AkzoNobel Report 201717Report AkzoNobel in 2017 at a glanceCreating two focused, high performing businesses:• Separation of Specialty Chemicals on track for April 2018; Specialty Chemicals business now reported as discontinued operations• Revenue, including discontinued operations, up 3% (up 4% excluding currency impact) at €14,575 million• EBIT, including discontinued operations, up 2% to a record €1,525 million• Operating income, including discontinued operations, at €1,396 million includes identified items of €129 million, mainly related to the transformation of AkzoNobel, including the separation of Specialty Chemicals• 2020 financial guidance* reconfirmed: Paints and Coatings 15% ROS, ROI >25%; Specialty Chemicals 16% ROS, ROI >20%Discontinued operations and held for saleAs from December 22, 2017, the Specialty Chemicals business is classified as held for sale and discontinued operations, therefore the consolidated statement of income for 2017, and for 2016, have been represented to show the results of the Specialty Chemicals business as discontinued.The Specialty Chemicals business consists of the Specialty Chemicals Business Area and certain other assets and liabilities and income and expenses, which are directly attributed to the Specialty Chemicals business from the Other activities.* Excluding unallocated corporate center costs and invested capital; assumes no significant market disruption.• Net income attributable to shareholders at €832 million (2016: €970 million)• Total dividend proposed for 2017 up 52% to €2.50 per share (2016: €1.65)• Special cash dividend of €4.00 per share paid in December 2017 as advance proceeds related to the separation of Specialty Chemicals• Net cash inflow from operating activities at €969 million (2016: €1,291 million)In the rest of this Report 2017, all financialnumbers refer to Paints and Coatings (unless otherwise stated).4,9639,6124,7639,4347923452017201614,19714,575620905574928201720161,5021,525Revenue in € millions Continuing operations Discontinued operationsEBIT in € millions Continuing operations Discontinued operationsROS in % Continuing operations Discontinued operations Total operationsROI in % Continuing operations Discontinued operations Total operations2017201610.512.110.612.59.89.42017201615.115.815.017.114.413.9 €9.6 billion revenue€905 million EBIT€1.76 earnings per share 150+ countries35,700 employeesLatin America 9%Other regions 5%North America 12%Mature Europe 33%Emerging Europe 9%Asia Pacific32%Revenue by destinationPaints and Coatings 2017 business highlightsOpened new plant in China to strengthen our global position in powder coatings, led by our Interpon brandOpened a new coatings facility in Chonburi, ThailandOpened the world’s most advanced andsustainable paint factory in Ashington, the newcenter of production for Dulux in the UKPartnered with SOS Children’s Villages to fight youth unemployment with the power of paintDouble coatings acquisition of the UK’s Flexcrete Technologies and Disa Technology in FranceChemical Island in Brazil expanded to support growth of Fibria, the world’s leading producer of eucalyptus pulpInvested in a new £13 million innovation hub in the UKPartnered with The Ocean Cleanup together with our International brand for the largest clean-up in historyAll our paints and coatings production in the Netherlands is now powered by green energyHeld investor day in London to launch our new strategyAnnounced major expansion of organic peroxides capacity in ChinaAgreed to acquire the business of V.Powdertech, the leading Thai manufacturer of powder coatingsQ1Q2Q3Q1Q2Q4Q1Q2Q4Q2Q3Q4 Report
2Featured content Connecting people and places Setting new standardsThe largest clean-up in historyCEO statement1412168Our commitment to unlocking value, accelerating growth and contributing to the success of our customers becomes stronger by the day“” ContentsAkzoNobel at a glance Cover flapHow AkzoNobel performed in 2017 4How AkzoNobel created value in 2017 6CEO statement 8Strategic performance 18Business performance 36Leadership 60Governance and compliance 80Financial information 104Sustainability statements 166Index 196Financial calendar 197Glossary 1983The ultimate test of performanceTurning great ideas into realityInspiring our world with color1805846 How AkzoNobel performed in 2017
Financial guidance
15%
>25%
Return on sales (ROS)1
Achieve return on sales (EBIT/
revenue) of 15% by 2020
Return on investment (ROI)2
Achieve return on investment (EBIT/
average invested capital) of more
than 25% by 2020
2017 progress
9.4%
13.9%
4
How AkzoNobel performed in 2017 | AkzoNobel Report 2017
The transformation of AkzoNobel into a focused
Paints and Coatings company, including
the separation of Specialty Chemicals, is
progressing and the associated one-off costs
are within expectations. Phase one of
creating a fit-for-purpose Paints and Coatings
organization (announced in October 2017)
is on track to achieve €110 million savings in
2018, contributing directly towards delivering
the 2020 financial guidance. Various measures
to mitigate current market challenges,
including increased selling prices and cost
discipline, also continue to be implemented.
1 Excluding unallocated corporate center costs; assumes no
significant market disruption.
2 Excluding unallocated corporate center costs and invested capital;
assumes no significant market disruption.
Sustainability targets (including discontinued operations)
20%
25-30%
REI
Eco-premium solutions
Maintain revenue from
downstream eco-premium
solutions of 20% of revenue
by 2020
Carbon emissions
Reduce our carbon emissions
across the value chain
by 25-30% 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
2017 progress
20%
7%
106
AkzoNobel Report 2017 | How AkzoNobel performed in 2017
5
How AkzoNobel created value in 2017
By bringing more value to our customers,
investors, employees and society in general,
we can better position ourselves for growth
and achieve our strategic ambitions.
We are actively working to reduce our
carbon footprint across the value chain
– to improve our resource productivity and
reduce our environmental footprint.
We are also creating social value by helping
our employees to develop their skills 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.
All these initiatives contribute to our financial
performance and enable us to deliver more
economic value for our investors.
Economic* value: Input
Organization
€6.3 billion
group equity
€3.3 billion
borrowings
€270 million
research and development expenses
€9.6 billion
revenue
€905 million
EBIT
€250 million
capital expenditures
€6,045 million
invested capital at year-end
We invested in 2017 to keep our
facilities in good shape and expand our
manufacturing capability.
9.7 million tons
upstream CO2(e) emissions
Environmental value: Input
45%
renewable energy
98,000 TJ
energy use
11%
renewable raw materials as %
of organic materials
€0.6 billion
energy spend
Social value: Input
Organization
45,400
employees at year-end 2017
0.2
total reportable rate of injuries
(per 200,000 hours)
* All economic data (excluding income tax paid, dividend
paid and revenue from eco-premium solutions) relates to
Paints and Coatings. All environmental and social data
relates to the combined Paints and Coatings and Specialty
Chemicals organization.
22,900
number of volunteers for Community
Program projects (cumulative since 2005)
6
How AkzoNobel created value in 2017 | AkzoNobel Report 2017
Revenue breakdown by Business Area in %
A
B
A Decorative Paints
B Performance Coatings
40
60
Outcomes
€338 million
income tax paid
€1,187 million
dividend paid
9.4% ROS
13.9% ROI
20%
of revenue from eco-premium solutions with
customer benefits, due to RD&I investments
Organization
Outcomes
11.5 million
tons
downstream CO2(e) emissions
24.6 million
tons
CO2(e) emissions cradle-to-grave
3.4 million tons
CO2(e) emissions own operations
137 kilotons
total waste own operations
31%
reduction in operational eco-efficiency
footprint (since 2009)
19%
female executives
5%
high potential turnover
Outcomes
€2,853 million
employee benefits
improvement CO2(e) per ton of sales from
7%
2012 cradle-to-grave carbon footprint
106 REI
in Resource Efficiency Index
2,636
Community Program projects
(cumulative since 2005)
AkzoNobel Report 2017 | How AkzoNobel created value in 2017
7
8CEO statementCEO statement | AkzoNobel Report 2017 CFO Maëlys Castella took a leave of absence, also for health reasons. She has been an integral part of establishing a solid financial foundation. We look forward to welcoming her back in a senior management role once she returns.The improvements Ton and Maëlys brought about were crucial and helped pave the way for the new AkzoNobel. Thanks to their vision, leadership and expertise, we established a solid structure and put key processes in place which have enabled the company to move forward and take the next step. Our new strategy – which has powerful performance and precise processes as cornerstones – is therefore a natural progression. It will make us more agile and drive the streamlining of our core capabilities – making and selling paint and striving for the best efficiency and performance in what we do. We gave full details of this new strategic direction when we officially announced our plans to create two focused, high performing companies – Paints and Coatings, and Specialty 2017 was an extraordinary year for AkzoNobel. Our people helped the company deliver volume and revenue growth while going through a time of unprecedented change. And as that period of transformation continues, our commitment to unlocking value, accelerating growth and contributing to the success of our customers – to becoming a world class, global market leader in the paints and coatings industry – becomes stronger by the day. As we forge ahead to build for the future and maximize the power of our brands, the company is sharpening its focus. We have a new management team in place; have adopted a new structure to create a simpler, faster organization ready to adapt to new industry challenges; have committed to new financial guidance of 15% ROS* by 2020 and remain as dedicated as ever to delivering for our customers. Thanks to the tireless effort of our hard-working colleagues around the world, AkzoNobel is entering an exciting new era. There were many notable events during 2017, although the milestone development was the decision to separate our Specialty Chemicals business.Another major change saw CEO Ton Büchner step down for health reasons. Ton’s contribution to the company was immense. He put in place a strong operational foundation, providing a solid platform for the future. I feel privileged to have worked with him and honored to have succeeded him. “AS WE FORGE AHEAD TO BUILD FOR THE FUTURE AND MAXIMIZE THE POWER OF OUR BRANDS, THE COMPANY IS SHARPENING ITS FOCUS”* Excluding unallocated corporate center costs; assumes no significant market disruption. Click to
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Chemicals. We have widespread shareholder support for
the direction we are taking and our focus now is on ensuring
a successful separation of Specialty Chemicals. As of
January 1, 2018, we have been operating as two separate
companies under the AkzoNobel umbrella, ready for formal
separation in April. As well as enabling Specialty Chemicals
to realize its full potential, this will create a leaner, stronger
Paints and Coatings company to take AkzoNobel forward.
This is something we have been building up to for some
time, driven by sustained operational and financial
performance improvements. The company has solid
financials and our single focus on the proud craft of making
the finest paints and coatings will enable us to make a
step-change in our performance and long-term value
creation, with a clear commitment to achieving our 2020
financial guidance.
During 2017, we received unsolicited proposals from a
competitor which undervalued AkzoNobel and raised a
number of other concerns. We carefully and seriously
considered each of these proposals, but concluded they
were not in the best long-term interests of the company,
its shareholders and other stakeholders. We also held
constructive discussions about a possible merger with
one of our peers, which ended without agreement. As
the industry continues to consolidate, we will continue to
strengthen our business model, with a singular focus on
further improvement. However, we remain open to exploring
relevant opportunities, including bolt-on acquisitions,
illustrated by three acquisitions we made in 2017 – Flexcrete
Technologies in the UK, Disa Technology in France and the
business of V.Powdertech in Thailand (see page 11).
As a focused Paints and Coatings company, we have
changed the structure of our Executive Committee and the
way we operate and work with each other – underpinned
by the roll-out of a world class Integrated Business Planning
process. Designed to support a more efficient and faster
way of working, we have reorganized the company by
separating our commercial activities (led by Chief Operating
Officer, Ruud Joosten) from those in our supply chain (led by
Chief Supply Chain Officer, David Allen), while maintaining
very close cooperation between the two. This means
on the commercial side, we will have a clearer focus on
customers, delivering on our new financial guidance and
achieving profitable growth. And by centralizing all supply
chain responsibilities – including manufacturing – into a single,
global function with dedicated experts, we can serve our
customers more efficiently by further driving standardization,
building functional excellence, leveraging expertise and
assets across our businesses and accelerating our
AkzoNobel Leading Performance System (ALPS) program.
We expect to start seeing the benefits already in 2018.
Due to this reorganization, the roles of Executive Committee
members responsible for Business Areas became redundant.
It was therefore mutually and amicably decided that
Mr. Conrad Keijzer would step down in April 2017.
In the midst of these management changes, I was delighted
to announce Maarten de Vries as our new CFO, to complete
our Executive Committee. He started on January 1, 2018,
and brings a wealth of expertise and international business
experience. I look forward to working with him.
Throughout 2017, I am proud to say we never lost focus.
We continued to deliver for our customers, develop new
and exciting products, grow the business and increase our
operational efficiency. We achieved another record year of
EBIT (including discontinued operations), despite significant
external headwinds, and delivered real organic growth,
supplemented by the three acquisitions I referred to earlier.
Specialty Chemicals achieved record results as it prepares
to become a standalone business, led by Werner Fuhrmann.
Meanwhile, the investments we are making to drive growth
were evident throughout our portfolio, and throughout the
AkzoNobel Report 2017 | CEO statement
9
9
10world, as various new sites opened and several locations were expanded – including our research and development facilities in Houston, Texas. One of the highlights was the official opening of our new Ashington, UK, site (pictured on previous page). The facility is the world’s most advanced and sustainable paint plant and is the new center of production for Dulux in the UK (see page 12 for more details). It’s physical proof of our strategy in action and I feel immensely proud of what our colleagues have achieved there. In addition, we opened a new €31 million plant for coatings in Chonburi, Thailand, a new Aerospace Color Center in Dongguan, China, and we are building the biggest powder coatings plant of its kind in Changzhou, China. The Specialty Chemicals business also expanded several sites. As well as increasing capacity for sodium hydrosulfide in LeMoyne (US), a capacity expansion was inaugurated for producing organic peroxides in Los Reyes (Mexico). In China, an important expansion was completed at the Boxing plant, while production capacity for dicumyl peroxide (DCP) was boosted at the multi-site in Ningbo. And in Gujarat, India, work started on a world-scale plant for monochloroacetic acid (MCA) as part of a joint arrangement with Atul. All these developments underline our commitment to working more closely with our customers to deliver the brands, products and technologies they need to ensure their own success. With all that happened during the year, we made sure we kept our eye on the ball, so it was very pleasing to be ranked number one on the 2017 Dow Jones Sustainability Index in the Chemicals industry. The fact we claimed top spot again (our fifth number one ranking in six years) says everything about the dedication and commitment of our employees. Our people take great pride in what they do and are always looking to deliver more by consuming less, so this was a notable achievement. We all believe putting sustainability at the heart of our business strategy leads to better long-term business results, both for ourselves and our business partners. During 2017, we put particular emphasis on increasing our energy efficiency, reducing material waste and continuing to deliver more eco-premium solutions and water-based products to our customers. Sustainability is clearly good for business. Relevant cutting-edge innovation is also key to delivering on our strategy and we’re making great progress with our product development, especially in terms of providing customers with more sustainable solutions and greater functionality. For example, in China we introduced Dulux Biocare, an interior paint which will boost the sustainable development of the country’s eco-friendly residential repainting market. We also launched Sikkens Alpha Rezisto for the professional market in several European countries. Its hydrophobic coating creates a surface which repels many common household stains. In Specialty Chemicals, notable launches included six new product applications from the Pulp and Performance Chemicals business through its Levasil (colloidal silica), Expancel (expandable microspheres) and Kromasil brands.I always like to see how people benefit from using our products, so I was very happy that our partnership with the MasterPeace organization achieved its goal of creating 100 Walls of Connection in cities around the world (in fact, the eventual total was 141). An extension of our global “Let’s Colour” initiative, we worked with artists and local residents to help create connections between groups of people who otherwise wouldn’t have come together (see page 14). I was also delighted with the success of the inaugural Imagine Chemistry innovation challenge, which attracted a lot of interest globally and is being staged for a second time in 2018 (see page 58).Our employees are our greatest asset and I want to thank the proud people of AkzoNobel for all their hard work during such a busy year. Their passion, resilience and commitment to delighting our customers has shone throughout 2017, whether they have been dealing with the challenges of Hurricane Harvey in the US, driving our continuous improvement agenda, developing new products or delivering on successfully carrying out the separation of Specialty Chemicals. Thanks to them, we now stand on the cusp of a new era. It’s an honor to be the new CEO of AkzoNobel. We are building something very special, backed by two centuries of pride and experience. We have a new organization in place; we have a compelling strategy and clear financial ambitions; we have a world class portfolio of brands and products; we command strong leadership positions in our markets and are ready to hit the ground running as we look to continue our momentum in 2018 and beyond. I am in no doubt we have the brands, the products, the people – and the passion – to deliver. Thierry Vanlancker, CEO and Chairmanof the Board of Management and Executive CommitteeCEO statement | AkzoNobel Report 2017 During 2017, our new CEO dedicated as much time as possible to visiting some of our sites around the world, meeting employees and learning more about how we work with our customers. Thierry Vanlancker pictured with former CEO Ton Büchner at the investor update held in London in April 2017. Our focus on building a stronger AkzoNobel has resulted in solid progress in recent years as we continue to leverage our size, scale and global presence to pursue selected acquisitions. This remains a firm part of our strategy. Having acquired BASF’s Industrial Coatings business in 2016 – a sizeable deal which added around 2% inorganic revenue growth (AkzoNobel including Specialty Chemicals) – we made three further bolt-on acquisitions in 2017. Key to the success of these deals has been the streamlining of our M&A processes, while we have also standardized our integration approach to ensure we effectively deliver the targeted synergies.Our acquisition criteria are compelling and simple. The targets must deliver a number one or two position in the market, and/or offer new customer value propositions or new technologies. In addition to strategic fit, the economics need to be supportive of the increased financial guidance we shared in April 2017. All recent acquisitions exceed these criteria comfortably, delivering sustainable, long-term value for all our stakeholders. Details about our 2017 deals can be found below.Disa Technology (France)Specializes in the manufacture and sale of self-adhesive vinyl, polyester and polycarbonate films used on aircraft, vehicles, agricultural machinery and other equipment. Acquiring the business means we can offer our customers a broader product portfolio while complementing our own position in liquid coatings and films for those markets. Flexcrete Technologies (UK)Manufactures industry-leading technical mortars and high performance coatings for the protection and repair of concrete substrates. The deal will allow us to expand our customer offering in several key industrial markets, including downstream oil and gas and chemical processing, commercial infrastructure, power, water and waste water, and mining and mineral processing. By leveraging our global presence and existing distribution channels, we can also sell these products more efficiently to our customers.V.Powdertech (Thailand)Supplies a range of powder coatings products for domestic appliances, furniture and general industrial applications. The acquisition will bring new technologies and services to complement our global technology portfolio and business in market segments such as architectural and automotive coatings. The transaction includes all relevant technologies, patents and trademarks, as well as a high quality manu-facturing plant close to Bangkok. The deal means we are strongly positioned to capitalize on the growth in demand for powder coatings in South East Asia.These acquisitions show that we are taking part in the con -solidation of the paints and coatings market in a “string of pearls” strategy. We’ve also shown that we don’t shy away from looking at value-adding, transformative opportunities. ACQUISITIONS SHOW NEW STRATEGY IN ACTION 11AkzoNobel Report 2017 | Strategic performance Strategic performance | AkzoNobel Report 201712 SETTING NEW
STANDARDS
When we opened the world’s
most advanced and sustainable
paint plant in Ashington (UK) in
September 2017, it was described
as a vote of confidence in the
Northern Powerhouse and a
demonstration of the rock solid
relationship between the Dutch
and UK economies.
For AkzoNobel, however, the state-of-the-art factory
– the largest ever global investment in the company’s
paints activities – was proof of our growth strategy
in action.
“Ashington secures AkzoNobel’s future as a manufacturer
of cutting-edge products, including paints that improve
air quality, increase energy efficiency and protect
against bacteria,” said Ruud Joosten, Chief Operating
Officer of Paints and Coatings. “We have taken the best
technology available globally, improved on it and put it all
under one roof, ensuring that this new facility represents
a significant step forward for the whole industry.”
The new center of production for Dulux – a global mega-
brand and the UK’s leading decorative paint brand – the
facility uses a variety of renewable energy sources,
including photovoltaic cells and a biomass boiler which
burns wood pellets from managed forests in the UK.
It’s estimated that the carbon footprint per liter of paint
produced at the site will be 50% lower when compared
with facilities at the plants it is replacing. This makes it
an excellent example of how we apply our sustainable
business imperative of resource productivity in practice.
The factory will be capable of producing enough paint
each year to redecorate every living room, bathroom
and kitchen in the UK. A highly agile production system
means the plant can produce paint across the entire
AkzoNobel range, which includes Dulux, Dulux Trade,
Cuprinol, Polycell, Hammerite and Armstead.
Ashington will also house the second Dulux Academy in
the UK. The customized training center is designed to
provide painters and decorators with the expertise and
know-how they need for business success. The first
academy, in Slough, has already trained 1,600 people.
Click to
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“WE HAVE TAKEN THE BEST
TECHNOLOGY AVAILABLE
GLOBALLY, IMPROVED
ON IT AND PUT IT ALL UNDER
ONE ROOF”
AkzoNobel Report 2017 | Strategic performance
13
Strategic performance | AkzoNobel Report 201714 CONNECTING PEOPLE AND PLACESFor more information, please visit: www.masterpeace.org/walls-of-connection AkzoNobel Report 2017 | Strategic performance15Ever since we launched our partnership with the MasterPeace organization in early 2017, people have started to fall in love with walls all over again.In cities in particular, we increasingly see invisible walls creating separation and detachment. Our initiative with global peace movement MasterPeace is helping to overcome that barrier.Known as Walls of Connection, it was a simple idea, but proved to be brilliantly effective. We got artists and local residents together to create designs which were then painted onto a wall in the local community. In total, 141 walls have been painted in 31 cities, helping to make people’s lives more liveable and inspiring.The beauty of the project is that it has enabled connections to be made between groups of people who otherwise wouldn’t have come together. Launched at the Albeda College in Rotterdam, the Netherlands, the event made a lasting impact on many of those who were involved. The young people who took part embraced the opportunity to connect and overcome division and drew praise for how energized they were.Some commented that they literally saw the barriers between people collapse before their eyes. And it’s something which has the power to create lasting change. All the artworks that have been created around the world are a permanent visual reminder which people can see every day and be proud of.Another great thing about our MasterPeace partnership is that it provided an opportunity for our employees to get involved and contribute to the societies in which we operate. In fact, employee involvement is one of the main criteria we use in setting up most of our partnerships, driven by the fact that collaborating with others is a vital part of what we do.Working with MasterPeace was rewarding for all involved. Together, we’ve helped many people to break down barriers and become connected in a very special way. You could say that walls really did come tumbling down.“Let’s Colour” Walls of Connection has demonstrated the power of paint brands, such as Dulux, to uplift communities and make living spaces more liveable and enjoyable. In fun and surprising ways, these walls have brought communities together in celebrating unity, kindness and connection. Nearly 400 artists and more than 5,200 people (including 259 AkzoNobel volunteers) joined in during 2017. Click to watch video Strategic performance | AkzoNobel Report 201716Our oceans are under attack – from a small but powerful enemy – and the statistics are staggering. More than five trillion pieces of plastic currently litter the seas around the world, with eight million tons being added every year. Some even claim that by 2050, there will be more plastic than fish in the sea – unless something is done about it.Fortunately, that’s exactly what’s happening. Back in 2013, young Dutchman Boyan Slat had become so concerned about the state of the world’s oceans that he decided to set up The Ocean Cleanup with the express aim of ridding the seas of plastic.Fast forward to today and his vision is edging ever closer to reality. A floating system is being developed which could clean 50% of the Great Pacific Garbage Patch (located half-way between Hawaii and California) in five years. The technology is now at the prototype stage, with the first operational clean-up system scheduled to be deployed in the Great Pacific Garbage Patch by mid-2018.To help protect the equipment from the harsh marine environment, AkzoNobel has partnered with The Ocean Cleanup and will provide biocide-free coatings technology for all its devices for the next five years. As the world’s largest producer of marine coatings – with a maritime heritage stretching back more than a century – the partnership offers a natural showcase for the company’s expertise.The most high profile use of AkzoNobel’s International range of products will be on the specially designed floating clean-up system which will collect the waste plastic. The system employs U-shaped screens to channel floating plastic to a central point. The concentrated plastic can then be extracted THE LARGEST CLEAN-UP IN HISTORYand shipped to shore for recycling into durable products. It’s designed to capture plastic pieces of all sizes, from one centimeter right up to massive discarded fishing nets, which can measure tens of meters. By removing the plastic while most of it is still large, it can be prevented from breaking down into dangerous micro-plastics.“The ocean plastic pollution problem is a very big one, and big problems require big solutions,” explains Boyan. “This has been my mission since I started The Ocean Cleanup and, with the help of many partners, we have come a long way. After all, don’t we all want a future that is better than the present?” The Ocean Cleanup’s systems will be equipped with an impenetrable
screen to catch the sub-surface debris. This will allow sea life to safely pass
underneath the screen with the current. The system will be protected by
biocide-free Intersleek products, which are already helping to make
the shipping industry more sustainable by reducing fuel consumption and
cutting emissions.
Click to
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AkzoNobel Report 2017 | Strategic performance
17
Strategy
Our Sikkens brand has come a long way since Wiert Willemszoon Sikkens opened a small paint and varnish works in Groningen, the Netherlands, in 1792. Now established as a world class paints and coatings brand, its unrivalled quality and diverse product range means it’s a favorite among professional painters, as well as being a leader in the car refinishes market. In 2017, Sikkens Alpha Rezisto wall paint was launched in several European countries. Featuring unique Stainshield Technology, its hydrophobic coating creates a surface which repels many common household stains. 19AkzoNobel Report 2017 | Strategic performanceStrategic performanceStrategic performanceIn 2017, AkzoNobel announced its strategic intention to create two focused, high performing companies – Paints and Coatings, and Specialty Chemicals – to drive a step-change in growth and value creation and enable both businesses to become more agile, while accelerating profitability.Our strategy 202017 financial performance 24How we created value in 2017 26Risk management 31 20Strategic performance | AkzoNobel Report 201720Our strategyIn 2017, we announced the decision to create two focused, high performing companies – Paints and Coatings, and Specialty Chemicals – with separation due to take place by April 2018. Pursuing this strategy will drive a step-change in growth and value creation and enable both businesses to become more agile, while accelerating profitability. Increased financial guidance was also announced for the two new businesses. The creation of two focused, high performing companies is the logical next step for AkzoNobel. With strong financial and operational foundations having been put in place in recent years, now is the time for us to achieve our full potential and deliver a step-change in long-term value creation by separating our Paints and Coatings, and Specialty Chemicals activities.Our focused strategy for Paints and Coatings will accelerate growth and profitability, while increasing returns to all our stakeholders. We are creating a fit-for-purpose organization with clearer customer focus, continued cost discipline, a performance culture and simplified ways of working. Our financial guidance for this refocused business is 15% return on sales1 and more than 25% return on investment2 by 2020. See pages 21 and 22 for further details.Our world class Specialty Chemicals business has been on a dual-track process, with two possible separation scenarios – legal demerger or private sale – still being considered as this Report 2017 was being published. The business has developed a single, clear road map to deliver its 2020 financial guidance4 of 16% return on sales and more than 20% return on investment. See page 23 for further details.2020guidance ROS1 15% ROI2 >25%Strategy: Create two focused businesses Separation within 12 months Dual-track process Focused Paints and Coatings strategyStrong financial and operational foundationAccelerating sustainable growth and profitability Clearer customer focus Fit-for-purpose organization and processes €150 mln savings per year from continuous improvementIncreased shareholder returns: 52% higher dividend for 2017 €1bln special cash dividend Vast majority of net proceeds returned3Paints and Coatings1 Excluding unallocated corporate center costs; assumes no significant market disruption2 Excluding unallocated corporate center costs and invested capital; assumes no significant market disruption3 Specialty Chemicals separation4 Based on reported figures, excluding unallocated corporate costs and other carve-out adjustments which are expected to lead to downward adjustments of ROS and ROI. Exchange rates from April 2017. The clear focus for AkzoNobel
Paints and Coatings is to become
the preferred choice for customers
and grow faster than relevant
markets. This will ensure we
further strengthen the market
positions we have in all our
geographic regions.
In order to support this, we have put a new Executive
Committee structure in place designed to not only drive
operational synergies and standardization, but also leverage
expertise across the business. To enable a more efficient and
faster way of working, we have separated our commercial
activities (led by Chief Operating Officer, Ruud Joosten) from
those in our supply chain (led by Chief Supply Chain Officer,
David Allen), while maintaining close cooperation between
the two (see page 38 for more operational insight).
On the commercial side, this new structure will enable a
clearer focus on our customers, delivering our new financial
targets and achieving sustainable, profitable growth. To
ensure maximum customer focus and agility, our paints
and coatings activities have been consolidated into eight
business units from the start of 2018, all reporting to the
Chief Operating Officer directly.
Meanwhile, by centralizing all supply chain responsibilities
– including manufacturing and procurement – into a single,
global function with dedicated experts, we can further drive
progress across a number of key areas. We can achieve
faster standardization, build functional excellence, leverage
scale and expertise across our businesses and accelerate
our ALPS continuous improvement program.
To help connect these teams and drive delivery, we
are rolling out Integrated Business Planning across the
At our investor update held in London in April, we gave full details of the new strategy for the company – including the separation of
Specialty Chemicals – and announced updated financial guidance for 2020.
company. This will provide the heartbeat for achieving
alignment and delivering a common operating plan. It will
further drive efficiency, improve transparency and be the
driving force to help us lower the cost of getting products
to our customers. Operational excellence and continuous
improvement programs also remain at the heart of our plans
across all functions – we aim to realize €150 million a year in
savings from continuous improvement, which will contribute
significantly to achieving our 2020 financial guidance.
In addition, we have introduced a new role of Chief Techno-
logy Officer to sharpen our medium to long-term innovation
road map and drive opportunities closer to our customer
needs. One of the key responsibilities of this role is to help
realize synergies across Paints and Coatings and drive
clearer benefits from our innovation efforts, including building
on our increasing focus on digital business innovation.
Going forward, we will continue to develop our world
class portfolio of brands and products – including Dulux,
International, Sikkens and Interpon – with a focus on
sustainable and digital solutions which will help bring us
closer to our customers. Remaining open to exploring
relevant opportunities, including bolt-on acquisitions, also
continues to be part of our strategy.
By creating a high performance, fit-for-purpose organization
with a clear and single focus, we intend to accelerate
our growth momentum and enhance profitability. We are
committed to increasing returns to shareholders, while
continuing to invest in growth, creating sustainable value
for all our stakeholders to become a truly global paints and
coatings leader.
AkzoNobel Report 2017 | Strategic performance
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21
22Strategic performance | AkzoNobel Report 201722Our focused strategy for Paints and Coatings is designed to accelerate growth and profitability. This means becoming the number one choice for customers.By returning to our paints and coatings roots – established more than two centuries ago – we are adopting a laser sharp focus to achieve 15% return on sales* by 2020. Success will be found in streamlining our core capabilities – making and selling paint – and striving for the best efficiency and performance in what we do. We aim to set the standard, be first choice for customers and shape the industry. To help us achieve our ambitions, we have launched a “Winning together” transformation program which will make the most of the focus we now have in our company. The program is based on the following four value drivers:Passion for paintWe are reigniting our passion for making and selling paint. The pride we take in the products and services we deliver and our deep understanding of customer needs will help us stay ahead of the competition – establishing us as the number one choice. Putting a world class Integrated Supply Chain organization in place will drive improvements in quality, service and efficiency as we continue to anticipate current and future needs. This will be supported by relevant, focused innovation to ensure everyone benefits from our products and services.Precise processesIntegrated Business Planning will be the way we operate. We will get the waste out of our key end-to-end processes – including smooth hand-offs with our Global Business Services (GBS) organization – to ensure we rigorously execute simple and standardized processes. We will leverage a single Enterprise Resource Planning (ERP) and systems platform and use reliable, real-time information for decision-making. Proud people We believe in fostering a trusted workforce with the right values and a winning mindset. We intend to accelerate opportunities for the ample talent we have around the world. We are building a single, strong and diverse global team for a focused, high performing Paints and Coatings company. One which takes pride in living our core principles and being the best at making and selling paint in our chosen segments. Paints and CoatingsWe have launched phase one of a transformation program which is based on four value drivers. Powerful performanceWe are adopting a laser sharp focus to achieve 15% return on sales* by 2020. A high performance culture will accelerate our pace of improvement. We will remain focused on margin improvement and will always look to deliver more by consuming less. We will combine our commitment to lowering fixed costs – building on our track record of continuous improvement – with frugal procurement. For every action we will ask ourselves: “Will it speed up the journey towards our 15% ROS* by 2020?”Passion for paintProud peopleWinning togetherPrecise processesPowerful performance* Excluding unallocated corporate center costs; assumes no significant market disruption. Specialty Chemicals
Ready to unleash its full potential
as a standalone company,
the focus for Specialty Chemicals
is on accelerating growth and
creating value. Our strategy is
focused on capturing profitable
growth with our customers
and continuing to deliver
on targets and beyond with our
continuous operational excellence
drive. Post-separation, we will
offer additional step-change
growth opportunities to unlock
further value.
Specialty Chemicals is a world class business, evidenced
by our safety record and solid financial performance. Our
unique portfolio, commitment to continuous improvement
and strong customer relationships have helped us achieve
high profitability and leadership positions throughout our
businesses, with 80% of revenue coming from number one
or two positions. Given our strong presence in high growth
markets, discipline in execution and strong culture focused
on results, we are well positioned for future success
(see page 66 for more details on the separation process).
Accelerating growth
Our key customers are winning in growth markets and we
aim to grow with them. We are managing our margins to
better adapt to changing raw material prices while analyzing
our portfolio to fine-tune our products, customers and
prices. Strong focus on commercializing our existing new
product introduction pipeline, expanding our growing range
Accelerating
growth
&
Operational
excellence
April 2017
guidance for 2020*
ROS 16%
ROI >20%
+
Step-change
growth
opportunities post-
separation
Strategy to deliver on commitments and
achieve full potential with additional growth
* Based on reported figures, excluding unallocated corporate costs and other
carve-out adjustments which are expected to lead to downward adjustments of
ROS and ROI. Exchange rates from April 2017.
of eco-premium solutions and co-developing products with
customers will play a key role in accelerating our growth.
Continued focus on operational excellence
We have a strong track record of improving profitability.
By maintaining our commitment to operational excellence,
we will build on these achievements. Continuous and
thorough analysis of our sites and production processes
will debottleneck and free up resources to run our sites to
their fullest potential. Embedding standardized processes,
continuous improvement tools and clear targets throughout
our organization will enable us to continue to improve our
fixed and variable costs, while Integrated Business Planning
will help us reduce working capital costs. This combination
of operational excellence and operating leverage will result
in higher margins and ensure attractive ROIs as per our
2020 guidance. The focus on further optimization goes
hand in hand with our unwavering commitment to safety for
our employees and the communities in which we operate,
and our belief that focusing on sustainability is simply the
smartest way to do business. We will work to maintain
our leadership position in Health, Safety, Environment and
Security performance and continue to drive the shift from
fossil fuels to renewable sources of energy, such as wind
power and biomass.
Investments to spur a step-change in growth
As a standalone company, we are well-positioned to make
strategic investments with attractive returns tailored to
the needs of our customers and the markets in which we
operate. We have identified and prioritized investments for
the next five years that will allow us to continue our success
and grow post-separation. These opportunities range from
capacity expansions in growth markets to collaborations
with start-ups and universities designed to spur innovation.
We also plan to further invest in the development of more
eco-premium solutions. In addition to organic growth
opportunities, we envisage bolt-on acquisitions in selected
areas that will enable us to truly take our growth ambitions to
the next level.
AkzoNobel Report 2017 | Strategic performance
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23
2017 financial performance
Paints and Coatings
Specialty Chemicals
Return on sales (ROS)
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.
• Focus on growth is delivering, with volume up
• Positive impact of continuous improvement and cost
control
• Various measures to mitigate current market challenges,
including increased selling prices and cost discipline,
continue to be implemented
Return on investment (ROI)
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.
• EBIT was impacted by higher raw material costs, partly
offset by increased selling prices, continuous improvement
and cost control
• Average invested capital of the Paints and Coatings
organization increased slightly to €6.5 billion
Return on sales (ROS)
Profitability increased, with higher volume and cost savings
more than compensating for raw material price inflation and
adverse currencies.
2020 guidance*** 16%
Return on sales (ROS) development
EBIT/average invested capital in %
13.2
13.8
13.9
13-16.5
2016
2017
Return on investment (ROI)
2020 guidance* 15%
Return on sales (ROS) development
EBIT as % of revenue
2020 guidance** >25%
2020 guidance*** >20%
Return on investment (ROI) development
EBIT/average invested capital in %
Return on investment (ROI) development
EBIT/average invested capital in %
9.8
9.8
9.4
9-11
14.0
14.4
13.9
13-16.5
17.9
19.1
13.9
13-16.5
2015
2016
2017
2016-2018
2015
2016
2017
2016-2018
2016
2017
2016 is represented to present the Specialty Chemicals business as
discontinued operations.
* Excluding unallocated corporate center costs; assumes no significant
market disruption.
2016 is represented to present the Specialty Chemicals business as
discontinued operations.
** Excluding unallocated corporate center costs and invested capital; assumes no
*** Based on reported figures, excluding unallocated corporate costs and other carve-
out adjustments which are expected to lead to downward adjustments of ROS and
ROI. Exchange rates from April 2017.
significant market disruption.
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24
Strategic performance | AkzoNobel Report 2017
2017 sustainability performance*
*Including discontinued operations.
Eco-premium solutions
During 2017, sales of eco-premium solutions with customer
benefits totaled 20% of our revenue. We aim to maintain
eco-premium solutions at a sustainable 20% of revenue
through 2020 by constantly innovating.
The eco-premium portfolio is dynamic, as some solutions
have stopped being classified as eco-premium due to
competitive offerings having caught up. At the same time,
new solutions have been introduced to the portfolio.
Another 21% of our products met the eco-performer criteria
in 2017, having clear sustainability features and being at
least as good as mainstream alternatives.
Cradle-to-grave carbon
footprint
In 2017, cradle-to-grave carbon footprint per ton of sales
further reduced to 7% below the 2012 baseline.
Climate change risks and opportunities are assessed via our
risk management process, aligned with recommendations of
the Financial Stability Board (FSB) Task Force on Climate-
related Financial Disclosures (TCFD). We manage potential
business risk of a regulated price on carbon, leading
to higher raw material costs, by working with suppliers
to manage their carbon footprint, embedding carbon
information at raw material level in formulating systems and
adopting an internal carbon price in investment proposals
(see Notes 5 and 6 of the Sustainability statements).
We also set a value chain carbon reduction target and
committed to carbon neutrality by 2050. We are capitalizing
on increased demand for low carbon solutions and shifting
our portfolio to low VOC water-based paint.
Resource Efficiency Index
(REI)
The Resource Efficiency Index measures gross margin over
carbon footprint, charting our long-term drive for margin
growth decoupled from resource constraints.
In 2017, our volume grew in all areas. We also integrated an
industrial coatings business acquired from BASF. As a result,
our carbon footprint increased slightly, even though our
emissions per ton of product went down. Combined with a
lower gross margin, the Resource Efficiency Index equaled
106, compared with the 2012 baseline of 100.
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
20
25-30
100
98
96
113
112
106
0
2
-4
3
6
7
2012
2013
2014
2015
2016
2017
2020
2012
2013
2014
2015
2016
2017
2020
2012
2013
2014
2015
2016
2017
For more details on our sustainability performance, please refer to the
Sustainability statements.
AkzoNobel Report 2017 | Strategic performance
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25
How we created value in 2017
By bringing more value to our
customers, investors, employees
and society in general, we
can better position ourselves
for growth while accelerating
profitability.
Economic value
Financial overview
Revenue up 2% (up 4% excluding currency impact),
mainly due to volume growth and acquisitions, partly offset
by unfavorable currency and price/mix effects. Volumes
2% higher; up 7% for Decorative Paints, down 1% for
Performance Coatings due to adverse conditions in the
Summary of financial outcomes
In € millions
Revenue
EBIT
Operating income
ROS %2
OPI margin %
Average invested capital
ROI (in %)2
Capital expenditures
Net debt
∆%
2
(2)
(11)
20161
2017
9,434
9,612
928
923
9.8
9.8
6,422
14.4
278
1,252
905
825
9.4
8.6
6,494
13.9
250
1,951
Number of employees
36,300
35,700
Revenue development in % versus 2016
Increase
Decrease
2%
-1%
3%
-2%
2%
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
33
32
12
9
9
5
Net income from continuing
operations
Net income from discontinued
operations
Net income attributable to share-
holders
Earnings per share from total
operations (in €)
Adjusted earnings per share from
continuing operations (in €)
Adjusted earnings per share from
total operations (in €)
538
443
(18)
432
389
Revenue in € millions
970
832
(14)
Decorative Paints
Performance Coatings
3.87
3.31
2.38
2.56
4.15
4.40
5,955
5,665
5,775
Net cash from operating activities
1,291
969
4,007
3,835
3,898
1 Represented to present the Specialty Chemicals business as discontinued operations.
2 ROS% = EBIT/Revenue. ROI (in %) = 12 months EBIT/12 months
average invested capital.
2015
2016
2017
26
26
Strategic performance | AkzoNobel Report 2017
It is expected to take several quarters before the necessary
mitigating impact of these measures is fully realized.
EBIT in € millions
Decorative Paints
Performance Coatings
EBIT
EBIT at €905 million (2016: €928 million), impacted by higher
raw material costs, partly compensated by increased selling
prices, continuous improvement and cost control.
• In Decorative Paints, EBIT was 2% lower, due to adverse
currency effects. Steep increases in raw material costs
were offset by continuous improvement and cost control
• In Performance Coatings, EBIT was 12% lower, impacted
by higher raw material costs and lower volumes, mainly
due to adverse conditions in the marine, and oil and
gas industries, partly compensated by continuous
improvement and cost control
• EBIT in Other activities improved due to lower corporate
costs, including one-off items, as well as lower pension
and insurance related costs
Operating income
Operating income was negatively impacted by identified
items totaling €80 million, mainly related to the
transformation of the Paints and Coatings organization
and legal items. The identified items impacted operating
income in Other activities, as well as Decorative Paints and
Performance Coatings.
In 2016, operating income was negatively impacted by
identified items totaling €5 million, including acquisition and
integration related costs of the acquired Industrial Coatings
business, asset impairments and adjustments to post-
retirement provisions.
792
759
669
345
357
351
2015
2016
2017
Cash flows and net debt
Operating activities in 2017 related to continuing and
discontinued operations resulted in cash inflows of €969
million (2016: €1,291 million).
Profit for the period was impacted by identified items related
to the new strategy to create a focused, high performing
Paints and Coatings business, and to the separation of the
Specialty Chemicals business.
In 2017, a €500 million bond was launched at attractive
terms, with a two-year maturity, at a coupon of three months
Euribor plus 0.2% mark-up, floored at zero percent.
At December 31, 2017, net debt was €1,951 million, versus
€1,252 million at year-end 2016. The increase is mainly
due to the €1 billion special cash dividend and the share
repurchase program.
marine, and oil and gas industries. EBIT at €905 million
(2016: €928 million), due to higher raw material costs,
partly offset by increased selling prices, continuous
improvement and cost control. ROS at 9.4% (2016: 9.8%).
ROI at 13.9% (2016: 14.4%).
Revenue
Revenue up 2% (up 4% excluding currency impact) and
in both Business Areas, mainly due to volume growth and
acquisitions, partly offset by unfavorable currencies and
price/mix effects.
• In Decorative Paints, revenue was up 2% (up 4%
excluding currency impact), driven by strong volume
growth, partly offset by adverse currencies and price/
mix effects. Volumes were up 7% overall, with positive
developments in all regions
• In Performance Coatings, revenue was up 2% (up 4%
excluding currency impact), mainly due to the acquired
industrial coatings business, partly offset by adverse
currencies. Volume growth for most segments and regions
was more than offset by lower volumes in the marine, and
oil and gas industries
Acquisitions
The impact of acquisitions on revenue was 3% for AkzoNobel
and 5% for Performance Coatings.
• In Q4 2017, we completed the acquisition of the business
of V.Powdertech Co., Ltd., the leading Thai manufacturer of
powder coatings
• In Q3 2017, the acquisitions of Flexcrete Technologies Ltd.
and Disa Technology (Disatech) were completed
• In Q4 2016, the acquisition of BASF’s Industrial Coatings
business was completed
Raw material price development
Raw material prices in 2017 were higher compared with the
previous year. We are taking appropriate measures to deal
with higher raw material prices in an inflationary environment.
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27
Invested capital
Invested capital at year-end 2017 totaled €6.0 billion (year-
end 2016: €10.3 billion).
Eco-premium solutions*
We achieved 20% of total sales from eco-premium solutions
with customer benefits, in line with our 2020 target of 20%.
Adjusted earnings per share in €
4.02
4.15
4.40
Invested capital at year-end 2017 was impacted by the held-
for-sale accounting of the Specialty Chemicals business.
Another 21% of sales met the eco-performer criteria, having
clear sustainability features and being at least as good as
mainstream alternatives.
Allocation of 2017 capital expenditures
of €250 million in % (2.6% of revenue)
For more details, see Note 1 of the Sustainability statements.
*Including discontinued operations.
Dividend
Our policy is to pay a stable to rising dividend. In 2017,
an interim dividend of €0.56 per share (2016: €0.37), with
the option to elect stock dividend, was paid. We will
propose a final dividend of €1.94 per share, making a total
2017 dividend of €2.50 (2016: €1.65) per share, up 52%.
A €1 billion special cash dividend was also paid on
December 7 as advance proceeds for the Specialty
Chemicals separation.
2015
2016
2017
Net financing income and expenses
For the full-year, the net financing income and expenses
decreased, mainly due to lower interest on provisions.
Income tax
Full-year effective tax rate for continued operations was
33% (2016: 28%), impacted by US tax reform, several
adjustments to prior years and de-recognition of deferred tax
assets due to the Specialty Chemicals separation. Effective
tax rate going forward is expected to be 27%.
Dividend in €
Income tax paid in € millions
2.50*
261
285
338
1.55
1.65
2015
2016
2017
* Proposed. Excludes special
cash dividend of €4.00
per share paid as advance
proceeds related to the
separation of Specialty
Chemicals.
2015
2016
2017
Outlook
Headwinds experienced during 2017, including higher raw
material costs and adverse effects from foreign currency, are
projected to continue in 2018, especially during the start of
the year.
We anticipate ongoing positive developments for Decorative
Paints in all regions, particularly Asia. Trends for Performance
Coatings are expected to be positive for most segments
and regions, while still challenging for Marine and Protective
Coatings.
A Decorative Paints
46
B Performance Coatings 54
B
A
Innovation
We continue to invest in research, development and
innovation to help us fulfill future customer needs and fuel
our targeted growth in revenue share of eco-premium
solutions with customer benefits.
Innovation investments
research and development expenses in € millions
Earnings per share total operations in €
347
257
270
3.95
3.87
3.31
2015
2016
*
2017
* 2016 is represented to
present the Specialty
Chemicals business as
discontinued operations.
2015
2016
2017
28
28
Strategic performance | AkzoNobel Report 2017
We continue implementing various measures to mitigate
current market challenges, including increased selling prices
and cost discipline. Our “Winning together – 15 by 20”
strategy will create a focused Paints and Coatings company
and deliver our 2020 guidance.
Operational eco-efficiency program
The focus of the operational eco-efficiency program is to
increase efficiency in the use of raw materials and energy
and decrease emissions and waste in our own operations. It
is an important way to drive out cost.
Employees
45,400 at year-end 2017
In 2017, we further improved our eco-efficiency, resulting
in an improvement of 31% since 2009, with significant
improvements on the individual eco-efficiency parameters,
such as waste, VOC, carbon, NOx and SOx emissions.
For more details, see Note 7 of the Sustainability statements.
Waste
Effective raw material management helps to reduce waste
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 5%, while total waste volume was down by
4%.
Employees by Business Area in %
at December 31, 2017
A Decorative Paints
32
B Performance Coatings 44
C Discontinued operations 21
D Other
3
D
C
A
B
Safety
The number of reportable injuries reduced by 27% compared
with 2016, while the injury rate is now at the target level set
for 2020 (0.20 per 200,00 hours worked).
For more details, see Note 7 of the Sustainability statements.
Lost time injuries and contractor injuries also continued to
go down.
Environmental value*
Cradle-to-grave carbon footprint
Cradle-to-grave carbon footprint is an important measure
of resource productivity. Carbon footprint per ton of sold
product has reduced 7% since 2012. Emissions from our
own production are 9% lower than in 2016.
We continued to work with our suppliers and have increased
sales of paints with a lower carbon footprint in Asia.
For more details, see Note 6 of the Sustainability statements.
Energy
The energy we use at our sites contributes about 15% to our
cradle-to-grave carbon footprint. Renewable energy is an
important aspect of the improvements required to reduce our
carbon footprint.
The proportion of renewable energy in our operations
increased to 45%.
For more details, see Note 6 of the Sustainability statements.
Raw materials
A considerable proportion of our environmental footprint
results from the raw materials we buy, with most of the
bio-based materials exhibiting lower footprints.
Social value*
Employees
At year-end 2017, the number of employees decreased by
1% to 45,400 people (year-end 2016: 46,000 people).
In 2017, 11% of all our organic raw materials came from
bio-based (renewable) sources.
For more details, see Note 5 of the Consolidated financial
statements.
For more details, see Note 6 of the Sustainability statements.
*Including discontinued operations.
For more details, see Note 9 of the Sustainability statements.
Programs
During 2017, we carried out 332 societal projects with a total
budget spend of about €3 million and the support of 4,821
AkzoNobel volunteers.
In addition, we supplied 148,237 liters of paint for our social
projects during the year.
For more details, see Note 11 of the Sustainability
statements.
AkzoNobel Report 2017 | Strategic performance
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29
Risk management
Doing 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 Board of Management and the Executive
Committee are 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 framework
and risk appetite
Our risk management framework is in line with the Enterprise
Risk Management – Integrated Framework of COSO and
the Dutch Corporate Governance Code, and provides
reasonable assurance that our business objectives can be
achieved and our obligations to customers, shareholders,
employees and society can be met.
Clarity on risk appetite, along with the boundaries that
determine the freedom of action or choice, is provided to
all managers and differs per objective area and type of risk:
strategic, operational, financial and compliance.
For more information on our risk management framework,
visit: www.akzonobel.com/risk-management-framework
Enterprise
Risk Management
process
Risk identification
and assessment
Risk profile
Risk response
per risk profile
Actions
Risk profile +
Risk response
Supervisory
Board
Executive Committee
Top 10 risks + Risk response
Business Areas/Corporate
functions/Countries
Top 10 risks + Risk response
Business units
Top 10 risks + Risk response
Areas of major risk exposure
(businesses, projects, sites etc.)
Top 10 risks + Risk response
Enterprise
Risk Management
reporting
Risk consolidation
Risk transparency
AkzoNobel Report 2017 | Strategic performance
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31
Integrated materiality diagram30Strategic performance | AkzoNobel Report 201730We have updated our materiality analysis following a holistic review of major risks, issues and opportunities, fully aligned to our strategic focus areas. The rationale behind this integrated annual exercise is to ensure we have programs in place to capitalize on key opportunities, as well as mitigation plans that address key risks.The materiality analysis is not a static exercise. This year, we added a number of new topics, while the level of importance of some existing topics changed from last year. We also reduced the number of key risks for added focus. For example, we have added shareholder dissent as a risk due to possible concerns being raised about our strategy and/or performance. As you will read in this Report 2017, we have been working hard to improve shareholder relations and ensure we maintain a continued and constructive dialog. From a sustainability perspective, value selling and resource productivity are now the most important opportunities for driving short and long-term value for our stakeholders. The materiality review has shown that our Code of Conduct and strategic actions are addressing all the updated key opportunities and risks. It also highlighted that our three categories (General business, Sustainability, and Financial and regulatory risks) have links and overlaps, underlining our integrated approach. The way we have depicted the materiality analysis in the above diagram has changed from previous years. In 2016, we used an indicative representation, but this year we are displaying the actual links between categories for increased clarity and transparency. Managing our key opportunities and risks in a holistic way continues to make sense in an ever more complex and dynamic world.Decreased global growth rate/ Management override of controlsRisk of fraud in revenue recognitionRecoverable goodwill/intangible assets post-acquisitionsPension valuationsTax position and contingenciesValuation legal/environmental claimsgeo-political turbulencesMarketing/sales capabilityCompetition/customer pressureRaw material price shocksMissing out on consolidationInnovation/technologyForeign exchangeShareholder dissentResource productivityClimate strategySupplier sustainabilityValue sellingEconomic performancePeople, product and process safetyFinancial and regulatorySustainabilityGeneral business risksStrategic priorities
Risk management
Doing 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 Board of Management and the Executive
Committee are 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 framework
and risk appetite
Our risk management framework is in line with the Enterprise
Risk Management – Integrated Framework of COSO and
the Dutch Corporate Governance Code, and provides
reasonable assurance that our business objectives can be
achieved and our obligations to customers, shareholders,
employees and society can be met.
