Report 2012
Performance at a glance
Statement of income
Dividend and earnings per share
Revenue
in € millions
2011
2012
14,604
15,390
EBITDA
in € millions
2011
2012
1,834
1,901
EBITDA margin
% of revenue
2011
2012
12.6
12.4
EBIT
in € millions
2011
2012
1,271
1,276
Adjusted earnings per share
in €
Cash flows
Net debt
in € millions
Ratios
Moving average ROI
in %
+5%
2011
2012
3.10
3.26
+5%
2011
2012
1,895
2,298
+21%
2011
2012
10.5
10.0
-0.5
Dividend per share
in €
=
Operating working capital
% of revenue
Return on sales (before impairment)
% of revenue
+4%
2011
2012
1.45
1.45
2011
2012
13.2
11.2
-2.0
2011
2012
7.8
5.6
-2.2
Net income attributable
to shareholders in € millions
Net cash from operating activities
in € millions
Research and development expenses
in € millions
-0.2
2011
2012
477
(2,169)
2011
2012
396
737
+86%
2011
2012
349
387
+11%
=
Earnings per share from
continuing operations in €
2011
2012
2.29
(7.30)
Capital expenditures
in € millions
2011
2012
658
826
Research and development major
projects % of R&D expenses
+26%
2011
2012
49
50
+1.0
EBIT and EBITDA
in € millions
EBIT
EBITDA
Shareholders’ equity and EBITDA
per common share in €
Operating cash flows
in € millions
Group equity and net debt
in € millions
Shareholders’ equity per common share
EBITDA per common share
Net capital expenditure
Operating cash flows
Group equity
Net debt
2,009
1,419
1,834
1,901
1,271
1,276
60
48
36
24
12
0
8.60
7.81
7.95
38.47
39.25
28.84
10
8
6
4
2
0
519
(492)
396
(658)
2010
2011
2012
2010
2011
2012
2010
2011
737
(826)
2012
9,509
9,743
7,357
936
1,895
2,298
2010
2011
2012
2010
2011
2012
Sustainability
Eco-premium solutions
% of revenue
2011
2012
22
22
=
0
Employee engagement
Gallup GrandMean (out of 5)
2011
2012
3.74
3.80
+2%
Key value chains carbon
footprint assessment (over three-year period)
2011
2012
330
366
+11%
Specialty Chemicals
Performance Coatings
Decorative Paints
Revenue
in € millions
2011
2012
5,335
5,543
EBITDA
in € millions
2011
2012
906
889
EBITDA margin
% of revenue
2011
2012
17.0
16.0
Revenue
in € millions
Revenue
in € millions
+4%
2011
2012
5,170
5,702
+10%
2011
2012
4,201
4,297
+2%
EBITDA
in € millions
EBITDA
in € millions
-2%
2011
2012
611
769
+26%
2011
2012
479
425
-11%
EBITDA margin
% of revenue
-1.0
2011
2012
11.8
13.5
+1.7
EBITDA margin
% of revenue
2011
2012
11.4
9.9
-1.5
Total reportrable rate of injuries
per million hours
Total reportable rate of injuries
per million hours
Total reportable rate of injuries
per million hours
Total reportable rate of injuries
per million hours
2011
2012
3.1
2.4
-23%
2011
2012
2.8
1.8
-36%
2011
2012
2.8
2.6
-7%
2011
2012
3.5
2.7
-23%
Revenue breakdown in %
Revenue breakdown in %
Revenue breakdown in %
Total reportable rate of injuries
per million hours
3.7
3.6
3.1
2.4
2009
2010
2011
2012
Eco-premium solutions
% of revenue
18
21
22
22
2009
2010
2011
2012
A Functional Chemicals
35
A Marine and Protective Coatings
B Industrial Chemicals
C Pulp and Performance Chemicals
D Surface Chemistry
E Chemicals Pakistan
21
20
19
5
B Automotive and Aerospace Coatings
C Industrial Coatings
D Powder Coatings
E Wood Finishes and Adhesives
28
18
23
17
14
A Europe
B Latin America
C Asia Pacific
62
14
24
Total revenue high growth
markets vs mature
Total revenue high growth
markets vs mature
Total revenue high growth
markets vs mature
> 35%
100%
> 45%
100%
> 45%
100%
ABCDEABCABCDE
AkzoNobel
at a glance in 2012
Our geo-mix (revenue) and employees (by region)
Geo-mix revenue
by destination
Employees
by region
Revenue (in € billions)
€15.4
Revenue by Business Area
A Specialty Chemicals
36%
B Performance Coatings 37%
C Decorative Paints
27%
C
A
Employees
50,600
Employees by Business Area
A Specialty Chemicals
21%
B Performance Coatings 42%
C Decorative Paints
D Other
34%
3%
C
B
D
A
B
North America
Mature Europe
Asia Pacific
15%
5,100
38%
21,800
26%
15,100
Latin America
Emerging Europe
Other countries
11%
8%
2%
4,600
2,600
1,400
During 2012, there were various changes to the
company’s portfolio and its leadership. The economic
climate remained volatile and markets worldwide
offered limited opportunity for growth. But we made
good progress and benefited from improvements
in several key areas, while never losing focus on our
customers. More information can be found in this
Report 2012, which takes an in-depth look at our
performance and activities during the year.
A few historical highlights
Hoarding advertising: the planned
construction of the new Sikkens plant
in Sassenheim, the Netherlands,
shortly before World War II broke out
ICI was created by the merger of
four companies, each with its own
distinctive logo. The wavy lines in the
Nobel Industries logo were borrowed
for the new ICI logo
Lacquer manufacturer Sikkens
Lakfabrieken founded in Groningen,
the Netherlands
Nederlandse Kunstzijdefabriek (Enka) is
founded in Arnhem, the Netherlands
ICI is founded via the
Aquitania Agreement
1646
1792
1826
1911
1923
1926
1969
Bofors forge founded in Sweden
Silk manufacturer Courtaulds
founded in Essex, England
Organon is founded in Oss,
the Netherlands, and commences
insulin production
Algemeene Kunstzijde Unie
(AKU) merges with Koninklijke
Zout Organon to form Akzo
Rolling gunpowder at Bofors
at the time when Alfred
Nobel turned the factory into
the most important arms
manufacturer in Sweden
Samuel Courtauld III (1793 –1881),
the founder of Courtaulds and a
titan among Victorian entrepreneurs
Packaging insulin
ICI’s Dulux Paint entered
the retail market in 1953
Alfred Nobel (photo: 1885)
International Paint, with its
renowned red propeller logo,
is the world leader in high
performance marine coatings
KemaNobel merges with the company
Bofors to form Nobel Industries
Akzo Nobel acquires Courtaulds.
Best known brand: International
Akzo Nobel sells its human and
animal healthcare businesses to
Schering-Plough
Announced the divestment
of the North American
Decorative Paints business
1984
1994
1998
2000 2007 2008
2012
Akzo and Nobel Industries
merge to form Akzo Nobel
Akzo Nobel’s Fibers group
is divested and becomes the
independent company Acordis
Akzo Nobel acquires
ICI and changes its
name to AkzoNobel
Akzo’s first corporate
headquarters in Arnhem,
the Netherlands, in the
early 1970s
Launching of the new AkzoNobel.
AkzoNobel’s new brand was
unveiled at a gala event held in
Amsterdam, the Netherlands
Case studies
Throughout our Report 2012 you will find various
case studies highlighting just part of our contribution
to the world around us.
15
A more sustainable future
18
Where your ideas go far
28
Extreme protection
41
Playing as a team
44
Hot property
52
Superior strength and performance
62
Breathe easy
72
Restoring former glories
162
Standing the test of time
168
The fastest spray gun...
177
Creating more with less
4
Contents
Strategy
Chairman’s statement
Our ambitions and strategy
Risk management
Our leadership
Our Board of Management and Executive Committee
Report of the Board of Management
Statement of the Board of Management
Supervisory Board Chairman’s statement
Our Supervisory Board
Report of the Supervisory Board
Business performance
AkzoNobel Specialty Chemicals
AkzoNobel Performance Coatings
AkzoNobel Decorative Paints
Governance and compliance
Corporate governance statement
Remuneration report
Compliance and integrity management
7
8
10
22
31
32
34
40
42
43
45
51
53
63
73
81
82
90
98
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 statements
2020 Sustainability strategy
Consolidated Sustainability statements
Safety
Employees
Value chain
Environment
Independent assurance report
Summaries
Financial summary
AkzoNobel on the capital markets
102
Sustainability performance summary
107
108
109
109
110
111
112
113
153
158
161
163
164
171
178
183
188
193
195
196
200
Index
Glossary
Financial calendar
Disclaimer
202
203
205
Inside back cover
5
Strategy
This section provides an overview of our strategic priorities,
and gives details of the ambitions to which we aspire. You will
also find the Chairman’s statement and learn about how we
manage operational risks.
Chairman’s statement
Our ambitions and strategy
Risk management
8
10
22
Chairman’s statement
Going into 2012, we knew it was
going to be a challenging year.
Economies were slowing down,
the eurozone was full of uncertainty
and raw material prices were
putting a strain on margins in all
our markets.
As the year progressed, conditions remained unfavorable and
operating in such a testing environment proved extremely
challenging. However, despite the constant headwinds, we
combined the resilience of our portfolio with careful but strin-
gent management to realize topline growth of 5 percent and an
EBITDA improvement of 4 percent.
As expected, we saw a continued decline in consumer confi-
dence and in housing markets worldwide, which had a nega-
tive impact on many of our businesses. We were faced with an
additional slowdown in high growth regions, with markets that
had previously been more resistant to the economic crisis also
being affected. The new market reality called for a more focused
business approach, so we implemented various improvements
to supplement the ongoing restructuring which has been taking
place. This positively impacted our results, with Performance
Coatings achieving good growth and improving profitabi-
lity, while Specialty Chemicals had a solid year and Decorative
Paints remained essentially flat. In terms of share price develop-
ment, we achieved a 33.2 percent increase by year-end, outper-
forming the Bloomberg Chemicals Index by 5.3 percent.
Our decision-making throughout 2012 was very much influenced
by the performance improvement program we introduced the
previous year. We set ourselves the ambition of delivering €200
million EBITDA in 2012 and the good news is that we are ahead
of target, delivering €250 million by the end of the year. In addi-
tion, we brought forward our ambition of delivering €500 million
EBITDA in 2014 by one year. We aim to achieve this by earlier
implementation of several actions and by introducing additional
measures in 2013. We will continue to strengthen from within,
striving for operational and functional excellence while building
lasting and profitable relationships with customers all over the
world. This disciplined, customer-focused approach is funda-
mental to our continued success and forms a cornerstone of the
new strategy we have adopted (see later in this section), which
is based on end-user segmentation and is designed to further
improve on our leadership positions in paints, coatings and
specialty chemicals.
It was a year which called for many tough decisions, one of the
most significant being the divestment of our North American
Decorative Paints activities to PPG Industries, Inc. The business
has been significantly improved, but it was clear that further
strengthening of our position would require substantial invest-
ment. Given the depressed economic climate, we decided to
focus our Decorative Paints investment and priorities on key
markets in Europe, and on building our strong existing posi-
tions in high growth regions. Another major decision followed a
prudent review (excluding restructuring benefits) of the balance
sheet, which took into account lower expected market growth
rates. This resulted in a non-cash impairment charge against
the Decorative Paints business’ assets, primarily in Europe.
Our major investments during the year were mainly concen-
trated on expanding capacity and boosting production capabi-
lity, particularly in high growth regions. For example, Industrial
Chemicals and Functional Chemicals both announced expan-
sion projects in China, while Pulp and Performance Chemicals
is building a new Chemical Island in Brazil and Wood Finishes
and Adhesives opened a new site in Vietnam. This ability to
grow organically was crucial given the depressed economic
climate, which offered little encouragement for pursuing acqui-
sitions. However, should the right opportunities come along, we
are in a strong position to make the appropriate investments in
line with our strategic growth ambitions.
ness. We made good progress with our innovation agenda,
highlighted by the launch of Dissolvine StimWell (a stimulation
technology for the oil and gas industry with low environmental
impact) and the introduction of click&go, an ingenious, eco-effi-
cient paint packaging system designed for use on sprayguns
in vehicle refinish bodyshops. Both new products are prime
examples of how we have fully embedded sustainability into
all our activities and processes, a fact which was recognized
by our first place ranking in the Chemicals supersector on the
Dow Jones Sustainability Index. Recognition such as this is
obviously welcome, but we will continue striving to make further
improvements and step up our efforts in areas such as safety.
On a personal note, it was certainly an interesting year. Having
succeeded Hans Wijers as CEO in April, there was a lot of work
to do in terms of fine-tuning my vision for the company and
developing the new strategy. Having to take a temporary leave
of absence was unexpected, but the Executive Committee and
Supervisory Board did an excellent job in keeping the company
moving forward and we are all fully energized and excited about
what lies ahead. There are still key issues to address – we have
to improve our cash management and increase our profitabi-
lity – while the economic climate is likely to remain challenging
for some time. But we are confident that our new strategy will
enable us to take full advantage of our market leadership posi-
tions and our global scale and we remain in a strong position to
achieve our strategic ambitions.
On behalf of the Executive Committee, I would like to thank
our shareholders, and all our colleagues around the world for
their hard work and valued contribution during 2012. Together
we have much to look forward to as we strive to make our
company even stronger and continue to focus on delivering for
our customers.
Operational matters and the state of the global economy
clearly occupied much of our time, but we were not distracted
from remaining committed to other vital areas of our busi-
Ton Büchner
CEO and Chairman of the Board of Management
and the Executive Committee
8
Chairman’s statement | Strategy | AkzoNobel Report 2012
AkzoNobel Report 2012 | Strategy | Chairman’s statement
9
Our ambitions and strategy
As a starting point for defining our strategic agenda,
we initiated a company-wide analysis of the outlook
for the end-user segments that we serve. This is
something that we will continue to do on a regular
basis in order to assess the outlook for our businesses.
Specifically, we will be incorporating end-user segment
analysis into our strategy, budgeting and operational
review processes going forward.
Vision:
Leading
market positions
delivering
leading
performance
End-user
segmentation
Actions
Processes
Strategic
focus areas
10
Our ambitions and strategy | Strategy | AkzoNobel Report 2012
We sell products and services into four main end-user
segments – Buildings and Infrastructure, Transportation,
Consumer Goods and Industrial. A brief profile of each of these
segments, including their sub-segments, is provided over the
following pages. The outlook for these end-user segments
going forward varies, but in general the economic outlook has
become more negative over the past couple of years. Particu-
lar areas of concern are Western Europe from a geographic
perspective and the Buildings and Infrastructure segment
from an end-user perspective. While we continue to expect
growth in high growth markets, going forward, growth rates are
expected to be limited to single digit figures.
AkzoNobel revenue by segment in %
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
45
15
15
25
D
C
B
A
Buildings and Infrastructure
The global Buildings and Infrastructure end-user segment
uses a wide variety of products to build, decorate, protect,
maintain and renovate building interiors and exteriors. Various
products are also used for the construction and maintenance
of infrastructure, such as airports, bridges and roads. The
segment can be divided into three specific sub-segments:
New build projects
• Residential
• Commercial
• Infrastructure
Maintenance, renovation and repair
• Residential
• Commercial
• Infrastructure
Building products and components
• Windows
• Doors
• Joinery
• Flooring
• Roofing and siding
• Structural components
Percentage of AkzoNobel revenue
• 45 percent
Examples of AkzoNobel products sold into this
end-user segment
• Decorative paints used in interiors and exteriors
• Protective coatings used to coat and fire protect metals
in larger buildings and infrastructure
• Coil coatings used in roofing and siding products
• Powder coatings used in extrusions
• Wood finishes and adhesives used for flooring and joinery
• Chlor-alkali products used in many plastic components
• Redispersible powders and cellulosic derivatives used in
building adhesives and coatings
Trends
The Buildings and Infrastructure end-user segment has expe-
rienced a significant contraction since 2006, with limited
recovery since then. Due to continued restrictions in the
mortgage market and low levels of consumer confidence, the
sector remains depressed, impacting all three sub-segments
– New build projects; Maintenance, renovation and repair; and
Building products and components. The outlook in mature
geographies remains neutral at best, while in some areas of
Western Europe, the expectation is that there will be further
declines, even off the existing low base. The outlook for high
growth regions is more positive due to population and wealth
growth, but the growth rates going forward are expected to
be lower than historical growth rates. Government stimulus
packages for infrastructure development are also in place in
many regions.
Future sustainability developments
Even in a difficult market environment, there are pockets of
demand due to the requirement for increased sustainability
and lower energy costs in the Buildings and Infrastructure
segment. Changes in demand due to changes in energy
requirements in residential, commercial and infrastructure
buildings are expected to be considerable. For example,
according to the World Business Council for Sustainable
Development’s (WBCSD) Vision 2050 report, the expectation
is that by 2050, 70 percent of the world’s population will live
in urban areas and 95 percent of new building stock will use
zero net energy. The proportion of buildings heated by fossil
fuels will also fall below 6 percent.
Implications for strategy and actions
To address this difficult end-user segment environment,
AkzoNobel will need to manage product lines and improve
margins in all geographies, while remaining focused on deliver-
ing better value for customers. Innovation will play a vital role
in terms of improving our sustainability profile and establishing
triggers that prompt the use of our products. We will need to
continue to restructure in mature geographies, while in high
growth areas we must continue to ensure strong positions
and appropriate business models.
New non-residential construction1
$ billion, output
EUR & US
Forecast
BRIC
3,000
2,500
2,000
1,500
1,000
500
0
2008
2009
2010
2011
2012
2013
2014
2015
Residential construction
Housing completions million units
2
EUR & US
Forecast
BRIC
15.0
12.5
10.0
7.5
5.0
2.5
0
2008
2009
2010
2011
2012
2013
2014
2015
Total market maintenance and repair
$ billion, output
EUR & US
Forecast
BRIC
3
2,000
1,500
1,000
500
0
2008
2009
2010
2011
2012
2013
2014
2015
Sources: (1/3) IHS / Construction IC (2) Euromonitor International.
Transportation
The Transportation segment covers parts manufacture, assem-
bly and maintenance of cars, trucks, ships, airplanes, trains and
all other products that facilitate movement. Our specialty chemi-
cals are key parts of the process that make components and
coatings play an important functional role in terms of protecting
the underlying vehicle, but are also vital for aesthetics. We recog-
nize the following three sub-segments in Transportation:
Automotive OEM, parts and assembly
• Interior and exterior components and systems
for cars and trucks, including:
• Bumpers
• Instrument panels
• Wheels
• Assembly of cars, light vehicles and commercial vehicles
Automotive repair
• Aftermarket refurbishment and modification
of cars and trucks
• Repair of damage to cars and trucks
Marine and air transport
• Ship and yacht new build
• Ship and yacht maintenance, repair and refurbishment
• Airplane new build
• Airplane maintenance, repair and refurbishment
Percentage of AkzoNobel revenue
• 15 percent
Examples of AkzoNobel products sold into this segment
• Specialty coatings used for interior (e.g. instrument panels)
and exterior (e.g. bumpers) automotive plastics
• Powder coatings for automotive components, such as
wheels and engines
• Chlorine, organic peroxides and metal alkyls used
in the production of automotive plastics
• Automotive refinish coatings
• Marine and yacht coatings for new build and maintenance
• Aerospace coatings for new build and maintenance
Trends
The Transportation segment is expected to continue growing,
with a geographic shift of demand and manufacturing to high
growth regions. Increased use of lighter, alternative materials
is also forecast. Within the sub-segments, in Automotive OEM
and parts and assembly, the dip experienced during the global
recession was marked. However, the recovery has been quite
robust, with continued strong growth in high growth regions and
moderate growth elsewhere. The Automotive repair sub-segment
is expected to continue being more stable and geographically
broad, but with much lower growth. Vehicle car miles driven are
increasing, but both accident rates and repair rates per accident
are falling due to extra safety features, while many motorists are
delaying small repairs due to the difficult economy. The Marine
and air transport sub-segment has seen a major drop in ship-
building and reduced maintenance spend as shipping rates
decline, with some evidence of increased use of more basic
materials for repair. Airplane passenger miles continue to rise,
keeping demand for maintenance more stable.
Future sustainability developments
Sustainability-related concerns and, in particular, the need for
reduced energy use in Transportation are important issues in
terms of customer/consumer demand going forward. Accord-
ing to the WBCSD’s Vision 2050 report, universal access to low
carbon transport is expected by 2050. An 80 percent reduction
in energy use by light duty vehicles is also forecast, along with
a 50 percent drop in shipping/freight transportation. This will
create challenges and opportunities for suppliers to this end-
user segment.
Implications for strategy and actions
In response to the trends in this segment, we will continue to
focus on launching innovative products to improve function-
ality, sustainability and margins, and deliver better value for
customers. A particular focus area will be ensuring we have
the right products as customers shift to new, lighter materials.
For high growth areas in particular, we need to ensure we have
products with appropriate cost-to-serve/value trade-offs. We
must also leverage our global scale to improve efficiency and
effectiveness, and continue restructuring in lower margin
segments and geographies with limited growth potential.
Vehicle (car) miles driven1
Billion car kilometers
China
US
Western EU
3,000
2,500
2,000
1,500
1,000
500
0
2008
2009
2010
2011
Freight rates2
ClarkSea Index $ earnings/day
50,000
40,000
30,000
20,000
10,000
0
2006
2007
2008
2009
2010
2011
2012
Motor vehicles and parts production3
$ billion, value added
1,000
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
2015
Sources: (1) IRF / Euromonitor International (2) Clarkson Research
Services Limited (3) Oxford Economics.
Consumer Goods
The Consumer Goods segment covers products such as
consumer electronics, furniture, domestic appliances, food and
beverage, personal care and cleaning products. Our specialty
chemicals are either vital to the process that makes compo-
nents (e.g. for making plastics used in consumer electronics),
or they are key functional ingredients (e.g. chelates in dish-
washing). As with the Transportation end-user segment, our
coatings have an important aesthetic and design role (such as
powder coatings on appliances), but are also used for protec-
tion, such as packaging coatings used inside cans to protect
the can from the contents and the contents from the can. We
recognize two sub-segments in Consumer Goods:
Consumer durables
• Consumer electronics
• Domestic appliances
• Wood furniture
• Metal furniture
• Toys, recreational and sports equipment
Consumer packaged goods
• Packaged (particularly canned) food and beverage
• Personal care products such as hair care and body care
• Industrial cleaning
• Household cleaning
• Micronutrients
• Pharmaceutical
Percentage of AkzoNobel revenue
• 15 percent
Examples of AkzoNobel products sold into this segment
• Wood finishes, wood adhesives and powder coatings
used for the manufacture of furniture
• Specialty finishes and powder coatings used for
appliances and consumer electronics
• Silica used in consumer electronics
• Packaging coatings used in the manufacture of cans
for food, beer and beverage
• Natural and synthetic surfactants and polymers used in the
manufacture of soap, detergents and personal care products
• Chelates/ethylene amines in dishwashing and detergents
Trends
In Consumer Goods, we see continued growth and a geo-
graphic shift to Asia in terms of demand, production and
design. The growth outlook is fairly positive, due mainly to rising
wealth levels in high growth regions. During the recession, there
was a substantial drop in mature geographies for the Consu-
mer durables sub-segment and so far the recovery has been
muted, notably in furniture. The Consumer packaged goods
sub-segment is more stable and global in nature, but has a
lower growth rate. In both sub-segments, there are changes
in demand patterns. For example, in mature markets, there is
evidence of the “vanishing middle”, with consumers choosing
either higher value premium products or basic alternatives. In
high growth areas, as wealth increases, many new consumers
are coming into the market, but often with demand for products
that are more affordable than those sold into the basic market
in mature geographies.
Future sustainability developments
The WBCSD’s Vision 2050 report foresees major changes in
this end-user segment, due to increased pressure from resource
scarcity. By 2050, it is forecast that people will only use five tons
of non-renewable materials each, down from 85 tons per person
being used in the United States today. Products will be expected
to be longer lasting and recycling of durables and packaging for
non-durables will be fully integrated into business models.
Implications for strategy and actions
Given the trends in this end-user segment, we need to have
appropriate capabilities in high growth areas. This applies to
manufacturing, distribution and technical support, but also to
design and key account management, as the need for managing
multi-level relationships becomes greater. For example, mana-
ging requirements and relationships with original equipment
manufacturers and contract manufacturers will be increasingly
important. Delivering better value for customers through inno-
vation remains fundamental in Consumer Goods. So we must
closely follow trends and be prepared for changes in consumer
needs, as well as seeking opportunities to differentiate through
color, design and/or customer process improvement. We must
also continue to restructure in mature regions as manufacturing
relocates and consumer demand patterns change.
Consumer electronics production1
$ billion, value added
Forecast
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
Domestic application production2
$ billion, value added
Forecast
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
Food and beverage production
$ billion, value added
3
Forecast
2,000
1,500
1,000
500
0
2008
2009
2010
2011
2012
2013
2014
2015
Sources: (1/2/3) Oxford Economics.
Industrial
The Industrial end-user segment covers production activities as
varied as oil and gas, metals and mining, electricity and utilities,
agricultural, chemical manufacturing and pulp and paper manu-
facturing. Our specialty chemicals perform a variety of roles in
this segment. We supply products such as chlorine and caustic
soda that are a key building block for producing chemicals.
Various products also support the production process, but are
not included in the final production process outcome, such as
bleaching chemicals for manufacturing pulp and organic per-
oxides for plastics production. In addition, many specialty
chemicals are included in formulations and play a vital functional
role in the final product, such as surface chemicals used in oil
and gas and agricultural applications. We also sell liquid protec-
tive and powder coatings which play some aesthetic role, but
primarily provide functionality such as fire and corrosion protec-
tion. We recognize two sub-segments in the Industrial segment:
Natural resource and energy industries
• Oil and gas extraction
• Metals and mining
• Energy and electricity generation
• Water and wastewater treatment
• Agriculture
Process industries
• Bulk chemicals
• Specialty chemicals
• Pulp production
• Paper manufacturing
Percentage of AkzoNobel revenue
• 25 percent
Examples of AkzoNobel products sold into this segment
• Chlorine, caustic soda, ethylene amines and cellulose-
based, sulfur-based and silica products used as a building
block or a process facilitator in many industrial applications
• Chelates and surfactants used in oilfield applications
• Synthetic/natural polymers used in wastewater treatment
• Surfactants, ethylene amines, sulfur products and chelates
used for agricultural applications
• Organic peroxides, metal alkyls and polymer additives
used in the production of plastics
• Bleaching chemicals, caustic soda and chelates used in
pulp production
• Retention chemicals used in paper production
• Protective coatings used for oil and gas up and downstream,
as well as energy and water and wastewater installations
• Powder coatings used on pipes
Trends
Many markets within this end-user segment are fairly cycli-
cal, with substantial swings in demand. However, some are
subject to different cycles (agricultural), while others are lower
growth and not as cyclical (pulp and paper). During the last
recession, the impact of the economic cycle was more limited
than expected, based largely on robust high growth country
demand. In particular, the oil and gas market was quite strong
on the basis of high oil prices. We continue to expect buoyant
demand in energy and utilities as high growth regions build infra-
structure and mature markets replace existing infrastructure, in
many cases with more sustainable solutions. We also expect
reasonable demand in other markets covered by this end-user
segment, especially outside the mature European region as
industrial confidence appears to be growing in the United States
and in all high growth markets.
Future sustainability developments
The WBCSD’s Vision 2050 report foresees major changes in
the Industrial end-user segment. As well as a four to ten-fold
improvement in the eco-efficiency of resources and materials,
it is expected that closed loop processes will make landfills
obsolete and cooperation across sectors will become the norm.
Implications for strategy and actions
To ensure we are well-positioned, we need to manage product
lines and improve margins in all geographies, while remaining
focused on delivering better value for customers. Innovation will
play a vital role in terms of improving our sustainability profile and
establishing triggers that prompt the use of our products. We
need to continue restructuring in mature geographies, while in
high growth areas, we must continue to ensure strong positions
and appropriate business models.
Chemical production1
$ billion, value added
Forecast
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
2015
Energy and utilities construction2
$ billion, output
Forecast
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
Purchasing mangers’ index3
China (HSBC)
Eurozone (HSBC)
US (ISM)
60
55
50
45
40
Oct 09
Oct 10
Oct 11
Oct 12
Sources: (1) Oxford Economics (2) Business Monitor International
(3) Markit Economics, Institute of Supply Mangement.
A more sustainable future
Radically improving your eco-footprint while significantly
increasing production capacity would be considered a
major challenge in any industry. But that’s exactly what we
took on when we announced the investment of €140 million
to convert our chlorine plant in Frankfurt, Germany, to the
latest, state-of-the-art membrane electrolysis technology.
The new facility will increase current capacity by around
50 percent while reducing our ecological footprint by nearly
a third. For example, electricity consumption per ton of
product will be improved by almost 30 percent and brine
cleaning waste will also be cut by roughly the same amount.
Meanwhile, adopting the new membrane technology means
mercury usage will no longer be necessary.
Work is already underway switching over to new, single
element, electrolysis cells, which will replace the existing
amalgam cells – technology which is now 40 years old.
Construction activity began in late 2012 and represented an
important milestone on our path towards a more
sustainable future.
Due to come on stream in the fourth quarter of 2013, the
new and improved plant will help to reinforce our Industrial
Chemicals business’ leadership position in Europe’s caustic
lye and chloromethanes markets. By increasing chlorine
capacity to an expected 250 kilotons per year, we will also
be able to meet robust demand and continue to support
the growth of our customers.
AkzoNobel Report 2012 | Strategy | DRAFT 3
15
Our ambitions
Our strategic ambitions are as follows:
Achieve return on sales (operating income/revenue)
of 9.0 percent by 2015
Achieve return on investment (operating income/
average 12 months invested capital) of 14.0 percent
by 2015
Maintain net debt/EBITDA lower than 2.0 by 2015
Increase revenue from downstream eco-premium
solutions to 20 percent of our revenues by 2020
Reduce our carbon emissions through the value
chain (excluding Scope 4) by 25 to 30 percent per
ton by 2020 (2012 base)
Improve resource efficiency across the full
value chain
16
Our ambitions and strategy | Strategy | AkzoNobel Report 2012
AkzoNobel’s vision is to have: Leading market positions deli-
vering leading performance. Our ambitions and agenda reflect
our view that in order to be a true leader, we must achieve
leadership in both financial and non-financial aspects of our
business. Given the modest outlook for end-user segment
growth, our financial ambitions and strategic agenda are
strongly focused on operating income, cash generation and
return on capital. This is based on the principle that, even
if our revenue growth opportunities are more modest going
forward than they were historically, we still need to generate
higher returns to be a true leader.
From a non-financial perspective, we will focus on safety,
carbon footprint, resource efficiency and eco-premium solu-
tions. Going forward, we will focus more on innovative solutions
that lead to higher levels of resource efficiency in our down-
stream value chain (i.e. with our customers and consumers).
Strategic focus areas
Processes
Diverse and inclusive talent development
The active participation of a strong and motivated workforce
which reflects the diversity of the end-user segments we serve
is required if we are to deliver on our vision and ambitions. We
must therefore continue to build our programs and processes
in order to achieve substantially higher levels of employee
engagement and diversity at various levels in the company.
We will do this through company-wide talent management.
In order to achieve our ambitions, we have established a clear set of
strategic focus areas throughout the company.
Care for the customer
The starting point for everything we do must be understand-
ing and serving our end-user segments in a profitable way.
This requires segmentation which is focused on customer and
consumer needs, and product and process innovation that
addresses those needs. We will continuously review leading
indicators in our segments so that we can be proactive. In
addition, we need to make sure that we have a supply chain
which allows us to deliver on-time and right-first-time service.
To ensure that this is beneficial for customers, consumers and
AkzoNobel, we must also optimize our cost-to-serve levels.
Reduction of product and process complexity
We need to reduce complexity wherever possible. This incorpo-
rates reducing product and stock keeping unit (SKU) complex-
ity, but it also means reducing unnecessary process complexity.
Cash and return on investment (ROI)
Although we are a very large paints, coatings and specialty
chemicals supplier, we aspire to improve significantly when
it comes to cash generation and return on investment. We
strive to make balanced decisions to improve our businesses
structurally and continuously.
Embedded safety and sustainability
Safety will always be first on our agenda. Regarding sustain-
ability, we continuously improve, as evidenced by our contin-
ued strong performance in the Dow Jones Sustainability
Index. We will enhance our focus on improved resource effi-
ciency in the downstream value chain (i.e. with customers,
consumers and in end-of-life) to build on our existing resource
efficiency activities in our own scope and with our suppliers.
We are standardizing a number of processes in the company
to benefit from our scale. We have defined a specific set of core
processes that will help to build on the strengths of AkzoNobel
company-wide. These are:
Behavior-based and process safety
We have had, and will continue to have, one approach to safety
across the entire company, regardless of market sector or geo-
graphy. This includes personal safety – which we refer to as
behavior-based safety – and safety in our production activi-
ties, which we refer to as process safety. Within the innovation
process, we will also be addressing product and process safety
opportunities.
In 2012, we took a number of important steps with regard to
behaving safely. Specifically:
• TakeCare program
• Life-Saving Rules
• Substance management
Going forward, rather than inventing new processes or frame-
works, our focus will be on disciplined and rigorous implemen-
tation of existing initiatives.
Operational Control Cycle
To ensure that we are dependable and focused on cash
and return on investment, we need to have a coherent and
disciplined operational management process. This process
must take a forward-looking view. It starts with our end-user
segment view and drives our planning, our actions and our
continuous follow-up at various levels of the company.
AkzoNobel Report 2012 | Strategy | Our ambitions and strategy
17
Where your ideas go far
Attracting promising new talent and retaining employees
with high potential are key to the success of any company
with aspirations to be the best. With our sights firmly set on
becoming the world’s leading paints, coatings and specialty
chemicals company, we attach huge strategic importance
to the attraction and retention of talent and the continued
development of our employees.
We are already recognized as being a highly collaborative
organization that offers an accessible working environment,
where sustainability and entrepreneurial spirit are key. But in
order to better position ourselves as an employer of choice
and differentiate ourselves from the competition, we have to
do even more.
So we have developed an Employee Value Proposition, or
EVP. Essentially, it’s an articulation of what we stand for as
an employer and outlines what employees can expect from
us in terms of their role, development, work environment
and reward. To help bring it to life, we’ve embodied our EVP
in a concept called Where your ideas go far. It will enable us
to better communicate the deal between prospective and
current employees and help ensure that we have in place
the talents we need to achieve our ambitions.
Our EVP also gives us a clear and consistent approach
to recruitment and talent development around the world.
It sends a strong message that we are looking for people
who can see what is happening in the world around them –
whether that’s climate change or the increasingly rapid pace
of urbanization – and who can use those insights to develop
ideas of what tomorrow should look like. How we should
live, how we should travel, what type of buildings we should
live and work in. In short, our EVP makes it explicit we’re
looking for people who have the energy and determination
to create the future with our customers and take AkzoNobel
and the world forward, one step, every day.
Actions
Continuous improvement
As is the case with the Operational Control Cycle, a rigorous
continuous improvement process is required. This applies
not only in our factories, but also in other areas of our
operations, such as office activities and distribution. In our
continuous improvement process, we incorporate the follow-
ing important concepts:
• Continuous improvement starts with the customer
• We must understand, standardize and improve processes
that deliver customer value, seeking excellence by
reducing variation (often referred to as Six Sigma activities)
and waste (often referred to as “Lean”). By waste,
we mean all forms of waste, including over-processing,
time, skills and capabilities, in addition to process defects,
over-production, wasted transport and inventory
• We need to continuously learn using a structured
plan-do-study-act (PDSA) approach, based on data
and facts
Innovation
Effective and efficient innovation processes are fundamental if
we are to care for the customer, in that good processes deliver
products with better functionality, improved eco-efficiency
and/or lower costs for customer and/or consumer benefit.
This includes processes that enable delivery of opportu-
nity identification, concept generation, solution development,
commercialization and continuous improvement in response
to customer and market needs. The focus will not only be in
the area of new product development, but also on simplify-
ing existing product portfolios and innovation in manufacturing
and distribution processes.
Procurement
To leverage our scale, harness innovation and combine the
capabilities of our suppliers with our own, we need to take
an AkzoNobel approach to procurement. Sustainability is also
becoming an increasingly important topic in our own discus-
sions with suppliers. We have been harmonizing and standard-
izing processes such as strategic sourcing, key supplier and
account management and operational procurement (including
purchase-to-pay, or P2P) processes. Standardization of these
processes will accelerate going forward.
Talent management
In order to deliver diverse and inclusive talent development, we
must have one talent management process across the whole
of AkzoNobel, which engages and motivates a high quality,
diverse workforce. This talent management process includes:
• Planning for talent needs based on diversity and inclusion
goals and utilizing disciplined workforce planning
• Attracting, acquiring and on-boarding based on a clear
employee value proposition (see case study opposite)
• Assessing performance and potential through
performance dialogs, development planning, development
centers and talent reviews
• Development and retention via cross-BU/functional
moves, challenging assignments, mentoring, coaching,
learning (e.g. the AkzoNobel Academy)
• Deployment of personnel based on solid succession
planning and rich internal talent pools
These strategic focus areas and core processes will result
in a set of key actions that lead us to our goal of leadership in
coatings and specialty chemicals.
Deliver dependably
We must deliver on our promises whether they are to the
financial market, to customers, to suppliers, or to one another.
Grow organically
We need to build on our strong market sector and geographic
positions. The starting point for this is capitalizing on the significant
investments that we have made over the last few years, including:
• The creation of additional production capacity in high
growth regions, such as investments in China (at our
Ningbo multi-site; for new production capability for
Decorative Paints; and to add capacity for Automotive
and Aerospace Coatings in Changzhou), and in Brazil
(Chemical Islands for bleaching chemicals)
• Improvements in capability in mature geographies
such as our investment in North East England to build
a world class, hi-tech manufacturing facility and the
de-bottlenecking of our existing manufacturing sites in
Örnsköldsvik and Sundsvall, Sweden
We will need to be more selective in our investments going
forward given the uncertainties in the market and our focus
on cash and return on investment. Therefore, we are already
making difficult choices about where to invest. A good example
is the divestment of our North American Decorative Paints busi-
ness. In 2012, we decided to prioritize our resources and focus
on those areas where our end-user segment analysis indicates
there will be better growth potential.
AkzoNobel Report 2012 | Strategy | Our ambitions and strategy
19
Innovate
Innovation is vital for organic growth and embedded sustain-
ability. Good examples of the kind of product innovation that
fit this profile are:
• Emulsion paints which are diluted at the point of use.
This provides a sustainability benefit of reduced energy
use in transportation
• Dissolvine StimWell biodegradable well stimulation
technology for the oil and gas industry, derived
from renewable resources (see case study in the
Our leadership section)
• Dulux Guardian interior wall paint, which has been
launched in India with a well-being proposition:
low-VOC, low-odor and anti-bacterial
Innovation is also vital for simplicity and focus on cash and return
on investment. We need to take an innovative approach to
process improvement to cut costs and enhance effectiveness.
For example, we have reorganized our Marine and Protective
Coatings business along market sector lines and now operate
three distinct, streamlined activities – Marine, Protective and
Yacht coatings. They are supported by global organizations
in research, development and innovation (RD&I) and supply
chain. This will ensure that we take a global approach to inno-
vation and complexity reduction.
Simplify
By simplifying our product ranges and processes we can
deliver care for our customers while ensuring that we maxi-
mize our cash and return on investment. Complexity reduc-
tion is therefore crucial if we are to capture the benefits
created by our considerable global scale.
20
Our ambitions and strategy | Strategy | AkzoNobel Report 2012
A good example of successful simplification is in our Powder
Coatings business in Europe. Following the acquisition of
the Rohm & Haas powder business, we had a very complex
product range, with considerable duplication. By creating a
much smaller, but better formulated range, we have been
able to capture the benefits of scale internally, while offering
customers the best quality products, often with shorter lead
times and greater availability.
our scale as part of our transition from large to leading.
For example, we are standardizing product branding pro-
cesses within Decorative Paints at Business Area level,
while at Specialty Chemicals Business Area level, we will be
standardizing process engineering and enterprise resource
planning (ERP) processes. Other processes will be standard-
ized and continuously improved at business unit or market
sector level.
Continuously improve
We aim to have robust and consistent processes for perfor-
mance improvement, which will be rolled out to the organi-
zation through operational excellence training as part of the
AkzoNobel Academy. Instead of project-based improve-
ments, we aim to generate these improvements continuously,
based on our process and innovation strength.
Summary
AkzoNobel now has a clear set of strategic focus areas, a
defined set of core processes and a set of key actions that
drive our goal of: Leading market positions delivering leading
performance. We will deliver dependably and focus on organic
growth, process strength and continuous improvement. We
have sustainability at our core and drive relationships across
the value chain to incorporate innovation which reduces our
own ecological footprint and the footprint of other stakehold-
ers. We will inspire our employees to perform better every day
and together we will move the company forward.
Product line simplification isn’t the only way to take advantage
of our global scale. Process simplification can also provide
significant advantages. In our Procurement and Finance func-
tions, for example, we are simplifying our back office proces-
ses, allowing us to carry out these tasks more efficiently and
improve productivity with no impact on customer service levels.
Standardize
Once we have defined a process, we must standardize it.
Core processes are being defined at the highest level of the
organization that we can use to leverage our scale. As indicat-
ed earlier, we are ensuring core processes at the AkzoNobel
level for safety, operational control, continuous improvement,
talent management, procurement and innovation.
The use of standardized processes for improved efficiency and
effectiveness is a key element of our performance improvement
program, which was originally designed to generate an addi-
tional €500 million EBITDA by 2014. We exceeded the program’s
target for 2012 by delivering €250 million of improvements
(the original ambition for 2012 was €200 million). By accel-
erating the program and by introducing additional measures,
we aim to deliver our program benefits a year early, in 2013.
Some processes will also be standardized at other levels
of the organization to capture the advantages created by
End-user
segmentation
Buildings
and Infrastructure
Transportation
Consumer Goods
Industrial
Actions
Deliver dependably
Grow organically
Innovate
Simplify
Standardize
Continuously improve
Processes
Strategic
focus areas
Behavior-based and
process safety
Operational Control Cycle
Continuous improvement
Innovation
Procurement
Talent management
Care for the customer
Reduction of product and
process complexity
Cash and return
on investment
Embedded safety
and sustainability
Diverse and inclusive
talent development
Vision:
Leading
market positions
delivering
leading
performance
AkzoNobel Report 2012 | Strategy | Our ambitions and strategy
21
Risk management
Doing business inherently involves taking risks,
and by taking measured risks we strive to be
a sustainable company. Risk management is an
essential element of our corporate governance
and strategy development.
22
Risk management | Strategy | AkzoNobel Report 2012
We foster a high awareness of business risks and internal
control, geared to safeguarding our risk appetite and provid-
ing transparency in our operations. The Executive Commit-
tee is responsible for managing the risks associated with our
activities and, hence, for the establishment and adequate func-
tioning of appropriate risk management and control systems
(see Statement of the Board of Management in the Our leader-
ship section).
AkzoNobel risk management framework
Through our risk management framework, we seek 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 Executive Committee reviews our
risk management and control systems and our major busi-
ness risks, which are subsequently reviewed by the Super-
visory 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, Code of
Conduct, company values, authority schedules, policies and
corporate directives. Our risk appetite differs by objective area
and type of risk:
• Strategic: In pursuing our strategic ambitions, we are
prepared to take considerable risk related to achieve
our growth, innovation and sustainability objectives.
Returns on investment in the development of innovative
products and sustainable solutions are never certain. Yet
considerable funds and efforts are spent on research,
development and innovation, even in less certain
economic circumstances.
• Operational: With respect to operational risks, we
continuously strive to minimize these risks. Our risk
appetite is very limited. We are executing programs
geared towards improving our operational and functional
excellence. Our risk appetite is governed by our ambition
to strive for top quartile safety performance, top quartile
performance in diversity and talent development, top
quartile eco-efficiency improvement rates and a top three
position in the Chemicals supersector of the Dow Jones
Sustainability Index.
• 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 22 in the Financial statements section.
• Compliance: We do not permit our employees to take any
compliance risk and have a zero tolerance policy in relation
to breaches of our Code of Conduct. See the Corporate
governance section for more details.
Risk management in 2012
Enterprise Risk Management is a bottom-up process which
provides full 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 2012 risk management
activities was performed by the Executive Committee, business
unit Managing Directors and Corporate Directors, in associa-
tion with the risk management function. Besides the focus on
coverage of our organization, emphasis is put on organizational
changes, key strategic projects and high growth regions.
During 2012, we held more than 100 facilitated Enterprise
Risk Management workshops. More than 4,000 risk scena-
rios were identified and prioritized by management teams and
functional experts. In addition, in selected areas with low risk
tolerance, dedicated risk assessments were performed to safe-
guard our risk appetite. All major risks were responded to by
the unit that identified them. The outcome of all risk assess-
ments 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, 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
Executive Committee, are presented in the following pages. An
unexpected event in 2012 was the absence of our CEO due
to illness and the consequential delay of the strategic update.
Furthermore, we were faced with continued deterioration of
market conditions, especially in Europe.
Major risk factors
Under the explicit understanding that this is not an exhaustive
list, the major risk factors that may prevent full achievement of
our strategic ambitions are listed in detail in this section. 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. The company’s risk management systems
endeavor to ensure the timely discovery of such incidents.
An overview of our major risk factors follows. The five risks that
we currently assess as the most significant for the forthcoming
five years are indicated.
AkzoNobel Report 2012 | Strategy | Risk management
23
We have identified major risk factors that may
prevent full achievement of our strategic ambitions.
These are explained in more detail over the
following pages, with the top five risks highlighted.
Major risk factors assessed by AkzoNobel
Internal
Strategic
External
Strategic
• Identification of major transforming technologies
• Worsening of economic conditions
• Implementation of strategic agenda
• International operations
• Ensuring stakeholder support
Operational
• Attraction and retention of talent
Operational
• Management of change
• Production process risks
Financial
• Sourcing of raw materials
• Energy pricing and emission trading rights
• Product liability
• Environmental liabilities
Financial
• Cash flow
• Contribution to pension funds
• Decline of asset values
• Fluctuations in exchange rates
Compliance
Compliance
• Complying with laws and regulations
24
Risk management | Strategy | AkzoNobel Report 2012
Internal Strategic
Internal Operational – Top five risk
Internal Operational
Identification of major
transforming technologies
Attraction and retention
of talent
Our success depends on the sustainable growth of our business through
research, development and innovation. If we are not able to identify major
transforming technologies in a timely manner, this may lead to the loss of
our leadership positions and adversely affect our business and results.
Risk corrective actions
The risk of missing relevant technology developments is mitigated in four
ways. Firstly, we adequately support research and development with a
spend level of between 2 and 3 percent of revenue (2012: 2.5 percent
or €374 million), with 50 percent spent on major projects and technology
developments. Secondly, our key projects have detailed technology road-
maps which assess the most appropriate routes. Thirdly, we are actively
developing our open (external) innovation capability to identify and utilize the
most promising technology platforms. These technology platforms are used
as an integral part of VISTA projects, where we define technology and market
opportunities. Finally, we have created two Science Advisory Boards (SABs)
to advise and guide the RD&I Corporate Director and the RD&I Leadership
Team on diverse aspects of external research and the benchmarking of
our own R&D capabilities. Specifically, the Boards are helping us to identify,
assess and evaluate scientific and technological opportunities for sustainable
innovation. Where appropriate, they also suggest centers and individual
experts the company might consider developing relationships with to
advance identified opportunities.
Our ambitious growth plans may not be achieved if we fail to attract
and retain the right people.
Risk corrective actions
Growing our business calls for the need to grow our people.
Therefore, AkzoNobel puts emphasis not only on attracting and
retaining employees, but also on motivating them and developing their
capabilities. As part of this drive, we are stepping up our actions to
strengthen our corporate identity and to build a functionally excellent
One HR organization focused on best-in-class talent management.
Our ultimate goal is to be recognized internally and externally as the
employer of choice. To achieve this, we have a number of priority
focus areas including professionalizing recruitment, improving our
talent management processes and harmonizing key HR administration
processes to provide efficient service and free up time for the
business partnering that is crucial to helping us attract, develop and
retain superior people. In addition, as part of the overall performance
improvement program, we have set up the AkzoNobel Academy. This
is specifically focused on building capability across the company and,
in particular, at providing a higher level of general leadership, project
and change management skills, as well as creating a consistent
approach to specific functional capabilities.
Production process risks
Risks in production processes can adversely affect our results. These risks
concern areas such as personal health and safety, process safety, product
safety and operational eco-efficiency. Unlikely scenarios can involve
major incidents with a high impact for our organization, causing business
continuity risks and reputational damage.
Risk corrective actions
We held a company-wide Safety Day in 2012 focused on launching our
TakeCare and Life-Saving Rules programs. The TakeCare program is the
umbrella for all existing and future safety initiatives at business and central
level, introducing one safety mission and identity. The Life-Saving Rules
program introduces a “golden principle” and eight basic safety rules that
will be mandatory as of April 2013, for all AkzoNobel employees and all our
contractors. We continue with our business continuity planning and have
appropriate risk transfer arrangements in place (for example insurance).
To achieve our operational eco-efficiency (OEE) ambitions, we have initiated
improvement activities based on our 2010 review of waste management,
water consumption, volatile organic compounds (VOCs) and energy. We
are actively engaging in stimulating continuous improvement on OEE and
initiating process and technology changes which will deliver step change
improvements. To help realize our safety ambitions, we have defined
clear KPIs and increased management attention on people safety, as well
as implementing enhanced process safety (such as asset integrity) and
occupational health standards and improving the HSE audit process.
Internal Strategic
Internal Operational – Top five risk
External Strategic – Top five risk
Implementation of
strategic agenda
A failure to properly and fully implement our strategic agenda could
adversely affect our company and its businesses. Our ability to grasp future
opportunities might be hampered by the speed of the implementation of
core processes and performance improvement programs.
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. Risks are minimized as
we operate in attractive industries, have global leading positions and have
strong executive leadership in place. In August 2012, we implemented a
new monthly Operational Control Cycle designed to manage our business
in a more operational way, with particular emphasis on a forward-looking
outlook. A modification to the executive remuneration system will be made
to ensure executives are fully focused on the company’s overall priorities.
Furthermore, our long-term executive remuneration is partly linked to our
ranking in the Chemicals supersector of the Dow Jones Sustainability Index
(SAM assessment). (See Remuneration report chapter in the Governance
and compliance section).
Management of change
International operations
We undertake various restructuring, investment and performance
improvement projects that require significant change management
and project management expertise. Failure to manage these change
projects appropriately, or to implement such projects, may lead to
inability to achieve our strategic ambitions.
Risk corrective actions
Risk management is an integral part of project management excellence.
Senior management is involved in all 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. Major initiatives, such as the performance improvement program
and business restructuring projects, are under the direct supervision
of dedicated Executive Committee members. Furthermore, we have
included project management and change management curricula in
our AkzoNobel Academy.
We are a global business with operations in more than 80 countries.
Therefore, we are exposed to a variety of risks, many of them beyond
our control. Unfavorable political, social or economic developments
and developments in laws, regulations and standards could adversely
affect our business and results of operations. Our aspirations to fuel
growth in high growth markets will further expose us to these risks.
Risk corrective actions
We spread our activities geographically and serve many sectors to
benefit from opportunities and reduce the risk of instability. 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. We have also set up a dedicated Middle East organization
responsible for all AkzoNobel business in the countries belonging to
the region.
AkzoNobel Report 2012 | Strategy | Risk management
25
External Strategic – Top five risk
External Strategic
External Operational
Worsening of economic conditions
Ensuring stakeholder support
One of the principal uncertainties continues to be the development of
the global economy. The global economic conditions remain fragile
and it is difficult to predict customer demand and raw material costs.
Construction and housing markets are expected to remain soft in mature
markets and our Decorative Paints business in particular has been
affected by the market downturn. The likelihood of a European sovereign
crisis may have decreased but the chronic fiscal imbalances may further
adversely impact the global, regional or national economies in markets
where we operate. Failure to adapt adequately and in time can be
harmful to our business and results.
Risk corrective actions
The Executive Committee has defined a comprehensive performance
improvement program to deliver €500 million EBITDA, based on
functional and operational excellence. Around 40 percent of the
anticipated benefits will come from programs to decrease complexity
and to optimize the supply chain, and a further 50 percent from margin
management, research and development initiatives and business
restructuring programs. These benefits will accrue across our Business
Areas. We continue to apply various scenarios for planning and
budgeting to be best prepared for further changes in
economic conditions.
External Operational
Sourcing of raw materials
We use significant amounts of various raw materials in manufacturing
our products. Prices for some key raw materials can be volatile and are
affected by economic conditions. The table to the right shows our relative
spend on these key raw materials, excluding energy. We are, to some
extent, able to pass on higher input prices to our customers, but this is, to
a large extent, dependent on market conditions. We may also be impacted
by inability to access sufficient raw materials, business interruption or
product discontinuation at some of our key suppliers. Inability to access
sufficient raw materials, increases in cost and expenses for raw materials
and energy, and changes in product mix may adversely affect future results
and growth.
Risk corrective actions
Our strengthened global sourcing strategy enables us to bundle
the purchasing power, both in product related and non-product related
requirements. We use our purchasing power and our 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 made an inventory of
single and sole sourced raw materials and are actively pursuing plans to
improve this situation. We continuously monitor the markets in which we
operate for developments and opportunities and adapt our purchasing
strategy accordingly.
26
Risk management | Strategy | AkzoNobel Report 2012
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. Across the organization we
encourage our employees to participate in one of many ongoing
Community Programs, thereby supporting local societies.
Breakdown of total raw material spend in %
A Chemicals & intermediates* 26
B Resins
C Additives
D Titanium dioxide
E Solvents
F Coatings specialties
G Packaging
H Pigments
I Other raw materials**
18
12
10
9
8
8
4
5
* Chemicals and intermediates include
caustic soda, acetic acid, tallow,
ethylene, ethylene oxide, sulfur,
amines etc.
** Other raw materials include cardolits,
hylar etc.
Energy pricing and emission
trading rights
Our Specialty Chemicals business operates two energy-intensive
businesses, Pulp and Performance Chemicals and Industrial Chemicals.
The latter conducts its business primarily in Europe. A non-level playing
field for energy on a global level (e.g. shale gas, national policies, subsidies)
and emission trading rights can affect the competitive position of these
businesses and the competitive position of our customers.
Risk corrective actions
We will continue to analyze and review our competitive positions and we
are proactively 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 22 in the Financial statements).
External Operational
Product liability
Product liability claims could adversely affect our company’s business
and results of operations. Unlikely long-term implications with a high
impact for our organization could follow from usage of new technologies
and compounds.
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. Product stewardship
has been incorporated into the company’s HSE and operational
eco-efficiency agenda. Product stewardship is also integrated into product
slate decisions in the operational excellence program. We have a central
policy to optimize insurance coverage which relates to specific insurance
programs covering product liability. We have established an initiative to
assess all priority substances used by AkzoNobel throughout their lifecycle
by 2015.
ABCDEFGHI
External Operational
External Financial – Top five risk
External Financial
Environmental liabilities
Cash flow
Contributions to pension funds
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, possible
personal injury and any resulting claims for damage. Regulations and
standards are becoming increasingly stringent.
Risk corrective actions
We are committed to conducting all our activities in the safest and most
responsible manner. We have a specialist group managing these issues.
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 Note 19 in the Financial
statements section).
The potential for further deterioration of economic conditions may
have an impact on the free cash flow generation of our businesses.
Furthermore, we are potentially exposed to funding of pension
schemes. This may lead to insufficient free cash flow generation to
support funding for the implementation of our strategic agenda.
Economic, regulatory and political developments may increase our defined
benefit pension liabilities and/or reduce the value of assets held to fund
those obligations, causing higher post-retirement charges and pension
premiums payable. We are at risk from potential shortfalls in the funding of
defined benefit pension schemes.
Risk corrective actions
Our balance sheet and debt profile are strong. We continue to
deliver on our comprehensive performance improvement program
to achieve €500 million EBITDA and we will engage in restructuring
of underperforming parts of our portfolio if deemed strategically
appropriate. We have a prudent financing strategy and a strict cash
management policy, which are managed by our centralized treasury
function (see Note 22 in the Financial statements).
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 largest 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 2012, the
Courtaulds Pension Scheme in the UK entered into an insurance contract
with Swiss Re which covers the longevity risks of almost 17,000 current
pensioners and their dependants. We are committed to further de-risking
over time. Pension activities are overseen by the Board Committee Pensions
(see Note 14 and Note 20 in the Financial statements section).
External Financial
External Financial
External Compliance
Decline of asset values
Fluctuations in exchange rates
Impairments and book losses could adversely affect our financial results.
In view of the current financial market conditions, asset value decline offers
both opportunities and threats to our company.
Exchange rate fluctuations can have a harmful impact on our financial
results. We have operations in more than 80 countries and report in euros.
We are particularly sensitive to the relation between the euro and US dollar,
pound sterling, Swedish krona and Latin American and Asian currencies.
Risk corrective actions
In Q3 of 2012, we reported a non-cash impairment charge related to
Decorative Paints intangible assets (€1.9 billion in Europe, €0.4 billion in
North America and €0.2 billion in Latin America), reflecting deteriorating
market conditions in these regions. The Executive Committee continuously
monitors acquisition and divestment opportunities and the management
of assets held for sale. 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).
Risk corrective actions
We have centralized treasury and a hedging policy is in place for certain
currency exchange rate risks (see Note 22 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.
Complying with laws
and regulations
We may be held responsible for any liabilities arising out of non-compliance
with laws and regulations. For example, we are involved in court proceedings
and civil litigation resulting from (alleged) involvement in anti-competitive
behavior in the past (see Note 19 in the Financial statements section).
Risk corrective actions
We are monitoring and adapting to significant and rapid changes in
the legal systems, regulatory controls, customs and practices in the
countries in which we operate. These affect a wide range of areas.
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 complaints
procedure called SpeakUp!, which enables all our employees to report
irregularities in relation to our Code of Conduct (see the Governance
and compliance section).
AkzoNobel Report 2012 | Strategy | Risk management
27
Extreme protection
How do you protect against fire in one of the most high
risk working environments? You turn to Chartek, a name
which has become synonymous with providing ultimate
fire protection in both the offshore and onshore oil and
gas industries for more than 35 years.
Supplied by our Marine and Protective Coatings business,
the Chartek range of intumescent epoxy passive fire
protection products – which expand and insulate when
exposed to high heat – is actually based on technology
which was first used during the Apollo missions and
NASA’s space shuttle program.
Today, Chartek is specified all over the world by the oil
refining, gas processing, petrochemical and chemical
industries, where it is primarily used to protect installations
against hydrocarbon pool and jet fires, although it also
offers excellent corrosion resistance in some of the
world’s harshest environments. Customers mainly use
Chartek on structural steelwork, but it can also be applied
to other materials, including aluminum and plastic.
As well as helping to maintain structural integrity during
a blaze, Chartek also slows the spread of fire, giving
people more time to escape to safety. The most common
installations to feature the technology include offshore
platforms, refineries, petrochemical plants, LNG terminals,
LPG storage facilities and FPSOs.
Demand for Chartek increased substantially during 2012,
driven partly by increasingly stringent fire protection
regulations worldwide. In fact, forecasters expect general
global demand for fire protection to increase significantly
over the next five years.
With this in mind, the company recently opened a
dedicated €7.1 million testing laboratory for fire protection
coatings at its Felling site in the UK. As well as significantly
improving our ability to develop and bring new fire
protection products to market, it will also help to
strengthen the company’s position as the leading supplier
of fire protection coatings and products worldwide.
1,000° C
Hydrocarbon fires are fuelled by oil and gas
and have a very rapid heat rise to 1,000°C
within five minutes
22° C
Chartek insulates and helps to maintain
structural integrity during a blaze
6x
Chartek expands to six times
the applied thickness on
exposure to heat
Application thickness 1–4mm
Our leadership
In this section we introduce our Board of Management and
Executive Committee, as well as our Supervisory Board. We
also present the Report of the Board of Management and
the Report of the Supervisory Board, which provide detailed
overviews of their activities during 2012.
Our Board of Management and Executive Committee
Report of the Board of Management
Statement of the Board of Management
Supervisory Board Chairman’s statement
Our Supervisory Board
Report of the Supervisory Board
32
34
40
42
43
45
Our Board of Management
and Executive Committee
1
3
5
2
4
7
8
6
Ton Büchner (6)
CEO and Chairman of the Board of Management
and the Executive Committee
(1965, Dutch)
Prior to joining AkzoNobel, Ton Büchner was the
President and CEO of Sulzer Corporation, a position he
held since 2007.
Büchner is an engineer by training, having earned his
Master of Science in Civil Engineering at Delft University
of Technology in the Netherlands. He also has a Masters
of Business Administration from IMD in Lausanne and
attended the Stanford Executive Program in Palo Alto,
California, in the US.
His early career was spent in the oil and gas construction
industry, including positions at Allseas Engineering in
Europe and AkerKvaerner in South East Asia, before
joining Sulzer in 1994. Büchner worked in a range of
Sulzer operations, including a period in China, until his
appointment to the Executive Committee in 2001.
Keith Nichols (8)
Chief Financial Officer
Member of the Board of Management
and the Executive Committee
(1960, British)
a fellow of the Association of Corporate Treasurers and
holds the MCT Advanced Diploma.
included more than 25 years at Unilever, where his final
position was as Business Group President Asia Foods.
