety of channels. These resulted in
66 (2008: 61) contracts being terminated. The increase in the
number of reported violations can be related to the emphasis
on the new Speak Up! procedure. The outcome of all reports
is analyzed and put in a broader perspective to determine what
lessons can be learned.
Unfortunately, we were involved in two competition law cases,
both of which related to the period prior to AkzoNobel’s rein-
forced competition law compliance program introduced between
1999 and 2000. In November, the European Commission
announced that AkzoNobel and (former) subsidiaries were among
a number of companies it held responsible for alleged infringe-
ments from 1987 to 2000 in tin stabilizers; and 1991 to 2000 in
ESBO/Esters and AkzoNobel was fined. In July, the European
Commission announced its decision to fine nine companies for
their involvement in a price-fixing cartel from 2004 to 2007 be-
tween several European producers of calcium carbide. AkzoNobel’s
subsidiary, Carbide Sweden AB, was involved in this cartel. The
infringement was reported through our Speak Up! procedure.
We successfully applied for conditional immunity under the
European Commission’s Leniency Notice, with the Commission
waiving the full amount of the fine. This case demonstrates the
effectiveness of our competition law compliance program in
identifying and adequately addressing such misbehavior.
standardized best practice global management development
training programs for all AkzoNobel people managers.
In 2009, we refocused our efforts on two main areas – Talent
Factory programs and HR capability.
Employees
Our Talent Factory ambition
We believe that growing our people is the way to grow our business
for the long term. It is our ambition to be recognized by our
employees – and those looking to join us – as a company which
offers opportunity to its people for ongoing learning, development
and growth in an environment that’s defined by our company values.
In return, we expect all our employees to seize each opportunity
to learn, develop and grow their talents in order to be the best
at what they do and actively contribute to delivering Tomorrow’s
Answers Today.
to
reinforce
from employees continues
Feedback
the
importance of our Talent Factory ambition. Since 2006, our
efforts have focused on the implementation of best practice
programs and systems, while supporting the organization
through times of significant change. These programs include our
global performance and appraisal system – the Performance
and Development Dialog; our leadership succession planning
process Leadership Talent Review; harmonized compensation
introduction of
for executives and, more
recently,
the
Talent Factory programs
We have consolidated our targets and reporting into a Talent
Factory Scorecard to track our operational progress and create
transparency across all AkzoNobel businesses.
Performance and Development Dialog (P&D Dialog)
The P&D Dialog incorporates both a performance review and
development/career planning. Our company values and
Success Factors (behavioral competencies) are an integral part
of all development discussions and have been integrated into
the system and annual performance appraisal process.
In 2009, 72 percent (2008: 60 percent) of employees used
the web-based process, with a paper system available for the
remainder. The focus for 2010 will be on continuing to increase
the number of online users, the timeliness of the process and
the quality of the manager-employee dialog and development
discussions.
Management development programs
Our standardized best practice global Management Essentials
Program (MEP) is now fully operational in 32 countries. A total of
2,783 managers from across the globe have started the program,
Compliance source
Key Performance Indicators – employees
Management development programs in cumulative participants
Corporate complaints procedure
Internal BU investigation
Other sources
Total
Reports closed by December 31
Reports open on December 31
Number of dismissals
13
17
6
36
31
5
18
17
46
21
84
71
13
61
88
94
16
198
167
31
66
Refer to reporting principles for details on comparability of data
2007
2008
2009
Metric
Online P&D Dialog participation (%)
Women executives (%)
Non-western executives (%)
2008
2009
601
8
10
72
10
11
Target
2010
90
11.5
13
Europe
Americas
MEP training participation (cumulative)
527
2,783
3,500
Asia
AMP training participation (cumulative)
Employee engagement (% favorable)
1 2008 fi gures exclude former ICI employees.
0
78
452
80
850
80
Total
527
2,783
Management
Essentials Program
Advanced
Management Program
2008
2009
2008
2009
182
117
228
914
913
956
0
0
0
0
199
80
173
452
AkzoNobel Report 2009 | Sustainability facts and fi gures | Improve | Sustainability | 141
representing 32 percent of the total target population of first line
managers. In total, 452 senior managers have participated in
the Advanced Management Program (AMP), which represents
21 percent of the target population of senior managers.
Diversity and Inclusion
A workshop held at the end of 2008, which was attended by
employees from across the company, led to recommendations
for irreversible steps to improve our Diversity and Inclusion
(D&I) performance. While not excluding other groups, our
initial focus is on improving gender and cultural diversity and
further strengthening our company’s engaging environment. It’s
an environment in which everyone is valued, where everyone
counts and where everyone has the opportunity to develop
their skills and talents in line with our company values and
objectives.
A dedicated global working team and steering committee
oversees and supports the implementation of the recommended
steps. Starting with executives, we analyzed key data on the
make-up and demographics of our organization. We gathered
feedback from our employees on D&I by including six new
questions on the topic in our Global Employee Survey. More
than 100 structured interviews were held with colleagues
representing a cross-section of our company’s demographics.
We also launched an interactive, dialog-based internal website
where employees are encouraged to take part in online
discussions, to join a company-wide diversity Facebook and to
engage with their colleagues on D&I related topics.
The data analysis and feedback from the survey and the
structured interviews indicate that women and employees from
high growth regions (our two initial focus areas) are treated fairly,
with no obvious discrimination. We also noted that both of these
groups are equally ambitious and that there is no significant
difference in remuneration between female and male executives.
Feedback from the structured interviews indicated that our
people feel that AkzoNobel enables a good work-life balance.
Ten percent of our executive population is female. Even though
we see a good representation of females in some senior
functional and staff roles, we have identified opportunities
to improve representation at all levels in the organization, in
particular in senior commercial positions. The percentage of
executives from non-western countries is 11 percent. There is a
good representation of this group in some areas of the business,
but we also need to make progress in further strengthening the
leadership pipeline across these target areas.
Utilizing the data and feedback from employees, we developed
a company-wide strategy, framework and phased approach
to support our businesses to develop business-specific action
plans to improve our D&I performance. A first wave of four of
our global businesses is currently implementing these plans.
We expect our other businesses to follow in 2010.
Restructuring
Driven by the economic climate, we carried out significant
restructuring in 2009. We are committed to supporting
our employees during such reorganizations. We do this in
compliance with legal requirements and, where applicable, in
consultation with employee representative bodies. We strive to
ensure clear and ongoing communications, transparent selection
processes and, in many cases, support in the transition from
work to work, which can include training and out-placement.
While restructuring is a business necessity, our responsibility as
an employer stretches to those who unfortunately have to leave
our company.
HR capability
In 2009, we started a new drive to significantly increase HR
capability, efficiency and effectiveness across the company. We
are focusing our efforts on harmonizing our policies, programs
and initiatives at a country level by creating service organizations
to better support the activities of the various business units
operating in nine key countries, representing more than 70
percent of employees. The Netherlands organization was
chosen to pilot this new approach. Learning will be transferred
to other countries in 2010. The US and Sweden have also made
notable progress.
HR IT and data systems
A change program to consolidate HR data and payroll systems,
called OneView, will help us to increase data quality and reduce
costs. In 2009, we selected our system supplier and piloted the
tool in five countries. We will expand the geographical scope
of our new global system in 2010 to encompass the remaining
countries by the end of the year.
Executive diversity: female – male in %
Executive diversity: western – non-western in %
GM/Sales
Support
Marketing
Manufacturing
R&D/Tech
Other
Total AkzoNobel
Female
3
18
12
10
7
14
10
GM/Sales
Support
Marketing
Manufacturing
R&D/Tech
Other
Total AkzoNobel
19
9
8
7
4
5
11
Non-western
Refer to reporting principles for details on comparability of data
142 | Sustainability | Improve | Sustainability facts and fi gures | AkzoNobel Report 2009
Employee Survey
The 2009 Employee Survey focused on delivery of our company
values. We had planned a full survey, but instead surveyed
a representative portion of our workforce (as we did in the
previous two years), receiving feedback from more than 2,500
employees. The results reconfirmed the collaborative culture
across AkzoNobel. Even in 2009’s challenging economic
climate, we saw a positive trend in engagement. We recorded
particularly strong scores for Focusing on our customers’ future
first and Embracing entrepreneurial thinking. Furthermore,
results related to Developing the talents of our people show
improvement in support and resources and desire for more
development opportunities.
During 2010 we plan to implement a full survey of all employees.
We will start using the Gallup Q12 survey method and follow-
up support to provide our managers with consistent detailed
feedback of their own, and their team’s performance. We
envisage that a regular full global survey using this new method
will support further engagement throughout the organization.
Community
AkzoNobel’s main societal contributions fall into three areas:
•
Societal programs that support community/social
development though the company’s Community Program
and Education Fund
Fighting malnutrition though our products and partnerships
(see page 135)
The social contribution of our overall business activities
(employment, sourcing, taxation), particularly in high
growth economies.