Clarity on risk appetite, along with the boundaries that
determine the freedom of action or choice, is provided to
all managers and differs per objective area and type of risk:
strategic, operational, financial and compliance.
For more information on our risk management framework,
visit: www.akzonobel.com/risk-management-framework
Enterprise
Risk Management
process
Risk identification
and assessment
Risk profile
Risk response
per risk profile
Actions
Risk profile +
Risk response
Supervisory
Board
Executive Committee
Top 10 risks + Risk response
Business Areas/Corporate
functions/Countries
Top 10 risks + Risk response
Business units
Top 10 risks + Risk response
Areas of major risk exposure
(businesses, projects, sites etc.)
Top 10 risks + Risk response
Enterprise
Risk Management
reporting
Risk consolidation
Risk transparency
AkzoNobel Report 2017 | Strategic performance
31
31
Medium-term risks
Risk management in 2017
Enterprise risk management is a company-wide activity,
under the responsibility of the Board of Management and the
Executive Committee, which ensures we focus on the areas
of major risk exposure.
During 2017, we held 84 enterprise risk management
workshops. They identified around 1,700 unique risk
scenarios, which were prioritized by responsible manage-
ment teams and functional experts. The outcomes of all risk
analyses are included in risk profiling and trend analysis and
shared by managers across the company at different levels.
Our initial focus is on major risks that may impact
achievement of our strategy in the next three-to-five years
(medium-term risks). We also recognize there are relevant
risk factors beyond the five-year horizon that could impact
our strategy (long-term risks). Both risk categories feature in
this chapter on the understanding they are not exhaustive
lists. There may be current risks the company has not fully
assessed, or that are currently identified as not having a
significant impact, which could, at a later stage, develop into
a material impact.
As well as risks listed in this section, our 2017 risk landscape
changed due to the decision to separate Specialty
Chemicals, and the actions of an activist shareholder.
The separation of Specialty Chemicals is not without risk.
We have, however, assessed a complete set of risks and
mitigating measures which we believe adequately address:
• All aspects – legal, operational, human and economic – of
the path to separation
• The options to divest or demerge
• The challenges that lie beyond the separation for the
Specialty Chemicals, and Paints and Coatings businesses
During 2017, we intensified our discussions with
shareholders. We will continue to develop this, and our
communication with other stakeholders.
32
Strategic performance | AkzoNobel Report 2017
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
• Global economy and the geo-political context
• 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
Global economy and the geo-
political context
The world’s geo-political situation remains unpredictable
and, despite an improved economic outlook, we continue
to operate in highly competitive markets that require us
to carefully manage cost and complexity and develop a
good understanding of end-user segments. Failure in this
area could have an immediate impact on market share and
margins and 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 to further
standardize core functional processes in all regions
• Further deploy our commercial excellence programs and
more sustainable product solutions to capture organic
growth
• Develop alternative business models – e-commerce,
partnerships with start-ups
• Have contingency plans prepared for a select number
of scenarios, dealing with geographical or segment
slowdowns
33AkzoNobel Report 2017 | Strategic performance33External - OperationalProduct liabilityHigh impact product liability claims, while unlikely, could follow from the use of former, current or new technologies and compounds.Mitigating actions• Quality improvement programs across the company• Product stewardship and regulatory affairs integrated in RD&I, HSE&S and sustainability agenda• Tailored insurance coverage for product liability claimsExternal - Operational Environmental risks and liabilitiesDue to the nature of our business, we use – and have used – potentially hazardous compounds 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 costs of regulatory compliance and claims. Mitigating actions• HSE&S principles are embedded in our training programs and work ethic• Contingency plans and assignment arrangements are in place to mitigate material operational risks• Mandatory annual environmental liability reviews are conducted• Corporate directives cover recurring risk categories • Environmental standards and regulations are integrated in plant design• Provisions for environmental clean-up cost or indemnifications are recognized against earnings • Innovation efforts to remain at the forefront of new, sustainable product introductionsExternal - StrategicInternational operations As a global business we are exposed to a variety of risks, many beyond our control, such as unfavorable geo-political, social or economic developments and developments in laws, trade policies, regulations and standards. Our ambition to grow the business across the globe will further expose us to these risks. Mitigating actions• Strategically spread activities geographically and serve many sectors • Carefully monitor the political, economic and legislative conditions across the globe• Refer major investment decisions to Executive Committee• Combine implementing international compliance standards with local transparency and accountabilityExternal - StrategicStrategic moves in our value chainAn accumulation of strategic moves (horizontally and/or vertically) impacts our competitive position and/or increases the vulnerability of operations. Further consolidation renders acquisitions more expensive, makes possible anti-trust implications larger and the required synergy targets more difficult to achieve. Mitigating actions• Competitive intelligence analysis of (new) competitors, customers and suppliers• Strengthen M&A and integration capabilities• Enhance pipeline of viable market and technology opportunities for mergers and acquisitions, focusing on strategic rationale • Pro-actively explore M&A outside auction processesExternal - OperationalSourcing of raw materials and energy Prices for key raw materials and energy can be volatile, are affected by economic conditions and regulations and have a direct impact on margins. In addition, there is a non-level playing field on a global level (e.g. shale gas, national policies, subsidies), which affects our competitive position. The chart below shows our relative spend on these key raw materials, excluding energy. 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, demand forecasting and margin-impact assessment• Our Supplier Sustainability Program is embedded in our sourcing strategy, selection and management process to ensure compliance of critical suppliers, while also driving continuous improvements. We are also active in several industry groupsBreakdown of total raw material spend* in % A Additives 15B Chemicals & intermediates 22C Latex & monomers 9D Pigments & colorants 4E Packaging 10F Resins & precursors 23 G Solvents 8H Titanium dioxide 9 FEABCDEFGH* Total operations. • Centrally monitor access control processes and identity
External - Financial
Fluctuations in exchange rates
External - Operational
Information technology
The company’s longer term IT strategy means we
increasingly rely on fewer consolidated critical applications,
including industrial process control systems. As the number
of digital exchanges of business transactions is increasing,
the non-availability of IT systems, or unauthorized access,
can have a direct impact on our business processes,
competitive position and reputation.
Mitigating actions
• Focus on measures such as redundant design, back-up
processes, virus protection, anti-spoofing, advanced
forensic scanning and mission critical infrastructure
support
and access enhancements
• Improve and test end-user awareness and behavior via
cyber-security campaigns and e-learning
• Roll-out of the new IM security standard for industrial
control systems to all 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. A number of defined benefit
pension and healthcare schemes from the past are generally
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
34
34
Strategic performance | AkzoNobel Report 2017
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
responsible for any liabilities arising out of non-compliance
with these laws and regulations.
Mitigating actions
• Implementation of Business Partner Compliance
Framework
• Monitor and adapt to significant changes in the legal
systems, regulatory controls, customs and practices in the
countries in which we operate
• We practice proactive pension risk management and
• Remain dedicated to minimizing AkzoNobel’s compliance
continuously review options to reduce the financial and
demographic risks associated with all our defined benefit
plans, for example through hedging interest rates, inflation
and mortality risks via investment in longevity and bulk
annuity policies
risk by fostering an open and transparent culture,
continuously educating and training 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
With operations in more than 80 countries and reporting in
euros, we are exposed to currency fluctuations.
Internal - Strategic
Mitigating actions
• A centralized treasury function managing foreign currency
exposure (see Note 24 of the Consolidated financial
statements)
• Risk reduction through local-for-local production
• Strive for natural hedges in our main currencies to reduce
transactional exposure
External - Compliance
Complying with laws and
regulations
Our international footprint exposes us to (continuously
expanding) laws and regulations. We may be held
Innovation, identification and
successful implementation of
major transforming technologies
Our success and leadership positions depend on the
sustainable growth of our business through research,
development and innovation in order to foster the adoption
of major transforming technologies.
Mitigating actions
• Prioritize funding for technology road maps and innovation
strategies
• Enhance our global open innovation capability
• Invest in promising venture funds
• Explore acquiring/partnering with innovative start-ups
Long-term risks
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. We monitor the
development of these risks as part of our risk management
process and include them in our overall strategic
assessment.
Internal - Operational
Internal - Operational
Attraction and retention
of talent
Ensuring continued alignment between a rapidly evolving
business environment and qualifications, capabilities and
talent of our workforce across the globe is an increasingly
complex process. At the same time, it determines to a large
extent the success of our organization.
Management of change
To support the implementation of our strategy, we continue
to implement important changes in our operating model
across the entire company.
Mitigating actions
• Focus on core principles and values to set desired
The most significant long-term risks we observe are:
• Public concern over specific substances and their
Mitigating actions
• Strengthen AkzoNobel’s employee value proposition,
behavioral changes in motion
• Embed project and change management in the curriculum
of the AkzoNobel Academy
based on the company purpose and brand
• Roll out principles of commercial excellence in all levels of
• Further improve talent and succession action planning
• Fully embed leadership behaviors in our Performance and
the organization
• Combine sales and marketing under the responsibility of
Development Dialog annual appraisal
the newly created role of Chief Operating Officer
• Accelerate the adoption of a new organizational model
through the creation of a Planning and Transformation
Office
• Continue the journey of creating fit-for-purpose support
functions to drive synergies and standardization and
leverage expertise at a company-wide level
In May, our high-end Levis paint brand was officially launched onto the market in China
at a special event staged in Shanghai. The introduction is designed to further strengthen
the company’s competitiveness in the Chinese decorative paint market.
• Deploy the AkzoNobel Academy to the full extent
Internal - Operational
Production process risks
Production process risks arise from areas such as personal
health and safety and process and product safety, and can
impact our organization and reputation and cause business
continuity risks.
Mitigating actions
• ALPS is being implemented to drive continuous
improvement and operational excellence
• Operate under state-of-the-art safety requirements for our
manufacturing and RD&I sites (e.g. AkzoNobel People,
Process and Product Safety Common Platform)
• Ongoing business continuity planning and risk transfer
arrangements
environmental impact (such as hazardous substances,
plastics/synthetic polymers, fossil fuels), could result in
major changes in our markets
• Emerging technologies – including downstream process
technology, digital and cybercrime – transforming our
markets, the application of our products and supply
chains and triggering the introduction of an ever more
stringent legal and regulatory environment
• Failing to listen to, and engage with, an ever-widening
field of stakeholders and address their social and
environmental concerns, leading to reputation and
financial damage
• Not making sustainable business imperatives an integral
part of economic value creation, due to variable maturity
of markets, as well as real and perceived differences in
risks and opportunities
• Increased instability due to a rise in national sentiment,
increased public pressure to move away from
globalization, increased geo-political tensions and failure of
national and supranational governance, having a negative
impact on business and an effective global response
to climate change, or man-made environmental damage
in general
AkzoNobel Report 2017 | Strategic performance
35
35
Business performance
Established in 1931, the Dulux brand (a com bination of the words “durable” and “luxury”) is now officially recognized as a mega-brand and is a firm favorite for consumers in countries around the world. The first paint brand to advertise on TV, Dulux continues to innovate, develop exciting colors and introduce new functionality. In 2017, new product launches included Dulux Wood Charm – a water-based woodcare product for the Asian market – and Dulux Biocare, an interior paint which will help boost the sustainable development of China’s eco-friendly residential repainting market. 37The following section gives a detailed summary of how each of our businesses performed during 2017. Information on market characteristics is also provided. Paints and Coatings 38Specialty Chemicals 52Business performanceBusiness performanceAkzoNobel Report 2017 | Business performance3737 Paints and Coatings
Things are rarely dull when you are part of a rapidly
consolidating global industry sector and so it proved in 2017.
It will no doubt be remembered as one of the most eventful
years in AkzoNobel’s long history, but along with that came
new opportunities.
between business needs and operational and supply chain
delivery. We’re convinced it’s the natural next step in our
evolution as we remain committed to working closely with
our customers and firmly establishing ourselves as the
number one choice.
Operating in such a dynamic, competitive environment had
its challenges, and while we experienced difficulties in certain
markets, others proved more favorable due to a combination
of regional demand, changing consumer preferences
for bio-based products and ongoing technological
advancements. The strength of our brands and products also
drove overall performance as we leveraged our scale and
continued to invest in water-based technologies and digital
solutions to support the growing needs of our customers.
Our clear strategic focus ensured we made steady progress
with our growth ambitions during the year, securing three
acquisitions. In July, we announced a double deal for the
UK’s Flexcrete Technologies Ltd. and French manufacturer
Disa Technology (Disatech). Flexcrete manufactures industry-
leading technical mortars and high performance coatings
for concrete, while Disatech supplies innovative adhesive
films used in the aerospace, transportation and industrial
equipment sectors. This was followed in November by the
“WE ARE CREATING A WORLD-
LEADING COMPANY WHICH
IS WELL POSITIONED TO
ACCELERATE GROWTH AND
ENHANCE PROFITABILITY”
The Paints and Coatings organization is therefore looking
ahead with confidence. We are creating a world-leading
company capable of driving faster business planning and
are well positioned to accelerate growth and enhance
profitability. We have a clear strategy to grow our business,
develop our world class brands and color expertise and
continue driving our digital and innovation agendas. And we
have the organization in place to enable optimal alignment
acquisition of the business of V.Powdertech Co., Ltd., the
leading Thai manufacturer of powder coatings (see page 11).
One of the main 2017 highlights was the opening of our
new site in Ashington in the UK – the largest ever global
investment in the company’s paints activities. The world’s
most advanced and sustainable paint plant, it’s the new
center of production for our global mega-brand, Dulux,
During 2017, we introduced a
new organizational set-up for
Paints and Coatings in preparation
for AkzoNobel’s future as a
focused paints and coatings
company. Ruud Joosten (pictured
right) became Chief Operating
Officer, while David Allen (left)
was appointed Chief Supply
Chain Officer. Part of a major
strategic restructuring, David is
now responsible for making our
paints and coatings, while Ruud
is responsible for marketing and
selling them. Here, they reflect on
the year’s events.
38
Business performance | AkzoNobel Report 2017
which is also the UK’s leading decorative paint brand. We
have taken the best technology available globally, improved
on it and put it all under one roof, ensuring this new facility
represents a significant step forward for the whole industry.
It’s also home to our second Dulux Academy, set up to help
the UK painting and decorating industry meet the ever-
growing demand for skilled professionals. In addition to
Ashington, we opened a new €31 million coatings plant in
Chonburi, Thailand, our ninth production site in South East
Asia. We also inaugurated a new Aerospace Color Center
in Dongguan, China, which will offer improved and faster
service to existing and new customers.
The ability of these new plants to serve our customers
faster and more reliably is crucial, which is why our new
organizational structure is designed to not only drive
operational synergies and standardization, but also leverage
expertise across all our activities. The key to maximizing the
power of our brands, accelerating our operational excellence
benefits and working towards a lower cost to serve is
Integrated Business Planning. It will be a driving force linking
the needs of the business with our manufacturing capability
Our new Aerospace Color Center in Dongguan, China, will offer improved and faster
service to new and existing customers.
Ruud and David pictured with senior management from the Paints and Coatings businesses.
and will be pivotal to ensuring we lower the cost of getting
our products to our customers on time, in full.
This change in the way we operate will be fundamental to
creating a fit-for-purpose Paints and Coatings organization
(see pages 21 and 22 for more details). It will also create an
even stronger platform for us to accelerate the introduction
of new products and technologies – because meeting
customer needs is at the heart of what we do. In 2017, we
made solid progress in this area, most notably in creating
global concepts such as Easycare – a highly durable interior
consumer paint featuring unique stain repellent technology –
which repels liquid spills, making them easier to wash away.
It’s being implemented in more and more countries and
underlines our strategy of using our global leverage to win
locally. For professional painters, we launched Sikkens Alpha
Rezisto – which repels many common household stains – in
numerous European countries. In addition, a new generation
of BPANI (BPA non-intent) coatings for beer and beverage
packaging was introduced, providing customers with more
AkzoNobel Report 2017 | Business performance
39
Partnerships are another way of sharing knowledge and
know-how, and two other developments in 2017 – both
closely related – enabled us to highlight our long-established
maritime heritage. In June, we joined forces with The Ocean
Cleanup for the largest clean-up in history. For the next
five years, we’ll be providing our advanced, biocide-free
International coatings technology for their devices and
equipment. The main aim during that time will be to remove
half the plastic in the Great Pacific Garbage Patch. Our
International and Awlgrip coatings also feature on all the
boats in the Volvo Ocean Race, which started in October
and is due to finish in June 2018. As the world’s largest
producer of marine coatings, with a maritime heritage
stretching back more than a century, these two partnerships
are a natural fit for AkzoNobel and perfect showcases
for our expertise.
Another great partnership saw us team up with global peace
movement MasterPeace. With walls so often being seen as a
symbol of division, we worked with local artists and residents
to paint 141 “Let’s Colour” Walls of Connection in over 30
cities around the world. We also widened our partnership
with SOS Children’s Villages to include six new countries
in 2018, further highlighting our ongoing commitment to
contributing to the societies in which we operate.
From a financial perspective, it was a mixed year, with
positive developments in some areas being offset by a series
of negative impacts. Although raw material prices remained
high, it’s clear that our strategy to grow the Paints business
is working, while in Coatings, aside from the challenges
presented by the downturn in the marine, and oil and gas
industries, we performed well in our other markets and made
good progress while continuing to develop new and exciting
products for our customers.
as Turkey and Russia, while Latin America stabilized after a
difficult period. There is ongoing uncertainty in the UK, but
we command a strong leadership position with our Dulux
brand and have signalled our intent to continue supplying
the best possible products for our customers by opening the
new world class plant in Ashington.
In Coatings, the Specialty, Powder and Automotive
businesses all performed well, with Powder in particular
benefiting from its global leadership position. The business
continues to grow, with new sites under construction in India
(Thane) and China (Changzhou). In fact, the Changzhou
powder plant is the biggest of its kind in the world. It was a
very different story for our Marine and Protective Coatings
Launched in November, Carbeat is an industry first digital solution for automotive repair
shops which gives a real-time overview of the repair process and offers significant
benefits.
business, due to the depressed shipbuilding industry and the
sluggish oil and gas segment.
There were two main developments with regards to the
Paints business during 2017. On a positive note, we saw
volume growth in many parts of the world, especially Asia.
However, the high price of raw materials impacted our
results. We saw some recovery in European countries such
As we move forward into a new era for the organization,
we will continue to look for synergies in terms of sales,
marketing and innovation excellence. There are clearly
many benefits to be gained from learning from each other
in areas such as color, product development, sales,
It’s estimated that the carbon footprint per liter of paint produced at our new
Ashington site in the UK will be 50% lower, compared with facilities at the plants
it is replacing.
sustainable and innovative solutions. Automotive Coatings
also deployed its 10,000th Automatchic Vision device for
perfect color matching.
Meanwhile, another digital innovation – our Visualizer
decorating app – continued its remarkable success story.
Downloaded nearly 20 million times to date (with 192 million
visualizations being made in 2017 alone), it allows people
to play with color ideas and see what rooms will look like,
before anything is applied to the wall. Regularly upgraded
with new features, it’s just one of the ways in which we share
our global expertise in color and design with customers and
consumers (see page 47).
Other examples of how we worked closely with customers
this year to successfully deliver advanced solutions include
Carbeat, an industry first digital tool for vehicle repair
shops which offers significant benefits by giving a real-
time overview of the repair process. We also supplied the
victorious Eindhoven University of Technology team in the
World Solar Challenge with high performance coatings and
technical expertise.
40
Business performance | AkzoNobel Report 2017
During 2017, we teamed up with celebrity hot rod builder Dave Kindig, who hosts
popular TV show Bitchin’ Rides. Together, we designed and launched Modern Classikk,
a new custom color line of automotive paints. The range includes 26 eye-catching colors
that have never been seen on the road before.
marketing and digital innovation. For example, the work
being done in Paints to convert to water-based products
is clearly something we can transfer to Coatings. Similarly,
pricing excellence initiatives from Coatings will be
mirrored by initiatives in Paints. It will all contribute to
achieving our 2020 financial guidance of 15% ROS* and
ROI** in excess of 25%.
The most important factor in making all of this work will
be our colleagues around the world, who take great
pride in what they do. By working together as a single
company with a single objective, we can realize our
** Excluding unallocated corporate center costs; assumes no significant
market disruption.
** Excluding unallocated corporate center costs and invested capital; assumes no
significant market disruption.
vision of achieving a world class, customer-driven digital
supply chain which operates at top quartile operational
and financial performance levels. We are engaging all our
employees to deliver on the sustainable business imperatives
– value selling and resource productivity – by incorporating
sustainability in their personal objectives.
It’s an exciting time for the company and we’re confident that
our passion for paint and focus on powerful performance will
ensure we deliver for all our stakeholders.
AkzoNobel Report 2017 | Business performance
41
€3.9 billion revenue€351 million EBIT€2.7 billion invested capitalEconomic value: OrganizationEnvironmental value: InputOrganization 2.5 million tonsupstream CO2(e) emissionsEmployee safety is a key priority and we are actively driving towards a reduction in the number of incidents.14,400 employees at year-end 20170.2 total reportable rate of injuries (per 200,000 hours) €112 million capital expendituresDuring 2017, we invested in increased asset integrity in both growth and mature markets, while continuing to invest in selected growth projects, such as the Ashington (UK) state-of-the-art paint factory, officially inaugurated in September 2017, and the Langfang plant in China. TotalExchangeratesAcquisitions/divestmentsPrice/mixVolume-3%0%-2%2%7%Revenue development in % versus 2016 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 drive resource productivity to make the most of valuable raw materials and reduce environmental impact, while strengthening our business.1,800 TJenergy useDecorative Paints value creation summary 2017As 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 201742 Revenue breakdown by business unit
in %
C
B
A
A Decorative Paints Europe, Middle East and Africa 54
B Decorative Paints Latin America
C Decorative Paints Asia
13
33
Outcomes
Outcomes
9.0% ROS
12.5% ROI
27%
of revenue from eco-premium solutions with
customer benefits, due to RD&I investments
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
16%
improvement CO2(e) per ton of sales from
2012 cradle-to-grave carbon footprint
30 kilotons
total waste
Outcomes
€676 million
employee benefits
13.1 million
lives positively impacted by our
“Let’s Colour” program
1,460
people trained as painters
We participate in community programs
and local sponsorships.
AkzoNobel Report 2017 | Business performance
43
Decorative Paints key business developments
Decorative Paints Europe, Middle East and Africa
• Market share growth achieved in Europe and Africa, despite higher raw material costs,
price increases in several countries and lower consumer confidence in the UK. We also
saw growth in exterior products in Turkey and strong progress in our professional painters
business in Belgium and the Netherlands
• We opened the world’s most advanced and sustainable paint plant in Ashington, UK.
The new center of production for Dulux – the UK’s leading decorative paint brand –
it represents the largest ever global investment in our paints activities
• Sikkens Alpha Rezisto was launched for professional painters in numerous European
countries. The product’s hydrophobic coating creates a surface which repels many
common household stains
• Successful mid-tier consumer product launches took place in Russia, South Africa
and Morocco, while new e-commerce initiatives were successfully launched in several
countries, including the Netherlands, Poland and the UK
• Our UK business was awarded the Carbon Trust Triple Standard for the second time. It
recognizes AkzoNobel as having the greatest positive impact on the environment
Some of our customers
Key cost drivers
Revenue in € millions
• Oil price
• Energy prices
• Titanium dioxide price
• Bricomarche
• Leroy Merlin
• Kingfisher
• OBI
Top raw materials
• Binders/resins
• Titanium dioxide
• Packaging materials
2,263
2,160
2,095
2015
2016
2017
Key brands
44
Business performance | AkzoNobel Report 2017
Decorative Paints Latin America
Decorative Paints Asia
• Revenue and volumes were up, despite economic weakness and political uncertainty in
• We continued to perform well in 2017, achieving growth throughout Asia, despite
our key market, Brazil
• Launched Easycare premium wall paint across the region and aligned all markets to the
Weathershield family of premium exterior wall paints
continued higher raw material costs, which had an adverse impact across the region. India
was also affected by the lingering effects of demonetization in the first half year, and the
mid-year implementation of goods and services tax (GST)
• Commercial excellence initiatives adopted by our distributor network in Brazil resulted in
gains in store presence and sales. As a result, we were ranked #1 supplier among small
retailers for the first time in a survey run by the construction retailers’ national association
• A new water treatment plant was inaugurated at Mauá in São Paulo, which allows recycled
water to be used to make paint. The facility expects to reuse 80% of its water in 2018 and
100% by 2020
• Product launches included Dulux Wood Charm, a water-based woodcare product, and
Dulux Aqua Shield, a consumer waterproofing solution which has 60% thicker film and
better water beading, enabling it to close cracks and prevent water seepage
• In China and North Asia, we relaunched our Levis brand and introduced Dulux Biocare,
which is United States Department of Agriculture (USDA) certified and will help boost the
sustainable development of China’s eco-friendly residential repainting market
• We also announced phase two of the Tangará Reserve project in Mauá, focused on
• We cooperated with Beijing Western Sunshine Rural Development Foundation to build a
preserving 700,000m2 of Mata Atlântica forest that lies inside our site
kindergarten for the Ruicong School in Langfang, China
• As part of our global “Let’s Colour” initiative, artist Luna Buschinelli created a 2,500m2
• An agreement was signed with China National Sports Group and Dow Chemical to launch
artwork at a school in Rio de Janeiro, using 1,000 liters of our Coral paint. It will feature in
the next Guinness Book of World Records as the largest mural painted by a woman
our first-ever partnership in the sports and education sectors. It involves embedding
sustainable development practices into the construction and renovation of sports venues
and school buildings across China
Revenue in € millions
Revenue in € millions
561
484
520
1,185
1,196
1,289
2015
2016
2017
2015
2016
2017
Key brands
Key brands
AkzoNobel Report 2017 | Business performance
45
Our color experts work with industry specialists to identify global trends and turn them into inspirational color palettes to ensure surfaces get the splash of color and caring touch they deserve. The much-anticipated trend reports we produce provide consumers and designers with exciting ideas to help coat products and transform living spaces. Business performance | AkzoNobel Report 201746 INSPIRING OUR WORLD WITH COLORFor hundreds of years, we’ve been helping to put color on just about anything you can imagine – in a way that’s designed to make everyday life better. Working with industry specialists, our color experts identify global trends and translate them into inspirational palettes to ensure that the walls in our homes, our electronics, furniture, vehicles and buildings get the splash of color and the caring touch they deserve.Every year, our much-anticipated trend reports – such as ColourFutures, Trend Editions and our Color of the Year – provide consumers and designers with exciting ideas to help coat products and transform living spaces. Meanwhile, every four years, we update our Futura collection for powder coatings – a collaboration with leading trend consultants – which offers a new source of inspiration to architects and designers.The comprehensive research which underlies these activities serves as the foundation for color innovation and inspiration across all our businesses. They work together with our Global Aesthetic Center in the Netherlands and a group of international specialists to identify societal trends and consumer behaviors. The aim is to better understand our global society and what we need from our environment. These trends are then translated into the colors that help shape our lives. Our color design teams take this research a step further when determining what’s needed for the next generation of phones, cars, buildings and consumer appliances. We know that when our customers paint or coat something, they care about it – and so should we. That’s why our advice depends on truly understanding customers and their technical requirements. This insight helps us create the colors and textures that ultimately drive design choices.We’re also using digital innovation to make it easier for customers to take advantage of our color knowledge and expertise. Our popular Visualizer decorating app, for example, allows people to play with color ideas and see what rooms will look like, before any paint has been applied to the wall. It has been downloaded nearly 20 million times to date. Meanwhile, our highly successful Automatchic Vision tool is a revolutionary digital system which allows bodyshops to precisely measure and match the existing color on any area of a vehicle. We deployed our 10,000th device during 2017. This collaborative process of working with in-house and global experts – and most importantly with our customers – ensures that we keep our finger on the pulse of global design and societal trends. It helps us stay one step ahead so we can lead the way in defining the colors that surround us every day. “WE KEEP OUR FINGER ON THE PULSE OF GLOBAL DESIGN AND SOCIETAL TRENDS”Click to watch video47AkzoNobel Report 2017 | Business performance Performance Coatings value creation summary 2017
Our Performance Coatings businesses
supply 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
€5.8 billion
revenue
€129 million
capital expenditures
Revenue development in % versus 2016
Increase
Decrease
-1%
0%
5%
-2%
2%
€669 million
EBIT
€2.9 billion
invested capital
During 2017, we invested heavily in capacity
expansions in emerging markets, and more
moderately in mature markets. Examples
include the opening of our Changzhou
powder coatings production facility in China,
aimed at strengthening our leading position
in North Asia. We also invested in a new
powder coatings site in Thane, India. In
addition, several efficiency improvement
projects were carried out, mostly in Europe.
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
Environmental value: Input
Organization
4.0 million tons
upstream CO2(e) emissions
4,600 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 drive resource productivity
to make the most of valuable raw materials
and reduce environmental impact, while
strengthening our business.
Social value: Input
Organization
19,900
employees at year-end 2017
0.2
total reportable rate of injuries
(per 200,000 hours)
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents.
48
Business performance | AkzoNobel Report 2017
Revenue breakdown by business unit
in %
C
A
B
A Marine and Protective Coatings
B Automotive and Specialty Coatings
C Industrial and Powder Coatings
22
27
51
Outcomes
0.3 million tons
CO2(e) emissions own operations
8.3 million tons
downstream CO2(e) emissions
Outcomes
12.6 million
tons
CO2(e) emissions cradle-to-grave
11.6% ROS
23.4% ROI
17%
of revenue from eco-premium solutions with
customer benefits, due to RD&I investments
5%
increase CO2(e) per ton of sales from 2012
cradle-to-grave carbon footprint
47 kilotons
total waste
Outcomes
€1,074 million
employee benefits
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.
We participate in community programs
and local sponsorships.
AkzoNobel Report 2017 | Business performance
49
Performance Coatings key business developments
Marine and Protective Coatings
Automotive and Specialty Coatings
• Headwinds in the upstream oil and gas market depressed demand and impacted
• Overall performance was strong, despite increasing raw material prices and a highly
volume, while the marine sector continued to experience tough market conditions, mainly
in new build
• Significant growth achieved in North America, despite extreme weather challenges
• Completed the acquisition of Flexcrete Technologies Ltd., a UK-based manufacturer of
competitive environment
• Acquired Disa Technology, a French manufacturer of innovative technical marks and
decorative film technologies, to boost our portfolio of liquid coatings and films
• Opened a hi-tech Automotive Training Center in Dubai, offering wet paint and powder
industry-leading technical mortars and high performance coatings for concrete
services across multiple segments
• Partnered with The Ocean Cleanup to provide advanced, biocide-free coatings for all their
devices and equipment for the next five years
• New Aerospace Color Center opened in Dongguan, China, to meet growing demand
• Successfully integrated part of BASF’s Industrial Coatings activities into our Commercial
• Enhanced our leading position in the wind energy industry by successfully integrating the
Vehicle organization
RELEST wind blade coatings technology and teams
• Announced a €13 million investment in Felling, UK, to establish an RD&I campus for
protective coatings research, testing and simulation
• Achieved significant sales of Chartek 2218, our latest epoxy passive fire protection system
• Suite of digital tools introduced to help improve customer engagement and service
• Deployed the 10,000th Automatchic Vision device for perfect color matching
• Rolled out new super yacht coating range and high performance antifouling yacht solutions
• Launched new range of additives and resins used in anti-fingerprint and easy-clean
coatings for consumer electronics and automotive interiors
• Supplied the victorious Eindhoven University of Technology team in the World Solar
Challenge with coatings and technical application expertise
Key brands
Revenue in € millions
1,572
1,458
1,299
Key brands
Revenue in € millions
1,545
1,512
1,551
• 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
• Curing agents
• Titanium dioxide
Key cost drivers
• Oil feedstock chain
• Metals, base chemical prices
50
Business performance | AkzoNobel Report 2017
2015
2016
2017
Geo-mix revenue by destination in %
C
C
A
A
B
B
A EMEA
B Americas
C Asia Pacific
Some of our customers
• Airbus
• Allianz
• 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 chemical prices
• Oil, energy prices
32
22
46
2015
2016
2017
Geo-mix revenue by destination in %
C
A
B
A EMEA
B Americas
C Asia Pacific
39
31
30
Industrial and Powder Coatings
• Strong volume growth in Powder Coatings, while Industrial Coatings also achieved volume
and revenue growth
• Acquired the business of V.Powdertech, the leading Thai manufacturer of powder coatings
• Three new Powder Coatings sites under construction in India and China (Changzhou). The
Changzhou plant is the biggest of its kind in the world
• Opened a €31 million coatings plant in Chonburi, Thailand (serving several businesses,
including Industrial Coatings), and a new powder coatings factory in Chengdu, China
• A new generation of BPANI (BPA non-intent) coatings for beer and beverage packaging
was launched, providing customers with more sustainable and innovative solutions
• Wood Coatings continued to roll out its NDuraSilk range of high performance kitchen
cabinet coatings, which offer increased efficiency in application
• Launched new Futura collection for powder coatings, an extensive range of highly durable
and sustainable colors, finishes and textures developed with trend experts PeclersParis
• Integrating the relevant parts of the acquired BASF Industrial Coatings business into
our activities
Key brands
Some of our customers
• Arcelor Mittal
• Ardagh
• Ball
• Bluescope Steel
• Bosch
• Caterpillar
• Crown
• IKEA
• Lacquer Craft Furniture
• McDonalds
• Masterbrand
Cabinets Inc.
• Nokia
• Philips
• Scania
• Siemens
• Tata Steel
• 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
2,867
2,732
2,974
2015
2016
2017
Geo-mix revenue by destination in %
C
B
A
• Agrochemical feedstocks (urea)
• Cotton
A EMEA
B Americas
C Asia Pacific
45
28
27
AkzoNobel Report 2017 | Business performance
51
Specialty Chemicals
In addition to our record financial performance, we also
achieved the lowest safety incident rate in the history of
AkzoNobel’s chemicals business. Over the last two years, we
have reduced our incident rate by 58%.
With the foundations in place, we are now focusing on the
next stage of value creation – organic growth. This gained
traction in 2017, driven by increasing demand from our
customers. To satisfy this growing demand, we approved a
series of debottlenecking investments and expanded several
sites in all our key regions.
Meanwhile, construction of a new membrane technology
plant in Germany was completed for the production of
potassium hydroxide, chlorine and hydrogen – in a joint
arrangement with Evonik – while in Spain, our Sal Vesta joint
arrangement opened up new markets in the Mediterranean
following the opening of a new packaging facility in Súria. We
also broke ground at several locations, including a world-
scale plant for monochloroacetic acid (MCA) in Gujarat, India
(as part of a joint arrangement with chemical company Atul),
and at our Kvantorp plant in Sweden (as part of a project to
expand production capacity for chelated micronutrients).
“WE ARE IN A STRONG POSITION
AND READY TO STAND
ON OUR OWN FEET”
Werner Fuhrmann
CEO of Specialty Chemicals and member of the
Executive Committee
For example, in China, we completed an expansion at our
Boxing plant – significantly increasing Surface Chemistry’s
regional product portfolio – and boosted production capacity
for dicumyl peroxide (DCP) at our Ningbo multi-site by
40%. We then announced plans to further increase DCP
capacity in Ningbo by another 50% by Q3 in 2018. In North
America, capacity for sodium hydrosulfide was increased in
LeMoyne (US) to meet growing customer demand, while in
Los Reyes (Mexico), we inaugurated a capacity expansion
for the production of organic peroxides. Over in Brazil, we
completed the expansion of the Chemical Island at the
Fibria Três Lagoas site, which is now the largest single pulp
mill in the world.
This activity throughout the year shows that we are
investing all over the world and are continuing to satisfy the
requirements of our customers.
Organic growth is also being stimulated through the
introduction of new products and technologies. I’m
particularly excited by the work being done in our Ethylene
and Sulfur Derivatives business to develop a novel
technology platform for the production of ethylene amines
and their derivatives from ethylene oxide. In addition,
a partnership with Itaconix was announced to develop
innovative, bio-based chelates for use in cleaning markets.
I was also very pleased to see our first Imagine Chemistry
We achieved record results in
2017 and grew the business,
despite currency headwinds and
challenging conditions in some
markets. Our solid track record of
improving profitability, combined
with a commitment to operational
excellence and capturing long-
term growth, mean we are in a
strong position and ready to stand
on our own feet as we separate
from AkzoNobel in 2018.
52
Business performance | AkzoNobel Report 2017
From a sustainability perspective, we were pleased to make
an important contribution to the company being ranked
number one in the Chemicals industry on the Dow Jones
Sustainability Index. We also received the European Chemical
Industry Council (CEFIC) Responsible Care® Award in the
Environment Responsibility category.
Our work in this area continued to gather pace in 2017
as we led an initiative with DSM, Google and Philips in
the Netherlands to enable and source green power from
the Bouwdokken wind park. We also teamed up with a
bio-steam facility in Delfzijl to reduce annual CO2 emissions
by around 100,000 tons. Our safety performance – which
remains top of our agenda – continued to improve as well, as
we move closer to our ambition of zero incidents.
Having announced the separation of the company into two
focused businesses, along with new financial guidance, I am
confident that Specialty Chemicals is well positioned to grow
and prosper. We have a highly engaged workforce and we’re
looking forward to a new future.
Werner pictured with senior management from the Specialty Chemicals businesses.
innovation challenge prove to be such a big success. We
received more than 200 entries and selected ten worthy
winners for a variety of collaboration agreements. We have
high hopes for the second edition, which is being staged in
Sweden in mid-2018.
Looking briefly at how each business performed, Industrial
Chemicals had a strong year, with high capacity utilization
and good margins, while Pulp and Performance Chemicals
also had an excellent 2017 and captured healthy growth
opportunities. Ethylene and Sulfur Derivatives and Polymer
Chemistry benefited from robust demand, and Surface
Chemistry had a satisfactory year, after being held back
by lower activity with regard to shale gas-driven drilling
and oil and gas exploration. Fortunately, our sites suffered
no significant damage due to Hurriance Harvey in the US,
although in Q3 there were disruptions to the manufacturing
and supply chain. Our employees deserve credit for dealing
with the challenges it posed in a positive way. In terms of
continuous improvement, the efficiencies resulting from
the AkzoNobel Leading Performance System (ALPS) ensured
we delivered more from constrained assets.
AkzoNobel Report 2017 | Business performance
53
Specialty Chemicals value creation summary 2017
Economic value: Organization
€5.0 billion
revenue
€363 million
capital expenditures
Revenue development in % versus 2016
Increase
Decrease
€689 million
EBIT
€3.6 billion
invested capital
During 2017, we invested in several asset
integrity and efficiency improvement
projects while continuing to invest in growth
projects for specific segments. This included
increasing Expancel production capacity
in Sweden and building a world-scale
plant for monochloroacetic acid as part of
a joint arrangement with Atul in India. We
also completed expansions in Mariager,
Denmark, and in Boxing, China.
3%
2%
0%
-1%
4%
1%
-3%
-1%
-1%
-4%
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
Volume
Price/
Acquisitions/
Exchange
Total
mix
divestments
rates
Environmental value: Input
Organization
3.2 million tons
upstream CO2(e) emissions
91,600 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 drive resource productivity
to make the most of valuable raw materials
and reduce environmental impact, while
strengthening our business.
Social value: Input
Organization
9,000
employees at year-end 2017
0.2
total reportable rate of injuries
(per 200,000 hours)
Employee safety is a key priority and we are
actively driving towards a reduction in the
number of incidents.
We are a major producer of specialty
chemicals, supplying key products to
business-to-business customers. 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 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.
54
Business performance | AkzoNobel Report 2017
Revenue breakdown by business unit
in %
D
D
C
C
A
A
B
B
A Functional Chemicals
B Industrial Chemicals
C Surface Chemistry
D Pulp and Performance Chemicals
36
25
21
18
Outcomes
Outcomes
13.8% ROS
19.1% ROI
19%
of revenue from eco-premium solutions, due
to RD&I investments
3.0 million tons
CO2(e) emissions own operations
2.0 million tons
downstream CO2(e) emissions
8.2 million tons
CO2(e) emissions cradle-to-grave
15%
improvement CO2(e) per ton of sales from
2012 cradle-to-grave carbon footprint
60 kilotons
total waste
Outcomes
€797 million
employee benefits
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.
We participate in community programs
and local sponsorships.
AkzoNobel Report 2017 | Business performance
55
Specialty Chemicals key business developments
Functional Chemicals
Industrial Chemicals
• Volume development was positive throughout the year
• Capacity for sodium hydrosulfide increased in LeMoyne (US) to meet growing customer
demand. Capacity expanded for organic peroxides production in Los Reyes (Mexico)
• Investing over €10 million in Sweden to expand capacity for chelated micronutrients,
primarily high performance iron chelates
• Launched Itaconix partnership to develop bio-based chelates for use in cleaning markets
• Boosted production capacity by 40% for dicumyl peroxide (DCP) at our Ningbo site (China)
and announced plans to further increase capacity by another 50% by Q3 2018
• Plans being considered to build a world class EHEC cellulosic ethers plant to meet
• Strong volume growth in salt and chlorine, despite bi-annual turnaround of Rotterdam plant
• Broke ground on a world-scale plant for MCA in Gujarat, India, as part of a joint
arrangement with chemical company Atul
• Our Sal Vesta joint arrangement in Spain opened up new markets for us in the
Mediterranean following the opening of a new packaging facility, located in Súria
• Led an initiative in the Netherlands with DSM, Google and Philips to enable and source
green power from the Bouwdokken wind park, and teamed up with a bio-steam facility in
Delfzijl which will reduce annual CO2 emissions by around 100,000 tons
• Also in Delfzijl, we began investigating the possibility of producing green hydrogen, based
growing demand in the paints, and building and construction markets
on renewable energy
• Increased supply of initiators to the PVC industry to meet strong customer demand
• Began relocation of Tianjin (China) organic peroxides site to Nangang industrial park
• Developed a novel technology platform for producing ethylene amines and their derivatives
• Construction of new membrane technology plant in Germany completed for the production
of potassium hydroxide, chlorine and hydrogen (in a joint arrangement with Evonik)
• Received the 2017 European Responsible Care® Award for our partnership approach to
from ethylene oxide
developing new value chains that enable substantial carbon footprint reductions
Key brands
Revenue in € millions
Key brands
Revenue in € millions
1,822
1,718
1,822
1,204
1,202
1,274
Chemical platforms
Polymer Chemistry and Ethylene Oxide Network
2015
2016
2017
Geo-mix revenue by destination in %
Chemical platform
Salt-Chlorine chain
2015
2016
2017
Geo-mix revenue by destination in %
Some of our customers
• Evonik
• 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
• Cellulose
A EMEA
B Americas
C Asia Pacific
56
Business performance | AkzoNobel Report 2017
C
A
B
Some of our customers
• Covestro
• Huntsman
• Shin-Etsu
Top raw materials
• Energy
• Acetic acid
• Salt
38
33
29
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 € millions201720162015921989921Geo-mix revenue by destination in %Revenue in € millionsABC2017201620151,0301,0601,065Key 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 32B Americas 53C Asia Pacific 15 • Altana • Baker Hughes• Lubrizol • Monsanto• Procter & Gamble• Ferrexpo Poltava• Cabot • Diam • Domtar• Fibria• Fujimi • Sanofi • SCA • Suzano• Animal fats • Ethylene oxide• Vegetable oils• Energy• Salt• Sodium silicateSurfactants, Polymers• Natural oils and fat • Ethylene• Oil and gas• Energy• LogisticsChemical platformBleaching Chemicals and Performance Chemicals Surface Chemistry• Positive growth achieved despite unplanned supply chain interruptions, especially in Q3 due to Hurricane Harvey in the US • Strong volume growth in Asia, while we also capitalized on regulatory changes in high growth markets• Strong progress in the cleaning, personal care and lubes and fuels segments; Nonyl Phenol ethoxylates were successfully replaced in the asphalt and cleaning segments• In the cleaning segment, we were recognized by the US Environmental Protection Agency as Safer Choice Partner of the Year• Completed an expansion at our Boxing site in China, significantly increasing our regional product portfolio and reconfirming the company’s commitment to AsiaPulp and Performance Chemicals • Volumes grew substantially in our core markets throughout 2017• More than €20 million invested in Sweden to expand capacity for the Expancel product line, with completion due by the end of 2018• Completed the expansion of the Chemical Island at Fibria’s Três Lagoas facility in Brazil – now the world’s largest single pulp mill. The expansion included the installation of a second chlorine dioxide plant and increased space for chemical storage and logistics• Six new product applications launched and commercialized within product brands for Levasil (colloidal silica), Expancel (expandable microspheres) and Kromasil. They will spur growth in the fluid catalytic cracking, food packaging and pharmaceutical markets• Our new integrated supply chain strategy has resulted in cost productivity improvements and capacity increases catering for additional volume for growth from existing assets• Termination of the remaining toll manufacturing for the divested Paper Chemicals business• Considerable efforts to improve safety and safety behavior resulted in a continuous reduction of incidents, with a record low incident rate in 201757AkzoNobel Report 2017 | Business performance Business performance | AkzoNobel Report 201758TURNING GREAT IDEAS INTO REALITYenthusiasm of all the finalists: “Like all the teams, we are excited and honored to have been selected,” he said. Added Peter Nieuwenhuizen, Global Research, Development and Innovation Director for Specialty Chemicals: “We launched Imagine Chemistry because we wanted to share in the same infectious enthusiasm for innovation which is so prevalent in start-ups. And we want our partners to share in our track record and route to market. We just think there is so much to be gained by being creative and customer-driven together.“The challenge is also designed to help us embed open, collaborative innovation in our ways of working and forge partnerships with start-ups and others whose ideas present new opportunities for sustainable growth. We got off to a great start and are looking forward to working with the winners to make our industry – and the world – more sustainable.”The global challenge proved to be so successful that a second edition is underway for 2018, when the finals will be held in Gothenburg, Sweden. “WE WANT TO SEE OUR PRODUCT COME TO MARKET AND HELP MAKE THE WORLD A BETTER PLACE”It began with more than 200 hopeful start-ups pitching their bright ideas for sustainable chemistry solutions – and ended with ten worthy winners securing a variety of collaboration agreements with AkzoNobel’s Specialty Chemicals business and various partners. In many ways, the company’s inaugural – and hugely success-ful – Imagine Chemistry start-up challenge has proved to be just the beginning of an exciting journey for all involved.Launched in early 2017, start-ups and researchers from around the world were invited to help solve real-life challenges faced by our Specialty Chemicals businesses. Twenty of those who entered were selected to attend the finals in Deventer, the Netherlands, where over the course of three days they worked with experts in research, business and finance to further improve their ideas.After much deliberation, three start-ups walked away with joint development agreements to help bring their ideas to market. Their projects focused on: a sustainable alternative to polyacrylates, used – among others – to make thickeners for personal care products; a new process to turn CO2 and natural gas into key chemicals such as ethylene oxide; and a solution to create cellulosic products from plant biomass with the help of pressurized water. One team also secured a long-term agreement which will see Specialty Chemicals provide expertise and support to further develop their idea of scalable, low-cost, post-bioreactor dewatering.Noah Helman of Industrial Microbes – one of the three joint development agreement winners – summed up the Click to watch video59AkzoNobel Report 2017 | Business performance59 Leadership
With powder coatings being a relatively new technology, our business has a heritage which is decades old rather than centuries. It has come a long way in a short time, however.Our Interpon brand is the global market leader and the business is growing all the time, evidenced by the ongoing construction of three new sites. We also acquired the business of V.Powdertech – the leading Thai manufacturer of powder coatings – in 2017.The year also saw the launch of the latest Futura collection, an extensive range of highly durable and sustainable colors, finishes and textures which offers architects, designers and developers an exciting new source of inspiration. Leadership
In this section we introduce our Board of Management and
Executive Committee, as well as our Supervisory Board.
We also present the Report of the Supervisory Board and
provide detailed overviews of their activities during 2017.
Our Board of Management and Executive Committee
Statement of the Board of Management
Our Supervisory Board
Supervisory Board Chairman’s statement
Report of the Supervisory Board
62
64
65
66
68
i
p
h
s
r
e
d
a
e
L
AkzoNobel Report 2017 | Leadership
61
Our Board of Management and
Executive Committee
Thierry Vanlancker*
CEO and Chairman of the Board of Management and the Executive
Committee (1964, Belgian)
Thierry Vanlancker joined AkzoNobel in 2016, bringing with him more than 28
years of experience in the chemicals industry. He led operations in polymers,
performance coatings and chemicals at DuPont and was President of
Fluoroproducts at Chemours. Thierry has lived and worked in Switzerland,
the US, Germany, France and Belgium. He holds a degree in Chemical
Engineering from the University of Gent.
* Designated CEO and Chairman of the Board of Management by the Supervisory Board on
July 19, 2017. Formally appointed by shareholders on September 8, 2017.
Werner Fuhrmann*
CEO of Specialty Chemicals and member of the Executive Committee
(1953, German)
Werner Fuhrmann joined the Executive Committee in 2011. He was
previously Head of Integrated Supply Chain, and before that 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. Werner served as a Board
member of both the European Chemicals Association and American
Chemistry Council.
* Resigned from the Executive Committee on January 2, 2018, following internal separation of
Specialty Chemicals.
David Allen
Chief Supply Chain Officer and member of the Executive Committee
(1954, American)
David Allen joined AkzoNobel as Head of the Integrated Supply Chain in
2013 and by early 2014 also led the Research, Development and Innovation
function. He was previously Chief Operations Officer for China National
Bluestar Group and worked for General Electric Company and Sabic in
various executive operations, manufacturing and supply chain roles. He is
an engineer by training and holds a Mechanical Engineering degree from
Georgia Institute of Technology.
Marten Booisma
Chief Human Resources Officer and member of the Executive
Committee (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. Sven holds a
professorship in company law at the Vrije Universiteit in Amsterdam.
Ruud Joosten
Chief Operating Officer and member of the Executive Committee
(1964, Dutch)
After graduating from the Vrije Universiteit in Amsterdam 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.
Maarten de Vries*
CFO and member of the Board of Management
and the Executive Committee (1962, Dutch)
Maarten de Vries joined AkzoNobel in January 2018.
He spent the previous three years as CFO at Intertrust
Group and TNT Express. He was a member of the
Management Board of Intertrust Group and of the
Executive Board of TNT Express. From 2011 to 2014,
Maarten was CEO of TP Vision. Prior to this he held various senior positions
at Royal Philips Electronics, including Chief Information Officer and Chief
Purchasing Officer at Group Management Committee level.
*Offically appointed CFO as of January 1, 2018, succeeding Maëlys Castella.
Hans De Vriese*
Interim CFO (1964, Belgian)
Hans De Vriese joined AkzoNobel as Group Controller in 2009. Prior to joining
the company, he was CFO Asia Pacific for General Motors.
*Interim CFO from September to December 2017.
62
Leadership | AkzoNobel Report 2017
For further information
please visit our website:
akzonobel.com/management
From left to right:
David Allen, Ruud Joosten,
Marten Booisma, Thierry
Vanlancker, Hans De Vriese,
Sven Dumoulin, Werner
Fuhrmann.