Leif Darner1 (3)
Member of the Board of Management and
the Executive Committee responsible for
Performance Coatings
(1952, Swedish)
After graduating
from Gothenburg University, Leif
Darner held several management positions before
being appointed General Manager of Powder Coatings
Scandinavia at Courtaulds in 1985.
In 1993, he was appointed Chief Executive of Coatings
Northern Europe. Then in 1997 he served as World-
wide Director of Yacht Paint and Protective Coatings.
In 1998, Courtaulds became part of AkzoNobel and
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 position he held until
April 2008.
He is a Board member of the Swedish Chamber of
Commerce in the Netherlands and CEPE (European
Council of Paint and Printing Ink producers.
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. He is a
Supervisory Board member at TNT Express N.V. and
Friesland Campina N.V.
Graeme Armstrong4 (7)
Member of the Executive Committee responsible
for Research, Development & Innovation
(1962, British)
Graeme 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,
Chairman of the Chemistry Innovation Knowledge
Transfer Network, and a former non-executive director
of the UK government Technology Strategy Board.
Sven Dumoulin (2)
Member of the Executive Committee
and AkzoNobel General Counsel
(1970, Dutch)
Sven 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. In
addition, 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.
Werner Fuhrmann (5)
Member of the Executive Committee responsible
for Specialty Chemicals and Supply Chain
(1953, German)
After graduating from university, Werner Fuhrmann
held various positions in the field of finance, including
Controller of AkzoNobel Specialty Chemicals. He was
later appointed General Manager of Chelates and
Sulphur Products in 2000. He then became Managing
Director of Industrial Chemicals in 2005, a position he
held until he took on his current role in 2011.
He is Chairman of the Dutch Chemicals Industry
Association (VNCI) and Board Member of the European
Chemicals Association (Cefic).
Marjan Oudeman3 (4)
Member of the Executive Committee responsible
for HR and Organizational Development
(1958, Dutch)
Marjan 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, ABN Amro Group and Statoil.
Keith Nichols joined AkzoNobel in December 2005
from Corus Group, where he held the position of Group
Treasurer. Prior to joining Corus in 2004, he held a
number of senior finance positions within TNT N.V.
Tex Gunning2 (1)
Member of the Board of Management and
the Executive Committee responsible for
Decorative Paints
(1950, Dutch)
Nichols played a key senior role in the sale of Organon
BioSciences to Schering Plough and in the structuring,
financing and completion of the acquisition of ICI. He is
Tex Gunning holds a degree in economics from the
Erasmus University Rotterdam. His business career has
1 As of January 1, 2013, Conrad Keijzer joined the Executive Committee and will assume Leif Darner’s responsibilities for Performance
Coatings following the 2013 AGM.
2 As of the 2013 AGM, Ruud Jousten will join the Executive Committe and assume Tex Gunning’s responsibilities for Decorative Paints.
3 Until June 2013.
4 As of April 1, 2013, Graeme Armstrong will assume the role of Surface Chemistry Managing Director.
32
Our Board of Management and Executive Committee | Our leadership | AkzoNobel Report 2012
AkzoNobel Report 2011 | Strategy | Page title
33
Report of the
Board of Management
Revenue up 5 percent driven by favorable currencies
and pricing, offset by lower volumes
EBITDA 4 percent higher at €1,901 million
(2011: €1,834 million)
Performance improvement program 2012 target has
been exceeded
Net loss from continuing operations €1,733 million
(2011: €536 million income), due to the Q3 impairment
charge of €2,106 million
Net cash from operating activities up 86 percent
to €737 million
Adjusted EPS €3.26 (2011: €3.10)
Total dividend for 2012 proposed at €1.45
(2011: €1.45)
Decorative Paints North America reported in discontinued
operations; Chemicals Pakistan divestment completed
in 2012
The economic environment remains challenging,
especially in Europe
34
Report of the Board of Management | Our leadership | AkzoNobel Report 2012
2011
2012
∆%
Financial highlights
Continuing operations
In € millions
Revenue
EBITDA1
EBITDA margin (in %)
EBIT1
EBIT margin (in %)
ROI1 (in %)
Operating income
Operating income before
impairment
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 €)
14,604
15,390
1,834
12.6
1,271
8.7
10.5
1,145
1,145
1,901
12.4
1,276
8.3
10.0
(1,244)
862
536
(1,733)
(59)
(436)
477
2.29
(2,169)
(7.30)
2.04
(9.14)
Adjusted earnings per share (in €)
3.10
3.26
Capital expenditures
Net cash from operating activities
Invested capital
Net debt
Number of employees
1 Excluding incidentals.
658
396
826
737
12,613
11,030
1,895
2,298
52,020
50,610
5
4
–
(25)
26
86
Financial highlights
Revenue for the year was up 5 percent driven by favorable
currencies and pricing, offset by lower volumes. EBITDA
for the year was 4 percent higher at €1,901 million (2011:
€1,834 million). The performance improvement program exceed-
ed intermediate targets. As a consequence of the impairment
charge of €2,106 million, operating income was €1,244 million
negative; excluding the impairment charge, this was €862 million
positive (2011: €1,145 million).
Discontinued operations
In December 2012, we announced the divestment of Decora-
tive Paints North America to PPG Industries, Inc. As a conse-
quence, the results of this business are reported in discontinued
operations in the statements of income and cash flows and are
no longer included in the other explanations and details in this
report. The financial results of this business were as follows:
Discontinued operations
In € millions
Revenue
EBITDA
Performance improvement program savings
Incidentals
Impairment charge
Workforce at year-end
Number of employees who left following the
performance improvement program
2011
1,094
(69)
–
(7)
–
5,220
–
2012
1,190
19
26
(17)
(372)
4,670
360
Performance improvement program
The performance
in
October 2011 is making good progress and has exceeded
its intermediate goal for 2012. Since the announcement of
the program, benefits amount to €250 million (excluding
improvement program announced
Revenue development in % versus 2011
Decorative Paints
Performance Coatings
Specialty Chemicals
Total
Volume
Price/mix
Acquisitions/
divestments
Exchange rates
Total
(2)
(1)
(1)
(2)
2
5
1
3
–
2
1
1
2
4
3
3
2
10
4
5
Revenue in € millions
Revenue development in % versus 2011
Decorative Paints
Performance Coatings
Specialty Chemicals
3,933
4,786
4,943
2010
4,201
5,170
5,335
2011
4,297
5,702
5,543
2012
€26 million contributed by Decorative Paints North America).
The program conceptually consists of three building blocks:
operational professionalization,
functional excellence and
business unit specific adaptations. Operational professional-
ization addresses issues such as product complexity reduc-
tion, procurement, manufacturing and distribution excel-
lence, and margin management. Business unit adaptations
and operational professionalization have contributed around
95 percent of the 2012 benefits, while functional excellence is
primarily an important enabler.
Increase
Decrease
6
4
2
0
-2
-2%
+3%
+5%
+1%
+3%
Volume
Price
Acquisitions/
divestments
Exchange
rates
Total
The cost of the program for 2012 equaled €292 million, recor-
ded under incidentals, including costs for the additional restruc-
turing measures in Decorative Paints and excluding €17 million
for Decorative Paints North America. Since the announcement
of the program, around 2,100 people have left the company, of
which approximately 360 in Decorative Paints North America.
AkzoNobel Report 2012 | Our leadership | Report of the Board of Management
35
1 Excluding incidentals.
Revenue
Decorative Paints
Revenue in Decorative Paints for 2012 increased 2 percent,
mainly due to positive price/mix and favorable currencies. Asian
revenue is growing due to strong volume development in China.
However, market conditions remain challenging in Europe and
Latin America.
Performance Coatings
In Performance Coatings, overall margins improved due to a
combination of margin management activities and ongoing
cost control. The major restructuring activities were under-
taken in mature markets. Margin management and operational
efficiency improvements resulted in EBITDA of €769 million,
26 percent higher than the previous year.
Performance Coatings
In Performance Coatings, revenue increased 10 percent com-
pared with the previous year. The strongest growth came from
Industrial Coatings and Marine and Protective Coatings. Volume
declined, with differences between individual businesses.
Specialty Chemicals
In Specialty Chemicals, we recorded a robust performance on
the back of margin management, cost control measures and
strong market and technology leadership positions.
EBITDA AkzoNobel 2010 – 2012 in € millions
Specialty Chemicals
Specialty Chemicals made a good start to 2012, but demand
started to weaken in the second half of the year, particularly
in Europe and in general in construction-related products.
Demand was also more volatile.
Decorative Paints
Performance Coatings
Specialty Chemicals
593
647
939
479
611
906
425
796
889
2010
2011
2012
• We incurred a loss of €36 million from recycling the
cumulative translation differences in equity to the
statement of income due to the completed divestment
of Chemicals Pakistan
Incidentals included in operating income
In € millions
Restructuring costs
Impairment
Results related to major legal, antitrust and
environmental cases
Results on acquisitions and divestments
Other incidental results
Total
2011
(129)
–
(9)
10
2
2012
(324)
(2,106)
(36)
(45)
(9)
(126)
(2,520)
EBIT in “other”
Corporate costs were higher due to increased information man-
agement and integrated supply chain costs as a consequence
of functional excellence initiatives and one-off costs.
Costs for research and development in 2013 are expected to
be in line with 2012, with 50 percent aimed at breakthrough
innovations.
EBIT in “other”
In € millions
Corporate costs
Pensions
Insurances
Other
EBIT in “other”
Incidental items included in operating income
• We incurred higher restructuring costs mainly in mature
markets, as we implemented the performance improvement
program. Restructuring activities are ongoing across
the businesses, and we stepped up restructuring in the
European businesses in Decorative Paints. Besides the
costs of the performance improvement program of
€292 million, we had a number of writedowns for an
amount of €32 million, bringing the total amount of
restructuring costs to €324 million. The impairment amount
in Q3 was adjusted to exclude Decorative Paints North
America, which is reported as a discontinued operation
• We increased a provision for an environmental case
in Sweden
2011
(98)
(14)
1
(65)
(176)
2012
(113)
(4)
(6)
(71)
(194)
Acquisitions and divestments
In early 2012, we boosted our Speciality Chemicals port-
folio with the acquisition of Boxing Oleochemicals – the
leading supplier of nitrile amines and derivatives in China
and
throughout Asia. The Schramm/SSCP acquisition
accounted for the acquisition effect in Performance Coat-
ings as these activities were consolidated from Q4 2011.
On December 28, 2012, we completed the divestment of
Chemicals Pakistan, which was subsequently deconsolidated.
Raw materials
On average, raw material costs were stable compared with the
previous year, with the upward pressure on oil prices offsetting
softer TiO2 prices.
EBITDA
Decorative Paints
In Decorative Paints, EBITDA for the year was 11 percent
lower at €425 million, reflecting weaker demand from our
European markets. The euro crisis and the general slowdown
in global markets continued to affect our business. Restruc-
turing activities continued across Europe.
36
Report of the Board of Management | Our leadership | AkzoNobel Report 2012
Shareholders’ equity
Shareholders’ equity as at year-end 2012 decreased to
€6.9 billion, mainly due to the net effect of the net loss of
€2,169 million and dividend payments of €214 million.
Final dividend proposal
Our dividend policy is to pay a stable to rising dividend. We
will propose a 2012 final dividend of €1.12 per share, which
would make a total 2012 dividend of €1.45 (2011: €1.45)
per share. There will be a stock dividend option with cash
dividend as default.
• Increased capital expenditures, which continued on
previously announced projects, such as the two pulp
mills in Brazil, the start of the new Decorative Paints plant
in the UK and activities in China. We will prioritize our
investments going forward given the uncertainties in the
market and our focus on cash and return on investment.
We therefore expect our 2013 capital expenditures to be
below 2012
• A decrease of operating working capital of €0.2 billion
mainly due to improvements in capital management.
Expressed as a percentage of revenue, operating working
capital was 11.2 percent (year-end 2011: 13.2 percent)
Dividend in €
1.40
1.45
1.45
Condensed consolidated balance sheet
In € millions
Intangible assets
Property, plant and equipment
Other financial non-current assets
2011
7,392
3,705
2,198
2012
4,454
3,739
2,763
2010
2011
2012
Total non-current assets
13,295
10,956
Net financing expenses
Net financing charges for the year decreased by €69 million,
from €336 million to €267 million. Significant variances were:
• Financing expenses on net debt decreased by €63 million
to €239 million (2011: €302 million) following the buy-back
of bonds in December 2011, which had a one-off impact
in 2011 of €67 million
• Interest on provisions decreased by €17 million to
€29 million (2011: €46 million) due to higher discount rates
• Financing expenses related to pensions increased by
€8 million to €65 million (2011: €57 million) due to a lower
expected return on assets
• Other items decreased by €5 million to €7 million
(2011: €12 million), mainly explained by lower interest
on discounted long-term receivables (€3 million)
Net financing expenses
In € millions
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
2011
57
(302)
(245)
(57)
(46)
12
(91)
(336)
2012
59
(239)
(180)
(65)
(29)
7
(87)
(267)
Earnings per share total operations in €
3.23
2.04
2010
2011
(9.14)
2012
Tax
Excluding the non-tax-deductible goodwill impairment charge
of €2,106 million, the year-to-date tax rate was 30 percent
(2011: 27 percent). The tax rate was negatively impacted
by several adjustments to previous years and by other non-
taxable items. The loss carryforward recognized in the balance
sheet and its usage in the coming years has a decreasing
impact on the cash tax rate in coming years.
Invested capital
Invested capital at year-end 2012 totaled €11.0 billion,
€1.6 billion lower than at year-end 2011. Invested capital
was impacted by the net effect of:
• A decrease of €2.1 billion due to a non-cash impairment
charge for Decorative Paints assets
• An increase of €0.6 billion of long-term receivables related
to increases in pension funds in an asset position
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Assets held for sale
Total current assets
Total assets
Shareholders’ equity
Non-controlling interests
Group equity
Provisions and deferred tax liabilities
Long-term borrowings
Total non-current liabilities
Short-term borrowings
Trade and other payables
Other short-term liabilities
Liabilities held for sale
Total current liabilities
Total equity and liabilities
1,924
2,937
1,635
98
–
6,594
19,889
9,212
531
9,743
2,284
3,035
5,319
494
3,369
964
–
1,545
2,698
1,752
91
921
7,007
17,963
6,892
465
7,357
2,159
3,388
5,547
662
3,242
845
310
4,827
19,889
5,059
17,963
AkzoNobel Report 2012 | Our leadership | Report of the Board of Management
37
Pensions
The funded status of the pension plans at year-end 2012
was estimated to be a deficit of €1.1 billion (year-end 2011:
€0.5 billion). The movement compared with year-end 2011 is
primarily due to:
• In 2013 we will see the impact of restructuring in the mature
markets. In the context of our performance improvement
program, restructuring has started in Decorative Paints
in Europe
Net debt and cash flows
Operating activities in 2012 resulted in a cash inflow of
€737 million (2011: €396 million). The change is mainly due to
a net effect of higher cash inflow from working capital, partly
offset by higher payments related to provisions (mainly in
relation to pensions).
Net debt increased in 2012 to €2,298 million (2011:
€1,895 million) as higher cash flows from operating activi-
ties were more than offset by higher capital expenditures. In
2013, we expect to receive the proceeds from the divestment
of Decorative Paints North America, which will reduce our
net debt.
• Top-up payments of €355 million into certain UK
and US defined benefit pension plans
• A payment from a contingent asset structure of
€239 million into the UK ICI Pension Fund
• Plan asset returns ahead of expectation
Offset by:
• Lower discount rates significantly increasing
the pension obligation
The amended IAS 19 on pensions has become effective as of
January 1, 2013. Implementation of this amendment will result
in including the pension deficit in other comprehensive income
in shareholders’ equity as of 2013. The impact is disclosed in
Note 14 of our 2012 Financial statements.
Workforce
At year-end 2012, we employed 50,610 staff in continu-
ing operations (year-end 2011: 52,020 employees). The net
decrease was due to:
• A decrease of 1,450 employees due to ongoing restructuring
• A net decrease of 540 employees due to acquisitions
and divestments, mainly from the Boxing Oleochemicals
acquisition (620 employees) and the divestment
of Chemicals Pakistan (1,100 employees)
• An increase of 580 employees mainly due to new
hires in high growth markets
38
Report of the Board of Management | Our leadership | AkzoNobel Report 2012
Condensed consolidated cash flow statement
In € millions
Cash and cash equivalents
opening balance
Profit/(loss) 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
Other changes
Net cash from investing activities
Changes from borrowings
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
year-end
2011
2,683
2012
1,335
600
(1,670)
577
(331)
(484)
34
396
(658)
(156)
2
(812)
(470)
(362)
7
(825)
(1,241)
(96)
(1,337)
(11)
2,795
251
(688)
49
737
(826)
122
(22)
(726)
570
(256)
(43)
271
282
(53)
229
(6)
1,335
1,558
Progress on past medium-term ambitions
In 2010, AkzoNobel stated its medium-term ambitions, which
have now been modified. In order to give a final update on
progress, we are providing an overview of our achievements
relative to those ambitions. In the future, we will provide
updates relating to our new targets, as detailed in the
Strategy section.
€20 billion in revenue
• 2012 revenue of €15.4 billion (excluding Decorative Paints
North America)
• Strong growth in Decorative Paints Asia, Marine and
Protective Coatings and due to acquisitions in Industrial
Coatings and Surface Chemistry
• Much of our growth resulted from pricing actions and currency
• Volumes are an issue, particularly in Europe
Reduction in OWC of 0.5 p.a., towards a 12 percent target
• OWC improved to 11.2 percent
• Inventory levels remain a key issue and are a focus area
in terms of Integrated Supply Chain performance
improvement actions
Growth in absolute EBITDA, in a 13–15 percent
margin range
• Absolute EBITDA growth of €67 million vs. 2011
• EBITDA margin below the 13–15 percent range
Stable to rising dividend
• It is proposed that the 2012 total dividend be kept
stable at €1.45 per share
• Shareholders are offered an option to obtain
a stock dividend
Top quartile safety performance
(Good progress)
• Significant progress in total reportable injury rate towards
our target of <2.0 by 2015
Top quartile performance in diversity, employee
engagement and talent development
(Some progress)
• Some improvement in the ViewPoint employee
• Implemented our new Life-Saving Rules as part of a global
TakeCare behavioral safety program
• Enhanced the stringency of our behavior-based safety
program – more than 75 percent of our manufacturing
sites are already consistent with the higher standards
engagement score, both in terms of absolute score and
percentile rating, but more effort is required and planned
• We made good progress with the AkzoNobel Academy,
which was established in 2011 to build functional and
operational excellence capabilities across the company
• Refocused the process safety aspect of our HSE
• Made some progress towards our diversity goals –
self-assessment program in order to make improvements
at high hazard sites
Top quartile eco-efficiency improvement rate
(Some progress)
• Use of our operational eco-efficiency metric (focusing on
energy, water, waste and VOCs) led to meaningful
progress in these areas against the 2009 baseline
15 percent of our executive positions are now held by
women and 13 percent by individuals from high growth
markets (up from 8 percent and 10 percent respectively
on 2008)
• Launched an AkzoNobel-wide employee value proposition
supporting the creation of centers of excellence for
recruitment and on-boarding processes
• Revenue generated from eco-premium products remained
at 22 percent and was spread more broadly throughout
the full value chain
• Work on cradle-to-gate carbon footprint improvement
is beginning to demonstrate improvements against
the 2009 baseline
Top three position in sustainability
(Achieving our ambition)
• Achieved Chemicals supersector leadership position in the
Dow Jones Sustainability Index and, for the first time since
2007, also reached the number one position in all three
dimensions (economic, environmental, social)
• Considerable investment of time and resources in
• Particular areas of strength were innovation management,
developing the company’s new sustainability strategy for
2020, taking us beyond the basics to focus on resource
efficiency throughout the entire value chain
risk and crisis management, climate strategy, labor
practice indicators and human capital development
• Strong improvement in operational eco-efficiency
• Room for further improvement in talent attraction and
retention, social reporting, customer relationship
management and supply chain management
AkzoNobel Report 2012 | Our leadership | Report of the Board of Management
39
Statement of the
Board of Management
The Board of Management’s statement on the financial
statements, the management report and internal controls
We have prepared the AkzoNobel Report 2012 and the under-
takings included in the consolidation taken as a whole in accor-
dance with International Financial Reporting Standards (IFRS),
as adopted by the EU and additional Dutch disclosure require-
ments for annual reports.
To the best of our knowledge:
• The financial statements in this AkzoNobel Report 2012
give a true and fair view of our assets and liabilities, our
financial position at December 31, 2012, and the result of
our consolidated operations for the financial year 2012
• The management report in this AkzoNobel Report 2012
includes a fair review of the development and performance
of the businesses and the position of AkzoNobel and the
undertakings included in the consolidation taken as a
whole, and describes the principal risks and uncertainties
that we face
The Board of Management is responsible for the establishment
and adequate functioning of internal controls in our company.
Consequently, the Board of Management has implemented a
broad range of processes and procedures designed to provide
control by the Board of Management over the company’s opera-
tions. These processes and procedures include measures
regarding the general control environment, such as a Code
of Conduct including business principles and a corporate
complaints procedure (SpeakUp!), 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 Code of Conduct, a Compliance Committee has
been established. Internal Audit provides assurance to the
Board of Management whether our internal risk management
and control systems, as designed and represented by manage-
ment, 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 Report 2012 does not contain any errors
of material importance
• Have worked properly during the year 2012
For a detailed description of the risk management system
with regard to the strategic, operational and compliance risks
and the principal risks identified, reference is made to the Risk
management chapter in the Strategy section, as well as the
Compliance and integrity management chapter of the Govern-
ance and compliance section. We have discussed the above
opinion and conclusions with the Audit Committee, the Super-
visory Board and the external auditor.
40
Statement of the Board of Management | Our leadership | AkzoNobel Report 2012
Outlook
In the short term, we expect the economic environment will
remain challenging and there to be no fundamental changes in
the trends that we have seen recently in our businesses. We will
continue to focus on performance improvements and opera-
tional efficiencies in order to benefit from our strong portfolio of
businesses with many leading market positions and exposure
to growth markets.
Amsterdam, February 19, 2013
The Board of Management
Ton Büchner
Keith Nichols
Leif Darner
Tex Gunning
Playing as a team
Establishing a competitive edge is a vital part of doing
business in today’s global marketplace. As a company with
operations all over the world, we are able to gain a strategic
advantage by maximizing both our scale and the strength
of our portfolio in order to offer customers unique services
and solutions, wherever they are.
A typical example is the work currently being carried out
by our high value infrastructure team in Brazil. With Brazil
set to become the center of the sporting world over the
next few years, we’ve been busy working with various
contractors and construction companies who are building
stadiums and refurbishing buildings and venues in
preparation for the forthcoming high profile events.
Representatives from many of our coatings businesses
have joined forces to create one team in Brazil, where
they approach these customers as a full provider of
technology solutions and market-leading products. So no
matter what type of coating a project requires, customers
can come to AkzoNobel for all their needs, rather than
having to look around and work with a number of different
suppliers. It’s more efficient and cost effective for the
customer and enables us to underline the benefits of our
One AkzoNobel approach.
The team in Brazil has enjoyed considerable success to
date, securing contracts to supply products for various
high profile projects, including the iconic Maracanã Stadium
in Rio de Janeiro, the Brasilia Stadium in Brasilia, Arena
Pernambuco in Recife, Beira Rio and Grêmio Arena, both
in Porto Alegre, and the Arena Corinthians in São Paulo.
This is just the beginning and there is much more to come
in the following years.
AkzoNobel Report 2012 | Our leadership | DRAFT 3
41
Supervisory Board
Chairman’s statement
2012 was a testing year for AkzoNobel, highlighted by a
further deterioration of the economic environment and
our CEO’s leave of absence, but the company remained
strong and reported solid operational results.
The impact of the economic slowdown was unavoidable, but
despite the unfavorable conditions, our business portfolio
remained resilient. Many of the company’s activities performed
well, maintaining high margins and market share, with the
negative effect of the slowdown primarily being felt in our more
consumer-facing businesses. Following a significant improve-
ment in the performance of our Decorative Paints business
in North America, and with the full support of the Supervisory
Board, the company made a strategic choice to focus its
Decorative Paints business on key markets in Europe and its
strong positions in high growth regions. Therefore, we agreed
to sell our Decorative Paints North America activities to PPG
Industries, Inc.
CEO Ton Büchner’s leave of absence in mid-September was,
of course, unexpected. He made an excellent start before
being confronted with fatigue. Although difficult, we took
the right joint decision in agreeing to his temporary leave of
absence. Fortunately, we have been able to welcome him back
in good health and excellent spirit to lead the company forward
and return to business. In Ton’s absence, the knowledge and
experience of the Executive Committee, with the support of my
fellow Supervisory Board member, Antony Burgmans, proved
invaluable as they took care of the day-to-day running of the
company.
Before September, Ton initiated several leadership changes,
which have now been implemented in close cooperation with
the Supervisory Board. The Supervisory Board is confident
that the new Executive Committee members, Conrad Keijzer
and Ruud Joosten, will bring valuable expertise along with their
strong track records and extensive management experience.
In addition, the Supervisory Board is delighted that Werner
Fuhrmann, already the Executive Committee member respon-
sible for Integrated Supply Chain, was appointed Executive
Committee member responsible for Specialty Chemicals. His
knowledge and skills will be of great benefit to the company in
years to come.
Several measures were taken by Ton and the Executive Commit-
tee to deliver sustainable performance improvements. Due to
deteriorating market conditions, the company had to write-
down the value of its Decorative Paints assets and an additional
restructuring within Deco Europe was initiated. To ensure that
the Board of Management, together with the other members of
the Executive Committee, remains fully focused on the compa-
ny’s overall priorities – carefully managing costs and cash and
looking for ways to make AkzoNobel more opera-tionally and
functionally excellent – the Supervisory Board will propose at
the 2013 AGM that more flexibility is introduced into the remu-
neration policy. This will allow a decision to be taken each year,
within a set of defined indicators, on the financial metrics and
their weighting in order to define short-term incentives, similar
to what already applies to the company’s executives. Further
details on this proposal are outlined in the Remuneration report.
Finally, a new Operational Control Cycle, with particular empha-
sis on the forward outlook for our business, was introduced
during 2012, which over the last couple of months has truly
become the heartbeat of the company.
Our ongoing performance improvement program also conti-
nues to do well. Focused on three main building blocks –
operational professionalization, functional standardization and
business unit specific adaptations – the program delivered
€250 million EBITDA by the end of the year, exceeding our origi-
nal ambition of €200 million.
mentioned additional sustainable performance improvements,
the delivery of our medium-term profitability ambitions in a chal-
lenging market environment will be enhanced.
I am also proud that AkzoNobel has cemented its position as a
global sustainability leader after being ranked first in the Chemi-
cals supersector on the prestigious Dow Jones Sustainability
Index, the sixth consecutive year we have been ranked in the
top three.
On the following pages, we will further introduce the Super-
visory Board and present the Supervisory Board report for
2012, which provides a detailed overview of our activities during
the reporting year. Our corporate governance, remuneration
policy and compliance and integrity management are covered
in the Governance and compliance section. I hope it will give
you a good understanding of the framework under which the
company operates.
On behalf of my fellow members of the Supervisory Board, I
would like to thank the CEO, Board of Management, the other
members of the Executive Committee and all employees for
their dedication and hard work for the company in 2012. Finally,
I would like to thank my fellow Supervisory Board members for
their commitment and support during the year. I believe that
the Supervisory Board is a strong and united team with a wide
range of experience and expertise that will continue to serve the
company well.
I am confident that by leveraging our scale via operational and
functional excellence at lower costs, together with the above-
Karel Vuursteen
Chairman of the Supervisory Board
42
Supervisory Board Chairman’s statement | Our leadership | AkzoNobel Report 2012
Our Supervisory Board
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 2011–2015
Sari Baldauf
(1955, Finnish)
Initial appointment 2012
Current term of office 2012–2016
Dolf van den Brink
(1948, Dutch)
Initial appointment 2004
Current term of office 2012–2016
Peggy Bruzelius
(1949, Swedish)
Initial appointment 2007
Current term of office 2011–2015
Former CEO of Degussa AG; member of
the Supervisory Board of Umicore SA.
Former CEO of Heineken; Deputy
Chairman and member of the Board
of Directors of Heineken Holding N.V.;
Chairman of the Supervisory Board
of TOMTOM N.V.; member of the
Shareholders’ Committee of Henkel KGaA.
• Chairman of the Nomination Committee
• Member of the Remuneration Committee
Former member of the Group Executive
Board of Nokia Oyj; non-executive director
and Chairman of the Executive Committee
of F-Secure Oyj; Chairman of the Board
of Fortum Oyj; non-executive director at
Daimler AG and Deutsche Telekom.
• Member of the Remuneration Committee
• Member of the Nomination Committee
Former member of the Managing Board
of ABN AMRO Bank; Chairman of the
Supervisory Boards of Elsevier Reed Finance
B.V., Nederlandse Waterschapsbank N.V.
and Center Parcs Europe N.V.; Supervisory
Director of Legal & General Nederland N.V.,
KBC Bank and De Heus Nederland B.V.
Former CEO of ABB Financial Services;
former Executive Vice-President of
SEB; non-executive director of Axfood
AB, Husqvarna AB, Syngenta AG and
Diageo plc; Chairman of Lancelot Asset
Management AB.
• Chairman of the Audit Committee
• Member of the Audit Committee
Antony Burgmans
(1947, Dutch)
Initial appointment 2006
Current term of office 2010–2014
Sir Peter Ellwood
(1943, British)
Initial appointment 2008
Current term of office 2012–2016
Louis Hughes
(1949, American)
Initial appointment 2006
Current term of office 2010–2014
Ben Verwaayen
(1952, Dutch)
Initial appointment 2012
Current term of office 2012–2016
Former Chairman of ICI plc; former Group
Chief Executive of Lloyds TSB Group.
• Member of the Audit 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., Jumbo Group Holding B.V.
and AEGON N.V.; Chairman of the
Supervisory Boards of TNT Express N.V.
and Intergamma B.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
CEO Alcatel-Lucent; former non-executive
director of UPS; former Chief Executive/
Chairman of the Board’s Operating
Committee BT group; former Vice-Chairman
Management Board Lucent Technologies;
former President and Managing Director of
KPN’s subsidiary PTT Telecom.
• Member of the Remuneration Committee
• Member of the Nomination Committee
AkzoNobel Report 2012 | Our leadership | Our Supervisory Board
43
85 million
The world uses 85 million
barrels of oil a day
StimWell opens up microfractures
in a safe and environmentally-
friendly way
400ºF
Dissolvine StimWell performs at
temperatures up to 400OF
Hot property
The planet’s depleting natural resources are an increasing
cause for concern, with demand for fossil fuels only likely
to intensify. In the face of growing demand and declining
production from existing wells, producers of oil and gas
are facing a number of challenges. The question is, can
anything be done to help?
AkzoNobel is a major supplier to various sectors of
the oil and gas industry and our Functional Chemicals
business recently developed breakthrough technology in
the field of well stimulation, a process which has actually
been around for more than 100 years. It involves using
chemicals to open up micro-fractures in the rock (that
have become clogged with minerals and sediments)
and this allows more oil and gas to flow through.
Conventional technologies currently use highly corrosive
chemicals that can damage the well installation and
surrounding rock formations. With oil and gas wells
getting, deeper, hotter and closer to urban centers, they
also no longer meet the requirements of regulatory bodies.
So we’ve developed Dissolvine StimWell, a bio-based,
non-hazardous stimulation solution which combines all
the advantages of existing technologies while avoiding
their disadvantages.
Based on one of the company’s new generation
molecules, the product has been widely acknowledged
for its readily biodegradable nature, its low corrosion
potential and its excellent environmental profile. It can
also be used in places that are hard to get to, such as
wells that are hotter and deeper than average and for
which no stimulation options are currently available.
“There is nothing on the market that comes close to
it,” says Professor Hisham Nasr-El-Din from Texas
A&M University, a world renowned authority on oilfield
stimulation. “It’s the best chemical to use in the industry,
especially at expensive well installations and with
materials that are now becoming the norm. And it’s
environmentally-friendly.” Also crucial to AkzoNobel is the
fact that it underlines what can be achieved if you work
closely with customers and understand their needs.
Report of the Supervisory Board
Main 2012 activities
CEO and senior executive succession
CEO leave of absence
Supervisory Board member succession
Remuneration Board of Management
Performance improvement program
Strategic discussions at company, Business Area,
business unit, functional and country level
Decorative Paints impairment and North
American divestment
Enterprise risk management
Sustainability
HR strategy including talent review
Board visit to the Nordics
Financial statements and dividend
Financial statements and profit allocation
The financial statements of Akzo Nobel N.V. for the financial
year 2012 were audited by KPMG Accountants N.V. The
Board of Management has submitted the financial statements,
together with the report of the Board of Management, the
report and management letter of the external auditor, to the
Supervisory Board.
The financial statements, the report and management letter of
the external auditor were discussed extensively with the audi-
tors by the Audit Committee, in the presence of the Chairman of
the Board of Management (CEO) and the Chief Financial Officer
(CFO), and by the full Supervisory Board with the full Board of
Management. Based on these discussions, the Supervisory
Board is of the opinion that the 2012 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. The financial statements of this annual
report can be found in the Financial statements section. The
Audit Committee monitors the follow-up by management of the
recommendations reported by the external auditor.
The Supervisory Board recommends that the Annual General
Meeting of shareholders (AGM) adopts the financial statements
as presented in this Report 2012 and, as proposed by the Board
of Management, approve the allocation of €347 million for the
payment of dividend. This is consistent with our aim to provide a
stable to rising dividend which is in line with sustainable earnings.
The proposed total dividend for 2012 on each of the common
shares outstanding is €1.45 and it is proposed that this amount,
less the interim dividend of €0.33 – which was paid in November
2012 – be made payable on May 29, 2013. The dividend will, at
the shareholder’s discretion, be paid either in cash or in shares.
In addition, we request that the AGM discharge the members of
the Board of Management of their responsibility for the conduct
of business in 2012 and the members of the Supervisory Board
for their supervision in 2012.
AkzoNobel Report 2012 | Our leadership | Report of the Supervisory Board
45
Supervisory Board activities
One of the main activities of the Supervisory Board in 2012 was
handling the CEO’s absence. Ton Büchner succeeded Hans
Wijers as CEO after his appointment to the Board of Manage-
ment by the AGM on April 23, 2012. He suffered from fatigue in
early September 2012, which resulted in a temporary leave of
absence. The Supervisory Board subsequently appointed CFO
Keith Nichols to be the first point of contact and coordinator for
the Executive Committee. While the activities and direct reports
of the CEO were divided on a temporary basis between several
functional Executive Committee members, Mr. Nichols took on
the governance processes and further preparatory work on the
company’s strategy update, in addition to his CFO respon-
sibilities. The Supervisory Board further decided to appoint
Antony Burgmans from among its members to advise and
support Mr. Nichols and the other Executive Committee
members during this period. Mr. Burgmans made himself avail-
able for consultation and coaching of the Executive Committee
members several times per month and reported back on a
regular basis to the other members of the Supervisory Board.
He also held several analyst and investor calls to discuss the
situation and, together with Karel Vuursteen, kept in regular
contact with Mr. Büchner to monitor the progress of his recovery.
The Supervisory Board devoted considerable time to discuss-
ing the company’s strategy and reviewing strategic options
with the CEO, which was finalized upon Mr. Büchner’s return.
Business Area, business unit and functional strategies were
presented to the Supervisory Board following the strategic
review sessions at company level with the Executive Commit-
tee. In 2012, BU strategy presentations on Industrial Coatings,
Pulp and Performance Chemicals and Industrial Chemicals
were given. The Supervisory Board also discussed corporate
social responsibility issues relevant to the company.
HR presented an update on its strategy, including a talent
review. Developing a healthy talent pipeline with strong
succession planning has been one of the key priorities of the
Supervisory Board. The aim is to have talent pipelines with
two or three immediate successors to key positions. This will
be achieved by managing the careers of our key talents in
a more proactive manner and linking succession planning to
career planning, with clearly aligned learning and develop-
ment opportunities, mentoring and coaching facilities, as well
as career development possibilities. The Board of Manage-
ment has kept the Supervisory Board regularly informed of
intended organizational changes, appointments of senior
managers and major contracts.
on the progress made, discussions were held about embed-
ding the results achieved and the quality of implementation.
The results of these meetings were reported back to, and
discussed with, the full Supervisory Board.
The outcome of the enterprise risk management session held
by the Executive Committee was presented to the Super-
visory Board and risk corrective actions were identified to
address the top ten risks. Further details are included in the
Risk management chapter and the Strategy section.
Other topics discussed and reviewed by the Supervisory
Board included:
In September 2012, the Supervisory Board, Board of Manage-
ment and Executive Committee visited some of the company’s
businesses in the Nordics. This included meetings with local
management, customers and other stakeholders, as well as
a visit to the Functional Chemicals and Surface Chemistry site
in Stenungsund. The trip provided an excellent opportunity for
the Supervisory Board to liaise and engage with local manage-
ment and for a comprehensive review of the businesses in
the Nordics.
The company’s performance improvement program focuses
on achieving operational and functional excellence at lower
costs and is fundamental to the delivery of our 2015 targets in
a challenging market environment. The program was closely
monitored by three Supervisory Board members, who held
six meetings with the CEO or CFO, the program director and
the Corporate Controller. During these meetings, the pro-
gress of the program was reviewed and discussed in detail,
while representatives from the various work streams were
also invited to attend on several occasions to provide detailed
overviews of their areas of responsibility. In addition to reports
• Reports from the Supervisory Board committees
• Reports from the CEO
• Reports from the CFO on financial results, investor
feedback and share price development
• Financial statements and dividends
• Operational planning (including budget) and the annual
financing and investment plan
• Acquisition and divestiture update
• Business Area updates. Messrs. Darner, Gunning
and Fuhrmann provided regular updates to inform the
Supervisory Board on safety, competitive behavior,
projects and YTD financials
• Governance of the company
• Negative growth scenarios and underperforming
businesses. The performance of the company was
impacted by the economic crisis. The Supervisory Board
discussed how AkzoNobel addresses underperforming
businesses and negative volume growth scenarios
• Diversity and inclusion
• The company-shareholder relationship
• Approval of major investments, acquisitions and divestments
46
Report of the Supervisory Board | Our leadership | AkzoNobel Report 2012
The Supervisory Board held 13 meetings during 2012. Six
meetings were plenary sessions with the full Board of Manage-
ment present, six meetings were held without the full Board
of Management present, of which two were attended by the
CEO. One meeting was held via conference call. An overview
of the Supervisory Board and attendance of its committees is
set out later in this chapter. The Chairman of the Supervisory
Board prepared the meetings with the Corporate Secretary and
discussed matters, such as the agendas, with the CEO. Addi-
tional (informal) meetings and calls were held with Supervisory
Board members to discuss the CEO’s leave of absence and
have contact with Mr. Nichols and the other Executive Commit-
tee members.
Audit Committee
Before each announcement of the company’s quarterly results,
the Audit Committee reviewed the figures and consulted on the
reports and press releases to be published. Supervisory Board
members were invited to participate in this part of the Audit
Committee meeting.
The Audit Committee also reflected on the deteriorating market
conditions in Europe and the US, the value of our Deco-
rative Paints assets, and advised the Supervisory Board on the
impairment. After several discussions, the Supervisory Board
approved the company’s announcement of a non-cash impair-
ment charge against the Decorative Paints business’ assets,
primarily in Europe.
Issues discussed in Audit Committee meetings were reported
back to the full Supervisory Board in subsequent meetings of
this Board. The Audit Committee has performed the annual
review of the adequacy of the Audit Committee charter. The
Audit Committee also evaluated the services of the external
auditor and is closely monitoring the international discussions
on auditor independence, the substance of which does not
give rise to concerns regarding our existing policy of, and guid-
ance on, auditor independence. Both processes have been
concluded and the Audit Committee has recommended to
the Supervisory Board not to propose a change in the external
auditor’s appointment for 2013. In 2011, the Audit Committee
already decided to reconsider undertaking an external auditor
selection process (full tender) towards the end of 2013, for
submission and decision at the AGM in 2014.
The Audit Committee also discussed topics including:
• Financial statements
• Dividend directions
• External auditor’s report and management letter
• External auditor’s approach to auditing the company,
engagement letter, fees, risk assessment and audit plan
• Hard close (as part of making the year-end process more
efficient, in order to highlight important issues for the
financial statements 2012 and to give timely attention to
important issues, AkzoNobel performs a hard close as per
October 31. Aligned with this, the external auditor also
performs certain procedures in respect of the financial
outcomes as at October 31, 2012)
• Operational plan (including budget)
• Internal control procedures and report
• InControl assurance statement
• HSE&S audits summary of findings
• Risk management
• Internal audit reports and planning
• Tax strategy
• The quality of internal and external audit
• Internal audit strategy
• Operating working capital management. In several
meetings, the Audit Committee discussed OWC to
identify improvement actions
• Compliance with primary and secondary legislation
(internal framework, monitoring and processes and
compliance reports)
• Litigation and claims
• Impact of new IFRS rules
• Insight accounting issues/Accounting issue tracker
• Information Management strategy
• Treasury strategy
• Bonds issuance
• Centralization and standardization of treasury activities
The Audit Committee held eight meetings during 2012.
Remuneration Committee
The Remuneration Committee reviewed the performance of
the members of the Board of Management and the Executive
Committee. Recommendations were made on the remuneration
and personal targets for members of the Board of Management
and the other members of the Executive Committee. Propo-
sals for the remuneration of Messrs. Fuhrmann, Keijzer and
Joosten were reviewed and discussed with the CEO. The
committee also reviewed the remuneration package of the
members of the Supervisory Board.
The Remuneration Committee prepared a proposal to the
Supervisory Board on an adjustment to the current remu-
neration policy for the Board of Management and Executive
Committee to ensure that both remain fully focused on the
company’s overall priorities – functional excellence, increas-
ing return on investment, increasing our operating income
and improving our cash position. To ensure continued align-
AkzoNobel Report 2012 | Our leadership | Report of the Supervisory Board
47
ment between incentive metrics and the company’s objec-
tives, greater flexibility is required in order to be able to respond
adequately to the economic challenges the company is facing.
The Supervisory Board approved this recommendation and
will propose to the 2013 AGM to introduce in the remunera-
tion policy a flexibility (within a set of defined indicators) for
the Supervisory Board to decide each year on the financial
metrics and their weighing to define short-term incentives.
Further details on this are outlined in the Remuneration report
chapter in the Governance and compliance section. Informa-
tion on the remuneration of the Board of Management and
Supervisory Board can be found in Note 21 of the Financial
statements section.
The Remuneration Committee held four meetings in 2012.
Nomination Committee
The Nomination Committee made several recommendations to
the Supervisory Board during 2012. These included proposing
the appointment of Ton Büchner as a member of the Board
of Management at the AGM on April 23, and his subsequent
appointment as CEO following AGM approval. The commit-
tee also recommended the reappointment of Mr. Nichols for a
second term of four years, and the reappointment of Mr. Darner
for a term of two years. The Supervisory Board supported and
approved these recommendations and the AGM subsequently
made these (re)appointments on April 23, 2012.
The Nomination Committee also made a proposal to limit the
number of Board of Management positions from five to four
following the departure of Mr. Frohn as a Board of Management
member at the 2012 AGM.
The Nomination Committee identified Ms. Baldauf to succeed
Baroness Bottomley as a member of the Supervisory Board
and made a proposal to expand the Supervisory Board to nine
members. Mr. Verwaayen was identified to fulfill the additional
position. Ms. Baldauf and Mr. Verwaayen were appointed at
the 2012 AGM. At the same meeting, Mr. Van den Brink and
Sir Peter Ellwood were reappointed for a third and second
term of four years respectively. Subject to their appointment as
members of the Supervisory Board, the Nomination Committee
prepared a proposal for Ms. Baldauf and Mr. Verwaayen to join
the Remuneration Committee and the Nomination Commit-
tee. Ms. Baldauf brings a different mix of international business
experiences gained in Asia. Mr. Verwaayen adds substantial
business and functional excellence experience gained in the
US, UK, France and the Netherlands. Their expertise is a good
addition to these committees. Sir Peter Ellwood was proposed
to join the Audit Committee. In addition to his nomination and
remuneration expertise, Sir Peter, as former Group Chief Exe-
cutive of Lloyds TSB Group, has the appropriate financial
knowledge for the Audit Committee.
The Nomination Committee held two meetings in 2012.
Together with the CEO, the Committee devoted consider-
able time to senior executive succession planning. From the
start of his appointment as CEO, Ton Büchner has discussed
and reviewed with the Nomination Committee the Executive
Committee member positions responsible for the company’s
Business Areas. After a thorough selection process, recom-
mendations were made by the Nomination Committee – follow-
ing proposals by the CEO – for the succession of Mr. Frohn, Mr.
Darner and Mr. Gunning. Important selection criteria included
a balanced knowledge of the markets in which the company
operates, a proven track record, global business experience
and team spirit. The following appointments were subsequently
approved by the Supervisory Board. Werner Fuhrmann was
appointed as the Executive Committee member responsible
for Specialty Chemicals as per October 1, 2012, a role he
initially took over on an ad interim basis after the 2012 AGM
(in addition to his Integrated Supply Chain responsibilities in
the Executive Committee). Conrad Keijzer joined the Executive
Committee on January 1, 2013, and will succeed Mr. Darner
as the member responsible for Performance Coatings follow-
ing the 2013 AGM. Ruud Joosten will also join the Executive
Committte and, following the 2013 AGM, will take over from
Mr. Gunning as the Executive Committee member responsible
for Decorative Paints.
Supervisory Board attendance record
The Supervisory Board is confident that the table on the follow-
ing page shows that all Supervisory Board members made
adequate time available to give sufficient attention to the
company.
Board evaluation
The Supervisory Board carried out a performance evaluation
of itself, its individual members, its Remuneration Committee
and Nomination Committee, the Chairman and the chairmen
of these committees. The process consisted of Supervisory
Board members completing confidential questionnaires. The
Audit Committee carried out a performance evaluation of
itself and invited the other participants of the meetings to also
complete the confidential questionnaire.
Unlike the process in 2011, the evaluation was conducted
without the assistance of an external facilitator. It is the Super-
visory Board’s intention to use an external facilitator in the
evaluation process every third year.
In separate meetings without the Board of Management, the
full Supervisory Board and the Audit Committee discussed
48
Report of the Supervisory Board | Our leadership | AkzoNobel Report 2012
the results of the evaluation questionnaires. These discus-
sions were recorded and the conclusions and actions were
discussed and confirmed at the next meeting of the Super-
visory Board and the Audit Committee. The evaluation of the
Chairman was discussed by the full Supervisory Board in the
Chairman’s absence. Items addressed were overall performance
and composition of the Supervisory Board, the Audit Commi-
ttee and the other committees, strategic issues and key areas for
2013. Other points discussed were the nature and impact of the
discussions, strategy oversight, risk management and internal
control, succession planning and other such matters. Overall it
was concluded that the Supervisory Board and its committees,
including the Audit Committee, continued to operate effectively.
The Supervisory Board was positive about the progress made
in a number of important areas, such as succession planning
and training. Improvement areas are diversity and knowledge of
high growth markets.
Gratitude
The Supervisory Board in particular wishes to thank Messrs.
Darner and Gunning for their contribution to AkzoNobel during
their time with the company. All members of the Supervisory
Board also extend their gratitude to the Board of Manage-
ment and the other members of the Executive Committee, as
well as all employees around the world, for their dedication
and hard work for the company in 2012.
Amsterdam, February 19, 2013
The Supervisory Board
Supervisory Board attendance record
Karel Vuursteen
Sari Baldauf*
Virginia Bottomley*
Dolf van den Brink
Peggy Bruzelius
Uwe-Ernst Bufe
Antony Burgmans
Sir Peter Ellwood*
Louis Hughes
Ben Verwaayen*
Supervisory
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
10/13
8/10
2/2
13/13
11/13
13/13
13/13
13/13
12/13
9/10
–
–
–
8/8
7/8
–
–
6/6
7/8
–
3/4
3/3
1/1
–
–
–
4/4
1/1
–
2/3
2/2
1/1
1/1
–
2/2
–
2/2
1/1
–
1/1
* Where a Supervisory Board member stood down from the Supervisory Board or a committee during the year, or was appointed during
the year, only meetings before standing down or after the date of appointment are taken into account.
AkzoNobel Report 2012 | Our leadership | Report of the Supervisory Board
49
Business
performance
The following section gives a detailed summary of how each
of our Business Areas performed during 2012. Information on
market characteristics, key brands and revenue comparisons
is also provided.
AkzoNobel Specialty Chemicals
AkzoNobel Performance Coatings
AkzoNobel Decorative Paints
53
63
73
Superior strength and performance
It might look fairly straightforward, but the average sheet
of paper goes through a whole series of weird and
wonderful production processes before it’s ready to use.
So manufacturers are understandably keen to ensure
that everything runs as efficiently – and cost effectively
– as possible. Being more sustainable is also high on
their agenda.
Which is why our Pulp and Performance Chemicals
business has developed EcoFill, a system for enhancing
paper strength and filler content which makes it possible for
customers to improve the sustainability of their operations
without having to compromise on production efficiency.
Using filler means that papermakers can use less wood
fiber, which is expensive. Filler is also easier to dry than
fiber, so less energy is needed when drying the paper.
With paper manufacture now taking place on a massive
scale (the biggest machine in the world in China produces
1.5 million tons a year) the benefits can be substantial.
Launched in 2012, EcoFill is a patented system which
combines engineered cellulose additive (ECA) dry strength
chemistry with clever application technology to deliver
significant cost-saving benefits and improve the
sustainability of customer operations. Available in a two
component system, it enhances strength and makes it
possible to increase filler content by five to ten percentage
points without sacrificing runnability.
Best used in conjunction with the company’s Compozil
retention system, our breakthrough EcoFill technology
has been quickly accepted by the industry, with the
world’s biggest paper machine among its first customers.
AkzoNobel
Specialty
Chemicals
“The resilience of our
portfolio enabled us to
increase revenues and
post solid results”
Werner Fuhrmann
Executive Committee member responsible for Specialty Chemicals
It was another good year for our Specialty Chemicals business,
despite a less than favorable macro-economic environment.
Following a good first quarter, conditions weakened as the year
progressed, particularly in areas such as construction, while
lower economic activity in the upstream petrochemical sector
and a slowdown in China’s manufacturing industry also
impacted our performance. However, the resilience of our
portfolio – combined with effective cost leadership and our
strong market and technology positions – enabled us to increase
revenues and post solid results, helped by a weaker euro.
Although trading conditions weren’t quite as severe as in
recent years, 2012 still presented a number of notable chal-
lenges. The construction industry continued to struggle,
which hit sales at our Functional Chemicals business, while
the economic slowdown in Europe also took its toll in terms of
volume. Another ongoing issue in Europe is the lack of
competitively-priced energy and feedstocks. The North
American chemical industry is benefiting from large-scale use
of shale gas. Gas prices there are only a fraction of what they
are in Europe, so businesses there have a clear advantage
when it comes to energy pricing and access to competitively
priced petrochemical raw materials such as ethylene.
Looking briefly at our activities, Surface Chemistry achieved a
record year, building on its leadership positions and clearly
benefiting from the acquisition of Boxing Oleochemicals. In
addition, we announced a series of investments to further
strengthen the business’ presence in China. Pulp and Per-
formance Chemicals also recorded a record year, despite
some weakness in demand. The business has streamlined its
portfolio to focus on key strategic markets and is well
positioned to maintain its growth momentum, with the
Chemical Island concept proving to be particularly successful.
It was a more challenging year for Functional Chemicals,
mainly due to softer demand and an imbalance in supply/
demand in certain markets. But the business continued to
launch innovative products – notably groundbreaking oil/gas
well stimulation technology Dissolvine StimWell – and further
developed its activities in Ningbo, China, where additional
strategic investments were made during the year. Industrial
Chemicals again proved resilient and was less affected by the
downturn in Europe due to its strong positioning in the down-
stream value chain. It continued to commercialize its mTA
anti-caking technology and strengthen its global leadership
positions in electrolyses salt and MCA in Europe. We divested
our Pakistan-based activities to better align the Specialty
Chemicals portfolio with our global strategy.
We were particularly proud to receive the Dutch Responsible
Care Award and the European Responsible Care Award
during 2012. The former was presented by the Dutch Chemi-
cal Industry (VNCI) and the latter by the European Chemical
Industry Council (Cefic). Both awards were given in recogni-
tion of new DME-based DeMythe LDD technology, which is
helping to revolutionize the leather and protein industries. It
was developed by our Industrial Chemicals business along
with a Spanish partner. Also notable was the achievement
of our best ever safety records, underlining our focus on
continuous improvement in all areas.
AkzoNobel Report 2012 | Business performance | AkzoNobel Specialty Chemicals
53
Specialty chemicals market overview
End-user segment and market sector analysis
The global chemicals market is roughly €3 trillion in size and,
within that, the specialty chemicals market represents around
€500 billion (of which paints and coatings accounts for €75
billion). AkzoNobel competes in reasonably selective niches
within this very large and diverse market. The outlook for our
business, therefore, is best described by evaluating the end-
user segments that we serve.
role when it comes to demand. So, for example, we continue
to expect strong growth in pulp production in Brazil, which
will lead to above average growth for our bleaching chemi-
cals market sector, which is well positioned in this market.
On the other hand, chemicals growth in mature Europe is
expected to be limited, and because our chlorine and caustic
soda market sectors are entirely Northern European, we are
expecting market growth below global average growth rates.
Industrial
The majority of our Specialty Chemicals revenue comes
from the Industrial end-user segment. Many of the different
industries incorporated in this broad sector can be somewhat
cyclical. However, the cycle for agricultural, for example, is
linked to the weather and not to economic cycles. There are
also industries that are less cyclical, such as pulp and paper.
Furthermore, during the recent recession, the downturn was
less than would have been expected as domestic demand in
high growth countries continued to lead to robust industrial
growth. Taking each of the sub-segments in turn:
Natural resource and energy industries
This sub-segment encompasses a wide range of markets,
including oil and gas, metals and mining, energy and electric-
ity generation, water and wastewater and agriculture. In the
recent past, oil and gas growth was buoyant as a result of
high oil prices. Going forward, we expect this to moderate
somewhat, but the outlook for energy and utilities in general
remains strong and we are seeing higher levels of growth in
agriculture. Thus the outlook for the market sectors that serve
this sub-segment is strong, assuming that our position in the
market sector is global. For example, we expect good growth
in market sectors such as surfactants, chelates, ethylene
amines and sulfur products.
Process industries
This sub-segment covers chemicals and pulp and paper
manufacture. Growth in this sub-segment going forward is
expected to be somewhat below average globally as chemi-
cals growth is expected to be average and pulp and paper
growth is lower than this. However, geography plays a key
Consumer Goods
In general, the higher growing industries within the Con-
sumer Goods end-user segment are in the Consumer dura-
bles sub-segment, which is small in terms of revenues from
our Specialty Chemicals Business Area. However, for market
sectors such as organic peroxides, metal alkyls, polymer
additives and silica sols used in polymers for the manufac-
ture of consumer electronics, toys and recreation equipment,
above average market growth is expected.
There are also some faster growth industries within the
Consumer packaged goods end-user sub-segment, such as
personal care. As a result, the surfactants and specialty poly-
mers market sectors for these industries are also expecting
above average growth. Historically, these industries – along with
food and beverage – have experienced lower growth, but are
more stable. Recent trends are very positive and we therefore
expect average or above average growth for relevant market
sectors such as surfactants, chelates and ethylene amines.
Transportation
Our revenues from the Transportation segment are roughly
equivalent to our revenues from the Consumer Goods end-
user segment. With the exception of marine transporta-
tion, most of the industries in this end-user segment are
performing well and the global outlook is particularly strong
for the Automotive OEM, parts and assembly end-user sub-
segment, which is the only relevant sub-segment for our
Specialty Chemicals Business Area. In this sub-segment, we
sell chlorine, organic peroxides and metal alkyls used in the
production of automotive plastics. Our Chlorine business is
very European, though, so on average the relevant market
growth for this end-user segment for AkzoNobel is likely to be
average, rather than above average.
Buildings and Infrastructure
The smallest segment for our Specialty Chemicals Business
Area, our revenues in the Buildings and Infrastructure end-
user segment are all in the Building products and components
sub-segment. The outlook for this sub-segment is below
average, taken as a whole. However, industries within the
sub-segment that are less residentially oriented, and/or have
a strong maintenance component, are performing better. Our
revenues in this sub-segment come from products such as
chlorine used in the manufacturer of plastics for windows,
doors and pipes, as well as redispersible powders and cellu-
losic derivatives used in building adhesives and coatings.
Market growth for all of these market sectors is expected
to be below average, particularly as our chlorine business is
heavily European, where growth rates are lower, and redis-
persible powders have a strong new build orientation.
The vision for the Specialty Chemicals Business Area is to be
the leading specialty chemicals company in selected market
sectors and a reliable cash generator for AkzoNobel. To
achieve this, we will need to continue to ensure that we have
strong processes and capabilities in terms of:
• Management of integrated value chains
• Continuous technological advancement
• Engineering and project management
• Process safety
• Product and margin management
• Managing capital intensive businesses and investments
Strategic direction
We have four main strategic priorities. These are:
1. Although the emphasis for AkzoNobel in general, and for
the Specialty Chemicals Business Area in particular, is on
focusing on cash and return on investment, we will con-
tinue to invest in people and technology. This is vital for the
long-term health of our business.
54
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2012
2. We will be even more selective in where and how we grow
the business, with a strong emphasis on market sectors
and geographic regions with better end-user segment
outlook. We have done this in the past. For example,
recent capital expansions have been almost exclusively in
Brazil for bleaching Chemical Islands, and at our Ningbo
site in China. Our most recent acquisition was of Boxing
Oleochemicals, which has made a major contribution to
our Surface Chemistry position in Asia. We will continue to
select for these kinds of investments going forward.
3. We will strengthen our focus on functional and opera-
tional excellence. This incorporates continuing to work on
building capabilities in product and margin management,
complexity reduction, efficiency improvements in factories,
operating working capital reduction and ERP rationalization
across the full Business Area.
4. Given all the changes in the external environment, such as
shale gas and other chemical feedstock potential game
changers, we will be stress-testing our strategies against
the changing competitive landscape to ensure that we are
well placed for the future.
Key actions going forward
• Further integrate and grow the acquired Boxing
Oleochemicals activities
• Benefit from capacity expansions in China,
Brazil and Germany
• Generate growth from new products
• Further rationalize and consolidate ERP systems
Key raw materials
Market leadership positions
• Salt
• Energy
• Ammonia and ethylene
• Acetic acid
• Polymers
• Sulfur
Price drivers
• Energy, oil and other raw materials
Functional Chemicals
1st
Chelates and micronutrients
Ethylene amines
Organic peroxides
Salt specialties (North Western Europe)
Sulfur products
2nd
Organometallic specialties
Building and paints performance additives
Industrial Chemicals
1st
Chlorine merchant (Europe)
Monochloroacetic acid (MCA)
Salt (chemical transformation Europe)
Chloromethanes merchant (Europe)
2nd
Caustic lye merchant (Europe)
Pulp and Performance Chemicals
1st
Bleaching chemicals
Silica retention additives
Expandable microspheres
Colloidal silica dispersions
Surface Chemistry
1st
3rd
Industrial applications
Agricultural applications
Home and personal care
AkzoNobel Report 2012 | Business performance | AkzoNobel Specialty Chemicals
55
Key developments 2012
• Completed the acquisition of Boxing Oleochemicals, China
• Announced €45 million investment in a new dicumyl
peroxide (DCP) plant at our Ningbo multi-site in China
• Demerger and divestment of Chemicals Pakistan
• Opened bleaching Chemical Island in Brazil and announced
€80 million investment in the construction of a Chemical
Island to supply the Suzano Maranhão pulp mill
• Began work at our Taixing site in China to increase annual
production capacity for MCA to 100,000 MT
• Broke ground on our €140 million investment to modernize
and expand manufacturing at our Frankfurt site and
switch our chlorine production from mercury to the latest
membrane electrolysis technology
• Completed de-bottlenecking at the Stockvik site in
Sweden, giving us 30 percent more production capacity
for our Expancel expandable microspheres
• Signed an agreement with Mexichem Resinas Vinilicas,
S.A. de C.V. to supply our pioneering Continuous Initiator
Dosing (CiD) technology to three of their plants
Geo-mix revenue by destination
21%
North America
40%
4%
Emerging Europe
Mature Europe
22%
Asia Pacific
3%
Rest of the world
10%
Latin America
56
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2012
Key figures in € millions
Employees by region at year-end
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
2011
5,335
906
17.0
625
11.7
622
17.8
2012
5,543
North America
Latin America
Mature Europe
Emerging Europe
Asia Pacific
Total
889
16.0
583
10.5
500
15.6
2011
2012
1,800
900
5,800
–
3,000
1,800
1,000
5,500
100
2,300
11,500
10,700
Revenue breakdown by business unit
in %
Eco-premium solutions
% of revenue
E
A
D
C
22
24
25
2010
2011
2012
B
Key value chains with carbon
footprint assessment
A Functional Chemicals
B Industrial Chemicals
C Pulp and Performance Chemicals
D Surface Chemistry
E Chemicals Pakistan
35
21
20
19
5
147
164
118
2010
2011
2012
Total reportable rate of injuries
per million hours
3.5
2.8
2.8
1.8
2009
2010
2011
2012
AkzoNobel Functional Chemicals
“Recent investments mean
we are well positioned
to benefit from the next
economic upturn”
Jan Svärd
Managing Director
Overview
It was a mixed year, with many of our product lines either on
a par or performing better than 2011. Raw material prices
were stable, but margins came under pressure when volumes
started to weaken towards the end of the year.
