AkzoNobel Report 20182018Report 2018 FACTS AND FIGURESCelebrated the 50th birthday of our Alumigrip aerospace coatings brandDid you know our aerospace coatings for aircraft exteriors can withstand temperatures ranging from -50°C to +50°C?Completed construction of a €12 mln innovation hub in Felling, UKDid you know that in our wood coatings labs, the specimens we test are more rigorously climate controlled than the Mona Lisa in the Louvre?Opened our new powder coatings plant in China – one of the largest facilities of its kind in the world Did you know our Interpon powder coatings hold the screws in place on NASA Mars rovers?Our Report 2018 is also available online. To read the digital version (and view all the case study videos) please visit:https://report.akzonobel.com/201817 sites now using 100% renewable electricity Did you know that metal roofs coated with our COOL CHEMISTRY solar reflective technology can help reduce energy costs by up to 23%?Value chain carbon emissions dropped 5% Did you know our Intersleek products have helped ship owners and operators save over 10 mln tons of fuel and 32 mln tons of CO2? €9.3 bln revenue€798 mln adjusted operating income€26.19 earnings per share 150+ countries34,500 employeesOther regions 5%North America 12%Mature Europe1 34%1 Mature Europe Western Europe, including Austria. 2 Emerging Europe Central and Eastern Europe (excluding Austria), Baltic States and Turkey.Emerging Europe2 9%Asia Pacific31%South America 9%2018 revenue by destination Report
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2FEATURED CONTENTAkzoNobel Report 2018Our goal is clear – to be recognized as the reference in our industryCEO STATEMENT6GOING WILD WITH OUR AEROSPACE COATINGSTAKING INNOVATION TO ANOTHER DIMENSIONCHANGING LIVES THROUGH COLOR121410’‘ 3CONTENTS2018 facts and figures Cover flapHow we performed in 2018 4CEO statement 6Strategic performance 16How we created value in 2018 22Business performance 26Leadership 40Governance and compliance 58Financial information 88Sustainability statements 152Index 182Financial calendar 183AkzoNobel Report 2018FAMOUS ABBEY PUTS FAITH IN OUR COATINGS38166A RECORD-BREAKING JOURNEY TO BE PROUD OF 2018 PROGRESSTARGET:10.6% 16.6% 22% 15%>25%20%Return on sales (ROS)1 Achieve return on sales (adjusted operating income/revenue) of 15% by 2020Return on investment (ROI)2 Achieve return on investment (adjusted operating income/average invested capital) of more than 25% by 2020Eco-premium solutions Maintain 20% of revenue from eco-premium solutions with customer benefits by 20204AkzoNobel Report 2018HOW WE PERFORMED IN 20181 Excluding unallocated corporate center costs; assumes no significant market disruption.2 Excluding unallocated corporate center costs and invested capital; assumes no significant market disruption. RETURN ON SALES (ROS)1
RETURN ON INVESTMENT (ROI)2
ECO-PREMIUM SOLUTIONS
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 adjusted operating
income as percentage of revenue.
• Revenue 4% lower, although up 1% in constant
currencies, with price/mix partly offset by lower volumes
• Adjusted operating income impacted by adverse
currencies, higher raw material costs and lower
volumes, not yet fully offset by positive price/mix and
cost savings
• Savings from continuous improvement of €165 million
• Creating a fit-for-purpose organization fully delivered on
the €110 million planned for 2018
• Next step taken in our transformation to deliver a further
€200 million cost savings by 2020
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 adjusted operating income of the
last 12 months as percentage of average invested capital.
• Adjusted operating income impacted by adverse
currencies, higher raw material costs and lower
volumes, not yet fully offset by positive price/mix and
cost savings
We use eco-premium solutions to track our performance
in creating shared value for our business, our customers
and society. We aim to maintain at least 20% of revenue
from eco-premium solutions by constantly innovating,
based on insights into evolving environmental concerns
and societal needs. Eco-premium solutions need
to exceed the reference in each market in terms of
sustainability performance. It is therefore a moving target,
as the reference is constantly improving.
• In 2018, total share of revenue from eco-premium
• Average invested capital decreased 2% to €6.3 billion
solutions was 22%
• Fast growth of low VOC products in China and North
Asia contributed to the improved performance
• Around another 20% of revenue was from
eco-performers, which have clear sustainability benefits
and are at least as good as mainstream alternatives,
putting the total revenue of solutions with sustainable
benefits at approximately 42%
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.
Target 15% by 2020
Return on sales development
Adjusted operating income as % of revenue
Target
Target >25% by 2020
Target 20%
Return on investment development
Adjusted operating income/average invested capital in %
Eco-premium solutions with customer benefits
in % of revenue
Target
Target
10.6
10.6
18.0
16.6
15.0
>25.0
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AkzoNobel Report 2018
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CEO STATEMENT
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AkzoNobel Report 2018
For everyone at
AkzoNobel, 2018 proved
to be a landmark year
in our long and proud
history. Successfully
completing the sale of
the Specialty Chemicals
business was a significant
milestone in our ever-
evolving journey to
become a focused paints
and coatings company.
It was great to see all
my colleagues around
the world rise to the
occasion as we continued
to build the company
into an industry leader,
both in terms of size and
performance.
watch
video
This determination to be the best is
nothing new to AkzoNobel – our passion
for paint has been driving our progress
since 1792. We already had the global
scale, the leading market positions and
the world class brands. In 2018, we took
our journey to another level. We stepped
on the accelerator and channeled all that
experience and expertise into getting
us to where we rightfully belong – being
recognized as the reference in the paints
and coatings industry.
The successful separation of Specialty
Chemicals was a major first step towards
achieving that vision. I’m extremely proud
of how everyone pulled together to
complete such a complex transaction on
time and in full, to the benefit of both sides
and all our stakeholders. We promised
we would return the vast majority of the
proceeds to our shareholders and that’s
exactly what we’re doing. Our progress as
a focused paints and coatings company
A business trip to the US in October provided plenty of
opportunities to meet colleagues and customers.
“We continued to build the company
into an industry leader, both
in terms of size and performance”
is being driven by a clear Winning
together: 15 by 20 strategy to step up
our profitability and deliver 15% return on
sales (excluding unallocated corporate
center costs) by 2020.
Early on in the year, we established laser
sharp alignment within the Executive
Committee and our Supervisory Board
on the strategic mandates of our various
business segments and sub-segments.
These clear mandates are now the
basis for all our decisions on resource
allocation, as well as mergers and
acquisitions. Given the significant raw
material cost headwinds our industry has
been experiencing since early 2017, we
have made a disciplined shift to focus on
value over volume, which powered our
performance versus our peers during the
second part of the year.
Our Winning together: 15 by 20 strategy
also means we need to change a lot
internally to move from a collection of
businesses operating in parallel, to one
integrated company. Virtually every
process is being redesigned to deliver
a more standard, simplified and precise
approach. We’re significantly resetting our
spending behavior and have carried out
the first phase of our transformation into
a fit-for-purpose organization, while also
announcing the next step, which will be
implemented during 2019 and 2020.
What didn’t change was our core
principles and values. They remain
as rock solid as ever and embedded
throughout the company. Safety, integrity
and sustainability are the foundation
upon which our success continues to be
built. As we showed again in 2018, we’re
best-in-class for safety in our industry,
having repeated last year’s record safety
performance. Meanwhile, we achieved
our 13th consecutive top ten ranking in the
2018 Dow Jones Sustainability Index. Our
continued commitment to sustainability
and the recognition it brings is something
our people are deservedly proud of. It
comes from a deep sense of care for
the communities and stakeholders we
engage and work with. It’s becoming
an increasingly essential part of why
customers choose our offering over that
of our competitors.
Another source of great pride in 2018
was our ability to expand our business
by completing some excellent bolt-on
acquisitions, as well as investing in our
own production assets in order to grow
and improve our market positions. The
deals we finalized helped to accelerate
our momentum towards building
something very special. We acquired
Fabryo to become the number one
decorative paints company in Romania,
and purchased Xylazel in Spain. We also
acquired Colourland Paints in Malaysia to
further build our strong decorative paints
position in South East Asia. Towards the
end of the year, we acquired the minority
interest share to obtain full ownership of
the AkzoNobel Swire Paints joint venture
in China. As a result, we now have
greater control over our future growth and
direction in the Chinese market. Also in
China, we’re proud to have opened our
new powder coatings plant in Changzhou,
which is one of the biggest facilities of its
kind in the world.
In terms of our actual 2018 performance,
despite unprecedented raw material
cost inflation, our fit-for-purpose
transformation – as well as our value over
volume approach – allowed for a strong
ROS% comeback in the second half of
the year. Q4 revenue increased 4% in
constant currencies and business ROS%
(excluding unallocated corporate center
AkzoNobel Report 2018
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A trip to France in October included visits to see our new
colleagues at Disatech in Limoges and the Powder Coatings
team in Dourdan.
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AkzoNobel Report 2018
AkzoNobel Report 2018
costs) increased to 9%. Overall, 2018
revenue was up 1% in constant currencies
as we introduced structured pricing
initiatives and demonstrated excellent cost
discipline. This enabled us to turn the tide
and start pushing up our profitability.
All this progress and rebuilding work
wasn’t without its challenges – the difficult
operating environment made sure of
that. However, despite the unfavorable
business climate, we came out stronger
than most of our competitors. We had
to be bold and took decisive action
on pricing and cost containment while
being more agile and responsive to the
market. We also focused on making
ourselves more efficient: day to day
through continuous improvement and by
structurally changing the way we operate
(for example in our supply chain and
various functions). We stepped up to the
plate and dealt with the challenges as and
when they arose, which helped to restore
investor confidence.
Our various activities prove that our
Winning together: 15 by 20 strategy is
about much more than simply achieving
a profitability target. It’s a mantra for
creating the right mindset and processes
to transform AkzoNobel into a long-term
global leader for way beyond 2020. It
has kick-started a revolution internally as
we propel ourselves to where we want
to be in the future. Our goal is clear – to
be recognized as the reference in our
industry. Many of our businesses are
already there, but 2018 saw us take a big
step towards making it the benchmark for
everything we do.
A Community Program project in Amsterdam was the
perfect opportunity to get to grips with our Sikkens Alpha
Rezisto paint.
Our long-term ambition is further
evidenced in the way we are embracing
open innovation. New ways of doing
things often require new ways of thinking.
So we were incredibly excited to launch
our Paint the Future startup challenge
towards the end of the year. Even though
we’ve been successfully innovating for
centuries, our industries and applications
are advancing so fast we can’t just keep
doing things all by ourselves. As an
industry leader, we need to be part of a
broad and open network of innovators
to deliver new and exciting solutions to
our customers even faster. With Paint the
Future, we’re looking to combine our own
global scale, know-how and technology
expertise with the ingenious solutions of a
whole universe of startups and scale-ups
(see page 14).
In many ways, 2018 was all about sharing
– and showing – our passion for paint to
all stakeholders. Demonstrating how our
proud people and precise processes help
to deliver powerful performance. There
were many examples of this during the
year – from the dazzling animal designs
applied to Embraer’s new jets using our
aerospace coatings (see page 12), to
the stunning transformation of an entire
neighborhood in Turkey through our global
“Let’s Colour” program (see page 10).
We’re proud to have once again brought
our expertise to so many exciting projects
across the globe.
At the heart of all we’ve achieved so far
on our Winning together: 15 by 20 journey
is a dedicated and diverse team of great
colleagues across the globe. There was
a mountain of work to do in 2018, and as
with any transformation, it brought with it
a series of challenges and wide-ranging
emotions. I speak for the entire leadership
team when I say we deeply respect and
appreciate how everyone rolled up their
sleeves and focused on getting the job
done. Our people deserve all the thanks
and credit. As for me, the Executive
Committee and the Supervisory Board, it
continues to be a true privilege to be on
this journey with them.
Thierry Vanlancker, CEO and Chairman
of the Board of Management and Executive
Committee
It was a proud moment when we welcomed record-breaking team AkzoNobel over the finish line in The Hague, to take an overall
fourth place in the Volvo Ocean Race. The event was a fantastic showcase for our products and expertise.
TRANSFORMATION GATHERING MOMENTUM
AkzoNobel has a clear strategic focus
to become the reference in paints and
coatings. To help us achieve this – and
outpace the competition – we aim to
reach 15% return on sales1 by 2020.
We made excellent progress in 2018 and
continue to accelerate our plans to get
the company to where it belongs – at the
forefront of our industry.
We realize that in order to improve our
performance, we need to do things
differently. So we’ve been changing our
organization accordingly. The biggest
change, of course, was separating our
Specialty Chemicals business to become
a focused paints and coatings company.
This triggered the need to put a new
organization structure in place – powered
by a high performance culture. As part of
this process, we conducted a strategic
review across all our regions and
business segments. This has allowed us
to more deliberately allocate resources in
order to profitably grow our business and
improve performance.
And now that we’re a focused paints
and coatings company, everybody in the
organization is aligned towards the same
ambition. This gives us a lot more clarity
in terms of our markets and customers
and the synergies we can get from
working together across our businesses.
Most of the transformational work is
being overseen by our Transformation
Office. We have assigned leaders and
resources to ensure our Winning
together: 15 by 20 journey goes
smoothly and we deliver on our plans.
Particular attention is being paid to
putting the right systems and processes
in place, such as Integrated Business
Planning. Several work streams have
been set up with a focus on key
initiatives such as margin management,
sales force effectiveness, ALPS
continuous improvement, innovation
excellence and developing a single
ERP system. The positive impact of this
approach became increasingly evident
during the year – we’ve realized major
reductions in cost and complexity –
and it will continue to drive our progress
with regard to realizing our 15 by 20
ambition.
Our success depends on creating
a fit-for-purpose and sustainable
organization. So we’re fully focused on
continuously improving our performance
in both the short and long term.
We made strong progress in 2018.
Now we’re ready to take the next step
in our transformation. It’s all geared
towards building a globally leading
paints and coatings company which will
make us the clear reference for all our
stakeholders – customers, employees,
shareholders and the world we live in.
1 Excluding unallocated corporate center costs;
assumes no significant market disruption.
AkzoNobel Report 2018
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“It makes us really proud when we see the
difference our products can make”
When you tower high above Turkey’s busiest cruise port and are the first thing seen by thousands of visiting tourists, it’s important that you look good. But for many residents in the town of Kuşadası on Turkey’s Aegean coast, what’s more important is the pleasure and pride they get from living in their homes and communities.So when we partnered with the local Kuşadası municipality and artists from Venuart via our “Let’s Colour” program, we knew it was our job to help transform lives and create happier homes – using our passion for paint to make a difference. The project focused on brightening up the hilltop neighborhood of Tepe, where more than 400 living spaces – and the lives of 2,000 residents – have been revitalized. That’s what our “Let’s Colour” program is all about. It uses the power of color to energize people and communities. More than 81 million people around the world can already testify to the benefits it brings.“We love making living spaces more social, pleasurable and habitable, while also inspiring and motivating people through the use of color,” says AkzoNobel’s Chief Operating Officer, Ruud Joosten. “It makes us really proud when we see the difference our products can make.”Working together with the local community, the project involved using more than 50,000 liters of our Marshall paint brand and is the biggest “Let’s Colour” activity to be staged in Turkey so far. “This project will make a great contribution to our community,” adds Kuşadası Mayor, Özer Kayalı. “Tepe is the first place seen by tourists when they arrive at Kuşadası port. It makes for a striking panorama, so it’s a crucial location for us. I would like to extend our gratitude to Marshall and Venuart for bringing the “Let’s Colour” project to our town.”The transformation of Tepe is Marshall’s seventh project under the “Let’s Colour” banner since the program first became active in Turkey in 2010. It will bring the total amount of paint used for the company’s “Let’s Colour” projects globally to well over 1.3 million liters. Nearly 2,300 “Let’s Colour” projects have been completed around the world to date, involving more than 12,000 volunteers.More than 50,000 liters of our Marshall paint brand was used to transform the hilltop neighborhood of Tepe, helping to revitalize the lives of 2,000 residents.CHANGING LIVES THROUGH COLORAkzoNobel Report 2018watch video11 GOING WILD WITH OUR AEROSPACE COATINGS
Airline art reached new
heights after we teamed
up with aircraft maker
Embraer to paint four
of its recently launched
E190-E2 commercial
jets. You can’t exactly
hang them on your
wall, but they do qualify
as masterpieces of
creative design.
The eye-catching artworks – displaying
an eagle, a tiger, a shark and a snow
leopard – were painted with products
from our Alumigrip and Aerodur ranges.
They showcase the amazing artistry
of Clodoaldo Quintana, an in-house
technician at Embraer who has been
described as having “the artistic talent of
a modern day Renoir.” It took him 20 days
to finish the eagle, while for the shark and
tiger it was around ten days each.
All the designs were applied at Embraer’s
facility in São José dos Campos, Brazil,
which houses a dedicated AkzoNobel
color center. It’s manned by a small team
who work with Embraer to offer local
technical support, color development
and paint mixing. Having this available
on site helps to reduce the cycle time
between ordering a new color and
having it ready to be applied to an aircraft
by 90%.
“We have a long-standing relationship
with Embraer and were thrilled to
be involved in this amazing project,”
says John Griffin, Managing Director
of AkzoNobel’s Aerospace Coatings
business. “We pride ourselves on
supplying fit-for-purpose, long-lasting
color performance and protection.
The new animal designs are a fantastic
example of this expertise.”
As well as developing the colors and
supplying all the products needed to
create the striking airline art, our industry-
leading base coat/clear coat system
was also painted onto the exterior of
the four jets.
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AkzoNobel Report 2018
watch
video
“This project was a huge challenge
for us and the quality of the paints
was key to achieving the results
we wanted”
Rodrigo Silva e Souza,
Marketing Vice-President, Embraer
Artist Clodoaldo Quintana pictured
in front of his shark design,
which took around ten days to
complete.
The eye-catching artworks were
created with aerospace coatings
from our Alumigrip and Aerodur
product ranges.
Photography © Embraer
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14Launched in partnership with KPMG, the annual challenge will give the winners the chance to enter into a joint development agreement with AkzoNobel. It’s focused on five key areas: • SMART APPLICATION• ENHANCED FUNCTIONALITY• CIRCULAR SOLUTIONS• LIFE SCIENCE INFUSION• PREDICTABLE PERFORMANCEOpen to early stage tech companies and institutes around the world, the collaborative approach will benefit both sides, with the company committed to working with the winners on sustainable business opportunities.The finalists will be invited to attend a special awards event in May 2019, when the winners will be announced. For more information, visit www.letspaintthefuture.comTAKING INNOVATION TO ANOTHER DIMENSIONWe’ve embarked on a boundary-busting quest to find the newest, coolest, smartest and most revolutionary developments out there. We want to work with visionaries, entrepreneurs and innovators. Why? Because we’re ready to stir things up. We want to combine our global scale, know-how and expertise with the ingenious solutions of startups and scale-ups across the planet.So we’ve launched the Paint the Future startup challenge. It’s designed to connect us with new disruptive technologies and accelerate innovation in the dynamic world of paints and coatings. It will turn exciting potential into brilliant reality. “Our passion for paint and innovation goes way back and we’re even more excited about the future,” says AkzoNobel CEO, Thierry Vanlancker. “We want to capture the creative genius that flows from open innovation and paint the future together.”The challenge is being led by the company’s Chief Technology Officer, Klaas Kruithof. “As a technology-driven paints and coatings company, we’re full of knowledge, know-how and resources that we’re ready to share,” he explains. “We have a clear view of what our customers will need and expect in the future, so we’re actively looking to collaborate with forward-thinking partners and take our innovation in all areas to another dimension. The future’s a blank canvas – this is an exciting opportunity to help us paint it.”Think paint is just paint? Think again. Our products can already clean the air, withstand extreme heat, reduce fuel consumption and cope with conditions on Mars. Now we’re going even further.watch video 15AkzoNobel Report 2018 Strategy
17This section provides an overview of the progress we’re making on our strategy and gives details about our value creation during 2018. Our strategy 18How we created value in 2018 22Taking color-matching to the next levelA new standard in quick and reliable advanced color-matching is available to vehicle bodyshops after we combined two of our most innovative tools into a single system.We’ve hooked up our Automatchic hand-held spectrophotometer with our MIXIT digital color retrieval technology. Now known as Automatchic in MIXIT, the system creates a single, seamless workflow which allows customers to precisely identify any color from an ever-expanding database of more than two million.It means customers can now measure and match color with superior accuracy even faster. Tailor-made to streamline operations, Automatchic in MIXIT’s ability to improve both accuracy and speed helps to increase profitability and throughput, while reducing waste. www.colorvation.com STRATEGIC PERFORMANCEAkzoNobel Report 2018 | Strategic performance17Strategic performance17 Strategic performance | AkzoNobel Report 201818OUR STRATEGYOUR WINNING TOGETHER: 15 BY 20 STRATEGYWe’re now a focused paints and coatings company with strong global brands, leading market positions and a balanced geographic exposure across all regions, with 50% of revenue from emerging markets. Our ambition is to be the reference in paints and coatings. We’re building our future on solid foundations – our long and proud heritage of more than 200 years, our core principles and our values. Our success will be driven by our passion for paint, our precise processes, our powerful performance and our proud people.Our Winning together: 15 by 20 strategy is driving a major transformation to accelerate growth and profitability. We’re adopting a laser sharp focus to deliver 15% return on sales1 (ROS) and more than 25% return on investment2 (ROI) by 2020. We’re creating a fit-for-purpose organization with clearer customer focus, continued cost discipline, and a performance-driven culture with simplified ways of working. All our businesses and functions are working together to achieve our ambition. We’re reigniting our passion for making and selling paint by gaining a deeper understanding of our customers’ needs and stepping up our innovation to develop more sustainable products and solutions in the most efficient way.MORE EFFICIENT AND STREAMLINED ORGANIZATIONOur new organization structure is designed to drive operational synergies and deliver standardization while leveraging expertise across the business. Since the beginning of 2018, we have a faster and more efficient way of working, with two clear focus areas – making and selling paint. Our commercial activities are organized into business units, reporting to the Chief Operating Officer. Meanwhile, all our supply chain activities are led by the Chief Supply Chain Officer. The commercial organization is focused on our customers and leverages product development across our businesses. For the first time, the sales and marketing teams from all business units are aligning their capabilities and processes. For example, rolling out standardized pricing methodology, sales force effectiveness initiatives, margin and portfolio management. Each business unit has a clear mandate to deliver on our 15 by 20 ambition.The centralization of all supply chain activities – including manufacturing and procurement – into a single global Integrated Supply Chain organization (ISC), with dedicated experts, has been a major change which is already delivering improvements. We’re leveraging scale and expertise across our business units, as well as accelerating continuous improve-ment through our AkzoNobel Leading Performance System (known as ALPS). 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. Powerful performanceProud peopleStrategy successfactors Passion for paintPrecise processesDeliver on commitmentsCustomer focusedOur core principlesOur valuesPassion for excellenceWinning togetherSustainabilityIntegritySafety19AkzoNobel Report 2018 | Strategic performanceOur Transformation Office is tracking all initiatives to ensure accountability of different teams to deliver on the cost savings and implement the new ways of working in the organization. In addition to the initiatives already mentioned, we will also achieve significant cost savings through innovation excellence, making our sales force more effective and by streamlining our support functions, for example by transferring some activities to Global Business Services.We believe in fostering a trusted workforce with strong values, respect for our core principles and a winning mindset. We intend to accelerate opportunities for the talented people we have around the world. We’re building a single, strong and diverse global team for a high performing paints and coatings company. In order to generate stronger collaboration, we’re investing in dedicated, high performing team training throughout the company. We can achieve faster standardization, drive improvement in safety, quality, service, cost and capital management as we continue to anticipate current and future needs.SIMPLIFYING OUR PROCESSESTo ensure these organizations can efficiently collaborate, we’re investing in precise processes, reliable information (master data) and aligned systems. Integrated Business Planning (IBP) helps to connect teams and drive delivery. IBP involves a formal monthly decision-making process led by senior management, with projections for portfolio, demand and supply, resulting in financial forecasts and a single operating plan. This common way of working is fundamental to our new operating model. We expect IBP to drive further efficiencies and enable the achievement of top quartile performance, including increased forecast accuracy, higher service levels and reduced inventories.During 2018, we also put more focus on getting the waste out of our key end-to-end processes and using reliable, real-time information for decision-making. This will drive further efficiency, improve transparency and enable us to lower the cost of getting products to customers. The deployment of one common ERP (enterprise resource planning) system across all businesses is also in progress, enabling further cost savings and more powerful management of operations and performance.We also conduct regular employee surveys to measure our organizational health. This feedback enables us to take appropriate measures to improve engagement and ensure that team priorities are fully aligned with our Winning together: 15 by 20 strategy.ACQUISITIONS AND INNOVA-TION CONTRIBUTING TO PROFITABLE GROWTHOur strategy is to build on our existing position by focusing on our strong brands, leading market positions, customer intimacy and innovation capabilities. In addition to organic growth, we’re targeting acquisitions to boost our presence in key markets, generate synergies and give us access to new technologies. The acquisitions we made in 2018 demonstrate the success of this strategy. We added Fabryo in Romania, Xylazel in Spain, Colourland Paints in Malaysia, four distributors in the UK (to enhance our network of Dulux Decorator Centres), and acquired the minority interest share to obtain full ownership of the AkzoNobel Swire Paints joint venture in China, reinforcing our positions in all these key markets. We’ve developed a precise process to integrate our bolt-on acquisitions in an efficient and controlled manner. CEO Thierry Vanlancker welcomed the local mayor and
several other dignitaries to our metal coatings site in
Columbus, Ohio, in the US in October when colleagues at
the facility celebrated its 130th anniversary.
Future startup challenge (see page 14)
reflects this open, collaborative way of
working – and winning – together, both
inside and outside the company.
SUSTAINABILITY DRIVING
BUSINESS SUCCESS
Sustainability is an integral part of our
strategy. Over the last 15 years,
our pragmatic approach to business
sustainability has enabled us to
differentiate ourselves from our
competitors. Our commitment to
generating more value from fewer
resources – and turning environmental
challenges and societal concerns into
product innovations for customers – is
helping to establish us as the reference
in paints and coatings. Our value
proposition for many stakeholders,
including employees and business
partners, has also been enhanced
by making sustainability an explicit
differentiator – part of the AkzoNobel
brand. Our main focus areas are value
selling and resource productivity.
We continue to develop business
opportunities aligned with the most
relevant UN Sustainable Development
Goals (SDGs). Our agenda is built on
core principles of sustainability, safety
and integrity, including respect for human
rights. We set sustainability targets
that contribute to our ROS target, in
line with our focus areas of resource
productivity and value selling.
By prioritizing our innovation towards
developing eco-performer and
Our products and technologies already
set the industry standard in many
markets – and we continue to drive new
developments that will keep us ahead
of the competition. Our new innovation
group is led by our Chief Technology
Officer and brings together the combined
know-how of experts who now work on
one, unified innovation road map. This
team includes the AkzoNobel Incubator,
which looks for disruptive opportunities,
businesses and/or services that go
beyond what we do today.
Digital innovation is also a key component
of our innovation portfolio. It involves
the innovation team partnering with our
businesses to develop new solutions
closer to our customers’ needs. For
example, we use digital innovation to help
make choosing the right color easy – from
precise color-matching tools such as
Automatchic Vision for auto bodyshops,
to popular decorating apps like our hugely
successful Visualizer, which lets you play
(via augmented reality) with color ideas
before applying any paint to the wall.
Collaboration is the future of innovation,
and the announcement of our Paint the
20
Strategic performance | AkzoNobel Report 2018
eco-premium solutions, we enhance our
value proposition and give customers
choice and competitive advantage
through our sustainable product portfolios.
We believe we can drive growth by
understanding how to build a better
business, with solutions for environmental
and social needs, as outlined by the SDGs
(see page 158).
DELIVERING ON OUR
COMMITMENTS
In 2018, we showed that we deliver on
our promises. We have created a focused
paints and coatings company through
the successful sale of our Specialty
Chemicals business to The Carlyle
Group and GIC. We have increased our
regular dividend and confirmed we will
return to shareholders the vast majority
of the net proceeds from the sale of the
Specialty Chemicals business. Our cost
discipline has delivered significant savings,
while pricing initiatives are in place to
compensate for challenges including
significant raw material headwinds.
By creating a high performing, customer-
focused organization, with a clear
commitment to deliver on our Winning
together: 15 by 20 strategy, we intend to
accelerate our growth momentum and
enhance profitability. We are committed
to increasing returns to shareholders
while investing in innovation, sustainable
solutions, organic growth and bolt-on
acquisitions, creating long-term value for
all our stakeholders and becoming the
reference in paints and coatings.
Our Dulux Decorator Centres in the UK won the top prize for Customer Service at the 2018 British Coatings Federation Awards. The
award recognizes the growing importance of customer service as a differentiator in the industry.
21AkzoNobel Report 2018 | Strategic performanceThe future of fouling prevention has never really had a place in the pages of science fiction. Which is interesting, because we’re working on an exciting innovation which is on the verge of becoming science fact – and wouldn’t look out of place in certain comic book adventures. Since early 2018, we’ve been developing revolutionary technology designed to eliminate fouling growth from the underwater surface of ocean-going vessels. The secret weapon? Ultraviolet light-emitting diodes (UV-LEDs).The pioneering solution obtains its superpowers by combining our cutting-edge surface protection and adhesion know-how with underlying technology developed by Royal Philips. The intention is to integrate UV-LEDs in a protective coating and laminate scheme which will allow for UV light to be emitted from the vessel’s surface – providing total prevention of biofouling accumulation on the surface of the protected area.Recent sea trials have produced impressive results, and with stage two vessel trials already underway, the project is on course to deliver a first commercially viable solution by around 2023. The implications are huge, because biocidal-free total control of biofouling would represent a substantial economic and environmental benefit for ship owners and operators – not to mention the GIVING COATINGS SUPERPOWERSpositive impact on our planet. All of which are inherent in our sustainable approach to doing business. “This is an exciting project which is fully aligned with our continuous focus on innovation,” explains Klaas Kruithof, AkzoNobel’s Chief Technology Officer. “Combining our capabilities with Royal Philips’ technology will enable us to accelerate the realization of this transformative innovation, which has the potential to completely revolutionize the fouling control industry.” Initially, the focus will be on applications for ships, yachts and offshore assets, but the project will be extended to include other surfaces and areas challenged by biofouling issues. More partners will also be joining to add essential capabilities and accelerate the development.Photography © Rafal Konkolewski HOW WE CREATED VALUE IN 2018
By bringing more value to our customers, investors,
employees and society in general, we can better
position ourselves for growth while accelerating
profitability.
Summary of financial outcomes
In € millions
Revenue
Adjusted operating income
Operating income
ROS%1
ROS%, excluding unallocated costs
OPI margin %
Average invested capital
ROI%2
Capital expenditures
Net debt
Number of employees
Net income from continuing operations
Net income from discontinued operations
Net income attributable to shareholders
Earnings per share from total operations (in €)
Adjusted earnings per share from continuing operations (in €)3
Adjusted earnings per share from total operations (in €)3
Net cash from operating activities
2017
9,612
905
825
9.4
10.6
8.6
6,494
13.9
250
1,951
35,700
439
393
832
3.31
2.35
4.06
278
2018
9,256
798
605
8.6
10.6
6.5
6,340
12.6
160
(5,861)
34,500
410
6,264
6,674
26.19
1.91
3.78
162
∆%
(4)
(12)
(27)
(36)
(3)
(7)
(19)
(7)
(42)
1 ROS% = Adjusted operating income/revenue.
2 ROI% = 12 months adjusted operating income/12 months average invested capital.
3 Represented for the new adjusted earnings per share definition, which no longer excludes post-tax amortization charges.
22
Strategic performance | AkzoNobel Report 2018
ECONOMIC VALUE
Financial overview
Revenue was 4% lower, although
up 1% in constant currencies, with
positive price/mix partly offset by lower
volumes. Adjusted operating income of
€798 million (2017: €905 million) was
impacted by adverse currencies, higher
raw material costs and lower volumes,
not yet fully offset by positive price/mix
and cost savings. Operating income was
€605 million (2017: €825 million) and
includes the adverse impact of identified
items of €193 million (mainly related to
transformation costs of €130 million) and
one-off non-cash pension costs (€57
million). ROS excluding unallocated costs
was 10.6% (2017: 10.6%). ROS was at
8.6% (2017: 9.4%) and ROI at 12.6%
(2017: 13.9%).
Revenue
Revenue was 4% lower, although up 1%
in constant currencies. Volumes were 5%
lower versus an exceptionally strong last
year in China and driven by our value over
volume strategy.
Revenue development in % versus 2017
Revenue in € millions
Increase
Decrease
Decorative Paints
Performance Coatings
-5%
6%
0%
-5%
-4%
5,665
5,775
5,587
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
2016
2017
2018
3,835
3,898
3,699
Revenue by destination in %
A Mature Europe
B Asia Pacific
C North America
D South America
E Emerging Europe
F Other regions
34
31
12
9
9
5
F
E
A
D
C
B
• In Decorative Paints, revenue was
up 1% in constant currencies. Price/
mix was 4% positive. Pricing initiatives
offset lower volumes
• In Performance Coatings, revenue was
up 1% in constant currencies. Price/mix
effect was 7% positive, while volumes
were lower
Acquisitions
• The acquisitions of Xylazel in Spain and
Doves Decorating Supplies in the UK
were completed in September 2018
• The acquisition of Fabryo Corporation
S.R.L., was completed on October 1,
2018
• The acquisition of Colourland Paints
Sdn Bhd and Colourland Paints
(Marketing) Sdn Bhd in Malaysia was
completed in November 2018
• The acquisition of the minority interest
share to obtain full ownership of the
AkzoNobel Swire Paints joint venture
in China was completed in December
2018
Raw material price development
Raw material prices in 2018 were
higher compared with the previous year.
Robust pricing initiatives continue being
implemented to deal with these higher raw
material costs. In the latter part of the year,
inflation continued, although at a slower
rate than during the start of the year.
Adjusted operating income
Adjusted operating income at €798
million (2017: €905 million), was
impacted by adverse currencies, higher
raw material costs and lower volumes,
partly compensated by pricing initiatives.
Savings from continuous improvement
were €165 million, while creating a fit-for-
purpose organization fully delivered on the
€110 million planned for 2018.
and a one-off non-cash pension cost
(€57 million) for the Guaranteed Minimum
Pensions equalization regulations, based
on a UK precedent set in October 2018.
• Decorative Paints was impacted by
higher raw material costs and adverse
currency effects, partly compensated
by higher selling prices and cost
savings. ROS was 9.4% (2017: 9.0%)
• Performance Coatings was also
impacted by foreign currencies and
higher raw material costs, as well as
lower volumes. ROS was 11.3% (2017:
11.6%)
• Other activities/eliminations decreased
by €62 million. 2017 was impacted by
one-off items as well as lower pension
and insurance related costs
Operating income
Operating income was negatively
impacted by identified items totaling €193
million, mainly related to restructuring
costs for the transformation of the Paints
and Coatings organization (€130 million)
Adjusted operating income in € millions
Decorative Paints
Performance Coatings
759
669
629
357
351
346
2016
2017
2018
Net financing income and expenses
Net financing expenses decreased by
€26 million, mainly due to a one-off
interest benefit on a tax settlement and a
lower interest on discounted provisions
driven by discount rate developments.
Income tax paid in € millions
229
266
164
2016
2017
2018
Income tax
The effective tax rate decreased to 20.6%
(2017: 33.1%), mainly as a result of a
re-recognition of certain deferred tax
assets and a tax settlement. Excluding
these, the 2018 effective tax rate
was 28%.
Cash flows and net debt
Operating activities in 2018 resulted in
an inflow of €162 million (2017: €278
million). This was mainly caused by lower
profitability and related non-cash items, as
well as higher working capital, partly offset
by lower payments from provisions.
Investing activities resulted in an outflow
of €5,668 million, mainly driven by
investment of the cash proceeds from the
sale of the Specialty Chemicals business
in short-term investments.
At December 31, 2018, net debt was
€ 5,861 million negative versus €1,951
million positive at year-end 2017. The
decrease was mainly driven by the receipt
of the cash proceeds from the sale of the
Specialty Chemicals business.
Invested capital
Invested capital of continuing operations
at December 31, 2018, totaled €6.2
billion, up €0.2 billion from year-end 2017.
Operating working capital as percentage
of revenue increased to 12.3% at year-
end 2018 (2017: 10.2%), mainly due to
higher trade receivables and increased
inventories, driven by higher raw material
costs.
Allocation of 2018 capital
expenditures of €160 million
(1.7% of revenue)
A
B
A Decorative Paints
B Performance Coatings
50
106
AkzoNobel Report 2018 | Strategic performance
23
Innovation investments
research and development expenses
in € millions
Dividend in €
2571
270
264
2.501
1.65
1.802
2016
2017
2018
2016
2017
2018
1 2016 is represented to present the Specialty Chemicals
business as discontinued operations.
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.
Eco-premium solutions
We achieved 22% of total sales from
eco-premium solutions with customer
benefits, ahead of our 2020 target of 20%.
Eco-premium solutions are a moving target
as they need to exceed the sustainability
performance of the constantly evolving
market reference. Initial assessments
indicate that another estimated 20% of
sales were from eco-performers, which
have clear sustainability features, and
are overall on a par with mainstream
alternatives. Total sales of sustainable
solutions was around 42%.
For more details, see Note 1 of the
Sustainability statements.
1 Excludes special cash dividend of €4.00 per share paid as
advance proceeds related to the separation of Specialty
Chemicals.
2 Proposed.
Dividend
Our dividend policy is to pay a stable
to rising dividend. In 2018, an interim
dividend of €0.37 per share (2017: €0.56)
was paid.
Earnings per share total operations
in €
3.87
2016
3.31
2017
26.19
2018
Adjusted earnings per share in €
3.801
4.061
3.78
In line with our announcement on April 19,
2017, we intend to return the vast majority
of net proceeds from the sale of Specialty
Chemicals to our shareholders.
The Extraordinary General Meeting of
November 13, 2018, approved the
return of €2.0 billion to shareholders by
means of a capital repayment and share
consolidation, which was executed in
January 2019. A share consolidation ratio
of 9:8 was applied.
We will distribute €1.0 billion by means
of a special cash dividend of €4.50 per
common share (post consolidation) on
February 25, 2019.
A share buyback program to repurchase
common shares up to the value of €2.5
billion is due to be completed at the end
of 2019. We intend to cancel these shares
after repurchase.
We propose a 2018 final dividend of
€1.43 per share (post consolidation),
which would equal a total 2018 dividend
of €1.80 (2017: €2.50, including €0.85
related to the Specialty Chemicals
business) per share.
Outlook
We are delivering towards our Winning
together: 15 by 20 strategy and continue
creating a fit-for-purpose organization for
a focused paints and coatings company,
contributing to the achievement of our
2020 guidance.
2016
2017
2018
1 Represented for the new adjusted earnings per share defini-
tion, which no longer excludes post-tax amortization charges.
Demand trends differ per region and
segment in an uncertain macro-economic
environment. Raw material inflation is
projected to continue during the first half
of 2019, although at a lower rate than
2018. Robust pricing initiatives and cost-
saving programs are in place to address
the current challenges.
We are continuing with our transformation
to deliver the next €200 million cost
savings by 2020, incurring one-off costs in
2019 and 2020.
We target a leverage ratio of between
1.0-2.0 times net debt/EBITDA by the end
of 2020 and commit to retain a strong
investment grade credit rating.
ENVIRONMENTAL VALUE
We manage the environmental impact
of our sites through our Resource
Productivity program. We focus on three
key indicators – waste, energy and VOC
emissions – for which targets are in place.
Waste
Effective raw material management helps
to eliminate waste in our manufacturing
operations, while reducing both our
environmental footprint and costs. Our
target is to drive towards “zero waste
to landfill”, with our first priority being to
eliminate hazardous waste to landfill.
Total waste volume and waste per ton of
production generated were down by 12%
and 8% respectively in 2018, which meets
the reduction target of 5% per ton of
production from 2017. Hazardous waste
per ton of production decreased by 6%.
24
Strategic performance | AkzoNobel Report 2018
For more details, see Note 3 of the
Sustainability statements.
Energy and greenhouse gas
emissions
In 2018, energy use per ton of production
remained flat, while absolute energy
consumption was down 3% compared
with last year. Our total share of renewable
energy was 31%.
Electricity consumption and fuel for heating
are the main drivers for greenhouse gas
(GHG) emissions from our facilities. GHG
emissions per ton of product increased 1%,
with absolute emissions decreasing 4%.
will be our biggest contributor to the
Paris climate agreement. We continue
to work with suppliers so we can source
material with a low carbon footprint, such
as renewable raw materials or materials
generated with renewable energy. We
also continue to offer our customers
technologies and solutions to help reduce
their emissions and material use.
Our value chain emissions were 5% lower
than in 2017.
Safety
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.
The number of reportable injuries reduced
by 5% compared with last year, while the
injury rate is already at the target level
set for 2020 (0.20 per 200,000 hours
worked).
For more details, see Note 5 of the
Sustainability statements.
For more details, see Note 7 of the
Sustainability statements.
For more details, see Note 3 of the
Sustainability statements.
SOCIAL VALUE
Employees
We use a quarterly company-wide
employee survey, which goes beyond
only measuring people engagement
and focuses on measuring our wider
organizational health. In 2018, our
organizational health score was 58. The
outcomes of the survey are reflected in
action plans. We aim to be in the top
quartile in 2020 (currently 77).
At year-end 2018, the number of
employees decreased by 3% to 34,500
people (year-end 2017: 35,700 people).
For more details, see Note 6 of the
Consolidated financial statements.
VOC emissions
Most of the air emissions generated from
our operations are volatile organic
compounds (VOC). We aim to reduce
emissions through product design, good
management practices, and environ-
mental controls at our sites.
VOC emissions per ton of product and
our total VOC emissions decreased by
4% and 8% respectively.
For more details, see Note 3 of the
Sustainability statements.
Cradle-to-grave carbon footprint
As a focused paints and coatings
company, more than 98% of our
emissions come from our suppliers and
customers. Applying the principles of
circular economy across the value chain
Employees
34,500
at year-end
2018
Employees by segment in %
at December 31, 2018
C
A
B
A Decorative Paints
B Performance Coatings
C Other
14,300
18,600
1,600
Programs
During 2018, we carried out
49 Community Program projects and
65 “Let’s Colour” projects.