•
•
Community Program
AkzoNobel’s Community Program encourages employees to
engage in hands-on involvement in their local communities
and provides them with the necessary financial support. This
allows sites and individuals to take part in projects where
our products/resources and the skills and knowledge of
employees can benefit the wider community. It also provides
opportunities for employees to develop team-building and
leadership skills. Since the start of the program, more than
5,000 volunteers from 50 countries have worked on more than
1,000 projects, totaling more than €8 million. According to the
NCDO Millennium Development Goal Scan methodology, these
projects have impacted an estimated 350,000 people. Over the
last three years, nearly 70 percent of projects have supported
educational/employability and healthcare/well-being activities,
with environmental and housing projects also well represented.
In 2009, 279 new projects were initiated. These were narrowed
down to a shortlist of 16 and more than 1,800 employees around
the world then voted for their favorite in our annual Community
Program Best Practice competition. First prize went to Polymer
Chemicals in Kyungju, South Korea, for their “Surrounding
orphans with love” project. This involved creating a warm and
comfortable family environment for children at the Dae-ja-won
orphanage. Twelve employees worked on cleaning and gardening
to help get the site in order. A roster is now in place for the team
to visit each month, when they spend time with the children, as
well as continuing to provide practical support.
Education Fund 15th anniversary
AkzoNobel set up the Education Fund ’94 in partnership with
Plan Nederland. The aim was to help children in developing
countries fulfill their potential by improving the quality of their
education. Around €2 million from company support and
employee fundraising has been invested in around 65 projects
in 15 countries. Projects have included improving school
infrastructure, teacher training, promoting health and hygiene
and dealing with issues such as bullying, harassment and
corporal punishment.
Plan Nederland estimates that several thousand children aged
from three to 16 have directly benefited from quality pre-school
and primary education provided by the Education Fund. The
number of indirect beneficiaries is many times that number.
Global Employee Survey results 2009
Cumulative Community Program involvement
Favorable
Neutral
Unfavorable
Customers’ future fi rst
Integration
Entrepreneurial thinking
Engagement
HSE
Diversity and inclusion
Integrity and responsibility
Survey utilization
Courage and curiosity
Developing talents
86
82
81
80
76
74
73
70
67
56
10
14
13
15
18
17
19
22
23
27
Refer to reporting principles for details on comparability of data
4
4
6
5
6
9
8
8
10
17
8,000
6,400
4,800
3,200
1,600
5.4
4.0
8.5
6,000
7.1
4,000
322
1,500
568
2,500
854
1,133
2005/2006
2007
2008
2009
10
8
6
4
2
Projects (number)
Volunteers (number)
Support (€ million)
Health, Safety, Environment and
Security Management
Managing Health, Safety, Environmental and Security (HSE&S)
issues is a cornerstone of a successful coatings and chemicals
industry. We have global HSE&S standards in place to ensure
our sites protect people, assets, the environment, the business
and society at large.
Our HSE&S management system drives improvement on
underlying issues that are important for future success. At
company level, we have HSE&S Key Performance Indicators
included in the strategy dashboard, with improvement targets
and reporting requirements. There are also additional HSE&S
metrics to monitor performance. The individual businesses and
sites are responsible for developing, executing and monitoring
improvement objectives and programs to achieve the required
performance.
Integration activities
Following the 2008 integration activities, in 2009 we focused
on implementing and embedding the changes to standards and
systems. The main areas have been:
•
Implementing the new standards for process safety and
occupational health
Embedding new KPIs and reporting
Piloting the new HSE&S audit process
Strengthening safety leadership and crisis management
processes
Incident investigation and shared learning.
•
•
•
•
Crisis management
The crisis management processes have been strengthened
and detailed guidance on notification and handling of potential
crises have been implemented at our operating sites. Several
simulation exercises, which tested the full response and
communications chains from site to business unit to corporate
level, have been chaired by a Board member.
Leadership training
We have developed a Safety Leadership Program targeted
at senior business leaders. The first sessions, held in the
Netherlands, involved all members of the Board of Management
and the Corporate Directors. The program is being rolled out
across business management teams.
AkzoNobel Report 2009 | Sustainability facts and fi gures | Improve | Sustainability | 143
Shared learning
Two regional HSE&S managers have been appointed in
the Americas and Asia Pacific to improve cross-business
learning and sharing of best practices. They have supported
businesses in the setting up of regional/country networks and
the organization of workshops to build HSE&S capability and
improve awareness and compliance with HSE&S legal and
internal requirements.
An HSE&S alert system, to share learning on serious incidents
and near misses, is now fully operational and reaches our
HSE&S professionals worldwide. Where appropriate, they
develop local language versions for onward transmission. A
global incident reporting system will be rolled out during 2010.
HSE&S capability building and career development
Following a company-wide HSE&S risk assessment, we have
started a project to strengthen and formalize our HSE&S
capability standards and development processes. This will
cover both HSE&S professionals and management roles with
critical HSE&S
including production managers,
responsible engineers and site managers. The competency
framework will be built into the annual performance assessment
and development planning activity during 2010.
functions,
with international standards such as ISO-9000, ISO-14001,
RC-14001 and OHSAS-18001.
HSE&S audit
The new HSE&S audit process combines a continuous
improvement tool for sites with a periodic audit managed by our
auditing department. During 2009, we carried out 60 corporate
HSE&S audits and six re-assurance audits. The first group of
audits was used to test, calibrate and fine-tune the new process.
Sites and auditors have been positive about the depth of
analysis available and the focus on priority improvement actions
and follow-up. Based on the outcome of these audits, we have
successfully calibrated and further improved our new auditing
method. Improvements and adjustments have been made and
internal auditor training is planned for the start of 2010. The new
process will be fully implemented across all our sites.
Major warehouses and all manufacturing sites undergo periodic
audit by multidisciplinary teams of HSE&S specialists. Larger
sites also have external insurance audits. The HSE&S audit
intervals are risk-based and are determined by the inherent
hazards present on site and the outcome of the periodic audit.
All sites are audited at least once every five years. During 2010
we will introduce a modified audit protocol for offices.
Reliable operations
Operational management systems at our sites are integrated
on quality and HSE&S. They are risk-based and follow the
Responsible Care® and Coatings Care® principles. Our
management standards are set up and updated in accordance
Serious Incidents
There were nine serious incidents (Level 3) during 2009. In
order to improve management focus and learning from serious
incidents, we have extended the corporate requirements for
incident reporting. There are now three categories, ranging from
Management audits number of audits
Serious incidents number of incidents
2006
2007
2008
2009
46
64
61
66
2005
2006
2007
2008
2009
15
3
4
2
9
Serious incidents (Level 3) involve any loss of life; more than fi ve serious
injuries; environmental, asset or business damage totaling more than
€25 million; or serious reputation damage.
Refer to reporting principles for details on comparability of data
144 | Sustainability | Improve | Sustainability facts and fi gures | AkzoNobel Report 2009
local impact to serious incident. These incidents are investigated
to identify root causes, take remedial action and share learning
as appropriate across our other sites.
We regret that three contractors died while working for AkzoNobel
during 2009. In May, an AkzoNobel contractor was among the
fatalities in a terrorist bomb attack on a government building in
Lahore (Pakistan). Two months later, a contract operator died
as a result of an equipment incident at a plant in Tunisia, while
in November, a contract painter suffered a fatal head injury at
a customer site in Singapore when he was hit by falling debris
from a wall being prepared for painting. Although not under
our control, three incidents involved fatalities to truck drivers
in Colombia, China and India, while they were distributing our
products. Finally, three members of the public died in Equador,
Egypt and Russia following motor vehicle incidents involving
our employees. All these incidents have renewed our focus on
contractor management and adequate equipment isolation.
Regulatory actions
We have defined three categories of regulatory action, from
self-reported issues (Level 1) to formal legal notifications (Level
3), and are reporting on these for the first time. There were
three Level 3 incidents during 2009 – a waste water consent
exceedance in Rotterdam; a cubic meter paint spill to the rain
water sewer in Tiszaujvaros, Hungary; and a serious injury in
Barcelona which resulted in a legal investigation.
Security management
Security of assets, people and information is an integral part of
our HSE&S management system. Security assessments help
our sites to identify risks and put in place appropriate security
protection, as well as meeting the demands of increasingly strict
legislation in the US and Europe.
Our business travelers and employees in some parts of the
world are subject to less controllable risks. Since 2009, we
have been using an external provider to supply in-depth global
information, real time updates on potential security threats and
health risks, and expert support during any crisis situation.
Product stewardship
The overall aim of our product stewardship activity is to ensure
that products are developed, produced and marketed in
accordance with legal requirements, in a way which supports
our approach to long-term sustainability.