Analysis
Our results benefited from an upturn in the North American
chemical industry, which enjoyed something of a revival, with
sales to the polymer market being particularly good. Asia
continued to grow, but not as fast as expected, partly because
of weaker demand for exports to Europe. The fact that the US
became more competitive also impacted the market in Asia.
In terms of business performance, many of our activities had
a reasonably good year. Chelates and Micronutrients were
strong in Asia, while Performance Additives improved on 2011,
due mainly to the launch of several new cellulose-based prod-
ucts. The one exception was Ethylene Amines, which contin-
ued to find the going tough. The sluggish macro-economic
market made it difficult to place new capacity into the market,
but recent investments mean we are well positioned to benefit
from the next economic upturn, particularly in high growth
markets. In order to optimize our supply chain for ethylene
amines, we realigned our operations, which involved discon-
tinuing a long-term toll manufacturing agreement in Germany.
Highlights
The success of our growing range of biodegradable chelates
caught the eye, in particular the launch of Dissolvine Stim-
Well, a unique technology for the oil and gas industry which
stimulates wells and makes them more productive. It has
huge potential to revolutionize the industry and we have
already secured a number of high profile customers. We
also signed an agreement with Mexichem Resinas Vinilicas,
S.A. de C.V., one of the world’s largest PVC manufacturers,
to supply our pioneering Continuous Initiator Dosing (CiD)
technology. It was our first CiD license outside Europe and
involves three Mexichem plants, two in Mexico and one in
Colombia. The technology was developed to help PVC manu-
facturers improve reactor output, product quality and opera-
tional safety. We also invested in our pharma salt activities in
Denmark, which supplies high purity products and has trebled
turnover in the last three years.
Developments
In China, we successfully started up a new organic peroxide
plant at our Ningbo site, while the ongoing project at the same
facility to add capacity for our Bermocoll cellulose derivatives
is scheduled for completion in mid-2013. We are also invest-
ing €45 million in a new dicumyl peroxide (DCP) plant, which
will be operational in 2014. These investments are part of a
strategic plan to develop a strong cluster in Ningbo which will
play a key role in our growth ambitions. Elsewhere, we made
a number of changes to our organizational set-up, which
involved realigning our High Polymers and XTP (Cross-link-
ing Peroxides, Thermoset Chemicals and Polymer Additives)
activities in order to create a more robust and simpler model.
As a result, we formed two new sub-businesses – Organic
Peroxides and Organometallic Specialties – which will enable
us to achieve operational excellence and cost efficiencies,
while retaining the focus on customers. This was in addition to
the ongoing initiatives (such as Lean Six Sigma) being imple-
mented as part of the company’s performance improvement
program, which will enable us to operate our production facili-
ties at lower cost.
Revenue in € millions
1,813
1,917
1,963
2010
2011
2012
Geo-mix revenue by destination in %
A
C
B
A EMEA
B Americas
C Asia Pacific
42
30
28
Main products
• Cellulosic additives
• Chelates
• Additives for the
mortar industry
• Ethylene amines
• Salt specialties
• Sulfur derivatives
• Polymer chemicals
Key end-user markets
• Detergents
• Personal care
• Crop protection
• Micronutrients
• Building materials
• Paint
• Pharmaceutical
• Food
Key brands
Ferrazone®
T h i s I r o n W o r k s .
Rexene®
AkzoNobel Report 2012 | Business performance | AkzoNobel Specialty Chemicals
57
AkzoNobel Industrial Chemicals
“Continued investments in our
leadership positions have
ensured that we are well
positioned going into 2013”
Knut Schwalenberg
Managing Director
Germany, where we are investing €140 million to modernize
and expand manufacturing and switch our chlorine production
from mercury to the very latest membrane electrolysis tech-
nology. One highlight we were particularly proud of was the
fact that we received both the Dutch Responsible Care Award
and the European Responsible Care Award. The former was
presented by the Dutch Chemical Industry (VNCI) and the
latter by the European Chemical Industry Council (Cefic). Both
awards recognized the DME-based DeMythe LDD techno-
logy we developed with Spanish partner GRIT which is
helping to revolutionize the leather and protein industries. We
also secured our first license for the technology, which is used
to remove water and grease from animal skins and makes the
process far more sustainable and less harmful to health than
more conventional methods.
Developments
The first licensing contract for our mTA technology for the salt
and chlorine industries in China was signed and we gained
approval to store strategic oil reserves in our salt caverns. We
already store gas and nitrogen and are investigating the possi-
bility of using the caverns to store energy as compressed air
to cope with fluctuation of wind energy. In addition, we have
ongoing initiatives targeted at significantly increasing steam
production from renewables (for example through waste
incineration) and are looking into ways we can improve the
eco-profile of our suppliers and raw materials.
Overview
Despite a slowdown in our markets, we achieved solid results
in the range of our record year 2011. Continued investments
in our leadership positions, combined with ongoing cost-
saving and efficiency measures, have ensured that we are well
positioned going into 2013.
Analysis
Our Chlor-Alkali business had its best ever year, mainly due to
our strong chlorine portfolio and a favorable price situation for
caustic. We were all but sold out for much of 2012, well ahead
of the European chlorine industry from a utilization perspec-
tive. MCA also posted an excellent year as we harvested the
benefits of recent expansions and cost-saving programs. We
are now the clear market leader in the US and China and in
Europe we are a co-leader. Our Salt activities had to cope with
two issues that influenced the business’ performance. First of
all we had no real winter – which impacted sales of road salt
– and secondly a broken canal lock near our Dutch Hengelo
site caused major shipment problems and resulted in lost
volumes. Both effects were compensated by excellent busi-
ness to the chemical industry, which posted a record volume.
Our Energy activities faced several challenges and as a result
we had to mothball our large Delesto 2 cogeneration unit at
Delfzijl in the Netherlands. We are now investigating several
alternatives for generating steam.
Highlights
We began work at our Taixing site in China ahead of a major
expansion which will further increase its annual produc-
tion capacity for MCA to 100,000 MT. Once complete, the
Taixing facility will become the biggest MCA plant in the world.
A groundbreaking ceremony was also held at Frankfurt in
58
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2012
Revenue in € millions
1,070
1,165
1,188
2010
2011
2012
Geo-mix revenue by destination in %
B C
A
91
5
4
• Monochloroacetic acid
(MCA)
• Chloromethanes
• Food
• Pulp and paper
• Plastic industries
A EMEA
B Americas
C Asia Pacific
Main products
• Salt
• Energy
• Chlorine
• Caustic lye
Key markets
• Chemical
• Detergent
• Construction
Key brand
AkzoNobel Pulp and Performance Chemicals
“All three main businesses
made an important
contribution to the overall
performance improvement”
Ruud Joosten
Managing Director
Overview
The momentum we have been building up over the last few
years continued as we achieved another record performance.
EBITDA improved significantly, driven mainly by strong margin
management, which helped to mitigate the impact of the
economic slowdown.
Analysis
Having refocused our strategy to concentrate on activities
with global leadership positions, all three of our main busi-
nesses made an important contribution to the overall perfor-
mance improvement. Bleaching Chemicals had a strong
year in Latin America, but also did well in Europe and North
America, while Specialty Products (with our Expancel micro-
spheres) outperformed its record year in 2011. It was more
of a mixed picture for Silica and Paper Chemicals, primarily
due to the weak economic conditions in North America and
Europe. Raw material prices were not as volatile as the pre-
vious year, and although 2012 began well in terms of volumes,
they progressively came under more pressure, particularly
in the paper chemicals sector. However, we were able to
manage our margins very effectively and consolidated our
positions in our key markets.
Highlights
We introduced our new strategy in April in order to globalize
our business operations and further strengthen our market
positions. This included divesting some non-core activities
and optimizing the production footprint, as well as changing
the name of the business to Pulp and Performance Chemicals,
which better reflects our focus on three core technologies with
global leadership positions. We are now better placed to build
on the market strength of these activities, further increase
profitability and give current and future customers full value
from our position as a world leader in our industries. Many
customers, however, still remember us by the Eka Chemicals
name, so we will continue to use the Eka name as a product
brand for the pulp and paper industry. Another major highlight
was the €80 million investment in the construction of a new
Chemical Island facility in Brazil which will supply the Suzano
Maranhão pulp mill. The project should be completed by the
end of 2013. The Suzano investment came just a year after
we announced plans to build a €90 million Chemical Island in
Três Lagoas, also in Brazil, which was ready to start produc-
tion in early 2013. Meanwhile in Europe, we took steps to
right-size the organization in order to better align with prevail-
ing market conditions.
Developments
The €32 million investment in our Stockvik site in Sweden
was completed by the end of the year, giving us 30 percent
more production capacity for our Expancel expandable
microspheres. Our biggest innovation was EcoFill, a product
which has advanced from a concept stage and has now been
launched into the market. It enables paper makers to make a
stronger paper with less fiber and higher filler levels, allowing
for drying times that result in less energy consumption during
the production process, resulting in cost and environmental
benefits. Progress was also made in the area of safety, which
received a lot of attention.
Revenue in € millions
1,044
1,116
1,153
2010
2011
2012
Geo-mix revenue by destination in %
A
C
B
A EMEA
B Americas
C Asia Pacific
Main products
37
47
16
• Bleaching chemicals
• Paper chemicals
• Separation products
• Expandable microspheres
• Colloidal silica dispersions for various applications
Key markets
• Pulp and paper industry
• Pharmaceuticals industry
• Colloidal silica dispersions for industrial use
Key brands
Compozil
AkzoNobel Report 2012 | Business performance | AkzoNobel Specialty Chemicals
59
AkzoNobel Surface Chemistry
“Our record results were
driven by the optimization
of our product portfolio,
margin management and
tight control on costs”
Bob Margevich
Managing Director
ties, including a significant manufacturing base in Shandong
Province. This acquisition will allow us to help local customers
enhance and differentiate their products. Another key highlight
was our safety performance. All 13 of our plants performed
well and we ended the year favorably below corporate ambi-
tions in terms of total reportable rate of injuries.
Developments
Our Rediset LQ liquid asphalt warm-mix additive was used
to pave five new taxiways at Chicago’s O’Hare International
Airport. The taxiways are an integral part of the O’Hare
Modernization Program, one of the largest infrastructure reha-
bilitation and construction projects in the US, at one of the
world’s largest and busiest airports. We also worked together
with AkzoNobel Marine and Protective Coatings to develop
a new advanced antifouling product for ships. There were
some interesting developments in the US and Asia with the
sustainable chemistry we acquired from Integrated Botanical
Technologies in 2011. One particularly notable product launch
was Armovis EHS, a readily biodegradable, high tempera-
ture surfactant for the oilfield market which can be used in a
diverse range of applications, including acidizing, fracturing
and completion brine systems.
Overview
We achieved record results for the third year in a row, driven
mainly by the optimization of our product portfolio, margin
management and sales into relatively strong markets. The
integration of the Boxing Oleochemicals business, acquired
in 2012, helped grow our business and improved the geogra-
phic diversity of our sales. Volumes remained more or less flat,
raw material price increases were not as severe as in 2011
and we were able to keep tight control on costs, all of which
contributed to our overall financial performance.
Analysis
North America was our strongest and steadiest market, while
Europe held up well given the economic turmoil. In Latin America
and Asia, underlying conditions were not as vibrant as in recent
years, although there remained many opportunities for our tech-
nologies. From a business perspective, we achieved strong sales
in agrochemicals, oilfield chemicals, mining and asphalt, while
our home and personal care activities were less robust. Asphalt
benefited from the US Congress passing a new highway funding
bill, which sustained current levels of funding for the construction
and repair of highways, bridges and other transportation projects
across the US. Mining started out slow, but picked up and deliv-
ered a good year, while oil and gas moderated somewhat after
growing for most of 2012. Essentially, all our market segments
were either stable or improved on 2011.
Highlights
In Europe, we reorganized our management team and stream-
lined the business, which had a positive impact on our perfor-
mance. We also integrated the Personal Care business into
our regional sub-business units globally. Early in the year,
we focused on integrating the Boxing Oleochemicals activi-
60
AkzoNobel Specialty Chemicals | Business performance | AkzoNobel Report 2012
Revenue in € millions
847
945
1,085
2010
2011
2012
Geo-mix revenue by destination in %
A
C
B
31
53
16
• Bio-polymers
A EMEA
B Americas
C Asia Pacific
Main products
• Surfactants
• Synthetic polymers
Key markets
• Agrochemicals
• Asphalt
• Home and personal care
• Oilfield chemicals
• Coating additives
• Lubes and fuels
• Water treatment
• Mining
Key product lines
• Armeen
• Arquad
• Armovis
• Berol
• Adsee
Key brands
• Ethomeen
• Naviance
• Alcoguard
• Witconate
Chemicals Pakistan
“The sale of ICI Pakistan to
Yunus Brother Group concluded
on December 28, 2012”
Waqar A Malik
Chief Executive ICI Pakistan
Overview
The business environment remained tough in 2012, with the
escalating energy crisis in Pakistan impacting both margins
and downstream demand. However, we were able to increase
revenue on the back of effective price management, new
product launches and opportunities in the Life Sciences and
Chemicals businesses.
Analysis
Operating results were severely affected by the rising cost
of alternative energy needed to maintain optimum produc-
tion levels. The additional cost incurred to replace the use of
natural gas amounted to €3.4 million. However, our ongoing
coal-fired boilers project – which will offer a cheaper alterna-
tive to high cost energy – is progressing well and is on track
for completion in 2013. We also incurred a one-off expense
of €3.1million on the demerger of the Paints business and the
divestment of ICI Pakistan.
Highlights
AkzoNobel, in accordance with its declared strategy through
ICI Omicron B.V., sold its entire holding of 75.81 percent in
ICI Pakistan Limited to Yunus Brother Group on December
28, 2012. In line with the same strategy, the Paints business
of ICI Pakistan Limited was demerged into a separate listed
entity (Akzo Nobel Pakistan Limited), effective July 2011. The
Pakistan Paints business is now managed through our Middle
East organization.
Developments
The business won the coveted Best Sustainability Report
WWF-ACCA award, as well as receiving a number of addi-
tional honors for financial and sustainability reporting. Our
employee engagement score was also one of the best in the
company. In August, a safety incident at our Polyester site
in Sheikhupura unfortunately resulted in a fatality. A detailed
investigation was immediately carried out and new HSE
management controls are being drawn up.
Revenue in € millions
305
330
287
2010
2011
2012
Main products
• Polyester fiber
• Soda ash
• Life sciences
• Chemicals
Key brands
AkzoNobel Report 2012 | Business performance | AkzoNobel Specialty Chemicals
61
Breathe easy
We usually think of air pollution as an outdoor problem,
but according to various experts, indoor air pollution is
one of the biggest threats to human health. In fact, some
claim that the degradation of indoor air quality by harmful
chemicals and other materials can be up to ten times
worse than outdoor air pollution.
You might wonder how a company like AkzoNobel can
make a difference and contribute to improving well-being
in indoor spaces. Well, the answer lies in our continued
push to lead the way in top quality, sustainable products.
Our Wood Finishes and Adhesives business recently
launched two new formaldehyde-free coatings for use
on interior wood applications, which give solvent borne
performance while remaining environmentally responsible.
Marketed under the Chemcraft brand and known as
Airguard, the products (a catalyzed lacquer and a
conversion varnish) can be applied to a wide variety of
surfaces, including office and household furniture and
kitchen cabinets.
Airguard also includes a line of both water and solvent
borne products that meet the stringent testing standards
of GREENGUARD Indoor Air Quality Certification. They can
also be used to comply with LEED, IAQ and BIFMA indoor
air standards for formaldehyde.
Ready to use for indoor environments without sacrificing
performance, using Airguard means that you can breathe
easier knowing these products contribute to the creation
of cleaner interiors.
AkzoNobel
Performance
Coatings
“While it has been a strong
year, we remain focused on
continuous improvement”
Leif Darner
Member of the Board of Management and the Executive
Committee member responsible for Performance Coatings
Our Performance Coatings portfolio delivered record results
in 2012, even though we were operating under economi-
cally challenging circumstances. It wasn’t a year of large
volume increases, so most of the momentum for the improve-
ment across all key ratios was driven by careful operational
management and our ability to capture the limited growth
opportunities that arose.
Also significant was the fact that the balanced spread of our
portfolio means we are not over-dependent on any particular
segment or sector. Our activities span various cycles across
all geographies. So when the economy becomes volatile, as
it has been for some time, we are able to adjust and respond.
From an operational perspective, we worked diligently to make
our businesses more efficient and competitive, which meant
we had to focus hard on cost control and keep a close eye on
margin management, in line with the company’s performance
improvement program. This disciplined approach ensured
that all our key financials improved, including EBITDA, operat-
ing working capital and return on investment.
Looking at the businesses themselves, Marine and Protective
Coatings had an excellent year, led by a strong sales increase
at Protective Coatings. The main driver for this was the
increasing global activity in the oil and gas industry, to which
we are a major supplier. Our Chartek range of fire protection
coatings in particular benefited significantly. This momentum
is being supported by an ongoing investment program to
upgrade our research facilities so that we can continue devel-
oping innovative products that are more sustainable, while
increasing our competitive advantage. The Marine business,
on the other hand, suffered from a major slowdown in new
builds, although this was entirely expected and we were fully
prepared in terms of reducing resources to reflect the devel-
opment of the market. It was a similar story in the vehicle
refinish sector, where reduced volumes – especially in Europe
– put pressure on our Automotive and Aerospace Coatings
business. But again, stringent value engineering, along with
stronger activity in high growth markets, ensured that the
business was able to make progress.
Industrial Coatings performed very well in 2012, boosted by
the previous year’s acquisition of Schramm Holding AG and
the coatings activities operated by Korean company SSCP.
The deal gave us an important global leadership position in
the consumer electronics industry and this was reflected in
the first full year of results for the integrated business. Wood
Finishes and Adhesives also bounced back after a difficult
few years. Market conditions have been particularly unfavor-
able, but the business has undergone a period of restructur-
ing and the benefits of that started to pay off with a marked
improvement in results. Powder Coatings was another busi-
ness to achieve a solid performance, led by stronger focused
management and continued improvement in operational
excellence.
We have also been very successful in better coordinating our
“One AkzoNobel” commercial offer to end-user customer key
accounts, particularly in the construction industry. We are
building resources and now have a dedicated team who iden-
tify major projects that can benefit from our global scale and
complete product offering.
Markets are still uncertain, however, and while it has been a
strong year, we remain fully focused on continuous improve-
ment and increasing profitability so that we can grow our busi-
nesses in line with our strategic agenda.
AkzoNobel Report 2012 | Business performance | AkzoNobel Performance Coatings
63
Performance coatings market overview
End-user segment and market sector outlook
The Performance Coatings market represents around 55
percent of the €75 billion global paints and coatings market.
It is growing and profitable. However, growth rates and levels
of cyclicality and profitability differ somewhat across end-user
segments and sub-segments.
Transportation
Transportation is the largest end-user segment for our Perfor-
mance Coatings Business Area. For all end-user segments,
apart from marine, the outlook is positive in the short to
medium term, due to strong automotive demand, recovery
from the recession and continued high demand levels in high
growth markets. Going forward, growth rates are not expected
to reach the levels experienced prior to the economic down-
turn. However, in this end-user segment, growth rates for
coatings can outstrip overall demand where products provide
sustainable or other performance benefits. For example, there
is strong demand for coatings solutions that reduce energy use
and/or help to enhance production efficiency for our custom-
ers. It is also possible to differentiate products in terms of func-
tionality for high-end customers, leading to higher margins.
Taking each of the three sub-segments in Transportation in turn:
Automotive OEM, parts and assembly
This sub-segment is fairly cyclical and has been recovering
well from the substantial market downturn. The large (roughly
€7 billion) automotive OEM coatings market sector serves this
end-user sub-segment. AkzoNobel’s participation is limited,
however, as we do not sell liquid automotive body coatings for
original equipment manufacture. Our involvement is focused
on commercial vehicle OEM coatings, powder coatings and
specialty finishes, generally for plastic automotive compo-
nents. We expect these sectors to experience above average
growth due to underlying end-user segment growth.
Automotive repair
This is a more stable and less cyclical sub-segment, but has
lower growth rates. We sell automotive refinishes into this
sub-segment and our expectation is that growth rates will
remain average in this market sector, as the vehicle car park
increases while repair rates decrease.
Marine and air transport
This sub-segment can be highly cyclical as shipping rates
and air travel tend to reduce dramatically during economic
downturns. However, given the long lead times involved in
shipbuilding and aircraft construction, downturns in new
construction often occur quite late in the cycle and some
balance in demand is created by the existence of both new
build and maintenance markets. Currently, very low shipping
rates are putting pressure on demand for marine coatings,
even for maintenance. We sell both marine and aerospace
coatings into this end-user sub-segment and expect little or
no growth in the marine coatings market sector, while in aero-
space, we anticipate average to above average growth.
Consumer Goods
The Consumer Goods end-user segment is only slightly
smaller than Transportation for our Performance Coatings
Business Area. The outlook is relatively positive, as we see
some demand growth in mature markets and reasonably high
demand growth in high growth markets, driven by increases
in wealth and population. Growth rates vary, however, with
higher growth in consumer electronics and domestic appli-
ances and lower growth in furniture and food and beverage.
In addition, as is the case in Transportation, our expectation
is that growth rates will be lower in the short to medium term
than they were prior to the recession.
There are two sub-segments in Consumer Goods –
Consumer durables and Consumer packaged goods.
Consumer durables
Consumer durables can be relatively cyclical, but the outlook
for growth is generally positive, with some growth in mature
regions and higher growth rates elsewhere. Growth levels can
be tempered by the switch in product mix – in both mature
and high growth countries, the highest growth levels tend to
be in lower end segments. Growth rates also vary, with some
consumer durables (such as consumer electronics) enjoying
a very positive outlook, while others (such as furniture) have
much lower growth expectations. As a result of these differ-
ing underlying segment growth patterns, we expect above
average growth in the powder coatings and specialty finishes
market sectors and lower growth (average at best) in the wood
finishes market sector.
Consumer packaged goods
This is a slower growing, but less cyclical, sub-segment. We
sell packaging coatings into this sub-segment and expect
growth in this market sector to be somewhat below the
average for the performance coatings market.
Buildings and Infrastructure
Many parts of this end-user segment have been badly affect-
ed by the recent recession. The expectation is that the under-
lying issues will continue to exist in the short to medium term,
particularly in mature regions in Europe. However, growth
rates are increasing in the United States and will remain high
in high growth regions.
Building products and components
The vast majority of our revenues in the Buildings and Infra-
structure end-user segment come from this sub-segment. In
terms of outlook, we expect continued growth in high growth
geographies, but not at pre-recession levels. In more mature
regions, a very moderate return to growth is expected, created
by maintenance rather than new build demand, and oriented
towards non-residential building components. For example,
we are expecting some mature market growth in areas such
as doors and windows, which are maintenance-oriented and
used in a broad range of building applications. We also expect
reasonable growth rates in coil and powder coatings from high
growth geographies due to the non-residential profile of these
market sectors. Growth rates for the more residentially-orient-
ed wood finishes and adhesives market sector will be lower.
New build projects and Maintenance, renovation
and repair
In the other two sub-segments of New build projects and
Maintenance, renovation and repair, the general outlook is for
64
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2012
low levels of growth as housing markets continue to expe-
rience considerable issues, particularly in mature Europe.
However, our Performance Coatings revenues in these two
end-user sub-segments generally come from large building
projects and infrastructure (e.g. bridges, stadia, airports),
rather than housing. Typically, investments in infrastructure
continue, and even accelerate, during economic downturns
as governments use these kinds of projects as an economic
stimulus. Furthermore, many high value infrastructure proj-
ects are over multiple years and are difficult to bring to a halt
during a recession. Demand is, therefore, generally expected
to remain strong for protective coatings, which are sold into
these two sub-segments for non-residential applications.
Industrial
Many parts of this end-user segment can be quite cyclical.
However, domestic high growth market demand means that,
on a global basis, the downturn had less of an impact than
might be expected due to the recent recession. Oil, gas, energy
and utilities were particularly strong and growth is expected to
continue at above GDP levels going forward in all geographies.
We serve this end-user segment through protective coatings
and some powder coatings, both of which are strongly orient-
ed towards the higher growth applications. As a result, we are
expecting above average market sector growth in this segment.
Strategic direction
Our vision for Performance Coatings specifically is to be the
leading business-to-business coatings company. To us, lead-
ership in business-to-business coatings means that we must
have strong processes and capabilities in terms of:
• Industrial key account management
• Technical support and service
• Design, color and color matching
• Continuous innovation in terms of functionality
above areas, we have four main strategic priorities. These
strategic priorities are:
Key raw materials
1. Given the breadth of opportunities for this Business Area,
we plan to grow organically in all market sectors and coun-
tries/regions. This is likely to mean different things for differ-
ent market sectors.
2. To ensure that our end-user segment focus provides true
benefits on a market sector level, we will need to pursue a
cross-business approach for key segments and accounts.
This means that we will need to work across Powder Coat-
ings and Specialty Finishes, for example, to provide the
best solution for our customers in the domestic appliance
and consumer electronics areas of the Consumer Goods
end-user segment.
3. We must continue to focus our RD&I agenda on improving
functionality and sustainability. In practice, this will mean
focusing and prioritizing innovations that reduce the use
of materials of concern, that increase the renewability of
our raw materials and that help our customers to use less
energy, improve their carbon footprint, increase safety and
health and wellness, increase their market share and/or
improve their process efficiency.
4. We will continuously improve operational excellence across
all functions and businesses. This includes everything from
capabilities in terms of pricing and formulation manage-
ment (which are key components of product and margin
management), to manufacturing and distribution network
optimization, integrated business planning and purchase-
to-pay processes.
• Resins
• Titanium dioxide
• Pigments
• Solvents
Price drivers
• Oil/energy prices
• Construction demand
• Metals, base chemical prices
Market leadership positions
Marine and Protective Coatings
1st
Marine coatings
Protective coatings
Yacht coatings
Automotive and Aerospace Coatings
2nd
3rd
4th
Aerospace coatings
Vehicle refinish
Automotive plastic coatings
Industrial Coatings
1st
Coil and extrusion coatings
Specialty plastics coatings
2nd
Packaging coatings
Powder Coatings
1st
Powder coatings
Key actions going forward
Wood Finishes and Adhesives
and efficiency in use
• Complete manufacturing expansion for automotive
• Sustainable and safe product and service solutions
• Product and margin management
To capture market opportunities while ensuring that we
continue to have strong processes and capabilities in the
refinish in China
• Complete Schramm/SSCP integration
• Launch various new projects
• Continue product line rationalization
• Continue ERP consolidation
1st
2nd
Industrial wood finishes
Industrial wood adhesives
AkzoNobel Report 2012 | Business performance | AkzoNobel Performance Coatings
65
Key developments 2012
• Expanded our technology partnership with McLaren
Automotive to include road cars
• Schramm/SSCP acquisition integration on track
• Opened a new manufacturing facility in Vietnam
• Realigned the Business Area to four business units
(from five)
• Secured multiple stadium contracts for London Olympics
and future events in Brazil
• Reorganized European activities in several businesses
• Began supplying products for Shell’s Prelude floating
liquefied natural gas facility off the north west coast of
Western Australia
• Introduced GreenCoat, a coil coating topcoat made with
a bio-based solvent which is a derivative of rapeseed oil
Geo-mix revenue by destination
20%
North America
27%
Mature Europe
11%
Emerging Europe
30%
Asia Pacific
4%
Rest of the world
8%
Latin America
66
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2012
Key figures in € millions
Employees by region at year-end
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
2011
5,170
611
11.8
495
9.6
458
22.0
2012
5,702
North America
769
13.5
638
11.2
542
25.6
Latin America
Mature Europe
Emerging Europe
Asia Pacific
Other countries
Total
2011
2012
3,100
1,800
7,000
1,100
8,500
500
3,100
1,700
6,700
1,100
8,100
600
22,000
21,300
Revenue breakdown by business unit
in %
Eco-premium solutions
% of revenue
D
E
C
A
B
A Marine and Protective Coatings
B Automotive and Aerospace Coatings
C Industrial Coatings
D Powder Coatings
E Wood Finishes and Adhesives
28
18
23
17
14
16
15
14
2010
2011
2012
Key value chains with carbon
footprint assessment
60
74
93
2010
2011
2012
Total reportable rate of injuries
per million hours
3.3
3.3
2.8
2.6
2009
2010
2011
2012
AkzoNobel Marine and Protective Coatings
“We are more focused on the
global needs of our customers”
Rob Molenaar
Managing Director
Overview
We had an outstanding year, helped by the fact that we orga-
nized the business into three distinct global market segments
(Marine, Protective Coatings and Yacht). By aligning ourselves
in this way, we are more focused on the global needs of our
customers and better equipped to anticipate the different
dynamics so that we can accelerate in sectors where we
see opportunities. The reorganization resulted in a significant
reduction in operating expenses.
Surface Chemistry. Teams of scientists worked together on
developing patented technologies for a revolutionary new
antifouling, which is close to being launched. We are by far
the world leader in developing and supplying fouling control
technology and this will be a further addition to what is already
the broadest portfolio available on the market. On an organi-
zational level, we confirmed the three HQs of our global busi-
ness operations as the UK for Protective Coatings, Houston
in Texas for Yacht and Singapore for Marine.
Developments
We began supplying products for Shell’s Prelude floating
liquefied natural gas facility off the north west coast of Western
Australia, which will be the world’s largest floating LNG
platform. Other major landmarks coated with our products
included the Shanghai Tower – which will be the tallest building
in China when completed – as well as various venues used at
the 2012 Olympic Games. During the year we also made good
progress in terms of safety, beating the corporate ambition
level for total reportable rate of injuries. This was particularly
pleasing given the attention we have paid to raising awareness
and improving our all-round HSE performance.
Analysis
Most of the growth we achieved was generated by our Protec-
tive Coatings activities. The oil and gas sector was particularly
strong throughout the year, due to the high level of investment
being made by the major players all over the world. There
was also significant demand for our Chartek fire protection
coatings. Our Marine business had to cope with very difficult
market conditions brought about by a dramatic decline in ship
new builds, but that was offset by growth in other sectors.
In Yacht, the economic recession impacted our volumes. As a
result of our new global organization, we were able to gener-
ate efficiencies in manufacturing, RD&I and procurement,
which in turn helped us to take a significant step forward.
Highlights
The performance of our Chartek range of fire protection coat-
ings was particularly impressive as it built up considerable
momentum in the marketplace. Specifically formulated to
protect structural steel elements from hydrocarbon fire expo-
sure, it is used extensively in the oil and gas industry and for
high value infrastructure projects. In fact, demand has been
so great that we are expanding production. Also notable
was a cross-business cooperation we had with AkzoNobel
Revenue in € millions
1,345
1,398
1,577
2010
2011
2012
Geo-mix revenue by destination in %
C
A
B
28
26
46
A EMEA
B Americas
C Asia Pacific
Main products
• Marine coatings
• Yacht coatings
• Protective coatings
Key markets
• Ship building, maintenance and repair
• Oil and gas facilities
• High value infrastructure (airports, stadia, bridges)
• Power generation installations
• Mining and minerals
• Pleasure craft
Key brands
AkzoNobel Report 2012 | Business performance | AkzoNobel Performance Coatings
67
AkzoNobel Automotive and Aerospace Coatings
“We successfully kept a tight control
on costs while effectively managing
our raw material spend”
Jim Rees
Managing Director
Overview
It was a very challenging year, in Europe especially, but we
achieved growth in many of our key countries and in all market
segments. We focused on running a tight, efficient business in
order to withstand the economic headwinds and we success-
fully kept a tight control on costs while effectively managing
our raw material spend through value engineering.
Analysis
The European automotive aftermarket was heavily impacted
by the weak economy, with the drop in miles driven and acci-
dent and repair rates putting pressure on volumes at our vehicle
refinish business. We didn’t lose market share, if anything we
gained slightly, but there was a major slowdown, particularly
in Eastern and Mediterranean Europe. Nevertheless, we did
achieve growth – albeit off a smaller base – in Turkey and
Russia, as well as the Middle East and Africa. Growth also
continued across Asia, although somewhat slower than in
recent years, while North America was a little sluggish. Having
turned in a very good 2011, our Automotive Specialty Plastics
business put in another strong performance, notably in North
America, where it had its best ever year in terms of growth.
We effectively leveraged the business’ global footprint to take
advantage of a big uplift in unit builds. Aerospace, meanwhile,
continued to gain momentum and achieved another record
year by growing ahead of the market on some strong leading
indicators in the OEM new build sector and with many of our
key airline and general aviation customers.
Highlights
We maintained focus on improving our product and services
offer and the introduction of our click&go technology was a
significant development for our bodyshop customers. The
system is made up of a special frame which holds disposable
paint pouches. Ready in seconds, it allows for perfect mixing
ratios, reduces waste and can be fitted directly onto a spray-
gun. We also continued to invest in our ongoing efforts to
digitize color. Our IT experts and color researchers have been
working together to ensure that we continue to deliver perfect
matches for our customers while doing away with traditional
tools such as color fans. We now use sophisticated tech-
nology to digitally measure color with a system which provides
all the relevant technical data, as well as the mixing formula.
Another important highlight was the expansion of our tech-
nology partnership with McLaren Automotive to include road
cars. It builds on the success of our existing corporate part-
nership as the official supplier of innovative paint solutions to
the Vodafone McLaren Mercedes Formula 1TM team.
Developments
Our stickerfix quick repair solution continued to do well and
we launched a pilot internet shop for the consumer market in
the Netherlands which has proved to be very successful. We
expect to roll out more shops in the US and Asia Pacific in
2013. In China, we broke ground on our new plant in Chang-
zhou, which is expected to start production in early 2014. In
addition, we received bodyshop approvals from several car
manufacturers, including Peugeot in Brazil and Nissan in India,
while our Aerospace business launched a new Aerofine range
of interior cabin coatings. We are also preparing to launch a
best-in-class global ERP system across the business, which
will make things more efficient for us and for our customers.
68
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2012
Revenue in € millions
994
1,030
1,051
2010
2011
2012
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
Main products
46
34
20
• Primers, basecoats, topcoats and clearcoats
for vehicle refinishes
• Automotive plastic coatings
• Customer service technology
• Aerospace coatings
Key markets
• Collision repairers and commercial vehicle refinishers
• Bus, truck, specialty vehicle OEMs
• Automobile insurer networks
• Fleet owners and operators
• Automotive OEM aftermarkets
• Aircraft industry
Key brands
AkzoNobel Industrial Coatings
“The high growth markets now
account for more than 50 percent
of our business’ overall revenue”
Conrad Keijzer
Managing Director
Overview
We once again achieved record earnings, driven by continued
revenue growth, margin improvements and cost control. Most
of our revenue growth came from Asia, boosted by last year’s
acquisition of Schramm Holding AG and the coatings activi-
ties of Korean company SSCP.
Analysis
This was the first full reporting year with the acquired
Schramm and SSCP activities and the combined business
outperformed its revenue targets, strengthened by the con-
tinued success of the Korean electronics industry. We are now
supplying coatings for Samsung’s Galaxy series of smart-
phones and have become global market leader in supplying
products for mobile phones and tablet devices. Our Specialty
Finishes business therefore had a strong year in Asia, as did
Packaging Coatings with our market-leading retortable coat-
ings, while our Coil Coatings activities performed particu-
larly well in high growth markets such as Russia, Turkey and
India. The high growth markets now account for more than
50 percent of our business’ overall revenue. North America
held up reasonably well during the year, but Europe was
somewhat slower, due mainly to a sluggish automotive sector
and less activity in the construction industry. We kept a tight
control on costs and stepped up our efforts to introduce
manufacturing efficiencies at sites around the world.
Highlights
Several investments were made during the year as we looked
to make further progress with our strategic growth ambitions.
We expanded our resin capacity in Songjiang, China, with
two new reactor lines and strengthened our research capa-
bility at the site’s RD&I center. This will enable us to better
meet local market needs as we develop specific technology
for the Chinese mid-market. Expansions also took place at
our Ansan and Jinyoung sites in Korea, where we develop
and manufacture innovative products for the country’s rapidly
growing electronics industry. We also invested in our Thane
facility in India to establish local manufacturing for packag-
ing coatings, with a specific focus on coatings for food, caps
and closures and the general line market in India. Safety also
remained a priority during the year, while more than 140 opera-
tional eco-efficiency improvement projects are in progress
across our sites.
Developments
We gained approvals from the major can makers and key
brand owners for our next generation packaging coatings
technology. We also developed new inks for two-piece metal
cans that have a unique capability to consistently match very
bright colors. This was the latest innovation to stem from the
integration of the Lindgens Metal Decorating Coatings and
Inks business, which we acquired in 2010. Another exciting
new product is GreenCoat, a coil coating topcoat made with
a bio-based solvent which is a derivative of rapeseed oil. The
product was developed through a partnership with SSAB
and the Federation of Swedish Farmers and several success-
ful commercial trials have already taken place. One notable
product launch which took place in 2012 was for our Evcote
range of grease and moisture barrier coatings. It is used on
packaging such as paper cups, French fry cartons and freezer
bags and, because the technology is based on recycled PET,
it means the packaging can be recycled or composted.
The product was introduced on fast food packaging at the
London Olympics.
Revenue in € millions
882
1,049
1,283
2010
2011
2012
Geo-mix revenue by destination in %
46
24
30
C
B
A
A EMEA
B Americas
C Asia Pacific
Main products
• Beer, beverage and food can coatings
• Coatings for caps, closures and general
line cans
• Coil and extrusion coatings
• Specialty plastics coatings
Key markets
• Beer, beverage and food cans
• Consumer electronics such as
cell phones and laptops
• Construction industry
Key brands
AkzoNobel Report 2012 | Business performance | AkzoNobel Performance Coatings
69
AkzoNobel Powder Coatings
“We grew the business in Asia
more than 10 percent compared
with the previous year”
AB Ghosh
Managing Director
Overview
It was a good year in terms of revenue and profit generation,
despite overall volumes being down. Conditions in Europe
were challenging and raw material prices continued to have
an impact, but a sharper focus on our target market segments
ensured that we almost reached the revenue landmark of one
billion euros.
Analysis
We grew the business in Asia – more than 10 percent
compared with the previous year – and gained market share.
We also achieved double digit growth rates in Turkey, Russia,
Egypt and India, while volumes and revenue increased in
the US. Europe, as expected, was somewhat weaker than
2011 (notably in the appliance and furniture markets), but
overall we grew in line with the global market. The biggest
growth in segment terms came in automotive components,
due mainly to the general uptake in the industry, notably in
China and the US. Europe was also doing well until the second
half of the year, when it started to struggle. Architectural was
another solid segment with good growth, while our functional
sales were strong, especially interior pipe coatings. It was a
slower year in the appliance sector, partly because we made
strategic moves to focus more on customers where we can
add value. This was also the first full year that we were able
to reap the synergies from the 2010 acquisition of the powder
business of Rohm & Haas, which has significantly contributed
to us almost doubling our revenue in the last three years.
Highlights
In order to support our growth strategy we bought out our joint
ventures in South Africa and Dubai. We also authorized the
construction of a new factory in Dubai, which should be ready
at the end of 2013. In Italy, we streamlined our operations
by switching production from Cernobbio to the more modern
facilities in Como, where capacity will be increased and we will
achieve cost and resource efficiency benefits. We also plan to
expand the R&D facility there and create a European Powder
Technology Center. Another highlight was the opening of a
powder coating line at Tata’s new factory in Dharwad, India.
The plant has already produced more than 1,000 powder
coated vehicles. We now have two powder coating lines at
Tata plants for coating their Ace, Ace Zip and Iris vehicles. In
addition, we opened the first dedicated Cromadex center in
Ireland, which will serve industrial coatings customers in the
region, while in China we signed an agreement with XingFa –
one of the country’s top five aluminum extrusion companies
– to supply their factories in Chengdu, Yichun and Sangshui.
Developments
Having launched our approach to the market for coatings for
agricultural, construction and earthmoving equipment (ACE)
during the last 12 months, 2012 saw us pick up several major
approvals, including four for Caterpillar in Europe and our
first with Japanese construction and mining equipment giant
Komatsu. We now have a dedicated global product range for
the entire agricultural, construction and earthmoving equip-
ment sector, which is a huge market and is steadily moving
towards powder for cost and sustainability reasons. Our coat-
ings were also used on the athletes’ village and several stadia
at the London Olympics, as well as on the Shard, the tallest
building in Western Europe, which was inaugurated in London
in July. We also launched Interpon D2000 Brilliance, a super-
durable, bright sparkling metallic powder coating for architec-
ture, and Interpon HT, a range of heat resistance products for
use on items such as barbecues and stoves.
70
AkzoNobel Performance Coatings | Business performance | AkzoNobel Report 2012
Revenue in € millions
804
940
997
2010
2011
2012
Geo-mix revenue by destination in %
C
B
A
50
21
29
• Functional
• Furniture
• General industrial
• General trade coaters
• IT
A EMEA
B Americas
C Asia Pacific
Main products
• Powder coatings
Key markets
• ACE (agriculture,
construction and earth-
moving equipment)
• Architectural
• Automotive
• Domestic appliance
Key brands
AkzoNobel Wood Finishes and Adhesives
“The business environment
remained tough, but it was
a better year from a financial
performance perspective”
John Wolff
Managing Director
Overview
It was another very challenging year, with little promise for
improvement from a flat global market. But by focusing hard
on costs and responding to the difficult trading conditions, we
were able to protect our market share and improve our overall
business results.
Analysis
After two very challenging years, the business environ-
ment remained tough, but it was a better year from a finan-
cial performance perspective. We were encouraged by the
slow but steady improvement in US housing starts during
the course of the year, which is one of the key drivers of our
business. Underlying demand increased and the trend line
in North America finally started moving in the right direction.
Asia was essentially flat, but we were able to right-size the
business to improve financial performance and allow us to
more directly focus on our growth agenda. Volumes declined
in Europe, partly because several large customers reduced
manufacturing activities in line with reduced demand from a
sluggish economy. There was some volume growth, notably
in Russia and Turkey, but Europe remained a very uncertain
market. Despite these unfavorable conditions, we effectively
responded to the challenges we faced by managing our
costs, strengthening our product mix and capturing synergies
across the business to improve our results.
Highlights
We officially opened our new Vietnam site in June. The
plant, in Amata near Ho Chi Minh City, includes a new color
studio, which will serve the export and domestic markets for
wood furniture, flooring and cabinetry and provide a base for
support to our customers in other countries in South East
Asia. We also invested in our site in Dongguan, China, where
a new lab for product and styling development was commis-
sioned. These investments are very much in line with our stra-
tegic plan to align our business for growth in key high growth
markets. They also emphasize our commitment to become
strategic partners to our large OEM customers, such as the
big furniture manufacturers in China and Vietnam. Supplying
smaller custom workshops is also fundamental to our strategy
and we are working hard to increase our industrial distribution
channels around the world to better service these customers
and grow our share in this segment. Another key develop-
ment took place in Europe, where we integrated our adhe-
sives and coatings activities under one management team to
better drive performance and realign the business to what we
anticipate will be the new norm once Europe settles down.
Developments
One of the real growth areas we have identified is in flat line
(or flat pack) furniture. These are products the consumer
purchases in a box and assembles themselves. We continue
to invest in technology and styling developments focused
on creating new products for this market. Consumers are
increasingly demanding more sustainable end products,
which in turn dictates our product offering. This includes coat-
ings and adhesives with lower VOC, reduced CO2 emissions
and reduced use of hazardous materials. The market has
responded favorably to a new line of sustainable products we
launched in North America as part of our Chemcraft brand.
Airguard includes both GREENGUARD certified and form-
aldehyde-free finishes which provide sustainable alternatives
for office furniture and kitchen cabinets. A number of new
eco-premium adhesives were also introduced, which helped
our customers achieve their sustainability objectives.
Revenue in € millions
776
781
825
2010
2011
2012
Geo-mix revenue by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacific
44
43
13
Main products
• Wood coatings
• Wood adhesives and board resins
Key markets
• Furniture
• Cabinets
• Flooring
• Windows
• Doors
• Building products
Key brands
AkzoNobel Report 2012 | Business performance | AkzoNobel Performance Coatings
71
Restoring former glories
When a world famous museum housing priceless works
of art undergoes a major restoration, it goes without
saying that every single nuance of every last detail
has to be perfect. Such is the case at Amsterdam’s
Rijskmuseum in the Netherlands, home to prized paintings
including Rembrandt’s stunning The Nightwatch.
Designed by architect Pierrre Cuypers, the original
building opened in 1885, but after more than a century
of intensive use, it required a radical makeover.
Work on a ten-year program of improvements began
in 2004, with the new-look museum fully opening its
doors again in April 2013. During that time, extensive
remodeling and restoration has taken place, all
designed to faithfully restore the building and make
it fit for modern-day demands.
Head architects for the €375 million renovation were
Antonio Cruz and Antonio Ortiz. Together with designer
Jean-Michel Wilmotte (famous for the interior of Musée
du Louvre), they worked with Dutch conservation
studio SRAL to compose a palette of colors that closely
matched those originally selected by Cuypers. They also
selected a new palette of colors for all the other walls and
ceilings. To create all of these, they turned to AkzoNobel’s
Sikkens brand, which is backed by more than two
centuries of experience and expertise.
After analyzing samples of the original paintwork, color
matching experts at Sikkens reproduced more than
60 of the authentic 1885 colors, along with eight brand
new colors, and the main building’s wall and ceiling
decorations have now been returned to their former glory.
AkzoNobel, through its Sikkens brand, also became the
official supplier of all paint and decorative products used
for the Rijksmuseum renovation, with more than 8,000
liters having been used throughout the building, both
inside and out.
Sikkens reproduced more
than 60 of the authentic
colors from 1885
8,000
liters
8,000 liters of paint have been used throughout
the building, both inside and out
AkzoNobel
Decorative
Paints
progress. An exciting innovation roadmap has also been
developed for every region and our commitment to investing in
our people, brands and capabilities remains as strong as ever.
We realize that market conditions are likely to remain chal-
lenging, particularly in Europe, but we are strengthening our
relative market share positions and have developed an effec-
tive organizational model which will allow us to make full use
of our scale while continuing to inspire consumers to live more
colorful lives.
“We continued to right-size,
reduce complexity and simplify
our global operations”
Tex Gunning
Member of the Board of Management and the Executive
Committee member responsible for Decorative Paints
Although 2012 was a year in which we faced challenges
in markets across the world, our Decorative Paints busi-
ness continued to make excellent progress on its journey to
becoming a global business with a global mission, strategy,
organization, brands, systems and processes.
Conditions were particularly tough in Europe, but other
regions also experienced declining markets brought about by
ongoing economic instability. Latin America, for example, had
to deal with weakening currencies and high inflation, while
there was also a downturn in Vietnam, reflecting the more
general slowdown across much of Asia. China continued to
do well, however, as did India, and we remain confident that
we will continue to benefit from our strategic investments in
high growth markets.
The mature markets are likely to remain challenging, which
is why we have been paying close attention to our European
activities for some time. The final phase of a major organiza-
tional change took place during the year when we restruc-
tured our operations in Europe to create four customer-facing
units, which are supported by global functions. This will help
us to focus on building our brands, increase market penetra-
tion and enable us to better use our scale to become more
competitive and cost effective.
It was also the year when we decided that the time was right
to divest our North American activities. We’ve been improv-
ing the business for several years in order to create the right
value and put in place the right brands and customers.
But given the market realities we face, we made a strategic
decision to focus AkzoNobel’s Decorative Paints business on
key markets in Europe and the strong positions we have in
high growth regions. I’m pleased that we were able to find the
right buyer in PPG Industries, Inc., who are well placed to take
the North American business forward.
It was a major geographical portfolio choice which will help
to shape our business as we continued to right-size, reduce
complexity and simplify our global operations through various
ongoing programs and initiatives. All of these projects moved
forward during 2012, despite markets not being in our favor.
Our brand mission in particular gathered momentum through
the global Let’s Colour campaign, while the global brand iden-
tity roll-out and product portfolio rationalization made good
AkzoNobel Report 2012 | Business performance | AkzoNobel Decorative Paints
73
Decorative paints market overview
End-user segment and market sector analysis
The decorative paints market is roughly 45 percent of the
€75 billion global paints and coatings market. Decorative
Paints differs from our other Business Areas in that all reve-
nues come from just one end-user segment – Buildings and
Infrastructure. All revenues also come from only two of the
three sub-segments – New build projects, and Maintenance,
renovation and repair.
Buildings and Infrastructure
All three sub-segments of the Buildings and Infrastructure
end-user segment were negatively affected by the recent
economic slump. This was due not only to normal economic
cycles, but also resulted from the global boom within the
Buildings and Infrastructure sector prior to the recession.
The crisis prompted both a normal cyclical downturn and a
massive global correction in property and property-related
markets. For our Decorative Paints Business Area, the Main-
tenance, renovation and repair sub-segment is more impor-
tant than the New build projects sub-segment. This is positive
news in terms of the relevant market growth for our business,
as the recovery in New build projects has been even weaker
than in Maintenance, renovation and repair. Taking each of the
sub-segments in turn:
Maintenance, renovation and repair
For the important residential component of this sub-segment,
the market is strongly correlated to house moves, as
people often renovate both before and after moving home.
House moves are, in turn, related to house sales, which are
connected to factors such as mortgage availability and general
consumer confidence. Due to the recent recession, issues
involving the housing market have been considerable and
some geographic regions have yet to recover. We are seeing
signs of a recovery in North America, but given the divest-
ment of our North American Decorative Paints business to
PPG Industries, Inc., we are expecting modest growth in this
sub-segment. This modest recovery is reflected in the outlook
for our Business Area, as is the buoyant forecast for this sub-
segment in high growth markets. In these regions, growth
reflects both the underlying general economic outlook and
an emerging cultural shift towards maintenance and renova-
tion. It is also worth noting that, for Decorative Paints, while
residential markets have been badly affected by the reces-
sion, the impact on commmercial and infrastructure markets
has been somewhat different. Commercial markets expe-
rienced a negative impact, but often late in the cycle, as this
market takes longer to adjust than the residential sector. The
Infrastructure market (for example, airports, stadia, railway
stations) is often somewhat counter-cyclical, as governments
invest to support economic development. The outlook for
these markets also assumes modest growth going forward.
Strategic direction
The vision for our Decorative Paints Business Area is to be
the leading decorative paints company globally by inspiring
consumers and customers around the world to transform dull
grey spaces into colorful environments, lifting people’s spirits
and satisfying their need for constant renewal.
Achieving this will require us to have strong processes and
capabilities in terms of:
• Branding
• Distribution, wholesale retail management
• Understanding and serving professional painters
• Consumer inspiration
• Quality management, including product portfolio
management
We have five strategic priorities for the Decorative Paints Busi-
ness Area. These are:
New build projects
Although the vast majority of our revenues in Decorative
Paints come from the Maintenance, renovation and repair
sub-segment, this sub-segment represents a significant
proportion of the Business Area. This is important because
the New build projects end-user sub-segment has been badly
affected by the recent recession. Some question whether a
full recovery is underway, particularly in the residential com-
ponent of the sub-segment, with analysts
forecasting
flat growth at best, evidenced by projections for residen-
tial housing units completion. The outlook for non-resi-
dential sections of this market is better, but only in high
growth markets.
1. We will continue to restructure and grow market share in
Europe. Since the ICI acquistion in 2008, we have exten-
sively restructured our Decorative Paints business in
Europe, both to capture synergies and to adjust our busi-
ness model to reflect difficult market conditions. Given the
very modest growth outlook, we must continue to restruc-
ture, but also need to ensure that we build our market
share for the future.
2. We will continue to grow our market share in the high
growth markets of China, India, South East Asia and Latin
America. We have been building aggressively in all aspects
of our business, from manufacturing, to distribution, to
74
AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2012
Key raw materials
• Binders/resins
• Titanium dioxide
• Packaging materials
Price drivers
• Energy, oil and raw material prices
• Steel prices
Market leadership positions
Decorative Paints Europe
1st
Continental Europe
Northern and Eastern Europe
UK, Ireland and South Africa
Decorative Paints Latin America
2nd
Latin America
Decorative Paints Asia
1st
2nd
3rd
South East Asia and Pacific
China and North Asia
India and South Asia
sales force, to advertising and promotion and our market
share is increasing as a result. We will accelerate this drive
going forward.
3. To support our continued transformation from multi-local to
global – allowing us to benefit from our global scale – we
will continue to build people, brands and competencies. We
made a substantial step forward with the global roll-out of
our Let’s Colour flourish, but there is still more to do.
4. In line with the company’s sustainability strategy, we will
continue to reduce resource intensity across the full deco-
rative paints value chain, incorporating suppliers, our own
operations, customers, consumers and end-of-life. It is
essential that we take a broad view in decorative paints,
where resource intensity challenges/opportunities lie mostly
outside our own operations.
5. As part of the multi-local to global transformation, we need
to build a collaborative, interdependent culture within the
Business Area. We have made great strides in this respect,
based on our leadership journey approach.
Key actions going forward
• Manufacturing capacity expansion in China and India
• Expand market presence in emerging Europe and the
Middle East
• Complete the divestment of the North American business
• Launch new products for high growth markets
• Deliver on European realignment of the organization
AkzoNobel Report 2012 | Business performance | AkzoNobel Decorative Paints
75
Key developments 2012
• Announced the divestment of the North American
business to PPG Industries, Inc.
• Launched the Dulux Let’s Colour flourish brand globally,
along with a worldwide campaign to inspire customers
• Expanded our stores network in China and India
• Realigned and resturctured our European business
• In Latin America, the Tudo de Cor Para Você program
(All the Colors For You) continued to be successful
• Modernized our retail Dulux Decorator Centers in India
Key figures in € millions
Employees by region at year-end
Revenue
EBITDA
EBITDA margin (in %)
EBIT
EBIT margin (in %)
Operating income
Moving average ROI (in %)
2011
4,201
479
11.4
327
7.8
235
5.9
2012
2011
2012
4,297
Latin America
425
9.9
249
5.8
Mature Europe
Emerging Europe
Asia Pacific
Other countries
(2,012)
Total
4.8
1,800
8,600
1,500
4,200
1,000
1,800
8,400
1,400
4,500
900
17,100
17,000
Revenue breakdown by business unit
in %
Eco-premium solutions
% of revenue
C
B
A
Geo-mix revenue by destination
A Decorative Paints Europe
B Decorative Paints Latin America
C Decorative Paints Asia
61
14
25
49%
8%
Emerging Europe
Mature Europe
25%
Asia Pacific
4%
Rest of the world
14%
Latin America
76
AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2012
26
27
26
2010
2011
2012
Key value chains with carbon
footprint assessment
108
109
109
2010
2011
2012
Total reportable rate of injuries
per million hours
4.9
4.0
3.5
2.7
2009
2010
2011
2012
AkzoNobel Decorative Paints Europe
From left to right:
Jan Piet van Kesteren
Regional Director Eastern Europe
and Africa
Kees Ekelmans
Regional Director Western Europe
Peter van Campen
Regional Director Southern Europe
Guy Williams
Regional Director Northern Europe
Revenue in € millions
2,585
2,658
2,640
2010
2011
2012
Key brands
Overview
Overall, 2012 was another challenging year for the business
in the EMEA region. The slowdown in markets we identified in
the fourth quarter of the previous year materialized as expect-
ed. Volumes were under pressure across Europe, mainly due
to low consumer confidence and austerity measures starting
to impact. Costs in general were well controlled, supported by
the company’s performance improvement program.
Analysis
Despite declining volumes in most mature markets, our reve-
nues in those sectors were mostly flat or slightly up on the
back of pricing activities and targeted market share gains. We
experienced substantial raw material and packaging inflation,
offset by price initiatives during the year. Key growth markets
such as Russia and South Africa showed accelerated growth,
although sales in Turkey were impacted by a significant slow-
down and de-stocking by wholesalers. The UK and Tunisia
contributed positively to our results, but sales in southern
Europe were hit particularly hard, due to very poor economic
conditions and the euro crisis. There was also a trend of
down-trading evident in the markets.
Highlights
We were focused on building our brands throughout the
region during the year. A notable highlight was the launch
of the consumer flourish brand in various countries across
Europe and Africa, which supported our efforts to build a
global, powerful identity with brands such as Dulux, Levis,
Bruguer, Flexa and Marshall. This included successful Let’s
Colour projects in Belgium, the Netherlands, Poland and
Ireland. Our professional brands also achieved a number
of successes, such as the launch of the Sikkens Hotel and
Leisure concept. This aims to develop and communicate a
specific proposition for property owners and maintenance
managers. We also launched Dulux Trade Pyroshield Durable
Eggshell, which reduces the spread of flame along interior
walls, allowing occupants more time to escape in case of fire.
Developments
In order to further improve our customer focus, we have set
up four customer-facing units, as well as a European supply
chain organization which will drive efficiency, operational
excellence and increase our focus on health, safety and the
environment. A lot of activity associated with the company’s
performance improvement program also took place through-
out the year and they brought about some significant benefits.
A project targeting working capital reduction was particularly
successful, leading to significant improvement in stock level
management, as well as an eventual reduction in external
warehousing costs. We also initiated several other projects,
which included streamlining production and our market-
ing organization. Among many efficiency improvements, we
introduced a reduction in batch cycle time at the Gebze plant
in Turkey and increased productivity and waste reduction at
Mégrine in Tunisia. In addition, we’ve been busy making our
operations more sustainable and cost efficient. For example,
in Italy, our Castelletto site needed a new roof so we took
the opportunity to install 200 kilowatts of solar cells. It’s the
first site within the whole company to be using solar cells on
such a large scale and they now supply 15 percent of the
plant’s total annual energy consumption. Meanwhile, in the
Netherlands, we built a new 13,000 m2 logistics center which
complies with strict environmental standards.
AkzoNobel Report 2011 | Business performance | AkzoNobel Decorative Paints
77
AkzoNobel Decorative Paints Americas
From left to right:
Bob Taylor
Managing Director
North America
Jaap Kuiper
Managing Director
Latin America
Revenue* in € millions
512
590
603
2010
2011
2012
* Excludes North American revenues
Key brands
Overview
Challenging market conditions throughout the Americas
affected our overall financial performance during the year.
But by implementing new growth programs, aggressive cost
management and introducing various improvement initiatives
we were able to partly mitigate the adverse impact as we
prepared the business for renewed growth. In North America,
the effort resulted in sales and profit increases for the year.
Analysis
The economy grew less than projected in Latin America, in
contrast to 2011, when the area was more resistant to the
slowdown. Argentina was hit particularly hard while Brazil
was more or less flat, with the paint market throughout the
region remaining sluggish at best. The strong US dollar also
had a negative effect. In North America, we combined our
activities in the US and Canada into one business. After a
difficult first quarter, our performance in the US grew stronger
as the year progressed, largely due to intensive efforts to
structurally improve the business. This included complexity
reduction programs and a keen focus on margin manage-
ment. In Canada, where we hold the number one position,
we achieved market share growth and strengthened our
brand portfolio. New growth opportunities were also identi-
fied, as well as excellent potential to benefit from cost syner-
gies. During the year, we began implementing a standard ERP
system at sites throughout the Americas, a major program
which had an associated cost impact. Meanwhile, the contin-
ued rationalization of our manufacturing footprint included
closing our Rio de Janeiro warehouse, a manufacturing facility
in Pontiac, Michigan, and preparing the sale of our Raposo
Tavares site in São Paulo.
Highlights
We announced the divestment of our North American busi-
ness to PPG Industries, Inc., in order to allow the company
to focus on key markets in Europe and high growth regions.
In Latin America, the Tudo de Cor Para Você program (All
the Colors For You), continued its success. The initiative,
part of our Let’s Colour campaign, involves painting deprived
neighborhoods. More than 1,000 events run by customers in
Brazil have now taken place. This is helping to boost sales of
our Coral brand, as well as building brand equity. Coral also
launched a new product concept called 3 in 1 which has
multiple benefits for the consumer. In addition, an entire favela
of 1,500 dwellings (Santa Marta in Rio de Janeiro), is being
painted with Coral products by members of the community
who have been given special training. In Canada, we opened
a new R&D center in Longueuil and a state-of-the-art distribu-
tion center in Toronto, while the Sico brand marked its 75th
anniversary and Glidden celebrated 55 years in Puerto Rico.
Developments
We received a number of awards during the year, including
the coveted Walmart sustainability award, Supplier of the Year
from The Home Depot, Canada, and five important “best
buy” designations for Glidden. It was a relatively busy year
for product launches, notably CIL Premium and CIL DUO in
Canada, the Flood brand’s OneCoat waterproofing finish and
Glidden DUO Paint + Primer. We also introduced the Glidden
on the go mobile app for smartphones, which means select-
ing the perfect color and paint is now just a tap away. In
Latin America, former tennis star Gustavo Kuerten helped to
promote the Coral brand’s premium Decora range in Brazil.
We used life-size displays of him in over 700 stores and sold
15 percent more of the product in these outlets.
