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Report16
AkzoNobel at a glanceKey regions (by 2016 revenue)Latin America 9%Other regions 4%North America 17%Mature Europe 36%Emerging Europe 7%€14.2 billion revenue€1,502 million EBIT€3.87 earnings per share 80+ countries46,000 employeesAsia Pacific27%Our businessesDecorative PaintsPerformance CoatingsSpecialty ChemicalsWhether our customers are professional decorators or keen DIY-ers, they want great paint that gives a great finish. We supply a large 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.Main business operations:• Decorative Paints Europe, Middle East and Africa• Decorative Paints Asia• Decorative Paints Latin AmericaBrands include Coral, Dulux, Flexa, Hammerite, Sadolin and Sikkens.Some of our customers: consumers, paint distributors around the world and large retail outlets such as B&Q, Leroy Merlin and OBI.Decorative Paints 2016 revenue breakdown by end-user segment in %A Buildings and Infrastructure 100B Transportation 0C Consumer Goods 0D Industrial 0AWe’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 ships, cars, aircraft, yachts and architectural components (structural steel, building products, flooring) to consumer goods (mobile devices, appliances, beverage cans, furniture) and oil and gas facilities. Main business operations:• Automotive and Specialty Coatings• Marine and Protective Coatings• Industrial and Powder Coatings Brands include Awlgrip, International, Interpon and Sikkens. Some of our customers: Airbus, Boeing, Bosch, Dell, IKEA, Mercedes-Benz, Philips, Samsung, Shell and Whirlpool.As a major producer of specialty chemicalswith leadership positions in markets such assurfactants, polymer chemistry, pulp processing and chlor-alkali, we make sure that industries worldwide are supplied with high quality ingredients and process aids for the manufacture of life’s essentials. Main business operations:• Functional Chemicals (including Ethylene and Sulfur Derivatives and Polymer Chemistry) • Industrial Chemicals • Pulp and Performance Chemicals • Surface Chemistry Brands include AkzoNobel, Biostyle, Dissolvine, Ecosel, Eka, Expancel, Jozo, Kromasil and Levasil.Some of our customers: BASF, Bayer, Dow, GE, Huntsman, Momentive, Monsanto, P&G, Shin-Etsu, Stora Enso and Unilever.Specialty Chemicals 2016 revenue breakdown by end-user segment in %Performance Coatings 2016 revenue breakdown by end-user segment in %A Buildings and Infrastructure 21B Transportation 6C Consumer Goods 28D Industrial 45 A Buildings and Infrastructure 25B Transportation 39C Consumer Goods 21D Industrial 15 ABCDABCD Asia Pacific27%Our businessesDecorative PaintsPerformance CoatingsSpecialty ChemicalsWhether our customers are professional decorators or keen DIY-ers, they want great paint that gives a great finish. We supply a large 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.Main business operations:• Decorative Paints Europe, Middle East and Africa• Decorative Paints Asia• Decorative Paints Latin AmericaBrands include Coral, Dulux, Flexa, Hammerite, Sadolin and Sikkens.Some of our customers: consumers, paint distributors around the world and large retail outlets such as B&Q, Leroy Merlin and OBI.Decorative Paints 2016 revenue breakdown by end-user segment in %A Buildings and Infrastructure 100B Transportation 0C Consumer Goods 0D Industrial 0AWe’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 ships, cars, aircraft, yachts and architectural components (structural steel, building products, flooring) to consumer goods (mobile devices, appliances, beverage cans, furniture) and oil and gas facilities. Main business operations:• Automotive and Specialty Coatings• Marine and Protective Coatings• Industrial and Powder Coatings Brands include Awlgrip, International, Interpon and Sikkens. Some of our customers: Airbus, Boeing, Bosch, Dell, IKEA, Mercedes-Benz, Philips, Samsung, Shell and Whirlpool.As a major producer of specialty chemicalswith leadership positions in markets such assurfactants, polymer chemistry, pulp processing and chlor-alkali, we make sure that industries worldwide are supplied with high quality ingredients and process aids for the manufacture of life’s essentials. Main business operations:• Functional Chemicals (including Ethylene and Sulfur Derivatives and Polymer Chemistry) • Industrial Chemicals • Pulp and Performance Chemicals • Surface Chemistry Brands include AkzoNobel, Biostyle, Dissolvine, Ecosel, Eka, Expancel, Jozo, Kromasil and Levasil.Some of our customers: BASF, Bayer, Dow, GE, Huntsman, Momentive, Monsanto, P&G, Shin-Etsu, Stora Enso and Unilever.Specialty Chemicals 2016 revenue breakdown by end-user segment in %Performance Coatings 2016 revenue breakdown by end-user segment in %A Buildings and Infrastructure 21B Transportation 6C Consumer Goods 28D Industrial 45 A Buildings and Infrastructure 25B Transportation 39C Consumer Goods 21D Industrial 15 ABCDABCD DENIM DRIFT
Color of the Year 2017
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Essential ingredients. Essential protection. Essential color.
We create everyday essentials to make people’s lives more liveable and inspiring.
Take a look at the cover image to get a sense of how we contribute to the
things people see and use every day. Whether it’s sports equipment, stadiums,
running shoes or outdoor spaces, we’re helping to create a protected, colorful
and more sustainable world.
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“In a year of record profitability
in terms of return on sales
and return on investment, our
purpose of creating everyday
essentials to make people’s lives
more liveable and inspiring was
brought to life”
Ton Büchner
CEO and Chairman of the Board of Management
and Executive Committee
CEO Ton Büchner visited Singapore to announce a long-term partnership with the Ground-Up Initiative’s
Kampung Kampus. The new eco-site will be focused on sustainable living and community building and will
benefit from products and expertise supplied by AkzoNobel.
Report
2Featured contentGiving people thatwinning feeling12Bringing innovation to life14A breath of fresh air64CEOstatement82016 WAS A YEAR OF RECORD PROFITABILITY IN TERMS OF RETURN ON SALES AND RETURN ON INVESTMENT Contents
AkzoNobel at a glance
Cover flap
How AkzoNobel performed in 2016
How AkzoNobel created value in 2016
CEO statement
Our purpose
Strategic performance
Business performance
Leadership
Governance and compliance
Financial information
Sustainability statements
Index
Financial calendar
Glossary
4
6
8
10
20
54
86
104
130
188
252
253
254
Making
shipping
more
sustainable
74
Serving
our
chemicals
customers
in China
84
How AkzoNobel performed in 2016
Financial guidance
9-11%
13-16.5%
Return on sales (ROS)
Achieve return on sales
(EBIT/revenue) of
9-11 percent for 2016-2018
Return on investment (ROI)
Achieve return on investment
(EBIT/average invested capital) of
13-16.5 percent for 2016-2018
2016 progress
10.6%
15.0%
4
4
How AkzoNobel performed in 2016 | AkzoNobel Report 2016
Indicates a positive development
Indicates a flat/negative development
Sustainability targets
20%
25-30%
REI
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 gross margin divided by
carbon emissions across the
value chain, as an indicator for
resource efficiency
2016 progress
20%
6%
112
AkzoNobel Report 2016 | How AkzoNobel performed in 2016
5
5
How AkzoNobel created value in 2016
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.
€7.0 billion
group equity
€2.7 billion
borrowings
€14.2 billion
revenue
€634 million
capital expenditures
€1,502 million
EBIT
€10,266 million
invested capital at year-end
We are actively working to reduce our
carbon footprint across the value chain
– to improve our resource efficiency and
reduce our environmental footprint. We are
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
€1,297 million
cash flow from operating activities
We invested in 2016 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 enable us to deliver more
economic value for our investors.
40%
renewable energy
97,000 TJ
energy use
12%
renewable raw materials as %
of organic materials
€0.6 billion
energy spend
9.5 million tons
upstream CO2(e) emissions
Social value: Input
Organization
46,000
employees at year-end 2016
>300
number of projects launched through
our Human Cities initiative
1.4
total reportable rate of injuries
(per million hours)
Employee and supervised contractors
total reportable rate of injuries
Target: <1.0 (2020)
2.3
1.8
1.6
1.4
2013
2014
2015
2016
6
How AkzoNobel created value in 2016 | AkzoNobel Report 2016
Revenue breakdown by Business Area
in %
Revenue breakdown by end-user segment
in %
Outcomes
€285 million
income tax paid
€336 million
dividend paid
10.6% ROS
15.0% ROI
D
C
B
A
27
40
33
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
44
17
18
21
RD&I investments have resulted in
20 percent of revenue derived
from eco-premium solutions with
customer benefits.
20%
of revenue from eco-premium solutions with
customer benefits
Outcomes
3.7 million tons
CO2(e) emissions own operations
143 kilotons
total waste own operations
10.5 million
tons
downstream CO2(e) emissions
improvement CO2(e) per ton of sales from
6%
2012 cradle-to-grave carbon footprint
112 REI
in Resource Efficiency Index
23.7 million
tons
CO2(e) emissions cradle-to-grave
C
A
B
A Decorative Paints
B Performance Coatings
C Specialty Chemicals
Organization
28%
reduction in operational eco-efficiency
footprint (since 2009)
19%
female executives
4%
high potential turnover
Outcomes
€2.7 billion
employee benefits
4.17
employee engagement score
9.0 million
lives positively impacted by our
Human Cities initiative
Indicates a positive development
Indicates a flat/negative development
AkzoNobel Report 2016 | How AkzoNobel created value in 2016
7
CEO statement
In a year of record profitability in terms of return
on sales and return on investment, our purpose
of creating everyday essentials to make people’s
lives more liveable and inspiring was brought to life.
We continued to build on our solid foundation of
operational excellence to drive growth and sharpened
our focus on delivering more value for our people, our
customers and our shareholders.
As well as introducing a series of innovative new products,
we began to advance our digital agenda and made
important steps with regard to sustainability, setting us up
to accelerate organic growth. Our expanding Human Cities
initiative – everything we do for and with society – also
continued to impact millions of people around the world.
Strategy and performance
Our commitment to delivering essential ingredients, essential
protection and essential color ensured we made progress
towards our vision of leading market positions delivering
leading performance. Our track record of performance
improvement continued – 2016 was again a record year for
us in terms of return on investment and return on sales –
driven by our focus on growth, operational excellence and
continuous improvement.
We now have a stronger operational and financial foundation
for adapting to market challenges and seizing growth
opportunities, evidenced by our €425 million acquisition
(after closing adjustments and working capital requirements)
of BASF’s Industrial Coatings business. The transaction
included relevant technologies, patents and trademarks, as
well as two manufacturing plants in the UK and South Africa
and around 350 employees (see page 27). It’s an acquisition
with many positive synergies and I would like to extend a
warm welcome to all our new colleagues.
To support our drive for growth, we strengthened our
position in the North American hydrogen peroxide market
by fully acquiring the shares of our joint venture partner OCI
Peroxy LLC. We also started a new cooperation in Spain to
convert a salt-based waste stream into high quality vacuum
salt. In addition, we made continued investments to upgrade
and expand existing sites and build and open new facilities
to drive organic growth. This included new plants for powder
coatings (near Mumbai in India and in Chengdu, China), and
two new Specialty Chemicals facilities in Ningbo and Tianjin
in China. We also invested in existing sites in Los Reyes,
Mexico, and in Battleground and Pasadena in the US, as
well as forming a joint arrangement with Atul to build a world
scale MCA plant in Gujarat, India.
Meanwhile, our Global Business Services model – which
simplifies various support functions by identifying common
ways of working – is freeing up time for the businesses
to focus more on customers, innovation and growth.
Productivity improvements and efficiency programs have
also been delivered within the support functions.
These actions have been instrumental in improving our
performance and driving cost savings of over €200 million.
They have also helped us create a more engaged workforce,
underlined by our engagement levels improving for the sixth
year in a row. Our people are fundamental to the success
“WE ARE BETTER PLACED
TO ACCELERATE GROWTH”
As expected, market conditions remained challenging and
we continued to face an uncertain and volatile economic
environment. However, our agility enabled us to adapt and
respond. As well as delivering a record year financially for
our return on sales and return on investment, we delivered
performance records in terms of EBIT and operational cash
flow. A further increase in our dividend – and the launch
of a share buyback program to neutralize the 2016 stock
dividends paid – indicate confidence in our cash flow
generation. We are better placed to accelerate growth and
deal with challenges in our markets.
Organization
Our organization has evolved significantly over the last few
years and we have been working hard to embed a culture
of continuous improvement through our AkzoNobel Leading
Performance System (ALPS). It’s an effective way for us to
empower our people to improve the business and has now
been implemented at more than 75 percent of our sites.
our company, so we intend to raise the engagement level
even higher as we continue to make AkzoNobel a great
place to work. Safety plays an essential role in this. As one of
our core principles, it’s embedded in everything we do and
it was pleasing to see us make good progress towards our
2020 target. Our aim continues to be zero incidents.
Human Cities
One of the most inspiring aspects of 2016 was seeing
examples of our purpose being brought to life. Our Human
Cities initiative played a major role in this, underlining how
we welcome our responsibility to play an important role in
the communities where we operate. During 2016, more than
300 projects were launched around the world – impacting
over nine million people – highlighting our contribution to the
United Nations Sustainable Development Goals (SDGs).
In Ecuador, for example, an area of Quito was transformed
ahead of the UN Habitat III Conference on Housing and
8
CEO statement | AkzoNobel Report 2016
Ton Büchner speaking at an all employee town hall meeting in China. 9AkzoNobel Report 2016 | CEO statement9Sustainable Urban Development. Working with several partners, we created a vertical garden which uses our micro-nutrients, as well as adding essential color to roads and buildings to create the “Ruta de la Experiencia”, a people-friendly route for visitors and local residents (see page 13).Other notable projects included the renovation of four historic locations in Shanghai’s Jing’an District in China and restoring the old town of Jakarta in Indonesia. In Brazil, a favela in Rio de Janeiro was transformed using paint and a bit of imagination to create Unexpected Courts for children to try different sports. The launch of the Dulux Academy at our Slough site in the UK was another highlight. The center will give over 4,000 decorators and apprentices every year the chance to expand their capabilities, while addressing skill gaps in the industry. InnovationOur strategic focus on driving innovation to support organic growth gathered momentum. We launched a series of products, many offering major benefits in terms of their sustainability profile. For example, we introduced an ingredient for detergent makers which enables them to meet strict environmental regulations, while one of our Expancel products – which is used in corks to keep wine fresh – was approved by the US Food and Drug Administration. Our Dulux Forest Breath range – interior paints which improve indoor air quality – was also launched for the Chinese market (see page 64). Digital innovation is a major area of attention and is playing an important role in product development and how we work with customers. A recent introduction making good progress is Intertrac Vision, which is helping the shipping industry become more sustainable (see page 74). We also opened a new virtual reality center for our decorative paints customers in the UK which allows visitors to explore different store environments. Meanwhile, our Visualizer decorating app was upgraded and has been downloaded over 13 million times.Ton Büchner, CEO and Chairman of the Board of Management and Executive CommitteeLeadershipAt the end of 2016, we announced the retirement of Werner Fuhrmann after 37 years of service. As Executive Committee member responsible for Specialty Chemicals, he has been instrumental in transforming the business and leading it to record levels of performance. I would like to express the gratitude of the entire company and wish Werner a very happy retirement. As of February 1, 2017, his successor is highly experienced chemical industry professional Thierry Vanlancker, whom we are delighted to welcome to AkzoNobel.All our achievements were made possible by our dedicated teams around the world. The progress we’ve made, the improvements we’ve introduced and the innovation we’ve delivered, are all important in terms of accelerating growth. We are now a stronger, more agile company, with excellent brands, a growing global presence and a solid operational and financial foundation. On behalf of the Executive Com -mittee, I thank everyone for their passion and hard work. Together, we will continue to supply essential ingredients, essential protection and essential color while creating tangible value for our people, customers and shareholders. Click to watch videoSustainabilityOur sustainability agenda was brought into sharper focus as we stepped up our activities in all areas. We firmly believe sustainability is business, and business is sustainability, and are continuing to identify areas of opportunity. As well as conducting a company-wide review of operational eco-efficiency, we compiled a detailed assessment of our contribution to the UN SDGs. This will help us accelerate progress towards our strategic sustainability ambitions (see page 16). We also continue to take a pioneering approach to integrated reporting, evidenced by the further development of our materiality assessment and innovative 3D profit and loss model (see pages 46 and 204 and Notes 2 and 3 of the Sustainability statements).Notable developments during the year included taking the lead in a major partnership with Google, Philips and DSM to source power from a new wind park in the Netherlands. Together, we have agreed to source a total of 350 million kWh a year from the Krammer wind park once it becomes operational in 2019. The consortium also agreed to a second Dutch project (announced in early 2017) to purchase energy from the Bouwdokken wind park. Together, the two sites will have a total capacity of 140 MW, enough to power around 140,000 households for a year. The proportion of renewable energy used in our own operations is now 40 percent and we aim to increase this figure over the next few years. MAKING PEOPLE’S LIVES MORE LIVEABLE AND INSPIRINGOur purpose | AkzoNobel Report 201610Click to watch video In 2016, we continued to focus on what we do best – creating everyday essentials to make people’s lives more liveable and inspiring, with essential ingredients, essential protection and essential color.This purpose gives us energy, sparks our creativity and enables us to deliver great products and services for our customers. It drives our innovation, enables our Human Cities initiative to thrive and provides added momentum for our long-standing commitment to sustainability.By supplying the everyday essentials customers and consumers need, we support cities in meeting the challenges they face, we help a number of industries to become more sustainable and we create a protected, colorful world where life is improved by what we do.On the following pages, we highlight just a few examples of how we demonstrated this during 2016. 11AkzoNobel Report 2016 | Our purpose GIVING PEOPLE THAT WINNING FEELINGOur purpose | AkzoNobel Report 201612Click to watch video Our purpose is brought to life in many ways. It
can be particularly effective in inspiring people to
meet the many challenges being faced by cities
and communities. By using our three key strengths
– essential ingredients, essential protection and
essential color – we are in an ideal position
to energize and regenerate urban areas across
the world.
Several courts have been created so far, including a
walkway which has been turned into a running track, a
set of stairs and a wall that have become a basketball
arena, and a series of clothes lines and pillars that have
been transformed into a volleyball court. We plan to
repeat the initiative in communities around the world so
that many more people can be inspired by the use of
essential color.
Later in the year, we played a major role in transforming
part of Quito in Ecuador, which played host to the UN
Habitat III Conference on Housing and Sustainable Urban
Development. This included creating a large vertical
urban garden to help transform a bleak expanse of
concrete into a colorful and more attractive space for
local residents. The garden has no soil and is based on
Everything we do for and with society is channeled
through our global Human Cities initiative. It’s an active
expression of our purpose which enables us to combine
our expertise in sustainable innovation with our passion
for working closely with local communities. It includes all
the work we do through our Community Program and
“Let’s Colour” initiative. In 2016, this involved a total of
more than 300 projects, impacting over nine
million people.
Two particular highlights during 2016 took place in Latin
America. In Brazil, our Coral paint brand launched
its Unexpected Courts project in Rio de Janeiro’s
Santa Marta favela. It involves giving children
the chance to test their sporting skills in
surprising spaces, through the simple but
ingenious use of paint.
a hydroponic system, which uses our micronutrients to
provide essential minerals for the plants. It was part of a
larger project to create a people-friendly route through
the city, known as the “Ruta de la Experiencia”, which
also featured our coatings and volunteer help from
our employees.
Other major Human Cities projects launched during
2016 included repainting four primary schools and
refurbishing areas of a popular local park in Rotterdam,
the Netherlands; renovating four historical locations in
Shanghai’s Jing’an District in China; and restoring the
historic Kota Tua (old town) area of Jakarta in Indonesia,
a partnership designed to help the site secure UNESCO
World Heritage status.
In 2016, we led the creation of the Human
Cities Coalition. A public-private partnership
of Dutch organizations from government, NGOs
and business, it’s focused on contributing to Goal
11 of the UN Sustainable Development Goals:
Sustainable cities and communities.
Click to watch video
AkzoNobel Report 2016 | Our purpose
13
People all over the world use our products every
single day. Often without realizing it. These everyday
essentials can be found in everything from paper and
plastic to food and furniture.
Food and furniture are among the most basic essentials
that we’d find it difficult to live without. Both industries
are also resource intensive, whether it’s land and labor
needed to grow crops, or the raw materials and energy
required for creating the items that furnish our homes.
During 2016, we addressed some key challenges facing
these industries by developing sustainable innovations to
make everyday life healthier and more inspiring. As well
as offering customers and consumers important benefits,
they also reflect our Planet Possible sustainability agenda
of doing more with less.
With the world’s population expected to reach nine billion
by 2050, safeguarding food supply is vital. In India, we
introduced two new products for crop protection – Adsee
1629 and Agrilan 788 – designed to help herbicide
producers improve quality and efficiency while using
fewer resources. Both are examples of how our scientists
around the world work closely with customers to develop
essential ingredients for the challenges people face
every day.
The furniture industry in China is also adopting
innovative solutions in order to satisfy a shift in consumer
preferences for more sustainable products and meet
stricter government standards on sustainability. To
help manufacturers make this transition, we developed
Aquasilk specifically for the Chinese market. It’s a water-
based wood coating which contains substantially lower
levels of volatile organic compounds (VOCs) than the
traditional solvent-based systems it replaces.
The first water-based coating to contain the company’s
in-house resin, Aquasilk delivers the highest standards
of color and protection and highlights how we are
constantly working to drive our sustainable innovation
to new levels.
Another recent product innovation
means detergent makers can now meet
strict environmental regulations relating
to the use of phosphates, following
the launch of our Dissolvine M-40
ingredient. Readily biodegradable,
it’s a replacement for ingredients under
regulatory pressure.
14
Our purpose | AkzoNobel Report 2016
15BRINGING INNOVATION TO LIFEClick to watch videoAkzoNobel Report 2016 | Our purpose 16Our purpose | AkzoNobel Report 2016AkzoNobel supporting the UN Sustainable Development GoalsIn 2015, countries around the world adopted a set of goals to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Devised by the United Nations, the 17 Sustainable Development Goals (SDGs) set out a comprehensive list of targets to be achieved by 2030, covering all three dimensions – economic, environmental and social – of sustainable development.Although they are primarily aimed at governments, the SDGs also call on businesses to apply their creativity and innovation to help solve sustainable development challenges. An advantage for companies putting the SDGs at the heart of what they do is they can discover new growth opportunities and reduce their risk profile across the value chain. Ultimately, the SDGs mean companies will increasingly pay for the cost of their negative impact on the environment and society, emphasizing the growing importance of radical resource efficiency. New business opportunities will also open up for companies that develop innovative solutions for tackling the challenges that the SDGs represent.AkzoNobel takes this challenge to heart. In 2014, we were one of over 60 signatories of the Post-2015 Charter that committed to contributing to the achievement of the SDGs. Through our Planet Possible sustainability agenda and our global Human Cities initiative, we aim to be part of the solution. Our contributionWe recognize that different companies impact each SDG to a different extent, subject to geography, sector and strategic profile. In 2016, we revised our review of the SDGs against our own agenda and priorities, in line with guidance from the SDG compass – a tool developed by the World Business Council for Sustainable Development, UN Global Compact and Global Reporting Initiative. The findings revealed that we contribute, to varying degrees, to all the SDGs through our operations and supply chain, products and Human Cities initiative. There are a few where we can have a particular impact through our products or activities – including SDG 7: Affordable and clean energy; SDG 12: Responsible consumption and production; and SDG 13: Climate action. Our main focus areas are SDG 11: Sustainable cities and communities and SDG 17: Partnerships for the goals, which are explained in more detail on the opposite page. Further information on our complete SDG mapping can be found in Note 3 of the Sustainability statements. Goal 11: Sustainable cities and communities
Founded in 2016 to build on the work of our global Human Cities initiative,
the Human Cities Coalition is focused on contributing to SDG 11. This
public-private partnership was created after AkzoNobel brought together a
unique coalition of global and local partners from business, governments,
academia and civil society to help make megacities in the emerging world
more liveable and prosperous places for all. Each partner organization
uses its expertise to improve the economic, environmental and social
development of cities, such as designing new financing mechanisms for large
infrastructure projects (e.g. water sanitation, affordable housing). AkzoNobel
CEO Ton Büchner serves as Chairman of its Supervisory Board.
The work of the Human Cities Coalition includes designing inclusive
models to build sustainable business cases that meet the many planning
challenges megacities face. This is based on an approach where bottom-
up meets top-down, which means community organizations are closely
involved in the co-creation of solutions, while public-private partnerships
and financing ensure feasibility of the implementation. To ensure that impact
on the ground is achieved, measurement plays a key role. One of the main
aims of the Human Cities Coalition is to ensure this approach is converted
into a replicable and scalable model. The first two cities for which urban
interventions will be designed are Jakarta and Manila.
Launched in 2014, Human Cities is everything we do for and with society
and includes the work of our global Community Program and “Let’s Colour”
initiative. During 2016, it saw the introduction of more than 300 projects,
impacting over nine million people.
The 17 UN Sustainable Development
Goals are a universal call to action to end
poverty, protect the planet and ensure
that all people enjoy peace and prosperity.
The goals are interconnected – often the key to
success on one will involve tackling issues more
commonly associated with another.
Goal 17: Partnerships for the goals
Partnerships between private companies – as well as public-private
partnerships – are becoming ever more important to accelerate sustainable
development. At AkzoNobel, we appreciate the power of partnerships to
help give us further momentum to becoming a more sustainable business.
This enables us to have an impact on creating economic, environmental and
social value, thereby contributing to the achievement of the SDGs. A number
of examples where we have acted as consortium leader can be found
throughout this Report 2016 and on our corporate website, including:
• We established a consortium with Van Gansewinkel, Air Liquide, AVR,
Enerkem and various others to explore the feasibility of setting up waste-
to-chemicals facilities in Europe, contributing to SDG 12: Responsible
consumption and production. See Note 8 of the Sustainability statements
• AkzoNobel led a partnership with Google, Philips and DSM to
jointly source power from renewable energy projects, contributing to
SDG 7: Affordable and clean energy. As part of this collaboration,
the first agreement is to buy power from the Krammer wind park
in the Netherlands
• Another partnership contributing to SDG 7 is our sustainable steam
project in Delfzijl, the Netherlands. We have signed a 12-year agreement
with Dutch energy provider Eneco to purchase steam generated from
reclaimed wood. See Note 8 of the Sustainability statements
• We set up a landmark carbon credits scheme for ship owners in
conjunction with the Gold Standard Foundation and the Fremco Group
which is contributing to SDG 13: Climate action. See the case study on
page 198 of the Sustainability statements
More details on how we aim to scale up our positive impact and minimize
our negative impact across the economic, environmental and social
dimensions of sustainability – and throughout the value chain – can be
found under Creating shared value across three dimensions in the
Sustainability statements.
AkzoNobel Report 2016 | Our purpose
17
Volvo Ocean Race host portsAlicante (Spain)Lisbon (Portugal)Cape Town (South Africa)Melbourne (Australia)Hong Kong (China)Guangzhou (China)Auckland (New Zealand)Itajaí (Brazil) Newport (US)Cardiff (UK) Gothenburg (Sweden) The Hague (the Netherlands)18Our purpose | AkzoNobel Report 2016Click to watch video THE ULTIMATE TEST OF PERFORMANCEOne of the year’s highlights took place in July when team AkzoNobel was the first to enter the 2017-2018 Volvo Ocean Race.The announcement – which was positively received by our employees – has also captured the imagination of the global sailing community and sports fans in general. As a leading supplier of marine and yacht coatings, our maritime heritage can be traced back to the late 19th century. So entering a team into the world’s premier offshore sailing race is a natural way for us to combine innovation with tradition and showcase our products in what is the ultimate test of performance, expertise and winning together.Starting in October 2017, the race will visit 12 host ports during the following eight months, giving us the opportunity to engage in projects with local communities through our Human Cities initiative. This already started in July 2016 during the launch event, when we painted 50 pillars of Scheveningen’s famous pier in the Netherlands to add some essential color to the seaside environment. The race will end in sight of the pier when it finishes in The Hague in mid-2018.Renowned and respected around the world, the Volvo Ocean Race will also enable us to develop potential business opportunities, attract talent and demonstrate our commitment to sustainable performance. It’s a unique global platform for us to highlight how we create everyday essentials to make people’s lives more liveable and inspiring.Join the adventure at www.teamakzonobel.com 19AkzoNobel Report 2016 | Our purpose Strategy
PROMOTING EDUCATION IN INDIA 21AkzoNobel Report 2016 | Strategic performanceOur Indian organization received an award in 2016 for its work in promoting education among young children. The Golden Peacock Award for excellence in corporate social responsibility was presented to the company in recognition of supporting and investing in the education of more than 7,000 youngsters in Delhi, Punjab, Madhya Pradesh, Maharashtra, Telangana and Karnataka. The work being done in India also supports Goal 4 of the UN Sustainable Development Goals.Strategic performanceStrategic performanceFollowing last year’s announcement of new financial guidance for 2016-2018, we have made good progress towards our vision of leading market positions delivering leading performance.Our strategy 222016 performance 38How we created value in 2016 40Risk management 47 Our strategy
As we continue to create everyday
essentials to make people’s lives
more liveable and inspiring, we
are proud to have achieved a
record year of profitability in 2016,
in terms of return on sales (ROS)
and return on investment (ROI).
Our ROS came in at 10.6 percent,
while our ROI was 15.0 percent.
Both performance metrics have
been delivered at the upper
end of our financial guidance for
2016-2018.
The continued achievement of our financial targets over
several successive years highlights the progress we have
made. Our strategy is showing results. We have also made
progress towards a high performance culture with the
successful introduction of new values and behaviors and
an increased focus on performance management. During
the next few years, we will balance our actions towards
driving organic growth and innovation, while pursuing value
generating acquisitions.
In this Strategic performance section, we briefly highlight
what we achieved in 2016, outline our ongoing ambitions
and explain our key focus areas. You will also find an
updated overview and outlook for our four end-user
segments. The diagram on this page gives a visual summary
of how all the main elements of our strategy fit together.
22
22
Strategic performance | AkzoNobel Report 2016
Our strategic vision:
Leading market positions
delivering leading
performance
Customer
end-user
segments
Processes
Actions
Core principles and values
Customer focused
We build successful partnerships
with our customers
Deliver on commitments
We do what we say we will do
Passion for excellence
Winning together
We strive to be the best in
everything we do, every day
We develop, share and use
our personal strengths to win as a team
Strategic
focus
areas
Our company values:
Core
principles:
Safety
Integrity
Sustainability
Strategy development
PHASE I – 2012-2015: Focus on operational
excellence and improvements in returns and
cash flows
PHASE 2 – Launched October 2015:
More focus on organic growth, innovation and
value generating acquisitions
Hardwire
new
organization
model
Create a
continuous
improvement
culture
Build
further
operational
excellence
Drive organic
growth and
innovation
Pursue value
generating
acquisitions
Strategy framework:
In the second phase of our strategy
development we are focusing more on
organic growth, innovation and pursuing
value generating acquisitions.
Next steps
Sustainability –
Culture – Purpose
Purpose, principles and values
Planet Possible – sustainability
Human Cities – society
Reduction of product and process
complexity
Continuous improvement continues to be embedded
throughout our organization. To help us achieve this and
simplify our operations, we leverage progress in technology
and best practices across all three of our Business Areas.
We have made progress in terms of reducing the
number of manufacturing locations and optimizing our
production footprint.
In support functions (Human Resources, Information
Management (IM), Finance and non-product related
Procurement), we are moving towards a more cohesive,
centralized approach. Our central Global Business Services
organization – which was set up to simplify the support
functions by identifying common ways of working – is helping
us to lower costs, improve quality and free up cash and
critical resources to invest in growth and innovation.
Strategic focus areas
Care for the customer
Cash and return on investment
In 2012, we identified five strategic
focus areas to significantly drive
value and position the company
for the future. They summarize
what is important to our continued
success. To drive this on an
operational level, we work with
six key processes, supported
by a series of actions to help us
continue on our strategic path and
take performance to the next level.
Our five focus areas are as follows:
We aim to secure a leadership position in all the
markets we serve. This is being achieved in nearly all our
customer segments.
In 2016, we continued to implement our commercial
excellence programs. These programs incorporate
processes and tools to help us:
• Better understand all our customer segments
• Develop appropriate go-to-market models
• Enhance our sales force efficiency and effectiveness
We also concluded extensive customer surveys in all three
Business Areas. These provided us with significant amounts
of high quality data and enabled us to better understand
customer needs, the performance areas they value and
where we need to improve.
Since we developed our strategy in 2012, we have made
progress in improving our return on investment and free
cash flow. We are continuing to focus on these areas in
order to meet our financial expectations. This will involve
offsetting inflation and other cost increases through
continuous improvement.
Careful capital allocation and management is a key strategic
priority, so we aim to continue our good track record with
regard to operating working capital management, and take a
disciplined approach to capital expenditure management.
AkzoNobel Report 2016 | Strategic performance
23
23
Embedded safety and
sustainability
Safety and sustainability are fully integrated in our business
strategy and all aspects of operational management. We
continue to drive our behavior-based safety (BBS) programs
and Life-Saving Rules across the company. Our safety
programs have resulted in major improvement in the total
reportable rate of injuries per million hours worked, which
has decreased from 2.4 in 2012 to 1.4 in 2016 – in line
with the ambition level of 1.4 set for 2016. Further work is
needed to meet our target of 1.0 by 2020.
To help achieve sustained business success, we continue to
create shared value in economic, environmental and social
terms. This involves adapting to the evolving context in which
we operate, including the COP21 Paris agreement and the
UN Sustainable Development Goals (see page 16).
Our efforts in this regard are recognized externally. In
2016, for example, we were included in the Dow Jones
Sustainability World Index for the 11th year in a row (five of
which saw us ranked as sector leader). Our Planet Possible
2020 sustainability agenda is also being updated with a view
to 2025. This agenda is based on three main pillars (more
details can be found in the Sustainability statements):
Sustainable business
We work with value chain partners and customers to grow
our business, based on innovative solutions that create
more value from fewer resources. We focus in particular
on developing and marketing eco-premium solutions –
products and services that deliver environmental or social
benefits for our customers when compared with competitive
products. Our target of achieving 20 percent of revenue from
eco-premium solutions by 2020 was reached in 2016.
Resource efficiency
We are committed to continually increasing our resource
efficiency and reducing carbon emissions in our own
operations and value chain. This will help de-risk our value
chain, deliver environmental benefits and generate cost
improvements. During 2016, our cradle-to-grave carbon
footprint per ton of sold product was 6 percent lower
than 2012, with absolute emissions falling 14 percent
to 23.7 million tons (see Note 8 of the Sustainability
statements). We do not limit our Planet Possible agenda
to our own operations. We work with customers to drive a
reduction in carbon emissions throughout the value chain
and have organized dedicated sustainability meetings with
suppliers. We have also laid solid foundations to potentially
implement an advanced carbon pricing program in 2017.
Capable, engaged people
In order to contribute to economic development, health and
well-being, we need to build the capability and engagement
of our employees and partners to deliver performance
and growth. Our sustainability agenda aims to improve
the well-being of our employees, of others in the value
chain and of wider society through our innovative products
and processes. This is particularly evident in the external
partnerships we continue to establish and our involvement
in community activities through our global Human Cities
initiative. Other examples include the newly established
Human Cities Coalition and the many local activities to
assist refugees. For more information, see Note 17 of the
Sustainability statements.
Diverse and inclusive talent
development
Our sustainability agenda has always been a key element in
our employee value proposition and the introduction of
our new purpose has further emphasized this. Our company
purpose has been well received, with new employees
in particular referring to it as an important attractor and
differentiator. It is playing a key role in helping to create
a common culture as employees take pride in how
they contribute to making people’s lives more liveable
and inspiring.
We aim to clearly link our employees’ daily activities to our
strategy and purpose and provide continuous learning and
development opportunities. Since 2013, we have followed a
clear roadmap towards building a high performance culture.
With all the foundational elements now in place, we will turn
our focus to building the capability we need to further deliver
on our strategic goals. Highlights from 2016 include:
• Developing a new functional capability framework which
helps us define, measure and improve capability (such as
commercial excellence). In addition, we have continued to
extend the AkzoNobel Academy, a multi-lingual platform
offering basic and advanced skills training
• Introducing our new Leadership Behaviors, which clearly
set expectations for leaders. To support this, we launched
Leadership Essentials, an onboarding program for all
new people managers combining classroom training with
practical application of their new skills
Our annual employee engagement survey provides a
valuable measure of our progress. The 2016 results show an
improvement in the number of employees agreeing they
had the chance to learn and grow over the past year.
Our overall engagement score improved for the sixth year
in a row. More details can be found in Note 11 of the
Sustainability statements.
We are a global company serving a large and diverse
customer base through extensive international operations.
We believe a diverse and inclusive workforce is essential to
achieve our ambitions. We aim to actively embrace diversity
of thought and empower people to challenge each other
to be more innovative and deliver better results. Progress
is being made in the diversity of our executive population
in terms of gender and nationality. In 2016, we had
19 percent female executives (up from 15 percent in 2012)
and set a new ambition level of 25 percent by 2020. At the
end of 2016, 14 percent of our executives were
from Asia Pacific and Latin America. Our 2020 ambition is
to have at least 20 percent of our executives from these
regions. More details can be found in Note 11 of the
Sustainability statements.
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24
Strategic performance | AkzoNobel Report 2016
We launched an updated version of our Visualizer decorating app, which has now been downloaded more than 13 million times. 25AkzoNobel Report 2016 | Strategic performance25this process, we review past performance, as well as forward planning activities. Increasingly, we use this cycle to deep-dive into specific topics, ranging from research and development to business growth reviews.Continuous improvementIn 2014, we launched a company-wide approach to continuous improvement for the Integrated Supply Chain function, known as the AkzoNobel Leading Performance System (ALPS). By the end of 2016, around 75 percent of our sites were running the program. It has enabled us to put in place strong foundations from which we intend to further improve through advanced manufacturing, automation and digital technologies. More than 100 experts are supporting our efforts. We have also built a continuous improvement curriculum for different levels of capabilities in the Supply Chain function.InnovationCustomer focused product and process innovation is at the heart of our four-stage innovation process (ideation; selection and prioritization; execution; implementation and support). To further improve the quality of input, we are deploying a front-end ideation process, as well as building a strong innovation and growth culture. We have systems in place to manage the innovation portfolio and assess resourcing and prioritization on a dynamic basis, while tracking the success of individual launches. Longer term planning of the portfolio ensures that resources are placed close to the markets, particularly in key locations in growth regions. Procurement In 2015, we developed a new procurement strategy and are making good progress in our key processes, covering more than 100,000 suppliers. We target year-on-year total Processes We drive a number of processes across the company, with six identified as being core to our operations. They are briefly explained below.People, product and process safetySafety is a core principle which engages and unites everyone in AkzoNobel, highlighted by the company-wide Safety Day we stage every year, in which all our locations participate. The people safety process is aimed at increasing awareness of behaviors that put us at risk. The main focus moving forward is on culturally embedding the process and building capability.Our process safety program is designed to identify and control hazards in our operations by avoiding unwanted events at manufacturing sites that result in injuries, waste or harm. We measure our performance through a disciplined audit process. Product safety incorporates the traditional approach of reactive regulatory compliance, which we enhance with pro-active steps, enabling us to take the lead in sustainable product stewardship.Operational Control Cycle Established in 2012, this forms the heartbeat of our operational performance management system. It involves a cycle of regular meetings, which incorporate structured and standardized operational discussions. By employing cost of ownership reductions and leading performance from our suppliers in terms of quality, delivery, cost, innovation and sustainability. We have completed the roll-out of a new competency improvement program, while more than 200 procurement professionals have been trained in our new Strategic Sourcing Methodology. Talent managementSince 2013, we have been building a comprehensive integrated talent management process to ensure that we can get, grow and keep the talent we need for the future. All core processes are now deployed globally and the tools are in place to help managers effectively manage their people. Key developments during 2016 included:• Strategic and operational workforce planning made mandatory at business unit level. This will ensure that we are identifying the capabilities and requirements needed to deliver on our shorter and longer term objectives• Extending our program to identify, assess, develop and deploy high potential talents to all management levels to ensure a solid talent pipeline. In 2016, we increased the percentage of executive positions that we were able to fill internally Actions
In phase one of our strategy
(2012-2015), we focused on
operational excellence and
improvement in returns and cash
flows. Having made progress in
getting the basics right, we are
driving the second phase of our
strategy, which is focused more
on organic growth, innovation and
value generating acquisitions. Five
strategic actions are in place and
are briefly outlined below.
Hardwire new organization model
In 2016, significant effort went into hardwiring our behaviors
to the multiple new structures we have implemented since
2012. These efforts are crucial for our future success.
The new organizations we have put in place are close to
being fully embedded, and the fact that we were able to
achieve cost savings of more than €200 million with limited
restructuring costs shows our continuous improvement drive
is delivering.
Create a continuous
improvement culture
We promote a culture of getting better every day, across all
our operations. In 2016, continuous improvement training
programs for all levels of the organization were incorporated
into our AkzoNobel Academy learning platform. This culture
26
26
Strategic performance | AkzoNobel Report 2016
of continuous improvement is embedded through the
performance discussions with employees. Having started in
manufacturing and supply chain, we are now expanding
the AkzoNobel Leading Performance System (ALPS) into
other functions, including Procurement, Finance, IM and HR.
As such, it will become part of our DNA.
Business Areas, in a challenging economic environment.
Building on our digital success in the Decorative Paints
business, we intend to expand our digital activities across all
Business Areas. Market and business intelligence play a
key role in supporting the identification of growth areas,
driving these to success, and we will further professionalize
this key capability.
Pursue value generating
acquisitions
Over the last few years, we have built a stronger and more
agile company. We aim to leverage our solid financial and
operational foundation to grow through selected acquisitions,
either expanding our existing business into new regions,
or complementary markets. In 2016, we acquired BASF’s
Industrial Coatings business (see opposite page). On a
continuous basis, we consider and pursue a large number
of possible targets in order to review attractive growth
opportunities. In addition to looking at market opportunities,
we also target value generating technology acquisitions
with an intention to further strengthen our innovation
portfolio. In a low growth macro-economic environment, we
see an abundance of capital chasing a limited number of
opportunities. Given this market context, we will continue to
be disciplined in reviewing possible acquisitions and ensure
we pursue those that deliver attractive value for AkzoNobel.
Build further operational
excellence
In the past year, we have made progress in creating and
using disciplined processes. This is now how we do
business within AkzoNobel. Combined with the continuous
improvement culture, these form a foundation from which we
aim to accelerate operational excellence. Digital opportunities
are targeted to benefit our manufacturing and supply
chain operations, as well as selected functions. These new
technologies are designed to positively affect our commercial
teams – sales staff will be more connected to each other and
to our customers. The Global Business Services organization
is also starting to deliver benefits and build further
operational excellence. At the end of 2016, we announced
further changes to our IM and HR functions. Some of
the targeted savings will be re-directed to develop new
capabilities and support our innovation and growth agenda.
Drive organic growth and
innovation
We have many leading market positions. To maintain these,
our ambition is to grow in line with, or faster than, our
relevant market segments. In 2016, we re-assessed our
differentiated strategies by segments and geographies,
taking into account changing market circumstances and
new opportunities. These differentiated mandates allow us to
prioritize our resources to follow value in a standardized way
across our diverse portfolio. Growth and innovation have
been included more extensively in our operational cycles. In
2016, we delivered volume growth in two out of our three
27AkzoNobel Report 2016 | Strategic performanceOur strategic objective of pursuing value generating acquisitions started to gather momentum during 2016 following the acquisition of BASF’s Industrial Coatings business for €425 million (after closing adjustments and working capital requirements). Signed in February and completed in December, the deal strengthens our position as the number one global supplier of coil coatings.The business – which is expected to generate revenue of around €280 million in 2017 – supplies a wide range of products for various industries, including construction, furniture, domestic appliances, wind energy and commercial transport. The acquisition includes all relevant technologies, patents and trademarks, as well as two manufacturing plants in the UK and South Africa. We have also welcomed around 350 new colleagues to AkzoNobel, who will bring valuable know-how and expertise, enabling us to serve an expanded customer base worldwide with new products and maintenance solutions. The acquisition underlines our participation in the ongoing consolidation of the European coatings market, focusing on our core segments such as wood and metal coatings. It also means we are now a leading, full service coatings provider for the protection and maintenance of wind turbines, supplying products for the entire structure – including the blades. In addition, it will give us access to opportunities in the growing wind power sector, enabling us to support the global shift towards more sustainable energy sources.We have dedicated teams in place to ensure business continuity and maintain the highest service levels for all customers. We are looking forward to serving new clients and expanding our offering to those we already work with. The full integration of the business is expected to be finalized by the end of 2018. Acquisition of BASF’s Industrial Coatings business demonstrates growth ambitions 28Strategic performance | AkzoNobel Report 2016 28End-user segmentsWe are present in a wide variety of markets, which brings resilience, stability and provides a range of opportunities to our company. Analyzing the end-user segment trends is a fundamental driver for our strategy. We are present in four main end-user segments and outlook profiles for each of them are provided on the following pages. Buildings and Infrastructure44% of revenue18% of revenueWe 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 goodsConsumer Goods 29AkzoNobel Report 2016 | Strategic performance44% of revenue18% of revenue21% of revenueWe are active in two sub-segments:• Natural resource and energy industries• Process industriesIndustrial17% of revenueTransportationWe are active in three sub-segments:• Automotive repair• Automotive OEM, parts and assembly• Marine and air transport 3030Strategic performance | AkzoNobel Report 2016 Buildings and InfrastructureTrendsConsumer confidence is an important driver of the Buildings and Infrastructure segment. Compared with last year, we see a slightly softer outlook. On a regional level, we see optimism in Asia Pacific and North America, although the latter is somewhat more volatile. Consumer confidence in Europe and Latin America still shows signs of pessimism.Trends in construction will also affect the Buildings and Infrastructure end-user segment. The outlook is for good growth. US construction is still in a cyclical rebound after the multi-year post-financial crisis decline. Chinese construction continues to recover. Government stimulus efforts have impacted house prices, which has renewed demand for new construction, although major pockets of housing vacancies exist. In India, construction demand is high due to increasing urbanization. Overall, we expect a recovery in construction in Europe and Brazil to low single digit growth; high single digit growth in India; while North America and China are expected to slow down slightly.The total construction market can be split into two sub-segments: New build projects; and Maintenance, renovation and repair. A downward adjustment is apparent in Chinese New build projects, and while steady growth is foreseen, it will be lower than in the past. This is important because Chinese new build is slightly larger than European new build and twice the size of the North American new build market. Growth expectations for the Chinese Maintenance, renovation and repair sub-segment have also been adjusted downwards. The European and North American regions are much larger in this sub-segment due to the size of the installed base. It remains to be seen what the effect may be of the new government in the US, where promises were made during the election campaign of a national stimulus of building and construction activity.The Maintenance, renovation and repair sub-segment is particularly important to our Decorative Paints business, with Europe an important market. Growth rates are increasing, whereas the market has been flat in recent years. There are positive effects in countries such as France, Italy and Germany. In the UK, the expectation is growth rates going forward will be low. This view may change as the possible impact of the UK leaving the European Union becomes clearer. Overall, we expect low single digit growth for this segment in Europe.Outside China and Europe, analysts expect a return to growth in markets that have faced more recent macro-economic difficulties, such as Russia and Brazil. We see positive demand trends in Russia and expect growth in Brazil to slightly pick up again. In India, stronger growth rates are expected. In general, we see higher demand rates for products that provide functional benefits, such as those that keep buildings cool in hotter climates, insulate buildings to conserve energy or which make interiors feel brighter and more spacious. Future sustainability developmentsAccording to the World Business Council for Sustainable Development’s (WBCSD) Vision We provide paints and coatings that are applied to building interiors and exteriors, as well as specialty chemicals used in the manufacture of building and infrastructure materials. The Maintenance, renovation and repair sub-segment is particularly important to our Decorative Paints Business Area and accounts for roughly 75 percent of revenue.2050, 70 percent of the world’s population will live in urban areas and 95 percent of new building stock will use zero net energy by 2050. The proportion of buildings heated by fossil fuels will also fall below 6 percent. Sustainability issues beyond energy use and carbon emissions, such as indoor air quality, will impact product and service demand.Implications for strategy and actionsAlthough growth rates in China are expected to be lower than in the past, the market is large and there is major growth potential. We aim to continue building our brands and capability in this important region. We will also use product and margin management approaches to help achieve appropriate profitability levels. In Europe, North America and India, we intend to capitalize on growth opportunities as they arise. In Brazil, we will remain flexible and agile to enable us to capture the benefits of a return to growth as it occurs. Our innovation pipeline is targeting solutions that provide additional functionality to consumers and for companies that construct, maintain or repair buildings. Total construction
Bubble size based on 2015 output
Total market new build construction
$ billion3, output
Maintenance, renovation and repair
$ billion3, output
Expected CAGR 2015-2020 (% p.a.)
10
India
30
25
20
China 4.3% p.a.
-0.9% p.a.
Europe1 1.7% p.a.
China
15
7.4% p.a.
5
Europe1
Brazil
North America2
10
6.0% p.a.
North America2 0.7% p.a.
Actual CAGR
2011-2016 (% p.a.)
5
4.2% p.a.
-5.0% p.a.
India 6.3% p.a.
Brazil 1.2% p.a.
12
10
8
6
4
2
1.7% p.a.
5.3% p.a.
4.6% p.a.
3.3% p.a.
-4.7% p.a.
Europe1 2.4 % p.a.
China 4.0% p.a.
North America2 0.4% p.a.
India 5.9% p.a.
Brazil 0.3% p.a.
-5
0
5
10
2013
2014
2015
2016
2017
2018
2019
2013
2014
2015
2016
2017
2018
2019
Source: IHS
Source: IHS / Construction IC
Source: IHS / Construction IC
1 Europe includes Turkey and Russia.
2 North America excludes Mexico
3 Real 2010
Coil coatings
Decorative paints
(interior and exterior)
Fire protection
coatings
Wood
coatings
Architectural
powders
Polymer powders for
cement admixtures
Chemicals for
building plastics
Anti-graffiti
systems
Protective
coatings
Cellulosic chemicals in
decorative paint
Surfactants
in asphalt
Solar reflective
coatings
AkzoNobel Report 2016 | Strategic performance
31
31
31
3232Strategic performance | AkzoNobel Report 2016TransportationTrendsThe outlook for the Automotive OEM parts and assembly sub-segment remains strong globally with steady growth. We benefit from this, but not fully, as we do not participate in the mainstream automotive OEM coatings business. Automotive growth remains robust in China, while India is gaining momentum. South American automotive production is facing challenges, with little prospect of a rebound in Brazil in the short term. Growth expectations are modest in Europe, where we expect the UK referendum vote to only have a minor direct impact.North America has a moderate medium-term outlook, despite some analysts forecasting demand may come off cycle during 2017. There has been a noticeable shift towards larger models due to lower fuel prices. However, manufacturers still aim to reduce car weights, supporting the continuous conversion to composites and plastics. So the outlook for automotive plastics is disproportionately strong, which is important for AkzoNobel, as we are a leader in automotive plastic coatings.Growth expectations in the Automotive repair sub-segment are less robust, although the market is more stable and less cyclical than in other automotive sub-segments. Key drivers for growth are the size of the vehicle car park, the accident rate and the repair rate. Higher growth is therefore expected in the BRIC countries, as well as South-East Asia. In the US and Europe, we see a consolidation trend in body shops and distributors. In Asia, changes in legislation regarding VOCs are taking place, steering towards more sustainable technologies. Within the marine and air transport sub-sector, marine new build is facing a challenging time, following the lowest order intake for many decades in 2016. All main marine segments are down, although investments increased in the cruise and ferry sectors. Market analysts suggest a recovery will begin in the second half of 2017, but we expect this to be very slow.Demand for air travel is forecast to increase, with a growing population and steady income availability, mostly in developing regions such as Asia. Deliveries of new aircraft and, notably, orders for new airplanes have decreased as airlines try to control capacity. Lower fuel prices also mean they are able to keep operating older models for longer periods. Airlines are increasingly using livery for promotion and advertising, moving to more sophisticated and colorful designs. This trend is balanced by more advanced coatings systems, which use less coatings and have longer durability, reducing the volume of coatings across all segments.Future sustainability developmentsBased on the World Business Council for Sustainable Development’s (WBCSD) Vision 2050, by 2050 there will be an 80 percent reduction in energy use by light duty vehicles. In addition, the WBCSD is expecting a 50 percent drop in energy use in freight transport. Further environmentally driven, tighter legislation will drive some growth in marine build towards the 2020 timeframe.Implications for strategy and actionsProducts with sustainability and/or cost benefits – either during manufacturing or end use – continue to grow disproportionately. We actively seek to innovate and provide products that reduce carbon use and lower lifecycle costs.Aesthetics will also remain important and we will continue to innovate in terms of products and services that support differentiated color and finish, and support customization. In addition, we intend to be well positioned geographically as the vehicle car park continues to increase outside of mature markets.This end-user segment is particularly important for our Performance Coatings business. We supply a full range of advanced coatings and color technologies for virtually every type of transport, including cars, commercial vehicles, ships, yachts and airplanes. We also produce specialty chemicals used to make automotive systems and components, with particular emphasis on automotive plastics. In addition, we supply surfactants for automotive fuels and lubricants.33AkzoNobel Report 2016 | Strategic performance33Aerospace 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 repairsLight vehicle production Passenger cars and light vehicles (units)15202530202120202019201820172016Europe 1.4% p.a.China 3.4% p.a.India 8.7% p.a.Brazil 4.5% p.a.North America 1.0% p.a.25303540202120202019201820172016Europe 1.3% p.a.China 9.6% p.a.India 10.0% p.a.Brazil 1.8% p.a.North America 1.6% p.a.2010018020162015201420132012201120102009Vehicle car park Passenger cars and light vehicles (units)Marine new build Compensated gross tonnage, indexed to January 2008 Deliveries Order bookSource: IHSSource: IHSSource: Clarkson Research Services Limited 33AkzoNobel Report 2016 | Strategic performance33Aerospace 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 repairsLight vehicle production Passenger cars and light vehicles (units)15202530202120202019201820172016Europe 1.4% p.a.China 3.4% p.a.India 8.7% p.a.Brazil 4.5% p.a.North America 1.0% p.a.25303540202120202019201820172016Europe 1.3% p.a.China 9.6% p.a.India 10.0% p.a.Brazil 1.8% p.a.North America 1.6% p.a.2010018020162015201420132012201120102009Vehicle car park Passenger cars and light vehicles (units)Marine new build Compensated gross tonnage, indexed to January 2008 Deliveries Order bookSource: IHSSource: IHSSource: Clarkson Research Services Limited 34Strategic performance | AkzoNobel Report 2016 34Consumer Goods34Strategic performance | AkzoNobel Report 2016TrendsAs a general rule, expected growth in this end-user segment roughly follows GDP growth. This means solid growth in Asia and Eastern Europe, while North America and the rest of Europe will remain flat.In the Consumer durables sub-segment, we see steady growth across all three key production categories – furniture, food and beverage and household appliances. But there are significant regional variations, with growth rates in the mature markets in North America and Europe being more moderate and Asian countries expected to deliver steady and attractive growth rates going forward. The market for wireless devices is coming off a multi-year growth trajectory, with high saturation levels having been reached in many countries. Only India is expected to deliver real growth in this segment. Commoditization of the technology enables the growth of many new players in China, changing the customer mix. The wireless market is expected to revert to a growth trend once new technologies (such as flexible phones) entice consumers to replace their current devices. In general, we see an acceleration in design and product changes across all product categories. This does not only include changing colors and looks more frequently, but also a desire for additional functionality. Digital technologies are unlocking affordable mass-customization for some products, driving differentiation further.Future sustainability developmentsBased on the World Business Council for Sustainable Development’s (WBCSD) Vision 2050, consumer durables are expected to last longer and recycling of This end-user segment is important for our Performance Coatings and Specialty Chemicals businesses. We supply liquid and powder coatings for furniture, consumer electronics, domestic appliances and food and beverage packaging. Our chemicals are either vital to the production process, or key functional ingredients in consumer durables, including cleaning, dishwashing, personal care and pharmaceutical products.packaging will increasingly be built into business models. By 2050, the WBCSD forecasts that people will only use five tons of non-renewable materials each, down from today’s 85 tons (US).Implications for strategy and actionsAs demand growth shifts parts of the Consumer Goods end-user segment geographically, we will ensure we have the right production, sales and technical service organizations in the right geographic locations. These organizations will be designed to work effectively across regions in terms of design and key account management, where appropriate. Actively developing and offering new looks and functionality – through liquid as well as other coatings – is our focus to keep an innovative, fresh offering to our customers. Finally, we aim to ensure that our products provide new or better performance, particularly with regard to sustainability levels. Examples are coatings and films replacing chemicals of concern (such as chrome) and polluting processes like electroplating. Domestic appliance production
$ billion1, value added
Furniture production
$ billion1, value added
Food and beverage production
$ billion1, value added
Brazil, Russia, India, China 5.2% p.a.
Western Europe and North America 1.0% p.a.
50
40
30
20
80
70
60
50
40
30
Brazil, Russia, India, China 5.6% p.a.
Western Europe and North America 1.6% p.a.
60
50
40
30
Western Europe and North America 1.5% p.a.
Brazil, Russia, India, China 4.8% p.a.
2016
2017
2018
2019
2020
2021
2016
2017
2018
2019
2020
2021
2016
2017
2018
2019
2020
2021
Source: Oxford Economics
1 Real 2010
Surfactants used in
cleaning and personal
care products
Sports equipment
coatings
Powder
coatings
Wood
finishes
Specialty
finishes
Chelates in
dishwasher
detergents
Salt
Powder
coatings
Packaging
coatings
Specialty
finishes
Wood
finishes
AkzoNobel Report 2016 | Strategic performance
35
35
36Strategic performance | AkzoNobel Report 2016 36IndustrialTrendsLower oil prices have had a significant impact on the outlook for this end-user segment. For example, in oil and gas new construction, we have seen a drastically reduced upstream investment. Meanwhile, certain upstream businesses are not profitable and some customers are having to shut down higher cost production units. However, the investment in downstream assets has remained robust and we see a shift towards significant investments in the power sector, meeting the rising demand for renewable energy globally. Investments in this respect are particularly strong in Europe and China.Longer term, we expect higher growth in regions with access to low cost oil, gas and chemical feed stocks, such as the Middle East (due to oil) and North America (due to shale gas). However, there are currently record trade surpluses in chemicals in Europe and we expect this to continue, particularly in the chemical sectors relevant to AkzoNobel. Due to local demand, we also expect continued growth in the large and important Chinese market, albeit with lower growth rates than we have seen in the recent past. This is in line with all main markets.From a sub-segment perspective, we continue to expect above GDP growth in many polymer markets, where there is continued demand growth as global wealth increases and products continue to be converted to plastics for a variety of reasons, including weight reduction.Beyond plastics, there are differences in expected growth rates for various process industry sectors relevant to AkzoNobel. We expect GDP-level growth in segments such as agrochemicals, with significant regional differences in terms of growth rates, as 36Strategic performance | AkzoNobel Report 2016This is the largest end-user segment for our Specialty Chemicals business. We sell chemicals for many applications, including metals and mining, agrochemicals, plastics (polymers) and pulp. We also sell liquid and powder coatings into the oil and gas, metals and mining and power industries. These coatings are largely used for fire and corrosion protection.well as substantial year-on-year volatility. While global growth in bleached chemical pulp is below GDP and the market is expected to contract in North America, we expect continued growth in Latin America in pulp due to the cost competitiveness of the region.Future sustainability developmentsThe World Business Council for Sustainable Development’s Vision 2050 indicates that we should expect a four-to-ten-fold improvement in the eco-efficiency of resources and materials by 2050. Waste to landfill will increasingly reduce as closed loop processes become more common.Implications for strategy and actionsWhile lower oil and gas prices continue, we will ensure that we focus our organic growth efforts on higher growth areas, such as power and pulp from a sector perspective and North America and Asia from a regional perspective. We also intend to optimize our cost position in Europe and China to deliver a robust long-term competitive position. While we do this, we aim to continue improving sustainability levels throughout the value chain, supporting the transition to a cleaner energy mix. 37AkzoNobel Report 2016 | Strategic performance37Ethylene aminesOrganic peroxidesMetal alkylsCaustic sodaBleaching chemicalsFunctional powder coatings used in pipesSurfactants and chelates for well stimulationDe-icing saltProtective coatingsChlorine PLASTICS PULP37050100150200250300350202120202019201820172016Western Europe 0.9% p.a.Brazil, Russia, India 4.5% p.a.China 5.1% p.a.North America 2.4% p.a.Chemical production $ billion1, value added-3036912150.2-15.02.4-4.9-1.2-4.9206010014020162014201520132012201120102009Key industrial sectors growth rate % p.a.Brent crude oil price $ per barrel, freight-on-board North Sea Spot price monthly average Spot price annual average Source: IHSSource: Oxford Economics1 Real 2010Sources: PhillipsMcDougall, company sources for crop protection; ICIS Supply & Demand Database for polymers; RISI for bleached chemical pulp (BCP) Crop protection chemicals, 2015-2020 (varies by region) Polymers, 2015-2020 (varies by type of polymer) Bleached chemical pulp, 2015-2020 (varies by region) 2016 financial performance
Return on sales (ROS)
Return on investment (ROI)
We use return on sales (ROS) as a performance indicator
to reflect profitability relative to revenue. ROS as a financial
guidance aims to focus management on delivery and quality
of profits. ROS is defined as EBIT as percentage of revenue.
Top end of the guidance
• Structually improved the company with record levels
of profitability
• Focus on growth is delivering with volume up
• Positive impact of continuous improvement
We use return on investment (ROI) as a performance
indicator to reflect profit relative to invested capital. ROI as a
financial guidance aims to focus management on delivering
value through returns in excess of our cost of capital. ROI
is defined as EBIT of the last 12 months as percentage of
average invested capital.
Top end of the guidance
• Improved profitability as described in the ROS section
• Average invested capital decreased compared with
2015 due to currency effects and continued focus on
operating working capital
Guidance 9-11%
Return on sales (ROS) development
EBIT as % of revenue
Guidance
Guidance 13-16.5%
Return on investment (ROI) development
EBIT/average invested capital in %
Guidance
9.8
10.6
9-11
7.5
14.0
15.0
13-16.5
10.9
2014
2015
2016
2016 - 2018
2014
2015
2016
2016 - 2018
Indicates a positive development
Indicates a flat/negative development
38
38
Strategic performance | AkzoNobel Report 2016
2016 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. Only a proportion of our products that
have sustainability benefits meet this strict definition.
Achieved our 2020 target
• Percentage of revenue from eco-premium solutions with
Cradle-to-grave carbon footprint
Resource Efficiency Index (REI)
Our target is to reduce our cradle-to-grave carbon footprint
by 25-30 percent per ton of sales between 2012 and 2020.
Some progress towards our 2020 target
• Carbon footprint per ton of sold product has improved
6 percent since 2012. Solid improvements due to lower
footprint energy sources and raw materials (including
renewables), efficiency gains at energy intensive facilities,
and increased sales of lower carbon footprint coatings
products
• Absolute cradle-to-grave product footprint is down 14
The Resource Efficiency Index is defined as gross margin
divided by cradle-to-grave carbon footprint – reported as an
index. We are monitoring this index, and our aim is to use it
to drive further improvements in resource efficiency across
the value chain.
Stable performance
• REI was 112, broadly flat compared with 2015, having
improved from the 2012 base of 100
• Some improvement in carbon footprint performance due
to energy sourcing and efficiency gains, and sales of lower
footprint products
downstream benefits increased to 20 percent
percent across our total value chain
• Revenue increased from new and existing eco-premium
• Emissions from our production are 21 percent lower than
• Margin decrease and currency effects had a negative
solutions in all Business Areas
2012.
effect on the REI
• This was offset by “mainstreaming” of some of our
coatings products and revenue growth from products
which are not eco-premium
• Since 2012, our upstream emissions have improved
around 14 percent and downstream by around 13
percent. Our 2020 target remains a challenge as
we continue to focus on working with suppliers and
customers to deliver improvements across the value chain
Target 20%
Target 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
Target
Target
17
18
19
19
20
20
25-30
100
98
96
113
112
0
2
-4
3
6
2012
2013
2014
2015
2016
2020
2012
2013
2014
2015
2016
2020
2012
2013
2014
2015
2016
For more details see Note 4 of the Sustainability statements.
For more details see Note 8 of the Sustainability statements.
For more details see Note 5 of the Sustainability statements.
AkzoNobel Report 2016 | Strategic performance
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39
How we created value in 2016
By bringing more value to our
customers, investors, employees
and society in general, we can
better position ourselves for
growth as we aim to achieve
our strategic vision of leading
market positions delivering
leading performance.
Economic value
Financial overview
We structurally improved the company with record levels
of profitability and cash generation. Focus on growth saw
volumes up 1 percent. Revenue was down 4 percent,
due to unfavorable currency and price/mix effects. EBIT was
up 3 percent at €1,502 million, reflecting the positive
effects of volume growth, continuous improvement and
lower costs. Profitability increased, with record levels of ROS
at 10.6 percent (2015: 9.8 percent) and ROI at 15.0 percent
(2015: 14.0 percent).
Summary of financial outcomes
In € millions
Revenue
EBIT
Operating income
ROS %
OPI margin %
2015
2016
14,859
14,197
1,462
1,573
9.8
10.6
1,502
1,519
10.6
10.7
Average invested capital
Moving average ROI (in %)
10,475
10,045
14.0
15.0
EBITDA
Capital expenditures
Net cash from operating activities
Net debt
2,088
651
1,136
1,226
2,108
634
1,297
1,252
∆%
(4)
3
(3)
1
14
Net income attributable to
shareholders
Earnings per share from
total operations (in €)
979
970
(1)
3.95
3.87
Adjusted earnings per share (in €)
4.02
4.15
3
Number of employees
45,600
46,000
40
40
Strategic performance | AkzoNobel Report 2016
Revenue development in % versus 2015
Increase
Decrease
1%
-2%
0%
-3%
-4%
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
Revenue by destination in %
F
E
A
D
C
B
A Mature Europe
B Asia Pacific
C North America
D Latin America
E Emerging Europe
F Other regions
36
27
17
9
7
4
Revenue in € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
4,883
5,589
4,988
5,955
4,783
5,665
3,909
4,007
3,835
2014
2015
2016
Revenue
Revenue was down 4 percent, due to unfavorable currency and
price/mix effects.
EBIT
EBIT increased 3 percent to €1,502 million, reflecting the posi-
tive effects of volume growth, continuous improvement and
lower costs.
EBIT in € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
• In Decorative Paints, volumes were up 3 percent overall,
with positive developments in Asia and EMEA, while
volumes in Latin America were down. Positive volumes
were more than offset by unfavorable currency effects and
adverse price/mix. Revenue was down 4 percent
• In Performance Coatings, volume growth in some
segments was offset by adverse conditions in the marine
and oil and gas industries. Demand trends differed per
segment and region. Revenue was down 5 percent,
driven by adverse currencies and price/mix
• In Specialty Chemicals, volumes were up 1 percent,
with positive developments mainly driven by Asia and
Europe. Revenue was down 4 percent, with positive
volume developments more than offset by price
deflation in several markets
• In Decorative Paints, EBIT increased 3 percent as a result
of the volume growth, continuous improvement and cost
discipline, partly offset by currency impacts
• In Performance Coatings, EBIT decreased 4 percent due to
adverse currencies and weakness in the marine and oil and
gas industries, partly offset by continuous improvement
• In Specialty Chemicals, EBIT increased by 9 percent, driven
by improved volumes and operational efficiencies
508
545
248
2014
578
792
345
2015
629
759
357
2016
Raw material prices were lower at the beginning of the year
compared with 2015, gradually increasing during the year
to become roughly flat by year-end. In most regions, foreign
currency effects adversely impacted raw material costs in
local currencies.
Operating income
Full-year operating income was net positively impacted by
€17 million of incidental items, including adjustments to post-
retirement provisions, asset impairments and integration-related
costs, with respect to the acquisition of BASF’s Industrial
Coatings business. The incidental items impacted operating
income of Decorative Paints, Performance Coatings and the
operating income in other activities.
Cash flows and net debt
Operating activities in 2016 resulted in cash inflows of
€1,297 million, up 14 percent (2015: €1,136 million), mainly
due to lower pension top-up payments and lower cash
out flow with respect to restructuring projects and interest
payments.
Net debt at year-end 2016 was slightly higher at €1,252
million compared with year-end 2015 (€1,226 million),
as a result of the consideration paid for BASF’s Industrial
Coatings business.
In 2016, a €500 million bond was launched with a ten-year
maturity, at a coupon of 1.125 percent, and a £250
million bond with 8 percent coupon was repaid from
existing resources.
AkzoNobel Report 2016 | Strategic performance
41
41
Invested capital
Invested capital at year-end 2016 totaled €10.3 billion, up on
year-end 2015. The acquisition of BASF’s Industrial Coatings
business impacted invested capital by €0.4 billion.
In 2016, we invested €634 million in property, plant
and equipment.
Allocation of 2016 capital expenditures
of €634 million in %
(4.5 percent of revenue)
A Decorative Paints
17
B Performance Coatings 26
C Specialty Chemicals
57
C
A
B
Innovation
We continue to invest in research, development and
innovation to help us fulfil future customer needs and fuel our
targeted growth in revenue share of eco-premium solutions
with customer benefits.
Eco-premium solutions
The percentage of revenue from eco-premium solutions with
downstream benefits increased from 19 percent in 2015 to
20 percent in 2016. The increase resulted from sales growth
of new and existing eco-premium solutions in all Business
Areas. This was offset by “mainstreaming” of a few of our
coatings products and revenue growth from products which
are not eco-premium. We may appear to have realized our
2020 target, however, we measure our performance across
the whole value chain and against solutions available in the
marketplace, making it a moving target.
We use the strictest definition for our eco-premium solutions
by excluding solutions that have sustainability benefits, but
do not lead in the market. We have estimated, for example,
that about half our sales are covered by the main drivers
for carbon footprint reduction. In addition, our product
development processes are designed to drive continuous
sustainability improvement in the overall portfolio as products
are updated or replaced.
We maintain our intention to lead by example by improving
the environmental/social 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, of the products we sell and the processes we use
to manufacture them. For more details, see Note 4 of the
Sustainability statements.
Dividend
Our dividend policy is to pay a stable to rising dividend. We
will propose a 2016 final dividend of €1.28 per share, which
would make a total 2016 dividend of €1.65 (2015: €1.55) per
share, up 6.5 percent. There will be a stock dividend option
with cash dividend as default.
Dividend in €
1.45
1.55
1.65
2014
2015
2016
Earnings per share total operations in €
3.95
3.87
2.23
2014
2015
2016
Innovation investments
research and development expenses in € millions
Eco-premium solutions with customer benefits
in % of revenue
Adjusted earnings per share in €
Target
4.02
4.15
363
347
363
19
19
20
20
18
2.81
2014
2015
2016
2014
2015
2016
2013
2014
2015
2016
2020
42
42
Strategic performance | AkzoNobel Report 2016
Net financing income and expenses
For the full-year, the net financing income and expenses
were in line with the previous year as reduced external
interest expenses were offset by the effect of lower discount
rates of provisions.
Income tax
The full-year effective tax rate was 27 percent (2015:
28 percent), impacted by non-taxable gains, adjustments to
previous years and geographical mix.
Income tax paid in € millions
258
261
285
2014
2015
2016
Outlook
In 2017, AkzoNobel anticipates positive developments for
EMEA, North America and Asia, improving during the year,
while Latin America is expected to stabilize. Some economic
and political uncertainty is expected to continue. Market
trends experienced in the second part of 2016, including
for the marine and oil and gas industries, are expected to
continue in the first half 2017.
The company has structurally improved its ability to respond
to developments in its markets and is taking measures
to deal with higher raw material prices in an inflationary
environment. This stronger operational and financial
foundation means AkzoNobel is more agile and better able
to seize growth opportunities, including acquisitions. The
company maintains its financial guidance for 2016-2018.
Environmental value
Cradle-to-grave carbon footprint
Cradle-to-grave carbon footprint is our prime measure
of resource efficiency. Carbon footprint per ton of sold
product has improved 6 percent since 2012. Absolute
footprint is down 14 percent across our total value chain.
Emissions from our own production were 21 percent
lower than 2012. We achieved solid improvements due to
lower footprint energy and raw material sources (including
renewables), efficiency gains at energy intensive sites, and
increased sales of lower footprint coatings. Since 2012, our
upstream emissions have improved around 14 percent, and
downstream by around 13 percent.
Our 2020 target – to reduce cradle-to-grave carbon footprint
by 25-30 percent per ton of sales between 2012 and 2020
– remains a challenge. We are focused on working with
suppliers and customers to deliver improvements across
the value chain. For more details, see Note 8 of the
Sustainability statements.
Cradle-to-grave carbon footprint
% reduction CO2(e) per ton of sales from 2012
Target
Energy
The energy we use at our sites contributes about 15 percent
to our cradle-to-grave carbon footprint. Renewable energy is
an important aspect of the improvements required to achieve
our 2020 strategic carbon footprint target. The proportion of
renewable energy in our operations increased to 40 percent
(2015: 38 percent).
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.
In 2016, this included a number of significant programs in
the Netherlands:
• A unique consortium with other corporations to source
power from renewable energy projects, the first agreement
being with the Krammer wind park
• The start of our renewable steam contract with Dutch
energy supplier Eneco
• Additional solar panels installed at our main office and
research locations in the Netherlands
• In addition, our power contract in the Nordics was
extended to 60 percent renewable energy
For more details, see Note 8 of the Sustainability statements.
25-30
Total energy in % by source
0
2
-4
3
6
2012
2013
2014
2015
2016
2020
E
D
C
A
B
A Renewable energy
B Natural gas
C Coal
D Nuclear
E Other fossil fuels
40
32
15
11
2
AkzoNobel Report 2016 | Strategic performance
43
43
Raw materials
Bio-based (renewable) materials also contribute to our
sustainability agenda. A considerable proportion of our
environmental footprint results from the raw materials
we buy, with most of the bio-based materials exhibiting
lower footprints.
In 2016, 12 percent of all our organic raw materials came
from bio-based (renewable) sources (2015: 11 percent).
This is 6 percent (2015: 5 percent) of the total volume of raw
materials purchased, including other raw materials such as
salt, minerals and clays.
We made progress with our existing partnerships to tap
into the alternative feedstock sources that are becoming
available. We also announced additional collaborations
involving a number of our key raw materials, and
partnerships to produce chemicals from waste. For more
details see Note 8 of the Sustainability statements.
Operational eco-efficiency program
The focus of the operational eco-efficiency (OEE) agenda is
to increase raw material efficiency, reduce consumption of
energy and decrease emissions and production of waste in
our own operations. OEE is an important way to drive out
cost. Our company indicator combines energy, water, waste
and air emissions, as well as cost elements.
In 2016, we achieved a footprint measure improvement of
28 percent (since 2009). Many of our businesses achieved
eco-efficiency footprint improvements, including many
small site contributions, upgrading of 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. Our target is to
drive towards “zero waste to landfill” and a program is being
developed to achieve this with specific projects.
Total waste per ton of production generated and leaving
our sites was down by 10 percent to 8.1 kg/ton (2015:
9 kg/ton). The total waste volume was down to 143 kilotons,
a decrease of 8 percent. The focus on waste over
recent years has resulted in a reduction in waste at the
majority of our sites. For more details, see Note 9 of the
Sustainability statements.
