A year of delivering Tomorrow’s Answers Today
Key performance indicators
Statement of income
Dividend and earnings per share
Cash flows
Ratios
Revenue
in € millions
2009
2010
EBITDA
in € millions
2009
2010
Adjusted earnings per share
in €
Net debt
in € millions
Moving average ROI
in %
13,028
14,640
+12%
2009
2010
2.06
3.71
+80%
2009
2010
1,744
936
-46%
2009
2010
Dividend per share
in €
Operating working capital
% of revenue
Operating ROI
% of revenue
1,690
1,964
+16%
2009
2010
1.35
1.40
+4%
2009
2010
13.7
13.9
+0.2
2009
2010
9.2
10.8
23.2
27.7
+1.6
+4.5
EBITDA margin
% of revenue
Net income attributable
to shareholders in € millions
Net cash from operating activities
in € millions
Research and development expenses
in € millions
2009
2010
13.0
13.4
+0.4
2009
2010
285
754
2009
2010
1,220
519
-57%
2009
2010
327
334
+2%
EBIT
in € millions
2009
2010
Earnings per share from
continuing operations in €
1,131
1,374
+21%
2009
2010
1.09
2.85
Capital expenditures
in € millions
2009
2010
513
534
Research and development major
projects % of R&D expenses
4%
2009
2010
41
46
+5
Shareholders’ equity and EBITDA
per common share in €
Operating cash flows
in € millions
Net debt and group equity
in € millions
Shareholders’ equity per common share
EBITDA per common share
Net capital expenditure
Operating cash flows
Group equity
Net debt
EBIT and EBITDA
in € millions
EBIT
EBITDA
Operating ROI
3500
2800
2100
1400
700
0
23.5
23.2
1,785
1,234
1,690
1,131
27.7
1,964
1,374
30
24
18
12
6
0
60
48
36
24
12
0
7.70
7.28
32.21
33.48
8.41
38.47
10
8
6
4
2
0
2008
2009
2010
2008
2009
2010
1,220
(513)
2009
519
(534)
2010
7,913
8,245
9,509
2,084
1,744
936
2008
2009
2010
Sustainability
Specialty Chemicals
Performance Coatings
Decorative Paints
Total reportable rate of injuries
per million hours
2009
2010
3.7
3.6
-0.1
Eco-premium solutions
% of revenue
2009
2010
20
25
+5
Revenue
in € millions
2009
2010
EBITDA
in € millions
2009
2010
Revenue
in € millions
Revenue
in € millions
4,359
4,943
+13%
2009
2010
4,112
4,786
+16%
2009
2010
4,573
4,968
+9%
EBITDA
in € millions
EBITDA
in € millions
738
939
+27%
2009
2010
Key value chains carbon
footprint assessment
EBITDA margin
% of revenue
EBITDA margin
% of revenue
2009
2010
158
286
+81%
2009
2010
16.9
19.0
+2.1
2009
2010
594
647
14.4
13.5
+9%
2009
2010
487
548
+13%
EBITDA margin
% of revenue
-0.9
2009
2010
10.6
11.0
+0.4
Total waste
in kilotons
2009
2010
Total reportable rate of injuries
per million hours
Total reportable rate of injuries
per million hours
=
Total reportable rate of injuries
per million hours
249
258
+4%
2009
2010
2.8
3.5
+0.7
2009
2010
3.3
3.3
2009
2010
4.7
4.0
-0.7
Total reportable rate of injuries
per million hours
5.3
4.6
3.7
3.6
2007
2008
2009
2010
Eco-premium solutions
% of revenue
18
18
20
25
2007
2008
2009
2010
Revenue breakdown in %
Revenue breakdown in %
Revenue breakdown in %
D
C
E
A
B
D
E
C
A
B
C
B
A
A Functional Chemicals
36
A Marine and Protective Coatings
B Industrial Chemicals
C Pulp and Paper Chemicals
D Surface Chemistry
E Chemicals Pakistan
21
20
17
6
B Car Refinishes
C Industrial Coatings
D Powder Coatings
E Wood Finishes and Adhesives
A Europe
B Americas
C Asia Pacific
28
21
18
17
16
52
31
17
Total revenue high growth
markets vs mature
Total revenue high growth
markets vs mature
Total revenue high growth
markets vs mature
> 30%
100%
> 45%
100%
> 35%
100%
AkzoNobel at a glance in 2010
Our geo-mix and employees
20%
North America
10,400
39%
Mature Europe
22,300
6%
Emerging Europe
2,600
Geo-mix revenue
by destination
Employees
by region
10%
Latin America
4,300
21%
Asia Pacific
14,500
4%
Other countries
1,500
Revenue (in € billions)
€14.6
55,590
Employees
Decorative
Paints
34%
33%
Total revenue
€14.6 billion
Specialty
Chemicals
Performance
Coatings
33%
3%
Other
Specialty
Chemicals
20%
Decorative
Paints
39%
Total employees
55,590
38%
Performance
Coatings
Revenue by Business Area
Employees by Business Area
A year of delivering
Tomorrow’s Answers Today
2010 was a successful year for AkzoNobel, the world’s
largest coatings and specialty chemicals company. Our
financial performance was strong; we completed a number
of significant acquisitions; introduced a wide range of
innovative and more sustainable products; and launched
a new accelerated growth strategy. More information on
all these developments can be found in this 2010 Report,
which takes a detailed look at how we are continuing to
deliver Tomorrow’s Answers Today.
AKZONOBEL AND...
Throughout this Report you will find various case studies
highlighting just part of our contribution to the world around us.
17 HIGH GROWTH REGIONS
25 THE MID-MARKET
30 PAPER TECHNOLOGY
34 BRIGHT IDEAS
40 FASTER INNOVATION
44 MEETING CUSTOMER NEEDS
50 HEALTHY LIVING
54 NATURAL RESOURCES
144 ECO-PREMIUM SOLUTIONS
146 INVENTIVE THINKING
158 COOL COATINGS
162 SUPPLYING IKEA
164 CUTTING OUT CARBON
Contents
Strategy
Chairman’s statement
Our Board of Management
Report of the Board of Management
Statement of the Board of Management
Achieving our medium-term ambitions
Improving our performance levels
Executive Committee
Business performance
AkzoNobel Specialty Chemicals
AkzoNobel Performance Coatings
AkzoNobel Decorative Paints
Governance and compliance
Our Supervisory Board
Report of the Supervisory Board
Corporate governance statement
Remuneration report
Risk management
AkzoNobel on the capital market
Additional information
Financial summary
Index
Glossary
Financial calendar
Disclaimer
170
170
174
175
177
inside back cover
5
6
8
10
16
18
20
27
29
30
40
50
59
60
61
63
69
75
80
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
2010 key figures
Managing our values
Stakeholder activity
Sustainability framework
Invent
Manage
Improve
Reporting principles
Independent assurance report
Sustainability performance summary
85
86
87
87
88
89
90
91
129
134
137
138
139
141
142
145
149
152
166
167
168
AkzoNobel Report 2010 | Contents
3
This section provides an
overview of our strategic priorities,
highlights key performance areas
and gives details of the medium-
term ambitions targets to which
we aspire. You will also find the
Chairman’s statement and the
Report of the Board of Management.
Chairman’s statement
Our Board of Management
Report of the Board of Management
Statement of the Board of Management
Achieving our medium-term ambitions
Improving our performance levels
Executive Committee
6
8
10
16
18
20
27
Delivering
Tomorrow’s
Answers Today
For AkzoNobel, 2010 was something of a landmark year.
We still faced many challenges due to the ongoing uncertainty
surrounding the economic climate. But our financial vigilance
and swift response to the global downturn enabled us to
launch a new accelerated growth strategy soon after markets
began to recover. Our aim all along had been to emerge from
the crisis an even stronger company, and we succeeded.
6
Page title | Strategy | AkzoNobel Report 2010
I’ll come to our new growth ambitions in a moment, but the
milestone nature of the year – and the essence of our strategic
vision – was in many ways typified by November’s inauguration
of our new multi-site in Ningbo, China. The €275 million facility
is AkzoNobel’s largest ever investment outside of an acquisi-
tion and underlines the increasing importance of the world’s
high growth markets as we look to establish ourselves as the
world’s leading coatings and specialty chemicals company.
Regions such as Asia and Latin America are fundamental to
our future plans and Ningbo is representative of all our ambi-
tions as we strive to push ahead and seize opportunities to
accelerate profitable growth.
Value and Values
The announcement of our new Value and Values strategy
was certainly one of the year’s most important developments.
It was significant because it signaled the end of the transfor-
mation of our portfolio – a complex period of integration and
restructuring – and the dawn of a new era. One of accelerated
and sustainable growth. The details are explained elsewhere
in this 2010 Report, but essentially our new strategy sets out
a number of mid-term financial targets, including increas-
ing revenue to €20 billion, growing EBITDA each year while
maintaining a 13 to 15 percent margin and paying a stable to
rising dividend. These “Value” ambitions are underpinned by
strategic “Values”, which ensure that growth will be achieved
responsibly and sustainably.
The foundations for our new strategic vision were completed
during 2010, when we turned in a solid financial performance,
with revenue growing 12 percent. Delivering on our 14 percent
EBITDA target ahead of schedule was also a significant
achievement and emphasized the success of our employees
in focusing on customers, costs and cash. This disciplined
approach enabled us to grow revenue across all businesses
and paved the way for us to drive forward with fresh impetus
and renewed energy. Our markets have not yet fully returned to
pre-recessionary levels and raw material prices are still volatile,
so discipline remains key. But we are financially robust and are
committed to realizing further benefits from both our scale and
our pipeline of innovative products.
In order to help us deliver on our new strategic ambitions,
we decided that an important change was needed at the very
top of the organization. We therefore broadened our leader-
ship team and established a nine-strong Executive Committee
(explained in further detail elsewhere), comprising the current
Board of Management and four new leaders. I’m confident
that this new set-up will help to better drive common agendas,
build capabilities across the company and develop a leader-
ship group, culture and structure that will bring AkzoNobel to
the next level of substantially higher performance and growth.
During 2010, we continued with our strategy of consolidating
our industries with a number of bolt-on acquisitions. Among
the most significant was the finalization of the deal in which we
took over the powder coatings activities of the former Rohm &
Haas from the Dow Chemical Company. This saw us become
market leader in the US and helped to significantly improve
volumes. Another deal involved the purchase of Changzhou
Prime Automotive Paint Co. Ltd. in China. This not only gives
us strong representation in one of China’s most promising
growth segments, but also gives our Car Refinishes business
the opportunity to become the clear leader in the attractive
vehicle refinish mid-market. Another important acquisition was
that of Lindgens Metal Decorating Coatings and Inks by our
Industrial Coatings business. It enables us to serve custom-
ers with a more complete range of inks and has improved our
position in high growth areas of EMEA (such as Turkey and
Russia), as well as in the Asia Pacific region, notably Austra-
lia. The key divestment during 2010 involved the sale of our
National Starch activities to Corn Products International, which
completed the final stage of our portfolio transformation. Aside
from acquisitions, the year was also notable for a number of
strategically important agreements. Perhaps the most signifi-
cant was the deal signed by our Decorative Paints business to
become the primary paint supplier to Walmart, which involves
supplying multiple paint brands to the retailer’s 3,500-plus
stores in the US.
Excellent performance
Sustainability continued to be a high priority during 2010,
emphasized by the integral role it has to play in our new growth
strategy. We maintained our excellent performance and were
again ranked as one of the leaders in our industry, demonstrat-
ing our commitment not just to growing, but to growing in the
right ways. Our innovative pipeline also continued to produce
a wide range of eco-premium solutions that have made an
immediate impact, such as Dulux Weathershield SunReflect,
a paint which lowers the temperature of external walls and
reduces the need for air conditioning.
We also realize that there are areas where we need to improve.
For example, we know we can do even better when it comes
to safety and are making a concerted effort to achieve a top
quartile performance. Similarly, our employee programs are
being stepped up to improve engagement and encourage
talent development. Creating an engaged workforce is central
to our new strategy and we are working hard to stimulate a
climate of confidence, cooperation and co-creation.
I must stress that while not as severe as the previous year,
2010 did present its fair share of challenges. The fact that
we made such solid progress and have entered a new era
of accelerated and sustainable growth says much about our
underlying strength and our firm financial footing. In line with
our new strategy, we will therefore propose an increased
dividend to shareholders at the forthcoming Annual General
Meeting. In 2011, we expect to experience volume challenges
in many established markets and will continue to face raw
material price pressure. Although there is ongoing uncertain-
ty about the overall economic conditions, particularly in the
mature markets, for 2011 we are aiming for more than five
percent revenue and EBITDA growth.
My colleagues on the Board of Management and Executive
Committee are extremely proud to be leading our great
company at such an exciting period in its long history and
would like to express our gratitude to the many colleagues
around the world who are helping to lead AkzoNobel into a
future full of so many possibilities.
Hans Wijers
CEO and Chairman of the Board of Management
AkzoNobel Report 2010 | Strategy | Chairman’s statement
7
Our Board
of Management
Tex Gunning
Board member responsible for Decorative Paints
(1950, Dutch)
Keith Nichols
Chief Financial Officer
(1960, British)
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 Busi-
ness Group President Asia Foods.
Keith Nichols joined AkzoNobel in December 2005 from
Corus Group plc, where he held the position of Group Trea-
surer. Prior to joining Corus in 2004, he held a number of
senior finance positions within TNT N.V., bringing extensive
international finance experience.
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.
Mr. Nichols played a key senior role in the sale of Organon
BioSciences to Schering Plough and in the structuring, financ-
ing and completion of the acquisition of ICI. He is a member of
the Association of Corporate Treasurers and holds the MCT
Advanced Diploma.
8
Our Board of Management | Strategy | AkzoNobel Report 2010
Hans Wijers
Chief Executive Officer and Chairman
of the Board of Management (1951, Dutch)
Rob Frohn
Board member responsible for Specialty Chemicals
(1960, Dutch)
Leif Darner
Board member responsible for Performance Coatings
(1952, Swedish)
A graduate of the University of Groningen and Assistant Profes-
sor 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 govern-
ment, 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. In addi-
tion, Mr. Wijers is a member of the Board of Directors of the
Concertgebouw N.V. and a member of the European Round
Table of Industrialists.
Rob Frohn joined AkzoNobel as a business analyst in 1984.
Following several General Manager positions, in 2004 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.
After graduating from Gothenburg University, Leif Darner
held several management positions before being appointed
General Manager of Powder Coatings Scandinavia at Cour-
taulds in 1985.
He is a non-executive director at Nutreco N.V., and Delta N.V.
He is a Board member of CEFIC (European Chemical Industry
Council) and Hogeschool van Arnhem en Nijmegen (HAN).
In 1993, he was appointed Chief Executive of Coatings North-
ern 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 Business Unit 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 posi-
tion he held until April 2008.
AkzoNobel Report 2010 | Strategy | Our Board of Management
9
Report of the
Board of Management
• 2010 revenue growth at
12 percent in line with
medium-term ambitions
• 2010 EBITDA before
incidentals 16 percent higher
• Operating return on
invested capital: 27.7 percent
(2009: 23.2 percent)
• Net income: €754 million
(2009: €285 million)
• Total dividend for 2010: €1.40
(2009: €1.35) proposed
• Outlook: aiming for more than
5 percent revenue and EBITDA
growth in 2011, in line with
medium-term ambitions
Financial highlights
Continuing operations before incidentals
In € millions
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Moving average ROI (in %)
Operating ROI (in %)
After incidentals
In € millions
Operating income
Net income from continuing operations
Net income from discontinued operations
Net income 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
2009
2010
∆%
13,028
14,640
1,690
13.0
1,131
8.7
9.2
23.2
1,964
13.4
1,374
9.4
10.8
27.7
12
16
21
2009
2010
∆%
855
253
32
285
1.09
1.23
513
1,220
2.1
11,732
1,744
54,740
1,219
43
664
90
754
2.85
3.23
534
519
3.7
12,718
936
55,590
10
Report of the Board of Management | Strategy | AkzoNobel Report 2010
Revenue
Revenue was up 12 percent for the year. During 2010,
demand recovered and volumes increased, notably in the
high growth markets.
returned to pre-crisis levels. Revenue increased 13 percent
for the year, driven by the volume improvement, stable pricing
and favorable currency effects.
Acquisitions and divestments
The acquisition and divestment effect on individual Business
Area revenue during the year was due to the following:
• In Performance Coatings, we consolidated the
acquired former Dow Chemical powder coatings
activities as of June. We acquired the Lindgens Metal
Decorating and Inks business in Q3 and on October 1,
we acquired Changzhou Prime Automotive Paint Co.,
Ltd to grow our Car Refinishes business in China.
• In Specialty Chemicals, we divested PTA Pakistan
in September 2009. This impacted 2010 revenue in
Specialty Chemicals by 4 percent. During 2010, National
Starch was classified as a discontinued operation and
was sold on October 1, 2010, at a gain of €53 million.
Decorative Paints
Decorative Paints full-year revenue growth was 9 percent.
Demand in the high growth markets showed a robust recov-
ery in 2010 after a challenging 2009. Our growth strategy of
investing in brands, distribution and people, and expanding
into mid-tier markets in high growth regions, is progressing
well. Growth rates achieved in China and South East Asia
have significantly outpaced markets, while demand in most
of the mature markets declined during the year. As a result,
our revenue in mature markets declined, apart from the UK,
where we continued to strengthen the Dulux market position
and gained share in the trade segment.
Performance Coatings
Performance Coatings had a good year, with revenue up 16
percent. Volume increases were seen in all businesses and
all geographic regions, especially in Eastern Europe, Latin
America and Asia. Powder Coatings showed the largest
increase due to an acquisition, followed by Industrial Coatings,
driven by good performances in Coil and Packaging Coat-
ings. Wood Finishes and Adhesives and Marine and Protective
Coatings had slower volume growth due to continued weak
demand in the US housing market and lower investment levels
in the European and US markets.
Specialty Chemicals
A broad recovery in demand, combined with the success
of our strategic growth platforms, led to a volume increase
across nearly all business lines in our Specialty Chemicals
portfolio. In particular, volumes in the Americas and Asia
Decorative Paints
Performance Coatings
Specialty Chemicals
Total
Revenue in € millions
Revenue development in % versus 2009
Decorative Paints
Performance Coatings
Specialty Chemicals
4,905
4,635
4,820
4,573
4,112
4,359
4,968
4,786
4,943
Decrease
Increase
12
10
8
6
4
2
0
+6%
+12%
+6%
0%
0%
4,356
2008
2009
2010
Volume
Price
Acquisitions/
divestments
Exchange
rates
Total
Revenue development in % versus 2009
Volume
Price
Acquisitions/
divestments
Exchange
rates
Total
2
7
11
6
1
(1)
–
–
–
3
(4)
–
6
7
6
6
9
16
13
12
AkzoNobel Report 2010 | Strategy | Report of the Board of Management
11
EBITDA AkzoNobel 2008 – 2010 in € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
598
566
767
487
594
738
548
647
939
2008
2009
2010
EBITDA
EBITDA was up 16 percent. During the second half of the year
we were impacted by higher raw material costs, which we
partly offset by pricing.
Decorative Paints
In Decorative Paints, we continued to invest in the future
of the business, with absolute A&P spending increasing by
30 percent and A&P spending as percentage of revenue
increasing to 6 percent (2009: 5 percent). During the year, we
maintained our focus on costs, margin improvement and oper-
ating working capital efficiency. We continued the restructur-
ing programs in our European business to counter soft market
demand, while our margin management programs enabled
us to maintain overall margins, despite higher raw material
prices. EBITDA increased 13 percent and the EBITDA margin
improved from 10.6 percent in 2009 to 11.0 percent in 2010.
Performance Coatings
Full-year EBITDA increased 9 percent, where the positive
currency impact was 7 percent, and ended at €647 million.
The EBITDA margin was 13.5 percent (2009: 14.4 percent).
Costs were kept under control, however, margins were
impacted by higher raw material prices.
12
Report of the Board of Management | Strategy | AkzoNobel Report 2010
Specialty Chemicals
Improved volume, firm margins and limited cost growth
in Specialty Chemicals resulted in an EBITDA growth of
27 percent to €939 million for 2010, surpassing all previous
performance levels for the portfolio. With the National Starch
divestment having been completed and our Ningbo site in
China operational, the business area was even better posi-
tioned at the close of the year.
Raw materials
Raw material prices increased in 2010, particularly in the
second half of the year. We expect 2011 prices to increase
further. Pricing and cost reduction actions are ongoing and
AkzoNobel is confident that it will be able to compensate
for these increases during 2011.
Incidental items included in operating income
During 2010, we continued to restructure:
• In Decorative Paints, mainly in Continental
Europe and the US
Incidentals included in operating income
In € millions
2009
2010
Restructuring costs
Results related to major legal, antitrust
and environmental cases
Results on acquisitions and
divestments
Other incidental results
Incidentals included
in operating income
(349)
(38)
48
63
(276)
(120)
(49)
33
(19)
(155)
EBIT in “other”
Corporate costs ended below the previous year. The pension
cost impact compared with the previous year is completely
due to IAS 19 corridor accounting. We saw fewer insurance
claims in 2010, leading to a better result this year in insur-
ance. Other costs are higher than the previous year, mainly
due to increased project activity in line with our strategy to
drive functional excellence.
• In Performance Coatings, we closed several sites
EBIT in “other”
in connection with the acquired powder coatings activities
• In Specialty Chemicals, we closed an incinerator
in Rotterdam.
Apart from restructuring costs, we took a €32 million provision
for environmental clean-up costs at a site in Sweden. In addi-
tion, we reported gains in connection with the acquisition of
the acquired powder coatings activities and the divestment of
a capitve insurance company.
In € millions
2009
2010
Corporate costs
Pensions
Insurances
Other
EBIT in “other”
(99)
29
(9)
(70)
(149)
(96)
(7)
2
(87)
(188)
Tax
The year-to-date tax rate is 19 percent (2009: 30 percent).
The tax rate is low because of several adjustments to previ-
ous years, partly related to settlements with tax authori-
ties. Furthermore, there were tax-exempt gains related to
acquisitions and divestments. Excluding these and other
incidental items, the year-to-date tax rate would have been
28 percent (2009: 30 percent).
Net financing expenses
Net financing charges for the year decreased by €78 million
from €405 million to €327 million, due to decreased financ-
ing expenses on pensions (€71 million mainly due to higher
returns on plan assets). In addition:
• Interest on provisions decreased by €15 million due to
lower discount rates
• Interest on net debt increased by €11 million due to higher
cost of refinanced bonds in 2009 and lower rates on our
cash position during 2010.
Net financing expenses
In € millions
2009
2010
Financing income
Financing expenses
Net interest on net debt
Financing expenses related to
pensions
Interest on provisions
Other items
Net other financing expenses
Net financing expenses
58
(236)
(178)
(171)
(54)
(2)
(227)
(405)
51
(240)
(189)
(100)
(39)
1
(138)
(327)
Discontinued operations
On October 1, we completed the divestment of National
Starch with a gain of €53 million. The operating results for
2010 were €74 million. In 2010, we also incurred €37 million
related to further settlements and tax-related costs from
the divestments of the businesses sold to Henkel in 2008.
In total, we reported a gain from discontinued operations of
€90 million for 2010.
Earnings per share
Net income from total operations amounted to €754 million
(2009: €285 million), including €90 million attributable to
discontinued operations. Earnings per share from total oper-
ations increased from €1.23 to €3.23. Earnings per share
from continuing operations also more than doubled from
€1.09 to €2.85.
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 inves-
tors expect. EVA for 2010 totaled a negative amount of
€142 million (2009: €390 million negative, restated to exclude
National Starch).
Earnings per share total operations (in €)
Returns on invested capital
We monitor our return on investments (ROI) by two measures:
1.23
2009
3.23
2010
(4.38)
2008
• By (moving average) ROI, being EBIT divided by average
invested capital
• By (moving average) operating ROI, being EBIT before
amortization of intangibles divided by average invested
capital excluding intangibles.
Both measures developed positively during 2010.
Dividend proposal
We have announced a simplified dividend policy and intend
to pay a stable to rising dividend, whereby a cash interim
and final dividend will be paid. We will propose a 2010 final
dividend of €1.08 per share, which would make a total 2010
dividend of €1.40 (2009: €1.35).
Returns on invested capital in %
Moving average ROI
Operating ROI
Dividend (in €)
1.80
1.35
1.40
20
16
12
8
4
0
23.5
23.2
9.4
9.2
27.7
10.8
30
24
18
12
6
0
2008
2009
2010
2008
2009
2010
AkzoNobel Report 2010 | Strategy | Report of the Board of Management
13
Invested capital
Invested capital at year-end 2010 totaled €12.7 billion,
€1 billion higher than at year-end 2009. Invested capital was
impacted by the following items:
• Foreign currency effects on intangibles and property,
plant and equipment, due to the weakening euro.
In total, equity increased by €0.8 billion due to the
currency translation impact
• An increase of €269 million of long-term receivables
related to pension funds in an asset position
• Acquisitions, primarily the acquired powder
coatings activities
• An increase of operating working capital due to currencies
and increased business activities. Expressed as a
percentage of revenue, operating working capital was
13.9 percent (year-end 2009: 13.7 percent)
• Payments of accrued interest of €159 million in January
2010, being the first payment under bonds refinanced in
late 2008 and the first half of 2009. The normalized cash
outflow for these bonds is €148 million.
We intend to accelerate growth and expand our investments
in high growth regions. In 2011, we aim to invest 4 percent of
revenue in capital expenditures.
Condensed consolidated balance sheet
In € millions
2009
2010
Intangible assets
Property, plant and equipment
Other financial non-current assets
7,388
3,474
1,783
7,308
3,384
1,977
Total non-current assets
12,645
12,669
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 short-term liabilities
Total current liabilities
1,441
2,564
2,128
102
6,235
1,678
2,788
2,851
108
7,425
18,880
20,094
8,245
2,593
3,488
6,081
384
2,866
1,304
4,554
9,509
2,444
2,880
5,324
907
3,305
1,049
5,261
Total equity and liabilities
18,880
20,094
Invested capital in € millions
11,770
11,732
12,718
2008
2009
2010
Net debt
Net debt decreased from €1,744 million at year-end 2009 to
€936 million at year-end 2010, mainly due to:
• The divestment of National Starch, generating €1 billion
of cash
• Operating cash inflows of €519 million
• Dividend payments of €403 million (including to
non-controlling interests)
• Capital expenditures of €534 million.
A bond totaling €539 million will mature in June 2011 and is
recorded under short-term borrowings. In August, our credit
ratings were confirmed at BBB+/Baa1 with outlook improved
to stable.
The proceeds from the disposal of National Starch will fund
growth and will potentially partly be used to realize our growth
plans, strengthen the company’s capital structure by, for
example, repaying the 2011 €539 million debt maturity or
de-risking pensions where possible.
Shareholders’ equity
Shareholders’ equity as at December 31, 2010, increased to
€9.0 billion, due to the net effect of:
• Net income of €754 million
• Increased cumulative translation reserves by €734 million
due to the weakening euro
• Payment of the final 2009 dividend of €245 million and the
2010 interim dividend of €75 million.
Pensions
The funded status of the pension plans at year-end 2010
was estimated to be a deficit of €1.0 billion (year-end 2009:
€1.9 billion). The movement is due to lower discount rates
increasing the pension obligation, compensated by:
• Increased asset values
• Lower inflation expectations
• Top-up payments of €375 million into certain defined
benefit pension plans.
14
Report of the Board of Management | Strategy | AkzoNobel Report 2010
2008
2009
2010
Condensed consolidated cash flow statement
In € millions
2009 1
2010
Operating working capital in € millions
Cash flows
Operating activities in 2010 resulted in a cash inflow of
€519 million (2009: €1,220 million). The change compared
with 2009 is due to €0.4 billion higher operating results offset
by the following changes in working capital and changes
in provisions:
Operating working capital
in % of revenue
4,000
3,200
16.4
• During 2009, we released €0.5 billion cash from operating
2,400
working capital, whereas during 2010 we invested
€0.1 billion in operating working capital to facilitate growth
1,600
2,185
• During 2009, we incurred high costs for restructuring,
resulting in higher restructuring payments during 2010
• In 2009, we received €75 million from tax authorities on a
800
0
13.7
13.9
1,691
2,016
20
16
12
8
4
0
contingent basis for ongoing tax litigation, and, in 2010 we
paid an additional amount to tax authorities. In addition, in
early 2010 we made the first payment of accrued interest
of bonds refinanced in 2009.
Workforce
At year-end 2010, we employed 55,590 staff for ongoing
activities (year-end 2009: 54,740 employees). The net increase
was due to:
• A net increase of 870 due to acquisitions and divestments,
mainly from the acquired powder coatings activities
(670 employees)
• A decrease of 1,770 employees due to ongoing
restructuring
• An increase of 1,750 employees due to new hires and
other changes.
Cash and cash equivalents opening balance
Profit for the period from continuing operations
Amortization, depreciation and impairments
Changes in working capital
Changes in provisions
Other changes
Net cash from operating activities
Capital expenditures
Acquisitions and divestments 2
Other changes
Net cash from investing activities
Changes from borrowings
Our growth ambitions will entail hiring new employees, in
particular in high growth regions.
Dividends
Other changes
Net cash from financing activities
Net cash used from continuing operations
Cash flows 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 Restated to present National Starch as a discontinued operation.
2 Net of cash.
1,449
1,919
330
622
650
(493)
111
1,220
(513)
(55)
39
(529)
175
(454)
4
(275)
416
19
435
35
1,919
747
640
(95)
(651)
(122)
519
(534)
2
53
(479)
(33)
(403)
(45)
(481)
(441)
1,095
654
110
2,683
AkzoNobel Report 2010 | Strategy | Report of the Board of Management
15
Statement of the
Board of Management
The Board of Management’s statement on the
financial statements, the management report and
on internal controls
We have prepared the 2010 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 2010 Report give a true and
fair view of our assets and liabilities, our financial position at
December 31, 2010, and of the result of our consolidated
operations for the financial year 2010.
2. The management report in this 2010 Report includes a fair
review of the development and performance of the busi-
nesses and the position of AkzoNobel and the undertak-
ings 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 oper-
ations. 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 reason-
able 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 appli-
cable laws and regulations. The individual components of the
above set of internal controls are in line with the COSO Enter-
prise 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 of Management whether our internal risk manage-
ment 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 2010 Report does not contain any errors
of material importance
• Have worked properly in the year 2010.
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 section. We have discussed the above opinions
and conclusions with the Audit Committee, the Supervisory
Board and the external auditor.
Medium-term ambitions
We have the aspiration to be the world’s leading Coatings
and Specialty Chemicals company. On September 28,
we announced our medium-term ambitions to grow to
€20 billion revenue, increase EBITDA each year while main-
taining a 13 to 15 percent margin, reduce OWC percent of
revenue year-on-year by 0.5 percent towards a 12 percent
level, and pay a stable to rising dividend.
The sustainability ambitions are to remain a top three leader
in our industry, to be top quartile in our peer group in terms
of safety performance, diversity, employee engagement and
development, and eco-efficiency improvement rates.
Outlook
We are aiming for more than 5 percent revenue and EBITDA
growth in 2011, in line with medium-term ambitions.
Amsterdam, February 16, 2011
The Board of Management
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
16
Statement of the Board of Management | Strategy | AkzoNobel Report 2010
AKZONOBEL AND HIGH GROWTH REGIONS
Asia has a fundamental role to play in our accelerated growth
strategy. China in particular is integral to our strategic focus
on the world’s high growth regions, highlighted by our inten-
tion to achieve a $3 billion revenue target in China by 2015
– doubling the previous target.
The Ningbo multi-site, which we inaugurated in Novem-
ber 2010, perfectly illustrates the scale of our ambitions.
The €275 million facility represents our biggest ever invest-
ment outside of an acquisition and emphasizes the extent
of our commitment to fuelling accelerated growth in China
and beyond.
AkzoNobel’s Functional Chemicals business is already produc-
ing chelates, ethylene amines and ethylene oxide at the Ningbo
site and is adding an organic peroxides plant, which is expected
to come on stream in late 2011. The 50-hectare plot also offers
room for expansion and further investment in organic growth
as we look to significantly boost our presence and capabilities.
We currently employ around 6,500 people in China and
have close to 30 production sites located there. These
facilities enable us to optimize our global supply chain and
respond to growing demand for our products. Being located
close to our growing customer base in China also gives us a
competitive advantage.
Achieving our
medium-term ambitions
Strategic ambitions
Value
Outgrow our markets: Delivered
• Improved market share in many key mature and high
EBITDA margin > 14 percent: Delivered early
• Continued to manage gross margin percentage through
growth markets
• Opened our new €275 million Specialty Chemicals site
in Ningbo, China
• In Performance Coatings, acquired the powder coatings
activities of the Dow Chemical Company, and Changzhou
Prime Automotive Paint Co., Ltd (to support our
mid-market car refinishes business in China)
• In Decorative Paints, signed an agreement to become the
primary paint supplier to Walmart in the US.
Revenue growth in %
pricing and procurement actions, despite challenging raw
materials environment
• Completed delivery of €340 million of ICI synergies
and almost all initiatives in our broader €200 million
restructuring plan
• Achieved our 14 percent EBITDA margin target on an
annual rolling basis in the second quarter of 2010.
EBITDA margin
as a % of revenue
annual rolling basis
OWC improvement of 0.5 p.a: Delivering
• Delivered strong credit control, despite the financial crisis
• Continued to consolidate suppliers and harmonize terms
and conditions to ensure sustainable improvement in days
of payables
• Continued roll-out of SAP in Decorative Paints,
which will enable further substantial improvements in
inventory management
• Implemented a best practices reference guide to enable
future reductions in OWC levels.
Operating working capital as a % of revenue
20
15
10
5
0
9
16
13
12
32
24
16
8
0
12.0
12.1
12.6
13.0
13.6
14.0
13.9
13.4
14.7
15.4
11.9
12.3
15.7
14.8
10.4
9.4
16
12
8
4
0
20
16
12
8
4
0
16.4
13.7
13.9
Decorative
Paints
Performance
Coatings
Specialty
Chemicals
Total
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2008
2009
2010
2009
2010
18
Achieving our medium-term ambitions | Strategy | AkzoNobel Report 2010
The next chapter in leadership
In 2008, following the acquisition of ICI, we outlined a
strategic vision to become the world’s leading Coatings
and Specialty Chemicals company. We also defined both
value and values ambitions to support this overall vision,
which are shown across this spead. These defined what we
meant by leadership in value and values during a time when
internally we were integrating ICI, and externally the market
environment was uncertain at best.
Now that the market environment is improving, and we
have completed the ICI integration, we have defined a new
set of medium-term strategic ambitions, appropriate for the
next chapter of our leadership story. These ambitions were
announced in September 2010 and will form the basis for our
reporting going forward. They are strongly oriented towards
profitable growth and are outlined to the right.
Values
Value
Accelerated growth
Value Accelerated growth
• Grow to €20 billion in revenue
• Increase EBITDA each year, maintaining
a 13 to 15 percent margin
• Reduce OWC percent of revenue by 0.5
per annum towards a 12 percent level
• Pay a stable to rising dividend
Values
Sustainable growth
Values Sustainable growth
• Top quartile safety performance
• Top three position in sustainability
• Top quartile performance in diversity, employee
engagement and talent development
• Top quartile eco-efficiency improvement rate
Top quartile safety: Continued improvement required
• Demonstrated improvement, but not enough to reach
Top three Dow Jones Sustainability Index: Delivered
• Ranked in the top three in the Chemicals index for
our target
the fifth year
Step change in people development: Continued
• Implemented a full and reinvigorated training schedule
• Set stretching targets for executive diversity; will roll-out
• Continued to roll-out behavior-based safety (BBS)
• Demonstrated continued strong performance in risk
diversity and inclusion training for all employees from 2011
program in a disciplined manner
• Implemented a full roll-out of safety leadership training.
and crisis management, Code of Conduct and
environmental policy and management systems
• Improved in innovation management
• Future improvement required in operational
eco-efficiency (i.e., carbon, water, waste) and people
development aspects.
• Launched an externally benchmarked employee
engagement survey to assess baseline performance
• Began to implement HR country organizations to
harmonize procedures and facilitate intra-company
capability transfer.
Total reportable injuries per million hours
DJSI position Chemicals sector
Employee engagement performance as percentile
10
8
6
4
2
0
5.3
4.6
3.7
3.6
2007
2008
2009
2010
2.0
2015
ambition
2006
2007
2008
2009
2010
2nd
1st
2nd
2nd
2nd
100
80
60
40
20
0
75
2015
ambition
23
2010
AkzoNobel Report 2010 | Strategy | Achieving our medium-term ambitions
19
Improving our
performance levels
Context
Over the last few years, there have been two major phases
in AkzoNobel’s corporate strategy. The first, from 2003 to
2007, was strongly focused on portfolio transformation. This
phase included a series of divestments designed to transform
our position in Specialty Chemicals, as well as the sale of our
human and animal healthcare businesses, the acquisition of
ICI and the on-sale of the ICI Adhesives and Electronic Mate-
rials business to Henkel. We completed the final step in this
process in 2010 with the sale of National Starch to Corn Prod-
ucts International.
The second phase, which ran from 2008 to 2010, was
focused on integration and restructuring. During this period,
we were primarily occupied with improving efficiency in the
business for two main reasons – to capture the synergy
potential from the ICI acquisition and to respond to the global
economic downturn. Both of these agenda items were essen-
tially completed in 2010. Specifically:
• With regard to the ICI integration, we have now completed
almost all actions. We delivered €340 million in synergy
savings by the end of 2010. This exceeds, and was
achieved faster, than our initial ambition of €270 million
by 2011. Beyond the top line numbers, within Decorative
Paints, we have reduced:
• Brands from 100 to 75 and will reduce to less than
50 by the end of 2012
• Stock keeping units (SKUs) from more than 90,000
to 75,000 and will reduce to less than 60,000 by
the end of 2012
• Factories from 80 to 58 and will reduce to less than
50 by the end of 2012.
20
Improving our performance levels | Strategy | AkzoNobel Report 2010
• With regard to restructuring, from 2008 to 2009, we
Strategic agenda
promised €200 million in savings in partial response to the
financial crisis. We over-achieved on this target, delivering
€350 million by the end of 2009. During 2010, we contin-
ued our restructuring efforts in mature markets.
We have now started the next chapter of our strategy devel-
opment, one of accelerated and sustainable growth. As has
been the case throughout the two previous phases, the focus
is on true leadership in Coatings and Specialty Chemicals.
We continue to strongly believe that, to be the true leader, we
must be the leader in terms of both value and values.
The strategic agenda today
Our new strategic agenda is firmly focused on delivering
growth. This will be supported by a renewed emphasis on
functional excellence and will continue to be balanced by a
disciplined approach to cash management. These agenda
items will be supported by continued focus on building and
leveraging our Talent Factory, living the AkzoNobel values and
embedding safety and sustainability in everything we do.
A description of 2010 activities and plans for 2011 for each
strategic agenda item follows.
Innovate more to respond to global
mega-trends and deliver on solution promises
Accelerate profitable growth through
market share gain, margin management
and industry consolidation, particularly
in high growth countries
Deliver business models that serve the needs
of the mid-markets
Drive functional and operational excellence,
with focus on RD&I, supply chain, finance
and HR
Manage capital and cash in a
disciplined manner
Build and leverage our industry-leading
Talent Factory
Live the AkzoNobel values by creating a culture
of confidence, cooperation and co-creation
Embed safety
and sustainability
in everything we do
Innovate more
To achieve our growth ambitions, we need to focus our effors
more on projects that yield bigger and better innovations –
delivered faster. In 2010, we spent time developing a more
focused portfolio of innovation projects and are already redi-
recting our investment to support these bigger innovations.
Increasingly, our innovation portfolio will be aimed at deliver-
ing solution promises that address global mega-trends. These
concepts are explained below.
Global mega-trends
We are now completely aligned on the key underlying
changes in the world that will drive our business, and indeed
all businesses:
• Population growth: from 6.8 billion people today to more
than 9 billion in 2050 is a strong driver for global demand.
• Quality of life: will improve for a new middle class of
around 3 billion people emerging over the next 20 years
• Climate change: will increase the need for energy
efficiency and for low carbon and renewable
energy resources
• Scarcity of natural resources: will drive innovation; today
we use the replenishment capacity of 1.4 planets.
Solution promises
These are conceptual responses to the challenges posed
by the global mega-trends. They provide a framework which
guides and energizes our innovation portfolio. For example,
the combination of population growth and improved quality
of life will mean that the world’s population grows and wealth
increases, with significant mid-market development in high
growth economies. The solution promise that addresses this
is “Serving the needs of the mid-market.” To do this, we will
need to deliver innovations that will provide customers with
affordable, high quality products – at much lower cost.
Throughout this 2010 Report, you will find a series of case
studies highlighting some of the innovations that we have
already commercialized that make good on these solution
promises. We are confident that we will continue to deliver
exciting innovations that deliver increased market share and/
or improved margins as we continue to redirect investment in
R&D towards bigger innovation projects.
We’re pleased with the progress we’re making, but we also
recognize that no one company or individual has a monopoly
on the best ideas. That’s why we’re also open to the best ideas
to grow our business – whether they’re our own or someone
else’s. To find and access those ideas, we’ve developed a
structured approach to open innovation which encourages
outside parties to help us with solutions where we don’t have
the in-house knowledge, capabilities, or technology. We have
already started to establish strategic partnerships in specific
areas of mutual interest with key suppliers.
Solution promises
Serving the needs
of the mid-market
Developing products for
well-being and identity
Achiieving zero footprint
Saving you time and effort
Creating new horizons
in functionality
AkzoNobel Report 2010 | Strategy | Improving our performance levels
21
Accelerate profitable growth
It is safe to say that we face a wealth of growth opportunities in
all parts of our business using our existing value propositions
and business models. This is true in both mature markets and
high growth markets.
• In mature markets, there is still considerable room for
organic growth and even market share gain. A perfect
example of this is our deal with Walmart in the US to
become their primary paint supplier (see separate
case study).
A portfolio of interior and exterior paints has been
developed which will be available in more than 3,500
Walmart stores nationwide. The agreement builds on
our existing relationship with Walmart for paints in
Puerto Rico and Canada, and for Liquid Nails adhesives
in the United States.
There is also room for industry consolidation. A good
example of this was our acquisition of the former Rohm &
Haas powder coatings activities from the Dow Chemical
Company, which has significantly strengthened our global
leadership in this market. Building this strong leadership
position is important because powder coatings have an
excellent sustainability profile, with lower water use and no
VOC emissions.
• The growth picture is even brighter in the high growth
markets of Asia, Latin America and Eastern Europe. We
experienced strong top line growth in these markets in
2010, but even more encouragingly, also strong growth
in market share and absolute EBITDA (earnings before
interest, tax, depreciation and amortization).
t
e
k
r
a
m
f
o
%
This growth is based largely on strong domestic growth in
these markets. Capitalizing on the strong domestic growth
potential in China was the main reason behind our major
investment (€275 million) in our multi-site facility in Ningbo
(see separate case study).
22
Improving our performance levels | Strategy | AkzoNobel Report 2010
In 2011, our plan is to continue to grow through a combination
of organic growth and bolt-on acquisitions in all parts of our
business. In essence, our major challenge is to prioritize and
ensure we constantly modulate our growth program to respond
to somewhat uncertain market conditions. Doing this should
allow us to move forward on our accelerated growth ambition,
while still delivering appropriate levels of cash in the business.
Serve the needs of the mid-markets
Beyond growth opportunities that draw on our traditional
strengths and value propositions, we see a significant addi-
tional opportunity in the mid-market. Traditionally, we have
entered high growth markets with a premium positioning (as
we did, for example, with our Dulux brand in India) and/or on
the basis of existing mature market relationships (our Wood
Finishes and Adhesives business in China, for instance).
Given the fact that the large and growing markets in these
high growth economies still have a different profile in terms
of absolute level of income, we recognize that we need to
think differently with regard to mid-market value propositions.
In particular, we need to ensure that we are able to provide
product/service combinations that provide appropriate price
and quality levels for our customers and reasonable margins
for AkzoNobel. This goes beyond the specific product – in
many cases it also means that we need to think differently
about distribution and technical service levels.
This mid-market
is hotly contested, with multinational
competitors moving “down” and local competition moving
“up” into this space. However, we recognize that in many of
the high growth markets the mid-market is the market and
ignoring it is not an option.
India market relevant for AkzoNobel, 2009
Decorative Paints
Performance
Coatings
Specialty
Chemicals
100
80
60
40
20
0
Market size
Premium ~20%
Typical focus for AkzoNobel
(and other multinationals)
Mid-tier ~50%
Intense battle between global
multinationals “moving down”
and local companies “moving up”
Low price ~30%
Low cost local value propositions,
low-end technology, and “service-lite”
business models
We will be pursuing the mid-market opportunity through both
organic growth and small to medium bolt-on acquisitions.
For example, we are currently aggressively pursuing the mid-
market in Decorative Paints in China. We are doing this by
extending our Dulux brand and building our controlled stores
network by approximately 700 stores per year in tier two and
tier three cities to support this growth. Our position in the
Chinese mid-market will be further strengthened through
small to medium acquisitions, such as the Changzhou Prime
Automotive Paint Co., Ltd deal which we completed in 2010
(see separate case study).
Sourcing program over the last few years, with strong results
in terms of both cost control and security of supply. We are
now stepping up to take a company-wide approach to the
supply chain. This does not mean that we will be centralizing
all of our sourcing, manufacturing and distribution activities.
Instead, it means that we will be leveraging our expertise and
scale to achieve both our value and values ambitions.
Specific areas of focus in 2010 and going forward in terms of
supply chain have been around delivering on our safety ambi-
tions and improving our eco-efficiency levels.
Drive functional and operational excellence
Throughout our integration and restructuring period, we
pursued a series of projects to incrementally increase efficien-
cy in our support functions. This has undoubtedly improved
our cost position and will stand us in good stead as volumes
recover, but we recognize that further improvements in effec-
tiveness and efficiency will require a different approach.