78
AkzoNobel Decorative Paints | Business performance | AkzoNobel Report 2012
AkzoNobel Decorative Paints Asia
From left to right:
Jeremy Rowe
Managing Director
South East Asia
and Pacific
Amit Jain
Managing Director
India and South Asia
Lin Liangqi
Managing Director
China and North Asia
Revenue in € millions
841
951
1,048
2010
2011
2012
Key brands
Overview
Our Asian business experienced mixed fortunes as market
conditions fluctuated between the regions. China posted
record profits despite difficult market conditions, while India and
South Asia also had a strong year, but the situation was more
challenging in South East Asia and Pacific (SEAP). Overall,
we made good progress, with the company’s performance
improvement program helping to generate significant savings.
Analysis
To combat the slower economic growth in China, we tight-
ened our cost control and made a number of strategic invest-
ments in several areas, including the redecoration market
and our mass market product range. This helped to give us
some momentum as we achieved significant market share
growth and improved overall profitability. In India and South
Asia, the business continued to outpace the market, despite
subdued trading conditions, particularly in the highly competi-
tive professional segment. Sri Lanka continued to do well with
a market share of more than 40 percent. This performance in
India and South Asia was led by multiple initiatives, including
a 30 percent capacity expansion, productivity improvements
and innovative product launches. Strong profitability was
also achieved in SEAP, despite challenging market condi-
tions, especially in Vietnam, where a prolonged economic
and construction downturn continued. However, Thailand
bounced back after last year’s floods, while our mass market
Dulux offerings continued to grow strongly across the region.
Highlights
In China, we opened a number of new stores and strength-
ened our e-commerce to help increase coverage in the mass
distribution channel. We also grew our project channel busi-
ness by more than 30 percent and launched a campaign to
motivate Chinese consumers to redecorate. In line with this,
we doubled the size of our Easy Paint Service business,
which provides reliable and trained painters to consumers.
All AkzoNobel’s offices in Shanghai were consolidated into
one, eco-certified building, housing up to 700 employees.
We also established a regional HQ in Singapore, bringing
together a number of AkzoNobel businesses under one roof.
The eco-certified building consolidates our RD&I expertise
and provides a base for our new global exterior walls exper-
tise group. In India, we modernized our retail Dulux Deco-
rator Centers and grew well ahead of the competition. We
also entered the fast-growing interior regions by expanding
our distribution footprint. Our latest loyalty program for con-
tractors – Dulux Colour Guru – leverages mobile technology
platforms to build a community of Dulux ambassadors.
Developments
In China, we further strengthened our well-being portfolio
with the launch of a full non-additive product range. We also
activated our Let’s Colour campaign to bring color to disad-
vantaged communities. Our India and South Asia business
won an award for Best Talent Management Organization 2012
at the World HRD Congress. This was welcome recogni-
tion and a testimony to the investments being made to
grow the capability and skills of our employees. Good prog-
ress was also made to reduce waste generation, while the
business’ overall CO2 emissions fell 7 percent. Dulux was
recognized as the most preferred paint brand by Franchise
India, while notable product launches in SEAP included
the next generation of our market-leading Weathershield
exteriors offering in Indonesia and Vietnam, and our Inspire
interior paints for the mass market across the region. In
Singapore, Dulux was awarded Superbrand status as the
leading decorative paints brand.
AkzoNobel Report 2012 | Business performance | AkzoNobel Decorative Paints
79
Governance
and compliance
In this section, we outline our corporate governance
structure and explain the remuneration of our Board of
Management. Information about compliance and integrity
management and AkzoNobel on the capital markets is
also included.
Corporate governance statement
Remuneration report
Compliance and integrity management
AkzoNobel on the capital markets
82
90
98
102
Corporate governance statement
Shareholders
Supervisory Board
Board of Management
Executive Committee
Functional and
Country Review
Meetings
Operational Review
Meeting Decorative
Paints
Operational Review
Meeting Performance
Coatings
Operational Review
Meeting Speciality
Chemicals
Board Committee
Pensions
Sustainability
Council
Functions
Countries
Business Area
Responsible
Decorative Paints
Business Area
Responsible
Performance Coatings
Business Area
Responsible
Speciality Chemicals
Business units
Business units
Business units
Compliance
Committee
Internal Control
Committee
Disclosure
Committee
82
Corporate governance statement | Governance and compliance | AkzoNobel Report 2012
Major external regulations
• Dutch Civil Code
• Dutch Act on financial supervision and
other applicable securities laws
• NYSE Euronext Amsterdam
listing rules
• Dutch Corporate Governance Code
Major internal regulations
• Articles of Association
• Code of Conduct
• Share Dealing Code
• Rules of Procedure for the
Supervisory Board
• Rules of Procedure for the Board
of Management and the Executive
Committee
• Corporate directives and policies
• Authority schedules
AkzoNobel aspires to high standards of corporate governance.
Over the last decade, we have sought to consistently enhance
and improve our corporate governance standards and frame-
work, emphasizing transparency, in accordance with applicable
laws and regulations. The company’s management and super-
vision structure is organized in a so-called two-tier system,
comprising a Board of Management, solely composed of exec-
utive directors, and a Supervisory Board, solely composed of
non-executive directors. The Supervisory Board supervises the
Board of Management and ensures that external experience
and knowledge are embedded in the company’s conduct. The
two Boards are independent of each other and are accountable
to the Annual General Meeting of shareholders (AGM) for the
performance of their functions.
Akzo Nobel N.V. is a public limited liability company (Naamloze
Vennootschap) established under the laws of the Netherlands.
Its common shares are listed on NYSE Euronext Amsterdam.
AkzoNobel has a sponsored level 1 ADR program and ADRs
can be traded on the international OTCQX platform in the US.
Our corporate governance framework is based on the require-
ments of the Dutch Civil Code, the Dutch Corporate Gover-
nance Code adopted in 2003 and amended in 2008 (the Code),
applicable securities laws, the company’s Articles of Association
and the rules and regulations applicable to companies listed on
the NYSE Euronext Amsterdam stock exchange, complement-
ed by several internal procedures, such as the Code of Conduct
and the Share Dealing Code. These procedures include a risk
management and control system, as well as a system of assur-
ance of compliance with laws and regulations, including a
complaints procedure. To safeguard consistency and coher-
ence for the total organization, the Executive Committee has
established corporate directives which provide a set of manda-
tory internal rules and regulations that must be adhered to.
The company’s Articles of Association were most recently
amended and adopted at the 2012 AGM, inter alia to comply
with changes in Dutch legislation (the Securities Giro Act (Wet
giraal effectenverkeer) and the Act on Management and Super-
vision (Wet bestuur en toezicht)).
The Supervisory Board confirms that throughout the year, the
company has complied with the Code. The Code contains
principles and best practices for Dutch companies with listed
shares. Deviations from the Code – currently the company devi-
ates from the Code’s provisions III.3.5 and IV.1.1 – are explained
in accordance with the Code’s “apply or explain” principle. With
the exception of those aspects of our governance structure
which can only be amended with the approval of the AGM, 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 interests of the company.
If adjustments are made, they will be published and reported in
the annual report for the relevant year.
Board of Management and Executive Committee
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
Executive Committee comprises the members of the Board of
Management, business leaders and leaders with functional
expertise, allowing both the functions and the Business Areas
to be represented at the highest level in the company. The func-
tions currently represented in the Executive Committee are HR
and Organizational Development, Research, Development and
Innovation, Legal, and Supply Chain/Sourcing (including
Sustainability and Health, Safety, Environment and Security).
In performing its duties, the Executive Committee is guided by
the interests of the company and its affiliated enterprises, taking
into consideration the relevant interests of the company’s
stakeholders. Among other responsibilities, the members of the
Executive Committee define the strategic direction, establish
the policies and manage the company’s day-to-day operations.
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 a
majority of the members of the Board of Management. The
Board of Management can decide to reserve decisions for the
Board of Management.The Board of Management is account-
able for its performance to a separate and independent Super-
visory Board. The Board of Management is also answerable to
the shareholders of the company at the AGM. The Executive
Committee members who are not also a member of the Board
of Management report to the Chief Executive Officer (CEO).
The CEO leads the Executive Committee in its overall manage-
ment of the company to achieve its performance goals and
objectives. He is the main point of liaison with the Supervisory
Board. The Chief Financial Officer (CFO) is specifically responsi-
information
for
ble
management.
the company’s financial affairs and
The company has organized its activities into three Business
Areas: Decorative Paints, Performance Coatings and Specialty
Chemicals. Each Business Area is represented by a responsi-
ble member of the Executive Committee. To manage our busi-
ness in a more operational way, in 2012 we introduced a new
Operational Control Cycle. For each Business Area, there is an
Operational Review Meeting which provides a forum for a more
in-depth operational discussion on subjects relevant to the
Business Area. In addition, a Functional and Country Review
Meeting has been introduced to review upcoming proposals
and progress on the respective functional agendas.
The Managing Directors of our business units, the Country Direc-
tors and the Corporate Functional Directors in charge of the differ-
ent functions, report to individual Executive Committee members
with specific responsibility for their activities and performance.
The Board Committee Pensions, chaired by the CFO, oversees
the general pension policies (to be) implemented in the various
pension plans of the company.
The company has a Sustainability Council, which advises the
Executive Committee on strategy developments, monitors the
integration of sustainability into management processes and
oversees the company’s sustainability targets and overall
sustainability performance. The council is chaired by the CEO
and includes Executive Committee members, business unit
Managing Directors and Directors of Strategy, Sustainability/
AkzoNobel Report 2012 | Governance and compliance | Corporate governance statement
83
Health Safety Environment and Security, Sourcing and Commu-
nications. Progress regarding sustainability objectives, develop-
ment, target setting and implementation is reviewed quarterly
by the Executive Committee and semi-annually by the Supervi-
sory Board, and is verified annually by the external auditor. Our
sustainability framework is further explained in the Sustainability
statements section.
Rules of Procedure for the Board of Management and
the Executive Committee
The tasks and responsibilities, as well as internal procedural
matters for the Executive Committee, are addressed in the Rules
of Procedure for the Board of Management and Executive
Committee. These rules have been reviewed and approved by the
Supervisory Board and are available on our corporate website.
As the company subscribes to the Code’s principles in general,
members of the Supervisory Board and the Board of Manage-
ment are, in normal circumstances, 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 cases and
circumstances it considers exceptional, such as in the event of
a (threatened) hostile takeover. (Reference is made to the
description of anti-takeover provisions and control, see
page 89. 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 by share-
holders. Shareholders that meet the requirements laid down in
the Articles of Association are also entitled to nominate Super-
visory Board or Board of Management members for appoint-
ment. According to the Articles of Association, such appoint-
ments will require a two-thirds majority, representing at least 50
percent of the outstanding share capital.
Representative authority, including the signing of documents, is
vested in at least two members of the Board of Management
jointly. The Board of Management has appointed corporate
agents, including members of the Executive Committee who
are not also members of the Board of Management. The list of
authorized signatories is publicly available.
Appointment
Board of Management members are appointed to, and
removed from, office by the AGM. The other members of the
Executive Committee are appointed by the CEO subject to the
approval of the Supervisory Board.
Members of the Board of Management are appointed for four-
year terms (or less), with the possibility of reappointment at the
expiry of each term. This is in line with the Code.
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.
The Meeting of Holders of Priority Shares has the right to make
binding nominations for the appointment of members of the
Board of Management and the Supervisory Board. The priority
shares are held by the Foundation Akzo Nobel. The Board of the
Foundation Akzo Nobel consists of members of the Supervisory
Board who are not members of the Audit Committee. In deviation
of the Code (provision IV.1.1), the Articles of Association state that
the AGM cannot cancel the binding nature of a nomination by the
holders of priority shares for the appointment of members of the
Supervisory Board or the Board of Management.
Board of Management appointments 2012:
• Mr. Nichols was reappointed as a member of the
Board of Management for a four-year term
• Mr. Darner was reappointed as a member of the
Board of Management for a two-year term
The company has a Compliance Committee to support the
Executive Committee with its responsibility in assuring and
managing compliance, and reporting to the Supervisory Board.
The Compliance Committee systematically identifies material
compliance risks, assists in assurance of compliance with laws,
regulations and ethical standards, monitors compliance and
reports findings and recommendations to the Executive
Committee. The Compliance Committee consists of the
General Counsel (chair), Corporate Secretary and Corporate
Directors of Internal Audit, Corporate Control, Compliance and
Human Resources. Our compliance and integrity management
system is explained in more detail in the Compliance and integ-
rity management chapter.
Authority schedule
To reflect the Operational Control Cycle, the internal authority
schedule was amended in 2012. The authority of the Super-
visory Board, Executive Committee, Operational Review Meet-
ings, Business Area responsibles and the Board Committee
Pensions is laid down in the revised internal authority schedule,
in accordance with the Articles of Association of the company.
84
Corporate governance statement | Governance and compliance | AkzoNobel Report 2012
Mr. Wijers and Mr. Frohn stepped down as members of the
Board of Management effective April 23, 2012, and May 1,
2012, respectively. As per the latter date, the Board of Manage-
ment consists of four members. As from the 2013 AGM, when
Mr. Darner and Mr. Gunning will step down, the Board of
Management will consist of two members.
As of January 1, 2011, members of the Executive Committee
are not allowed to hold 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)
and the Act on Management and Supervision, which allows
members of a board of management two such supervisory
board memberships or non-executive directorships. The
exception to this rule is that in the 18 months prior to their retire-
ment, Executive Committee members are allowed to hold more
than one such supervisory board membership or non-execu-
tive directorship in order to allow them to prepare for retirement,
provided that this does not interfere with the performance of
their tasks as members of the Executive Committee. Further-
more, an exception can be made for an executive joining the
Executive 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 in other listed companies by
members of the Executive Committee is subject to approval of
the Supervisory Board, which authority has been delegated to
the Chairman of the Supervisory Board. With respect to the
members of the Board of Management, it is noted that Mr.
Gunning is a member of the supervisory boards of Royal
Friesland Campina N.V. and TNT Express N.V. In 2012, the
Board of Management was not composed of at least
30 percent female members as set out in the Act on Manage-
ment and Supervision that came into force on January 1, 2013.
In the event that candidates for new appointments to the Board
of Management must be selected, the Supervisory Board will
duly consider the relevant diversity standards and requirements
for an internationally operating listed company.
Conflict of interest
The handling of (potential) conflicts of interest between the
company and members of the Board of Management is
governed by the Articles of Association and by the Rules of
Procedure for the Board of Management and Executive Commit-
tee. A member of the Board of Management and the other
members of the Executive Committee shall not participate in the
discussions and decision-making on a subject or transaction in
relation to which he has a conflict of interest with the company.
Decisions to enter into transactions under which Board of
Management and other Executive Committee members have
conflicts of interest that are of material significance to the
company, and to the relevant Board of Management or Execu-
tive Committee member, require the approval of the Supervisory
Board. Any such decisions involving members of the Board of
Management will be recorded in the annual report for the relevant
year, with reference to the conflict of interests and a declaration
that the relevant best practice provisions of the Code have been
complied with. In 2012, no transactions were reported under
which a member of the Board of Management had a conflict of
interest that was of material significance to the company.
Remuneration
In line with the remuneration policy adopted by the AGM, the
remuneration of the members of the Board of Management is
determined by the Supervisory Board on the advice of its
Remuneration Committee. The Supervisory Board also decides
on the remuneration of the other members of the Executive
Committee on the proposal of the CEO. The composition of the
remuneration of Board of Management members, and the
remuneration policy itself, are described in the Remuneration
report and the Financial statements (see Note 21). The
contracts of the members of the Board of Management do not
contain change of control provisions and are compliant with the
Code. The main elements of the contracts of Board of Manage-
ment members are available on our corporate website.
Supervisory Board
General
The Supervisory Board’s overall responsibility is to supervise
the policies adopted by the Board of Management and the
Executive Committee and oversee the general conduct of the
business of the company. This specifically includes supervision
of the achievement of the company’s operational and financial
objectives, the corporate strategy designed to achieve the
objectives, the design and effectiveness of the internal risk
management and control systems, the main financial parame-
ters, compliance with applicable laws and regulations and risk
factors. The Supervisory Board also provides the Board of
Management and Executive Committee with advice. In fulfilling
their duties, members of the Supervisory Board are guided by
the interests of the company and its affiliated enterprise, taking
into consideration the relevant interests of the company’s
stakeholders. Major investments, acquisitions and functional
initiatives are subject to Supervisory Board approval.
Composition
The Supervisory Board endorses the principle that the compo-
sition of the Supervisory Board is such that the Supervisory
Board members are able to act critically and independently
of one another and of the Board of Management and the
Executive Committee. Each Supervisory Board member is
capable of assessing the broad outline of the overall strategy of
the company and its businesses and carrying out its duties
properly. The Supervisory Board – which currently consists of
nine members – is constituted in a balanced manner to reflect
AkzoNobel Report 2012 | Governance and compliance | Corporate governance statement
85
the nature and variety of the company’s businesses, their inter-
national spread and the desirability to have available expertise
in fields such as finance, economic, societal and legal aspects
of international business, government and public administra-
tion. Consequently, the current members have a diverse and
appropriate mix of knowledge and experience of the markets in
which AkzoNobel operates, as well as insights from different
markets and non-operational areas. A list of current Super-
visory Board members, including their biographies, is given in the
Our Supervisory Board chapter, in the Our leadership section.
A further aim of the Supervisory Board – which its members
believe is currently being met – is that at least one-third of the
members should meet the diversity criteria of gender (female)
and/or nationality (outside of the European Union). This is in
compliance with provision III.3.1 of the Code, which ensures
that its composition better reflects both society at large and the
markets in which the company operates. The Supervisory
Board understands that the current gender balance does not
meet the requisite minimum of 30 percent female representa-
tion, as set out in the Act on Management and Supervision.
However, when nominating and selecting new candidates for
the Supervisory Board in the future, these requirements will be
taken into account.
Rules of Procedure of the Supervisory Board
The Supervisory Board is governed by its Rules of Procedure,
which are available on the company’s corporate website. The
Rules of Procedure include the profile and the Charters of the
Committees and sets out the tasks and responsibilities of the
Supervisory Board.
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 information
to its members and acts on behalf of the Supervisory
Board as the main contact for the Board of Management and
Executive Committee. He also initiates the evaluation of the
functioning of the Supervisory Board and its committees, its
individual members, and the functioning of the Board of
Management. He additionally chairs the AGM. The Chairman of
the Supervisory Board is Mr. Vuursteen.
The Supervisory Board is assisted by the Corporate Secretary. All
members have access to the advice and services of the Corpo-
rate 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.
Resolutions of the Supervisory Board must be adopted by
absolute majority of the votes cast. The Chairman, or in his
absence the Deputy Chairman, shall cast the deciding vote in
the event of a tie.
Appointment
Members of the Supervisory Board are nominated, appointed
and dismissed in accordance with procedures which are the
same as those previously outlined for the members of the
Board of Management. As a general rule, based on a rotation
schedule (available on our corporate website), a Supervisory
Board member’s tenure is four years. In principle, members are
eligible for re-election twice, each time for a period not exceed-
ing four years. However, in deviation from the Code (provision
III.3.5), a member can be nominated for re-election more often
if, in specific circumstances, including but not limited to reasons
of succession planning, this is considered to be in the compa-
ny’s interest.
Board appointments 2012 (all for four-year terms):
• Mr. Van den Brink was reappointed as a member
of the Supervisory Board
• Sir Peter Ellwood was reappointed as a member
of the Supervisory Board
• Ms. Baldauf was appointed as a member of the
Supervisory Board
• Mr. Verwaayen was appointed as a member of
the Supervisory Board
In 2013, no appointments or re-appointments to the Supervi-
sory Board are currently scheduled to be proposed to the AGM.
However, the Supervisory Board would like to state that future
(re)appointments will be in accordance with the provisions of the
Act on Management and Supervision that limits the number of
supervisory board positions that supervisory directors may hold.
The Supervisory Board will also seek to avoid a situation in
which reappointments occur simultaneously, while further taking
into account the Supervisory Board’s succession planning.
Induction and training
Following appointment to the Supervisory Board, members
receive a comprehensive induction tailored to their individual
needs. This includes a documentation package containing rele-
vant information on the company and its corporate governance
and compliance systems, as well as meetings with senior
management. This enables them to build up an understanding of
AkzoNobel’s businesses and strategy, and the key risks and
issues the company faces. Throughout the year, regular updates
on legal matters, corporate governance, accounting, investor
relations and compliance are provided to the Super-visory Board.
Independence of the Supervisory Board
Each member of the Supervisory Board meets the indepen-
dence requirements as stated in the Code provisions III.2.1 and
III.2.2 and has completed an annual independence question-
naire addressing the relevant requirements for independence.
Conflict of interest
The Articles of Association and the Rules of Procedure include
detailed provisions on how to deal with conflicts of interest and
potential conflicts of interest between members of the Supervi-
sory Board and the company. A member of the Supervisory
Board shall not participate in the discussions and decision-
making on a subject or transaction in relation to which he/she
has a conflict of interest with the company. Decisions to enter
into transactions under which Supervisory Board members
have conflicts of interest that are of material significance to the
company, and to the relevant Supervisory Board member,
require the approval of the Supervisory Board. Any such deci-
sions will be recorded in the annual report for the relevant year,
with reference to the conflict of interests and a declaration that
the relevant best practice provisions of the Code have been
86
Corporate governance statement | Governance and compliance | AkzoNobel Report 2012
complied with. In 2012, no transactions were reported under
which a member had a conflict of interest which was of material
significance to the company.
Remuneration
Supervisory Board members receive a fixed annual remunera-
tion and attendance fee, which is determined by the AGM. More
information on the remuneration of the members of the Supervi-
sory Board can be found in Note 21 to the Financial statements.
Committees
The Supervisory Board has established three committees: the
Audit Committee, the Nomination Committee and the Remu-
neration Committee. Each committee has a charter describing
its role and responsibilities and the manner in which it discharg-
es its duties and reports to the full Supervisory Board. These
charters are included in the Supervisory Board Rules of Proce-
dure, published on the company’s corporate website. The
committees report on their deliberations and findings to the full
Supervisory Board. The committee members’ attendances in
2012 are shown in the Report of the Supervisory Board.
Audit Committee
The Audit Committee assists the Supervisory Board in oversee-
ing the quality and integrity of the accounting, auditing, reporting
and risk management practices of the company, as well as the
company’s compliance with legal and regulatory requirements,
the qualifications, performance and independence of the exter-
nal auditor and the performance of the internal audit function.
The chairman of the Audit Committee is Mr. Van den Brink. The
Audit Committee consists of
three other members –
Mr. Hughes, Mrs. Bruzelius and Sir Peter Ellwood – all of whom
have accounting and financial management expertise. Sir Peter
Ellwood became a member of the Audit Committee on May 1,
2012. As a rule, the CEO, CFO, Corporate Director Control,
Corporate Director Internal Audit and the lead partner of the
external auditor, KPMG, attend all regular meetings. After every
Audit Committee meeting, members hold a separate meeting
with only the internal auditor present, and a separate meeting
with only the external auditor present. Other members of
management attend as and when requested. The General
Counsel reports to the Audit Committee on compliance related
matters at every regular meeting of the committee. The chair-
man of the Audit Committee initiates the evaluation of the func-
tioning of the Audit Committee and its individual members,
without the Board of Management being present.
Nomination Committee
The Nomination Committee focuses on drawing up selection
criteria and appointment procedures for Supervisory Board and
Board of Management members. The committee assesses the
size and composition of both Boards, evaluates the functioning
of the individual members, makes proposals for appointments
and reappointments and supervises the Board of Management
on the selection of senior management. The committee also
considers nominations of Executive Committee members who
are not also a member of the Board of 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 and
the need for insight from different markets and non-operational
areas. Higher female and diversity representation are also
actively being pursued. The Nomination Committee consists of
four members and is chaired by Mr. Vuursteen. Ms. Baldauf, Mr.
Verwaayen and Mr. Burgmans are the other members of the
Nomination Committee.
Remuneration Committee
The Remuneration Committee is responsible for making propos-
als to the Supervisory Board on the remuneration policy for the
Board of Management, for overseeing the remuneration of its
individual members and the remaining members of the Execu-
tive Committee and for overseeing the remuneration schemes
for AkzoNobel executives involving the company’s shares. The
committee conducts the periodic review of the performance of
the members of the Board of Management and the Executive
Committee. The committee also reviews the remuneration
package of the members of the Supervisory Board and prepares
proposals for adjustments if necessary. The Remuneration
Committee consists of four members and is chaired by Mr.
Burgmans. Ms. Baldauf, Mr. Verwaayen and Mr. Vuursteen are
the other members of the committee.
Baroness Bottomley stepped down as a Supervisory Board
member of the company, and as a member of the Nomination
and Remuneration Committees, after the 2012 AGM. Sir Peter
Ellwood stepped down as a member of the Nomination and
Remuneration Committees on May 1, 2012. Ms. Baldauf and
Mr. Verwaayen replaced them.
Further information on the work of the committees is set out in
the Report of the Supervisory Board, while details of the remu-
neration of all Supervisory Board members are set out in Note
21 of the Financial statements.
Auditors
The external auditor is appointed by the AGM on 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 AGM. During 2012, besides the annual internal quality
review on services provided by the external auditor, the Audit
Committee has kept itself abreast of international discussions
on auditor independence. As a result, the Audit Committee has
recommended to the Supervisory Board not to propose a
change in the external auditor’s appointment for 2013. 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 AGM and may be questioned with regard to his statement
on the fairness of the financial statements. The external auditor
attends all meetings of the Audit Committee, as well as the
meeting of the Supervisory Board at which the financial state-
ments are approved. He receives the financial information and
underlying reports of the quarterly figures and is given the
opportunity to comment and respond to this information.
AkzoNobel Report 2012 | Governance and compliance | Corporate governance statement
87
Non-audit services
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 moni-
toring of the auditors and the services they provide to the
company. The auditors are prohibited from providing the
company with certain non-audit services. Examples of non-
permitted services are actuarial services and book-keeping
services. In order to anchor this in our procedures, the Supervi-
sory Board adopted the AkzoNobel Auditors Independence
Policy and the related AkzoNobel Audit Committee Pre-approv-
al Procedure on Audit, Audit-Related and Non-Audit Services.
All these documents and policies are available on the compa-
ny’s corporate website.
Risk management and internal control
Internal control and risk management systems are in place.
Our risk management system is explained in more detail in the
Strategy section.
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 disclo-
sure of material financial and non-financial information.
An Internal Control committee is responsible for maintaining the
company’s internal control framework. The company-wide
internal control self-assessment process was improved in 2012
and the outcome was presented to the Audit Committee. An
area of continued focus in 2012 has been the control standards
for our key IT systems and to make more use of automated
controls in these systems.
Synergies are created between the internal control and
compliance function, where the company-wide internal control
self-assessment tool is strengthened by a company-wide
compliance monitoring tool to discuss and monitor progress
with respect to compliance-related issues. More detail on the
so-called non-financial letter of representation process is avail-
able in the Compliance and integrity management chapter.
Reference is made to the Statement of the Board of Manage-
ment in the Our leadership section for the statements in respect
of the internal risk management and control systems.
Code of Conduct and complaints procedure
AkzoNobel has established a comprehensive Code of Conduct
and complaints procedure, pursuant to which employees have
the possibility of reporting alleged irregularities within the
company. More information can be found in the Compliance
and integrity management chapter.
Share Dealing Code
Members of the Board of Management, the Executive Commit-
tee and the Supervisory Board are subject to the AkzoNobel
Share Dealing Code, which limits their opportunities to trade in
AkzoNobel securities. In accordance with Dutch law and regu-
lations, transactions in AkzoNobel shares carried out by Board
of Management, Executive Committee and Supervisory Board
members are, as and when required, notified to the Dutch
Authority for the Financial Markets.
Share classes and major shareholders
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 (each American Depositary
Receiptrepresenting one-third of a common share). On
December 31, 2012, a total of 239,047,452 common shares
and 48 priority shares had been issued.
By December 31, 2012, MFS Investment Management held
more than 5 percent of the company’s share capital.
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 Commit-
tee. The Meeting of Holders of Priority Shares has the nomina-
tion rights for the appointments of members of the Board of
Management and of the Supervisory Board, as well as the right
to approve amendments to the Articles of Association of
the company.
No cumulative preferred shares have been issued to date. It
has been communicated that the cumulative preferred shares
merely have a financing function, which means that if
necessary, and possible, they will be issued at or near to the
prevailing quoted price for common shares.
The Board of Management, Executive Committee and Supervi-
sory Board members require authorization from the General
Counsel prior to carrying out any transactions in respect of
AkzoNobel securities, even in a so-called open period.
The Annual General Meeting of shareholders held on April 23,
2012, authorized the Board of Management for a period of 18
months after that date – subject to approval from the Supervi-
sory Board – to issue shares in the capital of the company up
88
Corporate governance statement | Governance and compliance | AkzoNobel Report 2012
to a maximum of 10 percent of the issued share capital (or 20
percent in case of a merger or acquisition) and to restrict or
exclude the pre-emption rights for existing shareholders
for those shares. At the same meeting, the Board of Manage-
ment was given a mandate to acquire up to a maximum of
10 percent of the issued share capital of the company.
Annual General Meeting of shareholders (AGM)
Presently, General Meetings of shareholders are held at least
once a year. The Annual General Meeting of shareholders is
convened by public notice. The agenda, the notes to the
agenda and the procedure for attendance – including the
record date and the procedure for granting a proxy to a third
party – are published in advance and posted on the company’s
website. The company uses the Shareholders’ Communication
Channel to distribute the agenda and to allow shareholders
who hold their shares through an associated bank participation
in the proxy voting at the meeting.
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 abso-
lute majority, unless the law or the company’s Articles of Asso-
ciation stipulate otherwise.
The Annual General Meeting of shareholders reviews the annual
report and decides on adoption of the financial statements and
the dividend proposal, as well as on the discharge of the
members of the Supervisory Board and the Board of Manage-
ment. Holders of common shares in aggregate representing at
least 1 percent of the total issued capital may submit proposals
for the agenda of the Annual General Meeting of shareholders.
These proposals must be adequately substantiated and must
be submitted in writing, or electronically, to the company’s head
office in Amsterdam at least 60 calendar days in advance of the
meeting. The minutes of the Annual General Meeting of share-
holders (in Dutch) are made available on the company’s 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 financial statements
• Dividends (not interim dividends)
• The election of members of the Board of Management
and the Supervisory Board
• 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 issuance of new shares
Anti-takeover provisions and control
According to provision IV.3.11 of the Code, the company is
required to provide an overview of its actual or potential anti-
takeover measures, and to indicate in what circumstances it is
expected that they may be used. The priority shares may be
considered to constitute a form of anti-takeover measure. In
relation to the right of the Meeting of Holders of Priority Shares
to make binding nominations for appointments to the Board of
Management and the Supervisory Board, the Foundation Akzo
Nobel has confirmed that it intends to make use of such rights
in exceptional circumstances only. These circumstances
include situations where, in the opinion of the Board of the
Foundation, the continuity of the company’s management and
policies is at stake. This may be the case if a public bid for the
common shares of the company has been announced, or has
been made, or the justified expectation exists that such a bid
will be made without any agreement having been reached in
relation to such a bid with the company.
The same shall apply if one shareholder, or more shareholders
acting in a concerted way, hold a substantial percentage of the
issued common shares of the company without making an
offer, or if, in the opinion of the Board of the Foundation Akzo
Nobel, the exercise of the voting rights by one shareholder or
more shareholders, acting in a concerted way, is materially in
conflict with the interests of the company. In such cases, the
Supervisory Board and the Board of Management, in accor-
dance with their statutory responsibility, will evaluate all avail-
able options with a view to serving the best interests of the
company, its shareholders and other stakeholders. The Board
of the Foundation Akzo Nobel has reserved the right to make
use of its binding nomination rights for the appointment of
members of the Supervisory Board and of the Board of
Management in such circumstances.
In the event of a hostile takeover bid or other action which the
Board of Management and Supervisory Board consider to be
adverse to the company’s interests, the two Boards reserve the
right to use all available powers (including the right to invoke a
response time in accordance with provisions IV.4.4 and II.1.9 of
the Code), while taking into account the relevant interests of the
company and its affiliate enterprise and stakeholders.
AkzoNobel Report 2012 | Governance and compliance | Corporate governance statement
89
Remuneration report
This report describes our
remuneration policy and the
remuneration paid to members
of the Board of Management
in 2012.
The remuneration and the individual contracts of the
members of the Board of Management are determined by
the Supervisory Board within the framework of the remunera-
tion policy. The remuneration policy was first adopted by the
Annual General Meeting of Shareholders (AGM) in 2005 and
has been amended several times thereafter, most recently
in 2011. The performance share plan described below was
approved by the AGM in 2004, when AkzoNobel was still
listed at Nasdaq, under the then prevailing rules of Nasdaq. It
has been amended two times thereafter, in accordance with
article 2:135 of the Dutch Civil Code, most recently in 2010.
The share matching plan described below was approved by
the AGM in 2011. Our remuneration policy, including all struc-
tures and policies related to the remuneration and employ-
ment contracts of the Board of Management, is in line with the
Dutch Corporate Governance Code (the Code).
In order to enhance the visibility of the elements that consti-
tute the remuneration policy and the way in which the policy
has been applied during the reporting year, the Supervisory
Board has decided to make a clearer distinction between the
two. The first part of this report describes the remuneration
policy as it has been adopted over time, while the second
part describes the implementation of the policy in 2012 and
proposals for 2013.
Remuneration policy
Our remuneration policy has the objective of providing remu-
neration in a form which will attract, retain and motivate
members of the Board of Management as top managers of a
major international company, while protecting and promoting
the company’s objectives. The aim is to provide remuneration
at the median level of the external market.
The total remuneration package of the members of the Board
of Management consists of:
• Base salary
• Performance-related short-term incentive (STI),
with shareholding requirement related share
matching opportunity
• Performance-related long-term incentive (LTI)
in the form of shares
• Pensions and similar retirement provisions
• Other benefits
The various elements of the remuneration package are
set out in more detail below.
Base salary
The base salary is determined by the Supervisory Board.
Short-term incentive (annual bonus)
The target STI is 100 percent of the base salary for the CEO
and 65 percent of the base salary for the other members.
The threshold for pay-out is the achievement of 80 percent
of the targeted financial performance criteria. The pay-out is
maximized at 150 percent of the base salary for the CEO and
at 100 percent of the base salary for the other members. The
STI is linked to the company’s EVA and EBITDA and the indi-
vidual and qualitative targets of the members of the Board of
Management. More specifically, 35 percent of the short-term
incentive opportunity is linked to EVA, 35 percent is linked to
EBITDA and the remaining 30 percent is linked to individual
and qualitative targets, including non-financial targets. The
specific targets are determined by the Supervisory Board.
90
Remuneration report | Governance and compliance | AkzoNobel Report 2012
Long-term incentive
The LTI consists of performance-related shares. Under the
performance share plan, shares are conditionally granted to the
members of the Board of Management. Vesting of these shares
is conditional on the achievement of performance targets during
a three-year period. Achievement of the performance targets is
determined by the Supervisory Board in the first quarter of the
year following the three-year performance period. The number of
vested shares is adjusted for dividends paid over the three-year
performance period. The retention period for the shares expires
five years after the conditional grant.
Board members who have not yet achieved their minimum
shareholding are required to invest one-third of the short-term
incentive they receive (net after tax and other deductions) in
AkzoNobel shares. As further encouragement to build up the
minimum holding requirement, Board members who invest up
to a second third of their short-term incentive in shares will have
such shares matched by the company, one on one, after three
years from the date of purchase of the shares, on the condition
that the Board member still holds these shares and showed a
sustained performance during the three-year period, as deter-
mined by the Supervisory Board.
Because sustainability is considered key to our long-term future,
50 percent of the conditional share grant is linked to AkzoNobel’s
relative sustainability performance. For the 2011 grant and on-
wards, the sustainability performance is measured as AkzoNobel’s
average score in the SAM ranking during the three-year perfor-
mance period. The remaining 50 percent of the conditional grant
of shares is linked to AkzoNobel’s relative Total Shareholder Return
(TSR) performance compared with the companies in a defined
peer group. This peer group and the vesting scheme are deter-
mined by the Supervisory Board. In each case, the maximum at
vesting is 150 percent of the relevant part of the conditional grant.
Shareholding requirements and share matching
As of 2012, the CEO and other members of the Board of Manage-
ment are required to build up, over a five-year period from the date
of appointment, and then hold, at least three times respectively
one time their gross base salary in AkzoNobel shares for the dura-
tion of their tenure as member of the Board of Management.
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.
Board members who continue to invest their short-term incen-
tives in whole, or in part, in shares after the minimum holding
requirement has been reached, will have the opportunity to have
such shares matched subject to the same conditions, except
that such shares will be matched with one share to every two
shares thus acquired and that no shares will be matched to the
extent that shares were purchased with more than two-thirds of
the Board member’s net annual short-term incentive.
Pension and similar retirement provisions
Members of the Board of Management receive a contribution
towards pension and similar retirement benefits, as determined
by the Supervisory Board.
Other benefits
Other benefits – such as a company car and allowances – are
determined by the Supervisory Board.
Claw back and value adjustment
The Supervisory Board may claw back variable pay compo-
nents paid to members of the Board of Management in the
event that such variable pay components were based on finan-
cial information which is shown within a certain period of time
to be materially incorrect.
Pursuant to the rules of the performance share plan and provi-
sion II.2.10 of the Code, the Supervisory Board has the power
to adjust the outcomes of the STI or the LTI vesting schedules
if, given the circumstances, this would reflect a fairer measure
of performance, provided that targets, in the opinion of the
Supervisory Board, are not more easy or difficult to be satisfied.
Loans
The company does not grant any personal loans to its Board
members.
Implementation of the remuneration policy in 2012
The Supervisory Board ensures that the remuneration policy
is aligned with the objectives of the company also in its imple-
mentation. Both the policy itself, and the checks and balances
that are applied in its execution, are designed to avoid incidents
where members of the Board of Management – and senior
executives for whom similar incentive plans apply – act in their
own interest, take risks that are not in line with our strategy and
risk appetite, or where remuneration levels cannot be justified
in any given circumstance.
To ensure that remuneration is linked to performance, a signifi-
cant proportion of the remuneration package is variable and
dependent on the short and long-term performance of the indi-
vidual Board member and the company. Performance targets
must be realistic and sufficiently stretching and – particularly in
respect of the variable remuneration components – the Super-
visory Board ensures that the relationship between the chosen
performance criteria and the strategic objectives applied, as
well as the relationship between remuneration and perfor-
mance, are properly reviewed and accounted for, both ex-ante
and ex-post.
AkzoNobel Report 2012 | Governance and compliance | Remuneration report
91
In accordance with the requirements of the Code, the
Remuneration Committee, before setting the targets to be
proposed for adoption by the Supervisory Board, has carried
out scenario analyses of the possible financial outcomes
of meeting target levels, as well as maximum performance
levels, and how they may affect the level and structure of the
remuneration of the members of the Board of Management.
As stated in the remuneration policy, we aim to maintain
overall remuneration levels that are at the median level of the
external market. For benchmarking purposes, a peer group
has been defined by the Supervisory Board. Following a
review in 2012, two companies (Wolters Kluwer, Reed Else-
vier) were removed from the peer group and four companies
(Arkema, Henkel, Lafarge and Reckitt Benckiser) were added.
The review focused on the size of the group, as well as on the
geographical and industry fit. The peer group now consists of
the following companies:
• Clariant
• Royal DSM
• Heineken
• Royal KPN
• Royal Philips
• Solvay
• Arkema
• Henkel
• Royal Ahold
• Reckitt Benckiser
• Lafarge
• Randstad
The Remuneration Committee consults professional indepen-
dent remuneration experts to ensure an appropriate compari-
son. It further reviews the impact on pay differentials within
the company, which is taken into account by the Supervisory
Board when the overall remuneration is determined. When
other benefits are granted, the Supervisory Board ensures
that these are in line with market norms.
a summarizing overview of the remuneration of the current
members of the Board of Management. Reference is made to
Note 21 of the Financial statements for more details.
Base salary
The base salaries of members of the Board of Management
increased by 1.8 percent in 2012.
Short-term incentive (annual bonus)
The objectives of the short-term incentive in 2012 were to
reward economic value creation (EVA) and EBITDA growth
for our shareholders and other stakeholders, to measure
individual and collective performance and to encourage pro-
gress in the achievement of long-term strategic objectives.
On the outcome of the three short-term incentive elements
(EVA, EBITDA and personal targets), the Supervisory Board
applies a reasonableness test, in which the actual ambition
level of the performance targets is assessed critically in light
of the assumptions made at the beginning of the year. It also
includes an assessment of the progress made with the strate-
gic objectives under prevailing market conditions.
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 that
investors expect. The target EVA and EBITDA are determined
annually by the Supervisory Board. Qualitative targets are set
in the context of the medium-term objectives of the company.
AkzoNobel will not disclose all the targets as these are consid-
ered commercially sensitive information. However, the targets
for 2012 included goals set with respect to delivering on the
performance improvement program.
For communication purposes, the table “Compensation over-
view members of the Board of Management 2012” presents
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. EVA and EBITDA are based on the
company’s financial results in constant currencies. In 2012,
the minimum threshold for payout regarding the EVA target
was not met, whereas for EBITDA the performance outcome
was above the threshold and payout came out at 60 percent
of target. Upon its ex-post review of the relationship between
the chosen performance criteria and the strategic objectives
applied, and of the relationship between remuneration and
performance, the Supervisory Board, given the importance of
the link between the variable remuneration and the company’s
performance improvement program and strategic ambitions,
decided not to make any adjustment on the financial metrics.
The Supervisory Board has reviewed the overall short-term
performance of Mr. Büchner considering his absence for a
three-month period. Based on this review, it was decided to
reduce the bonus by 25 percent. Considering that the CFO,
Mr. Nichols, also assumed responsibilities of the CEO during
his absence, the Supervisory Board decided to adjust the
outcome of his personal objectives upward.
Long-term incentives
The objectives of our long-term incentive plan are to encourage
long-term sustainable economic and shareholder value creation
– both absolute and relative to our competitors – and to align
the interests of the Board of Management with those of share-
holders and to ensure retention of the members of the Board
of Management. Performance-related shares are considered to
provide a strong 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. As the total option
term is seven years, the last stock options that vested under
the stock option plan can be exercised until 2014.
92
Remuneration report | Governance and compliance | AkzoNobel Report 2012
Compensation overview members of the Board of Management 2012
Ton Büchner1
Chief Executive
Officer
Keith Nichols
Chief Financial
Officer
Leif Darner
Board member
Performance
Coatings
Tex Gunning
Board member
Decorative Paints
Hans Wijers2
Chief Executive
Officer
Rob Frohn3
Board member
Specialty Chemicals
2012
534,700
170,900
399,500
–
128,900
5,700
–
–
2012
602,000
224,500
880,400
109,100
78,000
110,300
72,100
–
2012
602,000
200,100
1,248,600
229,500
–
6,000
683,500
796,300
2012
602,000
200,100
951,300
236,700
–
6,000
578,600
–
1,239,700
2,076,400
3,766,000
2,574,700
2012
267,700
267,700
1,661,900
213,100
–
2,000
–
1,130,600
3,543,000
2012
200,700
130,400
1,245,500
73,100
–
2,800
–
602,000
2,254,500
in €
Base salary
Short-term incentive
Share awards4
Post-employment benefits
Other post-employment
benefits
Other emoluments6
Other compensation7
Termination benefits8
Total remuneration
1 As per April 23, 2012.
2 Until April 23, 2012.
3 Until May 1, 2012.
4 Costs relating to share awards (Performance Share Plan and Share Matching Plan) are non-cash and relate to the expenses following IFRS2.
5 Other post-employment benefits refer to payments intended for building up retirement benefits other than those included in Post-employment benefits.
6 Other emoluments refers to social security cost. For Mr. Nichols, this refers to the employer’s contribution in the UK.
7 Other compensation refers to compensation for living expenses and home leave allowances.
For Mr. Darner this refers to the regular expatriate support benefits for 2012, as well as the gross cost for repatriation support in 2013 following his retirement.
8 Termination benefits for Mr. Darner refers to costs incurred in 2012 which will be paid in 2013.
AkzoNobel Report 2012 | Governance and compliance | Remuneration Report
93
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.
AkzoNobel ranked first in 2012 and second in 2010 and
2011 in the relevant SAM and DJSI indices. As a result,
AkzoNobel’s sustainability performance over the period 2010
through 2012 resulted in a vesting of 133 percent for this part
of the long-term incentive.
Performance share plan
As stated in the remuneration policy, vesting of 50 percent of
the shares conditionally granted under the performance share
plan is linked to AkzoNobel’s relative sustainability perfor-
mance by taking AkzoNobel’s average score in the relevant
Dow Jones Sustainability Index (DJSI) for conditional grants
made up to 2011, and the SAM ranking for conditional grants
made as of 2011, during the three-year performance period.
SAM is an organization that annually assesses around 2,000
of the world’s largest companies covering the major indices
and determines their respective sustainability scores.
For all conditional grants, the vesting schedule has been
determined by the Supervisory Board as follows:
Average position in DJSI/SAM1 during performance period
Vesting (as % of half of
conditional grant)
1
2
3
4 – 6
7 – 10
11 – 15
Below 15
150%
125%
100%
75%
50%
25%
0%
1 For the 2011 grant and onwards, the sustainability performance is measured as
AkzoNobel’s average score in the Sustainable Asset Management (SAM) ranking.
For the 2010 grant the average ranking of the company in the relevant Dow Jones
Sustainability Index (DJSI) remains the sustainability performance measure.
94
Remuneration report | Governance and compliance | AkzoNobel Report 2012
The remaining 50 percent is linked to AkzoNobel’s relative
Total Shareholder Return (TSR) performance compared with
the companies in a defined peer group.
Independent external specialists conduct an analysis to
calculate the number of shares that will vest according to the
TSR ranking. In order to adjust for changes in exchange rates,
all local currencies are converted into euros. The relative TSR
performance is compared with a peer group as determined by
the Supervisory Board.
The peer group currently consists of the following companies:
• Arkema
• Solvay
• DuPont
• Kemira OYJ
• Kansai Paint
• Valspar Corporation
• RPM Industrial
• Nippon Paint
• Sherwin-Williams
• PPG Industries
This peer group is reviewed on a regular basis to ensure that the
companies in the group remain appropriate peers. Occasion-
ally, changes need to be made, particularly if one of the compa-
nies in the peer group is taken over. The Supervisory Board will
see to it that, to the extent reasonably possible, a replacement
has no impact on the company’s relative TSR ranking.
The following vesting scheme has been applied as of 2009 for
the conditional grants:
Vesting scheme for the conditional grants
Rank
1
2
3
4
5
6
7
8 – 11
Vesting (as % of half of
conditional grant)
150%
135%
120%
100%
75%
50%
25%
0%
AkzoNobel’s TSR performance over the period 2010 through
2012 resulted in an 11th position within the ranking of the peer
group companies. This ranking did not result in any vesting of
shares for the TSR part of the share plan.
Based on AkzoNobel’s combined sustainability and TSR perfor-
mance, the final vesting percentage of the 2010 conditional grant
after including the dividend yield at December 31, 2012, which
was determined to be 10.42 percent, equaled 73.61 percent.
This resulted in the following definitive awards of shares under
the 2010 plan: 17,962 for the former CEO and 13,471 shares
for the other members of the Board of Management. Upon its
ex-post review of the relationship between the chosen perfor-
mance criteria and the strategic objectives applied, and of
the relationship between remuneration and performance, the
Supervisory Board, given the importance of the link between
the variable remuneration and the company’s strategic ambi-
tions, decided not to make any correction in respect of the
definitive grant.
The number of performance-related shares conditionally
granted under the 2012 plan amounted to 31,900 for the CEO
and 23,900 for the other members of the Board of Manage-
ment. The former CEO and former member of the Board of
Management that left the company during 2012 received
pro-rata awards under the plan.
Claw back and value adjustment
In 2012 there was no cause for a claw back or value adjust-
ment by the Supervisory Board.
In accordance with provision II.2.13d of the Code, the sched-
ule at the end of this remuneration report sets out for 2007
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.
In accordance with the company’s Articles of Association,
the Code and the rules of the performance share plan, the
number of shares to be conditionally granted to members
of the Board of Management is determined by the Supervi-
sory Board, within the limits of the remuneration policy and
the maximum number of shares as adopted and approved,
respectively, by the AGM. The Supervisory Board has decided
that where, in the event of a takeover, the payout 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 vesting upwards or down-
wards within the bandwidth mentioned. This does not affect
the discretion the Supervisory Board has to correct the
variable remuneration of the Board of Management upwards
or downwards in exceptional circumstances. It is noted that
a takeover would not influence the SAM or DJSI sustainability
ranking of the company and therefore the Supervisory Board
will in such event primarily take into account the company’s
TSR performance.
Shareholding requirements and share matching
Reference is made to the table under Note 21 of the Financial
statements for the number of shares that were held at year-
end 2012 and 2011 by the members of the Board of Manage-
ment. In the table below, an overview is given of the shares
acquired by the relevant members of the Board of Manage-
ment in 2012 that would, subject to the conditions of the
share matching plan, qualify for matching by the company:
Qualifying shares
Board members
Ton Büchner
Keith Nichols
Tex Gunning
Leif Darner
Qualifying shares acquired
in 2012
–
–
1,002
–
Shares obtained by members of the Board of Management
under the performance share plan are taken into account for
share ownership purposes (but not for matching purposes)
as soon as they have become unconditional. This includes
vested shares that are to be retained during the blocking
period of two years after vesting.
At the time of his appointment to CEO, Mr. Büchner owned
10,810 shares in Akzo Nobel N.V. which are subject to a
matching feature in line with the contractual arrangements as
discussed during the 2012 AGM.
Pension contributions
The contributions for the members of the Board of Manage-
ment are defined as a percentage of income as determined
by the Supervisory Board. Currently they are based on age.
In principle, the premiums are paid over the base salary in
the current year (which may include base salary payments to
Board members who step down or have agreed to step down
prior to their regular retirement age for effective succession
planning as described under “Employment agreements”) and
the short-term incentive of the previous year. The premiums
will therefore vary depending on the performance during the
previous year and the age of the Board member. External
reference data can be used in determining market competi-
tive levels of pension arrangements.
The pension entitlements at pension age depend on the premi-
ums received and the investment results during the period.
Depending on whether the pension entitlements qualify as a
pension under the Dutch Pension Act, they are reported as
“post-employment benefits” (pension) or “other post-employ-
ment benefits” (similar post-employment benefits).
Leaving arrangements and other special remuneration
paid during 2012
In 2012, Mr. Wijers and Mr. Frohn stepped down from the
Board of Management. As announced in anticipation of the
AGM in 2012, each received compensation equal to one
year’s base salary. In addition, because Mr. Wijers’ retirement
was advanced, he was entitled to, and received, the regular
pension contribution in respect of the one year’s base salary.
Employment agreements
Agreements for members of the Board of Management are
concluded for a period not exceeding four years in accordance
with the Code. After the initial term, re-appointments may take
AkzoNobel Report 2012 | Governance and compliance | Remuneration report
95
place for consecutive periods of up to four years each. 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.
Members of the Board of Management normally retire in the
year that they reach the age of 62. The employment agree-
ments 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 the “fixed” remuneration compo-
nent until the date of retirement.
Reference is made to Note 21 in the Financial statements
section for an overview of the payments made to former
Board members in 2012.
During 2013, Mr. Darner will retire from the company. Details
concerning his retirement were concluded in 2012 and accru-
als have been made accordingly; reference is made to Note
21 in the Financial statements section, as well as the table
“Compensation overview members of the Board of Manage-
ment 2012” in this chapter.
A conditional special award was made to Mr. Gunning in
2008 as part of the remuneration package in connection with
his appointment as member of the Board of Management in
2009, to a maximum of one annual base salary (averaged
over the performance period). This special award was subject
to performance conditions in connection with the integration
of the ICI acquisition. The Supervisory Board has reviewed
these conditions and also considered the performance of Mr.
Gunning under extraordinary circumstances in connection
with the turn around and subsequent sale to PPG of the North
American Decorative Paints business. Based on this review,
the Supervisory Board has decided to approve payout of
the award.
Strategic objectives and (future) remuneration
When properly applied at the appropriate levels in the orga-
nization, variable remuneration can be an important tool
for achieving the strategic objectives of the company (see
the Strategy section). As regards the short-term incentive
(STI), the current remuneration policy particularly incentiv-
izes economic value creation (EVA) and growth in EBITDA.
96
Remuneration report | Governance and compliance | AkzoNobel Report 2012
While the Supervisory Board recognizes that each of these
elements of the company’s objectives is important, it is also
recognized that circumstances change, and may do so
rapidly. To ensure continued alignment between incentive
metrics and the company’s strategy, greater flexibility with
respect to the short-term incentives for the Board of Manage-
ment is required in order to be able to respond adequately to
the challenges the company is facing. In addition, the Super-
visory Board prefers to use a limited number of easily quantifi-
able and identifiable metrics that meet the financial priorities
of the company and is of the opinion that EVA is no longer
a metric on which to measure the performance of the Board
of Management. The following changes to the remuneration
policy will therefore be proposed for adoption by the AGM
in 2013:
Firstly, the Supervisory Board, having regard to inter alia the
existing financial situation of the company and the external
markets it operates in, will decide annually on two to three
financial metrics and determine their relative weighting from
the following six financial metrics:
this amendment by the AGM in 2013, the Supervisory Board
has set the financial metrics to be applied in the STI for 2013
as follows:
• 20 percent of STI opportunity will be linked to a target
for ROI
• 20 percent of STI opportunity will be linked to a target
for operating income
• 30 percent of STI opportunity will be linked to a target
for operating cash flow
The remaining 30 percent of the STI opportunity will, as
before, be used for personal objectives.
Secondly, in connection with the recent strategy update, the
Supervisory Board is currently finalizing a review of the long-
term incentive plan, with a particular focus on the performance
metrics to be applied going forward. This review may result in
a proposal to the AGM in April 2013. During that meeting, the
AGM will also be requested to approve a continuation of the
current performance share plan.
• EBITDA
• EBIT
• Operating income
• Net income (to shareholders)
• Operating cash flow
• Return on investment
These metrics are used and/or defined in the company’s
annual report (subject to minor adjustments if required in order
to provide a better indicator of management’s performance).
The Supervisory Board will set the performance ranges, i.e.
the values below which no payout will be made (the thresh-
old), the “at target” value and the maximum above which the
payout will be capped, it being noted that the STI awards will
not exceed 150 percent of the base salary for the CEO and
100 percent of the base salary for the other members of the
Board of Management.
The chosen metrics will link remuneration with a focus on
the company’s financial priorities and will, together with their
weighting, be published in the annual report. Performance
targets may qualify as sensitive information and will there-
fore, in principle, not be published. Subject to adoption of
Valuation 1 shares Board of Management
Unconditional shares, vested
Series 2007–2009
Number of shares
Keith Nichols
Leif Darner
Series 2008–2010
Number of shares
Keith Nichols
Leif Darner
Tex Gunning
Series 2009–2011
Number of shares
Keith Nichols
Leif Darner
Tex Gunning
Series 2010–2012
Number of shares
Keith Nichols
Leif Darner
Tex Gunning
Conditional share grant
Number of vested shares
End of lock up period (2012)
Number
Value at grant in €
Number Value at vesting in €
4,250
15,100
196,265
697,318
6,408
22,768
297,331
1,056,435
Number
3,626
14,689
Value in €
135,467
548,781
Conditional share grant
Number of vested shares
End of lock up period (2013)
Number
Value at grant in €
Number Value at vesting in €
Number
Value in €
8,733
11,600
3,867
478,481
635,564
211,873
–
–
–
–
–
–
–
–
–
–
–
–
Conditional share grant
Number of vested shares
End of lock up period (2014)
Number
Value at grant in €
Number Value at vesting in €
Number
Value in €
27,400
27,400
27,400
806,656
806,656
806,656
19,125
19,125
19,125
714,510
714,510
714,510
9,563
12,432
12,432
NA
NA
NA
Conditional share grant
Number of vested shares
End of lock up period (2015)
Number
Value at grant in €
Number Value at vesting in €
Number
Value in €
18,300
18,300
18,300
849,120
849,120
849,120
13,471
13,471
13,471
670,182
670,182
670,182
–
–
–
NA
NA
NA
Conditional shares, not vested
Series 2011–2013
Conditional share
grant at target
Vesting at min.
performance
Vesting at max.
performance
Series 2012–2014
Conditional share
grant at target
Vesting at min.
performance
Vesting at max.
performance
Number of shares
Number
Value at grant in €
Number
Number
Number of shares
Number
Value at grant in €
Number
Keith Nichols
Leif Darner
Tex Gunning
18,600
18,600
18,600
864,714
864,714
864,714
–
–
–
27,900
Ton Büchner
27,900
Keith Nichols
27,900
Leif Darner
Tex Gunning
31,900
23,900
23,900
23,900
1,191,784
892,904
892,904
892,904
–
–
–
–
Number
47,850
35,850
35,850
35,850
1 Values based on the share price on January 1 of the relevant financial year (face value).
AkzoNobel Report 2012 | Governance and compliance | Remuneration report
97
Compliance and integrity management
A compliance framework supported by implementation
processes and monitoring and control procedures,
based on a comprehensive Code of Conduct and
assesed by the Supervisory Board, is one of the essential
foundations of good corporate governance and social
responsibility. In everything we do we aim for the highest
standards of performance and behavior. Our conduct
must be exemplary wherever we operate.
Compliance framework
Competition law
Anti-bribery
Export control
HSE&S
Treatment of
employees
Share dealing
Privacy
Information security
Human rights
Fraud
98
Compliance and integrity management | Governance and compliance | AkzoNobel Report 2012
AkzoNobel Code of Conduct
The Code of Conduct serves as a common reference document
which reflects our values and sets out our fundamental principles
and rules for doing business. The code applies equally to our
corporate actions and the behavior of individual employees,
regardless of the market segment, function or country in which
we operate. The code is supported by a cascaded structure
of internal regulations in the form of corporate directives, poli-
cies, practical manuals and guidelines that are applicable to all
employees and guide them in their day-to-day decisions. The
Code of Conduct is available in 27 languages, is regularly distrib-
uted in paper form and is widely available online.
AkzoNobel is subject to local, regional and international laws and
regulations, regulatory controls and customs and practices in
the countries in which we do business. Our legal and compli-
ance experts are monitoring and adapting to significant and
rapid changes in a wide range of legal and compliance areas, to
ensure that the code and our internal regulations remain suited
for purpose and are properly applied.
Code of Conduct for joint ventures, acquisitions
and our supply chain
We have a task to ensure that all employees – including those at
joint ventures we operate and at newly acquired companies – are
aware of, and comply with, laws and regulations that are relevant
to their specific role, as well as the Code of Conduct and related
internal regulations. In those joint ventures we do not control,
we encourage our partners to consistently apply the values and
principles reflected in our code when doing business.
AkzoNobel expects employees of newly acquired companies
to adhere to the Code of Conduct in their daily actions and to
live up to our strategic values, our fundamental principles and
rules for doing business. They receive extensive training which
enables them to fully acquaint themselves with the compliance
framework and the code.
The code also governs the behavior of our suppliers, agents,
distributors, contractors and other trading partners with whom
we work. This is directly reflected in what is called our Vendor
Policy. This policy asserts that we want a sustainable supply
chain and therefore do business with trading partners who
comply with our integrity values and our social and environmen-
tal standards. Those partners are required to sign the AkzoNo-
bel Vendor Policy Declaration, which is rooted in our Code of
Conduct. In a gradual process of enhancing assurance that our
business partners comply with our Vendor Policy, the socially
responsible performance of our business partners will be veri-
fied to create a sustainable supplier base. See the Sustainability
statements section.
Code of Conduct training, communication
and awareness
We appreciate that raising awareness through effective commu-
nication and training is pivotal to our compliance framework, and
assists us in protecting the company and our employees against
economic and reputational harm. Communication on the Code
of Conduct starts for new employees from the moment they join
AkzoNobel and includes online and classroom training. By the
end of 2012, we had invited all employees with access to our
intranet to complete the Code of Conduct training module. Our
employee completion rates (at 96 percent in 2012) are monitored
monthly and form an element of the annual Performance and
Development Dialog discussion. The compliance training curric-
ulum also offers specialized training to improve critical compe-
tencies and skills to a designated group of employees on topics
such as competition law, anti-bribery, export control, privacy,
fraud awareness, anti-harassment, careful communications and
trade secrets.
Code of Conduct complaints procedure (SpeakUp!)
We value an open dialog on integrity and responsibility in
our actions with our employees worldwide. We investigate
all alleged breaches of our code and apply appropriate
measures when complaints turn out to be substantiated. Our
employees are encouraged to report their views on processes
and practices to their manager or the relevant business level
compliance committee, the compliance department or the
Compliance Committee. A global reporting helpline is perma-
nently available to our employees to report, confidentially and,
if so desired, anonymously, breaches of our Code of Conduct.
These reporting mechanisms are part of the complaints proce-
dure and are described in our SpeakUp! policy and manual.
We seek to ensure that lessons learned from the SpeakUp!
procedure are addressed in the form of case studies in our
compliance training curriculum, to reflect as much as possible
our day-to-day business reality.