AkzoNobel Report 2017 | Leadership
63
section, as well as the Compliance and integrity
management chapter of the Governance and compliance
section. We have discussed the above opinion and
conclusions with the Audit Committee, the Supervisory
Board and the external auditor.
Amsterdam, March 7, 2018
The Board of Management
Statement of the
Board of Management
The Board of Management’s
statement on the financial
statements, the management
report and internal controls.
We have prepared the Report 2017, and the undertakings
included in the consolidation taken as a whole, in
accordance with International Financial Reporting Standards
(IFRS), as adopted by the EU and additional Dutch disclosure
requirements for annual reports.
To the best of our knowledge:
• The financial statements in this Report 2017 give a true
and fair view of our assets and liabilities; our financial
position at December 31, 2017; and the result of our
consolidated operations for the financial year 2017
• The management report in this Report 2017 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 our principal risks and uncertainties
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 financial and non-financial 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
2017 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 comfort to
the Board of Management, as well as the Supervisory Board,
that our system of risk management and internal controls
– as designed and represented by management – are
adequate and effective.
While we routinely work towards continuous improvement of
our processes and procedures regarding financial reporting,
the Board of Management is of the opinion that:
• The report provides sufficient insights into any failings of
the internal risk management and control systems
• These systems provide reasonable assurance that the
financial reporting does not contain material inaccuracies
• Based on the current state of affairs, it is justified
that the financial reporting is prepared on a going concern
basis
• The report states those material risks and uncertainties
that are relevant to the expectation of the company’s
continuity for the period of 12 months after report
preparation
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
64
Leadership | AkzoNobel Report 2017
Our Supervisory Board
Antony Burgmans (1947, Dutch)
Chairman
Initial appointment: 2006
Current term of office: 2014-2018
Member of the Supervisory Board of Jumbo
Group Holding B.V.; Former Chairman
and CEO of Unilever N.V. and plc.; Former
Chairman of the Supervisory Board of
TNT Express N.V.; Former non-executive
Director of BP plc.; Former member of the
Supervisory Board of SHV Holdings N.V.
Peggy Bruzelius (1949, Swedish)
Initial appointment: 2007
Current term of office: 2015-2019
Sue Clark* (1964, British)
Initial appointment: 2017
Current term of office: 2017-2021
Non-executive Director of Lundin Petroleum
AB, Skandia Mutual Life Insurance and
Diageo plc.; Chairman of Lancelot Asset
Management A.B.; Former CEO of
ABB Financial Services; Former Executive
Vice-President of SEB; Former non-
executive Director of Axfood A.B.
Non-executive Director of Britvic plc.;
Non-executive Director of Bakkavor Group
plc.; Non-executive Director of Tulchan
Communications LLP; Former Managing
Director Europe SABMiller plc.; Former
Director Corporate Affairs Railtrack plc. and
Scottish Power plc.
Byron E. Grote
(1948, American and British)
Initial appointment: 2014
Current term of office: 2014-2018
Non-executive Director of Anglo-American
plc., Standard Chartered plc., and
Tesco plc.; Former non-executive Director
of Unilever N.V. and plc.; Former Board
member BP plc.
Louis Hughes (1949, American)
Initial appointment: 2006
Current term of office: 2014-2018
Member of the Boards of Directors of
ABB Group and Nokia Corporation;
Executive Advisor of Wind Point Partners;
Chairman of InZeroSystems LLC; Former
President and COO of Lockheed Martin;
Former Executive Vice-President of General
Motors.
*Appointed November 30, 2017.
Michiel Jaski* (1959, Dutch)
Initial appointment: 2017
Current term of office: 2017-2021
Pamela Kirby (1953, British)
Initial appointment: 2016
Current term of office: 2016-2020
Dick Sluimers (1953, Dutch)
Initial appointment: 2015
Current term of office: 2015-2019
Patrick Thomas* (1957, British)
Initial appointment: 2017
Current term of office: 2017-2021
Ben Verwaayen (1952, Dutch)
Initial appointment: 2012
Current term of office: 2016-2020
Member of the Supervisory Board of Synbra
Holding B.V.; Chairman of the Supervisory
Board of UNICA Group B.V.; Former CEO
of OFFICEFIRST Immobilien A.G.; Former
CEO of Grontmij N.V.; Former member of the
Executive Board of ARCADIS N.V.; Former
VP at Shell.
*Appointed November 30, 2017.
Non-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 Supervisory Boards of
Atradius N.V., NIBC Bank N.V., and Euronext
N.V.; Member of the Board of Directors of
FWD Group Limited; Trustee of the Erasmus
University Trust; Member of the Board of
Governors of the State Academy of Finance
and Economics; Former CEO of APG Group.
Chairman and CEO of Covestro A.G.;
Former Chairman and CEO of Bayer
MaterialScience A.G.; Former non-executive
Director of BG Group plc.; Former President
of Specialties, Huntsman International LLC;
Former CEO Polyurethanes division of
ICI plc.
Non-executive Director of Akamai
Technologies Inc. and Bharti Airtel Ltd.;
Non-executive Director of Ofcom; Former
CEO of Alcatel-Lucent; Former Chief
Executive/Chairman of the Board’s Operating
Committee of BT Group.
*Appointed November 30, 2017.
Sari Baldauf (1955, Finnish); initial appointment 2012; term of office 2016-2017; resigned December 1, 2017
AkzoNobel Report 2017 | Leadership
65
Supervisory Board
Chairman’s statement
For AkzoNobel, 2017 was a
landmark year and one of the
most eventful in its long history.
During the year, significant
changes were required to reshape
the company and prepare
for the future. The Supervisory
Board made a substantial
contribution to the new direction
and strategy for AkzoNobel
and was fully focused on ensuring
the company acted in the best
interests of all of its stakeholders,
including shareholders.
The Supervisory Board is convinced AkzoNobel has a
compelling new strategy that will build on the strong
financial foundation which has been put in place in recent
years. Now is the right time to create two focused, high
performing businesses – Paints and Coatings, and Specialty
Chemicals. This logical next step will generate superior value
creation than the alternatives, with substantially fewer risks,
uncertainties and social costs. It will enable AkzoNobel
to thrive, both to the benefit of its shareholders and the
communities in which it operates worldwide.
The unsolicited and non-binding proposals from PPG which
were received during the year were carefully and thoroughly
reviewed, in consultation with our internal and external
financial advisors and legal counsel. The Supervisory Board
and the Board of Management unanimously concluded that
PPG’s proposals undervalued AkzoNobel, failed to reflect
the value-creating opportunities unveiled at the investor
update on April 19, 2017, and were not in the best interest
of the company, its shareholders, employees and other
stakeholders. The Supervisory Board held itself accountable
for its decisions in an Extraordinary General Meeting
held in September. In this meeting, and in many one-on-
one meetings with shareholders, the company provided a
platform to further explain and discuss our response
to PPG’s proposals. In addition, our decision-making was
scrutinized in court and upheld by the Enterprise Chamber
of the Amsterdam Court of Appeal.
Shareholders subsequently approved the separation of the
Specialty Chemicals business at an EGM held on November
30, 2017. Following this approval, a €1 billion special cash
dividend was paid out in December 2017 as advance
proceeds, which demonstrates AkzoNobel’s commitment to
substantial shareholder returns.
The separation of Specialty Chemicals is being conducted
via a dual-track process (resulting in either a private sale
or legal demerger) and is on track for April 2018. Internal
separation was completed by January 1, 2018. The
Supervisory Board will make the final decision on whether to
proceed with either a legal demerger or a private sale
by assessing various factors, such as value creation and
the interests of all our stakeholders, including shareholders.
The Specialty Chemicals business is in a strong financial
position and well placed to operate as a standalone
business, with excellent opportunities to unlock further value
in the future.
Moving forward, as the paints and coatings industry
continues to consolidate, the company will focus on its
strategy and delivering on the 2020 financial guidance.
On a continuous basis, potential opportunities to grow
and create value through M&A transactions will also
be considered. During 2017, AkzoNobel held constructive
discussions with Axalta about a possible merger, which
ended without agreement. However, the company remains
open to exploring relevant opportunities.
A vital part of achieving the goals and ambitions that have
been set is the company’s sustainability agenda. It remains
fundamental to AkzoNobel’s business strategy and is key
to driving innovation and ensuring that customer needs
and expectations are met – and often exceeded. The
Supervisory Board continues to monitor the company’s
contribution to the UN Sustainable Development Goals
and has a constructive, advisory and analytical role in
overseeing management’s formulation and implementation
of the sustainability agenda. It was therefore pleasing to
see AkzoNobel ranked in first place on the Dow Jones
Sustainability Index in the Chemicals industry when the 2017
list was announced in September (our fifth number one
ranking in six years).
66
Leadership | AkzoNobel Report 2017
A number of significant appointments were made on an
executive management level during 2017. In September,
shareholders officially approved the appointment of
Thierry Vanlancker as the company’s new CEO, following
Ton Büchner’s departure for health reasons. Ton was an
outstanding leader for AkzoNobel, transforming the company
and setting it up for future success. His focus on delivering
for customers and operational excellence drove profitability
and increased returns to shareholders. Ton’s passion for
the business and personal commitment helped create a
strong culture across the company. He will be greatly missed
in the boardroom and by many AkzoNobel colleagues
around the world. We wish him every success in the future.
In Thierry Vanlancker, we have a highly qualified chief
executive who is well placed to continue building momentum
for the company. His extensive experience in the chemicals
and coatings industry provides him with the right background
and qualifications to take AkzoNobel forward into a new era.
Other management changes during 2017 saw CFO
Maëlys Castella take a leave of absence for health reasons.
She has been an integral part of establishing the solid
financial foundation and culture of operational excellence
that AkzoNobel now has in place. We wish her a speedy
recovery and look forward to welcoming her back in a
senior management role once she is ready to return.
Her successor, Maarten de Vries – who was appointed
CFO as of January 1, 2018 – has more than 25 years
of experience in finance and international business.
We look forward to working with him as we continue to
deliver sustainable growth and value creation for all
our stakeholders.
We also welcomed three new Supervisory Board members
during the year: Mrs. Sue Clark, Mr. Patrick Thomas and
Mr. Michiel Jaski. They bring with them extensive experience,
knowledge and insight, which will benefit the composition
of our Board moving forward. The Supervisory Board
would also like to thank Ms. Sari Baldauf – who decided
to step down as of December 1, 2017 – for her significant
contribution since being appointed in 2012.
The Supervisory Board values its relationship with
shareholders and takes its responsibility in this respect
very seriously. During 2017, this relationship was impacted.
A range of additional measures was therefore taken to
improve shareholder relations. These actions – including
a significant number of meetings and calls – sought to
strengthen and maintain a continued and constructive dialog
with our shareholders. In addition, a shareholder survey
was conducted to gather independent and structured
feedback. The company appointed JP Morgan Cazenove as
a special advisor to a newly established Supervisory Board
committee on shareholder relations. The Supervisory Board
and management team look forward to further enhancing the
relationship with AkzoNobel’s shareholders as the company
delivers on its strategy.
The transformation of the company has required careful
and informed decision-making. The Supervisory Board
held a total of 38 meetings in 2017 to analyze and discuss
the many developments and was advised by legal counsel
specifically retained by the Supervisory Board to ensure
that our decisions met the highest standards in legal and
corporate governance. I would like to thank my colleagues
on the Supervisory Board for their contribution and
commitment during this intense period.
Finally, I confirm that I will retire as planned from my position
as Chairman of the Supervisory Board of AkzoNobel when
my third term of office ends in April 2018. I am proud to have
contributed to the company’s progress and development –
particularly during such an historic time – and look
forward to seeing AkzoNobel continue to grow and prosper.
I would like to express my gratitude for the cooperation
and teamwork demonstrated by my fellow Supervisory
Board members throughout my time with the company.
As a Board, we also thank the Board of Management, the
members of the Executive Committee and all employees for
their commitment and hard work during such a busy and
historic year.
Amsterdam, March 7, 2018
Antony Burgmans
Chairman of the Supervisory Board
AkzoNobel Report 2017 | Leadership
67
Report of the
Supervisory Board
Reference is made to the Timeline on pages 78 and 79,
which sets out key events for AkzoNobel in 2017. In the
context of the extraordinary events it chronicles, the focus
of the Supervisory Board for 2017 has been to consider the
interests of all stakeholders in its decision making.
The Supervisory Board values its relationship with
shareholders and all stakeholders, and takes its responsibility
towards them very seriously. While the Enterprise
Chamber and Amsterdam District Court denied measures
requested by some shareholders in May and July 2017,
the Supervisory Board recognized that relations
with shareholders required improvement and took a range of
measures designed to strengthen and maintain
a constructive dialog.
Such measures included the creation of a Supervisory Board
committee for shareholder relations, with David Mayhew
and the team at JP Morgan Cazenove appointed as
advisors. An Extraordinary General Meeting was convened
on September 8, 2017, when further explanation was
provided regarding AkzoNobel’s response to the unsolicited
and non-binding proposals made by PPG earlier in the year.
In August 2017, following constructive dialog, an
agreement was reached with Elliott Advisors (UK) Ltd.
(Elliott), aimed at normalizing the relationship with Elliott.
A further Extraordinary General Meeting was convened
on November 30, 2017, to consider appointments to the
Board of Management and Supervisory Board, and to obtain
approval for the separation of the Specialty Chemicals
business from AkzoNobel through a private sale or a legal
Supervisory Board activities 2017 (see pages 78 and 79 for Timeline of key events)
Q1
Q2
Q3
Q4
• Review Q4 2016 financials and
performance
• Financial statements and profit
allocation
• Final dividend 2016
• Business reviews
• Risk management:
Risk session outcomes
• Talent management and
succession planning
• ISC strategy review
• Compliance culture
• Review Q1 2017 financials and
performance
• Business reviews
• Annual General Meeting 2017
• Information Management strategy
review (including cyber-security)
• Market update and BA strategy
updates
• Sustainability strategy review
• Review 2020 financial guidance
• Competitor analyses
• Industry dynamics
• Talent management and
succession planning
• Review Q3 2017 financials and
performance
• Business reviews
• Remuneration policy review
• Performance and budget planning
• Interim dividend 2017
• Supervisory Board succession
planning
• Executive succession planning
• Talent management and
succession planning
• Extraordinary General Meeting
November 2017
• Nomination Supervisory Board
candidate Mr. Michiel Jaski
• Corporate Governance Code
2017 compliance
• Review Q2 2017 financials and
performance
• Business reviews
• Functional and business
strategy review
• Risk management: Enterprise risk
management update
• Competitor analyses
• Talent management and
succession planning
• Organization structure review,
including management structure
• Extraordinary General Meeting,
September 2017
• Shareholder engagement
• Nomination Supervisory Board
candidate Mr. Patrick Thomas
• Nomination Supervisory Board
candidate Mrs. Sue Clark
• Nomination CEO/Board of
Management candidate
Mr. Thierry Vanlancker
• Implementation of the new
Dutch Corporate Governance
Code
The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2017
68
Leadership | AkzoNobel Report 2017
Supervisory Board attendance record
Antony Burgmans
Sari Baldauf1
Peggy Bruzelius
Sue Clark2
Byron E. Grote3
Louis Hughes
Michiel Jaski2
Pamela Kirby
Dick Sluimers4
Patrick Thomas2
Ben Verwaayen
SB
38/38
35/37
35/38
1/1
38/38
37/38
1/1
38/38
36/38
1/1
35/38
AC
–
–
8/10
–
10/10
10/10
–
–
10/10
–
–
RC
7/7
6/6
–
–
–
–
–
7/7
4/4
–
6/7
NC
3/3
3/3
–
–
2/2
–
–
3/3
–
–
3/3
The table indicates the meeting attendance for the Supervisory Board (SB), the Audit
Committee (AC), the Remuneration Committee (RC) and the Nomination Committee (NC).
1 Resigned December 1, 2017
2 Appointed November 30, 2017
3 Appointed to the Nomination Committee in February 2017
4 Appointed to the Remuneration Committee in June 2017
demerger. In addition, an augmented schedule of roadshows
and conferences contributed to improved relations with
shareholders as the year progressed. Going forward, an
enlarged program of analyst and investor webcasts and
events has been announced which will continue to improve
shareholder relations beyond 2017.
The Supervisory Board will continue to actively engage
with shareholders and all stakeholders in AkzoNobel
to achieve our goal of accelerating sustainable growth
and value creation.
Meetings
The Supervisory Board held eight regular scheduled
meetings and 30 additional meetings during 2017. The
additional meetings were required to ensure the Supervisory
Board was sufficiently informed and could make considered
decisions regarding the exceptional events that occurred
during the year (further details can be found in the Timeline
on pages 78 and 79). The Board of Management attended
all eight meetings and the vast majority of the 30 additional
meetings. The Executive Committee attended the
majority of the scheduled meetings, while the additional
meetings were mostly held without the 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 the previous page.
Supervisory Board
attendance record
The table on the left 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
relevant Chairman. Attendance is expressed as the number
of meetings attended out of the number eligible to attend.
The Supervisory Board notes the low absenteeism rate from
Supervisory Board and committee meetings in 2017.
Strategy reviews
During 2017, the Supervisory Board continued to allocate
adequate time to discuss strategic activities, in particular
with regard to the events set out in the Timeline on pages 78
and 79. This included detailed Business Area by Business
Area analyses, and the decision to separate Specialty
Chemicals and create two high performing businesses.
The company renewed its efforts to achieve functional
excellence and efficiencies by implementing a transformation
program, pursuant to which a new management structure
was announced. In addition, functional and operational
strategy updates were reviewed and discussed, including
from Information Management, Integrated Supply Chain,
Human Resources and Sustainability.
At corporate level, the Supervisory Board received
comprehensive market updates, approved the financial
guidance for 2020 for Paints and Coatings in April and
reviewed and approved the company’s strategy to
create two focused businesses with sustainable growth
plans. During the Extraordinary General Meeting held
in November 2017, it was reconfirmed that this strategy
is expected to unlock further value and accelerate
growth for both the Paints and Coatings, and Specialty
Chemicals businesses.
Separation of Specialty Chemicals
During 2017, the Supervisory Board allocated adequate
time to overseeing the separation of Specialty Chemicals.
The separation is following a dual-track process (either for
legal demerger or private sale) and remains on track for
April 2018. Internal separation was completed by January 1,
2018. The Supervisory Board will decide whether to opt
for a legal demerger or private sale on the basis of various
factors, including which method creates most value and
what is in the best interest of our shareholders and other
stakeholders. The Specialty Chemicals business is in a
strong financial position and is well placed to operate as a
standalone business.
Sustainability
Sustainability is integral to the company’s business strategy.
For AkzoNobel, this means delivering both short-term
and long-term value for shareholders and all other
stakeholders, because today’s profits are essential to fund
tomorrow’s innovations.
The focus on sustainable product portfolios and resource
productivity is an investment in the future success of
AkzoNobel, motivating and giving pride to employees,
because sustainability is a core principle, defining what the
company is and what it stands for.
The Supervisory Board reviews sustainability as an intrinsic
value driver in the work of all businesses and all functions.
Likewise, the Sustainability Council – which advises the
Executive Committee on sustainability developments –
contains representatives of every business and function and
is led by the CEO.
Over the last 15 years, AkzoNobel has successfully
differentiated itself from its competitors by taking a
pragmatic approach to business sustainability, seeking
to generate more value from fewer resources and to turn
societal concerns and environmental challenges into
product innovations that meet a market need. AkzoNobel
also benchmarked its sustainability processes and earned
stakeholder respect by achieving a clear leadership status in
independent rankings. During 2017, the company returned
to the top of the influential Dow Jones Sustainability Index
(DJSI) to lead the rankings for the fifth time in six years,
being placed first in the Chemicals industry. This represents
a quick and successful response from the company after
its run of four consecutive years at the top was briefly
interrupted in 2016. AkzoNobel’s status as a clear leader
was demonstrated again when the company achieved
the top ranking in the Carbon Disclosure Project (CDP)
“Catalyst for Change” report on the chemical industry’s
carbon disclosure transparency.
During 2017, the Supervisory Board also assessed
the company’s sustainability strategy and targets. The
Supervisory Board is confident that by making sustainability
an explicit differentiator – part of the company’s brand –
AkzoNobel enhanced its value proposition for employees
and business partners. Looking forward, the company will
continue to develop business opportunities in alignment with
the UN Sustainable Development Goals, which are relevant
for the long-term societal needs of each region, creating
more shared value from fewer resources.
Performance and budget planning
Sustainability also forms an integral part of corporate and
management performance and the Supervisory Board
AkzoNobel Report 2017 | Leadership
69
pursued a detailed approach to assessing this performance
during the year. Individual Board of Management and
Executive Committee performance was addressed in
Supervisory Board meetings following recommendations
from the Remuneration Committee. For more details, see the
report of the Remuneration Committee on page 74.
robustness of the company’s risk mitigation and internal
controls. As an aspect of these assurances, the Supervisory
Board considered the risks related to each of the events
set out in the Timeline published on pages 78 and 79 and
scrutinized related mitigating actions.
Discussions on corporate performance are held at each
regular Supervisory Board meeting. These discussions
include business 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 2018 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
prevailing market conditions. Following this assessment, the
Supervisory Board has approved the proposed budget and
operational plan for 2018.
During 2017, 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 difficult market
conditions and significant supply chain disruptions. The nature
of this performance provided a basis for the Supervisory
Board’s approval of the proposal to increase the dividend for
the year 2017. In addition, a €1 billion special cash dividend
– as advance proceeds from the separation of Specialty
Chemicals – was paid on December 7, 2017. Further details on
the 2017 dividend proposal are provided in the Consolidated
financial statements and profit allocation paragraph.
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
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 support our comprehensive global risk
management processes and facilitate risk workshops. During
the workshops, risk scenarios are prepared and assessed,
including the appropriateness of the controls and mitigation
measures. Implementation of risk mitigating measures for
the key risks, as identified by the Board of Management and
the Executive Committee, is monitored by the Supervisory
Board during the year by means of risk updates and reviews.
Further details are included in the Risk management chapter
in the Strategic performance section.
Corporate governance
Following the implementation of the revised Dutch Corporate
Governance Code (the “Code”) with effect from January 1,
2017, a working group was established – comprising internal
experts from each function – to perform an in-depth review
of the corporate governance framework and systems of
the company in the context of compliance with the Code.
Certain practices were revised and the Supervisory Board
is satisfied the company has complied with the Code on a
“comply or explain” basis. Further details can be found in the
Governance and compliance section.
Talent management and succession planning
Talent management has been a strong focus for the
Supervisory Board in 2017. Throughout the year, the
Supervisory Board discussed and undertook detailed
executive succession planning. The executive talent pool,
which was reviewed and defined in 2016, was used to
ensure that executive level succession plans are in place and
implemented in the new organizational structure.
In July 2017, Mr. Ton Büchner resigned as CEO for health
reasons. The Supervisory Board’s consistent and structured
approach to succession planning allowed the company
to be in a position to announce the appointment of
Mr. Vanlancker as CEO shortly after receiving Mr. Büchner’s
resignation. Upon recommendation from the Nomination
Committee, the Supervisory Board designated
Mr. Vanlancker as CEO and Chairman of the Board of
Management, with full power and authority as a member of
the Board of Management, in accordance with the Articles
of Association of Akzo Nobel N.V., which provides for such
designation until formal CEO appointment by shareholders.
Mr. Vanlancker was formally appointed as a member of the
Board of Management by shareholders at the EGM held on
September 8, 2017.
During 2017, the Supervisory Board also discussed
changes to the composition of the Executive Committee.
The Supervisory Board discussed the re-appointment of
Mr. Werner Fuhrmann to replace Mr. Vanlancker as Executive
Committee member responsible for Specialty Chemicals.
Mr. Fuhrmann was welcomed back to the company in
August 2017 to head up Specialty Chemicals and lead
on the separation. He subsequently resigned from the
Executive Committee on January 2, 2018, due to the internal
separation of Specialty Chemicals. The Supervisory Board
also discussed and supported the CEO’s appointment of
Mr. David Allen as Chief Supply Chain Officer and member
of the Executive Committee.
In August 2017, the CFO, Mrs. Maëlys Castella, resigned
from the Board of Management due to health reasons.
She is now on a leave of absence. The Supervisory Board
appointed the Group Controller, Mr. Hans De Vriese, as
interim CFO and member of the Executive Committee,
which ensured continuity while the search for a CFO began.
Following recommendation from the Nomination Committee,
the Supervisory Board was pleased to nominate
Mr. Maarten de Vries as CFO and member of the Board of
Management with effect from January 1, 2018. Mr. De Vries’
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Leadership | AkzoNobel Report 2017
appointment was approved by shareholders at the EGM
held on November 30, 2017.
The Supervisory Board also took the time to discuss its
own composition and succession plans in order to ensure
continued effectiveness. Discussions in this regard were
also held with shareholders. These discussions led to the
nominations of Mrs. Sue Clark and Mr. Patrick Thomas in
August 2017, and of Mr. Michiel Jaski in October 2017, as
members of the Supervisory Board. The appointments were
approved at the EGM held on November 30, 2017, and
the new Supervisory Board members have undergone a
comprehensive induction to AkzoNobel – including
one-on-one meetings with the CEO, CFO, and all other
Executive Committee members. As the third term of
Mr. Antony Burgmans as Chairman of the Supervisory
Our continued commitment to offering the best conditions for employees was recognized by the Top Employers Institute, with the
company receiving official certification in three of its key markets – Brazil, China (pictured) and the UK. The latest accreditation means
AkzoNobel has now achieved Top Employer status for six years in a row in the UK and five consecutive years in China, while in Brazil it’s
the second year running.
Board of AkzoNobel ends in 2018, the Supervisory Board
initiated a search for a new Chairman. The search was
managed by the Nomination Committee, led by
Mr. Byron E. Grote. As per best practice, Mr. Burgmans
did not participate in the Nomination Committee’s work in
this regard. A thorough internal and external search was
conducted, with the assistance of an independent and
well-reputed search firm. The requirements of the Dutch
Corporate Governance Code were considered throughout
the process. Shareholders have been consulted and the
Supervisory Board has nominated the best candidate
for consideration by the shareholders at the Annual General
Meeting of April 26, 2018. For further details, please
refer to the notice of the AGM, which can be found on the
corporate website.
The Supervisory Board has updated its skills matrix under
recommendation from the Nomination Committee. The
updated matrix can be found later in this section.
Supervisory Board evaluation
The Supervisory Board continued to engage in its own
ongoing training during the year and received regular
updates on corporate governance and requirements. An
important preparatory aspect of this was the Supervisory
Board evaluation, which 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
– unless it determines to do so more frequently – instead of
an internal evaluation, the Supervisory Board undergoes an
independent external assessment facilitated by a specialist
consultant.
In 2016, the Supervisory Board underwent an evaluation by
means of an external assessment of performance. During
2017, the Supervisory Board continued to improve on
items highlighted during the external evaluation, including
the approach to risk identification, governance structure,
composition, succession and talent management.
AkzoNobel Report 2017 | Leadership
71
In addition, during 2017 – as part of the selection process
for the three newly appointed members of the Supervisory
Board – an evaluation of the functioning and composition
of the Supervisory Board, its committees and its individual
members was carried out by the Supervisory Board.
The Supervisory Board believes that these appointments
enhance the performance and effectiveness of the
Supervisory Board.
Financial statements and profit allocation
The financial statements of Akzo Nobel N.V. for the financial
year 2017 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 – to the Supervisory Board for
review and approval.
The financial statements, the report and management
letter of the external auditors were discussed by the Audit
Committee extensively with the external auditors, in the
presence of the 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 2017 financial statements of Akzo Nobel N.V. form
an adequate basis to account for the supervision provided
(see the Consolidated financial statements). The Audit
Committee monitors the follow-up by management of the
recommendations made by the external auditors.
The Supervisory Board recommends that the AGM adopts
the financial statements as presented in this Report 2017
and, as proposed by the Board of Management, the
proposed total dividend for 2017 of €2.50 per common
share outstanding. This represents an increase of 52%
over the previous year and the third 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 €0.56 per
common share – which was paid in November 2017 – be
made payable on May 25, 2018. The dividend will, at
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Leadership | AkzoNobel Report 2017
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 2017 and
the members of the Supervisory Board for their supervision
in 2017.
During 2017, the Supervisory Board approved the proposal
of the Board of Management to pay a special cash dividend
of €4.00 per common share outstanding as advance
proceeds from the separation of Specialty Chemicals. The
distribution was paid wholly in cash on December 7, 2017.
Our International brand supplied a bespoke shade of its Toplac paint range for a pilot
boat which escorts solo swimmers and relay teams across the English Channel. Asked
to “think Lady Penelope from Thunderbirds,” our color experts created a specially
formulated pink marine coating which helped the owner of the vessel raise more than
£13,000 for charity.
Audit Committee activities 2017 (see pages 78 and 79 for Timeline of key events)
Q1
Q2
Q3
Q4
• Review Q4 2016 financial
statements and annual results
• Review annual report and accounts
• External audit report
• Review risk management and
internal control
• Auditors’ management letter
• Final dividend 2016
• HSE audit findings
• Review full-year compliance report
• Review five-year outlook and
planning
• Review Q1 2017 financial
statements
• Review year-to-date audit findings
(report of internal audit)
• Review compliance cases
year-to-date
• Follow up on management letter
of PwC
• Review advisor fees
• Treasury and Investor Relations
strategy review
• Pension funds update
• External audit plan 2017
• Review Q2 2017 financial
statements
• Review five-year outlook and
planning
• Implementation of elements of the
Dutch Corporate Governance
Code
• Review Q3 2017 financial
statements
• Recommendation on interim
dividend 2017
• Post CAPEX project reviews
• Information Management Strategy
review (including cyber-security)
• Review compliance cases
year-to-date
• Strategy review for tax
• Review 2018 outlook and budget
• Review audit findings year-to-date
and hard close audit report
• Internal audit plan 2018
• Review of legal liability exposure
report
• Review updates to IFRS and
corporate governance standards
• Separation of Specialty Chemicals
(dual-track process)
• Separation of Specialty Chemicals
(including risks and carve-out)
Audit Committee
Mr. Grote has been chairman of the Audit Committee since
his appointment in 2015. The other members of the Audit
Committee in 2017 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 ten meetings during 2017.
The attendance record of the members can be seen in
the attendance chart on page 68. Issues discussed in
Audit Committee meetings were reported back to the full
Supervisory Board in subsequent meetings.
Audit Committee activities 2017
The table opposite provides an overview of relevant topics
discussed and reviewed in meetings of the Audit Committee
in 2017. In addition to the topics listed, the Audit Committee
also reviewed and discussed the topics related to the events
set out in the Timeline on pages 78 and 79.
External audit
PriceWaterhouseCoopers Accountants N.V., AkzoNobel’s
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 the company financial statements
and report.
The Audit Committee held independent meetings with the
external auditors and critically reviewed and constructively
challenged their audit approach, fees, risk assessment
and audit plan for the year ahead. Other topics discussed
included:
• The hard close, which was discussed with the intention
of improving the 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, 2017
• The quality of the external audit
• Impact of new accounting rules
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 controls,
its processes, outcomes, financial reporting and disclosures.
Regular updates were received from auditors and functions
in this regard, and the Audit Committee was provided
with a comprehensive risk and internal control report during
the year.
In addition, the Audit Committee reviewed the annual
operational plan (including budget) and AkzoNobel’s dividend
proposals. Upon fulfilling its oversight responsibilities in
relation to governance, risk management and internal control
systems, the Audit Committee met regularly with senior
executives. The General Counsel reported regularly to the
Audit Committee on the company’s compliance framework
and compliance matters and activities, and on major
litigation and liability exposures. The Internal Auditor reported
to the Audit Committee on their assessment of the status
of the system of governance, risk management and internal
controls throughout 2017.
Business 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 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.
Separation of Specialty Chemicals
An important feature of the Audit Committee’s work in 2017
has been its attention to the financial impact of the events
set out in the Timeline on pages 78 and 79. In particular, the
Audit Committee has reviewed and closely monitored the
process for the separation of Specialty Chemicals, including
assessing the associated risks and related mitigating actions
and receiving regular financial updates. The Audit Committee
reviewed and discussed the 2014-2016 Specialty Chemicals
financial statements and demerger accounts. The Audit
Committee is confident the separation process remains on
track for April 2018. With regard to the dual-track process,
the Audit Committee continues to carefully review and
consider the preferred method for separating the Specialty
Chemicals business, and will be involved in the assessment
of the value of the Specialty Chemicals business that can be
unlocked in either a private sale or a legal demerger.
Internal audit
The Internal Auditor presents all main audit findings to the
Audit Committee and discusses the progress of the audit
plan. During the year, the Audit Committee approved the
internal audit plan and strategy of the Internal Audit function,
and agreed on the budget and resource requirements for the
function. The Audit Committee also met separately with the
Internal Auditor during the year to discuss the results of the
audits performed and the status of the follow-up on action
plans identified. In 2017, 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 the
annual financial statements, the Audit Committee reviewed
the financial results. In addition, the Audit Committee
reviewed and commented on the interim and final dividend
proposals and on reports and press releases to be
published. These were reviewed in addition to the work
undertaken by the company’s Disclosure Committee in
AkzoNobel Report 2017 | Leadership
73
Audit Committee evaluation
Every year, the Audit Committee undergoes an annual
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
undergoes an independent external assessment of its
effectiveness and performance, facilitated by a specialist
consultant. In 2016, the Audit Committee underwent an
external evaluation of its effectiveness and performance.
During 2017, the Audit Committee continued to improve
on the areas highlighted by the external assessment,
including its role with regard to cyber-security and the
relationship between the Audit Committee and the Board of
Management.
As part of the selection process for the three newly
appointed members of the Supervisory Board, a review of
the functioning and composition of the Supervisory Board
and its committees, including the Audit Committee, was
carried out.
Remuneration Committee
The Remuneration Committee consists of four members,
following the appointment of Mr. Sluimers as Remuneration
Committee Chairman in June 2017 and the resignation of
Ms. Baldauf in December 2017. The other members of the
Remuneration Committee are Mr. Verwaayen, Dr. Kirby and
Mr. Burgmans. The Remuneration Committee held seven
meetings in 2017. The attendance record of the members
can be seen in the previous Supervisory Board attendance
chart on page 68.
Remuneration Committee main 2017 activities
The table below provides an overview of relevant topics
discussed and reviewed in meetings of the Remuneration
Committee in 2017.
Review management performance 2016
The work of the Remuneration Committee during the first
quarter focused on performance for the year 2016 and the
individual performance reviews of the Board of Management
members and members of the Executive Committee. The
Remuneration Committee assessed the adequacy
of the peer group used for benchmarking purposes. Ahead
of the nomination of Mr. Thierry Vanlancker as CEO
and Mr. Maarten de Vries as CFO, the Remuneration
Committee assessed and made recommendations to the
Supervisory Board regarding the main elements of their
respective contracts.
Remuneration policy review
In 2017, the Remuneration Committee reviewed the
Remuneration policy to assess whether it was still aligned
with the external market and the objectives of the company.
Remuneration Committee main 2017 activities
Q1
Q2 & Q3
Q4
• Review of management performance 2016
• Target setting 2017, including CEO targets
• Review of management base salaries for 2017
• 2016 Remuneration report
• Remuneration policy review
• Remuneration policy in 2016 (AGM 2017)
• Retention mechanisms
• Implementation of elements of Dutch
Corporate Governance Code
• Basic principles of Remuneration policy of
Specialty Chemicals
• Forward-looking 2018 target-setting
• Detailed scenario analysis
• Review remuneration strategy, including LTI
and STI plans
• Remuneration policy of Specialty Chemicals
Artists from Argentina and Belgium used our Alba paint to help transform one of the
biggest slums located in the heart of Buenos Aires. Various cultural events were also
planned in the Saldías community, which brought more than 1,000 people together over
the course of several days while the outdoor gallery was created.
reviewing the company’s disclosure of potentially price
sensitive information. Based on these discussions, advice
was provided by the Audit Committee to the Supervisory
Board with regard to the publications and disclosures,
and to the interim and final dividends. All quarterly or
annual releases of financial results, and any potentially
price sensitive public disclosures, are approved by the full
Supervisory Board prior to publication and release.
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.
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Leadership | AkzoNobel Report 2017
Following these discussions, the Remuneration Committee’s
recommendations have been provided to the Supervisory
Board. For further details, reference is made to the
Remuneration report.
Review management base salaries 2017
The appointments of the CEO and the CFO were focus
areas for the Remuneration Committee in its assessment
of base salaries. The Remuneration Committee provided
recommendations on both the CEO and CFO base salaries
ahead of their appointments. The base salaries will continue
to be assessed in light of market conditions, the reward
structures of peer group companies and performance. In
addition, the Remuneration Committee considered the pay
ratios within the company and how these compare with peer
group companies.
The Remuneration Committee also reviewed the base
salaries of 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 Note 23 of 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 2017. 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, the Remuneration Committee, together with the
Supervisory Board, underwent an external evaluation. During
2017, the Remuneration Committee continued to improve
on areas highlighted in the external review, including the
maintenance of inter-committee dynamics.
As part of the selection process for the three newly
appointed members of the Supervisory Board, a review of
the functioning and composition of the Supervisory Board
and its committees, including the Remuneration Committee,
was carried out.
Nomination Committee
The Nomination Committee consists of four members,
following the appointment of Mr. Grote as Nomination
Committee member in April 2017 and the resignation of Ms.
Baldauf in December 2017. During the year, the Nomination
Committee was chaired by Ms. Baldauf, until she was
succeeded by Mr. Burgmans in April. The other members of
the Nomination Committee are Dr. Kirby and Mr. Verwaayen.
The Nomination Committee held three meetings in 2017.
The attendance record of the members of the Nomination
Committee can be seen in the attendance chart on page 68.
Following the announcement in July 2017 that, barring any
exceptional circumstances, Mr. Burgmans intends to retire
as Chairman of the Supervisory Board upon completion
of his third term in office in April 2018, a process was
undertaken by the Nomination Committee to identify his
successor. This process was led by Mr. Grote. Mr. Burgmans
did not participate in the Nomination Committee’s work
in this regard, as is best practice. A thorough internal and
Nomination Committee main 2017 activities
external search was conducted, with the assistance of an
independent and well-reputed search firm. The requirements
of the Dutch Corporate Governance Code were considered
throughout the process. Shareholders have been consulted
and the Supervisory Board has nominated the best
candidate for consideration by the shareholders at the
Annual General Meeting of April 26, 2018. For further details,
please refer to the notice of the AGM, which can be found
on the corporate website.
Our Dulux paint was used to color and enliven the Sekanak Riverside neighborhood in
Palembang, Indonesia. The project was part of an initiative designed to reinforce the
government’s move to beautify the city and develop Palembang as a tourist destination.
Q1
Q2 & Q3
Q4
• Supervisory Board profile review
• Supervisory Board succession planning
• Board of Management succession planning
• Identification and nomination of Mrs. Clark for
appointment to the Supervisory Board
• Identification and nomination of Mr. Thomas for
appointment to the Supervisory Board
• Nomination of Mr. Thierry Vanlancker for
appointment to the Board of Management at
the EGM in September 2017
• Supervisory Board succession planning
• Identification and nomination of Mr. Jaski for
appointment to the Supervisory Board
• Identification and nomination of
Mr. Maarten de Vries for appointment to the
Board of Management at the EGM in
November 2017
AkzoNobel Report 2017 | Leadership
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Nomination Committee main 2017 activities
The table on the previous page provides an overview of
relevant topics discussed and reviewed in meetings of the
Nomination Committee in 2017. In addition to the topics
listed, the Nomination Committee also reviewed and
discussed the relevant topics related to the events set out in
the Timeline on pages 78 and 79.
Board of Management and executive
succession
Following the resignation of Mr. Büchner as CEO in
July 2017, the Nomination Committee recommended to
the Supervisory Board that Mr. Vanlancker be designated
as CEO and Chairman of the Board of Management,
with full power and authority as a member of the Board of
Management, in accordance with the Articles of Association
of Akzo Nobel N.V., which provides for such designation
until formal CEO appointment by shareholders. Mr. Thierry
Vanlancker was formally appointed as CEO and Chairman of
the Board of Management by shareholders at the EGM held
on September 8, 2017.
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
Investor relations
Manufacturing experience
Supply chain/logistics experience
Social, environmental or sustainability experience
Finance expert
Four or less external directorships
Dutch/EU national
Non-EU national
Pensions experience
Business-to-business sales experience
R&D experience
Legal experience
Industrial/employment relations
Risk management
Consulting
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Leadership | AkzoNobel Report 2017
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P. Bruzelius
S. Clark
B. Grote
L. Hughes
M. Jaski
P. Kirby
D. Sluimers
P. Thomas
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continued to improve on areas highlighted during the
external review.
As part of the selection process for the three newly
appointed members of the Supervisory Board, a review of
the functioning and composition of the Supervisory Board
and its committees, including the Remuneration Committee,
was carried out.
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 during what was an eventful
2017. In particular, the Supervisory Board would like to
extend its sincere gratitude to Mr. Ton Büchner for his service
to AkzoNobel and to wish him the very best for the future.
Amsterdam, March 7, 2018
The Supervisory Board
The Nomination Committee’s regular review of the
company’s succession plan allowed the company to be in a
position to announce the appointment of Mr. Vanlancker as
CEO shortly after receiving Mr. Büchner’s resignation. During
2017, following the resignation of Mrs. Castella from the
Board of Management for health reasons, the Nomination
Committee initiated the search for a new CFO. The
Nomination Committee was pleased to recommend to the
Supervisory Board that Mr. Maarten de Vries be nominated
for appointment as CFO and Board of Management
member. Mr. De Vries was appointed as CFO and member
of the Board of Management (effective January 1, 2018) by
shareholders at the EGM held on November 30, 2017.
During 2017, the Nomination Committee was consulted and
gave its advice regarding the following (re)appointments by
the CEO to the Executive Committee: Mr. Werner Fuhrmann
as Executive Committee member responsible for Specialty
Chemicals; Mr. David Allen as Chief Supply Chain Officer;
and Mr. Hans De Vriese as interim CFO.
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
and the Nomination Committee also continued their work in
defining and identifying a talent pool for future development
and purposes of executive succession planning.
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 accordingly.
During 2017, the Nomination Committee discussed the
size, structure and composition of the Supervisory Board in
order to determine appropriate criteria for the selection of
candidates for Supervisory Board membership. An external
search agency was engaged for the fielding of candidates
for succession and nomination to the Supervisory Board.
The agency employed a rigorous search process after
first gaining a thorough understanding of the culture of
AkzoNobel, its strategic ambitions, the specific leadership
roles and competencies needed to meet those ambitions.
Based on the results of these Nomination Committee
discussions and the work of the external search agency,
the Nomination Committee was able to recommend to the
Supervisory Board the nomination of Mrs. Clark, Mr. Thomas
and Mr. Jaski as new Supervisory Board members at the
EGM of November 30, 2017.
In addition, during 2017 the search for a new Chairman
was initiated. Following a thorough internal and external
search, with the assistance of an independent and well-
reputed search firm, the Nomination Committee was able to
recommend to the Supervisory Board the nomination of a
strong candidate for consideration by the shareholders at the
Annual General Meeting of April 26, 2018. For further details,
please refer to the notice of the AGM, which can be found
on the corporate website.
The Supervisory Board has updated its skills matrix, as
shown on the opposite page. The skills matrix, full details of
the current Supervisory Board composition, the schedule
of Supervisory Board succession and the profiles of the
Supervisory Board members can also be found on the
corporate 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, the Nomination Committee underwent an external
evaluation. During 2017, the Nomination Committee
AkzoNobel Report 2017 | Leadership
77
Timeline of key events in 2017
An overview of significant developments requiring
substantial involvement from the Board of Management
and the Supervisory Board.
April 19
Announcement of record
profitability in Q1 results
April 25
AGM
March 2
Receipt of first
PPG proposal
March 21
Receipt of second
PPG proposal
April 10
Elliott requests EGM
(including agenda item
to consider dismissal of
AkzoNobel Chairman)
Investor Day
Presentation of updated
strategy to accelerate growth
and value creation (including
the separation of Specialty
Chemicals)
Rationale for
rejection of
Elliott’s EGM request
explained
May 8
Rejection of third
PPG proposal
May 30
PPG sends letter
to AkzoNobel
with additional
thoughts on third
proposal
March 9
Rejection of first PPG
proposal and announcement
of review of strategic options
to separate Specialty
Chemicals
March 22
Rejection of second
PPG proposal
April 12
Rejection of Elliott’s
EGM request
May 29
Enterprise Chamber denies
Elliott’s request for interim
measures
May 6
Meeting between
AkzoNobel and
PPG
38 Supervisory Board
meetings in total
Elliott: Elliott Advisors (UK) Ltd.
PPG: PPG Industries Inc.
York: York Capital Management Global Advisors Llc.
USS: Universities Superannuation Scheme Limited
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Leadership | AkzoNobel Report 2017
April 24
Receipt of third
PPG proposal
May 9
Elliott begins proceedings
at Enterprise Chamber
requesting for inquiry, EGM
and appointment of
independent Supervisory
Board member
June 1
PPG withdraws
proposal
Response letter
from AkzoNobel to
PPG
July 19
Resignation of Ton Büchner
as CEO and appointment
of Thierry Vanlancker
as CEO
July 25
Announcement of actions to
improve shareholder relations,
date set for EGM and
publication of H1 results
August 16
AkzoNobel reaches standstill
agreement with Elliott
AkzoNobel nominates
Sue Clark and Patrick Thomas
as new Supervisory Board
members
September 19
Nomination of
Maarten de Vries as CFO
October 26
USS withdraws its
Supervisory Board nominee
Announcement of new
structure for Executive
Committee
November 30
EGM – appointments of
Maarten de Vries as
CFO and member of the
Board of Management;
and Patrick Thomas,
Sue Clark and Michiel Jaski
as Supervisory Board
members. Approval for
separation of Specialty
Chemicals via legal demerger
or private sale
July 24
USS proposes Supervisory
Board nominee as agenda
item for next EGM
September 8
EGM – appointment of
Thierry Vanlancker as member
of the Board of Management
and explanation of response
to PPG’s proposals
October 18
Nomination of Michiel Jaski as
Supervisory Board member
and date set for EGM,
including USS’ proposal
nominating a Supervisory
Board member
July 7
Elliott and York commence
EGM authorization
proceedings at the
Amsterdam District Court
July 27
Amsterdam District
Court hearing
CFO Maëlys Castella goes
on leave of absence,
Hans De Vriese appointed
interim CFO
Announcement
of Q3 results
August 10
Amsterdam District
Court denies Elliott’s
and York’s EGM
authorisation request
Announcement of new
management structure and
measures to ensure delivery
of 2020 financial guidance
November 21
Confirmation of
termination of merger
talks with Axalta
October 30
Confirmation of
merger talks with
Axalta
December 7
Payment of €1 billion
special dividend
following approval of
separation of Specialty
Chemicals via legal
demerger or private sale
December 31
Ready to deliver internal
separation on January 1,
2018, and on track to
complete the separation
process as planned
AkzoNobel Report 2017 | Leadership
79
Governance and compliance
JOZO has been adding a pinch of love to people’s lives since 1929. Our long history has enabled us to master the skills of mining and grinding salt to perfection. Just a pinch of salt can turn a plate of food into a culinary experience. So we source from the best sources nature has to offer. Rebranded in 2017 to help consumers make the best choice and improve their taste experience, the range of JOZO products continues to evolve and contribute to a healthy lifestyle. From extra fine salt to big flakes, JOZO is your essential kitchen companion. Governance and compliance
In this section, we outline our corporate governance
structure and explain the remuneration of our
Board of Management. Information about compliance
and integrity management and AkzoNobel on the capital
markets is also included.
Corporate governance statement
Compliance and integrity management
Remuneration report
AkzoNobel on the capital markets
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AkzoNobel Report 2017 | Governance and compliance
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82Governance and compliance | AkzoNobel Report 2017Corporate 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 international OTCQX platform in the US.The company’s management and supervision are organized under Dutch law in a so-called two-tier system, comprising a Board of Management, solely composed of executive directors, and a Supervisory Board, solely composed of non-executive directors. The 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 Annual General Meeting of shareholders (AGM) for the performance of their functions.Our corporate governance framework is based on the company’s Articles of Association, the requirements of the Dutch Civil Code, the Dutch Corporate Governance Code (the “Code”), and all applicable laws and regulations, including securities laws. The Code contains principles and best practices for Dutch companies with listed shares. Deviations from the Code are explained in accordance with the Code’s “comply or explain” principle. With the exception of those aspects of our governance which can only be amended with the approval of the AGM, the Board of Management and the Supervisory Board may make adjustments to the way the Code is applied, if this is considered to be in the 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 subsequent AGM.Executive CommitteeBoard of Management2017 organizational structurePaints and CoatingsSpecialty ChemicalsIntegrated Supply ChainFunctionsCountriesShareholdersSupervisory Board In 2016, a revised version of the Code was published by
the Corporate Governance Code Monitoring Committee
(website: www.mccg.nl). The revised Code was implemented
with effect from January 1, 2017, and provides for a more
thematically oriented code, with greater focus on culture
and long-term value creation. The company assessed the
changes to the Code by establishing a working group –
comprising internal experts from each function – to perform
an in-depth review of the corporate governance framework
and systems of the company in the context of compliance
with the Code. A gap analysis was carried out by the
working group highlighting certain areas or practices which
required amendment. The gap analysis was reviewed by
the Board of Management and the Supervisory Board and,
upon recommendation from the working group, various
revisions to current practices were implemented where
required. In addition, the revised Code has been reflected
in the Rules of Procedure of the Board of Management and
of the Supervisory Board, which are both available on the
corporate website.
Board of Management and
Executive Committee
General
The Board of Management is entrusted with the manage-
ment of the company. When it comes to the management
of our business, 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 the Chief Financial Officer
(CFO)), the Chief Operating Officer (COO), the Chief Supply
Chain Officer, the General Counsel and the functional leader
of Human Resources. This ensures functional, operational
and commercial expertise is entrenched at the highest level
in the organization. Among other responsibilities, the Board
of Management defines the strategic direction. It establishes
and maintains internal policies and procedures for effective
risk management and control, manages the realization of the
company’s operational and financial targets, its sustainability
Meetings with senior management around the world were high on the agenda for our new CEO, Thierry Vanlancker, during the year.
This included a visit to Asia, when he met Dr. Lin Liangqi, President of AkzoNobel China.
performance and its pursuit of long-term value creation. In
fulfilling their duties, Board of Management members are
assisted by the Executive Committee and guided by the
interests of the company and its affiliated enterprises, taking
into consideration the relevant interests of the company’s
stakeholders.
of Management are incorporated in these documents.
The Board of Management believes these values contribute
to a culture focused on long-term value creation and
actively encourages these values through leading by
example. Company culture is regularly discussed with the
Supervisory Board.
The Board of Management and Executive Committee
promote openness and engagement through a SpeakUp!
grievance mechanism and have established a Code
of Conduct, directives, rules, guidelines and manuals
incorporated in the company’s Directives framework, in
order to drive a culture of good governance, consistency
and functional excellence. The values of good governance,
sustainability and teamwork adopted by the Board
The Board of Management takes precedence; all Executive
Committee decisions require 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 accountable for all decisions made by
the Executive Committee.
AkzoNobel Report 2017 | Governance and compliance
83
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 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 corporate 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.
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.
Appointment
Board of Management members are appointed and removed
from office by the AGM. This year, the Board of Management
members were appointed by the EGM (Extraordinary General
THE CEO LEADS
THE EXECUTIVE
COMMITTEE IN
ITS OVERALL
MANAGEMENT
OF THE
COMPANY
Meeting). The other members of the Executive Committee
are appointed by the CEO, after consultation with the
Supervisory Board. Board of Management members 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.
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% of the outstanding share capital in
order to be adopted at an AGM (or EGM).