Historically, we have focused on a business unit structure
and run both our front office and support functions in a
fragmented manner. This has led to considerable market
focus and success, but it has also led to sub-optimization of
support activities. To reach the next level of performance, we
now see the need and potential for more integration of these
support functions. We will therefore be taking an approach
which allows us to fully benefit from our scale.
We have decided to focus on four key areas for building func-
tional excellence – Supply Chain (including Sourcing), Finance
and Information Management (IM), Research Development
and Innovation (RD&I) and Human Resources (HR) and Orga-
nizational Development (OD). The RD&I approach was covered
in the Innovation initiative described earlier, while the HR/OD
approach is outlined in the following Talent Factory initiative.
Below is a summary of achievements and plans in the two
remaining areas of Supply Chain/Sourcing and Finance/IM.
Supply Chain (including Sourcing)
We have successfully built the basics of an AkzoNobel-wide
• While we know we must do better with regard to
improving our safety performance, we are proud of
what we have achieved so far. The implementation of
a company-wide behavioral-based safety program is
nearing completion and our safety leadership training
program has now been completed for all managers.
The latter is focusing on understanding risks, leadership,
individual responsibility and the need for visibility or
“walking the talk” for all our managers.
In addition, local employee safety programs and training
have been supplemented by a global e-learning module
for all employees and new starters. Furthermore, a
global AkzoNobel Safety Day was held in October, which
included encouraging our employees to submit a pledge
in which they promised to implement a simple solution to
improve the safety of themselves or those around them.
More than 14,000 responded.
Despite these efforts, the total recordable injury rate
remained around 3.6 in 2010, compared with 3.7 in 2009.
We are still not at industry-leading levels and did not reach
our target of 2.0 in 2010. This will continue to be an area
of special focus in 2011.
• An additional area of focus will continue to be operational
eco-efficiency, or using less resources to make and
distribute our products. An example of the type of
improvement we have made, and will continue to make,
is the innovative use of energy at one of our Pulp and
Paper Chemicals facilities in Sweden. Heated cooling
water generated by the chlorate electrolysis process
is now being used for district heating in the nearby
municipality of Ånge. This displaces oil and biomass
combustion in our business and reduces the CO2
emissions at the municipal burners by 1.8 tons of CO2
per capita in Ånge. It also reduces the heat load on the
local river where the cooling water is discharged.
Another example is that of our Surface Chemistry plant at
Forth Worth in the US. We have reduced calcium sulfate
waste from filter cake by 2,000 tons by improving the
control of the neutralization process – which creates the
calcium sulfate – and optimizing the filtration process.
The improvements we have made are not limited to
our Specialty Chemicals businesses. For example,
an online energy management system at Decorative
Paints’ Wapenveld site in Germany has helped to identify
improvements in heating, lighting and compressed air
use which have resulted in a 30 percent reduction in
gas consumption in eight years, and a 12 to 15 percent
reduction in electricity consumption in four years.
Beyond safety and operational eco-efficiency, additional
areas of focus for 2011 in the Supply Chain function will be on
process safety, product stewardship, raw material strategies
and development of repeatable models to drive continuous
improvement aimed at further optimization of the company’s
overall manufacturing footprint.
Finance and Information Management (IM)
Over the last few years, we have invested significantly in both
improving the control environment and increasing efficiency
through restructuring and the integration of ICI. While this has
led to a strong performance on governance and compliance
in the Dow Jones Sustainability Index, as well as some incre-
mental performance improvement, we still have significant
opportunities for increased efficiency and effectiveness.
AkzoNobel Report 2010 | Strategy | Improving our performance levels
23
With this in mind, we launched a OneFinance initiative, which
is designed to simplify our processes and systems, as well as
focusing strongly on people and organization. We have already
made some progress. In 2010, we successfully implemented
a new SAP ERP system across many parts of the Decora-
tive Paints organization and have completed the scoping for
a similar single ERP approach in Car Refinishes. We are also
working on several standardized enabling processes as we
increasingly reduce multi-local complexity.
Manage capital and cash
We are keenly aware that while pursuing a growth agenda
we must continue to carefully manage our balance sheet and
cash position. This means we must ensure that we:
• Carefully prioritize and control investment, both in
terms of fixed assets and acquisitions
• Control our absolute operating working capital growth,
so that as we grow, the ratio of operating working capital
to revenue continues to drop
• Provide a stable to growing dividend
• Examine all opportunities for improvement in “other”
items, such as pensions and legacies.
In 2010, we had a good year in terms of cash management.
Specifically, we completed our €275 million Ningbo invest-
ment on time and on budget, while still generating significant
operating cash flow in our Specialty Chemicals business. We
continued to improve our operating working capital manage-
ment by developing a best practices toolkit. In addition, we
sold our National Starch business for $1.3 billion, providing us
with significant financial headroom going forward. Finally, we
clarified our position with regard to dividends.
Build and leverage our industry-leading Talent Factory
We continue to believe it is just as important for us to attract,
develop and retain great people as it is for us to develop,
produce and distribute great products and services. We there-
fore continue to believe in the concept of a Talent Factory,
which is every bit as important to us as our more traditional
production factories. Our Talent Factory agenda includes a
set of initiatives aimed at better people development and – to
enable this – a series of activities designed to deliver improved
human resources (HR) capabilities. In 2010, we made signifi-
cant progress in both these areas.
In terms of people development, a particular area of improve-
ment was in career development and training programs.
With regard to our leadership pipeline, major developmental
progress was achieved which involved several senior manag-
ers making cross-BU and/or cross-functional moves in both
Performance Coatings and Specialty Chemicals. We also
announced a number of changes in Specialty Chemicals that
will take effect in 2011. These changes will grow our leaders
as we grow our business.
With regards to HR capabilities, 2010 was an important year
for us in terms of implementation of country organizations.
Historically, our HR organization has been fragmented, with all
business units and even many sub-business units having their
own HR organization, which handled all activities from recruit-
ment to development to compensation and benefits. We are
now in the process of consolidating all activities within key
countries to one shared AkzoNobel organization, beginning in
the Netherlands and Sweden.
Once all activities have been brought together in each of the
key countries, we will create a tri-partite organization, with
centers of expertise, HR services centers, and HR “business
partners”. The centers of expertise will provide best practice
knowledge to support HR “business partners”, who apply
this as required to support implementation of business-based
strategies. HR services centers provide additional support as
they carry out HR transactional activities in an efficient and
effective manner.
These efficient and effective HR country organizations are
required to support all key countries. However, they are argu-
ably most important in the high growth markets. In 2010, we
developed AkzoNobel country strategies for the key growth
markets of Brazil, India and China. In early 2011, we will be
developing a strategy for Russia. In each case, having an
industry-leading Talent Factory in place is one of the most
fundamental enablers to strategic success.
Creating a culture of confidence, cooperation and
co-creation
As indicated earlier, AkzoNobel has historically been success-
ful on the basis of having a strong entrepreneurial, custom-
er-centric approach. However, this has had a downside in
terms of creating an independent, fragmented culture which
has been exacerbated by the large number of acquisitions
over time. As we move beyond our restructuring and inte-
gration agenda into our accelerated and sustainable growth
agenda, we recognize that this culture will not allow us to
achieve our aspirations.
To facilitate the creation of a culture of confidence, coop-
eration and co-creation, we announced in 2010 that we
will change our managerial approach and run the business
through an Executive Committee. By having representatives
of four of the key functional areas, the Executive Committee
will drive common agendas and build capabilities while allow-
ing the businesses to capture growth. Below the level of the
Executive Committee, in each Business Area, we will take
a much more operational management team approach to
ensure that we are able to make good decisions with regard
to prioritization of different activities.
The Executive Committee is not the only initiative in terms
of culture change. In 2010, we also took a substantial step
forward in terms of employee engagement. We fully rolled
out our first ViewPoint Employee Engagement survey (in
conjunction with Gallup), which allows us to benchmark our
performance against a large number of other major business
organizations. The results of our first survey indicated that we
have significant room for improvement to get to a top quartile
performance level. We are fully committed to improving and
are in the process of carrying out meetings at all levels in the
organization to determine what our next steps will be.
An additional important step in terms of cultural develop-
ment is our Diversity and Inclusion initiative. We recognize that
24
Improving our performance levels | Strategy | AkzoNobel Report 2010
AKZONOBEL AND THE MID-MARKET
The growing mid-market in China offers major investment
opportunities in a key geographic region. Which is why our
Car Refinishes business made a strategic move during 2010
to acquire Changzhou Prime Automotive Paint Co., Ltd.
Acquiring Prime not only gives us strong representation in one
of China’s most promising growth segments, but also gives
Car Refinishes the opportunity to become the clear market
leader in the attractive vehicle refinish mid-market.
Prime was one of China’s largest vehicle refinish suppliers
and a leader in the fast-growing mid-market segment. This
sector is estimated to double in size within the next five years,
during which time AkzoNobel plans to double its revenue in
China to $3 billion.
The acquisition gives us access to superior products and
new technologies – supported by strong brands and a loyal
distributor base – enabling us to gain a competitive advantage
in a market with sizeable potential where we previously had
limited presence. Most of all, the addition of the new team in
China underscores our commitment to serving our customers
with the best people available.
Prior to the Prime acquisition, AkzoNobel was mainly active
in China’s premium and commercial vehicle refinish sector,
represented by our Sikkens, Lesonal and Miluz brands.
with our growth aspirations, we must have more executives
who are female, and who come from the high growth econo-
mies. This will be important to us going forward. We have set
improvement targets in this area and have held our first series
of workshops to develop action plans to achieve these targets.
We also recognize that in order to deliver the best of AkzoNo-
bel all day every day, we must create an environment which
is inclusive. We have therefore developed an online training
program which will be rolled out to everyone in the organi-
zation in 2011. This course makes it clear that we have set
targets in terms of executive representation, but it will not
deliver the required cultural change. To do that, we have to
ensure that the environment brings out different points of
view and ideas, and that we work collaboratively to deliver
on these.
Embedding sustainability and safety
For many years, we have recognized that becoming the true
leader in Coatings and Specialty Chemicals requires us to
achieve leadership both in terms of value and values. Increas-
ingly, we are recognizing that these things are not separate,
nor are they separable. Achieving our growth aspirations
means that we must produce and market products that use
less of the Earth’s resources throughout the full value chain.
To achieve these growth aspirations, we must have a strong
Talent Factory and diversity and inclusion levels that enable us
to have the leadership we need in the high growth markets.
Furthermore, top quartile operational effectiveness is based
on top quartile performance in terms of cost, quality, service
and safety levels, and in most cases, performance on these
four metrics is inter-related.
Our current view on how safety and sustainability are embed-
ded in all parts of the strategic agenda is explained on
the right.
Embedding sustainability and safety
Innovate more: Value propositions for a
resource constrained world
Accelerate profitable growth: Eco-premium
solutions that deliver eco-footprint reduction
across the value chain
Serve the needs of the mid-market: Solutions
for people demanding both higher living
standards and affordability
Drive functional and operational excellence:
Safety, operational eco-efficiency, product
stewardship, supplier visits
Manage capital and cash: Process safety and
sustainable investment evaluation
Build and leverage our industry-leading Talent
Factory: Employee engagement, development
and training
Create a culture of confidence, cooperation
and co-creation: Diversity and inclusion,
partnerships, Community Program
How we embed
sustainability and safety
in the strategic agenda
26
Improving our performance levels | Strategy | AkzoNobel Report 2010
Executive Committee
We have broadened our leadership team in order to
accelerate sustainable growth. A nine-strong Executive
Committee has been established (see page 24), which
comprises the five Board of Management members
and these four leaders with functional expertise.
Graeme Armstrong
Executive Committee member
responsible for Research,
Development & Innovation
(1962, British)
Marjan Oudeman
Executive Committee member
responsible for HR and
Organizational Development
(1958, Dutch)
Sven Dumoulin
Member of the Executive
Committee and AkzoNobel
General Counsel
(1970, Dutch)
Werner Fuhrmann
Executive Committee member
responsible for
Supply Chain/Sourcing
(1953, German)
Mr. Armstrong joined AkzoNobel in 2008
following the acquisition of ICI, where he
led the company’s Research, Development
& Innovation function. Prior to joining ICI,
he spent 19 years in the detergents industry
working for Unilever and JohnsonDiversey.
He also served as Regional President for
JohnsonDiversey in EMEA. He is a Chartered
Chemist, a Fellow of the Royal Society of
Chemistry and a member of their Science
Policy Board. Chairman of Chemistry
Innovation PLC, and a former non-executive
Director of the UK government Technology
Strategy Board.
Mrs. Oudeman joined AkzoNobel in October
2010 from Corus Group, where she was a
member of the Executive Committee, as well
as being Divisional Director of Strip Products
and a board member of Corus Nederland
B.V. and Corus UK Ltd. Prior to joining Corus
in 2000, she held various roles at Hoogovens
Group, including that of Managing Director.
Among others, she is also is a non-executive
Director of Nederlandse Spoorwegen and
ABN Amro Group.
Mr. Dumoulin joined AkzoNobel as
General Counsel in 2010 and is responsible
for legal, compliance, intellectual property
and legacy management. Previously
he worked as a lawyer and then Group
Secretary for Unilever. From 2003 to
2007, he held professorships in company
law at the Universities of Groningen
and Tilburg in the Netherlands. Outside
AkzoNobel, he is a member of various
Legal Professional Associations in
both the Netherlands and abroad.
After graduating from Johannes Gutenberg
University Mainz in Germany in 1979,
Mr. Fuhrmann held various roles within
the AkzoNobel Fibers division, and was
Business Area Controller Chemicals,
before being appointed General
Manager of Chelates & Sulfur Products
in 2000. He became Managing Director
of AkzoNobel Industrial Chemicals in
2005. He is Chairman of the Dutch
Chemicals Industry Association (VNCI).
AkzoNobel Report 2010 | Strategy | Executive Committee
27
The following chapter gives a
detailed summary of how each
of our Business Areas performed
during 2010. Information on
market characteristics, key brands
and revenue comparisons is
also provided.
AkzoNobel Specialty Chemicals
AkzoNobel Performance Coatings
AkzoNobel Decorative Paints
30
40
50
AKZONOBEL AND PAPER TECHNOLOGY
Paper manufacturers are always looking for products and inno-
vations with a better environmental profile which also make their
processes more cost efficient. One of the latest breakthroughs
– in an area known as surface sizing – has been achieved by
our Pulp and Paper Chemicals business, Eka Chemicals.
Paper sizing is a process designed to reduce paper’s ability,
when dry, to absorb water both as moisture and liquid. So in
other words, it improves the water resistance of paper. Two
methods are commonly used (surface and internal sizing).
The main difference is that internal sizing – added to fibers at
the wet end of the process – gives paper with evenly distributed
chemicals an “effect”. Whereas surface sizing chemicals are
added to dry paper to give an effect directly related to improv-
ing the surface of the paper. Internal sizing is widely used in a
large variety of papers, while surface sizing is added during the
production of higher grade papers. One effect of surface sizing
chemicals is to ensure that printing ink stays on the surface and
dries there, rather than being absorbed into the paper itself.
Eka Chemicals’ success means it has seen what was once a
side business grow into a core discipline in a reasonably short
space of time. Much of this expansion is down to the success-
ful product Eka SP 50, a polymeric surface sizing product
which has helped to gain many new customers. The major
benefits for the paper makers include greater cost efficiency,
partly because Eka SP 50 can be used at lower dosages.
AkzoNobel
Specialty
Chemicals
“Our success during the year was
a combination of cost control,
favorable market conditions and
our own hard work.”
Rob Frohn
Board member responsible for Specialty Chemicals
Our performance in high growth markets was particularly
good, but we also did well in the Americas, and while Europe
proved more challenging, we were still able to improve on
2009. Europe remains a low growth area, however, and
the formal closure of our Skoghall plant in Sweden was
another step towards us rebalancing our production foot-
print to the high growth areas, where demand is develop-
ing much more strongly. This was further reflected by two
key events in China, namely the official opening of our
Ningbo multi-site and the expansion of Industrial Chemi-
cals’ Taixing plant. The Ningbo inauguration in particu-
lar was a major milestone, bringing new chelates, ethyl-
ene amines and ethylene oxide capacity to the market.
Sustainability, of course, remained high on the agenda and
several products continued to make good progress, notably
our Dissolvine GLDA chelate and our next generation anti-
caking agent for salt (mTA) for chemical transformation. We
also conducted an eco-efficiency study early in the year
which involved carrying out a quick scan of 75 sites where
most of our footprint is in terms of waste, energy and CO2.
This forms part of a program we have embarked on to reduce
our footprint by 10 percent by 2015 and we have identified a
great number of opportunities to make savings. The progress
on our safety performance, on the other hand, was slightly
disappointing and we will continue to increase awareness
throughout the organization.
There can be no doubt that 2010 was a good year for Special-
ty Chemicals. Emerging strongly from the recession, we not
only reaped the benefits of our restructuring efforts, but were
also boosted by robust demand during the first half of the
year due to restocking. In addition, various outages within
the industry enabled us to supply customers when others
couldn’t. We therefore increased market share because of
our reputation and reliability in supply in a market that quickly
recovered. So our success during the year was a combina-
tion of cost control, favorable market conditions and our own
hard work. It was a busy year, and our employees should be
commended for their efforts.
Another important development was the National Starch
transaction. Like the rest of the Specialty Chemicals portfolio,
the business suffered as a result of the recession, but we were
able to take effective measures to recover much of the lost
ground before transferring ownership to Corn Products Inter-
national. 2010 was also the first full year of operation following
the merger of Polymer Chemicals into Functional Chemicals.
The timing was just right, as it was implemented before the
market picked up again and we were able to fully benefit from
the recovery. This resulted in our polymer activities having
an excellent year, particularly the High Purity Metalorganics
(HPMO) business, which supplies the booming LED market.
The focus continues to be on growth, with each of our busi-
nesses well positioned to make a contribution to both the
top and bottom line. We see great possibilities and oppor-
tunities to contribute to the accelerated growth agenda
of the company, while maintaining a healthy cash flow.
To facilitate this, and to keep our leadership suitably chal-
lenged, the Managing Directors of four of our business activi-
ties are being rotated. As well as bringing a fresh perspec-
tive, we feel that this will benefit the company and enable
each of the senior leaders to continue to learn and develop
themselves while bringing their experience to new markets
and businesses.
AkzoNobel Report 2010 | Business performance | AkzoNobel Specialty Chemicals
31
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.
Pulp and Paper Chemicals is a global business, with a
specific emphasis on serving one industry. Surface Chemis-
try 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.
Some key raw materials
Price drivers
• Energy, oil and
raw materials
• Salt
• Energy
• Ammonia and ethylene
• Ethylene oxide
• Acetic acid
• Polymers
• Sulfur
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.
Customers
Our products are used in a wide variety of everyday prod-
ucts such as ice cream, soups, disinfectants, plastics, soaps,
detergents, cosmetics, paper and asphalt. There are more
than 2,000 items in our portfolio.
Base chemicals are chemicals produced from raw materi-
als. 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 Chemi-
cals 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.
Few of the products we supply are actual end products, with
salt (Functional Chemicals) being the most prominent.
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.
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 30 percent of revenue is in high
growth markets.
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
Market leadership positions
Functional Chemicals
1st
Chelates
Cross-linking peroxides, thermoset chemicals
and polymer additives
Sulfur derivatives
Ethylene amines
High polymers
2nd
Redispersible polymer powders,
additives for mortar application
Salt specialties (North West Europe)
3rd
Cellulosic specialties
Industrial Chemicals
1st
Caustic merchant (Europe)
Chlorine merchant (Europe)
Monochloroacetic acid (MCA)
Salt (chemical transformation Europe)
Pulp and Paper Chemicals
1st
Bleaching chemicals
Surface Chemistry
Raw materials
Base
chemicals
Chemical
intermediates
Performance/
functional
chemicals
End products
• Sustainable breakthrough in corrosion protection
and chrome replacement in automotive industry
1st
Industrial applications
Agricultural applications
• One Grain technology – full salt replacement which brings
3rd
Home and personal care
Industrial Chemicals
Pulp and Paper Chemicals
Functional Chemicals
Surface Chemistry
Chemicals Pakistan
pure NaCl and salt replacers into a single salt grain
• More sustainable anti-caking agent for salt
• Nanoparticle retention systems for high speed
paper machines
• CID technology to help increase PVC reactor capacity
• Water treatment technology replacing traditional biocides.
32
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2010
Key developments 2010
• Official inauguration of Ningbo multi-site in China
Key figures in € millions
Employees by region at year-end
• National Starch divested to Corn Products International
2009
2010
2009
2010
• Expansion of MCA facility in Taixing
• Salt capacity boosted at Delfzijl in the Netherlands, making
it the largest vacuum salt plant in the world
• Compozil Fx concept now being used by seven of the
eight largest fine paper machines in Asia
• Merger of Polymer Chemicals activities into Functional
Chemicals completed
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
4,359
4,943
US and Canada
738
16.9
490
11.2
422
15.6
939
19.0
679
13.7
604
19.9
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
Other European countries
1,700
800
1,000
1,900
1,900
1,000
2,000
800
1,700
900
1,000
1,900
1,900
1,000
1,900
800
Total
11,100
11,100
Revenue breakdown by business unit
in %
Geo-mix revenue by destination
21%
North America
44%
3%
Emerging Europe
Mature Europe
20%
Asia Pacific
3%
Rest of the world
9%
Latin America
A Functional Chemicals
B Industrial Chemicals
C Pulp and Paper Chemicals
D Surface Chemistry
E Chemicals Pakistan
36
21
20
17
6
100
Product: Eco-premium solutions
% of revenue
A
23
21
20
23
E
D
C
B
2007
2008
2009
2010
Key value chains with carbon
footprint assessment
74
2009
118
2010
Total reportable rate of injuries
per million hours
6.0
3.7
2007
2008
2.8
2009
3.5
2010
AkzoNobel Report 2010 | Business performance | AkzoNobel Specialty Chemicals
33
AKZONOBEL AND BRIGHT IDEAS
As the world continues to rapidly embrace energy efficiency
and the need to source alternative resources, a quiet revolu-
tion has been taking place in the electronics industry.
LED market is growing at more than 25 percent a year and
the technology behind it relies heavily on several products
supplied by AkzoNobel Functional Chemicals.
lighting, LEDs are used in many other applications, such as car
lights, traffic lights, TV backlighting and computer monitors.
It’s been happening all around us for many years, but some
people may not have noticed. Our lighting is changing. Tradi-
tional bulbs and filaments are dying out and light emitting
diodes (LEDs) are taking over. They can offer energy savings
of up to 90 percent compared with conventional bulbs. The
The products in question are produced by our High Purity Metal-
organics (HPMO) business and are needed to manufacture the
LEDs themselves (our products are used to coat a very thin
layer of semiconductor material on a wafer and this is the active
layer which emits the light). As well as being used for general
Our manufacturing strengths mean we can help customers
ramp up their production to meet the continuously growing
demand for LEDs, while our unique packaging helps custom-
ers to maximize their output and improve the consistency of
their production. With LEDs rapidly finding new applications,
the future is bright.
AkzoNobel Functional Chemicals
“All eight of our businesses
performed better than 2009
volume-wise, with six also
picking up market share.”
Bob Margevich
Managing Director
Overview
We experienced a notable drop in our volumes in 2009 but we
recovered most of that back in 2010. During most of the year,
sales exceeded pre-crisis levels – partly due to the volume
effect and partly because of improved margins and currency
exchange rates. When combined with cost savings gener-
ated through restructuring in mature markets, we were able to
achieve record results for a fourth consecutive year.
Analysis
All eight of our businesses performed better than 2009
volume-wise, and most of them improved cost-wise, with
six of the eight also picking up market share. Some of this
increased market share was achieved through planned
actions, but we also benefited from outages or delayed start-
ups suffered by our competitors. As a result, most of our
product lines were sold out during the year, with the strongest
performers being the two businesses we took over as part of
the integration of Polymer Chemicals at the start of the year
(High Polymers and Crosslinking, Thermoset Chemicals and
Polymer Additives), along with Ethylene Amines and Chelates.
Our Sulfur Derivatives business also did well, while the slow
construction market meant that our Elotex, Cellulosic Special-
ties and Polysulfides activities in that market were only able
to recover about half the volumes they lost in 2009. However,
Cellulosic Specialties was still able to achieve much improved
year-on-year results.
Highlights
The performance of our High Purity Metalorganics business
– which supplies the LED lighting industry – was particularly
notable. It really took off during 2010 to the extent that we are
now expanding on the go with several new projects planned
and each expansion will be fully utilized from virtually the first
day. A number of additional expansions in other product lines
are also planned. Along with the continued excellent perfor-
mance of our Dissolvine GLDA readily biodegradable chelat-
ing agent, another significant highlight was the official opening
of our Ningbo multi-site in China, which was attended by more
than 600 guests. The facility began producing dry powdered
chelates in late 2009 and in May 2010 the liquid chelates
section started production. Towards the end of the year, the
ethylene amines and ethylene oxide plants in Ningbo came on
stream. It was also pleasing to see how smooth and effective
the merger of Polymer Chemicals into Functional Chemicals
has been. The process was extremely successful and both
the business and AkzoNobel as a whole have benefited.
Developments
We began to test market our One Grain lower sodium salt
replacement in the Benelux, which has been going very well
so far. We received the green light for our BU strategic plan
and we created an organizational model which is helping us
to support our sustainability drive. Good progress was also
made in our safety performance and in the switch to more
sustainable technologies in our main product lines. This
enables us to look at things like raw materials and energy
supply across the whole value chain and identify areas where
we can improve.
Revenue in € millions
1,668
1,479
1,813
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
Main products
46
28
26
• Cellulosic additives
• Chelates
• Additives for the
mortar industry
• Ethylene amines
• Salt specialties
• Sulfur derivatives
• Polymer chemicals
Key markets
• Detergents
• Personal care
• Crop protection
• Micronutrients
Key brands
• Building materials
• Paint
• Pharmaceutical
• Food
AkzoNobel Report 2010 | Business performance | AkzoNobel Specialty Chemicals
35
AkzoNobel Industrial Chemicals
“We utilized the full capacity of all
our plants for virtually the entire
year, with both our Salt and MCA
businesses sold out.”
Werner Fuhrmann
Managing Director
(Member of AkzoNobel’s Executive Committee as of January 1, 2011)
ethylene amines joint venture in Delfzijl to meet customer
demand. All of this extra capacity was fully utilized as of day
one. Another highlight was the formal launch of our mTA
(meso-Tartrate) next generation anti-caking agent for salt.
It’s our intention to develop this product into a new value
chain for salt and we see substantial growth opportunities in
Europe, the Americas and Asia. Its potential was underlined
when it was recognized as one of the top three innovations
by the Association of the Dutch Chemical Industry (VNCI). It
also received a commendation from the European Chemical
Industry Council (CEFIC).
Developments
We launched a comprehensive, business-wide Lean SixSig-
ma program in order to make a step-change in operational
excellence. This will not only help us to run improvement proj-
ects in a much more focused manner across the value chain,
but will also add a new dimension to our efforts in developing
our people up to their potential. As part of a program to build
up strategic national energy reserves, we signed a binding
agreement to store gas oil at our salt caverns in Hengelo.
This will be in addition to the natural gas and nitrogen which
is stored in our Delfzijl caverns. We continued our efforts to
develop new bio-based products based on renewables and
were delighted to win the company’s internal BU Sustainability
Award for our carbon footprint work.
Overview
Our businesses recovered more sharply than anticipated
following last year’s economic downturn, which resulted
in 2010 exceeding expectations. Volumes bounced back
very close to pre-crisis levels and this helped to lift sales to
record levels.
Analysis
It was a strong recovery, based on high volumes, improved
margins, more focus on sustainability and acquiring addi-
tional business. We utilized the full capacity of all our plants
for virtually the entire year, with both our Salt and MCA busi-
nesses sold out. Chlor-alkali was sold out from the summer
onwards and our Energy business had a successful year. Also
crucial was the fact that although we remained focused on
customers, costs and cash, we stuck to our growth strategy
and continued to maintain and invest in our plants during the
crisis. Our competitors often didn’t, which meant we were
able to take advantage of the overall economic tailwind and
benefit from the demand which accompanied the recovery.
The Salt business really set the tone by getting off to a head
start due to the severe wintry conditions, especially in Europe.
We were also able to attract income from the secondary use
of salt caverns for the storage of oil and gases.
Highlights
We stepped up our manufacturing footprint for MCA in China
by bringing total capacity at our Taixing plant up to 60kt.
We are also working on substantially increasing this capac-
ity further in order to satisfy growing demand. In the Nether-
lands, we boosted salt capacity at our Delfzijl facility by 350kt,
increasing it to 2,700kt. It is now the largest vacuum salt plant
in the world. We also added capacity at our Delamine higher
36
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2010
Revenue in € millions
966
949
1,070
2008
2009
2010
Geo-mix revenue by destination in %
B C
A
93
4
3
• Caustic lye
• Monochloroacetic
acid (MCA)
• Food
• Pulp and paper
• Plastic industries
A EMEA
B Americas
C Asia Pacific
Main products
• Salt
• Energy
• Chlorine
Key markets
• Chemical
• Detergent
• Construction
Key brand
AkzoNobel Pulp and Paper Chemicals
“We achieved strong growth
and gained market share in
both Asia and Latin America.”
Jan Svärd
Managing Director
Overview
It was a good year, especially given the fact that 2009 was our
best year ever. The business environment was very competitive
and we lost some margin, but we gained substantial volume
and as a result our bottom line improved. So although we faced
different dynamics, our results held up well.
Analysis
We achieved strong growth and gained market share in both
Asia and Latin America. In North America – which is still the
biggest individual market for pulp and paper – our position
remained stable and even grew slightly. Our focus has been
more on restructuring in Europe, but we rebounded from the
demand drop in 2009 and took market share as the demand
returned. Many customers also began to start up projects
they originally launched in 2008, but were then forced to put
on hold due to the recession. This was particularly notable
during the second half of 2010, when many of these projects
were restarted. All these developments have helped to ensure
that we are emerging from the economic crisis in a much
stronger position than when we came into it.
Highlights
Many business activities made excellent progress during
2010. The packaging board industry is growing – which has
obvious benefits for us as we can provide attractive chem-
istries in this area – and our Compozil Fx concept is now
being used by seven of the eight largest fine paper machines
in Asia. This concept helps our customers achieve extremely
high speeds and reduces fiber and energy consumption and
is firmly established as the start-up technology of choice for
large paper manufacturing machines. In addition, our Eka NP
2180 silica sol – which helps improve efficiency and machine
speed – has really started to take off, while we have also
developed a unique line of surface sizing products which has
helped us to gain many new customers. So we are now in a
position where we can really start talking about growth. High
growth regions such as China and Latin America obviously
remain important, but we have also been achieving good
success in mature markets such as Germany and Japan.
Expancel in particular had a very good year, while the product
is being widely used in Asia and Latin America, where growth
has really speeded up. Our Purate product for water treat-
ment achieved solid growth, especially in Europe.
Developments
We strengthened our internal sizing business by investing in a
new chemicals plant in Germany. This has enabled us to intro-
duce a new process which provides higher quality products.
The paper coatings business we took over from the former
ICI also grew substantially in North America and Europe.
Our focus in terms of sustainability, innovation and business
growth remains very much on fiber, energy and water. We’re
working hard to help customers cut down on the amount of
fiber they use, while energy consumption is also something we
are reducing at our own sites and those of our customers. In
addition, we are continuing to put a lot of effort and resources
into water management, which has particular significance for
us in the southern hemisphere, where it is very important for
our customers. Safety continues to be the number one prior-
ity, and in addition to having BBS implemented at all our facili-
ties, we introduced a zero incident mindset program which
has been going well. Our diversity agenda also progressed.
In Europe, for example (where 25 percent of our workforce is
female), 35 percent of our managers are now women.
Revenue in € millions
1,008
935
1,044
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
39
45
16
A EMEA
B Americas
C Asia Pacific
Main products
• Pulp and paper chemicals
Key markets
• Pulp and paper
Key brand
AkzoNobel Report 2010 | Business performance | AkzoNobel Specialty Chemicals
37
AkzoNobel Surface Chemistry
“Sales volumes were up significantly,
revenue rose 20 percent and
progress was also made in
implementing our growth strategy.”
Frank Sherman
Managing Director
Overview
The demand recovery which began in mid-2009 continued
throughout 2010, particularly in the personal care, mining
and oilfield market segments. Sales volumes were up signifi-
cantly over the previous year, although not back to the 2008
peak. Revenue rose 20 percent, driven by increased volume,
better product/market mix, escalating raw material prices and
currency impact. Significant progress was also made in imple-
menting our growth strategy based on new product introduc-
tions, expansion in developing regions, exploring adjacent
growth opportunities and disciplined cost control.
Analysis
The consumer market segments (fabric, home and personal
care) were not significantly impacted by the recession and
continued to grow in 2010, including some share gains. Our
sales to the mining market experienced significant recov-
ery, notably in potash and iron ore. Despite the moratorium
on deep well drilling in the Gulf of Mexico, oilfield chemical
demand was also strong, driven by growing chemical additive
demand for land-based natural gas drilling and well fracturing.
The asphalt road paving market was affected by raw material
shortages, weak construction markets and the disappointing
impact from government stimulus spending. Additive demand
grew considerably in the organoclay market. The agrochemi-
cal value chain worked through an inventory overhang from
2009, although favorable weather conditions resulted in good
growth in both North and Latin America. Fabric care sales also
experienced strong growth in Latin America. Asia continued
to achieve double digit growth supported by new products
for the asphalt, oilfield and animal feed additives markets. We
are developing products for the local mid-tier market by intro-
ducing eco-premium, cost-effective products that are unique
to Asia. In Europe, the recovery generally trailed behind the
other regions. Demand slowed down in most regions during
the fourth quarter as customers drew down inventories and
consumers became more conservative. Raw material prices
remain volatile and in some cases have escalated back to
2008 peaks. Our production was curtailed during the first half
year due to some supplier force majeure declarations.
Highlights
We are starting to demonstrate the synergies across our
three technology platforms – surfactants, synthetic polymers
and biopolymers. Sustainability remains the key driver. In
fact, 45 percent of our current sales and 80 percent of our
innovation pipeline are based on products that provide eco-
premium solutions to our customers. We continue to reduce
VOC emissions and solid wastes from our operations and
are implementing several energy efficiency projects. Finally,
a sales excellence program has been introduced to improve
our ability to determine customers’ unmet needs and capture
value from innovation.
Developments
New product introductions picked up throughout the year
in tandem with customer interest to reformulate or increase
their process efficiency. New launches included Adsee
766, a nonylphenol ethoxylate-free agrochemical adjuvant;
DynamX H20, a biopolymer ingredient for styling hair prod-
ucts; Armocare G113 and G114, hair conditioning based on
renewable guar; and a number of new Agrilan agrochemical
dispersants based on renewable feedstocks. We are also
introducing hybrid polymers based on renewable monomers
to several market segments, providing better eco properties
and high performance.
38
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2010
Revenue in € millions
821
701
847
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
34
55
11
Main products
• Surfactants
• Synthetic and natural specialty polymers
Key markets
• Agriculture
• Asphalt
• Personal care
• Oilfield chemicals
Key brands
• Coating additives
• Fabric softeners
• Household cleaning
• Mining
Armeen
Arquad
Berol
Morwet
Amphomer
Naviance
Alcogum
Alcosperse
Chemicals Pakistan
“Pakistan faced a major setback
due to the devastating floods,
but our continued focus on
customers, costs and cash helped
our business regain momentum.”
Waqar A Malik
Chief Executive ICI Pakistan
Overview
Despite a difficult business environment, our 2010 results
(adjusted for the PTA divestment) showed double digit growth
in the top and bottom line in local currencies. This was
underpinned by aggressive margin management and volume
growth in all major segments of our portfolio.
Analysis
A serious cause for concern during the year was the contin-
ued energy crisis. The increasing gap in supply and demand
resulted in more frequent shortages of gas for the indus-
trial sector. Pakistan also faced a major setback due to the
devastating floods which left 20 million people homeless and
destroyed crops and livestock, as well as damaging infra-
structure, which resulted in a general slowdown of economic
activity. Continued focus on customers, costs and cash
helped the business regain momentum.
Developments
We continued to integrate our product portfolio with the
AkzoNobel portfolio. Our Refinish business launched Dyna-
coat for the trade market in Pakistan, along with a strong
focus on the services portfolio targeted towards industry
development. We also established a new line of marine and
protective coatings, with the first commercial orders being
received this year. Our Decorative business expanded its
mid-tier portfolio and launched three new Paintex products
to offer a wider range of solutions for customers. Soda Ash
was able to expand its export base in international markets,
where we are now established as a reliable supplier of quality
products. We also introduced Dissolvine, a chelate which can
help improve farm productivity by making sure that essential
nutrients are fully absorbed by plants, benefiting farmers.
Revenue in € millions
497
405
2008
2009
305
2010
Main products
• Polyester fiber
• Soda ash
• Life sciences
• Chemicals
• Paints
Key brands
AkzoNobel Report 2010 | Business performance | AkzoNobel Specialty Chemicals
39
AkzONOBEL AND FASTEr INNOVATION
Helping provide your customers with improved performance
and a competitive edge is valuable in any industry, but in
the world of motorsport, it can literally make the difference
between winning and losing.
Our Car Refinishes business, through its Sikkens brand, is the
official supplier of paint solutions to the Vodafone McLaren
Mercedes Formula 1 team. The 2011 season will be the
third year of the partnership. During that time, we have been
working closely with their technical experts to develop supe-
rior lightweight coatings with unique functionality and striking
color attributes.
A key element of the coatings system on the cars driven by
former world champions Jenson Button and Lewis Hamilton
is the spectacular chrome effect. But equally important is
the fact that ongoing improvements to the unique high gloss
system mean that one less coat is now required during appli-
cation. This results in potentially vital weight savings, while the
paint process time has been further reduced.
The shared knowledge we have gained from the partnership
has already enabled us to translate 80 percent of the tailor-
made solution supplied to McLaren into a commercial value
proposition for AkzoNobel customers within the car industry.
AkzoNobel
Performance
Coatings
“As most of our end markets
continue to recover, the focus is
now very much on growth, which
includes capturing market share
in high growth regions.”
Leif Darner
Board member responsible for Performance Coatings
In 2010 we were able to take advantage of a sharp increase in
activity in high growth markets – notably in Asia and particu-
larly in China – in all our market segments. So there has been
healthy top line growth across the board, while maintaining
profit margins in the target range and further improving the
return on investment.
The recovery was particularly good in our more industrial and
OEM-related businesses, such as Coil and Powder Coatings,
which were hit hard during the recession. Our automotive-
related businesses also bounced back, while Marine and
Protective Coatings experienced flatter market conditions.
During the first half of 2010, our businesses were aided
by relatively stable raw material prices. But as the year
progressed, prices went up and shortages became an issue.
However, we were able to maintain supplies to our customers
and gradually compensated for the increases through careful
margin management.
As most of our end markets continue to recover – and with
a portfolio strategically aligned to create a better balance
in terms of technologies and markets, size and complex-
ity – the focus is now very much on growth, which includes
capturing market share in high growth regions. We have
identified clear opportunities and are looking to acceler-
ate in the world’s high growth regions. Notable highlights
during 2010 which signaled our clear intention to continue
growing our business were the opening of a new Powder
Coatings plant in Wuhan, China, and important acquisi-
tions within both Powder and Industrial Coatings and Car
Refinishes. Acquiring Changzhou Prime Automotive Paint
Co. Ltd in China has opened up the Chinese mid-market for
refinish products, while the deal to secure the former Rohm
& Haas powder activities from the Dow Chemical Company
has given us access to some exciting technology for wood
and plastic applications and boosted our product offer to
the automotive industry. Meanwhile, the acquisition of Lind-
gens Metal Decorating Coatings and Inks improved our posi-
tion in a number of high growth markets, including the Asia
Pacific region.
Innovation also remained high on the agenda throughout the
year and we made excellent progress in this area. A new world-
wide marine testing lab was opened in Singapore, while in the
UK we broke ground on a new global fire protection center of
excellence. Elsewhere, Wood Finishes and Adhesives started
building a new plant in Vietnam and Powder Coatings is estab-
lishing a resin polymer lab which is due to open in April 2011.
A number of new technologies were also introduced into the
marketplace, such as our Vitalure 740 can liner, stickerfix
auto repair system and Intershield 803+ cargo hold coating.
There is still underlying uncertainty in the marketplace, but
we will continue to invest, adding people, setting up techni-
cal service centers, establishing warehousing and distribution
and making bolt-on acquisitions where appropriate, in order
to support our strategy of capturing accelerated, sustainable
growth. This will be combined with a continued focus on oper-
ational excellence and rationalization in the mature markets to
ensure that we strike the right balance as we move forward.
AkzoNobel Report 2010 | Business performance | AkzoNobel Performance Coatings
41
Performance coatings market overview
Our Performance Coatings
business is represented in most
market segments of this industry,
holding many leading positions.
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.
Innovations
• Automobile scratch repair systems
• Low-bake powder coatings
• Self-repairing clearcoat
• Foul release coatings
• Waterborne coatings technology.
Market and business characteristics
The size of the global market for performance coatings is
around €40 billion.
Marine coatings, including yacht
Coatings for deep sea and inland marine vessels, super
yachts and leisure craft, which provide corrosion protection
and resistance to organic fouling.
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, chemi-
cal 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 buses) 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. It is sprayed and then subsequently cured by apply-
ing heat, either in an oven or by using infrared or UV light
irradiation.
Coil and extrusion coatings
Coil coatings are applied to coiled steel for HVAC and appli-
ances, and in commercial and residential construction to
protect metal roofs and building components. Extrusion coat-
ings give aluminum lasting beauty when used on metal build-
ing fascias and window frames and provide protection from
the elements.
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.
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.
Global market drivers
• Growing populations and GDP growth
• Steel production
• Consumer confidence
• Infrastructure development
• Housing market activities.
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.
Market leadership positions
Marine and Protective Coatings
1st
Marine
Protective
Yacht
Car Refinishes
2nd
3rd
5th
Aerospace
Refinish
Commercial vehicle OEM
Automotive plastic coatings
Industrial Coatings
1st
Coil and extrusion coatings
Specialty plastics coatings
2nd
Packaging coatings
Powder Coatings
1st
Powder
Wood Finishes and Adhesives
1st
3rd
Finishes
Adhesives
42
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2010
Key developments 2010
• Acquisitions of Changzhou Prime Automotive Paint Co.,
Ltd. and Lindgens Metal Decorative Coatings and Inks
• Completion of acquisition of the former Rohm & Haas
powder activities from the Dow Chemical Company
• Powder Coatings inauguration of a new plant in Wuhan,
China, and a lab in Ningbo, China
• Official opening of new, worldwide marine testing lab
in Singapore
• Investment in expansion of capacity for Coil Coatings
and Specialty Plastics in Bangalore, India
• Work underway on the new Wood Finishes and
Adhesives plant in Vietnam
• Merger of Aerospace Coatings activities into
Car Refinishes
• Marine and Protective Coatings investment in UK-based
global fire protection center of excellence
Geo-mix revenue by destination
20%
North America
30%
Mature Europe
9%
Emerging Europe
25%
Asia Pacific
7%
Rest of the world
9%
Latin America
Key figures in € millions
Employees by region at year-end
2009
2010
2009
2010
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
4,112
4,786
US and Canada
594
14.4
492
12.0
433
25.3
647
13.5
540
11.3
487
26.5
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
UK
Revenue breakdown by business unit
in %
Other European countries
Other regions
Total
3,100
1,700
3,800
3,000
1,000
1,000
900
1,400
2,900
1,100
3,300
1,700
4,100
3,000
1,000
1,200
900
1,500
3,200
1,100
19,900
21,000
D
E
C
A
B
Product: Eco-premium solutions
% of revenue
17
19
18
22
2007
2008
2009
2010
A Marine and Protective Coatings
B Car Refinishes
C Industrial Coatings
D Powder Coatings
E Wood Finishes and Adhesives
28
21
18
17
16
100
Key value chains
with carbon
footprint assessment
52
60
2009
2010
Total reportable rate of injuries
per million hours
5.7
4.8
3.3
3.3
2007
2008
2009
2010
AkzoNobel Report 2010 | Business performance | AkzoNobel Performance Coatings
43
AKZONOBEL AND MEETING CUSTOMER NEEDS
The modern shipbuilding industry is fiercely competitive,
demanding high quality, high productivity and fast turn-
around times. When it comes to using shop primers, most
shipyards still rely on solvent-based zinc silicate products.
However, with legislation tightening and customers demand-
ing more sustainable products and services, manufacturers
of marine coatings face an increasingly pressing environ-
mental challenge. Our Marine and Protective Coatings busi-
ness has already taken up the gauntlet, having supplied an
award-winning, highly innovative, water-based zinc silicate
shop primer (Interplate Zero) to the industry for several
years. Containing no VOCs or soluble salts, it can be over-
coated with a range of approved topcoat schemes, even
in critical vessel areas such as water ballast tanks and the
underwater hull, while reducing shipyard solvent emissions
by more than 20 percent.
Now, an improved version of the product has been intro-
duced which is just as effective as the solvent-based prod-
ucts, but has the added advantage of being far more envi-
ronmentally and user-friendly. The improved Interplate Zero
offers enhanced resistance to white rust, has a longer pot life
and can be applied using standard airless spray equipment,
as used by most shop primer application facilities worldwide.
While retaining all of the original Interplate Zero benefits,
these improvements make the new product even more
attractive when compared with solvent-based products on
the market.
AkzoNobel Marine and Protective Coatings
“Our product launches during 2010
are an indication of the strong focus
we have on innovation and our
robust pipeline.”
Bob Taylor
Managing Director
Overview
The year proved to be more challenging than anticipated
as the impact of the global economic downturn was felt in
our traditionally late-cycle businesses. Volume and revenue
was up overall, but our portfolio shifted as market dynamics
changed, and pressure was felt on prices in most sectors.
In this context, the business has continued to perform well,
delivering another strong set of results.