During 2009, we formalized our product stewardship management
under a Global Product Stewardship and Regulatory Affairs
Council. This council will integrate good practice from across
our businesses into a product stewardship framework, ensuring
that resources, training and audits are optimized. Focus areas
for 2010 will be developing the concept of categories of control,
updating risk assessments, further use of lifecycle assessment
for new products and a review of animal testing protocols and
alternatives.
We continue to dedicate significant resources to meeting legal
requirements for all substances and products in countries where
we conduct business. In Europe, we are working in Substance
Information Exchange Forums (SIEFs) and consortia towards
the initial 2010 REACH registrations and the submission of our
substance classifications to the European Chemicals Agency.
In Asia, we are working towards implementing a range of new
notification requirements, in addition to implementing the Globally
Harmonized System of Classification and Labeling of Chemicals
(GHS) in the US, Japan, Europe and other areas around the world.
We regard this as a powerful, though resource intensive, initiative
to safeguard the correct use of chemicals across the globe.
Refer to reporting principles for details on comparability of data
We are also increasing our focus on the distribution aspect
of product stewardship. There were 52 distribution incidents
during 2009 involving the transport of our products by road (44),
sea (7) and rail (1) (see also Serious incidents on page 143).
We are working with sourcing groups to improve the safety
performance of contract distribution companies. Activities
include contractual
requirements, distribution contractor
selection and improved contractor management.
Health and Safety performance
Occupational safety
The human factor remains an essential element in safety
management. In 2006, we set an ambitious safety performance
target for 2010 aimed at reducing the total reportable rate
(TRR) for injuries to 2.0 per one million hours worked. Quarterly
reports on business safety improvement programs and agreed
targets are reviewed by the relevant member of the Board of
Management.
Since 2009, we have reported the safety performance of
employees together with our supervised contractors. The TRR
for this group has improved to 3.7 injuries per million hours
worked (2008: 4.6 for employees only). The rate for independent
contractors is 2.8 per million hours (2008: 5.2 for all contactors).
Employees and supervised contractors
total reportable rate of injuries
Injury rate
2005
2006
2007
2008
2009
2010
2015
Milestone
7.4
6.8
5.3
4.6
3.7
2.0
2
Data for 2005 to 2008 for employees only.
The total reportable rate is the number of injuries, including fatalities,
resulting in a lost time case, restricted work or requiring medical treatment
by a competent medical practitioner per 1,000,000 hours worked.
There has been a steady reduction in TRR since 2005, with
good progress towards the 2010 milestone rate of 2.0, as well
as more consistency of performance across the businesses. In
total, 70 percent of our units are performing at or better than
the milestone, representing nearly half of the hours worked by
our employees. The Lost Time Injury (LTI) rate, indicating the
more serious cases, stands at 1.5 (2008: 1.9) for employees
and supervised contractors against the 2010 milestone of 0.5.
Our ambition for 2015 is to be in the top quartile of our peer
group in TRR performance. We have broadened the definition
and set the milestone at 2.0 for employees and supervised
contractors.
Behavior-based safety improvement processes – which involve
employees and focus on reducing unsafe situations and unsafe
behaviors – are in place at more than 50 percent of our sites
worldwide. These are being supplemented by the leadership
training described elsewhere in this section.
Safe driving
In 2009 we began monitoring vehicle incidents. There were 457
incidents during the year, 31 involving injury.
Independent contractors
total reportable rate of injuries
Injury rate
2005
2006
2007
2008
2009
–
–
–
5.2
2.8
Data for 2008 includes supervised and independent contractors.
The total reportable rate is the number of injuries, including fatalities,
resulting in a lost time case, restricted work or requiring medical treatment
by a competent medical practitioner per 1,000,000 hours worked.
AkzoNobel Report 2009 | Sustainability facts & fi gures | Improve | Sustainability | 145
In addition to existing on-road safe or defensive driving training,
we have run successful pilots of an e-learning program for
employees in the US, which were extended worldwide for the
Car Refinishes business. In 2010, we will develop a company-
wide approach for training those who drive on company
business, with the expectation of extending the opportunity for
an e-learning package to all employees and their families.
Employee health
As well as ensuring a safe working environment, we also focus
on employee health and managing illness absence. Businesses
implemented a health management standard during the year.
The Total Illness Absence Rate has remained stable at 2.0 percent
(2008: 2.2 percent). We will keep monitoring this indicator for
the whole company, aiming to stay at a level around 2 percent,
but will not set new long-term targets.
The Occupational Illness Rate for employees and supervised
contractors stands at 0.4 illnesses per million hours (2008: 0.3).
From 2008, our reporting criteria were expanded in line with the
CEFIC occupational illness categories. The results indicate that
57 percent of the illnesses are caused by physical agents (noise
and back/limb disorders) and 39 percent by chemical agents
causing skin diseases and other effects. This data has allowed
sites to focus their efforts on eliminating the causes, supported
with guidance and assistance from the corporate health group.
Following a number of pilots, our Wellness Check Point program
has been identified as the company’s occupational health tool
of choice, with more than 3,000 employees currently using
the system. This is a health initiative which allows employees
and their families to prepare their own personal health risk
assessments and health improvement plans. The aggregated,
anonymous results will be used to shape local and business
health management programs.
During early 2009, we were able to activate our Pandemic
Preparedness Planning in response to the H1N1 influenza
outbreak. Measures were rolled out per business and per country,
focused on hygiene aspects and business continuity planning.
We also issued a generic pandemic guidance note which will be
applicable for other types of health threats to our employees.
Process safety
Drawing on the learning from the process safety audits carried
out after the Baker Report, and best practices from the former
ICI, we updated our process safety/asset integrity standard and
management practices. A newly-formed global process safety
network has developed additional guidance, training materials
and a specialist audit protocol. Leading indicators to monitor
implementation and support continuous improvement have
also been identified. We are using “Loss of Containment” as
the indicator for asset integrity management – four categories
indicate the severity of the loss, from a small on-site spill to a
major emission of toxic/hazardous materials (Level 4).
There was one serious loss of containment (Level 4) during 2009.
In July, an ignition and 500 kg chlorine escape in Ibbenbüren
(Germany) resulted in minor injuries to three operators. The
incident was the result of a short power dip in the main power
grid caused by a lightning strike. An emergency back-up system
was in place but could not respond effectively.
In 2009, we introduced an improved hazard assessment
methodology covering the full lifecycle of our assets – conceptual
design, process design, project execution, project start-up and
continued safe operations. Training for hazard study leaders
and teams and other process safety specialists has already
started, which means they are ready to support businesses in
their management of process safety/asset integrity.
Refer to reporting principles for details on comparability of data
146 | Sustainability | Improve | Sustainability facts and fi gures | AkzoNobel Report 2009
Environmental performance
Emissions to air
Energy and greenhouse gases
This section reflects the performance of our own operations.
More details on our Carbon Policy and cradle-to-gate reporting
can be found on pages 136-137. Energy is a major raw
material for some of our Specialty Chemicals businesses, so
energy efficiency and carbon efficient energy consumption are
important metrics for our operations.
Clean air around our plants
Our air monitoring is focused on Volatile Organic Compounds
(VOC) emissions that may lead to local low level ozone creation,
smog formation and associated health problems for people
in surrounding areas, and NOx and SOx emissions which
contribute to acidification. In 2009, we strengthened our NOx
and SOx reporting to include the contribution from fuel burned
across our operations.
NOx and SOx emissions in kilo tons
In 2009, our energy and greenhouse gas emissions reporting
was updated to more fully align with the Greenhouse Gas (GHG)
Protocol, so 2008 and 2009 figures are not directly comparable.
We include the six main greenhouse gases; CO2 calculations
and emission factors at site level; and have incorporated NOx
and SOx factors.
•
Total energy consumption has dropped by 15 percent
to 97,000 TJ from 115,000 TJ in 2008, due to lower
production rates
Total CO
by 11 percent to 273 kg CO2 per ton of production
There is a shift from indirect to direct CO
caused by the consolidation of the Combined Heat and
Power unit in Industrial Chemicals.
2 emissions per ton of production increased
•
•
2 emissions, mainly
NOx
SOx
2007 1
2008 1
2009
0.9
4.1
1.1
4.8
2.1
6.2
Emissions which may form acid rain that can lead to acidifi cation. The gases
are emissions from manufacturing and combustion of fuel that we burn.
1 Main emissions only.
In line with market demands, the VOC reduction focus for our
paints and coatings businesses has shifted from controlling
VOCs in our operations to low/zero VOC product design. An
expert working group has been established to identify ways of
accelerating the reduction of VOCs in the product portfolio (see
page 138). We will monitor progress using a new metric: solvent
purchased per ton of production. Our Specialty Chemicals
businesses will continue to manage VOC emissions from plants
in line with regional legal requirements. In future, VOC targets
will be set at BU level, but monitored at company level.