AkzoNobel believes in the strength of diversity and in
accordance with the Code, a Diversity Policy has been
adopted for the composition of the Board of Management
and Executive Committee. The objective of the Diversity
Policy is to enrich the Board of Management’s perspective,
improve performance, increase member value and enhance
the probability of achievement of AkzoNobel’s goals and
objectives. The Policy addresses concrete targets relating
to diversity, including nationality, age, gender, education and
work background. A consistent and structured approach is
applied to succession planning for the Board of Management
and Executive Committee, taking into account the
implementation of the Diversity Policy. AkzoNobel currently
diverges from the gender target of at least 30% female and
at least 30% male Board of Management members. It is
believed that due to the size and scale of the Board
of Management (being only two members), this divergence
is justified as it has ensured the best candidates for
the roles were nominated by the Supervisory Board and
appointed by shareholders.
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 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 member of the Executive Committee. Furthermore,
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Governance and compliance | AkzoNobel Report 2017
an exception can be made for an executive joining the
Executive Committee upon approval from the Supervisory
Board. 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.
Currently, no outside directorships are held by members of
the Board of Management and Executive Committee.
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 May, a tribute to Dutch footballer Johan Cruyff was unveiled in the Amsterdam neighborhood where he grew up.
The mural, designed by Brazilian artist Paulo Consentino, was created using our Sikkens paint products.
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 2017, no transactions were reported under which
a member of the Board of Management or Executive
Committee had a conflict of interest which 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
which is 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 Committee. The components of Board
of Management remuneration, as well as the remuneration
policy itself, are described in the Remuneration report
and Note 23 of the Consolidated financial statements.
The service contracts of the members of the Board of
Management do contain change of control provisions.
Further details can be found in the Remuneration report.
The service contracts of the Board of Management are
compliant with the Code. The main elements of these
contracts are available on the corporate 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. The format
of the OCC was updated in 2017 to accurately reflect
organizational changes in order to ensure the highest level of
corporate governance is applied throughout the organization.
For the Paints and Coatings business, the OCC consists
of a monthly Business Review Meeting, comprising the CEO,
the CFO, the COO, the Chief Supply Chain Officer
and the leadership of the Paints and Coatings business.
For the Specialty Chemicals business, the OCC consists of
an Operational Review Meeting comprising the CEO, the
CFO and the leadership of the Specialty Chemicals business.
AkzoNobel Report 2017 | Governance and compliance
85
The other members of the Executive Committee have a
standing invitation to these meetings. The meetings provide
a forum for regular business and operational oversight, with a
focus on commercial activities and supply chain processes.
Executive Committee meetings are frequently held
following the Business Review Meeting and the Operational
Review Meeting, at which the implementation of the
company’s strategy is discussed. The functional agendas
of Sustainability, HSE&S, Human Resources, Commercial
Excellence, Research and Development and Integrated
Supply Chain are also discussed at these Executive
Committee meetings. Additional meetings are held to
discuss specific topics as required.
The Board of Management and Executive Committee have
delegated authorities to individual Executive Committee
members, to the Operational Review Meeting of Specialty
Chemicals and to certain committees and councils.
In November, we opened our first regional Application Training Center in Dubai. The
state-of-the-art facility will offer advanced training programs for customers, enabling
them to build capacity and deepen their knowledge of paints and coatings. It will focus in
particular on original equipment manufacturers and refinishers in industries as diverse as
automotive and rail, aerospace and consumer electronics.
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Governance and compliance | AkzoNobel Report 2017
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 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 (HR), Sustainability,
Operations, HSE&S, Procurement and Communications.
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), the Corporate Secretary,
the Group Controller, two senior business managers and
Corporate Directors of Internal Audit, Compliance, HR and
HSE&S. Other members may be added to the Committee 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 details 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.
Executive Committee Pensions
The Executive Committee Pensions oversees the general
pension policies of the various pension 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 HR, the General
Counsel, the Treasury function, Pensions and Rewards.
Disclosure Committee
The Board of Management has established a Disclosure
Committee comprising the Director Legal Corporate, the
Corporate Secretary, the Group Controller and the Director of
Investor Relations. The task of the Disclosure Committee 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.
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
Composition
the Diversity Policy is to ensure a balanced composition,
Supervisory Board advises the Board of Management and
The list of Supervisory Board members, including their
taking account of nationality, age, gender, education and
Executive Committee, while taking into account the interests
biographies, can be found in the Leadership section. In
work background. During 2017, the Diversity Policy was
of the company and its stakeholders. Major investments,
compliance with the Dutch Civil Code, the Supervisory Board
implemented through the Supervisory Board’s consistent
acquisitions and functional initiatives are subject to
has a balanced composition, consisting of at least 30%
and structured approach to succession planning. There are
Supervisory Board approval.
female and at least 30% male members, reflecting the nature
no divergences to report. The Diversity Policy can be found
and variety of the company’s businesses, their international
within the Supervisory Board’s Rules of Procedures on the
The Chairman of the Supervisory Board determines the
spread and expertise in fields such as finance, economics,
corporate website.
agenda, chairs Supervisory Board meetings and the AGM,
information technology (IT), societal, environmental and legal
monitors the proper functioning of the Supervisory Board
aspects of business, government and public administration.
When nominating and selecting new candidates for the
and its committees, arranges for adequate provision of
Consequently, the current members represent four
Supervisory Board, the Supervisory Board profile and skills
information to its members and acts on behalf of the
nationalities and have a diverse and appropriate experience
matrix, the requirements of the Act on Management and
THE CURRENT MEMBERS
REPRESENT FOUR NATIONALITIES
AND HAVE A DIVERSE AND
APPROPRIATE EXPERIENCE
Supervision, and the principles and provisions of the Code,
are taken into account.
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,
the Rules of Procedure of the Supervisory Board have been
updated such that Supervisory Board members are eligible
for re-election once for a period not exceeding four years.
Thereafter, members may be re-elected a second time for
a period of two years. This period may be extended by two
years at the most. In the event of a re-appointment after an
Supervisory Board as the main contact for the Board of
with the markets in which AkzoNobel operates, as well as
eight-year period, reasons shall be given in the Report of the
Management and Executive Committee. He initiates the
knowledge of different markets and non-operational areas.
Supervisory Board. Terms of appointment are based on a
evaluation of the functioning of the Supervisory Board, its
Their expertise includes finance, economics, international
rotation schedule, available on the corporate website.
committees, individual members and the functioning of the
business, general and strategic management, employment
In 2017, three appointments to the Supervisory Board were
Board of Management. Throughout the year, the Chairman
and industrial relations, risk management, IT, commercial
proposed to, and approved by, the Extraordinary General
of the Supervisory Board ensures that regular updates
management, business-to-business sales, research and
Meeting of shareholders held on November 30.
are provided to the Supervisory Board on the company’s
development, manufacturing and the societal, environmental
businesses, sustainability, legal matters, social and corporate
and legal aspects of business, government, investor relations
Induction and training
governance, accounting, investor relations, compliance,
and public administration. The Supervisory Board maintains
Following appointment to the Supervisory Board, new
risk management and internal controls. The Supervisory
a skills matrix, which provides an overview of the skills
members receive a comprehensive induction tailored to their
Board is governed by its Rules of Procedure (available on
and experience of individual Supervisory Board members.
individual needs. This includes extensive briefings about all
the corporate website). The Rules of Procedure include the
The Supervisory Board skills matrix can be found in the
major business and functional aspects of the company and
profile and the Charters of the Committees and set out the
Report of the Supervisory Board. In addition, in accordance
its corporate governance and compliance requirements. The
tasks and responsibilities of the Supervisory Board, as well
with the Code, a Diversity Policy has been adopted for the
induction includes meetings with the CEO, the CFO, all other
as its operational processes.
composition of the Supervisory Board. The objective of
Executive Committee members and relevant members of
AkzoNobel Report 2017 | Governance and compliance
87
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
Composition
The list of Supervisory Board members, including their
biographies, can be found in the Leadership section. In
compliance with the Dutch Civil Code, the Supervisory Board
has a balanced composition, consisting of at least 30%
female and at least 30% male members, reflecting the nature
and variety of the company’s businesses, their international
spread and expertise in fields such as finance, economics,
information technology (IT), societal, environmental and legal
aspects of business, government and public administration.
Consequently, the current members represent four
nationalities and have a diverse and appropriate experience
THE CURRENT MEMBERS
REPRESENT FOUR NATIONALITIES
AND HAVE A DIVERSE AND
APPROPRIATE EXPERIENCE
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
governance, accounting, investor relations, compliance,
risk management and internal controls. The Supervisory
Board is governed by its Rules of Procedure (available on
the corporate 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.
with the markets in which AkzoNobel operates, as well as
knowledge of different markets and non-operational areas.
Their expertise includes finance, economics, international
business, general and strategic management, employment
and industrial relations, risk management, IT, commercial
management, business-to-business sales, research and
development, manufacturing and the societal, environmental
and legal aspects of business, government, investor relations
and public administration. The Supervisory Board maintains
a skills matrix, which provides an overview of the skills
and experience of individual Supervisory Board members.
The Supervisory Board skills matrix can be found in the
Report of the Supervisory Board. In addition, in accordance
with the Code, a Diversity Policy has been adopted for the
composition of the Supervisory Board. The objective of
the Diversity Policy is to ensure a balanced composition,
taking account of nationality, age, gender, education and
work background. During 2017, the Diversity Policy was
implemented through the Supervisory Board’s consistent
and structured approach to succession planning. There are
no divergences to report. The Diversity Policy can be found
within the Supervisory Board’s Rules of Procedures on the
corporate website.
When nominating and selecting new candidates for the
Supervisory Board, the Supervisory Board profile and skills
matrix, the requirements of the Act on Management and
Supervision, and the principles and provisions of the Code,
are taken into account.
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,
the Rules of Procedure of the Supervisory Board have been
updated such that Supervisory Board members are eligible
for re-election once for a period not exceeding four years.
Thereafter, members may be re-elected a second time for
a period of two years. This period may be extended by two
years at the most. In the event of a re-appointment after an
eight-year period, reasons shall be given in the Report of the
Supervisory Board. Terms of appointment are based on a
rotation schedule, available on the corporate website.
In 2017, three appointments to the Supervisory Board were
proposed to, and approved by, the Extraordinary General
Meeting of shareholders held on November 30.
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
its corporate governance and compliance requirements. The
induction includes meetings with the CEO, the CFO, all other
Executive Committee members and relevant members of
AkzoNobel Report 2017 | Governance and compliance
87
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.
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 2017, no transactions were reported under
which a member had a conflict of interest which was of
material significance to the company.
Independence of the Supervisory Board
Supervisory Board members are required to act critically and
independently of one another, the Board of Management,
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% of the share capital of the company)
between Supervisory Board members or their closely
associated persons and the company
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
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
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 23
of the Consolidated financial statements.
Supervisory Board Committees
The Supervisory Board has established three permanent
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.
In 2017, the Supervisory Board also established a temporary
committee – the Shareholders Relations Committee.
Its role is to oversee the strengthening of AkzoNobel’s
relationship with shareholders and review relevant feedback
from the investor community. The committee reports on its
deliberations and findings to the full Supervisory Board. The
Shareholders Relations Committee comprises Mr. Verwaayen
(Chairman), Mr. Burgmans, Dr. Kirby and Mr. Grote,
with three meetings being held in 2017. David Mayhew
and the team at JP Morgan Cazenove have been appointed
as advisors to this committee, with Mr. Lloyd Midwinter
(AkzoNobel’s Director of Investor Relations) acting
as Secretary.
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, the Group Controller, the 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 internal auditor 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.
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Governance and compliance | AkzoNobel Report 2017
AkzoNobel’s color expertise was called upon to create a special gold custom coating for China’s latest generation of high-speed trains.
We supplied a bold new look for the sleek Fuxing CR400BF, which has been dubbed the Golden Phoenix (fuxing means rejuvenation).
It’s one of only two Fuxing trains to have been launched so far.
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 appointments 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, the diversity requirements of the Dutch Civil
Code and the Code, as well as the need for knowledge of
the markets in which the company operates and insights
from other markets and non-operational areas.
Remuneration Committee
The Remuneration Committee is responsible for making
proposals to the Supervisory Board on the Remuneration
Policy for the Board of Management, for overseeing the
remuneration of 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 periodic
reviews 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
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 corporate website. Matters proposed
for consideration, approval or adoption are tabled as
separate agenda items and explained in writing in advance
of the meeting.
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 (re)election of members of the Board of Management
and the Supervisory Board
• The remuneration of the members of the Supervisory
Board
• Material changes to the remuneration policy of the Board
of Management
• Other important matters, such as major acquisitions or the
sale or demerger of a substantial part of the company, as
required by law
• The authorization of the Board of Management to issue
new 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% of the total issued capital may submit proposals
for the AGM agenda. Such proposals must be adequately
AkzoNobel Report 2017 | Governance and compliance
89
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 corporate
website within three months of the meeting date. The final
and duly signed minutes are made available on the corporate
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
one-third of a common share). On December 31, 2017, a
total of 252,620,585 common shares and 48 priority shares
had been issued. The company has been informed that by
December 31, 2017, MFS Investment Management and
Elliott Advisors (UK) Limited each held more than 5% 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 the Supervisory Board, as well as the right to approve
amendments to the Articles of Association of the company.
No cumulative preferred shares have been issued to date.
Cumulative preferred shares merely have a financing
function, which means if necessary, and possible, they
will be issued at or near to the prevailing quoted price for
common shares.
The AGM held on April 25, 2017, authorized the Board of
Management for a period of 18 months after that date, or,
if earlier, until the date on which the AGM again extends the
authorization – 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% of the
issued share capital, or 20% in case of a merger, acquisition
or strategic alliance. The Board of Management was also
given a mandate to acquire up to a maximum of 10% of the
issued share capital of the company.
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 4.3.3 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
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 4.1.6
and 4.1.7 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 every
four years and the results of this review and assessment are
reported to the AGM.
The external auditor attends the majority of Audit Committee
meetings, 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, the key audit
matters are highlighted. The auditor receives the financial
information and underlying reports of the quarterly figures
and can comment on 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 Board of Management report
their dealings with the external auditor to the Supervisory
Board annually and discuss the auditor’s independence.
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Governance and compliance | AkzoNobel Report 2017
91AkzoNobel Report 2017 | Governance and compliancePursuant 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. The AGM on April 29, 2014, appointed PricewaterhouseCoopers Accountants N.V. as external auditors effective January 1, 2016.Non-audit servicesOne 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. These documents are available on the corporate website.Internal AuditThe 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 of 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. (See 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 effectiveness of the company’s internal control framework (see diagram on this page). As in previous years, we continued to work on system-embedded controls, standard role design and segregation of duty monitoring. The design of the internal control self-assessment process was adapted to The 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.the changes in the company structure and an integrated department for Internal Control (IC) was established to optimize the InControl efforts across all businesses and functions. This included an IC office to centralize and standardize guidance, documentation and tooling and maintain internal and external relationships.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. All employees and the members of the Board of Management, 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.The Board of Management, Executive Committee and Supervisory 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. In addition, all employees, and in particular members of the Disclosure Committee, are subject to the AkzoNobel Rules on Disclosure Control.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.The AkzoNobel internal control frameworkControl environmentSetting objectivesResponding to riskControl activitiesMonitoring activitiesInformation and communication Compliance and integrity management
Integrity is one of our core
principles. We are committed to
conducting business in a lawful,
fair and honest way and expect
the same from our business
partners. We have a robust com -
pliance program which is focused
on the risks most material to the
company and its stakeholders.
Risk identification and
prioritization
We identify risks through monitoring legal developments,
SpeakUp! grievance investigations, classroom training,
internal control self-assessments, supplier self-assessments,
internal audits, business partner audits and due diligence
in our value chain. Identified risks are assessed through
several processes, including Enterprise Risk Management
(see page 31) and Compliance Risk Review. The latter is
part of the annual Non-Financial Letter of Representation
(NFLoR) process, which results in a review meeting between
the business or functional leader, the Compliance Director,
Legal Director and the responsible Executive Committee
member, where potential compliance deficiencies, risks and
improvement opportunities are reviewed.
In 2017, we enhanced the use of the Ecovadis self-
assessment to identify compliance risks at key suppliers and
performed due diligence into several supply chains to assess
human rights risks (see page 186).
Due to its large product portfolio, international commerce
with numerous trade partners and contact with authorities,
the company’s top three inherent compliance risks are in
the fields of competition law, export control and anti-bribery.
In 2015, a multi-year compliance strategy was introduced.
As a first step, we launched a new Code of Conduct and a
Business Partner Code of Conduct, as well as relaunching
our SpeakUp! grievance mechanism. In 2016, we enhanced
the compliance organization by establishing more expert
roles and appointing dedicated compliance and privacy
managers and export control officers. We also strengthened
our export control framework and developed a human
rights program. In 2017, we introduced a business partner
compliance program, conducted human rights due diligence
and implemented a standardized process for privacy impact
assessments on high risk personal data processing activities.
Along the way, we further strengthened our integrity
culture and enhanced the use of technology to support our
compliance processes.
Compliance framework
Risk identification
and prioritization
Assessment and
improvement
Policies and
controls
Reporting and
certification
Culture
Governance and
organization
Grievance and
investigation
Communication
and education
Screening and
monitoring
We have
further
strengthened
our integrity
culture and
enhanced
the use of
technology
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Governance and compliance | AkzoNobel Report 2017
Important inherent compliance risks also exist in the fields of
fraud, human rights and protection of data. Programs are in
place to mitigate each of these risks.
Policies and controls
Our Code of Conduct and Business Partner Code of
Conduct explain our three core principles of safety, integrity
and sustainability to our employees and business partners
and outline what we expect from them. Both are available in
32 languages. The two Codes are supplemented by internal
rules and procedures – which are available to employees in
our Directives Portal – and by agreements with our business
partners. Employees are asked to confirm compliance with
the Code of Conduct as part of their annual performance
evaluation and business partners are asked to sign our
Business Partner Code of Conduct or show they apply
similar business principles.
In 2017, we redefined the company’s legal compliance
hard and soft controls and embedded them in the Internal
Control Self-Assessment framework. We also improved
our Directives Portal by adding functionality which shows
the latest rule changes. As a result of our human rights
program, we implemented new rules against discrimination
and harassment in the workplace (see page 186). Additional
guidelines on customer loyalty programs and competition
law were also introduced.
Governance and organization
The Board of Management and Executive Committee
are responsible for an effective compliance management
framework across all AkzoNobel group entities, and for
maintaining an integrity culture which supports long-term
value creation. The Audit Committee supervises this
responsibility on behalf of the Supervisory Board.
Corporate Compliance committees
The Executive Committee has appointed four corporate
committees to oversee our compliance efforts: the Corporate
Compliance Committee, the Sensitive Country Committee,
the Human Rights Committee and the Privacy Committee.
These committees consist of senior leaders from different
disciplines in the organization, and meet on a quarterly basis.
They each establish, monitor and assess the frameworks
for which they are responsible. Their composition and
responsibilities are explained on our corporate website.
Business Unit/Function committees and officers
Business and functional leadership is responsible and
accountable for running business operations compliant
with laws and company rules. Each business unit and
large function has a Compliance Committee chaired by
its Managing Director, and has appointed a member of its
management team as its Compliance Officer. This committee
plans to meet quarterly and is responsible for risk assessment
and mitigation, implementation of compliance programs,
ensuring employees are educated and for disciplinary
measures in the event of violation of company rules. The
Compliance Officer manages this on a day-to-day basis.
Compliance function
The Compliance function, led by the Compliance Director –
reporting to the General Counsel – manages the compliance
framework on behalf of the corporate compliance
committees mentioned above. The Compliance function
hosts the Codes of Conduct and Directives Portal, develops
and communicates rules and guidance, manages the
compliance training program, facilitates risk assessment,
performs compliance due diligence, manages investigations,
facilitates compliance self-assessment and reports on
compliance to senior leadership. Its legal experts in the field
of competition law, export control, anti-bribery, privacy and
human rights provide legal advice, training and support. Its
Compliance Managers support the BU/function Compliance
Officers in managing the day-to-day compliance operations
in the businesses and functions.
Internal Audit
The effectiveness of the Compliance framework is audited by
the Internal Audit function. Following investigations, Internal
Audit may also be engaged to conduct additional reviews to
establish root causes.
Communication and education
Our core principles and rules are communicated to
employees in several ways, including a comprehensive
digital training program, classroom training and compliance
communications. Communication and training programs
serve two purposes – to educate employees on the rules
that apply to their role, and to inspire them to apply high
ethical standards in the choices they make.
Digital training
The Code of Conduct and Life-Saving Rules digital trainings
are mandatory for every employee. Competition law, export
control and sanctions, fraud, anti-bribery, information security
and privacy digital trainings are mandatory for employees
defined on the basis of their role. Digital training completion
is monitored by the BU/function Compliance Committees on
a quarterly basis. Digital trainings are periodically refreshed
to increase engagement. In 2017, we introduced new
digital trainings on information security (more than 38,000
employees) and competition law (over 15,000 employees). At
the end of 2017, the completion rates for Code of Conduct
and Life-Saving Rules were 90% and 87% respectively (82%
and 78% in 2016), while the overall completion rate for all
compliance digital trainings was 85% (82% in 2016).
Classroom training
Classroom training is provided on a variety of topics,
including general compliance awareness training, the Code
of Conduct, SpeakUp!, competition law, export control and
sanctions, and discrimination and harassment.
AkzoNobel Report 2017 | Governance and compliance
93
Communication
The Compliance function issues newsletters and holds
WebEx sessions on a quarterly basis. Bulletins on specific
items of interest are also issued, and in 2017, subjects
covered in these bulletins included conflict of interest,
customer loyalty programs and privacy. In addition, the
Compliance function started communicating (anonymized)
examples of investigated violations and disciplinary sanctions
through its newsletter. It also ensured that the importance
of compliance was reflected in a variety of senior leadership
business messages.
Compliance portal
A comprehensive Compliance web portal is available to
employees containing guidance, templates and references
on various compliance topics.
Screening and monitoring
We use several processes and tools to screen employees,
business partners, activities and acquisition targets,
supported by technology where possible. In 2016, we
introduced an export control and sanctions screening
tool across our businesses. This alerts us in the event of
potentially sanctioned parties, sanctioned use or export
license requirements. Use of this tool was expanded in 2017.
We also introduced a business partner screening process
and tool in 2017. This requires high risk business partners
– including key suppliers, parties in sanctioned countries,
agents and toll manufacturers – to be screened for past
violations and misconduct. Using the same tool, we also
introduced a standardized process for the compliance
screening and due diligence of acquisition targets and joint
arrangement partners. In addition, we introduced a process
and tool for assessing personal data processing activities
for privacy compliance and documenting these activities in
anticipation of the EU General Data Protection Regulation
(GDPR), which comes into force in 2018.
Compliance of our operations and business partners is
monitored in several ways. As part of the annual internal
control self-assessment, compliance controls are tested and
deficiencies are reported to higher management through the
Internal Control Self-Assessment tool. In 2017, we enhanced
the compliance controls in this tool and improved the logging
and tracking of compliance-related actions. As a member of
the Together for Sustainability platform, our key suppliers are
monitored through the Ecovadis self-assessment program
and through audits. We implemented amnesty programs for
the acquired BASF Industrial Coatings and Disa Technology
businesses, providing training to employees and urging them
to inform us about past potential competition law violations.
Grievance and investigations
Our SpeakUp! grievance mechanism offers employees,
business partners and members of the general public a
confidential environment in which they can raise concerns
relating to compliance with our Code of Conduct. We
offer anonymous reporting and apply strict principles of
confidentiality and non-retaliation. Reports are investigated
on their merits, in accordance with investigation procedures
that are available to everyone on our corporate internal
and external websites. The investigations are conducted or
managed by dedicated resources supervised by the Head of
Investigations. Findings and recommendations are reported
to the relevant Compliance Committee for decision-making.
In 2017, we introduced sanction guidelines to further
improve the consistency of decision-making.
In 2017, 129 SpeakUp! reports were received, 14 of which
were of materiality level Category 1 and 115 of Category 2. In
total, 17 of these 129 SpeakUp! reports were substantiated,
leading to four dismissals.
Our privacy data breach reporting procedure has been
amended to meet the requirements of the new EU General
Data Protection Regulation (GDPR).
In 2017, Transparency International Netherlands studied
the whistleblowing frameworks of 18 large Dutch
listed companies. AkzoNobel’s whistleblowing framework
ranked second.
SpeakUp! reports
Total reports registered
Reports received through
SpeakUp!
Safety
Integrity
Sustainability
SpeakUp! Paints and Coatings/
Specialty Chemicals1
SpeakUp! reports Category 12/
Category 2
SpeakUp! reports (partially)
substantiated/unsubstantiated/
referred3
Total number of dismissals
resulting from SpeakUp! reports
2015
2016
2017
224
123
5
41
77
324
187
23
64
100
261
129
23
53
53
98/25
162/25
104/25
1/122
13/174
14/115
28/64/-
38/84/16
17/80/2
5
16
4
1 Corporate matters included in Paints and Coatings.
2 Matters with a financial impact >€0.5 million, or involving senior management, or
relating to competition law, anti-bribery or export control.
3 Referred means: allegation not related to a Code of Conduct violation; investigation
referred to other department.
Declaration and reporting
NFLoR
Every year, management verifies and confirms that
they comply with laws and internal rules through the
Non-Financial Letter of Representation (NFLoR) process.
Exceptions must be reported and actions planned and
documented. In 2017, this process was made more efficient.
Detailed compliance controls listed in the NFLoR statement
were embedded in the Internal Control framework and as
such became part of the Internal Control Self-Assessment
process performed by managers at different layers in the
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Governance and compliance | AkzoNobel Report 2017
organization. Any deficiencies were documented and
reported up through the process and tool. This information,
along with audit findings, investigation data and test
results from the Compliance function, informed the BU and
functional leaders of material risks, deficiencies and areas for
improvement to be disclosed in their NFLoR statements. The
NFLoR statements, and the BU/function Compliance Risk
Review results, were discussed at the NFLoR review meeting
between the BU/function leader, the Compliance Director,
Legal Director and the responsible Executive Committee
member. The Executive Committee member then reported
the results to the CEO and the General Counsel. The
overall results were reported to the Executive Committee,
Supervisory Board and internal and external auditor as
part of the year-end Compliance Report. The results of this
NFLoR process, in combination with the Internal Control
Self-Assessment process and the internal audit results, form
a basis for the Statement of the Board of Management in
this Report 2017. Reported areas of attention include the
need for additional competition law training to mitigate risk
resulting from increased profit targets, environmental law
developments and enforcement in China, external fraud
attempts and cyber-attacks and preparing for the GDPR.
Individual declarations
Annually, employees confirm their awareness of, and
compliance with, the Code of Conduct as part of their
year-end performance evaluation. Each year, designated
employees must also confirm compliance with competition
laws and AkzoNobel’s competition law policy as part of
the Competition Law Compliance Declaration process.
This reminds them of the rules and invites them to disclose
any concerns. In 2017, the declaration was preceded by
the launch of our new digital training and various other
communications to improve understanding and engagement.
In 2017, over 12,000 employees signed the declaration.
Reporting
To ensure that management is well informed, there are
several compliance reporting procedures in the company.
Quarterly, progress on compliance programs and actions,
investigation findings and training completion are reported to
the BU and function Compliance Committees. Monthly, the
status of investigations is reported to the Finance Director
and Legal Director. Also monthly, an update on compliance
matters is reported in the Business Review Meeting. The
General Counsel periodically reports to the Executive
Committee and Audit Committee on important compliance
matters, developments and initiatives. Mid-year and year-
end, the General Counsel and Compliance Director submit
a written report on material compliance matters, SpeakUp!
data and progress on compliance programs to the Board of
Management, Executive Committee and Supervisory Board.
The results of the NFLoR form part of the year-end report.
A second Dulux Academy was opened in the UK in September, at our new paint
plant in Ashington. The facilities are designed to help address skills shortages in the
housing industry by upskilling decorators and training those new to the industry.
Our first UK Academy was opened in Slough in 2016.
Measurement and improvement
We measure the integrity culture in several ways. In 2017,
we implemented compliance questions in our recruitment
standards to better assess new recruits against AkzoNobel’s
ethical standards. To measure employee engagement, we
have introduced pulse surveys, periodically inviting large
groups of employees to answer a variety of questions. These
include questions relating to compliance to measure the
integrity culture. The results will feed into our compliance and
audit programs.
In the first quarter of the year, the Compliance function
analyzes the SpeakUp! data of the previous year and uses
the results of this analysis as input for their compliance plan
the following year.
Internal Audit performs compliance audits to test the
effectiveness of the Compliance framework. In 2017, the
Internal Audit function audited the Export Control framework,
resulting in an overall positive opinion.
Performance of managers and executives is incentivized and
measured in that one of the leadership behaviors against
which they are evaluated is role-modelling the company’s
core principles. For executives, a portion of the long-term
incentive is dependent on the company’s performance in
the Dow Jones Sustainability Index (DJSI), which includes
evaluation of Code of Conduct and human rights practices.
In 2017, AkzoNobel regained its number one ranking in
the Chemical industry on the DJSI. The scores on Code
of Conduct and human rights improved and contributed to
this success.
AkzoNobel Report 2017 | Governance and compliance
95
Remuneration report
This report describes our
remuneration policy and the
remuneration paid to members
of the Board of Management
in 2017.
96
Governance and compliance | AkzoNobel Report 2017
The remuneration and 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 Board of Management members – is in line with
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 2017. 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% of base salary for the CEO and
65% of base salary for any other member of the Board of
Management. The STI is linked to financial targets (70%)
and to individual and qualitative targets of the members of
the Board of Management (30%). 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
performance level below which no payouts are made; (ii)
The performance level at which 100% payout is made; and
(iii) The performance level at which the maximum payout
of 150% is made. STI awards in aggregate will not exceed
150% of base salary for the CEO, and 100% of base salary
for any other member of the Board of Management.
Board members are expected, for these purposes, to use
both their long-term incentive and short-term incentive in the
manner set out below.
with more than two-thirds of the Board member’s net annual
short-term incentive.
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% 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% of the conditional grant of shares is dependent on
the development in ROI during the performance period
• 30% of the conditional grant of shares is dependent on
AkzoNobel’s relative sustainability performance, measured
as the company’s average position in the DJSI ranking
during the three-year performance period
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.
Pay mix
The ratio between fixed and performance-based
compensation (pay mix) for the CEO, under various levels of
performance, is illustrated below. The fixed pay component
only refers to base salary, excluding post-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.
Board members who continue to invest their short-term
incentives in whole, or in part, in shares after the minimum
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
Other benefits
Other benefits – such as a company car and allowances –
are determined by the Supervisory Board.
Claw back and value adjustment
The variable pay components are subject to the claw back
and value adjustment provisions of the Dutch Civil Code.
For each of these performance criteria, the minimum vesting
is zero percent and the maximum vesting is 150% of the
relevant part of the conditional share grant. Peer groups and
vesting schemes are determined by the Supervisory Board.
CEO target pay mix 2017 in %
Fixed pay
Variable pay
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.
100
36
22
12
64
78
88
Below threshold
performance
At threshold
performance
At target
performance
At/beyond maximum
performance
AkzoNobel Report 2017 | Governance and compliance
97
Loans
The company does not grant loans, advance payments or
guarantees to its Board members.
Implementation of the
remuneration policy in 2017
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 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.
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. In addition, the
pay ratios are taken into account, comparing the on-target,
annualized total compensation of the CEO with the average
employee compensation.
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 2017,
the peer group consisted of the following companies:
• Ahold Delhaize
• Air Liquide
• ASML
• DSM
• Henkel
• Ferro Corporation
• KPN
• LafargeHolcim
• Philips Lighting
• PPG Industries
• Randstad
• RELX Group
• RPM International
• Sherwin-Williams
• Sika
• The Linde Group
• Vopak
• Wolters Kluwer
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 2017. Mr. Büchner and
Mrs. Castella stepped down from the Board of Management
on July 19, 2017, and September 8, 2017, respectively.
The service agreement with Mr. Büchner was terminated
by mutual consent, while observing the contractual
notice period of six months. Given the circumstances, the
Supervisory Board found it appropriate and reasonable
to provide a termination benefit in accordance with the
remuneration policy and the Code, and to treat the unvested
performance shares in line with our standard approach,
which implies that the unvested shares granted during
his active service will be retained, and the shares granted
in the year of termination will be reduced time pro-rated.
Mrs. Castella stepped down as CFO and went on leave of
Compensation Board of Management 2017
in €
Base salary
Short-term incentive
Share awards 4
Post-contract benefits5
Other emoluments6
Termination and other benefits7
Total remuneration
Thierry Vanlancker1
Chief Executive Officer
Ton Büchner2, 8
Former Chief Executive Officer
Maëlys Castella3
Former Chief Financial Officer
429,300
471,300
282,600
71,700
13,700
–
1,268,600
950,500
986,500
2,148,900
435,800
39,400
925,000
5,486,100
440,900
282,200
626,600
66,100
78,600
–
1,494,400
1 As of July 19, 2017, which is the date Mr. Vanlancker was designated by the Supervisory Board as CEO, in accordance with the Articles of Association. He was formally appointed
CEO by the shareholders at the EGM held on September 8, 2017.
2 Stepped down from Board of Management on July 19, 2017.
3 Until September 8, 2017. Compensation as Executive Committee member is reflected in Note 23 to the Consolidated financial statements.
4 Costs relating to share awards (performance-related share plan and share-matching plan) are non-cash and relate to the expenses following IFRS 2.
5 Post-contract benefits refers to payments intended for building up retirement.
6 Other emoluments include employer’s charges (social contributions) and other compensations, such as representation allowances, insurances, car arrangements
and educational expenses.
7 Termination and other benefits for Mr. Büchner refers to costs incurred in 2017 which will be paid in 2018 (severance payment, salary for first two months of 2018, allowances for
advice and relocation).
8 Additional charges of €1,120,000 are accrued which relate to taxation on excessive pay (“Belastingheffing excessieve beloningsbestanddelen”).
98
Governance and compliance | AkzoNobel Report 2017
absence for health reasons. As such, no leaving arrangement
is in place. Mr. Vanlancker was designated as CEO on
July 19, 2017, and his remuneration is accounted for
effective from this date. The successor to the CFO, Mr.
Maarten de Vries, was appointed effective January 1, 2018.
See Note 23 of the Consolidated financial statements for
more details.
The implementation of the remuneration policy in 2017 will
be a separate agenda item at the 2018 AGM.
Base salary
The base salary of the CEO, Mr. Vanlancker, was determined
at an annual base salary of €950,500, effective from his day
of appointment, July 19, 2017.
Short-term incentive
The objectives of the short-term incentive in 2017 were
to reward performance on ROI, EBIT, 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
short-term incentive elements (ROI, EBIT, 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 2017, the targets for ROI, EBIT, 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 2017 included goals set in relation to
delivering on the company’s communicated strategy.
ROI is calculated by determining the ratio of EBIT over
12 months average invested capital using reported numbers.
EBIT was calculated as the number reported for IFRS
purposes, in constant currencies. OCF was calculated as
EBITDA minus the change in operating working capital and
minus 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 2017, the
performance against the targets set for ROI, EBIT, OCF,
revenue growth and qualitative targets was as follows:
2017 performance on STI metrics
ROI performance range series 2015-2017
Vesting (as % of 35%
of conditional grant)
Threshold
50%
Target
100%
Maximum
150%
Target
14.0%
16.5%
19.0%
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 73% for this part of the long-term incentive.
Metric
ROI
EBIT
OCF
Revenue
Payout as % of target
121
110
77
121
For the 2015 conditional grant, 30% was linked to
AkzoNobel’s relative sustainability performance by taking the
company’s average position in the DJSI ranking. The following
vesting scheme has been applied in respect of the conditional
grants made in 2015:
With regards to the qualitative targets, the CEO,
Mr. Vanlancker, performed above target.
Average position in DJSI ranking during
performance period
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.
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
Performance share plan
In line with the remuneration policy, vesting of 35% of the
shares conditionally granted is linked to AkzoNobel’s ROI
performance. For the shares conditionally granted in 2015
under the performance share plan (in respect of which the
performance period ended on December 31, 2017), the
Supervisory Board set the ROI to be achieved by the end of
2017 as follows:
AkzoNobel’s sustainability performance during the period
2015 to 2017 resulted in a vesting of 100% for this part of the
long-term incentive.
For the 2015 conditional grant, the remaining 35% 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
AkzoNobel Report 2017 | Governance and compliance
99
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. During 2017, DuPont
merged with Dow Chemical, while Valspar Corporation
has been acquired by Sherwin-Williams. As the remaining
performance period was relatively short, it was decided to
measure their TSR performance until the day of delisting and
then move with the average of the remaining peers.
Our high performance coatings helped power the Eindhoven University of Technology
team to victory in the 2017 World Solar Challenge. Their vehicle, Stella Vie, won the
Cruiser class in the 3,000-kilometer event held in Australia.
The following vesting scheme has been applied in respect of
the conditional grants made in 2015:
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
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 in case of a change in control, the payout
under the performance share plan will be 100% of all shares
conditionally granted. 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.
Pay ratio
Pay ratios are taken into account, comparing the on-target,
annualized total compensation of the CEO, Mr. Vanlancker,
to the average employee compensation. The ratio is 58.6.
The pay ratio would have been lower if calculated at the
actual compensation granted to the CEO in 2017 due to the
limited term in his new position.
AkzoNobel’s TSR performance during the period 2015 to
2017 resulted in fifth position within the ranking of the peer
group companies. This ranking resulted in a vesting of 75%
for this part of the long-term incentive.
Claw back and value adjustment
In 2017, there was no cause for a claw back or value
adjustment by the Supervisory Board.
Shareholding requirements and share-matching
The table below summarizes the shares acquired by the
relevant members of the Board of Management in 2017 that
would, subject to the conditions of the share-matching plan,
qualify for matching by the company. See also Note 23 of the
Consolidated financial statements.
Qualifying shares
Board members
Thierry Vanlancker
Qualifying shares acquired
in 2017
230
Based on the company’s combined ROI, sustainability
and TSR performance, the final vesting percentage of
the 2015 conditional grant – after including the dividend
yield during the performance period (determined to be
13.27%) – equaled 92.65%. 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 2017 plan amounted to 27,300 for the
CEO, Mr. Vanlancker.
The number of shares to be conditionally granted to
members of the Board of Management is determined by
100 Governance and compliance | AkzoNobel Report 2017
During 2017, we signed a strategic
sustainability partnership with leading
global container shipping company
Maersk Line to reduce carbon emissions
per container shipped by 10%. The
agreement reflects the mutual ambition
of both companies to jointly elevate
sustainability in the maritime industry.
Shares obtained by members of the Board of Management
under the performance share plan are taken into account for
share ownership purposes (but not for matching purposes)
as soon as they have become unconditional. This includes
vested shares that are to be retained during the blocking
period of two years after vesting.
At year-end 2017, the CEO, Mr. Vanlancker, held 460
shares, which is compliant with the remuneration policy’s
shareholding requirement, as he has a five-year period
from the date of his first appointment to build up his full
shareholding requirement.
Post-contract compensation
The members of the Board of Management receive
contributions towards post-contract benefits, which are
defined as a percentage of income as determined by the
Supervisory Board. Currently, they are based on age. The
contributions are paid over the base salary in the current
year. The contributions will therefore vary depending on the
age of the Board member.
Board contracts
Agreements for members of the Board of Management are
concluded for a period not exceeding four years. After the
initial term, reappointments may take place for consecutive
periods of up to four years each. The notice period
by the Board member and by the company shall be subject
to a six-month term. Members of the Board of
Management normally retire in the year they reach the legal
retirement age.
Remuneration policy for the next financial year
The Supervisory Board closely monitors whether the policy
and its implementation are in line with the objectives of the
company. The metrics applied for the STI in 2017 were ROI,
EBIT, OCF, and revenue growth. In 2018, to align with our
strategy, the Supervisory Board intends to add return on
sales (ROS) to the list of financial metrics, from which the
Supervisory Board annually chooses up to four financial
metrics and determines their relative weighting.
For 2018, the Supervisory Board envisages choosing
ROS and OCF, as these are identified in our strategic plan.
The targets and ranges have been set at a challenging
level, based on the company’s strategic goals formulated
during the year.
For the LTI, the Supervisory Board will review the current
performance criteria that apply to the performance share
plan and align them with our long-term strategic plan.
The proposal for adjustment will be presented for approval
at the 2018 AGM.
AkzoNobel Report 2017 | Governance and compliance
101
AkzoNobel on the capital markets
Held investor update in April 2017
to outline new strategy and update
financial guidance.
Proposed dividend of €2.50 per
share (up 52% on 2016) and
special cash dividend of €4.00 per
share, as advance proceeds for
separation of Specialty Chemicals.
Two EGMs held during the year,
to appoint Board of Management
and Supervisory Board members,
and to further explain AkzoNobel’s
response to the proposals made
by PPG. Approval granted for the
separation of Specialty Chemicals.
A strong case for investment
With well-established global brands and a portfolio of
businesses holding leadership positions in many markets, we
offer a strong case for investment.
Close dialog with the
capital markets
During the year, AkzoNobel was subject to three bids for a
takeover by PPG, who subsequently withdrew their offer on
June 1, 2017. In April, the company presented an investor
update, which included 2020 guidance and details of a new
strategy to accelerate growth and value creation by creating
102 Governance and compliance | AkzoNobel Report 2017
two focused businesses. Following shareholder approval
for the separation of Specialty Chemicals, the company is
on track for the completion of this process by April 2018.
Subsequent management changes have taken place during
the year. However, both the Investor Relations team and
management have continued to attend conferences – as
well as hold meetings with investors and analysts – while a
program of meetings was arranged in the latter half of the
year to introduce the new CEO. AkzoNobel also announced
a range of measures during 2017 designed to strengthen
and maintain a constructive dialog with its shareholders. This
included the creation of a Supervisory Board committee for
shareholder relations, with David Mayhew and team from
JP Morgan Cazenove appointed as advisor for shareholder
relations. These actions reinforce the fact that there has been
intensive shareholder engagement, with a continued open
and constructive dialog.
Key share data
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
2015
2016
2017
61.68
74.81
55.65
64.91
44.1
0.7
59.39
64.74
50.17
58.83
38.8
0.7
73.02
82.64
59.11
74.42
67.4
0.9
249
252
253
15.4
15.0
18.4
3.95
1.55
2.5
3.85
1.65
2.8
3.31
2.50
3.4
1 Based on close value. 2 Based on year-end share price.
Listings
Share price performance 2017
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 3.51% at year-end 2017. During the year,
232 million AkzoNobel shares were traded on Euronext
Amsterdam (2016: 168 million). AkzoNobel has a sponsored
level 1 ADR program and ADRs can be traded on the
international OTCQX platform in the US.
See the table below for stock codes and ticker symbols:
Euronext ticker symbol
AKZA
ISIN common share
OTC ticker symbol
ISIN ADR
Sedol code
NL0000009132
AKZOY
US0101993055
5458314
Our share price increased 23% in 2017, outperforming 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 2017
AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
100
85
70
55
40
6
1
c
e
D
1
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7
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7
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DJ Stoxx
AEX
Akzo
Dividend policy
Analyst recommendations
Distribution of shares 2017
AkzoNobel’s dividend policy is to pay a stable to rising
dividend each year. Cash dividend is default, stock dividend
is optional.
At year-end 2017, AkzoNobel was covered by 23 equity
brokers, of which two were restricted. Recommendations
were as follows (see diagram):
Total proposed dividend of
€2.50 per share
The Board of Management proposes a total dividend of
€2.50 per common share. AkzoNobel’s shares will be
trading ex-dividend as of April 30, 2018. In compliance
with the listing requirements of Euronext Amsterdam, the
record date for the final dividend will be May 2, 2018. The
dividend as proposed to the 2018 Annual General Meeting
of shareholders and, following adoption, will be payable as
of May 25, 2018. Additionally, a special cash dividend of
€4.00 per share, as advance proceeds for the separation of
Specialty Chemicals, was paid on December 7, 2017.
The dividend paid over the last four years, excluding the
special cash dividend, is shown in the graph below.
Dividend paid in € per share
Interim dividend
Final dividend
Total
1.45
Increase
0%
1.12
0.33
2014
* Proposed.
1.55
+7%
1.65
2.50
+6.5%
+52%
1.20
1.28
0.35
2015
0.37
2016
1.94*
0.56
2017
Analyst recommendations in %
A Buy
B Hold
C Sell
33
53
14
C
B
Broad base of international
shareholders
AkzoNobel, which has a 100% free float, has a broad base
of international shareholders. Based on an independent
shareholder ID carried out in December 2017, the chart
above right shows the geographical spread. Around 6%
of the company’s share capital is held by private investors,
many of whom are resident in the Netherlands.
Approximately 9% of the company’s share capital is held by
sustainable and responsible investors.*
A North America
B UK/Ireland
C The Netherlands
D Rest of Europe
E Rest of world
F Undisclosed
45
22
6
16
5
6
D
C
F
E
B
A
A
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
Negative
1 Rating affirmed on November 22, 2017. 2 Rating affirmed on October 20, 2017.
Bonds
On November 6, 2017, a €500 million floating rate note
(FRN) was launched with a maturity date of November 8,
2019. No bonds were repaid during the year. The next bond,
a 4% €800 million bond, matures on December 17, 2018.
* As calculated by Nasdaq, according to their methodology which is to include the sum of:
• Core sustainable and responsible investor firms where 100% of equity assets are
managed with an ESG approach
• Sustainable and responsible investor themed funds managed by broad sustainable
and responsible investors
Debt maturity1 in € millions (nominal amounts)
800
750
500
500
500
For further information please visit
our website: akzonobel.com
2018
2019
2020
2021
2022
2023
2024
2025
2026
1 At the end of 2017.
AkzoNobel Report 2017 | Governance and compliance
103
Financial information
The origins of our Pulp and Perfor-mance Chemicals business can be traced all the way back to the late 1800s, when Alfred Nobel helped fund the setting up of an electro-chemical company in Sweden. Fast forward a century or so and the business is a world leader in developing and delivering customized bleaching chemicals and systems, as well as colloidal silica solutions, expandable microspheres, and porous silica for purification of pharmaceuticals. Six new product applications were launched and commercialized in 2017 within product brands for Levasil (colloidal silica), Expancel (expandable microspheres) and Kromasil. They will spur growth in catalysts, food packaging and the pharmaceutical industry. Financial information
Note 23 Remuneration of the Supervisory Board
and the Board of Management
Note 24 Financial risk management
Note 25 Subsequent events
Company financial statements
Statement of income
Balance sheet
Movements in shareholders’equity
Note A General information
Note B Financing income and expenses
Note C Financial non-current assets
Note D Short-term receivables
Note E Shareholders’equity
Note F Net debt
Note G Other current liabilities
Note H Financial instruments
Note I Contingent liabilities
Note J Auditor’s fees
Other information
Other information
Independent auditor’s report
Profit allocation and distributions
Financial summary
142
145
148
149
149
150
151
151
151
152
152
152
153
153
153
154
154
155
161
162
Financial statements
Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Segment information
Notes to the Consolidated financial statements
Note 1 Summary of significant accounting policies
Note 2 Scope of consolidation
Note 3 Alternative performance measures
Note 4 Operating income
Note 5 Employee benefits
Note 6 Financing income and expenses
Note 7
Income tax
Note 8 Earnings per share
Note 9
Intangible assets
Note 10 Property, plant and equipment
106
106
107
108
109
110
112
118
121
122
122
124
124
126
127
128
Note 11 Investments in associates and joint ventures 130
Note 12 Other financial non-current assets
Note 13 Inventories
Note 14 Trade and other receivables
Note 15 Group equity
Note 16 Post-retirement benefit provisions
Note 17 Other provisions and contingent liabilities
Note 18 Net debt
Note 19 Trade and other payables
Note 20 Cash flow
Note 21 Commitments
Note 22 Related party transactions
130
131
131
132
133
138
140
141
141
142
142
AkzoNobel Report 2017 | Financial information
105
105
n
o
i
t
a
m
r
o
n
f
i
l
i
a
c
n
a
n
F
i
Consolidated statement of income
Consolidated statement of
comprehensive income
In € millions
Note
2016 *
2017
In € millions
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 €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
4
4
4
4
4
6
11
7
2
8
8
8
8
8
8
9,434
(5,098)
(2,336)
(808)
(257)
(12)
(91)
18
9,612
(5,378)
(2,319)
(781)
(270)
(39)
(78)
17
4,336
(3,413)
923
850
(234)
616
436
1,052
970
82
1,052
2.15
2.14
1.72
1.71
3.87
3.85
* Represented to present the Specialty Chemicals business as a discontinued operations.
106
Financial information | AkzoNobel Report 2017
Profit for the period
Other comprehensive income
Items that will not be reclassified to the statement of income:
4,234
Post-retirement benefits
Income tax
Net effect
Items that may be reclassified subsequently to the statement of
income:
Exchange differences arising on translation of foreign operations
Cash flow 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
(3,409)
825
764
(253)
511
393
904
832
72
904
1.76
1.75
1.55
1.54
3.31
3.29
2016
1,052
2017
904
(748)
151
(597)
(104)
59
(43)
(88)
(685)
367
290
77
367
479
(99)
380
(535)
16
(9)
(528)
(148)
756
722
34
756
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
Assets held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Non-controlling interests
Group equity
Non-current liabilities
Post-retirement benefit provisions
Other provisions
Deferred tax liabilities
Long-term borrowings
Total non-current liabilities
Current liabilities
Short-term borrowings
Current tax liabilities
Trade and other payables
Current portion of provisions
Liabilities held for sale
Total current liabilities
Total equity and liabilities
Note
2016
2017
9
10
7
11
12
13
7
14
18
2
15
15
16
17
7
18
18
7
19
16, 17
2
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
3,409
1,832
575
118
1,201
1,094
62
1,964
1,322
4,601
5,865
442
643
321
285
2,300
973
118
2,794
241
2,196
7,135
9,043
16,178
6,307
3,549
4,213
16,196
6,322
16,178
AkzoNobel Report 2017 | Financial information
107
Consolidated statement of cash flows
In € millions
Profit for the period
Note
2016 *
2017
1,052
904
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
Repurchase of shares
Dividends paid
Buy-out of non-controlling interests
Net cash from financing activities
Net change in cash and cash equivalents of continued and discontinued opera-
tions
Net 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
* The cash flow statement shows the cash flows of continuing as well as discontinued operations.
The Notes of the Consolidated financial statements referred to include information on the continuing operations.
108
Financial information | AkzoNobel Report 2017
9, 10
9, 10
6
11
2
7
20
20
606
63
114
(43)
(31)
393
1
(507)
(87)
(285)
15
1,291
10
(634)
21
23
2
(416)
607
–
96
(25)
(34)
422
(110)
(477)
(84)
(338)
8
(613)
14
11
(80)
52
(22)
969
53
(26)
916
(776)
–
(336)
(7)
18
18
18
(979)
(638)
1,256
(345)
(160)
(1,187)
–
(203)
109
1,317
15
1,441
(436)
(105)
1,441
(58)
1,278
Consolidated statement of changes in equity
Attributable to shareholders of the company
Subscribed
share capital
Additional
paid-in
capital
Cash flow
hedge
reserve
Cumulative
translation
reserve 2
Other (legal)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling-
interests
Group equity
81
–
–
(99)
(29)
(128)
–
–
–
–
5,349
6,484
970
–
(748)
151
373
(393)
20
–
(2)
970
21
(809)
108
290
(239)
20
–
(2)
496
82
–
(5)
–
77
(93)
–
–
1
6,980
1,052
21
(814)
108
367
(332)
20
–
(1)
(47)
5,347
6,553
481
7,034
In € millions
Balance at January 1, 2016
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 transactions 1
Issue of common shares
Acquisitions and divestments
498
598
–
–
–
–
–
5
–
1
–
–
–
–
–
–
149
–
(1)
–
Balance at December 31, 2016
504
746
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 transactions 1
Issue of common shares
Share repurchase
Balance at December 31, 2017
–
–
–
–
–
4
–
2
(5)
505
–
–
–
–
–
180
–
(2)
(155)
769
(42)
–
21
38
(14)
45
–
–
–
–
3
–
(3)
19
(4)
12
–
–
–
–
1 Includes a tax credit of €3 million (2016: €3 million charge).
2 The cumulative translation reserve related to Discontinued operations amounts to €169 million as per December 31, 2017.