Analysis
Uncertain trading conditions have been prevalent in the
marine market, with volatile freight rates impacting earnings
for owners. This has resulted in a tight maintenance and repair
market as owners look to delay and minimize their outlays.
However, given the large world fleet size and increasing
number of vessels entering the market, we anticipate increas-
ing levels of demand over the coming years. In marine new
construction, output has continued to grow, driven primarily
by China, where additional new building capacity has come on
line together with good demand from Korea. While volumes in
this area are up, margins have been impacted by raw material
cost increases. In protective coatings, the earlier part of the
year saw a number of major projects put on hold as finance
proved difficult to secure, which resulted in a slower start to
2010 than expected in many parts of the world. However, as
the year progressed, there were some signs of encourage-
ment with projects starting to be released. Our Yacht business
put in a solid performance in what was essentially a flat market.
Highlights
Investment in technology remains high and we broke ground
on our new UK-based global fire protection center of excel-
lence, which is expected to be fully operational by mid-2011.
This will help reinforce our leading position in the fire protection
market and allow us to more quickly bring to market products
such as the waterborne Interchar 1120, which we launched
during the year. We also officially opened our new worldwide
marine testing laboratory in Singapore, which is focused on
developing the next generation of marine antifouling paints.
Product introductions in marine included a revitalized biocidal
antifouling range, along with our Intershield 803+ cargo hold
coating, specifically designed to meet the increasing demands
of fast loading of cargos. An improved Interplate Zero (a zero
VOC, water-based shop primer) was also launched during
the year, responding to the increasing demand for environ-
mentally aware products within the marine industry. In yacht
we launched Awlcraft SE, a high performance metallic finish
system, developed using both yacht and car refinish technol-
ogies. These launches are an indication of the strong focus
we have on innovation and our robust pipeline.
Developments
We are continuing to invest in geographic growth in our
Protective Coatings business, particularly within China and
India, as well as the Middle East, Russia and Brazil. In North
America, we successfully integrated the Devoe product line
into our portfolio, which continues to add value, as does its
extensive stores network. We demonstrated step change
improvement in safety performance throughout the year,
achieving record low TRR rates, and took extensive steps
to launch sustainability as our core management philoso-
phy, developing carbon mitigation plans and increasing the
proportion of eco-premium products within our portfolio.
Revenue in € millions
1,340
1,260
1,345
2008
2009
2010
Geo-mix revenue by destination in %
C
A
B
28
25
47
• Protective coatings
A EMEA
B Americas
C Asia Pacific
Main products
• Marine coatings
• Yacht paints
Key markets
• Ship building
• Oil and gas facilities
• High value
infrastructure (airports,
stadia, bridges)
• Power generation
installations
• Mining and minerals
• Water and
waste water
Key brands
AkzoNobel Report 2010 | Business performance | AkzoNobel Performance Coatings
45
AkzoNobel Car Refinishes
“We continued to focus on the key
elements of our strategy and once
again we achieved a very high
customer retention rate.”
Jim Rees
Managing Director
Overview
Growth in most of our market segments and regions began
to turn positive towards the end of 2009 and that continued
during 2010. This led to a robust recovery and strong revenue
performance across our business, with volumes almost
returning to pre-recessionary levels.
Analysis
The work that we did during the recession to retain customers
really paid off. We continued to focus on the key elements of
our strategy – improving our distribution footprint, advancing
the use of color technology, strengthening our brands, building
our pipeline of innovative products and solutions – and once
again we achieved a very high customer retention rate, which
we think is the best in class. So we were well positioned in
the market both from a geographic and segment perspective.
Consequently, we came out of the recession even stronger
than we went into it. Turkey, Brazil and Russia bounced back,
our Asian activities are growing at twice the rate of the rest of
the business, we steadily outperformed the market in North
America and our position in the premium segment in Eastern
Europe is growing. Western Europe was essentially steady,
with volume up on a flat market. Our Automotive Plastics busi-
ness benefited from a combination of restructuring and robust
volume increase on the strength of our new business model.
Highlights
Our Process Centered Environment solution, which we believe
is the most sustainable way to run a bodyshop, continued its
success and has really caught on in China, India and Asia,
having proved its value in North America. It helps us to attract
new customers and ensures we don’t lose any customers.
We also entered the trade segment in North America with our
Wanda brand (which was previously only available in Latin
America) and further sharpened our focus on the mid-market
by acquiring Changzhou Prime Automotive Paint Co., Ltd in
China. In Aerospace – which we took over from Marine and
Protective Coatings at the beginning of the year – we won a
number of contracts with Airbus and have several technology
approvals pushing the business ahead, primarily basecoat/
clearcoat systems for aircraft refinishing.
Developments
We secured a number of exciting new contracts during 2010,
including an exclusive deal with General Motors in Brazil and
a partnership with Sterling, one of the largest collision repair-
ers in the US. We are also supplying Volkswagen and GM
in Shanghai. Our stickerfix easy repair system clinched its
first two approvals from key auto makers, and we began
the introduction of our Wanda waterborne basecoat into the
trade segment in North America – our first entrance into this
particular market with this type of product. Elsewhere, our
focus on eco-efficiency and our drive to reduce VOCs contin-
ued to receive a lot of attention. We rolled out our sustain-
ability strategy for the business (based on the three pillars of
marketing, operations and people), and towards the end of
the year we changed the name of our business to Automotive
and Aerospace Coatings to better reflect the composition of
our global activities.
46
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2010
Revenue in € millions
983
872
994
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
Main products
49
36
15
• Primers, basecoats,
• Automotive plastic
topcoats and
clearcoats for
vehicle refinishes
coatings
• Customer service
technology
• Aerospace coatings
Key markets
• Collision repairers and
commercial vehicle
refinishers
• Bus, truck, specialty
vehicle OEMs
• Automobile insurer
networks
Key brands
• Fleet owners and
operators
• Automotive OEM
aftermarkets
• Aircraft industry
AkzoNobel Industrial Coatings
“It was a year of strong recovery
and business growth in all regions,
with volume, turnover and EBITDA
all significantly above 2009.”
Conrad Keijzer
Managing Director
Overview
It was a year of strong recovery and business growth in all
regions, with volume, turnover and EBITDA all significantly
above 2009. However, our margin improvements were coun-
tered by increasing raw material prices in all regions and we
experienced issues with the supply of certain raw materials.
Analysis
Our Packaging Coatings business returned to above pre-
recessionary levels after outgrowing its markets, mainly in
Eastern Europe, Latin America, the Middle East and South
East Asia. Our Specialty Plastics and Coil Coatings activities
didn’t quite reach pre-crisis status, but the underlying trend
has been a significant bounce-back in many of our mature
markets – coil coatings in Europe and North America – where
there has been restocking and a restart of construction activ-
ity. We saw patches of very strong growth in the BRIC coun-
tries and upcoming markets in EMEA, such as Turkey and
Russia, where our coil coatings sales increased significantly.
Highlights
As a new business unit formed at the beginning of 2010, we
were very pleased to announce the acquisition of Lindgens
Metal Decorating Coatings and Inks. The deal brings us an
experienced team and the ability to serve customers with a
more complete range of inks. It also gives us an improved
position in high growth areas of EMEA (Turkey, Russia and
Tunisia) and in the Asia Pacific region, notably Australia. In
keeping with the company’s growth ambitions, we contin-
ued to invest during 2010, consolidating our position in coil
coatings gained through our Petrokom acquisition in Lipetsk,
Russia; investing in extended production capacity at our
Bangalore site in India for coil coatings and specialty plastics;
and further improving our capabilities at our research center
in Songjiang, China. Sales of our “soft touch” technology
continued to increase on the back of strong growth in high-
end smart phones. These coatings give both the tactile and
aesthetic feel that consumers are looking for in such devices.
We also launched Vitalure 740 in Brazil, a product line which
consists of an interior coating and side seam stripe for paint
cans. The can liner protects the steel can from corrosion by
the paint and extends the “best by” date by 50 percent. In
the US, our Cool Chemistry line of coil coatings continued to
see strong sales, mainly due to the federal tax credit, favoring
energy efficient building projects.
Developments
We took over the EvCote technology from the company’s
Specialty Chemicals operation. It’s a resin system based on
recycled PET and materials from renewable bio-sources and
is now part of our Packaging Coatings activities. The technol-
ogy can provide moisture resistance and oil and grease barri-
ers to paper goods used in food contact, such as fast food
restaurant packing for sausages, sandwiches and French
fries. We have also set out to develop a much simpler alterna-
tive process and eco-premium solution for applying an attrac-
tive metal finish to computers and laptops. The current manu-
facturing process is facing some environmental pressure and
is relatively burdensome. We can create the same “anodizing”
effect using a special thin film developed in our laboratories,
which is cleaner and more efficient. We’ve also been able to
call on several techniques that we have learned from supply-
ing similar products to the automotive industry. Our custom-
ers are very pleased with this process simplification and we
believe that we can now provide a number of new variants to
help our customers develop this even further.
Revenue in € millions
822
725
882
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
44
30
26
• Coil and extrusion
coatings
• Specialty plastics
coatings
• Construction industry
A EMEA
B Americas
C Asia Pacific
Main products
• Beer, beverage and
food can coatings
• Coatings for caps,
closures and general
line cans
Key markets
• Beer, beverage and
food can markets
• Consumer electronics
such as cell phones
and laptops
Key brand
AkzoNobel Report 2010 | Business performance | AkzoNobel Performance Coatings
47
AkzoNobel Powder Coatings
“As well as helping to strengthen
our operations in the US,
integrating the former Rohm
& Haas activities has also given
us access to key technologies.”
Rob Molenaar
Managing Director
Overview
Finalizing the acquisition of the former Rohm & Haas powder
coatings activities from Dow Chemical Company – which saw
us become market leader in the US – had a major bearing
on our 2010 performance. For example, volumes improved
significantly and our revenue was boosted to record levels.
We also strengthened our existing leadership positions in
Asia, Europe and Africa during the year.
Analysis
The market continued to pick up, and while the mature
economies did not rebound as quickly as some of the high
growth regions, we grew significantly, notably in the US. We
continued to expand in Asia – highlighted by the opening of
a new plant in Wuhan in October – while major growth was
also achieved in Russia. We are the only international powder
coatings manufacturer in Russia and demand was very strong
during the year. As well as helping to strengthen our opera-
tions in the US, integrating the former Rohm & Haas activi-
ties has also given us access to key technologies which have
enabled us to better penetrate certain markets. For example,
we secured major approvals in the agricultural construction
equipment sector and are now better placed to accelerate
into the wood, plastics and automotive segments, which are
the next platforms for future growth.
Highlights
Major construction activity is continuing in Felling in the UK,
where we are establishing a resin polymer lab. This is due
to open in April 2011 and will play a crucial role in helping us
to innovate and further develop sustainable technologies. We
reached agreements to take over our joint venture partners
in Dubai, Mexico and Vietnam, which will help us to become
further established in those regions. In Mexico, we are also
building a new factory in Monterrey which will start up in July
2011. One excellent example of our intention to accelerate
into new markets came in Asia, where as part of a joint devel-
opment project, we produced the first vehicle in China with
a powder-coated exterior body. We are also working with
other manufacturers around the world to gain further experi-
ence of applying powder to vehicle exteriors. Another excit-
ing segment where we made good progress was in providing
coating solutions for laptops, including a soft-touch effect.
Developments
Integrating the former Rohm & Haas activities dominated much
of the year. The acquisition has truly delivered on the strategic
objectives we had for the deal – to help us consolidate our
position as the number one powder coatings manufacturer in
the world; to significantly strengthen our operations in the US;
and to maintain innovation and technology leadership in the
industry. Exchanging best practices also brought in excellent
HSE programs, which are being introduced throughout the
business, while it was pleasing to receive an internal award for
a major safety initiative which we have implemented.
48
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2010
Revenue in € millions
727
2008
573
2009
804
2010
Geo-mix revenue by destination in %
C
B
A
60
11
29
• Furniture
• General industrial
A EMEA
B Americas
C Asia Pacific
Main products
• Powder coatings
Key markets
• Appliances
• Architectural
• Automotive
Key brands
AkzoNobel Wood Finishes and Adhesives
“We maintained a strong focus on
cost control and strengthened
our number one position as the
world’s leading supplier of wood
finishes and wood adhesives.”
John Wolff
Managing Director
Overview
It was our first year operating as a stand-alone business unit,
focused on the industrial wood industry. We achieved strong
double digit revenue growth in 2010 as we emerged from the
economic crisis. Although we are not yet back to pre-crisis
levels, we maintained a strong focus on cost control and
strengthened our number one position as the world’s leading
supplier of wood finishes and wood adhesives.
Analysis
We maintained strong positions in the mature economies,
but these markets remained sluggish during 2010, primar-
ily due to the slow recovery of the construction and housing
markets. Our growth has come in the high growth regions
such as China and Turkey, where the local economies recov-
ered quickly and export volumes in wood finishes increased.
Our wood adhesives business also benefitted from increased
export activity as a result of the weaker euro. Our strategy of
selective bolt-on acquisitions and expansion in high growth
regions is delivering results. The strategic acquisitions we
finalized in 2009 to support our expansion in Eastern Europe
have now been fully integrated and contributed to our overall
performance during 2010. However, the price and availability
of raw materials continued to challenge our efforts.
Highlights
It was a year of change for our employees, who adapted
quickly to the new focus of our business and worked togeth-
er to bring about improvements in our results. One of our
accomplishments was our improved sales volume in Asia,
where we continued our drive into the domestic markets and
expanded our customer base. We broke ground on a new
plant in Vietnam – our fourth major plant in the region – to
support our growth strategy in the Asian export and domestic
markets. The new facility will be completed in 2011.
Developments
We are excited to be part of the wood industry, which is inher-
ently sustainable. Not only is wood a renewable resource, but
trees actually reduce CO2 in the atmosphere, since one cubic
meter of wood absorbs about one ton of CO2. Our strategy
is to positively contribute to the sustainability of this indus-
try by developing products and technologies that reduce our
impact on the environment, while delivering positive perfor-
mance attributes for our customers. To achieve this we are
moving beyond product development to a broader systems
approach, including integrated line application and monitor-
ing, waste reduction and yield improvement concepts. Our
new automated putty system, for example (see separate
case study), transforms poor quality wood into viable wood
substrates for flooring, cabinets and furniture. And for our
wood adhesives customers, we are working on systems that
significantly reduce the volume of glue applied while optimiz-
ing performance.
Revenue in € millions
816
684
776
2008
2009
2010
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
48
37
15
Main products
• Wood coatings
• Wood adhesives and board resins
Key markets
• Furniture
• Cabinets
• Flooring
Key brands
• Windows
• Doors
• Building products
AkzoNobel Report 2010 | Business performance | AkzoNobel Performance Coatings
49
AkzONOBEL AND HEALTHY LIVING
Improving the functionality of the coatings we make is one of
the key focus areas of our research, development and innova-
tion. Because it’s not enough for paint to simply look good or
add color. It can do so much more. It can also offer protection,
reflect heat, add texture, or help to completely transform the
surface it’s being applied to.
One of the latest products to be launched by our Decora-
tive Coatings business, under its Sikkens brand, is a perfect
example of how a coating can offer enhanced functionality.
Known as Alpha SanoProtex, the new product is a water-
borne wall paint developed especially for the healthcare
sector. It has been specifically designed to prevent bacteria
from multiplying and is ideal for use in hospitals, clinics, social
service buildings or other locations where hygiene is crucial
and the risk of infection needs to be controlled at all times.
Based on silver ions, when combined with appropriate clean-
ing practices, the interior emulsion can contribute to lower
infection rates for the MRSA bacteria, as well as contributing
to effective infection prevention programs. The new product
not only highlights the potential for where coatings functional-
ity can go, but also emphasizes the success of our innovation
strategy and RD&I pipeline.
AkzoNobel
Decorative
Paints
“We will use our scale,
competencies and strong brands
to accelerate growth, particularly
in the high growth markets.”
Tex Gunning
Board member responsible for Decorative Paints
In 2010 we were able to put more effort into developing the
business. This included further strengthening our US activi-
ties, accelerating growth in high growth markets, developing
a strategy which is sustainable for the planet and building the
people, brands and competencies that we need in order to
win globally. It proved to be a particularly good year for us in
South East Asia, especially Indonesia and Vietnam, as well
as in China, where we achieved substantial growth, assisted
by our network of close to 4,000 stores. We increased our
market share and have significantly strengthened our brand
health and brand presence in that part of the world. We also
enjoyed major success in the US, where the impactful relaunch
of our Glidden brand helped us to secure the contract as the
primary paint supplier to Walmart, putting us ahead in the
retail channel. We are establishing a strong number two posi-
tion in the US and are striving to win new business there.
We also continued to build a leadership position in South
America, where we saw steady growth. Our presence in
Brazil in particular has been significantly enhanced due to
the effectiveness of our global Let’s Color campaign, which
is adding color to people’s lives by transforming grey spaces
and revitalizing local neighborhoods and communities. It is
also a key step in establishing Dulux as a truly global brand
and has helped us to gain considerable market share in
Brazil. In Europe, 2010 started off very well, but the slow
housing market and lack of newbuilding gradually had an
impact, which resulted in most of our markets in Continen-
tal Europe declining. However, our performance in Eastern
Europe – mainly Poland and Russia – was good, and our
UK and Turkish businesses also had a strong year. Other
highlights included a landmark agreement with the Forest
Stewardship Council and our continued global efforts to train
thousands of people as Dulux professional painters.
Despite the challenging trading conditions in some geog-
raphies, the decorative paints sector remains an attrac-
tive market, and as the world’s largest decorative paints
company, we will use our scale, competencies and strong
brands to accelerate growth, particularly in the high growth
markets. Asia, South America and Eastern Europe, for
example, will continue along their strong growth curve and I
am optimistic about our opportunities and our ability to build
our global organization.
As well as investing in the development of our people, we are
continuing to invest in innovation. We have set up a separate
innovation organization – with its own global director – which
is rooted in business and customer needs. It is dedicated to
driving our agenda to develop more sustainable products,
such as Ecosure, Dulux Weathershield and Sikkens Alpha
SanoProtex antibacterial paint for hospitals and clinics, which
have been very successful. This focus on strong organiza-
tional development, combined with our global approach to
building people, brands and competencies, will play a crucial
role as we move forward.
AkzoNobel Report 2010 | Business performance | AkzoNobel Decorative Paints
51
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).
are served through a variety of outlets ranging from big box
chains such as The Home Depot, Walmart, B&Q and Leroy
Merlin (serving mainly homeowners) to independent dealers
(serving both homeowners and professionals) and company-
owned stores focused on serving professionals.
• The Dulux Trade Environmental Wash System and
DDC (Dulux Decorator Centers) Paint Can Recycling –
professional paint waste management systems
• Herbol Façade Certification Program
• Glidden SpeedWall – highly efficient interior wall paint with
Global market drivers and developments
• Growing populations and GDP growth
• Activity of residential and commercial new-build
and home sales
superior properties for the professional painter.
Eco-premium portfolio
Recent initiatives:
• Dulux Trade Ecosure – water-based, high performance
• Global increase in importance of home and
professional paint
interior decoration
• Sikkens rubbol XD – VOC-reduced, ultra durable
• rise of middle class in high growth markets
• Legislative/regulatory pressures on environmental and
health issues (VOC, rEACH) driving innovation
professional trimpaint
• The Freshaire Choice – zero-VOC consumer wall paint
• Dulux Light & Space – highly light reflective, energy-saving
Market and business characteristics
The size of the global market for decorative paints is around
€30 billion.
• Increasing importance of large-scale outlets
• Growth of importance of women as decision-makers
• Increasing importance of internet.
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.
Building adhesives
• Tile and floor adhesives and floor leveling compounds
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
Consumer market
• Dulux Weathershield keep Cool – heat-reflective exterior
paint with energy-saving properties
used in the building and renovation industry
• Dulux All round Guard – absorbs harmful elements from
• Supplied for professional workers such as tile, floor and
the air to create a safer home environment
parquet layers, interior decorators and painters
• Direct to medium-sized enterprises, wholesalers,
• New Glidden paint – reformulated and now includes less
VOCs and better hide, durability and washability.
specialized retailers.
Customers
Our end-users can broadly be segmented into homeown-
ers (either DIY or BIY – buy it yourself), professional paint-
ers serving homeowners and commercial contractors. They
Support professional painters with tailor-made
products and services
• Sikkens object analysis, design support and marketing
programs for painters
wall paint.
Key raw materials
• Binders/resins
• Titanium dioxide
• Packaging materials
Price drivers
• Energy, oil and raw
material prices
• Steel prices
Market leadership positions
Europe
1st
Continental Europe
Northern and Eastern Europe
UK, Ireland and South Africa
Americas
1st
2nd
Asia
1st
2nd
Canada
United States
Latin America
South East Asia and Pacific
India and South Asia
China and North Asia
52
AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2010
Key developments 2010
• Signed a deal with Walmart to become the retailer’s
primary paint supplier in the US
• Dulux Trade won contract to paint the London 2012
Olympic Games site
• Leading coatings supplier for the Commonwealth
Games in India
• Signed a landmark agreement with the Forest
Stewardship Council
• Let’s Color campaign continued to gather momentum
• Presence in China increased to more than 600 cities
Geo-mix revenue by destination
20%
North America
42%
Mature Europe
7%
Emerging Europe
17%
Asia Pacific
3%
Rest of the world
11%
Latin America
Key figures in € millions
Employees by region at year-end
2009
2010
2009
2010
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
4,573
4,968
US and Canada
487
10.6
298
6.5
133
4.7
548
11.0
343
6.9
275
5.2
Latin America
China
Other Asian countries
The Netherlands
Germany
Sweden
UK
Revenue breakdown by business unit
in %
Other European countries
Other regions
Total
5,100
1,700
1,200
2,000
1,000
1,600
600
2,200
5,400
1,100
5,100
1,800
1,500
2,200
1,100
1,300
600
2,200
5,100
1,100
21,900
22,000
C
B
Product: Eco-premium solutions
% of revenue
A
15
15
29
22
2007
2008
2009
2010
A Decorative Paints Europe
B Decorative Paints Americas
C Decorative Paints Asia
52
31
17
Key value chains with carbon
footprint assessment
32
2009
108
2010
Total reportable rate of injuries
per million hours
5.7
4.9
4.7
4.0
2007
2008
2009
2010
AkzoNobel Report 2010 | Business performance | AkzoNobel Decorative Paints
53
AKZONOBEL AND NATURAL RESOURCES
We understand the importance of wood stewardship
and the risk of not looking after our natural resources.
Which is why we have signed a landmark agreement
with the Forest Stewardship Council.
The agreement makes AkzoNobel the FSC’s first global
partner outside of products that are FSC certified.
Both parties are cooperating to increase understand-
ing of the organization’s work in promoting responsible
forest management, and to boost awareness of FSC
certification being a label for wood and paper from well-
managed forests.
Many of our businesses – particularly our woodcare
brands – are already committed to the responsible
sourcing of forest products. But under the terms of the
agreement, AkzoNobel’s woodcare brands, Cuprinol,
Pinotex, Xyladecor, CetaBever, Sparlack, Flood and
Sadolin, will now work more closely with the FSC to
further promote forest stewardship and drive demand
for responsible products.
The agreement includes setting up a global partner-
ship fund with the FSC to support agreed social policy
projects; educating customers about the FSC and its
objectives; and helping to drive demand for FSC certi-
fied products. A new partnership logo has also been
developed which will be used extensively on all branded
material, including packaging.
Developing partnerships such as the one we have
agreed with the FSC is a clear illustration of our willing-
ness to achieve transformational change, take positive
action and help to protect the source of wood for future
generations.
AkzoNobel Decorative Paints Europe
From left to right:
Ruud Joosten
Managing Director
Northern and Eastern Europe
Richard Stuckes
Managing Director UK,
Ireland and South Africa,
Building Adhesives
Antoine Fady
Managing Director Continental
Europe (until December 1, 2010)
Revenue in € millions
2,711
2,531
2,585
2008
2009
2010
Key brands
Overview
It was generally a challenging year for our European activi-
ties, which experienced low levels of activity in housing and
construction markets. A tight supply situation for several key
raw materials also had an impact. However, while trading
conditions were mostly unfavorable, growth was achieved in
some regions, along with increases in market share.
Analysis
Revenue and volumes were up slightly in the UK, where
the trade market performed better than expected. We also
increased our share of the UK trade market, despite aggres-
sive competition. Conditions proved to be more challeng-
ing in Ireland and South Africa, while in Building Adhesives,
we increased share in the key markets of Germany, Austria,
Switzerland and the Benelux. Performance was also strong
in the Nordics and France. In Northern and Eastern Europe,
we were able to increase sales and significantly improve the
profitability of the business compared with the previous year.
The Turkish market in particular showed healthy growth, while
we consolidated our leadership positions in both Russia and
Greece. The launch of Dulux in Egypt delivered strong sales,
together with good growth from sub-Saharan Africa. Condi-
tions stabilized in Continental Europe, where simplification
of our brand portfolio and a number of successful product
launches put us in a strong position to compete in the existing
economic climate. Although the paint market slowed down in
Belgium, the Netherlands and France – mainly on the profes-
sional side – a number of valuable acquisitions in the trade
area in France have enhanced our position significantly.
Highlights
We continued to simplify and streamline our business in order
to make it more efficient and reduce costs. We also made
significant progress with building a global marketing organi-
zation, and in aligning brands with different names and local
heritage to one common positioning platform. Our innova-
tive capabilities led to the launch of strong concepts in line
with customer needs, such as Dulux Architect and Sikkens
Healthcare. In the UK, Dulux Trade won a contract to paint the
£7.3 billion London 2012 Olympic Games site. We also
established a team in the Middle East to help drive growth
in the region.
Developments
Dulux Ecosense (which has a 50 percent lower carbon foot-
print) was launched in the UK, where sales of Dulux Trade
Ecosure and our waste paint solidifier also continued to grow.
Towards the end of the year, the UK launched a consumer
waste recycling trial. The Let’s Color campaign proved to be
a big success across the region, notably in Turkey, Russia
and the Nordics, significantly boosting brand awareness. In
Continental Europe, we introduced a high quality Sikkens
water-based wall paint regarded as a benchmark product in
sustainability. Our business-wide commitment to sustainability
also continued, which includes focusing on eco-efficiency and
reductions in waste and energy.
Towards the end of the year, we announced the merger of our
three Decorative Paints businesses in Europe into one Deco-
rative Paints EMEA business. This will strengthen our leader-
ship positions in this key region.
AkzoNobel Report 2010 | Business performance | AkzoNobel Decorative Paints
55
AkzoNobel Decorative Paints Americas
From left to right:
Pierre Dufresne
Managing Director Canada
Erik Bouts
Managing Director
United States
Jaap Kuiper
Managing Director
Latin America
Revenue in € millions
1,541
1,413
1,547
2008
2009
2010
Key brands
Overview
AkzoNobel’s Decorative Paints activities in the Americas
experienced mixed fortunes as the industry attempted to
pull clear of the lingering impact of the economic downturn.
The US business continued to face depressed conditions as
any sign of recovery failed to materialize, while in Canada,
stimulus initiatives such as the government infrastructure
program helped generate more demand, notably during the
first quarter. Conditions were more buoyant in Latin America,
where the Coral brand in Brazil outgrew the market and the
businesses in Argentina and Uruguay both achieved double
digit growth.
Analysis
US paint market volume continued to decline throughout the
year. Home sales, unemployment, sluggish GDP figures and
lack of consumer confidence all contributed to the econom-
ic slide. Raw material supplies were also disrupted, which
impacted financial performance. This shortage of raw materi-
als also affected the Canadian business, which saw demand
levels fall in the second half of the year as economic growth
slowed. As a result, volumes were flat in a market which
showed slight overall improvement. The slow US recovery
is also impacting Canada’s economy, which relies heavily on
exports to the US. In Latin America, however, the recession
failed to dent the business’ continued growth, which was
significantly boosted in Brazil by the Coral brand’s Tudo de
Cor Para Você (All the Colors For You) program. The initiative
– which involves painting deprived neighborhoods in order to
add color to people’s lives – is gaining major momentum and
has helped propel Coral to unequalled heights.
Highlights
September’s announcement that AkzoNobel has become the
primary paint supplier to Walmart was one of 2010’s major
highlights in the Americas. We are supplying multiple brands
to Walmart’s 3,500-plus stores in the US. The Glidden Profes-
sional brand was also formally launched nationwide in the US
in Q2. In Canada, our Montreal Distribution Center obtained
Silver LEED (Leadership in Energy and Environmental Design)
certification from the Canadian Green Building Council. A
number of new VOC compliant products were also intro-
duced, ahead of new Canadian VOC regulations which came
into effect in September. The most significant highlight in Latin
America centered on the continued success of the Tudo de
Cor Para Você program, which has now been rolled out to
trade partners. By year-end, a total of more than 600 local
painting events had been staged, benefiting 300,000 families.
The initiative, which includes the participation of employees,
also involves training local people to become painters, further
boosting engagement with the company and the Coral brand.
Developments
After being relaunched in 2009, the Glidden brand has seen
year-on-year market share growth, while household penetra-
tion and repeat purchases jumped by double digits. Sales of
the Ralph Lauren Paint brand in the US Independent Paint
Dealer channel increased, while the Flood woodcare brand
boosted its presence in large-scale outlets. In Canada, eight
new paint stores were opened during the year, Liquid Nails
was introduced in the fourth quarter and supply agreements
with two major customers were renewed. The spotlight in
Latin America is now falling on Brazil and the forthcoming
soccer World Cup (2014) and Olympic Games (2016), which
will offer significant opportunities.
56
AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2010
AkzoNobel Decorative Paints Asia
From left to right:
Jeremy Rowe
Managing Director South
East Asia & Pacific (SEAP)
Amit Jain
Managing Director
India and South Asia (ISA)
Revenue in € millions
655
632
841
2008
2009
2010
Richard Stuckes
Responsible for China & North Asia
(as of March 1, 2010)
Key brand
Overview
The Decorative Paints business achieved significant growth
throughout Asia during 2010, capturing market share in many
regions while maintaining strong profitability. It was the best
year on record for the company’s South East Asia & Pacific
activities – which strengthened its number one position – and
it was a similar story in the increasingly important markets of
India and South Asia, where growth was robust and most
regions booked record sales. Growth also soared in China,
where we considerably outpaced the market, even though the
Chinese market decelerated in the second half of the year
due to unprecedented measures introduced by the central
government to curb rising property prices.
distribution footprint. We continued to launch a series of
eco-premium products throughout 2010, notably our Dulux
Weathershield Keep Cool heat reflective exterior paint with
energy-saving and greenhouse-lessening properties, which
was introduced throughout South East Asia & Pacific. A
similar product, Dulux Weathershield SunReflect, was named
Green Innovation of the Year in India. Along with the continued
roll-out of the Singapore Green Label standard throughout our
Dulux portfolio in South East Asia, this contributed to a very
high percentage of eco-premium products in the business.
Another highlight was the teaming up of Decorative Paints
and Marine and Protective Coatings as the leading coatings
suppliers to the Commonwealth Games in Delhi.
Analysis
We benefited from an aggressive growth strategy for Asia,
which included improving distribution channels and making
significant investments to build the Dulux brand. In India and
South Asia, a revival in the real estate sector on the back of
GDP growth and a record performance by the Dulux Pro insti-
tutional business helped drive double digit volume growth. In
China – where we increased brand awareness and now have a
presence in more than 600 cities – we successfully penetrated
more tier two and tier three cities, with the mid-tier product
range enjoying the highest growth rate among all product
segments. A healthy economy in South East Asia & Pacific
kept the paint market buoyant and we took full advantage.
Highlights
The global Let’s Color campaign was launched in selected
cities in China, which helped to further extend our color lead-
ership. We also opened and upgraded close to 1,000 stores
this year to accelerate the expansion of our controlled Chinese
Developments
In India, AkzoNobel took the lead in driving sustainability by
partnering with government, industry bodies, media and the
artisan community. This was done by conducting workshops
and heading panel discussions and forums. We also teamed
up with Women on Wings, an organization dedicated to creat-
ing employment for a million low income women in rural areas
of India before 2017. AkzoNobel will look for ways that paint
can be used to help create some of these much-needed jobs.
In China, we have continued to build the capability of our new
Dulux Easy Paint service, a total service solution designed
to unlock the potential of repainting millions of old homes in
China. The Chinese business has also been focusing on build-
ing organizational and system capabilities to facilitate future
growth. A relaunched mid-tier offering was successfully intro-
duced in Indonesia under the Dulux brand, while consumers
continued to be actively engaged through initiatives such as
the I Love My City campaign in Vietnam and the Dulux Paint
Bank safe paint disposal system in Malaysia.
AkzoNobel Report 2010 | Business performance | AkzoNobel Decorative Paints
57
In this section we introduce our
Supervisory Board and present
their Report for 2010, 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.
Our Supervisory Board
Report of the Supervisory Board
Corporate governance statement
Remuneration report
Risk management
AkzoNobel on the capital market
60
61
63
69
75
80
Karel Vuursteen
(1941, Dutch) Chairman
Initial appointment 2002
Current term of office 2010 – 2014
Uwe-Ernst Bufe
(1944, German) Deputy Chairman
Initial appointment 2003
Current term of office 2007 – 2011
Virginia Bottomley
(1948, British)
Initial appointment 2000
Current term of office 2008 – 2012
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 Board
of 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 Board of Umicore SA and
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 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
Peggy Bruzelius
(1949, Swedish)
Initial appointment 2007
Current term of office 2007 – 2011
Peter Ellwood
(1943, British)
Initial appointment 2008
Current term of office 2008 – 2012
Antony Burgmans
(1947, Dutch)
Initial appointment 2006
Current term of office 2010 – 2014
Louis Hughes
(1949, American)
Initial appointment 2006
Current term of office 2010 – 2014
Former CEO ABB Financial Services; former
Executive Vice-President SEB; Vice-Chairman AB
Electrolux; non-executive director of Axfood AB,
Syngenta AG, Husqvarna AB and Diageo plc;
Chairman of Lancelot Holding AB; Governor of the
Stockholm School of Economics.
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
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
Group and Alcatel-Lucent SA; executive advisor
of Wind Point Partners.
• Member of the Audit Committee
as of March 5, 2009
• Member of the Audit Committee
60
Our Supervisory Board | Governance and compliance | AkzoNobel Report 2010
Report of the Supervisory Board
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 2010,
as prepared by the Board of
Management and approved
by the Supervisory Board in its
meeting of February 2011.
Main 2010 activities
• Strategic discussions at company,
Business Area, business unit and
country level
• The Research, Development
and Innovation strategy
• The introduction of an
Executive Committee
• Human resources and
succession planning
• Board visit to the UK
The 2010 financial statements were audited by KPMG
Accountants N.V. and the Auditor’s report appears on page
134. 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 2010 financial
statements were discussed by the full Supervisory Board with
the full Board of Management, in the presence of the audi-
tors. Based on these discussions, the Supervisory Board is of
the opinion that the 2010 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 2010 financial statements as present-
ed in this 2010 Report. We recommend the Annual General
Meeting of shareholders to resolve that the total dividend
for 2010 on each of the common shares outstanding will be
€1.40, and that this amount, less the interim dividend of €0.32
– which was paid in November 2010 – will be payable on May
10, 2011. In addition, we request that shareholders discharge
the members of the Board of Management of their responsibil-
ity for the conduct of business in 2010 and the members of
the Supervisory Board for their supervision of management.
Supervisory Board activities
The Supervisory Board met six times during 2010, including
a one-day meeting fully dedicated to the company’s strate-
gy. All meetings were plenary sessions with the full Board of
Management present. With the exception of two meetings,
all Supervisory Board members attended all the Supervisory
Board meetings. In addition, a separate meeting was held
– attended in part by the CEO – during which the Supervi-
sory Board conducted a self-assessment and appraised its
committees, working methods, procedures and performance,
as well as evaluating the functioning of the Board of Manage-
ment 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 Supervi-
sory 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.
During 2010, the Supervisory Board again devoted consider-
able time to discussing the company’s strategy and reviewing
strategic options with the Board of Management. This includ-
ed detailed discussions on objectives, associated risks and
the mechanisms for controlling financial risks. Furthermore,
the Supervisory Board discussed sustainability on a number
of occasions, in the broader sense, but also specifically in
relation to the Values part of the company’s medium-term
strategy (for example safety) and the significant effort being
put into talent development.
Other topics included:
• The new medium-term strategy for the company
• Additional cost savings at the company
• Governance of the company
• The introduction of an Executive Committee
• Risk management
• A detailed review of certain business unit strategies
• The company’s strategy in certain high growth economies
• Information Management strategy
• Research, Development and Innovation strategy
• Operating working capital management
• Human resources and succession planning
• Diversity and inclusion
• Sustainability (including HSE)
• Remuneration policy
• Approval of major investments, acquisitions
and divestments.
Regular agenda items included financial and operational
performance, share price development, operational plan-
ning, 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.
AkzoNobel Report 2010 | Governance and compliance | Report of the Supervisory Board
61
In September 2010, the full Supervisory Board and Board of
Management met in the UK. The visit included meetings with
local management, customers and other stakeholders, as
well as a tour of AkzoNobel’s Slough site.
The Board of Management keeps the Supervisory Board
regularly informed of intended organizational changes and
appointments of senior managers. One of the main topics
for the Supervisory Board meeting in November 2010 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, econom-
ics, sustainability, human resources and other aspects of
international business. Consequently, the current members
have a diverse and appropriate mix of knowledge and experi-
ence 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 Dutch
Corporate Governance Code, which ensures that its compo-
sition better reflects both 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.
The terms of office of Mr. Bufe and Mrs. Bruzelius expire
on May 1, 2011. Mr. Bufe and Mrs. Bruzelius are available
for reappointment. It will be proposed at the 2011 Annual
that Mr. Bufe and
General Meeting of shareholders
Mrs. Bruzelius be reappointed for a third and second term of
four years respectively.
Audit Committee
The Audit Committee consists of three members and is chaired
by Mr. Van den Brink. Six meetings were held during 2010. As
a rule, the CEO, the CFO, the Corporate Director Control, the
internal auditor and the lead partner of the external auditor,
KPMG, attend all regular meetings. After every Audit Commit-
tee 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 Commit-
tee met once without members of the Board of Manage-
ment being present to conduct a self-evaluation and appraise
performance. Discussions regularly focus on financial state-
ments, internal and external control procedures, risk manage-
ment, 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:
Remuneration Committee
The Remuneration Committee consists of four members and
is chaired by Mr. Burgmans. Four meetings were held in 2010.
Recommendations were made on the remuneration and
remuneration policy for members of the Board of Manage-
ment and Executive Committee, including personal targets.
Information on the remuneration of the Board of Management
and the Supervisory Board can be found in the Remuneration
report and in note 23 of the Financial statements.
Nomination Committee
The Nomination Committee consists of four members and is
chaired by Mr. Vuursteen. Three meetings were held in 2010.
During the year, proposals were made for the reappointment
of Mr. Bufe and Mrs. Bruzelius to the Supervisory Board.
The Supervisory Board wishes to thank the Board of Manage-
ment, as well as all employees, for their dedication and hard
work for the company in 2010.
• The quality of internal audit
• Internal audit strategy
• KPMG’s approach to auditing the company, engagement
Amsterdam, February 16, 2011
The Supervisory Board
letter, fees and audit plan
• Operating working capital management
• Compliance at the company
• Environmental liabilities
• Pensions strategy
• Treasury department transformation.
Issues discussed in Audit Committee meetings are reported
back to the full Supervisory Board in subsequent meetings of
this Board.
62
Report of the Supervisory Board | Governance and compliance | AkzoNobel Report 2010
Corporate governance statement
Shareholders
External auditors
Supervisory Board
Board Committee Pensions
Board of Management
Corporate
Executive Committee
Business Area Board
Decorative Paints
Business Area Board
Performance Coatings
Business Area Board
Specialty Chemicals
Business units
Business units
Business units
Major external regulations
Major internal regulations
• Dutch Civil Code
• Dutch Act on financial supervision
• NYSE Euronext listing rules
• Dutch Corporate Governance Code
• Articles of Association
• Code of Conduct
• Rules of Procedure for the Supervisory Board
• Rules of Procedure for the Board of Management/
Executive Committee
• Corporate directives and policies
• Authority schedules
Akzo Nobel N.V. is a public limited liability company (“Naam-
loze Vennootschap”) established under the laws of the Neth-
erlands. 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, compris-
ing 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
companies listed on the NYSE Euronext Amsterdam stock
exchange, complemented by several internal procedures.
These procedures 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 accor-
dance 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 discus-
sion. This specifically included a number of aspects where our
corporate governance deviates from the Code, as explained
in our 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
AkzoNobel Report 2010 | Governance and compliance | Corporate governance statement
63
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, all 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
of the Annual Report, and the introduction of a claw back
provision in the remuneration policy in 2010. 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 struc-
ture, as described in this chapter and which includes the intro-
duction of an Executive Committee as of January 1, 2011, 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. As of January 1, 2011, the Board of Manage-
ment operates in the context of an Executive Committee. The
members of the Executive Committee are the five members
of the Board of Management, together with four senior execu-
tives who are delegated responsibilities for Human Resources
and Organizational Development; Legal; Purchasing and
Supply Chain; and Research, Development and Innovation
respectively. Among other responsibilities, the members of the
Executive Committee define the strategic direction, establish
the policies and manage the company’s day-to-day opera-
tions. The members of the Board of Management remain
jointly and individually accountable for all decisions made by
the Executive Committee. All Executive Committee decisions
require the consent of a majority of the members of the Board
of Management. The Board of Management can decide to
reserve decisions for the Board of Management.
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.
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 Executive Committee is guided by the interests of the
company and its affiliated enterprise, taking into consideration
the relevant interests of the company’s stakeholders. Execu-
tive Committee meetings are held once a fortnight.
The Chief Executive Officer (CEO) leads the Executive
Committee 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 Finan-
cial 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 indi-
vidual Executive Committee members with specific responsi-
bility for their activities and performance. To safeguard consis-
tency and coherence for the total organization, the Executive
Committee has established corporate directives.
To effectively steer the strategy of our businesses and their
operations, the Executive Committee has established Busi-
ness 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 Exec-
utive Committee responsible for that Business Area. The CFO
Representative authority, including the signing of documents,
is vested in at least two members of the Executive Committee
jointly. Corporate agents may be appointed, whose powers
of attorney will be determined by the Executive Committee.
The tasks and responsibilities, as well as internal procedur-
al matters for the Executive Committee, are addressed in
the Rules of Procedure for the Board of Management and
Executive Committee. These Rules of Procedure have been
approved by the Supervisory Board and are available on our
corporate website.
Appointment, conflicts of interest
Board of Management members are appointed to, and
removed from, office by the Annual General Meeting of share-
holders. The remaining members of the Executive Commit-
tee are appointed by the CEO subject to the approval of the
Supervisory Board.
As of 2004, members of the Board of Management are
appointed for four-year terms, with the possibility of reap-
pointment 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 Super-
visory 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
64
Corporate governance statement | Governance and compliance | AkzoNobel Report 2010
to pass a resolution to cancel the binding nature of a nomi-
nation 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 68). In normal circumstances, resolutions to appoint a
member of the Supervisory Board or Board of Management
will therefore require a simple majority of the votes cast. Share-
holders 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.
As of January 1, 2011, members of the Executive Commit-
tee are allowed to hold not more than one supervisory board
membership or non-executive directorship in another listed
company. This is more stringent than the Code (provision
II.1.8), which allows two such supervisory board member-
ships or non-executive directorships. The exception to this
rule is that in the 18 months prior to their retirement, Execu-
tive Committee members are allowed to hold more than one
supervisory board membership or non-executive directorship
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 Executive Committee. Furthermore, an
exception can be made for an executive joining the Execu-
tive Committee. However, a maximum of two supervisory
board memberships or non-executive directorships will apply.
Acceptance of external supervisory board memberships or
non-executive directorships by members of the Executive
Committee in other listed companies is subject to approval by
the Supervisory Board, with authority having been delegated
to the Chairman of the Supervisory Board. With respect to the
members of the Board of Management, Mr. Wijers is a non-
executive Board Member of Royal Dutch Shell plc, while Mr.
Frohn is a member of the Supervisory Board of Nutreco N.V.
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 sever-
ance payments. The contracts of the members of the Board
of Management do not contain change of control provisions.
The handling of (potential) conflicts of interest between the
company and members of the Board of Management or Exec-
utive Committee is governed by the Rules of Procedure for the
Board of Management and Executive Committee. Decisions
to enter into transactions under which Board of Management
members have conflicts of interest that are of material signifi-
cance to the company, and/or to the relevant Board of Manage-
ment member, require the approval of the Supervisory Board.
Mention will also be made in the annual report for the relevant
year. In 2010, 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 Commit-
tee. The Supervisory Board will also decide on the remunera-
tion of the remaining members of the Executive Committee on
the proposal of the CEO. The composition of the remunera-
tion of Board of Management members, and the remunera-
tion policy itself, are described in the Remuneration report and
the Financial statements (see note 23).
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 75).
We have strict procedures for internal and disclosure controls
and auditor independence. The Disclosure Committee moni-
tors the procedures established by the company and advises
the Executive Committee to ensure adequate and timely
disclosure of material financial and non-financial information.
A separate internal control function is operational to secure
compliance with the company’s internal control requirements.
The further enhancement of the internal controls was one of
the 2010 spearheads. The company-wide internal control self-
assessment was strengthened and aligned with a number of
other internal representation and compliance processes. An
extensive training and communication program was part of
this endeavor.
Reference is made to the Report of the Board of Management
in the Strategy section for the statements in respect of the
internal risk management and control systems.
AkzoNobel Report 2010 | Governance and compliance | Corporate governance statement
65
Supervisory Board
General
The Supervisory Board’s overall responsibility is to exer-
cise supervision over the policies adopted by the Board of
Management and the Executive Committee and over the
general conduct of the business of the company. This specifi-
cally includes supervision of the achievement of the compa-
ny’s operational and financial objectives, the corporate strat-
egy designed to achieve the objectives and the main financial
parameters and risk factors. The Supervisory Board also
provides the Board of Management and Executive Commit-
tee 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 compa-
ny’s stakeholders.