For more details, see Note 9 of the
Sustainability statements.
AkzoNobel Report 2018 | Strategic performance
25
Business performance
SPICED HONEY Color of the Year 2019 27This section provides information about our business segments and how they performed during 2018. Review of the year 28Key business developments 31BUSINESS PERFORMANCEEmbracing the sweet lifeSpiced Honey was unveiled as our Color of the Year for 2019. The shade was selected following expert research into global trends, insights and consumer behavior.It’s a versatile and contemporary choice, complementing a wide variety of lifestyle and interior design preferences. It also expresses the new sense of optimism felt throughout the global trend research which was carried out.The warm amber tone is being marketed under well-known decorative paints brands such as Dulux, Coral, Levis and Flexa. Some of our Coatings businesses also adapt the trend research for their own markets. www.akzonobel.com/en/colourfutures Business performanceAkzoNobel Report 2018 | Business performance2727 Business performance | AkzoNobel Report 2018282018 proved to be a tough year for the whole industry. However, we remained committed to growing the business and improving our performance. So we were quick and decisive in responding to raw material price pressure and made a series of bolt-on acquisitions that proved we’re serious about getting ourselves fighting fit for long-term success. Yes, we need to improve profitability – which is what our Winning together: 15 by 20 strategy is primarily about – but we also need to look beyond that. The bolt-on acquisitions we made in 2018 sent a clear signal that we’re building, we’re growing and we’re making good progress. The Fabryo deal makes us a leader for decorative paints in Romania, while acquiring Xylazel increased our presence in Spain’s decorative paints market. We were also delighted to acquire the minority interest share and obtain full ownership of the AkzoNobel Swire Paints joint venture in China, as well as purchasing Colourland Paints in Malaysia. Both these deals help to increase our footprint in Asia.While we had one eye on the future, we also needed to quickly respond to the challenging trading conditions. Raw material prices in particular hit us hard across the board. It’s something the entire industry had to deal with. Our response to these challenges was swift, with extensive pricing initiatives being introduced. It made an important difference. When combined with various cost-saving measures, we were able to offset a large part of the headwinds we encountered. We couldn’t compensate entirely, though, due to the turbulent nature of the global economy, including changing dynamics in China, where the building industry was hit by less government investment. South America also proved difficult, due to turbulent economic and political issues. Things were better in North America – where our Coatings activities had a successful year – while Europe was more of a mixed bag. One of our best performing businesses was Powder Coatings, which continued to do very well and had another excellent year. Aerospace Coatings also put in a REVIEW OF THE YEAR by COO Ruud JoostenOur transformation into a focused paints and coatings company is what really defined 2018 for AkzoNobel. It was a landmark year which gave us more clarity and enabled us to direct all our attention towards our customers in the paints and coatings market.Explorer Sir Edmund Hillary’s historic Antarctic hut was restored during 2018 thanks to a successful fundraising campaign and the application of coatings donated by AkzoNobel. A specialist team from the Antarctic Heritage Trust spent three months renovating the famous landmark, which contains hundreds of precious artifacts. Exterior work included building a new aluminum roof over the existing leaky one. The metal is coated with a special topcoat batch of our Polydure coil coatings. strong performance for 2018, due to a combination of the growing popularity of our market-leading two-coat system and the high levels of service we offer our customers. The results of our Marine business also started to improve in the second half of the year due to the pricing initiatives we introduced and various cost-saving measures. We’re starting to see the first signs of an upturn in the cycle – with faster recovery expected in oil and gas – although we won’t see the benefits for a while. There were also several other important developments during the year. In the UK, we acquired four businesses to enhance our network of Dulux Decorator Centres and further improve the service and support we offer our trade customers. The deals involved the purchase of Whites Trade Paints, Cambrian Decorators Supplies, Doves Decorating Supplies, and Trade Paints. It took our total number of stores in the UK to 229, a 20% increase compared with 2017. In China, production started at our new powder coatings plant in Changzhou – one of the largest facilities of its kind in the world. We also opened a newly-constructed mega-warehouse in Texas in the US, which will serve as a central regional hub for our Marine and Protective Coatings business. In 2018, we continued to set the standard in sustainability and are well positioned to benefit from current and future opportunities. Sustainability is a key value driver. As one of our core principles, it adds purpose and meaning to what we do and our customers appreciate it. Our marketing decisions also continue to be guided by insights into local needs. This has enabled us to position our solutions and the benefits they offer, such as accelerating green building, making shipping more sustainable and improving air quality. In China specifically, the rapid growth of low VOC products contributed to increased eco-premium revenue in the region. Meanwhile, total revenue of eco-premium solutions amounted to 22% of overall revenue, ahead of our target of 20%.Our societal involvement is a key part of our sustainability agenda, so it was encouraging to see our global “Let’s Colour” program continue to gather momentum. A particular highlight was an exciting project in Kuşadası, Turkey, which involved repainting 400 homes and transforming the lives of 2,000 people (find out more on page 10). Towards the end of the year, we announced our Paint the Future startup challenge. This is an amazing opportunity for us to work with innovators and visionaries who dare to be different. As a global leader, we’re taking the initiative to co-create customer-focused innovation which has a clear eye on the future, while recognizing that we can’t do it all alone. We can’t wait to see what develops as a result (read more on page 14). Throughout the year, our employees have shown immense pride in what they do and displayed an infectious passion for paint. It’s this energy and commitment which will propel us forward as we continue to build a leading paints and coatings company which delivers for all our stakeholders.“We’re building, we’re growing and making good progress” 29 INNOVATION SPRINGS FROM
TECHNOLOGY CENTERS IN ASIA
When it comes to innovation, our Asian technology
centers are hotbeds of invention and creativity. Located
in Shanghai, China, and Bangalore, India, they’re
bursting with exciting product developments, helping us
lead in our paints and coatings markets with boundary-
pushing know-how and expertise.
Serving the growing demand from
customers for integrated and tailor-made
solutions in Asia and around the world,
these centers are equipped with a full
array of state-of-the-art material analysis
and performance testing facilities.
The Shanghai Technology Center is one
of our major hubs, and a driving force
in building our company’s innovation
capabilities. Its various labs help us deliver
quality products to our customers. In line
with China’s environmental protection
30
Business performance | AkzoNobel Report 2018
regulations, it focuses on eco-premium
solutions, such as water-based and
powder coatings products.
A great example is Forest Breath, which
was developed by our decorative paints
lab. It’s a formaldehyde-free, low emission
indoor paint which helps clean the air
inside homes and protects against germs.
Since the product’s initial launch in 2016,
we’ve seen competitors trying to replicate
our success. But we’re staying well
ahead, and have now raised the level of
air quality we can achieve.
That significant improvement in
performance means our current products
have been upgraded to pass the
internationally-recognized GREENGUARD
Gold Class and French A+ Class emission
certifications – and our customers
can continue improving their indoor
environments.
Meanwhile, our Bangalore Technology
Center has grown significantly since first
Colleagues at our Asian technology
centers take great pride in developing
products that demonstrate our passion for
paint and create value for customers.
opening in 2002. It now includes a whole
suite of product and service development
areas, working mainly on color and
achieving the perfect color match.
The facility houses central color teams
for all our coatings businesses – so
our experts in Bangalore are working
for customers across many industries.
The color lab is truly unique, developing
hundreds of thousands of colors, all in
one location.
Achievements at the site include
introducing universal colorants for our
Marine and Protective Coatings business;
formulating coatings for consumer
electronics using a tool we developed
in our lab; and even using artificial
intelligence to create new color formulas.
That’s just a small taste of what’s
happening at our technology hubs in
Asia. All geared towards discovering new
opportunities and creating value for our
customers.
KEY BUSINESS DEVELOPMENTS
DECORATIVE PAINTS ASIA
• Revenue and volumes were lower in
China and North Asia, with strong cost
control unable to offset the impact of
the slowdown in China’s paints market
• South East and South Asia continued
to increase revenue, despite the
challenging political and economic
landscape. Most markets performed
well, although Indonesia was impacted
by a change of distributor
• Acquired the minority interest share to
obtain full ownership of the AkzoNobel
Swire Paints joint venture in China.
We now have greater control and are
well positioned for future growth in the
Chinese market
• Acquired Colourland Paints in Malaysia,
underlining our commitment to growing
in the country and throughout the
region
• Dulux Weathershield and Dulux
EasyClean were relaunched in several
markets, offering enhanced functionality
with a new and improved formula
• Launched Dulux Promise in Pakistan,
our first entry into the country’s mass
market paints segment
• In China, an integrated campaign was
developed to support the launch of
Dulux Forest Breath BioCare. We also
launched a BioCare primer to enrich our
bio-based product lines
• Our ultra-protective Dulux
Weathershield paint was used on the
famous Dai Lanh lighthouse in Vietnam,
which is more than 100 years old
The winners of our seventh China Student Sustainability Awards were announced in November 2018. The annual event recognizes
excellent contributions made by university students to local communities and society at large. In total, 309 entries were submitted by
297 student societies from 130 universities across 55 cities.
• Through our Dulux Easy Paint Service,
we cooperated with the China National
Institute of Standardization to introduce
even higher standards for our corporate
repainting service and drive service
operation excellence
• Piloted a new concept store in
Shanghai, China, to enhance the
in-store experience for customers and
drive conversion
• Our Dulux and Dulux Professional range
of products were accredited with the
prestigious GreenPro Certification by
the Confederation of Indian Industry
• As part of our global “Let’s Colour”
initiative, we added Pakistan, China
and Indonesia to the list of countries
involved in our partnership with SOS
Children’s Villages
Revenue in € millions
1,196
1,289
1,144
2016
2017
2018
Key brands
AkzoNobel Report 2018 | Business performance
31
DECORATIVE PAINTS
EUROPE, MIDDLE EAST AND
AFRICA
• Achieved strong profit growth, despite
higher raw material costs. Also saw a
significant improvement in return on
sales
• Maintained strong market position in
Europe and Africa
• Results were impacted by uncertainty
in the UK economy due to Brexit and
currency fluctuations, such as the
weakening of the Turkish lira
• Acquired Fabryo in Romania and
Xylazel in Spain
• Expanded our network of Dulux
Decorator Centres in the UK and our
Sikkens Center franchise network in
the Netherlands
• The environmental footprint of our
formulations was reduced in virtually
all countries, supported by the launch
of new water-based products and
programs to convert users to these
products
• New paint range launched by Sadolin in
Uganda, while our successful EasyCare
washable wall paints concept was
further rolled out
• Launched a program across the region
to further optimize the color accuracy of
our in-store tinting system
• Celebrated 25 years of Community
RePaint in the UK, an initiative which
makes use of left-over paint and
redistributes it to communities, charities
and people in need
• Continued our partnership with SOS
Children’s Villages, which included
activities in Russia, Nigeria, South Africa
32
Business performance | AkzoNobel Report 2018
and Belgium. It involved helping to
refurbish villages and provide training in
painting and sales skills
Key brands
Some of our customers
• Bricomarché
• Kingfisher
• Leroy Merlin
• OBI
Revenue in € millions
2,160
2,095
2,093
2016
2017
2018
DECORATIVE PAINTS
SOUTH AMERICA
Revenue in € millions
• Strong pricing initiatives helped offset
raw material inflation and currency
devaluation. Product mix was also
positive, driven by commercial and
product innovation
• Brazil delivered volume growth in
premium wall paints for the second
year in a row, while market segment
contracted
• Commercial initiatives continued
driving the topline. In Brazil, distributors
reached an additional 4,000 stores and
category management drove shopping
experience improvement in more than
200 stores
• Successful launch of our roller tester in
Brazil, the first market outside Europe
to introduce the product. Coral Teste
Fácil is available in 240 different colors,
with more than 700 points of sale being
activated and about 600,000 units sold
484
520
468
2016
2017
2018
Key brands
which brings together 32 Argentine
studies of wood in architecture
protected against extreme weather
by Cetol and sustainable balance
technology
• Brazil’s Coral brand introduced
• Our wastewater treatment plant in
Renova as a new premium wall paint
range, inspired by the Dulux Valentine
Crème de Couleur range in France.
Both products are designed to help
consumers make confident color
choices and transform their homes
with ease
• “Balance technology” concept roll-out
drove conversion to water-based
trim and woodcare products across
the region, representing savings of
14,000 tons of CO2 from the
atmosphere
• In Argentina, our Cetol woodcare brand
sponsored the book Extreme Wood,
Mauá, Brazil (inaugurated in 2017), is
already reusing 50% water, and aims to
reuse 100% water by 2020
• Supported the Mais Vida nos Morros
initiative in Recife through local “Let’s
Colour” initiatives. About 20,000 liters of
donated paint transformed the homes
and communities of around 200 families
in Beberibe, Sitio São Brás and Vasco
da Gama
AkzoNobel Report 2018 | Business performance
33
AUTOMOTIVE AND
SPECIALTY COATINGS
• Strong performance, despite higher raw
material prices, with positive price/mix
more than offsetting lower volumes
• Solidified our leading position in
aerospace with several key customer
wins
• Successfully launched a new
e-commerce platform in the US
for vehicle refinishes, including the
introduction of our bespoke Modern
Classikk range
• Celebrated the 160th birthday of our
Lesonal premium vehicle refinishes
brand. Also successfully launched
the Wanda vehicle refinishes range in
several new European markets, and
Wanda’s sustainable product range in
our China and Asian markets
• A new digital color matching tool was
launched, combining our Automatchic
hand-held spectrophotometer and
MIXIT digital color retrieval system
• Continued our long-standing
partnership with McLaren, developing
the stunning Papaya Spark color used
on their Formula 1 racing cars
• Received the Best Performer award
from Airbus, recognizing our value as
supplier and partner of choice
• Bodyshops around the world started
adopting Carbeat, which enables the
next level of digital transformation in
vehicle refinishes
• Launched Intura, our newest range of
aircraft cabin coatings
• Marked the 50th anniversary of our
Alumigrip aerospace coatings brand
• Successfully developed an imitation
glass and gradient coating solution for
34
Business performance | AkzoNobel Report 2018
consumer electronics customers
• Shared our aerospace customers’
passion for paint on unique liveries
and designs, including special aircraft
to celebrate the 100th anniversary of
Iceland’s independence and sovereignty
• Proudly supplied aerospace coatings
to the Mirpuri Foundation and
Hi Fly for their latest high profile aircraft,
campaigning to save the world’s
coral reefs
Some of our customers
• Airbus
• Allianz
• BBG
• Boeing
• Dell
• General Motors
• Gold Coast Marine
• HP
• KMC/HMC
• Leonardo
• Plastic Omnium
• Samsung
Revenue in € millions
Geo-mix revenue by destination in %
1,392
1,426
1,392
2016
2017
2018
Key brands
C
A
B
A EMEA
B Americas
C Asia Pacific
42
30
28
MARINE AND PROTECTIVE
COATINGS
• Improved our profitability levels –
despite higher raw material costs –
through portfolio simplification, a keen
focus on selling prices and cost savings
• Slowdown in new build activity in the
marine sector continued, despite a
recovery in contracts for some vessel
types
• Positive trends and increasing market
activity indicate a return of opportunities
in oil and gas, albeit slowly
• Completed the construction of a new
€12 million complex in Felling, UK,
which will offer world-leading testing
and laboratory facilities when it opens
in 2019
• A major highlight was the Volvo Ocean
Race. Every boat in the race was
protected with our products, bringing
us closer to our customers and
providing a global stage to showcase
the performance of our key brands
• Our Awlgrip Quick Build range –
launched in North America and Europe
– is driving significant productivity
benefits for boat builders. It also
won the Innovation award for Boat
Care and Maintenance at the 2018
International Boatbuilders’ Exhibition
and Conference (IBEX)
• Extended our long-standing relationship
with shipping giant Nakilat, agreeing
to the continued supply of Intersleek
1100SR biocide-free foul release
coating to their fleet
• Continued our focus on sustainable
shipping by launching new products to
help customers meet increased VOC
regulations in China. Also continued our
partnership with The Ocean Cleanup
• Our technology leadership in passive
fire protection continues. Chartek
2218 has been used to protect
oil and gas assets located in harsh
Arctic conditions
• Interchar 3120 was launched to
deliver epoxy fire protection with a
step-change in aesthetics for the
infrastructure market
• Introduced several new concrete
protection and repair products to
International’s Intercrete range,
through the integration of the Flexcrete
Technologies Ltd business acquired
in 2017
Some of our customers
Revenue in € millions
Geo-mix revenue by destination in %
• Bechtel
• Brunswick
• ExxonMobil
• Feadship
• Florakis
• GE
• Hapag Lloyd
• Hyundai Heavy
Industries
• Lürssen
• Pinmar
• Rio Tinto
• Sandvik
• Shell
• Siemens
• Teekey
1,581
1,424
1,291
2016
2017
2018
Key brands
C
C
A
A
B
B
A EMEA
B Americas
C Asia Pacific
37
23
40
AkzoNobel Report 2018 | Business performance
35
INDUSTRIAL COATINGS
Revenue in € millions
• Revenue growth was driven by
successfully focusing on increasing
prices globally across all segments
• Strong adoption of our new generation
BPANI (BPA non-intent) coatings for
beer and beverage metal packaging,
providing customers with more
sustainable and innovative products
• Further integrated the Industrial
Coatings business acquired from
BASF into our activities. The deal was
completed at the end of 2016
• Introduced intelliCURE system of
software and machinery, creating a
single solution for manufacturers of
glued wooden parts
• Launched PurTone, a “no-wipe” stain
system which allows a significant
reduction in manual labor in the
industrial cabinet and furniture industry
• Our new generation chrome-free primer
for coil applications now provides the
pre-painted metal industry with a more
sustainable and innovative solution
• Introduced Expressions print
technology for the coil market,
which combines the visual appeal
of print with a textured finish. This
enables customers to create designs
with unprecedented definition and
dimension, including authentic-looking
wood grain, slate or granite patterns
36
Business performance | AkzoNobel Report 2018
1,656
1,805
1,738
2016
2017
2018
Key brands
Trade names
• Aqualure
• Aquaprime
• Ceram-a-Star
• GripPro
• LignuPro
• Polydure
• Trinar
• Vitalac
• Vitalure
Geo-mix revenue by destination in %
Some of our customers
C
B
A
Wood Coatings:
• American WoodMark
• Armstrong
• IKEA
• Masco
• Masterbrand
• Pella
• Prosol
• Schweighoffer
• Würth
Coil and Packaging
Coatings:
• Arcelor Mittal
• Ardagh
• Ball
• Bluescope Steel
• Crown
• Precoat
• Silgan
• Steel Dynamics
• Tata Steel
• Thyssen Krupp
A EMEA
B Americas
C Asia Pacific
44
32
24
POWDER COATINGS
Revenue in € millions
• Achieved strong topline growth,
driven by volume, price and product
mix. Ongoing focus is on further
strengthening our market position for
premium products
• Headwinds from raw materials lowered
1,079
1,173
1,218
2016
2017
2018
the net impact of margin growth
Key brands
• Officially opened our new Changzhou
plant in China, one of the largest
facilities of its kind in the world
• Also opened our new Thane plant
near Mumbai in India, which is fully
equipped to offer a broad range
of products tailored specifically to the
local Indian market
• Following the 2017 acquisition of
V.Powder tech in Thailand, we began
integrating the business into our
activities
• Launched Interpon Precis ultra
matt, a super-durable architectural
powder coating
• Several other new products were also
introduced, including Interpon IT 4002,
a high performance, single coat TGIC-
free polyester powder coating for the
telecommunications industry
• Our Interpon brand continues to be the
powder coating of choice for protecting
and beautifying important landmarks.
Recent projects include: Istanbul Airport
in Turkey; Van Don Airport in Vietnam
(one of the first buildings in South Asia
to be protected by our hyper-durable
powder coatings); and Westminster
Abbey in the UK, where we coated all
the window frames on the first major
addition to the famous building since
1745 (see page 38)
Geo-mix revenue by destination in %
Some of our customers
• Bosch Siemens
• GE
• Mercedes Bus
• Prime Wheel
• Samsung
• Schüco
• Signify
• TATA
• Toyota
• Vailant
• Whirlpool
A
C
B
A EMEA
B Americas
C Asia Pacific
46
20
34
AkzoNobel Report 2018 | Business performance
37
FAMOUS ABBEY PUTS FAITH
IN OUR COATINGS
History was made at
Westminster Abbey in
London during 2018
with the first significant
addition to the famous
church since 1745.
The new £23 million
Weston Tower features
500 leaded windows –
and every single window
frame is protected with
our Interpon powder
coatings.
“As the leader in powder coatings, we are
very proud to have contributed to such
a significant project, which is integral to
the history of the UK,” says Daniela Vlad,
Managing Director of the company’s
Powder Coatings business. Adds the
Very Reverend Dr. John Hall, Dean of
Westminster: “The views are breathtaking;
the space astonishing; the displays
fascinating. Visitors can now gain far
greater insight into the life and history of
the abbey than ever before.”
Westminster Abbey is one of the world’s
great churches, welcoming over two
million worshippers and visitors annually.
It’s the latest in an impressive list of
London landmarks to feature our coatings.
We’ve already supplied products for the
London Eye, the Shard, the Gherkin and
Wembley Stadium, to name just a few.
The tower provides staircase and lift
access to the Queen’s Diamond Jubilee
Galleries, located in the medieval Triforium
– an area 16 meters (52 feet) above the
abbey’s floor, which has been unused for
centuries. More than 300 precious regal
and religious artifacts are on display in the
“hidden” attic space, which deftly winds
its way around the rafters.
Described by some as a “gothic space
rocket” and a “steampunk tower”, the
new addition has been expertly slotted
between the 13th century chapter house
and the 16th century Lady Chapel by
architect Ptolemy Dean.
Its leaded windows are based on
Christopher Wren’s late 17th century
additions to the abbey. They sit in frames
powder coated with our Interpon D2525
Anodic Bronze finish and BPP600
barrier primer, which provide a perfect
color match and long-lasting protection.
The use of powder coatings also offers
inherent sustainability benefits, such as no
solvent emissions and hardly any waste
during the application process.
38
Business performance | AkzoNobel Report 2018
watch
video
The Queen’s Diamond Jubilee
Galleries are located in a part of the
abbey which has never been open to
the public before.
AkzoNobel Report 2018 | Business performance
39
Leadership
41AkzoNobel Report 2018 | LeadershipLEADERSHIPIn this section we introduce our Board of Management and Executive Committee, along with our Supervisory Board. You will also find the Report of the Supervisory Board and an overview of their activities during 2018. Our Board of Management and Executive Committee 42Statement of the Board of Management 44Supervisory Board Chairman’s statement 46Our Supervisory Board 47Report of the Supervisory Board 48Passing the ultimate test Yacht owners can now benefit from advanced coatings technology which passed the ultimate test during the latest edition of the Volvo Ocean Race. Before launching this eco-premium solution, we put our new Awlgrip HDT (high definition technology) polyurethane clearcoat through its paces during the punishing offshore sailing event.Not only is it more durable and abrasion resistant than current market offerings, it’s also repairable and lower in VOCs (volatile organic compounds). Already available in North America and Europe, Awlgrip HDT can be used over the full range of Awlcraft SE basecoats, which currently features 18,000 colors – the largest selection on the yacht market.www.awlgrip.comLeadership OUR BOARD OF MANAGEMENT AND
EXECUTIVE COMMITTEE
Thierry Vanlancker
CEO and Chairman of the Board
of Management and Executive
Committee
(1964, Belgian)
Thierry Vanlancker joined AkzoNobel in
2016, bringing 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 Ghent.
David Allen
Chief Supply Chain Officer and
member of the Executive Committee
(1954, American)
David Allen joined AkzoNobel as Head
of Integrated Supply Chain in 2013. 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
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 a similar
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.
Maëlys Castella
Chief Corporate Development
Officer and member of the Executive
Committee
(1966, French)
Maëlys Castella joined AkzoNobel as
Chief Financial Officer in 2014. Before
joining the company, she held various
senior management positions in finance
and marketing at Air Liquide. She started
her career in oil and gas with ELF at
TotalGroup. Maëlys earned an Engineering
degree at École Centrale Paris and a
Master’s degree in Energy Management
and Policy from the University of
Pennsylvania and the French Institute of
Petroleum (IFP).
Isabelle Deschamps
General Counsel and member of the
Executive Committee
(1970, Canadian)
Isabelle Deschamps joined AkzoNobel in
2018. Before joining the company, she
was responsible for legal and compliance
at Unilever’s European businesses
and its Food and Refreshment division
worldwide, and previously Personal Care
and Intellectual Property at Nestlé. She
started her career at a Canadian law firm
after finishing a Master’s degree in Law
at the University of Montreal. Isabelle is
admitted to the England and Wales Law
Society and to the Quebec (Canada) Bar,
and completed an Executive Business
program at the London Business School.
42
Leadership | AkzoNobel Report 2018
Ruud Joosten
Chief Operating Officer and member
of the Executive Committee
(1964, Dutch)
Ruud Joosten joined AkzoNobel in 1996
as International Marketing Manager for
Decorative Paints, having graduated from
the Vrije Universiteit in Amsterdam with
a Master’s in Economics. Since then, he
has held various management positions
within Decorative Paints and Specialty
Chemicals, including Manager of the
Decorative Paints North and East Europe
business and Managing Director of Pulp
and Performance Chemicals.
Maarten de Vries
CFO and member of the Board
of Management and 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 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.
For further information please visit our website:
akzonobel.com/management
From left to right:
Isabelle Deschamps, Maarten de Vries,
Marten Booisma, Thierry Vanlancker, Ruud
Joosten, Maëlys Castella, David Allen
AkzoNobel Report 2017 | Leadership
AkzoNobel Report 2018 | Leadership
43
43
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 2018,
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
2018 give a true and fair view of our
assets and liabilities; our financial
position at December 31, 2018; and the
result of our consolidated operations for
the financial year 2018
• The management report in this Report
2018 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 Compliance
function makes rules available through
the Directives Portal, manages the online
compliance training program, provides
44
Leadership | AkzoNobel Report 2018
legal expert support and manages the
investigation of the SpeakUp! process.
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
Governance and compliance 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, February 12, 2019
The Board of Management
Following the acquisition of Flexcrete Technologies Ltd in
2017, we completed the integration this year by making
the business’ full range of advanced cementitious coatings
available as part of our International brand’s Intercrete series.
Flexcrete products have been used for numerous high
profile projects around the world, including Hestskjæret
Lighthouse on the western coast of Norway.
AkzoNobel Report 2018 | Leadership
45
46Leadership | AkzoNobel Report 2018SUPERVISORY BOARD CHAIRMAN’S STATEMENTIn 2018, AkzoNobel moved on from the events of the previous year to build a new future as a focused paints and coatings company. It was a year of delivering on commitments and the implementation of the ongoing transformation.Key to establishing this new future was the successful sale of the Specialty Chemicals business to The Carlyle Group and GIC, which was completed on October 1, 2018. The company also announced it would be returning an additional €5.5 billion to shareholders, following the payment of a special cash dividend of €1 billion as advance proceeds in December 2017. Together, this €6.5 billion represents the vast majority of the €7.5 billion net proceeds returned to shareholders, as promised. AkzoNobel is now focused on becoming a true leader in the paints and coatings industry. The company’s Winning together: 15 by 20 strategy is gathering pace and progress is being made towards realizing 15% return on sales (excluding unallocated corporate center costs) by 2020. It’s an ambitious and challenging target, but improving profit margins is absolutely necessary to enable the company to invest in its markets and regain growth momentum. The Supervisory Board has been heavily involved in critically evaluating, advising and approving the ongoing transformation plans, underlined at both the 2018 Annual General Meeting and the Extraordinary General Meeting in November 2018. The Executive Committee, led by Thierry Vanlancker, has had a very busy year completing the sale of Specialty Chemicals, while at the same time focusing on the transformation of the remaining paints and coatings company. The Supervisory Board has been impressed by the Executive Committee’s level of ambition and commitment to leading AkzoNobel to the forefront of the industry. When reviewing the improvement initiatives that have already had an impact, it’s worth mentioning the pricing program. AkzoNobel showed industry leadership and demonstrated the required discipline and commitment to implement its value over volume strategy – which was necessary to compensate for the unprecedented increase in raw material costs that started back in 2017. Towards the end of 2018, the cost-saving programs also began to produce positive results. At the same time, the company continued to pay close attention to its core principles of safety, integrity and sustainability.Doing business with integrity remains at the heart of AkzoNobel and the company will continue to focus on strengthening the robust compliance culture which runs throughout the organization. The Supervisory Board is actively involved, conducting regular performance and business reviews. The company’s strategy and targets for sustainability and safety have also been revised and we remain confident that by making this an explicit differentiator, AkzoNobel will continue to enhance its value proposition for employees and business partners. During several meetings I had in Amsterdam and at various sites, it was evident that some employees are still digesting the events of 2017 and the divestment of the Specialty Chemicals business. It was therefore encouraging to see that the management team has identified increased engagement and collaboration as a key priority. To become a true leader in the industry, everyone needs to be motivated and feel empowered to play their role in the company’s development. It is a top priority for the Supervisory Board that during 2019, as we implement the changes necessary to re-establish our competitiveness and move closer towards our 2020 goals, we also engage the organization in defining and communicating our compelling vision for the long-term future of AkzoNobel. Finally, I would like to thank the Supervisory Board, the Board of Management, the Executive Committee and all AkzoNobel employees around the world for their commitment and hard work during what was an historic year for the company.Amsterdam, February 12, 2019Nils Smedegaard AndersenChairman of the Supervisory Board OUR SUPERVISORY BOARD
Nils Smedegaard Andersen
(1958, Danish) Chairman
Initial appointment: 2018
Current term of office: 2018-2022
Member of the Board of Directors Unilever
N.V. and Unilever plc. and BP plc.; Former
CEO of A.P. Moller - Maersk A/S; Former
CEO and President of Carlsberg A/S.
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 and Skandia Mutual Life Insurance;
Chairman of Lancelot Asset Management
A.B.; Former CEO of ABB Financial
Services; Former Executive Vice-President
of SEB; Former non-executive Director of
Diageo plc.
Non-executive Director of Britvic plc.,
Bakkavor Group plc., Tulchan Communi-
cations LLP and Imperial Brands plc.;
Former Managing Director Europe SABMiller
plc.; Former Director of Corporate Affairs
Railtrack plc. and Scottish Power plc.
Byron E. Grote
(1948, American and British) Vice-Chairman
Initial appointment: 2014
Current term of office: 2018-2022
Non-executive Director of Anglo-American
plc., Standard Chartered plc. and Tesco
plc.; Former non-executive Director of
Unilever N.V. and Unilever plc.; Former
Board member BP plc.
Michiel Jaski (1959, Dutch)
Initial appointment: 2017
Current term of office: 2017-2021
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. and
Grontmij N.V.; Former member of the
Executive Board of ARCADIS N.V.; Former
VP at Shell.
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
Non-executive Director at Reckitt Benckiser
plc., Hikma Pharmaceuticals plc. and
DCC plc.; Senior Independent Director at
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 of Johnson Matthey plc.; Former
Chairman and CEO of Covestro A.G.
and 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. (until
December 31, 2018); Non-executive Director
of Ofcom; Former CEO of Alcatel-Lucent;
Former Chief Executive/Chairman of the
Board’s Operating Committee of BT Group.
AkzoNobel Report 2018 | Leadership
47
REPORT OF THE
SUPERVISORY BOARD
Supervisory Board attendance record
MEETINGS
Nils Andersen1
Peggy Bruzelius
Antony Burgmans2
Sue Clark3
Byron Grote
Louis Hughes2
Michiel Jaski4
Pamela Kirby
Dick Sluimers
Patrick Thomas4
Ben Verwaayen
SB
7/7
14/15
7/8
15/15
16/16
6/8
14/15
15/15
13/15
13/15
13/15
AC
9/9
9/9
3/3
5/5
9/9
5/5
RC
2/2
2/2
2/2
4/4
4/4
4/4
NC
2/2
1/1
3/3
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 Appointed as member of the Supervisory Board as per April 27, 2018. Appointed to the Remuneration Committee and the
Nomination Committee as per June 2018.
2 Stepped down from the Supervisory Board in April 2018 after serving for the maximum term of 12 years.
3 Appointed to the Remuneration Committee as per June 2018.
4 Appointed to the Audit Committee as per June 2018.
During 2018, the Supervisory Board
held eight regular scheduled meetings,
seven additional meetings and a further
additional meeting of a delegation of
the Supervisory Board consisting of
the Chairman and the Vice-Chairman.
The additional meetings were required
to ensure the Supervisory Board was
sufficiently informed and could make
considered decisions regarding the
divestment of the Specialty Chemicals
business and the distribution of the
proceeds. The Board of Management
attended all regular meetings and all
additional meetings. The Executive
Committee attended the majority of
the scheduled meetings, while the
Supervisory Board activities 2018
Q1
Q2
Q3
Q4
• Separation of Specialty Chemicals
business (including dual track,
risks and carve-out)
• Review of Q4 2017 financials and
performance
• 2017 financial statements and
profit allocation
• Final 2017 dividend
• Business reviews
• Risk management: risk session
outcomes
• Review ISC integrated business plan
• HR strategy update
• Review Winning together:
15 by 20 strategy
• Nomination Supervisory Board
Chairman Mr. Nils Andersen
• Investor Relations update
• Review Q1 2018 financials and
performance
• Business reviews
• Annual General Meeting 2018
• Review of possible ways to
distribute proceeds from the sale of
the Specialty Chemicals business
• Review of banking strategy
• Committee appointments
• Sustainability strategy update
• Functional and ISC updates
• Review Winning together:
15 by 20 strategy
• Review Q2 2018 financials and
performance
• Business reviews
• Succession planning and talent
management
• Review of possible ways to
distribute proceeds from the sale of
the Specialty Chemicals business
• Review materials for November
2018 EGM
• Risk management: Enterprise risk
management update
• Functional and business
strategy review
• Investor Relations update
• Closing of sale of the Specialty
Chemicals business
• Distribution of proceeds from sale
of the Specialty Chemicals business
• November 2018 EGM
• Review Q3 2018 financials and
performance
• Business reviews
• IM strategy update
• Interim dividend 2018
• Supervisory Board self-evaluation
• Supervisory Board composition
• Review 2019 budget and outlook
• Internal Audit plan 2019
• Update Winning together:
15 by 20 strategy
• Startup challenge: Paint the Future
The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2018.
48
Leadership | AkzoNobel Report 2018
additional meetings were mostly held
without the Executive Committee
present, but with the General Counsel in
attendance. 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.
SUPERVISORY BOARD
ATTENDANCE RECORD
The table above 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 of
its nine members. However, if Supervisory
Board members are unable to attend a
Supervisory Board or committee meeting,
they inform the relevant Chairman, stating
the reason and granting the Chairman
a proxy to act on their behalf. 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. Mr. Burgmans was
excused from decision-making on the
nomination of Mr. Andersen as member
(and Chairman) of the Supervisory Board.
Mr. Grote acted as Vice-Chairman during
this meeting
Separation of Specialty Chemicals
In April 2017, the plan to separate
Specialty Chemicals within 12 months
was announced, which was approved by
49AkzoNobel Report 2018 | Leadershipshareholders at the Extraordinary General Meeting (EGM) held in November 2017. In March 2018, the sale of the Specialty Chemicals business to The Carlyle Group and GIC was announced and completed on October 1, 2018. The Supervisory Board approved the proposal of the Board of Management to distribute a total of €6.5 billion to shareholders, delivering on a commitment to return the vast majority of €7.5 billion net proceeds from the sale of the Specialty Chemicals business. A special cash dividend of €1 billion was paid in December 2017 as advance proceeds. The additional €5.5 billion proceeds will be distributed using a capital repayment and share consolidation of €2 billion (completed in January 2019), a special cash dividend of €1 billion (payable on February 25) and a share buyback thereafter of €2.5 billion (due to be completed by the end of 2019). The capital repayment and share consolidation was approved by shareholders at the EGM in November 2018.Strategy reviewsDuring 2018, the Supervisory Board continued to allocate adequate time to discuss strategic activities. This included detailed business analyses and portfolio reviews. By implementing the Winning together: 15 by 20 strategy and a transformation program to create a focused paints and coatings company, the company renewed its efforts to achieve operational and functional excellence and efficiencies. The implementation of Integrated Business Planning (IBP) was considered a key enabler for future performance improvement. In addition, functional and operational strategy updates were reviewed and discussed, including Finance, Information Management, Integrated Supply Chain, Human Resources and Sustainability.At corporate level, the Supervisory Board received comprehensive market updates and advised, reviewed and approved the transition to the next phase of the company’s transformation. During the 2018 AGM and the Extraordinary General Meeting held in November 2018, it was reconfirmed that this strategy is expected to unlock further value and accelerate growth for AkzoNobel as a focused paints and coatings company.SustainabilitySustainability 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 growth.Our focus on value selling and resource productivity through sustainable product portfolios is an investment in the future success of AkzoNobel. Having sustainability as a core principle motivates employees, is a source of pride and helps to define what the company is and what it stands for. The Supervisory Board views 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 turn societal concerns and environmental challenges into product innovations that meet a market need. The company has also benchmarked its sustainability processes and earned respect by achieving a clear leadership status in independent rankings.During 2018, 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 stakeholders, including employees and business partners. Looking forward, the company will continue to develop business opportunities in alignment with relevant UN Sustainable Development Goals (SDGs), creating more shared value from fewer resources.The Supervisory Board pursued a detailed approach to assessing corporate and management performance during the year. Performance and budget planningIndividual 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 54.Discussions on corporate performance were held at each regular Supervisory Board meeting. These discussions included 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 operating plan for 2019 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 operating plan for 2019. During 2018, the Supervisory Board was
pleased to see the company continuing
to benefit from management’s strategic
initiatives, including cost savings through
enhanced efficiencies and operational
excellence. This led to profitability
improvements during the second half of
the year through portfolio simplification,
despite higher raw material costs. The
nature of this performance provided a
basis for the Supervisory Board’s approval
of the proposal to increase the dividend
for the year 2018. Further details on the
2018 dividend proposal are provided in
the Consolidated financial statements and
profit allocation paragraph. In addition,
the Supervisory Board approved the
proposal of the Board of Management
to distribute a total of €6.5 billion to
shareholders, delivering on a commitment
to return the vast majority of €7.5
billion net proceeds from the sale of the
Specialty Chemicals business. A special
cash dividend of €1 billion was already
paid in December 2017.
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 long-term performance and
value creation. Risk management updates
were received during the year as the
Supervisory Board sought to assure itself
of the robustness of the company’s risk
mitigation and internal controls. These
updates covered a variety of subjects,
ranging from the transformation of the
company into a focused paints and
coatings company, the adoption of a new
organization model and the relationship
with our shareholders, (cyber) security and
the cost of raw materials.
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 and
the Audit Committee during the year
by means of risk updates and reviews.
Further details are included in the Risk
management chapter in the Governance
and compliance section.
Corporate governance
The Supervisory Board continuously
reviews the company’s corporate
governance and its compliance with the
Dutch Corporate Governance Code.
Talent management and
succession planning
Throughout the year, the Supervisory
Board discussed and undertook detailed
executive succession planning. This
included taking 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 nomination of Mr. Nils Smedegaard
Andersen as a member of the Supervisory
Board and the re-appointment of
Mr. Byron Grote as a member of the
Supervisory Board. The appointment and
re-appointment were approved at the
AGM held on April 26, 2018. Mr. Andersen
has undergone a comprehensive induction
to AkzoNobel – including one-on-one
meetings with the CEO, CFO and all other
Executive Committee members – as well
as site visits.
During 2018, the Supervisory Board also
discussed changes to the composition of
the Executive Committee. The Supervisory
Board discussed and supported the
appointment of Mrs. Maëlys Castella as
Chief Corporate Development Officer
and the appointment of Mrs. Isabelle
Deschamps as General Counsel.
As the third term of Mrs. Peggy Bruzelius
ends in 2019, the Supervisory Board
initiated a search for a new member of the
Supervisory Board. The requirements of
the Dutch Corporate Governance Code
and the skills matrix were considered
throughout the process.
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
To assess its effectiveness, the
Supervisory Board carried out an
internal performance evaluation of
itself, its individual members, its Audit
Committee, Remuneration Committee
and Nomination Committee, the Chairman
and the chairmen of these committees.
The process consisted of Supervisory
Board members completing a confidential
questionnaire.
The Audit Committee also carried out
an internal performance evaluation of
itself and invited the members of the
Supervisory Board to complete the
confidential questionnaire.
In a separate meeting without the Board
of Management, the full Supervisory
Board discussed the results of
the evaluation questionnaires. The
Supervisory Board also discussed the
functioning of the Board of Management
and the performance of its individual
members. The Chairman had one-on-one
calls with all members of the Supervisory
Board to discuss the evaluation. The Audit
Committee also had a discussion around
the evaluation. These discussions were
recorded and conclusions and actions
were discussed and confirmed at the
meeting of the Supervisory Board and the
Audit Committee.
Items addressed were overall performance
and composition of the Supervisory
Board, the Audit Committee and the
other committees, strategic issues
and key areas for 2019. Other points
discussed were the nature and impact of
the discussions, strategy oversight, risk
management and internal control and
succession planning.