•
Total VOC emissions were 4.22 kilotons (2008: 4.05 kilotons),
up 4 percent on 2008 levels
SO•
x emissions from process emissions and energy used
were up by 29 percent at 6.2 kilotons (2008: 4.8 kilotons)
with the main contribution coming from three sulfur
derivatives plants in Germany, the US and Argentina. The
new reporting of emissions from fuel burned contributed this
1.6 kiloton increase
NO•
x emissions originating from our sites were 2.1 kilotons
(2008: 1.1 kilotons). The additional emissions were from fuel
burned on the sites reporting for the first time this year
Emissions of ozone depleting substances are at a very low
level. They are mainly due to Freon22 in older air conditioning
and cooling units, which are continuously being replaced.
•
CO2 emissions in million tons
Volatile organic compounds (VOC) emissions in kilo tons
Total waste in kilo tons
7.5
6.0
4.5
3.0
1.5
-10%
249
4.8
3.1
247
4.6
3.0
1.7
1.6
273
4.6
2.7
1.9
300
240
180
120
60
7.5
6.0
4.5
3.0
1.5
3.3
3.2
0.26
0.25
0.22
5.1
4.9
4.9
4.0
4.2
4.0
0.30
0.24
0.18
0.12
0.06
400
320
240
160
80
15.1
285
199
14.7
249
160
109
112
84
86
89
15
12
9
6
3
2005
2006
2007
2008
2009
2015
2005
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
Direct CO2(e)
Indirect CO2(e)
Milestone
kg per ton production
Volatile organic compounds
kg per ton production
Milestone
Non-reuseable
Reuseable
kg per ton production
Direct CO2 emissions from processes and combustion at our facilities and
indirect CO2 emissions from purchased energy.
VOC emissions may lead to local low level ozone creation, smog formation and
associated local health issues. We measure halogenated and non-halogenated
organic compounds discharged to air.
Non-reusable waste is not used for resource recovery, recycling, reclamation,
direct re-use, or alternative uses.
Refer to reporting principles for details on comparability of data
AkzoNobel Report 2009 | Sustainability facts and fi gures | Improve | Sustainability | 147
Raw materials efficiency
Effective waste management helps to increase raw material
efficiency
in our manufacturing operations, reduces our
environmental footprint and reduces costs. Our focus is on
reducing total waste and eliminating hazardous waste to landfill.
The exception is asbestos waste – mainly from demolishing old
equipment and buildings – where the only current safe disposal
route is properly designed landfill facilities.
•
Total waste generated and leaving our sites has fallen
13 percent to 249 kilotons (2008: 285 kilotons). This is in part
due to lower production levels, but is also a result of the
operational excellence teams formed to identify and
implement improvements on our sites (see page 138)
Hazardous waste to landfill stands at 4.9 kilotons. This is the
first year we have reported on this specific waste stream
Non-reusable waste has increased by 4 percent and the
hazardous portion is static at 33 percent. Improvements are
expected in 2010 when the operational excellence teams
become fully effective.
•
•
Soil and groundwater remediation
There are substantial costs associated with the assessment and
remediation of historical soil and groundwater contamination.
We periodically review contamination at our sites, taking
remedial action when required, and have procedures to
prevent new contamination. Our Environmental Affairs Group
provides support for managing these issues professionally and
effectively and is also a key contributor to an integrated legacy
management approach across the company.
In line with IFRS accounting rules, AkzoNobel makes provisions
for environmental remediation costs when it is probable that
liability will materialize and the cost can be reasonably estimated.
We have set aside €352 million, which we believe is sufficient for
the sites where we have ownership or responsibility.
Fresh water availability
Sustainable fresh water supply is essential to life – and to
the sustainability of our business. Our ambition is to achieve
sustainable fresh water management at all our sites in 2015.
The AkzoNobel fresh water sustainability assessment takes into
account both the societal impact and the business continuity
aspects. During 2009, 99 percent (target 100 percent) of
manufacturing sites completed the assessment – 38 percent
already have sustainable fresh water management in place,
while all remaining sites are developing improvement plans to
achieve this status by 2015.
In addition to the intake of fresh water, the emission of
contaminated water from our sites to surface waters may
negatively impact fresh water resources and eco-systems. We
continue to reduce our fresh water consumption and the chemical
oxygen demand (COD) of our effluent to surface water.
•
Total fresh water use was 270 million m
than 2008 (297 million m3)
Reductions in chemical oxygen demand in effluent are being
achieved across the company. In 2009 we monitored a COD
load of 2.46 kilotons to surface water, a 15 percent decrease
on the 2008 (2.88 kilotons). Our Los Reyes site in Mexico
achieved a major reduction by diverting the waste water to
a treatment plant. However, some of this improvement was
canceled out by poor performance at the Rotterdam
waste water treatment unit.
3, 9 percent lower
•
Hazardous waste in kilo tons
Chemical oxygen demand in kilo tons
Fresh water use in million m3
125
100
75
50
25
XX
25
27
2005
2006
19
2007
4.2
71
41
30
4.5
3.6
2.7
1.8
0.9
5
4
3
2
1
3.3
62
39
23
0.16
3.1
0.15
0.15
2.9
2.5
2.4
2.4
0.20
0.16
0.12
0.08
0.04
500
400
300
200
100
1.5
16
15.8
15.9
298
285
304
297
270
20
16
12
8
4
2008
2009
2005
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
Non-reuseable
Reuseable
kg per ton production
Chemical oxygen demand
kg per ton production
Milestone
Fresh water use
m3 per ton production
Hazardous waste is defi ned by local/national legislation.
Non-reusable waste is not used for resource recovery, recycling, reclamation,
direct re-use, or alternative uses.
Chemical oxygen demand (COD) is the amount of oxygen required for the
chemical oxidation of substances in the waste water effl uent which is directly
discharged into surface waters from our facilities. It excludes our effl uent
treated by others.
*2010 milestones were set in 2005, based on the AkzoNobel portfolio that year.
Total fresh water used from surface, ground or potable water sources.
Refer to reporting principles for details on comparability of data
148 | Reporting principles | Sustainability facts and fi gures | AkzoNobel Report 2009
Reporting principles
We welcome an active dialog with our stakeholders and give
their opinions the serious consideration they deserve. With
this process in mind, we expect the clarity, consistency, and
accuracy of our reporting to further improve over time. In
particular, we seek ways of linking sustainability performance
to business results in areas such as carbon emission reduction
and eco-premium solutions.
We appreciate the work of the Global Reporting Initiative (GRI)
and have used their Sustainability Reporting Guidelines as
a guide. An index of all GRI indicators can be found on our
corporate website (www.akzonobel.com).
Reporting scope
In this 2009 AkzoNobel Report we have focused on the
sustainability aspects which form part of the AkzoNobel
strategy
formulated during 2008. This sets material
sustainability metrics and performance firmly alongside financial
elements. It is supplemented by issues raised by the annual risk
management process.
We also use information from third party questionnaires,
notably the influential Dow Jones Sustainability Indices, and
feedback from various stakeholders consulted during the year.
In particular we sought feedback from investment analysts on
our first combined financial and sustainability 2008 AkzoNobel
Report. They agreed that an integrated report was a progression
towards integrating sustainability into the company strategy and
operations, and suggested a few areas for improvement:
•
Clear identification of the material sustainability issues. This is
an area where we need to develop a more formal process
Improved signposting so that sustainability analysts can find
relevant sections. The 2009 AkzoNobel Report has an index
of sustainability topics to guide readers. The online version
makes better use of links
Strengthened social reporting (to give better balance
against environmental and health & safety). The 2009
AkzoNobel Report includes quantitative data on
HR metrics, employees and diversity, development
programs and the employee survey.
•
•
Data has mainly been obtained from our financial management
reporting systems, corporate HR information management
system and the AkzoNobel and former ICI corporate reporting
systems for Health, Safety, Environment and Security (HSE&S)
performance indicators. We are confident in the overall reliability
of the data reported, but recognize that some of these data are
subject to a certain degree of uncertainty, inherent to limitations
associated with measuring, calculating data and estimating data.
Reporting process and assurance
Senior managers approved the content and the quantitative
data used in the Sustainability facts and figures relating to their
respective areas of responsibility. The integration of sustainability
in day-to-day business is part of our routine internal audit
process.
The Sustainability facts and figures section has been reviewed
by independent, external auditors. The Assurance Report can
be found on page 149.
Reporting boundaries
The 2009 AkzoNobel Report integrates sustainability aspects
of our processes and business operations in each section, in
particular the Strategy, Business Reports and Governance and
Compliance sections.