In order to focus even more attention on this program and
accelerate progress towards our 40 percent ambition,
projects are now being integrated into the main supply chain
improvement monitoring tool to quantify all site improvement
activities. For more details, see Notes 8 and 9 of the
Sustainability statements.
Total waste
in kilotons
Reusable
Non-reusable
Total kg per ton of production
Total volume of raw materials
in % per source
49%*
A
OEE footprint improvement
% reduction from 2009
Ambition
C
B
* 12 percent of organic
raw materials are from
renewable sources.
13
40
24
24
23
28
9.0
96
8.6
9.0
8.1
65
77
72
79
75
79
64
2013
2014
2015
2016
2012
2013
2014
2015
2016
2017
The OEE footprint is calculated from the weighted average of nine footprint parameters
and production volume.
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, for example, for resource recovery, recycling, reclamation, direct re-use or
alternative uses (e.g. composting). All other waste is non-reusable waste.
A Renewable raw materials (bio-based)
B Fossil-derived materials (petrochemicals)
C Inorganic materials (e.g. salt, minerals, clays)
6
43
51
44
44
Strategic performance | AkzoNobel Report 2016
Human Cities
Everything we do for and with society is channeled through
our global Human Cities initiative. It’s an active expression
of our purpose, which enables us to combine our expertise
in sustainable innovation with our passion for working
closely with local communities. It includes all the work we do
through our Community Program and “Let’s Colour” initiative.
In 2016, this involved a total of more than 300 projects,
impacting over nine million people. For more details, see
Note 17 of the Sustainability statements.
Cumulative Community Program involvement
cumulative since 2005
Projects (number)
Volunteers (number)
Support (€ million)
14.0
11,000
15.0
13,500
16.8
20,000
16.0
16,400
2,108
2,260
2,385
2,531
2013
2014
2015
2016
Social value
At year-end 2016, we employed a total of 46,000 people
(year-end 2015: 45,600 employees). The increase
was mainly due to new hires in emerging regions and
people joining from the acquired BASF Industrial Coatings
business. For more details, see Note 4 to the Consolidated
financial statements.
Employees
46,000 at year-end 2016
Employees by Business Area in %
A Decorative Paints
32
B Performance Coatings 43
C Specialty Chemicals
D Other
19
6
D
C
A
B
Employee engagement
One of our key measures of progress in the area of
culture is employee engagement, which we measure through
an annual engagement survey. We’ve seen an increase
in engagement score every year since we started the survey
in 2010.
In 2016, our score was 4.17, an increase from 2015, with
a positive trajectory at all levels of the company, indicating
that we are continuing to transform the daily experience of
working at AkzoNobel. For more details, see Note 11 of the
Sustainability statements.
Employee engagement score
0 to 5 scale
Ambition
3.88
3.97
4.03
4.17
>4.00
>4.20
2013
2014
2015
2016
2020
Safety
The overall total reportable rate (TTR) for employees and
supervised contractors decreased to 1.4 (2015: 1.6).
Seventy-eight percent of our sites have been recordable-
free for more than a year. This reduction in the number of
injuries also extends to independent contractors and
coincides with continued implementation of our people
safety programs. For more details, see Note 12 of the
Sustainability statements.
Employee and supervised contractors total
reportable injuries frequency rate
Target
2.3
1.8
1.6
1.4
<1.0
2013
2014
2015
2016
2020
AkzoNobel Report 2016 | Strategic performance
45
45
46Strategic performance | AkzoNobel Report 2016 46Last year, we introduced our integrated materiality analysis for the first time. It was the result of a holistic review of our major risks, issues and opportunities, and how they relate to our strategic actions. The rationale behind this annual exercise is to ensure that we have actions and initiatives in place to capitalize on key opportunities, and have mitigation plans to address key issues and risks.Our 2016 evaluation again incorporated insights from a wide group, including auditors, customers, shareholders and employees, as well as other stakeholders such as financial and regulatory bodies, non-governmental organizations (NGOs) and leaders in the communities in which we operate (see Note 2 of the Sustainability statements).The integrated materiality analysis is not a static exercise. This year, we added a number of risks/issues, some of which are new. Others were included in previous years, but have now been elevated to a higher level of importance, while certain risks have moved to another category compared with last year’s assessment. We have also reduced the number of key risks, confirming the view that in some areas our risk mitigation actions are now embedded. It also helps to keep the list shorter for added focus. For example, we have identified the need to adapt our climate strategy, as this is an area of increasing concern following COP21. In the Sustainability statements more details are given about the plans we now have in place to tackle this important issue. Another example is how we review the possible impacts of – and respond to – new developments in technology and society. Here, we have started to define our (digital) innovation roadmap.The integrated materiality analysis indicates that our core principles and strategic focus areas take into account all the updated key opportunities and issues. The diagram above offers a visual representation of this – illustrated by the white circle. It also shows that our three main risk areas have links and overlaps. So managing our key opportunities and risks in an integrated, holistic way, continues to make sense in an ever more complex and dynamic world.lIntegrated materiality diagram l Key opportunity, issue or riskFinancial andregulatory opportunitiesand risksCore principles andstrategic focusareasSustainabilityopportunitiesand risksBusiness opportunities and risks 47AkzoNobel Report 2016 | Strategic performance47Risk managementEnterpriseRisk ManagementprocessEnterpriseRisk ManagementreportingRisk identificationand assessmentRisk responseper risk profileActionsRisk profileRisk consolidationRisk transparencySupervisoryBoardExecutive CommitteeTop 10 risks + Risk responseBusiness Areas/Corporatefunctions/CountriesTop 10 risks + Risk responseAreas of major risk exposure(businesses, projects, sites etc.)Top 10 risks + Risk responseBusiness units/Strategic market unitsTop 10 risks + Risk responseRisk profile +Risk responseDoing business inherently involves taking risks. By seeking to take balanced risks, we strive to be a successful and respected 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).Our risk management frameworkThrough 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. The 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 Audit Committee and the Supervisory Board. DURING 2016
WE HELD 106
ENTERPRISE RISK
MANAGEMENT
WORKSHOPS
WHERE WE
IDENTIFIED
APPROXIMATELY
2,250 UNIQUE
RISK SCENARIOS
Risk appetite
Risk management in 2016
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 per 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.
Return on investment in the development of innovative
products and sustainable solutions is never certain.
However, considerable funds and effort are 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 a strong
investment grade credit rating. Our financial risk
management and risk appetite are explained in more detail
in Note 23 to the Consolidated financial statements
• Compliance: We do not permit our employees to take
any compliance risk and we take appropriate measures in
the event of any breach of our Code of Conduct. See the
Governance and compliance section for more details
Enterprise Risk Management is a company-wide activity
under the responsibility of the Executive Committee. It
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 2016
risk management activities was performed by the Executive
Committee, business management and corporate directors,
in association with the Risk Management function. In
addition to focusing on the coverage of our organization,
emphasis is put on key strategic projects and those parts of
the company that are most affected by change.
During the year, we facilitated 106 enterprise risk
management workshops. In these workshops, approximately
2,250 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 outcomes of all risk analyses
are included in risk profiling and trend analysis and made
available to higher management. 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.
Our initial focus is on those major risks that may impact
the achievement of our strategy in the next three-to-five
years (medium-term risks). In addition, we recognize that
there are also relevant risk factors beyond the five-year time
horizon which could impact our strategy (long-term risks).
Both risk categories are included in this chapter, with the
understanding that these are not exhaustive lists. 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. Our risk management systems
endeavor to ensure the timely identification and actioning
of risk trends.
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Strategic performance | AkzoNobel Report 2016
Medium-term risks
The table below summarizes the major risk factors for the company in the next three-to-five
years. 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
• Strategic moves in our value chain
Internal – Strategic
• Innovation, identification and
successful implementation of
major transforming technologies
Internal – Operational
• Attraction and retention of talent
• Production process risks
• Management of change
External – Operational
• Sourcing of raw materials
and energy
• Product liability
• Environmental risks and liabilities
• Information technology
External – Financial
• Post-retirement benefits
• Fluctuations in exchange rates
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
in its major markets, as well as in several specific end-user
segments. The effects could lead to a decline in demand,
deteriorating financial results, impairments and book losses,
which in turn could result in the company not realizing its
financial guidance.
Mitigating actions
• Continue our strategy to bring down our operational cost
base and reduce complexity
• Leverage our Global Business Services organization to
further standardize core functional processes in all regions
• Further deploy our commercial excellence programs and
more sustainable product solutions to capture organic
growth and offset the effects of decreased economic
growth rates
• Have contingency plans prepared for a select number
of scenarios, dealing with geographical or segment
slowdowns
• Expand our innovation capabilities to develop and deliver
faster differentiated customer value propositions
External - Strategic
International 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 geo-political,
social or economic developments and developments in laws,
trade policies, regulations and standards could adversely
affect our business, the value of our assets and results of our
operations. Our ambition to grow the business in a balanced
way across the globe will further expose us to these risks.
AkzoNobel Report 2016 | Strategic performance
49
50Strategic performance | AkzoNobel Report 2016 50Breakdown of total raw material spend in % A Additives 15B Chemicals & intermediates 22C Latex & monomers 9D Pigments 5E Packaging 10F Resins 23 G Solvents 8H Titanium dioxide 8 ABCDEFGHMitigating 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• Decide all significant investments, and the countries and industry segments in which AkzoNobel conducts its business, via the Executive Committee• Benefit from our combination of country organizations and service centers in order to address country-specific and local business risks• Combine the implementation of international compliance standards with local transparency and accountabilityExternal - StrategicStrategic moves in our value chainThe accumulation of strategic moves in relevant value chains (horizontally and/or vertically) may impact our competitive position and/or increase the vulnerability of operations. Further consolidation can negatively impact the landscape for strategic acquisitions in terms of their availability. This will result in higher multiples for acquisitions and make deals economically unattractive or synergy targets more difficult to achieve. Mitigating actions• Continue our regular competitive intelligence analysis of strategic moves of (new) competitors, customers and suppliers• Further strengthen our merger and acquisition and integration capabilities• Enhance the pipeline of viable market and technology opportunities for mergers and acquisitions, focusing on strategic rationale with respect to the value chain • Finalize and implement our digital strategy to anticipate future changes and drive for new sources of valueExternal - OperationalSourcing of raw materials and energy Prices for key raw materials and energy can be volatile and are affected by economic conditions and regulations. This can limit our ability to protect our margins. The chart to the right shows our relative spend on these key raw materials, excluding energy. The risk may further increase as a result of the non-level playing field for energy and raw materials on a global level (for example shale gas, national policies, subsidies) and emission trading rights, which affect the competitive position of businesses and our customers. Mitigating actions• Our procurement sourcing processes (ALPS, Source) and organization are designed to actively leverage the cost, quality and delivery of raw materials and energy, including the performance of suppliers. This includes managing the risks related to single sourced materials, the forecasting of price trends and governance to ensure the supply base provides the best terms and conditions• Our supplier sustainability program is embedded in our sourcing strategy, selection and management process. This program not only ensures compliance of critical suppliers, but also drives continuous improvements. AkzoNobel also participates with several industry groups to conduct audits and improvement programs of common suppliers External - OperationalProduct liabilityProduct liability claims could adversely affect our business and results of operations. Claims with high impact on our organization, while unlikely, 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 and regulatory affairs is embedded in the company’s RD&I, HSE and sustainability agenda. Product stewardship is also integrated into product slate decisions• We have a central policy to optimize insurance coverage, including specific insurance coverage for product liability claims External - Operational
External - Operational
Environmental risks and liabilities
Information technology
Due to the nature of our business, we use – and have used
in the past – organic and inorganic compounds (some
of which are hazardous to the environment) in product
development programs and manufacturing. We have been,
and may still be, exposed to risks of environmental releases
and contamination with associated risk of substantial
costs related to compliance with environmental laws and
regulations, and claims relating to property damage and
personal injury. The trend that, with time, regulations and
standards are becoming increasingly stringent continues and
is in part a reflection of growing public concern about human
health and the environment in general.
Mitigating actions
• Conduct our activities in the safest and most responsible
manner
• Contingency plans and assignment arrangements are in
place to mitigate known material operational risks and
monitor progress
• A dedicated group of experts assesses, manages and
resolves environmental liabilities. Sites with a higher
environmental risk profile are subject to management
review periodically
• Mandatory annual environmental liability reviews are
conducted to review risks, monitor progress in resolving
our liabilities and assess changes in company exposure
• Corporate directives are issued for recurring risk
categories such as manufacturing sites that are closing
• Environmental standards and regulations are integrated
from the design phase of new plants onwards
• Recognize environmental clean-up cost or
indemnifications against earnings where a potential liability
has materialized, cash outflow is probable and can be
reliably estimated
• Innovation efforts to remain at the forefront of new,
sustainable product introductions
One effect of the company’s longer term IT strategy is
increased reliance on fewer consolidated critical applications,
including our industrial process control systems. 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 impact on our production processes, our competitive
position and our reputation.
Mitigating actions
• Continuously test and update the systems used for
information security as part of the strategic IT security
roadmap 2016-2017
• Improve and implement measures such as redundant
design, back-up processes, virus protection, anti-spoofing
and advance forensic scanning to protect and detect IT
security vulnerabilities
Colleagues from our Technical Service and Quality Assurance groups in Europe and North
America teamed up to devise new digital solutions that are making technical service reporting
more efficient. As well as improving quality, customer issues can now be identified and resolved
much faster.
• Centrally monitor access control processes to our key IT
systems to improve protection of critical business data
• Improve end-user awareness and behavior via cyber
security campaigns and IT security e-learning training to
prevent and detect potential vulnerabilities
• Continue with the roll-out of the new IM security standard
for industrial control systems to our manufacturing
locations
• Further test and improve the IT security response and
incident management process
External - Financial
Post-retirement benefits
Our current policy is to contribute to defined contribution
schemes wherever possible, although 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 Akzo Nobel N.V. 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 to the Consolidated financial statements)
AkzoNobel Report 2016 | Strategic performance
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External - Financial
Fluctuations in exchange rates
Exchange rate fluctuations can have a positive and negative
impact on our financial results. We have operations in more
than 80 countries and report in euros. We are particularly
sensitive to movements in the US dollar, pound sterling,
Swedish krona and Latin American and Asian currencies.
Mitigating actions
• A centralized treasury function and hedging policy is in
place for certain currency exchange rate risks (see Note
23 to the Consolidated financial statements)
• At a more operational level, risks are reduced by the
prevalence of local-for-local production
• Reduce as much as possible the impact of transactional
exposure on the results of our businesses by striving for
natural hedges in our main currencies
• Further extend our hedging strategy based on risk analysis
and market developments
External - Compliance
Complying with laws and
regulations
Our international footprint exposes us to (continuously
expanding) laws and regulations. We may be held
responsible for any liabilities arising out of non-compliance
with these laws and regulations.
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
• Continue to embed company-wide standard setting and
compliance awareness through activities and training
programs, including training on the Code of Conduct
Internal - Strategic
Innovation, identification and
successful implementation 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 loss of our
leadership positions, and adversely affect our business.
Mitigating actions
• Advance our technology roadmaps and innovation
strategies with appropriate research and development
spend. In 2016, this amounted to 2.6 percent
(€363 million) of total revenue
• Bring to market suitable new technologies using our
innovation core process to assess market needs and
relevant know-how
• Enhance our global open innovation capability to
Mitigating actions
• Implementation of our Business Partner Compliance
identify, assess and acquire the most recent promising
technologies
Framework
• 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,
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Strategic performance | AkzoNobel Report 2016
• When applicable and appropriate, invest in venture funds
• Explore acquisitions of/partnerships with innovative start-
up companies
Long-term risks
Mitigating actions
Long-term risks are existing risks associated with current
Not being able to implement an ambitious sustainability
• The AkzoNobel Leading Performance System (ALPS)
trends that are anticipated to increase; or risks currently not
strategy associated with economic value creation, tailored
is being implemented to reduce complexity and drive
material, but that could develop into major areas of concern
to markets with different levels of maturity. This could be
continuous improvement
for a business, or for society as a whole.
caused by:
• Continue the implementation of the Safety Common
• Protectionism and a lack of global consensus triggering
Platform introduced in 2013 and the Process Safety
The most significant long-term risks we observe are:
inter-regional competition
Management (PSM) framework, which was introduced in
• The view that economic growth and sustainability are not
2014. The framework provides a set of common, state-of-
The effect on business of increased instability due to a rise
mutually exclusive does not prevail
the-art safety requirements for all our manufacturing sites
in national sentiment, increased geo-political tensions and
• Lack of a coordinated response to climate change
• Carry on with business continuity planning and make sure
failure of national and supranational governance. This could
there are appropriate risk transfer arrangements in place
result in:
The risk of an acceleration in the emergence of new
Internal - Operational
Management of change
• Dwindling support for free trade relationships and flows
technologies in general, with the potential to:
• Disrupt existing business value chains
• Potential differential legislation, resulting in regional
• Change the way in which our products are applied
competition and protectionist measures
• Force the re-engineering of supply chains
• Insufficient structural reforms in emerging and mature
• Introduce changing working practices
of capital
economies
In order to achieve our overall strategy, we have
The risk of increasing public concern over specific
implemented – and continue to implement – numerous
The continued development of digital technology poses
substances and their environmental impact, leading to:
businesses in order to further enhance organic growth, and
• Business value chain disruption/destruction
• A ban on, or a reduction in, the use of plastics/synthetic
the quality of services, while reducing cost and complexity.
• Cybercrime
polymers
• Concerns over privacy and the concentration of the
• An accelerated phasing out of fossil fuels
Internal - Operational
Attraction and retention
of talent
We face the challenge of ensuring continued alignment
between a rapidly evolving business environment and
qualifications, capabilities and talent of our workforce. This is
an increasingly complex process as the labor market poses
different challenges across disciplines and regions. Having
the right people, with the right capabilities, experience and
background will, to a large extent, determine the success
of our organization and requires the development of an
increasingly longer term view on future talent needs.
Mitigating actions
• Strengthen AkzoNobel’s employee value proposition,
based on the company purpose and stronger brand
strategy
• Further improve talent and succession action planning and
changes in our operating model across all functions and
a threat to business and reputation and could lead to:
• More strict classification of hazardous substances
follow up
• Fully embed the new leadership behaviors with impactful
leadership assessment and development curriculum and
integration into our Performance and Development Dialog
• Further build and develop the AkzoNobel Academy with
strong functional competency frameworks and well-
defined development curriculum and career planning
Internal - Operational
Production process risks
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
reputation damage.
Mitigating actions
influence and control over intelligence
• Pave the way to organic growth by embedding
• More stringent legal and regulatory requirements
commercial excellence in all levels of the organization
• Ongoing focus on core principles and values to set desired
The need to listen and engage with an ever-widening field
behavioral changes in motion. Values and behaviors are
of stakeholders in the area of environmental and corporate
included in the performance management process
social responsibility, requiring extra attention to:
• Senior management is involved in all critical projects that
• Transparency on, for example, carbon footprint and
have been prioritized and are supervised by the Executive
renewable energy
Committee to ensure an aligned and integrated vision for
• Social impact assessment of a company’s activities
the company’s change agenda
• Concerns over fair trade and under-age labor
• Project management and change management are both
• Concerns over tax avoidance by large corporations
included in the curriculum of the AkzoNobel Academy
• A persistent negative perception of the role of global
• Consolidate change management by streamlining and
corporations in society
aligning the work of a range of supporting processes
under the umbrella of Global Business Services blueprints,
including the operating model and Responsible,
Accountable, Consulted, Informed (RACI) matrices
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Long-term risks
Mitigating actions
• The AkzoNobel Leading Performance System (ALPS)
is being implemented to reduce complexity and drive
continuous improvement
Long-term risks are existing risks associated with current
trends that are anticipated to increase; or risks currently not
material, but that could develop into major areas of concern
for a business, or for society as a whole.
Not being able to implement an ambitious sustainability
strategy associated with economic value creation, tailored
to markets with different levels of maturity. This could be
caused by:
• Protectionism and a lack of global consensus triggering
• Continue the implementation of the Safety Common
Platform introduced in 2013 and the Process Safety
Management (PSM) framework, which was introduced in
2014. The framework provides a set of common, state-of-
the-art safety requirements for all our manufacturing sites
• Carry on with business continuity planning and make sure
there are appropriate risk transfer arrangements in place
Internal - Operational
Management of change
In order to achieve our overall strategy, we have
implemented – and continue to implement – numerous
changes in our operating model across all functions and
businesses in order to further enhance organic growth, and
the quality of services, while reducing cost and complexity.
Mitigating actions
• Pave the way to organic growth by embedding
commercial excellence in all levels of the organization
The most significant long-term risks we observe are:
inter-regional competition
The effect on business of increased instability due to a rise
in national sentiment, increased geo-political tensions and
failure of national and supranational governance. This could
result in:
• Dwindling support for free trade relationships and flows
of capital
• Potential differential legislation, resulting in regional
competition and protectionist measures
• Insufficient structural reforms in emerging and mature
economies
The continued development of digital technology poses
a threat to business and reputation and could lead to:
• Business value chain disruption/destruction
• Cybercrime
• Concerns over privacy and the concentration of the
influence and control over intelligence
• More stringent legal and regulatory requirements
• The view that economic growth and sustainability are not
mutually exclusive does not prevail
• Lack of a coordinated response to climate change
The risk of an acceleration in the emergence of new
technologies in general, with the potential to:
• Disrupt existing business value chains
• Change the way in which our products are applied
• Force the re-engineering of supply chains
• Introduce changing working practices
The risk of increasing public concern over specific
substances and their environmental impact, leading to:
• More strict classification of hazardous substances
• A ban on, or a reduction in, the use of plastics/synthetic
polymers
• An accelerated phasing out of fossil fuels
• Ongoing focus on core principles and values to set desired
behavioral changes in motion. Values and behaviors are
included in the performance management process
• Senior management is involved in all critical projects that
The need to listen and engage with an ever-widening field
of stakeholders in the area of environmental and corporate
social responsibility, requiring extra attention to:
• Transparency on, for example, carbon footprint and
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
• Consolidate change management by streamlining and
aligning the work of a range of supporting processes
under the umbrella of Global Business Services blueprints,
including the operating model and Responsible,
Accountable, Consulted, Informed (RACI) matrices
renewable energy
• Social impact assessment of a company’s activities
• Concerns over fair trade and under-age labor
• Concerns over tax avoidance by large corporations
• A persistent negative perception of the role of global
corporations in society
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Business performance
GOING UP IN THE WORLD TO PRESERVE GLOBAL HERITAGE 55The following section gives a detailed summary of how each of our Business Areas performed during 2016. Information on market characteristics is also provided. Decorative Paints 56Performance Coatings 66Specialty Chemicals 76Business performanceWe agreed a new three-year partnership during 2016 which involved painting the windmills at the Kinderdijk UNESCO World Heritage Site in the Netherlands. We’re providing essential protection and essential color for the iconic structures by applying our high performance Sikkens paint.Business performanceAkzoNobel Report 2016 | Business performance5555 Decorative PaintsAnother project which has been very well received was launched in Rio de Janeiro, Brazil. The event took place at the Santa Marta favela, where our ongoing “Let’s Colour” program has already transformed more than 300 buildings. This time we were there to launch a Human Cities project called Unexpected Courts. It enables children to test their sporting skills in surprising spaces through the creative use of paint. It’s a simple concept which we plan to repeat in communities around the world so many more people can be inspired through color. Rio is also home to a new Cruyff Court for the blind and visually impaired, which was opened in 2016 as part of our ongoing partnership with the Johan Cruyff Foundation. It was one of eight courts built during the year using our products. The success of these projects shows innovation isn’t restricted to products. Innovation can be applied in many different ways as we look to capture growth, which was another key theme during 2016. A highlight was the start of production at our fourth Decorative Paints plant in China. Located in Chengdu, the new facility represents a milestone in the company’s growth plans for the west of the country. Chengdu will be at the forefront of our production of water-based products, which are becoming increasingly important in the Chinese market. The country’s gradual switch to more sustainable paint supports our continuing drive to convert Our passion for bringing color to people’s lives saw us continue to offer our customers new ideas and innovations during 2016. This commitment to making life more liveable and inspiring is a source of pride, as it enables us to use our experience and expertise in ways that can make a real difference to individuals, entire communities and society as a whole.We try to develop products that do a lot more than brighten up a wall or ceiling. We never stop looking for new and exciting ways of delivering essential color to our customers. One example was the Dulux Forest Breath range we introduced in China this year. It’s a sustainable indoor paint with an anti-formaldehyde formulation, which addresses the country’s focus on improving air quality. Put simply, it’s paint that helps to clean the air in your home. On a more global scale, our Visualizer app (which was upgraded in 2016 with improved features) has now been downloaded more than 13 million times. It makes choosing colors easier and has been a big success. We like to think of it as a fresh, modern and interactive way for us to share our love of color and allow people to share theirs. We also launched a new digital initiative in the UK when we opened a virtual reality customer center at our Slough site. It’s an industry first facility which enables retailers to immerse themselves in the customer experience and view product innovations before they go to market. It’s situated next to the award-winning Dulux Academy, an initiative which has received a lot of positive feedback. This is a dedicated center which will give more than 4,000 decorators and apprentices the chance to upskill every year by gaining an advanced understanding of the essential principles of color, design and sustainability. In addition, it aims to address current skill gaps in the industry and help us to become a life-long learning partner. the decorative paints industry to water-based products. Some markets are mature in this respect, but there is a lot of work to be done in certain parts of the world and we intend to continue playing an active role in helping to lead this change.The Chengdu site has adopted the safety standards compulsory at all our facilities – both new and existing. We made good progress during 2016 with our safety performance as we move towards our aim of zero injuries.By focusing on what we do best, we were able to grow and improve the business during the year in line with our strategic goals. Our attention to growth and innovation, coupled with our resilience and the success of our continuous improvement programs, ensured we were able to manage the challenging environment we faced in 2016 and achieve profitable growth in key markets. We continued to make progress and drive volume growth during the year. We saw positive demand trends in many Asian markets and volumes were up in the region, including China, despite challenging conditions in the Chinese construction market. In EMEA, volumes were positive overall, but varied across the region. We saw good development in the Netherlands, Russia and the UK. In Latin America, challenging market conditions caused by economic instability and currency devaluations continued throughout the year. We therefore concentrated “WE WERE ABLE TO GROW AND IMPROVE THE BUSINESS” Ruud Joosten Member of the Executive Committee responsible for Decorative PaintsBusiness performance | AkzoNobel Report 201656 on improvement actions and cost control in the region, as well as focusing on customers and further strengthening our strong relationships with professional painters. Overall, despite uncertainty in some of our markets, we retain strong positions and intend to build on this further by investing in our brands and through our strategy to win locally and leverage our scale.As we head into 2017, although markets are likely to remain unpredictable, we have the right strategy in place and are positioned to further drive innovation and stimulate organic growth while continuing to bring new ideas and essential color to our customers.The Decorative Paints Leadership team pictured (in a safe and controlled environment) at one of the company’s Sikkens Center paint stores in Amsterdam, the Netherlands.57AkzoNobel Report 2016 | Business performance Decorative Paints
strategy
Having improved considerably
since 2012, we continued to make
progress in 2016. Both our return
on sales (ROS) of 9.3 percent
and return on investment (ROI) of
12.8 percent were in line with our
performance range 2016-2018
(between 8-10 percent and more
than 11.5 percent, respectively).
As a result, we are moving closer
to the company’s vision of leading
market positions delivering leading
performance.
We updated our strategy in 2015 to better reflect our new
organization, market approach and growth ambitions. The
current strategy is based on winning locally, supported by
selected global initiatives to leverage our scale.
58
Business performance | AkzoNobel Report 2016
Actions
Winning locally
We have a unique portfolio of businesses in that we are
one of only three very large players in decorative paints
and the only one that serves a geographically diverse
portfolio of countries, with a substantial proportion of our
business outside mature markets. Our portfolio, therefore,
has the potential for higher growth levels, while allowing
for diversification of individual country risk. It also means
we have to compete successfully and win in markets
that are very different in terms of value chain, competitive
environment and customer and consumer behavior.
In order to win in these markets, we will continue to develop
relevant and specific plans. Of particular importance to
our overall success are the local plans. Listed below is a
snapshot from four countries:
• The UK is one of Europe’s largest markets and we are
market leader. The UK referendum vote resulted in more
economic uncertainty, and while the paint market is still
expected to grow, it is likely to do so at a slower rate.
Our focus is on inspiring and enabling people to decorate
more often by improving the decorating experience
for consumers and increasing loyalty with professional
painters. One way we aim to achieve this is through the
in-store experience with the Dulux MixLab and the Dulux
Academy to train and accredit professionals. We are also
continuing our strong focus on innovation, introducing
new products with clear customer benefits in terms of
energy savings and well-being and enhanced digital tools
and services such as the highly successful Visualizer app
• China is a large market where the growth rate has
been high. Although growth in China has slowed, we
accelerated our own growth in the region compared with
last year. We have a strong position and are growing our
business in traditional trade and e-commerce. We have
strengthened our product and services in the premium
and mid-tier range. This included launching Dulux Forest
Breath and repositioning the Easy Paint Ser vice as a
premium Renewal Service with a total solution
• South Africa is a vital market for success in Africa and we
have a strong position. The market has been growing,
despite some political unrest and currency fluctuations,
and most analysts predict continued growth in the coming
years. We intend to continue building our Dulux brand and
be the best category partner with our large-scale outlet
(LSO) customers, while expanding our assortment and
increasing our physical availability in the small-scale outlet
(SSO) channel
• Indonesia is the largest market in South-East Asia
with good growth potential. We are market leader and
continued to grow our share in 2016. We are focused
on building the Dulux brand with innovations such as
Dulux Weathershield Powerflexx and Dulux Ambiance, as
well as increasing our distribution and leveraging global
capabilities in the growing LSO channel
Leveraging our scale
We are one of only three large players within decorative
paints globally. Our size provides us with a considerable
strategic advantage. It allows us to make the kind of
investments in brands, innovation and sustainability that
smaller players would find difficult to emulate. We carefully
select initiatives where scale advantage exists and focus our
efforts on activities that support our approach of winning
locally. We have defined eight areas where leveraging our
scale makes sense. Examples include:
Innovation
Our global innovation agenda is focused on addressing key
end-user, consumer and/or customer needs, including mass
market growth, increased need for well-being, regulatory
compliance, differentiation in large-scale outlets, energy
efficient solutions and distinctive color offers. These needs
translate into an innovation agenda which has a very strong
sustainability orientation.
Digital
With investments across multiple digital platforms, the star
performer in our global digital agenda is our award-winning
Visualizer app. Launched in 2014, it has been downloaded
more than 13 million times to date, in over 40 markets.
In May 2016, we launched version 3.0, which includes
additional features such as video visualization and social
sharing. Linked with the improved user experience on our
website and detailed analytics, we are now able to further
commercialize these digital assets.
Painters
We have considerable experience of successfully selling
to professional painters around the world. Given their
importance to our business, we make it a top priority to
better understand painters while also providing support and
inspiration. We work closely with painters to optimize our
product offer in so-called “best-by-test” validation and then
focus on marketing the “hero” products, which have strong
and credible attributes relevant to painters. We also leverage
global best practices to upskill and train existing painters
and new apprentices, aiming to develop a strong partnership
and loyalty. Some Dulux Academies, such as our new
flagship facility in the UK, also give accreditation to further
enhance the position of our partner, the professional painter.
We also place an emphasis on building pride and a common
sense of purpose.
Supply chain
Our Integrated Supply Chain agenda has been firmly linked
to our commercial strategy for some time now. The main
focus areas include building operational excellence through
deployment and activation of our company-wide AkzoNobel
Leading Performance System (ALPS); care for our customers
with superior service and quality; and our advanced
technology program looking at breakthrough possibilities in
the areas of process, packing and digitization.
Brands
We continue to drive our brands with consumer tested
communication and improved claims. At the same time,
we are continuing to build and strengthen our regional
professional brands, with a more clearly defined product
offer, improved packaging and clear benefit claims. Our
brands are fully in line with, and actively promote, the
UK Minister of State for Employment Priti Patel (pictured left), opened the Dulux Academy at our Slough site in the UK in March. The world’s first
academy for painters and decorators, the facility will give more than 4,000 professionals the chance to upskill every year. Also pictured are Dulux
Academy instructor Matt Gray (center) and Matt Pullen, Managing Director of AkzoNobel UK and Ireland.
company’s Planet Possible sustainability agenda. We also
leverage our scale by aligning our “Let’s Colour” programs
with the company’s Human Cities initiative.
to invest in order to offer the best performing water-based
technologies in the market and ensure an attractive
product offer.
Sustainability
We are recognized around the world for our commitment
to sustainability, which is a key driver in all our plans to win
locally as part of the overall AkzoNobel Planet Possible
agenda. We are continuing to drive this in our product
portfolio through three key areas:
• Low impact – products with lower environmental impact
• More durable – products that last longer and need
repainting less frequently
• Positive impact – products that positively contribute to
sustainability, such as providing energy-saving benefits
We continue to reduce VOC levels in our products and
are accelerating the adoption of low VOC water-based
trim and woodcare products in all our regions. We continue
We are working hard with our suppliers on responsible
sourcing and reducing the environmental footprint of the
raw materials we procure through Together for Sustainability
and our own supplier dashboards. In the UK, AkzoNobel
has become the first paint company globally to achieve the
coveted BES 6001 Responsible Sourcing accreditation.
We have continued to play a leading role in the EU Product
Environmental Footprint pilot, along with the European Paint
Association. We have also now integrated carbon footprint
data into our formulating system so our chemists can more
easily select low carbon options as part of the work they do
every day.
AkzoNobel Report 2016 | Business performance
59
€3.8 billion revenue€357 million EBIT€2.6 billion invested capitalEconomic value: OrganizationEnvironmental value: InputOrganization 2.4 million tonsupstream CO2(e) emissionsEmployee safety is a key priority and we are actively driving towards a reduction in the number of incidents.14,700 employees at year-end 20161.2 total reportable rate of injuries (per million hours) €107 million capital expendituresDuring 2016, we invested in growth markets (including our Chengdu site in China); in creating efficiency in Europe (in particular at our new Ashington site in the UK); and through optimization of our production footprint.TotalExchangeratesAcquisitions/divestmentsPrice/mixVolume-1%0%-6%-4%3%Revenue development in % versus 2015 Increase DecreaseWe 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.20162015201420131.61.91.21.2Total reportable rate of injuries per million hours worked1,800 TJenergy useDecorative Paints value creation summary 2016As 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 both consumers and professional painters. In order to create more economic, environmental and social value, our inno-vation is geared towards reducing our upstream and downstream supply chain impact by changing formulations to water-based 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. The aim is to benefit the creation of more social value. All these initiatives are designed to play a role in contributing to our financial performance and enable us to deliver more economic value for our investors.Social value: InputOrganizationBusiness performance | AkzoNobel Report 201660 Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
C
B
A
A
Eco-premium solutions with
customer benefits
% of revenue
A Decorative Paints Europe, Middle East and Africa 56
A Buildings and Infrastructure
100
27
27
28
28
B Decorative Paints Latin America
C Decorative Paints Asia
13
31
B Transportation
C Consumer Goods
D Industrial
Outcomes
–
–
–
2013
2014
2015
2016
0.1 million tons
CO2(e) emissions own operations
1.2 million tons
downstream CO2(e) emissions
3.7 million tons
CO2(e) emissions cradle-to-grave
9.3% ROS
12.8% ROI
28%
of revenue from eco-premium solutions
RD&I investments have resulted in
28 percent of revenue derived from eco-
premium solutions with customer benefits.
9%
improvement CO2(e) per ton of sales from
2012 cradle-to-grave carbon footprint
32 kilotons
total waste
Outcomes
€622 million
employee benefits
4.21
employee engagement score
3.8 million
lives positively impacted by our
“Let’s Colour” program
Indicates a positive development
Indicates a flat/negative development
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on achieving a more
diverse workforce.
1,577
people trained as painters
We participate in community programs
and local sponsorships.
AkzoNobel Report 2016 | Business performance
61
Key business developments
Decorative Paints Europe, Middle East and Africa
• Volumes were higher overall and trends varied across the region, with positive
developments in the Netherlands, Russia and the UK
• We continued our focus on innovation, introducing new products with clear customer
benefits in terms of energy savings, well-being and enhanced digital tools and services,
such as the highly successful Visualizer app
• The roll-out of the Easycare/UltraResist washable wall paints concept continued. The
product has now been successfully launched in ten markets, including Poland, Turkey,
Russia and Spain
• Our Extreme Painting campaigns were rolled out across most European countries where
Sikkens products are sold, as well as for the Nordsjö brand in the Nordics
• The livery for our Sikkens brand was refreshed as part of a revitalization strategy
• At our Slough site in the UK, we opened the Dulux Academy (which will help more
than 4,000 decorators and apprentices to upskill every year) and inaugurated a hi-tech
customer center, housing industry first virtual reality technology
Some of our customers
2,269
2,263
2,160
Revenue in € millions
2014
2015
2016
Key brands
• B&Q
• Bricomarche
• Leroy Merlin
• OBI
Top raw materials
• Binders/resins
• Titanium dioxide
• Packaging materials
Key cost drivers
• Oil price
• Energy prices
• Titanium dioxide
62
Business performance | AkzoNobel Report 2016
Decorative Paints Latin America
Decorative Paints Asia
• Challenging market conditions, due to economic instability and currency devaluation,
continued throughout the year, impacting revenue and volumes
• We are continuing to grow in Asia, where we hold leading positions in various countries
• Our growth in China continues in the premium and mid-tier range, supported by a
• Our Coral paint brand launched its award-winning Unexpected Courts project in
new plant
Rio de Janeiro, Brazil. The initiative involves using paint and imagination to create sporting
spaces in surprising places
• The Alba brand launched the company’s Visualizer app in Argentina, with more than a
• The company’s fourth Decorative Paints plant in China was inaugurated in Chengdu
• Vietnam was the fastest-growing business in the region during 2016
• The Dulux Forest Breath paint range received American Greenguard Gold certification and
million downloads to date
the French VOC A+ class certification
• The company continued to use the power of color to transform the Santa Marta favela
in Rio de Janeiro, Brazil. Around 20,000 liters of Coral paint has been used so far to
transform more than 300 buildings
• Coral sponsored Casa Cor São Paulo, the most important decorating exhibition in
South America, which helped to strengthen the relationship with interior designers,
architects and consumers
• In Uruguay, the Inca brand supported more than 50 artists as part of a
• The Dulux Easy Paint Service in China was repositioned
• In Indonesia, new innovations such as Dulux Weathershield Powerflexx and Dulux
Ambiance were introduced
• As part of the company’s Human Cities initiative, we began renovating four historic
locations in Shanghai’s Jing’an District
Human Cities initiative
Revenue in € millions
568
561
484
Revenue in € millions
1,074
1,185
1,196
2014
2015
2016
2014
2015
2016
Key brands
Key brands
AkzoNobel Report 2016 | Business performance
63
64Business performance | AkzoNobel Report 2016COLOR IS USUALLY THE FIRST THING YOU ASSOCIATE WITH PAINT. WE LIKE TO GO MUCH FURTHER. BECAUSE THERE ARE SO MANY POSSIBILITIES FOR ESSENTIAL COLOR TO MAKE PEOPLE’S LIVES MORE LIVEABLE AND INSPIRING.A BREATH OF FRESH AIRIn China, for example, we recently launched our Dulux Forest Breath range of indoor decorative paints. As well as giving consumers an exciting selection of colors, it also meets growing demand in China for more sustainable paint products.Forest Breath is designed to color and protect indoor walls and keep the air clean and fresh. It contains anti-bacterial properties that improve indoor air quality by absorbing and destroying atmospheric particles such as formaldehyde and benzene. This eco-premium solution has received both the American Greenguard Gold Certification and the French VOC A+ class certification. Forest Breath’s launch is part of an ongoing transformation within our Decorative Paints business to shift the portfolio more towards water-based and VOC-free. The business already offers a broad range of low VOC products, in line with our Planet Possible approach to sustainability, which is focused on doing radically more with fewer resources. The company also aims to generate 20 percent of total revenue from sustainable solutions by 2020 – in China this figure for our Decorative Paints business has already reached 30 percent. The introduction of Forest Breath demonstrates how our innovation is designed to anticipate and respond to increasing demand and appropriate standards for more sustainable products. This ability to provide consumers with better choice – as well as even greater confidence in our products – will become increasingly important as customer and market demands continue to change.The only thing that will not change is our commitment to providing essential color that makes people’s lives more liveable and inspiring, which will continue to be embedded into all our future product advancements. Click to watch video65AkzoNobel Report 2016 | Business performance Performance CoatingsRussia and South Africa. Confirming our strategy of pursuing value generating acquisitions, it will add around €280 million of revenue for Performance Coatings in 2017 and help to strengthen our position as the leading global supplier of coil coatings.Our innovation expertise and commitment to sustainability will play a key role in enabling us to achieve organic growth as we continue to help customers resolve their technical and environmental challenges. In 2016, examples included the launch of Aquasilk in China, a water-based wood coating for the furniture industry which reduces VOC emissions for our customers. China is also home to the company’s new technology center, which was inaugurated in Songjiang, Shanghai. This is the company’s largest research facility in the country, housing 150 scientists who support customers in all of our end-user segments. Another key focus area for Performance Coatings is helping customers to become more profitable – as well as sustainable – through the introduction of products and services that reduce energy consumption. During 2016, our Vehicle Refinishes business developed new UV clear coat technology which enables car repair body shops to cut energy costs in the clear coat drying process by up to 80 percent. Another major launch saw our Marine Coatings We continued to invest in our customers, markets and people in 2016 to deliver value from color and protection and help make people’s lives more liveable and inspiring. Building on the transformational changes completed in 2015 to structurally improve our profitability and operational performance, our focus became more customer and growth oriented in 2016, with good progress in driving innovation, sustainability and continuous improvement. We launched several new technologies, stepped up the pace of our digital innovation and improved our safety record. We also completed the acquisition of BASF’s Industrial Coatings business, welcoming around 350 new colleagues who bring broad and valuable expertise to AkzoNobel. Throughout 2016, we continued to invest in production facilities near our customers, especially in key emerging markets. In India, we inaugurated a first-of-its-kind specialty coatings facility in Uttar Pradesh to better serve customers in the consumer electronics, automotive and cosmetics industries. We also started construction in Thane, near Mumbai, on a new powder coatings plant, our second in India. Meanwhile, we are building a manufacturing facility in Thailand to support growth markets in South-East Asia across all of our businesses.Towards the end of the year, we completed the acquisition of BASF’s Industrial Coatings business, which supplies a wide range of products to industries including construction, domestic appliances, wind energy and commercial transport. We are now able to offer new products and maintenance solutions for wind turbine blades and service a broader customer base. The acquisition also enables us to further expand our geographic reach in countries such as Japan, business introduce Intersleek 1000, a new biocide-free fouling control coating which offers fuel and CO2 savings of up to 6 percent – an important contribution to our vision of more sustainable shipping. In addition, Intertrac Vision, continued to be well received by customers. The digital tool predicts hull performance, enabling ship owners to control costs by choosing the right coatings technology. You can read more on page 74.Our carbon credits program also continued to do well during the year. The program rewards ship owners for converting to sustainable hull coatings, such as those available through our International brand. In October, a special ceremony was held when we presented the Grimaldi Group with the largest number of carbon credits (almost 110,000) awarded so far through the award-winning initiative. More than 50 vessels have enrolled in our program to date.2016 marked the first full operational year after our extensive reorganizations, which we completed in 2015. The changes have now been fully embedded and have enabled us to run our businesses more effectively. Our new structure facilitates increased customer responsiveness, yielding improved levels of customer service and satisfaction, with on-time in-full delivery now at industry-leading levels. Our annual employee engagement survey showed an improvement to “WE DELIVERED AT THE HIGHER END OF OUR PERFORMANCE RANGE”Conrad Keijzer Member of the Executive Committee responsible for Performance CoatingsBusiness performance | AkzoNobel Report 201666 a record level from previous years, while we continued to further improve our safety performance, reducing our total reportable rate of injuries as we move towards our aim of zero injuries.Our commitment to our customers and the delivery of our strategy enabled us to achieve a solid financial performance in 2016, effectively realizing a higher level of profitability and performance. We delivered at the higher end of our performance range, with ROS at 13.4 percent and ROI at 29.4 percent. This was achieved in a deteriorating market environment in some of the key sectors we serve. The oil and gas sector has been especially challenging, while a significant downturn in the global shipbuilding industry impacted our revenue. We have therefore taken decisive action to align our cost structures, demonstrating our new agility, which gives us resilience where we need it most in our Marine and Protective Coatings businesses.Looking ahead, despite the expected headwinds in the market, we remain confident in our capability to deliver organic growth through our continued focus on commercial excellence and innovation to better serve our customers with essential color and protection. The Performance Coatings Leadership team pictured (in a safe and controlled environment and according to site rules) at the company’s Vehicle Refinishes facility in Barcelona, Spain.67AkzoNobel Report 2016 | Business performance Performance Coatings
strategy
We delivered at the higher end
of our 2016-2018 performance
range, with return on sales (ROS)
of 13.4 percent and return on
investment (ROI) of 29.4 percent.
Despite headwinds in the
market, we remained focused on
building on the solid performance
foundation we have created and
growing in line with, or faster than,
our relevant market segments.
Although the year was not without its challenges, we
managed to offset continued weakness in new ship
construction and oil and gas capital spending, while we
achieved growth in areas such as our Powder Coatings
and Vehicle Refinishes businesses. It was also a year of
exploration and growth – new additions to our product
portfolio, new digital technologies to support our
customers and new opportunities in growing segments
and geographies.
Actions
Pursue differentiated growth strategies
We drive growth in Performance Coatings by assessing
the attractiveness of market segments and our ability to
win in those segments. This strategic segmentation allows
us to identify and prioritize growth opportunities across
our businesses. The priority segments in our portfolio are
expected to outgrow their end-markets, while lower priority
segments should grow in line with their underlying markets.
Each year, we review and update our analysis of market
segment growth potential in order to reallocate resources to
those segments with the best growth prospects.
Drive overarching performance
improvement initiatives
Embed commercial excellence
During the period of restructuring that took place prior to
2016, we focused on sales force efficiency and margin
management to support improvement in bottom line
performance. With that process now complete, our
commercial excellence focus is on sales force effectiveness.
We have introduced a global program which incorporates:
• Best practice tools and processes for relevant go-to-
market models
• Sales force training for both the front line sales force and
first line managers
We remain committed to our strategy of pursuing
differentiated growth strategies, delivering business-specific
innovation plans and driving overarching performance
improvement initiatives.
• Customer relationship management (CRM) processes
• Customer satisfaction measurement (including Net
Promoter Score metric) and corresponding improvement
action planning
A winning sales and marketing organization is being
developed which aims to better serve our customers
through strong relationships. In addition, we are continuously
building the competencies of our sales organization. In 2016
alone, we reached more than 1,000 employees with our
training programs – Selling Essentials and First Line Sales
Management. Selling Essentials teaches basic consultative
selling skills, covering our new sales process. First Line Sales
Management focuses on the Performance Coatings strategy,
market segment planning, the use of our resource planner,
coaching and performance management.
We are continuously identifying best practices to improve our
go-to-market models, bringing us closer to our customers
in all segments. We have launched a new Customer
Relationship Management tool and way of working called
OneCRM, involving all businesses in Performance Coatings
and training all levels in the organization. Most importantly,
we are listening to our customers and collecting their input
through our customer satisfaction survey. Via online surveys
and telephone interviews, we reached almost 23,000
customers worldwide and across all segments. The input
of this survey is a key driver of our business plans and
continued collaboration with our customers. Meanwhile,
we continue to implement operational and process
improvements to help elevate our businesses to world
class levels.
Reduce external spend
In recent years, we have seized the opportunities created
by implementing annual external spend reduction programs,
and by having common raw materials and suppliers. In
order to take further advantage of this, we are developing
and implementing differentiated commodity strategies to
maximize value and reduce risk. For example, for certain
high margin impact products, we have prioritized the
development of alternative sources, with a special focus on
the best sources identified locally in our emerging markets.
Improve our operations
The last few years have seen a reduction in the number
of manufacturing plants we operate, from 102 in 2013 to
87 by the end of 2016. Meanwhile, we are optimizing our
manufacturing footprint for growth. For example, we invested
in a new powder coatings plant in Chengdu, China, and are
building a new production facility for powder coatings near
Mumbai in India and another in Changzhou, China. A new
site supporting all our businesses is being built in Thailand,
which will serve as a manufacturing hub for nearby growth
68
Business performance | AkzoNobel Report 2016
markets in South-East Asia, such as Myanmar. Our footprint
optimization is helping to drive higher asset utilization, as well
as enabling us to shift production closer to our customers.
In addition, we continue to roll out our continuous improve-
ment program, the AkzoNobel Leading Performance System
(ALPS). Around half our sites are achieving a high maturity
level, resulting in year-on-year operational improvements.
Customer service (measured through on-time in-full delivery),
remains a key priority, with significant improvements having
been delivered to date through the implementation of a
consistent approach to sales and operations planning.
We also aim to make further improvements with the roll-out
of globally consistent quality management processes.
As one of our core principles, safety remains a top priority.
Our performance further improved in 2016 as we made
progress towards zero injuries.
Deliver business-specific innovation plans
Innovation in products, services, processes and tools is
fundamental to our success. We are prioritizing innovation
around strategic segments. We target those innovations that
specifically benefit key customers, either through offering
them higher operational efficiency in their business (such as a
higher production rate through product design or application
process), or additional benefits in terms of sensory
perception, substrate protection and coating functionality.
When developing these innovations, we harness new
technologies and address global trends such as digitization,
connectivity, sustainability, climate change and scarcity of
natural resources.
Where appropriate, we also carry out research and
development work across the Business Area and across
AkzoNobel. For example, we are seeing increased
opportunities for innovations that take advantage of
digitization, including digital tools such as Mixit (an online
application for reliable vehicle refinish color retrieval), and
the Interpon customer app (an online application for powder
coatings customers). For this type of digital innovation,
we build on successful platforms that have already been
Vehicle body shops can now cut their energy costs thanks to new ultraviolet clear coat technology developed by AkzoNobel. The technology, which
is available in both Sikkens and Lesonal brands, cuts drying time to just 12 minutes without baking – enabling body shops to cut energy costs in the
clearcoat drying process by up to 80 percent.
developed and are being used by our Decorative Paints
business. There are also many cases where the specific
areas for innovation differ, depending on the customer
segment. In these instances, we develop tailored solutions.
Examples include:
• Intercept 8500 LPP and Intersleek 1000 next generation
fouling control technologies, which deliver sustainable,
enhanced vessel performance
• Our Aquasilk water-based wood coating, designed to help
the Chinese furniture industry transition from solvent-
based systems
• Further development of our award-winning Intertrac Vision
digital tool, which predicts hull performance and enables
ship owners to control costs by making informed choices
about the coatings technology they use
• Next generation Chartek technology, offering jet fire
resistance and passive fire protection for structural steel
• New UV clear coat technology, which enables car repair
body shops to cut their energy costs by up to 80 percent
• The Intergard 250g/ltr primer range of protective
coatings, which have a higher volume of solids and help
customers increase productivity by using less paint and
reducing waste
• Our new Autocoat BT topcoat color platform for the
commercial vehicles segment
• High performance products for the huge Yamal LNG
project, located inside Russia’s Arctic Circle, which
will provide protection in some of the planet’s harshest
conditions
• A mobile app version of our boat paint guide to support IT
savvy do-it-yourself customers with painting their boats
• Bisphenol-free spray coatings for protecting the inside of
beverage cans
• Sustainable linings for underground storage tanks
• A new digital Bonding Process Manager system which
helps customers in the structural wood segment to
improve production efficiencies
Looking ahead, we intend to continue strengthening our
innovation portfolio with a focus on sustainable and digital
solutions. We also aim to build on the newly acquired
technologies from BASF’s Industrial Coatings business, and
continue to monitor global trends and collaborate with our
customers to drive our innovation agenda.
AkzoNobel Report 2016 | Business performance
69
Performance Coatings value creation summary 2016
Our Performance Coatings businesses serve
all four end-user segments, supplying high
performance coatings 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 benefits
for our customers. The aim is to help us
create economic, environmental and social
value. We continue to be committed to
safety, as well as our talent development
programs and our contribution to various
community activities.
All these initiatives are designed to play
a role in contributing to our financial
performance and enable us to deliver more
economic value for our investors.
Economic value: Organization
€5.7 billion
revenue
€159 million
capital expenditures
Revenue development in % versus 2015
Increase
Decrease
0%
-2%
0%
-3%
-5%
€759 million
EBIT
€2.7 billion
invested capital
During 2016, we invested in production
facilities in mature and growth markets, to
increase capacity and to improve efficiency,
including a new powder coatings plant in
Chengdu, China. We are also building a new
production facility for powder coatings near
Mumbai in India and another in Changzhou,
China, while a new site supporting all our
businesses is being built in Thailand.
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
3.9 million tons
upstream CO2(e) emissions
4,500 TJ
energy use
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.
Social value: Input
Organization
19,700
employees at year-end 2016
1.5
total reportable rate of injuries
(per million hours)
Total reportable rate of injuries
per million hours worked
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents.
2.8
1.8
1.8
1.5
2013
2014
2015
2016
70
Business performance | AkzoNobel Report 2016
Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
C
A
B
D
A
C
B
A Marine and Protective Coatings
B Automotive and Specialty Coatings
C Industrial and Powder Coatings
26
26
48
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
Outcomes
0.3 million tons
CO2(e) emissions own operations
7.4 million tons
downstream CO2(e) emissions
Eco-premium solutions with
customer benefits
% of revenue
13
15
15
16
2013
2014
2015
2016
25
39
21
15
11.6 million
tons
CO2(e) emissions cradle-to-grave
13.4% ROS
29.4% ROI
16%
of revenue from eco-premium solutions
RD&I investments have resulted in
16 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
53 kilotons
total waste
Outcomes
€985 million
employee benefits
Indicates a positive development
Indicates a flat/negative development
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on achieving a more
diverse workforce.
4.12
employee engagement score
We participate in community programs
and local sponsorships.
AkzoNobel Report 2016 | Business performance
71
Key business developments
Marine and Protective Coatings
Automotive and Specialty Coatings
• Revenue was down 7 percent, with increased volumes more than offset by adverse
currency and price/mix effects
• Two next generation fouling control technologies were launched – Intercept 8500 LPP and
Intersleek 1000 – which are designed to deliver sustainable, enhanced vessel performance
• We continue to launch more digital solutions, such as our Event Reporting System, to
provide rapid inspection and reporting capabilities during maintenance at dry dockings
• Protective Coatings continued to outgrow the market in the oil and gas (upstream and
downstream) and power segments. We also defended our market position in mining
• Significant sales were made to the huge Yamal LNG project inside Russia’s Arctic Circle.
Our products will provide protection in some of the planet’s harshest conditions
• Volumes increased for both Automotive Coatings and Specialty Coatings in most regions
• We supplied a leading smartphone OEM with an anodized look coating and gained a
strong position in functional coatings used to improve the operation of mobile devices
• Our leading position in the aerospace market improved as we gained a stronger position at
a number of key global commercial airlines
• A mobile version of our boat painting guide was launched to help IT savvy do-it-yourself
customers paint their own boats
• Vehicle Refinishes (VR) successfully converted many customers to advanced digital color
tools for the color search process. Customers are now better positioned to handle the
ever-increasing color demand complexity they face when repairing cars
• We developed the Intergard 250g/ltr primer range, which is higher in volume solids, helping
• We are now specified to provide coatings to key suppliers of a number of well-known
customers increase their productivity by using less paint and reducing waste
automotive brands for their new car models
• Our certified engineers developed structural analysis techniques supported by bespoke
• VR strengthened the brand proposition of its mid-market Wanda and Dynacoat brands to
in-house fire testing to design fire resistance packages for several iconic buildings
fully capture growth opportunities, especially in developing economies
• The new Autocoat BT topcoat color platform was rolled out to further grow our position in
the commercial vehicles segment
Key brands
Revenue in € millions
Key brands
Revenue in € millions
1,414
1,572
1,458
1,440
1,545
1,512
2014
2015
2016
2014
2015
2016
Geo-mix revenue by destination in %
• Hyundai Heavy
Some of our customers
• APM Maersk
• Bechtel
• Brunswick
• ExxonMobil
• GE
• Hapag Lloyd
Industries
• Rio Tinto
• Sandvik
• Shell
• Siemens
Top raw materials
• Epoxy resins and
organic solvents
• Epoxies
• Copper/zinc
• Curing agents
Key cost drivers
• Oil feedstock chain
• Metals, base chemical prices
C
C
A EMEA
B Americas
C Asia Pacific
72
Business performance | AkzoNobel Report 2016
A
A
B
B
Some of our customers
• Airbus
• BBG
• Boeing
• Dell
• General Motors
• Gold Coast Marine
• HP
• KMC/HMC
• Leonardo
• Plastic Omnium
• Samsung
Top raw materials
• Acrylic resins
• Effect pigments
• Ester solvents
• Isocyanates
Key cost drivers
• Metals, base chemicals prices
• Oil, energy prices
29
19
52
Geo-mix revenue by destination in %
C
A
B
A EMEA
B Americas
C Asia Pacific
39
31
30
Industrial and Powder Coatings
• Revenue decreased 5 percent, with volume growth more than offset by adverse currencies
and price/mix
• We completed the acquisition of BASF’s Industrial Coatings business, which will help to
strengthen our leading position in coil coatings
• Construction began on a new €31 million site in Thailand, which will manufacture products
from across our Performance Coatings businesses
• Our Packaging Coatings business converted major customer lines to BPAni in North
America to comply with newly implemented regulations in California
• We continued to strengthen our number one position in the powder coatings market
• We broke ground on a new plant for powder coatings near Mumbai in India and
commissioned the construction of the world’s largest powder coatings plant in China
• Aquasilk, an innovative water-based wood coating, was launched in China to help the
Chinese furniture industry transition from solvent-based systems
• The Wood Coatings business improved profitability in a relatively soft market, thanks to
continuous operational efficiencies
Key brands
Some of our customers
• Arcelor Mittal
• Armstrong
• Ardagh
• Ball
• Bluescope Steel
• Bosch
• Crown
• IKEA
• Lacquer Craft Furniture
• Masterbrand
Cabinets Inc.
• Mercedes-Benz
• Philips
• TATA
• Whirlpool
• Nitrocellulose
• Methanol, urea
• Butyl acetate, acetone and xylene solvents
Top raw materials
• Polyester and epoxy resins
• Glycol, ether and aromatic solvents
• Titanium dioxide
• Latex resins
Key cost drivers
• Basic feedstock prices
• Oil and natural gas prices
• Propylene and VAM
Revenue in € millions
2,769
2,867
2,732
2014
2015
2016
Geo-mix revenue by destination in %
C
B
A
• Agrochemical feedstocks (urea)
• Cotton
A EMEA
B Americas
C Asia Pacific
42
31
27
AkzoNobel Report 2016 | Business performance
73
Now you can breathFUEL COSTS ARE THE SINGLE BIGGEST OPERATING EXPENSE FOR ALL MAJOR SHIP TYPES. IT’S A FINANCIAL CONUNDRUM THE SHIPPING INDUSTRY HAS NEVER BEEN ABLE TO PROPERLY RESOLVE. UNTIL NOW.Our Marine Coatings business has pioneered Intertrac Vision, an award-winning digital tool which predicts hull performance. It enables ship owners to control costs by making informed choices about the coatings technology they use in order to provide the essential protection they need. Here’s how it works. The software package uses 3.5 billion datasets to provide accurate and transparent predictions on the fuel and CO2 savings potential of fouling control coatings, prior to their application. It enables our trained consultants to advise owners on multiple coating and application scenarios, clearly explaining the financial and performance benefits of available options before important investment decisions are made.What’s also unique is that predictions are bespoke to specific vessels and are entirely dependent on vessel type, trading route, speed and activity. It therefore offers options to influence all major investment choices, such as preparation levels, coatings preference, scheme selection and even days in dry dock. In an era when big data analytics are powering a shift to outcome-based models, Intertrac Vision has the ability and intelligence to explore and remove performance prediction uncertainties – which is exactly what ship operators want. Working this closely with customers is fundamental to the way we do business. In Intertrac Vision’s case, as well as being able to identify their individual needs, it also helps us to improve our customers’ sustainability performance. This aligns perfectly with our Planet Possible sustainability agenda, which puts a clear emphasis on becoming more energy and resource efficient. Barely a year old, Intertrac Vision is just one example of how advances in digital technology are becoming increasingly relevant to all our businesses. It demon-strates our ambition to lead the market in digital innovation so that we can continue to create everyday essentials that make people’s lives more liveable and inspiring.MAKING SHIPPING MORE SUSTAINABLE 74Business performance | AkzoNobel Report 2016 Click to watch video75AkzoNobel Report 2016 | Business performance Specialty Chemicals
Our dedication to customers
is fundamental to our growth
ambitions. It also inspires our
commitment to delivering essential
ingredients and helped drive
our performance and innovation
throughout 2016.
Our products are essential ingredients for many aspects of
daily life and we thrive on the opportunity to grow with our
customers by supplying sustainable solutions that contribute
to our mutual success. It’s an approach that delivered a
series of innovative new products in 2016, all focused on
helping to make people’s lives more liveable and inspiring.
One of the highlights was our Expancel microspheres being
officially approved by the US Food and Drug Administration
as a constituent in wine corks. The function within the cork
is simple, but crucial – it’s the secret ingredient that helps
keep wine fresh and tasting as good as possible. It’s also
good to see positive trends developing for Expancel in
various other applications.
Another innovation was Dissolvine M-40. A chelating agent
with a readily biodegradable active ingredient (known as
MGDA), it will enable detergent makers to meet stringent
rules requiring the removal of phosphate builders in their
formulations – without affecting performance. Helping
customers to develop more sustainable products was
also key to the launch of Berol DR-B1. An additive for
cleaning products, it’s suitable for a wide range of outdoor
applications where very low environmental impact is a
priority (such as car washes). An additional benefit is that
it meets stringent US environmental standards.
It was also pleasing to see our Chelates business make an
important contribution to our Human Cities project in Quito,
76
Business performance | AkzoNobel Report 2016
Ecuador, as part of the UN Habitat III Conference on Housing
and Sustainable Urban Development. A large vertical
urban garden was created to help transform a bleak expanse
of concrete into a colorful and more attractive space for
local residents. The garden has no soil and is based on a
hydroponic system, which uses our micronutrients to provide
essential minerals for the plants.
Two contrasting developments occurred in the Netherlands.
Our Salt business discovered issues at its brine field in
Hengelo. We are working closely with the authorities and the
community and corrective actions are being taken.
Meanwhile, we progressed with preparations for the
Deventer Open Innovation Center. Deventer is home to
“ALL OUR EFFORTS ENABLED
US TO FURTHER IMPROVE
OUR RESULTS”
Werner Fuhrmann
Member of the Executive Committee
responsible for Specialty Chemicals
Innovations such as these help to fuel growth and we
made good progress, notably in China. Polymer Chemistry
announced two investments. A new organic peroxides
plant being constructed in Tianjin is due to be operational
in late 2018. It will replace our existing plant and increase
our capacity. Our other investment was made in Ningbo,
where we opened the world’s largest unit for making organic
peroxides used in the production of crosslinked rubber.
Surface Chemistry also opened a new alkoxylation facility
in Ningbo. It will provide surfactants for the agrochemical,
cleaning, viscose and animal feed industries. In addition,
Industrial Chemicals announced a partnership with Atul to
construct a new MCA plant in India. This investment is in line
with our ambition to grow our geographical footprint.
Safety remains on top of our agenda and it was encouraging
that we achieved further improvements in the three key areas
of people safety, process safety and product safety as we
moved further towards our aim of zero injuries.
Specialty Chemicals’ largest RD&I facility and we intend
to develop it into one of the country’s largest open
innovation centers.
Progress was also made in the Netherlands with regard
to reducing our carbon footprint. We inaugurated a steam
pipeline – based on renewable materials from energy
provider Eneco – at our Delfzijl site for the manufacturing
of vacuum salt. In addition, we engaged in a long-term
commitment to source power from the Krammer wind park
being constructed in the Dutch province of Zeeland.
All our efforts enabled us to further improve results, driven
by continued emphasis on operational excellence and
volume growth. Polymer Chemistry benefited from increased
demand in the Americas and Asia and we made good
progress in realigning the business’ global manufacturing
footprint. In Industrial Chemicals, chlor-alkali benefited
from the good productivity rates of our factories, including
the new plant in Frankfurt, Germany. Having completed restructuring and portfolio measures, Pulp and Performance Chemicals is focused on growing its bleaching and performance chemicals activities, while we further strengthened value chains in Surface Chemistry, Polymer Chemistry and Ethylene and Sulfur Derivatives. Having made steady progress in a low-to-no-growth environment, we are focused on continuous improvement and accelerating our growth momentum as we continue to create everyday essentials for our customers. Finally, we were pleased to welcome Thierry Vanlancker to AkzoNobel. He succeeded Werner Fuhrmann on February 1, 2017, as Executive Committee member for Specialty Chemicals, following Werner’s decision to retire after 37 years with the company. More details about Mr. Vanlancker’s career and experience can be found on our corporate website. 77AkzoNobel Report 2016 | Business performanceThe Specialty Chemicals Leadership team pictured (in a safe and controlled environment) in the chemistry lab of the St. Nicolaas Lyceum school in Amsterdam, the Netherlands. Specialty Chemicals
strategy
We achieved a return on sales
(ROS) of 13.2 percent and
return on investment (ROI) of
17.9 percent. These figures
were at the upper end of our
performance range for 2016-2018
(11.5 to 13 percent and more than
16 percent, respectively).
We delivered our stated objective of growing in line with,
or faster than, our markets, although volume growth has
been modest. Our volumes saw an upward momentum in
the second half of the year. Markets showed very mixed
growth levels and the overall sector was stable at best. In
this business environment, we remain highly focused and will
continue with our approach to build on the foundations we
have created. We aim to deliver our performance range by
continuing to focus on our strategic actions.
78
Business performance | AkzoNobel Report 2016
Actions
Build on our strong chemical platforms to deliver
profitable growth in selected markets
We prioritize resources and investment capital towards
the most attractive opportunities in each of our chemicals
platforms. These are based on where we have strong
competitive positions, with a specific focus on faster growing
geographical markets, such as Latin America, India and
China. In these businesses, we are investing to outgrow the
market. Examples include:
• Our Bleaching Chemicals platform is expected to benefit
from continued growth in the chemically bleached
pulp segment in Latin America. Although there are
challenges in many sectors of the Brazilian economy,
our unique Chemical Island business model delivers a
robust performance from both a cost and sustainability
perspective. In our niche technologies of expandable
microspheres (Expancel) and colloidal silica (Levasil), we
are targeting attractive growth and expect this to continue
as new applications are being researched and developed
waste streams. The second example is a 50/50 joint
venture we formed with Evonik Industries to convert our
Ibbenbüren plant in Gemany from mercury to membrane
technology for the production of potassium hydroxide,
chlorine and hydrogen. In MCA (monochloroacetic acid),
we signed an agreement for a new joint venture in India
• We have a number of leading positions in our Polymer
Chemistry platform. Here we aim to grow and improve
our performance by focusing on specific applications and
leveraging our global reputation for safety. For example,
we are continuing to gain traction in the market with our
Continuous Initiator Dosing (CiD) technology. Designed to
reduce energy use and deliver higher PVC quality, it also
helps to increase the capital productivity of our customers
by up to 30 percent while improving safety levels
• In the Ethylene Oxide platform, our emphasis is on
increasing the operational leverage of existing assets to
further improve performance. We have been successful
in investing for growth in specific applications, such as
specialty chelates and Bermocoll cellulosic products
• We are investing selectively in the Surfactants platform.
In 2016, the continued low oil prices affected demand in
the oil and gas drilling sector. At the same time, in sectors
such as personal care and cleaning, we experienced solid
growth. Because our surfactants are centered on a few
key technology platforms, we can effectively and efficiently
leverage our production capacity across all segments and
redirect towards growth
• Our north-western Europe Salt-Chlorine platform has a
Drive functional excellence
We focus on increasing productivity and efficiency across
our business, both in supply chain and operations, as well
as commercial excellence. A strong talent management
approach utilizing AkzoNobel’s global HR processes
underpins our efforts. Having delivered significantly on
efficiency in recent years, we are redirecting our functional
excellence programs to also drive organic growth:
• Specialty Chemicals continues to implement the
strong position, albeit in a stable market. In this reality, our
main strategic focus is on efficient capital expenditure,
successful plant utilization and operational excellence. We
are also pursuing creative growth opportunities to reinforce
our position, particularly where we can utilize our process
technology know-how in an asset-light construction. A
recent example is our cooperation for salt in Spain, which
will enable us to further improve our leadership position in
chemical transformation salt, while also offering specialty
salt growth opportunities. The business also offers a
strong sustainability profile, as it draws on salt-based
AkzoNobel Leading Performance System (ALPS) in supply
chain and operations. This operational excellence program
drives targeted improvements in customer satisfaction
and safety, as well as key value metrics, and also creates
increased capabilities at our capacity constrained
operations to unlock new volumes
• Our commercial excellence program supports our
organic growth strategy. We target four commercial
growth drivers: customer retention, key account
management, higher growth markets and new channels
to (new) customers
• We recruit and engage high quality individuals and drive
programs to develop a strong and diverse talent pipeline.
We see tangible gains from new learning and development
programs and our new performance management
approach. Across all functions and geographies, there
are increasing levels of professionalism and diversity. Our
employees are highly engaged, which is underpinned
by our further improved score in the annual ViewPoint
engagement survey
Strengthen product and process innovation
Our product and process innovation agenda is robust
and builds on a number of key trends and customer
requirements. These include resource preservation,
increasing end-use demands, accelerated technology
development and changing demographics/spending
patterns. We have overarching technology programs around
process technology, shared applications and bio-based
chemicals, as well as specific development programs
supporting our platforms. Our R&D approach has a major
sustainability focus, in line with our Planet Possible agenda.
We also foster collaborative approaches. A letter of intent for
the creation of a multi-stakeholder Deventer open innovation
center in the Netherlands was signed on June 16, 2016.
Some examples of product and process innovations are:
• Improved agricultural adjuvants (Surfactants platform)
that enhance the effectiveness and eco-profiles of crop
protection to key customers
• An enhanced production, properties and environmental
profile for our Expancel product range. For example,
adding Expancel microspheres to wine corks delivers the
water-tight barrier, elasticity and resilience of natural cork,
with lower impurities and absorption, reducing cork taint
and helping wine last longer
In 2016, a consortium of four companies in the Netherlands – led by AkzoNobel – agreed to source power from the
Krammer wind park once it becomes operational in 2019. The partners (including Google, Philips and DSM) will purchase a
total of 350 million kWh a year, equivalent to the total annual consumption of 100,000 Dutch households.
Capitalize on industry changes
We are externally focused and adjust our strategy and
footprint to respond to changing environments, including the
following:
• Although growth rates are lower than they have been,
China is still growing at high levels. We are responding to
changes by strengthening our existing local production
capacity with new investments to serve local markets
• We are continuing to respond to growth in pulp production
in Brazil by constructing closed loop, highly sustainable,
local production capacity for our Bleaching Chemicals
business
• We are building a stronger local organization and presence
in India to capitalize on new demand
Continued drive for stronger sustainability profile
We aim to reduce carbon emissions through a combination
of improved energy efficiency, higher use of renewable
energy and higher use of bio-based raw materials. As
an example of the type of improvements we are making,
we have increased renewable energy use by nearly
20 percent since 2013. We have also engaged in a long-
term commitment to source power from the Krammer wind
park being constructed in the Netherlands. Renewable
energy accounts for 40 percent of AkzoNobel’s overall
energy consumption.
AkzoNobel Report 2016 | Business performance
79
Specialty Chemicals value creation summary 2016
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.
The aim is to help us create economic, social
and environmental value. Social value
can be increased by our continued focus
on safety, as well as our talent development
programs and our contribution to various
community activities.
All these initiatives are designed to play
a role in contributing to our financial
performance and enable us to deliver more
economic value for our investors.
Economic value: Organization
€4.8 billion
revenue
€356 million
capital expenditures
€629 million
EBIT
€3.5 billion
invested capital
During 2016, we invested in several asset
integrity and efficiency improvement projects,
as well as growth projects for specific
segments. In 2016, we officially opened two
new plants at our Ningbo multi-site, where
Polymer Chemicals commissioned the
world’s largest dicumyl peroxide (DCP) plant
and Surface Chemistry inaugurated a new
finishing (alkoxylation) plant.
Revenue development in % versus 2015
Increase
Decrease
1%
-3%
-1%
-1%
-4%
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
3.2 million tons
upstream CO2(e) emissions
90,600 TJ
energy use
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.
Social value: Input
Organization
9,000
employees at year-end 2016
1.8
total reportable rate of injuries
(per million hours)
Total reportable rate of injuries
per million hours worked
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents.
2.2
2.4
1.9
1.8
2013
2014
2015
2016
80
Business performance | AkzoNobel Report 2016
Revenue breakdown by business unit
in %
Revenue breakdown by end-user segment
in %
Outcomes
D
D
C
C
A A
D
A
B
B
B
C
A Functional Chemicals
B Industrial Chemicals
C Surface Chemistry
D Pulp and Performance Chemicals
35
25
21
19
A Buildings and Infrastructure
B Transportation
C Consumer Goods
D Industrial
Outcomes
Eco-premium solutions with
customer benefits
% of revenue
16
17
17
19
2013
2014
2015
2016
21
6
28
45
3.3 million tons
CO2(e) emissions own operations
1.9 million tons
downstream CO2(e) emissions
8.4 million tons
CO2(e) emissions cradle-to-grave
13.2% ROS
17.9% ROI
19%
of revenue from eco-premium solutions
RD&I investments have resulted in
19 percent of revenue derived from eco-
premium solutions with customer benefits.
9%
improvement CO2(e) per ton of sales from
2012 cradle-to-grave carbon footprint
58 kilotons
total waste
Outcomes
€761 million
employee benefits
Indicates a positive development
Indicates a flat/negative development
We highly value, and actively work on
improving, employee engagement.
We’re investing in training and development
and continue to work on achieving a more
diverse workforce.
4.22
employee engagement score
We participate in community programs
and local sponsorships.
AkzoNobel Report 2016 | Business performance
81
Key business developments
Functional Chemicals
Industrial Chemicals
• Positive volume development, especially in Asia, where logistical issues in Tianjin, China,
were resolved. We also delivered strong growth in building and construction related
segments
• We achieved volume growth, despite challenging market conditions
• Chlor-alkali and chloromethanes benefited from increased capacity in Frankfurt, Germany,
and gaining European market leadership in chloromethanes
• We inaugurated the largest dicumyl peroxide (DCP) facility in the world at our Ningbo site
in China. It will serve the global market for the crosslinking of plastics and rubbers
• Signed investment agreement with Tianjin government in China to relocate and expand our
• Our cooperation in Spain – to convert a salt-based waste stream from a potassium mine
into high quality vacuum salt – started. This will enable our industrial and specialty salt
businesses to grow significantly
existing operations in the area. We are building a new €90 million facility
• We formed a joint venture with chemical company Atul to build a world-scale MCA plant in
• We continued to invest in our sites at Los Reyes (Mexico) and Pasadena and Battleground
Gujarat, India. The first phase will start up in 2018
in the US to enhance supply reliability and create more value for customers
• Our sustainability profile improved as a result of steam off-take from waste wood in Delfzijl,
• A partnership agreement was signed to license our carbon disulfide technology for the
the Netherlands. We’re also working on a waste-to-chemicals project in Rotterdam
viscose staple fiber industry in Indonesia, which will help to further strengthen our position
in the region
• Several innovations were introduced offering sustainable advantages for our customers,
including Dissolvine M-40 for the detergent industry
Key brands
Revenue in € millions
Key brands
Revenue in € millions
Ferrazone®
T h i s I r o n W o r k s .