In 2012, a total of 295 alleged breaches of the Code of
Conduct were reported. Most of the cases related to busi-
ness integrity and treatment of employees. Company-wide,
we had 131 dismissals on grounds related to breaches of the
Code of Conduct (2011: 99). The results are addressed in
the non-financial letter of representation process (see later in
this section). Although the issues reported were not material
for AkzoNobel, we are conscious of the need to continue to
conduct root cause analyses and take appropriate actions.
a whole, including root cause analyses. The Compliance
Committee assists the Executive Committee in its ultimate
responsibility to report to the Audit Committee of the Super-
visory Board.
The Compliance Committee comprises the General Counsel
(chair), Secretary to the Executive Committee, and Corporate
Directors of Compliance, Internal Audit, Control and HR, and
Legal Counsel Compliance. A total of 24 alleged complaints
that were possibly material in character were handled at the
level of the Compliance Committee (2011: 24). Of these,
three are still under review. Only part of those investigated
complaints were substantiated and the Compliance Commit-
tee took appropriate actions. However, none of those were
considered material for AkzoNobel.
Business unit management and corporate staff departments
are responsible and accountable for awareness raising and
compliance within their respective businesses and depart-
ments. We have appointed BU compliance officers in each of
the businesses. A compliance officer assesses the main risks,
improves and monitors compliance and its effectiveness and
trains the relevant employees. The compliance officers inves-
tigate alleged breaches of the Code of Conduct and report
their findings and lessons learned to the relevant business unit
management team. The management team then takes appro-
priate action.
Compliance governance
The compliance department, in close collaboration with the
Compliance Committee, provides an adequate compliance
framework and assures its enforcement via various methods.
These methods include the application of monitoring and
reporting tools, developing the compliance training curricu-
lum and managing the corporate complaints procedure as
Compliance and integrity reporting and monitoring
AkzoNobel has developed a set of corporate reporting and moni-
toring tools to manage compliance and integrity at the company.
The compliance department manages these tools and reports on
outcome and effectiveness to the Compliance Committee.
AkzoNobel Report 2012 | Governance and compliance | Compliance and integrity management
99
Integrity management
Code of Conduct complaints reporting
Number of alleged complaints reported
Breakdown of reported complaints
Health and Safety
Business integrity
Treatment of employees
Other
Code of Conduct investigation
Alleged complaints investigated (in %)
Alleged complaints handled by the Compliance
Committee (in numbers)
Alleged complaints handled by the relevant
business (in numbers)
Substantiated Code of Conduct complaints after investigation
(of total number of alleged complaints)
Number of dismissals for Code of Conduct violations
Compliance monitoring
Competition Law Compliance Declaration
(number of targeted employees)
Non-financial letter of representation
(% of operational managers)
Share Dealing Code Statement (% of designated employees,
members of Board of Management, Executive Committee and
Supervisory Board)
Code of Conduct training
2009
2010
2011
2012
198
22
72
103
1
100
18
180
127
69
260
22
122
113
3
100
23
237
170
118
245
18
112
112
3
100
24
221
149
99
295
42
152
101
–
100
24
271
163
131
10,000
13,000
14,400
15,900
100
100
100
100
100
100
100
100
Trained (% employees with access to our intranet)
95
95
95
96
Code of Conduct complaints procedure (SpeakUp!)
This is a permanently available internal system which encour-
ages employees to report alleged breaches of the Code of
Conduct. The system is also available for temporary employ-
ees and third parties with whom AkzoNobel has a business
relationship (such as customers, suppliers and agents). The
outcome of the reports and root cause analyses are reported
to the Compliance Committee and General Counsel and
appropriate actions are undertaken.
Competition law compliance declaration
Employees who have contact with customers, suppliers
or competitors confirm their adherence to the Competition
Law Compliance Manual through an annual declaration. Any
possible concerns are reported to the General Counsel and
actions are taken. In 2012, 15,900 employees signed this
declaration.
Non-financial letter of representation (NFL)
At the end of each year, the General Manager of each busi-
ness signs the NFL to confirm compliance with the Code of
Conduct and other corporate non-financial requirements.
The outcome is reviewed with the responsible member
of the Executive Committee 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. The
outcome of the NFL process, in combination with the inter-
nal control self-assessment process, forms the basis for
the Statement of the Board of Management in this Report.
100 Compliance and integrity management | Governance and compliance | AkzoNobel Report 2012
Share Dealing Code statement
Members of the Board of Management, Executive Commit-
tee and Supervisory Board, along with certain designated
employees, annually confirm awareness of their obligations
under the AkzoNobel Share Dealing Code and the Disclo-
sure Controls and Procedures and agree to comply with
such obligations.
Specific compliance areas
Our Code of Conduct covers the various areas where risks
can arise for our businesses. Those areas are addressed
by specific programs to guide our employees in abiding by
the code. In 2012, we continued to adapt our compliance
programs to ongoing changes and kept them up-to-date. We
also trained our employees and businesses to be aware of
risks that can arise in the various areas. Special attention is
given to competition law compliance during the compliance
training program.
As part of the actions to further implement anti-bribery regu-
lations into our compliance framework, we developed a new
online training program for an appropriate number of employees
in 2012. This program provides guidance on the ban on facilita-
tion payments and sets out norms on gifts and hospitality. We
also updated the AkzoNobel Share Dealing Code, as well as the
disclosure controls and procedures, in order to comply with new
Dutch legislation.
Our Export Control program contains procedures and training
that provide up-to-date guidance to employees on regulatory
and enforcement activities, especially those coming from the
US and the EU and including rules with extra-territorial effect.
In addition, a global network of export control officers has
been established to support the businesses in implementing
and complying with the Export Control program. Business
unit management, including the BU compliance officers, the
BU export control officers and corporate staff departments,
are supported by the Compliance department.
To confirm our commitment that every employee is entitled
to be treated with dignity and respect as an individual, and
the obligation of every employee to uphold high standards
of personal conduct at work, a new corporate directive on
anti-harassment was launched in 2012. A self-assessment
was held to ensure continued compliance with privacy and
data protection laws for our data management systems in the
Netherlands. This, as well as the implementation of various
new information management tools and applications, led
to improvement measures and required privacy and data
protection training of specifically targeted employees.
The Code of Conduct also sets out our approach to human
and labor rights. This approach is based on the principles of
the United Nations Universal Declaration of Human Rights,
the key conventions of the International Labor Organiza-
tion and the OECD Guidelines for Multinational Enterprises.
In addition, we continue to integrate into our strategy and
operations the principles on human rights, labor, environment
and anti-corruption of the United Nations Global Compact,
to which AkzoNobel is a signatory. As a critical element of
being a socially responsible company, our businesses and
employees are required to respect the human rights of other
employees and the communities in which we operate. Our
code pays particular attention to the company’s presence
and operations in emerging markets, as compliance frame-
works risk being less advanced in emerging, as compared
to mature economies. For more information on stakeholder
engagement and our environmental strategy, please turn to
the Sustainability statements section.
AkzoNobel Report 2012 | Governance and compliance | Compliance and integrity management
101
AkzoNobel on the capital markets
During 2012, our share price
increased 33 percent to €49.75
New €750 million bond issued at
2.625 percent, with a maturity of
ten years
Total proposed dividend of €1.45
per share, on a par with 2011
Close dialog with the capital markets
We attach great value to maintaining an open dialog with the
financial community in order to promote transparency. During
2012, management gave presentations at a number of indus-
try conferences, as well as during meetings with investors
and analysts. In the Netherlands, AkzoNobel uses the Share-
holders’ Communication Channel to distribute the agenda
of the Annual General Meeting of shareholders and to allow
shareholders who hold their shares through an associated
bank to participate in proxy voting at the AGM.
Dividend policy
AkzoNobel’s dividend policy is to pay a stable to rising divi-
dend each year, following our expected growth in cash gener-
ation. Cash dividend is default, stock dividend is optional.
Total proposed dividend of €1.45 per share
The Board of Management proposes a total dividend of
€1.45 per common share. AkzoNobel’s shares will be trading
ex-dividend as of April 30, 2013. In compliance with the listing
requirements of Euronext Amsterdam, the record date will
be May 3, 2013. The final dividend as proposed to the 2013
Annual General Meeting of shareholders will be payable as
of May 29, 2013. The dividend paid over the last five years is
shown in the graph on this page.
Dividend paid in € per share
Interim dividend
Final dividend
1.40
0.40
2008
1.05
1.08
1.12
1.12
0.30
2009
0.32
2010
0.33
2011
0.33
2012
Share price performance
Our share price increased 33 percent in 2012, outperforming
both the DJ Stoxx Chemicals and AEX indices. The share price
performance relative to these indices for a one-year and a five-
year period is shown in the graphs on the following page.
Analyst recommendations
At year-end 2012, AkzoNobel was covered by 30 equity
brokers and the following analyst recommendations were
applicable (see diagram on the following page):
102 AkzoNobel on the capital markets | Governance and compliance | AkzoNobel Report 2012
Key share data
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 %)
2010
2011
2012
46.49
47.70
37.18
43.39
52.1
1.2
37.36
53.74
29.25
42.20
47.5
1.1
49.75
49.75
35.16
42.23
39.6
0.9
233.5
234.7
239.0
10.9
3.23
1.40
3.2
8.8
11.9
2.04
1.45
3.4
(9.14)
1.45
3.4
Analyst recommendations in %
A Buy
B Hold
C Sell
40
43
17
C
B
Share price performance 2012
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
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 compa-
nies in the Netherlands, ranked on the basis of their turnover
in the stock market and free float. The AkzoNobel weight in
the AEX index was 4.45 percent at year-end 2012. In 2012,
241 million AkzoNobel shares were traded on Euronext
Amsterdam (2011: 290 million). AkzoNobel has a sponsored
level 1 ADR program and ADRs can be traded on the inter-
national OTCQX platform in the US. The 3:1 ratio (ADR: ORD)
became effective from January 2, 2012, onwards.
See the table below for stock codes and ticker symbols:
Euronext ticker symbol
AKZA
ISIN common share
OTC ticker symbol
ISIN ADR
Sedol code
NL0000009132
AKZOY
US0101993055
5458314
55
50
45
40
35
30
1
1
c
e
D
1
3
2
1
n
a
J
2
1
b
e
F
2
1
r
a
M
2
1
r
p
A
2
1
y
a
M
2
1
n
u
J
2
1
l
u
J
2
1
g
u
A
2
1
t
p
e
S
2
1
t
c
O
2
1
v
o
N
2
1
c
e
D
0
3
Share price performance 2008-2012
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
75
60
45
30
15
0
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
1
1
n
u
J
0
3
1
1
c
e
D
0
3
2
1
n
u
J
0
3
2
1
c
e
D
0
3
AkzoNobel Report 2012 | Governance and compliance | AkzoNobel on the capital markets
103
Distribution of shares 2011 at year-end in %
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
45
13
14
15
2
11
F
E
D
C
B
AkzoNobel in key sustainability indices
For the seventh year in succession, AkzoNobel was included
in the Dow Jones Sustainability World Index (DJSI World).
In 2012, we were ranked number one, being the Chemicals
supersector leader. We received particular recognition for our
risk and crisis management, innovation management and
human capital development. We were also again represented
in the Carbon Disclosure Project, which represents more
than 500 institutional investors, with over $60 trillion in assets
under management.
A
Distribution of shares 2012 at year-end in %
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
45
12
12
16
3
12
E
F
D
A
C
B
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 January 2013 showed that at
45 percent, the US and Canada make up the largest regional
group of investors. Investors from the UK and Ireland hold
12 percent. Shareholders from the Netherlands hold 12
percent of AkzoNobel shares, while a further 16 percent are
held by investors from the rest of Europe. Around 9 percent of
the company’s share capital is held by private investors, most
of whom are resident in the Netherlands.
Sustainability is becoming more important for our investors.
Around 39 percent of our shares are held by institutions that
are signatories of the UN PRI (United Nations Principles for
Responsible Investment). The sum of holdings by institutions
that focus on ESG (Environmental, Social and Governance)
issues in some capacity is around 29 percent.
Credit rating and outlook
AkzoNobel is committed to maintaining a strong investment
grade rating. Regular review meetings are held between both
agencies and AkzoNobel senior management. See table for
present rating and outlook.
Rating agency
Long-term rating
Outlook
Moody’s1
Standard & Poor’s 2
Baa1
BBB+
Review for downgrade
Stable
1 Rating affirmed on October 25, 2012.
2 Rating affirmed on December 26, 2012.
Bonds
In 2012, we issued a €750 million bond at a 2.625 percent
coupon and a maturity of ten years. For a full overview of our
bonds, please visit the Bond & Credit Information in the Inves-
tors section of our corporate website or see Note 16 in the
Financial statements section.
Debt maturity in € millions (nominal amounts)
€ Bonds
$ Bonds
£ Bonds
825
44
379
15
622
306
800
750
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
104 AkzoNobel on the capital markets | Governance and compliance | AkzoNobel Report 2012
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.
We communicate with our investors and analysts by organiz-
ing or attending meetings such as the Annual General Meet-
ings of shareholders, our Capital Market Days, roadshows
and broker conferences. More information on these meetings,
as well as the presentation materials, can be found on our
website. Furthermore, we publish an annual report, quarterly
reports, the AkzoNobel Fact File and press releases, which
are also available on our 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 website. Meetings with
investors (bilateral and general) are held to ensure that the
investment community receives a balanced and complete
view of our performance and the issues faced by the busi-
ness, while always observing applicable rules concerning
selective disclosure, equal treatment of shareholders and
insider trading.
In the period preceding the publication of the results of that
quarter, AkzoNobel will be in a 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 our website.
Analysts’ reports and valuations are not assessed, comment-
ed upon or corrected, other than factually, by the company.
We do not pay any fee(s) to parties for carrying out research
for analysts’ reports, or for the production or publication of
analysts’ reports, with the exception of credit rating agen-
cies. 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
If you have questions 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 Shareholder Services
American Stock Transfer & Trust Company
Peck Slip Station
P.O. Box 2050
New York, NY 10272-2050
www.adr.db.com
T +1 800 937 5449 (toll-free number)
T +1 718 921 8124
E DB@amstock.com
AkzoNobel Report 2012 | Governance and compliance | AkzoNobel on the capital markets
105
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
108
109
109
110
111
112
Company financial statements
Note A General information
Note B Financial non-current assets
and provisions for subsidiaries
Note C Trade and other receivables
Note D Cash and cash equivalents
Note E Shareholders’ equity
Notes to the consolidated financial statements
Note F Long-term borrowings
Note 1 Summary of significant accounting policies
Note 2 Scope of consolidation
Note 3 Operating income
Note 4 Financing income and expenses
Note 5
Income tax
Note 6
Intangible assets
Note 7 Property, plant and equipment
113
121
123
125
126
129
131
Note G Short-term debt
Note H Financial instruments
Note I Contingent liabilities
Note J Auditor’s fees
Other information
Independent auditor’s report
Note 8
Investments in associates and joint ventures 132
Result allocation and distributions
153
153
155
155
155
155
156
156
157
157
157
158
159
Note 9 Other financial non-current assets
Note 10 Inventories
Note 11 Trade and other receivables
Note 12 Cash and cash equivalents
Note 13 Group equity
Note 14 Post-retirement provisions
Note 15 Other provisions
Note 16 Long-term borrowings
Note 17 Short-term borrowings
Note 18 Trade and other payables
Note 19 Contingent liabilities and commitments
Note 20 Related party transactions
Note 21 Remuneration of the Supervisory Board
and the Board of Management
Note 22 Financial risk management
132
133
133
134
134
136
140
140
141
141
142
143
144
148
Consolidated statement of income
In € millions
Continuing operations
Revenue
Cost of sales
Gross profit
Impairment
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/(loss) before tax
Income tax
Profit/(loss) from continuing operations
Discontinued operations
Profit/(loss) for the period from discontinued operations
Profit/(loss) for the period
Attributable to
Shareholders of the company
Non-controlling interests
Profit/(loss) for the period
Earnings per share, in €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
Note
20111
2012
15,390
(9,596)
(2,106)
(3,199)
(1,277)
(387)
(69)
59
(65)
(261)
13
14,604
(9,035)
–
(2,943)
(1,142)
(349)
10
57
(57)
(336)
24
3
3
3
3
3
3
4
4
4
8
5
2
13
13
13
13
13
13
5,569
(4,424)
1,145
833
(233)
600
(59)
541
477
64
541
2.29
2.27
(0.25)
(0.25)
2.04
2.02
5,794
(7,038)
(1,244)
(1,498)
(172)
(1,670)
(436)
(2,106)
(2,169)
63
(2,106)
(7.30)
(7.30)
(1.84)
(1.84)
(9.14)
(9.14)
1 Restated to present Decorative Paints North America as a discontinued operation.
108 Consolidated statement of income | Financial statements | AkzoNobel Report 2012
Consolidated statement of
comprehensive income
Consolidated balance sheet
at year-end, before result allocation
In € millions
Profit/(loss) for the period
Other comprehensive income
Exchange differences arising on translation of foreign operations
Cash flow hedge reserve
Income tax relating to 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
2011
541
2012
(2,106)
In € millions
Assets
Note
2011
2012
55
(55)
9
9
550
486
64
550
8
(7)
5
6
(2,100)
(2,146)
46
(2,100)
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
Assets held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Non-controlling interests
Group equity
Non-current liabilities
Post-retirement benefit provisions
Other 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
Liabilities held for sale
Total current liabilities
Total equity and liabilities
6
7
5
8
9
10
5
11
12
2
13
14
15
5
16
17
5
18
15
2
7,392
3,705
813
198
1,187
1,924
98
2,937
1,635
–
9,212
531
1,053
664
567
3,035
494
413
3,369
551
–
4,454
3,739
830
185
1,748
13,295
10,956
6,594
19,889
1,545
91
2,698
1,752
921
6,892
465
7,007
17,963
9,743
7,357
982
735
442
3,388
5,319
5,547
662
390
3,242
455
310
4,827
19,889
5,059
17,963
AkzoNobel Report 2012 | Financial statements | Consolidated balance sheet
109
Consolidated statement of cash flows
In € millions
Profit/(loss) 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
Changes in provisions
Interest paid
Income tax paid
Other
Net cash from operating activities
Capital expenditures
Interest received
Dividends from associates and joint ventures
Acquisition of consolidated companies
Proceeds from divestments
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
1 Restated to present Decorative Paints North America as a discontinued operation.
110 Consolidated statement of cash flows | Financial statements | AkzoNobel Report 2012
Note
2
6,7
6,7,10
4
8
12
5
12
8
2
17
17
3
12
541
59
565
12
336
(24)
(23)
233
(331)
(484)
(282)
(227)
21
(658)
39
10
(205)
49
(47)
911
(1,381)
(8)
15
(362)
2011 1
2012
(2,106)
436
635
2,160
267
(13)
28
172
251
(688)
(231)
(209)
35
(826)
48
9
(94)
216
(79)
396
737
(812)
(726)
1,583
(1,013)
(51)
8
(256)
(825)
(1,241)
(96)
(1,337)
2,683
(11)
1,335
271
282
(53)
229
1,335
(6)
1,558
Consolidated statement of changes in equity
Attributable to shareholders of the company
In € millions
Balance at January 1, 2011
Profit/(loss) for the period
Reclassification into the statement of income
Other comprehensive income
Tax on other comprehensive income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
Subscribed
share capital
467
–
–
–
–
–
1
–
1
–
Balance at December 31, 2011
469
Profit/(loss) for the period
Transfer to goodwill
Reclassification into the statement of income
Other comprehensive income
Tax on other comprehensive income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
–
–
–
–
–
–
7
–
2
–
Additional
paid-in
capital
Cash flow
hedge
reserve
Cumulative
translation
reserve
Other
(statutory)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling
interests
Group equity
9
–
–
–
–
–
24
–
14
–
47
–
–
–
–
–
–
121
–
6
–
29
–
(1)
(54)
17
(38)
–
–
–
–
(9)
–
(8)
19
(18)
(1)
(8)
–
–
–
–
(43)
–
–
55
(8)
47
–
–
–
–
4
–
–
39
(14)
6
31
–
–
–
–
8,522
477
–
–
–
477
(329)
32
–
(1)
8,984
477
(1)
1
9
486
(304)
32
15
(1)
525
64
–
–
–
64
(58)
–
–
–
9,509
541
(1)
1
9
550
(362)
32
15
(1)
8,701
9,212
531
9,743
(2,169)
(2,169)
–
–
–
–
(2,169)
(342)
43
–
(11)
(8)
58
(32)
5
(2,146)
(214)
43
8
(11)
63
–
–
(17)
–
46
(42)
–
–
(70)
465
(2,106)
(8)
58
(49)
5
(2,100)
(256)
43
8
(81)
7,357
Balance at December 31, 2012
478
174
(17)
35
6,222
6,892
AkzoNobel Report 2012 | Financial statements | Consolidated statement of changes in equity
111
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, can
makers and bodyshops. 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 Area1
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Discontinued operations
Total
Regional information1
In € millions
The Netherlands
Germany
Sweden
UK
Other European countries
US and Canada
Brazil
Other Latin American countries
China
India
Other Asian countries
Other regions
Total
Revenue from third parties
Group revenue
EBITDA2
Amortization and
depreciation
2011
4,189
5,128
5,270
17
2012
4,246
5,635
5,504
5
2011
4,201
5,170
5,335
(102)
2012
4,297
5,702
5,543
(152)
14,604
15,390
14,604
15,390
2011
479
611
906
(162)
1,834
2012
425
769
889
(182)
1,901
2011
(157)
(117)
(279)
(12)
(565)
2012
(185)
(132)
(305)
(13)
(635)
Incidentals
Operating income
2011
(92)
(37)
(3)
6
2012
(2,261)
(96)
(83)
(80)
(126)
(2,520)
2011
235
458
622
(170)
1,145
2012
(2,012)
542
500
(274)
(1,244)
Invested capital
Total assets
Total liabilities
Capital expenditures
Impairment
2011
5,673
2,363
3,558
1,019
–
2012
3,387
2,415
3,573
1,655
–
2011
8,429
3,952
4,725
2,783
–
2012
5,776
4,012
4,773
2,480
922
2011
2,150
1,606
1,162
5,228
–
2012
2,059
1,364
1,215
5,658
310
12,613
11,030
19,889
17,963
10,146
10,606
2011
2012
2011
155
116
365
22
–
658
206
123
484
13
–
826
(5)
(5)
(1)
(1)
–
(12)
2012
(2,115)
(10)
(19)
(16)
(372)
(2,532)
Revenue by region of
destination
Intangible assets
and property,
plant and equipment
Capital expenditures
2011
694
1,284
515
841
3,702
2,092
949
566
1,376
359
1,559
667
2012
745
1,258
486
901
3,647
2,294
987
636
1,621
371
1,716
728
2011
1,105
777
463
1,257
2,275
2,035
633
112
2012
880
507
433
1,006
1,269
1,081
524
84
1,469
1,610
150
710
111
152
570
77
2011
144
31
54
27
98
67
54
12
96
18
46
11
14,604
15,390
11,097
8,193
658
2012
110
69
70
68
85
70
123
16
135
16
55
9
826
1 2011 numbers restated to present Decorative Paints North America as a
discontinued operation.
2 EBITDA is operating income before incidentals and amortization/depreciation.
112 Segment information | Financial statements | AkzoNobel Report 2012
Notes to the consolidated
financial statements
1
Note 1: Summary of significant accounting policies
General information
Akzo Nobel N.V. is a company headquartered in the
Netherlands. The address of our registered office is
Strawinskylaan 2555, Amsterdam. We have filed a list
of subsidiaries and associated companies, drawn up
in conformity with sections 379 and 414 of Book 2
of the Netherlands Civil Code, with the Trade Registry
of Amsterdam.
We have prepared the consolidated financial statements of
Akzo Nobel N.V. in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European
Union. They also comply with the financial reporting
requirements included in Section 9 of Book 2 of the
Netherlands Civil Code, as far as applicable.
On February 19, 2013, the Board of Management
authorized the financial statements for issue. The financial
statements as presented in this report are subject to the
adoption by the Annual General Meeting of shareholders.
Consolidation
The consolidated financial statements include the
accounts of Akzo Nobel N.V. and its subsidiaries.
Subsidiaries are companies over which Akzo Nobel N.V.
has directly and/or indirectly the power to control the
financial and operating policies so as to obtain benefits. In
assessing control, potential voting rights that are presently
exercisable or convertible are taken into account. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that
control commences until the date that control ceases.
Non-controlling interests in equity and in results are
presented separately. Transactions between consolidated
companies and intercompany balances are eliminated.
Accounting policies, as set out below, have been applied
consistently for all periods presented in these consolidated
financial statements and by all subsidiaries.
Change in accounting policies
The accounting pronouncements which became effective
for 2012, had no material impact on our consolidated
financial statements.
Discontinued operations (Note 2)
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 statements of income and 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.
In December 2012, we announced the divestment in 2013
of the North American Decorative Paints business, subject to
approval of the antitrust authorities. As a consequence, this
business has been reclassified as a discontinued operation.
Use of estimates
The preparation of the financial statements in compliance
with IFRS requires management to make judgments,
estimates and assumptions that affect amounts reported in
the financial statements. The estimates and assumptions
are based on experience and various other factors that
are believed to be reasonable under the circumstances
and are used to judge the carrying values of assets and
liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is
revised or in the revision period and future periods, if the
changed estimates affect both current and future periods.
The most critical accounting policies involving a higher
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
113
degree of judgment and complexity in applying principles
of valuation are described below. Changes in the assump-
tions and estimates as described could result in
significantly different results than those recorded in
the financial statements.
Business combinations (Note 2)
In business combinations, identifiable assets and liabilities,
and contingent liabilities are recognized at their fair
values at the acquisition date. Determining the fair value
requires significant judgments on future cash flows to be
generated. The fair value of brands, patents and customer
lists acquired in a business combination is estimated on
generally accepted valuation methods. These include
the relief-from-royalty method, the incremental cash flow
method and the multi-period excess earnings method.
The fair value of property, plant and equipment acquired
in a business combination is based on estimated market
values. The fair value of inventories acquired in a business
combination is determined based on its estimated selling
price in the ordinary course of business less the estimated
costs of completion and sale and a reasonable profit
margin, based on the effort required to complete and sell
the inventories.
Impairment of intangible assets and property,
plant and equipment (Notes 6, 7)
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 (value in use) are less than
their carrying value. The data necessary for the impairment
tests are based on our strategic plans and our estimates
of future cash flows, which require estimating revenue
growth rates and profit margins. The estimated cash flows
are discounted using a net present value technique with
business-specific discount rates.
Accounting for income tax (Note 5)
As part of the process of preparing consolidated financial
statements, we estimate income tax in each of the
jurisdictions in which we operate. This process involves
estimating actual current tax expense and temporary
differences between carrying amounts of assets
and liabilities for tax and financial reporting purposes.
Temporary differences result in deferred tax assets
and liabilities, which are included in the consolidated
balance sheet. We assess the likelihood that deferred
tax assets will be recovered from future taxable income.
In determining the amount of current and deferred tax
we also take into account the impact of uncertain tax
positions and whether additional taxes and interest may
be due. This assessment relies on estimates and
assumptions and may involve a series of judgments about
future events and consideration of many factors, including
interpretations of tax law and prior experience.
Provisions (Notes 14, 15)
By their nature, provisions and contingent liabilities are
dependent upon estimates and assessments as to whether
the criteria for recognition have been met, including
estimates of the probability of cash outflows. Estimates
related to provisions for environmental matters are based
on the nature and seriousness of the contamination, as well
as on the technology required for clean-up. The provisions
for antitrust cases are based on an estimate of the costs,
fines and civil damages, taking into account legal advice
and the current facts and circumstances. Provisions for
other litigation are also based on an estimate of the costs,
taking into account legal advice and information currently
available. Provisions for termination benefits and exit costs
also involve management’s judgment in estimating the
expected cash outflows for severance payments and site
closures or other exit costs.
Accounting for post-retirement benefits (Note 14)
Post-retirement benefits represent obligations that will be
settled in the future and require assumptions to project
obligations and fair values of plan assets. The accounting
requires us to make assumptions regarding variables such
as discount rate, rate of compensation increase, return
on assets, mortality rates and future healthcare costs.
Periodically, we consult with external actuaries regarding
these assumptions. Changes in key assumptions can have
a significant impact on the projected benefit obligations,
funding requirements and periodic costs incurred.
Statement of cash flows
We have used the indirect method to prepare the statement
of cash flows. Cash flows in foreign currencies have been
translated at transaction rates. Exchange rate differences
affecting cash items are presented separately in the
statement of cash flows. Receipts and payments with
respect to income tax are included in cash from operating
activities. Interest payments are included in cash from
operating activities, while interest receipts are included
in cash from investing activities. The costs of acquisition
of subsidiaries, associates and joint ventures, and other
investments, 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. Acquisitions of
non-controlling interests are reported in cash from financing
activities. Cash flows from derivatives are recognized 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 dividing
the profit or loss attributable to holders of our common
shares by the weighted average number of common shares
outstanding during the period. Diluted EPS is calculated
by dividing the profit or loss attributable to shareholders
of common shares by the weighted average number
of common shares outstanding, including the effects for
potentially dilutive common shares, which comprise 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 Executive Committee, the body that was our chief
operating decision maker during 2012. 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 Executive Committee to make decisions about
114 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
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 Executive Committee 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
functional currency using the foreign exchange rate at
transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated into
the functional currency using the exchange rates at the
balance sheet date. Resulting foreign currency differences
are included in the statement of income. Non-monetary
assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate
at acquisition date.
The assets and liabilities of entities with other functional
currencies are translated into the 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 other
comprehensive income. These 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 permanent
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.
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:
US dollar
Pound sterling
Swedish krona
Chinese yuan
Balance sheet Statement of income
2011
1.291
0.838
8.944
8.127
2012
1.319
0.816
8.593
8.217
2011
1.392
0.868
9.030
9.001
2012
1.285
0.811
8.705
8.109
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.
Post-retirement benefits (Note 3, 14)
Contributions to defined contribution plans are recognized
in the statement of income as incurred.
Foreign currency differences arising on the re-translation
of a financial liability designated as a hedge of a net
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.
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, 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
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
115
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.
Interest on the defined benefit obligation for both
pensions and other post-retirement benefits net of the
expected return on plan assets is included in financing
expenses related to pensions. Other charges and benefits
recognized are reported in operating income.
Other employee benefits (Note 3, 15)
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 discount rate is the yield at reporting date of AA-rated
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 3)
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 ultimately
receive depends for 50 percent on our relative Total
Shareholder Return (TSR) performance over a three-year
period compared with the peer group and for 50 percent
on the ranking of the company in the Sustainability Asset
Management (SAM) benchmark.
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 of the
performance-related shares for which vesting is based on
the company’s SAM ranking, is the value of the Akzo Nobel
N.V. common share on the date of the grant. The fair value
for the TSR-linked vesting condition is measured using the
Monte Carlo simulation model. 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 5)
Income tax expense comprises both current and deferred
tax, including effects of changes in tax rates. In determining
the amount of current and deferred tax we also take into
account the impact of uncertain tax positions and whether
additional taxes and interest may be due.
Income tax is recognized in the statement of income, unless
it relates to items recognized in other comprehensive income.
The income tax consequences of dividends are recognized
when a liability to pay the dividend is recognized.
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.
Deferred tax is recognized using the balance sheet method,
providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting and
the amount used for taxation purposes. We 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. Deferred tax assets are 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. 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, could change in the near term if future estimates
of projected taxable income during the carry forward period
are revised.
Current and deferred tax assets and liabilities have been
offset in cases where there is a legally enforceable right for
such set off and they relate to income taxes levied by the
same taxation authority on the same taxable entity, or on
different taxable entities which intend either to settle current
tax on a net basis or their tax assets and liabilities will be
realized simultaneously.
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.
116 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
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 6)
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.
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 operating income/
(expenses) in the statement of income. Any contingent
consideration to be transferred will be recognized at fair
value at the acquisition date.
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. The
effects of all transactions with non-controlling interests are
recorded in equity if there is no change in control; these
transactions will not result in goodwill. 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 licenses,
know-how, 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 ten to forty
years. Development and software 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,
consultancy, licenses, direct labor and overhead costs
that are directly attributable to preparing the asset for its
intended use. Capitalized development and software 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 7)
Property, plant and equipment are valued at cost less
accumulated depreciation and impairment charges.
Costs include expenditures that are directly attributable
to the acquisition of the asset, including financing
expenses of capital investment projects under
construction. Government grants to compensate
for the cost of an asset are deducted from the cost
of the related asset.
Depreciation is calculated using the straight-line method,
based on the estimated useful life. In the majority of cases
the useful life of plant equipment and machinery is ten
years, and for buildings ranges from 20 to 30 years. Land
is not depreciated. In the majority of cases residual value is
assumed to be insignificant. Depreciation methods, useful
lives and residual values are reassessed annually.
Parts of property, plant and equipment that have
different useful lives are accounted for as separate
items of property, plant and equipment. Costs of major
maintenance activities are 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 6, 7)
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 goodwill and then to the
carrying amount of the other assets on a pro rata basis.
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
117
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 7, 19)
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
interest expenses and the reduction of the outstanding
liability. The interest expenses are recognized as other
financing expenses 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.
Associates and joint ventures (Note 18)
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.
Inventories (Note 10)
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 13)
When share capital recognized as equity is repurchased, the
amount of the consideration paid, which includes directly
attributable cost, is net of any tax effects, and is recognized
as a deduction from equity. Dividends are recognized as a
liability in the period in which they are declared.
Provisions (Note 15)
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 other 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
• 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 22)
Derivative financial instruments include forward exchange
contracts, interest rate derivatives and commodity contracts,
as well as non-closely related embedded derivatives
included in normal business contracts. All derivative
financial instruments are recognized at fair value on the
balance sheet.
118 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
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 attributable to the hedged
risk 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 highly probable 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.
Other financial non-current assets (Note 9)
Loans and receivables are measured at amortized
cost using the effective interest method, less any
impairment losses.
Trade and other receivables (Note 11)
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 12)
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 16, 17, 22)
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 expense 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 interest at the reporting date.
Trade and other payables (Note 18)
Trade and other payables are measured at amortized cost,
using the effective interest method.
New IFRS accounting standards
IFRSs and interpretations thereof not yet in force
have been assessed for their potential impact on our
consolidated financial statements for 2013 and beyond.
Amendments to IAS 19, Employee benefits
The amendments to IAS 19 “Employee Benefits” have
become effective as of January 1, 2013 and will be applied
in our 2013 financial reports. The amendments include the
requirement that actuarial gains and losses are recognized
in other comprehensive income, thus removing the corridor
method which we have applied so far. In addition, the
expected return on plan assets recognized in the statement
of income is calculated based on the rate used to discount
the defined benefit obligation, instead of applying an
expected rate of return on plan assets, as is required up
until our financial statements 2012.
As from 2013, we will recognize administration costs as
expense as incurred with the exception that administration
costs related to the management of plan assets will be
recorded in other comprehensive income. In addition, past
service costs will be recognized in the statement of income
in full as incurred.
We have made a preliminary assessment of the effect of the
implementation of these amendments on our consolidated
financial statements for 2012. The outcome of this
preliminary assessment is disclosed in Note 14.
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
119
Published
Implementation date in the standard
Endorsed by the
European Union
Anticipated impact
Other new IFRS accounting standards
Standard
IFRS 9
Financial
Intruments
Amendments to IAS 32
Financial Instruments: Presen-
tation – Offsetting Financial
Assets and Financial Liabilities
IFRS 10
Consolidated Financial
Statements
November 12, 2009 and
subsequent amendments on
December 16, 2011
January 1, 2015, earlier adoption permitted
Postponed
December 16, 2011
January 1, 2014
December 29, 2012
May 12, 2011
January 1, 2013; under EU endorsement
postponed to January 1, 2014, with earlier
adoption permitted
December 29, 2012
IFRS 11 Joint Arrangements
May 12, 2011
IFRS 12 Disclosure of Interests
in Other Entities
May 12, 2011
January 1, 2013; under EU endorsement
postponed to January 1, 2014, with earlier
adoption permitted
January 1, 2013; under EU endorsement
postponed to January 1, 2014, with earlier
adoption permitted
December 29, 2012
December 29, 2012
IFRS 13 Fair Value
Measurement
May 12, 2011
January 1, 2013
December 29, 2012
Amendments to IAS 27,
Separate Financial Statements
May 12, 2011
May 12, 2011
Amendments to IAS 28,
Investments in Associates
and Joint Ventures
Amendments to IAS 1,
Presentation of Financial
Statements
January 1, 2013; under EU endorsement
postponed to January 1, 2014, with earlier
adoption permitted
January 1, 2013; under EU endorsement
postponed to January 1, 2014, with earlier
adoption permitted
December 29, 2012
December 29, 2012
June 16, 2011
January 1, 2013
June 5, 2012
120 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
IFRS 9 introduces 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 the next years, we will review
the effects of a comprehensive standard on financial instruments and consider adoption
when appropriate.
These amendments clarify that the right to offset must not be contingent on a future
event; and must be legally enforceable. We will assess the effect of this standard on our
consolidated financial statements during 2013.
This standard addresses the accounting of joint arrangements and eliminates proportionate
consolidation. As we do not apply this method, there is no impact on our consolidated
financial statements from the elimination of proportionate consolidation. We will assess any
further effect of this standard on our consolidated financial statements during 2013.
This standard addresses the accounting of joint arrangements and eliminates proportionate
consolidation. As we do not apply this method, there is no impact on our consolidated
financial statements from the elimination.
This standard contains the disclosure requirements for interests in subsidiaries, joint
ventures, associates and other unconsolidated interests. It may affect some disclosures in
our consolidated financial statements.
IFRS 13 replaces the fair value measurement guidance contained in existing IFRS with
a single source of fair value measurement guidance. Except for certain pension plan
assets, this standard is not expected to materially impact our consolidated financial
statements. In 2013 we will assess the final effect of this standard on our consolidated
financial statements.
These amendments address the requirements for separate financial statements (which are
not the company financial statements). As we do not prepare separate financial statements,
this standard is not applicable.
These amendments address the criteria and measurement of associates and joint
ventures that qualify as held for sale. It is not expected to materially affect our
consolidated financial statements.
These amendments concern a requirement to group items presented in other
comprehensive income on the basis of potential reclassification to profit or loss.
As the amendments do not address which items are presented in other comprehensive
income, they will only affect the order of items in the disclosures in our consolidated
financial statements.
2
Note 2: Scope of consolidation
In early 2012, we acquired 100 percent of Boxing Oleo-
chemicals in Specialty Chemicals – the leading supplier
of nitrile amines and derivatives in China and throughout
Asia. On December 28, 2012, we completed the divest-
ment of Chemicals Pakistan, which was subsequently
deconsolidated. This divestment resulted in a loss of €36
million, due to foreign currency translation differences in
equity which need to be transferred to the statement of
income at divestment.
The acquisitions in 2012 both individually and in total,
were deemed immaterial in respect of IFRS 3 disclosure
requirements. Pre-acquisition carrying amounts were
not gathered. Revenue in 2012 was impacted by
acquisitions for an amount of €236 million.
In 2012, the scope of consolidation for the Consolidated
financial statements encompassed 396 companies
(2011: 435). Of this number, 9 companies were first-time
consolidations (2011: 15). Since the beginning of 2012,
48 companies were deconsolidated due to divestment,
merger, liquidation or immateriality (2011: 36). First-
time consolidations in 2012 comprised 4 companies
in conjunction with the acquisition of Boxing.
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.
Recognized values at acquisition
In € millions
Goodwill
Other intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Provisions
Deferred tax assets/(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 2013 and later years
Payments related to previous years
Net cash outflow
Boxing
Other
acquisitions
48
27
29
17
18
10
–
(7)
(3)
(34)
105
–
105
(10)
(26)
–
69
10
(3)
2
3
6
–
(1)
4
–
–
21
–
21
–
(1)
5
25
Total
58
24
31
20
24
10
(1)
(3)
(3)
(34)
126
–
126
(10)
(27)
5
94
Changes in scope of consolidation
Number of subsidiaries
Consolidated companies as of
January 1
First-time consolidations
Deconsolidations
Consolidated as of December 31
2011
456
Europe
243
15
(36)
435
4
(23)
224
North
America
Latin
America
Asia
Pacific
Other
countries
24
35
114
19
–
(2)
22
1
(7)
29
4
(15)
103
–
(1)
18
2012
435
9
(48)
396
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
121
Assets and liabilities held for sale
Discontinued operations
In € millions
Property, plant and equipment
Intangible assets
Other assets
Total assets
Total non-current liabilities
Total current liabilities
Total liabilities
2012
187
377
357
921
117
193
310
Discontinued operations
In December 2012, we announced the divestment of the
North American Decorative Paints business. The operating
results for 2012 were a loss of €417 million after taxes. This
includes the goodwill impairment charge of €372 million,
recorded in the third quarter of 2012. We assessed the
carrying value of the assets of Decorative Paints North
America in light of the divestments and concluded that no
impairment is necessary.
For 2012, we also incurred €19 million related to further
settlements and tax-related costs from the divestments
of businesses (Organon BioSciences, ICI businesses
we acquired for resale to Henkel, National Starch) in
previous years.
In € millions
Revenue
Expenses
Impairment
Results from operating activities
Income tax
Results from operating activities after tax
Results related to discontinued operations in previous years
Tax related to discontinued operations in previous years
Profit for the period/(loss)
Cash flows from discontinued operations
In € millions
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Net cash from discontinued operations
2011
1,094
(1,200)
–
(106)
39
(67)
(3)
11
(59)
2011
(73)
(23)
–
(96)
2012
1,190
(1,255)
(372)
(437)
20
(417)
(16)
(3)
(436)
2012
(27)
(26)
–
(53)
122 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
3
Note 3: Operating income
Costs per category
In € millions
Cost of sales
Impairment
Selling expenses
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Subtotal
Discontinued operations
Total
Employee
2011
Employee
2012
benefits Amortization Depreciation
Incidentals
benefits Amortization Depreciation
Incidentals
(935)
–
(989)
(611)
(230)
–
(2,765)
–
(2,765)
(9)
–
(98)
(30)
(7)
–
(144)
(26)
(170)
(314)
–
(58)
(35)
(14)
–
(421)
(30)
(451)
(50)
–
(64)
(24)
(9)
21
(996)
–
(1,097)
(724)
(247)
–
(126)
(3,064)
–
–
(126)
(3,064)
(6)
–
(118)
(30)
(8)
–
(162)
(26)
(188)
(339)
–
(78)
(38)
(18)
–
(473)
(30)
(503)
(118)
(2,106)
(135)
(93)
(12)
(56)
(2,520)
–
(2,520)
Incidental items
In 2012, we incurred higher restructuring costs mainly
in mature markets, as we implement the performance
improvement program. Restructuring activities are ongoing
across the businesses, but in particular, we stepped up
restructuring in the European businesses in Decorative Paints.
In 2011, the incidental gains and losses related, besides
restructuring charges of €129 million, mainly to results
from acquisitions and divestments (Schramm, Boxing)
and a release from an antitrust provision.
Employee benefits income
Salaries, wages and other employee benefits in
operating income
In € millions
Salaries and wages
Pension and other post-retirement cost
Other social charges
Total
2011
(2,106)
(247)
(412)
2012
(2,354)
(294)
(416)
(2,765)
(3,064)
Revenue and cost by nature
Employees
In € millions
Revenue
Variable selling cost
Materials and energy
Amortization & Depreciation
Employee benefits
Impairment
Other
Operating income
2011
14,604
(712)
(7,193)
(565)
(2,765)
–
(2,224)
1,145
2012
15,390
(709)
(7,552)
(635)
(3,064)
(2,106)
(2,568)
(1,244)
Average number during the year
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2011
17,100
21,300
11,300
1,400
51,100
2012
17,200
21,700
11,800
1,500
52,200
At year-end 2012, we employed 50,610 staff for ongoing
activities (year-end 2011: 52,020 employees). The net
increase was due to:
• A net decrease of 540 due to acquisitions and
divestments, mainly from the Boxing acquisition
(620 employees) and the divestment of Chemicals
Pakistan (1,100 employees).
• A decrease of 1,450 employees due to ongoing
restructuring.
• An increase of 580 employees, mainly due to new
hires in high growth markets.
The average number of employees working outside
the Netherlands was 47,100 (2011: 46,100).
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
123
Share-based compensation
Share-based compensation relates to the performance-
related share plan. Charges recognized in the 2012
statement of income for share-based compensation
amounted to €43 million and are included in salaries
and wages (2011: €32 million). Under the performance-
related share plan, a number of conditional shares are
granted to the members of the Board of Management,
members of the Executive Committee and executives
each year. The number of participants of the performance-
related share plan at year-end 2012 was 656 (2011: 636).
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 a peer group. As from the series 2011-2013, the
grant is linked for 50 percent to the Sustainable Asset
Management (SAM) benchmark.
Performance-related shares
The shares of the series 2009-2011 have vested and were
delivered to the participants in 2012.
The conditional shares vested in 2012 as follows:
• our TSR performance over 2010-2012 series resulted
in an 11th position within the ranking of the peer
group companies. This did not result in vesting of
conditional shares
• the average position in the DJSI benchmark resulted
in a 1.67th position within the ranking
As a result, the conditional shares of the 2010-2012
series vested for 66.67 percent (series 2009-2011:
62.5 percent), including dividend shares of 10.42 percent,
the final vesting percentage amounted to 73.61 percent
(series 2009-2011: 69.80 percent).
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 fair value was
€38.79 per performance-related share (without a holding
restriction) conditionally granted in 2012 (2011: €46.91).
The share price of a common AkzoNobel share at
year-end 2012 amounted to €49.75 (2011: €37.36).
For further details on our performance-related share
plan, refer to the Remuneration report.
Series
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
Total
Balance per
January 1,
2012
755,484
780,400
866,104
Granted in
2012
Vested in
2012
Forfeited in
2012
Dividend in
2012 1
Balance at
December
31, 2012
Vested on
January 1,
2013
–
(755,484)
–
–
–
–
2,234
1,214
–
1,043,250
–
–
–
(274,637)
29,003
537,000
537,000
(8,100)
(7,895)
32,121
891,339
38,929
1,074,284
–
–
2,401,988
1,046,698
(755,484)
(290,632)
100,053
2,502,623
537,000
1 Equivalent in shares related to accumulated dividend, which is included in the balances on balance sheet date.
124 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Stock option plans
Prior to 2008, performance-related stock options were
granted to members of the Board of Management and
executives. We have not purchased own shares in
connection with the stock option plan. the stock options
are equity-settled and all exercisable.
For stock options exercised during 2012, the weighted
average of the actual share price at date of exercise
amounted to €43.21 (2011: €49.71). A number of
0.5 million of outstanding stock options are non-dilutive
but could potentially dilute basic earnings per share in
the future.
Stock options
Year of issue
2002
2005
2006
2007
Total
Exercise
price in €
46.53
31.98
46.46
58.89
Outstanding
per January
1, 2012
107,250
Exercised in
2012
Expired in
2012
Forfeited in
2012
–
(107,250)
202,760
(202,135)
(625)
397,478
496,489
(39,842)
–
–
–
1,203,977
(241,977)
(107,875)
Outstanding
at December
31, 2012
–
–
357,636
496,489
854,125
Expiry date
April 25, 2012
April 24, 2012
April 26, 2013
April 26, 2014
–
–
–
–
–
Number and weighted average exercise price
stock options
Balance at January 1, 2011
Forfeited during the period
Exercised during the period
Number of
options
1,611,181
(12,205)
(394,999)
Balance at December 31, 2011
1,203,977
Expired during the period
Exercised during the period
Balance at December 31, 2012
(107,875)
(241,977)
854,125
Weighted
average exercise
price in €
45.80
47.69
35.53
49.15
46.45
34.36
53.69
4
Note 4: Financing income and expenses
Financing income and expenses
In € millions
Financing income
Financing expenses
Net interest on net debt
Other interest movements
Financing expenses related to pensions
Interest on provisions
Other items
Net other financing charges
Net financing expenses
2011
57
(302)
(245)
(57)
(46)
12
(91)
(336)
2012
59
(239)
(180)
(65)
(29)
7
(87)
(267)
Net financing charges for the year decreased by
€69 million from €336 million to €267 million. Significant
variances are:
• Financing expenses on net debt decreased by
€63 million to €239 million (2011: €302 million) mainly
due to a reported loss of €67 million on buy-back of
bonds in December 2011
• Interest on provisions decreased by €17 million to
€29 million (2011: €46 million) due to higher discount
rates applied in 2012
• Financing expenses related to pensions increased by
€8 million to €65 million (2011: €57 million) due to lower
expected return on assets
• Other items decreased by €5 million to €7 million (2011:
€12 million), mainly explained by lower interest on
discounted long term receivables (€3 million)
A reduction of €8 million (2011: €4 million) was included in
the interest expenses of capital investment projects under
construction. The average interest rate used for capitalization
of these borrowing costs was 6.1 percent.
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
125
5
Note 5: Income tax
Pre-tax income from continued operations amounted to a
loss of €1,498 million (2011: profit €833 million). The net
tax charges related to continuing operations are included
in the statement of income as follows:
adjustments to prior years and by tax-exempt gains,
the main one being a release of an antitrust provision. In
addition, the geographical mix of taxable income affected
the tax burden.
The impact of non-refundable withholding tax is dependent
on the relative share of our profit from countries that levy
withholding tax on dividends and on the timing of the
remittance of such 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.
The impact for 2012 is exceptionally high because of an
anticipated extraordinary dividend.
Deferred tax assets and liabilities
In the deferred tax asset for other provisions (€326 million),
an amount of €189 million (2011: €213 million) is related
to interest expense carried forward. From the total amount
of recognized net deferred tax assets, €527 million (2011:
€513 million) is related to entities that have suffered a
loss in either 2012 or 2011 in the tax jurisdiction to which
a deferred tax asset relates, and where utilization is
dependent on future taxable profit in excess of the profit
arising from the reversal of existing taxable temporary
differences. Deferred tax assets not recognized on the
balance sheet are partly related to capital losses which
cannot be offset against operational taxable profits.
Effective consolidated tax rate
Income tax recognized directly in equity
in %
Corporate tax rate in the Netherlands
Effect of different 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 for which no
deferred tax asset was recognized
Under/(over)-provided in prior years
Non-refundable withholding taxes
Other
Effective consolidated tax rate1
1 Excluding impairment.
2011
25.0
3.9
0.2
(0.7)
(0.9)
(0.1)
0.3
0.0
(1.1)
1.4
–
28.0
2012
25.0
3.8
3.2
(0.7)
0.4
(0.8)
1.5
(0.2)
(5.1)
4.7
(0.1)
31.7
In € millions
Current tax for
Currency exchange differences on
intercompany loans of a permanent
nature
Deferred tax for
Share-based compensation
Hedge accounting
Currency exchange differences on
intercompany loans of a permanent
nature
Total
Unrecognized deferred tax assets
In € millions
Capital losses
Tax losses
Deductible temporary differences
Total
2011
2012
(3)
(3)
(3)
17
(5)
9
6
2011
268
23
124
415
4
4
–
(1)
2
1
5
2012
267
21
123
411
Classification of current and deferred tax result
In € millions
2011
2012
Current tax expense for
The year
Adjustments for prior years
Deferred tax expense for
Origination and reversal of temporary
differences and tax losses
Changes in tax rates
Tax losses recognized or unrecognized
Total
(229)
9
(220)
(21)
7
1
(13)
(233)
(257)
31
(226)
51
(2)
5
54
(172)
The total tax charge, including discontinued operations
was €155 million (2011:€183 million).
Effective tax rate reconciliation
The effective income tax rate based on the consolidated
statement of income is 11 percent negative. It is negative
because a tax charge was recorded despite a loss
incurred for the period, mainly attributable to the largely
non-tax-deductible impairment charges.
Excluding the impairment loss on intangibles of
€2,106 million, pre-tax income totaled a profit of
€608 million. The tax expense excluding the impairment
of intangibles amounted to €193 million, thus resulting
in an effective consolidated tax rate of 31.7 percent.
The effective tax rate in 2012 was affected by several
adjustments to prior years. In addition, the geographical
mix of taxable income affected the tax charge. The
effective tax rate in 2011 was affected by several
126 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
The loss carryforward recognized in the balance sheet and
its usage in the coming years has a decreasing impact on
the cash tax rate in coming years.
Loss carryforwards recognized in the balance sheet
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total
2013
821
(751)
70
2014
20
(7)
13
2015
31
(13)
2016
50
(26)
2017
66
(38)
Later
Unlimited
326
(7)
2,150
(16)
Total
3,464
(858)
18
24
28
319
2,134
2,606
Movement in deferred tax in 2011
In € millions
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based payments
Provisions for post-retirement benefits
Restructuring provisions
Other provisions
Other items
Net operating loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
Net balance
January 1,
2011
Changes in
exchange
rates
Acquisitions/
divestments
Recognized
in income
Recognized in
equity
Net balance
December
31, 2011
Assets
Liabilities
(713)
(96)
28
2
11
134
14
331
150
752
(408)
205
–
205
(5)
1
–
1
–
(1)
–
8
1
27
(14)
18
–
18
(19)
(4)
–
2
–
–
–
–
–
5
–
(16)
–
(16)
36
5
1
9
4
(77)
1
(26)
15
55
7
30
–
30
–
–
–
–
(3)
–
–
–
12
–
–
9
–
9
(701)
(94)
29
14
12
56
15
313
178
839
(415)
246
–
246
61
62
33
31
12
247
15
345
194
839
(415)
1,424
(611)
813
762
156
4
17
–
191
–
32
16
–
–
1,178
(611)
567
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
127
Movement in deferred tax in 2012
In € millions
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Share-based payments
Provisions for post-retirement benefits
Restructuring provisions
Other provisions
Other items
Net operating loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
Net balance
January 1,
2012
Changes in
exchange
rates
Acquisi-
tions/divest-
ments
Recognized
in income
Recognized
in equity
Held for
sale
Net balance
December
31, 2012
Assets
Liabilities
(701)
(94)
29
14
12
56
15
313
178
839
(415)
246
–
246
12
–
–
–
–
(7)
–
(4)
(2)
(1)
9
7
–
7
(6)
10
–
–
–
–
–
–
–
(1)
1
4
–
4
65
28
–
9
3
(133)
14
(25)
9
105
(6)
69
–
69
–
–
–
–
–
–
–
–
–
1
–
1
–
1
83
9
(5)
(2)
–
(11)
(2)
(7)
(4)
–
–
61
–
61
(547)
(47)
24
21
15
(95)
27
277
181
943
(411)
388
–
388
71
84
27
26
15
223
28
320
214
943
(411)
1,540
(710)
830
618
131
3
5
–
318
1
43
33
–
–
1,152
(710)
442
128 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
6
Note 6: Intangible assets
Intangible assets
In € millions
Balance at January 1, 2011
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
Movements in 2011
Acquisitions through business combinations
Other investments – including internally developed intangibles
Amortization1
Changes in exchange rates
Total movements
Balance at December 31, 2011
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2011
Movements in 2012
Acquisitions through business combinations
Other investments – including internally developed intangibles
Transfer assets held for sale
Divestments
Impairment
Amortization1
Changes in exchange rates
Total movements
Balance at December 31, 2012
Acquisition cost
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2012
1 Including Decorative Paints North America.
Goodwill
Brands
Customer
lists
Other
intangibles
4,834
2,465
1,168
–
(1,015)
3,819
–
(142)
2,323
49
1
–
(4)
46
10
–
(18)
39
31
–
(349)
819
74
–
(107)
7
(26)
4,890
2,514
1,256
–
(1,025)
3,865
58
(6)
(96)
(40)
(2,450)
–
21
–
(160)
2,354
1
–
(180)
–
(27)
(19)
(11)
(2,513)
(236)
–
(463)
793
16
–
(76)
(2)
(6)
(112)
(18)
(198)
4,102
2,226
1,030
–
(2,750)
1,352
–
(108)
2,118
–
(435)
595
452
46
(151)
347
15
54
(45)
9
33
431
141
(192)
380
7
79
(25)
(1)
–
(57)
6
9
445
166
(221)
389
Total
8,919
46
(1,657)
7,308
148
55
(170)
51
84
9,091
141
(1,840)
7,392
82
73
(377)
(43)
(2,483)
(188)
(2)
(2,938)
7,803
166
(3,514)
4,454
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
129
Goodwill and other intangibles per segment
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Discontinued operations
Total
Brands with indefinite
useful lives
Other intangibles with finite
useful lives
Total intangibles
2011
2,079
678
655
453
Goodwill
2012
17
686
649
–
2011
1,904
–
25
–
2012
1,881
–
–
–
2011
2012
453
354
493
298
398
330
493
–
3,865
1,352
1,929
1,881
1,598
1,221
2011
4,436
1,032
1,173
751
7,392
2012
2,296
1,016
1,142
–
4,454
Average revenue growth rates per forecast period
In % per year
Decorative Paints
Performance Coatings
Specialty Chemicals
2013-2017
2018-2022
5.2
5.1
4.8
4.0
3.1
2.5
Dulux is the major brand with an indefinite useful life,
due to its global presence, high recognition and strategic
nature. Other intangibles include licenses, know-
how, intellectual property rights, emission rights and
development cost. Both at year-end 2012 and 2011, there
were no purchase commitments for individual 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
impairment trigger exists. The economic circumstances
triggered an impairment test in Q3. We have undertaken
a prudent review, excluding restructuring effects, of
the balance sheet, taking into account lower expected
growth rates. This has resulted in a non-cash impairment
charge against our Decorative Paint assets, primarily in
Europe. In Europe, we recognized an impairment charge
of €1,948 million and in South America €158 million. The
total of €2,106 million is disclosed on a separate line in
the consolidated statement of income. The impairment
of Decorative Paints North America of €372 million is
included in results from discontinued operations.
The impairment test is based on cash flow projections
of the five-year plan. The key assumptions used in the
projections are:
• Revenue growth: based on actual experience,
an analysis of market growth and the expected
development of market share
• Margin development: based on actual experience
and management’s long-term projections
Revenue growth and margin development projections
are extrapolated beyond this five-year explicit forecast
period for another five years with reduced growth rates.
For virtually all business units, a terminal value was
calculated using a long-term average market growth rate
that did not exceed 2 percent. The estimated pre-tax cash
flows are discounted to their present value using a pre-tax
weighted average cost of capital. The discount rates
are determined for each business unit and range from
8.6 percent to 14.3 percent, with a weighted average
of 9.9 percent.
Reducing growth assumptions by 50 percent maintains
comfortable headroom in all businesses, except for those
which were impaired. We have calculated the sensitivity
for 50 percent lower growth or a one percentage
point higher discount rate. The combined effect of
the Decorative Paints businesses in Europe and Latin
America would result in a recoverable amount around
€180 million to €375 million below the carrying amount.
130 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
7
Note 7: Property, plant and equipment
Property, plant and equipment
In € millions
Balance at January 1, 2011
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
Movements in 2011
Acquisitions through business combinations
Divestments
Capital expenditures
Transfer between categories
Depreciation 1
Impairment
Changes in exchange rates
Total movements
Balance at December 31, 2011
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2011
Movements in 2012
Acquisitions through business combinations
Transfer to assets held for sale
Divestments
Capital expenditures
Transfer between categories
Depreciation 1
Impairment
Changes in exchange rates
Total movements
Balance at December 31, 2012
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2012
1 Including Decorative Paints North America.
Capital expenditures
• In Decorative Paints, we are investing to expand our
production capacity to meet the growing demand of
China’s western region
• In Performance Coatings, we are investing in multiple
projects, with the largest being the increase in the
production capacity of our Automotive and Aerospace
Coatings business in China to meet rising demand
• In Specialty Chemicals, we are investing in facilities
being built in Brazil to supply the world’s largest pulp mill
in Eldorado as well as a pulp mill in Suzano. We are also
investing in Ningbo, China, and in our chlorine plant in
Frankfurt, Germany, to convert to membrane electrolysis
technology
Impairments
In 2012, impairment charges have been recognized for an
amount of €34 million (2011: €8 million). The impairment
charges have been recognized in the cost of sales. The
impairment charges related to restructuring activities in,
among others, the US, Germany, Mexico and Italy.
Commitments
The carrying value of the property, plant and equipment
financed by hire purchase and leasing and not legally
owned by the company was €52 million (2011: €9 million)
which is related to buildings and land, €1 million
to plant and equipment and machinery. Purchase
commitments for property, plant and equipment totaled
€89 million (2011: €49 million).
Plant
equipment
and
machinery
Buildings
and land
Other
equipment
Construction
in progress
and
prepayments
on projects
Assets not
used in the
production
process
2,254
(1,059)
1,195
5,654
(3,908)
1,746
42
(26)
110
–
(80)
(2)
4
48
27
(1)
365
(7)
(313)
(6)
21
86
2,330
(1,087)
1,243
5,906
(4,074)
1,832
7
(82)
5
62
31
(89)
(10)
(10)
(86)
19
(88)
(64)
327
64
(345)
(11)
(14)
(112)
2,295
(1,138)
1,157
5,943
(4,223)
1,720
664
(508)
156
6
(1)
81
9
(57)
–
–
38
750
(556)
194
1
–
(5)
91
2
(68)
(6)
5
20
818
(604)
214
279
–
279
1
(1)
151
(2)
–
–
–
149
428
–
428
4
(15)
(22)
371
(100)
–
(5)
(21)
212
648
(8)
640
33
(25)
8
–
(1)
1
–
(1)
–
1
–
28
(20)
8
–
(2)
1
1
3
(1)
(2)
–
–
30
(22)
8
Total
8,884
(5,500)
3,384
76
(30)
708
–
(451)
(8)
26
321
9,442
(5,737)
3,705
31
(187)
(85)
852
–
(503)
(34)
(40)
34
9,734
(5,995)
3,739
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
131
8
Note 8: Investments in associates and joint ventures
9
Note 9: Other financial non-current assets
Other financial non-current assets
In € millions
Loans and receivables
Other than financial instruments
Total
2011
294
893
1,187
2012
287
1,461
1,748
The loans and receivables include the subordinated
loan of €75 million granted to the 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 €133 million, invested in bonds and
cash. Under certain conditions, the minimum annual
funding of this pension fund from the escrow account
is £25 million (€31 million).