–
–
(497)
(5)
(502)
–
–
–
–
832
–
479
(99)
1,212
(1,471)
37
–
–
15
(549)
5,125
832
(3)
1
(108)
722
(1,287)
37
–
(160)
5,865
72
–
(38)
–
34
(73)
–
–
–
442
904
(3)
(37)
(108)
756
(1,360)
37
–
(160)
6,307
AkzoNobel Report 2017 | Financial information
109
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 (struc-
tural steel, building products, flooring) to consumer goods
(mobile devices, appliances, beverage cans, furniture) and
oil and gas facilities.
Specialty Chemicals (reported as Discontinued operations)
As a major producer of specialty chemicals with leader-
ship 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
Corporate and other
Continuing operations
Specialty Chemicals
Corporate and other
discontinued operations
Discontinued operations
Total
Revenue from
third parties
Group revenue
Amortization and
depreciation
Identified items
Operating income
2016
3,792
5,640
2
9,434
4,760
3
2017
3,859
5,751
2
9,612
4,961
2
2016
3,835
5,665
(66)
9,434
4,783
(20)
2017
3,898
5,775
(61)
9,612
4,985
(22)
4,763
14,197
4,963
14,575
4,763
14,197
4,963
14,575
2016
(134)
(140)
(8)
(282)
(324)
–
(324)
(606)
2017
(121)
(148)
(7)
(276)
(326)
(5)
(331)
(607)
2016
9
(24)
10
(5)
–
22
22
17
2017
(17)
(1)
(62)
(80)
–
(49)
(49)
(129)
2016
366
735
(178)
923
629
(33)
2017
334
668
(177)
825
689
(118)
596
1,519
571
1,396
2016
9.3
13.4
9.8
13.2
12.1
10.6
ROS *
2017
9.0
11.6
9.4
13.8
12.5
10.5
* ROS% is calculated as EBIT (operating income excluding identified items) as percentage of group revenue.
110
Financial information | AkzoNobel Report 2017
2016
2,595
2,713
3,494
1,464
10,266
Information per Business Area
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals
Corporate and Other
Total
Of which Discontinued operations
and held for sale
Specialty Chemicals
Corporate and Other (discontinued
operations and held for sale)
Total discontinued operations and
assets held for sale
Total continuing operations
Invested capital
Total assets
Total liabilities
Capital expenditures
ROI% *
2017
2,705
2,869
3,570
430
9,574
3,570
(41)
3,529
6,045
2016
4,511
4,674
4,755
2,256
2017
4,318
4,691
4,699
2,470
16,196
16,178
2016
1,687
1,811
1,315
4,349
9,162
4,699
(98)
4,601
11,577
2016
107
159
356
12
634
2017
1,513
1,638
1,582
5,138
9,871
1,582
614
2,196
7,675
2017
112
129
363
9
613
363
–
363
250
2016
12.8
29.4
17.9
–
15.0
2017
12.5
23.4
19.1
–
15.1
19.1
–
17.1
13.9
* ROI% is calculated as EBIT (operating income excluding identified items) 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. Invested capital for Discontinued
operations and held for sale as well as Total includes the total assets (excluding cash and cash equivalents, investments in associates, the receivable from pension funds in an asset position) less current tax liabilities, deferred tax
liabilities and trade and other payables reported within assets held for sale and liabilities held for sale.
Regional information
In € millions
The Netherlands
Other European countries
US and Canada
Latin America
Asia
Other regions
Total
Revenue by region of destination
Intangible assets
and property,
plant and equipment
Invested capital
Capital expenditures
2016
267
3,596
1,213
850
2,956
552
9,434
2017
282
3,731
1,189
900
2,937
573
9,612
2016
1,805
2,369
1,278
500
2,539
112
8,603
2017
1,189
1,435
474
268
1,772
103
5,241
2016
2,214
3,229
1,844
721
2,064
194
10,266
2017
1,374
2,144
714
348
1,296
169
6,045
2016
15
103
27
20
106
7
278
2017
17
105
23
23
73
9
250
AkzoNobel Report 2017 | Financial information
111
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 Neth-
erlands. The address of our registered office is Christian
Neefestraat 2, Amsterdam. We have filed a list of subsid-
iaries, 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 2017
• How AkzoNobel created value in 2017
• 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 4 Operating income
• Financial information: Note 24 Financial
risk management
The section Strategic performance provides informa-
tion on the developments during 2017 and the results.
This section also provides information on cash flow and
net debt, capital expenditures, innovation activities and
employees.
On March 7, 2018, 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. Subsid-
iaries 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
2017, such as amendments to IAS 7 “Cash flow state-
ment”, IAS 12 “Income tax” as well as IFRS 12 “Disclosure
of interests in other entities”, had no material impact on
our Consolidated financial statements.
Discontinued operations (Note 2)
A discontinued operation is a component of our busi-
ness that represents a separate major line of business or
geographical area of operations that has been disposed
of or is held for sale/held for distribution, 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. Assets and liabilities are classified as held for distribu-
tion if it is highly probable that the carrying value will be
recovered through a legal demerger transaction within one
year rather than through continuing use. When reclassify-
ing assets and liabilities as held for sale/held for distribu-
tion, we recognize the assets and liabilities at the lower of
their carrying value or fair value less selling costs. Assets
held for sale/held for distribution are not depreciated and
amortized but tested for impairment.
In case of discontinued operations, the comparatives in
the Statement of income are represented. The balance
112
Financial information | AkzoNobel Report 2017
sheet comparatives are not represented. The Consolidated
statement of cash flows is not represented for discontin-
ued operations. The cash flow statement of discontinued
operations is separately disclosed in Note 2.
Alternative Performance
Measures (Note 3)
Until 2016, AkzoNobel used the term Incidental items
to refer to material items of income or expense. As from
2017, AkzoNobel has changed this term from Incidental
items to Identified items. These Identified items (Alterna-
tive Performance Measures (APM) adjustments) relate
to material items of income and expense arising from
circumstances outside the normal course of business,
such as acquisitions/divestments, realignment of strategy,
impairments and legal items.
Use of estimates
The preparation of the financial statements in compliance
with IFRS requires management to make judgments, esti-
mates and assumptions that affect amounts reported in
the financial statements. The estimates and assumptions
are based on experience and various other factors that
are believed to be reasonable under the circumstances
and are used to judge the carrying values of assets and
liabilities that are not readily apparent from other sources.
The estimates and underlying assumptions are reviewed
on an ongoing basis. The most critical accounting policies
involving a higher degree of judgment and complexity in
applying principles of valuation and for which changes in
the assumptions and estimates could result in significantly
different results than those recorded in the financial state-
ments are the following:
• Scope of consolidation (Note 2)
• Discontinued operations and held for sale (Note 2)
• Income tax and deferred tax assets (Note 7)
• Impairment of intangible assets and property, plant and
equipment (Note 9, 10)
• Post-retirement benefit provisions (Note 16)
• Provisions and contingent liabilities (Note 17)
Statement of cash flows
We have used the indirect method to prepare the state-
ment of cash flows. Cash flows in foreign currencies
have been translated at transaction rates. Acquisitions or
divestments of subsidiaries are presented net of cash and
cash equivalents acquired or disposed of, respectively.
Cash flows from derivatives are recognized in the state-
ment 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 2017, to make decisions about resources to be
allocated to the Business Area and assess its perfor-
mance. 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”.
Foreign currencies
Transactions in foreign currencies are translated into
the functional currency using the foreign exchange
rate at transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated into
the functional currency using the exchange rates at the
balance sheet date. Resulting foreign currency differences
are included in the statement of income. Non-monetary
assets and liabilities denominated in foreign currencies are
translated into the functional currency at the exchange rate
at acquisition date.
The assets and liabilities of entities with other func-
tional currencies are translated into euros, the functional
currency of the parent entity, using the exchange rates at
the balance sheet date. The income and expenses of enti-
ties with other functional currencies are translated into the
functional currency, using the exchange rates at transac-
tion date.
Foreign exchange differences resulting from translation into
the functional currency of investments in subsidiaries and
of intercompany loans of a permanent nature with other
functional currencies are recorded as a separate compo-
nent (cumulative translation reserve) within Other compre-
hensive income. These cumulative translation adjustments
are reclassified (either fully or partly) to the statement of
income upon disposal (either fully or partly) or liquidation
of the foreign subsidiary to which the investment or the
intercompany loan with a permanent nature relates to.
Foreign currency differences arising on the re-translation
of a financial liability designated as an effective hedge
of a net investment in a foreign operation are recognized
in the cumulative translation reserve (in Other comprehen-
sive income).
Exchange rates of key currencies
The principal exchange rates against the euro used in
preparing the balance sheet and the statement of
income are:
Balance sheet
Statement of income
2016
2017
% 2016
2017
US dollar
1.052
1.197
(12.1)
1.107
1.129
Pound sterling
0.856
0.887
(3.4)
0.821
0.877
Swedish krona
9.562
9.850
(2.9)
9.471
9.629
Chinese yuan
7.339
7.801
(5.9)
7.368
7.621
%
(1.9)
(6.4)
(1.6)
(3.3)
Brazilian real
3.425
3.964
(13.6)
3.854
3.603
7.0
AkzoNobel Report 2017 | Financial information
113
Revenue recognition
Revenue is defined as the revenue from the sale and
delivery of goods and services and royalty income, net of
rebates, discounts and similar allowances, and net of sales
tax. Revenue is recognized when the significant risks and
rewards have been transferred to a third party, recovery of
the consideration is probable, the associated costs and
possible return of goods can be estimated reliably and
there is no continuing management involvement with the
goods. For revenue from sales of goods these condi-
tions are generally met at the time the product is shipped
and delivered to the customer, depending on the delivery
conditions. Service revenue is generally recognized as
services are rendered.
Post-retirement benefits
(Note 5, 16)
Contributions to defined contribution plans are recognized
in the statement of income as incurred.
Most of our defined benefit pension plans are funded with
plan assets that have been segregated in a trust or foun-
dation. 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 primar-
ily 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 settle-
ment of the plan liabilities. The effect of these so-called
asset ceiling restrictions and any changes therein is recog-
nized in Other comprehensive income. Remeasurement
gains and losses, which arise in calculating our obligations,
114
Financial information | AkzoNobel Report 2017
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 recog-
nized as an expense in the statement of income immedi-
ately. 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 post-retirement benefits.
Other charges and benefits recognized are reported in
Operating income, unless recorded in Other comprehen-
sive income.
Other employee benefits
(Note 5, 17)
Provisions for other long-term employee benefits are
measured at present value, using actuarial assumptions
and methods. Any actuarial gains and losses are recog-
nized in the statement of income in the period in which
they arise.
Share-based compensation
(Note 5)
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 uncon-
ditionally entitled to the shares with a corresponding
increase in shareholders’ equity. Amortization is acceler-
ated in the event of earlier vesting.
Income tax (Note 7)
Income tax expense comprises both current and deferred
tax, including effects of changes in tax rates. In determin-
ing the amount of current and deferred tax we also take
into account the impact of uncertain tax positions and
whether additional taxes and interest may be due. Income
tax is recognized in the statement of income, unless
it relates to items recognized in Other comprehensive
income or equity.
Current tax includes the expected tax payable and receiv-
able on the taxable income for the year, using tax rates
enacted or substantially enacted at reporting date, as well
as (any adjustments to) tax payable and receivable with
respect to previous years.
Deferred tax is recognized using the 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
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 income tax is taken into account in the determi-
nation of deferred tax liabilities to the extend earnings are
expected to be distributed by subsidiaries in the foresee-
able future and AkzoNobel has control over dividend
distribution. Deferred tax positions are not discounted.
Earnings per share (Note 8)
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 adjusted for the repurchased
shares. Diluted earnings per share is calculated by adjust-
ing the weighted average number of common shares
outstanding during the year for the diluting effect of the
shares of the performance-related share plan and for the
share-matching plan.
Adjusted earnings per share represents the basic earnings
per share from continuing operations excluding identified
items, amortization of intangible assets and income tax on
these adjustments.
Government grants
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.
Intangible assets (Note 9)
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 annu-
ally using the value in use method. 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 direct-
ly in the statement of income. The effects of all transac-
tions 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. Research expenditures are
recognised as an expense as incurred.
Property, plant and equipment
(Note 10)
Property, plant and equipment are valued at cost less
accumulated depreciation and impairment charges. Costs
include expenditures that are directly attributable to the
acquisition of the asset, including 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. The useful life of plant equipment and machinery
generally ranges from ten to 25 years, and for buildings
ranges from 20 to 50 years. Land is not depreciated. In
the majority of cases residual value is assumed to be insig-
nificant. 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 avail-
able to reasonably estimate the cash outflow.
Impairments (Note 9, 10)
We assess the carrying value of intangible assets and
property, plant and equipment whenever events or
changes in circumstances indicate that the carrying 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 impair-
ment is performed at the lowest level of assets generating
largely independent cash inflows. For goodwill and
other intangible assets with an indefinite life, we have
determined this to be at business unit level (one level
below segment).
Except for goodwill, we reverse impairment losses in the
statement of income if and to the extent we have identified
a change in estimates used to determine the recoverable
amount.
Leases (Note 10, 18, 21)
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
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.
AkzoNobel Report 2017 | Financial information
115
Associates and joint ventures
(Note 11)
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 13)
Inventories are measured at the lower of cost and net
realizable value. Costs of inventories comprise all costs of
purchase, costs of conversion and other costs incurred
in bringing the inventories to the present location and
condition. The costs of inventories are determined using
weighted average cost.
Provisions (Note 17)
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 esti-
mated. Provisions are measured at net present value. The
increase of provisions as a result of the passage of time
is recognized in the statement of income under Financing
income and expenses.
Provisions for restructuring of activities 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.
116
Financial information | AkzoNobel Report 2017
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 24)
Derivative financial instruments are recognized at fair value
on the balance sheet. Fair values are derived from market
prices and quotes from dealers and brokers, or are esti-
mated using observable market inputs. When determining
fair values, credit risk for our contract party, as well as for
AkzoNobel, is taken into account.
Changes in the fair value are recognized in the statement
of income, unless cash flow hedge accounting or net
investment hedge accounting is applied. In those cases,
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 12) and
Trade and other receivables (Note 14)
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 18)
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 18,
24) and Trade and other payables (Note 19)
Long-term and short-term borrowings, as well as Trade
and other payables, are measured at amortized cost,
using the effective interest rate method. The interest
expense on borrowings is included in Financing income
and expenses. The fair value of borrowings, used for
disclosure purposes, is determined on the basis of listed
market price, if available. If a listed market price is not
available, the fair value is calculated based on the present
value of principal and interest cash flows, discounted
at the 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 2018 and beyond have been assessed for their poten-
tial impact. The most important upcoming changes relate
to IFRS 9 “Financial Instruments” and IFRS 15 “Revenue
from contracts with Customers” which will be adopted as
per January 1, 2018. Another important upcoming change
relates to IFRS 16 “Leases” which will be implemented as
per January 1, 2019.
IFRS 9 “Financial Instruments”
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. AkzoNobel has decided to
implement and adopt IFRS 9 as from January 1, 2018,
when it becomes effective. In 2017, we completed
the assessment of the impact of the standard, which is
set out further below.
Impact of adoption of IFRS 9 and IFRS 15
In € millions
Other reserves
Non-controlling interests
Total impact on group equity
As reported at
December 31, 2017
Adjustments due to the
adoption of IFRS 9
Adjustments due to the
adoption of IFRS 15
5,865
442
6,307
(3)
–
(3)
(43)
(5)
(48)
Adjusted opening
balance at January 1,
2018
5,819
437
6,256
Transition method
AkzoNobel will adopt IFRS 9 as per January 1, 2018,
and will not restate its 2017 comparative figures.
The transition effect on equity as per January 1, 2018, is
€3 million after tax.
Classification and measurement
The impact on the classification and measurement of
financial assets is not significant.
The vast majority of Other financial non-current assets as
well as the Trade and other receivables were measured
at amortized cost, using the effective interest method, less
any impairment losses. In accordance with IFRS 9,
these Other financial non-current assets and Trade and
other receivables will continue to be measured at amor-
tized cost.
An amount of €32 million of the Other financial non-current
assets and Trade and other receivables is recognized at
fair value through profit and loss and relates to derivative
financial instruments and securities. The classification
and measurement of these financial assets will remain
unchanged under IFRS 9.
As the IFRS 9 impairment model accelerates the timing
of recognizing impairment losses, the implementation of
IFRS 9 will lead to recognition of an additional impairment
loss of €4 million as per January 1, 2018, mainly relating to
trade receivables. The after tax-effect is a charge of
€3 million.
IFRS 15 “Revenue from Contracts with
Customers”
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.
AkzoNobel has certain minor equity investments, which
are currently measured at their historic cost price. In
accordance with IFRS 9, these equity investments will be
measured at fair value through profit and loss. The impact
of this change is insignificant.
Transition method
AkzoNobel will adopt IFRS 15 as per January 1, 2018
and will not restate its 2017 comparative figures. The
transition effect on equity as per January 1, 2018, is €48
million after tax.
Impairment model
IFRS 9 introduces a new impairment model, whereby
recognition of an allowance for expected credit losses
on financial assets is required, which deviates from the
recognition of incurred credit losses under IAS 39. The
new impairment model is applicable for debt instrument
financial assets measured at amortized cost, for debt
instrument financial assets measured at fair value through
Other comprehensive income, for lease receivables,
contract assets, loan commitments and certain financial
guarantee contracts.
Sale of goods
The vast majority of the company’s revenue is derived
from delivery of goods, being paints, coatings and chemi-
cal products. Currently, revenue is recognized when the
significant risks and rewards have been transferred to the
customer, 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, depend-
ing on the delivery conditions.
In accordance with IFRS 15, revenue should be recog-
nized when the customer obtains control of the goods.
Based on our assessment, we do not expect the
application of IFRS 15 to result in a significant impact on
our consolidated financial statements. We came to the
same conclusion for the accounting treatment of variable
consideration, including among others rebates, bonuses,
discounts and payments to customers.
Equipment provided to customers
AkzoNobel regularly provides mixing machines, store inte-
rior and other assets to its customers in Decorative Paints
and Performance Coatings at the start of a paint delivery
contract. Currently, such assets are not treated as a sepa-
rate performance obligation and their costs are expensed
during the contract period.
Under IFRS 15, the delivery of such assets would qualify
as a separate performance obligation. However, in most
cases no revenue can be recognized at the moment
of transfer of such assets. Although the paint delivery
contracts do include target quantities to be purchased by
the customer, for nearly all of these contracts such clauses
legally do not qualify as a binding take-or-pay commitment
for a minimum quantity to be acquired by the customer.
Therefore, no revenue can be allocated to these assets
when they are transferred.
AkzoNobel Report 2017 | Financial information
117
In accordance with IFRS 15, such services are a separate
performance obligation to which revenue should be allo-
cated. Such revenue is to be recognized over time when
the relating services are being provided. Therefore, an
amount of €3 million (€2 million after tax) will be recognized
as deferred revenue and contract liability for services still to
be provided after December 31, 2017.
The book value at December 31, 2017, of such assets
amounted to €60 million and will be written-off in the
January 1, 2018, opening balance sheet, which has an
after-tax effect of €46 million.
Services
AkzoNobel provides certain technical services to its
customers in Performance Coatings relating to coatings
sold, after these products have been delivered. In addition,
in certain instances AkzoNobel provides shipping and
handling services after control over the products has trans-
ferred to the customer. So far, no revenue was attributed
to such services and deferred until the services were
provided to the customer.
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
January 1, 2018
IFRS 15 “Revenue
from Contracts with
Customers”
May 28,
2014
IFRS 16 “Leases”
January 13,
2016
November 22,
2016
September 22,
2016
More details on impact are provided on the previous page.
More details on impact are provided on the previous page.
January 1, 2019
October 31, 2017
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 the impact of the application of IFRS 16 to be
below 10 percent of total assets. 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.
118
Financial information | AkzoNobel Report 2017
2
Note 2: Scope of consolidation
Material subsidiaries
The Consolidated financial statements comprise the
assets, liabilities, income and expenses of approximately
360 legal entities (including the entities reported as held
for sale). 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
identified items) or based on qualitative aspects. Material
subsidiaries included in the table are 100 percent owned,
except for Akzo Nobel Swire Paints (Shanghai) Ltd., and
meet these criteria.
Material subsidiaries related to continuing
operations
Legal entity
Akzo Nobel Coatings Inc.
Principal place of
business/country
of corporation
United States
Akzo Nobel Swire Paints (Shanghai) Ltd.
China
Imperial Chemical Industries Limited
International Paint LLC
Akzo Nobel Coatings SPA
United Kingdom
United States
Italy
Material subsidiaries related to discontinued
operations (The Specialty Chemicals business)
Legal entity
Principal place of
business/country
of corporation
Akzo Nobel Industrial Chemicals B.V.
The Netherlands
Akzo Nobel Pulp and Performance Chemicals AB Sweden
Akzo Nobel Surface Chemistry LLC
Akzo Nobel Surface Chemistry AB
United States
Sweden
Akzo Nobel Functional Chemicals LLC
United States
Akzo Nobel Functional Chemicals B.V.
The Netherlands
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.
In 2017, we finalized the purchase price allocation. The
outcome thereof is reflected in the table below. The
goodwill is fully allocated to the respective business unit in
Performance Coatings.
Other acquisitions
Other acquisitions are deemed to be individually
immaterial in respect to IFRS 3 disclosure requirements. In
2017, the other acquisitions include the acquisition of Disa
Technology (Disatech), Flexcrete Technologies Ltd and the
business of V.Powdertech Co., Ltd.
In 2016, Other acquisitions include the acquisition of the
remaining 50 percent stake in EkO Peroxide LLC.
Divestments
In 2016 and 2017, no significant divestments occurred.
Discontinued operations and held for sale
The results and cash flows from discontinued operations in
2016 as well as 2017 and the assets and liabilities held for
sale at December 31, 2017 almost completely relate to the
Specialty Chemicals business.
In April 2017, AkzoNobel officially announced its decision
to separate the Specialty Chemicals business, thereby
creating two focused, high performing businesses - Paints
and Coatings, and Specialty Chemicals. At the Extraordi-
nary General Meeting of November 30, 2017, the share-
holders approved the proposed separation of the Specialty
Recognized fair values at acquisition
In € millions
Other intangibles
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Long-term debt
Provisions
Deferred tax assets/(liabilities)
Trade and other payables
Net identifiable assets and liabilities
Goodwill
Purchase consideration
Cash and cash equivalents acquired
To be received/(paid) in 2018 and later years
Net cash outflow
Provisional BASF's
Industrial Coatings
business
Final BASF's
Industrial
Coatings business
2017
Adjustments
Other
acquisitions
165
4
18
1
–
–
(17)
(3)
–
168
221
389
–
9
398
238
4
24
1
–
–
(17)
6
(29)
227
167
394
–
4
398
73
–
6
–
–
–
–
9
(29)
59
(54)
5
–
(5)
–
28
11
4
4
3
(3)
(2)
(7)
(3)
35
51
86
(3)
(3)
80
Total
2017
101
11
10
4
3
(3)
(2)
2
(32)
94
(3)
91
(3)
(8)
80
Chemicals business from AkzoNobel through a private sale
or a legal demerger. In the course of December non-bind-
ing offers were received in the private track.
As from December 22, 2017, the Specialty Chemicals
business is classified as held for sale/held for distribution
and discontinued operations, therefore the Consolidated
Statement of Income shows the results of the Specialty
Chemicals business as discontinued. The Specialty
Chemicals business presented as held for sale and
discontinued operations consists of the Business Area
Specialty Chemicals and income and expenses which are
directly attributed to the Specialty Chemicals business
from Corporate and Other which will not be recognized on
an ongoing basis by AkzoNobel.
The income and expenses from Corporate and Other
included in discontinued operations mainly consist of:
• Employee benefit expenses related to employees
who were identified to be employees of the Specialty
Chemicals business starting in 2018 as part of the legal
reorganization
• Information management costs such as application
services or infrastructure costs that relate directly to the
Specialty Chemicals business
• Other contract costs that relate directly to the Specialty
chemicals business
The assets and liabilities held for sale include the assets
and liabilities previously reported as part of Specialty
Chemicals combined with assets and liabilities of Corpo-
rate and Other that have directly been attributed to the
Specialty Chemicals business and are expected to be part
of the disposal, consisting mainly of:
• Post-retirement provisions were allocated between
the Specialty Chemicals business and the Paints and
Coatings business based on headcount for obligations
in relation to active employees and post-separation
retention of liabilities and obligations to finance the post-
retirement plans for inactive employees
• Environmental and sundry provisions if related to
historical Specialty Chemicals sites and activities and
intended to be included in the disposal
AkzoNobel Report 2017 | Financial information
119
• Provisions for restructuring that relate to Specialty
Discontinued operations
Assets and liabilities held for sale
Chemicals employees
Cash and cash equivalents as well as debt positions of
Specialty Chemicals are excluded from held for sale classi-
fication unless such items have been specifically desig-
nated as held for sale, e.g. in the case of specific local
financing and debt related to finance leases held in relation
to the Specialty Chemicals assets.
The assets and liabilities of the Specialty Chemicals busi-
ness are recognized at their carrying value.
Separation costs
The costs related to the separation of Specialty Chemicals
were reported as identified items in Corporate and other of
discontinued operations and amounted to €67 million.
Employees
The average number of employees of the Specialty
Chemicals business during the year was 9,700 of which
9,100 employees in Business Area Specialty Chemicals
(2016: 9,000). At year-end 2017, Specialty Chemicals
business employed 9,700 people of which 9,000
employees in Business Area Specialty Chemicals
(2016: 9,000).
Specialty Chemicals business
In € millions
Revenue
Cost of sales
Gross profit
Other expenses
Profit before tax
Income tax
Profit for the period after tax
Results related to discontinued opera-
tions in previous years
Tax related to discontinued operations
in previous years
2016
4,763
(3,126)
1,637
(1,039)
598
(160)
438
(3)
1
2017
4,963
(3,287)
1,676
(1,115)
561
(168)
393
1
(1)
Profit for the period
436
393
Cash flows from discontinued operations
In € millions
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Cashflows from discontinued
operations
2016
714
(343)
(9)
362
2017
691
(354)
323
660
In € millions
Intangible assets
Property, plant and equipment
Financial non-current assets
Inventories
Receivables
Assets held for sale
Non-current liabilities
Short-term borrowings
Current payables *
Liabilities held for sale
2017
787
2,266
205
503
840
4,601
765
341
1,090
2,196
* The Current payables include an amount of €21 million with respect to net current
tax liability related to discontinued operations.
In € millions
Specialty Chemicals
Corporate and other *
Total
In € millions
Specialty Chemicals
Corporate and other *
Total
Revenue from third parties
Group revenue
Amortization and
depreciation
Identified items
Operating income
2016
4,760
3
4,763
2017
4,961
2
4,963
2016
4,783
(20)
4,763
2017
4,985
(22)
4,963
2016
(324)
–
(324)
2017
(326)
(5)
(331)
2016
–
22
22
2017
–
(49)
(49)
2016
629
(33)
596
2017
689
(118)
571
2016
13.2
–
12.1
Invested capital
Total assets
Total liabilities
Capital expenditures
2016
3,494
–
3,494
2017
3,570
(41)
3,529
2016
4,755
–
4,755
2017
4,699
(98)
4,601
2016
1,315
–
1,315
2017
1,582
614
2,196
2016
356
–
356
2017
363
–
363
2016
17.9
–
17.9
ROS%
2017
13.8
–
12.5
ROI%
2017
19.1
–
17.1
* Corporate and other includes elimination effects.
120
Financial information | AkzoNobel Report 2017
3
Note 3: Alternative performance measures
In presenting and discussing AkzoNobel’s operating
results, management uses certain alternative performance
measures (APM) not defined by IFRS. These alternative
performance measures should not be viewed in isolation
as alternatives to the equivalent IFRS measures and
should be used as supplementary information in
conjunction with the most directly comparable IFRS
measures. Alternative performance measures do not
have standardized meaning under IFRS and therefore
may not be comparable to similar measures presented
by other companies. ‘EBIT’ is an alternative term for the
IFRS performance measure ‘operating profit’, whereby
operating profit is adjusted for identified items. Where a
non-financial measure is used to calculate an operational
or statistical ratio, this is also considered an APM.
AkzoNobel uses APM adjustments to the IFRS measures
to provide clear reporting on the underlying developments
of the business. These APM adjustments may affect
the IFRS measures operating income, net profit and the
earnings per share. A reconciliation of the alternative
performance measures to the most directly comparable
IFRS measures can be found in the below table.
Alternative performance measures (APM)
In € millions
Operating income
Continuing
operations
Discontinued
operations
923
596
Continuing
operations
Discontinued
operations
825
571
2016 1
Total
1,519
(103)
–
12
96
–
(22)
(17)
–
–
–
–
–
(22)
(22)
574
1,502
432
970
(22)
–
(22)
(17)
–
(17)
2017
Total
1,396
–
109
–
–
20
–
129
–
67
–
–
(18)
–
49
620
1,525
389
832
49
(5)
44
129
63
192
433
1,024
–
42
–
38
–
80
905
443
80
68
148
591
543
410
953
APM adjustments to operating income
- Post-retirement benefits
- Realignment of strategy 2
- Acquisition costs
- Impairments
- Legal
- Divestments
Total APM adjustments (identified
items)
Adjusted operating income (EBIT)
Profit for the period attributable to
shareholders of the company
APM adjustments to operating income
(identified items)
APM adjustments (identified items) to
income tax
Total APM adjustments
Adjusted profit for the period
attributable to shareholders of the
company
(103)
–
12
96
–
–
5
928
538
5
–
5
1 Represented to present the Specialty Chemicals business as discontinued operations.
2 Includes costs of separation of the Specialty Chemicals business as well as costs related to the new strategy to create a focused
high performing Paints and Coatings business.
AkzoNobel Report 2017 | Financial information
121
4
Note 4: Operating income
5
Note 5: Employee benefits
EBIT (operating income excluding Identified items)
Full-year EBIT at €905 million (2016: €928 million)
was impacted by higher raw material costs, partly
compensated by increased selling prices, continuous
improvement and cost control.
• Decorative Paints EBIT was 2% lower, due to adverse
currency effects. Steep increases in raw material costs
were offset by increased selling prices, continuous
improvement and cost control
• Performance Coatings EBIT was 12% lower, impacted
by higher raw material costs and lower volumes, partly
compensated by continuous improvement and cost
control
• EBIT in Other activities improved due to lower corporate
costs, including one-off items, as well as lower pension
and insurance related costs
Operating income
Full-year operating income was negatively impacted by
identified items totalling €80 million, mainly related to the
transformation of the Paints and Coatings organization
and legal items. The identified items impacted operating
income in Other activities as well as Decorative Paints and
Performance Coatings.
In 2016, operating income was negatively impacted by
identified items totalling €5 million, including acquisition
and integration costs related to the Industrial Coatings
business, asset impairments and adjustments to post-
retirement provisions.
Costs by nature 2017
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Employee
benefits
(506)
(885)
(358)
(186)
Amortization
Depreciation
Purchases and
other costs
(2)
(53)
(12)
(7)
(113)
(48)
(29)
(12)
(4,757)
(1,333)
(382)
(65)
(39)
(6,576)
Other results
Total
–
–
–
(1,935)
(74)
(202)
Costs by nature 2016 *
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Employee
benefits
(476)
(815)
(336)
(167)
–
(1,794)
Amortization
Depreciation
Purchases and
other costs
(1)
(48)
(21)
(6)
–
(76)
(111)
(54)
(29)
(12)
–
(206)
(4,510)
(1,419)
(422)
(72)
(12)
(6,435)
* Represented to present the Specialty Chemicals business as discontinued operations.
122
Financial information | AkzoNobel Report 2017
Total
(5,378)
(2,319)
(781)
(270)
(39)
(8,787)
Total
(5,098)
(2,336)
(808)
(257)
(12)
(8,511)
Salaries, wages and other employee benefits in
operating income
In € millions
Salaries and wages
Post-retirement cost
Other social charges
Total
Average number of employees
Average number during the year
Decorative Paints
Performance Coatings
Corporate and other
Total
2016 *
(1,467)
(35)
(292)
2017
(1,515)
(126)
(294)
(1,794)
(1,935)
2016 *
14,800
19,300
2,100
36,200
2017
14,700
19,800
1,700
36,200
The average number of employees working outside
the Netherlands was 33,600 (2016: 33,300).
Employees
At year-end
Decorative Paints
Performance Coatings
Corporate and other
Total
2016 *
14,700
19,700
1,900
36,300
2017
14,400
19,900
1,400
35,700
* Represented to present the Specialty Chemicals business as discontinued
operations.
At year-end 2017, the number of employees decreased by
2% to 35,700 people (year-end 2016: 36,300 people).
Share-based compensation
Share-based compensation relates to the equity-settled
performance-related share plan, as well as the share-
matching plan. Charges recognized in the 2017 state-
ment of income for share-based compensation amounted
to €21.7 million and are included in salaries and wages
(2016: €15.0 million).
Performance-related share plan
Under the performance-related share plan, a number
of conditional shares are granted to the members of
the Board of Management, members of the Executive
Committee and executives each year. The number of
participants of the performance-related share plan at year-
end 2017 was 348 (2016: 355).
As a result, the conditional shares of the 2015-2017
series vested for 81.80 percent (series 2014-2016: 66.49
percent), including dividend shares of 13.27 percent, the
final vesting percentage amounted to 92.65 percent (series
2014-2016: 71.56 percent).
The share price of a common AkzoNobel share at year-
end amounted to €73.02 (2016: €59.39). For further
details on our performance-related share plan, refer to the
Remuneration report.
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 grant date (opening of first trading date
from grant date), expected volatility (based on the share
price development of the past three years of AkzoNobel),
and risk-free interest rate (based on a Dutch zero-coupon
government bond).
Fair value of performance-related shares
The fair value of the performance-related shares was for
35 percent based on a market condition (TSR) and for 65
percent based on non-market based performance condi-
tions (ROI and RobecoSAM).
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
The shares of the series 2014-2016 have vested and were
delivered to the participants in 2017.
Fair value performance-related shares
The 2015 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 2015-2017 series vested as
follows:
• Our TSR performance over the period 2015-2017
resulted in a fifth position within the ranking of the peer
group companies. This resulted in a vesting of
75 percent for this part of the long-term incentive
• Our ROI performance at the end of 2017 resulted in
a vesting of 73 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
Opening
share price per:
January 4, 2016
January 2, 2017
May 9, 2017
July 28, 2017
September 25, 2017
September 25, 2017
market
condition
(TSR) - 35%
Fair Value
non market
based
performance
conditions -
65% Share price
53.69
52.42
76.34
77.16
68.96
81.80
40.20
40.14
75.63
78.88
51.18
87.85
60.69
59.03
76.72
76.23
78.54
78.54
60.96
59.03
76.72
76.23
78.54
78.54
Expected
volatility
Risk free
interest rate
23.82%
23.94%
24.13%
23.77%
23.58%
23.58%
-0.09%
-0.12%
-0.09%
-0.08%
-0.22%
-0.17%
Series
2016-2018
2017-2019
2017-2019 1
2017-2019 2
2016-2018 3
2017-2019 3
1 Relates to additional share grant.
2 Relates to modification accounting for shares held by Mr Büchner.
3 Relates to modification accounting for shares held by Mr Büchner, related to the accelerated on-target vesting of the applicable series. The incremental fair value amounts to € 9.58
and €0 for the total award granted under respectively the 2016-2018 and the 2017-2019 program.
Performance-related shares
Series
2014 - 2016
2015 - 2017
2016 - 2018
2017 - 2019
Total
Balance per
January 1, 2017
Granted in
2017
Vested in
2017
Forfeited in
2017
Dividend in
2017
Balance at
December 31, 2017
Vested on
January 1, 2018
–
(257,743)
257,743
377,171
392,226
4,000
9,193
–
445,541
–
(73,820)
(17,010)
(32,521)
–
–
–
1,027,140
458,734
(257,743)
(123,351)
–
20,768
30,518
33,125
84,411
–
328,119
414,927
446,145
–
328,119
–
–
1,189,191
328,119
AkzoNobel Report 2017 | Financial information
123
incentive in AkzoNobel shares may have such shares
matched by the company. The investment in Akzo Nobel
N.V. shares in 2017 resulted in a total of 13,380 granted
potential matching shares. During 2017, 6,205 potential
matching shares were matched, and 4,130 were forfeited,
leading to a total of 12,825 potential matching shares at
December 31, 2017.
Fair value of matching shares
The fair value of the matching shares (€72.56) was based
on the share price on the investment date, discounted
for expected dividends over the holding period (2016:
€59.43).
The parameters applied for the fair value calculations
are: share price at purchase date of voluntary investment
(April 19, 2017): €78.53; expected dividend yield:
2.60 percent.
For an overview of the matching shares outstanding
for the members of the Board of Management as of
December 31, 2017, we refer to Note 23.
6
Note 6: Financing income and expenses
7
Note 7: Income tax
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
Total financing income and
expenses
2016 *
25
(95)
(70)
6
(28)
1
(21)
(91)
2017
23
(90)
(67)
(7)
(16)
12
(11)
(78)
* Represented to present the Specialty Chemicals business as discontinued
operations.
Net financing expenses for the year were €78 million
(2016: €91 million). Significant variances are:
• Net interest on net debt decreased by €3 million to
€67 million (2016: €70 million), mainly due to lower
financing expenses as a result of the repayment of a
higher interest bond
• Net other financing charges decreased by €10 million
to €11 million (2016: €21 million), mainly due to lower
interest on provisions
The average interest rate used for capitalized interest was
2.6 percent (2016: 2.9 percent) and amounted to
€2 million (2016: €4 million).
The average interest rate on total debt was 3.1 percent
(2016: 3.4 percent).
Pre-tax income from continuing operations amounted to
a profit of €764 million (2016: €850 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
2016 *
2017
Current tax expense for
The year
Adjustments for previous years
Separation of Specialty Chemicals
business
(160)
12
–
(158)
56
(1)
Total current tax expense
(148)
(103)
Deferred tax expense for
US tax reform
Separation of Specialty Chemicals
business
Origination and reversal of temporary
differences and tax losses
(De)recognition of deferred tax assets
Changes in tax rates (excluding US
tax reform)
Total deferred tax expense
Total
–
–
(72)
(17)
3
(86)
(234)
(56)
(32)
(44)
(12)
(6)
(150)
(253)
* Represented to present the Specialty Chemicals business as discontinued
operations.
The total deferred tax charge, including discontinued
operations was €182 million (2016: €120 million). The total
tax charge, including discontinued operations, was
€422 million (2016: €393 million).
124
Financial information | AkzoNobel Report 2017
Effective tax rate reconciliation
The effective income tax rate based on the statement of
income is 33.1 percent.
Effective tax rate
in %
Corporate tax rate in the Netherlands
Effect of tax rates in other countries
Weighted average statutory income
tax rate
US tax reform
Separation of Specialty Chemicals
business
Non-taxable (income)/expenses
(De)recognition of deferred tax assets
Non-refundable withholding taxes
Adjustment for prior years
Other
Effective tax rate
2016 *
25.0
(2.0)
23.0
–
–
2.2
2.0
2.1
(1.4)
(0.4)
27.5
2017
25.0
(1.0)
24.0
7.3
4.2
0.7
1.6
1.8
(7.3)
0.8
33.1
* Represented to present the Specialty Chemicals business as discontinued
operations.
The impact of non-refundable withholding tax on the
tax rate is dependent on our relative share in the profit
of subsidiaries in countries that levy withholding tax on
dividends and on the timing of the remittance of such divi-
dends. 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, €280 million (2016: €321 million) is related to enti-
ties that have suffered a loss in either 2017 or 2016 and
where utilization is dependent on future taxable profit in
excess of the charges arising from the reversal of exist-
ing taxable temporary differences. For these entities, net
deferred tax assets were recognized based on manage-
ment’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.
2017
1,017
(367)
650
(19)
(182)
(105)
(52)
(2)
290
575
(285)
Total
3,106
(180)
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 foreseeable
future and in sofar the company is in control of dividend
distribution. The expected net tax impact of the remaining
differences for which no deferred tax liabilities have been
recognized is €30 million.
Unrecognized deferred tax assets
In € millions
Tax losses and tax credits
Deductible temporary differences
Total
2016
172
203
375
2017
193
171
364
Expiration year of loss carryforwards
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
Classified as held for sale
Other
Balance at December 31
Deferred tax assets
Deferred tax liabilities
2016
1,057
(360)
697
(21)
(120)
106
–
(12)
650
1,017
(367)
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total recognized
2018
2019
2020
2021
2022
Later
Unlimited
4
–
4
1
–
1
7
(7)
–
3
(3)
–
25
(4)
21
416
(33)
2,650
(133)
383
2,517
2,926
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, 2016
December 31, 2017
(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
(368)
43
177
47
162
593
(364)
290
–
290
17
69
179
59
248
593
(364)
801
(226)
575
385
26
2
12
86
–
–
511
(226)
285
AkzoNobel Report 2017 | Financial information
125
The income tax recognized in equity in 2017 includes the
impact of derecognition of certain post-retirement benefits
related deferred tax assets.
The income recognized in equity in 2016 includes the posi-
tive impact of the re-recognition of certain post-retirement
benefits related deferred tax assets.
Income tax recognized in equity
In € millions
Currency exchange differences on
intercompany loans of a permanent
nature
Cash flow hedges
Share-based compensation
Post-retirements benefits
Total
Current tax
Deferred tax
Total
2016
(29)
(14)
(3)
151
105
(1)
106
105
2017
(5)
(4)
3
(99)
(105)
–
(105)
(105)
8
Note 8: 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 continu-
ing operations attributable to
shareholders of the company
Profit for the period from
discontinued operations
Discontinued operations attributable to
non-controlling interest
Profit for the period attributable to
shareholders of the company
2016 *
850
(234)
616
(78)
538
2017
764
(253)
511
(68)
443
436
393
(4)
970
(4)
832
* Represented to present the Specialty Chemicals business as discontinued
operations.
Weighted average number of shares
Number of shares
Issued common shares at
January 1
Effect of issued common shares
during the year
2016
2017
248,976,428
252,176,412
1,937,945
1,513,199
Effect of share repurchase program
–
(2,054,481)
Shares for basic earnings per
share for the year
250,914,373
251,635,130
Earnings per share
in €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
2016 *
2017
2.15
2.14
1.72
1.71
3.87
3.85
1.76
1.75
1.55
1.54
3.31
3.29
2017
764
80
74
(207)
(68)
643
Adjusted earnings per share
Profit for the period from continuing operations
In € millions
Profit before tax from
continuing operations
Identified items 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
2016 *
850
5
76
(256)
(78)
597
Adjusted earnings per share (in €)
2.38
2.56
Effect of dilutive shares
For performance-related shares
1,054,797
1,626,796
Profit for the period from total operations
For share-matching plan
Shares for diluted earnings
per share
16,468
12,825
In € millions
251,985,638
253,274,751
Profit before tax from total operations
Identified items reported in
operating income
Amortization of intangible assets
Adjusted income tax
Non-controlling interests
Adjusted profit from total opera-
tions attributable to shareholders
of the company
2016
1,448
(17)
124
(431)
(82)
2017
1,324
129
120
(395)
(72)
1,042
1,106
Adjusted earnings per share (in €)
4.15
4.40
* Represented to present the Specialty Chemicals business as discontinued
operations. The earnings per share for total operations are not represented.
126
Financial information | AkzoNobel Report 2017
9
Note 9: Intangible assets
Intangible assets
In € millions
Balance at January 1, 2016
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
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/impairment
Carrying value at December 31, 2016
Movements in 2017
Acquisitions through business combinations
Investments – including internally developed intangibles
Divestments
Amortization
Classified as held for sale
Changes in exchange rates
Total movements
Balance at December 31, 2017
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at December 31, 2017
Goodwill
Brands
Customer
lists
Other intan-
gibles
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
(3)
–
–
–
(517)
(88)
(608)
991
–
(46)
945
–
(165)
2,125
2
–
–
(12)
–
(90)
(100)
2,189
–
(164)
2,025
–
(748)
456
89
–
–
(67)
(141)
(22)
(141)
754
–
(439)
315
409
246
(356)
299
24
17
(5)
(48)
(4)
(4)
(20)
399
221
(341)
279
10
22
(4)
(42)
(129)
(12)
(155)
192
160
(228)
124
Total
5,163
246
(1,253)
4,156
388
17
(6)
(124)
(44)
26
257
5,545
221
(1,353)
4,413
98
22
(4)
(121)
(787)
(212)
(1,004)
4,126
160
(877)
3,409
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 2017 and 2016, there were no purchase commit-
ments for individual intangible assets. No intangible assets
were registered as security for bank loans.
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 different 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 2017, the above exception
was applied for Decorative Paints Asia and Decorative
Paints Latin America, for which the revenue growth and
EBITDA-margin development projections were extrapolat-
ed 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 8.6 percent to 13.3
percent, with a weighted average of 9.7 percent.
AkzoNobel Report 2017 | Financial information
127
Goodwill and other intangibles per segment
Goodwill
Brands with indefinite
useful lives
Other intangibles
with finite useful lives
Total intangibles
In € millions
Decorative Paints
Performance Coatings
Specialty Chemicals *
Total
2016
40
954
559
1,553
2017
40
905
–
945
2016
1,928
–
–
2017
1,845
–
–
1,928
1,845
2016
228
372
332
932
2017
194
425
–
619
2016
2,196
1,326
891
4,413
2017
2,079
1,330
–
3,409
* The goodwill and other intangible assets for Specialty Chemicals were classified as held for sale at year-end 2017 and are therefore not included in the goodwill
and other intangibles at year-end 2017.
Sensitivity tests were performed for growth assumptions
(a 50 percent reduction of the growth rate), EBITDA-
margin development assumptions (a one percentage point
decrease) and for the weighted average cost of capital (a
one percentage point increase). All sensitivity tests indi-
vidually confirm sufficient headroom in all businesses.
No impairment charges were recognized in relation to the
annual impairment test, both in 2016 and 2017.
Average revenue growth rates
In % per year
Decorative Paints
Performance Coatings
2017-2022
4.2%
3.2%
10
Note 10: Property, plant and equipment
Capital expenditures
• In Decorative Paints, we invested in increased asset
integrity in both growth and mature markets, while
continuing to invest in selected growth projects, such
as the Ashington (UK) state-of-art paint factory, officially
inaugurated in September 2017, and the Langfang plant
in China
• In Performance Coatings, we invested heavily in
capacity increase in emerging markets, and more
moderately in mature markets. One example is the
opening of the Changzhou powder coatings production
facility in China, aimed at strengthening our leading
position in North Asia; while continuing to invest in our
new Powder Coatings site in Thane, India. Additionally,
several efficiency improvement projects were carried out
mostly in Europe
• In Specialty Chemicals, we invested in several asset
integrity and efficiency improvement projects while
continuing to invest in growth projects for specific
segments, such as increasing capacity of Expancel
production in Sweden and building a world-scale plant
for monochloroacetic acid (MCA) as part of a joint
arrangement with Atul in India. In 2017, we completed
the expansion of our production in Mariager, Denmark,
which supplies pharmaceutical-grade salt to the
healthcare industry, increased capacity for sodium
hydrosulfide (NASH) production in LeMoyne, US,
initiated production of organic peroxides in Los Reyes,
Mexico, and completed the plant expansion in Boxing,
China
Impairments
In 2017, several small impairments and reversal of impair-
ments were recognized, spread over all businesses. The
impairments recognized in 2016, were mainly related to
assets of Performance Coatings.
128
Financial information | AkzoNobel Report 2017
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 €33 million (2016: €63 million)
of which €32 million is related to Buildings and land.
In 2017, we entered into new financial leases of €5 million,
which were reported in the line Other.
Property, plant and equipment
In € millions
Balance at January 1, 2016
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
Movements in 2016
Acquisitions
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairments
Other
Changes in exchange rates
Total movements
Balance at December 31, 2016
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at December 31, 2016
Movements in 2017
Acquisitions
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairments, including reversals
Classified as held for sale
Other
Changes in exchange rates
Total movements
Balance at December 31, 2017
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at December 31, 2017
Plant
equipment
and
machinery
Buildings
and land
Other
equipment
Construction
in progress
and prepay-
ments on
projects
Assets not
used
Total
2,403
(1,257)
1,146
6,670
(4,851)
1,819
6
(12)
31
80
(74)
(7)
–
15
39
2,529
(1,344)
1,185
9
(11)
39
147
(75)
3
(434)
2
(66)
(386)
1,488
(689)
799
44
(3)
99
207
(326)
(6)
28
16
59
6,987
(5,109)
1,878
2
(4)
215
446
(335)
(1)
(1,472)
1
(102)
(1,250)
1,901
(1,273)
628
999
(757)
242
–
(3)
36
46
(81)
(3)
–
(4)
(9)
1,052
(819)
233
–
(2)
51
76
(75)
2
(64)
1
(10)
(21)
925
(713)
212
863
(74)
789
–
(1)
468
(333)
–
(3)
–
(32)
99
976
(88)
888
–
–
307
(669)
–
(4)
(295)
–
(36)
(697)
193
(2)
191
66
(59)
7
–
–
–
–
(1)
–
–
–
(1)
57
(51)
6
–
(3)
1
–
(1)
–
(1)
–
–
(4)
7
(5)
2
11,001
(6,998)
4,003
50
(19)
634
–
(482)
(19)
28
(5)
187
11,601
(7,411)
4,190
11
(20)
613
–
(486)
–
(2,266)
4
(214)
(2,358)
4,514
(2,682)
1,832
AkzoNobel Report 2017 | Financial information
129
11
Note 11: Investments in associates and
joint ventures
12
Note 12: Other financial non-current assets
Profit and loss of our share in associates
Other financial non-current assets
In € millions
2016 *
2017
Loans and receivables
Associates
In € millions
At year-end 2017, the carrying value of investments in
associates amounted to €118 million (2016: €108 million)
and in joint ventures amounted to €nil (2016 €53 million).
The decrease in joint ventures compared with year-end
2016 is due to classifying the Specialty Chemicals
business as held for sale at year-end 2017. In 2017, the
results from associates amounted to a profit of €17 million
(2016: €18 million).
No significant contingent liabilities exist related to
associates.
The largest associate of AkzoNobel is Metlac S.p.a..
None of the associates are considered individually material
to the group.
Condensed statement of income
Revenue
Profit before tax
Profit from continuing operations
Other comprehensive income
Total comprehensive income
110
27
18
–
18
114
24
17
–
17
* Represented to present the Specialty Chemicals business as discontinued
operations.
2016
135
423
558
2017 *
131
1,070
1,201
Other than financial instruments
Total
* At year-end 2017 an amount of €55 million of Other financial non-current assets is
classified as held for sale.
The loans and receivables include the subordinated loan
of €91 million (2016: €90 million) granted to the Pension
Fund APF in the Netherlands.
Other than financial instruments include an amount of
€895 million related to pension plans in an asset position
(2016: €220 million). For more information on post-retire-
ment benefit provisions, see Note 16.
Balance sheet information of our share in associates and joint ventures
In € millions
Condensed balance sheet
Non-current assets
Current assets
Total assets
Shareholders’ equity
Non-current liabilities
Current liabilities
Total liabilities and equity
2016
63
84
147
108
3
36
147
Associates
2017
63
104
167
118
2
47
167
2016
40
33
73
53
2
18
73
Joint ventures
2017
–
–
–
–
–
–
–
130
Financial information | AkzoNobel Report 2017
13
Note 13: Inventories
14
Note 14: Trade and other receivables
Trade and other receivables
2017 *
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
2016
2,272
55
180
13
29
238
2017 *
1,700
29
112
–
11
112
* At year-end 2017 an amount of €834 million of Trade and other receivables is
Utilization
2,787
1,964
Release of unused amounts
Inventories
In € millions
Raw materials and supplies
Work in progress
Finished products and goods for resale
2016
480
82
970
331
62
701
Total
1,532
1,094
* At year-end 2017 an amount of €503 million of Inventories is classified as held
for sale.
