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Report14
AkzoNobel 2014 at a glance
Key regions
(by revenue)
North America
15%
Mature Europe
37%
€14.3 billion revenue
€987 million operating income
€2.23 earnings per share
80+ countries
47,200 employees
200+ production sites
10%
Latin America
8%
Emerging Europe
Our businesses
Asia Pacific
26%
Decorative Paints
Performance Coatings
Specialty Chemicals
Whether our customers are professional
decorators or keen DIY-ers, they want great
paint that gives a great finish. We supply a
huge variety of quality products for every
situation and surface, including paints,
lacquers and varnishes. We also offer a
range of mixing machines, color concepts
and training courses for the building and
renovation industry, while our specialty
coatings for metal, wood and other critical
building materials lead the market.
The business operates three units:
• Decorative Paints Europe,
Middle East and Africa
• Decorative Paints Asia
• Decorative Paints Latin America
We’re a leading supplier of performance
coatings with strong product technologies
and brands. Our high quality products
are used by customers across the world
to protect and enhance everything
from vessels, cars, aircraft, yachts and
architectural components (structural steel,
building products, flooring) to consumer
goods (mobile devices, appliances, beverage
cans, furniture) and oil and gas platforms.
The business operates four units:
• Automotive and Aerospace Coatings
• Industrial Coatings
(e.g. coil, wood and packaging)
• Marine and Protective Coatings
• Powder Coatings
As a major producer of specialty chemicals
with leadership positions in many markets,
we make sure that industries worldwide are
supplied with high quality ingredients and
process aids for the manufacture of
life’s essentials.
The business operates four units:
• Functional Chemicals
(e.g. chelates, ethylene amines)
• Industrial Chemicals
(e.g. chlor-alkali, caustic soda, salt)
• Pulp and Performance Chemicals
(e.g. bleaching, colloidal silicas)
• Surface Chemistry
(e.g. surfactants, synthetic polymers
and bio-polymers)
Brands include Coral, Dulux, Flexa,
Hammerite, Sadolin and Sikkens.
Brands include Awlgrip, International,
Interpon and Sikkens.
Some of our customers: thousands of paint
distributors around the world and large retail
outlets such as B&Q, Leroy Merlin and OBI.
Some of our customers: Airbus, Boeing,
Bosch, Dell, IKEA, Philips, Samsung, Shell,
Toyota, Volkswagen and Whirlpool.
Brands include AkzoNobel, Bindzil, Biostyle,
Dissolvine, Ecosel, Eka, Expancel, Jozo and
Kromasil.
Some of our customers: BASF, Bayer, Dow,
GE, Huntsman, Momentive, Monsanto, P&G,
Shin-Etsu, Stora Enso and Unilever.
Decorative Paints 2014 revenue breakdown by
end-user segment in %
Performance Coatings 2014 revenue breakdown
by end-user segment in %
Specialty Chemicals 2014 revenue breakdown
by end-user segment in %
4%
Other countries
A Buildings and Infrastructure
100
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
0
0
0
B Transportation
C Consumer Goods
D Industrial
21
37
28
14
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
18
6
19
57
AAABCDABCD
COPPER ORANGE
Color of the Year 2015
www.akzonobel.com/colorfutures
Report14
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AkzoNobel is a leading global paints and coatings company and a major
producer of specialty chemicals. Calling on centuries of expertise, we
supply industries and consumers worldwide with innovative products and
sustainable technologies designed to meet the growing demands of our
fast-changing planet. Headquartered in Amsterdam, the Netherlands,
we have approximately 47,000 people in around 80 countries, while our
portfolio includes well-known brands such as Dulux, Sikkens, International,
Interpon and Eka. Consistently ranked as one of the leaders in the area of
sustainability, we are committed to making life more liveable and our cities
more human.
22ColorHeritageTransport“We remain on track to deliver on our 2015 targets” p 8Picture it before you paint it p 72Changing the world with pioneering technology p 84Inspiring innovation through partnerships p 96Human Cities initiative: Six ways to improve, energize and regenerate urban communities around the world p 10 3ContentsMeasuring our impact in 4D p 206Making sport more accessible p 234Paint that keeps you cool p 212EducationSport and leisureSustainabilityAkzoNobel at a glance Cover flapHow AkzoNobel performed in 2014 4How AkzoNobel created value in 2014 6CEO statement 8Human Cities initiative 10Strategic performance 25Business performance 61Leadership 99Governance and compliance 113Financial information 139Sustainability statements 193Index 246Financial calendar 247Glossary 248 How AkzoNobel performed in 2014
Financial strategic targets
9.0%
14.0%
<2.0
Return on sales (ROS)
Achieve return on sales
(operating income/revenue)
of 9.0 percent by 2015
Return on investment (ROI)
Achieve return on investment
(operating income/average
invested capital) of 14.0 percent
by 2015
Net debt/EBITDA
Maintain net debt/EBITDA
lower than 2.0 by 2015
Financial progress 2014
6.9%
(excluding incidental items: 7.5% )
4
4
4
Strategic performance | AkzoNobel Report 2014
10.0% 0.95
Sustainability strategic targets
20%
25-30%
Eco-premium solutions
Increase revenue from
downstream eco-premium
solutions to 20 percent of
revenue by 2020
Carbon emissions
Reduce our carbon emissions
across the value chain by
25 to 30 percent per ton
by 2020 (2012 base)
Resource Efficiency Index
Monitor new index, as future
indicator for resource efficiency
across the full value chain
Sustainability progress 2014
19%
-4%
96
AkzoNobel Report 2014 | Strategic performance
5
5
5
How AkzoNobel created value in 2014
Economic value: Input
Organization
By bringing more value to our customers,
investors, employees and society in general,
we can better position ourselves for growth
and achieve our strategic vision of
leading market positions delivering
leading performance.
€6.3 billion
group equity
€3.3 billion
borrowings
€14.3 billion
revenue
€987 million
operating income
€588 million
capital expenditures
€9.9 billion
invested capital
So as well as actively working to reduce
our carbon footprint across the value chain
– to improve our resource efficiency and
reduce our environmental footprint – we’re
also creating social value by developing
our employees and being active in the
communities where we operate. And by
continuing to innovate in order to supply
more sustainable products and solutions
for our customers, we create economic,
environmental and social value.
€363 million
research and development expenses
€811 million
cash flow from operations
We invested in 2014 to keep our facilities
in good shape, as well as expanding our
manufacturing capability
Environmental value: Input
All these initiatives contribute to our financial
performance and ultimately lead to more
economic value for our investors.
34%
renewable energy
98,000 TJ
energy use
13%
renewable raw materials as %
of organic materials
€5.5 billion
raw materials spend
10.7 million tons
upstream CO2(e) emissions
Social value: Input
Organization
13,500
number of volunteers for Community
Program projects (cumulative since 2005)
1.8
total reportable rate of injuries
Employee and supervised contractors
total reportable rate of injuries
Target: <2.0 (2015)
3.1
2.4
2.3
1.8
2011
2012
2013
2014
66
How AkzoNobel created value in 2014 | AkzoNobel Report 2014
Revenue breakdown by Business Area
in %
Revenue breakdown by end-user segment
in %
C
A
D
C
A
B
B
Outcomes
€258 million
income tax paid
€280 million
dividend paid
A Decorative Paints
B Performance Coatings
C Specialty Chemicals
Organization
27
39
34
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
42
16
17
25
RD&I investments have resulted in
19 percent of revenue derived
from eco-premium solutions with
customer benefits.
Outcomes
4.0 million tons
CO2(e) emissions own operations
149 kilotons
total waste own operations
26.9 million tons
CO2(e) emissions cradle-to-grave
24%
reduction in operational eco-efficiency
footprint (since 2009)
17%
female executives
16%
high growth markets executives
Outcomes
€2.8 billion
employee benefits
3.97
employee engagement score
12.2 million tons
downstream CO2(e) emissions
47,200
employees at year-end 2014
2,260
Community Program projects
(cumulative since 2005)
6.9% ROS
(excluding incidental items: 7.5% )
10.0% ROI
0.95 /EBITDA
19%
net debt
of revenue from eco-premium solutions
increase CO2(e) per ton of sales from 2012
4%
cradle-to-grave carbon footprint
96 REI
in resource efficiency index
AkzoNobel Report 2014 | How AkzoNobel created value in 2014
77
8Strategic performance | AkzoNobel Report 2014 8CEO statementScan and explore8Dear stakeholder,When I look back at 2014, I see an eventful year, full of economic and market challenges. It was also a year of many changes at AkzoNobel, all of which were designed to make the company an even better place than it already is. The beginning of the year was very much dominated by unfavorable conditions with regard to currencies, while markets did seem to recover to a certain extent. That changed in the second half of the year when Europe again experienced a lack of growth and the recovery that everyone had hoped for didn’t materialize. At the same time, we saw some of the Asian economies and Latin America slow down. These were serious economic challenges that we needed to adapt to. In terms of financial performance, we saw the first clear proof points that our strategy is working, despite the market headwinds. We achieved continuously improving return on sales and return on investment levels, while the introduction of several commercial excellence initiatives helped to prepare the company for organic growth. The cash position was slightly marred by an unfortunate isolated incident of external fraud in the US, but we remain on track to deliver on our 2015 targets. 9AkzoNobel Report 2014 | CEO statement9“We remain on track to deliver on our 2015 targets”During the course of the year, we welcomed Maëlys Castella as our new CFO, succeeding Keith Nichols. She brings a wealth of operational and financial experience and has been warmly welcomed as part of the Executive Committee. Antony Burgmans succeeded Karel Vuursteen as Chairman of our Supervisory Board. Karel brought a tremendous amount of energy, strategic thinking and support to AkzoNobel and we thank him for all his efforts. Towards the end of 2014, we were also saddened by the passing of Dolf van den Brink, a long-time Supervisory Board member who brought his wisdom and professional expertise to the company for many years. He leaves a big legacy and we will continue to draw on everything we learned from him.Looking ahead at 2015, we do not expect significant positive changes in the markets. But while we do not anticipate the markets to turn in our favor, we’re confident that we have built the foundations to become more successful in 2015 and remain on track to deliver on our targets. We will continue to drive value creation in order to deliver leading performance.All our employees around the world deserve a tremendous amount of credit for the energy and effort that they have put in amid all the changes that have been taking place. I also want to thank our customers, suppliers and our investors for their trust and cooperation. I’m sure that our leading market positions, products and brands will make it possible for us to continue being successful in 2015. Ton BüchnerCEO and Chairman of the Board of Management and Executive CommitteeDuring the course of the year, we focused a lot of attention on transforming AkzoNobel into a more simplified and customer focused organization. The changes we implemented also helped us adapt to the challenging market conditions we were facing. Within the functional areas, we introduced a Global Business Services concept, which is designed to standardize many of our functional processes and make us more agile. In addition, we actively reduced the number of management layers to further streamline our structure and help drive the creation of a high performance culture. This process of transformation included the ongoing review of our manufacturing footprint and we continued to consolidate facilities during the course of the year. We also invested in a number of new facilities, and are continuing to do so. For example, an automotive and aerospace coatings factory was opened in Changzhou, China, and our new chlor-alkali plant was commissioned in Frankfurt, Germany. Elsewhere, Powder Coatings started operations at a new plant in Dubai in the Middle East and we broke ground at a new site for decorative paints in Chengdu, China. A number of other facilities are under construction which will give further momentum to our growth strategy. A key influence on our growth ambitions is the fact that more than 50 percent of the world’s population currently lives in cities. This is significant, because 60 percent of our revenue is connected to cities. That’s why we’ve launched our Human Cities initiative, which was a major highlight for us in 2014. Introduced to the world in Venice, it explains how AkzoNobel can play an important role in helping the world’s cities to meet many of the key challenges of the 21st century. Shortly after the Venice launch, we made a commitment to the Clinton Global Initiative, which involved establishing a partnership with 100 Resilient Cities – pioneered by The Rockefeller Foundation. It will enable us to support these cities in becoming more liveable, more enjoyable and more exciting. We are therefore looking forward to enabling people all over the world to strenghten their emotional connection with the place, neighborhood and environment where they live.Our strategy of organic growth and operational excellence includes embedding sustainability in everything we do. Sustainability is also one of the main pillars of the Human Cities initiative. It was therefore especially pleasing to be ranked first on the Dow Jones Sustainability Index (in the Materials industry group) for the third year in a row. It was also the ninth consecutive year that we have featured in the top three. This underlines how important sustainability is for AkzoNobel and how it has been fully integrated into the way we run our businesses. Our innovation in particular is focused strongly on the sustainable benefits we can provide for our customers. Highlights during 2014 included the launch of a new barrier coating which made it possible to create the world’s first fully compostable and recyclable paper cup for cold drinks. Another exciting innovation was launched by our Decorative Paints business. The award-winning Visualizer app enables users to see in real time what a room will look like in a wide range of different colors – before any paint is applied to the wall – making it more fun to interact with the way you decorate your home. HeritageColorHuman Cities initiativeScan and explore10Our cities are growing. Estimates suggest that by 2050 – when the world’s population will reach nine billion – around 70 percent of people will live in cities. One of the biggest challenges of our age is to ensure that urban areas can cope with the demands that this will create. EducationTransportSustainabilitySport and leisure11In order to respond to the rapid urbanization that is taking place, AkzoNobel launched its Human Cities initiative in June 2014. Based on six key pillars, it’s designed to help urban areas become more inspiring, energizing and vibrant for people across the world. We want to go beyond the purely functional or technological aspects and help cities and the people who live there to connect on an emotional level. Or put another way, we want to help cities become more human. The six pillars we have identified are color, heritage, transport, education, sport and leisure, and sustainability. They build on the fact that around 60 percent of our revenue is connected to cities, reflecting the positive contribution we can make to urban areas across the world.Our determination to help cities meet the challenges they face was underlined in September when we made a commitment at the Clinton Global Initiative (CGI) Annual Meeting in New York. Designed in collaboration with The Rockefeller Foundation’s 100 Resilient Cities program, our commitment includes developing an urban resilience guide for cities and staging special projects in four of the cities involved in the 100 Resilient Cities program.Ultimately, Human Cities is about making cities more inspiring and enjoyable places to live. By partnering with influential global organizations such as The Rockefeller Foundation, we’re underlining our serious commitment to working with partners across the world to tackle the many challenges being faced by some of the biggest urban areas. Human Cities initiativeColorCities should be more colorful12Walk around some of the world’s cities and it’s often the colors you see that inspire an emotional connection. Color gives a city energy and character, while our own research has shown that color plays an important role in giving citizens a sense of place and identity. Harnessing the transformative power of color can therefore help to give cities a new lease of life, while staying true to their origins. As one of the world’s leading paints and coatings companies, we have a long track record of helping cities around the world to add color and preserve their unique identity, typified by our highly successful Color Plans. Individually designed by our Sikkens brand in partnership with architects, historians, municipal authorities and local people, a Color Plan is essentially a color collection which is typical of a particular city or part of a city. Based on research into an area’s historic use of color going back hundreds of years, the overall aim is to help cities identify, recover and preserve the colors that give them their unique character and appearance.One of the more recent Color Plans we developed was for Bergamo in Italy. Working in collaboration with the Italian Ministry of Heritage, architects Riccardo Zanetta and Domenico Egizi, as well as the University of Bergamo, a color collection was created which is now being used as one of the key reference points for restoration and exterior redecoration projects.Our work in Bergamo follows on from Color Plans that have been developed for various Italian and Spanish cities, including Rome, Barcelona, Portofino, Malaga, Naples and Zaragoza. Color collections have also been created for cities in Austria and the Netherlands.Creating character and emotion with color Creating character
and emotion
with color
Scan and explore
13
HeritageUrban heritage needs to be embracedHuman Cities initiative14In an increasingly urbanized world, how can we make sure that the cities we live in have meaning and provide people with a sense of place and space? At AkzoNobel, we believe that balancing old and new is key to creating more Human Cities. Protecting our heritage can also have important long-term benefits for urban environments, such as attracting tourism and stimulating local development. To fully appreciate the positive impact that safeguarding the past can have, you only need to look at Malacca in Malaysia. Declared a UNESCO World Heritage site in 2008, the town’s unique architecture is being preserved through a partnership with AkzoNobel’s Dulux paint brand.The project, which will run until 2019, involves Dulux providing technical and design support, as well as supplying suitable paints and coatings to help preserve the uniqueness and originality of the colors on 26 heritage buildings and monuments.Once a thriving center for trade and cultural exchange between East and West, Malacca is a remarkable example of an historic colonial town. It’s easy to understand why local residents are so fiercely proud of its history and remain keen to preserve its architecture and culture, as well as their collective identity.“History is a living process,” explains Serge Jardon, a Malacca resident for more than 25 years. “Each stone will tell you a story if you take time to listen. That’s why it’s important to preserve our heritage for the next generation, so that they can learn.”Adds Jeremy Rowe, Managing Director of AkzoNobel Decorative Paints South East and South Asia: “People love these buildings. They’re a symbol of the past, but they’re also a symbol of freedom, independence and liberation and that’s why people look at them with fondness and treasure them as part of their heritage.”The work taking place in Malacca is a testament to those who remain committed to protecting our past and serves to remind planners and architects that Human Cities are those that make the past a part of the future. Making the past part of the future Scan and explore
15
TransportPeople must connect to make cities come aliveHuman Cities initiative16Traveling within and between cities has come a long way since the days of the horse and cart and spending months at sea. We live in an age of hi-tech transportation hubs, which play a crucial role in ensuring the fast and efficient movement of goods and people. With the world’s population continuing to grow and our cities expanding at a rapid rate, maintaining safe, efficient and sustainable transport links and embedding them into city infrastructure is becoming ever more important. Because effective transportation systems don’t just keep people properly connected, they can also make or break a city, depending on how well they function.AkzoNobel has a proud track record of supplying major transportation projects all over the world. From airports in Hong Kong, London and Brazil to metro systems in Dubai and Shanghai, our products and expertise are being used to meet the tough demands of getting people and cargo from place to place.To help keep these transportation hubs safe and comfortable, we supply a wide range of high performance products, such as fire protection coatings and decorative paints. Our contribution doesn’t stop at buildings and installations, however. We’re also a leading supplier of coatings for planes, high speed trains, rapid bus transport and metro cars. Our durable powder coatings, for example, are used on the inside and outside of trains and metro vehicles, while our high quality vehicle refinishes are applied to trains. Whatever the type of surface, our key focus is to keep our cities moving and make transport safer, better protected, more sustainable, better looking and more affordable for everyone.Connecting people and the planet Scan and explore
17
EducationEducation should be a city’s lifebloodHuman Cities initiative18Unlocking potential to build a better futureCities are more than just a collection of buildings; they are ever-evolving organisms that flourish or fail depending on how successfully they foster human innovation. At AkzoNobel, we therefore believe that providing decent education for young people should be a fundamental concern for those who live in, work in, or are connected to cities. As a company that depends on innovation, we also believe that investing in a quality labor market makes good business sense. That’s why we have long been involved in programs and initiatives designed to give children the education and training they deserve. We work together with educational organizations in all of our key markets, including globally with Plan; with the Dream Center in China; the Rijksmuseum, the Dutch-Asia Honors Summer School and Giving Back in the Netherlands; and The Courtauld Institute of Art in the UK.Another important partnership is with the Haberdashers’ Company, which plays a major role in providing best-in-class education to children across the UK via its network of schools. In 2014, we teamed up to establish the AkzoNobel/ Haberdashers’ Science Scholarship program. It is designed to promote the study of science at university, particularly among disadvantaged groups with little previous tradition of entering higher education. The scholarship is part of a broader science aspiration agenda that we are both working on. It also includes a national science in schools competition, a shadowing day and an annual reception for our scholars. The partnership is just one way in which we are investing in the education of young people all over the world. Scan and explore
19
Sport and leisureCitizens need space to rest and playHuman Cities initiative20A city’s ability to thrive can hinge on many things, but one of the most important is providing enough space for people to enjoy their leisure time. As well as enhancing an area’s appeal, creating open spaces can also encourage social interaction and help residents to adopt a healthier lifestyle. The Singapore government grasped this concept perfectly as part of a strategy designed to transform Singapore from a garden city, to a city in a garden. The aim was to raise the quality of life by enhancing the amount of green space in the city. The result was the stunning Gardens by the Bay.Spanning 101 hectares of reclaimed land, the complex features two conservatories housing Mediterranean and semi-arid subtropical ecosystems – the Flower Dome and the Cloud Forest – which are among the world’s largest climate-controlled glass houses. Outside, 18 “supertrees” dominate the landscape, providing a home to various exotic plants, while 11 of them also serve environmental functions such as harvesting solar energy.The conservatories and the supertrees are protected with a high performance coatings system supplied by AkzoNobel’s International brand. More than 50,000 liters of paint was used on the structural steelwork to protect the substrate from the effects of corrosion. The three-part system was chosen both for its anticorrosive properties and its high quality aesthetic finish.First opened in 2011, Gardens by the Bay was named World Building of the Year 12 months later, attracting nearly four million people by the end of March 2013. Its Chairman, Theresa Foo-Yo Mie Yoen, sums up its appeal: “At its heart, Gardens by the Bay is the people’s garden.A space for all to enjoy the beauty of nature within the city.” Refreshing the soul of a city Scan and explore
21
SustainabilityUrban design must consider climate changeHuman Cities initiative22With urbanization increasing at a rapid rate, the demand for energy is growing all the time. This puts huge pressure on cities to adapt, think differently about how they use resources and try to do more with less. A great example of how adopting more sustainable solutions can benefit urban areas and their residents is city lighting – which is getting both smarter and more efficient, thanks to the growing popularity of LEDs. Not only do they consume less energy than traditional lighting, LEDs also help to make our cities safer, more welcoming and more colorful.In fact, LEDs are so important to the modern world that the 2014 Nobel Prize for physics was awarded to a trio of scientists for the invention of blue light-emitting diodes. This enabled a new generation of bright, energy efficient white lamps, as well as color LED screens. Globally, the general LED lighting market is growing all the time – particularly in Asia – with India considering converting its 27.5 million streetlamps to LEDs over a period of three years. This continued growth and increasing market penetration enables AkzoNobel to build on its position as a leader in sustainability and a major player in providing key products for LED manufacture. We are a leading supplier of what are known as high purity metal organic (HPMO) precursors – an essential ingredient for LED chips. Without them, there would be no LEDs. These HPMOs are used to grow a very thin crystal layer of semiconductor material on a wafer. This is the active layer which emits the light and helps to make our cities brighter, safer and more human. Bright ideas for more efficient living Scan and explore
23
Improving solar efficiencyHow do you do more with less? We have developed new technology for the production of high purity trimethyl-aluminum (TMAl), which is used by solar cell manufacturers to create a special layer to increase the efficiency of solar cells. Strategic performanceAkzoNobel Report 2014 | Strategic performance25Strategic performanceIn 2013, AkzoNobel announced a new vision, targets, core principles and values, and strategy. This meant that all the key strategic elements for the company and its Business Areas were in place at the start of 2014. Throughout the year, we therefore focused on strategy implementation and execution.Our strategy 26Strategic targets: 2014 performance 44How we created value in 2014 46Risk management 52 Vision:
Leading
market positions
delivering
leading
performance
Our strategy
End-user
segments
Buildings
and Infrastructure
Transportation
Consumer Goods
Industrial
Actions
Deliver dependably
Grow organically
Innovate
Simplify
Standardize
Continuously improve
Processes
and capabilities
People, product and
process safety
Operational Control Cycle
Continuous improvement
Innovation
Procurement
Talent management
Strategic
focus areas
Care for the customer
Reduction of product
and process complexity
Cash and return on
investment
Embedded safety
and sustainability
Diverse and inclusive
talent development
Core principles
Values
Safety
Integrity
Customer focused
Deliver on commitments
Sustainability
Passion for excellence
Winning together
26
26
Strategic performance | AkzoNobel Report 2014
Strategic performance | AkzoNobel Report 2014
Core principles and values
Strategic focus areas
Care for the customer
Our core principles and
values define the culture and
behaviors that we are committed
to embedding throughout
AkzoNobel.
We have three core principles – safety, integrity and
sustainability. These work in harmony with our values –
Customer focused, Deliver on commitments, Passion
for excellence and Winning together. In 2014, we put
considerable time and effort into rolling out our core
principles and values to all employees, because effective
engagement is fundamental to realizing our leading
performance vision. More details about the roll-out can be
found under Diverse and inclusive talent development in
this section.
As part of the corporate strategy
development process we carried
out in 2012, we identified five key
focus areas. The following is a brief
description of accomplishments
in 2014, along with plans for
2015 and beyond for each of the
five areas.
AkzoNobel holds many market leadership positions.
In order to maintain these positions, we have identified
organic growth as one of our priorities. In 2014, we made
some progress in terms of organic growth, with volume
growth of 1 percent for the company as a whole. However,
there is still considerable room for improvement.
The starting point for organic growth is care for our
customers. It begins with a deep and profound under-
standing of our end-user segments, which translates into
an understanding of customer needs, such as product
performance, service levels, sustainability and price.
This in turn drives our product and service innovation
approach and our product and margin management
programs, which combine to ensure that we move closer
to our vision of delivering leading performance from our
leading market positions.
In 2014, a key area of activity in terms of care for the
customer was in the development of strong processes in
Marketing and Sales through our commercial excellence
programs. These programs differ per Business Area, but
we have created an overall corporate framework to ensure
efficiency and create consistency where this makes sense.
One example of this is the measurement of customer
satisfaction levels, where we have agreed company-wide
to a four-pronged approach which measures customer
satisfaction in terms of:
• The service we provide via on-time in-full
(OTIF) measures
Information is gathered daily or weekly at production
sites and deviations trigger corrective actions by local
management, with overall figures reviewed regularly at the
Business Area and full company level
AkzoNobel Report 2014 | Strategic performance
27
27
• The way we address customer questions
and concerns
We measure this as a combination of issue frequency
and response time for resolution. Local management
teams regularly review these data and ensure that root
cause investigations are carried out to resolve issues and
improve future service and satisfaction
• Our understanding of customers’ broader
expectations and concerns, with consequential
improvements in products and services
We assess performance through market research,
customer discussions and specifically targeted
customer surveys. Results are regularly reviewed at
Business Area and full company level
• Customer loyalty levels
Every day, our front line sales, customer service and
supply chain employees contribute to our success in the
market, however, this is often difficult to measure in a
meaningful way. To address this, we have decided to use
customer retention as a proxy measurement for customer
loyalty. We believe that this is an appropriate choice
because customers do have alternative sources of supply
in almost all of our businesses
Further development and implementation of our commercial
excellence programs will continue to be a major priority
for AkzoNobel in 2015 and will be a fundamental factor in
achieving higher organic growth levels in the future.
Reduction of product and
process complexity
Standardization and simplification of our processes is vital
to achieving our vision and targets, as it will lead to a faster,
more agile organization and reduced costs and resource
use. In addition to improving our product portfolios through
product and margin management, and our Marketing and
Sales processes through commercial excellence, we are also
reducing complexity in our raw material slates and in our
processes throughout the value chain.
In terms of raw material slates, our ambition is to create
a future-proof raw material portfolio. This means that we
will address the sustainability aspects while we reduce
the number of raw materials we use significantly, without
compromising the quality of our products. This has now
been achieved in our paints and coatings businesses
through the definition of raw material slates covering
resins, pigments, solvents and additives. Furthermore, a
rigorous, cross-functional process has been defined for the
introduction of new raw materials.
In 2014, a key area for process complexity reduction was in
the implementation of the AkzoNobel Leading Performance
System (ALPS), a fundamental change to the way we work in
the Integrated Supply Chain. This company-wide framework
of standard processes and tools helps us drive targeted
improvements for cost productivity, reduced resource use,
on-time in-full (OTIF) customer service and competitive
position, based on a continuous improvement approach.
We are already seeing positive results in early ALPS
production sites, including considerable and simultaneous
improvements in volume, equipment utilization, OTIF,
manning levels and employee engagement.
We also made substantial progress in terms of process
complexity reduction in Global Business Services (GBS),
which covers functional support activities such as Human
Resources, Finance and Information Management, as well
as non-product related Procurement. Specifically, in 2014,
we consolidated most of the transactional activities related
to these functions into regional hubs. These shared services
and expertise centers will service all AkzoNobel businesses
in a standard, cost efficient manner. In Finance, our financial
transaction handling processes are being standardized
across the world, while in Information Management, we are
creating a more simplified and uniform ERP landscape.
Cash and return on investment
One of the key issues in our strategy is the need to be more
cash generative and improve our return on investment.
This strategic focus area is supported by a strong record of
operating working capital management. In addition, over the
last few years, we have improved our capital expenditure
management processes significantly, based in part on
our end-user segment analysis, which highlights more
attractive growth opportunities. Better capital expenditure
management is also supported by the differentiated
growth strategies developed in all three Business Areas
and described in the Business performance section of this
Report 2014.
In all three Business Areas, we have continued to take action
in terms of operating efficiency. We are already reaping
some rewards of our restructuring programs, as evidenced
by our improved return on sales and investment in 2014.
Going forward, we will need to maintain this strong base
of operating efficiency via the Continuous improvement
process, which will help us to counteract inflation and other
cost increases.
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While we are taking a focused approach to performance
improvement to support this strategic focus area, we
remain acutely aware of the sustainability and financial
consequences of our investment and performance
improvement decisions. As has been the case for a
number of years now, all significant (greater than €5 million)
investment proposals require a sustainability evaluation,
which includes assessment at different stages in the
project development. This sustainability assessment covers
eco-efficiency, health and safety, process and product
safety, natural resource and raw material requirements, and
environmental impact.
Embedded safety
and sustainability
We continue to be viewed as a leader in sustainability.
In 2014, for the third year in a row, we were ranked top of
the Materials industry group on the Dow Jones Sustainability
Index. We have now been ranked in the top three in our
sector for the last nine years. While we remain proud of
these accomplishments, we are committed to improving
even further in order to achieve our sustainability targets.
For example, in 2014, we achieved our 2015 target of a total
reportable injury rate (TRR) of less than 2.0 per million hours
worked and, therefore, we are now striving to go beyond this
target in 2015.
To help drive improvement going forward, we introduced our
Planet Possible sustainability agenda in 2013, focused on
radical resource efficiency throughout our entire value chain.
There are three main pillars to this agenda, which build on
our sustainability foundations. More information on the three
pillars and sustainability foundations follows:
Sustainable business
By working together with customers and suppliers, we aim
to develop leading solutions that create more value from
fewer resources. In particular, we are focusing on developing
and marketing solutions that have a social or environmental
sustainability advantage for our customers when compared
with competitive products. For example, in 2014, we
announced the world’s first coating for cold drinks paper
cups which allows them to be composted or recycled.
The product adds to an already long list of products in
our Performance Coatings Business Area that help our
customers, or our customers’ customers, to reduce their
environmental impact while generating meaningful revenue
and other benefits for AkzoNobel.
In addition to measuring the percentage of our revenue
that comes from eco-premium solutions with a downstream
advantage, we also measure our progress against this
aspect of our sustainability agenda using a resource
efficiency index (REI). We developed this indicator to
measure how efficiently we generate value, and defined it
as gross margin divided by cradle-to-grave carbon footprint.
Resource efficiency
This pillar is focused on improving material efficiency across
the value chain, and increasing our use of renewable
materials and renewable energy to create more value from
fewer resources. It is important to note with regard to this
metric that a reduction in carbon footprint and a reduction
in costs often go hand-in-hand. For instance, we are in the
process of exploring opportunities for conversion of biomass
facilities from electricity to steam in our Delfzijl chlor-alkali
plant, doubling energy output from the same renewable
resources with both cost and footprint
reduction implications.
We monitor progress against this aspect of our strategy
by looking at the efficiency of resource and energy use
across the entire value chain, measured by carbon footprint
reduction. It is therefore important that we achieve the
kind of improvements described above both within and
beyond our own operations. For example, upstream in the
value chain we are continuing to look for opportunities to
use renewable or lower impact raw materials. As a result,
in 2014, we announced an expansion of our existing joint
development agreement with Solazyme. This will provide for
funded development and a multi-year supply of renewable
algae-based oils. These oils would replace petroleum and
palm oil-derived products used to manufacture surfactants,
one of our main Specialty Chemicals product platforms.
Capable, engaged people
The focus of this pillar is on developing our employees
and also forming partnerships along the value chain to
create more value from fewer resources. In 2014, we made
a significant and visible step in terms of external partnerships
as part of our Human Cities initiative.
Our focus on Human Cities stems from the fact that a
significant percentage of our business comes from products
and services that are linked to the urban environment.
Based on six key pillars, the initiative is designed to help
urban areas become more inspiring, energizing and vibrant
for people across the world. We want to go beyond the
purely functional or technological aspects and help cities
become more human. The six pillars we have identified
are color, heritage, transport, education, sport and leisure,
and sustainability.
This determination to help cities meet the challenges
they face was underlined in September when we made a
commitment at the Clinton Global Initiative Annual Meeting
in New York. Designed in collaboration with The Rockefeller
Foundation’s 100 Resilient Cities program, our commitment
includes developing an urban resilience guide for cities and
staging “Let’s Colour” projects in four of the cities involved
in the 100 Resilient Cities program. In addition, we will make
our expertise in paints, coatings and chemicals available to
the program’s advisory committees.
AkzoNobel Report 2014 | Strategic performance
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Our work will be supported by continued roll-out of the
integrated Talent management process, which was
introduced in 2013. This process (which is described in
more detail in the Processes and capabilities chapter) is
intended to bring increased objectivity to talent identification,
as well as a more targeted approach to the development of
leadership potential and increased process transparency.
This more active approach to talent management will also
focus on the appreciation of the added value that can come
from diverse teams.
With regard to increased diversity, we actively redressed
the gender balance in our senior management layers
by appointing Maëlys Castella as our first female Chief
Financial Officer, and our first female member of the Board
of Management. Her appointment sends a clear signal that
we continue to take diversity seriously at AkzoNobel and are
continuing to make progress towards our targets in this area.
Our Human Cities activities will build on, not replace, existing
activities in terms of external outreach. So we will continue to
work with key suppliers and customers to develop solutions,
as well as working in the communities we serve through
our Community Program and “Let’s Colour” campaigns.
Internally, we will continue to enable our employees to deliver
more value from fewer resources by embedding sustainability
in our talent management process.
Sustainability foundations
The three pillars of our Planet Possible agenda build on the
company’s core principles in terms of safety, integrity and
sustainability. From a people safety perspective, our Life-
Saving Rules and behavior-based safety programs
have provided a strong base to help us achieve our
2015 safety target in 2014 and also for continuous
safety improvement going forward. We have also made
considerable strides in the development of process and
product safety procedures (described in more detail in the
Processes and capabilities chapter).
We use our routine management cycle to review progress
against our sustainability targets and we continue to put
tools in place to help our employees make progress against
our Planet Possible agenda. For example, we are currently
piloting a new sustainability improvement toolkit. This toolkit
includes a self-assessment audit, a methodology for target
setting based on company requirements and business
priorities, and an approach for developing appropriate plans
to get from the current level of maturity to higher levels.
Diverse and inclusive
talent development
To address our other four strategic focus areas, we need
the active participation of a strong and motivated workforce
which reflects the diversity of the end-user segments we
serve. We will gain this active participation by increasing
employee engagement and providing continuous learning
and development opportunities. This will create a work
environment where people can perform to the best of their
ability while ensuring that our management layers reflect the
diversity of our overall workforce.
In 2014, a fundamental part of our activity in terms of
improved employee engagement was based on the full roll-
out of our core principles and values. Throughout the year,
we held thousands of meetings and workshops where we
identified how the behaviors related to our new values could
support us in achieving our goals. We also integrated the
core principles and values into all of our main HR processes,
including recruitment, our new leadership talent assessment
process and our employee performance evaluation. Pulse
surveys indicate that these core principles and values are
well understood today by our employees, and also that they
are a very positive motivating factor.
We also believe that the core principles and values
contributed to the improvement we saw in our
2014 ViewPoint employee engagement survey, compared
with 2013. While we are pleased to see this improvement,
we recognize that we still have some way to go in order to
achieve top quartile engagement levels. In 2015, our focus
in terms of improved engagement will be on living the core
principles and values, including recognizing and rewarding
role models and supporting improvement where this
is necessary.
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Operational Control Cycle
In place since 2012, this is a cycle of regular, sequenced and
staged operational meetings. It is already having a significant
impact because it incorporates structured and standardized
operational discussions. The objectives of this cycle are:
• Drive operational performance and continuous
improvement throughout the organization and across the
value chain
• Align views on the outlook going forward
• Make relevant operational decisions to deliver on strategic
focus areas
By employing this process, we operationally review past
performance, but primarily focus on a realistic three-month
rolling forecast, as well as mid to longer term planning.
This in turn helps us with our AkzoNobel value, Deliver on
commitments. By doing this, we create a review “heartbeat”
which incorporates a monthly series of business, functional
and country reviews.
Processes and capabilities
In 2014, we made substantial
progress in codifying our
company-wide core processes
by developing supporting toolkits
and including our processes in
our corporate directives to ensure
appropriate governance. A high
level summary of each of the
processes follows.
In each of our Business Areas,
we face different market
situations, with differing critical
success factors. We are therefore
developing appropriate capabilities
to establish and maintain a
competitive advantage. These
capabilities are described in the
Business performance section.
People, product and
process safety
People, product and process safety comes first at
AkzoNobel. Our Safety process is aimed at managing
operational risks in all our business activities. By applying
this AkzoNobel process consistently, rigorously and without
exception throughout the company, we demonstrate that
safety is a core principle that engages and unites all of us.
There are three main elements within the Safety process,
which depend on the daily commitment of each and every
employee, as well as line management leadership:
• People safety is focused on increasing awareness of
behaviors that put us at risk, by establishing a culture of
taking care and involving all employees in
safety improvement
• Process safety is focused on identifying and controlling
hazards in our operations by avoiding unwanted events
resulting in injuries, waste or harm at manufacturing sites.
Process safety is also fundamental to ensuring consistent
reliability and productivity of assets at optimal cost and
maintaining our license to operate
• Product safety incorporates the traditional approach of
reactive regulatory compliance, but also goes beyond this,
enabling us to take a lead in sustainable
product stewardship
In all three cases, our process steps include assessment,
analysis, actions to remove barriers, assurance and
continuous improvement. The Safety process is a permanent
way of working and, in addition to setting clear process
steps, we are also addressing organizational infrastructure,
business enablers and culture.
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Continuous improvement
Innovation
To ensure that continuous improvement is embedded
throughout the company, we are creating a common and
consistent approach, with standardized process methods,
toolkits and terminology, involving employees across
all of AkzoNobel. By introducing this approach, we will
boost organic growth and operational effectiveness while
increasing employee engagement, thereby increasing our
competitive strength.
Through the Continuous improvement process, we will
deliver both step-change improvement projects and small
but meaningful improvements in daily business and
functional processes. The process for doing this will differ
depending on the circumstances, but in all cases the main
priority is to move from our current performance to our
internal best practice levels and from there to industry and
world class performance standards.
In order to achieve this, we will utilize a robust toolset, based
on Lean and Six Sigma fundamentals. For example, in
most situations we will evaluate a process based on value
stream mapping to identify and address any effort which is
not required for customer value, thereby creating a “lean”
process. As this is closely linked to our Planet Possible
sustainability agenda of creating more value from fewer
resources, it is particularly relevant for AkzoNobel. Once
we have ensured that the process is as lean as possible,
we will use a Six Sigma approach, which seeks to improve
quality by identifying and removing the causes of errors
and minimizing variability. Each Six Sigma project follows a
defined sequence of steps and has quantified value targets,
such as reducing process cycle time, costs and resource
use, while improving customer satisfaction.
A Center of Expertise (CoE) for Innovation, Partnerships and
Complexity Reduction was established in 2014 as part of our
new Supply, Research and Development (SRD) function.
The SRD organization was created to enable speedier
innovation-based organic growth by reinforcing the links
between our Research, Development and Innovation,
Procure ment and Supply Chain organizations. The CoE
is driving the development of a standardized, four-stage
Innovation process, as well as putting supporting company-
wide portfolio and project management tools and programs
in place.
The four-stage Innovation process starts and finishes with
customer input, which is consistent with our Customer
focused company value. The four stages are ideation,
selection and prioritization, execution, and implementation
and support. To support delivery of truly leading outcomes
from our Innovation process, we have also strengthened the
strategic research capabilities of all three Business Areas
by reconfiguring the company’s corporate Expert Capability
Groups, which perform longer range and underpinning
research in partnership with our businesses.
Four-stage AkzoNobel Innovation process
Customers
Business strategies, market insights, technology roadmaps
Customers
Implementation
and support
Value optimization
Ideation
Structured ideation
Review
Improve
Execution
Project management
Selection and
prioritization
Portfolio management
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Measure, analyze and report
Procurement
Talent management
There are four primary components of our Procurement
process – strategic sourcing, key supplier management,
purchase-to-pay and raw material price forecasting.
Each of these elements is described in more detail below.
In 2014, we developed a set of tools to ensure that
Akzo Nobel is able to continously attract and motivate a
highly talented workforce.
Strategic sourcing
Strategic sourcing forms the backbone of the commercial
procurement process. It starts with the requirements defined
by our businesses based on market demand and also
incorporates supplier selection and negotiation, signing and
implementing contracts and reviewing results.
Key supplier management
To support delivery of strategic sourcing, we must manage
our key suppliers. This allows us to jointly drive value from
innovation, sustainability, procurement, sales and supply
chain improvements.
Purchase-to-pay
We are commited to increasing efficiency and control of our
transactions in our purchase-to-pay process, ensuring that
our orders are right-first-time and compliant with AkzoNobel
policies. The process starts with a disciplined creation of a
purchasing requisition, continues with receiving of goods or
services and is completed with the supplier payment.
Raw material price forecasting
Keeping our businesses well informed about expected
movements in the supply market is crucial. Buyers are
typically the first people in AkzoNobel to pick up information
on this topic and we must have a robust process for
ensuring that it is passed on to relevant individuals, so that
they can make appropriate commercial adjustments.
Plan
Human Resources (HR) business partners work within the
businesses on strategic workforce planning and are charged
with identifying the HR needs in terms of size of workforce
and individual and collective capabilities in the context of
the external environment. This workforce planning process
is intended to address short-term needs, but also long-term
requirements.
Attract, acquire and on-board
In many parts of the world, recruitment is now supported by
an e-recruitment technology platform as part of an integrated
suite supporting our Talent management process.
This ensures process standardization and helps to increase
direct sourcing, thereby reducing costs and improving
quality. The focus on quality and consistency of recruitment
activities is further supported by the availability of online
assessment tools.
Assess performance and potential
The assessment of individual performance within AkzoNobel
is supported by our global Performance and Development
Dialog (P&DD) process. The P&DD process ensures that
an employee’s performance is measured against agreed
objectives, which are linked to the goals of their team, and
ultimately to the company strategy, vision and targets.
Employees are also evaluated on how they live the company
values and behaviors.
In order to ensure that we also specifically identify and
develop employees with potential to grow into more senior
roles, we now use a consistent talent rating approach
globally which will be extended to all management levels
over time. The rating is reviewed each year by the line
manager and calibrated with the support of HR to ensure an
equitable outcome. The process is further strengthened by
the use of standard assessment centers to validate potential.
The outcome of the talent review is an individual talent profile
and development plan which is now fully shared with the
employee in order to support greater process transparency.
Develop and retain
At AkzoNobel, we are committed to the principle that all
employees, at all levels of the organization, should have
the opportunity to develop. To do this, we make use
of the three E’s – experience, exposure and education.
Experience is the most important (roughly 70 percent of
development), but exposure is also meaningful (roughly
20 percent of development) and incorporates coaching,
mentoring, feedback, high profile projects or short-term
assignments. Education makes up the remaining 10 percent
of the development agenda and is based on the AkzoNobel
Academy, along with external conferences and seminars.
Deploy
Formal career and succession planning is carried out at
least once a year to match an individual’s capabilities,
development needs and career aspirations with the
company’s needs. An important aspect of this process is
employee input. At all levels of the organization, increasing
emphasis is placed on creating high performing, diverse
teams. All actions related to people are recorded and
followed up quarterly by talent managers in our global Talent
management Center of Expertise (CoE).
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34Strategic performance | AkzoNobel Report 2014 34ActionsTo address our strategic focus areas and deliver on our vision and targets, we have identified a set of high level actions that we are pursuing throughout the company. These are: Deliver dependably, Grow organically, Innovate, Simplify, Standardize and Continuously improve. All functions and businesses within the company developed specific action plans in 2013, consistent with these high level actions. In 2014, we made progress on implementing these plans in all three Business Areas and this is explained further in the Business performance section.End-user segmentsWe will only achieve our vision if our actions and processes to address our strategic focus areas are delivered successfully to the markets via our end-user segments. Analysis of the trends in our four end-user segments is therefore a fundamental driver for all that we do. Profiles of the trends for our four end-user segments – Buildings and Infrastructure, Transportation, Consumer Goods and Industrial – can be found on the following pages.Consumer GoodsBuildings and InfrastructureWe are active in three sub-segments:• New build projects• Maintenance, renovation and repair• Building products and componentsWe are active in two sub-segments:• Consumer durables• Consumer packaged goods 35AkzoNobel Report 2014 | Strategic performanceTransportationIndustrialWe are active in three sub-segments:• Automotive repair• Automotive OEM, parts and assembly• Marine and air transportWe are active in two sub-segments:• Natural resource and energy industries• Process industries Buildings and InfrastructureSupplying products for the global construction industry and home improvement sector is a vital part of our business. We provide paints, coatings and specialty chemicals that are either used in the manufacture of building and infrastructure materials, or are used to coat the interiors and exteriors of buildings and other structures.42% of revenueTrendsA notable feature of this end-user segment is its very strong regional component, particularly in the New build projects and Maintenance, renovation and repair sub-segments. Over the last few years, market growth has been disproportionately high in countries such as China, India and Brazil. Looking ahead, we expect growth to fall slightly in Brazil and India, while in China, growth is expected to be much lower than it has been. In the New build projects sub-segment, this slow down is particularly marked. Meanwhile, analysts predict that growth in the US will be higher than in Brazil, Russia and India combined, with particularly strong growth in the New build projects sub-segment.The outlook for Europe is much less clear. Unlike the US – where the Buildings and Infrastructure end-user segment has more or less returned to 2008 levels – in Europe, output is still far below 2008. Therefore, at the beginning of 2014, most analysts anticipated a return to growth in Europe. As the year progressed, analysts continued to forecast reasonable growth, with the expectation that 2008 output levels would be reached again in 2018 or 2019. Growth rates were expected to be roughly equal in New build projects and Maintenance, renovation and repair, with the latter of particular relevance to our activities. However, by the end of 2014, it was difficult to determine whether this recovery was actually occurring and, in particular, if it was as strong as it was expected to be. Therefore, although we continue to see robust growth estimates from analysts, internally, our estimates for European market growth are more conservative. Future sustainability developmentsBased on the World Business Council for Sustainable Development (WBCSD) Vision 2050, 70 percent of the world’s population will live in urban areas, while 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. Sustainability issues beyond energy use and carbon emissions, such as air quality, will continue to have an impact.Implications for strategy and actions In high growth regions, we must make more use of the product and margin management approaches that we are already successfully utilizing in more mature geographies. At the same time, we have to recognize that with considerable population growth and continued increases in wealth, we still have a significant task in terms of market and brand building in these geographies. In Europe we need to focus on flexibility and responsiveness so that we can capture the growth if it does occur, but manage our costs if it does not materialize. Protective coatingsSurfactants in asphalt Fire protection coatingsDecorative paints(interior and exterior)Architectural powdersWood coatingsAnti-graffitisystemsChemicals for building plasticsCoil coatingsSolar reflective coatingsCellulosic chemicals in decorative paintTotal construction 1 Bubble size based on 2014 output102020Actual CAGR ’09-14 (%)Expected CAGR ’14-18 (%)100-10EuropeChinaUSBrazilRussiaIndiaTotal market new build construction 1 $ billion, output20182017201620152014Europe 4.7% p.a.China 8.6% p.a.US 8.3% p.a.Brazil, Russia, India 6.6% p.a.Total market maintenance and repair 1 $ billion, output1 Source: IHS/Construction IC20182017201620152014Europe 4.9% p.a.China 8.9% p.a.US 5.9% p.a.Brazil, Russia, India 6.8% p.a.Polymer powders for cement admixturesAkzoNobel Report 2014 | Strategic performance37 38Strategic performance | AkzoNobel Report 2014 38TransportationTrendsThe 2008-2009 recession led to a structural change in the Automotive OEM, parts and assembly sub-segment. Although the market quickly returned to growth and recovered to pre-recession levels globally, the regional mix has changed dramatically, resulting in a knock-on impact in terms of parts production. Specific changes include:• Automotive production in Europe has recovered, but not to pre-recession levels. Going forward, production growth is expected to be limited• In North America, production has returned to pre-recession levels following a robust recovery, but growth is expected to be significantly below other sectors of the North American economy• Growth in China has been considerable and the region has outstripped North America in terms of vehicle production. Future growth is expected to be at or slightly below China GDP growthIt’s a different scenario in the Automotive repair sub-segment, where the key drivers are the number of vehicles on the road, the insurance rate and the repair rate. In terms of the vehicle car park, slow, stable growth continues in more mature geographies with higher growth rates in countries such as China and India. The expectation is that in the medium term, the number of vehicles on the road in Brazil, Russia, India and China combined will surpass first the North American and then the European vehicle car park.We supply a comprehensive range of advanced coatings and color technologies for virtually every type of transport, from ships, yachts, trucks and construction equipment to planes, trains and automobiles. We also produce a variety of specialty chemicals that are used in the production of automotive systems and components. The most uncertain outlook in Transportation concerns the outlook for the Marine and air transport sub-segment. Although we anticipate reasonable growth in aerospace, there is still a great deal of uncertainty around marine new build. This particular market is late cycle cyclical, as it takes some time for the impact of a recession to be felt, evidenced by the accompanying chart. The expectation is that the market will return to growth in 2015. As our business today is disproportionately oriented towards the new build market, this is important for AkzoNobel. The marine maintenance market is more stable, but has also been somewhat depressed. We expect lower oil prices to be a positive factor driving growth in maintenance going forward.Future sustainability developmentsBased on the WBCSD Vision 2050, by 2050, an 80 percent reduction in energy use by light duty vehicles is expected, along with a 50 percent drop in energy use in freight transportation.Implications for strategy and actionsAs production and the car park continue to shift, we must ensure we are well positioned geographically – both in terms of supply and decision-making. We also need to have products with the right functionality, aesthetics and price level to consistently meet requirements in this demanding segment. Finally, we need the right organization in marine to maintain margins and take advantage of the return to growth when it occurs.16% of revenue 39AkzoNobel Report 2014 | Strategic performance39Light vehicle production 1 passenger cars and light vehicles (units)15202530201920182017201620152014Europe 2.3% p.a.China 5.3% p.a.North America 2.2% p.a.25303540201920182017201620152014Europe 1.0% p.a.Brazil, Russia, India, China. 9.6% p.a.North America 1.2% p.a.10203040506020152014201320122011201020092008+10.1% p.a.-5.3%-21.5%-4.8%+3.4%Vehicle car park 1 passenger cars and light vehicles (units)New build ship deliveries 2 million compensated gross tons (CGT) Delivered Forecast deliveries1 Source: IHS2 Source: Clarkson Research Services LimitedAerospace coatingsYacht coatingsMarine coatingsProtective coatings(linings)Specialty chemicals used in automotive plasticsSurfactants in fuels and lubricantsSpecialty coatings for interiors and exteriorsPowder coatings for componentsVehicle refinish paint for repairs 40Strategic performance | AkzoNobel Report 2014 40Consumer GoodsTrendsGrowth in both population and wealth in countries such as China and India – combined with strong global demand for new products such as smartphones and tablets – has resulted in substantial historical global growth in many parts of the Consumer durables sub-segment. The outlook going forward is also generally positive. In terms of production, there has been a shift in most sectors to high growth countries. For example, there is now more production in Brazil, Russia, India and China alone than there is in North America and Western Europe combined for domestic appliances. Growth rates and expected growth rates are also substantially higher in non-Western regions. However, it is worth noting that in many cases, design and decision-making processes are often still based in North America or Western Europe.Other areas of the Consumer durables sub-segment such as furniture production, an important market for AkzoNobel, display a different pattern, more similar to the production and growth patterns that we see in the Consumer packaged goods sub-segment. As a general rule, Consumer packaged goods are much more stable and less cyclical in terms of demand, but also tend to be lower growth. In addition, the very large base of installed production in North America and Europe means that while growth is lower in these regions, production in Europe and North America still outstrips production in high growth countries, and this will continue in the medium term. We supply coatings and specialty chemicals used in a variety of consumer goods, including consumer electronics, furniture, domestic appliances, food and beverage, personal care and cleaning. Our specialty chemicals are either vital to the production process or are key functional ingredients. Our coatings play an aesthetic and protective role. Future sustainability developmentsBased on the WBCSD Vision 2050, consumer durables are expected to last longer, with package recycling being integrated into business models. By 2050, it is forecast that people will only use five tons of non-renewable materials each, down from today’s 85 tons (US).Implications for strategy and actionsGiven the shift in geography in many parts of the Consumer durables sub-segment, we need to ensure that we have the right production, sales and technical service organizations in high growth countries, and that these organizations are working effectively across regions in terms of design and key account management where appropriate. At the same time, we have to continue restructuring our sales and production in more mature markets. We also need differentiated business models with appropriate value and cost trade-offs to serve both premium and mass markets. Finally, we must ensure that our products provide new or better functionality, particularly with regard to sustainability.17% of revenue 41AkzoNobel Report 2014 | Strategic performance41Domestic appliance production 1 $ billion, value addedFood and beverage production 1 $ billion, value addedFurniture production 1 $ billion, value added20201920182017201620152014304050Brazil, Russia, India, China 4.6% p.a.Western Europe and North America 1.8% p.a.3020192018201720162015201430405060Brazil, Russia, India, China 5.2% p.a.Western Europe and North America 1.9% p.a.304050607080201920182017201620152014Brazil, Russia, India, China 5.4% p.a.Western Europe and North America 1.9% p.a.1 Source: Oxford EconomicsSurfactants used in cleaning and personal care productsSports equipmentcoatingsSalt WoodfinishesPowder coatings WoodfinishesSpecialtyfinishesChelates in dishwasher detergentsPackagingcoatings Powder coatings 42Strategic performance | AkzoNobel Report 2014 42We supply specialty chemicals for oil and gas, metals and mining, electricity/utilities, agriculture, chemical manufacturing and pulp and paper. They play an important functional role during production or in the end product. We also sell liquid protective and powder coatings, which are largely used for their functional benefits, such as fire and corrosion protection. TrendsThere is more uncertainty today in the Natural resource and energy industries sub-segment than there has been in the recent past due to the much lower oil prices seen towards the end of 2014. Most analysts are predicting a fairly rapid rebound, but the outlook is quite unclear as we go to print. If the market remains in over-supply and prices remain low, this will eventually have an impact on demand for chemicals used in extraction and even coatings used in major oil-related projects. On the other hand, demand for more environmentally-friendly solutions and technologies that lower extraction costs is likely to remain robust. Furthermore, most oil and gas projects are major, multi-year activities so the likelihood is that the impact on demand in the short term will be limited.In the Process industries sub-segment, growth has moderated in China, but is still high compared with most geographies. In North America, the growth outlook in chemicals is also quite positive, due in part to the impact of shale gas. Analysts believe that China has now surpassed North America in terms of chemicals value added, and although growth rates going forward in China are expected to be much lower than they have been in the recent past, they are still higher than North American growth rates and much higher than European growth rates.IndustrialGiven our strong position in pulp bleaching chemicals, this is also an important part of the Process industries sub-segment for AkzoNobel. Pulp bleaching continues to contract in North America and the growth rate in Europe is low. Globally, the main region for growth is South America, which continues to grow in a consistent and stable manner. This is a positive development for AkzoNobel, as we have a strong position in pulp bleaching chemicals in South America.Future sustainability developmentsBased on the WBCSD Vision 2050, a four to ten-fold improvement is expected in the eco-efficiency of resources and materials by 2050. Closed loop processes will increasingly lead to a reduction in waste that goes to landfill.Implications for strategy and actionsAs growth rates slow, we must continue to improve productivity and innovation rates to remain competitive. In particular, with limited growth in Europe, we must continue to optimize our manufacturing footprint in the region. At the same time, we need to be prepared to capitalize on growth opportunities where they do exist, such as chemicals in China and North America and pulp in South America. While we do this, we clearly have to continue to improve in terms of sustainability levels throughout the value chain.25% of revenue 43AkzoNobel Report 2014 | Strategic performance43Ethylene aminesOrganic peroxidesMetal alkylsCaustic sodaBleaching chemicalsFunctional powder coatings used in pipesSurfactants and chelates for well stimulationDe-icing saltProtective coatingsChlorine050100150200250300201920182017201620152014Western Europe 1.6% p.a.Brazil, Russia, India 3.6% p.a.China 6.5% p.a.North America 4.1% p.a.Chemical production 2 $ billion, value added201920182017201620152014South America 5.6% p.a.North America -1.7% p.a.Europe 1.6% p.a.Asia 3.5% p.a.50100150200201920182017201620152014Brazil, Russia, India 8.7% p.a.Europe excl. Russia 4.4% p.a.North America 3.9% p.a.China 7.8% p.a.Bleached pulp production 3 million tonsEnergy and utilities 1 $ billion, value added1 Source: Business Monitor International2 Source: Oxford Economics3 Source: RISI PLASTICS PULPAkzoNobel Report 2014 | Strategic performance43 Strategic targets: 2014 financial performance
Return on sales (ROS)
Return on investment (ROI)
Net debt/EBITDA
We use return on sales (ROS) as a performance indicator
to reflect profitability relative to revenue. ROS as a target will
focus management on delivery and quality of profits.
ROS is defined as operating income as percentage
of revenue.
We use return on investment (ROI) as a performance
indicator to reflect profit relative to invested capital. ROI as
a target will focus management on delivering value through
returns in excess of our cost of capital. ROI is defined as
operating income divided by average invested capital.
Progress towards our 2015 target
• Modest volume growth
• Robust operating expenditure cost control
• Restructuring costs significantly down compared
with 2013
• Excluding incidental items, ROS was 7.5 percent
(2013: 6.1 percent)
Progress towards our 2015 target
• Capital expenditures lower than 2013
• Operating working capital slightly higher than 2013
Net debt/EBITDA reflects our strategy to maintain a strong
investment grade rating (or credit rating).
Continued overachievement of our 2015 target
• EBITDA increased significantly due to lower costs and
restructuring charges
• Very slight increase in net debt compared with the
previous year
Target 9.0%
14.0%
Return on sales (ROS) development
Operating income in % of revenue
Return on investment (ROI) development
Operating income/average invested capital in %
<2.0
Net debt/EBITDA
Ratio
5.9*
6.6
6.9
8.9*
9.6
10.0
9.0
14.0
1.4
1.0
1.0
<2.0
2012
2013
2014
2015
2012
2013
2014
2015
2012
2013
2014
2015
*Excluding an impairment in Decorative Paints of €2,106 million.
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Strategic targets: 2014 sustainability performance
Eco-premium solutions with
customer benefits
Our 2020 target is to achieve 20 percent of revenue from
products and services which provide customers and
consumers in our downstream value chain with a significant
sustainability advantage compared with the most commonly
available equivalent commercial products or
industrial processes.
Continued steady progress towards our 2020 target
• Percentage of revenue from eco-premium products and
services with downstream benefits slightly higher
than 2013
• Increase came from a combination of new products and
growth in revenue from existing products in Specialty
Chemicals and Performance Coatings
Cradle-to-grave carbon footprint
Resource Efficiency Index (REI)
Our ambition is to reduce our cradle-to-grave carbon
footprint by 25-30 percent per ton of sales between 2012
and 2020.
Significant improvement required to reach
the 2020 target
• Carbon footprint per ton of sold product has increased,
although absolute footprint is down 2 percent since 2012
• Solid improvement in some areas due to lower footprint
energy contracts and facility efficiency improvements
• However, unfavorable energy source changes in Europe
and a significant product mix effect limited the impact of
these improvements
The Resource Efficiency Index is defined as gross margin
divided by cradle-to-grave carbon footprint – reported as an
index. We are initially monitoring this index, and our aim is
to use it to drive further improvements in resource efficiency
across the value chain.
Significant improvement required
• Improvements in energy efficiency based on renewable
and low carbon energy supply
• Ongoing switch towards waterborne coatings and margin
improvements as a result of higher value added products
• However, squeezed margins, demand for higher footprint
products and changes in regional energy sourcing have
had a negative impact
20%
25-30%
Eco-premium solutions with customer benefits
in % of revenue
Cradle-to-grave carbon footprint
% reduction CO2(e) per ton of sales from 2012
Resource Efficiency Index
gross margin/CO2(e) indexed
17
18
19
20
25 - 30
90
95
94
100
98
96
2012
2013
2014
2020
0
2012
2
2013
-4
2014
2020
2009
2010
2011
2012
2013
2014
For more details see Sustainability statements Note 4.
For more details see Sustainability statements Note 5.
For more details see Sustainability statements Value chain chapter.
AkzoNobel Report 2014 | Strategic performance
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45
46Strategic performance | AkzoNobel Report 2014 46How we created value in 2014By bringing more value to our customers, investors, employees and society in general, we can better position ourselves for growth and achieve our strategic vision of leading market positions delivering leading performance. Summary of financial outcomesIn € millions20132014∆%Revenue14,59014,296(2)Operating income9589873Operating income excluding incidental items8971,07220Operating income excl. incidental items and restructuring charges1,2451,3256ROS (in %)6.66.9ROS excl. incidental items (in %)6.17.5Average invested capital10,0079,871Moving average ROI (in %)9.610.0EBITDA1,5131,69012Capital expenditures666588(12)Net cash from operating activities71681113Net debt1,5291,606 Net income attributable to shareholders724546Earnings per share from total operations (in €)3.002.23Adjusted earnings per share (in €)2.622.81Number of employees49,60047,200(5)Economic valueFinancial overview2014 revenue was down 2 percent, with volume up 1 percent in all Business Areas, more than offset by adverse currency effects and divestments. Operating income was up 3 percent at €987 million, due to higher operating results and lower restructuring charges, offset by higher incidental charges. Excluding incidental items, ROS was 7.5 percent (2013: 6.1 percent). ROI was 10.0 percent (2013: 9.6 percent). We are on track to deliver our 2015 targets.Revenue development in % versus 2013 Increase DecreaseTotalExchangeratesAcquisitions/divestmentsPrice/mixVolume0%-1%-2%-2%+1%20-2-44A Mature Europe 37B Asia Pacific 26C North America 15D Latin America 10E Emerging Europe 8F Other countries 4 ABCDFERevenue by region in %2014201320125,5894,8833,9094,1745,5714,9494,2975,7025,543Revenue in € millions Decorative Paints Performance Coatings Specialty Chemicals Revenue
Revenue was down 2 percent, with volume up 1 percent in all
Business Areas, more than offset by adverse currency effects
and divestments.
• Volumes in Decorative Paints were up 1 percent.
Revenue declined 6 percent compared with 2013 due
to divestments, adverse currency effects and an adverse
price/mix effect. The latter was mainly driven by the sale of
the German stores
• Volumes in Performance Coatings were up 1 percent,
mainly from growth in Marine and Protective Coatings and
Powder Coatings. Revenue was flat compared with the
previous year due to adverse currencies
• Volumes in Specialty Chemicals were up 1 percent.