1,756
1,822
1,718
1,230
1,204
1,202
Chemical platforms
Polymer Chemistry and Ethylene Oxide Network
2014
2015
2016
Geo-mix revenue by destination in %
Chemical platform
Salt-Chlorine chain
2014
2015
2016
Geo-mix revenue by destination in %
Some of our customers
• Air Products
• Fenzi
• FMC Corporation
• Formosa
• Henkel
• Procter & Gamble
• SABIC
• Yara
Top raw materials
• Ethylene
• Acid chlorides,
chloroformates
• Polymer emulsions
• Ammonia,
hydrogen cyanide
• Sulfur
Key cost drivers
• Ethylene
• Energy
• Sulfur
A EMEA
B Americas
C Asia Pacific
82
Business performance | AkzoNobel Report 2016
C
A
B
Some of our customers
• Covestro
• Huntsman
• Shin-Etsu
Top raw materials
• Energy
• Acetic acid
• Salt
38
35
27
Key cost drivers
• Energy
• Methanol
C
B
A
A EMEA
B Americas
C Asia Pacific
90
4
6
ABCGeo-mix revenue by destination in %Revenue in € millions2016201520149891,009921Geo-mix revenue by destination in %Revenue in € millionsABC2016201520141,0601,0101,030Key brandsKey brandsSome of our customersSome of our customersKey cost driversKey cost driversTop raw materialsTop raw materialsChemical platformA EMEA 38B Americas 50C Asia Pacific 12 A EMEA 33B Americas 52C Asia Pacific 15 • Baker Hughes• BYK Additives• Lubrizol • Monsanto• Procter & Gamble• Ferrexpo Poltava Mining• Cabot • Diam • Domtar• Fibria• Fujimi • Georgia Pacific• Kemira • Sanofi • SCA • StoraEnso• Suzano• Animal fats • Vegetable oils• Starch (corn, potato, tapioca)• Energy• Salt• Sodium silicateSurfactants• Natural oils and fat • Ethylene• Oil and gas• Energy• Logistic costsChemical platformBleaching Chemicals Surface Chemistry• Developments in various market segments saw volume gains in many markets being offset by decreases in oil-related segments• Sales in Europe increased, continuing their positive development, while growth in Asia also improved significantly • Low oil prices impacted our North American business• We launched an essential ingredient for a lubes and fuels customer which improves the efficiency of large ships • A new alkoxylation plant was opened in Ningbo, China, which will enable us to better serve our customers in the region Pulp and Performance Chemicals • Bleaching chemicals volumes were slightly down, due to downtime at several major pulp customers in Brazil. Performance chemicals volumes were up• Following a successful joint venture acquisition, the EkO Peroxide activities were integrated into our North American Bleaching Chemicals business for the production of hydrogen peroxide• Major product launches included a new Expancel application for use in wine corks, which received approval from the US Food and Drug Administration • A sustainability pilot study focused on printed books was carried out using the company’s four-dimensional profit and loss (4D P&L) reporting methodology. The results formed the foundation for our company-wide 3D P&L assessment• A large scale transformation of the integrated supply chain has taken place. It is designed to make us more efficient in production, logistics and supply, as well as enabling cost reduction and increased productivity83AkzoNobel Report 2016 | Business performance Now you can breathAS ONE OF THE BIGGEST AND MOST VIBRANT MARKETS IN THE WORLD, CHINA IS AT THE FORE-FRONT OF MANY OF TODAY’S MOST EXCITING NEW DEVELOPMENTS. IT’S A CENTER FOR INNOVATION AND A MAJOR GLOBAL BUSINESS HUB.It’s an irresistible combination, one which has seen the country become firmly established as one of the world’s most attractive investment opportunities. The chemical industry in particular has been drawn to China, where the demand for more innovative products and solutions has never been stronger.Our Specialty Chemicals business continues to have a strong and growing pres-ence in China, having adapted to today’s fast-paced business environment to build a manufacturing base that’s focused on meeting ever-changing customer needs.With demand for the essential ingredients we create increasing all the time, being closer to your customers is becoming ever more important. Our footprint in China reflects this, with Specialty Chemicals having invested more than half a billion euros in the region over the last eight years.The business’ biggest facility in China is the Ningbo multi-site, which has quickly developed into one of the country’s most strategic chemical production hubs. First opened in 2008, around 500 people now work at the site and produce essential ingredients including chelates, ethylene amines and organic peroxides.During 2016, two new plants were inaugurated in Ningbo – an alkoxylation facility which will primarily cater to the domestic demand in China’s agrochemical and personal care markets; as well as the world’s largest unit for making organic perox-ides that are used to crosslink plastics and rubbers.We also announced the relocation and expansion of a large organic peroxides factory in the Tianjin region. The €90 million facility – to be located in the Nangang Chemical Park – will utilize state-of-the-art technology that meets new and more stringent safety and environmental standards introduced by the Chinese govern-ment. The new plant will see capacity increases in all of its production units, which will help us to match the increase in customer demand we expect in the next five years. It’s expected be operational in late 2018.Our investments in China this year underline our commitment to accelerating our organic growth ambitions and strengthening our competitive edge. As one of our most strategically important markets, it will continue to play a vital role in helping our customers make people’s lives more liveable and inspiring.SERVING OUR CHEMICALS CUSTOMERS IN CHINABusiness performance | AkzoNobel Report 201684 Click to watch video85AkzoNobel Report 2016 | Business performance85 Leadership
A WORLD CLASS EXAMPLE OF MARITIME HERITAGE CONSERVATION 87AkzoNobel Report 2016 | LeadershipLeadershipIn 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 2016.Our Board of Management and Executive Committee 88Statement of the Board of Management 90Our Supervisory Board 91Supervisory Board Chairman’s statement 92Report of the Supervisory Board 94An icon of Scottish shipbuilding was restored in 2016 with help from our International marine coatings. Our products were used to protect the famous TS Queen Mary steamship, which is being transformed into one of the UK’s largest interactive maritime exhibits.Leadership Our Board of Management
and Executive Committee
Ton Büchner
CEO and Chairman of the Board of Management
and the Executive Committee (1965, Dutch)
Prior to joining AkzoNobel, Ton Büchner was President
and CEO of Sulzer Corporation. An engineer by
training, he gained a Master of Science in Civil
Engineering at Delft University of Technology in the
Netherlands, and a Master’s in Business Administration
from IMD in Lausanne. His early career in the oil and
gas construction industry involved roles at Allseas
Engineering and AkerKvaerner. He is a non-executive
Director of Novartis AG.
Maëlys Castella
CFO and Member of the Board of Management
and the Executive Committee (1966, French)
Maëlys Castella was Group Deputy CFO at Air Liquide
before joining AkzoNobel in 2014. She gained a degree
in Engineering at Ecole Centrale Paris. She also has
a Master’s 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.
Ruud Joosten
Member of the Executive Committee responsible
for Decorative Paints (1964, Dutch)
After graduating from Amsterdam Free University
with a Master’s 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.
Conrad Keijzer
Member of the Executive Committee responsible
for Performance Coatings (1968, 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.
Werner Fuhrmann1
Member of the Executive Committee responsible
for Specialty Chemicals (1953, German)
Werner Fuhrmann was appointed as an executive
committee member in 2012. He was previously
Head of Integrated Supply Chain, and before that he
was Managing Director of the company’s Industrial
Chemicals business, a position he first took up in
2005. He was Chairman of the Dutch Association of
the Chemicals Industry (VNCI) from 2010 to 2015.
Currently he is a Board member of both the European
Chemicals Association (Cefic) and American Chemistry
Council.
1 As of February 1, 2017, Thierry Vanlancker succeeded
Werner Fuhrmann.
Marten Booisma
Member of the Executive Committee responsible
for Human Resources (1966, Dutch)
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.
Sven Dumoulin
General Counsel and Member of the Executive
Committee (1970, Dutch)
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.
For further information please
visit our website:
akzonobel.com/management
88
Leadership | AkzoNobel Report 2016
From left to right:
Standing – Conrad Keijzer, Marten Booisma,
Ton Büchner, Werner Fuhrmann.
Sitting – Ruud Joosten, Sven Dumoulin,
Maëlys Castella.
AkzoNobel Report 2016 | Leadership
89
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 2016 report, 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 dis-
closure requirements for annual reports.
To the best of our knowledge:
• The financial statements in this Report 2016 give a true
and fair view of our assets and liabilities; our financial
position on December 31, 2016; and the result of our
consolidated operations for the financial year 2016
• The management report in this Report 2016 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, is 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 2016 does not contain any errors
of material importance
• Have worked properly during the year 2016
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 manage-
ment 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.
90
Leadership | AkzoNobel Report 2016
Outlook
In 2017, AkzoNobel anticipates positive developments for
EMEA, North America and Asia, improving during the year,
while Latin America is expected to stabilize. Some economic
and political uncertainty is expected to continue. Market
trends experienced in the second part of 2016, including
for the marine and oil and gas industries, are expected to
continue in the first half of 2017.
The company has structurally improved its ability to respond
to developments in its markets and is taking measures
to deal with higher raw material prices in an inflationary
environment. This stronger operational and financial
foundation means AkzoNobel is more agile and better able
to seize growth opportunities, including acquisitions. The
company maintains its financial guidance for 2016-2018.
Amsterdam, February 14, 2017
The Board of Management
91AkzoNobel Report 2016 | LeadershipOur Supervisory BoardAntony Burgmans(1947, Dutch) ChairmanInitial appointment: 2006Current term of office: 2014-2018Former Chairman and CEO of Unilever N.V. and plc.; Former Chairman of TNT Express N.V.; Former Non-Executive Director BP plc.; Member of the Supervisory Board of Jumbo Group Holding B.V.; Member of the Supervisory Board of SHV Holdings N.V.• Member of the Remuneration Committee• Member of the Nomination CommitteeSari Baldauf(1955, Finnish) Initial appointment: 2012Current term of office: 2016-2020Former member of the Group Executive Board of Nokia Corporation; Former non-executive Director of F-Secure Oyj; Chairman of the Board of Fortum Oyj;Supervisory Board member of Daimler AG and Deutsche Telekom• Chairman of the Remuneration Committee• Chairman of the Nomination CommitteeByron E. Grote(1948, American and British) Initial appointment: 2014Current term of office: 2014-2018Former non-executive Director of Unilever N.V. and plc.;Former Board member BP plc.;Non-executive Director of Anglo-American plc.;Non-executive Director of Standard Chartered plc.• Deputy Chairman of the Supervisory Board• Chairman of the Audit CommitteeLouis Hughes(1949, American) Initial appointment: 2006Current term of office: 2014-2018Former 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 Nokia Corporation; Executive Advisor of Wind Point Partners• Member of the Audit CommitteeDick Sluimers(1953, Dutch) Initial appointment: 2015 Current term of office: 2015-2019 Former CEO of APG Group; Member of the Supervisory Boards of Atradius N.V., NIBC Bank N.V. and Euronext N.V.; Trustee of the Erasmus University Trust; Member of the Board of Governors of the State Academy of Finance and Economics• Member of the Audit CommitteePamela Kirby(1953, British) Initial appointment: 2016 Current term of office: 2016-2020Non-executive Director at Reckitt Benckiser plc.;Non-executive Director at Hikma Pharmaceuticals plc.;Non-executive Director at DCC plc.;Senior Independent Director Victrex plc.• Member of the Nomination Committee• Member of the Remuneration CommitteePeggy Bruzelius(1949, Swedish)Initial appointment: 2007Current term of office: 2015-2019Former CEO of ABB Financial Services;Former Executive Vice-President of SEB;Former non-executive Director Axfood A.B.;Non-executive Director of Lundin Petroleum AB, Skandia Mutual Life Insurance and Diageo plc.; Chairman of Lancelot Asset Management AB• Member of the Audit CommitteeBen Verwaayen(1952, Dutch) Initial appointment: 2012 Current term of office: 2012-2016Former 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.; Non-executive Director of Ofcom• Member of the Remuneration Committee• Member of the Nomination Committee Supervisory Board
Chairman’s statement
AkzoNobel can reflect on a year
of progress on several fronts
as the company continued to
supply everyday essentials for
customers and consumers
while helping to create a more
sustainable world. There was a
keen focus on innovation and
starting to accelerate the digital
agenda, while sustainability
was further embedded into all
aspects of the company’s global
activities. The next phase of the
strategy – announced in late
2015 – is proving to be effective
as AkzoNobel continues to create
value for shareholders and move
towards its vision of leading
market positions delivering leading
performance.
As a Supervisory Board, we are committed to the company’s
long-term value creation and focus on accelerating its growth
and achievements in areas such as innovation, product
stewardship, climate strategy and employee engagement.
Accordingly, sustainability remains fundamental to
AkzoNobel’s business strategy. Following the COP 21
Paris Agreement to limit global temperature rises and
corresponding carbon emissions, we consider the company
to be well placed to contribute to the achievement of low
carbon and climate resilient development. AkzoNobel
prioritizes carbon footprint management throughout the
value chain and leverages social and environmental value
creation to drive economic performance. The Supervisory
Board views this as a competitive advantage, particularly
as demand for eco-premium solutions increases within the
company’s end-user segments, and as competitors begin
to internalize the costs associated with the environmental
impact of their operations.
AkzoNobel’s sustainability agenda is a key element of the
next phase of the company’s strategy, which was explained
in detail at the 2016 Annual General Meeting of shareholders
(AGM). As the company pursues its growth strategy
and progress continues to be made towards the vision of
leading market positions delivering leading performance,
the Supervisory Board has a constructive, advisory
and analytical role in overseeing management’s formulation
and implementation of this strategic goal. This includes
monitoring the company’s contribution to the UN Sustainable
Development Goals (see page 16) and the progress being
made with both the Planet Possible sustainability agenda
and the global Human Cities initiative.
Establishing strong market positions will become increasingly
important in light of the uncertainties of the global economic
environment. In 2016, we witnessed a number of global
events which contributed to the complexity of this environ-
ment and the markets in which the company operates. Such
events reinforce the need for comprehensive risk awareness
on the part of the Supervisory Board.
Throughout the year, we paid particular attention to
AkzoNobel’s preparedness to meet future developments
and uncertainties as and when they arise. A thorough review
of management’s five-year outlook for the company took
place, along with a complete budget review process for
2017. In addition, we continued to review and scrutinize
the most significant risks facing the businesses, with the
Supervisory Board’s Audit Committee continuing to oversee
and monitor the company’s systems of internal control and
risk management. The Supervisory Board also considered
ongoing compliance matters and reviewed and approved the
company’s business partner compliance framework. Another
area of particular focus during 2016 was cyber security.
Both the Audit Committee and the Supervisory Board have
received regular updates from the company’s Information
Management function on its digital strategy and cyber
security roadmaps.
When assessing performance, the Supervisory Board
has taken a 360 degree approach, both generally and in
terms of management’s progress against specified targets.
We continued to receive Business Area performance
updates at each Supervisory Board meeting, and these
were discussed and analyzed, along with regular updates
on the performance of the various functions. In addition,
the Supervisory Board has assessed progress against
the company’s peers through regular in-depth competitor
analyses and assessment of the key performance indicators.
We received the condensed financial statements of the
company on a quarterly basis and, following review and
comment from the Audit Committee, the Supervisory Board
approved quarterly financial result publications.
The resulting confidence which the Supervisory Board holds
in the company’s current performance, and its readiness
for the future, is reflected in the recommendation of an
increased dividend for shareholders for the financial year
2016. This will be the second year in succession we have
proposed increasing dividend distributions. It also reflects
our commitment to the stated dividend policy of delivering
stable to rising dividends. The share buyback announced
92
Leadership | AkzoNobel Report 2016
AkzoNobel’s current corporate governance framework. I am
confident that the company is either already meeting the new
requirements, or is adequately prepared to make relevant
changes in order to meet them. Where changes are made,
these will be reported in the annual report for the relevant
year and discussed at the subsequent AGM.
I would like to conclude by expressing my gratitude for
the diligence, cooperation and teamwork demonstrated
by my fellow Supervisory Board members during 2016.
Together, we would also like to thank the company’s CEO,
Ton Büchner, the CFO, Maëlys Castella, the other members
of the Executive Committee and all employees for their
commitment and hard work throughout 2016.
Antony Burgmans
Chairman of the Supervisory Board
at the end of 2016 will neutralize the dilutive effect of stock
dividends paid in 2016. The Supervisory Board believes this
dividend policy remains appropriate in light of the company’s
financial position and the corporate strategy. We continue
to take a diligent approach in assessing the dividend policy
and balancing its attainment with the need for growth-
oriented investments.
With regard to its own performance and effectiveness,
in 2016 the Supervisory Board underwent training on
compliance and human rights. The Supervisory Board also
elected to undergo a second consecutive external evaluation
with regard to its performance. This external evaluation
further developed the feedback which the Supervisory Board
and its committees received in their 2015 evaluation, as well
as providing a follow-up on the actions derived from that
evaluation. This year’s evaluation highlighted the importance
of Supervisory Board involvement in matters of cyber
security and specific areas of the corporate strategy. Its
findings were taken forward and incorporated into the work
and agenda of the Supervisory Board throughout the year.
During 2016, the Nomination and Remuneration Committee
also assessed the performance of individual members of
the Board of Management and Executive Committee
and issued recommendations to the Supervisory
Board accordingly. Our positive appraisal of the current
management profile was demonstrated by our nomination
of Mr. Ton Büchner for reappointment at the 2016 AGM
for a second term as CEO of AkzoNobel. In addition, the
continued commitment and contributions of Ms. Baldauf
and Mr. Verwaayen were secured for a further four years
by their individual reappointments as members of the
Supervisory Board at the AGM.
At the same meeting, following a comprehensive candidate
search and subsequent recommendations from the
Nomination Committee, the Supervisory Board proposed
Dr. Pamela Kirby for appointment as a new Supervisory
Board member. Dr. Kirby has a strong background in the
chemicals and pharmaceutical industries, among others.
Following her appointment and induction, the Supervisory
Board chose to assign her as a member of the Supervisory
Board’s Remuneration and Nomination Committees. The
Supervisory Board also welcomed the CEO’s appointment
of Mr. Thierry Vanlancker to the Executive Committee as
successor to Mr. Werner Fuhrmann. Mr. Fuhrmann will retire
from the company in 2017 and, following approval from the
Supervisory Board, Mr. Vanlacker assumed responsibility for
the Specialty Chemicals Business Area in February 2017.
To underpin a consistent and structured approach to
succession planning, the Supervisory Board and Nomination
Committee continue to oversee the company’s talent
management initiatives and their development. Both
the Nomination Committee and the Supervisory Board
have received updates from Human Resources on talent
management during the year and, in particular, have
promoted the development of a talent pool for internal
management succession.
With regard to Supervisory Board succession planning,
the Nomination Committee proposed the introduction of a
Supervisory Board skills matrix to assist gap analyses of the
Supervisory Board profile. Recommendations for succession
and reappointment were made after careful consideration
of both the profile and the skills matrix (see page 102).
During 2016, these succession processes resulted in the
appointment of Ms. Baldauf as Chair of the Nomination
Committee and Mr. Byron Grote as Deputy Chairman. In
case of my absence or inability to act, Mr. Grote will perform
the tasks and exercise the powers associated with my role,
in accordance with the company’s corporate governance
framework. You can find full details of the company’s
corporate governance framework – including information on
the remuneration policy, compliance codes and systems,
integrity management and shareholder relations – in the
Governance and compliance section of this Report 2016.
The Supervisory Board has taken first steps to assess the
scope of the changes required by the new Dutch Corporate
Governance Code, including the impact they may have on
AkzoNobel Report 2016 | Leadership
93
Report of the
Supervisory Board
Meetings
The Supervisory Board held eight meetings during 2016.
Six were plenary sessions with the full Executive Committee
present for all or part of the meetings. The Board of
Management attended all eight meetings, while two
meetings were held without the full Executive Committee
present. Almost all plenary sessions of the Supervisory
Board were preceded or succeeded by an executive session
of the Supervisory Board, with the CEO in attendance. The
Supervisory Board also regularly held executive sessions
without the CEO present. An attendance overview of the
meetings of the Supervisory Board and its committees can
be seen on this page.
Supervisory Board
attendance record
The table on the right provides an overview of the
attendance record of the individual members of the
Supervisory Board. The Supervisory Board attaches great
value to the attendance of its meetings by each Supervisory
Board member. However, if Supervisory Board members are
unable to attend a Supervisory Board or committee meeting,
they inform the relevant Chairman, stating the reason.
They also have the opportunity to discuss any agenda items
with the responsible Chairman. Attendance is expressed
as the number of meetings attended out of the number
eligible to attend.
Supervisory Board attendance record
Antony Burgmans
Sari Baldauf
Peggy Bruzelius
Byron E. Grote
Louis Hughes
Pamela Kirby*
Dick Sluimers
Ben Verwaayen
SB
7/8
8/8
6/8
8/8
8/8
5/5
8/8
7/8
AC
–
–
5/6
6/6
6/6
–
6/6
–
RC
3/3
3/3
–
–
–
2/2
–
1/3
NC
5/5
5/5
–
–
–
2/2
–
4/5
The table indicates the meeting attendance for the Supervisory Board (SB), the Audit
Committee (AC), the Remuneration Committee (RC) and the Nomination Committee (NC).
* Appointed April 2016
Supervisory Board activities 2016
Q1
Q2
Q3
Q4
• Review Q4 2015 financials and
performance
• Financial statements and profit
allocation
• Final dividend 2015
• Business Area reviews
• Review acquisition of BASF’s
Industrial Coatings business
• Remuneration target setting
• Risk management: Risk session
outcomes
• Talent management and
succession planning
• Nomination of Supervisory Board
candidate Dr. Kirby
• Nomination of CEO Mr. Büchner
for reappointment to the Board
of Management
• CEO, CFO and Executive
Committee evaluation and
target setting
• Competitor analyses
• Review Q1 2016 financials and
performance
• Business Area reviews
• Annual General Meeting 2016
• Strategy reviews: Human
Resources, Information Manage-
ment (including cyber security)
• Market update and Business Area
strategy updates
• Sustainability strategy review
• Review forward planning and five-
year outlook
• Risk management: Enterprise risk
management update
• External evaluation of Supervisory
Board and Committees
• Competitor analyses
• Review Q2 2016 financials and
performance
• Business Area reviews
• Strategic scenarios analysis and
potential M&A activities
• Functional and business strategy
review
• Sustainability update and review
of DJSI performance
• Risk management: implementation
of risk mitigating measures
• Country visit to UK, including Brexit
analysis and site visits
• Competitor analyses
• Review Q3 2016 financials and
performance
• Business Area reviews
• Remuneration policy review
• Performance and budget planning
• Interim dividend 2016
• Supervisory Board succession
planning
• Appointment Mr. Grote as Deputy
Chairman of Supervisory Board
• Appointment Ms. Baldauf
as Chairman of Nomination
Committee
• Executive succession planning
• Strategy reviews: Digital,
Supply Chain
• Talent management
• Compliance training: Human rights
• Budget and operational plan 2017
• Competitor analyses
• Strategic scenario analysis
• Review share buyback program
The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2016
94
Leadership | AkzoNobel Report 2016
Strategy reviews
During 2016, the Supervisory Board continued to allocate
adequate time at each Supervisory Board meeting to
discuss strategic activities. This included detailed Business
Area analyses and functional and operational strategy
updates.
The company’s continued pursuit of operational excellence
and efficiencies, the implementation of the Global Business
Services (GBS) model and restructuring of functional
departments were all areas of focus. In addition, the
company’s digital strategy was reviewed and strategy
updates were received from Information Management,
Human Resources and Sustainability.
The Supervisory Board received comprehensive market
updates, considered the company’s five-year outlook and
advised, reviewed and approved the transition to the next
phase of the company’s long-term strategy. During the
2016 AGM, it was highlighted that this strategy included the
pursuit of value generating acquisitions and the Supervisory
Board has had a diligent analytical role to play in the
company’s assessment of such acquisition opportunities
during the year.
In February 2016, after a period of careful consideration and
detailed analysis by the Supervisory Board, the company
announced its intention to acquire the Industrial Coatings
business of BASF for an amount of €425 million (after
closing adjustments and working capital requirements).
The Supervisory Board supported the proposed acquisition
in light of the synergies with AkzoNobel’s Performance
Coatings business and the market positions it would help
to deliver.
Sustainability
The Supervisory Board wishes to draw specific attention
to sustainability as an aspect of its work during the year.
Although an integral part of all elements of the company’s
business, it is particularly relevant in light of the United
Nations Conference of the Parties (COP21) Paris agreement
to limit global temperature rises and carbon emissions.
This agreement, reached in late 2015, was a substantial
achievement and specified Nationally Determined
Contributions which have the potential to impact the markets
in which the company operates. The Supervisory Board
considers it likely that the agreement will lead to increased
demand for carbon reducing products, technologies
and innovations, and that it will enhance the competitive
advantages of resource efficiency and carbon footprint
reduction. For this reason, the Supervisory Board has
continued its long-standing incorporation of eco-premium
solutions, resource efficiency and cradle-to-grave carbon
reduction in its target setting, its assessment of corporate
strategy and initiatives, and its assessment of investment
opportunities proposed by management.
Given its integral importance, AkzoNobel’s sustainability
program is both cross-Business Area and cross-functional,
impacting all segments of the company’s business. The
Supervisory Board’s reviews of sustainability therefore
address both functional and Business Area management
teams, including Procurement, Supply Chain, and Research,
Development and Innovation, in addition to all three
Business Areas. The company also maintains a Sustainability
Council led by the CEO. The council advises the Executive
Committee on sustainability developments. More information
on its role can be found in the Governance and compliance
section and the Sustainability statements of this
Report 2016.
During the year, the Supervisory Board received updates
on eco-premium solutions, cradle-to-grave carbon
footprint, the Resource Efficiency Index, eco-efficiency,
safety performance, diversity and talent management.
It also assessed whether all functions have targets that
complement and promote sustainability and long-term
business viability.
A particular feature of the Supervisory Board’s sustainability
agenda during 2016 has been to address, oversee and
review management’s actions in light of the company’s
position in the Dow Jones Sustainability Index rankings.
The company’s lower ranking in 2016 must be considered
in light of its 11 consecutive years on the index, and its
four consecutive years as the top performer. Nevertheless,
the Supervisory Board is keen to see management
addressing the decline during the year and accordingly will
continue to pursue improved performance in areas such as
eco-efficiency.
The company’s sustainability performance drives AkzoNobel
to be an industry leader in areas such as innovation,
product stewardship, climate strategy and employee
engagement. This comprehensive and rounded approach
to sustainability and long-term value creation is a feature of
AkzoNobel’s business and is engrained in the company’s
2020 sustainability strategy, its Planet Possible agenda
and Human Cities initiative. During 2017, the Supervisory
Board will also assess the company’s 2025 sustainability
targets and strategy in this regard.
Performance and budget planning
The Supervisory Board pursued a detailed approach to
assessing corporate and management performance during
the year. Individual Board of Management and Executive
Committee performance was addressed in Supervisory
Board meetings following recommendations from the
Remuneration Committee. Further details can be found in
the report of the Remuneration Committee in this section.
Discussions on corporate performance are held at each
Supervisory Board meeting. These discussions include
Business Area reviews and performance updates from
corporate functions. Forward-looking targets were also
addressed in light of these reviews and both the proposed
budget and operational plan for 2017 were provided for the
Supervisory Board’s review and approval in the final quarter
of the year. The Supervisory Board took a diligent approach
to assessing these plans, taking into account the prevailing
market conditions and the five-year outlook. Following
this assessment, the Supervisory Board has approved the
proposed budget and operational plan for 2017.
AkzoNobel Report 2016 | Leadership
95
During 2016, the Supervisory Board was pleased to see the
company continuing to benefit from management’s strategic
initiatives, including cost reductions through enhanced
efficiencies and operational excellence. This led to profitability
improvements during the year, despite adverse and uncertain
economic market conditions. The nature of this performance
provided a basis for the Supervisory Board’s approval of the
proposal to increase the dividend for the year 2016.
Further details on the 2016 dividend proposal are provided
in the Financial statements and profit allocation paragraph
on page 98.
Risk management
The Supervisory Board views risk management as an
essential mechanism, not only for safeguarding the business
and assets of AkzoNobel, but also for securing versatility
and long-term performance and value creation. Risk
management updates were received throughout the year
as the Supervisory Board sought to assure itself of the
robustness of the company’s risk mitigation and internal
controls. As an aspect of these assurances, the Supervisory
Board considered the company’s business continuity
planning and information technology continuity plans. Cyber
security has been an increasing focus for the company
and, during the year, the Supervisory Board received and
scrutinized updates on the implementation of the company’s
cyber security roadmap as an aspect of its information
management strategy.
The Board of Management and Executive Committee
maintain the risk management framework and system
of internal controls. The company’s governance risk
and compliance functions, including its in-control team
and enterprise risk management function, undertake
comprehensive global risk assessment processes and
workshops. The results of these have been used to prepare
risk scenarios, which in turn were used to assess the
appropriateness of the controls and mitigation measures
for the top risks facing the company. Implementation of risk
mitigating measures was subsequently monitored by the
Supervisory Board during the year by means of risk updates
and reviews at proceeding Supervisory Board meetings.
Further details are included in the Risk management chapter
in the Strategic performance section.
Corporate governance
The Supervisory Board is aware of the forthcoming revisions
to the Dutch Corporate Governance Code (the Code).
The potential impact of any changes in preparation for the
implementation of the revised Code has been assessed.
The Supervisory Board is satisfied that the company is either
already meeting the requirements of the revised Code, or
is well placed to implement the revisions on a “comply or
explain” basis. Where changes to the corporate governance
framework of the company are undertaken by virtue of the
requirements of the revised Code or otherwise, they will be
reported in the annual report for the relevant financial year
and discussed at the subsequent AGM.
Country visit
In 2016, a visit to Newcastle in the UK took place. The
visit was also attended by the Board of Management and
Executive Committee. It provided an opportunity for the
Supervisory Board to meet and hear from company leaders
and receive updates on Business Area operations in the
UK. It also included visits to the new Decorative Paints
facility in Ashington and the Performance Coatings site and
laboratories in Felling. This visit took place in September and
was all the more relevant given the recent UK referendum
decision to leave the European Union (or so-called Brexit).
The Supervisory Board used this occasion to receive detailed
analysis on operational and market risks resulting from the
UK referendum vote decision. This input has subsequently
been incorporated into the Supervisory Board’s ongoing
risk awareness. It will continue to form a backdrop to our
oversight of management’s preparedness for the ultimate
departure of the UK from the European Union.
Talent management and succession planning
Throughout 2016, the Supervisory Board continued its focus
on talent management. Analysis of executive succession
planning was carried out and, following a recommendation
from the Nomination Committee, an extensive review of
the executive talent pool was undertaken. The aim of the
talent pool is to promote senior level talent development
and secure executive level succession over the long term.
Further details can be found in the report of the Nomination
Committee on page 101. This talent pool will continue to
be monitored by the Nomination Committee and the full
Supervisory Board.
During the year, following a recommendation from the
Nomination Committee, the Supervisory Board was pleased
to nominate the CEO, Mr. Ton Büchner, for reappointment at
the AGM in April. Mr. Büchner was appointed for a second
four-year term by the AGM.
The Supervisory Board also considered the CEO’s appoint-
ment of Mr. Thierry Vanlancker as Executive Committee
member responsible for Specialty Chemicals. Following
the Supervisory Board’s approval, Mr. Vanlancker joined
the company in October 2016 and succeeded Mr. Werner
Fuhrmann as the Executive Committee member responsible
for Specialty Chemicals in February 2017. Mr. Fuhrmann
decided to retire after 37 years with AkzoNobel.
The Supervisory Board also took the time to discuss its own
composition and succession plans in order to ensure
appropriate candidates are nominated for appointment and
succession at the AGM. In support of these discussions,
the Supervisory Board has approved the preparation and
publication of a Supervisory Board skills matrix under recom-
mendation from the Nomination Committee. The Supervisory
Board skills matrix can be found on page 102.
The Supervisory Board’s discussions led to the appointment
of Mr. Byron Grote as Deputy Chairman of the Supervisory
Board and Ms. Sari Baldauf as Chairman of the Nomination
Committee, as well as the nomination of Dr. Pamela Kirby as
a candidate for appointment as member of the Supervisory
Board. Dr. Kirby has a background of scientific and business
expertise and leadership spanning a variety of industries,
notably chemicals and pharmaceuticals. Her appointment
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Leadership | AkzoNobel Report 2016
97AkzoNobel Report 2016 | Leadershipwas approved by the AGM in April. She underwent a comprehensive induction to AkzoNobel – including one-on-one meetings with the CEO, CFO and all other Executive Committee members. The Supervisory Board appointed Dr. Kirby to the Remuneration and Nomination Committees upon recommendation from the Nomination Committee.Supervisory Board evaluationThe Supervisory Board continued to engage in its own ongoing development and an important preparatory aspect of this was the Supervisory Board evaluation. The evaluation provides an assessment of its effectiveness, that of its committees and its individual members. In general, this process is undertaken through an internal evaluation of performance. Once every three years, instead of an internal evaluation, the Supervisory Board undergoes an independent external assessment facilitated by a specialist consultant. (This can take place more frequently if required).In 2016, the Supervisory Board resolved to undergo its evaluation by means of an external assessment of performance with regard to the year 2015. This was the second year in a row in which the Supervisory Board evaluation was undertaken externally. The external assessment provided a follow up to the findings of the external assessment undertaken during 2015 with regard to the year 2014. The approach to the assessment had two aspects: all members of the Supervisory Board were asked to complete a questionnaire; subsequently, using the results of the questionnaire as a platform for a more in-depth The Supervisory Board, accompanied by members of the Board of Management and Executive Committee, visited the company’s new Decorative Paints site in Ashington, UK, in September. discussion regarding the effectiveness and performance of the Supervisory Board, its committees, the Chairman and the chair of the relevant committees, a personal interview was conducted with each individual by an external consultant. Items addressed during the evaluation included overall performance, the approach to risk identification, governance structure, composition, succession and talent management.Following the evaluation process, the Supervisory Board discussed the results and the functioning of the Supervisory Board, the Board of Management, the Executive Committee and the performance of their individual members. As with last year, the Supervisory Board also invited the Board of Management to join part of the evaluation discussion, which was led by the independent external consultant. Conclusions and actions were then discussed and approved.We are pleased to confirm that our external evaluation concluded that the Supervisory Board and its committees operate effectively. In particular, the evaluation found that the Supervisory Board progressed in areas such as improved board dynamics, greater emphasis on the Supervisory Board’s role in the review of strategy and strengthened interaction, communication and confidence between the Supervisory Board and the whole Executive Committee. Continuous improvement is also a matter for the Supervisory Board and the evaluation highlighted the need for continuous focus on board dynamics on an ongoing basis, and the potential for greater focus from the Supervisory Board on the company’s innovative potential. Areas which the evaluation highlighted for improvement will be taken forward in 2017. Financial statements and profit allocation
The financial statements of Akzo Nobel N.V. for the financial
year 2016 were audited by PricewaterhouseCoopers
Accountants N.V. The Board of Management submitted the
report and financial statements, including the report of the
Board of Management and the management letter of the
external auditors, to the Supervisory Board.
The financial statements, the report and management
letter of the external auditors were discussed by the Audit
Committee with the external auditors, in the presence of
the CEO and CFO, and by the full Supervisory Board with
the Board of Management and the General Counsel. Based
on these discussions, the Supervisory Board is of the
opinion that the 2016 financial statements of Akzo Nobel
N.V. form an adequate basis to account for the supervision
provided (see the Financial information section). The Audit
Committee monitors the follow-up by management of the
recommendations made by the external auditor.
The Supervisory Board recommends that the AGM adopts
the financial statements as presented in this Report 2016
and, as proposed by the Board of Management, the
proposed total dividend for 2016 of €1.65 per common
share outstanding. This represents an increase of
6.5 percent over the previous year and the second year
in a row where the Supervisory Board has proposed an
increased dividend. This reflects the continued commitment
to the company’s aim of providing a stable to rising dividend.
It is proposed that this amount, less the interim dividend of
€0.37 per common share – which was paid in November
2016 – be made payable on May 24, 2017. The dividend
will, at the shareholders’ discretion within the limits and on
the conditions set by the Board of Management, 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
2016 and the members of the Supervisory Board for their
supervision in 2016.
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Leadership | AkzoNobel Report 2016
To neutralize the dilutive effect of stock dividends paid in
2016, the Supervisory Board approved proposals by the
Board of Management to initiate a program of buying back
up to 2.5 million common shares.
The program has been approved in accordance with the
authorization of the shareholders at the 2016 AGM, whereby
the Board of Management has been authorized, subject to
the approval of the Supervisory Board, to acquire common
shares in the company’s share capital. The maximum
number of shares that the company is authorized to hold
in its own share capital at any one time shall not exceed
10 percent of its issued share capital.
This repurchase program started on January 2, 2017, and
is anticipated to be concluded by the end of April 2017.
Subject to shareholder approval, it is intended the shares will
be cancelled during the course of 2017.
Thierry Vanlancker was named as successor to Werner Fuhrmann as
the company’s Executive Committee member responsible for Specialty
Chemicals, effective February 1, 2017. A Belgian national, he was most
recently President of Fluoroproducts for Chemours and has held a
number of senior positions both in Europe and the US.
Audit Committee activities 2016
Q2
Q1
Q3
Q4
• Review Q4 financial statements
and annual results
• Review annual report and accounts
• External audit report
• Review risk management and
internal control
• Final dividend 2015
• Sustainability and HSE audit
findings
• Welcome of new Internal Auditor
• Audit Committee evaluation
• Review full-year compliance report
• Review Q1 2016 report
• Review five-year outlook and
planning
• Review delegations of authority
• Engagement of external auditor
• Review year-to-date audit findings
• Review compliance cases
year-to-date
• Follow up on management letter
of KPMG
• Update on cyber security roadmap
• Strategy reviews: Treasury,
Investor Relations
• Financial update: Performance
Coatings Business Area
• External audit plan 2016
• Review Q2 2016 report
• Review updates to IFRS and
corporate governance standards
• Review human resource trends
year-to-date
• Update on the company’s post-
retirement benefit plans
• Post CAPEX project reviews
• Review mid-year compliance
report
• Review Q3 2016 report
• Recommendation on interim
dividend 2016
• Post CAPEX project reviews
• Update IM including cyber security
• Financial update: Decorative Paints
Business Area
• Review compliance cases
year-to-date
• Strategy review Tax
• Review 2017 outlook and budget
• Review audit findings year-to-date
and hard close audit report
• Internal Audit plan 2017
• Dividend direction review
• Review share buyback program
• Review of legal liability report
Audit Committee
Mr. Grote has been the chairman of the Audit Committee
since his appointment in 2015. The other members of the
Audit Committee in 2016 were Mrs. Bruzelius, Mr. Hughes
and Mr. Sluimers. All members of the Audit Committee have
extensive accounting and financial management expertise.
The Audit Committee held six meetings during 2016. The
attendance record of the members can be seen in the
Supervisory Board attendance chart on page 94. Issues
discussed in Audit Committee meetings were reported back
to the full Supervisory Board in subsequent meetings.
External audit
At the 2014 AGM, PricewaterhouseCoopers
Accountants N.V. were mandated as external audit firm to
audit our annual financial statements, effective January 1,
2016. During the year, they started their work in succession
of KPMG Accountants N.V. The transition has been a focus
for the Audit Committee during recent years and it has
monitored the work of the external auditors closely during
this first audit. The Audit Committee held independent
meetings with the external auditors and critically reviewed
and constructively challenged their audit approach,
engagement letter, fees, risk assessment and audit plan
for the year ahead. The new external auditors 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 report. Other topics
discussed included:
• Follow-ups on the management letter of the departing
auditors KPMG Accountants N.V. including progress on
the company’s cyber security roadmap
• The hard close, which was discussed with the intention
of improving efficiency of the year-end process and
to highlight important issues for the annual financial
statements. AkzoNobel performed a hard close as of
October 31, 2016
• The quality of the external audit
• Impact of new accounting standards
The Audit Committee performed the annual review of
the services of the external auditor, and at each meeting
it considered and assessed the status of the auditor’s
independence. Further details on the external auditors can
be found in the Governance and compliance section.
Risk management and internal control systems
The Audit Committee reviewed AkzoNobel’s overall approach
to governance, risk management and internal control
framework, its processes, outcomes, financial reporting and
disclosures. Regular updates were received from the Board
of Management, the Executive Committee, the Auditors
and functions in this regard. The Audit Committee was
also provided with comprehensive risk and internal control
reporting during the year.
During its discussions, the Audit Committee reflected on
external risk factors such as the global economic climate
and market conditions. In 2016, the Audit Committee
was particularly conscious of the company’s sustainability
reporting and controls in light of the UN COP21 Paris
Agreement, which will emphasize the importance of cradle-
to-grave carbon footprint analysis, eco-efficiency and
resource efficiency. These and other factors are taken into
consideration by the Audit Committee when assessing the
adequacy of the company’s governance, risk management
and internal control framework.
Business Area and function reviews
In fulfilling its oversight responsibilities in relation to risk
management and internal control systems, the Audit
Committee also received updates from functions throughout
the year. These updates also inform the Audit Committee’s
review of the annual operational plan, including budget.
During the year, updates were provided from Accounting
and Control, Treasury, Investor Relations, Information
Management and Tax. The General Counsel reported
regularly to the Audit Committee on compliance and legal
matters and activities, including major litigation and liability
exposure. The Audit Committee continued to monitor
functional initiatives, such as progress on the company’s
cyber security road map as an aspect of updates received
from Information Management. The Audit Committee also
met regularly with other senior executives. The Internal
Auditor attended Audit Committee meetings and reported
on the assessment of the system of risk management and
internal controls.
A feature of the Audit Committee’s work in 2016 has also
been its attention to Business Area specific financial updates.
Updates were received from Business Area financial
directors regarding, particular, financial performance and
the structuring of internal control processes. This approach
to Business Area analysis will be maintained by the Audit
Committee in 2017.
Internal audit plan
In 2016, the Audit Committee reviewed and welcomed the
appointment of a new Corporate Director of Internal Audit.
This Director reports to the Board of Management, but
also directly to the Audit Committee and presents all main
audit findings. The Audit Committee was therefore closely
consulted on the appointment and oversaw the transition
and process of handover to the new Director.
During the year, the Audit Committee approved the internal
audit plan and strategy based on assessments of risk and
control processes, and agreed on the budget and resource
requirements for the department. The Audit Committee also
met independently with the Corporate Director of Internal
Audit during the year and discussed the results of the audits
performed. In 2016, the Audit Committee was satisfied with
the effectiveness of the Internal Audit function.
Results and financial statements
Before each publication of the quarterly results and annual
financial statements, the Audit Committee reviewed the
financial results. The Audit Committee also reviewed the
interim and final dividend proposals and reports and press
releases to be published. These were reviewed in addition
to the work undertaken by the company’s Disclosure
Committee in reviewing the company’s disclosures of
AkzoNobel Report 2016 | Leadership
99
potentially price sensitive information. Based on these
discussions, advice was provided by the Audit Committee
to the Supervisory Board in regard to the publications
and disclosures, and to the interim and final dividends. All
quarterly and annual releases of financial results and any
potentially price sensitive public disclosures are approved by
the full Supervisory Board prior to publication and release.
found to be operating effectively. The evaluation emphasized
the importance of the Audit Committee’s role with regard
to cyber security; a matter which the Audit Committee has
incorporated into its ongoing agenda. The evaluation also
determined that inter-committee communications and the
communication between the Audit Committee and the
Executive Committee had improved.
Remuneration Committee
Following the appointment of Dr. Kirby as a Remuneration
Committee member in September 2016, it now consists
of four members and is chaired by Ms. Baldauf. Other
members of the Remuneration Committee are Mr. Verwaayen
and Mr. Burgmans. The Remuneration Committee held three
meetings in 2016. The attendance record of the members
can be seen in the Supervisory Board attendance chart on
page 94.
Review of 2015 management performance
The work of the Remuneration Committee during the first
quarter focused on performance for the year 2015 and the
individual performance reviews of the Board of Management
members and other members of the Executive Committee.
The Remuneration Committee assessed the adequacy of
the peer group used for benchmarking purposes. Ahead
of his nomination for reappointment at the 2016 AGM,
the Remuneration Committee gave particular attention to
assessing the performance of the CEO during 2015 and
prior years. The performance of the CFO and the other
members of the Executive Committee were also reviewed for
the year 2015.
Revision of Remuneration Policy
During 2016, the Remuneration Committee’s review of the
Remuneration Policy resulted in a proposed amendment.
The Remuneration Committee proposed to the AGM 2016
the addition of revenue growth to the current list of financial
metrics from which the Supervisory Board may choose
to determine performance for the purpose of short-term
In early 2016, we inaugurated a new €6.5 million technology center in Songjiang, Shanghai. The
company’s largest research facility in China, it supports product innovation and the development
of next generation paints, coatings and specialty chemicals. The center currently employs 150
scientists, which is expected to rise to 200 by 2020. The majority of the products supported by
the new facility will be water-based and powder-based, in line with the company’s ambitions to
develop more eco-premium solutions.
Remuneration Committee main 2016 activities
Q1
Q2 & Q3
• Review of management performance 2015
• Target-setting 2016, including CEO targets
• Review of management base salaries for 2016
• 2015 Remuneration report
• Remuneration Committee evaluation
• Review remuneration strategy including LTI
and STI plans
• Revision of Remuneration policy
• 2016 AGM adoption of Remuneration policy
Q4
• Forward-looking 2017 target-setting
• Detailed scenario analysis
• Remuneration policy review
In order to ensure its effectiveness and expertise, the
Audit Committee is provided with regular updates on
IFRS developments and the anticipated impact of these
developments on the financial statements. In addition, the
Audit Committee reviewed and assessed management
assertions made in regard to relevant accounting treatments.
Audit Committee evaluation
Every year, the Audit Committee undergoes an evaluation of
its effectiveness and performance. In general, this process
involves the Audit Committee undertaking a self-evaluation of
its performance in conjunction with the Supervisory Board.
Once every three years (unless it is decided to do so more
frequently), the Audit Committee instead undergoes an
independent external assessment of its effectiveness and
performance facilitated by a specialist consultant.
In 2016, it was decided that the Audit Committee would
undergo an external evaluation of its effectiveness and
performance with regard to the year 2015. This is the
second year in a row in which the evaluation was undertaken
externally. The external assessment provided a follow-up
to the findings of the external assessment undertaken
during 2015 with regard to the year 2014. As with the
process adopted for the Supervisory Board as a whole, the
evaluation consisted of a questionnaire completed by Audit
Committee members, with a subsequent personal interview
between each member and an external consultant. Results
of the evaluation were subsequently reviewed by the Audit
Committee and the Supervisory Board.
The Audit Committee is pleased to confirm that the results
of the evaluation were such that the Audit Committee was
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Leadership | AkzoNobel Report 2016
incentives (STI). At the same time, the proposal was made
to increase the number of metrics which the Supervisory
Board may choose, from three to four metrics. These
amendments were considered to align well with the
next phase of the corporate strategy and reflected the
Remuneration Committee’s comprehensive approach to
assessing performance.
Following support from the full Supervisory Board, the
proposed revisions to the remuneration policy were
subsequently submitted to, and adopted by, the 2016 AGM.
More details and information on the remuneration policy,
together with the current benchmark peer group, can be
found in the Remuneration report of this Report 2016.
Review of 2016 management base salaries
The reappointment of the CEO was also a focus area for the
Remuneration Committee in its assessment of base salaries.
The Remuneration Committee provided recommendations
on the CEO base salary ahead of his reappointment. The
base salary will continue to be assessed in light of market
conditions, the reward structures of peer group companies
and the CEO’s performance. In addition, the Remuneration
Committee considered the pay ratios within the company
and how these compare with peer group companies.
The Remuneration Committee reviewed the base salaries
of the CFO and the other members of the Executive
Committee. Forward-looking target ranges for variable
remuneration of the Board of Management were
discussed and proposals for the remuneration of Executive
Committee members were reviewed and discussed with
the CEO. Information on the remuneration of the Board of
Management and the Supervisory Board can be found in
the Remuneration report and in Note 22 to the Consolidated
financial statements.
Remuneration Committee evaluation
The Remuneration Committee’s evaluation of performance
and effectiveness forms part of the overall Supervisory Board
evaluation undertaken during 2016. Once every three years
(unless it is decided to do so more frequently), this evaluation
takes the form of an independent external assessment of the
Remuneration Committee’s effectiveness and performance,
facilitated by a specialist consultant.
In 2016, it was decided that the Remuneration Committee,
together with the Supervisory Board, should undergo this
external evaluation with regard to the year 2015. This is the
second year in a row in which the evaluation was undertaken
externally. The external assessment provided a follow-up to
the findings of the external assessment undertaken during
2015 with regard to the year 2014. As with the process
that was adopted for the Supervisory Board as a whole,
the evaluation consisted of a questionnaire, followed by a
personal interview with an external consultant. Results of the
evaluation were subsequently reviewed by the Remuneration
Committee and the Supervisory Board.
The 2016 evaluation of the performance and effectiveness of
the Remuneration Committee found that the Remuneration
Committee is operating effectively and had improved in
regard to areas such as inter-committee communication
and the dynamics of committee discussions. The evaluation
also highlighted the need to ensure that the focus on inter-
committee dynamics is maintained in the future.
Nomination Committee
The Nomination Committee now consists of four members
following the appointment of Dr. Kirby in September 2016.
During the year, the Nomination Committee was chaired by
Mr. Burgmans until he was succeeded by Ms. Baldauf, also
in September. Mr. Burgmans continues to be a member
of the Nomination Committee. The other member of the
Nomination Committee is Mr. Verwaayen. The Nomination
Committee held five meetings in 2016. The attendance
record can be found in the previous attendance chart, shown
under the Supervisory Board attendance record on page 94.
Board of Management and executive succession
In 2016, following the review, assessment and discussion
of the performance of Mr. Büchner as CEO, the Nomination
Committee recommended to the Supervisory Board his
nomination for reappointment as member of the Board of
Management at the 2016 AGM. The Nomination Committee
was closely involved in the discussions around the
CEO’s contract and provided the Supervisory Board with
its recommendations on the final terms of Mr. Büchner’s
engagement. At the 2016 AGM, Mr. Büchner was
reappointed for a further four-year term.
Nomination Committee main 2016 activities
Q1
Q2 & Q3
Q4
• Supervisory Board profile review
• Supervisory Board succession planning
• Board of Management evaluation
• Identification and nomination of Dr. Kirby
for appointment to the Supervisory Board
• Nomination Committee evaluation
• Nomination of Ms. Baldauf for reappointment
to the Supervisory Board at the 2016 AGM
• Nomination of Mr. Verwaayen for reappointment
to the Supervisory Board at the 2016 AGM
• Nomination of Mr. Büchner for reappointment
to the Board of Management at the 2016 AGM
• Establish and propose Supervisory Board
skills matrix
• Review talent management
• Development of talent pool
• Review Supervisory Board (re)appointment
scheme
• Recommend appointment of Mr. Grote as
Deputy Chairman of Supervisory Board
• Recommend appointment of Dr. Kirby to the
Remuneration Committee
• Recommend appointment of Dr. Kirby to the
Nomination Committee
• Recommend appointment of Ms. Baldauf
as Chairman of Nomination Committee
• Appointment of Mr. Vanlancker
• Supervisory Board succession planning
AkzoNobel Report 2016 | Leadership
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Supervisory Board skills and profiles
Independent
Consumer Goods end-user segment
Industrial end-user segment
Buildings and Infrastructure end-user segment
Transportation end-user segment
(International) business, commerce, finance/economics
Scientific/Information technology experience
Public sector experience
Management experience
Business strategy planning
Manufacturing experience
Supply chain/logistics experience
Social, environmental or sustainability experience
Finance expert
Four or less external directorships
Dutch/EU national
Non-EU national
Post-retirement benefit experience
Business-to-business sales experience
R&D experience
Legal experience
Industrial/employment relations
Risk management
Consulting
A. Burgmans
S. Baldauf
P. Bruzelius
B. Grote
L. Hughes
P. Kirby
D. Sluimers
B. Verwaayen
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The Nomination Committee also considered the topic
of executive succession planning more generally. The
Nomination Committee was consulted and gave their advice
regarding the CEO’s appointment of Mr. Thierry Vanlancker
as Executive Committee member responsible for
Specialty Chemicals. The Supervisory Board approved
the appointment of Mr. Vanlancker, who joined the
company in October 2016 and succeeded Mr. Werner
Fuhrmann as Executive Committee member responsible for
Specialty Chemicals in February 2017.
and the Nomination Committee also continued their work in
defining and identifying a talent pool for future development
and the purposes of executive succession planning.
Talent management and talent pool development
To supplement the Nomination Committee’s discussions
on executive succession, the Nomination Committee was
presented with talent management updates from Human
Resources during the year. Both the Supervisory Board
Supervisory Board succession
An additional aspect of the Nomination Committee’s work
is reviewing the appointment schedule for the Supervisory
Board itself and making relevant recommendations
102
Leadership | AkzoNobel Report 2016
to the year 2014. As with the process that was adopted for
the Supervisory Board as a whole, the evaluation consisted
of a questionnaire, followed by a personal interview with
an external consultant. Results of the evaluation were
subsequently reviewed by the Nomination Committee and
the Supervisory Board.
This evaluation found that the Nomination Committee
continues to operate effectively. Areas highlighted for
improvement will be taken forward in 2017.
Additional remarks
All members of the Supervisory Board would like to express
their thanks to the Board of Management and Executive
Committee, as well as to all employees, for their dedication
and hard work for the company in 2016. In particular,
the Supervisory Board would like to extend its gratitude
to Mr. Werner Fuhrmann for his 37 years of service to
AkzoNobel and to wish him all the best in his retirement.
Amsterdam, February 2017
The Supervisory Board
culture of AkzoNobel, its strategy, leadership roles and
the competencies needed. Based on the results of
the Nomination Committee’s gap analysis, discussions and
the work of the external search agency, the Nomination
Committee was able to recommend to the Supervisory
Board the nomination of Dr. Kirby as a new Supervisory
Board member at the 2016 AGM. Following her appointment
to the Supervisory Board, the Nomination Committee
recommended the appointment of Dr. Kirby as a member
of the Nomination and Remuneration Committees
during the year.
During 2016, the Supervisory Board also dedicated time to
consider the succession planning for key Supervisory Board
positions, and to the consideration of the nomination of a
Deputy Chairman of the Supervisory Board. Following an
analysis of the current profiles and skills matrix of Supervisory
Board members, the Nomination Committee recommended
the appointment of Mr. Grote as Deputy Chairman of the
Supervisory Board. This recommendation was endorsed by
the Supervisory Board in October. Full details of the current
Supervisory Board composition, the schedule of Supervisory
Board succession and the profiles of the members can be
found on our website.
Nomination Committee evaluation
As with the Remuneration Committee, the Nomination
Committee undergoes an annual evaluation of its
effectiveness and performance as part of the Supervisory
Board evaluation. Once every three years (unless it is
decided to do so more frequently), this evaluation takes
the form of an independent external assessment of the
Nomination Committee’s effectiveness and performance,
facilitated by a specialist consultant.
In 2016, it was decided that the Nomination Committee
would undergo this external evaluation with regard to
the year 2015. This is the second year in a row in which
the evaluation was undertaken externally. The external
assessment provided a follow-up to the findings of the
external assessment undertaken during 2015 with regard
Members of the company’s executive leadership visited a digital production facility as part of a
day of external visits focused on digital innovation and exploring potential growth opportunities.
accordingly. In 2016, the Nomination Committee sought
to more thoroughly detail the process which it engages for
Supervisory Board succession planning. The Nomination
Committee has therefore drawn up and recommended to the
Supervisory Board the introduction of a Supervisory Board
skills matrix. This matrix was adopted by the Supervisory
Board and, together with the Supervisory Board profile,
provides a foundation for the Nomination Committee in its
review of the skills required on the Supervisory Board, the
identification of gaps and the development of criteria for
proposed nominations. In turn, they provide a guideline for
nominations and recommendations to the shareholders.
The Supervisory Board skills and profile can be found on the
opposite page.
The Nomination Committee’s analysis of the Supervisory
Board profile and skills led to the nomination of Ms. Baldauf
and Mr. Verwaayen for reappointment to the Supervisory
Board at the 2016 AGM. The Nomination Committee also
engaged an external search agency for the fielding of
candidates for succession and nomination to the Supervisory
Board. A rigorous search process is undertaken by the
agency after first gaining a thorough understanding of the
AkzoNobel Report 2016 | Leadership
103
Governance and compliance
BRINGING HOPE TO REMOTE VILLAGERS 105AkzoNobel Report 2016 | Governance and compliance105In 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 106Compliance and integrity management 116Remuneration report 122AkzoNobel on the capital markets 128Governance and compliancePeople in two Indonesian villages are leading a more liveable life after we helped construct a “Bridge of Hope” across the Ciliman River. The company donated all the paint for the project, which ensures that the villagers now have easier and safer access. Governance and compliance 106Governance and compliance | AkzoNobel Report 2016Corporate governance statementAkzoNobel aspires to the highest standards of corporate governance and seeks to consistently enhance and improve corporate governance performance, emphasizing transparency and embedding a sustainable culture of long-term value creation.Akzo Nobel N.V. is a public limited liability company (Naamloze Vennootschap) established under the laws of the Netherlands, with common shares listed on Euronext Amsterdam. AkzoNobel has a sponsored level 1 American Depositary Receipt (ADR) program and ADRs can be traded on the OTCQX International platform in the US.The company’s management and supervision are organized under Dutch law in a so-called two-tier system, comprising a combined Board of Management and Executive Committee, solely composed of executive directors, and a Supervisory Board, solely composed of non-executive board members. The Supervisory Board supervises the Board of Management and ensures a strong external presence in the governance of the company. The two Boards are independent of each other and are accountable to the shareholders of the company for the performance of their functions.Our corporate governance framework is based on the company’s Articles of Association, the requirements of the Performance CoatingsbusinessesDecorative PaintsbusinessesPerformance CoatingsBusiness Area CountriesShareholdersSpecialty ChemicalsBusiness Area Specialty ChemicalsbusinessesFunctionsDecorative PaintsBusiness Area Supervisory BoardExecutive CommitteeBoard of Management 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 are explained in accordance with the Code’s
“comply or explain” principle. The Code can be found on
the website of the Dutch Corporate Governance Code
Monitoring Commission.
With the exception of those aspects of our governance
which can only be amended following approval at a general
meeting of shareholders, the Board of Management and
Supervisory Board may make adjustments to how the Code
is applied, if this is considered to be in the interest of the
company. Where changes are made, these will be reported
and explained in the annual report for the relevant year and
discussed at the next AGM.
In 2016, a revised version of the Code was published by the
Corporate Governance Code Monitoring Committee. The
revised Code was implemented with effect from January 1,
2017. It is more thematically oriented, with greater focus
on culture and long-term value creation. The company
has assessed the proposed changes and will implement
revisions to current practices, where needed. We are
confident the company is either already in compliance with
the proposed Code, or is well placed to implement the
revised Code on a “comply or explain” basis. The revised
Code will be reflected in the Rules of Procedure of the
Board of Management and the Supervisory Board (available
on our website). They will also be reported and explained
in the annual report for the relevant year. Adjustments will
include the requirements of the revised Code. In particular,
the relationship between management and the external and
internal auditors will be explained in more detail, including
the role of the Audit Committee and Supervisory Board in
the event of irregularities being identified by the auditors. The
current diversity statements contained in the Supervisory
Board Rules of Procedure will be drawn out and developed
as a separate Diversity Policy, applicable to the Supervisory
Board and Board of Management.
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The Kelpies horse head sculptures in Scotland won the Pioneer Award at the inaugural World Canals Award, announced in September. As tall as a nine-storey
building and weighing 300 tons each, the steel supporting structures are coated with our Interfine 979 protective coating system. Around 10,000 liters of paint
was used in total. The sculptures attract more than 1.4 million visitors a year.
Board of Management and
Executive Committee
General
The Board of Management is entrusted with the manage-
ment of the company. It 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)), the leaders of each Business Area and leaders with
functional expertise, allowing both the functions and the
Business Areas to be represented at the highest level in the
organization. The additional functions currently represented
in the Executive Committee directly are Human Resources
and Legal.
Among other responsibilities, the Board of Management
and the Executive Committee define the strategic direction.
They establish and maintain internal policies and procedures
for effective risk management and control, manage the
realization of the company’s operational and financial
guidance, its sustainability performance, and its pursuit of
long-term value creation. In fulfilling their duties, they are
guided by the interests of the company and its affiliated
enterprises, taking into consideration the relevant interests of
the company’s stakeholders.
The Board of Management and Executive Committee
promote openness and engagement through a so-called
SpeakUp! policy and have established a Code of Conduct,
directives, rules, guidelines and manuals, which are
incorporated in the company’s directives framework. They
drive a culture of good governance, consistency and
functional excellence throughout the company.
AkzoNobel Report 2016 | Governance and compliance
107
The Board of Management takes precedence, with all
Executive Committee decisions requiring a majority of
the members of the Board of Management. The Board of
Management can at all times decide to reserve decisions for
the Board of Management. The members of the Board of
Management remain jointly and individually accountable for
all decisions made by the Executive Committee.
The Board of Management is accountable for its
performance to the Supervisory Board and is answerable to
the shareholders of the company at the AGM. The Executive
Committee members who are not also members 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 a major part of most Supervisory Board meetings.
The CEO leads the Executive Committee in its overall
management of the company. He is the main point of
liaison with the Supervisory Board. The CFO is responsible
for overseeing AkzoNobel’s finances, its corporate
control, investor relations and information management.
The tasks, responsibilities and procedures of the Board of
Management and Executive Committee are set out in
their Rules of Procedure. These rules have been approved
by the Supervisory Board and are available on the
company’s website.
Authority to represent the company is vested in the two
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 the other members of the
Executive Committee. The list of authorized signatories is
filed with the public registry and is available on request from
the Dutch Chamber of Commerce (Kamer van Koophandel).
The managing directors of our businesses, the corporate
functional directors in charge of the different functions
and the country directors report to individual Executive
Committee members with specific responsibility for their
activities and performance.
108 Governance and compliance | AkzoNobel Report 2016
“THE BOARD OF
MANAGEMENT IS
ACCOUNTABLE
FOR ITS
PERFORMANCE
TO THE
SUPERVISORY
BOARD”
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 approval of
the Supervisory Board.
Members of the Board of Management are appointed for a
four-year term (or less), with the possibility of reappointment.
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 (with the exception of those circumstances described
later in this section), appointed on the basis of non-binding
nominations by the Supervisory Board. In such cases,
resolutions to appoint a member of the Supervisory Board
or the Board of Management will require a simple majority of
the votes cast by shareholders.
In addition, 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.
Outside directorships
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 requirements of the
Dutch Civil Code, 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,
as long as 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 always subject to approval by the Supervisory Board,
for which authority has been delegated to the Chairman of
the Supervisory Board.
Conflicts of interest
Members 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 they have a conflict of interest
with the company. Supervisory Board approval is required
for decisions to enter into transactions under which
Board of Management or Executive Committee members
have a conflict of interest of material significance to the
company and to the relevant member. 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 declaring that the
relevant best practice provisions of the Code have been
complied with.
During 2016, no transactions are to be 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 and to the relevant member.
Remuneration
The remuneration of the members of the Board of
Management is set in line with the remuneration policy
adopted by the AGM. The Supervisory Board is responsible
for determining the remuneration of the members of the
Board of Management on the advice of its Remuneration
We unveiled Denim Drift as Color of the Year for 2017. Announced during the launch of our annual trends forecast (known as
ColourFutures), Denim Drift is the foundation for an inspirational palette of paint colors centered on the year’s expected global social
and design trends. Working with a group of leading international architects, interior designers and trend watchers, the company used
extensive research to define the tones and styles that best represent how we will live our lives in 2017.
Committee. The Supervisory Board also decides on the
remuneration of the other members of the Executive
Committee on the proposal of the CEO. The components
of Board of Management remuneration, as well as 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
these contracts are available on our website.
Operational Control Cycle
To facilitate efficient management and oversight of
operations, the Board of Management and Executive
Committee have established an Operational Control Cycle
(OCC), which is conducted once per month. For each
Business Area, the OCC consists of Operational Review
Meetings comprising the CEO, the CFO, the General
Counsel and the leadership of the relevant Business Area.
These meetings provide a forum for operational review and
decision-making on subjects relevant to the Business Areas.
The functional agendas of Sustainability and HSE; Human
Resources; Commercial Excellence; Research Development
and Innovation; and Integrated Supply Chain are each
discussed at least twice per year in these meetings. In
addition, Functional and Country Review Meetings are held
monthly to review upcoming proposals and progress on the
functional and country agendas.
Executive Committee meetings are usually held once
per month following the Operational Review Meetings
and Functional and Country Review Meetings. Additional
meetings are held to discuss strategy and other
specific topics.
The Board of Management and Executive Committee
have delegated authorities to those Executive Committee
members responsible for each Business Area, to the
Operational Review Meetings of each Business Area and to
certain committees and councils.
AkzoNobel Report 2016 | Governance and compliance
109
Committees
Sustainability Council
The Executive Committee has established a Sustainability
Council to advise on sustainability developments. The
council 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 members
of the Executive Committee, managing directors from our
businesses and corporate directors of Strategy, Human
Resources, Sustainability, Integrated Supply Chain/
Research, Development and Innovation, Procurement,
and Communications.
To celebrate the tenth year of one of our Dulux partner programs, 1,000 painters
simultaneously painted ten historic buildings in ten cities in Indonesia. The Human Cities
project has since been recognized by the Indonesian World Records Museum.
Progress regarding sustainability objectives, development,
target-setting and implementation is reviewed quarterly by
the Executive Committee, semi-annually by the Supervisory
Board, and is verified annually by PricewaterhouseCoopers
Accountants N.V. The Audit Committee takes an active
role in assessing the quality and reliability of sustainability
performance reporting. Our sustainability framework is
further explained in the Sustainability statements.
Corporate Compliance Committee
The company has a Corporate Compliance Committee to
support the Executive Committee with its responsibility in
assuring and managing compliance, and with its reporting
to the Supervisory Board. The Corporate 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 Corporate Compliance Committee consists
of the General Counsel (chair), Corporate Secretary, Group
Controller, two senior business managers and corporate
directors of Internal Audit, Compliance, Human Resources,
Sustainability and HSE. Other members may be added at
the discretion of the Executive Committee.
AkzoNobel has a company-wide compliance monitoring tool
in place to discuss and monitor progress with respect to
compliance-related issues. More detail on the compliance
and integrity management system, including the so-called
Non-Financial Letter of Representation process, is available
in the Compliance and integrity management chapter of this
Report 2016.
Executive Committee Pensions
The Executive Committee Pensions oversees the general
post-retirement benefit policies of the various plans of the
company and their financial consequences for AkzoNobel.
The committee is chaired by the CFO and includes the
Executive Committee member responsible for Human
Resources, the General Counsel, and representatives from
the Treasury function, Pensions, and Rewards.
Disclosure Committee
The Board of Management has established a Disclosure
Committee comprising the Director of Legal Strategy, the
Corporate Secretary, the Group Controller and the Director
of Investor Relations. The Disclosure Committee’s task is to
establish and maintain disclosure controls and procedures
and to advise the Board of Management and a committee
comprising the CEO, CFO and General Counsel on the
accurate and timely disclosure of material financial and
non-financial information.
governance, accounting, investor relations, compliance, risk
business to business sales and research and development.
its corporate governance and compliance requirements.
management and internal controls.
The Supervisory Board maintains a skills matrix which
The induction includes meetings with the CEO, the CFO, all
Supervisory Board
General
This section provides an overview of the responsibilities and
governance of the Supervisory Board. For an understanding
of the activities of the Supervisory Board over the past year,
please refer to the Supervisory Board Chairman’s statement
and the Report of the Supervisory Board.
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 corporate strategy, the achievement of the
company’s operational and financial objectives, 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
Supervisory Board advises the Board of Management and
Executive Committee, while taking into account the interests
of the company and its stakeholders. Major investments,
acquisitions and functional initiatives are subject to
Supervisory Board approval.
The Chairman of the Supervisory Board determines the
agenda, chairs Supervisory Board meetings and the AGM,
monitors the proper functioning of the Supervisory Board
and its committees, arranges for 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 initiates the
evaluation of the functioning of the Supervisory Board, its
committees, individual members and the functioning of the
Board of Management. Throughout the year, the Chairman
of the Supervisory Board ensures that regular updates
are provided to the Supervisory Board on the company’s
businesses, sustainability, legal matters, social and corporate
The Supervisory Board is governed by its Rules of
individual Supervisory Board members. This matrix can
of senior management. This enables new Supervisory
Procedure, which are available on the company’s website.
be found in the Leadership section. When nominating and
Board members to quickly build up an understanding of
The Rules of Procedure include the profile and the
selecting new candidates for the Supervisory Board in future,
AkzoNobel’s businesses and strategy, as well as
Charters of the Committees and set out the tasks and
the Supervisory Board profile and skills matrix, relevant
the key risks and issues the company faces. In addition, the
responsibilities of the Supervisory Board, as well as its
regulation, and the principles and provisions of a (new) Code
Chairman ensures the Supervisory Board is provided with
provides an overview of the skills and experience of
other Executive Committee members and relevant members
operational processes.
will be taken into account.
THE CURRENT MEMBERS REPRESENT
FIVE NATIONALITIES AND HAVE
EXPERIENCE WITH THE MARKETS IN
WHICH AKZONOBEL OPERATES
regular updates and that the Supervisory Board undertakes
training, for example in the area of compliance and ethics.
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 and the company’s stakeholders.
Each member of the Supervisory Board meets the
independence requirements as stated in the Code and
has completed the 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
Composition
Appointment
The list of Supervisory Board members, including their
Members of the Supervisory Board are nominated,
five years preceding their last appointment
biographies, can be found in the Leadership section. The
appointed and dismissed in accordance with procedures
• No personal financial compensation has been paid, other
Supervisory Board has a balanced composition consisting
identical to those previously outlined for the members of
than in relation to work as a Supervisory Board member
of more than 30 percent female and more than 30 percent
the Board of Management. In accordance with the Code,
• No Supervisory Board member has had important
male members and reflects the nature and variety of
members of the Supervisory Board are eligible for re-election
business relationships with the company in the year prior
the company’s businesses, their international spread
only twice, each time for a period not exceeding four years.
to their last appointment
and expertise in fields such as finance, economic,
Terms of appointment are based on a rotation schedule,
• There are no significant shareholding ties (amounting to
information technology, societal, environmental and legal
available on our website. In 2016, one appointment and two
more than 10 percent of the share capital of the company)
aspects of business, government and public administration.
reappointments to the Supervisory Board were proposed to,
between Supervisory Board members or their closely
Consequently, the current members represent five
and made by, the AGM.
associated persons and the company
nationalities and have a diverse and appropriate experience
with the markets in which AkzoNobel operates, as well as
Induction and training
Conflict of interest
knowledge of different markets and non-operational areas.
Following appointment to the Supervisory Board, new
Members of the Supervisory Board shall not participate
Their expertise includes also international business, general
members receive a comprehensive induction tailored to their
in the discussions and decision-making on a subject or
and strategic management, employment and industrial
individual needs. This includes extensive briefings about all
transaction in relation to which they have a conflict of interest
relations, risk management, commercial management,
major business and functional aspects of the company and
with the company. Decisions to enter into transactions under
110 Governance and compliance | AkzoNobel Report 2016
AkzoNobel Report 2016 | Governance and compliance
111
governance, accounting, investor relations, compliance, risk
management and internal controls.
The Supervisory Board is governed by its Rules of
Procedure, which are available on the company’s website.
The Rules of Procedure include the profile and the
Charters of the Committees and set out the tasks and
responsibilities of the Supervisory Board, as well as its
operational processes.
business to business sales and research and development.
The Supervisory Board maintains a skills matrix which
provides an overview of the skills and experience of
individual Supervisory Board members. This matrix can
be found in the Leadership section. When nominating and
selecting new candidates for the Supervisory Board in future,
the Supervisory Board profile and skills matrix, relevant
regulation, and the principles and provisions of a (new) Code
will be taken into account.
THE CURRENT MEMBERS REPRESENT
FIVE NATIONALITIES AND HAVE
EXPERIENCE WITH THE MARKETS IN
WHICH AKZONOBEL OPERATES
Composition
The list of Supervisory Board members, including their
biographies, can be found in the Leadership section. The
Supervisory Board has a balanced composition consisting
of more than 30 percent female and more than 30 percent
male members and reflects the nature and variety of
the company’s businesses, their international spread
and expertise in fields such as finance, economic,
information technology, societal, environmental and legal
aspects of business, government and public administration.
Consequently, the current members represent five
nationalities and have a diverse and appropriate experience
with the markets in which AkzoNobel operates, as well as
knowledge of different markets and non-operational areas.
Their expertise includes also international business, general
and strategic management, employment and industrial
relations, risk management, commercial management,
Appointment
Members of the Supervisory Board are nominated,
appointed and dismissed in accordance with procedures
identical to those previously outlined for the members of
the Board of Management. In accordance with the Code,
members of the Supervisory Board are eligible for re-election
only twice, each time for a period not exceeding four years.
Terms of appointment are based on a rotation schedule,
available on our website. In 2016, one appointment and two
reappointments to the Supervisory Board were proposed to,
and made by, the AGM.
its corporate governance and compliance requirements.
The induction includes meetings with the CEO, the CFO, all
other Executive Committee members and relevant members
of senior management. This enables new Supervisory
Board members to quickly build up an understanding of
AkzoNobel’s businesses and strategy, as well as
the key risks and issues the company faces. In addition, the
Chairman ensures the Supervisory Board is provided with
regular updates and that the Supervisory Board undertakes
training, for example in the area of compliance and ethics.
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 and the company’s stakeholders.
Each member of the Supervisory Board meets the
independence requirements as stated in the Code and
has completed the 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
• 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 or their closely
associated persons and the company
Induction and training
Following appointment to the Supervisory Board, new
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
Conflict of interest
Members of the Supervisory Board shall not participate
in the discussions and decision-making on a subject or
transaction in relation to which they have a conflict of interest
with the company. Decisions to enter into transactions under
AkzoNobel Report 2016 | Governance and compliance
111
which Supervisory Board members have conflicts of interest
that are of material significance to the company, and to the
relevant Supervisory Board member, require the approval of
the Supervisory Board. Any such 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. During 2016, no transactions are to be 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
to the Consolidated financial statements.