We are pleased to confirm our internal
evaluation concluded that the Supervisory
50
Leadership | AkzoNobel Report 2018
51AkzoNobel Report 2018 | LeadershipBoard and its committees continued to operate proficiently. The Supervisory Board was positive about the relatively new and current composition of the Supervisory Board and the Board of Management. There is a dynamic and open atmosphere offering support and constructive challenge. Improvement areas are succession planning and talent management of the Executive Committee. The Supervisory Board intends to use an external facilitator in the evaluation process every third year. The last external evaluation took place in 2016. Financial statements and profit allocationThe financial statements of AkzoNobel N.V. for the financial year 2018 were audited by PricewaterhouseCoopers Accountants N.V.. The Board of Manage-ment 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 extensively discussed by the Audit Committee 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 2018 financial statements of AkzoNobel 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 2018 and, as proposed by the Board of Management, the proposed total dividend for 2018 of €1.80 (2017: €2.50, including €0.85 related to the Specialty Chemicals business), including a final dividend of €1.43 per share (post consolidation). An interim dividend of €0.37 (2017: €0.56) per share was paid in November 2018. This reflects the continued commitment to the company’s aim of providing a stable to rising dividend. The dividend will be paid in cash. In addition, it is requested that the AGM discharges the members of the Board of Management from their responsibility for the conduct of business in 2018 and the members of the Supervisory Board for their supervision in 2018. In September, members of our Supervisory Board and Executive Committee visited the company’s Powder Coatings site in Como, Italy. The schedule included business reviews, a tour of the plant and labs and a visit to a large powder coatings customer. It was an excellent opportunity for the senior leadership to get to know our people, our business and our customers a little bit better. AUDIT COMMITTEE
Mr. Grote has been Chairman of the
Audit Committee since his appointment
in 2015. The other members of the Audit
Committee in 2018 were Mrs. Bruzelius,
Mr. Hughes1, Mr. Jaski2, Mr. Sluimers and
Mr. Thomas2. All members of the Audit
Committee have extensive accounting
and financial management expertise.
The Audit Committee held nine meetings
during 2018. The attendance record of the
members can be seen in the attendance
chart on page 48. Issues discussed in
Audit Committee meetings were reported
back to the full Supervisory Board in
subsequent meetings.
1 Until April 2018.
2 Appointed to the Audit Committee as of June 2018.
Audit Committee
main activities 2018
The table on the right provides an overview
of relevant topics discussed and reviewed
in Audit Committee meetings in 2018.
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.
52
Leadership | AkzoNobel Report 2018
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, 2018
• Separation of Specialty Chemicals
• Quality of the external audit
• Impact of new accounting rules
• Transformation of the Finance function
As the current lead audit partner
will retire in 2019, it was decided to
appoint a new lead audit partner as per
the start of the audit on the financial
year 2019. In close cooperation with
PricewaterhouseCoopers Accountants
N.V. and after having interviews with
potential candidates, the Audit Committee
decided on the succession of the current
lead audit partner.
The Audit Committee performed an
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
comprehensive risk and internal control
reports during the year.
In addition, the Audit Committee reviewed
the annual operating 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
Audit Committee activities 2018
Q1
Q2
Q3
Q4
• Review Q4 2017 financial
statements and annual results
• Review annual report and accounts
• External audit report
• Review risk management and
internal control
• Auditors’ management letter
• Final dividend 2017
• HSE audit findings
• Review full-year compliance report
• Review five-year outlook and
planning
• Separation of Specialty Chemicals
business (including dual track,
risks and carve-out)
• Review Q1 2018 financial
statements
• Review year-to-date audit findings
(report of Internal Audit)
• Review compliance cases
year-to-date
• Follow-up on audit scope and fee 2018
• Review evaluation external auditor
• Review external quality review of
Internal Audit
• Pension funds update
• Implementation of IFRS 16 update
• Update finance transformation
• Treasury and Investor Relations update
• Distribution of proceeds from the sale
of the Specialty Chemicals business
• Review Q2 2018 financial
statements
• Review of possible ways to distribute
proceeds from the sale of the
Specialty Chemicals business
• Review November 2018
EGM materials
• Distribution of proceeds from the sale
of the Specialty Chemicals business
• Review Q3 2018 financial statements
• Recommendation on interim dividend
• Review compliance cases year-to-date
• Tax strategy review
• Review 2019 budget and outlook
• Review audit findings year-to-date
and hard close audit report
• Internal Audit plan 2019
• Review of legal liability exposure report
• Update on IFRS changes
• Update finance transformation
• Follow-up external quality review
of Internal Audit
• Change lead partner external auditor
status of the system of governance,
risk management and internal controls
throughout 2018. The Internal Auditor
also reported to the Audit Committee her
assessment of the Internal Audit function
by the Dutch Institute of Internal Auditors,
with the assessors being satisfied with the
effectiveness of the Internal Audit function.
Business and function reviews
In fulfilling its oversight responsibilities in
relation to risk management and internal
control systems, the Audit Committee
received updates from functions
throughout the year. These updates also
informed the Audit Committee’s
review of the annual operating 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 the progress
on the transformation of the Finance
function and the transformation of the
company into a focused paints and
coatings company. The Audit Committee
also met regularly with other senior
executives.
Separation of Specialty Chemicals
An important feature of the Audit
Committee’s work in 2018 was to review
and closely monitor 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 considered
The striking livery for McLaren’s 2018 F1 car saw it voted the season’s best looking car in a BBC online poll.
The Papaya Spark color scheme was developed by our Sikkens brand, which has been the official supplier of paint solutions to
McLaren Racing for a decade.
the proposal of the Board of Management
to distribute an additional €5.5 billion to
shareholders from the sale of the Specialty
Chemicals business and the preferred
methods for distribution.
Internal Audit
The Internal Auditor presented all main
audit findings to the Audit Committee and
discussed 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 2018, 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 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. This was reviewed in addition
to the work undertaken by the company’s
Disclosure Committee in 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
AkzoNobel Report 2018 | Leadership
53
Audit Committee evaluation
The Supervisory Board and the Audit
Committee evaluated the performance
of the Audit Committee, while the Audit
Committee also carried out a self-
assessment of its performance. Both
concluded that the Audit Committee is
performing effectively. The Audit Committee
agreed to organize additional education and
deep dive sessions during 2019. Reference
is made to the paragraph on the evaluation
of the Supervisory Board in this chapter.
REMUNERATION
COMMITTEE
The Remuneration Committee consists of
five members, following the appointment
of Mr. Andersen and Mrs. Clark to the
Remuneration Committee in June 2018
and after Mr. Burgmans stepped down
in April 2018. The other members of the
Remuneration Committee are
Mr. Verwaayen, Dr. Kirby and Mr. Sluimers.
The Remuneration Committee held four
meetings in 2018. The attendance record
of the members can be seen in the
Supervisory Board attendance chart on
page 48.
Remuneration Committee main
activities 2018
The table below provides an overview of
relevant topics discussed and reviewed in
meetings of the Remuneration Committee
in 2018.
Review management
performance
The work of the Remuneration Committee
during the first quarter focused on
performance for the year 2017, 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.
Remuneration policy review
In 2018, the Remuneration Committee
reviewed the Remuneration policy
to assess whether it was aligned
with the new strategy and financial
targets. Following these discussions,
the Remuneration Committee’s
recommendations have been provided
to the Supervisory Board and the
proposal to amend the Remuneration
policy was approved by the shareholders
Sailors from team AkzoNobel visited our Angered site in Sweden during the Volvo Ocean Race stopover in Gothenburg in June.
They met employees and enjoyed a tour of the site, which manufactures the same International yacht coatings products that were
used by all the boats in the race.
financial statements. In addition, the
Audit Committee reviewed and assessed
management assertions made in regard to
relevant accounting treatments.
disclosures, and to the interim and final
dividends. All quarterly or annual releases
of financial results, and any potentially
price sensitive public disclosures, were
approved by the full Supervisory Board
prior to publication and release.
In order to ensure its effectiveness and
expertise, the Audit Committee was
provided with regular updates on IFRS
developments and the anticipated
impact of these developments on the
54
Leadership | AkzoNobel Report 2018
Remuneration Committee main 2018 activities
Q1
Q2 & Q3
Q4
• Review of management performance 2017
• Target setting 2018
• Review of management base salaries for 2018
• 2017 Remuneration report
• Remuneration policy review and amendment
(AGM 2018)
• Forward-looking 2019 target-setting
• 2018 STI2 and LTI performance review
• Review LTI1 targets and LTI vehicles market evolution
• Supervisory Board remuneration
1 LTI = Long-term incentive.
2 STI = Short-term incentive.
The world’s first diamond coated multihull yacht made its debut in
2018. It was achievable thanks to a partnership which combined
our advanced color and application expertise with a diamond
coating technique developed by Jean Boulle Luxury. Already used
on private aircraft and luxury cars, the Sun King® Diamond Coating
debuted in the world of multihull yachts with the 40 Open Sunreef
Power. The partnership involves transforming ethically sourced,
natural diamonds into a high quality coating which gives a dazzling
finish to almost any surface.
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 24 of the
Consolidated financial statements.
Remuneration Committee
evaluation
The Remuneration Committee’s evaluation
of performance and effectiveness formed
part of the overall Supervisory Board
evaluation undertaken during 2018, as
explained earlier in this section.
NOMINATION COMMITTEE
The Nomination Committee consists of
four members, following the appointment
of Mr. Andersen as Nomination
Committee chairman in June 2018 and
after Mr. Burgmans stepped down in April
2018. During the year, the Nomination
Committee was chaired by Mr. Burgmans,
until he was succeeded by Mr. Andersen
in June. The other members of the
companies and performance. In addition,
the Remuneration Committee considered
the pay ratios within the company and
how these compare with peer group
companies.
Forward-looking target ranges for
variable remuneration of the Board of
Management were discussed
and proposals for the remuneration of
other Executive Committee members
Nomination Committee main 2018 activities
Q1
Q2 & Q3
Q4
• Supervisory Board succession planning
• Board of Management succession planning
• Review (re)appointment scheme
• Update skills matrix
• Review Supervisory Board profile
• Review composition of Supervisory Board
• Supervisory Board succession planning
AkzoNobel Report 2018 | Leadership
55
at the AGM of April 26, 2018. For
further details, reference is made to the
Remuneration report.
Review management base
salaries 2018
The Remuneration Committee reviewed
the base salaries and the establishment
of relevant forward-looking target ranges
for variable remuneration of Board
of Management members and other
members of the Executive Committee.
The base salaries will continue to be
assessed in light of market conditions,
the reward structures of peer group
Supervisory Board skills and profiles
N.S.
Andersen
P.
Bruzelius
S.
Clark
B.
Grote
M.
Jaski
P.
Kirby
D.
Sluimers
P.
Thomas
B.
Verwaayen
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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 sustain-
ability 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
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l
l
l
l
l
l
l
l
l
l
l
Nomination Committee are Mr. Grote,
Dr. Kirby and Mr. Verwaayen. The Nomi-
nation Committee held three meetings
in 2018. The attendance record of the
members of the Nomination Committee
can be seen in the attendance chart on
page 48.
Succession matters
As referred to on page 50, the third term
of Mrs. Peggy Bruzelius ends in 2019.
The search initiated by the Supervisory
Board was managed by the Nomination
Committee.
Nomination Committee main
activities 2018
The table on the previous page provides
an overview of relevant topics discussed
and reviewed in meetings of the
Nomination Committee in 2018.
Board of Management and
executive succession
During 2018, the Nomination Committee
was consulted and gave its advice
regarding the following appointments by
the CEO to the Executive Committee:
Mrs. Maëlys Castella as Chief Corporate
Development Officer and Mrs. Isabelle
Deschamps as General Counsel.
Supervisory Board succession
An additional aspect of the Nomination
Committee’s work is to review the
Supervisory Board appointment schedule
and make relevant recommendations.
During 2018, the Nomination Committee
continued to discuss the size, structure
and composition of the Supervisory
56
Leadership | AkzoNobel Report 2018
57AkzoNobel Report 2018 | LeadershipBoard. 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 Mr. Nils Smedegaard Andersen for consideration by the shareholders at the AGM of April 26, 2018. The Supervisory Board has updated its skills matrix, as shown opposite. The skills matrix, full details of the current The first theme park in South West China opened in 2018 – and our Dulux Pro paint brand was used to coat around 180,000m2 of attractions and facilities in 80 different colors. Known as Yunnan Happy World, the park is located in Kunming, Yunnan province.Supervisory Board composition, the schedule of Supervisory Board succession and the profiles of the Supervisory Board members can also be found on our website: www.akzonobel.comNomination Committee evaluationAs with the Remuneration Committee, the Nomination Committee’s evaluation of performance and effectiveness formed part of the overall Supervisory Board evaluation undertaken during 2018. ADDITIONAL REMARKSAll members of the Supervisory Board would like to express their appreciation to the Board of Management and Executive Committee, as well as to all employees, for their dedication and hard work during 2018. In particular, the Supervisory Board would like to extend its gratitude to both Mr. Antony Burgmans and Mr. Louis Hughes for their 12 years of service to AkzoNobel and wish them all the best in their future endeavors.Amsterdam, February 12, 2019The Supervisory Board Governance and compliance
59AkzoNobel Report 2018 | Governance and compliance59This section explains our corporate governance structure and outlines the remuneration of our Board of Management. You will also find information about risk management, compliance and integrity management, and AkzoNobel and the capital markets.Corporate governance statement 60Risk management 71 Compliance and integrity management 76Remuneration report 80AkzoNobel and the capital markets 86GOVERNANCE AND COMPLIANCETransforming homes with ease Our Coral brand in Brazil launched its new premium interior wall paint range in 2018. Coral Renova has a creamy consistency, which makes painting easier and leaves a beautiful finish.Available in five ready-mixed colors – and a further 240 via in-store tinting systems and roller wet testers – it protects against day-to-day wear and tear and can even be applied directly onto mold, without the need to clean the surface in advance. Coral Renova was inspired by our Dulux Valentine Crème de Couleur range in France, which has been a big success. Both products are designed to help consumers make confident color choices and transform their homes with ease. For more details visit www.akzonobel.com Governance and compliance 60Governance and compliance | AkzoNobel Report 2018CORPORATE GOVERNANCE STATEMENTAkzoNobel aspires to the highest standards of corporate governance and seeks to consistently enhance and improve corporate governance per-formance, 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.A revised version of the Code was implemented with effect from January 1, 2017. The Code has been implemented in practices where required and is reflected in the Rules of Procedure of the Board of Management and of the Supervisory Board, which are both available on our website. The Code was also published on the website of the Corporate Governance Code Monitoring Committee (www.mccg.nl).Executive CommitteeBoard of Management2018 organization structureSupport functionsCommercialIntegrated Supply ChainShareholdersSupervisory Board BOARD OF MANAGEMENT
AND EXECUTIVE
COMMITTEE
General
The Board of Management is entrusted
with the management 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, the Chief Supply
Chain Officer, the General Counsel, the
Chief Corporate Development Officer
and the Chief Human Resources Officer.
This ensures functional, operational and
commercial expertise is entrenched at the
highest level of 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 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.
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 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.
A strong company culture fostering
a solid and well-embedded balance
between performance and organizational
health is highly valued by the Board of
Management and the Supervisory Board,
and is fundamental to AkzoNobel’s
business strategy. In order to ensure
our transformation has a sustainable
impact on the whole organization,
AkzoNobel’s company culture forms an
important part of discussions involving
internal organizational changes and
Human Resources strategy updates.
During 2018, a quarterly Insight Survey
(Organizational Health Index) was
launched to all employees, focusing on
our wider organizational health (see Note
4 of the Sustainability statements). The
Supervisory Board regularly discusses the
results of the survey, the targets and the
actions taken to achieve such targets.
The Board of Management and
Executive Committee promote
openness and engagement through a
The Board of Management takes
precedence; all Executive Committee
decisions require a majority of the
During 2018, our Dulux Weathershield paint was applied to Vietnam’s Dai Lahn lighthouse, which is more than 100 years old.
The tough, ultra-protective coating will help the historic structure to cope with anything the elements decide to throw at it.
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. 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 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 our website.
The Supervisory Board has regular,
direct interaction with all members of the
Executive Committee and all Executive
Committee members attend most
Supervisory Board meetings.
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
AkzoNobel Report 2018 | Governance and compliance
61
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 business
units and the Corporate Directors in
charge of the different functions 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. The Board of Management
members were appointed by EGMs
(Extraordinary General Meetings) held
in 2017. 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
re-appointment.
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
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Governance and compliance | AkzoNobel Report 2018
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 to hold two
such positions.
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 a member of
the Executive Committee. Furthermore, 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 in listed companies
are held by members of the Executive
Committee.
Conflicts of interest
Members of the Board of Management
and the other members of the Executive
Committee shall not participate in the
the Supervisory Board. In such cases,
resolutions to appoint a member of
the Supervisory Board or the Board of
Management 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.
Nevertheless, at Executive Committee
level, AkzoNobel has a gender diversity
with 29% female representatives.
Outside directorships
Members of the Executive Committee
are not allowed to hold more than one
discussions and decision-making on
a subject or transaction in relation to
which they have a conflict of interest
with the company. Supervisory Board
approval is required for decisions to enter
into transactions under which Board of
Management or Executive Committee
members have a conflict of interest of
material significance to the company
and to the relevant member. Any such
decisions involving members of the Board
of Management will be recorded in the
annual report for the relevant year, with
reference to the conflict of interest and
declaring that the relevant best practice
provisions of the Code have been
complied with.
During 2018, 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 approved by the AGM. The
Supervisory Board is responsible for
determining the remuneration of the
members of the Board of Management
on the advice of the Remuneration
Committee. The components of Board of
Management remuneration, as well as the
Remuneration Policy itself, are described
Members of our Extended Leadership Team helped to spruce up two buildings in Amsterdam as part of the relaunch of our Community Program. They were joined by a group of colleagues and together
they gave a fresh coat of paint to a music school for children and a community center, both located in areas of Amsterdam that have faced serious social challenges over the years.
in the Remuneration report and in Note 24
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 our website.
Operational Control Cycle
To facilitate efficient management and
oversight of operations, the Board of
Management and Executive Committee
have established an Operational Control
Cycle (OCC), conducted once per month.
The OCC consists of a monthly Business
Review Meeting, comprising the CEO, the
CFO, the Chief Operating Officer, the Chief
Supply Chain Officer and the leadership of
our business units.
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, at which the
implementation of the company’s strategy
is discussed. The functional agendas of
Commercial Excellence; HSE&S; Human
Resources (HR); Integrated Supply Chain;
Sustainability and the Technology and
Technical groups are also discussed at
these Executive Committee meetings.
AkzoNobel Report 2018 | Governance and compliance
63
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
and to certain committees and councils.
COMMITTEES
Sustainability Council
The Executive Committee has established
a Sustainability Council to advise on
sustainability developments. The council
monitors the integration of sustainability
A famous racing yacht was restored with our yacht coatings
before embarking on a global voyage of hope. The Maiden –
which was found languishing in a boatyard in the Seychelles
having previously sailed twice around the world – has
now embarked on a worldwide tour which will help raise
awareness and fundraise for girls’ education. During the
extensive restoration, AkzoNobel provided products for the
whole vessel, from topcoat through to tank coatings.
64
Governance and compliance | AkzoNobel Report 2018
into management processes and oversees
the company’s sustainability targets and
sustainability performance. The council,
which meets quarterly, is chaired by the
CEO and includes the Chief Corporate
Development Officer, Chief Operating
Officer, Chief Supply Chain Officer, Chief
Human Resources Officer, representative
business and functional directors and
the Corporate Director of Sustainability.
Significant sustainability aspects material
to the company are reviewed annually,
with input from internal and external
stake holders. The Sustainability Council
focuses on topics with the biggest impact
on accele rating the AkzoNobel strategy to
create shared value, building on our core
principles of sustainability, safety and in-
tegrity, including respect for human rights.
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.
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 is chaired by
the General Counsel and also consists
of 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 at the discretion
of the Executive Committee.
AkzoNobel has a company-wide tool in
place to discuss and monitor progress
with respect to compliance-related
issues. More details are available in the
Compliance and integrity management
chapter.
Executive Pensions Committee
The Executive Pensions Committee
oversees the general pension policies of
the various pension plans of the company
and their financial consequences for the
company. The committee is chaired by
the CFO and includes the Chief Human
Resources Officer, the Director Legal
Corporate and Corporate Directors of
Treasury, Pensions and Rewards.
Disclosure Committee
The Board of Management has
established a Disclosure Committee
which consists of senior executives with
a background in corporate law, finance
and 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 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.
65AkzoNobel Report 2018 | Governance and complianceThe Supervisory Board is governed by its Rules of Procedure (available on our website). The Rules of Procedure include the profile and the Charters of the Committees, which set out the tasks and responsibilities of the Supervisory Board, as well as its operational processes.Role of the Chairman The Chairman of the Supervisory Board determines the agenda, chairs Supervisory Board meetings and the AGM, monitors the proper functioning of the Supervisory Board and its committees, arranges for adequate provision of information to its members and acts on behalf of the Supervisory Board as the main contact for the Board of Management and Executive Committee. He initiates the evaluation of the functioning of the Supervisory Board, its committees, individual members and the functioning of the Board of Management. Throughout the year, the Chairman of the Supervisory Board ensures that regular updates are provided to the Supervisory Board on the company’s businesses, sustainability, legal matters, social and corporate governance, accounting, investor relations, compliance, risk management and internal controls. CompositionThe 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.The current members represent five nationalities and have diverse experience, appropriate to the markets in which AkzoNobel operates, as well as knowledge of different markets and non-operational areas. The Supervisory Board maintains a skills matrix, which provides an overview of the skills and experience of the individual 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 2018, 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 is included in the Supervisory Board’s Rules of Procedures, which can be found on our 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.AppointmentMembers 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 re-appointment scheme, available on our website. In 2018, one appointment and one re-appointment to the Supervisory Board were proposed to, and approved by, the Annual General Meeting of shareholders held on April 26.Induction and trainingFollowing 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, CFO, all other Executive Committee members and relevant members of senior management, as well as site visits. This enables new Supervisory Board members to quickly build up an understanding of AkzoNobel’s businesses and strategy, as well as the key risks and issues the company faces. In addition, the Chairman ensures the Supervisory Board is provided with regular updates and that the Supervisory Board undertakes training, for example in the area of compliance and ethics.Independence of the Supervisory BoardSupervisory 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 the
Supervisory Board. Any such decisions
will be recorded in the annual report for
the relevant year, with reference to the
conflict of interest and a declaration that
the relevant best practice provisions of the
Code have been complied with. During
2018, no transactions were reported
under which a member had a conflict of
interest which was of material significance
to the company.
Remuneration
Supervisory Board members receive a
fixed annual remuneration and attendance
fee, which is determined by the AGM.
More information on the remuneration
of the members of the Supervisory
Board can be found in Note 24 of the
Consolidated financial statements.
SUPERVISORY BOARD
COMMITTEES
The Supervisory Board has established
three permanent committees – Audit
Committee, Nomination Committee and
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 Shareholder
Relations Committee. Its role is to over-
see the strengthening of AkzoNobel’s
relationship with shareholders and review
relevant feedback from the investor com-
munity. The committee reports on its
deliberations and findings to the full Super
visory Board. The Shareholder Relations
Committee comprises Mr. Andersen
(Chairman), Mr. Verwaayen, Dr. Kirby
and Mr. Grote. Four meetings were held
in 2018, with the company’s Director of
Investor Relations acting as Secretary.
Audit Committee
The Audit Committee assists the
Supervisory Board in overseeing the
quality and integrity of:
• Accounting, reporting, risk management
and internal control practices of the
company
• Compliance with legal and regulatory
requirements
• Performance of the Internal Audit
function
• Qualifications, performance and
independence of the external auditor
The Audit Committee has a role in
assessing the quality and integrity of
reporting on sustainability performance
and takes an active role in reviewing the
company’s sustainability performance
data.
As a rule, the CFO, Group Controller,
Corporate Director of Internal Audit and
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 executive
sessions with only Audit Committee
members and the CFO present. Other
members of the Executive Committee
attend as and when requested. The
General Counsel reports to the Audit
Committee on compliance matters at
every regular Audit Committee meeting
and provides a claim and liability report to
the Audit Committee once a year.
The Chairman of the Audit Committee
is primarily responsible for the proper
functioning of the Audit Committee and
reports the activities and findings of the
committee to the Supervisory Board,
which discusses these activities and
findings when necessary. The Chairman
also initiates the evaluation of the
functioning of the Audit Committee and its
individual members, without members of
the Board of Management being present.
Nomination Committee
The Nomination Committee focuses
on drawing up selection criteria and
appointment procedures for Supervisory
Board and Board of Management
members. The Nomination Committee
assesses the size and composition of
both Boards, evaluates the functioning of
the individual members, makes proposals
for appointments and re-appointments
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.
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Governance and compliance | AkzoNobel Report 2018
discharge of members of the Supervisory
Board and 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 our 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:
• Adoption of the financial statements
• Dividend proposal
• Discharge of members of the
Supervisory Board and Board of
Management
• (Re)election of members of the Board of
Management and Supervisory Board
• Remuneration of 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
• Authorization of the Board of
Management to issue new shares
• Authorization of the Board of
Management to repurchase 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, or, according to the
Official List of Euronext Amsterdam
N.V., representing a value of at least €50
million, may submit proposals for the
AGM agenda. Such proposals must be
adequately substantiated and must be
submitted in writing, or electronically, to
the company at least 60 calendar days
in advance of the meeting. Draft minutes
of the AGM are made available on the
company’s website within three months
of the meeting date. The final and duly
signed minutes are made available on
the 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, 2018, a total of 256 million
common shares and 48 priority shares
had been issued. The company has been
informed that by December 31, 2018,
AkzoNobel Report 2018 | Governance and compliance
67
The company’s Executive Committee, including General Counsel Isabelle Deschamps, attended a series of meetings throughout the
year to discuss progress on our Winning together: 15 by 20 strategy. Also high on the agenda was further embedding the success
factors we introduced in 2017: passion for paint, powerful performance, proud people and precise processes.
When selecting candidates for appoint-
ment 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.
The Remuneration Committee conducts
periodic reviews of the performance
of the members of the Board of
Management and Executive Committee.
The Remuneration Committee also
reviews the remuneration of members
of the Supervisory Board and prepares
proposals for adjustments, if necessary.
Remuneration Committee
The Remuneration Committee is res pon-
sible for making proposals to the
Supervisory Board on the Remuneration
Policy for the Board of Management,
for over seeing the remuneration of the
individual members of the Board of
Management and other members of the
Executive Com mittee, and for overseeing
the remuneration schemes for AkzoNobel
executives involving the company’s shares.
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
Capital Research and Management
Company, Norges Bank, 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 26, 2018,
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. 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 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 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 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 all regular
Audit Committee meetings, as well as
the majority of the additional meetings,
and the meeting of the Supervisory Board
at which the financial statements are
approved.
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
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.
As the current lead audit partner
will retire in 2019, it was decided to
appoint a new lead audit partner as per
the start of the audit on the financial
year 2019. In close cooperation with
PricewaterhouseCoopers Accountants
N.V. and after having interviews with
potential candidates, the Audit Committee
decided on the succession of the current
lead audit partner.
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Governance and compliance | AkzoNobel Report 2018
69AkzoNobel Report 2018 | Governance and complianceOther 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 our website.Internal AuditThe Internal Audit function is mandated to provide the Board of Management, Executive Committee and 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). 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.During 2018, the mandatory external evaluation of the performance and quality of the Internal Audit function by the Dutch Institute of Internal Auditors was conducted. The assessors were satisfied with the effectiveness of the function.SHARE DEALING RULES AND RULES ON DISCLO-SURE 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, Executive Committee and 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 (AFM).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 are subject to the AkzoNobel Rules on Disclosure Control.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 assess 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 annual internal control self-assessment process was adapted to the most recent changes in the company structure. An integrated Risk and Internal Control department (RIC) supports all businesses and functions in their work. Risk managementOur risk management system is explained in more detail in the following section. Reference is made to the Statement of the Board of Management in the Leadership section for statements relating to internal risk management and control systems.The AkzoNobel internal control frameworkControl environmentSetting objectivesResponding to riskControl activitiesMonitoring activitiesInformation and communication RAISING THE BAR WORLDWIDE
At AkzoNobel, we share
the simple, deeply rooted
belief that doing the
right thing is a moral
imperative – and can also
be good for our business.
That’s why we operate
from a foundation of core
principles: sustainability,
safety and integrity,
including respect for
human rights.
As an employer, manufacturer, business
partner and member of communities
globally, we understand that we have
many significant roles to play in society.
It’s a big responsibility, and an even
bigger opportunity to make the world a
better place.
“Our focus on human rights in particular
helps us to be a good corporate citizen,”
explains Siham Lotfi, our Global Head
of Human Rights. “Being the reference in
our industry doesn’t just apply to
our products and services. It also means
being a leader in terms of respecting
human rights when doing business –
as well as meeting growing customer
expectations on the issue.”
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Governance and compliance | AkzoNobel Report 2018
Siham adds that in some cases, large
international companies can have an
even bigger impact on human rights than
people may realize. “Our high standards
on human rights can cross borders, and
we can also influence partners to follow in
our footsteps,” she continues.
AkzoNobel is committed to having human
rights respected across the entire value
chain. Efforts are championed by senior
leadership, with our Executive Committee
directly overseeing the work of a
dedicated Human Rights Committee.
“We want to lead our industry in all
relevant areas, including sustainability and
integrity,” notes Siham. “That means
we must respect human rights when
doing business.”
For more details on our approach to
human rights, see page 171.
RISK MANAGEMENT
Doing business involves taking risks.
By seeking to take balanced risks,
we strive to be a successful and
respected company and managing
those risks 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 to provide 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).
RISK MANAGEMENT FRAMEWORK
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 objec-
tives can be achieved and our obligations to customers,
shareholders, employees and society can be met.
For more information on our risk management framework,
visit: www.akzonobel.com/en/risk-management-
framework
Enterprise
Risk Management
process
Risk identification
and assessment
Risk profiles
Risk response
per risk profile
Actions
Risk profiles and
Risk responses
Supervisory
Board
Executive Committee
Top 10 risks and Risk responses
Functions and business units
Top 10 risks and Risk responses
Areas of major risk exposure
(projects)
Top 10 risks and Risk responses
Enterprise
Risk Management
reporting
Risk consolidation
Risk transparency
AkzoNobel Report 2018 | Governance and compliance
71
MEDIUM-TERM RISKS
The table below summarizes the major risk factors for the company in the next three-to-five
years. The symbols represent management’s assessment of how these risks are expected
to develop, compared with the previous year.
External – Strategic
• Global economy and the geo-political
context
• Strategic moves in our value chain
Internal – Strategic
• Innovation, identification and successful
implementation of major transforming
technologies
External – Operational
• Raw materials and energy
• Product liability
• Information technology and
cybersecurity
External – Financial
• Post-retirement benefits
External – Compliance
• Complying with laws and regulatory
developments
Risk has been assessed to increase.
Risk has been assessed to decrease.
Risk has been assessed to remain fairly stable.
The following changes have been made
for 2018:
• International operations and Exchange
rate fluctuations are now part of Global
economy and the geo-political context
• Production process risks are included
under Complying with laws and
regulatory developments
Internal – Operational
• Attraction and retention of talent
• Management of change
• Analytics and big data
• The mitigating actions defined for
Environmental risks and liabilities are
now spread across several risk areas
• Analytics and big data is a new
category
External - Strategic
GLOBAL ECONOMY AND
THE GEO-POLITICAL
CONTEXT
The world’s geo-political situation remains
unpredictable and, as a company, we
operate in highly competitive markets.
Failure to carefully manage and develop
a good understanding of end-user
segments could have an immediate
impact on financial performance, resulting
in the company not realizing its financial
guidance.
Mitigating actions
• Continue our strategy to reduce
both our operational cost base and
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
• Centralize management of foreign
currency exposure and reduction of
transactional exposure through natural
hedges in our main currencies (see
Note 25 of the Consolidated financial
statements)
• Include political risk assessment in
investment decisions and medium-term
operational planning
RISK MANAGEMENT IN 2018
Risk management is a company-wide
activity, under the responsibility of the
Board of Management and Executive
Committee, which ensures we focus on
the areas of major risk exposure.
During 2018, we held a significant
number of enterprise risk workshops
across the organization. The number
reflects the maturity and complexity of the
organization. The identified scenarios are
prioritized by responsible management
teams and functional experts, with
adequate mitigating actions being defined.
We also launched several important
initiatives, coordinated by a Transformation
Office, to support our Winning together:
15 by 20 strategy. We recognize the
inherent risks associated with the multiple
changes in the organization resulting
from these initiatives. We have therefore
defined the necessary actions to mitigate
these risks and are supported by our Risk
and In Control department in our ongoing
assessment.
Our initial focus is on risks that may
impact achievement of our strategy in the
next three-to-five years (medium-term
risks). We also recognize relevant risks
beyond this five-year horizon (long-term
risks). Both risk categories feature in this
chapter.
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Governance and compliance | AkzoNobel Report 2018
73AkzoNobel Report 2018 | Governance and complianceExternal - OperationalPRODUCT LIABILITYHigh impact product liability claims, while unlikely, could result 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 R&D, HSE&S and sustainability agenda• Tailored insurance coverage for product liability claimsExternal - Operational INFORMATION TECHNOLOGY AND CYBERSECURITYThe company’s longer term IT strategy means we increasingly rely on fewer consolidated critical applications. With the number of digital exchanges of business transactions increasing, the non-availability of IT systems – or unauthorized access – could 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 supportExternal – StrategicSTRATEGIC MOVES IN OUR VALUE CHAINAn accumulation of strategic moves (horizontally and/or vertically) could impact our competitive position and/or increase the vulnerability of operations. Further industry 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 mergers and acquisitions (M&A) and integration capabilities • Further enhance pipeline of viable market and technology opportunities for M&A, focusing on strategic rationale • Secure freedom to invest through strategic alignment with shareholders and other stakeholders External - OperationalRAW MATERIALS AND ENERGY Prices for key raw materials and energy can be volatile, are affected by economic conditions and regulations, as well as national policies and subsidies. The chart on the right shows our relative spend on key raw materials, excluding energy. Breakdown of total raw material spend in % A Additives 16B Commodity resins 19C Latex and monomers 11D Packaging 11E Pigments and colorants 7F Solvents 10 G Specialty resins 14H Titanium dioxides 12 ABCDEFGHMitigating actions• Actively leverage the cost, quality and delivery of raw materials and energy, including the performance of suppliers• Manage risks related to single sourced materials, demand forecasting and margin-impact assessment • Increase our sourcing efficiency by introducing new forecasting tools in close cooperation with the business• Created the role of Resins Business Director to optimize the design and management of a sustainable resin strategy • Improve incident response and repor-ting by implementing a cyber Security Operations Center (SOC), providing improved coordination, monitoring and response to cybersecurity• Centrally monitor access control processes and identity and access enhancements• Roll-out of the new Information Management security standard for industrial control systems to all manufacturing locations• Further test and improve IT security response and incident management process• Further rationalize our application landscape to reduce complexity and enhance efficiency and effectiveness External - FinancialPOST-RETIREMENT BENEFITSOur 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 closed to new entrants and are managed and controlled by
independent trustees
• We practice proactive pension risk
management and 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.
The most significant defined benefit
schemes have been closed to new
entrants for more than 15 years
External - Compliance
COMPLYING WITH
LAWS AND REGULATORY
DEVELOPMENT
Our global footprint exposes us to
increasingly stringent laws and regulations
covering an increasing range of
subjects (such as safe use of hazardous
compounds, environmental releases,
soil contamination, human rights,
competition law).
Mitigating actions
• Remain dedicated to minimizing
AkzoNobel’s compliance risk by
fostering an open and transparent
culture, continuously educating and
training our employees worldwide and
increasing awareness (for example, our
Code of Conduct)
• Monitor overall compliance through our
comprehensive annual Non-Financial
Letter of Representation (NFLoR)
process
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Governance and compliance | AkzoNobel Report 2018
• Implementation of Business Partner
• Enhance our global open innovation
Internal - Operational
Compliance Framework
capability
• Define leading technology standards
in VOC/dust emission/energy control
systems
• Conduct mandatory annual
environmental liability reviews
• Integrate environmental standards and
regulations in plant design
• Continuously innovate to remain at the
forefront of new, sustainable product
introductions
• ALPS is being implemented to
drive continuous improvement and
operational excellence
• Operate under state-of-the-art safety
requirements for our manufacturing
and R&D sites (for example, AkzoNobel
People, Process and Product Safety
Common Platform)
• Ongoing business continuity planning
Internal - Strategic
INNOVATION, IDENTIFICA-
TION AND SUCCESSFUL
IMPLEMENTATION OF
MAJOR TRANSFORMING
TECHNOLOGIES
Our success and leadership positions
depend on the sustainable growth of
our business through research and
the adoption of major transforming
technologies, social media and digital
applications in general.
Mitigating actions
• Prioritize funding for technology road
maps and innovation strategies
• Invest in promising venture funds
• Explore acquiring/partnering with
innovative startups
• Dedicated IT team to support
the business in new technology
applications
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.
Mitigating actions
• Strengthen AkzoNobel’s employee
value proposition
• Focus on talent development programs
and succession planning (for example,
Talent and Opportunity Review, Your
AkzoNobel, nomination of Talent
Managers)
• Fully embed values and behaviors in our
Performance and Development Dialog
annual appraisal
MANAGEMENT OF
CHANGE
Our Winning together: 15 by 20 strategy
will help transform AkzoNobel into a
long-term leader. But we also recognize
the risks associated with such profound
changes. This means we need to invest in
building an organization structure which
encourages and embraces change, while
balancing opportunity and risk.
Mitigating actions
• Focus on core principles and values
and embed these in reward systems
to set desired behavioral changes in
motion
• Identify organizational health initiatives
and track progress periodically
• Roll out principles of commercial
excellence in all levels of the
organization
• Support adoption of a new organiza-
tion model through the creation of a
Planning and Transformation Office,
including a network of Regional
Transformation Leads
• Implement standard solutions across
the company under the responsibility of
designated Global Process Owners
• Continue the journey of creating fit-for-
purpose support functions to drive
synergies and standardization at a
company-wide level
• Roll-out R&D effectiveness program,
including Innovation Team and startup
challenge
75AkzoNobel Report 2018 | Governance and complianceLONG-TERM RISKSLong-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 the company, 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.The most significant long-term risks we observe are:• Increasing public concern arising from environmental/safety properties of specific ingredients in products leading to legislation banning or restricting the use of products containing them and/or customers deselecting products in key markets• Failing to listen to, and engage with, an ever-widening field of stakeholders – in particular customers, investors and regulators – in the area of sustainable development and the systematic changes needed for its achievement. This requires extra attention for: - Transparency on the economic, environmental and social impact of our strategy and activities- A comprehensive human rights framework following UN guiding principles- Concerns over tax avoidance by large corporations- A persistently negative perception of the role of global corporations in society, leading to reputational and financial damage• Increasing short-termism among investors, which could cause businesses to: - De-prioritize investments required for long-term and sustainable growth- Miss out on future opportunities- Excessively focus on short-term financial results at the expense of long-term value creation and identification of long-term risks• Impact on business of climate change and the shift towards a circular economy under various scenarios: - A carbon price leading to higher cost of raw materials - Increase in frequency and severity of extreme weather events, leading to supply chain disruption - Restrictions on emissions leading to increased demand for low carbon solutions or higher production costs- A global shift to a circular economy with major implications for businesses to be an enabler and deliver circular solutions in collaboration with othersInternal - Operational ANALYTICS AND BIG DATAIn order to utilize data analytics and “big data” to support even better decision-making, we recognize the need to invest in an appropriate organization structure and governance framework with common standards, methods and tools to deliver insightful information across the company.Mitigating actions• Maintain strong process and data ownership• Define and implement an IM platform to support advanced analytics and management of big data COMPLIANCE AND INTEGRITY MANAGEMENT
Integrity is one of our
core principles. We’re
committed to conducting
business in a lawful, fair
and honest way and
expect the same from our
business partners. We
have a robust compliance
program which is focused
on the risks most material
to the company and its
stakeholders.
INTEGRITY WEEK
In June 2018, the company held
an Integrity Week, which focused
on reminding employees of our
commitment to doing business with
integrity. This program included the
relaunch of an updated Code of
Conduct and e-learning.
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Governance and compliance | AkzoNobel Report 2018
RISK IDENTIFICATION AND
PRIORITIZATION
We identify compliance risks through
several processes, including:
• Enterprise Risk Management
(see page 71)
• Internal control self-assessments
• Non-Financial Letter of Representation
(NFLoR)
• Monitoring of legal developments
• SpeakUp! investigations
• Compliance training
• Supplier self-assessments
• Internal audits
• Business partner audits
• Value chain due diligence
As part of the NFLoR process, every
business and major function identifies
its inherent and residual compliance
risks and reports this in a Compliance
Risk Overview to the relevant Executive
Committee member as part of the newly
introduced Risk Compliance and Control
reporting process (see page 77). In turn,
the Executive Committee members report
the compliance risks to the CEO.
In 2018, the top five inherent compliance
risks were in the field of competition law,
environmental law, bribery, fraud and data
protection. Action plans are in place to
mitigate 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
Compliance framework
Continuous improvement of the framework,
with additional attention to privacy.
Risk identification
and prioritization
Measurement and
improvement
Policies and
controls
Declaration and
reporting
Culture
Governance and
organization
Grievance and
investigation
Communication
and education
Screening and
monitoring
expect from them. These codes, and our
SpeakUp! procedure, are available in
32 languages. They are also supple-
mented by internal rules and procedures
– which are available to employees in our
Directives Portal – and by agreements
with our business partners. For example,
the section on Honest Business Conduct
refers to the Directives and Rules on
Anti-Bribery, Gifts and Entertainment,
which also contains detailed rules
on facilitation payments, political
contributions, charitable donations and
sponsorships. Employees are required to
confirm compliance as part of the annual
performance evaluation, while all business
partners are required to sign our Business
Partner Code of Conduct, or show that
they apply similar business principles.
In 2018, we updated our Binding
Corporate Rules on the protection of
personal data to meet the requirements of
the EU General Data Protection Regulation.
With these Binding Corporate Rules, we
apply the same high privacy standards
across all our operations worldwide.
GOVERNANCE AND
ORGANIZATION
The Board of Management and the
Executive Committee are responsible for
an effective compliance management
framework across all AkzoNobel group
entities, and for maintaining a culture of
integrity which supports long-term value
creation. The Audit Committee supervises
this responsibility on behalf of the
Supervisory Board.
Compliance committees
The Executive Committee has appointed
a Corporate Compliance Committee (see
page 64), Human Rights Committee,
Privacy Committee and Life-Saving Rules
Committee consisting of senior leaders
from different disciplines, including
business representatives that monitor
and assess the frameworks for which
they are responsible. Their composition
and responsibilities are explained on our
website. In 2018, the Sensitive Country
Committee was integrated into the
Corporate Compliance Committee.