Other financial non-current assets include an amount of
€1,292 million related to pension plans in an asset position
(2011: €712 million).
At year-end 2012, the carrying value of investments in
associates amounted to €83 million (2011: €90 million)
and in joint ventures €102 million (2011: €108 million).
In 2012, the results from associates and joint ventures
amounted to a profit of €13 million (2011: €24 million).
No significant contingent liabilities exist related to
associates and joint ventures.
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).
Summary of financial information on a 100 percent basis
In € millions
2011
2012
2011
2012
Associates
Joint ventures
Condensed statement of income
Revenue
Income before tax
Net income
Condensed balance sheet
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Shareholders’ equity
Total liabilities and equity
113
15
10
101
128
229
38
29
162
229
126
18
12
116
77
193
41
28
124
193
673
39
29
191
192
383
92
79
212
383
545
14
9
183
158
341
89
49
203
341
132 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
10
Note 10: Inventories
11
Note 11: Trade and other receivables
Of the total carrying value of inventories at year-end 2012,
€50 million is measured at net realizable value (2011:
€68 million). In 2012, €39 million was recognized in the
statement of income for the write-down of inventories
(2011: €25 million), while €28 million of write-downs were
reversed (2011: €17 million). There are no inventories
subject to retention of title clauses.
Inventories
In € millions
Raw materials and supplies
Work in progress
Finished products and goods for resale
Inventory prepayments
Total
2011
649
91
1,177
7
1,924
2012
519
81
944
1
1,545
Trade and other receivables
Allowance for impairment of trade receivables
In € millions
Trade receivables
Prepaid expenses
Tax receivables other than income tax
Receivables from associates and
joint ventures
FX and commodity contracts
Other receivables
Total
2011
2,370
2012
2,174
In € millions
Opening balance
123
154
39
28
223
72
172
31
16
233
Additions charged to income
Release of unused amounts
Acquisition/divestment
Utilization
Transfer to assets held for sale
Currency exchange differences
2,937
2,698
Closing balance
2011
114
36
(14)
6
(32)
–
(2)
108
2012
108
46
(18)
(3)
(25)
(6)
(2)
100
Trade receivables are presented net of an allowance for
impairment of €100 million (2011: €108 million). In 2012,
€46 million of impairment losses were recognized in the
statement of income (2011: €36 million).
The addition to and release of the allowance for
impairment 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 trade receivables. We do not have a significant
customer concentration.
Ageing of trade receivables
In € millions
Performing accounts receivable
Past due accounts receivables
and not impaired
< 3 months
3 – 6 months
6 – 9 months
9 – 12 months
> 12 months
Impaired accounts receivables
Allowance for impairment
Total trade receivables
2011
2,092
227
10
4
–
2
143
(108)
2,370
2012
1,903
226
11
–
–
3
131
(100)
2,174
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 2012 | Financial statements | Notes to the consolidated financial statements
133
12
Note 12: Cash and cash flows
13
Note 13: Group equity
Cash and cash equivalents
In € millions
Short-term investments
Cash on hand and in banks
Included under cash and cash
equivalents in the balance sheet
Debt to credit institutions
Total per cash flow statement
2011
343
1,292
1,635
(300)
1,335
2012
301
1,451
1,752
(194)
1,558
Short-term investments almost entirely consist of cash
loans, time deposits, marketable private borrowings and
marketable securities immediately convertible into cash. For
more information on credit risk management, see Note 22.
At December 31, 2012, an amount of €119 million in cash
and cash equivalents was restricted (2011: €125 million).
Restricted cash is defined as cash that cannot be accessed
centrally due to regulatory or contractual restrictions.
Changes in working capital
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
Changes in provisions
In € millions
Pension provisions
Restructuring
Other provisions
Total
2011
(160)
(210)
39
(331)
2011
(403)
–
(81)
(484)
2012
(18)
108
161
251
2012
(607)
51
(132)
(688)
Cash flow and net debt
Operating activities in 2012 resulted in a cash inflow of
€737 million (2011: €396 million). The change is mainly
due to a net effect of:
• Higher cash inflow from working capital,
which was mainly realized in Q4
Partly offset by:
• Higher payments related to provisions
(mainly in relation to pensions)
Net debt increased in 2012 to €2,298 million (2011:
€1,895 million) as higher cash flows from operating
activities were more than offset by higher capital
expenditures.
Composition of share capital at year-end
In €
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)
Authorized
share capital
Subscribed
share capital
19,200
19,200
400,000,000
–
1,200,000,000
478,094,904
Total
1,600,019,200
478,114,104
Outstanding common shares
Number of shares
2011
2012
Outstanding at January 1
233,530,454
234,688,341
Issued in connection to stock
options exercised and performance
shares granted
1,157,887
4,359,111
Balance at year-end
234,688,341
239,047,452
Weighted average number of shares
Number of shares
2011
2012
Issued common shares at January 1
233,530,454 234,688,341
Issued common shares during the year
409,553
2,551,704
Shares for basic earnings per
share for the year
233,940,007 237,240,045
Effect of potentially dilutive shares1
For stock options
73,906
12,233
For performance-related shares
1,735,998
2,113,705
Shares for diluted earnings per share
235,749,911 239,365,983
1 All potentially dilutive shares are non-dilutive for 2012 due to the loss.
134 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
2011
2012
Equity stake
Equity stake
%
30.00
€ mln
170
%
30.00
€ mln
170
Swire Pacific Limited, China
Privately held, India
43.60
109
27.04
Privately held, Pakistan
24.19
PT DWI Satrya Utama, Indonesia
45.00
Privately held, Malaysia
40.05
50
44
32
–
45.00
40.05
Non-controlling interests
Group equity
Partner
Akzo Nobel Swire Paints
(Shanghai) Limited,
Shanghai, China
Akzo Nobel India Ltd,
Kolkata, India
ICI Pakistan Limited,
Karachi, Pakistan
PT ICI Paints Indonesia,
Jakarta, Indonesia
ICI Paints (Malaysia) Sdn
Bhd, Kuala Lumpur,
Malaysia
International Paint
(Korea) Ltd, Busan,
South Korea
Kayaku Akzo Corp,
Tokyo Japan
Akzo Nobel Kemipol AS,
Izmir, Turkey
Subscribed share capital
For further details on subscribed share capital, see
Note E in the company financial statements.
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 €1 million negative (2011:
€17 million positive).
Cumulative translation reserves comprise all foreign
exchange differences arising from the translation of
the financial statements of foreign operations, as well
as from the translation of intercompany loans with
a permanent nature and liabilities and derivatives that
hedge the net investments in a foreign subsidiary.
Tax related to exchange differences arising on translation
of foreign operations were €6 million positive (2011:
€8 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 share-based compensation, see Note 3.
IAS 19
As from 2013, the amended IAS 19 on pensions will
become effective. Implementation of this amendment
will result in including the pension deficit in other
comprehensive income in shareholders’ equity.
The impact is disclosed in Note 14.
Akzo Nobel Swire Paints
(Guangzhou) Limited,
China
Swire Pacific Limited, Industrial
Development Co. Ltd of Guanzhou,
China
46.00
26
46.00
Noroo Holdings, South Korea
40.00
20
40.00
Nippon Kayaku Co., Ltd., Japan
25.00
12
25.00
Privately held, Turkey
49.00
Marshall Boya, Dilovasi-
Kocaeli, Turkey
Marshall Employees Foundation,
Privately held, Turkey
11.75
Akzo Nobel Boya Sanayi
ve Ticaret A.S. (PC),
Izmir, Turkey
Akzo Nobel Pakistan
Limited
Others
Total
Privately held, Turkey
25.00
Privately held, Pakistan
49.00
11.75
25.00
24.19
9
6
5
48
531
73
–
38
33
36
24
10
14
6
6
16
39
465
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
135
14
Note 14: Post-retirement benefit provisions
Post-retirement benefit provisions
Post-retirement benefits comprise defined benefit pensions
and other post-retirement benefits, including healthcare or
welfare plans. 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 79 percent of our pension plan defined
benefit obligations. The benefits of these and other plans
are based primarily on years of service and employees’
compensation. The funding policy for the plans is consistent
with local requirements in the countries of establishment.
Obligations under the defined benefit plans are system-
atically provided for by depositing funds with trustees
or separate foundations, under insurance policies, or by
balance sheet provisions. Plan assets principally consist
of long-term interest-earning investments, quoted equity
securities and real estate. Valuations of the obligations
under the pension and other post-retirement plans are
carried out regularly by independent qualified actuaries.
We also provide certain healthcare and life insurance
benefits to retired employees, mainly in the US and
the Netherlands. We accrue for the expected costs
of providing such post-retirement benefits during the
service years of the employees.
In line with our pension risk management policy, in
May 2012 a longevity swap was transacted with a third
party by the AkzoNobel (CPS) Pension Scheme. The
insurance contract covers €1.75 billion of UK pension
liabilities relating to almost 17,000 current pensioners
and their dependants and helps protect AkzoNobel
against future increases in life expectancy. Later in 2012
a program in the US was implemented, offering certain
deferred members payment of benefits as a lump sum
in December 2012. This is expected to reduce employer
contribution requirements into those plans in future years.
A number of smaller pension plans have been curtailed
during the year, including plans in Canada, South Africa
and Pakistan. As a result of the announced Decorative
Paints divestment in 2013, €51 million of post-retirement
balance sheet provisions with an associated funded
status of €111 million are classified as held for sale at
the end of 2012.
Movements in post-retirement benefit provisions
Pensions
Other post-
retirement benefits
In € millions
2011
2012
2011
2012
2011
Total
2012
Defined benefit obligation
Balance at beginning of year
Acquisitions/divestments/transfers
Curtailments
Settlements
Past service cost
Current service costs
Contribution by employees
Interest costs
Benefits paid
Actuarial gains/(losses)
Changes in exchange rates
(14,171)
(15,110)
(394)
(421)
(14,565)
(15,531)
9
–
16
(6)
(51)
(4)
(725)
919
(715)
(382)
34
9
66
(18)
(53)
(4)
(697)
1,024
(1,411)
(304)
–
–
–
(5)
(6)
(2)
(18)
31
(16)
(11)
3
–
–
1
(8)
(2)
(18)
31
(1)
7
9
–
16
(11)
(57)
(6)
(743)
950
(731)
(393)
37
9
66
(17)
(61)
(6)
(715)
1,055
(1,412)
(297)
Defined benefit obligation at year-end
(15,110)
(16,464)
(421)
(408)
(15,531)
(16,872)
Plan assets
Balance at beginning of year
Acquisitions/divestments
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 provisions
Recorded under
Provisions for pensions and other
post-retirement benefits
Other financial non-current assets
Current portion
Held for sale
Total
13,122
14,605
(6)
(16)
502
4
(919)
684
840
394
14,605
(505)
491
5
(3)
–
(12)
(25)
(58)
738
4
(1,024)
650
158
330
15,378
(1,086)
1,671
3
(8)
–
–
–
–
29
2
(31)
–
–
–
–
–
–
–
29
2
(31)
–
–
–
–
(421)
(408)
10
(17)
–
(4)
8
(11)
–
(3)
13,122
14,605
(6)
(16)
531
6
(950)
684
840
394
14,605
(926)
501
(12)
(3)
(4)
(444)
(25)
(58)
767
6
(1,055)
650
158
330
15,378
(1,494)
1,679
(8)
(8)
(3)
166
580
(432)
(414)
(653)
(634)
(400)
(348)
(1,053)
(982)
712
(71)
–
(12)
1,292
(69)
(9)
580
–
(32)
–
(432)
–
(24)
(42)
(414)
712
(103)
–
(444)
1,292
(93)
(51)
166
136 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
DBO at funded and unfunded pension plans
Funded status in earlier years at December 31
In € millions
2011
2012
In € millions
Wholly or partly funded plans
14,812
16,116
Defined benefit obligation
Unfunded plans
Total
298
15,110
348
16,464
Plan assets
Funded status
Pensions
Other post-retirement benefits
2008
(11,468)
10,480
(988)
2009
(13,688)
11,821
(1,867)
2010
(14,171)
13,122
(1,049)
2008
(441)
–
(441)
2009
(393)
–
(393)
2010
(394)
–
(394)
Actuarial gains and losses
In € millions
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
Pensions
Other post-retirement benefits
Defined benefit obligation
Due to experience
Due to change in assumptions
Plan assets
Due to experience
Total
(147)
1,624
(1,445)
32
331
(2,034)
614
(1,089)
(92)
(158)
652
402
(98)
(617)
840
125
22
(1,433)
158
(1,253)
(5)
5
–
–
5
(12)
–
(7)
23
(19)
–
4
11
(27)
–
(16)
–
(1)
–
(1)
Net periodic costs
Weighted average assumptions at year-end
In € millions
Service costs for benefits earned during the period
Interest costs on defined benefit obligations
Expected return on plan assets
Amortization of unrecognized net losses
Amortization of past service costs
Change of restriction of asset recognition
Settlement/curtailment gain
Total
Pensions
Other post-retire-
ment benefits
2012
(53)
(697)
650
(36)
(17)
(5)
(7)
2011
(6)
(18)
–
(2)
(2)
–
–
2012
(8)
(18)
–
–
6
–
–
2011
(51)
(725)
684
(31)
(6)
–
1
(128)
(165)
(28)
(20)
In %
2011
2012
2011
2012
Pensions
Other post-retirement
benefits
Pension benefit obligation
Discount rate
Rate of compensation increase
Net periodic pension costs
Discount rate
Rate of compensation increase
Expected return on plan assets
4.6
3.7
5.4
4.6
5.3
3.9
3.4
4.6
3.7
4.3
4.4
3.5
4.9
4.4
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
137
The remaining plans primarily represent defined
contribution plans. This includes, among others, the
Pension Fund APF 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 2012
were €10 million (2011: €10 million). Alecta’s target funding
ratio in 2012 was 140 percent although the actual ratio
at September 2012 stood at 123 percent. There is also
a small number of multi-employer plans in the US in
which AkzoNobel participates with annual contributions
totalling less than €1 million. These are also accounted
for as defined contribution plans. The expenses of plans
classified as defined contribution plans in AkzoNobel
totaled €180 million in 2012 (2011: €154 million).
Interest costs on defined benefit obligations for both
pensions and other post-retirement benefits together
with the expected return on plan assets in the net periodic
costs table together comprise the net financing expenses
on post-retirement benefits of €65 million (2011:
€59 million), see Note 4.
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 individual scheme
has sufficient funds available to satisfy future benefit
obligations. For this purpose so-called asset and liability
management (ALM) studies are made periodically at each
pension fund under responsibility of the fund managers. For
each of the pension plans an appropriate mix is determined
on the basis of the outcome of these ALM studies, taking
into account the national rules and regulations.
Pension plan assets principally consist of long-term
interest-earning investments, quoted equity securities and
real estate. At year-end 2012 and 2011, plan assets did
not include financial instruments issued by the company,
nor any property occupied or other assets used by it. The
weighted average pension plan asset allocation at year-
end 2012 and 2011, and the target allocation for 2013 for
the pension plans by asset category are as follows:
Life expectancy
In years
Currently aged 60
Male
Female
Currently aged 45, at age 60
Male
Female
At December 31
2011
2012
26.1
28.5
27.2
29.5
26.2
28.7
27.3
29.9
Plan asset allocation
In %
Equity securities
Long-term interest earning
investments
Real estate
Other
Total
Plan assets
at December 31
Target
2011
2012
2013
15
73
2
10
15
72
2
11
100
100
14–16
72–75
1–2
9–11
100
At year-end 2012, an amount of £133 million
(€163 million; 2011: £143 million or €170 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 (€31 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 9.
Weighted average assumptions for the other post-
retirement benefit plans were as follows:
Assumed healthcare cost trend rates at year-end
In %/year
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
2011
6.6
4.0
2012
5.9
3.8
2019–2030
2019–2032
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)
(14)
1
12
138 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
In the US, the Medicare Prescription Drug Improvement
and Modernization Act of 2003 introduced prescription
drug benefits for retirees, as well as a federal subsidy
to sponsors of post-retirement healthcare plans, which
both began on January 1, 2006. We have recognized
this reimbursement right as an asset under other financial
non-current assets, measured at fair value amounting to
€3 million at year-end 2012 (year-end 2011: €4 million).
Cash flows
We expect to contribute €388 million to our defined benefit
pension plans in 2013. This includes a top-up payment of
£135 million (€165 million) for the ICI Pension Fund. For
other post-retirement benefit plans the contribution for
2013 is expected to be €26 million.
The figures in the table below are the estimated future
benefit payments to be paid from the plans to beneficiaries
over the next ten years.
Expected benefit payments
In € millions
2013
2014
2015
2016
2017
Pensions
Other post-
retirement
978
972
975
979
985
27
27
27
27
27
2018 - 2022
4,985
128
The amendments to IAS 19 “Employee Benefits” have
become effective as of January 1, 2013 and will be applied
in our 2013 financial reports. We have made a preliminary
assessment of the effect of the implementation of these
amendments on our consolidated financial statements for
2012, as follows in the table below.
Effect of the implementation of the amendment to IAS 19
In € millions
Consolidated statement of income
Operating income
Financing expenses related to pensions
Income tax
Profit/(loss) for the period
Attributable to
Shareholders of the company
Non-controlling interests
2012
2012
restated
(1,244)
(1,198)
(65)
(172)
(3)
(203)
(2,106)
(2,029)
(2,169)
(2,092)
63
63
Consolidated statement of comprehensive
income
Actuarial gains and losses, and other items relating to
post-retirement benefits
Income tax relating to other comprehensive income
Other comprehensive income for the period
–
–
6
Comprehensive income for the period
(2,100)
(1,298)
249
(1,043)
(3,072)
Attributable to
Shareholders of the company
Non-controlling interests
Balance sheet
Deferred tax assets
Other financial non-current assets
Total post-retirement benefit provisions
Deferred tax liabilities
Shareholders’ equity
Non-controlling interests
(2,146)
(3,118)
46
46
830
1,748
1,126
442
6,892
465
1,144
1,297
2,140
420
5,764
464
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
139
15
Note 15: Other provisions
16
Note 16: Long-term borrowings
Movements in other provisions
In € millions
Balance at January 1, 2012
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions/divestments
Transfer to assets held for sale
Changes in exchange rates
Balance at December 31, 2012
Non-current portion
Current portion
Balance at December 31, 2012
Restructuring
of activities
Environmental
costs
135
204
(143)
(9)
1
–
(4)
–
414
46
(33)
(21)
17
1
–
–
Other
563
109
(167)
(23)
8
–
(2)
1
Total
1,112
359
(343)
(53)
26
1
(6)
1
184
424
489
1,097
42
142
184
368
56
424
325
164
489
735
362
1,097
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.
Provisions for environmental costs
For details on environmental exposures, see Note 19.
Other provisions
Other provisions relate to a great variety of risks and
commitments, including provisions for antitrust cases,
claims, other long-term employee benefits such as
long-service leave and jubilee payments. At year-end
2012, the provision for antitrust cases amounted to
€21 million (2011: €134 million), see Note 19. Folllowing
the judgment in the Metacrylates case by the General
Court in June 2012 we paid €113 million.
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 3 percent has been used.
Current portion of provisions
Current portion of post-retirement provisions (€93 million)
and other provisions (€362 million) adds up to €455 million
(2011: €551 million).
Long-term borrowings
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2011
2,941
15
79
2012
3,289
10
89
3,035
3,388
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 22. During
2012, the average effective interest rate was 5.24 percent
(2011: 6.22 percent).
Debt issued
In € millions
5 5/8 % 2003/13 ($500 million)
7 3/4 % 2008/14 (€825 million )
7 1/4 % 2009/15 (€621 million)
8 % 2009/16 (£250 million)
4 % 2011/18 (€800 million)
2 5/8 % 2012/22 (€750 million)
Other
Total
2011
387
822
634
297
790
–
11
2012
–
823
630
305
792
739
–
2,941
3,289
Aggregated maturities of long-term borrowings
In € millions
Debt issued
Debt to credit institutions
Other borrowings
Total
2014 – 2017
After 2017
1,758
1,531
9
44
1
45
1,811
1,577
140 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
17
Note 17: Short-term borrowings
18
Note 18: Trade and other payables
We have a €1.8 billion multi-currency revolving credit
facility originally expiring in 2016. In 2012 the maturity
of €1.7 billion of this facility has been extended with an
additional year to 2017. At year-end 2012 and 2011, this
facility had not been drawn. At year-end 2012 and 2011,
none of the borrowings was secured by collateral.
Short-term borrowings
In € millions
Debt to credit institutions
Current portion long-term borrowings
Total
2011
300
194
494
2012
194
468
662
In 2011, a bond was issued with a nominal amount of
€800 million maturing December 2018 at a coupon of
4 percent. In 2012, a bond was issued with a nominal
value of €750 million maturing in 2022 at a coupon rate of
2.625 percent.
Financial lease liabilities are included in other borrowings
and aggregated €52 million. An amount of €6 million will
mature within one year and €17 million will mature in the
period 2014 through 2017 and €29 million after 2017.
In 2012, bonds of $133 million and €26 million matured.
In December 2013 a bond totaling $0.5 billion will mature
and is classified as a short-term borrowing.
We have US dollar and euro commercial paper programs
in place, which can only be used to the extent that the
equivalent portion of the €1.8 billion multi-currency
revolving credit facility is not used. We had no commercial
paper outstanding at year-end 2012 and 2011.
Trade and other payables
In € millions
Suppliers
Amounts payable to employees
Derivatives
Taxes and social security contributions
Payable to customers
Dividends
Payable to associates and joint
ventures
Other liabilities
Total
2011
2,130
234
22
227
142
30
38
546
3,369
2012
1,990
258
12
230
156
19
32
545
3,242
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
141
19
Note 19: Contingent liabilities and commitments
Environmental matters
We are confronted with substantial costs arising out
of environmental laws and regulations, which include
obligations to eliminate or limit the effects on the
environment of the disposal or release of certain wastes
or substances at various sites. Proceedings involving
environmental matters, such as the alleged discharge of
chemicals or waste materials into the air, water, or soil, are
pending against us in various countries. In some cases
this concerns sites divested in prior years or derelict sites
belonging to companies acquired in the past.
It is our policy to accrue and charge against earnings
environmental clean-up costs when it is probable that
a liability has materialized and an amount is reasonably
estimable. These accruals are reviewed periodically and
adjusted, if necessary, as assessments and 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 geological circumstances,
the necessity of employing particular methods of
remediation, actions by governmental agencies or private
parties, or other factors. Cash expenditures often lag
behind the period in which an accrual is recorded by a
number of years.
As stated in Note 15, the provisions for environmental
costs accounted for in accordance with the aforesaid
policies aggregated €424 million at year-end 2012
(2011: €414 million). The provision has been discounted
using an average pre-tax discount rate of 2.9 percent
(2011: 3.4 percent). While it is not feasible to predict the
outcome of all pending environmental exposures, it is
reasonably possible that there will be a need for future
provisions for environmental costs which, in management’s
opinion, based on information currently available, would
not have a material effect on the company’s financial
position but could be material to the company’s results
of operations in any one accounting period.
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.
While the outcome of said cases, claims and disputes
cannot be predicted with certainty, we believe, based
upon legal advice and information received, that the final
outcome will not materially affect our consolidated financial
position but could be material to our results of operations
or cash flows in any one accounting period.
Commitments
Purchase commitments for property, plant and
equipment aggregated €89 million at year-end 2012
(2011: €49 million).
Maturity operational lease contracts
In € millions
Payments due within one year
Payments between one and five years
Payments due after more than five
years
Total
2011
159
358
197
714
2012
166
354
199
719
In the 2012 figures, €156 million is included for operational
lease commitments of the North American Decorative
Paints business, which has been classified as held for
sale (payments due within one year €39 million, payments
between one and five year €88 million and payments due
after more than five years €29 million).
Guarantees related to investments in associates and
joint ventures totaled €10 million (December 31, 2011:
€13 million).
Claims and litigations
AkzoNobel is – together with others – involved in civil
proceedings 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.
CDC Project 13 SA has initiated civil proceedings
against AkzoNobel and other companies before the
Amsterdam District Court in relation to the Sodium
Chlorate infringements in the 1990’s. These claims are
disputed. An appeal by the company is pending with
the General Court against the decision by the European
Commission to impose fines on the company for violations
of EU competition laws regarding Heat Stabilizers. The
Commission’s fine imposed for this case has been
provided for.
AkzoNobel has provided various indemnities and
guarantees in respect of past divestments to the relevant
purchasers and their permitted assigns (if applicable),
which in general are capped in time and/or amount (in
proportion to the value received). In connection with the
Organon BioSciences divestment to Schering-Plough,
AkzoNobel has limited its maximum exposure to claims
to €850 million. The provided guarantees and indemnities
have varying maturity periods. AkzoNobel has received
various claims under such indemnities and guarantees. In
some instances, AkzoNobel has been named as a direct
defendant despite the divestments.
A number of other claims are pending, all of which are
contested. We are also involved in disputes with tax
authorities in several jurisdictions.
Provisions are recognized when an outflow of economic
benefits for settlement is probable and the amount is
reliably estimable. It should be understood that, in light
of possible future developments, such as (a) potential
additional lawsuits, (b) possible future settlements, and (c)
rulings or judgments in pending lawsuits, certain 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
142 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
During 2012, we considered the members of the Executive
Committee 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 by members of the Supervisory
Board or Board of Management, see Note 21. In the
ordinary course of business, we have transactions with
various organizations with which certain of the members
of the Supervisory Board or Executive Committee are
associated, but no related party transactions were effected
in 2012. Likewise, there have not been any transactions
with members of the Supervisory Board or Executive
Committee, 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 Executive Committee, any other senior management
personnel or any family member of such persons.
20
Note 20: Related party transactions
We purchased and sold goods and services to various
related parties in which we hold a 50 percent or less equity
interest (investment in associates and joint ventures). Such
transactions were conducted at arm’s length with terms
comparable to transactions with third parties. In 2012,
a significant related party transaction was a €115 million
gas supply (2011: €204 million) by the company to
Delesto, a joint venture of AkzoNobel and Essent. Delesto
transforms gas into steam and electricity. The steam is
used in our production processes and the electricity is
sold to the market.
We have contracts with several pension funds, for which
the financial impact is also included in Note 14.
• At year-end 2012, AkzoNobel had a loan to the Pension
Fund APF in the Netherlands of €75 million (2011:
€81 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 £135 million (€165 million) in
2013, followed by payments of £178.5 million (€219
million) in each year from 2014 to 2017
• 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 £42 million
(€51 million) in each year from 2013 to 2018. In addition,
contributions of at least £25m (€31 million) will be paid
each year from the escrow account (see Notes 9 and
14) 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 a top-up contribution of £4 million in 2013
• In recognition of a funding deficit in the JP McDougall
Pension Scheme in the UK, the company has agreed
to make top-up contributions of £2 million in each year
from 2013 to 2020
• In recognition of funding deficits at several pension
plans in the US, the company has agreed to make
top-up contributions of $25 million in 2013
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
143
21
Note 21: Remuneration of the Supervisory Board
and the Board of Management
Total compensation to key management personnel
amounted to €24.1 million (2011: €15.4 million), which is
inclusive of €1.7 million related to Dutch crisis tax (of which
€1.4 million related to members of Board of Management.
Payments to the members of the Supervisory Board did
not exceed the threshold for crisis tax). €10.4 million related
to short-term employee benefits (2011: €7.6 million);
€1.5 million to post-employment benefits and other
post-employment compensation (2011: €2.1 million),
€8.1 million to share based compensation (2011:
€5.7 million) and €2.5 million relates to payments upon
termination of employment. The members of the Executive
Committee which are not a member of the Board of
Management are included in key management personnel.
Supervisory Board
Members of the Supervisory Board receive a fixed
remuneration: €100,000 for the Chairman, €60,000 for
the Deputy Chairman and €50,000 for the other members.
Members of committees receive an extra compensation.
Members living outside the Netherlands receive an
attendance fee dependent on the country of residence.
Members who are resident in the Netherlands do not
receive an attendance fee except for meetings
held outside the Netherlands.
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of
Supervisory Board members is not dependent on the
results of the company.
We do not grant share-based compensation to our
Supervisory Board members, neither do we provide
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.
Supervisory Board
In €
Total
remuneration
2011
Karel Vuursteen, Chairman
122,600
100,000
Sari Baldauf1
Uwe-Ernst Bufe, Deputy Chairman
Virginia Bottomley2
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans
Peter Ellwood
Louis Hughes
Ben Verwaayen1
Total
1 As of May 1, 2012.
2 Until May 1, 2012.
Shares held by the members of the
Supervisory Board
Number of shares at year-end
Karel Vuursteen
Sari Baldauf
Uwe-Ernst Bufe
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans
Peter Ellwood
Louis Hughes
Ben Verwaayen
Remuneration
Attendance fee
Committee fee
Employer’s
charges
Total
remuneration
–
80,100
82,600
75,000
175,600
70,000
77,600
92,600
–
33,300
60,000
16,700
50,000
50,000
50,000
50,000
50,000
33,300
2,500
10,000
15,000
5,000
2,500
12,500
2,500
17,500
25,000
10,000
15,000
6,700
–
3,300
20,000
15,000
15,000
13,800
15,000
6,700
3,600
2,400
3,600
1,200
–
17,000
–
3,600
3,600
2,400
2012
121,100
52,400
78,600
26,200
72,500
94,500
67,500
84,900
93,600
52,400
776,100
493,300
102,500
110,500
37,400
743,700
2011
400
–
500
500
500
500
500
500
–
2012
400
–
500
500
500
500
500
500
–
144 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Board of Management
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. We do not
provide loans to members of the Board of Management.
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.
Short-term incentive
The short-term incentives for 2012 are linked to EVA
(35 percent), EBITDA (35 percent) and the individual and
qualitative targets of the members of the Board
of Management (30 percent). For more information,
see the Remuneration report.
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 (€110,300) related to employer’s
contribution in the UK. Costs for Mr. Darner (amounting
to €689,500) related to compensation for living expenses,
home leave allowances and relocation. Costs for
Mr. Nichols (€72,100) related to living expenses and
home leave allowances. A special award (€578,600) to
Board remuneration 2011
In €
Keith Nichols
Leif Darner
Tex Gunning
Hans Wijers
Rob Frohn
Total
Board remuneration 2012
Salary
591,500
591,500
591,500
788,700
591,500
Short-term
incentives
Other short-
term benefits
Post-employ-
ment benefits
Share-based
compensation
Total remunera-
tion
206,400
206,400
206,400
423,500
206,400
238,900
154,200
4,900
4,900
7,400
198,200
217,900
240,800
482,900
185,800
848,500
848,500
848,500
1,132,100
848,500
2,083,500
2,018,500
1,892,100
2,832,100
1,839,600
3,154,700
1,249,100
410,300
1,325,600
4,526,100
10,665,800
Salary
Short-term
incentives
Other short-
term benefits
Post-
employment
benefits
Other post-
employment
compensa-
tion
Share-based
compensa-
tion
534,700
170,900
5,700
–
128,900
399,500
602,000
224,500
182,400
109,100
78,000
880,400
Termination
benefits
Total remu-
neration
–
–
1,239,700
2,076,400
602,000
200,100
689,500
229,500
602,000
200,100
584,600
236,700
267,700
267,700
200,700
130,400
2,000
2,800
213,100
73,100
–
–
–
–
1,248,600
796,300
3,766,000
951,300
–
2,574,700
1,661,900
1,130,600
3,543,000
1,245,500
602,000
2,254,500
2,809,100
1,193,700
1,467,000
861,500
206,900
6,387,200
2,528,900
15,454,300
In €
Ton Büchner1
Keith Nichols
Leif Darner
Tex Gunning
Hans Wijers2
Rob Frohn3
Total
1 As of April 23, 2012.
2 Until April 23, 2012.
3 Until May 1, 2012.
Mr. Gunning concerned a conditional cash payment
relating to the period 2009-2011 and subject to
pre-defined objectives focusing on the integration of
the ICI activities into the AkzoNobel group companies.
Post-employment benefits and other
post-employment compensation
Other post-employment compensation are payments to
a person intended for building up retirement benefits other
than those included in Post-employment benefits. Pension
contributions were calculated over the 2012 remuneration.
These amounts together with the contributions over
the 2012 short-term incentives are included in the
post-employment benefits and other post-employment
compensation.
Share-based compensation
The costs for share-based compensation are non-cash
and related to the performance-related share plan and the
share matching plan following IFRS 2. 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 fair value was €31.15 per performance-related
share conditionally granted in 2012 for those members
of the Board of Management facing a two-year holding
restriction (2011: €46.91) and €38.79 for those members
whose holding restriction will lapse after the end of their
Board member’s term. The fair value for the shares related
to the share matching plan amounted to €39.72 and the
fair value for the matching arrangement for Mr. Büchner
amounted to €37.92.
Termination benefits
Termination benefits include costs that have been incurred
in 2012 relating to leaving arrangements.
Former members of the Board of Management
In 2012, charges for former members of the Board of
Management amounted to €18,000 (2011: €21,000).
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
145
Performance-related shares
With regard to the performance related shares granted to
the members of the Board of Management in 2010, the
final vesting percentage of the series 2010-2012 equaled
66.67 percent (series 2009-2011: 62.5 percent), including
dividend shares 73.61 percent. The members of the Board
of Management will retain the shares for a minimum period
of two years after vesting or (if shorter) for the duration of
their tenure as member of the Board of Management.
Share matching plan
The CEO and other members of the Board of
Management are required to build up, over a five-year
period from the date of appointment, and then hold, at
least three times respectively one time their gross base
salary in AkzoNobel shares for the duration of their tenure
as member of the Board of Management. Under certain
conditions, members who invest part of their short term
incentives in AkzoNobel shares may have such shares
matched by the company. See the Remuneration report.
Number of performance-related shares
Balance at
January 1,
2012
Series
Granted
in 2012
Vested
in 2012
Forfeited
in 2012
Dividend
in 2012
Balance at
December
31, 2012
Vested on
January 1,
2013
Ton Büchner
2012 – 2014
–
31,900
–
Keith Nichols
Leif Darner
Tex Gunning
Hans Wijers
Rob Frohn
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
2009 – 2011
2010 – 2012
2011 – 2013
2012 – 2014
19,125
19,473
19,173
–
–
–
(19,125)
–
–
–
23,900
19,125
19,473
19,173
–
–
–
–
23,900
19,125
19,473
19,173
–
–
–
–
23,900
(19,125)
–
–
–
(19,125)
–
–
–
25,547
25,964
25,564
–
–
–
(25,547)
–
–
–
10,700
19,125
19,473
19,173
–
–
–
–
8,000
(19,125)
–
–
–
(6,736)
–
–
–
–
(6,736)
–
–
(6,736)
–
–
–
(6,736)
–
–
–
(8,981)
–
–
1,199
33,099
–
734
722
899
–
734
722
899
–
734
722
899
–
978
962
402
–
734
722
301
–
13,471
19,895
24,799
–
13,471
19,895
24,799
–
13,471
19,895
24,799
–
17,961
26,526
11,102
–
13,471
19,895
8,301
–
–
13,471
–
–
–
13,471
–
–
–
13,471
–
–
–
17,962
–
–
–
13,471
–
–
146 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Shares held by the Board of Management
Number of shares at year-end
Ton Büchner
Keith Nichols
Leif Darner
Tex Gunning
Stock options
2011
–
7,069
46,162
–
2012
10,810
16,632
48,594
14,435
Keith Nichols
Leif Darner
Hans Wijers
Rob Frohn
Year of issue
Exercise
price in €
Outstanding at
January 1, 2012
Forfeited
in 2012
Exercised in
2012
2006
2007
2006
2007
2002
2005
2006
2007
2006
2007
46.46
58.89
46.46
58.89
46.53
31.98
46.46
58.89
46.46
58.89
3,000
3,750
13,000
13,000
14,850
23,000
19,800
19,800
13,000
13,000
–
–
–
–
(14,850)
–
–
–
–
–
–
–
–
–
–
(23,000)
–
–
–
–
Outstanding at
December 31,
2012
Expiry date
3,000
3,750
April 26, 2013
April 26, 2014
13,000
April 26, 2013
13,000
April 26, 2014
–
–
April 25, 2012
April 24, 2012
19,800
April 26, 2013
19,800
April 26, 2014
13,000
April 26, 2013
13,000
April 26, 2014
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
147
22
Note 22: Financial risk management
Financial risk management framework
Our activities expose us to a variety of financial risks: market
risk (including: currency risk, fair value interest rate risk
and price risk), credit risk and liquidity risk. These risks are
inherent to the way we operate as a multinational with a
large number of locally operating subsidiaries. Our overall
risk management program seeks to identify, assess, and – if
necessary – mitigate these financial risks in order to minimize
potential adverse effects on our financial performance. Our
risk mitigating activities include the use of derivative financial
instruments to hedge certain risk exposures. The Board of
Management is ultimately responsible for risk management.
We centrally identify, evaluate and hedge financial risks , and
monitor compliance with the corporate policies approved
by the Board of Management, except for commodity risks,
which are subject to identification, evaluation and hedging
in the businesses. We have treasury hubs located in Brazil,
Asia and the US that are primarily responsible for regional
cash management and short-term financing. We do not allow
for extensive treasury operations at subsidiary level directly
with external parties
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 2012, we had €1.8 billion available as cash
and cash equivalents (2011: €1.6 billion), see Note 12.
In addition, we have a €1.8 billion multi-currency revolving
credit facility originally expiring in 2016. In 2012 the
maturity of €1.7 billion of this facility has been extended
with an additional year to 2017. At year-end 2012 and
2011, this facility had not been drawn. We have US dollar
and euro commercial paper programs in place, which
can only be used to the extent that the equivalent portion
of the €1.8 billion multi-currency revolving credit facility
is not used. We had no commercial paper outstanding
at year-end 2012 and 2011. The 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.
Maturity of liabilities and cash outflows
In € millions
At December 31, 2011
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Fx contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
At December 31, 2012
Borrowings
Interest on borrowings
Finance lease liabilities
Trade and other payables
Fx contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
Less than
one year
Between
one and five
years
Over five
years
489
178
5
3,369
2,676
(2,687)
19
(11)
2,219
382
3
–
–
–
14
–
812
64
1
–
–
–
–
–
4,038
2,618
877
656
211
6
3,242
2,380
(2,417)
12
–
1,794
332
17
–
–
–
14
–
1,548
121
29
–
–
–
–
–
4,090
2,157
1,698
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 financial
institutions, and trade receivables. We have a credit
risk management policy in place to limit credit losses
due to non-performance of financial counterparties and
customers. We monitor our exposure to credit risk on
an ongoing basis at various levels. We only deal with
financial counterparties that have a sufficiently high credit
rating. Generally, we do not require collateral in respect of
financial assets. Investments in cash and cash equivalents
and transactions involving derivative financial instruments
are entered into with counterparties that have sound
credit ratings and good reputation. Derivative transactions
are concluded mostly with parties with whom we have
contractual netting agreements and ISDA agreements
in place. We set limits per counterparty for the different
types of financial instruments we use. We closely
monitor the acceptable financial counterparty credit
ratings and credit limits and revise where required in
line with the market circumstances. We do not expect
non-performance by the counterparties for these
financial instruments. Due to our geographical spread
and the diversity of our customers, we were not subject
to any significant concentration of credit risks at balance
sheet date. The credit risk from trade receivables is
measured and analyzed at a local operating entity level,
mainly by means of ageing analysis, see Note 11.
Generally, the maximum exposure to credit risk is
represented by the carrying value of financial assets
in the balance sheet.
At year-end 2012, the credit risk on consolidated level was
€4.5 billion (2011: €4.6 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 €230 million at year-end 2012.
148 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Foreign exchange risk management
Trade and financing transactions
We operate in a large number of countries, where we have
clients and suppliers, many of whom are outside of the
local functional currency environment. This creates currency
exposure which is partly netted out on consolidation.
The purpose of our foreign currency hedging activities is
to protect us from the risk that the functional currency net
cash flows resulting from trade or financing transactions
are adversely affected by changes in exchange rates. Our
policy is to hedge our transactional foreign exchange rate
exposures above predefined thresholds from recognized
assets and liabilities. Cash flow hedge accounting is
applied by exception. Derivative transactions with external
parties are bound by overnight limits per currency.
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.
Hedged notional amounts at year-end
In € millions
US dollar
Pound sterling
Swedish krona
Other
Total
Buy
2011
619
222
306
445
Sell
2011
1,062
501
6
334
1,592
1,903
Buy
2012
273
68
275
273
889
Sell
2012
616
541
58
517
1,732
Investments in foreign subsidiaries, associates
and joint ventures
Net investment hedge accounting is applied on hedges of
pound sterling net investments in foreign operations which
were hedged by a £250 million bond. In 2012 the hedge
was fully effective.
In 2011 and 2012 we applied cash flow hedge accounting
of CNY793 million for an acquisition of which
CNY242 million was still outstanding at the end of 2012.
There was no material gain/loss in 2012 on the effective
hedges (2011: €11 million gain). An amount of €8 million
has been recognized as consideration paid in Note 2.
In the cash flow hedge reserve the remaining 2011 gain
of €3 million was recorded, which will be included in the
consideration paid in 2013 and 2014.
The foreign exchange and interest rate risks related to
divestments amounting to $201 million and
CAD190 million were hedged using forward contracts and
cash flow hedge accounting was applied. The gain on the
effective hedges amounted to €5 million of which
€2 million relates to a divestment completed in 2012 which
is included in the net cash flow in Note 2. The remaining
€3 million gain in the cash flow hedge reserve will be
included in the net cash flow on divestments in 2013.
Price risk management
Commodity price risk management
We use commodities, gas and electricity in our production
processes and we are particularly sensitive to energy price
movements.
Our Chlor Alkali activity in the Netherlands mitigates price
risks related to electricity by concluding electricity futures
to gradually cover the expected use over future periods.
We apply cash flow hedge accounting to these futures. All
contracts qualified as effective for hedge accounting. The
fair value of the contracts outstanding at year-end 2012
amounted to a loss of €10 million, net of tax (year-end
2011: a loss of €7 million, net of tax). In the cash flow
hedge reserve a loss of €10 million net of tax was recorded
(year-end 2011: a loss of €11 million net of tax), which is
expected to affect profit within the next three years.
In order to hedge the oil price risk, we have entered into
oil/gas swap contracts. At the end of 2012, the fair value
of these contracts amounted to a loss of €4 million net of
tax (year-end 2011: €3 million loss net of tax). We did not
apply hedge accounting to the changes of the fair values
of these 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 2013 – 2017. We apply cash flow hedge
accounting to these contracts in order to mitigate the
accounting mismatch that would otherwise occur.
The effective part of the fair value of these contracts
amounted to a €10 million loss net of tax in equity (2011:
€9 million net deferred loss), which are expected to affect
operational cost within the next five years. All hedges were
effective in 2012 and 2011.
Interest rate risk management
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value
interest rate risk. Floating rate debt results in cash flow
interest rate risk. The fixed/floating rate of our outstanding
bonds shifted from 94 percent fixed at year-end 2011
to 88 percent fixed at year-end 2012. During 2012, no
interest rate swap contracts were outstanding.
Fair value hedges closed out in previous years resulted in
an adjustment to the carrying amount of a bond of which
€13 million was amortized to the statement of income in
2012 on the interest line.
The effective interest rate (excluding hedge results) over
2012 was 5.63 percent (2011: 6.60 percent). Combined
with the amortization of interest rate swaps closed out in
2011, the effective interest rate was 5.24 percent (2011:
6.22 percent).
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 & Poors. The capital structure can be altered,
among others, by adjusting the amount of dividends paid
to shareholders, return capital to capital providers,
or issue new debt or shares.
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
149
Consistent with other companies in the industry,
we monitor capital headroom on the basis of funds
from operations in relation to our net borrowings level
(FFO/NB-ratio). The FFO/NB-ratio for 2012 at year-end
amounted to 0.30 (2011: 0.34). Funds from operations
are based on net cash from operating activities,
which is adjusted, among others, for the elimination
of changes in working capital, additional payments
for pensions and for the effects of the underfunding
of pension and other post-retirement benefit obligations.
Net borrowings is calculated as a total of long and
short-term borrowings less cash and cash equivalents,
adding an after-tax amount for the underfunding of
pension and other post-retirement benefit obligations
and lease commitments.
In 2012, a bond was issued with a nominal value
of €750 million maturing in 2022 at a coupon rate
of 2.625 percent.
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 estimated the fair value of our long-term borrowings
based on the quoted market prices for the same or similar
issues or on the current rates offered to us for debt with
similar maturities.
The carrying amounts of cash and cash equivalents, trade
receivables less allowance for impairment, short-term
borrowings and other current liabilities approximate fair
value due to the short maturity period of those instruments.
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 and
electricity futures was determined 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)
Level 1 fair valuation methods were used for €3.6 billion of
the long-term borrowings and €0.5 billion of the short-term
borrowings. All other fair values were determined using
level 2 fair valuation methods.
150 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Fair value per financial instruments category
In € millions
2011 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
2012 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
amount
Out of scope
of IFRS 7
Carrying value per IAS 39
category
Loans and
receivables/
other liabilities
At fair value
through profit
or loss
Total
carrying value Fair value
1,187
2,937
1,635
5,759
3,035
494
3,369
6,898
1,748
2,698
1,752
6,198
3,388
662
3,242
7,292
860
277
–
1,137
–
–
1,217
1,217
1,428
244
–
1,672
–
–
1,240
1,240
327
2,632
–
2,959
3,035
494
2,130
5,659
320
2,438
–
2,758
3,388
662
1,990
6,040
–
28
1,635
1,663
–
–
22
22
–
16
1,752
1,768
–
–
12
12
327
2,660
1,635
4,622
3,035
494
2,152
5,681
320
2,454
1,752
4,526
3,388
662
2,002
6,052
338
2,660
1,635
4,633
3,341
496
2,152
5,989
335
2,454
1,752
4,541
3,713
678
2,002
6,393
AkzoNobel Report 2012 | Financial statements | Notes to the consolidated financial statements
151
Sensitivities
Sensitivity object
Foreign currencies:
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 liabili-
ties (including derivative financial instruments) in a currency
other than the functional currency of the subsidiary in its
balance sheet at year-end.
Commodity prices:
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.
Sensitivity, measured at year-end 2012 Hypothetical impact, net of tax
A 10 percent strengthening of the euro
versus US dollar
Profit: €4 million (2011: €nil)
Equity: €nil (2011: €nil)
A 10 percent strengthening of the euro
versus the pound sterling
Profit: €5 million (2011: €1 million)
Equity: €nil (2011: €nil)
Electricity price Specialty
Chemicals Netherlands:
A 10 percent change in the forward
price of electricity (€5 per MWh) as
compared with the market prices
(up/down)
Electricity price Specialty
Chemicals Sweden and Finland:
A 10 percent change in the forward
price on the Nord Pool exchange elec-
tricity (€3.76 per MWh) as compared
with the market prices (up/down)
Oil price Specialty Chemicals
Netherlands:
A 10 percent change in price of oil (€8
per barrel) as compared with market
prices (up/down)
Net investment hedge accounting
is applied to GBP250 million, which
results in a sensitivity on equity of nil.
Equity: €10 million. (2011 €11 million).
(up/down)
We apply cash flow hedge accounting
to the fair value changes of electricity
futures).
Equity: €10 million. (2011 €7 million).
(down/up)
We apply cash flow hedge accounting
to the fair value changes of electricity
futures).
Profit: €8 million (2011: €6 million.
(down/up)
Over the full term of the (partially long-
term) contracts, net impact on profit
will be €nil.
Interest rates:
We perform interest rate sensitivity analysis by applying an
adjustment to the interest rate curve prevailing at year-end.
This adjustment is based on observed changes in the
interest rate in the past and management expectation
for possible future movements. We then apply the expected
possible volatility to revalue all interest bearing assets
and liabilities.
A 100 basis points increase of
EURIBOR interest rates
Profit: €6 million (2011: €2 million).
A 100 basis points increase of US
LIBOR interest rates
Loss: €4 million (2011: €1 million).
A 100 basis points increase of GBP
LIBOR interest rates
Loss: €nil million (2011: €2 million).
152 Notes to the consolidated financial statements | Financial statements | AkzoNobel Report 2012
Company financial statements
Statement of income
In € millions
Net income from subsidiaries,
associates and joint ventures
Other net income/(loss)
Total net income/(loss)
2011
538
(61)
477
2012
(2,308)
139
(2,169)
Balance sheet as of December 31, before result allocation
In € millions
Assets
Non-current assets
Financial non-current assets
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Subscribed share capital
Additional paid-in capital
Change in fair value of derivatives
Other statutory reserves
Cumulative translation reserves
Other reserves
Undistributed results
Shareholders’ equity
Non-current liabilities
Provision for subsidiaries
Long-term borrowings
Total non-current liabilities
Current liabilities
Other short-term debt
Total current liabilities
Total equity and liabilities
Note
2011
2012
B
C
D
E
B
F
G
16,120
14,486
16,120
14,486
124
205
469
47
(9)
240
4
8,061
400
304
6,618
80
473
329
16,449
553
15,039
478
174
(17)
264
35
8,205
(2,247)
9,212
6,892
454
7,345
6,922
7,799
315
348
315
16,449
348
15,039
A
Note A: General information
The financial statements of Akzo Nobel N.V. have been
prepared using the option of section 362 of Book 2 of
the Netherlands Civil Code, meaning that the accounting
principles used are the same as for the consolidated
financial statements. Foreign currency amounts have
been translated, assets and liabilities have been valued,
and net income has been determined in accordance
with the principles of valuation and determination
of income presented in Note 1 to the Consolidated
financial statements. Subsidiaries of Akzo Nobel N.V.
are accounted for using the equity method.
As the financial data of Akzo Nobel N.V. are included in
the Consolidated financial statements, the statement of
income of Akzo Nobel N.V. is condensed in conformity
with section 402 of Book 2 of the Netherlands Civil Code.
The remuneration paragraph is included in Note 21 of
the Consolidated financial statements section.
AkzoNobel Report 2012 | Financial statements | Company financial statements
153
Statement of changes in shareholders' equity
In € millions
Balance at January 1, 2011
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
Acquisitions and divestments
Balance at December 31, 2011
Changes in fair value of derivatives
Changes in exchange rates in respect of subsidiaries,
associates and joint ventures
Net loss
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Addition to other reserves
Acquisitions and divestments
Balance at December 31, 2012
Subscribed
share capital
467
–
–
–
–
1
–
1
–
–
469
–
–
–
–
7
–
2
–
–
Statutory reserves
Additional
paid-in
capital
Cash flow
hedge
reserve
Other
Statutory
reserves
Cumulative
translation
reserves
Other
reserves
Undistributed
results
Shareholders'
equity
7,610
679
8,984
9
–
–
–
–
24
–
14
–
–
47
–
–
–
–
121
–
6
–
–
29
(38)
–
–
(38)
–
–
–
–
–
(9)
(8)
–
–
(8)
–
–
–
–
–
233
–
–
–
–
–
–
–
7
–
240
–
–
–
–
–
–
–
24
–
264
(43)
–
47
–
47
–
–
–
–
–
4
–
31
–
31
–
–
–
–
–
–
–
–
–
–
32
–
420
(1)
8,061
–
–
–
–
–
43
–
112
(11)
–
–
477
477
(329)
–
–
(427)
–
400
–
–
(2,169)
(2,169)
(342)
–
–
(136)
–
(38)
47
477
486
(304)
32
15
–
(1)
9,212
(8)
31
(2,169)
(2,146)
(214)
43
8
–
(11)
6,892
478
174
(17)
35
8,205
(2,247)
154 Company financial statements | Financial statements | AkzoNobel Report 2012
B
Note B: Financial non-current assets and provisions for subsidiaries
C
Note C: Trade and other receivables
Movements in financial non-current assets
Trade and other receivables
Subsidiaries
In € millions
Share in capital
Balance at January 1, 2011
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries, associates
and joint ventures
Equity-settled transactions
Change in fair value of derivatives
Loans granted
Repayment of loans
Changes in exchange rates
Other changes
Transfer to provision for subsidiaries
Balance at December 31, 2011
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
Balance at December 31, 2012
9,729
691
(113)
538
28
(48)
–
–
28
(127)
15
10,741
156
–
(2,308)
35
3
–
–
52
(153)
150
8,676
1 Loans to these companies have no fixed repayment schedule.
Other financial
non-current
assets
89
3
–
–
–
–
–
–
–
(2)
–
90
–
(2)
–
–
–
–
–
–
(7)
–
81
Loans1
7,056
–
–
–
–
–
2,052
(3,870)
51
–
–
5,289
–
–
–
–
–
1,856
(1,422)
6
–
–
5,729
Total
16,874
694
(113)
538
28
(48)
2,052
(3,870)
79
(129)
15
16,120
156
(2)
(2,308)
35
3
1,856
(1,422)
58
(160)
150
14,486
In € millions
2011
2012
Receivables from subsidiaries
Receivable from associates and
joint ventures
FX contracts
Other receivables
Total
46
14
19
45
124
25
14
6
35
80
D
Note D: Cash and cash equivalents
Cash and cash equivalents
In € millions
Short-term investments
Cash on hand and in banks
Total
2011
41
164
205
2012
21
452
473
E
Note E: Shareholders’ equity
Subscribed share capital
The holders of common shares are entitled to receive
dividends as declared from time to time and are entitled
to one vote per share at the Annual General Meeting
of shareholders. The holders of the priority shares are
entitled to dividend of 6 percent per share or the statutory
interest in the Netherlands, whichever is lower, plus any
accrued and unpaid dividends. They are entitled to 200
votes per share (in accordance with the 200 times higher
nominal value per share) at the Annual General Meeting
of shareholders. In addition, the holders of priority shares
have the right to draw up binding lists of nominees for
appoint ment to the Supervisory Board and the Board of
Management; amendments to the Articles of Association
are subject to the approval of the Meeting of Holders of
Priority Shares.
AkzoNobel Report 2012 | Financial statements | Company financial statements
155
Priority shares may only be transferred to a transferee
designated by a Meeting of Holders of Priority Shares and
against payment of the par value of the shares, plus interest
at the rate of 6 percent per annum or the statutory interest in
the Netherlands, whichever is lower. There are no restrictions
on voting rights of holders of common or priority shares.
The Articles of Association set out procedures for exercising
voting rights. The Annual General Meeting of shareholders
has in 2012 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.
We held no common shares at year-end 2012 or 2011.
Earnings per common share are calculated by dividing
net income by the weighted average number of common
shares outstanding during the year.
Of the shareholders’ equity of €6.9 billion, an amount of
€6.2 billion (2010: €8.5 billion) was unrestricted and
available for distribution – subject to the relevant provisions
of our Articles of Association and Dutch law.
Unrestricted reserves at year-end
In € millions
Shareholders’ equity at year-end
Subscribed share capital
Subsidiaries’ restrictions to
transfer funds
Statutory reserve due to
capital reduction
Reserve for development costs
Unrestricted reserves
2011
9,212
(469)
(158)
2012
6,892
(478)
(181)
(61)
(61)
(15)
8,509
(16)
6,156
Statutory reserves have been recognized following section
373 paragraph 4 of Book 2 of the Netherlands Civil Code.
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
cumulative preferred shares to €2. As the revised nominal
values are lower than the original par values, in accordance
with section 67a of Book 2 of the Netherlands Civil Code,
we recognize a statutory reserve of €61 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
subsidiaries, associates, and joint ventures after 1983.
Dividend
We will propose to the Annual General Meeting on April
26, 2013 a 2012 final dividend of €1.12 per share, which
would make a total 2012 dividend of €1.45 per share
(2011: €1.45). During 2012, we paid the 2011 final
dividend of €1.12 and the 2012 interim dividend of €0.33.
Debentures
In € millions
71/4 % 2009/15 (€975 million)
8 % 2009/16 (£250 million)
4 % 2011/18 (€800 million)
2011
634
297
790
2012
630
305
791
Total
1,721
1,726
We have a €1.8 billion multi-currency revolving credit
facility originally expiring in 2016. In 2012 the maturity
of €1.7 billion of this facility has been extended with
an additional year to 2017. At year-end 2012 and 2011,
this facility had not been drawn. At year-end 2012
and 2011, none of the borrowings was secured by
collateral. Interest charged on these borrowings
averaged 0.1 percent in 2012 (2011: 0.9 percent).
G
Note G: Short-term debt
Short-term debt
F
Note F: Long-term borrowings
In € millions
2011
2012
Long-term borrowings
In € millions
Debentures
Debt to subsidiaries
Other borrowings
Total
2011
1,721
4,858
39
6,618
2012
1,726
5,619
–
7,345
For the fair value of the debenture loans and the related
interest-rate derivatives, see Note 22 of the Consolidated
financial statements section.
Current portion long-term borrowings
Debt to subsidiaries
FX contracts
Borrowings from associates and
joint ventures
Short-term bank loans
Debt related to pensions
Debt related to other suppliers
Other liabilities
Total
48
8
12
37
21
10
32
147
315
58
8
10
27
3
8
68
166
348
We have US dollar and euro commercial paper programs,
in place which can only be used to the extent that
the equivalent portion of the €1.8 billion multi-currency
revolving credit facility is not used. We had no paper
outstanding at year-end 2012 and 2011.
156 Company financial statements | Financial statements | AkzoNobel Report 2012
H
Note H: Financial instruments
J
Note J: Auditor’s fees
At year-end 2012, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total
of €0.9 billion (year-end 2011: €1.6 billion), while contracts
to sell currencies totaled €1.7 billion (year-end 2011:
€1.9 billion). The contracts mainly related to US Dollars,
Pound sterling and Swedish krona, and all have maturities
within one year. These contracts offset the foreign exchange
contracts concluded by the subsidiaries, and the fair value
changes are recognized in the statement of income to offset
the fair value changes on the contracts with the subsidiaries.
For information on risk exposure and risk management,
see Note 22 of the consolidated financial statements.
Auditor's fees
In € millions
Audit
Audit-related
Tax
Other services
Total
I
Note I: Contingent liabilities
Amsterdam, February 19, 2013
Akzo Nobel N.V. is parent of the group’s fiscal unit in the
Netherlands, and is therefore liable for the liabilities of said
fiscal unit as a whole.
Akzo Nobel N.V. has declared in writing that it accepts joint
and several liability for contractual debts of certain Dutch
consolidated companies (section 403 of Book 2 of the
Netherlands Civil Code). These debts, at year-end 2012,
aggregating €0.5 billion (2011: €0.4 billion), are included in
the consolidated balance sheet. Additionally, at year-end
2012, guarantees were issued on behalf of consolidated
companies for an amount of €2.9 billion (2011: €2.1 billion),
iincluding 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 Board of Management
Ton Büchner
Keith Nichols
Leif Darner
Tex Gunning
The Supervisory Board
Karel Vuursteen
Uwe-Ernst Bufe
Sari Baldauf
Dolf van den Brink
Peggy Bruzelius
Antony Burgmans
Peter Ellwood
Louis Hughes
Ben Verwaayen
The debts and liabilities of the consolidated companies
underlying these guarantees are included in the
consolidated balance sheet or in the amount of long-
term liabilities in respect of operational lease contracts
as disclosed in Note 19 of the consolidated financial
statements. Guarantees relating to associates and joint
ventures amounted to €10 million (2011: €13 million).
In the
Netherlands
Network
outside the
Netherlands
3.2
0.4
–
0.3
3.9
6.8
0.3
0.3
–
7.4
In the
Netherlands
Network
outside the
Netherlands
2.9
0.2
–
–
3.1
8.2
0.1
0.2
–
8.5
Total
2011
10.0
0.7
0.3
0.3
11.3
Total
2012
11.1
0.3
0.2
–
11.6
AkzoNobel Report 2012 | Financial statements | Company financial statements
157
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 106, 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 19, 2013
KPMG Acountants N.V.
E.H.W. Weusten RA
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
2012 of Akzo Nobel N.V., Amsterdam, as set out on
pages 107 to 157. The financial statements include the
consolidated financial statements and the company
financial statements. The consolidated financial statements
comprise the consolidated balance sheet as at December
31, 2012, the consolidated statements of income,
comprehensive income, changes in equity and cash flows
for the year then ended and the 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, 2012, the company statement of income for the year
then ended and the notes, comprising a summary of the
accounting policies and other explanatory information.
Management’s responsibility
Management is responsible for the preparation and fair
presentation of these 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 responsible 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 finan-
cial 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 requirements and plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
financial statements. The procedures selected depend
on the auditor’s judgment, including the assessment of
the risks of material misstatement of the financial state-
ments, 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 proce-
dures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effective-
ness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presenta-
tion of the financial statements. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion.