Supervisory Board 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 these
committees. Information on the work, composition and
attendance of the Supervisory Board members at the
meetings of 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. The committees report on their deliberations and
findings to the full 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 performance of the
Internal Audit function and the qualifications, performance
and independence of the external auditor. The Audit
Committee has a role in assessing the quality and integrity of
reporting on sustainability performance and takes an active
role in reviewing the company’s sustainability performance
data. As a rule, the CFO, Group Controller, Corporate
Director of Internal Audit and the lead partner of the external
auditor attend all regular meetings. After most Audit
Committee meetings, members hold a separate meeting
with only the Corporate Director of Internal Audit present, a
separate meeting with only the external auditor present, and
sessions with only Audit Committee members in attendance.
In addition, there are regular meetings with only Audit
Committee members and the CFO present. Other members
of the Executive Committee attend as and when requested.
The General Counsel reports to the Audit Committee on
compliance matters at every regular Audit Committee
meeting and provides a claim and liability report to the
Audit Committee once a year. The Chairman of the Audit
Committee is primarily responsible for the proper functioning
of the Audit Committee and reports the activities and findings
of the committee to the Supervisory Board, which discusses
these activities and findings when necessary. The Chairman
also initiates the evaluation of the functioning of the Audit
Committee and its individual members, without members of
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 Nomination
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 Nomination Committee also
considers nominations by the CEO 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 Supervisory
Board profile and skills matrix, relevant regulation and the
principles and provisions of the Code.
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 the individual members of the Board of
Management and the other members of the Executive
Committee, and for overseeing the remuneration schemes
for AkzoNobel executives involving the company’s shares.
The Remuneration Committee conducts the periodic
review of the performance of the members of the Board
of Management and the Executive Committee. The
Remuneration Committee also reviews the remuneration
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) is an
integral part of the governance of the company and its
system of checks and balances. The 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 is convened by public notice and the agenda,
notes to the agenda, and the procedure for attendance
and voting at the meeting are published in advance
and posted on the company’s website. Matters proposed
for consideration, approval or adoption are tabled as
separate agenda items and explained in writing in advance
of the meeting.
112 Governance and compliance | AkzoNobel Report 2016
Young people in Virginia are learning about climate change and sustainability at EBase
USA, an off-grid, self-powered classroom set up by AkzoNobel employees. The
initiative was led by James Bray (Regional Sales Manager – Cabinets, North America
for our Wood Coatings business) who drew inspiration from a leadership expedition to
Antarctica in 2008. A 99-year-old railway boxcar was converted over a period of four
years to create the unique learning resource, which highlights the community focus of
our global Human Cities initiative.
one-third of a common share). On December 31, 2016, a
total of 252,176,412 common shares and 48 priority shares
had been issued. The company has been informed that
by December 31, 2016, 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
(Stichting 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.
These shares merely have a financing function, which means
that if necessary, and possible, they will be issued at or near
to the prevailing quoted price for common shares.
The AGM held on April 20, 2016, 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, for a period of 18 months or if
earlier, until the date on which the AGM again extends it,
authorization was granted to the Board of Management to
acquire common shares in the company’s share capital at
any time during this period. The number of common shares
to be acquired being limited to the maximum number of
shares – as permitted within the limits of the law and the
Articles of Association – the company may at any time hold
in its own share capital. The maximum number of shares the
company will hold in its own share capital at any one time
shall not exceed 10 percent of its issued share capital. A
resolution of the Board of Management to acquire shares in
the company’s share capital is subject to the approval of the
Supervisory Board.
AkzoNobel Report 2016 | Governance and compliance
113
These proposals include where relevant:
• The adoption of the financial statements
• The dividend proposal
• The discharge of the members of the Supervisory Board
and the Board of Management
• The appointment of members of the Board of
Management and the Supervisory Board
• The remuneration of Supervisory Board members
• Material changes to the remuneration policy of the Board
of Management
• Other important matters, such as major acquisitions or
the sale of a substantial part of the company, as required
by law
• The authorization of the Board of Management to issue
new shares, buy back shares or cancel shares
• Amendments to the Articles of Association
The company provides remote voting possibilities to its
shareholders. Holding shares in the company on the record
date determines the right to exercise voting rights and other
rights relating to the AGM. 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 1 percent of the total issued capital may submit
proposals for the AGM agenda. Such proposals must be
adequately substantiated and must be submitted in writing,
or electronically, to the company 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 after 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 in the US in the form of American Depositary
Receipts (each American Depositary Receipt representing
Anti-takeover provisions and control
According to 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.
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 appointment is reviewed
at least every four years and the results of this review and
assessment are reported to the AGM.
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 adopted. During these
meetings, the auditor discusses the outcome of the audit
procedures and the reflections thereof in the auditors’ report
and the management letter. In particular, key audit matters
are highlighted. The auditor receives the financial information
and underlying reports of the quarterly figures and is given
the opportunity to comment and respond to this information.
The lead external auditor is present at the AGM and may be
questioned with regard to his statement on the fairness of
the financial statements.
Auditor independence and mandatory succession
of audit firm
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.
Pursuant to European law, the lead partner of the external
audit firm has to change after no more than five years and
the audit firm must change after no more than ten years. At
the 2014 AGM, PricewaterhouseCoopers Accountants N.V.
was appointed as external auditors, effective January 1, 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
at providing 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
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.
Internal Audit
The Internal Audit function is mandated to provide the
Board of Management, the Executive Committee and the
Audit Committee with independent, objective assurance
on the adequacy of the design and operating effectiveness
of the internal control framework described below. The
Corporate Director of Internal Audit reports to the Board of
Management and has direct access to the Audit Committee
and its Chairman. The function performs its mandate
based on a risk-based audit plan, which is approved by the
Board of Management and the Audit Committee. It reports
a summary of the audit findings bi-annually to the Board
114 Governance and compliance | AkzoNobel Report 2016
115AkzoNobel Report 2016 | Governance and complianceof Management and Executive Committee, and the Audit Committee, which culminates in an annual assessment of the quality and effectiveness of the company’s internal control systems. More information is available under Audit Committee earlier in this section.Internal controls and risk managementInternal controls The company has strict procedures for internal controls. The Board of Management and Executive Committee have established an Internal Control Committee to facilitate and oversee aspects of these procedures. The Internal Control Committee monitors the adequacy and the effectiveness of the company’s internal control framework. In 2016, we continued to work on the implementation of system-embedded, automated controls and tightened system access procedures through standard role design and segregation of duty monitoring. The design of the internal control self-assessment process was adapted to the changes in the company structure and we further embedded internal control in functions and service centers, in addition to businesses. Share Dealing Rules and Rules on Disclosure ControlIn accordance with Dutch law and regulations (including the European Market Abuse Regulation), the company maintains insider lists and exercises controls around the dissemination and disclosure of potentially price sensitive information. The AkzoNobel internal control frameworkThe AkzoNobel internal control framework provides reasonable assurance in achieving business goals, including strategic, operational and reporting goals, in addition to those covering compliance. Internal control is not only about policies and procedures, but also relates strongly to people, culture and behaviors.All employees and the members of the Board of Manage-ment, the Executive Committee and the Supervisory Board, are subject to the AkzoNobel Share Dealing Rules, which limit their opportunities to trade in AkzoNobel securities. Transactions in AkzoNobel shares carried out by Board of Management, Executive Committee and Supervisory Board members (including their closely associated persons) are, as and when required, notified to the Dutch Authority for the Financial Markets.Board of Management, Executive Committee and Super-visory Board members require authorization from the General Counsel prior to carrying out any transactions in respect of AkzoNobel securities, even in a so-called open period. In relevant cases, the General Counsel can prohibit carrying out transactions in respect of other companies’ securities.Risk managementOur risk management system is explained in more detail in the Strategic performance section. 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.Control environmentSetting objectivesResponding to riskControl activitiesMonitoring activitiesInformation and communicationA team of 38 military veterans who sailed 2,000 miles around the British Isles received support from AkzoNobel. The voyage was organized by the Turn to Starboard charity, which helps military personnel suffering with physical injuries or mental trauma. Their 92-foot replica tall ship was coated with products supplied by our International brand. Compliance and integrity management
Integrity is one of AkzoNobel’s
core principles. We are committed
to conducting our business in
a lawful, fair and honest way
and expect the same from our
business partners. We aim for the
highest standards suitable for our
business and support this with a
robust compliance framework. In
2016, we took several initiatives to
bring our compliance framework
to the next level, including the
development of our human rights
and business partner compliance
programs, the establishment of a
dedicated compliance manager
organization and the strengthening
of our export control and privacy
frameworks.
Risk assessment
Compliance governance
We are committed to complying with national and inter-
national laws and regulations that apply to our operations.
Our legal and regulatory experts and our compliance
managers monitor legal developments and advise our
businesses and functions how their operations can remain
compliant. We assess compliance risks through several
processes, including Enterprise Risk Management (see page
47), the Non-Financial Letter of Representation (NFLoR),
the internal control self-assessment (see page 115), internal
audits and our SpeakUp! grievance mechanism.
In 2016, we introduced a system which helps us assess the
compliance risks associated with engaging new business
partners. We also studied data relating to existing suppliers
to establish compliance risks, particularly those relating
to respect for human rights. This information was used as
input for our human rights program, see Note 16 of the
Sustainability statements.
Annually, deficiencies, risks and weaknesses in the
compliance framework in every business and function are
discussed in the NFLoR review meetings between the
business or functional leader and the responsible Executive
Committee member, Director of Compliance and Legal
Counsel. The outcomes of those meetings are reviewed
by the CEO and the General Counsel and reported to the
Board of Management, the Executive Committee, the Audit
Committee and the external auditor.
During 2016, the main inherent compliance risks identified
were related to competition law, export control, business
partner compliance and data security. While controls are in
place to mitigate these risks, further actions were defined
and initiated.
Board of Management, Executive Committee and
Audit Committee
The Board of Management and Executive Committee
are responsible for an effective compliance management
framework across the AkzoNobel group entities. The Audit
Committee supervises this responsibility on behalf of the
Supervisory Board.
Corporate Compliance Committee
The Corporate Compliance Committee supports the Board
of Management and Executive Committee in establishing,
monitoring and assessing the company’s compliance
framework. The Corporate Compliance Committee consists
of the General Counsel (chair), the Corporate Secretary
Group Controller and Directors of Compliance, Internal Audit,
Human Resources, Sustainability and Health Safety and
Environment. In 2016, two managing directors of AkzoNobel
businesses were added as members to the committee to
add further business expertise to its decision-making.
Human Rights Committee
In 2016, the Executive Committee established a Human
Rights Committee which supports the Board of Management
and Executive Committee in establishing, monitoring
and assessing the company’s human rights policies and
framework. It consists of the Directors of Compliance (chair),
Internal Audit (co-chair), People Development, Occupational
Health, Purchasing, Health, Safety and Environment, and
Operations Decorative Paints, and the Business Partner
Compliance, the Manager of Sustainability Reporting and
the Human Rights Legal Counsel. The committee is tasked
with further improving the company’s human rights policies
and framework to identify, mitigate and report on human
rights risks in the company’s operations and value chain. The
committee has identified four initial salient issues to focus
on: health and safety, working conditions, discrimination and
harassment, and under-age labor in the value chain. See
Note 16 of the Sustainability statements.
116 Governance and compliance | AkzoNobel Report 2016
Privacy Committee
The Privacy Committee supports the Board of Management
and Executive Committee in establishing, monitoring and
assessing the company’s privacy policies and compliance
framework. The committee consists of the members of the
Corporate Compliance Committee and representation from
Information Management, Sales and Legal. In 2016, the
Director of Compliance was appointed as Corporate Privacy
Officer and Chairman of the Privacy Committee.
In 2016, a privacy governance framework was put in place
with privacy officers for each of the businesses and major
functions. In addition, a Privacy Impact Assessment process
was put in place. As part of our Privacy-by-design process,
new applications and processes containing personal
data are subjected to a Privacy Impact Assessment.
Any shortcomings identified in the assessment must be
addressed. As regards existing systems, an inventory
was made and they are being assessed based on their
risk priority.
Sensitive Country Committee
The Sensitive Country Committee supports the Board of
Management and Executive Committee in establishing,
monitoring and assessing the company’s export compliance
framework. It consists of the General Counsel (chair), an
Executive Committee member with business responsibility
and the Director of Compliance. It reviews countries relating
to export controls, corruption, human rights, safety and
security and finance transactions, and it advises the Board
Compliance framework
Risk
assessment
Reporting
structure
Compliance
governance
Business partner
compliance structure
Internal directives
and rules
Incident
management
process
Education
program
of Management and the Executive Committee on trade
restrictions and decides on additional controls needed.
In 2016, with the easing of international sanctions on Iran,
under supervision of the Sensitive Country Committee, an
Iran gateway was implemented providing a single controlled
gate at the AkzoNobel regional headquarters in Dubai for
export and import of products to and from Iran. Also in 2016,
the export control manual was updated, further expanding
and specifying the licensing and sanctions controls for the
export of products and technology. In addition, online training
was made available to more than 13,000 employees and
automated screening for sanctions and license requirements
was implemented across several businesses.
The above four committees all meet at least four times per
year and on an incidental basis, if and when required.
Compliance function
The Compliance function manages the compliance
framework on behalf of the Corporate Compliance
Committee, Human Rights Committee, Sensitive Country
Committee and Privacy Committee. It makes the Code of
Conduct and directives available, manages the compliance
education program, develops and communicates rules and
procedures necessary to implement compliance programs,
manages and supervises investigations of compliance
incidents and manages compliance risk management
and self-assessment processes such as the NFLoR and
Competition Law Compliance Declaration. The Compliance
function has legal expertise in such fields as competition
law, export control, anti-bribery, privacy and human rights
and monitors legal developments, develops compliance
rules, programs and training materials and provides advice
to businesses and functions. Twice per year, the Compliance
function, through the Corporate Compliance Committee,
reports to the Board of Management, the Executive
Committee and the Audit Committee on compliance
risks and trends, compliance breaches and progress in
implementing compliance programs.
AkzoNobel Report 2016 | Governance and compliance
117
Business/Function compliance governance
Business and functional management is responsible and
accountable for raising awareness of laws and regulations
that apply to their operations and for ensuring compliance
with the same. Each business and function has a
Compliance Committee, chaired by the managing director,
responsible for managing the compliance programs and
processes in their business or function. These committees
meet quarterly to review training completion and progress on
compliance actions, and to decide on compliance breaches
in their areas of responsibility.
Every business and function has appointed a management
team member as its compliance officer. The compliance
officer is responsible for managing the programs and
processes required under the compliance framework of
the business or function. In 2016, dedicated compliance
managers were appointed in Performance Coatings,
Decorative Paints and the corporate functions. The
compliance managers are located in six AkzoNobel
regional hubs and support the Compliance Committee
and compliance officer in identifying compliance risks,
implementing compliance programs, coordinating
compliance risk mitigating actions, monitoring compliance
training completion and conducting investigations. In
Specialty Chemicals, the internal control managers act
as compliance manager. The compliance managers and
Specialty Chemicals internal control managers also act as
privacy officer for the business or function. A dedicated
privacy officer is in place for Germany. The new framework
enables the three Business Areas and the functions to put
more focus on compliance management and have regional
resources closer to day-to-day operations.
118 Governance and compliance | AkzoNobel Report 2016
Compliance organization
Audit Committee
Supervisory Board
Board of Management
Executive Committee
Sensitive Country
Committee
Corporate Compliance
Committee
Privacy
Committee
Human Rights
Committee
Business/Function Compliance
Committees
Compliance
function
Compliance officers/managers
Export control officers
Privacy officers
Legal Counsel
Internal directives and rules
Directives portal
Code of Conduct
We are committed to conducting our business in accordance
with three core principles: safety, integrity, sustainability. Our
Code of Conduct tells employees and external stakeholders
what we stand for. It explains our three core principles
and what they mean in practice. Our Business Partner
Code of Conduct explains these core principles to our
business partners and shows what we expect from them
when they do business with us. These codes are available
in 32 languages and were introduced in 2015 through an
extensive communication and education campaign across
the company. In 2016, Code of Conduct workshops were
held throughout the entire organization as part of the Code
of Conduct learning plan. The workshops helped employees
and teams familiarize themselves with the core principles
and to learn how to deal with practical dilemmas and how
to speak up. As part of the 2016 performance evaluation
sign-off, all employees were required to confirm their
understanding and compliance with the Code of Conduct in
the Performance and development dialog (P&DD) system.
Directives framework
The Code of Conduct is incorporated in the directives
portal, an online resource for all directives, rules, manuals,
guidelines and procedures that make up our directives
framework. In 2016, updated directives and rules
were introduced on inside information, share dealing
and disclosure control, new manuals were launched on
competition law compliance, export control and anti-
bribery and several updated guidelines were introduced in
relation to export control.
Education program
Our compliance training program is an important pillar of our
compliance framework. The e-learning curriculum, face-
to-face training program and compliance communications
are aimed at educating defined groups of employees on
Code of Conduct
Core principles
• Safety
• Integrity
• Sustainability
Values
• Customer focused
• Deliver on commitments
• Passion for excellence
• Winning together
Directives and rules
Manuals and guidelines
Procedures
compliance rules and procedures relevant to their day-to-day
work. E-learning is mandatory for all employees on the core
principles as explained in our Code of Conduct. In 2016,
more than 90 percent of online employees completed the
Code of Conduct e-learning. Processes are in place to follow
up with employees who have not completed the e-learning.
In addition, mandatory e-learnings are provided on
compliance areas such as competition law, export control,
anti-bribery, fraud, Life-Saving Rules and privacy.
As part of the Code of Conduct learning program,
workshops were held by our people managers across
the organization. Compliance experts and legal counsel
provided face-to-face training on several compliance
topics to hundreds of employees. For example, more than
750 designated employees received face-to-face training on
competition law. In addition to training, several compliance
newsletters and bulletins were issued on a variety of
compliance topics such as gifts and entertainment in the
engineering industry and developing business in Africa.
Incident management
Feedback
AkzoNobel fosters a climate in which employees give
each other feedback on their behavior relating to the core
principles. This is an important part of having the right
compliance culture and educating our employees on how
to deal with integrity issues. If an employee becomes aware
of a potential violation of the Code of Conduct, he or she is
encouraged to speak to the individual, raise their concerns
with their compliance officer, HR business partner or
manager or use our SpeakUp! grievance mechanism.
AkzoNobel Report 2016 | Governance and compliance
119
SpeakUp!
The SpeakUp! grievance mechanism offers employees,
business partners and the general public a confidential
environment in which they can raise any concerns relating
to compliance with our Code of Conduct. Complaints can
be raised without risk of retaliation and anonymously if so
desired. Once a report on a potential violation is made,
it is investigated on its merits in accordance with proper
investigation procedures. If a complaint is found to be
substantiated, the necessary actions are taken, including
disciplinary measures and root cause analysis.
In 2016, 324 reports and alerts of alleged Code of Conduct
violations were registered. In total, 187 of these were
received through our formal SpeakUp! channels. Of the
324 reports and alerts, 89 were (partially) substantiated,
while 22 were Category 1 matters, as the reported
allegations met certain materiality criteria. These reports
and alerts led to 48 dismissals. Other sanctions and
remedial actions in (partially) substantiated matters included:
coaching/training (21); warnings (6); review of procedures/
controls (2); other disciplinary actions (9).
During the year, an analysis was performed examining
several years of data relating to the handling of Code of
Conduct violations. This analysis identified the potential
for inconsistent handling of Code of Conduct cases
across various businesses and regions. In response to this
analysis, several initiatives were undertaken to improve
the investigation framework. We appointed a global head
of investigations and dedicated compliance managers in
Performance Coatings, Decorative Paints and the corporate
functions. All compliance managers received extensive
investigations training. Improvements were also made to the
reporting and decision-making of investigations. As a result
of these initiatives, the quality, consistency and completion
time of investigations has improved.
120 Governance and compliance | AkzoNobel Report 2016
Integrity management
Code of Conduct reporting
Code of Conduct number of alleged breaches reported
Breakdown:
Health and safety/Safety1
Business integrity/Integrity1
Treatment of employees/Sustainability1
Code of Conduct investigation
Code of Conduct alleged breaches investigated (in %)
Code of Conduct alleged breaches handled by the Corporate Compliance
Committee (in numbers)
Code of Conduct alleged breaches handled by the relevant businesses
(in numbers)
Partially substantiated Code of Conduct breaches (within year)
Number of dismissals for Code of Conduct breaches (within 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)
1 In 2016, categories were aligned with the set-up of the Code of Conduct.
2014
2015
2016
170
15
90
65
100
11
159
67
46
224
6
123
95
100
10
214
89
52
324
37
140
147
100
22
302
89
48
12,184
13,614
12,661
100
90
100
66
100
92
Business partner compliance
Business Partner Code of Conduct
We have a Business Partner Code of Conduct, which
informs our business partners such as suppliers, agents and
distributors that we expect them to comply with the law and
our core principles or apply equivalent business principles.
Since the second half of 2015, all new business partners are
required to confirm their commitment by signing the code.
Business partner compliance framework
In 2016, a new business partner compliance framework
was developed and approved by the Board of Management
and Executive Committee for roll-out in 2017. It provides
for mandatory risk-based due diligence investigations prior
to appointing a new business partner. It also provides for
training to business partners on what is expected of them
with regard to compliance with our core principles and
for monitoring that they act in accordance with the core
principles. A due diligence screening process was put
in place, enabling business colleagues and compliance
Risk, compliance and control review meetings
In 2016, pilots were held with three businesses and one
function to combine the internal control self-assessment,
compliance and audit reporting into one report and one
meeting that would take place three or four times per year.
By combining these reports, business leadership gets one
overview of all compliance and control deficiencies and
weaknesses and is better able to coordinate and prioritize
actions across functions. The results of the pilots will be
evaluated in 2017.
Compliance reports
The General Counsel reports to the Executive Committee
and the Audit Committee on important compliance matters,
developments and initiatives. Twice per year, the General
Counsel and the Director of Compliance submit an extensive
written report on the progress of all compliance programs
and on compliance matters from the preceding period to the
Board of Management, the Executive Committee and the
Audit Committee, who review the same and agree on any
necessary actions.
Competition Law Compliance Declaration
Employees who meet certain criteria, such as having
contact with customers or suppliers or managing those who
have, confirm their compliance with the competition laws
as articulated in our competition law compliance manual
through our annual Competition Law Compliance Declaration
program. In 2016, more than 12,500 designated employees
signed this declaration. The declaration reminds employees
of the importance of complying with competition laws,
requests their confirmation of compliance and urges them
to disclose any matters of concern. Any possible concerns
are reported to the General Counsel and appropriate
action is taken.
managers to screen candidate business partners for
compliance irregularities prior to their appointment.
In view of numerous global merger/acquisition (M&A)
initiatives and business development initiatives in Africa,
compliance standards were developed and made available
for M&A transactions and for doing business in Africa.
As in the previous year, in 2016 we performed a compliance
review on agents in a region – this time Latin America –
when agent relationships were reviewed. The review did not
reveal any irregularities, other than in a few relationships no
contracts were in place, which will be addressed in 2017.
Reporting
Non-Financial Letter of Representation
Annually, management verifies and confirms that they comply
with laws and internal directives and rules through the
NFLoR process. Exceptions must be reported and actions
must be planned and documented. An NFLoR declaration
was submitted by more than 1,000 managers. Results were
rolled-up to business and function leaders and subsequently
discussed in review meetings between the business and
function leaders and their responsible Executive Committee
member, in the presence of the Director of Compliance
and Legal Counsel. At the review meetings, deficiencies
and risks in the compliance and control framework were
discussed and actions agreed upon. The responsible
Executive Committee member then reported the results of
the review meetings to the CEO and the General Counsel,
who reviewed the same. A final report was presented to the
Board of Management, the Executive Committee, the Audit
Committee and the external auditor. The outcome of this
NFLoR process, in combination with the internal control self-
assessment process and the internal audit results forms a
basis for the Statement of the Board of Management in
this Report 2016.
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AkzoNobel Report 2016 | Governance and compliance
121
Remuneration report
This report describes our
remuneration policy and the
remuneration paid to members
of the Board of Management
in 2016.
The remuneration and the individual contracts of the
members of the Board of Management are determined by
the Supervisory Board. The Supervisory Board makes these
determinations within the framework of our remuneration
policy, which is approved by our shareholders. 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 first part of this report describes the remuneration policy
as it has been adopted by our shareholders over time, while
the second part describes the implementation of the policy
in 2016. 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 2016. The performance share plan for the Board of
Management was approved by the AGM in 2004. This plan
has been amended several times by the AGM, in accordance
with Article 135 of Book 2 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 engage
members of the Board of Management as top managers of a
major international company, while protecting and promoting
the company’s objectives. The design of the remuneration
structure supports both our short and long-term objectives,
whereas the emphasis is on long-term value creation. The
remuneration policy for the Board of Management is aligned
with the executive remuneration policy of the company
overall. Our policy seeks to provide market competitive
remuneration, where we use the median level of the external
market as a reference point.
The remuneration of the members of the Board of
Management consists of the following elements:
• 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 various elements of the remuneration package are set
out in more detail below.
Base salary
The base salary is determined by the Supervisory Board.
Short-term incentive
The target STI is 100 percent of base salary for the CEO
and 65 percent of base salary for any other member of the
Board of Management. The STI is linked to financial targets
(70 percent) and to individual and qualitative targets of the
members of the Board of Management (30 percent). Targets
are determined annually by the Supervisory Board. In respect
of the financial targets, the Supervisory Board chooses
three to four financial metrics and determines their relative
weighting from the following list:
• Revenue growth
• EBITDA
• Net income (to shareholders) • EBIT
• Operating income (OPI)
• Operating cash flow (OCF)
• Return on investment (ROI)
These metrics are as used or defined in the company’s
annual report, subject to minor adjustments if required,
in order to provide a better indicator of management’s
performance.
For each target, the Supervisory Board sets performance
ranges each year. These performance ranges determine
for each target and relevant part of the STI: (i) The perfor-
mance level below which no payouts are made; (ii) The
performance level at which 100 percent payout is made;
and (iii) The performance level at which the maximum
payout of 150 percent is made. STI awards in aggregate
will not exceed 150 percent of base salary for the CEO and
100 percent of base salary for any other member of the
Board of Management.
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:
• 35 percent of the conditional grant of shares is dependent
on AkzoNobel’s relative total shareholder return (TSR)
performance compared with companies in a defined
peer group
• 35 percent of the conditional grant of shares is dependent
on the development in ROI during the performance period
122 Governance and compliance | AkzoNobel Report 2016
• 30 percent of the conditional grant of shares is dependent
on AkzoNobel’s relative sustainability performance,
measured as the company’s average position in the
RobecoSAM ranking during the three-year performance
period
For each of these performance criteria, the minimum vesting
is 0 percent and the maximum vesting is 150 percent of the
relevant part of the conditional share grant. Peer groups and
vesting schemes are determined by the Supervisory Board.
Shareholding requirements and share-matching
The CEO is required to build up, over a five-year period from
the date of first 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, this requirement is at least one time their gross
base salary.
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 their
short-term incentive (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, 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. The retention period
for the matching shares expires two years after these
shares have been awarded.
Board members who continue to invest their short-term
incentives in whole, or in part, in shares after the minimum
contract benefits and other benefits. The variable component
includes the aforementioned short-term incentive, long-
term incentive and share-matching feature. Share price
developments are not taken into account.
Post-contract benefits
Members of the Board of Management receive a contribution
towards pension and similar retirement benefits, as
determined by the Supervisory Board.
holding requirement has been achieved, 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.
Pay mix
The ratio between fixed and performance-based
compensation (pay mix) for the CEO and CFO, under various
levels of performance, is illustrated below. The fixed pay
component only refers to base salary, excluding post-
CEO pay mix 2016 in %
Fixed pay
Variable pay
100
36
22
12
64
78
88
Below threshold
performance
At threshold
performance
At target
performance
At/beyond maximum
performance
CFO pay mix 2016 in %
Fixed pay
Variable pay
100
31
53
47
69
77
23
Below threshold
performance
At threshold
performance
At target
performance
At/beyond maximum
performance
AkzoNobel Report 2016 | Governance and compliance
123
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 and the Code.
Loans
The company does not grant loans, advance payments or
guarantees to its Board members.
Implementation of the
remuneration policy in 2016
The Supervisory Board is responsible for ensuring 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. In
addition, 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, before
setting proposed targets for Supervisory Board approval,
the Remuneration Committee 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 total remuneration of the
members of the Board of Management.
The overall remuneration levels are aimed at the median level
of the external market. For benchmarking purposes, a peer
group has been defined by the Supervisory Board. In 2016,
the peer group consisted of the following companies:
• Air France-KLM
• Air Liquide
• ASML
• Clariant
• DSM
• Evonik
• Heineken
• Henkel
•Johnson Matthey
• KPN
• LafargeHolcim
• The Linde Group
• Philips
• Randstad
• RELX Group
• 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 determining the
overall remuneration. When other benefits are granted, the
Supervisory Board ensures that these are in line with
market norms.
For communication purposes, the table below presents an
overview of the remuneration of the members of the Board
of Management who were in office in 2016. See Note 22 to
the Consolidated financial statements for more details. The
implementation of the remuneration policy in 2016 will be a
separate agenda item at the 2017 AGM.
Base salary
The base salary of the CEO increased by 9 percent in 2016,
to an annual base salary of €936,500, effective from the date
of reappointment. The base salary of the CFO increased by
4.3 percent in 2016, to an annual base salary of €610,000
effective from January 1, 2016.
Short-term incentive
The objectives of the short-term incentive in 2016 were
to reward performance on ROI, OPI, OCF and revenue
growth; to measure individual and collective performance;
and to encourage progress in the achievement of
long-term strategic objectives. On the outcome of the
Compensation Board of Management 2016
in €
Base salary
Short-term incentive
Share awards 1
Post-contract benefits 2
Other emoluments 3
Total remuneration
Ton Büchner
Chief Executive Officer
Maëlys Castella
Chief Financial Officer
913,300
966,900
1,177,700
416,900
44,100
3,518,900
610,000
431,700
370,200
91,500
83,000
1,586,400
1 Costs relating to share awards (performance-related share plan and share-matching plan) are non-cash and relate to the expenses following IFRS 2.
2 Post-contract benefits refers to payments intended to prepare for retirement.
3 Other emoluments include employer’s charges (social contributions) and other compensations, such as representation allowances, insurances, car
arrangements and educational expenses.
124 Governance and compliance | AkzoNobel Report 2016
short-term incentive elements (ROI, OPI, OCF, revenue
growth and personal targets), the Supervisory Board
applied a reasonableness test in which the actual level
of the performance was critically assessed in light of the
assumptions made at the beginning of the year. The test
also included an assessment of the progress made with the
strategic objectives under prevailing market conditions.
For 2016, the targets for ROI, OPI, OCF and revenue growth
were determined by the Supervisory Board. Qualitative STI
targets were set and assessed by the Supervisory Board in
the context of the medium-term objectives of the company.
AkzoNobel does not disclose all qualitative targets, as
they are considered commercially sensitive information.
However, the targets for 2016 included goals set in relation
to delivering on the company’s communicated performance
improvement and organic growth ambition.
ROI is calculated by determining the ratio of operating
income over 12 months avarage invested capital using
reported numbers. OPI was calculated as the number
reported for IFRS purposes, in constant currencies. The
definitions and calculations were identical to those applied
in 2015. OCF was calculated as EBITDA minus the change
in operating working capital and capital expenditures, all
in constant currencies. The revenue growth target was
defined as the total revenue change versus the previous
year, corrected for divestments and acquisitions, in constant
currencies. In 2016, the performance against the targets
set for ROI, OPI, OCF, revenue growth and qualitative
targets was as follows: On the qualitative targets, the CEO
performed slightly above target and the CFO above target.
2016 performance on STI metrics
Metric
ROI
OPI
OCF
Revenue
Payout as % of target
127
127
111
–
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.
Performance-related share plan
In line with the remuneration policy, vesting of 35 percent
of the shares conditionally granted is linked to AkzoNobel’s
ROI performance. For the shares conditionally granted in
2014 under the performance-related share plan (in respect
of which the performance period ended on December 31,
2016), the Supervisory Board set the ROI to be achieved by
the end of 2016 as follows:
ROI performance range series 2014-2016
Vesting (as % of 35%
of conditional grant)
Target
Threshold
50%
13%
Target
100%
Maximum
150%
15%
17%
AkzoNobel’s ROI performance at the end of the performance
period was reviewed by the Supervisory Board and adjusted
for currency effects and exceptional items. This resulted in a
vesting of 104.3 percent for this part of the long-term
incentive.
For the 2014 conditional grant, 30 percent was linked to
AkzoNobel’s relative sustainability performance by taking the
company’s average position in the RobecoSAM ranking. The
following vesting scheme has been applied in respect of the
conditional grants made in 2014:
Average position in RobecoSAM ranking during
performance period
Rank
1
2
3
4 – 6
7 – 10
11 – 15
Below 15
Vesting (as % of 30% of
conditional grant)
150
125
100
75
50
25
0
AkzoNobel’s sustainability performance during the period
2014 to 2016 resulted in a vesting of 100 percent for this part
of the long-term incentive.
For the 2014 conditional grant, the remaining 35 percent was
linked to AkzoNobel’s relative total shareholder return (TSR)
performance compared with the companies in a defined
industry peer group. Independent external experts conducted
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 were converted into
euros. The relative TSR performance was compared with an
industry peer group as determined by the Supervisory Board.
The industry 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
This industry 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 industry peer group is taken
over. The Supervisory Board will monitor and ensure that, to
the extent reasonably possible, a replacement has no impact
on the company’s relative TSR ranking.
AkzoNobel Report 2016 | Governance and compliance
125
The following vesting scheme has been applied in respect of
the conditional grants made in 2014:
TSR vesting scheme for the conditional grants
Rank
1
2
3
4
5
6
7
8 – 11
Vesting (as % of 35% of
conditional grant)
150
135
120
100
75
50
25
0
AkzoNobel’s TSR performance during the period 2014 to
2016 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 ROI, sustainability and
TSR performance, the final vesting percentage of the 2014
conditional grant – after including the dividend yield during
the performance period (determined to be 7.63 percent)
– equaled 71.56 percent. Upon its ex-post review of the
relationship between the chosen performance criteria and
the strategic objectives applied, and of the relationship
between remuneration and performance, the Supervisory
Board – given the importance of the link between the
variable remuneration and the company’s strategic ambitions
– decided not to make any correction in respect of the
definitive award.
The number of performance-related shares conditionally
granted under the 2016 plan amounted to 23,397 for the
CEO and 15,240 for the CFO.
In accordance with provision II.2.13d of the Code, the
schedule at the end of this Remuneration report sets out:
(i) The number of at-target shares conditionally granted;
126 Governance and compliance | AkzoNobel Report 2016
(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.
Qualifying shares
Board members
Ton Büchner
Maëlys Castella
Qualifying shares acquired
in 2016
1,529
1,354
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.
Claw back and value adjustment
In 2016, there was no cause for a claw back or value
adjustment by the Supervisory Board.
Shareholding requirements and share-matching
The table on the right summarizes the shares acquired by
the relevant members of the Board of Management in 2016
that would, subject to the conditions of the share-matching
plan, qualify for matching by the company. See also Note 22
to the Consolidated financial statements.
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.
At year-end 2016, the CEO held 72,736 shares and the
CFO held 3,318 shares. Both members are compliant with
the remuneration policy’s shareholding requirement. For
the CEO, the shares purchased in 2012 and 2013 under
the applicable share-matching plans were matched by
the company following the Supervisory Board’s decision,
recognizing consistent and sustainable performance.
Post-contract compensation
The members of the Board of Management receive contri -
butions 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 related to that
year. The contributions will therefore vary depending on
the performance during the year and the age of the Board
member. For the CFO, these contributions are paid on base
salary only.
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,
reappointments 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 legal
retirement age for effective succession planning within the
Board. In such an exceptional situation, the CEO will
be entitled to the “fixed” remuneration component until the
date of retirement.
Remuneration policy for the next financial year
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 2016 were ROI, OPI, OCF, and revenue growth.
In 2017 OPI will be replaced by EBIT as this better aligns
with our external reporting. The metrics applied for the LTI
(ROI, TSR and sustainability) will continue to be applied in
2017. The targets and ranges have been set at a challenging
but realistic level, based on the company’s strategic goals
formulated during the year. The vesting schemes for the
TSR and sustainability performance remain unchanged. The
target and ranges for the ROI metric will not be disclosed as
they are considered commercially sensitive information.
Valuation1 shares Board of Management
Unconditional shares, vested
Board member
Ton Büchner
Series 2012 - 2014
Series
Series 2013 - 2015
Series 2014 - 2016
Matching shares 2012 (vesting 2016)
Matching shares 2013 (vesting 2016)
Conditional shares, not vested
Board member
Ton Büchner
Series 2015 - 2017
Series
Series 2016 - 2018
Matching shares 2014 (vesting 2017)
Matching shares 2015 (vesting 2018)
Matching shares 2016 (vesting 2019)
Maëlys Castella
Series 2015 - 2017
Series 2016 - 2018
Matching shares 2015 (vesting 2018)
Matching shares 2016 (vesting 2019)
Conditional share grant
Value at grant
in €
Number of vested shares
Number
Value at vesting in €
1,191,784
1,203,829
1,256,382
500,016
71,086
26,228
23,590
15,958
11,582
1,429
1,512,055
1,455,041
947,746
714,378
88,141
Number
31,900
24,200
22,300
11,582
1,429
End of lock-up period
(five years after grant)
Value in €
1,085,530
Number
18,278
–
–
–
–
NA
NA
NA
NA
Conditional share
grant at target
Value at grant in €
Vesting at min
performance
Number
Vesting at max
performance
Number
Number
22,500
23,397
2,450
2,252
1,529
15,300
15,240
305
1,354
1,297,125
1,443,127
133,782
166,062
97,070
882,045
940,003
22,491
85,960
–
–
–
–
–
–
–
–
–
33,750
35,096
2,450
2,252
1,529
22,950
22,860
305
1,354
AkzoNobel Report 2016 | Governance and compliance
127
1 Values for LTI series are based on the share price on the last trading day of the relevant prior year and for the matching shares are based on the date of purchase.
AkzoNobel on the capital markets
Listings
Share price performance 2016
Proposed dividend of €1.65
(up 6.5 percent on 2015)
In April, we repaid a £250 million
bond (coupon rate 8 percent)
and issued a €500 million bond
(coupon rate 1.125 percent)
AkzoNobel’s credit rating was
upgraded to A- by Standard
& Poor’s
AkzoNobel’s common shares are listed on 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 3.31 percent at year-end 2016. During
the year, 168 million AkzoNobel shares were traded on
Euronext Amsterdam (2015: 174 million). AkzoNobel has a
sponsored level 1 ADR program and ADRs can be traded on
the OTCQX international platform in the US.
See the table below for stock codes and ticker symbols:
Euronext ticker symbol
AKZA
A strong case for investment
With well-established global brands and a portfolio of
businesses with leadership positions in many markets, we
offer a strong case for investment.
ISIN common share
OTC ticker symbol
ISIN ADR
Sedol code
Key share data
NL0000009132
AKZOY
US0101993055
5458314
Our share price decreased 4 percent in 2016, under-
performing both the DJ Stoxx Chemicals and AEX indices.
For more details about our share price performance, please
refer to the following graph.
Share price performance 2016
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
70
65
60
55
50
5
1
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D
1
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6
1
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6
1
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F
6
1
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a
M
6
1
r
p
A
6
1
y
a
M
6
1
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u
J
6
1
l
u
J
6
1
g
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A
6
1
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p
e
S
6
1
t
c
O
6
1
v
o
N
6
1
c
e
D
1
3
DJ Stoxx
AEX
Akzo
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 attended a number of conferences during the
year, as well as holding meetings with investors and analysts.
These meetings took place at AkzoNobel’s Amsterdam
Center and in a number of countries around the world. Our
Investor Relations team also attended various conferences
across the globe. In addition, CEO Ton Büchner and our
Corporate Director of Sustainability, André Veneman, hosted
a sustainability update call in May, while members of our
sustainability team – along with Investor Relations – attended
two SRI conferences during the year.
Year-end (share price in €)
Year-high (share price in €)1
Year-low (share price in €)1
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 %)2
1 Based on close value.
2 Based on year-end share price.
2014
2015
2016
57.65
60.77
47.63
54.87
36.9
0.7
61.68
74.81
55.65
64.91
44.1
0.7
59.39
64.74
50.17
58.83
38.8
0.7
246
249
252
14.1
15.4
15.0
2.23
1.45
2.5
3.95
1.55
2.5
3.85
1.65
2.8
Dividend policy
AkzoNobel’s dividend policy is to pay a stable to rising
dividend each year. Cash dividend is default, stock dividend
is optional.
Total proposed dividend of €1.65
per share
The Board of Management proposes a total dividend of
€1.65 per common share. AkzoNobel’s shares will be trading
ex-dividend as of April 27, 2017. In compliance with the
listing requirements of Euronext Amsterdam, the record date
will be April 28, 2017. The dividend as proposed to the
2017 Annual General Meeting of shareholders will be payable
128 Governance and compliance | AkzoNobel Report 2016
as of May 24 2017. The dividend paid over the last three
years is shown in the graph below.
Dividend paid in € per share
Interim dividend
Final dividend
Total
1.45
Increase
0%
1.45
0%
1.55
+7%
1.65
+6.5%
1.12
1.12
1.20
1.281
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 November 2016,
the chart below shows the geographical spread. Around
7 percent of the company’s share capital is held by private
investors, many of whom are resident in the Netherlands.
Credit rating and bonds
AkzoNobel is committed to maintaining a strong investment
grade rating. Regular review meetings are held between
rating agencies and AkzoNobel senior management. See the
table below for the present rating and outlook.
Rating agency
Long-term rating
Outlook
Moody’s 1
Baa1
Standard & Poor’s 2
A-
Stable
Stable
Approximately 9 percent of the company’s share capital
is held by sustainable and responsible investors* and 63
percent is held by investors who are UN PRI signatories.
1 Rating affirmed on November 9, 2016.
2 Rating affirmed on October 21, 2016.
* As calculated by Nasdaq, according to their methodology which is to include the sum of:
• Core sustainable and responsible investor firms where 100 percent of equity assets
are managed with an ESG approach
• Sustainable and responsible investor themed funds managed by broad sustainable
Bonds
0.33
2013
0.33
2014
0.35
2015
0.37
2016
1 Proposed.
and responsible investors
Distribution of shares 2016
Analyst recommendations
At year-end 2016, AkzoNobel was covered by 25 equity
brokers and the following analyst recommendations were
applicable (see diagram).
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
48
17
7
17
6
5
Analyst recommendations in %
D
C
F
E
B
A Buy
B Hold
C Sell
48
36
16
C
B
A
AkzoNobel in key
sustainability indices
AkzoNobel is included in many sustainability indices.
See Note 3 of the Sustainability statements.
On April 6, 2016, a £250 million bond was repaid, while
a €500 million bond was issued on April 8, 2016. These
transactions have improved the overall debt profile of
AkzoNobel, further reducing future refinancing risk and
improving its maturity profile.
Debt maturity1 in € millions (nominal amounts)
A
€ Bonds
800
750
500
500
2018
2019
2020
2021
2022
2023
2024
2025
2026
1 At year-end 2016.
For further information please visit
our website: akzonobel.com/investors
AkzoNobel Report 2016 | Governance and compliance
129
Financial information
ARTISTS “BRING LOVE” TO LOCAL COMMUNITY 131Financial informationFinancial statementsConsolidated statement of income 132Consolidated statement of comprehensive income 132Consolidated balance sheet 133Consolidated statement of cash flows 134Consolidated statement of changes in equity 135Segment information 136Notes to the Consolidated financial statements Note 1 Summary of significant accounting policies 137Note 2 Scope of consolidation 142Note 3 Operating income 143Note 4 Employee benefits 144Note 5 Financing income and expenses 145Note 6 Income tax 145Note 7 Earnings per share 147Note 8 Intangible assets 148Note 9 Property, plant and equipment 150Note 10 Investments in associates and joint ventures 151Note 11 Other financial non-current assets 151Note 12 Inventories 152Note 13 Trade and other receivables 152Note 14 Group equity 153Note 15 Post-retirement benefit provisions 154Note 16 Other provisions and contingent liabilities 160Note 17 Net debt 161Note 18 Trade and other payables 162Note 19 Cash flow 163Note 20 Commitments 163Note 21 Related party transactions 163Note 22 Remuneration of the Supervisory Board 164 and the Board of Management Note 23 Financial risk management 167 Note 24 Subsequent events 170Company financial statements Statement of income 171Balance sheet 171Movements in shareholders’equity 172Note A General information 173Note B Financing income and expenses 173Note C Financial non-current assets 173Note D Trade and other receivables 174Note E Shareholders’equity 174Note F Net debt 174Note G Other current liabilities 175Note H Financial instruments 175Note I Contingent liabilities 175Note J Auditor’s fees 175Other information Other information 176Independent auditor’s report 177Profit allocations and distributions 183 Financial summary 184AkzoNobel Report 2015 | Financial information131Eighty artists helped transform a neighborhood in Montevideo, Uruguay, as part of a Human Cities project devel-oped by our Inca paint brand. After consulting with local residents, more than 40 walls were painted to help make their surroundings more liveable and inspiring.Financial information Consolidated statement of income
Consolidated statement of
comprehensive income
In € millions
Note
2015
2016
In € millions
14,197
(8,189)
Profit for the period
Other comprehensive income
Items that will not be reclassified to statement of income:
6,075
6,008
Post-retirement benefits
Income tax
Net effect
Items that may be reclassified subsequently to statement of
income:
Exchange differences arising on translation of foreign operations
Cash flow hedges
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
(2,947)
(1,196)
(363)
17
(114)
43
(4,489)
1,519
1,448
(394)
1,054
(2)
1,052
970
82
1,052
3.87
3.85
(4,502)
1,573
1,476
(416)
1,060
6
1,066
979
87
1,066
3.95
3.92
14,859
(8,784)
(3,021)
(1,245)
(347)
111
(114)
17
Continuing operations
Revenue
Cost of sales
Gross profit
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Operating income
Financing income and expenses
Results from associates and
joint ventures
Profit before tax
Income tax
Profit for the period from
continuing operations
Discontinued operations
Profit for the period from
discontinued operations
Profit for the period
Attributable to
Shareholders of the company
Non-controlling interests
Profit for the period
Earnings per share, in €
Total operations
Basic
Diluted
3
3
3
3
3
5
10
6
2
7
7
132
Financial information | AkzoNobel Report 2016
2015
1,066
2016
1,052
(191)
(2)
(193)
137
(30)
9
116
(77)
989
887
102
989
(748)
151
(597)
(104)
59
(43)
(88)
(685)
367
290
77
367
Consolidated balance sheet
at December 31, before allocation of profit
In € millions
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
Investments in associates and joint ventures
Other financial non-current assets
Total non-current assets
Current assets
Inventories
Current tax assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Non-controlling interests
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
Total current liabilities
Total equity and liabilities
Note
2015
2016
8
9
6
10
11
12
6
13
17
14
14
15
16
6
17
17
6
18
15, 16
4,156
4,003
1,057
165
903
1,504
69
2,741
1,365
6,484
496
1,285
580
360
2,161
430
243
3,473
451
4,413
4,190
1,017
161
558
1,532
59
2,787
1,479
6,553
481
1,380
558
367
2,644
87
229
3,475
422
10,339
5,857
16,196
7,034
4,949
4,213
16,196
10,284
5,679
15,963
6,980
4,386
4,597
15,963
AkzoNobel Report 2016 | Financial information
133
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 and depreciation
Impairment losses
Financing income and expenses
Results from associates and joint ventures
Pre-tax result on acquisitions and divestments
Income tax
Changes in working capital
Changes in provisions
Interest paid
Income tax paid
Other changes
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
Dividends paid
Buy-out of non-controlling interests
Net cash from financing activities
Net cash from 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
Net cash and cash equivalents at December 31
134
Financial information | AkzoNobel Report 2016
Note
2
1,066
(6)
8,9
8,9
5
10
2
6
19
19
626
22
114
(17)
(70)
416
46
(658)
(151)
(261)
9
9
(651)
22
11
(9)
160
(41)
829
(1,518)
(281)
(2)
2
17
17
2
17
2015
2016
1,052
2
606
63
114
(43)
(31)
394
1
(504)
(87)
(285)
15
1,136
1,297
(634)
21
23
(416)
53
(26)
916
(776)
(336)
(7)
(979)
(203)
115
(6)
109
1,317
15
1,441
(508)
(972)
(344)
(6)
(350)
1,649
18
1,317
Consolidated statement of changes in equity
Attributable to shareholders of the company
In € millions
Balance at January 1, 2015
Profit for the period
Reclassification into the statement of income
Other comprehensive income
Tax on other comprehensive income
Comprehensive income for the period
Dividend
Equity-settled transactions1
Issue of common shares
Acquisitions and divestments
Subscribed
share capital
Additional
paid-in
capital
Cash flow
hedge
reserve
Cumulative
translation
reserve
Other (legal)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling
interests
Group equity
492
463
–
–
–
–
–
4
–
2
–
–
–
–
–
–
137
–
(2)
–
(19)
–
26
(56)
7
(23)
–
–
–
–
(43)
–
(5)
127
2
124
–
–
–
–
4.897
5.790
979
–
(191)
(2)
786
(363)
32
–
(3)
979
21
(120)
7
887
(222)
32
–
(3)
477
87
–
15
–
102
(86)
–
2
1
6.267
1.066
21
(105)
7
989
(308)
32
2
(2)
Balance at December 31, 2015
498
598
(42)
81
5.349
6.484
496
6.980
Profit for the period
Reclassification into the statement of income
Other comprehensive income
Tax on other comprehensive income
Comprehensive income for the period
Dividend
Equity-settled transactions1
Issue of common shares
Acquisitions and divestments
–
–
–
–
–
5
–
1
–
–
–
–
–
–
149
–
(1)
–
Balance at December 31, 2016
504
746
1 Includes a tax charge of €3 million (2015: €1 million)
–
21
38
(14)
45
–
–
–
–
3
–
–
(99)
(29)
(128)
–
–
–
–
970
–
(748)
151
373
(393)
20
–
(2)
970
21
(809)
108
290
(239)
20
–
(2)
82
–
(5)
–
77
(93)
–
–
1
1.052
21
(814)
108
367
(332)
20
–
(1)
(47)
5.347
6.553
481
7.034
AkzoNobel Report 2016 | Financial information
135
Segment information
Decorative Paints
Whether our customers are professionals or DIY-ers, they
want great paint that gives a great finish. We supply a
variety of quality products for every situation and surface,
including paints, lacquers and varnishes. We also offer
a range of mixing machines and color concepts for the
building and renovation industry. Our specialty coatings for
metal, wood and other building materials lead the market.
Performance Coatings
We are a leading supplier of performance coatings with
strong brands and technologies. Our high quality products
are used to protect and enhance everything from ships,
cars, aircraft, yachts and architectural components
(structural steel, building products, flooring) to consumer
goods (mobile devices, appliances, beverage cans,
furniture) and oil and gas facilities.
Specialty Chemicals
As a major producer of specialty chemicals with leadership
positions in many markets, like surfactants, polymer
chemistry, pulp processing and chlor-alkali, we make sure
that industries worldwide are supplied with high quality
ingredients and process aids for the manufacture of
life’s essentials.
Information per Business Area
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
Revenue from
third parties
Group revenue
Amortization and
depreciation
2015
3,954
5,938
4,965
2
2016
3,792
5,640
4,760
5
2015
4,007
5,955
4,988
(91)
2016
3,835
5,665
4,783
(86)
14,859
14,197
14,859
14,197
2015
(150)
(146)
(320)
(10)
(626)
2016
(134)
(140)
(324)
(8)
(606)
2015
–
–
31
80
111
2016
9
(24)
–
32
17
2015
345
792
609
(173)
1,573
2016
366
735
629
(211)
1,519
Incidentals
Operating income
ROS%1
Invested capital
Total assets
Total liabilities
Capital expenditures
2015
2,643
2,510
3,352
1,324
9,829
2016
2,595
2,713
3,494
1,464
2015
4,588
4,359
4,570
2,446
2016
4,511
4,674
4,755
2,256
10,266
15,963
16,196
2015
1,741
1,624
1,252
4,366
8,983
2016
1,687
1,811
1,315
4,349
9,162
2015
158
147
331
15
651
2016
107
159
356
12
634
2015
8.6
13.3
11.6
–
9.8
2015
11.7
29.4
16.3
–
14.0
2016
9.3
13.4
13.2
–
10.6
ROI%2
2016
12.8
29.4
17.9
–
15.0
1 ROS% is calculated as EBIT (operating income excluding incidentals) as percentage of group revenue.
2 ROI% is calculated as EBIT (operating income excluding incidentals) of the last 12 months as percentage of average invested capital of the last 12 months. Invested capital is calculated as total assets (excluding cash and cash
equivalents, investments in associates, the receivable from pension funds in an asset position and assets held for sale) less current tax liabilities, deferred tax liabilities and trade and other payables.
Regional information
In € millions
The Netherlands
Other European countries
US and Canada
Latin America
Asia
Other regions
Total
136
Financial information | AkzoNobel Report 2016
Revenue by region of destination
Intangible assets and property,
plant and equipment
Invested capital
Capital expenditures
2015
693
5,687
2,494
1,483
3,796
706
2016
651
5,456
2,351
1,338
3,710
691
14,859
14,197
2015
1,681
2,256
1,208
401
2,515
98
8,159
2016
1,805
2,369
1,278
500
2,539
112
8,603
2015
2,070
3,035
1,865
580
2,099
180
9,829
2016
2,214
3,229
1,844
721
2,064
194
10,266
2015
102
258
100
34
146
11
651
2016
114
210
103
42
157
8
634
Notes to the
Consolidated financial
statements
1
Note 1: Summary of significant accounting policies
General information
Consolidation
Akzo Nobel N.V. is a company headquartered in the
Netherlands. The address of our registered office is
Christian Neefestraat 2, Amsterdam. We have filed a list
of subsidiaries, associated companies and joint ventures,
drawn up in conformity with Article 379 and 414 of
Book 2 of the Dutch Civil Code, with the Trade Registry
of Amsterdam.
We have prepared the Consolidated financial statements
of Akzo Nobel N.V. in accordance with International Finan-
cial Reporting Standards (IFRS) as adopted by the Euro-
pean Union. They also comply with the financial reporting
requirements included in Title 9 of Book 2 of the Dutch
Civil Code, as far as applicable. The Consolidated financial
statements have been prepared on a going concern basis.
The Management report within the meaning of Article 391
of Book 2 of the Dutch Civil Code consists of the following
parts of the annual report:
• AkzoNobel at a glance
• How AkzoNobel performed in 2016
• How AkzoNobel created value in 2016
• CEO statement
• Strategic performance
• Leadership: Statement of the Board of Management
• Governance and compliance: Corporate
governance statement
• Governance and compliance: Remuneration report
• Financial information: Note 3 Operating income
• Financial information: Note 23 Financial
risk management
The section Strategic performance provides information on
the developments during 2016 and the results. This section
also provides information on cash flow and net debt,
capital expenditures, innovation activities and employees.
On February 14, 2017, the Board of Management
authorized the financial statements for issue. The financial
statements as presented in this report are subject to
adoption by the Annual General Meeting of shareholders.
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
Accounting pronouncements, which became effective
for 2016, had no material impact on our Consolidated
financial statements.
Discontinued operations (Note 2)
A discontinued operation is a component of our business
that represents a separate major line of business or
geographical area of operations that has been disposed
of or is held for sale, or is a subsidiary acquired exclusively
with a view to resale. Assets and liabilities are classified
as held for sale if it is highly probable that the carrying
value will be recovered through a sale transaction within
one year rather than through continuing use. When
reclassifying assets and liabilities as held for sale, we
recognize the assets and liabilities at the lower of their
carrying value or fair value less selling costs. Assets held
for sale are not depreciated but tested for impairment.
Use of estimates
The preparation of the financial statements in compliance
with IFRS requires management to make judgments,
estimates and assumptions that affect amounts reported in
the financial statements. The estimates and assumptions
are based on experience and various other factors that
are believed to be reasonable under the circumstances
AkzoNobel Report 2016 | Financial information
137
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
statements 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 8, 9)
• Post-retirement benefits (Note 15)
• Provisions (Note 16)
Statement of cash flows
We have used the indirect method to prepare the
statement of cash flows. Cash flows in foreign currencies
have been translated at transaction rates. Acquisitions or
divestments of subsidiaries are presented net of cash and
cash equivalents acquired or disposed of, respectively.
Cash flows from derivatives are recognized in the
statement of cash flows in the same category as those
of the hedged items.
Operating segments
We determine and present operating segments (Business
Areas) based on the information that is provided to the
Executive Committee, our chief operating decision-
maker during 2016, to make decisions about resources
to be allocated to the Business Area and assess its
performance. Business Area results reported to the
Executive Committee include items directly attributable
to a Business Area as well as those items that can be
allocated on a reasonable basis. Unallocated items
comprise mainly corporate assets and corporate costs
and are reported in Business Area “Corporate and other”.
138
Financial information | AkzoNobel Report 2016
Foreign currencies
Exchange rates of key 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 principal exchange rates against the euro used in prepar-
ing the balance sheet and the statement of income are:
Balance sheet
Statement of income
2015
2016
% 2015
2016
US dollar
1.092
1.052
3.8
1.111
1.107
%
0.3
Pound sterling
0.736
0.856
(14.0)
0.726
0.821
(11.5)
Swedish krona
9.175
9.562
(4.0)
9.355
9.471
Chinese yuan
7.177
7.339
(2.2)
7.002
7.368
Brazilian real
4.326
3.425
26.3
3.700
3.854
(1.2)
(5.0)
(4.0)
The assets and liabilities of entities with other functional
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 entities with other functional currencies are translated
into the functional currency, using the exchange rates at
transaction date.
Foreign exchange differences resulting from translation into
the functional currency of investments in subsidiaries and
of intercompany loans of a permanent nature with other
functional currencies are recorded as a separate component
(cumulative translation reserves) within Other comprehensive
income. These cumulative translation adjustments are
reclassified (either fully or partly) to the statement of
income upon disposal (either fully or partly) or liquidation
of the foreign subsidiary to which the investment or the
intercompany loan with a permanent nature relates to.
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).
Revenue recognition
Revenue is defined as the revenue from the sale and delivery
of goods and services and royalty income, net of rebates,
discounts and similar allowances, and net of sales tax.
Revenue is recognized when the significant risks and rewards
have been transferred to a third party, recovery of the
consideration is probable, the associated costs and possible
return of goods can be estimated reliably and there is no
continuing management involvement with the goods. For
revenue from sales of goods these conditions are generally
met at the time the product is shipped and delivered to the
customer, depending on the delivery conditions. Service
revenue is generally recognized as services are rendered.
Post-retirement benefits
(Note 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
foundation. We also provide post-retirement benefits other
than pensions to certain employees, which 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 net interest on the
net defined benefit liability/asset. 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 settlement of the plan liabilities.
The effect of these so-called asset ceiling restrictions and
any changes therein is recognized in Other comprehensive
income. Remeasurement gains and losses, which arise
in calculating our obligations, 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.
Net interest on the net defined benefit liability is included
in financing expenses related to pensions. Other charges
and benefits recognized are reported in Operating income,
unless 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
recognized in the statement of income in the period in
which they arise.
Share-based compensation
(Note 4)
We have a performance-related share plan and a share-
matching 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-related 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 Total Shareholders Return (TSR)-linked vesting
condition is measured using a Monte Carlo simulation
model. The amount recognized as an expense is adjusted
to reflect the actual number of performance-related
shares that vest, except when forfeiture or extra vesting 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 determining the amount of current and deferred tax
we also take into account the impact of uncertain tax
positions and whether additional taxes and interest may
be due. Income tax is recognized in the statement of
income, unless it relates to items recognized in Other
comprehensive income or equity.
Current tax includes the expected tax payable and
receivable on the taxable income for the year, using tax
rates enacted or substantially enacted at reporting date,
as well as (any adjustments to) tax payable and receivable
with respect to previous years.
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 determination
of deferred tax liabilities to the extent of earnings expected
to be distributed by subsidiaries in the foreseeable future.
Deferred tax positions are not discounted.
Earnings per share (Note 7)
Basic earnings per share is calculated by dividing the profit
for the period attributable to shareholders of the company
by the weighted average number of common shares
outstanding during the year. Diluted earnings per share
is calculated by adjusting the weighted average number
of common shares outstanding during the year for the
diluting effect of the shares of the performance-related
shareplan and for the share-matching plan.
Adjusted earnings per share represents the basic earnings
per share from continuing operations excluding incidentals
in operating income, amortization of intangible assets and
income tax on these adjustments.
Government grants
Deferred tax is recognized using the liability method on
temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the
Consolidated financial statements. 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
Government grants related to costs are deducted from
the relevant costs 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.
AkzoNobel Report 2016 | Financial information
139
Intangible assets (Note 8)
Intangible assets are valued at cost less accumulated
amortization and impairment charges. Intangible assets
with an indefinite useful life, such as goodwill and certain
brands, are not amortized, but tested for impairment
annually. Goodwill in a business combination represents
the excess of the consideration paid over the net fair value
of the acquired identifiable assets, liabilities and contingent
liabilities. 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, emission rights and capitalized develop-
ment 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 for brands with finite useful lives, five to
25 years for customer lists and three to 15 years for other
intangibles. Amortization methods, useful lives and residual
values are reassessed annually.
Property, plant and equipment
(Note 9)
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 borrowing cost 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
equipment and machinery is ten to 15 years, and for build-
ings ranges from 20 to 30 years. Land is not depreciated.
In the majority of cases residual value is assumed to be
insignificant. Depreciation methods, useful lives and
residual values are reassessed annually.
Costs of major maintenance activities are capitalized and
depreciated over the estimated useful life. Maintenance
costs which cannot be separately defined as a component
of property, plant and equipment are expensed in the
period in which they occur.
We recognize conditional asset retirement obligations
in the periods in which sufficient information becomes
available to reasonably estimate the cash outflow.
Impairments (Note 8, 9)
We assess the carrying value of intangible assets and
property, plant and equipment whenever events or
changes in circumstances indicate that the carrying
value of an asset may not be recoverable. In addition,
for goodwill and other intangible assets with an indefinite
useful life, the carrying value is at least reviewed 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.
lease payments. Subsequent to initial recognition, the
asset is depreciated using a straight-line method, based
on the lower of the estimated useful life or the lease term.
The interest expenses are recognized as other financing
expenses over the lease term.
Payments made under operational leases are recognized
in the statement of income on a straight-line basis over the
term of the lease.
Associates and joint ventures
(Note 10)
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 any impairment losses.
Inventories (Note 12)
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.
Leases (Note 9, 17, 20)
Provisions (Note 16)
Lease contracts in which we have substantially all the risks
and rewards of ownership are classified as financial leases.
Upon initial recognition, the leased asset is measured at
the lower of its fair value and the present value of minimum
We recognize provisions when a present legal or construc-
tive obligation as a result of a past event exists, it is probable
that an outflow of economic benefits is required to settle the
obligation and the amount can be reliably estimated. Provi-
140
Financial information | AkzoNobel Report 2016
sions 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 Financing
income and 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 underly-
ing products or services are sold, generally based on
historical warranty data.
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 estimated 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,
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 11) and
Trade and other receivables (Note 13)
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 17)
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 and expenses.
Long-term and short-term borrowings (Note 17,
23) and Trade and other payables (Note 18)
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 Financing expenses.
The fair value of borrowings, used for disclosure purposes,
is determined on the basis of listed market price, if
available. If a listed market price is not available, the fair
value is calculated based on the present value of principal
and interest cash flows, discounted at the interest
at the reporting date, 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 2017 and beyond have been assessed
for their potential impact. The most important upcoming
changes are:
Other new IFRS accounting standards
Standard
Published
Implementation date
of the standard
Endorsed by the
European Union Anticipated impact
IFRS 9, “Financial
Instruments”
2009-2014
January 1, 2018
November 22,
2016
IFRS 15, “Revenue
from Contracts with
Customers”
May 28,
2014
January 1, 2018
September 22,
2016
IFRS 16, “Leases”
January 13,
2016
January 1, 2019
Not yet endorsed
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. The standard contains new
requirements for impairment of financial assets and for hedge accounting. In 2015, we started the assessment of the impact of IFRS 9 on our
Consolidated financial statements and continued in 2016. Based on the assessment performed we do not expect this new standard to have a
significant impact on 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. In 2015, we started the assessment of the impact of IFRS 15 on our Consolidated financial statements, and continued in 2016. Based on
the assessment performed so far we do not expect this new standard to have a significant impact on our Consolidated financial statements.
IFRS 16 replaces existing guidance on lessee accounting for leases. It requires lessees to bring most leases on balance sheet in a single lease
accounting model, recognizing a right-of-use asset and a lease liability. Based on the results of our assessment so far, we expect total assets to
increase between 5 and 10 percent. It should be noted that the actual impact will depend on the number, size and remaining duration of lease
contracts and any expected renewals at the moment of implementation. We do not expect the impact on operating income to be significant.
AkzoNobel Report 2016 | Financial information
141
2
Note 2: Scope of consolidation
Acquisition of BASF’s Industrial Coatings
business
On December 14, 2016, we acquired BASF’s Industrial
Coatings business. The transaction included two manu-
facturing plants, technologies, patents and trademarks,
as well as securing supply to customers worldwide. The
business supplies products for a number of end uses,
including coil, furniture foil and panel coatings, wind energy
and general industry, and commercial transport. The
acquisition strengthened our position in the important coil
coatings market and fits well with our existing business,
allowing us to offer essential solutions to our customers.
The goodwill is attributable to the expected synergies of
combining the BASF’s Industrial Coatings business with
our existing business. The total amount of goodwill that is
expected to be deductible for tax purposes is €164 million.
As a result of the closing date of December 14, 2016, the
revenue and operating income contribution of the acquired
business was insignificant. As the purchase price alloca-
tion is provisional it was deemed impracticable to disclose
information on the consolidated pro-forma revenue and
operating income for 2016 as if the acquisition had
occurred on January 1, 2016.
Recognized fair values at acquisition
BASF's
Industrial
Coatings
business
Other
acquisitions
221
165
4
–
18
1
–
(17)
(3)
–
389
2
–
46
(9)
7
3
2
–
(9)
(2)
40
Total
223
165
50
(9)
25
4
2
(17)
(12)
(2)
429
–
(17)
(17)
In € millions
Goodwill
Other intangibles
Property, plant and equipment
Investment in associates and
joint ventures
Inventories
Trade and other receivables
Cash and cash equivalents
Provisions
Deferred tax assets/(liabilities)
Trade and other payables
Net identifiable assets and
liabilities
Recognized in the statement
of income
Acquisition related costs of €13 million are included in
Other results in the statement of income and in the
Net cash from operating activities in the statement of
cash flows.
Other acquisitions
Other acquisitions are deemed to be individually
immaterial. Other acquisitions include the acquisition of
the remaining 50 percent stake in EkO Peroxide LLC
in January 2016, which mainly impacted the statement
of income on the line Results from associates and joint
ventures. EkO Peroxide LLC was treated as consolidated
company thereafter.
In March 2015, we obtained the remaining 50 percent
stake in Delesto B.V., which was treated as consolidated
company thereafter.
Divestments
In 2016, no significant divestments occurred.
Purchase consideration
389
Cash and cash equivalents
acquired
To be received/(paid) in 2017
and later years
–
9
23
(2)
(3)
412
(2)
6
Discontinued operations
The results and net cash out from operating activities both
in 2015 and 2016 mainly relate to settlements for previ-
ously divested businesses.
Net cash outflow
398
18
416
Discontinued operations
In € millions
Results related to discontinued
operations in previous years
Tax related to discontinued operations
in previous years
Profit for the period
2015
(3)
9
6
Cash flows from discontinued operations
In € millions
Net cash from operating activities
Cash flows from discontinued
operations
2015
(6)
(6)
2016
(3)
1
(2)
2016
(6)
(6)
Material subsidiaries
The Consolidated financial statements comprise the
assets, liabilities, income and expenses of approximately
360 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) or based on qualitative aspects.
Material subsidiaries included in the table are 100 percent
owned and meet these criteria.
Material subsidiaries
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.
Imperial Chemical Industries Limited
The Netherlands
United Kingdom
142
Financial information | AkzoNobel Report 2016
3
Note 3: Operating income
EBIT (operating income excluding Incidentals)
In 2016, EBIT increased 3 percent to €1,502 million (2015:
€1,462 million), reflecting the positive effects of volume
growth, continuous improvement and lower costs.
• In Decorative Paints, EBIT increased 3 percent as a
result of volume growth, continuous improvement and
cost discipline, partly offset by currency impacts
• In Performance Coatings, EBIT decreased
4 percent driven by adverse currencies and price/mix
effects and weakness in the marine and oil and gas
industries, partly offset by continuous improvement
• In Specialty Chemicals, EBIT increased by 9 percent
due to improved volumes and operational efficiencies
• EBIT in Corporate and other improved due to lower
costs, driven by improvement programs and the
implementation of the Global Business Services (GBS)
model, and favorable one-time adjustments on legacy
provisions, partly offset by higher restructuring expenses
Raw material prices were lower at the beginning of the
year compared to the same period in 2015. In Q4, raw
material costs were roughly flat versus the previous year,
due to increases throughout the year. In most regions
foreign currency effects adversely impacted raw material
costs in local currencies.
Costs by nature 2015
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Costs by nature 2016
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Employee
benefits
(1,004)
(1,022)
(564)
(230)
92
(2,728)
Employee
benefits
(1,014)
(998)
(532)
(241)
103
(2,682)
Amortization
Depreciation
Purchases and
other costs
(7)
(97)
(28)
(7)
–
(139)
(361)
(74)
(35)
(17)
–
(487)
(6)
(88)
(23)
(7)
–
(124)
(365)
(66)
(33)
(18)
–
(482)
(7,412)
(1,828)
(618)
(93)
19
(6,804)
(1,795)
(608)
(97)
(86)
Amortization
Depreciation
Purchases and
other costs
Total
(8,784)
(3,021)
(1,245)
(347)
111
Total
(8,189)
(2,947)
(1,196)
(363)
17
(9,932)
(13,286)
Operating income
In 2016, operating income was positively impacted by
Incidentals of €17 million, including adjustments to post-
retirement benefit provisions, asset impairments and
acquisition-related costs. The Incidentals impacted operat-
ing income of Decorative Paints by positive
€9 million, Performance Coatings by negative €24 million
and operating income in Corporate and other by positive
€32 million.
In 2015, operating income was positively impacted by
€111 million Incidentals. In Specialty Chemicals the book
profit, net of related costs, of €31 million with respect
to the divestment of the Paper Chemicals business was
reported as Incidentals. Operating income in Corporate
and other was impacted by Incidentals, including a
recovery related to the 2014 fraud case
(€42 million) and several adjustments to provisions, mainly
for post-retirement benefits and legacy items.
(9,390)
(12,678)
AkzoNobel Report 2016 | Financial information
143
4
Note 4: Employee benefits
Salaries, wages and other employee benefits in
operating income
Share-based compensation
In € millions
Salaries and wages
Post-retirement costs
Other social charges
Total
2015
(2,188)
(128)
(412)
2016
(2,152)
(112)
(418)
(2,728)
(2,682)
Share-based compensation relates to the equity-settled
performance-related share plan, as well as the share-
matching plan. Charges recognized in the 2016 statement
of income for share-based compensation amounted to
€23 million and are included in salaries and wages
(2015: €33 million).
Average number of employees
Average number during the year
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2015
15,100
19,700
9,300
2,000
46,100
2016
14,800
19,300
9,000
2,700
45,800
The average number of employees working outside
the Netherlands was 40,900 (2015: 41,200).
Employees
At year-end
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and other
Total
2015
14,900
19,300
9,100
2,300
45,600
2016
14,700
19,700
9,000
2,600
46,000
At year-end 2016, the number of employees increased
by 1 percent to 46,000 people (year-end 2015: 45,600
people), mainly due to acquisition of BASF’s Industrial
Coatings business. With the introduction of our GBS
organization as of January 1, 2016, some employees
are now reported at corporate level instead of within the
Business Areas.
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 2016 was 579 (2015: 593).
The shares of the series 2013-2015 have vested and were
delivered to the participants in 2016.
The 2014 conditional grant of shares is linked for
35 percent to the relative TSR performance of the
company compared with the peer group, 35 percent
to the return on investment (ROI) performance of the
company and the remaining 30 percent to the ranking of
the company in the RobecoSAM benchmark.
The conditional shares of the 2014-2016 series vested
as follows:
Performance-related shares
• Our TSR performance over the period 2014-2016
resulted in a ninth position within the ranking of the
peer group companies. This did not result in vesting of
conditional shares
• Our ROI performance at the end of 2016 resulted in a
vesting of 104.3 percent for this part of the long-term
incentive
• The average position in the RobecoSAM benchmark
resulted in a vesting of 100 percent for this part of the
long-term incentive
As a result, the conditional shares of the 2014-2016
series vested for 66.49 percent (series 2013-2015:
90.29 percent), including dividend shares of 7.63 percent,
the final vesting percentage amounted to 71.56 percent
(series 2013-2015: 97.48 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 share price of a common AkzoNobel share at year-
end amounted to €59.39 (2015: €61.68). 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 was
€53.69 (2015: €54.11) and was for 35 percent based on a
market condition (TSR: €40.20) and for 65 percent based
on non-market based performance conditions (€60.96).
Series
2013 – 2015
2014 – 2016
2015 – 2017
2016 – 2018
Total
Balance per
January 1, 2016
Granted
in 2016
Vested
in 2016
Forfeited in
2016
Dividend in
20161
Balance at
December 31, 2016
Vested on
January 1, 2017
662,929
606,959
599,094
4,176
15,418
–
616,697
–
(662,929)
–
–
–
–
(226,292)
(39,510)
(24,922)
1,868,982
636,291
(662,929)
(290,724)
–
14,098
14,482
15,445
44,025
–
398,941
589,484
607,220
–
398,941
–
–
1,595,645
398,941
144
Financial information | AkzoNobel Report 2016
1 Equivalent in shares related to accumulated dividend, which is included in the balances on balance sheet date.
5
Note 5: Financing income and expenses
6
Note 6: Income tax
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.
The parameters applied for the fair value calculations are:
share price at date of grant (opening of January 4, 2016):
€60.96, expected volatility: 23.82 percent, and risk-free
interest rate: negative 0.09 percent.
Expected volatility was determined based on the share
price development of the past three years of AkzoNobel.
The risk-free interest rate was based on a Dutch zero-
coupon government bond.
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
incentive in AkzoNobel shares may have such shares
matched by the company. The investment in AkzoNobel
shares in 2016 resulted in a total of 6,734 granted
potential matching shares. During 2016, 14,402 potential
matching shares were matched, leading to a total of
potential matching shares at December 31, 2016 of
16,468 shares.
Financing income and expenses
In € millions
Financing income
Financing expenses
Net interest on net debt
Other interest
Financing expenses related to post-
retirement benefits
Interest on provisions
Other items
Net other financing charges
Net financing expenses
2015
28
(125)
(97)
(13)
(17)
13
(17)
(114)
2016
28
(98)
(70)
(10)
(40)
6
(44)
(114)
Net financing expenses for the year were €114 million
(2015: €114 million). Significant variances are:
• Net interest on net debt decreased by €27 million to
€70 million (2015: €97 million), mainly due to lower
financing expenses as a result of the repayment of high
interest bonds which were partly replaced by a lower
interest bond
• Net other financing charges increased by €27 million
to €44 million (2015: €17 million) as the decrease of
discount rates on provisions in 2016 exceeded the
decrease in 2015
The fair value of the potential matching shares at the date
of the share investment is amortized as a charge against
income over the vesting period.