This Sustainability facts and figures section summarizes the
global, cross-business elements of the sustainability agenda
and company performance. Specifically it includes quantitative
and qualitative information relating to the calendar year 2009
and comparative data for 2008 and 2007 which is based on
the AkzoNobel portfolio, including the former ICI, at the end of
2008. Data for 2005 and 2006 cover the AkzoNobel portfolio
in those years, including Organon. We report on consolidated
data from entities where AkzoNobel is the majority shareholder
(more than 50 percent) and joint ventures where we have
management control but exclude all data from entities where
we have minority ownership, or no management control. We
report new acquisitions within a calendar year. The managing
sustainability reviews, eco-premium solution assessments
and upstream carbon footprint have not been carried out for
National Starch or Chemicals Pakistan.
We introduced a revised set of HSE&S KPIs with detailed
reporting guidance for 2009, and reviewed data at the end of
Q2 and Q3 to identify inconsistencies. There are a number of
definition, calculation and reporting differences which impact
the comparability of data with 2007 and 2008: Total reportable
rate, energy, CO2, NOx and SOx emissions. We identify these
in the text and footnotes. More details are available on our
corporate website.
Independent assurance report
AkzoNobel Report 2009 | Sustainability facts and fi gures | Independent assurance report | 149
To the Board of Management of Akzo Nobel N.V.
As Akzo Nobel N.V. (AkzoNobel) describes on page 132,
sustainability information is integrated into various sections of
this 2009 Report. The management of AkzoNobel is responsible
for reporting on sustainability in such a way that it provides an
adequate view of the company’s sustainability policies, measures
and performance in 2009. This includes the identification
of material issues and the design and implementation of an
adequate internal control system to ensure the sustainability
information does not contain any material inaccuracies.
We were engaged by the Board of Management of Akzo Nobel N.V.
to provide assurance on the information in the section
Sustainability facts and figures 2009 on pages 131 to 151 of the
2009 Report. Our responsibility is to issue an assurance report
on this information based on the engagement outlined below.
Our engagement was designed to obtain:
•
Reasonable assurance on whether:
-
The information in the paragraph Managing our values
on page 134 is, in all material respects, an accurate and
adequate representation of the policy and management
with respect to sustainability during 2009 based on the
Reporting principles on page 148
The 2009 data for the HSE Key Performance Indicators
on pages 143 to 151 have been properly consolidated.
-
•
Limited assurance on whether the information in
Sustainability facts and figures on pages 131 to 151 is,
in all material respects, presented in accordance with the
Reporting principles on page 148. Procedures performed
to obtain a reasonable level of assurance are more extensive
than those for a limited level of assurance which are aimed
at determining the plausibility of information.
Reporting criteria and assurance standard
AkzoNobel applies its own internal criteria and guidelines
for reporting on sustainability as described in the Reporting
principles on page 148 which, where relevant, are based on the
G3 reporting guidelines of the Global Reporting Initiative. We
believe that these criteria are suitable in view of the purpose of
our assurance engagement.
We conducted our engagement in accordance with the
International Standard for Assurance Engagements (ISAE)
3000: Assurance Engagements other than Audits or Reviews
of Historical Financial Information, issued by the International
Auditing and Assurance Standards Board. This Standard
requires, among others, that the assurance team possesses
the specific knowledge, skills and professional competencies
needed to understand and review sustainability information, and
that they comply with the requirements of the Code of Ethics for
Professional Accountants from the International Federation of
Accountants to ensure their independence.
•
Assessing the reliability of the consolidation process for the
HSE Key Performance Indicators by:
-
Testing, on a sample basis, the operation of internal
controls aimed at the reliability of the consolidation
process at corporate level
Assessing the quality of the data validation process at
business unit level and reviewing the procedures
undertaken by internal audit
Performing analytical procedures on the data from the
reporting units and reviewing the site level data validation
process.
-
-
Work undertaken
We have performed all the procedures deemed necessary to
obtain the evidence that is sufficient and appropriate to provide
a basis for our conclusions. Our procedures for the information
for which limited assurance was provided, were:
•
A documentation study to obtain insight into the organization
and a risk analysis (including a sector benchmark, a media
analysis and internet search) to identify relevant
environmental, safety and social issues for AkzoNobel in the
reporting period
A review of the reporting criteria and the design and
implementation of systems and processes for information
management, internal control and processing of the
qualitative and quantitative information in Sustainability
facts and figures
Interviewing management at corporate and business level
who are responsible for the sustainability policies,
management, internal control and reporting and evaluating
trends and the explanations provided in Sustainability
facts and figures
Reviewing internal and external documentation to determine
whether the qualitative information in Sustainability facts and
figures is supported by sufficient evidence.
•
•
•
During the assurance process we discussed changes to the
various drafts of Sustainability facts and figures with AkzoNobel,
and reviewed the final version of Sustainability facts and figures
to ensure that it reflects our findings.
Conclusions
Based on our procedures, for reasonable assurance, we
conclude that:
•
The information in the paragraph Managing our values on
page 134 is, in all material respects, an accurate and
adequate representation of the policy and management with
respect to sustainability during 2009 based on the Reporting
principles on page 148
The 2009 data for the HSE Key Performance Indicators on
pages 143 to 151 have been, in all material respects,
properly consolidated.
•
Based on our procedures for limited assurance, as described
above, nothing came to our attention to indicate that the
information in Sustainability facts and figures 2009 on pages 131
to 151 is not, in all material respects, presented in accordance
with the reporting principles on page 148.
In order to obtain reasonable assurance on the information
in the paragraph Managing our values and the consolidation
process for HSE Key Performance Indicators, we performed
additional procedures, including:
•
Testing the internal controls of the monitoring system for
managing sustainability
Amsterdam, February 16, 2010
KPMG Sustainability
W.J. Bartels RA
2005
2006
2007
2008
2009
2010
2015
Milestones
150 | Sustainability performance summary | Sustainability facts and fi gures | AkzoNobel Report 2009
Sustainability performance summary
Economic/Governance/Social
Area
Product
Business
integrity
H&S 2
Eco-premium solutions
Code of Conduct confi rmed incidents
% sales
number
Code of Conduct trained
% employees
Fatalities employees
Total reportable injury rate employees/
supervised contractors
Lost time injury rate employees/
supervised contractors
Occupational illness rate employees
Total illness absence rate employees
Fatalities contractors
(supervised and independent)
Total reportable injury rate
independent contractors
number
/million hours
/million hours
/million hours
%
number
/million hours
7.4
2.3
0.5
2.4
6.8
2.2
0.4
2.3
Lost time injury incidents contractors
number
76
72
Employees
Reliable operations
% sites with BBS program
Distribution incidents
Motor vehicle incidents with injury
Women executives
Non western executives
On-line P&D Dialog participation
Management development program
participation
Employee engagement index
Community Program investment
Management audits including
reassurance audits
Serious incidents – Level 3
Serious incidents – Level 1, 2
Serious loss of containment – Level 4
Regulatory actions – Level 3
%
number
number
%
%
%
number
% favorable
€ million
number
number
number
number
number
Sourcing
Vendor Policy signed by key suppliers
Vendor Policy signed by central
NPR suppliers
%
%
Supportive supplier visits since 2007
number
Refer to reporting principles for details on comparability of data
72
4
46
3
15
18
36
1
5.3
1.9
0.3
2.21
1
-
66
53
76
1.4
64
4
81
100
18
84
31
0
4.6
1.9
0.3
2.21
0
5.2
-
8
10
60
527
78
1.5
61
2
82
80
152
20
198
~95
0
3.7
1.5
0.4
2.0
3
2.8
-
56
52
31
10
11
72
3,235
80
1.4
66
9
24
1
3
85
89
185
22 (2009)
30
2,0
100
2,0 3
0.5 3
0.2 3
11.5
13
90
80
90
100
220
Environmental
Area
Raw material effi ciency
Total waste 4
per ton production
Total hazardous waste
per ton production
Non-reusable waste 4
per ton production
Hazardous non-reusable waste 4
per ton production
Hazardous waste to landfi ll
per ton production
Maintain natural
resources/fresh air
Fresh water use
per ton production
COD emissions
per ton production
% sites with sustainable fresh water
(2009 assessed)
VOC emissions
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
million m3
m3/ton
kiloton
kg/ton
%
kiloton
kg/ton
kg/ton
kiloton
per ton production
NOx emissions
per ton production
SOx emissions
per ton production
Raw material CO2 emissions (Scope 3) 5 million ton
per ton production
Direct CO2 emissions (Scope 1)
per ton production
Indirect CO2 emissions (Scope 2)
per ton production
million ton
million ton
kiloton
kg/ton
kg/ton
kg/ton
kg/ton
Total energy consumption
per ton production
1000TJ
TJ/ton
AkzoNobel Report 2009 | Sustainability facts and fi gures | Sustainability performance summary | 151
2005
2006
2007
2008
109
25
298
2.4
112
27
285
2.4
5.1
4.9
3.3
3.2
285
15.1
62
3.3
86
4.5
23
1.2
297
15.8
2.88
0.15
4.05
0.22
1.1
84
4.4
19
1
304
16
3.1
0.16
4.9
0.26
0.9
4.1
4.8
1.7
87
3.1
161
116
1.6
85
3.0
161
115
6.1
2009
249
14.7
71
4.2
89
5.2
30
1.8
4.9
0.3
270
15.9
2.46
0.15
99
4.22
0.25
2.1
0.12
6.2
0.37
9.71
573
1.87
110
2.75
162
97
5.7
Milestones
2010
2015
75 3
1.5 3
4.0 3
2005, 2006 data: former AkzoNobel
businesses in those years.