Of the total carrying value of inventories at year-end 2017,
€35 million is measured at net realizable value (2016:
€54 million). In 2017, €54 million was recognized in the
statement of income for the write-down of inventories
(2016: €66 million), while €19 million of write-downs were
reversed (2016: €17 million) for continuing and discontin-
ued operations. There are no inventories subject to reten-
tion of title clauses.
classified as held for sale.
Trade receivables are presented net of an allowance for
impairment of €84 million (2016: €107 million). In 2017,
€45 million of impairment losses were recognized in the
statement of income (2016: €48 million), of which
€42 million was related to continuing operations and
€3 million was related to discontinued operations. An
amount of €37 million was reversed (2016: €26 million), of
which €32 million was related to continuing operations and
€5 million was related to discontinued operations.
In 2016, Other receivables included the current part of
the escrow account of the Akzo Nobel (CPS) Pensions
Scheme in the UK amounting to €54 million, which was
settled in 2017.
Ageing of trade receivables
In € millions
Performing trade receivables
2016
2,058
2017
1,505
Past due trade receivables and not
impaired
< 3 months
> 3 months
Impaired trade receivables
Allowance for impairment
Total trade receivables
185
13
123
(107)
140
31
108
(84)
2,272
1,700
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.
Allowance for impairment of trade receivables
In € millions
Balance at January 1
Additions charged to income
Classified as held for sale
Currency exchange differences
Balance at December 31
2016
102
48
(26)
(19)
–
2
107
2017
107
45
(37)
(19)
(6)
(6)
84
The addition to and release of the allowance for impair-
ment have been included in the statement of income
under Selling expenses for continuing operations and
under profit for the period from discontinued operations for
the Specialty Chemicals business.
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.
AkzoNobel Report 2017 | Financial information
131
15
Note 15: Group equity
Composition of share capital at year-end 2016
Non-controlling interests
In €
Priority shares (48 with nominal value
of €400)
Cumulative preferred shares (200
million with nominal value of €2)
Common shares (600 million with
nominal value of €2)
Authorized
share capital
Subscribed
share capital
19,200
19,200
Group entity
Partner
2016
2017
Equity stake
Equity stake
% in € millions
% in € millions
400,000,000
–
Akzo Nobel Swire Paints (Shanghai) Ltd,
Shanghai, China
Swire Duro (Holdings) Ltd, China
30.00
181
30.00
170
1,200,000,000
504,352,824
PT ICI Paints Indonesia, Jakarta, Indonesia
PT DWI Satrya Utama, Indonesia
Akzo Nobel India Limited, Kolkata, India
Privately held, India
Akzo Nobel Paints (Malaysia) Sdn. Bhd.,
Kuala Lumpur, Malaysia
Privately held, Malaysia
27.04
45.00
40.05
49
31
26
27.04
45.00
40.05
Total
1,600,019,200
504,372,024
Composition of share capital at year-end 2017
In €
Priority shares (48 with nominal value
of €400)
Cumulative preferred shares (200
million with nominal value of €2)
Common shares (600 million with
nominal value of €2)
Authorized
share capital
Subscribed
share capital
19,200
19,200
400,000,000
–
1,200,000,000
505,241,170
Total
1,600,019,200
505,260,370
Outstanding common shares
Number of shares
2016
2017
Outstanding at January 1
248,976,428
252,176,412
Issued in connection to perfor-
mance-related shareplan and share-
matching plan
676,073
405,231
Stock dividend
Share repurchase
2,523,911
2,418,168
–
(2,379,226)
Balance at December 31
252,176,412
252,620,585
Weighted average number of shares
Number of shares
Weighted average number of
shares
2016
2017
250,914,373
251,635,130
For further details on weighted average number of shares,
refer to Note 8.
132
Financial information | AkzoNobel Report 2017
52
28
25
33
17
10
17
13
5
12
11
49
442
Akzo Nobel Swire Paints (Guanzhou) Limited,
Guangzhou, China
Swire Duro (Holdings) Limited, Industrial Devel-
opment Co. Ltd of Guanzhou, China
46.00
37
46.00
International Paint (Korea) Ltd, Busan, South-
Korea
Akzo Nobel UAE Paints LLC, United Arab
Emirates
Noroo Holdings, South Korea
40.00
20
40.00
Kanoo Group, United Arab Emirates
40.00
13
40.00
Akzo Nobel Kemipol A.S., Izmir, Turkey
Privately held, Turkey
International Paints Saudi Arabia, Saudi Arabia Yousuf Bin Ahmed Kanoo Co. Ltd, Saudi Arabia
International Paints of Shanghai Co. Ltd,
Shanghai, China
Huayi Fine Chemical Co. Ltd, China; China
National Shipbuilding Equipment & Materials
Corp.
49.00
40.00
49.00
18
15
12
49.00
40.00
49.00
Akzo Nobel Pakistan Limited, Karachi,
Pakistan
Privately held, Pakistan
24.19
13
24.19
Akzo Nobel Oman SAOC, Muscat, Oman
Omar Zawawi establishment LLC, Oman
50.00
Others
Total
50.00
14
52
481
Subscribed share capital
For further details on subscribed share capital, refer to
Note E in the Company financial statements.
Other components of Shareholders’ equity
Changes in fair value of derivatives comprise the effective
portion of the cumulative net change in the fair value of
cash flow hedging instruments related to hedged transac-
tions that have not yet occurred.
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.
Equity-settled transactions consist of the performance-
related share plan and share-matching plan, whereby
shares are granted to the Board of Management, Execu-
tive Committee and other executives. For details of the
share-based compensation, refer to Note 5.
Non-controlling interests
None of the non-controlling interests are considered indi-
vidually material to the group.
Dividend
Our dividend policy is to pay a stable to rising dividend.
We will propose a 2017 final dividend of €1.94 per share,
which would make a total 2017 dividend of €2.50 (2016:
€1.65) per share, up 52 percent, excluding the €4.00
dividend per share paid in December 2017 as advanced
proceeds related to the separation of the Specialty Chemi-
cals business. There will be a stock dividend option with
cash dividend as default.
16
Note 16: Post-retirement benefit provisions
Post-retirement benefit provisions relate to defined benefit
pension and other post-retirement benefit plans, including
healthcare or welfare plans. The largest defined benefit
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 obliga-
tions (DBO) and 90 percent of plan assets. Both plans are
part of continuing operations. Other pension plans include
the largely unfunded plans in Germany and the plans in
the US, which will be split into continuing and discontin-
ued operations, and certain other smaller plans in the UK,
included in continuing operations. 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, where plans will be split into continuing and discon-
tinued operations, and in the Netherlands, where the plan
remains in continued operations.
Valuations of the obligations under the plans are carried
out regularly by independent qualified actuaries. We
accrue for the expected costs of providing such post-
retirement benefits during the service years of the employ-
ees. Governance of the benefit plans is the responsibility
of the 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. The committee develops and maintains
policies on benefit design, funding, asset allocation and
assumption setting.
Pension plans
Almost all of the defined benefit plans have been closed
to new members since the early to mid-2000s, although
in many plans long-serving employees continue to accrue
benefits. For plans in the US, benefit accrual is frozen
and employees participate in defined contribution plans
for future service. In countries where plans are closed,
new employees are eligible to join a defined contribution
arrangement. In countries in high growth markets, pension
schemes currently are not material. Unless mandated by
law, it is our policy that any new plans are established as
defined contribution plans.
The most significant risks that we run in relation to defined
benefit plans are that investment returns fall short of
expectations, 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 invest-
ment strategies. 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 contri-
bution schedules with plan fiduciaries.
Plan assets principally consist of insurance (annnuity)
policies, long-term interest-earning investments 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 char-
acteristics 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.
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.
AkzoNobel Report 2017 | Financial information
133
The cost of fully removing risk would exceed estimated
funding deficits.
Reconciliation balance sheet
In € millions
Balance at the beginning of the period
(16,960)
16,080
(880)
(16,935)
15,671
(1,264)
2016
DBO
Plan
assets
Total
DBO
Plan
assets
2017
Total
Between 2014 and 2017, ICIPF and a smaller UK plan,
the ICI Specialty Chemicals Pension Fund (ISCPF), have
invested in annuity buy-in 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 2017, the Trustee of the
ICIPF entered into three more annuity buy-in agreements
with Scottish Widows Limited. Together they cover, in
aggregate, £0.4 billion (€0.5 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 £67 million (€77 million).
By purchasing bulk annuities, the ICIPF and ISCPF Trust-
ees 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.
Of the costs recognized in the statement of income €38
million concerned continuing operations (2016: €67 million
credit) and €22 million related to discontinued operations
(2016: €22 million)
Remeasurement effects recognized in Other comprehen-
sive income for continuing operations amounted to a €462
million gain (2016: €683 million loss) and for discontinued
operations to a €24 million gain (2016: €56 million loss). Of
the net cash flow €340 million was for continuing opera-
tions (2016: €369 million) and €47 million for discontinued
operations (2016: €52 million).
The held for sale balance reflects a DBO of €883 million,
plan assets of €278 million and an asset restriction amount
of €1 million.
134
Financial information | AkzoNobel Report 2017
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
(55)
109
10
(523)
(459)
122
(2,624)
6
–
–
Remeasurement effects recognized in Other comprehensive income
(2,496)
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
Held for sale
Net balance sheet provision
–
–
(9)
513
504
–
–
–
(637)
2,394
1,757
421
2
(946)
(523)
(55)
109
1
(10)
45
122
(2,624)
6
(637)
2,394
(739)
421
–
–
421
(5)
(106)
(111)
(53)
12
–
(394)
(435)
213
33
223
–
–
469
–
(2)
982
980
(5)
599
594
–
–
–
375
375
–
–
–
(77)
94
17
387
2
(982)
(593)
7
(556)
(549)
(53)
12
–
(19)
(60)
213
33
223
(77)
94
486
387
–
–
387
2
43
45
–
(2)
946
944
(3)
(2)
2,039
(2,145)
2,036
(2,147)
(16,935)
15,671
(1,264)
(15,327)
14,921
(406)
(4)
(1,268)
220
(1,380)
(108)
–
(1,268)
(4)
(410)
895
(643)
(56)
(606)
(410)
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 treat-
ment, it is accounted for as a defined contribution plan.
Contributions in 2017 were €8 million (2016: €7 million).
Alecta’s target funding ratio in 2017 was 140 percent. The
most recently quoted ratio at December 2017 stood at
154 percent. There is also a small number of multi-employ-
er 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 €156 million (€88 million continuing
operations, €68 million discontinued operations) in 2017
(2016: €152 million; €81 million continuing operations,
€71 million discontinued operations).
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
€163 million (2016: €990 million) and Other post-retire-
ment benefit plans €247 million (2016: €278 million).
DBO at funded and unfunded pension plans
In € millions
2016
2017
Wholly or partly funded plans
16,311
14,784
Unfunded plans
Total
346
296
16,657
15,080
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.
Administrative expenses
In addition to the expenses borne by the funds them-
selves, some expenses are borne directly by AkzoNobel.
Administrative expenses are incurred, especially for the UK
pension funds, of €12 million (2016: €15 million), which are
included in Operating income, all concerning continuing
operations. In addition, we directly incurred asset manage-
ment expenses of €6 million (2016: €9 million), which have
been included in Other comprehensive income.
Plan assets
In € millions
Equities
Debt - fixed interest government bonds
Debt - index-linked government bonds
Debt - corporate and other bonds
UK buy-in annuity policies
Cash and cash equivalents
Other
Total
2016
Percentage
of total
7
5
11
6
53
4
14
Total
1,091
768
1,782
915
8,357
593
2,165
2017
Percentage
of total
6
7
15
7
54
1
10
Total
964
1,022
2,183
1,016
8,030
170
1,536
15,671
100
14,921
100
Interest costs
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 €19 million (€7 million continu-
ing operations, €12 million discontinued operations) (2016:
€10 million; €6 million credit continuing operations, €16
million charge discontinued operations), see Note 6.
Plan assets
The equities and government bond debt assets in the
table below have quoted prices in active markets, although
most are held through funds comprised of such instru-
ments which are not actively traded themselves. The UK
buy-in annuity policies are unquoted plan assets. The
other categories of plan assets include certain assets
that are not quoted in active markets. Such unquoted
securities totaled €1,045 million (2016: €971 million) and
include investments in real estate, totaling €340 million
(2016: €322 million) and other investments in infrastruc-
ture, 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 €895 million (2016: €220 million)
and fully concern continuing operations. The increase in
2017 was primarily due to €259 million of top-up pension
contributions and €417 million of net actuarial gains in the
relevant plans. 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
contributions to the plan, either during the life of the plan
or on the (final) settlement of the plan liabilities.
AkzoNobel Report 2017 | Financial information
135
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
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
ICIPF
UK
61%
(9,298)
9,609
311
–
311
14%
7
184
2.4%
1.4%
3.2%
3.0%
26.8
28.3
28.0
29.5
CPS
UK
Other pension
plans
Other post-
retirement
benefits
21%
16%
2%
(3,283)
3,810
527
–
527
20%
10
91
2.5%
1.4%
3.2%
2.2%
26.4
28.7
27.6
29.9
(2,499)
1,502
(997)
(4)
(1,001)
62%
34
92
2.4%
2.2%
1.9%
1.9%
25.6
28.6
27.2
30.1
(247)
–
(247)
–
(247)
4%
2
20
3.4%
–
–
–
5.0%
4.0%
2024
26.1
28.2
27.3
29.4
2017
Total
(15,327)
14,921
(406)
(4)
(410)
53
387
2.5%
1.8%
3.0%
2.6%
5.0%
4.0%
2024
26.5
28.4
27.8
29.7
136
Financial information | AkzoNobel Report 2017
Cash flows
In 2018, we expect to contribute €269 million (2017: €367
million) to our defined benefit pension plans. We expect
to pay a further €19 million (2017: €20 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.
Cash flows
In € millions
Regular contributions
Top-ups
Total
Continuing
operations
56
270
326
2017
Dis -
continued
operations
36
5
41
Continuing
operations
54
178
232
Pensions
2018
Dis-
continued
operations
35
2
37
Continuing
operations
14
–
14
Other post-retirement benefits
2017
Dis-
continued
operations
6
–
6
Continuing
operations
14
–
14
2018
Dis-
continued
operations
5
–
5
Future benefit payments
In € millions
Pensions
2018
2019
2020
2021
2022
2023-2027
970
964
972
978
986
5,058
Other post
retirement
benefits
19
19
18
18
17
77
The sensitivity effect on DBO shown allows for an alterna-
tive 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 differ-
ent 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 99 percent of pensioner liabilities (2016:
96 percent) and 82 percent of total liabilities at ICIPF
(2016: 76 percent). The longevity hedge contract covers
58 percent of pensioner liabilities (2016: 66 percent) and
36 percent of total liabilities at CPS (2016: 38 percent).
Sensitivity of DBO to change in assumptions 2017
In € millions
Discount rate: 0.5% decrease
Price inflation: 0.5% increase *
Life expectancy: one year increase from age 60
Healthcare cost trend rate: 0.5% increase
Maturity information
ICIPF
UK
606
313
645
–
CPS
UK
276
148
107
–
Other
pension plans
Other post-
retirement
benefits
185
104
103
–
13
-
10
4
Total
1,080
565
865
4
Weighted average duration of DBO (years)
12.9
16.4
14.5
10.2
13.8
* The sensitivity to price inflation assumption includes corresponding changes to all inflation-related compensation
increases, pensions in payment and pensions in deferment.
AkzoNobel Report 2017 | Financial information
137
Key plan details for the two largest pension plans 1
Type of plan
Benefits
Pension increases (main benefit
section)
Plan structure
Governance
Regulatory framework
Funding basis
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
Annually linked to UK RPI with a maximum of 5 percent Annually linked to UK CPI with a maximum of 5 percent
Plans are set up under a trust and are tax approved
Plans are set up under a trust and are tax approved
Trustee directors:
Five member-nominated trustees
Five appointed with the agreement of Law Debenture
One independent (Law Debenture)
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 strate-
gies will impact the discounted value of liabilities
Frequency of funding reviews
Normally every three years
Latest completed valuation
March 31, 2014
Normally every three years
March 31, 2015
Funding deficit 2 at latest completed
valuation
Recovery plan
£850 million (€959 million)
£84 million (€95 million) including the escrow account
£125 million (€141 million) per annum in 2018 to 2021,
paid in January each year
£21 million (€24 million) per annum in 2018 and 2019,
with £13 million (€15 million) in 2020, paid in March
each year
Next funding review
March 31, 2017
March 31, 2017
Asset allocation at March 31, 2017
Matching:
Return seeking:
93%
7%
Buy-in annuity contracts cover 99% of pensioner liabili-
ties and 79% of total liabilities
61%
39%
The longevity hedge contract covers 58% of pensioner
liabilities and 36% of total liabilities
Membership at March 31, 2017
Active
Deferred
Pensioner
Total
267
8,129
42,933
51,329
467
7,986
18,712
27,165
1 Amounts in euro are a convenience translation using the December 31, 2017, exchange rate.
2 Based on local valuation regulations.
138
Financial information | AkzoNobel Report 2017
17
Note 17: Other provisions and contingent liabilities
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 imple-
mentation of the plan has started or the plan has been
announced before the balance sheet date. Most restruc-
turing plans are expected to be completed within one year
from the balance sheet date.
Environmental liabilities
We are confronted with substantial costs arising out
of environmental laws and regulations, which include
obligations to eliminate or limit the effects on the
environment of the disposal or release of certain wastes
or substances at various sites. Proceedings involving
environmental matters, such as the alleged discharge of
chemicals or waste materials into the air, water, or soil, are
pending against us in various countries. In some cases,
this concerns sites divested in prior years or derelict sites
belonging to companies acquired in the past.
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
€103 million at year-end 2017 (2016: €252 million). The
provision has been discounted using an average pre-tax
discount rate of 1.8 percent (2016: 2.0 percent). While
it is not feasible to predict the outcome of all pending envi-
ronmental exposures, it is reasonably possible that there
will be a need for future provisions for environmental costs
which, in management’s opinion, based on information
currently available, would not have a material effect
on the company’s financial position but could be material
to the company’s results of operations in any one
accounting period.
Discount rates
The discount rates used in calculating the provisions
recognized at December 31, 2017 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 down or up, respectively of €13 million
on the provisions recognized at December 31, 2017.
Movements in other provisions
In € millions
Balance at January 1, 2017
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions/divestments
Classified as held for sale
Changes in exchange rates
Balance at December 31, 2017
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2017
Restructuring
of activities Environmental costs
Sundry
133
48
(52)
(18)
1
–
(19)
(2)
91
11
80
91
252
18
(39)
(15)
6
–
(105)
(14)
103
81
22
103
487
63
(127)
(45)
12
2
(61)
(19)
312
229
83
312
Total
872
129
(218)
(78)
19
2
(185)
(35)
506
321
185
506
Sundry provisions and other contingent liabilities
Sundry provisions relate to a variety of provisions,
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 1.2 percent (2016:
2.1 percent) has been used.
A number of claims against AkzoNobel are pending, all of
which are contested. We are also involved in legal disputes
and disputes with tax authorities in several jurisdic-
tions. 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. AkzoNo-
bel has received various claims under such indemnities
and guarantees. In some instances, AkzoNobel has been
named as a direct defendant despite the divestments.
Provisions are recognized when an outflow of economic
benefits for settlement is probable and the amount can
be reliably estimated. It should be understood that, in light
of possible future developments, such as: (a) potential
additional lawsuits; (b) possible future settlements; and (c)
rulings or judgments in pending lawsuits, certain cases
may result in additional liabilities and related costs.
At this point in time, we cannot estimate any additional
amount of loss or range of loss in excess of the recorded
amounts with sufficient certainty to allow such amount or
range of amounts to be meaningful. 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 materi-
ally 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
(€56 million) and other provisions (€185 million) adds up
to €241 million (2016: €422 million), as reflected in the
balance sheet.
AkzoNobel Report 2017 | Financial information
139
18
Note 18: Net debt
Analysis of net debt by category
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
2016
2,531
113
2,644
45
38
4
87
2,731
(1,479)
1,252
2017
2,237
63
2,300
805
156
12
973
3,273
(1,322)
1,951
Long-term borrowings
We have a €1.8 billion multi-currency revolving credit facil-
ity, which was extended in 2017 by one additional year to
2022. 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 2017
and 2016, this facility has not been drawn.
At year-end 2017 and 2016, none of the borrowings was
secured by collateral.
In November 2017, a floating rate note was issued with
a nominal value of €500 million maturing in 2019 at a
coupon of 3-months EURIBOR plus 0.20 percent mark-
up, floored at zero percent.
Financial lease liabilities are included in Other borrowings
and aggregated €40 million (2016: €70 million). An amount
of 5 million (2016: €9 million) will mature within one year,
€18 million will mature in the period 2019 through 2022
and €17 million after 2022.
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 24.
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)
3mE + 2/10% 2017/19 (€500 million) *
2016
797
743
497
494
–
2017
–
745
497
494
501
Total
2,531
2,237
*3-months Euribor plus 2/10% floored at zero percent.
The average effective interest rate of the bonds outstand-
ing at year-end 2017 was 2.1 percent (year-end 2016: 2.6
percent).
Aggregated maturities of long-term borrowings
In € millions
Bonds issued
Other borrowings
Total
2019 – 2022
After 2022
1,246
22
1,268
991
41
1,032
Net debt
in € millions
Net debt equivalents at January 1, 2016
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 at year-end 2016
Net cash from operating activities
Net cash from investing activities
Proceeds from borrowings
Borrowings repaid
Transfers from long-term to short-term
Dividends
Movements bankoverdrafts and short term bank loans
Buyback of shares
Held for sale
Changes in exchange rates
Other changes
Net debt at year-end 2017
140
Financial information | AkzoNobel Report 2017
Long-term
Short-term
2,161
–
–
498
–
(46)
–
(7)
24
6
8
2,644
–
–
501
–
(812)
–
–
–
(45)
(5)
17
2,300
430
–
–
418
(776)
46
–
–
4
(27)
(8)
87
–
–
755
(345)
812
–
11
–
(341)
(6)
–
973
Cash
(1,365)
(1,297)
979
(916)
776
–
336
7
–
(14)
15
(1,479)
(969)
638
(1,256)
345
–
1,187
(11)
160
–
62
1
Net debt
1,226
(1,297)
979
–
–
–
336
–
28
(35)
15
1,252
(969)
638
–
–
–
1,187
–
160
(386)
51
18
(1,322)
1,951
Short-term borrowings
In December 2018, a bond of €800 million will mature.
This bond is classified as a short-term borrowing.
We have US dollar and euro commercial paper programs
in place, which can be used to the extent that the equiva-
lent portion of the €1.8 billion multi-currency revolving
credit facility is not used. We had €112 million commercial
paper outstanding at year-end 2017 (2016: €nil).
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
2016
925
554
2017
815
507
1,479
1,322
(38)
1,441
(44)
1,278
* The debt to credit institutions does not include the €112 million commercial paper
outstanding at year-end 2017.
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 24.
At December 31, 2017, an amount of €11 million in
cash and cash equivalents was restricted (2016:
€30 million). Restricted cash is defined as cash that
cannot be accessed centrally due to regulatory or
contractual restrictions.
Held for sale
Net debt classified as held for sale amounts to €386
million and relates to items that have been specifically
designated as held for sale, e.g. specific local financ-
ing and debt related to finance leases held in relation to
the Specialty Chemicals assets. For more information on
discontinued operations and held for sale, see Note 2.
19
Note 19: Trade and other payables
20
Note 20: Cash flow
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
2016
2,137
418
10
243
272
30
2
363
3,475
2017 *
1,624
269
8
181
252
201
–
259
2,794
* At year-end 2017 an amount of €951 million of Trade and other payables is
classified as held for sale.
Operating activities in 2017 resulted in cash inflows of
€969 million (2016: €1,291 million).
Changes in working capital per cash flow statement
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
2016
(11)
16
(4)
1
Changes in provisions per cash flow statement
In € millions
Post-retirement provisions
Restructuring provisions
Environmental and sundry provisions
Total
2016
(442)
(13)
(52)
(507)
2017
(225)
(166)
281
(110)
2017
(293)
(21)
(163)
(477)
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.
AkzoNobel Report 2017 | Financial information
141
21
Note 21: Commitments
22
Note 22: Related party transactions
23
Note 23: Remuneration of the Supervisory Board
and the Board of Management
Purchase commitments for property, plant and equipment
amount to €21 million (2016: €22 million) of which
€14 million is related to the Specialty Chemicals business
(discontinued operations).
Lease payments during 2017 amounted to €211 million
(2016: €223 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
2016
172
338
212
722
2017
166
306
210
682
An amount of €307 million of the total commitment for
operational lease contracts is related to the Specialty
Chemicals business (discontinued operations).
Guarantees related to associates and joint ventures at year-
end 2017 totaled €5 million (2016: €5 million). All of these
guarantees are related to the Specialty Chemicals business.
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 2017, we considered the members of the Execu-
tive Committee and the Supervisory Board to be the key
management personnel as defined in IAS 24 “Related
parties”. For details on their remuneration, as well as on
shares held by members of the Supervisory Board or
Board of Management, refer to Note 23. In the ordinary
course of business, we also have transactions with various
organizations with which certain members of the Super-
visory Board or Executive Committee are associated. All
related party transactions were conducted at arm’s length.
No loans, advance payments or guarantees have been
extended to members of the Supervisory Board or Execu-
tive Committee, or any family member of such persons.
For related party transactions with pension funds, refer to
Note 12, 14 and 16. For receivables from and payables to
related parties, refer to Note 14 and 19.
Total compensation to key management personnel
amounted to €21.1 million (2016: €14.5 million). An
amount of €10.1 million relates to short-term employee
benefits (2016: €8.6 million); €1.2 million to post-contract
benefits and other post-contract compensation (2016
€1.1 million); €7.9 million to share-based compensation
(2016: €4.8 million); and €1.9 million related to payments
upon termination of employment (2016 €nil million). The
members of the Executive Committee that are not a
member of the Board of Management are included in key
management personnel.
Supervisory Board
Members of the Supervisory Board receive a fixed remu-
neration: €130,000 for the Chairman, €78,000 for the
Deputy Chairman and €65,000 for the other members.
Members of committees receive an extra compensa-
tion. 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 of the Netherlands.
Shares held by the members of the Supervisory
Board
Number of shares at year-end
Antony Burgmans
Peggy Bruzelius
Sue Clark
Byron E. Grote *
Louis Hughes
Michiel Jaski
Pamela Kirby
Dick Sluimers
Patrick Thomas
Ben Verwaayen
* In the form of ADRs.
2016
551
500
–
2,008
548
–
–
–
–
–
2017
551
500
–
2,000
548
–
–
–
–
–
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of
142
Financial information | AkzoNobel Report 2017
Payout as percentage
of target
127%
127%
111%
0%
Payout as percentage
of target
121%
110%
77%
121%
Supervisory Board members is not dependent on the
results of the company.
2016 performance on STI metrics
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.
Metric
ROI
OPI
OCF
Revenue
Board of Management
2017 performance on STI metrics
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 Remu-
neration report. The service agreement with Mr. Büchner
was terminated by mutual consent, while observing the
contractual notice period of six months. Given the circum-
Metric
ROI
EBIT
OCF
Revenue growth
stances, the Supervisory Board found it appropriate and
reasonable to provide a termination benefit in accordance
with the remuneration policy and the Code, and to treat
Supervisory Board
In €
Antony Burgmans, Chairman
Sari Baldauf 1
Peggy Bruzelius
Byron E. Grote, Deputy
Chairman 2
Louis Hughes
Pamela Kirby 3
Dick Sluimers
Ben Verwaayen
Sue Clark 4
Patrick Thomas 4
Michiel Jaski 4
Total
Total
remuneration
Remuneration Attendance fee
Committee
allowance fees
Employer’s
charges
Total
remuneration
2016
165,000
107,500
113,800
105,800
116,200
57,050
87,500
91,200
–
–
–
130,000
65,000
65,000
78,000
65,000
65,000
65,000
65,000
5,400
5,400
5,400
20,000
15,000
15,000
17,500
35,000
20,000
–
15,000
2,500
5,000
–
19,400
20,000
20,000
38,800
20,000
15,000
30,000
15,000
–
–
–
–
–
16,200
–
–
–
–
–
–
–
–
2017
169,400
100,000
116,200
134,300
120,000
100,000
95,000
95,000
7,900
10,400
5,400
844,050
614,200
145,000
178,200
16,200
953,600
1 Until December 1, 2017.
2 Deputy Chairman as of October 18, 2016.
3 As of May 1, 2016.
4 As of November 30, 2017.
the unvested performance shares in line with our standard
approach, which implies that the unvested shares granted
during his active service will be retained, and the shares
granted in the year of termination will be reduced time pro-
rated. Mrs. Castella stepped down as CFO and went on
leave of absence for health reasons. As such, no leaving
arrangement is in place.
Short-term incentive
The short-term incentives for 2017 are linked to ROI
(20 percent), EBIT (20 percent), OCF (20 percent),
Revenue growth (10 percent) and the individual and quali-
tative targets of the members of the Board of Management
(30 percent).
On the qualitative targets, the CEO performed
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,
housing 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
2017 remuneration. These contributions are paid on base
salary only. For Mr. Büchner, the contributions are paid
over the base salary in the current year and the short-term
incentive related to that year.
Termination benefits
Termination benefits include costs that have been incurred
in 2017 relating to leaving arrangements.
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 5.
AkzoNobel Report 2017 | Financial information
143
Board remuneration 2016
In €
Ton Büchner
Maëlys Castella
Total
Salary
913,300
610,000
966,900
431,700
1,523,300
1,398,600
Short-term
incentives *
Other short-term
benefits
Post-contract
compensation
Share-based
compensation
Total
remuneration
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
* This concerns the short-term incentive amounts over 2016 to be paid in 2017.
Board remuneration 2017
In €
Thierry Vanlancker 1
Ton Büchner 2,5,6
Maëlys Castella 3
Salary
429,300
950,500
440,900
Short-term
incentives 4
Other short-
term benefits
Post-contract
compensation
Share-based
compensation
Termination
and other
benefits
Total
remuneration
471,300
986,500
282,200
13,700
39,400
78,600
71,700
282,600
–
1,268,600
435,800
2,148,900
925,000
5,486,100
66,100
626,600
–
1,494,400
Total
1,820,700
1,740,000
131,700
573,600
3,058,100
925,000
8,249,100
1 As of July 19, 2017.
2 Stepped down from Board of Management on July 19, 2017.
3 Until September 8, 2017. Compensation as Executive Committee member is reflected in Note 23.
4 This concerns the short-term incentive amounts over 2017, be paid in 2018.
5 The €925,000 relates to severance payment, salary for first two months of 2018, allowances for advice and relocation.
6 Additional charges of €1,120,000 are accrued which relate to taxation on excessive pay (‘Belastingheffing excessieve beloningsbestanddelen’).
Number of performance-related shares
Balance at
January 1,
2017
Series
Granted
in 2017
Vested
in 2017
Forfeited
in 2017
Dividend
in 2017
Balance at
December
31, 2017
Vested on
January 1,
2018
Thierry Vanlancker
2017 – 2019
–
27,300
–
–
2,189
29,489
Ton Büchner
Maëlys Castella
2014 – 2016
2015 – 2017
2016 – 2018
2017 – 2019
2015 – 2017
2016 – 2018
2017 – 2019
15,958
23,594
24,008
16,044
15,638
–
–
–
33,900
–
–
–
23,100
(15,958)
–
–
–
–
–
–
–
(4,095)
–
(20,717)
(2,785)
–
–
–
1,348
1,925
1,057
917
1,254
1,853
–
20,847
25,933
14,240
14,176
16,892
24,953
–
–
20,847
–
–
14,176
–
–
Thierry
Vanlancker
Ton
Büchner
Maëlys
Castella
144
Financial information | AkzoNobel Report 2017
Performance-related shares
With regard to the performance-related shares granted to
the members of the Board of Management in 2015, the
final vesting percentage of the series 2015-2017 equaled
81.8 percent (series 2014-2016: 66.49 percent), including
dividend shares 92.65 percent (series 2014- 2016: 71.56
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 Mr. Büchner, the shares purchased in 2014 under
the applicable share matching plan were matched by
the company following the Supervisory Board’s decision
recognizing consistent and sustainable performance.
Shares held by the Board of Management
Number of shares at year-end
Thierry Vanlancker *
2016
–
2017
460
* As of September 8, 2017 member of the Board of Management.
Number of potential matching shares
Year of
share
invest-
ment
Potential
match
Matched
in 2017
Forfeited
in 2017
Balance
at year-
end 2017
2017
230
–
–
230
2014
2,450
(2,450)
2015
2016
2017
2,252
1,529
2,601
2015
305
2016
2017
1,354
1,161
–
–
–
–
–
–
–
–
(1,529)
(2,601)
–
–
–
–
2,252
–
–
305
1,354
1,161
24
Note 24: 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 perfor-
mance. Our risk mitigating activities include the use of
derivative financial instruments to hedge certain risk expo-
sures. 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 identifica-
tion, 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 2017, we had €1.3 billion available as cash
and cash equivalents (2016: €1.5 billion), see Note 18. In
addition, we have a €1.8 billion multi-currency revolving
credit facility, which was extended in 2017 with one addi-
tional year to 2022. 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 2017 and 2016, this facility had not been
drawn. We have US dollar and euro commercial paper
programs in place, which can be used to the extent that
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
3,465
In € millions
At December 31, 2016
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
78
75
9
1,949
(1,955)
–
4
1,996
(1,996)
–
–
816
191
30
–
–
(3)
–
2
1,767
65
31
–
–
–
–
–
1,250
1,015
147
18
–
–
–
–
–
38
17
–
–
–
–
–
3,625
1,036
1,863
At December 31, 2017
Borrowings
Interest on borrowings
Finance lease liabilities
968
70
5
Trade and other payables
2,786
3,829
1,415
1,070
the equivalent portion of the €1.8 billion multi-currency
revolving credit facility is not used. We had €112 million
commercial paper outstanding at year-end 2017, at year-
end 2016 we had no commercial paper outstanding. 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-perfor-
mance of financial counterparties and customers. We
monitor our exposure to credit risk on an ongoing basis at
various levels. We only deal with financial 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 custom-
ers, 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 14. Generally, the maximum exposure to credit
risk is represented by the carrying value of financial assets
in the balance sheet.
At year-end 2017, the credit risk on consolidated level was
€3.4 billion (2016: €4.4 billion) for cash, loans, trade and
other receivables. Our credit risk is well spread among
both global and local counterparties. Our largest coun-
terparty risk amounted to €366 million at year-end 2017
(2016: €289 million).
AkzoNobel Report 2017 | Financial information
145
Foreign exchange risk
management
Trade and financing transactions
We operate in a large number of countries, where we have
clients and suppliers, many of whom are outside of the
local functional currency environment. This creates curren-
cy exposure which is partly netted out on 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 recog-
nized 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
2016
112
281
490
12
284
1,179
Sell
2016
473
48
22
62
331
936
Buy
2017
94
186
420
6
286
992
Sell
2017
455
48
27
163
471
1,164
Investments in foreign subsidiaries, associates
and joint ventures
During 2017, net investment hedge accounting was
applied on hedges of certain net investments in foreign
operations which were hedged with forward exchange
contracts. During 2017, these hedges were fully effective.
At year-end 2017, no hedges of net investments in foreign
operations were outstanding.
Interest rate risk management
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value inter-
est rate risk. Floating rate debt results in cash flow interest
rate risk. We treat fixed rate debt maturing within one year
as floating rate debt for debt portfolio purposes. At the end
of 2017, the fixed/floating rate of our outstanding bonds
shifted from 100 percent fixed at year-end 2016 to 55%
percent fixed at year-end 2017. During 2017, 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 sharehol
ders, return capital to capital providers, or issue new debt
or shares.
In November 2017, a floating rate note was issued with
a nominal value of €500 million maturing in 2019 at a
coupon of 3-months EURIBOR plus 0.20 percent mark-
up, floored at zero percent.
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 at year-end 2017 amounted
to 0.40 (2016: 0.55) based on AkzoNobel total operations
figures. Funds from operations are based on net cash from
operating activities after tax, which is adjusted, among
others, for the elimination of changes in working capital,
additional payments for pensions and for the effects of the
underfunding of post-retirement benefit obligations. Net
borrowings are calculated as the total of long and short-
term borrowings less cash and cash equivalents, adding
an after-tax amount for the underfunding of post-retire-
ment 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 carry-
ing 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 inter-
est method. The only financial instruments accounted for
at fair value through profit or loss are derivative financial
instruments, securities in Other financial non-current
assets 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 the bonds issued included
in our long-term and short-term borrowings based on
146
Financial information | AkzoNobel Report 2017
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 for impair-
ment, 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 €110 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.
Fair value per financial instrument category
In € millions
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
2017 year-end
Other financial non-current assets
Trade and other receivables
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
Carrying
amount
Out of scope
of IFRS 7
Carrying value per IAS 39 category
Loans and
receivables/financial
liabilities measured at
amortized cost
At fair value
through profit
or loss
Total
carrying value
Fair value
558
2,787
1,479
4,824
2,644
87
3,475
6,206
1,201
1,965
1,322
4,488
2,300
973
2,794
6,067
363
235
–
598
61
9
963
1,033
991
141
–
1,132
35
5
599
639
195
2,469
–
2,664
2,583
78
2,502
5,163
190
1,813
–
2,003
2,265
968
2,187
5,420
–
83
1,479
1,562
–
–
10
10
20
11
1,322
1,353
–
–
8
8
195
2,552
1,479
4,226
2,583
78
2,512
5,173
210
1,824
1,322
3,356
2,265
968
2,195
5,428
216
2,552
1,479
4,247
2,801
78
2,512
5,391
228
1,824
1,322
3,374
2,387
1,001
2,195
5,583
AkzoNobel Report 2017 | Financial information
147
Sensitivities on financial instruments at year-end 2017
Sensitivity object
Sensitivity
Hypothetical impact
Foreign currencies:
We perform foreign currency sensitivity analysis
by applying an adjustment to the spot rates
prevailing at year-end. This adjustment is based
on observed changes in the exchange rate in the
past and management expectation for possible
future movements. We then apply the expected
possible volatility to revalue all monetary assets
and liabilities (including derivative financial instru-
ments) in a currency other than the functional
currency of the subsidiary in its balance sheet at
year-end.
Interest rate:
We perform interest rate sensitivity analysis
by applying an adjustment to the interest rate
curve prevailing at year-end. This adjustment is
based on observed changes in the interest rate
in the past and management expectation for
possible future movements. We then apply the
expected possible volatility to revalue all interest
bearing assets and liabilities.
A 15 percent (2016: 10 percent) strengthening
of the euro versus US dollar
A 10 percent (2016: 20 percent) strengthening
of the euro versus the pound sterling
Profit: €15 million (2016: profit €11 million), Other
comprehensive income profit €4 million (2016: profit
€2 million)
Profit: €1 million (2016: profit €3 million)
A 5 percent (2016: 10 percent) strengthening
of the euro versus Swedish krona
Profit: €nil (2016: profit €1 million)
A 10 percent (2016: 5 percent) strengthening
of the euro versus Chinese yuan
Loss: €4 million (2016: €nil)
A 100 basis points increase of EURIBOR
interest rates
Loss: €13 million (2016: €nil)
A 100 basis points increase of US LIBOR
interest rates
Profit: €1 million (2016: €nil)
A 100 basis points increase of GBP LIBOR
interest rates
Profit: €nil million (2016: €nil)
25
Note 25: Subsequent events
On January 1, 2018, AkzoNobel internally separated the
Specialty Chemicals business through an organizational
split of operations and functions and by the legal transfer
of all assets, liabilities and employees (including contracts)
allocated to the Specialty Chemicals business, apart from
some delayed transfers, to a standalone group of compa-
nies under Akzo Nobel Chemicals Holding B.V., a wholly
owned subsidiary of Akzo Nobel N.V.. Effective as of
January 1, 2018, Akzo Nobel N.V. and Akzo Nobel Chemi-
cals Holding B.V. entered into a Master Separation Agree-
ment and a set of ancillary and service level agreements,
together effectuating the internal separation and providing
a framework for the relationship between AkzoNobel and
the Specialty Chemicals group going forward.
148
Financial information | AkzoNobel Report 2017
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
58
(43)
(33)
988
Profit before tax
Income tax
Net income
2016
58
(43)
15
970
–
970
Balance sheet as of December 31, before allocation of profit
2017
In € millions
Note
2016
2017
109
(91)
(32)
839
109
(91)
18
825
7
832
Assets
Non-current assets
Financial non-current assets
Total non-current assets
Current assets
Short-term 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
Actuarial gains and losses
Other reserves
Undistributed results
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
11,366
11,496
11,366
11,496
229
641
80
111
870
12,236
191
11,687
504
746
3
272
(47)
(2,840)
7,032
883
505
769
15
232
(549)
(2,460)
6,655
698
6,553
5,865
5,431
4,389
5,431
4,389
36
216
929
504
252
12,236
1,433
11,687
AkzoNobel Report 2017 | Financial information
149
Movements in shareholders' equity
In € millions
Subscribed
share capital
Additional
paid-in capital
Cash flow
hedge reserve
Other
legal reserves
Cumulative trans-
lation reserves
Actuarial
gains & losses
Other reserves
Undistributed
results
Shareholders'
equity
Legal reserves
(2,243)
6,387
892
Balance at January 1, 2016
498
598
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
–
–
–
–
–
–
–
149
–
(1)
–
–
Balance at December 31, 2016
504
746
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
Share repurchase
Acquisitions and divestments
Addition to other reserves
–
–
–
–
–
4
–
2
(5)
–
–
Balance at December 31, 2017
505
–
–
–
–
–
180
–
(2)
(155)
–
–
769
(42)
–
45
–
–
45
–
–
–
–
–
3
–
12
–
–
12
–
–
–
–
–
–
15
313
–
–
–
–
–
–
–
–
–
(41)
272
–
–
–
–
–
–
–
–
–
–
(40)
232
150
Financial information | AkzoNobel Report 2017
81
(128)
–
–
–
(128)
–
–
–
–
–
–
–
(597)
–
(597)
–
–
–
–
–
(47)
(2,840)
(502)
–
–
–
(502)
–
–
–
–
–
–
–
–
380
–
380
–
–
–
–
–
–
(549)
(2,460)
–
–
–
–
–
(393)
20
–
(2)
1,020
7,032
–
–
–
–
–
(1,011)
37
–
–
–
597
6,655
–
–
–
970
970
–
–
–
–
(979)
883
–
–
–
832
832
(460)
–
–
–
–
(557)
698
6,484
(128)
45
(597)
970
290
(239)
20
–
(2)
–
6,553
(502)
12
380
832
722
(1,287)
37
–
(160)
–
–
5,865
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 state-
ments. 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 inter-
company 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 23 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
2016
27
(58)
(2)
(33)
2017
21
(53)
–
(32)
Movements in financial non-current assets
In € millions
Balance at January 1, 2016
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries
Post-retirement benefits
Equity-settled transactions
Loans granted
Repayment of loans
Changes in exchange rates
Dividends received
Other changes
Balance at December 31, 2016
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries
Post-retirement benefits
Equity-settled transactions
Loans granted
Repayment of loans
Changes in exchange rates
Dividends received
Other changes
Subsidiaries
Share in capital
8,379
37
–
988
(595)
15
–
–
(125)
(448)
26
8,277
1,555
–
839
379
29
–
–
(510)
(399)
(1)
Loans *
2,834
–
–
–
–
–
571
(487)
76
–
–
2,994
–
–
–
–
–
611
(2,361)
(16)
–
–
Other financial
non-current
assets
97
–
(2)
–
–
–
–
–
–
–
–
95
5
(2)
–
–
–
–
–
–
–
1
Total
11,310
37
(2)
988
(595)
15
571
(487)
(49)
(448)
26
11,366
1,560
(2)
839
379
29
611
(2,361)
(526)
(399)
–
Balance at December 31, 2017
10,169
1,228
99
11,496
* Loans to these companies have no fixed repayment schedule.
For Other financial non-current assets a level 3 fair valua-
tion method (discounted cash flow) was used to determine
the fair value resulting in a deviation between the fair value
and the carrying value of €18 million and in a fair value
balance for other financial non-current assets of
€117 million. For information on valuation methods, see
Note 24 of the Consolidated financial statements.
AkzoNobel Report 2017 | Financial information
151
D
Note D: Short-term receivables
Short-term receivables
In € millions
Receivables from subsidiaries
FX contracts
Other receivables
Total
2016
189
22
18
229
2017
50
11
19
80
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 statu-
tory 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 2017
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 2017 or 2016.
Of the Shareholders’ equity of €5.9 billion, an amount of
€5.1 billion (2016: €5.8 billion) was unrestricted and
available for distribution – subject to the relevant provisions
of our Articles of Association and Dutch law. The cash
flow hedge reserve is 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
cumulative preferred shares to €2. As the revised nominal
values are lower than the original par values, in accor-
dance 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 €24 million for capitalized development costs,
as well as the reserves relating to earnings retained by
subsidiaries, associates and joint ventures after 1983,
to the extent that there are limitations for AkzoNobel to
arrange profit distributions.
Dividend
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €200 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 €632 million (to be increased by dividend on
shares issued in 2018 before the ex-dividend date) will be
distributed. Following the acceptance of this proposal, the
holders of common shares will receive a dividend of €2.50
per share (up 52 percent), of which €0.56 was paid earlier
as an interim dividend. The final dividend of €1.94 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 25, 2018.
F
Note F: Net debt
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
2016
6,553
(504)
(188)
(61)
(23)
(3)
2017
5,865
(505)
(147)
(61)
(24)
(15)
5,774
5,113
Long-term-borrowings
For the fair value of the bonds issued, refer to Note 24 of
the Consolidated financial statements.
We estimated the fair value of the bonds issued 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 fair value of the bonds included in
long-term and short-term borrowings was €2.366 million.
For information on valuation methods, see Note 24 of the
Consolidated financial statements.
152
Financial information | AkzoNobel Report 2017
We have a €1.8 billion multi-currency revolving credit facil-
ity, which was extended in 2017 by one additional year to
2022. 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 2017
and 2016, this facility has not been drawn.
At year-end 2017 and 2016, none of the borrowings was
secured by collateral.
Short-term borrowings
In December 2018, a bond of €800 million will mature.
This bond is classified as a short-term borrowing.
Analysis of net debt by category
We have US dollar and euro commercial paper programs
in place, which can be used to the extent that the equiva-
lent portion of the €1.8 billion multi-currency revolving
credit facility is not used.
We had €112 million commercial paper outstanding at
year-end 2017, at year-end 2016 we had no commercial
paper outstanding.
Cash and cash equivalents
Cash and cash equivalents
In € millions
Cash on hand and in banks
Short-term investments
Total
2016
264
377
641
2017
111
–
111
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
Bonds issued
In € millions
4% 2011/18 (€800 million)
1 3/4% 2014/24 (€500 million)
1 1/8% 2016/26 (€500 million)
3-months EURIBOR+0.2% 2017/19
(€500 million)
2016
1,788
3,643
–
2017
1,492
2,897
–
5,431
4,389
–
30
6
36
5,467
(641)
4,826
2016
797
497
494
–
799
–
130
929
5,318
(111)
5,207
2017
–
497
494
501
Total
1,788
1,492
G
Note G: Other current liabilities
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
2016
51
1
10
7
30
117
216
2017
134
3
8
6
68
285
504
H
Note H: Financial instruments
At year-end 2017, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.0 billion (year-end 2016: €1.2 billion), while contracts
to sell currencies totaled €1.2 billion (year-end 2016:
€0.9 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 24 of the Consolidated
financial statements.
I
Note I: Contingent liabilities
Akzo Nobel N.V. is parent of the group’s fiscal unity in the
Netherlands, and is therefore liable for the liabilities of said
fiscal unity as a whole.
Akzo Nobel N.V. has declared in writing that it accepts
joint and several liability for contractual debts of certain
Dutch consolidated companies (Article 403 of Book
2 of the Dutch Civil Code). These debts, at year-end
2017, aggregating €0.7 billion (2016: €0.7 billion), are
included in the Consolidated balance sheet. Addition-
ally, at year-end 2017, guarantees were issued on behalf
of consolidated companies for an amount of €1.6 billion
(2016: €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 commit-
ments in respect of operational lease contracts as
disclosed in Note 21 of the Consolidated financial
statements. Guarantees relating to associates and joint
ventures amounted to €5 million (2016: €5 million).
AkzoNobel Report 2017 | Financial information
153
J
Note J: Auditor’s fees
Other information
Our auditor, PwC the Netherlands, has rendered, for the
period to which our statutory audit relates, in addition
to the audit of the statutory financial statements, mainly
the following other audit services to the company and its
controlled entities: statutory audit of a controlled entity,
audits in relation to the planned separation of the Specialty
Chemicals business and audits in relation to the
legal demerger.
Fees PricewaterhouseCoopers
In € millions
Audit of the financial
statements
Other audit services
Tax services
Other non-audit services
Network
outside the
Netherlands
6.1
2017
Total
9.7
2.6
10.2
–
–
–
–
In the
Netherlands
3.6
7.6
–
–
Total
11.2
8.7
19.9
Fees PricewaterhouseCoopers
In € millions
Audit of the financial
statements
Other audit services
Tax services
Other non-audit services
Total
Network
outside the
Netherlands
5.6
2016
Total
9.0
0.2
0.2
–
–
–
–
5.8
9.2
In the
Netherlands
3.4
–
–
–
3.4
154
Financial information | AkzoNobel Report 2017
Proposal for profit allocation
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €200 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 €632 million (to be increased by dividend on
shares issued in 2018 before the ex-dividend date) will be
distributed. Following the acceptance of this proposal, the
holders of common shares will receive a dividend of €2.50
per share, of which €0.56 was paid earlier as an interim
dividend. The final dividend of €1.94 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 25, 2018.
Amsterdam, March 7, 2018
The Board of Management
Thierry Vanlancker
Maarten de Vries
The Supervisory Board
Antony Burgmans
Peggy Bruzelius
Sue Clark
Byron Grote
Louis Hughes
Michiel Jaski
Pamela Kirby
Dick Sluimers
Patrick Thomas
Ben Verwaayen
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 2017
Our opinion
In our opinion:
• Akzo Nobel N.V.’s consolidated financial statements
give a true and fair view of the financial position of the
Group as at December 31, 2017 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 Part 9 of
Book 2 of the Dutch Civil Code; and
• Akzo Nobel N.V.’s company financial statements give
a true and fair view of the financial position of the
Company as at December 31, 2017 and of its result for
the year then ended in accordance with Part 9 of Book
2 of the Dutch Civil Code.
What we have audited
We have audited the accompanying financial statements
2017 of Akzo Nobel N.V., Amsterdam (‘the Company’).
The financial statements include the consolidated financial
statements of Akzo Nobel N.V. and its subsidiaries
(together: ‘the Group’) and the company financial
statements.
The consolidated financial statements comprise:
• the consolidated balance sheet as at December 31,
2017;
• the following statements for 2017: 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.
The Company financial statements comprise:
• the balance sheet as at December 31, 2017;
• the statement of income for the year then ended;
• the notes, comprising a summary of the accounting
policies and other explanatory information.
The financial reporting framework that has been applied in
the preparation of the financial statements is EU-IFRS and
the relevant provisions of Part 9 of Book 2 of the Dutch
Civil Code for the consolidated financial statements and
Part 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 responsi-
bilities under those standards are further described in the
section ‘Our responsibilities for the audit of the financial
statements’ of our report.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of Akzo Nobel N.V. in accordance
with the European Regulation on specific requirements
regarding statutory audit of public interest entities, the ‘Wet
toezicht accountantsorganisaties’(Wta, Audit firms supervi-
sion act), the ‘Verordening inzake de onafhankelijkheid
van accountants bij assuranceopdrachten’ (ViO – Code
of Ethics for Professional Accountants, a regulation with
respect to independence) and other relevant indepen-
dence requirements in the Netherlands. Furthermore,
we have complied with the ‘Verordening gedrags- en
beroepsregels accountants’ (VGBA – Code of Ethics for
Professional Accountants, a regulation with respect to
rules of professional conduct).