The average interest rate used for capitalized interest was
2.9 percent (2015: 3.9 percent) and amounted to
€8 million (2015: €12 million).
Pre-tax income from continuing operations amounted to a
profit of €1,448 million (2015: €1,476 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
2015
2016
Current tax expense for
The year
Adjustments for previous years
Total current tax expense
Deferred tax expense for
Origination and reversal of temporary
differences and tax losses
(De)recognition of deferred tax assets
Changes in tax rates
Total deferred tax expense
Total
(332)
27
(305)
(286)
13
(273)
(82)
(105)
(20)
(9)
(111)
(416)
(18)
2
(121)
(394)
The total deferred tax charge, including discontinued
operations was €120 million (2015: €109 million). The total
tax charge, including discontinued operations, was
€393 million (2015: €407 million).
The average interest rate on total debt was 3.5 percent
(2015: 4.0 percent).
Fair value of matching shares
The fair value of the matching shares (€59.43) was based
on the share price on the investment date, discounted for
expected dividends over the holding period (2015: €67.81).
The parameters applied for the fair value calculations are:
share price at purchase date of voluntary investment (April 19,
2016): €63.49, expected dividend yield: 2.18 percent.
For an overview of the matching shares outstanding for the
members of the Board of Management as of December
31, 2016, we refer to Note 22.
AkzoNobel Report 2016 | Financial information
145
Income tax recognized in equity
Unrecognized deferred tax assets
In € millions
Tax losses and tax credits
Deductible temporary differences
Total
2015
165
267
432
2016
172
203
375
In € millions
Currency exchange differences on
intercompany loans of a permanent
nature
Cash flow hedges
Share-based compensation
Post-retirement benefits
Total
Current tax
Deferred tax
Total
2015
2
7
(1)
(2)
6
–
6
6
2016
(29)
(14)
(3)
151
105
(1)
106
105
Expiration year of loss carryforwards
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
2017
45
(27)
2018
54
(36)
2019
46
(34)
2020
43
(33)
2021
33
(23)
Later
Unlimited
544
(34)
2,623
(68)
Total
3,388
(255)
Total recognized
18
18
12
10
10
510
2,555
3,133
A deferred tax liability is recognized for taxable temporary
differences related to investments in subsidiaries, branches
and associates and interests in joint ventures, to the extent
that it is probable that these will reverse in the foresee-
able future. The expected net tax impact of the remaining
differences for which no deferred tax liabilities have been
recognized is €30 million.
The income tax recognized in equity in 2016 includes the
positive impact of the re-recognition of certain post-retire-
ment benefits related deferred tax assets.
Effective tax rate reconciliation
The effective income tax rate based on the statement of
income is 27.2 percent.
Effective 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 tax rate
2015
25.0
1.9
26.9
0.4
1.4
0.7
(1.2)
28.2
2016
25.0
(0.1)
24.9
0.8
1.3
1.3
(1.1)
27.2
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
dividends. Based on the Dutch tax system there is a
limited credit for such taxes.
Deferred tax assets and liabilities
From the total amount of recognized net deferred tax
assets, €321 million (2015: €496 million) is related to
entities that have suffered a loss in either 2016 or 2015
and where utilization is dependent on future taxable
profit in excess of the charges arising from the reversal
of existing taxable temporary differences. For these
entities, net deferred tax assets were recognized
based on management’s long-term projections and tax
planning strategies.
The usage of the tax loss carryforwards recognized in the
balance sheet will affect the cash tax rate in coming years.
146
Financial information | AkzoNobel Report 2016
Deferred tax assets and liabilities
In € millions
Deferred tax assets
Deferred tax liabilities
Balance at January 1
Movement in deferred tax:
Changes in exchange rates
Recognized in income
Recognized in Equity/Other
comprehensive income
Other
Balance at December 31
Deferred tax assets
Deferred tax liabilities
2015
1,152
(412)
740
62
(109)
6
(2)
697
1,057
(360)
2016
1,057
(360)
697
(21)
(120)
106
(12)
650
1,017
(367)
Deferred tax assets and liabilities per balance sheet item
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
Assets
Liabilities
Net balance
Assets
Liabilities
December 31, 2015
December 31, 2016
(354)
(39)
194
135
332
861
(432)
697
–
697
61
78
310
159
396
861
(432)
1,433
(376)
1,057
415
117
116
24
64
–
–
736
(376)
360
(358)
(45)
309
107
310
702
(375)
650
–
650
66
75
313
208
375
702
(375)
1,364
(347)
1,017
424
120
4
101
65
–
–
714
(347)
367
7 Note 7: Earnings per share
Profit for the period
In € millions
Profit before tax from
continuing operations
Income tax
Profit from continuing operations
Profit for the period attributable to
non-controlling interests
Profit for the period from
continuing operations attributable
to shareholders of the company
Profit for the period from
discontinued operations
Profit for the period attributable to
shareholders of the company
2015
1,476
(416)
1,060
(87)
2016
1,448
(394)
1,054
(82)
973
972
6
(2)
979
970
Weighted average number of shares
Number of shares
Issued common shares at
January 1
Effect of issued common shares
during the year
Shares for basic earnings per
share for the year
Effect of dilutive shares
2015
2016
246,043,094
248,976,428
1,777,510
1,937,945
247,820,604
250,914,373
For performance-related shares
1,826,898
1,054,797
For share-matching plan
24,136
16,468
Shares for diluted earnings
per share
249,671,638
251,985,638
AkzoNobel Report 2016 | Financial information
147
8 Note 8: Intangible assets
Earnings per share
Intangible assets
2015
2016
In € millions
Goodwill
Brands
Customer
lists
Other
intangibles
Balance at January 1, 2015
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairments
Carrying value
Movements in 2015
Acquisitions through business combinations
Investments – including internally developed intangibles
Divestments
Amortization
Impairments
Changes in exchange rates
Total movements
Balance at December 31, 2015
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairments
Carrying value at December 31, 2015
Movements in 2016
Acquisitions through business combinations
Investments – including internally developed intangibles
Divestments
Amortization
Impairments
Changes in exchange rates
Total movements
Balance at December 31, 2016
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairments
Carrying value at December 31, 2016
1,340
2,267
1,027
–
(94)
1,246
–
(146)
2,121
3
–
(2)
–
–
77
78
–
–
–
(12)
–
3
(9)
–
(564)
463
–
–
(70)
–
29
(42)
1,423
2,260
1,071
–
(99)
1,324
–
(148)
2,112
223
–
–
–
–
6
229
4
–
–
(12)
(3)
24
13
–
(650)
421
137
–
(1)
(64)
(37)
–
35
1,652
2,290
1,204
–
(99)
1,553
–
(165)
2,125
–
(748)
456
401
255
(344)
312
–
37
(8)
(57)
(1)
16
(13)
409
246
(356)
299
24
17
(5)
(48)
(4)
(4)
(20)
399
221
(341)
279
Total
5,035
255
(1,148)
4,142
3
37
(11)
(139)
(1)
125
14
5,163
246
(1,253)
4,156
388
17
(6)
(124)
(44)
26
257
5,545
221
(1,353)
4,413
In €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
3.93
3.90
0.02
0.02
3.95
3.92
3.88
3.86
(0.01)
(0.01)
3.87
3.85
2016
1,448
(17)
124
(431)
(82)
1,042
Adjusted earnings per share
Adjusted profit from continuing operations
In € millions
Profit before tax from
continuing operations
Incidentals reported in
operating income
Amortization of intangible assets
Adjusted income tax
Non-controlling interests
Adjusted profit from continuing
operations attributable to share-
holders of the company
2015
1,476
(111)
139
(421)
(87)
996
Adjusted earnings per share (in €)
4.02
4.15
148
Financial information | AkzoNobel Report 2016
Goodwill and other intangibles per segment
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Total
Average revenue growth rates
In % per year
Decorative Paints
Performance Coatings
Specialty Chemicals
2017-2021
3.4%
2.6%
2.1%
Brands with
indefinite useful lives
Other intangibles
with finite useful lives
Total intangibles
2015
36
731
557
Goodwill
2016
40
954
559
2015
1,907
–
–
2016
1,928
–
–
1,324
1,553
1,907
1,928
Brands with indefinite useful lives are almost fully related
to Dulux, which is the major brand, due to its global
presence, high recognition and strategic nature. Other
intangibles include licenses, know-how, intellectual prop-
erty rights, emission rights and development cost. Both at
year-end 2016 and 2015, there were no purchase commit-
ments for individual intangible assets. No intangible assets
were registered as security for bank loans.
Impairment
In 2016, we recorded incidental impairment charges of
€43 million for brands, customer lists and other intangibles
to align with the value in use as a result of a revised busi-
ness outlook for certain activities in Performance Coatings.
The discount rates used for the fair value calculations
range from 10.3 percent to 13.8 percent.
Impairment testing
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 in prin-
ciple based on cash flow projections of the five-year plan.
Elements considered to determine if a diffferent approach
would be more appropriate are, among others, high
growth/emerging economies, geo expansion opportuni-
ties, introduction of new product ranges and opportunities
from market consolidation. In 2016, the above exception
was applied for Decorative Paints Asia and Decorative
Paints Latin America, for which the revenue growth and
2015
265
278
382
925
2016
228
372
332
932
2015
2,208
1,009
939
4,156
2016
2,196
1,326
891
4,413
EBITDA-margin development projections were extra-
polated beyond the five-year explicit forecast period for
another five years, applying reduced average growth rates.
The key assumptions used in the projections are:
• Revenue growth: based on actual experience, analysis
of market growth and the expected market share
development
• EBITDA-margin development: based on actual
experience and management’s long-term projections
For all business units, a terminal value was calculated
based on the long-term inflation expectations of
1.2 percent. The estimated pre-tax cash flows are
discounted to their present value using a pre-tax weighted
average cost of capital. The discount rates are determined
for each business unit and range from 8.3 percent to
11.4 percent, with a weighted average of 9.3 percent.
A sensitivity test for growth assumptions (a 50 percent
reduction of the growth rate), EBITDA-margin development
assumptions (a one percentage point decrease) as
well as for the weighted average cost of capital (a one
percentage point increase) confirms sufficient headroom in
all businesses.
No impairment charges were recognized in relation to the
annual impairment test, both in 2015 and 2016.
AkzoNobel Report 2016 | Financial information
149
9
Note 9: Property, plant and equipment
Property, plant and equipment
In € millions
Balance at January 1, 2015
Cost of acquisition
Accumulated depreciation/impairments
Carrying value
Movements in 2015
Acquisitions
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairments
Changes in exchange rates
Total movements
Balance at December 31, 2015
Cost of acquisition
Accumulated depreciation/impairments
Carrying value at December 31, 2015
Movements in 2016
Acquisitions
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairments
Other
Changes in exchange rates
Total movements
Plant
equipment
and
machinery
Buildings
and land
Other
equipment
Construction
in progress
and
prepayments
on projects
Assets not
used
Total
2,319
(1,193)
1,126
6,261
(4,533)
1,728
–
(8)
21
81
(75)
(11)
12
20
11
(11)
134
279
(336)
(2)
16
91
2,403
(1,257)
1,146
6,670
(4,851)
1,819
6
(12)
31
80
(74)
(7)
–
15
39
44
(3)
99
207
(326)
(6)
28
16
59
922
(695)
227
1
(6)
31
60
(76)
(1)
6
15
999
(757)
242
–
(3)
36
46
(81)
(3)
–
(4)
(9)
813
(68)
745
1
(4)
465
(420)
–
(7)
9
44
863
(74)
789
–
(1)
468
(333)
–
(3)
–
(32)
99
976
(88)
888
70
(61)
9
–
(1)
–
–
–
–
(1)
(2)
66
(59)
7
–
–
–
–
(1)
–
–
–
(1)
10,385
(6,550)
3,835
13
(30)
651
–
(487)
(21)
42
168
11,001
(6,998)
4,003
50
(19)
634
–
(482)
(19)
28
(5)
187
57
(51)
6
11,601
(7,411)
4,190
Capital expenditures
• In Decorative Paints, we continued to invest in growth
markets, with investments in our Chengdu Plant,
China, in creating efficiency in Europe, in particular
in Ashington, UK, and through optimization of our
manufacturing footprint
• In Performance Coatings, we invested in production
facilities in mature and growth markets to increase
capacity and improve efficiency. In 2016, we started
building a new production facility for powder coatings
near Mumbai, India and another in Changzhou, China
• In Specialty Chemicals, we invested in several asset
integrity and efficiency improvement projects as well
as growth projects for specific segments. In 2016, we
officially opened two new plants at our Ningbo multi-
site in China, where Polymer Chemicals commissioned
the world’s largest DCP plant and Surface Chemistry
inaugurated a new finishing (alkoxylation) plant
Impairments
The impairments recorded in 2016 were mainly related to
assets of Performance Coatings. In 2015, several small
impairments were recorded, spread over all businesses.
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 €63 million (2015: €39 million)
of which €36 million is related to Buildings and land and
€27 million to Plant equipment and machinery.
In 2016, we entered into new financial leases of
€28 million, which were reported on the line Other.
Balance at December 31, 2016
Cost of acquisition
Accumulated depreciation/impairments
Carrying value at December 31, 2016
2,529
(1,344)
1,185
6,987
(5,109)
1,878
1,052
(819)
233
150
Financial information | AkzoNobel Report 2016
10
Note 10: Investments in associates and joint ventures
11
Note 11: Other financial non-current assets
At year-end 2016, the carrying value of investments in
associates amounted to €108 million (2015: €107 million)
and in joint ventures €53 million (2015: €58 million). In
2016, the results from associates and joint ventures
amounted to a profit of €43 million (2015: €17 million).
EkO Peroxide LLC changed from a joint venture into a
consolidated company.
The largest associates and joint ventures of AkzoNobel are
Metlac S.p.a. (44 percent) and Delamine B.V. (50 percent).
Other financial non-current assets
In € millions
Loans and receivables
Other than financial instruments
Total
2015
189
714
903
2016
135
423
558
No significant contingent liabilities exist related to
associates and joint ventures.
None of the associates and joint ventures are considered
individually material to the group.
The loans and receivables include the subordinated loan
of €90 million (2015: €90 million) granted to the Pension
Fund APF in the Netherlands. In 2015, it also included the
non-current part of an escrow account of the AkzoNobel
(CPS) Pension Scheme in the UK of €59 million.
Other financial non-current assets include an amount of
€220 million related to pension plans in an asset position
(2015: €528 million). See Note 15.
In 2016, we acquired the remaining 50 percent stake in
EkO Peroxide LLC and obtained control. As a result
Combined financial information of our share in associates and joint ventures
In € millions
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
2015
103
18
11
1
12
60
85
145
107
4
34
145
Associates
2016
111
27
19
–
19
63
84
147
108
3
36
147
2015
126
12
6
2
8
42
46
88
58
11
19
88
Joint ventures
2016
119
13
24
–
24
40
33
73
53
2
18
73
AkzoNobel Report 2016 | Financial information
151
12
Note 12: Inventories
13
Note 13: Trade and other receivables
Inventories
In € millions
Raw materials and supplies
Work in progress
Finished products and goods for resale
2015
450
87
967
2016
480
82
970
Total
1,504
1,532
Of the total carrying value of inventories at year-end 2016,
€54 million is measured at net realizable value (2015:
€51 million). In 2016, €66 million was recognized in the
statement of income for the write-down of inventories
(2015: €63 million), while €17 million of write-downs were
reversed (2015: €15 million). There are no inventories
subject to retention of title clauses.
Trade and other receivables
Allowance for impairment of trade receivables
In € millions
Balance at January 1
Additions charged to income
Release of unused amounts
Utilization
Currency exchange differences
Balance at December 31
2015
95
43
(17)
(18)
(1)
102
2016
102
48
(26)
(19)
2
107
The addition to and release of the allowance for
impairment have been included in the statement of income
under Selling expenses.
The maximum exposure to credit risk at the reporting
date is the carrying value of each class of receivables
mentioned. We do not hold any collateral for trade
receivables. We do not have a significant customer
concentration.
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
2015
2,267
2016
2,272
62
155
29
24
204
55
180
13
29
238
2,741
2,787
Trade receivables are presented net of an allowance for
impairment of €107 million (2015: €102 million). In 2016,
€48 million of impairment losses were recognized in the
statement of income (2015: €43 million), whilst €26 million
was reversed (2015: €17 million).
Other receivables include the current part of the escrow
account of the Akzo Nobel (CPS) Pensions Scheme
in the UK amounting to €54 million (2015: €34 million),
see Note 15.
Ageing of trade receivables
In € millions
Performing accounts receivable
2015
2,026
2016
2,058
Past due accounts receivables
and not impaired
< 3 months
> 3 months
Impaired accounts receivables
Allowance for impairment
Total trade receivables
200
25
118
(102)
185
13
123
(107)
2,267
2,272
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.
152
Financial information | AkzoNobel Report 2016
14 Note 14: Group equity
Composition of share capital at year-end 2015
Non-controlling interests
2015
2016
Equity stake
Equity stake
% in € millions
% in € millions
Swire Duro (Holdings) Ltd, China
30.00
191
30.00
181
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 entity
Partner
400,000,000
–
Akzo Nobel Swire Paints (Shanghai) Ltd,
Shanghai, China
Akzo Nobel India Limited, Kolkata, India
Total
1,600,019,200
497,972,056
Akzo Nobel Paints (Malaysia) Sdn. Bhd.,
Kuala Lumpur, Malaysia
Privately held, Malaysia
40.05
1,200,000,000
497,952,856
PT ICI Paints Indonesia, Jakarta, Indonesia
PT DWI Satrya Utama, Indonesia
45.00
Privately held, India
27.04
55
29
27
27.04
45.00
40.05
Composition of share capital at year-end 2016
International Paint (Korea) Ltd, Busan, South-
Korea
Noroo Holdings, South Korea
40.00
24
40.00
Akzo Nobel Swire Paints (Guanzhou) Limited,
Guangzhou, China
Swire Duro (Holdings) Limited, Industrial Devel-
opment Co. Ltd of Guanzhou, China
46.00
38
46.00
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
Akzo Nobel UAE Paints LLC, United Arab
Emirates
19,200
19,200
Akzo Nobel Kemipol A.S., Izmir, Turkey
400,000,000
–
1,200,000,000
504,352,824
International Paints of Shanghai Co. Ltd,
Shanghai, China
Akzo Nobel Pakistan Limited, Karachi,
Pakistan
International Paints Saudi Arabia, Saudi Arabia Yousuf Bin Ahmed Kanoo Co. Ltd, Saudi Arabia
40.00
Privately held, Turkey
49.00
Huayi Fine Chemical Co. Ltd, China; China
National Shipbuilding Equipment & Materials
Corp.
49.00
Privately held, Pakistan
24.19
13
24.19
18
12
14
49.00
40.00
49.00
Kanoo Group, United Arab Emirates
40.00
10
40.00
Akzo Nobel Oman SAOC, Muscat, Oman
Omar Zawawi establishment LLC, Oman
50.00
Others
Total
50.00
14
51
496
49
31
26
37
20
13
18
15
12
13
14
52
481
Total
1,600,019,200
504,372,024
Outstanding common shares
Number of shares
2015
2016
Outstanding at January 1
246,043,094
248,976,428
Issued in connection to
performance-related shareplan and
share-matching plan
825,102
676,073
Stock dividend
2,108,232
2,523,911
Balance at December 31
248,976,428
252,176,412
Weighted average number of shares
Number of shares
Weighted average number of
shares
2015
2016
247,820,604
250,914,373
For further details on weighted average number of shares,
see Note 7.
Subscribed share capital
For further details on subscribed share capital, see Note E
in the Company financial statements.
Other components of Shareholders’ equity
Changes in fair value of derivatives comprise the effective
portion of the cumulative net change in the fair value
of cash flow hedging instruments related to hedged
transactions that have not yet occurred.
Equity-settled transactions consist of the performance-
related share plan and share-matching plan, whereby
shares are granted to the Board of Management,
Executive Committee and other executives. For details of
the share-based compensation, see Note 4.
Non-controlling interests
None of the non-controlling interests are considered
individually material to the group.
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.
Dividend
Our dividend policy is to pay a stable to rising dividend.
We will propose a 2016 final dividend of €1.28 per share,
which would make a total 2016 dividend of €1.65 (2015:
€1.55) per share, up 6.5 percent. There will be a stock
dividend option with cash dividend as default.
AkzoNobel Report 2016 | Financial information
153
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 Akzo Nobel (CPS)
Pension Scheme (CPS) in the UK which together account
for 82 percent of defined benefit obligations (DBO) and
90 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 employees. Governance of the benefit plans is the
responsibility of the Executive Committee Pensions.
This committee provides oversight of the costs and risks
of the plans including oversight 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.
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Financial information | AkzoNobel Report 2016
The most significant risks that we run in relation to defined
benefit plans are that investment returns fall short of
expectations, low 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 understand the
trade-off between expected investment returns, volatility
of outcomes and the impact on cash contributions. 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 matching 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 and a
smaller UK plan, the ICI Specialty Chemicals Pension Fund
(ISCPF), have also invested in annuity contracts that aim to
hedge all key risks related to their pensioner populations.
CPS has an insurance contract 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 exceed estimated funding
deficits. In 2016, the Trustee of the ICIPF entered into five
more annuity buy-in agreements. Three of the agreements
are with Legal & General Assurance Society Limited, the
other two are with Scottish Widows Limited. Together they
cover, in aggregate, £2.7 billion (€3.1 billion) of pensioner
liabilities (local plan value). 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 £512 million
(€612 million). The Trustee of the ISCPF transacted one
more buy-in in November 2016 with Pension Insurance
Corporation covering their remaining pensioner liabilities
totaling £138 million (€162 million) (local plan value), the
accounting impact of which is a lower valuation of the plan
assets giving a reduction in Other comprehensive income
of £21 million (€25 million). By purchasing these bulk
annuities, the Trustees have both taken significant steps
in actively de-risking liabilities and reducing the risk that
AkzoNobel will be required to contribute additional cash
in the future. In 2016, a total past service credit of €109
million was recognized, as plan amendments to defined
benefit pension plans were implemented, mainly in the UK.
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
classified as a multi-employer defined benefit plan. As
AkzoNobel does not have access to sufficient information
from Alecta to enable a defined benefit accounting
treatment, it is accounted for as a defined contribution
plan. Contributions in 2016 were €7 million (2015:
€8 million). Alecta’s target funding ratio in 2016 was
140 percent. The most recently quoted ratio at September
2016 stood at 142 percent. There is also a small number
of multi-employer plans in Germany in which AkzoNobel
participates with annual contributions totaling €1 million.
These are also accounted for as defined contribution
plans. The expenses of all plans accounted for as defined
contribution plans in AkzoNobel totaled €152 million in
2016 (2015: €132 million).
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 discount rates,
which increases the plan obligations, and longevity risk as
the plans generally pay lifetime benefits.
Reconciliation balance sheet
The adjacent table details the annual movements for the
total post-retirement benefit provisions. The closing net
balance sheet provision comprises: Pension plans
€990 million (2015: €627 million) and Other post-retirement
benefit plans €278 million (2015: €256 million).
Reconciliation balance sheet
In € millions
2015
DBO
Plan
assets
Total
DBO
Plan
assets
Balance at the beginning of the period
(17.165)
15.989
(1.176)
(16.960)
16.080
Statement of income
Current service cost
Past service cost
Settlements
Net interest (charge)/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 assumption changes
Actuarial gain/(loss) due to liability demographic assumption changes
Actuarial loss due to buy-in
Return on plan assets greater/(less) than discount rate
(65)
92
2
(597)
(568)
404
394
(126)
–
–
Remeasurement effects recognized in Other comprehensive income
672
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
Balance at the end of the period
Asset restriction
Net balance sheet provision
In the balance sheet under
Other financial non-current assets
Post-retirement benefit provisions
Current portion of provisions
Net balance sheet provision
2016
Total
(880)
(55)
109
1
(10)
45
122
(2.624)
6
(637)
2.394
(739)
421
–
–
421
(5)
(106)
(111)
–
–
(9)
513
504
–
–
–
(637)
2.394
1.757
421
2
(946)
(523)
–
–
(1)
584
583
–
–
–
(384)
(473)
(857)
480
3
(1.061)
(578)
(8)
951
943
(65)
92
1
(13)
15
404
394
(126)
(384)
(473)
(55)
109
10
(523)
(459)
122
(2.624)
6
–
–
(185)
(2.496)
–
(2)
946
944
480
–
–
480
1
(15)
(14)
(3)
(2)
2.039
(2.145)
2.036
(2.147)
–
(3)
1.061
1.058
9
(966)
(957)
(16.960)
16.080
(880)
(16.935)
15.671
(1.264)
(3)
(883)
528
(1.285)
(126)
(883)
(4)
(1.268)
220
(1.380)
(108)
(1.268)
AkzoNobel Report 2016 | Financial information
155
contributions to the plan, either during the life of the plan
or on the (final) settlement of the plan liabilities.
Cash flows
In 2017, we expect to contribute €376 million (2016: €399
million) to our defined benefit pension plans. This includes
€101 million (2016: €102 million) of regular pension contri-
butions and €275 million (2016: €297 million) for top-ups,
of which an estimated £46 million (€54 million) will be
paid out of the CPS escrow account on its maturity (see
explanation in Key plan details). We expect to pay a further
€22 million (2016: €22 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
2017
2018
2019
2020
2021
2022-2026
902
898
902
912
914
4,673
Other post
retirement
benefits
22
21
21
20
19
88
DBO at funded and unfunded pension plans
In € millions
2015
2016
Wholly or partly funded plans
16,380
16,311
Unfunded plans
Total
324
346
16,704
16,657
In addition to the expenses borne by the funds themselves,
some expenses are borne directly by AkzoNobel.
Administrative expenses are incurred, especially for the
UK pension funds, of €15 million (2015: €24 million),
which are included in Operating income. In addition, we
directly incurred asset management expenses of €9 million
(2015: €5 million), which have been included in Other
comprehensive 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
post-retirement benefits of €10 million (2015: €13 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
2015
2016
1,166
950
4,028
1,069
6,250
238
2,379
7
6
25
7
39
1
15
1,091
768
1,782
915
8,514
593
2,008
7
5
11
6
54
4
13
16,080
100
15,671
100
The insurance contracts in the table above include the
values of the UK buy-in annuity policies totaling
€8,357 million (2015: €6,044 million) representing
53 percent (2015: 38 percent) of the total plan assets.
The equities and government bond 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. The
other categories of plan assets include certain assets that
are not quoted in active markets. Such unquoted securi-
ties, totaled €971 million (2015: €997 million). Unquoted
plan assets include investments in real estate, totaling
€322 million (2015: €362 million) and other investments in
infrastructure, catastrophe bonds, insurance policies and
high-yield credit strategies. Plan assets did not directly
include any of AkzoNobel’s own transferable financial
instruments, nor any property occupied by or assets used
by the company.
Pension plans in asset position
Pension balances recorded under Other financial non-
current assets totaled €220 million (2015: €528 million).
These assets could be recognized under IFRIC 14
because economic benefits are available in the form of
future refunds from the plan or reductions in future
156
Financial information | AkzoNobel Report 2016
Key figures and assumptions by plan
In € millions or %
Percentage of total DBO
Defined Benefit Obligation
Fair value of plan assets
Plan funded status
Restriction on asset recognition
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
62%
CPS
UK
Other pension
plans
Other post-
retirement
benefits
21%
15%
2%
(10,544)
10,821
(3,568)
3,764
277
–
277
16%
10
253
3.6%
3.9%
2.9%
2.8%
27.0
29.5
28.3
31.0
196
–
196
21%
14
102
3.7%
4.0%
3.0%
2.1%
26.9
29.4
28.3
30.9
(2,592)
1,495
(1,097)
(3)
(1,100)
56%
36
97
3.1%
2.7%
1.9%
2.0%
25.6
28.6
27.1
30.3
(256)
–
(256)
–
(256)
7%
5
28
3.6%
–
–
–
5.2%
3.8%
2024
26.2
28.2
27.5
29.5
2015
Total
(16,960)
16,080
(880)
(3)
(883)
65
480
3.5%
3.8%
2.8%
2.5%
5.2%
3.8%
2024
26.8
29.3
28.1
30.8
ICIPF
UK
61%
CPS
UK
Other pension
plans
Other post-
retirement
benefits
21%
16%
2%
(10,317)
10,317
(3,623)
3,818
–
–
–
16%
9
217
2.5%
1.4%
3.3%
3.0%
27.1
29.6
28.4
31.1
195
–
195
18%
10
73
2.5%
1.4%
3.3%
2.3%
27.0
29.5
28.4
31.0
(2,717)
1,536
(1,181)
(4)
(1,185)
62%
34
109
2.3%
1.8%
2.0%
2.0%
25.6
28.6
27.2
30.2
(278)
–
(278)
–
(278)
4%
2
22
3.4%
–
–
–
5.1%
4.0%
2024
26.2
28.3
27.4
29.5
2016
Total
(16,935)
15,671
(1,264)
(4)
(1,268)
55
421
2.5%
1.6%
3.1%
2.7%
5.1%
4.0%
2024
26.8
29.4
28.2
30.9
AkzoNobel Report 2016 | Financial information
157
Sensitivity of DBO to change in assumptions 2016
In € millions
Discount rate: 0.5% decrease
Price inflation: 0.5% increase1
Life expectancy: one year increase from age 60
Healthcare cost trend rate: 0.5% increase
Maturity information
ICIPF
UK
741
430
476
–
CPS
UK
316
167
129
–
Other
pension plans
Other post-
retirement
benefits
205
121
104
–
13
–
11
5
Total
1,275
718
720
5
Weighted average duration of DBO (years)
13.6
16.4
15.1
10.1
14.4
1 The sensitivity to price inflation assumption includes corresponding changes to all inflation-related compensation
increases, pensions in payment and pensions in deferment.
The sensitivity 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 alternative 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 significance 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 are not reflected
in this analysis, as they would normally be reflected in plan
asset changes rather than DBO changes.
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 (which include
the de-risking instruments) would, to a significant extent,
be expected to offset movements in the DBO resulting
from changes in the given assumptions. The annuity buy-in
contracts cover approximately 96 percent of pensioner
liabilities (2015: 66 percent) and 76 percent of total
liabilities at ICIPF and the longevity hedge contract covers
approximately 66 percent of pensioner liabilities (2015:
66 percent) and 38 percent of total liabilities at CPS.
158
Financial information | AkzoNobel Report 2016
Key plan details for the two largest pension plans1
Type of plan
Benefits
ICI Pension Fund, UK
Akzo Nobel (CPS) Pension Scheme, UK
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
Trustee directors:
Five member-nominated trustees
Five appointed with the agreement of Law Debenture
One independent (Law Debenture)
Plans are set up under a trust and are tax approved
Trustee directors:
Four member-nominated trustees
Four company-nominated trustees
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, 2014
Every three years
March 31, 2015
Funding deficit2 at latest valuation
£850 million (€993 million)
£84 million (€98 million) including the escrow account
Recovery plan
£150 million (€175 million) per annum in 2017 and £125 million (€146 million) per annum
in 2018 to 2021, paid in January each year
£21 million (€25 million) per annum, to 2019, with £13 million (€15 million) in 2020, plus
a final payment on the maturity of the escrow account in 2017 whose value at year-end
2016 is £46 million (€54 million).
Next funding review
March 31, 2017 with recovery plan to be agreed by June 30, 2018
March 31, 2018 with recovery plan to be agreed by June 30, 2019
Estimated funding deficit2 at March 31, 2016
£661 million (€772 million)
£126 million (€147 million) including the escrow account
Asset allocation at March 31, 2016
Matching:
Return seeking:
90%
10%
Buy-in annuity contracts cover approximately 96% of pensioner liabilities
and 76% of total liabilities
58%
42%
The longevity hedge contract covers approximately 66% of pensioner liabilities
and 38% of total liabilities
Escrow account
Not applicable
Membership at March 31, 2016
Active
Deferred
Pensioner
Total
308
8,699
44,821
53,828
1 Amounts in euro are a convenience translation using the December 31, 2016, exchange rate.
2 Based on local valuation regulations.
Pre-funded account established in 2007 to fund existing deficit. It has since been paying
a minimum of £25 million (€29 million) per annum to CPS with the final payment of the
balance due in 2017. Its value at year-end 2016 is £46 million (€54 million)
511
8,579
19,048
28,138
AkzoNobel Report 2016 | Financial information
159
16
Note 16: Other provisions and contingent liabilities
Movements in other provisions
In € millions
Balance at January 1, 2016
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions/divestments
Changes in exchange rates
Balance at December 31, 2016
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2016
Restructuring
of activities
Environmental
costs
Sundry
142
67
(66)
(17)
1
8
(2)
133
44
89
133
305
15
(29)
(58)
22
–
(3)
252
210
42
252
458
123
(74)
(22)
15
3
(16)
487
304
183
487
Total
905
205
(169)
(97)
38
11
(21)
872
558
314
872
Provisions for restructuring of activities
Provisions for restructuring of activities comprise of
accruals for certain employee benefits and for costs which
are directly associated with plans to exit or cease specific
activities and closing down of facilities. For all restructuring
provisions a detailed formal plan exists and the
implementation of the plan has started or the plan has
been announced before the balance sheet date.
Most restructuring plans are expected to be completed
within one year from the balance sheet date.
Environmental liabilities
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.
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 remedia-
tion, actions by governmental agencies or private parties,
or other factors.
The provisions for environmental costs amounted to
€252 million at year-end 2016 (2015: €305 million). The
provision has been discounted using an average pre-tax
discount rate of 2.0 percent (2015: 3.3 percent). While it is
not feasible to predict the outcome of all pending environ-
mental 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.
Sundry provisions and other contingent liabilities
Sundry provisions relate to a 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 2.1 percent (2015: 2.8 percent) has
been used.
AkzoNobel is – together with others – involved in civil
proceedings initiated by Cartel Damages Claims HP SA/
NV before the Dortmund Court in Germany in relation to
the Hydrogen Peroxide infringement in the 1990s. This
claim is disputed.
An appeal by the company is pending with the European
Court of Justice against the ruling of the General Court on
the decision by the European Commission to impose fines
on certain subsidiaries of the company for violations of EU
competition laws regarding Heat Stabilizers in the 1980s
and 1990s.
AkzoNobel has provided various indemnities and
guarantees in respect of past divestments to the relevant
purchasers and their permitted assigns (if applicable),
which in general are capped in time and/or amount
(in proportion to the value received). The provided
guarantees and indemnities have varying maturity
periods. Akzo Nobel has received various claims under
such indemnities and guarantees. In some instances,
AkzoNobel has been named as a direct defendant despite
the divestments.
A number of other claims are pending, all of which are
contested. We are also involved in disputes with tax
authorities in several jurisdictions.
Provisions are recognized when an outflow of economic
benefits for settlement is probable and the amount 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
160
Financial information | AkzoNobel Report 2016
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. 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.
Current portion of provisions
Current portion of post-retirement benefit provisions
(€108 million) and other provisions (€314 million) adds up
to €422 million (2015: €451 million), as reflected in the
balance sheet.
Discount rates
The discount rates used in calculating the provisions
recognized at December 31, 2016 are mentioned in the
paragraphs on environmental and sundry provisions.
Changes in the discount rate will affect our consolidated
financial position. A sensitivity test showed that a one
percentage point increase or decrease of discount rates
will have an impact of approximately €20 million on the
provisions recognized at December 31, 2016.
17
Note 17: Net debt
Analysis of net debt by category
Aggregated maturities of long-term borrowings
In € millions
Bonds issued
Other borrowings
Long-term borrowings
Current portion of
long-term borrowings
Debt to credit institutions
Other
Short-term borrowings
Total borrowings
Cash and cash equivalents
Net debt
2015
2,034
127
2,161
378
48
4
430
2,591
(1,365)
1,226
2016
2,531
113
2,644
45
38
4
87
2,731
(1,479)
1,252
AkzoNobel’s net debt is mainly denominated in euro.
The part of long-term borrowings that is due within one
year is presented under short-term borrowings. For details
on the exposure to interest rate and foreign currency risk,
see Note 23.
Bonds issued
In € millions
4% 2011/18 (€800 million)
2 5/8% 2012/22 (€750 million)
1 3/4% 2014/24 (€500 million)
1 1/8% 2016/26 (€500 million)
2015
796
742
496
–
2016
797
743
497
494
Total
2,034
2,531
The average effective interest rate of the bonds
outstanding at year-end 2016 was 2.6 percent (year-end
2015: 2.9 percent).
In € millions
Bonds issued
Other borrowings
Total
2018 – 2021
After 2021
797
49
846
1,734
64
1,798
Long-term borrowings
We have a €1.8 billion multi-currency revolving credit
facility, which was extended in 2016 by one additional year
to 2021. This facility does not contain financial covenants
or acceleration provisions that are based on adverse
changes in ratings or material adverse change. At year-end
2016 and 2015, this facility has not been drawn.
At year-end 2016 and 2015, none of the borrowings was
secured by collateral.
In April 2016, a bond was issued with a nominal value
of €500 million maturing in 2026 at a coupon of
1.125 percent.
Financial lease liabilities are included in Other borrowings
and aggregated €70 million (2015: €46 million). An amount
of €9 million (2015: €5 million) will mature within one year,
€30 million will mature in the period 2018 through 2021
and €31 million after 2021.
Short-term borrowings
In April 2016, a bond of £250 million matured. In 2017, no
bonds will mature.
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
2016 and 2015.
AkzoNobel Report 2016 | Financial information
161
18
Note 18: Trade and other payables
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
2015
771
594
2016
925
554
1,365
1,479
(48)
1,317
(38)
1,441
Cash and cash equivalents
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, 2016, an amount of €30 million
in cash and cash equivalents was restricted (2015:
€68 million). Restricted cash is defined as cash that
cannot be accessed centrally due to regulatory or
contractual restrictions.
Trade and other payables
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
2015
2,137
400
65
252
250
34
3
332
3,473
2016
2,137
418
10
243
272
30
2
363
3,475
Net debt
In € millions
Net debt equivalents at January 1, 2015
Net cash from operating activities
Net cash from investing activities
Proceeds from borrowings
Borrowings repaid
Transfers from long-term to short-term
Dividends
Buy-out of non-controlling interests
Changes in exchange rates
Other changes
Net debt equivalents at December 31, 2015
Net cash from operating activities
Net cash from investing activities
Proceeds from borrowings
Borrowings repaid
Transfers from long-term to short-term
Dividends
Buy-out of non-controlling interests
New financial leases
Changes in exchange rates
Other changes
Net debt equivalents at December 31, 2016
162
Financial information | AkzoNobel Report 2016
Long-term
Short-term
2,527
–
–
–
–
(386)
–
–
6
14
2,161
–
–
498
–
(46)
–
(7)
24
6
8
2,644
811
–
–
829
(1,518)
386
–
–
(2)
(76)
430
–
–
418
(776)
46
–
–
4
(27)
(8)
87
Cash
(1,732)
(1,136)
508
(829)
1,518
–
281
2
(18)
41
(1,365)
(1,297)
979
(916)
776
–
336
7
–
(14)
15
Net debt
1,606
(1,136)
508
–
–
–
281
2
(14)
(21)
1,226
(1,297)
979
–
–
–
336
–
28
(35)
15
(1,479)
1,252
19
Note 19: Cash flow
20
Note 20: Commitments
21
Note 21: Related party transactions
Operating activities in 2016 resulted in cash inflows of
€1,297 million (2015: €1,136 million).
Purchase commitments for property, plant and equipment
aggregated €22 million (2015: €31 million).
Lease payments during 2016 amounted to €223 million
(2015: €193 million). Our operational lease portfolio mainly
consists of leases related to land and property, employee
cars and certain specific assets in Specialty Chemicals.
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
2015
152
335
150
637
2016
172
338
212
722
Guarantees related to associates and joint ventures at
year-end 2016 totaled €5 million (2015: €5 million).
Changes in working capital per cash flow statement
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
2015
(29)
56
19
46
Changes in provisions per cash flow statement
In € millions
Post-retirement provisions
Restructuring provisions
Environmental and sundry provisions
Total
2015
(474)
(132)
(52)
(658)
2016
(11)
16
(4)
1
2016
(442)
(13)
(49)
(504)
The above amounts cannot be reconciled directly to the
respective balance sheet positions as they reflect changes
in balance sheet positions only to the extent they have a
cash flow impact, such as utilization, or they reverse the
non-cash impact as included in Profit for the period. These
amounts exclude non-cash movements such as unwind
of discount, movements through Other comprehensive
income, acquisitions and divestments, and changes in
exchange rates.
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.
During 2016, we considered the members of the Executive
Committee and the Supervisory Board to be the key
management personnel as defined in IAS 24 “Related
parties”. For details on their remuneration, as well as on
shares and options held by members of the Supervisory
Board or Board of Management, see Note 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
associated, but no related party transactions were effected
in 2016. Likewise, there have not been any transactions
with members of the Supervisory Board or Executive
Committee, or any family member of such persons.
Also no loans, advance payments or guarantees have
been extended to members of the Supervisory Board
or Executive Committee, or any family member of such
persons. For related party transactions with pension
funds, see Note 11, 13 and 15. For receivables from and
payables to related parties, see Note 13 and 18.
AkzoNobel Report 2016 | Financial information
163
22
Note 22: Remuneration of the Supervisory Board
and the Board of Management
Total compensation to key management personnel
amounted to €14.5 million (2015: €13.5 million). An
amount of €8.6 million relates to short-term employee
benefits (2015: €7.8 million); €1.1 million to post-contract
benefits and other post-contract compensation
(2015: €1.1 million); and €4.8 million to share-based
compensation (2015: €4.6 million). The members
of the Executive Committee that are not a member
of the Board of Management are included in key
management personnel.
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of
Supervisory Board members is not dependent on the
results of the company.
We do not grant share-based compensation to our
Supervisory Board members. Travel expenses and facilities
for members of the Supervisory Board are borne by the
company and reviewed by the Audit Committee.
Supervisory Board
Shares held by the members of the Supervisory
Board
Members of the Supervisory Board receive a fixed
remuneration: €130,000 for the Chairman, €78,000 for
the Deputy Chairman and €65,000 for the other members.
Members of committees receive an extra compensation.
Members living outside the Netherlands receive an
attendance fee dependent on the country of residence.
Members who are resident in the Netherlands do
not receive an attendance fee except for meetings held
outside the Netherlands.
Number of shares at year-end
Antony Burgmans
Sari Baldauf
Peggy Bruzelius
Byron Grote 1
Louis Hughes
Pamela Kirby
Dick Sluimers
Ben Verwaayen
1 In the form of ADRs.
2015
551
–
500
1,333
548
–
–
–
2016
551
–
500
2,008
548
–
–
–
Supervisory Board
In €
Antony Burgmans, Chairman
Sari Baldauf
Peggy Bruzelius
Byron Grote, Deputy Chairman2
Louis Hughes
Pamela Kirby1
Dick Sluimers
Ben Verwaayen
Total
1 As of May 1, 2016
2 Deputy Chairman as of October 18, 2016
Total
remuneration
Remuneration
Attendance
fee
Committee
allowance fees
Employer’s
charges
Total
remuneration
2015
160,000
97,500
110,300
103,300
120,300
–
59,100
98,600
749,100
130,000
65,000
65,000
68,300
65,000
43,300
65,000
65,000
15,000
17,500
12,500
12,500
30,000
10,000
2,500
10,000
20,000
25,000
20,000
25,000
20,000
3,750
20,000
15,000
566,600
110,000
148,750
–
–
16,300
–
1,200
–
–
1,200
18,700
2016
165,000
107,500
113,800
105,800
116,200
57,050
87,500
91,200
844,050
Metric
ROI
OPI
OCF
Revenue growth
164
Financial information | AkzoNobel Report 2016
The shares in the company owned by Supervisory Board
members serve as a long-term investment in the company.
Board of Management
The individual contracts of the members of the Board
of Management are determined by the Supervisory
Board within the framework of the remuneration policy
adopted by the Annual General Meeting of shareholders.
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.
2015 performance on STI metrics
Metric
ROI
OPI
OCF
2016 performance on STI metrics
Payout as
percentage
of target
126%
127%
87%
Payout as
percentage
of target
127%
127%
111%
–%
Short-term incentive
The short-term incentives for 2016 are linked to ROI
(20 percent), OPI (20 percent), OCF (20 percent), Revenue
growth (10 percent) and the individual and qualitative
targets of the members of the Board of Management
(30 percent).
On the qualitative targets, the CEO performed slightly
above target and the CFO above target.
Other short-term benefits
Other short-term benefits include employer’s charges
(social contributions) and other compensations, such as
representation allowances, insurances, car arrangements
and educational expenses.
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
2016 remuneration. For the CEO, the contributions are
paid over the base salary in the current year and the short-
term incentive related to that year. For the CFO, these
contributions are paid on base salary only.
Share-based compensation
The costs for share-based compensation are non-cash
and relate to the performance-related share plan and the
share-matching plan following IFRS 2. Further details on
the fair value of the performance-related share plan and
the share-matching plan are provided in Note 4.
Board remuneration 2015
In €
Ton Büchner
Maëlys Castella
Total
Salary
859,000
585,000
915,800
405,400
1,444,000
1,321,200
Short-term
incentives1
Other short-term
benefits2
Post-contract
compensation
Share-based
compensation
Total
remuneration
43,500
80,700
124,200
356,700
87,800
444,500
1,303,600
236,300
1,539,900
3,478,600
1,395,200
4,873,800
1 This concerns the short-term incentive amounts over 2015, to be paid in 2016.
2 2015 was amended to include other compensations, such as: representation allowances, insurances, car arrangements and educational expenses.
Board remuneration 2016
Short-term
incentives1
Other short-term
benefits
Post-contract
compensation
Share-based
compensation
Total
remuneration
In €
Ton Büchner
Maëlys Castella
Total
Salary
913,300
610,000
966,900
431,700
1,523,300
1,398,600
1 This concerns the short-term incentive amounts over 2016, to be paid in 2017.
44,100
83,000
127,100
416,900
91,500
508,400
1,177,700
370,200
1,547,900
3,518,900
1,586,400
5,105,300
AkzoNobel Report 2016 | Financial information
165
Performance-related shares
With regard to the performance-related shares granted
to the members of the Board of Management in 2014,
the final vesting percentage of the series 2014-2016
equaled 66.49 percent (series 2013-2015: 90.29 percent),
including dividend shares 71.56 percent (series 2013-
2015: 97.48 percent). The members of the Board of
Management will retain the shares for a minimum period
of two years after vesting or (if shorter) for the duration of
their tenure as member of the Board of Management.
Share-matching plan
For the CEO, the shares purchased in 2012 and 2013
under the applicable share matching plans were matched
by the company following the Supervisory Board’s decision
recognizing consistent and sustainable performance.
Former members of the Board of
Management
In 2016, no charges for former members of the Board of
Management were recognized (2015: €0.6 million).
Number of performance-related shares
Ton Büchner
Balance at
January 1,
2016
23,590
23,390
22,993
Granted
in 2016
–
–
–
–
23,397
Series
2013 – 2015
2014 – 2016
2015 – 2017
2016 – 2018
Maëlys Castella
2015 – 2017
15,635
–
2016 – 2018
–
15,240
Vested
in 2016
(23,590)
–
–
–
–
–
Forfeited
in 2016
Dividend
in 2016
Balance at
December
31, 2016
Vested on
January 1,
2017
–
(8,043)
–
–
–
–
–
611
601
611
409
398
–
15,958
23,594
24,008
16,044
15,638
–
15,958
–
–
–
–
Number of potential matching shares
Ton Büchner
Maëlys Castella
Year of share
investment
2012
2013
2014
2015
2016
2015
2016
Potential
match
11,582
1,429
2,450
2,252
1,529
305
1,354
Matched
in 2016
(11,582)
(1,429)
–
–
–
–
–
Forfeited
in 2016
Balance at
year-end 2016
–
–
–
–
–
–
–
–
–
2,450
2,252
1,529
305
1,354
Shares held by the Board of Management
Number of shares at year-end
Ton Büchner
Maëlys Castella
2015
44,683
610
2016
72,736
3,318
166
Financial information | AkzoNobel Report 2016
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
compliance with the corporate policies approved by the
Board of Management, except for commodity risks, which
are subject to identification, evaluation, hedging and
monitoring in the businesses. We have treasury
hubs located in Brazil, China, Singapore 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 2016, we had €1.5 billion available as cash
and cash equivalents (2015: €1.4 billion), see Note 17.
In addition, we have a €1.8 billion multi-currency revolving
credit facility, which was extended in 2016 with one
additional year to 2021. This facility does not contain
financial covenants or acceleration provisions that are
based on adverse changes in ratings or on material
adverse change. At year-end 2016 and 2015, this
facility had not been drawn. We have US dollar and euro
Maturity of liabilities and cash outflows
Credit risk management
Less than
1 year
Between
1 and 5 years
Over 5
years
Trade and other payables
3,408
In € millions
At December 31, 2015
Borrowings
Interest on borrowings
Finance lease liabilities
Fx contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
Fx contracts (hedges)
Outflow
Inflow
Other derivatives
Outflow
Inflow
Total
425
71
5
2,630
(2,641)
28
(2)
1,949
(1,955)
–
4
845
186
18
–
–
–
27
–
1,275
65
23
–
–
–
–
–
816
191
30
–
–
(3)
–
2
1,767
65
31
–
–
–
–
–
3,924
1,076
1,363
At December 31, 2016
Borrowings
Interest on borrowings
Finance lease liabilities
78
75
9
Trade and other payables
3,465
3,625
1,036
1,863
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 2016
and 2015. The table above shows our cash outflows per
maturity group. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Credit risk arises from financial assets such as cash
and cash equivalents, derivative financial instruments
with a positive fair value, deposits with financial
institutions, and trade receivables. We have a credit
risk management policy in place to limit credit losses
due to non-performance of financial counterparties and
customers. We monitor our exposure to credit risk on an
ongoing basis at various levels. We only deal with financial
counterparties that have a sufficiently high credit rating.
Generally, we do not require collateral in respect of
financial assets. Investments in cash and cash equivalents
and transactions involving derivative financial instruments
are entered into with counterparties that have sound
credit ratings and good reputation. Derivative transactions
are concluded mostly with parties with whom we have
contractual netting agreements and ISDA agreements in
place. We set limits per counterparty for the different types
of financial instruments we use. We closely monitor the
acceptable financial counterparty credit ratings and credit
limits and revise where required in line with the market
circumstances. We do not expect non-performance by the
counterparties for these financial instruments. Due to our
geographical spread and the diversity of our customers,
we were not subject to any significant concentration of
credit risks at balance sheet date. The credit risk from
trade receivables is measured and analyzed at a local
operating entity level, mainly by means of ageing analysis,
see Note 13. Generally, the maximum exposure to credit
risk is represented by the carrying value of financial assets
in the balance sheet.
At year-end 2016, the credit risk on consolidated level
was €4.4 billion (2015: €4.3 billion) for cash, loans, trade
and other receivables. Our credit risk is well spread
among both global and local counterparties. Our largest
counterparty risk amounted to €289 million at year-end
2016 (2015: €249 million).
AkzoNobel Report 2016 | Financial information
167
Foreign exchange risk
management
Trade and financing transactions
We operate in a large number of countries, where we
have clients and suppliers, many of whom are outside
of the local functional currency environment. This creates
currency exposure which is partly netted out
on group level.
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 on
forecasted transactions is applied on a limited scale.
Derivative transactions with external parties are bound by
limits per currency.
In general, our forward exchange contracts have a maturity
of less than one year. When necessary, forward exchange
contracts are rolled over at maturity. Currency derivatives
are not used for speculative purposes.
Hedged notional amounts at year-end
In € millions
US dollar
Pound sterling
Swedish krona
Chinese yuan
Other
Total
Buy
2015
211
554
304
19
562
Sell
2015
324
66
53
171
705
Buy
2016
112
281
490
12
284
1,650
1,319
1,179
Sell
2016
473
48
22
62
331
936
Investments in foreign subsidiaries, associates
and joint ventures
During 2016 net investment hedge accounting was
applied on hedges of Brazilian real, Chilean peso, Chinese
yuan, Indian rupee and US dollar net investments in foreign
operations which were hedged with forward exchange
contracts. During 2016 these hedges were fully effective.
At year-end 2016, the hedge of Chilean peso net
investments in foreign operations was outstanding.
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 forwards
to gradually cover the expected use over future periods.
We apply cash flow hedge accounting to these forwards.
All contracts qualified as effective for hedge accounting.
The fair value of the contracts outstanding at year-end
2016 amounted to a gain of €2 million, net of tax recorded
in equity (year-end 2015: a loss of €20 million, net of
tax), which are expected to affect profit within the next
four years.
In order to hedge the oil price risk, we have entered into
oil/gas swap contracts. The fair value of the contracts at
year-end 2016 was virtually nil (year-end 2015: €2 million
gain, net of tax). We did not apply hedge accounting to the
changes of the fair values of these contracts.
to a gain of €2 million net of tax recorded in equity
(2015: a loss of €22 million, net of tax), which are expected
to affect operational cost within the next five years. All
hedges were effective.
Interest rate risk management
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value
interest rate risk. Floating rate debt results in cash flow
interest rate risk. We treat fixed rate debt maturing
within one year as floating rate debt for debt portfolio
purposes. At the end of 2016, the fixed/floating rate of our
outstanding bonds was 100 percent fixed as we have no
outstanding bonds maturing within one year. During 2016,
we have not used any interest rate derivatives.
Capital risk management
Our objectives when managing capital are to safeguard
our ability to satisfy our capital providers and to maintain
a capital structure that optimizes our cost of capital. For
this we maintain a conservative financial strategy, with the
objective to remain a strong investment grade company
as rated by the rating agencies Moody’s and Standard &
Poor’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. In April 2016, a bond of £250 million matured. Also
in April 2016, a bond was issued with a nominal value of
€500 million maturing in 2026 at a coupon of 1.125 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 through Vattenfall AB, gradually
increasing over time based on expected use of electricity
over the period 2017–2021. 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
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 2016 at year-end amounted to 0.55
(2015: 0.58). 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
168
Financial information | AkzoNobel Report 2016
borrowings is calculated as a total of long and short-term
borrowings less cash and cash equivalents, adding an after-
tax amount for the underfunding of post-retirement benefit
obligations and lease commitments.
Fair value of financial instruments
and IAS 39 categories
In the table “Fair value per financial instrument category”
insight is provided in the recognition of the respective
financial instruments per IAS 39 category. The total
carrying value is based on the accounting principles
as outlined in Note 1. The loans, receivables and other
liabilities are recognized at amortized cost, using the
effective interest method. 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, 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)
For the purpose of determining the fair value per financial
instrument category, shown in the column “fair value”
we estimated the fair value of our long-term borrowings
based on the quoted market prices (level 1) 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
Fair value per financial instrument category
In € millions
2015 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
2016 year-end
Other financial non-current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
Carrying value per IAS 39
category
Carrying
amount
Out of scope
of IFRS 7
Loans and
receivables/
other liabilities
At fair value
through profit
or loss
Total
carrying value
Fair value
903
2,741
1,365
5,009
2,161
430
3,473
6,064
558
2,787
1,479
4,824
2,644
87
3,475
6,206
666
217
–
883
–
–
1,271
1,271
363
235
–
598
61
9
963
1,033
237
2,500
–
2,737
2,161
430
2,137
4,728
195
2,469
–
2,664
2,583
78
2,502
5,163
–
24
1,365
1,389
–
–
65
65
–
83
1,479
1,562
–
–
10
10
237
2,524
1,365
4,126
2,161
430
2,202
4,793
195
2,552
1,479
4,226
2,583
78
2,512
5,173
255
2,524
1,365
4,144
2,336
436
2,202
4,974
216
2,552
1,479
4,247
2,801
78
2,512
5,391
for impairment, short-term borrowings and other current
liabilities approximate fair value due to the short maturity
period of those instruments and were determined using
level 2 fair value methods. For €112 million of Other
financial non-current assets a level 3 fair valuation method
(discounted cash flow) was used resulting in a deviation
between the fair value and the carrying value.
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
agreements including the potential effect of rights of
set-off. We did not offset any amounts regarding
derivative transactions.
AkzoNobel Report 2016 | Financial information
169
24
Note 24: Subsequent events
AkzoNobel has repurchased 960,000 of its own common
shares in the period from January 9, 2017, up to and
including February 11, 2017, at an average price of €61.98
per share. The consideration of the repurchase was
€60 million. This is part of a repurchase program
announced on December 12, 2016. The purpose of the
program is to neutralize the dilutive effect of stock divi-
dends paid in 2016.
Sensitivities on financial instruments at year-end 2016
Sensitivity object
Sensitivity
Hypothetical impact
A 10 percent strengthening of the euro versus
US dollar
Profit: €11 million (2015: profit €2 million), Other
comprehensive income €2 million (2015: €nil)
A 20 percent (2015: 10 percent) strengthening
of the euro versus the pound sterling
Profit: €3 million (2015: profit €2 million)
A 10 percent strengthening of the euro versus
Swedish krona
Profit: €1 million (2015: €nil)
A 5 percent strengthening of the euro versus
Chinese yuan
Profit: €nil million (2015: €nil)
Electricity price Specialty Chemicals
Netherlands:
A 10 percent change in the forward price of
electricity (€4 per MWh) as compared with the
market prices (up/down)
Electricity price Specialty Chemicals
Sweden and Finland:
A 10 percent change in the forward price on
the Nord Pool exchange electricity (€3 per
MWh) as compared with market prices (up/
down)
Oil price Specialty Chemicals
Netherlands and Denmark:
A 10 percent change in price of oil (€4 per
barrel) as compared with market prices (up/
down)
Equity: €11 million (2015: €11 million)
We apply cash flow hedge accounting to the fair
value changes of electricity futures
Equity: €7 million (2015: €6 million)
We apply cash flow hedge accounting to the fair
value changes of electricity futures
Profit/(loss): €nil million (2015: €1 million)
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 sensitivity
analysis by applying an adjustment to the
forward rates prevailing at year-end. This
adjustment is based on observed changes
in commodity prices in the previous year and
management expectations for possible future
movements. We then apply the expected vola-
tility to revalue all commodity-derivative financial
instruments in the applicable commodity in our
balance sheet at year-end. For the purpose of
this sensitivity analysis, the change of the price
of the commodity is not discounted to the net
present value at balance sheet date.
Interest rate:
At the end of 2016, the fixed/floating rate of
our outstanding bonds was 100 percent fixed
as we have no outstanding bonds maturing
within one year. As a result we are, for our debt
position, not sensitive to interest rate changes.
In Note 16 we explained how changes in
discount rates will affect our consolidated
financial position and showed the impact that
a one percentage point increase or decrease
of discount rates will have on the provisions
recognized at December 31, 2016
170
Financial information | AkzoNobel Report 2016
Company financial statements
Statement of income
In € millions
Other income
Gross profit
General and administrative expenses
Note
Operating income
Financing income and expenses
B
Net income from subsidiaries, associates
and joint ventures
60
(52)
(47)
1,018
Profit before tax
Income tax
Net income
2015
60
(52)
8
979
–
979
Balance sheet as of December 31, before allocation of profit
2016
In € millions
Note
2015
2016
58
(43)
(33)
988
58
(43)
15
970
–
970
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 legal reserves
Cumulative translation reserves
Other reserves
Profit for the period
Shareholders’ equity
Non-current liabilities
Long-term borrowings
Total non-current liabilities
Current liabilities
Short-term borrowings
Other current liabilities
Total current liabilities
Total equity and liabilities
C
D
F
E
F
F
G
11,310
11,366
11,310
11,366
111
373
229
641
484
11,794
870
12,236
498
598
(42)
313
81
4,057
979
504
746
3
272
(47)
4,105
970
6,484
6,553
4,751
5,431
4,751
5,431
373
186
36
216
559
11,794
252
12,236
AkzoNobel Report 2016 | Financial information
171
Subscribed
share capital
Additional
paid-in capital
Cash flow
hedge reserve
Other
legal reserves
Cumulative trans-
lation reserves
Other reserves
Profit for the
period
Shareholders'
equity
Legal reserves
492
463
–
–
–
–
–
4
–
2
–
–
–
–
–
–
–
137
–
(2)
–
–
598
–
–
–
–
–
149
–
(1)
–
–
(19)
–
(23)
–
–
(23)
–
–
–
–
–
(42)
–
45
–
–
45
–
–
–
–
–
3
335
–
–
–
–
–
–
–
–
–
(22)
313
–
–
–
–
–
–
–
–
–
(41)
272
(43)
124
–
–
–
124
–
–
–
–
–
81
(128)
–
–
–
(128)
–
–
–
–
–
(47)
4,016
546
–
–
(193)
–
(193)
(363)
32
–
(3)
568
4,057
–
–
(597)
–
(597)
(393)
20
–
(2)
1,020
4,105
–
–
–
979
979
–
–
–
–
(546)
979
–
–
–
970
970
–
–
–
–
(979)
970
5,790
124
(23)
(193)
979
887
(222)
32
–
(3)
–
6,484
(128)
45
(597)
970
290
(239)
20
–
(2)
–
6,553
Movement in shareholders' equity
In € millions
Balance at January 1, 2015
Changes in exchange rates in respect of subsidiaries,
associates and joint ventures
Changes in fair value of derivatives
Post-retirement benefits
Net income
Comprehensive income
Dividend
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
Addition to other reserves
Balance at December 31, 2015
498
Changes in exchange rates in respect of subsidiaries,
associates and joint ventures
Changes in fair value of derivatives
Post-retirement benefits
Net income
Comprehensive income
Dividend
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
Addition to other reserves
–
–
–
–
–
5
–
1
–
–
Balance at December 31, 2016
504
746
172
Financial information | AkzoNobel Report 2016
A
Note A: General information
C
Note C: Financial non-current assets
The financial statements of Akzo Nobel N.V. have been
prepared using the option of Article 362 of Book 2 of
the Dutch Civil Code, meaning that the accounting
principles used are the same as for the Consolidated
financial statements. Foreign currency amounts have
been translated, assets and liabilities have been valued,
and net income has been determined in accordance
with the principles of valuation and determination of
income presented in Note 1 of the Consolidated financial
statements. For the Company financial statements, Other
income mainly concerns intercompany royalty income.
Subsidiaries of Akzo Nobel N.V. are accounted for using
the equity method, based on the pronouncements of the
Dutch Accounting Standards Board.
The remuneration paragraph is included in Note 22 of the
Consolidated financial statements.
B
Note B: Financing income and expenses
Financing income and expenses
In € millions
Financing income
Financing expenses
Other items
Total
2015
39
(85)
(1)
(47)
2016
27
(58)
(2)
(33)
Movements in financial non-current assets
In € millions
Balance at January 1, 2015
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
Dividends received
Other changes
Change to provisions for subsidiairies
Balance at December 31, 2015
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
Dividends received
Other changes
Balance at December 31, 2016
1 Loans to these companies have no fixed repayment schedule.
Subsidiaries
Share in capital
8,554
550
–
1,018
(195)
27
–
–
139
(1,541)
(26)
(147)
8,379
37
–
988
(595)
15
–
–
(125)
(448)
26
8,277
Other financial
non-current
assets
94
4
(2)
–
–
–
–
–
–
–
1
–
97
(2)
–
–
–
–
–
–
–
–
Total
13,037
554
(2)
1,018
(195)
27
268
(1,840)
156
(1,541)
(25)
(147)
11,310
37
(2)
988
(595)
15
571
(487)
(49)
(448)
26
95
11,366
Loans1
4,389
–
–
–
–
–
268
(1,840)
17
–
–
–
2,834
–
–
–
–
–
571
(487)
76
–
–
2,994
AkzoNobel Report 2016 | Financial information
173
D
Note D: Trade and other receivables
Trade and other receivables
In € millions
Receivables from subsidiaries
Receivable from associates and
joint ventures
FX contracts
Other receivables
Total
2015
57
13
21
20
111
2016
189
–
22
18
229
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.
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,
for the period between the beginning of the year and the
date of transfer. There are no restrictions on voting rights
of holders of common or priority shares. The Articles of
Association set out procedures for exercising voting rights.
The Annual General Meeting of shareholders has in 2016
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 2016 or 2015.
Of the shareholders’ equity of €6.6 billion, an amount of
€5.8 billion (2015: €5.7 billion) was unrestricted and
available for distribution – subject to the relevant provisions
of our Articles of Association and Dutch law. The reserves
for actuarial gains and losses and cash flow hedges are
individually considered to be restricted if they lead to an
increase of Shareholders’ equity at year-end.
Statutory reserves have been recognized following Article
373 paragraph 4 of Book 2 of the Dutch 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
Unrestricted reserves at year-end
In € millions
Shareholders’ equity at year-end
Subscribed share capital
Subsidiaries’ restrictions to transfer
funds
Statutory reserve due to capital
reduction
Reserve for development costs
Cash flow hedge reserve
Unrestricted reserves
2015
6,484
(498)
(224)
(61)
(23)
–
2016
6,553
(504)
(188)
(61)
(23)
(3)
5,678
5,774
cumulative preferred shares to €2. As the revised nominal
values are lower than the original par values, in accordance
with Article 67a of Book 2 of the Dutch Civil Code,
we recognize a statutory reserve of €61 million for this
reduction in subscribed share capital. Statutory reserves
also include €23 million for capitalized development costs,
as well as the reserves relating to earnings retained by
subsidiaries, associates and joint ventures after 1983.
Dividend
We will propose to the Annual General Meeting of
shareholders on April 25, 2017, a 2016 final dividend of
€1.28 of shareholders, which would make a total 2016
dividend of €1.65 per share (2015: €1.55). There will be a
stock dividend option with cash dividend as default.
During 2016, we paid the 2015 final dividend of €1.20 and
the 2016 interim dividend of €0.37 per share. For both
dividends there were stock dividend options.
F
Note F: Net debt
Analysis of net debt by category
In € millions
Bonds issued
Debt from subsidiaries
Other borrowings
Long-term borrowings
Current portion of debenture loans
Current portion of other long-term
borrowings
Short-term loans
Short-term borrowings
Total borrowings
Cash and cash equivalents
Net debt
2015
1,292
3,429
30
4,751
339
30
4
373
5,124
(373)
4,751
2016
1,788
3,643
–
5,431
–
30
6
36
5,467
(641)
4,826
174
Financial information | AkzoNobel Report 2016
G
Note G: Other current liabilities
Long-term-borrowings
For the fair value of the bonds issued, see Note 23 of the
Consolidated financial statements.
Bonds issued
In € millions
4% 2011/18 (€800 million)
1 3/4% 2014/24 (€500 million)
1 1/8% 2016/26 (€500 million)
2015
796
496
–
2016
797
497
494
Total
1,292
1,788
Other current liabilities
In € millions
Payables to subsidiairies
Payables to associates and joint
ventures
FX contracts
Debt related to pensions
Other suppliers
Other liabilities
Total
2015
2016
23
–
10
6
43
104
186
51
1
10
7
30
117
216
We have a €1.8 billion multi-currency revolving credit facil-
ity, which was extended in 2016 by one additional year to
2021. This facility does not contain financial covenants or
acceleration provisions that are based on adverse changes
in ratings or on material adverse change. At year-end 2016
and 2015, this facility had not been drawn. At year-end
2016 and 2015, none of the borrowings was secured by
collateral. In April 2016, a bond was issued with a nominal
value of €500 million maturing in 2026 at a coupon of
1.125 percent.
Short-term borrowings
In April 2016, a bond of £250 million matured. In 2017,
no bonds will mature. 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
2016 and 2015.
H
Note H: Financial instruments
At year-end 2016, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.2 billion (year-end 2015: €1.6 billion), while contracts
to sell currencies totaled €0.9 billion (year-end 2015:
€1.3 billion). The contracts mainly related to US dollars,
Swedish krona, pound sterling and Chinese yuan and all
have maturities within one year. These contracts offset the
foreign exchange contracts concluded by the subsidiaries,
and the fair value changes are recognized in the statement
of income to offset the fair value changes on the contracts
with the subsidiaries. For information on risk exposure
and risk management, see Note 23 of the Consolidated
financial statements.
Cash and cash equivalents
I
Note I: Contingent liabilities
Fees PricewaterhouseCoopers
Cash and cash equivalents
In € millions
Cash on hand and in banks
Short-term investments
Total
2015
53
320
373
2016
264
377
641
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.
Audit
Audit-related
Tax
Other services
Total
3.4
–
–
–
3.4
Akzo Nobel N.V. has declared in writing that it accepts
joint and several liability for contractual debts of certain
Dutch consolidated companies (Article 403 of Book
2 of the Dutch Civil Code). These debts, at year-end
2016, aggregating €0.7 billion (2015: €0.8 billion), are
included in the Consolidated balance sheet. Additionally,
at year-end 2016, guarantees were issued on behalf of
consolidated companies for an amount of €1.2 billion
(2015: €1.2 billion).
The debts and liabilities of the consolidated companies
underlying these guarantees are included in the
Con solidated balance sheet or in the amount of
commitments in respect of operational lease contracts
as disclosed in Note 20 of the Consolidated financial
statements. Guarantees relating to associates and joint
ventures amounted to €5 million (2015: €5 million).
J
Note J: Auditor’s fees
Fees KPMG
In € millions
In the Netherlands
Network outside
the Netherlands
Audit
Audit-related
Tax
Other services
Total
3.2
0.5
–
–
3.7
In € millions
In the Netherlands
Network outside
the Netherlands
7.3
11.0
2015
Total
10.0
0.8
0.2
–
2016
Total
9.0
0.2
–
–
6.8
0.3
0.2
–
5.6
0.2
–
–
5.8
9.2
AkzoNobel Report 2016 | Financial information
175
Other information
Proposal for profit allocation
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €554 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 €416 million (to be increased by dividend on
shares issued in 2017 before the ex-dividend date and
decreased by dividend on shares acquired through the
share buyback program in 2017 before the ex-dividend
date) will be distributed. Following the acceptance of this
proposal, the holders of common shares will receive a
dividend of €1.65 per share, of which €0.37 was paid
earlier as an interim dividend. The final dividend of €1.28
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 24, 2017.
Amsterdam, February 14, 2017
The Board of Management
Ton Büchner
Maëlys Castella
The Supervisory Board
Antony Burgmans
Sari Baldauf
Peggy Bruzelius
Byron Grote
Louis Hughes
Pamela Kirby
Dick Sluimers
Ben Verwaayen
176
Financial information | AkzoNobel Report 2016
Independent auditor’s report
To: the Annual General Meeting of shareholders and the
Supervisory Board of Akzo Nobel N.V.
Report on the Financial statements 2016
Our opinion
In our opinion:
• the accompanying Consolidated financial statements
give a true and fair view of the financial position of Akzo
Nobel N.V. as at December 31, 2016 and of its result
and cash flows for the year then ended in accordance
with International Financial Reporting Standards as
adopted by the European Union (EU-IFRS) and with Title
9 of Book 2 of the Dutch Civil Code
• the accompanying Company financial statements give a
true and fair view of the financial position of
Akzo Nobel N.V. as at December 31, 2016 and of its
result for the year then ended in accordance with Title 9
of Book 2 of the Dutch Civil Code
What we have audited
We have audited the accompanying financial statements
2016 of Akzo Nobel N.V., Amsterdam (‘the company’).
The financial statements include the Consolidated financial
statements of Akzo Nobel N.V. and its subsidiaries (to-
gether: ‘the group’) and the Company financial statements.
The financial reporting framework that has been applied in
the preparation of the financial statements is EU-IFRS and
the relevant provisions of Title 9 of Book 2 of the Dutch
Civil Code for the Consolidated financial statements and
Title 9 of Book 2 of the Dutch Civil Code for the Company
financial statements.
The basis for our opinion
We conducted our audit in accordance with Dutch
law, including the Dutch Standards on Auditing. Our
responsibilities under those standards are further described
in the section ‘Our responsibilities for the audit of the
financial statements’ of our report.
Independence
We are independent of Akzo Nobel N.V. in accordance
with the ‘Verordening inzake de onafhankelijkheid van
accountants bij assuranceopdrachten’ (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.
Our audit approach
The Consolidated financial statements comprise:
• the consolidated balance sheet as at December 31,
2016
• the following statements for 2016: the consolidated
statement of income and the consolidated statements
of comprehensive income, changes in equity and cash
flows; and
• the notes, comprising a summary of significant
accounting policies and other explanatory information
Overview and context
Akzo Nobel N.V. is a global paints and performance
coatings company and a major producer of specialty
chemicals headquartered in the Netherlands. The group
comprises of multiple components and therefore we
considered our group audit scope and approach as set
out in the scope of our group audit section below. We
paid specific attention to the areas of focus driven by the
operations of the company, as set out below.
The Company financial statements comprise:
• the company balance sheet as at December 31, 2016
• the company statement of income for the year then
ended
• the notes, comprising a summary of the accounting
policies and other explanatory information.
We designed our audit by determining materiality and
assessing the risks of material misstatement in the financial
statements. In particular, we looked at where the Board of
Management made subjective judgments, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that
are inherently uncertain. In Note 1 of the Consolidated
financial statements the company describes the areas
of judgment in applying accounting policies and the key
sources of estimation uncertainty. Given the significant
estimation uncertainty in the impairment testing of goodwill
and other intangibles with indefinite useful lives, calculation
of the post-retirement benefit provisions and accounting
for income tax positions, we considered these to be key
audit matters as set out in the key audit matter section of
this report. Furthermore, as this is our first year as auditor
of Akzo Nobel N.V., we identified the transition as auditors
including the audit of the opening balances as key audit
matter because initial audit engagements involve a number
of considerations not associated with recurring audits to
establish an appropriate audit plan and strategy.
Besides the key audit matters, other areas of focus were
provisions, the acquisition of BASF’s Industrial Coatings
business and information technology general controls
(ITGC). The ITGC are the policies and procedures used
by the company to ensure information technology (IT)
operates as intended and provides reliable data for
financial reporting purposes. As in all of our audits, we also
addressed the risk of management override of internal
controls, including evaluating whether there was evidence
of bias by the Board of Management that may represent a
risk of material misstatement due to fraud.
AkzoNobel Report 2016 | Financial information
177
The outlines of our audit approach were as follows:
Materiality
• Overall materiality: €65 million which represents approximately 5 percent of profit before tax
Audit scope
• We conducted audit work at 61 components in 17 countries
• Site visits by the group team were conducted to seven countries – US, China, Sweden, UK,
Brazil, Germany and the Netherlands
• Audit coverage: 77 percent of consolidated revenue, 77 percent of consolidated total assets and
81 percent of profit before tax
Key audit matters
• Impairment testing of goodwill and other intangibles with indefinite useful lives
• Post-retirement benefit provisions
• Valuation of deferred tax assets and uncertain tax positions
• Transition as auditors including audit of the opening balances
Materiality
The scope of our audit is influenced by the application of
materiality which is further explained in the section ‘Our
responsibilities for the audit of the financial statements’.
We set certain quantitative thresholds for materiality.
These, together with qualitative considerations including
our first year as auditor, key audit matters and other areas
of focus, helped us to determine the nature, timing and
extent of our audit procedures on the individual financial
statement line items and disclosures and to evaluate the
effect of identified misstatements on our opinion.
Based on our professional judgment, we determined
materiality for the financial statements as a whole
as follows:
Materiality
Overall group materiality
€65 million
How we determined it
Rationale for benchmark
applied
Component materiality
Approximately 5 percent of profit before
tax
We have applied this benchmark, a gener-
ally accepted auditing practice, based on
our analysis of the common information
needs of users of the financial statements.