2007 and 2008: current AkzoNobel
business.
1 Former AkzoNobel businesses only.
2 HSE KPIs: in 2009 report
Employees/supervised contractors
(was Employees only) and
Independent contractors (was
all contractors).
3 Targets set in 2005, these will now
be replaced by 2015 targets.
4 In addition to this fi gure, our soda
ash facility in Pakistan generated
on dry basis 515 ktons (2008:
510 ktons) of non-hazardous
(non-reusable) waste, as a result
of the process chemistry. This
aqueous mixture is stored and
evaporates in large, managed
on-site lagoons.
5 Excludes Chemicals Pakistan and
National Starch.
Regulatory action, Serious Incident,
Loss of containment, see glossary.
100
-10%
-10%
-10%
Refer to reporting principles for details on comparability of data
152 | Financial summary | Additional information | AkzoNobel Report 2009
Financial summary
Consolidated statement of income
In € millions
Revenue
Operating income
Financing income and expenses
Income tax
Results from associates and joint ventures
Profi t for the period from continuing operations
Minority interests attributable to minority shareholders
Discontinued operations
Net income, attributable to shareholders
Common shares, in millions at year-end
Dividend
Number of employees at year-end
Salaries, wages, and other employee benefi ts
Salaries, wages, and other employee benefi ts in percent of revenue
Ratios
Operating income in percent of revenue
Operating income in percent of invested capital
Net income in percent of shareholders’ equity
Interest coverage
EBITDA coverage
Per share information
Net income
Dividend
Shareholders’ equity
Highest share price during the year
Lowest share price during the year
Year-end share price
2000
2001
2002
20031
2004
2005 2
2006
2007
2008
2009
14,069
1,440
14,158
1,162
14,059
1,390
13,106
1,146
12,833
1,588
13,000
1,492
(198)
(395)
143
990
(43)
–
947
285.9
343.0
68,400
3,285
23.3
10.2
16.2
39.7
7.3
10.6
3.31
1.20
9.42
59.15
37.30
57.20
(221)
(294)
55
702
(31)
–
671
285.9
343.0
66,300
3,416
24.1
8.2
12.5
24.1
5.3
8.3
2.35
1.20
10.07
57.85
33.73
50.15
(232)
(335)
30
853
(35)
–
818
285.7
343.0
67,900
3,552
25.3
9.9
15.4
32.9
6.0
8.9
2.86
1.20
7.34
54.50
27.25
30.23
(248)
(254)
7
651
(49)
–
602
285.7
343.0
64,600
3,505
26.7
8.7
13.6
26.2
4.6
7.3
2.11
1.20
8.76
32.44
16.00
30.60
(205)
(412)
10
981
(36)
–
945
(162)
(338)
6
998
(37)
–
961
285.8
343.0
285.8
343.0
61,400
61,300
3,216
25.1
3,221
24.8
12.4
20.8
40.6
7.7
10.5
3.31
1.20
9.12
33.79
24.87
31.38
11.5
19.4
32.0
9.2
12.7
3.36
1.20
11.95
40.18
30.82
39.15
10,023
10,217
15,415
13,893
887
(134)
(96)
87
744
(29)
438
1,153
287.0
344.0
42,700
2,158
21.5
8.8
16.3
30.5
6.6
9.4
4.02
1.20
14.44
49.41
38.30
46.18
778
(151)
(166)
(20)
441
(31)
8,920
9,330
262.3
472.0
42,600
2,215
21.7
7.6
14.6
122.9
5.2
7.5
33.82
1.80
42.06
65.56
44.41
54.79
(577)
(232)
(260)
25
(1,044)
(65)
23
(1,086)
231.7
417.0
60,000
3,022
19.6
(3.7)
– 3
– 3
– 3
– 3
(4.38)
1.80
32.21
57.11
22.85
29.44
870
(409)
(128)
22
355
(77)
7
285
232.3
325.2
57,100
2,944
21.2
6.3
6.5
3.7
2.1
4.3
1.23
1.35
33.48
46.52
26.01
46.40
1 The 2000 – 2003 fi gures have not been restated to IFRS accounting standards. The differences mainly relate to pensions and other post-retirement benefi ts, the recognition of deferred taxes on intercompany profi t, and the recognition of
goodwill. For the most part, the changed accounting is a matter of timing of the recognition of the assets, liabilities and related results.
2 The 2000 – 2005 fi gures have not been restated for the Organon BioSciences divestment.
3 Not meaningful as operating income was a loss.
For definitions of certain financial ratios and concepts see page 157.
Consolidated balance sheet
In € millions, December 31
Intangible assets
Property, plant and equipment
Financial non-current assets
Total non-current assets
Inventories
Receivables
Cash and cash equivalents
Assets held for sale
Total current assets
Shareholders’ equity
Minority interests
Total equity
Provisions
Long-term borrowings
Other non-current liabilities
Total non-current liabilities
Short-term borrowings
Current liabilities
Current portion of provisions
Liabilities held for sale
Total current liabilities
Invested capital:
- Of consolidated companies
- Of investments in associates and joint ventures
Property, plant and equipment:
- Capital expenditures
- Depreciation
Ratios:
- Revenue/invested capital
- Gearing
- Equity/non-current assets
- Inventories and receivables/current liabilities
AkzoNobel Report 2009 | Additional information | Financial summary | 153
2002
2003 1
2004
2005 2
2000
388
4,501
2,000
6,889
2,267
3,135
416
–
5,818
2,694
159
2,853
2,279
2,729
518
5,526
1,967
2,361
–
–
2001
508
4,568
1,895
6,971
2,270
3,229
455
–
5,954
2,878
138
3,016
2,400
2,235
560
5,195
2,267
2,447
–
–
629
4,402
2,217
7,248
2,206
2,815
520
–
5,541
2,098
137
2,235
3,855
2,797
513
7,165
979
2,410
–
–
590
3,967
1,866
6,423
2,133
2,671
727
–
5,531
2,502
140
2,642
3,333
2,717
590
6,640
441
2,231
–
–
4,328
4,714
3,389
2,672
9,257
673
9,395
575
8,692
491
8,117
353
725
631
1.58
1.50
0.41
2.29
822
635
1.52
1.34
0.43
2.25
689
622
1.55
1.46
0.31
2.08
581
599
1.56
0.92
0.41
2.15
448
3,535
1,418
5,401
1,978
2,761
1,811
–
6,550
2,605
140
2,745
2,877
2,392
200
5,469
560
2,677
500
–
3,737
7,145
318
551
540
1.68
0.42
0.51
1.77
488
3,432
1,800
5,720
1,987
2,910
1,486
322
6,705
3,415
161
3,576
2,210
2,702
183
5,095
357
2,571
766
60
3,754
8,007
301
514
528
1.68
0.44
0.62
1.9
2006
682
3,346
1,706
5,734
2,042
2,919
1,871
219
7,051
4,144
119
4,263
2,132
2,551
181
4,864
410
2,652
571
25
3,658
8,060
177
371
349
1.85
0.26
0.74
1.87
2007
669
2,203
1,402
4,274
1,177
2,164
11,628
–
14,969
11,032
97
11,129
1,598
1,954
133
3,685
1,635
2,276
518
–
4,429
5,197
142
359
330
1.91
– 3
2.60
1.47
2008
7,172
3,357
1,848
2009
7,388
3,474
1,783
12,377
12,645
1,781
2,977
1,595
4
6,357
7,463
450
7,913
2,072
2,341
715
5,128
1,338
3,510
845
–
5,693
1,441
2,666
2,128
–
6,235
7,775
470
8,245
1,919
3,641
674
6,234
384
3,220
797
–
4,401
13,424
201
13,204
175
534
453
1.07
0.26
0.64
1.36
534
458
1.04
0.21
0.65
1.28
1 The 2000 – 2003 fi gures have not been restated to IFRS accounting standards. The differences mainly relate to pensions and other post-retirement benefi ts, the recognition of deferred taxes on intercompany profi t, and the recognition of
goodwill.
2 The 2000 – 2005 fi gures have not been restated for the Organon BioSciences divestment.
3 Not meaningful due to the temporary net cash position.
For definitions of certain financial ratios and concepts see page 157.