Our audit approach
Overview and context
Akzo Nobel N.V. is a global paints and performance coat-
ings company and a major producer of specialty chemicals
headquartered in the Netherlands. The group is comprised
of several components and therefore we considered our
group audit scope and approach as set out in the section
‘The scope of our group audit’. We paid specific atten-
tion to the areas of focus driven by the operations of the
Group, as set out below.
The financial year 2017 was characterised by manage-
ment’s announcement in April 2017 for plans to separate
the Specialty Chemicals Business. The company received
approval of the EGM on 30 November 2017 to proceed
with the separation through either a legal demerger or
private sale. Furthermore, management concluded that
the Specialty Chemicals Business will be reported in
accordance with IFRS 5 – ‘Non-Current Assets Held for
Sale and discontinued operations’ in the 2017
consolidated financial statements. Further details of the
implications of this event are described in the section
on key audit matters.
As part of designing our audit, we determined materiality
and assessed the risks of material misstatement in the
financial statements also taking into account the afore-
mentioned separation plans for the Specialty Chemicals
Business. In particular, we considered where the Board of
Management made important judgements; 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 and the related higher inherent risk
of material misstatement in the valuation of goodwill and
other intangibles with indefinite useful lives, valuation of the
post-retirement benefit provisions and accounting for and
valuation of income tax positions (including the impact of
the US tax reform), we considered these to be key audit
matters as set out in the key audit matter section of this
report. In addition, we identified the application of IFRS 5
for the Specialty Chemicals Business as a new key audit
matter this year as this accounting treatment is complex,
non-recurring and it materially impacts the financial state-
ments. Last year we also included a key audit matter
related to the transition to a new auditor which is no longer
applicable this year.
AkzoNobel Report 2017 | Financial information
155
Other areas of focus, that were not considered to be key
audit matters were the disclosures relating to the transition
in 2018 from accounting standard IAS 18 – ‘Revenue’ to
IFRS 15 ‘Revenue from contracts with customers’, and
from IAS 39 - ‘Financial Instruments’ to IFRS 9 ‘Financial
Instruments, environmental-, sundry- and legal provisions,
the overall impact of the planned separation on our audit
including understanding of management’s separation
process, as well as information technology general controls
(‘ITGCs’). The ITGC’s 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 fraud due to management override
of internal control, including evaluating whether there was
evidence of bias by the Board of Management that may
represent a risk of material misstatement.
We ensured that the audit teams both at group and at
component levels included the appropriate skills and
competences which are needed for the audit of a paints
and performance coatings company and a producer
of specialty chemicals. We also included specialists or
experts in the areas of tax, pensions, IT, treasury and valu-
ations on our team.
The outlines of our audit approach were as follows:
Materiality
Materiality
• Overall materiality: €70 million
Audit scope
• We conducted audit work
at 44 components in 14
countries
• Site visits by the group team
were conducted in 8 countries
– US, China, Sweden, UK,
Brazil, Germany, Singapore and
the Netherlands
• Audit coverage: 71% of
consolidated revenue,
72% of consolidated
total assets and 75% of
consolidated profit
before tax
Key audit matters
• Specialty Chemicals Business recorded as Held for sale and
disconinued operations (IFRS5)
• Impairment testing of goodwill and other intangibles with indefinite
useful lives
• Valuation of post-retirement benefit provisions
• Valuation of deferred tax assets and uncertain tax positions
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’.
Based on our professional judgment, we determined
certain quantitative thresholds for materiality, including the
overall materiality for the financial statements as a whole
as set out in the table below. These, together with qualita-
tive considerations, helped us to determine the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and to evalu-
ate the effect of identified misstatements, both individually
and in aggregate, on the financial statements as a whole
and on our opinion.
Overall group materiality
€70 million (2016: €65 million)
Basis for determining
materiality
Rationale for benchmark
applied
Component materiality
We used our professional judgment to
determine overall materiality. As a basis for
our judgment we used 5% of total profit
before tax for continued and discontinued
operations, and excluded separation
related identified items.
We used profit before tax from continued
and discontinued operations as the
primary benchmark 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 perfor-
mance of the company. We excluded
separation related identified items as these
are non-recurring and are not representa-
tive of normal operating results.
To each component in our audit scope,
we, based on our judgement, allocate
materiality that is less than our overall
group materiality. The range of material-
ity allocated across components was
between €8 million and €60 million.
We also take misstatements and/or possible misstate-
ments into account that, in our judgement, are material for
qualitative reasons. We agreed with the Supervisory Board
that we would report to them misstatements identified
during our audit above €3.5 million (2016: €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. The financial information of this
group is included in the consolidated financial statements
of Akzo Nobel N.V.
156
Financial information | AkzoNobel Report 2017
We tailored the scope of our audit to ensure that we
performed sufficient work to be able to give an opinion on
the financial statements as a whole, taking into account
the management structure of the Group, the nature of
operations of its components, the accounting processes
and controls, and the markets in which the components
of the Group operate. In establishing the overall group
audit strategy and plan, we determined the type of work
required to be performed at the component level by the
group engagement team and by each component auditor.
The group audit includes the following individual finan-
cially significant component: Decorative Paints Europe &
Africa. Thirty components, including the aforementioned
significant component, were subjected to audits of their
complete financial information as those components
are material to the group. Twelve components were
subjected to specific risk-focussed audit procedures as
they include significant or higher risk areas. Additionally,
two components were selected for audit procedures to
achieve appropriate coverage on financial line items in the
consolidated financial statements. In total, in performing
these procedures, we achieved the following coverage on
the financial line items (which include both continued and
discontinued operations, as well as assets held for sale):
Decorative Paints
Performance Coatings
Specialty Chemicals
71%
72%
75%
None of the remaining components represented more
than 1% of total group revenue or total group assets.
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.
The group consolidation, financial statement disclosures
and a number of complex items are controlled and moni-
tored centrally by Akzo Nobel N.V. and are audited by the
group engagement team at the head office. These include
impairment testing of goodwill and other intangibles with
indefinite useful lives, valuation of post-retirement benefit
provisions, valuation of deferred tax assets and uncertain
tax positions, assets held for sale / discontinued opera-
tions, environmental-, sundry- and legal provisions, share
based payments, treasury, IT and the Akzo Nobel N.V.
standalone entity.
The group team also performed central procedures over
the controls performed by the Business Areas and other
central functions, where relevant for our audit. This includ-
ed: Business performance review controls and indirect
entity level controls, such as a Code of Conduct, relevant
code of conduct trainings and a whistle-blower policy.
For all other components we used component auditors
who are familiar with the local laws and regulations to
perform the audit work. For all components in scope we
performed hard close audit procedures on the interim
October balance sheet positions and results. These hard
close audit procedures include substantive audit work on
material balances and transactions at group level as well
as components in scope for our group audit.
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 visits
the component teams on a rotational basis. The most
significant components are visited every year and other
components are visited depending on specific consider-
ations which include amongst others audit observations,
specific risks identified or other major events. In the current
year the group engagement team visited the component
teams and local management in the US, China, Sweden,
UK, Brazil, Germany, Singapore and the Netherlands and
conference/video calls were held with 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 reviewed
selected working papers of the component teams and
performed 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 been able to obtain sufficient and appropriate
audit evidence on the Group’s financial information,
as a whole, to provide a basis for our opinion on the
financial statements.
Key audit matters
Key audit matters are those matters that, in our profes-
sional judgement, were of most significance in the audit
of the financial statements. We have communicated the
key audit matters to the Supervisory Board. The key audit
matters are not a comprehensive reflection of all matters
that were identified by our audit and that we discussed.
In this section, we described the key audit matters and
included a summary of the audit procedures we performed
on those matters.
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 separate
opinions on these matters or on specific elements of the
financial statements. Any comments or observations
we make on the results of our procedures should be read
in this context.
AkzoNobel Report 2017 | Financial information
157
Key audit matters
Key audit matter
Specialty Chemicals Business recorded as Held for sale and Discontinued Operations (IFRS5)
Note 2
In April 2017 Akzo Nobel N.V. announced their plans to separate the Specialty Chemicals Business and
received the approval of the EGM on November 30, 2017 to proceed with the separation through either
demerger or private sale. Management concluded that the Specialty Chemicals Business will be reported in
accordance with IFRS 5 – ‘Non-Current Assets Held for Sale and discontinued operations’ in the 2017 consoli-
dated financial statements.
The application of IFRS 5 ‘Non-Current Asset Held for Sale and Discontinued operations’ is significant to our
audit because the assessment of the classification is complex, the transaction and its accounting is non-routine
and involves significant management judgements. These include, amongst others, the date of classifica-
tion of the non-current assets as held for sale, the identification of the disposal group and the presentation
of its results as discontinued operations. As a result of these conclusions, there are requirements around the
valuation of the assets of the disposal group and presentation in the consolidated financial statements and
disclosure notes, the identification of income and expenses allocated to the Specialty Chemicals Business,
assumptions and estimates made with regard to the allocations, and adjustments to be recorded (e.g. central
cost allocations, seizing of depreciation and amortization).
Impairment testing of goodwill and other intangibles with indefinite useful lives
Note 9
As at December 31, 2017 the Company’s Goodwill and other intangibles with indefinite useful lives are valued
at €3.3 billion (of which €0.5 billion is classified as held for sale). The key assumptions and sensitivities are
disclosed in note 9 to the consolidated financial statements. 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 judgement 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.
This is consistent with prior year. 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.
Valuation of post-retirement benefit provisions
Note 16
The Post-retirement benefit provisions consist of defined benefit obligations (€15.3 billion, of which €0.9 billion
is classified as held for sale) offset by plan assets (€14.9 billion, of which €0.3 billion is classified as held for
sale). 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. Management procedures over the Post-retirement benefit provisions, specifically the procedures on
the DBO, the de-risking transactions during the year, and updates to the assumptions were significant to our
audit because the assessment process is complex, involves significant management judgement and is based
on actuarial assumptions, including discount rates, compensation increase, expected inflation rates, mortality
tables and indexation percentages, as disclosed in note 16 to the consolidated financial statements. This is
consistent with prior year. Technical expertise is required to determine the amounts and significant de-risking
transactions that have occurred.
Valuation of deferred tax assets and uncertain tax positions
Note 7
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 new developments (e.g. the US Tax reform and impact of the separation of the company).
The company’s disclosures concerning income taxes are included in note 7 to the consolidated financial state-
ments.
158
Financial information | AkzoNobel Report 2017
How our audit addressed the matter
Our audit procedures included, among others, an evaluation of the client’s conclusions on the classification of the
disposal group as held for sale and the results of the Specialty Chemicals Business as discontinued operations.
This included evaluating whether the Specialty Chemicals Business classifies as one disposal group, assessing the
valuation of the assets of the disposal group as the lower of the carrying amount and fair value less cost to sell, the
presentation of the assets in the financial statements and the date as of which the Specialty Chemicals Business is
classified as held for sale. In addition we evaluated the presentation of the results of the Specialty Chemicals Business
as discontinued operations, the allocated income and expenses including assumptions and estimates made with
regard to the allocation, as well as the adjustments recorded relating to central cost allocations and reversal of depre-
ciation and amortization. We have made use of technical accounting specialists as part of our audit.
Our procedures included, among others, evaluation of the assumptions and methodologies used in the annual impair-
ment test prepared by the company, an assessment of the mathematical accuracy of the calculations and a reconcili-
ation to the 2018 five year outlook as approved by the Board of Management. 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 inde-
pendent testing and analysis of the basic peer group composition, amongst 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 assessed
the adequacy of the company’s disclosures in note 9 to the consolidated financial statements and in particular the key
assumptions to which the outcome of the impairment test is most sensitive.
We evaluated the Board of Management’s actuarial assumptions, specifically the changes in assumptions applied in
the UK, the valuation methodologies used 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 to the UK pension plans and we verified the appropriate accounting. We also assessed the
adequacy of the company’s disclosure in note 16 to the consolidated financial statements.
Our 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 recover-
ability of the deferred tax assets, including the projected revenue growth and margin development based on the 2018
five year outlook as approved by the Board of Management, the probability of future cash outflows of the uncertain
tax positions identified by the company and the impact of the planned separation on the business projections. We also
assessed the applicable local fiscal regulations and developments, in particular those related to changes in the statu-
tory income tax rate (e.g. the US Tax reform) and of the statutes of limitation since these are key assumptions underly-
ing the valuation of the deferred tax assets and uncertain tax positions. We analysed the tax positions and evaluated
the assumptions and methodologies used. In addition, we also focused on the adequacy of the company’s disclosures
on deferred tax assets and uncertain tax positions and assumptions used.
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 informa-
tion that consists of:
• the report of the Board of Management, as defined in
note 1 to the financial statements;
• the other information pursuant to Part 9 of Book 2 of the
Dutch Civil Code;
• other parts of the annual report: How AkzoNobel
performed in 2017, 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 the information that is required by Part 9 of
Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowl-
edge and understanding obtained in our audit of the finan-
cial statements or otherwise, we have considered whether
the other information contains material misstatements.
By performing our procedures, we comply with the
requirements of Part 9 of Book 2 of the Dutch Civil
Code and the Dutch Standard 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 prepara-
tion of the other information, including the directors’ report
and the other information in accordance with Part 9 of
Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
Our appointment
We were appointed as auditors of Akzo Nobel N.V. on
April 19, 2014 by the Supervisory Board following the
passing of a resolution by the shareholders at the annual
meeting held on April 29, 2014 and the appointment has
been renewed annually by shareholders representing a
total period of uninterrupted engagement appointment of
2 years.
No prohibited non-audit services
To the best of our knowledge and belief, we have not
provided prohibited non-audit services as referred to in
Article 5(1) of the European Regulation on specific require-
ments regarding statutory audit of public interest entities.
Services rendered
The non-audit services that we have provided to the
company and its controlled entities in addition to the audit,
for the period to which our statutory audit relates, are
disclosed in note J to the financial statements.
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
ments using the going-concern basis of accounting unless
the Board of Management either intends to liquidate
the company or to cease operations, or has no realistic
alternative but to do so. The Board of Management should
disclose events and circumstances that may cast signifi-
cant doubt on the company’s ability to continue as a going
concern in the financial statements.
The Supervisory Board is responsible for overseeing the
company’s financial reporting process.
Our responsibilities for the audit of the financial
statements
Our responsibility is to plan and perform an audit engage-
ment 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 aggre-
gate, 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.
statements in accordance with EU-IFRS and with Part 9
of Book 2 of the Dutch Civil Code; and for
A more detailed description of our responsibilities is set out
in the appendix to our report.
• 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 state-
Amsterdam, March 7, 2018
PricewaterhouseCoopers Accountants N.V.
Original has been signed by R. Dekkers RA
AkzoNobel Report 2017 | Financial information
159
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 appli-
cable, 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 2017 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 judgement and have
maintained professional scepticism throughout the audit
in accordance with Dutch Standards on Auditing, ethical
requirements and independence requirements. Our objec-
tives 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 misstate-
ment 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 Manage-
ment.
• 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 audi-
tor’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 disclo-
sures, 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 struc-
ture 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. In this respect we also issue an additional report to
the Supervisory Board in accordance with Article 11 of the
EU Regulation on specific requirements regarding statutory
audit of public-interest entities. The information included in
this additional report is consistent with our audit opinion in
this auditor’s report.
160
Financial information | AkzoNobel Report 2017
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 deter-
mine, with the approval of the Supervisory Board, what
share of profit remaining after application of the provisions
of the foregoing paragraphs shall be carried to reserves.
The remaining profit shall be placed at the disposal of
the Annual General Meeting of shareholders, with due
observance of the provisions of paragraph 7, it being
provided that no further dividends shall be paid on the
preferred shares.
43.7
From the remaining profit, the following distributions shall,
to the extent possible, be made as follows:
(a) To the holders of priority shares: 6 percent per share
or the statutory interest referred to in paragraph 1
of article 13, whichever is lower, plus any accrued and
unpaid dividends
(b) To the holders of common shares: a dividend of such
an amount per share as the remaining profit, less the
aforesaid dividends and less such amounts as the
Annual General Meeting of shareholders may decide to
carry to reserves, shall permit
43.8
Without prejudice to the provisions of paragraph 4 of this
article and of paragraph 4 of article 20, the holders of
common shares shall, to the exclusion of everyone else,
be entitled to distributions made from reserves accrued by
virtue of the provision of paragraph 7b of this article.
43.9
Without prejudice to the provisions of article 42 and
paragraph 8 of this article, the Annual General Meeting of
shareholders may decide on the utilization of reserves only
on the proposal of the Board of Management approved by
the Supervisory Board.
AkzoNobel Report 2017 | Financial information
161
Financial summary
Consolidated statement of income
In € millions
Revenue
EBIT 6
Operating income
Financing income and expenses
Results from associates and joint ventures
Income tax
Profit for the period from continuing operations
Discontinued operations
Non-controlling interests
Net income, attributable to shareholders
Common shares, in millions at year-end
Dividend 4
Number of employees at year-end
Average number of employees
Employee benefits
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
Ratios
ROS 7
ROI 7
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Interest coverage 5
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
2008 1
15,415
1,315
(577)
(232)
25
(260)
(1,044)
23
(65)
(1,086)
231.7
417
60,000
61,300
3,022
251
(9)
8.5
14.1
– 3
19.6
– 3
(4.38)
32.21
57.11
22.85
29.44
2009
13,028
1,131
855
(405)
21
(141)
330
32
(77)
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
2010 2
13,605
1,325
1,293
(329)
25
(176)
813
58
(83)
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
2011
2012
2013
14,604
15,390
14,590
1,154
1,157
(311)
24
(241)
629
(59)
(64)
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)
13
(203)
(1,593)
(436)
(63)
(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)
14
(111)
661
131
(68)
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)
21
(252)
600
18
(72)
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
14,859
1,462
1,573
(114)
17
(416)
1,060
6
(87)
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
2016 8
9,434
2017
9,612
928
923
(91)
18
(234)
616
436
(82)
970
252.2
239
36,300
36,200
1,794
261
25
9.8
14.4
14.8
19.0
13.2
3.87
4.15
25.99
64.74
50.17
59.39
905
825
(78)
17
(253)
511
393
(72)
832
252.6
1,287
35,700
36,200
1,935
266
23
9.4
13.9
14.2
20.1
12.3
3.31
4.40
23.22
82.64
59.11
73.02
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 identified.
7 ROS and ROI have been restated and are based on EBIT instead of operating income.
8 Represented to present the Specialty Chemicals business as discontinued operations.
162
Financial information | AkzoNobel Report 2017
Consolidated balance sheet
In € millions
Intangible assets
Property, plant and equipment
Financial non-current assets
Total non-current assets
Inventories
Receivables
Cash and cash equivalents
Assets held for sale
Total current assets
Shareholders’ equity
Non-controlling interests
Total equity
Provisions
Long-term borrowings
Other non-current liabilities
Total non-current liabilities
Short-term borrowings
Current liabilities
Current portion of provisions
Liabilities held for sale
Total current liabilities
Average Invested capital 3 5
Capital expenditures
Depreciation 5
OWC
Net debt
Ratios
Equity/non-current assets
Inventories and receivables/current liabilities
Operating working capital as % of revenue 4
2008 1
7,172
3,357
1,848
2009
7,388
3,474
1,783
2010 2
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
–
4,597
1,532
2,846
1,479
–
5,857
6,553
481
7,034
1,938
2,644
367
4,949
87
3,704
422
–
4,213
2017
3,409
1,832
1,894
7,135
1,094
2,026
1,322
4,601
9,043
5,865
442
6,307
964
2,300
285
3,549
973
2,912
241
2,196
6,322
9,311
12,578
11,467
11,537
11,817
10,007
9,871
10,475
6,422
6,494
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
206
1,405
1,252
0.68
1.18
10.2
613
202
927
1,951
0.88
1.07
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.
5 2016 is represented to present the Specialty Chemicals business as discontinued operations.
AkzoNobel Report 2017 | Financial information
163
Business Area statistics
In € millions
Decorative Paints
Revenue
EBIT
Operating income
ROS 4
Average invested capital 3
ROI 4
Capital expenditures
Average number of employees
Average revenue per employee
Average operating income per employee
Performance Coatings
Revenue
EBIT
Operating income
ROS 4
Average invested capital 3
ROI 4
Capital expenditures
Average number of employees
Average revenue per employee
Average operating income per employee
Specialty Chemicals
Revenue
EBIT
Operating income
ROS 4
Average invested capital 3
ROI 4
Capital expenditures
Average number of employees
Average revenue per employee
Average operating income per employee
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.
164
Financial information | AkzoNobel Report 2017
2008
2009 1
2010
2011 2
2012
2013
2014
2015
2016
2017
5,006
4,573
4,968
4,201
401
(669)
8.0
6,515
6.2
120
298
133
6.5
6,169
4.8
112
336
275
6.8
4,908
6.8
154
237
235
5.6
5,032
4.7
155
4,297
108
(2,012)
2.5
4,701
2.3
206
4,174
3,909
4,007
3,835
3,898
199
398
4.8
2,896
6.9
171
248
248
6.3
2,824
8.8
143
345
345
8.6
2,959
11.7
158
357
366
9.3
351
334
9.0
2,783
2,803
12.8
107
12.5
112
24,600
22,900
21,800
17,100
17,200
16,800
15,500
15,100
14,800
14,700
203
(27)
200
6
228
13
246
14
250
(117)
248
24
252
16
265
23
259
25
265
23
4,575
4,112
4,786
5,170
5,702
5,571
5,589
5,955
5,665
5,775
467
444
10.2
2,010
23.2
89
492
433
12.0
1,868
26.3
61
503
487
10.5
2,063
24.4
87
456
458
8.8
2,267
20.1
116
542
542
9.5
2,499
21.7
123
525
525
9.4
2,463
21.3
143
545
545
9.8
2,480
22.0
143
792
792
13.3
2,692
29.4
147
759
735
13.4
669
668
11.6
2,586
2,860
29.4
159
23.4
129
21,000
20,200
20,600
21,300
21,700
21,300
21,000
19,700
19,300
19,800
218
21
204
21
232
24
243
22
263
25
262
25
266
26
302
40
294
38
292
34
5,687
4,359
4,943
5,335
5,543
4,949
4,883
4,988
4,783
4,985
605
130
10.6
3,797
15.9
305
490
422
11.2
3,435
14.3
319
655
604
13.3
3,464
18.9
273
628
622
11.8
3,406
18.4
365
524
500
9.5
3,678
14.2
484
418
297
8.4
3,609
11.6
346
508
508
10.4
3,442
14.8
297
12,900
11,400
11,100
11,300
11,800
10,600
10,000
441
11
382
37
445
54
472
55
470
42
467
28
488
51
578
609
11.6
3,540
16.3
331
9,300
536
65
629
629
13.2
689
689
13.8
3,507
3,598
17.9
356
19.1
363
9,000
9,100
531
70
548
76
Regional statistics
In € millions
2013
2014
2015
2016 1
2017
2013
2014
2015
2016 1
2017
2013
2014
2015
2016 1
2017
The Netherlands
Other European countries
Other Asian countries
Revenue by destination
765
762
693
Revenue by origin
1,600
1,662
1,563
Capital expenditures
Average invested capital
Number of employees 2
94
1,175
5,300
72
1,631
5,000
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Germany
1,176
1,143
87
736
986
920
106
764
102
2,154
4,900
1,036
903
52
854
267
404
15
1,497
2,600
399
470
12
468
282
423
17
1,528
2,500
460
598
10
662
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
2,225
1,739
39
675
2,332
1,823
47
700
1,733
1,463
40
612
1,739
1,438
34
600
1,968
1,613
31
671
1,521
1,442
53
561
1,443
1,392
41
625
6,700
6,600
7,100
6,900
6,700
6,600
6,800
US and Canada
Other regions
2,155
2,193
2,494
1,213
1,189
2,287
2,306
2,644
1,298
1,257
62
68
100
27
1,739
1,778
1,949
1,037
23
864
674
436
18
178
677
419
17
159
706
466
11
87
552
473
7
94
573
487
9
87
Number of employees 2
3,100
2,300
2,100
1,400
1,500
5,000
4,800
4,600
3,000
2,900
2,500
2,200
2,200
2,200
2,200
Sweden
Latin America
Revenue by destination
473
436
414
Revenue by origin
1,411
1,289
1,329
Capital expenditures
Average invested capital
38
471
40
428
55
542
164
389
9
60
162
408
9
104
1,553
1,282
83
713
1,485
1,252
45
707
1,483
1,210
34
679
850
791
20
378
900
840
23
391
Number of employees 2
3,000
2,900
2,700
1,200
1,100
4,500
4,400
4,100
3,100
2,900
UK
China
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees 2
887
948
74
1,314
3,700
947
950
74
1,008
3,600
1,011
1,109
91
833
808
972
43
755
777
891
39
746
3,500
3,300
3,200
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
1,435
1,456
53
897
1,494
1,493
32
787
6,200
6,000
1 Represented to present the Specialty Chemicals business as discontinued operations.
2 At year-end.
AkzoNobel Report 2017 | Financial information
165
Sustainability
The long maritime heritage of our International brand – which stretches back more than a century – continued in 2017 with the launch of various products. This included extending the popular Interstores marine coatings range by introducing a new Alkyd Primer. The product is compatible with most AkzoNobel marine coatings topcoat options. As one of the world’s leading suppliers of marine coat-ings, we continue to innovate and bring more sustainable pro ducts to customers around the world. Sustainability statements
Introduction
Value selling
Note 1: Sustainable products
Note 2: Better lives
Note 3: Customer service
Note 4: Resource Efficiency Index
Resource productivity
Note 5: Supplier engagement
Note 6: Carbon positive
Note 7: Operational eco-efficiency
Note 8: Employees
Note 9: Safety
Note 10: Human rights
Note 11: Programs
Managing sustainability
Independent assurance report
Sustainability performance summary
168
170
170
171
171
171
172
172
173
176
182
183
185
187
188
192
194
Additional sustainability information
In this report
Case studies
12, 14, 16, 46, 58, 180
How AkzoNobel created value in 2017 6, 28, 29, 42, 48, 54
CEO statement
Strategic performance
Risk management
Business performance
Supervisory Board Chairman’s statement
Report of the Supervisory Board
Corporate governance statement
Compliance and integrity management
Remuneration report
AkzoNobel on the capital markets
8
18
31
36
66
68
82
92
96
102
Our website (akzonobel.com/sustainability)
includes additional information on processes,
detailed data and contacts.
This Sustainability statements section of the Report 2017 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/sustainability
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AkzoNobel Report 2017 | Sustainability statements
167
Introduction
For AkzoNobel, sustainability
means delivering long-term
value for all our stakeholders.
It underpins our purpose and
brand, our core principles and our
employee value proposition.
It’s our driver for growth, innovation
and productivity.
Sustainable business imperatives
We aim to create continuing value for AkzoNobel stake-
holders in social, environmental and economic terms,
creating a bridge between the Sustainable Development
Goals (SDGs) of the United Nations and our own business
imperatives – value selling and resource productivity.
• Value selling – we are innovating to give our customers
choice and competitive advantage through product
portfolios designed to bring tangible benefits and deliver
positive social and environmental impact (see page 170)
• Resource productivity – we are creating a culture
of care for all materials used, eliminating waste and
reducing variable cost. Increased resource productivity
in our operations and supply chain makes us more
competitive and sustainable (see page 172)
Value
selling
Resource
productivity
More from less
168 Sustainability statements | AkzoNobel Report 2017
Accountability
The Executive Committee has responsibility for
incorporating the sustainability agenda in the company
strategy and monitoring the performance of each business
through the Operational Control Cycle. Accountability
for delivery lies with the leaders of the businesses and
functions and their management teams. Significant
sustainability aspects material to the company are
reviewed annually, with input from internal and external
stakeholders (see Managing sustainability).
We use key indicators to track our progress in delivering
on the sustainable business imperatives. The Resource
Efficiency Index (Note 4) demonstrates how AkzoNobel
is delivering more from less, driving margin growth
which has been decoupled from resource constraints,
thereby reducing short-term costs and long-term risks.
We have established continuous value improvement
processes in every function, supported by external
benchmarks. In 2017, AkzoNobel returned to the number
one ranking in the Chemicals industry on the Dow Jones
Sustainability Index (DJSI).
We equip all employees to ensure they can contribute
to making our businesses more sustainable and include
this responsibility in personal targets and remuneration.
Since 2009, the long-term incentive for our executives has
been linked to AkzoNobel’s DJSI ranking. We will include
sustainability in the personal objectives and incentives of
all employees from 2018 onwards.
Value creation
AkzoNobel is working in all regions on early detection of
long-term societal needs which shape our innovation,
including resource scarcity. These insights bring new
business opportunities, support swift business adaptation
and enable first mover advantage.
We drive our sustainable business imperatives through
our products, programs, processes and partnerships.
The following are some practical examples, including
how they contribute to the global development agenda,
represented by the UN SDGs (those most relevant to
AkzoNobel are shown above).
Products: Coatings which improve the energy
efficiency of old buildings*
Our new Dulux Trade Plus range was devised after
listening to the needs and future ambitions of our
customers and consumers. Comprised of a ThermaCoat+
system for interior walls and a SmartShield+ solution for
exteriors, the products were specially developed to help
improve energy efficiency in older buildings – cutting
heat loss through walls, delivering energy savings and
improving comfort levels.
Homeowners and businesses in developed markets lose
millions of euros every year due to heat loss through
uninsulated solid walls, which waste up to 45% of heating
energy. Because much of our old housing stock will
continue to exist for decades, AkzoNobel has developed
solutions that can improve the energy performance in
older buildings.
*Contributes to SDGs: 3 7 11 13
Products: Paint which absorbs pollutants*
Dulux Forest Breath is a unique paint range sold in China
which can capture and neutralize pollutants, as well as
color and protect interior walls. It’s also lower in volatile
organic compounds (VOCs). Forest Breath helps improve
indoor air quality by capturing formaldehyde and benzene
from the atmosphere. By using silver ion, it can kill germs
and bacteria to create a healthier home environment, and
it is mold resistant.
In collaboration with EY, we have been able to quantify, in
monetary terms, the contribution that our products and
programs make to society (see Managing sustainability).
For Forest Breath, this could be the reduction of negative
health impacts due to less formaldehyde inhalation. We
discovered that the health benefits amounted to €5 million
in 2017 (based on sales of the product in China.) This
project has shown that it is possible to put a monetary
value on the positive social impact that our products can
bring. The implications of this assessment go far beyond
the current assessments of product performance. We are
replicating the approach for other products and plan to
integrate social impact into various parts of our business,
such as our innovation activities.
*Contributes to SDGs: 3 11
Products: Water-based ultraviolet (UV)
coatings which help increase capacity and reduce
process damage*
Our UV-cured water-based coatings for wood coatings
have been designed to help reduce our customers’ overall
process costs. The fast-curing formulations contain
virtually no VOCs and allow the most compact of line
set-ups. The rapid curing means items are ready to be
stacked or assembled in as little as six minutes after
the coating has been applied. This gives manufacturers
unrivalled handle ability and reduces damage from
in-process scuffs and knocks.
Water-based UV coating customers gain environmental
and social benefits by minimizing VOC emissions and
keeping ahead of regulatory requirements, without the cost
and complexity of operating VOC abatement systems.
As well as reducing environmental impact, this solution
ultimately allows our customers to increase capacity,
which is frequently dictated by regulatory permits
surrounding VOCs. Water-based UV coatings are currently
available in the kitchen cabinet, building products
and furniture market segments. It’s another example
of a ground-breaking innovation which is transforming
our industry and increasing the current and future
competitiveness of our customers.
*Contributes to SDGs: 3 12 13
Processes: Emission modeling which improves
well-being*
We have developed a VOC modeling tool which enables
our factories to manage and reduce their VOC emissions
in the most cost-effective way. This will allow us to stay
ahead of increasingly stringent regulation which places
limits on VOC emissions. Reducing VOC emissions also
has clear environmental and health benefits. The tool has
been piloted at five sites, with plans in place to roll it out
across the company in 2018.
*Contributes to SDGs: 3 12 13
Partnerships: Circular chemistry which
creates jobs*
AkzoNobel initiated the Waste-to-Chemistry consortium,
a flagship project which acts as a catalyst in the transition
towards a bio-based and circular economy. Spanning the
value chain, this unique partnership comprises Air Liquide,
AkzoNobel, Enerkem, the Port of Rotterdam and the City
of Rotterdam, the Province of Zuid Holland and Innovation
Quarter. Together, we plan to divert waste streams from
landfill and incineration, and convert them into valuable
chemical building blocks. Deployment of an innovative
gasification technology will enable the efficient and cost-
effective conversion of waste into methanol, thereby
avoiding consumption of fossil fuels and reducing CO2
emissions by at least 250,000 tons per year.
AkzoNobel plans to convert the waste-derived methanol
into dimethylether and chloromethanes – key products
supplied by our Industrial Chemicals business – which
will allow us to offer more sustainable products to our
customers. The newly available resources and generated
knowledge will also enable new plants and spin-offs,
strengthening the regional economic structure. In addition,
the plant will create shared social value by having a
direct impact on employment – there will be 50 direct
and 200 indirect new jobs created – and tax revenues
in the region.
*Contributes to SDGs: 9 12 13 17
Programs: Community investment bringing color
to people’s lives*
Color has an impressive transformational power and, as
demonstrated by our “Let’s Colour” program in Brazil
(see Note 11), it can leave a lasting legacy. This is
evidenced in particular by the work of our Coral brand in
helping and inspiring residents of the Santa Marta favela
in Rio de Janeiro.
In 2017, we used the Santa Marta program as a pilot,
taking initial steps to measure the social value creation of
our programs, in cooperation with EY. The objective of the
project was to strengthen decision-making regarding future
community investments, as we believe that insight into
social needs will help us to better design our programs.
We acquired first order of magnitude estimates based on
well-being valuation, calibrated to the local situation.
We now aim to standardize the valuation methodology
(see Managing sustainability).
*Contributes to SDGs: 11 17
AkzoNobel Report 2017 | Sustainability statements
169
Value selling
1
Note 1: Sustainable products
We work closely with customers to deliver solutions
that will make their business more sustainable, while
delivering economic value to all parties in the chain. We are
assessing our entire product range in sustainability terms
to help customers make choices that deliver competitive
advantage and also benefit society.
More than 21% of our products met the eco-performer
criteria in 2017, having clear sustainability features and
being at least as good as mainstream alternatives. Another
20% of the total portfolio met the more demanding criteria
of the eco-premium category and we aim to maintain a
sustainable 20% of eco-premium revenue through 2020.
Sustainable product portfolios
We constantly assess and reshape our product portfolio
to drive innovation and offer competitive advantage to
customers. Transparent monitoring of margin by product
category guides business decision-making.
We assess the full range of products and are collaborating
with industry peers to develop a standardized
categorization methodology.
Our portfolio approach promotes the use of safer and
more sustainable products. We take action to manage
harmful substances in advance of legislation, future-
proofing our products against changes in regulations.
We have set ourselves stretching targets for the amount
of revenue and margin growth that should come from
solutions with a sustainability benefit for our customers,
versus the mainstream product solutions in the market.
Product portfolio assessment
Eco-premium solutions differentiate AkzoNobel, matching
the standard offerings in all respects and exceeding
them in at least one of the following parameters: energy
efficiency; use of natural resources and raw materials; land
use; emissions and waste; safety risks; toxicity; health and
well-being. Products are assessed across their lifecycle
and benchmarked against current competitor solutions,
making it a moving target.
The eco-premium portfolio is dynamic as 3% of revenue
has ceased to be classified as eco-premium due to
competitive offerings having caught up. At the same time,
new solutions have been introduced to the portfolio, also
accounting for 3% of revenue.
Eco-premium solutions with downstream benefits
in % of revenue
Target
17
18
19
19
20
20
20
Eco-premium solutions with downstream benefits
per Business Area
in % of revenue
Decorative Paints
Performance Coatings
Specialty Chemicals
2014
2015
2016
2017
27
15
17
28
15
17
28
16
19
27
17
19
VOC in products
As a result of our ongoing ambition to move towards zero
VOCs, our Decorative Paints and Performance Coatings
portfolios are undergoing a transformation towards a range
of products that are lower in their VOC content.
Decorative Paints is focusing on a multi-year program to
lead the market to water-based trim and wood product
ranges. Our overall paints and coatings portfolio showed
a decrease of 13% in average VOC content in 20161,
compared with the baseline position of 2009. Due to the
divestment of businesses with very low VOC products,
the like-for-like reduction for AkzoNobel over this period
was 25%.
1 The annual metrics for VOC in products are assessed in the second quarter of the
following year, which is why the figures referred to the year 2016 instead of 2017.
2012
2013
2014
2015
2016
2017
2020
Eco-premium
Better than mainstream solutions
Eco-performer
Mainstream with sustainable features
Performer
Equivalent to mainstream
Transformer
Potential future risks are anticipated
Priority
Current risks are known
and managed
170 Sustainability statements | AkzoNobel Report 2017
2
Note 2: Better lives
3
Note 3: Customer service
4
Note 4: Resource Efficiency Index
We believe innovation creates long-term impact when it
responds to market and social needs. We are engaging
our people (Note 8) to deliver products (Note 1) and
programs (Note 11) that improve lives by fulfilling the needs
of the societies we work in.
To better understand and quantify our social value
creation, we developed a systematic approach in
collaboration with EY (see Value creation and Managing
sustainability). In addition, we actively participate in
social impact valuation platforms, such as the Impact
Valuation Roundtable and the World Business Council
for Sustainable Development’s Social and Natural
Capital Protocol.
Delivery
We monitor our service reliability in terms of timely delivery
to the customer’s premises, aiming to be consistently
higher than 95%. In 2017, service performance was 96%.
Delivery Efficiency Index
in %
92
93
94
96
96
2013
2014
2015
2016
2017
Responsiveness
Satisfactory handling of customer complaints is an integral
part of our quality system. Measures include response
times and use of social media. In Decorative Paints, we
launched a new cloud-based solution which is integrated
with our customer relationship management (CRM)
system, increasing response speed and quality.
Expectations
Business change is driven by a deeper understanding
of customer needs obtained through market research,
customer discussions, focus groups and targeted surveys.
Results are integrated into the CRM system.
The Resource Efficiency Index demonstrates how
AkzoNobel is driving margin growth which has been de-
coupled from resource constraints, thereby reducing short-
term costs and long-term risks. The index is defined as
gross margin divided by cradle-to-grave carbon footprint
– reported as an index using 2012 as the baseline year.
We selected gross margin as an indicator of added
value as it is comparatively stable and captures
the financial effects of innovations and commercial
improvements. Carbon footprint is an important indicator
of resource productivity across our value chains. The
Resource Efficiency Index is therefore an integrated
indicator of our business imperatives – value selling and
resource productivity.
In 2017, our volume grew in all areas. We also acquired
an industrial coatings business from BASF. As a result,
our carbon footprint increased slightly, even though our
emissions per ton of product went down. Combined with a
lower gross margin, the Resource Efficieny Index equaled
106 compared with the 2012 baseline of 100.
Resource Efficiency Index
gross margin/CO2(e) indexed
100
98
96
113
112
106
2012
2013
2014
2015
2016
2017
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.
AkzoNobel Report 2017 | Sustainability statements
171
Resource
productivity
AkzoNobel is driving resource productivity to make the
most of valuable raw materials, reducing environmental
impact, while strengthening our business.
Initiatives to improve material efficiency, right-first-time
and first quality production throughout our operations are
integrated in the AkzoNobel Leading Performance
System (ALPS). By focusing on resource productivity,
ALPS drives an explicit value agenda, as well as long-
term operational excellence, engaging all our operations
employees in common goals. This systematic approach
drives increased raw material efficiency and reduces
waste, while better planning processes help to reduce
slow-moving and obsolete stocks. We use a range of best
practice manufacturing indicators to monitor progress, as
well as the operational eco-efficiency parameters
(see Note 7).
5
Note 5: Supplier engagement
In order to make the most productive use of resources,
especially raw materials, we work closely with suppliers,
identifying and minimizing supply chain risks, creating
value through continuous improvement and seeking out
collaboration and joint development opportunities to
ensure a secure and sustainable supply of products.
Supplier segmentation
We have segmented suppliers based on an assessment
of their performance, our business relationship and
potential risks and opportunities. One segment includes
suppliers in emerging markets who require special
attention for labor conditions, environmental performance,
business integrity and security of supply of raw materials.
The other segment includes suppliers with a high level
of spend, dependency, or potential for partnership, joint
innovation and collaboration on long-term sustainability
initiatives. In 2017, supplier segmentation was integrated
into the Supplier Management process under the ALPS
Source program.
Supplier sustainability framework
Our supplier sustainability framework supports continuous
improvement and delivery of our shared goals. The
foundation is AkzoNobel’s Code of Conduct for business
partners, while the framework includes processes for
supplier support visits, Together for Sustainability (TfS)
assessment and key supplier management.
Business Partner Code of Conduct
Suppliers sign the code to confirm their compliance with
environmental, social and governance requirements.
Signatories cover 97% of the product related (PR) spend
and 86% of the non-product related (NPR) spend.
Supplier support visits
This well-established program – designed to develop
suppliers in emerging markets with particular risks – is
now an integral part of our supplier selection, strategy and
collaboration processes.
Together for Sustainability (TfS)
TfS assessments and audits facilitate proactive supplier
risk management in the chemical industry. AkzoNobel
verifies its own activities against industry best practice,
and achieved the EcoVadis Gold recognition level for the
third time in 2017.
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
Risk developments in % of suppliers
2016
2017
38
37
42
39
4
2
19
19
High risk
Medium risk
In control
Low risk
172 Sustainability statements | AkzoNobel Report 2017
2013
96
83
392
–
–
–
2014
98
80
432
539
20
–
2015
98
81
455
724
65
2
2016
99
86
136
1053
166
37
2017
97
86
160
1274
262
97
4 Supplier support visits, supplier numbers rebaselined in 2016.
5 Includes TfS shared assessments/audits, cumulative.
ALPS Source
In 2017, under ALPS Source, we introduced our
Supplier Management process, which measures supplier
performance on quality, delivery, innovation and
sustainability.
Key performance indicators – supplier management
Product related1 suppliers signed Business Partner CoC2 (%
of spend)
NPR3 suppliers signed Business Partner CoC2 (% of spend)
Suppliers on SSV4 program since 2007
Third party online sustainability audits (TfS)5
Third party on-site sustainability audits (TfS)5
Supplier Sustainability Balanced Scorecard
1 Product related = Raw materials and packaging.
2 Business Partner Code of Conduct.
3 Non-product related.
TfS assessment of our suppliers covered more than 63%
of spend in 2017, while the average score improved by
3%, including a positive impact on the human rights score.
The diagram on the previous page shows suppliers
assessed by EcoVadis with risk levels set by AkzoNobel
based on the supplier’s EcoVadis score. The proportion
of “low risk” suppliers is increasing as a result of our
improvement activities during the year.
Key supplier management
Our key supplier management process focuses on
suppliers with whom we have: contractual relationships;
opportunities for meaningful value creation; partnerships
or joint innovation projects; or who have a material
impact on our upstream carbon footprint. In 2017, the
number of suppliers in this group increased from 35 to
150, representing 80% of our upstream carbon footprint.
Key suppliers work with us on a balanced scorecard
assessment of their sustainability maturity level based
on fulfilling the minimum TfS score criteria and aligning
on annual improvement objectives, including carbon
footprint reduction. The scorecard now also includes KPIs
on energy, waste, water and circular raw materials. From
2018, KPIs will include human rights.
6
Note 6: Carbon positive
AkzoNobel is taking steps towards a positive carbon
balance. We see carbon footprint reduction as an
important measure of climate impact and protection, and
also as a proxy indicator of resource productivity – how
efficiently we and our supply chain partners are using raw
materials and energy in our products and operations.
Climate change
Climate change is one of the biggest challenges that
will shape the way we do business, both now and in
the decades to come. We support the Paris Agreement
reached at COP21 of keeping the global average
temperature increase well below 2°C above pre-industrial
levels and pursuing efforts to limit temperature rise to
below 1.5°C.
To support the transition to a low carbon economy and
help reduce our industry’s dependence on fossil fuels, we
have committed to carbon neutrality by 2050. We also
joined the RE100 initiative, emphasizing our commitment
to source 100% renewable energy by 2050.
Carbon pricing
We introduced carbon pricing into relevant investment
decisions, and merger and acquisition initiatives, to
drive further awareness of the environmental and future
economic impact of major decision-making. It also enables
us to make more informed decisions and strengthen our
sustainable business portfolio. Alongside the base case
for any investment, we routinely include the impact of a
cradle-to-grave carbon footprint cost at a price of €50 per
ton. With many countries discussing different schemes
to put a price on carbon as part of their legally binding
COP21 carbon reduction targets, carbon pricing enables
sustainability leaders to de-risk their businesses. In 2017,
we included carbon pricing in seven major appropriation
requests submitted to the Executive Committee.
AkzoNobel Report 2017 | Sustainability statements
173
Avoided emissions
To support our growth agenda, we focus on creating
positive value for our customers. We develop and sell
solutions that help customers avoid energy use and
carbon emissions, such as Dulux Trade Plus products,
as described in the Introduction to this section. Using the
avoided emissions guidelines we developed together with
the International Council of Chemical Associations and the
World Business Council for Sustainable Development, we
have started to evaluate the amount of carbon emissions
society avoids by using the solutions we have developed,
compared with mainstream solutions. First results show
these avoided emissions add up to nine million tons of
CO2, compared with our total product cradle-to-grave
footprint of 24.6 million tons.
Our target is to reduce our product cradle-to-grave carbon
footprint by 25-30% per ton of sales between 2012 and
2020, including the impact from VOC emissions. We
Cradle-to-grave product carbon footprint
in million tons of CO2(e) and % reduction per ton of sales
Scope 3 downstream
Scope 1 & 2
Scope 3 upstream
% reduction CO2(e) per ton of sales
Target
-4
26.9
3
24.6
6
23.7
7
24.6
intend to achieve this through innovation, technology and
energy management, by switching to renewable energy
and bio-based materials. Because we measure carbon
footprint on a cradle-to-grave basis, collaboration
with suppliers and customers is crucial for our success.
In 2017, we were able to further reduce our carbon
footprint per ton sold, more than offsetting the impact of
the Industrial Coatings business acquired from BASF. Our
cradle-to-grave footprint per ton of sold product is now
7% lower than the 2012 baseline.
Our share of renewable energy continues to improve.
Emissions from our own operations are 9% lower than
in 2016. We continued our work with suppliers and have
increased sales of paints with a lower carbon footprint
in Asia. As volumes grew, our total product footprint
increased to around 24.6 million tons of CO2(e), which
is 11% lower than 2012. Without the BASF acquisition,
our absolute cradle-to-grave footprint would have
been approximately equal to that in 2016, while the
reduction of footprint per ton from the 2012 baseline
would have been approximately 10%.
AkzoNobel carbon footprint in million tons CO2(e)
10
3
8
3
1
Raw materials
Own operations
Customer
operations
End-user
End-of-life
Other
Material strategies
for key raw
materials
Energy strategy
including
renewable energy
New developments to reduce
energy use during product application
Renewable raw
materials result in
less fossil carbon
in our products
Energy sales,
non-product
related scope 3
activities
Joint activities
with suppliers
Operations
management
Paints containing less solvents
25-30
Operational
eco-efficiency
2014
2015
2016
2017
2020
The 25-30% target applied to the combined businesses of AkzoNobel in 2017.
AkzoNobel Paints and Coatings and the separated Specialty Chemicals companies will
review and set their own individual targets in due course.
174 Sustainability statements | AkzoNobel Report 2017
Reformulations using lower footprint raw materials
and new products with customer benefits
Cradle-to-grave product carbon footprint
Total in million tons CO2(e) and reduction per ton of sales
AkzoNobel
Scope 3 upstream
Scope 1 & 21
Scope 3 downstream
Total
% reduction per ton of sales
Decorative Paints
Total
% reduction per ton of sales
Performance Coatings
Total
% reduction per ton of sales
Specialty Chemicals
Total
% reduction per ton of sales
2014
2015
2016
2017
10.7
4.0
12.2
26.9
-4
3.9
0
13.6
-2
9.4
-2
9.7
3.8
11.1
24.6
3
3.6
4
12.3
-2
8.6
6
9.5
3.7
10.5
23.7
6
3.7
9
11.6
-2
8.4
9
9.7
3.4
11.5
24.6
7
3.7
16
12.6
-5
8.2
15
1 Scope 1 and 2 includes emissions from our facilities and our own transport,
including VOCs.
Total volume of raw materials in % per source
Total energy in % by source
47%1
A
C
B
1 11% of organic raw
materials are from
renewable sources.
A Renewable energy
B Natural gas
C Coal
D Nuclear
E Other fossil fuels
45
29
14
10
2
E
D
C
B
A
A Renewable raw materials (bio-based)
B Fossil-derived materials (petrochemicals)
C Inorganic materials (e.g. salt, minerals, clays)
Renewable energy
in % of total electricity,
heat and energy use
Renewable electricity (%)
Renewable heat (%)
Renewable energy (%)
2015
2016
2017
44
16
38
46
17
40
52
22
45
Ambition
2020
–
–
45
5
42
53
A detailed breakdown of our greenhouse gas emissions,
including scope 3 and scope 2 location-based emissions,
is available on our website.
of bio-based materials relevant to our markets, we have
been setting up and developing partnerships across our
supply chain.
The illustration on the previous page highlights the impact
of our main initiatives on different areas of our value chain:
• Raw materials that have a lower footprint and are
bio-based or recycled
• Improved energy efficiency and fuel mix for our energy-
intensive operations (see Note 7)
• Improvements in formulation to reduce product
footprint, particularly during customer application
(see Note 1)
Raw materials contribute around 40% to our cradle-
to-grave product carbon footprint. Bio-based or recycled
materials can, in most cases, offer an option to reduce
this footprint. In order to accelerate the deployment
We partnered with Advanced Biochemical (Thailand) Co.,
Ltd. (ABT) and EY to develop a new online tool which
can track the use of bio-based raw materials in products
for end customers. The new system, called ProBioTracker,
will be the first tool ever to use e-certification to track
bio-based content along the value chain.
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 diagrams above detail our energy mix and renewable
energy use. We made good progress on some key
programs and initiatives during 2017 in order to increase
the use of renewables in our energy supply and decrease
our carbon footprint. The proportion of renewable
energy in our operations is now 45%, which is already at
our 2020 ambition level.
AkzoNobel Report 2017 | Sustainability statements
175
Performance Coatings continued its global material
and both this and the total waste to landfill reduced by
efficiency program for all businesses, focusing on
8% and 13% respectively in 2017.
yield improvement in production. A wide variety of
Energy and greenhouse gas
emissions
smaller projects (more than 200) has resulted in savings
Total waste volume and waste per ton of production
Energy use per ton of production flattened, while absolute
generated were down by 4% and 5% respectively in 2017.
energy consumption in 2017 was up 1% compared
Hazardous waste per ton of production decreased by
with 2016, in line with a change in product mix and volume
Specialty Chemicals converted some of its waste streams
5%. The significant reduction in waste in 2017 was
changes. In 2017, 57% (122 out of 214) of our sites
into valuable by-products, in line with the concept of the
achieved by many specific material efficiency activities in
improved their relative footprint with regard to
circular economy.
a large number of sites around the globe.
energy use compared with 2016, while 78 sites are using
Energy use in 1000 TJ
Energy use
GJ per ton of production
5.7
98
5.6
95
5.5
97
5.5
98
100% renewable electricity (14 new in 2017).