Risk, Compliance and Control
Committee
Introduced in 2018, every business
unit and major function has a Risk,
Compliance and Control Committee.
This committee consists of the managing
director, finance director, human resources
director and representation from
Compliance, Internal Control and Internal
Audit. These committees meet four times
per year and review the compliance and
control risks, deficiencies and actions.
The introduction of this new process
means that the Quarterly Attestation,
Compliance Committee and Internal
Audit meetings have been integrated.
This enables business and functional
leadership to get a better view of all
compliance and control risks and actions,
as well as enabling prioritization across
Compliance, Internal Control and Audit
findings and cross-fertilization between
those functions.
Compliance function
The Compliance function:
• Hosts the Codes of Conduct and
Directives Portal
• Develops and communicates rules and
guidance
• Manages compliance training programs
• Facilitates risk assessments
• Performs compliance due diligence
• Manages investigations
• Facilitates compliance self-assessment
• 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 business and
functional leaders in managing the day-to-
day compliance operations.
In 2018, the compliance resources
were streamlined to better suit our
transformation into a more focused paints
and coatings company.
Internal Audit
The effectiveness of the compliance
frame work is audited by the Internal Audit
function. Following investigations, Internal
Audit may also be engaged to conduct
additional reviews to establish root cause
analysis.
COMMUNICATION AND
EDUCATION
Our core principles and directives are
communicated to employees in several
ways, including a comprehensive digital
training program, classroom training and
compliance communications. They serve
to educate our employees and inspire
them to apply high ethical standards.
Digital training
The Code of Conduct and Life-Saving
Rules online training are mandatory
for every employee. In the second half
of 2018, we relaunched our Code of
Conduct digital training as a refresher to
all employees. Mandatory digital training is
also provided to designated employees in
the field of competition law, export control,
bribery, privacy, fraud and information
security.
In 2018, new online training was launched
on bribery and privacy. The overall
completion rate of online compliance
training was at 71%, lower than previous
years in light of the relaunch of the Code
of Conduct, bribery and privacy training
during the course of the year.
Classroom training
Classroom training is provided on a variety
of topics, including general compliance
awareness, the Code of Conduct,
SpeakUp!, competition law, export
control, privacy and discrimination and
harassment.
AkzoNobel Report 2018 | Governance and compliance
77
Communication
The Compliance function issues com -
pliance bulletins, spotlights and articles in
company digital newsletters on a regular
basis. For example, in 2018, we twice
issued a company-wide alert on external
fraud attempts, supported by a user-
friendly animation which explained what
to watch out for and what to do in case
of attempted fraud. On several occasions,
communications on competition law
were also issued in support of our pricing
acceleration actions, which informed
employees about what they can and
cannot do.
As with every year, in early December,
a year-end integrity message was
issued. Sent directly from the General
Counsel, it reminded employees of our
accounting rules and our rules on gifts and
entertainment ahead of the holiday season.
Compliance portal
A comprehensive compliance web portal
is available to employees containing
guidance, templates and references on
various compliance topics. In 2018, a new
section was launched to help employees
ensure privacy compliance when carrying
out personal data processing activities.
The portal contains step-by-step guidance
and templates, including standard data
processing agreements, terms and con -
ditions for websites and cookie policies.
SCREENING AND
MONITORING
We use several processes and tools to
screen employees, business partners,
activities and acquisition targets. For
example, we have a business partner
screening tool, which enables employees
to perform a compliance check on
potential new suppliers, agents and other
high risk business partners.
We also have a sanctioned party and
country screening tool, which is interfaced
with ERP systems and automatically
screens parties and transactions against
sanctioned parties and country lists.
In 2018, we embedded the personal
data processing activity register in our
information management processes
(privacy by design) and registered and
assessed numerous existing personal
data processing activities.
Compliance of our operations is
monitored in several ways. For example,
as part of the annual internal control
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/unsubstanti-
ated/referred3
Total number of dismissals
resulting from SpeakUp! reports
2016
2017
2018
324
187
23
64
100
162/25
13/174
38/84/16
261
129
23
53
53
104/25
14/115
17/80/2
238
104
6
50
48
104
21/83
14/42/5
16
4
5
1 Corporate matters are 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 another department.
self-assessment and NFLoR process.
Compliance of suppliers is monitored
through the Together for Sustainability
Ecovadis self-assessments and audits
(see page 164).
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. As an example of our
non-retaliation principle, in 2018,
a manager was dismissed for
inappropriate behavior towards one
of his employees after she had filed a
SpeakUp! report against him.
SpeakUp! reports are investigated on their
merits, in accordance with investigation
procedures that are available to everyone
on our internal and external websites. The
investigations are conducted or managed
by dedicated resources supervised by the
Head of Investigations.
Reports are categorized into: Category 1
(matters with a potential financial impact
of >€0.5 million, or involving senior
management or relating to competition
law, export control or anti-bribery); and
Category 2 (other matters). Category 1
SpeakUp! reports are decided by the
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Governance and compliance | AkzoNobel Report 2018
Corporate Compliance Committee.
Category 2 reports are decided by the
business or function’s Risk, Compliance
and Control Committee.
In 2018, we developed a comprehensive
investigation protocol and reporting
templates to further improve the
quality, efficiency and consistency of
investigations. In 2018, 104 SpeakUp!
reports were received, 21 of which were
Category 1 and 83 were Category 2. In
total, 14 of the 104 SpeakUp! reports
were substantiated, leading to five
dismissals.
Potential Code of Conduct violations
that are reported to the Compliance
function, other than through the formal
SpeakUp! channels, are also logged in
the company’s Code of Conduct violation
report database and follow a similar
investigation procedure. In 2018, 134 of
these so-called non-SpeakUp! reports
were logged and investigated.
Alongside the SpeakUp! grievance
mechanism, we have a data breach
reporting procedure. This procedure
facilitates the reporting, assessment and
follow-up of potential breaches of personal
data. In 2018, we received 19 personal
data breach reports. While relatively small
in scale and without direct material impact
to individuals, three reports were of such
a nature that the authorities had to be
notified. In relation to another report, a
service provider had caused a breach and
notified the authorities. In all instances,
repair actions were taken immediately.
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).
Exceptions must be reported and actions
planned and documented. The process
is positioned as an invitation to business
and functional leadership to provide
transparency, to better understand the
company’s compliance risks and to
facilitate prioritization and coordinate
actions.
In 2018, all management team members
of business units and major functions
completed the NFLoR for their area of
responsibility. The results of the NFLoR
process were rolled-up to the relevant
Executive Committee members and
subsequently discussed by them with
the CEO. The final results are reported
in the year-end Compliance Report,
which is submitted to the Executive
Committee and the Audit Committee of
the Supervisory Board. The external
auditor receives a copy of the
Compliance Report.
Individual declarations
Annually, employees confirm compliance
with the Code of Conduct as part of
the year-end performance evaluation.
Employees exposed to competition law
restrictions are required to confirm their
compliance with our competition rules in
the annual Competition Law Compliance
Declaration. The declaration serves to
remind employees of the importance
of compliance with competition laws,
educate them on what the key restrictions
are and request disclosure of any
irregularities in this field.
In 2018, more than 10,000 employees
signed the Competition Law Compliance
Declaration. Designated employees of
newly acquired businesses (Colourland,
Fabryo, Xylazel) were invited to confirm
competition law compliance, or to report
any irregularities that they would be aware
of, providing them internal amnesty for
such a report.
Reporting
To ensure that management is well-
informed, there are several compliance
reporting procedures in the company.
INTEGRITY CULTURE
A culture of integrity forms the
foundation of any compliance
framework. Our Executive Committee
and Supervisory Board continuously
promote a culture of transparency
and integrity in the company. 2018
examples include integrity messages in
town hall meetings across the globe,
a company-wide Integrity Week and
continued emphasis on doing the right
thing as part of our pricing acceleration
and other strategic initiatives. The
boards have clearly outlined our
aspired company culture, which is
supported by core principles and
leadership behaviors.
Monthly, key compliance investigations
are reported in the Business Review
Meeting. Quarterly, compliance issues
and concerns are reported in the Risk,
Compliance and Control Committee
meetings. The General Counsel provides
an update on compliance matters in
Audit Committee meetings. The final
results are reported in the year-end
Compliance Report, which is submitted
to the Executive Committee and the Audit
Committee of the Supervisory Board. The
external auditor receives a copy of the
Compliance Report.
MEASUREMENT AND
IMPROVEMENT
We measure our integrity culture
in several ways. For example, our
company-wide Organizational Health
Index survey includes several integrity-
related questions. The findings feed into
the Compliance plan and programs.
Integrity dilemmas are included in our
recruitment standards and contribute to
recruitment decisions. The integrity culture
is considered in SpeakUp! investigations
and audits and contributes to defining any
follow-up actions to repair irregularities or
improve the environment.
Managers are incentivized to act with
integrity as their performance is evaluated
based on how they achieve objectives,
according to nine leadership behaviors.
AkzoNobel Report 2018 | Governance and compliance
79
REMUNERATION REPORT
This report describes our
Remuneration Policy and
how it was implemented
for members of the Board
of Management in 2018.
The Supervisory Board determines the
remuneration and individual service
agreement terms for the Board of
Management. The Remuneration
Committee, comprising members of
the Supervisory Board, has delegated
authority to make these decisions 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 contract terms of the
Board of Management – references the
Dutch Corporate Governance Code.
REMUNERATION POLICY
Our Remuneration Policy (the “Policy”)
was first adopted by shareholders at the
Annual General Meeting (AGM) in 2005. It
has undergone several amendments since
then, most recently in 2018, and these
changes are noted in this report.
As a major international company, it is
essential that we can attract and retain
high caliber executives to the Board of
Management. Equally, their performance
should be focused on achieving those
strategic aims which promote AkzoNobel,
safeguard it and create sustainable,
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Governance and compliance | AkzoNobel Report 2018
long-term value. The Policy is designed to
enable these objectives, while balancing
the perspectives of shareholders and
other key stakeholders. Consequently,
there is alignment between our executive
remuneration principles and those which
apply more broadly in the company.
Total remuneration
Our Policy seeks to enable members
of the Board of Management to receive
market competitive levels of remuneration
across all package elements. To this end,
we use the median level of the external
market as a reference point, which is
taken from industry peers, plus a range
of companies that are of a similar scale,
complexity and geographic reach to
AkzoNobel. When setting and reviewing
remuneration levels, we also consider
factors affecting our industry, alongside
other relevant inputs.
Members of the Board of Management
can receive a remuneration package
consisting of:
• Base salary
• Performance-related short-term
incentives, delivered in cash and with
the ability to award matching shares
• Performance-related long-term
incentive, awarded in the form of shares
• Post-contract benefits
• Other benefits
Base salary
Salaries are set by the Remuneration
Committee. Salary levels are usually
reviewed annually, without any
commitment to increase them.
Short-term incentive (STI)
The STI is designed to give focus
to a range of strategically important
annual objectives, both financial
and non-financial. Collectively, these
objectives are targeted to deliver a level
of performance which is in line with our
operational plans. They do not incentivize
undue risk taking or other behaviors which
are contrary to the company’s interests.
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. Financial performance
accounts for 70% of the STI, while the
remaining 30% is linked to achieving
individual and qualitative goals, including
sustainability and people-related targets.
At the start of each financial year, the
Remuneration Committee will consider
the company’s priorities and therefore
how it intends to incentivize short-term
performance. It will agree the metrics for
inclusion in the STI, their relative weighting
and targets for achievement. Up to four
financial metrics can be selected from the
following list:
• Revenue growth
• Adjusted EBITDA
• Adjusted operating income
• Return on sales (ROS)
• Return on investment (ROI)
• Operating income (OPI)
• Net income (to shareholders)
• Operational cash flow (OCF)
These metrics are as used or defined
in our annual report, subject to minor
adjustments if required, in order to provide
an appropriate indicator of management’s
performance.
For each target, the Remuneration
Committee sets performance ranges
each year. These performance ranges
determine: (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. In aggregate, STI awards will not
exceed 150% of base salary for the CEO,
and 100% of base salary for any other
member of the Board of Management.
Bonus awards are paid in cash, but Board
of Management members who have yet
to achieve their minimum shareholding
level are required to invest one-third of
their short-term incentive (net after tax and
other deductions) in AkzoNobel shares.
A Share Matching Plan is in place to
enable them to more quickly accumulate
shares in the company. However, this
arrangement has been suspended for
bonus awards arising from performance in
2018 to 2020, since it has been replaced
by the 2020 Performance Incentive Plan
(more details about this plan can be found
on page 84).
Long-term incentive (LTI)
The company’s LTI plan is designed to
give focus to the strategic priorities that
will contribute to building sustainable
long-term value creation. By making
awards in equity of the company,
alignment is created between the Board
of Management and AkzoNobel’s
shareholders.
The vehicle through which long-term
performance is incentivized is the
performance-related share plan. It was
approved by shareholders at the AGM
in 2004 and has been amended several
times, most recently in 2018. Under
the performance-related share plan,
shares are conditionally granted to the
members of the Board of Management
on an annual basis, following approval
from the Remuneration Committee. Since
2018, performance has been incentivized
through two equally-weighted metrics,
which are measured over a three-year
period:
• Total shareholder return (TSR)
measured relative to a competitor peer
group
• Growth in return on investment (ROI)
Both of these metrics operate
independently of each other and,
therefore, each governs 50% of
the conditional target grant. The
Remuneration Committee determines the
targets that comprise each metric and the
peer group constituents.
A target level of performance will vest
100% of the target number of shares
conditionally granted. Maximum vesting
is 150% of the conditional share grant.
No shares will vest if a minimum level of
performance is not achieved.
Once the performance period has
ended, the Remuneration Committee
will assess the extent to which the
targets have been met. The number of
shares to vest is adjusted for dividends
that were paid to shareholders over the
three-year performance period. In total,
the performance share plan covers five
financial years, as any vested shares must
be retained by the Board of Management
member for a further two financial years.
Shareholding requirements
Members of the Board of Management
are required to hold shares in the
company for the duration of their tenure
in that capacity. The shares must be
accumulated over five years from the
date of their appointment to the Board of
Management. The holding requirements
are expressed as a percentage of
the executive’s annual gross base salary
as follows:
• CEO 3x
• CFO 1.5x
• Any other member of the Board of
Management 1x
Pay mix
The Remuneration Policy is designed
to put a higher proportion of the Board
of Management’s package “at risk” in
the form of variable pay, i.e. derived
through incentive plans. The total value
CEO target pay mix 2018 in %
Fixed pay
Variable pay
100
48
27
52
73
20
80
Below threshold
performance
At threshold
performance
At target
performance
At/beyond maximum
performance
CFO target pay mix 2018 in %
Fixed pay
Variable pay
100
47
53
69
31
23
77
Below threshold
performance
At threshold
performance
At target
performance
At/beyond maximum
performance
AkzoNobel Report 2018 | Governance and compliance
81
of remuneration that can be earned rises
with the level of performance that is
delivered, and consequently the relative
proportion of the fixed pay package
reduces.
The charts on page 81 show the ratio
between fixed and variable pay – the pay
mix – for the CEO and CFO under various
performance scenarios. The fixed pay
component only refers to base salary,
excluding post-contract benefits and
other benefits. The variable component
includes the STI, LTI and the share
matching plan, on the assumption that
these are the normal policy components
for the Board of Management. 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.
Other benefits
Other benefits – such as a company car –
are determined by the Supervisory Board
and are given to provide members of
the Board of Management with a market
competitive package.
Claw back and value adjustment
All variable pay components are subject
to the claw back and value adjustment
provisions of the Dutch Civil Code.
Loans
The company does not grant loans,
advance payments or guarantees to its
Board members.
IMPLEMENTATION OF THE
REMUNERATION POLICY
IN 2018
The Supervisory Board, with delegated
authority to the Remuneration Committee,
is responsible for ensuring that the
Remuneration Policy is appropriately
applied and aligns with the company’s
objectives. The policy itself, alongside
the checks and balances in its execution,
are designed to avoid incidents where
members of the Board of Management
– and senior executives for whom similar
incentive plans apply – could act in their
own interest, take risks that are not in
line with the company’s strategy or risk
appetite, or where remuneration levels
cannot be justified in any reasonable
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 Remuneration
Committee 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.
Prior to agreeing incentives, the
Remuneration Committee carried
out scenario analyses of the possible
financial outcomes of meeting different
performance levels, and how they may
affect the structure and value of the Board
of Management’s total remuneration.
A pay ratio is also taken into account,
comparing the total remuneration of the
CEO and the average total remuneration
for an AkzoNobel employee over the
financial year.
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 Remuneration
Committee. In 2018, the peer group
consisted of the following companies:
• PPG Industries
• Ahold Delhaize
• Randstad
• Air Liquide
• RELX Group
• ASML
• RPM International
• DSM
• Henkel
• Sherwin-Williams
• Ferro Corporation • Sika
• KPN
• The Linde Group
• LafargeHolcim
• Signify
• Vopak
• Wolters Kluwer
The Remuneration Committee consults
with external remuneration professionals
to obtain appropriate benchmark data
and on other matters where it requires
independent advice. When making pay
changes for members of the Board of
Management, it evaluates the impact on
pay differentials with other executives in
the company. When other benefits are
granted, the Remuneration Committee
does so understanding market
practice, plus any relevant legal or tax
considerations.
The Supervisory Board has determined
that, in the event of a change in control in
the company, the vesting of awards made
under the performance share plan will be
100% of all shares conditionally granted.
This does not affect the discretion it has
to correct the variable remuneration of
Compensation Board of Management 2018
in €
Base salary
Short-term incentive
Share awards1
Other long-term incentive
Post-contract benefits2
Other emoluments3
Total remuneration
Thierry Vanlancker
Chief Executive Officer
Maarten de Vries
Chief Financial Officer
979,000
587,400
1,156,540
659,000
307,753
410,420
356,593
240,036
163,500
13,443
3,256,476
129,200
9,443
1,755,852
1 Costs relating to share awards (performance-related share plan and share-matching plan) are non-cash and relate to the expenses
following IFRS 2.
2 Post-contract benefits refers to payments intended for building up retirement.
3 Other emoluments include employer’s charges (social contributions) and other compensations, such as car arrangements.
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Governance and compliance | AkzoNobel Report 2018
the Board of Management upwards or
downwards in exceptional circumstances.
For communication purposes, the table
opposite presents an overview of the
remuneration of the members of the
Board of Management who were in office
in 2018. See Note 24 of the Consolidated
financial statements for more details.
Base salary
The Remuneration Committee reviewed
the salaries of members of the Board of
Management in the year, having regard to
market data, inflation data and the level
of increases that were to be applied for
AkzoNobel employees in the Netherlands,
including those who are covered by a
collective labor agreement. Increases
to the value of 3% of base salary were
agreed, to be effective from January 1,
2018:
• Mr. Vanlancker, CEO:
• Mr. de Vries, CFO:
€979,000
€659,000
Short-term incentive (STI)
In 2018, the objectives of the short-term
incentive were to reward performance on
ROS and OCF; to measure individual and
collective performance; and to encourage
progress towards the achievement of
long-term strategic objectives, including
sustainability.
The performance targets for achievement
were determined by the Supervisory
Board and were applied to the STI by
the Remuneration Committee. 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 2018 included
goals set in relation to delivering on the
company’s communicated strategy,
including sustainability objectives.
ROS was calculated by determining the
ratio of adjusted operating income over
revenue. OCF was calculated as EBITDA
minus the change in operating working
capital and minus capital expenditures, all
in constant currencies.
In determining the outcome of the short-
term incentive elements (ROS, OCF and
personal targets), the Remuneration
Committee 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. Taking into
consideration the level of performance
that the company had delivered during
2018, and achievement that had been
made on a number of key strategic goals,
the Remuneration Committee determined
that bonus payments for the Board of
Management would be:
• Mr. Vanlancker, CEO:
€587,400 (60% of salary)
• Mr. de Vries, CFO:
€307,753 (46.7% of salary)
A total of 1,936 matching shares were
awarded to the CEO in 2018 to cover the
2017 financial year. The CFO did not earn
a 2017 bonus due to his appointment
date.
Long-term incentives (LTI)
The objectives of our long-term incentive
plan are to encourage long-term
sustainable economic and shareholder
value creation – both absolute and
relative to competitors – and to align
Board of Management interests with
those of shareholders, as well as ensuring
retention of the members of the Board
of Management. Performance-related
shares are considered to provide a strong
alignment with shareholders’ interests.
Performance-related share plan
2018-2020
The Remuneration Committee determines
the grant levels to be made in respect of
members of the Board of Management,
within the limits and plans that have been
approved by shareholders. In 2018, the
CEO and CFO received a conditional grant
of shares equivalent to the face value of
150% of their annual base salaries. The
grant price was set based on the market
closing price of an AkzoNobel common
share as of January 2, 2018.
The metrics applicable to the
performance-related share plan for the
2018-2020 performance period are
relative TSR and ROI, equally weighted.
The target and ranges for the ROI
metric will not be disclosed as they are
considered to be commercially sensitive
information. However, the relative TSR
industry peer group consists of nine
companies for 2018 to 2020:
• Asian Paints
• Kansai Paint
• Nippon Paint
• RPM
International
• Axalta
• Masco Corp
• PPG
• Sherwin Williams
• Tikkurilla
The vesting schedule that will apply to the
relative TSR metric, which applies to half of
the conditional target grant, is noted in the
next table. When making the performance
assessment, the TSR result of AkzoNobel
is included within the ranked peer group.
TSR vesting scheme for the conditional
grants
Rank
1
2
3
4
5
6
7
8–10
Vesting (as % of 50%
of conditional grant)
150
135
120
100
75
50
25
0
Replacement of the share
matching plan
The Remuneration Committee determined
that the share matching plan will be
suspended for three years, i.e. in relation
to performance in the years 2018 to 2020.
The value of the share matching plan for
these three years will be invested in the
newly-created 2020 Performance Incentive
Plan. This was approved by shareholders
at the 2018 AGM. In 2021, the 2020
Performance Incentive Plan will cease
to apply and it is anticipated that the
share matching plan, as included in the
Remuneration Policy, will recommence.
AkzoNobel Report 2018 | Governance and compliance
83
2020 Performance Incentive Plan
The 2020 Performance Incentive Plan is
an exceptional, one-off incentive with a
cash payout based on the achievement
of 15% ROS by the end of 2020. Its key
objective is to incentivize the achievement
of the 2020 financial guidance as
presented to shareholders and deliver
upper quartile industry performance.
The 2020 Performance Incentive Plan
could award a payment of two times
annual base salary to members of the
Board of Management provided that
15% ROS is achieved by the end of
2020. The performance ranges, as set
out in the below table, determine: (i) The
performance level below which no payouts
are made; (ii) The performance level at
which 100% of base salary payout is
made (threshold); (iii) The performance
level at which the target payout of 200%
of base salary is made; and (iv) The
performance level at which the maximum
payout of 400% of base salary is made.
If a change of control event over
AkzoNobel were to occur during the
performance period, the Remuneration
Committee can test the Plan’s perfor-
mance conditions and determine the
terms and conditions of any payment
arising from it, including the timing of it.
Pay ratio
The pay ratio compares the total
compensation of the CEO against the total
compensation of an AkzoNobel employee,
calculated as an average of all employees
as of December 31, 2018. In respect of
2018, the ratio is 56.4 (2017: 58.6).
Claw back and value adjustment
In 2018, there was no cause for a
claw back or value adjustment by the
Remuneration Committee.
Shareholding requirements and
share matching
As of December 31, 2018, the CEO,
Mr. Vanlancker, held 13,682 shares, of
which 2,166 qualified for share matching
under the Share Matching Plan on a
ratio 1:1. The matching shares were
conditionally granted during 2017 and
2018 and will be released in 2020 and
2021 respectively, subject to the terms
of the Share Matching Plan. The shares
acquired by Mr. Vanlancker during
2018 contribute towards his required
shareholding in accordance with the
Remuneration Policy (see also Note 24 of
the Consolidated financial statements).
As of December 31, 2018, the CFO,
Mr. de Vries, held 2,562 shares.
Mr. de Vries did not have an opportunity
Performance range – 2020 Performance Incentive Plan
2020 ROS target
Award level
Below
Threshold
<14%
0% of
base salary
Threshold
14%
100% of
base salary
Target
15%
200% of
base salary
Maximum
≥17%
400% of
base salary
to make a share deferral in 2018, or be
granted matching shares, since he was
not paid a bonus in relation to 2017
performance.
Shares obtained by members of the Board
of Management under the performance-
related share plan are taken into account
for share ownership purposes (but not
for matching purposes) as soon as they
have become unconditional. This includes
vested shares that are to be retained
during the blocking period of two years
after vesting.
Qualifying shares
Board members
Thierry Vanlancker
Maarten de Vries
Qualifying shares
acquired in 2018
1,936
0
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 2018 were ROS and OCF, and are
intended to continue for the 2019 financial
year, as they remain relevant and align
with the company’s strategy.
The metrics applied for the LTIs (TSR
and ROI) will continue to be applied in
2019. The vesting schemes for TSR
performance will remain unchanged.
The target and ranges for the ROI
metric will not be disclosed as they
are considered commercially sensitive
information.
Our Cetol brand was used to coat the stunning Cava Erizo
in Argentina. The product helps to protect the wooden
interior and gives a soft, natural finish. The venue has various
uses, such as storing wine and providing entertainment and
workshop space.
84
Governance and compliance | AkzoNobel Report 2018
AkzoNobel Report 2018 | Governance and compliance
85
AKZONOBEL AND THE CAPITAL MARKETS
AkzoNobel is a strong case for investment. A focused
paints and coatings company with global brands,
leading positions in large and attractive markets and
a balanced geographic exposure, including 50%
revenue from emerging markets. We’re well positioned
to accelerate growth and enhance profitability – with
our Winning together: 15 by 20 strategy – and deliver
significant returns to shareholders.
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
1 Based on close value.
2 Based on year-end share price.
2016
59.39
64.74
50.17
58.83
38.8
0.7
252
15.0
3.85
1.65
2.8
2017
73.02
82.64
59.11
74.42
67.4
0.9
253
18.4
3.31
2.50
3.4
2018
70.40
82.7
68.82
76.41
52.6
0.7
256
17.8
26.19
1.80
2.6
LISTINGS
EXTERNAL BENCHMARKS
Share price performance 2018 AkzoNobel share price in €
AkzoNobel
AEX index
DJ Stoxx Chemicals index
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. During the year, 176 million
AkzoNobel shares were traded on
Euronext Amsterdam (2017: 232 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 on the right for stock codes
and ticker symbols:
Following 2018 reviews, we are included
in a number of leading sustainability
indices: DJSI World, FTSE4Good,
MSCI ACWI ESG Leaders Index and
SRI Index, Vigeo ESG indices and
the Ethibel Sustainability Index (ESI)
Excellence Global. We retained our
Gold rating at EcoVadis, our OEKOM
prime status, remain an industry leader
according to Sustainalytics and have
been recognized as a leader by CDP.
We were also included in the Global 100
Most Sustainable Corporations in the
World by Corporate Knights. In 2019, we
will focus on external benchmarks that
help create the most value for us and our
stakeholders (see Managing sustainability).
85
80
75
70
65
60
7
1
c
e
D
9
2
8
1
n
a
J
8
1
b
e
F
8
1
r
a
M
8
1
r
p
A
8
1
y
a
M
8
1
n
u
J
8
1
l
u
J
8
1
g
u
A
8
1
t
p
e
S
8
1
t
c
O
8
1
v
o
N
8
1
c
e
D
1
3
SHARE PRICE
PERFORMANCE 2018
DIVIDEND
Our dividend policy is to pay a stable
to rising dividend. In 2018, an interim
dividend of €0.37 per share (2017: €0.56)
was paid.
Euronext ticker symbol
AKZA
ISIN common share
NL0013267909
OTC ticker symbol
AKZOY
ISIN ADR
US0101995035
For further information please visit
our website: akzonobel.com
Our share price was 3.2% lower at
year-end 2018 compared with 2017,
outperforming both the DJ Stoxx
Chemicals and AEX indices (see graph
above).
86
Governance and compliance | AkzoNobel Report 2018
DJ Stoxx
AEX
Akzo
The Board of Management proposes a
2018 final dividend of €1.43 per share
(post consolidation), which would equal a
total 2018 dividend of €1.80 (2017: €2.50,
including €0.85 related to the Specialty
Chemicals business) per share.
The dividend proposed to the 2019
Annual General Meeting of shareholders,
following adoption, will be payable as of
May 6, 2019. AkzoNobel’s shares will be
trading ex-dividend as of April 29, 2019.
In compliance with the listing requirements
of Euronext Amsterdam, the record date
for the final dividend will be April 30, 2019.
ANALYST
RECOMMENDATIONS
At year-end 2018, AkzoNobel was
covered by 21 equity brokers. An
overview of analyst recommendations is
shown on the right.
Dividend paid in € per share
Interim dividend
Final dividend
Total
1.55
1.65
2.50
1.80
1.20
1.28
0.35
2015
* Proposed.
0.37
2016
1.94
0.56
2017
1.43*
0.37
2018
Analyst recommendations in %
Distribution of shares 2018
CREDIT RATING AND BONDS
C
E
D
B
A
C
A
AkzoNobel is committed to maintaining
a strong investment grade credit rating.
Regular review meetings are held between
rating agencies and AkzoNobel senior
management. See the table below for the
current credit ratings and outlook.
B
BONDS
A Buy
B Hold
C Sell
13
6
2
A US
B UK
C Rest of Europe
D Rest of world
E Undisclosed
44
23
23
6
4
On December 17, 2018, a 4%
€800 million bond reached maturity and
was repaid. The maturity schedule of
outstanding bonds can be seen on
this page.
BROAD SHAREHOLDER
BASE
AkzoNobel has 100% free float, and a
broad base of international shareholders.
Based on an independent shareholder
analysis, the chart on the right shows
the geographical spread of AkzoNobel
shareholders. Around 2% of the
company’s share capital is held by private
investors, many of whom are resident in
the Netherlands. Approximately 14.5%
of the company’s share capital is held by
sustainable and responsible investors.*
* 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
Rating agency
Moody’s 1
Standard & Poor’s 2
1 Rating affirmed January 2019.
2 Rating affirmed October 2018.
Long-term rating
Baa1
BBB+
Outlook
Stable
Stable
Debt maturity1 in € millions (nominal amounts)
Paid
800
750
500
500
500
2018
2019
2020
2021
2022
2023
2024
2025
2026
managed by broad sustainable and responsible investors
1 At the end of 2018.
AkzoNobel Report 2018 | Governance and compliance
87
Financial information
89AkzoNobel Report 2018 | Financial informationAkzoNobel Report 2017 | Financial information89Financial statementsConsolidated statement of income 90Consolidated statement of comprehensive income 90Consolidated balance sheet 91Consolidated statement of cash flows 92Consolidated statement of changes in equity 93Segment information 94Notes to the Consolidated financial statements Note 1 Summary of significant accounting policies 95Note 2 Scope of consolidation 103Note 3 Alternative performance measures 105Note 4 Revenue 106Note 5 Operating income 107Note 6 Employee benefits 108Note 7 Financing income and expenses 110Note 8 Income tax 110Note 9 Earnings per share 112Note 10 Intangible assets 113Note 11 Property, plant and equipment 114Note 12 Investments in associates and joint ventures 116Note 13 Other financial non-current assets 116Note 14 Inventories 116Note 15 Trade and other receivables 117Note 16 Group equity 117Note 17 Post-retirement benefit provisions 119Note 18 Other provisions and contingent liabilities 124Note 19 Net debt 126Note 20 Trade and other payables 127Note 21 Cash flow 128Note 22 Commitments 128Note 23 Related party transactions 128Note 24 Remuneration of the Supervisory Board 129 and the Board of Management Note 25 Financial risk management 131Note 26 Subsequent events 134Company financial statements Statement of income 135Balance sheet 135Movements in shareholders’equity 136Note A General information 137Note B Other results 137Note C Financing income and expense 137Note D Financial non-current assets 137Note E Short-term receivables 138Note F Shareholders’equity 138Note G Net debt 139Note H Other current liabilities 139Note I Financial instruments 139Note J Contingent liabilities 140Note K Auditor’s fees 140Other information Other information 140Independent auditor’s report 141Profit allocation and distributions 147 Financial summary 148Paint range delivers on its promise One of our most high profile product launches during 2018 took place in Pakistan, where we introduced our Dulux Promise interior and exterior range to the country’s mass market segment. The response was instant, as we enjoyed the most successful launch month for any of our products in recent history. As well as offering interior and exterior emulsions, the Dulux Promise range includes primer and putty, providing customers with a complete deco and pre-deco solution.FINANCIAL INFORMATIONFinancial information CONSOLIDATED STATEMENT
OF INCOME
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
2017
904
2018
6,729
479
(99)
380
(535)
16
(9)
(528)
(148)
756
722
34
756
(23)
24
1
(110)
(20)
22
(108)
(107)
6,622
6,578
44
6,622
In € millions
Note
2017
2018
In € millions
9,256
(5,329)
(2,182)
(872)
(264)
(4)
(52)
20
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
5
5
5
5
5
7
12
8
2
9
9
9
9
9
9
9,612
(5,378)
(2,319)
(781)
(270)
(39)
(78)
17
4,234
(3,409)
825
764
(253)
511
393
904
832
72
904
1.76
1.75
1.55
1.54
3.31
3.29
90
Financial information | AkzoNobel Report 2018
Profit for the period
Other comprehensive income / (expense)
Items that will not be reclassified to the statement of income:
3,927
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 expense for the period
Comprehensive income for the period
Comprehensive income attributable to
Shareholders of the company
Non-controlling interests
Comprehensive income for the period
(3,322)
605
573
(118)
455
6,274
6,729
6,674
55
6,729
1.61
1.60
24.58
24.47
26.19
26.07
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
Short-term investments
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
2017
2018
10
11
8
12
13
14
8
15
19
19
2
16
16
17
18
8
19
19
8
20
17, 18
2
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
7,171
3,458
1,748
559
137
1,269
1,139
74
2,141
5,460
2,799
–
9,043
16,178
11,613
18,784
11,834
204
6,307
12,038
3,549
3,066
603
296
368
1,799
599
225
2,645
211
–
6,322
16,178
3,680
18,784
AkzoNobel Report 2018 | Financial information
91
CONSOLIDATED STATEMENT OF CASH FLOWS
In € millions
Profit for the period from continuing operations
Adjustments to reconcile earnings to cash generated from operating activities
Amortization and depreciation
Impairment losses
Financing income and expenses
Results from associates and joint ventures
Pre-tax result on acquisitions and divestments
Income tax
Changes in working capital
Changes in provisions
Interest paid
Income tax paid
Other changes
Net cash from operating activities
Capital expenditures
Interest received
Dividends from associates and joint ventures
Acquisition of consolidated companies
Investments in short-term investments
Repayments of short-term investments
Proceeds from divestments
Other changes
Net cash used for investing activities
Proceeds from borrowings
Borrowings repaid
Repurchase of shares
Dividends paid
Buy-out of non-controlling interests
Other changes
Net cash used for financing activities
Net cash used for continuing operations
Net cash from discontinued operations
Net change in cash and cash equivalents of continued and discontinued operations
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
* Represented to present the Specialty Chemicals business as discontinued operations.
92
Financial information | AkzoNobel Report 2018
Note
2017*
2018
455
239
1
52
(20)
(42)
118
(177)
(203)
(89)
(164)
(8)
(160)
47
7
(128)
(5,541)
80
54
(27)
607
(1,529)
–
(636)
(437)
5
10, 11
10, 11
7
12
2
8
21
21
511
276
(4)
78
(17)
(27)
253
(105)
(338)
(81)
(266)
(2)
11
(250)
278
12
7
(80)
–
–
41
(14)
922
(337)
(160)
(1,184)
–
–
2
19
19
19
19
2
19
(284)
(759)
(765)
660
(105)
1,441
(58)
1,278
162
(5,668)
(1,990)
(7,496)
8,958
1,462
1,278
(8)
2,732
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
In € millions
Balance at January 1, 2017
Profit for the period
Reclassification into the statement of income
Other comprehensive income
Tax on reclassification and other comprehensive income
Comprehensive income for the period
Dividend
Equity-settled transactions 1
Issue of common shares
Share repurchase
Balance at December 31, 2017
Impact adoption IFRS 9
Impact adoption IFRS 15
Impact application IAS 29
Balance at January 1, 2018
Profit for the period
Reclassification into the statement of income
Other comprehensive income
Tax on reclassification and other comprehensive income
Comprehensive income for the period
Dividend
Equity-settled transactions1
Issue of common shares
Acquisitions and divestments
Balance at December 31, 2018
Attributable to shareholders of the company
Subscribed share
capital
Additional paid-in
capital
Cash flow hedge
reserve2
Cumulative trans-
lation reserve3
Other (legal)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling
interests
Group equity
504
746
–
–
–
–
–
4
–
2
(5)
505
–
–
–
505
–
–
–
–
–
5
–
2
–
512
–
–
–
–
–
180
–
(2)
(155)
769
–
–
–
769
–
–
–
–
–
191
–
(2)
–
958
3
–
(3)
19
(4)
12
–
–
–
–
15
–
–
–
15
–
(83)
63
5
(15)
–
–
–
–
–
(47)
–
–
(497)
(5)
(502)
–
–
–
–
(549)
–
–
23
(526)
–
52
(151)
17
(82)
–
–
–
–
(608)
5,347
832
–
479
(99)
1,212
(1,471)
37
–
–
5,125
(3)
(48)
–
5,074
6,674
–
(23)
24
6,675
(586)
32
–
(223)
10,972
6,553
832
(3)
1
(108)
722
(1,287)
37
–
(160)
5,865
(3)
(48)
23
5,837
6,674
(31)
(111)
46
6,578
(390)
32
–
(223)
11,834
481
72
–
(38)
–
34
(73)
–
–
–
442
–
(5)
–
437
55
–
(11)
–
44
(57)
–
–
(220)
204
7,034
904
(3)
(37)
(108)
756
(1,360)
37
–
(160)
6,307
(3)
(53)
23
6,274
6,729
(31)
(122)
46
6,622
(447)
32
–
(443)
12,038
1 Includes a tax charge of €1 million (2017: €3 million credit).
2 Fully concerns discontinued operations.
3 The cumulative translation reserve related to Discontinued operations amounts to €169 million as per December 31, 2017.
AkzoNobel Report 2018 | Financial information
93
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.
Information per segment
In € millions
Decorative Paints
Performance Coatings
Corporate and other
Total
Revenue from third parties
Group revenue
Amortization and
depreciation
2017
3,859
5,751
2
9,612
2018
3,667
5,563
26
9,256
2017
3,898
5,775
(61)
9,612
2018
3,699
5,587
(30)
9,256
2017
(121)
(148)
(7)
(276)
2018
(92)
(138)
(9)
(239)
Identified items
Operating income
2017
(17)
(1)
(62)
(80)
2018
(38)
(52)
(103)
(193)
2017
334
668
(177)
825
2018
308
577
(280)
605
2017
9.0
11.6
ROS%*
2018
9.4
11.3
9.4
8.6
* ROS% is calculated as adjusted operating income (operating income excluding identified items) as percentage of group revenue.
Information per segment
In € millions
Decorative Paints
Performance Coatings
Corporate and Other
Total
Invested capital
Total assets
Total liabilities
Capital expenditures
2017
2,705
2,869
471
6,045
2018
2,759
2,963
481
6,203
2017
4,318
4,691
2,568
2018
4,357
4,766
9,661
11,577
18,784
2017
1,513
1,638
4,524
7,675
2018
1,511
1,563
3,672
6,746
2017
112
129
9
250
2018
50
106
4
160
2017
12.5
23.4
–
13.9
ROI%*
2018
12.4
20.5
–
12.6
* ROI% is calculated as adjusted operating income (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, short-term investments, investments in associates, the receivable from pension funds in an asset position and assets held for sale) less current tax liabilities, deferred tax liabilities and trade and other payables.
Regional information
In € millions
The Netherlands
Other European countries
North America
South America
Asia
Other regions
Total
Revenue by region of destination
Intangible assets
and property,
plant and equipment
Invested capital
Capital expenditures
2017
282
3,731
1,189
900
2,937
573
9,612
2018
318
3,726
1,134
815
2,704
559
9,256
2017
1,189
1,435
474
268
1,772
103
5,241
2018
1,198
1,469
485
255
1,698
101
5,206
2017
1,374
2,144
714
348
1,296
169
6,045
2018
1,639
2,023
636
332
1,386
187
6,203
2017
17
105
23
23
73
9
250
2018
9
76
18
13
34
10
160
94
Financial information | AkzoNobel Report 2018
NOTES TO THE
CONSOLIDATED
FINANCIAL
STATEMENTS
1
Summary of significant accounting policies
GENERAL INFORMATION
Akzo Nobel N.V. is a company headquartered in the
Netherlands. The address of our registered office is
Christian Neefestraat 2, Amsterdam. We have filed a list
of subsidiaries, associated companies and joint ventures,
drawn up in conformity with Article 379 and 414 of
Book 2 of the Dutch Civil Code, with the Trade Registry
of Amsterdam.
We have prepared the Consolidated financial statements
of Akzo Nobel N.V. in accordance with International Finan-
cial Reporting Standards (IFRS) as adopted by the Euro-
pean Union. They also comply with the financial reporting
requirements included in Title 9 of Book 2 of the Dutch
Civil Code, as far as applicable. The Consolidated financial
statements have been prepared on a going concern basis.
The Management report within the meaning of Article 391
of Book 2 of the Dutch Civil Code consists of the following
parts of the annual report:
• 2018 facts and figures
• How AkzoNobel performed in 2018
• How AkzoNobel created value in 2018
• 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 5 Operating income
• Financial information: Note 25 Financial
risk management
The section Strategic performance provides informa-
tion on the developments during 2018 and the results.
This section also provides information on cash flow and
net debt, capital expenditures, innovation activities and
employees.
On February 12, 2019, the Board of Management autho-
rized the financial statements for issue. The financial state-
ments as presented in this report are subject to adoption
by the Annual General Meeting of shareholders.