Opinion with respect to the consolidated
financial statements
In our opinion, the consolidated financial statements give
a true and fair view of the financial position of Akzo Nobel
N.V. as at December 31, 2012 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, 2012 and of its result for the year
then ended in accordance with Part 9 of Book 2 of the
Netherlands Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirements under Section 2:393
sub 5 at e and f of the Netherlands Civil Code, we have
no deficiencies 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 whether the
158 Other information | Financial statements | AkzoNobel Report 2012
Result allocation and distributions
Statutory provisions
Article 43
43.6
The Board of Management shall be authorized to
determine, with the approval of the Supervisory Board,
what share of profit remaining after application of the
provisions of the foregoing paragraphs shall be carried
to reserves. The remaining profit shall be placed at the
disposal of the Annual General Meeting of shareholders,
with due observance of the provisions of paragraph 7,
it being provided that no further dividends shall be paid
on the preferred shares.
43.7
From the remaining profit, the following distributions shall,
to the extent possible, be made as follows:
(a) to the holders of priority shares: 6 percent per share or
the statutory interest referred to in paragraph 1 of article
13, whichever is lower, plus any accrued and unpaid
dividends (b) to the holders of common shares: a dividend
of such an amount per share as the remaining profit, less
the aforesaid dividends and less such amounts as the
Annual General Meeting of shareholders may decide to
carry to reserves, shall permit.
43.8
Without prejudice to the provisions of paragraph 4 of this
article and of paragraph 4 of article 20, the holders of
common shares shall, to the exclusion of everyone else,
be entitled to distributions made from reserves accrued by
virtue of the provision of paragraph 7b of this article.
43.9
Without prejudice to the provisions of article 42 and
paragraph 8 of this article, the Annual General Meeting of
shareholders may decide on the utilization of reserves only
on the proposal of the Board of Management approved
by the Supervisory Board.
Article 44
44.7
Cash dividends by virtue of paragraph 4 of article 20,
article 42, or article 43 that have not been collected
within five years of the commencement of the second
day on which they became due and payable shall revert
to the company.
Proposal for result allocation
With due observance of Dutch law and the Articles of
Association, it is proposed that the loss of €2,169 million
is charged against 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 €347 million (to be increased by dividend on
shares issued in 2013 before the ex-dividend date) will
be distributed. Following the acceptance of this proposal,
the holders of common shares will receive a dividend of
€1.45 per share of €2, of which €0.33 was paid earlier
as an interim dividend. The final dividend of €1.12 per
share (which under the conditions to be published by the
company and at the shareholders’ election will be paid
either in cash or in stock) will be made available on
May 29, 2013.
Special rights to holders of priority shares
The priority shares are held by “Stichting Akzo Nobel”
(Foundation Akzo Nobel), whose board is composed of the
members of the Supervisory Board who are not members
of the Audit Committee. They each have one vote on the
board of the Foundation.
The Meeting of Holders of Priority Shares has the right
to draw up binding lists of nominees for appointment to
the Supervisory Board and the Board of Management.
Amendments to the Articles of Association are subject
to the approval of this meeting.
AkzoNobel Report 2012 | Financial statements | Result allocation and distributions
159
Sustainability statements
2020 Sustainability strategy
163
Additional sustainability information
Consolidated Sustainability statements
164
In this report
Case studies
Our ambitions and strategy
Risk management
Report of the Board of Management
Business performance
Corporate governance statement
Compliance and integrity management
AkzoNobel on the capital markets
4
10
22
34
51
82
98
102
On our website (www.akzonobel.com/sustainability)
Additional information on processes, detailed data and
contacts is available to support:
Note 1:
Managing our values
Note 2:
Reporting principles
Note 3:
Stakeholder engagement
Notes 4–7: Safety performance
Notes 8–10: Employee/community performance
Notes 11–13: Value chain processes and performance
Notes 14–19: Environmental performance
This Sustainability statements section of the Report 2012 is separate from, and
does not in any way form part of, the company’s annual financial report (“jaarlijkse
financiële verslaggeving”) as defined in article 5:25c of the Dutch Financial
Markets Supervision Act. 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
Note 1: Managing our values
Note 2: Reporting principles
Note 3: Stakeholder engagement
Safety
Note 4: People health and safety
Note 5: Process safety
Note 6: Product stewardship
Note 7: HSE management
Employees
Note 8: Our people
Note 9: Restructuring
Note 10: Community
Value chain
Note 11: Climate change
Note 12: Products and solutions
Note 13: Supply chain
Environment
Note 14: Energy
Note 15: Greenhouse gas emissions
Note 16: Local air quality
Note 17: Raw materials efficiency
Note 18: Water
Note 19: Soil and ground water remediation
Independent assurance report
165
167
170
171
172
173
174
175
178
179
181
181
183
184
185
186
188
189
189
190
191
191
192
193
Standing the test of time
Back in 1991, our Powder Coatings business was chosen
to supply products for a new, five-storey Patient Tower
at the Mission Hospital in Mission Viejo, California. Given
the projected lifespan of the building, architects chose the
most durable powder coating system available at the time,
Interpon D2000.
Now, more than 21 years after application, the Interpon
D2000 system continues to exceed all performance
expectations, even in California’s tough climate. Tests at
the hospital building have shown that both color change
and gloss level significantly exceed the product’s 15-year
guarantee. Why are we so proud? Because long-term
protection is vital to high value infrastructure and
California’s Mission Hospital is testament to the quality
of our architectural powder coatings, which are ideal for
all buildings where optimum aesthetic, technical and
economic performance is essential.
Mainly applied on aluminum and galvanized steel – but
suitable for use wherever attractive, durable colors are
required – Interpon D2000 coatings are specially designed
for the architectural and construction industry. Providing
stylish protection and decoration, the system has been
used on a number of high profile buildings all over the
world, including Aurora Place in Sydney, Australia, and
Lloyd’s Register in London, UK. Europe’s largest building,
the Shard tower in the London Bridge quarter, also features
products from the D2000 range.
During 2012, we boosted our Interpon D2000 Brilliance
range with five new shades of bright metallic sparkle paints.
The single coat product is suitable for all architectural
aluminum uses, as well as garden and street furniture.
The total range has also been upgraded to higher
weather-resistant technology. Applications to date include
Arsenal’s Emirates Stadium in London and Guangzhou
Taikoo Plaza in China.
2020 Sustainability strategy
Over the past decade, AkzoNobel has built a very strong
foundation for sustainability and is recognized as a leader
in its industry, as demonstrated by a consistently high
position on the Dow Jones Sustainability Index (DJSI) and
by the number one position achieved in 2012 for the DJSI
Chemicals supersector.
However, if we are to maintain our leadership position and
take advantage of business growth opportunities, we must
accelerate the pace of our commitment. Building on firm
foundations already in place, a new approach to sustainability
has been developed by our Business Areas, together
with input from external stakeholders. This new approach
is focused on getting more value from fewer resources.
Achieving longer term business success for AkzoNobel
and its business partners relies on the ability to get the
greatest positive impact out of products and services, from
the fewest resources possible. Focusing on more effective
use of scarce natural resources will contribute to cost
savings and will generate revenue growth for AkzoNobel
and for its business partners across the entire value chain.
For AkzoNobel, we believe sustainability leadership will
require an ever more external focus as the most significant
contribution to sustainable development we can make is
the positive impact of our products for our four end-user
segments: Building and Infrastructure, Transportation,
Consumer Goods and Industrial.
By doing more with less, sustainability value will be
fundamentally connected to business value. We are
making sustainability profitable by tailoring solutions to
our customers’ needs today and in the future and by
future-proofing our supply chain.
Strategy 2020 elements
Sustainable business – creating business value through
products and solutions which provide both functionality
and other sustainability benefits, as well as cost savings
from operational efficiencies.
Examples include:
• Innovative coating solutions with lower curing
temperatures – which also last longer in service
• Low friction coatings which reduce energy
requirement in use
Ambition:
• We will increase the revenue from downstream
eco-premium solutions (that generate direct resource
and energy benefits for our customers, consumers
and users) to 20 percent of our revenues by 2020
Resource efficiency – accelerating resource efficiency
improvements across the value chain.
Examples include:
• Manufacturing excellence delivering yield
improvements and cost savings at our plants
• Lowest imaginable cost formulations
• Increased use of renewable materials and energy
in our suppliers and our own operations
Ambition:
• We will substantially reduce our carbon emissions
through the cradle-to-grave value chain by
25–30 percent per ton by 2020 (2012 base)
• As of 2014, we will report on an index measuring how
we improve resource efficiency across the full value
chain, compared with the value we generate
Capable engaged people – engaging our people and
partnering with our suppliers and customers to deliver
significant changes.
Maintain strong existing foundations – maintain
excellence in people and process safety, product
stewardship, integrity management, training and
development and community involvement.
End-user segment drivers
Based on the World Business Council for Sustainable
Development Vision 2050 work, we have developed
scenarios for our end-user segments. A common feature
is that resource scarcity (energy and raw materials)
will drive major changes in these segments. This will
create significant business opportunities for AkzoNobel,
particularly when we look across the full value chain.
Buildings and Infrastructure
• Mandatory thermal integrity standards
• 70 percent of the world’s population will live in urban areas
• 95 percent of new building stock using zero net energy
• Huge increase in energy efficiency retrofitting
• <6 percent of buildings heated with fossil fuels
Transportation
• Universal access to low carbon transport
• Super efficient and aerodynamic planes
• Reductions in carbon emissions:
• 80 percent reduction in light duty vehicles
• 50 percent reduction in shipping/freight
Consumer Goods
• People will use only five tons of non-renewable materials
per year (down from 85 in the US)
• Customers will expect long-lasting, efficient products
• Recycling or products and packaging integrated into
business models
Ambition:
• Sustainability is an integral part of business and culture
in all parts of our organization
Industrial
• Four to ten-fold improvement in eco-efficiency of
• Suppliers and customers are fully engaged in developing
resources and materials from 2000
innovative, sustainable solutions
• Closed loop processes, making landfill obsolete
• Cooperation across sectors the norm
AkzoNobel Report 2012 | Sustainability statements
163
Consolidated Sustainability statements
Sustainability topics have been integrated into
all sections of the AkzoNobel Report 2012.
This summary focuses on sustainability processes
and activities that span our businesses.
A fuller overview of our sustainability strategy, activities
and results can be found in the Sustainability section of our
corporate website: www.akzonobel.com/sustainability
Consolidated Sustainability statements
Note
2009
2010
2011
2012
Ambition
2012
Ambition
2013
Ambition
2015
Top quartile safety performance
Total reportable injury rate employee/supervised
contractors (per million hours)
Manufacturing sites with BBS program (% sites)
Top three in sustainability
Position in SAM sustainability assessment
Top quartile employee engagement
Employee engagement (mean score out of five)1
% internal promotion into executive level
% cross BU moves of leadership talents
% executives women
% executives high growth markets
Top quartile eco-efficiency improvement rate
Eco-premium solutions (% total revenue)
Carbon value chain assessments
Greenhouse gas emissions per unit product
(cradle-to-gate) (% reduction from 2009)
Sustainable fresh water management
(% manufacturing sites)
4
4
8
8
8
8
8
12
11
11
18
Operational eco-efficiency footprint measure
(% reduction from 2009)
14-18
3.7
–
2
80
80
5
10
11
18
158
–
38
–
3.6
72
3.1
76
2.4
76
2.5
100
2.0
<2.0
100
100
2
2
1
Top 3
Top 3
Top 3
3.56
3.74
3.80
74
5
12
12
21
286
2 2
48
7
80
6
13
13
22
330
3 2
74
11
70
5
15
13
22
366
3
83
13
–
–
–
14
14
23
–
5
70
15
–
–
–
–
–
25
–
5
80
–
4.33
80
–
20
20
30
–
10
100
30
1 From 2010, employee survey changed from % favorable to Gallup GrandMean: average of mean scores for each question (out of five).
2 2010 and 2011 data restated, see Note 11.
The blue pages in the AkzoNobel Report 2012 describe
the sustainability processes and activities that span our
businesses. The strategic ambitions in place in 2012 are
listed in the table on this page and in detail throughout
this section.
Safety
Expressed by the strategic objective Top quartile safety
performance. Details of our people, process and product
safety performance can be found in Notes 4–7 of this section.
Employees
Expressed by the strategic objective Top quartile
performance in employee engagement, diversity and talent
development. Details of our people performance can be
found in Notes 8–10 of this section.
Value chain
Expressed by the strategic objective Top quartile
eco-efficiency improvement rate. Details of our
environmental and social performance and improvement
activities across the value chain can be found in Notes
11–13 of this section.
Environment
Expressed by the strategic objective Top quartile
eco-efficiency improvement rate. Details of our
environmental performance and improvement activities
for our own operations can be found in Notes 14–19 of
this section.
Integrity
All our sustainability activities are underpinned by integrity
management. Details of our compliance performance and
improvement activities can be found in the Governance
and compliance section of this report, in the Compliance
and integrity management chapter.
We define top quartile at the start of each sentence and
in the glossary.
164
Sustainability statements | AkzoNobel Report 2012
1
Note 1: Managing our values
Strategic focus
Our sustainability agenda incorporates economic,
environmental and social aspects. We consider the drivers
to be the global mega-trends, population growth and the
new middle class, long-term scarcity of natural resources
and the impact of climate change.
The importance of sustainability to running our business
is firmly integrated into the AkzoNobel strategy. It helps
us enhance our existing business, create new business
opportunities and minimize risks. In 2010, we updated
our ambitions for 2015 for sustainable, accelerated
growth in order to support our overall goals:
• 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
These are underpinned by the company value of
integrity in all that we do.
During 2012 we reviewed and updated the company
and sustainablity strategies (see Strategy section and
2020 Sustainability strategy in this section for details).
The Executive Committee monitors the company’s financial
and sustainability performance using dashboards, which
specify indicators – both leading and lagging – against
strategic objectives. For most key performance indicators
we have announced 2015 ambitions. Other short-term
and long-term ambitions are set at business level.
The Notes in the Sustainability statements and other
elements of this report illustrate our performance
against these goals.
The focus has shifted away from an emphasis purely on
risks – working on integrity, governance and compliance
with our standards and applicable laws and regulations,
which are now integrated in the compliance framework
(see Governance and compliance section) – towards
creating opportunities for value creation through process
excellence, innovation and talent development.
Sustainability framework
The AkzoNobel sustainability framework maps out
a progression towards sustainability. It has three
levels, which include environmental, economic and
social aspects.
• Invent: integrate sustainable value propositions
• Manage: include sustainability in all aspects
of the value chain
• Improve: continue to comply and ensure our
license to operate
Sustainability framework
Level of development
Environmental
Economic
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
Examples of sustainability activity
Value chain aspects
Carbon and
water policies
Eco-premium
solutions
Leadership
training
Eco-premium
Zero VOC
Eco-efficiency
analysis
Required
eco-analysis
Supportive
supplier visits
Operational
eco-efficiency
Market
propositions
Market
research
R&D
Investment
decisions
Sourcing
Manufacturing
Sales and
marketing
Environmental/product
stewardship
Code of Conduct
Stretched safety
targets
AkzoNobel Report 2012 | Sustainability statements
165
The main corporate monitoring processes for sustainability
items are:
Non-financial letter of representation (NFL)
The outcome of the NFL process, in combination with the
internal control self-assessment process, forms the basis
for the Statement of the Board of Management in this
Report 2012 (for more information see Compliance and
intergrity management chapter in the Governance and
compliance section).
In-control process
An annual, in-depth, in-control process informs
management whether business processes are in
control. Shortcomings are reported and remediated.
Corporate audits
These include sustainability and compliance issues.
The outcomes are shared with the Audit Committee
and Sustainability Council. Our processes for managing
sustainability were reviewed as part of our 2012
external assurance activity. At functional level, these
are supplemented by specialist audits, for example
compliance and HSE.
Management structure
We have established a Sustainability Council, which
advises the Executive Committee on strategy develop-
ments, monitors the integration of sustainability into
management processes and oversees the company’s
sustainability targets and overall performance. The council,
which meets quarterly, is chaired by the CEO and includes
representatives from the Executive Committee (Supply
Chain, HR and RD&I), Managing Directors from our
businesses and the Corporate Directors of Strategy,
Sustainability and HSE, Sourcing and Communications.
The Corporate Director for Sustainability and HSE reports
directly to the CEO and has an expertise team for HSE
and Sustainability, including a group focusing on lifecycle
and sustainability assessments.
The Managing Director of each business defines their
respective non-financial targets and reports on progress
every quarter. All businesses have also appointed a
sustainability focal point to support the embedding of
sustainability throughout their operations. They bring
together an appropriate team to develop and implement
the sustainability agenda for the business. Focal points
from across the company have regular meetings to
exchange best practices and identify opportunities
for further development.
Meanwhile, each function in the value chain has identified
focus areas for sustainability, with targets where appropriate.
Functional management teams, such as HR, Supply
Chain and RD&I, which are made up of both corporate
and business representatives, are in place to support
the implementation of functional strategy, including the
sustainability elements.
The compliance framework and the management structure
for integrity and compliance aspects is detailed in the
Governance and compliance section under Compliance
and integrity management.
Management processes
We include key sustainability issues in our corporate
and business planning processes, as well as in our risk
management and compliance processes. Where there
are specific sustainability risks or issues of concern
to stakeholders, we develop position papers and an
improvement plan owned by a subject matter expert.
Overall 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 corporate level.
In 2012, we have taken these results together with
functional management review processes to form our
view. The results indicate that sustainability processes
are “in place” or “mostly in place” in all businesses.
Embedding of sustainability processes continues to
be highest in the compliance aspects such as risk
management, Code of Conduct, health and safety
and reporting. During the year, there were encouraging
improvements in product stewardship and the newer
areas of carbon and eco-premium solutions, due to
concerted company level programs, and in marketing
and sales through specific business activities.
We strive to empower all employees to contribute and
be accountable for our sustainability performance, using
training and other engagement processes, including
site level activity, web-based resources and, in 2012,
a Global Sustainability Day. This responsibility continues
to be anchored in the personal targets and remuneration
packages of managers and employees. Since 2009,
half of the conditional grant of shares for Board members
and all executives has been based on AkzoNobel’s
performance in the SAM (Sustainability Asset
Management) assessment over a three-year period
(see Remuneration report chapter in the Governance
and compliance section).
166
Sustainability statements | AkzoNobel Report 2012
2
Note 2: Reporting principles
Reporting scope
The Report 2012 combines our financial and sustainability
reporting and is addressed to readers interested in both
areas. In particular, we seek ways of linking sustainability
performance to business results in areas such as
operational eco-efficiency, carbon emission reduction,
eco-premium solutions and people development and
engagement.
The information in this Report offers an update on our
implementation of the ten principles of the United Nations
Global Compact (UNGC). More sustainability information,
including an index of all Global Reporting Initiative (GRI)
indicators and a summary of our UNGC progress is
available on our corporate website.
The topics of this Report were selected on the basis of the
sustainability aspects of our strategy, the GRI guidelines
and input from various external stakeholders. These
include our engagement with:
• Shareholders
• Customers
• Employees
• Rating organizations, notably Sustainable Asset
Management (SAM) – the rating agency for the
Dow Jones Sustainability Indices – and the
Carbon Disclosure Project
• Sustainability organizations such as the World Business
Council for Sustainable Development (WBCSD), the
World Resources Institute (WRI), Forum for the Future
and the International Integrated Reporting Council
Reporting policies
Materiality
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.
There have been no significant changes from 2011.
A summary of the process is available on our website.
Reporting boundaries
The AkzoNobel Report 2012 integrates sustainability
aspects of our processes and business operations in each
section, in particular the Strategy, Our leadership, Business
performance and Governance and compliance sections.
This Sustainability statements section summarizes the
global, cross-business elements of the sustainability agenda
and company performance. It includes quantitative and
qualitative information relating to the calendar year 2012
and comparative data for 2011, 2010 and 2009. We report
on consolidated data from entities where AkzoNobel is
the majority shareholder (more than 50 percent) and joint
ventures where we have management control, but exclude
all data from entities where we have minority ownership, or
no management control. We include data from Chemicals
Pakistan (which was sold at the end of 2012 and had its
own management board), and Decorative Paints North
America, which is classified as discontinued operations in
the Financial statements section. Reporting for Chemicals
Pakistan has been limited to HSE and compliance issues.
Comparability
Previously, our policy was to report acquisitions within
one calendar year. From 2010, we report from the date of
purchase, recognizing that reporting improvements may
be required at these facilities. A significant change reflected
in 2011 data is the acquisition of the Schramm/SSCP
businesses, and for 2012 data the Boxing Oleochemicals
acquisition and our new facilities at Ningbo, both in China.
In 2010, we changed our employee survey to Gallup Q12.
The Gallup GrandMean scores are not comparable with
the previous survey’s percent favorable score.
Our value chain (cradle-to-gate) carbon footprint is
measured per metric ton of product sales leaving
AkzoNobel. In 2012, the definition of product was clarified
to reduce variability in the indicator. It now excludes sold
by-products and sold energy. Previous years’ data has
been restated on the same basis. This has resulted in
an increase in quoted kg CO2(e) per ton for 2009–2011,
but there was no notable percentage change from
2009–2012, which therefore remains at 3 percent.
For our own operations, environmental impact and
improvements are quoted relative to production quantity,
i.e. the product volumes leaving every manufacturing
plant. There is no change in this indicator.
We identify issues which affect comparability in the text
or footnotes.
Reporting process and assurance
The reporting period is 2012. Data has mainly been
obtained from our financial management reporting
systems, corporate HR information management systems,
corporate compliance information reporting systems and
the AkzoNobel corporate reporting systems for Health,
Safety and Environment performance indicators, which
have associated approval and verification processes.
These processes continue to be updated and improved.
Data collection for the newer value chain reporting aspects
is carried out using standard templates and procedures.
More details on all reporting processes are available on
our website.
We are confident in the overall reliability of the data report-
ed, but recognize that some of the information is subject to
an element of uncertainty, inherent to limitations associated
with measuring and calculating data.
Senior managers approved the content and the quantitative
data used in the Sustainability statements section 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 statements section has been reviewed
by independent, external auditors. The Assurance report,
including the scope of the audit, can be found in the
Independent assurance report at the end of this section.
AkzoNobel Report 2012 | Sustainability statements
167
The fastest spray gun...
Revolutions in the way bodyshops operate are fairly
rare, so in recent years there have been very few radical
changes to the way in which vehicles are re-sprayed.
The traditional refinish application process requires
bodyshop personnel to precisely measure each
component to ensure a correct mixture of clearcoat
and hardener. As well as being relatively time-consuming,
it can result in spills and mixing errors.
In an effort to make this process faster, more efficient and
more reliable for its bodyshop customers, our Automotive
and Aerospace Coatings business has developed an
ingenious packaging solution called click&go. Deceptively
simple to use, the system uses disposable, pre-measured
pouches that fit into a special frame.
Painters first allow the two components to merge by
opening the frame. You then click it closed, give it a quick
ten-second shake to activate the clearcoat and it’s ready
to go. The system is then attached directly to the spray
gun for immediate use. Once application is complete,
the pouch is simply detached from the frame and thrown
away. The plastic frame can even be recycled.
There’s no spillage, less waste, no need for mixing
because the clearcoat and hardener are pre-measured
(eliminating mixing errors), no exposure to fumes and
product behavior is more consistent. An ideal solution
for bodyshops that want to maximize productivity and
efficiency and a perfect example of how AkzoNobel is
actively seeking new ways to support the growth and
sustainability of its customers.
click&go™ is faster and more efficient
for our bodyshop customers
click&go™
A simple system using disposable, pre-measured pouches,
making the process of re-spraying faster, more efficient and
more reliable for bodyshop customers.
3 Note 3: Stakeholder engagement
Our approach
The aim of our stakeholder engagement is to learn from
key financial, social and environmental stakeholder groups
and in collaboration to develop leading sustainability
solutions relevant to:
• Our stakeholder needs
• Implementation of strategic ambitions
• Management of risks and opportunities
Our key stakeholders are employees, customers,
suppliers, investors, communities, specific sustainability/
research organizations and NGOs. This section includes
some highlights. There are more details in the Strategy
and other sections of this report:
• Communities: Note 10 of this section
• Customers: Business performance section
• Employees: Note 8 of this section
• Investors: Governance and compliance section
• Suppliers: Note 13 of this section
• Specific sustainability/research organizations
and NGOs: Note 3 of this section
Stakeholder engagement in 2012
Our commitment and primary partners
We support a number of charters and external
organizations to demonstrate our commitment
to sustainability issues.
These include the UN Global Compact – where we are also
an active member of the network in the Netherlands – the
UN Declaration of Human Rights, the Responsible Care®
Global Charter and the CEO Water Mandate, where we are
represented on the steering group. As part of a joint PRI-UN
Global Compact initiative designed to improve company-
investor communications on ESG information, AkzoNobel is
hosting one of the pilot presentations designed to test and
refine the ESG Investor Briefing concept.
2020 strategy development
We received input from customers, suppliers, employees
and NGOs during the development of our strategy.
Product-related partnerships
We have some notable NGO partnerships linked to product
areas. Through the Amsterdam Initiative on Malnutrition (AIM),
the Global Alliance for Improved Nutrition (GAIN) and the
project Smarter Futures, our Ferrazone iron fortificant is making
an important contribution to the Millennium Development
Goals of the United Nations. Activities during 2012 included
support for the GAIN Netherlands office and the AIM
secretariat, as well as participation in a cassava fortification
project and QC/QA laboratories. The winners of the internal
AkzoNobel Sustainability Award contributed their prize money
to Smarter Futures to develop an instrument which can
monitor the amount of Ferrazone in wheat/flour – important
for the future development of this application.
Following our 2010 partnership agreement with the Forest
Stewardship Council (FSC), we have set up a central fund
to support the FSC’s work in increasing the supply of
FSC-certified products. We are also rolling out local partnership
agreements between our consumer woodcare brands and the
FSC’s national offices to promote awareness of the FSC and
the use of wood and paper from sustainably-managed forests.
We have eight active partnerships in the Netherlands, UK,
Germany, Switzerland, Czech Republic, Brazil, Russia and
the Nordics. In 2013, we will also set up local partnerships
in Poland, Belgium, Argentina and Canada. In Brazil, the
program has included communication to the sales team,
clients and consumers, training for painters and sales clerks,
as well as involvement in FSC Friday and the smallholders
certification program.
activities, exhibitions at more than 50 sites, a special CEO
video and live Q&A sessions with company experts. The
questions were focused on six areas (customers, strategy,
environment, community, products and suppliers). This initiative
helped to build on a range of other activities where employees
are setting the local agenda and driving improvement, for
example through local green teams and community activities
around the world.
Customers and suppliers
Involvement of customers and suppliers is crucial to our value
chain approach to sustainability. We encourage customers to
challenge us and work with us on more sustainable product
propositions. There are many specific examples in the case
studies and Business performance section of this Report. Our
key supplier contracts include sustainability aspects and we
have had detailed discussions to identify joint development
areas with some of our biggest suppliers during the year. One
specific project is a detailed review of titanium dioxide with
value chain partners to identify joint improvement opportunities.
Shareholders and analysts
We continued to develop engagement with shareholders on
sustainability aspects by taking part in five conferences during
the year, as well as answering questions in telephone briefings
and questionnaires. Questions during 2012 continued to focus
on financial benefits from sustainability activity and solutions for
customers, raw materials supply, carbon policy and specialist
topics, for example nanotechnology. Sustainability aspects
of business are also included in many analyst and general
shareholder presentations.
See also the AkzoNobel on the capital markets chapter
in the Governance and compliance section.
Employee engagement
During 2012, we held our first Global Sustainability Day,
engaging employees from around the world on the theme:
If sustainability is the answer, what is the question? Employees
were encouraged to get involved and ask questions via a
range of activities including site/team meetings, community
Supporting our development areas
We continue to develop our biodiversity priorities working
with the IUCN Leaders for Nature Inspirational Programme
on Ecosystems and Young Leaders for Nature program in the
Netherlands. Current focus is to identify “hot spots” in some
of our key value chains, to identify a quick scan process which
170
Sustainability statements | AkzoNobel Report 2012
Safety
could be integrated with other environmental assessments
and to develop case studies to raise awareness.
Key performance indicators – safety
To help us further develop reporting and transparency,
AkzoNobel is one of more than 80 pilot companies in the
International Integrated Reporting Council program to
create a forward-looking company reporting framework.
Developing good practice
In the field of carbon management we co-chair the WBCSD
Chemicals Sector Working Group. Together with peers, we
have developed chemicals sector guidelines to drive consistent
reporting of Scope 1 and 2, as well as Scope 3 up and
downstream emissions. The current focus is to explore how
we can best address so-called avoided or Scope 4 emissions
– the emissions avoided by the use of our products through,
for example, energy or resource efficiency improvements.
To enhance the importance and development of sustainable
value chains, we again supported the organization of the
International Supply Management Congress in Amsterdam.
This was a joint initiative with ADC Performance Improvement,
IDH (the Dutch Sustainable Trade Initiative), KPMG, NEVI
(Dutch knowledge network for purchasing and supply
management), Rabobank, Shell and Unilever. The event
is a meeting point for sharing knowledge, experience and
best practices across supply chain professionals, NGOs
and thought leaders. The focus for 2012 was creating scale
through pre-competitive cooperation: Experience the impact
of supply chains.
Indices and recognition
During 2012, we achieved a number one position on the Dow
Jones Sustainability Index in the Chemicals supersector. We
continued to be included in the FTSE4Good index and to take
part in the Carbon Disclosure project. We were also one of
three chemical companies given “prime” status in the Oekom
investment universe. In the Netherlands, we were shortlisted
in the Transparency benchmark (top three).
People
Total reportable injury rate employee/supervised
contractors (per million hours)
Manufacturing sites with BBS program (% sites)
Process
Regulatory actions (Level 3)
Significant loss of containment (Level D)
Product
Priority substances with management plan (%)
REACH compliance Tier 2 (%)
Management
Safety incidents (Level 3)
HSE audits
2009
2010
2011
2012
Ambition
2012
Ambition
2013
Ambition
2015
3.7
–
3
1
–
–
9
66
3.6
72
4
0
–
8
10
61
3.1
76
0
2
23
44
8
66
2.4
76
3
0
42
83
3
61
2.5
100
0
0
40
80
0
–
2.0
100
0
0
60
100
0
–
<2.0
100
0
0
100
100
0
–
Management focus and employee engagement at
every level have delivered a reduction of 23 percent
in the total reportable injury rate. Specifically, the
tailor-made approaches of our Behavior-Based
Safety program, and the focus and support for
sites that have consistently fallen short in performance
(so-called safety roadmap sites), mainly contributed
to meeting our milestones. In order to step up process
safety, a Process Safety Excellence program will be
introduced on a global basis.
The AkzoNobel HSE vision of zero injuries, waste and
harm is based on our company strategy. The HSE Agenda
for 2011 to 2015 sets the targets and milestones for
achieving our ambition to be in the top quartile of peer
companies. Top quartile performance is measured by
comparing the total reportable rate (TRR) for incidents
with eight comparable companies.
As well as focusing on management leadership, behavior-
based improvement processes and operational discipline,
the company has launched a standard set of improvement
programs which are common across the company – the
HSE Common Platform. By working to improve through
common programs, we aim to achieve consistency, high
effectiveness and efficiency. The businesses have taken
responsibility for implementing these programs. Leading
units are providing experience and best practice, which
can be shared with others in order to accelerate progress.
AkzoNobel Report 2012 | Sustainability statements
171
4
Note 4: People health and safety
An improvement program for people safety is in place at
our businesses and related ambitions have been set for
2015. Overall, performance indicators for people safety
show that the company continues to structurally improve.
In general, the number of incidents is going down, while
at the same time new initiatives help us to accelerate
improvement.
Employee and contractor safety
Even with a general downward trend in reportable incidents
in 2012, the company continues to strive for zero incidents
in order to become a leading company in safety perfor-
mance. The downward trend is reflected in both the total
number of injuries to employees and supervised contrac-
tors, as well as in the number of 13.4 safety incidents.
Employee and supervised contractors total
reportable injuries injury rate
Ambitions
3.7
3.6
3.1
2.4
2.0
2009
2010
2011
2012
2015
Independent contractors total reportable
injuries injury rate
2.8
3.0
3.5
4.2
2009
2010
2011
2012
The total reportable rate (TRR) 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.
172
Sustainability statements | AkzoNobel Report 2012
• The total reportable rate of injuries for employees and
supervisors dropped from 3.6 (2010) and 3.1 (2011)
to 2.4 in 2012. This correlates with a decrease in the
number of 13.4 safety incidents from 36 in 2011 to 23
in 2012
• However, the improved safety performance does not
extend to independent contractors. More independent
contractors were injured in 2012 than in the previous
year, demonstrating the need to refocus more on contractor
safety management and the involvement of independent
contractors in our safety improvement programs in 2013
• There was a stronger focus in 2012 on operational
discipline and a strict adherence to the intrinsic company
safety value. This was supported by the launch of the
TakeCare program and our Life-Saving Rules, which were
formally announced during a global Safety Day. With full
implementation to be completed in 2013, the focus on
personal accountability and safety priority is expected to
facilitate a continued decrease in incidents and injuries
• The steady improvement in our injury rate was supported
by management focus and employee engagement in
the form of a Behavior-Based Safety (BBS) program.
During 2012, AkzoNobel signed a sole, global supplier
agreement with Behavioral Science Technology Inc.
for the supply of best practice behavioral safety
methodology to all businesses. BBS has now been
implemented at 76 percent of our manufacturing sites,
with the remaining facilities (mostly newly-acquired
units) due to be included during 2013
Employee health
Not only do we ensure a safe working environment, but
we also foster employee health and well-being, as well as
managing illness absenteeism.
Employee health
Total illness absence rate
Occupational illness rate
2010
2011
2012
1.9
0.3
2.0
0.3
2.0
0.2
Wellness Checkpoint use
>5,000
>8,800
>11,300
• The total illness absence rate remains stable at 2.0 percent
(2011: 2.0 percent). We continue to monitor this indicator
for the whole company, aiming to stay at a level around
1.9 percent, but will not set new long-term ambitions
• The occupational illness rate for employees and
supervised contractors stands at 0.2 illnesses per
million hours worked (2011: 0.3). With our continued
expansion in high growth countries, we recognize that
there are challenges associated with cultural aspects
(such as health beliefs and the emphasis on group
importance), and differences in healthcare systems
which may discourage illness reporting or impact the
comparability of reporting
• Our health risk appraisal tool, the Wellness Checkpoint,
is appreciated and being used by an increasing number
of employees and their families. By the end of 2012,
more than 11,000 people had joined the program
• Occupational hygiene workshops for people in HSE critical
roles have been delivered in each of the three regions
Safe driving
In 2012, AkzoNobel recorded fewer total motor vehicle
incidents resulting in injury and fatalities than in previous
years. However, this subject remains high on our agenda.
Motor vehicle incidents
Incidents with injury
Fatalities – employees
2010
2011
2012
34
1
29
0
28
1
• In 2012, we recorded fewer motor vehicle incidents with
injury – from 34 and 29 in 2010 and 2011 respectively to
28 in 2012. Tragically, one motor vehicle incident involved
an AkzoNobel employee fatality (see Note 7)
• The company continues to monitor safe driving
performance and strives for improvement. This year,
a Safe Driving training program was developed, parallel
to ongoing training initiatives. The program will result in a
pilot in 2013, followed by company-wide implementation.
5
Note 5: Process safety
We continue to use “loss of primary containment’’
as our main indicator of asset integrity/process safety
performance at our manufacturing sites.
Loss of containment incidents are divided into four
categories depending on severity.
Loss of containment incidents
Levels
D
C
B
A
0
(2011: 2)
Significant
16
(2011: 31)
Not contained at site
209
(2011: 228)
Not readily controlled but contained at site
1,809
(2011: 1,843)
Readily controlled and contained at site
Comparing 2012 with 2011, no significant change in the
loss of containment figures can be observed, apart from
a downward trend in Level C and D incidents. We expect
several Common Platform projects which began in 2012
(Process Safety Management, embedding the Self-
Assessment Questionnaire) to offer significant help
in achieving the process safety performance goals set
in the Common Platform Agenda 2011–2015.
Process safety management
An integrated approach to process safety management was
developed during the year for all manufacturing operations,
from low to high hazard sites. This resulted in a Process
Safety Management Framework, which describes the
process safety management elements in a uniform manner,
uniting production, maintenance and engineering disciplines.
In parallel with this policy, a new set of Process Safety
Management Standards and Guidance Notes have been
developed, which describe the AkzoNobel requirements
and best practices for process safety management.
The project will be aligned with process safety improvement
initiatives to ensure an integrated approach, share
best practices and engage with local sites across our
businesses.
Self-assessment questionnaire (SAQ)
A project has been launched to reposition the HSE
annual self-assessment questionnaire (SAQ) as the
company-wide HSE improvement planning tool. Specific
focus was put on high hazard sites to ensure they achieve
reference level in all process safety elements. These
reference levels are defined in the company’s HSE
management system and are set to achieve the level
of top quartile safety performance. Currently, 52 percent
of high hazard sites have achieved reference level.
A dedicated emphasis program has been rolled out
to support sites facing difficulties in achieving these
high ambitions. Follow-up and dedicated management
attention and professional support are given to these
sites to bring them to the desired performance level.
AkzoNobel Report 2012 | Sustainability statements
173
6
Note 6: Product stewardship
Our ambition is to be in the top quartile of companies
in our peer group for product stewardship. Based on
the product stewardship objectives included on our
HSE Agenda 2011–2015, our focus has been on HSE
Common Platform programs during 2012.
Priority substance management
We have identified a list of 146 priority substances by
scoring all hazardous substances used in AkzoNobel
products and processes. Scores are allocated
to substances on the basis of their human and
environmental hazard (under the GHS system) and where
societal concern exists over their use. Substances with
higher scores are designated as AkzoNobel priority
substances and are subject to review by our experts.
Where possible, priority substances are removed from our
products and substituted with more sustainable materials.
Where possible, priority substances are removed from our
products and substituted with more sustainable materials.
If this is not possible, a full review of the substance is
performed following state-of-the-art risk assessment
techniques from the EU REACH regulations. Only when
safe use of a priority substance can be demonstrated is
it allowed for use in our products and processes.
In 2012, we set a target to review and risk manage 40
percent, or 58, of our priority substances. We achieved
this objective and 40 priority substances will no longer
be permitted for use in AkzoNobel products and will be
removed or substituted with more sustainable alternatives.
An example of a group of priority substances to be phased
out is a group of seven phthalates used in coatings
as plasticisers, where there are concerns over their
toxicity. This group of phthalates will be phased out
and substituted with more sustainable alternatives
from the end of 2014.
Going forward, our target is to review and risk manage
all our priority substances by 2015, with 60 percent
complete by the end 2013 and 80 percent by the end
of 2014.
Distribution incidents
Road
Sea
Rail
Air
Total
2009
44
2010
82
7
1
0
52
5
4
0
91
2011
67
3
10
0
80
2012
44
2
0
0
46
Product distribution
We insist that our products are transported and distributed
safely by our contractors, so we audit their performance
and monitor and record incidents involving distribution
of our products. In 2012, we prepared a comprehensive
guidance note for our businesses to raise the profile of
safe product distribution, which included a risk management
tool. During the year, a significant drop in these incidents
was observed.
REACH
We are on schedule to submit dossiers for registration
of AkzoNobel substances in June 2013 in accordance
with the REACH regulations. We have also continued to
provide additional information and answer questions from
the authorities on registration dossiers for substances
registered in 2010.
Classification and labelling of AkzoNobel products
Through the introduction and use of common software in
our chemicals and coatings businesses, we are harmo-
nizing the way product material safety data sheets are
generated. We are on schedule with implementation of the
Global Harmonized System (GHS) for labelling of chemical
substances and products.
Advocacy
We are active in industry associations at a local, regional
and global level. Our aim is to establish equitable and
sustainable standards in our industry that protect human
health and the environment. Participation in this way also
gives us an opportunity to engage in a dialog with regula-
tors before changes in new rules impacting our products
are finalized.
Product stewardship summaries
We continue to develop product stewardship summaries
on a voluntary basis for the substances we manufacture
under the Responsible Care® initiative. These documents
communicate hazards and give advice to customers on
the safe use of our products. In 2012, more than 100
substance summaries were posted on the website of
the American Chemicals Council (ACC) and International
Council of Chemical Associations (ICCA).
For example, in China we provided advice to Chinese
government officials drafting the Chinese Green Label
standard for antifouling paints through our participation
in the Association of International Chemical Manufacturers
in China (AICM) and the International Paint and Printing Ink
Council (IPPIC). We also assisted the Chinese authorities
in the development of a new national standard for trans-
portation of organic peroxides to optimize safe transport
of these substances in China.
Regulatory affairs
In addition to complying with regulations that impact on
our products and processes, we carefully monitor changes
and prepare ourselves for new regulations that will affect
our businesses. In 2012, our primary activities included:
We continue to promote harmonization between countries
and the implementation of changes in chemical substance
regulations through our representatives in trade asso-
ciations such as the International Council of Chemical
Associations (ICCA).
174
Sustainability statements | AkzoNobel Report 2012
High production volume (HPV) program
In 2012, we continued to participate in the extended HPV
program, a voluntary industry initiative to ensure sufficient
data is available to assess the hazards of substances.
Working through the American Chemicals Council (ACC),
we ensured appropriate information and data were gener-
ated and supplied to the US government. We will continue
to participate in this work.
The aim of our Product Stewardship program is not only
to comply with all rules and regulations that impact on
our products, but to also, where possible, go beyond
legislation. By working in this way, we promote a high
level of sustainability, human and environmental safety
and make sure our products are future-proof in advance
of legislative change.
7
Note 7: HSE management processes
Management systems
Operational excellence at our sites is supported by
risk-based management systems that follow the
Responsible Care® and Coatings Care® principles. Our
HSE management standards are set up and updated
in accordance with international standards such as
ISO-14001, RC-14001, OHSAS-18001. Validation of
our process safety management standards with PAS
55 (public standard for process safety) will take place in
2013. Many sites and businesses have additional external
certification for their management systems, which are
subject to audit by our internal audit group and external
audits from certification authorities.
External certification
in % of production
ISO-14001/RC-14001
OHSAS-18001/RC-14001
2010
2011
2012
72
35
73
37
75
42
Common Platform
A Common Platform of HSE programs has been launched
in order to achieve company-wide consistency in all our
HSE management systems. For the first time, AkzoNobel
now has:
• Transparency of performance information
• Delivery of process safety excellence in line with current
PSM practices
• A best practice people (behavioral) safety methodology
• A global approach to managing priority substances
• A common HSE leadership training program
The Common Platform has given complete clarity to line
managers and HSE professionals about what to focus on
in order to deliver top quartile performance. Management
focus and employee engagement at every level have
delivered a reduction of 23 percent in the total reportable
injury rate in 2012.
The common HSE systems initiative will continue to
evaluate and implement effective common systems for
AkzoNobel in 2013. Examples include the One Incident
Reporting System.
HSE audit
The HSE audit process combines a continuous improvement
tool for sites with a periodic audit managed by our internal
auditing department. For most sites, the audit frequency is
every five years. For sites with an intrinsic high hazard rating,
this frequency is every three years.
During 2012, we carried out 56 corporate HSE audits
(2011: 62) and five reassurance audits (2011: 4), which are
required for sites with high risk findings. Learnings from the
2012 audits indicate that we need to continue to improve
our management of occupational health, asset integrity and,
to a lesser extent, security.
In 2012, the number of HSE lead auditors was increased.
We run yearly regional training sessions for auditors in North
America, Latin America, Europe and Asia to calibrate the
classification of audit findings and share good practice and
new developments.
Management audits number of audits
66
61
66
61
2009
2010
2011
2012
Safety incidents
The company continues to strive for zero injuries and
zero 13.4 safety incidents. We classify incidents based
on severity of outcome, from local impact (Level 1) to the
highest category (Level 3). The number of Level 1, 2 and
3 safety incidents totaled 23 (2011: 36). The number of
Level 3 safety incidents dropped from eight in 2011 to
AkzoNobel Report 2012 | Sustainability statements
175
three in 2012. However, we regret that two employees
and five members of the public died as a result of these
incidents. More focus has been put on the follow-up of
incident investigation findings and recommendations, while
both investigation process and follow-up are consistently
tracked. Regional pools of experienced investigators are
being set up to assist in local incident investigations and
share investigation knowledge and experience.
• One employee died after a fall from a platform while
carrying out maintenance work at the Sheikupura site
in Pakistan
• One employee, a sales representative, died in a motor
vehicle incident near Frankfurt, Germany
• Five members of the public died when a site boundary
wall, adjacent to where they had built makeshift shelters,
collapsed during extreme rainfall in Hyderabad, India
Safety incidents
9
10
8
2009
2010
2011
2012
3
Safety incidents (Level 3) involve any loss of life; more than five severe injuries;
environmental, asset or business damage totaling more than €25 million; or extensive
reputational damage.
176
Sustainability statements | AkzoNobel Report 2012
Regulatory actions
We have defined three categories of regulatory actions,
from self-reported issues (Level 1) to formal legal
notifications with fines above €10,000 (Level 3).
There were three Level 3 regulatory actions in 2012.
Regulatory actions
Regulatory actions
Level 3
2009
2010
2011
2012
3
4
0
3
Regulatory Action Level 3: a formal notice of a criminal prosecution or
penalty greater than €10,000.
Security management
Security of people, assets and information are pivotal
factors to the success of our business and therefore remain
an integral part of our HSE management system. Ongoing
security assessments help our sites to identify risk and put
in place advanced security protection.
HSE capability development
The HSE function has adopted the competency framework
of the Integrated Supply Chain. The framework incorporates
all HSE competencies required by HSE professionals and
line managers with critical HSE functions. The profiles of key
roles have been defined, including required competencies
and proficiency levels.
An HSE Faculty was established in 2012 as part of the
AkzoNobel Academy, providing core training and development
programs for line managers, HSE and PS&RA professionals.
The curriculum for line managers with critical HSE functions
has been based on the competency framework, with special
emphasis on training line managers in HSE leadership, asset
integrity and hazard study. HSE professionals are included in
the line management training, while product safety specialists
have been trained in substance risk assessment. In depth
modules will be developed during 2013 to meet the specialist
needs of both groups.
Creating more with less
Creating more value with less environmental impact
has been a core element of our operational
eco-efficiency program for several years. As well as
reducing the amount of resources we use and cutting
emissions and waste produced during manufacturing,
it also helps to generate important cost savings.
Another crucial element of our operational
eco-efficiency program is the fact that it stimulates
creativity and innovation as we search for new ways
to decrease our environmental impact. And it’s
not limited to our own operations. The program
also applies to upstream and downstream activities
throughout the value chain.
Our manufacturing site in Itupeva, Brazil, is a real
environmental success story. Operated by the Surface
Chemistry business, the facility has introduced a
number of initiatives that have significantly improved
sustainability performance at the site. For example,
their ammonia recovery project resulted in a 35 percent
reduction of CO2 emissions for ammonia usage along
the entire value chain. In addition, direct process NO2
emissions decreased by a remarkable 79 percent.
The Itupeva site has also started implementation of the
Comprehensive Energy Diagnostics program (CED),
which will lead to increased energy efficiency of around
25 percent. These endeavors, combined with the
ammonia recovery project, will result in annual cost
savings of nearly €2.5 million.
This combination of both environmental and economic
benefits makes Itupeva a great example of the positive
results we are achieving as we continue to improve our
eco-efficiency performance.
All environmental comparisons are made against the baseline year of 2009 and
per ton of product.
Employees
Key performance indicators – employees
2009
2010
2011
2012
Ambition
2015
2009
2010
2011
2012
Ambition
2015
People data
Employees
Employee engagement
ViewPoint score
Talent management
% internal promotion into
executive level
% cross BU moves of
leadership talents
% online P&D Dialog participation
% retention of leadership talent
(overall)
% retention of leadership talent
(women/high growth markets
employees)
# managers joined Managers
Essentials Program, per region:
Europe
Americas
Asia
Other
Total
# managers joined Advanced
Management Program, per region:
Europe
Americas
Asia
Other
Total
Ranking of engagement index
on Learning and Growth (Q12)
1 We define top quartile in the glossary.
54,700
55,600
57,240
55,272
NA
% of women executives
Diversity and inclusion
% of executives from high
growth markets
% of women executive potentials
% of executive potentials
from high growth markets
Executive diversity:
women in % per area
General management/Sales
Support
Marketing
Manufacturing
RD&I/Technology
Other
Total AkzoNobel
Executive diversity: people from
high growth markets in % per area
General management/Sales
Support
Marketing
Manufacturing
RD&I/Technology
Other
Total AkzoNobel
3.56
3.74
3.80 Top quartile1
74
5
76
97
96
2,039
968
1,212
135
4,354
441
201
172
59
873
3.61
80
6
78
96
94
2,562
1,341
1,642
151
5,696
695
309
298
69
1371
3.80
80
10
95
95
95
95% (MEP/
AMP)
95% (MEP/
AMP)
70
5
84
96
97
3,008
1,496
1,566
81
6,151
833
348
283
59
1,523
3.85 Top quartile1
80
5
72
98
96
732
796
728
0
2,256
199
80
173
0
452
20
20
30
30
10
11
NA
NA
3
18
12
10
7
14
10
19
9
8
7
4
5
11
12
12
27
26
3
24
15
8
13
13
12
18
12
10
5
5
4
12
13
13
26
31
3
24
22
10
14
13
13
20
12
5
10
5
6
13
15
13
27
31
4
28
27
7
14
14
15
21
12
9
12
4
11
13
178
Sustainability statements | AkzoNobel Report 2012
8
Note 8: Our people
HR at AkzoNobel is fully dedicated to serving the needs
of both our individual businesses and the company as a
whole. To support us in this regard, and in addition to our
operational activities, at the end of 2011 we set a new
HR functional excellence agenda, which was aligned with
the company’s performance improvement program. This
is directed at delivering strong succession in line with our
diversity and inclusion objectives and achieving internal
and external recognition as an employer of choice. To that
end, we defined five key focus areas:
• Put in place OneHR Services in our key countries,
serving all businesses within those countries
• Develop a strong talent pipeline based on an
integrated talent management approach
• Implement an AkzoNobel Academy to underpin
functional and operational excellence
• Professionalize recruitment and retention to
become the employer of choice in key countries
• Deliver a step change in HR capabilities and
expertise levels
In 2012, we made significant progress, a fact underlined
by the outcome of the 2012 SAM benchmark. Indeed,
the social dimension of the SAM benchmark places
AkzoNobel in number one position in the Chemicals
supersector, in areas such as human capital development,
labor practice and human rights.
HR Services
For basic HR administration, we are driving towards a stan-
dardized OneHR Services way of working and organization
across the company, based on three linked elements: stan-
dardized processes, executed on a standardized IT platform
(myHR), by HR staff in an HR Service Center. This will
enable us to provide a consistent and quality service across
our ten key countries, while reducing costs to benchmark
levels. In addition, the OneHR Services project is also abso-
lutely central to removing the different systems that exist in
the function today and provides the foundation on which we
can focus on our core challenge: putting in place a healthy
talent pipeline and strong succession planning. Good prog-
ress has been made in 2012. Our new OneHR infrastructure
went live in China, with the next rollouts planned for Brazil
and India in Q1 2013.
In addition, in 2012, we decided to take an integral
Talent Management Suite (TMS) approach to HR IT
in the following areas: Recruitment; Learning and
Development; Compensation and Benefits; and
Performance Management. In other words, we will be
pursuing the implementation of a coherent IT solution
to address all four HR domains, further reducing the
fragmentation in our IT landscape.
Talent management
With the basics of OneHR Services falling into place, we are
taking action to create a healthy talent pipeline with strong
succession planning in line with our diversity and inclusion
ambitions. Using a clear definition of what it is to be a
leader at AkzoNobel, we are aiming to have talent pipelines
with two or three immediate successors to key positions.
We will achieve this by managing the careers of our key
talents in a more proactive manner and linking succession
planning to career planning, with clearly aligned learning and
development opportunities, mentoring and coaching facilities,
and career development possibilities.
Key actions in 2012
• Use of Matching Forums at Business Area and Function
level to regularly discuss upcoming vacancies with
potentials in the company
• Individual Development Plans (IDPs) for key talents
• Improved Leadership Talent Review process, with more
focus on an individual’s future potential and capabilities,
and ensuring that we identify and assess potential
earlier in the careers of our talents
• Continued use of our two main management programs.
The Management Essentials Program (MEP) is designed
to give all managers the fundamental skills needed
to properly manage their people. The Advanced
Management Program (AMP) is designed to help more
senior or middle managers become more proficient at
leading larger, or more complex organizations, develop
leadership talent among their staff and create high-
performing teams spanning various functional areas
• AkzoNobel Academy to enable functional and
operational excellence. The Academy is the key enabler
to drive and facilitate capability build; incorporate
internal and external best practices and best practice
sharing; offer courses that are directly linked to
key areas that drive our functional and operational
excellence ambition in a sustainable way; ensure that
our courses, standards, improvement methodologies
and tools are easily accessible across the organization
and benchmarked against world class standards. Each
function now has its own Faculty Leader to define
capability need/competencies and the associated
curriculum to grow these capabilities. In addition, we
have now launched a catalog of best practice courses
for key functional areas and defined the curricula for
2013, which is aimed at improving identified capabilities
• Continued use of our Performance and Development
Dialog. The P&D Dialog is AkzoNobel’s global
performance appraisal and employee development
program. All employees are required to participate.
Our company values and success factors (behavioral
competencies) are an integral part of all development
discussions and are integrated into the system and
annual performance appraisal process
Diversity and Inclusion
Our talent management activities are aligned with our
diversity and inclusion ambitions: at AkzoNobel, we strive
to draw from as wide a talent pool as possible and create
a working environment where differences are valued and
where everyone has the opportunity to develop their skills
and talents.
To achieve this, we have had a dedicated Diversity and
Inclusion (D&I) program in AkzoNobel since 2008. The goals
of the program are to create awareness and engagement
around diversity, to embed the concept in the organization,
AkzoNobel Report 2012 | Sustainability statements
179
to establish company-wide metrics and to make AkzoNobel
a true reflection of the markets in which we operate.
We have made good progress with D&I in recent years –
something which has been highlighted by our success in
filling senior level appointments with candidates from our
focus groups (women or people who come from high growth
markets). For example, of the total number of senior level
positions that were filled last year, 33 percent of the external
recruitments and 24 percent of the internal moves were
female. In addition, 29 percent of external and 18 percent of
internal placements were from high growth markets.
In addition, we have improved the proportion of our
executives who are either women or come from high growth
markets. Since the start of 2009, the proportion of women in
executive positions has increased from 10 percent in 2009
to 15 percent of the total population in 2012. The presence
of women in executive positions has been particularly
strengthened in functional roles over the past two years,
especially in HR, Finance, Purchasing, Legal, Marketing and,
to a lesser extent, Sales and Manufacturing. With regard
to executives in high growth markets, we have made less
progress, although the proportion of executives coming from
these markets is 13 percent.
In 2012, a number of initiatives were put in place to further
embed D&I in the AkzoNobel culture. These included:
• Three-step D&I program: All of our businesses have
now gone through this comprehensive program,
which culminates its first phase in 2015
• We have also invested considerably in D&I awareness
training for managers in the skills needed to create and
sustain diverse teams. In total, 4,700 of our managers
have already completed the training and D&I e-learning
module for all employees, while nearly 25,000 employees
globally have completed the online training program
Recruitment
To support us in attracting the talent we need to achieve
our ambitions, we are driving towards becoming an
employer of choice in our key countries, targeting, for
example, a top 100 position in China and a top ten
position in the Netherlands. This should lead to recruiting
better talents at lower cost. To support us in this, we have
established recruitment “centers of expertise” in our top
ten key countries to help us leverage the scale of AkzoNobel
as an employer and to serve our businesses more
efficiently and effectively.
Key actions in 2012:
• Established recruitment centers of expertise
in our top ten key countries
• Improved attractiveness (and reduced cost)
of AkzoNobel as an employer through a One
AkzoNobel Employee Value Proposition –
Where your ideas go far
HR training
Achieving all of the actions on our agenda will require
the support of a suitably qualified HR organization.
We have therefore set about delivering a step change
in HR capabilities and expertise levels. Guided by a new
HR competency framework and development center,
HR employees are now being offered the learning
opportunities they need to be a strategic partner to
their organization.
Key actions in 2012
• Rolled out the HR Development Center to help
our people develop the capabilities required to
deliver functional and operational excellence across
the company
• Defined an HR curriculum within the AkzoNobel
Academy to strengthen capabilities, based on a
clearly defined competency framework
• Establishment of a company-wide diversity and
• Launched the HR Business Partner program to
inclusion policy
• Establishment of a company-wide anti-harassment directive
strengthen the ability of this key group to be strategic
partners to the business. In 2012, we rolled out the
180
Sustainability statements | AkzoNobel Report 2012
program to various countries and trained more than
100 HR professionals across AkzoNobel
Employee engagement
In addition to underpinning our ambition to become
an employer of choice with our talent management
and diversity and inclusion activities, we aim to become
one of the top companies when it comes to employee
engagement by creating a working environment where
people feel valued and are given the right conditions to
perform at their best. We use our ViewPoint Employee
Engagement Survey to monitor progress. This is based
on the Gallup Q12 survey and provides a comparison
against nearly 500 organizations.
Our overall engagement score went up only slightly this
year, as did the scores for each of the questions on the
survey. While there were positives, there are a number
of areas where action needs to be taken and plans to
remedy the gaps are already in place, including:
• Introduction of HR Coaches program to ensure HR
business partners can coach managers to improve
people management skills, especially in the area of
performance management and employee engagement.
Sixty HR business partners have been trained so far
• Introduction of Engagement Catalysts program to
enable people managers to further strengthen their
engagement expertise and to enable them to act as
trusted advisors to (low performing) people managers.
In total, 89 people managers have been trained so far
• Introduction of global webinars for all people managers
to improve best practice sharing and help managers
raise engagement levels in their teams. Twelve webinars
have been held so far
9
Note 9: Restructuring
10
Note 10: Community
Employee survey scores for each engagement item
Percentile
23
Mean
3.56
33
37
3.74
3.80
In 2012, we continued to restructure our business to meet
the needs of our customers and deliver our company
strategy. As a responsible employer, we are committed
to supporting our employees during such reorganizations.
We do this in compliance with legal requirements
and, where applicable, in consultation with employee
representative bodies. We strive to ensure clear and
ongoing communications, transparent selection processes
and, in many cases, support in the transition from work
to work, which can include training and out-placement.
GrandMean
Learn and grow
Progress
Best friend
Quality
Mission/Purpose
Opinions count
Development
Cares
Recognition
Do best
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
2010
2011
2012
Materials and equipment 2010
Expectations
2011
2012
2010
2011
2012
25
3.61
33
37
24
3.41
32
35
23
3.19
32
37
34
40
46
3.80
3.85
3.67
3.75
3.45
3.57
3.84
28
3.67
33
33
33
39
42
3.96
4.02
3.80
3.82
3.46
3.61
3.67
23
3.37
32
37
3.59
3.68
22
29
3.60
3.81
21
33
33
37
2.98
26
3.65
3.88
3.30
3.41
3.77
3.82
3.77
3.88
3.91
4.18
4.24
4.27
31
35
31
38
38
28
32
34
Community involvement is an integral part of the social
pillar in our strategic Sustainability framework (see Note
1 in this section). The requirement to engage with local
communities is also embedded in our HSE standards
and is part of our auditing cycles. Our main societal
contributions fall into three areas:
• Support to community/social development through
the AkzoNobel Community Program and AkzoNobel
Education Fund
• Improve prosperity in society through products
and partnerships
• Social contribution of our overall business activities
There is a growing trend towards combining business
strategic drivers with societal contributions. Strategic
drivers include: license to operate, employee
development, company and product branding and
market growth through increased prosperity in society.
Community Program
Our Community Program encourages sites and individuals
to take part in projects where our products/resources and
the skills and knowledge of employees can benefit the
wider community. In the past seven years, this has led
to a variety of projects, from educating underprivileged
youngsters to creating more awareness about the
importance of a clean environment. It also provides
opportunities for employees to develop team-building
and leadership skills.
Since the start of the program in 2005, more than 9,000
volunteers from 50 countries have worked on around
2,000 projects, representing approximately €13 million of
investment. Our sites initiate over 250 projects each year,
with little variation in the regional spread. Nearly 70 percent
of projects have supported educational/employability and
healthcare/well-being activities, with environmental and
housing projects also well represented. The economic
slowdown has prompted more focus on projects benefiting
deprived, socially disadvantaged groups. For example,
AkzoNobel Report 2012 | Sustainability statements
181
E
D
2012 projects by region
A Europe
B North America
C Latin America
D Asia
E Other regions
144
43
14
48
4
C
B
A
Education Fund
The Education Fund was created at the end of 1994 in
order to make a contribution to the education of children
in developing countries. Since being launched, it has
changed the lives of tens of thousands of young people
by supporting projects ranging from school renovation
in Burkina Faso, to improving sanitation and hygiene
conditions at schools in Vietnam, and improving the
capabilities of primary school teachers in Brazil.
Several thousand children aged three to 16 have directly
benefited from quality pre-school and primary education
provided by the Education Fund.
A special fundraising campaign staged in 2011 raised
around €140,000, providing around 500 young people,
mainly girls, in Vietnam, India and Brazil with vocational
training opportunities. In 2012, our support continued
to focus on vocational training to help deprived young
people find decent and safe employment which offers
them long-term prospects.
involvement in the set up and running of soup kitchens,
shelters and daycare centers for the homeless and vocational
training for unemployed youngsters and women are taking
place on a continuous basis in various parts of the world.