Greenhouse gas emissions in million tons
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton of production
224
221
209
2.8
1.1
2.3
1.5
2.0
1.6
190
1.9
1.5
2014
2015
2016
2017
2014
2015
2016
2017
Total greenhouse gas emissions made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
of €10 million.
Waste
Effective waste management helps to increase raw
material efficiency in our manufacturing operations, while
reducing both our environmental footprint and costs.
AkzoNobel has moved the focus from managing and
reducing total “end of pipe” waste to also eliminating
waste by increasing material efficiency throughout the
manufacturing process, among other initiatives.
Our ambition is to drive towards zero waste to landfill
in the coming years. A program with concrete projects
is being implemented to support this ambition. The first
priority is to reduce the hazardous waste to landfill,
Total waste in kilotons
Reusable
Non-reusable
8.6
9.0
77
72
79
75
8.1
7.8
79
79
64
58
Total kg per ton of production
Hazardous waste in kilotons
Reusable
Non-reuseable not landfill
Non-reuseable to landfill
Total kg per ton of production
37
36
3.4
20
3.3
20
3.2
26
28
3.0
28
24
1.7
2.0
1.1
1.0
2014
2015
2016
2017
2014
2015
2016
2017
Waste means any substance or object arising from our routine operations which we
Hazardous waste is waste that is classified and regulated as such, according to the
discard or intend to discard, or we are required to discard.
national, state or local legislation in place.
AkzoNobel Report 2017 | Sustainability statements
177
176Sustainability statements | AkzoNobel Report 2017Own operationsCustomeroperationsRawmaterialsProductBy-productWaste58Reusable79Non-reusable137 1917,700 Raw material flow in kilotonsImprovement of each of the eco-efficiency parameters per ton of production (% vs 2009)SOxNOxVOCCODFresh waterIndirect CO2(e)Direct CO2(e)EnergyWaste46484233 373332214AkzoNobel drives resource productivity by increasing raw material efficiency, reducing energy consumption and achieving decreases in the generation of waste streams, emissions to water and emissions to air. Our efforts benefit the planet, as well as our business performance, as they simultaneously ensure our license to operate, reduce our environmental footprint and reduce operational costs.We use our company-wide continuous improvement program ALPS (AkzoNobel Leading Performance System) to drive the agenda. We continuously measure progress on a range of operational eco-efficiency indicators and, on a quarterly basis, we report internally on our performance and continuous improvement, and define actions for further improvement. Specific projects (currently 639 in total) are included in the AkzoNobel Tracker, which monitors financial benefits and environmental impact.Great results have been achieved on operational eco-efficiency since the start of this ongoing program in 2009. The eco-efficiency footprint was reduced by 31%, while improvements on the individual parameters were also significant. Material efficiencyAkzoNobel has increased its focus on material efficiency and is maximizing the conversion of raw materials into final product by solving the root cause of the losses. This will not only reduce the amount of waste and waste water – as well as the carbon related to our raw materials upstream – but will also help our bottom line.At Decorative Paints, the material efficiency program was continued, focusing on a better conversion of raw materials into final products, for example by recycling wash water, including recycling the paint captured in the washing process.Note 7: Operational eco-efficiency 7
Performance Coatings continued its global material
efficiency program for all businesses, focusing on
yield improvement in production. A wide variety of
smaller projects (more than 200) has resulted in savings
of €10 million.
Specialty Chemicals converted some of its waste streams
into valuable by-products, in line with the concept of the
circular economy.
and both this and the total waste to landfill reduced by
8% and 13% respectively in 2017.
Total waste volume and waste per ton of production
generated were down by 4% and 5% respectively in 2017.
Hazardous waste per ton of production decreased by
5%. The significant reduction in waste in 2017 was
achieved by many specific material efficiency activities in
a large number of sites around the globe.
Waste
Effective waste management helps to increase raw
material efficiency in our manufacturing operations, while
reducing both our environmental footprint and costs.
AkzoNobel has moved the focus from managing and
reducing total “end of pipe” waste to also eliminating
waste by increasing material efficiency throughout the
manufacturing process, among other initiatives.
Our ambition is to drive towards zero waste to landfill
in the coming years. A program with concrete projects
is being implemented to support this ambition. The first
priority is to reduce the hazardous waste to landfill,
Energy use in 1000 TJ
Energy use
GJ per ton of production
5.7
98
5.6
95
5.5
97
5.5
98
Energy and greenhouse gas
emissions
Energy use per ton of production flattened, while absolute
energy consumption in 2017 was up 1% compared
with 2016, in line with a change in product mix and volume
changes. In 2017, 57% (122 out of 214) of our sites
improved their relative footprint with regard to
energy use compared with 2016, while 78 sites are using
100% renewable electricity (14 new in 2017).
Greenhouse gas emissions in million tons
Direct CO2(e) Mt
Indirect CO2(e) Mt
kg CO2(e) per ton of production
224
221
209
2.8
1.1
2.3
1.5
2.0
1.6
190
1.9
1.5
2014
2015
2016
2017
2014
2015
2016
2017
Total greenhouse gas emissions made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
Total waste in kilotons
Reusable
Non-reusable
8.6
9.0
77
72
79
75
Total kg per ton of production
Hazardous waste in kilotons
Reusable
Non-reuseable not landfill
Non-reuseable to landfill
Total kg per ton of production
8.1
7.8
79
79
64
58
37
3.4
20
36
3.3
20
3.2
26
28
3.0
28
24
1.7
2.0
1.1
1.0
2014
2015
2016
2017
2014
2015
2016
2017
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.
AkzoNobel Report 2017 | Sustainability statements
177
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 GHG emissions per ton of production decreased by
9% in line with the absolute GHG emissions decrease of 9%.
Local air quality
Air monitoring from AkzoNobel operations is focused on
volatile organic compounds (VOC) and NOx and SOx
emissions, with emissions being monitored and controlled
as required.
Volatile organic compounds
(VOC)
All our businesses manage VOC emissions from
operations, in line with national (e.g. in China) 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
Volatile organic compounds in kilotons
Volatile organic compounds
kg per ton of production
0.18
3.1
0.18
3.0
0.16
2.9
0.15
2.6
our operations. Reducing VOC emissions from our sites
remains part of the scope of our operational eco-efficiency
program, while our Research, Development and Innovation
groups are working on projects to reduce the solvent
content of our products (see Note 1).
VOC emissions per ton of production and total VOC
emissions decreased by 11% and 10% respectively
in 2017.
NOx and SOx
NOx and SOx emissions may have a significant impact on
local air quality because of their potential contribution to
acidification and smog formation. The emissions of these
gases are very limited for Paints and Coatings (less than
1% for both NOx and SOx).
Both NOx emissions per ton of production and total
emissions decreased 10%. Optimization of our Delesto
unit in Delfzijl, the Netherlands, resulted in a reduction of
more than 20%, reducing the impact by over 100 tons.
SOx emissions (from process emissions and energy) were
down by 22%, with a significant decrease achieved in
LeMoyne, US, due to the start-up of an SO2 recovery unit.
NOx and SOx emissions
in kilotons
NOx
NOx kg/ton
SOx
SOx kg/ton
2014
2015
2016
2017
1.3
0.08
3.7
0.22
1.7
0.10
3.8
0.22
1.6
0.09
5.2
0.30
1.5
0.08
4.1
0.23
Ozone depleting substances
Emissions of ozone depleting substances are at a very
low level, 0.8 tons (2016: 1.8 tons). They are mainly due
to Freon22 from maintenance in older air conditioning and
cooling units, which are replaced when appropriate.
Fresh water availability
Sustainable water supply is essential to life and the
sustainability of our business. AkzoNobel relies on water
for raw material production, product formulation and
manufacturing, power generation, cooling, cleaning,
transportation and the effective use of certain products.
Currently, 87% of our fresh water intake is from surface
water, while 84% is used for cooling, which is only slightly
heated before being returned to the original source.
We manage water consumption and its related risks using
a fresh water risk assessment tool, completed by each
manufacturing site. The tool assigns risk levels to water
sources, supply reliability, efficiency, quality of discharges,
compliance and social competitive factors. In total, 94%
of our sites have sustainable fresh water management in
Fresh water use in million m3
Fresh water consumption
m3 per ton of production
15.2
263
16.0
274
12.8
224
12.4
219
2014
2015
2016
2017
We measure halogenated and non-halogenated organic compounds
discharged to air.
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.
2014
2015
2016
2017
Fresh water use is the sum of the intake of groundwater, surface water
and potable water.
178 Sustainability statements | AkzoNobel Report 2017
179AkzoNobel Report 2017 | Sustainability statements1Other28Product11Potable water18Groundwater190190Surface waterOwn operationsplace, as measured by the risk assessment tool. In 2017, all new sites and sites in at-risk areas identified by the previous tool were reassessed.Total fresh water use and fresh water use per ton of production were down by 2% and 3% respectively. By subtracting the water used for cooling purposes from the total fresh water use, our net water use is calculated and this decreased by 5%.Waste waterIn total, 95% of the chemical oxygen demand (COD) is caused by only 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 increased to 0.07 kg/ton, whereas the total COD load increased to 1.3 kilotons. Although some sites reduced their emissions per ton in 2017 (such as Stockvik in Sweden), increased volumes, change in product mix and process changes in our polysulfides plant in Greiz (Germany) led to a net increase. Soil and groundwater remediationWe 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 a liability will materialize and the cost can be reasonably estimated. We have set aside an additional Water flow in million m3Chemical oxygen demand (COD) in kilotons Chemical oxygen demand kg per ton of production20172016201520141.41.41.11.30.080.060.070.08COD is the amount of oxygen required for the chemical oxidation of substances in the waste water effluent that is discharged into surface waters.€18 million, which we believe is sufficient for the sites where we have ownership or responsibility. See Note 17 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. Sustainability statements | AkzoNobel Report 2017180 AkzoNobel Report 2017 | Sustainability statementsClick to watch video181The striking livery on the team AkzoNobel yacht combines eight custom mixed colors in an intricate design, which took around 1,400 man hours to apply. It also features metallic and pearl effects, which help it to stand out.There can’t be a global sporting event more suited to AkzoNobel than the Volvo Ocean Race. A perfect fit for the company’s strong maritime heritage and long association with the sea, it’s the perfect showcase for the company’s market-leading products and expertise. That’s why we became the official coatings supplier to the Volvo Ocean Race Boatyard for the 2017-18 edition. It means the entire fleet of Volvo Ocean 65 racing boats is coated with the company’s International and Awlgrip range of products.The company developed unique, eye-catching custom colors for every team in the race, and the partnership will ensure that the boats continue to look their best and withstand the ultimate test of performance as they battle through the toughest oceans on the planet. Once a leg ends, technical staff from the company’s Yacht business is on hand to offer advice and support to the shore crew application teams. They have access to a purpose-built paint storage unit which is available at each stopover and includes all the International and Awlgrip coatings used on the entire fleet. It features the materials needed to carry out everything from a small repair through to a complete repaint of the boats.“We’re there to give technical support to the Boatyard application teams, offer advice on workable solutions and answer any questions we may face at the time,” explains Gareth Thomas, Technical Support Team Manager at AkzoNobel’s Specialty Coatings business. “It really is a matter of having the answers there and then, minimizing any delay as the turnaround for the boats is very tight.”And while the products used on each boat need to be able to withstand whatever Mother Nature chooses to throw at them, it’s the glossy, colored finish that everyone can see all the time – so this requires continual maintenance to ensure the boats always look good.“Each boat is a giant marketing tool and as such corporate colors and designs are incredibly important,” continues Gareth. “This required very specific color matching and we often had to match challenging print references. Fortunately, color matching is something AkzoNobel is very good at, and the on-site container and mixing rack we have available in the Boatyard enables us to mix all the colors we’ve developed for the teams right there on the spot.”THE ULTIMATE TEST OF PERFORMANCE 8
Note 8: Employees
AkzoNobel’s sustainability agenda is integral to our
employee value proposition. By focusing on the success
and sustainability of the business, we attract, retain
and motivate our employees. Sustainability is our core
principle, defining who we are and what we stand for.
Attracting and retaining talent
We are proud to have been externally recognized as a
leading employer in many of our key countries, including
Brazil, China, France, UK, the Netherlands and Sweden.
Productivity and ROI of human capital
Human capital ROI ratio
Return on human capital investment (%)
2015
1.58
54
2016
1.57
56
2017
1.49
53
The company’s Integrated Talent Management programs
are a vital investment in our human capital – the skills and
knowledge of employees – to ensure that we are equipped
to drive the company’s growth and profitability.
Workforce planning
Workforce planning is a mandatory process at strategic
and operational levels to develop the organization in line
with the future needs of each business, and sets the basis
for our budgeting, recruitment, development and talent
management processes.
As part of workforce planning, we identify critical roles
and focus on the succession planning of these roles
to ensure business continuity. To sustain and improve
our talent pipeline, we are focusing on the identification
and development of our internal talent through
frequent management reviews and targeted individual
development plans. In 2017, internal promotions
at executive level were at 74%, up from 61% the
previous year.
In 2017, overall employee turnover was 12% (2016: 11%),
while the voluntary turnover was 6% (2016: 7%). This
puts us close to the chemical industry benchmark
of APQC (10% overall turnover) and the Asian benchmark
(AkzoNobel 14%, compared with the 14% benchmark).
High potential employee turnover totaled 5%. Although up
by one percentage point from 2016, this can be seen as a
positive achievement in light of the business context.
Capability building
We are focused on building the functional and leadership
capabilities needed to support sustainable, profitable
growth. During 2017, we identified the required
competencies for our key commercial roles and simplified
and updated the competency and development
frameworks for Communications, Finance, Human
Resources, Research, Development and Innovation and
Customer Service.
Human capital ambitions
Employee engagement score
(0 – 5 scale)
Female executives
(in %)
Female executive potential
pool (in %)
Executive vacancies filled
internally (in %)
High potential turnover
(in %)
2014 2015 2016 2017
Ambition
2020
3.97
4.03
4.17 3.95*
4.20
17
24
68
19
25
58
6
19
30
61
4
19
28
74
5
25
30
70
<5
* 2017 engagement data covers August to December and was gathered for the first
time through regular Pulse surveys instead of a single annual survey.
Throughout 2017, around 2,000 people managers
participated in the Leadership Essentials program, which
develops the leadership behaviors that are incorporated in
our performance management system.
Diversity and inclusion
AkzoNobel is developing an increasingly engaged, diverse
and capable workforce which can deliver our vision of
leading performance in the markets in which we operate.
We believe it’s also important that our management teams
reflect the diversity of our overall workforce, because
inclusive and diverse teams are better able to understand
customer needs and innovate to meet their requirements.
Diversity and inclusion principles have been embedded
in our people management processes and leadership
training. We continue to analyze and look to close the
8% gap between the average male and female salary at
executive level. Analysis showed that only 0.3% of the
8% overall gap can be attributed to gender, while the
rest of the gap can be attributed to other factors such as
function, age, salary grade and country of work.
Engaged employees
In response to the change agenda in the company, we
launched a continuous process for surveying employee
feedback in August 2017. A random sample of employees
participated in short bi-weekly surveys. These regular
“Pulse” surveys are helping management respond more
quickly to employee needs during this period of transition.
The Pulse results for August to December 2017 show
strong adherence to our core principles, a commitment
to deliver quality and strong relationships at work. In view
of the significant organizational changes we experienced,
employees also expressed a sense of uncertainty and
concerns about job security. Our leadership development
182 Sustainability statements | AkzoNobel Report 2017
9
Note 9: Safety
curriculum has been adjusted to enable managers to
provide stronger change leadership by acknowledging
uncertainties and engaging with individuals about their
development needs.
AkzoNobel strives to deliver leading performance in health,
safety, environment and security (HSE&S) with a vision to
deliver zero injuries, waste and harm through operational
excellence.
Restructuring and separation
We continued to restructure our business in 2017 to
align with our company strategy. The primary focus
was on the further implementation of our Global Business
Services (GBS) organization and creating two focused,
high performing businesses. As part of the change
process, we use employee and customer sounding
boards to gather feedback from the organization and
our internal customers.
Employee total reportable injuries injury rate
Target
0.38
0.31
0.28
0.20
0.24
0.20
The strategic priorities set by the Executive Committee for
2017-2020 are to drive:
• Continuous improvement of HSE&S processes to
achieve leading maturity levels
2014
2015
2016
2017
2017
2020
• The implementation of the HSE&S management
systems to achieve zero losses of primary containment
and zero regulatory actions
• A commitment-based HSE&S culture and embed
operational excellence to achieve our vision of zero
injuries, waste and harm
During 2017, AkzoNobel made progress in delivering
on each of these priorities, once again reducing the
number of injuries suffered by employees and contractors,
and ranking best-in-class for health and safety in the
Chemicals industry on the Dow Jones Sustainability Index.
In 2017, AkzoNobel received the Responsible Care®
Award from the Association of International Chemical
Manufacturers in China.
People safety
The number of reportable injuries reduced by 27%
compared with 2016, while the injury rate is now at the
target level set for 2020 (0.20). Lost time injuries and
contractor injuries also continued to reduce.
In total, 77% of our locations have been reportable
injury-free for more than a year. The overall downward
trend in reportable injuries is in line with the increased
maturity level in the implementation of our company safety
programs, including the Life-Saving Rules, the continued
implementation of the AkzoNobel HSE&S Common
Platform programs and the drive for a commitment-based
safety culture.
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 200,000 hours worked. In line with OSHA guidelines,
temporary workers are reported with employees, since day-to-day management is by
AkzoNobel. Contractors are managed by their own companies.
Employee lost time injuries injury rate
Target
0.18
0.15
0.12
0.08
0.06
0.04
2014
2015
2016
2017
2017
2020
The lost time injury rate (LTlR) is the number of injuries resulting in a lost time case per
200,000 hours worked. Temporary workers are reported together with employees
since day-to-day management is by AkzoNobel.
Focus on contractor safety was further increased in
2017. The safety of both employees and contractors was
improved by the introduction of standardized practices
for safe working throughout the company, as well as
standardized contractor management and evaluation
procedures. The downward overall trend in TRR extended
to the TRR for contractors, which also decreased 39%.
The lost time injury rate was down 36%. There was one
contractor fatality during the year at a construction project
in India, caused by a fall from height. Prior to 2017,
there had been no employee or contractor fatalities for
five years.
AkzoNobel Report 2017 | Sustainability statements
183
Contractors total reportable injuries injury rate
Process safety
Process safety events
AkzoNobel has developed a process safety management
(PSM) framework for all operations, following industry
standards and best practices.
Loss of primary containment Level 1
Loss of primary containment Level 2
Process safety event Level 3
2016
2017
16
122
21
108
3,422
4,856
0.57
0.56
0.47
0.29
2014
2015
2016
2017
The contractor total reportable rate (TRR) is the number of contractor injuries,
including fatalities, resulting in a lost time case, restricted work or requiring medical
treatment by a competent medical practitioner per 200,000 hours worked.
Contractors lost time injuries injury rate
Target
0.29
0.27
0.18
0.11
0.12
Implementation of the framework at site level is phased
according to inherent risk. During 2017, a self-assessment
tool and independent validation process was developed
and rolled out for the first 43 sites. The next 75 sites
completed implementation of their improvement plans
according to schedule and will be validated in 2018. The
remaining sites are on track to complete implementation of
their PSM plans by the end of 2018.
Process safety performance indicators are aligned
with international best practice. A loss of primary
containment (LoPC) is the main process safety indicator
at manufacturing sites, with two levels of severity. As a
2014
2015
2016
2017
2017
Process safety pyramid
The contractor lost time injury rate (LTlR) is the number of contractor injuries resulting
in a lost time case per 200,000 hours worked.
A maturity self-assessment has been designed and
implemented in order to drive continuous improvement in
behavior-based safety at all manufacturing sites.
Levels
1
2
3
4
184 Sustainability statements | AkzoNobel Report 2017
PSE
PSE
PSE below threshold (of Level 2)
and near misses
Operational discipline
leading indicator, we also measure process safety events
(PSEs), which are minor leaks or occurrences that could
lead to more severe LoPCs.
In 2017, we raised awareness and improved reporting of
the process safety indicators. The total number of LoPC 1
and 2 reduced by 7% in 2017, compared with 2016. The
number of LoPCs classified as Level 1 (highest severity)
in 2017 was 21. The increase is partly a result of the
improved reporting. Overall Level 1 and Level 2 LoPCs
were below 2016. The number of PSE Level 3 (minor
spills and leaks, which are readily controlled on site and
have no regulatory notification requirement) has increased,
illustrating the desire to report, investigate and learn from
these process safety near misses, which creates more
opportunity for learning and prevention.
Product stewardship
During 2017, all businesses used the AkzoNobel Product
Stewardship Continuous Improvements Tool (PSCIT)
to assess the level of maturity in the eight key elements
of product stewardship, following the principles of
Responsible Care® and Coatings Care®. The maturity
assessments showed an overall increase in level from
6.5 in 2016 to 7.6 in 2017, indicating a continuous
improvement over the year.
Priority substance management
In 2017, we continued with our proactive approach to the
review and management of hazardous substances in our
products and processes through our priority substance
process. When the US Environmental Protection Agency
(EPA) listed the first ten chemicals to be fully risk assessed
under the 2016 update of the US Toxic Substances
Control Act (TSCA), AkzoNobel had already evaluated
nine of the ten substances and taken action to prohibit or
control their use. We received recognition for our approach
this year when the US EPA named AkzoNobel’s Surface
Chemistry business as 2017 Safer Choice Partner of the
Year in the Innovators category.
In 2017, we identified, reviewed and prioritized issues for
advocacy, including endocrine disrupting substances,
nanomaterials, respiratory and skin sensitizers (substances
causing an allergic reaction), scientifically appropriate
classification for TiO2, and volatile organic compounds
in China. Meanwhile, Chemical Watch’s Business Guide
to Safer Chemicals (third edition), featured AkzoNobel’s
Priority Substance Program in an entry entitled “Program
drives safer products”.
Health
As well as ensuring a safe working environment, healthy
working conditions and managing illness-related
absenteeism, AkzoNobel also fosters employee health
and well-being as part of the company health strategy and
occupational health program. Examples include industrial
hygiene programs at site level and the promotion and use
of our health risk appraisal tool, the Wellness Checkpoint.
The online Wellness Checkpoint questionnaire is used
by an increasing number of employees and their families.
By the end of 2017, more than 18,200 people had
Employee health
Occupational illness rate
2014
0.24
2015
0.14
2016
0.06
2017
0.04
Wellness Checkpoint use
>15,000
>16,200
>17,400
>18,200
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.
joined the program since its launch in 2008. During 2017,
a further 5% of employees joined.
Security
Security at AkzoNobel is focused on securing people,
information, assets and critical business processes against
willful security risks on-site and while traveling. The level
of standardization of procedures, processes and training
for personnel dealing with security at all of our facilities will
continue to increase.
A central security committee with functional
representatives coordinates the main pillars of security:
personnel security, facilities, Information Management
(IM) security, travel security and intellectual property. The
readiness of our security processes is assured via internal
assessments, internal audits, and security drills. In 2017,
the definitions of security incidents were improved and
communicated throughout the organization. In 2017, 69
security incidents were reported globally, which is the
same frequency as 2016. Theft and vandalism represent
the highest remaining event sub-types (similar to
normal society).
HSE&S management
AkzoNobel has a leading HSE&S management system
driving continuous improvement through operational
excellence in all aspects of HSE&S management,
including procedures, training, self-assessments, annual
improvement planning and independent internal audit, as
well as promoting learning across the organziation.
Our common processes require each site and business
unit to develop their own safety improvement plan
annually. Sites that are lagging in performance receive
additional support from the central HSE&S organization.
10
Note 10: Human rights
As a major global manufacturer, AkzoNobel can potentially
impact the lives of millions of people directly or indirectly.
We therefore aim to make a positive impact through our
products and programs.
We are committed to respecting human rights in our
operations and value chains and expect the same from our
business partners, supporting them where needed.
Governance
Our commitment is led from the top. The Executive
Committee is responsible for ensuring that the company
operates in line with our core principles of safety, integrity
and sustainability. Since 2016, a cross-functional Human
Rights Committee (reporting to the Executive Committee)
has been in place, with responsibility for implementing
and maintaining the company’s human rights framework.
The Compliance function oversees day-to-day human
rights compliance.
Initial salient issues
During 2017, we studied possible impacts on the human
rights of people across our value chain, building on the
salient issues initially identified in 2016 (health and safety;
working conditions; discrimination and harassment;
under-age labor).
To obtain stakeholder input, the following actions have
been taken:
• Stakeholders: We validated and strengthened our
human rights program through meetings with external
and internal stakeholders (other than shareholders),
including:
– Meetings with NGOs, human rights experts,
sustainable investors, peer companies, government
bodies and other organizations to learn from their
perspectives, knowledge and experiences
AkzoNobel Report 2017 | Sustainability statements
185
– Human rights expert meeting, which was attended
by almost 20 experts from the academic world, trade
unions, government, industry associations, investors,
NGOs and peer companies
– Numerous randomly selected employees from
different roles, seniority levels, regions, businesses and
departments were asked to share their views on what
they view as potential impacts on human rights by
AkzoNobel, or by others across our value chain
– Two human rights workshops were held with
colleagues in China and India to identify potential
impacts on human rights at regional level
• Supply chains
We conducted due diligence research into several raw
material supply chains that are considered high risk in
terms of impacting human rights, particularly with regard
to health and safety, working conditions and under-age
labor. The current raw materials in scope are barite,
cobalt dryers, copper, cotton linters, mica pigments,
palm oil, talc and tin. For example, we are engaging
with our first-tier suppliers of pearlescent pigments
that contain mica to partner on mapping the supply
chain back to the mine of origin, and to make sure that
sufficient due diligence is done on potential human
rights abuses in the supply chain
• Sanitary working conditions
We have included a sanitary review in our HSE&S audits
process using the WASH pledge questionnaire.
In total, 37 locations have been assessed, of which 90%
scored satisfactory, with no residual high risks to the
health and safety and sanitary working conditions of our
employees
• Working hours
We have identified opportunities for improvement
on overtime management in Germany and Brazil, where
local teams have worked on the assessment and
mitigation of overtime issues. Overtime incidents have
decreased by 50% in Germany, and by 60% in Brazil
• Discrimination and harassment
An extensive analysis (using internal SpeakUp!
and Wellness Checkpoint data) was carried out on
186 Sustainability statements | AkzoNobel Report 2017
discrimination and harassment to identify the
potential size of the issue, trends and root causes.
New company rules on discrimination and harassment
and bite-size trainings have been introduced to create
further awareness
Salient issues - review
Based on the information and insights gathered in 2017,
the Human Rights Committee re-evaluated the salient
issues which were initially identified. Potential human rights
impacts were prioritized by their severity and likelihood.
Our salient issues were adjusted as reflected below, with
the following actions:
• Health and safety in our value chain and connected
communities:
– Business partners: We expect from our business
partners the same level of care for the health and
safety of their employees working for us. We will
continue the study into our high risk raw material
supply chains and continue to improve our supplier
assessment and evaluation framework
– Sale of products: Because of the nature of our
products, we acknowledge there is an inherent risk
of impacting the human rights of the end-users of
our products. In 2018, we will continue with our
proactive approach to the review and management of
hazardous substances in our products (see Note 9)
– Communities: In 2018, we will conduct a study into
the impact we have on communities surrounding
our locations
• Working conditions for employees and our business
partners:
– Business partners: We will continue to assess and
monitor working conditions at our business partners
using our supplier assessment and evaluation
framework and the new business partner compliance
framework
– Own operations: In 2018, the focus of due diligence
actions will be on decent working hours and
living wages
• Discrimination and harassment in our operations:
– We will continue with the implementation of the
mitigating actions (rules, training, coaching) and
measure effectiveness (develop track mechanism)
• Modern slavery in our supply chain:
– We will continue due diligence on high risk raw
material supply chains
Grievance mechanism
We promote a feedback culture through communication
and training. An open atmosphere helps to 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. The results are reported annually
(see Compliance and integrity management).
For full details and progress information
on our human rights framework, please visit:
www.akzonobel.com/humanrights
187AkzoNobel Report 2017 | Sustainability statementsWith 60% of our products connected to infrastructure, transportation and living, AkzoNobel is a key player in the process of ongoing urban transformation. During 2017, we carried out 332 (2016: 307) social projects with a total budget spend of about €3 million (2016: €4 million). In total, 4,821 (2016: 6,480) AkzoNobel volunteers supported the projects with 33,873 (2016: 44,498) volunteer hours. Our products also provide a meaningful contribution to society – we supplied 148,237 (2016: 173,334) liters of paint for our social projects during the year. We could not have done this alone, so we set up strategic partnerships at a cost of around €1.5 million to help amplify our efforts. Let’s ColourOur global “Let’s Colour” program is an active expression of our belief in the power of paint to improve people’s lives. During 2017, we launched two new NGO partnerships. AkzoNobel and SOS Children’s Villages joined forces to use education and renovation to drive a positive impact on youth unemployment. The partnership aims to reach the young people of SOS Children’s Villages with our “Let’s Colour” program and professional training through the company’s painter academies around the world. The partnership kicked off with four countries in 2017 (Brazil, Indonesia, Nigeria and South Africa) and will expand to include six new countries in 2018.Meanwhile, people living in more than 23 countries around the world have benefited from the partnership between AkzoNobel and global peace movement MasterPeace. This involved painting 141 “Let’s Colour” Walls of Connection, transforming them into bridges that connect people. The walls were painted in 31 cities, in collaboration with 399 artists and 5,259 people involved in the painting process, including 259 AkzoNobel volunteers.In 2017, our employees took part in a total of 185 (2016: 99) “Let’s Colour” projects.Community RePaintEvery year, millions of liters of perfectly good paint are thrown away. The average household has 17 tins of paint sitting in garages or sheds, whereas potentially up to 65% of it could be good enough for reuse. Our Community RePaint initiative works across the Netherlands, Belgium and the UK, collecting leftover reusable paint and re-distributing it to communities, charities and people in need. Dulux AcademyEmployability is recognized as being a main driver for strong communities. This is something we are addressing in the UK, where there are massive skills shortages in the housing industry. Launched in 2016 and based at our site in Slough, the Dulux Academy is helping to address this shortage by upskilling decorators and training those new to the industry. Since opening, more than 3,000 individuals have been trained, which means the Dulux Academy is on track to train 10,000 decorators and apprentices by 2020. Building on this success, in September we opened a second Dulux Academy in the UK, based at our new paint plant in Ashington. 201720162015201416.016.817.115.022,9002,5312,6362,38520,00016,40013,5002,260Cumulative Community Program involvementCumulative data, since 2005 Projects (number) Support (€ million) Volunteers (number)Community Program Since it started in 2005, AkzoNobel’s Community Program has enabled thousands of employees around the world to contribute to society in a meaningful way. It encourages them to give hands-on support to sustainable projects, for which the program provides financial assistance. Note 11: Programs11 Managing sustainability
Monitoring progress
We use key indicators to track our progress in delivering
on the sustainable business imperatives of our
sustainability agenda, with a baseline year of 2012:
• Sustainable growth is measured through the Resource
Efficiency Index
• One of the measures for resource productivity has been
our cradle-to-grave carbon footprint per ton of sales
• We measure the eco-premium segment of our
sustainable product portfolios – the products and
solutions that meet functional needs and also provide
better environmental or social benefits for customers
than market alternatives
Management accountability
The Executive Committee has responsibility for
incorporating the sustainability agenda in the company
strategy and monitoring the performance of each business
through the Operational Control Cycle.
The Sustainability Council advises the Executive
Committee on new developments, performance and the
integration of sustainability into management processes.
The Council, which meets quarterly, is chaired by the
CEO and includes the COO, Chief Supply Chain Officer,
Chief Human Resources Officer and representative
Business and Functional Directors. The Corporate Director
of Sustainability reports directly to the CEO.
Reporting principles
Our reporting principles are based on the Global
Reporting Initiative (GRI) G4 Sustainability Reporting
Guidelines, supported by internally developed guidelines.
Our complete reporting principles can be found on
our website, in addition to an index of the GRI G4
188 Sustainability statements | AkzoNobel Report 2017
Materiality matrix
Economic
Environmental
Social
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
1A
1G 1J
1B 1H
i
m
u
d
e
M
1C
1D 1K
1E 1F
w
o
L
1I 1L
1M 1N
1
Low
Medium
High
Importance for AkzoNobel
indicators and a summary of our UN Global Compact
communication of progress.
Creating shared value across
three dimensions
Our shared value approach is reflected in the three-
dimensional profit and loss analysis (3D P&L), measuring
value in economic, environmental and social terms. Our
longer term strategic investment decision-making can
benefit from this analysis. We have used scientific, publicly
available methodologies for our assessment.
Topic
Section of the report
A Material scarcity
Risk management
B Value selling
Value selling
C Fair taxes
D Integrity
Financial information Note 7: Income tax
Compliance and integrity management
E Economic performance
Strategic performance
F Supplier sustainability
Note 5: Supplier sustainability
G Climate strategy
Note 6: Carbon positive
H Resource productivity
Resource productivity
I Biodiversity
J Safety
Corporate website
Note 9: Safety
K Human rights
Note 10: Human rights
L Community involvement
Note 11: Programs
M Employee value
Note 8: Employees
N Stakeholder engagement Managing sustainability
In 2017, we updated the 3D P&L assessment (see table
at the top of next page). We continue to work with
others to further develop methodologies and agree on
common approaches.
Impact valuation
We have worked with EY to analyze “impact pathways”
from what a program or product does to its desired social
goals, starting with the impact driver (see Value creation
in the Introduction to this section). In the Santa Marta
example (shown on the next page), that first step
on the pathway is professional skills training or renovation
and painting activities. For Dulux Forest Breath (also
shown opposite), it is the reduction of indoor exposure
to formaldehyde.
Economic, environmental and social value in € billion (estimated)
Economic capital
Environmental capital
Social capital
9
5
8
-10
-1
-7
2
1
2
Upstream
Own operations
Downstream
Upstream
Own operations
Downstream
Upstream
Own operations
Downstream
Theory of change
Input
Activity
Output
Outcome/impact
Santa Marta project
25k liters of paint
>1,800 volunteers
53 “Let’s Colour”
task forces activated
400 houses painted
50 painters trained
Forest Breath project
Resources
Time
Money
Use of absorbing
functionality components
in Dulux Forest Breath to
create ability to absorb
formaldehyde to reduce
exposure to humans
Millions of liters of paint
sold to Chinese market in
2017 with ~0,06kg active
substance (absorbing
functionality components)
per room painted
68% of inhabitants claimed im-
proved self-esteem/self-confidence
Well-being effects due to
(employment) training
The overall social well-being impact
is estimated to be in the range
of €1-10 million
Reduced exposure to formaldehyde
due to active substance for ~6 years
Reduction of negative health
impacts due to less formaldehyde
inhalation. Dulux Forest Breath leads
to positive monetized health impact
of ~€5 million based on paint
sold in 2017 in China
The second step on the impact pathway is the societal
outcome, including the direct effects of the business
activities. For “Let’s Colour”, societal outcomes are the
improvement of skills and self-esteem, and increased (self)
employability opportunities. For Dulux Forest Breath, it’s
the availability of the active substance to clean the
air in painted rooms and so reduce the exposure of
residents to formaldehyde and other organic pollutants.
The outcomes then result in the third step on the
pathway – the societal impacts – which are changes in
society resulting from the activities. For “Let’s Colour”,
this could be changes in the well-being of individuals and
communities. For Dulux Forest Breath, it’s the reduction
of formaldehyde inhalation. Using macro-economic
data, we were able to quantify in monetary terms the
positive impact that our products and programs brought
to society in 2017.
Stakeholder engagement
We engage proactively with our stakeholders in order to
learn from them and to collaborate. Our key stakeholders
are employees (Note 8), suppliers (Note 5), customers
(Note 3), communities (Note 11), governments and NGOs,
industry associations and investors.
Governments and NGOs
We have been a signatory of the UN Global Compact
since 2004 and a partner of the Caring for Climate
platform. 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. We are a member of organizations such
as the World Business Council for Sustainable
Development (WBCSD), Forum for the Future and the
Dutch Sustainable Growth Coalition.
AkzoNobel Report 2017 | Sustainability statements
189
More than a century
after Alfred Nobel’s
death, his legacy of
invention continues to
inspire. In addition to
his own laboratory in
Sweden, he also used
one in San Remo,
Italy (pictured).
AkzoNobel has come
a long way since
our founding father
diligently worked
in this laboratory, but
we are still driven
by innovation
and great ideas.
The UN Sustainable Development
Goals (SDGs)
We contribute to the global development agenda by
focusing on those SDGs where we can have the biggest
impact, in line with the SDG Compass guide for business.
Our main focus is on SDGs 11 and 17, as well as SDGs 3,
7, 9, 12 and 13.
Within the WBCSD, we are co-leading the development of
a road map for the chemicals sector to contribute to the
realization of the SDGs.
Investors
Following 2017 reviews, AkzoNobel is included in a
number of leading sustainability indices: DJSI World,
FTSE4Good, MSCI, ACWI ESG Leaders Index and Global
Sustainability and SRI Index, Vigeo ESG indices and the
Ethibel Sustainability Index (ESI) Excellence Global.
We were awarded CDP Climate A- and recognized as a
clear leader in the Chemical sector in CDP investor report.
We retained our Gold rating at EcoVadis, our OEKOM
prime status and we remain an industry leader according
to Sustainalytics.
Supply chain and
operations
l
Products
Programs
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
United Nations Sustainable Development Goals
Assessment of AkzoNobel contribution
l Main l Intermediate l Minor
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
190 Sustainability statements | AkzoNobel Report 2017
AkzoNobel Report 2017 | Sustainability statements
191
Assurance report of the independent auditor
To: Supervisory Board and Board of Management
of Akzo Nobel N.V.
Our conclusion
Based on our review, nothing has come to our attention
that causes us to believe the sustainability information
included in the Report 2017 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, 2017, in accordance with the
applied reporting criteria developed by AkzoNobel
Our opinion
In our opinion, the paragraphs “Monitoring progress” and
“Management accountability” in the section “Managing
sustainability” are prepared, in all material respects, in
accordance with the applied reporting criteria developed
by AkzoNobel.
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 2017.
We have reviewed the sustainability information for the year
ended December 31, 2017, as included in the following
sections in the Report 2017 (hereafter: “the sustainability
information”) of AkzoNobel:
• Compliance and integrity management
• Sustainability statements
Additionally, we have audited the paragraphs “Monitoring
progress” and “Management accountability” in the section
“Managing sustainability”.
The links to external sources or websites in the
sustainability information are not part of the Sustainability
statements audited by us. We do not provide assurance
over information outside of this sustainability information.
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.
The basis for our conclusion and opinion
We conducted our assurance engagement in accordance
with Dutch law, including the Dutch Standard 3810N
“Assurance engagements on corporate social
responsibility reports” (Assurance-opdrachten inzake
maatschappelijke verslagen), a specified Dutch standard
based on the International Standard on Assurance
Engagements 3000: Assurance Engagements other than
Audits or Reviews of Historical Financial Information.
This assurance engagement is aimed at providing a
combination of limited assurance on the sustainability
information and reasonable assurance on the “Monitoring
progress” and “Management accountability” paragraphs in
the “Managing sustainability” section. Our responsibilities
under this standard are further described in the section
“Our responsibilities for the assurance engagement of the
sustainability information” of this assurance report.
We believe the assurance information we have obtained
is sufficient and appropriate to provide a basis for our
conclusion and opinion.
Independence and quality control
We are independent of AkzoNobel in accordance with the
“Code of Ethics for Professional Accountants, a regulation
with respect to independence“ (Verordening inzake
de onafhankelijkheid van accountants bij assurance-
opdrachten - ViO) and other relevant independence
requirements in the Netherlands. Furthermore, we have
complied with the “Code of Ethics for Professional
Accountants, a regulation with respect to rules of
professional conduct” (Verordening gedrags- en beroeps-
regels accountants - VGBA).
We apply the “detailed rules for quality systems” (Nadere
voorschriften kwaliteitssystemen) and accordingly maintain
Reporting criteria
AkzoNobel developed its reporting criteria, as disclosed in
AkzoNobel’s Reporting Principles 2017. The information
in scope of this assurance engagement needs to be read
and understood in conjunction with the reporting criteria
as disclosed in the Reporting Principles 2017. 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 criteria as defined in AkzoNobel’s
Reporting Principles 2017, including the identification of
stakeholders and the definition of material topics. The
choices made by the Board of Management regarding
the scope of the sustainability information and the
reporting policy are summarized in the section “Managing
sustainability”. The Board of Management is responsible
192 Sustainability statements | AkzoNobel Report 2017
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 error.
Our responsibilities for the assurance engagement
of the sustainability information
Our responsibility is to plan and perform an assurance
engagement to allow us to obtain sufficient and
appropriate assurance evidence to provide a basis for our
conclusion and opinion.
Our procedures to support our conclusion are aimed at
obtaining limited assurance. 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 assurance engagement. The assurance
obtained in review engagements aimed at obtaining
limited assurance is therefore significantly lower than the
assurance obtained in assurance engagements aimed at
obtaining reasonable assurance.
The procedures to support our opinion on the “Monitoring
progress” and “Management accountability” paragraphs in
the “Managing sustainability” section of the sustainability
information have been performed with a high, but not
absolute level, of assurance. This means we may not have
detected all material misstatements.
Misstatements may arise due to irregularities, including
fraud or error, and 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 sustainability information. The
materiality affects the nature, timing and extent of our
assurance engagement and the evaluation of the effect of
identified misstatements on our conclusion and opinion.
Procedures performed
We have exercised professional judgement and
maintained professional scepticism throughout the
assurance engagement, in accordance with the Dutch
Standard 3810N, ethical requirements and independence
requirements.
Our main review procedures include, among others:
• Performing an external environment analysis and
obtaining insight into relevant social themes and issues,
relevant laws and regulations and the characteristics of
the organization
• Identifying and assessing the risks of material
misstatement of the sustainability information, whether
due to errors or fraud, designing and performing review
procedures responsive to those risks, and obtaining
review evidence that is sufficient and appropriate to
provide a basis for our conclusion. The risk of not
detecting a material misstatement resulting from fraud
is higher than for one resulting from errors, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control
• Evaluating design/implementation of reporting systems
and processes related to the sustainability information
• Developing an understanding of internal control relevant
to the assurance engagement to design assurance
procedures that are appropriate in the circumstances,
but not for the purpose of expressing a conclusion on
the effectiveness of the company’s internal control
• 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 estimates made by management and
related disclosures in the sustainability information
• Evaluating the overall presentation, structure and
content of the sustainability information, including the
disclosures
• Evaluating whether the sustainability information
represents the underlying transactions and events free
from material misstatement
• Interviewing management (or 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, carrying
out internal control procedures on the data and
consolidating the data in the sustainability information
• Joining internal audit of Health, Safety and Environment
management at production sites in Delfzijl (Netherlands)
• An analytical review of the data and trends submitted for
consolidation at corporate level
• Reviewing internal and external documentation to
determine if 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 2017 not
in scope for this assurance report
• Assessing whether the sustainability information has
been prepared in accordance with the AkzoNobel
sustainability reporting criteria
• Reviewing relevant work of the Internal Audit function
In addition to the above, we performed the following
assurance procedures on the paragraphs “Monitoring
progress” and “Management accountability” in the section
“Managing sustainability” of the sustainability information:
• Corroborating information disclosed in this note through
multiple interviews with selected staff from the company
• Testing operating effectiveness of relevant key controls
related to how AkzoNobel manages its sustainability
agenda
• Corroborating supporting documentation to determine
whether the information in this note is substantiated
adequately, such as management meeting agendas and
minutes and internal management information.
Amsterdam, March 7, 2018
PricewaterhouseCoopers Accountants N.V.
Original has been signed by R. Dekkers RA
AkzoNobel Report 2017 | Sustainability statements
193
Sustainability performance summary*
* Including discontinued operations.
Economic
Area
Product/service
Eco-premium solutions with downstream benefits
VOC in product (reduction from 2009)
Customer delivery efficiency index
Supplier management
Product related1 suppliers signed Business Partner Code of Conduct2
NPR3 suppliers signed Business Partner Code of Conduct
Suppliers on SSV4 program since 2007
Third party online sustainability assessments (TfS)5
Third party on-site sustainability audits (TfS)5
Supplier Sustainability Balanced Scorecard
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/temporary workers
Lost time injury rate employees/temporary workers
Occupational illness rate employees
Total illness absence rate employees
Fatalities contractors (temporary workers plus independent)
Total reportable injury rate temporary workers/contractors
Distribution incidents
Loss of primary containment (Level 1)6
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
2013
2014
2015
2016
2017
Ambition 2020
% of revenue
% reduction
% of spend
% of spend
number
cumulative
cumulative
number
number
0-5 scale
%
%
%
%
€ millions
number
/200,000 hours
/200,000 hours
/1,000,000 hours
%
number
/200,000 hours
number
number
number
%
number
number
number
18
7
92
96
83
392
–
–
–
19
5
93
98
80
432
539
20
–
19
9
94
98
81
455
724
65
2
20
13
96
99
86
1363
1053
166
37
20
n/a
96
97
86
160
1274
262
97
49,600
3.88
47,200
3.97
45,600
4.03
46,000
4.17
45,400
3.95**
16
28
75
–
1.0
0
0.46
0.26
0.14
2.1
0
0.70
48
–
0
62
0
14
56
17
24
68
–
1.0
0
0.36
0.18
0.24
2.1
0
0.57
52
–
0
82
1
15
63
19
25
58
6
1.0
0
0.31
0.15
0.14
2.1
0
0.56
49
–
0
100
0
12
57
19
30
61
4
0.8
0
0.28
0.12
0.06
2.0
0
0.47
43
16
0
337
0
2
57
19
28
74
5
0.3
0
0.20
0.06
0.05
2.1
1
0.29
37
21
1
667
1
3
48
20
–
–
–
–
–
–
–
–
–
>4.20
25
30
70
<5
–
0
0.20
0.04
–
–
0
–
–
–
0
1007
0
–
–
** 2017 engagement data covers August – December and was gathered for the first time through regular Pulse surveys instead of a simple annual survey.
194 Sustainability statements | AkzoNobel Report 2017
Environmental
Area
Value chain/Product carbon footprint
Total CO2(e) emissions (cradle-to-grave)8
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
2013
2014
2015
2016
2017
Ambition 2020
26.5
26.9
24.6
23.7
24.6
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
7
3.4
45
11
31
98
5.5
1.5
84
1.9
106
2.6
0.15
1.5
0.08
4.1
0.23
219
12.4
1.3
0.07
94
137
7.8
79
4.5
53
3.0
29
1.6
1.0
0.06
–
25–30
<4.6
45
–
40 (2017)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Product related = Raw materials and packaging.
2 Business Partner Code of Conduct.
3 Non-product related.
4 Supplier support visits supplier number rebaselined in 2016.
5 Includes TfS shared assessments/audits, cumulative.
6 Definition change 2016.
7 Phase 2 started in 2016.
8 Reported from 2012. Includes impact from VOC emissions.
AkzoNobel Report 2017 | Sustainability statements
195
Index
AkzoNobel at a glance
Audit Committee
Auditor’s report
cover flap
Employees
73, 88
Energy
155
Executive Committee
Automotive and Specialty Coatings
50
Financial calendar
182
Pulp and Performance Chemicals
29, 175, 177
Raw materials
62
Regional statistics
197
Remuneration
62, 83
Financial guidance
4, 24
Remuneration Committee
Board of Management
Borrowings
Business Area statistics
Business performance
140
164
Financial instruments
Financial summary
36
Functional Chemicals
Carbon footprint/Cradle-to-grave carbon footprint
25, 173
Glossary
Carbon pricing
173
How we create value
6, 26, 42, 48, 54
Risk management
Cash, cash flow and net debt
27, 140, 141
Human rights
153
162
Report of the Supervisory Board
Resource Efficiency Index
56
Return on investment
198
Return on sales
185
Safety
56
51
Segment information
Shareholders’ equity
10, 28
Specialty Chemicals
127
Stakeholder engagement
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
Commitments
Continuous improvement
Core principles and values
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
8
93
171
187
149
107
108
109
106
106
142
172
92
81
42
Industrial Chemicals
Industrial and Powder Coatings
Innovation
Intangible assets
Internal controls
Invested capital
“Let’s Colour”
Net debt
Nomination Committee
Operating income
Outlook
Pensions
Performance Coatings
28, 103
Product stewardship
28, 115, 126
Profit allocation
Eco-premium solutions
25, 170
Property, plant and equipment
Emissions
174, 177
Provisions
196
Integrated materiality analysis
30
Strategy
92
Integrated supply chain
9, 21, 22, 186
Supervisory Board
Marine and Protective Coatings
50
Sustainability statements
64, 73, 91
Surface Chemistry
42
Supplier management
187
Sustainable Development Goals (SDGs)
168, 190
152
Sustainability targets
75
Talent management
27, 122
Three-dimensional profit and loss (3D P&L)
28
Waste
114, 133
Water
48
184
154
128
138
57
29, 175
165
85, 96, 142
74
68
25, 171
4, 24
4, 24
31
29, 183
110
109, 132, 150, 152
23, 52
189
20
65, 86
57
172
166
5
70, 182
188
29, 177
178
Financial calendar
2018
April 24
April 26
April 30
Report for Q1 2018
Annual General
Meeting of
shareholders
Ex-dividend date of
2017 final dividend
May 2
May 3 – 17
May 18
May 25
Record date of 2017
final dividend
Election period cash
or stock dividend
Determination of
exchange ratio
Payment date of cash
dividend and delivery
of new shares
July 18
October 17
Report for Q2 2018
Report for Q3 2018
2019
February 13
Report for the
full-year 2018 and
the fourth quarter
197
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 identified items.
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&S
Health, safety, environment and security.
Identified items
Identified items 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.
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.
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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.
Lost time injury rate (LTIR)
The number of lost time injuries per 200,000 hours worked.
Full definitions are in the Sustainability statements section.
Mature markets
Mature markets are comprised of Western Europe, the US,
Canada, Japan and Oceania.
Natural resource use
We do not report specific natural resource use, except
water. We do report our use of energy and raw materials.
Net debt
Defined as long-term borrowings plus short-term
borrowings less cash and cash equivalents.
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.
OPI margin
Operating income as a percentage of revenue.
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.
RD&I
Research, Development and Innovation.
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).
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.
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.
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.
ROS (return on sales)
This is a key profitability measure and is calculated as EBIT
as a percentage of revenue.
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% 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.
Total reportable rate of injuries (TRR)
The number of injuries per 200,000 hours worked. Full
definitions are in the Sustainability statements.
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 shareholders.
The relative TSR position reflects the market perception of
overall performance relative to a reference group.
VOC
Volatile organic compounds.
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Color of the Year 2017
Color of the Year 2016
Integrated Report 2017
AkzoNobel’s annual financial report has been combined with
the sustainability report into one Report 2017. The Report
2017 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 2017, reference is made to brands and
trademarks owned by, or licensed to, AkzoNobel.
Unauthorized use of these is strictly prohibited.
Disclaimer
In this Report 2017, 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 2017 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 forecast 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, as well as
the separation of Specialty Chemicals. Stated competitive
positions are based on management estimates, supported
by information provided by specialized external agencies.
We welcome feedback on our Report
2017. 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
Marije Kuipers
Joris Lugtigheid
Printing
Drukkerij Tesink B.V.
Online report
nexxar gmbh
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Color of the Year 2017
Color of the Year 2016
HEART WOOD
Color of the Year 2018
www.akzonobel.com
AkzoNobel creates everyday essentials to make
people’s lives more liveable and inspiring. As a
leading global paints and coatings company,
we supply essential ingredients, essential
protection and essential color to industries and
consumers worldwide. Backed by a pioneering
heritage, our innovative products and sustain-
able technologies are designed to meet the
growing demands of our fast-changing planet,
while making life easier.
Headquartered in Amsterdam, the Netherlands,
we are present around the globe, while our
portfolio includes well-known brands such
as Dulux, Sikkens, International and Interpon.
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.
© 2018 Akzo Nobel N.V. All rights reserved.
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