Revenue was 1 percent lower due to price pressure in
caustic and unfavorable currency developments during the
first half of the year, as well as some interruptions in supply
chain and manufacturing.
Divestments
• On October 1, 2013, the divestment of Building Adhesives
was completed, which accounts for the divestment impact
in Decorative Paints. In addition, the sale of the German
stores was concluded, which did not have a revenue
impact in divestments but in price/mix
• The divestment of the Primary Amides and Purate
businesses was completed in 2013, and accounts
for the divestment impact in Specialty Chemicals
• Specialty Chemicals announced the intended sale of its
Paper Chemicals portfolio for €153 million. The business
is currently part of Pulp and Performance Chemicals.
The transaction is expected to be completed in
2015, subject to regular consultation with employee
representatives and satisfaction of closing conditions
such as receipt of required regulatory clearances
Operating income
Operating income increased 3 percent to €987 million, due
to higher operating results and lower restructuring charges,
offset by higher incidental items (€85 million adverse items in
2014 and €61 million favorable items in 2013). The incidental
charges in 2014 related to an external fraud suffered by one
of our subsidiaries in the US, provisions for legacy items
and project costs related to a divestment. Restructuring
charges in 2014 were €253 million (2013: €348 million). The
majority of the restructuring charges related to Performance
Coatings.
• In Decorative Paints, operating income in 2013 included
the gain of €198 million from the divestment of Building
Adhesives. Excluding this effect, operating income
improved. Restructuring charges were lower than the
previous year. In addition, costs were down following
the implementation of restructuring programs and strict
cost control
• In Performance Coatings, operating income increased
4 percent compared with 2013. Improved operational
effectiveness more than compensated for increased
restructuring charges. A major restructuring activity was
the implementation of a new organizational structure with
fewer management layers and clearer accountability
• Specialty Chemicals increased profitability over the
previous year, with significant savings from restructuring
programs. Operating income in 2013 was affected by
€121 million incidental charges
Average raw material costs were stable compared with 2013
exit prices. In some high growth markets, currency effects on
imported raw materials have affected some businesses.
Operating income in € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
500
542
941
2012
297
525
398
2013
1 Excluding goodwill impairment.
508
545
248
2014
Cash flows and net debt
Operating activities in 2014 resulted in cash inflows of
€811 million (2013: €716 million). Profit from continuing
operations was lower in 2014, however, the comparative
for 2013 included a non-cash gain from deferred tax of
€124 million. Net debt at year-end 2014 of €1,606 million
was slightly up on 2013 (€1,529 million). Cash outflows for
discontinued operations of €88 million mainly related to a
settlement of a case following the divestment of Organon
BioSciences in 2007.
Early in 2014, a €825 million bond was repaid from existing
resources. In November 2014, a €500 million bond was
issued with a ten-year maturity, at a coupon of
1.75 percent. The new bond issue extends the duration of
the overall bond portfolio, taking advantage of favorable
market conditions and historically low interest rates. We
are committed to maintaining a strong investment grade
credit rating. Currently, the company has a BBB+ rating with
Standard & Poor’s and a Baa1 rating with Moody’s.
AkzoNobel Report 2014 | Strategic performance
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Invested capital
Invested capital at year-end 2014 totaled €9.9 billion, up
€0.6 billion on year-end 2013. Invested capital was primarily
impacted by foreign currency effects of €0.4 billion due to
the weaker euro.
Innovation
We continue to invest in Research, Development and
Innovation to fulfill future customer needs and fuel our
targeted growth in revenue share of eco-premium solutions
with customer benefits.
Dividend
Our dividend policy is to pay a stable to rising dividend. We
will propose a 2014 final dividend of €1.12 per share, which
would make a total 2014 dividend of €1.45 (2013: €1.45)
per share. There will be a stock dividend option with cash
dividend as default.
We are prioritizing our investments given our focus on cash
and return on investment. During 2014, we invested an
amount of €588 million (2013: €666 million), or 4.1 percent
of revenue (2013: 4.6 percent). We intend to align our future
capital expenditures with depreciation, and to invest 40-50
percent in growth.
Innovation investments
research and development expenses in € millions
Dividend in €
384
373
363
1.45
1.45
1.45
Capital expenditures 2014
100% = €588 million (4.1% of revenue)
A Decorative Paints
B Performance Coatings
C Specialty Chemicals
25
25
50
C
A
B
2012
2013
2014
Eco-premium solutions
We maintain our intention to lead by example in the area of
improving the sustainability and environmental performance
of our products and processes, which we measure through
our development of eco-premium solutions. They are
a fundamental driver of our Planet Possible agenda for
creating more value from fewer resources and minimizing the
environmental impact/footprint of the products we sell and
the processes we use to manufacture them.
2012
2013
2014
Earnings per share total operations in €
3.00
2.23
(8.82)
2012
2013
2014
Eco-premium solutions with customer benefits
in % of revenue
Target
17
18
19
20
2012
2013
2014
2020
Although it may appear that we are already close to realizing our 2020 target of
20 percent of revenue, it should be noted that our year-on-year progress will be
impacted not only by our own innovation drive, but also by competitor activity and
legislation changes. Furthermore, the introduction of new products into the market
whose performances equal those of our current eco-premium solutions offering will
redefine the standards that we will have to surpass, to acquire future eco-premium
solutions status. For more details see Sustainability statements Note 4.
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Interest
Net financing expenses decreased, mainly due to lower
interest expenses on net debt as a result of repayment of
high interest bonds. This positive effect is partly offset by
(non-cash) higher interest on provisions. For the full-year, net
financing expenses decreased by €44 million to €156 million.
Income tax
The full-year effective tax rate was 30 percent (2013:
30 percent adjusted for an incidental non-cash tax gain of
€124 million and several non-taxable items).
Income tax paid in € millions
209
230
258
Environmental value
Cradle-to-grave carbon footprint
Our ambition is to reduce our cradle-to-grave carbon
footprint by 25-30 percent per ton of sales between 2012
and 2020. We have made some good improvements.
New power contracts in, for example, Moses Lake and
Columbus, US, and increased production in our Chemical
Islands (using renewable power) have reduced the footprint
significantly. Energy efficiency has been improved at several
production sites, such as Ningbo in China and Columbus
in the US. However, these improvements have been
outweighed by changes in product mix, a deterioration of
power mix in Germany and lower utilization of our Combined
Heat and Power (CHP) unit in the Netherlands, leading to the
use of more power from the Dutch grid.
2012
2013
2014
Target
Cradle-to-grave carbon footprint
% reduction CO2(e) per ton of sales from 2012
Energy
Renewable energy is an important aspect of the
improvements required to achieve our 2020 strategic carbon
footprint target. Our Renewable Energy Supply Strategy
has three focus areas: protecting our current renewable
share, participating in cost effective, large energy ventures,
and exploring commercially feasible on-site renewable
energy generation.
Total energy in % by source
C
E
D
B
A
A Renewable energy
B Natural gas
C Coal
D Nuclear
E Other fossil fuels
34
36
15
13
2
Outlook
We anticipate that significant developments in raw material
prices, combined with relevant exchange rate movements and
lower growth rates in high growth economies, will principally
determine the dynamics of 2015. The preparations, made in
2013 and 2014 will form a sound basis for further improve-
ments in 2015. The company remains on track to deliver its
targets for 2015.
25 - 30
For more details see Sustainability statements Notes 5 and 15.
0
2012
2
2013
-4
2014
2020
For more details see Sustainability statements Note 5.
AkzoNobel Report 2014 | Strategic performance
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49
Raw materials
Bio-based raw materials are an important contributor to our
sustainability agenda; a considerable share of AkzoNobel’s
environmental footprint is embodied in the raw materials we
buy, and most bio-based materials exhibit lower footprints.
While many of our materials are already bio-based, we are
also seeing the construction and commissioning of the
first commercial scale production facilities for several new
additional bio-based raw materials. In order to lead the
deployment of these materials in our markets, we have been
setting up partnerships across our supply chain.
Total volume of raw materials
in % per source
13%*
A
C
B
* 13 percent of organic
raw materials are from
renewable sources.
A Renewable raw materials (bio-based)
B Fossil-derived materials (petrochemicals)
C Inorganic materials (e.g. salt, minerals, clays)
7
44
49
Operational eco-efficiency program
The focus of the Operational eco-efficiency (OEE) agenda
is to increase raw material efficiency, reduce consumption
of energy, 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.
Waste
Effective waste management helps to increase raw material
efficiency in our manufacturing operations, while reducing
both our environmental footprint and costs. We have
moved our focus from managing/reducing total waste to
eliminating waste by increasing material efficiency. The focus
on waste over past years resulted in a reduction in waste at
the majority of our sites.
OEE footprint improvement
(% reduction from 2009)
Target
Total waste
in kilotons
Reusable
Non-reusable
Total kg per ton of production
40
24
24
30
11
13
7
2010
2011
2012
2013
2014
2015
2017
The OEE footprint is calculated from the weighted average of nine footprint parameters
and production volume. Fore more details see Sustainability statements
Environment chapter.
250
200
150
100
50
0
11.6
11.0
9.0
8.6
121
118
96
85
96
65
77
72
15
12
9
6
3
0
2011
2012
2013
2014
Waste means any substance or object arising from our routine operations which we
discard or intend to discard, or we are required to discard. Reusable waste is waste
which is used e.g. for resource recovery, recycling, reclamation, direct re-use or
alternative uses e.g. composting. All other waste is non-reusable waste.
Fore more details see Sustainability statements Note 18.
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Social value
At year-end 2014, the workforce amounted to
47,200 employees (year-end 2013: 49,600 employees).
The decrease was mainly due to:
• A decrease of 400 employees due to divestments
• A decrease of 2,000 employees due to
ongoing restructuring
Employee engagement
One of our key measures of progress in the area of culture
is employee engagement which we measure through an
employee engagement survey. Compared with last year’s
results, we’ve seen an increase in engagement. In the
context of our ongoing change and restructuring, this is
a positive signal. Engagement has increased every year since
we started the survey in 2010.
Community involvement
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 on a sustainable basis. In the past nine
years, the program has become firmly embedded in our
worldwide organization.
We continued restructuring activities during 2014 in
all Business Areas. We will continue to centralize and
outsource back office activities throughout the world.
ViewPoint score employee engagement
(1 to 5 scale)
Target
Cumulative Community Program involvement
(cumulative since 2005)
Projects (number)
Volunteers (number)
Support (€ million)
Employees
47,200 at year-end 2014
3.74
3.80
3.88
3.97
>4.00
14000
12000
10000
8000
6000
4000
2000
0
Employees by Business Area
A Decorative Paints
B Performance Coatings
C Specialty Chemicals
D Other
32%
43%
21%
4%
D
C
A
B
2011
2012
2013
2014
2015
For more details see Sustainability statements Note 12.
Safety
Overall performance indicators for people safety show
that we have achieved our 2015 target a year early.
Implementation of the people safety programs coincides
with a continued decrease in the number of injuries to
employees and supervised and independent contractors.
Employee and supervised contractors total
reportable injuries injury rate
Target
3.1
2.4
2.3
1.8
<2.0
<1.0
2011
2012
2013
2014
2015
2020
For more details see Sustainability statements Note 8.
15.0
13,500
15
12.5
14.0
11,000
13.0
9,000
11.5
8,000
10
7.5
5
2.5
0
1,678
1,931
2,108
2,260
2011
2012
2013
2014
For more details see Sustainability statements Note 14.
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Risk management
Doing business inherently involves
taking risks. By taking balanced
risks we strive to be a sustainable
company. Risk management is an
essential element of our
corporate governance and
strategy development.
We continuously strive to foster a high awareness of
business risks and internal control, geared towards
preserving our risk appetite and providing transparency
in our operations. The Executive Committee is responsible
for managing the risks associated with our activities and,
in turn, for the establishment and adequate functioning
of appropriate risk management and control systems
(see Statement of the Board of Management in the
Leadership section).
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Enterprise
Risk Management
process
Supervisory
Board
Executive Committee
Top 10 risk + Risk response
Risk identification
and assessment
Business Areas/Corporate
functions/Countries
Top 10 risk + Risk response
Risk profile
Risk response
per risk profile
Actions
Risk profile +
Risk response
Business units
Top 10 risk + Risk response
Areas of major risk exposure
(businesses, projects, sites etc.)
Top 10 risk + Risk response
Enterprise
Risk Management
reporting
Risk consolidation
Risk transparency
Our 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 process,
control systems and our major business risks, which are
subsequently reviewed by the Supervisory Board.
Risk appetite
Clarity on risk appetite, along with the 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, Code of Conduct,
core principles and 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 achieving
our performance, innovation and sustainability objectives.
Returns on investment in the development of innovative
products and sustainable solutions are never certain.
Yet considerable funds and effort is spent on research,
development and innovation, even in less certain
economic circumstances
• Operational: With respect to operational risks, we seek to
minimize the downside risk from the impact of unforeseen
operational failures within our businesses
• 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 are explained in more detail in Note 23 of the
Consolidated financial statements
• 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
Governance and compliance section for more details
Risk management in 2014
Enterprise Risk Management is a company-wide driven
activity under the responsibility of the Executive Committee
that includes a bottom-up process which aims to provide
full coverage of the organization and ensure that we focus
on the areas of major risk exposure. The scoping of our
2014 risk management activities was performed by the
Executive Committee, Business Area and business unit
Managing Directors and Corporate Directors, in association
with the risk management function. In addition to focusing
on the coverage of our organization, emphasis is put on
organizational changes, key strategic projects and high
growth regions.
During the year, we facilitated 87 Enterprise Risk
Management workshops. In these workshops, almost 1,800
unique risk scenarios were identified and prioritized by the
responsible management teams and functional experts. All
major risks were responded to by the unit that identified
them. The outcome of all risk assessments was reported to
the next higher management level. 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.
In the fourth quarter of 2014, one of our subsidiaries located
in Chicago (US) was targeted by an external fraud. The
fraud involved international wire transfers totaling an amount
of €51 million in reported currencies. When detected,
immediate actions were taken including contacting and
working with appropriate law enforcement authorities.
Independent legal counsel, assisted by an independent audit
firm, was assigned to investigate the matter, which was
an isolated event not linked in any way to the operational
activities of the company and our businesses. Customary
and appropriate controls were in place and were breached.
An extensive fraud awareness campaign was started and a
plan to reinforce controls was launched. We believe that we
will be able to reduce the ultimate financial impact.
Under the explicit understanding that this is not an
exhaustive list, the major risk factors that may prevent
full achievement of our strategic ambitions and the
corresponding mitigating actions are listed in detail in this
chapter. Where references are made to functional and
process improvement initiatives, more detailed information
can be found earlier 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, at a later stage, could develop into a
material impact. The company’s risk management systems
endeavor to ensure the timely discovery of such incidents.
AkzoNobel Report 2014 | Strategic performance
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The table below summarizes the major risks for the company. The symbols represent
management’s assessment of how these risks are expected to develop compared with the
previous year.
External – Strategic
• Worsening of economic conditions
• International operations
Internal – Strategic
• Innovation and identification of major
transforming technologies
Internal – Operational
• Attraction and retention of talent
• Production process risks
• Management of change
External – Operational
• Energy pricing and emission trading
rights
• Sourcing of raw materials
• Product liability
• Environmental liabilities
• Information Technology
External – Financial
• Post-retirement benefits
• Free cash flow generation
• Fluctuations in exchange rates
• Decline of asset values
External – Compliance
• Complying with laws and regulations
Risk has been assessed to increase
Risk has been assessed to decrease
Risk has been assessed to remain fairly stable
External - Strategic
Worsening of economic
conditions
The global economy remains fragile and it continues to be
difficult to predict customer demand and raw material costs.
AkzoNobel is susceptible to decreased growth rates within
high growth markets and/or continued economic and market
downturn in mature markets. The effects could lead to a
decline in demand and deteriorating financial results, which
in turn could result in the company not realizing its financial
targets.
Mitigating actions
• Execute our strategy to bring down our operational cost
base and reduce complexity
• Continue the implementation of Global Business Services
aimed at standardized core functional processes in all
regions across the organization
• Further deploy the commercial excellence programs
to capture organic growth and offset the effects of
decreasing economic growth rates
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Strategic performance | AkzoNobel Report 2014
55AkzoNobel Report 2014 | Strategic performance55External - OperationalEnergy pricing and emission trading rightsOur 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.Mitigating actions• Continue to analyze and review our competitive positions and proactively manage energy usage and costs• Implement our Carbon Policy and work on energy efficiency programs• Diversify our energy source portfolio to reduce the amount of gas-based heat• Closely monitor and manage our carbon management plans. We have policies for energy contracts and long-term purchase contracts in place (see Note 23 of the Consolidated financial statements)Sourcing of raw materialsPrices for key raw materials can be volatile and are affected by economic conditions. The table below shows our relative spend on these key raw materials, excluding energy. We may also be impacted by inability to access sufficient raw materials, business interruption or product discontinuation at key suppliers. These potential circumstances may increase cost and expenses for raw materials and energy.Mitigating actions• Periodically review all critical raw materials, with the aim of bundling the purchasing power in both product related and non-product related requirements• Use our purchasing power and long-term supplier relationships to acquire raw materials and safeguard their constant delivery in a sustainable manner• Implement plans to mitigate dependencies brought about by single sourced raw materials• Monitor our critical value chains to understand the critical suppliers and markets of our suppliers to detect risks and opportunities at an earlier stageBreakdown of total raw material spend in % A Chemicals & intermediates 24B Resins 22C Additives 14D Solvents 10E Coatings specialties 9 F Packaging 9G Titanium dioxide 8H Pigments 4 ABCDEFGHExternal - OperationalExternal - StrategicInternational operations We are a global business with operations in more than 80 countries. We are therefore 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. Mitigating actions• Strategically spread our activities geographically and serve many sectors to benefit from opportunities and reduce the risk of instability• Carefully monitor the political, economic and legislative conditions across the company• All significant investments, and the countries and industry segments in which AkzoNobel conducts its business, are decided on by the Executive Committee• Country organizations are in place in order to mitigate country-specific and generic business risks External - Operational
Product liability
External - Operational
External - Operational
Environmental liabilities
Information Technology
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 the use of former, current or new technologies
and compounds.
Mitigating actions
• Quality improvement programs are in place in our different
Business Areas
• Product stewardship is embedded in the company’s HSE
and sustainability agenda. Product stewardship is also
integrated into product slate decisions
• We also have a central policy to optimize insurance
coverage which relates to specific insurance programs
covering product liability
We use, and have used in the past, hazardous materials,
organic and inorganic compounds in product development
programs and manufacturing processes. We have been,
and can still be, exposed to risks of contamination and
substantial claims due to potential non-compliance with
environmental laws, regulatory enforcement, property
damage and personal injury. Regulations and standards
are becoming increasingly stringent.
An effect of AkzoNobel’s longer term Information Technology
strategy is that our IT landscape is converging into
fewer ERP systems and other critical applications. The
amount of digital exchanges of business transactions with
customers, suppliers and other stakeholders is increasing.
Non-availability of our critical IT systems or unauthorized
access, through cybercrime or other events, can have a
direct effect on our production processes, our competitive
position and the reputation of the company.
Mitigating actions
• Conduct 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
Risk corrective actions
• Continuously test and update the systems used for
information security
• Further implement measures such as redundant design,
back-up processes, virus protection, anti-spoofing and
forensic scans
• Centrally monitor access control processes to our key IT
• Accrue and charge environmental clean-up costs or
systems
indemnifications against earnings when it is probable that
a potential liability has materialized and an amount can
be reliably estimated (see Note 20 of the Consolidated
financial statements)
• A company-wide directive describing the rules regarding
Information Management was issued in 2014
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Strategic performance | AkzoNobel Report 2014
External - Financial
External - Financial
External - Financial
Post-retirement benefits
Free cash flow generation
Fluctuations in exchange rates
Our current policy is to sponsor defined contribution pension
and other post-retirement benefit plans wherever possible,
but we still have a number of defined benefit pension
and healthcare schemes from the past. Generally, these
schemes have been funded through external trusts or
foundations, where AkzoNobel faces the potential risk of
funding shortfalls.
Mitigating actions
• Our policy is to offer defined contribution schemes to new
employees and, where appropriate, to existing employees.
The most significant defined benefit schemes are the
ICI Pension Fund and the AkzoNobel (CPS) Pension
Scheme in the UK. Both are closed to new entrants.
They are managed and controlled by independent
trustees. The funded status of these schemes is affected
by the trustees’ investment decisions, market conditions,
demographic experience and any regulatory actions.
This may require additional funding from the former
employing entities and may adversely impact our business
and results
• We practice proactive pension risk management and
continuously review options to reduce the financial
risks associated with all of our defined benefit plans
(see Note 15 of the Consolidated financial statements)
The potential for further deterioration of economic conditions
could have an impact on the free cash flow generation of
our businesses. Furthermore, we are potentially exposed
to additional funding of pension schemes. This may lead
to insufficient free cash flow generation, which limits our
strategic degrees of freedom.
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 adverse movements in the US dollar, Pound
sterling, Swedish krona and Latin American and Asian
currencies.
Mitigating actions
• Maintain a strong investment grade credit rating; our long-
term senior unsecured debt rating is BBB+ by Standard &
Poor’s and Baa1 by Moody’s
Mitigating actions
• A centralized treasury and hedging policy is in place for
certain currency exchange rate risks (see Note 23 of the
Consolidated financial statements)
• Focus on cash management is stressed in our monthly
• At a more operational level, risks are reduced by the
Operational Control Cycle meetings and relevant metrics
are included in our remuneration policies
prevalence of local-for-local production, which is the norm
in many of our businesses
• 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 governed by our
centralized treasury function
AkzoNobel Report 2014 | Strategic performance
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External - Financial
External - Compliance
Internal - Strategic
Decline of asset values
Impairments and book losses could adversely affect our
financial results.
Mitigating actions
• Perform impairment tests for intangibles with indefinite
lives (goodwill, some brands) every year and whenever
an impairment trigger exists. For tangibles and other fixed
assets, impairment tests are only carried out whenever
an impairment trigger exists (see Notes 7 and 8 of the
Consolidated financial statements)
• Continuous monitoring of acquisition and divestment
opportunities and the management of assets held for sale
are performed by the Executive Committee
Complying with laws
and regulations
We may be held responsible for any liabilities arising out of
non-compliance with laws and regulations.
Mitigating actions
• Monitor and adapt to significant changes in the legal
systems, regulatory controls, customs and practices in the
countries in which we operate
• Remain dedicated to minimizing AkzoNobel’s compliance
risk by fostering an open and transparent culture,
continuously educating our employees worldwide and
increasing awareness
• Monitor overall compliance through our comprehensive
annual non-financial letter of representation process, as
well as our annual competition law compliance declaration
• Embed company-wide standard setting and compliance
awareness through activities and training programs
Innovation and identification of
major transforming technologies
Our success depends on the sustainable growth of our
business through research, development and innovation.
If we are not able to identify and adopt major transforming
technologies in a timely manner, this may lead to the loss of
our leadership positions and adversely affect our business.
Mitigating actions
• Support continuous research and development through
a spend of 2.5 percent (€363 million) of total revenue
• Maintain the use of our detailed technology roadmaps,
which assess relevant technological horizons and
pathways to acquire and detail new technologies
• Promote our global open innovation capability
to identify, assess and acquire the most recent
promising technologies
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Strategic performance | AkzoNobel Report 2014
Internal - Operational
Internal - Operational
Internal - Operational
Production process risks
Management of change
Attraction and retention
of talent
Having the right people, with the right capabilities,
experience and mindset can, to a large extent, determine
the success of our organization.
Mitigating actions
• Continue the roll out our Talent management process,
initiated in 2013
Risks in production processes can adversely affect our
results. They arise from areas such as personal health
and safety, process safety and product safety. Unlikely
scenarios can involve major incidents with a high impact
on our organization, causing business continuity risks and
reputational damage.
• Establish a more rigorous and differentiated assessment
of performance, with enhanced focus on alignment with
AkzoNobel’s core principles and values
• Further develop the AkzoNobel Academy aimed at
Mitigating actions
• Project ALPS has been implemented to reduce process
complexity and drive continuous improvement
• Continue the implementation of the Process Safety
increasing functional capabilities across the company and
sharing best practices
Management (PSM) framework, which was introduced in
2014. The framework provides a set of minimum safety
requirements for all our sites
• Carry on with business continuity planning and make sure
there are appropriate risk transfer arrangements in place
In order to implement our overall strategy, we have
implemented, and continue to implement, numerous
changes in our operating model. We are also undertaking
various restructuring projects which require significant
change. Failure to successfully execute these initiatives could
lead to industrial action and, ultimately, to not achieving our
strategic ambitions.
Mitigating actions
• To accelerate the implementation of our strategy we have
introduced core principles and values intended to set
the desired behavioral changes in motion. The values
and behaviors have been included in the performance
management process
• Senior management is involved in all critical projects that
have been prioritized and are supervised by the Executive
Committee to ensure an aligned and integrated vision for
the company’s change agenda
• Project management and change management are both
included in the curriculum of the AkzoNobel Academy
AkzoNobel Report 2014 | Strategic performance
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Excellence and endurance
Backed by centuries of expertise, our extensive coatings
and chemicals know-how and innovative technologies are
in demand all over the world. For example, we supply the
aerospace and marine industries with advanced, high quality
products that offer unrivalled performance and appearance.
Business performance
The following section gives a detailed summary of how each
of our Business Areas performed during 2014. Information
on market characteristics is also provided.
Decorative Paints
Performance Coatings
Specialty Chemicals
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AkzoNobel Report 2014 | Business performance
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Business performance Decorative Paints
“The work we have done to streamline our
business is clearly paying off as we continued
to grow in challenging circumstances”
Ruud Joosten Member of the Executive Committee responsible for Decorative Paints
2015 expected outcomes
ROS 7.5% ROI 12%
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Business performance | AkzoNobel Report 2014
It was a positive year for the Decorative Paints business.
We operationally outperformed 2013 by some distance,
despite continued market weaknesses, and remain on track
to achieve our operational objectives for 2015.
A lot of work has gone into streamlining our global activities
over the last few years in order to make the business more
efficient and profitable, as well as providing further growth
momentum. This is clearly paying off, as we continued to
grow in very challenging economic circumstances.
Markets remained weak, especially in Europe, where many
economies are still trying to recover from the ongoing
economic recession. The professional market in the UK was
something of an exception, while consumer confidence all
over continental Europe was fairly low. We continued to
perform well in China, despite evidence of the economy
slowing down. Our performance was also good in Latin
America, even though circumstances were less than
favorable in countries such as Argentina and Brazil. South
East and South Asia also contributed strongly, with India,
Indonesia and Vietnam in particular posting good results.
A specific area of attention this year was Europe, where we
successfully implemented a new operating model in October.
It is designed to take advantage of our scale in back
office functions such as Finance, Human Resources and
Information Management, which have been combined on a
global and European level. This model enables us to operate
a more focused Sales and Marketing organization within
the countries themselves. The introduction of this model
builds on changes we introduced to our global management
structure and set-up at the start of 2014. As a result of these
improvements, we now have a more agile and competitive
Decorative Paints business which is better positioned to
achieve profitable growth.
Even though it was a busy year in terms of reshaping the
organization, we remained highly focused on maintaining
our good safety performance. Our total reportable rate of
injuries (TRR) improved from 1.9 to 1.6, and we continued
to introduce sustainable innovations to the market. This was
highlighted by the proportion of revenue we achieve from
eco-premium solutions with customer benefits. Notable
product launches included Coral Acrílico Total in Brazil, a
wall paint for internal and external use, with great resistance,
coverage and washability, which reinforced the brand’s
position in the premium segment. We also launched Nordsjö
One Supertech in the Nordics, a self-cleaning paint which
has already proved to be very successful. Another highlight
was the introduction of our award-winning Visualizer app.
This is available as a free download and we’re particularly
proud of it because it represents a world’s first in augmented
reality technology. It enables users to see in real time what
a room would look like if it was painted in different colors –
before any paint has been applied to the wall. The app has
been hugely successful and it underlines how we’re working
to embrace digital innovations alongside our
product innovations.
Color is also one of the main pillars of the Human Cities
initiative which the company launched in 2014. Designed
to make cities more enjoyable and inspiring, it will give
extra momentum to the global “Let’s Colour” initiatives that
Decorative Paints has been running for a number of years.
In particular, “Let’s Colour” will play a key role in supporting
the commitment AkzoNobel made to the Clinton Global
Initiative in September, which established a partnership
with 100 Resilient Cities – pioneered by The Rockefeller
Foundation. As part of that commitment, over the next
two years, we will contribute to special projects in four cities
named on the 100 Resilient Cities list.
Another notable development this year was the
groundbreaking at our new site in Chengdu, China.
The plant will be our fourth in China producing decorative
paints and is due to open in 2016, with full operations
expected by 2017. There is strong demand for our products
in the region and this will enable us to meet the increasing
needs of the market.
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AkzoNobel Report 2014 | Business performance Decorative Paints
strategy
Our vision is to become the
leading global decorative paints
company in size and performance.
We are on track to achieve
our expected 2015 financial
outcomes of 7.5 percent return
on sales and 12 percent return on
investment, as evidenced by our
2014 performance, which was a
significant improvement over 2013
levels. In addition, we have also
successfully “gone live” with our
new operating model in Europe,
which includes a comprehensive
and disciplined process-based
approach designed to improve
both efficiency and effectiveness.
We also continue to make
progress in our five main
action areas:
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Actions
Fix Europe
Given the structural issues in the Buildings and Infrastructure
end-user segment in Europe, optimizing our cost base is
fundamental. The starting point for this is our new operating
model, which refocuses our country organizations on our
core business. Implementation of this operating model has
resulted in fewer management layers, reduced production
costs, standardized processes, restructuring in Marketing
and Sales, and outsourcing of transactional Finance.
In parallel with this, we also continue to make progress in
the market. For example, in the UK consumer market, 2014
marked the launch of a major new marketing campaign for
our Dulux consumer range, called “Change Your Story”. In
trade, the heartland of our business, we began the roll-out of
our Sikkens 5051 color collection.
This collection, combined with related services, emphasizes
our dedication to color, a fundamental part of our
professional value proposition. We are also continuing to
innovate, particularly in products with sustainability benefits,
such as Herbol Protectro Aqua, a water-based product with
longer gloss retention.
Grow profitably in high growth markets
Growth in high growth countries is a key component of our
plan and we continue to build our brands in these areas as
a result. For example, in 2014, we successfully launched
a new blockbuster exterior walls proposition (Coral Acrílico
Total) in Brazil. The launch was supported by a fully-fledged
marketing campaign, including a TV commercial with
three-time Roland Garros winner and former world number
one tennis player, Gustavo Kuerten. We also introduced
our Colors of the World concept – a significant part of our
“flourish” brand architecture – in Tunisia, South Africa and
Indonesia. In addition, we continue to develop and market
appropriate value propositions for the mid-market segment.
A good example is the recent successful launch of the Fit
by Marshall brand in Turkey. This brand offers an economic
solution for frequently painted areas.
We are supporting our vital market-facing efforts with an
even clearer focus on productivity. For example:
• In South East and South Asia, we are rolling out consistent
value propositions and supporting campaigns across
the full region. We have taken this approach with the
launches of Dulux Weathershield Powerflexx – which offers
strong protection on exterior walls against wear and tear
caused by harsh weather conditions with its crack-proof
elastomeric features – and Dulux EasyClean – which
effectively resists stains on interior walls and enables
easier cleaning – and it has proven to be effective as well
as efficient
• In China, we are further optimizing our logistics
service providers
• In Latin America, we increased our operational leverage
significantly by reducing the fixed cost base and improving
the product mix
Business performance | AkzoNobel Report 2014 Leverage investments in marketing,
sales and innovation
Branding and consumer inspiration are core capabilities
in Decorative Paints. In 2014, we completed global
implementation of our “flourish” identity, successfully uniting
our premium consumer brands.
With this consistent brand identity aligned to a new global
brand architecture, we are able to facilitate stronger
consumer propositions and more powerful, rapid and
efficient communication through the value chain. For
example, we expanded the distribution of our annual trend
book ColourFutures to cover 45 countries and we now
support our “flourish” identity with a consistent
digital platform.
We are continuing to roll out regional or global concepts
where relevant, including Ambiance, Colors of the World
and Weathershield. We are also continuing to invest in
our global “Let’s Colour” brand, both commercially and
through our community programs. In Brazil, for example,
we have now staged around 1,250 successful
“Tudo de Cor” (“Let’s Colour”) events, supporting our Human
Cities agenda.
Improve supply chain performance
We have made considerable changes to our supply chain
footprint as a result of the ICI acquisition and the structural
changes in the Buildings and Infrastructure end-user
segment. The changes that we are currently making are
based on ensuring a future-proof supply chain. Specifically,
we are currently investing in state-of-the-art facilities in
Ashington in the UK and Chengdu in China. The Ashington
plant is intended to replace our Slough and Prudhoe facilities
and offers state-of-the-art technology and resource efficiency
(energy and waste) performance. The Chengdu plant is
needed from a capacity and logistics perspective, as it will
supply Western China.
As we move towards a steady state, our focus is shifting
towards operational excellence based on the company-
wide AkzoNobel Leading Performance System (ALPS). Our
efforts are based on engaging our people in continuous
improvement activities that improve safety and customer
service, while reducing inventory and cost. These efforts
are, of course, a key part of our plan for the next level
of improvement in mature Europe, but they are also
fundamental to the future of our supply chains in high
growth regions.
• Eco-premium solutions
We continue to win business from products and services
that have sustainability benefits. An excellent example of
this is Nordjsö One Supertech. This product is based on
a collaboration with our Specialty Chemicals Business
Area – it uses our specialty silica to create a self-cleaning
exterior wood care paint. The product is yet another
example of products that provide functional benefits in
addition to great aesthetics
• Packaging and end-of-life
Generate more value from fewer resources
As is the case with all Business Areas, our focus in terms of
embedded sustainability is on generating more value from
fewer resources as part of our Planet Possible agenda. We
are engaging with our employees to do this, but are also
working with customers to help them make better choices.
Some examples of the kind of work we are doing include:
• Volatile organic compound (VOC) reduction
We continue to have success in developing lower VOC
products, but one of our key activities is to educate the
market about the benefits of lower VOC paint.
For example, lower VOC products dry more quickly,
offering improved productivity, and we consider it an
important part of our role to get this message across. We
are carrying out this education process in mature markets,
such as Spain, where our Painter-to-Painter program
is based on videos of real painters talking about the
benefits of waterborne technology. We are also educating
outside of Europe, in Argentina for example, where our
Mythbusters program is aimed at dispelling myths about
waterborne products
We continue to look for ways to reduce packaging and
better utilize leftover paint through the value chain. For
instance, in France, we demonstrate our commitment to
helping professional customers do more with less through
our “Opération Recyclage” in our Sikkens Solutions
trade network. This program enables account holders to
dispose of their waste paint, cans and other equipment,
and to obtain official certification for having done so.
This eliminates special trips to recycling centers while
encouraging them to use Sikkens products
• Own operations
Although our plants and distribution process are not
resource intensive, we continue to look for ways to
minimize resource use, which generally also results in cost
savings. This, of course, covers energy use, but also other
natural resources such as water
• Engaging our employees and helping our customers
We are engaging our employees to help us improve
sustainability. Externally, we are using Planet Possible
labelling on websites and cans to help consumers
understand the level of sustainability of their choices.
Finally, we run a number of initiatives around the world,
such as our Painter for Life scheme in Indonesia and our
Ilm-o-Hunar scheme in Pakistan. As part of this training,
we educate painters in safety and environmental practices
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AkzoNobel Report 2014 | Business performance Decorative Paints end-user segment outlook
All revenue generated by the
decorative paints industry comes
from consumers and professional
users in either the New build
projects or Maintenance,
renovation and repair sub-
segments of the Buildings and
Infrastructure end-user segment.
The latter sub-segment is more
important than the former for
AkzoNobel, given the large size of
the installed base, particularly in
more mature markets.
New build projects
In Europe, the new build market grew rapidly before 2008,
after which it slowed down considerably. There are some
signs that the market is returning to growth, with some
analysts predicting robust growth rates going forward,
due mainly to market recovery. At this rate of growth, the
expectation is that Europe will return to 2008 output a
decade after the recession began. However, our experience
is that growth is more uncertain and uneven than the rates
predicted by analysts. Therefore, our internal estimates of
European new build growth are much more conservative.
In high growth markets such as China, new build growth
has been disproportionately high over the last five years.
However, growth rates have slowed. Going forward, growth
is expected to moderate further to China GDP levels, or
possibly even lower. In other key countries such as Brazil
and India, growth rates have been higher than mature
market rates over the last five years. Going forward, these
are also expected to moderate somewhat.
In all geographies, growth rates are driven by population
growth and increased wealth, but also by a variety of other
factors, such as the need for personalization and enhanced
sustainability. Thus, products that provide functional benefits,
such as helping to cool buildings or increase perceived light
and space, will continue to be in higher demand.
Maintenance, renovation and repair
This sub-segment is more important for our Decorative
Paints Business Area than New build projects. We estimate
that around 75 percent of our revenue comes from this
sub-segment, with growth tending to be lower, but steadier
and less cyclical. As is the case in New build projects,
demand growth will be disproportionate for products that
provide sustainability and other benefits.
In Europe, analysts are predicting a significant increase in
growth rates going forward, similar to levels predicted in
New build projects. Our internal estimates are substantially
more conservative. In key high growth countries such as
China, Brazil and India, we continue to see a slow switch
from new build to maintenance. Growth rates going forward
are expected to be very similar to new build growth rates.
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Business performance | AkzoNobel Report 2014
The market
According to figures recently published by Orr & Boss, in a
report commissioned by the International Paints and
Printing Inks Council (IPPIC), the global market for decorative
paints is just under 45 percent of the roughly €100 billion
global paints and coatings market. The decorative paints
share of the market tends to be significantly higher in
mature geographies than it is in high growth geographies.
Over time, the decorative paints share of the global paints
and coatings market has decreased somewhat due to the
increased importance of high growth countries combined
with European market issues.
AkzoNobel market positions
Decorative Paints Europe
1st
Europe
Decorative Paints Latin America
1st
South America
Decorative Paints Asia
2nd
2nd
South East and South Asia
China and North Asia
AkzoNobel Report 2014 | Business performance
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Decorative Paints value creation summary 2014
As a leading global supplier of
decorative paints, our brands are crucial
to our success. Our Decorative Paints
activities are fully focused on the Buildings
and Infrastructure end-user segment,
serving the do-it-yourself market and
professional painters. In order to create more
economic, social and environmental value,
our innovation is geared towards reducing
our upstream and downstream supply
chain impact by changing formulations to
waterborne technology.
Many of our brands are household names
and we work closely with local communities
via a series of national and international
initiatives, some of which involve volunteer
support from our employees. This benefits
the creation of more social value.
All these initiatives will contribute to our
financial performance and ultimately lead to
more economic value for our investors.
Economic value: Organization
€3.9 billion
revenue
€143 million
capital expenditures
Revenue development in % versus 2013
Increase
Decrease
€248 million
operating income
In 2014, we invested in high growth markets
and in creating efficiency in Europe through
optimization of our production footprint
€2.8 billion
invested capital
2
0
-2
-4
-6
1%
-1%
-3%
-3%
-6%
Volume
Price/mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
2.5 million tons
upstream CO2(e) emissions
1,800 TJ
energy use
Social value: Organization
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents
1.6
total reportable rate of injuries
We continue to improve efficiency by
reducing our energy use per ton of
production, and are working towards
improving our share of renewable energy.
We continue to improve the environmental
footprint of our operations by focusing on
operational eco-efficiency
Total reportable rate of injuries
per million hours
3.5
2.7
1.9
1.6
2011
2012
2013
2014
68
Business performance | AkzoNobel Report 2014 Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
C
B
A
A
A Decorative Paints Europe, Middle East and Africa 58
A Buildings and Infrastructure
B Decorative Paints Latin America
C Decorative Paints Asia
15
27
B Transportation
C Consumer Goods
D Industrial
Outcomes
Eco-premium solutions with
customer benefits
% of revenue
22
27
27
2012
2013
2014
100
0
0
0
0.1 million tons
CO2(e) emissions own operations
1.3 million tons
downstream CO2(e) emissions
3.9 million tons
CO2(e) emissions cradle-to-grave
6.3% ROS
8.8% ROI
27%
of revenue from eco-premium solutions
RD&I investments have resulted in
27 percent of revenue derived from eco-
premium solutions with customer benefits
0%
decrease CO2(e) per ton of sales from 2012
cradle-to-grave carbon footprint
35 kilotons
total waste
Outcomes
€704 million
employee benefits
4.02
employee engagement score
15,200
employees at year-end 2014
5,000
people trained as painters
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on a more
diverse workforce
7 million
lives positively impacted by our
“Let’s Colour” program
We participate in community programs
and local sponsorships
69
AkzoNobel Report 2014 | Business performance
Key business unit developments
Decorative Paints Europe
• A mixed year, with Southern Europe experiencing some volume recovery, while volumes
were lower in the North and West region (except for the Benelux region)
• Continued to be negatively impacted by the housing market slow down and euro crisis
• We changed our operating model in EMEA in order to drive leading performance and make
us more agile, competitive and better positioned to achieve profitable growth
• The UK and Ireland invested in a complete rebrand of Dulux Trade and launched Armstead
Trade – its first new brand in 20 years. In consumer, we invested in a new integrated Dulux
marketing campaign: “Change Your Story”
• Consistent investment in our stores in France resulted in a market share increase for
Sikkens and Trimetal in a very difficult market
• We started the roll out of the Sikkens 5051 color collection. Together with its service
packages, it emphasizes the brand’s professional dedication to color
• There was also a highly successful launch of the Fit by Marshall mid-tier brand in Turkey,
while the performance and protection sub-brand Expert was introduced in Benelux
Some of our customers
2,640
2,508
2,269
Revenue in € millions
2012
2013
2014
Key brands
• B&Q
• Bricomarche
• Leroy Merlin
• OBI
Top raw materials
• Binders/resins
• Titanium dioxide
• Packaging materials
Key cost drivers
• Oil price
• Energy prices
• Steel prices
70
Business performance | AkzoNobel Report 2014 Decorative Paints Latin America
Decorative Paints Asia
• Despite macro-economic headwinds in the region, our performance was solid
• A new blockbuster proposition for exterior walls was successfully launched in Brazil.
The new product, Coral Acrílico Total, reinforced Coral’s position in the premium segment
• In Argentina, the Alba brand defied the crisis and achieved a record market performance
and financial results
• We have staged 1,250 “Tudo de Cor” events (“Let’s Colour”) in Brazil to date, including
a major event at the Santa Marta favela in Rio de Janeiro, which positively impacted
thousands of people. “Tudo de Cor” is now also gaining traction in Argentina
• The region achieved solid growth this year. This was due in particular to good
performances in China, Indonesia, India and Vietnam, as well as newly opening markets
such as Bangladesh and Myanmar
• Dulux Weathershield Powerflexx was launched across South East Asia
• Dulux Superclean won Product of the Year in India. It features stain-beading technology
which offers the key performance benefit of stain repellency
• Our Dulux websites were relaunched across the region – bringing a richer, inspirational
experience to consumers – while the Dulux Easy Paint Service continued to grow in the
redecoration market in China
• A new plant is being built in Chengdu, China. Due to open in 2016, full operation is
expected by 2017
Revenue in € millions
Revenue in € millions
603
591
568
1,048
1.075
1,074
2012
2013
2014
2012
2013
2014
Key brands
Key brands
71
AkzoNobel Report 2014 | Business performance Picture it
before you paint it
When it comes to
decorating your home,
innovations in color
aren’t restricted to the
actual paint you’re
using. They can play
a key role before a
drop has even touched
the wall.
During 2014, our Decorative Paints business launched its free Visualizer app,
which features the latest advances in augmented reality technology and enables
users to see in real time what a room will look like in countless colors – before it’s
actually painted.
Already downloaded more than a million times, the award-winning Visualizer app
has been launched in over 40 countries and is compatible with both Android and
iOS devices. It allows people around the world to experiment with color and make
their choices with confidence.
The core innovation behind the Visualizer is its Computer Vision technology, which
enables the user to apply realistic virtual paint to their walls, in real-time, without
affecting picture frames and other furniture. Marketed through our decorative paints
brands (Dulux in the UK, Coral in Brazil and Sikkens in Italy, for example),
it will continue to be rolled out over the coming months.
Expected to evolve into an essential interior design tool, the app was developed
after talking to more than 5,000 customers, designers and painters. It gives people
the freedom to express themselves through a more creative use of color and makes
them more confident when it comes to selecting new paint schemes.
As well as demonstrating AkzoNobel’s color expertise, the launch of the Visualizer
also highlights the importance of focusing on customer needs and underlines our
commitment to transforming lives through the power of color.
The app can be downloaded via the Apple store or Google Play. Search for
Visualizer and the name of your local AkzoNobel paint brand.
72
Business performance | AkzoNobel Report 2014
Scan and explore
AkzoNobel Report 2014 | Business performance
73
Performance Coatings
“It was a year of solid progress
towards becoming more cost effective
and better positioned for organic growth”
Conrad Keijzer Member of the Executive Committee responsible for Performance Coatings
2015 expected outcomes
ROS 12% ROI 25%
74
Business performance | AkzoNobel Report 2014 It was a year of driving performance improvement and
we made good progress in implementing our strategy
and reducing our cost base. Our focus on performance
improvement and differentiated organic growth is showing
results and we are on track to deliver on our 2015
operational objectives.
Overall, we experienced slightly improved market conditions
during 2014 with variations across segments and regions.
Asia and North America showed continued growth, while
Europe remained soft and Latin America continued to
be challenging.
During the year, we also created a new organization
which is far more customer focused, agile and has clearer
accountability. We re-engineered our four businesses and
12 sub-business units into a more simplified structure, made
up of seven customer centric Strategic Market Units. This
new organization came into effect on January 1, 2015.
Significant progress was made in implementing the footprint
reductions announced in 2013, resulting in the closure of
eight sites. There were also several business highlights
during the course of the year, including the opening of
three new production sites and the launch of sustainable
innovations for customers in marine, packaging, vehicle
refinish and powder coatings.
In Marine and Protective Coatings, we introduced a unique
methodology to reward the improved fuel efficiency of ships,
together with The Gold Standard Foundation. We also
launched the shipping industry’s first digital tool enabling
operators to accurately assess and predict the risk of hull
fouling, depending on routes being traded. Meanwhile,
Protective Coatings introduced a mobile maintenance and
repair service designed to reduce costs and improve safety
for our passive fire protection customers.
In Industrial Coatings, we completed an investment to
double the annual production capacity at our packaging
coatings site in Songjiang, China, and broke ground on a
new R&D facility at the same site. We also launched our
pioneering EvCote Water Barrier 3000 coatings technology,
which makes paper cold drinks cups fully compostable
and recyclable.
In Automotive and Aerospace Coatings, we began
operations at our new, state-of-the-art plant in Changzhou,
China, and also introduced Sikkens Autoclear 2.0. This is a
more sustainable clearcoat for vehicle refinishes which brings
greater efficiency to bodyshop processes, while doubling
the renewable raw material content. In addition, Honda
Motor Europe extended its partnership with AkzoNobel,
strengthening the company’s position as one of the preferred
suppliers to Honda’s dealerships and approved bodyshops
in Europe. Furthermore, we have signed an agreement with
Daimler AG that makes us one of the approved suppliers
of vehicle refinishes to Daimler dealerships and approved
bodyshops worldwide.
In Powder Coatings, an important development was the
start of operations at our new plant in Dubai. The facility
will significantly increase capacity for customers of Interpon
and Resicoat products in the region. We also launched a
two-coat, one-bake powder coating system, as well as a
bright metallic powder which provides a more sustainable
and cost-effective alternative to chrome plating.
During 2014, we once again demonstrated our commitment
to the company’s core principles of safety, integrity
and sustainability. Particularly noteworthy is our safety
performance, which improved significantly, with the total rate
of reportable injuries per million hours (TRR) falling to 1.8
from 2.8 in 2013.
As we move into 2015 with a new organization in place,
we are well positioned to implement our strategy and deliver
leading performance through operational excellence and
differentiated organic growth.
75
AkzoNobel Report 2014 | Business performance Performance Coatings
strategy
Our vision is to be the leading
coatings company from a
performance perspective. Our
expected outcomes for 2015
are to achieve a return on sales
level of 12 percent and a return
on investment of 25 percent. We
are on track to deliver on these
expectations, as evidenced by our
2014 financial results. In 2014,
we introduced a simplified and
leaner organizational structure.
This new structure has reduced
the number of global management
layers, which in turn will enhance
decision-making efficiency and
improve our customer focus, while
at the same time reducing costs.
We also continue to progress in
our three main action areas:
Actions
Drive overarching performance
improvement initiatives
• Continuously reduce external spend. Procured raw
materials make up a significant percentage of our
Performance Coatings cost base, so appropriate
management is fundamental. We have introduced a cross-
business, cross-functional approach to maximize and
capture opportunities created by common raw materials
and suppliers
• Continuously improve our operations. Operations
comprise a smaller percentage of our cost base, but there
is still room for improvement. We continue to optimize our
global manufacturing footprint to leverage our scale and
respond to changes in geographic demand. During 2014,
we closed eight sites, but at the same time commissioned
a new vehicle refinishes plant in Changzhou, China, and
a new powder coatings factory in Dubai. These state-of-
the-art facilities will strengthen our ability to manufacture
locally developed products, particularly for the fast-
growing mid-markets. In the future, we are placing more
emphasis on continuous operational improvement. In
order to deliver this, we are in the process of implementing
the standardized AkzoNobel Leading Performance System
(ALPS). Safety, customer service, material efficiency and
cost productivity are all key areas of focus for this program
• Drive commercial excellence. Our focus is on embedding
common commercial processes to deliver both organic
growth and commercial efficiency. To support this, we
have a dedicated center of expertise which is driving
consistency and best practice
Pursue differentiated growth strategies
The outlook differs for each of our end-user segments.
We also face different competitive situations. To achieve
our vision, we must continue to grow our business while
improving performance levels. Thus, we need to focus
and prioritize our growth activities and we are doing this
by pursuing differentiated growth strategies. In roughly half
of our businesses, our strategy is to outgrow the market
organically in attractive markets where we are best able to
win. In other parts of our Performance Coatings portfolio
– where our position is often strong but the headroom for
growth more limited – we want to grow with the market while
driving operational excellence and controlling costs.
Examples are:
• In Protective Coatings, we have a leadership position
based on strong technologies, brands and reputation.
We will continue to invest in generating higher levels of
growth. We will also expand our market presence in high
growth regions based on appropriate value propositions,
such as second tier ranges, to compete in the
domestic marketplace
• In the high growth information technology sector of our
Specialty Finishes business, we are investing to support
key original equipment manufacturers (OEMs) and original
design manufacturers (ODMs) to grow our positions
• In Coil Coatings, we have a strong position and a good
reputation in high performance architectural applications,
and in innovations in chrome-free technologies and
heat-reflective coatings. We are optimizing our footprint
in Europe, reducing complexity in our formulations and
pursuing opportunities to improve resin costs
76
Business performance | AkzoNobel Report 2014 • In our Vehicle Refinish business, color matching is
everything. We continued to demonstrate leadership in
this area through the 2014 launch of Color Universe – a
new color documentation system which organizes color
the way humans see it chromatically. Color Universe is an
important addition to the array of tools that we provide to
vehicle repair professionals to get color right the first time,
every time
• In our Marine Coatings business, leadership in fouling
control that supports our customers in reducing their
fuel requirements is fundamental. We are very proud
that in 2014, we received approval for carbon credits
for our industry-leading Intersleek foul release coatings.
In addition, we launched Intersmooth 7570 SPC, a high
performance coastal fouling control solution for the severe
fouling challenges of vessels trading in tropical coastal
waters. This product contains patented copolymer
technology, providing energy savings and an extended
operating life
• Finally, in our Packaging Coatings business, we continue
to commercially introduce and further innovate in terms
of high performance packaging coatings that move away
from the use of bisphenol A-based epoxies, addressing a
key consumer and customer demand
• Our Yacht Coatings business is already well positioned.
In this sector, we are leveraging the recently launched
Nautical range aimed at the mid-tier, and reducing costs
through manufacturing consolidation
• Our Wood Finishes and Adhesives business serves some
parts of the Buildings and Infrastructure and Consumer
Goods end-user segments which have a lower growth
profile. We are focusing on the most profitable areas
and brands and improving our supply chain to drive
operational efficiency
Deliver business-specific plans
Continued success in Performance Coatings is
fundamentally based on our ability to innovate in products
and services. There are, of course, some areas of overlap
in terms of innovation requirements across our businesses,
such as the constant need for lower solvent or more
waterborne solutions. For the most part, though, the focus
for innovation differs by business. Therefore, the third key
strategic activity area is based on investing in appropriate,
specific innovation requirements for each of our businesses.
Examples are:
• Our Powder Coatings business offers a customer solution
that is high yield and free of volatile organic compounds
(VOCs), so sustainability is a major element of the value
proposition. We also pursue improved finish effects,
and in 2014, we took a significant step forward with
the introduction of Interpon Cr, a bright metallic powder
coating for furniture, lighting and other interior fixtures
which provides a more sustainable and cost-effective
alternative to chrome plating
77
AkzoNobel Report 2014 | Business performance Performance Coatings end-user segment outlook
Our Performance Coatings
Business Area serves all four
end-user segments. Although
there are relevant end-user
segment trends that remain
positive, we are taking a more
cautious outlook than we have
in the recent past. For example,
we see continued evidence of
moderating growth in all four
end-user segments in China, with
particular emphasis on Buildings
and Infrastructure. The oil and gas
segment has come under pressure
due to lower oil prices, which
has resulted in delays of new
projects. Elsewhere, we have still
not seen an upturn of the cycle in
marine new building, and although
analysts are predicting a recovery
in Buildings and Infrastructure
in Europe, evidence for this in
practice is relatively weak.
Transportation
Transportation is the largest end-user segment for
Performance Coatings, with just over a third of our revenue.
Around two-thirds of this revenue comes from our two
automotive sub-segments – Automotive OEM, parts and
assembly and Automotive repair. The growth outlook for the
former is the most certain, particularly if oil prices remain low.
The Automotive repair sub-segment is much more important
for AkzoNobel and is expected to continue growing at stable
rates, at or slightly below GDP growth levels. Growth rates
will be higher in the high growth countries than the mature
markets as the car park and rate of insurance coverage
continue to grow.
The remaining revenue comes from the Marine and air
transport sub-segment, into which we sell both marine
and aerospace coatings. The long-term outlook for marine
remains strong, as wealth and international trade continue
to increase. However, in the shorter term, the marine new
building market has yet to return to stable growth. While
analysts expect this to happen in the near future, this has
been the expectation for some time now, but we have
still not seen significant concrete evidence of this. The
maintenance market continues to grow at a moderate
rate, but freight rates have still not recovered significantly,
dampening demand for maintenance activities. The recent
oil price developments may have a positive effect on this
segment going forward, though. Aerospace is a much
smaller market for AkzoNobel than marine, but we do expect
continued reasonable growth.
Of course, demand in the Transportation end-user segment
is dependant on sustainability as well as demand. Thus,
products sold into the Transportation end-user segment
that help in utilizing less energy and other resources will
grow disproportionately.
Consumer Goods
We sell powder coatings, wood finishes and adhesives and
specialty finishes into the Consumer durables end-user
sub-segment, as a part of furniture, domestic appliance
and consumer electronics manufacture. We expect
continued reasonable growth overall in the more technology-
driven aspects of this sub-segment, such as in domestic
appliances and mobile phones, but it is important to note
that trends differ significantly by type of product. So, for
example, in consumer electronics, double digit growth
is expected in tablets and above global GDP growth is
expected in smartphones and laptops.
In less technology-oriented parts of Consumer durables,
such as furniture, global growth is expected to be at lower
levels but reasonably steady, even though we have yet to
see a full market recovery in furniture to pre-recession levels.
Similar growth rates are expected in the other sub-segment,
Consumer packaged goods, into which we sell packaging
coatings for use in food and beverage packaging. In both
cases, we expect growth slightly below regional GDP growth
rates in both high growth and mature geographies.
The Consumer Goods end-user segment is particularly
affected by growth in population and wealth, but also
by other factors such as consumer trends and fads.
Sustainability also plays a role as consumers around the
world are increasingly concerned about this issue.
78
Business performance | AkzoNobel Report 2014 Buildings and Infrastructure
As indicated in the Decorative Paints section of this Report
2014, the Buildings and Infrastructure end-user segment is
undergoing considerable change. Growth rates are dropping
considerably in China, while growth is expected to accelerate
in more mature geographies, particularly Europe. Although
analysts are expecting market recovery level growth rates
in Europe, we are not yet seeing strong evidence of this in
the market and, therefore, our internal predictions are much
more conservative.
Industrial
The Industrial end-user segment is the smallest for
Performance Coatings. We sell protective and powder
coatings for industrial uses, primarily in the Natural resource
and energy industries sub-segment. With the recent oil price
develoment, there are question marks around the growth
outlook for the oil and gas end-user markets. However, in the
short term, our business should not be significantly impacted
as most of the projects that we sell into are long-term, multi-
year projects that are likely to continue, even if oil prices
remain lower than they have been.
The market
According to figures recently published by Orr & Boss, in a
report commissioned by the International Paints and Printing
Inks Council (IPPIC), the global market for performance
coatings is just over 55 percent of the roughly €100 billion
global paints and coatings market. Growth over the past
few years has been higher in performance coatings than
it has been in decorative paints. This is due in part to
disproportionate growth in high growth geographies, where
the share of performance coatings is higher, and also to
continued issues in terms of Buildings and Infrastructure
growth, particularly in Europe.
AkzoNobel market positions
Marine and Protective Coatings
1st
Protective coatings
Yacht coatings
2nd
Marine coatings
Automotive and Aerospace Coatings
1st
2nd
3rd
Specialty finishes
Aerospace coatings
Vehicle refinish
Industrial Coatings
1st
Coil coatings
Wood finishes and adhesives
2nd
Packaging coatings
Powder Coatings
1st
Powder coatings
79
AkzoNobel Report 2014 | Business performance Performance Coatings value creation summary 2014
Our Performance Coatings businesses
are focused on all four of our end-user
segments. Supplying high performance
products and cutting-edge technologies
primarily to business-to-business customers,
we are increasingly incorporating low energy
processes and working to reduce our carbon
footprint across the value chain. Innovation is
also key to our product development, which
is often highly technical in order to meet
strict customer specifications.
Particular emphasis is placed on supplying
products that offer environmental and social
benefits for our customers. These initiatives
will help us to create economic, social and
environmental value. Social value is also
increased by our continued focus on safety,
as well as our talent development programs
and our contribution to various
community activities.
All these initiatives will contribute to our
financial performance and ultimately lead to
more economic value for our investors.
Economic value: Organization
€5.6 billion
revenue
€143 million
capital expenditures
Revenue development in % versus 2013
Increase
Decrease
€545 million
operating income
€2.5 billion
invested capital
During 2014, we completed the construction
of two new production facilities which will
increase our production capacity for vehicle
refinishes in China and powder coatings in
the Middle East
4
2
0
-2
-4
1%
1%
0%
-2%
0%
Volume
Price/mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
4.6 million tons
upstream CO2(e) emissions
4,600 TJ
energy use
Social value: Organization
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents
1.8
total reportable rate of injuries
We continue to improve efficiency by
reducing our energy use per ton of
production, and are working towards
improving our share of renewable energy.
We continue to improve the environmental
footprint of our operations by focusing on
operational eco-efficiency
Total reportable rate of injuries
per million hours
2.8
2.6
2.8
1.8
2011
2012
2013
2014
80
Business performance | AkzoNobel Report 2014 Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
D
C
A
B
D
C
A
B
A Marine and Protective Coatings
B Automotive and Aerospace Coatings
C Industrial Coatings
D Powder Coatings
27
24
31
18
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
Outcomes
Eco-premium solutions with
customer benefits
% of revenue
13
13
15
2012
2013
2014
21
37
28
14
0.3 million tons
CO2(e) emissions own operations
8.7 million tons
downstream CO2(e) emissions
13.6 million tons
CO2(e) emissions cradle-to-grave
9.8% ROS
22.0% ROI
15%
of revenue from eco-premium solutions
RD&I investments have resulted in
15 percent of revenue derived from eco-
premium solutions with customer benefits
2%
increase CO2(e) per ton of sales from 2012
cradle-to-grave carbon footprint
55 kilotons
total waste
Outcomes
€1.2 billion
employee benefits
3.89
employee engagement score
20,500
employees at year-end 2014
We participate in community programs
and local sponsorships
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on a more
diverse workforce
81
AkzoNobel Report 2014 | Business performance
Key business unit developments
Marine and Protective Coatings
Automotive and Aerospace Coatings
• Revenue was up 2 percent due to higher volumes in all businesses
• Protective Coatings’ strong project portfolio and outstanding technical support led to
• Revenue was flat compared to 2013, as declines in volume and adverse currencies were
offset by price/mix
continued growth in the area of oil and gas and heavy duty coatings
• Volumes in the vehicle refinishes market contracted in Europe, Latin America and
• Marine Coatings increased its business in the deep sea maintenance and repair market,
South East Asia, while North America and China continued to grow
offsetting the global decline in new build
• A state-of-the-art production facility for vehicle refinishes was opened in Changzhou,
• We achieved significant sales for our next generation fouling control products and also
China, for our Sikkens, Lesonal and Prime products
received approval of carbon credits related to use of our Intersleek foul release coatings,
providing a cash income for customers
• Our premier yacht coatings brand AWLGRIP launched a new clear coat system, Awlwood,
• Sikkens Autoclear 2.0 was launched in the vehicle refinish segment, featuring patented
binder technology which doubles the percentage of renewable raw materials it uses
• Strong customer demand was experienced in aerospace markets, driven by continued
for exterior wood above the waterline
innovation and technology leadership
• Our Nautical yacht coatings brand for do-it-yourself boat painters launched a new product
range, including antifoulings, finishes and primers
• Two plants were consolidated into other facilities
• Our Aerospace coatings business received Boeing qualification for its Aerodur 3001/3002
Base Coat/Clear Coat system. We also received AMS 3095A qualification for 100 percent
chrome-free paint systems for commercial fleet maintenance
Key brands
Revenue in € millions
Key brands
Revenue in € millions
1,577
1,495
1,528
2012
2013
2014
Geo-mix revenue by destination in %
Some of our customers
• Airbus
• Amazon
• Boeing
• Dell
• Etihad Airways
• Geely
• General Motors
• HP
• Hyundai
• Samsung
• Toyota
• Volkswagen
Top raw materials
• Pigments
• Acrylic resins
• Acrylic dispersions
Key cost drivers
• Metals, base chemicals prices
• Oil, energy prices
31
23
46
1,299
1,321
1,320
2012
2013
2014
Geo-mix revenue by destination in %
C
A
B
A EMEA
B Americas
C Asia Pacific
41
29
30
A
B
Some of our customers
• Brunswick
• Carnival Cruise
• ExxonMobil
• Hapag Lloyd
• Hyundai Heavy
Industries
• Qatar Gas
• Shell
• West Marine
Top raw materials
• Epoxy resins and
organic solvents
• Copper/zinc
• Curing agents
Key cost drivers
• Oil feedstock chain
• Metals, base chemicals prices
C
A EMEA
B Americas
C Asia Pacific
82
Business performance | AkzoNobel Report 2014
Industrial Coatings
Powder Coatings
• Revenue declined 3 percent, due to adverse currencies
• Operating costs declined across all businesses due to restructuring and
• Revenue increased 4 percent compared with 2013, with volume and price/mix increases
offsetting adverse currencies
cost control measures
• Volume growth occurred in Europe, North America and Asia, resulting in a strong year for
• We continued to achieve growth in our high growth markets, with Coil Coatings and
the business
Packaging Coatings benefiting in Asia in particular
• We improved our leading positions across a wide range of segments, with a particular
• Capacity for Packaging Coatings was added in India, as well as a new resin reactor in
Songjiang, China, where we also established a new Industrial Coatings RD&I center
focus on automotive, resulting in improved volumes and revenues
• A new powder coatings manufacturing facility was inaugurated in Dubai to capture
• We were the first to introduce an ultra-low formaldehyde emitting adhesive for the parquet
growing demand in the Middle East
flooring market in Europe
• We have commercial success and are well positioned for the continued BPA-free
conversion occurring in France
• Streamlining of our Coil Coatings manufacturing footprint in Europe is nearly completed
• In Wood Coatings, we are moving capacity to sites in High Point, Roanoke and Port Hope
• We moved our Coil and Wood Coatings capacity in Brazil to a multi-site in Santo Andre
• Production in South East Asia was consolidated at the Powder Coatings site in Vietnam
• We launched a bright metallic powder coating, Interpon Cr, for furniture, lighting and other
interior fixtures, which provides a more sustainable and cost-effective alternative to chrome
plating
• We launched an innovative two-coat, one-bake powder coating system (Interpon Align)
which offers customers significant productivity and energy efficiency improvements
• We also opened a new European Powder Technical Center in Como, Italy
Key brands
Revenue in € millions
Key brands
Revenue in € millions
1,856
1,799
1,751
997
982
1,019
Some of our customers
• Arcelor Mittal
• Ball
• Blue Scope Steel
• Crown
• IKEA
• Rexam
• TATA
Top raw materials
• Polyester and epoxy resins
• Glycol, ether and aromatic solvents
• Titanium dioxide
Key cost drivers
• Basic feedstock prices
• Oil/gasoline/naphtha/natural gas prices
2012
2013
2014
2012
2013
2014
Geo-mix revenue by destination in %
Some of our customers
• Bosch
• Mercedes-Benz
• Philips
• TATA
• Whirlpool
Geo-mix revenue by destination in %
C
B
A
Top raw materials
• Polyester and epoxy resins
• Titanium dioxide
C
B
A
A EMEA
B Americas
C Asia Pacific
Key cost drivers
• Gasoline/naphtha prices
46
34
20
A EMEA
B Americas
C Asia Pacific
48
21
31
83
AkzoNobel Report 2014 | Business performance
Changing the world
with pioneering technology
Cutting back on waste
and doing more with
less resources is a
major area of attention
for many companies.