On this basis we believe that profit before
tax is an important metric for the financial
performance of the company
To each component in our audit scope,
we, based on our judgment, allocate
materiality that is less than our overall
group materiality. The range of material-
ity allocated across components was
between €6 and €40 million
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Financial information | AkzoNobel Report 2016
We also take misstatements and/or possible
misstatements into account that, in our judgment, are
material for qualitative reasons.
We agreed with the Audit Committee that we would
report to them misstatements identified during our audit
above €3 million as well as misstatements below that
amount that, in our view, warranted reporting for
qualitative reasons.
The scope of our group audit
Akzo Nobel N.V. is the parent company of a global group
of entities managed by the Board of Management and
Executive Committee, with an Executive Committee
member responsible for each Business Area. The financial
information of this group is included in the Consolidated
financial statements of Akzo Nobel N.V.
Considering our ultimate responsibility for the opinion
we are responsible for the direction, supervision and
performance of the group audit. In this context, we tailored
the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole. We took into account the size and
the risk profile of the group entities or operations and how
Akzo Nobel N.V. is organized and monitors the business
through the Business Areas and related business units and
functions. We selected group entities or operations of each
Business Area or function for which an audit or specified
audit procedures had to be carried out on either the
complete set of financial information or specific financial
statement line items. We also ensured that the audit
teams both at group and at component levels included the
appropriate skills and competencies which are needed for
the audit of Akzo Nobel N.V. This included specialists such
as actuaries, tax, valuation, treasury specialists
and IT auditors.
We include components of Akzo Nobel N.V. in scope for
the group audit where they are significant in size, impose
significant risks to the group or are considered significant
for any other reasons. As this scoping does not provide
adequate coverage over the financial statements as a
whole, we used our judgment to scope-in additional
components. This resulted in 61 components in scope in
17 countries across all Business Areas, with components
being operating companies and operating business units
in our group audit. We further performed central audit
procedures at group level on the areas that to a large
extend are controlled and monitored centrally by
Akzo Nobel N.V. such as goodwill and other assets
impairment testing, post-retirement benefit provisions, tax
positions, legal and environmental provisions, treasury,
IT, the group consolidation and financial statement
disclosures. For all components in scope we performed
hard close audit procedures on the interim October
positions and results and year-end audit procedures on
the December positions and results. For the remaining
components not in our group scope we performed,
among others, analytical procedures to corroborate
our assessment that there were no risks of material
misstatements within those components. This also
included central procedures over the controls performed
by the Business Areas and other central functions, where
relevant for our audit.
In total, in performing these procedures, we achieved the
following coverage on the financial line items:
Coverage on the financial line items
Where the work was performed by component auditors,
we determined the level of involvement we needed to
have in their audit work to be able to conclude whether
sufficient appropriate audit evidence had been obtained
as a basis for our opinion on the Consolidated financial
statements as a whole. The group engagement team
visited the component teams and local management
in the local operations in the US, China, Sweden, UK,
Brazil, Germany and the Netherlands and conference/
video calls were held with the all the component auditors
on various moments during the year. During these visits
and calls, the audit approach, findings and observations
reported to the group audit team were discussed in more
detail. Furthermore, we performed detailed reviews of
the component team audit files and any further work
considered necessary by the group audit team.
By performing the procedures above at components,
combined with additional procedures at group level, we
have obtained sufficient and appropriate audit evidence
regarding the financial information of the group as a whole
to provide a basis for our opinion on the Consolidated
financial statements.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in the
audit of the financial statements. We have communicated
the key audit matters to the Supervisory Board, but they
are not a comprehensive reflection of all matters that
were identified by our audit and that we discussed. We
described the key audit matters and included a summary
of the audit procedures we performed on those matters.
Revenue
Total assets
Profit before tax
77%
77%
81%
The key audit matters were addressed in the context of
our audit of the financial statements as a whole, and in
forming our opinion thereon. We do not provide a separate
opinion on these matters or on specific elements of the
financial statements. Any comments we make on the
results of our procedures should be read in this context.
AkzoNobel Report 2016 | Financial information
179
Key audit matters
Key audit matter
How our audit addressed the matter
Impairment testing of goodwill and other intangibles with indefinite useful lives
Note 8 – page 148
At December 31, 2016, the company’s goodwill and other intangibles with indefinite useful lives are valued at
€3.5 billion. The key assumptions and sensitivities are disclosed in Note 8 of the Consolidated financial state-
ments. The annual impairment test for goodwill and indefinite life intangible assets is significant to our audit
because the assessment process is complex, involves significant management judgment and is based on
assumptions that are affected by expected future market and economic conditions, revenue growth, margin
developments, the discount rates and terminal growth rates. Based on the annual goodwill impairment test,
including sensitivity tests, the Board of Management concluded that no impairment of goodwill and other
intangibles with indefinite useful lives was necessary.
Our audit procedures included, among others, an assessment of the mathematical accuracy of the calculations and
a reconciliation to the 2017 five-year plan as approved by the Board of Management. We evaluated the assumptions
and methodologies used in the annual impairment test prepared by the company. We have challenged management,
primarily on their assumptions applied to which the outcome of the impairment test is the most sensitive, in particular,
the projected revenue growth, margin developments, discount rates and terminal growth rates. We performed
independent testing and analysis of the basic peer group composition, among others, and challenged management
by comparing the assumptions to historic performance of the company and local economic developments, taking into
account the sensitivity tests of the goodwill balances for any changes in the respective assumptions. We also focused
on the adequacy of the company’s disclosures in Note 8 of the Consolidated financial statement concerning those key
assumptions to which the outcome of the impairment test is most sensitive.
Post-retirement benefit provisions
Note 15 – page 154
The post-retirement benefit provisions consist of defined benefit obligations (€16.9 billion) offset by plan assets
(€15.7 billion). The largest pension plans are the ICI Pension Fund (ICIPF) and the AkzoNobel Pension Scheme
(CPS) in the UK which together account for 82 percent of defined benefit obligations (DBO) and 90 percent
of plan assets. The procedures over the post-retirement benefit provisions, specifically the procedures on the
DBO and de-risking transactions during the year, were significant to our audit because the assessment process
is complex, involves significant management judgment and is based on actuarial assumptions, including
discount rates, compensation increase, expected inflation rates, mortality tables and indexation percentages,
as disclosed in Note 15 of the Consolidated financial statements. Technical expertise is required to determine
these amounts and significant de-risking transactions occurred.
Valuation of deferred tax assets and uncertain tax positions
Note 6 – page 145
The Group operates in various countries and is subject to income taxes in various tax jurisdictions. The assess-
ment of the valuation of deferred tax assets, resulting from net operating losses and temporary differences, and
provisions for uncertain tax positions is significant to our audit as the calculations are complex and depend on
sensitive and judgmental assumptions. These include, amongst others, long-term future profitability and local
fiscal regulations and developments. The company’s disclosures concerning income taxes are included in
Note 6 of the Consolidated financial statements.
Transition as auditors including the audit of the opening balances
Initial audit engagements involve a number of considerations not associated with recurring audits. We identified
the audit transition, including the audit of the opening balance as a key audit matter as this involves additional
planning activities and considerations necessary to establish an appropriate audit plan and strategy. This
includes:
• Gaining an initial understanding of the company and its business including its control environment and
information systems, sufficient to make an audit assessment and develop the audit strategy and plan
We evaluated the Board of Management’s actuarial assumptions and valuation methodologies and we assessed
the objectivity and competence of the company’s external pension experts used for the calculation of the post-
retirement benefit positions. We have challenged management, primarily on their assumptions applied to which the
post-retirement benefit provisions are the most sensitive, by performing independent testing and comparing to the
published actuarial tables, amongst other. We also tested the participant census data and the valuation of the plan
assets through independent price testing. Further, we tested the de-risking transactions and plan amendments made
by AkzoNobel to the UK pension plans and we verified the appropriate accounting. We also assessed the adequacy of
the company’s disclosure in Note 15 of the Consolidated financial statements.
Our audit procedures included, among others, procedures on the completeness and accuracy of the deferred tax
assets and uncertain tax positions recognized. We challenged and tested the Board of Management’s assessment of
the recoverability of the deferred tax assets, including the project revenue growth and margin development based on
the 2017 five-year plan as approved by the Board of Management, and the probability of future cash outflows of the
uncertain tax risks identified by the company. We also assessed the applicable local fiscal regulations and develop-
ments, in particular those related to changes in the statutory income tax rate and of the statutes of limitation since,
as these are key assumptions underlying the valuation of the deferred tax assets and uncertain tax positions. We
analysed the tax positions and evaluated the assumptions and methodologies used by the company. In addition, we
also focused on the adequacy of the company’s disclosures on deferred tax assets and uncertain tax positions and
assumptions used.
Prior to becoming the company’s auditors, we developed a comprehensive transition plan commencing in November
2015 to understand the connection between the company’s strategy, the related business risks and the way these
impact the company’s financial reporting and internal controls framework. Our transition plan included, among other:
• Close interaction with the previous auditor, including a process of file reviews and formal hand over procedures as
prescribed by our professional standards
• Active knowledge sharing with Business, Finance, Risk and Internal Audit functions to understand their perspectives
on the business, (emerging) risks and key findings from their work
• Obtaining sufficient appropriate audit evidence regarding the opening balances including the selection and
• Attendance as observers of a number of meetings between the previous auditors and senior management and Audit
application of accounting principles
• Communicating with the previous auditors
180
Financial information | AkzoNobel Report 2016
Committee during the hard close 2015 and year-end 2015 financial closing and reporting process
• Evaluation of key accounting positions and audit matters from prior years
• Review of management’s control documentation to assist us in obtaining and understanding of the company’s
financial reporting and business processes
We discussed and agreed our audit plan with the Audit Committee in June 2016 and we discussed the status,
progress and key findings from our audit process on a quarterly basis.
Report on the other information included in the
annual report
In addition to the financial statements and our auditor’s
report thereon, the annual report contains other
information that consists of:
• The report of the Board of Management, as defined in
Note 1 of the Consolidated financial statements
• The other information pursuant to Title 9 of Book 2 of
the Dutch Civil Code
• Other parts of the annual report: How AkzoNobel
performed in 2016, How AkzoNobel created value
in 2016, CEO statement, Our purpose, Strategic
performance, Business Performance, Leadership,
Governance and compliance, Sustainability statements,
Index, Financial calendar and Glossary
Based on the procedures performed as set out below, we
conclude that the other information:
• Is consistent with the financial statements and does not
contain material misstatements
• Contains all information that is required by Title 9 of
Book 2 of the Dutch Civil Code
We have read the other information. Based on our
knowledge and understanding obtained in our audit
of the financial statements or otherwise, we have
considered whether the other information contains material
misstatements.
By performing our procedures, we comply with the
requirements of Title 9 Book 2 of the Dutch Civil Code and
the Dutch Standard of Auditing 720. The scope of such
procedures was substantially less than the scope of those
performed in our audit of the financial statements.
The Board of Management is responsible for the
preparation of the other information, including the
directors’ report and the other information pursuant to
Title 9 Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
Our appointment
We were appointed for the first year as auditors of
Akzo Nobel N.V. by the Supervisory Board following the
passing of a resolution by the shareholders at the Annual
General Meeting held on April 29, 2014 for the audit of the
financial statements as of 2016.
Responsibilities for the financial statements and
the audit
Responsibilities of the Board of Management and
the Supervisory Board for the financial statements
The Board of Management is responsible for:
• The preparation and fair presentation of the financial
statements in accordance with EU-IFRS and with Title 9
of Book 2 of the Dutch Civil Code; and for
• Such internal control as the Board of Management
determines is necessary to enable the preparation of
the financial statements that are free from material
misstatement, whether due to fraud or error
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
statements 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 significant 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 responsibility is to plan and perform an audit
engagement in a manner that allows us to obtain sufficient
and appropriate audit evidence to provide a basis for our
opinion. Our audit opinion aims to provide reasonable
assurance about whether the financial statements are
free from material misstatement. Reasonable assurance
is a high but not absolute level of assurance which makes
it possible that we may not detect all misstatements.
Misstatements may arise due to fraud or error. They
are considered to be material if, individually or in the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the
financial statements.
Materiality affects the nature, timing and extent of our audit
procedures and the evaluation of the effect of identified
misstatements on our opinion.
A more detailed description of our responsibilities is set out
in the appendix to our report.
Amsterdam, February 14, 2017
PricewaterhouseCoopers Accountants N.V.
R. Dekkers RA
AkzoNobel Report 2016 | Financial information
181
We provide the Supervisory Board with a statement that
we have complied with relevant ethical requirements
regarding independence, and to communicate with them
all relationships and other matters that may reasonably
be thought to bear on our independence, and where
applicable, related safeguards.
From the matters communicated with the Supervisory
Board, we determine those matters that were of most
significance in the audit of the financial statements of the
current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, not
communicating the matter is in the public interest.
Appendix to our auditor’s report on the financial
statements 2016 of Akzo Nobel N.V.
In addition to what is included in our auditor’s report we
have further set out in this appendix our responsibilities for
the audit of the financial statements and explained what an
audit involves.
The auditor’s responsibilities for the audit of the
financial statements
We have exercised professional judgment and have
maintained professional scepticism throughout the audit
in accordance with Dutch Standards on Auditing, ethical
requirements and independence requirements. Our
objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error. Our
audit consisted, among other things, of the following:
• Identifying and assessing the risks of material
misstatement of the financial statements, whether
due to fraud or error, designing and performing audit
procedures responsive to those risks, and obtaining
audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the intentional override of
internal control
• Obtaining an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of
the company’s internal control
• Evaluating the appropriateness of accounting policies
used and the reasonableness of accounting
estimates and related disclosures made by the Board
of Management
• Concluding on the appropriateness of the Board of
Management’s use of the going concern basis of
accounting, and based on the audit evidence obtained,
concluding whether a material uncertainty exists related
to events and/or conditions that may cast significant
doubt on the company’s ability to continue as a going
concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report and are made in the context of our opinion on
the financial statements as a whole. However, future
events or conditions may cause the company to cease
to continue as a going concern
• Evaluating the overall presentation, structure and
content of the financial statements, including the
disclosures, and evaluating whether the financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation
Considering our ultimate responsibility for the opinion on
the company’s Consolidated financial statements we are
responsible for the direction, supervision and performance
of the group audit. In this context, we have determined the
nature and extent of the audit procedures for components
of the group to ensure that we performed enough work to
be able to give an opinion on the financial statements as
a whole. Determining factors are the geographic structure
of the group, the significance and/or risk profile of group
entities or activities, the accounting processes and
controls, and the industry in which the group operates. On
this basis, we selected group entities for which an audit
or review of financial information or specific balances was
considered necessary.
We communicate with the Supervisory Board regarding,
among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant
deficiencies in internal control that we identify during
our audit.
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Financial information | AkzoNobel Report 2016
Profit allocation and distributions
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.
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.
Profit allocation and distributions
Article 43
43.6
The Board of Management shall be authorized to
determine, with the approval of the Supervisory Board,
what share of profit remaining after application of the
provisions of the 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.
AkzoNobel Report 2016 | Financial information
183
Financial summary
Consolidated statement of income
In € millions
Revenue
EBIT6
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
Dividend4
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
ROS7
ROI7
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Interest coverage5
Per share information
Net income
Adjusted earnings per share
Shareholders’ equity
Highest share price during the year
Lowest share price during the year
Year-end share price
2007
10,217
916
778
(151)
(166)
(20)
441
(31)
9
419
262.3
472
42,600
42,600
2,215
240
18
9.0
13.8
122.9
21.7
5.2
20081
15,415
1,315
(577)
(232)
(260)
25
(1,044)
(65)
23
(1,086)
231.7
417
60,000
61,300
3,022
251
(9)
8.5
14.1
–3
19.6
–3
33.82
(4.38)
42.06
65.56
44.41
54.79
32.21
57.11
22.85
29.44
2009
13,028
1,131
855
(405)
(141)
21
330
(77)
32
285
232.3
325
54,700
56,300
2,955
231
15
8.7
9.0
3.7
22.7
2.1
1.23
2.06
33.47
46.52
26.01
46.40
20102
2011
2012
2013
13,605
14,604
15,390
14,590
1,325
1,293
(329)
(176)
25
813
(83)
58
788
233.5
320
55,600
55,100
2,980
247
23
9.7
11.6
8.8
21.9
6.8
3.23
3.71
38.48
47.70
37.18
46.49
1,154
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
972
(1,198)
(205)
(203)
13
(1,593)
(63)
(436)
(2,092)
239.0
214
50,610
52,200
3,018
295
(23)
6.3
8.2
–3
19.6
–3
(8.82)
2.55
24.12
49.75
35.16
49.75
897
958
(200)
(111)
14
661
(68)
131
724
242.6
210
49,600
50,200
2,950
291
19
6.1
9.0
12.9
20.2
5.1
3.00
2.62
23.06
56.08
42.65
55.71
2014
14,296
1,072
987
(156)
(252)
21
600
(72)
18
546
246.0
212
47,200
48,200
2,824
297
20
7.5
10.9
9.5
19.8
8.6
2.23
2.81
23.53
60.77
47.63
57.65
2015
2016
14,859
14,197
1,462
1,573
(114)
(416)
17
1,502
1,519
(114)
(394)
43
1,060
1,054
(87)
6
979
249.0
222
45,600
46,100
2,728
322
34
9.8
14.0
15.1
18.4
16.2
3.95
4.02
26.04
74.81
55.65
61.68
(82)
(2)
970
252.2
239
46,000
45,800
2,682
310
33
10.6
15.0
14.8
18.9
13.3
3.85
4.15
25.99
64.74
50.17
59.39
1 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
2 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
3 Not meaningful as operating income and net income were losses.
4 Cash dividend paid to shareholders of AkzoNobel.
5 Until 2009: operating income divided by net financing expenses, as from 2010: operating income divided by net interest on net debt.
6 EBIT = operating income excluding incidentals.
7 ROS and ROI have been restated and are based on EBIT instead of operating income.
184
Financial information | AkzoNobel Report 2016
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 capital3
Capital expenditures
Depreciation
OWC
Net debt
Ratios
Equity/non-current assets
Inventories and receivables/current liabilities
Operating working capital as % of revenue4
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
(8,039)
2.60
1.47
20081
7,172
3,357
1,848
2009
7,388
3,474
1,783
20102
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
2014
4,142
3,835
2,148
2015
4,156
4,003
2,125
2016
4,413
4,190
1,736
10,125
10,284
10,339
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
1,504
2,810
1,365
–
5,679
6,484
496
6,980
1,865
2,161
360
4,386
430
3,716
451
–
1,532
2,846
1,479
–
5,857
6,553
481
7,034
1,938
2,644
367
4,949
87
3,704
422
–
4,597
4,213
9,311
12,578
11,467
11,537
11,817
10,007
9,871
10,475
10,045
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
0.69
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
588
477
1,418
1,606
0.62
1.20
10.1
651
487
1,385
1,226
0.68
1.16
9.7
634
482
1,405
1,252
0.68
1.18
10.2
1 Continuing operations from ICI are included as from 2008. The 2008 figures have not been restated for the National Starch divestment.
2 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
3 Restated to current definition as from 2010.
4 Operating working capital is measured against four times fourth quarter revenue.
AkzoNobel Report 2016 | Financial information
185
Business Area statistics
In € millions
Decorative Paints
Revenue
EBIT
Operating income
ROS (in %)4
Average invested capital3
ROI (in %)4
Capital expenditures
Average number of employees
Average revenue per employee
Average Operating income per employee
Performance Coatings
Revenue
EBIT
Operating income
ROS (in %)4
Average invested capital 3
ROI (in %)4
Capital expenditures
Average number of employees
Average revenue per employee
Average Operating income per employee
Specialty Chemicals
Revenue
EBIT
Operating income
ROS (in %)4
Average invested capital3
ROI (in %)4
Capital expenditures
2008
2009 1
2010
20112
2012
2013
2014
2015
2016
4,573
4,968
4,201
4,174
3,909
4,007
3,835
5,006
401
(669)
8.0
6,515
6.2
120
24,600
203
(27)
4,575
467
444
10.2
2,010
23.2
89
298
133
6.5
6,169
4.8
112
22,900
200
6
4,112
492
433
12.0
1,868
26.3
61
336
275
6.8
4,908
6.8
154
21,800
228
13
4,786
503
487
10.5
2,063
24.4
87
21,000
20,200
20,600
218
21
5,687
605
130
10.6
3,797
15.9
305
204
21
4,359
490
422
11.2
3,435
14.3
319
232
24
4,943
655
604
13.3
3,464
18.9
273
237
235
5.6
5,032
4.7
155
17,100
246
14
456
458
8.8
2,267
20.1
116
21,300
243
22
5,335
628
622
11.8
3,406
18.4
365
5,170
5,702
5,571
5,589
4,297
108
(2,012)
2.5
4,701
2.3
206
17,200
250
(117)
199
398
4.8
2,896
6.9
171
16,800
248
24
248
248
6.3
2,824
8.8
143
15,500
252
16
542
542
9.5
2,499
21.7
123
21,700
263
25
525
525
9.4
2,463
21.3
143
21,300
262
25
5,543
4,949
524
500
9.5
3,678
14.2
484
11,800
470
42
418
297
8.4
3,609
11.6
346
10,600
467
28
545
545
9.8
2,480
22.0
143
21,000
266
26
4,883
508
508
10.4
3,442
14.8
297
10,000
488
51
345
345
8.6
2,959
11.7
158
357
366
9.3
2,783
12.8
107
15,100
14,800
265
23
5,955
792
792
13.3
2,692
29.4
147
259
25
5,665
759
735
13.4
2,586
29.4
159
19,700
19,300
302
40
4,988
578
609
11.6
3,540
16.3
331
9,300
536
65
294
38
4,783
629
629
13.2
3,507
17.9
356
9,000
531
70
Average number of employees
Average revenue per employee
Average Operating income per employee
12,900
11,400
11,100
11,300
441
11
382
37
445
54
472
55
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.
4 ROS and ROI have been restated and are based on EBIT instead of operating income.
186
Financial information | AkzoNobel Report 2016
Regional statistics
In € millions
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
The Netherlands
Other European countries
Other Asian countries
Revenue by destination
745
765
762
693
651
Revenue by origin
1,601
1,600
1,662
1,563
1,405
Capital expenditures
Average invested capital
Number of employees1
110
1,326
5,200
94
1,175
5,300
72
1,631
5,000
Germany
Revenue by destination
1,258
1,176
Revenue by origin
1,219
1,143
Capital expenditures
Average invested capital
69
861
87
736
986
920
106
764
102
2,154
4,900
1,036
903
52
854
114
2,076
4,900
995
921
38
893
3,647
2,400
85
2,127
8,500
3,531
2,330
66
1,406
8,000
3,341
2,246
57
1,117
7,700
3,226
2,062
60
1,024
7,300
3,164
2,147
64
886
7,400
2,087
1,779
71
727
1,733
1,463
40
612
1,739
1,438
34
600
1,968
1,613
31
671
1,942
1,554
55
634
6,800
7,100
6,900
6,700
7,000
US and Canada
Other regions
2,294
2,155
2,193
2,494
2,351
2,413
2,287
2,306
2,644
2,457
70
62
68
100
103
1,742
1,739
1,778
1,949
1,842
728
463
9
210
674
436
18
178
677
419
17
159
706
466
11
87
691
480
8
133
Number of employees1
3,600
3,100
2,300
2,100
2,300
5,100
5,000
4,800
4,600
4,600
2,100
2,500
2,200
2,200
2,200
Sweden
Latin America
Revenue by destination
486
473
436
414
395
Revenue by origin
1,505
1,411
1,289
1,329
1,243
Capital expenditures
Average invested capital
70
539
38
471
40
428
55
542
65
611
1,623
1,343
138
784
1,553
1,282
83
713
1,485
1,252
45
707
1,483
1,210
34
679
1,338
1,128
42
661
Number of employees1
3,200
3,000
2,900
2,700
2,600
4,600
4,500
4,400
4,100
4,100
UK
China
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees1
901
967
68
1,433
3,800
887
948
74
1,314
3,700
947
950
74
1,008
3,600
1,011
1,109
91
833
902
971
43
759
3,500
3,300
1,621
1,699
135
1,295
7,700
1,643
1,690
104
1,330
7,400
1,730
1,814
75
1,380
7,400
1,828
1,960
115
1,683
7,500
1,768
1,891
102
1,550
7,600
1 At year-end.
AkzoNobel Report 2016 | Financial information
187
Sustainability
MAKING OUR FACILITIES SMARTER 189AkzoNobel Report 2016 | Sustainability statementsSustainability statementsConsolidated Sustainability statements 190Note 1: Managing our sustainability agenda 191Note 2: Reporting principles 194Note 3: Stakeholder engagement 201Creating shared value across three dimensions 204Economic value creation 206Note 4: Products and services 208Note 5: Resource Efficiency Index 210Note 6: Customer engagement 210Note 7: Supplier management 212Environmental value creation 215Note 8: Cradle-to-grave carbon footprint 216Note 9: Operational eco-efficiency 222Note 10: Soil and ground water remediation 226Social value creation 227Note 11: Employees 228 Safety 233Note 12: People safety 234Note 13: Process safety 236Note 14: Product stewardship 237Note 15: HSE management processes 238 Society 240Note 16: Human rights 241Note 17: Human Cities 243Independent assurance report 248Sustainability performance summary 250Additional sustainability information In this reportCase studies 16, 18, 27, 64, 74, 84, 198How AkzoNobel created value in 2016 6CEO statement 8Our purpose 10-19Strategic performance 20Risk management 47Business performance 54Supervisory Board Chairman’s statement 92Report of the Supervisory Board 94Corporate governance statement 106Compliance and integrity management 116Remuneration report 122AkzoNobel on the capital markets 128Our website (akzonobel.com/sustainability)includes additional information on processes, detailed data and contacts to support the following:Note 1: Managing our sustainability agendaNote 2: Reporting principlesNote 3: Stakeholder engagementNotes 4-7: Economic value creationNotes 8-10: Environmental value creationNotes 11-17: Social value creation This Sustainability statements section of the Report 2016 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 agenda, activities and results can be found on our website: www.akzonobel.com/sustainabilitySustainability statementsAfter relocating our Strongsville Technology Center in Ohio, US, the new facility was recognized under the worldwide LEED (Leadership in Energy and Environmental Design) green building certification program. The center is only a third the size of the former location and is designed to use less than a third of the natural gas, electricity and water. Consolidated Sustainability
statements
Sustainability topics have been integrated into all
sections of the AkzoNobel Report 2016.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 website: www.akzonobel.com/sustainability
Consolidated Sustainability statements
Economic
Eco-premium solutions with downstream benefits (% of revenue)
Resource Efficiency Index (REI) (2012 baseline =100)
Customer delivery efficiency index
Critical PR1 spend covered by supplier management framework (% of spend)
Environmental
Carbon footprint cradle-to-grave per ton of product sales
(% reduction from 2012)
Renewable energy own operations (%)
Renewable raw materials (% of organic)
Operational eco-efficiency footprint measure (% reduction from 2009)
Social
Employee engagement score (0-5 scale)
Female executives (%)
Total reportable injury rate employees/supervised contractors
(per million hours)
Loss of primary containment (Level 1)
Priority substances with management plan (%)
Cumulative Community Program involvement (number of projects)
Note: Some 2020 projections are ambitions
1 PR = Product related (raw materials and packaging).
2 Phase 2 started in 2016.
Note
2013
2014
2015
2016
4
5
6
7
8
8
8
9
11
11
12
13
14
17
18
98
92
80
2
31
13
24
3.88
16
2.3
–
62
19
96
93
83
-4
34
13
24
3.97
17
1.8
–
82
19
113
94
87
3
38
11
23
4.03
19
1.6
–
100
20
112
96
91
6
40
12
28
4.17
19
1.4
16
332
2,108
2,260
2,385
2,531
Target
2020
20
–
–
90 (2018)
25–30
45
–
40 (2017)
>4.20
25
<1.0
–
1002
–
190 Sustainability statements | AkzoNobel Report 2016
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 across the entire value chain, as well
as specialist 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.
The Sustainability statements of this Report 2016 address
our strategic sustainability objectives in the context of
value creation across our value chains in economic,
environmental and social dimensions.
Sustainable business: Details of our focus areas across
the value chain can be found in the Economic section,
Notes 4 to 7.
Resource efficiency: Details of our focus areas across
the value chain can be found in the Environmental section,
Notes 8 to 10.
Capable, engaged people: Details of our focus areas
across the value chain can be found in the Social section,
Notes 11 to 17.
1
Note 1: Managing our sustainability agenda
Our purpose and 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 our purpose and
AkzoNobel’s 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 and the Code of Conduct. In addition,
sustainability is being embedded into our company-wide
processes, including Innovation, Commercial Excellence,
Procurement and Talent Management. Sustainability helps
us to enhance and grow our existing business, create
new business opportunities, reduce operational costs 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. The trends were identified
as population growth and the new middle class, and
urbanization – both of which provide opportunities for
our end-user segments – and long-term constraints
of natural resources and climate change, which drive
us towards the need for radical resource efficiency and
circular economy.
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 to make our products and operations more
By focusing on the full value chain, we aim to 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
sustainable. As well as driving our own success, putting
sustainability at the heart of everything we do means that
our customers and employees – not to mention our planet
– will also benefit. For more details, see the Strategic
performance section of this Report 2016.
The societal aspects of our sustainability agenda are
being strengthened through the company’s Human
Cities initiative.
Our strategy has three sustainability focus areas designed
to deliver more value from fewer resources, with targets
for 2020. Our progress is measured by a special Resource
Efficiency Index (REI), which monitors the gross margin
generated divided by the resource/energy use across
the value chain (measured as cradle-to-grave carbon
footprint). The three focus areas are as follows:
• Sustainable business: Creating business value
through products and solutions that effectively carry out
their primary function and provide other environmental
or social sustainability benefits, as well as cost savings
from operational efficiencies.
Target: 20 percent of revenue from eco-premium
solutions with downstream benefits by 2020
• Resource efficiency: 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. There are objectives at Business
Area and functional level
AkzoNobel Report 2016 | Sustainability statements
191
Sustainability foundations
These strategic objectives are underpinned by 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, talent management, employee engagement,
learning and development, community involvement,
environmental management, integrity management and
human rights. These foundation elements are monitored
using key performance indicators with 2020 targets. Other
short-term and long-term objectives are set at functional
and business level.
The Notes in these Sustainability statements and other
elements of this Report 2016 illustrate our performance
against the strategic goals and foundation elements.
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 economic, environmental,
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
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
Sustainability framework
Level of development
Economic
Environmental
Social
Invent
Integrate sustainable value
propositions
Sustainable business:
Economic performance
and strategy
Innovation for sustainable
customer solutions
Resource efficiency:
Climate strategy
Efficiency across the
value chain
Capable, engaged people:
Employee engagement
Stakeholder engagement
Talent management
Manage
Include sustainability in all aspects
of the value chain
Future
trends
Market
research
Eco-premium
solutions; VOC
Required
Eco-efficiency
eco-analysis
analysis
Sustainable
supplier mgt
Operational
eco-efficiency
Market
propositions
R&D
Investment
decisions
Purchasing
Manufacturing
/supply chain
Sales and
marketing
Improve
Continue to comply and ensure
our license to operate
Examples of material issues
Value chain aspects
Integrity management
Business Partner Code
of Conduct
Environmental management
Product stewardship
People/process/product
safety
Human rights
Community involvement
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 (Invent level), alongside continued
integration of sustainability in all aspects of the value chain
(Manage level).
The framework diagram indicates the main material issues
and programs, which are further detailed in the Notes of
these Sustainability statements and in other sections of
this Report 2016.
Management accountability
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, as well as the foundation elements, through the
Operational Control Cycle.
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,
Integrated Supply Chain/Research and Development,
Procurement, Human Resources, Sustainability and
Communications. The Council maintains an external
perspective by including input from value chain partners
and thought leaders during regular meetings. AkzoNobel
also takes part in leading external organizations.
192 Sustainability statements | AkzoNobel Report 2016
The Corporate Director of Sustainability reports directly
to the CEO and has a sustainability expertise team,
including a group focusing on lifecycle and sustainability
assessments, as well as members with experience in other
functions. 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.
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
operations. All businesses have 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
work together at Business Area level to accelerate
performance improvements. They also exchange best
practices and identify opportunities for further develop-
ment at company level.
Each function in the value chain has identified focus areas
for sustainability. Functional management teams, such
as Procurement, Supply Chain and RD&I, are in place
to support the implementation of the functional strategy,
including the sustainability elements. These management
teams include corporate and business representatives.
The foundation elements are managed by processes in
the Human Resources and Health, Safety and Environ-
ment functions. The compliance framework and the
management structure for integrity, human rights and
compliance aspects are detailed in the Governance
and compliance section under Compliance and integrity
management.
Management processes
Material aspects
The management of each Business Area has identified
sustainability priorities in line with the company strategy
and market drivers. They have also developed a
dashboard – with KPIs and targets – which is used
to monitor progress. Some improvement programs
and activities are managed at Business Area level to
improve effectiveness. For cross-business activities, each
function in the value chain has identified focus areas for
sustainability, with targets where appropriate.
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). Full details of the boundaries and management
processes for each aspect are included in the Global
Reporting Initiative (GRI) G4 additional information
document, which is available on our corporate website.
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. Examples of challenges and dilemmas we have
managed this year include:
• AkzoNobel is aware that the production of certain
natural mica in particular parts of the world is associated
with child labor. We are engaging with suppliers and
NGOs in order to contribute to the eradication of child
labor and improve the livelihood of communities that are
dependent on the production of natural mica, while at
the same time applying responsible sourcing practices.
For more information on how we manage human rights
in our supply chain, see Notes 7 and 16
• Nanomaterials: We support the responsible
development and use of nanomaterials, as they can
bring positive benefits to society. However, as a new
technology, we recognize there is public concern
over their safety. We thoroughly assess the risks and
ensure nanomaterials are managed safely. In addition,
we contributed to discussions with government policy
makers and industry groups that encouraged sensible
and effective regulation
• Chromates: Although coatings containing these
substances are widely used in certain markets to
prevent corrosion, we actively promoted the use of
chromate-free products to customers in our metal
coatings business – including in countries where their
regulation is not planned or anticipated in the future.
See Note 14 for more details
Goals and targets
AkzoNobel has three strategic sustainability KPIs and
company level targets for strategic and foundation
elements. The business dashboards reflect the main
sustainability drivers for that business and the contribution
to company targets.
Global standards and programs –
foundation elements
Global functions oversee the foundation elements of our
sustainability agenda. They set global standards and
processes and implement improvement programs in
partnership with the Business Areas. These standards are
also the basis of our supplier management processes.
Common processes
We include material 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. These are
reported in other sections of this Report 2016. See
Strategic performance and Governance and compliance.
Improvement plans and programs
Improvement programs for strategic objectives are
developed at business, Business Area or company level.
In 2016, for example, there was a company level review
of the forward program for operational eco-efficiency led
AkzoNobel Report 2016 | Sustainability statements
193
2
Note 2: Reporting principles
by the Integrated Supply Chain function, reviewed by the
Sustainability Council and Executive Committee.
During the year, we also refined our 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
on where they are needed most. Each business carries out
a self-assessment of the current situation, sets ambition
levels based on company requirements and business
priorities, and develops focused 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. In the future, the overall improvement plans will
be reviewed alongside current performance as part of the
Operational Control Cycle.
We have made good progress on the improvement
areas that were identified in 2015, including supplier
engagement/procurement training, operational eco-
efficiency improvement plans and capability development
in marketing and sales teams. The outcomes from
the 2016 assessment reflect this progress, and are
reported in Notes 6, 7 and 9.
Priorities for 2017 include:
• Accelerated work with suppliers
• Increased focus on operational improvements identified
in each Business Area
• Business-specific priorities with customers
• Capability development for marketing, sales and
procurement activities
194 Sustainability statements | AkzoNobel Report 2016
Incentives
We aim to equip all employees to contribute and be
accountable for our sustainability performance, using
training and other engagement processes, which include
business and site level activity and web-based resources.
This responsibility continues to become anchored in the
personal targets and remuneration packages of managers
and employees. 30 percent of the conditional grant
of shares for Board of Management 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). This link to sustainability performance has been in
place since 2009.
Reporting scope
This Report 2016 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.
Our reporting principles are based on the Global Reporting
Initiative (GRI) G4 Sustainability Reporting Guidelines,
supported by internally developed guidelines as described
in this Note.
Monitor, benchmark and review
The business dashboards are reviewed at least every six
months by Business Areas and the Executive Committee
as part of the Operational Control Cycle. Relevant
sustainability aspects are also discussed in other functional
Operational review meetings.
The information in this Report 2016 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 G4 indicators
and a summary of our UNGC communication of progress.
Material sustainability issues are integrated into corporate
compliance and audit processes, which are supplemented
by specialist functional audits. We also benchmark our
performance against our peers using external assessment
processes, such as the RobecoSAM assessment for the
Dow Jones Sustainability Indices.
Reporting process
and assurance
The reporting period is 2016. 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.
We follow GHG Protocol standards for our value chain
carbon footprint metric and have applied the market-based
method for our Scope 2 emissions (GHG Protocol Scope 2
Guidance). More details on Scope 2 emissions according
to the location-based method, and 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
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 and the Compliance and
integrity management chapter of the Governance and
compliance section have been reviewed by independent,
external auditors. We have also requested reasonable
assurance to be provided on Note 1: Managing our
sustainability agenda. See Independent assurance report at
the end of these Sustainability statements.
Reporting policies
Reporting boundaries
This Report 2016 integrates sustainability aspects of our
processes and business operations in each section, in
particular the How AkzoNobel created value in 2016,
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 on the calendar year 2016 and
comparative data for 2015, 2014, 2013 and 2012.
We report on consolidated data from entities (more than
50 percent ownership) and joint ventures where we have
management control, but exclude all data from entities
in which we participate, but 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:
• 2016 data excludes the acquisition of BASF’s
Industrial Coatings business, which was completed on
December 14, 2016
• 2015 data includes Paper Chemicals until it was
divested in May 2015
• 2014 data includes updated definitions on regulatory
actions and executive potential. See also Note 15 and
Note 11 respectively. It also includes the result of the
divestment of our Building Adhesives business
• We include data from Decorative Paints North America
until April 1, 2013, when it was divested
A change in process safety management (PSM) KPIs in
2016 lowered the impact thresholds for reporting, so a
higher number of loss of primary containment (LoPC) are
reported compared with the prior reporting thresholds. This
was done to align AkzoNobel for comparability with other
leading PSM companies. See Note 13.
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. 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. There continue to be minor
changes in models and raw material data. We calculate the
percentage improvement against our 2020 targets (per ton
of sales) based on comparable 2012 data.
We include “as reported” data for all previous years and
use these numbers to compare our absolute emissions.
The changes to the GHG Protocol guidance in 2015 on
Scope 2 reporting do not impact comparability – we have
applied the market based method since before 2012. We
have developed a restatement policy, which is available on
our website.
We identify issues that affect comparability in the text
or footnotes. More information can be found in the
Global Reporting Initiative (GRI) G4 additional information
document, which is available on our website.
In 2016, 49 percent of our sites improved their relative footprint with regards to energy use,
compared with 2015. In total, 40 percent of the energy we use now comes from renewable
sources.
For further information please go to
www.akzonobel.com/sustainability
AkzoNobel Report 2016 | Sustainability statements
195
Materiality matrix
Economic
Environmental
Social
19 14
18 10
l
s
r
e
d
o
h
e
k
a
t
s
r
o
f
e
c
n
a
t
r
o
p
m
I
h
g
H
i
i
m
u
d
e
M
w
o
L
12 15
14 12
13
13 16
17 11
15 1
11 16
Low
Medium
High
Importance for AkzoNobel
Materiality
We have used the principle of materiality for assessing the
topics to include in this Report 2016, 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:
• Shareholder discussions
• Customer discussions and surveys
• Employee discussions and surveys
• AkzoNobel strategy
• AkzoNobel Report 2015
• Sustainability organizations such as the World Business
Council for Sustainable Development (WBCSD), WWF
and Oxfam
• Issues raised in discussions with thought leaders
• 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
CDP
• Peer reporting
• Media analysis
This long list was then reduced by reviewing the dominance
of the topics in the key sources and ranking them. The
highest ranked topics were then clustered into 16 final
topics, prioritized and plotted in the matrix.
The topics marked as high importance are also included
in the integrated materiality diagram and are covered
by the AkzoNobel strategic focus areas and core principles.
See also the Risk Management chapter in the Strategic
performance section and page 46.
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
196 Sustainability statements | AkzoNobel Report 2016
Sustainability topics (alphabetical within importance categories)
Economic
Importance
internal
Importance
external
Qualitative information
Quantitative information
Reported
1 Economic performance
High
Low
and strategy
Market segmentation; Description of economic
performance
Economic performance and strategy
2 Fair taxes
Low
Medium
Responsible tax policy
Geographic tax reconciliation
3 Innovation for sustainable
High
Medium
customer solutions
Value chain assessments; Innovation process;
Commercial excellence process; Product
portfolio assessment
Value creation across three dimensions; Eco-premium
solutions with downstream benefits; Eco-premium solutions;
VOC in product; Customer efficiency index
Report 2016: How AkzoNobel created value in 2016, Stra-
tegic performance, Business performance; Sustainability
statements: Creating shared value across three dimensions
Report 2016: Consolidated financial statements Note 6;
Corporate website
Report 2016: How AkzoNobel created value in 2016,
Strategic performance, Business performance; Sustain-
ability statements: Creating shared value across three
dimensions, Notes 4 and 6
4 Integrity
Medium
Medium
Insight on policies and procedures
Code of Conduct reporting; Code of Conduct investigation;
Compliance monitoring; Code of Conduct training
Report 2016: Compliance and integrity management; Sus-
tainability statements Notes 11 and 16; Corporate website
5 Resource scarcity/material
Low
Medium
availability risks
6 Sustainability in the supply
High
Medium
chain
Environmental
7 Biodiversity
8 Climate strategy
Low
High
Low
High
Risk description and mitigation actions; Renew-
able energy and raw material programs
Supplier sustainability framework programs;
Human rights commitment program
Bio-based raw materials; Renewable energy
Third party assessments and audits; Supplier Support Visits;
Business Partner Code of Conduct compliance; Environ-
mental and social supply chain aspects
Report 2016: Risk management, Business performance;
Sustainability statements Notes 4, 7 and 8
Report 2016: Sustainability statements Notes 7 and 16
Climate change; Pollution control
–
Report 2016: Sustainability statements: Environmental
value creation, Notes 8 and 9
Insight on impacts throughout the value chain;
Climate change risk management, mitigation
and adaption policies
Environmental value creation; Resource Efficiency Index;
Cradle-to-grave carbon footprint; Bio-based raw materials;
Energy use; Renewable energy; Greenhouse gas emissions
Report 2016: How AkzoNobel created value in 2016, Stra-
tegic performance, Business performance; Sustainability
statements Notes 4, 5, 8, 9; Corporate website
9 Operational eco-efficiency Medium
High
Insight on impacts in our own operations
Environmental value creation; Energy use; Renewable
energy; Fresh water use; Sustainable fresh water manage-
ment; Emissions to air, land and water: Greenhouse gases,
VOCs, NOx, SOx, total waste, hazardous waste, COD
Environmental value creation; Resource Efficiency Index;
Cradle-to-grave carbon footprint; Bio-based raw materials;
Renewable energy
Report 2016: How AkzoNobel created value in 2016, Stra-
tegic performance, Business performance; Sustainability
statements Notes 8 and 9; Corporate website
Report 2016: How AkzoNobel created value in 2016,
Stategic performance, Business performance; Sustain-
ability statements: Creating shared value across three
dimensions, Notes 5 and 8
10 Radical resource efficiency
across the value chain
High
High
Social
11 Community involvement
Low
Low
Value chain descriptions; Insight on impacts
throughout the value chain; Environmental value
creation; Renewable energy and raw material
programs; Waste reuse; Carbon pricing
Human Cities initiative; Community Program;
Business activities; Social value creation
Projects involved; Volunteers; Donations; Social value
creation
12 Employee engagement
Medium
Medium
Insight on policies and procedures
Employees by level and region; Employee engagement
score; Engagement score by level
13 Human rights
Medium
Medium
Insight on policies, governance, issues and due
diligence; Social value creation
Code of Conduct reporting; Code of Conduct investigation;
Compliance monitoring; Code of Conduct training
Report 2016: Our purpose, Case studies, Strategic perfor-
mance; Sustainability statements: Social value creation,
Note 17; Corporate website
Report 2016: How AkzoNobel created value in 2016, Stra-
tegic performance, Business performance; Sustainability
statements: Social value creation, Note 11
Report 2016: Compliance and integrity; Sustainability
statements: Social value creation, Notes 11 and 16;
Corporate website
14 People, process and
Medium
High
product safety
Insight on policies and procedures; Priority
substance management; Regulatory affairs;
Social value creation
Social value creation; Reportable injury rate; Lost time injury
rate; Behavior-based safety program; Life-Saving Rules;
Regulatory actions; Loss of primary containment; Priority
substances with management plan; REACH compliance
Report 2016: How AkzoNobel created value in 2016,
Strategic performance, Business performance; Sustainability
statements: Social value creation, Notes 12,13 and 14;
Corporate website
15 Stakeholder engagement Medium
Low
Framework activities
Sustainability ratings; Agency rankings
16 Talent management
High
Low
Insight on policies and procedures; Social value
creation
Social value creation; Employees by level and region;
Employee engagement score - learn and grow; Female
executives; Female executive potential pool; Gender
diversity by level; Executives from key regions; Executive
vacancies filled internally; High potential turnover
Report 2016: Sustainability statements Note 3; Corporate
website
Report 2016: How AkzoNobel created value in 2016, Stra-
tegic performance, Business performance; Sustainability
statements: Social value creation, Note 11
AkzoNobel Report 2016 | Sustainability statements
197
How our carbon credits scheme works
Ship converts to
Ship owner/operator provides data
Intersleek® technology
for whole docking cycle prior to, and
after the application of Intersleek®
Data analyzed and
a claim submitted to
The Gold Standard
Independent auditor
verifi es analysis
The Gold Standard
validates and issues
carbon credits
Credits
available
Our Intersleek foul release coating is helping to change that.
These benefits were only made possible by reinventing the
multi-stakeholders from the private sector, academia and
We can offer a viable solution which is already making a
service we provide to our customers. In Intersleek’s case, we
the public sector to create public-private partnerships with a
positive impact and is laying the foundations to enable the
developed the products, the performance of those products,
strong focus on sustainability.
shipping sector to make rapid progress.
the tools to measure the resistance of the hull and the fuel
efficiency, and introduced a market-based mechanism which
A good example of this is the continuing emergence of
The product itself has been a success for many years. The
will enable the shipping sector to make the transition to
Power Purchasing Agreements. It’s a model which is
game-changing development which could prove so pivotal
becoming a more fuel efficient, modern industry.
gathering momentum in north-west Europe in particular, as
is that we’ve introduced a new tool – Intertrac Vision – which
well as developing quickly in India and North America.
provides owners with performance predictions bespoke
The carbon credits scheme is spearheading the ongoing
to individual vessels, depending on their shipping routes,
evolution in our service models that is putting sustainability
Two years ago, AkzoNobel took the initiative and formed a
speed and activity. We further built on this by establishing
at their core. By making such a strong link to longer term
consortium to jointly source power from renewable energy
a landmark carbon credits scheme to reward ship owners
economic success, we are enabling sustainability to make
projects for part of our operations in the Netherlands. During
for converting to sustainable hull coatings, such as those
an even bigger contribution to driving our innovation, helping
2016, we signed a joint agreement to buy electricity from
available in our International product range.
our customers and generating value for the company.
Krammer wind park, which has been established by two
Developed over a number of years in conjunction with The
Partnerships
Gold Standard Foundation and Fremco Group, the award-
People often used to question how partnerships could lead
a total of 350 million kWh a year once the Krammer wind
winning initiative made its biggest award to date in 2016,
to profitable business development. But as companies
park becomes operational in 2019. This is equivalent to the
when Grimaldi – who specialize in maritime transport – were
continue looking for ways to use more renewable resources
total annual consumption of 100,000 Dutch households.
presented with a total of 109,617 carbon credits, valued at
and de-carbonize their energy, partnerships are becoming an
more than $500,000 at the time of the award.
increasingly valuable and effective way to strengthen
The partnership model works particularly well in the
Shipping needs to see more uptake in clean technology to
your business.
Netherlands, where we still lose around 2 percent of all our
energy in the country purely from residual heat. This is mainly
improve its sustainability. Our carbon credits program proves
At AkzoNobel, we’ve been particularly active as a consortium
due to the steam and hot water lost from energy and power
that by making the investment, ship owners can benefit from
leader in recent years, notably in our Specialty Chemicals
production. There are solutions for harnessing this waste –
both increased efficiency gains and lower fuel costs.
business. There are several examples of how we are linking
the biggest source of energy in the chemical industry is heat
up with other business partners, as well as bringing together
– but they require collaboration.
local cooperatives with 4,000 members in the province of
Zeeland. The four companies involved have agreed to source
AkzoNobel Report 2016 | Sustainability statements
199
Sustainability statements | AkzoNobel Report 2016Our Intersleek foul release coatings are playing a key role in helping to make the shipping industry more sustainable.For example, being sustainable today goes far beyond simply generating more sustainable product solutions. Truly innovative companies are embracing ever-evolving business models that offer a clear link to longer term economic success. So there’s now a much stronger focus on developing sustainable business models across the value chain – with both private and public sector partners. It’s a new way of thinking which is stimulating fresh approaches to service delivery and partnerships, as well as driving leadership in market transition.These new models represent an evolution in how sustainability is driving innovation and generating revenue growth. They are accelerating the belief that sustainability represents the only way to do business, building on the more traditional model of sustainable product and process innovation. We made good progress with three innovative business models during 2016. They not only harness the value-creating potential of sustainable innovation, but also tackle some of the unresolved economic, environmental and social challenges the world is facing. Explained in detail below, they demonstrate how true leadership in sustainability can benefit balance sheets and at the same time help to transform entire industries. Service modelsOur customers fully understand that we don’t just sell products – we also provide product performance, such as insulation, heat reflection and antifouling. But we are always striving to do more. Many of our businesses already deliver additional services to the products they sell. For example, in Vehicle Refinishes, we are helping bodyshops to become more efficient by recycling solvents and reducing both drying time and energy costs. Our Intersleek marine coatings also offer several benefits, such as fuel savings of up to 10 percent.Intersleek has been at the forefront of helping to make the shipping industry more sustainable for a number of years, but recent developments are taking this to a whole new level. It’s a classic example of how sustainability is contributing to new business models.With new global agreements in place that have set carbon reduction targets, two sectors found it difficult to set limits – the aviation industry and the shipping industry. The aviation sector was eventually able to put a global plan in place, but for the shipping industry it has proved more difficult. Sustainability has long been embedded in everything we do at AkzoNobel – it has become an integral part of the way we do business. As the world changes, however, our approach to sustainability adapts, improves and changes with it.New business models driving fresh approaches to sustainability198 How our carbon credits scheme works
Ship converts to
Intersleek® technology
Ship owner/operator provides data
for whole docking cycle prior to, and
after the application of Intersleek®
Data analyzed and
a claim submitted to
The Gold Standard
Independent auditor
verifi es analysis
The Gold Standard
validates and issues
carbon credits
Credits
available
Our Intersleek foul release coating is helping to change that.
We can offer a viable solution which is already making a
positive impact and is laying the foundations to enable the
shipping sector to make rapid progress.
The product itself has been a success for many years. The
game-changing development which could prove so pivotal
is that we’ve introduced a new tool – Intertrac Vision – which
provides owners with performance predictions bespoke
to individual vessels, depending on their shipping routes,
speed and activity. We further built on this by establishing
a landmark carbon credits scheme to reward ship owners
for converting to sustainable hull coatings, such as those
available in our International product range.
Developed over a number of years in conjunction with The
Gold Standard Foundation and Fremco Group, the award-
winning initiative made its biggest award to date in 2016,
when Grimaldi – who specialize in maritime transport – were
presented with a total of 109,617 carbon credits, valued at
more than $500,000 at the time of the award.
Shipping needs to see more uptake in clean technology to
improve its sustainability. Our carbon credits program proves
that by making the investment, ship owners can benefit from
both increased efficiency gains and lower fuel costs.
These benefits were only made possible by reinventing the
service we provide to our customers. In Intersleek’s case, we
developed the products, the performance of those products,
the tools to measure the resistance of the hull and the fuel
efficiency, and introduced a market-based mechanism which
will enable the shipping sector to make the transition to
becoming a more fuel efficient, modern industry.
The carbon credits scheme is spearheading the ongoing
evolution in our service models that is putting sustainability
at their core. By making such a strong link to longer term
economic success, we are enabling sustainability to make
an even bigger contribution to driving our innovation, helping
our customers and generating value for the company.
Partnerships
People often used to question how partnerships could lead
to profitable business development. But as companies
continue looking for ways to use more renewable resources
and de-carbonize their energy, partnerships are becoming an
increasingly valuable and effective way to strengthen
your business.
At AkzoNobel, we’ve been particularly active as a consortium
leader in recent years, notably in our Specialty Chemicals
business. There are several examples of how we are linking
up with other business partners, as well as bringing together
multi-stakeholders from the private sector, academia and
the public sector to create public-private partnerships with a
strong focus on sustainability.
A good example of this is the continuing emergence of
Power Purchasing Agreements. It’s a model which is
gathering momentum in north-west Europe in particular, as
well as developing quickly in India and North America.
Two years ago, AkzoNobel took the initiative and formed a
consortium to jointly source power from renewable energy
projects for part of our operations in the Netherlands. During
2016, we signed a joint agreement to buy electricity from
Krammer wind park, which has been established by two
local cooperatives with 4,000 members in the province of
Zeeland. The four companies involved have agreed to source
a total of 350 million kWh a year once the Krammer wind
park becomes operational in 2019. This is equivalent to the
total annual consumption of 100,000 Dutch households.
The partnership model works particularly well in the
Netherlands, where we still lose around 2 percent of all our
energy in the country purely from residual heat. This is mainly
due to the steam and hot water lost from energy and power
production. There are solutions for harnessing this waste –
the biggest source of energy in the chemical industry is heat
– but they require collaboration.
AkzoNobel Report 2016 | Sustainability statements
199
ONE EXAMPLE
OF WHERE WE
ARE AT THE
FOREFRONT
OF A MARKET
TRANSITION
WHICH WILL
HELP GENERATE
FUTURE GROWTH
IS IN WATER-
BASED PAINTS
The first thing you need is a partner who is willing to use the
high temperature steam or hot water. Then if lower
temperatures are involved, cities can use this to heat houses.
But somebody needs to build the grid. So it requires a
combination of local government, power companies and the
chemical company itself. Together, they can reduce wasted
energy and heat and enable each other to benefit from
energy at low cost, and even innovate from gas to biosteam.
This is exactly what we do in Hengelo in the Netherlands,
where our salt production site sends its residual heat to a
local residential area.
In nearby Delfzijl, we are purchasing sustainably generated
steam from biomass from Dutch energy provider Eneco. By
reducing our dependence on fossil fuels, we expect to cut
CO2 emissions at our Delfzijl plant by an amount equivalent
to what is produced each year by 12,500 Dutch households.
Our ultimate aim is to help increase the share of renewable
energy in the Netherlands, which currently stands at around
5 percent. Globally, AkzoNobel’s own renewable energy
share is about 40 percent. We are determined to increase
this figure, further de-risk ourselves and strengthen our
business for the future – and partnerships will play a big role
in helping us to achieve this.
Market transition
As one of the world’s biggest decorative paints companies,
we invest a substantial amount of time and money in new
technology and innovation to improve the products we
offer to our customers. We also pay close attention to
market trends, anticipate likely developments (when we’re
not setting the pace ourselves) and constantly identify
growth opportunities.
One example of where we are at the forefront of a market
transition which will help generate future growth is in water-
based paints. There was a time when professional painters
and decorators tended to shy away from water-based
products, with solvent-based paint being very much the
preferred option for trim and woodcare.
Fast forward to today and things are very different.
Innovation has resulted in major advances in the quality of
water-based products. They are fast-drying, odorless and
offer better color retention, as well as being kinder to the
environment. As a result, adoption of water-based products
is gathering pace, particularly in Europe and Latin America.
The environmental benefits are clear enough. For example,
one ton of solvent can have the same impact as eight tons
of carbon. When they enter the air, solvents also contribute
to smog and air pollution. With countries all over the world
having agreed to nationally determined carbon reduction
limits, it’s likely to be only a matter of time before we see a
global shift to water-based coatings.
In anticipation of this move to more sustainable solutions,
our Decorative Paints business has developed a new market
approach which will help us to drive and accelerate the
transition that’s starting to take place.
During the last few years, an ongoing transformation has
been taking place within the business to shift its portfolio
more towards water-based and VOC-free. It involves our
products globally as we continue to de-risk ourselves from
carbon and is already having an impact in countries where
health and well-being is becoming a lifestyle choice.
For example, the pace of change towards water-based
coatings in China owes much to government initiatives, such
as the increase in taxes on solvent-based coatings introduced
around a year ago. They understand the problems caused
by solvents and we welcome steps that countries such
as China are taking in an effort to encourage market change.
A lot has certainly changed in the last ten years and VOCs
are now at a significantly lower level. There is still a lot
more to do, however, and we are working hard to lead
and accelerate the transition through both innovation
and education. We know the world is ready and we have
a portfolio of sustainable solutions available to drive the
ongoing market transition.
200
Sustainability statements | AkzoNobel Report 2016
3 Note 3: Stakeholder engagement
Our approach
Stakeholder engagement in 2016
The aim of our ongoing stakeholder engagement is
to learn from key economic, environmental and social
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.
Reaching out to all our stakeholders in ongoing
conversations 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 2016 highlights. More details
can be found on our website, in the Strategic performance
section, and other chapters of this Report 2016:
• Customers: Business performance section and Note 6
• Investors: Governance and compliance section and
Note 3
• Specific sustainability/research organizations and
NGOs: Note 3
• Employees: Note 11
• Suppliers: Note 7
• Communities: Note 17
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 of the UN Global Compact (UNGC)
since 2004. We are a partner of the Caring for Climate
platform and an active member of the UN Global Compact
Netherlands Network.
We have participated in a human rights program led by the
UNGC Netherlands Network in partnership with Shift, a
non-profit center for business and human rights practice,
with Oxfam affiliates and other Global Compact local
networks (see Note 16). In addition, we subscribe to the UN
Universal Declaration of Human Rights, the key conventions
of the International Labor Organization and the OECD
Guidelines for Multinational Enterprises, and we are a
signatory to 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 World
Business Council for Sustainable Development (WBCSD),
Forum for the Future, True Price and the Dutch Sustainable
Growth Coalition. 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.
Customers and products
Our customers are increasingly looking for products and
solutions that will help make their business more sustainable.
In order to continuously improve our product offering, we
encourage customers to challenge us and work together with
us. This includes joint research and development projects.
For example, our aerospace coatings made a substantial
contribution to the outstanding sustainability performance
of KLM’s new Dreamliner aircraft. The base coat/clear
coat system supplied by AkzoNobel is typically lighter than
conventional systems, while its smoother surface means
there is less dirt adhesion. The gleaming finish required
15 percent less paint than previously used systems and,
together with other improvements, it means KLM’s Dreamliner
fleet can fly further, faster, cleaner, quieter and more efficiently
than comparable aircraft.
More specific examples can be found in Note 4, the various
case studies and the Business performance section of this
Report 2016. In addition, we are in the process of improving
our methods to monitor customer engagement and customer
satisfaction. See Note 6.
One of our focus areas is to support legislation, standards and
initiatives that promote and support the use of safer and more
sustainable products in our industry. In 2015, we became a
partner in the Global Alliance to Eliminate Lead Paint (GAELP)
to promote the phase-out of all lead-based paints and
eliminate the risks these products cause. We are continuing
the work of the alliance by sharing experiences of conversion
from lead to lead-free paints, providing technical advice, and
by supporting the development of legislation to phase out the
use of lead compounds from all paints. See Note 14.
AkzoNobel’s Ferrazone iron fortificant continues to make
an important contribution in the fight against iron deficiency
anemia, a major global health issue, affecting around two billion
people. It causes a loss of physical endurance due to reduced
levels of haemoglobin and tissue iron. It is linked with increased
risk of maternal mortality during pregnancy; while in infancy
and childhood it can cause significant loss of cognitive abilities
and decreased resistance to infections.
The most efficient way of combating the condition in
developing countries is by fortifying staple foods, such as
flour, with a form of iron that is readily absorbed by the body.
AkzoNobel’s Ferric Sodium EDTA, Ferrazone, has been
demonstrated to be both safe and effective in reducing iron
deficiency, even in inhibitory diets lacking bioavailable iron.
The use of Ferrazone also avoids undesirable color and flavor
changes in the fortified food, as well as teeth staining. We
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201
United Nations Sustainable Development Goals
Assessment of AkzoNobel contribution
l Main l Intermediate l Minor
Supply chain and
Operations
l
Products
Human Cities
1 No poverty
2 Zero hunger
3 Good health and well-being
4 Quality education
5 Gender equality
6 Clean water and sanitation
7 Affordable and clean energy
8 Decent work and economic growth
9 Industry, innovation and infrastructure
10 Reduced inequalities
11 Sustainable cities and communities
12 Responsible consumption and production
13 Climate action
14 Life below water
15 Life on land
16 Peace, justice and strong institutions
17 Partnerships for the goals
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
are working closely with NGOs, governments and leading
producers of so-called pre-mixes (a mix of vitamins and
minerals used to fortify food) to provide the highest quality
product and the know-how needed for successful application.
Increasingly, countries in Africa are adopting NaFeEDTA in their
fortification standards (most recently Zimbabwe and Nigeria,
while Namibia and South Africa are expected to follow soon).
This should have a positive effect on the sales of Ferrazone.
In 2016, we started a project to assess the potential for
Ferrazone in the food and beverages market.
Suppliers and sourcing
We continue to engage with Together for Sustainability
(TfS), the chemical sector initiative to create more
sustainable supply chains. The initiative now has 19
partners across three continents and is making good
progress towards building the industry’s standard for
sustainable supply chains. The TfS program uses high
quality third party sustainability assessments and audits to
measure the supplier’s sustainability performance against
a pre-defined set of industry best practice criteria. A single
assessment is then shared across the partners. It also
provides a platform for monitoring improvement actions.
See Note 7.
Engaging employees
During 2016, we continued to engage employees from
around the world on the theme of sustainability through
our Planet Possible activities. See the Social value
creation section.
The UN Sustainable Development Goals (SDGs)
The SDGs form the global sustainable development
agenda for the next 15 years. We are a signatory to the
Post-2015 charter, committing to the achievement of the
17 goals. In line with guidance such as the SDG Compass,
202 Sustainability statements | AkzoNobel Report 2016
we have reviewed these goals against our company
strategy and identified priority areas. For more details of
our commitment to the SDGs, see page 16. Information
on how our performance relates to all SDGs can be found
in the GRI table on our website. The table on the left gives
an overview of our contribution.
Human Cities Coalition
In 2016, we brought together a unique coalition of global
and local partners from business, governments, academia
and civil society to help make cities in the emerging
world more liveable and prosperous places for all – with
a specific focus on Goal 11 of the UN Sustainable
Development Goals. Set up to build on the work of our
Human Cities initiative, each partner organization uses its
expertise to improve the economic, environmental and
social development of large urban areas and help them
meet the many planning challenges they face. For more
details, see page 17.
Partnerships on energy and climate
Our aim is to achieve cost-effective energy sources and
maximize sustainability impact while being prepared
for future developments. For our energy-intensive
production processes, we actively engage in diversifying
the energy mix. This helps to lower risks and improve
our sustainability performance by reducing our carbon
footprint and increasing the use of renewable energy.
Information on various new energy partnerships – for
example the Krammer wind park and bio-based raw
materials partnerships – are included in the case study, the
Business performance section and Note 8 of this section.
Another example is BICEPS. Co-founded by AkzoNobel,
the partnership now includes ten members. BICEPS
stands for Boosting Initiative for Collaborative Emission
reduction by Power of demand of Shippers. It aims to
realize sustainable shipping with a rating system that
provides insights into the sustainability activities of
shipping lines and by stimulating the sustainability dialog
between carriers, shippers and solution providers. Our
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
continue as a member of the International Integrated
Reporting Council business network, made up of
companies committed to making the integrated reporting
framework a practical reality. Our Report 2015 was ranked
first in the ReportWatch top 400 of annual reports.
Shareholders, analysts and indices
Following 2016 reviews, AkzoNobel is included in a
number of leading sustainability indices. An overview
(not intended as an exhaustive list) is provided on
this page. For more details about how we engage with
the social responsible investor community, see AkzoNobel
on the capital markets chapter in the Governance and
compliance section.
Sustainability rating agencies
RobecoSAM
(Dow Jones Sustainability Index)
In 2016, we were included in the Dow Jones Sustainability World
Index for the 11th consecutive year.
CDP
Sustainalytics
Oekom
Vigeo
FTSE4Good
MSCI
STOXX
Ethibel
We have participated in the CDP assessments since 2007. In
2016, we were included in the prestigious A-list and the first ever
supplier engagement leader board.
For the fifth year in a row, Sustainalytics rated AkzoNobel as
an industry leader on its environmental, social and governance
performance.
Oekom research has analyzed us since 2001. We have been
awarded Oekom Prime status since 2012. At year-end 2016, we
ranked first among chemical companies.
Vigeo has rated us since 1999. In 2016, we were among their
leader group in ESG performance, resulting in inclusion in all their
ESG indices.
In 2016, we were included in the FTSE4Good Index as the highest
scoring company in our industry sector.
We remained a constituent of both the MSCI Global Sustainability
Indexes series and the MSCI Global SRI Indexes series.
We are a member of the STOXX ESG leaders index.
We are included in the Ethibel PIONEER register, being one of only
a very select number of companies with an A-rating.
Marine Coatings business can help carriers to achieve a
higher rating with our low carbon solutions.
We also co-chaired the WBCSD Chemicals Sector
Reaching Full Potential working group. This was finalized
in 2016, along with an Energy Efficiency in Buildings (EEB)
project. The focus of this assignment was to collect and
disseminate the learnings of all the regional EEB projects
organized during the last three years. This knowledge was
then shared through our networks and via our partners
to support and speed up the realization of more energy
efficient buildings.
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 engage with a broad group of stakeholders. For
instance, we actively support CEPE – the European Paint
Association – in the pilot project for decorative paints as
part of the development of the EU Product Environmental
Footprint (PEF). We are incorporating natural capital
thinking to ensure our business is sustainable as it grows.
During 2016, we continued to expand the scope of
our four-dimensional profit and loss (4D P&L) pilot, and
developed our first company-wide 3D P&L, as described
in Creating shared value across three dimensions.
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. We use the
resulting Social Capital Protocol as the basis of our 3D
P&L social assessment.
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203
Creating shared value across
three dimensions
The world is changing. And
business is changing with
it. Ratified in 2016, the Paris
Agreement reached at COP21
commits the world to limiting
global warming to 2 degrees
Celcius – with a stretch goal
of 1.5 degrees – setting legally
binding targets on carbon
emissions. In addition, the
world began implementing the
Sustainable Development Goals
(SDGs) in 2016, which set the
development agenda for the next
15 years.
As a result, leading businesses are accelerating their
efforts to apply innovation to solve societal development
challenges and de-risk their value chains from increasing
limitations on resource use and carbon emissions.
For AkzoNobel, these developments mean that creating
shared value across three dimensions – economic,
environmental and social – is an opportunity to achieve
sustained business success. We aim to make increasing
use of economic, environmental and social impact
assessment – as well as profit and loss accounting – using
a science-based, virtual price to calculate externalities
in each dimension. These will allow us to make better
management decisions, including allocation of human and
financial resources.
204 Sustainability statements | AkzoNobel Report 2016
Our Planet Possible agenda is designed to help drive
innovation and enable us to become more radically
resource efficient, while inspiring employees, customers,
suppliers and other key stakeholders to work together with
us in achieving this. Our Human Cities initiative has also
been established as an umbrella for the social pillar of our
sustainability agenda.
By focusing on product, process and business model
innovation, we aim to deliver portfolios of eco-premium
solutions – products that are clearly more sustainable
than the most common alternatives on the market.
These solutions meet environmental and societal needs,
while also increasing customer satisfaction and creating
growth opportunities.
At the same time, we are focused on product and process
innovations that generate more added value from each unit
of raw materials and energy used across the value chain.
This is measured by our Resource Efficiency Index (REI),
defined as gross margin divided by cradle-to-grave carbon
footprint. This will enable us to decouple business growth
from resource use, take cost out of the business, reduce
risks and minimize our environmental impact.
We continue to collaborate with our value chain partners
to create impact at scale. We are also continuing to
bring together public-private partnerships, for example to
accelerate Power Purchasing Agreements for renewable
energy and carbon reduction, or to make cities more human
and liveable.
In order to better understand where we can have the
biggest potential impact throughout our value chain, we
have conducted a novel three-dimensional profit and loss
(3D P&L) assessment across all our business activities.
Monetizing externalities helps us to identify which levers
give the biggest outcome in terms of minimizing negative
impact and scaling up positive impact. It also helps us
assess how our investment decisions can contribute to
generating more value in all three dimensions. We plan to
roll out this process across the company to enable better
management decision-making.
3D P&L assessment
Economic value: AkzoNobel created economic value
for its employees, suppliers, customers, communities in
which it operates, governments and investors. We identified
the salaries awarded to all the people employed in the
industries along our value chain as a key contributor, as well
as the tax revenue for governments, interest for investors
Economic, environmental and social value in € billion (estimated)
Economic capital
Environmental capital
Social capital
10
5
8
-10
-1
-8
2
1
2
Upstream
Own operations
Downstream
Upstream
Own operations
Downstream
Upstream
Own operations
Downstream
and profit for shareholders. The sum of these values is
referred to as economic capital.
Environmental value: Our business activities have a
degree of impact on the environment and natural resources.
In addition, we have the opportunity to generate positive
value through our products which help customers to avoid
emissions. In monetizing our environmental externalities,
we identified CO2 emissions, fossil resource use, VOC
emissions and material resources as key contributors. We
have used a science-based and publicly available pricing
model which was developed during the last 25 years by
Chalmers University of Technology in Sweden called the
Environmental Priority Strategy, which is based on a long-
term perspective. As a result, we used prices that are not
representative of the prices today, but instead are based
on what would happen in 50 to 100 years if we keep on
using natural resources as we do today. For example, we
used a price of €135 per ton of emitted CO2 as part of this
approach. Overall, this results in an estimated negative
environmental capital. The key impacts on the environment
occur in our upstream and downstream activities, rather
than our own processes.
Social value: We created a positive social capital along
the value chain. The current model includes value related
to the knowledge and skill development of employees and
their future salary development. A minor negative impact is
related to the injuries at work of employees. Social impact
measurement is still at the beginning of its journey. We
are actively engaged with expert groups to develop new
standards and methodologies. As those mature, we will
continue to include other social impacts, such as from our
Human Cities initiative, Human Cities Coalition and the
products we develop, through which we affect the lives of
millions of people.
Economic
Environmental
Social
Create value
by increasing
positive impact
• Increase sales of eco-
premium solutions
resources
• Create more value from fewer
• Build employment and an
• Generate more economic
• Develop products that help
value across the value chain
avoid carbon emissions
engaged workforce
• Scale up social impact and
Human Cities programs
Reduce risks
by minimizing
negative impact
• Improve Resource Efficiency
• Reduce cradle-to-grave
• Manage human rights risks
Index
carbon footprint
• Reduce carbon risk and
• Improve operational
towards zero incidents
• Improve health and safety
deploy carbon price
eco-efficiency
performance
Illustrative, non-exhaustive examples
are participating in the development of the Natural and
Social Capital Protocol in the World Business Council for
Sustainable Development (WBCSD) and have always used
scientific, publicly available methodologies. This information
will be made available on our website.
The results are obtained by using some of the latest thinking
in this space and are robust and repeatable. However, we
are still at a very early stage of social impact measuring –
not just AkzoNobel as a company, but society in general.
We will continue to work on improving methodologies
and map additional impacts, both positive and negative.
This means that our results will change over time, through
improvements to our own performance, as well as through
the addition of more elements or new views on assumptions
in the models we used. We encourage others to work
with us to further develop methodologies and agree on
common approaches.
Driving our contribution to
sustainable development
We set out to simultaneously create value and reduce
risks by increasing our positive impact and minimizing
our negative impact respectively. We aim to do so in all
three dimensions – economic, environmental and social
– recognizing that increasing our positive impact does
not mean we can offset any negative impact, nor does
performing well in one dimension allow us to perform poorly
in another.
The conceptual table above shows some illustrative
examples of how we create value or reduce our risks in
each of the three dimensions.
Approach
In order to create our 3D P&L, we have used some of
the latest methodologies available, which we tested and
developed in 4D P&L pilots over the last three years. We
More details about our impact in each of the three
dimensions can be found in the following sections of the
Sustainability statements: Economic, Environmental and
Social value creation.
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205
Economic value creation
Our sustainability agenda aims to create value for
our customers by providing products with excellent
functionality that generate resource or performance
benefits ahead of competitive products. In turn, this
creates value for our business by focusing on our end-user
segments – delivering growth and profitability.
We also realize that in order to achieve sustained business
success, we need to generate more value from fewer
resources across our entire value chain to decouple
business growth from resource use. We measure this
through our Resource Efficiency Index.
We have improved our performance on eco-premium
solutions. We are also seeing an improvement in our
cradle-to-grave carbon footprint performance, but a lower
gross margin resulted in a broadly flat Resource Efficiency
Index. See Notes 4, 5 and 8.
Innovation process
Our Innovation process for product and process
development covers an assessment of market segments
and strategic alignment, including sustainability.
AkzoNobel’s eco-premium solutions concept requires the
assessment of both the environmental and social aspects
of sustainability along the value chain. It also encourages
the development of more innovative, sustainable products.
Commercial excellence processes
Including sustainability in marketing propositions is an
essential aspect of our Planet Possible agenda. We are
developing our marketing activity and train our salesforce
in sustainability. See Note 6.
Value chain assessments
Suppliers and sourcing
We use lifecycle assessment as the basis of our
sustainability work. This was initially focused on
environmental impacts and benefits, but more recently
we have been involved in developing social assessments
and associated externalities. This lifecycle thinking is
incorporated in a number of our common processes, both
at company and Business Area level.
A fundamental requirement of our strategy is to work
together with our suppliers in order to create a sustainable
supply base and deliver customer benefits, as well as
improving resource efficiency. This means that we have
to collaborate effectively. We have supplier management
programs in place that support both performance
improvement and opportunities for joint developments.
In 2016, we made good progress with some suppliers
to identify carbon footprint improvements, as well as
extending collaborations in our supply chains. See also
the examples in Note 8 under Bio-based raw materials.
Further information on our engagement with suppliers and
the management processes is included in Note 7.
Product portfolio management
We manage hazardous substances in our products
through our priority substance program. Active for several
years, it promotes the use of safer and more sustainable
products and means we often take action to manage
harmful substances in advance of legislation, future-
proofing our products against changes in regulations.
At the same time, we have set ourselves stretching targets
for the amount of revenue and growth which should
come from solutions with a sustainability benefit for
our customers, versus the mainstream product solutions
in the market.