154 | Financial summary | Additional information | AkzoNobel Report 2009
Business area statistics
In € millions
Decorative Paints
Revenue
EBITDA 3
EBIT 3
Operating income
Invested capital 4
EBIT margin 3 (in %)
Capital expenditures
Average number of employees
Performance Coatings
Revenue
EBITDA 3
EBIT 3
Operating income
Invested capital 4
EBIT margin 3 (in %)
Capital expenditures
Average number of employees
Specialty Chemicals
Revenue
EBITDA 3
EBIT 3
Operating income
Invested capital 4
EBIT margin 3 (in %)
Capital expenditures
Average number of employees
1 Pro forma and unaudited.
2 Restated for transferred businesses.
3 Before incidentals.
4 At year-end.
2007 1, 2
2008 2
2009
5,191
635
418
313
7,865
8.1
131
25,100
4,609
586
484
449
2,131
10.5
113
21,400
5,400
945
621
575
4,750
11.5
245
13,200
5,006
598
401
(669)
6,187
8.0
120
24,600
4,575
566
467
444
2,004
10.2
89
21,000
5,687
909
605
130
4,055
10.6
305
12,900
4,677
492
302
137
6,382
6.5
113
23,200
4,038
587
486
427
1,958
12.0
61
20,200
5,209
814
509
436
3,968
9.8
338
13,400
Regional statistics
In € millions
Revenue by destination
Revenue by origin
EBIT 2
Operating income
Capital expenditures
Invested capital 3
Number of employees 3
Revenue by destination
Revenue by origin
EBIT 2
Operating income
Capital expenditures
Invested capital 3
Number of employees 3
Revenue by destination
Revenue by origin
EBIT 2
Operating income
Capital expenditures
Invested capital 3
Number of employees 3
Revenue by destination
Revenue by origin
EBIT 2
Operating income
Capital expenditures
Invested capital 3
Number of employees 3
Revenue by destination
Revenue by origin
EBIT 2
Operating income
Capital expenditures
Invested capital 3
Number of employees 3
2006 1
2007
2008
The Netherlands
783
Germany
Sweden
UK
1,325
(24)
(19)
98
1,216
5,100
962
959
73
47
15
384
3,200
463
1,243
93
95
78
573
3,800
567
633
(16)
–
14
309
3,100
Other European countries
3,020
2,101
195
289
61
1,034
9,500
777
1,368
103
(6)
83
893
4,900
907
930
66
59
17
365
3,100
472
1,406
156
156
53
564
3,700
552
617
14
12
14
486
3,000
3,147
2,068
186
163
66
950
9,000
867
1,423
18
(45)
86
2,007
5,000
1,141
1,179
115
(34)
25
1,086
3,600
478
1,457
157
126
50
557
3,800
1,093
1,206
153
(48)
31
1,324
4,200
3,666
2,582
195
113
81
2,359
10,100
2009
807
1,284
(49)
(69)
104
1,490
4,800
1,121
1,197
100
54
21
1,064
3,900
428
1,284
124
59
37
487
3,500
816
851
87
78
22
1,614
3,900
3,174
2,211
216
115
70
2,541
9,400
1 Excluding Organon BioSciences, divested in 2007.
2 Before incidentals.
3 At year-end.
AkzoNobel Report 2009 | Additional information | Financial summary | 155
For definitions of certain financial ratios and concepts see page 157.
2006 1
2007
2008
2009
US and Canada
1,855
1,898
151
189
48
1,195
5,900
Latin America
566
431
64
64
14
253
2,500
636
636
115
115
31
180
China
1,855
1,871
136
118
56
1,214
6,100
606
475
58
62
15
272
2,700
687
658
110
110
38
142
3,330
3,463
154
(608)
94
3,250
12,000
1,306
1,103
135
89
49
776
4,800
1,054
968
144
(98)
67
861
4,800
5,100
6,300
Other Asian countries
743
520
79
84
7
227
3,100
Other regions
428
277
31
23
5
133
1,700
784
567
85
76
10
195
3,300
430
257
33
28
7
116
1,700
1,866
1,682
199
(110)
43
1,030
7,800
614
352
45
38
8
174
2,400
2,985
3,166
82
70
68
3,020
11,100
1,232
1,040
128
115
33
960
4,500
1,044
951
163
162
144
944
6,300
1,704
1,549
254
249
29
938
7,400
582
360
46
37
6
143
2,300
156 | Index | Additional information | AkzoNobel Report 2009
Index
Accounting policies 87
Acquisitions and divestments 94
Antitrust cases 113
Audit Committee 60
Auditor’s report 129
Board of Management 6
Borrowings 112
Business Area statistics 154
Car Refinishes 40
Carbon Policy 17, 49, 76, 136, 138
Cash and cash equivalents 107
Chairman’s statement 4
Chemicals Pakistan 52
Code of Conduct 22, 64, 139
Community Program activity 33, 142
Company financial statements 124
Consolidated balance sheet 83
Consolidated statement of cash flows 84
Consolidated statement of changes in equity 85
Consolidated statement of comprehensive income 82
Consolidated statement of income 82
Contingent liabilities and commitments 113
Corporate governance 61
Decorative Paints 26-33
Dividend proposal 12, 58, 78
Earnings per share 82, 107
Economic Value Added (EVA) 12
Emissions and waste 146-147, 151
Employees 22, 99, 140-142
Exchange rates of key currencies 89
Financial calendar 160
Financial instruments 119
Foreign exchange risk management 119
Functional Chemicals 47
Glossary 157
Health and Safety 144
High growth markets 19-21
Incidentals 94
Industrial Chemicals 49
Industrial Finishes 37
Intangible assets 102
Interest risk management 120
Internal controls 15
Inventories 105
Investments in associates and joint ventures 105
Key developments by Business Area 27, 35, 45
Manufacturing 21, 138
Marine and Protective Coatings 39
Materials and Energy 146-147
National Starch 53
Nomination Committee 60, 64
Option and share rights 100
Other financial non-current assets 105
Outlook 15
Packaging Coatings 41
Pensions 108
Performance Coatings 34
Polymer Chemicals 51
Powder Coatings 38
Product development 19, 136
Product stewardship 23, 144
Profit allocation 130
Property, plant and equipment 104
Provisions 108
Proxy voting 65, 78
Pulp and Paper Chemicals 48
Regional statistics 155
Remuneration Committee 60, 64
Remuneration 67, 115
Report of the Board of Management 10
Report of the Supervisory Board 58
Research, Development and Innovation 19, 136, 138
Risk management 73
Safe harbor statement 159
Segment information 86
Shareholder information 79
Shareholders’ equity 107
Sourcing 21, 138
Specialty Chemicals 44
Stakeholder engagement 135
Strategic ambitions 16
Strategy agenda 18
Supervisory Board 59
Surface Chemistry 50
Sustainability framework 132-133
Sustainability facts and figures 131-151
Sustainability management 23, 134
Tax 96
Ten-year financial summary 152
Trade and other payables 112
Trade and other receivables 106
AkzoNobel Report 2009 | Additional information | Glossary | 157
Glossary
ADR
American depositary receipt.
Autonomous growth is defined as the change in revenue
attributable to changed volumes and selling prices. It excludes
effects from currency and acquisition and divestment.
Carbon footprint
The carbon footprint of a product or organization is the total
amount of greenhouse gas (GHG) emissions caused during
a defined period, or across the total or part of a product
lifecycle. It is expressed in terms of the amount of carbon
dioxide equivalents emitted.
Code of Conduct
Our Code of Conduct defines our company values and how
we work. It incorporates fundamental principles on issues such
as business integrity, labor relations, health, safety, environment
and security and community involvement.
Community Program
AkzoNobel’s global Community Program encourages and gives
financial support for employees to get involved, hands-on,
in their local communities.
Cradle to Cradle
The Cradle to Cradle concept encourages the creation
of products for cradle-to-cradle cycles, whose materials
are perpetually circulated in closed loops.
Dow Jones Sustainability Index (DJSI)
The Dow Jones Sustainability Index tracks the performance
of the global sustainability leaders. The top 10 percent of the
2,500 largest companies in the Dow Jones Global Indexes,
rated by sustainability performance, are selected as
components of DJSI.
Earnings per share
Net income attributable to shareholders divided by the
weighted average number of common shares outstanding
during the year.
EBIT
Operating income before incidentals.
EBIT margin
EBIT margin is operating income or EBIT as percentage
of revenue and can refer to margins both before and
after incidentals.
EBITDA
EBITDA is EBIT before depreciation and amortization and refers
in this report to EBITDA before incidentals.
EBITDA coverage
EBITDA divided by the sum of financing income and expenses.
EBITDA margin
EBITDA margin is EBITDA as percentage of revenue.
Eco-efficiency
Eco-efficiency means doing more for less: creating goods and
services while using fewer resources and creating less waste
and pollution.
Eco-premium solutions
A measure of the eco-efficiency of our products. An eco-
premium solution is significantly better than competing offers
in the market in at least one eco-efficiency criterion (toxicity,
energy use, use of natural resources/raw materials, emissions
and waste, land use, risks), and not significantly worse in any
other criteria.