Appointment, independence, conflicts of interest
and composition
Members of the Supervisory Board are nominated, appoint-
ed and dismissed in accordance with procedures which
are the same as those previously outlined for the members
of the Board of Management (see page 64). As a general
rule, based on the rotation schedule, a Supervisory Board
member’s tenure is four years. In principle, members are eligi-
ble 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 indepen-
dently of one another and of the Board of Management and
Executive Committee. 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 2010, no trans-
actions 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.
The Chairman of the Supervisory Board determines the
agenda, chairs the meetings of the Supervisory Board, moni-
tors the proper functioning of the Supervisory Board and its
committees, arranges for the adequate provision of informa-
tion 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 Super-
visory Board and the Board of Management and chairs the
Annual General Meeting of shareholders. The Chairman of the
Supervisory Board is Mr. Vuursteen.
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 remunera-
tion 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 in note 23 in the Financial statements.
Board appointments 2010:
• Mr. Vuursteen (Chairman) was reappointed
as a member of the Supervisory Board
• Mr. Hughes was reappointed as a member
of the Supervisory Board
• Mr. Burgmans was reappointed as a member
of the Supervisory Board
Committees
The Supervisory Board has established three committees: the
Audit Committee, the Nomination Committee and the Remu-
neration Committee. Each committee has a charter describ-
ing 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 over-
seeing 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
monitoring 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 docu-
ments 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 composi-
tion of both Boards, evaluates the functioning of the individual
members, makes proposals for appointments and reappoint-
ments 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
66
Corporate governance statement | Governance and compliance | AkzoNobel Report 2010
areas. The Remuneration Committee is responsible for draft-
ing proposals to the Supervisory Board on the remuneration
policy for the Board of Management, for overseeing the remu-
neration of its individual members, the remaining members of
the Executive Committee 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 Commit-
tee, as well as the meeting of the Supervisory Board at which
the financial statements are approved. He receives the finan-
cial 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, Executive Committee
and Supervisory Board are subject to the AkzoNobel Code
on Insider Trading, which limits 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.
The AkzoNobel Code on Insider Trading states 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, Executive Committee and Superviso-
ry 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 and
the other Executive Committee members, as well as certain
senior executives, may be held in an account administered by
the “Stichting Executive Management Beheer”. This founda-
tion 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 busi-
ness 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 dissemi-
nation 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.
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 irregu-
larities 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, 2010, a
total of 233,530,454 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, 2010, AkzoNobel had been notified
by Massachussetts Financial Services Company and Paulson
& Co 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 appoint-
ments of members of the Board of Management and of the
Supervisory Board (see page 60) 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 neces-
sary, 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, 2010, authorized the Board
of Management for a 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
AkzoNobel Report 2010 | Governance and compliance | Corporate governance statement
67
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 state-
ments 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 calen-
dar 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 Manage-
ment 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 avail-
able 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.
The company attaches great value to shareholder relations.
We use the Shareholders’ Communication Channel to distrib-
ute 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 share-
holders and other parties in the financial markets with equal
and simultaneous information about matters that could have
a significant influence on the price of our listed securities,
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 avail-
able as webcasts and accessible online. Presentations to
(institutional) investors are held at regular intervals and, in prin-
ciple, 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 influ-
ence 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 the publi-
cation of 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 Prior-
ity Shares to make binding nominations for appointments to
the Board of Management and the Supervisory Board (see
page 60), the Foundation Akzo Nobel has confirmed that it
intends to make use of such rights in exceptional circum-
stances 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 nomi-
nation rights for the appointment of members of the Supervi-
sory Board and of the Board of Management in such circum-
stances. 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.
68
Corporate governance statement | Governance and compliance | AkzoNobel Report 2010
Remuneration report
This report describes our remuneration policy and remuneration
paid to individual members of the Board of Management in 2010,
including amendments proposed for 2011.
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 remu-
neration policy, as adopted by the Annual General Meeting of
shareholders in 2005 and most recently amended in 2010.
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 protect-
ing and promoting its 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 incen-
tive plans apply – act in their own interest, take risks that are
not in line with our strategy and risk appetite, or where remu-
neration levels cannot be justified in any given circumstance.
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.
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:
In 2010, the value of fixed and variable cash components at
target levels breaks down as follows:
• Clariant
• Heineken
• Royal Philips
• Randstad
• Reed Elsevier
• Rhodia
• Royal Ahold
• Royal DSM
• Royal KPN
• Solvay
• Royal TNT
• Wolters Kluwer
CEO in %
A Base salary
36
B Variable compensation 64
The Remuneration Committee of the Supervisory Board
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:
Board members in %
• Base salary
• Performance-related short-term incentive
• Performance-related shares
• Pension provisions.
A Base salary
43
B Variable compensation 57
B
B
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.
For communication purposes, the table on page 70 presents
a summarizing overview of the remuneration of the current
members of the Board of Management. Reference is made to
note 23 of the Financial statements for more details.
Base salary
The objective of the base salary is to enable recruitment and
retention of top managers of a major international company.
The base salaries of members of the Board of Management
increased by 0.75 percent in 2010.
AkzoNobel Report 2010 | Governance and compliance | Remuneration report
69
Compensation overview members of the Board of Management 2008 – 2010
In €
Year
Hans Wijers
Chief Executive Officer
Leif Darner
Board member Performance Coatings
Rob Frohn
Board member Specialty Chemicals
Tex Gunning 3
Board member Decorative Paints
Keith Nichols 4
Chief Financial Officer
2008
2009
2010
2008
2009
2010
2008
2009
2010
2008
2009
2010
2008
2009
2010
Base salary
760,000
760,000
765,700
570,000
570,000
574,300
570,000
570,000
574,300
Short-term incentive 1
700,000
464,000 1,284,200
340,000
339,300
513,000
340,000
339,300
513,000
Share awards 2
Option awards 2
485,900
678,400
981,900
325,500
481,500
724,500
325,500
481,500
724,500
161,500
99,200
25,100
105,900
65,100
16,500
105,900
65,100
16,500
Pension premium paid
565,600
458,400
722,500
291,400
208,600
272,200
156,200
146,000
206,900
Other emoluments
4,500
4,100
4,400
4,600
4,100
4,400
7,200
6,900
7,100
Other compensation
–
–
–
169,300
147,800
147,400
–
47,500
–
Total remuneration
2,677,500 2,464,100 3,783,800 1,806,700 1,816,400
2,252,300 1,504,800 1,656,300 2,042,300
–
–
–
–
–
–
–
–
380,000
574,300
380,000
570,000
574,300
226,200
513,000
226,700
339,300
513,000
277,600
628,700
131,300
382,500
704,200
–
–
25,000
18,200
4,800
88,900
277,200
57,600
124,700
204,400
2,700
4,400
45,200
112,700
162,200
–
–
36,900
58,700
51,100
975,400 1,997,600
902,700 1,606,100 2,214,000
1 Actual short-term incentive disclosed relates to the performance in the financial year and the deferred payments over 2009 (50 percent for the CEO and 25 percent for the other members).
2 Costs are non-cash and relate to the expenses following IFRS 2.
3 As from May 1, 2009.
4 Other emoluments 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
Fixed
Variable
Base salary
Short-term incentive
Long-term incentive
Element
Vehicle
Cash
Cash
Performance measure
Not applicable
Pay-out at minimum
performance
Target pay-out as %
of base salary
Maximum pay-out as %
of base salary
100%
100%
100%
EVA: 35%
EBITDA: 35%
Personal: 30%
0%
CEO: 100%
Member: 65%
CEO: 150%
Member: 100%
70
Remuneration report | Governance and compliance | AkzoNobel Report 2010
Performance-related
restricted shares
Relative total
shareholder return: 50%
DJSI ranking: 50%
0%
CEO: 75%
Member: 69%
CEO: 113%
Member: 104%
Short-term incentive (annual bonus)
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.
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. EVA and EBITDA are based on the finan-
cials of the company in constant currencies. EVA is seen as
a measure for creating long-term value. The variable remu-
neration components of the remuneration policy (including the
long-term incentives) will therefore continue to be predomi-
nantly of a long-term nature.
On the outcome of the three short-term incentive elements
(EVA, EBITDA and personal targets), the Supervisory Board
applies an overall rating based on the principles of the Perfor-
mance and Development Dialog, AkzoNobel’s appraisal
system. For the Board of Management, the rating includes
a reasonableness test, in which the Supervisory Board criti-
cally 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. This method for
short-term incentive determination is also the basis of the
compensation framework for executives in the company.
The EVA performance measure is used in order to encour-
age the Board of Management to create long-term value for
the company’s shareholders and other stakeholders. EVA is
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.
Please refer to the Report of the Board of Management
chapter in the Strategy section for the actual 2010 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.
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. The 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 (see page 70). Quali-
tative 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 the targets. However, the targets for 2010 includ-
ed goals set with respect to operational and functional excel-
lence, delivering on the strategic plans, talent development
and delivering on the ICI synergies.
The Supervisory Board assesses the progress made in achiev-
ing 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.
In late 2009, the Board of Management and the Superviso-
ry Board considered the company’s 2009 results in light of
the economic climate and the need to find the right balance
between short and long-term incentives. As a result, they
decided to strengthen the link between the remuneration of
the Board of Management and the medium and long-term
targets of the company by deferring receipt of 50 percent of
the short-term incentive for 2009 in the case of Mr. Wijers,
CEO, and 25 percent of the short-term incentive for 2009
in the case of the other members of the Board of Manage-
ment. Receipt of this deferred payment was made subject
to the company achieving its medium-term target of an
EBITDA margin of 14 percent. The company achieved this
EBITDA margin target ahead of planning in mid-2010. This
was shared with the financial markets and a new growth
strategy was announced which focuses more on an absolute
EBITDA increase than an EBITDA margin percentage. As a
result, the Supervisory Board decided that this justifies the
pay-out of the deferred short-term incentive for 2009 in
February 2011.
Long-term incentives
The objectives of our long-term incentive plan are to encour-
age 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-relat-
ed 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 and vested for the last time in 2010. The actual number
of options which the Board of Management received depend-
ed 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 was the average of the results of the
comparison between planned and realized EVA on Invested
Capital (EOI), or economic value created in relation to invest-
ed capital during the period of three consecutive years. This
measure was used to encourage EVA performance over a
longer period of time.
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
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 became
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 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 are condition-
ally granted to the members of the Board of Management.
AkzoNobel Report 2010 | Governance and compliance | Remuneration report
71
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 divi-
dend paid over the three-year performance period.
Because sustainability is considered key to our long-term
future, 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 perfor-
mance 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)
100%
(= 50% of total conditional grant)
75% (= 37.5% of total conditional grant)
50%
(= 25% of total conditional grant)
25% (= 12.5% of total conditional grant)
10 – 13
0%
1
2
3
4
5
6
7
8
9
The relative TSR performance is compared with the following
peer group:
• Arkema group
• DuPont
• Kansai Paint
• Nippon Paint
• Rhodia
• Kemira OYJ
• PPG Industries
• RPM Industrial
• Sherwin-Williams
• Valspar Corporation
The following vesting scheme applies as of 2009 for the
conditional grants:
As from 2007
2009 onwards
Rank
Vesting (as % of
conditional grant)
Rank
Vesting (as % of half
of conditional grant)
1
2
3
4
5
6
7
8 – 11
150%
135%
120%
100%
75%
50%
25%
0%
150%
135%
120%
100%
85%
70%
55%
40%
25%
0%
It is noted that a takeover would not influence the ranking of
the company on the DJSI and therefore dilutes 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 2010.
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 analy-
sis 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 compa-
ny’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.
AkzoNobel’s TSR performance over the period 2008 through
2010 resulted in an 11th position within the ranking of the peer
group companies. Consequently, the final vesting percentage
of the 2008 grant equaled zero percent, resulting in no defini-
tive grant of shares.
The number of performance-related shares conditionally
granted in 2010 amounted to 24,400 for the CEO and 18,300
for the other members of the Board of Management.
In accordance with provision II.2.13d) of the Dutch Corpo-
rate Governance Code, the schedule on page 74 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 Manage-
ment 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.
72
Remuneration report | Governance and compliance | AkzoNobel Report 2010
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 condi-
tionally 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.
The Supervisory Board has 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 as provided in provision
II.2.10 of the Dutch Corporate Governance Code.
The 2010 Annual General Meeting of shareholders approved
a claw back provision in the remuneration policy for the Board
of Management. This provision provides 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.
During the course of 2010, the Remuneration Committee
reflected further on current policy and the balance between
short and long-term compensation and the company’s
targets. As a result, the Supervisory Board will propose to the
Annual General Meeting of shareholders for 2011 to amend
the remuneration policy.
As of 2011, the CEO of the company will be required to build
up, over a five-year period from the date of appointment, and
then hold, at least three times his or her gross base salary
in AkzoNobel shares for the duration of his or her tenure as
CEO. The other members of the Board of Management will be
required to build up, over a five-year period from the date of
appointment, and then hold, at least one time their gross base
salary in AkzoNobel shares for the duration of their tenure.
The CEO and other Board members are expected, for these
purposes, to use both their long-term incentive and their
short-term incentive in the manner set out below.
The proposed amendment to the remuneration policy entails
introducing a requirement that Board members who have not
yet achieved this minimum holding requirement invest one
third of the short-term incentive they receive (net after tax and
other deductions) in AkzoNobel shares. As further encour-
agement to build up the minimum holding requirement, Board
members who invest a second third of their short-term incen-
tive in shares will have such shares matched by the company,
one on one, after three years from the date of purchase of
the shares (up to a maximum of one third of the short-term
incentive), on condition that the Board member showed a
sustained performance during the three-year period. The
Supervisory Board will use its discretion to decide whether
this condition has been met.
Board members who continue to invest their short-term
incentives in whole, or in part, in shares after the minimum
holding requirement has been reached will have the opportu-
nity to have such shares matched subject to the same condi-
tions, except that such shares will be matched with one share
to every two shares thus acquired up to a maximum of two
thirds of the short-term incentive.
The Supervisory Board will propose a further amendment
to the remuneration policy at the Annual General Meeting of
shareholders for 2011. As a further improvement to the way
in which the sustainability performance of the company is
measured for the purposes of the performance share plan,
the proposal is to use the percentile score of the company
in the SAM ranking instead of the ranking in the Dow Jones
Sustainability Index. This change will increase the transpar-
ency and robustness of the system applied.
Pensions
The pension plan for all members of the Board of Manage-
ment is based on an income and age-related defined contri-
bution 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 during the
previous year. External reference data can be used in deter-
mining 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 addi-
tion, members of the Board of Management pay a personal
contribution.
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 retire-
ment if less than four years from their reappointment.
The notice period by 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 employ-
ment agreement for Mr. Wijers, who was appointed before
2004, has not been adjusted in this respect (see page 65).
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.
Members of the Board of Management normally retire in the
year that they reach the age of 62. 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.
AkzoNobel Report 2010 | Governance and compliance | Remuneration report
73
Valuation 1 shares Board of Management
Unconditional shares, vested
Series 2005 – 2007
Series 2006 – 2008
Conditional share grant
Number of vested shares
End of lock up period (2010)
Conditional share grant
Number of vested shares
End of lock up period (2011)
Number of shares
Number
Value at grant
Number
Value at vesting
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
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
–
Number
26,548
20,342
11,794
–
Value
Number
Value at grant
Number
Value at vesting
1,231,827
943,869
547,242
–
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
Number
8,656
7,470
11,531
1,943
Value
402,417
347,280
536,076
90,330
Series 2007 – 2009
Series 2008 – 2010
Conditional share grant
Number of vested shares
End of lock up period (2012)
Conditional share grant
Number of
vested shares
Number of shares
Number
Value at grant
Number
Value at vesting
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
Tex Gunning
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
–
Number
17,090
14,689
11,220
3,626
–
Value
NA
NA
NA
NA
–
Number
Value at grant
Number
16,800
11,600
11,600
8,733
3,867
920,472
635,564
635,564
478,481
211,873
–
–
–
–
–
Conditional shares, not vested
Series 2009 – 2011
Conditional share grant
at target
Series 2010 – 2012
Conditional share grant
at target
Number of shares
Number
Value at grant
Number of shares
Number
Value at grant
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
Tex Gunning
36,600
27,400
27,400
27,400
27,400
1,077,504
806,656
806,656
806,656
806,656
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
Tex Gunning
24,400
18,300
18,300
18,300
18,300
1,132,160
849,120
849,120
849,120
849,120
Overview performance-related stock options Board of Management
2006 – 2013
2007 – 2014
Conditional stock
option grant
Fair value
at grant
Number of vested
stock options
Intrinsic value
at vesting 2
Conditional stock
option grant
Fair value
at grant
Number of vested
stock options
Intrinsic value
at vesting 2
19,800
13,000
13,000
3,000
195,200
128,200
128,200
29,600
19,800
13,000
13,000
3,000
–
–
–
–
19,800
13,000
13,000
3,750
235,224
154,440
154,440
44,550
19,800
13,000
13,000
3,750
–
–
–
–
Number of shares
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
1 Values based on the share price on January 1 of the relevant financial year (face value).
2 Share price at moment of vesting minus exercise price.
74
Remuneration report | Governance and compliance | AkzoNobel Report 2010
Risk management
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.
A k z oNobel Policy
onitoring,
evelop m e nt
and supp ort
d
M
AkzoNobel
risk management
framework
e
c
n
a
r
u
s
s
A
R
eporting
A c c o u n t
a
P
r
o
c
e
s
s
e
g
a
u
g
n
a
b ilitie s L
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 (as
of January 1, 2011, supported by the other members of the
Executive Committee, see Stategy section) 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 Statement of the
Board of Management in the Stategy section).
AkzoNobel risk management framework
Through our risk management framework, shown on this
page, 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 Manage-
ment reviews our risk management and control systems and
our major business risks, which are also discussed by the
Supervisory Board.
Risk appetite
Clarity on risk appetite and boundaries that determine the
freedom of action or choice in terms of risk taking and risk
acceptance is provided to all managers. Risk boundaries are
set by our strategy, our Company Statement, business princi-
ples, Code of Conduct, company values, authority schedules,
policies and corporate directives. Our risk appetite differs by
objective area and type of risk:
• Strategic: In the pursuit of our strategic ambitions we are
prepared to take considerable risk related to growth and
innovation. Returns on investment in the development of
innovative products and solutions are never certain. Yet,
considerable amounts and efforts are spent on research,
development and innovation, also in less certain economic
circumstances. Candidates for acquisitions are carefully
selected and investigated while making sure that the price
to be paid is reasonable and affordable.
AkzoNobel Report 2010 | Governance and compliance | Risk management
75
• Operational: With respect to operational risks, we contin-
uously strive to minimize these risks. Our risk appetite is
very limited, governed by our ambition to strive for top
quartile safety performance, top quartile performance in
diversity, employee engagement and talent development,
top quartile eco-efficiency rates and a top three position in
the relevant Dow Jones Sustainability Index.
was performed by the Board of Management, business unit
Managing Directors and Corporate Directors, in association
with the risk management function. Besides the focus on
coverage of our organization, emphasis is put on organization-
al changes, key strategic projects and high growth regions. In
2010, process improvements were made with respect to use
of risk knowledge for trend detection and reporting.
• Financial: With respect to financial risks we have a
prudent financing strategy and a strict cash management
policy and are committed to maintaining strong investment
grade credit ratings. Our financial risk management and
risk appetite for several financial risks are explained in more
detail in note 24 in the Financial statements.
• Compliance: AkzoNobel has a “zero tolerance” policy in
relation to breaches of our Code of Conduct.
Risk management in 2010
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.
Therefore, scoping of our 2010 risk management activities
During 2010, we held more than 120 facilitated Enter-
prise Risk Management workshops. More than 5,000 risk
scenarios were identified and prioritized by the responsible
managers, their management teams and functional experts.
In addition, in selected areas with low risk tolerance, dedi-
cated risk assessments were performed to safeguard our
risk appetite. 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 & Review cycle. Risk profiles and
trends 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, identified through risk
consolidation and the subsequent risk assessment by the
Board of Management, are presented in the following para-
graph. As a result of market conditions, the risk related to
sourcing of raw materials increased in 2010. Furthermore, in
view of our accelerated growth ambitions and competitive
conditions in the relevant labor markets, attraction and reten-
tion of talent has become a top five risk.
Major risk factors
Under the explicit understanding that this is not an exhaus-
tive enumeration, 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 below, where
the five risks that we do currently assess as the most signifi-
cant for the forthcoming five years are indicated.
Major risk factors assessed by AkzoNobel (top five risks indicated)
Strategic
Operational
Financial
Compliance
Internal
• Implementation of strategic agenda
• Identification of major transforming
technologies
Internal
• Attraction and retention of talent
• Management of change
• Production process risks
External
• Adapting to economic conditions
• International operations
• Ensuring stakeholder support
External
• Sourcing of raw materials
• Energy pricing and emission trading rights
• Product liability
• Environmental liabilities
External
• Access to funding
• Contribution to pension funds
• Decline of asset values
• Fluctuations in exchange rates
External
• Complying with laws and regulations
All of the risks listed above are explained in more detail in the following pages.
76
Risk management | Governance and compliance | AkzoNobel Report 2010
Internal risks
Strategic
Strategic
Operational Top five risk
Implementation of
strategic agenda
Identification of major
transforming technologies
Attraction and
retention of talent
A failure to properly and fully implement our strategic agenda could
adversely affect our company and its businesses.
We may not be able to identify major transforming technologies in a timely
manner, which could lead to loss of our leadership positions.
Our ambitious growth plans may not be achieved if we fail to attract
and retain the right people.
Risk corrective actions
The appropriateness of our strategic agenda, our performance against this
agenda and our governance structure is continuously monitored by the
Executive Committee and the Supervisory Board. Specific attention is paid
to areas such as macro-economic developments, general and financial
market developments, competitive situation, performance improvement
potential, sustainability, geographical spread, emerging markets, political
risks, acquisition and divestment opportunities. Risks are minimized as
we operate in attractive industries, have global leading positions and
have strong executive leadership in place. As per January 2011, we
strengthened our decision-making process and implementation monitoring
by implementing an Executive Committee structure which allows us to
better manage the strategic agenda. Remuneration systems are tied to
performance against key strategic agenda items. For example, our long-
term executive remuneration is partly linked to the relevant Dow Jones
Sustainability Index (see Remuneration report chapter in this section).
Risk corrective actions
The risk of missing relevant technology developments is mitigated in three
ways. Firstly, we adequately support research and development with a
spend level at 2.3 percent of revenue, with more than 45 percent spent on
major projects and technology developments. Secondly, our key projects
have detailed technology roadmaps which assess the most appropriate
routes. Thirdly, we are actively developing our open (external) innovation
capability to identify and utilize the most promising external technologies.
Risk corrective actions
Growing our business calls for the need to grow 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 a strong Human Resources function
and HR instruments such as performance appraisals, the employee
survey and leadership identification and review, as well as leadership
development, to optimize support to our business. 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 Excecutive Committee ensures that employees are not
incited to act in their own interest and take risks that are not in keeping
with the company’s strategy and risk appetite.
Operational
Operational
Management of change
Production process risks
If our management of change is not adequate, this could have a
negative impact on productivity and customer focus.
Risks in production processes can adversely affect our
results of operations.
Risk corrective actions
We undertake various restructuring and investment projects that require
significant 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 Executive Committee to ensure an
aligned and integrated vision and thrust from the top for the company’s
change agenda. To drive human resources/organizational development
and supply chain/sourcing operational excellence, two dedicated
members were appointed on the newly established Executive Committee.
Risk corrective actions
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). To achieve our sustainability ambitions, during 2010 we
carried out a comprehensive global operational eco-efficiency review at 75
sites. This represented more than 80 percent of the AkzoNobel ecological
footprint and focused on four crucial areas: waste management, water
consumption, volatile organic compounds (VOCs) and energy. We also
raised our safety ambitions in 2010 and want to achieve top quartile safety
performance. To achieve this target, we have increased management
attention on safety, implemented enhanced process safety, asset integrity
and occupational health standards and improved the Health, Safety,
Environment & Security audit process.
AkzoNobel Report 2010 | Governance and compliance | Risk management
77
External risks
Strategic Top five risk
Strategic Top five risk
Strategic
Adapting to
economic conditions
Failure to adapt adequately and in time to economic conditions can
have a harmful impact on our business and results of operations.
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 difficult to predict customer demand.
Construction and housing markets might remain soft in mature markets,
while in high growth markets there is potential for bubble formation. On
the positive side, we have seen evidence of sustained industrial demand
beyond re-stocking in 2010. For planning and budgeting we apply
various scenarios to be best prepared for further changes in economic
conditions. We have a strong balance sheet to fund growth. To help
drive our growth agenda, we are focusing on EVA and cash, delivering
further operating working capital improvement, disciplined capital
allocation for organic growth, selective acquisitions, building capabilities
and processes to support our “leading” ambition and a prudent
financing policy in still challenging capital markets.
International operations
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.
Risk corrective actions
We spread our activities geographically and serve many sectors
to benefit from opportunities and reduce the risk of instability. Our
aspirations to fuel growth in high growth markets – double revenue
in China, create a significant footprint in India, outgrow competition
in Brazil and expand in the Middle East and sub-Saharan Africa –
will further expose us to this risk. 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 Executive Committee decides on all significant
investments and the countries and industry segments in which
AkzoNobel conducts its business.
Ensuring
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
We endeavor to define 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 by paying a stable to rising dividend, creating an attractive
working environment for our people and conducting all our activities
in the most socially responsible manner.
Operational Top five risk
Operational
Operational
Sourcing of raw materials
Inability to access sufficient raw materials, growth in cost and expenses
for raw materials, energy and changes in product mix may adversely
influence the future results and growth of our company.
Risk corrective actions
We may be impacted by business interruption or product
discontinuation at some 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 in a sustainable
manner, to secure volumes and to cooperate on innovation and
sustainability. We have inventoried single and sole sourced raw materials
and are actively pursuing plans to improve this situation. We have
diversified 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 and adapt our purchasing strategy accordingly.
Energy pricing and
emission trading rights
Differences in energy prices pose a risk to the
competitiveness of several of our chemical businesses.
Risk corrective actions
We operate some energy intensive businesses. A non-level playing field
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
efficient use of combined heat and power. We are implementing our
carbon policy, working on energy efficiency programs and investing in
energy from waste and biomass. Carbon management plans are closely
monitored and strategically managed. We have policies for energy
contracts and have long-term purchase contracts in place (see note 24
in the Financial statements).
Product liability
Product liability claims could adversely affect our company’s business and
results of operations.
Risk corrective actions
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 financial position. We have a central
policy to optimize insurance coverage.
78
Risk management | Governance and compliance | AkzoNobel Report 2010
External risks
Operational
Financial Top five risk
Financial
Environmental liabilities
Access to funding
We continue to be exposed to the risk of environmental liabilities
from past and current businesses.
Risk corrective actions
We use, and have used in the past, hazardous materials and biological
compounds in several product development programs and manufacturing
processes, including waste thereof. 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 damage claims resulting therefrom. Regulations and
standards are becoming increasingly stringent. We are committed to
conducting all our activities in the safest and most responsible manner.
Contingency plans and assignment arrangements are in place to mitigate
known risks and regular reviews are conducted to monitor progress
and assess financial and reputational exposure. Our policy is to accrue
and charge against earnings environmental clean-up costs, damages or
indemnifications when it is probable that a liability has materialized and an
amount can be estimated (see also note 21 in the Financial statements).
Inability to have access, control and visibility of liquidity by AkzoNobel
and/or its partners in the value chain may limit our growth rate and
have an adverse affect on our business and results.
Risk corrective actions
Our balance sheet and debt profile are strong. We are monitoring
financial markets, critical suppliers and customers closely. We have
a prudent financing strategy and a strict cash management policy,
which are managed by our centralized treasury function (see note 24
in the Financial statements). We are committed to maintaining strong
investment grade credit ratings. Ratings at year-end were Standard &
Poor’s BBB+ (stable outlook) and Moody’s Baa1 (stable outlook).
Contributions to
pension funds
Various external developments may affect assets and liabilities of
pension funds, causing higher post-retirement charges and pension
premiums payable.
Risk corrective actions
We practice pro-active pension risk management. Our pension policy
is to offer defined contribution schemes to new employees and, where
appropriate, to existing employees. Our biggest defined benefit 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 financial risks. In 2010,
cash pension top-ups were around €375 million and a similar amount
is expected for 2011. We are committed to further de-risking over time.
Pension activities are overseen by the Board Committee Pensions (see
note 17 in the Financial statements).
Financial
Financial
Compliance
Decline of asset values
Impairments and book losses could adversely affect
our financial results.
Fluctuations in
exchange rates
Complying with laws
and regulations
Risk corrective actions
In view of the current financial 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 Executive Committee. We do impairment tests for
intangibles with indefinite lives (goodwill, some brands) every year and
whenever an impairment trigger exists. For tangibles and other fixed
assets, we do impairment tests whenever an impairment trigger exists (see
note 1 in the Financial statements).
Exchange rate fluctuations can have a harmful impact
on our financial results.
We may be held responsible for any liabilities arising out of non-compliance
with laws and regulations.
Risk corrective actions
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 in the Financial statements). At a more
operational level, risks are reduced by the prevalence of local-for-local
production, which is the norm in many of our businesses.
Risk corrective actions
We are monitoring and adapting to significant 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 defending civil damage claims in relation to
alleged antitrust violations in the European Union and the US (see note 21
in the Financial statements). We are dedicated to minimizing such risks with
special emphasis on the application of our Code of Conduct. We operate
under a comprehensive competition law compliance program including
training, monitoring and assessment. We advertise the use of our company-
wide corporate complaints procedure called Speak Up!, which enables all
our employees to report irregularities in relation to our Code of Conduct.
AkzoNobel Report 2010 | Governance and compliance | Risk management
79
AkzoNobel on the
capital market
• Proposed dividend of €1.40 per share,
a 4 percent increase
• Net income per share €3.23,
up 163 percent
• Two Capital Market Days were
held during 2010
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 2010, we organized two Capital Market Days.
In September we presented the Value and Values medium-
term growth ambitions for AkzoNobel, followed by the Perfor-
mance Coatings Teach-in in November.
In the Netherlands, AkzoNobel uses the Shareholders’
Communication Channel to distribute the agenda of the
Annual General Meeting of shareholders and to allow share-
holders who hold their shares through an associated bank to
participate in proxy voting at the AGM.
Dividend policy
AkzoNobel’s dividend policy changed in 2010. Subject to
shareholder approval, we want to pay a stable to rising dividend
each year, following our expected growth in cash generation.
Proposed dividend of €1.40 per share
The Board of Management proposes a dividend of €1.40 per
common share. AkzoNobel’s shares will be trading ex-dividend
as of April 29, 2011. In compliance with the listing require-
ments of Euronext Amsterdam, the record date will be
May 3, 2011.
The dividend as proposed to the 2011 Annual General
Meeting of shareholders will be payable as of May 10, 2011.
The dividend paid over the last five years is shown in the
graph below.
Dividend paid in € per share
Interim dividend
Final dividend
1.40
1.40
1.05
1.08
0.40
2007
0.40
2008
0.30
2009
0.32
2010
0.90
0.30
2006
Share price performance
Our share price increased 0.2 percent in 2010, underperform-
ing 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 on the opposite page.
Analyst recommendations
At year-end 2010, AkzoNobel was covered by 31 equity brokers
and the following analyst recommendations were applicable:
Analyst recommendations in %
A Buy
B Hold
C Sell
55
26
19
C
B
A
Listings
listed on the stock
AkzoNobel’s common shares are
exchange of Euronext Amsterdam. AkzoNobel is included in
the AEX Index, 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 3.7 percent at year-end 2010. In 2010, 311
million AkzoNobel shares were traded on Euronext Amster-
dam (2009: 312 million). 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.
See the table below for stock codes and ticker symbols:
Euronext ticker symbol
AKZA
ISIN common share
OTC ticker symbol
ISIN ADR
NL0000009132
AKZOY
US0101993055
80
AkzoNobel on the capital market | Governance and compliance | AkzoNobel Report 2010
Share price performance 2010 AkzoNobel share price in €
Key share data
AkzoNobel
AEX index
DJ Stoxx Chemicals index
60
55
50
45
40
35
9
0
c
e
D
1
3
0
1
n
a
J
0
1
b
e
F
0
1
r
a
M
0
1
r
p
A
0
1
y
a
M
0
1
n
u
J
0
1
l
u
J
0
1
g
u
A
0
1
t
p
e
S
0
1
t
c
O
0
1
v
o
N
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 %)
Price-earnings ratio (P/E ratio)
0
1
c
e
D
1
3
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.
2008
2009
2010
29.44
57.11
22.85
42.57
94.0
2.2
231.7
6.8
(4.38) 1
1.80
4.2
(6.7) 1
46.40
46.52
26.01
35.92
43.4
1.2
232.2
10.8
1.23
1.35
3.8
37.7
Share price performance 2006 – 2010
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
65
55
45
35
25
15
5
0
c
e
D
1
3
6
0
n
u
J
0
3
6
0
c
e
D
1
3
7
0
n
u
J
0
3
7
0
c
e
D
1
3
8
0
n
u
J
0
3
8
0
c
e
D
1
3
9
0
n
u
J
0
3
9
0
c
e
D
1
3
0
1
n
u
J
0
3
0
1
c
e
D
1
3
Distribution of shares 2009 at year-end in %
Distribution of shares 2010 at year-end in %
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
44.6
19.9
12.1
11.4
1.4
10.6
E
D
C
F
B
A North America
B UK/Ireland
A
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
45.4
17.2
11.9
10.6
1.2
13.7
E
F
D
C
B
46.49
47.70
37.18
43.39
52.1
1.2
233.5
10.9
3.23
1.40
3.2
14.4
A
AkzoNobel Report 2010 | Governance and compliance | AkzoNobel on the capital market
81
Broad base of international shareholders
AkzoNobel, which has a 100 percent free float, has a broad
base of international shareholders. An analysis of the share-
holder structure carried out in August 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 17 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.
Around 7 percent of the company’s share capital is held
by private investors, most of whom are resident in the
Netherlands.
Major shareholders
Both Paulson & Co. and MFS Investment Management noti-
fied the Netherlands Authority for the Financial Markets (AFM)
that they held more than 5 percent of the issued shares in
Akzo Nobel N.V. by December 31, 2010.
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 hold-
ings. 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.
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
Baaa1
Standard & Poor’s 2
BBB+
stable
stable
1 Rating affirmed September 3, 2010; outlook changed from negative to stable.
2 Rating affirmed August 27, 2010, outlook changed from negative to stable.
Bonds
During 2010, no new bonds were issued. We redeemed
$40 million in floating rate loan notes that matured during
the year. For a full overview of our bonds, please visit the
Bond & Credit information section of our corporate website:
www.akzonobel.com/investor_relations
Debt maturity in millions
€ Bonds
$ Bonds
£ Bonds
1,000
975
648
99
2011
2012
55
375
41
2013
290
2014
2015
2016
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, its Capital Market 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 appli-
cable 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 so-called “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.
These “closed periods” are published in our event calendar
available on www.akzonobel.com/investor_relations
Analysts’ reports and valuations are not assessed, comment-
ed upon or corrected, other than factually, by the company.
AkzoNobel does not pay any fee(s) to parties for carrying
82
AkzoNobel on the capital market | Governance and compliance | AkzoNobel Report 2010
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
Our corporate website www.akzonobel.com provides all infor-
mation which is required to be published. If you have ques-
tions or comments about investor relations matters, please
contact us:
AkzoNobel 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
AkzoNobel Report 2010 | Governance and compliance | AkzoNobel on the capital market
83
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
Note 1 Summary of significant accounting policies
Note 2 Acquisitions and divestments
Note 3
Incidentals
Note 4 Other operating income/(expenses)
Note 5 Financing income and expenses
Note 6
Income tax
Note 7 Discontinued operations
Note 8 Employee benefits
Note 9
Intangible assets
Note 10 Property, plant and equipment
86
87
87
88
89
90
91
98
99
99
99
100
102
103
105
107
Note 11 Investments in associates and joint ventures 108
Note 12 Other financial non-current assets
Note 13 Inventories
Note 14 Trade and other receivables
Note 15 Cash and cash equivalents
Note 16 Equity
Note 17 Provisions
Note 18 Long-term borrowings
Note 19 Short-term borrowings
109
109
109
110
110
112
116
117
Note 20 Trade and other payables
Note 21 Contingent liabilities and commitments
Note 22 Related party transactions
Note 23 Remuneration of the Supervisory Board
and the Board of Management
Note 24 Financial risk management and
financial instruments
Company financial statements
Note a General information
Note b Net income from subsidiaries,
associates and joint ventures
Note c Financial non-current assets
and provision for subsidiaries
Note d Trade and other receivables
Note e Cash and cash equivalents
Note f
Long-term borrowings
Note g Short-term debt
Note h Financial instruments
Note i Contingent liabilities
Note j
Auditor’s fees
Other information
Independent auditor’s report
Profit allocation and distributions
117
118
119
120
124
129
131
131
131
132
132
132
132
132
132
133
134
135
Consolidated statement of income
for the year ended December 31
(3,341)
(1,103)
(334)
29
In € millions
Note
2009 1
2010
Continuing operations
Revenue
Cost of sales
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Operating income
Financing income
Financing expenses related to pensions
Other financing expenses
Results from associates and joint ventures
Profit before tax
Income tax
Profit for the period from continuing operations
Discontinued operations
Profit for the period from discontinued operations
Profit for the period
Attributable to
Shareholders of the company
Non-controlling interests
Profit for the period
Earnings per share, in €
Continuing operations:
– Basic
– Diluted
Discontinued operations:
– Basic
– Diluted
Total operations:
– Basic
– Diluted
1 Restated to present National Starch as a discontinued operation.
4
5
5
5
11
6
7
16
16
16
16
16
16
(3,086)
(1,024)
(327)
52
13,028
(7,788)
5,240
(4,385)
855
58
(171)
(292)
21
471
(141)
330
32
362
285
77
362
1.09
1.08
0.14
0.13
1.23
1.21
14,640
(8,672)
5,968
(4,749)
1,219
51
(100)
(278)
25
917
(170)
747
90
837
754
83
837
2.85
2.83
0.38
0.38
3.23
3.21
86
Consolidated statement of income | Financial statements | AkzoNobel Report 2010
Consolidated statement of comprehensive income
for the year ended December 31
Consolidated balance sheet
at end of year, before allocation of profit
In € millions
Profit for the period
2009
2010
In € millions
Note
2009
2010
362
837
Assets
Other comprehensive income
Exchange differences arising on translation of foreign operations
Cash flow hedge reserve
Revaluation reserve related to step acquisitions
Tax relating to components of other comprehensive income
Other comprehensive income for the period (net of tax)
Comprehensive income for the period
Comprehensive income attributable to
Shareholders of the company
Non-controlling interests
Comprehensive income for the period
383
48
7
(38)
400
762
688
74
762
827
50
–
(35)
842
1,679
1,523
156
1,679
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Investment in associates and joint
ventures
Other financial non-current assets
Total non-current assets
Current assets
Inventories
Current tax assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Non-controlling 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
9
10
6
11
12
13
6
14
15
16
17
6
18
19
6
20
17
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
7,308
3,384
794
175
1,008
12,645
12,669
6,235
18,880
8,245
6,081
1,678
108
2,788
2,851
8,984
525
1,855
589
2,880
907
456
3,305
593
7,425
20,094
9,509
5,324
4,554
18,880
5,261
20,094
AkzoNobel Report 2010 | Financial statements | Consolidated statement of comprehensive income
87
Consolidated statement of cash flows
for the year ended December 31
In € millions
Profit for the period
Income from discontinued operations
Adjustments to reconcile earnings to cash generated from operating activities
Amortization/depreciation
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
Acquisition of non-controlling interests
Issue of shares for stock option plan
Dividends
Net cash from financing 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 year-end 4
1 Restated to present National Starch as a discontinued operation.
2 Comprises an increase of €216 million in trade and other receivables (2009: decrease of €355 million), an increase of €256 million in inventories
(2009: decrease €356 million) and an increase of €377 million in trade and other payables (2009: decrease of €61 million).
3 Net of cash and cash equivalents acquired or disposed of.
4 Consists of €2,851 million cash and cash equivalents (2009: €2,128 million) and €168 million debt to credit institutions (2009: €209 million).
88
Consolidated statement of cash flows | Financial statements | AkzoNobel Report 2010
2009 1
2010
362
(32)
559
63
405
(21)
(48)
141
650
(493)
(170)
(196)
(513)
52
17
(78)
23
(30)
1,391
(1,216)
–
4
(454)
837
(90)
590
50
327
(25)
(52)
170
(95)
(651)
(265)
(277)
(534)
81
19
(143)
145
(47)
179
(212)
(54)
9
(403)
519
(479)
(481)
(441)
1,095
654
1,919
110
2,683
1,220
(529)
(275)
416
19
435
1,449
35
1,919
Consolidated statement of changes in equity
Attributable to shareholders of the company
In € millions
Subscribed
share capital
Additional
paid-in
capital
Cash flow
hedge
reserve
Revaluation
reserve
Cumulative
translation
reserve
Share-
holders’
equity
Other
(statutory)
reserves and
undistributed
profit
Non-control-
ling interests
Total equity
Balance at January 1, 2009
Profit for the period
Other comprehensive income
Reclassification into the statement of income
Tax on other comprehensive income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
463
–
–
–
–
–
–
–
2
–
Balance at December 31, 2009
465
Profit for the period
Other comprehensive income
Reclassification into the statement of income
Tax on other comprehensive income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
–
–
–
–
–
–
–
2
–
Balance at December 31, 2010
467
–
–
–
–
–
–
–
–
2
–
2
–
–
–
–
–
–
–
7
–
9
(49)
–
8
40
(5)
43
–
–
–
–
(6)
–
47
3
(15)
35
–
–
–
–
29
–
–
7
–
–
7
–
–
–
–
7
–
–
–
–
–
–
–
–
–
7
(1,130)
–
388
(2)
(33)
353
–
–
–
–
8,179
285
–
–
–
285
(395)
15
–
–
7,463
285
403
38
(38)
688
(395)
15
4
–
450
77
(3)
–
–
74
(59)
–
–
5
7,913
362
400
38
(38)
762
(454)
15
4
5
(777)
8,084
7,775
470
8,245
–
774
(20)
(20)
734
–
–
–
–
754
–
–
–
754
(320)
27
–
(30)
754
821
(17)
(35)
1,523
(320)
27
9
(30)
(43)
8,515
8,984
83
73
–
–
156
(83)
–
–
(18)
525
837
894
(17)
(35)
1,679
(403)
27
9
(48)
9,509
AkzoNobel Report 2010 | Financial statements | Consolidated statement of changes in equity
89
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
Group revenue
EBITDA 1
Amortization and
depreciation
Incidentals
Operating income
2009 2
133
433
422
(133)
855
2010
275
487
604
(147)
1,219
2010
(68)
(53)
(75)
41
(155)
2010
19
5
16
10
50
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2009 2
4,546
4,082
4,336
64
2010
4,931
4,752
4,915
42
2009 2
4,573
4,112
4,359
(16)
2010
4,968
4,786
4,943
(57)
2009 2
487
594
738
(129)
13,028
14,640
13,028
14,640
1,690
2010
548
647
939
(170)
1,964
2009 2
(189)
(102)
(248)
(20)
(559)
2010
(205)
(107)
(260)
(18)
(590)
2009 2
(165)
(59)
(68)
16
(276)
In € millions
Invested capital
Total assets
Total liabilities
Capital expenditures
Impairment
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
2009 2
6,206
1,817
3,106
603
2010
6,404
2,122
3,457
735
2009 2
7,630
2,969
4,100
4,181
2010
8,167
3,550
4,618
3,759
11,732
12,718
18,880
20,094
2009 2
2,042
993
953
6,647
10,635
2010
2,222
1,242
1,110
6,011
10,585
2009 2
112
61
319
21
513
2010
154
87
273
20
534
2009 2
13
4
37
9
63
Revenue by region
of destination
Intangible assets
and property,
plant and equipment
Capital expenditures
2009 2
792
1,088
423
768
3,095
2,600
1,147
997
1,585
533
2010
803
1,160
468
798
3,398
2,954
1,394
1,249
1,780
636
2009
1,079
885
422
1,242
2,174
2,265
765
1,013
905
112
2010
1,035
710
461
1,250
2,290
1,993
778
1,238
821
116
13,028
14,640
10,862
10,692
2009 2
104
19
37
22
69
55
30
143
27
7
513
2010
84
22
19
28
83
63
30
147
48
10
534
1 EBITDA is operating income before incidentals and amortization/depreciation.
2 Restated to present National Starch as a discontinued operation.
90
Segment information | Financial statements | AkzoNobel Report 2010
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 Nether-
lands. 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 require-
ments included in Section 9 of Book 2 of the Netherlands Civil
Code, as far as applicable.
On February 16, 2011, 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 compa-
nies 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. Non-
controlling interests in equity and in results are presented
separately. Transactions between consolidated companies
and intercompany balances are eliminated. Accounting poli-
cies, 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 reclassification
We adopted the IFRS 3 (revised) “Business Combinations”
and the consequential amendment to IAS 27 “Consolidated
and Separate Financial Statements”, IAS 28 “Investments in
Associates” and IAS 31 “Interests in Joint Ventures” prospec-
tively for business combinations for which the acquisition date
is on or after January 1, 2010. These standards introduced
changes in the accounting for business combinations that
will impact the amount of goodwill recognized and the results
reported in the period of acquisition and thereafter:
consequence, the statements of income and cash flows have
been restated.