This need to become
more sustainable has
prompted an upsurge
in innovation, due to
the fact that devising
creative solutions can
be the best way to rise
to the challenge. Quite
often, it can also be the
simplest ideas that have
the biggest impact.
Take the cold drinks paper cup, for example. Around 200 billion are used around
the world every year, although currently, none can be recycled without incurring
prohibitive costs or greatly reducing the quality of the paper fiber. In 2014, our
Performance Coatings business introduced pioneering coatings technology which
could have an industry-changing impact.
The breakthrough was achieved thanks to EvCote WaterBarrier 3000.
When applied to paperboard used for the production of cold cup stock, it makes
the world’s first fully compostable and recyclable cold paper cup a reality.
In addition, paper mills and cup makers can potentially recapture 100 percent of
the paper waste from the production process currently sent to landfill – resulting in
major cost savings.
What makes EvCote WaterBarrier 3000 remarkable is that it contains up to
95 percent sustainable or renewable content and is made from plant-based oils
and recycled PET bottles. The PET is “digested” into the resulting polyester resin,
which means the PET in the final product is weakened and breaks up faster when
composted or sent for recycling. When paper coated with the product is recycled,
the quality of the paper fiber remains intact – which means it can be reused in the
production of other, high quality paper products, such as new food
contact packaging.
A great example of AkzoNobel’s Planet Possible approach to sustainability, the
new technology also provides our Paper Coatings business with options to
completely disconnect from the fossil-based supply chain, because it can offer
customers a replacement for petroleum-based polyethylene films.
84
Business performance | AkzoNobel Report 2014 200 billion
The world uses 200 billion
paper cups every year
Our pioneering coatings
technology makes this a
fully compostable,
recyclable cold drinks cup
Scan and explore
100%
Recapture of paper
currently sent to landfill
85
AkzoNobel Report 2014 | Business performance Specialty Chemicals
“We are swiftly responding
to changing trends in the chemical industry”
Werner Fuhrmann Member of the Executive Committee responsible for Specialty Chemicals
2015 expected outcomes
ROS 12% ROI 15%
86
Business performance | AkzoNobel Report 2014
It was a year of recovery for Specialty Chemicals, driven by
our strategic focus on five main chemical platforms. As well
as nearing our 2015 return on investment expectation of
15 percent, we also made significant progress with regard to
our return on sales expectation of 12 percent in 2015.
There was a certain amount of optimism within the industry
as the year began, with some recovery compared to a much
weaker 2013. But currency headwinds continued to impact
the first half of the year, while the overall macro-economic
climate worsened in the second quarter. Despite these
challenging conditions, our own financial results improved
during the year, mainly due to productivity improvement
measures and lower restructuring costs.
This commitment to continuous improvement was constant
during the year, together with a focus on operational
excellence and organic growth. We also continued to prune
our portfolio. This included the intended sale of our global
Paper Chemicals business to Kemira (expected to close in
2015), and the €5 million divestment of our 50 percent share
in the non-consolidated joint venture Eka Synthomer Oy,
to Synthomer.
Although we continued to strengthen our manufacturing
footprint in high growth economies, particularly in Brazil
and China, our capital expenditure came down compared
to previous years. When combined with operating working
capital of around 12 percent of sales, this led to a solid cash
flow and added further resilience to the business.
A key area of attention was the restructuring of our Functional
Chemicals activities. This is in line with our strategy to
focus on five main chemical platforms. We have therefore
established an Ethylene and Sulfur Derivatives business,
based in China, and a Polymer Chemistry business, which
is based in the US. Relocating the headquarters of both
businesses is designed to bring us closer to the market
dynamics currently taking place. With regard to Functional
Chemicals in 2014, chelates and micronutrients and sulfur
derivatives were strong contributors, while ethylene amines
and performance additives endured a more challenging year.
There were several important developments at Pulp and
Performance Chemicals, notably the announcement of the
divestment of Paper Chemicals. We also brought another
Chemical Island, Imperatriz, on stream in Brazil. As well as
further improving our geo-spread for bleaching chemicals, this
also enabled us to continue growing our colloidal silica and
Expancel activities in high added value segments. In Surface
Chemistry, we made good progress in expanding our position
in the agricultural segment and posted a strong performance
in Europe and the Americas. At Industrial Chemicals, price
pressure on caustic was visible throughout the year and our
chlor-alkali business remained somewhat flat, while salt was a
strong contributor. In the fourth quarter, Industrial Chemicals
was impacted by production and supply chain interruptions,
which in turn curtailed olefin supply to our customers and
limited their chlorine demand.
Other key highlights included the commissioning of our
Frankfurt chlor-alkali plant in Germany – which was converted
from mercury to state-of-the-art membrane technology – and
the start of a study with Evonik to jointly convert Industrial
Chemicals’ last mercury-based plant, located in Ibbenbüren.
This is expected to help us improve our carbon footprint
performance in the coming years, which increased in 2014.
In addition, we advanced our investment program in China to
build our global market position in surfactants, while a new
organic peroxide plant is being built in Ningbo. The year was
also notable for the signing of several partnerships aimed
at helping us to identify viable alternatives for increasingly
scarce raw materials. This will help drive the development of
more eco-premium solutions with customer benefits, which
increased to 17 percent during 2014.
Safety remained high on the agenda, although with a TRR
of 2.4, Specialty Chemicals fell short of the 2015 company
target of 2.0. Measures are therefore ongoing to bring the
improvements we want to achieve. We did make significant
progress in the area of process safety and are about to put
a standardized system in place at company level, which is
particularly relevant for Specialty Chemicals.
87
AkzoNobel Report 2014 | Business performance Specialty Chemicals
strategy
Our vision is to deliver leading
performance based on our five
main chemical platforms by driving
profitable growth in selected
markets. Our expected outcomes
for 2015 are to achieve a return
on sales level of 12 percent and a
return on investment of
15 percent. We came close
to meeting our 2015 return on
investment expectations in 2014
and are on track to meet both
expected outcomes. We are also
making progress on our five main
action areas:
88
Improve performance through enhanced
operational excellence
In our other three platforms, our focus is on growing with the
market and operational excellence.
• Polymer chemistry. Given our strong share in this market,
we will continue to grow in line with demand growth.
Our strategy is to maintain our position in core applications
and invest in organic growth in specific niches, for
example application innovation, and in high purity metal
organics (HPMO) for light-emitting diode (LED) lighting
and solar panels
• Salt-chlorine chain. We have a strong and attractive
position in North West Europe in salt and chlor-alkali
products, and we have just completed the conversion
to membrane electrolysis at our Frankfurt site.
Our focus going forward will primarily be on efficient
capital expenditure, successful plant utilization and
operational excellence
• Ethylene oxide network. We successfully completed
a significant investment in new production facilities in
Ningbo, China, and now need to fully utilize our existing
capacity to further improve our performance levels. We
will invest in growth only in specific applications, such as
chelate and cellulosic products
Actions
Build on our strong chemical platforms
Given the asset intensity of our business, we have to
carefully prioritize our capital allocation against the most
promising growth opportunities. We have identified two
strategic approaches – outgrow the market organically and
improve performance through enhanced
operational excellence.
Outgrow the market organically
In our surfactants and bleaching chemicals platforms, the
end-user segment outlook is robust, the market is attractive
and our competitive position is strong. We are investing to
outgrow the market.
• Surfactants are used in many different applications and
some of these have above GDP growth due to high
end-user segment growth. Given our strength in more
specialized surfactants – and the sustainability of these
chemicals due to the use of renewable raw materials –
we are investing in growth in this platform by developing
and/or marketing segment-specific solutions, supported
by appropriate key account management and other
commercial excellence programs. Because our surfactants
are centered on a few key technology platforms, we can
effectively and efficiently leverage our production capacity
for use across all segments as we focus for growth
• Our bleaching chemicals platform is expected to benefit
from continued growth in chemically bleached pulp in
South America, where we have a strong competitive
position. Our recent investments have been in plants
located on-site with our customers, including the
Imperatriz Chemical Island facility in Brazil, which was
commissioned in 2014. Both the cost and sustainability
positions of these Chemical Islands are very favorable,
with volume in our South American business
growing substantially
Business performance | AkzoNobel Report 2014 Drive functional excellence
In order to achieve our return on sales expectations, we
need to improve our levels of commercial and supply chain
performance. We are, therefore, in the process of building a
stronger organization in the key areas of integrated supply
chain and commercial excellence, as well as leveraging the
AkzoNobel Talent management process.
• Integrated supply chain. Building on the productivity
Reduce organizational complexity and cost
In early 2015, we adjusted our organization in line with our
five chemical platforms. A particular area of change is in the
integrated supply chain, where we are now consolidating
our activities at business unit level to drive productivity via
continuous improvement processes. In addition, Commercial
Excellence and Innovation functions were introduced at
business unit level to help drive organic growth.
Capitalize on industry changes
We continue to adjust our strategy, organization structure
and manufacturing footprint to respond to and address
end-user segment and market trends. These trends include:
• The growth of the Chinese market in chemicals, which we
are continuing to respond to through the construction of
local production capacity and growth in our local
sales organizations
improvement initiatives of recent years, we are now in
the process of implementing the AkzoNobel Leading
Performance System (ALPS). This company-wide
framework of standard processes and tools will help
us to drive targeted improvements in cost productivity,
resource consumption and customer satisfaction.
In addition, we systematically apply Lean and Six
Sigma as the main methodology to anchor continuous
improvement throughout the organization
• Commercial excellence. Our major focus areas are
enhanced customer satisfaction, organic growth,
embedding margin management and increasing salesforce
productivity. With regard to customer satisfaction, we now
have a common customer feedback process in place
which is yielding tangible results. A mixture of increased
rigor and focus on opportunity funnel management and
key account approaches is supporting the businesses
with their organic growth plans
• Talent management. In 2014, we redesigned our
organizational structure to create a flatter organization,
which allows us to work more efficiently and reduce costs
while we improve the levels of professionalism in our
functions. Beyond reorganization, we make sure that our
employee base has the right spread by increasing our
presence in higher growth regions, improving diversity and
building a pool of global leaders
We are also continuing to prune our product portfolio and
divest non-core businesses where we are unable to achieve
leading performance levels, such as our Paper Chemicals
business, which is scheduled to be divested in 2015.
At a more operational level, standardized work processes
and a greater cost focus are also contributing to
performance improvement.
Commercialize product innovation and
deliver process innovation
We continue to make improvements to our product portfolio
to deliver better solutions for our customers, particularly
in more growth-oriented businesses. For example, in our
surfactants platform, we introduced three new products for
agrochemicals in 2014. These products help to increase
crop yields and reduce pesticide and herbicide usage per
unit of production. We also launched a product which
improves productivity of low-permeable hydrocarbon
reservoirs. It reduces eco-toxicity levels and enhances
fracking control at elevated well temperatures.
In addition to product-based innovation, process-based
innovation is also essential in Specialty Chemicals.
A particular area of focus is in creating more value from
fewer resources as part of our Planet Possible sustainability
agenda. For instance, in one of our chlorine plants in
Germany, through sophisticated mathematical modelling and
subsequent smart engineering, we were able to significantly
reduce steam requirement and waste by improving yield,
thereby reducing costs and carbon emissions.
• The growth trend in Brazilian pulp, which we are
responding to by constructing closed loop, highly
sustainable, local production capacity
• North American market growth, due in part to shale gas.
We are taking advantage where possible by upgrading our
production capacity in North America, where relevant
An additional area of focus for the Business Area is on
renewable energy and bio-based raw materials.
Our renewable energy supply strategy has three focus
areas – protecting our current renewable share, participating
in cost-effective, large energy ventures and exploring
commercially feasible on-site renewable energy generation.
We are actively positioning ourselves for competitive,
biomass-based steam production, particularly in the
Netherlands, enabling us to further diversify the current
gas-based parts of our portfolio. We have also been very
active with regard to bio-based feedstocks. For example,
during 2014, we signed agreements to produce algae-
based materials and explore waste and sugar beet as a
chemicals feedstock.
89
AkzoNobel Report 2014 | Business performance Specialty Chemicals end-user segment outlook
Specialty Chemicals serves all
four of our end-user segments,
with the products we supply
being used in millions of everyday
products. Growth is moderate
in many parts of these end-user
segments and there is uncertainty
about the outlook for the oil price.
Buildings and Infrastructure
Our main involvement in the Buildings and Infrastructure
end-user segment is through the salt-chlorine and polymer
chemistry platforms. We produce salt, chlor-alkali products,
organic peroxides, metal alkyls and various other products
that are used in the manufacture of plastics that are, in
turn, used to make doors, windows and other construction
components. We also make products that are used more
directly in the Buildings and Infrastructure industry, such as
cellulosic products used in paints and redispersible polymer
powders used in concrete admixtures. In addition, we are
a leading supplier of high purity metal organic (HPMO)
precursors – an essential ingredient for light-emitting diode
(LED) chips used for smart and efficient lighting, as described
later in this section. Products such as these that have
sustainability benefits are expected to
grow disproportionately.
Growth has been limited in Europe since the recession.
Analysts are forecasting a strong recovery over the next
few years. If this recovery occurs, it will clearly be important
for our business given the percentage of our revenue
that comes from Europe. However, we have seen limited
evidence of a significant increase in demand and, therefore,
our internal growth forecasts are more conservative.
The other platforms are driven by the global outlook for
more moderate growth than we have seen in the recent
past, particularly in China.
Industrial
Accounting for nearly 60 percent of Specialty Chemicals
revenues, the Industrial end-user segment is by far the
largest for the Business Area. It is served by all five of our
chemical platforms. In the Natural resource and energy
industries sub-segment, we derive significant revenue
from the sale of surfactants and ethylene-derived products
into the oil and gas, metals and mining, and agricultural
industries. In the Process industries sub-segment, we derive
significant revenue from the sale of bleaching chemicals
into the pulp industry, in addition to sales of salt, chlor-alkali
products, organic peroxides, metal alkyls and ethylene-
based products into the plastics (polymer) industry, as well
as other chemical industries.
The growth outlook for both end-user sub-segments is
varied. It is roughly equivalent to GDP growth in most
markets and geographies.
• Growth in Asia is expected to be more moderate going
forward than it has been
• Growth in North America is still expected to be above
GDP growth in chemicals and other industries affected by
by growth in shale gas
• In South America, growth is particularly high in
chemically bleached pulp
From an industry perspective, unlike most recent years,
the outlook for oil and gas is uncertain. Most analysts
predict an oil price rebound, although it is unclear whether
and when this will occur. If the oil price remains low, there
is also uncertainty about what the impact will be on key
industries for AkzoNobel. Within metals and mining, the
overall view currently appears to be one of apprehension,
with improvement anticipated within five years. In agriculture,
demand for agricultural products is expected to remain
firm, although expanding at slower rates compared with the
past decade.
90
Business performance | AkzoNobel Report 2014
Consumer Goods
We sell a wide variety of surfactants and ethylene-based
products into the Consumer packaged goods sub-segment,
for applications such as cleaning, cleansing, conditioning
and dishwashing. The expected growth in demand
continues to be at or slightly above GDP growth levels in
mature geographies. The personal care market outlook is
also reasonable, driven by global increased demand and
penetration in high growth countries.
We also sell consumer/domestic salt into the Consumer
packaged goods sub-segment. For salt products, these
sales are in Europe, where demand growth is low and
healthy eating emphasis is high. The outlook for this part of
the market is less positive, although reduced sodium intake
does offer growth opportunities for our low sodium
salt products.
Transportation
Transportation is the smallest end-user segment for
Specialty Chemicals. We sell a wide variety of products
that are generally used in the manufacture of automotive
plastics (polymers), mostly via our salt-chlorine and polymer
chemistry platforms.
Over the last few years, these businesses have already
benefited from market recovery after the recession and are
now growing fairly steadily at roughly GDP growth rates.
The trend towards lighter weight and less expensive cars
disproportionately benefits our business, as this supports the
use of automotive plastics.
The market
The global chemicals industry is very large (more than
€2.5 trillion globally) and diverse. China has become the
global leader in terms of chemical production. Market
development is also disproportionately strong in the Middle
East (due to access to low cost raw materials) and in the US
(due to shale gas). Europe continues to post record trade
surpluses in chemicals in all major regions and we expect
this to continue, particularly in the chemical sectors relevant
to AkzoNobel. Growth rates in Europe are expected to be
substantially lower than in other regions, though, due to a
combination of limited local demand growth (as described
in the end-user segment analysis above) and a higher local
raw material and energy cost base.
AkzoNobel market positions
Functional Chemicals
1st
Chelates and micronutrients
Organic peroxides
Industrial Chemicals
1st
Chlorine merchant (Europe)
Monochloroacetic acid (MCA)
Pulp and Performance Chemicals
1st
Bleaching chemicals
Colloidal silica dispersions
Surface Chemistry
1st
Industrial applications
Agricultural applications
91
AkzoNobel Report 2014 | Business performance Specialty Chemicals value creation summary 2014
We are a major producer of specialty
chemicals, supplying key products to
business-to-business customers in all four of
our end-user segments. We utilize inherently
high energy processes and focus strongly on
reducing carbon footprint and energy use,
while saving costs in our own operations.
Developing close relationships with our
customers – and helping them to create
value – is key to our ongoing success, along
with efficient processes, an increased focus
on eco-premium solutions and renewable
energy and a high level of innovation.
These initiatives will create economic, social
and environmental value. Social value is
increased by our continued focus on safety,
as well as our talent development programs
and our contribution to various
community activities.
All these initiatives will contribute to our
financial performance and ultimately lead to
more economic value for our investors.
Economic value: Organization
€4.9 billion
revenue
€297 million
capital expenditures
Revenue development in % versus 2013
Increase
Decrease
€508 million
operating income
€3.4 billion
invested capital
During 2014, we have been focusing on the
Frankfurt, Germany, project to convert to
membrane electrolysis technology. Several
asset integrity improvement projects and
growth projects for specific segments were
also high on the agenda
4
2
0
-2
-4
1%
1%
-1%
-2%
-1%
Volume
Price/mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
3.6 million tons
upstream CO2(e) emissions
92,000 TJ
energy use
Social value: Organization
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents
2.4
total reportable rate of injuries
We continue to improve efficiency by
reducing our energy use per ton of
production, and are working towards
improving our share of renewable energy.
We continue to improve the environmental
footprint of our operations by focusing on
operational eco-efficiency
Total reportable rate of injuries
per million hours
2.8
2.2
2.4
1.8
2011
2012
2013
2014
92
Business performance | AkzoNobel Report 2014 Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
D
C
A
B
A
B
C
D
A Functional Chemicals
B Industrial Chemicals
C Pulp and Performance Chemicals
D Surface Chemistry
38
22
20
20
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
Outcomes
Eco-premium solutions with
customer benefits
% of revenue
18
6
19
57
16
16
17
2012
2013
2014
3.6 million tons
CO2(e) emissions own operations
2.2 million tons
downstream CO2(e) emissions
9.4 million tons
CO2(e) emissions cradle-to-grave
10.4% ROS
14.8% ROI
17%
of revenue from eco-premium solutions
RD&I investments have resulted in
17 percent of revenue derived from eco-
premium solutions with customer benefits
2%
increase CO2(e) per ton of sales from 2012
cradle-to-grave carbon footprint
59 kilotons
total waste
Outcomes
€758 million
employee benefits
4.06
employee engagement score
9,800
employees at year-end 2014
We participate in community programs
and local sponsorships
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on a more
diverse workforce
93
AkzoNobel Report 2014 | Business performance
Key business unit developments
Functional Chemicals
Industrial Chemicals
• Revenue growth was driven by strong market positions and use of existing assets, despite
challenging market circumstances, mainly in Europe. Trading conditions in Asia and the
Americas were more positive
• Significant financial improvements were delivered through dedicated efforts to improve
both fixed and variable cost positions. Increased production levels at our Ningbo multi-site
in China supported production for the Ethylene Amines, Organic Peroxides,
Performance Additives and Chelates and Micronutrients businesses
• We modernized and are expanding our Organic Peroxides facility in Mons, Belgium
• We successfully commercialized our StimWell product range for oilfield and gas industries
• In Mexico, investment in our Los Reyes site is helping PVC producers to improve safety
• Revenue was 5 percent below 2013 due to lower prices and volumes, reflecting the tough
economic conditions in our main markets in Europe
• Chlor-alkali was heavily impacted by a drop in caustic lye prices
• We started a joint investigation with Evonik into converting our Ibbenbüren site in Germany
to membrane technology
• Salt continued its solid performance, benefiting from clear technology and market
leadership positions
• MCA delivered to expectations, making use of the expanded Taixing plant in China. To
further strengthen our leading position globally and in China, a pre-project was launched to
establish a second MCA plant in north east China, with a capacity of 50 kilotons
and product quality through patented continuous initiator dosing (CiD) technology
• Ecosel AsphaltProtection – an additive for de-icing salt which reduces development of frost
• In line with the strategic focus on five main chemical platforms, we restructured
damage to roads and makes driving safer – was launched commercially
Functional Chemicals into an Ethylene and Sulfur Derivatives business (China), and a
Polymer Chemistry business (US), effective January 1, 2015
• Major effort was also put into reducing the use of natural resources and improving the
carbon footprint
Key brands
Revenue in € millions
Key brands
Revenue in € millions
Ferrazone®
T h i s I r o n W o r k s .
1,963
1,872
1,885
Chemical platform
Polymer chemistry and Ethylene oxide network
2012
2013
2014
Chemical platform
Salt-chlorine chain
1,188
1,173
1,114
2012
2013
2014
Geo-mix revenue by destination in %
Geo-mix revenue by destination in %
Some of our customers
• Air Products (EA)
• Fenzi (SD)
• FMC Corporation
• Henkel (SD, PA, EA,
chelates)
• Proctor and Gamble
(performance additives)
• Formosa (OP/OMS)
(P&G) (salt)
• Sabic (OP)
• Yara (chelates)
Top raw materials
• Ethylene
• Acid chlorides,
Chloroformates
Key cost drivers
• Polymer emulsions
• Ammonia, HCN
• Sulfur
• Ethylene
• Energy
• Sulfur
• Salt
A EMEA
B Americas
C Asia Pacific
A
C
B
Some of our customers
• Bayer
• Huntsman
• Shin-Etsu
Top raw materials
• Fuels (for cogeneration)
• Power
• Acetic acid
43
29
28
Key cost drivers
• Oil, gas and coal prices
• Methanol prices
C
B
A
A EMEA
B Americas
C Asia Pacific
89
5
6
94
Business performance | AkzoNobel Report 2014
Pulp and Performance Chemicals
Surface Chemistry
• Due to divestments, overall volumes were lower than in 2013. However, on a comparable
• We saw positive growth momentum in key market segments such as agrochemicals,
basis, core product lines reported growing or stable volume development
lubricants, fuels and organoclays and had a stronger second half in the business overall
• Volumes in the South American bleaching chemicals business grew substantially following
• We redesigned our organizational structure to deliver a “market-in” culture, mainly in
the inauguration of the Imperatriz Chemical Island in northern Brazil. Europe and Asia
reported solid regional performance, while North American volumes were on a par with the
previous year
• Expancel, our expandable microspheres business, put in a solid performance,
Marketing and Sales, RD&I and Supply Chain functions. This resulted in improvements in
service levels to customers and increased capacity at key sites
• A number of new adjuvants for crop protection were introduced
• We launched Armovis Complete, a viscoelastic surfactant (VES) for oil and gas well
with significant revenue growth
completion fluid
• The Colloidal Silica business continued to grow in key segments
• We expect to close the divestment of Paper Chemicals to Kemira in 2015
• Our 50 percent stake in the Eka Synthomer Oy joint venture was sold to joint venture
partner Synthomer
• We introduced new polymer additives for hair styling product formulations such as Balance
RCF and Biostyle XH
• A global partnership with Nukamel was formed to supply nutritional emulsifiers that
improve fat digestibility and feed efficiency for young animals
Key brands
Revenue in € millions
Key brands
Revenue in € millions
1,153
1,036
1,009
1,085
1,012
1,010
Chemical platform
Bleaching chemicals
2012
2013
2014
Chemical platform
Surfactants
2012
2013
2014
Geo-mix revenue by destination in %
Geo-mix revenue by destination in %
Some of our customers
• APP
• BillerudKorsnäs
• Domtar
• Fibria
• Georgia Pacific
• International Paper
• SCA
• Smurfit Kappa
• Stora Enso
• Suzano
• Wax
• Rosin
Top raw materials
• Energy
• Salt
• Sodium silicate
Key cost drivers
• Energy prices
• Logistic costs
C
B
Some of our customers
• Baker Hughes
• BYK Additives
• Lubrizol
• Monsanto
• Potash Corporation
of Saskatchewan
• Procter & Gamble
A
Top raw materials
• Animal fats
• Vegetable oils
• Starch
(corn, potato, tapioca)
A
C
B
A EMEA
B Americas
C Asia Pacific
39
45
16
Key cost drivers
• Biofuels, food prices
• Ethylene prices
• Propylene prices
• Oil and gas prices
A EMEA
B Americas
C Asia Pacific
32
54
14
95
AkzoNobel Report 2014 | Business performance
Inspiring innovation
through partnerships
Given the growing
concerns over raw
material and energy
scarcity – which are
being amplified by the
increasing impact of
urbanization – the need
to innovate and develop
less traditional solutions
is becoming ever
more important.
An effective way of accelerating the development of more sustainable technologies
is to form partnerships designed to explore these alternative routes to resource
efficiency. This exchange of knowledge and sharing of expertise not only
establishes important relationships, but can often produce highly beneficial results.
During 2014, AkzoNobel entered into several strategic partnerships, all focused
on replacing non-renewable raw materials, and which could potentially have major
environmental benefits. One of the most recent initiatives involves investigating the
possibility of producing chemicals from beet-derived sugar feedstock. Working
with several partners, the aim is to develop a viability study which will look at
developing business cases for commercial production in the Delfzijl chemical
cluster in the Netherlands.
We’re also part of a major Dutch consortium exploring the use of waste streams as
a feedstock for chemical production. A number of industry and semi-governmental
partners are looking to benefit from Canadian company Enerkem’s ongoing
research into developing technology that converts waste into synthesis gas –
a common starting material for products such as methanol and ammonia.
Another important development saw us expand our agreement with
Solazyme Inc. to target an annual supply of up to 10,000 tons of renewable
tailored algae-based oils – which would replace both petroleum and palm
oil-derived chemicals. We’re also working with cleantech company Photanol
to develop a process for harnessing the power of the sun to make chemicals.
The aim is to produce “green” chemical building blocks that will eventually replace
raw materials we currently obtain from fossil-based production, supporting our
Planet Possible agenda of radical resource efficiency.
96
Business performance | AkzoNobel Report 2014 Scan and explore
Scan and explore
AkzoNobel Report 2014 | Business performance
97
97
Function and form
Buildings around the world use our market-leading coatings
and chemicals technology on a wide range of surfaces,
including roofs. We supply products that protect against
corrosion, fire, weathering and include functionality such
as solar reflection.
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 Supervisory Board and
provide detailed overviews of their activities during 2014.
Our Board of Management and Executive Committee
100
Statement of the Board of Management
Our Supervisory Board
Supervisory Board Chairman’s statement
Report of the Supervisory Board
102
103
104
106
99
AkzoNobel Report 2014 | LeadershipLeadership Our Board of Management
and Executive Committee
Conrad Keijzer
Member of the Executive Committee responsible
for Performance Coatings
(1968, Dutch)
Maëlys Castella
CFO and Member of the Board of Management
and the Executive Committee
(1966, French)
Marten Booisma
Member of the Executive Committee responsible
for Human Resources
(1966, Dutch)
Conrad Keijzer joined AkzoNobel in 1994 as Market
Development Manager for Industrial Chemicals. Since
then, he has held a variety of management positions
within Performance Coatings and Specialty Chemicals.
These include being appointed Global Director
for Automotive Plastic Coatings and serving as
Managing Director for both the Packaging Coatings
and Industrial Coatings businesses.
Maëlys Castella was Group Deputy CFO at Air Liquide
before joining AkzoNobel in 2014. She earned an
Engineering degree at Ecole Centrale Paris. She also
has a Master’s degree in Energy Management & Policy
from the University of Pennsylvania and the French
Institute of Petroleum. Her early career included finance
roles in the oil and gas industry.
Marten Booisma joined AkzoNobel as Chief Human
Resources Officer in 2013. He spent the previous six
years in this position at Royal Ahold. Having graduated
from the University of Amsterdam with a Master of
Science in Politics, he started his career in HR at Shell
and Unilever. He then moved on to assume various
senior management positions at Ahold.
For further information please
see About us > Management on
akzonobel.com
100
Leadership | AkzoNobel Report 2014 Ton Büchner
CEO and Chairman of the Board of Management
and the Executive Committee
(1965, Dutch)
Ruud Joosten
Member of the Executive Committee responsible
for Decorative Paints
(1964, Dutch)
Werner Fuhrmann
Member of the Executive Committee responsible
for Specialty Chemicals
(1953, German)
Sven Dumoulin
General Counsel and
Member of the Executive Committee
(1970, Dutch)
Prior to joining AkzoNobel, Ton Büchner was President
and CEO of Sulzer Corporation. An engineer by
training, he earned a Master of Science in Civil
Engineering at Delft University of Technology in the
Netherlands, and a Master in Business Administration
from IMD in Lausanne. His early career in the oil and
gas construction industry involved roles at Allseas
Engineering and AkerKvaerner.
After graduating from Amsterdam Free University
with a Masters in Economics, Ruud Joosten joined
AkzoNobel in 1996 as International Marketing Manager
for Decorative Paints. Since then, he has held various
management positions within Decorative Paints
and Specialty Chemicals, including BU Manager for
Decorative Paints North and Eastern Europe and
Managing Director of Pulp and Performance Chemicals.
Werner Fuhrmann was appointed to his current role
in 2012. He was previously Managing Director of the
company’s Industrial Chemicals business, a position
he first took up in 2005. During his early career with
AkzoNobel, he held various positions in the field of
finance. He is also Chairman of the Dutch Chemicals
Industry Association (VNCI).
Sven Dumoulin joined AkzoNobel as General Counsel
in 2010 and holds a PhD in Law from the University
of Groningen. Previously he was Group Secretary
at Unilever. Outside AkzoNobel, he is a member of
various Legal Professional Associations in both the
Netherlands and abroad. From 2003 to 2007, he held
professorships in company law at the Universities of
Groningen and Tilburg.
101
AkzoNobel Report 2014 | Leadership
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 Report 2014, and the undertakings
included in the consolidation taken as a whole, in
accordance with International Financial Reporting Standards
(IFRS), as adopted by the EU and additional Dutch disclosure
requirements for annual reports.
To the best of our knowledge:
• The financial statements in this Report 2014 give a true
and fair view of our assets and liabilities; our financial
position at December 31, 2014; and the result of our
consolidated operations for the financial year 2014
• The management report in this Report 2014 includes a
fair review of the development and performance of our
businesses and the position of AkzoNobel, as well as 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 a system of
governance, risk management and internal controls in our
company. Consequently, the Board of Management has
implemented a broad range of processes and procedures
designed to provide control by the Board of Management
over the company’s operations. These processes and
procedures include measures regarding the general control
environment, such as a Code of Conduct – including
business principles 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 providing
a reasonable level of assurance that we have identified and
managed the significant risks of our company and that we
meet our operational and financial objectives in compliance
with applicable laws and regulations. The individual
components of the above set of internal controls are in line
with the COSO Enterprise Risk Management Framework.
With respect to supporting and monitoring of compliance
with laws and regulations – including our Code of Conduct –
a Compliance Committee has been established. The
Internal Control function maintains AkzoNobel’s Internal
Control Framework, monitors the compliance and includes
updates regarding the emergence of new risks. They support
the annual review of the effectiveness of the system of
governance, risk management and internal controls of the
Board of Management. Internal Audit provides reasonable
assurance to the Board of Management, as well as the
Supervisory Board, that our system of risk management
and internal controls, as designed and represented by
management, are adequate and effective.
While we routinely work towards continuous improvement of
our processes and procedures regarding financial reporting,
the Board of Management is of the opinion that with regards
to financial reporting risks, the internal risk management and
control systems:
• Provide a reasonable level of assurance that the financial
reporting in this Report 2014 does not contain any errors
of material importance
• Have worked properly during the year 2014
For a detailed description of the risk management
system and the principal risks identified, reference is
made to the Risk management chapter in the Strategic
performance section, as well as the Compliance and
integrity management chapter of the Governance and
compliance section. We have discussed the above opinion
and conclusions with the Audit Committee, the Supervisory
Board and the external auditor.
102
During the fourth quarter, it came to light that the company
had been subject to an external fraud targeted at one
of its subsidiaries located in Chicago (US). In response to
the matter, independent legal counsel – assisted by an
independent audit firm – was assigned to investigate.
Every effort is being made to recover the funds and the
company may be able to reduce the ultimate financial
impact of the fraud. For more information, see the Risk
management chapter.
Outlook
We anticipate that significant developments in raw material
prices, combined with relevant exchange rate movements
and lower growth rates in high growth economies, will
principally determine the dynamics of 2015. The preparations
made in 2013 and 2014 will form a sound basis for further
improve ments in 2015. The company remains on track to
deliver its targets for 2015.
Amsterdam, February 11, 2015
The Board of Management
Ton Büchner
Maëlys Castella
Leadership | AkzoNobel Report 2014
Our Supervisory Board
Antony Burgmans
(1947, Dutch)
Chairman
Initial appointment: 2006
Current term of office: 2014-2018
Uwe-Ernst Bufe
(1944, German)
Deputy Chairman
Initial appointment: 2003
Current term of office: 2011-2015
Former Chairman and CEO of Unilever N.V. and plc.;
Non-executive Director of BP plc.;
Member of the Supervisory Boards of SHV Holdings N.V.
and Jumbo Group Holding B.V.;
Chairman of the Supervisory Board of TNT Express N.V.
• Chairman of the Nomination Committee as of
May 1, 2014
• Member of the Remuneration Committee
Former CEO of Degussa AG;
Member of the Supervisory Board of Umicore SA.
Sari Baldauf
(1955, Finnish)
Initial appointment: 2012
Current term of office: 2012-2016
Former member of the Group Executive Board of
Nokia Oyj;
Former non-executive Director of F-Secure Oyj;
Chairman of the Board of Fortun Oyj;
Supervisory Board member at Daimler AG and
Deutsche Telekom.
• Chairman of the Remuneration Committee
as of May 1, 2014
• Member of the Nomination Committee
Dolf van den Brink
(1948 – 2014*, Dutch)
Initial appointment: 2004
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.
* Dolf van den Brink passed away on
December 22, 2014.
Peggy Bruzelius
(1949, Swedish)
Initial appointment: 2007
Current term of office: 2011-2015
Byron E. Grote
(1948, American and British)
Initial appointment: 2014
Current term of office: 2014-2018
Louis Hughes
(1949, American)
Initial appointment: 2006
Current term of office: 2014-2018
Ben Verwaayen
(1952, Dutch)
Initial appointment: 2012
Current term of office: 2012-2016
Former CEO of ABB Financial Services;
Former Executive Vice-President of SEB;
Non-executive Director of Axfood AB, Lundin Petroleum AB,
Skandia Mutual Life Insurance and Diageo plc.;
Chairman of Lancelot Asset Management AB.
Non-executive Director at Unilever N.V. and plc.;
Non-executive Director at Anglo-American plc.;
Non-executive Director at Standard Chartered plc.;
Former Board member BP plc.
• Member of the Audit Committee
• Member of the Audit Committee
Former President and COO of Lockheed Martin;
Former Executive Vice-President of General Motors;
Chairman of InZeroSystems LLC;
Member of the Boards of Directors of ABB group
and Alcatel-Lucent SA;
Executive Advisor of Wind Point Partners.
• Chairman (ad. interim) of the Audit Committee
Former CEO Alcatel-Lucent;
Former Chief Executive/Chairman of the Board’s
Operating Committee of BT group;
Non-executive Director of Akamai Technologies Inc.
and Bharti Airtel Ltd.
• Member of the Remuneration Committee
• Member of the Nomination Committee
103
AkzoNobel Report 2014 | Leadership Supervisory Board
Chairman’s statement
2014 has been a year of transition
for the company and a year of
advancement in pursuance of
the company’s strategy. Despite
challenging global and macro-
economic circumstances we have
sought to build on our successes
to date, including our top ranking
in the Materials industry group of
the Dow Jones Sustainability Index
for the third year in succession.
Following the completion of Karel Vuursteen’s 12-year
term of office as member of the Supervisory Board, I was
appointed as Chairman in April, 2014. At the same time,
as part of our succession planning for the replacement of
Sir Peter Ellwood – who stepped down after six years as
Supervisory Board and Audit Committee member – we have
welcomed Mr. Byron E. Grote to both the Supervisory Board
and the Audit Committee. The Supervisory Board would like
to express its gratitude for the commitment and services of
Mr. Vuursteen and Sir Peter Ellwood.
While 2014 was a year that many had hoped would bring
improvement in the global business climate, we in fact
saw slowing growth in Asia, Russia and the eurozone,
coupled with heightened tensions in regional diplomatic and
economic relations. It is a sign of the strength and stability
of the company’s strategy that despite the challenging
economic environment, AkzoNobel’s performance has been
maintained and enhanced in a number of key areas. This
achievement provides the Supervisory Board with confidence
in the Executive Committee’s strategic direction moving
forward into the forthcoming year.
Shortly before the end of the year, we sadly lost a valued
member of the Supervisory Board when Mr. Dolf van den
Brink passed away on December 22. Dolf was a respected
and inspirational colleague who was held in the highest
regard by us all. It was an honor and a pleasure to have
worked with him. A Supervisory Board member for the
last ten years, he leaves a professional legacy which the
company will continue to draw from.
During 2014, the company welcomed Maëlys Castella
to the Board of Management as Chief Financial Officer
(CFO), succeeding Mr. Keith Nichols. Maëlys’ background
in a broad set of corporate finance disciplines, as well as
her experience in marketing to a large variety of customer
end-user segments, has allowed her to make a strong
start. The Supervisory Board members are pleased that
her expertise will be applied in the development of future
strategic agendas for the company.
The Supervisory Board was provided with tangible insights
into the impact of the company’s strategy during our visit
to Frankfurt in Germany. Supervisory Board members
were given a first-hand view of the company’s operations
in the European chemical industry and a comprehensive
impression of European competitiveness relative to other
regions. This visit, as with other annual country visits,
allowed us to appreciate the local and personal side of
the AkzoNobel business and assisted us in maintaining a
comprehensive understanding of management’s activities.
Throughout 2014, the company continued to seek
advancement on its market leading positions through
customer focused organic growth, operational excellence
and sustainability. It has built on its core principles of Safety,
Integrity and Sustainability through the introduction of our
four, clear and simple values: Customer focused, Deliver on
commitments, Passion for excellence and Winning together.
Performance measurement and reporting tools have been
built around these and targets have been established
and linked to remuneration in order to embed a culture of
continuous improvement. Transparency, accountability and
messaging have also been improved. Such efforts enhance
efficiencies and the Supervisory Board is happy to have seen
the company progress towards its 2015 targets over the
past year.
104
Leadership | AkzoNobel Report 2014 We are particularly proud that AkzoNobel has advanced on
its Planet Possible sustainability program and was again
ranked first on the Dow Jones Sustainability Index (in the
Materials industry group). This is the third consecutive
year that we have been ranked top, out of more than 350
companies, and the ninth consecutive year that we have
been ranked in the top three. The ranking demonstrates the
company’s sustainability performance and resource efficiency
and is an example of our “Winning together” philosophy.
After all, a sustainable business enhances value for all our
stakeholders, while at the same time securing our own long-
term success.
In the fourth quarter of 2014, the company was confronted
with an external fraud targeted at one of its subsidiaries
located in Chicago (US). After a thorough external
investigation, it was concluded that customary and
appropriate controls were in place, which were breached,
and that creating ongoing awareness on fraud attempts is
the additional effort needed. For more information, see the
Risk management chapter.
The Supervisory Board is reassured by the fact that
good corporate governance in particular has always
been recognized as integral to the effective operation
of AkzoNobel, the safeguarding of its assets and the
achievement of its strategic objectives. In recognition of
this, we dedicate a section of our annual report to
Governance and compliance, where we elaborate on our
corporate governance framework, remuneration policy,
compliance codes and systems, integrity management and
shareholder relations.
The Supervisory Board also appreciates its own vital
role in the company’s governance and we take steps to
ensure that we are adequately equipped, well trained and
performance assessed. We engage in a thorough Board
evaluation process, and you will see more details on all the
activities of the Supervisory Board during the reporting year
in this section, along with relevant information regarding the
Supervisory Board members.
It only remains for me to thank my fellow Supervisory Board
members for welcoming me as Chairman and for their
support and commitment during the past year. I believe that
our diverse mix of backgrounds and breadth of expertise will
allow us to act seamlessly in our oversight of management
and the company’s strategy and activities. We would like
to thank the CEO, the new CFO, the other members of the
Executive Committee and all employees for their dedication
and hard work in securing the achievements of 2014.
Antony Burgmans
Chairman of the Supervisory Board
105
AkzoNobel Report 2014 | Leadership Report of the
Supervisory Board
Main 2014 activities
Meetings
The Supervisory Board held ten meetings during 2014. Six
were plenary sessions with the full Executive Committee
present for all or part of the meetings. Two meetings were
held without the full Executive Committee present; the Board
of Management attended seven of the ten meetings. All
Supervisory Board meetings except one were preceded
or succeeded by an executive session of the Supervisory
Board, with the Chief Executive Officer (CEO) in attendance.
An attendance overview of the Supervisory Board and its
committees can be seen on this page. The Chairman of the
Supervisory Board prepared the meetings with the Corporate
Secretary and discussed matters such as the agendas with
the CEO.
Review of the company’s strategy and actions
including Business Area and functional updates.
Review and monitoring of the company’s
sustainability performance.
The Supervisory Board visited Frankfurt in Germany,
providing members with a first-hand view of the
company’s operations in the European chemical
industry and a comprehensive impression of
European competitiveness relative to other regions.
Senior executive succession in the Board of
Management and Executive Committee, resulting
in Maëlys Castella’s nomination and election as
Chief Financial Officer (CFO) for the company at an
Extraordinary General Meeting of shareholders on
October 8, 2014.
Revision of the Supervisory Board’s Rules
of Procedure.
Revision of the Board of Management and
Executive Committee Rules of Procedure.
Supervisory Board
attendance record
The Supervisory Board is confident that the following
table shows all members made adequate time available
to give sufficient attention to the company. If Supervisory
Board members are unable to attend a Supervisory Board
or committee meeting, they inform the Chairman stating
the reason. They also have the opportunity to discuss
any agenda items with the Chairman of the Supervisory
Board and the chairmen of the committees. Attendance is
expressed as the number of meetings attended out of the
number eligible to attend.
Supervisory Board attendance record
Antony Burgmans
Sari Baldauf
Dolf van den Brink
Peggy Bruzelius
Uwe-Ernst Bufe
Byron E. Grote
Louis Hughes
Ben Verwaayen
SB
9/10
10/10
8/10
10/10
9/10
7/7
10/10
8/10
AC
–
–
5/6
6/6
–
4/4
6/6
–
RC
3/3
3/3
–
–
–
–
–
NC
3/3
2/2
–
–
–
–
–
2/3
2/3
The table indicates the meeting attendance for the Supervisory Board (SB), the Audit
Committee (AC), the Remuneration Committee (RC) and the Nomination Committee (NC).
106
Leadership | AkzoNobel Report 2014 Supervisory Board activities
An important point of note in the Supervisory Board’s work
during 2014 was the review of its Rules of Procedure, which
brought about two broad changes. Firstly, the Supervisory
Board specified that it shall review and approve financial
information and disclosures from the business and the
Board of Management on a quarterly basis. This adjustment
formalizes the extent to which the Supervisory Board reviews
and supervises the financial performance of the business.
Secondly, the Supervisory Board took the step of requiring
in its Rules of Procedure that members of the Supervisory
Board shall be submitted for re-election no more than
two times, each time for a period not exceeding four years.
This change sets out to reinforce the value that the
Supervisory Board places in the independence of its
members and their ability to act critically and independently
of the Board of Management and the company.
During 2014, the Supervisory Board dealt with succession
planning. In particular, the Supervisory Board Chairman
Mr. Vuursteen reached the end of his tenure in 2014 and the
Supervisory Board welcomed his successor Mr. Burgmans,
who was appointed as of the Annual General Meeting of
shareholders (AGM) 2014. A diligent and careful approach
was adopted in order to identify, select and prepare Mr.
Burgmans for his role as the new Chairman. At the end of
the year, the Supervisory Board suffered the loss of one
of its members when Mr. van den Brink passed away on
December 22, 2014. His commitment and dedication to
the company, his ten-year tenure as a Supervisory Board
member and his role as Chairman of the Audit Committee
reflect the scale of his legacy.
The Supervisory Board has continued to take an active role
in reviewing and discussing the company’s strategy and
strategic options together with the CEO, the CFO and the
Executive Committee. In 2014, the Supervisory Board’s
strategy review included a comprehensive Business Area
analysis of forward-looking targets and detailed action plans.
Specific project-oriented reviews were also undertaken.
In terms of functional aspects of the company’s work,
strategy updates were provided from Human Resources,
Global Business Services and Sustainability. These reviews
were in addition to the Supervisory Board’s broad and
high level review of strategy and risk for the group and its
implementation of a performance-driven culture.
The Supervisory Board continued to review and monitor
the company’s sustainability performance data in 2014,
its performance indicators for safety performance,
eco-efficiency improve ment and employee engagement,
including diversity and inclusion and talent management.
Sustainability is a strategic focus area for AkzoNobel and
the Supervisory Board, and represents a core principle and
guideline for the way the business is run. The Supervisory
Board recognized that AkzoNobel has, over the past
decade, built a strong foundation for sustainability and is
recognized as a leader in its industry, demonstrated by the
company maintaining its number one position (for the third
consecutive year) in the Materials industry group on the 2014
Dow Jones Sustainability Index. The Supervisory Board
considers it of key importance that the company maintains
and strengthens this leadership position. The Supervisory
Board therefore supports the 2020 sustainability strategy
and the Planet Possible concept, a next level approach
to sustainability which is fully focused on creating more
value from fewer resources and achievement of long-term
sustainable business by continuing to live by our values.
In 2014, the outcome of enterprise risk management
sessions were presented to the Supervisory Board for the
purpose of identifying corrective actions to continue to
address the top ten risks. Further details are included in
the Risk management chapter and the Strategic
performance section.
In September 2014, the Supervisory Board and the
Executive Committee visited some of the company’s sites
in Germany. This included meetings with major customers,
local management and other stakeholders, as well as a
visit to the Specialty Chemicals site in Frankfurt. The visit
provided a detailed insight into the company’s activities,
both in Germany and within the context of the wider
European market. It involved, in particular, an overview of
Specialty Chemicals’ businesses in the region and a clear
outline of efficiency drivers for AkzoNobel’s wider internal
support functions there. Overall, the trip established a useful
snapshot of the competitiveness of the European market in
comparison to other regions.
During the fourth quarter, it came to light that the company
had been subject to an external fraud targeted at one
of its subsidiaries located in Chicago (US). In response to
the matter, independent legal counsel – assisted by an
independent audit firm – was assigned to investigate. Every
effort is being made to recover the funds and the company
may be able to reduce the ultimate financial impact of
the fraud. For more information, see the Risk management
chapter.
The Supervisory Board continued to engage in training
and evaluation of its performance. The Supervisory Board
members participated in AkzoNobel’s online compliance
training modules on an ongoing basis.
A thorough operational planning process was followed
during the year, resulting in a 2015 budget and operational
plan, which was reviewed and approved by the
Supervisory Board.
The three Executive Committee members with Business
Area responsibilities provided regular updates to inform the
Supervisory Board on safety, competitive behavior, projects
and year-to-date financials.
107
AkzoNobel Report 2014 | Leadership
Supervisory Board evaluation
Audit Committee
Each year the Supervisory Board undertakes an assessment
of its effectiveness. This is done through an internal
evaluation of its performance, those of its individual
members, its Remuneration Committee and Nomination
Committee. Once every three years, instead of an internal
assessment, the Supervisory Board undergoes an external
assessment facilitated by a specialist firm.
The Supervisory Board will undergo this assessment
of performance with regard to the year 2014. As the
Supervisory Board believes that the external assessment is
a vital tool for assessing its effectiveness, the assessment
will be carried out in the first months of 2015.
During 2014, the Audit Committee consisted of its chairman,
Mr. van den Brink, and three other members – Mr. Hughes,
Mrs. Bruzelius and Sir Peter Ellwood (who was replaced
by Mr. Grote following the 2014 AGM) – all of whom have
accounting and financial management expertise.
On December 22, 2014 Mr. Van den Brink sadly passed
away. As a result, the chairmanship of the committee is
being fulfilled on an interim basis by Mr. Hughes. The Audit
Committee held six meetings during 2014. The attendance
record of the members can be seen in the previous
attendance chart. Issues discussed in Audit Committee
meetings were reported back to the full Supervisory Board in
subsequent meetings.
Main 2014 activities
• Review of the effectiveness of internal controls (including
internal audit findings), in particular over financial reporting
• Review of external audit conclusions and the audit report
• Review of the 2014 annual report and financial statements
• Review of AkzoNobel’s dividend direction
• External auditor independence
• Internal Audit Plan 2015 and follow-up on Internal Audit
Plan 2014
• Review of the external investigation of, and management
response to, the external fraud in Chicago (US)
Financial statements and
profit allocation
The financial statements of Akzo Nobel N.V. for the financial
year 2014 were audited by KPMG Accountants N.V.. The
Board of Management 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
auditors by the Audit Committee, in the presence of the
CEO and 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 2014 financial
statements of Akzo Nobel N.V. form a good basis to account
for the supervision provided (see the Financial information
section). The Audit Committee monitors the follow-up by
management of the recommendations reported by the
external auditor.
The Supervisory Board recommends that the AGM adopts
the financial statements as presented in this Report 2014
and, as proposed by the Board of Management, approve
the proposed total dividend for 2014 of €1.45 per common
share outstanding. This is consistent with the company’s aim
to provide a stable to rising dividend. It is proposed that this
amount, less the interim dividend of €0.33 – which was paid
in November 2014 – be made payable on May 19, 2015.
The dividend will, at the shareholder’s discretion, be paid
either in cash or in shares. In addition, we request that the
AGM discharges the members of the Board of Management
from their responsibility for the conduct of business in
2014 and the members of the Supervisory Board for their
supervision in 2014.
108
Leadership | AkzoNobel Report 2014 Results/financial statements
Before each announcement of the quarterly results and
before the annual financial statements, the Audit Committee
reviewed the financial results and was consulted on the
reports and press releases to be published and those issues
reviewed by the Disclosure Committee. Supervisory Board
members were advised on such publications and disclosures
by the Audit Committee and, as of September 2014,
approval of the full Supervisory Board is required ahead of
any quarterly or annual release of financial results.
The Audit Committee is updated regularly on IFRS
developments and the anticipated impact on the financial
statements, and was briefed on management assertions.
Governance, risk management and
internal control systems
The Audit Committee reviewed AkzoNobel’s overall approach
to governance, risk management and internal control
systems, its processes, outcomes and disclosures. It also
reflected on the weak market conditions in Europe, the
impact of the restructuring and discussed
contingency planning.
During 2014, the Audit Committee discussed:
• Risk management procedure and report
• Internal control assessment procedures and report
• Compliance with primary and secondary legislation
(internal framework, monitoring and processes and
compliance reports)
• Internal Audit planning and summary of findings
• HSE and sustainability audits planning and summary
of findings
• Internal Audit statement on quality and effectiveness of the
company’s risk management and internal control systems
• Post investment reviews
• Treasury strategy
• Tax strategy
• Litigation and claims
• Pension de-risking strategy
• Information management strategy
In addition, the Audit Committee reviewed the annual
operational plan (including budget) and AkzoNobel’s
dividend proposals. On fulfilling its oversight responsibilities
in relation to governance, risk management and internal
control systems, the Audit Committee met regularly with
senior executives. The General Counsel reported to the Audit
Committee on the company’s compliance framework and
compliance activities, and on major litigation and
liability exposure.
Internal audit function
The Internal Auditor reports directly to the Audit Committee
and presents all main audit findings and reports directly to
the committee. The Audit Committee reviewed the internal
audit plan and strategy and agreed its budget and resource
requirements. The mandatory external evaluation of the
performance and quality of the Internal Audit function
by the Dutch Institute of Internal Auditors was reviewed,
with members being satisfied with the effectiveness of the
function. The Audit Committee met independently with the
Corporate Director of Internal Audit during the year and
discussed the results of the audits performed.
External auditor
KPMG Accountants N.V., AkzoNobel’s external auditor,
reported in depth to the Audit Committee on the scope and
outcome of the annual audit of the financial statements,
including the consolidated financial statements and the
company financial statements.
The Audit Committee held independent meetings with the
external auditor during the year and reviewed and challenged
the external auditor’s approach to auditing the company,
engagement letter, fees, risk assessment and audit plan.
Other topics discussed included:
• Hard close (as part of making the year-end process more
efficient, and in order to highlight important issues for
the annual financial statements, as well as giving timely
attention to important issues, AkzoNobel performed a
hard close as of October 31, 2014. Aligned with this,
the external auditor also performed certain procedures in
respect of the financial outcomes as of the same date)
• The quality of external audit
• Impact of new IFRS rules
The Audit Committee performed the annual review of the
services of the external auditor, and continues to closely
monitor international discussions on auditor independence.
Following the independence requirements, in April 2014,
Mr. Van Leeuwen took over as lead partner from Mr.
Weusten, who held this position since July 2007. The AGM
in April 2014 decided to follow the proposed switch to a new
audit firm as of the review of the 2016 financial statements.
Further details on the external auditor can be found in the
Corporate governance statement.
Evaluation
The annual evaluation of the Audit Committee is undertaken
by the Audit Committee itself in conjunction with the
Supervisory Board. Once every three years, the Audit
Committee undergoes an external assessment of its
performance. Results of the evaluation are subsequently
reviewed both in the Audit Committee and through the
invitation of the Audit Committee, at full
Supervisory Board meetings.
The Audit Committee will undergo its triennial external
assessment of performance with regard to the year 2014.
This evaluation will be undertaken in the first months
of 2015.
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AkzoNobel Report 2014 | Leadership
Remuneration Committee
The Remuneration Committee consists of three members
and is chaired by Ms. Baldauf. Mr. Verwaayen and
Mr. Burgmans are the other members of the committee.
Mr. Vuursteen was a member of the committee until the
end of his tenure at the 2014 AGM. The Remuneration
Committee held three meetings in 2014. The attendance
record of the members can be seen in the previous
attendance chart.
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. Proposals for the remuneration of Executive
Committee members were reviewed and discussed with
the CEO. Along with this, the committee reviewed the
remuneration of the members of the Supervisory Board and
the pension plan of the Executive Committee.
Main 2014 activities
• Review of management performance and base salaries
for 2014
• Review of changes to pension legislation in
the Netherlands
• Review of changes to claw back legislation
• Review of long-term and short-term incentive plans
• Forward-looking assessment of targets for 2015
Further details on the remuneration policy and its
implementation for 2014 are outlined in the Remuneration
report chapter in the Governance and compliance
section. Information on the remuneration of the Board of
Management and the Supervisory Board can be found in
Note 22 of the Consolidated financial statements.
Nomination Committee
The Nomination Committee consists of three members and
is chaired by Mr. Burgmans. The other two members are
Ms. Baldauf and Mr. Verwaayen. The committee held three
meetings in 2014. The attendance record of the members of
the committee can be seen in the previous attendance chart.
Main 2014 activities
• Recommendation for the reduction of the number
of Supervisory Board members
• Successful succession of the Chairman through the
nomination and appointment of Mr. Burgmans
• Successful succession of Sir Peter Ellwood through the
nomination and appointment of Mr. Grote
• Recommendation for the reappointment of Mr. Hughes
• Successful nomination and recruitment of Mrs. Castella to
the Board of Management as new CFO
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Leadership | AkzoNobel Report 2014 Committee. This was supported by the Supervisory Board
and her nomination was approved at an Extraordinary
General Meeting of shareholders held on October 8, 2014.
As part of the Nomination Committee’s forward-looking
succession planning, they have engaged the services of
an executive search agency to assist with the succession
of Mr. Uwe-Ernst Bufe, and of Mr. Dolf van den Brink, who
sadly passed away during the year.
Additional remarks
All members of the Supervisory Board would like to express
their gratitude to the Board of Management 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 2014.
The Supervisory Board would like to remember the
commitment and dedication of one of its own members,
Mr. Dolf van den Brink, whose presence will be sadly missed.
Amsterdam, February 11, 2015
The Supervisory Board
In memoriam
Dolf van den Brink
1948-2014
During 2014, the Nomination Committee dealt with
succession planning in order to identify individuals for
re-election and potential candidates for nomination.
If external candidates are sourced by the Nomination
Committee, it engages the services of an executive search
agency that employs a rigorous search process after first
gaining a thorough understanding of AkzoNobel’s strategic
ambitions, the specific leadership roles and competencies
needed to meet those ambitions and the culture of
our organization.
In the course of 2014, the Nomination Committee
considered and recommended the reduction of the
number of Supervisory Board members. The Nomination
Committee made several recommendations on successions.
These included, following his identification in 2013, the
recommendation to appoint Mr. Grote as a member of the
Supervisory Board in succession of Sir Peter Ellwood, who
reached the end of his tenure in 2014.
During 2014, Mr. Vuursteen reached the end of his 12-year
tenure and retired as Chairman at the 2014 AGM. The
Nomination Committee recommended the appointment of
Mr. Burgmans to the role of Chairman of the Supervisory
Board as of the 2014 AGM. Mr. Burgmans had no
involvement in discussions regarding his nomination as
Chairman of the Supervisory Board.
During 2014, the Nomination Committee advised on the
reappointment of Mr. Hughes at the 2014 AGM. The
Supervisory Board reviewed, supported and approved the
recommendations made by the committee.
Together with the CEO, the committee devoted considerable
time to senior executive succession planning. After a
thorough selection process, with the assistance of an
executive search agency and the consideration of both
external and internal candidates, a recommendation was
made by the Nomination Committee – following proposal
by the CEO – for the appointment of Mrs. Castella as CFO
and member of the Board of Management and the Executive
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AkzoNobel Report 2014 | Leadership Crystal clear benefits
Salt is essential for life. As one of the world’s leading salt
specialists, we supply products for a variety of applications,
including electrolysis, pharmaceuticals, de-icing, water
softening and food processing.
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
Compliance and integrity management
Remuneration report
AkzoNobel on the capital markets
114
122
128
135
AkzoNobel Report 2014 | Governance and compliance
113
Governance and compliance Corporate governance statement
AkzoNobel values high standards of
corporate governance and seeks to
consistently enhance and improve
corporate governance performance,
emphasizing transparency in accordance
with applicable guidelines and regulations.
Shareholders
Supervisory Board
Board of Management
Executive Committee
Functions
Business Area
Decorative Paints
Business Area
Performance Coatings
Business Area
Specialty Chemicals
Countries
Decorative Paints
Businesses
Performance Coatings
Businesses
Specialty Chemicals
Businesses
114
Governance and compliance | AkzoNobel Report 2014 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 Euronext
Amsterdam. AkzoNobel has a sponsored level 1 American
Depositary Receipt (ADR) program and ADRs can be traded
on the international OTCQX platform in the US.
The company’s management and supervision structure
is organized in a so-called two-tier system, comprising a
combined Board of Management and Executive Committee,
solely composed of executive members, and a Supervisory
Board, solely composed of non-executive directors. The
Supervisory Board supervises the Board of Management and
Executive Committee, 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.
Our corporate governance framework is based on the
company’s Articles of Association, the requirements of
the Dutch Civil Code, the Dutch Corporate Governance
Code (the Code), and all applicable laws and regulations
including securities laws. The Code contains principles
and best practices for Dutch companies with listed shares.
Deviations from the Code – currently the company deviates
only from the Code’s provision 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
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.
The Board of Management and Executive Committee have
established a Code of Conduct, and a set of Business
Policies – together with directives, rules, manuals and
guidelines – as part of the company’s Directives Framework,
which has been compiled and rolled out to all employees
in order to drive governance, consistency and functional
excellence throughout the company.
Board of Management and
Executive Committee
General
The Board of Management is entrusted with the
management of the company and operates in the context
of an Executive Committee. The Executive Committee
comprises the members of the Board of Management,
currently the Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), business leaders and leaders with
functional expertise, allowing both the functions and the
Business Areas to be represented at the highest level in
the organization. The functions currently represented in the
Executive Committee directly are Human Resources, Legal,
Finance and Information Management.
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.
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.
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 accountable for its performance to the
separate and independent Supervisory 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 CEO.
The Supervisory Board has regular direct interaction with
all members of the Executive Committee and all Executive
Committee members attend the major part of most
Supervisory Board meetings.