CONSOLIDATION
The Consolidated financial statements include the
accounts of Akzo Nobel N.V. and its subsidiaries. Subsi-
diaries 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
AND FIRST TIME APPLICATION
In 2018 the most significant changes in accounting poli-
cies relate to adoption of two new standards IFRS 15
“Revenue from contracts with customers” and IFRS 9
“Financial instruments”. Furthermore, AkzoNobel applied
IAS 29 “Financial reporting in hyperinflationary economies”
for Argentina.
Accounting pronouncements, which became effective
for 2018, such as amendments to IFRS 2 “Share-based
Payment”, Annual improvements 2014-2016 cycle
(IFRS 1 and IAS 28), IAS 40 “Investment property“ and
IFRIC 22 “Foreign Currency Transactions and Advance
Consideration”, either were not applicable or had no mate-
rial impact on our Consolidated financial statements.
The table on the next page shows the adjustments recog-
nized for each individual line item. The restatements are
explained in more detail per standard below.
AkzoNobel Report 2018 | Financial information
95
Impact of adoption of IFRS 9 and IFRS 15 and application of IAS 29
In € millions
Intangible assets
Property, plant and equipment
Deferred tax assets
Investments in associates and
joint ventures
Other financial non-current assets
Inventories
Current tax assets
Trade and other receivables
Cash and cash equivalents
Assets held for sale
Total assets
Shareholder’s equity
Non-controlling interest
Deferred tax liabilities
Other non-current liabilities
Trade and other payables
Other current liabilities
Liabilities held for sale
Total equity and liabilities
As reported at
December 31,
2017
Restatement
due to adoption
of IFRS 9
Restatement
due to adoption
of IFRS 15
Restatement
due to application
of IAS 29
Restated opening
balance at
January 1, 2018
3,409
1,832
575
118
1,201
1,094
62
1,964
1,322
4,601
16,178
5,865
442
285
3,264
2,794
1,332
2,196
16,178
–
–
1
–
–
–
–
(4)
–
–
(3)
(3)
–
–
–
–
–
–
(3)
–
(66)
12
–
–
–
–
–
–
–
(54)
(48)
(5)
(4)
–
3
–
–
(54)
9
14
–
–
–
1
–
–
–
6
30
23
–
6
–
–
–
1
30
3,418
1,780
588
118
1,201
1,095
62
1,960
1,322
4,607
16,151
5,837
437
287
3,264
2,797
1,332
2,197
16,151
IFRS 9 “Financial Instruments”
IFRS 9 introduces new requirements for classifying and
measuring financial assets and liabilities, new requirements
for impairment of financial assets and for hedge account-
ing. AkzoNobel adopted the new standard as per January
1, 2018, and did not restate its 2017 comparative figures.
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 amortized cost because
the criteria of the Solely Payments of Principal and Interest
test have been met.
An amount of €32 million of the Other financial non-current
assets and Trade and other receivables was recognized
at fair value through profit and loss as at December 31,
2017 and relates to derivative financial instruments and
securities. The classification and measurement of these
financial assets remained unchanged under IFRS 9.
AkzoNobel had certain not significant equity investments,
which were measured at their historic cost price. In
accordance with IFRS 9, these equity investments are now
measured at fair value through profit and loss. The impact
of this change is not significant.
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.
As the IFRS 9 impairment model accelerates the timing of
recognizing impairment losses, the implementation of IFRS
9 led to recognition of an additional impairment loss of
€4 million as per January 1, 2018, mainly relating to trade
receivables. The after tax-effect was a charge of €3 million.
The part of the restatement related to discontinued opera-
tions was not significant.
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 are also required.
AkzoNobel adopted this new standard as from January 1,
2018, applying the modified retrospective approach only
to contracts that were not completed on January 1, 2018,
without restatement of its 2017 comparative figures.
Sale of goods
In accordance with IFRS 15, revenue should be recog-
nized when the customer obtains control of the goods.
The application of IFRS 15 did not result in a significant
impact on our consolidated financial statements, includ-
ing the accounting treatment of variable consideration,
inclusive among others rebates, bonuses, discounts and
payments to customers.
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Financial information | AkzoNobel Report 2018
Equipment provided to customers
AkzoNobel regularly provides mixing machines, store
interior and other assets to its customers in Decorative
Paints and Performance Coatings at the start of a paint
delivery contract. Previously, such assets were not treated
as a separate performance obligation and their costs were
expensed during the contract period.
Under IFRS 15, the delivery of such assets qualifies as a
separate performance obligation. However, in most cases
no revenue can be recognized at the moment of transfer of
such assets.
The book value at December 31, 2017, of such assets
amounted to €66 million and was written-off in the
January 1, 2018, opening balance sheet, which had an
after-tax effect of €53 million, of which €5 million related to
non-controlling interest.
The impact of application of IFRS 15 on the revenue and
the Consolidated statement of income throughout 2018 is
not significant.
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.
In accordance with IFRS 15, such services are a sepa-
rate performance obligation to which revenue should be
allocated. 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) was recog-
nized as deferred revenue and contract liability for services
provided after December 31, 2017.
Application of IAS 29 “Financial reporting in
hyperinflationary economies“
Since July 1, 2018, Argentina qualifies as a so-called
hyperinflationary country under IFRS. Therefore, special
accounting procedures have been applied to eliminate
hyperinflation effects from the accounts of the Argentinian
operations, starting on January 1, 2018. The revaluation
effect on the non-monetary assets at January 1, 2018,
was a positive impact of €23 million after taxes, recorded
as a restatement to opening shareholders’ equity. Effects
during the year were not significant.
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 comparative
figures in the Consolidated statement of income
and Consolidated statement of cash flows are represent-
ed. The balance sheet comparative figures are
not represented.
ALTERNATIVE PERFORMANCE
MEASURES (NOTE 3)
The Identified items (Alternative Performance Measures
(APM) adjustments) are special charges and benefits,
results on acquisitions and divestments, major restructur-
ing and impairment charges, and charges and benefits
related to major legal, anti-trust, environmental and
tax cases, and are generated outside the normal cause
of business.
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 8)
• Impairment of intangible assets and property, plant and
equipment (Note 10, 11)
• Post-retirement benefit provisions (Note 17)
• Provisions and contingent liabilities (Note 18)
AkzoNobel Report 2018 | Financial information
97
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 based on
the information that is provided to the Executive Commit-
tee, our chief operating decision-maker during 2018, to
make decisions about resources to be allocated to the
segments and assess its performance. Segment results
reported to the Executive Committee include items directly
attributable to a segment 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 “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.
When a subsidiary is operating in a hyper-inflationary
country, the financial statements of this entity are restated
into the current purchasing power at the end of the report-
ing period.
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
2017
2018
% 2017
2018
US dollar
1.197
1.143
4.7
1.129
1.182
Pound sterling
0.887
0.898
(1.2)
0.877
0.885
Swedish krona
9.850 10.245
(3.9)
9.629 10.257
Chinese yuan
7.801
7.863
(0.8)
7.621
7.812
%
(4.5)
(0.9)
(6.1)
(2.4)
Brazilian Real
3.964
4.438
(10.7)
3.603
4.307
(16.3)
REVENUE RECOGNITION (NOTE 4)
2018
As indicated above IFRS 15 replaced revenue recognition
guidance in IFRS. In 2018, revenue is recognized
for the major business activities using the methods
outlined below.
Sale of goods
AkzoNobel’s main business consists of straightforward
selling of goods (paints and coatings) to customers at
contractually determined prices and conditions without
any additional services. Although the transfer of risks
and rewards is not the only criterion to be considered to
determine whether control over the goods has transferred,
it is in most situations considered to be the main indicator
of the customer’s ability to direct the use of and obtain the
benefits from the asset and largely also coincides with the
physical transfer of the goods and the obligation of the
customer to pay.
Variable considerations, including among others rebates,
bonuses, discounts and payments to customers, are
accrued for as performance obligations are satisfied and
revenue is recognized. Variable considerations are only
recognized when it is highly probable that it is not subject
to significant reversal.
In case of expected returns, no revenue is recognized for
such products, but a refund liability and an asset for the
right to recover the to be returned products are recorded.
A provision for warranties is recognized when the underly-
ing products or services are sold, generally based on
historical warranty data.
Revenue is recognized net of rebates, discounts and
similar allowances, and net of sales tax.
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
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Financial information | AkzoNobel Report 2018
contract. Under IFRS 15, the delivery of such assets
qualifies as a separate performance obligation. Revenue
can only be recognized at the moment of transfer of such
assets, when there is an agreed sales price or when there
is a binding take-or-pay commitment for a minimum quan-
tity of paint to be acquired by the customer.
Services
AkzoNobel provides certain training, technical or support
services to customers as well as shipping and handling
activities for its customers. Service revenue is recognized
over time when the relating services are being provided.
When not separately invoiced, part of the sales price of
paints or coatings is allocated to such services.
2017
The revenue recognition policy below was applied for the
comparative figures in relation to 2017.
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 6, 17)
Contributions to defined contribution plans are recognized
in the statement of income as incurred.
Most of our defined benefit pension plans are funded with
plan assets that have been segregated in a trust or 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,
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 6, 18)
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 6)
We have a performance-related and restricted share plan
as well as a share-matching plan, under which shares are
conditionally granted to certain employees. The fair value
is measured at grant date and amortized over the three-
year period during which the employees normally become
unconditionally entitled to the shares with a corresponding
increase in shareholders’ equity. Amortization is acceler-
ated in the event of earlier vesting or settlement. In case
of a plan modification, the fair value is increased when the
change is beneficial to the employee.
INCOME TAX (NOTE 8)
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 payables and receivables 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
AkzoNobel Report 2018 | Financial information
99
it is probable that future taxable profits will be available
against which they can be utilized.
INTANGIBLE ASSETS (NOTE 10)
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 deter-
mination of deferred tax liabilities to the extent 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 9)
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, after taxes.
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 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
directly in the statement of income. The effects of all
transactions with non-controlling interest shareholders 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
recognized as an expense as incurred.
PROPERTY, PLANT AND EQUIPMENT
(NOTE 11)
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
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Financial information | AkzoNobel Report 2018
the majority of cases residual value is assumed to be not
significant. 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 10, 11)
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 11, 19, 22)
PROVISIONS (NOTE 18)
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.
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.
ASSOCIATES AND JOINT VENTURES
(NOTE 12)
FINANCIAL INSTRUMENTS
The classification of a financial asset is determined at initial
recognition, but if certain conditions are met, an asset
might be subject to reclassification.
Valuation and impairment
Financial assets are assessed for impairment either
according to the general approach or a simplified
approach.
The calculation of impairment under the general approach
uses following stages:
• 12-month expected credit losses; taking in account
possible default events within one year
• Lifetime expected credit losses in case of an increase in
credit risk; through recognition of expected credit losses
over the remaining life of the exposure
• Lifetime expected credit losses, where interest is
calculated on the net amount of the receivables less
impairment loss
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.
INVENTORIES (NOTE 14)
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.
As indicated in Change in accounting policies, IFRS 9
‘‘Financial instruments’’ replaced existing standard IAS 39
and had a very limited effect.
Classification
All assets are measured at amortized cost, fair value
through profit or loss or fair value through other compre-
hensive income.
In all above stages, the impairment calculation used
at AkzoNobel is based on external credit ratings of
involved parties or default rates published by well-known
credit risk agencies.
The financial assets included in the general impairment
approach are long-term loans and other long-term
receivables.
Financial assets are classified according to a model
based on:
• A contractual cash flow characteristics test
• A business model dictating how the reporting entity
manages its financial assets in order to generate cash
flows as either:
1. hold to collect contractual cash flows;
2. collect contractual cash flows and sell; or
3. neither 1 or 2.
• Election of the fair value option in some specific cases in
order to eliminate an accounting mismatch
The calculation of impairment under the simplified
approach requires recognition of lifetime expected credit
loss (no tracking of changes in credit risk). The financial
assets included in the simplified impairment approach are
trade receivables and the remaining financial assets.
Measurement
Since the adoption of IFRS 9 did not have an impact on
the measurement of financial instruments, these following
policies also were applied for the prior year financial report-
ing under IAS 39.
AkzoNobel Report 2018 | Financial information
101
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 25)
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 13) and
Trade and other receivables (Note 15)
Loans and receivables are measured at amortized
cost, using the effective interest method, less any impair-
ment losses.
Cash and cash equivalents and short-term
investments (Note 19)
Cash and cash equivalents and short-term investments
are measured at fair value. Cash and cash equivalents
include all cash balances and other 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 19,
25) and Trade and other payables (Note 20)
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
102
Financial information | AkzoNobel Report 2018
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 rate 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 state-
ments for 2019 and beyond have been assessed for their
potential impact. The most important upcoming change
relates to IFRS 16 “Leases” which will be implemented as
per January 1, 2019.
IFRS 16 “Leases”
IFRS 16 replaces existing guidance on lessee account-
ing for leases. It requires lessees to bring most leases on
balance sheet in a single lease accounting model, recog-
nizing a right-of-use asset and a lease liability. Compared
with the existing accounting for operating leases, it will
also impact the classification and timing of expenses and
consequently the classification between cash flow from
operating activities and cash flow from financing activities.
Transition method
AkzoNobel will adopt IFRS 16 as per January 1, 2019, and
will apply the modified retrospective approach. All right-
of-use assets will be measured at the amount of the lease
liability at transition, adjusted for any prepaid or accrued
lease expenses. Short-term and low-value leases will be
exempted. AkzoNobel will not restate its 2018 compara-
tive figures.
Impact
IFRS 16 requires the right-of-use asset and the lease
liability to be recognized at discounted value and assump-
tions with regards to termination and renewal options
should be taken into consideration.
We expect that adoption of the standard as per January 1,
2019, will result in the recognition of Right-of-use assets of
approximately €350 million, a financial lease receivable of
€20 million and additional lease liabilities of approximately
€370 million. In addition, assets with a book value of
€59 million will be reclassified to Right-of-use assets,
including among others current finance leases.
In the Consolidated statement of income, the operating
lease expenses, previously recorded in operating income,
will be replaced by the depreciation charge of the right-
of-use assets. The interest charge on the lease liability will
be recorded in Financing income and expenses. The net
effect of these changes will be not significant.
The company is finalizing the review of all input and
assumptions for the calculation of the opening balance
sheet adjustments, including among others lease
contracts concluded in late 2018, discount rates and the
assessment whether contracts contain a lease. Finalization
of this review may still result in changes to these opening
entries in the course of 2019.
AkzoNobel’s activities as a lessor are not truly material
and hence the impact on the financial statements is not
significant. Additional disclosures will be required as from
next year.
Other changes
Several other new accounting standards were issued.
These include among others IFRIC 23 ‘‘Uncertainty over
income tax treatments” and ‘‘Plan Amendment, Curtail-
ment and Settlement” (Amendments to IAS 19), both
effective as from January 1, 2019. These changes
are not expected to have a material effect on AkzoNobel’s
Consolidated financial statements, as to a large extent we
already comply with these clarifications on IFRS.
2
Scope of consolidation
Material subsidiaries
The Consolidated financial statements comprise the
assets, liabilities, income and expenses of approximately
283 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% of either revenue or operating income (before identified
items) or based on qualitative aspects. Material subsid-
iaries included in the table below are 100% owned at
year-end 2018.
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
Acquisitions
On October 1, 2018, we acquired Fabryo Corporation
S.R.L. (Fabryo) in Romania. The transaction includes
two production facilities and six distribution centers for
decorative paints, adhesives and mortars, including one
of the largest decorative paints factories in the region, with
capacity for further expansion. The business generated
revenue of around €45 million in 2017 and is the only
player with both a leading product portfolio for consumers
as well as professional segments in the Romanian market,
including brands Savana, APLA and InnenWeiss. In 2018,
we performed a preliminary purchase price allocation.
The goodwill is fully allocated to business unit Decorative
Paints Europe, Middle East and Africa.
In 2018, other smaller acquisitions included Doves
Decorating Supplies in the United Kingdom, Xylazel S.A.
in Spain and Colourland Paints Sdn Bhd and Colourland
Paints (Marketing) Sdn Bhd in Malaysia.
Recognized fair values at acquisition
In € millions
Other intangibles
Property, plant and equipment
Associates and joint ventures
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 paid in 2019 and later years
Net cash outflow
Acquisitions
2018
59
27
3
21
47
5
(20)
(1)
(9)
(37)
95
42
137
(5)
(4)
128
The aggregated outcome of the preliminary purchase
price allocations performed in 2018 is represented in the
table above.
In December 2018, we also acquired the non-controlling
interests from Swire Industrial Limited in several Akzo
Nobel Swire Paints subsidiaries for €407 million. The
goodwill on this transaction of €208 million was charged
directly to shareholders’ equity.
In 2017, the acquisitions included Disa Technology
(Disatech), Flexcrete Technologies Ltd and the business of
V.Powdertech Co., Ltd.
Divestments
In April 2017, AkzoNobel announced its decision to sepa-
rate the Specialty Chemicals business, thereby creating
two focused, high performing businesses – Paints and
Coatings, and Specialty Chemicals. At the Extraordinary
General Meeting on November 30, 2017, the sharehold-
ers approved the proposed separation of the Specialty
Chemicals business from AkzoNobel through a private sale
or a legal demerger.
As from December 22, 2017, the Specialty Chemicals
business is classified as held for sale and discontinued
operations, therefore the Consolidated statement of
income and the Consolidated statement of cash flows
show the results of the Specialty Chemicals business as
discontinued. The Specialty Chemicals business presented
as held for sale and discontinued operations consists
of the former Business Area Specialty Chemicals and
assets, liabilities, income and expenses which are directly
attributed to the Specialty Chemicals business, previously
included in Corporate and Other, which are not recog-
nized on an ongoing basis by AkzoNobel. The sale of the
Specialty Chemicals business to the Carlyle Group and
GIC for an enterprise value of €10.1 billion was completed
on October 1, 2018. The difference of €8.3 billion with
the consideration for the shares of €10.1 billion consists
of settlement of net debt, provisions and working capital
as included in the closing balance sheet. The Specialty
Chemicals business is now called Nouryon.
At year end 2018, AkzoNobel made a best estimate of
the expected deal proceeds for the sale of the Specialty
Chemicals business, including the net debt/working capital
settlement that will be finalized in 2019.
In 2017 and 2018, otherwise no other significant divest-
ments occurred.
Discontinued operations and held for sale
The results and cash flows from discontinued operations in
2017 as well as 2018 and the assets and liabilities held for
sale at December 31, 2017 almost completely relate to the
Specialty Chemicals business.
The income and expenses included in Held for sale effects
and other mainly relate to the impact of ceasing of depre-
ciation and amortization, partly offset by the related impact
on inventory valuation, following IFRS 5 Assets held for
sale accounting, as well as seperation costs.
AkzoNobel Report 2018 | Financial information
103
Deal result
In € millions
Consideration for shares sold
Net assets and liabilities
Liabilities assumed and cost* allocated to the deal,
realization of cumulative translation and cash flow hedge
reserves
Income tax on the sale
Deal result after tax
* Excluding deal cost incurred in 2017.
Cash flows from discontinued operations
Balance sheet at divestment date
2018
8,284
(2,112)
(98)
(263)
5,811
In € millions
Intangible assets
Property, plant and equipment
Financial non-current assets
Inventories
Other current assets
Non-current liabilities
Short-term borrowings
Other current liabilities
Net assets and liabilities
In € millions
Net cash from operating activities
Net cash from investing activities
Results from financing activities
Cashflows from discontinued
operations
2017
691
(354)
323
660
2018
351
8,723*
(116)
8,958
* Including the cash inflow from the divestment of €9,321 million.
Cash inflow from divestment
In € millions
Consideration for shares sold
Repayment of intercompany loan indebtedness
Total cash inflow
2018
8,284
1,037
9,321
Assets and liabilities held for sale
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
Cash and cash equivalents as well as debt positions of
Specialty Chemicals were excluded from held for sale clas-
sification unless such items were specifically designated 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 business are recognized at their carrying value.
Employees
The average number of employees of the Specialty
Chemicals business up to September 30, 2018 was
9,600 (full year 2017: 9,700). At September 30, 2018, the
Specialty Chemicals business employed 9,900 people
(December 31, 2017: 9,900).
Discontinued operations
In € millions
Revenue
Expenses
Profit before tax
Income tax
Profit for the period after tax
Results related to discontinued
operations in previous years
Tax related to discontinued operations
in previous years
Profit for the period
Gain on the sale of the
Specialty Chemicals business
Income tax on the sale
Total profit for the period from
discontinued operations
* 2018 represents 9 months
Discontinued operations
2017
4,963
(4,402)
561
(168)
393
1
(1)
393
–
–
393
2018*
3,791
(3,158)
633
(168)
465
(2)
–
463
6,074
(263)
6,274
Revenue from third parties
Group revenue Amortization and depreciation
Identified items
Operating income
In € millions
Specialty Chemicals
Held for sale effects and other2
Total
2017
4,961
2
20181
3,791
–
4,963
3,791
2017
4,985
(22)
4,963
20181
3,809
(18)
3,791
2017
(340)
9
(331)
20181
(250)
250
–
2017
18
(67)
(49)
20181
–
(29)
(29)
2017
625
(54)
571
20181
470
178
648
2017
12.2
–
12.5
1 The Specialty Chemicals business was sold per October 1, 2018.
2 Held for sale effects and other include the impact of ceasing depreciation and amortization and the related impact on inventory evaluation following IFRS 5 Assets held for sale and separation costs.
104
Financial information | AkzoNobel Report 2018
2018
796
2,490
253
540
283
(792)
(232)
(1,226)
2,112
2018
–
–
–
–
–
–
–
–
–
–
ROS%
20181
12.3
–
17.1
3
Alternative performance measures
In presenting and discussing AkzoNobel’s operating
results, management uses certain alternative performance
measures (APM) not defined by IFRS, which exclude the
so-called identified items that are generated outside the
normal course of business. 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 perfor-
mance measures do not have a standardized meaning
under IFRS and therefore may not be comparable to
similar measures presented by other companies. 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 earn-
ings per share. A reconciliation of the alternative perfor-
mance measures to the most directly comparable IFRS
measures can be found in the table.
Alternative performance measures (APM)
In € millions
Operating income
Continuing
operations
Discontinued
operations
825
571
APM adjustments to
operating income
- Realignment of strategy*
- UK guaranteed minimum pension
equalization
- Legal
Total APM adjustments
(identified items)
Adjusted operating income
Profit for the period attributable to
shareholders of the company
APM adjustments to operating income
(identified items)
APM adjustment Interest on tax
settlement
APM adjustments to income tax
APM adjustment deal result on sale
Specialty Chemicals, net of tax
Total APM adjustments
Adjusted profit for the period
attributable to shareholders of the
company
42
–
38
80
905
443
80
–
68
–
148
591
2017
Total
1,396
109
–
20
129
Continuing
operations
Discontinued
operations
605
656
130
57
6
193
29
–
–
29
2018
Total
1,261
159
57
6
222
67
–
(18)
49
620
1,525
798
685
1,483
389
832
410
6,264
6,674
49
–
(5)
–
44
129
193
–
63
–
192
(30)
(86)
–
77
29
–
(6)
222
(30)
(92)
(5,811)
(5,811)
(5,788)
(5,711)
433
1,024
487
476
963
* Includes costs related to the strategy to create a focused high performing Paints and Coatings business as well as costs of separation of the Specialty Chemicals business.
AkzoNobel Report 2018 | Financial information
105
4
Revenue
AkzoNobel derives revenue from the transfer of goods
and services over time and at a point in time in the major
product lines and geographical regions as disclosed in the
table below:
For the receivables, which are included in Trade and other
receivables, reference is made to Note 15. For the receiv-
ables, which are included in Assets held for sale, reference
is made to Note 2.
As at December 31, 2018, no contract assets were
recognized.
Revenue disaggregation
2018
In € millions
Primary geographical markets - revenue from third parties
Decorative Paints
Performance
Coatings
Other
Total
As at December 31, 2018, the amount of contract liabilities
deferred to be recognized over time in 2019 is €3 million.
These contract liabilities primarily relate to shipping, train-
ing and certain technical services, for which revenue is
recognized over time.
The amount of €3 million included in contract liabilities
at the beginning of the period has been recognized as
revenue during the year 2018.
202
1,684
–
461
1,136
184
3,667
2,093
468
1,144
–
–
–
–
(6)
3,699
3,638
29
3,667
91
2,042
1,134
353
1,568
375
5,563
–
–
–
1,218
1,291
1,392
1,738
(52)
5,587
5,374
189
5,563
25
–
–
1
–
–
26
–
–
–
–
–
–
–
(30)
(30)
–
26
26
318
3,726
1,134
815
2,704
559
9,256
2,093
468
1,144
1,218
1,291
1,392
1,738
(88)
9,256
9,012
244
9,256
The Netherlands
Other European countries
North America
South America
Asia
Other regions
Total
Major goods/service lines - group revenue
Decorative Paints Europe, Middle East and Africa
Decorative Paints South America
Decorative Paints Asia
Powder Coatings
Marine and Protective Coatings
Automotive and Specialty Coatings
Industrial Coatings
Other
Total
Timing of revenue recognition
Goods transferred at a point in time
Services transferred over time
Total
106
Financial information | AkzoNobel Report 2018
5
Operating income
Adjusted operating income
Adjusted operating income at €798 million (2017:
€905 million), was impacted by adverse currencies, higher
raw material costs and lower volumes, partly compensat-
ed by pricing initiatives. Savings from continuous improve-
ment more than offset fixed cost inflation.
Creating a fit-for-purpose organization fully delivered on
the €110 million planned savings for 2018.
• Decorative Paints was impacted by higher raw material
costs and adverse currency effects, partly compensated
by higher selling prices and cost savings. ROS was
9.4% (2017: 9.0%)
• Performance Coatings was also impacted by foreign
currencies, higher raw material costs as well as lower
volumes. ROS was 11.3% (2017: 11.6%)
• Other activities/eliminations decreased by €62 million.
2017 was impacted by one-off items, as well as lower
pension and insurance related costs.
Operating income
Operating income was negatively impacted by identified
items totalling €193 million, mainly related to restructuring
costs for the transformation (€130 million) and a one-off
non-cash pension cost (€57 million) based on a UK
legal precedent set in October 2018 for the Guaranteed
Minimum Pensions (GMP) equalization regulations.
In 2017, 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.
Costs by nature 2018
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Costs by nature 2017
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Employee
benefits
(505)
(883)
(396)
(192)
–
(1,976)
Employee
benefits
(506)
(885)
(358)
(186)
Amortization
Depreciation
Purchases and
other costs
(2)
(46)
(8)
(2)
–
(58)
(117)
(22)
(30)
(12)
–
(181)
(4,705)
(1,231)
(438)
(58)
(4)
(6,436)
Amortization
Depreciation
Purchases and
other costs
(2)
(53)
(12)
(7)
(113)
(48)
(29)
(12)
(4,757)
(1,333)
(382)
(65)
(39)
(6,576)
Total
(5,329)
(2,182)
(872)
(264)
(4)
(8,651)
Total
(5,378)
(2,319)
(781)
(270)
(39)
(8,787)
Other results
Total
–
–
–
(1,935)
(74)
(202)
AkzoNobel Report 2018 | Financial information
107
6
Employee benefits
Salaries, wages and other employee benefits in
operating income
SHARE-BASED COMPENSATION
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
2017
(1,515)
(126)
(294)
2018
(1,497)
(201)
(278)
(1,935)
(1,976)
2017
14,700
19,800
1,700
36,200
2018
14,100
19,200
1,600
34,900
The average number of employees working outside
the Netherlands was 32,500 (2017: 33,600).
Employees
At year-end
Decorative Paints
Performance Coatings
Corporate and other
Total
2017
14,400
19,900
1,400
35,700
2018
14,300
18,600
1,600
34,500
At year-end 2018, the number of employees decreased by
3% to 34,500 people (year-end 2017: 35,700 people).
Acquisitions of 2018 added around 850 people.
Share-based compensation relates to the equity-settled
performance-related and the restricted share plan, as well
as the share-matching plan. Charges recognized in the
2018 statement of income for share-based compensation
amounted to €19 million and are included in salaries
and wages (2017: €22 million). The share-based compen-
sation expenses for the executives of Specialty Chemicals,
included in discontinued operations, amounted to
€14 million (2017: €12 million).
Performance-related and restricted share plan
Under the performance-related share and the restricted
share plans, 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
and the restricted share plan at year-end 2018 was 326
(2017: 348).
The shares of the performance-related series 2015-2017
have vested and were delivered to the participants
in 2018.
The 2016 and 2017 conditional grants of performance-
related shares originally were linked to AkzoNobel’s
return on investment (ROI), the company’s ranking in the
RobecoSAM benchmark and its relative TSR performance
when compared to the peer group. These targets were
set by the Supervisory Board for AkzoNobel prior to the
divestment of the Specialty Chemicals business. However,
these performance targets have become not relevant or
applicable anymore after the sale of the Specialty Chemi-
cals business. Therefore, the Supervisory Board decided
to instead apply the average historic performance of 85%
for the 2016-2018 and the 2017-2019 series. For the
2018-2020 plan of the members of the Board of Manage-
ment and the Executive Committee, the conditional grant
of shares is linked for 50% to the relative TSR performance
of the company compared with the peer group and 50%
to the ROI performance of the company, after which a
two-year holding restriction will apply. The 2018-2020 plan
108
Financial information | AkzoNobel Report 2018
for the executives is a restricted share plan without any
performance conditions, whereby the conditional grant of
shares will only vest when the executives remain in service
with the company during the three-year vesting period,
after which a one-year holding restriction will apply.
The conditional shares of the 2016-2018 series for the
AkzoNobel participants vested for 85% (series 2015-
2017: 81.80%), including extraordinary dividend shares of
5.48%, the final vesting percentage amounted to 89.66%
(series 2015-2017: 92.65%).
The conditional shares of the executives of the Specialty
Chemicals business (part of discontinued operations),
granted under the 2016-2018, 2017-2019 and 2018-
2020 plans have vested on October 1, 2018, taking into
account the 85% vesting percentages for the 2016-2018
and 2017-2019 plans and pro-rated for the time passed
since the grant date when compared to the 3-year vesting
period. Thus the vested shares have been delivered early
October 2018.
The share price of a common AkzoNobel share at year-
end amounted to €70.40 (2017: €73.02).
Fair value of performance-related shares
The fair value of the restricted shares of the 2018-2020
grant, amounting to €67.64, is based on the share price
on January 2, 2019, of €72.76 and the expected dividend
yield of 2.41%.
The fair value of the performance-related shares of the
2018-2020 grant is for 50% based on a market condition
(TSR) and for 50% based on non-market-based perfor-
mance condition (ROI).
The original fair value of the performance-related shares of
the 2016-2018 and 2017-2019 grants was for 35% based
on a market condition (TSR) and for 65% based on non-
market based performance conditions (ROI and RobecoS-
AM). Due to the plan modification, for the 2016-2018 plan
there was a step-up in fair value for the TSR component
as the change was beneficial to the participants. This
Under certain conditions, members who invest part of
their short-term incentive in AkzoNobel shares may have
such shares matched by the company. The investment in
Akzo Nobel N.V. shares in 2018 resulted in a total of
5,233 granted potential matching shares. During 2018,
7,817 potential matching shares were matched and 2,512
were forfeited, leading to a total of 7,729 potential match-
ing shares at December 31, 2018.
Fair value of matching shares
The fair value of the matching shares (€69.05) was
based on the share price on the investment date,
discounted for expected dividends over the holding period
(2017: €72.56).
The parameters applied for the fair value calculations
are: share price at purchase date of voluntary investment
(April 24, 2018): €76.20; expected dividend yield: 3.23%.
For an overview of the matching shares outstanding
for the members of the Board of Management as of
December 31, 2018, we refer to Note 24.
step-up for the TSR component (which weigh for 35%
in the vesting) amounted to €14.66 for the participants
who knew about the Supervisory Board decision on the
modification on March 7, 2018, and €35.27 for all other
participants who were informed on July 3, 2018 through
the general announcement of the plan modification. For
the 2017-2019 plan, the fair value was not amended as
this change was not beneficial on either date.
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 over the past three years of AkzoNobel),
and risk-free interest rate (based on a Dutch zero-coupon
government bond).
Share-matching plan
The members of the Board of Management and the
members of the Executive Committee are eligible to
participate in the share-matching plan in 2018; they will
not be eligible for the years 2019, 2020 and 2021.
Fair value performance-related shares in €
Series
2016 - 2018
2016 - 20181
2016 - 20182
2017 - 2019
2017 - 20193
2017 - 20194
2018 - 20205
Opening share price
per:
Fair Value
January 4, 2016
March 7, 2018
July 3, 2018
January 2, 2017
May 9, 2017
July 28, 2017
April 26, 2018
53.69
5.13
12.34
52.42
76.34
77.16
71.65
Market
condition
(TSR)6
Non-market
based
performance
conditions7 Share price
40.20
60.69
62.02 Not applicable
37.10 Not applicable
40.14
75.63
78.88
67.51
59.03
76.72
76.23
75.78
60.96
78.22
73.56
59.03
76.72
76.23
75.78
Expected
volatility
Risk free
interest rate
23.82%
22.74%
22.12%
23.94%
24.13%
23.77%
22.66%
-0.09%
-0.25%
-0.26%
-0.12%
-0.09%
-0.08%
-0.04%
1 Concerns the fair value step-up for the plan modification on the date of the Supervisory Board decision.
2 Concerns the fair value step-up for the plan modification on the general announecement date.
3 Concerns an additional share grant.
4 Concerns an additional share grant.
5 Date of the AGM at which the new LTI performance criteria for the Board of Management were approved.
6 35% for the 2016-2018 and 2017-2019 grants and 50% for the 2018-2020 grant.
7 65% for the 2016-2018 and 2017-2019 grants and 50% for the 2018-2020 grant.
Performance-related shares of AkzoNobel executives
Series
2015 - 2017
2016 - 2018
2017 - 2019
2018 - 2020
Total
Balance per
January 1, 2018
Transferred
in 2018
Granted in
2018
Vested in
2018
Forfeited in
2018
Dividend in
2018
Balance at
December
31, 2018
Vested on
January 1,
2019
328,119
414,927
446,145
–
1,189,191
–
29,158
10,621
419
40,198
–
(328,119)
2,167
4,577
309,688
(45,796)
(40,983)
(8,300)
–
(123,091)
(69,673)
(27,745)
316,432
(423,198)
(220,509)
–
4,293
2,760
–
7,053
–
281,658
353,447
274,062
909,167
–
281,658
–
–
281,658
AkzoNobel Report 2018 | Financial information
109
7
Financing income and expenses
8
Income tax
In € millions
2017
2018
Corporate tax rate in the Netherlands
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
2017
23
(90)
(67)
(7)
(16)
12
(11)
(78)
2018
16
(92)
(76)
10
(3)
17
24
(52)
Net financing expenses for the year were €52 million
(2017: €78 million). Significant variances are:
• Net interest on net debt increased by €9 million to
€76 million (2017: €67 million), mainly due to lower
return on investments
• Financing expenses related to post-retirement benefits
Pre-tax income from continuing operations amounted to
a profit of €573 million (2017: €764 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
Current tax expense for
The year
Adjustments for previous years
Separation of Specialty Chemicals
business
(158)
56
(1)
(121)
23
(4)
Total current tax expense
(103)
(102)
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
Total deferred tax expense
(56)
(32)
(44)
(12)
(6)
(150)
(253)
–
44
(48)
(9)
(3)
(16)
(118)
changed from a charge of €7 million in 2017 to an
income of €10 million due to improved funding positions
Total
The total deferred tax charge, including discontinued
operations was €143 million (2017: €182 million). The total
tax charge, including discontinued operations, was €549
million (2017: €422 million).
• Interest charges on provisions came down from
€16 million in 2017 to €3 million due to changes in
discount rates
• Other items include a net benefit on tax settlements
of €20 million in 2018, partially offset by lower foreign
currency hedging results
The average interest rate used for capitalized interest
was 2.2% (2017: 2.6%) and amounted to nil (2017:
€2 million).
The average interest rate on total debt was 2.6%
(2017: 3.1%).
110
Financial information | AkzoNobel Report 2018
Effective tax rate reconciliation
The effective income tax rate based on the statement of
income is 20.6%.
Effective tax rate
in %
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
2017
25.0
(1.0)
24.0
7.3
4.2
0.7
1.6
1.8
(7.3)
0.8
33.1
2018
25.0
(0.1)
24.9
0.0
(7.0)
2.4
1.6
2.3
(4.0)
0.4
20.6
For comparison reasons, the above table presents the
effective consolidated tax rate excluding the impact of
results on discontinued operations. Including these results,
the effective consolidated tax rate is 7.5%, as the deal
result is largely tax exempted, refer to Note 2.
The benefits arising from previously unrecognized tax
losses, tax credit or temporary differences of a prior period
that are used to reduce the current tax expense in 2018
amounted to €25 million and to reduce the deferred tax
expense to €20 million. These mainly related to the sepa-
ration of the Specialty Chemicals business.
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.
The adjustments for prior years are mainly related to the
outcome of several tax audits.
Expiration year of loss carryforwards
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total recognized
2019
2020
2021
2022
1
–
1
1
–
1
1
–
1
33
–
33
2023
155
–
Later
Unlimited
267
(31)
2,674
(74)
Total
3,132
(105)
155
236
2,600
3,027
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, 2017
December 31, 2018
(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
(363)
47
121
37
71
582
(304)
191
–
191
28
75
124
49
261
582
(304)
815
(256)
559
391
28
3
12
190
–
–
624
(256)
368
The income tax recognized in equity in 2017 includes
the impact of a derecognition and in 2018 of a rerecogni-
tion of certain post-retirement benefits related deferred
tax assets.
Deferred tax assets and liabilities
From the total amount of recognized net deferred tax
assets, €393 million (2017: €280 million) is related to
entities that have suffered a loss in either 2018 or 2017
and where utilization is dependent on future taxable
profit in excess of the profit arising from the reversal of
existing taxable temporary differences. This assessment
is based on management’s long-term projections and tax
planning strategies.
A deferred tax liability is recognized for taxable temporary
differences related to investments in subsidiaries, branches
and associates and interests in joint arrangements, to
the extent that it is probable that these will reverse in the
foreseeable future. The expected net tax impact of the
remaining differences for which no deferred tax liabilities
have been recognized is €30 million.
Deferred tax assets and liabilities
In € millions
Deferred tax assets
Deferred tax liabilities
Balance at December 31 prior year
Impact of adoption IFRS 15
Impact of adoption IFRS 9
Impact of application IAS 29*
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
* Excluding discontinued operations charge of €1 million.
2017
1,017
(367)
650
–
–
–
650
(19)
(182)
(105)
(52)
(2)
290
575
(285)
2018
575
(285)
290
16
1
(6)
301
9
(143)
40
(6)
(10)
191
559
(368)
AkzoNobel Report 2018 | Financial information
111
9
Earnings per share
Unrecognized deferred tax assets
Profit for the period
In € millions
Tax losses and tax credits
Deductible temporary differences
Total
Income tax recognized in equity
In € millions
Currency exchange differences on
intercompany loans of a permanent
nature
Cash flow hedges
Share-based compensation
Post-retirement benefits
Impact of adoption IFRS 15
Impact of adoption IFRS 9
Impact of application IAS 29
Total
Current tax
Deferred tax
Total
2017
193
171
364
2017
(5)
(4)
3
(99)
–
–
–
(105)
–
(105)
(105)
2018
167
137
304
2018
17
5
(1)
24
16
1
(7)
55
5
50
55
In € millions
Profit before tax from continuing
operations
Income tax
Profit from continuing operations
Profit for the period attributable to non-
controlling interests
Profit for the period from
continuing operations attributable
to shareholders of the company
Profit for the period from discontinued
operations
Discontinued operations attributable to
non-controlling interest
Profit for the period attributable to
shareholders of the company
2017
764
(253)
511
(68)
443
2018
573
(118)
455
(45)
410
393
6,274
(4)
(10)
832
6,674
Weighted average number of shares
Number of shares
Issued common shares at
January 1
Effect of issued common shares
during the year
2017
2018
252,176,412
252,620,585
1,513,199
2,252,713
Effect of share repurchase program
(2,054,481)
–
Shares for basic earnings per
share for the year
251,635,130
254,873,298
Effect of dilutive shares
For performance-related shares
1,626,796
1,087,173
For share-matching plan
12,825
9,813
Earnings per share
in €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
2017
2018
1.76
1.75
1.55
1.54
3.31
3.29
1.61
1.60
24.58
24.47
26.19
26.07
2018
573
193
(30)
(204)
(45)
487
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
Interest on tax settlement
Adjusted income tax
Non-controlling interests
Adjusted profit from continuing
operations attributable to share-
holders of the company
2017
764
80
–
(185)
(68)
591
Adjusted earnings per share (in €)
2.35
1.91
Shares for diluted earnings
per share
253,274,751
255,970,284
Profit for the period from total operations
In € millions
Profit before tax from total operations
Identified items
Interest on tax settlement
Adjusted income tax
Non-controlling interests
Adjusted profit from total opera-
tions attributable to shareholders
of the company
2017
1,324
129
–
(359)
(72)
1,022
2018
7,278
(5,852)
(30)
(378)
(55)
963
Adjusted earnings per share (in €)
4.06
3.78
112
Financial information | AkzoNobel Report 2018
10
Intangible assets
Intangible assets
In € millions
Balance at January 1, 2017
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value
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
Impact application of IAS 29
Balance at January 1, 2018
Movements in 2018
Acquisitions through business combinations
Investments – including internally developed intangibles
Amortization
Classified as held for sale
Changes in exchange rates
Total movements
Balance at December 31, 2018
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at December 31, 2018
Goodwill
Brands
Customer
lists
Other
intangibles
1,652
2,290
1,204
–
(99)
1,553
(3)
–
–
–
(517)
(88)
(608)
991
–
(46)
945
1
946
42
–
–
–
2
44
–
(165)
2,125
2
–
–
(12)
–
(90)
(100)
2,189
–
(164)
2,025
8
2,033
38
–
(11)
–
(21)
6
1,013
2,216
–
(23)
990
–
(177)
2,039
–
(748)
456
89
–
–
(67)
(141)
(22)
(141)
754
–
(439)
315
–
315
19
2
(32)
–
–
(11)
810
–
(506)
304
399
221
(341)
279
10
22
(4)
(42)
(129)
(12)
(155)
192
160
(228)
124
–
124
2
22
(15)
(4)
(4)
1
221
158
(254)
125
Total
5,545
221
(1,353)
4,413
98
22
(4)
(121)
(787)
(212)
(1,004)
4,126
160
(877)
3,409
9
3,418
101
24
(58)
(4)
(23)
40
4,260
158
(960)
3,458
Brands with indefinite useful lives are almost fully related
to Dulux, which is the major brand, due to its global pres-
ence, high recognition and strategic nature. Other intan-
gibles include licenses, know-how, intellectual pro perty
rights, emission rights and development cost. Both at
year-end 2018 and 2017, 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 2018, the above exception
was applied for Decorative Paints Asia and Decorative
Paints South America, for which the revenue growth and
adjusted EBITDA-margin development projections were
extrapolated 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
• Adjusted 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%.