The fund is also available to support post-relief efforts for
major disasters in countries where we operate, as long
as there is hands-on involvement by our employees. For
example, in 2012, almost 50 percent of the workforce in
Adria, Italy, helped restore a hospital for disabled elderly and
Alzheimer patients in Emilia Romagna, which was severely
hit by a major earthquake. Other post-relief aid actions took
place in Thailand, which experienced its worst floods in 50
years. Our employees teamed up to help children resume
their education as soon as possible by cleaning, repairing
and renovating a school. Meanwhile, in the US, relief aid was
provided after a tornado hit the Mid-West.
In 2012, 253 new projects were initiated, while almost
3,000 employees voted for their favorite entries in our annual
Community Program Best Practice contest. First prize went
to employees at Marine and Protective Coatings in Seoul,
South Korea, and their “Dream-helpers make dreams of
disabled children come true” project. Our volunteers helped
set up a one-on-one buddy system for 30 disabled children
at the Hanwoori Community Welfare Center.
Cumulative Community Program involvement
Projects (number)
Volunteers (number)
Support (€ million)
10000
10.0
7,000
8.5
6,000
8000
6000
4000
2000
0
13.0
12.5
9,000
10
11.5
8,000
7.5
5
2.5
0
1,133
1,408
1,678
1,931
2009
2010
2011
2012
182
Sustainability statements | AkzoNobel Report 2012
Value chain
Key performance indicators – value chain
Carbon footprint cradle-to-gate/per ton of product
(% reduction from 2009)
Products
Eco-premium solutions (% of revenue)
VOC in product (% reduction from 2009)
Raw materials and suppliers
Raw materials suppliers Vendor Policy signed
(% of spend)
NPR2 suppliers Vendor Policy signed (% of spend)
Suppliers on SSV program since 2007
Critical spend covered by supplier management
framework (% of PR3 spend in high growth markets)
Own operations
Sustainable fresh water management
(% of manufacturing sites)
Operational eco-efficiency footprint measure
(% reduction from 2009)
Greenhouse gas emissions per unit of production
Carbon footprint own operations (Mton)
1 2010, 2011 figures restated, see Note 11.
2 Non-product related.
3 Product related (raw materials and packaging).
AkzoNobel carbon footprint in Mton CO2(e)
11
5
< 1
2009
–
2010
2 1
2011
3 1
2012
3
18
–
85
185
38
–
272
4.7
21
< 5
91
57
266
48
7
267
5.2
22
6
95
77
304
74
11
256
4.8
Ambition
2012
Ambition
2013
Ambition
2015
5
23
96
80
–
70
15
–
10
30
96
80
–
100
30
245
< 4.6
5
25
96
80
–
80
80
20
–
3
This chapter shows our sustainability performance and
improvement activities to reduce our impact across
the value chain. Our ambition is to achieve top quartile
eco-efficiency improvement rates compared with peer
companies. Current top quartile definition is based on our
own operations (see Environment chapter in this section).
Lifecycle thinking is the basis for all our sustainability work.
It is included in many of our processes, including:
• Product development
The eco-premium solutions concept includes
sustainability aspects along the value chain. It
encourages the development of more innovative,
sustainable products. We aspire to achieve zero
environmental footprint across our value chain
with our products
• Eco-premium assessment
We use lifecycle assessments to review the environmental
and ecological aspects of products. This data is used
in the annual eco-premium solution assessment
• Investment decisions
Since 2008, it has been mandatory to include an
eco-efficiency assessment for investment proposals
exceeding €5 million
• Carbon footprint assessment
We measure the carbon footprint of all our key value
chains (366 in 2012) using a full cradle-to-grave,
or screening, lifecycle assessment
Eco-Efficiency Analysis (EEA) is our standard assessment
method, based on a combination of lifecycle assessments
and lifecycle costing. Assessment work is carried out
by business and corporate specialists and based on
a corporate lifecycle assessment database.
22
–
97
80
373
83
13
257
4.7
9
Raw materials
and packaging
Production
inc. energy
Transport of goods
Customer use
Product and packaging
disposal/recycling
AkzoNobel product related carbon footprint based on 366 key value chains: includes emissions of
six main greenhouse gases. In the use phase there are also 3 Mton CO2(e) emissions due to VOCs.
Excludes non-product categories, e.g. employee travel, capital, investments.
AkzoNobel Report 2012 | Sustainability statements
183
11
Note 11: Climate change
Cradle-to-gate carbon footprint in million tons of CO2(e)
All Scope 3 categories million tons CO2(e)
Scope 3 upstream
Scope 2
Scope 1
14.6
Purchase goods and services*
Capital goods
Fuel and energy-related activities*
Upstream transportation*
16.1
15.9
Waste generated in operations*
Business travel
Employee commuting
Upstream leased assets
Downstream transportation
Processing of sold products/Use of sold products
End of life treatments of sold products
2009
2011
2012
Downstream leased assets
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 on our website. The
cradle-to-gate assessment excludes Chemicals Pakistan: the Performance summary
includes Scope 1 and 2 emissions from this business. 2009 and 2011 cradle-to-gate
data has been restated to reflect changes in raw material data.
The AkzoNobel Carbon Policy confirms the business
opportunity and the societal imperative of managing our
climate impact throughout our product chains through
innovative products, technology and energy management.
It sets cradle-to-gate carbon footprint intensity targets
(10 percent reduction by 2015, and 20-25 percent
reduction by 2020, both with a 2009 baseline) and states
our ambition to control absolute emissions from our own
operations no higher than 2008 levels.
We have assessed the cradle-to-gate footprint of our
operations since 2009. We have now assessed 366 key
value chains. This year indicates a total footprint of around
15.9 million tons of CO2(e) assessed cradle-to-gate for our
ongoing businesses. There was an additional 0.35 million
tons of CO2(e) in Scope 1 and 2 reported from Chemicals
Pakistan (divested by year-end). As in previous years,
the cradle-to-gate assessment indicated that around
70 percent was from raw materials extraction and
processing (Scope 3 upstream) and under 30 percent from
our own direct and indirect emissions from energy use.
184
Sustainability statements | AkzoNobel Report 2012
Franchises
Investments
Total
* Included in cradle-to-gate product footprint.
More information on the assessment can be found on our corporate website.
• The results of the cradle-to-gate assessments show
a reduction of approximately 3 percent, from about
980 kg/ton (2009) to around 950 kg/ton in 2012 on a
comparable basis. We have achieved reductions as
a result of steam supplies with lower carbon footprint,
reformulation of products and different product mix.
However, new facilities and acquisitions in China have
increased the carbon footprint
• 2012 absolute scope 1 and 2 emissions were 4.7 million
tons of CO2(e) (2008 baseline: 4.6 million)
Scope 3 upstream and downstream
This year we have assessed all Scope 3 categories
according to the GHG Protocol Scope 3 standard, taking
into account guidance on measurement and reporting
developed by the WBCSD Chemical Sector Working
Group. The results are summarized in the table and
diagram on the previous page.
11
0.7
0.4
0.1
0.2
0.2
0.1
<0.01
0.2
9
3
<0.01
<0.02
0.4
25
Management
We continue to focus on improving the energy efficiency
and managing the fuel mix of our energy intensive
businesses to reduce greenhouse 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.
Businesses have developed carbon management plans
which identify specific improvement opportunities and
programs. These plans are quantified and summarized at a
company level to manage and follow up carbon reduction
targets. Examples of programs in place include the
following elements found in Notes 11–18 of this Report:
• Material strategies for key raw material groups
(e.g. solvents and resins)
• Renewable raw materials
• Energy strategy including renewable energy targets
and ambitions
• Joint activities with suppliers to reduce the footprint
of key raw materials
• Reformulations using lower footprint raw materials
• New curing developments to reduce energy use
during product application
• Site programs to improve yields, reduce waste
and improve energy efficiency
In addition to activities to reduce energy use and greenhouse
gas emissions in our value chain, we participate in different
business initiatives, such as the WBCSD Chemical Sector
group for carbon reporting and Scope 4 emissions. 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
Reporting Guidelines for product lifecycles and corporate
value chains (Scope 3).
12
Note 12: Products and solutions
AkzoNobel’s challenging target to increase the percentage
of eco-premium solutions to 30 percent of revenues
by 2015 involves teamwork and cooperation with
stakeholders across the entire value chain. Sustainability
and the reduction of our ecological footprint are
embedded in AkzoNobel’s strategy for RD&I and these
aspects are inherent throughout the innovation process.
Our sales and marketing professionals 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
sustainability requirements.
Eco-premium solutions
Eco-premium solutions help to create value for our
businesses 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.
These solutions demonstrate improvements in our own
operations and across the entire value chains in which
we operate. We seek to offer solutions that allow our
customers, their customers, or the end-users, to minimize
their environmental or safety impacts. We also achieve
improvements by working with our suppliers to reduce
their eco-footprints. Our innovations are focused on
identifying new and lower footprint product formulations,
processes and applications with the aim of serving our
customers’ needs with as little environmental and safety
impact as possible.
We have an ambition to increase the share of revenue
from eco-premium solutions year-on-year to at least
30 percent. This is a challenging goal because the
assessments are made against equivalent mainstream,
or standard, products in the market, which is a moving
target. Since 2008, our businesses have carried out annual
assessments of their product and RD&I project portfolios.
In 2012, total revenue from eco-premium solutions was
about €3.5 billion. We have maintained the proportion of
revenue from eco-premium solutions for the company as
a whole, which stayed flat at 22 percent despite
tough trading conditions, cost pressure and product
downtrading. This figure is the composite of revenues
achieved by Specialty Chemicals (25 percent),
Performance Coatings (14 percent) and Decorative
Paints (26 percent).
Eco-premium solutions in % of revenue
Ambition
18
21
22
22
30
2009
2010
2011
2012
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 (e.g.
accidents). The eco-premium solution must be significantly better than currently
available solutions in at least one criterion, and not significantly worse in any.
VOC in products
AkzoNobel remains committed to taking a leadership role
in the reduction of VOCs within the coatings industry and
we are beginning to see the impact of substantial RD&I
effort in reducing the VOC content of our products.
In view of changing market dynamics, we have adopted
a renewed implementation mode in our strategy for
reducing the use of VOCs in our products. We will focus
on implementing our VOC reduction projects on
a regional basis, and to that end we will continue to use
the comprehensive model created by a cross-functional
group of RD&I, marketing and product stewardship in
order to track and quantify the progress of our projects.
The world has changed substantially since we initiated
this program in 2009. Our sales forecasts are showing
that the balance of growth is beginning to shift. We are
now expecting to see less growth in waterborne wall paint
products globally, but on the other hand, we expect higher
growth in China, where historically market conditions have
been more favorable towards a product portfolio that
is on average higher in VOC content.
Our resolve to reduce the use of VOCs remains strong;
we will focus heavily on Europe and North America, where
we are in the process of implementing the highly promising
results of RD&I projects that resulted in reformulated
products, reducing or even eliminating VOCs. In 2011,
the Decorative Paints business managed to reduce the
average VOC content in its products by 18 percent and
15 percent in Europe and North America, respectively
(compared with the 2009 baseline). Total VOC content
in all our products sold in these markets has dropped by
17 percent and 22 percent, respectively. Our forecasts
show that this reduction trend will continue in the future.
We are making technological progress in reducing VOCs
in products sold in China, but we must also keep up with
the market and match our product offering to customer
demand. It is a feature of the coatings market in China
that customers are not migrating as quickly as customers
elsewhere towards low or zero VOC products. We have
key projects in place to mitigate the absolute output
of VOCs, but we forecast strong growth in product
categories that are comparatively high in VOC content.
Therefore, we will not be able to reach the same level
of VOC content reduction that we have set out to
achieve in other markets.
Despite the changes in our global sales mix, we are
already seeing results of our RD&I projects. We will
continue to measure and analyze the VOC content in
our products on an annual basis. Our evaluation of the
2011 position shows that against the 2009 baseline,
we have realized a 6 percent reduction in average VOC
content across our coatings and paints product ranges.
AkzoNobel Report 2012 | Sustainability statements
185
13
Note 13: Supply chain
Risk management
Our main objective is to create a sustainable supplier
base, supporting our license to operate. In 2012, we
continued to optimize our supplier management processes,
aiming to secure supply of the materials we need for the
products for our customers, as well as contributing to the
continuous reduction of our footprint. We have specified
two supplier segments:
Supplier management
% of spend value
2009
2010
Product related suppliers Vendor Policy signed
NPR1 business suppliers Vendor Policy signed
NPR1 centrally contracted suppliers
Vendor Policy signed
Suppliers on SSV program since 2007
85
–
89
185
91
62
100
266
2011
95
77
304
2012
97
80
373
Ambition
2012
Ambition
2013
Ambition
2015
96
80
96
80
–
96
80
–
• Critical suppliers – suppliers in emerging countries
1 Non-product related. From 2011 we have combined the NPR supplier reporting.
supplying products for which no technical alternative
products are available, or for which no commercially
attractive alternative suppliers are known. We want to
ensure that the labor conditions, environmental conduct
and business integrity of these suppliers is in line with
the standards of our Vendor Policy and the AkzoNobel
Code of Conduct
• Key suppliers – specified because of their importance
to our business, based on the level of spend, the risk
for the business or business dependency, and the level
of cooperation and innovation potential
These supplier segments form the highest risk for our
business in terms of our manufacturing sites’ production
capacity and/or our company’s reputation.
Supplier management
The supplier management processes we have in place are:
• Vendor Policy, which covers 97 percent of the product
related (PR) spend, including all critical suppliers and
key suppliers
• Supplier Support Visits, which include all critical
suppliers, represents 14 percent of our PR spend
in high growth countries
• Key supplier management, for all key suppliers
covers 38 percent of our global PR spend
186
Sustainability statements | AkzoNobel Report 2012
From 2013, we will use a new KPI: Critical PR spend
covered by supplier management framework, which
gives a better view of the spend impact of the capability
and capacity building efforts with our suppliers. Our
2013 ambition is 80 percent. The supplier management
framework includes our key supplier management
process, our Supplier Support Visit process, as well as our
Vendor Policy process. It provides an overall framework to
select the most effective process for each of our suppliers,
focused on emerging markets.
Vendor Policy
Our aim is to have all our suppliers sign the AkzoNobel
Vendor Policy, which includes our Code of Conduct. We
have signed agreements with 97 percent of product related
and 80 percent of centally contracted non-product related
suppliers (by spend value), in which they confirm their
compliance with environmental, social and governance
factors. This covers about 92 percent of our total spend.
Supplier Support Visits
In 2007, we implemented Supplier Support Visits.
These visits focus on critical suppliers and are carried out by
teams from Procurement and HSE. The Supplier Support
Visits program remains highly successful, with 373 visits
having been conducted since the start of the program.
Of all Supplier Support Visits, 46 percent have resulted in
a developmental score, which means actions have been
formulated and discussed with the supplier. Follow up visits
are arranged to verify implementation and progress.
Key suppliers
In 2012, as part of the operational effectiveness program,
we further developed our key supplier management
process. This involved implementing a Supplier
Sustainability Decision Tree and process flow. Decision
criteria include signing of the Vendor Policy, spend
value, critical spend, eco-footprint and the capability
to collaborate in sustainable innovation opportunities.
This new process for key supplier management was
introduced and piloted at the top three key suppliers.
The existing process has focused primarily on suppliers
of value today. In the new process, we will define and
identify suppliers that are critical to AkzoNobel today and
in the future and manage them in a differential way. These
suppliers are essential to supporting us in realizing our
strategic objectives.
Collaborative initiatives
We are a founding member of the International Supply
Chain Management Congress in Amsterdam. In 2012,
we were again part of the leadership for the organization,
sponsorship and support for the congress, which is
recognized as a valuable contributor to the development
of sustainability thinking and supply chain processes.
Our activities do not target specific suppliers, but rather
the value chains in which we participate as a whole.
Strategies going forward
The procurement strategy for the coming years is to move
further beyond availability-price-synergy towards cross-
functional sourcing, integration and value chain orientation.
Buying on price moves towards total cost of ownership.
Supplier relationships move towards cooperation and
partnering. We see this as a way to leverage the size and
scope of our global business, our position with suppliers
and to drive competitive advantage.
Cross-functional (Procurement, RD&I, Supply Chain and
Operations) initiatives including suppliers are increasing in
number and impact. An integral part of the key supplier
approach is to structure cooperation and joined innovation
so that a cross-functional approach is critical.
We continued the development and implementation
of the raw material strategies for TiO2, resins and latex.
These strategies include elements such as material
resource planning, capacity and supply cover, supplier
selection and sourcing plans per region, “make” versus
“buy” and renewable materials. They are also an instru-
mental tool in reducing the footprint of our global value
chains. In 2012, we focused on making the strategies
more robust through thorough review in an integrated
cross-functional Process Management Office, run
bi-weekly, to embed the overall process and strategy.
This process also ensures that we have taken into
account interdependencies with a forward-looking
perspective, including sustainability.
One outcome of the TiO2 strategy process is the deci-
sion to participate in the building of a TiO2 manufacturing
site in China. This will mitigate risks by securing part of
our supply, understanding the mechanics of that market,
having direct contact with the ore suppliers (backward
integration) and enabling less price volatility.
We concluded the formulation of our solvent strategy,
including the sustainability profile of the solvents we
use, especially the VOC and GHG footprint, and the
application of bio-based solvents. We have a number
of opportunities in scope for evaluating renewable and
bio-based raw materials, especially in the solvents
and resins supply chains.
Complexity reduction
So-called slates of raw materials in key areas of spend
are being developed. These slates define a core list of
preferred materials/suppliers. Sustainability aspects such
as carbon footprint and product safety are key criteria
applied. The objective is to migrate our materials/suppliers
over time onto these core materials, making our value
chain less complex and more sustainable. The slate
approach gives clear information on potential business
opportunities to improve our value chains – lower cost,
lower carbon footprint and reduced risk. After a first
internal phase of analysis, suppliers will become part
of the process.
Logistics/distribution
In our performance improvement program, we have
started to manage warehousing and logistics at a
regional AkzoNobel level. This will result in a reduction
of warehouses and combined transport solutions. It will
also have a positive effect on our footprint.
Operations management
AkzoNobel is a manufacturing company, so excellence in
supply chain management and manufacturing operations
is a fundamental requirement for success.
In 2012, the company’s performance improvement
program focused on delivering operational excellence
in the full supply chain. Based on the Lean Six Sigma
improvement thinking, many improvement activities
have been initiated in our supply chain and operations:
• More than 50 manufacturing site improvement
projects have started
• Supply chain planning processes have been
improved and standardized
• Capabilities are being developed through
the creation and delivery of the Supply Chain
Faculty within the AkzoNobel Academy
Improvement is measured in safety, customer service,
cost, quality, working capital and eco-efficiency.
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-efficiency 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.
We are involved with Smartway in the US and the EU,
focusing on CO2 reduction, and with the Clean Shipping
Index in Sweden, Germany and the Netherlands, as well
as the Sustainable Shipping Initiative facilitated by Forum
for the Future in the UK.
A key initiative is the implementation of the renewable
energy strategy at our sites. Together with a partner,
in 2013 we will start to assess opportunities for introducing
solar, wind or other renewable energy sources at our
manufacturing sites.
Car lease
The carbon emission ambition for our own passenger car
fleet is 130 g/km. In Europe, we reduced from 143 g/km
in 2011 to 136 g/km in 2012.
Investment decisions
All our major (more than €5 million) investment proposals
require a sustainability evaluation alongside the financial
case. During 2012, this process was updated to
include assessments at different stages in the project
AkzoNobel Report 2012 | Sustainability statements
187
Environment
development, so that sustainability is considered from
the start. At the point of application for capital, the
requirements include an eco-efficiency assessment,
as well as a full review of health and safety, process
and product safety, natural resource/raw material
requirements and environmental impacts.
These requirements are fully embedded in the company
process for allocating funds for an investment or
acquisition. The proposals are reviewed by subject
matter experts, who provide comments and advice to
the Executive Committee, on both the financial and
non-financial issues associated with the investment,
to provide a strong basis for the investment decision.
Key performance indicators – environment
Operational eco-efficiency footprint measure
(% reduction from 2009)
Sustainable fresh water management
(% manufacturing sites)
Greenhouse gas emissions
per unit of production (own operations)
2009
2010
2011
2012
–
38
7
48
11
74
13
83
272
267
256
257
Ambition
2012
Ambition
2013
Ambition
2015
15
70
–
–
–
–
30
100
245
This section shows the environmental impact and
improvements in our own operations. Many of these
improvements are driven through our operational
eco-efficiency (OEE) program.
Operational eco-efficiency program
The focus of the operational eco-efficiency agenda
is to increase raw material efficiency, reduce consumption
of energy and decrease emissions and production of
waste. Improvements include many small site contributions
upgrading existing processes, rationalization of the
manufacturing footprint and application of best available
technology for new investments. The ambition is to have
a top quartile performance, which is defined as belonging
to the top 25 percent in the SAM industry benchmark for
the OEE criterion.
We measure progress using an internal indicator which
combines energy, water, waste and air emissions, as well
as cost elements. Between 2009 and 2012, we achieved
a reduction of 13 percent in this measurement. Without
the acquisition effect of Boxing Oleochemicals, the current
OEE footprint improvement would have been 15 percent.
Our ambition is to reduce it by 30 percent by 2015, with a
baseline of 2009. We will need to strengthen our current
target of 5 percent per year improvement in order to
achieve this.
To increase the transparency of our OEE performance
and its related projects, a new OEE communications
platform called EcoXchange was built, in combination
with dedicated OEE project tracking.
188
Sustainability statements | AkzoNobel Report 2012
14
Note 14: Energy
15
Note 15: Greenhouse gas emissions
Energy use
Energy is a major raw material for some of our
Specialty Chemicals businesses, so energy efficiency
and carbon efficient energy use are important metrics
for these operations.
• Energy use per ton of production is stable at 5.7 GJ/ton
(2011: 5.7 GJ/ton). Absolute energy use was down
1 percent at 106,000 TJ (2011: 107,000 TJ) in line
with lower production volumes. The total costs of
energy used in our production is about €0.6 billion
• More details about energy use per region and energy
source can be found on our website
Energy use in 1000*TJ
Energy use
GJ per ton production
250
200
150
100
50
0
5.7
5.7
5.7
5.7
97
111
107
106
7.5
6
4.5
3
1.5
0
2009
2010
2011
2012
Energy use is the sum of fuels, electricity, steam, hot water and other utilities
expressed as fuel equivalents.
Energy reduction for the other sites is supported via a
site Energy Diagnostics Methodology. Many production
sites have identified improvement projects for energy
savings which are being implemented, including Houston
and Morris in the US and Stockvik in Sweden.
Renewable energy
In 2012, a renewable energy strategy was developed.
The strategy is based on three pillars:
• Protect what we have — current share of renewable
energy about 33 percent
• Participate in cost-attractive large energy ventures
• Explore commercially feasible on-site renewable
Greenhouse gas emissions are primarily CO2 related to
fuel, but also include some CO2, CH4 and HFC process
emissions. This section reflects the performance of all our
own operations covering the gate-to-gate scope. More
details on our Carbon Policy and cradle-to-gate reporting
can be found in Note 11 in this section.
energy options
Greenhouse gas emissions in million tons
First actions from this strategy involve our considerations
to participate in wind parks. Another action is the
installation of a solar roof in Castelletto, Italy, delivering
15 percent of the required energy for this paint
production plant.
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton of production
Ambition
272
267
256
257
245
2.8
1.9
2.0
3.2
3.2
3.2
1.6
1.5
5
4
3
2
1
0
300
240
180
120
60
0
2009
2010
2011
2012
2015
Total greenhouse gas emissions made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
• Total greenhouse gas emissions per ton of production
increased by 1 percent to 257 kg/ton CO2(e)
(2011: 256 kg/ton). Absolute GHG emissions have
come down by 1 percent to 4.7 million tons of CO2(e)
(2011: 4.8 million tons). The decrease is mainly
caused by lower fuel consumption
• More details on the distribution of the various sources
for greenhouse gases can be found on our website
AkzoNobel Report 2012 | Sustainability statements
189
16
Note 16: Local air quality
Ozone depleting substances
Emissions of ozone depleting substances are at a very low
level (2012: 1.75 tons). They are mainly due to Freon22 in
older air conditioning and cooling units, which are
continuously being replaced (for example in Huron, where
an old chiller was replaced by a state-of-the-art model).
NOx and SOx emissions
in kilotons
NOx
NOx kg/ton
SOx
SOx kg/ton
2009
2010
2011
2012
2.1
0.12
6.2
0.37
2.0
0.10
7.1
0.36
2.0
0.11
7.7
0.41
1.9
0.10
7.6
0.41
Emissions may form acid rain that can lead to acidification. The gases are emissions
from manufacturing and combustion of fuel that we burn. The total quantitiy of NOx/
SOx emissions from manufacturing processes discharged directly to air (e.g. after
any abatement process) and the quantity of NOx/SOx emissions calculated from
the use of fuels.
Air monitoring around our operations is focused
on volatile organic compound (VOC) and NOx and
SOx emissions. We monitor particulates at site level
as required.
Volatile organic compounds in kilotons
Volatile organic compounds
kg per ton of production
Ambition
Volatile organic compounds (VOC)
VOC emissions from our manufacturing operations
may lead to local low-level ozone creation, smog
formation and associated health problems for people
in surrounding areas. All our businesses will continue
to manage VOC emissions from sites, in line with
regional legal requirements. The VOC reduction focus
for our paints and coatings businesses is increasingly
concentrating on low/zero VOC product design, rather
than only controlling VOCs in our operations. Reducing
VOC emissions from our sites remains part of the scope
of our OEE program, while our Research, Development
and Innovation groups are working on projects to reduce
the solvent content of our products – VOC in product.
(See Note 12 in this section).
VOC emissions per ton of production stayed flat at 0.19
kg/ton (2011: 0.19 kg/ton). Total VOC emissions remained
flat at 3.6 kilotons (2011: 3.6 kilotons), primarily because
acquisitions offset improvements made at many sites.
Focused investigation at these acquisition sites and
continued OEE program activities will keep us on target
to achieve our ambitions.
7.5
6
4.5
3
1.5
0
0.25
0.22
0.19
0.19
0.19
0.20
0.25
4.2
4.3
3.6
3.6
0.15
0.10
0.05
0
2009
2010
2011
2012
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.
NOx and SOx
NOx and SOx emissions may have a significant impact
on local air quality because of their contribution to
acidification. Therefore, these compounds are monitored.
• SOx emissions (from process emissions and energy)
per ton of production were stable at 0.41 kg/ton of
production (2011: 0.41 kg/ton). Absolute emissions
were down 2 percent at 7.6 kilotons (2011: 7.7 kilotons).
The emissions per ton for the three sulfur derivatives
plants in Germany, the US and Argentina were down,
while our Pakistan operation also improved
• NOx emissions from our sites per ton of
production were down 6 percent at 0.10 kg/ton
(2011: 0.11 kg/ton). Total emissions were down
at 1.9 kilotons (2011: 2.0 kilotons)
190
Sustainability statements | AkzoNobel Report 2012
17
Note 17: Raw material efficiency
18
Note 18: Water
Waste
Effective waste management helps to increase raw
materials efficiency in our manufacturing operations,
reduces our environmental footprint and reduces costs.
Our focus is on reducing total waste and eliminating
hazardous waste to landfill. The exception is asbestos
waste – mainly from demolishing old equipment and
buildings – where the preferred current safe disposal
route is properly designed landfill facilities.
• Total waste per ton of production generated and
leaving our sites was down 5 percent to 11.0 kg/ton
(2011: 11.6 kg/ton). The total waste volume came
down to 203 kilotons (2011: 217 kilotons), a decrease
of 6 percent
• We have realized improvements from projects
implemented in the OEE program, resulting in
a decrease to 85 kilotons of non-reusable waste
(2011: 96 kilotons). Non-reusable waste per ton of
production generated and leaving our sites was down
10 percent, to 4.6 kg/ton (2011 5.1 kg/ton). An example
is the conversion of a sodium sulphate stream to a
product which is now being supplied by Pulp and
Performance Chemicals (Magog and Valleyfield)
• The program for waste prevention through alternative
outlets for obsolete paint materials has been successful.
Around 15,000 tons of obsolete materials have been
sold as by-product, which is being used as raw material
for paint. This material would otherwise have been
discarded as waste. Sustainable outlets have also
been found for other by-product streams (7,500 tons)
• Hazardous waste per ton of production stayed flat at
3.8 kg/ton (2011: 3.8 kg/ton)
• The non-renewable hazardous waste to landfill was
down 9 percent to 2.7 kilotons (2011: 3.0 kilotons)
Total waste in kilotons
Reusable
Non-reusable
Total kg per ton of production
Ambition
250
14.7
13.1
11.6
11.0
10.0
160
155
89
103
121
118
96
85
200
150
100
50
0
2009
2010
2011
2012
2015
Waste means any substance or object arising from our routine operations which
we discard, or intend to discard. Non-reusable waste is not used for resources,
recovery, recycling, reclamation, direct reuse or alternative uses.
Hazardous waste in kilotons
Reuseable
Total kg per ton of production
Non-reuseable not landfill
Non-reuseable to landfill
4.2
25
41
50
40
30
20
10
0
3.9
48
3.8
3.8
51
45
24
23
18
4.9
4.7
3.0
2.7
15
12
9
6
3
0
4.0
3.2
2.4
1.6
0.8
0
Fresh water availability
Sustainable 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,
transporting and for effective use of some products.
Our ambition is to have sustainable fresh water
management in place at all our manufacturing
sites in 2015.
Around 88 percent of our fresh water intake is from
surface water and 87 percent of our intake is used
for cooling. In addition to the intake of fresh water,
the emission of contaminated water from our sites
to surface waters may negatively impact fresh water
resources and eco-systems. We continue to reduce
the chemical oxygen demand (COD) of our effluent
to surface water.
More details on the sources and use of fresh water
can be found on our website.
Sustainable fresh water management
in % manufacturing sites
Ambition
74
83
100
38
48
2009
2010
2011
2012
2009
2010
2011
2012
2015
Hazardous waste is waste that is classified and regulated as such according to the
national, state or local legislation in place.
Sustainable fresh water management is defined as a low risk score in all
categories in the AkzoNobel sustainable fresh water assessment tool: water
sources, supply reliability, efficiency, quality of discharges, compliance and
social competitive factors.
AkzoNobel Report 2012 | Sustainability statements
191
19
Note 19: Soil and groundwater remediation
Chemical oxygen demand (COD) in kilotons
Chemical oxygen demand
kg per ton of production
6
4.8
3.6
2.4
1.2
0
0.15
2.5
0.10
0.10
1.9
1.8
0.09
1.6
0.20
0.16
0.12
0.08
0.04
0
2009
2010
2011
2012
Chemical oxygen demand (COD) is the amount of oxygen required for the chemical
oxidation of substances in the wastewater effluent which is directly discharged into
surface waters from our facilities. It excludes our effluent treated by others.
Soil and groundwater remediation
There are substantial costs associated with the
assessment and remediation of historical soil and
groundwater contamination. We periodically review
contamination at our sites, taking remedial action
when required, and have procedures to prevent
new contamination.
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 estimated.
We have set aside €424 million, which we believe
is sufficient for the sites where we have ownership
or responsibility (see also Notes 15 and 19 in the
Financial statements section).
Water emissions
• 83 percent of sites have sustainable fresh water
management in place (2011: 74 percent), as measured
by the AkzoNobel fresh water management risk
assessment tool
• Fresh water use per ton of production has come down
to 15.3 m3/ton (2011:15.6 m3/ton). Total fresh water use
was 283 million m3 (2011: 291 million m3), a decrease
of 3 percent
Reductions in COD in effluent are being achieved across
the company. The COD load to surface water per ton of
production reduced to 0.09 kg/ton (2011: 0.10 kg/ton).
The total COD load to surface water was down 12 percent
to 1.6 kilotons (2011: 1.8 kilotons). Improvements are
due to various initiatives, such as the one at Santo Andre,
where a project was approved to connect its operations
to the municipal wastewater treatment.
Fresh water use in million m3
Fresh water consumption
m3 per ton of production
15.8
15.7
15.6
15.3
270
309
291
283
500
400
300
200
100
0
2009
2010
2011
2012
Total fresh water intake from surface, ground or potable water sources.
20
16
12
8
4
0
192
Sustainability statements | AkzoNobel Report 2012
Independent assurance report
To the readers of AkzoNobel’s Sustainability
statements 2012
We were engaged by the Board of Management of
AkzoNobel N.V. (further AkzoNobel) to provide assurance
on the sustainability information in the AkzoNobel Report
2012. The Board of Management of AkzoNobel is
responsible for the preparation of the AkzoNobel Report
2012, including the identification of material issues. Our
responsibility is to issue an assurance report based on
the engagement outlined below.
Scope
Our assurance engagement was designed to provide:
• Limited assurance on whether the information in the
Sustainability statements section (further Sustainability
statements) and in the Compliance and integrity
management chapter of the Governance and
compliance section of the AkzoNobel Report 2012 is
fairly presented, in all material respects, in accordance
with the reporting criteria
• Reasonable assurance on whether the information in
the Managing our values paragraph (see Note 1 in the
Sustainability statements) is presented, in all material
respects, in accordance with the reporting criteria as
defined by AkzoNobel
We do not provide any assurance on the achievability of
the objectives, targets and expectations of AkzoNobel.
Procedures performed to obtain a limited level of assur-
ance are aimed at determining the plausibility of informa-
tion and are less extensive than those for a reasonable
level of assurance.
Reporting criteria and assurance standard
AkzoNobel applies the Sustainability Reporting Guidelines
(G3.1) of the Global Reporting Initiative, supported
by internally developed guidelines as described in the
Reporting principles paragraph. It is important to view
the performance data in the context of these criteria. We
believe these criteria are suitable in view of the purpose of
our assurance engagement.
We conducted our engagement in accordance with the
International Standard for Assurance Engagement (ISAE
3000): Assurance Engagement 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 provide assurance
on sustainability information, and that they comply with
the requirements of the Code of Ethics for Professional
Accountants of the International Federation of Accountants
to ensure their independence.
Work undertaken
Our procedures for limited assurance included:
• A risk analysis, including a media search, to identify
relevant sustainability issues for AkzoNobel in the
reporting period
• Reviewing the suitability of the internal reporting criteria
• Evaluating the design and implementation of the
systems and processes for the collection, processing
and control of the information in the Sustainability
statements, including the consolidation of the data for
the Sustainability statements
• Interviewing management at corporate and business
level responsible for the sustainability policies,
implementation, management, internal controls,
monitoring and reporting
• Interviews with relevant staff at corporate and business
level responsible for providing the information and
consolidating the data for the Sustainability statements
• Evaluating internal and external documentation, based
on sampling, to determine whether the information
in the Sustainability statements is supported by
sufficient evidence
• Joining an audit of HSE&S (Health, Safety, Environment
& Security Management) at the Decorative Paints site in
Montataire, France
• Reviewing the relevant work of Internal Audit
Our additional procedures for reasonable assurance included:
• Testing the relevant work of Internal Audit in respect
of the information in the Managing our values paragraph
• Joining the sustainability assessment questionnaire
review at the Automotive and Aerospace Coatings
business in Sassenheim, the Netherlands, together
with the Internal Audit team to evaluate the implementation
and test the operating effectiveness of controls in
respect of the information in the Managing our values
paragraph at local level
Additionally, we determined, as far as possible, whether
the information concerning sustainability in the other
sections of the AkzoNobel Report 2012 is consistent
with the information in the Sustainability statements.
During the assurance process, we discussed the
necessary changes in the information presented in the
Sustainability statements and reviewed the final version
to ensure that it reflects our findings.
Conclusions and opinion
Based on our procedures for limited assurance, nothing
has come to our attention to indicate that the information
in the Sustainability statements and in the Compliance
and integrity management chapter of the Governance and
compliance section is not fairly presented, in all material
respects, in accordance with the reporting criteria.
In our opinion, the information in the Managing our
values paragraph is presented, in all material respects,
in accordance with the reporting criteria.
We also report, to the extent of our competence, that the
information on sustainability in the rest of the AkzoNobel
Report 2012 is consistent with the information in the
Sustainability statements.
Amsterdam, February 19, 2013
KPMG Sustainability
Part of KPMG Advisory N.V.
W.J. Bartels RA, Partner
AkzoNobel Report 2012 | Sustainability | Independent assurance report
193
Summaries
Financial summary
196
Sustainability performance summary
200
Index
Glossary
Financial calendar
202
203
205
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
Minority interests attributable to minority shareholders
Discontinued operations
Net income, attributable to shareholders
Common shares, in millions at year-end
Dividend
Number of employees at year-end
Average number of employees
Employee benefits
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
Ratios
Operating income in % of revenue
Operating income in % of invested capital
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Per share information (in €)
Net income
Adjusted earnings
Shareholders’ equity
Highest share price during the year
Lowest share price during the year
Year-end share price
2003 1
13,106
1,146
(248)
(254)
7
651
(49)
–
602
285.7
343
64,600
66,400
3,505
197
30
8.7
13.6
26.2
26.7
2004
12,833
1,588
(205)
(412)
10
981
(36)
–
945
285.8
343
61,400
63,600
3,216
202
28
12.4
20.8
40.6
25.1
2005 2
13,000
1,492
(162)
(338)
6
998
(37)
–
961
285.8
343
61,300
61,400
3,221
212
34
11.5
19.4
32.0
24.8
2006
2007
10,023
10,217
887
(134)
(96)
87
744
(29)
438
1,153
287.0
344
42,700
61,900
2,158
162
30
8.8
16.3
30.5
21.5
778
(151)
(166)
(20)
441
(31)
9
419
262.3
472
42,600
42,600
2,215
240
30
7.6
14.6
122.9
21.7
2008 3
15,415
(577)
(232)
(260)
25
(1,044)
(65)
23
(1,086)
231.7
417
60,000
61,300
3,022
252
31
– 4
– 4
– 4
19.6
2.11
3.31
3.36
4.02
33.82
(4.38)
8.76
32.44
16.00
30.60
9.12
33.79
24.87
31.38
11.95
40.18
30.82
39.15
14.44
49.41
38.30
46.18
42.06
65.56
44.41
54.79
32.21
57.11
22.85
29.44
2009
13,028
855
(405)
(141)
21
330
(77)
32
285
232.3
325
54,700
56,300
2,955
231
31
6.6
7.3
3.7
22.7
1.23
2.06
33.47
46.52
26.01
46.40
2010
14,640
1,219
2011 5
14,604
1,145
(327)
(170)
25
747
(83)
90
754
233.5
320
55,600
55,100
2,980
266
36
8.3
9.6
8.4
20.4
3.23
3.71
38.48
47.70
37.18
46.49
(336)
(233)
24
600
(64)
(59)
477
234.7
304
52,020
51,100
2,765
286
36
7.8
9.1
5.2
19.3
2.04
3.10
39.25
53.74
29.25
37.36
2012
15,390
(1,244)
(267)
(172)
13
(1,670)
(63)
(436)
(2,169)
239.0
214
50,610
52,200
3,129
295
36
– 4
– 4
– 4
20.3
(9.14)
3.26
28.84
49.98
34.85
49.75
1 The 2003 figures have not been restated to IFRS accounting standards.
2 The 2003–2005 figures have not been restated for the Organon BioSciences divestment.
3 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
4 Not meaningful as income was a loss.
5 Restated to present Decorative Paints North America as a discontinued operation.
196
Financial summary | Summaries | AkzoNobel Report 2012
Consolidated balance sheet
In € millions
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 portion of provisions
Other current liabilities
Liabilities held for sale
Total current liabilities
Invested capital
Capital expenditures
Depreciation
OWC
Ratios
Revenue/invested capital
Equity/non-current assets
Inventories and receivables/other current liabilities
Operating working capital as % of revenue
2003 1
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
–
2004
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
500
2,231
2,677
–
–
2,672
3,737
2005 2
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
766
2,571
60
3,754
2006
682
3,346
1,706
5,734
2,042
2,919
1,871
219
7,051
4,144
119
4,263
2,132
2,551
181
4,864
410
571
2,652
25
3,658
2007
669
2,203
1,402
4,274
1,177
2,164
11,628
–
14,969
11,032
97
11,129
1,598
1,954
133
3,685
1,635
518
2,276
–
2008 3
7,172
3,357
1,848
2009
7,388
3,474
1,783
2010
7,308
3,384
1,977
2011
7,392
3,705
2,198
2012
4,454
3,739
2,763
12,377
12,645
12,669
13,295
10,956
1,781
2,977
1,595
4
6,357
7,463
450
7,913
2,072
2,341
715
5,128
1,338
845
3,510
–
1,441
2,666
2,128
–
6,235
7,775
470
8,245
1,919
3,641
674
6,234
384
797
1,678
2,896
2,851
–
7,425
8,984
525
9,509
1,855
2,880
589
5,324
907
593
1,924
3,035
1,635
–
6,594
9,212
531
9,743
1,717
3,035
567
5,319
494
551
3,220
3,761
3,782
–
–
–
1,545
2,789
1,752
921
7,007
6,892
465
7,357
1,717
3,388
442
5,547
662
455
3,632
310
5,059
4,429
5,693
4,401
5,261
4,827
8,117
7,145
8,007
8,060
5,197
13,424
11,732
12,718
12,613 4
11,030
581
599
1.56
0.41
2.15
551
540
1.68
0.51
1.77
514
528
1.68
0.62
1.90
371
349
1.85
0.74
1.87
359
330
1.91
2.60
1.47
534
453
513
424
534
435
658 4
419 4
826
463
2,359
1,691
2,016
1,891 4
1,659
1.07
0.64
1.36
16.5
1.06
0.65
1.28
13.7
1.15
0.75
1.22
13.9
1.16 4
0.73
1.31
13.2 4
1.40
0.67
1.19
11.2
1 The 2003 figures have not been restated to IFRS accounting standards.
2 The 2003– 2005 figures have not been restated for the Organon BioSciences divestment.
3 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
4 Restated to present Decorative Paints North America as a discontinued operation.
AkzoNobel Report 2012 | Summaries | Financial summary
197
Business Area statistics
In € millions
Decorative Paints
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
2008
2009 1
2010
2011 4
2012
5,006
4,573
4,968
4,201
4,297
598
401
(669)
6,187
8.0
120
487
298
133
548
343
275
479
327
235
6,206
6,404
5,673
6.5
112
6.9
154
7.8
155
425
249
(2,012)
3,387
5.8
206
Average number of employees
24,600
22,900
21,800
17,100
17,200
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
203
24
200
21
228
25
246
28
250
25
Performance Coatings
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
4,575
4,112
4,786
5,170
5,702
566
467
444
2,004
10.2
89
594
492
433
1,817
12.0
61
647
540
487
2,122
11.3
87
611
495
458
769
638
542
2,351
2,415
9.6
116
11.2
123
Average number of employees
21,000
20,200
20,600
21,300
21,700
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
218
27
204
29
232
31
243
29
263
35
Specialty Chemicals
Revenue
EBITDA 2
EBIT 2
Operating income
Invested capital 3
EBIT margin 2 (in %)
Capital expenditures
5,687
4,359
4,943
5,335
5,543
909
605
130
4,055
10.6
305
738
490
422
3,106
11.2
319
939
679
604
3,457
13.7
273
906
625
622
889
583
500
3,620
3,573
11.7
365
10.5
484
Average number of employees
12,900
11,400
11,100
11,300
11,800
Average revenue per employee (in €1,000)
Average EBITDA per employee (in €1,000)
441
70
382
65
445
85
472
80
470
75
1 Restated for transferred businesses and excluding National Starch, divested in 2010.
2 Before incidentals.
3 At year-end.
4 Restated to present Decorative Paints North America as a discontinued operation.
198
Financial summary | Summaries | AkzoNobel Report 2012
Regional statistics
In € millions
2008 1
2009
2010
2011 3
2012
2008 1
2009
2010
2011 3
2012
2008 1
2009
2010
2011 3
2012
The Netherlands
Other European countries
China
Revenue by destination
Revenue by origin
Capital expenditures
Invested capital 2
Number of employees 2
Revenue by destination
Revenue by origin
Capital expenditures
Invested capital 2
Number of employees 2
867
1,423
86
2,007
5,000
Germany
1,141
1,179
25
1,086
3,600
Sweden
792
1284
104
1,489
4,800
1,088
1,089
19
983
803
1,537
84
1,266
5,000
1,160
1,096
22
915
694
1,646
144
1,477
5,200
1,284
1,228
31
975
745
1,601
110
1,168
5,200
1,258
1,219
69
647
3,666
2,582
81
2,359
10,100
US and Canada
3,330
3,463
94
3,095
2,211
69
2,420
9,400
2,600
2,712
55
3,398
2,336
83
2,616
9,100
2,954
3,074
63
3,250
2,554
2,762
3,700
3,500
3,800
3,600
12,000
10,100
10,300
Brazil
Revenue by destination
Revenue by origin
Capital expenditures
Invested capital 2
478
1,457
50
557
423
1,284
37
461
468
1,475
19
542
515
1,481
54
559
486
1,505
70
532
765
729
39
644
732
715
25
783
844
815
23
723
3,702
2,459
98
2,665
8,900
2,092
2,222
67
1,735
5,100
949
903
54
684
3,647
2,400
85
1,595
8,500
2,294
2,413
70
1,683
5,100
987
909
123
558
1,054
968
67
861
997
929
143
772
1,249
1,177
147
952
6,300
6,100
6,700
India
246
205
7
140
249
200
6
141
332
251
17
139
1,376
1,361
96
1,225
7,400
359
283
18
121
1,621
1,699
135
1,365
7,700
371
288
16
123
1,400
1,400
1,600
1,700
1,800
Other Asian countries
1,620
1,477
36
890
1,336
1,189
21
469
1,448
1,263
31
627
1,559
1,344
46
685
1,716
1,491
55
527
Number of employees 2
3,800
3,500
3,400
3,300
3,200
3,000
2,800
2,700
2,800
2,900
6,400
5,400
5,600
6,100
5,000
UK
Other Latin American countries
Other regions
Revenue by destination
Revenue by origin
Capital expenditures
Invested capital 2
Number of employees 2
1,093
1,206
31
1,324
4,200
768
830
22
1,562
3,800
798
854
28
1,782
3,900
841
879
27
2,117
3,900
901
967
68
2,460
3,800
541
374
10
132
415
244
5
(16)
550
353
7
149
566
379
12
156
636
435
16
170
614
352
8
174
533
341
7
114
636
409
10
245
667
419
11
214
728
465
10
203
1,800
1,500
1,600
1,700
1,700
2,400
2,200
2,200
2,100
2,100
1 Excluding National Starch, divested in 2010.
2 At year-end.
3 Restated to present Decorative Paints North America as a discontinued operation.
AkzoNobel Report 2012 | Summaries | Financial summary
199
Sustainability performance summary
Economic/Governance/Social
Area
Product
Eco-premium solutions 5
Business integrity
% revenue
Code of Conduct incidents handled by the Compliance Committee
number
Code of Conduct trained
Health and safety 2
Fatalities employees
Total reportable injury rate employees/supervised contractors
Lost time injury rate employees/supervised contractors
Occupational illness rate employees
Total illness absence rate employees
Fatalities contractors (supervised plus independent)
Total reportable injury rate independent contractors
Manufacturing sites with BBS program3
Distribution incidents
Motor vehicle incidents with injury
Employees 5
Employee numbers
Women executives
High growth country executives
Online P&D Dialog participation
% employees
number
/million hours
/million hours
/million hours
%
number
/million hours
%
number
number
number
%
%
%
Management development program participation
cumulative number
Employee engagement index 7
Community Program investment
Reliable operations
Management audits plus reassurance audits
Safety incidents – Level 3
Safety incidents – Level 1, 2, 3
Significant loss of containment (Level D)
Regulatory actions – Level 3
Sourcing 5
Raw material suppliers – Vendor Policy signed
NPR central suppliers – Vendor Policy signed10
NPR business suppliers – Vendor Policy signed10
Supportive Supplier Visits since 2007
% favorable 7
in € millions
number
number
number
number
number
% purchases
% purchases
% purchases
number
200 Sustainability performance summary | Summaries | AkzoNobel Report 2012
2008
2009
2010
2011
2012
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
18
19
95
0
3.7
1.5
0.4
2.0
3
2.8
52
31
21
23
95
1
3.6
1.6
0.3
1.9
0
3.0
72
91
34
22
24
95
2
3.1
1.3
0.3
2.0
1
3.5
76
80
29
22
24
96
2
2.4
1.1
0.2
2.0
0
4.2
76
46
28
54,700
55,600
57,240
55,272
10
11
72
2,708
80
1.4
66
9
33
1
3
85
89
12
12
76
5,227
3.56
1.5
61
10
32
0
4
91
100
62
266
13
13
78
7,067
3.74
1.5
66
8
36
2
0
95
77
15
13
84
7,674
3.80
1.5
61
3
23
0
3
97
80
304
373
152
185
Ambition
2015
30
0
<2.0
100
20
20
95
8,300
4.33
0
0
0
96
80
Environmental
Area
Raw material efficiency
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
Maintain natural resources/fresh air
Fresh water use
per ton production
COD emissions
per ton production
Manufacturing sites with sustainable fresh water
VOC emissions
per ton production
NOx emissions9
per ton production
SOx emissions9
per ton production
Direct CO2(e) emissions (Scope 1) 6
per ton production 6
Indirect CO2(e) emissions (Scope 2) 6
per ton production 6
Total energy use
per ton production
Value chain
Total CO2(e) emissions (cradle-to-gate) 5
per ton product 5
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
million tons
kg/ton
million tons
kg/ton
1000TJ
GJ/ton
kiloton
kg/ton
2007
2008
2009
2010
2011
2012
285
15.1
62
3.3
86
4.5
23
1.2
297
16.0
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
15.8
2.5
0.15
38
4.2
0.25
2.1
0.12
6.2
0.37
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
15.7
1.9
0.10
48
4.3
0.22
2.0
0.10
7.1
0.36
2.0
102
3.2
165
111
5.7
84
4.4
19
1
304
16.0
3.1
0.16
4.9
0.26
0.9
4.1
1.7
87
3.1
161
116
14.6 8
980 8
15.9 8
960 8
16.1 8
950 8
Ambition
2015
10.0
100
0.19
-10%
-10%
-10%
217
11.6
71
3.8
96
5.1
26
1.4
3.0
203
11.0
71
3.8
85
4.6
20
1.1
2.7
0.16
0.15
291
15.6
1.8
0.10
74
3.6
0.19
2.0
0.11
7.7
0.41
1.6
85
3.2
171
107
5.7
283
15.3
1.6
0.09
83
3.6
0.19
1.9
0.10
7.6
0.41
1.5
82
3.2
175
106
5.7
15.9
950
1 Former AkzoNobel businesses only.
2 HSE KPIs: from 2009 report employees/supervised contractors
(was employees only) and independent contractors (was all contractors).
3 BBS restated for manufacturing sites only.
4 In addition to this figure, our Soda Ash facility in Pakistan generated on a dry
basis 490 ktons (2011: 495 ktons) of non-reusable non-hazardous waste,
as a result of the process chemistry. This aqueous mixture is stored and
evaporates in large, managed on-site lagoons.
5 Excludes Chemicals Pakistan.
6 Includes Chemicals Pakistan.
7 From 2010 employee survey changed from % favorable to Gallup Q12 GrandMean:
average of mean scores for each question (out of five).
8 Figures for 2009-2011restated in line with raw material data updates
and product definition.
9 2007 and 2008 figures include main emmisions only.
10 From 2011 the NPR supplier data is combined.
AkzoNobel Report 2012 | Summaries | Sustainability performance summary
201
Index
Accounting policies
113
Financial instruments
148
Report of the Supervisory Board
Acquisitions and divestments
36, 121
Functional Chemicals
57
Research, Development and Innovation
Antitrust cases
Audit Committee
Auditor’s report
Automotive and Aerospace Coatings
Board of Management
Borrowings
Business Area statistics
Carbon Policy
Cash and cash equivalents
Chairman’s statement
Chemicals Pakistan
Code of Conduct
Community Program
142
Glossary
81
Health and Safety
158
Incidentals
68
32
Industrial Chemicals
Industrial Coatings
140, 141
Intangible assets
203
171
Result allocation
Risk management
36, 123
Safe harbor statement
58
69
Segment information
Shareholders’ equity
129
Specialty Chemicals
198
184
134
Internal controls
Invested capital
23, 40, 47, 88, 100
Strategic ambitions
37
Supervisory Board
Investments in associates and joint ventures
132
Surface Chemistry
8
Key developments by Business Area
56, 66, 76
Sustainability statements
61
Marine and Protective Coatings
67
Sustainability framework
88, 98
Net debt and net financing expenses
38, 134
Tax
Company financial statements
153–157
Operating working capital
Consolidated balance sheet
109
Outlook
181
Nomination Committee
Consolidated statement of cash flows
Consolidated statement of changes in equity
Consolidated statement of comprehensive income
Consolidated statement of income
Contingent liabilities and commitments
110
111
109
108
142
81
73
Pensions
Performance Coatings
Performance improvement program
Powder Coatings
Product stewardship
Property, plant and equipment
Provisions
37, 159
Proxy voting
37, 108
Pulp and Performance Chemicals
189
Regional statistics
123, 178
Remuneration
32
Remuneration Committee
205
Report of the Board of Management
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
Emissions/waste
Employees
Executive Committee
Financial calendar
202
Index | Summaries | AkzoNobel Report 2012
Ten-year financial summary
Wood Finishes and Adhesives
87
37
40
27, 38, 136
63
35
70
174
131
136, 140
89, 102
59
199
90, 144
87
34
45
20, 25
159
22
206
112
111, 154, 155
53
16
43
60
164–192
165
37, 126
196
71
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.
Earnings per share
Net income attributable to shareholders divided by the
weighted average number of common shares outstanding
during the year.
substances which may have an impact on people or the
environment: CO2, NOx and SOx, VOCs, COD, hazardous
and non-hazardous waste. Definitions are in the Sustainability
statements section.
BBS
Behavior-based safety.
EBIT
Operating income before incidentals.
GHG
Greenhouse gases.
Carbon footprint
The carbon footprint of a product or organization is the total
amount of greenhouse gas (GHG) emissions caused during
a defined period, or across the total or part of a product
lifecycle. It is expressed in terms of the amount of carbon
dioxide equivalents emitted.
EBIT margin
EBIT as percentage of revenue and can refer to margins
both before and after incidentals.
EBITDA
EBIT before depreciation and amortization. Refers in this
report to EBITDA before incidentals.
CO2(e)
Carbon dioxide equivalent
EBITDA margin
EBITDA as percentage of revenue.
COD
Chemical oxygen demand is the amount of oxygen required
for the chemical oxidation of substances in the wastewater
effluent which is directly discharged into surface waters from
our facilities.
Eco-efficiency
Eco-efficiency means doing more for less: creating goods
and services while using fewer resources and creating less
waste and pollution.
Code of Conduct
Our Code of Conduct defines our company values and how
we work. It incorporates fundamental principles on issues
such as business integrity, labor relations, health, safety,
environment and security and community involvement.
Community Program
AkzoNobel’s global Community Program encourages
and gives financial support for employees to get involved,
hands-on, in their local communities.
Comprehensive income
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-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
Central and Eastern Europe (excluding Austria), Baltic States
and Turkey.
Emissions and waste
We report emissions to air, land and water for those
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.
Invested capital
Total assets (excluding cash and cash equivalents,
investments 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
characteristics, which are representative of the majority
of total business unit revenue/production.
Loss of containment
A loss of containment is an unplanned release of material,
product, raw material or energy to the environment (including
those resulting from human error). Loss of containment
incidents are divided into four categories, dependent on
severity, from small, on-site spill up to Level D – a significant
escape.
Mature markets
Comprised of Western Europe, the US, Canada, Japan
and Oceania.
AkzoNobel Report 2012 | Summaries | Glossary
203
Natural resource use
We do not report specific natural resource use, except
water. We do report our use of energy and waste from
our operations, and indicate the main raw materials used
in our products.
Net debt
Long-term borrowings plus short-term borrowings less cash
and cash equivalents.
Net income
Net income attributable to shareholders of Akzo Nobel N.V.
Occupational illness frequency rate
The number of reportable cases of occupational illnesses per
million hours worked.
Operating income
Operating income is defined in accordance with IFRS and
includes the relevant incidental charges.
Regulatory action
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).
ROI%
Calculated as EBIT of the last 12 months divided by average
invested capital.
13.4 Safety incident
We have defined three levels of safety incidents. The highest
category – Level 3 – involves any loss of life; more than five
severe injuries; environmental, asset or business damage
totaling more than €25 million; inability to maintain business;
or serious reputation damage to AkzoNobel stakeholders.
Top quartile talent development: 80 percent internal
promotion rate into executive level positions, based
on 2012 consultation with talent management experts.
80 percent is seen as best practice in the field because
it requires a good and healthy talent management process,
as well as opportunities for new hires.
Top quartile eco-efficiency improvement rate: orginally based
on 2009 benchmark of operational eco-efficiency targets
from peer companies in the chemicals sector (~5 percent
p.a.). Revised to top 25 percent in the DJSI (SAM) industry
benchmark for the OEE criterion.
Top quartile in sustainablity: a top three position
on the Dow Jones Sustainability Index.
Shareholders’ equity per share
Akzo Nobel N.V. shareholders’ equity divided by the number
of common shares outstanding at December 31.
Top quartile in employee engagement: top quartile
of the Gallup Q12
Operating working capital (OWC)
Defined as the sum of inventories, trade receivables and
trade payables in the Business Areas. When expressed as a
ratio, operating working capital is measured against four times
last quarter revenue.
SAM (Sustainable Asset Management) assessment
Assesses the sustainability performance of companies
selected for the Dow Jones Sustainability Index (DJSI).
The DJSI tracks the performance of the global sustainability
leaders. The index comprises the top 10 percent in each
sector for the 2,500 largest companies.
Operational eco-efficiency
Refers to the eco-efficiency of our manufacturing operations.
Our aim is to improve the operational eco-efficiency by
reducing the resources used and emissions/waste from our
sites during the manufacture of our products.
Top quartile
Top quartile safety performance: comparing the total
reportable rate (TRR) with eight peer chemicals and
coatings companies.
P&D Dialog
The Performance and Development Dialog (P&D Dialog)
is AkzoNobel’s global performance and appraisal system
for employees.
RD&I
Research, Development and Innovation.
Top quartile in sustainablity: a top three position on the Dow
Jones Sustainability Index (DJSI) based on SAM assessment.
Top quartile in diversity: 20 percent female executives
and 20 percent executives from the high growth markets,
based on 2009 benchmark with peers – Chemical Sector
and FMCG.
204 Glossary | Summaries | AkzoNobel Report 2012
Total reportable rate of injuries (TRR)
The number of injuries per million hours worked. Full
definitions are in the Sustainability statements section.
Total shareholder return (TSR)
Used to compare the performance of different companies’
stocks and shares over time. It combines share price
appreciation and dividends paid to show the total return
to the shareholder. The relative TSR position reflects the
market perception of overall performance relative to a
reference group.
Wellness Checkpoint
The company’s health assessment tool, which allows
employees to prepare their personal health risk assessments
and health improvement plans. Employee family members
may also participate in this program.
Financial calendar
2013
April 18
April 26
April 30
Report for the
first quarter
Annual General
Meeting of
shareholders
Ex-dividend date of
2012 final dividend
May 3
May 6 – May 23
May 24
May 29
Record date of 2012
final dividend
Election period cash
or stock final dividend
Determination of
exchange ratio
Payment date cash
dividend and delivery
of new shares
July 18
October 21
Report for the
second quarter
Report for the
third quarter
2014
February 6
Report for the
year 2013 and the
fourth quarter
These dates are subject to change. For the most accurate information,
see the events calendar on our website.
AkzoNobel Report 2012 | Summaries | Financial calendar
205
Report 2012 including Sustainability report
The company’s annual financial report is combined with
the sustainability report into one Report 2012. The sustain-
ability 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 2012 – Dutch version
A summarized version of the financial statements is 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 2012, reference is made to brands and trade-
marks owned by, or licensed to, AkzoNobel. Unauthorized
use of these is strictly prohibited.
Design
Pentagram, London
AkzoNobel Corporate Communications
Photography
Tessa Posthuma de Boer
Additional photography supplied
by AkzoNobel businesses
Print
Tesink B.V., Zutphen, the Netherlands
Paper
Heaven 42, printed with bio-ink
Disclaimer
In this Report 2012, 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 them-
selves. These are available through the relevant business units.
In this publication the terms “AkzoNobel” and “the company”
refer to Akzo Nobel N.V. and its consolidated companies in
general. The company is a holding company registered in the
Netherlands. Business activities are conducted by operating
subsidiaries throughout the world. The terms “we”, “our” and
“us” are used to describe the company; where they are used
in the Business performance section, they refer to the busi-
ness concerned.
Safe harbor statement
This Report 2012 contains statements which address such
key issues as AkzoNobel’s growth strategy, future financial
results, market positions, product development, products
in the pipeline and product approvals. Such statements
should be carefully considered and it should be understood
that many factors could cause forecasted and actual results
to differ from these statements. These factors include, but
are not limited to, price fluctuations, currency fluctuations,
developments in raw material and personnel costs, pensions,
physical and environmental risks, legal issues, and legisla-
tive, fiscal and other regulatory measures. Stated competitive
positions are based on management estimates supported by
information provided by specialized external agencies.
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
consistently ranked as one of the leaders in the area of
sustainability. With operations in more than 80 countries,
our 50,000 people around the world are committed to
excellence and delivering Tomorrow’s Answers Today™.
06734_250213