The CEO leads the Executive Committee in its overall
management of the company to achieve its performance
goals and objectives. He is the main point of liaison with the
Supervisory Board. The CFO is responsible for overseeing
AkzoNobel’s finances and information management.
The company has organized its activities into three Business
Areas: Decorative Paints, Performance Coatings and
Specialty Chemicals. Each Business Area is led by a member
of the Executive Committee. To manage our business in
a more operational way, an Operational Control Cycle is
conducted once per month. For each Business Area, there
are Operational Review Meetings comprising of the CEO,
the CFO, the General Counsel and the relevant Business
Area’s leadership. These provide a forum for a more in-depth
operational discussion on subjects relevant to the Business
Area. In addition, Functional and Country Review Meetings
are held to review upcoming proposals and progress on
the respective functional and country agendas. Twice per
year in each Business Area’s Operational Review Meeting,
the functional agendas of Sustainability and HSE, Human
Resources, Commercial Excellence, Integrated Supply Chain
and Research, Development and Innovation are discussed.
The Managing Directors of our businesses, the Country
Directors and the Corporate Functional Directors in charge
of the different functions, report to individual Executive
Committee members with specific responsibility for their
activities and performance.
The Executive Committee Pensions, chaired by the CFO,
oversees the general pension policies (to be) implemented
in the various pension plans of the company. The Executive
Committee member responsible for HR and the General
Counsel are also members.
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AkzoNobel Report 2014 | Governance and compliance The company has a Sustainability Council, which advises the
Executive Committee on sustainability developments. It also
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 representatives from
the Executive Committee, Managing Directors from our
businesses and Corporate Directors of Strategy, Human
Resources, Sustainability and HSE, Supply Chain/Research
and Development, Sourcing, and Communications. Progress
regarding sustainability objectives, development, target
setting and implementation is reviewed quarterly by the
Executive Committee and semi-annually by the Supervisory
Board, and is verified annually by KPMG Sustainability (part
of KPMG Advisory N.V.). Our sustainability framework is
further explained in the Sustainability statements section.
The company has a Compliance Committee to support
the Executive Committee with its responsibility in assuring
and managing compliance, and with its 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, Senior Legal Counsel and
Corporate Directors of Internal Audit, Control, Compliance,
Human Resources and Sustainability and HSE. Our
compliance and integrity management system is explained in
more detail in the Compliance and integrity
management chapter.
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 the
company’s website.
Authority to represent the company is vested in two or more
members of the Board of Management acting jointly. This
includes the signing of documents. The Board of Management
has also delegated a level of authority to corporate agents,
including those 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 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.
As described later in this section, 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. However, as the company
subscribes to the principles of the Code in general, members
of the Supervisory Board and the Board of Management
are appointed on the basis of a non-binding nomination
by the Supervisory Board other than in the circumstances
described under the Appointment paragraph later in this
section.
In all other circumstances, resolutions to appoint a member
of the Supervisory Board or the Board of Management
will therefore require a simple majority of the votes cast
by shareholders. Under certain conditions specified in the
Articles of Association, shareholders may also be entitled
to nominate Supervisory Board or Board of Management
members for appointment. Such nominations require a
two-thirds majority representing at least 50 percent of the
outstanding share capital in order to be adopted at a
General Meeting.
Members of the Board of Management and 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 Super vision (Wet bestuur en Toezicht), 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
retirement, Executive Committee members are allowed to
hold more than one such supervisory board membership or
non-executive 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. Furthermore, 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 by the
Supervisory Board, for which authority has been delegated
to the Chairman of the Supervisory Board.
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 the Rules of
Procedure for the Board of Management and Executive
Committee. 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/she has a
conflict of interest with the company. Decisions to enter into
transactions under which members have conflicts of interest
that are of material significance to the company – and to
the relevant Board of Management or Executive Committee
members – 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 interest and a
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Governance and compliance | AkzoNobel Report 2014 declaration that the relevant best practice provisions of the
Code have been complied with. In 2014, no transactions
were reported under which a member of the Board of
Management or Executive Committee had a conflict of
interest that was of material significance to the company.
Supervisory Board advises the Board of Management and
Executive Committee, while taking into account the interests
of the AkzoNobel group and the company’s stakeholders.
Major investments, acquisitions and functional initiatives are
subject to Supervisory Board approval.
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 Consolidated financial
statements (see Note 22). The service 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 service contracts of
Board of Management members are available on our
corporate website.
Supervisory Board
General
This section provides an overview of the procedural remit,
diverse nature and governance of the Supervisory Board
of AkzoNobel. For an understanding of the activities of the
Supervisory Board over the past year, please refer to the
Chairman’s Statement and the Supervisory Board Report.
The responsibility of the Supervisory Board is to supervise
the policies adopted by the Board of Management and the
Executive Committee and to oversee the general conduct
of the business of the company. In practice, this means
supervising the achievement of the company’s operational
and financial objectives, the corporate strategy, the design
and effectiveness of the internal risk management and
control systems, the main financial parameters, compliance
with applicable laws and regulations and risk factors. The
Composition
A list of current Supervisory Board members, including their
biographies, can be found in the Leadership section. The
Supervisory Board is constituted in a balanced manner to
reflect the nature and variety of the company’s businesses,
their international spread and expertise in fields such
as finance, economic, societal, environmental and legal
aspects of business, government and public administration.
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.
According to the Act on Management and Supervision, a
supervisory board of a large Dutch public company has a
balanced composition if it consists of at least 30 percent
female and at least 30 percent male members. The current
gender balance of the Supervisory Board does not meet
this depiction of a balanced composition, because two
of its seven members are female. The Supervisory Board
has a preference for a better gender balance. However,
in compliance with provision III.3.1 of the Code, the
Supervisory Board composition reflects both society at
large and the markets in which the company operates – by
ensuring that at least one-third of the members meet the
diversity criteria of gender (female) and/or nationality (outside
of the European Union). AkzoNobel acknowledges that
gender is only one part of diversity and Supervisory Board
members will continue to be selected on the basis of their
wide-ranging experience, backgrounds, skills, knowledge
and insight. Our current Supervisory Board represents six
nationalities, all of whom bring with them experience from
a diverse range of international business, professional and
non-profit organization backgrounds. When nominating
and selecting new candidates for the Supervisory Board
in the future, the requirements of the Act on Management
and Supervision as well as provision III 3.1 of the Code will
continue to 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 meetings and the AGM, monitors the proper
functioning of the Supervisory Board and its committees,
arranges for the adequate provision of information to its
members and acts on behalf of the Supervisory Board as the
main contact for the Board of Management and Executive
Committee. He also initiates the evaluation of the functioning
of the Supervisory Board, its committees, its individual
members and the functioning of the Board of Management.
Meetings of the Supervisory Board require a quorum of
at least half of its members to be present in order to pass
resolutions. Resolutions can also be passed in writing if
the written resolution is submitted to all Supervisory Board
members in advance, with sufficient time for them to review
and assess the implications, nature and content. 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
identical to those 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. Since September
2014 and in accordance with the Code, all members are
eligible for re-election only twice, each time for a period
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AkzoNobel Report 2014 | Governance and compliance not exceeding four years, leading to a maximum possible
term of 12 years for any Supervisory Board member. In
2014, one appointment and two re- appointments to the
Supervisory Board were proposed to the AGM. For 2015,
one re-appointment is currently scheduled to be proposed
to the AGM.
• No Supervisory Board member has had important
business relationships with the company in the year prior
to their last appointment
• There are no significant shareholding ties (amounting to
more than 10 percent of the share capital of the company)
between Supervisory Board members and the company
Conflict of interest
The Articles of Association and the Rules of Procedure
include detailed provisions on how to deal with potential
conflicts of interest between members of the Supervisory
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 Super visory
Board member, require the approval of the Supervisory
Board. Any such decisions 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 2014,
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
remuneration and attendance fee, which is determined
by the AGM. More information on the remuneration of the
members of the Supervisory Board can be found in Note 22
of the Consolidated financial statements.
Induction and training
Following appointment to the Supervisory Board, members
receive a comprehensive induction tailored to their individual
needs. This includes extensive briefings about all major
business and functional aspects of the company, and its
corporate governance and compliance statements as well
as meetings with the CEO, the CFO and all other Executive
Committee members. 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, the Chairman of the Supervisory Board ensures
that regular updates on AkzoNobel’s businesses, legal
matters, social and corporate governance, environmental,
accounting, investor relations, compliance, risk management
and internal control matters are provided to the
Supervisory Board.
Independence of the Supervisory Board
Supervisory Board members are required to act critically and
independently of one another, the Board of Management and
the Executive Committee. Each member of the Supervisory
Board meets the independence requirements as stated in
the Code provisions III.2.1 and III.2.2 and has completed an
annual independence questionnaire addressing the relevant
requirements for independence. To this end, the company
takes steps to verify that:
• There are no cross ties between Supervisory Board
members and members of the Board of Management
• There have been no employment relationships between
Supervisory Board members and AkzoNobel during the
five years preceding their last appointment
• No personal financial compensation has been paid, other
than in relation to work as a Supervisory Board member
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Committees
The Supervisory Board has established three committees:
the Audit Committee, the Nomination Committee and the
Remuneration Committee. This section explains aspects
of the governance and roles and responsibilities of the
committees. Information on the work, composition of and
attendance at the committees during the year is set out in
the Report of the Supervisory Board.
Each committee has a charter describing its role and
responsibilities, as well as the manner in which it discharges
its duties and reports to the full Supervisory Board. These
charters are included in the Supervisory Board Rules of
Procedure, published on the company’s corporate website.
The committees report on their deliberations and findings
to the full Supervisory Board. The committee members’
attendances in 2014 are shown in the Report of the
Supervisory Board.
Audit Committee
The Audit Committee assists the Supervisory Board in
overseeing the quality and integrity of the accounting,
reporting, risk management and internal control practices
of the company, as well as the company’s compliance
with legal and regulatory requirements, the qualifications,
performance and independence of the external auditor and
the performance of the Internal Audit function. As a rule,
the CEO, CFO, Corporate Director of Control, Corporate
Director of 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. In addition,
there is one meeting with the CEO and/or CFO also in
attendance. Other members of management attend as
and when requested. The General Counsel reports to the
Audit Committee on compliance matters at every regular
committee meeting and provides a claim and liability report
to the committee once a year. The chairman of the Audit
Committee initiates the evaluation of the functioning of the
Governance and compliance | AkzoNobel Report 2014 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 current Supervisory Board profile to
address the need for a diverse knowledge of the markets in
which the company operates and the need for insight from
different markets and non-operational areas.
Remuneration Committee
The Remuneration Committee is responsible for making
proposals 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 Executive 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.
Shareholders and the
Annual General Meeting (AGM)
The Annual General Meeting of shareholders (AGM) reviews
the annual report and decides on the adoption of the
financial statements and the dividend proposal, as well as
the discharge of the members of the Supervisory Board and
the Board of Management.
The AGM also approves or adopts, among others,
the following matters:
• The election of members of the Board of Management
and the Supervisory Board
• The remuneration of the members of 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, as
required by law
• The authorization of the Board of Management to issue
new shares
The AGM is convened by public notice. AkzoNobel provides
remote voting possibilities for its shareholders. The AGM
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.
Holding shares in the company on the record date
determines the right to exercise voting rights and other
rights relating to the AGM. The notes to the agenda contain
relevant information with respect to the proposed resolutions.
All resolutions are made on the basis of the “one share, one
vote” principle (assuming an equal par value for each class
of shares). All resolutions are adopted by absolute majority,
unless the law or the company’s Articles of Association
stipulate otherwise.
Holders of common shares in aggregate representing at least
one percent of the total issued capital may submit proposals
for the AGM agenda. This is in deviation from the Act on
Corporate Governance (Frijns) that came into force on July 1,
2013. 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 draft minutes of the
AGM (in Dutch) are made available on the company’s website
within three months of the meeting date. The final and
duly signed minutes are made available on the company’s
website within six months of the meeting date.
Share classes
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
Receipt representing one-third of a common share). On
December 31, 2014, a total of 246,043,094 common shares
and 48 priority shares had been issued. By December
31, 2014, MFS Investment Management and Causeway
Capital Management each 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
Committee. The Meeting of Holders of Priority Shares has
the nomination rights for the appointment 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.
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.
119
AkzoNobel Report 2014 | Governance and compliance The AGM held on April 29, 2014, authorized the Board of
Management for a period of 18 months after that date –
subject to approval from the Supervisory Board – to issue
shares in the capital of the company free from pre-emptive
rights, up to a maximum of 10 percent of the issued share
capital (or 20 percent in case of a merger or acquisition). At
the same meeting, the Board of Management was given a
mandate to acquire up to a maximum of 10 percent of the
issued share capital of the company.
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 accordance with
their statutory responsibility, will evaluate all available options
with a view to serving the best interests of the company,
its shareholders and other stakeholders. 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.
underlying reports of the quarterly figures and is given the
opportunity to comment and respond to this information.
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.
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.
Auditors
The external auditor is appointed by the AGM on proposal of
the Supervisory Board. The current appointment of KPMG
is reviewed every four years by the Audit Committee. The
Audit Committee advises the Supervisory Board, which
communicates the results of this assessment to the AGM.
The Audit Committee and the Board of Management report
their dealings with the external auditor to the Supervisory
Board annually and discuss the auditor’s independence.
During 2014, in addition to these discussions and the
annual report on dealings with the external auditor, the Audit
Committee received updates on national and international
legislative and policy developments on
auditor independence.
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 statements
are approved. He receives the financial information and
Auditor independence and mandatory succession
of audit firm
Based on auditor independence requirements, the lead
auditor in charge of the AkzoNobel account is changed every
seven years. KPMG’s current lead partner, Mr. Van Leeuwen,
took over in April 2014 from Mr. Weusten, who had held this
position since July 2007.
Pursuant to the Dutch Audit Profession Act (Wet op het
accountantsberoep), the audit firm of a so-called public
interest entity (such as a listed company) will have to be
replaced if the audit firm performed the statutory audits of
the company for a period of eight consecutive years, at the
latest in 2016. Pursuant to this Act, the mandate of KPMG
will end following the reporting on the financial year 2015.
The appointment of the current auditor (KPMG) expires upon
finalization of the audit of the 2015 financial statements. The
AGM (held on April 29, 2014) appointed PwC in respect of
the audits of the financial statements as of 2016.
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 monitoring of the auditors and the services they provide
to the company. Pursuant to the Audit Profession Act, the
auditors are prohibited from providing the company with
services in the Netherlands other than “audit services aimed
to provide reliability concerning the information supplied
by the audited client for the benefit of external users of this
information and also for the benefit of the Supervisory Board,
as referred to in the reports mentioned.” The company
has taken the position that no additional services may be
provided by the external auditor and its global network
that do not meet these requirements, unless local statutory
requirements so dictate. In order to anchor this in our
procedures, the Supervisory Board adopted the AkzoNobel
120
Governance and compliance | AkzoNobel Report 2014 The AkzoNobel internal control framework
Internal Audit
The Internal Audit function is mandated to provide
AkzoNobel Management and the Audit Committee with
in dependent, objective assurance on the adequacy of the
design and operating effectiveness of the internal control
framework in place. The Corporate Director of Internal
Audit reports to the CEO and has direct access to the
Audit Committee. The function performs its mandate based
on an independently developed risk-based audit plan
which is approved by the Audit Committee. It reports a
summary of the audit findings bi-annually to the Executive
Committee and the Audit Committee, which culminates in
an annual assessment of the quality and effectiveness of
the com pany’s internal control systems. More information is
available under Audit Committee earlier in this section.
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Rules on External Auditor Independence and Selection and
the related AkzoNobel Guidelines on Auditor Independence.
All these documents are available on the company’s 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 Strategic performance section.
We have strict procedures for internal and disclosure
controls and auditor independence. The Disclosure
Committee monitors the disclosure procedures established
by the company and advises the Executive Committee to
ensure adequate and timely disclosure of material financial
and non-financial information.
An Internal Control committee is responsible for maintaining
the company’s internal control framework. An area of
continued focus in 2014 was the control standards for
our key IT systems and making more use of automated
controls in these systems. Designing and implementing
global standardized processes, partially through outsourced,
partially through captive shared service centers, has been
another important focus area to support the company’s
strategy of standardization and functional excellence.
We also have a company-wide compliance monitoring tool
in place to discuss and monitor progress with respect to
compliance-related issues. More detail on the so-called
non-financial letter of representation process is available in
the Compliance and integrity management chapter.
Reference is made to the Statement of the Board of
Management in the Leadership section for the statements
relating to internal risk management and control systems.
121
AkzoNobel Report 2014 | Governance and complianceThe AkzoNobel internal control framework provides reasonable assurance in achieving business goals, including strategic, operational and reporting goals, as well as those covering compliance. Internal control is not only about policies and procedures, but also relates strongly to people, culture and behaviors.Control environmentSetting objectivesResponding to riskControl activitiesMonitoring activities
Compliance and integrity management
Integrity is one of AkzoNobel’s core
principles. The company recognizes that a
strong compliance framework is one of the
essential foundations of good corporate
governance and social responsibility.
AkzoNobel’s Compliance framework, based on our Code
of Conduct, is supported by implementation processes,
monitoring and control procedures, and is assessed by
the Supervisory Board. In everything we do, we aim for the
highest standards of performance and behavior. AkzoNobel
is committed to conducting business all around the world
with integrity, fairness and honesty.
Compliance framework
Code of Conduct/
Directives framework
Competition law
Anti-bribery
and corruption
Export control
and sanctions
Privacy
Human rights
Share dealing
Sustainability and HSE
Information security
Treatment of employees
Fraud
Training & SpeakUp!
122
Governance and compliance | AkzoNobel Report 2014 AkzoNobel Code of Conduct
The Code of Conduct serves as the common reference
document which sets out our fundamental principles and
rules for doing business. It applies equally to our corporate
actions and the behavior of individual employees, regardless
of the market segment, function or country in which we
operate. Available in 27 languages, the Code of Conduct
is distributed in paper form and is widely available online.
The Code of Conduct, together with directives, rules,
manuals, guidelines and procedures, are part of the
company’s Directives framework, which sets out mandatory
internal rules for employees.
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 compliance experts are monitoring and adapting
to significant and rapid changes in a wide range of legal and
compliance areas, to ensure that the Compliance framework
remains suited for purpose and is properly applied. We are
dedicated to minimizing our compliance risk, as identified
in the Enterprise Risk Management process. Reference
is made to the Risk management chapter in the Strategic
performance section of this Report 2014.
Code of Conduct for
joint ventures, acquisitions and
our supply chain
We make sure 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, directives, rules, manuals, guidelines and
procedures that form the Directives framework. In entities we
do not control, we encourage consistent application of the
values and principles reflected in our Code of Conduct 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 core principles, values and rules for doing
business. They receive training, which enables them to fully
acquaint themselves with the Compliance framework.
We want to do business with suppliers who share our values
and principles. Our Vendor Policy, designed to help ensure
a sustainable supply chain, specifically states our desire to
do business with partners who endorse our ethical, social
and environmental standards, as formulated in the Code of
Conduct. Vendors confirm that they conduct their business
in accordance with core compliance principles through the
AkzoNobel Vendor Policy Declaration. In 2014, we continued
with Together for Sustainability, an initiative designed to
develop and implement a global audit program to assess
and improve sustainability practices within the supply chains
of the chemical industry. See Note 7 of the Sustainability
statements for more details.
Code of Conduct communication,
awareness and training
We appreciate that raising awareness through effective
communication and training is pivotal to strengthening
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 may include online and classroom training.
Around 90 percent of employees with online access have
completed the Code of Conduct training module. Each year,
our online annual performance appraisal system requires
employees to sign off on their awareness of the Code of
Conduct. The compliance training curriculum also offers
specialized training to improve critical competencies and
skills to designated groups of employees on topics such as
competition law, anti-bribery, export control, privacy, fraud
awareness, anti-harassment and trade secrets.
123
AkzoNobel Report 2014 | Governance and compliance Code of Conduct
complaints procedure (SpeakUp!)
We value an open dialog with our employees worldwide on
our core principle of integrity. Our employees are encouraged
to report potential issues regarding the Code of Conduct to
either their manager, the next line manager or HR manager,
the relevant business unit or function compliance committee,
the compliance department, or the Compliance Committee.
In addition, a global reporting helpline is available to our
employees 24 hours a day to report confidentially – and,
if desired, anonymously – potential breaches of the Code
of Conduct.
These reporting mechanisms are part of the complaints
procedure and are described in our SpeakUp! manual.
All alleged breaches of the Code of Conduct that are brought
to the attention of the compliance department
are investigated.
The system is also available for temporary employees or third
parties with whom AkzoNobel has a business relationship
(such as customers, suppliers and agents) and members of
the general public.
In 2014, a total of 170 alleged breaches of the Code of
Conduct were reported, both through SpeakUp! and other
channels. Of the 170 matters, 67 were substantiated, with
22 still in progress. Eleven were managed by the Compliance
Committee as they met defined criteria. Company-wide, 46
employees were dismissed on grounds related to breaches
of the Code of Conduct. Other sanctions and remedial
actions in (partially) substantiated matters included: review of
procedures/controls (12), coaching/training (8), warnings (6),
probation (2), and other disciplinary actions (1).
Compliance governance
The Compliance Committee assists the Executive Committee
in its ultimate responsibility to report to the Audit Committee
of the Supervisory Board. The Compliance Committee
consists of the General Counsel (chair), Corporate Secretary,
Directors of Internal Audit, Control, Compliance, Human
Resources and Sustainability. The compliance department,
in close collaboration with the Compliance Committee,
provides an adequate Compliance framework and ensures
its enforcement via various methods. These methods include
the application of monitoring and reporting tools, developing
the compliance training curriculum and managing the
corporate complaints procedure as a whole, including root
cause analyses. The compliance department is directed
by the Director of Compliance, who reports directly to the
General Counsel.
Business unit and function management are responsible
and accountable for raising awareness and compliance
within their respective businesses and functions. We have
appointed business and function compliance officers and
have set up compliance committees in the businesses.
Together with the compliance department, the compliance
officer assesses the main compliance risks, improves and
monitors compliance and its effectiveness and ensures
training of the relevant employees. The compliance officers
also ensure that alleged breaches of the Code of Conduct
are investigated and findings and lessons learned are
reported to the relevant business or function management
team, who then take appropriate action.
Compliance and integrity reporting
and monitoring
AkzoNobel has developed a set of corporate reporting
tools to manage compliance and integrity at the company.
The compliance department manages these tools/
reports and reports on outcome and effectiveness to the
Compliance Committee.
Competition law compliance declaration
Employees who meet defined criteria, such as contact
with customers or suppliers, confirm their compliance with
competition law as articulated in our Competition Law
Compliance Manual through an annual declaration. Any
possible concerns are reported to the General Counsel and
appropriate actions are taken. In 2014, more than 12,000
employees signed this declaration.
Non-financial letter of representation (NFLoR)
At the end of the year, the Managing Director/Corporate
Director of each business and function signs the NFLoR to
confirm compliance with the Code of Conduct and other
corporate non-financial requirements. The NFLoR process is
a comprehensive certification by various levels of AkzoNobel
management that our business has been conducted in
compliance with external and internal rules. Exceptions
are noted and explained and action plans are developed
to address weaknesses. The NFLoR process starts deep
in the organization; results are rolled up to business unit,
corporate function, country and Business Area level. 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 function and progressed. The outcome of the
NFLoR process, in combination with the internal control
self-assessment process and internal audit results, forms the
basis for the Statement of the Board of Management in this
Report 2014.
124
Governance and compliance | AkzoNobel Report 2014 Share Dealing Rules statement
Members of the Board of Management, Executive
Committee and Supervisory Board, along with certain
designated employees, are made aware of their obligations
under the AkzoNobel Share Dealing Rules.
Business and human rights
The Code of Conduct also sets out our approach to human
and labor rights. Our approach is based on, and confirms,
our support for the United Nations Universal Declaration
of Human Rights, the key conventions of the International
Labor Organization and the OECD Guidelines for
Multinational Enterprises. We are a signatory of the United
Nations Global Compact and continue to integrate principles
on human rights, labor, environment and anti-corruption into
our strategy and operations.
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. This is reflected in our
Code of Conduct, our global HSE standards and our Vendor
Policy for suppliers. We pay particular attention to the
company’s presence and operations in high growth markets,
as compliance frameworks risk being less advanced in these
regions, compared with mature economies.
For more information on stakeholder engagement and our
safety, environmental and supplier processes, please refer to
the Sustainability statements section.
2014 overview
Training
Our training program and curriculum is a cornerstone of
our Compliance framework. A wide range of compliance
training modules on various topics is available to every new
employee. In 2014, we rolled out updated competition
law training for designated employees. More than 10,000
employees have completed the course.
The Executive Committee received tailored competition law
and export control training. In addition, top management
also participated in live competition law and fraud training.
Sensitive Country Program
Our Sensitive Country Program was continued in 2014.
Under this program, a small team – consisting of the General
Counsel, another member of the Executive Committee and
the Director of Compliance – meets regularly during the
year. They review the extent to which the company does
business in countries recognized by monitoring groups
(such as Transparency International and Freedom House) to
have significant issues with regards to sanctions and export
controls, corruption, human rights, political stability and
safety and security. Based on this analysis, we take action
regarding trade with parties in specific countries, including
enhanced internal review and the imposition of additional
restrictions, such as bans.
The Sensitive Country Program supplements our Export
Control Program, which contains procedures and training
that provide up-to-date guidance for employees on
regulatory obligations and enforcement activities, especially
those coming from the US and the EU, and including rules
with extra-territorial effect. Our established global network
of business-based export control officers plays a key role in
ensuring export control/sanction compliance.
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AkzoNobel Report 2014 | Governance and compliance
Integrity management
Code of Conduct reporting
Code of Conduct number of alleged breaches reported
Code of Conduct breakdown of alleged breaches
Health and safety
Business integrity
Treatment of employees
Other
Code of Conduct investigation
Code of Conduct alleged breaches investigated (in %)
Code of Conduct alleged breaches handled by the Compliance Committee
(in numbers)
Code of Conduct alleged breaches handled by the relevant businesses
(in numbers)
Substantiated Code of Conduct breaches (within year)
Substantiated Code of Conduct breaches (total, including breaches substantiated
in a later year)
Number of dismissals for Code of Conduct breaches within year
Dismissals for Code of Conduct breaches (total, including employees dismissed
in a later year)
Compliance monitoring
Competition Law Compliance Declaration
(number of confirmations)
Non-financial letter of representation
(% of operational managers)
Code of Conduct training
Code of Conduct trained (% online employees)
2011
2012
2013
2014
245
18
112
112
3
100
24
221
149
149
99
108
295
42
152
101
0
100
24
271
163
178
131
139
151
170
8
82
61
0
100
9
142
57
64
43
48
15
90
65
0
100
11
159
67
–1
46
–1
14,400
15,900
12,700
12,184
100
100
100
100
95
96
95
NA2
1 By definition these numbers are not yet known.
2 We are transitioning to a new Learning Management System platform that will make training tracking more efficient.
Due to implementation in 2014, no accurate Code of Conduct training statistics are available this year.
126
Governance and compliance | AkzoNobel Report 2014 Directives portal
Code of Conduct
Core principles
(cid:127) Safety
(cid:127) Integrity
(cid:127) Sustainability
Values
(cid:127) Customer focused
(cid:127) Deliver on commitments
(cid:127) Passion for excellence
(cid:127) Winning together
Directives and rules
Manuals and guidelines
Procedures
The Directives portal
The Directives portal was introduced in 2014 to give
employees a one-stop website for all of the directives,
rules, manuals, guidelines and procedures that make up
AkzoNobel’s Directives framework. These documents, most
of which are mandatory, drive governance, consistency
and functional excellence throughout the company. The
Directives framework builds on AkzoNobel’s core principles,
values, Code of Conduct and business policies and is
hierarchically structured by function, by business and by
geography. The company relies on employees to be guided
in their daily behavior by the Directives framework and
managers to actively drive and monitor compliance with it.
Privacy rules
This year, we established a new global Protection of personal
data directive and two sets of comprehensive rules: Privacy
rules for employee data, and Privacy rules for customer,
supplier and business partner data. The purpose is to ensure
that personal data of employees, customers, suppliers and
business partners is protected. The privacy rules must be
followed when processing personal data by, or on behalf
of, AkzoNobel. They have been approved by the EU Data
Protection Authorities as “binding corporate rules” which
means that they effectively allow for the international data
transfer of personal data to non-EU countries. The general
transition term for implementation of the privacy rules is two
years. Implementation requires that we, for example, perform
Privacy Impact Assessments on IT systems and processes,
further develop a training and awareness program for all
relevant groups and establish a governance structure around
privacy with a Corporate privacy officer and a network of
privacy officers throughout the businesses.
127
AkzoNobel Report 2014 | Governance and compliance Remuneration report
This report describes our
remuneration policy and the
remuneration paid to members
of the Board of Management
in 2014.
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
remuneration policy. Our remuneration policy, including
all structures and policies related to the remuneration and
employment contracts of the members of the Board of
Management, is in line with the Dutch Corporate Governance
Code (the Code).
The total remuneration package of the members of the
Board of Management consists of:
• Base salary
• Performance-related short-term incentive (STI),
with share-matching opportunity
• Performance-related long-term incentive (LTI)
in the form of shares
• Post-contract benefits
• Other benefits
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 2014.
The various elements of the remuneration package are
set out in more detail below.
The remuneration policy was first adopted by the Annual
General Meeting of shareholders (AGM) in 2005 and has
since been amended several times, most recently in 2013.
The performance share plan for the Board of Management
was approved by the AGM in 2004. It has also been
amended several times, in accordance with article 2:135 of
the Dutch Civil Code, most recently in 2013. The share-
matching plan for the Board of Management was approved
by the AGM in 2011.
Remuneration policy
Our remuneration policy has the objective of providing
remuneration 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, thus being aligned with
the executive remuneration policy of the overall company.
The aim is to provide remuneration at the median level of the
external market.
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 any other member.
The STI is linked to financial targets (70 percent), as well as
the individual and qualitative targets of the members of the
Board of Management (30 percent). The specific targets are
determined annually by the Supervisory Board. In respect
of the financial targets, the Supervisory Board can choose
two to three financial metrics and determine their relative
weighting from the following list:
• EBITDA
• Operating income (OPI)
• EBIT
• Net income
• Operating cash flow (OCF) • Return on investment (ROI)
(to shareholders)
These metrics are as used and/or defined in the company’s
annual report from time to time (subject to minor
adjustments if required in order to provide a better indicator
of management’s performance).
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Governance and compliance | AkzoNobel Report 2014
Other benefits
Other benefits – such as a company car and allowances –
are determined by the Supervisory Board.
Claw back and value adjustment
It is noted that the variable pay components are subject to
the claw back and value adjustment provisions of the Dutch
Civil Code.
Loans
The company does not grant personal loans to its
Board members.
The Supervisory Board sets the performance ranges each
year, i.e. the values below which no payout will be made (the
threshold), the “at target” value and the maximum at 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 any other member of
the Board of Management.
Shareholding requirements and share-matching
The CEO is required to build up over a five-year period from the
date of appointment at least three times his gross base salary
in AkzoNobel shares and hold these shares for the duration of
his tenure as a member of the Board of Management. For any
other member of the Board of Management, it is at least one
time their gross base salary.
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.
The long-term incentive plan is subject to three performance
criteria; 70 percent of the conditional grant of shares is
split equally between AkzoNobel’s relative total shareholder
return (TSR) performance compared with the companies
in a defined peer group, as well as the development in ROI
during the performance period. The TSR peer group and the
vesting schemes are determined by the Supervisory Board.
The remaining 30 percent of the conditional share grant is
linked to AkzoNobel’s relative sustainability performance,
which is measured as the company’s average position in
the RobecoSAM ranking during the three-year performance
period. In each case, the maximum at vesting is 150 percent
of the relevant part of the conditional grant.
These performance metrics apply as of 2013. In respect of
grants made prior to 2013, half of the conditional share grant
is linked to AkzoNobel’s relative sustainability performance
and half to the company’s relative TSR performance.
Board members are expected, for these purposes, to use both
their long-term incentive and short-term incentive in the manner
set out below.
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 determined by the Supervisory Board.
Board members who continue to invest their short-term
incentives in whole, or in part, in shares after the minimum
holding requirement has been reached, will have the
opportunity to have such shares matched subject to the
same conditions. However, such shares will be matched with
one share to every two shares thus acquired and 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.
Post-contract benefits
Members of the Board of Management receive a contribution
towards pension and similar retirement benefits, as
determined by the Supervisory Board.
129
AkzoNobel Report 2014 | Governance and compliance Implementation of the
remuneration policy in 2014
The Supervisory Board ensures that the remuneration policy,
and its implementation, are aligned with the company’s
objectives. Both the policy itself, and the checks and
balances 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
significant proportion of the remuneration package is variable
and dependent on the short and long-term performance of
the individual Board member and the company. Performance
targets must be realistic and sufficiently stretching and
– particularly with regard to the variable remuneration
components – the Supervisory Board ensures that the
relationship between the chosen performance criteria and
the strategic objectives applied, as well as the relationship
between remuneration and performance, are properly
reviewed and accounted for, both ex-ante and ex-post.
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.
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. The peer group currently consists of the following
companies:
• Royal Ahold
• Arkema
• Clariant
• Royal DSM
• Heineken
• Henkel
• Royal KPN
• Lafarge
• Royal Philips
• Randstad
• Reckitt Benckiser
• Solvay
The Remuneration Committee consults professional
independent remuneration experts to ensure an appropriate
comparison. 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.
For communication purposes, the table Compensation
Board of Management 2014 (below) presents an overview
of the remuneration of the members of the Board of
Management who were in office in 2014. See note 22 of
the Consolidated financial statements for more details. The
implementation of the remuneration policy in 2015 will be a
separate agenda item at the 2015 AGM.
Base salary
The base salary of the Chief Executive Officer increased by
1.7 percent in 2014. The base salary of the Chief Financial
Officer, Mr. Nichols, remained unchanged.
Short-term incentive (annual bonus)
The objectives of the short-term incentive in 2014 were
to reward performance on ROI, OPI and OCF, to measure
individual and collective performance and to encourage
progress in the achievement of long-term strategic
objectives. On the outcome of the short-term incentive
elements (ROI, OPI, OCF and personal targets), the
Supervisory Board applies a reasonableness test in which
Compensation Board of Management 2014
in €
Base salary
Short-term incentive
Share awards 3
Post-contract benefits
Other post-contract benefits 4
Other emoluments 5
Other compensation 6
Total remuneration
Ton Büchner
Chief Executive Officer
Keith Nichols 1
Chief Financial Officer
Maëlys Castella 2
Chief Financial Officer
834,000
783,000
1,233,100
325,000
8,500
3,183,600
308,000
308,000
-766,000
147,900
278,700
36,800
313,400
176,800
106,100
–
28,800
2,600
2,800
317,100
1 Until June 30, 2014.
2 Since September 15, 2014.
3 Costs relating to share awards (performance-related share plan and share-matching plan) are non-cash and relate to the expenses following IFRS2.
For Mr. Nichols a reversal of costs is reported in connection with the forfeiture of his LTI entitlements due to his voluntary departure.
4 Other post-contract benefits refers to payments intended for building up retirement benefits other than those included in Post-contract benefits.
5 Other emoluments refers to social security cost. For Mr. Nichols this refers to the employer’s contribution in the UK.
6 Other compensation refers to compensation for living expenses (Mr. Nichols) and a company car (Mrs. Castella).
130
Governance and compliance | AkzoNobel Report 2014 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 strategic objectives under prevailing
market conditions.
The targets ROI, OPI and OCF have been determined by the
Supervisory Board. Qualitative targets are set and assessed
by the Supervisory Board in the context of the medium-term
objectives of the company. AkzoNobel will not disclose all
the targets, as they are considered commercially sensitive
information. However, the targets for 2014 included goals
set in relation to delivering on the company’s communicated
performance improvement.
OPI and OCF are based on the company’s financial results
in constant currencies. ROI is calculated by determining the
ratio of operating income over invested capital using the
numbers as reported. OPI was calculated as the number
reported for IFRS purposes, in constant currencies. OCF
was calculated as EBITDA minus the change in operating
working capital and capital expenditures in constant
currencies. In 2014, upon a minor correction in accordance
with the policy, the performance against the targets set for
ROI, OPI and OCF was as follows:
2014 performance on financial measures
Measure
ROI
OPI
OCF
Payout as % of target
81
83
84
It is important to note that the external fraud case in Chicago
(US) significantly impacted all three financial performance
metrics. (See Risk management chapter for
more information).
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 competitors
– and to align Board of Management interests with those
of shareholders, as well as ensuring 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 was seven years, the last stock options that vested
under the stock option plan could be exercised until the
expiration date in 2014. No stock options were outstanding
at year-end 2014.
Performance-related share plan
In line with the remuneration policy, as applicable in previous
grant years, vesting of 50 percent of the shares conditionally
granted in 2012 under the performance-related share plan
(in respect of which the performance period ended on
December 31, 2014) was linked to AkzoNobel’s relative
sustainability performance by taking AkzoNobel’s average
position in the RobecoSAM ranking.
For all conditional grants made in 2012, the relevant vesting
scheme has been determined by the Supervisory Board
as follows:
Average position in RobecoSAM ranking during
performance period
Rank
1
2
3
4 – 6
7 – 10
11 – 15
Below 15
Vesting (as % of half of
conditional grant)
150
125
100
75
50
25
0
AkzoNobel was placed first in 2012, 2013 and 2014 in the
relevant RobecoSAM ranking. As a result, AkzoNobel’s
sustainability performance during the period 2012 to 2014
resulted in a vesting of 150 percent for this part of the long-
term incentive.
For the 2012 award, the remaining 50 percent was linked
to AkzoNobel’s relative total shareholder return (TSR)
per formance 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
• DuPont
• Kansai Paint
• Kemira OYJ
• Nippon Paint
• PPG Industries
• RPM Industrial
• Sherwin-Williams
• Solvay
• Valspar Corporation
131
AkzoNobel Report 2014 | Governance and compliance This peer group is reviewed on a regular basis to ensure
that the companies in the group remain appropriate peers.
Occasionally, changes need to be made, particularly if
one of the companies 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 in respect of
the conditional grants made in 2012:
TSR 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 during the period 2012 to
2014 resulted in a ninth 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 the company’s combined sustainability and TSR
performance, the final vesting percentage of the 2012
conditional grant after including the dividend yield during
the performance period (determined to be 9.62 percent),
equaled 82.22 percent.
This resulted in a total vesting of 82.22 percent of the shares
that were conditionally granted in 2012. 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
132
the variable remuneration and the company’s strategic
ambitions, decided not to make any correction in respect of
the definitive award.
The number of performance-related shares conditionally
granted under the 2014 plan amounted to 22,300 for the
CEO. The CFO left the company and was not awarded any
shares. In addition, the newly appointed CFO did not receive
an award of shares in 2014.
As of 2013, a different vesting scheme applies in respect of
conditional share grants. The vesting scheme includes ROI
performance with a weight of 35 percent, TSR ranking with
weight of 35 percent and RobecoSAM ranking with a weight
of 30 percent. No further amendments have been made to
the sustainability and TSR schemes. The Supervisory Board
has set the ROI metric applied in the LTI for 2014 and to be
achieved by the end of 2016 as follows:
ROI vesting scheme of conditional grant series 2014-2016
Vesting (as % of
35% of conditional grant)
In accordance with the company’s Articles of Association,
the Code and the rules of the performance-related share
plan, the number of shares to be conditionally granted to
members of the Board of Management is determined by
the Supervisory 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, it will, at its discretion – taking
into account the performance of the company prior to
the takeover bid – decide whether the projected outcome
is fair and may decide to adjust the vesting upwards or
downwards 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
RobecoSAM sustainability ranking of the company nor the
ROI performance, therefore the Supervisory Board will,
under such circumstances, primarily take into account the
company’s TSR performance.
Performance
≥ 17%
15%
13%
< 13%
150
100
50
0
Claw back and value adjustment
In 2014, there was no cause for a claw back or value
adjustment by the Supervisory Board.
A performance between the above points will be measured
on a linear scale.
In accordance with provision II.2.13d of the Code, the
schedule at the end of this remuneration report sets (i)
the number of at-target shares conditionally granted; (ii)
the number of shares which have vested; (iii) the number
of shares held by members of the Board of Management
at the end of the lock-up period; (iv) the face value at the
conditional share grant, at vesting and at the end of the
lock-up period respectively.
Governance and compliance | AkzoNobel Report 2014 Shareholding requirements and share-matching
The table below summarizes the shares acquired by the
relevant members of the Board of Management in 2014 that
would, subject to the conditions of the share-matching plan,
qualify for matching by the company. See also Note 22 of
the Consolidated financial statements.
Qualifying shares
Board members
Ton Büchner
Maëlys Castella
Qualifying shares acquired
in 2014
2,450
–
Shares obtained by members of the Board of Management
under the performance-related 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.
See Note 22 of the Consolidated financial statements for an
overview of the payments made to former Board members in
2014.
Remuneration policy planned by the Supervisory
Board for the next financial year and subsequent
years
No changes in the remuneration policy are currently
foreseen. The Supervisory Board will continue to closely
monitor whether the policy and its implementation are in line
with the objectives of the company. The metrics applied for
the STI in 2014 (ROI, OPI, OCF) will continue to be applied in
2015. As regards the ROI metric for the long-term incentive
awards in 2015, the Supervisory Board has approved a more
challenging performance range as stated in the table below.
ROI performance range series 2015-2017
Threshold
Target
Maximum
Payout opportunity
Target
50%
14.0%
100%
16.5%
150%
19.0%
Post-contract compensation
The members of the Board of Management receive
con tributions towards post-contract benefits, which are
defined as a percentage of income as determined by the
Supervisory Board. Currently, they are based on age. For
the CEO, the contributions are paid over the base salary in
the current year and the short-term incentive of the previous
year. The contributions will therefore vary depending on the
performance during the previous year and the age of the
Board member. For the CFO, these contributions are paid on
base salary only.
Leaving arrangements and other special
remuneration paid during 2014
In 2014, Mr. Nichols stepped down voluntarily from the Board
of Management. In connection with this, and to retain him to
ensure a bridging period towards finding a successor, it was
decided to award him a short-term incentive over his active
employment period. All entitlements to shares under the
performance share plans were forfeited in connection with his
voluntary departure.
Board contracts
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 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 legal retirement age. The contractual
arrangements allow the Supervisory Board to request
the CEO 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 CEO will be
entitled to the “fixed” remuneration com ponent until the date
of retirement.
133
AkzoNobel Report 2014 | Governance and compliance Valuation 1 shares Board of Management
Unconditional shares, vested
Board member
Conditional share grant
Number of vested shares
Series
Ton Büchner
Series 2012 - 2014
Maëlys Castella
Series 2012 - 2014
Number
31,900
NA
Value at grant
in €
1,191,784
–
Number
26,228
–
Value at vesting
in €
1,512,055
–
End of lock-up period
(five years after
grant)
Value in €
Number
–
–
NA
–
Conditional shares, not vested
Board member
Ton Büchner
Series 2013 - 2015
Series
Series 2014 - 2016
Matching shares 2012 (vesting 2016)
Matching shares 2013 (vesting 2016)
Matching shares 2014 (vesting 2017)
Maëlys Castella
Series 2014 - 2016
Number
24,200
22,300
11,582
1,429
2,450
NA
1 Values based on the share price on January 1 of the relevant financial year (face value).
Conditional share
grant at target
Value at grant in €
Vesting at min
performance
Number
Vesting at max
performance
Number
1,203,829
1,256,382
500,016
71,086
133,782
–
–
–
–
–
–
–
36,300
33,450
11,582
1,429
2,450
–
134
Governance and compliance | AkzoNobel Report 2014 AkzoNobel on the capital markets
Proposed dividend of €1.45
per share (on a par with 2013)
Settlement of €825 million bond
which matured on January 31,
2014; and €500 million bond
issued on November 7, 2014
Close dialog with the
capital markets
We attach great value to maintaining an open dialog with
the financial community in order to promote transparency.
Management gave presentations at a number of industry
conferences during the year, as well as holding meetings
with investors and analysts. In March, a capital markets
day was held to introduce the Business Area Executive
Committee members, who presented the strategies of their
respective businesses.
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 24, 2015. In compliance with the
listing requirements of Euronext Amsterdam, the record date
will be April 27, 2015. The dividend as proposed to the 2015
Annual General Meeting of shareholders will be payable as
of May 19, 2015. The dividend paid over the last five years is
shown in the graph below.
Dividend policy
Dividend paid in € per share
Interim dividend
Final dividend
AkzoNobel’s dividend policy is to pay a stable to rising
dividend each year. Cash dividend is default, stock dividend
is optional.
1.05
1.08
1.12
1.12
1.12
0.30
2010
0.32
0.33
0.33
0.33
2011
2012
2013
2014
135
AkzoNobel Report 2014 | Governance and compliance
Share price performance 2014
Analyst recommendations
Listings
Our share price increased 3 percent in 2014,
underperforming both the DJ Stoxx Chemicals and AEX
indices. The share price performance relative to these indices
for a one-year period is shown in the following graph.
At year-end 2014, AkzoNobel was covered by 31 equity
brokers and the following analyst recommendations were
applicable (see diagram):
Analyst recommendations in %
A Buy
B Hold
C Sell
DJ Stoxx
AEX
Akzo
52
26
22
C
B
A
Share price performance 2014
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
4
1
n
a
J
4
1
b
e
F
4
1
r
a
M
4
1
r
p
A
4
1
y
a
M
4
1
n
u
J
4
1
l
u
J
4
1
g
u
A
4
1
t
p
e
S
4
1
t
c
O
4
1
v
o
N
4
1
c
e
D
1
3
70
60
50
40
3
1
c
e
D
1
3
136
AkzoNobel’s common shares are listed on the stock
exchange of Euronext Amsterdam. The company is included
in the AEX Index, which consists of the top 25 listed
companies in the Netherlands, ranked on the basis of their
turnover in the stock market and free float. The AkzoNobel
weight in the AEX index was 3.81 percent at year-end 2014.
In 2014, 171 million AkzoNobel shares were traded on
Euronext Amsterdam (2013: 206 million). AkzoNobel has a
sponsored level 1 ADR program and ADRs can be traded
on the international 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
Key share data
NL0000009132
AKZOY
US0101993055
5458314
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 %)
2012
2013
2014
49.75
49.75
35.16
42.23
39.6
0.9
55.71
56.08
42.65
49.32
39.8
0.8
57.65
60.77
47.63
54.87
36.9
0.7
239.0
242.6
246.0
11.9
13.5
14.1
(8.82)
1.45
3.4
3.00
1.45
2.9
2.23
1.45
2.6
Governance and compliance | AkzoNobel Report 2014
Broad base of international
shareholders
AkzoNobel, which has a 100 percent free float, has a
broad base of international shareholders. Based on an
independent shareholder ID carried out in December 2014,
the chart below shows the geographical spread. Around
8 percent of the company’s share capital is held by private
investors, many of whom are resident in the Netherlands.
Distribution of shares 2014
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
53
14
8
15
3
7
F
E
D
C
B
Distribution of shares 2013
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
47
12
12
14
3
12
E
F
D
C
B
A
A
AkzoNobel in key
sustainability indices
In 2014, AkzoNobel was ranked number one in the Materials
industry group of the Dow Jones Sustainability World Index
(DJSI World) for the third consecutive year.
The company was maintained in the Euronext Vigeo –
World 120 index. This index distinguishes companies
achieving the most advanced environmental, social and
governance performances and is reviewed every six months
in June and December.
We retained the leadership of the Sustainalytics chemicals
industry ranking.
We were also once again represented in the Carbon
Disclosure Project, which represents more than
767 institutional investors, with over $92 trillion in assets
under management, and qualified for the Benelux Climate
Disclosure Leadership Index (CDLI) 2014. Following the
September 2014 review, we also remained part of the
FTSE4Good Index Series.
Credit rating and outlook
AkzoNobel is committed to maintaining a strong investment
grade rating. Regular review meetings are held between
rating agencies and AkzoNobel senior management.
See table for present rating and outlook.
Rating agency
Long-term rating
Outlook
Moody’s 1
Standard & Poor’s 2
Baa1
BBB+
Stable
Stable
1 Rating affirmed on November 13, 2014.
2 Rating affirmed on December 12, 2014.
Bonds
On January 31, 2014, an €825 million bond was repaid
from existing resources. On November 7, 2014, a further
€500 million bond was issued, taking advantage of favorable
market conditions and historically low interest rates.
Debt maturity* in € millions (nominal amounts)
During the year, the company was also selected for inclusion
in the Global Compact 100 stock index (2014-2015) and
became part of the STOXX® Global ESG Leaders indices.
We also qualified for Storebrand/SPP’s flagship sustainability
fund, a global equity fund which invests in top performing
companies across sectors; Storebrand Trippel Smart
(Norway) and SPP Global Topp 100 (Sweden). We also
became a constituent of the MSCI Global Sustainability
Indexes/MSCI World ESG Index.
€ Bonds
£ Bonds
622
300
800
750
500
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
* At the end of Q4 2014.
For further information please go to
www.akzonobel.com/investors
137
AkzoNobel Report 2014 | Governance and compliance
In touch with the future
Having your finger on the pulse and staying on top of the
latest developments is vital in today’s fast-paced world.
Which is why we supply advanced products for smartphones
that help set new standards in technology.
Financial information
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
Note 1 Summary of significant accounting policies
Note 2 Scope of consolidation
Note 3 Operating income
Note 4 Employee benefits
Note 5 Financing income and expenses
Note 6
Income tax
Note 7
Intangible assets
Note 8 Property, plant and equipment
140
140
141
142
143
144
145
150
151
151
153
153
156
158
Note 22 Remuneration of the Supervisory Board
172
and the Board of Management
Note 23 Financial risk management
Company financial statements
Note A General information
175
179
Note B Financial non-current assets and provisions
181
for subsidiaries
Note C Trade and other receivables
Note D Cash and cash equivalents
Note E Shareholders’ equity
Note F Long-term borrowings
Note G Short-term debt
Note H Financial instruments
Note I Contingent liabilities
Note J Auditor’s fees
Note 9
Investments in associates and joint ventures 159
Other information
Independent auditor’s report
Profit allocation and distributions
Financial summary
Note 10 Other financial non-current assets
Note 11 Inventories
Note 12 Trade and other receivables
Note 13 Cash, cash flow and net debt
Note 14 Group equity
Note 15 Post-retirement benefit provisions
Note 16 Other provisions
Note 17 Long-term borrowings
Note 18 Short-term borrowings
Note 19 Trade and other payables
Note 20 Contingent liabilities and commitments
Note 21 Related party transactions
159
160
160
161
162
163
168
169
170
170
171
172
181
181
181
182
182
183
183
183
184
187
188
139
Financial information
Consolidated statement of income
Consolidated statement of
comprehensive income
In € millions
Note
2013
2014
In € millions
14,590
(8,951)
(3,023)
(1,346)
(373)
61
32
(21)
(211)
14
Continuing operations
Revenue
Cost of sales
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Other operating income/(expenses)
Operating income
Financing income
Financing expenses related to pensions
Other financing expenses
Results from associates and
joint ventures
Profit before tax
Income tax
Profit from continuing operations
Discontinued operations
Profit for the period from
discontinued operations
Profit for the period
Attributable to
Shareholders of the company
Non-controlling interests
Profit for the period
Earnings per share, in €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
3
3
3
3
3
5
5
5
9
6
2
14
14
14
14
14
14
14,296
(8,676)
(2,912)
(1,273)
(363)
(85)
42
(18)
(180)
21
5,639
(4,681)
958
772
(111)
661
131
792
724
68
792
2.46
2.44
0.54
0.54
3.00
2.98
140
Profit for the period
Other comprehensive income
Items that will not be reclassified to the statement of income:
5,620
Post-retirement benefits
Income tax
Net effect
Items that may be reclassified subsequently to the statement of
income:
Exchange differences arising on translation of foreign operations
Cash flow hedge reserve
Income tax
Net effect
Other comprehensive income for the period
Comprehensive income for the period
Comprehensive income attributable to
Shareholders of the company
Non-controlling interests
Comprehensive income for the period
(4,633)
987
852
(252)
600
18
618
546
72
618
2.16
2.15
0.07
0.07
2.23
2.22
2013
792
2014
618
(200)
(64)
(264)
(510)
(2)
(7)
(519)
(783)
9
(20)
29
9
(589)
34
(555)
433
–
(16)
417
(138)
480
365
115
480
Financial information | AkzoNobel Report 2014
Consolidated balance sheet
at year-end, before allocation of profit
In € millions
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Investment in associates and joint ventures
Other 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
Note
2013
2014
7
8
6
9
10
11
6
12
13
2
14
14
15
16
6
17
18
6
19
16
2
3,906
3,589
1,071
183
965
1,426
86
2,536
2,098
203
5,594
427
1,237
701
389
2,666
961
220
3,218
601
49
9,714
6,349
16,063
6,021
4,993
4,142
3,835
1,152
183
813
1,545
88
2,743
1,732
66
5,790
477
1,488
655
412
2,527
811
227
3,407
494
11
10,125
6,174
16,299
6,267
5,082
5,049
16,063
4,950
16,299
141
AkzoNobel Report 2014 | Financial information Consolidated statement of cash flows
In € millions
Profit for the period
Income from discontinued operations
Adjustments to reconcile earnings to cash generated from operating activities
Amortization/depreciation
Impairment losses
Financing income and expenses
Results from associates and joint ventures
Pre-tax result on divestments
Income tax
Changes in working capital
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
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
142
Note
2
7, 8
7, 8
5
9
2
6
13
13
6
8
9
2
2
17, 18
18
4, 14
2
13
792
(131)
616
139
200
(14)
(246)
111
(13)
(395)
(228)
(230)
115
(666)
38
10
(34)
347
(24)
249
(502)
13
(286)
2013
2014
618
(18)
618
2
156
(21)
(8)
252
28
(406)
(206)
(258)
54
(588)
34
11
(13)
51
(24)
716
811
(329)
(529)
980
(1,347)
12
(280)
(526)
(139)
675
536
1,558
(74)
2,020
(635)
(353)
(88)
(441)
2,020
70
1,649
Financial information | AkzoNobel Report 2014 Consolidated statement of changes in equity
In € millions
Attributable to shareholders of the company
Subscribed
share capital
Additional
paid-in
capital
Cash flow
hedge
reserve
Cumulative
translation
reserve
Other
(statutory)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling
interests
Balance at January 1, 2013
478
174
Profit 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
–
–
–
–
–
–
6
–
1
–
Balance at December 31, 2013
485
Profit 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
–
–
–
–
–
5
–
2
Balance at December 31, 2014
492
–
–
–
–
–
–
133
–
12
–
319
–
–
–
–
–
137
–
7
463
(17)
–
(2)
19
(19)
–
(2)
–
–
–
–
61
–
–
(65)
(406)
(7)
(478)
–
–
–
–
5,068
724
–
–
(200)
(64)
460
(349)
46
–
1
5,764
724
(2)
(46)
(625)
(71)
(20)
(210)
46
13
1
(19)
(417)
5,226
5,594
–
15
(15)
–
–
–
–
–
–
–
390
(16)
374
–
–
–
546
–
(589)
34
(9)
(354)
34
–
546
15
(214)
18
365
(212)
34
9
(19)
(43)
4,897
5,790
464
68
–
–
(39)
–
29
(76)
–
–
10
427
72
–
43
–
115
(68)
–
3
477
Group equity
6,228
792
(2)
(46)
(664)
(71)
9
(286)
46
13
11
6,021
618
15
(171)
18
480
(280)
34
12
6,267
143
AkzoNobel Report 2014 | Financial information Segment information
Our Decorative Paints business supplies a full range of inte-
rior 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, architects, consumer electronics and
appliance companies, steel manufacturers, the construction
industry, furniture makers, aircraft, bus and truck producers,
can makers and vehicle 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 Area
Revenue from third parties
Group revenue
2013
4,131
5,532
4,924
3
2014
3,858
5,569
4,864
5
2013
4,174
5,571
4,949
(104)
2014
3,909
5,589
4,883
(85)
14,590
14,296
14,590
14,296
Amortization and
depreciation
2013
(162)
(138)
(308)
(8)
(616)
2014
(157)
(142)
(307)
(12)
(618)
Incidentals
Operating income
ROS (in %)
2013
198
–
(121)
(16)
61
2014
–
–
–
(85)
(85)
2013
398
525
297
(262)
958
2014
248
545
508
(314)
987
2013
9.5
9.4
6.0
–
6.6
2014
6.3
9.8
10.4
–
6.9
Invested capital
Total assets
Total liabilities
Capital expenditures
ROI (in %)
2013
2,589
2,251
3,355
1,086
–
9,281
2014
2,791
2,424
3,402
1,246
–
2013
4,315
4,062
4,388
3,095
203
2014
4,610
4,243
4,641
2,739
66
2013
1,987
1,593
983
5,430
49
2014
1,833
1,680
1,283
5,225
11
9,863
16,063
16,299
10,042
10,032
2013
171
143
346
6
–
666
2014
143
143
297
5
–
588
2013
13.7
21.3
8.2
–
–
9.6
2014
8.8
22.0
14.8
–
–
10.0
Revenue by region of destination
Intangible assets and property,
plant and equipment
Invested capital
Capital expenditures
2013
765
1,176
473
887
3,531
2,155
925
628
1,643
353
1,380
674
2014
762
986
436
947
3,341
2,193
883
602
1,730
354
1,385
677
14,590
14,296
2013
834
523
396
1,021
910
1,002
465
74
1,563
138
481
88
7,495
2014
1,691
596
350
419
790
1,096
465
74
1,735
154
508
99
7,977
2013
1,174
725
424
1,286
1,223
1,730
557
140
1,295
116
461
150
9,281
2014
2,088
802
431
730
1,011
1,825
574
141
1,465
137
484
175
9,863
2013
94
87
38
74
66
62
70
13
104
17
23
18
666
2014
72
106
40
74
57
68
36
9
75
7
27
17
588
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Assets held for sale
Total
Regional information
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
144
Financial information | AkzoNobel Report 2014
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, associated companies and joint ventures,
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 11, 2015, the Board of Management autho-
rized the financial statements for issue. The financial state-
ments as presented in this report are subject to 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 control, because it is exposed, or has rights, to
variable returns from its involvement with the subsidiary
and has the ability to affect returns through its power over
the subsidiary. Non-controlling interests in equity and in
results are presented separately.
Change in accounting policies
Consolidation
IFRS 10 “Consolidated Financial Statements”, effec-
tive January 1, 2014, introduced an amended concept
of control to determine whether an investee should be
consolidated. This standard did not affect our scope of
consolidation.
Joint arrangements
Under IFRS 11 “Joint Arrangements”, effective January 1,
2014, the interest in a joint arrangement has to be classi-
fied as either a joint operation (if the investor has rights to
the assets and the obligations for liabilities relating to the
arrangement) or a joint venture (if the investor has rights
only to the net assets of the arrangement). This standard
did not affect our Consolidated financial statements.
Disclosure of interests in other entities
As a result of IFRS 12 “Disclosure of Interests in Other
Entities”, effective January 1, 2014, we have expanded the
disclosures about our non-controlling interests in subsid-
iaries (Note 14) and equity-accounted investees (Note 9),
when necessary.
Other changes
Other accounting pronouncements, which became effec-
tive for 2014, had no material impact on our Consolidated
financial statements.
Discontinued operations (Note 2)
A discontinued operation is a component of our busi-
ness 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. 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 reclassify-
ing 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.
145
AkzoNobel Report 2014 | Financial information Use of estimates
Operating segments
The preparation of the financial statements in compliance
with IFRS requires management to make judgments, esti-
mates 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. The most critical accounting policies
involving a higher degree of judgment and complexity in
applying principles of valuation and for which changes in
the assumptions and estimates could result in significantly
different results than those recorded in the financial state-
ments are the following:
• Scope of consolidation (Note 2)
• Income tax and deferred tax assets (Note 6)
• Impairment of intangible assets and property, plant and
equipment (Note 7, 8)
• Post-retirement benefits (Note 15)
• Provisions (Note 16)
Statement of cash flows
We have used the indirect method to prepare the state-
ment of cash flows. Cash flows in foreign currencies have
been translated at transaction rates. Acquisitions or divest-
ments of subsidiaries are presented net of cash and cash
equivalents acquired or disposed of, respectively. Cash
flows from derivatives are recognized in the statement of
cash flows in the same category as those of the hedged
items.
We determine and present operating segments (“Business
Areas”) on the information that is provided to the Execu-
tive Committee, our chief operating decision maker during
2014, to make decisions about resources to be allocated
to the Business Area and assess its performance. Busi-
ness 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”.
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 func-
tional currencies are translated into euros, the functional
currency of the parent entity, using the exchange rates at
the balance sheet date. The income and expenses of enti-
ties with other functional currencies are translated into the
functional currency, using the exchange rates at transac-
tion 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 compo-
nent (cumulative translation reserves) within Other compre-
hensive 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.
Foreign currency differences arising on the re-translation
of a financial liability designated as an effective hedge of a
net investment in a foreign operation are recognized in the
cumulative translation reserves (in Other comprehensive
income).
Exchange rates of key currencies
The principal exchange rates against the euro used in
preparing the balance sheet and the statement of
income are:
US dollar
Pound sterling
Swedish krona
Chinese yuan
Balance sheet Statement of income
2013
1.378
0.834
8.836
8.399
2014
1.216
0.780
9.399
7.561
2013
1.328
0.850
8.647
8.209
2014
1.329
0.806
9.099
8.199
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 condi-
tions 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.
146
Financial information | AkzoNobel Report 2014
Post-retirement benefits
(Note 4, 15)
Contributions to defined contribution plans are recognized
in the statement of income as incurred.
Most of our defined benefit pension plans are funded with
plan assets that have been segregated in a trust or foun-
dation. In certain countries we also provide post-retirement
benefits other than pensions to our employees and these
plans are generally not funded. Valuations of both funded
and unfunded plans are carried out by independent
actuaries based on the projected unit credit method.
Post-retirement costs primarily represent the increase in
the actuarial present value of the obligation for projected
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, if any. When the calculation results in a
benefit to AkzoNobel, the recognized asset is limited to 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. An economic benefit is available
if it is realizable during the life of the plan, or on the settle-
ment of the plan liabilities. The effect of these so-called
asset ceiling restrictions and any changes therein, is
recognized in Other comprehensive income.
Actuarial gains and losses, which arise in calculating our
obligation with reference to a plan, are recognized in
Other comprehensive income. When the benefits of a plan
improve, the portion of the increased benefits related to
past service by employees is recognized as an expense in
the statement of income immediately. We recognize gains
and losses on the curtailment or settlement of a defined
benefit plan when the curtailment or settlement occurs.
Interest on the defined benefit obligations net of the return
on plan assets is included in financing expenses related
to pensions. Other charges and benefits recognized are
reported in Operating income, in as far as they are not
recorded in Other comprehensive income.
Other employee benefits
(Note 4, 16)
Provisions for other long-term employee benefits are
measured at present value, using actuarial assumptions
and methods. Any actuarial gains and losses are recog-
nized in the statement of income in the period in which
they arise.
Share-based compensation
(Note 4)
We have a performance-related share plan, under which
shares are conditionally granted to certain employees. The
fair value is measured at grant date and amortized over
the three-year period during which the employees normally
become unconditionally entitled to the performance-relat-
ed shares with a corresponding increase in shareholders’
equity. Amortization is accelerated in the event of earlier
vesting. The fair value of the performance-related shares
for which vesting is based on the company’s performance
or the ranking for sustainability, 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 actuarial valuation methods. The amount recognized
as an expense is adjusted to reflect the actual number of
performance-related shares that vest, except when forfei-
ture or extra vesting is due to TSR performance, because
this is a market performance condition.