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 busi-
ness unit and range from 8.6% to 12.0%, with a weighted
average of 9.3%.
AkzoNobel Report 2018 | Financial information
113
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
Total
2017
40
905
945
2018
75
915
990
2017
1,845
–
2018
1,830
–
1,845
1,830
2017
194
425
619
2018
239
399
638
2017
2,079
1,330
3,409
2018
2,144
1,314
3,458
Sensitivity tests were performed for growth assumptions
(a 50 percent reduction of the growth rate), Adjusted
EBITDA margin development assumptions (a one percent-
age point decrease) and for the weighted average
cost of capital (a one percentage point increase). All sensi-
tivity tests individually confirm sufficient headroom
in all businesses.
No impairment charges were recognized in relation to the
annual impairment test, both in 2017 and 2018.
Average revenue growth rates
In % per year
Decorative Paints
Performance Coatings
2019-2023
3.6%
3.7%
11
Property, plant and equipment
Capital expenditures
In 2018, we have slightly underspent our CAPEX initial
plan due to increased CAPEX governance and rigor, whilst
we also re-evaluated all CAPEX submissions to ensure full
alignment with our 15% ROS by 2020 strategy.
During the year we have primarily invested in incremental
capacity to support growth (an example is the Powder
Coatings site in India) as well as in further the optimiza-
tion of our asset footprint (for both production consolida-
tion and insourcing from past acquisitions such as BASF
Industrial Coatings). We also continued our investment
strategy to support our resource productivity ambition
with VOC abatement systems, on-site solvent recov-
ery systems and waste water minimization systems as
examples.
Impairments
In 2018, no significant impairments were recognized. In
2017, several small impairments and reversals of impair-
ments were recognized, spread over all businesses.
Financial lease
The carrying value of the property, plant and equipment
financed by hire purchase and leasing and not legally
owned by the company was €30 million (2017: €33 million)
of which €29 million is relating to buildings.
In 2018, we did not enter into new financial leases.
114
Financial information | AkzoNobel Report 2018
Property, plant and equipment
In € millions
Balance at January 1, 2017
Cost of acquisition
Accumulated depreciation/impairment
Carrying value
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
Impact adoption IFRS 15
Impact application IAS 29
Balance at January 1, 2018
Movements in 2018
Acquisitions
Divestments
Capital expenditures
Transfer between categories
Depreciation
Impairments, including reversals
Changes in exchange rates
Total movements
Balance at December 31, 2018
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at December 31, 2018
Buildings and land
Plant equipment and
machinery
Other equipment
Construction in progress
and prepayments on
projects
Assets not used
Total
2,529
(1,344)
1,185
9
(11)
39
147
(75)
3
(434)
2
(66)
(386)
1,488
(689)
799
–
11
810
18
(7)
6
22
(44)
(1)
(10)
(16)
1,505
(711)
794
6,987
(5,109)
1,878
2
(4)
215
446
(335)
(1)
(1,472)
1
(102)
(1,250)
1,901
(1,273)
628
–
2
630
4
(1)
31
48
(93)
–
(8)
(19)
1,894
(1,283)
611
1,052
(819)
233
–
(2)
51
76
(75)
2
(64)
1
(10)
(21)
925
(713)
212
(56)
–
156
2
(2)
13
46
(44)
–
(5)
10
888
(722)
166
976
(88)
888
–
–
307
(669)
–
(4)
(295)
–
(36)
(697)
193
(2)
191
(10)
1
182
1
(1)
111
(116)
–
–
(3)
(8)
178
(4)
174
57
(51)
6
–
(3)
1
–
(1)
–
(1)
–
–
(4)
7
(5)
2
–
–
2
2
–
(1)
–
–
–
–
1
10
(7)
3
11,601
(7,411)
4,190
11
(20)
613
–
(486)
–
(2,266)
4
(214)
(2,358)
4,514
(2,682)
1,832
(66)
14
1,780
27
(11)
160
–
(181)
(1)
(26)
(32)
4,475
(2,727)
1,748
AkzoNobel Report 2018 | Financial information
115
12
Investments in associates and
joint ventures
13
Other financial non-current assets
14
Inventories
At year-end 2018, the carrying value of equity invest-
ments in associates amounted to €133 million (2017: €118
million) and in joint ventures amounted to €nil (2017 €nil).
In 2018, the results from associates amounted to a profit
of €20 million (2017: €17 million). In addition, AkzoNobel
has granted loans of €4 million in total to certain
associates (2017: €nil).
No significant contingent liabilities exist related to
associates.
Other financial non-current assets
In € millions
Loans and receivables
Other than financial instruments
Total
2017
131
1,070
1,201
2018
130
1,139
1,269
Inventories
In € millions
Raw materials and supplies
Work in progress
Finished products and goods for resale
2017
331
62
701
2018
353
66
720
Total
1,094
1,139
Financial assets include the subordinated loan of
€89 million (2017: €91 million) granted to the Pension
Fund APF in the Netherlands.
Of the total carrying value of inventories at year-end 2018,
€45 million is measured at net realizable value (2017:
€35 million). In 2018, €79 million was recognized in the
statement of income for the write-down of inventories
(2017: €46 million), while €18 million of write-downs were
reversed (2017: €14 million). There are no inventories
subject to retention of title clauses.
The largest associate of AkzoNobel is Metlac S.p.a..
None of the associates are considered individually material
to the group.
Balance sheet information of our share in associates
Other than financial instruments include an amount of
€947 million related to pension plans in an asset position
(2017: €895 million) and excluded from the impairment
review under IFRS 9. For more information on post-retire-
ment benefit provisions, see Note 17.
All of these financial assets are considered to have
low credit risk, and thus the impairment provision recog-
nized during the period was limited to 12 months
expected losses.
In € millions
Condensed balance sheet
Non-current assets
Current assets
Total assets
Shareholders’ equity
Non-current liabilities
Current liabilities
Total liabilities and equity
Associates
2017
2018
63
104
167
118
2
47
167
66
120
186
133
5
48
186
Profit and loss of our share in associates
In € millions
Condensed statement of income
Revenue
Profit before tax
Profit from continuing operations
Other comprehensive income
Total comprehensive income
Associates
2017
2018
114
24
17
–
17
135
27
20
–
20
116
Financial information | AkzoNobel Report 2018
15
Trade and other receivables
16
Group equity
Trade and other receivables
Allowance for impairment of trade receivables
Composition of share capital at year-end 2017
In € millions
Trade receivables
Prepaid expenses
Tax receivables other than income tax
FX and commodity contracts
Other receivables
Total
2017
1,700
29
112
11
112
1,964
2018
1,843
50
92
6
150
2,141
Trade receivables are presented net of an allowance for
impairment of €69 million (2017: €84 million).
In 2018, €38 million of impairment losses were recognized
in the statement of income (2017: €45 million). An amount
of €35 million was reversed (2017: €37 million).
Ageing of trade receivables
In € millions
Performing trade receivables
Past due trade receivables and not
impaired
< 3 months
> 3 months
Impaired trade receivables
Allowance for impairment
Total trade receivables
2017
1,505
2018
1,638
140
31
108
(84)
161
29
84
(69)
1,700
1,843
In € millions
Balance at January 1 under IAS 39
Impact adoption IFRS 9
Opening balance at January 1,
2018 under IFRS 9
Additions charged to income
Release of unused amounts
Utilization
Acquisitions
Classified as assets held for sale
Currency exchange differences
Balance at December 31
2017
107
–
107
45
(37)
(19)
–
(6)
(6)
84
2018
84
4
88
38
(35)
(22)
3
–
(3)
69
Since the total amount of impairment losses under IFRS 9
is not significant no separate disclosure was made in the
statement of income.
In 2018, the addition to and release of the allowance for
impairment have been included in the statement of income
under Selling expenses. In 2017, they have been reported
there also for the continuing operations and under Profit
for the period from discontinued operations for the
Specialty Chemicals business.
In 2018, the impairment of trade receivables is based
on the expected credit losses model following the simpli-
fied approach. In 2017, it was based on the incurred
loss model.
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
Composition of share capital at year-end 2018
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
512,438,602
Total
1,600,019,200
512,457,802
Outstanding common shares
Number of shares
2017
2018
Outstanding at January 1
252,176,412
252,620,585
Issued in connection to
performance-related share plan
and share-matching plan
Stock dividend
Share repurchase
405,231
991,928
2,418,168
2,606,788
(2,379,226)
–
Balance at December 31
252,620,585
256,219,301
Weighted average number of shares
Number of shares
Weighted average number of
shares
2017
2018
251,635,130
254,873,298
For further details on weighted average number of shares,
refer to Note 9.
AkzoNobel Report 2018 | Financial information
117
Non-controlling interests
Group entity
Partner at year-end 2018
2017
2018
Equity stake
in € millions
%
Equity stake
in € millions
%
In line with our announcement on April 19, 2017, we
intend to return the vast majority of the net proceeds from
the separation of the Specialty Chemicals business to our
shareholders.
Akzo Nobel India Limited, Kolkata, India
Akzo Nobel Paints (Malaysia) Sdn. Bhd.,
Kuala Lumpur, Malaysia
Privately held, India
27.04
Privately held, Malaysia
40.05
PT ICI Paints Indonesia, Jakarta, Indonesia
PT DWI Satrya Utama, Indonesia
45.00
International Paint (Korea) Ltd, Busan, South-
Korea
Akzo Nobel Kemipol A.S., Izmir, Turkey
Noroo Holdings, South Korea
40.00
Privately held, Turkey
49.00
International Paints Saudi Arabia, Saudi Arabia
Yousuf Bin Ahmed Kanoo Co. Ltd, Saudi Arabia
40.00
Akzo Nobel Oman SAOC, Muscat, Oman
Omar Zawawi establishment LLC, Oman
50.00
Privately held, Pakistan
24.19
52
25
28
17
17
13
11
12
25.24
40.05
45.00
40.00
49.00
40.00
50.00
24.19
Akzo Nobel Pakistan Limited, Karachi,
Pakistan
Akzo Nobel UAE Paints LLC, United Arab
Emirates
Kanoo Group, United Arab Emirates
40.00
10
40.00
International Paints of Shanghai Co. Ltd,
Shanghai, China
Huayi Fine Chemical Co. Ltd, China; China
National Shipbuilding Equipment & Materials Corp.
49.00
5
49.00
Akzo Nobel Swire Paints (Guanzhou) Limited,
Guangzhou, China
Industrial Development Co. Ltd of Guanzhou,
China
46.00
33
10.00
Akzo Nobel Swire Paints (Shanghai) Ltd,
Shanghai, China
Others
Total
–
30.00
170
–
252
442
49
24
22
16
16
15
11
10
9
6
6
–
20
204
The Extraordinary General Meeting of November 13, 2018,
approved to return an amount of €2.0 billion to sharehold-
ers by means of a capital repayment and share consolida-
tion which was executed in January 2019. A share consoli-
dation ratio of 9:8 was applied.
We will distribute €1.0 billion by means of a special cash
dividend of €4.50 per common share (post consolidation)
on February 25, 2019.
A share buyback program to repurchase common shares
up to the value of €2.5 billion is due to be completed at
the end of 2019. We intend to cancel these shares after
repurchase.
We propose a 2018 final dividend of €1.43 per share (post
consolidation), which would equal a total 2018 dividend
of €1.80 (2017: €2.50, including €0.85 related to the
Specialty Chemicals business) per share.
Subscribed share capital
For further details on subscribed share capital, refer to
Note F 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 6.
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. In
2018, an interim dividend of €0.37 per share (2017: €0.56)
was paid.
118
Financial information | AkzoNobel Report 2018
17
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 in the UK which
together account for 87 percent of defined benefit obliga-
tions (DBO) and 91 percent of plan assets. Other pension
plans include among others the largely unfunded plans
in Germany, the plans in the US and certain other smaller
plans in the UK. The benefits of these pension plans
are based primarily on years of service and employees’
compensation. The funding policy for the plans is consis-
tent with local requirements in the countries of establish-
ment. We also provide certain healthcare and life insurance
benefits to retired employees, mainly in the US and the
Netherlands.
Valuations of the obligations under the plans are carried
out regularly by independent qualified actuaries. We
accrue for the expected costs of providing such post-
retirement benefits during the service years of the employ-
ees. Governance of the benefit plans is the responsibility
of the 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 (annuity)
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.
The cost of fully removing risk would exceed estimated
funding deficits.
Between 2014 and 2018, 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 2018, the Trustee of the
ICIPF entered into a further annuity buy-in agreement with
Legal and General Assurance Society Limited and the
Trustee of the ISCPF entered into a further annuity buy-in
agreement with Pension Insurance Corporation PLC.
Together they cover, in aggregate, £138 million
(€154 million) of pensioner liabilities (local plan value). The
buy-ins involved the purchase of bulk annuity policies
under which the insurers will pay to ICIPF and ISCPF
amounts equivalent to the benefits payable to members
who have recently become pensioners. The pension
liabilities remain with, and the matching annuity policies
are held within, ICIPF and ISCPF. The accounting impact
of the transactions is a lower valuation of the plan assets
giving a reduction in Other comprehensive income of
£28 million (€31 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.
In October 2018, the UK High Court provided clarity
for trustees and employers on providing equal pension
benefits for men and women where they are in receipt
of Guaranteed Minimum Pensions (GMPs) as a result of
the Lloyds Banking Group judgment. According to this
judgment, pension schemes must retrospectively equalize
GMPs by uplifting pensions to the same level, as far as
needed, for men and women. As a result, a past service
cost of £51 million (€57 million) has been charged across
the AkzoNobel pension schemes in the UK in 2018.
Of the costs recognized in the statement of income in the
table on the next page, €90 million concerned continuing
operations (2017: €38 million) and €nil related to discon-
tinued operations (2017: €22 million).
AkzoNobel Report 2018 | Financial information
119
Remeasurement effects recognized in Other compre-
hensive income for continuing operations amounted to a
€45 million loss (2017: €462 million gain) and for disconti-
nued operations to a €27 million gain, however not
included in this table (2017: €24 million gain). Of the net
cash flow €257 million was for continuing operations
(2017: €340 million) and €nil for discontinued operations
(2017: €47 million).
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 infor-
mation from Alecta to enable a defined benefit accounting
treatment, it is accounted for as a defined
contribution plan.
Contributions in 2018 were €2 million (2017: €2 million).
Alecta’s funding ratio in 2018 is normally allowed to vary
between 125% and 175%. The most recently quoted
ratio at September 2018 stood at 159 percent. The
expenses of all plans accounted for as defined contribu-
tion plans in AkzoNobel totaled €87 million in 2018
(2017: €88 million).
Other post-retirement benefit plans
AkzoNobel provides certain healthcare and life insurance
benefits to retired employees, mainly in the US and the
Netherlands. The risks to which the US healthcare plans
expose AkzoNobel include the risk of future increases in
the cost of healthcare which would increase the cost of
maintaining the plans. The benefit payments to retirees
under the Dutch plan are frozen. Both plans expose
AkzoNobel to the risk of a further decline in discount rates,
which increases the plan obligations, and longevity risk as
the plans generally pay lifetime benefits.
Reconciliation balance sheet
The adjacent table details the annual movements for the
total post-retirement benefit provisions. The closing net
120
Financial information | AkzoNobel Report 2018
Reconciliation balance sheet
In € millions
2017
DBO
Plan
assets
Total
DBO
Plan
assets
Balance at the beginning of the period
(16,935)
15,671
(1,264)
(14,444)
14,643
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
(53)
12
–
(394)
(435)
213
33
223
–
–
Remeasurement effects recognized in Other comprehensive income
469
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
Classified as held for sale
Balance at the end of the period
Asset restriction
Net balance sheet provision
In the balance sheet under
Other financial non-current assets
Post-retirement benefit provisions
Current portion of provisions
Net balance sheet provision
–
–
–
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
(36)
(64)
–
(345)
(445)
(39)
430
74
–
–
465
–
(2)
927
925
2
143
145
–
–
–
355
355
–
–
–
(31)
(479)
(510)
257
2
(927)
(668)
(2)
(164)
(166)
–
(2)
982
980
(5)
599
594
883
(278)
605
–
–
(14,444)
14,643
199
(13,354)
13,654
(3)
196
895
(643)
(56)
196
2018
Total
199
(36)
(64)
–
10
(90)
(39)
430
74
(31)
(479)
(45)
257
–
–
257
–
(21)
(21)
–
300
(3)
297
947
(603)
(47)
297
balance sheet provision comprises: Pension plans
€442 million net asset (2017: €361 million net asset) and
Other post-retirement benefit plans €145 million liability
(2017: €165 million).
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 €14 million (2017: €12 million), which
are included in Operating income. In addition, we directly
incurred asset management expenses of €5 million (2017:
€6 million), which have been included in Other comprehen-
sive income.
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 €10 million credit for continuing
operations (2017: €19 million charge; €7 million charge
continuing operations, €12 million charge discontinued
operations), see Note 7.
Pension plans in asset position
Pension balances recorded under Other financial non-
current assets totaled €947 million (2017: €895 million).
The increase in 2018 was primarily due to €172 million
of top-up pension contributions offset by €78 million of
net actuarial losses and €57 million of past service costs
for GMPs 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.
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
instruments 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 €1,038 million (2017: €1,045 million) and
include investments in real estate, totaling €362 million
(2017: €340 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.
Cash flows
In 2019, we expect to contribute €552 million (2018: €243
million) to our defined benefit pension plans. We expect
to pay a further €13 million (2018: €14 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 increase in expected
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
Cash flows
In € millions
Regular contributions
Top-ups
Total
contributions in 2019 is mainly the result of the recently
concluded agreement on the ICIPF triennial funding valua-
tion at March 31, 2017 and the resulting recovery plan.
Total Percentage of total
Total Percentage of total
2017
2018
925
996
2,183
932
8,030
155
1,422
6
7
15
6
55
1
10
552
784
2,390
888
7,496
212
1,332
4
6
18
7
55
2
8
14,643
100
13,654
100
2018
56
187
243
Pensions
2019
52
500
552
Other post-retirement
benefits
2018
14
–
14
2019
13
–
13
AkzoNobel Report 2018 | Financial information
121
Sensitivity of DBO to change in assumptions
In € millions
Discount rate: 0.5% decrease
Price inflation: 0.5% increase*
Life expectancy: one year increase from age 60
Maturity information
Weighted average duration of DBO (years)
ICIPF
UK
528
292
568
12.4
CPS
UK
Other
pension plans
Other post-
retirement
benefits
251
140
105
16.0
126
66
60
15.3
7
–
7
Total
912
498
740
9.4
13.5
* The sensitivity to price inflation assumption includes corresponding changes to all inflation-related compensation
increases, pensions in payment and pensions in deferment.
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 result-
ing from changes in the given assumptions. The annuity
buy-in contracts cover 99% of pensioner liabilities (2017:
99%) and 84% of total liabilities at ICIPF (2017: 82%).
The longevity hedge contract covers 57% of pensioner
liabilities (2017: 58%) and 35% of total liabilities at CPS
(2017: 36%).
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.
Future benefit payments
The figures in the table below are the estimated future
benefit payments to be paid from the plans to beneficiaries
over the next ten years.
Future benefit payments
In € millions
Pensions
2019
2020
2021
2022
2023
2024-2028
912
911
918
925
935
4,786
Other post-
retirement
benefits
13
12
12
11
11
49
DBO at funded and unfunded pension plans*
In € millions
2017
2018
Wholly or partly funded plans
14,092
13,032
Unfunded plans
Total
187
177
14,279
13,209
* Excludes other post-retirement benefit plans.
122
Financial information | AkzoNobel Report 2018
Key figures and assumptions by plan
In € millions or %
Percentage of total DBO
Defined Benefit Obligation at year-end
Fair value of plan assets at year-end
Plan funded status
Restriction on asset recognition
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
Life expectancy (in years)
Currently aged 60
Males
Females
Currently aged 45, from age 60
Males
Females
ICIPF
UK
61%
(9,298)
9,609
311
–
311
16%
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
23%
10
91
2.5%
1.4%
3.2%
2.2%
26.4
28.7
27.6
29.9
(1,698)
1,224
(474)
(3)
(477)
59%
26
51
2.4%
2.2%
1.9%
1.9%
25.6
28.6
27.2
30.1
(165)
–
(165)
–
(165)
2%
1
15
3.4%
–
–
–
26.1
28.2
27.3
29.4
2017
Total
(14,444)
14,643
199
(3)
196
44
341
2.5%
1.8%
3.0%
2.6%
26.5
28.4
27.8
29.7
ICIPF
UK
64%
(8,508)
8,876
368
–
368
12%
4
154
2.7%
1.5%
3.2%
3.0%
26.7
28.2
27.8
29.5
CPS
UK
Other pension
plans
Other post-
retirement
benefits
23%
12%
1%
(3,083)
3,601
518
–
518
26%
9
34
2.8%
1.4%
3.2%
2.3%
26.4
28.7
27.5
29.9
(1,618)
1,177
(441)
(3)
(444)
62%
23
55
2.8%
2.6%
2.2%
2.1%
26.1
28.5
27.5
29.8
(145)
–
(145)
–
(145)
0%
–
14
3.9%
–
–
–
26.1
28.0
27.3
29.3
2018
Total
(13,354)
13,654
300
(3)
297
36
257
2.7%
2.0%
3.1%
2.7%
26.5
28.4
27.7
29.6
AkzoNobel Report 2018 | Financial information
123
Key plan details for the two largest pension plans1
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, 2017
Funding deficit2 at latest completed
valuation
£604 million (€673 million)
Normally every three years
March 31, 2017
£123 million (€137 million)
Recovery plan
£125 million (€139 million) in January 2019 and £290
million (€323 million) in March 2019, following experi-
ence gains since the March 31, 2017 valuation date
£26 million (€29 million) per annum in 2019 to 2022,
paid in March each year from an escrow account pre-
funded with £142 million (€158 million) in February 2019
Next funding review
March 31, 2020
March 31, 2020
Asset allocation at March 31, 2018
Matching:
Return seeking:
96%
4%
Buy-in annuity contracts cover 99% of pensioner liabili-
ties and 82% of total liabilities
66%
34%
The longevity hedge contract covers 57% of pensioner
liabilities and 35% of total liabilities
Membership at March 31, 2018
Active
Deferred
Pensioner
Total
200
7,481
41,323
49,004
420
7,365
18,197
25,982
1 Amounts in euro are a convenience translation using the December 31, 2018, exchange rate.
2 Based on local valuation regulations.
124
Financial information | AkzoNobel Report 2018
18
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 obliga-
tions to eliminate or limit the effects on the environment of
the disposal or release of certain wastes or substances at
various sites. Proceedings involving environmental matters,
such as the alleged discharge of chemicals or waste
materials into the air, water, or soil, are pending against
us in various countries. In some cases, this concerns
sites divested in prior years or derelict sites belonging to
companies acquired in the past.
Environmental liabilities can change substantially due to
the emergence of additional information on the nature or
extent of the contamination, the geological circumstances,
the necessity of employing particular methods of remedia-
tion, actions by governmental agencies or private parties,
or other factors.
The provisions for environmental costs amounted to €91
million at year-end 2018 (2017: €103 million). The provision
has been discounted using an average pre-tax discount
rate of 1.9% (2017: 1.8%). While it is not feasible to predict
the outcome of all pending environmental exposures, it
is reasonably possible that there will be a need for future
provisions for environmental costs which, in management’s
opinion, based on information currently available, would
not have a material effect on the company’s financial
position but could be material to the company’s results of
operations in any one accounting period.
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
(€47 million) and other provisions (€164 million) adds up
to €211 million (2017: €241 million), as reflected in the
balance sheet.
Discount rates
The discount rates used in calculating the provisions
recognized at December 31, 2018 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 €11 million
on the provisions recognized at December 31, 2018.
Movements in other provisions
In € millions
Balance at January 1, 2018
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions
Changes in exchange rates
Balance at December 31, 2018
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2018
Restructuring
of activities Environmental costs
Sundry
91
98
(93)
(9)
–
–
(1)
86
12
74
86
103
7
(12)
(8)
1
–
–
91
79
12
91
312
45
(52)
(22)
1
1
(2)
283
205
78
283
Total
506
150
(157)
(39)
2
1
(3)
460
296
164
460
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 1.3% (2017: 1.2%)
has been used.
Akzo Nobel N.V. has withdrawn its declarations of joint and
several liability under Article 403 of Book 2 of the Dutch
Civil Code for certain Dutch former Specialty Chemicals
subsidiaries divested as per October 1, 2018 and is follow-
ing the procedures to terminate its residual liability under
those declarations under Article 404 of Book 2 of the
Dutch Civil Code. Several objections against the termina-
tion of residual liability are pending and Akzo Nobel N.V.
and Nouryon are cooperating to get these resolved.
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. Akzo Nobel
has received various claims under such indemnities and
guarantees. In some instances, AkzoNobel has been
named as a direct defendant despite the divestments.
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 addi-
tional 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
AkzoNobel Report 2018 | Financial information
125
19
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
Short-term investments
Net debt
2017
2,237
63
2,300
805
156
12
973
3,273
(1,322)
–
1,951
2018
1,739
60
1,799
516
67
16
599
2,398
(2,799)
(5,460)
(5,861)
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 25.
Bonds issued
In € millions
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)*
2017
745
497
494
501
2018
746
498
495
–
Total
2,237
1,739
*3-months Euribor plus 2/10% floored at zero percent.
The average effective interest rate of the bonds outstand-
ing at year-end 2018 was 1.9 percent (year-end 2017:
2.1 percent).
Aggregated maturities of long-term borrowings
Long-term borrowings
We have a €1.8 billion multi-currency revolving credit
facility which runs until 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 2018 and 2017, this facility has not
been drawn.
At year-end 2018 and 2017, none of the borrowings was
secured by collateral.
Financial lease liabilities are included in Other borrowings
and aggregated €37 million (2017: €40 million). An amount
of €5 million (2017: €5 million) will mature within one year,
€18 million will mature in the period 2020 through 2023
and €14 million after 2023.
Net debt
in € millions
Net debt equivalents at January 1, 2017
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
Net cash from operating and investing activities of
discontinued operations
Held for sale
Changes in exchange rates
Other changes
Net debt at year-end 2017
Net cash from operating activities
Net cash from investing activities
Proceeds from borrowings
Borrowings repaid
Transfers from long-term to short-term
Investments in short-term investments
Repayments of short-term investments
Dividends
Movements bankoverdrafts and short term bank loans
Net cash from discontinued operations
Buy out of non-controlling interests
Long-term
borrowings
Short-term
borrowings
Short-term
investments
Cash and cash
equivalents
(1,479)
(278)
284
(1,256)
345
–
1,187
(11)
160
(337)
–
62
1
(1,322)
(162)
207
(607)
1,529
–
5,541
(80)
636
(33)
Net debt
1,252
(278)
284
–
–
–
1,187
–
160
(337)
(386)
51
18
1,951
(162)
207
–
–
–
–
–
636
–
2,644
–
–
501
–
(812)
–
–
–
–
(45)
(5)
17
2,300
–
–
7
–
(526)
–
–
–
–
–
–
–
18
1,799
87
–
–
755
(345)
812
–
11
–
–
(341)
(6)
–
973
–
–
600
(1,529)
526
–
–
–
33
–
–
(9)
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,541)
80
–
–
–
–
–
1
(8,958)
(8,958)
437
17
(4)
437
8
20
599
(5,460)
(2,799)
(5,861)
In € millions
Bonds issued
Other borrowings
Total
2020 – 2023
After 2023
746
27
773
993
33
1,026
Changes in exchange rates
Other changes
Net debt at year-end 2018
126
Financial information | AkzoNobel Report 2018
20
Trade and other payables
Trade and other payables
In € millions
Suppliers
Amounts payable to employees
FX and commodity contracts
Taxes and social security contributions
Customer-related payables
Short-term investments
Short-term investments almost entirely consist of time
deposits, money market funds and other marketable
securities with a life time at investment date longer than
three months but shorter than twelve months. For more
information on credit risk management, see Note 25.
Short-term investments
In € millions
Short-term investments with life
between 3 and 12 months
Total
2017
–
–
2018
5,460
5,460
Dividends
Other liabilities
Total
2017
1,624
269
8
181
252
201
259
2018
1,574
225
8
175
269
5
389
2,794
2,645
Short-term borrowings
In December 2018, a bond of €800 million matured. In
November 2019, a bond of €500 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 no commercial paper
outstanding at year-end 2018 (2017: €112 million).
Cash and cash equivalents
In € millions
Cash on hand in banks
Deposits and money market funds with
a life up to 3 months
Included under cash and cash
equivalents in the balance sheet
Debt to credit institutions
Total per cash flow statement
2017
815
507
2018
896
1,903
1,322
2,799
(44)
1,278
(67)
2,732
Cash and cash equivalents
Deposits and money market funds within cash and cash
equivalents almost entirely consist of time deposits imme-
diately convertible into cash and with a maturity of three
months or less from the date of purchase and marketable
securities that can be redeemed immediately when called.
At December 31, 2018, an amount of €8 million in cash
and cash equivalents was restricted (2017: €11 million).
Restricted cash is defined as cash that cannot be
accessed centrally due to regulatory or contractual
restrictions.
AkzoNobel Report 2018 | Financial information
127
21
Cash flow
22
Commitments
23
Related party transactions
Operating activities in 2018 resulted in a cash inflow of
€162 million (2017: cash inflow of €278 million).
Purchase commitments for property, plant and equipment
aggregated €8 million (2017: €7 million).
Changes in working capital per cash flow statement
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
2017
(179)
(139)
213
(105)
Changes in provisions per cash flow statement
In € millions
Post-retirement provisions
Restructuring provisions
Environmental and sundry provisions
Total
2017
(255)
8
(91)
(338)
2018
(199)
(49)
71
(177)
2018
(157)
(4)
(42)
(203)
Lease payments during 2018 amounted to €124 million
(2017: €211 million). Our operational lease portfolio
mainly consists of leases related to land, property and
employee cars.
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
2017*
166
306
210
682
2018
110
214
96
420
* An amount of €307 million of the total commitments concerned discontinued
operations.
The above amounts cannot be reconciled directly to the
respective balance sheet positions. They reflect changes
in balance sheet positions only to the extent they have a
cash flow impact, such as utilization, or they reverse the
non-cash impact as included in Profit for the period. These
amounts exclude non-cash movements such as unwind
of discount, movements through Other comprehensive
income, acquisitions and divestments, and changes in
exchange rates.
We purchased and sold goods and services to various
related parties in which we hold a 50% or less equity inter-
est (associates and joint ventures). Such transactions were
conducted at arm’s length with terms comparable with
transactions with third parties.
During 2018, 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 24. 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 13, 15 and 17. For receivables from and payables to
other related parties, refer to Note 15 and 20.
128
Financial information | AkzoNobel Report 2018
24
Remuneration of the Supervisory Board
and the Board of Management
Total compensation to key management personnel
amounted to €15.7 million (2017: €21.1 million). An
amount of €7.3 million relates to short-term employee
benefits (2017: €10.1 million); €0.7 million to post-contract
benefits and other post-contract compensation (2017:
€1.2 million); €6.0 million to share-based compensation
(2017: €7.9 million); €1.2 million to other long-term incen-
tives (2017: €nil); and €0.5 million related to payments
upon termination of employment (2017: €1.9 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 remuner-
ation: €130,000 for the Chairman, €78,000 for the Deputy
Chairman and €65,000 for the other members. Members
of committees receive an extra compensation. Members
living outside the Netherlands receive an attendance fee
dependent on the country of residence. Members who are
resident in the Netherlands do not receive an attendance
fee except for meetings held outside of the Netherlands.
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of
Supervisory Board members is not dependent on the
results of the company.
2017 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
Adjusted operating income
OCF
Revenue growth
Payout as percentage
of target
121%
110%
77%
121%
BOARD OF MANAGEMENT
The individual contracts of the members of the Board of
Management are determined by the Supervisory Board
within the framework of the remuneration policy adopted
by the Annual General Meeting of shareholders. For more
detailed information on the decisions of the Supervisory
Board with respect to the individual contracts of the
members of the Board of Management, see the Remu-
neration report.
Short-term incentive
The short-term incentives for 2018 are linked to ROS
(35%), Operational Cash Flow (OCF) (35%) and the
individual and qualitative targets of the members of the
Board of Management (30%).
In determining the outcome of the short-term incentive
elements (ROS, OCF and personal targets), the Remunera-
tion Committee applied a reasonableness test in which the
actual level of the performance was critically assessed in
Supervisory Board
In €
Nils Smedegaard Andersen,
Chairman1
Antony Burgmans2
Peggy Bruzelius
Byron Grote, Deputy Chairman
Shares held by the members of the Supervisory
Board
Number of shares at year-end
2017
2018
Louis Hughes2
Nils Smedegaard Andersen, Chairman
Peggy Bruzelius
Byron Grote *
Pamela Kirby
Dick Sluimers
Ben Verwaayen
Sue Clark
Patrick Thomas
Michiel Jaski
* In the form of ADRs.
–
500
2,000
–
–
–
–
–
–
3,300
500
4,833
–
–
–
–
–
500
Pamela Kirby
Dick Sluimers
Ben Verwaayen
Sue Clark
Patrick Thomas
Michiel Jaski
Sari Baldauf3
Total
1 As of May 1, 2018.
2 Until April 30, 2018.
3 Until December 1, 2017.
Total
remuneration
Remuneration Attendance fee
Committee
allowance fees
Employer’s
charges
Total
remuneration
2017
–
169,400
116,200
134,300
120,000
100,000
95,000
95,000
7,900
10,400
5,400
100,000
953,600
88,214
12,500
10,659
41,786
65,000
78,000
20,893
65,000
65,000
65,000
65,000
65,000
65,000
–
5,000
17,500
17,500
5,000
12,500
2,500
15,000
15,000
15,000
2,500
–
6,429
20,000
40,000
6,429
15,000
40,000
15,000
7,995
10,659
10,659
–
–
–
16,818
–
–
–
–
–
–
–
–
–
2018
111,373
53,215
119,318
135,500
32,322
92,500
107,500
95,000
87,995
90,659
78,159
–
683,893
120,000
182,830
16,818
1,003,541
AkzoNobel Report 2018 | Financial information
129
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 condi-
tions. Taking into consideration the level of performance that
the company had delivered during 2018, and achievement
that had been made on a number of key strategic goals, the
Remuneration Committee determined that bonus payments
for the Board of Management would be €587,400 (60% of
salary) for Mr. Vanlancker, CEO and €307,753 (46.7% of
salary) for Mr. de Vries, CFO. On the qualitative targets, the
CEO and CFO performed outstanding.
Other short-term benefits
Other short-term benefits include employer’s charges
(social contributions) and other compensations, such as
insurances, car arrangements and housing expenses.
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 6.
Performance-related shares
There are no performance-related shares granted to the
members of the Board of Management in 2016.
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.
Post-contract compensation
This refers to compensation intended for building up
retirement benefits instead of pension contributions.
Shares held by the Board of Management
Number of shares at year-end
Thierry Vanlancker
Maarten de Vries
2017
460
–
2018
13,682
2,562
Board remuneration 2017
In €
Thierry Vanlancker1
Ton Büchner2,5,6
Maëlys Castella3
Salary
429,300
950,500
440,900
Short-term
incentives4
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 from 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’).
Board remuneration 2018
In €
Thierry Vanlancker
Maarten de Vries
Total
Salary
979,000
659,000
1,638,000
Short-term
incentives
Other short-term
benefits
Share-based
compensation
Long-term
incentives
Post-contract
compensation
Total
remuneration
587,400
307,753
895,153
13,443
9,443
22,886
1,156,540
410,420
356,593
240,036
1,566,960
596,629
163,500
129,200
292,700
3,256,476
1,755,852
5,012,328
Number of performance-related shares
Balance at
January
1, 2018
Series
Granted
in 2018
Vested
in 2018
Forfeited
in 2018
Dividend
in 2018
Balance at
December
31, 2018
Vested on
January 1,
2019
Thierry Vanlancker
2017 – 2019
29,489
2018 – 2020
Maarten de Vries
2018 – 2020
20,200
17,200
–
–
–
–
–
–
894
613
30,383
20,813
522
17,722
–
–
–
The compensation is based on age and is calculated
over the 2018 remuneration. These contributions are
paid on base salary only.
Share-matching plan
The share-matching plan will be suspended for three
years, i.e. in relation to performance in the years 2018
– 2020. The value of the share-matching plan for these
three years will be invested in the newly-created 2020
Performance incentive plan. Please refer to the remunera-
tion report for the details of the plan.
Number of potential matching shares
Year of
share
investment
2017
Potential
match
230
Matched
in 2018
–
Forfeited
in 2018
–
Balance
at
year-end
2018
230
2018
1,936
–
–
1,936
Thierry
Vanlancker
130
Financial information | AkzoNobel Report 2018
25
Financial risk management
FINANCIAL RISK MANAGEMENT
FRAMEWORK
Maturity of liabilities and cash outflows
Our activities expose us to a variety of financial risks:
market risk (including currency risk, fair value interest rate
risk and price risk), credit risk and liquidity risk. These
risks are inherent to the way we operate as a multinational
with a large number of locally operating subsidiaries. Our
overall risk management program seeks to identify, assess,
and – if necessary – mitigate these financial risks in order
to minimize potential adverse effects on our financial
performance.
Our risk mitigating activities include the use of derivative
financial instruments to hedge certain risk exposures. The
Board of Management is ultimately responsible for risk
management. We centrally identify, evaluate and hedge
financial risks, and monitor compliance with the corporate
policies approved by the Board of Management, except for
commodity risks, which are subject to identification, evalu-
ation, hedging and monitoring in the businesses. We have
treasury hubs located in Brazil and China that are primarily
responsible for regional cash management and short-term
financing. We do not allow for extensive treasury opera-
tions 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 2018, we had €2.8 billion available as cash
and cash equivalents (2017: €1.3 billion) and €5.5 billion
available as short-term investments (2017: €nil), see
Note 19.
In addition, we have a €1.8 billion multi-currency revolving
credit facility, which runs to 2022. This facility does not
contain financial covenants or acceleration provisions that
are based on adverse changes in ratings or on other mate-
Less than
1 year
Between
1 and 5 years
Over 5
years
In € millions
At December 31, 2017
Borrowings
Interest on borrowings
Finance lease liabilities
968
70
5
Trade and other payables
2,786
FX contracts (hedges)
Outflow
Inflow
Total
At December 31, 2018
Borrowings
Interest on borrowings
Finance lease liabilities
1,996
(1,996)
3,829
594
43
5
Trade and other payables
2,637
FX contracts (hedges)
Outflow
Inflow
Total
1,655
(1,653)
3,281
1,250
1,015
147
18
–
–
–
38
17
–
–
–
1,415
1,070
755
124
18
–
–
–
1,012
22
14
–
–
–
897
1,048
rial adverse changes. At year-end 2018 and 2017, this
facility had not been drawn. We have US dollar and euro
commercial paper programs in place, which can be used
to the extent that the equivalent portion of the €1.8 billion
multi-currency revolving credit facility is not used. We had
no commercial paper outstanding at year-end 2018 (2017:
€112 million). The table above shows our cash outflows
per maturity group. The amounts disclosed in the table are
the contractual undiscounted cash flows.
CREDIT RISK MANAGEMENT
Credit risk arises from financial assets such as cash and
cash equivalents, deposits with financial institutions,
money market funds, trade receivables and derivative
financial instruments with a positive fair value. We have
a credit risk management policy in place to limit credit
losses due to non-performance of financial counterparties
and customers. We monitor our exposure to credit risk
on an ongoing basis at various levels. We only deal with
financial counterparties that have a sufficiently high credit
rating. Generally, we do not require collateral in respect of
financial assets. Investments in cash and cash equivalents,
short-term investments and transactions involving deriva-
tive financial instruments are entered into with counterpar-
ties that have sound credit ratings and a 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’s
for the different types of financial instruments we use.
We closely monitor the acceptable financial counterparty
credit ratings and credit limits and revise where required
in line with the market circumstances. We do not expect
non-performance by the counterparties for these financial
instruments. Due to our geographical spread and the
diversity of our customers, we were not subject to any
significant concentration of credit risks at balance sheet
date. The credit risk from trade receivables is measured
and analyzed at a local operating entity level, mainly by
means of ageing analysis, see Note 15. Additionally, trade
receivables and financial assets measured at amortized
cost are subject to the expected credit loss impairment
model either using the general or the simplified approach.
For more information on the applied impairment approach-
es per financial asset type, see Note 1. Generally, the
maximum exposure to credit risk is represented by the
carrying value of financial assets in the balance sheet.
At year-end 2018, the credit risk on consolidated level
was €10.5 billion (2017: €3.4 billion) for cash and cash
equivalents, short-term investments, loans, trade and
other receivables. Our credit risk is well spread among
both global and local counterparties. Our largest coun-
terparty risk amounted to €999 million at year-end 2018
(2017: €366 million).
AkzoNobel Report 2018 | Financial information
131
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 by exception. 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.
Investments in foreign subsidiaries, associates
and joint ventures
During 2017 and 2018, net investment hedge account-
ing was applied on hedges of certain net investments in
foreign operations which were partly hedged. The main net
Hedged notional amounts at year-end
In € millions
US dollar
Pound sterling
Swedish krona
Chinese yuan
Other
Total
Buy
2017
94
186
420
6
286
992
Sell
2017
455
48
27
163
471
Buy
2018
556
181
42
39
186
1,164
1,004
Sell
2018
138
112
31
26
469
776
132
Financial information | AkzoNobel Report 2018
investments included were related to Chinese yuan (2017
and 2018), Vietnamese dong (2017 and 2018), Indonesian
rupiah (2018) and US dollar (2017) which were hedged
with forward exchange contracts for the same currencies.