• Acquisition related costs are expensed as incidental
item on the line other operating income/(expenses) in
the statement of income and no longer form part of the
acquisition cost
• For each business combination, the non-controlling
interest is now measured either at fair value or at
the proportionate share in the identifiable assets of
the acquired company. Under the old IFRS 3, the
non-controlling interest (formerly known as minority
interest) was measured at the proportionate share in the
identifiable assets of the acquired company
• If a business combination is achieved in stages, the
acquisition date fair value of the previously held equity
interest in the acquired company (still an associate or
joint venture before this acquisition date) is remeasured
to fair value at the acquisition date through the statement
of income. Previously, business combinations achieved
in stages were accounted for as separate steps. Any
additional acquired share of interest did not affect earlier
recognized goodwill
• Any contingent consideration to be transferred will
be recognized at fair value at the acquisition date.
Subsequent changes to the fair value of the consideration,
which is deemed to be an asset or a liability, will be
recognized in accordance with IAS 39, generally in the
statement of income. Under the old IFRS 3, contingent
consideration was recognized, if and only if, the company
had a present obligation and the economic outflow
was probable and a reliable estimate was determinable.
Subsequent adjustments were recognized as part
of goodwill
• The effects of all transactions with non-controlling interests
are recorded in equity if there is no change in control;
these transactions will no longer result in goodwill.
We made reclassifications in the 2009 figures to align to
our 2010 structure and presentation. This resulted in limited
reclassifications between the Business Areas which did not
impact profit for the period. We divested National Starch
and reclassified its results into discontinued operations. As a
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 within one year 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.
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
91
The most critical accounting policies involving a higher degree
of judgment and complexity in applying principles of valua-
tion 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 signifi-
cant judgments on future cash flows to be generated. The fair
value of brands, patents and customer lists acquired in a busi-
ness combination is estimated on generally accepted valua-
tion 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 esti-
mated 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 property, plant and equipment are recoverable. In this
assessment, we make significant judgments and estimates to
determine if the future cash flows expected to be generated
by those assets are less than their carrying value (value in use).
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 jurisdic-
tions 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 consoli-
dated 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 depen-
dent 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 provi-
sions for environmental matters are based on the nature and
seriousness of the contamination, as well as on the technolo-
gy 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 termina-
tion benefits and exit costs also involve management’s judg-
ment in estimating the expected cash outflows for severance
payments and site closures 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 obli-
gations 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 trans-
lated at transaction rates. Exchange rate differences affect-
ing 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, as long 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. Acqui-
sition of non-controlling interests are reported in cash from
financing activities. Cash flows from derivatives are recog-
nized in the statement of cash flows in the same category as
those of the hedged items.
Earnings per share
We present basic and diluted earnings per share (EPS) for
our common shares. Basic EPS is calculated by divid-
ing 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 dilu-
tive common shares, which comprise of stock options and
performance-related shares granted to employees.
Operating segments
We determine and present operating segments (“Business
Areas”) on the information that internally is provided to the
Board of Management, the body that was our chief operating
decision maker during 2010. 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 have been
reviewed regularly by the Board of Management to make deci-
sions 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 items 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 func-
tional currency using the foreign exchange rate at transaction
date. Monetary assets and liabilities denominated in foreign
92
Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
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 functional 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 component (cumulative translation
reserves) within
income. These
other comprehensive
cumulative translation adjustments are reclassified (either fully
or partly) to the statement of income upon disposal (either
fully or partly) or liquidation of the foreign subsidiary to which
the investment or the intercompany loan with a per manent
nature relates to. Before being consolidated, the financial
statements of subsidiaries established in hyperinflationary
countries are adjusted for the effects of changing prices of
the local currency.
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.
Exchange rates of key currencies
The principal exchange rates against the euro used in
preparing the balance sheet and the statement of income are:
Balance sheet
Statement of income
US dollar
Pound sterling
Swedish krona
CNY
2009
1.440
0.893
10.268
9.832
2010
1.333
0.861
8.972
8.785
2009
1.394
0.890
10.608
9.526
2010
1.328
0.858
9.537
8.982
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 with respect to 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.
consideration is given to any minimum funding requirements
that apply to any plan. An economic benefit is available if it is
realizable during the life of the plan, or on the settlement of
the plan liabilities.
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 related 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 with reference to employee service
in previous years.
Actuarial gains and losses that arise in calculating our
obligation with reference to a plan, are recognized to the
extent that any cumulative unrecognized actuarial gain or loss
exceed 10 percent of the 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 improve, the portion of the increased
benefits related 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.
We recognize gains and losses on the curtailment or
settlement of a defined benefit plan when the curtailment or
settlement occurs. The gain or loss on curtailment comprises
any resulting change in the fair value of plan assets, change in
the present value of defined benefit obligation and any related
actuarial gains and losses and past service cost that had not
previously been recognized.
When the calculation results in a benefit to AkzoNobel, the
recognized asset is limited to the total of any unrecognized
past service costs and the present value of economic
benefits available in the form of any future refunds from
the plan or reductions in future contributions to the plan. In
order to calculate the present value of economic benefits,
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 is rendered. These provisions are
measured at present value, using actuarial assumptions. The
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
93
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 performance-related 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
relative Total Shareholder Return (TSR) performance over a
three-year period compared with the peer group. As from
2009, the conditional grant of shares is linked 50 percent to
the ranking of the company in the Dow Jones Sustainability
Indexes (DJSI) and 50 percent to the relative TSR performance
of the company.
The fair value of the performance-related 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 performance-related
shares. The fair value for the TSR-linked vesting condition is
measured using the Monte Carlo simulation model. The fair
value of the performance-related shares for which vesting is
based on the company’s ranking in the DJSI, is the value of the
Akzo Nobel N.V. common share on the date of the grant. This
Monte Carlo 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 performance-related shares that vest, except
when forfeiture or extra vesting of performance-related shares
is due to a TSR performance that differs from the performance
anticipated at the grant of the performance-related shares,
because this is a market performance condition.
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.
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
with respect to 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. A deferred tax asset is
recognized for unused tax losses, tax credits and deductible
temporary differences, to the extent that it is probable that
future taxable profits will be available against which they
can be utilized. 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 related 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 offset 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 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. For acquisitions before
January 1, 2010, the cost of an acquisition also included
expenses directly attributable to the acquisition. Contingent
consideration was recognized only if the company had a
present obligation and the economic outflow was probable
and a reliable estimate was determinable. For acquisitions
made on or after January 1, 2010, acquisition related
costs are expensed as incidental items on the line other
94
Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
operating income/(expenses) in the statement of income. Any
contingent consideration to be transferred will be recognized
at fair value at the acquisition date. In addition, the effects of
all transactions with non-controlling interests are recorded in
equity if there is no change in control; these transactions will
no longer result in goodwill.
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 of the assets, which generally ranges from 10 to 40 years.
Development costs are capitalized if the costs can be measured
reliably, the related product or process is technically and
commercially feasible, sufficient future economic benefits will
be generated and sufficient resources are available 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 of related assets, 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.
goodwill and then to the carrying amount of the other assets
on a pro rata basis.
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.
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. For goodwill and other intangible
assets with an indefinite life, we have determined this to be
at business unit level (one level below segment). We allocate
impairment losses in respect of cash-generating units first to
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 costs 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 include direct labor
and fixed and variable production overheads, and take into
account the stage of completion. The costs of inventories are
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
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
95
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 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.
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. Except for derivatives, the
initial measurement of financial instruments is 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 the statement of income, unless
cash flow hedge accounting or net investment hedge
accounting is applied. In that case, the effective part of the
fair value changes is deferred in other comprehensive income
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 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.
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.
96
Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
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.
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.
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 borrowings is included in other financing 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
2010 and beyond may be affected.
• An amendment to IFRS 2, “Share-based Payment” which
clarifies how an individual subsidiary in a group should
account for share-based payment arrangements in
its own financial statements became effective in 2010.
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 are effective as from 2010. For information
on the effect of this adoption, reference is made to the
section Change in accounting policies and reclassifications
in this note
• IFRS 9, “Financial Instruments” (replacement of IAS 39)
will become effective as from 2013, with earlier adoption
permitted. IFRS 9 introduced new requirements for
classifying and measuring financial assets and liabilities.
This standard encompasses an overall change of
accounting principles for financial instruments and will
eventually replace IAS 39 – the current standard on
financial instruments. As its scope will be further expanded
during 2011, we will review the effects of a comprehensive
standard on financial instruments and consider adoption
when appropriate
• IASB’s annual improvements project 2009 resulted in
many smaller amendments to several IFRSs effective
as from 2010. They did not materially impact our
consolidated financial statements
• IASB’s annual improvements project 2010 will result in
many smaller amendments to several IFRSs, mostly
effective as from 2011. They are not expected to materially
impact our consolidated financial statements.
• An amendment to IAS 24, “Related Party Disclosures”
clarifies the definition of a related party and provides a
partial exemption from the disclosure requirements for
government-related entities. The revised standard also
clarifies that disclosure is required for 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.
We do not expect that our financial statements will be
materially affected by this amendment
• An amendment to IAS 32, “Financial Instruments:
Presentation” addressing the accounting for rights
issues such as options and warrants, denominated in a
currency other than the functional currency of the issuer
became effective in 2010. Our financial statements are not
affected by the 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 is effective as from 2010. As we
commonly use forward contracts for hedges and do
not have inflation-linked hedge relationships, there is no
material impact from adopting this amendment
• 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 17 “Distribution of Non-cash Assets to Owners”
will apply prospectively as from 2010. There is no impact
on our financial statements as no proposal to distribute
non-cash assets to shareholders has been made
• 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. As there currently do not exist such agreements
within our businesses, we do not expect that our financial
statements will be affected.
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
97
Note 2 Acquisitions and divestments
In 2010, we completed several acquisitions, mainly in Perfor-
mance Coatings. The largest acquisition was related to the
powder coatings activities of the Dow Chemical Company.
We also acquired the Lindgens Metal Decorating Coatings
and Inks business and Changzhou Prime Automotive Paint
Co., Ltd to grow our Car Refinishes business in China.
During 2010, National Starch was classified as a discontin-
ued operation and was sold on October 1, 2010, at a gain of
€53 million. For more information, see note 7.
The acquisitions in 2010, both individually and in total, were
deemed immaterial in respect of the IFRS 3 disclosure require-
ments. Pre-acquisition carrying amounts were not gathered.
The acquisitions in 2010 contributed €155 million to revenue.
Recognized values at acquisition
In € millions
Goodwill
Other intangible assets
Property, plant and equipment
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 identifiable assets and liabilities
Recognized in the statement of income
Consideration paid
Cash and cash equivalents acquired
To be paid in 2011 and later years
Net cash outflow
Powder
coatings
activities
Other
acquisitions
Total
–
9
38
2
32
43
2
(3)
(3)
–
(6)
114
(16)
98
(2)
–
96
7
50
1
–
5
8
1
–
(6)
(1)
(9)
56
–
56
(1)
(8)
47
7
59
39
2
37
51
3
(3)
(9)
(1)
(15)
170
(16)
154
(3)
(8)
143
98
Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 3 Incidentals
Note 4 Other operating income/(expenses)
Note 5 Financing income and expenses
Incidental gains and losses included in
operating income
In € millions
2009
2010
Restructuring costs
Results on acquisitions and
divestments
Results related to major legal, antitrust
and environmental cases
Other incidental results
Total
(349)
48
(38)
63
(276)
(120)
33
(49)
(19)
(155)
During 2010, we continued to restructure:
• In Decorative Paints, mainly in Continental Europe
and the US
In € millions
2009
2010
In € millions
2009
2010
Incidental gains and losses
Results on sale of redundant assets
Currency exchange differences:
– Derivatives
– Loans and receivables
– Other financial liabilities
Other items
Total
42
2
37
(43)
6
8
52
19
3
55
(82)
(4)
38
29
In 2010, the incidental gains and losses relate to the
acquired powder coatings activities, the divestment of a
captive insurance company and environmental costs for a site
in Sweden.
Interest income:
Loans and receivables
Interest expenses:
– Net financing expenses on pensions
and other post-retirement benefits
– Interest rate derivatives
– Other financial liabilities
– Interest on provisions
Fair value changes:
– Interest rate derivatives
– Other financial liabilities
– Other
Total
58
51
(171)
10
(245)
(54)
(14)
12
(1)
(405)
(100)
14
(253)
(39)
16
(15)
(1)
(327)
The net financing charges for the year decreased by
€78 million from €405 million to €327 million, due to decreased
financing expenses on pensions (€71 million mainly due to
higher returns on plan assets). In addition:
• Interest on provisions decreased by €15 million due
to lower discount rates
• Interest on other financial liabilities increased by €8 million
due to higher cost of bonds refinanced in 2009.
A reduction of €10 million (2009: €6 million) was included in
the interest expenses due to the capitalization of financing
expenses of capital investment projects under construction.
The average interest rate, used for capitalization of borrowing
cost was 6.4 percent.
• In Performance Coatings, we closed several sites in
connection with the acquired powder coatings activities
• In Specialty Chemicals, we closed an incinerator
In 2009, the incidental gains reported in other operating
income/(expenses) related mainly to results from acquisitions
and divestments (PTA Pakistan, LII Europe).
in Rotterdam.
Apart from restructuring costs, we incurred €32 million
environmental costs for a site in Sweden. We reported gains in
connection with the acquired powder coatings activities and
the divestment of a captive insurance company.
Restructuring costs
In € millions
2009
2010
Decorative Paints
Performance Coatings
Specialty Chemicals
Other
Total
(158)
(55)
(99)
(37)
(349)
Incidentals per cost category
In € millions
2009
2010
Cost of sales
Selling expenses
Research and development expenses
General and administrative expenses
Other operating income/(expenses)
(144)
(94)
(8)
(63)
33
(65)
(37)
(24)
6
(120)
(126)
(43)
(1)
(13)
28
Total
(276)
(155)
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
99
Note 6 Income tax
Pre-tax income (including the share in profit of associates and
joint ventures) amounted to a profit of €917 million (2009:
profit €471 million). Tax benefits/(charges) are included in the
statement of income as follows:
The 2010 net tax charge of €170 million (2009: €141 million)
related to continuing operations only. The total tax charge,
including discontinued operations was €193 million (2009:
€140 million).
Classification of current and deferred tax result
In € millions
2009
2010
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 unrecognized
Total
(188)
23
(165)
16
14
(6)
24
(141)
(245)
59
(186)
(12)
6
22
16
(170)
The impact of the non-refundable withholding tax is depen-
dent on the relative share of our profit from countries that levy
withholding tax on dividends. This relative share is expected
to increase in the coming years. Based on the Dutch tax
system there is only a limited credit for such taxes.
Income tax recognized directly in equity
In € millions
2009
2010
Current tax for:
– Currency exchange differences
on intercompany loans of a
permanent nature
Deferred tax for:
– Share-based compensation
– Hedge accounting
– Other
Total
(33)
(16)
(33)
(8)
(5)
(1)
(14)
(47)
(16)
(3)
(15)
(4)
(22)
(38)
Effective consolidated tax rate
in %
2009
2010
Corporate tax rate in the Netherlands
Effect of lower tax rates in certain
countries
Tax exempt income/non-deductible
expenses
Non-taxable income from investment
in associates and joint ventures
Changes in enacted tax rates
(reductions in tax rate)
Recognition of previously
unrecognized tax losses
Current year losses for which no
deferred tax asset was recognized
Current year profits compensated with
losses for which no deferred tax asset
was recognized
Under/(over)-provided in prior years
Non-refundable withholding taxes
Other
Effective consolidated tax rate
25.5
(0.2)
9.3
(1.1)
(3.1)
–
1.7
(0.3)
(5.0)
3.7
(0.6)
29.9
25.5
(1.0)
2.7
(0.7)
(0.7)
(1.0)
0.5
(2.0)
(6.4)
2.0
(0.4)
18.5
In 2010 the effective tax rate was 18.5 percent (2009: 29.9
percent). The tax rate is low because of several adjustments
to previous years, partly related to settlements with tax
authorities. Furthermore, there were tax-exempt gains related
to acquisitions and divestments and part of a not recognized
capital loss was used.
In 2009, the tax rate was impacted by several adjustments
on previous years, tax exempt income items and non-
deductible expenses.
The worldwide trend of decreasing tax rates has a diminish-
ing 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 2011 and/or
later. In addition, changes in the geographical mix of taxable
income affected the tax burden.
100 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Tax in the balance sheet
Current tax assets of €108 million (2009: €102 million) repre-
sent the amount of income taxes recoverable in respect of
current and prior periods. Current tax liabilities of €456 million
(2009: €507 million) relate to the amount of taxes payable for
current and prior periods.
In the deferred tax asset for other provisions (€360 million),
an amount of €210 million (2009: €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 carry forward period are revised.
From the total amount of recognized deferred tax assets,
€515 million (2009: €652 million) is related to entities
that have suffered a loss in either 2010 or 2009 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 tempo-
rary differences.
At December 31, 2010, the loss carryforwards expire as follows:
Loss carryforwards recognized in the balance sheet
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
benefits
– Restructuring
– Other provisions
Other items
Net loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
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
68
64
33
22
11
292
17
360
143
809
(408)
1,411
(617)
794
2010
781
160
5
20
–
158
3
29
50
–
–
1,206
(617)
589
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
2009
2010
220
43
113
376
257
29
122
408
In € millions
2011
2012
2013
2014
2015
Later
Unlimited
Total
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total
16
(7)
9
15
(8)
7
787
(746)
41
36
(16)
20
29
(18)
11
461
(14)
447
1,330
(27)
2,674
(836)
1,303
1,838
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
101
Note 7 Discontinued operations
On October 1, 2010, we completed the divestment of National
Starch at a gain of €53 million. The operating results for 2010
were €74 million. For 2010, we also incurred €37 million related
to further settlements and tax-related costs from the divest-
ments of the businesses sold to Henkel in 2009. In total, we
reported a gain from discontinued operations of €90 million.
Profit from discontinued operations
In € millions
Revenue
Expenses
Results from operating activities
Income tax
Results from operating activities
after tax
Gain on the sale of National Starch
Income tax on the sale
Results related to discontinued
operations in previous years
Tax on results related to discontinued
operations in previous years
Profit for the period 1
Net cash form operating activities
Net cash from investing activities 2
Net cash from financing activities
Net cash from discontinued
operations
2009
2010
878
(866)
12
13
25
–
–
41
(34)
32
777
(667)
110
(36)
74
56
(3)
(53)
16
90
2009
2010
19
–
–
19
40
1,051
4
1,095
1 All attributable to the shareholders of the company.
2 Proceeds divestment National Starch included for €1,076 million.
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 2009
In € millions
Net balance
January 1,
2009
Changes in
exchange
rates
Acquisitions/
divestments
Recognized
in income
Recognized
in equity
Net balance
December
31, 2009
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based payments
Provisions:
– Pension liabilities and other
post-retirement benefits
– Restructuring
– Other provisions
Other items
Net operating loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
(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
Movement in deferred tax in 2010
In € millions
Net balance
January 1,
2010
Changes in
exchange
rates
Acquisitions/
divestments
Recognized
in income
Recognized
in equity
Net balance
December
31, 2010
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based payments
Provisions:
– Pension liabilities and other
post-retirement benefits
– Restructuring
– Other provisions
Other items
Net operating loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
(704)
(189)
25
8
15
243
28
282
102
685
(376)
119
(64)
(15)
1
–
–
16
1
23
7
36
(31)
(26)
85
9
2
–
–
(1)
–
23
–
–
–
118
(30)
99
–
(2)
(1)
(124)
(15)
3
(1)
88
(1)
16
–
–
–
(4)
(3)
–
–
–
(15)
–
–
(22)
(713)
(96)
28
2
11
134
14
331
93
809
(408)
205
102 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 8 Employee benefits
Balance National Starch at divestment date
Salaries, wages and other employee benefits
In € millions
2010
In € millions
2009
2010
Intangible assets
Property, plant and equipment
Financial non-current assets
Inventories
Receivables
Non-current liabilities and provisions
Current liabilities
Net assets and liabilities
Cash received
Cash disposed of
Net cash inflow
Deal result National Starch
In € millions
2010
Net cash inflow
Net assets and liabilities
Liabilities assumed and costs allocated to the deal
Realization cumulative translation reserves
Deal result
563
401
8
157
198
(189)
(169)
969
1,133
(57)
1,076
1,076
(969)
(73)
19
53
Salaries and wages
Pension and other post-
retirement cost
Other social charges
Total
Employees
(2,176)
(320)
(459)
(2,955)
(2,204)
(316)
(460)
(2,980)
Average number during the year
2009
2010
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
22,900
20,200
11,400
1,800
56,300
21,800
20,600
11,100
1,600
55,100
At year-end 2010, we employed 55,590 staff for ongoing
activities (year-end 2009: 54,740 employees). The net
increase was due to:
• A net increase of 870 due to acquisitions and divestments,
mainly from the acquired powder coatings activities
(670 employees)
• A decrease of 1,770 employees due to ongoing
restructuring
• An increase of 1,750 employees due to new hires and
other changes
The average number of employees working outside the
Netherlands was 50,100 (2009: 51,200).
Performance-related shares
Salaries, wages and other employee benefits
per cost category
In € millions
2009
2010
Cost of sales
Selling expenses
Research and development expenses
General and administrative expenses
Net financing expenses related to
pensions and other post-retirement
benefits
(850)
(1,035)
(201)
(698)
(171)
(978)
(1,109)
(206)
(587)
(100)
Total
(2,955)
(2,980)
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 2010 statement
of income for share-based compensation amounted to
€30 million and are included in salaries and wages (2009:
€23 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 2010 was 589 (2009: 579). 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 perfor-
mance over the period January 1, 2008, until December
31, 2010, resulted in an 11th position within the ranking of
Series
2007 – 2009
2008 – 2010
2009 – 2011
2010 – 2012
Total
Balance at
January 1,
2010
Granted in
2010
Vested in
2010
Forfeited in
2010
Dividend in
2010 1
Balance at
December
31, 2010
Vested on
January 1,
2011
943,654
554,640
1,172,691
–
2,670,985
–
–
–
742,274
742,274
(943,654)
–
–
–
–
(554,640)
(30,728)
(9,441)
–
–
–
–
33,270
1,175,233
22,351
755,184
(943,654)
(594,809)
55,621
1,930,417
–
–
–
–
–
1 Equivalent in shares related to accumulated dividend, which is included in the balances on balance sheet date.
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
103
the peer group companies. The vesting percentage of the
2008 grant amounted to zero percent (series 2007-2009:
150,78 percent including dividend shares).
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 share plan 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 €46.24 per perfor-
mance-related shares conditionally granted in 2010 (2009:
€26.39). The 2010 charge recognized for performance-relat-
ed shares aggregated €29 million (2009: €21 million).
The shares of the series 2007 – 2009 have vested and were
delivered to the participants in 2010. The share price of a
common AkzoNobel share at December 31, 2010, amounted
to €46.49 (2009: €46.40).
For further details on our performance-related share plan,
see page 71.
Outstanding unconditional stock options 1
Year of issue
Exercise
price in €
Outstanding
per January
1, 2010
Exercised in
2010
Forfeited in
2010
Expiry date
Outstanding
at December
31, 2010
2001
2002
2003
2004
2005
2006
2007
Total
46.75
46.53
19.51
31.45
31.98
46.46
58.89
51,322
107,250
91,751
279,900
406,487
458,771
502,369
–
–
(91,751)
(77,700)
(109,531)
(450)
–
–
–
–
–
(375)
(6,862)
51,322
April 30, 2011
107,250
April 25, 2012
–
April 22, 2010
202,200
April 25, 2011
296,581
April 24, 2012
451,459
April 26, 2013
–
502,369
April 26, 2014
1,897,850
(279,432)
(7,237)
1,611,181
Number and weighted average exercise
price stock options
Number of
options
Weighted
average
exercise
price in €
Balance at January 1, 2009
2,259,618
Forfeited during the period
Expired
Exercised during the period
(29,155)
(196,040)
(136,573)
Balance at December 31, 2009
1,897,850
Forfeited during the period
Exercised during the period
(7,237)
(279,432)
Balance at December 31, 2010
1,611,181
42.37
43.93
46.53
25.37
43.14
45.71
27.76
45.80
1 Including the Board of Management.
Stock option plans
Prior to 2008, performance-related stock options were
granted to members of the Board of Management and exec-
utives. 2007 was the last year in which stock options were
granted. We currently do not purchase own shares in connec-
tion 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 with
the nominal value of €2. 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 (ADR’s) a total of 23,000
option rights, to exchange for Akzo Nobel N.V. shares, remain
outstanding at year-end (2009: 51,540). The stock options
are equity-settled and all exercisable. 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 unconditionally entitled to the
options. The total cost in 2010 for the stock options was
€ 1 million (2009: €2 million).
For stock options exercised during 2010, the weighted
average of the actual share price at date of exercise amounted
to €44.00 (2009: €38.59). A number of 1.1 million outstanding
stock options are antidilutive and could potentially dilute basic
earnings per share in the future.
104 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 9 Intangible assets
In € millions
Goodwill
Brands
Customer
lists
Other
intangibles
Total
Balance at January 1, 2009
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
Movements in 2009
Acquisitions through business combinations
Other investments – including internally developed
intangibles
Amortization 1
Impairments 1
Changes in exchange rates
Total changes
Balance at December 31, 2009
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2009
Movements in 2010
Acquisitions through business combinations
Other investments – including internally developed
intangibles
Divestments 2
Amortization 1
Changes in exchange rates
Total changes
Balance at December 31, 2010
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2010
1 Including amortization of National Starch.
2 Mainly National Starch.
4,822
2,247
1,253
–
(1,258)
3,564
–
(100)
2,147
–
(139)
1,114
33
–
–
–
106
139
4
–
(16)
–
91
79
47
1
(106)
–
28
(30)
5,063
2,338
1,334
–
(1,360)
3,703
–
(112)
2,226
7
–
(84)
–
193
116
3
1
(60)
(20)
173
97
–
(250)
1,084
40
1
(313)
(102)
109
(265)
4,834
2,465
1,168
–
(1,015)
3,819
–
(142)
2,323
–
(349)
819
345
32
(30)
347
10
41
(37)
(9)
23
28
473
39
(137)
375
16
64
(107)
(39)
38
(28)
452
46
(151)
347
8,667
32
(1,527)
7,172
94
42
(159)
(9)
248
216
9,208
39
(1,859)
7,388
66
66
(564)
(161)
513
(80)
8,919
46
(1,657)
7,308
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
105
Other intangibles include licenses, know-how, intellectual
property rights and development cost. Both at year-end 2010
and 2009, there were no purchase commitments for individ-
ual intangible assets. No intangible assets were 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 impair-
ment trigger exists. In 2010, no impairment was recorded for
any business unit (2009: no impairment).
Amortization and impairment charges per cost category
In € millions
Amortization
Impairment
Total
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Discontinued operations
Total
2009
(6)
(99)
(24)
(6)
–
(24)
(159)
2010
(7)
(106)
(36)
(6)
–
(6)
(161)
2009
2010
–
–
–
–
(8)
(1)
(9)
–
–
–
–
–
–
–
2009
(6)
(99)
(24)
(6)
(8)
(25)
(168)
2010
(7)
(106)
(36)
(6)
–
(6)
(161)
The impairment test is based on cash flow projections of
the five-year plan. The key assumptions used in the projec-
tions are:
Goodwill and other intangibles per segment
In € millions
Goodwill
Brands with indefinite
useful lives 1
Other intangibles with finite
useful lives
• 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.
Decorative Paints
Performance Coatings
Specialty Chemicals
Discontinued operations
Total
2009
2,515
529
581
78
2010
2,556
621
642
–
2009
1,760
–
–
56
2010
1,874
–
26
–
2009
798
213
464
394
2010
783
295
511
–
3,703
3,819
1,816
1,900
1,869
1,589
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 indefinite.
Average revenue growth rates per forecast
period per Business Area
In %/year
2011 – 2015 2016 – 2020
Decorative Paints
Performance Coatings
Specialty Chemicals
7.7
5.8
3.6
5.1
3.6
2.7
Revenue growth and margin development projections are
extrapolated beyond this five-year explicit forecast period for
another five years with reduced growth rates.
For virtually all business units, a terminal value was calcu-
lated 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 8.5 percent to
20.4 percent, with an average of 10.5 percent.
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 differ-
ent outcome of the impairment test for the vast majority of
our businesses.
106 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 10 Property, plant and equipment
In € millions
Buildings
and land
Other
equipment
Plant,
equipment
and
machinery
Total
Construction
in progress
and
prepayments
on projects
Assets not
used in the
production
process
Balance at January 1, 2009
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
Movements in 2009
Acquisitions through business combinations
Divestments
Capital expenditures 1
Transfer between categories
Depreciation 1
Impairment 1
Changes in exchange rates
Total changes
Balance at December 31, 2009
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2009
Movements in 2010
Acquisitions through business combinations
Divestments 2
Capital expenditures 1
Transfer between categories
Depreciation 1
Impairment 1
Changes in exchange rates
Total changes
Balance at December 31, 2010
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2010
2,146
(909)
1,237
4,875
(3,181)
1,694
15
(6)
65
13
(82)
(18)
24
11
35
(19)
400
9
(327)
(36)
40
102
2,243
(995)
1,248
5,303
(3,507)
1,796
19
(184)
114
(11)
(81)
(2)
92
(53)
19
(252)
381
11
(311)
(26)
128
(50)
2,254
(1,059)
1,195
5,654
(3,908)
1,746
627
(458)
169
3
(3)
46
(26)
(48)
–
5
(23)
623
(477)
146
–
(3)
54
3
(50)
(1)
7
10
664
(508)
156
250
–
250
–
(2)
22
–
–
–
4
24
274
–
274
–
(10)
7
(2)
–
–
10
5
279
–
279
22
(15)
7
–
(1)
1
4
(1)
–
–
3
32
(22)
10
–
(1)
–
(1)
–
–
–
(2)
33
(25)
8
7,920
(4,563)
3,357
53
(31)
534
–
(458)
(54)
73
117
8,475
(5,001)
3,474
38
(450)
556
–
(442)
(29)
237
(90)
8,884
(5,500)
3,384
1 Including National Starch.
2 Mainly National Starch. .
In 2010, impairment charges have been recognized for an
amount of €29 million (2009: €54 million). The impairment
charges have been recognized in the cost of sales. The
impairment charges related to restructuring activities in,
among others, the US, the Netherlands, Germany, France and
Sweden. The carrying value of the property, plant and equip-
ment financed by hire purchase and leasing and not legally
owned by the company was €13 million (2009: €17 million),
€9 million of which related to buildings and land, €1 million to
plant and equipment and machinery and €3 million to other
equipment. Purchase commitments for property, plant and
equipment totaled €47 million (2009: € 60 million).
Depreciation per cost category
In € millions
2009
2010
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Discontinued operations
Total
(290)
(67)
(53)
(14)
(34)
(306)
(68)
(48)
(13)
(7)
(458)
(442)
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
107
Note 11 Investments in associates and joint ventures
At year-end 2010, the carrying value of investments in associ-
ates amounted to €74 million (2009: €79 million) and in joint
ventures €98 million (2009: €96 million).
Summary of financial information on a 100 percent basis
In € millions
Associates
Joint ventures
In 2010, the results from associates and joint ventures
amounted to a profit of €25 million (2009: €21 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).
Information on the statement of income:
2009
2010
2009
2010
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
95
17
6
185
25
210
71
29
110
210
121
17
11
113
124
237
44
29
164
237
600
43
32
60
205
265
–
74
191
265
594
47
34
182
218
400
115
88
197
400
108 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 12 Other financial non-current assets
Note 13 Inventories
Note 14 Trade and other receivables
In € millions
2009
2010
In € millions
2009
2010
In € millions
2009
2010
Loans and receivables
Interest rate derivatives
Other than financial instruments
Total
374
27
414
815
368
–
640
1,008
Raw materials and supplies
Work in progress
Finished products and goods
for resale
Inventory prepayments
Total
The loans and receivables include the subordinated loan of
€83 million granted to the AkzoNobel Pension Fund (APF)
in the Netherlands and the non-current part of an escrow
account of the AkzoNobel (CPS) pension scheme in the
UK amounting to €158 million, invested in bonds and cash.
Under certain conditions, the minimum annual funding of this
pension fund is £25 million (€28 million).
Other financial non-current assets include an amount of
€448 million related to pension plans in an asset position
(2009: €218 million).
Of the total carrying value of inventories at year-end 2010,
€53 million is measured at net realizable value (2009:
€83 million). In 2010, €22 million was recognized in the
statement of income for the write-down of inventories
(2009: €32 million), while €8 million of write-downs was
reversed (2009: €10 million). There are no inventories subject
to retention of title clauses. During 2010, an amount of
€8.4 billion including direct employee benefits, depreciation
and amortization was recognized as costs of goods sold, out
of finished goods (2009: €7.6 billion).
407
73
957
4
1,441
481
80
Trade receivables
Prepaid expenses
1,113
Tax receivables other than income tax
4
1,678
Receivables from associates and
joint ventures
Forward exchange and commodity
contracts
Other receivables
Discounted portion
Total
1,890
2,105
130
116
36
28
382
2,582
(18)
2,564
122
135
43
34
349
2,788
–
2,788
Trade receivables are presented net of an allowance for impair-
ment of €114 million (2009: €133 million). In 2010, €33 million
of impairment losses were recognized in the statement of
income (2009: €46 million).
Ageing of trade receivables
In € millions
2009
2010
Performing accounts receivable
1,592
1,843
Past due accounts receivable 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
262
19
6
2
6
136
(133)
1,890
226
14
4
2
2
128
(114)
2,105
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.
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
109
Note 15 Cash and cash equivalents
Note 16 Equity
Allowance for impairment of trade receivables
In € millions
2009
2010
In € millions
2009
2010
Opening balance
Additions charged to income
Release of unused amounts
Utilization
Acquisitions/divestments
Currency exchange differences
Closing balance
137
46
(17)
(39)
1
5
133
133
33
(22)
(40)
–
10
114
The additions to and release of the allowance for impair-
ment have been included in the statement of income under
selling expenses.
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 receiv-
ables. We do not have a significant customer concentration.
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
1,171
957
2,128
(209)
1,919
1,302
1,549
2,851
(168)
2,683
Short-term investments almost entirely consist of cash loans,
time deposits, marketable private borrowings and marketable
securities immediately convertible into cash. For more infor-
mation on credit risk management, see note 24.
At December 31, 2010, an amount of €143 million in cash and
cash equivalents was restricted. Restricted cash is defined as
cash that cannot be accessed centrally due to regulatory or
contractual restrictions and mainly related to insurance.
Subscribed share capital
The holders of common shares are entitled to receive divi-
dends 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 Nether-
lands, whichever is lower, plus any accrued and unpaid divi-
dends. They are entitled to 200 votes per share (in accor-
dance 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 desig-
nated 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 exercis-
ing voting rights. The Annual General Meeting of shareholders
has in 2010 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.
110 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Cumulative translation reserves comprise all foreign exchange
differences arising from the translation of the financial state-
ments 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 €20 million negative
(2009: €33 million negative).
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 have announced a simplified dividend policy and intend
to pay a stable to rising dividend, whereby a cash interim
and final dividend will be paid. We will propose to the Annual
General Meeting on April 27, 2011, a 2010 final dividend of
€1.08 per share, which would make a total 2010 dividend of
€1.40 per share (2009:€1.35). During 2010, we paid the 2009
final dividend of €1.05 and the 2010 interim dividend of €0.32.
Composition of share capital at year-end
In €
Authorized
share capital
Subscribed
share capital
Of the shareholders’ equity of €9.0 billion, an amount of
€8.2 billion (2009: €7.1 billion) was unrestricted and available
for distribution – subject to the relevant provisions of our Arti-
cles of Association and Dutch law.
19,200
19,200
Unrestricted reserves at year-end
400,000,000
–
In € millions
2009
2010
Priority shares (48 with nominal
value of €400)
Cumulative preferred shares (200
million with nominal value of €2)
Common shares (600 million with
nominal value of €2)
1,200,000,000 467,060,908
Total
1,600,019,200 467,080,108
Outstanding common shares
Number of shares
2009
2010
Outstanding at January 1
231,664,187 232,253,633
Issued in connection to stock options
exercised and performance-related
shares granted
589,446
1,276,821
Balance at year-end
232,253,633 233,530,454
We held no common shares at year-end 2010 or 2009.
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
2009
2010
Issued common shares at January 1
231,664,187 232,253,633
Effect of:
Issued common shares during
the year
Shares for basic earnings per share
for the year
Effect of dilutive shares:
For stock options
405,258
974,699
232,069,445 233,228,332
264,013
191,601
For performance-related shares
2,484,787
1,189,146
Shares for diluted earnings
per share
234,818,245 234,609,079
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
Cash flow hedge reserve
Unrestricted reserves
7,775
(465)
(152)
(77)
(7)
(8)
–
8,984
(467)
(149)
(77)
(7)
(16)
(29)
7,066
8,239
At the Annual 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 cumu-
lative preferred shares to €2. As the revised nominal values
are somewhat lower than the original par values, in accor-
dance 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 €16 million for capitalized development costs, as
well as the reserves relating to earnings retained by subsidiar-
ies, 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. Tax related to cash flow hedges was
€15 million negative (2009: €5 million negative).
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
111
Note 17 Provisions
Movements in provisions
In € millions
Pensions and
other post-
retirement
benefits
Restructuring
of activities
Environmental
costs
Other
Total
Balance at January 1, 2010
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, 2010
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2010
1,439
187
(555)
–
–
(59)
229
40
1,281
1,066
215
1,281
226
94
(178)
(15)
2
(1)
–
9
137
23
114
137
352
59
(35)
(4)
21
(1)
–
27
419
374
45
419
699
70
(155)
(42)
19
(6)
–
26
611
392
219
611
2,716
410
(923)
(61)
42
(67)
229
102
2,448
1,855
593
2,448
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 coun-
tries 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 securi-
ties and real estate. Valuations of the obligations under the
pension and other post-retirement plans are carried out regu-
larly 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 change in 2010 related to our pension and other
post-retirement obligations was the divestment of National
Starch, which is included within the acquisition/divestment/
transfers line of the table on the next page. The figures
included in relation to National Starch divestment were a
€179 million reduction in the pension defined benefit obliga-
tion, a €90 million reduction in pension plan assets and an
€11 million reduction in the other post-retirement benefit
defined benefit obligation. Together with €40 million of unrec-
ognized actuarial losses that were recognized as part of
the divestment, the net balance sheet liability reduction for
pensions and other post-retirement benefits was therefore
€60 million.
112 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Movements in defined benefit obligation and plan
assets of pensions and other post-retirement benefits
In € millions
Pensions
Other post- retirement
benefits
Defined benefit obligation
Balance at beginning of year
Acquisitions/divestments/transfers
Curtailments
Settlements
Past service costs
Current service costs
Contribution by employees
Interest costs
Benefits paid
Actuarial gains/(losses)
Changes in exchange rates
2009
2010
2009
2010
(11,468)
(13,688)
(441)
(32)
25
197
(28)
(50)
(5)
(746)
943
(1,703)
(821)
192
6
15
(8)
(52)
(3)
(773)
936
(250)
(546)
–
–
–
48
(7)
(3)
(24)
40
(7)
1
(393)
16
–
–
3
(7)
(3)
(20)
34
4
(28)
Defined benefit obligation at year-end
(13,688)
(14,171)
(393)
(394)
Plan assets
Balance at beginning of year
Acquisitions/divestments/transfers
Settlements
Contribution by employer
Contribution by employees
Benefits paid
Expected return on plan assets
Actuarial gains/(losses)
Changes in exchange rates
Plan assets at year-end
Funded status
Unrecognized net loss/(gain)
Unrecognized past service costs
Restriction on asset recognition
Medicare receivable
Net balance sheet provision
Recorded under:
Provisions for pensions and other
post-retirement benefits
Other financial non-current assets
Total
10,480
11,821
31
(217)
414
5
(943)
596
614
841
(105)
(14)
524
3
(936)
691
652
486
11,821
(1,867)
13,122
(1,049)
1,065
637
4
–
–
4
–
–
–
–
–
37
3
(40)
–
–
–
–
–
–
–
31
3
(34)
–
–
–
–
(393)
(394)
(4)
(20)
–
(5)
(6)
(19)
–
(6)
(798)
(408)
(422)
(425)
(1,017)
219
(798)
(856)
448
(408)
(422)
–
(422)
(425)
–
(425)
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
113
Funded and unfunded pension plans
In € millions
2009
2010
Wholly or partly funded plans
Unfunded plans
Total
13,347
341
13,688
13,792
379
14,171
Funded status in earlier years at December 31
In € millions
Pensions
Other post-retirement benefits
Defined benefit obligation
Plan assets
Funded status
2006
(5,760)
3,942
(1,818)
2007
(4,628)
3,502
(1,126)
2008
(11,468)
10,480
(988)
2006
(292)
–
(292)
2007
(286)
–
(286)
2008
(441)
–
(441)
The actuarial gains and losses on the defined benefit obligation and
plan assets over the period 2006 – 2010 break down as follows:
Actuarial gains and losses
In € millions
Pensions
Other post-retirement benefits
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
2
(199)
214
17
90
166
(29)
227
(147)
1,624
(1,445)
32
331
(2,034)
614
(1,089)
(92)
(158)
652
402
74
19
–
93
(3)
6
–
3
(5)
5
–
–
5
(12)
–
(7)
23
(19)
–
4
Defined benefit obligations:
Due to experience
Due to change in assumptions
Plan assets:
Due to experience
Total
Net periodic cost
In € millions
Service costs for benefits earned during the period
Interest costs on defined benefit obligations
Expected return on plan assets
Amortization of unrecognized gains/losses
Amortization of past service costs
Change of restriction of asset recognition
Settlement/curtailment result
Total
Pensions
Other post-retirement
benefits
2009
(50)
(746)
596
(12)
(23)
(1)
21
(215)
2010
(52)
(773)
691
(36)
(7)
–
6
(171)
2009
(7)
(24)
–
–
41
–
–
10
2010
(7)
(20)
–
–
5
–
–
(22)
The remaining plans primarily represent defined contribution
plans. This includes, among others, the AkzoNobel Pension
Fund in the Netherlands. The ITP2 plan in Sweden is financed
through insurance with the Alecta insurance company and is
classified as a multi-employer defined benefit plan. AkzoNobel
does not have access to sufficient information from Alecta to
enable a defined benefit accounting treatment and hence it is
accounted for as a defined contribution plan. Contributions in
2010 were €10 million. Alecta’s target funding ratio in 2010
was 140 percent. The expenses of plans classified as defined
contribution plans in AkzoNobel totaled €136 million in 2010
(2009: €118 million).
114 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Weighted average assumptions
In %
Pensions
Pension benefit 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
Other post-retirement
benefits
2009
2010
2009
2010
5.6
4.6
6.3
3.5
5.2
5.4
4.6
5.6
4.6
5.7
5.3
4.9
6.0
5.3
The table below illustrates the weighted average life expec-
tancy of the persons participating in the defined benefit
pension plans.
on the basis of the outcome of these ALM studies, taking into
account the national rules and regulations.
Life expectancy
In years
At December 31
Currently aged 60:
Male
Female
Currently aged 45, at age 60:
Male
Female
2009
2010
25.3
27.8
26.8
29.1
25.5
27.9
27.0
29.2
Plan assets
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 indi-
vidual scheme has sufficient funds available to satisfy future
benefit obligations. For this purpose so-called asset and liabil-
ity 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
Pension plan assets principally consist of long-term interest-
earning investments, quoted equity securities and real estate.
At year-end 2010 and 2009, plan assets did not include finan-
cial instruments issued by the company, nor any property
occupied or other assets used by it. The weighted average
pension plan asset allocation at year-end 2010 and 2009 and
the target allocation for 2011 for the pension plans by asset
category are as follows:
At year-end 2010, an amount of £160 million (€186 million;
2009: £174 million or €195 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.
Weighted average assumptions for the other post-retirement
benefit plans were as follows:
Plan asset allocation
Assumed healthcare cost trend rates at year-end
In %
Plan assets
at December 31
Target
In %/year
2009
2010
Equity securities
Long-term interest
earning investments
Real estate
Other
Total
2009
17
72
2
9
100
2010
16
73
2
9
100
2011
15 – 18
72 – 75
0 – 3
6 – 9
100
Healthcare cost trend rate
assumed for next year
Rate to which the cost trend rate
is assumed to decline
(the ultimate trend rate)
Year that the rate reaches
the ultimate trend rate
5.8
3.8
6.7
3.8
2015 – 2024 2019 – 2024
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
115
Note 18 Long-term borrowings
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.
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2009
2010
3,276
7
205
3,488
2,684
6
190
2,880
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.
Provisions for environmental costs
For details on environmental exposures, see note 21.
During 2010, the average effective interest rate was 6.14
percent (2009: 5.87 percent).
Other provisions
Other provisions relate to a great variety of risks and commit-
ments, including provisions for antitrust cases, claims, other
long-term employee benefits such as long-service leave and
jubilee payments. At year-end 2010, the provision for antitrust
cases amounted to €158 million (2009: €188 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.
Debt issued
In € millions
2009
2010
4 1/4 % 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
533
347
993
746
259
278
120
–
375
995
748
252
289
25
3,276
2,684
Aggregate maturities of long-term borrowings
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2012 – 2015 After 2015
2,395
2
162
2,559
289
4
28
321
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
benefit obligations
1% point
increase
1% point
decrease
(1)
(12)
1
10
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 spon-
sors of post-retirement healthcare plans, which both began
on January 1, 2006. We have recognized this reimburse-
ment right as an asset under other financial non-current
assets, measured at fair value amounting to €6 million at
December 31, 2010 (December 31, 2009: €5 million).
Cash flows
We expect to contribute €525 million to our defined benefit
pension plans in 2011. This includes additional top-up
payments of £178 million (€206 million) for the ICI Pension
Fund and £85 million (€99 million) for the AkzoNobel (CPS)
Pension Scheme of which £25 million (€29 million) will be paid
out of the escrow account. For other post-retirement benefit
plans the contribution for 2011 is expected to be €32 million.
Expected benefit payments
In € millions
2011
2012
2013
2014
2015
Pensions
Other post-
retirement
953
937
941
948
953
32
32
32
32
32
2016 – 2020
4,875
154
116 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Note 19 Short-term borrowings
Note 20 Trade and other payables
On December 31, 2010 and 2009, the total amount of long-
term credit facilities arranged by AkzoNobel was €1.5 billion,
maturing in 2013. Both at year-end 2010 and 2009, this facil-
ity had not been drawn. On December 31, 2010 and 2009,
none of the borrowings was secured by collateral.