Income tax (Note 6)
Income tax expense comprises both current and deferred
tax, including effects of changes in tax rates. In determin-
ing 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.
Current tax includes the expected tax payable and receiv-
able 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. We do not recognize deferred tax for 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.
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 deter-
mination of deferred tax liabilities to the extent of earnings
expected to be distributed by subsidiaries in the foresee-
able future. Deferred tax positions are not discounted.
Government grants
Government grants related to costs are deducted from
the relevant cost to be compensated in the same period.
Government grants to compensate for the cost of an asset
are deducted from the cost of the related asset. 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.
Intangible assets (Note 7)
Intangible assets are valued at cost less accumulated
amortization and impairment charges. Intangible assets
with an indefinite useful life, such as goodwill and certain
147
AkzoNobel Report 2014 | Financial information brands, are not amortized, but tested for impairment annu-
ally. Goodwill in a business combination represents the
excess of the consideration paid over the net fair value
of the acquired identifiable assets, liabilities and contin-
gent liabilities. 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.
Intangible assets with a finite useful life, such as licenses,
know-how, brands, customer relationships, intellectual
property rights and capitalized development and software
costs, are capitalized at historical cost and amortized
on a straight-line basis over the estimated useful life of
the assets, which generally ranges from five to 40 years.
Amortization methods, useful lives and residual values are
reassessed annually.
Property, plant and equipment
(Note 8)
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.
Depreciation is calculated using the straight-line method,
based on the estimated useful life of the asset compo-
nents. In the majority of cases the useful life of plant equip-
ment and machinery is ten years, and for buildings ranges
from 20 to 30 years. Land is not depreciated. In the major-
ity of cases residual value is assumed to be insignificant.
Depreciation methods, useful lives and residual values are
reassessed annually.
Costs of major maintenance activities are capitalized 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.
We recognize conditional asset retirement obligations in
the periods in which sufficient information becomes avail-
able to reasonably estimate the cash outflow.
Impairments (Note 7, 8)
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 indefi-
nite useful life, we review the carrying value annually in
the fourth quarter. 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).
Except for goodwill, we reverse impairment losses in the
statement of income if and to the extent we have identified
a change in estimates used to determine the recoverable
amount.
Leases (Note 8, 20)
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. 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.
Associates and joint ventures
(Note 9)
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,
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.
Inventories (Note 11)
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 inventories are determined using
weighted average cost.
Provisions (Note 16)
We recognize provisions when a present legal or construc-
tive 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. 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. A provision for warranties is recognized when the
underlying products or services are sold, generally based
on historical warranty data.
148
Financial information | AkzoNobel Report 2014 Financial instruments
Regular purchases and sales of financial assets and
liabilities are recognized on trade date. The initial measure-
ment of all financial instruments is at fair value. Except for
derivatives, the initial measurement of financial instruments
is adjusted for directly attributable transaction costs.
Derivative financial instruments (Note 23)
Derivative financial instruments are recognized at fair value
on the balance sheet. Fair values are derived from market
prices and quotes from dealers and brokers, or are esti-
mated using observable market inputs. When determining
fair values, credit risk for our contract party, as well as for
AkzoNobel, is taken into account.
Changes in the fair value are recognized in the statement
of income, unless cash flow hedge accounting or net
investment hedge accounting is applied. In those cases,
Other new IFRS accounting standards
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.
Other financial non-current assets (Note 10) and
trade and other receivables (Note 12)
Loans and receivables are measured at amortized cost,
using the effective interest method, less any impairment
losses. An allowance for impairment is established if the
collection of a receivable becomes doubtful.
Cash and cash equivalents (Note 13)
Cash and cash equivalents are measured at fair value and
include all cash balances and short-term investments that
are directly convertible into cash. Changes in fair values
are included in Financing income.
Long-term and short-term borrowings (Note 17,
18, 23) and trade and other payables (Note 19)
Long-term and short-term borrowings, as well as trade
and other payables, are measured at amortized cost, using
the effective interest rate 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 avail-
able. 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, taking into account AkzoNobel’s credit risk.
New IFRS accounting standards
IFRS standards and interpretations thereof not yet in force
which may apply to our Consolidated financial statements
for 2015 and beyond have been assessed for their poten-
tial impact. The most important upcoming changes are:
Standard
Published
Implementation date in the standard
IFRS 9, “Financial Instruments” 2009-2014
Implementation date of January 1, 2018, with
earlier adoption permitted
Endorsed by the
European Union
Not yet endorsed
Amendment to IAS 19,
“Employee benefits (Employee
contributions)”
IFRS 15, “Revenue from
Contracts with Customers”
June 27, 2013
July 1, 2014, with earlier adoption permitted
December 17, 2014
May 28, 2014
January 1, 2017, with earlier adoption permitted Not yet endorsed
Anticipated impact
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 replaces IAS 39 – the current standard on financial instruments.
We will start to make an assessment of the impact of IFRS 9 in 2015.
This amendment gives further guidance on the accounting for employee contributions
to post-retirement benefit plans and will become effective for our 2015 Consolidated
financial statements. We have assessed that this amendment will not materially affect our
Consolidated financial statements.
IFRS 15 replaces existing revenue recognition guidance in IFRS. It introduces a five-step
model to determine when to recognize revenue and at what amount, based on transfer of
control over goods or services to the customer. New qualitative and quantitative disclosures
will also be required. We will assess the impact of IFRS 15 on our Consolidated financial
statements in 2015.
149
AkzoNobel Report 2014 | Financial information 2
Note 2: Scope of consolidation
In 2014, Decorative Paints completed the divestment of
the German stores. Specialty Chemicals announced the
intended sale of its Paper Chemicals portfolio for
€153 million. The transaction is expected to be completed
in 2015, subject to regular consultation with employee
representatives and satisfaction of closing conditions such
as receipt of required regulatory clearances. This business
is currently part of Pulp and Performance Chemicals and is
accounted for as held for sale. Businesses that no longer
qualify as held for sale have been reclassified to ongoing
operations.
No acquisition in 2014, individually nor in total, was
deemed material in respect of IFRS 3 disclosure require-
ments.
During 2013, we concluded the divestment of Building
Adhesives in Decorative Paints and some smaller divest-
ments, such as the Primary Amides and Purate business-
es in Specialty Chemicals.
Discontinued operations
During 2013, the divestment of the North American Deco-
rative Paints business was completed and resulted in
€779 million net cash inflows and a transaction gain after
tax of €141 million, both reported in discontinued opera-
tions. The net cash from operating activities in 2014 mainly
relates to a settlement for a case following the divestment
of Organon BioSciences in 2007.
Material subsidiaries
The Consolidated financial statements comprise the
assets and liabilities of approximately 400 legal entities. We
consider legal entities material when they represent, for at
least two subsequent years, more than 5 percent of either
revenue or operating income (before incidentals). Material
subsidiaries included in the table are 100 percent owned
and meet these criteria.
150
Assets and liabilities held for sale
In € millions
2013
2014
50
111
42
203
25
24
49
23
21
22
66
3
8
11
Property, plant and equipment
Intangible assets
Other assets
Total assets
Total non-current liabilities
Total current liabilities
Total liabilities
Discontinued operations
In € millions
Revenue
Expenses
Results from operating activities
Income tax
Results from operating activities after tax
Gain on the divestment of Decorative Paints North America
Income tax on the sale
Deal result
Results related to discontinued operations in previous years
Tax related to discontinued operations in previous years
Profit for the period
Cash flows from discontinued operations
In € millions
Net cash from operating activities
Net cash from investing activities
Net cash from discontinued operations
Material subsidiaries
2013
281
(294)
(13)
7
(6)
138
3
141
(36)
32
131
2013
(87)
762
675
2014
–
–
–
–
–
–
–
–
13
5
18
2014
(88)
–
(88)
Legal entity
Akzo Nobel Coatings Inc.
Principal place of business/country of corporation
United States
Akzo Nobel Pulp and Performance Chemicals AB
Sweden
Akzo Nobel Industrial Chemicals B.V.
Akzo Nobel Surface Chemistry LLC
Akzo Nobel Ltda
The Netherlands
United States
Brazil
Financial information | AkzoNobel Report 2014 3
Note 3: Operating income
4
Note 4: Employee benefits
Operating income increased 3 percent to €987 million,
due to higher operating results and lower restructuring
charges, offset by higher incidental items (€85 million
adverse items in 2014 and €61 million favorable items in
2013). These related to an external fraud suffered by one
of our subsidiaries in the US, provisions for legacy items
and project costs related to a divestment. Restructuring
charges in 2014 were €253 million (2013: 348 million). The
majority of the restructuring charges related to Perfor-
mance Coatings.
• In Decorative Paints, operating income in 2013 included
a gain of €198 million from the divestment of Building
Adhesives. Excluding this effect, operating income
improved. Restructuring charges were lower than the
previous year. In addition, costs were down following
the implementation of restructuring programs and strict
cost control
• In Performance Coatings, operating income increased
4 percent compared with 2013. Improved operational
effectiveness more than compensated for increased
restructuring charges. A major restructuring activity was
the implementation of a new organizational structure with
fewer management layers and clearer accountability
• Specialty Chemicals increased profitability over the
previous year, with significant savings from restructuring
programs. Operating income in 2013 was affected by
€121 million incidental charges
Average raw material costs were stable compared with
2013 exit prices. In some high growth markets, currency
effects on imported raw materials have affected some
businesses.
Revenue and cost by nature
In € millions
Revenue
Variable selling cost
Materials and energy
Amortization and depreciation
Employee benefits
Impairment
Other
Operating income
2013
14,590
(714)
(6,959)
(616)
(2,950)
(139)
(2,254)
958
Certain costs per category
Employee
2013
Employee
In € millions
Cost of sales
Selling expenses
General and administrative
expenses
Research and development
expenses
Other operating income/
(expenses)
benefits Amortization Depreciation
Incidentals
benefits Amortization Depreciation Incidentals
(998)
(943)
(772)
(237)
–
(7)
(94)
(36)
(7)
–
(343)
(75)
(36)
(18)
–
–
–
(15)
(924)
(986)
(682)
–
(230)
76
(2)
(7)
(90)
(37)
(7)
–
(347)
(70)
(43)
(17)
–
Total
(2,950)
(144)
(472)
61
(2,824)
(141)
(477)
2014
14,296
(687)
(6,777)
(618)
(2,824)
–
(2,403)
987
2014
–
–
–
–
(85)
(85)
Salaries, wages and other employee benefits in
operating income
In € millions
Salaries and wages
Post-retirement cost
Other social charges
Total
Average number of employees
Average number during the year
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2013
(2,268)
(268)
(414)
2014
(2,226)
(221)
(377)
(2,950)
(2,824)
2013
16,800
21,300
10,600
1,500
50,200
2014
15,500
21,000
10,000
1,700
48,200
The average number of employees working outside
the Netherlands was 43,100 (2013: 45,000).
Employees
At year-end
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2013
16,200
21,400
10,400
1,600
49,600
2014
15,200
20,500
9,800
1,700
47,200
At year-end 2014, the workforce has contracted by
5 percent to 47,200 employees (year-end 2013: 49,600
employees). The decrease was mainly due to:
• A decrease of 400 employees due to divestments
• A decrease of 2,000 employees due to ongoing
restructuring
151
AkzoNobel Report 2014 | Financial information
Share-based compensation
Share-based compensation relates to the performance-
related share plan, as well as the share-matching plan.
Charges recognized in the 2014 statement of income for
share-based compensation amounted to €34 million and
are included in salaries and wages (2013: €43 million).
Performance-related share plan
Under the performance-related share plan, a number
of conditional shares are granted to the members of
the Board of Management, members of the Executive
Committee and executives each year. The number of
participants of the performance-related share plan at year-
end 2014 was 635 (2013: 689).
The 2012 conditional grant of shares is linked for
50 percent to the ranking of the company in the Robeco-
SAM benchmark (SAM) and the remaining 50 percent to
the relative TSR performance of the company compared
with the peer group. As from the series 2013-2015, an
additional performance measure has been added: return
on investment (ROI). At the same time, the weighting
changed to 35 percent for both TSR and ROI and
30 percent for SAM.
The shares of the series 2011-2013 have vested and were
delivered to the participants in 2014.
The conditional shares of the 2012-2014 series vested as
follows:
Performance-related shares
• Our TSR performance over the period 2012-2014
resulted in a ninth position within the ranking of the
peer group companies. This did not result in vesting of
conditional shares
• The average position in the RobecoSAM benchmark
resulted in a first position within the ranking
As a result, the conditional shares of the 2012-2014 series
vested for 75 percent (series 2011-2013: 70.83 percent),
including dividend shares of 9.62 percent, the final vesting
percentage amounted to 82.22 percent (series 2011-
2013: 77.98 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 for the shares
conditionally started in 2014 without a holding restriction
was €54.55 and €44.60 with a holding restriction (2013:
€52.15 without and €42.30 with a holding restriction).
The share price of a common AkzoNobel share at year-
end amounted to €57.65 (2013: €55.71). For further
details on our performance-related share plan, refer to the
Remuneration report.
Fair value of performance-related shares
The fair value of the performance-related shares (€51.73)
was for 35 percent based on a market condition (TSR:
€42.99) and for 65 percent based on non-market based
performance conditions (€56.44).
Series
2011 – 2013
2012 – 2014
2013 – 2015
2014 – 2016
Total
Balance at
January 1,
2014
641,024
1,113,235
762,959
–
2,517,218
Granted in
2014
Vested in
2014
Forfeited in
2014
Dividend in
2014 1
Balance at
December
31, 2014
Vested on
January 1,
2015
–
(641,024)
–
–
–
4,782
7,608
647,299
659,689
–
–
–
(313,397)
(54,709)
(43,780)
(641,024)
(411,886)
19,205
17,508
15,933
52,646
823,825
733,366
619,452
–
823,825
–
–
2,176,643
823,825
1 Equivalent in shares related to accumulated dividend, which is included in the balances on balance sheet date.
152
The TSR part of the award is valued applying a Monte
Carlo simulation model and the other part is valued based
on the share price at grant date discounted for the present
value of expected dividends over the vesting period.
Furthermore, for members of the Executive Committee,
an additional holding restriction applies after the vesting
period, up to a total of five years. Regarding this restriction
an additional discount is taken into account. This leads to
a lower fair value for their awards (€44.60).
The parameters applied for the fair value calculations are:
share price at date of grant (opening of January 2, 2014):
€56.44, expected volatility: 28.20 percent, expected divi-
dend yield: 3.04 percent; and risk-free interest rate:
0.54 percent.
For the peer group (TSR) please refer to the Remuneration
report.
Share-matching plan
The members of the Board of Management and the
members of the Executive Committee are eligible to
participate in the share-matching plan. Under certain
conditions, members who invest part of their short-term
incentives in AkzoNobel shares may have such shares
matched by the company. The investment in AkzoNobel
shares in 2014 resulted in a total of 5,205 potential match-
ing shares (2013: 2,820).
The fair value of the potential matching shares at the date
of the share investment is amortized as a charge against
income over the three-year vesting period. The fair value
was €49.96 per potential matching share in 2014
(2013: €40.67).
Financial information | AkzoNobel Report 2014 5
Note 5: Financing income and expenses
6
Note 6: Income tax
Pre-tax income from continued operations amounted to
a profit of €852 million (2013: €772 million). The net tax
charges related to continuing operations are included in
the statement of income as follows:
Classification of current and deferred tax result
In € millions
2013
2014
Current tax expense for
The year
Adjustments for prior years
Deferred tax expense for
Origination and reversal of temporary
differences and tax losses
(De)recognition of deferred tax assets
Changes in tax rates
(147)
6
(141)
(74)
97
7
30
(244)
(8)
(252)
(7)
8
(1)
–
Total
(111)
(252)
The total tax charge, including discontinued operations,
was €247 million (2013: €69 million).
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
2013
32
(221)
(189)
(21)
(8)
18
(11)
(200)
2014
42
(157)
(115)
(18)
(32)
9
(41)
(156)
Net financing expenses for the year decreased by
€44 million, from €200 million to €156 million. Significant
variances are:
• Net interest on net debt decreased by €74 million to
€115 million (2013: €189 million), mainly due to lower
financing expenses as a result of bond repayments
and a higher return on investments held in an escrow
account
• Financing expenses related to pensions decreased
by €3 million to €18 million (2013: €21 million) despite
higher discount rates, as the opening deficits to which
they were applied were lower
• Interest on other provisions increased by €24 million to
€32 million (2013: €8 million) due to lower discount rates
in 2014
• Other items decreased by €9 million to €9 million (2013:
€18 million), mainly due to lower capitalized interest
(2014: €10 million; 2013: €12 million) and lower interest
on other financial assets
The average interest rate used for capitalized interest was
5.1 percent (2013: 5.6 percent).
153
AkzoNobel Report 2014 | Financial information Effective tax rate reconciliation
The effective income tax rate based on the Consolidated
statement of income is 29.6 percent. The tax line is
impacted by the release of a deferred tax liability due to
organizational restructuring, offset by the de-recognition
of operating losses and tax credits. In addition, the
geographical mix of taxable income affected the tax
charge. The effective tax rate in 2013 included a non-
cash gain as a result of the recognition of €124 million of
previously unrecognized deferred tax assets and several
non-taxable items.
Effective consolidated tax rate
in %
Corporate tax rate in the Netherlands
Effect of tax rates in other countries
Weighted average statutory income
tax rate
Non-taxable (income)/expenses
(De)recognition of deferred tax assets
Non-refundable withholding taxes
Other
Effective consolidated tax rate
2013
25.0
5.7
30.7
(3.7)
(12.4)
1.5
(1.7)
14.4
2014
25.0
0.4
25.4
0.3
(0.9)
3.6
1.2
29.6
The impact of non-refundable withholding tax on the
tax rate is dependent on our relative share in the profit
of subsidiaries in countries that levy withholding tax on
dividends and on the timing of the remittance of such divi-
dends. This impact is expected to increase in the coming
years as a consequence of geomix developments. Based
on the Dutch tax system there is a limited credit for such
taxes.
Deferred tax assets and liabilities
In the net deferred tax asset for other provisions
(€162 million), an amount of €38 million is related to inter-
est expense carried forward. From the total amount of
recognized net deferred tax assets, €967 million (2013:
€916 million) is related to entities that have suffered a loss
in either 2014 or 2013 in the tax jurisdiction to which a
deferred tax asset relates, and where utilization is depen-
dent on future taxable profit in excess of the profit arising
from the reversal of existing taxable temporary differences.
Income tax recognized in equity
In € millions
Current tax for
Currency exchange differences on
intercompany loans of a permanent
nature
Deferred tax for
Share-based compensation
Post-retirement benefits
The loss carryforward recognized in the balance sheet and
its usage will have a decreasing impact on the cash tax
rate in coming years.
Total
Income tax recognized in equity
Income tax is recognized on items recorded in Other
comprehensive income only when they are taxable. In case
this results in deferred tax assets, these are only recog-
nized to the extent that it is probable that future taxable
profits will be available against which they can be utilized.
Unrecognized deferred tax assets
In € millions
Capital losses
Tax losses and tax credits
Deductible temporary differences
Total
2013
2014
(7)
(16)
3
(64)
(61)
(68)
2013
–
41
135
176
–
34
34
18
2014
4
135
249
388
Expiration year of loss carryforwards
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total recognized
2015
38
(8)
30
2016
45
(24)
2017
131
(50)
2018
60
(35)
2019
57
(31)
Later
Unlimited
444
(17)
2,639
(74)
Total
3,414
(239)
21
81
25
26
427
2,565
3,175
154
Financial information | AkzoNobel Report 2014 Movement in deferred tax in 2013
In € millions
Intangible assets
Property, plant and equipment
Post-retirement benefit provisions
Other provisions
Other items and tax credits
Tax loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
Net balance
January 1, 2013
Changes in
exchange rates
Recognized in
income
Recognized in
equity Other changes
Net balance
December 31,
2013
Assets
Liabilities
(547)
(47)
296
304
241
943
(478)
712
–
712
35
7
(1)
(12)
(7)
(20)
2
4
–
4
10
(13)
(109)
(12)
37
(242)
368
39
–
39
–
–
4
–
3
–
(68)
(61)
–
(61)
9
1
(8)
(7)
(7)
–
–
(12)
–
(12)
(493)
(52)
182
273
267
681
(176)
682
–
682
88
66
279
289
329
681
(176)
1,556
(485)
1,071
581
118
97
16
62
–
–
874
(485)
389
Movement in deferred tax in 2014
In € millions
Intangible assets
Property, plant and equipment
Post-retirement benefits provisions
Other provisions
Other items and tax credits
Tax loss carryforwards
Deferred tax assets not recognized
Tax assets/liabilities
Set-off of tax
Net deferred taxes
Net balance
January 1, 2014
Changes in
exchange rates
Recognized in
income
Recognized in
equity Other changes
Net balance
December 31,
2014
Assets
Liabilities
(493)
(52)
182
273
267
681
(176)
682
–
682
(29)
(1)
11
21
(2)
53
(17)
36
–
36
180
15
(64)
(132)
41
51
(91)
–
–
–
–
–
138
–
–
–
(104)
34
–
34
(10)
(1)
–
–
(1)
–
–
(12)
–
(12)
(352)
(39)
267
162
305
785
(388)
740
–
740
86
82
348
175
479
785
(388)
1,567
(415)
1,152
438
121
81
13
174
–
–
827
(415)
412
155
AkzoNobel Report 2014 | Financial information 7
Note 7: Intangible assets
Intangible assets
In € millions
Balance at January 1, 2013
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
Movements in 2013
Acquisitions through business combinations
Investments – including internally developed intangibles
Transfer to assets held for sale
Divestments
Disposals
Impairments
Amortization
Changes in exchange rates
Total movements
Balance at December 31, 2013
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2013
Movements in 2014
Acquisitions through business combinations
Investments – including internally developed intangibles
Transfer from/(to) assets held for sale
Amortization
Impairments
Changes in exchange rates
Total movements
Balance at December 31, 2014
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at year-end 2014
156
Goodwill
Brands
Customer
lists
Other
intangibles
1,513
2,226
1,030
–
(161)
1,352
–
(108)
2,118
7
1
–
–
–
(139)
–
(42)
(173)
1,264
–
(85)
1,179
5
–
(16)
–
–
78
67
1,340
–
(94)
1,246
–
–
–
–
–
(5)
(13)
(105)
(123)
2,113
–
(118)
1,995
–
–
–
(11)
–
137
126
2,267
–
(146)
2,121
–
(435)
595
9
–
(76)
–
–
(3)
(75)
(21)
(166)
854
–
(425)
429
3
–
71
(69)
–
29
34
1,027
–
(564)
463
394
217
(222)
389
–
29
(35)
(2)
(5)
(8)
(56)
(9)
(86)
319
237
(253)
303
2
24
35
(61)
(2)
11
9
401
255
(344)
312
Total
5,163
217
(926)
4,454
16
30
(111)
(2)
(5)
(155)
(144)
(177)
(548)
4,550
237
(881)
3,906
10
24
90
(141)
(2)
255
236
5,035
255
(1,148)
4,142
Financial information | AkzoNobel Report 2014 Goodwill and other intangibles per segment
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Total
Goodwill
Brands with indefinite
useful lives
Other intangibles with finite
useful lives
Total intangibles
2013
22
663
494
2014
37
701
508
2013
1,785
–
–
2014
1,908
–
–
1,179
1,246
1,785
1,908
2013
319
302
321
942
2014
305
292
391
988
2013
2,126
965
815
2014
2,250
993
899
3,906
4,142
Average revenue growth rates per forecast period
In % per year
Decorative Paints
Performance Coatings
Specialty Chemicals
2015-2019
2020-2024
5.7
3.8
3.2
4.1
2.5
2.3
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 develop-
ment cost. Both at year-end 2014 and 2013, there were
no purchase commitments for individual intangible assets.
No intangible assets were registered as security for bank
loans.
For virtually all business units, a terminal value was calcu-
lated using a long-term average market growth rate that
did not exceed 2 percent. The estimated pre-tax cash
flows are discounted to their present value using a pre-tax
weighted average cost of capital. The discount rates are
determined for each business unit and range from
7.4 percent to 11.3 percent, with a weighted average of
8.7 percent.
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 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, analysis
of market growth and the expected market share
development
• 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.
A sensitivity test for growth assumptions – a 50 percent
reduction of the growth rate – as well as the pre-tax
weighted average cost of capital – a one percentage point
increase – confirms sufficient headroom in all businesses.
As a result, no impairment charge was recognized in rela-
tion to the annual impairment test this year.
In 2013, as a result of classifying a business as held for
sale in Specialty Chemicals, an impairment charge of
€139 million was recognized.
157
AkzoNobel Report 2014 | Financial information 8
Note 8: Property, plant and equipment
Property, plant and equipment
In € millions
Balance at January 1, 2013
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
Movements in 2013
Acquisitions through business combinations
Transfer to assets held for sale
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairment
Changes in exchange rates
Total movements
Balance at December 31, 2013
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2013
Movements in 2014
Transfer from/(to) assets held for sale
Divestments
Capital expenditures
Transfer between categories
Depreciation
(Reversal of) impairment
Changes in exchange rates
Total movements
Balance at December 31, 2014
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at year-end 2014
158
Capital expenditures
• In Decorative Paints, we are investing in high growth
markets and in creating efficiency in Europe through
optimization of our production footprint
• In Performance Coatings, we completed the
construction of two new production facilities that will
increase our production capacity for vehicle refinishes in
China and powder coatings in the Middle East
• In Specialty Chemicals, we have been focusing on the
Frankfurt, Germany, project to convert to membrane
electrolysis technology, several asset integrity
improvement projects and growth projects for specific
segments. Overall expenditures were clearly below the
2013 level
Impairments
The 2013 impairment charges of €67 million related
to restructuring activities, mainly in Europe. In 2014, a
number of small impairments and reversal of prior impair-
ments were recorded, which on balance net out.
Financial lease
The carrying value of the property, plant and equipment
financed by hire purchase and leasing and not legally
owned by the company was €40 million (2013: €50 million)
of which €39 million is related to buildings and land and
€1 million to other equipment.
Buildings
and land
Plant equip-
ment and
machinery
Other
equipment
Construction
in progress
and prepay-
ments on
projects
Assets not
used in the
production
process
2,295
(1,138)
1,157
5,943
(4,223)
1,720
2
(23)
(22)
47
66
(75)
(30)
(57)
(92)
1
(24)
(33)
178
267
(321)
(34)
(76)
(42)
2,214
(1,149)
1,065
5,963
(4,285)
1,678
16
(11)
44
54
(81)
7
32
61
10
(7)
144
178
(322)
3
44
50
2,319
(1,193)
1,126
6,261
(4,533)
1,728
818
(604)
214
–
(3)
(6)
53
17
(75)
(2)
(1)
(17)
797
(600)
197
3
(4)
40
38
(74)
(2)
29
30
922
(695)
227
648
(8)
640
–
(1)
3
387
(351)
–
(1)
(35)
2
646
(4)
642
–
–
358
(272)
–
(7)
24
103
813
(68)
745
Total
9,734
(5,995)
3,739
3
(51)
(59)
666
–
(472)
(67)
(170)
(150)
30
(22)
8
–
–
(1)
1
1
(1)
–
(1)
(1)
60
(53)
7
9,680
(6,091)
3,589
–
–
2
2
–
(1)
(1)
2
29
(22)
588
–
(477)
–
128
246
70
(61)
9
10,385
(6,550)
3,835
Financial information | AkzoNobel Report 2014 9
Note 9: Investments in associates and joint ventures
10
Note 10: Other financial non-current assets
At year-end 2014, the carrying value of investments in
associates amounted to €100 million (2013: €89 million)
and in joint ventures €83 million (2013: €94 million). In
2014, the results from associates and joint ventures
amounted to a profit of €21 million (2013: €14 million).
No significant contingent liabilities exist related to associ-
ates 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).
Combined information of our share in associates and joint ventures
In € millions
2013
2014
2013
2014
Associates
Joint ventures
Condensed statement of income
Revenue
Profit before tax
Profit from continuing operations
Other comprehensive income
Total comprehensive income
Condensed balance sheet
Non-current assets
Current assets
Total assets
Shareholders’ equity
Non-current liabilities
Current liabilities
Total liabilities and equity
101
15
10
–
10
53
78
131
89
10
32
131
93
19
13
1
14
57
84
141
100
14
27
141
268
5
4
(4)
–
59
95
154
94
19
41
154
220
9
8
4
12
44
76
120
83
11
26
120
Other financial non-current assets
In € millions
Loans and receivables
Other than financial instruments
Total
2013
256
709
965
2014
232
581
813
The loans and receivables include the subordinated loan of
€89 million (2013: €88 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 €86 million (2013: €100 million),
invested in bonds and cash. Under certain conditions,
the minimum annual funding of this pension fund from the
escrow account is €31 million (£25 million).
Other financial non-current assets include an amount of
€409 million related to pension plans in an asset position
(2013: €483 million). See Note 15.
159
AkzoNobel Report 2014 | Financial information 11
Note 11: Inventories
12
Note 12: Trade and other receivables
Of the total carrying value of inventories at year-end 2014,
€49 million is measured at net realizable value (2013:
€67 million). In 2014, €28 million was recognized in the
statement of income for the write-down of inventories
(2013: €31 million), while €17 million of write-downs were
reversed (2013: €26 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
2013
430
75
921
2014
476
84
985
Total
1,426
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
2013
2,086
2014
2,246
In € millions
Opening balance
54
166
27
15
188
63
164
35
17
218
Additions charged to income
Release of unused amounts
Acquisition
Utilization
Transfer to held for sale
Currency exchange differences
2,536
2,743
Closing balance
2013
100
40
(22)
(1)
(19)
(1)
(6)
91
2014
91
35
(16)
–
(19)
–
4
95
The addition to and release of the allowance for impair-
ment have been included in the statement of income
under Selling expenses.
The maximum exposure to credit risk at the reporting
date is the carrying value of each class of receivables
mentioned above. We do not hold any collateral for
trade receivables. We do not have a significant customer
concentration.
Trade receivables are presented net of an allowance for
impairment of €95 million (2013: €91 million). In 2014,
€35 million of impairment losses were recognized in the
statement of income (2013: €40 million).
Ageing of trade receivables
In € millions
Performing accounts receivable
2013
1,852
2014
2,004
Past due accounts receivables
and not impaired
< 3 months
> 3 months
Impaired accounts receivables
Allowance for impairment
Total trade receivables
185
12
128
(91)
205
20
112
(95)
2,086
2,246
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.
160
Financial information | AkzoNobel Report 2014 13
Note 13: Cash, cash flow and net debt
Cash and cash equivalents
In € millions
Cash on hand and in banks
Short-term investments
Included under cash and cash
equivalents in the balance sheet
Debt to credit institutions
Total per cash flow statement
2013
1,333
765
2,098
(78)
2,020
2014
848
884
1,732
(83)
1,649
Cash flow and net debt
Operating activities in 2014 resulted in cash inflows of
€811 million (2013: €716 million). Profit from continuing
operations was lower in 2014, however, the comparative
for 2014 included a non-cash gain from deferred tax of
€124 million, which is reversed on the line Income tax. Net
cash from operating activities benefited from lower working
capital.
Net debt at year-end 2014 of €1,606 million was slightly
up on 2013 (€1,529 million). Cash outflows used for
discontinued operations of €88 million mainly related to a
settlement for a case following the divestment of Organon
BioSciences in 2007.
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
23.
At December 31, 2014, an amount of €95 million in cash
and cash equivalents was restricted (2013:
€115 million). Restricted cash is defined as cash that
cannot be accessed centrally due to regulatory or contrac-
tual restrictions.
Net debt
in € millions
Net debt equivalents at January 1, 2013
New debt issued
Redemption of loans
Net cash from operating activities
Capital expenditures
Acquisitions and divestments
Dividends
Transfers from long-term to short-term
Cash flow impact on working capital
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
2013
(181)
(7)
175
(13)
Cash flow impact of changes in provisions
In € millions
Post-retirement provisions
Restructuring provisions
Environmental and sundry provisions
Total
2013
(417)
55
(33)
(395)
2014
(113)
(59)
200
28
2014
(348)
16
(74)
(406)
Changes in provisions is the balance of amounts paid and
additions/reversals during the year. In 2014, €92 million of
the change in sundry provisions concerned discontinued
operations.
Effect of exchange rate changes on cash and cash equivalents
Other changes
Net debt equivalents at year-end
Net debt
in € millions
Net debt equivalents at January 1, 2014
New debt issued
Redemption of loans
Net cash from operating activities
Capital expenditures
Acquisitions and divestments
Dividends
Transfers from long-term to short-term
Effect of exchange rate changes on cash and cash equivalents
Other changes
Net debt equivalents at year-end
Long-term
Short-term
3,388
167
–
–
–
–
–
(867)
(9)
(13)
2,666
662
82
(594)
–
–
–
–
867
(37)
(19)
961
Long-term
Short-term
2,666
512
–
–
–
–
–
(663)
23
(11)
2,527
961
474
(1,347)
–
–
–
–
663
–
60
811
Cash
(1,752)
(249)
594
(716)
666
(1,092)
286
–
91
74
Net debt
2,298
–
–
(716)
666
(1,092)
286
–
45
42
(2,098)
1,529
Cash
(2,098)
(986)
1,347
(811)
588
38
280
–
(70)
(20)
Net debt
1,529
–
–
(811)
588
38
280
–
(47)
29
(1,732)
1,606
161
AkzoNobel Report 2014 | Financial information
14
Note 14: Group equity
Composition of share capital at year-end 2014
Non-controlling interests
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
Group equity
Partner
400,000,000
_
AkzoNobel Swire Paints (Shanghai) Limited,
Shanghai, China
Swire Pacific Limited, China
1,200,000,000
492,086,188
Akzo Nobel India Ltd, Kolkata, India
Privately held, India
PT ICI Paints Indonesia, Jakarta, Indonesia
PT DWI Satrya Utama, Indonesia
Total
1,600,019,200
492,105,388
Outstanding common shares
Number of shares
2013
2014
Outstanding at January 1
239,047,452
242,625,535
Issued in connection to stock
options exercised and performance
shares granted
3,578,083
3,417,559
Balance at year-end
242,625,535
246,043,094
Weighted average number of shares
ICI Paints (Malaysia) Sdn Bhd,
Kuala Lumpur, Malaysia
Privately held, Malaysia
AkzoNobel Swire Paints (Guanzhou) Limited,
China
Swire Pacific Limited, Industrial Devel-
opment Co. Ltd of Guanzhou, China
International Paint (Korea) Ltd, Busan,
South Korea
Noroo Holdings, South Korea
40.00
Kayaku Akzo Corp, Tokyo Japan
Nippon Kayaku Co., Ltd., Japan
Akzo Nobel Kemipol AS, Izmir, Turkey
Marshall Boya, Dilovasi-Kocaeli, Turkey
AkzoNobel Boya Sanayi ve Ticaret A.S. (PC),
Izmir, Turkey
Akzo Nobel Pakistan Limited, Lahore,
Pakistan
Akzo Nobel Oman SAOC, Oman
Privately held, Turkey
Marshall Employees' Foundation,
Privately held, Turkey
Privately held, Turkey
25.00
Privately held, Pakistan
24.19
%
30.00
27.04
45.00
40.05
46.00
25.00
49.00
11.75
2013
Equity stake
€ mln
167
53
27
29
41
19
8
15
5
4
9
%
30.00
27.04
45.00
40.05
46.00
40.00
25.00
49.00
11.75
25.00
24.19
2014
Equity stake
€ mln
184
50
30
30
53
19
8
18
5
5
10
13
52
477
Omar Zawawi establishment LLC,
Oman
50.00
10
50.00
40
427
Number of shares
Issued common shares at
January 1
Issued common shares during
the year
Shares for basic earnings per
share for the year
Effect of dilutive shares
For stock options
2013
2014
239,047,452
242,625,535
Others
Total
2,180,576
2,033,094
241,228,028
244,658,629
5,647
–
For performance-related shares
2,060,997
1,410,341
For share-matching plan
14,825
20,801
Shares for diluted earnings
per share
243,309,497
246,089,771
162
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 transac-
tions that have not yet occurred. Tax related to cash flow
hedges was €nil (2013: €nil).
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 was €16 million negative
(2013: €7 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, Executive Committee and other execu-
tives. For details of the share-based compensation, see
Note 4. Tax related to equity-settled transactions was €nil
in 2014 (2013: €3 million positive).
Non-controlling interests
None of the non-controlling interests are considered indi-
vidually material to the group.
Financial information | AkzoNobel Report 2014 15
Note 15: Post-retirement benefit provisions
Post-retirement benefit provisions relate to defined benefit
pension 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 (ICIPF) and the AkzoNobel Pension
Scheme (CPS) in the UK which together account for
83 percent of defined benefit obligations (DBO) and
91 percent of plan assets. Other pension plans include
the largely unfunded plans in Germany, the plans in the
US and certain other smaller plans in the UK. The benefits
of these pension 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. We also provide certain
healthcare and life insurance benefits to retired employees,
mainly in the US and the Netherlands.
Valuations of the obligations under the plans are carried
out regularly by independent qualified actuaries. We
accrue for the expected costs of providing such post-
retirement benefits during the service years of the employ-
ees. Governance of the benefit plans is the responsibility of
the ExCo Pensions Committee. This committee provides
oversight of the costs and risks of the plans including over-
sight of the impact of the plans on the company in terms
of cash flow, pension expenses and the balance sheet, by
the development and maintenance of policies on benefit
design, funding, asset allocation and assumption setting.
Pension plans
Almost all of the defined benefit plans have been closed
to new members since the early to mid-2000s, although
in many plans long-serving employees continue to accrue
benefits. For plans in the US, benefit accrual is frozen
and employees participate in defined contribution plans
for future service. In countries where plans are closed,
new employees are eligible to join a defined contribution
arrangement. In countries in high growth markets, pension
schemes currently are not material. Unless mandated by
law, it is our policy that any new plans are established as
defined contribution plans.
The most significant risks that we run in relation to defined
benefit plans are that investment returns fall short of
expectations, a decline in discount rates, that inflation
exceeds expectations, and that retirees live longer than
expected. The assets and liabilities of each of the funded
plans are held outside of the company in a trust or a
foundation, which is governed by a board of fiduciaries
or trustees, depending on the legal arrangements in the
country concerned. The primary objective with regard to
the investment of pension plan assets is to ensure that
each individual plan has sufficient funds available to satisfy
future benefit obligations in accordance with local legal
and legislative requirements. For this purpose, we work
closely with plan trustees or fiduciaries to develop strategic
asset allocation strategies. Asset liability modeling (ALM)
studies are carried out periodically to analyze and under-
stand the trade-off between expected investment returns,
volatility of outcomes and the impact on cash contribu-
tions. We aim to strike a cautious balance between these
factors in order to agree affordable contribution schedules
with plan fiduciaries. Plan assets principally consist of
long-term interest-earning investments, insurance policies
and (investment funds with holdings primarily in) quoted
equity securities. Our largest plans use derivatives (such
as index futures, currency forward contracts and swaps)
to reduce volatility of underlying variables, for efficient
portfolio management and to improve the liability match-
ing characteristics of the assets. Limits have been set on
the use of derivatives which are periodically subject to
review for compliance with the pension fund’s investment
strategy. ICIPF invested in annuity contracts in 2014 that
aim to hedge all key risks related to a certain part of the
pensioner population and CPS has an insurance contract
with SwissRe to hedge longevity risk in respect of a
portion of its pensioners.
In line with our proactive pension risk management
strategy, we seek to reduce risk in our pension plans over
time. We continue to evaluate different potential de-risking
strategies and opportunities on an ongoing basis. Some
future de-risking transactions may have both cash flow
and balance sheet impacts which may be substantial, as
have some of the de-risking actions already taken. The
cost of fully removing risk would likely exceed estimated
funding deficits. In March 2014, the Trustee of ICIPF
entered into two annuity buy-in agreements in line with
their ongoing strategy of de-risking which is supported
by AkzoNobel. The two agreements are with Legal &
General plc and Prudential Retirement Income Limited
and covered, in aggregate, £3.6 billion (€4.3 billion) of
pensioner liabilities, which is broadly equivalent to one
quarter of our pension liabilities and one third of the ICIPF
liabilities. The buy-ins involved the purchase of bulk annuity
policies under which the insurers will pay to ICIPF amounts
equivalent to the benefits payable to a subset of current
pensioners. The pension liabilities remain with ICIPF and
the matching annuity policies are held within ICIPF. The
accounting impact of the transaction is a lower valuation of
the plan assets giving a reduction in Other comprehensive
income of £640 million (€773 million). The Trustee of ICIPF
transacted a further, smaller buy-in in November 2014 with
Prudential Retirement Income Limited covering
£0.3 billion (€0.4 billion) of pensions liabillities giving a
reduction in Other comprehensive income of £55 million
(€68 million). By purchasing these bulk annuities, the
Trustee has taken a significant step in actively de-risking
liabilities and reducing the risk that AkzoNobel will be
required to contribute additional cash in the future.
The remaining pension plans primarily represent defined
contribution plans. This includes, among others, the
Pension Fund APF in the Netherlands and the 401k Plan
in the US. The ITP2 plan in Sweden is financed through
insurance with the Alecta insurance company and is clas-
sified 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 2014 were €10 million (2013: €10 million).
Alecta’s target funding ratio in 2014 was 140 percent
although the most recently quoted ratio at September
2014 stood at 146 percent. There are also a small number
of multi-employer plans in the US and Germany in which
AkzoNobel participates with annual contributions in each
case totaling less than €1 million. These are also account-
ed for as defined contribution plans. The expenses of
plans classified as defined contribution plans in AkzoNobel
totaled €145 million in 2014 (2013: €172 million).
163
AkzoNobel Report 2014 | Financial information Other post-retirement benefit plans
AkzoNobel provides certain healthcare and life insurance
benefits to retired employees, mainly in the US and the
Netherlands. The risks to which the US healthcare plans
expose AkzoNobel include the risk of future increases in
the cost of healthcare which would increase the cost of
maintaining the plans. The benefit payments to retirees
under the Dutch plan are frozen. Both plans expose
AkzoNobel to the risk of a further decline in long-term
corporate bond rates, which increases the plan obliga-
tions, and longevity risk as the plans generally pay lifetime
benefits.
Reconciliation balance sheet
In € millions
2013
DBO
Plan
assets
Total
DBO
Plan
assets
Balance at the beginning of the period
(16,674)
15,378
(1,296)
(15,188)
14,248
Statement of income
Current service cost
Past service cost/curtailments
Settlements
Net (interest)/income on net defined benefit (liability)/asset
Cost recognized in statement of income
Remeasurements
Actuarial gain/(loss) due to liability experience
Actuarial gain/(loss) due to liability financial assumptions changes
Actuarial gain/(loss) due to liability demographics assumptions changes
Actuarial loss due to buy-in
Return on plan assets greater/(less) than discount rate
(68)
13
584
(602)
(73)
(92)
9
17
–
–
Remeasurement effects recognized in Other comprehensive income
(66)
Cash flow
Employer contributions
Employee contributions
Benefits and administration costs paid from plan assets
Net cash flow
Other
Acquisitions/divestments/transfers
Changes in exchange rates
Total other
–
(5)
962
957
319
349
668
–
–
(602)
581
(21)
–
–
–
–
(128)
(128)
568
5
(962)
(389)
(266)
(326)
(592)
(68)
13
(18)
(21)
(94)
(92)
9
17
–
(128)
(194)
568
–
–
568
53
23
76
(57)
(2)
–
(643)
(702)
68
(1,469)
132
–
–
(1,269)
–
(4)
948
944
10
(960)
(950)
–
–
–
625
625
–
–
–
(841)
1,528
687
425
4
(948)
(519)
(10)
958
948
2014
Total
(940)
(57)
(2)
–
(18)
(77)
68
(1,469)
132
(841)
1,528
(582)
425
–
–
425
–
(2)
(2)
Balance at the end of the period
(15,188)
14,248
(940)
(17,165)
15,989
(1,176)
Asset restriction
Medicare receivable
–
–
–
–
(2)
(2)
–
–
–
–
(2)
(3)
Net balance sheet provision
(15,188)
14,248
(944)
(17,165)
15,989
(1,181)
In the balance sheet under
Other financial non-current assets
Post-retirement benefit provisions
Current portion of provisions
Liabilities held for sale
Net balance sheet provision
483
(1,237)
(184)
(6)
(944)
409
(1,488)
(102)
–
(1,181)
164
Financial information | AkzoNobel Report 2014 DBO at funded and unfunded pension plans
In € millions
2013
2014
Wholly or partly funded plans
14,591
16,481
Unfunded plans
Total
295
14,886
350
16,831
In addition to the expenses borne by the funds them-
selves, some expenses are borne directly by AkzoNobel.
Administrative expenses are incurred, especially for the UK
pension funds, of €17 million (2013: €12 million), which
are included in Operating income. In addition, we directly
incurred asset management expenses of €7 million (2013:
€6 million), which have been included in Other comprehen-
sive income.
Interest costs on DBO for both pensions and other post-
retirement benefits together with the interest income on
plan assets comprise the net financing expenses related to
pensions of €18 million (2013: €21 million), see Note 5.
Plan assets
In € millions
Equities
Debt - fixed interest government bonds
Debt - index-linked government bonds
Debt - corporate and other bonds
Insurance contracts
Cash and cash equivalents
Other
Total
Total Percentage of total
Total Percentage of total
2013
2014
1,824
2,635
2,816
4,339
213
1,117
1,304
14,248
13
18
20
30
1
8
10
100
1,566
1,222
3,701
1,645
4,405
1,516
1,934
10
8
23
10
28
9
12
15,989
100
The equities and debt assets in the table above have
quoted prices in active markets, although most are held
through funds comprised of such instruments which are
not actively traded themselves. Other plan assets include
certain assets that are not quoted in active markets, such
as real estate, insurance policies and private equity.
Other assets included unquoted securities totaling
€654 million (2013: €531 million), of which €314 million
is invested in real estate (2013: €229 million). Plan assets
did not directly include any of AkzoNobel’s own transfer-
able financial instruments, nor any property occupied by or
assets used by the company.
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 (2013: €2 million).
Pension balances recorded under Other financial non-
current assets totaled €409 million (2013: €483 million)
could be recognized under IFRIC14 because economic
benefits are available in the form of future refunds from the
plan or reductions in future contributions to the plan, either
during the life of the plan or on the (final) settlement of the
plan liabilities.
Cash flows
In 2015, we expect to contribute €431 million to our
defined benefit pension plans. This includes €99 million of
regular pension contributions and €332 million for top-ups,
of which £25 million (€32 million) will be paid out of the
CPS escrow account (see explanation in Key plan details).
We expect to pay a further €24 million for other post-
retirement benefit plans. No allowance is made for any
special one-off contributions that may arise in relation to
new de-risking opportunities.
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.
Future benefit payments
In € millions
Pensions
2015
2016
2017
2018
2019
970
964
968
973
980
Other post-
retirement
benefits
24
24
24
23
23
2020-2024
4,993
106
165
AkzoNobel Report 2014 | Financial information CPS
UK
Other pension
plans
Other post-
retirement
benefits
20%
15%
2%
CPS
UK
Other pension
plans
21%
15%
2013
Total
(15,188)
14,248
(940)
(2)
(2)
(944)
68
568
4.2%
4.1%
3.2%
2.7%
5.5%
3.8%
(302)
–
(302)
–
(2)
(304)
8%
6
26
4.2%
–
–
–
5.5%
3.8%
2019-2032
2019-2032
24.9
26.7
26.0
27.3
26.5
28.9
27.7
30.1
ICIPF
UK
62%
(10,633)
10,870
237
–
–
237
16%
9
230
3.4%
3.9%
2.9%
2.8%
–
–
–
26.7
29.0
27.8
30.3
(3,051)
2,941
(110)
–
–
(110)
22%
15
91
4.4%
4.4%
3.4%
2.4%
–
–
–
26.7
28.4
27.9
29.6
(2,259)
1,300
(959)
(2)
–
(961)
57%
38
281
3.9%
2.9%
2.1%
1.9%
–
–
–
25.0
28.1
26.6
29.6
(3,548)
3,606
58
–
–
58
22%
13
93
3.6%
4.0%
3.0%
2.1%
–
–
–
26.8
28.4
28.0
29.7
Other post-
retirement
benefits
2%
(334)
–
(334)
–
(3)
2014
Total
(17,165)
15,989
(1,176)
(2)
(3)
(2,650)
1,513
(1,137)
(2)
–
(1,139)
(337)
(1,181)
55%
31
79
2.8%
2.7%
2.0%
2.1%
–
–
–
25.2
28.3
26.8
29.8
7%
4
23
3.3%
–
–
–
5.3%
3.9%
57
425
3.4%
3.8%
2.8%
2.5%
5.3%
3.9%
2019-2032
2019-2032
24.8
26.7
26.1
27.6
26.5
28.7
27.7
30.0
Key figures and assumptions by plan
In € millions or %
Percentage of total DBO
Defined Benefit Obligation at year-end
Fair value of plan assets at year-end
Plan funded status
Restriction on asset recognition
Medicare receivable
Amounts recognized on the balance sheet
Percentage of total current service cost
Current service cost
Employer contributions
Discount rate
Rate of compensation increase
Inflation
Pension increases
Healthcare cost trend rate for next year
Rate to which cost trend rate is assumed to decline
Year that rate reaches the ultimate trend
Life expectancy (in years)
Currently aged 60
Males
Females
Currently aged 45, from age 60
Males
Females
ICIPF
UK
63%
(9,576)
10,007
431
–
–
431
13%
9
170
4.3%
4.3%
3.3%
3.1%
–
–
–
26.8
29.3
28.0
30.5
166
Financial information | AkzoNobel Report 2014 Sensitivity of DBO to change in assumptions
In € millions
Discount rate: 0.5% decrease
Price inflation: 0.5% increase 1
Life expectancy: one year increase from age 60
Healthcare cost trend rate: 0.5% increase
Maturity information
ICIPF
UK
747
446
489
–
CPS
UK
Other
pension plans
Other post-
retirement
benefits
323
204
123
–
202
115
77
–
18
–
11
4
Total
1,290
765
700
4
Weighted average duration of DBO (years)
13.4
17.3
15.1
10.5
14.4
1 The sensitivity to price inflation assumption includes corresponding changes to all inflation-related assumption compensation
increases, pensions in payment and pensions in determent.
The effect on DBO shown allows for an alternative value
for each assumption while the other actuarial assumptions
remain unchanged. While this table illustrates the overall
impact on DBO of the changes shown, the significance of
the impact and the range of reasonably possible alterna-
tive assumptions may differ between the different plans
that comprise the total DBO; in particular the plans differ
in benefit design, currency and average term, meaning
that different assumptions have different levels of signifi-
cance for each plan. The sensitivity analysis is intended
to illustrate the inherent uncertainty in the valuation of the
DBO under market conditions at the measurement date.
Its results cannot be extrapolated due to non-linear effects
that changes in the key actuarial assumptions may have
on the total DBO. Furthermore, the analysis does not
indicate a probability of such changes occurring and it
does not necessarily represent our view of expected future
changes in DBO. Any management actions that may be
taken to mitigate the inherent risks in the post-retirement
defined benefit plans or changes in asset values are not
reflected in this analysis.
The sensitivities in the table only apply to the DBO and
not to the net amounts recognized in the balance sheet.
Movements in the fair value of plan assets would, to a
significant extent, be expected to offset movements in the
DBO resulting from changes in the given assumptions.
167
AkzoNobel Report 2014 | Financial information Key plan details for the two largest pension plans
Type of plan
Benefits
ICI Pension Fund, UK (ICIPF)
AkzoNobel (CPS) Pension Scheme, UK (CPS)
Defined benefit, based upon years of service and final salary
Defined benefit, based upon years of service and final salary
Retirement pension for employee
Dependents’ pensions on death of employee/pensioner
Options for ill health early retirement
Retirement pension for employee
Dependents’ pensions on death of employee/pensioner
Options for ill health early retirement
Pension increases (main benefit section)
Annually linked to UK RPI with a maximum of 5 percent
Annually linked to UK CPI with a maximum of 5 percent
Plan structure
Governance
Regulatory framework
Funding basis
Plans are set up under a trust and are tax approved
Plans are set up under a trust and are tax approved
Trustee directors:
Five members nominated
One independent (Law Debenture)
Five appointed with the agreement of Law Debenture
Trustee directors:
Four members nominated
Four companies nominated
One independent (Law Debenture)
The plans are tax approved and assets are held in trust for the benefit of participants. The trustees have a legal duty to manage the trust in
the best interests of participants. Investment strategy is controlled by the trustees in consultation with the company
A plan specific basis must be agreed with each trustee board in accordance with UK regulations. The basis is not the same as the IFRS
calculation as it uses more prudent assumptions about life expectancy and the discount rates reflect prudent estimates of the expected
return on assets actually held, thus the trustees’ investment strategies will impact the discounted value of liabilities
Frequency of funding reviews
Latest valuation
Every three years
March 31, 2011
Every three years
March 31, 2012
Funding deficit at latest valuation
£1.0 billion (€1.3 billion)
£220 million (€282 million) allowing for the escrow account
Recovery plan
£178.5 million (€229 million) per annum to 2017 inclusive paid in
January each year. As a result of the 2014 buy-in transactions a one-
time additional £125 million (€160 million) will likely be added as part
of the next valuation.
£42 million (€54 million) per annum to 2018 inclusive, plus £25 million
(€32 million) per annum to 2017 from the escrow account paid in
March each year
Next funding review
March 31, 2014
March 31, 2015
Estimated funding deficit at December 31, 2014
Estimated solvency deficit at March 31, 2013
£0.85 billion (€1.1 billion) (2013: £1.1 billion (€1.3 billion))
£2.2 billion (€2.8 billion)
£0.2 billion (€0.26 billion) (2013: £0.25 billion (€0.30 billion))
£1.6 billion (€2.0 billion)
Strategic asset allocation
Matching
Return seeking
Other
80%
20%
Buy-in annuity contracts cover 49% of pensioner liabilities
58%
42%
Longevity hedge contract covers 40% of pensioner liabilities
Escrow account
Not applicable
Membership at March 31, 2014
Active
Deferred
Pensioner
Total
417
9,816
47,586
57,819
Pre-funded account established in 2007 to fund existing deficit. It
pays a minimum of £25 million per annum to CPS until it is exhausted
(no later than 2017). Value at year-end 2014 is £93 million (€119
million)
624
9,782
19,803
30,209
168
Financial information | AkzoNobel Report 2014 16
Note 16: Other provisions
17
Note 17: Long-term borrowings
Movements in other provisions
In € millions
Balance at January 1, 2014
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Transfer to/(from) liabilities held for sale
Changes in exchange rates
Balance at December 31, 2014
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2014
Restructuring
of activities Environmental costs
Sundry
236
179
(144)
(19)
2
–
5
259
70
189
259
329
13
(28)
(20)
13
6
13
326
282
44
326
553
111
(210)
(32)
17
(1)
24
462
303
159
462
Total
1,118
303
(382)
(71)
32
5
42
1,047
655
392
1,047
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 imple-
men tation of the plan has started or the plan has been
announced before the balance sheet date. Most restruc-
turing plans are expected to be completed within two
years from the balance sheet date.
Provisions for environmental costs
For details on environmental exposures, see Note 20.
Sundry provisions
Sundry provisions relate to a great variety of risks and
commitments, including provisions for claims, antitrust
cases and other long-term employee benefits, such as
long-service leave and jubilee payments.
The majority of the cash outflows related to sundry
provisions are expected to be within one to five years. In
calculating the sundry provisions, a pre-tax discount rate
of on average 2.8 percent has been used.
Current portion of provisions
Current portion of post-retirement benefit provisions
(€102 million) and other provisions (€392 million) adds up
to €494 million (2013: €601 million).
Long-term borrowings
In € millions
Bonds issued
Debt to credit institutions
Other borrowings
Total
2013
2,458
48
160
2,666
2014
2,351
44
132
2,527
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 23. During
2014, the average effective interest rate on debt issued
was 4.9 percent (2013: 5.3 percent).
Bonds issued
In € millions
7 1/4% 2009/15 (€621 million)
8% 2009/16 (£250 million)
4% 2011/18 (€800 million)
2 5/8% 2012/22 (€750 million)
1 3/4% 2014/24 (€500 million)
2013
626
299
793
740
–
2014
–
320
794
741
496
Total
2,458
2,351
Aggregated maturities of long-term borrowings
In € millions
Bonds issued
Debt to credit institutions
Other borrowings
Total
2016 – 2019
After 2019
1,114
1,237
32
81
12
51
1,227
1,300
169
AkzoNobel Report 2014 | Financial information 18
Note 18: Short-term borrowings
19
Note 19: Trade and other payables
We have a €1.8 billion multi-currency revolving credit
facility, which was extended in 2013 by an additional year
to 2018. At year-end 2014 and 2013, this facility had not
been drawn. At year-end 2014 and 2013, none of the
borrowings was secured by collateral.
In November 2014, a bond was issued with a nominal
value of €500 million maturing in 2024 at a coupon rate of
1.75 percent.
Financial lease liabilities are included in Other borrowings
and aggregated €49 million (2013: €51 million). An amount
of €6 million (2013: €6 million) will mature within one year
and €18 million will mature in the period 2016 through
2019 and €25 million after 2019.
Short-term borrowings
Trade and other payables
In € millions
Debt to credit institutions
Current portion of long-term
borrowings
Other borrowings
Total
2013
78
883
–
961
2014
83
662
66
811
In January 2014, a bond of €825 million matured. In
March 2015 a bond totaling €621 million will mature and is
classified as a short-term borrowing.
We have US dollar and euro commercial paper programs
in place, which can 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 2014 and 2013.
In € millions
Suppliers
Amounts payable to employees
FX and commodity contracts
Taxes and social security contributions
Customer-related payables
Dividends
Payable to associates and joint
ventures
Other liabilities
Total
2013
1,944
361
42
216
184
14
32
425
3,218
2014
2,149
367
45
231
224
14
13
364
3,407
170
Financial information | AkzoNobel Report 2014 20
Note 20: Contingent liabilities and commitments
Environmental matters
We are confronted with substantial costs arising out of
environmental laws and regulations, which include obliga-
tions 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 envi-
ronmental clean-up costs when it is probable that a liability
has materialized and an amount is reliably 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.
The provisions for environmental costs amounted to
€326 million at year-end 2014 (2013: €329 million). The
provision has been discounted using an average pre-tax
discount rate of 3.3 percent (2013: 3.9 percent). While it
is not feasible to predict the outcome of all pending envi-
ronmental 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.
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 rela-
tion to the Hydrogen Peroxide infringement in the 1990s.
This claim is disputed. In 2014, a provision was taken in
anticipation of an agreement on the settlement of proceed-
ings initiated by CDC Project 13 SA in relation to the
Sodium Chlorate infringements in the 1990s. 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.
AkzoNobel has provided various indemnities and guar-
antees 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). The provided guarantees
and indemnities have varying maturity periods.
AkzoNobel has received various claims under such indem-
nities and guarantees. In some instances, AkzoNobel has
been named as a direct defendant despite the divest-
ments. Regarding the Organon BioSciences divestment to
Schering-Plough in 2007, all pending material claims have
been solved in 2014.
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 can
be reliably estimated. 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
that the contingent liabilities materialize, they are typi-
cally 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 €44 million (2013: €93 million).
Lease payments during 2014 amounted to €112 million
(2013: €127 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
2013
106
215
126
447
2014
103
205
103
411
Guarantees related to associates and joint ventures at
year-end 2014 totaled €9 million (2013: €9 million).
171
AkzoNobel Report 2014 | Financial information 21
Note 21: Related party transactions
22
Note 22: Remuneration of the Supervisory Board
and the Board of Management
We purchased and sold goods and services to various
related parties in which we hold a 50 percent or less equity
interest (associates and joint ventures). Such transactions
were conducted at arm’s length with terms comparable
with transactions with third parties. In 2014, a significant
related party transaction was a €65 million gas supply
(2013: €99 million) 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.
During 2014, we considered the members of the Execu-
tive 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 22. 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 associ-
ated, but no related party transactions were effected in
2014. Likewise, there have not been any transactions with
members of the Supervisory Board or Executive Commit-
tee, 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 Execu-
tive Committee, any other senior management personnel
or any family member of such persons. For related party
transactions with pension funds, see Notes 10 and 15. For
receivables from and payables to related party transac-
tions, see Notes 12 and 19.
Total compensation to key management personnel
amounted to €10.8 million (2013: €15.4 million). An
amount of €2.6 million relates to short-term employee
benefits (2013: €7.0 million); €1.0 million to post-contract
benefits and other post-contract compensation (2013:
€1.2 million); and €2.7 million to share-based compen-
sation (2013: €5.8 million). The members of the Execu-
tive Committee that are not a member of the Board of
Management are included in key management personnel.
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.
Supervisory Board
Members of the Supervisory Board receive a fixed remu-
neration: €130,000 for the Chairman, €78,000 for the
Deputy Chairman and €65,000 for the other members (as
of May 1, 2014). Members of committees receive an extra
compensation. Members living outside the Netherlands
We do not grant share-based compensation to our Super-
visory 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 invest-
ment in the company.
Supervisory Board
In €
Antony Burgmans, Chairman 1
Sari Baldauf
Dolf van den Brink 2
Peggy Bruzelius
Uwe-Ernst Bufe, Deputy Chairman
Peter Ellwood 3
Byron Grote 4
Louis Hughes
Ben Verwaayen
Karel Vuursteen 3
Total
1 Chairman as from April 29, 2014.
2 Until December 22, 2014.
3 Until April 29, 2014.
4 As from April 29, 2014.
Total
remuneration Remuneration Attendance fee
Committee
allowance fees
Employer’s
charges
Total
remuneration
2013
70,000
77,500
75,000
97,300
77,500
86,400
–
98,900
80,500
123,900
787,000
103,333
60,000
60,000
60,000
72,000
16,667
43,333
60,000
60,000
33,333
2,500
15,000
2,500
17,500
15,000
7,500
10,000
30,000
12,500
–
18,333
16,667
23,333
18,333
–
5,000
13,333
18,333
13,333
5,000
2014
124,166
91,667
85,833
–
–
–
20,642
116,475
–
1,530
–
3,900
3,900
1,930
87,000
30,697
66,666
112,233
89,733
40,263
568,666
112,500
131,665
31,902
844,733
172
Financial information | AkzoNobel Report 2014 Shares held by the members of the Supervisory
Board
Board of Management
Number of shares at year-end
Antony Burgmans
Sari Baldauf
Uwe-Ernst Bufe
Peggy Bruzelius
Byron Grote 1
Louis Hughes
Ben Verwaayen
1 In the form of ADRs.
2013
500
–
500
500
–
538
–
2014
500
–
500
500
392
548
–
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 2014 are linked to ROI
(20 percent), OPI (20 percent), OCF (30 percent) and the
individual and qualitative targets of the members of the
Board of Management (30 percent). For more information,
see the Remuneration report.
Board remuneration 2013
In €
Ton Büchner
Keith Nichols
Total
Salary
820,000
616,000
1,436,000
Short-term
incentives
Other short-term
benefits
Post-contract
compensation
Share-based
compensation
Total
remuneration
630,900
308,100
939,000
8,100
302,500
310,600
291,600
221,800
513,400
807,700
857,900
1,665,600
2,558,300
2,306,300
4,864,600
Board remuneration 2014
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 (€278,700) related to employer’s
contribution in the UK. The other costs for Mr. Nichols
(€36,800) related to home allowances.