The spot results related to these hedges were recognized
in other comprehensive income and accumulated in the
foreign currency translation reserves. During 2017 and
2018, these hedges were fully effective. At year-end 2017
and 2018, no hedges of net investments in foreign opera-
tions were outstanding.
distributed in 2019 and thereafter (2017: 0.40). Funds from
operations are based on net cash from operating activities
after tax, which is adjusted, among others, for the elimina-
tion of changes in working capital, top-up payments for
pensions and for the effects of the underfunding of postre-
tirement benefit obligations. Net borrowings are calculated
as the total of long and short-term borrowings less cash
and cash equivalents and short-term investments, adding
an after-tax amount for the underfunding of postretirement
benefit obligations and lease commitments.
INTEREST RATE RISK MANAGEMENT
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value inte-
rest 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 2018, the fixed/floating rate of our outstanding bonds
shifted from 55% fixed at year-end 2017 to 78% fixed at
year-end 2018. During 2017 and 2018, 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 sharehold-
ers, return capital to capital providers, or issue new debt
or shares. In December 2018, a bond of €800 million
matured. 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 2018 was not
meaningful given the proceeds from the divestment of
Specialty Chemicals, of which a large portion will only be
FAIR VALUE OF FINANCIAL
INSTRUMENTS AND
IFRS 9 CATEGORIES
In the table “Fair value per financial instrument category”
insight is provided in the recognition of the respective
financial instruments per IFRS 9 category. The total carry-
ing value is based on the accounting principles as outlined
in Note 1. Financial instruments are recognized at fair
value and subsequently recognized either at fair value or at
amortized cost, using the effective interest method.
The financial instruments accounted for at fair value
through profit or loss are derivative financial instruments
and securities included in Other financial non-current
assets, Cash and cash equivalents and Short-term invest-
ments. The remaining financial instruments are accounted
for at amortized cost.
• 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)
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
For the purpose of determining the fair value per financial
instrument category, shown in the column “fair value”, the
following valuation methods were used:
identical assets or liabilities
Fair value per financial instrument category
In € millions
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
2018 year-end
Other financial non-current assets
Trade and other receivables
Short term investments
Cash and cash equivalents
Total financial assets
Long-term borrowings
Short-term borrowings
Trade and other payables
Total financial liabilities
Carrying value per IFRS 9
category
Measured at
amortized
cost
Measured
at fair value
through profit
or loss
Carrying
amount
Out of scope
of IFRS 7
Total
carrying value
Fair value
1,201
1,965
1,322
4,488
2,300
973
2,794
6,067
1,269
2,141
5,460
2,799
991
141
–
1,132
35
5
599
639
1,093
142
–
–
190
1,813
–
2,003
2,265
968
2,187
5,420
158
1,993
–
–
11,669
1,235
2,151
1,799
599
2,645
5,043
–
–
400
400
1,799
599
2,237
4,635
20
11
1,322
1,353
–
–
8
8
18
6
5,460
2,799
8,283
–
–
8
8
210
1,824
1,322
3,356
2,265
968
2,195
5,428
176
1,999
5,460
2,799
228
1,824
1,322
3,374
2,387
1,001
2,195
5,583
197
1,999
5,460
2,799
10,434
10,455
1,799
599
2,245
4,643
1,880
600
2,245
4,725
A level 1 valuation method was used to estimate the
fair value of the bonds issued included in our long-term
and short-term borrowings. The estimate is based
on the quoted market prices for the same or similar
issues or on the current rates offered to us for debt with
similar maturities.
A level 2 valuation method was used to determine the fair
value of marketable securities included in cash and cash
equivalents and short-term investments by obtaining the
market price at reporting date. The fair value of foreign
currency contracts and swap contracts was determined
by level 2 valuation techniques using market observ-
able input (such as foreign currency interest rates based
on Reuters) and by obtaining quotes from dealers and
brokers. A level 2 valuation method was used to determine
the fair value of time deposits included in cash and cash
equivalents and short-term investments using the market
interest rate. The carrying amounts of cash and banks,
trade receivables less allowance for impairment, other
short-term borrowings and other current liabilities approxi-
mate 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.
AkzoNobel Report 2018 | Financial information
133
26 Subsequent events
The Extraordinary General Meeting of November 13,
2018, approved to return an amount of €2.0 billion to
share holders by means of a capital repayment and share
consolidation which was executed in January 2019. A
share consolidation ratio of 9:8 was applied. We will
distribute €1.0 billion by means of a special cash dividend
of €4.50 per common share (post consolidation) on Febru-
ary 25, 2019. A share buyback program to repurchase
common shares up to the value of €2.5 billion is due to be
completed at the end of 2019. We intend to cancel these
shares after repurchase. Reference is made to Note 16.
In February 2019, negotiations on the triennial review
of the main UK defined benefit pension schemes were
concluded. A total of £432 million (€481 million) of cash
payments has been agreed in relation to deficit recovery
plans for the ICIPF and CPS, including £142 million (€158
million) of pre-funding into an escrow account for the CPS.
This is in addition to a top-up payment of £125 million
(€139 million) which was paid in January 2019, in accor-
dance with the previously agreed recovery plan. Reference
is made to Note 17.
Sensitivities on financial instruments at year-end 2018
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 10% (2017: 15%) strengthening of the euro
versus US dollar
Profit: €7 million (2017: profit €15 million), Other
comprehensive income €nil (2017: profit €4 million)
A 10% (2017: 10%) strengthening of the euro
versus the pound sterling
€nil (2017: profit €1 million)
A 10% (2017: 10%) strengthening of the euro
versus Chinese yuan
Loss: €1 million (2017: loss €4 million)
A 100 basis points increase of EURIBOR
interest rates
A 100 basis points increase of US LIBOR
interest rates
Profit: €27 million (2017: Loss €13 million)
Profit: €1 million (2017: profit €1 million)
A 100 basis points increase of GBP LIBOR
interest rates
€nil (2017: €nil)
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 circum-
stances – 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 effect of rights
of set-off and concluded the impact is immaterial.
We did not offset any amounts regarding derivative
transactions.
134
Financial information | AkzoNobel Report 2018
COMPANY FINANCIAL STATEMENTS
Statement of income
In € millions
Other income
Gross profit
General and administrative expenses
Other results
Operating income
Financing income and expenses
Net income from subsidiaries
Profit before tax
Income tax
Net income
Note
B
C
109
(91)
–
(32)
839
108
(77)
5,126
(75)
1,599
2017
109
(91)
18
825
7
832
Balance sheet as of December 31, before allocation of profit
2018
In € millions
Note
2017
2018
108
Assets
5,049
5,157
6,681
(7)
6,674
Non-current assets
Financial non-current assets
Total non-current assets
Current assets
Short-term receivables
Short-term investments
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
D
E
G
G
F
G
G
H
11,496
11,299
11,496
11,299
80
–
111
505
769
15
232
(549)
(2,460)
6,655
698
373
5,460
1,996
191
11,687
7,829
19,128
512
958
–
248
(608)
(2,459)
6,604
6,579
5,865
11,834
4,389
6,471
4,389
6,471
929
504
526
297
1,433
11,687
823
19,128
AkzoNobel Report 2018 | Financial information
135
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
(2,840)
7,032
883
Balance at January 1, 2017
504
746
Changes in exchange rates in respect of subsid-
iaries, 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
Addition to other reserves
Balance at December 31, 2017
Impact adoption IFRS 9
Impact adoption IFRS 15
Impact application IAS 29
–
–
–
–
–
4
–
2
(5)
–
505
–
–
–
–
–
–
–
–
180
–
(2)
(155)
–
769
–
–
–
Balance at January 1, 2018
505
769
Changes in exchange rates in respect of subsid-
iaries, 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
–
2
–
–
–
–
–
–
–
191
–
(2)
–
–
Balance at December 31, 2018
512
958
3
–
12
–
–
12
–
–
–
–
–
15
–
–
–
15
–
(15)
–
–
(15)
–
–
–
–
–
–
272
–
–
–
–
–
–
–
–
–
(40)
232
–
–
–
232
–
–
–
–
–
–
–
–
–
16
248
136
Financial information | AkzoNobel Report 2018
(47)
(502)
–
–
–
(502)
–
–
–
–
–
–
–
23
(526)
(82)
–
–
–
(82)
–
–
–
–
–
(549)
(2,460)
(2,460)
6,604
698
–
–
380
–
380
–
–
–
–
–
–
–
–
–
–
1
–
1
–
–
–
–
–
–
–
–
–
–
(1,011)
37
–
–
597
6,655
(3)
(48)
–
–
–
–
832
832
(460)
–
–
–
(557)
698
–
–
–
–
–
–
–
–
–
32
–
(223)
191
6,604
–
–
–
6,674
6,674
(586)
–
–
–
(207)
6,579
(608)
(2,459)
6,553
(502)
12
380
832
722
(1,287)
37
–
(160)
–
5,865
(3)
(48)
23
5,837
(82)
(15)
1
6,674
6,578
(390)
32
–
(223)
–
11,834
A
General information
D
Financial non-current assets
The financial statements of Akzo Nobel N.V. have been
prepared using the option of Article 362 of Book 2 of the
Dutch Civil Code, meaning that the accounting principles
used are the same as for the Consolidated financial
statements. Foreign currency amounts have been trans-
lated, assets and liabilities have been valued, and net
income has been determined in accordance with the prin-
ciples of valuation and determination of income presented
in Note 1 of the Consolidated financial statements. For
the Company financial statements, Other income mainly
concerns intercompany royalty income. Subsidiaries
of Akzo Nobel N.V. are accounted for using the equity
method, based on the pronouncements of the Dutch
Accounting Standards Board.
The remuneration paragraph is included in Note 24 of the
Consolidated financial statements.
B
Other results
In 2018 other results contain the part of the deal result on
sale of the Specialty Chemicals business directly attribut-
able to Akzo Nobel N.V.. For details on the sale refer to
Note 2 of the Consolidated financial statements.
C
Financing income and expenses
Movements in financial non-current assets
In € millions
Balance at January 1, 2017
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
8,277
1,555
–
839
379
29
–
–
(510)
(399)
(1)
Loans*
2,994
–
–
–
–
–
611
(2,361)
(16)
–
–
Balance at December 31, 2017
10,169
1,228
Impact adoption IFRS 9
Impact adoption IFRS 15
Impact application IAS 29
Balance at January 1, 2018
Acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries
Post-retirement benefits
Equity-settled transactions
Transactions with non-controlling interests
Loans granted
Repayment of loans
Changes in exchange rates
Dividends received
Other changes
Balance at December 31, 2018
(3)
(48)
23
10,141
–
(1,177)
1,599
–
26
(223)
–
–
(84)
(1,070)
34
9,246
–
–
–
1,228
–
–
–
–
–
–
1,003
(279)
(3)
–
–
1,949
Other financial
non-current
assets
95
5
(2)
–
–
–
–
–
–
–
1
99
–
–
–
99
11
(4)
–
–
–
–
–
–
–
–
(2)
104
Total
11,366
1,560
(2)
839
379
29
611
(2,361)
(526)
(399)
–
11,496
(3)
(48)
23
11,468
11
(1,181)
1,599
–
26
(223)
1,003
(279)
(87)
(1,070)
32
11,299
Financing income and expenses
* Loans to these companies have no fixed repayment schedule.
In € millions
Financing income
Financing expenses
Total
2017
21
(53)
(32)
2018
1
(76)
(75)
AkzoNobel Report 2018 | Financial information
137
E
Short-term receivables
Short-term receivables
In € millions
Receivables from subsidiaries
FX contracts
Other receivables
Total
F
Shareholders’ equity
2017
50
11
19
80
2018
309
6
58
373
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% 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% per annum or the statutory inter-
est 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 resolved in 2018 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%,
138
Financial information | AkzoNobel Report 2018
also include €42 million for capitalized development costs,
as well as the reserves of €145 million 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
In line with our announcement on April 19, 2017, we
intend to return the vast majority of the net proceeds
from the separation of the Specialty Chemicals business
to our shareholders.The Extraordinary General Meeting
of November 13, 2018, approved to return an amount
of €2.0 billion to shareholders by means of a capital
repayment and share consolidation which was executed
in January 2019. A share consolidation ratio of 9:8 was
applied.We will distribute €1.0 billion by means of a special
cash dividend of €4.50 per common share (post consoli-
dation) on February 25, 2019. A share buyback program
to repurchase common shares up to the value of €2.5
billion is due to be completed at the end of 2019. We
intend to cancel these shares after repurchase.
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €6,254
million is carried to the other reserves. Furthermrore, with
due observance of article 43, paragraph 7, it is proposed
that dividend on priority shares of €1,152 and on common
shares of €420 million (to be increased by dividend on
shares issued in 2019 before the ex-dividend date) will be
distributed. Following the acceptance of this proposal, the
holders of common shares will receive a dividend of €1.80
per share, of which €0.37 was paid earlier as an interim
dividend. The final dividend of €1.43 per share will be
made available from May 6, 2019.
which in case of mergers or acquisitions can be increased
by up to a maximum of 10%, 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% 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 2018 or 2017.
Of the Shareholders’ equity of €11.8 billion, an amount of
€11.1 billion (2017: €5.1 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 leading 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
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
2017
5,865
(505)
(147)
(61)
(24)
(15)
2018
11,834
(512)
(145)
(61)
(42)
–
5,113
11,074
G
Net debt
Long-term borrowings
For the fair value of the bonds issued, refer to Note 25 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 €2.320 million.
For information on valuation methods, see Note 25 of the
Consolidated financial statements.
In December 2018, Akzo Nobel Sweden Finance AB publ.
was substituted by Akzo Nobel N.V. as issuer under the
€750 million 2 5/8% 2012/22 bond.
We have a €1.8 billion multi-currency revolving credit
facility which runs until 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 2018 and 2017, this facility has not
been drawn.
At year-end 2018 and 2017, none of the borrowings was
secured by collateral.
Short-term borrowings
In December 2018 a bond of €800 million matured. In
November 2019, a bond of €500 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 no commercial paper
outstanding at year-end 2018 (2017: €112 million).
Analysis of net debt by category
In € millions
Bonds issued
Debt from subsidiaries
Long-term borrowings
Current portion of debenture loans
Short-term loans
Short-term borrowings
Total borrowings
Short-term investments
Cash and cash equivalents
Net debt
Bonds issued
In € millions
1 3/4% 2014/24 (€500 million)
1 1/8% 2016/26 (€500 million)
3-months EURIBOR+0.2%2017/19
(€500 million)
2 5/8% 2012/22 (€750 million)
Total
2017
1,492
2,897
4,389
799
130
929
5,318
–
(111)
5,207
2017
497
494
501
–
1,492
2018
1,739
4,732
6,471
500
26
526
6,997
(5,460)
(1,996)
(459)
2018
498
495
–
746
1,739
Cash and cash equivalents
Deposits and money market funds within cash and cash
equivalents almost entirely consist of time deposits imme-
diately convertible into cash and with a maturity of three
months or less from the date of purchase and marketable
securities that can be redeemed immediately when called.
Cash and cash equivalents
In € millions
Cash on hand and in banks
Short-term investments with life up to
3 months
Included under cash and cash
equivalents in the balance sheet
2017
111
–
2018
296
1,700
111
1,996
Short-term investments
Short-term investments of €5,460 million almost entirely
consist of time deposits, money market funds and market-
able securities with a life time at investment date longer
than three months but shorter than twelve months.
H
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
I
Financial instruments
2017
134
3
8
6
68
285
504
2018
26
–
8
3
54
206
297
At year-end 2018, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.0 billion (year-end 2017: €1.0 billion), while contracts
to sell currencies totaled €0.8 billion (year-end 2017:
€1.2 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 25 of the Consolidated
financial statements.
AkzoNobel Report 2018 | Financial information
139
J
Contingent liabilities
K
Auditor’s fees
OTHER INFORMATION
Our independent 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 sales of
the Specialty Chemicals business and audits in relation to
the legal demerger.
Fees PricewaterhouseCoopers
In € millions
Audit of the financial state-
ments
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
PROPOSAL FOR PROFIT ALLOCATION
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €6,254
million is carried to the other reserves. Furthermrore, with
due observance of article 43, paragraph 7, it is proposed
that dividend on priority shares of €1,152 and on common
shares of €420 million (to be increased by dividend on
shares issued in 2019 before the ex-dividend date) will be
distributed. Following the acceptance of this proposal, the
holders of common shares will receive a dividend of €1.80
per share, of which €0.37 was paid earlier as an interim
dividend. The final dividend of €1.43 per share will be
made available from May 6, 2019.
Fees PricewaterhouseCoopers
Amsterdam, February 12, 2019
In the
Netherlands
Network
outside the
Netherlands
In € millions
Audit of the financial state-
ments
Other audit services
Tax services
Other non-audit services
Total
3.9
2.0
–
–
5.9
2018
Total
9.2
2.1
–
–
5.3
0.1
–
–
5.4
11.3
The Board of Management
Thierry Vanlancker
Maarten de Vries
The Supervisory Board
Nils Smedegaard Andersen
Peggy Bruzelius
Sue Clark
Byron Grote
Michiel Jaski
Pamela Kirby
Dick Sluimers
Patrick Thomas
Ben Verwaayen
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
2018, aggregating €0.4 billion (2017: €0.7 billion), are
included in the Consolidated balance sheet.
Akzo Nobel N.V. has withdrawn its declarations of joint and
several liability under Article 403 of Book 2 of the Dutch
Civil Code for certain Dutch former Specialty Chemicals
subsidiaries divested as per October 1, 2018 and is follow-
ing the procedures to terminate its residual liability under
those declarations under Article 404 of Book 2 of the
Dutch Civil Code. Several objections against the termina-
tion of residual liability are pending and Akzo Nobel N.V.
and Nouryon are cooperating to get these resolved.
Additionally, at year-end 2018, guarantees were issued
on behalf of consolidated companies for an amount of
€0.2 billion (2017: €1.6 billion). The debts and liabilities of
the consolidated companies underlying these guarantees
are included in the Con solidated balance sheet or in the
amount of commitments in respect of operational lease
contracts as disclosed in Note 22 of the Consolidated
financial statements.
140
Financial information | AkzoNobel Report 2018
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 2018
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 the
Group as at December 31, 2018, and of its result and
its cash flows for the year then ended in accordance
with International Financial Reporting Standards as
adopted by the European Union (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 31 December 2018 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
2018 of Akzo Nobel N.V., Amsterdam (‘the Company’).
The financial statements include the consolidated financial
statements of Akzo Nobel N.V. together with its subsidiar-
ies (‘the Group’) and the company financial statements.
The consolidated financial statements comprise:
• the consolidated balance sheet as at December 31,
2018;
• the following statements for 2018: the consolidated
statement of income, 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, 2018;
• 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 applied in the prepara-
tion 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 finan-
cial statements.
The basis for our opinion
We conducted our audit in accordance with Dutch law,
including the Dutch Standards on Auditing. We have
further described our responsibilities under those stan-
dards 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 super-
vision 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 coatings company
headquartered in the Netherlands. Prior to and until the
completion of the sale of the Specialty Chemicals busi-
ness per October 1, 2018, the Group was also a major
producer of specialty chemicals products. 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 attention to the areas of focus driven by the
operations of the Group, as set out below.
The sale and separation of the Specialty Chemicals busi-
ness, completed on October 1, 2018, characterised the
financial year 2018. This affected the scope of the group
audit and our audit procedures. Further details of the impli-
cations of the sale of the Specialty Chemicals business 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. In particular, we considered where the Board
of Management made important judgments, for example,
in respect of significant accounting estimates that involved
making assumptions and considering future events that are
inherently uncertain. In Note 1 of the consolidated financial
statements the company describes the areas of judgment in
applying accounting policies and the key sources of estima-
tion uncertainty. Given the significant estimation uncertainty
and the related higher inherent risks of material misstate-
ment in the valuation of goodwill and other intangible assets
with indefinite useful lives, the valuation of the post-retire-
ment benefit provisions and the accounting for and valua-
tion of deferred tax assets and uncertain tax positions, we
considered these to be key audit matters as set out in the
‘Key audit matters’ section of this report.
In addition, we identified the accounting for the completed
sale of the Specialty Chemicals business and the transition
from the accounting standard ‘IAS 17 – Leases’ to ‘IFRS
16 – Leases’ as new key audit matters, as this accounting
treatment is complex, non-recurring and materially impacts
the financial statements. The accounting for the completed
sale of the Specialty Chemicals business replaces the
key audit matter from last year “Specialty Chemicals Busi-
ness recorded as Held for Sale and Discontinued Opera-
tions (IFRS 5)”.
Other areas of focus, that were not considered as key
audit matters were related to the environmental, sundry,
and legal provisions, and information technology general
AkzoNobel Report 2018 | Financial information
141
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 management override of
internal controls, including evaluating whether there was
evidence of bias by the Board of Management that may
represent a risk of material misstatement due to fraud.
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 in the areas of tax,
IT, treasury and experts in the areas of pensions, share
based payments and valuations in our team.
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.
The outlines of our audit approach were as follows:
Materiality
Materiality
• Overall materiality: €45 million
Audit scope
• We conducted audit work at
37 components in 18 countries
• Site visits by the group team were
conducted in 7 countries – China,
Germany, France, Italy, the Nether-
lands, Sweden, and the United States.
• Audit coverage: 67% of consolidated revenue,
82% of consolidated total assets and 75% of con -
solidated profit before tax
Key audit matters
• Accounting for the completed sale of the Specialty
Chemicals Business
• Annual 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
• Transition from the accounting standard ‘IAS 17 –
Leases’ to ‘IFRS 16 – Leases’
142
Financial information | AkzoNobel Report 2018
Overall group materiality €45 million (2017: €70 million).
Basis for determining
materiality
Rationale for bench-
mark applied
Component materiality
We used our professional judgment to deter-
mine overall materiality. As a basis for our
judgment we used 5% of total profit before
tax from the continued operations and nine-
month period result of the Specialty Chemi-
cals discontinued operations combined,
excluding the deal result and excluding
separation related identified items.
We used profit before tax from the continued
operations and nine-month period result
of the Specialty Chemicals discontinued
operations combined, excluding the deal
result (€6,074 million) and excluding separa-
tion related identified items 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 performance of the company.
We excluded the deal result and separation
related identified items as these are non-
recurring and are not representative of normal
operating results.
To each component in our audit scope, we,
based on our judgment, allocate materiality
that is less than our overall group material-
ity. The range of materiality allocated across
components was between €6 million and
€21 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 €2.25 million (2017: €3.5 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.
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 included 26 components which were
subjected to audits of the complete financial information
as those components are material to the group. Nine
components were subjected to specific risk-focused audit
procedures as they include higher risk areas. Additionally,
twelve components were selected for audit procedures
to achieve appropriate coverage on financial line items in
the consolidated financial statements. The group team
also audited the Specialty Chemicals business for the
nine-month results reported as discontinued operations.
In total, in performing these procedures, we achieved
the following coverage on the financial line items (which
include both continued and discontinued operations):
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 judgment, 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
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.
We addressed the key audit matters 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
made on the results of our procedures should be read in
this context. Unless noted otherwise, we concur with the
positions taken by the Company in the context of our audit
of the financial statements as a whole.
Revenue
Total assets
Profit before tax*
* Excluding the deal result which is audited in aggregate on group level.
2018
67%
82%
75%
as components in scope for our group audit. For the
Specialty Chemicals business we performed a full scope
audit on the balance sheet and results for the nine-months
period ended September 30, 2018, reported as discontin-
ued operations.
None of the remaining components represented more
than 1% of total group revenue or total group assets.
For those remaining components we performed, among
other things, analytical procedures to corroborate our
assessment that there were no significant risks of material
misstatements within those components.
The group consolidation, financial statement disclosures
and a number of complex items and processes
controlled and monitored centrally by Akzo Nobel N.V.
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, accounting for
the completed sale of the Specialty Chemicals Business,
environmental, sundry, and legal provisions, share
based payments, treasury, IT and the Akzo Nobel N.V.
standalone entity.
The group engagement team also performed central
procedures over the controls performed by the business
units and other central functions, where relevant for our
audit. This included: Business performance review controls
and indirect entity level controls (e.g. to prevent and detect
fraud), including the code of conduct, corporate directives,
whistle blower policy, internal representations, business
partnering program and internal audits.
For all components, we used component auditors who are
familiar with the local laws and regulations to
perform the audit work. We performed hard close audit
procedures with the components 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
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 statements as
a whole. We issued instructions to the component audit
teams in our audit scope. These instructions included
amongst others our risk analysis, materiality and scope
of the work. We explained to the component audit teams
the structure of the group, the main developments that
are relevant for the component auditors, the risks identi-
fied, the materiality levels to be applied and our global
audit approach. We had individual calls with each of the
in-scope component audit teams during the year includ-
ing upon the conclusion of their work. During these calls,
we discussed the significant accounting and audit issues
identified by the component auditors, the reports of the
component auditors, the findings of their procedures and
other matters, which could be of relevance for the consoli-
dated financial statements.
The group engagement team visits the component teams
and local management on a rotational basis. The most
significant components are visited every year and other
components are visited depending on specific consi-
derations which include amongst other audit observa-
tions, specific risks identified or other major events. In the
current year, the group audit team visited the component
teams and local management in the United States, China,
Germany, France, Italy, Sweden and the Netherlands.
Furthermore, we reviewed selected working papers of the
component teams and performed any further work consi-
dered 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
AkzoNobel Report 2018 | Financial information
143
Key audit matters
Key audit matter
Accounting for the completed sale of the Specialty Chemicals Business
Note 2
On 27 March 2018, AkzoNobel announced the sale of the Specialty Chemicals business to the Carlyle Group
and GIC and the sale was completed on 1 October 2018 with a deal result of €6.1 billion before taxation and
consideration received for shares sold of €8.3 billion. Management reported the Specialty Chemicals Business
in accordance with IFRS 5 – ‘Non-Current Assets Held for Sale and discontinued operations’, consistent with
the 2017 consolidated financial statements.The accounting for the completed sale of the Specialty Chemicals
business is significant to our audit because the transaction and its accounting is complex, non-routine and
involves management judgments. These include, amongst others, the identification of the disposal group and
presentation of the disposal groups’ results as discontinued operations consistent with prior year, the actual
legal separation of the Specialty Chemicals business from the company, the interpretation and application of
the Share Purchase Agreement (SPA) and calculation of the final net debt/working capital adjustments with the
buyers to estimate the deal result and consideration (to be) received for shares sold.
How our audit addressed the matter
Our audit procedures included, among others, an evaluation of the assumptions used by the company to identify the
disposal group, to account for the legal separation and to estimate the deal result and consideration to be received
for shares sold of the Specialty Chemicals Business. We have reviewed the identification of the disposal group and
presentation of the results of the Specialty Chemicals Business as discontinued operation. We reviewed the Share
Purchase Agreement (SPA), confirmed the effective date of the sale, tested the calculation of the net debt/working
capital adjustments to estimate the expected deal proceeds to be in line with the SPA, vouched the cash proceeds
received and checked managements calculations used for mathematical accuracy. We tested the accounting for
the legal separation and disentanglement of the Specialty Chemicals business from the company’s consolidation
(e.g. update consolidation structure, recycling currency translation adjustments) by reconciling the transactions to
legal contracts, invoices and financial information. In addition, we tested the calculation of the result. We have chal-
lenged management, primarily on the assumptions to determine the deal result and consideration (to be) received, in
particular on the calculation of the final working capital settlement with the buyers, third party indebtedness and other
SPA adjustments. We have made use of technical accounting specialists as part of our audit. We also assessed the
adequacy of the company’s disclosure in note 2 to the consolidated financial statements.
Impairment testing of goodwill and other intangibles with indefinite useful lives
Note 10
As at 31 December 2018, the Company’s goodwill and other intangibles with indefinite useful lives are valued
at €2.8 billion. The key assumptions and sensitivities are disclosed in note 10 to the consolidated financial
statements. The annual impairment test for goodwill and indefinite life intangibles assets is significant to our
audit because the assessment process is complex, involves significant management judgments and is based
on assumptions regarding expected future market and economic conditions, revenue growth, margin develop-
ments, 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.
We evaluated the assumptions and methodologies used in the annual impairment test prepared by the company. We
verified the mathematical accuracy of the calculations and a reconciliation to the 2019 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 independent 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 test of the goodwill balances for any
changes in the respective assumptions. We have made use of valuation experts as part of our audit. We assessed the
adequacy of the Company’s disclosures in note 10 to the consolidated financial statements and in particular the key
assumptions to which the outcome of the impairment test is most sensitive.
Valuation of post-retirement benefit provisions
Note 17
The post-retirement benefit provisions consist of defined benefit obligations (€13.4 billion) offset by plan assets
(€13.7 billion). The largest pension plans are the ICI Pension Fund (ICIPF) and the AkzoNobel (CPS) Pension
Scheme in the UK which together account for 87 percent of the defined benefit obligation (DBO) and 91
percent of plan assets. The 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 judgment and is based
on actuarial assumptions. The actuarial assumption includes discount rates, compensation increase, expected
inflation rates, mortality tables and indexation percentages, as disclosed in note 17 of 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 8
The Group operates in various counties 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, local fiscal regulations and new developments.
The company’s disclosures concerning income taxes are included in note 8 to the consolidated financial state-
ments.
We evaluated the Board of Management’s actuarial assumptions, specifically the assumptions applied in the UK, the
valuation methodologies used and we assessed the objectivity and competence of the company’s external pension
expert 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 others, with support of internal actuarial
experts. We also tested the participant census data and the valuation of the plan assets through independent price
testing (e.g. by reconciling to independently published market prices). Further, we tested the de-risking transactions to
the UK plans, the gender equalization impact calculation after the court ruling in the UK and we verified the appropri-
ate accounting. We also assessed the adequacy of the company’s disclosure in note 17 to the consolidated financial
statements.
Our procedures included, amongst others, procedures on the completeness and accuracy of the deferred tax assets
and uncertain tax positions recognized. We challenged and tested the Board of Management’s assessment of the
recoverability of the deferred tax assets, including the projected revenue growth and margin development based on the
2019 five year outlook as approved by the Board of Management, the probability of future cash outflows related to the
uncertain tax positions identified by the company and the impact of the separation of the Specialty Chemicals business
on the projections. We also assessed the applicable local fiscal regulations and developments, in particular those
related to changes in the statutory income tax rate and the of the statues of limitation since these are key assump-
tions underlying 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. We have made use of tax
specialists as part of our audit.
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Financial information | AkzoNobel Report 2018
Key audit matters
Key audit matter
Transition from the accounting standard ‘IAS 17 – Leases’ to ‘IFRS 16 – Leases’
Note 1
‘IFRS 16 – Leases’ becomes effective for annual reporting beginning on or after 1 January 2019. The applica-
tion of the new standard gives rise to a right of use asset of €350 million, a financial lease receivable of €20
million and a corresponding increase in lease liabilities of €370 million. The Company decided to apply the
modified retrospective approach for the transition accounting. The assessment of the impact of the new
standard is significant to our audit, as the balances recorded are material, the update of the accounting policy
requires policy elections, the implementation process to identify and process all relevant data associated with
the leases (including IT software and controls) is complex and the measurement of the right-of-use asset and
lease liability is based on assumptions such as discount rates and the lease terms, including termination and
renewal options.
How our audit addressed the matter
Our audit procedures included an evaluation of management implementation process, including the review of the
updated accounting policy and policy elections, the completeness and accuracy of the lease contracts identified and
recorded in the lease accounting system and calculation of the right of assets and lease liability.
We reviewed the updated accounting policy and policy elections to be in accordance with IFRS 16. We performed
independent testing on a sample basis of the accuracy of the lease contracts input in the lease accounting system
and completeness of the identified lease contracts, with the support of the local component teams. We challenged
management assumptions, specifically on the assumptions used to determine the discount rates, the application of a
single discount rate for a portfolio of leases and the assessment of renewal options. We recalculated the right-of-use
asset and lease liability calculated by the system for each material type lease contract. We have made use of technical
accounting specialists and valuation experts as part of our audit.
We assessed the adequacy of the Company’s disclosures of the impact of the new standard in note 1 to the
consolidated financial statements and challenged management on the disclosure of the remaining uncertainty of the
completeness and accuracy review of the input and assumptions for the opening balance.
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: 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 know-
ledge 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.
starting 2016, on 19 April 2014 by the Supervisory Board
following the passing of a resolution by the shareholders at
the annual meeting held on 29 April 2014. Our appoint-
ment has been renewed by shareholders representing a
total period of uninterrupted engagement period of
3 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
statements in accordance with EU-IFRS and with Part 9
of Book 2 of the Dutch Civil Code; and for
• such internal control as the Board of Management
determines is necessary to enable the preparation of
the financial statements that are free from material
misstatement, whether due to fraud or error.
As part of the preparation of the financial statements, the
Board of Management is responsible for assessing the
AkzoNobel Report 2018 | Financial information
145
company’s ability to continue as a going concern. Based
on the financial reporting frameworks mentioned, the
Board of Management should prepare the financial state-
ments using the going-concern basis of accounting unless
the Board of Management either intends to liquidate
the company or to cease operations, or has no realistic
alternative but to do so. The Board of Management should
disclose events and circumstances that may cast signifi-
cant doubt on the company’s ability to continue as a going
concern in the financial statements.
The Supervisory Board is responsible for overseeing the
company’s financial reporting process.
Our responsibilities for the audit of the financial
statements
Our 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.
A more detailed description of our responsibilities is set out
in the appendix to our report.
Amsterdam, February 12, 2019
PricewaterhouseCoopers Accountants N.V.
Original has been signed by R. Dekkers RA
Appendix to our auditor’s report on the financial
statements 2018 of Akzo Nobel N.V.
In addition to what is included in our auditor’s report we
have further set out in this appendix our responsibilities for
the audit of the financial statements and explained what an
audit involves.
The auditor’s responsibilities for the audit of the
financial statements
We have exercised professional judgment and have
maintained professional scepticism throughout the audit
in accordance with Dutch Standards on Auditing, ethical
requirements and independence requirements. Our 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
misstatement of the financial statements, whether
due to fraud or error, designing and performing audit
procedures responsive to those risks, and obtaining
audit evidence that is sufficient and appropriate
to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud
is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the intentional override of internal
control.
• Obtaining an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of
the company’s internal control.
• Evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the Board of
Management.
• Concluding on the appropriateness of the Board of
Management’s use of the going concern basis of
accounting, and based on the audit evidence obtained,
concluding whether a material uncertainty exists related
to events and/or conditions that may cast significant
doubt on the company’s ability to continue as a going
concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report and are made in the context of our opinion on
the financial statements as a whole. However, future
events or conditions may cause the company to cease
to continue as a going concern.
• Evaluating the overall presentation, structure and
content of the financial statements, including the
disclosures, and evaluating whether the financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Considering our ultimate responsibility for the opinion on
the 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 audit committee 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.
146
Financial information | AkzoNobel Report 2018
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.
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% 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 2018 | Financial information
147
FINANCIAL SUMMARY
Consolidated statement of income
In € millions
Revenue
Adjusted operating income5
Operating income
Financing income and expenses
Income tax
Results from associates and joint ventures
Profit for the period from continuing operations
Discontinued operations
Non-controlling interests
Net income, attributable to shareholders
Common shares, in millions at year-end
Dividend3
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
ROS6
ROI6
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Interest coverage4
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
2009
13,028
1,131
855
(405)
(141)
21
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
20101
2011
2012
2013
13,605
14,604
15,390
14,590
1,325
1,293
(329)
(176)
25
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
1,154
1,157
(311)
(241)
24
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)
(203)
13
(1,593)
(436)
(63)
(2,092)
239.0
214
50,610
52,200
3,018
295
(23)
6.3
8.2
– 2
19.6
– 2
(8.82)
2.55
24.12
49.75
35.16
49.75
897
958
(200)
(111)
14
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)
(252)
21
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)
(416)
17
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
20167 8
9,434
928
923
(91)
(234)
18
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
3.80
25.99
64.74
50.17
59.39
20178
9,612
905
825
(78)
(253)
17
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
2018
9,256
798
605
(52)
(118)
20
455
6,274
(55)
6,674
256.2
390
34,500
34,900
1,976
265
17
8.6
12.6
56.4
21.3
8.0
26.19
3.78
46.19
82.70
68.82
70.40
1 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
2 Not meaningful as operating income and net income were losses.
3 Cash dividend paid to shareholders of AkzoNobel.
4 Until 2009: operating income divided by net financing expenses, as from 2010: operating income divided by net interest on net debt.
5 Adjusted operating income = operating income excluding identified items.
6 ROS and ROI have been restated and are based on adjusted operating income.
7 Represented to present the Specialty Chemicals business as discontinued operations.
8 Represented to the new adjusted earnings per share definition, which no longer excludes post-tax amortization charges.
148
Financial information | AkzoNobel Report 2018
Consolidated balance sheet
In € millions
Intangible assets
Property, plant and equipment
Other financial non-current assets
Total non-current assets
Inventories
Receivables
Short-term investments
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 capital2,4
Capital expenditures
Depreciation4
Operating Working Capital
Net debt
Ratios
Equity/non-current assets
Inventories and receivables/current liabilities
Operating working capital as % of revenue3
2009
7,388
3,474
1,783
20101
6,568
3,191
2,105
2011
7,392
3,705
2,664
2012
4,454
3,739
2,628
12,645
11,864
13,761
10,821
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
12,578
11,467
11,537
11,817
10,007
9,871
10,475
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
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
6,422
634
206
1,405
1,252
0.68
1.18
10.2
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
2018
3,458
1,748
1,965
7,171
1,139
2,215
5,460
2,799
–
11,613
11,834
204
12,038
899
1,799
368
3,066
599
2,870
211
–
3,680
6,494
6,340
613
202
927
1,951
0.88
1.07
10.2
160
181
1,139
(5,861)
1.68
1.17
12.3
1 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
2 Restated to current definition as from 2010.
3 Operating working capital is measured against four times fourth quarter revenue.
4 2016 is represented to present the Specialty Chemicals business as discontinued operations.
AkzoNobel Report 2018 | Financial information
149
Segment statistics
In € millions
Decorative Paints
Revenue
Adjusted operating income
Operating income
ROS4
Average invested capital 3
ROI4
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average Operating income per employee (in €1,000)
Performance Coatings
Revenue
Adjusted operating income
Operating income
ROS4
Average invested capital 3
ROI4
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average Operating income per employee (in €1,000)
20091
2010
20112
2012
2013
2014
2015
2016
2017
2018
4,573
4,968
4,201
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
3,699
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
2,783
12.8
107
351
334
9.0
346
308
9.4
2,803
2,798
12.5
112
12.4
50
22,900
21,800
17,100
17,200
16,800
15,500
15,100
14,800
14,700
14,100
200
6
228
13
246
14
250
(117)
248
24
252
16
265
23
259
25
265
23
262
22
4,112
4,786
5,170
5,702
5,571
5,589
5,955
5,665
5,775
5,587
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
2,586
29.4
159
669
668
11.6
629
577
11.3
2,860
3,066
23.4
129
20.5
106
20,200
20,600
21,300
21,700
21,300
21,000
19,700
19,300
19,800
19,200
204
21
232
24
243
22
263
25
262
25
266
26
302
40
294
38
292
34
291
30
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 adjusted operating income.
150
Financial information | AkzoNobel Report 2018
Regional statistics
In € millions
2014
2015
20161
2017
2018
2014
2015
20161
2017
2018
2014
2015
20161
2017
2018
The Netherlands
Other European countries
Other Asian countries
Revenue by destination
762
693
Revenue by origin
1,662
1,563
Capital expenditures
Average invested capital
Number of employees2
72
1,631
5,000
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Germany
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
318
458
9
1,560
2,400
443
561
12
573
Number of employees 2
2,300
2,100
1,400
1,500
1,500
3,341
2,246
57
1,117
7,700
North America
2,193
2,306
68
1,778
4,800
Sweden
South America
Revenue by destination
436
414
Revenue by origin
1,289
1,329
Capital expenditures
Average invested capital
40
428
55
542
164
389
9
60
162
408
9
104
146
372
7
94
1,485
1,252
45
707
3,226
2,062
60
1,024
7,300
2,494
2,644
100
1,949
4,600
1,483
1,210
34
679
2,225
1,739
39
675
2,332
1,823
47
700
2,319
1,846
31
732
1,739
1,438
34
600
1,968
1,613
31
671
1,521
1,442
53
561
1,443
1,392
41
625
1,375
1,323
21
656
6,700
6,600
6,900
6,900
6,700
6,600
6,800
6,600
1,213
1,298
27
1,037
3,000
850
791
20
378
Other regions
1,189
1,257
23
864
1,134
1,200
18
699
677
419
17
159
706
466
11
87
552
473
7
94
573
487
9
87
559
476
10
184
2,900
2,800
2,200
2,200
2,200
2,200
2,000
900
840
23
391
815
781
13
352
Number of employees2
2,900
2,700
1,200
1,100
1,000
4,400
4,100
3,100
2,900
2,800
UK
China
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees2
947
950
74
1,008
3,600
1,011
1,109
91
833
808
972
43
755
777
891
39
746
818
918
26
758
3,500
3,300
3,200
3,200
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
1,329
1,321
13
732
6,200
6,000
5,300
1 Represented to present the Specialty Chemicals business as discontinued operations.
2 At year-end.
AkzoNobel Report 2018 | Financial information
151
Sustainability
153AkzoNobel Report 2018 | Sustainability statementsCreating the right bond with customers Wood adhesives just got smarter. It’s all down to a new way of helping customers become more efficient, which has been developed by our Industrial Coatings business.Known as intelliCURE, the novel system involves bundling actual products, software and machinery into a single solution for manufacturers of glued wooden parts. So as well as supplying the adhesives, we can also provide the machinery – which dispenses the product onto the wooden parts being bonded – and the software – which dynamically optimizes the amount being applied. It’s a flexible solution, which helps customers to run their lines as efficiently as possible. They can use it all, or just parts of it, depending on their individual needs.woodadhesives.akzonobel.com Our approach to sustainability 154Value selling 155Note 1: Sustainable products 155Note 2: Customer value 156Resource productivity 159Note 3: Operational excellence 159Note 4: Employees 162Note 5: Climate change and the circular economy 163Note 6: Supplier engagement 164Note 7: Safety 168Note 8: Human rights 171Note 9: Programs 174Managing sustainability 176Independent assurance report 178Sustainability performance summary 180For additional information, visit: www.akzonobel.com/sustainability This Sustainability statements section of the Report 2018 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. SUSTAINABILITY STATEMENTSThis section explains our sustainability performance in more detail. It outlines our approach to creating shared value and shows our performance on key economic, environmental and social indicators. Sustainability statements OUR APPROACH TO
SUSTAINABILITY
For AkzoNobel, sustainability means
creating shared value for all our
stakeholders. It underpins our core
principles and our employee value
proposition, and is our driver for
growth, innovation and productivity.