In 2016, we piloted a combination of these approaches in
three units of our business. We carried out a full analysis
of sustainability and product safety risks and opportunities
for our product portfolios. This has been used to support
product portfolio planning through our marketing and
research and development teams. In addition, using our
Customer-Focused Product Stewardship (CFPS) process,
we have also engaged our customers on sustainability
and product safety. The CFPS process allows us to align
Key performance indicators – economic
Resource Efficiency Index (REI) (2012 baseline=100)
Eco-premium solutions with downstream benefit (% of revenue)
VOC in product (% reduction from 2009)
Customer delivery efficiency index
Critical PR1 spend covered by supplier management framework
(% of spend)
1 PR = Product related (raw materials and packaging).
206 Sustainability statements | AkzoNobel Report 2016
2013
2014
98
18
7
92
80
96
19
5
93
83
2015
113
19
9
94
87
2016
112
20
n/a
96
91
Ambition
2020
–
20
–
–
90
(2017)
customer purchasing characteristics with their product
safety and sustainability ambitions.
We are further developing this methodology for product
portfolio assessment together with other companies in the
chemical cluster group of the WBCSD. We will continue to
develop this portfolio work across our businesses to help
manage our future product portfolios and to create more
value for our customers.
The process
In the pilots, we segmented our product portfolio into
five categories to reflect the sustainability risks and
opportunities of each product and end use (see below).
Assessment criteria
We have used the same criteria as in our eco-premium
solutions program, assessed across the full value chain:
• Economic: Energy efficiency and waste
• Environmental: Eco-toxicity, natural resources/raw
materials, emissions and land use
• Social: Human toxicity, risks and health and well-being
Product portfolio assessment
We already know that 20 percent of our revenue is from
eco-premium solutions. The majority of our other products
is in the light green and yellow categories. Many of our
solutions provide sustainability benefits even though
they do not meet our strict eco-premium definition. For
example, the main drivers for carbon footprint reduction
are estimated to cover about half of our sales (see
Customer product solutions in Note 8). Improvements
in the sustainability of the overall portfolio will be driven
by our product development processes as products
are updated or replaced. Less than 1 percent of revenue
is from products with substances that already have a
phase-out date.
Future plans
We are now evaluating the results of the pilots
and reviewing opportunities to combine the basic
categorization with other data, such as carbon footprint,
to provide further insights.
• Products/solutions with a sustainability benefit greater than the mainstream solution
along the value chain, according to our existing eco-premium solutions definition.
• Products with a distinct sustainability benefit, but do not qualify as eco-premium.
• Products considered safe to use and have no negative sustainability issues.
• Products containing materials highlighted by governments, NGOs, customers or public
groups as being of concern, or having a sustainability challenge.
• Products using substances with clear phase-out dates identified by our Priority
substances management program.
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, 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.
Carbon pricing
In order to help move the business to a lower carbon
future, we will introduce carbon pricing into relevant
investment decisions and procurement. Standard financial
calculations on the cradle-to-gate carbon footprint
will be presented in investment cases with and without
a price applied to carbon (based on impacts from
our raw materials and own operations). If an investment
is significantly less attractive as a result of including
a carbon price, currently €50 per ton, we will identify value
re-engineering mitigation activities in order to lower the
carbon impact and re-present the case with
these included.
The aim of attaching a financial number to the
carbon impact associated with our investment and
procurement processes is to drive further awareness of
the environmental and future economic impact of major
decisions and, more importantly, to make better decisions
and strengthen the sustainable business portfolio as
a result. With many countries now discussing different
schemes to put a price on carbon as part of their legally
binding COP21 carbon reduction targets, it is important to
recognize that carbon will be priced, enabling sustainability
leaders to de-risk their businesses.
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207
4
Note 4: Products and services
Eco-premium solutions
We have a clear ambition to continue to lead in our
markets. We also understand that because we live in
a world of finite resources, our Planet Possible agenda
has to focus on resource efficiency and creating more
value from fewer resources. We need to find resource
alternatives where there don’t appear to be any. So we
are committed to minimizing the environmental and social
impact of the products we sell and the processes we use
to manufacture them.
One of our focus areas is the development of eco-premium
solutions – those solutions where we invest to lead in
the market. These are products that are clearly more
sustainable than the most common alternatives on the
market. They are assessed in seven different categories:
energy efficiency; use of natural resources/raw materials;
land use; emissions and waste; risks (e.g. accidents);
toxicity; health and well-being.
When assessed across the whole lifecycle and
against currently available solutions on the market, the
eco-premium solution we offer must be significantly better
in at least one of the above criteria, and not significantly
worse in any. Eco-premium solutions are an important
driver for innovation.
The progress we are able to make each year will not
only be impacted by our own improvements, but also by
competitor activity and legislation changes. It’s therefore
a moving target leading to continuous improvement. An
increasing number of our products and services provide
sustainability benefits, but they are only classified as
eco-premium when they outperform the mainstream
product on the market.
We’ve been focusing on eco-premium solutions with
downstream benefits since 2012. This is a measure of our
eco-premium solutions that deliver sustainability benefits
in the downstream value chain – directly to customer
operations or end-user – be that as a semi-finished
product, as a final product, or as a reusable/recyclable
material in the end-of-life phase.
In 2016 revenue from eco-premium products and
services with downstream benefits totaled €2.9 billion,
or 20 percent of total revenue. This means that we have
reached our 2020 target for eco-premium solutions with
downstream benefits ahead of schedule. This is a level
that we plan to maintain as we continue to proactively
drive the development of innovative sustainable solutions
ahead of the mainstream in the market. In total, 11 percent
relates to eco-premium solutions with social benefits:
health and well-being, risks and toxicity. Revenue from all
eco-premium solutions totaled €3.4 billion, or 24 percent
of total revenue.
Companies can consider products with sustainability
benefits at a number of levels. Eco-premium solutions
represent the most challenging definition – those
products and services with benefits clearly ahead of the
Eco-premium solutions with downstream benefits
in % of revenue
Target
17
18
19
19
20
20
2012
2013
2014
2015
2016
2020
Eco-premium solutions with downstream benefits
per Business Area
in % of revenue
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
2015
2016
27
13
16
27
15
17
28
15
17
28
16
19
competition. Secondly, an increasing number of solutions
provide a distinct sustainability benefit to our customers,
but are not market leading and therefore do not qualify as
an eco-premium solution. For example, we have estimated
that about half our sales – including eco-premium
solutions – are covered by the main drivers for carbon
footprint reduction (see Customer product solutions in
Note 8). Finally, our product development processes will
drive continuous sustainability improvement in the overall
portfolio as products are updated or replaced, for example
though improvements in our processes, formulations or
raw materials used.
Listed below are some recent examples of eco-premium
solutions with downstream benefits.
Decorative Paints
• Coralar: A low VOC wall paint compared with other
options available in the Brazilian market. It has an
improved spreading rate and opacity in relation to
previous versions, while providing the largest color offer
compared with main competitors
• Dulux Wood Charm Woodcare: A water-based indoor
woodcare paint with significantly lower VOCs than
solvent-based equivalents (in China). It has improved
flexibility and a balanced performance in chemical
resistance and hardness. It also contains Polyurethane
Modified Acrylate (PUMA) latex technology, which is
helping to drive conversion from solvent-based to water-
based paints
• Weathershield Express: A two-coat exterior wall
paint system which delivers a sealer and topcoat in one
product, replacing the conventional three-coat system
while keeping the same benefits. With one less coat,
productivity increases by 30 percent, while resources
(labor) are saved, along with a reduction in waste.
Weathershield is available in India, Vietnam, Indonesia,
Malaysia and Singapore
208 Sustainability statements | AkzoNobel Report 2016
Performance Coatings
• Interpon A5550: A powder coating with superior flow
and high durability for the truck industry in China. It
is a suitable replacement for liquid coatings on load
bed, while offering all the performance attributes of
liquid coatings. At the same time, Interpon A5550 has
improved abrasion resistance, improved application
efficiency resulting in less overspray, zero VOCs,
reduced waste water and a smaller physical footprint
• Basic Primer Intergard 2511 and Standard Primer
Intergard 251 HS: A 250 g/ltr VOC range which leads
to lower emission fees, with a lower applied cost, and
reduces paint complexity via an ability to do more with
one product. The product has faster application and
overcoating at ambient temperatures, with no need
for thinning down. Less energy is used for the same
throughput at the customer
• Intergard 5555: A single coat epoxy coating for engine
rooms, accommodation internals and store areas. It’s
predominantly a replacement for the alkyd schemes
(primer and topcoat) market and shows a significant
productivity increase (less coats, faster drying) and
better color retention (less yellowing)
Specialty Chemicals
• Berol DR-B1: An essential ingredient for outdoor
cleaning products which successfully meets stringent
US Environmental Protection Agency standards,
without compromising on performance. It’s suitable for
a wide range of outdoor applications where very low
environmental impact is a priority. Degreasers prepared
with Berol DR exhibit quick break behavior, meaning
that the oil removed during washing separates rapidly
from the used cleaning solution and can be removed,
allowing the remaining water to be disposed of safely
• Dissolvine M-40/MGDA: A chelating agent with a
readily biodegradable active ingredient (known as
MGDA), which is more sustainable than some current
alternatives. It enables the detergent industry to meet
stringent rules requiring the removal of phosphate
builders in their formulations, without compromising on
cleaning performance
• Levasil SP1039: A tailored product for substrate
polishing in the electronics industry. It is a critical
component for producing flat and uniform surfaces.
Because of efficient polishing of substrates, there is
less need for other surface preparation in the process,
leading to improved cost efficiency. This is a new
product that is preferred by our customers because
it improves quality and reduces process steps and
associated costs
VOC in products
The introduction of new and reformulated products with
significantly reduced (preferably virtually zero) volatile
organic compounds (VOC) continues in our businesses.
As a result of this ongoing commitment, our product
portfolio is undergoing a transformation towards a range of
products that are lower in VOC content. Since 2009, this is
established as an important part of our target to minimize
the potential social and environmental impact from the
materials in our products.
Both our Decorative Paints and Performance Coatings
businesses are contributing to this continued reduction of
VOC content. The company’s overall paints and coatings
product portfolio showed a decrease of 9 percent
in average VOC content in 20151, compared with the
baseline position of 2009. Due to divestments of
businesses with very low VOC products, the like-for-like
reduction for AkzoNobel over this period was 22 percent.
A combination of technological improvements and
changing customer and market demands – particularly
with respect to the use of water-based products – is
driving this change towards reduced VOC content.
This is not an easy journey, due to the economic and
technological expansion in low-cost markets. However,
we are now in a position to capitalize on VOC tax
regulation changes in countries such as China, helping
the industrial wood coatings market to move to our new
water-based technology.
Within our Decorative Paints business, this transition
from solvent-based to water-based products falls under
a strategic program called Waterway. The business has
made a significant contribution to VOC reduction through
the continuous introduction of high quality, low VOC
solutions. Sales of water-based and zero-emission paints
are also steadily increasing, something which we expect to
continue in the coming years. Due to a change in product
mix resulting from divestments in 2014, the average VOC
content in our decorative paints has actually remained
at the same level compared with 2012. However, when
taking into account the impact of the divestments of
the low VOC businesses in North America in 2013, and
the Building Adhesives business in 2014, the average
VOC content in 20151 reduced by 17 percent compared
with 2012.
Our Performance Coatings business is also continuing to
achieve a reduction of VOC content in its product portfolio.
Examples include growing sales of powder coatings
in automotive, water-based basecoats and high solid
products in marine and protective coatings markets. As a
result, the average VOC content in Performance Coatings
reduced by 6 percent in 20151, compared with 2012.
For 2016, we forecast a continuation of these trends,
with a further reduction in average VOC content for our
Performance Coatings and Decorative Paints portfolio.
1 The annual metrics for VOC in products are assessed in the second quarter of the
year, which is why the figures above reflect the year 2015 instead of 2016.
AkzoNobel Report 2016 | Sustainability statements
209
5
Note 5: Resource Efficiency Index
6
Note 6: Customer engagement
Resource Efficiency Index
We adopted a Resource Efficiency Index as a key financial
indicator because we are convinced 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. This will
enable us to decouple business growth from resource use.
The Resource Efficiency Index is defined as gross margin
divided by cradle-to-grave carbon footprint – reported
as an index. 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.
Resource Efficiency Index
gross margin/CO2(e) indexed
95
94
100
98
96
113
112
2010
2011
2012
2013
2014
2015
2016
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 our 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
210 Sustainability statements | AkzoNobel Report 2016
We are initially monitoring the Resource Efficiency Index
and expect it to be a long-term indicator for AkzoNobel.
Although margin variability and currency fluctuations may
affect performance in any given year, the long-term trend
must be upwards. A review of our performance over the
past seven 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 water-based coatings
• Margin improvements as a result of higher value-
added products
However, alongside these positive factors, we have also
seen tighter margins, together with expansion in markets
that are slower in adopting low VOC coatings and have
a large proportion of high carbon energy supplies. There
are also impacts from changes in the overall AkzoNobel
product mix.
In 2016, we achieved a reduction of absolute carbon
footprint, but a decrease of gross margin resulted in a
broadly flat REI, at 112 compared with the 2012 base of
100. The currency impact for 2016 compared with the
previous year is significant and negatively impacts the REI.
Customer engagement
End–users and customers regularly ask for products and
solutions that will make their business more sustainable.
In many cases, we work closely with them so we can
deliver breakthrough solutions that provide downstream
sustainability benefits while delivering economic value to
all parties in the value chain. These collaborations can
range from smart product choices and logistics solutions,
to complete long-term innovation programs involving
academic partners and government institutes.
We are continuing to integrate Planet Possible
conversations with customers into our sales and marketing
learning and development curricula. Within our Decorative
Paints business, the Planet Possible marketing toolkit for
both professional and consumer brands is actively used.
In Specialty Chemicals, a dedicated sustainability training
module has been introduced and 80 percent of front line
sales employees have been exposed to this.
Engagement starts with better understanding, so
gathering information about customers and consumers is
central to our business processes. Customer information
gathering goes across value chain participants, all the way
to our end-user segments. This includes consumers in our
Decorative Paints business, customers of our customers
in Specialty Chemicals, and influencers (such as architects
and technical advisors) in Performance Coatings.
Customer relationship management (CRM) has also
been integrated into our Commercial excellence
program. Internal reviews have shown that focusing on
customer surveys as a measure of satisfaction is not
giving a complete enough picture. We therefore need
to supplement this with continuous satisfaction data
– particularly as we have many customers who make
complex and regular repeat orders. The result has been
a company-wide approach to monitoring customer
satisfaction which has been based on the following
four measures:
211AkzoNobel Report 2016 | Sustainability statements1. Customer satisfaction with the service that we provide The majority of our customers are making regular repeat orders to sustain their business and we have built up long-term relationships. Failure to deliver to requirements can lead to a breakdown in the customer’s own process and lead to rapid loss of revenues. Therefore, the primary cause of satisfaction for our customers is to receive their orders in a timely manner and in perfect condition. This is monitored by our performance in terms of delivery accuracy, which is measured as the level of on-time in-full deliveries (OTIF is an established measure of the percentage of orders dispatched on time and complete). These data are gathered daily or weekly at production sites and deviations trigger corrective actions by local management. Overall figures are reviewed monthly at a company level. Performance is generally in the 90 to 100 percent range in our business. The vision for the company is to have overall service levels at more than 95 percent. In 2016, global visibility continued at the very high level of 99 percent of all deliveries/customers and service performance was 96 percent, as measured by our Delivery Efficiency Index.2. Customer satisfaction with the way we deal with their complaints and queries Dealing with customer complaints in a systematic and satisfactory way is a basic expectation of our customers and an integral part of the quality system for all our operations. An important measure for dealing with complaints is response times. Local management teams review this measure. They ensure that investigations into root causes are carried out and that corrective action is taken when causality has been established. Independent reviews and customer audits are common practice. In our Decorative Paints business, we also use real-time social media to interact with customer/consumer complaints. 3. Customer satisfaction through independent surveys, understanding customers’ expectations and concerns, and improving products and services as a result Business change is driven by a deeper understanding of customer needs and this is obtained through market research, customer discussions, consumer focus groups and specifically targeted customer surveys. These results are reviewed at multiple levels and suitable strategic and operational action plans are undertaken. At a company level, we are monitoring the coverage achieved in the two-to-three-year cycle and are reviewing target levels. For example, in Specialty Chemicals, an extensive cross-business customer survey was conducted in 2014 which will be repeated at the beginning of 2017. A pilot of a customer 360 approach – including internal data – has resulted in key design input for our new CRM system. In Decorative Paints, a brand health survey introduced in 2015 has been repeated, while at corporate level, the AkzoNobel brand survey has been updated and now includes strong input from customers.4. Evaluating customer satisfaction through customer loyalty Customers who order regularly always have the ability to move to alternative suppliers. Their loyalty over many years demonstrates a high level of satisfaction. The customer retention rate for our major customers is determined to be greater than 98 percent (<2 percent of major customers lost in 2015). This does not mean there are no changes within the group; some accounts grew, while others declined. During 2016, the company deepened its tracking of retained accounts to a more complete win/loss analysis, also looking at gained and lost opportunities. One of our observations is that overall customer portfolio health needs both high customer retention in the larger accounts as described above, and a healthy rotation in the smaller to mid-size accounts, especially when dealing with newer products or applications. For these smaller customer groups, we are developing differentiated go-to-market models, for example in Performance Coatings.External communication of all four measures is made on a customer by customer basis (specifically where there is an agreement to review this information on a regular basis).201620152014201320129293949691Delivery Efficiency Index in %The world’s only Flying Eye Hospital – which takes doctors around the world to treat patients with curable blindness – was repainted in 2016 with support from our Specialty Coatings business. Operated by Orbis, the DC-10 houses a fully equipped ophthalmic hospital and a 48-seat classroom. The aircraft was given new livery, with AkzoNobel supplying all the coatings. 7
Note 7: Supplier management
Supplier segmentation
Our supply base is a vital element of our value chain
and a source of competitive advantage to AkzoNobel.
We work closely with suppliers to support a secure and
sustainable supply of products to our customers. This
includes identifying and minimizing supply chain risks,
creating value through continuous improvement of existing
supply chains and seeking out 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 emerging markets 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
Our headline KPI is Critical Product Related (PR) Spend
actively managed by our supplier framework processes.
This KPI provides a measure of how well AkzoNobel is
building the sustainability, capability and capacity of its
suppliers in emerging markets around the world.
Spend is considered to be “actively managed” 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 (SSV)
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/or audit program, Together for
Sustainability (TfS)
• The supplier has signed the Business Partner Code of
Conduct, delivers less than €5 million from emerging
markets and is not classified as a critical supplier
(and therefore not part of the Supplier Support
Visits program)
on critical suppliers in emerging markets, while our Key
Supplier Management program is focused on globally
strategic (key) suppliers. Together for Sustainability (TfS)
provides standardized, third party assessments and audits
to identify and minimize risks and promote continuous
improvement. It applies to all supplier segments.
We once again raised our critical PR spend coverage from
87 percent in 2015 to 91 percent, exceeding our 2016
target of 90 percent. After missing our target of 88 percent
in 2015, we increased our efforts by setting clear business
targets and reviewing our SSV program.
Business Partner Code of Conduct
Both critical suppliers and key suppliers have to confirm
their compliance with environmental, social and
governance factors.
Supplier sustainability framework
Vision: Sustainable supply
Mission: Measurable development and delivery
Process 1:
Supplier
Support Visits
Process 2:
Together for
Sustainability
Process 3:
Key Supplier
Management
Values: Business Partner Code of Conduct
We have formalized our Supplier sustainability framework
to support continuous improvement of suppliers, to
prioritize improvement activities across our supply base
and to accelerate delivery of our corporate sustainability
goals. The framework is based on AkzoNobel’s Business
Partner Code of Conduct, which explains what we stand
for as a company, what we value and how we run our
business. It brings our core principles of safety, integrity
and sustainability to life, and shows what they mean in
practice. We demand the highest ethics and integrity in all
supplier relationships.
Three formal processes are in place to help AkzoNobel
ensure compliance, manage risks and promote/measure
supplier development. Our Supplier Support Visits focus
Agreement with our Business Partner Code of Conduct
covers 99 percent of the product related (PR) spend and
86 percent of the non-product related (NPR) spend.
In 2016, we increased the target spend coverage, which we
successfully achieved.
Supplier Support Visits
Introduced in 2007, Supplier Support Visits (SSV) is
an internal program for critical suppliers designed to
develop long-term local suppliers in emerging markets.
The supportive visits are carried out by teams from
Procurement and Health, Safety and Environment (HSE).
The program was overhauled in 2016. This involved
removing suppliers who have not developed, as well as
integrating the improved suppliers who have met internal
criteria into our third party Together for Sustainability (TfS)
program. This will allow us to focus our resources on
suppliers with real development potential.
Together for Sustainability (TfS)
Further acceleration in 2016 has resulted in 60 percent of
our total spend being assessed through this program of
standardized global sustainability assessments and on-site
audits. TfS is an industry initiative 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. It is now made up of 19 leading
global chemical companies and continues to expand.
212 Sustainability statements | AkzoNobel Report 2016
The results of our TfS assessments, which use the
EcoVadis platform, allow us to identify common areas
for improvement across our supply base and focus
improvement activities. Recent areas include the
introduction of a formal reporting system on our suppliers’
sustainable procurement performance and business ethics
issues. In 2017, we will focus more effort on human rights
and are currently developing relevant KPIs.
The diagram below shows the risk levels of the
1,053 suppliers assessed between 2013 and 2016, with
risk levels set by AkzoNobel based on the scores given by
EcoVadis. If suppliers achieve a score of less than 25 out
of 100, they are classified as “high risk”.
Key performance indicators – supplier management
Critical PR1 spend covered by supplier management
framework (% of spend)
Product related suppliers signed Partner CoC2 (% of spend)
NPR3 suppliers signed Partner CoC2 (% of spend)
Suppliers on SSV program since 20074
Third party online sustainability assessments (TfS)5
Third party on-site sustainability audits (TfS)5
Supplier Sustainability Balanced Scorecard
1 PR = Product related (raw materials and packaging).
2 CoC = Business partner Code of Conduct.
3 NPR = Non-product related.
2013
2014
2015
2016
Ambition
2016
Ambition
2017
Ambition
2018
80
96
83
392
–
–
–
83
98
80
432
539
20
–
87
98
81
455
724
65
2
91
99
86
1364
1053
166
37
90
98
85
–
700
60
–
90
98
85
–
1500
190
150
90
98
85
–
1800
210
200
4 SSV program targets are included in the Critical PR spend coverage KPI, supplier
numbers rebaselined in 2016.
5 Includes TfS shared assessments/audits, cumulative.
Overview of risk levels
Total of 1,053 suppliers
High
Medium
In control
Low
Environment Labor practices
& human rights
Fair business
practices
Sustainable
procurement
All
We request high and medium risk suppliers to work
on corrective actions with a clear priority on the main
areas for improvement as mentioned above. Out of the
572 suppliers that were re-assessed, 408 improved
their scores.
As part of the TfS membership criteria, AkzoNobel verifies
the quality of its own corporate supplier management
activities against industry best practice. The company
was granted a Gold recognition level again in 2015
by EcoVadis, putting us among the best performing
companies assessed globally in our industry category.
An Ecovadis re-assessment is taking place once in
early 2017.
Key Supplier Management
As part of our ongoing operational effectiveness program,
our Key Supplier Management process helps focus our
internal resources on 34 suppliers we have defined as
strategic 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
new key supplier agreements. The current focus is on
carbon footprint improvement, renewable materials and
innovation opportunities.
Measurable development and delivery
In addition to the standard supplier segmentation, we
have identified a group of suppliers who have a significant
impact on our sustainability resource efficiency/carbon
footprint objectives. We use our Supplier Sustainability
Balanced Scorecard (SSBS) to measure and monitor their
performance quarterly.
The SSBS gives an objective measure across both
compliance and performance improvement aspects.
The result of the SSBS is used to allocate maturity levels.
The levels move from compliance and risk management
(using data from Process 1: SSV and/or Process 2:
TfS), to improvement programs that contribute to other
sustainability objectives, including carbon footprint
reduction and collaboration with AkzoNobel
on innovations.
The Supplier Sustainability Balanced Scorecard (SSBS) is
currently in place with 37 suppliers, who represent a high
proportion of our raw material carbon footprint. In total,
nearly 20 percent of these suppliers demonstrated a lower
carbon footprint than the industry average and some have
further improvement targets in place.
During 2017, we plan to introduce a program which will
further monetize these improvements via an enhanced
SSBS for these 37 suppliers. The new SSBS will contain
a revised KPI which will measure the cost of additional
sustainability elements (such as waste, energy efficiency,
share of renewable energy, etc.) with a target to reduce
the cost of these elements for these suppliers by 3 percent
per year. In addition, a total of 150 suppliers will participate
in our basic SSBS program in 2017, which represents
AkzoNobel Report 2016 | Sustainability statements
213
approximately 80 percent of our Scope 3 upstream
carbon emissions.
In 2016, we also carried out a pilot water risk assessment
for two of our main raw material categories. This indicated
focus regions for more detailed follow-up.
All of the above helps us to benchmark our suppliers
and increase their awareness in sustainability. It opens
discussions we did not have previously and helps us to
create real partnerships to identify and maximize shared
benefits. Challenging year-on-year improvement targets
will continue to be defined, committed and delivered.
During 2016, we formalized our Supplier sustainability framework to support the continuous
improvement of suppliers and help accelerate delivery of our corporate sustainability goals.
214 Sustainability statements | AkzoNobel Report 2016
Environmental value creation
Our sustainability objective is to create more value from
fewer resources – right across the value chain – by
making more effective use of natural resources in our own
operations and through our products.
products/services that reduce energy use for our
customers, or improve air or water quality compared
with standard products. See Economic value creation
and Notes 4, 7 and 9.
In the chemicals and coatings industries, we are
dependent on the materials we use to manufacture our
products. Raw materials extraction and production, energy
supply, our own operations and the use and disposal
of products used by our customers can all impact the
environment. Our activities and products can also make a
significant positive contribution.
Circular activity
We are using circular economy principles as we strive for
radical resource efficiency:
• Renewable sources: We are not only aiming to source
more renewable raw materials and energy, but also
initiate or contribute to programs with a range of
partners to accelerate production and adoption of these
supplies. Examples include our bio-based materials
partnerships and programs for wind energy and
renewable steam. See Note 8.
• Circulating products, components and materials:
Circulating our products can be a challenge because
they end up as essential ingredients or offer protection
that is integral to our customers’ products. We therefore
seek out opportunities for our “waste” to become a
secondary raw material and use other people’s “waste”
as our secondary raw material. We currently have two
main focus areas – products that do more with less, use
less material and last longer; and initiating partnerships
to re-use unwanted household paint through our
ReColor program. See Notes 4 and 8.
• Designing out negative externalities: This is a core
element of our work with suppliers, our own operations
and the products/services we sell. Examples include
operational eco-efficiency programs; investment
assessments which incorporate carbon pricing;
Lifecycle assessment
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.
Lifecycle assessment has been included in a range of
processes for many years. As part of the current strategy,
the company has developed a number of common
processes – either at company or Business Area level –
which include lifecycle assessment.
We are taking an active role in developing good practice
and setting standards for the industry, working with
the WBCSD and with CEPE on the EU PEF pilot. See
Decorative Paints in the Business performance section
and Note 3.
Carbon footprint assessment
We measure the carbon footprint of all our key value
chains (487 in 2016) using a full cradle-to-grave lifecycle
assessment. This is the basis of our carbon footprint key
performance indicator.
Eco-premium solutions
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. We
are also developing environmental product declarations
(EPDs) for some products as part of our marketing activity.
See Note 4.
Other company processes
Lifecycle assessments are integrated into the company’s
Innovation process and the assessment of our major
investment processes, which also include a value on
carbon. See Economic value creation.
Eco-systems and biodiversity
We recognize our dependence on eco-systems for
resources, such as fresh water, for renewable materials
and for the part they play in maintaining the quality of our
air, water and soil and also the impact we have on these
eco-systems.
According to the Millennium Ecosystem Assessment, the
main drivers for biodiversity impact are habitat change
(land use change), over-exploitation, invasive alien species,
pollution and climate change. An assessment carried
out in 2013 indicated that the main impacts were up and
downstream of our operations, with the main drivers being
land use/transformation and climate impact. Our current
activity focus is through our resource efficiency programs:
• Reducing climate impact across the value chain
• Water use and discharge in water scarce areas
• Sourcing renewable raw materials
• Product assessments for our eco-premium solutions
(which already include land use)
AkzoNobel Report 2016 | Sustainability statements
215
Operational eco-efficiency
The improvements in our own operations are coordinated
through our operational eco-efficiency program. The
focus of this agenda is to increase raw material efficiency,
reduce energy consumption and decrease both emissions
and the production of waste. Improvements include
many small site contributions, such as upgrading existing
processes, rationalization of the manufacturing footprint
and application of best available technology for
new investments.
COP21 Paris agreement and
science-based targets
We recognize that climate change is one of the biggest
challenges that will shape the way we do business now
and in the decades to come. We support the Paris
agreement reached at COP21 to keep the global average
temperature increase well below 2°C above pre-industrial
levels and limit the increase to 1.5°C. As such, we have
committed to setting a science-based target. An initial
assessment has shown that our current target – a 25
to 30 percent reduction (per ton of sales) in our product
cradle-to-grave carbon footprint between 2012 and 2020
– is well below the trajectory as suggested by available
science-based target methodologies. We will use these
methodologies as input for our Planet Possible 2025
strategy update.
Avoided emissions
In addition to minimizing our negative impact in the
environmental dimension, we also set out to scale up our
positive impact – such as developing solutions that help
customers avoid carbon emissions. One example is the
Intersleek 1000SR, biocide-free fouling control coating we
launched in 2013. The product reduces drag on vessels,
resulting in up to 10 percent lower emissions and fuel
consumption, leading to subsequent cost savings for our
customers. Based on the total number of commercial
vessels using Intersleek at year-end 2016, an estimated
8 million tons less CO2 is being emitted than would have
been the case if these vessels had been using traditional
biocidal fouling control paints. This estimate is based
on the Avoided Emissions guidelines that we developed
together with ICCA (International Council of Chemical
Associations) and the WBCSD.
Key performance indicators – environmental
Carbon footprint cradle-to-grave per ton of product sales
(% reduction from 2012)
Carbon footprint own operations (million tons of CO2(e))
Greenhouse gas emissions per ton of production (own operations, in kg)
Renewable energy own operations (%)
Renewable raw materials (% of organic)
Operational eco-efficiency footprint measure (% reduction from 2009)
Sustainable fresh water management (% of manufacturing sites)
2013
2
3.9
222
31
13
24
85
2014
-4
3.8
224
34
13
24
89
2015
3
3.8
221
38
11
23
93
2016
6
3.7
209
40
12
28
93
Ambition
2020
25-30
<4.6
–
45
–
40 (2017)
–
216 Sustainability statements | AkzoNobel Report 2016
8
Note 8: Cradle-to-grave carbon footprint
Carbon footprint cradle-to-grave
Product carbon footprint
Climate change has never been a more important topic.
The Paris Agreement reached at COP21 sets legally
binding targets on countries to reduce their greenhouse
gas (GHG) emissions, accelerating the transition to a low
carbon economy.
In our 2020 sustainability objectives, carbon footprint has
an 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 product
cradle-to-grave carbon footprint by 25 to 30 percent per
ton of sales between 2012 and 2020, including the impact
from VOC emissions. We intend to achieve this through
innovative products/solutions, technology and energy
management, and by creating more value from fewer
resources. Collaboration with suppliers and customers is
crucial for our success.
Our assessment this year indicates a total product
footprint, including the impact of VOCs, of around 24
million tons of CO2(e), which is 4 percent lower than 2015
and 14 percent lower than 2012. CO2(e) per ton of sold
product is 6 percent lower than 2012.
We made good progress in 2016, although our 2020
cradle-to-grave ambitions remain challenging. Our new
facility in Frankfurt, Germany, has delivered major efficiency
improvements, in addition to continuous improvements at
other sites. Our share of renewable energy continues to
improve, partly offset by other changes in power/steam
sources. Emissions from our own production were
21 percent lower than in 2012. We accelerated our work
with suppliers and have increased sales of paints with a
lower carbon footprint in Asia. For some other businesses,
the trend is towards higher footprint products. Since 2012,
our upstream emissions have reduced by about
14 percent and downstream by about 13 percent.
Cradle-to-grave product carbon footprint
in million tons of CO2(e) and % reduction per ton of sales
AkzoNobel carbon footprint in million tons CO2(e)
Scope 3 downstream
Scope 1 & 2
Scope 3 upstream
-4
2
26.5
26.9
% reduction CO2(e) per ton of sales
Target
3
24.6
6
23.7
9
4
8
3
1
Raw materials
Own operations
Customer
operations
End-user
End-of-life
Other
2013
2014
2015
2016
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. Includes impact from VOCs. See Assessment method on our website.
Cradle-to-grave product carbon footprint
Total in million tons CO2(e) and reduction per ton of sales
2013
2014
2015
2016
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 & 21
Scope 3 downstream
Total
% reduction per ton of sales
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
3.6
4
12.3
-2
8.6
6
9.7
3.8
11.1
24.6
3
3.7
9
11.6
-2
8.4
9
9.5
3.7
10.5
23.7
6
1 Scope 1 and 2 includes emissions from our facilities and our own transport,
including VOCs.
25-30
Material strategies
for key raw
materials
Energy strategy
including
renewable energy
(See Raw material
strategies)
Joint activities
with suppliers
(See Supplier
improvement plans)
(See Renewable energy)
Operations
management
Operational
eco-efficiency
(See Own operations)
New developments to reduce
energy use during product application
(See Performance Coatings in
Business Performance section)
Renewable raw
materials result in
less fossil carbon
in our products
Energy sales,
non-product
related Scope 3
activities
Paints containing less solvents
(See VOC in product)
(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)
Total carbon footprint
The company’s product carbon footprint of around
24 million tons is made up of around 21 million tons of
CO2(e) from the main greenhouse gases and 2.6 million
tons from VOC emissions. The footprint from our own
operations and transport is 3.7 million tons of CO2(e). In
addition to the product footprint of around 24 million tons,
there is 0.2 million tons of CO2(e) from energy sales, and
about 1 million ton from non-product related Scope 3
activities, such as capital goods and commuting. Scope 2
emissions are calculated using the market-based method
(GHG Protocol, 2015). We have also assessed all
Scope 3 categories according to the GHG Protocol
Scope 3 standard.
More information on our assessment method for carbon
footprint cradle-to-grave can be found in Note 2. A
detailed breakdown of our greenhouse gas emissions,
including Scope 3 and Scope 2 location-based emissions,
is available on our website.
Management plans
Each Business Area has an improvement plan, with
targets and programs for different parts of the value chain.
These are reviewed and updated on a routine basis, with
progress monitored by the relevant management team and
as part of our regular Operational review meetings.
AkzoNobel Report 2016 | Sustainability statements
217
Research activities to identify alternative raw materials are
continuing, while procurement activities accelerated during
the year. For example, specific plans and targets have
been agreed with an increasing number of key suppliers.
See Note 7.
We have also strengthened the assessment of investments
to include a carbon price and continue to ensure that
we are spending capital in a way which optimizes the
improvement across our businesses and the company as
a whole. See Economic value creation.
The illustration on the previous page highlights the impact
of our main initiatives in different areas of our value chain:
• Raw materials that are more energy and material
efficient for our customers
• Improved energy efficiency and fuel mix for our energy
intensive operations
• Improvements in formulation to reduce product
footprint, particularly during customer application
The following pages discuss improvement activities for raw
materials, our operations and the product solutions we
deliver to customers.
Raw materials
Raw materials contribute around 40 percent to our cradle-
to-grave carbon footprint.
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.
In order to further improve our raw material strategies,
we have institutionalized a standard sourcing strategy
development approach and linked this to a capability
improvement program. More than 160 procurement
professionals across the globe have been trained and we
will continue to develop these capabilities.
Complexity reduction
Raw material slates have been developed for all key areas
of spend. These slates define the core list of preferred
materials/suppliers as the basis for our future formulations.
Health and sustainability aspects, such as product safety
and environmental concerns, are among the key criteria
applied to determine preferred raw materials.
The slates form the foundation of our standard raw
material management processes. Teams of procurement
and technical experts are in place to maintain the
slates, manage introduction and retirement and identify
opportunities to migrate products to our core raw
materials. Since the start of the raw material slate
program, 30 percent of non-core raw materials have
been phased out.
Supplier improvement plans
In 2016, we continued to work with key suppliers to
develop carbon footprint improvement plans across the
whole value chain through operational improvements,
material substitution and/or specification optimization.
Clear action plans and commitments are in place to
reduce their carbon footprint on a year-on-year basis.
See Note 7.
Bio-based raw materials
Bio-based materials can, in most cases, offer an option to
reduce our cradle-to-grave carbon footprint.
In order to accelerate the deployment of bio-based
materials relevant to our markets, we have been setting
up and developing partnerships across our supply chain.
Our strategy focuses on cost-competitive, high-impact
materials. In addition, we carefully consider feedstocks to
ensure that bio-based materials are sustainably sourced
and managed.
This approach will support the emergence of a new
bio-based industry, while at the same time enabling the
company to tap into alternative feedstock sources so that
we can offer more sustainable products and reduce our
cradle-to-grave carbon footprint. During 2016, we made
progress with our existing partnerships and announced
additional collaborations involving a number of our key
raw materials:
• Waste-derived chemicals: We are part of a
consortium – together with value chain partners
Van Gansewinkel, Air Liquide, AVR, Enerkem and
various others – exploring the feasibility of setting up
waste-to-chemicals facilities in Europe. In 2016, the
consortium announced that the Port of Rotterdam in
the Netherlands has been chosen as the preferred
location for the first facility. The project has the support
of the Port of Rotterdam, the City of Rotterdam, the
province of South Holland and InnovationQuarter. We
are now working together to finalize the business case,
Total volume of raw materials in % per source
49%1
A
C
B
1 12 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)
6
43
51
218 Sustainability statements | AkzoNobel Report 2016
the selection of the location and to start applying for
permits. This promises to be a major step towards
the circular economy and would close the loop by
converting waste back into useful products
• Algae-derived oils: Our work with biotech company
TerraVia (formerly Solazyme) is nearing completion. This
should lead to a multi-year supply agreement for up
to 10,000 tons annually 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
• Bio-based epichlorohydrin: In partnership with
Solvay, EY and various epoxy resin producers, we have
worked to track and encourage the use of bio-based
epichlorohydrin in our global value chains. The aim
was to reach around 20 percent of our global indirect
use in 2016. During the year, we reached as high
as 14 percent. We are now working with our partners
to improve the methodology, and apply it to other
value chains
Total energy in % by source
A Renewable energy
B Natural gas
C Coal
D Nuclear
E Other fossil fuels
40
32
15
11
2
C
E
D
B
A
Renewable energy
In % of total electricity,
heat and energy use
Renewable electricity (%)
Renewable heat (%)
Renewable energy (%)
2014
2015
2016
39
14
34
44
16
38
46
17
40
Ambition
2020
–
–
45
• Steel mill off-gas derived chemicals: In June 2016,
we announced our participation in the Carbon2Chem
consortium. This brings together industry players
ThyssenKrupp, BASF, Clariant, Covestro, Evonik, Linde
and Siemens with academic partners including FHI
Berlin, Fraunhofer, Max Planck Institute, Ruhr University
Bochum, RWTH Aachen, University Kaiserslautern in
a €60 million project to produce useful chemicals from
steel mill waste gas
These partnerships and products have the potential
to make a major impact on the long-term sustainability of
our supply chains. In 2016, 12 percent of all our organic
raw materials came from bio-based (renewable) sources
(2015: 11 percent). This is 6 percent (2015: 5 percent)
of the total volume of raw materials purchased, including
other raw materials such as salt, minerals and clays.
Own operations
The improvements we made relating to energy and
greenhouse gases can be found here. Other environmental
aspects of our operations are included in Note 9.
Energy use
The energy we use on our sites contributes about 15
percent to our cradle-to-grave carbon footprint. 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 use per ton of production reduced to 5.5 GJ/
ton. Absolute energy use was up 1 percent to 97,000
TJ, both in line with a change in product mix and
volume changes
• In 2016, 49 percent of our sites improved their relative
footprint with regard to energy use compared with 2015
• The total cost of energy in our production was about
€0.6 billion
• Energy mix has changed compared with 2015:
Renewable energy share increased by two percentage
points to 40 percent, and coal and nuclear shares
reduced by one percentage point. Natural gas and other
fossil shares remain the same
Energy use in 1000 TJ
Energy use
GJ per ton of production
5.6
99
5.7
98
5.6
95
5.5
97
2013
2014
2015
2016
Energy use per Business Area
In 1000 TJ
Decorative Paints
Performance Coatings
2013
2014
2015
2016
2.0
5.0
1.8
4.6
1.8
4.5
1.8
4.5
Specialty Chemicals
92.0
92.0
89.2
90.6
We use energy scans to increase awareness and identify
savings opportunities in all our businesses. During 2016,
this resulted in a number of energy improvement projects,
including:
• The production of chlorine using new membrane
technology is now fully on stream in Frankfurt, Germany,
reducing energy use by more than 25 percent and
saving over €6 million a year
• In Arnhem, the Netherlands, carboxy methyl cellulose
production was improved by optimizing control loops,
resulting in an energy reduction of more than 5 percent,
which represents over €100,000 a year
AkzoNobel Report 2016 | Sustainability statements
219
• In Rotterdam, the Netherlands, new work processes
introduced by our Specialty Chemicals business
resulted in energy savings of €100,000 a year
• At our Decorative Paints site in Garin, Argentina, a
number of cost-saving measures were introduced
following an energy scan. These related to the use
of LEDs, high efficiency motors and compressor
optimization and resulted in savings of €21,000 a year
• The installation of new LED lighting at a Performance
Coatings site in Pudong, China, resulted in an energy
reduction of more than 60 percent. The total savings will
be in excess of €10,000 a year
west of the Netherlands. It will be at full capacity of
105 MW in early 2019. The four companies involved
have agreed to source a total of 350 million kWh a year,
equivalent to the total annual consumption of 100,000
Dutch households
• Renewable steam: The first steam was delivered from
the sustainable steam project in Delfzijl, the Netherlands.
We have signed a 12-year agreement with Dutch energy
provider Eneco to purchase steam generated from
reclaimed wood. The partnership will help to reduce
AkzoNobel’s CO2 emissions by more than 100,000 tons
a year
• At our Powder Coatings plant in Reading, US, the
• Netherlands on-site solar: Solar panels have been
replacement of an old chiller with the latest technology
resulted in a 12 percent energy reduction, saving more
than €100,000 a year
• In the Netherlands, all sites have made an energy
efficiency plan covering the period 2016 to 2020
Renewable 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.
The diagram on the previous page details our energy
mix and renewable energy use. We launched a number
of key initiatives during 2016 in order to increase the use
of renewables in our energy supplies and decrease our
carbon footprint. These include:
• Krammer wind park: AkzoNobel has formed a unique
consortium to source power from renewable energy
projects for part of their operations in the Netherlands.
The first deal involves a multi-year agreement with
Krammer wind park, which was established by two
cooperatives together with 4,000 members in the south-
installed at our locations in Amsterdam and Arnhem
(100 kW), while construction is ongoing for panels at our
R&D facility and factory at Sassenheim (500 kW)
• Renewables in the Nordics: The power contract for
the Nordic region was expanded to 60 percent
renewable energy in 2016. This is mainly comprised
of hydro energy, along with wind energy from the
VindIn consortia
Thanks to these initiatives, the proportion of renewable
energy in our operations is at 40 percent.
Greenhouse gas emissions from operations
Greenhouse gas (GHG) emissions from our facilities are
primarily related to the fuel and power we use. This section
reflects the performance of our own operations covering
the gate-to-gate scope.
Total greenhouse gas emissions per ton of production
decreased by 5 percent to 209 kg/ton CO2(e). Absolute
GHG emissions decreased to 3.7 million tons of CO2(e).
These were both caused by a change in product mix and
production volumes of main energy consumers.
• At our Specialty Chemicals site in Alby, Sweden, a new
boiler was installed, saving 5,000 tons of direct CO2
per year
220 Sustainability statements | AkzoNobel Report 2016
• At LeMoyne in the US, our Specialty Chemicals
business optimized the furnaces, resulting in savings of
more than 2,200 tons of direct CO2 per year
• In Jundiaí, Brazil, the electricity contract for our Specialty
Chemicals business was changed to 100 percent
biomass, resulting in a reduction of over 4 kilotons of
CO2 compared with 2016
Greenhouse gas emissions in million tons
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton of production
222
224
2.8
2.8
1.1
1.1
221
2.3
1.5
209
2.0
1.6
2013
2014
2015
2016
Total greenhouse gas emissions made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
Greenhouse gas emissions per Business Area
in million tons
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
2015
2016
0.1
0.3
3.5
0.1
0.3
3.5
0.1
0.2
3.4
0.1
0.2
3.4
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 emissions for our lease car fleet were
121 g/km on average, a 2 percent improvement from
2015. These data are based on available data from EMEA.
We plan to expand the coverage of our lease car CO2
reporting in 2017.
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 relates
to eco-premium solutions. This measures products or
solutions that have a significant benefit over mainstream
products in the market in defined environmental and
social sustainability aspects (e.g. GHG emissions), when
assessed across the total value chain (see Note 4). 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 (e.g. WBCSD Addressing
the Avoided Emissions Challenge).
Many of our products help our customers to produce
a low carbon product, or contribute to processes that
support the transition to a low carbon economy
(e.g. water-based paint, coatings with new curing
technologies and chemicals used in LED lighting). In total,
13 percent of our 2016 revenue was from these leading
eco-premium solutions that avoid GHG emissions for
our customers, compared with the mainstream solution.
Examples include:
• Interpon ReFlex: Meets lighting manufacturers’
continuous demand for coatings with a higher
reflectance. This means more light is emitted from the
lighting unit because less is absorbed by the coating,
boosting the effective output of commercial lighting and
reducing emissions
• Dulux Weathershield Keep Cool: Reflects infrared
heat, cooling exterior walls by up to 5°C. It means
residents use less air conditioning and less energy as a
result, leading to independently verified savings of up to
15 percent
• Aquasilk: An innovative water-based wood coating
with superior hardness and excellent clarity, designed to
make it easier for the Chinese furniture industry to make
the transition to more sustainable water-based coatings.
The product contains substantially lower levels of volatile
organic compounds (VOCs) than the traditional solvent-
based systems they replace
Other products that help reduce global greenhouse gas
emissions are not captured by this leading measure. We
have estimated about half of our total sales are covered
by our main drivers for our carbon footprint reduction:
renewable energy, renewable raw materials, VOC
reduction and energy-efficient production processes.
Our chemicals businesses use 47 percent renewable
energy or heat in their operations. Overall, 12 percent of
our organic raw materials are from renewable sources.
Both of our most energy intensive businesses operate
leading energy-efficient technology. Energy and material
efficiency is crucial for our production processes and
continuous improvement is part of daily operations.
Our paints and coatings businesses continue to introduce
new and reformulated solutions with significantly reduced
During 2016, our Dulux brand launched a second paint recycling facility in the UK in
collaboration with Community Repaint and various other partners. The initiative is designed
to remanufacture donated paint into a good quality recycled product and re-distribute it to
individuals, families and communities in need. The first facility has already produced 10,000
liters of recycled paint for distribution to over 1,300 causes and individuals across the UK.
volatile organic compounds (low/zero VOC). For example,
more than 80 percent of our decorative paints and 15
percent of our protective coatings are water-based or
low/zero VOC (as opposed to solvent-based), while 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.
One example of leading practice is the work on “post-
user” waste in the Decorative Paints business. This is
the paint left over by our customers/consumers when
they have finished a painting job. Evidence suggests that
10 percent of all paint purchased ends up in the waste
stream. This is a huge waste of valuable resources and is
becoming a concern to national and local governments as
disposal costs rise.
In the UK, we have worked with a social enterprise
for many years to collect and re-use this paint though
social and community groups. We are now going a step
further, working with waste management companies and
small entrepreneurial paint manufacturers, to support
the remanufacture of paint into a fully recycled product,
better suited to the needs of larger social and community
projects. These pilots will be extended into Benelux in
2017. We are also investigating whether it will be possible
to incorporate small amounts as a raw material into
existing branded products.
AkzoNobel Report 2016 | Sustainability statements
221
9
Note 9: Operational eco-efficiency
AkzoNobel is committed to embedding continuous
improvement in supply chain management and
manufacturing. A company-wide approach has been
defined, known as ALPS (AkzoNobel Leading Performance
System), which includes standardized processes, metrics
and training programs. Deployment in all three Business
Areas, to all the company’s manufacturing sites, will
continue over the next few years.
The program is supported by the AkzoNobel Academy,
which offers a continuous improvement curriculum, as well
as functional training programs. Safety, customer service,
eco-efficiency and cost productivity continue to improve as
a result of the program.
Operational eco-efficiency
program
The focus of the operational eco-efficiency agenda
is to increase raw material efficiency, reduce energy
consumption and decrease both emissions and the
production of waste. Going forward we will focus on
driving improvements specifically on these parameters.
Improvements include many small site contributions, such
as upgrading existing processes, rationalization of the
manufacturing footprint and application of best available
technology for new investments.
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 absolute footprint.
This number is used in combination with production
volume to calculate the relative footprint improvement.
• Between 2009 and 2016, we achieved a relative
footprint improvement of 28 percent. In total, 64 percent
of the sites which were reported in 2009 have improved
their performance
222 Sustainability statements | AkzoNobel Report 2016
• Many of our businesses showed an eco-efficiency
footprint improvement. Major positive contributions
came from our new plant in Frankfurt, Germany; the
closure of Deventer production in the Netherlands; our
wastewater treatment plant in Maua, Brazil; and the
acquisition in Columbus, US. Major negative impacts
came from our sulfur derivatives plants, which emitted
more SO2. Additional programs are being put in place to
accelerate progress
Our operational eco-efficiency 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 eco-efficiency related topics relevant
for all locations.
In order to focus even more attention on our operational
eco-efficiency improvement program, projects are
integrated into the main supply chain improvement
monitoring tool, the AkzoNobel tracker. This will integrate/
quantify all site improvement activities. A total of 209
projects with an operational eco-efficiency impact are
already being tracked and all new projects with a footprint
effect will have to report not only the financial aspects, but
also the environmental impact.
Energy and greenhouse gas
emissions
See Note 8 for reporting on energy and greenhouse gas
emissions in our operations.
Local air quality
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 operations, in line with national or supranational
(European Commission) legal requirements. The VOC
reduction focus for our paints and coatings businesses
concentrates on low/zero VOC product design, going
beyond controlling VOC emissions from 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
OEE footprint improvement
(% reduction from 2009)
40
Ambition
13
24
24
23
28
Volatile organic compounds in kilotons
Volatile organic compounds
kg per ton of production
0.17
3.1
0.18
3.1
0.18
3.0
0.16
2.9
2012
2013
2014
2015
2016
2017
2013
2014
2015
2016
The OEE footprint is calculated from the weighted average of nine footprint
parameters and production volume.
We measure halogenated and non-halogenated organic compounds
discharged to air.
projects to reduce the solvent content of our products –
VOC in product. See Note 4.
VOC emissions per ton of production reduced to
0.16 kg/ton. Total VOC emissions decreased 6 percent to
2.9 kilotons (2015: 3.0 kilotons).
• In Performance Coatings, new thermal oxidizers have
been installed in Tianjin and Changzhou, China, resulting
in a reduction of 82 tons
• In Stockvik, Sweden, a new thermal oxidizer was
installed in December which will reduce VOC emissions
by 80 percent
NOx and SOx
NOx and SOx emissions may have a significant impact on
local air quality because of their potential contribution to
acidification.
• SOx emissions (from process emissions and energy)
increased to 0.30 kg/ton of production. Absolute
emissions were up 36 percent to 5.2 kilotons
• Our three sulfur derivatives plants in Germany, the
US and Argentina contributed 98 percent of the SOx
emissions. Due to a product mix effect, we were not
able to convert SO2 to a product, resulting in the
increase. A further increase was caused by a change in
measurements. In 2016, we developed plans to reduce
to a level well below 0.2 kg per ton of production
Ozone depleting substances
Emissions of ozone depleting substances are at a very
low level, 1.8 tons (2015: 0.6 tons). They are mainly due
to Freon22 from maintenance in older air conditioning and
cooling units, which are replaced when appropriate.
Material efficiency
We are maximizing 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 chemical oxygen demand (COD) and the carbon
related to our raw materials upstream.
• At Decorative Paints the material efficiency program
was continued, focusing on a better conversion of raw
materials into final products
• Performance Coatings continued their global material
efficiency program for all businesses, focusing on yield
improvement in production. A wide variety of smaller
projects (over 75) has resulted in savings of €7 million
and this will continue in 2017
• Specialty Chemicals converted some of its waste
streams into valuable by-products, in line with the
concept of the circular economy
• NOx emissions improved to 0.09 kg/ton of production
Raw material flow in kilotons
(2015: 0.10 kg/ton). Total emissions reduced to
1.6 kilotons (2015: 1.7 kilotons)
• Optimization of the new incinerator in Mons, Belgium,
with a low NOx furnace resulted in a total reduction of
more than 100 tons a year
NOx and SOx emissions
in kilotons
NOx
NOx kg/ton
SOx
SOx kg/ton
2013
2014
2015
2016
1.3
0.08
4.6
0.26
1.3
0.08
3.7
0.22
1.7
0.10
3.8
0.22
1.6
0.09
5.2
0.30
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.
19
By-product
Customer
operations
Raw
material
input
Own
operations
17,600
Product
143
Waste
64
79
Reusable
Non-reusable
AkzoNobel Report 2016 | Sustainability statements
223
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.
Our ambition is to drive towards “Zero waste to landfill” in
the coming years, and a program is being developed to
support this ambition with concrete projects.
• Total waste per ton of production generated and
leaving our sites was down by 10 percent to 8.1 kg/ton.
The total waste volume decreased to 143 kilotons, a
reduction of 8 percent
• Hazardous waste per ton of production decreased by
6 percent to 3.2 kg/ton
• The significant reduction in waste in 2016 was achieved
by many specific material efficiency activities in a large
number of sites around the globe. This is an ongoing
improvement area. In Frankfurt, one of the waste
streams is now sold for the production of sulphuric
acid, a good example of our contribution to the
circular economy
• At our Specialty Chemicals site in Columbus, US,
a sustainable outlet was identified for an aluminum
oxide stream, as well as a chlorate waste stream.
These conversions resulted in a reduction of more
than 400 tons of waste compared with 2015
• In Recife, Brazil, a water reduction program introduced
by our Decorative Paints business will result in more
recycling of wash water, and has already reduced waste
by 60 tons
Total waste per Business Area
in kilotons
Decorative Paints
Performance Coatings
Specialty Chemicals
2013
2014
2015
2016
39
54
64
35
55
59
34
54
66
32
53
58
• In Como, Italy, compactors are being installed at
our Performance Coatings plant to allow recycling
of powder fines, which will result in a saving around
€500,000. The concept will also be rolled out to other
Powder Coatings sites
Fresh water availability
Sustainable water supply is essential to life – and the
sustainability of our business. We rely on water for
raw materials production, product formulation and
manufacturing, power generation, cooling, cleaning, trans-
portation and the effective use of certain products. Around
87 percent of our fresh water intake is from surface water,
while 86 percent is used for cooling, which is only slightly
heated before being returned to the original source.
We continue to reduce the chemical oxygen demand
(COD) of our effluent to surface water.
We monitor progress using a fresh water risk assessment
tool, completed by each manufacturing site from 2009 to
2015. The tool assigns risk levels to water sources, supply
reliability, efficiency, quality of discharges, compliance and
social competitive factors. 93 percent of our sites (2015:
93 percent) have sustainable fresh water management in
place, as measured by the risk assessment tool.
• Fresh water use per ton of production fell to 12.8 m³/
ton (2015: 16.0 m³/ton). Total fresh water use was 224
million m³, down 18 percent (2015: 274 million m³)
Total waste in kilotons
Hazardous waste in kilotons
Reusable
Non-reusable
Total kg per ton of production
Reusable
Non-reuseable not landfill
Non-reuseable to landfill
Total kg per ton of production
9.0
96
8.6
9.0
77
72
79
75
65
8.1
79
64
3.5
3.4
44
37
36
3.3
20
3.2
28
26
2013
2014
2015
2016
15
1.9
2013
20
2014
1.7
2.0
1.1
2015
2016
Waste means any substance or object arising from our routine operations which we
discard or intend to discard, or we are required to discard.
Hazardous waste is waste that is classified and regulated as such according to the
national, state or local legislation in place.
224 Sustainability statements | AkzoNobel Report 2016
225AkzoNobel Report 2016 | Sustainability statements• An increase of over 10 million m3 in 2015 was due to the start-up of a caustic evaporator at our new chlorine plant in Frankfurt, Germany. In 2016, the plant was connected to a closed loop cooling system, instead of using direct cooling by surface water, resulting in a total reduction of over 48 million m³• In Reading, US, Performance Coatings replaced a cooling tower and old chiller with a new and more efficient chiller. As a result, less surface water was evaporated in the cooling tower, saving more than 4,000 m³ a year201620152014201389859393Sustainable fresh water management in % of manufacturing sites Sustainable 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 in million m3 Fresh water consumption m3 per ton of production201620152014201322426526327415.216.012.814.9Fresh water use is the sum of the intake of groundwater, surface water and potable water.Water emissionsIn total, 93 percent of the chemical oxygen demand (COD) is generated at ten production locations, with the remainder being generated by numerous sites. These ten locations are the primary focus for improvement actions.• The COD load to surface water per ton of production reduced to 0.06 kg/ton • The total COD load to surface water reduced to 1.1 kilotons• A new treatment plant was built in Maua, Brazil, resulting in a reduction of more than 150 tons per year• In Stockvick, Sweden, an optimization in operations resulted in a COD reduction of 20 tonsWater flow in million m3Chemical oxygen demand (COD) in kilotons Chemical oxygen demand kg per ton of production20162015201420131.41.41.41.10.080.080.060.08COD is the amount of oxygen required for the chemical oxidation of substances in the waste water effluent that is discharged into surface waters.ProductOtherSurface water1119Potable waterGroundwater274Own operations194193
225AkzoNobel Report 2016 | Sustainability statements• An increase of over 10 million m3 in 2015 was due to the start-up of a caustic evaporator at our new chlorine plant in Frankfurt, Germany. In 2016, the plant was connected to a closed loop cooling system, instead of using direct cooling by surface water, resulting in a total reduction of over 48 million m³• In Reading, US, Performance Coatings replaced a cooling tower and old chiller with a new and more efficient chiller. As a result, less surface water was evaporated in the cooling tower, saving more than 4,000 m³ a year201620152014201389859393Sustainable fresh water management in % of manufacturing sites Sustainable 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 in million m3 Fresh water consumption m3 per ton of production201620152014201322426526327415.216.012.814.9Fresh water use is the sum of the intake of groundwater, surface water and potable water.Water emissionsIn total, 93 percent of the chemical oxygen demand (COD) is generated at ten production locations, with the remainder being generated by numerous sites. These ten locations are the primary focus for improvement actions.• The COD load to surface water per ton of production reduced to 0.06 kg/ton • The total COD load to surface water reduced to 1.1 kilotons• A new treatment plant was built in Maua, Brazil, resulting in a reduction of more than 150 tons per year• In Stockvick, Sweden, an optimization in operations resulted in a COD reduction of 20 tonsWater flow in million m3Chemical oxygen demand (COD) in kilotons Chemical oxygen demand kg per ton of production20162015201420131.41.41.41.10.080.080.060.08COD is the amount of oxygen required for the chemical oxidation of substances in the waste water effluent that is discharged into surface waters.ProductOtherSurface water1119Potable waterGroundwater274Own operations194193 10
Note 10: Soil and groundwater remediation
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.
A dedicated group of legal and environmental experts
assesses, manages and resolves environmental liabilities.
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 €252 million, which we
believe is sufficient for the sites where we have ownership
or responsibility. See Note 16 of the Consolidated financial
statements.
Mandatory annual environmental liability reviews are
conducted to review risks, monitor progress in resolving
our liabilities and assess changes in company exposure.
226 Sustainability statements | AkzoNobel Report 2016
During 2016, we continued to move our coatings portfolio to more water-based and VOC-free products. These products have several benefits for home interiors,
such as paint which improves indoor air quality (see page 64) and new furniture coatings that are replacing more traditional solvent-based systems (see page 14).
Social value creation
Our sustainability agenda aims to improve the well-being
of our own employees, those in our value chain and
of wider society through our innovative products and
business processes.
We take a broad view on capable and engaged people.
We are forming long-lasting external partnerships based
on strong people connections, not only along our value
chain, but also in a wider network, for example through
our leadership role in the Human Cities Coalition.
Impact measurement across the
value chain
We also take a value chain approach to measure our
social impact. In 2014, we pioneered our measurement
of negative and positive impact across four dimensions,
including social. We have since expanded the pilot
to cover more businesses and, in this report we are
disclosing for the first time a company-wide 3D P&L.
We will continue to work with industry leaders and other
partners to refine our value chain measurement and
increase our understanding of our social impact.
Our employees
Capable, engaged people are critical to our business
success. An engaged workforce who live our core
principles and values is what underpins the delivery of our
strategic objectives. See Note 11.
With our Safety Common Platform, we have established
company-wide improvement programs in people, process
and product safety. See Notes 12-15.
Employees are routinely involved in delivering many aspects
of our sustainability agenda. This includes 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 both current and new
employees through an updated company-wide e-learning
program. This is supported by communication through
newsletters, webinars, events and videos. All of the
company-level management training programs in the
AkzoNobel Academy have sustainability embedded into
Key performance indicators – social
Employee engagement score (0-5 scale)
High potential turnover (%)
Female executives (%)
Executive vacancies filled internally (%)
Total reportable injury rate employees/supervised contractors (per
million hours)
Loss of primary containment (Level 1)
Priority substances with management plan (%)
2013
3.88
–
16
75
2.3
–
62
2014
3.97
–
17
68
1.8
–
82
2015
4.03
6
19
58
1.6
–
100
2016
4.17
4
19
61
1.4
16
331
Cumulative Community Program involvement (number of projects)
2,108
2,260
2,385
2,531
1 Phase 2 started in 2016
Ambition
2020
>4.20
<5
25
70
<1.0
–
1001
–
the content. It also features strongly in our new training
program to onboard new people managers. In addition,
a number of functional-specific programs started to
roll out in 2016.
We continued to use our Planet Possible sustainability
agenda to stimulate employee engagement.
Communication to employees at all levels took place,
including a global campaign to take action. The Business
Areas also have their own programs. For example, our
Decorative Paints business is engaging employees on
the strategic priority of moving the market to water-based
products through the use of videos, newsletters and
starting employee product trial sessions. Employees are
also actively involved at their work locations through their
everyday work and community activities around the world.
Human rights
We recognize the human rights of all people as outlined
in the Universal Declaration on Human Rights and the UN
Guiding Principles on Business and Human Rights. We
strive to prevent the infringement of human rights and to
remediate the possible impact on human rights resulting
from our activities or products. We expect our business
partners to apply equivalent principles and seek to actively
support them in their implementation where needed.
See Note 16.
Human Cities
Our Human Cities initiative and Human Cities Coalition
serve as an umbrella for everything we do for and with
society. It complements our Planet Possible sustainability
agenda and further strengthens our social value creation.
Though local community programs, we aim to make
lives more liveable and inspiring. In 2016, cumulative
Community Program involvement increased to €16.8
million. See Note 17.
AkzoNobel Report 2016 | Sustainability statements
227
11
Note 11: Employees
Building an engaged workforce
Our people are critical to the success of our company.
We won’t achieve our vision of leading performance in the
markets in which we operate without an engaged, diverse
and capable workforce.
Having engaged colleagues who live our core principles
and values is what underpins the delivery of our strategic
objectives and makes AkzoNobel a great place to work.
We want our people to truly reflect and represent the
many and varied cultures of the markets we serve and the
different locations where we do business.
We believe it’s also important that our management teams
reflect the diversity of our overall workforce. We know that
inclusive and diverse teams better understand customer
demands and make our organization stronger and more
innovative. Having the right people in the right jobs, with
the right capabilities, helps us to build a stronger business.
We work hard to find and retain talent and provide
continuous learning and development opportunities. Our
objective is to create a high performing culture where
employees can contribute to the best of their ability.
The contribution and value of our employees is made up of
their talent, skills and knowledge. The training, education
and support we offer enhances their value – their human
capital. A higher level of human capital can increase
productivity and future earnings at both company and
individual level. As such, the talent, skills and knowledge
of our employees not only benefits AkzoNobel and the
employee, but also society at large. In addition to the
3D P&L, we are further developing the measure of our
human capital to underwrite its value as one of our most
important assets.
Our employees
Nearly half of our employees are employed in Europe, in
line with our revenue generation (43 percent generated in
Europe). Our commitment to Asian markets can be seen in
our strong employee base in Asia (32 percent).
In common with many industrialized organizations the
majority of our employee base is aged over 40. However,
we see a clear distinction in age between high growth
Employees
% of total
Revenue and employees per key region in %
Managers and senior leadership
Professional staff
Sales staff
Scientific and technical staff
Operations staff
Administrative support staff
Region
Asia Pacific
Europe
North America
Latin America
Other regions
17
6
24
16
30
7
Total revenue
Employees in region
27
43
17
9
4
32
44
10
9
5
regions (average age 36.8 years) and mature markets
(average age 44.4 years). This difference can also be seen
in the years of service (an average of 12.2 years in mature
markets, and 7.2 years in high growth regions). Both
average age and years of service increased compared
with 2015. Workforce planning will help us to mitigate the
current risk of the aging workforce in Europe and North
America by mapping the aging population to start timely
succession planning and knowledge transfers.
Capability building
Our HR strategy for 2016 and beyond is strongly focused
on building the capabilities needed to support our
strategic ambition. These are the functional capabilities
in the businesses and the leadership capabilities across
the company.
In each of our Business Areas, we have identified the
required competencies for our key commercial roles and
have started a program of assessment and development.
With the support of our Learning and Development Center
of Expertise, we have developed a clear roadmap to
review and refresh the rest of our functional competency
frameworks. This will ensure that new capabilities around
data science, smart material and digital knowledge are
incorporated in the new frameworks.
To further support our strategic ambition of organic
growth, we expanded our continuous improvement
program to our support functions and use black belts
to improve our processes and procedures and work
instructions. The new hire process is one of the process
improvement examples within Human Resources.
Productivity and ROI of human capital
Human capital ROI ratio
Return on human capital investment (%)
228 Sustainability statements | AkzoNobel Report 2016
2015
1.58
54
2016
1.57
56
%
Change
-1
4
In 2016, we introduced our new leadership behaviors,
which complement our core principles and values
and behaviors. They provide clarity of expectations for
managers and provide the opportunity to assess and build
targeted development plans for our leaders. In line with
229AkzoNobel Report 2016 | Sustainability statementsat the heart of our learning and development efforts. The AkzoNobel Academy serves as a virtual hub for learning and development opportunities and gives everyone in the company access to face-to-face learning programs, as well as a wide range of open access online courses available in multiple languages. By offering learning interventions through multiple channels, we help our entire workforce to continuously develop and ensure their long-term employability.Ready for the futureIn further support of future-proofing the organization, we have introduced mandatory workforce planning at both strategic and operational level in each of our businesses. This process has a forward-looking focus to develop and these new behaviors, we have developed a new people management training program – Leadership Essentials – to better reflect the changing role of our managers. By the end of 2016, 167 internal trainers had been trained across the world. We will start the global roll-out of the training in 2017 and aim to train 2,000 managers in the first year. These leadership behaviors will be incorporated into our performance management system from 2017.We believe the most effective way to learn and develop new skills is to apply and practice them on the job and in real life situations. Our employees say they have good opportunities to learn and grow on a day-to-day basis, and we saw a significant improvement of +0.14 in the engagement score related to learn and grow (4.19 in 2016). That’s why the 70 percent experience, 20 percent exposure and 10 percent education learning philosophy is align the capabilities of our workforce to the strategic objectives of each business and sets a company-wide standard. These plans inform our budget, recruitment, development and talent management processes. Given that we are operating in an increasingly volatile and competitive employment market, it is important that we position ourselves as an attractive employer and streamline our hiring processes. In 2016, we standardized and improved our new hire process across our top nine countries. The process is now easier, simpler and quicker for managers. By giving back around 70 percent of the time to managers involved in these processes, they can better focus on value-adding activities that help our company to grow and continuously improve. We are therefore proud to have been recognized as an employer of choice in four countries, including Top Employer certifications in China and the UK, number one rated employer in the chemicals industry in the Netherlands, and in Sweden in numerious rankings.As part of workforce planning, we have identified critical roles and focused on the succession planning of these roles to ensure business continuity. In 2016, internal promotions at executive level were at 61 percent, up from 58 percent the previous year, but still below our new target of 70 percent. To improve our talent pipeline, we are focusing on the identification and development of our internal talent. By the end of 2016, 230 high potentials went through a talent development center to confirm their potential, resulting in individual development plans. In support of the talent centers, all the general managers of our businesses have been trained to assess our talent. This has ensured a common perspective on talent and improved their capability to give feedback. Scientist and PhD student Louisa Waine – who works for our Performance Coatings business in Felling, UK – received an Industrial Fellowship from the Royal Commission for the Exhibition of 1851 in recognition of a research project focused on low energy curing technology that can eliminate the need to heat large vessels, such as ships, to apply paint. Human capital ambitions
Ambition: The employee engagement score is at least
4.20 in 2020 (scoring 0 - 5).
Ambition: The employee engagement score related to
learn and grow is at least 4.20 in 2020 (scoring 0 - 5).
Ambition: Women hold at least 25 percent of our
executive manager positions in 2020.
Employee engagement score
(0 – 5 scale)
Employee engagement score related to
learn and grow (0 – 5 scale)
Female executives in %
3.88
3.97
4.03
4.17
3.93
3.99
4.05
4.19
16
17
19
19
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
2016
Status: On target. We exceeded our ambition level in
2016 and are close to our 2020 ambition of 4.20. See
Engaged employees for details.
Status: On target. We exceeded our ambition level in
2016 and are close to our 2020 ambition level of 4.20. See
Capability building for details.
Status: Behind target. The current rate of improvement
won’t allow us to reach our 2020 ambition. See Diversity
and inclusion for details.
Ambition: Women make up at least 30 percent of our
executive potential pool in 2020.
Ambition: At least 70 percent of the executive vacancies
are filled internally.
Ambition: Less than 5 percent of employees with upwards
potential left the organization (based on voluntary leavers).
Female executive potential pool in %
Executive vacancies filled internally in %
High potential turnover in %
28
24
25
30
75
68
58
61
6.0
4.0
2013
2014
2015
2016
2013
2014
2015
2016
2013
2014
2015
2016
Status: On target. We are on track to reach our 2020
ambition. See Diversity and inclusion for details.
Status: Behind target. While we did not reach our
ambition level, we did improve by 3 percent compared
with 2015. See Ready for the future for details.
Status: On target. We were able to keep the majority of
our talents. See Retaining talent for details.
230 Sustainability statements | AkzoNobel Report 2016
Engaged employees
Engagement score by management level
Being able to give and receive feedback is vital to creating
an engaging work environment. We therefore invite all our
employees to participate in our annual engagement survey.
In 2016, 89 percent (41,170 employees) of our employees
took part. Each manager with four or more direct reports
receives a report on team engagement, which allows for
action planning at team level.
For the sixth year in a row, our engagement levels have
improved (+0.14 in 2016 to 4.17), indicating that we are
continuing to transform the daily experience of working
at AkzoNobel. The messages behind the survey results
indicate strong progress in employee trust regarding where
the company is going and the strategic direction we have
chosen. At the same time, there is room for improvement
in terms of how senior leaders connect our strategy and
purpose to the day-to-day work for all employees.
The engagement levels show a positive trajectory at all
levels of the company, which illustrates how our managers
are lifting their own, and their employees’, score.
We also see improved follow-up and action planning,
which helps our employees become more engaged.
Enabling our managers to continuously give feedback
to their employees is an area for improvement and our
new management training program will help to build
this capability.
In 2016, eight times as many teams (1,472 in total)
performed at top engagement levels compared with
2010 (184). It is also important to help any teams that are
still somewhat behind (16 percent) so that they can also
become top performers. The survey results will give us
concrete insights so we can help these teams develop in
the right direction.
Managers of managers
Front line managers
Employees (individual contributors)
Overall average
Participation rate (%)
Engagement and safety
(total reportable injury rate per million hours worked)
1.47
0.86
Bottom quartile
engagement teams
Top quartile
engagement teams
In addition, research across a large sample of manu-
facturing sites demonstrates a clear connection between
engagement and safety at site level. Sites with top
quartile engagement levels have a 41 percent lower total
reportable injury rate (number of injuries per million hours
worked) than sites with bottom quartile engagement levels.
Diversity and inclusion (D&I)
Despite just failing to reach our 2015 gender diversity
ambitions (we achieved 19 percent female executives,
with an ambition of 20 percent), our leadership has
committed to increasing our gender diversity ambitions –
a clear indication of the company’s commitment to
gender equality.
2013
4.09
–
3.85
3.88
88
2014
4.14
4.04
3.94
3.97
85
2015
4.25
4.15
4.00
4.03
88
2016
4.36
4.27
4.14
4.17
89
Last year
change
0.11
0.12
0.14
0.14
1
2016 produced mixed results in terms of reaching our
ambition levels. As managers play an important role
in hiring and promoting women in the organization,
diversity is one of the main aspects of the new leadership
management training. At the same time, we are reviewing
how to better embed D&I in all our HR processes.
We have set a clear ambition to close our gender gap at
executive level, calculated as the gap between the average
male and female salary. The current gap is 7.7 percent, in
line with last year.
Gender diversity 2016
Overall population
Graduate hires
External executive hires
Executive talent pool
Promotions into executive level
% Women
2020
Ambition
24
43
30
30
33
–
50
50
30
in line with
talent pool
Gender pay gap executives (%)
7.7
0
AkzoNobel Report 2016 | Sustainability statements
231
The renewal of our retention program in high growth
markets has ensured we are seeing 25 percent fewer
regretted losses than 2015 in those regions. In mature
markets, our number remained constant. We want
to further decrease our high potential turnover, so we are
introducing one global standard for exit interviews and
an exit survey to help us develop the right employee
retention strategies.
Optimizing and aligning the HR
organization
At the start of 2016, we moved to one HR system
globally. The system captures basic HR information and
feeds identity and access management, which in turn
feeds other systems. This ensures legal compliance and
the rapid onboarding and offboarding of employees. It also
allows us to more effectively measure the work we do
in Human Resources, resulting in greater transparency.
During 2016, we finalized plans to extend our HR
operating model from our nine largest countries to the
rest of the globe. This will further harmonize, align
and standardize HR processes and practices to better
support the business.
Restructuring
We continued to restructure our business in 2016 to align
with our company strategy. The primary focus was on the
further implementation of our Global Business Services
(GBS) organization.
Since 2013, we have been reconfiguring our support
functions, such as Human Resources, Finance and
Information Management, towards a standard operating
model consisting of business partners, centers of expertise
and shared services. Our GBS organization covers the
shared services organization of Finance and HR in our top
nine countries. During the course of 2016, we saw the
transfer of activities to GBS resulting in a movement of
employees from the business into the function. In 2017,
we intend to transfer more activities to GBS, such as
procurement of functional spend and talent resourcing.