Post-contract compensation
This refers to compensation intended for building up
retirement benefits instead of pension contributions. The
compensation is based on age and is calculated over the
2014 remuneration. For the CEO, the contributions are
paid over the base salary in the current year and the short-
term incentive of the previous year. The contributions will
therefore vary depending on the performance during the
previous year and the age of the Board member. For the
CFO, these contributions are paid on base salary only.
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 amounted to €44.60 per
performance-related share conditionally granted in 2014
for those members of the Board of Management facing a
two-year holding restriction (2013: €42.30), and €54.55 for
those members whose holding restriction will lapse after
the end of their term (2013: €52.15). The fair value for the
shares related to the share-matching plan amounted to
€49.96 (2013: €40.67).
Short-term
incentives 3
Other short-term
benefits
Post-contract
compensation
Share-based
compensation
Total
remuneration
In €
Ton Büchner
Maëlys Castella 1
Keith Nichols 2
Total
Salary
834,000
176,800
308,000
783,000
106,100
308,000
1,318,800
1,197,100
8,500
5,400
315,500
329,400
325,000
28,800
147,900
501,700
1,233,100
3,183,600
–
(766,000)
467,100
317,100
313,400
3,814,100
1 As from September 15, 2014.
2 Until June 30, 2014.
3 This concerns the short-term incentive amounts over 2014, to be paid in 2015.
173
AkzoNobel Report 2014 | Financial information Number of performance-related shares
Ton Büchner
Keith Nichols
Balance at
January 1,
2014
34,066
24,907
–
–
–
22,300
Series
2012 – 2014
2013 – 2015
2013 – 2016
Granted
in 2014
Vested
in 2014
2011 – 2013
2012 – 2014
2013 – 2015
14,504
25,523
18,731
–
–
–
Forfeited
in 2014
(8,517)
–
–
–
–
–
–
(14,504)
–
–
(25,523)
(18,731)
Dividend
in 2014
Balance at
December
31, 2014
Vested on
January 1,
2015
679
661
592
–
–
–
26,228
25,568
22,892
–
–
–
26,228
–
–
–
–
–
Number of potential matching shares
Ton Büchner
Year of share
investment
2012
2013
2014
Potential
match
11,582
1,429
2,450
Matched
in 2014
Forfeited
in 2014
Balance at
year-end 2014
–
–
–
–
–
–
11,582
1,429
2,450
Shares held by the Board of Management
Number of shares at year-end
Ton Büchner
2013
16,243
2014
21,901
Performance-related shares
With regard to the performance-related shares granted to
the members of the Board of Management in 2012, the
final vesting percentage of the series 2012-2014 equaled
75.00 percent (series 2011-2013: 70.83 percent), includ-
ing dividend shares 82.22 percent (series 2011-2013:
77.98 percent). The members of the Board of Manage-
ment 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 is required to build up, over a five-year period
from the date of appointment, and then hold, at least
three times his gross base salary in AkzoNobel shares for
the duration of their tenure as member of the Board of
Management. For other Board of Management members,
the requirement is at least one time their gross base salary.
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.
Former members of the Board of
Management
In 2014, charges for former members of the Board of
Management amounted to €2.5 million (2013: €4.8 million)
mainly due to accrued taxation on excessive pay (‘Belast-
ingheffing excessieve beloningsbestanddelen’).
174
Financial information | AkzoNobel Report 2014 23
Note 23: 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 compli-
ance 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 2014, we had €1.7 billion available as cash
and cash equivalents (2013: €2.1 billion), see Note 13. In
addition, we have a €1.8 billion multi-currency revolving
credit facility, which was extended in 2013 by an additional
year to 2018. At year-end 2014 and 2013, this facility had
not been drawn. We have US dollar and euro commercial
paper programs in place, which can 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 2014 and 2013. The table
Maturity of liabilities and cash outflows
Credit risk management
Trade and other payables
3,218
In € millions
At December 31, 2013
Borrowings
Interest on borrowings
Finance lease liabilities
FX contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
At December 31, 2014
Borrowings
Interest on borrowings
Finance lease liabilities
FX contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
Less than
1 year
Between 1
and 5 years
Over
5 years
4,330
2,139
877
955
134
6
2,433
(2,431)
15
–
805
103
6
2,196
(2,188)
14
–
1,841
269
18
–
–
–
11
–
779
70
28
–
–
–
–
–
1,210
1,275
228
17
–
–
–
10
(4)
93
25
–
–
–
–
–
Trade and other payables
3,407
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-perfor-
mance of financial counterparties and customers. We
monitor our exposure to credit risk on an ongoing basis
at various levels. We only deal with financial counterpar-
ties 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 transac-
tions 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 instru-
ments 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 12.
4,343
1,461
1,393
Generally, the maximum exposure to credit risk is repre-
sented by the carrying value of financial assets in the
balance sheet.
above shows our cash outflows per maturity group. The
amounts disclosed in the table are the contractual undis-
counted cash flows.
At year-end 2014, the credit risk on consolidated level was
€4.7 billion (2013: €4.9 billion) for cash, loans, trade and
other receivables. Our credit risk is well spread among
both global and local counterparties. Our largest coun-
terparty risk amounted to €194 million at year-end 2014
(2013: €270 million).
175
AkzoNobel Report 2014 | Financial information
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 curren-
cy exposure which is partly netted out on consolidation.
The purpose of our foreign currency hedging activities is
to protect us from the risk that the 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 matu-
rity. 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
2013
267
67
302
270
906
Sell
2013
684
665
30
379
Buy
2014
289
212
350
422
Sell
2014
649
103
45
475
1,758
1,273
1,272
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. During 2014 the
hedge was fully effective.
Cash flow hedge accounting of CNY793 million for an
acquisition was applied from 2011 onwards and was
completed in 2014. There was no cash flow hedge reserve
related to acquisitions outstanding at the end of 2014.
There was no cash flow hedge reserve related to divest-
ments outstanding at the end of 2013 and 2014.
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
2014 amounted to a loss of €8 million, net of tax (year end
2013: a loss of €4 million, net of tax), which are 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 2014, the contracts
outstanding have a fair value of €3 million gain, net of tax
on those contracts. The fair value of the contracts at the
year-end 2013 was a marginal loss, net of tax. We did not
apply hedge accounting to the changes of the fair values
of these contracts.
the results within the next five years. All hedges were effec-
tive in 2014 and 2013.
Interest rate risk management
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value inter-
est rate risk. Floating rate debt results in cash flow interest
rate risk. Fixed rate debt maturing within one year is
treated as floating rate debt. The fixed/floating rate of our
outstanding bonds shifted from 75 percent fixed at year-
end 2013 to 79 percent fixed at year-end 2014. During
2014, we have not used interest rate swap contracts.
The effective interest rate on debt issued over 2014 was
4.9 percent (2013: 5.3 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 objec-
tive to remain a strong investment grade company as rated
by the rating agencies Moody’s and Standard & Poor’s. 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. Early
2014, a bond of €825 million matured. Late 2014, a bond
was issued with a nominal value of €500 million, maturing in
2024, at a coupon rate of 1.75 percent.
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
Nasdaq commodities, based on expected use of electricity
over the period 2015-2019. 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 €11 million loss net of tax recorded in equity (2013:
€16 million net deferred loss), which are expected to affect
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 2014 at year-end amount-
ed to 0.45 (2013: 0.56). Funds from operations are based
on net cash from operating activities after tax, 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 post-retirement benefit
obligations. Net borrowings is calculated as a total of long
176
Financial information | AkzoNobel Report 2014 and short-term borrowings less cash and cash equiva-
lents, adding an after-tax amount for the underfunding
of post-retirement benefit obligations and lease commit-
ments.
Fair value of financial instruments
and IAS 39 categories
Loans, 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 instru-
ments.
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)
Fair value per financial instruments category
In € millions
2013 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
2014 year-end
Other financial non-current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
Carrying value per IAS 39
category
Loans and
receivables/
other
liabilities
At fair value
through
profit or loss
Total
carrying
value
Fair value
Carrying
amount
Out of scope
of IFRS 7
965
2,536
2,098
5,599
2,666
961
3,218
6,845
797
2,743
1,732
5,272
2,527
811
3,407
6,745
674
220
–
894
–
–
1,258
1,258
529
227
–
756
–
–
1,215
1,215
291
2,301
–
2,592
2,666
961
1,944
5,571
268
2,499
–
2,767
2,527
811
2,149
5,487
–
15
2,098
2,113
–
–
16
16
–
16
1,732
1,748
–
–
45
45
291
2,316
2,098
4,705
2,666
961
1,960
5,587
268
2,515
1,732
4,515
2,527
811
2,194
5,532
301
2,316
2,098
4,715
2,837
965
1,960
5,762
289
2,515
1,732
4,536
2,775
819
2,191
5,785
Level 1 fair valuation methods were used for €2.6 billion of
the long-term borrowings and €0.6 billion of the short-term
borrowings. All other fair values were determined using
level 2 fair valuation methods, except for €111 million level
3 (discounted cash flow) fair valuation.
Master netting agreements
We enter into derivative transactions under International
Swaps and Derivatives Association (ISDA) master netting
agreements. In general, under such agreements the
amounts owed by each counterparty on a single day in
respect of transactions outstanding in the same currency
may be aggregated into a single net amount that is
payable by one party to the other. In certain circumstances
– e.g. when a credit event such as a default occurs – all
outstanding transactions under the agreement may be
terminated, the termination value is assessed and a net
amount is payable in settlement of the transactions.
We have evaluated the potential effect of netting agree-
ments including the potential effect of rights of set-off. We
did not offset any amounts regarding derivative transac-
tions, but we did offset bank balances for immaterial
amounts.
177
AkzoNobel Report 2014 | Financial information Sensitivities on financial instruments at year-end 2014
Sensitivity object
Sensitivity
Hypothetical impact
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 liabilities (including derivative financial instru-
ments) 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 sensitiv-
ity 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 vola-
tility to revalue all commodity-derivative finan-
cial instruments in the applicable commodity in
our balance sheet at year-end. For the purpose
of this sensitivity analysis, the change of the
price of the commodity is not discounted to
the net present value at balance sheet date.
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 10 percent strengthening of the euro versus US dollar
Profit: €7 million (2013: profit €5 million). Equity: €nil (2013: €nil)
A 10 percent strengthening of the euro versus the Pound sterling
Profit: €3 million (2013: profit €2 million). Equity: €nil (2013: €nil)
A 10 percent strengthening of the euro versus Swedish krona
Profit: €2 million (2013: profit €2 million). Equity: €nil (2013: €nil)
Net investment hedge accounting is applied to £250 million, which
results in a sensitivity on equity of €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)
Equity: €16 million (2013: €12 million)
We apply cash flow hedge accounting to the fair value changes of
electricity futures
Electricity price Specialty Chemicals Sweden and Finland:
A 10 percent change in the forward price on the Nord Pool exchange
electricity (€2.93 per MWh) as compared with market prices (up/
down)
Equity: €7 million (2013: €6 million)
We apply cash flow hedge accounting to the fair value changes of
electricity futures
Oil price Specialty Chemicals Netherlands and Denmark:
A 10 percent change in price of oil (€5 per barrel) as compared with
market prices (up/down)
Profit/(loss): €3 million (2013: €6 million)
Over the full term of the (partially long-term) contracts, net impact on
profit will be €nil
A 100 basis points increase of EURIBOR interest rates
Profit: €nil (2013 profit: €2 million)
A 100 basis points increase of US LIBOR interest rates
Profit: €2 million (2013 loss: €2 million)
A 100 basis points increase of GBP LIBOR interest rates
Profit: €1 million (2013 loss: €1 million)
178
Financial information | AkzoNobel Report 2014
Company financial statements
A
Note A: General information
Statement of income
In € millions
Net income from subsidiaries, associates and joint ventures
Other net income
Total net income
Balance sheet as of December 31, before allocation of profit
Note
2013
2013
680
44
724
2014
546
–
546
2014
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
Cash flow hedge reserve
Other statutory reserves
Cumulative translation reserve
Actuarial gains and losses
Other reserves
Undistributed results
Shareholders’ equity
Non-current liabilities
Provision for subsidiaries
Long-term borrowings
Total non-current liabilities
Current liabilities
Short-term debt
Total current liabilities
Total equity and liabilities
B
C
D
B
F
G
13,822
66
1,084
485
319
(19)
275
(417)
(1,495)
5,802
644
490
8,533
355
13,037
13,822
13,037
1,150
14,972
827
13,864
103
724
492
463
(19)
335
(43)
(2,050)
6,147
465
5,594
5,790
9,023
355
14,972
147
6,969
958
7,116
958
13,864
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 account-
ing 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 state-
ments. 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 22 of the
Consolidated financial statements.
179
AkzoNobel Report 2014 | Financial information Movement in shareholders’ equity
In € millions
Balance at January 1, 2013
Changes in fair value of derivatives
Changes in exchange rates in respect of subsidiaries,
associates and joint ventures
Post-retirement benefits
Net income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Addition to other reserves
Acquisition of non-controlling interests
Balance at December 31, 2013
Changes in exchange rates in respect of subsidiaries,
associates and joint ventures
Post-retirement benefits
Net income
Comprehensive income
Dividend paid
Equity-settled transactions
Issue of common shares
Addition to other reserves
Statutory reserves
Subscribed
share capital
Additional
paid-in capital
Cash flow
hedge reserve
478
174
(17)
Other
Statutory
reserves
264
Cumulative
translation
reserve
Actuarial gains
and losses
Other
reserves
Undistributed
results
Shareholders’
equity
(1,231)
8,205
(2,170)
–
–
–
–
–
6
–
1
–
–
485
–
–
–
–
5
–
2
–
–
–
–
–
–
133
–
12
–
–
319
–
–
–
–
137
–
7
–
(2)
–
–
–
(2)
–
–
–
–
–
(19)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11
–
275
–
–
–
–
–
–
–
60
335
61
–
(478)
–
–
(478)
–
–
–
–
–
–
–
(264)
–
(264)
–
–
–
–
–
(417)
(1,495)
374
–
–
374
–
–
–
–
–
(555)
–
(555)
–
–
–
–
(43)
(2,050)
–
–
–
–
–
–
46
–
(2,450)
1
5,802
–
–
–
–
–
34
–
311
6,147
–
–
–
724
724
(349)
–
–
2,439
–
644
–
–
546
546
(354)
–
–
(371)
465
5,764
(2)
(478)
(264)
724
(20)
(210)
46
13
–
1
5,594
374
(555)
546
365
(212)
34
9
–
5,790
Balance at December 31, 2014
492
463
(19)
180
Financial information | AkzoNobel Report 2014 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
In € millions
Balance at January 1, 2013
Acquisitions/capital contributions
Net income from subsidiaries, associates and joint ventures
Post-retirement benefits
Equity-settled transactions
Change in fair value of derivatives
Loans granted
Repayment of loans
Changes in exchange rates
Dividend received
Other changes
Change to provisions for subsidiaries
Balance at December 31, 2013
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries, associates and joint ventures
Post-retirement benefits
Equity-settled transactions
Loans granted
Repayment of loans
Changes in exchange rates
Dividend received
Other changes
Change to provisions for subsidiaries
Balance at December 31, 2014
1 Loans to these companies have no fixed repayment schedule.
Subsidiaries
Share in capital
7,548
1,436
680
(264)
39
(2)
–
–
(468)
(95)
–
36
8,910
1,986
–
546
(553)
31
–
–
379
(2,402)
–
(343)
8,554
Other financial
non-current
assets
81
–
–
–
–
–
–
–
–
–
13
–
94
–
(1)
–
–
–
–
–
–
–
1
–
Loans 1
5,729
–
–
–
–
–
1,385
(2,282)
(14)
–
–
–
4,818
–
–
–
–
–
1,804
(2,297)
64
–
–
–
Total
13,358
1,436
680
(264)
39
(2)
1,385
(2,282)
(482)
(95)
13
36
13,822
1,986
(1)
546
(553)
31
1,804
(2,297)
443
(2,402)
1
(343)
4,389
94
13,037
In € millions
2013
2014
Receivables from subsidiaries
Receivables from associates and joint
ventures
FX contracts
Other receivables
Total
11
15
4
36
66
42
16
15
30
103
D
Note D: Cash and cash equivalents
Cash and cash equivalents
In € millions
Cash on hand and in banks
Short-term investments
Total
2013
439
645
1,084
2014
114
610
724
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 a 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.
181
AkzoNobel Report 2014 | Financial information 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 proce-
dures for exercising voting rights. The Annual General
Meeting of shareholders has in 2014 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 2014 or 2013.
Of the shareholders’ equity of €5.8 billion, an amount of
€5.0 billion (2013: €4.8 billion) was unrestricted and
available for distribution – subject to the relevant provi-
sions of our Articles of Association and Dutch law. We
consider negative reserves for actuarial gains and losses
as restricted.
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 accor-
dance 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 €24 million for capitalized develop-
ment 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
22, 2015, a 2014 final dividend of €1.12 per share, which
would make a total 2014 dividend of €1.45 per share
(2013: €1.45). There will be a stock dividend option with
cash dividend as default.
During 2014, we paid the 2013 final dividend of €1.12 and
the 2014 interim dividend of €0.33.
F
Note F: Long-term borrowings
Unrestricted reserves at year-end
Long-term borrowings
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
Cash flow hedge reserve
Unrestricted reserves
2013
5,594
(485)
(182)
(61)
(26)
–
2014
5,790
(492)
(245)
(61)
(24)
–
4,840
4,968
In € millions
Bonds issued
Debt to subsidiaries
Other borrowings
Total
2013
1,718
6,725
90
8,533
2014
1,610
5,299
60
6,969
For the fair value of the debenture loans, see Note 23 of
the notes of the Consolidated financial statements.
Bonds issued
In € millions
7 1/4% 2009/15 (€975 million)
8 % 2009/16 (£250 million)
4% 2011/18 (€800 million)
1 3/4% 2014/24 (€500 million)
2013
626
299
793
–
2014
–
320
794
496
Total
1,718
1,610
We have a €1.8 billion multi-currency revolving credit
facility, which was extended in 2013 by an additional year
to 2018. At year-end 2014 and 2013, this facility had not
been drawn. At year-end 2014 and 2013, none of the
borrowings was secured by collateral.
G
Note G: Short-term debt
Short-term debt
In € millions
Current portion of debenture loans
Current portion of other long-term
borrowings
Debt to subsidiaries
FX contracts
Borrowings from associates and
joint ventures
Short-term loans
Debt related to pensions
Other suppliers
Other liabilities
Total
2013
–
32
29
9
28
4
8
56
189
355
2014
623
30
13
8
41
22
6
81
134
958
We have US dollar and euro commercial paper programs
in place, which can be used to the extent that the equiva-
lent portion of the €1.8 billion multi-currency revolving
credit facility is not used. We had no commercial paper
outstanding at year-end 2014 and 2013.
182
Financial information | AkzoNobel Report 2014 H
Note H: Financial instruments
J
Note J: Auditor’s fees
At year-end 2014, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.3 billion (year-end 2013: €0.9 billion), while contracts to
sell currencies totaled €1.3 billion (year-end 2013:
€1.7 billion). The contracts mainly related to US dollars,
Pound sterling and Swedish krona, and all have maturi-
ties 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 23 of the Consolidated
financial statements.
Auditor's fees
In € millions
Audit
Audit-related
Tax
Other services
Total
Amsterdam, February 11, 2015
The Board of Management
Ton Büchner
Maëlys Castella
The Supervisory Board
Antony Burgmans
Sari Baldauf
Peggy Bruzelius
Uwe-Ernst Bufe
Byron Grote
Louis Hughes
Ben Verwaayen
I
Note I: Contingent liabilities
Akzo Nobel N.V. is parent of the group’s fiscal unit in the
Netherlands, and is therefore liable for the liabilities of said
fiscal unit as a whole.
Akzo Nobel N.V. has declared in writing that it accepts joint
and several liability for contractual debts of certain Dutch
consolidated companies (section 403 of Book 2 of the
Netherlands Civil Code). These debts, at year-end 2014,
aggregating €0.6 billion (2013: €0.6 billion), are included in
the Consolidated balance sheet. Additionally, at year-end
2014, guarantees were issued on behalf of consolidated
companies for an amount of €1.4 billion (2013:
€2.4 billion).
The debts and liabilities of the consolidated companies
underlying these guarantees are included in the Consoli-
dated balance sheet or in the amount of long-term liabili-
ties in respect of operational lease contracts as disclosed
in Note 20 of the Consolidated financial statements. Guar-
antees relating to associates and joint ventures amounted
to €9 million (2013: €9 million).
In the
Netherlands
Network
outside the
Netherlands
3.0
0.2
–
–
3.2
6.8
0.3
0.1
–
7.2
In the
Netherlands
Network
outside the
Netherlands
3.1
0.3
–
–
3.4
7.1
0.2
0.1
–
7.4
Total
2013
9.8
0.5
0.1
–
10.4
Total
2014
10.2
0.5
0.1
–
10.8
183
AkzoNobel Report 2014 | Financial information Other information
Independent auditor’s report
To the Annual General Meeting of shareholders of
Akzo Nobel N.V.
Report on the audit of the Financial statements
2014
Our opinion
We have audited the Financial statements 2014 of Akzo
Nobel N.V. (the Company), based in Amsterdam. The
Financial statements include the Consolidated financial
statements and the Company financial statements.
In our opinion:
• The Consolidated financial statements give a true and
fair view of the balance sheet of Akzo Nobel N.V. as at
December 31, 2014 and of its result and its cash flows
for 2014 in accordance with International Financial
Reporting Standards as adopted by the European Union
(EU-IFRS) and with Part 9 of Book 2 of the Netherlands
Civil Code
• The Company financial statements give a true and
fair view of the balance sheet of Akzo Nobel N.V. as
at December 31, 2014 and of its result for 2014 in
accordance with Part 9 of Book 2 of the Netherlands
Civil Code
The Consolidated financial statements comprise:
1. Consolidated balance sheet as at December 31,
2014
2. The following Consolidated statements for 2014:
the statement of income, and the statements of
comprehensive income, changes in equity and cash
flows
3. Notes, comprising a summary of the significant
accounting policies and other explanatory information
The Company financial statements comprise:
1. The Company balance sheet as at December 31, 2014
2. The Company statement of income for 2014
3. Notes, comprising a summary of the significant
accounting policies and other explanatory information
184
Basis for our opinion
We conducted our audit in accordance with Dutch law,
including the Dutch Standards on Auditing. Our responsi-
bilities under those standards are further described in the
section “Our responsibilities for the audit of the Financial
statements” of our report.
We are independent of Akzo Nobel N.V. in accordance
with the “Verordening inzake de onafhankelijkheid van
accountants bij assurance-opdrachten”(ViO) and other
relevant independence requirements in the Netherlands.
Furthermore we have complied with the “Verordening
gedrags- en beroepsregels accountants” (VGBA).
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
opinion.
Materiality
Misstatements can arise from fraud or errors and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these Financial
statements. The materiality affects the nature, timing and
extent of our audit procedures and the evaluation of the
effect of identified misstatements on our opinion.
Based on our professional judgment we determined the
materiality for the Financial statements as a whole at
€64 million. The materiality is determined with reference to
consolidated profit before taxation (7.5 percent). In addi-
tion, the appropriateness for the materiality was assessed
by comparing the amount to consolidated revenue
(0.4 percent) and total assets (0.4 percent). We have
also taken into account misstatements and/or possible
misstatements, if any, that in our opinion are material for
qualitative reasons.
Audits of group entities (components) were performed
to component materiality levels, the majority of which
were based on the relevant local statutory audit material-
ity which is lower than the materiality for the Financial
statements as a whole. In the other cases, component
materiality was determined between €30 and €50 million
by the judgment of the group audit team, having regard to
the materiality for the Financial statements as a whole and
the reporting structure within the group.
We agreed with the Supervisory Board that misstate-
ments in excess of €3 million, which are identified during
the audit, would be reported to them, as well as smaller
misstatements that in our view must be reported on quali-
tative grounds.
Scope of the group audit
Akzo Nobel N.V. is head of a group of entities. The finan-
cial information of this group is included in the Financial
statements of Akzo Nobel N.V.
Because we are ultimately responsible for the opinion, we
are also responsible for directing, supervising and perform-
ing the group audit. In this respect we have determined
the nature and extent of the audit procedures to be carried
out for group entities. Decisive were the size and/or the
risk profile of the groupentities or operations. On this basis,
we selected groupentities for which an audit or review had
to be carried out on the complete set of financial informa-
tion or specific items.
We scoped components of Akzo Nobel N.V. into the group
audit where they are of significant size, have significant
risks to the group or are considered significant for other
reasons. In case this determination does not provide
adequate coverage over the Financial statements, we
used our judgment to scope-in additional components.
Operating companies and operating business units are
reporting components in our group audit. Applying these
scoping criteria led to 51 components in scope, in total
covering 15 countries. Furthermore, we performed specified
audit procedures at corporate level and at business unit
level on significant risk areas such as post-retirement benefit
provisions, goodwill and other asset impairment testing
and tax positions. This resulted in coverage of 61 percent
of group revenue, 68 percent of group profit before taxa-
tion and 81 percent of total group assets. In addition, we
performed analytical procedures at the aggregated group
level on the remaining components in order to corroborate
Financial information | AkzoNobel Report 2014
our assessment that there are no significant risks of mate-
rial misstatement within these remaining components.
The group audit team provided detailed instructions to all
component auditors which covered the significant audit
areas, including the relevant risks of material misstatement,
and set out the information required to be reported back
to the group audit team. The group audit team visited
component locations in the US, UK, France, Germany and
China. Telephone calls were also held with the auditors of
these components and of all other components that were
not physically visited. During these visits and calls, the
findings and observations reported to the group audit team
were discussed in more detail. Furthermore, we performed
detailed file reviews and any further work deemed neces-
sary by the group audit team was then performed.
By performing the procedures mentioned above at group
entities, together with additional procedures at group level,
we have been able to obtain sufficient and appropriate
audit evidence about the group’s financial information to
provide a basis for our opinion on the Financial state-
ments.
Our key audit matters
Key audit matters are those matters that, in our profes-
sional judgment, were of most significance in our audit
of the Financial statements. We have communicated the
key audit matters to the Supervisory Board. The key audit
matters are not a comprehensive reflection of all matters
discussed.
These matters were addressed in the context of our audit
of the Financial statements as a whole and in forming our
opinion thereon and we do not provide a separate opinion
on these matters.
Goodwill and other asset impairment testing
The annual impairment test was significant to our audit
because the assessment process is complex and the test
imposes estimates. In performing the impairment testing
for goodwill and other assets, the company used various
assumptions in respect of future market and economic
conditions, market share, revenue and margin develop-
ment. For our audit we assessed and tested the assump-
tions, methodologies, the weighted average cost of capital
and other data used by the company, for example by
comparing them to external data, such as expected infla-
tion rates, external market growth expectations and by
analyzing sensitivities in Akzo Nobel’s valuation model. We
included in our team a valuation specialist to assist us with
these procedures. We specifically focused on the sensitiv-
ity in the available headroom for the cash generating
units, evaluating whether a reasonably possible change in
assumptions could cause the carrying amount to exceed
its recoverable amount. We also assessed the historical
accuracy of the Board of Management’s estimates. We
assessed the adequacy of the company’s disclosures
included in Note 7 about those assumptions to which the
outcome of the impairment test is most sensitive.
Post-retirement benefit provisions
The total amount of post-retirement benefit provisions
consists of total defined benefit obligations of €17 billion
offset by total plan assets amounting to €16 billion as
per December 31, 2014. The largest pension plans are
the ICI Pension Fund (ICIPF) and the AkzoNobel Pension
Scheme in the UK, which together account for 83 percent
of the defined benefit obligation and 91 percent of plan
assets. As part of our audit we have tested internal
controls as well as assessed and challenged the Board
of Management’s actuarial assumptions such as discount
rates, expected inflation rates, mortality tables, indexation
percentages, valuation of plan assets and future salary
increases. We benchmarked the discount rates utilized
by the company with external sources such as the AA
Corporate yield curve published by Merrill Lynch and peer
companies. In performing our audit we have used pension
specialists including actuarial and valuation specialists. We
specifically focused on the de-risking transactions execut-
ed by the trustee of ICIPF and we verified the appropriate
accounting through other comprehensive income. We also
assessed the adequacy of the company’s disclosure in
Note 15 in respect of post-retirement benefit provisions.
Accounting for income tax positions
Income tax positions were significant to our audit
because the assessment process is complex and
imposes estimates. AkzoNobel’s operations are subject
to income taxes in various jurisdictions and changes in
the company’s business model might have certain tax
implications. We have performed audit procedures on the
completeness and accuracy of the amounts recognized
as current and deferred tax, including the assessment
of correspondence with tax authorities and the evalua-
tion of tax exposures. In addition, in respect of deferred
tax assets, we assessed the Board of Management’s
analysis and assumptions supporting the probability that
deferred tax assets recognized in the balance sheet will
be recovered through taxable income in future years
and available tax planning strategies. We included in our
team local and international tax specialists to analyze the
tax positions and to challenge the assumptions used to
determine tax positions. We also assessed the adequacy
of the company’s disclosure in Note 6 in respect of tax and
uncertain tax positions.
Fraud at US subsidiary
In November 2014, the company announced it had
been subject to fraud targeted at one of its subsidiaries
located in the US, where external payments were made.
The company engaged external advisors to investigate
the fraud and to assess the internal control framework
of this subsidiary. Furthermore, the company determined
the impact on the Financial statements. We discussed
the scoping of the work by the external advisors and we
reviewed the outcome of the work performed by them. In
addition to the already planned procedures, we expanded
our audit procedures on payments made to external
parties by the company in order to verify that these
payments are appropriately authorized and supported by
evidence as part of the regular business activities. We also
verified that there is no evidence of any involvement of
AkzoNobel’s Board of Management serving in a financial
reporting oversight role. We assessed the adequacy of the
Board of Management’s response including investigations
and corrective actions. The company disclosed the finan-
cial impact of the fraud in the US in Note 3 of the Financial
statements.
185
AkzoNobel Report 2014 | Financial information Report on other legal and regulatory requirements
Report on the report of the Board of Management
and the other information
Pursuant to legal requirements of Part 9 of Book 2 of the
Netherlands Civil Code (concerning our obligation to report
about the report of the Board of Management and other
information):
• We have no deficiencies to report as a result of
our examination whether the report of the Board
of Management, as set out on pages 1 to 138, to
the extent we can assess, has been prepared in
accordance with Part 9 of Book 2 of the Netherlands
Civil Code, and whether the information as required by
Part 9 of Book 2 of the Netherlands Civil Code has been
annexed
• We report that the report of the Board of Management,
to the extent we can assess, is consistent with the
Financial statements
Engagement
We were appointed before 2008 for the first time as
auditor of Akzo Nobel N.V. and operated as auditor
since then. We were re-appointed by the Annual General
Meeting of Shareholders on April 29, 2014, as auditor of
Akzo Nobel N.V. for the years 2014 and 2015.
Amsterdam, February 11, 2015
KPMG Accountants N.V.
E.J.L. van Leeuwen RA
Responsibilities of the Board of Management
and the Supervisory Board for the Financial
statements
The Board of Management is responsible for the prepara-
tion and fair presentation of the Financial statements in
accordance with EU-IFRS and 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. Further-
more, the Board of Management is responsible for such
internal control as the Board of Management determines is
necessary to enable the preparation of the Financial state-
ments that are free from material misstatement, whether
due to errors or fraud.
As part of the preparation of the Financial statements, the
Board of Management is responsible for assessing the
company’s ability to continue as a going concern. Based
on the financial reporting frameworks mentioned, the
Board of Management should prepare the Financial state-
ments using the going concern basis of accounting unless
the Board of Management either intends to liquidate
the company or to cease operations, or has no realistic
alternative but to do so. The Board of Management should
disclose events and circumstances that may cast signifi-
cant doubt on the company’s ability to continue as a going
concern in the Financial statements.
The Supervisory Board is responsible for overseeing the
company’s financial reporting process.
Our responsibilities for the audit of the Financial
statements
Our objective is to plan and perform the audit assignment
in a manner that allows us to obtain sufficient and appro-
priate audit evidence for our opinion.
Our audit has been performed with a high, but not abso-
lute, level of assurance, which means we may not have
detected all errors and fraud.
For more information about an audit of financial state-
ments, we refer to the NBA website: www.nba.nl/stan-
dardtexts-auditorsreport.
186
Financial information | AkzoNobel Report 2014 Profit allocation and distributions
Profit allocation and distributions
Article 43
43.6
The Board of Management shall be authorized to deter-
mine, with the approval of the Supervisory Board, what
share of profit remaining after application of the provisions
of the foregoing paragraphs shall be carried to reserves.
The remaining profit shall be placed at the disposal of
the Annual General Meeting of shareholders, with due
observance of the provisions of paragraph 7, it being
provided that no further dividends shall be paid on the
preferred shares.
43.7
From the remaining profit, the following distributions shall,
to the extent possible, be made as follows:
(a) To the holders of priority shares: 6 percent per share or
the statutory interest referred to in paragraph 1 of article
13, whichever is lower, plus any accrued and unpaid
dividends
(b) To the holders of common shares: a dividend of such
an amount per share as the remaining profit, less the
aforesaid dividends and less such amounts as the
Annual General Meeting of shareholders may decide to
carry to reserves, shall permit
43.8
Without prejudice to the provisions of paragraph 4 of this
article and of paragraph 4 of article 20, the holders of
common shares shall, to the exclusion of everyone else,
be entitled to distributions made from reserves accrued by
virtue of the provision of paragraph 7b of this article.
43.9
Without prejudice to the provisions of article 42 and
paragraph 8 of this article, the Annual General Meeting of
shareholders may decide on the utilization of reserves only
on the proposal of the Board of Management approved by
the Supervisory Board.
Article 44
44.7
Cash dividends by virtue of paragraph 4 of article 20,
article 42, or article 43 that have not been collected
within five years of the commencement of the second
day on which they became due and payable shall revert
to the company.
Proposal for profit allocation
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €546 million
is carried to the other reserves. Furthermore, with due
observance of article 43, paragraph 7, it is proposed that
dividend on priority shares of €1,152 and on common
shares of €357 million (to be increased by dividend on
shares issued in 2015 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 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
from May 19, 2015.
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.
187
AkzoNobel Report 2014 | Financial information
Financial summary
Consolidated statement of income
In € millions
Revenue
Operating income
Financing income and expenses
Income tax
Results from associates and joint ventures
Profit for the period from continuing operations
Non-controlling interests
Discontinued operations
Net income, attributable to shareholders
Common shares, in millions at year-end
Dividend to shareholders
Number of employees at year-end
Average number of employees
Employee benefits
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
Ratios
ROS
ROI
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Interest coverage 5
Per share information (in €)
Net income
Adjusted earnings per share
Shareholders’ equity
Highest share price during the year
Lowest share price during the year
Year-end share price
2005 1
13,000
1,492
(162)
(338)
6
998
(37)
–
961
285.8
343
61,300
61,400
3,221
212
24
11.5
19.4
32.0
24.8
9.2
2006
10,023
2007
10,217
887
(134)
(96)
87
744
(29)
438
1,153
287.0
344
42,700
61,900
2,158
162
14
8.8
16.3
30.5
21.5
6.6
778
(151)
(166)
(20)
441
(31)
9
419
262.3
472
42,600
42,600
2,215
240
18
7.6
14.6
122.9
21.7
5.2
2008 2
15,415
(577)
(232)
(260)
25
(1,044)
(65)
23
(1,086)
231.7
417
60,000
61,300
3,022
251
(9)
– 4
– 4
– 4
19.6
– 4
3.36
4.02
33.82
(4.38)
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
15
6.6
7.3
3.7
22.7
2.1
1.23
2.06
33.47
46.52
26.01
46.40
2010 3
13,605
1,293
(329)
(176)
25
813
(83)
58
788
233.5
320
55,600
55,100
2,980
247
23
9.5
11.3
8.8
21.9
6.8
3.23
3.71
38.48
47.70
37.18
46.49
2011
14,604
1,157
(311)
(241)
24
629
(64)
(59)
506
234.7
304
52,020
51,100
2,765
286
23
7.9
10.0
5.6
18.9
4.7
2.04
3.10
39.25
53.74
29.25
37.36
2012
15,390
(1,198)
(205)
(203)
13
(1,593)
(63)
(436)
(2,092)
239.0
214
50,610
52,200
3,018
295
(23)
– 4
– 4
– 4
19.6
– 4
(8.82)
2.55
24.12
49.75
35.16
49.75
2013
14,590
2014
14,296
958
(200)
(111)
14
661
(68)
131
724
242.6
210
49,600
50,200
2,950
291
19
6.6
9.6
12.9
20.2
5.1
3.00
2.62
23.06
56.08
42.65
55.71
987
(156)
(252)
21
600
(72)
18
546
246.0
212
47,200
48,200
2,824
297
20
6.9
10.0
9.5
19.8
8.6
2.23
2.81
23.53
60.77
47.63
57.65
1 The 2005 figures have not been restated for the Organon BioSciences divestment.
2 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
3 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
4 Not meaningful as operating income and net income were losses.
5 Until 2009: operating income divided by net financing expenses, as from 2010: operating income divided by net interest on net debt.
188
Financial information | AkzoNobel Report 2014 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
Non-controlling interests
Total equity
Provisions
Long-term borrowings
Other non-current liabilities
Total non-current liabilities
Short-term borrowings
Current liabilities
Current portion of provisions
Liabilities held for sale
Total current liabilities
Average invested capital 4
Capital expenditures
Depreciation
Operating working capital
Net debt
Ratios
Equity/non-current assets
Inventories and receivables/current liabilities
Operating working capital as % of revenue
2005 1
488
3,432
1,800
5,720
1,987
2,910
1,486
322
6,705
3,415
161
3,576
2,210
2,702
183
5,095
357
2,571
766
60
3,754
7,576
514
528
2006
682
3,346
1,706
5,734
2,042
2,919
1,871
219
7,051
4,144
119
4,263
2,132
2,551
181
4,864
410
2,652
571
25
3,658
8,034
371
349
2007
669
2,203
1,402
4,274
1,177
2,164
11,628
–
14,969
11,032
97
11,129
1,598
1,954
133
3,685
1,635
2,276
518
–
4,429
6,629
359
330
1,573
1,090
(8,039)
0.62
1.90
0.74
1.87
2.60
1.47
2008 2
7,172
3,357
1,848
2009
7,388
3,474
1,783
2010 3
6,568
3,191
2,105
2011
7,392
3,705
2,664
2012
4,454
3,739
2,628
12,377
12,645
11,864
13,761
10,821
1,781
2,977
1,595
4
6,357
7,463
450
7,913
2,072
2,341
715
5,128
1,338
3,510
845
–
5,693
1,441
2,666
2,128
–
6,235
7,775
470
8,245
1,919
3,641
674
6,234
384
3,220
797
–
4,401
1,482
2,740
3,133
–
7,355
8,397
525
8,922
1,958
2,727
556
5,241
904
3,575
577
–
5,056
1,924
3,035
1,635
–
6,594
9,031
529
9,560
2,392
3,035
541
5,968
494
3,782
551
–
4,827
1,545
2,789
1,752
921
7,007
5,764
464
6,228
2,677
3,388
434
6,499
662
3,632
455
352
5,101
2013
3,906
3,589
2,219
9,714
1,426
2,622
2,098
203
6,349
5,594
427
6,021
1,938
2,666
389
4,993
961
3,438
601
49
5,049
9,311
12,578
11,467
11,537
11,817
10,007
534
453
2,359
2,084
0.64
1.36
16.5
513
424
1,691
1,897
0.65
1.28
13.7
534
435
2,016
500
0.75
1.18
13.9
658
419
1,891
1,894
0.73
1.31
13.2
826
463
1,572
2,298
0.58
1.19
10.7
666
472
1,384
1,529
0.62
1.18
9.9
1 The 2005 figures have not been restated for the Organon BioSciences divestment.
2 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
3 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
4 Restated to current definition as from 2010.
2014
4,142
3,835
2,148
10,125
1,545
2,831
1,732
66
6,174
5,790
477
6,267
2,143
2,527
412
5,082
811
3,634
494
11
4,950
9,871
588
477
1,418
1,606
0.62
1.20
10.1
189
AkzoNobel Report 2014 | Financial information Business Area statistics
In € millions
Decorative Paints
Revenue
Operating income
ROS (excluding goodwill impairment)
Average invested capital 3
ROI (excluding goodwill impairment)
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
Performance Coatings
Revenue
Operating income
ROS
Average invested capital 3
ROI
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
Specialty Chemicals
Revenue
Operating income
ROS
Average invested capital 3
ROI
Capital expenditures
2008
2009 1
2010
2011 2
2012
2013
2014
5,006
(669)
3.5
6,515
2.7
120
4,573
133
2.9
6,169
2.2
112
4,968
275
5.5
4,908
5.6
154
4,201
235
5.6
5,032
4.7
155
4,297
(2,012)
2.2
4,701
2.0
206
4,174
398
9.5
2,896
13.7
171
3.909
248
6.3
2,824
8.8
143
24,600
22,900
21,800
17,100
17,200
16,800
15,500
203
(27)
4,575
444
9.7
2,010
22.1
89
200
6
4,112
433
10.5
1,868
23.2
61
228
13
4,786
487
10.2
2,063
23.6
87
246
14
5,170
458
8.9
2,267
20.2
116
250
(117)
5,702
542
9.5
2,499
21.7
123
248
24
5,571
525
9.4
2,463
21.3
143
252
16
5,589
545
9.8
2,480
22.0
143
21,000
20,200
20,600
21,300
21,700
21,300
21,000
218
21
5,687
130
2.3
3,797
3.4
305
204
21
4,359
422
9.7
3,435
12.3
319
232
24
4,943
604
12.2
3,464
17.4
273
243
22
5,335
622
11.7
3,406
18.3
365
263
25
5,543
500
9.0
3,678
13.6
484
262
25
4,949
297
6.0
3,609
8.2
346
266
26
4,883
508
10.4
3,442
14.8
297
Average number of employees
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
12,900
11,400
11,100
11,300
11,800
10,600
10,000
441
11
382
37
445
54
472
55
470
42
467
28
488
51
1 Excluding National Starch, divested in 2010.
2 Restated to present Decorative Paints North America as a discontinued operation.
3 From 2010 restated to current definition.
190
Financial information | AkzoNobel Report 2014 Regional statistics
In € millions
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
The Netherlands
Other European countries
China
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees 2
803
1,537
84
1,390
5,000
Germany
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
1,160
1,096
22
949
694
1,646
144
1,384
5,200
1,284
1,228
31
945
745
1,601
110
1,326
5,200
1,258
1,219
69
861
765
1,600
94
1,175
5,300
1,176
1,143
87
736
762
1,662
72
1,631
5,000
986
920
106
764
Number of employees 2
3,500
3,800
3,600
3,100
2,300
3,398
2,336
83
2,518
9,100
US and Canada 1
2,954
3,074
63
2,131
10,300
Sweden
Brazil
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
468
1,475
19
502
515
1,481
54
551
486
1,505
70
539
473
1,411
38
471
436
1,289
40
428
844
815
23
753
3,702
2,459
98
2,641
8,900
2,092
2,222
67
1,722
5,100
949
903
54
704
3,647
2,400
85
2,127
8,500
2,294
2,413
70
1,742
5,100
987
909
123
621
3,531
2,330
66
1,406
8,000
2,155
2,287
62
1,739
5,000
925
851
70
558
3,341
2,246
57
1,117
7,700
2,193
2,306
68
1,778
4,800
883
826
36
566
1,249
1,177
147
862
6,700
332
251
17
140
India
1,376
1,361
96
1,089
7,400
359
283
18
130
1,621
1,699
135
1,295
7,700
371
288
16
122
1,643
1,690
104
1,330
7,400
353
270
17
119
1,730
1,814
75
1,380
7,400
354
279
7
127
1,600
1,700
1,800
1,900
1,800
Other Asian countries
1,448
1,263
31
548
1,559
1,344
46
656
1,716
1,491
55
605
1,380
1,193
23
493
1,385
1,159
27
473
Number of employees 2
3,400
3,300
3,200
3,000
2,900
2,700
2,800
2,900
2,900
2,800
5,600
6,100
5,000
5,200
5,100
UK
Other Latin American countries
Other regions
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees 2
798
854
28
1,531
3,900
841
879
27
1,512
3,900
901
967
68
1,433
3,800
887
948
74
1,314
3,700
947
950
74
1,008
3,600
550
353
7
67
566
379
12
153
636
435
16
163
628
431
13
155
602
426
9
141
636
409
10
168
667
419
11
218
728
463
9
210
674
436
18
178
677
419
17
159
1,600
1,700
1,700
1,600
1,600
2,200
2,100
2,100
2,500
2,200
1 As from 2011 excluding Decorative Paints North America, divested in 2013.
2 At year-end.
191
AkzoNobel Report 2014 | Financial information Inspired by nature
We’re committed to supplying sustainable products and
solutions that can benefit people and the planet, which is
why we are developing more technologies that use
renewable materials and ingredients, such as new additives
for hairstyling products and micronutrients that help to
increase crop yields.
Sustainability statements
Consolidated Sustainability statements
Note 1: Managing our sustainability agenda
Note 2: Reporting principles
Note 3: Stakeholder engagement
Value chain management
Note 4: Sustainable business
Note 5: Resource efficiency
Note 6: Capable engaged people
Note 7: Supplier management
Safety
Note 8: People safety
Note 9: Process safety
Note 10: Product stewardship
Note 11: HSE management processes
Employees and community
Note 12: Our people
Note 13: Restructuring
Note 14: Community
Environment
Note 15: Energy
Note 16: Greenhouse gases
Note 17: Local air quality
Note 18: Raw materials efficiency
Note 19: Water
Note 20: Soil and groundwater remediation
Independent assurance report
Sustainability performance summary
194
195
198
202
208
209
214
218
219
221
222
223
224
226
228
228
231
231
236
236
237
237
238
240
241
242
244
Additional sustainability information
In this report
Case studies
CEO statement
Strategic performance
Risk management
Business performance
Supervisory Board Chairman’s statement
Report of the Supervisory Board
Corporate governance statement
Compliance and integrity management
Remuneration report
AkzoNobel on the capital markets
22, 84, 96, 206, 212, 234
8
25
52
61
104
106
114
122
128
135
On our website (www.akzonobel.com/sustainability)
you will find additional information on processes, detailed
data and contacts to support the following:
Note 1: Managing our sustainability agenda
Note 2:
Reporting principles
Note 3:
Stakeholder engagement
Notes 4-7: Value chain management
Notes 8-11: Safety
Notes 12-14: Employees and community
Notes 15-20: Environment
This Sustainability statements section of the Report 2014 is separate from, and
does not in any way form part of the company’s annual financial reporting 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
AkzoNobel Report 2014 | Sustainability statements
193
Sustainability statements
Consolidated Sustainability
statements
Sustainability topics have been integrated into
all sections of the AkzoNobel Report 2014.
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
2011
2012
2013
2014
Ambition
2014
Target
2015
Target
2020
Sustainable business
Resource efficiency index (REI)
Eco-premium solutions with downstream benefits
(% of revenue)
Eco-premium solutions (% of revenue)
Resource efficiency
Carbon footprint cradle-to-grave per ton of
product sales (% reduction from 2012)
Sustainability foundations
Total reportable injury rate employees/supervised
contractors (per million hours)
Significant loss of containment (Level D)
Priority substances with management plan (%)
Employee engagement
(ViewPoint score 1–5 scale)
% of female executives
% of executives from high growth markets
Community Program
(cumulative number of projects)
4
4
4
5
8
9
10
12
12
12
14
Operational eco-efficiency footprint measure
(% reduction from 2009)
15–20
Greenhouse gas emissions per ton of production
(own operations, in kg)
Sustainable fresh water management
(% of manufacturing sites)
16
19
194
94
–
22
100
17
22
–
0
3.1
2
23
2.4
0
42
98
18
24
2
2.3
1
62
96
19
24
-4
1.8
0
82
3.74
3.80
3.88
3.97
13
13
15
13
16
14
17
16
1,678
1,931
2,108
2,260
–
11
256
74
13
257
83
24
222
85
24
224
89
25
–
90
–
–
–
–
–
–
30
–
20
–
–
25–30
2.0
<2.0
<1.0
0
80
–
–
–
0
100
>4.00
20
20
–
30
245
100
0
–
–
>20
>20
–
40
(2017)
<245
–
Planet Possible
In order to secure our own business success – and that of
our customers – we have to create more value from fewer
resources. To help us achieve this, we have adopted an
agenda called Planet Possible, which is our commitment to
doing more with less.
We believe the planet can support nine billion people by
2050, but only if we take the right approach and understand
the changes that will be needed. So we’re looking to
engage with partners who believe in our agenda and have
the same commitment to finding opportunities where there
don’t appear to be any. Welcome to Planet Possible.
Our strategic sustainability objectives are explained in detail
throughout the Sustainability statements section of this
Report.
Sustainable business: Details of our focus areas across the
value chain can be found in Note 4 of this section.
Resource efficiency: Details of our focus areas across
the value chain can be found in Note 5 of this section.
Capable, engaged people: Details of our focus areas
across the value chain can be found in Note 6 of this
section.
Sustainability foundations: Our strong sustainability
foundations have been built up over many years. They
include people, process and product safety (Notes 8–11);
employee engagement and talent management (Note
12); community involvement (Note 14); environmental
management (Notes 15-20); and integrity management
(Governance and compliance section).
Sustainability statements | AkzoNobel Report 2014
1
Note 1: Managing our sustainability agenda
Strategic focus
Our sustainability agenda incorporates economic,
environmental and social aspects across the value chain.
The importance of sustainability to running our business
is firmly integrated into the AkzoNobel strategy. As well
as being a strategic focus area, it is one of the three core
principles (safety, integrity and sustainability) that provide
the foundation for our company values. In addition,
sustainability is being embedded into our new company-
wide processes, including Innovation, Commercial
excellence and Talent management. Sustainability helps
us to enhance our existing business, create new business
opportunities and minimize risks.
We developed the sustainability elements of our strategy
by reviewing our sustainability risks and opportunities
against the global trends that will impact our key market
segments by 2050. These were identified as population
growth and the new middle class, urbanization, long-term
constraints of natural resources and climate change.
We express our sustainability agenda through a
concept known as Planet Possible, which highlights our
commitment to creating more value from fewer resources
across the value chain. Planet Possible encompasses all
our programs that are focused on making our products
and operations more sustainable. As well as driving
our own success, putting sustainability at the heart of
everything we do means that our customers and
By focusing on the full value chain, we will drive business, resource and engagement benefits
Raw materials
Own operations
Customer operations
End-user
End-of-life
Sustainable
business
Cost savings
Cost savings
Resource
efficiency
Reduced material
and energy use
Reduced material
and energy use
Improved revenue
and margin
Reduced material and
energy use in customer
processes, application
Energy/resource benefits in use
Improved revenue and margin
Reduced material and
energy use in product use
Capable,
engaged
people
Engaged
suppliers
Engaged
employees
Engaged
customers
Engaged customers
and users
Foundations: HSE, product stewardship, employee practices, community involvement, Code of Conduct
employees – not to mention the planet – will also benefit.
For more details, see the Strategic performance section of
this Report 2014.
Our strategy has three sustainability focus areas designed
to deliver more value from fewer resources, with targets
for 2020. Our progress in terms of creating more value
from fewer resources is measured by a special Resource
Efficiency Index (REI), which monitors the gross margin
generated over the resource/energy use across the value
chain (measured as cradle-to-grave carbon footprint). We
focus on three aspects:
• Sustainable business: Involves creating business
value through products and solutions that provide both
functionality and other sustainability benefits, as well as
cost savings from operational efficiencies.
Target: 20 percent revenue from eco-premium solutions
with a downstream benefit by 2020
• Resource efficiency: Focused on accelerating material
and energy efficiency across the value chain.
Target: 25-30 percent reduction in cradle-to-grave
carbon footprint per ton of sales from 2012 to 2020
• Capable, engaged people: Engaging our people and
partnering with our suppliers and customers to deliver
significant changes. Objectives are being defined, mainly
at Business Area level
These strategic objectives are underpinned by strong
foundation programs for other economic, environmental
and social aspects that are material for our business.
Specifically, these are: people and process safety, product
safety/stewardship, employee talent management/
engagement, community involvement, environmental
management and integrity management. For these
elements, we have key performance indicators with
2015 targets, some of which have been extended to
2020. Other short-term and long-term ambitions are
set at functional and business level. The Notes in the
Sustainability statements and other elements of this Report
2014 illustrate our performance against these goals.
195
AkzoNobel Report 2014 | Sustainability statements
Sustainability framework
Our strategic sustainability focus areas are a natural next
step in our sustainability framework, which maps out a
progression towards sustainability and identifies those
aspects that are material for our business. The framework
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
The Improve level, with an emphasis on risks – working on
integrity, governance and compliance with our standards
and applicable laws and regulations – is now part of
the compliance framework (see the Governance and
compliance section).
The current strategy focuses on creating opportunities for
value creation through resource efficiency, innovation and
talent development, alongside continued integration of
sustainability in all aspects of the value chain.
Level of development
Environmental
Economic
Social
Resource efficiency
Carbon policy
Sustainable business:
eco-premium solutions
Capable engaged people:
suppliers, employees,
customers
Future
trends
Eco-premium
solutions; VOC
Required
Eco-efficiency
eco-analysis
analysis
Sustainable
supplier mgt
Operational
eco-efficiency
Market
propositions
Market
research
R&D
Investment
decisions
Purchasing
Manufacturing
/supply chain
Sales and
marketing
Environmental management
Product stewardship
Integrity management
Vendor Policy
People/process safety
Employee practices
Community engagement
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
Examples of sustainability activity
Value chain aspects
196
Management structure
Company level
The Executive Committee has overall responsibility for
sustainability. They set company strategy and targets
and monitor the sustainability performance of each
Business Area through the Operational Control Cycle using
dashboards, which specify indicators against strategic
objectives.
We have established 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 performance. The
Council, which meets quarterly, is chaired by the CEO
and includes representative Managing Directors from
our Business Areas, as well as the Corporate Directors
of Strategy, Supply Chain/Research and Development,
Purchasing, Human Resources, Sustainability and HSE,
and Communications. The Council maintains an external
perspective, with input from value chain partners and
thought leaders during regular meetings, in addition to
company involvement in leading external organizations.
The Corporate Director of 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. In 2012, we formed a team
of senior Business Area representatives to work with the
expertise team and the business teams to ensure effective
roll-out of the new strategy.
Sustainability statements | AkzoNobel Report 2014 Businesses and functions
Accountability for managing sustainability and delivering
against targets lies with the businesses and functions.
The Managing Director of each business is responsible
for managing sustainability as an overall part of business.
The key sustainability business KPIs and targets form a
dashboard which is monitored at least every six months as
part of the Operational Control Cycle. All businesses have
also appointed a sustainability manager, or 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
Procurement, Supply Chain and RD&I (which are made
up of both corporate and business representatives), are
in place to support the implementation of the functional
strategy, including the sustainability elements.
The safety, product stewardship, employee and
environmental foundation elements are managed by the
HR and HSE cross-business management processes.
The Compliance framework and the management
structure for integrity and compliance aspects are
detailed in the Governance and compliance section under
Compliance and integrity management.
Management processes
We include key sustainability issues in our company,
business and functional processes – strategy and
planning, risk management and internal control,
compliance, the Operational Control Cycle, as well as
in our internal audit and external assurance processes
– which are reported in other sections of this Report
2014 (see Strategic performance and Governance
and compliance). Each year, there are two dedicated
sustainability sessions in the Operational Control Cycle.
Relevant sustainability aspects are also discussed in other
functional reviews. Specific challenges are reported in
the Strategic performance and Business performance
sections.
We set global standards for the foundation elements
(health and safety, environmental protection, product
stewardship and compliance, including social and labor
aspects) and our governance processes. Corporate
compliance and audit processes are supplemented
by specialist functional audits. These standards are
also the basis of our supplier management processes
and investment assessments. Where there are specific
sustainability risks or issues of concern to stakeholders,
we develop a company position and an improvement plan
owned by a subject matter expert.
To further embed sustainability in the way we do business,
we are piloting a new functional excellence improvement
tool, which reflects the strategic objectives, management
processes and good practice implementation.
The purpose is to accelerate sustainability performance
against strategy/targets by raising the capability of people
and processes, supporting good practice implementation,
providing challenges to the operating businesses and
focusing improvement actions where they count.
Each business carries out a self-assessment of the current
situation and sets ambition levels, based on company
requirements and business priorities, as well as focused
annual improvement plans. These assessments are
subject to a peer review/challenge by cross-business
colleagues to hone improvement options and identify the
need for common improvement programs. The overall
improvement plans will be reviewed alongside current
performance as part of the Operational Control Cycle.
Each business carried out a pilot assessment in 2014,
and held a Business Area moderation meeting to review
and compare the results, identify areas of common
improvement potential and areas of good practice.
The credibility of the total AkzoNobel results was then
reviewed by senior Business Area representatives.
The results helped all our businesses to identify specific
areas for improvement and some common opportunities.
Priorities for 2015 include:
• Working with suppliers to identify and deliver cost
effective carbon footprint improvements
• Equipping a broader range of managers/employees
across functions to drive sustainability improvements
197
AkzoNobel Report 2014 | Sustainability statements
We will use learnings from these pilots to further refine the
tool for full roll-out in 2015.
We strive to empower all employees to contribute and
be accountable for our sustainability performance, using
training and other engagement processes, including
business and site level activity, as well as web-based
resources. This responsibility continues to be anchored
in the personal targets and remuneration packages of
managers and employees. Since 2009, half (from 2013
onwards 30 percent) of the conditional grant of shares
for Board members and all executives is based on
AkzoNobel’s performance in the RobecoSAM assessment
over a three-year period (see Remuneration report in the
Governance and compliance section).
Benchmark and review
The sustainability aspects material to the company are
summarized in the company strategy and sustainability
framework. These are reviewed annually with input from
internal and external stakeholders (see Materiality in
Note 2 of this section). Full details of the boundaries and
management processes for each aspect are included in
the Global Reporting Initiative G4 additional information
document, which is available on our corporate website.
We also benchmark our performance against our peers
using external assessment processes such as the
RobecoSAM assessment for the Dow Jones
Sustainability Indices.
2
Note 2: Reporting principles
Reporting scope
This Report 2014 integrates 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 resource
efficiency, carbon emission reduction, eco-premium
solutions, safety, people development and engagement,
and operational eco-efficiency.
The information in this Report 2014 offers an update on
our implementation of the ten principles of the United
Nations Global Compact (UNGC). More sustainability
information is available on our corporate website, including
an index of the Global Reporting Initiative (GRI) G4
indicators and a summary of our UNGC communication
of progress.
The topics in this Report 2014 were selected on the basis
of the sustainability aspects of our strategy, the GRI G4
guidelines and input from various external stakeholders.
These include our engagement with:
• Shareholders
• Customers
• Employees
• Rating organizations, notably RobecoSAM – 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),
Forum for the Future and the International Integrated
Reporting Council
198
Sustainability statements | AkzoNobel Report 2014 Our value chain (cradle-to-grave) 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 have
been restated on the same basis, so there was no impact
on the percentage change in carbon footprint. For our
own operations, environmental impact and improvements
are quoted relative to production quantity, i.e. the product
volumes leaving every manufacturing plant.
Since 2013, we include the climate impact of VOCs in our
overall carbon footprint targets. This increased our scope 3
downstream CO2(e) by about three million tons. The 2012
data have been restated to provide a sound baseline for
our 2012 to 2020 targets.
We identify issues that affect comparability in the text or
footnotes.
Reporting process
and assurance
The reporting period is 2014. 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, each of
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
reported, 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.
Reporting policies
Reporting boundaries
The Report 2014 integrates sustainability aspects of our
processes and business operations in each section, in
particular the How we create value, Strategic performance,
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
2014 and comparative data for 2013, 2012 and 2011.
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.
Comparability
Since 2010, we report acquisitions from the date of
purchase, recognizing that reporting improvements may be
required at these facilities. Recent significant changes:
• 2014 data includes updated definitions on regulatory
actions and executive potential. See also Note 11 and
Note 12 respectively. It also includes the result of the
divestment of our Building Adhesives business
• 2013 data excludes Chemicals Pakistan as it was
divested at the end of 2012. We include data from
Decorative Paints North America until April 1, 2013,
when it was divested
• 2012 data includes the Boxing Oleochemicals
acquisition and our new facilities at Ningbo, China
• 2011 data includes the acquisition of the Schramm/
SSCP businesses
199
AkzoNobel Report 2014 | Sustainability statements
Materiality matrix
Materiality
We have used the principle of materiality to assess the
topics to include in this Report 2014, which are current and
important for the company and key stakeholders.
In order to determine the materiality of topics, we made
a long list of all (more than 200) possible material topics,
using the following as our key sources:
• The AkzoNobel strategy
• The AkzoNobel Report 2013
• Issues raised by investor associations such as the
VBDO
• Reporting guidelines and frameworks such as
GRI G4 and SASB
• Sustainability ratings agencies such as RobecoSAM and
Carbon Disclosure Project
• The most recent reporting of peers
• Media analysis
This long list was then reduced by reviewing the dominance
of the topics, before being clustered into 18 final topics
which are plotted in the matrix opposite.
A full explanation of each topic featured in the matrix can
be found on the next page.