Emissions and waste
We report emissions to air, land and water for those
substances which may have an impact on people or the
environment: CO2, NOx and SOx, VOCs, Chemical Oxygen
Demand, hazardous and non-hazardous waste. Definitions
are in the Sustainability facts and figures section.
EOI (EVA on invested capital)
Economic value created in relation to invested capital during
the period of three consecutive years. This measure is used
to encourage EVA performance over a longer period of time.
EVA (Economic Value Added)
EVA is calculated by deducting from net operating profit after
taxes (NOPAT) a capital charge representing the cost of capital.
Gearing
Net interest-bearing borrowings divided by equity.
High growth markets
We classify high growth markets as all countries apart from:
Austria, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, the Netherlands,
New Zealand, Norway, Portugal, Spain, Sweden, Switzerland,
the UK and the US.
Incidentals
Incidentals are transformation costs, special charges and
benefits, results on divestments, restructuring and impairment
charges, and charges related to major legal, antitrust, and
environmental cases. EBIT and EBITDA before incidentals
and EBIT before incidentals and amortization and depreciation
of fair value adjustments are key figures management uses to
assess the company’s performance, as these figures better
reflect the underlying trends in the results of the activities.
Interest coverage
Operating Income divided by the sum of financing income
and expenses.
Invested capital
Invested capital is total assets (excluding cash and cash
equivalents, investments in associates, assets held for
sale) less current income tax payable and less trade and
other payables.
Key value chain
Used to map the carbon footprint of our businesses.
Key value chains are product groupings with similar footprint
characteristics, which are representative of the majority of
total BU revenue/production.
Loss of containment
Loss of containment is an indicator we use to monitor
the integrity of our assets. We have defined four levels to
indicate the level of loss, from small, on-site spill to Level 4 –
a significant emission of a toxic/hazardous material.
158 | Glossary | Additional information | AkzoNobel Report 2009
Natural resource use
We do not report specific natural resource use, except water.
We do report our use of energy and wastes from our
operations, and indicate the main raw materials used in
our products.
Net income
Net income attributable to shareholders of Akzo Nobel N.V.
Net income before incidentals
The sum of net income and incidental charges after tax;
or net income less incidental gains after tax.
Net interest-bearing borrowings
Long-term borrowings plus short-term borrowings less
cash and cash equivalents.
Non-western
We classify non-western as all countries apart from: Austria,
Australia, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, the UK and the US.
Operating income
Operating income is defined in accordance with IFRS and
includes the relevant incidental charges.
Operating working capital
Operating working capital is defined as the sum of inventories,
trade receivables and trade payables in the business areas.
When expressed as a ratio, operating working capital is
measured against four times last quarter revenue.
Operational eco-efficiency
Operational eco-efficiency is the eco-efficiency of our
manufacturing operations. Our aim is to improve the
operational eco-efficiency by reducing the resources used
and emissions/waste from our sites during the manufacture
of our products.
P&D Dialog
Performance & Development Dialog (P&D Dialog) is
AkzoNobel’s global performance and appraisal system
for employees.
Pay-out ratio
Dividend divided by net income before incidentals.
Profit for the period
The sum of net income attributable to shareholders
of Akzo Nobel N.V. and the income attributable to
minority interests.
Regulatory action
We have defined three categories of regulatory action
from Level 1 – a self-reported issue, to Level 3 – a formal
legal notification.
Revenue
Revenue consists of income from the sale of goods, services
and royalties.
Serious incident
We have defined three levels of serious incident. The highest
category – Level 3 – involves any loss of life; more than five
serious injuries; environmental, asset or business damage
totaling more than €25 million; inability to maintain business;
or serious reputation damage to AkzoNobel stakeholders.
Shareholders’ equity per share
Akzo Nobel N.V. shareholders’ equity divided by the number
of common shares outstanding at December 31.
Talent Factory
Talent Factory describes our ambition to be recognized as a
company which offers opportunities to its people for ongoing
learning, development and growth.
Total reportable rate of injuries
The total reportable rate is the number of injuries per
1,000,000 hours worked. Full definitions are in the
Sustainability facts and figures section.
Transformation costs
Transformation costs are acquisition- related costs, cost related
to divesting businesses as agreed with the European and
Canadian authorities, and costs for the new corporate identity.
TSR (total shareholder return)
Used to compare the performance of different companies’
stocks and shares over time. It combines share price
appreciation and dividends paid to show the total return to
the shareholder. The relative TSR position reflects the market
perception of overall performance relative to a reference group.
AkzoNobel Report 2009 | Additional information | Disclaimer | 159
Disclaimer
In this report, great care has been taken in drawing up the
properties and qualifications of the product features. No rights can
be derived from these descriptions. The reader is advised to consult
the available product specifications themselves. These are
available through the relevant business units. In this report the
terms “ AkzoNobel” and “the company” refer to Akzo Nobel N.V.
and its consolidated companies in general. The company is
a holding company registered in the Netherlands. Business
activities are conducted by operating subsidiaries throughout
the world. The terms “we”, “our” and “us” are used to describe
the company; where they are used in the chapter “Segment
performance”, they refer to the business concerned.
Safe harbor statement
This Report contains statements which address such key
issues as AkzoNobel’s growth strategy, future financial results,
market positions, product development, products
in the
pipeline and product approvals. Such statements should be
carefully considered and it should be understood that many
factors could cause forecasted and actual results to differ from
these statements. These factors include, but are not limited
to, price fluctuations, currency fluctuations, developments
in raw material and personnel costs, pensions, physical and
environmental risks, legal issues, and legislative, fiscal and other
regulatory measures. Stated competitive positions are based on
management estimates supported by information provided by
specialized external agencies.
2009 Report including Sustainability Report
The company’s annual financial report has this year been
combined with the sustainability report into one 2009 Report.
The sustainability sections, however, in no way form part of the
company’s annual report as the company is required to publish
pursuant to Dutch law.
2009 Report – Dutch version
Selected chapters of this report are also available in Dutch.
In the event of any discrepancies between the two versions,
the English report will prevail.
Brands and trademarks
In this Report, reference is made to brands and trademarks
owned by, or licensed to, AkzoNobel. Unauthorized use of these
is strictly prohibited.
Pro forma financial outcomes
Where relevant, pro forma financial outcomes were used for
2007. These reflect the AkzoNobel out comes as if it acquired
ICI at January 1, 2007, and include the effects of the purchase
price allocation. The main impact of the purchase price allocation
on the statement of income is higher amortization of intangibles,
higher depreciation of property, plant and equipment, and higher
cost of sales. The latter is due to the fair value of inventories
recognized on acquisition date which results in higher cost of
sales as inventories are sold, mainly in the first quarter.
160 | Financial calendar | Additional information | AkzoNobel Report 2009
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Report for the 4th quarter
and the year 2009
February 18, 2010
Report for the
1st quarter 2010
April 23, 2010
Report for the
2nd quarter 2010
July 23, 2010
Report for the
3rd quarter 2010
October 21, 2010
Report for the 4th quarter
and the year 2010
February 17, 2011
Annual General
Meeting 2010
April 28, 2010
Ex-dividend date of 2009
final dividend
April 30, 2010
Record date of 2009
final dividend
May 4, 2010
Payment date of 2009
final dividend
May 11, 2010
Concept, design and realisation
Dart | Brand guidance & Design, Amsterdam, the Netherlands
AkzoNobel Corporate Communications
Photography
Portraits Board of Management and Business unit managers by photographer Pim Vuik
Portrait Hans Wijers by photographer Tessa Posthuma de Boer
Bay bridge – Caltrans
Powder – Nord Stream, photographer Klaus Grabowski
Trainwash – iStockphoto, photographer Sandis Vagners
Knauf – Marketing department Knauf
Getty Images
Shutterstock
Lithography and printing
Tesink B.V., Zutphen, the Netherlands
Paper
Heaven 42, printed with bio-ink
Akzo Nobel N.V.
Investor Relations
Strawinskylaan 2555
1077 ZZ Amsterdam
The Netherlands
www.akzonobel.com/investor_relations
T +31 20 502 7854
F +31 20 502 7605
E investor.relations@akzonobel.com
www.akzonobel.com/report
We’re the largest global paints and coatings
company and a major producer of specialty
chemicals. We supply industries worldwide
with quality ingredients for life’s essentials.
We think about the future, but act in the
present. We’re passionate about developing
sustainable answers for our customers.
Based in Amsterdam, the Netherlands,
we have 57,000 employees working in more
than 80 countries – all committed to excellence
and delivering Tomorrow’s Answers Today™.
© 2010 Akzo Nobel N.V. All rights reserved.
“Tomorrow’s Answers Today” is a trademark
of Akzo Nobel N.V.
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