Finance lease liabilities are included in other borrowings and
aggregated €10 million. An amount of €2 million will mature
within one year and €8 million will mature in the period 2012
through 2015.
In € millions
2009
2010
In € millions
2009
2010
Debt to credit institutions
Borrowings from associates and joint
ventures
Current portion of long-term
borrowings
Total
209
61
114
384
168
–
739
907
In June 2011, bonds totaling €0.5 billion will mature and are as
such classified as short-term borrowings.
AkzoNobel has a $1.0 billion commercial paper program in
the US and a €1.5 billion euro commercial paper program. On
December 31, 2010, the commercial paper programs were
not used (2009: € nil). 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.
Suppliers
1,522
1,807
Amounts payable to employees
Derivatives
Non-income taxes and social security
contributions
Prepayments by customers
Dividends
Payable to related parties
Other liabilities
Total
230
112
209
23
17
3
750
2,866
261
137
216
24
20
30
810
3,305
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
117
Note 21 Contingent liabilities and commitments
Environmental matters
We are confronted with substantial costs arising out of envi-
ronmental 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 environ-
mental 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 neces-
sary, as assessments and 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 remedia-
tion, 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.
EU General Court against decisions by the EU Commission
to impose fines on the company for violations of EU competi-
tion laws regarding the following products: Metacrylates and
Heat Stabilizers. Both cases have been provided for. The
total provision for the various antitrust cases at December
31, 2010, amounted to €158 million (2009: €188 million). It
should be understood that, in light of possible future devel-
opments, such as (a) potential additional lawsuits by (direct
or indirect) purchasers, (b) possible future civil settlements,
and (c) rulings or judgments in the appeals with the General
Court or in related civil suits, the antitrust cases may 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.
As stated in note 17, the provisions for environmental
costs accounted for in accordance with the aforesaid poli-
cies aggregated €419 million at year-end 2010 (2009:
€352 million). The provision has been discounted using
an average pre-tax discount rate of 4.1 percent (2009:
4.3 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 mate-
rial 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 – together with others – involved in civil proceed-
ings initiated by Cartel Damages Claims HP SA/NV before
the Dortmund court in Germany in relation to the Hydrogen
Peroxide infringement in the 1990’s. These claims are disput-
ed. Two cases are pending in appeal by the company with the
Other claims and litigation
In 1986, an ICI subsidiary acquired a business that manu-
factured 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 subsid-
iary of the company. The seller, a predecessor of Millennium
Holdings LLC (the “Seller”), now a subsidiary of LyondellBa-
sell 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 of 2010, Glidden
has been dismissed from all of these lawsuits.
Under the sale agreement by which Glidden was acquired,
the Seller agreed to indemnify Glidden against claims relat-
ing 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 has
stated that it continues to defend against a number of lead-
based lawsuits although it asserts that the claims are without
merit. In 2008, the Seller filed suit against Glidden in New York
Supreme Court seeking to establish the alleged indemnifica-
tion obligation. Glidden believes that it has no such obliga-
tion to indemnify the Seller and is defending against the claim.
In 2009, the Seller filed for bankruptcy as part of the bank-
ruptcy of its parent LyondellBasell. An issue has arisen in the
bankruptcy proceeding that could impact the indemnification
claim. Under the 1986 agreement, Seller agreed to indemnify
Glidden for certain environmental obligations. In the bank-
ruptcy proceeding, Seller tried to reject their environmental
indemnification obligations but retain their right to sue under
the alleged lead paint indemnification. In 2010, the bankrupt-
cy judge ruled that the indemnification obligations are part of a
single agreement and Seller must choose to reject or assume
the entire agreement. Seller has appealed the bankruptcy
ruling. We are unable to reliably estimate any possible loss.
The US Army Pensions case reported in previous years was
settled in 2010.
A number of other claims are pending, all of which are
contested. We are also involved in disputes with tax authori-
ties 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 finan-
cial position but could be material to our results of operations
or cash flows in any one accounting period.
118 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
• In recognition of a funding deficit in the J P McDougall
Pension Scheme in the UK, the company has agreed to
make top-up contributions of £2 million in each year to
2018.
During 2010, we considered 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 transac-
tions were effected in 2010. 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 22 Related party transactions
Commitments
Purchase commitments for property, plant and equipment
aggregated €47 million at year-end 2010 (2009: €60 million).
In addition, we have purchase commitments for raw materials
and supplies incident to the ordinary conduct of business, for
a total of €1.0 billion (2009: €1.2 billion).
Long-term commitments contracted in respect of lease-
hold, rental, operational leases, research, etc. aggregated
€605 million at year-end 2010 (2009: €572 million), as follows:
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 transac-
tions were conducted at arm’s length with terms compara-
ble to transactions with third parties. In 2010, a significant
related party transaction was a €166 million gas supply (2009:
€218 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.
In € millions
2009
2010
We have contracts with several pension funds, for which the
financial impact is disclosed in note 17.
Payments due within one year
Payments between one and five years
Payments due after more than five
years
Total
169
289
114
572
168
305
132
605
Maturity of long-term commitments
Guarantees related to investments in associates and joint
ventures totaled €9 million (December 31, 2009: €12 million).
In connection with the Organon BioSciences divestment to
Schering-Plough, AkzoNobel has limited its maximum expo-
sure 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.
• At year-end 2010, AkzoNobel had a loan to the
AkzoNobel Pension Fund in the Netherlands of €83 million
(2009: €90 million)
• In recognition of a funding deficit in the ICI Pension Fund
in the UK, the company has agreed to make top-up
contributions of £178 million in the year 2011, £198 million
in each year from 2012 to 2016 and of £195m in 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 £201 million and the remainder by means of letters
of credit
• In recognition of a funding deficit in the AkzoNobel (CPS)
Pension Scheme in the UK, the company has agreed to
make top-up contributions of £60 million in the year 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 in the ICI Specialty
Chemicals Fund in the UK, the company has agreed to
make top-up contributions of £11 million in the year 2011
and of £5 million in each year from 2012 to 2017
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
119
Note 23 Remuneration of the Supervisory Board
and the Board of Management
Total compensation to key management personnel amount-
ed to €12.9 million (2009: €9,2 million), €7.4 million relates
to short term employee benefits (2009: €5,7 million);
€1.7 million to post-employment benefits (2009: €1,0 million)
and €3.8 million to share-based payments (2009: €2.5 million).
Supervisory Board
In €
Karel Vuursteen, Chairman 1
Maarten van den Bergh 2
Uwe-Ernst Bufe, Deputy Chairman
Virginia Bottomley 1
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans 1
Peter Ellwood 1
Louis Hughes
Total
1 Also member of the Nomination Committee.
2 Until March 5, 2009.
Total
remuneration
Remuneration Attendance
fee
Audit
committee
Remuneration
committee
Nomination
committee
Employer’s
charges
Total
remuneration
Committee allowance fee
2009
115,500
100,000
2,500
19,200
85,500
82,200
77,200
84,700
69,200
80,500
117,200
731,200
–
60,000
50,000
50,000
50,000
50,000
50,000
50,000
460,000
–
15,000
12,500
2,500
17,500
2,500
10,000
30,000
92,500
–
–
–
–
20,000
15,000
–
–
15,000
50,000
–
–
–
10,000
–
–
15,000
10,000
–
15,000
2,300
119,800
2010
–
–
–
–
–
–
–
–
–
2,300
2,300
–
2,300
–
2,300
2,300
–
77,300
74,800
72,500
84,800
67,500
72,300
97,300
35,000
15,000
13,800
666,300
Members of the Supervisory Board receive a fixed remu-
neration: €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.
We do not grant share-based compensation to our Super-
visory Board members, neither do we extend 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.
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of Super-
visory Board members is not dependent on the results of
the company.
Shares held by the members of the Supervisory Board
Number of shares at year-end
2009
2010
Karel Vuursteen
Uwe-Ernst Bufe
Virginia Bottomley
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans
Peter Ellwood
Louis Hughes
400
–
1,758
–
500
–
500
–
400
500
1,758
500
500
500
500
500
120 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
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.
Board remuneration
In €
Salary
Short-term
incentives
Other short-
term benefits
Post-
employment
benefits
Share-based
compensation
Total
remuneration
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning 1
Keith Nichols
Total
1 As from May 1, 2009.
2009
2010
2009
2010
760,000
570,000
570,000
380,000
570,000
765,700
574,300
574,300
574,300
574,300
464,000
1,284,200
339,300
339,300
226,200
339,300
513,000
513,000
513,000
513,000
2,850,000
3,062,900
1,708,100
3,336,200
2009
4,100
2010
4,400
151,900
151,800
2009
2010
2009
2010
2009
2010
458,400
208,600
146,000
88,900
7,100
4,400
213,300
124,700
722,500
272,200
206,900
277,200
204,400
777,600
1,007,000
2,464,100
3,783,800
546,600
546,600
277,600
400,700
741,000
1,816,400
2,252,300
741,000
1,656,300
2,042,300
628,700
975,400
1,997,600
709,000
1,606,100
2,214,000
381,000
1,026,600
1,683,200
2,549,100
3,826,700
8,518,300
12,290,000
54,400
2,700
171,400
384,500
Short-term incentive
The Supervisory Board decided in late 2009 to defer the
receipt of 50 percent of the short-term incentive for the
CEO and 25 percent for the other members. This deferred
payment was made subject to the company achieving its
medium-term target of an EBITDA margin of 14 percent
at the end of 2011. Because this target was achieved in
2010 the Supervisory Board justified the pay-out of the
deferred short-term incentive of 2009 in February 2011.
As a consequence, an amount of €464,000 will be paid to
Mr. Wijers and €113,100 to the other members of the Board
of Management. These amounts are included in the short-
term incentives as mentioned above; the regular short-term
incentive over 2010 amounted to €820,200 for Mr. Wijers and
€399,900 for the other Board members.
Post-employment benefits
Pension premiums were incurred over the deferred short-term
incentive over 2009. These amounts, together with the premi-
ums over the 2010 remuneration, are included in the post-
employment benefits as presented above.
Share-based compensation
The costs for share-based compensation are non-cash
and related to the performance-related share plan following
IFRS 2.
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 (€162,200) related to employer’s contribution
in the UK. A compensation for living expenses and home
leave allowances was paid to Mr. Darner (€147,400) and
Mr. Nichols (€51,100).
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
121
Stock options
As from 2008, no stock options were granted to the members
of the Board of Management. The aggregate numbers of
stock options held by the members of the Board of Manage-
ment were as follows:
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
Value of outstanding options (in €)
Year of issue
Exercise
price in €
Outstanding at
January 1, 2010
Exercised in
2010
Outstanding at
December 31,
2010
Expiry date
2002
2003
2004
2005
2006
2007
2004
2005
2006
2007
2006
2007
2006
2007
46.53
19.51
31.45
31.98
46.46
58.89
31.45
31.98
46.46
58.89
46.46
58.89
46.46
58.89
14,850
29,700
23,000
23,000
19,800
19,800
15,000
15,000
13,000
13,000
13,000
13,000
3,000
3,750
–
(29,700)
–
–
–
–
(15,000)
(15,000)
–
–
–
–
–
–
14,850
April 25, 2012
–
April 22, 2010
23,000
April 25, 2011
23,000
April 24, 2012
19,800
April 26, 2013
19,800
April 26, 2014
1,013,400
–
–
April 25, 2011
April 24, 2012
13,000
April 26, 2013
13,000
April 26, 2014
171,100
13,000
April 26, 2013
13,000
April 26, 2014
171,100
3,000
3,750
44,300
April 26, 2013
April 26, 2014
122 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Performance-related shares
With regard to the performance related shares granted to
the members of the Board of Management in 2008, the final
vesting percentage of the 2008 granted equaled zero (series
2007-2009: 150.78 percent).
The shares of the series 2007 - 2009 have vested in 2010
and were delivered to the individual Board members in 2010.
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 Founda-
tion acts as an independent portfolio manager for AkzoNo-
bel participants. We do not provide loans to members of the
Board of Management.
Number of performance-related shares
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
Series
Balance at
January 1, 2010
Granted
in 2010
Vested
in 2010
Forfeited
in 2010
Dividend
in 2010
Balance at
December 31,
2010
Vested on
January 1, 2011
2007 – 2009
2008 – 2010
2009 – 2011
2010 – 2012
2007 – 2009
2008 – 2010
2009 – 2011
2010 – 2012
2007 – 2009
2008 – 2010
2009 – 2011
2010 – 2012
2008 – 2010
2009 – 2011
2010 – 2012
2007 – 2009
2008 – 2010
2009 – 2011
2010 – 2012
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
–
–
–
–
24,400
–
–
–
18,300
–
–
–
18,300
–
–
18,300
–
–
–
18,300
34,680
–
–
–
22,768
–
–
–
22,768
–
–
–
–
–
–
6,408
–
–
–
–
18,352
–
–
–
12,672
–
–
–
12,672
–
–
4,224
–
–
–
9,540
–
–
–
–
1,175
744
–
–
879
558
–
–
879
558
–
879
558
–
–
879
558
–
–
39,638
25,144
–
–
29,674
18,858
–
–
29,674
18,858
–
29,674
18,858
–
–
29,674
18,858
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Former members of the Board of Management
In 2010, charges for former members of the Board of Manage-
ment amounted to €382,000 (2009: €66,600), mainly due to
pension expenses.
Shares held by the Board of Management
Number of shares at year-end
2009
2010
Hans Wijers
Leif Darner
Rob Frohn
Keith Nichols
58,234
36,473
33,056
3,443
75,324
51,162
22,751
7,069
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
123
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 manage-
ment 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 mitigat-
ing 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 Manage-
ment, except for commodity risks, which are subject to iden-
tification, evaluation and hedging at business unit level rather
than at corporate level. We have a Corporate Finance & Trea-
sury 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 iden-
tifying financial risk factors. Within the boundaries set in the
corporate policies, the subsidiaries perform 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.
Hedged notional amounts at year-end
In € millions
US dollar
Pound sterling
Swedish krona
Other
Total
Buy
2009
Sell
2009
Buy
2010
Sell
2010
241
848
270
296
1,474
144
91
252
214
659
390
304
977
158
51
302
1,655
1,961
1,567
1,488
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 curren-
cy 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 curren-
cy net cash flows resulting from trade or financing transac-
tions are adversely affected by changes in exchange rates.
Our policy defines that we hedge our transactional foreign
exchange rate exposures above predefined thresholds from
recognized assets and liabilities. Cash flow hedge accounting
is applied by exception.
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.
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 subsid-
iaries and investment in associates and joint ventures. In prin-
ciple, 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 opera-
tions which were hedged by a £250 million bond. In 2010,
both of the hedges were fully effective.
In 2010, we applied cash flow hedge accounting for the acqui-
sition of the acquired powder coatings activities. An amount
of $130 million was hedged with forward contracts. The effec-
tive hedge realized a gain of €10 million which is included in
the amount recognized in the statement of income in note 2.
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 liquid-
ity, foreign exchange, interest rate, capital and credit risk. In
addition, Corporate Treasury is responsible for maintaining a
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.
The foreign exchange and interest rate risks on $800 million of
the divestment of National Starch was hedged using forward
contracts and cash flow hedge accounting was applied. A
gain of €60 million was realized on the effective hedge and is
included in the net cash inflow in note 7.
124 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Foreign currency transaction risk
The table above presents a breakdown of the notional
amounts of outstanding foreign currency contracts for entities
with other functional currencies than the euro.
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 (includ-
ing derivative financial instruments) in a currency other than
the functional currency of the subsidiary in its balance sheet
at year-end.
At year-end 2010, 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
€2 million (2009: €6 million) lower/higher. At year-end 2010,
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
€3 million (2009: €1 million) lower/higher.
Price risk management
Commodity price risk management
We use commodities, gas and electricity in our produc-
tion 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
2010, the notional amounts of these futures are 1.3 million
dekatherms, spread over all 12 months of 2011 (2009:
1.7 million dekatherms, spread over all 12 months of 2010).
The total fair value change of these futures is € nil at year-end
(2009: € nil). No hedge accounting is applied to the changes
of the fair value of these contracts.
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. In 2010 the fair
value changes of these contracts amounted to a €2 million
loss net of taxes (2009: €1 million loss). Income volatility
caused by energy prices of the unit in Denmark has been
hedged by an electricity price swap. The fair value changes of
this contract amounted to a €1 million gain net of taxes (2009:
€ nil). 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 2011 – 2014. We apply cash flow hedge account-
ing 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
€29 million gain net of deferred taxes in equity (2009:
€12 million net deferred loss). In 2010, nothing was record-
ed in cost of goods sold due to ineffectiveness (2009:
€ nil loss). The amounts deferred in equity at year-end are
expected to affect operational cost within the next four years.
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 sensitiv-
ity analysis, the change of the price of the commodity is not
discounted to the net present value at balance sheet date.
To hedge the price risks related to energy supply in the Neth-
erlands, we operate one power plant in joint venture with
Essent/RWE in Delfzijl of 520 MW. AkzoNobel power plants
At year-end 2010, if a parallel adjustment of the price curve
of natural gas by €8,000 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 €1 million (2009: €2 million) higher/lower.
This is due to the fair value changes of natural gas derivatives.
At year-end 2010, if the price of oil had weakened/strength-
ened by €7 per barrel (10 percent) as compared with the
market prices prevailing at that date, with all other variables
held constant, post-tax profit for 2010 would have been €2
million higher/lower (2009: € nil). Nevertheless over the full
term of the (partially long-term) contracts, net impact on post-
tax profit will be € nil.
At year-end 2010, if the forward price of electricity on the
Nord Pool exchange had weakened/strengthened by €5,66
per MWh (10 percent) as compared with the market prices
prevailing at that date, with all other variables held constant,
equity would have been €13 million (2009: €8 million) higher/
lower. This is due to the fair value changes of electric-
ity futures 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 effi-
cient 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
85 percent fixed at year-end 2009 to 80 percent fixed at year-
end 2010.
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 liabili-
ties maturing in 2013. We classified these interest rate swaps
as fair value hedges and recorded them at fair value until the
derivatives were closed out in Q3 2010.
Fair value hedge accounting was applied to the above-
mentioned interest rate swaps and fixed rate bond until
close out date. During 2010, an amount of €16 million
has been accounted for in the statement of income for fair
value changes of the interest rate swaps and an amount of
€15 million has been accounted for in the statement of income
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
125
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 agree-
ments and ISDA agreements in place. In the Treasury Statute
limits are set per counterparty for the different types of finan-
cial instruments the company uses. We closely monitor the
acceptable counterparty credit ratings and credit limits and
revise where required in line with the market circumstances.
We have no reason to expect non-performance by the coun-
terparties for these financial instruments.
Due to our geographical spread and the diversity of our
customers, we were not subject to any significant concen-
tration 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 instru-
ments, in the balance sheet. At year-end 2010, the credit risk
on consolidated level was €6.0 billion (2009: €5.0 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 €299 million at year-end 2010. 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.
as an adjustment to the carrying amount of the hedged bond
for fair value changes attributable to the hedged risk. The
fully effective hedge relationship was discontinued following
the close out of the interest rate swaps. Adjustments to the
carrying amount of the hedged financial instrument have been
amortized to profit and loss (interest).
The effective interest rate (excluding hedge results) over 2010
was 6.64 percent. Combined with the hedge result (interest
rate swaps), the effective interest rate was 6.14 percent.
Sensitivity analysis
At year-end 2010, 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
€5 million higher/lower (2009: €6 million higher/lower).
At year-end 2010, 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
€nil million higher/lower (2009: €3 million lower/higher) .
At year-end 2010, 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 €1 million
higher/lower (2009: €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 coun-
terparties 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.
126 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Maturity of liabilities and cash outflows
In € millions
Less than
1 year
Between
1 and 5 years
Over 5 years
At December 31, 2009:
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Forward foreign exchange contracts (hedges):
– Outflow
– Inflow
Interest rate swaps:
– Outflow
– Inflow
Other derivatives:
– Outflow
– Inflow
Total
At December 31, 2010:
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Forward foreign exchange contracts (hedges):
– Outflow
– Inflow
Other derivatives:
– Outflow
– Inflow
Total
381
236
3
2,866
2,372
(2,068)
12
(20)
103
(28)
3,857
905
238
2
3,305
2,350
(2,267)
–
44
2,163
771
11
–
569
(477)
47
(68)
26
(18)
1,313
93
–
–
–
–
–
–
–
–
3,024
1,406
2,531
673
322
12
8
–
–
–
1
–
–
–
–
–
–
–
4,577
3,213
334
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 2010, we had €2.7 billion available as cash and
cash equivalents (2009: €1.9 billion), see note 15. In addi-
tion, we have a €1.5 billion multi-currency revolving credit
facility expiring in 2013. Both at year-end 2010 and 2009,
this facility had not been drawn. We have a commercial
paper program in the US, which at both year-end 2010 and
2009 had a maximum of $1.0 billion and a euro commercial
paper program, which at both year-end 2010 and 2009 ad a
maximum of €1.5 billion. At December 31, 2010 and 2009,
the commercial paper programs were not used. The commer-
cial paper programs can only be used to the extent that the
equivalent portion of the revolving credit facility is not used.
The opposite table 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.
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 2010 was Baa1/BBB+ (year-end 2009:
Baa1/BBB+ with a negative outlook). The capital structure
can be altered, among others, by adjusting the amount of divi-
dends 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 2010
at year-end amounted to 0.49 (2009: 0.23). Funds from oper-
ations are based on net cash from operating activities, which
AkzoNobel Report 2010 | Financial statements | Notes to the consolidated financial statements
127
Fair value per financial instruments category
In € millions
2009 year-end:
Other financial 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
2010 year-end:
Other financial 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
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
815
2,564
2,128
5,507
3,488
384
2,866
6,738
1,008
2,788
2,851
6,647
2,880
907
3,305
7,092
414
246
–
660
–
–
1,231
1,231
640
257
–
897
–
–
1,361
1,361
374
2,290
–
2,664
3,488
384
1,523
5,395
368
2,497
–
2,865
2,880
907
1,807
5,594
27
28
2,128
2,183
–
–
112
112
–
34
2,851
2,885
–
–
137
137
401
2,318
2,128
4,847
3,488
384
1,635
5,507
368
2,531
2,851
5,750
2,880
907
1,944
5,731
416
2,318
2,128
4,862
3,848
384
1,635
5,867
386
2,531
2,851
5,768
3,266
914
1,944
6,124
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-retire-
ment 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 and other post-retirement benefit obligations and
lease commitments.
Fair value of financial instruments and
IAS 39 categories
Loans and receivables and other liabilities are recognized at
amortized cost, using the effective interest method. We esti-
mated 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, receiv-
ables 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
and 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 deter-
mined by valuation techniques 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).
128 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2010
Company financial statements
Statement of income
In € millions
Note
2009
2010
Net income from subsidiaries,
associates and joint ventures
Other net income
Total net income
Balance sheet as of December 31,
before allocation of profit
In € millions
Note
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
Cash flow hedge reserves
Revaluation reserve
Other statutory reserves
Cumulative translation reserves
Other reserves
Undistributed profit
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
b
b
c
c
d
e
c
f
g
355
(70)
285
723
31
754
2009
2010
15,418
11
201
775
465
2
(6)
7
237
(777)
7,632
215
481
7,744
16,874
–
15,429
16,874
265
1,459
976
16,405
1,724
18,598
467
9
29
7
242
(43)
7,594
679
289
8,245
8,984
7,775
8,225
8,534
405
1,080
405
16,405
1,080
18,598
AkzoNobel Report 2010 | Financial statements | Company financial statements
129
Movement in shareholders’ equity
In € millions
Subscribed
share capital
Additional
paid-in
capital
Cash flow
hedge
reserve
Revaluation
reserve
Other
statutory
reserves
Cumulative
translation
reserves
Other
reserves
Undistributed
results
Shareholders'
equity
Statutory reserves
Balance at January 1, 2009
463
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
–
–
–
–
–
–
–
2
–
–
Balance at December 31, 2009
465
Changes in fair value of derivatives
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
Acquisition of non-controlling interests
–
–
–
–
–
–
2
–
–
Balance at December 31, 2010
467
–
–
–
–
–
–
–
–
2
–
–
2
–
–
–
–
–
–
7
–
–
9
(49)
43
–
–
–
43
–
–
–
–
–
(6)
35
–
–
35
–
–
–
–
–
29
–
–
7
–
–
7
–
–
–
–
–
7
–
–
–
–
–
–
–
–
–
7
236
(1,130)
9,122
(1,179)
7,463
–
–
–
–
–
–
–
–
–
1
–
–
353
–
353
–
–
–
–
–
237
(777)
–
–
–
–
–
–
–
5
–
–
734
–
734
–
–
–
–
–
–
–
–
–
–
–
15
–
(1,504)
(1)
7,632
–
–
–
–
–
27
–
(35)
(30)
242
(43)
7,594
–
–
–
285
285
(395)
–
–
1,504
–
215
–
–
754
754
(320)
–
–
30
–
679
43
7
353
285
688
(395)
15
4
–
–
7,775
35
734
754
1,523
(320)
27
9
–
(30)
8,984
130 Company financial statements | Financial statements | AkzoNobel Report 2010
Note a General information
Note c Financial non-current assets and provision for subsidiaries
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 prin-
ciples 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 valua-
tion 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 remunera-
tion paragraph is included in note 23 of the consolidated
financial statements.
Note b Net income from subsidiaries, associates
and joint ventures
For further details on net income from subsidiaries, associates
and joint ventures, see note c.
Movements in financial non-current assets
In € millions
Total
Share in
capital
Loans 1
Subsidiaries
Balance at January 1, 2009
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
14,095
3,167
(3,769)
355
15
43
3,377
(2,210)
366
(47)
37
8,505
3,127
(3,769)
355
15
43
–
–
271
(47)
37
5,481
–
–
–
–
–
3,377
(2,202)
104
–
–
Balance at December 31, 2009
15,429
8,537
6,760
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
Change to provisions for subsidiaries 2
111
(115)
723
27
31
3,406
(3,251)
816
(111)
(192)
109
(68)
723
27
31
–
–
686
(124)
(192)
–
–
–
–
–
3,406
(3,240)
130
–
–
Balance at December 31, 2010
16,874
9,729
7,056
1 Loans to these companies have no fixed repayment schedule.
2 At year-end 2010 the provisions for subsidiaries amounted to €289 million.
Other
financial
non-current
assets
Loans to
associates
and joint
ventures
90
40
–
–
–
–
–
–
(9)
–
–
121
2
(47)
–
–
–
–
–
–
13
–
89
19
–
–
–
–
–
–
(8)
–
–
–
11
–
–
–
–
–
–
(11)
–
–
–
–
AkzoNobel Report 2010 | Financial statements | Company financial statements
131
Note d Trade and other receivables
In € millions
2009
2010
Receivables from subsidiaries
Receivables from associates and joint
ventures
FX contracts
Other receivables
Total
47
–
110
44
201
63
16
134
52
265
Note e Cash and cash equivalents
In € millions
2009
2010
Short-term investments
Cash on hand and in banks
Total
704
71
775
878
581
1,459
Note f Long-term borrowings
In € millions
2009
2010
Debentures
Debt to subsidiaries
Other borrowings
Total
1,842
5,752
150
7,744
1,289
6,916
40
8,245
At year-end 2010 and 2009, the total amount of long-term
credit facilities arranged by AkzoNobel was €1.5 billion,
maturing in 2013. Both at year-end 2010 and 2009, this facil-
ity had not been drawn. At year-end 2010 and 2009, none
of the borrowings was secured by collateral. Borrowings
from subsidiaries have no fixed repayment schedule. Interest
charged on these borrowings averaged 0.9 percent in 2010
(2009: 1.0 percent).
Note g Short-term debt
In € millions
2009
2010
Current portion of long-term
borrowings
Debt to subsidiaries
FX contracts
Borrowings from associates and
joint ventures
Short-term bank loans
Debt related to pensions
Debt to other suppliers
Other liabilities
Total
64
10
13
62
5
–
23
228
405
702
8
22
40
10
6
19
273
1,080
Akzo Nobel N.V. has a euro commercial paper program, which
at year-end 2010 and 2009 had a maximum of €1.5 billion.
At year-end 2010 and 2009, the commercial paper program
was not used.
Note i Contingent liabilities
Akzo Nobel N.V. is parent of the group’s fiscal unit in the Neth-
erlands, 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 (section 403 of Book 2 of the Neth-
erlands Civil Code). These debts, at December 31, 2010,
aggregating €0.4 billion (2009: €0.5 billion), are included in
the consolidated balance sheet. Additionally, at December
31, 2010, guarantees were issued on behalf of consolidated
companies for an amount of €2.4 billion (2009: €2.8 billion),
including a guarantee issued by Akzo Nobel N.V. in relation to
the exemption of Dulux Paints (Ireland) Ltd, under section 5(c)
of the companies (amendment) Act 1986 Ireland.
The debts and liabilities of the consolidated companies
underlying these guarantees are included in the consoli-
dated 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 €9 million (2009:
€12 million).
For the fair value of the debenture loans and the related inter-
est-rate derivatives, see note 24 of the notes to the consoli-
dated financial statements.
Note h Financial instruments
Debentures
In € millions
2009
2010
4 1/4 % 2003/11 (€750/€539 million)
7 1/4 % 2009/15 (€750 million)
7 1/4 % 2009/15 (€225 million)
8 % 2009/16 (£250 million)
Other
Total
533
746
259
278
26
–
748
252
289
–
1,842
1,289
At December 31, 2010, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.6 billion (December 31, 2009: €1.6 billion), while contracts
to sell currencies totaled €1.5 billion (December 31, 2009:
€1.6 billion). The contracts mainly related to US Dollars,
Pound Sterling, Swedish Krona and Swiss Franc, and all
have maturities within one year. These contracts offset the
foreign exchange contracts concluded by the subsidaries,
and the fair value changes are recognized in the statement
of income to offset the fair value changes on the contracts
with the subsidaries. For information on risk exposure and risk
management, see note 24 of the notes to the consolidated
financial statements.
132 Company financial statements | Financial statements | AkzoNobel Report 2010
In
the Netherlands
Network
outside the
Netherlands
Total
In
the Netherlands
Network outside
the Netherlands
Total
3.4
0.5
–
–
3.9
6.9
0.1
0.4
0.3
7.7
2009
10.3
0.6
0.4
0.3
11.6
3.5
0.3
–
0.1
3.9
8.1
0.2
0.5
0.2
9.0
2010
11.6
0.5
0.5
0.3
12.9
Note j Auditor’s fees
In € millions
Audit
Audit-related
Tax
Other services
Total
Amsterdam, February 16, 2011
The Board of Management
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
The Supervisory Board
Karel Vuursteen
Uwe-Ernst Bufe
Virginia Bottomley
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans
Peter Ellwood
Louis Hughes
AkzoNobel Report 2010 | Financial statements | Company financial statements
133
Other information
Independent 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 2010
of Akzo Nobel N.V., Amsterdam as set out on pages 85 to
133. The financial statements include the consolidated finan-
cial statements and the company financial statements. The
consolidated financial statements comprise the consolidated
balance sheet as at December 31, 2010, the consolidated
statements of comprehensive income, changes in equity and
cash flows for the year then ended, and notes, comprising
a summary of the significant accounting policies and other
explanatory information. The company financial statements
comprise the company balance sheet as at December 31,
2010, the company statement of income for the year then
ended and the notes, comprising a summary of the account-
ing policies and other explanatory information.
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 report of the Board
of Management in accordance with part 9 of Book 2 of the
Netherlands Civil Code. Furthermore, management is respon-
sible for such internal control as it determines is necessary
to enable the preparation of the financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with Dutch law, including the Dutch Standards
on Auditing. This requires that we comply with ethical require-
ments and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
from material misstatement.
134 Other information | Financial statements | AkzoNobel Report 2010
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the audi-
tor’s judgment, including the assessment of the risks of mate-
rial 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 circum-
stances, 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 valuating the overall presentation
of the financial statements.
Report on other legal and regulatory requirements
Pursuant to the legal requirements under section 2:393 sub 5
at e and f of the Netherlands Civil Code, we have no deficien-
cies to report as a result of our examination whether the report
of the Board of Management, to the extent we can assess,
has been prepared in accordance with part 9 of Book 2 of this
Code, and if the information as required under section 2:392
sub 1 at b - h has been annexed. Further, we report that the
report of the Board of Management as set out on pages 1
to 84, to the extent we can assess, is consistent with the
financial statements as required by section 2:391 sub 4 of the
Netherlands Civil Code.
Amsterdam, February 16, 2011
KPMG ACCOUNTANTS N.V.
We believe that the audit evidence we have obtained is suffi-
cient and appropriate to provide a basis for our audit opinion.
E.H.W. Weusten RA
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, 2010 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, 2010 and of its result for the year then
ended in accordance with part 9 of Book 2 of the Nether-
lands Civil Code.
Profit allocation and distributions
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 fore-
going 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 provi-
sions of paragraph 7, it being provided that no further divi-
dends 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 para-
graph 8 of this article, the Annual General Meeting of share-
holders 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 Associa-
tion, €754 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 €326 million (to be increased by divi-
dend on shares issued in 2011 before the ex-dividend date)
will be distributed. Following the acceptance of this proposal,
the holders of common shares will receive a dividend of €1.40
per share of €2, of which €0.32 was paid earlier as an interim
dividend. The final dividend of €1.08 will be made available
from May 10, 2011.
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 Super-
visory Board and the Board of Management. Amendments
to the Articles of Association are subject to the approval of
this meeting.
AkzoNobel Report 2010 | Financial statements | Other information
135
2010 key figures
Managing our values
Stakeholder activity
Sustainability framework
Invent: integrate sustainable value propositions
Eco-premium solutions
Cradle to Cradle
AkzoNobel Carbon Policy
Sustainable fresh water management
Sustainability leadership
Manage: include sustainability in all aspects of the value chain
Research, Development and Innovation
Investment decisions
Sourcing
Manufacturing
Marketing
138
139
141
142
145
145
145
145
148
148
149
149
149
149
150
151
This Sustainability facts and figures section of the 2010 Report is separate from,
and does not in any way form part of, the company’s annual financial report
(“jaarlikse financiële verslaggeving”) as defined in article 5:25c of the Dutch
Financial Markets Supervision Act for 2009. This section contains summarized
key performance indicators (KPIs) relating to sustainability performance.
Further information on AkzoNobel’s sustainability strategy, activities and results
can be found on our corporate website: www.akzonobel.com/sustainability
Improve: continue to comply and ensure our license to operate
Integrity management
Employees
Community
152
152
153
156
Health, Safety, Environment and Security management 157
Product stewardship
Health and safety performance
Environmental performance
Reporting principles
Independent assurance report
Sustainability performance summary
Other links to this section:
Case studies
Strategic ambitions
Strategic agenda
Embedding sustainability
Business performance section
Corporate govenance statement
Risk management
Investor relations
159
159
161
166
167
168
2
18
20
26
29
63
75
80
2010 key figures
Sustainability topics and data have been
integrated into all sections of the AkzoNobel
Report 2010. This summary focuses on
sustainability processes and activities that
span our businesses. A fuller overview
of AkzoNobel’s sustainability strategy,
activities and results can be found in the
Sustainability section of our corporate
website: www.akzonobel.com/sustainability
• Eco-premium solutions 25 percent
• Total waste down 11 percent per ton
(2009: 20 percent)
of production
• Employee/supervised contractors injury
• 266 supportive supplier visits
rate down 3 percent
since 2007
• CO2 emissions (cradle to gate) down
around 3 percent per ton of product
• 95 percent of online employees
completed Code of Conduct training
• Sustainable fresh water management in
place at 48 percent of production sites
• More than 1,400 Community Program
projects since 2005
Key Performance Indicator summary
Objective
Metric
2010 performance
2015 ambitions
Top three on DJSI
Position on DJSI
2nd place
Top quartile safety
performance
Step change in people
development
Eco-premium solutions
(% of sales)
25%
Cradle-to-gate carbon footprint
(3%)
Sustainable fresh water (% of
sites)
Total reportable injury rate
(per million hours worked)
Behavior-based safety
(% of sites)
Employee engagement
(mean score out of 5)1
Women executives (in %)
Executives from high growth
countries (in %)
48%
3.6
61%
3.56
12%
12%
Top 3
30%
Reduce 10% from 2009
Reduce 20% to 25% by 2020
100%
2.0
100%
Improvement in employee survey
index
20%
20%
138
2010 key figures | Sustainability | AkzoNobel Report 2010
1The Gallup Q12 grand mean score: the average of the mean scores of each question (out of 5).
Managing our values
Strategic focus
The importance of sustainability to running our business is
firmly integrated into AkzoNobel’s strategy. In 2008, we set
ambitions for 2015 for sustainable value creation in order to
support our overall goals:
• Remain in the top three on the
Dow Jones Sustainability Index (DJSI)
• Achieve top quartile safety performance
• Deliver a step change in people development
During 2010, these ambitions were updated and we reviewed
our sustainability programs to bring greater focus to our efforts:
• Top quartile safety performance
• Top three position in sustainability
• Top quartile performance in diversity, employee
engagement and talent development
• Top quartile eco-efficiency improvement rate.
For 2011, we will strengthen our safety peer group for exter-
nal benchmarking.
The Board of Management (as of January 1, 2011, supported
by the other members of the Executive Committee) moni-
tors the company’s financial and sustainability performance
using a special dashboard, which specifies indicators – both
leading and lagging – against each objective. For most key
performance indicators we have announced 2015 ambitions;
other short and long-term milestones are set at business
level. Performance against these ambitions are described in
the following pages.
Sustainability framework
The AkzoNobel sustainability
framework maps out a
progression towards sustainability. It has three levels (Invent,
Manage and Improve – explained in detail in this section)
which include environmental, economic and social aspects.
The focus has shifted away from an emphasis purely on
risks – working on integrity, governance and compliance –
towards creating opportunities for value creation through
process excellence, innovation and talent development. This
framework covers issues and topics that are material for the
company and support our strategic agenda (see page 20).
Management structure
We have established a Sustainability Council, which advises
the Executive Committee on strategy developments, moni-
tors the integration of sustainability into management
processes and oversees the company’s sustainability targets
and overall performance. The Council includes representa-
tives from the Executive Committee, General Managers from
our businesses, Corporate Directors of Strategy, Research,
Development and Innovation (RD&I), Sourcing, Human
Resources (HR), Communications and Sustainability, as well
as the Managing Director of Technology and Engineering.
The Corporate Director of Sustainability (including Health,
Safety, Environment and Security) reports directly to the CEO
and has a small team, including an expert group focusing on
lifecycle assessment.
The General Manager of each business defines their respec-
tive non-financial targets and reports on progress every
quarter. All businesses have also appointed a Sustainabil-
ity Focal Point to support the embedding of sustainability
throughout their operations. They bring together an appropri-
ate 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, Secretary to the
Executive Committee, and Corporate Directors of Internal
Audit, Control, Compliance and HR. Each business has
appointed a member of its management team to act as the
Compliance Officer to manage the roll-out of compliance
projects and to monitor compliance with the Code of
Conduct. Meanwhile, each element of the value chain has
identified focus areas for sustainability, with targets where
appropriate. Functional management teams, such as HR,
Sourcing and RD&I, which comprise 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 busi-
ness planning processes, as well as in our risk management
and compliance processes. Where there are specific “sustain-
ability” risks or issues of concern to stakeholders, we develop
position papers and an improvement plan owned by a corpo-
rate staff member.
Progress in embedding sustainability is monitored using
an annual self-assessment benchmark which reflects the
content of the sustainability framework and management
processes. The assessment results are reviewed at corpo-
rate level. The current level of definition within the self assess-
ment leads to some interpretation differences, but the results
provide useful trends.
AkzoNobel Report 2010 | Sustainability | Managing our values
139
The 2010 results indicate that sustainability processes are
in place, or mostly in place, in all businesses, except one
that merged in 2010 and which is still developing common
processes. The highest level of embedding is at the Improve
or compliance level and processes such as risk management
and reporting. Integration in the value chain, or Manage level,
is making steady progress, but continuing focus is required
in all areas. The Invent topics are making progress, but are a
clear focus for improvement in 2011.
We strive to empower all employees to contribute and be
accountable for our sustainability performance. This respon-
sibility 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 perfor-
mance in the DJSI over a three-year period (see page 74).
The main corporate monitoring processes for sustainability
items are:
• Non-financial Letter of Representation. At the end
of the year, the General Manager 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. Outstanding actions are followed up
in each business and progressed in quarterly reviews
• In-control process. An annual in-depth in-control
process informs management whether business
processes are in control. Shortcomings are reported and
remediated: during 2010 control awareness and training
got special attention
• Corporate audits, which include sustainability and
compliance issues. The outcomes are shared with the
Compliance Committee and Sustainability Council.
Our processes for managing sustainability were again
reviewed as part of our 2010 external assurance activity.
140 Managing our values | Sustainability | AkzoNobel Report 2010
Stakeholder activity
We have established engagement processes and activities
with many stakeholder groups, which are described in other
sections of this report: employees (page 153); customers (see
Business performance section); suppliers (page 149); inves-
tors (page 80); communities (page 156). During 2010 we
continued to have dialog with external stakeholders through a
range of external projects and partnerships, which align with
our sustainability ambitions for now and the future. We are
currently setting up a small group to oversee and integrate all
the stakeholder engagement processes around the sustain-
ability aspects of our business. They will build on work carried
out this year to identify the key stakeholder groups in each of
our key countries.
Suppliers and sustainable trade
The first International Supply Management Congress – a joint
initiative between NEVI (knowledge network for purchas-
ing and supply management in the Netherlands), Alfa Delta
Compendium, AkzoNobel, Rabobank and the Dutch Sustain-
able Trade Initiative (IDH) – attracted more than 1,100 partici-
pants. Speakers included leaders from sustainability organi-
zations, NGOs and business, including our CEO Hans Wijers.
The 2010 event focused on sustainability and innovation in
supply chains in a range of sectors: construction, health care,
transport & logistics, process industry, manufacturing indus-
try, food & agricultural business, financial services, and the
public sector. We were able to use this event to invite suppli-
ers, customers and other stakeholders, raising their aware-
ness of sustainable and innovative sourcing opportunities.
Biodiversity and eco-systems
The agenda around eco-systems stewardship continues to
develop within AkzoNobel.
Wood stewardship and Forest Stewardship Council
In 2010, we underlined the importance of wood stewardship
to our sustainability agenda by signing a landmark agreement
with the Forest Stewardship Council (see separate case study).
Eco-systems services
Our involvement with the Eco-system Valuation Initiative
started in 2008, when we took part in the World Business
Council for Sustainable Development Future Leaders Team.
That program explored how the Eco-systems Services
Review (ESR) assessment tool could be incorporated into
corporate decision-making processes. Our Pulp and Paper
Chemicals business has used the process to evaluate pulp
and paper production in China and identified both risks and
business opportunities to explore. They recently road tested
the Corporate Eco-systems Valuation on a project evaluating
alternative chemicals used in solid board production. Fresh
water is one of the identified priority eco-system services
for gum rosin. The results can help in managing reputational
risks and opportunities and are also demonstrating company
values supporting long-term business. ESR is now one of the
sustainability tools available for use in the BU strategy process.
Biodiversity
Linking with the International Year on Biodiversity, we are
involved in two studies to formulate future priority and action
around biodiversity, for our own sites and our supply chains.
Our Decorative Paints business in the UK is trialing a supply
chain biodiversity risk assessment developed by Cranfield
University School of Management. The trial includes three
key suppliers representing important raw materials – titanium
dioxide, filler and water. Our water supplier is also including
the effect of customers’ use of water – to clean brushes and
so on – in his assessment. The results indicate generally low
risks, but potential additional risks for second tier suppliers. At
the same time, the business has initiated a full evaluation of
two AkzoNobel production sites against the UK Wildlife Trust’s
biodiversity benchmark, which was set up to support the UK
Biodiversity Action Plan to help increase the contribution that
businesses can make towards enhancing biodiversity.
In the Netherlands, our Functional Chemicals business is
working on a complementary project with Wageningen Univer-
sity to measure the biodiversity impact of one of our sites.
Partnerships and endorsements
We support a number of external organizations and char-
ters 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, develop-
ments in the sustainability agenda, we continue to support the
work of the World Business Council for Sustainable Develop-
ment (WBCSD), the World Resources Institute, Forum for the
Future in the UK and the Conference Board.
• AkzoNobel participated in the 2010 WBCSD Future
Leaders Team with the task of bringing the Council’s
Vision 2050 to life
• We hosted a World Resources Institute meeting in
Amsterdam to support their European program
• We have taken part in good practice sharing on linking
sustainability to compensation via both a WRI Mindshare
meeting and the WBCSD People Matter program
• Forum for the Future supported us to integrate
sustainability aspects into our graduate
development program.
AkzoNobel Report 2010 | Sustainability | Stakeholder activity
141
Sustainability framework
Sustainability framework
The framework (right) maps out the sustainability topics covered
in this report (see also the index on page 174). The AkzoNobel
framework has three levels (Invent, Manage, Improve). Each
includes environmental, economic and social aspects, which
together map out the journey towards sustainability.
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
• Increasingly working in partnership with a range of
stakeholders to achieve transformational change.
Manage: include 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 and 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.
Improve: continue to comply and ensure our
license to operate
Our management processes include directives and stan-
dards, management systems, improvement objectives, train-
ing and auditing. They are underpinned by AkzoNobel’s risk
management process, which integrates environmental, social
and governance issues.
Economic
• Integrity management: Our Code of Conduct details
the requirements 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
• Health, Safety, Environment and Security management:
HSE&S management systems are based on international
and internal company standards. Implementation
is carried out by trained, experienced employees.
Improvement actions are driven by objectives, while
verification is achieved though internal and external audits.
• Product stewardship: Management systems and
processes are in place to control the safety and
environmental impact of our products throughout the
lifecycle and to manage compliance with international and
local regulations.