For further information please go to
www.akzonobel.com/sustainability
l
s
r
e
d
o
h
e
k
a
t
s
r
o
f
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t
i
l
a
i
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e
t
a
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h
g
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i
i
m
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12
4
10
14
9
8
6
18
15
16, 17
1
2
3
11
7
5
13
Low
Medium
High
Materiality for AkzoNobel
200
Sustainability statements | AkzoNobel Report 2014
Importance Qualitative information
Quantitative information
Reported
Insight on policies and procedures
Code of Conduct reporting, Code of Conduct investigation,
Compliance monitoring, Code of Conduct training
Report 2014: Integrity and compliance, website
Report 2014: How we create value,
Strategic performance, Business performance
Report 2014: Business performance,
Sustainability statements Notes 4 and 5
Report 2014: How we create value,
Strategic performance, Business performance
Report 2014: Strategic performance,
Business performance
Report 2014: Risk management, Business performance,
Sustainability statements Notes 4 and 5
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Notes 4 and 5
Report 2014: Strategic performance,
Sustainability statements Note 10
Report 2014: Sustainability statements Note 7
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Notes 4 and 5
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Notes 15-20
Insight on end-user segment trends
Customer excellence programs
–
9 Circular economy principles
High
11 Economic performance and
High
strategy
Renewable energy and raw material
programs, waste reuse
Market segmentation
Description of economic performance
Renewable raw materials, Renewable energy
Economic performance and strategy
13 Product and margin
High
Operational excellence initiatives
–
Risk description and mitigation actions
Renewable energy and raw material
programs
Renewable raw materials, Renewable energy
Sustainability topics
Economic
4 Integrity
5 Customer needs
High
High
management
17 Resource scarcity/
Medium
material availability risks
Environmental
1 Energy, resource use,
High
carbon emissions throughout
the value chain
3 Eco-premium solutions and
value chain management
High
7 Product stewardship
High
Value chain descriptions
Insight on impacts throughout the
value chain
Lifecycle assessment value chain
impacts
Customer partnership solutions
Priority substance management
Regulatory affairs
Resource Efficiency Index, Cradle-to-grave carbon footprint, Renewable raw
materials, Energy use, Renewable energy, Greenhouse gas emissions per ton
of production
Report 2014: How we create value,
Strategic Performance, Business performance
Sustainability statements Notes 4, 5, 15, 16 and website
Eco-premium solutions with downstream benefits, Eco-premium solutions
VOC in product
Priority substances with management plan, REACH compliance
10 Sustainability in the
Medium
supply chain
Supplier sustainability framework
program
Third party audits, Supplier Support Visits, Vendor Policy compliance,
Environmental supply chain aspects
12 Climate change
Medium
Climate change risk management,
mitigation and adaption policies
Cradle-to-grave footprint, Greenhouse gas emissions per ton of production
15 Operational eco-efficiency
Medium
Operational eco-efficiency program
and management
Operational eco-efficiency footprint measure
18 Biodiversity
Social
Low
Climate change, Pollution control
–
Report 2014: Sustainability statements Notes 3, 5, 15-20
2 People and process safety
High
Insight on policies and procedures
Reportable injury rate, Behavior-based safety program, Life-Saving Rules,
Regulatory actions, Loss of containment
6 Employee engagement
High
Insight on policies and procedures
Employee engagement survey
8 Talent management
High
Insight on policies and procedures
Cross-BU moves of leadership talents, Internal promotion into executive level,
Retention of leadership talent, ViewPoint score on learning and growth, Female
executives, Female executive potentials, High growth market executives, High
growth market executive potentials
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Notes 8 and 9
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Note 12
Report 2014: How we create value,
Strategic performance, Business performance,
Sustainability statements Note 12
10 Sustainability in the
Medium
supply chain
Supplier sustainability framework
programs, Human rights
commitment program
Third party audits, Supplier Support Visits, Vendor Policy compliance,
Social supply chain aspects
Report 2014: Integrity and compliance,
Sustainability statements Note 7
14 Stakeholder engagement
16 Community involvement
Medium
Medium
Framework activities
Sustainability ratings, Agency rankings
Human Cities initiative, Community
program, Business activities
Projects involved, Volunteers, Donations
Report 2014: Sustainability statements Note 3, website
Report 2014: Human Cities, Case studies, Strategic
performance, Sustainability statements Note 14, website
201
AkzoNobel Report 2014 | Sustainability statements 3 Note 3: Stakeholder engagement
Our approach
Stakeholder engagement in 2014
The aim of our ongoing stakeholder engagement is
to learn from key financial, social and environmental
stakeholder groups and, in collaboration, to develop
innovative and sustainable solutions to address some of
the world’s most pressing challenges. Our Planet Possible
agenda is not only designed to help drive innovation and
enable us to become radically resource efficient, it’s also
intended to inspire employees, customers, suppliers
and other key stakeholders to work together with us in
achieving this.
Our commitment and primary partners
We support a number of charters and external organizations
to demonstrate our commitment to sustainability issues. We
have been a signatory to the UN Global Compact since 2004.
We are a partner of the Caring for Climate platform and an
active member of the Global Compact Netherlands Network:
in 2014, we laid the groundwork to participate in a project to
explore how to improve awareness and build capability in the
area of human rights in four key countries – Indonesia, Mexico,
South Africa and Turkey – that will take place in 2015.
Reaching out to all our stakeholders in ongoing
conversation and dialog is vital to achieving our goals and
to further developing our long-term vision and strategy
in all areas of sustainability. Our key stakeholders are
employees, suppliers, customers, investors, shareholder
representative groups, NGOs and international
organizations, governments, industry associations,
sustainability rating agencies and communities. Based on
the company strategy, emerging societal and business
issues, and the outcomes of our materiality analysis,
we identify the key topics and levels of engagement
per stakeholder group, which can vary from pro-active
engagement to providing information upon request.
This section includes several 2014 highlights. More details
can be found on our corporate website, in the Strategic
performance section and other chapters of this
Report 2014:
• Customers: Business performance section
• Investors: Governance and compliance section
• Specific sustainability/research organizations and
NGOs: Note 3 of this section
• Employees: Note 6 of this section
• Suppliers: Note 7 of this section
• Communities: Note 14 of this section
In addition, we subscribe to the UN Universal Declaration
of Human Rights; the key conventions of the International
Labor Organization; the OECD Guidelines for Multinational
Enterprises; the Responsible Care® Global Charter and the
CEO Water Mandate.
In order to contribute to, and keep up to date with, important
developments in sustainability, we participate in meetings
and task forces as a member of organizations such as the
WBCSD, Forum for the Future, True Price and the Dutch
Sustainable Growth Coalition (DSGC). Our CEO was a keynote
speaker at the DSGC event in December. He addressed an
audience which included Her Majesty Queen Máxima of the
Netherlands and international industry leaders on innovation,
collaboration and technology in sustainability.
Since 2010, we have been a member of Worldconnectors,
a Dutch-based initiative working to broaden the discussion
on international issues by incorporating perspectives from a
cross-generational network. In 2014 we were one of more
than 60 signatories to their Post-2015 Charter, committing
to contribute to the achievement of the United Nations
Sustainable Development Goals (2015-2030).
Customers and products
Our customers are increasingly looking for products and
solutions that will make their business more sustainable.
In order to continuously improve our product offering, we
encourage customers to challenge us and work together
with us. Part of this approach is to include customer
sessions in our quarterly Sustainability Council meetings.
In 2014, international shipping company Maersk
participated in one of these meetings to share knowledge
and best practice and identify areas where we can work
together to reinforce our sustainability efforts. There are
many more specific examples in the various case studies
and the Business performance section of this Report
2014. In addition, we are in the process of improving our
methods to monitor customer engagement and customer
satisfaction.
AkzoNobel’s Ferrazone iron fortificant is making an
important contribution to the Millennium Development
Goals of the United Nations. Ferrazone is a bioavailable
iron source designed to help fight global anemia, an effort
supported through partnerships with the Amsterdam
Initiative on Malnutrition (AIM), the Global Alliance for
Improved Nutrition (GAIN) and the project Smarter Futures.
In 2014, millions of people benefited from programs
to fortify staple foods with Ferrazone. An important
milestone was the signing of a new long-term agreement
to collaborate in a private-public partnership with NGOs,
the Dutch Ministry of Foreign Affairs and other leading
companies. The parties agreed to set up a quality
improvement network in Africa which will comprise of
facilities along the food production value chain: a field
testing facility, a laboratory facility performing a full range
of food analyses, an auditing and certification facility
and a financing facility supporting applicants to finance
their quality assurance and control related investments.
AkzoNobel is responsible for the development and
validation of analysis methods for iron, zinc, calcium and
iodine in fortified food, as well as providing technical
assistance and training of laboratory staff and advising on
best practice laboratory management.
202
Sustainability statements | AkzoNobel Report 2014 Suppliers and sourcing
During 2014, we continued to engage with Together for
Sustainability (TfS), a chemical sector initiative designed
to create more sustainable supply chains. TfS is a
collaboration founded by the Chief Procurement Officers
of BASF, Bayer, Evonik, Henkel, Lanxess and Solvay
and aims to build the industry’s standard for sustainable
supply chains. The TfS program utilizes high quality third
party sustainability assessments and audits in order to
measure the supplier’s sustainability performance against a
pre-defined set of industry best practice criteria.
To enhance the importance and development of
sustainable value chains, we’ve been supporting the
organization of the International Supply Management
Congress in Amsterdam since 2010. This is a joint
initiative with IDH, PwC, NEVI (Dutch knowledge network
for purchasing and supply management), Shell, DSM
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 2014 was on the future of supply management and
perspectives through new partnerships.
For more information, see Note 7 of this section.
AkzoNobel has been a global partner of the Forest
Stewardship Council (FSC) since 2010 with the aim of
growing awareness of responsible forestry worldwide.
We proudly display the partnership logo on packaging
for our wood care products. In 2014, awareness of the
AkzoNobel-sponsored Smallholder Support Program was
raised with the launch of the “Made with Heart” campaign.
With the mandate of its membership, and with support
from AkzoNobel, in 2012, FSC developed a specific
on-product label – the Small and Community Label
Option (SCLO) – to increase the visibility of small-scale
producers in the market place. When consumers buy a
product carrying the “Made with Heart” concept, they are
assured that the product originates from a community that
is dedicated to protecting natural resources, and which
benefits from this both financially and socially.
Besides strengthening the link on a global level, we will
also continue to increase the ten active local partnerships
we have between FSC and AkzoNobel in the Netherlands,
UK, Germany, Switzerland, Czech Republic, Brazil, Russia,
the Nordics, Argentina and Poland, year-on-year.
In June 2014, the Sustainable Trade Initiative on Pulp &
Paper (STIPP) was launched to help sustainability become
the norm in the pulp and paper industry. STIPP is a sector-
wide initiative co-founded by IDH (The Sustainable Trade
Initiative), Asia Pulp and Paper Group and AkzoNobel and
supported by the Indonesian Ministry of Forestry and the
Indonesia Pulp & Paper Association. This partnership is a
result of our customers’ needs for sustainable pulp and
paper products, which is why we are intensely involved
in providing clean technologies for pulp and paper
production.
Engaging employees
During 2014, we continued to engage employees from
around the world on the theme of sustainability through
our Planet Possible concept.
For more information, see Note 6 of this section.
Energy and climate
Our aim is to achieve cost effective energy sources
and maximize sustainable impact while being prepared
for future developments. For our energy-intensive
production processes, AkzoNobel is actively engaging in
diversifying the energy-mix to lower risks and enhance
our sustainability performance by reducing our carbon
footprint and increasing the use of renewable energy.
In 2014, we strengthened and intensified our dialog with
key stakeholders at European Union (EU) and national
levels on issues regarding the reform of the Emissions
Trading Scheme (ETS), improving the conditions for
sustainable supply of steam from biomass and waste and
the better functioning of the EU internal energy market.
In addition, we engaged in a number of consortia on
innovations in bio-based chemistry. We also worked
on stronger engagement with stakeholders around our
production locations to increase the use and integration of
renewable energy into our energy-mix.
We co-chair the WBCSD Chemicals Sector Working
Group, which has been developing a consensus approach
to some aspects of lifecycle assessment. Together with
peers, we have developed two chemical sector guidelines
to drive consistent and comparable reporting of both
the environmental footprint of chemical products and
carbon avoided emissions. It is a global effort which also
involved relevant stakeholders in the process of developing
a harmonized approach towards the calculation of
environmental impacts along the value chain.
203
AkzoNobel Report 2014 | Sustainability statements Furthermore, we participated in a workshop about
business and human rights impacts in China from the
Dutch Social and Economic Council (SER).
We took part in the biennial meeting of the United Nations
Global Alliance to Eliminate Lead in Paint (GAELP)
and were able to inform the 20 countries present that
AkzoNobel does not add lead compounds to any of its
products. We were also invited to participate in a public
workshop organized by Chemsec to exchange knowledge
and share our approach to priority substances with other
companies, government representatives and NGOs.
To help us in further developing integrated reporting and
transparency, AkzoNobel was one of the pilot companies
for the International Integrated Reporting Council program
to create a forward-looking company reporting framework,
and provided company input to the working group.
We are now a member of the business network, made
up of companies committed to making the framework a
practical reality. Learnings from this program are included
throughout this Report 2014.
Shareholders, analysts and indices
We continuously developed our engagement with
shareholders and investors on sustainability aspects by
taking part in conferences and meetings during the year,
as well as answering questions in telephone briefings and
questionnaires. In addition, in May 2014, we organized
our first Social Responsible Investor (SRI) conference call,
which was attended by a range of more than 40 SRI and
mainstream investors. Questions during 2014 focused
on financial and environmental benefits from sustainability
activity and solutions for customers, raw materials supply
and carbon policy, as well as safety and the development
and training of employees.
Sustainability aspects of business are also included in
many analyst and general shareholder presentations.
Following the 2014 AGM, for example, the Dutch
Association of Investors for Sustainable Development
(VBDO) indicated they would like to see a more long-term
strategy in the areas of eco-efficiency and renewable raw
materials. This has been covered by the new
Planet Possible agenda that was launched in 2013.
Developing good practice
As part of our efforts for continuous improvement and the
development of good practice, we participate in a range of
activities that offer the opportunity to learn from and share
and engage with a broad group of stakeholders.
We are incorporating natural capital thinking to ensure
our business is sustainable as it grows. We continue
to use our membership of the International Union for
Conservation of Nature’s (IUCN) business engagement
network Leaders for Nature, in place since 2006, to
understand and develop our biodiversity priorities. The
main focus for our own operations is on climate change
mitigation (through the adoption of a carbon mitigation
policy) and pollution control (monitoring air, water, and
soil emissions). During the year, a development activity
took place focused on our raw materials, when our
2014 Leaders for Nature group researched the impact of
soybeans on deforestation in South America.
Our product portfolio includes solutions that deliver both
environmental and social benefits to our customers
and wider society. While processes for measuring
environmental benefit are well advanced, social impact
measurement is less well developed. Therefore, we
contributed to the Roundtable for Social Metrics and the
WBCSD social metrics working group, working together
with leaders in the industry to develop ways of quantifying
the social challenges we are facing. Ultimately, this process
will enable us to identify areas that require attention and
drive further improvements.
204
Sustainability statements | AkzoNobel Report 2014 Investors make use of sustainability rating agencies.
An overview of the agencies and their ratings can be found
in the table below:
Sustainability rating agencies
RobecoSAM
(Dow Jones Sustainability Index)
We were industry group leader for the third consecutive year,
and have been in the top three for the last nine years.
CDP
Sustainalytics
Oekom
Vigeo
We have participated in the CDP assessments since 2007 and
qualified for the Benelux Climate Disclosure Leadership Index
(CDL) 2014.
Sustainalytics has covered us in their rating since 2004.
For the second year in a row, we rank first in the Chemicals
Industry ranking.
Oekom research has analyzed us since 2001.
We have been awarded Oekom Prime status since 2012.
We currently rank in the top five chemical companies.
Vigeo has rated us since 1999. In 2014, we were among their
leader group in ESG performance, resulting in inclusion in all their
ethical indices.
For an overview of our listing on sustainable stock
indices, turn to AkzoNobel on the capital markets in the
Governance and compliance section.
205
AkzoNobel Report 2014 | Sustainability statements Measuring our
impact in 4D
As a global company
active in numerous
markets, AkzoNobel is
similar to many other
large organizations.
We generate revenue,
incur costs and create
value for shareholders.
However, we believe
that economic growth
cannot be sustained if
the underlying natural
and social capital upon
which wealth creation
depends is depleted.
206
Sustainability statements | AkzoNobel Report 2014
In order to get a more detailed insight into how our profit and loss is generated, we want to
develop a deeper understanding across the value chain of how our business impacts the
environment, people and society at large. Gaining a better understanding of these aspects
– and attaching a monetary value to them – will enable us to identify possible improvements
and ultimately increase business value.
We carried out a pilot study during 2014 at our Pulp and Performance Chemicals business
in Brazil, which specifically looked at our environmental, human, social and financial impact.
By measuring these four dimensions across the whole value chain – including raw materials,
sodium chlorate production and the use of sodium chlorate in pulp production by our
customers – as well as attaching an economic value to the positive and negative aspects of
each, we were able to identify where we can improve. This new insight will enable us to make
better business decisions by reducing the negatives and building on the positives.
Results
Looking at the results of the pilot (outlined in the chart below), we found that the impact on
financial capital was positive and substantially higher than the traditional profit calculation.
This is because when combined, salaries, taxes and interest payments make a substantial
contribution to wealth in society.
Monetized impact across the whole value chain (indicative1)
Natural capital
Human capital
Social capital
Financial capital
+
+
+
+
–
+
–
–
+
+
+
+
+
–
–
–
+
+
+
+
–
–
–
+
+
+
+
+
+
–
–
–
–
+
+
+
+
+
+
–
–
–
–
Upstream
Our operations
Energy supply
Downstream
Total value chain
1These indicative results are based on work carried out in cooperation with TruePrice and Pavan Sukhdev (GIST)
The impact on natural capital was largely negative, mainly due to the use of oil and natural
gas and emissions such as carbon dioxide, sulfur dioxide and nitrogen dioxide to air across
the value chain. The positive human impact resulted from employee training programs and
career opportunities, while the impact on social capital was limited, due to the nature of the
industry within the scope of the pilot, which has larger production volumes and involves fewer
people compared with other industries.
What we learned
We teamed up with experts in this field, such as TruePrice and Pavan Sukhdev (GIST) and
derived some interesting learnings from this new approach.
Regarding the environmental impact, we were fully aware that the production of sodium
chlorate requires significant amounts of energy. We have already taken major steps to be as
efficient as possible and, in addition, have built a number of our plants in close proximity to
our customers’ pulp mills. These so-called Chemical Islands use 100 percent biomass for
energy generation. However, it’s clear that there are further opportunities for us to reduce
the environmental footprint. This can be achieved by increasing the share of hydropower
in our electricity mix, looking further into using electricity more efficiently, exploring options
to improve the transportation of raw materials and strengthening the collaboration with our
customers when choosing bio-based chemicals in their production.
We have also learned that an analysis of human capital creation and human capital
externalities can be used to estimate the return on training investments and to benchmark
comparable units. By knowing the human capital, measures can be taken to retain employee
groups of particularly high value.
In the social dimension, Pulp and Performance Chemicals can improve the value of social
capital externalities through targeted intervention which addresses material social risks,
identified by carrying out a risk assessment. Furthermore, looking at the full value chain,
social capital can be enhanced by creating awareness and continuous improvement on
issues around health and safety, rights at work and with local communities.
To conclude, a study such as this increases internal transparency and creates a sense of
urgency, while also improving the quality of strategic decision-making.
Next steps
The findings are already being used to make relevant improvements at the six plants in Brazil
where the pilot was conducted. We’re also looking at scaling up the project and introducing it
throughout our Pulp and Performance Chemicals business.
Imperatriz
Bahia
Jupia
Três Lagoas
Jacareí
Jundiaí
Pulp and
Performance Chemicals
production sites in Brazil
AkzoNobel Report 2014 | Sustainability statements
207
Value chain management
Our sustainability objective is to create more value from
fewer resources – right across the value chain.
• Value for society through the positive impact of our
products in our end-user segments
Lifecycle assessment
• Value for our customers by providing products with
excellent functionality that generate resource/energy
benefits ahead of competitive products
• Value for the environment through more effective use of
natural resources and a significant reduction in specific
greenhouse gas emissions across the value chain
• Value for our business by focusing on our end-user
segments – delivering growth and profitability
There are three aspects for the delivery of this value chain
strategy, which are summarized over the following pages:
• Sustainable business
• Resource efficiency
• Capable engaged people
Lifecycle thinking is the basis for all our sustainability
work. Our standard assessment method is eco-efficiency
analysis (EEA), based on a combination of lifecycle
assessments and lifecycle costing. Assessment work is
carried out by business and company level specialists
and is based on ISO 14040-44 and a company lifecycle
assessment database.
Key performance indicators – value chain
Sustainable business
Resource Efficiency Index (2012 baseline)
Eco-premium solutions with downstream benefit
(% of revenue)
Eco-premium solutions total (% of revenue)
VOC in product (% reduction from 2009)
Resource efficiency
Carbon footprint cradle-to-grave per ton of product sales
(% reduction from 2012)
Carbon footprint cradle-to-gate per ton of product sales
(% reduction from 2009)1
Carbon footprint own operations (million tons of CO2(e))
Renewable energy own operations (%)
Renewable raw materials (% of organics)
Supplier management
Critical PR2 spend covered by supplier management
framework (% of spend)
PR2 suppliers signed Vendor Policy (% of spend)
NPR3 suppliers signed Vendor Policy (% of spend)
Suppliers on SSV program since 2007
1 2011-2012 restated due to KVC review.
2 Product related (raw materials and packaging).
3 Non-product related.
2011
2012
2013
2014
Target
2015
Target
2020
94
–
22
6
–
3
4.8
–
–
–
95
77
304
100
17
22
10
0
1
4.7
33
13
69
97
80
373
98
18
24
7
2
4
3.9
31
13
80
96
83
392
96
19
24
n/a
-4
0
3.9
34
13
83
98
80
432
–
–
30
–
–
10
<4.6
–
–
88
98
80
–
–
20
–
–
25-30
–
<4.6
45
–
–
–
–
–
Lifecycle assessment has been included in a range of
processes for many years. The company is currently
developing a number of common processes – either at
company or Business Area level, which will also include
lifecycle thinking.
Innovation process
The new Innovation process for product and process
developments covers an assessment of market segments
and strategic alignment, including sustainability.
AkzoNobel’s eco-premium solutions concept requires
the assessment of sustainability aspects along the value
chain. It encourages the development of more innovative,
sustainable products. We continuously aim to reduce the
environmental footprint of our product value chains.
Carbon footprint assessment
We measure the carbon footprint of all our key value
chains (374 in 2014) using a full cradle-to-grave, or
screening, lifecycle assessment.
Commercial excellence processes
Including sustainability in marketing propositions is an
essential aspect of our Planet Possible agenda.
We are developing environmental product declarations
(EPDs) for some products as part of our marketing activity.
208
Sustainability statements | AkzoNobel Report 2014 Investment decisions
All our major investment proposals (more than €5 million)
require a sustainability evaluation alongside the financial
case. This includes assessments at different stages in the
project development. 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. The proposals are reviewed
by subject matter experts, who give input to the
Executive Committee, to provide a strong basis for the
investment decision.
Other value chain aspects
While we focus on carbon footprint as a proxy for raw
material and energy efficiency, our lifecycle assessment
considers a range of impacts. In 2014, this included:
Biodiversity
We continue to work alongside the IUCN Leaders for
Nature program following on from the 2013 hotspot
evaluation in our value chains. The focus for 2014 has
been on sourcing of renewable raw materials.
4
Note 4: Sustainable business
Resource Efficiency Index
The adoption of a Resource Efficiency Index as a key
financial indicator results from the conviction that global
population growth and increasing resource constraints will
drive new business models in the materials and energy
intensive industry sectors. In the chemicals industry,
sustained business success will require product and
process innovations that generate much more added value
from each unit of raw materials and energy used across
the value chain – be it with our suppliers, in our own
operations or with the users of our products.
The Resource Efficiency Index is defined as gross margin
divided by cradle-to-grave carbon footprint – reported as
an index. The index development was based on input from
a range of financial analysts and environmental specialists
and wide internal consultation:
• We selected gross margin as an indicator of added
value as it is comparatively stable and captures the
effects of efficiency improvements
• Carbon footprint is a good proxy for resource efficiency
across our value chains
We are initially monitoring the Resource Efficiency Index
and expect it to be a long-term indicator for AkzoNobel.
Although margin variability may affect performance in any
given year, the long-term trend must be upwards.
A review of our performance over the past six years
reveals a variable trend. We have seen increases from
factors such as:
• Improvements in energy efficiency
• Increased renewable and low carbon energy supply
• The ongoing switch towards waterborne coatings
• Margin improvements as a result of higher value
added products
However, alongside these positive factors we have seen
tighter margins, together with expansion in markets that
are slower in adopting low VOC coatings and have a high
proportion of high carbon energy supplies. The drop this
year is due to our carbon footprint performance: we have
initiated a detailed review of our plans to achieve this
2020 target.
Resource Efficiency Index
gross margin/CO2(e) indexed
90
95
94
100
98
96
2009
2010
2011
2012
2013
2014
Resource Efficiency Index is gross margin divided by cradle-to-grave carbon footprint,
expressed as an index. The index is set at 100 for 2012, since this is the baseline
year for the strategic sustainability objectives.
REI 2009-2011 is indicative and has been approximated. Cradle-to-grave carbon
data for 2009-2011 is based on:
• Cradle-to-gate carbon data as measured and reported
• Gate-to-grave carbon data has been extrapolated based on 2012 data, adjusted
for product volumes in 2009-2011
209
AkzoNobel Report 2014 | Sustainability statements Eco-premium solutions
We maintain our intention to lead by example in the
area of improving the sustainability and environmental
performance of our products and processes, which
we measure through our development of eco-premium
solutions (EPS). They are a fundamental driver of our
Planet Possible agenda for creating more value from
fewer resources and minimizing the environmental impact/
footprint of the products we sell and the processes we use
to manufacture them.
EPS are defined as being new products and processes
that meet the sustainability-related criteria set out below.
When assessed across the entire value chain, against
currently available solutions in the market, they provide the
same or better functionality and offer significantly better
performance in at least one of the following aspects:
• Toxicity and eco-toxicity
• Energy efficiency/consumption
• Use of natural/renewable raw materials
• Emissions and waste
• Land use
• Risks (in production, transportation, use or disposal)
• Health and well-being
They also have no adverse impacts in their performance in
any one of these aspects.
Introduced in 2012, EPS with downstream benefits is a
measure which focuses on products and services that
provide customers and consumers in our downstream
value chain with the same sustainability advantages as
those defined as criteria for the broader, historical EPS
measure above. EPS with downstream benefits deliver
advantages to our direct customers: through their use as
components/ingredients in our customers’ products; their
use by consumers; or in their end-of-life phase – be that
disposal, recycling or re-use.
Recent examples of EPS with downstream benefits
include:
• EvCote barrier coatings: Used for beverage and
food paper packaging, particularly for single serving
uses such as paper cups and French fry sleeves, which
provide a unique sustainability offering due to the use
of recycled and bio-renewable components in the base
resin. A zero VOC waterborne coating with the ability
to be re-pulped, recycled or composted after use. The
current use of fluorocarbon waxes or polyethylene as
the coating automatically consigns the used packaging
to landfill
• Dulux Forest Breath: A high performance waterborne
interior wood stain for the Chinese market which has
anti-bacterial properties and improves indoor air quality
by absorbing and destroying atmospheric formaldehyde
– enhancing the well-being of families
• Ecosel AsphaltProtection: An environmentally
harmless additive for de-icing which prevents formation
of hard ice inside asphalt pores and substantially
reduces frost damage to roads. Proven to reduce winter
road damage by up to 50 percent, the additive enables
substantial savings on road maintenance, repair and the
consumption of asphalt and also makes a significant
contribution to traffic safety
• Sikkens Rubbol Express: Cobalt-free decorative
paints, available as extremely fast-drying primers and
best-in-class leveling high gloss top coats. Excellent
drying times in adverse climatic conditions, enabling
outdoor painting at temperatures between 3°C and
30°C throughout the year
• LignuPro: A label-free, ultra-low formaldehyde emitting
adhesive for the internal wood flooring market. The only
product on the market which has been awarded French
A+ air quality certification, while maintaining excellent
bonding strength and passing the ANSI bonding tests
In 2014, revenue from eco-premium products and
services with downstream benefits totaled €2.7 billion, or
19 percent of total revenue. Revenue from all eco-premium
solutions (with benefits anywhere in the value chain)
were €3.5 billion, or 24 percent of total revenue.
Eco-premium solutions with downstream benefits
in % of revenue
Target
17
18
19
20
2012
2013
2014
2020
Eco-premium solutions with downstream benefits
per Business Area
in % of revenue
Decorative Paints
Performance Coatings
Specialty Chemicals
2012
2013
2014
22
13
16
27
13
16
27
15
17
Year-on-year progress will be impacted not only by our
own innovation drive, but also by competitor activity and
legislation changes. Furthermore, the introduction of new
products into the market whose performances equal those
of our current EPS offering will redefine the standards that
we will have to surpass to acquire future EPS status.
210
Sustainability statements | AkzoNobel Report 2014 Eco-premium solutions
in % of revenue
VOC in products
Target
18
21
22
22
24
24
30
2009
2010
2011
2012
2013
2014
2015
Eco-premium solutions per Business Area
in % of revenue
Decorative Paints
Performance Coatings
Specialty Chemicals
2012
2013
2014
26
14
25
35
13
26
33
15
27
In 2009, we embarked on our VOC challenge to manage
the transition to a product portfolio lower in average
volatile organic compound (VOC) content, and to minimize
the potential social and environmental impact from these
substances. While our vigilance in driving technological
change towards reduced VOC content is unchanged,
we maintain a close eye on developments in the
marketplace and changes in our sales mix.
In our Decorative Paints products, we are introducing
reformulated products with much reduced and virtually
zero VOC content and this reduction trend will continue
in the future. Our Performance Coatings business is also
achieving a declining average VOC content, despite the
significant technical challenges involved in maintaining
product performance while reducing VOC content.
We are keenly aware, however, that although we are
making technological progress, we must also keep up with
the market and match our product offering to customer
demand. For example, while we have key projects in place
in the Chinese coatings market, this market is still not
migrating as quickly as other regions towards low or zero
VOC products.
Our evaluation for 2013 shows that compared with our
starting position in 2009, we realized a 7 percent reduction
in average VOC content across our coatings and paints
product ranges. This compares to a 10 percent reduction
achieved in 2012. While we see a declining trend in the
VOC content in all our Decorative Paints activities, our
divestment of the North America and Building Adhesives
businesses – which were comparatively low in VOC
content – has resulted in an increase in the VOC content
across the resulting product mix. If we correct for these
divestments, the VOC content of the total AkzoNobel
product portfolio reduced by 3 percent between 2012 and
2013. Both Decorative Paints and Performance Coatings
contributed to this reduction.
211
AkzoNobel Report 2014 | Sustainability statements Paint that
keeps you cool
There are lots of cool cities around the world,
but how do you keep a city cool? Not only do
many of them have to cope with sizzling summer
temperatures, they also have to withstand urban
heat island effects and – in several regions – the
growing impact of global warming.
For many homes and buildings, the answer is air conditioning, but this requires
significant amounts of energy. For example, according to government figures,
34 percent of household power in Singapore is used for cooling interiors.
In an effort to help tackle the problem, our coatings scientists developed
Weathershield KeepCool, an exterior paint which can reflect up to 85 percent more
infrared radiation than comparable exterior paints.
When applied to the outside of a house or building, the product reduces the
amount of heat being transferred to the interior, which means less energy has to
be used to keep it cool. Tests conducted by an independent consultancy
in Singapore have shown that energy savings may be as much as 10 percent for
a typical 15-storey building and 15 percent for an average house.
This ability to reduce heat absorption and lower energy consumption is typical of
AkzoNobel’s Planet Possible approach to developing more eco-premium solutions
that offer sustainability benefits for customers. But Weathershield KeepCool doesn’t
just highlight our commitment to doing more with less. It also underlines how
sustainable solutions can help the world’s cities to cope with the challenges of the
21st century.
212
Sustainability statements | AkzoNobel Report 2014
Sustainability statements | AkzoNobel Report 2014 - Final draft Product benefits:
Surface temperature
up to 5ºC lower
than comparable products
Reflects up to 85%
more infrared radiation than
comparable exterior paints
Scan and explore
Singapore’s
energy savings
10%
15%
for a 15-storey
building
for an average
house
AkzoNobel Report 2014 | Sustainability statements
213
Final draft - AkzoNobel Report 2014 | Sustainability statements 5
Note 5: Resource efficiency
Carbon footprint cradle-to-grave
Cradle-to-grave carbon footprint
in million tons of CO2(e) and % reduction per ton of sales
In our 2020 sustainability objectives, carbon footprint has
a very important role – not only for its measure of climate
impact and protection, but also because we are using it as
a proxy for how efficiently we are using raw materials and
energy in our products.
Our target is to reduce our cradle-to-grave carbon
footprint by 25 to 30 percent per ton of sales between
2012 and 2020. Impact from VOC emissions is also
included. We will achieve this through innovative products/
solutions, technology and energy management and by
creating more value from fewer resources.
Our assessment this year indicates a total footprint of
around 27 million tons of CO2(e) and a CO2(e) per ton of
sold product nearly 4 percent higher than the 2012 level.
The cradle-to-grave assessment shows that around 40
percent is from raw materials extraction and processing
(Scope 3 upstream), 15 percent from our own direct and
indirect emissions from energy consumption (Scope 1
and 2), and 45 percent from the use and end-of-life phase
(Scope 3 downstream).
We have made some good improvements. New power
contracts in, for example, Moses Lake and Columbus,
and increased production in our Chemical Islands (using
renewable power) have reduced the footprint significantly.
Energy efficiency has been improved at several production
sites, such as Ningbo in China and Columbus in the US.
However, these improvements have been outweighed
by changes in product mix, a deterioration of power mix
in Germany and lower utilization of our CHP unit in the
Netherlands, leading to the use of more power from the
Dutch grid. The absolute carbon footprint of our own
operations has reduced by 17 percent since 2012.
214
Scope 3 upstream
Scope 1 & 2
Scope 3 downstream
% reduction CO2(e) per ton of sales
Target
-4
0
27.5
2
26.5
26.9
-5
0
5
10
15
20
25
30
25-30
30
25
20
15
10
5
0
2012
2013
2014
2020
The carbon footprint of the six main greenhouse gases is measured from cradle-to-grave
based on the international Greenhouse Gas (GHG) Protocol and Lifecycle Assessment
ISO 14040-44. See Assessment method on our website.
Cradle-to-grave carbon footprint
Total in million tons CO2(e) and reduction per ton of sales
We have assessed all Scope 3 categories according to the
GHG Protocol Scope 3 standard. (See Scope 3 emissions
on our website).
More information on our assessment method for carbon
footprint cradle-to-grave can be found in Note 2.
Management plans
We have initiated a detailed review of our plans to achieve
this 2020 target.
Our businesses have developed quantified carbon
management plans that identify specific improvement
opportunities and programs. These plans are summarized
at Business Area and company level to manage and follow
up carbon footprint reduction targets.
The illustration on the next page highlights the impact of
our main initiatives in different areas of our value chain:
• Raw materials which are more energy and material
efficient for our customers
2012
2013
2014
• Improved energy efficiency and fuel mix for our energy
intensive operations
• Improvements in formulation to reduce product footprint
The following sections discuss improvement activities for
raw materials, our operations and in the product solutions
we deliver to customers.
Decorative Paints
Total
% reduction per ton of sales
Performance Coatings
Total
% reduction per ton of sales
Specialty Chemicals
Total
% reduction per ton of sales
AkzoNobel
Scope 3 upstream
Scope 1 & 2* (see note below)
Scope 3 downstream
Total
% reduction per ton of sales
5.0
0
13.0
0
9.5
0
11.0
4.4
12.1
27.5
0
4.2
3
12.9
0
9.4
2
10.5
4.1
11.9
26.5
2
3.9
0
13.6
-2
9.4
-2
10.7
4.0
12.2
26.9
-4
*Scope 1 and 2 includes emissions from our facilities and our own transport,
including VOCs.
Sustainability statements | AkzoNobel Report 2014
AkzoNobel carbon footprint in million tons CO2(e)
11
4
9
3
Raw materials
Own operations
Customer operations
End-user
End-of-life
Material strategies
for key raw materials
(See Raw material
strategies)
Energy strategy
including renewable
energy
(See Renewable energy)
New developments to reduce
energy use during product application
(See Deliver business specific plans on p 77)
Joint activities
with suppliers
(See Supplier
improvement plans)
Operations management
Operational eco-efficiency
(See Operations management
and Environment chapter)
Paints containing less solvents
(See VOC in product)
Renewable raw
materials result
in less fossil carbon
in our products
(See Bio-based
raw materials)
Reformulations using lower footprint raw materials and new products with customer benefits (See Eco-premium solutions)
Case study examples with lower climate impact (See Planet Possible case studies)
Raw materials
Raw materials contribute around 40 percent to our
cradle-to-grave carbon footprint and 63 percent to our
cost of sales.
Raw material strategies
The procurement strategy for the next few years is to
move further beyond availability-price-synergy towards
cross-functional sourcing, integration and value chain
orientation. Buying on price will move towards total cost of
ownership, while selected supplier relationships will 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.
A cross-functional approach with our key suppliers is
now set as the standard in our updated key supplier
management process. This enables us to structure the
cooperation regarding joint sustainability and innovation
topics with our key suppliers.
During the year, we continued the development and
implementation of our raw material strategies. These
included 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 instrumental tool in reducing
the footprint of our global value chains. We continuously
review these strategies in an integrated cross-functional
Project Management Office, run monthly, 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.
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. Health and sustainability aspects, such
as product safety and environmental concerns, are key
criteria applied. The objective is to migrate our materials/
suppliers over time on to 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,
improved sustainability and reduced risk.
Supplier improvement plans
We are also working with key suppliers to develop specific
carbon footprint improvement plans, through operational
improvements, material substitution and/or specification
optimization. In 2014, this cross-functional supplier
engagement has resulted in carbon footprint reductions in
the areas of titanium dioxide and packaging.
Bio-based raw materials
Bio-based raw materials are an important contributor
to our sustainability agenda; a considerable share of
AkzoNobel’s environmental footprint is embodied in the
raw materials we buy, and most bio-based materials
exhibit lower footprints. While many of our materials are
already bio-based, we are also seeing the construction
and commissioning of the first commercial scale
production facilities for several new additional bio-based
raw materials. In order to lead the deployment of these
materials in our markets, we have been setting up
partnerships across our supply chain. This supports the
emergence of a new bio-based industry, and at the same
time enables AkzoNobel to tap into alternative feedstock
sources, to be able to offer more sustainable products,
and to reduce the cradle-to-grave carbon footprints.
215
AkzoNobel Report 2014 | Sustainability statements In 2014, we progressed our existing partnerships and
announced additional partnerships for several of our key
raw materials:
• Algae-derived oils: The previous joint development
agreement with biotech company Solazyme has been
expanded to provide for funded development leading
towards a multi-year supply agreement targeting annual
supply of up to 10,000 tons of renewable Tailored™
algal oils. The target product is designed to have
improved functional and environmental performance, as
well as a lower overall cost to AkzoNobel
• Biobased epichlorohydrin: In partnership with Solvay
and epoxy resin producers, we plan to increase the
use of bio-based epichlorohydrin to 20 percent of
AkzoNobel’s global indirect use by 2016
• Cellulosic-based acetic acid: We are exploring
options for acetic acid as a by-product of wood
processing industries and, together with biorefinery
developer ZeaChem, we are exploring the potential for
a large-scale facility in Europe producing acetic acid
(and derivatives) from cellulosic sugars (e.g. forestry
waste)
• Bio-based solvents in Latin America:
This partnership with Solvay-Rhodia targets volumes
of up to 10 kilotons per year of bio-based solvents by
2017
• Chemicals derived from sunlight and CO2:
With cleantech company Photanol, we have agreed
to work on “green” chemical building blocks that will
eventually replace raw materials AkzoNobel currently
obtains from fossil-based production. The collaboration
is focused on Photanol’s existing proprietary technology,
which uses light to directly convert CO2 from the air into
predetermined raw materials such as acetic acid and
butanol. The only by-product is oxygen
• Waste-derived chemicals: An agreement with
Canada’s Enerkem has been signed to develop a
project partnership to explore the development of
waste-to-chemicals facilities in Europe. This is part of
a major Dutch partnership to explore the use of waste
streams as a feedstock for chemical production, hence
216
closing the loop by converting waste back into useful
products
• Sugar beet-derived chemicals: AkzoNobel has
The relative increase in renewable raw materials and the
decrease in inorganic raw materials were mainly the result
of changes in product mix.
joined forces with SuikerUnie, Rabobank, Deloitte, the
Investment and Development Agency for the Northern
Netherlands (NOM), Groningen Seaports, and the
Province of Groningen, to investigate the possibility
of producing chemicals from beet-derived sugar
feedstock. The study aims to identify one or more
successful business cases for commercial production
in Delfzijl
The announced partnerships have the potential to make a
major impact in improving the sustainability of our supply
chain in the long term. In 2014, 13 percent of all our
organic raw materials came from bio-based (renewable)
sources (2013: 13 percent). This is 7 percent (2013:
5 percent) of the total volume of raw materials purchased,
i.e. including other raw materials such as salt, minerals
and clays.
Total volume of raw materials in % per source
13%*
A
C
B
* 13 percent of organic
raw materials are from
renewable sources.
Own operations
Renewable energy
The energy we use on our sites contributes about 15
percent to our cradle-to-grave carbon footprint and
about 8 percent of our cost of sales. Renewable energy
is therefore an important aspect of the improvements
required to achieve our 2020 strategic carbon footprint
target.
Our Renewable Energy Supply Strategy has three
focus areas: protecting our current renewable share,
participating in cost effective, large energy ventures
Total energy in % by source
E
D
C
A
B
A Renewable energy
B Natural gas
C Coal
D Nuclear
E Other fossil fuels
34
36
15
13
2
Renewable energy
A Renewable raw materials (bio-based)
B Fossil-derived materials (petrochemicals)
C Inorganic materials (e.g. salt, minerals, clays)
In % of total electricity,
heat and energy use
Renewable electricity (%)
Renewable heat (%)
Renewable energy (%)
2012
2013
2014
39
10
33
36
12
31
39
14
34
Target
2020
–
–
45
7
44
49
Sustainability statements | AkzoNobel Report 2014
and exploring commercially feasible on-site renewable
energy generation.
eco-efficiency and cost productivity continue to improve as
a result of the program.
Full details of our operational eco-efficiency program are
included in Notes 15-20.
Logistics, distribution and car lease
As part of 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.
We are involved with Smartway in the US and Green
Freight Europe in the EU, focusing on CO2 reduction.
The carbon emission ambition for our own passenger car
fleet was 130 g/km, which has now been reached. We
have set a new ambition to reach 115 g/km by the end of
2016. In Europe, we reduced from 143 g/km in 2011 to
128 g/km in 2014.
The diagram on the previous page details our energy mix
and renewable energy use. Specific projects implemented
or in progress include:
• Nordic wind consortium VindIn started up its first Finnish
park, being the third park in total, in Svalskulla, Närpes
on October 1. Five more parks are under development,
with the next one to be decided in early 2015
• Conversion of biomass facilities from electricity to steam
production, which will double energy output and reduce
environmental impact
• Explored various consortia on biomass and wind to get
access to cost effective renewable energy
• At Moses Lake in the US, the energy mix was changed
from 73 to 92 percent renewable energy, resulting in a
reduction of 30,000 tons of indirect CO2
• Our Pulp and Performance Chemicals business started
two new production locations in 2014 (Jupia and
Imperatriz), using 100 percent renewable energy
Due to these initiatives, the proportion of renewable energy
in our operations increased to 34 percent
(2013: 31 percent).
Operations management
AkzoNobel has a strong drive to embed continuous
improvement in supply chain management and
manufacturing. A company-wide approach has been
defined named ALPS (AkzoNobel Leading Performance
System). Standardized processes, metrics and training
programs are part of ALPS. Deployment in all three
Business Areas to all manufacturing sites in AkzoNobel will
continue in the next few years.
The program is supported by the AkzoNobel Academy,
offering a continuous improvement curriculum, as well as
functional training programs. Safety, customer service,
Customer product solutions
Our sustainability agenda emphasizes resource
effectiveness and solutions for our customers, which in
turn help them to be more energy and resource effective.
We aim to continue developing more sustainable solutions
and stay ahead of the competition. The headline metric
we have used since 2009, eco-premium solutions,
measures products or solutions which have a significant
benefit ahead of the mainstream products in the market in
defined sustainability aspects (e.g. GHG emissions) when
assessed across the total value chain (see Eco-premium
solutions). This metric is challenging and is used as a
driver for more sustainable innovations. A comparison with
mainstream is now being recognized as good practice
at many companies and organizations (ref. WBCSD
Addressing the Avoided Emissions Challenge).
In total, 12 percent of our 2014 revenue was from
eco-premium solutions that avoid GHG emissions for our
customers, compared with the mainstream solution. Some
examples of solutions are UV radiation cured coatings,
more fuel efficient antifoulings for ships and warm mix
additives in asphalt. Other products which are helping to
reduce global GHG emissions are not captured by this
leading measure. For example, more than 80 percent of
our decorative paints are water based or low/zero VOC
(as opposed to solvent based) and our powder coatings
reduce VOC emissions in use (compared with solvent
based alternative solutions). These products are only
counted as an eco-premium solution where the standard
in the market is still solvent based. Another example is
surfactants manufactured using renewable raw materials
(rather than petroleum based).
217
AkzoNobel Report 2014 | Sustainability statements 6
Note 6: Capable engaged people
Suppliers and sourcing
Capable engaged employees
Customer engagement
Working with our suppliers in order to create a sustainable
supply base and deliver customer benefits, as well as
improving resource efficiency, is a fundamental requirement
of our strategy. This means that we have to work together
effectively. We have supplier management programs in
place that support both performance improvement and
opportunities for joint developments. One specific project
focuses on the introduction of renewable raw materials in
our supply chains in collaboration with selected partners.
Further information on our engagement with suppliers and
the management processes is included in Note 7.
Our customers are increasingly looking for products and
solutions that will make their business more sustainable.
In order to meet their current and future needs, we
encourage customers to work with us so that we can
deliver breakthrough solutions that provide a downstream
sustainability benefit while delivering economic value
to both parties. In our North American Wood Coatings
business we have worked closely with a long-standing
customer to deliver a new formaldehyde-free coating
system for office furniture. It allows the customer to meet
the latest indoor air quality standards while ensuring better
levels of product performance compared with its previous
coating system.
We are equipping our Sales and Marketing employees to
initiate Planet Possible conversations with our customers.
Our approach and best practice examples in the Buildings
and Infrastructure end-user segment are highlighted for
customers in our Planet Possible brochure. Within our
Decorative Paints business, we have provided a Planet
Possible marketing toolkit for both professional and
consumer brands.
Further information on our work with customers is included
in the case studies and the Strategic performance section
of this Report 2014.
Employees are routinely involved in delivering many
aspects of our sustainability agenda, such as improving
energy or resource efficiency at our sites, developing and
selling eco-premium solutions to customers, managing all
areas of safety and assessing the sustainability aspects
of investments. We want to build on all these activities to
accelerate performance against our objectives.
Awareness training to help everybody understand their
contribution is available for current and new employees
through a company level e-learning program, with
follow-up “events” and business specific programs.
Our learning and development specialists are working
to embed the sustainability agenda in all company level
management programs in the AkzoNobel Academy.
The focus in 2014 was an updated Graduate Development
Program. A number of functional specific programs have
been piloted during the year, with a more structured
program starting in 2015.
We continued to drive employee engagement through
our Planet Possible sustainability agenda, with webinars
and videos. Our Decorative Paints business has
progressed with their two-year engagement plan. Using
a story approach, combined with a competition, overall
awareness was increased along with an understanding of
the breadth of sustainability activities taking place across
the organization. This approach will be extended across
all other businesses in 2015. Employees are also actively
involved with their work locations through local Green
Teams and community activities around the world.
Further information on our employee KPIs and
management processes is included in Employees and
community under Note 12.
218
Sustainability statements | AkzoNobel Report 2014 7
Note 7: Supplier management
AkzoNobel works closely with suppliers to identify and
minimize supply chain risks in order to provide secure and
sustainable supply to its customers. Supplier management
programs are in place to drive continuous improvement
of existing supply chains and also to develop meaningful
collaboration and joint development opportunities.
We have identified two supplier segments for particular
attention, based on the potential risks and opportunities:
• Critical suppliers are those in high growth countries
where we want to build a long-term, mature supply
base. Selection may be based on risks associated
with labor conditions, environmental performance or
business integrity, or security of supply of important
materials
• Key suppliers are selected because of their importance
to the business – spend or dependency – as well
as the potential for partnership, joint innovation and
collaboration on long-term sustainability initiatives
In order to improve the alignment between our initiatives
for all supplier segments, we have enhanced and
formalized our sustainable supply framework, as
reflected below.
Supplier sustainability framework
Vision: Sustainable supply
Mission: Measurable development & delivery
Process 1:
Supplier
Support Visits
Process 2:
Together for
Sustainability
Process 3:
Key Supplier
Management
Values: Vendor Policy/Code of Conduct
Key performance indicators – supplier management
Critical PR1 spend covered by supplier management
framework (% of spend)
Product related suppliers signed Vendor Policy (% of spend)
NPR2 suppliers signed Vendor Policy (% of spend)
Suppliers on SSV program since 20073
Third party online sustainability assessments4
Third party on-site sustainability audits5
1 PR = Product related (raw materials and packaging).
2 NPR = Non-product related.
3 SSV program targets are included in the Critical PR spend coverage KPI.
4 Includes TfS shared assessments.
5 Includes TfS shared audits.
2011
–
95
77
304
–
–
2012
2013
2014
Ambition
2014
Ambition
2015
Ambition
2016
69
97
80
80
96
83
373
392
–
–
–
–
83
98
80
432
539
20
85
96
80
–
200
20
88
98
80
–
600
40
90
98
85
–
–
–
Our Supplier sustainability framework is founded on
AkzoNobel’s core principles and company values. We
demand the highest ethics and integrity in all supplier
relationships. AkzoNobel’s Vendor Policy links our
principles, values, and Code of Conduct into one cohesive
document which sets out our clear expectations regarding
adherance to our core principles and company values at
all times.
Three formal processes are now in place to help
AkzoNobel ensure compliance, manage risk and promote
supplier development. Our Supplier Support Visit and
Key Supplier Management programs focus on two
distinctly different supplier segments: critical suppliers in
emerging markets and globally strategic (key) suppliers.
Our third and newest program, Together for Sustainability
(TfS), applies to all supplier segments. TfS provides
standardized, third party assessments and audits into our
routine supplier management process.
The above elements equip AkzoNobel to measure
supplier development and delivery against the company’s
sustainability goals.
In 2013, we began reporting a new KPI: the Critical
product related (PR) spend that is actively managed
by one of our supplier framework processes. This KPI
provides a meaningful measure of how well AkzoNobel
is building the sustainability, capability and capacity of its
suppliers in critical high growth markets around the world.
In 2014, third party supplier assessments and audits
from the TfS initiative were effectively integrated into our
program to further secure our critical spend coverage and
maximize supplier contributions toward our sustainability
objectives.
We have defined critical spend as all PR spend (raw
materials and packaging) from high growth countries.
Spend is considered to be covered by this metric if at least
one of the following conditions is met:
• The supplier is part of our Key Supplier
Management process
• The supplier is part of our Supplier Support Visits
program and has been followed up in compliance with
program guidelines
• The supplier’s sustainability performance has been
assessed via AkzoNobel’s third party supplier
assessment and audit program
219
AkzoNobel Report 2014 | Sustainability statements suppliers continue their sustainability journey by entering
AkzoNobel’s third party assessment and audit program.
Awareness of, and compliance with, corporate social
responsibilities is measured with continued support from
local cross-functional AkzoNobel teams.
Key Supplier Management
As part of our ongoing operational effectiveness program,
our Key Supplier Management process helps focus our
internal resources on suppliers we have defined as critical
to AkzoNobel, both now and in the future. These suppliers
are essential to supporting us in realizing our strategic
objectives. With many of these key suppliers we also have
a formal key supplier agreement in place, underpinning
the aims of the Key Supplier Management process.
Sustainability objectives are now included in all new key
supplier agreements.
Together for Sustainability (TfS)
Full implementation of this program in 2014 has impacted
all supplier segments, including product related and
non-product related suppliers. TfS is an industry initiative
made up of 12 leading European chemical companies
and continues to expand. It aims to improve sustainability
practices within the global supply chains of the chemical
industry, building on established global principles such as
the United Nations Global Compact and the Responsible
Care® Global Charter. With TfS, we aim to implement
effective, leading edge practices across the industry. We
are implementing standardized global CSR assessments
and on-site audits to monitor and improve sustainability
practices in our supply chains.
Global implementation of TfS provides the following
benefits:
• Confirms compliance with our Vendor Policy standards
and Code of Conduct across a selected global supplier
portfolio
• Supplements our existing SSV program by ensuring
continued development of critical suppliers in high
growth markets
• Strengthens our risk identification and mitigation
processes
• Further integrates auditable corrective action planning
into the supplier development process
• Provides third party verification of AkzoNobel activities
against industry best practices
As part of an annual third party assessment of AkzoNobel,
the quality of our corporate supplier management activities
is verified against industry best practice. AkzoNobel was
granted a Gold recognition level in 2014 by EcoVadis,
putting us among the best performing companies
assessed by EcoVadis globally in our industry category.
Our Supplier sustainability framework provides an overall
approach to quantifying supplier progression and delivery
against key performance elements in both high growth and
mature markets.
In 2014, we began piloting an internal supplier rating
system designed to measure the current level of
sustainability awareness and maturity of our strategic and
critical suppliers. Clear and quantifiable key performance
indicators are contained in this process to help drive
continuous improvement of all suppliers and delivery of
sustainability benefits to AkzoNobel in the area of carbon
footprint reduction. Progress will be reported in our
Report 2015.
• The supplier has a signed Vendor Policy, delivers less
than €5 million from high growth countries and is not
classified as a critical supplier (and therefore part of the
Supplier Support Visits program)
As a result of these focused efforts, we raised our Critical
PR spend coverage from 80 percent in 2013 to 83 percent
in 2014.
The Supplier sustainability framework is put in place to
support continuous improvement of suppliers, to prioritize
improvement activities across our supply base and to
accelerate delivery of our corporate sustainability goals.
Each of the elements in the sustainable supply framework
is further explained below.
Vendor Policy
The Vendor Policy covers 98 percent of the product related
(PR) spend and 80 percent of the non-product related (NPR)
spend, including all critical suppliers and key suppliers. Our
aim is to have all our suppliers comply with the AkzoNobel
Vendor Policy, which includes our Code of Conduct,
confirming their compliance with environmental, social and
governance factors.
Supplier Support Visits
The Supplier Support Visits (SSV) program is designed to
develop long-term local suppliers in high growth markets
by raising their capability and performance. Introduced in
2007, the SSV program has been highly successful and
is an important supplier management tool. The supportive
visits focus on critical suppliers and are carried out by
teams from Procurement and HSE. Formal follow-up visits
by these teams are conducted to verify implementation
of agreed plans and overall progress. In order to
ensure continued development of sustainable supply
chains in high growth markets, selected approved SSV
220
Sustainability statements | AkzoNobel Report 2014 Safety
Key performance indicators – safety
People
Total reportable injury rate employees/
supervised contractors (per million hours)
Manufacturing sites with behavior-based
safety program (% of sites)
Life-Saving Rules implemented (% of sites)
Process
Regulatory actions (Level 4)
Significant loss of containment (Level D)
Product
Priority substances with management plan (%)
REACH compliance third phase (%)
Management
Safety incidents (Level 3)
Management and reassurance audits
2011
2012
2013
2014
Ambition
2014
Ambition
2015
Ambition
2020
3.1
76
–
0
2
23
–
8
66
2.4
76
–
0
0
42
–
3
61
2.3
96
100
0
1
62
–
0
56
1.8
98
100
0
0
82
15
1
63
2.0
100
100
0
0
80
15
0
–
<2.0
100
–
0
0
100
25
0
–
<1.0
–
–
0
0
–
100
0
–
Our Safety Common Platform established company-
wide improvement programs in people, process and
product safety, supported by continuous improvement
and capability building. The Safety Common Platform sets
out milestones to achieve a world class level of safety
excellence by 2020. We aim to differentiate ourselves
by our thoroughness in embedding best practice
safety processes in all our operations, using common
approaches and systems. Behavior-based safety has now
been implemented at all our manufacturing sites and at
more than 50 percent of non-production work locations
and groups – including stores, warehouses, laboratories
and technical service teams – using a risk-based
approach. The effectiveness of the local behavior-based
safety programs is reviewed annually. Our common set
of Life-Saving Rules (LSR) has been introduced for all
employees. Breaches of these rules that result in injuries
or safety incidents resulted in the maximum disciplinary
sanction allowed under local legislation in 15 cases. Our
company-wide approach to managing the risk from the
use of priority substances has resulted in the phase-out or
restriction of priority substances at a global level.
Key line managers have now received refresher training
in the company’s expectations and the required
competencies for safety leadership. A single system for
HSE performance reporting has been in place for several
years and a new single system for reporting incidents and
analyzing incident trends is now fully operational.
During 2014, management focus and employee
engagement at every level delivered a further reduction of
more than 25 percent in the number of injuries. Particular
contributions to meeting our milestones came from the
risk-based approaches of our behavior-based safety
program, and the additional focus and support provided to
sites that are furthest behind in terms of
safety performance.
During 2015, AkzoNobel will extend behavior-based
safety to all work locations worldwide. Those who
drive on company business will be included in a
company-wide program of training based on safe driving
behavior, including awareness training, e-learning and
practical training. Our process safety management
framework has been introduced at high hazard sites and
will be extended to medium hazard sites in 2015.
A product stewardship maturity framework has been
established as part of our renewed product stewardship
strategy and training in product stewardship principles will
be extended to all relevant business teams. Responsibility
for implementing these programs lies with the businesses,
with leading units providing experience and best practice
that can be shared with others in order to accelerate
progress.
As a key element in the next phase of improvement,
we will provide advanced safety leadership training for
manufacturing site management, including direct dialog
with our most senior leaders on safety performance
and improvement plans. The program will provide site
managers with the opportunity to benchmark internally,
receive coaching from experienced peers and share best
practices worldwide.
221
AkzoNobel Report 2014 | Sustainability statements
8
Note 8: People safety
Overall performance indicators for people safety show that
the company continues to make improvements towards
the targets set for 2015. Implementation of the people
safety programs coincides with a continued decrease
in the number of injuries to employees, supervised and
independent contractors.
Our behavior-based safety program, which actively
engages all personnel in identifying and addressing
at-risk behavior, has been tailored to the needs of our
non-manufacturing personnel and rolled out.
Our main performance indicators for people safety are the
total reportable injury rate (TRR) and the lost time injury
(LTI) rate.
Employee and supervised contractors total
reportable injuries injury rate
Target
3.1
2.4
2.3
1.8
<2.0
<1.0
2011
2012
2013
2014
2015
2020
Total reportable injury rate per Business Area
injury rate
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
1.9
2.8
2.2
1.6
1.8
2.4
222
Independent contractors total reportable
injuries injury rate
4.2
3.5
3.5
2.9
(2014 ambition: 50 percent). In 2015, all remaining
non-manufacturing personnel will be included
• The downward trend extended to the TRR of
independent contractors. Following the decrease of last
year, the rate dropped again to 2.9 in 2014
2011
2012
2013
2014
The total reportable injury 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. In line with OSHA
guidelines, supervised contractors (SC) are reported with employees, since day-to-
day management is by AkzoNobel. Independent contractors are managed by their
own companies.
Employee health
As well as ensuring a safe working environment and
healthy working conditions, we also foster employee
health and well-being, as well as managing illness-related
absenteeism.
• The TRR for employees and supervised contractors
Employee health
decreased to 1.8 (2013: 2.3)
• The overall downward trend in reportable injuries
coincides with both the implementation of our Life-
Saving Rules at all facilities, and the global roll-out of the
people, process and product safety programs that are
part of the Safety Common Platform. Implementation
was complemented by a strong focus on compliance
and operational discipline, performance monitoring and
enforcement if necessary. We will continue focusing on
continuous improvement through these programs in
order to achieve the 2020 target of a TRR of less than
1.0 for employees and supervised contractors
Total illness absence rate
Occupational illness rate
2012
2013
2014
2.0
0.2
2.1
0.1
2.1
0.2
Wellness Checkpoint use
>11,300
>13,700
>15,000
• The total illness absence rate (TIAR) remained stable at
2.1 percent (2013: 2.1 percent). This is slightly higher
than two years ago, due to the divestment of units with
low TIAR. We continue to monitor this indicator for the
whole company, aiming to stay at a level of around
1.9 percent, but will not set new long-term ambitions
• In 2014, the lost time injury (LTI) rate for employees and
supervised contractors decreased more than 30 percent
to 0.9 (2013: 1.3)
• The occupational illness rate for employees and
supervised contractors stands at 0.2 illnesses per
million hours worked (2013: 0.1)
• There were no employee or contractor fatalities
• Our voluntary health risk appraisal tool, the Wellness
during the year
• Behavior-based safety actively engages all personnel in
identifying and addressing at-risk behavior.
This year, the program has been subject to formal
review at manufacturing sites (100 percent reviewed).
The process has been made specific for various types
of non-manufacturing personnel and was rolled out
to around half of these groups. In total, 60 percent
of non-manufacturing personnel have been included
Checkpoint, is highly appreciated and is being used by
an increasing number of employees and their families.
By the end of 2014, more than 15,000 people had
joined the program since its launch in 2008
Sustainability statements | AkzoNobel Report 2014 Safety Day and we developed a Safe Driving training
program to be implemented in the period 2014-2015
• As the first step of the Safe Driving program, a Safe
Driving Awareness e-learning training was launched in
the second half of 2014. The training is available to all
employees and is mandatory for all identified company
drivers (employees who drive while at work). By the end
of the year, 90 percent (close to 10,000) of our company
drivers had completed this training. In addition almost
6,000 colleagues voluntarily completed the training
Distribution and
motor vehicle incidents
Distribution and motor vehicle incidents continue to be
a risk to the safety of employees and contractors. Most
incidents occur on the road and in countries where
enforcement of traffic regulations is still developing. The
total number of distribution incidents and the number of
motor vehicle incidents increased slightly.
Regarding the increase in distribution incidents, we
saw slightly more shipping and rail distribution incidents
involving the transportation of our products by third
party contractors. Through our Product stewardship
program (Note 10), we insist that contractors assess all
risks involved in the distribution process and take the
right safety measures, which involves us auditing their
performance.
Distribution incidents
Road
Sea
Rail
Air
Total
2011
67
3
10
0
80
2012
44
2013
44
2014
43
2
0
0
46
2
2
0
48
3
6
0
52
Motor vehicle incidents
2011
2012
2013
2014
Incidents with injury
Fatalities – employees
29
0
28
1
19
0
20
0
• The number of distribution incidents increased from 48
in 2013 to 52 in 2014. Most of these incidents (43 out of
52), occurred on the road
• The number of motor vehicle incidents reported
increased from 19 in 2013, to 20 in 2014
• To further reduce the number of motor vehicle incidents,
we raised awareness for safe driving during our annual
9
Note 9: Process safety
Process safety management
In 2014, the Process safety management (PSM)
framework was introduced as the set of minimum process
safety requirements at all our sites. These requirements
are compatible with major PSM legislation in the European
Union and the US.
Implementation of the framework is phased. Sites have
been prioritized based on their residual risk, taking into
account their inherent production hazards and current
levels of process safety performance. In 2014, PSM
implementation was initiated at the 46 sites assessed as
most safety-critical. Other sites will follow in 2015 and
2016.
Each site will need to complete four milestones: training,
a gap analysis, implementation and completion, and
production of predefined deliverables. All sites are
expected to complete the four milestones by the end of
2018. Implementation progress is monitored and reported
on a monthly basis to the Executive Committee and to line
management.
Loss of containment
Akzo Nobel uses “loss of primary containment’’ as a
main indicator of process safety performance at our
manufacturing sites.
• The number of losses of containment classed as
Level D went down from 1 in 2013 to zero in 2014
• We recorded nine minor spills or leakages. Four of
the spills were contained on site. In five cases, a
small amount of the spilled material went off site. All
of the spills were reported to the authorities and fully
investigated, while immediate action was taken to
prevent reoccurrence
223
AkzoNobel Report 2014 | Sustainability statements 10
Note 10: Product stewardship
Loss of containment incidents
Levels
D
C
B
A
0
(2013: 1)
Significant
9
(2013: 22)*
Not contained at site
292
(2013: 244)
Not readily controlled but contained at site
1,112
(2013: 1,148)*
Readily controlled and contained at site
Loss of containment is defined as an unplanned release of material, product, raw
material or energy to the environment (including those resulting from human error).
Losses of containment are divided into four categories, dependent on severity, from
small on-site spill (Level A) to a significant escape (Level D).
* Restated as a result of reclassification of incidents.