In parallel to the GBS transition, each of the support
functions is embarking on their own journey of
transformation. Our objective is to continuously improve
efficiency and effectiveness. In 2016, Information
Management announced a transformation program which
will be rolled out over a period of two to three years.
As part of the change process, we use employee and
customer sounding boards to gather feedback from the
organization and our internal customers. We are currently
consulting with employee representative bodies in the
respective countries and follow local laws and regulations
in terms of employee relations. In the event of our
organizational changes impacting employment, we aim to
always give our employees sufficient time to prepare and
help them consider various career options both inside and
outside the company.
Revenue and executives from key regions in %
Region
Asia Pacific
Emerging Europe
Mature Europe
North America
Latin America
Other regions
1 All of Europe
Total revenue
Executives from
the region 2016
Ambition
2020
27
7
36
17
9
4
11
2
69
14
3
1
15
631
15
5
2
At the start of 2016, we sharpened our focus on regional
diversity by better linking diversity to the business. Our
focus is no longer just on the number of executives from
high growth markets, but on the revenue in key regions
and the distribution of executives from these key regions.
The aim for 2020 is to have a better representation among
our executive population of the regions where we do
business, supporting growth in these regions.
Retaining talent
Our employees are the foundation on which our success
is built. The basis for innovation and organic growth is a
strong talent base with engaged and loyal employees.
In 2016, our overall employee turnover was 11 percent
(2015: 13 percent), while the voluntary turnover was
7 percent compared with 8 percent in 2015. High potential
turnover totaled 4 percent, down 2 percent from 2015.
This is in line with the increase in engagement in the
company. It also puts us close to the top of the chemical
industry benchmark of APQC (10 percent overall turnover)
and below the Asian benchmark (AkzoNobel 13 percent,
compared with 14 percent in benchmark).
Although a certain percentage of voluntary leavers is part
of the employee cycle, it is important that we focus on
those employees who are in critical positions and make
sure we are able to retain them where we can.
232 Sustainability statements | AkzoNobel Report 2016
Safety
Key performance indicators – safety
People
Total reportable injury rate employees/
supervised contractors (per million hours)
Behavior-based safety program implemented
(% FTEs)
Life-Saving Rules implemented (% of sites)
Process
Regulatory actions (Level 4)
Loss of primary containment (Level 1)
Product
Priority substances with management plan (%)
REACH compliance third phase (%)
Management
Safety incidents (Level 3)
Management and reassurance audits
1 Phase 2 started in 2016.
2012
2013
2014
2015
2016
Target
2016
Ambition
2020
2.4
50
–
0
–
42
–
3
61
2.3
68
100
0
–
62
–
0
56
1.8
84
100
0
–
82
15
1
63
1.6
96
100
0
–
100
23
0
57
1.4
96
100
0
16
331
57
0
57
1.4
100
100
0
–
331
50
0
–
<1.0
100
100
0
–
1001
100
0
–
• Company drivers participate in our global Safe Driving
program. An awareness e-learning training is also
available to all employees and their family members
• Our process safety management (PSM) framework
sets out minimum standards to be implemented at all
manufacturing sites. Progress has continued towards
expected completion in 2018. In addition to the 128
sites that have already started PSM implementation,
73 more joined in 2016. New PSM KPIs implemented
in January will help us to monitor and improve our
PSM performance and enable benchmarking using
leading international standards. Various actions –
including external benchmarking, capability building and
development of the PSM maturity model – have helped
to embed PSM in the organization
• Our company-wide rule on product stewardship requires
all businesses to implement an effective and auditable
product stewardship management process. Businesses
are required to address the key elements of product
stewardship, following the principles of Responsible
Care® and Coatings Care®. Our product stewardship
procedure provides guidance on how to implement the
eight key elements of product stewardship
• Our product stewardship and product safety processes
are underpinned by a requirement for continuous
improvement. In 2016, all businesses completed the
product stewardship continuous improvement tool
to assess their maturity level. They also provided an
improvement plan and agreed next steps
Our Safety Common Platform has established company-
wide improvement programs in people, process and
product safety, supported by continuous improvement
and capability building processes. It sets out milestones
for achieving our long-term safety ambitions in 2020.
We aim to differentiate ourselves by our thoroughness in
embedding best practice safety, health and environmental
processes in all our operations, using common systems:
• Life-Saving Rules (LSR) is our flagship injury prevention
program, providing clear rules relating to high risk
work activities which have the highest potential for
life-threatening consequences. To strengthen incident
prevention, the company launched the LSR maturity
self-assessment tool in 2016 to provide further clarity
on the required conditions that need to be provided
by work locations to facilitate LSR compliance. All
manufacturing sites have completed their LSR maturity
assessment and are putting plans in place to reach
leading levels in LSR maturity. LSR e-learning for line
managers was launched and a refresher e-learning for
all employees is planned for early 2017. Life-Saving
Rules breaches that were intentional or repeated led to
the maximum disciplinary sanction allowed under local
legislation in 25 cases
• Behavior-based safety (BBS) has been implemented
• Through our HSE Faculty, various groups of line
at all sites, including all non-production work locations
such as offices, stores, warehouses, laboratories
and remote workers. To ensure the BBS process is
embedded and continues to drive safe behavior and
prevent incidents, a self-assessment tool has been
developed and was piloted during 2016. As well as
enabling the maturity of locally managed BBS processes
to be evaluated, it also identifies any necessary
improvement actions. The tool will be systematically
applied, starting with all production sites in 2017
managers and specialists have received refresher
training in the company’s expectations and the required
competencies for safety leadership. The advanced
safety leadership program (Hearts & Minds), introduced
in 2015, provides site managers with the opportunity to
benchmark internally, receive coaching and share best
practices worldwide. In 2016, key personnel received
training in priority substance management to ensure
the required risk management measures are in place at
our sites. This continuous focus contributed to a further
reduction in the number of injuries by 13 percent
AkzoNobel Report 2016 | Sustainability statements
233
12
Note 12: People safety
Overall performance indicators for people safety show that
the company continues to make sustained improvement
towards the targets set for 2020. Implementation of
the people safety programs coincides with a continued
decrease in the number of injuries to employees, and
supervised and independent contractors.
• The overall TRR for employees and supervised
contractors decreased to 1.4 (2015: 1.6), in line with our
2016 target (1.4)
• 75 percent of our sites have been recordable-free for
more than one year (45 percent for three years or more)
• There were no employee or contractor fatalities during
Employee and supervised contractors total
reportable injuries injury rate
Target
2.3
1.8
1.6
1.4
1.4
<1.0
2013
2014
2015
2016
2016
2020
Total reportable injury rate per Business Area
Decorative Paints
Performance Coatings
Specialty Chemicals
2014
2015
2016
1.6
1.8
2.4
1.2
1.8
1.9
1.2
1.5
1.8
the last four years
• The lost time injury (LTI) rate for employees and
supervised contractors continues to decrease to 0.6
(2015: 0.7)
• The overall downward trend in reportable injuries
coincides with the implementation of our Life-Saving
Rules at all facilities and across all work groups, and
with the global roll-out of the people, process and
product safety programs that are part of the Safety
Common Platform
• The downward trend in TRR extended to the TRR
of independent contractors, which also decreased
to 2.4 (2015: 2.8). This is still above the TRR for
employees, so there will be increased focus on the
contractor safety management processes in 2017
to further reduce the rate
• In order to further reduce the number of injuries globally,
the introduction of a standardized permit to work
process has started and will be finalized in 2017
Independent contractors total reportable
injuries injury rate
Employee and supervised contractors lost
time injuries injury rate
3.5
2.9
2.8
2.4
Target
1.3
0.9
0.7
0.6
0.6
Behavior-based safety (BBS)
The BBS process, which actively engages all personnel
in identifying and addressing at-risk behavior, has been
implemented across all locations and work groups. In
order to ensure that BBS is embedded as a sustainable
process, BBS reviews have been completed by
independent people safety experts across all locations.
These reviews enable the sites and locations to establish
and carry out actions to improve the BBS process, further
reducing exposures to hazards.
Behavior-based safety
Behavior-based safety reviews
(% manufacturing sites)
Behavior-based safety reviews
(% non-manufacturing sites)
Behavior-based safety pro-
gram implemented (% FTEs)
2013 2014 2015 2016
–
–
100
100
100
–
–
99
68
84
96
96
Ambition
2016
100
100
100
• Formal review of the BBS process was completed at all
manufacturing sites and 99 percent of our locations
• Sites and locations have established and implemented
improvement actions based on the BBS reviews,
improving employee engagement and the quality of the
observations. The main actions areas for improvement
include:
– Increasing the percentage of coached observations to
improve the confidence and capability of observers
– Establishing observation strategies that focus on the
most important hazards
– Communicating results in an engaging way
2013
2014
2015
2016
2013
2014
2015
2016
2016
2020
The total reportable rate (TRR) is the number of injuries, including fatalities, resulting
in a lost time case, restricted work or requiring medical treatment by a competent
medical practitioner per million hours worked. In line with OSHA guidelines,
supervised contractors are reported with employees, since day-to-day management
is by AkzoNobel; independent contractors are managed by their own companies.
The Lost Time Injury Frequency Rate (LTIFR) is the number of injuries resulting in a
lost time case per million hours worked; supervised contractors are reported together
with employees since day-to-day management is by AkzoNobel.
Embedding the use of our company-wide Incident
Reporting System (IRS) facilitates the sharing of learning
from incidents (including near misses) locally, by business,
regionally or company-wide as appropriate. The IRS is
0.2
Learning from incidents
234 Sustainability statements | AkzoNobel Report 2016
an interactive database which is available to everyone
in the company, enabling them to promptly report any
incident (including near misses). The IRS provides
management with visible data, enabling the progress
of investigations and resultant actions to be monitored
through to completion. During 2016, almost 16,000
incidents (including near misses) were reported via the IRS
(2015: more than 9,500), illustrating the desire to report,
investigate and learn from near misses and giving an
increased opportunity for learning and prevention.
The main areas of learning in 2016 have led to increased
focus on:
• Avoiding injuries due to slips, trips or falls
• Preventing “line of fire” incidents
• Improving written procedures to include foreseeable
deviations
Company-wide learning from incidents is shared through:
• The publication of one-page HSE Alerts (in eight
languages)
• Webinars on specific topics, such as the prevention of
static electricity during the manufacture of coatings
• A monthly incident learning newsletter
Employee health
As well as ensuring a safe working environment, healthy
working conditions and managing illness-related
absenteeism, we also foster employee health and well-
being. Examples include the site-level industrial hygiene
programs, and the promotion and use of our health risk
appraisal tool, the Wellness Checkpoint.
• The total illness absence rate (TIAR) has improved
slightly to 2.0 percent (2015: 2.1 percent). We continue
to monitor this indicator for the whole company, aiming
to stay at a level of around 1.9 percent
decreased to 0.06 illnesses per million hours worked
(2015: 0.14). As the absolute numbers of occupational
illnesses are low, small variations in numbers can cause
large fluctuations in the OIFR. However, we will continue
to monitor and learn from all incidents
• Our health risk appraisal tool, the Wellness Checkpoint,
is appreciated and used by an increasing number of
employees and their families. By the end of 2016, more
then 17,400 people had joined the program since its
launch in 2008. During 2016, a further 8 percent of
employees joined (2015: 16,209)
Employee health
Total illness absence rate
Occupational illness rate
2013
2.1
0.14
2014
2.1
0.24
2015
2.1
0.14
2016
2.0
0.06
Wellness Checkpoint use
>13,700
>15,000
>16,200
>17,400
Total illness absence rate (TIAR) is the number of lost employee working hours,
whether work-related or not work-related, per reporting period due to all illnesses and
injuries as a percentage of the scheduled working hours per reporting period.
Occupational illness frequency rate (OIFR) is the total number of reportable
occupational illness cases for the reporting period per 1,000,000 hours worked. This
parameter is reportable for employees and supervised contractors.
Motor vehicle and
distribution incidents
Distribution and motor vehicle incidents continue to be a
risk to the safety of employees, contractors and the general
public. Most incidents occur on the road, and in countries
where enforcement of traffic regulations is still developing.
Motor vehicle incidents
2013
2014
2015
2016
Incidents with injury
Fatalities – employees
19
0
20
0
18
0
12
0
• The number of distribution incidents reduced to 43 in
2016 (2015: 49)
• The occupational illness frequency rate (OIFR) for
• Most distribution incidents (79 percent of the incidents
employees and supervised contractors has significantly
in 2016) occurred on the road, and involved
Distribution incidents
Road
Sea
Rail
Air
Off-site pipeline
Total
2013
44
2014
43
2015
44
2016
34
2
2
0
0
48
3
6
0
0
52
2
2
0
1
49
2
7
0
0
43
Incidents during the off-site (in-transit) transport and handling of raw materials,
products, samples, intermediates and waste owned by AkzoNobel, including loading
and unloading activities at ports, airports, external warehouses and storage terminals,
but excluding incidents which occur once materials are stored at external warehouses
and storage terminals.
the transportation of our products by third party
contractors
• Through our product stewardship program (see Note
14) we insist that contractors assess all risks involved
in the distribution process and take the right safety
measures. We also audit their performance related to
these requirements
• The focus on safe driving continues through our risk-
based Safe Driving program. The number of motor
vehicle incidents which resulted in injury has further
decreased to 12 (2015: 18)
• A further 800 employees globally, who each drive more
than 20,000 kilometers a year, completed the practical
hands-on defensive driving training. This brings the total
number of drivers who have received this training to
3,010, which is 99 percent of the target population
• During 2017, the remaining company drivers in this
category will be trained and the program will continue
to run with ongoing e-learning modules and practical
refresher training at least every five years
Safe Driving program
Defensive driving training
>20,000 km annually
(number of employees)
2015
2,176
2016
3,010
Ambition
2016
3,044
AkzoNobel Report 2016 | Sustainability statements
235
13
Note 13: Process safety
Process safety management
AkzoNobel’s process safety management (PSM)
framework is an integral part of our overall safety strategy.
In addition to helping manufacturing sites meet their legal
requirements, our PSM framework is an essential first step
to operational excellence.
The framework provides a structured way to assess and
manage risks to eliminate injuries and incidents related to
hazardous substances and processes. Implementation
of the framework is phased. Sites are divided into three
categories, based on their residual risk, taking into account
their inherent safety hazards and current levels of process
safety performance. Phase A sites are the most safety
critical sites, based on their residual risk.
Process Safety Management program
planning
Implemented PSM training and scanning
Implemented PSM Plan
Phase A
46
Phase B
82
Phase C
Phase D
73
16
2014
2015
2016
2017
2018
2019
• Phase D has been introduced to cover any remaining
sites, new acquisitions and research, development and
innovation locations with pilot plants
• A PSM capability benchmarking study was completed.
Our approach is broadly in line with that of other
organizations. We will continue to develop PSM
capability of both the wider PSM organization and the
key PSM roles
• The organizational structure and competency assurance
process for hazard studies were established. This is the
foundation for PSM excellence and risk mitigation
• The program to globally standardize the Management of
Change system started, with completion due in 2017
Process safety performance
During 2016, PSM leading and lagging indicators were
defined and implemented. These KPIs have replaced the
old composite PSM KPI and are aligned with international
best practice to enable effective measurement and
monitoring of continuous improvement in PSM. A process
safety event (PSE) is a loss of primary containment (LoPC)
or unsafe release, or an undesired event or condition that –
under slightly different circumstances – could have resulted
in a LoPC of a material (lagging indicators) or deteriorated
controls and disciplines that eventually could lead to a loss
of primary containment (leading indicators). LoPC is the
main process safety indicator at manufacturing sites.
• The number of losses of primary containment classified
• In 2016, Phase A sites completed implementation of
as Level 1 (highest severity) in 2016 was 16
their improvement plans according to schedule
• In order to ensure sustainable PSM framework
implementation and embedding of the PSM framework
requirements, a PSM assessment tool and independent
validation process has been developed which will be
used with the Phase A sites during 2017
• Phase B and C are on target to implement PSM
following planning
• The number of process safety events Level 3 (very minor
spills and leaks, which are readily controlled on site
and have no regulatory notification requirement) being
reported has increased by almost 100 percent to 3,422
illustrating the desire to report, investigate and learn
from these process safety near misses and giving an
increased opportunity for learning and prevention
236 Sustainability statements | AkzoNobel Report 2016
Process safety pyramid
Levels
1
2
3
4
PSE
PSE
PSE below threshold (of Level 2)
and near misses
Operational discipline
Process safety events
Loss of primary containment Level 1
Loss of primary containment Level 2
Process safety event Level 3
2016
16
122
3,422
14
Note 14: Product stewardship
Product stewardship
Priority substance management
Our ambition is to be a leading company in product
stewardship and to create business value from it by
providing safer and more sustainable solutions for
our customers.
Continuous improvement
In 2016, all businesses completed the AkzoNobel Product
stewardship continuous improvement tool (PSCIT) to
assess their level of maturity in the eight key elements
of product stewardship following the principles of
Responsible Care® and Coatings Care®. Each business
provided an improvement plan and agreed next steps
towards achieving a leading level in product stewardship.
Customer focused product
stewardship
Working with our commercial excellence and marketing
teams, we piloted our customer focused product
stewardship (CFPS) process in our Marine Coatings
business. This systematic process identifies market
segments and customers where product stewardship
issues are important and influence our customers’ choice
of product. We then meet with them to learn more about
their current and future product stewardship needs and
feedback into key business processes so that a solution
from AkzoNobel can be provided or developed. In 2017,
we will further refine and develop the CFPS process and
integrate it into company processes.
During 2016, we continued our proactive approach to the
review and management of hazardous substances in our
products and processes through our priority substance
process. Taking this approach promotes the use of safer
and more sustainable products and means we often
take action to manage potentially harmful substances
in advance of legislation, future-proofing our products
against changes in regulations.
• Between 2012 and 2015 we completed the review and
management of 204 priority substances. In total, 56
have been phased out and 148 restricted to uses that
are proven to be safe
• In 2016, we reviewed the impact of the priority
substance program to ensure the process is fully
optimized and embedded in key business processes
in the company, including innovation, raw material
procurement and commercial excellence. We also
provided key personnel with training in priority
substance management to ensure the required
risk management measures are in place at our
manufacturing sites
• The scoring methodology used in the substance
prioritization process has now been updated, taking into
account new scientific information and public concerns
over hazardous substances. A further 51 priority
substances have been identified which will be reviewed
in a second phase of the program. In 2016, we
reviewed and managed 17 of these priority substances
Priority substances in second phase
reviewed and managed
in %
Priority substances in
second phase reviewed
and managed
Ambition
2016
Ambition
2017
Ambition
2018
33
66
100
2016
33
• Examples of priority substances that were reviewed
and restricted in the second phase of the program
in 2016 are diethanolamine and imidazole. Strict risk
management measures must be followed when they
are used
We have presented our priority substances program
to stakeholders, including customers and NGOs and
investor associations, and received positive feedback
to our approach. Taking 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 onto the market.
Regulatory compliance
In addition to complying with regulations which are
in place that affect our products and processes, we
carefully monitor changes and prepare ourselves for
new regulations that will impact on our businesses. Our
company-wide regulatory information system (RIS) ensures
up-to-the-minute information relating to product safety
legislation is available to all regulatory affairs professionals
within AkzoNobel. In 2016, we were made aware of
proposals for new or modified substance management
rules in several countries in which we operate, including
the US, Thailand, Brazil and Indonesia.
Compliance with substance management
regulations
Our REACH teams are busy preparing information required
to submit for successful registration of our substances that
are under the scope of the third phase of the EU REACH
regulations. All applications for registration must be
submitted by 2018 and we have set targets to monitor our
progress. We are on target to achieve our objective.
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 rule on product stewardship.
In 2016, we worked with our customers to ensure that
all AkzoNobel products manufactured and imported
AkzoNobel Report 2016 | Sustainability statements
237
• Working with the Green Chemistry Council and
major retailers in the US, we agreed and signed the
“Joint statement on using green chemistry and safer
alternatives to advance sustainable products”
• In China, through our participation in the Association
of International Chemical Manufacturers (AICM), China
National Coatings Industry Association (CNCIA) and the
China Petroleum and Chemical Industry Forum (CPCIF),
we provided input into discussions on the introduction
of a coatings consumption tax
Product safety and regulatory
affairs capability building
We continue to build our community of product safety and
regulatory affairs (PSRA) professionals within AkzoNobel,
providing learning activities for them in line with the PSRA
curriculum. Where appropriate, we also invite employees
from other functions to training activities when PSRA
issues impact on their work. In 2016, we focused on
developing and delivering the learning activities within
Level 1 and Level 2 of the PSRA training curriculum in
all regions, including training on management of priority
substances, transport of dangerous goods, substance
management regulations in Japan, the US and the
Philippines. We also developed and piloted a Level 3
(advanced) learning activity on effective advocacy for
PSRA professionals.
PSRA capability development
in % of target group
Priority substance
management training
Ambition
2016
Ambition
2017
Ambition
2018
35
65
95
2016
50
into South Korea were reported to the government
in compliance with the new K-REACH rules. We are
also preparing to comply with the reformed substance
management rules in the US (TSCA), Brazil and Thailand.
To support our businesses in their compliance programs,
we provided training for our product safety professionals
on compliance with these regulations through the
AkzoNobel Academy.
EU REACH third phase
in %
2014
2015
2016
Ambition
2016
Ambition
2018
Progress towards
EU REACH third phase
15
23
57
50
100
Advocacy
We continue to be active in industry bodies, in public fora,
with customers and other key stakeholders discussing
product safety 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. Some notable
2016 developments are listed below:
• We identified, reviewed and prioritized issues for
advocacy where there is new legislation under
discussion that could impact on our businesses.
Key issues include endocrine disrupting substances,
nanomaterials, sensitization (substances causing an
allergic reaction), and volatile organic compounds
in China
• We continued to advocate a progressive approach to
the management of substances of very high concern
(SVHC) at the European chemicals industry association
(CEFIC)
• As a partner of the United Nations Environmental
Program (UNEP) Global Alliance to Eliminate Lead Paint
(GAELP), we continued to support the development
of legislation to phase out the use of lead compounds
from all paints
238 Sustainability statements | AkzoNobel Report 2016
15
Note 15: HSE management processes
Management systems
Operational excellence at our sites is supported by risk-
based management systems that follow and go beyond
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 certifications for their
management systems, which are subject to internal and
external audit.
External certification
in % of manufacturing sites
2013
2014
2015
2016
ISO-14001/RC-14001
OHSAS-18001/RC-18001
78
51
79
53
80
54
80
53
Maturity framework
We have a common maturity framework for measuring
HSE management progress at our manufacturing sites
through self-assessment and audit. The HSE maturity
framework is being used to drive continuous improvement.
In total, 98 percent of all sites achieved the target for 2016
of an average maturity level of 6.5, this is an improvement
of 30 percent of sites (2015: 68 percent of sites were at an
average maturity level of 6.5 or higher).
Self-assessment questionnaire (SAQ)
The SAQ, which covers all elements of the HSE
management system, continues to be the company-wide
HSE improvement planning tool. To maintain relevance to
major programs rolled out during recent years (such as the
PSM framework), the SAQ was thoroughly revised during
2014. This resulted in the average SAQ maturity staying
constant in 2015, while in 2016 there was a small increase
in the average SAQ maturity level to 7.2 (2015: 6.9).
During 2016, 57 corporate HSE audits were completed
(2015: 57); of which four were site closure audits (2015:
two), and two were reassurance audits (2015: eight) of
previously audited sites with high risk findings.
Follow-up on actions from corporate HSE audits is an
important part of the corporate HSE audit protocol.
Follow-up of high risks is supervised by the internal
audit function via the execution of reassurance audits.
Both of the reassurance audits in 2016 received the final
conclusion “acceptable”.
In order to improve the follow-up on other actions
arising from audit findings, an automated action tracking
system was introduced during 2016. The system
enables management focus on the follow-up as it tracks
actions through to closure and produces action tracking
data which is planned to be included in the operation
management reports. The SIPs include the actions to
address the gaps identified in the audits.
Learnings from HSE audits indicate that the management
of the AkzoNobel Life-Saving Rules and critical procedures
should be further improved at site level.
Our HSE management system requires each site to
develop a site safety improvement plan (SIP) annually
using the standard template. In 2016, the templates
for standardized and integrated safety improvement
plans at site and business level were implemented,
ensuring management visibility of the actions and
required resources arising from the SAQ process and the
monitoring of actions through to completion.
Self-assessment questionnaire (SAQ)
% sites at or above average
SAQ of 6.5
2013
2014
2015
2016
–
66
68
98
Average SAQ score
6.5
6.9
6.9
7.2
HSE audit
The HSE audit process combines the SAQ continuous
improvement tool with a periodic audit conducted by HSE
subject matter experts from the business, and managed
by the global internal audit function.
All sites carry out an annual self-assessment against
our corporate HSE rules and procedures and applicable
business requirements by filling in the SAQ. As well as
providing input into the corporate HSE audits, the results
are used locally to prepare site improvement plans.
Together, the corporate HSE rules and auditing create the
assurance framework.
For most sites, the audit frequency is every five years.
For sites with a high hazard rating, this frequency is every
three years.
Management audits number of audits
56
63
57
57
2013
2014
2015
2016
Safety incidents
Severe safety incidents require an independent
investigation. We investigate all safety incidents to ensure
that lessons are learned, actions are taken to prevent
reoccurrence and we continue to increase the safety of our
operations. The lessons learned from safety incidents are
shared company-wide.
We classify safety incidents based on the severity of the
outcome (Level 1 to Level 3). Level 3 safety incidents
receive the immediate attention of the Executive Committee.
Safety incidents (Level 3)
Ambition
1
0
0
0
0
2013
2014
2015
2016
2016
Level 3 safety incidents: Incidents involving loss of life, more than five severe injuries,
environmental, assets or business damage totaling more than €25 million, or
extensive reputational damage.
• There were no Level 2 or Level 3 safety incidents during
2016 (2015: 0)
• The total number of safety incidents in 2016 decreased
to 2 (2015: 12) both of which were at Level 1 (local
impact only)
• The Level 1 safety incidents included:
– An independent contractor struck his little finger with a
hammer leading to its amputation
– Ignition of flammable solid in a packing area lead to a
loss of production time
Although the number is low, these incidents reinforce the
need for continued focus on behavior-based safety and
process safety management.
AkzoNobel Report 2016 | Sustainability statements
239
Society
The social impact of our sustainability agenda goes
beyond our own employees. It also aims to improve the
well-being of those in our value chain, the communities
in which we operate and of wider society. We are not
only committed to respecting human rights throughout
our value chain, but we also use our skills and products
for sustainable projects that benefit local communities as
part of our Human Cities initiative. In addition, we recently
founded the Human Cities Coalition, bringing together
a unique coalition of partners from different sectors
with a focus on realizing Goal 11 of the UN Sustainable
Development Goals.
We maintain a pool of trained investigators (who also
have HSE or operational roles in the organization) to
ensure timely, thorough investigations of our most serious
incidents (and our high potential near miss incidents).
The investigation results in actions to prevent a recurrence,
with the lessons learned shared company-wide. Progress
and compliance with the requirements is monitored and
shared with the Executive Committee and line
management on a monthly basis.
Regulatory actions
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).
The Level 4 regulatory actions are recognized as material
for AkzoNobel.
Regulatory actions
2013 2014 2015 2016
Ambition
2016
Regulatory actions (Level 4)
0
0
0
0
0
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.
It is now more than four years since we received a Level
4 prosecution or penalty, which suggests that our people,
process and product safety programs, near miss reporting
and investigation, product stewardship and behavior-
based safety programs continue to have an effect on
reducing the number of serious injuries and significant
losses of primary containment.
HSE capability building
The Integrated Supply Chain competency framework,
proficiency levels and job profiles define the capability
requirements for managers with critical HSE responsibilities
and HSE professionals. The core development programs,
delivered through the HSE Faculty of the AkzoNobel
Academy, use a blended learning approach for line
managers, HSE professionals, senior leaders and front
line leaders with critical HSE functions in manufacturing
and non-manufacturing units. During 2016, the focus was
on developing a career path curriculum which provides
HSE professionals with insight into how they can develop
themselves via on-the-job and off-the-job learning.
In 2016, the HSE Faculty’s offering was expanded with a
new program for HSE professionals – Risk Management.
This is a next level in the HSE professional’s curriculum and
focuses on the risk management process.
• Since 2012, more than 1,390 critical leaders have been
trained in the HSE critical leaders workshop
• In 2016, 70 percent of site managers were trained in
four different sessions in Asia, the Americas and EMEA.
The blended learning approach includes direct dialog
with our most senior leaders on safety performance and
improvement plans, virtual classrooms and two face-to-
face events
• In 2017, the Asset Integrity/PSM training will be updated
and a second level training will be developed
HSE capability development
cumulative number of
people trained
2014
2015
2016
HSE critical leaders workshop
885 1,208 1,397
Site managers participated in
Hearts & Minds
–
83
130
Ambition
2016
–
123
240 Sustainability statements | AkzoNobel Report 2016
16
Note 16: Human rights
Our commitment to respect
human rights
As part of our core principles, we are committed to
respecting internationally recognized human rights in
all our operations and throughout our value chain. This
commitment is in line with the United Nations Guiding
Principles on Business and Human Rights (UNGP) and
the International Labor Organization (ILO) Declaration
on Fundamental Principles and Rights at Work. Further
support is provided by our human rights framework,
which includes policies, a governance structure, a focus
on salient issues, due diligence processes to identify and
mitigate risks, a grievance mechanism and reporting on
risks and actions.
During 2016, we continued to participate in a project
led by the United Nations Global Compact (UNGC)
Netherlands Network in partnership with Shift, Oxfam
affiliates and other Global Compact local networks.
This Global Perspectives Project, launched in 2014,
explores how to improve awareness and build capacity
in the area of human rights in four key countries –
Indonesia, Mexico, South Africa and Turkey. Senior
managers at AkzoNobel have participated in workshops
organized in Indonesia and Mexico, together with local
representatives of other companies and civil society.
They shared experiences, challenges and ways forward
to ensure greater business respect for human rights. It
has led to an updated publication and an online portal
(businessrespecthumanrights.org). The project builds
on the successful 2008-2010 Business and Human
Rights Initiative, in which several Dutch multinationals –
including AkzoNobel – collaborated to contribute to the
development of the UNGP.
Policies
Code of Conduct and directives
Our Code of Conduct outlines the responsibility we take
for avoiding the infringement of human rights, and for
remediating any human rights impact resulting from our
activities, our products, or any activities that our business
partners conduct on our behalf. The Code of Conduct
is supplemented by directives on topics such as health
and safety, anti-harassment and child labor. Our Code
of Conduct and directives apply to all employees, in all
countries in which we operate.
Business Partner Code of Conduct
We have a diverse supply chain and recognize the
essential role our business partners play in helping us
deliver our high quality and responsibly sourced products.
Our Business Partner Code of Conduct sets out the
responsible behaviors we expect from anyone we do
business with, including our suppliers, distributors and
agents. All new business partners are expected to
apply the principles laid down in the Business Partner
Code of Conduct, or apply equivalent principles.
Non-compliance with the Business Partner Code of
Conduct may lead to measures, including termination
of the business relationship.
Governance
Human Rights Committee
Our Executive Committee is responsible for ensuring that
the company operates in line with its core principles of
safety, integrity and sustainability, including its commitment
to respecting human rights. In 2016, a Human Rights
Committee was established – reporting to the Executive
Committee through the General Counsel and the
Director of Human Resources, and working closely with
the Director of Sustainability – with responsibility for
implementing and maintaining the company’s human
rights framework. The committee is cross-functional and
includes Directors of Compliance (chair), Internal Audit
(co-chair), Health Safety and Environment, Procurement,
Operations, People Development and Occupational
Health, Business Partner Compliance, the legal counsel for
human rights and the Manager of Sustainability Reporting.
In Q3, the Executive Committee and the Supervisory
Board received training on human rights.
Incentives
Sustainable performance and respect for human rights
is incentivized in that 30 percent of the conditional grant
of shares for our executives is based on AkzoNobel’s
performance in the RobecoSAM assessment over a three-
year period. This assessment includes consideration
of the company’s reporting with regard to respect for
human rights.
All employees must confirm that they have understood
and acted in accordance with our Code of Conduct in their
annual performance and development dialog.
In addition, at the end of the year, managers must confirm
through the Non-Financial Letter of Representation
process that their business was operated in accordance
with the Code of Conduct, including principles that respect
human rights. If deficiencies are noted, they must set and
implement actions to remedy them.
Salient issues
One of the first tasks of the Human Rights Committee
was to identify AkzoNobel’s salient issues. This will enable
the company to focus on areas that potentially pose the
greatest risk to human rights. Salient issues are defined by
the UNGP Reporting Framework as those human rights
that are at risk of the most severe negative impact through
a company’s activities or business relationships. With the
help of the global accountancy and advisory firm Mazars,
the Human Rights Committee mapped the severity and
likelihood of human rights risks. Four salient issues were
AkzoNobel Report 2016 | Sustainability statements
241
identified, which were approved subsequently by the
Executive Committee and reviewed by the Supervisory
Board. These salient issues are being verified with internal
and external stakeholders – such as works councils,
suppliers, customers and investors – to assess their
validity and to understand if other human rights risks may
also need to be identified as salient. In defining these
salient issues, the company has further identified the initial
areas on which to focus its resources. While that focus is
initially within our own operations, we will learn from our
findings to better inform ourselves of the issues that may
potentially also exist with our business partners. The four
salient issues and our initial focus can be summarized
as follows:
1. Health and safety in our operations and our
supply chain
Being a manufacturing company, the health and safety
of people is one of our highest priorities. AkzoNobel
has implemented a global people, process and product
safety management program, through which we strive
to ensure that the highest safety standards are applied
to our activities and sites. In addition, our Life-Saving
Rules program embeds eight key safety rules that must
be applied with zero tolerance, along with one golden
rule that all our employees are empowered to stop work
that they recognize as being unsafe. We assess the
safety of employees at our suppliers through several
processes, including the Together for Sustainability
assessments and audits, and the Supply Support Visits
program (see Note 7). In 2017, we will investigate how
to better leverage the information available through
these processes in order to understand the health and
safety risks that exist for people in our operations and
supply chain. We will continue to study the impact that
certain chemicals may have on people in our value
chain, and we will initiate a study into the impact some
of our operations may have on the communities around
us. Depending on the results of these studies and their
timing, we will take measures to avoid infringement
of human rights and address adverse human rights
impacts resulting from our activities and the activities of
parties in our supply chain contributing to our products.
2. Working conditions at our sites
Our people are essential to the success of our company.
We won’t achieve our vision of leading performance in
the markets in which we operate without an engaged
workforce that believes AkzoNobel is a great place
to work. We must therefore offer decent working
conditions, including fair working hours, reasonable
salaries and appropriate facilities, such as restrooms,
restaurants and dormitories. Through our overtime
tracking and reporting, we know that in certain parts of
the company people sometimes work long hours. We
will conduct a study into overtime to establish on the
one hand the need and desire to work longer hours, and
on the other hand the effect this may have on the health
and safety of people. We will also conduct a study into
the salaries of certain groups of employees who may be
vulnerable to low standards of living. In addition, we will
add the review of the facilities at our sites to our HSE
audits. The information resulting from these studies and
audits will help us focus our efforts on providing decent
working conditions for our workforce, in accordance
with the UNGP and ILO standards.
3. Discrimination and harassment among employees
At AkzoNobel, we strive to foster a culture of dignity
and respect, free of harassment and discrimination.
We recognize that a little over 20 percent of reports
received through our grievance mechanism (SpeakUp!)
relate to some form of harassment. We will conduct a
study into the root causes of these cases to identify any
key themes. This information will be used to adjust or
implement training and sanction standards.
4. Under-age labor in our supply chain
AkzoNobel does not employ people under the age of
16, irrespective of whether local laws provide for a lower
minimum age. We expect the same from all companies
in our supply chain that contribute to the products and
services we procure. While our information supports
that we do not employ children under the age of 16, and
while all our business partners are expected to apply
the standards explained in our Business Partner Code
of Conduct, we do not have comprehensive data to
support that child labor does not occur further upstream
in our supply chain. We recognize the leverage we
carry in part of the supply chain of our mica-based
pearlescent pigments, and we undertook due diligence
in close cooperation with suppliers and two NGOs,
namely Terre des Hommes and SOMO (the Center for
Research on Multinational Corporations). Information
regarding this child labor due diligence was published
by Terre des Hommes and SOMO in their combined
Report in March 2016. We will conduct a further study,
particularly focusing on the origin of raw materials in
our supply chain. The information resulting from this
study will enable us to plan for coaching and auditing of
parties in our supply chain, and for taking appropriate
action against non-compliance with our fundamental
principle of respecting human rights.
Due diligence
Embedding a due diligence process is at the core of
the UN Guiding Principles. We operate several due
diligence processes that help us identify and assess
human rights risks and impacts, on which we engage
and communicate. For example, our HSE audits assess
the health and safety conditions at our sites. Standarized
assessments, surveys and audits form part of the
Together for Sustainability program, which is designed
to identify and assess sustainability practices, including
human rights, in our supply chain. Our Supplier Support
Visits also help identify and address human rights risks
at certain long-term local suppliers in emerging markets.
We have developed a business partner screening process
which helps us identify human rights issues with potential
business partners who may be perceived as high risk
because of the nature of their industry, or the countries in
which they are located. In 2016, we introduced an online
Privacy Impact Assessment (PIA) tool as part of the further
implementation of our Binding Corporate Rules. The PIA
242 Sustainability statements | AkzoNobel Report 2016
helps us to assess the level of compliance with our rules
and privacy laws of applications and procedures in which
the personal data of our people, customers, suppliers and
business partners is processed.
We recognize we have more work to do to identify specific
risk areas, engage with stakeholders, act on findings and
structure actions that can address them. This will facilitate
our mechanism for self-improvement and will enable us to
build more systematic due diligence processes.
Grievance mechanism
We promote a feedback culture through communications
and training. An open atmosphere helps identify issues,
including concerns relating to respect for human rights.
The SpeakUp! grievance mechanism offers our employees,
business partners and the general public a confidential
environment in which they can raise concerns relating to
breaches of our Code of Conduct, including the human
rights reflected therein. With the launch of the renewed
Code of Conduct, the availability of the SpeakUp! process
to raise concerns was widely communicated within the
company. The results are reported every year and can
be found in the Compliance and integrity management
chapter in the Governance and compliance section.
Reporting
While we have previously reported on our commitment
to respect human rights and the various processes that
support this, this is the first year we are reporting in a more
integrated way on our human rights framework in our
annual report. Additional reporting on our human rights
framework is also available on our corporate website and
our UK Modern Slavery Act statement.
17
Note 17: Human Cities
We live in a world where rapid urbanization is a fast-
approaching fact. Today, around 50 percent of the world’s
population lives in cities. This is expected to increase to
nearly 70 percent by 2050. A new urban agenda will be
necessary to ensure that people continue to lead liveable
and loveable lives. And as neighborhoods, villages and
towns meld into megacities, how can we preserve
the identity of people and places? How can we keep our
cities “human”?
Our Human Cities initiative is an active expression of our
company purpose to create everyday essentials to make
people’s lives more liveable and inspiring. It’s everything
we do with and for society and is our commitment to
improving, energizing and regenerating urban communities
across the world.
By combining our sense of care with our people, products
and leadership in innovation, safety and sustainability, we
are helping cities to meet the many challenges they face.
We are using our products and expertise to help cities
deliver a stronger sense of community purpose, pride
and happiness.
Our ingredients to create positive change in society
Since the launch of Human Cities in 2014, many successful
projects have been completed, bringing essential
ingredients, essential protection and essential color into the
lives of people across the world. For example, the initiative
has given a sporting chance to blind and visually impaired
people in Rio de Janeiro, Brazil, as well as creating jobs
for young people in North Asia and the UK. It has also
helped to connect two secluded villages in Indonesia via
the “Bridge of Hope” for which we provided coatings and
expertise. In addition, historic landmarks such as Burkill
Hall in Singapore and the Rijksmuseum in Amsterdam, the
Netherlands, have been renovated and restored.
Through our Community Program, we’ve been
transforming communities for more than a decade, while
our global “Let’s Colour” program – which has been
revitalizing urban areas for over five years – is now strongly
linked to our Human Cities activities.
We create everyday essentials to make people’s lives more liveable and inspiring.
Essential ingredients. Essential protection. Essential color.
Human Cities
Everything we do with and for society
Product
brands
Community
Program
Education
Fund
Partnerships
Human Cities
Coalition
AkzoNobel Report 2016 | Sustainability statements
243
Positively changing urban
environments
Since the second half of 2016, Human Cities acts as an
umbrella for everything we do for and with society. This
includes the Community Program and global “Let’s Colour”
initiative. These programs have been run separately in the
past, so we’ve measured them in different ways. Therefore,
we report them separately this year. Our goal for 2017 is to
define a standard approach for measuring and managing
the overall social impact and related business benefits. The
following paragraph gives an overview of the positive impact
our new Human Cities projects had in 2016 (excluding
“Let’s Colour” and the Community Program).
During 2016 we carried out 62 additional Human Cities
projects with a total budget spend of about €2.4 million
(excluding partnerships). In total, 1,994 AkzoNobel
volunteers supported the projects with 9,818 volunteer
hours. Our products also provide a meaningful contribution
to society – we supplied around 85,000 liters of paint for
our Human Cities projects in 2016. In total, over 5.2 million
people benefited. We couldn’t have done this alone,
so we set up strategic partnerships at a cost of around
€1 million to help amplify our efforts worldwide. These
numbers and trends give an idea of the social impact we
have with Human Cities. However, we are working on
improving the way we measure and report this.
External awareness of Human Cities is steadily increasing
through media coverage, as well as social channels,
primarily contributing favorably to the reputation of
AkzoNobel.
Striking a balance to drive results
We firmly believe that companies who think and care
about the future will achieve the most success. Business
and society both stand to benefit from working together.
Studies suggest that 80 percent of people across
the globe expect businesses to pay equal attention
to business goals and societal goals (Edelman Trust
Barometer 2016). In addition, 50 percent of consumers
say they would pay more for products from a company
known for its commitment to social value (2015 Nielsen
Global Sustainability Report). Meanwhile, 50 percent of
the millennial workforce would be willing to take a pay cut
in exchange for a company purpose (Deloitte Millennial
Survey 2015), and 25 percent of people are more likely to
recommend as an employer companies that are involved
in addressing broader social issues (Edelman Trust
Barometer 2016).
We’ve already seen this trend at work within AkzoNobel,
with the results of our engagement survey having improved
for the seventh year in a row. Human Cities can help to
accelerate this by building company pride and engaging
employees in making a positive impact on society.
This means that for business, getting involved in society is
now a crucial part of reputation management, recruitment
and long-term growth. It’s been proven that companies
with a clear purpose and corporate social responsibility
strategy grow faster. Great brands are built on what
they do, not what they say. Finding a balance between
business and societal goals is an important part of running
a successful and sustainable business because it:
• Strengthens the brand and reputation of the corporate
and product brands
• Builds trust and strengthens relationships with a wide
range of stakeholders
• Opens new doors and grants earlier access to decision
makers
• Attracts and retains top talent
• Boosts engagement, motivation and advocacy among
employees
• Drives commercial benefits by contributing to organic
growth and innovation
Embedding our societal initiatives in our business strategy
is a key priority. During 2016, our Decorative Paints
business and its Coral brand launched the Unexpected
Courts project in Rio’s Santa Marta favela in Brazil. It
involves giving children the chance to test their sporting
skills in surprising spaces, through the simple but
ingenious use of paint. Several courts have been created
so far, including a walkway that has been turned into a
running track, a set of stairs and a wall that have become
a basketball arena, and a series of clothes lines and pillars
that have been transformed into a volleyball court. Projects
such as this bring color and inspiration to people’s lives
and drive the value and equity of our brands.
Towards the end of 2016, our Specialty Chemicals
business showcased the power of urban gardens at the
United Nations Habitat III conference in Quito, Ecuador,
by installing a vertical garden. We helped transform
a bleak expanse of concrete into a colorful and more
attractive space for local residents. The garden has no soil
and is based on a hydrophonic system, which uses our
micronutrients to provide essential minerals for the plants.
Meanwhile, our Performance Coatings business is busily
preparing for the 2017/2018 Volvo Ocean Race. As well
as entering the race ourselves with team AkzoNobel, we
are also supplying coatings and technical expertise to all
of the boats in the race. Human Cities activities are being
planned at each of the 12 host ports to help create more
liveable and inspiring harbor cities around the world.
The meaningful contribution we make to society is typified
by the complete portfolios of sustainable products that
we offer. Around 60 percent of what we make ends up
in cities and many of our products have a direct social
impact. For example, we produce coatings that provide
fire protection or heat-reflecting functionality for buildings.
We also supply coatings that can prevent moisture and
mold in classrooms and promote sanitary conditions on
hospital walls. We even help to create safer nurseries by
providing suppliers such as IKEA with formaldehyde-free,
lead pigment-free and solvent-free products.
244 Sustainability statements | AkzoNobel Report 2016
In addition, considerable time and effort goes into building
and maintaining strategic global and local partnerships
in order to amplify the reach of our projects, the profile of
our brands and the awareness of our company purpose.
This includes working with 100 Resilient Cities, the Johan
Cruyff Foundation, the Human Cities Coalition and the
Plan organization. Together, we can make an even bigger
positive impact on people’s lives.
The Community Program is also an easy and accessible
way for employees to contribute to the company’s
Human Cities initiative. For example, team events are very
popular and have become an annual tradition for many
departments, frequently being included in conference
agendas. They are also great for team building and help to
enhance employee engagement, as well as promote the
development of new skills and talent.
Any partnerships or projects created as part of the Human
Cities initiative reflect the principles of our Planet Possible
agenda so that we can deliver the most sustainable work
for our communities.
Programs and partnerships
Community Program
AkzoNobel’s Community Program encourages sites and
employees all over the world to use their skills and the
company’s products for sustainable projects that benefit
local communities. The program – which makes funds
available for worthwhile local projects that include hands-
on involvement – is highly valued and has become an
integrated part of the way we do business.
Cumulative Community Program involvement
Cumulative data, since 2005
Projects (number)
Volunteers (number)
Support (€ million)
14.0
11,000
15.0
13,500
16.0
16,400
16.8
20,000
2,108
2,260
2,385
2,531
2013
2014
2015
2016
During 2015, the ten most inspiring community initiatives
were selected as part of the celebrations for the
Community Program’s tenth anniversary. In 2016, these
winning teams were personally awarded their prizes by
senior management in recognition of their valuable work.
All prize money was spent on approved worthy causes
and charities.
2016 projects by region
A Europe
B Asia
C Latin America
D North America
E Other regions
93
26
13
13
1
E
C
D
B
B
A
During the course of 2016, more than 3,600 AkzoNobel
volunteers from around the world took part in 146
new Community Program projects. These included
the refurbishment and repainting of schools, as well as
upgrading buildings and facilities used by seniors and
people impacted by addiction or homelessness. Other
projects involved offering vocational training and health,
safety and environment (HSE) workshops.
A particular highlight was a team event which saw 220 of
the company’s senior executives paint outdoor furniture
and create colorful artwork which was donated to 12
Salvation Army and “Volksbond” charities in Amsterdam,
the Netherlands. A few months later, various teams of
employees revisited these locations to repaint the
benches and flower boxes that had been donated in
order to protect them against humidity and winter
weather conditions.
In Vietnam, 77 employees from Wood Coatings and
Powder Coatings participated in projects to assist orphans
and the elderly, which included helping with personal care,
painting, cleaning, cooking and planting fruit trees.
Several projects organized during 2016 were also focused
on assisting refugees. In Sweden, for example, our
employees worked alongside a number of refugees to
build pavilions made out of recyclable materials. They were
also put in contact with local organizations for participaton
in vocational training sessions and to learn more about
work opportunities. In Germany, employees worked with
migrants to repaint the doors of a refugee center, while
in the Netherlands, employees invited refugee families to
visit local museums and zoos, and set up site visits and
educational workshops.
Another project in the Netherlands involved employees
organizing a Talent Day for refugees at the AkzoNobel
Center in Amsterdam. Thirteen refugees with university
degrees attended, the aim being to provide them with the
skills needed to find a job in the Netherlands, possibly
within AkzoNobel. As a follow-up, a mentoring program
will be rolled out to assist the refugees in their search for a
job and further contribute to their development.
AkzoNobel Report 2016 | Sustainability statements
245
246Sustainability statements | AkzoNobel Report 2016“Let’s Colour”Our “Let’s Colour” program believes in the power of paint to improve people’s lives. By adding color to Human Cities initiatives, we help to improve urban environments and make people’s lives more liveable and inspiring. Together, they make an important contribution to improving and inspiring people’s lives around the world.During 2016, our employees took part in 99 “Let’s Colour” projects, impacting 3.8 million lives with 81,000 liters of paint. One notable example was the ongoing project in the Santa Marta favela in Rio de Janeiro. This year, we staged the launch of Unexpected Courts, an inventive program which encourages children to try out different sporting activities through the simple but ingenious use of paint. The project won a bronze award at the 2016 London International Awards in the design category for installations and displays.“Let’s Colour” is also focused on giving people a chance to learn a trade. We gave training to 1,577 people around the world, which will help to improve their lives by enabling them to have a sustainable profession and earn a living through paint. Education FundAkzoNobel is proud to be associated with a variety of organizations and initiatives in ways that help to 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. The cooperation was established in 1994 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. Our most recent projects in 2016 focused on economically empowering young people in China and India through vocational training and education. In China, we are working with Plan International and the Chengdu Qing Yang District Youth Employment and Entrepreneurship Center to help give 800 vulnerable young people from the Chengdu region access to stable and decent employment. In India, we are working with Plan India to help more than 500 adolescent girls from Bengaluru become empowered through better education and life skills training.Global partnershipsOur work with the Johan 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 them to create and maintain facilities in neighborhoods where children lack the possibility to play sports in a safe environment. During 2016, seven new Cruyff Courts were built using our products, including one in the US, three in the Netherlands, one in Israel and two in Spain. We also opened a Special Cruyff Court in Rio de Janeiro, Brazil, for blind and visually impaired people. It’s located on the premises of Urece, an organization which gives blind and partially sighted people the opportunity to play sports. The Special Cruyff Court was funded by the Johan Cruyff Foundation, with AkzoNobel providing the paint. Human Cities Coalition The Human Cities Coalition (HCC) is a public-private partnership of Dutch organizations from government, NGOs and business that want to make a positive difference in the world’s cities. Initiated by AkzoNobel in an effort to positively impact more people and cities around the world, it brings together more than 20 partners and 140 members to focus on realizing Goal 11 of the UN Sustainable Development Goals: Sustainable cities and communities.The projects that the HCC supports will focus on making slums more liveable, as well as addressing issues such as land rights, public spaces, drinking water, sanitation, drainage, housing and healthcare facilities. The first two HCC pilot projects will take place in Manila, the Philippines and Jakarta, Indonesia, with a trial project having already been completed. The trial project took place during the UN Habitat III Conference for Sustainable Urban Development, staged in Quito, Ecuador, in October. A special route through the city, known as the “Ruta de la Experiencia”, was revitalized to help make the area more liveable and inspiring for local residents. One of the largest Habitat III projects, it involved a combination of physical, social, economic and cultural interventions designed to leave a legacy of future growth in the area. As partner of The Rockefeller Foundation’s 100 Resilient Cities program, we are also continuing to launch projects in the flagship cities identified at the beginning of our partnership. Two game-changing projects announced in 2016 involved a partnership with Shanghai’s Jing’an District in China and an agreement with the Rotterdam Delfshaven projects in the Netherlands. These projects are focused on creating more inspirational public spaces, protecting heritage, working with school children to create more liveable neighborhoods and bringing color and protection to landmark buildings.AkzoNobel Art Foundation Our renowned Art Foundation celebrated its 20th anniversary in 2016 with the opening of the AkzoNobel Essential Art Space at our Amsterdam Center in the Netherlands. A public and multi-functional meeting place, it is open to everyone, including employees, customers, art lovers, local residents and visitors from around the world. The Essential Art Space follows through on the company’s
purpose to make cities more liveable and inspiring. It
welcomed more than 30,000 visitors this year, who were
quick to praise the quality of the art on display, as well
as being enthusiastic about AkzoNobel’s commitment. It
represents a colorful and logical connection between the
company and society.
Art reflects who we are – as a society, as individuals
and as companies. Art is stimulation, innovation,
communication and, above all, inspiration. These values –
founded on the autonomy of art and the values associated
with AkzoNobel – also reflect the company’s global Human
Cities initiative.
Our art collection is just one of the ways we help to
maintain and preserve our international cultural heritage,
as an expression of AkzoNobel’s corporate, cultural and
social responsibility. It is run by an independent, not-for-
profit Foundation, with board members from the cultural
field, as well as AkzoNobel’s senior leadership, including
CEO Ton Büchner and CFO Maëlys Castella.
More than 30,000 people have visited our
Art Foundation’s Essential Art Space at the
AkzoNobel Center in Amsterdam since it
opened in early 2016.
Pictured artworks by Bernard Frize, Alan
Uglow, Callum Innes and Yutaka Sone.
The Foundation seeks out primarily young and unknown
talent in the art world, buying ahead of the markets,
investing small while achieving great results. The
pioneering and insightful spirit of artists helps make art and
culture trailblazers for innovation.
AkzoNobel Report 2016 | Sustainability statements
247
Independent assurance report
To the readers of the AkzoNobel
Report 2016
Our conclusion
Based on our review, nothing has come to our attention
that causes us to believe that the sustainability information
included in the Report 2016 of Akzo Nobel N.V. does not
present, in all material respects, a reliable and adequate
view of:
• The policy and business operations with regard to
sustainability
• The events and achievements related thereto for the
year ended December 31, 2016
Our opinion
In our opinion, Note 1: Managing our sustainability agenda,
in the Report 2016 is prepared, in all material respects,
in accordance with the sustainability reporting criteria as
described in Note 2: Reporting principles.
What we are assuring
The sustainability information contains a representation
of the policy and business operations of Akzo Nobel
N.V., Amsterdam (hereafter: “AkzoNobel”), regarding
sustainability and the events and achievements related
thereto for 2016.
We have reviewed the sustainability information for the
year ended December 31, 2016, as included in the
following sections in the Report 2016 of AkzoNobel:
• The Compliance and integrity management section
(pages 126 to 131)
• The Sustainability statements (pages 189 to 247)
Additionally, we have audited sustainability information for
the year ended December 31, 2016, as included in Note
1: Managing our sustainability agenda on pages 191 to
194 of the Report 2016 of AkzoNobel.
The sustainability information contains several links to
external sources or websites and are not part of the
sustainability information. Therefore, we do not provide
assurance over information outside of this sustainability
information.
We believe that the assurance information we have
obtained is sufficient and appropriate to provide a basis for
our conclusion and opinion.
The basis for our conclusion
and opinion
We conducted our assurance engagement in accordance
with Dutch law, including Dutch Standard 3810N
“Assurance-opdrachten inzake maatschappelijke
verslagen” (Assurance engagements on corporate social
responsibility reports). This engagement is aimed to obtain
a combination of limited assurance on the sustainability
information and reasonable assurance on Note 1:
Managing our sustainability agenda. Our responsibilities
under this standard are further described in the paragraph
“Our responsibilities for the assurance engagement of
the sustainability information” of this Independent
assurance report.
Independence and quality control
We are independent of AkzoNobel in accordance with the
“Verordening inzake de onafhankelijkheid van accountants
bij assurance-opdrachten” (ViO, the Dutch auditor
independence regulations for assurance engagements)
and other relevant independence requirements in the
Netherlands. Furthermore, we have complied with the
“Verordening gedrags-en beroepsregels accountants”
(VGBA, the Dutch Code of Ethics for Professional
Accountants and regulation with respect to Rules of
Professional Conduct).
We apply the “Nadere voorschriften accountantskantoren
ter zake van assurance opdrachten” (RA/AA, the
Dutch detailed rules for auditing firms on assurance
engagements) and accordingly maintain a comprehensive
system of quality control, including documented policies
and procedures regarding compliance with ethical
requirements, professional standards and other applicable
legal and regulatory requirements.
Reporting criteria
AkzoNobel developed its reporting criteria on the basis
of the sustainability reporting criteria as described in
Note 2: Reporting principles on pages 194 to 197 of
the Report 2016. The information in the scope of this
assurance engagement needs to be read and understood
in conjunction with these reporting criteria. The Board of
Management is responsible for selecting and applying
these reporting criteria. The absence of a significant body
of established practice on which to draw, to evaluate and
measure non-financial information allows for different,
but acceptable, measurement techniques and can affect
comparability between entities and over time.
Inherent limitations
The sustainability information includes prospective
information such as expectations on ambitions, strategy,
plans, estimates and risk assessments based on
assumptions. Inherently, the actual results are likely to differ
from these expectations, due to changes in assumptions.
These differences may be material. We do not provide
any assurance on the assumptions and achievability of
prospective information in the sustainability information.
Responsibilities for the
sustainability information and the
assurance engagement
responsibilities of the Board of
Management
The Board of Management of AkzoNobel is responsible
for the preparation of the sustainability information, in
accordance with the sustainability reporting criteria, as
described in Note 2: Reporting principles, including the
248 Sustainability statements | AkzoNobel Report 2016
identification of stakeholders and the definition of material
subjects. The choices made by the Board of Management
regarding the scope of the sustainability information and
the reporting policy are summarized in Note 2: Reporting
principles. The Board of Management is responsible
for determining that the applicable reporting criteria are
acceptable in the circumstances.
The Board of Management is also responsible for such
internal control as it determines is necessary to enable the
preparation of the sustainability information that is
free from material misstatement, whether due to fraud
or errors.
Our responsibilities for the assurance engagement
of the sustainability information
Our responsibility is to plan and perform the assurance
engagement to obtain sufficient and appropriate
assurance information to provide a basis for our
conclusion and opinion.
Our review engagement is aimed at obtaining limited
assurance on the sustainability information. In obtaining a
limited level of assurance, the performed procedures are
aimed at determining the plausibility of information and are
less extensive than those aimed at obtaining reasonable
assurance in an audit engagement. The performed
procedures in this context consisted mainly of gathering
information from the company’s employees and applying
analytical procedures set out in relation to the information
included in the sustainability information. The assurance
obtained in review engagements aimed at obtaining
limited assurance is, therefore, significantly lower than
the assurance obtained in audit engagements aimed at
obtaining reasonable assurance.
Our audit engagement is aimed at obtaining reasonable
assurance on the sustainability information presented
in Note 1: Managing our sustainability agenda. It has
been performed with a high, but not absolute, level of
assurance, which means we may not have detected all
material errors and fraud.
Misstatements may arise due to fraud or error and
are considered to be material if, individually or in the
aggregate, they could reasonably be expected to
influence the decisions of users taken on the basis of the
sustainability information. The materiality affects the nature,
timing and extent of our review and audit, as well as the
evaluation of the effect of identified misstatements on our
conclusion and opinion.
Procedures performed
We have exercised professional judgement and have
maintained professional scepticism throughout the
assurance engagement, in accordance with the Dutch
Standard 3810N, ethical requirements and independence
requirements.
Our main review procedures include:
• Performing an external environment analysis and
obtaining insight into relevant social themes and issues,
relevant laws and regulations and the characteristics of
the organization
• Evaluating the appropriateness of the reporting policy
and its consistent application, including the evaluation
of the results of the stakeholders’ dialog and the
reasonableness of management’s estimates
• Evaluating the design and implementation of the
reporting systems and processes related to the
sustainability information in the Report 2016
• Interviewing relevant staff at corporate and local level
responsible for the sustainability strategy and policy
• Interviewing relevant staff at corporate level, responsible
for providing the sustainability information in the Report
2016, carrying out internal control procedures on the
data and consolidating the data in the sustainability
information
• Joining the internal audit of Health, Safety and
Environment management at the local production sites
in Cologne (Germany), Malmö (Sweden) and Lancaster
(United States)
• An analytical review of the data and trends submitted for
consolidation at corporate level
• Reviewing internal and external documentation to
determine whether the sustainability information,
including the disclosure, presentation and assertions
made in the sustainability information, is substantiated
adequately
• Assessing the consistency of the sustainability
information and the information in the Report 2016 not
in scope for this assurance report
• Assessing whether the sustainability information has
been prepared in accordance with the AkzoNobel
sustainability reporting criteria
• Reviewing the relevant work of the Internal Audit
function
In addition to the procedures mentioned above, we
performed the following audit procedures on Note 1:
Managing our sustainability agenda:
• Corroborating the information disclosed in Note
1 through multiple interviews with selected staff
throughout the company
• Testing the operating effectiveness of relevant key
controls related to how AkzoNobel manages its
sustainability agenda
• Corroborating supporting documentation to determine
whether the information in Note 1 is substantiated
adequately, such as management meeting agendas and
minutes and internal management information
Amsterdam, February 14, 2017
PricewaterhouseCoopers Accountants N.V.
R. Dekkers RA
AkzoNobel Report 2016 | Sustainability statements
249
Sustainability performance summary
Economic
Area
Product/service
Eco-premium solutions with downstream benefits
VOC in product (reduction from 2009)
Customer delivery efficiency index
Supplier management
Critical PR1 spend covered by supplier management framework
Product related suppliers signed Business Partner Code of Conduct
NPR2 suppliers signed Business Partner Code of Conduct
Suppliers on SSV program since 20073
Third party online sustainability assessments (TfS)4
Third party on-site sustainability audits (TfS)4
Social
Employees
Employee numbers (FTE)
Employee engagement score
Female executives
Female executive potential pool
Executive vacancies filled internally
High potential turnover
Community Program investment
People, process and product 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
Behavior-based safety program implemented
Distribution incidents
Loss of primary containment (Level 1)5
Regulatory actions (Level 4)
Priority substances with management plan
HSE management
Safety incidents (Level 3)
Safety incidents (Level 1, 2, 3)
Management audits plus reassurance audits
250 Sustainability statements | AkzoNobel Report 2016
% of revenue
% reduction
% of spend
% of spend
% of spend
number
cumulative
cumulative
number
0-5 scale
%
%
%
%
€ millions
number
/million hours
/million hours
/million hours
%
number
/million hours
% of employees
number
number
number
%
number
number
number
2012
2013
2014
2015
2016
Ambition 2020
17
10
91
69
97
80
373
–
–
18
7
92
80
96
83
392
–
–
19
5
93
83
98
80
432
539
20
19
9
94
87
98
81
455
724
65
20
n/a
96
91
99
86
1363
1053
166
20
–
–
Ambition 2018
90
98
85
–
1800
210
Ambition 2020
50,610
3.80
49,600
3.88
47,200
3.97
45,600
4.03
46,000
4.17
15
27
70
–
1.5
2
2.4
1.1
0.23
2.0
0
4.2
50
46
–
0
42
3
23
61
16
28
75
–
1.0
0
2.3
1.3
0.14
2.1
0
3.5
68
48
–
0
62
0
14
56
17
24
68
–
1.0
0
1.8
0.9
0.24
2.1
0
2.9
84
52
–
0
82
1
15
63
19
25
58
6
1.0
0
1.6
0.7
0.14
2.1
0
2.8
96
49
–
0
100
0
12
57
19
30
61
4
0.8
0
1.4
0.6
0.06
2.0
0
2.4
96
43
16
0
336
0
2
57
–
>4.20
25
30
70
<5
–
0
<1.0
0.2
–
–
0
–
100
–
–
0
1006
0
–
–
Environmental
Area
Value chain/Product carbon footprint
Total CO2(e) emissions (cradle-to-grave)7
reduction per ton of product sales (from 2012)
Carbon footprint (own operations)
Renewable energy (own operations)
Renewable raw materials
Maintain natural resources/fresh air
million tons
%
millon tons
%
% organic RM
Operational eco-efficiency footprint measure (% reduction from 2009)
footprint measure
Total energy consumption
per ton of production
Direct CO2(e) emissions (Scope 1)
per ton of production
Indirect CO2(e) emissions (Scope 2)
per ton of production
VOC emissions
per ton of production
NOx emissions
per ton of production
SOx emissions
per ton of production
Fresh water use
per ton of production
COD emissions
per ton of production
Manufacturing sites with sustainable fresh water
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
1000TJ
GJ/ton
million tons
kg/ton
million tons
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
million m3
m3/ton
kiloton
kg/ton
%
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
2012
2013
2014
2015
2016
Ambition 2020
27.5
0
4.7
33
13
13
106
5.7
1.5
82
3.2
175
3.6
0.19
1.9
0.10
7.6
0.41
283
15.3
1.6
0.09
83
203
11.0
85
4.6
71
3.8
20
1.1
2.7
0.15
26.5
26.9
24.6
23.7
2
3.9
31
13
24
99
5.6
1.1
64
2.8
158
3.1
0.17
1.3
0.08
4.6
0.26
265
14.9
1.4
0.08
85
161
9.0
65
3.6
62
3.5
17
1.0
1.9
0.11
-4
3.8
34
13
24
98
5.7
1.1
63
2.8
161
3.1
0.18
1.3
0.08
3.7
0.22
263
15.2
1.4
0.08
89
149
8.6
72
4.1
58
3.4
22
1.2
1.7
0.10
3
3.8
38
11
23
95
5.6
1.5
87
2.3
133
3.0
0.18
1.7
0.10
3.8
0.22
274
16.0
1.4
0.08
93
155
9.0
75
4.4
57
3.3
22
1.3
2.0
0.12
6
3.7
40
12
28
97
5.5
1.6
94
2.0
115
2.9
0.16
1.6
0.09
5.2
0.30
224
12.8
1.1
0.06
93
143
8.1
79
4.5
55
3.2
27
1.6
1.1
0.06
–
25–30
<4.6
45
–
40 (2017)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 PR – Product related (raw materials and packaging).
2 NPR – Non-product related.
3 SSV program updated 2016. Targets included in the Critical PR spend coverage KPI.
4 Includes TfS shared assessments/audits.
5 Definition change 2016.
6 Phase 2 started in 2016.
7 Reported from 2012. Includes impact from VOC emissions.
AkzoNobel Report 2016 | Sustainability statements
251
Index
AkzoNobel at a glance
cover flap
Employees
45, 144, 227, 228
Profit allocation
Audit Committee
Auditor’s report
99, 112
End-user segments
28, 61, 71, 81
Property, plant and equipment
177
Energy
43, 79, 219
Provisions
Automotive and Specialty Coatings
72
Executive Committee
88
Pulp and Performance Chemicals
Board of Management
Borrowings
Business Area statistics
Business performance
88, 107
Financial calendar
161
186
Financial guidance
Financial instruments
55
Financial summary
253
Raw materials
4, 38
Regional statistics
167, 175
Remuneration
184
Remuneration Committee
Carbon footprint/Cradle-to-grave carbon footprint 39, 43, 216
Functional Chemicals
82
Report of the Supervisory Board
Carbon pricing
207
Glossary
Cash, cash flow and net debt
41, 134, 161, 163
How we create value
8
Human Cities
119
Human rights
68, 78, 210
Industrial Chemicals
Industrial and Powder Coatings
254
Resource Efficiency Index
6, 40
Return on investment
8, 45, 227, 243
Return on sales
116, 227, 241
Risk management
82
73
Safety
Segment information
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
245
171
116
133
134
135
132
132
163
Innovation
Intangible assets
9, 25, 52, 58, 69, 79
Shareholders’ equity
148
Specialty Chemicals
Integrated materiality analysis
46
Stakeholder engagement
Integrated supply chain
59, 68, 78
Strategy
Internal controls
Invested capital
“Let’s Colour”
99, 115
Supervisory Board
42
Surface Chemistry
56, 246
Supplier management
Commitments
Continuous improvement
Core principles and values
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
Marine and Protective Coatings
72
Sustainable development goals (SDGs)
16, 202
25
Net debt
41, 174
Sustainability framework
22, 119
Nomination Committee
101, 112
Sustainability statements
105
Operating income
56
Outlook
41, 143
Sustainability targets
43, 90
Talent management
25, 52, 79, 228
42, 128, 174
Pensions
51, 154
Three-dimensional profit and loss (3D P&L)
42, 139, 147
Performance Coatings
66
Waste
Eco-premium solutions
39, 42, 61, 71, 81, 208
Planet Possible
24, 190, 191, 201
Water
Emissions
216, 222
Product stewardship
237
252
183
150
154, 160
83
44, 50, 218, 223
187
122, 1634
100, 112
94
5, 39, 210
4, 23, 38
4, 38
47
25, 45, 233
136
153, 172, 174
76
201
22
91, 110
83
212
192
189
5, 39
204
44, 224
224
Financial calendar
2017
April 24
April 25
April 27
Report for Q1 2017
Annual General
Meeting of
shareholders
Ex-dividend date of
2016 final dividend
April 28
May 2 – 17
May 19
May 24
Record date of 2016
final dividend
Election period cash
or stock dividend
Determination of
exchange ratio
Payment date of cash
dividend and delivery
of new shares
July 25
October 18
Report for Q2 2017
Report for Q3 2017
2018
February 8
Report for the
full-year 2017 and
the fourth quarter
253
Glossary
Adjusted earnings per share
Basic earnings per share from continuing operations
excluding incidentals in operating income, amortization of
intangible assets and income tax on these adjustments.
AGM
Annual General Meeting of shareholders.
ALPS
AkzoNobel Leading Performance System.
BBS
Behavior-based safety. A global program run at all
AkzoNobel locations.
Business Partner Code of Conduct
Explains what we stand for as a company, what we value
and how we run our business. It brings our core principles of
safety, integrity and sustainability to life and shows what they
mean in practice.
Carbon footprint
The carbon footprint of a product is the total amount of
greenhouse gas (GHG) emissions caused during a defined
period of the product lifecycle. It is expressed in terms of the
amount of carbon dioxide equivalents CO2(e) emitted.
Circular economy
An economic system which is restorative and regenerative
by design, and which aims to keep products, components,
and materials at their highest utility and value at all times,
distinguishing between technical and biological cycles.
Code of Conduct
Our Code of Conduct defines our core principles and how
we work. It incorporates fundamental principles on issues
such as business integrity, labor relations, human rights,
health, safety, environment and security and community
involvement.
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.
Earnings per share
Net income attributable to shareholders divided by the
weighted average number of common shares outstanding
during the year.
EBIT
EBIT is operating income excluding incidentals.
EBITDA
Operating income before depreciation, amortization and
incidentals.
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.
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.
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 with downstream benefits
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. Downstream
benefits include a tangible sustainability benefit for our
customers.
EMEA
Europe, Middle East and Africa.
Emerging Europe
Central and Eastern Europe (excluding Austria), Baltic States
and Turkey.
HSE
Health, safety and environment.
Human Cities
Everything we do for and with society is channeled through
our Human Cities initiative. This incorporates AkzoNobel’s
Community Program, which encourages and gives financial
support for employees to get involved, hands-on, in their
local communities; and our “Let’s Colour” program, which
uses the power of color to improve people’s lives.
Incidentals
Incidentals are special charges and benefits, results on
acquisitions and divestments, major impairment charges and
charges related to major legal, anti-trust and environmental
cases.
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.
254
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.
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.
LCA
Lifecycle assessments are the basis of our value chain
sustainability programs. Eco-efficiency analysis (EEA) is our
standard assessment method.
Loss of primary containment
A loss of primary containment is an unplanned release of
material, product, raw material or energy to the environment
(including those resulting from human error). Loss of primary
containment incidents are divided into three categories,
dependent on severity, from small, on-site spill/near misses
up to Level 1 – a significant escape.
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 and Development Dialog is AkzoNobel’s
global performance and appraisal system for employees.
Lost time injury (LTI) rate
The number of lost time injuries per million hours worked.
Full definitions are in the Sustainability statements.
RD&I
Research, Development and Innovation.
Mature markets
Mature markets are comprised of Western Europe, the US,
Canada, Japan and Oceania.
Regulatory action
We have defined four categories of regulatory action,
from self-reported issues (Level 1) to formal legal
notifications with fines above €100,000 (Level 4).
Safety incident
We have defined three levels of safety incidents. The highest
category – Level 3 – involves any loss of life; more than five
severe injuries; environmental, asset or business damage
totaling more than €25 million; inability to maintain business;
or serious 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.
Supplier sustainability framework
Business Partner Code of Conduct, Supplier Support Visits,
Key Supplier Management and Together for Sustainability are
all elements of our supplier sustainability framework.
RobecoSAM assessment
The Dow Jones Sustainability Index (DJSI) tracks the
performance of global sustainability leaders. The index
comprises the top 10 percent in each industry for the
3,400 largest companies.
Three-dimensional profit and loss (3D P&L)
The three-dimensional profit and loss methodology quantifies
and monetizes the positive and negative impacts a company
has in the economic, environmental and social dimensions. It
has been developed from previous 4D P&L pilots.
Natural resource use
We do not report specific natural resource use, except
water. We do report our use of energy and raw materials.
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.
Total reportable rate of injuries (TRR)
The number of injuries per million hours worked. Full
definitions are in the Sustainability statements.
Net debt
Defined as long-term borrowings plus short-term
borrowings less cash and cash equivalents.
Operating income
Operating income is defined in accordance with IFRS
and includes the relevant incidentals.
ROI (return on investment)
This is a key profitability measure and is calculated as EBIT
as a percentage of average invested capital.
ROS (return on sales)
This is a key profitability measure and is calculated as EBIT
as a percentage of revenue.
TSR (total shareholder return)
Compares the performance of different companies’ stocks
and shares over time. Combines share price appreciation
and dividends paid to show the total return to shareholder.
The relative TSR position reflects the market perception of
overall performance relative to a reference group.
VOC
Volatile organic compounds.
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Integrated Report 2016
AkzoNobel’s annual financial report has been combined with
the sustainability report into one Report 2016. The Report
2016 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 2016, reference is made to brands and
trademarks owned by, or licensed to, AkzoNobel.
Unauthorized use of these is strictly prohibited.
Disclaimer
In this Report 2016, 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 mainly refer to the business concerned.
Safe harbor statement
This Report 2016 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.
We welcome feedback on our Report
2016. You can contact us as follows:
Akzo Nobel N.V.
Christian Neefestraat 2
P.O. Box 75730
1070 AS Amsterdam, the Netherlands
T +31 88 969 7555
www.akzonobel.com
AkzoNobel Media Relations
T +31 88 969 7833
E media.relations@akzonobel.com
AkzoNobel Investor Relations
T +31 88 969 7856
E investor.relations@akzonobel.com
Editor
David Lichtneker
Art Director
Claire Jean Engelmann
Design and artwork
Annette Toeter
Photography
Joris Lugtigheid
Tom Elst
Printing
Drukkerij Tesink B.V.
Online report
nexxar gmbh
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www.akzonobel.com
AkzoNobel creates everyday essentials to make
people’s lives more liveable and inspiring. As a
leading global paints and coatings company
and a major producer of specialty chemicals,
we supply essential ingredients, essential
protection and essential color to industries
and consumers worldwide. Backed by a
pioneering heritage, our innovative products
and sustainable technologies are designed
to meet the growing demands of our fast-
changing planet, while making life easier.
Headquartered in Amsterdam, the Netherlands,
we have approximately 46,000 people in around
80 countries, while our portfolio includes
well-known brands such as Dulux, Sikkens,
International, Interpon and Eka. Consistently
ranked as a leader in sustainability, we are
dedicated to energizing cities and communities
while creating a protected, colorful world where
life is improved by what we do.
© 2017 Akzo Nobel N.V. All rights reserved.
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