• 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.
Sustainability framework chart index
Improve
Environmental management
HSE&S management
Emissions, waste
Raw material efficiency
Energy, greenhouse gases
Land remediation
157
161
23, 163
161
165
Product stewardship
Product stewardship
Distribution
23, 159
159
Integrity management
Code of conduct
Competition compliance
Anti-bribery
Integrity management
Supply chain
Sourcing
Health, Safety,
Security Management
HSE&S management
H&S performance
Process safety
Employment practices
People development
Diversity & inclusion
Restructuring
Community involvement
Community
Risk management
Risk management
152
152
152
152
23, 151
157
159
160
153
153
156
156
75
Invent
Climate change
Carbon policy
Energy, greenhouse gases
145
161
Scarce resources
Managing scarce resources
Freshwater availability
Cradle to Cradle
21, 23
148, 165
145
Products
Eco-premium solutions
Mid-markets
145
20, 21, 22
External partnerships
Accelerate profitable growth 20, 22, 26
23, 149
Sourcing
149
RD&I
145
Cradle to Cradle
Leadership development
Sustainability leadership
Talent factory
148
20, 24, 25, 153
Mid markets
Mid-markets
20, 21, 22
Manage
Research & Development
Innovate more
RD&I
Eco-premium solutions
Sourcing
Functional excellence
Sourcing
Manufacturing
Functional excellence
Manufacturing
Sales & Marketing
Eco-premium solutions
Marketing
21
149
145
20, 23
149
20, 23
23, 150
145
151
Stakeholder Engagement
Investors
Customers
Employees
Suppliers
Other stakeholders
80
21, 22, 29-57
19, 24, 153
149
141
142 Sustainability framework | Sustainability | AkzoNobel Report 2010
2010 priority areas
Sustainability framework
Environmental
Economic/Governance
Social
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
Climate change
Carbon policy
Energy, greenhouse gases
Scarce resources
Managing scarce resources
Freshwater availability
Cradle to Cradle
Products
Eco-premium solutions
Mid-markets
External partnerships
Accerate profitable growth
Sourcing
RD&I
Cradle to Cradle
Leadership development
Sustainability leadership
Talent factory
Mid-markets
Market
research
Research and
development
Investment
decisions
Sourcing
Manufacturing
Sales and
marketing
Research & Development
Innovate more
RD&I
Eco-premium solutions
Sourcing
Functional Excellence
Sourcing
Manufacturing
Functional Excellence
Manufacturing
Sales & Marketing
Eco-premium solutions
Marketing
Stakeholder engagement Investors, customers, suppliers, employees, other stakeholders
Environmental management
HSE&S management
Emissions, waste
Raw material efficiency
Energy, greenhouse gases
Land remediation
Product stewardship
Product stewardship
Distribution
Integrity management
Code of conduct
Competition compliance
Anti-bribery
Integrity management
Sourcing
Risk management
Health, Safety,
Security management
HSE&S management
H&S performance
Process safety
Employment practices
People Development
Diversity & inclusion
Restructuring
Community involvement
AkzoNobel Report 2010 | Sustainability | Sustainability framework
143
AKzONOBEL AND ECO-PREMIUM SOLUTIONS
With cries for manufacturers to stop using NPEs
(nonylphenol ethoxylates) in their products becoming
louder – and legislation to prevent their use becom-
ing more global – the search is on for environmentally
benign alternatives that offer similar performance.
NPEs are already banned completely in Europe, while
in the US, the Environmental Protection Agency has
announced that it will be banning NPEs in indus-
trial laundry and cleaning products. The good news
for customers seeking an eco-premium alternative is
that our Surface Chemistry business has already devel-
oped one.
Berol 609 is AkzoNobel’s next generation nonylphenol
ethoxylate replacement which exceeds the degreasing
power of leading NPE replacements. Completely water
soluble and biodegradable, there’s also no need for
customers to reformulate. It can simply be used as a
direct drop-in for NP9 or NP10.
Produced in large volumes and widely used in deter-
gents and cleaning products, NPEs are thought to be
toxic to aquatic organisms. Initiatives to encourage
companies to voluntarily phase out their use (which we
did some time ago) have been gathering momentum in
recent months, with the world’s high growth markets
expected to follow suit sooner rather than later. Berol
609 is therefore well placed to position itself as the
most attractive alternative.
Invent
Integrate sustainable value propositions
portfolio. For more than 50 percent of these solutions, the
eco-efficiency benefit is realized downstream by our custom-
ers or the end user of our products.
higher productivity, better economy and reduced environ-
mental impact.
Eco-premium solutions
Eco-premium solutions help to create value for our busi-
nesses and 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.
We are committed to continuously improve the sustainabil-
ity of our operations and the entire value chains in which we
operate. Downstream, we seek to offer solutions that allow
our customers, or their customers, to reduce their footprint.
For example, by reducing energy or water requirement, or
waste generation. Upstream, we achieve improvements by
working with our suppliers to reduce their eco-footprint, or to
identify new and lower footprint process, formulation or appli-
cation routes to meet our customers’ needs. Our businesses
continue to use desktop tools to review the eco-footprint
during R&D development processes. An additional tool being
developed focuses on comparing the environmental and
social impacts of renewable raw materials.
We have a ambition to increase the share of revenue 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, or standard, product in the market,
which is a moving target.
Eco-premium solutions in % of revenue
Milestone
18
18
20
30
25
2007
2008
2009
2010
2015
An eco-premium solution is measured using a quantitative analysis or a
qualitative assessment focusing on six categories: toxicity, energy efficiency,
use of natural resources/raw materials, emissions and waste, land use and
risks (eg accidents). The eco-premium solution must be significantly better
than currently available solutions in at least one criterion, and not significantly
worse in any.
As an important element of portfolio analysis, we also use this
analysis to identify products that may not be sustainable in the
longer term due to competitive or regulatory pressures. This
includes products which contain materials of concern where
we have phase-out plans in place, for example some lead
compounds and chromates.
Our businesses carry out an annual assessment of their port-
folio. In 2010, total revenue relating to eco-premium solutions
were more than €3.5 billion. The proportion of revenue from
eco-premium solutions has increased to 25 percent (2009:
20 percent). This is divided between Specialty Chemicals (23
percent), Performance Coatings (22 percent) and Decora-
tive Paints (29 percent). The 2010 analysis shows that sales
growth in eco-premium solutions is ahead of the total product
Decorative Paints’ Dulux Weathershield SunReflect lowers the
temperature of external walls by up to 5° Celsius and reduces
the need for air conditioning by reflecting up to 90 percent
more infrared radiation than comparable exterior paints.
Our Pulp and Paper chemicals product Compozil Fx is a
wet end management system for the largest and fastest
paper machines. Top quality paper can be produced with
Autoclear LV Exclusive is a high gloss clearcoat paint for car
refinishing. Based on proprietary resin technology, it is not
only highly resistant to scratches and easy to apply, but also
features remarkable self-healing properties when exposed to
gentle heat.
Additional examples are given in the case studies included in
this report.
Cradle to Cradle studies
We have continued with the pilot phase of our Cradle to Cradle
(C2C) activity with German professor Michael Braungart and
his EPEA organization. This is enabling our businesses to
explore the opportunities of the C2C concept. For our coatings
businesses, the focus is on identifying products that support
new functionality, for example recyclability, or absorption of
air pollutants, rather than simply reducing footprint. Several
exploratory projects are being developed with partners.
AkzoNobel has also been involved in a partnership with other
corporations, research institutions and academia to develop a
model for a C2C coatings/chemical plant, the “Factory of the
Future”. The facility design is based – as far possible – on C2C
principles and emphasizes renewable energy, water manage-
ment and active materials and transport management.
AkzoNobel Carbon Policy
Climate protection is an integral element of our busi-
ness objectives. Early in 2009, the Board of Management
approved the company’s Carbon Policy, including 2015 and
2020 improvement targets and ambition levels. We continue
AkzoNobel Report 2010 | Sustainability | Invent
145
AKzONOBEL AND INVENTIVE THINKING
It’s usually the major, pioneering product innovations
that grab all the glory. And there’s nothing wrong with
that. But most of the time, it’s the less high profile break-
throughs that give our customers the most satisfaction.
Applying putty to repair large wooden substrates is a
classic example. Imperfections and defects that occur
naturally in wood are normally repaired by hand, using
putty. The putty then needs to be dried before the huge
panels of wood can be turned into flooring, furniture,
doors and so on. This process is slow, not always accu-
rate and the technology used is not particularly durable.
So our Wood Finishes and Adhesives business –
working together with leading manufacturers Swed-
wood (an IKEA company) and Tarkett – developed a
new concept known as the Automatic Putty System
(APS). It’s an automated system which uses scanners/
cameras to detect imperfections, robots for application
and a special APS machine to push down, smooth out
and cure the putty, which is supplied by AkzoNobel.
This new patented process brings major benefits to the
customer as it requires fewer people, offers increased
quality due to the use of our UV curing putty, results in
higher productivity and efficiency and is more accurate
and consistent. Tarkett is running one line in Hanaskog
in Sweden, while Swedwood is using the system to
produce spruce and pine furniture for IKEA.
The putty system also provides benefits in terms of
sustainability. For example, because our customers are
able to transform defective or poor quality wood into
usable wood, it means there is less waste, so fewer
trees are being harvested.
to focus on improving the energy efficiency and managing the
fuel mix of our energy intensive businesses to reduce green-
house gas emissions and potential carbon costs. We are also
committed to reducing the impact of our raw materials and
developing solutions that help our customers to reduce their
energy requirements.
ity of this developing reporting activity, and the uncertainty of
some measurement processes and current data available. At
AkzoNobel, we want to use these measurement activities to
help drive performance improvement. During this learning and
maturity phase, we will aim to monitor relative improvements
by setting clear boundaries and consistent assumptions.
In addition to internal activity to reduce energy use and green-
house gas emissions, we support transparent disclosure
and business initiatives calling for urgent inter-governmental
action. We are signatories of the UN Global Compact’s Caring
for Climate platform, and communiqués from the Prince of
Wales’ Corporate Leaders Group on Climate, which have
urged action towards an international UN Climate Change
treaty at each of the annual Climate Change conferences.
We still advocate the implementation of global cap-and-trade
mechanisms on carbon emissions as a requirement to accel-
erate transition towards a low carbon economy.
Cornerstones of Carbon Policy
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.
Our carbon management and performance is reported through
the Carbon Disclosure Project. We have also taken an active
part in developing the GHG Protocol Accounting and Report-
ing Guidelines for product lifecycles and corporate value
chains (Scope 3). During 2010, we were one of the compa-
nies chosen to road test both standards and carry out a trial
assurance process. This pilot was helpful in providing bound-
aries and some prioritization tools, but reinforced the complex-
Our framework for measuring the carbon footprint of products
and facilities is based on the international Greenhouse Gas
Protocol and lifecycle analysis. It was tested with the World
Resources Institute and several Dutch NGOs. During 2009,
our businesses (see note to graph) identified and assessed the
cradle-to-gate carbon footprint of key value chains in order to
understand the high carbon areas where improvements will
deliver financial and environmental benefits. This indicated
that more than 70 percent of the company footprint is from
raw materials extraction, processing and transport (Scope 3
upstream), while the remaining 25 to 30 percent is from our
own direct emissions and indirect emissions from energy use.
During 2010, our businesses have been developing carbon
management plans which identify specific improvement oppor-
tunities and programs. Examples of programs in place include:
• Joint activities with suppliers to reduce the footprint of key
raw materials
• Reformulations using lower footprint raw materials
• Site programs to improve yields, reduce waste and
improve energy efficiency
• Technology and process developments
• New curing developments to reduce energy use during
product application.
2010 is the second time we have assessed the cradle-to-gate
footprint of our operations. We have now assessed 286 key
value chains (2009: 158). This year’s assessment indicates a
total footprint of around 16.0 million tons CO2(e) assessed
cradle-to-gate. There was an additional 0.7 million tons
Scope1 and 2 CO2(e) reported from Chemicals Pakistan and
National Starch (now divested). As in 2009, the cradle-to-gate
assessment indicated around 70 percent was from raw mate-
rials and transport (Scope 3 upstream) and under 30 percent
from our own direct and indirect emissions from energy use.
Ambitions
• 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
by 20 to 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 improvements will be achieved though a mix of inno-
vation, energy efficiency and fuel mix improvements.
Assessment method
The assessment uses boundaries in line with financial report-
ing and definitions in line with the Greenhouse Gas Protocol.
It is carried out using recognized tools and staff experienced
in lifecycle assessment. Businesses identify and assess the
cradle-to-gate carbon footprint of key value chains in order to
understand the high greenhouse gas emission areas where
improvements will deliver financial and environmental benefits.
Scope 3 (upstream) includes GHG emissions from the extrac-
tion, production and transport of raw materials. We have
developed a central raw materials database to provide consis-
tency/transparency of data use. This database includes mainly
“default” or proxy data which has been selected as the most
representative/current data from recognized data sources, as
well as specific supplier data. The absolute data and year on
year comparision provide indicative assessments.
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 measure-
ments, with emissions assessed using supplier or country grid
factors and fuel mix.
Since the 2009 assessment we have further developed our
raw materials database and the value chains in some busi-
nesses. We have restated the 2009 figures to include these
changes and also included a facility which was acquired
The individual business footprint was calculated by extrapo-
lating from measured key value chains, or from assessing the
total raw material footprint from purchased materials, and
total production and transport energy use.
AkzoNobel Report 2010 | Sustainability | Invent
147
but not reported last year – so we have an indication of the
improvement per ton achieved during the year. The results of
the cradle-to-gate assessments show a reduction of around 3
percent from about 853 kg/ton to approximately 827 kg/ton.
fresh water assessment tool, which evaluates risks in six
categories: water sources, supply reliability, efficiency, quality
of discharges, compliance and social competitive factors.
Sustainable management is indicated by a low risk score in
all categories.
Cradle-to-gate carbon footprint in million tons of CO2
During 2009, our manufacturing sites completed the self-
assessments – the results indicated that 38 percent of sites
have sustainable fresh water in place (see our corporate
website for more details). Our manufacturing sites will update
their assessments every two years. The focus in 2010 has
been on validating and updating the assessment tool and
analyzing the preliminary results for common risks areas.
Information on water use and discharges is included in the
Environmental performance section of this report.
Sustainable fresh water management
in % sites
Milestone
38
2009
48
2010
100
2015
Sustainable fresh water management is defined as a low risk score in all
categories in the AkzoNobel sustainable fresh water assessment tool.
Our sites are now developing improvement plans that may
include investments in infrastructure and technology, changes
in water use, improvements in water discharges, managing
community and social water issues, etc. The improvement
activity for water use and discharges will be integrated with
our operational eco-efficiency program, described in the
Manufacturing section. The quick scans have already identi-
fied opportunities for reuse of wash, cooling and other process
waters, as well as improving controls for cooling water and
heat extraction. Improvements already achieved include:
• In Australia, production was relocated to a customer
location to take advantage of surplus recycled water
• Surface water has replaced ground water as the source
for a site in the Netherlands
Other aspects
Eco-efficiency assessment, which includes water, is at the
heart of sustainability reviews for our eco-premium solu-
tions and all major projects – to achieve a balance between
environmental footprint and cost effectiveness. Our portfolio
includes a number of processes/products that support more
efficient water use, recycling and improved water/waste water
treatment. Water scarcity, stricter regulation and consumer
requirements for lower impact solutions are expected to
provide increased opportunities for the future.
Our Supportive Supplier Visits program already reviews the
water use and discharges of our critical suppliers in high
growth economies, where required improvement plans are
progressed and closed. In 2011, we will review how we might
extend our sustainable water management.
Our commitment to sustainable
fresh water manage-
ment requires our sites to engage with local authorities and
communities to understand the risks related to water supply
and competition for water uses. Our sites also support local
communities through community panels and projects. A
recent project in Cikarang, Indonesia, involved 60 employees,
in partnership with a local NGO, initiating a new local waste
management system to separate household waste, which
results in less land and water contamination.
Sustainability Leadership
In November 2010, 22 of AkzoNobel’s future leaders traveled
to India to take part in a week-long development program.
Known as Sustainability Leadership, the new initiative is
designed to help nurture the talent and skill set of the partici-
pants and expose them to both the social and environmental
aspects of sustainability.
Traveling to India – one of AkzoNobel’s strategic high growth
regions – enabled the team of executive potentials to draw
on a rich and diverse set of experiences and gain insight into
different cultures. They were able to achieve better under-
standing of their motivation and skills and this will help improve
their ability to contribute simultaneously to a more successful
business and a more sustainable world.
• Extensive recycle and reuse systems have been
implemented at salt production sites in Europe, including
reuse of condensate and recirculation of process water via
technologies such as deionization.
Having taken part in the expedition element, each member
of the team now has clear objectives and tangible projects
to ensure that their businesses, and ultimately the whole of
AkzoNobel, benefit from their personal development.
Scope 3 upstream
Scope 1
Scope 2
14.9
2.8
1.3
10.8
2009
16.0
3.0
1.5
11.5
2010
The carbon footprint of the six main greenhouse gases is measured from
cradle-to-gate based on the international Greenhouse Gas (GHG) Protocol
and Lifecycle Assessment ISO 14040-44. See Assessment method.
The cradle-to-gate assessment excludes Chemicals Pakistan and National
Starch. They measure Scope 1 and 2 emissions which is included in the
Performance Summary data. 2009 cradle-to-gate data has been restated to
reflect changes in portfolio and raw material data.
Sustainable fresh water management
AkzoNobel is concerned with the sustainable use and the
conservation of water resources worldwide. We are aiming to
achieve sustainable fresh water management at our produc-
tion sites by 2015, as we recognize water supply is essential
to life – and to the sustainability of our business. We rely on
water for raw materials production, product formulation and
manufacturing, power generation, cooling, cleaning, trans-
porting and for effective use of some products.
In July 2010, AkzoNobel signed the UN Global Compact CEO
Water Mandate. By doing so, we have committed to develop-
ing our programs over time for: direct operations, supply chain
and watershed management, collective action, public policy,
community engagement and transparency. We also took part
in the 2010 Carbon Disclosure Project water assessment.
We are currently defining an integrated, company-wide Water
Program, including expert resource support for improve-
ments, which has included benchmarking our efforts with the
leaders in the water initiatives.
Current progress
We assess our progress using the AkzoNobel sustainable
148
Invent | Sustainability | AkzoNobel Report 2010
Manage
Include sustainability in all aspects of the value chain
Research, Development and Innovation (RD&I)
Sustainability and the reduction of our ecological footprint are
embedded in AkzoNobel’s strategy for RD&I and their consid-
eration is inherent throughout the innovation process.
We use our eco-premium solutions metric – which considers
the whole lifecycle – as the key performance indicator for
our product sustainability performance. Two important focus
areas have been VOC reduction and raw materials.
A cross-business group, including RD&I, marketing and
product stewardship, has created a comprehensive model
of VOC use across the Decorative Paints and Performance
Coatings Business Areas. This has provided a thorough
analysis of the 2009 VOC baseline and a robust forecast
of the position in 2015. AkzoNobel is committed to taking a
leadership role in the reduction of VOCs within the coatings
industry and plans have been put in place to ensure that a
25 percent reduction in the volume weighted average VOC
content of Decorative Paints and Performance Coatings
products is achieved by 2015.
Renewable raw materials are already used extensively through-
out the company. Our Surface Chemistry business has devel-
oped and introduced Alcoguard H5240, an anti-scalant used
in automatic dishwashing and laundry detergent applications.
Based on hybrid polymer technology in which a substantial
proportion of the synthetic petrochemically-derived polymers
are replaced by polysaccharides, Alcoguard H5240 has a
significantly lower carbon footprint than competitive equivalent
products, and its polysaccharide component is fully biode-
gradable. Hybrid polymers with similar compositions have
been commercialized for use in oilfield applications and the
technology has been nominated for P2 (pollution prevention)
recognition by the US Environmental Protection Agency.
A number of our businesses are evaluating renewable raw
materials as offering novel functionality or more sustainable
alternatives to mainstream products. We are taking steps
with supply chain partners and external bodies to ensure that,
where used, renewables offer a genuine sustainability advan-
tage taking social and environmental impacts fully into account.
Industrial Chemicals is developing innovative process tech-
nology for the use of carbon dioxide as a renewable basic
feedstock. These processes are being developed in line with
the principles of Green Chemistry and the targeted prod-
ucts will constitute valuable strategic additions to Industrial
Chemicals’ current portfolio. In order to accelerate progress
in this relatively young field, a variety of collaborations have
been set up with knowledge institutes, universities and indus-
trial partners. In recognition of the highly innovative character
and broader significance of these projects, they have recently
been granted support by various public funding schemes
such as the EU 7th Framework Program and the Dutch
Energy Research Subsidies.
Elsewhere, open innovation approaches, both along the value
chain as well as through the AkzoNobel Networked Innovation
(ANNI) program, have been strengthened as a way of helping
us to achieve our innovation ambitions. Strategic partnerships
have been set up with key suppliers aimed at establishing
long-term relationships in strategically important and mutu-
ally beneficial areas of research and development. ANNI has
been embedded in the organization as a structured approach
to acquiring solutions to unmet technology and know-how
needs from within and outside AkzoNobel (together with Nine-
Sigma, a global leader in open innovation).
to significantly reduce complexity in the business. The new
raw materials strategy being implemented is both reducing
the number of raw materials it uses and helping to drive the
move towards raw materials with lower ecological footprints.
A principal goal of the strategy has been reformulation to
reduce the TiO2 content of paint, which is usually the main
contributor to its carbon footprint. Further reductions of
carbon footprint are being achieved through the choice of
latex for water-based paints.
Investment decisions
All our major investment proposals require a sustainability
evaluation alongside the financial case. This includes an eco-
efficiency assessment, as well as a full review of health and
safety, process and product safety, natural resource/raw mate-
rial requirements and environmental impacts. These require-
ments are fully embedded in the company process for allocat-
ing funds for an investment or acquisition. The proposals are
reviewed by subject matter experts, who provide comments
and advice to the Board of Management, on both the financial
and non-financial issues associated with the investment, to
provide a strong basis of the investment decision.
Sourcing
Business principles
AkzoNobel aims to do business with partners who endorse
our ethical values and our social and environmental stan-
dards. Our Supplier Support Visits (SSV) program was estab-
lished to verify that the business principles and practices of
our critical suppliers in high growth markets comply with our
vendor policy. It also helps suppliers to improve their health,
safety and environment standards.
Decorative Paints is making good progress in establish-
ing a global product architecture and raw materials strategy
Our businesses identify critical suppliers in each region and
visit them on a regular basis, the frequency defined by their
AkzoNobel Report 2010 | Sustainability | Manage
149
Supplier engagement
% of spend
2007
2008
2009
2010
2010
ambitions
2011
ambitions
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
1 Non-product related.
81
100
82
80
152
85
89
185
91
62
100
266
90
50
100
220
95
Total 75
300
performance rating provided by the SSV teams. These teams
agree specific and continuous improvement programs with
each supplier as appropriate and monitor progress through
routine re-visits. Those suppliers either unwilling or incapable
of positive progress are de-listed.
The SSV program has been a forceful and effective step
towards creating a sustainable supplier base, needed for
AkzoNobel’s growth in high growth markets. The 2011
program will be enhanced and include metrics to monitor the
development of a maturing, sustainable supplier base in the
respective region, which supports AkzoNobel’s sustainability
objectives, eco-footprint initiative and the rapid growth of a
high growth market supply base.
Key supplier management
In 2010, we further developed our Key Supplier Manage-
ment program. We have set up 20 long-term agreements
with global, leading suppliers for in-depth cooperation on
value creation and innovation. Focusing on sustainability is
paramount, as it supports our CO2(e) reduction ambition and
the delivery of eco-premium solutions to our customers (see
Invent section).
Carbon footprint
The result of our initial calculations show that raw materials
account for more than 70 percent of the AkzoNobel CO2(e)
footprint (see Carbon Policy section). Together with suppliers
and RD&I, we are defining projects to reduce the volume of
these raw materials in product recipes. We are also working
with long-term cooperations to identify alternative raw mate-
rials with a reduced carbon footprint; to investigate the use
of renewable raw materials; and to study their effect on our
product quality and the carbon footprint.
Car lease
The AkzoNobel target for lease cars is to achieve a weighted
average of 130g CO2(e) emissions per kilometer by 2013.
CO2(e) levels in Europe for passenger cars came down from
158.8g/km to 152.4g/km, while the cars that were added to
the fleet in 2010 have an average CO2(e) level of 138.5g/km.
During the fourth quarter of 2010, we adapted the maximum
allowances in Europe downwards by 10g/km.
Logistics
We work closely with our road transport suppliers to measure
their environmental performance and development. For
example, we have ambitions to achieve Euro 5 level engines
during 2011 and green driving training for drivers. We have
started projects with suppliers on maximum payload utilization
and reducing empty load journeys. In addition, we recently
joined the clean shipping index to start measuring, comparing
and put targets on shipping lines and their vessels.
Talent management
The AkzoNobel Procurement Academy provides standard-
ized training for our worldwide procurement professionals.
In 2010, we trained more than 250 purchasers in strategic
sourcing methodology and negotiations and influencing in
various parts of the world. At the end of the year, we started
a new branch of the academy in China to provide this training
to new hires in Mandarin. In October 2010, a global workshop
took place, when 240 purchasers from 30 different countries
worldwide initiated strategic learning projects.
During 2011, our executive potentials will carry out further
work on learning projects, coached by senior executives from
the Sourcing function. The learning projects are derived from
our strategic sourcing initiatives.
A dedicated, one-week training for the executive potentials
will give the AkzoNobel context for their learning path, with
themes such as diversity, sustainability and innovation. The
members of the global One Procurement Leadership Team
were trained in executive performance to improve their
creative and communication skills.
Remuneration
Within Sourcing, the sustainability agenda is linked to individ-
ual remuneration. Every member of the global Procurement
Council has at least one sustainability target as an item in their
personal targets.
Manufacturing
AkzoNobel is a manufacturing company, so excellence in
supply chain management and manufacturing operations is
a fundamental requirement for success. Our businesses use
established tools such as Six Sigma and Black Belt training to
achieve improvements. During the year, the Decorative Paints
business set up a Supply Chain Academy to build manufac-
turing capability and skills and accelerate cross-functional and
cross-country learning.
Lifecycle assessments have indicated that for most of our
businesses, the environmental footprint of our direct activity is
low compared with the impact of raw materials and use of our
products. However, we see improving operational eco-efficien-
cy as a fundamental element of manufacturing excellence –
helping us to achieve cost reduction, environmental protection
and more effective use of raw materials and natural resources.
In January 2010, we initiated an Operational Eco-Efficiency
Program to achieve a step change in the environmental foot-
print of our own operations. The main indicators are energy
consumption, greenhouse gas emissions, waste produced,
fresh water intake and VOC emissions. Quick scan reviews
150 Manage | Sustainability | AkzoNobel Report 2010
to identify improvement opportunities were conducted at
75 production sites, which
represent approximately
75 percent of the whole company. A more extensive, compre-
hensive diagnostic toolkit for waste and energy consumption
has been developed. This has been applied at selected sites.
As a result, AkzoNobel has defined a program to improve its
environmental footprint by 10 percent, delivering €70 million
in cost savings over the next two years. This is a first step
towards a higher ambition of a 30 percent footprint reduc-
tion during the years to come. This 30 percent reduction will
come from improving existing processes, rationalization of
the manufacturing footprint and the application of best avail-
able technologies for new investments. We have brought
together cross-functional and cross-business Expert Groups
to support this activity by sharing good practice and expertise
across the company and have developed a rigorous benefits
monitoring process to track improvements. The first wave of
projects is now being implemented.
For 2011, we have two main goals. The first is to rigorously
implement the findings from the quick scans and compre-
hensive diagnostics. Secondly, we will be embarking on the
next level of improvements: identifying best available tech-
nology for all new investment projects and manufacturing
technologies, which will drive further and more ambitious
footprint reductions.
Waste, water, energy and VOC improvements
Improvement on Operational Eco-Efficiency is not dependent
on a handful of large projects, but on many smaller site initia-
tives. Some concrete examples:
• A Surface Chemistry site in Sweden has reduced VOC
emissions by 70 percent and saved €100,000 in fixed
and variable costs by reducing the level of excess methyl
chloride required in the process reaction
• An agreement with a local raw material supplier to
reuse steel drums, together with improved drum
emptying procedures, saved a coatings site in China
more than €33,000 in four months. They have reduced
waste by 14 tons and recovered more than eight tons
of raw materials
• A combined heat and power unit at a coatings site in
Birmingham, UK, supplies most of the site’s electricity and
provides heat for the process and buildings. The €470,000
investment saves €116,000 from annual energy costs and
reduces the site carbon footprint by 19 percent
• The impact of compressed air leaks was not fully
understood at one of our Decorative Paints sites.
However, following an ultrasonic leak detection survey,
the site has repaired nearly 100 leaks with an estimated
saving of €36,000.
Marketing
AkzoNobel’s challenging target to extend sales of eco-premi-
um solutions – which provide sustainability benefits over the
mainstream products in the market – involves teamwork
across the value chain. Our sales and marketing profession-
als have a pivotal role to play in engaging with customers to
identify products to meet their immediate functional needs,
and to deliver against immediate and longer term sustainabil-
ity requirements.
The global AkzoNobel network Make More with Market-
ing (MMM) has identified innovation and sustainability as
key themes to raise awareness and share successes. This
was the focus when 60 European members met under the
banner “Catch the customer if you can” earlier this year. A pre-
event survey concluded that 92 percent of members believe
sustainability is a priority for customers – but only 53 percent
have it in the top three – and there are marked differences
between the markets where we operate. Members raised
their skills and understanding in innovation and sustainability
workshops, but above all shared current successes and barri-
ers to success in their markets. Examples included:
• Paper chemicals to help the paper industry speed up
paper making and reduce the use of water and wood pulp
• Additives for tarmac to speed up road building and reduce
energy and emissions
• Cleaning product ingredients which eliminate
phosphates released in water
• Salt which de-ices road and limits the
environmental effects
• Coatings which are harder wearing, so extend
repainting programs.
These examples indicate that it is not about sustainable prod-
ucts with reduced functionality, but about new functionality
which includes sustainability benefits. Marketers play a key
role in developing an end-to-end view of value chains and
identifying where AkzoNobel can contribute the most with
leading, innovative, sustainable solutions.
AkzoNobel Report 2010 | Sustainability | Manage
151
Improve
Continue to comply and ensure our license to operate
Integrity management
Enhancing the compliance framework
We have defined our compliance framework based on the
AkzoNobel value “Integrity and responsibility in our actions”.
This has resulted in company-wide awareness on compliance,
clear norms set in the Code of Conduct and Compliance Poli-
cies, implementation of the Compliance function within the
businesses and clear monitoring and reporting lines. In 2010
the different elements were further enhanced.
Underlying principle
Underlying the compliance framework is the Code of
Conduct, which contains a summary of the key elements
of our compliance norms for the company and for each
employee. Communication on the Code of Conduct for new
employees starts at the time they join AkzoNobel and includes
online or classroom training; for current employees the Code
of Conduct is also discussed at the year-end performance and
development review with their manager. For employees who
have access to share price-sensitive information, AkzoNobel
has a specific Code for Insider Trading, which provides guid-
ance on allowable trading in AkzoNobel securities.
A core element of the framework is the AkzoNobel complaints
procedure, which operates under the name Speak Up! The
Speak Up! procedure encourages employees to address their
concerns with their managers. If employees do not feel able
to report within hierarchical lines, they may use the Speak Up!
hotline or the internet to report their concerns directly into the
Corporate Compliance Committee. Finally, the compliance
framework includes (online) training programs and monitor-
ing tools, and is overseen by the AkzoNobel Compliance
Committee as described in the Managing our values section.
By the end of 2010 we had invited nearly 41,000 employ-
ees to complete the online Code of Conduct training module.
Completion rates are monitored monthly and business units
are committed to having new employees trained within three
months of that invitation.
Specific compliance areas
Within the compliance framework, specific compliance
areas are addressed by specific programs. These include,
among others, programs for competition law, anti-bribery
regulations, privacy and trade secrets. Each of these topics
is supported by online training and a declaration program.
These programs can be supplemented with face-to-face
training during annual conferences for some functions. For
example, employees who have contacts with third parties
(e.g. in sales or procurement) or have management posi-
tions, are called to complete online training in competition
law. To close the loop, these employees complete an annual
declaration confirming their adherence to the AkzoNobel
standard on competition law: in 2010, almost 13,000
employees signed this declaration. In addition, each opera-
tional manager confirms adherence to the AkzoNobel stan-
dards during the annual non-financial Letter of Representa-
tion process (NFL). This provides evidence for the Statement
of the Board of Management in this 2010 Report.
Communication
Communication is an essential part of an effective compliance
framework. During regular meetings with business Compli-
ance Officers, we have open dialog to support them to main-
tain an effective compliance framework within each business
unit, and to ensure that the AkzoNobel compliance initiatives
address the relevant issues within each of the business units.
Complaints procedure (Speak Up!)
In 2010 we dealt with 23 cases which were handled at the
level of the Compliance Committee (2009: 19). Of these,
14 were substantiated and five are still under review. Compa-
ny-wide we had 115 dismissals on grounds related to
breaches of the Code of Conduct (2009: 66). While none of
the issues reported has been material for AkzoNobel in total,
we continue to analyze the root causes and take appropriate
action. This has already resulted in specific issues addressed
in our NFL process and resulted in adaption of our online
training programs.
Key performance indicators – integrity
Code of Conduct trained
(% online employees)
Competition law certification
152
Improve | Sustainability | AkzoNobel Report 2010
2008
2009
2010
2010
ambitions
31
~95
95
100
10,000
13,000
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 recog-
nized 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 oppor-
tunity to learn, develop and grow their talents in order to be
the best at what they do and actively contribute to deliver-
ing Tomorrow’s Answers Today.
Since 2006, our work to build AkzoNobel’s Talent Factory
has focused on the implementation of best practice HR
and people development programs and processes. These
programs have already significantly simplified and strength-
ened the way we work with our people and have driven a
continuous focus on talent development.
In order to build on what has already been achieved, in
2010 we focused our efforts on three main areas, which
are explained in detail on the following pages:
1. Excellence in people development – ensuring our
people managers are given the right support to
capitalize on our global development programs and
processes and reach the next level of excellence.
2. Stronger employee engagement – creating a working
environment where people feel valued and are given the
right conditions to perform at their best.
3. Effectiveness of the HR function – ensuring that the HR
function is ideally positioned to support the businesses
in the best possible way.
Excellence in people development
Our targets and reporting are consolidated into a Talent
Factory Scorecard to track our operational progress and
create transparency across all AkzoNobel businesses.
Performance & 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 inte-
gral part of all development discussions and are integrated
into the system and annual performance appraisal process.
In 2010, we increased the number of employees using the
web-based process to 76 percent (2009: 72 percent), with
a paper system available for the remainder.
Management development programs
Our standardized best practice global Management
Essentials and Advanced Management programs (MEP
and AMP) are operational in 44 countries (2009: 32).
2,028 managers from across the globe started the MEP
program in 2010 (2009: 2,256), representing, in total, 50
percent (2009: 32 percent) of the total target population
of first line managers. During 2010, 724 senior managers
(2009: 452) participated in the AMP, which represents, in
total, 44 percent (2009: 21 percent) of the target popula-
tion of senior managers.
Leadership pipeline
A strong leadership pipeline is crucial to supporting the
company’s growth ambitions, particularly in our target high
growth countries. To develop this pipeline, we are working
hard to deepen our understanding of future market needs,
identify the talent that we already have and further improve
our planning to ensure we can meet new requirements.
For example, Leadership Talent Reviews in our businesses
and functions play an important role in identifying potential
talent early, managing succession planning and structur-
ing individual development. Our top management has also
been actively involved in development dialogs with poten-
tial leaders, and facilitating career development moves.
During 2010, we made good progress on delivering on
individual development plans and achieved improvement
both in the number of cross-business moves made by
our employees and in the diversity of our executives. In
2011, our businesses will be able to use a new guide for
assessing leadership potential to conduct a fuller review of
their potential future leaders. In addition, we will continue
to take action to build the sort of engaging, challenging
environment that is needed to attract and retain talented
people.
Diversity & Inclusion
Input and feedback from our people continues to drive our
focus on Diversity & Inclusion (D&I). While not excluding
other groups, our current focus is on improving gender and
cultural diversity and further strengthening our company’s
engaging environment. It’s an environment in which every-
one 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 all AkzoNobel businesses in improv-
ing their D&I performance. Using a standard framework and
approach, the management teams of each AkzoNobel busi-
ness are developing specific action plans to improve their
unit’s D&I performance. Nine of our businesses have D&I
action plans in place. All other businesses will follow in 2011.
AkzoNobel Report 2010 | Sustainability | Improve
153
As work continues on business action planning, the data
analysis and feedback from structured employee interviews
– an integral part of the action planning process – indicates
that women and employees from high growth regions (our
two initial focus areas) are treated fairly, with no obvious
discrimination. We also see that both of these groups are
equally ambitious and that there is no significant difference
in remuneration between female and male executives. The
challenge is, therefore, to overcome the unconscious prac-
tices that may inhibit the progress of women and employees
from high growth regions, consequently ensuring that these
minority groups are adequately represented at senior levels
in AkzoNobel.
While it is clear that a one-size-fits-all approach to D&I is
not possible, we have identified a number of improvement
actions common to all businesses which are being driven
centrally. For example, we have developed a dedicated D&I
training program for all people managers and an internet-
based learning module for all employees. Both of these tools
started to roll-out across the company at the end of 2010.
We aim to see all managers complete the training program
and all employees (including managers) complete the online
learning module by the end of 2012. Other common actions
include increasing the transparency of our internal job market
by developing an improved vacancy bank and job rotation
policy, and establishing a global mentoring framework to
support mentor/mentee matching across the business.
Key performance indicators – employees
Online P&D Dialog participation (% employees)
Women executives (%)
Executives from high growth markets (%)
MEP training participation (number of employees)
AMP training participation (number of employees)
Employee engagement (mean score out of 5) 1
2008
2009
2010
60 2
8
10
527
0
78
72
10
11
2,256
452
80
2010
ambitions
76
12
12
90
11.5
13
2,028
total 3,500
724
3.56
total 850
n/a
1 The Gallop Q12 “grand mean” score: the average of the mean score of each question.
Our employ survey has changed, the 2008 to 2009 results are not comparable.
2 2008 data excludes former ICI employees.
Management development programs
number of participants
Management
Essentials Program
Advanced
Management Program
Europe
Americas
Asia
Total
2008
182
117
228
527
2009
732
796
728
2,256
2010
1,084
400
544
2,028
2008
0
0
0
0
2009
199
80
173
452
2010
405
182
137
724
154
Improve | Sustainability | AkzoNobel Report 2010
Employee engagement
Our 2010 employee survey focused on engagement, because
engaged teams produce better results. The 2010 Gallup Q12
survey was open to all employees. In total, 79 percent of our
global workforce participated. The results indicated an overall
engagement score of 3.56.
Compared with peer companies in the Gallup database,
this puts AkzoNobel in the bottom quartile. The 2010 results
provide us with an initial benchmark of our engagement
levels and an excellent starting point to make the neces-
sary improvements at all levels of our organization. We will
implement another full survey of our people in 2011, when
our ambition is an engagement score of 3.76. This will enable
our managers to track their progress and continue to drive
improvements.
Effectiveness of the global HR function
In 2010, we continued our drive to significantly increase the
effectiveness and efficiency of our HR function and increase
the capability of HR professionals across the company. We
are focusing our efforts on harmonizing our policies, programs
and initiatives at a country level by creating service organi-
zations to better support the activities of the various busi-
nesses operating in ten key countries, representing more than
71 percent of employees. The Netherlands organization was
chosen to pilot this new approach and launched their new
HR organization in July 2010. Learning is being transferred to
other countries. The US and Sweden also continue to make
notable progress.
HR IT and data systems
Our drive to consolidate HR data and payroll systems made
strong progress in 2010. This initiative, called OneView, is
helping us to increase data quality and reduce costs. The
OneView data system became fully operational in the second
half of 2010. We also reduced the number of payroll systems
from 251 to 89 in 76 countries.
Executive diversity: female in %
Executive diversity: high growth markets in %
GM/Sales
Support
Marketing
Manufacturing
R&D Tech
Other
Total AkzoNobel
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
3
3
18
24
12
15
10
8
7
13
14
13
10
12
GM/Sales
Support
Marketing
Manufacturing
R&D Tech
Other
Total AkzoNobel
19
18
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
2009
2010
9
12
8
10
7
5
4
5
5
4
11
12
2010 employee survey score for each engagement item
GrandMean
Learn & grow
Progress
Best friend
Quality
Mission/Purpose
Opinions count
Development
Cares
Recognition
Do Best
Materials & equipment
Expectations
Percentiles
23
25
24
23
28
34
33
23
22
21
26
31
28
Means
3.56
3.61
3.41
3.19
3.67
3.84
3.46
3.37
3.60
2.98
3.65
3.77
4.18
AkzoNobel Report 2010 | Sustainability | Improve
155
Restructuring
In 2010, we continued to restructure our business to meet
the needs of our customers and deliver our company strat-
egy. 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 process-
es 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.
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 through our products
and partnerships
• The social contribution of our overall business
activities (employment, sourcing, taxation), particularly
in high growth economies.
Cumulative Community Program involvement
Projects (number)
Volunteers (number)
Support (€ million)
8000
6400
4800
3200
4.0
5.4
2500
8.5
6000
7.1
4000
1600
1500
322
0
568
854
1133
1408
2005/2006
2007
2008
2009
2010
156
Improve | Sustainability | AkzoNobel Report 2010
10.0
7000
10
8
6
4
2
0
Community Program
The success of our Community Program continued into 2010.
Employees from the newest parts of the company (following
acquisitions and integration) have embraced the opportuni-
ties the program offers and have started many new initiatives.
The program encourages employees to engage in hands-
on involvement in their local communities and gives them
the necessary financial support. The fund is also available
to support post-relief efforts for major disasters in countries
where AkzoNobel operates – as long as there is hands-on
involvement by our employees. In 2010, major disaster relief
efforts included the volcano eruption in North Sumatra in
Indonesia (including cross-business unit collaboration), the
widespread flooding in Pakistan, the major earthquake in Haiti
and the red sludge flooding in Hungary.
The initiative allows sites and individuals to take part in proj-
ects where our products/resources and the skills and knowl-
edge of employees can benefit the wider community. In the
past five years this has led to a great variety of projects;
from educating underprivileged youngsters to contributing to
creating more awareness in the community about the impor-
tance of a clean environment. It also provides opportunities
for employees to develop team building and leadership skills.
Since the start of the program, more than 7,000 volunteers
from 50 countries have worked on more than 1,400 projects,
totaling about €10 million. According to the NCDO Millen-
nium Development Goal Scan methodology, these projects
have impacted an estimated 400,000 people. It is remarkable
to observe that increased cross-business unit collaboration
takes place in many countries. Over the last five years, nearly
70 percent of projects have supported educational/employ-
ability and healthcare/well-being activities, with environmental
and housing projects also well represented.
In 2010, 275 new projects were initiated. These were
narrowed down to a shortlist of 15 and more than
4,560 employees around the world then voted for their favor-
ite in our annual Community Program Best Practice competi-
tion. First prize went to the “Help with healthy living” project,
a cross business initiative by Marine and Protective Coatings,
Industrial Coatings and Powder Coatings in India. Our volun-
teering employees have helped establish a health clinic which
has become an indispensable part of life for residents in four
villages in Bangalore.
2010 projects by region
E
A Europe
B North America
C South America
D Asia
E Africa/Oceania
157
46
17
50
5
D
C
B
A
Education Fund 15th anniversary
In 2010, a worldwide campaign was launched to create more
awareness about the AkzoNobel Education Fund. A special
internet site was developed in order to help reach employees,
their families, friends and our business relations. The proceeds
of this new fundraising campaign will go to support projects in
Vietnam, India and Brazil. These three projects are designed
to help young people – in many cases girls – find decent and
safe employment that offers them long-term prospects.
The Education Fund was created at the end of 1994 to mark
the 25th anniversary of the company Akzo, to make a contri-
bution to the education of children in developing countries.
Since the Education Fund was created, it has changed the
lives of tens of thousands of young people by supporting proj-
ects from school renovation in Burkina Faso, through improv-
ing sanitation and hygiene conditions at schools in Vietnam, to
increasing the capabilities of primary school teachers in Brazil.
Plan Nederland estimates that several thousand children aged
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.
Health, Safety, Environment and Security management
Managing health, safety, environment and security (HSE&S) is
a cornerstone of a successful coatings and chemicals indus-
try. We have global HSE&S standards in place to ensure our
sites protect people, assets, the environment, the business
and society at large.
Leadership training
Our Safety Leadership Program targeted at senior business
leaders was developed and launched with sessions for the
Board of Management and corporate directors in 2009. It has
now been rolled out across business management teams.
The objective is to help senior managers to be a personal
role model for safety in their organizations and for them to
ensure the right level of management support for improve-
ment activities.
Shared learning and engagement
An HSE&S alert system, to share learning on serious inci-
dents and near misses, is now fully operational and reaches
our HSE&S professionals worldwide. Alerts for 2010 have
included learning and good practice around chemical burns,
distribution and driving safety, and permit to work systems. An
intranet-based global incident reporting system was success-
fully piloted in 2010 and was released for use across our busi-
nesses. We will analyze the basic risk factors from incidents
to identify new improvement initiatives required to continue to
improve the safety and health of our people and to safeguard
our facilities.
HSE&S capability building and career development
Activities to strengthen our HSE&S capability standards and
development processes are progressing to plan. The compe-
tency framework and role profiles for HSE&S professionals
have been piloted and finalized. During 2011 the framework
and profiles will be extended to management roles with criti-
cal HSE&S functions, including production managers and
site managers. The framework will be applied in the 2011
annual performance assessment and resulting development
planning activities.