• There was a general improvement in the safety
performance of our high hazard sites. The number of
high hazard sites that have reached safety maturity
“reference level” (considered satisfactory) has increased
significantly. In total, 83 percent of high hazard sites
achieved this level in all elements of the AkzoNobel
safety management system, while 86 percent of
all sites reached the reference level in the process
safety elements
Our Product safety process is a key building block of the
AkzoNobel safety strategy and protects people and the
environment from unsafe exposure to hazardous materials.
It also promotes the use of sustainable products, going
beyond the traditional approach of reactive regulatory
compliance, enabling us to take a leading position in
product stewardship by providing our customers with safer
products that meet or exceed their expectations. During
2014, our focus has been on Safety Common Platform
programs.
Priority substance management
Our company-wide priority substance process takes a
systematic approach to the identification, review and
management of hazardous substances that we use in our
products and chemical processes. Taking this proactive
approach promotes the use of safer and sustainable
products and means we often take action to manage
harmful substances in advance of legislation, future-
proofing our products against changes in regulations.
The process requires that all hazardous substances used
by the company are identified and scored on the basis
of their long-term human and environmental hazards,
and where public concern exists over their use. Those
with higher scores are designated as priority substances
and are reviewed by experts in the company. Where a
safer alternative exists and there is a favorable business
case, the priority substance is substituted with a less
hazardous and more sustainable material. If substitution
is not currently possible, a full risk assessment is
performed by our experts following state-of-the-art
procedures from the EU REACH regulations. After
review, we manage their use by limiting uses of priority
substances to those uses that have been shown to be
safe. If safe use cannot be shown, they are prohibited
from further use or production within AkzoNobel.
We are on target to review and manage all our priority
substances by the end of 2015. In 2014, the total
number reviewed and managed in the program was 145
(82 percent of 176), meeting our objective of 80 percent
for 2014. Of the priority substances reviewed in the
program so far, 54 have been phased out and uses of
91 restricted.
Priority substances
% reviewed and managed
Target
100
82
62
42
23
2011
2012
2013
2014
2015
A priority substance is reviewed and managed when it has been reviewed under the
AkzoNobel priority substance process and is listed as prohibited or restricted in the
AkzoNobel company-wide Priority substance standard (STD 6).
Examples of priority substances that were reviewed
and restricted in 2014 are boric acid and isopropylated
triphenyl phosphate (ITP). These substances must not
exceed maximum levels in AkzoNobel products and strict
risk management measures must be followed when they
are used.
The priority substance methodology is now embedded
into our company raw material databases and our
procurement and innovation processes, so less harmful
raw materials can be sourced in AkzoNobel. In 2015, we
will complete the current phase of the priority substance
program and develop the second phase of the process,
ready for launch in 2016.
During 2014, we presented our priority substances
program to our stakeholders, including customers,
non-governmental organizations and investor
associations and received positive feedback to our
224
Sustainability statements | AkzoNobel Report 2014 approach. Adopting this proactive approach to
substance management enables us to take a leading
position in sustainable product stewardship and supports
the development and introduction of eco-premium
solutions to the market.
Product distribution
In order to ensure our products are transported and
distributed safely by our contractors, we insist that all risks
involved in the distribution process are assessed and that
they take the right safety measures. We also audit their
performance.
Regulatory affairs
We carefully monitor changes and prepare ourselves
for new regulations that will affect our products and
processes. In 2014, we successfully launched a new
company-wide regulatory information system which
ensures up-to-the-minute information about product safety
legislation is available to all regulatory affairs professionals
within AkzoNobel.
During 2014, our primary activities included:
Substance management regulations
Our REACH team is now busy preparing information
to submit for registration of our substances that are in
scope of the third phase of the EU REACH regulation. All
applications for registration must be submitted by May 31,
2018, and we have set targets to monitor our progress.
EU REACH third phase
in %
2014
2015
2016
2017
2018
Progress towards
EU REACH third phase
15
25
50
75
100
We are also preparing carefully to ensure that we comply
with new substance management regulations in
South Korea (K-REACH) that will come into force in 2015.
business portion of its website and it will be used as a
case study to illustrate how to develop and introduce safer
chemical replacements.
In China, through our participation in the advocacy
committee of the Association of International Chemical
Manufacturers (AICM), we participated in discussions
leading to a change in status of five organic solvents under
environmental management laws.
Continuous improvement
Our product stewardship and product safety processes
are underpinned with a requirement for continuous
improvement. In 2014, we piloted our product stewardship
self-assessment questionnaire (SAQ) as a tool for ensuring
continuous improvement. Using these tools, businesses
will assess their level of maturity and plan their next steps
to achieving a leading level in product stewardship.
Classification and labeling of AkzoNobel products
We are on schedule with the implementation of a global
harmonized system for labeling of chemical substances
and products. An e-learning awareness module is available
for employees through the AkzoNobel Academy to ensure
changes in labels and safety datasheets are understood.
Advocacy
We continue to be active in industry bodies, in public
forums and with stakeholders discussing product safety
issues at the local, regional and global level. Participation
in this way gives us an opportunity to engage regulators
and other stakeholders before new rules are finalized.
Our aim is to support legislation, standards and initiatives
that promote and support the use of safer and more
sustainable products in our industry.
For example, we continue to maintain links with, and
fully support, the objectives of the Global Alliance to
Eliminate Lead in Paint (GAELP), a program coordinated
by the United Nations Environmental Program (UNEP)
to encourage industry and governments to take action
to remove lead compounds from paint. In September,
we made a statement to the biennial meeting of GAELP
that as safer lead-free substitutes are widely available,
there is no need or justification for lead compounds to be
intentionally added to any paint.
After a successful presentation to the Green Chemistry
and Commerce Council (GC3) in the US, we were invited
by a participating NGO, the Environmental Defence
Fund (EDF), to participate in a project on safer
chemical replacements. Working with our Chelates
business and EDF, we completed a case study on our
biodegradable and bio-based chelate, Dissolvine GL.
EDF has now selected the study for publication on the
225
AkzoNobel Report 2014 | Sustainability statements 11
Note 11: 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 rules and
procedures are set up and updated in accordance with
international standards such as ISO-14001, RC-14001,
OHSAS-18001 and PAS 55 (public standard for process
safety). Many sites and businesses also have external
certification for their management systems, which are
subject to internal and external audit.
External certification
HSE audit
The periodic HSE audit for sites uses the same maturity
questionnaire as the one sites use for their continuous
improvement activity (SAQ). The audits are conducted by
HSE experts from the businesses and managed by the
global Internal Audit function. All sites carry out an annual
self-assessment and the results are used to prepare
site improvement plans, while it also provides input for
the corporate HSE audits. Together, the corporate HSE
regulations and auditing create the assurance framework.
Management audits number of audits
in % of manufacturing sites
2011
2012
2013
2014
66
ISO-14001/RC-14001
OHSAS-18001/RC-18001
73
37
75
42
78
51
79
53
61
56
63
Maturity framework
We have a common maturity framework for measuring
HSE management progress at our sites which includes a
self-assessment and audit. The HSE maturity framework is
being used to drive continuous improvement. The average
improvement of sites was 5 percent in 2013 and 6 percent
in 2014, while there was a further reduction of 22 percent
in the total reportable injury rate (TRR).
Self-assessment questionnaire (SAQ)
The SAQ, which covers all elements of the HSE
management system, has been repositioned as the
company-wide HSE improvement planning tool. To
maintain relevance to major programs rolled out during
recent years (e.g. the PSM framework), the questionnaire
was thoroughly revised during 2014. The new version will
be effective from January 2015.
2011
2012
2013
2014
For most sites, the audit frequency is every five years.
For sites with a high hazard rating, this frequency is every
three years. A formal review of the intrinsic hazard rating
for all sites takes place every year leading to updates if
necessary.
A new introduction during 2014 was the so-called multi-
site HSE audits. These are carried out at locations where
more than one business is represented. Over the course
of the year, we carried out 55 corporate HSE audits (2013:
46), three site closure audits (2013: 4) and five reassurance
audits (2013: 6), which are required for sites with high risk
findings.
The newly established global Process Safety Management
program will support all sites in improving management
of asset integrity and process safety, which have been
identified as key areas for improvement in recent years.
The first results are visible for the high hazard sites.
Early in the year, lead auditors and new trainees from
North America, Latin America, Europe and Asia were
trained in the different regions.
Safety incidents
Safety incidents are those that involve severe consequences
requiring an independent investigation. We investigate all
safety incidents to increase the safety of operations. The
lessons learned are shared company-wide.
We classify safety incidents based on severity of outcome
(Level 1 - Level 3). The total number of Level 1, 2 and 3
safety incidents slightly increased to 15 (2013: 14). Of
these 15, there was one Level 2 and one Level 3 incident,
compared with 2013, when all incidents recorded were at
the lower Level 1 (severe local impact).
Level 3 safety incident:
• A member of the public, a bus driver, died following a
traffic accident involving a bus contracted to AkzoNobel
at Itupeva in Brazil
Safety incidents (Level 3)
8
3
2011
2012
0
2013
1
2014
Safety incidents (Level 3): Incidents involving loss of life, more than five severe
injuries, environmental, assets or business damage totaling more than €25 million, or
extensive reputational damage.
226
Sustainability statements | AkzoNobel Report 2014 Four of the 15 safety incidents involved entrapment in
moving machinery, three involved driving and three slips
and falls. These reinforce our continued focus on safe driver
training, behavior-based safety and Life-Saving Rules.
Implementation progress, and compliance, is monitored and
shared with the Executive Committee and line management
on a monthly basis.
Regulatory actions
HSE capability building
HSE professionals and line managers with critical HSE
functions develop their competencies based on our
integrated supply chain competencies framework,
proficiency levels and job profiles. Core programs are
delivered and further developed by using a blended learning
approach which includes, for example, assignments,
e-learning, classroom training, virtual classrooms and
webinars.
We have defined four categories of regulatory actions, from
self-reported issues (Level 1) to a formal notice of a criminal
prosecution or penalty greater than €100,000 (Level 4).
Compared with 2013, the regulatory action Level 4 has
been added, since it is more in line with materiality levels for
AkzoNobel.
In 2014, the HSE offering expanded with learning activities
for senior leaders, frontline leaders in manufacturing and
non-manufacturing leaders. These activities have been
piloted and will become a part of the HSE curriculum in
2015. Next year, emphasis will also be directed towards the
impact of change in behavior and learning on-the-job.
As in previous years, we did not receive any formal
notifications of a criminal prosecution or penalty greater
than €100,000, which suggests that our people, product
and process safety programs, stewardship and behavior-
based safety programs continue to have an effect on
reducing the number of serious injuries and significant
losses of containment.
We will provide advanced safety leadership training for
manufacturing site management, including direct dialog
with our most senior leaders on safety performance and
improvement plans. The program will provide site managers
with the opportunity to benchmark internally, receive
coaching from experienced peers and share best practices
worldwide.
Regulatory actions
Regulatory actions (Level 4)
0
0
0
0
2011
2012
2013
2014
Regulatory action (Level 4): A formal notice of a criminal prosecution or (conditional)
penalty greater than €100,000. These are reported to indicate to management the
potential for reputational damage and the effect on our license to operate.
Awareness of product stewardship among our business
management teams has been raised. In 2014, we piloted
awareness training with two of our business teams, which
focused on identifying product stewardship opportunities
that add value to AkzoNobel. We will continue to roll this
training out more widely in 2015.
We also continue to build a community of highly capable
Product Safety and Regulatory Affairs (PSRA) professionals
within the company. In 2014, we finalized a curriculum and
competency framework which maps out the skills needed
to progress within the PSRA function in AkzoNobel.
Our aligned PSRA training programs provide training in the
competencies required. We held PSRA Level 1 training
(fundamentals) in South America and in Asia. In total,
79 percent of eligible PSRA professionals have now
completed this training, while in 2015 we will make it
available for other functions. We also held specialized
(PSRA Level 2) training in human risk assessment and
national substance management regulations, including
Korea, Indonesia and China.
In 2015, we will continue to roll out Level 2 and Level 3
(advanced) training for our PSRA community.
HSE capability development
in % of target group
2012
2013
2014
HSE critical leaders
workshop
Level 1 PSRA program
23
0
62
40
90
79
Ambition
2014
Ambition
2015
60
60
100
90
227
AkzoNobel Report 2014 | Sustainability statements Employees and community
12
Note 12: Our people
Key performance indicators – employees
People data
Employees at year-end (FTE)
Employee engagement
Employee engagement (ViewPoint score
(1-5 scale))
Diversity and inclusion
% of females in total workforce
% of employees from high growth markets
% of female executives
% of executives from high growth markets
% of female executive potentials
% of executive potentials from high growth markets
Talent management
% cross-BU moves of leadership talents
% internal promotion into executive level
% retention of total workforce
% retention of leadership talent
% retention of leadership talent – under-
represented groups (women and high growth
market employees)
Learning and development
ViewPoint score on Learning and growth (Q12)
(1-5 scale)
2011
2012
2013
2014
Target 2015
57,240
55,272
49,561
47,207
–
3.74
3.80
3.88
3.97
>4.00
24
40
13
13
26
31
6
80
–
96
94
24
40
15
13
27
31
5
70
88
96
97
24
47
16
14
28
34
7
75
89
92
92
24
48
17
16
24*
30*
13**
68
87
93**
89**
–
–
20
20
30
30
10
80
–
95
95
3.80
3.85
3.93
3.99
>4.00
* The definition of potentials changed in 2014 to better reflect our talent pool.
** In line with the new definition of potentials, the definition of leadership talent also changed in 2014 to better reflect our talent pool.
Core principles and values
Core
principles:
Safety
Integrity
Sustainability
Customer focused
We build successful partnerships
with our customers
Deliver on commitments
We do what we say we will do
Passion for excellence
We strive to be the best
in everything we do, every day
Winning together
We develop, share and use our
personal strengths to win as a team
228
Our people are the key to our success as an organization.
We need to ensure that we have a performance-driven
culture and the right people with the right capabilities to
deliver on our strategic objectives.
The right culture
New core principles and values and behaviors
We want to encourage a high performance culture
of engagement, feedback and trust. Our new core
principles and values help to shape the behaviors that
create this culture. During 2014, we continued to roll-
out our new values and behaviors across the company
through an awareness raising campaign called Count
me in! The campaign was subsequently nominated for
a European Excellence Award, in the category Internal
Communications.
Pulse surveys have shown that after just one year,
96 percent of our people are aware of the new values and
behaviors, while 67 percent indicated that they influence
their way of working. We held thousands of Town Hall
meetings and Count me in! workshops all over the globe.
These were designed to help our people bring the values
to life by showing how they are connected to their team
objectives. In total, 82 percent of our people said that they
have a clear understanding of how the values relate to the
company strategy.
Our performance-driven culture is supported by our
Performance and Development Dialog process (P&DD),
which is mandatory for all employees. The values are now
fully integrated into this process, which means that they are
a crucial part of the objective setting phase and mid-year
review, as well as the year-end performance assessment. In
addition to the performance score, a separate values score
has been introduced which influences the overall P&DD
rating. This rating influences the annual salary review, so
employees are rewarded not only for what they achieve,
but also for how they achieve it.
Sustainability statements | AkzoNobel Report 2014 ViewPoint engagement survey
One of our other key measures of progress in the area
of culture is employee engagement, which we measure
through our annual ViewPoint engagement survey. As well
as measuring engagement generally, the survey now also
includes questions about our core principles and values,
giving us an understanding of the extent to which our
people are aware of and live them. We see 2014 as the
zero measurement for these questions and will be able to
track our progress in the future.
We have also changed the timing of our annual employee
engagement survey to better fit with the cycle of the
business, so the results can be used to inform business
planning, as well as being included in people’s objectives.
Compared with last year’s results, we have seen an
increase in engagement. In the context of our ongoing
change and restructuring this is a positive signal.
Engagement has increased every year since we started
the survey in 2010.
ViewPoint score employee engagement
(1 – 5 scale)
3.56
3.74
3.80
3.88
3.97
>4.00
2010
2011
2012
2013
2014
2015
Our overall engagement score increase of 0.09 to 3.97
(2013: 3.88) means we’re on track to achieve our 2015
target of over 4.00.
Manufacturing is generally acknowledged to be one of the
more difficult areas to build employee engagement. Our
focused interventions in manufacturing led to a significant
increase of engagement in this area. We have also learned
that where we focus on the quality of action planning,
it leads to an increase in engagement, so this was a
significant point of attention in 2014.
Female executives in %
Target
In addition, we have made tools and training available
to help our managers improve in the areas of giving and
receiving feedback. This is an important factor in creating
an engaged, values-driven culture. We will also create
platforms to empower our employees to share ideas and
best practice in living our values.
Diversity and inclusion
Diversity of thought is an important factor in creating the
right culture. Our company’s workforce should reflect
the societies where we do business. We need to truly
represent the many and varied cultures of the markets we
serve, and over the last year we have placed a stronger
focus on inclusion as an important element of building
winning teams.
We’re committed to continuously improving in this area.
We want our management layers to reflect the diversity
of our overall workforce, which is currently 24 percent
female and 48 percent from high growth markets. In
2014, we increased the number of executives from high
growth markets to 16 percent (2013: 14 percent). We also
re-introduced a Women in Leadership training program
for our female high potential employees to address some
of the barriers that women face in moving to senior
leadership roles. We saw the number of female executives
increase to 17 percent in 2014 (2013: 16 percent).
15
16
17
20
12
13
10
2009
2010
2011
2012
2013
2014
2015
High growth market executives in %
Target
11
12
13
13
20
16
14
2009
2010
2011
2012
2013
2014
2015
The right people
We are working hard to put in place the right talent
management and resourcing processes across the
company. This helps us to recruit, retain and develop the
people we need to create winning teams.
We’re starting to manage talent in a more active way to
ensure that we have a sustainable pipeline of internal
candidates for our future needs. We have extended
our focus from top management to also include other
management levels.
Our approach to assessing growth potential now
reflects the importance of our values and behaviors, our
engagement and diversity and inclusion measures. We
have also updated our recruitment policy, which now
focuses on hiring people with potential – not just for
that role, but for the future as well. And by making our
processes simple and easy to understand, as well as
229
AkzoNobel Report 2014 | Sustainability statements communicating them clearly to our people managers
and employees, we are being transparent about how we
manage our talent.
Our internal promotion into executive level decreased to
68 percent (2013: 75 percent). This was due to our more
rigorous approach to talent management, which resulted
in the external recruitment of a number of new executives.
This was a conscious choice to bring in new knowledge
and skills from outside our organization to further
encourage new ideas, innovation and diversity of thought.
The new talent management approach also resulted in a
change to the definition of leadership talent. This impacted
our leadership talent retention figures which increased
slightly for the overall group to 93 percent (2013: 92
percent); and declined to 89 percent (2013: 92 percent) for
the under-represented group.
The right capabilities
We know that continuous learning needs to be one of
our critical focus areas if we’re to remain competitive
and create a working environment that makes people
feel valued while providing the right conditions for them
to perform at their best. We want our people to feel
empowered to own their development, so we give them
the support and resources they need to grow.
Our online Academy learning platform helps us to drive
functional and leadership capability and we are in the
process of developing it to become the “go to” place for
learning and best practice in AkzoNobel. During 2014,
we redefined the governance, systems and structure of
the Academy to make sure its philosophy and principles
are part of our corporate growth strategy. We have further
standardized learning across the organization by rolling
out a standard Learning Management System in key
countries. This will help us to measure and benchmark
learning across businesses and geographies. We have
also launched a best practice platform for commercial
excellence and defined a common sales and marketing
curriculum.
Throughout the year, we ran more than 50 centrally
developed functional excellence and management
development programs, impacting more than 4,000
employees. We also increased the number of online
programs available to all employees (open enrolment) to
more than 200, available in five languages.
During the next few years, we will use the AkzoNobel
Academy to further build people manager capability
and help them take more responsibility with regard to
supporting their people. To date, we have trained 13,000
managers in our Situational Leadership Program globally.
ViewPoint score on Learning and growth
(Q12) (1 – 5 scale)
3.80
3.85
3.93
3.99
>4.00
2011
2012
2013
2014
2015
Our focus on capability development is reflected in our
ViewPoint survey score, which has increased year on year.
Operational excellence
In 2014, we introduced a new operating model for five of
our support functions, including Human Resources. The
model aims to reduce complexity and costs by introducing
standardized processes and systems and harmonizing
policies and ways of working across the organization. This
will remove duplication and make us more competitive in
the future.
Business
partners
Centers of
Expertise
Shared Service
Centers
The new model means that we’ll have one way of doing
things, for example in terms of talent management, across
the company. This is more efficient and will deliver a better
employee experience, as well as making life easier for our
people managers. It is based on three key elements:
• Business partners focused on high value added
activities that are close to the business. They will offer
analytical and strategic support and make sure our
standard processes and policies are applied in their area
• Centers of Expertise made up of groups of experts
who offer advice and support specific tasks for each
of our Business Areas, such as Talent management,
Compensation and benefits and Recruitment
• Shared Service Centers to focus on process efficiency
and run all transactional support services, such as
payroll and HR administration
Our target is an agile, effective, efficient and standardized
HR organization which delivers high quality people
strategies, service and support to the company at an
affordable cost. The implementation of the new operating
model allowed us to reduce HR headcount by 16 percent.
230
Sustainability statements | AkzoNobel Report 2014 13
Note 13: Restructuring
14
Note 14: Community
In 2014, we continued to restructure our business to
execute our company strategy so we can continue to
meet the needs of our customers in years to come. We are
aware of the impact this has on the employees involved
and, 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 outplacement.
During 2014, our workforce decreased due to ongoing
restructuring and divestments, but we also added to
the headcount, mainly through new hires in high growth
markets. For details of how our workforce changed, see
Note 4 of the Consolidated financial statements.
Wherever possible, we announce our restructuring plans
between 12 and 26 months in advance (recent examples
have been Yeronga in Australia, and the site relocation
within Powder Coatings China of operations in Ningbo
and Suzhou to Changzhou). This allows for better planning
in the transition from work-to-work. In most countries,
we use the services of an external company to support
employees in finding their next position. Exceptions to
this are in Italy, based on an agreement with the Italian
government, and the Netherlands, where we operate an
in-house mobility office to support employees.
“Let’s Colour” program
We believe in the transformative power of color and the
positive effect it can have on people’s lives. Color can
inject soul and inspiration into a city. It can breathe life
into communities and revitalize areas that were once
considered dull and lifeless. We express this belief through
our global “Let’s Colour” program, which includes both
charitable donations of paint and community investment.
Not only does it embrace the physical improvement of
deprived neighborhoods, but it also facilitates educational
development and job training.
Working together with local communities – including
customers, employees and other influencers – we have
already created better living environments for millions of
people. Each initiative is designed to renew community
spaces and improve people’s well-being. Education is also
an important part of the process, both in terms of training
people to become painters and teaching children about
the value of cooperation and the science of color. By
demonstrating our belief through this program, we are also
inspiring people to get involved in making their world a
better place.
During 2014, we donated around 120,000 liters of
paint, worth an estimated €0.4 million. Approximately
1,600 AkzoNobel employees were involved, volunteering
roughly 10,000 hours of their time to various “Let’s Colour”
projects across the globe. We also trained nearly
5,000 people as painters. In 2014, we estimate that
we positively impacted the lives of around seven
million people.
As a global company, we fully understand our role and
responsibilities when it comes to society and contributing
to the communities in which we operate. It forms an
integral part of our sustainability agenda. Whenever
possible, we try to make a positive difference to the world
around us. We engage with people and partner with
various organizations to help bring the AkzoNobel brand
to life, while also supporting deserving and sustainable
projects and causes, using our products when appropriate.
When partnering with organizations and entering into
sponsorship agreements, we are guided by the six pillars of
our Human Cities initiative. The pillars also provide direction
for our community involvement. A big success story is our
global “Let’s Colour” program, which inspires people to
revitalize their local communities with our paint products.
Run by our Decorative Paints business, the initiative also
encourages the active participation of our employees.
Another vital part of our partnership approach is the
development of young people, highlighted by our work
with the Plan organization, which includes the AkzoNobel
Education Fund. Meanwhile, our global sponsorship
program is currently focused on key partnerships with the
Cruyff Foundation, the Rijksmuseum and the Van Gogh
Museum in the Netherlands, and the Extreme Sailing
Series.
Our products
When possible, we endeavor to assist society through our
products. Ferrazone, for example, is helping to improve
well-being in many communities, particularly in developing
countries. Used to fortify food, it is widely regarded as being
the most effective way to treat iron deficiency anemia.
Another example is our partnership with the Forest
Stewardship Counsil (FSC) in relation to our wood care
products. See Note 3 in this section for more details.
231
AkzoNobel Report 2014 | Sustainability statements 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 on a sustainable basis. In the past nine years,
the program has become firmly embedded in our worldwide
organization. Projects have included educating
underprivileged youngsters, creating more awareness about
the importance of a clean environment and supporting
deprived, socially disadvantaged groups, helping them
reintegrate into society where possible.
For example, involvement in the set-up and running of soup
kitchens, shelters and daycare centers for the homeless, as
well as vocational training for unemployed youngsters and
women, are taking place on a continuous basis in various
parts of the world.
Cumulative Community Program involvement
Projects (number)
Volunteers (number)
Support (€ million)
15.0
13,500
15
12.5
14.0
11,000
13.0
9,000
11.5
8,000
1,678
1,931
2,108
2,260
2011
2012
2013
2014
10
7.5
5
2.5
0
14000
12000
10000
8000
6000
4000
2000
0
232
2014 projects by region
E
A Europe
B North America
C Latin America
D Asia
E Other regions
95
16
10
30
1
D
C
B
A
More than 2,500 employees voted for their favorite entries
in our annual Community Program Best Practices contest.
First prize went to employees in a cross-business and
cross-site initiative from Decorative Paints, Functional
Chemicals and Powder Coatings in Langfang and Tianjin,
China, for their “Offering disabled children the chance to
earn a living” project. Our volunteers helped The Shepherd’s
Field Children’s Village, where 80 to 100 children are
housed, from newborns to teenagers. Most suffer from
some form of disability. Employees have visited and helped
the center for a number of years, but this year saw a
special project undertaken. A major refurbishment of the
Rehabilitation and Skills Center has provided a bright, clean
and safe environment where the children can learn vital
skills that will help them earn a living when they are adults.
The fund is also available to support post-relief aid in case
of major disasters in countries where we operate, as long as
there is hands-on involvement by our employees. In 2014,
our employees in Greiz, Germany, immediately came into
action after massive floods hit the city. They helped make a
local elementary school accessible again and reconstructed
the facilities at a local tennis club.
Since the start of the program in 2005, approximately
13,500 volunteers from around 55 countries have worked
on 2,260 projects, representing €15 million of investment.
Taking into account that many businesses and locations
have been working together on major projects and
the number of participating volunteers has increased
substantially, 2014 can again be regarded as a successful
year, benefiting even more deprived groups. A further
increase in team-building activities was noticed, enhancing
employee engagement, as well as underlining our company
value of Winning together.
The Community Program also provides opportunities for
employees to develop team-building and leadership skills.
In training programs, as well as international conferences,
community activities are increasingly incorporated to
increase the participants’ awareness of local social
circumstances. These experiences are recognized to
improve their leadership skills and team spirit, as well as
employee engagement.
During 2014, 152 new projects were initiated. A closer
cooperation took place between various businesses
as well as locations. For example, in Brazil, employees
from Pulp and Performance Chemicals in Jundiaí united
with their colleagues in Itupeva, as well as those from
Powder Coatings in São Roque and Decorative Paints in
Mauá. They helped construct a major aviary at a wildlife
conservation center where up to 200 injured wild birds can
be looked after and released freely inside, once they are
well enough, or can even be returned to the wild. Many
similar joint initiatives took place all over the world.
Sustainability statements | AkzoNobel Report 2014
Education Fund
Other partnerships
What would a city be without the people who live there?
AkzoNobel is proud to be associated with a variety of
organizations and initiatives in ways that truly make a
positive difference. These partnerships allow us to bring
the AkzoNobel brand to life and create value for our
stakeholders. One of our flagship partnerships is with
the Plan organization in the Netherlands – a member of
the Plan International network – a collaboration which
marked its 20th anniversary in 2014. The cooperation was
established to help children in developing countries fulfil
their potential by improving the quality of their education.
It has since evolved to also support the employability of
young people via vocational training programs designed
to set them on a proper career path. Over the years, tens
of thousands of young people have benefited from dozens
of projects in countries such as Bolivia, Brazil, China,
Ecuador, India, the Philippines and Vietnam. During the
2014 football World Cup in Brazil, we worked together
with Plan Nederland and several other partners to support
a project which involved training deprived young people to
become stewards at a stadium in Natal.
Our work with the Cruyff Foundation is designed to
support projects that make sport more accessible to
children around the world. As one of their top partners and
preferred paint supplier, we help the Foundation to create
and maintain facilities in neighborhoods where children
lack the possibility to play sports in a safe environment.
During 2014, seven new Cruyff Courts were built, including
one in Spain, one in Brazil and two in the Netherlands.
Having played a key role in the refurbishment of
Amsterdam’s famous Rijksmuseum (which fully reopened
in 2013), our ongoing partnership saw AkzoNobel continue
to supply Sikkens paint during 2014, in addition to the
20,000 liters used for the complete renovation. Meanwhile,
our sponsorship of the Van Gogh Museum, also in
Amsterdam, developed further during 2014 when we
worked together to create a new color palette, inspired
by ten of Van Gogh’s works. Known as the AkzoNobel
Van Gogh Collection, the special range of wall paint is
available for purchase via our local decorative paint brands
and is just one of the ways in which we are helping to
preserve the cultural heritage of Vincent van Gogh and his
contemporaries.
One of our more recent partnerships is with the Extreme
Sailing Series – a global racing circuit which attracts larger
audiences as the action takes place closer to shore. The
Extreme 40 catamarans that participate use our Awlgrip
yacht coatings, which offer a number of important benefits,
including superior performance and aesthetics. In total,
eight events were staged around the world during 2014 at
host cities including Istanbul, Nice, Sydney and Muscat.
233
AkzoNobel Report 2014 | Sustainability statements Making sport
more accessible
While buildings may
help to define the
character of a city, it’s
the open spaces that
refresh its soul. If cities
are to thrive, they need
to offer people places
to play, linger and
mingle.
That’s why we’ve teamed up with the Cruyff Foundation, which
was established in 1997 by famous Dutch footballer Johan Cruyff.
The partnership enables AkzoNobel to support the Foundation’s
projects to make sport more accessible to children around
the world.
As one of the leading partners and preferred coatings supplier
of the Cruyff Foundation, we’re helping to create safe sporting
environments in communities across the globe through what are
known as Cruyff Courts. These are small-scale facilities set up in
city neighborhoods that often lack a safe environment for children
to play.
More than 180 have already been established, with AkzoNobel
having recently been heavily involved in the launch of courts in
Brazil, Spain and Italy.
“To have a good life later on, you need to move yourself around,”
explains Cruyff. “That’s why these places for children to go to, to
be safe, just run around and play and do whatever they want, is
fantastic for their future.”
As well as enabling people to live healthier lives, providing
open spaces for them to meet, rest and play is vital to creating
dynamic, creative and socially cohesive urban environments.
They give energy to a city and, in the case of the Cruyff Courts,
allow AkzoNobel to give something back to local communities in
many of our key markets.
234
Sustainability statements | AkzoNobel Report 2014
Sustainability statements | AkzoNobel Report 2014 - Final draft Scan and explore
AkzoNobel Report 2014 | Sustainability statements
235
Final draft - AkzoNobel Report 2014 | Sustainability statements Environment
15
Note 15: Energy
Key performance indicators – environment
Energy use
Operational eco-efficiency footprint measure
(% reduction from 2009)
Greenhouse gas emissions per ton of production
(own operations, in kg)
Sustainable fresh water management
(% of manufacturing sites)
2011
11
256
74
2012
13
257
83
2013
24
222
85
2014
24
224
89
Ambition
2014
Ambition
2015
25
–
90
30
245
100
Energy is important for all our operations, especially some
of our Specialty Chemicals businesses, because they use
energy as a major raw material for their products. Energy
efficiency and carbon efficient energy use are therefore
important metrics for our operations.
This section outlines environmental impacts in our
own operations and related improvements. The key
performance indicators are mentioned in the table above.
Many of these improvements are driven through our
operational eco-efficiency (OEE) program.
Operational eco-efficiency
program
The focus of the OEE agenda is to increase raw material
efficiency, reduce consumption of energy, 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.
OEE footprint improvement
(% reduction from 2009)
Target
40
24
24
30
11
13
7
2010
2011
2012
2013
2014
2015
2017
The OEE footprint is calculated from the weighted average of nine footprint
parameters and production volume.
236
We measure progress on a quarterly basis using the
eco-efficiency footprint measure, a company indicator
which combines energy, water, waste and air emissions,
as well as cost elements. Weighting factors for each
parameter are used to calculate the overall footprint. This
number is used in combination with production volume to
calculate the relative footprint improvement. Between 2009
and 2014, we achieved a relative footprint improvement of
24 percent. The majority of the business units showed a
eco-efficiency footprint improvement, but due to product
mix changes the final result is equal to last year.
We are on track to achieve our target of a relative footprint
improvement of 30 percent by 2015, and 40 percent by
2017, with 2009 as the baseline.
Energy use in 1000 TJ
Energy use
GJ per ton of production
250
200
150
100
50
0
5.7
5.7
5.6
5.7
107
106
99
98
7.5
6
4.5
3
1.5
0
2011
2012
2013
2014
Energy use is the sum of fuels, electricity, steam, hot water and other utilities
(expressed as fuel equivalents).
Our OEE performance and trends (the footprint and
its related parameters) are transparent for the whole of
AkzoNobel via the EcoXchange platform. This platform
also provides access to know-how, best practices and
showcases on eco-efficiency related topics relevant for
all locations.
Energy use per Business Area
in 1000 TJ
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2.0
5.0
92.0
2014
1.8
4.6
92.0
• Energy use per ton of production increased slightly to
5.7 GJ/ton. Absolute energy use was down 1 percent to
98,000 TJ, both in line with a change in product mix
• The total cost of energy in our production was about
€0.7 billion
• More details about energy sources can be found in
Note 5 and on our website
Sustainability statements | AkzoNobel Report 2014
We use energy scans to increase awareness and identify
savings opportunities in all our businesses. During 2014,
this resulted in many energy improvement projects,
for example:
• As a result of the energy scan at Ningbo in China, a
series of energy improvement projects delivered annual
savings of 155 TJ and more than €3 million
• A program to optimize spray dryers in Functional
Chemicals resulted in annual savings of 23 TJ and
more than €400,000, with an investment of less than
€400,000
• In Rotterdam (Industrial Chemicals), an evaporator is
being rebuilt, resulting in a 5 percent energy reduction
• For 15 production locations, the compressed air system
was checked for leakages, resulting in annual savings of
€300,000 at €50,000 cost
• Decorative Paints carried out energy scans at three
of its sites. These scans identified a total of 55 energy
saving opportunities (more than ten are already being
implemented), as well as highlighting opportunities to
make average reductions in energy use of 20 percent
• In Malmö, Sweden, the heating system was changed
from gas heating to district heating, resulting in an
energy saving of more than 10 percent
• A metering system for energy was installed in Felling
in the UK and was used, for example, to optimize the
compressors. The identified improvements resulted
in an annual saving of more than €150,000, at an
investment of less than €50,000
16
Note 16: Greenhouse gases
17
Note 17: Local air quality
Greenhouse gas (GHG) emissions from our facilities are
primarily related to the fuel and power we use, but also
include some CO2, methane (CH4) and hydrofluorocarbon
(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-grave reporting can be found in Note 5 in this
section.
Greenhouse gas emissions in million tons
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton of production
5
4
3
2
1
0
256
257
300
222
224
240
3.2
3.2
2.8
2.8
1.6
1.5
1.1
1.1
180
120
60
0
Air monitoring around our operations is focused on volatile
organic compounds (VOC) and NOx and SOx emissions.
We monitor particulates at site level as required.
Volatile organic compounds
(VOC)
All our businesses will continue to manage VOC emissions
from sites, in line with national or supranational (European
Commission) legal requirements.
The VOC reduction focus for our paints and coatings
businesses is increasingly concentrated 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 4 in this section).
2011
2012
2013
2014
• VOC emissions per ton of production increased by
Total greenhouse gas emissions are made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
1 percent to 0.18 kg/ton. Total VOC emissions remained
stable at 3.1 kilotons
Greenhouse gas emissions per Business Area
Volatile organic compounds in kilotons
in million tons
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
Volatile organic compounds
kg per ton of production
0.1
0.3
3.5
0.1
0.3
3.5
• Total greenhouse gas emissions per ton of production
increased by 1 percent to 224 kg/ton CO2(e).
Absolute GHG emissions remained flat at 3.9 million
tons of CO2(e). These are both caused by a change in
product mix
• A detailed breakdown of our greenhouse gas emissions
is available on our website
7.5
6
4.5
3
1.5
0
0.19
0.19
0.17
0.18
3.6
3.6
3.1
3.1
2011
2012
2013
2014
0.25
0.20
0.15
0.10
0.05
0
237
AkzoNobel Report 2014 | Sustainability statements
18
Note 18: Raw materials efficiency
NOx and SOx
Material efficiency
Material efficiency is one of our new focus areas, which is
wider than our current focus on waste. We will maximize
our conversion of raw materials into final product by
solving the root cause of the losses. This will not only
reduce the waste, but will also, for example, decrease
COD and the carbon dioxide scope 3 upstream.
A variety of projects was initiated:
• At Decorative Paints, we used to collect paint from
wash water and sell it as a raw material instead of
Raw material flow in kilotons
incinerating it, which reduced our waste stream.
Now we are reducing the formation of this wash
water, while any that is generated will be used again in
production, thus improving our material efficiency
• The Chelates business studied the drivers for the
efficiency of reactions, which resulted in a better control
regime and a financial benefit of more than €2 million
• Specialty Chemicals started a program to identify
opportunities on material efficiency. Facts were collected
at 28 sites and based on this information, 12 sites were
selected to have a workshop on opportunities
15
By-product
Customer
operations
Raw
material
input
Own
operations
17,300
Product
149
Waste
77
72
Reusable
Non-reusable
NOx and SOx emissions may have a significant impact on
local air quality because of their potential contribution to
acidification. Therefore, these compounds are monitored.
• SOx emissions (from process emissions and energy)
reduced to 0.22 kg/ton of production. Absolute
emissions were down 19 percent to 3.7 kilotons
• Our three sulfur derivatives plants in Germany, the
US and Argentina contributed 97 percent of the SOx
emissions, and have reduced their contribution by over
0.9 kton/yr
• NOx emissions per ton from our sites remained stable
at 0.08 kg/ton of production. Total emissions remained
at 1.3 kilotons. Improvements were obtained in Boxing,
China, due to reduction of pitch to be incinerated, and
in Rotterdam, the Netherlands
NOx and SOx emissions
in kilotons
NOx
NOx kg/ton
SOx
SOx kg/ton
2011
2012
2013
2014
2.0
0.11
7.7
0.41
1.9
0.10
7.6
0.41
1.3
0.08
4.6
0.26
1.3
0.08
3.7
0.22
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 quantity 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.
Ozone depleting substances
• Emissions of ozone depleting substances are at a low
level – 1.8 tons (2013: 2.9 tons). They are mainly due to
Freon22 from maintenance in older air conditioning and
cooling units, which are replaced when appropriate
238
Sustainability statements | AkzoNobel Report 2014
Waste
Effective waste management helps to increase raw
material efficiency in our manufacturing operations, while
reducing both our environmental footprint and costs.
We have moved our focus from managing/reducing total
waste to eliminating waste by increasing material efficiency.
We are still moving towards 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 8.6 kg/ton. The total
waste volume fell to 149 kilotons, a decrease of
7 percent. The indicative monetary value of the total
waste reduction is about €4 million
• Hazardous waste continues to fall
• The focus on waste over past years resulted in a
reduction in waste at the majority of our sites
Total waste per Business Area
in kilotons
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
39
54
64
35
55
59
Hazardous waste in kilotons
Reusable
Non-reuseable not landfill
Non-reuseable to landfill
Total kg per ton of production
50
40
30
20
10
0
3.8
45
3.8
51
3.5
3.4
44
37
20
23
18
3.0
2.7
15
1.9
4.0
3.2
2.4
1.6
0.8
1.7
0
2011
2012
2013
2014
Total waste in kilotons
Reusable
Non-reusable
Total kg per ton of production
Hazardous waste is waste that is classified and regulated as such according to the
national, state or local legislation in place.
250
200
150
100
50
0
11.6
11.0
9.0
8.6
121
118
96
85
96
65
77
72
15
12
9
6
3
0
2011
2012
2013
2014
Waste means any substance or object arising from our routine operations which we
discard or intend to discard, or we are required to discard.
239
AkzoNobel Report 2014 | Sustainability statements
19
Note 19: Water
Fresh water availability
Water flow in million m3
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, as well as power generation, cooling,
cleaning, transporting and for the effective use of some
products. Around 89 percent of our fresh water intake is
from surface water and 88 percent of our intake is used for
cooling and is only slightly heated. We continue to reduce
the chemical oxygen demand (COD) of our effluent to
surface water.
We monitor our progress using a fresh water risk
assessment tool, which is completed at least bi-annually
by each manufacturing site. The tool assigns risk levels
to water sources, supply reliability, efficiency, quality of
discharges, compliance and social competitive factors.
Sustainable fresh water management is defined as a low
risk score in all categories. In 2013, the assessment was
carried out, and the major risk identified was sourcing
water in water scarce areas. In total, 89 percent of our
sites (2013: 85 percent) have sustainable fresh water
management in place, as measured by the AkzoNobel
fresh water management risk assessment tool.
28
4
231
Product
Other
Potable water
Groundwater
Surface water
11
18
3
231
Own
operations
Surface water
240
Sustainability statements | AkzoNobel Report 2014 20
Note 20: Soil and groundwater remediation
Sustainable fresh water management
in % of manufacturing sites
Target
74
83
85
100
89
Water emissions
In total, 89 percent of the COD is generated in
ten production locations, with the remainder being
generated by numerous sites. These ten locations are the
primary focus for improvement actions.
Chemical oxygen demand (COD) in kilotons
2011
2012
2013
2014
2015
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.
• Fresh water use per ton of production increased to
15.2 m³/ton (2013: 14.9 m³/ton)
• Total fresh water use was 263 million m³, a decrease
of 1 percent (2013: 265 million m³) due to lower
production rates
6
4.8
3.6
2.4
1.2
0
Chemical oxygen demand
kg per ton of production
0.10
1.8
0.09
1.6
0.08
0.08
1.4
1.4
0.20
0.16
0.12
0.08
0.04
0
Soil and groundwater
remediation
There are costs associated with the assessment
and remediation of historical soil and groundwater
contamination. We periodically review historic
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 €326 million which we
believe is sufficient for the sites where we have ownership
or responsibility (See Note 16 of the Consolidated financial
statements).
2011
2012
2013
2014
COD is the amount of oxygen required for the chemical oxidation of substances in the
waste water effluent that is discharged into surface waters.
• The COD load to surface water per ton of production
remained at 0.08 kg/ton
• The total COD load to surface water was stable at
1.4 kilotons
• Waste water treatment improvements at our Mauà site
have reduced COD emissions by 30 tons a year.
A planned new treatment plant will reduce COD further
by 150 tons per year
• Our Santo Andre site is now connected to the municipal
waste water treatment plant, reducing COD emissions
by 80 tons a year
Fresh water use in million m3
Fresh water consumption
m3 per ton of production
15.6
291
500
400
300
200
100
0
15.3
14.9
15.2
283
265
263
20
16
12
8
4
0
2011
2012
2013
2014
Fresh water use is the sum of the intake of groundwater, surface water and potable
water.
Improvement projects include:
• Water saving workshops at seven Decorative Paints
sites identified average savings of more than
20 percent of annual consumption from reduction and
re-use projects
• New evaporators at our Rotterdam site will reduce
cooling water by 5 million m3 a year
241
AkzoNobel Report 2014 | Sustainability statements
Independent assurance report
To the readers of the
AkzoNobel Report 2014
Our conclusion and opinion
We have reviewed the information in the Sustainability
statements (pages 193 to 245) and in the Compliance
and integrity management chapter (pages 122 to 127)
(hereafter The Sustainability Reporting), which are part of
the 2014 Annual Report (The Report) of Akzo Nobel N.V.
(further: the Company).
Furthermore we have audited Note 1: Managing
our sustainability agenda (pages 195 to 198) of the
Sustainability statements.
Based on our review, nothing has come to our attention
to indicate that The Report is not fairly presented, in all
material respects, in accordance with the reporting criteria.
Furthermore, in our opinion, the information in Note 1:
Managing our sustainability agenda (pages 195 to 198) is
presented, in all material respects, in accordance with the
reporting criteria.
We report, to the extent we can assess, that the
information concerning sustainability in the rest of The
Report is consistent with The Sustainability Reporting.
Basis for our conclusion and opinion
We conducted our engagement in accordance with
the Dutch Standard 3810N: “Assurance engagements
relating to sustainability reports”, which is a specified
standard under the International Standard on Assurance
Engagement (ISAE) 3000: “Assurance Engagement other
than Audits or Reviews of Historical Financial Information”.
Our responsibilities under Standard 3810N and
procedures performed have been further specified in the
paragraph titled “Our responsibility for the assurance of
The Sustainability Reporting”.
We are independent of AkzoNobel in accordance
with the “Verordening inzake de onafhankelijkheid van
accountants bij assurance-opdrachten” (ViO) and other
relevant independence requirements in The Netherlands.
242
Furthermore we have complied with the “Verordening
gedrags- en beroepsregels accountants” (VGBA).
We believe that the assurance evidence we have obtained
is sufficient and appropriate to provide a basis for our
conclusion and opinion.
determination of the material aspects. We conducted a
media search to compare the results with the material
aspects identified by the Company in order to identify any
potentially missing material aspects for The Sustainability
Reporting.
Responsibilities of Management for The
Sustainability Reporting
The Board of Management is responsible for the
preparation and fair presentation of The Sustainability
Reporting in scope as included above under “Our
conclusion and opinion” in accordance with the
Sustainability Reporting Guidelines G4 of the Global
Reporting Initiative supported by internally developed
guidelines as described in Note 2: Reporting principles
(pages 198 to 201). It is important to view The
Sustainability Reporting in The Report in the context of
these criteria. We believe these criteria are suitable in view
of the purpose of our assurance engagement.
As part of this, the Board of Management is responsible
for such internal control as it determines is necessary to
enable the preparation of The Sustainability Reporting that
is free from material misstatement, whether due to fraud
or error.
Key assurance matters
Key assurance matters are those matters that, in our
professional judgment, were of most significance in
our assurance of The Sustainability Reporting. We
have communicated the key assurance matters to
the Company. The key assurance matters are not a
comprehensive reflection of all matters discussed.
These assurance matters were addressed in the context of
our assurance of The Sustainability Reporting as a whole
and in forming our conclusion thereon, and we do not
provide a separate conclusion on these matters.
Judgment in determining material aspects
To ensure that the stakeholders of the Company can
base their decisions on the information provided in
The Sustainability Reporting its content should be a
comprehensive reflection of the Company’s material
aspects. Material aspects are defined as aspects of
which an omission can have a substantial impact on the
decisions of stakeholders.
This area was significant to our review in light of the
Company’s move this year for the first time towards the
Sustainability Reporting Guidelines G4 of the Global
Reporting Initiative (GRI) and the inherent qualitative
judgment in determining material aspects. The GRI G4
guidelines require to put emphasis on the materiality
principle supported by a structured process in determining
the content of the report. Our review procedures included,
among others, a review of the process that the Company
has implemented to identify the material aspects for
The Sustainability Reporting and the ways in which
stakeholders’ interests were taken into account as part of
that. We further reviewed and discussed the Company’s
Sustainability statements | AkzoNobel Report 2014 Our responsibility for the assurance of The
Sustainability Reporting
Our objective is to plan and perform the assurance
assignment in a manner that allows us to obtain sufficient
and appropriate assurance evidence for our conclusion
regarding The Sustainability Reporting and our opinion
regarding the information in Note 1: Managing our
sustainability agenda.
Procedures performed for the review of The Sustainability
Reporting are aimed at determining the plausibility of
information and are less extensive than those for a
reasonable level of assurance.
Our audit of the information in Note 1: Managing our
sustainability agenda has been performed with a high, but
not absolute, level of assurance, which means we may not
have detected all errors and fraud.
Our review procedures on The Sustainability Reporting
included among others:
• A risk analysis, including a media search, to identify
relevant sustainability issues for the Company in the
reporting period
• Reviewing the suitability of the internal reporting criteria
• Joining an internal audit of Health, Safety, Environment
& Security Management at the Industrial Chemicals site
in Frankfurt, Germany
• Reviewing the relevant work of the Internal Audit
function
Our additional audit procedures on the information in
Note 1: Managing our sustainability agenda included
among others:
• Testing the relevant work of the Internal Audit function
in respect of the information in Note 1: Managing our
sustainability agenda
• Interviews with relevant staff at corporate level
responsible for providing the information for Note 1:
Managing our sustainability agenda
During the assurance process we discussed the necessary
changes of The Sustainability Reporting and reviewed the
final version of The Report to ensure that it reflects our
findings.
Amsterdam, February 11, 2015
KPMG Sustainability,
Part of KPMG Advisory N.V.
including conversion factors used
W.J. Bartels RA, Partner
• Evaluating the design and implementation of the
systems and processes for the collection, processing
and control of the information in scope for the review,
including the consolidation of the data
• Interviewing management at corporate and business
level responsible for the sustainability and compliance
and integrity 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 Reporting
• Evaluating internal and external documentation, based
on sampling, to determine whether the information in
The Sustainability Reporting is supported by sufficient
evidence
243
AkzoNobel Report 2014 | Sustainability statements Sustainability performance summary
Economic/Governance/Social
Area
Product
Eco-premium solutions with downstream benefits
Eco-premium solutions
Business integrity
% of revenue
% of revenue
Code of Conduct alleged complaints handled by the Compliance Committee
number
Code of Conduct trained
Health and Safety
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 behavior-based safety program
Distribution incidents
Motor vehicle incidents with injury
Employees
Employee numbers (FTE)
Female executives
Executives from high growth markets
Employee engagement index
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 4)
Sourcing
Critical PR2 spend covered by supplier management framework
Product related suppliers signed Vendor Policy
NPR3 suppliers signed Vendor Policy
Suppliers on SSV program since 20074
Renewable raw materials
% of employees
number
/million hours
/million hours
/million hours
%
number
/million hours
% of sites
number
number
number
%
%
1-5 scale
in € millions
number
number
number
number
number
% of spend
% of spend
% of spend
number
% organic RM
2010
2011
2012
2013
2014
Target
2015
Target
2020
–
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
17
22
24
96
2
2.4
1.1
0.2
2.0
0
4.2
76
46
28
18
24
9
95
0
2.3
1.3
0.1
2.1
0
3.5
96
48
19
19
24
11
NA1
0
1.8
0.9
0.3
2.1
0
2.9
98
52
20
55,600
57,240
55,272
49,561
47,207
12
12
3.56
1.5
61
10
32
0
0
–
91
–
266
–
13
13
3.74
1.5
66
8
36
2
0
–
95
77
304
–
15
13
3.80
1.5
61
3
23
0
0
69
97
80
373
13
16
14
3.88
1.0
56
0
14
1
0
80
96
83
392
13
17
16
3.97
1.0
63
1
15
0
0
83
98
80
432
13
–
30
–
–
0
<2.0
1.3
–
1.9
0
–
100
–
–
–
20
20
>4.00
–
–
0
–
0
0
88
98
80
–
–
20
–
–
–
0
<1.0
–
–
–
0
–
–
–
–
–
–
–
–
–
–
0
–
0
0
–
–
–
–
–
1 No 2014 data are available due to implementation of new Learning Management System.
2 PR – Product related (raw materials and packaging).
3 NPR – Non-product related.
4 SVV program targets are included in the Critical PR spend coverage KPI.
244
Sustainability statements | AkzoNobel Report 2014 Environmental
Area
Raw material efficiency
Total waste
per ton of production
Total non-reusable waste
per ton of production
Hazardous waste total
per ton of production
Hazardous waste non-reusable
per ton of production
Hazardous waste to landfill
per ton of production
Maintain natural resources/fresh air
Fresh water use
per ton of production
COD emissions
per ton of production
Manufacturing sites with sustainable fresh water
VOC emissions
per ton of production
NOx emissions
per ton of production
SOx emissions
per ton of production
Direct CO2(e) emissions (Scope 1)
per ton of production
Indirect CO2(e) emissions (Scope 2)
per ton of production
Total energy consumption
per ton of production
Value chain
Total CO2(e) emissions (cradle-to-grave) 1
per ton of product 1
Total CO2(e) emissions (cradle-to-gate) 2
per ton of product 2
1 Reported from 2012. Includes impact from VOC emissions.
2 Reported up to 2012.
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
million tons
ton/ton
million tons
kg/ton
2010
2011
2012
2013
2014
258
13.1
103
5.3
77
3.9
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
–
–
15.9
960
217
11.6
96
5.1
71
3.8
26
1.4
3.0
0.16
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
–
–
16.1
950
203
11.0
85
4.6
71
3.8
20
1.1
2.7
0.15
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
27.5
1.7
15.9
950
161
9.0
65
3.6
62
3.5
17
1.0
1.9
0.11
265
14.9
1.4
0.08
85
3.1
0.17
1.3
0.08
4.6
0.26
1.1
64
2.8
158
99
5.6
26.5
1.6
–
–
149
8.6
72
4.1
58
3.4
22
1.2
1.7
0.10
263
15.2
1.4
0.08
89
3.1
0.18
1.3
0.08
3.7
0.22
1.1
63
2.8
161
98
5.7
26.9
1.7
–
–
Target
2015
–
-10%
–
–
–
–
–
–
–
–
–
–
–
–
100
–
0.19
–
–
–
–
–
-10%
–
-10%
–
–
–
–
–
–
Target
2020
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-25–30%
–
–
245
AkzoNobel Report 2014 | Sustainability statements Index
AkzoNobel at a glance
cover flap
Earnings per share
140
Powder Coatings
Audit Committee
Auditor’s report
108
184
Eco-premium solutions
48, 210
Product stewardship
Emissions
214, 217
Profit allocation
Automotive and Aerospace Coatings
82
Employees
51, 218
Property, plant and equipment
34
Provisions
100
247
175
94
89
Pulp and Performance Chemicals
Raw materials
Regional statistics
Remuneration
Remuneration Committee
248
Report of the Supervisory Board
4, 46
Resource Efficiency Index
10
94
83
32
Return on investment
Return on sales
Risk management
Safety
156
Segment information
28, 89
Shareholders’ equity
52, 102, 109, 121
Specialty Chemicals
48
Stakeholder engagement
83
224
187
158
163, 168
95
50, 55, 238
191
128, 172
110
106
29, 209, 214
28, 44
44
52
221
144
162
86
202
26
103
95
193
196
89, 229
188
50, 239
Marine and Protective Coatings
82
Strategy
231
Strategic targets
4, 5, 44, 45
Operating income
Outlook
Pensions
47, 161
Supervisory Board
110
Surface Chemistry
47, 151
Sustainability statements
9, 49
Sustainability framework
163
Talent management
Performance Coatings
74
Ten-year financial summary
48, 187
Planet Possible
29, 30, 194, 202
Waste
Board of Management
Borrowings
Business Area statistics
Business performance
Carbon footprint
100
End-user segments
169, 170
Executive Committee
190
Financial calendar
61
Financial instruments
214
Functional Chemicals
Cash, cash flow and net debt
47, 142, 161
Functional excellence
CEO statement
Code of Conduct
Commercial excellence
Community Program
Company financial statements
Compliance
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Consolidated statement of comprehensive income
Consolidated statement of income
Contingent liabilities and commitments
8
Glossary
122
How we create value
89, 208
Human cities initiative
232
179
Industrial Chemicals
Industrial Coatings
114, 122
Innovation
Intangible assets
Integrated supply chain
Internal controls
Invested capital
“Let’s Colour”
Continuous improvement
32
Net debt
Core principles and values
121, 127, 228
Nomination Committee
141
142
143
140
140
171
113
214
62
47
Corporate governance
Cradle-to-grave carbon footprint
Decorative Paints
Divestments
Dividend proposal
246
Financial calendar
2015
April 21
April 22
April 24
Report for the
first quarter
Annual General
Meeting of
shareholders
Ex-dividend date of
2014 final dividend
April 27
April 28 – May 13
May 15
May 19
Record date of 2014
final dividend
Election period cash or
stock final dividend
Determination of
exchange ratio
July 21
October 22
Report for the
second quarter
Report for the
third quarter
2016
Payment date cash
dividend and delivery
of new shares
February 11
Report for the
full-year 2015 and
the fourth quarter
247
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.
GHG
Greenhouse gases, including CO2, CO, CH4, N2O and HFCs,
which have a global warming impact. We also include the
impact of VOCs in our targets.
AGM
Annual General Meeting of shareholders.
ALPS
AkzoNobel Leading Performance System.
BBS
Behavior-based safety. A global program run at AkzoNobel
manufacturing facilities and other sites.
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 CO2(e) emitted.
Code of Conduct
Our Code of Conduct defines our company values and how
we work. It incorporates fundamental principles on issues
such as business integrity, labor relations, health, safety,
environment and security and community involvement.
EBITDA
Operating income before depreciation, amortization and
incidental items.
Eco-efficiency
Eco-efficiency means doing more with less; creating goods
and services while using fewer resources and creating less
waste and pollution.
Eco-premium solutions (EPS)
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, health and well-being),
and not significantly worse in any other criteria.
Eco-premium solutions with downstream benefits
Provide tangible material or energy efficiency benefits for our
customers, compared with competitive products.
EMEA
Europe, Middle East and Africa.
Community Program
AkzoNobel’s global Community Program encourages and
gives financial support for employees to get involved, hands-
on, in their local communities.
Emerging Europe
Central and Eastern Europe (excluding Austria), Baltic States
and Turkey.
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.
Emissions and waste
We report emissions to air, land and water for those
substances which may have an impact on people or the
environment: CO2, NOx and SOx, VOCs, chemical oxygen
demand, hazardous and non-hazardous waste. Definitions
are in the Sustainability statements section.
GBS
Global Business Services, which covers functional
support activities such as Human Resources, Finance and
Information Management, as well as non-product related
Procurement.
HSE
Health, safety and environment.
Invested capital
Total assets (excluding cash and cash equivalents,
investments in associates, the receivable from pension funds
in an asset position, assets held for sale) less current income
tax payable, deferred tax liabilities and trade and other
payables.
Key value chain (KVC)
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 revenue/production.
LCA
Lifecycle assessments are the basis of our value chain
sustainability programs. Eco-efficiency analysis (EEA) is our
standard assessment method.
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.
248
TSR (total shareholder return)
Used to compare the performance of different companies’
stocks and shares over time. It combines share price
appreciation and dividends paid to show the total return
to the shareholder. The relative TSR position reflects the
market perception of overall performance relative to a
reference group.
Vendor Policy/SSV
Vendor Policy, Supplier Support Visits, Key Supplier
Management and Together for Sustainable are all elements
of our supplier sustainability program.
VOC
Volatile organic compounds.
Mature markets
Mature markets are comprised of Western Europe, the US,
Canada, Japan and Oceania.
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).
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.
REI
Resource Efficiency Index is gross margin divided by cradle-
to-grave carbon footprint. The index measures value created
from use of raw materials and energy.
Net debt
Defined as long-term borrowings plus short-term
borrowings less cash and cash equivalents.
ROI (return on investment)
This is a key profitability measure and is calculated as opera-
ting income as a percentage of average invested capital.
Operating income
Operating income is defined in accordance with IFRS
and includes the relevant incidental items.
ROS (return on sales)
This is a key profitability measure and is calculated as
operating income as a percentage of revenue.
Operational cash flow
We use operational cash flow to monitor cash generation. It
is defined as operating income excluding depreciation and
amortization, adjusted for the change in operating working
capital and capital expenditures.
Operational eco-efficiency
Refers to the eco-efficiency of our manufacturing operations.
Our aim is to improve operational eco-efficiency by reducing
the resources used and emissions/waste from our sites
during the manufacture of our products.
OTIF
On-time in-full, referring to customer service.
P&D Dialog
The Performance & Development Dialog is AkzoNobel’s
global performance and appraisal system for employees.
RD&I
Research, Development and Innovation.
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 reputational damage to AkzoNobel stakeholders.
Shareholders’ equity per share
Akzo Nobel N.V. shareholders’ equity divided by the number
of common shares outstanding at year-end.
RobecoSAM 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.
Total reportable rate of injuries (TRR)
The number of injuries per million hours worked. Full
definitions are in the Sustainability statements.
249
Integrated Report 2014
AkzoNobel’s annual financial report has been combined with
the sustainability report into one Report 2014. The Report
2014 includes elements of the reporting guidelines issued
by the International Integrated Reporting Council (IIRC).
The sustainability sections, however, in no way form part of
the company’s annual report as the company is required to
publish pursuant to Dutch law.
Brands and trademarks
In this Report 2014, reference is made to brands and
trademarks owned by, or licensed to, AkzoNobel.
Unauthorized use of these is strictly prohibited.
Disclaimer
In this Report 2014, great care has been taken in drawing
up the properties and qualifications of the product features.
No rights can be derived from these descriptions. The reader
is advised to consult the available product specifications
themselves. These are available through the relevant
business units. In this 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 chapter “Business
performance”, they refer to the business concerned.
Safe harbor statement
This Report 2014 contains statements which address such
key issues as AkzoNobel’s growth strategy, future financial
results, market positions, product development, products
in the pipeline and product approvals. Such statements
should be carefully considered and it should be understood
that many factors could cause forecasted and actual results
to differ from these statements. These factors include, but
are not limited to, price fluctuations, currency fluctuations,
developments in raw material and personnel costs,
pensions, physical and environmental risks, legal issues,
and legislative, fiscal and other regulatory measures. Stated
competitive positions are based on management estimates
supported by information provided by specialized external
agencies.
250
We welcome feedback on our Report
2014. You can contact us as follows:
Akzo Nobel N.V.
Strawinskylaan 2555
P.O. Box 75730
1070 AS Amsterdam, the Netherlands
T +31 20 502 7555
F +31 20 502 7666
www.akzonobel.com
AkzoNobel Global Communications
T +31 20 502 7833
F +31 20 502 7604
E info@akzonobel.com
AkzoNobel Investor Relations
T +31 20 502 7854
F +31 20 502 7605
E investor.relations@akzonobel.com
Editor
David Lichtneker
Art direction and design
Caroline Meads
Design
John O’Neill
Artwork
Annette Toeter
Photography
Eduard de Boer
Simone van Es
Printing
Tesink B.V.
Online report
Nexxar gmbh
251
252
Sustainability statements | AkzoNobel Report 2014 - Final draftPrinted withBio ink & varnish© Drukkerij Tesink©We printCO2 neutrally© Drukkerij TesinkCO2neutral TEAL
Color of the Year 2014
www.akzonobel.com/colorfutures
www.akzonobel.com
AkzoNobel is a leading global paints and
coatings company and a major producer of
specialty chemicals. Calling on centuries of
expertise, we supply industries and consumers
worldwide with innovative products and
sustainable technologies designed to meet
the growing demands of our fast-changing
planet. Headquartered in Amsterdam, the
Netherlands, we have approximately 47,000
people in around 80 countries, while our
portfolio includes well-known brands such as
Dulux, Sikkens, International, Interpon and Eka.
Consistently ranked as one of the leaders in
the area of sustainability, we are committed
to making life more liveable and our cities
more human.
© 2015 Akzo Nobel N.V. All rights reserved.
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