Reliable operations
Operational management systems at our sites are integrated
for 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 accor-
dance 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 internal auditing department. During 2010, we carried out
51 corporate HSE&S audits and 10 reassurance audits, which
are required for sites with high risk findings.
As a result of the management review of the audit process
in 2009, the HSE&S management system tools have been
fine-tuned and further improved. All members of the corpo-
rate HSE&S auditor pool were trained on the improved audit
protocol in the first half of 2010. The regionally conducted
training sessions in North America, Latin America, Europe
and Asia focused on calibration of the classification of audit
findings, as well as the latest changes of the audit protocol
and system tools.
Learnings from the 2010 audits indicate that we need to
improve our management of occupational health and process
safety/asset integrity.
Serious incidents
We classify incidents based on severity of outcome from local
impact (Level 1) to serious incident (Level 3) – see glossary. All
incidents are investigated to identify root causes, take reme-
dial action and share learning, via HSE alerts, as appropriate
across our other sites.
There were ten serious incidents (Level 3) during 2010. We
regret that, although not under our direct control, haulage
truck drivers and members of the public died as a result of
these incidents.
Management audits number of audits
64
61
66
61
2007
2008
2009
2010
Serious incidents number of incidents
9
10
4
2
2007
2008
2009
2010
Serious incidents (Level 3) involve any loss of life; more than five serious
injuries; environmental, asset or business damage totaling more than
€25 million; or serious reputational damage.
• Six distribution incidents (in Brazil, China, Australia, India,
the US and Colombia) involved loss of life to haulage truck
drivers and members of the public
• One motor vehicle incident in the US in which one of
our employees died and three incidents involving our
employees in which four members of the public died
in Brazil and Poland
• One kidnap case without personal injury in Pakistan.
All these incidents have renewed our focus on haulage
contract management and implementation of safe and defen-
sive driving practices. For further details on preventive action,
see the Occupational safety/safe driving and Product stew-
ardship/distribution sections.
AkzoNobel Report 2010 | Sustainability | Improve
157
AKzONOBEL AND COOL COATINGS
Many of us instantly recognize the familiar Heineken
beer can. But what a lot of people may not be aware of
is the fact that the new tactile packaging appearing in
stores across Europe was achieved using technology
developed by AkzoNobel.
The newly designed can features a stylish, embossed
effect which uses tactile ink to form a series of tiny
raised dots on the surface. When held, the improved
grip becomes noticeable, while the texture gives the
impression of condensation and the contents appear to
be ice cold. These unique visual and sensory elements
boost brand recognition and help the can to become
even more instantly recognizable.
The technology behind the new can was supplied by
our Industrial Coatings business, whose Aquaprime
186 product makes the so-called differential textur-
ing possible. It offers a better alternative to current
techniques as traditional embossing slows down
the production.
Heineken initially approached the can makers in 2008,
requesting ideas for how to change the specialty finish
of cans that were embossed for the European market.
The texturing proposal then surfaced, which is when
AkzoNobel became involved, because we had the
product which made it possible. Trials were conducted
with can makers and, following a few modifications,
the appearance and formulation were finalized and
production was scaled up.
Heineken is now promoting the textured can globally.
158
Regulatory actions
We have defined three categories of regulatory action, from
self-reported issues (Level 1) to formal legal notifications with
fines above €10,000 (Level 3) and are reporting these for the
second year. There were four Level 3 incidents during 2010:
• Three minor violations of the risk management program
regulations at LeMoyne
• An injury related to a hose rupture in Sweden
• A provisional fine for an infringement of the Seveso
regulations at Kleefsewaard, the Netherlands, was
commuted by timely corrective actions.
We also received a fine following an injury in Barcelona,
reported last year.
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. In 2010, a special team
led by our corporate Information Management department has
been addressing cyber security at our plants to protect our
process safety performance and intellectual property rights.
Product stewardship
During 2010, the Product Stewardship & Regulatory Affairs
core team strengthened a number of our product steward-
ship requirements – to support the development of a greater
sustainable product culture and ensure that our substances
and products can be used by all stakeholders in a safe and
cost effective manner.
The team has developed strategies to replace major
product liabilities from our portfolio, and policies to enable
the company to position itself favorably against our leading
competitors. An example is our new animal welfare policy,
which clearly indicates our commitment to minimizing the use
of animal testing, but without losing our ability to run such
studies when they are clearly necessary.
Based on major changes in substance classification, we
have updated the mechanism for defining substances of high
concern within the portfolio. All substances that are classified
according to the new UN globally harmonized System of Clas-
sification and Labeling, GHS, will fall under the category of
“substance of concern”. There is then a mechanism to priori-
tize substances with the highest degree of concern – a simple
risk assessment to verify that concern – and, if required, a
more robust lifecycle assessment to determine next steps.
Specific plans are being developed for lead, chromate, cobalt
and silica compounds.
Distribution
We are also increasing our attention on the distribution aspect
of product stewardship. There were 91 distribution incidents
during 2010 involving the transport of our product by road
(82), sea (5) and rail (4) (see also the Serious incidents section).
We have been working actively with sourcing groups in
emerging countries to improve the safety performance of
contract distribution companies. In China, specific guidance
on the content and follow-up of these distribution contracts
has been prepared and implemented.
Regulatory affairs
In order to meet our legal obligations, AkzoNobel continues
to devote considerable resources to ensure that all substanc-
es and products can be manufactured and marketed in all
countries where we operate. A number of substances have
been registered with the European Chemicals Agency as
defined by the first phase of the EU REACH regulations. To
date, we have achieved the required submissions according
to the specified requirements. We have continually tracked
the work of our key raw materials suppliers and in a few
cases we have taken special steps to ensure continued avail-
ability. Work to implement the GHS requirements in different
parts of the world has continued.
We have initiated a number of new advocacy activities aimed
at a more harmonised manner of introducing new legisla-
tion. Initiatives in countries such as China, the US, Malay-
sia, Taiwan and Turkey have shown supportive outcomes.
Overall, AkzoNobel continues to ensure that all its substanc-
es and products are produced and marketed in accordance
with all prerequisite legal requirements. Furthermore, we
continuously strive to ensure that our substances and prod-
ucts are developed, manufactured and marketed in a manner
that supports their long-term sustainable use.
Health and safety performance
Occupational safety
The human factor remains an essential element in safety
management. In 2006, we set an ambitious target to improve
safety performance by a factor of four by 2010, reduc-
ing the Total Reportable Rate (TRR) for employee injuries to
2.0 per million hours worked. Since 2009, we have report-
ed the safety performance of employees together with our
supervised contractors. Quarterly reports on business safety
improvement programs and agreed targets are reviewed by
the Executive Committee, together with the quarterly financial
performance indicators.
There had been a steady reduction in TRR since 2005, with
good progress towards the 2010 milestone rate of 2.0.
However, in 2010, this trend stagnated. The TRR for employ-
ees and supervised contractors improved slightly to 3.6 injuries
per million hours worked (2009: 3.7). The rate for independent
contractors is 3.0 injuries per million hours (2009: 2.8). In total,
in 2010, 66 percent of our units performed at or better than
the milestone, representing approximately 50 percent of the
hours worked by our employees and supervised contractors.
We have not achieved the ambitious target, however senior
managers have focused significant attention on re-establishing
the improvement trend – with success towards the end of
the year. In October, we organized a global AkzoNobel Safety
Day, when more than 14,000 employees made their personal
pledge towards safety in both their working and private lives.
AkzoNobel Report 2010 | Sustainability | Improve
159
Employee and supervised contractors total
reportable injuries injury rate
Milestones
5.3
4.6
3.7
3.6
2.0
2.0
2007
2008
2009
2010
2010
2015
2007 and 2008 data includes 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 million hours worked.
Independent contractors total
reportable injuries injury rate
5.2
2008
2.8
2009
3.0
2010
2008 data 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 million hours worked.
We continue to focus improvement actions on behavior-based
safety (BBS) training and continuous raising of awareness. In
2010, BBS improvement processes – which involve employ-
ees and focus on reducing unsafe situations and unsafe
behaviors – were in place at more than 60 percent of our sites
worldwide. We believe that full implementation of BBS and
management leadership training is essential to meet the chal-
lenge. Five of our businesses were operating at safety levels
below the 2015 ambition level during the year. This sets an
excellent example for the other businesses to follow. In 2010,
we developed a generic AkzoNobel safety induction package
for our new and existing employees, to complement site
specific training. Currently available in four main languages,
the package will be extended in 2011 to cover all ten major
countries where we operate.
Our ambition for 2015 remains to be in the top quartile of our
peer group in TRR performance – the milestone we have set is
2.0 for both employees and supervised contractors.
Safe driving
This is a priority area, based on the many incidents we have
had over two years of monitoring. During 2010, there were
34 incidents involving injury, as well as the fatalities of one
employee and four members of the public. An analysis of the
serious motor vehicle incidents revealed that the major cause
was distraction from the main task – driving the car safely –
which was attributed to fatigue, mobile phone use, intense
discussions with passengers, etc.
We have signed a global contract for defensive driving through
e-learning programs and have developed a company-wide
approach for training those who drive on company busi-
ness. The program and good practice guidance will be rolled
out across our businesses in 2011. Drivers at risk (covering
more than 20,000 business miles) will also be advised to take
regular hands-on safe driver training.
Employee health
As well as ensuring a safe working environment, we also focus
on employee health and managing illness absence. Business-
es continued to implement a health management standard
during the year. The Total Illness Absence Rate has improved
to 1.9 percent (2009: 2.0 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 0.3 illnesses per million hours worked
(2009: 0.4).
With our expansion in high growth countries, we recognize
that there are challenges associated with cultural aspects –
health beliefs and the emphasis on group importance rather
than the individual – as well as differences in healthcare.
During 2010, we strengthened our occupational health provi-
sion in China and Vietnam. They have made important contri-
butions by visiting sites and supporting local management to
identify improvement opportunities.
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 in 2009. Businesses are now
implementing the requirements – the management system
and revised standards for management of change (including
organizational change), contractor safety and hazard studies.
The global process safety network has developed additional
guidance and training materials to support roll-out. We are
using “loss of containment” as the main indicator for asset
integrity management – four categories indicate the severity of
the loss, from small on-site spill (Level 1) to a major emission
of toxic/hazardous materials (Level 4) – see glossary. There
was no serious loss of containment (Level 4) during 2010.
160
Improve | Sustainability | AkzoNobel Report 2010
Loss of containment incidents
0
Significant
29
Not contained at site
168
• Energy consumption per ton of production is stable at
5.7GJ/ton (2009: 5.7GJ/ton). Absolute consumption
was up 14 percent at 111,000TJ (2009: 97,000TJ) due
to higher production volumes, the acquisition of the high
energy Frankfurt site, and partly compensated in the last
quarter by the divestment of our National Starch business
• Greenhouse gas emissions per ton of production
decreased slightly to 267kg/ton CO2(e) (2009: 272kg/
ton). Absolute GHG emissions stand at 5.2 million tons of
CO2(e) (2009: 4.7 million tons). Increase caused by higher
energy intake caused by increased production volumes
Not readily controlled but contained at site
• Direct greenhouse gas emissions (2.0 million tons of
1,520
Readily controlled and contained at site
CO2(e)) are split into 1.7 million tons from fuel burned and
0.3 million tons of CO2(e) process emissions, mainly from
the Soda Ash business in Pakistan and the carbide busi-
ness in Sweden.
Environmental performance
Operational eco-efficiency improvement
Improvement activities are focused on the Operational Eco-
Efficiency (OEE) program described in the Manufacturing
section. This first wave is expected to deliver approximately
3 to 4 percent footprint reduction, resulting in €26 million
recurring cost benefits.
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 report-
ing can be found in the Invent section. 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. Energy reduction is also
part of the OEE program.
Energy use in 1000*TJ
Energy use 1000*TJ
GJ per ton production
250
200
150
100
50
0
6.1
5.7
5.7
116
115
97
111
2007
2008
2009
2010
2007 and 2008 data for former AkzoNobel coatings businesses were
based on factors per ton production.
Greenhouse gas emissions in million ton
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton production
Milestone
248
246
272
267
245
3.1
3.0
3.2
2.8
1.7
1.6
1.9
2.0
5
4
3
2
1
0
300
240
180
120
60
0
2007
2008
2009
2010
2015
Total greenhouse gas emissions made up of direct emissions from processes
and combustion at our facilities and indirect emissions from purchased energy.
2007 and 2008 data for former AkzoNobel coatings businesses were based
on factors per ton production.
7.5
6.0
4.5
3.0
1.5
0
Clean air around our plants
Our air monitoring is focused on volatile organic compound
(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 emis-
sions which contribute to acidification. In 2009, we strength-
ened our NOx and SOx reporting to include the contribution
from fuel burned across our operations. In 2005, before
AkzoNobel’s portfolio change, we set a milestone to reduce
VOC emissions to 4,000 tons by 2010. We continue to reduce
the level of emissions, but have not yet achieved this target
with the changed business portfolio.
Our Specialty Chemicals businesses will continue to manage
VOC emissions from plants in line with regional legal require-
ments. In future, VOC ambitions will be set at BU level, but
monitored at company level. The VOC reduction focus for
our paints and coatings businesses has shifted from control-
ling VOCs in our operations to low/zero VOC product design.
Reducing VOC emissions from our plants remains part of the
AkzoNobel Report 2010 | Sustainability | Improve
161
AKzONOBEL AND SUPPLYING IKEA
It started out as a special soft touch finish for laptop
computers. But when an enterprising global market
sector manager showed it to IKEA, the seeds of a
new opportunity for our Powder Coatings business
were planted.
The technology in question was initially developed for
use on laptop covers. Customers were looking for
eco-efficient solutions that offered new textures, effects
and patterns. So a soft touch topcoat was developed
which met all the demanding specifications.
However, one of Powder Coatings’ furniture sector
managers thought the new range might be of interest
to IKEA and before long a new business opportunity
was born. IKEA will now produce 1.5 million flower
pots during 2011 in Vietnam and Germany, all coated
with our soft touch powder technology. Not only is it
far more eco-efficient in terms of energy consumption
when compared with traditional glaze, but the overall
cost is lower as well.
The product also fits in with IKEA’s drive to encourage
suppliers to use more sustainable materials
and processes.
scope of our OEE program, while our Research, Develop-
ment and Innovation groups (RD&I) are working on projects
to reduce the solvent content of our products – the zero VOC
challenge (see the RD&I section).
Volatile organic compounds in kilotons
Volatile organic compounds
kg per ton production
Milestone
Milestone
• VOC emissions per ton of production were down
12 percent to 0.22kg/ton (2009: 0.25kg/ton) as a result
of site rationalization and the closure of inefficient plants.
Total VOC emissions were up 2 percent to 4.3 kilotons
(2009: 4.2 kilotons), due to increased production rates
• SOx emissions (from process emissions and energy) per
ton of production were down 3 percent to 0.36kg/ton of
production (2009: 0.37kg/ton) due to increased efficiency
in our three sulfur derivatives plants. Absolute emissions
were up 15 percent at 7.1 kilotons (2009: 6.2 kilotons).
Although the main contribution comes from three sulfur
derivatives plants in Germany, the US and Argentina, there
was also an increase from our Pakistan operations, where
scarcity of natural gas has led to higher oil consumption
for power generation
• NOx emissions from our sites per ton of production were
down 17 percent at 0.10kg/ton (2009: 0.12kg/ton). Total
emissions were slightly down at 2.0 kilotons
(2009: 2.1 kilotons)
• 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.
NOx and SOx emissions in kilotons
2007 1
2008 1
2009
2010
NOx
NOx kg/ton
SOx
SOx kg/ton
0.9
4.1
1.1
4.8
2.1
0.12
6.2
0.37
2.0
0.10
7.1
0.36
Emissions may form acid rain that can lead to acidification. The gases are
emissions from manufacturing and combustion of fuel that we burn.
1 main emissions only
• Hazardous waste to landfill per ton of production is down
17 percent to 0.24kg/ton (2009: 0.29kg/ton) and the total
figure is down to 4.7 kilotons (2009: 4.9 kilotons) down
4 percent. This is mainly due to site closures in Moi Rana,
Opava, a successful brine waste recovery project in Deer
Park and improved waste management practices at our
Decorative Paints Europe business.
Total waste in kilotons
Reusable
Non-reusable
Total kg per ton production
Milestone
0.25
0.19
0.20
0.15
0.10
0.05
0.26
4.9
10
8
6
4
2
0
0.25
0.22
0.22
4.0
4.2
4.3
4.0
2007
2008
2009
2010
2010 1
2015
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.
1 2010 milestones were set in 2005, based on the AkzoNobel portfolio that year.
Raw materials efficiency
Effective waste management helps to increase raw material
efficiency in our manufacturing operations, reduces our envi-
ronmental footprint and reduces costs. Our focus is on reduc-
ing 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.
0
400
320
240
160
80
0
15.1
285
199
14.7
249
160
13.1
258
155
10
84
86
89
103
2007
2008
2009
2010
2015
Non-reusable waste is not used for resource recovery, recycling,
reclamation, direct reuse, or alternative uses.
Hazardous waste in kilotons
• Non-reusable waste. We have realized improvements from
projects implemented in the Operational Eco-Efficiency
program, but total non-reusable waste per ton has
increased slightly. Improvements are anticipated in 2011
• Total waste per ton of production generated and leaving
our sites is down 11 percent to 13.1kg/ton (2009:
14.7kg/ton). However, increased production levels and the
new Frankfurt facility have led to absolute waste rising to
258 kilotons (2009: 249 kilotons) an increase of 4 percent.
Due to this acquisition, hazardous waste also increased in
absolute terms
150
120
90
60
30
0
Reuseable
Total kg per ton production
Non-reuseable not landfill
Non-reuseable to landfill
3.3
62
39
23
2008
4.2
71
41
25
4.9
2009
3.9
77
48
24
4.7
2010
19
2007
2007 – 2008 indicate total non-reusable waste.
15
12
9
6
3
0
5
4
3
2
1
0
AkzoNobel Report 2010 | Sustainability | Improve
163
AKzONOBEL AND CUTTING OUT CARBON
Saying that you’re going to become more sustainable
is one thing, but actually embracing the whole concept
of being more eco-efficient and less reliant on fossil
fuels requires positive action.
One of the most active and successful businesses
in AkzoNobel’s concerted drive to lower its envi-
ronmental footprint is Industrial Chemicals. Already
honored externally for its Carbon Policy, it is one of
our most energy intensive businesses, but it has also
adopted an integrated approach to sustainability and
is constantly implementing new and innovative ways of
improving its carbon and ecological footprint.
For example, much of the steam Industrial Chemicals
uses in its various manufacturing processes comes
from waste or renewables, with four plants in Europe
now using energy being created from these sources.
Initiatives involving wind energy are also being investi-
gated, while the business already operates so-called
green barges and runs trucks on bio-diesel, ensuring
that its transportation of products is also sustainable
and that its efforts stretch across the value chain.
In addition, as part of the overall plan to reduce its
carbon footprint, the business is currently engaged in a
site modernization program, which will further optimize
the drive towards more sustainable manufacturing.
164 Page title | Sustainability | AkzoNobel Report 2010
• Reductions in COD in effluent are being achieved across
the company. The COD load to surface water per ton of
production was down 33 percent to 0.10kg/ton (2009:
0.15kg/ton). The total COD load to surface water was
down 24 percent to 1.9 kilotons (2009: 2.5 kilotons).
Improvements are due to the divestment of National Starch
business in the last quarter and improvement projects
executed in this business earlier in the year.
Soil and groundwater remediation
There are substantial costs associated with the assessment
and remediation of historical soil and groundwater contami-
nation. 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, we make provisions for
environmental remediation costs when it is probable that
liability will materialize and the cost can be reasonably esti-
mated. We have set aside €419 million which we believe is
sufficient for the sites where we have ownership or responsi-
bility (see also notes 3, 17 and 21 in the Financial statements).
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.
See the Sustainable fresh water management section for
details of the water program.
Fresh water use in million m3
Fresh water consumption
m3 per ton production
16
16
16
16
304
297
270
309
600
480
360
240
120
0
2007
2008
2009
2010
Total fresh water used from surface, ground or potable water sources.
20
16
12
8
4
0
Chemical oxygen demand in kilotons
Chemical oxygen demand
Milestone
kg per ton production
10
8
6
4
2
0
0.16
0.15
0.15
3.1
2.9
2.5
2007
2008
2009
0.20
0.16
0.12
0.08
0.04
0
0.10
1.9
2010
1.5
2010 1
Chemical oxygen demand (COD) is the amount of oxygen required for
the chemical oxidation of substances in the waste water effluent which
is directly discharged into surface waters from our facilities. It excludes
our effluent treated by others.
1 2010 milestones were set in 2005, based on the AkzoNobel portfolio
that year.
In addition to the intake of fresh water, the emission of contam-
inated water from our sites to surface waters may negatively
impact fresh water resources and eco-systems. We continue
to reduce the COD of our effluent to surface water.
In 2005, before AkzoNobel’s portfolio change, we set a
milestone to reduce COD emissions to surface water to
1,500 tons by 2010. We continue to reduce the level of emis-
sions, but have not yet achieved this target with the changed
business portfolio.
• Fresh water use per ton of production has remained stable
at 16m3/ton (2009: 16m3/ton). Total fresh water use was
309 million m3 (2009: 270 million m3), an increase of
14 percent, mainly due to production volume increases
AkzoNobel Report 2010 | Sustainability | Improve
165
Reporting principles
Reporting scope
This integrated report combines our financial and sustainabil-
ity reporting and is addressed to readers interested in both
areas: shareholders, value chain partners and analysts. In
particular, we seek ways of linking sustainability performance
to business results in areas such as carbon emission reduc-
tion and eco-premium solutions.
Alongside the publication of this report, more sustainabil-
ity information, including an index of all GRI indicators, will
be made available online on our corporate website (www.
akzonobel.com/sustainability).
The information in the AkzoNobel Report 2010 also serves as
a progress report on our implementation of the ten principles
of the United Nations Global Compact. The Global Compact
Index on the website gives an overview of all the topics.
In our 2010 reporting we have made a conscious effort to
extend our application of the Reporting Guidelines issued by
the Global Reporting Initiative (GRI). The topics covered in
this report were selected on the basis of the GRI guidelines,
the sustainability aspects which form part of the AkzoNobel
strategy and various external stakeholders. These include our
engagement with external organizations such as Forum for
the Future, the World Business Council for Sustainable Devel-
opment and the World Resources Institute and third party
questionnaires, notably the influential Dow Jones Sustainabil-
ity Indices.
We have used the principle of materiality to assess the topics
to include in the report, which are current and important for
the company and key stakeholders. Our website includes a
fuller review of processes in place.
Reporting boundaries
AkzoNobel’s 2010 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 quantita-
tive and qualitative information relating to the calendar year
2010 and comparative data for 2009, 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 owner-
ship, or no management control. Former ICI business Chemi-
cals Pakistan has its own management board. The require-
ment to report on specific AkzoNobel sustainability indicators
has been limited to HSE&S and compliance issues. Chemi-
cals Pakistan was included in the Sustainability self-assess-
ment benchmark process in 2010.
Comparability
Previously, our policy was to report new acquisitions within
one calendar year. From 2010, we reported from the date of
purchase, recognizing that there may be reporting improve-
ments required at these facilities. Significant changes which
are reflected in 2010 data are:
• Acquisitions: Industrial Chemicals facility in Frankfurt
(2009), Dow Chemicals Powder Coatings business
(Q2 2010)
• Divestments: Chemicals Pakistan PTA (2009), National
Starch (Q4 2010).
We introduced a revised set of HSE&S KPIs with detailed
reporting guidance for 2009. There are a number of defini-
tion, calculation and reporting differences which impacted 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.
In 2010 we changed our employee survey to Gallup Q12.
The Gallup “grand mean” scores are not comparable with the
previous survey’s percent favorable score.
Reporting process and assurance
The reporting period is 2010. 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 & 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 and calculating data.
Senior managers approved the content and the quantita-
tive 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,
including the scope of the audit, can be found in the Indepen-
dent assurance report section.
Independent assurance report
To the readers of AkzoNobel’s Sustainability
facts and figures:
We have been engaged by the Board of Management of
Akzo Nobel N.V. to provide assurance on the informa-
tion in the section Sustainability facts and figures of the
AkzoNobel Report 2010. The Board of Management of
Akzo Nobel N.V. is responsible for reporting on sustain-
ability in such a way that it provides an adequate view of
AkzoNobel’s sustainability policies, measures and perfor-
mance in 2010. 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.
Our responsibility is to provide assurance on this information
based on the engagement outlined below.
Our engagement was designed to provide:
• Reasonable assurance on whether the information in
the section Managing our values is fairly presented in
accordance with the reporting criteria
• Limited assurance on whether the other information
in Sustainability facts and figures is fairly stated in
accordance with the reporting criteria.
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 the Sustainability Reporting Guidelines of
the Global Reporting Initiative (G3), supported by internally
developed guidelines, as described in the section Report-
ing principles. It is important to view the performance data in
the context of this explanatory information. We believe that
these criteria are suitable in view of the purpose of our assur-
ance engagement.
We conducted our engagement in accordance with the Inter-
national 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.
Work undertaken
We have performed 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 assur-
ance 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 the
section Sustainability facts and figures is supported by
sufficient evidence
• Joining two site visits of the Internal Audit department
in relation to Health, Safety and Environment (Cologne
and Huron).
In order to obtain reasonable assurance on the information
in the section Managing our values, we performed additional
procedures, including:
• Reviewing relevant internal audit work for all business units
• Joining one business unit visit of the Internal Audit
department in relation to managing our values (Marine and
Protective Coatings).
During the assurance process, we discussed changes to the
various drafts of Sustainability facts and figures with AkzoNo-
bel, 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 is fairly presented, in all material respects, in accor-
dance with the reporting criteria.
Based on our procedures for limited assurance, nothing came
to our attention to indicate that the other information in the
section Sustainability facts and figures is not fairly stated, in
all material respects, in accordance with the reporting criteria.
Amsterdam, February 16, 2011
KPMG Sustainability
W.J. Bartels RA
AkzoNobel Report 2010 | Sustainability | Independent assurance report
167
Sustainability performance summary
Economic/Governance/Social
Area
Product
Eco-premium solutions 5
Business integrity
Code of Conduct incidents handled by the
Compliance Committee
H&S 2
Fatalities employees
Code of Conduct trained
Total reportable injury rate employees/supervised
contractors
Lost time injury rate employees/supervised
contractors
Occupational illness rate employees
Total illness absence rate employees
% revenue
number
% employees
number
/million hour
/million hour
/million hour
%
Employees 5
Fatalities contractors (supervised plus independent)
number
Total reportable injury rate independent contractors
/million hour
Lost time injury incidents contractors
% sites with BBS program
Distribution incidents
Motor vehicle incidents with injury
Employee numbers
Women executives
High growth country executives
Online P&D Dialog participation
number
%
number
number
number
%
%
%
Management development program participation
number
Employee engagement index 7
Community program investment
Reliable operations
Management audits plus reassurance audits
Serious incidents – Level 3
Serious incidents – Level 1, 2
Significant loss of containment
Regulatory actions – Level 3
Sourcing 5
Raw material suppliers – vendor policy signed
NPR central suppliers – vendor policy signed
NPR business suppliers – vendor policy signed
Supportive Supplier Visits since 2007
% favorable 7
€m
number
number
number
number
number
% purchases
% purchases
% purchases
number
168 Sustainability performance summary | Sustainability | AkzoNobel Report 2010
2005
2006
2007
2008
2009
2010
2010
2015
Milestones
7.4
2.3
0.5
2.4
76
15
6.8
2.2
0.4
2.3
72
72
4
46
3
18
1
5.3
1.9
0.3
2.2 1
1
–
66
53
76
1.4
64
4
81
18
31
0
4.6
1.9
0.3
2.2 1
0
5.2
–
8
10
60
527
78
1.5
61
2
82
80
20
19
~95
0
3.7
1.5
0.4
2.0
3
2.8
–
56
52
31
25
23
95
1
3.6
1.6
0.3
1.9
0
3.0
–
61
91
34
54,740
55,590
10
11
72
2,708
80
1.4
66
9
24
1
3
85
89
12
12
76
2,752
3.56
1.5
60
10
22
0
4
91
100
62
266
22 (2009)
30
2.0
100
20
20
2.0 3
0.5 3
0.2 3
90
100
50
220
100
152
185
Environmental
Area
Raw material
efficiency
Maintain natural
resources/fresh air
Total waste (excluding Soda Ash process) 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 landfill
per ton production
Fresh water use
per ton production
COD emissions
per ton production
% sites with sustainable fresh water
VOC emissions
per ton production
NOx emissions
per ton production
SOx emissions
per ton production
Total CO2(e) emissions (cradle-to-gate) 5
per ton product 5
Raw material CO2(e) emissions (Scope 3) 5
per ton product 5
Direct CO2(e) emissions (Scope 1) 6
per ton production 6
Indirect CO2(e) emissions (Scope 2) 6
per ton production 6
Total energy consumption
per ton prodcution
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
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
million ton
kg/ton
million ton
kg/ton
million ton
kg/ton
1000TJ
GJ/ton
2005
2006
2007
2008
2009
2010
2010
2015
Milestones
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
16
2.9
0.15
4.0
0.22
1.1
4.8
1.6
85
3.0
161
115
6.1
249
14.7
71
4.2
89
5.2
30
1.8
4.9
0.29
270
16
2.5
0.15
38
4.2
0.25
2.1
0.12
6.2
0.37
14.9 8
853 8
10.8 8
621 8
1.9
110
2.8
162
97
5.7
258
13.1
77
3.9
103
5.3
29
1.5
4.7
0.24
309
16
1.9
0.10
48
4.3
0.22
2.0
0.10
7.1
0.36
16.0
827
11.5
593
2.0
102
3.2
165
111
5.7
84
4.4
19
1
304
16
3.1
0.16
4.9
0.26
0.9
4.1
1.7
87
3.1
161
116
75 3
1.5 3
4.0 3
10.0
100
0.19
-10%
-10%
-10%
-10%
2005, 2006 data: former AkzoNobel businesses in those years.
2007-2010: current AkzoNobel business.
1 Former AkzoNobel businesses only.
2 HSE KPIs: from 2009 report employees/supervised contractors (was employees
only) and independent contractors (was all contractors).
3 Targets set in 2005 have been replaced by 2015 ambitions, baseline
2009.
4 In addition to this figure, our Soda Ash facility in Pakistan generated
on dry basis 533 kilotons (2009: 515 kilotons) of non-
(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 National Starch and Chemicals Pakistan. 2009 figures restated.
6 Includes Chemicals Pakistan and National Starch
7 Employee survey has changed, from % favorable to Gallup Q12 “grand
mean”: average of mean scores for each question (out of 5).
8 2009 figures restated
AkzoNobel Report 2010 | Sustainability | Sustainability performance summary
169
Financial summary
Consolidated statement of income
In € millions
Revenue
Operating income
Financing income and expenses
Income tax
Results from associates and joint ventures
Profit for the period from continuing operations
Non-controlling interests
Discontinued operations
Net income attributable to shareholders
Common shares in millions at year-end
Dividend
2001
2002
2003 1
2004
2005 2
2006
2007
2008 3
2009
2010
14,158
1,162
14,059
1,390
13,106
1,146
12,833
1,588
13,000
1,492
(221)
(294)
55
702
(31)
–
671
285.9
343
(232)
(335)
30
853
(35)
–
818
285.7
343
(248)
(254)
7
651
(49)
–
602
285.7
343
(205)
(412)
10
981
(36)
–
945
285.8
343
(162)
(338)
6
998
(37)
–
961
285.8
343
10,023
10,217
15,415
13,028
887
(134)
(96)
87
744
(29)
438
1,153
287.0
344
778
(151)
(166)
(20)
441
(31)
8,920
9,330
262.3
472
(577)
(232)
(260)
25
(1,044)
(65)
23
(1,086)
231.7
417
855
(405)
(141)
21
330
(77)
32
285
232.3
325
14,640
1,219
(327)
(170)
25
747
(83)
90
754
233.5
320
Number of employees at year-end
66,300
67,900
64,600
61,400
61,300
42,700
42,600
60,000
54,700
55,600
Salaries, wages and other employee benefits
Salaries, wages and other employee benefits
(in % 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
3,416
24.1
3,552
25.3
3,505
26.7
3,216
25.1
3,221
24.8
2,158
21.5
8.2
12.5
24.1
5.3
8.3
2.35
1.20
10.07
57.85
33.73
50.15
9.9
15.4
32.9
6.0
8.9
2.86
1.20
7.34
54.50
27.25
30.23
8.7
13.6
26.2
4.6
7.3
2.11
1.20
8.76
32.44
16.00
30.60
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
8.8
16.3
30.5
6.6
9.4
4.02
1.20
14.44
49.41
38.30
46.18
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
3,022
19.6
2,955
22.7
2,980
20.4
(3.7)
– 4
– 4
– 4
– 4
(4.38)
1.80
32.21
57.11
22.85
29.44
6.6
7.3
3.7
2.1
4.2
1.23
1.35
33.48
46.52
26.01
46.40
8.3
9.6
8.4
3.7
6.0
3.23
1.40
38.47
47.70
37.18
46.49
1 The 2001 – 2003 figures have not been restated to IFRS accounting standards.
The differences mainly relate to pensions and other post-retirement benefits,
the recognition of deferred tax on intercompany profit. 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 2001 – 2005 figures have not been restated for the Organon
BioScences divestment.
3 The 2001 – 2008 figures have not been restated for the
National Starch divestment.
4 Not meaningful as operating income was a loss.
170
Financial summary | Additional Information | AkzoNobel Report 2010
Consolidated balance sheet
In € millions, December 31
2001
2002
2003 1
2004
2005 2
2006
2007
2008 3
2009
2010
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
- Equity/non-current assets
- Inventories and receivables/current liabilities
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
–
–
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
–
4,714
3,389
2,672
3,737
9,395
575
8,692
491
8,117
353
7,145
318
822
635
1.52
0.43
2.25
689
622
1.55
0.31
2.08
581
599
1.56
0.41
2.15
551
540
1.68
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
0.62
1.9
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
0.74
1.87
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
–
7,172
3,357
1,848
7,388
3,474
1,783
7,308
3,384
1,977
12,377
12,645
12,669
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
–
1,441
2,666
2,128
–
6,235
7,775
470
8,245
1,919
3,488
674
6,081
384
3,373
797
–
1,678
2,896
2,851
–
7,425
8,984
525
9,509
1,855
2,880
589
5,324
907
3,761
593
–
4,429
5,693
4,554
5,261
5,197
142
359
330
1.91
2.60
1.47
13,424
11,732
12,718
201
534
453
1.07
0.64
1.36
175
513
424
1.11
0.65
1.22
175
534
435
1.15
0.75
1.22
1 The 2001 – 2003 figures have not been restated to IFRS accounting
standards. The differences mainly relate to pensions and other
post-retirement benefits, the recognition of deferred taxes on
intercompany profit, and the recognition of goodwill.
2 The 2001 – 2005 figures have not been restated for the Organon
BioSciences divestment.
3 The 2001 – 2008 figures have not been restated for the
National Starch divestment.
AkzoNobel Report 2010 | Additional Information | Financial summary
171
Business Area statistics
In € millions
Decorative Paints
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
Performance Coatings
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
Specialty Chemicals
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
2008
2009 1
2010
5,006
598
401
(669)
6,187
8.0
120
4,573
4,968
487
298
133
6,206
6.5
112
548
343
275
6,404
6.9
154
24,600
22,900
21,800
203
24
200
21
228
25
4,575
4,112
4,786
566
467
444
2,004
10.2
89
594
492
433
1,817
12.0
61
647
540
487
2,122
11.3
87
21,000
20,200
20,600
218
27
204
29
232
31
5,687
4,359
4,943
909
605
130
4,055
10.6
305
738
490
422
3,106
11.2
319
939
679
604
3,457
13.7
273
12,900
11,400
11,100
441
70
382
65
445
85
1 Restated for transferred businesses and excluding National Starch, divested in 2010.
2 Before incidentals.
3 At year-end.
172
Financial summary | Additional Information | AkzoNobel Report 2010
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
1 Excluding National Starch, divested in 2010.
2 Before incidentals.
3 At year-end.
2007
2008
2009 1
2010
2007
2008
2009 1
2010
The Netherlands
US and Canada
777
1,368
103
(6)
83
893
4,900
Germany
907
930
66
59
17
365
3,100
Sweden
472
1,406
156
156
53
564
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
3,700
3,800
UK
552
617
14
12
14
486
3,000
1,093
1,206
153
(48)
31
1,324
4,200
Other European countries
3,147
2,068
186
163
66
950
9,000
3,666
2,582
195
113
81
2,359
10,100
792
1,284
(49)
(69)
104
1,489
4,800
1,088
1,089
90
44
19
983
3,700
423
1,284
124
59
37
461
3,500
768
830
82
75
22
1,562
3,800
3,095
2,211
216
115
69
2,420
9,400
803
1,537
(41)
(78)
84
1,290
5,000
1,160
1,096
102
91
22
915
3,500
468
1,475
200
162
19
542
1,855
1,871
136
118
56
1,214
6,100
Latin America
606
475
58
62
15
272
2,700
687
658
110
110
38
142
China
3,330
3,463
154
(608)
94
325
12,000
1,306
1,103
135
89
49
776
4,800
1,054
968
144
(98)
67
861
2,600
2,712
123
114
55
2,554
10,100
1,147
959
121
108
30
767
2,954
3,074
226
225
63
2,762
10,300
1,394
1,168
121
140
30
872
4,300
4,300
997
929
159
157
143
772
1,249
1,177
161
162
147
952
3,400
5,100
6,300
6,100
6,700
Other Asian countries
798
854
67
76
28
1,782
3,900
3,398
2,336
269
172
83
2,616
9,100
784
567
85
76
10
195
3,300
Other regions
430
257
33
28
7
116
1,700
1,866
1,682
199
(110)
43
103
7,800
614
352
45
38
8
174
2,400
1,585
1,389
224
220
27
610
1,780
1,514
212
217
48
766
6,800
7,200
533
341
41
32
7
114
2,200
636
409
57
52
10
221
2,200
AkzoNobel Report 2010 | Additional Information | Financial summary
173
Index
Accounting policies
91
Financial instruments
96, 124, 132
Remuneration
65, 69, 120
Acquisitions and divestments
11, 98
Foreign exchange risk management
124
Report of the Board of Management
Antitrust cases
Audit Committee
Auditor’s report
Board of Management
Borrowings
Business Area statistics
Car Refinishes
Carbon Policy
Cash and cash equivalents
Chairman’s statement
Chemicals Pakistan
Code of Conduct
35
Report of the Supervisory Board
175
Research, Development and Innovation
157, 159
Risk management
Safe harbor statement
inside back cover
118
Functional Chemicals
62
Glossary
134
Health and Safety
8
High growth markets
116, 117
Incidentals
172
Industrial Chemicals
46
Industrial Coatings
78, 145
Intangible assets
110
Internal controls
6
Inventories
39
Investments in associates and joint ventures
22
99
36
47
Segment information
Shareholders’ equity
Sourcing
105
Specialty Chemicals
16, 65, 124
Stakeholder activity
109
108
Strategic agenda
Strategic ambitions
16, 67, 75, 152
Key developments by Business Area
30, 40, 50
Supervisory Board
Community Program activity
26,156
Manufacturing
23, 150
Surface Chemistry
Company financial statements
129
Marine and Protective Coatings
45
Sustainability framework
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Consolidated statement of comprehensive income
Consolidated statement of income
87
88
89
87
86
National Starch
Nomination Committee
11, 13
Sustainability facts and figures
60, 62
Sustainability management
Other financial non-current assets
109
Tax
Outlook
Pensions
10, 16
Ten-year financial summary
14, 79, 93, 112
Trade and other payables
Contingent liabilities and commitments
118
Performance Coatings
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
63
50
Powder Coatings
Product stewardship
13, 68, 80
Profit allocation
13, 86, 92
Property, plant and equipment
Economic Value Added (EVA)
13
Provisions
Emissions and waste
Employees
161, 163
Proxy voting
19, 24, 153
Pulp and Paper Chemicals
Exchange rates of key currencies
93
Regional statistics
Financial calendar
177
Remuneration Committee
40
48
23, 159
135
107
112
68, 80
37
173
62, 66
Trade and other receivables
Wood Finishes and Adhesives
174
Index | Additional Information | AkzoNobel Report 2010
10
61
21, 149
75
90
14, 111, 130
23, 149
30
141
20
18
60
38
142–143
137–169
139
100
170
117
109
49
Glossary
Adjusted earnings per share
Basic earnings per share from continuing operations
excluding incidentals in operating income, amortization of
intangible assets and tax on these adjustments.
Comprehensive income
is the change in equity during a period resulting from
transactions and other events other than those changes
resulting from transactions with shareholders in their capacity
as shareholders.
Eco-efficiency
Eco-efficiency means doing more for less: creating goods and
services while using fewer resources and creating less waste
and pollution.
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.
BBS
Behavior-based safety.
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 life-
cycle. 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, envi-
ronment and security and community involvement.
Code of Conduct incident
The Code of Conduct incidents handled by to the Corporate
Compliance Committee will cover competition law, bribery,
export control, insider trading or auditing matters; or involve
a senior member of corporate staff, business teams or local
management; or have a value greater than EUR 0.1 million.
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 compo-
nents 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
Operating income or EBIT as percentage of revenue and can
refer to margins both before and after incidentals.
EBITDA
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 as percentage of revenue.
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.
EMEA
Europe, Middle East and Africa.
Emerging Europe
Czech Republic, Estonia, Hungary, Poland, Romania, Russian
Federation, Slovenia, Turkey and Ukraine.
Emissions and waste
We report emissions to air, land and water for those substanc-
es which may have an impact on people or the environ-
ment: 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)
Calculated by deducting from net operating profit after taxes
(NOPAT) a capital charge representing the cost of capital.
GHG
Greenhouse gases.
AkzoNobel Report 2010 | Additional Information | Glossary
175
Incidentals
Incidentals are special charges and benefits, results on
acquisitions and divestments, restructuring and impairment
charges, and charges related to major legal, antitrust, and
environmental cases. EBIT and EBITDA before incidentals
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 net financing expenses.
Invested capital
Total assets (excluding cash and cash equivalents, invest-
ments in associates, assets held for sale) less current
income tax payable, deferred tax liabilities and 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 char-
acteristics, 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 signifi-
cant emission of a toxic/hazardous material.
Mature markets
Comprise of Western Europe, the US, Canada, Japan and
Oceania.
Moving average ROI
is calculated as EBIT of the last 12 months divided by average
invested capital.
Natural resource use
We do not report specific natural resource use, except water.
176 Glossary | Additional Information | AkzoNobel Report 2010
We do report our use of energy and wastes from our opera-
tions, and indicate the main raw materials used in our products.
RD&I
Research, Development and Innovation.
Net debt
is defined as long-term borrowings plus short-term borrow-
ings less cash and cash equivalents.
Revenue
Revenue consists of sales of goods, services and royalty
income.
Net income
Net income attributable to shareholders of Akzo Nobel N.V.
Operating income
Operating income is defined in accordance with IFRS and
includes the relevant incidental charges.
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.
Operating ROI
is calculated as EBIT before amortization of the last 12
months divided by average invested capital excluding intan-
gible assets.
Shareholders’ equity per share
Akzo Nobel N.V. shareholders’ equity divided by the number
of common shares outstanding at December 31.
Operating working capital
Operating working capital is defined as the sum of invento-
ries, 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 manu-
facturing 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
The Performance & Development Dialog (P&D Dialog) is
AkzoNobel’s global performance and appraisal system for
employees.
Profit for the period
The sum of net income attributable to shareholders of
Akzo Nobel N.V. and the income attributable to non-control-
ling interests.
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 (TRR)
The total reportable rate is the number of injuries per million
hours worked. Full definitions are in the Sustainability facts
and figures section.
TSR (total shareholder return)
Used to compare the performance of different companies’
stocks and shares over time. It combines share price appreci-
ation and dividends paid to show the total return to the share-
holder. The relative TSR position reflects the market percep-
tion of overall performance relative to a reference group.
Financial calendar
April 21
April 27
April 29
May 3
May 10
July 21
Report for the first quarter
Annual General Meeting
Ex-dividend date of 2010 final dividend
Record date of 2010 final dividend
Payment date of 2010 final dividend
Report for the second quarter
October 20
Report for the third quarter
February 16
Report for the fourth quarter and full-year 2011
Report 2010 including Sustainability Report
The company’s annual financial report has this year been
combined with the sustainability report into one Report 2010.
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.
Report 2010 – 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.
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 Nether-
lands. Business activities are conducted by operating subsidi-
aries throughout the world. The terms “we”, “our” and “us”
are used to describe the company; where they are used in the
chapter “Business 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, develop-
ments in raw material and personnel costs, pensions, physi-
cal and environmental risks, legal issues, and legislative, fiscal
and other regulatory measures. Stated competitive positions
are based on management estimates supported by informa-
tion provided by specialized external agencies.
Concept, design and realisation
Pentagram
AkzoNobel Corporate Communications
Photography
Allon Wechsler
Arie de Leeuw
David Lichtneker
Lee Funnell
Tessa Posthuma de Boer
Tony Burns
Audi
Heineken
Vodafone McLaren Mercedes
Additional photography supplied by the AkzoNobel Business Units
Lithography and printing
Tesink B.V., Zutphhen, the Netherlands
Paper
Heaven 42, printed with bio-ink
Akzo Nobel N.V.
Investor Relations
Strawinskylaan
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
AkzoNobel is the largest global paints and coatings
company and a major producer of specialty
chemicals. We supply industries and consumers
worldwide with innovative products and are passionate
about developing sustainable answers for our
customers. Our portfolio includes well known brands
such as Dulux, Sikkens, International and Eka.
Headquartered in Amsterdam, the Netherlands,
we are a Global Fortune 500 company and are
consistently ranked as one of the leaders in the
area of sustainability. With operations in more
than 80 countries, our 55,000 people around the
world are committed to excellence and delivering
Tomorrow’s Answers Today™.