We continue to develop business opportunities in
alignment with the UN Sustainable Development Goals
that are most relevant for us. We’re focused on creating
more shared value from fewer resources and turning
societal concerns and environmental challenges into
product innovations for our customers.
The separation of Specialty Chemicals has allowed us to
create a clearer sustainability agenda for a focused paints
and coatings company. We reviewed our sustainability
agenda to assess where we can have the biggest impact
on accelerating our strategy while delivering the biggest
social and environmental benefits. All data reported
excludes Specialty Chemicals, unless otherwise stated.
We equip our employees to ensure they can contribute to
making us more sustainable. This responsibility is included
in the personal objectives and incentives of all employees,
and is linked to our business imperatives:
• Value selling – we’re innovating to give our customers
choice and competitive advantage through product
portfolios designed to bring tangible benefits and deliver
positive social and environmental impact
• Resource productivity – we’re 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
154 Sustainability statements | AkzoNobel Report 2018
Our high performance aerospace coatings have been used to help deliver a global message to save the world’s coral reefs. We supplied products for a Mirpuri Foundation
initiative which involved painting a Hi Fly aircraft with striking coral-themed livery. One side represents a pristine ocean with healthy marine life, the other shows a destroyed coral
environment. We created 19 custom-made colors for the design, which helps drive home the global message that our coral ecosystems will disappear by 2050 if no action is taken.
Delivery priorities have been set for 2020, with explicit
value objectives:
2020 performance delivery priorities
Resource productivity
> €100 million
annually recurring benefit potential
Value selling
20%
eco-premium solutions
We aim to maintain eco-premium solutions at a
sustainable 20% of revenue through 2020 by constantly
innovating. Looking beyond 2020, we are creating long-
term value with our startup challenge, known as Paint the
Future. It’s focused on finding new solutions that will help
to make our operations, products and entire value chain
even more sustainable.
VALUE SELLING
1
Sustainable products
We have significant potential to deliver sustainability
benefits in our marketing, sales, technology and
innovation activities. We use this to get the best out of
our existing value proposition through our eco-premium
and eco-performer solutions. These solutions deliver
clear benefits for our customers in terms of economic,
environmental and social performance, as well as keeping
us ahead of the competition. They accelerate our business
agenda by meeting societal needs and consistently
demonstrate higher growth than more traditional products.
We take great pride in the fact that innovation in our
company results in effective and sustainable product
solutions that create value for our customers and society.
VALUE FOR CUSTOMERS
Our passion for paint means we strive to be the reference
for innovation and quality, and that requires investment.
Our value selling agenda is strengthened continuously,
and is one of the main drivers for further improving the
sustainability of our portfolio. This helps to accelerate
market penetration and margin growth and drive progress
towards our Winning together: 15 by 20 strategy.
SUSTAINABLE PORTFOLIOS
Our portfolio approach promotes the use of safer and
more sustainable products in all stages of the value chain.
We translate societal developments into product offers.
We take action to manage harmful substances in advance
of legislation, future-proofing our products against changes
in regulations. We constantly review our existing offer in
close alignment with our strategic focus. This ensures the
delivery of products and solutions that are fit-for-purpose
in the markets we want to lead.
Since 2012, we have measured the eco-premium part
of our product portfolio – those solutions with clear
sustainability benefits that outperform the market.
In 2018, sales for this segment totaled 22% of our
revenue. Eco-premium solutions present a moving target
because we measure our performance against the market
reference, which is continuously evolving. By constantly
innovating, our aim is to maintain eco-premium solutions
at a sustainable 20% of revenue through 2020, which will
help to drive margin improvement and revenue growth.
Another significant portion of our portfolio fits into the
eco-performer category. These are solutions offering
clear sustainability benefits, but are overall on a par with
other offers. Initial assessments indicate that eco-
performers are 20% of sales, making total sales of
sustainable solutions 42%.
Products classed in the performer category meet
the needs of our customers and are comparable to
mainstream alternatives.
The transitioner and priority categories contain substances
highlighted as being of concern by some stakeholders,
such as governments, NGOs, customers and public
groups. We manage hazardous substances through our
priority substance program, which promotes the use of
more sustainable and safer products.
Eco-premium solutions with customer benefits
in % of revenue
Portfolio assessment
Target
Eco-premium
Better than mainstream solutions
19
20
20
21
21
22
20
Eco-performer
Mainstream with sustainable features
Performer
Equivalent to mainstream
Transitioner
Potential future risks are anticipated
2013
2014
2015
2016
2017
2018
2020
Priority
Current risks are known
and managed
AkzoNobel Report 2018 | Sustainability statements
155
2 Customer value
SHORT-TERM INCENTIVES (STI)
CUSTOMER VALUE
We want to strengthen the link between our people, our
strategic priorities and the various initiatives across our
businesses. We therefore cascaded the relevant metrics
into the sales, marketing and technical teams.
From 2018 onwards, specific targets on value selling have
been included in the personal objectives and incentives of
all employees. This will help us to deliver more sustainable
portfolios, reflecting not only our current product offers,
but also ensuring a well-stocked technology and
innovation pipeline.
We pay close attention to the service we deliver to our
customers and their perception of it. Having established a
clear focus on our Winning together: 15 by 20 strategy, we
began to develop and deploy several initiatives to enable
our teams to deliver on this. As a focused paints and
coatings company, we can target our efforts on bringing
the commercial teams onto common platforms in terms of
systems, processes and capability development.
This has already been set in motion with the introduction
of Integrated Business Planning (IBP), designed to
create more clarity across the organization. It’s a
company-wide initiative which aims to achieve optimized
processes by 2020.
In the future, the implementation of IBP will enable us to
unleash even more of our potential and achieve higher
customer satisfaction through improved service levels.
A company-wide sales force excellence program is
focused on strengthening our sales teams and driving
stronger engagement with our customers.
The program – based on a detailed understanding of
AkzoNobel’s different ways to go to market – consists
of multiple modules. The first core module is focused
on increasing the effectiveness of our sales people,
helping them to free up time from their daily routines and
devote this to customer centric activities. A second key
element is targeted at improving the structure of our sales
organization so that decision-making becomes faster, the
capability of our teams is strengthened and processes
run more smoothly. To enable this change, we are further
harmonizing our sales incentives, linking them directly to
sales activity.
Finally, the program also includes a significant investment
in order to deliver a single Customer Relationship
Management (CRM) system. Ultimately, the overall
Our priority substance program takes a systematic
approach to the identification, expert review and
management of all hazardous substances used in our
products. Only when safe use of a priority substance
is demonstrated can it remain in use for AkzoNobel
products. The process includes reduction, restriction and
phase-out (when they can be substituted with safer and
sustainable alternatives). The priority category includes
products containing hazardous substances with phase-out
dates (see Priority substance management in Note 7).
VOC IN PRODUCTS
Our ambition to move towards zero VOC (volatile organic
compounds) in products is ongoing. We continue to focus
on developing products with significantly reduced VOC
content. This transformation has both environmental and
health benefits and allows us to remain ahead
of legislation.
Our Decorative Paints organization is running a multi-year
strategic program called “Waterway”. It’s designed to lead
the market to water-based trim and woodcare product
ranges. In 2018, this switch gained further momentum.
The distinctive benefits of water-based products have
been included in several marketing campaigns. The sales
volume and value of water-based woodcare and trim
paints increased in line with the ambitious targets for 2018.
Our innovation plans form a solid foundation to improve
year on year towards lower VOC emissions.
In Performance Coatings, we also strive to develop and
offer lower VOC products to meet changing market
requirements and stay ahead of upcoming legislation.
Over the years, we have developed lower VOC products
in all our business units and are focused on linking this
to our sustainable portfolio via the eco-premium and
eco-performer solutions.
156 Sustainability statements | AkzoNobel Report 2018
program aims to achieve more customer intimacy and
stronger customer relationships.
To help us measure the impact of the program and fully
understand how our customers value us, we are designing
a single customer satisfaction survey, configured through
the go-to-market models we have in place. The initiative
will also deliver a better understanding of customer needs
to help build improved product offers and solutions to
our customers.
DELIVERY
We monitor our service reliability in terms of timely delivery
to customer premises, aiming to be consistently higher
than 95%. In 2018, service performance was 97%.
Delivery Efficiency Index
in %
93
94
96
97
97
2014
2015
2016
2017
2018
It’s a feast for the eyes – and the ears. This is Moscow’s new Zaryadye Concert Hall
near Red Square. It features 11,200 liters of our paints and coatings, including our
Dulux, Sikkens and Interpon brands.
AkzoNobel Report 2018 | Sustainability statements
157
A MORE SUSTAINABLE
FUTURE FOR ALL
Introduced in 2015, the Sustainable Development
Goals (SDGs) developed by the United Nations are
a blueprint for achieving a better and more sustainable
future. They’re a universal call to action to end poverty,
protect the planet and address global challenges, so
that all people can enjoy peace and prosperity.
As a company, we continue to focus
on those SDGs where we can have
the biggest positive impact. This
approach builds on our core principles of
sustainability, safety and integrity, including
respect for human rights. We’re convinced
that our sustainability agenda – which is
now focused purely on our paints and
coatings activities – is a key driver for
business development, innovation and
growth. The SDGs will therefore continue
to help us take our industry forward and
ensure that sustainability remains firmly at
the heart of all we do.
We can have the biggest positive impact
on the following SDGs:
Around 40,000 kilograms of our superdurable (and highly sustainable) Interpon powder coatings have been used during the ongoing
construction of Istanbul’s impressive new Atatürk Airport in Turkey. Our powder coatings continue to make a major contribution to the
increasing demand for more sustainable buildings all over the world. Photo: İGA
We believe the SDGs set a clear direction
for a more sustainable society – and they
have our full support. They provide a
clear compass for business growth and
development and are in line with our own
agenda of creating shared value.
Strongly embraced by the business world,
the SDGs are now an integral part of the
global development agenda and form the
accepted framework for public and private
collaboration. And while they’re universal,
we recognize that different countries have
different priorities in terms of development
needs. So we base our marketing and
innovation decisions on our understanding
of the development needs of the markets
where we operate – using local insight to
tailor the solutions we offer.
For example, the SDGs help guide
the innovation roadmaps we develop.
Because in order to understand and
identify technology requirements, we
must know more about future societal
development needs. It’s all about making
informed innovation choices – and the
SDGs provide a unique perspective on
the future.
11 Sustainable cities and
communities:
The majority of our products are used in
the buildings and infrastructure sector. Our
focus on helping to create green buildings
means we can have a major positive
impact on cities and communities. This
includes improving the energy efficiency of
buildings through the use of heat-reflective
coatings, as well as interior wall paint
which can improve the health and well-
being of residents.
12 Responsible consumption and
production:
There are huge opportunities in applying
the principle of circularity across our entire
value chain. For example, when sourcing
158
Sustainability statements | AkzoNobel Report 2018
raw materials, we can join forces with
our suppliers to increase the share of
bio-based materials and recycled content.
We must learn to make better use of
these materials.
We could also offer technologies and
solutions to our customers that enable
them to reduce their own emissions and
material use. For example, by lowering
curing temperatures and supplying more
products with low or zero solvents.
But above all, it’s about better
performance, durability and long-term
protection of the underlying substrate,
be it wood or metal. This can include
coatings that reflect heat, lower fuel
use, lessen friction or create insulating
capacity. It’s also about solutions being
non-hazardous, enabling furniture,
transport or building materials to be
reused and recyclable. Coatings should
be an enabler to preventing products
becoming waste.
17 Partnerships for the goals:
We must collaborate to scale up action
across the SDGs. With other leading
companies and the World Business
Council for Sustainable Development
(WBCSD), we developed a roadmap
for the chemical sector’s contribution to
the SDGs. Other partnership examples
include our collaboration with The Ocean
Cleanup; Black Bear to generate carbon
black from old tires; and joint research
with Dutch universities as part of the
Chemical Building Block Consortium
to develop bio-based resins from
crustaceans and wood.
159AkzoNobel Report 2018 | Sustainability statementsWe launched the Resource Productivity program as a key accelerator to deliver on our sustainability objectives and contribute to the company’s Winning together: 15 by 20 strategy. The program aims to maximize raw material and process efficiency, eliminate waste and drive energy, carbon footprint and VOC reduction across the whole integrated supply chain (ISC). As well as reducing the environmental footprint of our activities, resource productivity contributes to business performance by driving continuous improvement and reducing operating costs.We use our company-wide continuous improvement program ALPS (AkzoNobel Leading Performance System) to drive the environmental agenda. We continuously measure and report our performance on a range of environmental and financial indicators. The three key indicators are: waste, energy use and VOC emissions, for which targets are set. We deliver on our targets thanks to a wide range of improvement projects introduced as part of the Resource Productivity program. These projects (currently more than 500) are monitored monthly to assess progress with regard to environmental impact and financial benefits. Savings achieved total more than €20 million.We’ve increased our focus on material efficiency and are maximizing the conversion of raw materials into final product by optimizing raw material use and solving the root cause of material losses, reducing the amount of waste and waste water generated, as well as reducing the carbon footprint. It also contributes to reduced manufacturing costs.RESOURCE PRODUCTIVITY3Operational excellence WASTETotal waste volume and waste per ton of production generated were down by 12% and 8% respectively in 2018, which meets the reduction target of 5% per ton of production from 2017. Waste reduction is one of our main environmental indicators. Zero waste to landfill is one of our company ambitions. Our first priority is to eliminate hazardous waste to landfill.Hazardous waste per ton of production decreased by 6%. A large number of sites around the world contributed to the significant reduction in waste generation during the year. Examples of our waste reduction projects include solvent recovery, reducing packaging waste by moving Own operationsCustomeroperationsRawmaterialsProductBy-productWaste33Reusable34Non-reusable67 33,240 Raw material flow in kilotonsTotal waste in kilotons Reusable Total kg per ton of production Non-reusable201820172016201525.722.821.026.33334374042434840Waste 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 in kilotons
Greenhouse gas emissions in million tons
Volatile organic compounds in kilotons
Reusable
Non-reuseable not landfill
Non-reuseable to landfill
Total kg per ton of production
Direct CO2(e) (scope 1)
Indirect CO2(e) (scope 2)
kg CO2(e) per ton of production
Volatile organic compounds
kg per ton of production
20
10.7
15
9.8
15
17
9.1
14
15
103
0.26
96
91
91
0.24
0.24
0.23
0.66
2.2
0.60
2.0
0.50
1.7
0.49
1.6
0.7
0.6
0.7
0.08
0.07
0.07
0.07
2016
2017
2018
2015
2016
2017
2018
2015
2016
2017
2018
Hazardous waste is waste that is classified and regulated as such, according to the
national, state or local legislation in place.
Total greenhouse gas emissions made up of direct emissions from processes and
combustion at our facilities and indirect emissions from purchased energy.
We measure halogenated and non-halogenated organic compounds
discharged to air.
from smaller paper bags or metal drums to bulk deliveries
of raw materials and reworking obsolete finished goods.
ENERGY AND GREENHOUSE
GAS EMISSIONS
Energy use is another key environmental indicator included
in our Resource Productivity program.
Energy use in 1000 TJ
Energy use
GJ per ton of production
Energy use per ton of production flattened, while absolute
energy consumption in 2018 was down 3% compared
with 2017, in line with a change in product mix and volume
changes. Our reduction target was 3% (per ton, from
2017). In 2018, 51% (62 out of 122) of our sites improved
their relative footprint with regard to energy use compared
with 2017. In total, 17 sites use 100% renewable
electricity. Our total share of renewable energy use is 31%.
Greenhouse gas (GHG) emissions from our facilities are
primarily related to electricity consumption and fuel
used for heating. The total GHG emissions per ton of
product increased by 1%, with absolute GHG emissions
decreasing 4%.
1.9
1.9
1.9
1.9
VOLATILE ORGANIC COMPOUNDS (VOC)
manufacturing sites. In 2018, VOC emissions per ton of
product and our total VOC emissions decreased by 4%
and 8% respectively.
6.3
6.3
6.4
6.2
2015
2016
2017
2018
160 Sustainability statements | AkzoNobel Report 2018
Air emissions generated from our operations are primarily
volatile organic compounds (VOC). The reduction target
for VOC emissions was 10% per ton of production in
2018 (compared with 2017). The reduction was delivered
via product design, driven by R&D (see Note 1), good
management practices and environmental controls at our
Some of our employees joined in a series of beach clean-ups around the world as
part of the company’s involvement in the Volvo Ocean Race. AkzoNobel was one of
the main partners of the race’s sustainability program.
161AkzoNobel Report 2018 | Sustainability statementsWATER AND WASTE WATER Sustainable water supply is essential to life and the sustainability of our business. We rely on water for, among others, raw material production, product formulation and manufacturing, power generation, cooling, cleaning and transportation. Currently, 68% of our fresh water intake is from surface water, from which 76% is used for cooling purposes. Our net water use decreased by 4% in 2018.Our locations process their waste water in an on-site waste water treatment plant, or via third party waste water treatment. The total amount of chemical oxygen demand (COD) emissions in 2018 was 27 tons (2017: 27 tons).Fresh water use in million m3 Fresh water consumption m3 per ton of production201820172016201591010102.92.82.93.1Fresh water use is the sum of the intake of groundwater, surface water and potable water.1.2Other1.0Product1.9Potable water1.1Groundwater6.37.1Surface waterOwn operationsSOIL AND GROUNDWATER REMEDIATIONWe periodically review sites with historic contamination, taking remedial action when required, and have procedures to prevent new contamination. Mandatory annual environmental liability reviews are conducted to evaluate risks associated with historical soil and groundwater contamination. We monitor progress in resolving liabilities and assess changes in company exposure. Water flow in million m3A group of legal and environmental experts assess, manage and resolve environmental liabilities. In line with IFRS accounting rules, we make provisions for environmental remediation costs when it’s probable that a liability will materialize and the cost can be reasonably estimated. We have set aside €91 million, which we believe is sufficient for the sites where we have ownership or responsibility. (See Note 18 of the Consolidated financial statements). 4
Employees
Our sustainability agenda is integral to our employee value
proposition. By focusing on the success and sustainability
of our business, we attract, retain and motivate our
employees. Sustainability is one of our core principles,
defining who we are and what we stand for.
Our talent and development programs are a vital
investment in our human capital – the skills and knowledge
of employees – to ensure that we’re equipped to drive the
company’s growth and profitability. In 2018, our human
capital return on investment was 1.33 (1.43 in 2017),
meaning that for every euro invested in AkzoNobel’s
workforce, €1.33 was returned. Improving our human
capital return on investment is achieved through a
combined effort in improving revenue, efficiencies in
non-employee costs, controlling our FTE numbers and
aligning our employee cost and remuneration structure to
our business performance goals.
PEOPLE AGENDA AND HR ANNUAL
OPERATING PLAN
In 2018, we launched a new people agenda and HR
annual operating plan process across all our businesses
and functions. This process is based on external best
practices, as well as internal practices and business
needs. It translates business strategy into a people agenda
covering a three-year timeframe, which is in turn translated
into an annual operating plan implemented by different
parts of the HR organization. As part of this process,
staffing planning is also conducted to set the basis for
our budgeting, talent acquisition, talent management and
learning and development processes.
162 Sustainability statements | AkzoNobel Report 2018
ATTRACTING, DEVELOPING AND
RETAINING TALENT
We’re proud of our continued recognition as a leading
employer in many of our key countries, including Brazil,
China, the UK and Sweden.
During 2018, there were concentrated efforts in defining
career paths and building capabilities in functions such
as marketing and manufacturing that directly benefit
the company strategy. We also put significant effort into
creating a sustainable pipeline of future leaders, particularly
in our business units and corporate functions. As part
of the process, we identified critical roles and focused
on the succession planning of these roles to ensure
business continuity. This resulted in a balanced approach
to promote our future senior leaders from within the
organization, while continuously enriching our pipeline from
external markets. The outcome was that we filled 54% of
our executive roles internally.
In 2018, overall employee turnover was 14% (2017:
12%), while the voluntary turnover was 8% (2017: 6%).
Although increasing from 2017, both are still in line with the
top of the industry benchmark. High potential employee
turnover totaled 8%, an increase from previous years as
a result of continuous organizational transformation. This
trend is expected to slow down in 2019 based on the
closure of many transformation programs. At the same
time, changes will be made to our performance, talent
and career management processes to better service the
changing needs of our employees.
CAPABILITY BUILDING
We’re focused on building the capabilities of our people in
order to meet our strategic ambitions and ensure we drive
a performance culture where our people learn quickly,
grow and proudly deliver on their commitments. During
2018, we focused on providing learning and development
Human capital ambitions
Organizational health score
Female executives
(in %)1
Female executive potential
pool (in %)1
Executive vacancies filled
internally (in %)1
High potential turnover
(in %)1
2015 2016 2017 2018
Ambition
2020
19
25
58
6
19
30
61
4
19
28
74
5
58
20
31
54
8
(77)3
25
30
602
<5
1 2015-2017 data includes discontinued operations.
2 Previously communicated 70.
3 Top quartile.
programs that particularly support the company’s strategy.
Key focus areas included sales and marketing, integrated
business planning (IBP) and leadership development
that enables a high performance culture. To support our
strategy with relevant learning offerings, we continued
to update our competency frameworks in sales and
marketing, as well as various supporting areas of the
business, to reflect the changes in our organization needs.
DIVERSITY AND INCLUSION
AkzoNobel is developing an increasingly engaged, diverse
and capable workforce to deliver our strategy. 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.
In 2018, we launched an informal women leader network
to further promote our gender diversity at all levels in the
organization, and to provide peer support to our female
leaders in advancing their career ambitions at AkzoNobel.
5
Climate change and the circular economy
ENGAGED EMPLOYEES
We’ve embarked on an ambitious transformation journey
to become the reference in our industry. The cultural
shift we aspire to achieve is substantial. A good balance
between performance and organizational health will be
required to ensure our transformation creates sustainable
impact. We therefore decided to launch a new internal
survey which goes beyond measuring people engagement
and focuses more on measuring our wider organizational
health. This measurement is achieved by surveying the
effectiveness of our organization in combination with the
actions and behaviors that take place. In 2018, the survey
was conducted three times for all AkzoNobel employees,
resulting in a current score of 58.
The results show that we have an engaged workforce.
In total, 86% of our employees indicated they really care
about the company, while 84% are willing to put in a great
deal of effort – beyond what’s normally expected – in order
to help AkzoNobel be successful.
The insights from the survey also show that the company
needs a continued focus on four specific areas: employee
involvement, inspirational leaders, rewards and recognition,
and talent development.
As part of our transformation journey, we need to be able
to check our progress on a regular basis. It is therefore
an absolute necessity that we carry out quarterly health
checks. The outcomes are reflected in action plans
(overall, per business and per function), as well as
helping to steer our culture and organizational change
management agenda. The culture and transformation
teams, as well as initiatives such as the AkzoNobel
Network (a network of colleagues who can be a sounding
board for senior leadership) will help to drive the roll-out of
the agenda.
As a focused paints and coatings company, the priorities
of our sustainability agenda have shifted to reflect the
strategic direction of AkzoNobel and focus on those areas
where we can have the biggest impact.
Following the separation of Specialty Chemicals,
carbon emissions from our operations dropped 90% to
300 kilotons worldwide. We continue to set targets
on emissions under our resource productivity agenda
(see Note 3).
More than 98% of our carbon footprint stems from our
suppliers (upstream) and our customers (downstream).
In 2018, our value chain emissions were 5% lower than
in 2017.
Upstream, our biggest impact is from emissions of the raw
materials we buy, such as pigments, resins and solvents.
In our raw material sourcing, we need to join forces with
our suppliers to greatly increase the share of bio-based
materials, recycled content or raw materials produced
with renewable energy. In addition, we must learn to make
better use of raw materials (see Note 6).
Downstream, the applications we provide to consumers
also generate emissions when used, for example from
solvents and curing temperatures. We continue to offer our
customers technologies and solutions that enable them to
reduce their own emissions and material use, for example
through lower curing temperatures, low or zero solvents,
water-based solutions and using fewer layers of paint.
Following the principles of the circular economy – the use
of bio-based and recycled raw materials combined with
improved solutions for our customers – has the potential to
be our biggest contributor to the Paris agreement. Building
on our track record of renewable energy, we will now also
focus on reducing carbon emissions through renewable
raw materials. Currently, approximately 5% of organic raw
materials are from renewable sources.
The paints and coatings industry is at an early stage, but
as a leading company we are at the forefront and working
with partners, big suppliers and universities to develop
more innovative products. Examples include high quality
coatings with 25% recycled content, creating pigments
from the carbon black harvested from used tires in a
collaboration with Black Bear, and joint research with
Dutch universities as part of the Chemical Building Block
Consortium, which aims to develop bio-based resins
from crustaceans and wood. We have gone through
trials and pilot testing and are now at the stage where
we will accelerate our pathway to resource productivity
and circular economy. One of our Paint the Future startup
challenge areas (see page 14) focuses on identifying
circular solutions, allowing us to benefit from technologies
and innovations to further our ambitions towards a
circular economy.
We continue to support the recommendations of the
Financial Stability Board (FSB) Task Force on Climate
related Financial Disclosures (TCFD). Risks and
opportunities related to climate change and the transition
towards a circular economy are assessed via our risk
management process. We manage those risks and
opportunities by working with suppliers and customers.
Governance is integrated into our management cycle
as described later in this section under Managing
sustainability. We are partnering with industry peers
and the World Business Council for Sustainable
Development (WBCSD) to further implement the TCFD
recommendations as they apply to our company.
AkzoNobel Report 2018 | Sustainability statements
163
6
Supplier engagement
In line with both our sustainabilty agenda, and the supplier
management process which forms part of the company’s
ALPS continuous improvement program, we aim to use
resources as effectively as possible. To make the most
productive use of resources – specifically raw materials
– we work closely with our suppliers. Together, we
strive to identify and minimize supply chain risks, create
value through continuous improvement and seek out
collaboration and joint development opportunities in order
to ensure a secure and sustainable supply of our products.
SUPPLIER SUSTAINABILITY
FRAMEWORK
Our supplier sustainability framework (see diagram) drives
continuous improvement and supports the delivery of
our sustainability objectives. The foundation of the
framework is the company’s Business Partner Code of
Conduct and includes processes for risk management
and supplier performance.
World class supplier
performance: Sustainability
Goals
Measurable sustainability performance
Processes
Area
Processes
Scope
Risk management
compliance
TfS - Together for sustainability
EV assessments Audits
Suppliers with more
than €1 mln spend
Supplier performance
Advanced distribution
Carbon footprint sharing
Eco-efficiency measurement
Collaboration in sustainability
improvement and innovation
Suppliers with impact
on our resource
productivity
Core principles
Business Partner Code of Conduct
and (for the fourth time overall) achieved the EcoVadis
Gold recognition level in 2018.
Business Partner Code of Conduct
Our business partners are expected to follow the
company’s core principles of safety, integrity and
sustainability. The Business Partner Code of Conduct
explains these core principles and specifies what we
expect from our business partners. The code is available
in 32 languages.
TfS assessments of our suppliers covered 65% of spend
in 2018. We use the EcoVadis score to determine the risk
levels of our suppliers. In 2018, we included the EcoVadis
sub-theme score on labor and human rights. Despite this
stricter consideration of our risks, we have managed to
increase the number of low risk suppliers, as shown in the
diagram below.
Suppliers sign the code to confirm their compliance with
environmental, social, human rights and governance
requirements. Signatories cover 98% of the product
related (PR) spend and 83% of the non-product related
(NPR) spend.
Together for Sustainability (TfS)
TfS online assessments (conducted by EcoVadis, a partner
of TfS) and TfS on-site audits facilitate proactive supplier
risk management in the chemical industry. AkzoNobel
verifies its own activities against industry best practice
Risk developments in % of suppliers
2017
2018
39
35
47
43
3
2
15
16
High risk
Medium risk
In control
Low risk
164 Sustainability statements | AkzoNobel Report 2018
While suppliers for the TfS online assessment are selected
on global spend of more than €1 million, the selection
criteria for the on-site audits includes the location of our
supplier’s site (risk region) and the type of product (risk
material) they are delivering to AkzoNobel. In 2018, we
initiated 37 TfS audits.
The results of our TfS assessments and audits allow us
to identify improvement activities with our suppliers. Out
of 761 suppliers re-assessed by 2018 (cumulative), 489
improved their EcoVadis scores.
The TfS program is used for existing suppliers. New
suppliers with an expected spend value greater than
€100,000 are required to take part in an evaluation
program, as described in our Supplier Selection process
as part of ALPS. This program includes elements on
sustainability (labor and human rights, environment,
compliance and responsible procurement).
Supplier performance management
Our supplier performance management process includes
suppliers who have a contractual relationship with us
and/or have an impact on our value selling and resource
productivity. The sustainability performance of suppliers in
this group is measured using our Supplier Sustainability
Balanced Scorecard (SSBS).
In 2018, we strengthened the compliance element of
the SSBS by adding the EcoVadis sub-score on labor
and human rights, and by monitoring the human rights
controversies reported by the EcoVadis 360° report.
In addition, our updated SSBS now includes specific
measures on our suppliers’ eco-efficiency performance,
including water and waste, greenhouse gases (GHG),
energy use and circular economy.
From 2018 onwards, since we have reached our objectives
in terms of SSBS deployed (100 suppliers), we report on
supplier improvements. The SSBS score is used in the
supplier management process which forms part of our ALPS
continuous improvement program, in addition to measuring
quality, delivery, cost and innovation performance.
High risk raw materials
In 2017, we initiated a due diligence program of several
raw materials in our supply chain identified as high risk
raw materials impacting human rights, more specifically in
terms of health and safety, working conditions and modern
slavery. The raw materials in scope (which we mostly
procure indirectly) are barite, cobalt, copper, cotton linters,
mica minerals, palm oil, talc and tin. These raw materials
have been identified using information provided by NGOs.
In 2018, we prioritized cobalt, copper, mica minerals and
tin (contained in our raw materials) and have started to
request that suppliers delivering these materials (directly
or indirectly) provide traceability/transparency of the raw
materials back to the origin – smelter, refinery or mine.
In 2019, we will pursue our due diligence program and
continue to assess whether our materials are sourced in a
sustainable manner.
Every year, millions of liters of perfectly good paint are thrown away. Our Community RePaint initiative works across the Netherlands, Belgium and the UK, collecting left-over
reusable paint and re-distributing it to communities, charities and people in need. In 2018, our Dulux brand celebrated 25 years of sponsoring Community RePaint schemes across
the UK – benefiting more than five million people.
Key performance indicators – supplier management
PR1 suppliers signed Business Partner CoC2,7
(% of spend)
NPR3 suppliers signed Business Partner CoC2,7 (% of spend)
Third party online sustainability assessments (TfS)4
Third party on-site sustainability audits (TfS)5
SSBS6 improvement in % against baseline
2014
98
80
534
15
–
2015
98
81
722
54
–
2016
99
86
875
131
–
2017
97
86
950
219
–
2018
98
83
953
270
11
1 PR = Product related (raw materials and packaging).
2 CoC = Code of Conduct.
3 NPR = Non-product related.
4 Includes TfS shared assessments, cumulative.
5 Includes TfS shared audits, cumulative.
6 SSBS = Supplier Sustainability Balanced Scorecard.
Baseline is 2018 (new KPI).
7 2014-2017 data include discontinued operations.
AkzoNobel Report 2018 | Sustainability statements
165
A RECORD-BREAKING JOURNEY
TO BE PROUD OF
When we became the first team to
enter the 2017-18 Volvo Ocean Race,
we knew we were in for an incredible
ride. In the end, our campaign was
more remarkable than we could have
ever imagined.
We finished fourth overall, while also
helping to increase global understanding
of ocean health. But that hardly tells the
full story. On the way, we achieved five
podium finishes in the space of six legs
(including a leg win), as well as making
Volvo Ocean Race history by setting
a new 24-hour distance record. As
the official supplier of coatings for the
seven teams, our products also made a
huge contribution during every thrilling
maneuver of the 83,000-kilometer race
around the world.
Given our long association with the sea,
it was fitting that AkzoNobel not only
took part, but also became one of the
main partners of the race’s sustainability
program. We supplied more than
7,000 liters of our International and
Awlgrip products during the course of the
competition, having developed custom
colors for all the competing teams.
We even launched a new Awlgrip product
during the stopover in Itajaí, Brazil.
On a company level, we welcomed
2,000 guests (including 1,500 customers)
to the race villages and generated over
€74 million of media value.
Team AkzoNobel was also one of two
boats (along with Turn the Tide on Plastic)
to be fitted with additional specialist
equipment designed to measure the state
of the world’s oceans. It was all part of
a dedicated science program which has
since gone on to win several awards.
Between them, the two boats took
86 samples, and scientists found that
93% contained levels of microplastics.
The aim of the research was to further
our understanding of the extent to which
microplastic pollution has now touched
even our remotest oceans.
Unsurprisingly, our sailors were in big
demand when they weren’t out on the
water. They took part in two beach clean-
ups with our employees, visited some
of our sites and took part in a number
of community projects. And, as the race
progressed, they became a genuine
source of inspiration as they showed
the true value of teamwork and winning
together.
“It’s very special to compete at this level
and it was a privilege to have been part of
team AkzoNobel,” said watch captain and
now six-time Volvo Ocean Race veteran,
Chris Nicholson. “One of the most
rewarding aspects of the race is to see
people challenged and work together as
a team to overcome those obstacles and
achieve amazing things. We showed the
ability to learn and improve and not allow
setbacks to check our progress. Everyone
involved has a lot to be proud of.”
“One of the most rewarding aspects
of the race is to see people challenged
and work together as a team to over-
come those obstacles and achieve
amazing things”
Top three finishes
6
Total amount of International and
Awlgrip paint used during the race
Number of custom made colors
developed for the race by AkzoNobel
7,000+ liters
26
Leg wins
1
166
Sustainability statements | AkzoNobel Report 2018
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Volvo Ocean Race leg nine,
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AkzoNobel Report 2018 | Sustainability statements
167
7
Safety
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.
Our strategic HSE&S priorities are aligned with the
company’s Winning together: 15 by 20 strategy and are
focused on driving:
• Continuous improvement of HSE&S processes to
achieve leading maturity levels
• The implementation of an integrated HSE&S
management system to drive continuous improvement
and maintain best-in-class performance
• A commitment-based HSE&S culture and embedding
operational excellence to achieve our vision of zero
injuries, waste and harm
PEOPLE SAFETY
In 2018, the number of reportable injuries reduced by
5% compared with 2017, while the injury rate is already
at the target level set for 2020 (0.20). In total, 66%
of our manufacturing 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, promoting employee engagement
and recognition.
However, the lost time injury rate increased versus the
2017 performance. So although the total number of
reportable injuries decreased in 2018, there was an
increase in the severity of this year’s cases compared with
2017. Incident analysis of recent years has indicated that
in 70% of all injuries, one of the root causes appeared
to be people positioning themselves in the so-called
line of fire (LoF), where either energy or substances
Employee total reportable injuries injury rate
Contractors total reportable injuries injury rate
Target
0.30
0.26
0.20
0.20
≤0.18
≤0.20
0.50
0.29
2015
2016
2017
2018
2018
2020
2015
2016
0.12
2017
0.18
2018
The total reportable injury rate (TRR) is the number of injuries resulting in a medical
treatment case, restricted work case, lost time case or fatality, per 200,000
hours worked. In line with OSHA guidelines, temporary workers are reported with
employees, since day-to-day management is by AkzoNobel.
The contractors total reportable rate (TRR) is the number of contractor injuries,
resulting in medical treatment cases, restricted work cases, lost time injuries or
fatalities, per 200,000 hours worked.
Employee lost time injuries injury rate
Contractors lost time injuries injury rate
Target
0.15
0.13
Target
0.24
0.09
0.06
≤0.05
≤0.04
0.11
0.06
0.07
≤0.05
2015
2016
2017
2018
2018
2020
2015
2016
2017
2018
2018
The lost time injury rate (LTlR) is the number of injuries resulting in a lost time injury per
200,000 hours worked. Temporary workers are reported together with employees,
since day-to-day management is by AkzoNobel.
The contractors lost time injury rate (LTlR) is the number of contractor injuries
resulting in a lost time case, per 200,000 hours worked.
were unexpectedly released. In response to this, a LoF
awareness program was held for all employees in April.
LoF was also the theme of our annual global Safety Day,
when we introduced a LoF awareness game and, for the
first time, used virtual reality for HSE&S training purposes.
Additional initiatives designed to further prevent injuries
and reduce their severity include the implementation of
Life Critical Procedures, a forklift safety “call to action”
and a continued focus on embedding injury and illness
case management. The objective of the latter is to
proactively manage injury cases at an early stage, contribute
to reducing the impact for the injured employee, promote
return to work programs and, as a result, further reduce the
lost time injury rate.
The focus on contractor safety was further increased in
2018 with the introduction of standardized practices for safe
working throughout the company, as well as standardized
contractor management and evaluation procedures.
Although the reportable injuries for contractors remained at
the same level and lost time injuries decreased by 25%, the
rates did not improve due to fewer hours being worked by
contractors in 2018, compared with 2017 (-36%).
PROCESS SAFETY
We have developed a process safety management
(PSM) framework for all our operations, following industry
standards and best practices.
168 Sustainability statements | AkzoNobel Report 2018
The PSM framework implementation was phased
according to inherent risk, with the introduction at site
level starting in 2014. In 2018, the remaining 48 sites
completed their PSM improvement plans according to
schedule and were validated.
Process safety events
Loss of primary containment Level 1
Loss of primary containment Level 2
Process safety event Level 3
2017
2018
5
43
6
63
1,200
1,583
A new management of change (MOC) procedure was
introduced at our company globally. This process
has now been digitized to allow an efficient,
comprehensive approach.
Process safety performance indicators are aligned
with international best practice. Loss of primary
containment (LoPC) is the main process safety indicator
at manufacturing sites, distinguishing between two levels
of severity. As a leading indicator, sites also measure
process safety events (PSEs), which are minor leaks or
occurrences that could lead to more severe events.
Process safety events (PSE) pyramid
Levels
1
2
3
4
PSE
PSE
PSE below threshold (of Level 2)
and near misses
Operational discipline
In 2018, we raised awareness and improved reporting
of the process safety indicators. The total number of
LoPC Level 1 and 2 increased by 44% in 2018, compared
with 2017. The increase was partly due to increased
awareness and improved reporting. During 2018, initiatives
intended to improve working practices were introduced,
such as a LoPC pocket card. This is also part of the
Process Confirmation in the ALPS Leader Standard Work
(LSW) process.
The number of LoPCs classified as Level 1 (highest
severity) in 2018 slightly increased to six (2017: five).
The number of PSE Level 3 (minor spills and leaks, which
are readily controlled on site and have no regulatory
notification requirement) increased, which demonstrates
improved reporting discipline. All incidents are
investigated to determine potential trends and to
implement preventive controls.
PRODUCT STEWARDSHIP
Product stewardship is our approach to ensure that
product safety and sustainability are considered
throughout the value chain – from raw material extraction,
R&D, manufacturing, transport, marketing and application
all the way through to end-of-life. We aim to deliver value
to AkzoNobel and our customers by ensuring regulatory
compliance in every region where we operate, and to
continually develop safer and more sustainable solutions
for the market through our pro-active approach.
Continuous improvement
Our Product Stewardship Continuous Improvement
Tool (PSCIT) is used to drive continuous improvement
in product stewardship through collaboration at all
levels. During 2018, we realigned the PSCIT to fit the
new organization. The 2018 assessment will form the
benchmark going forward for measuring the maturity of
our business units on the eight key elements of product
stewardship, following the principles of Coatings Care®.
Priority substance management
Our industry-leading and multiple award-winning priority
substance program is a proactive approach to the
review and management of hazardous substances in our
products and processes. The program reached a key
milestone in 2018 when we completed our review of all
substances identified in the final project phase for risk
assessment. We screened thousands of raw materials for
review as part of the program, resulting in detailed analysis
of 269 substances – 97 of which are now prohibited, while
172 have restricted use within our products.
The program is now considered to be fully embedded in
the company, forming part of normal operational activities
in the key functions that control raw materials used in
our formulations. This was highlighted during 2018 when
a prohibited substance was identified in products from
a newly acquired business. In such cases, the program
demands that a replacement is put in place within
12 months. Thanks to strong collaboration between
our R&D and procurement teams, this was successfully
achieved and the use of the prohibited substance
has now ceased.
HEALTH
As well as ensuring a safe working environment, healthy
working conditions and managing illness-related
absenteeism, we also foster employee health and well-
being as part of our health strategy and occupational
AkzoNobel Report 2018 | Sustainability statements
169
of incidents, as well as promoting learning across the
organization, including best practice sharing. 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.
During 2018, new supporting software for the AkzoNobel
HSE&S management system was implemented: the
HSE&S suite. This has been designed as an intuitive and
user-friendly platform where the core HSE&S processes
are digitized and through which available data can be
analyzed and utilized for learning. The HSE&S suite will
drive operational HSE&S excellence and will be further
expanded during the coming years.
Employee health
Occupational illness rate
New Wellness Check-
point participants
2015
0.06
800
2016
0.06
795
2017
0.05
465
2018
0.05
446
communicated throughout the organization. In 2018,
168 security incidents were reported globally, an increase
of more than 100% compared with 2017 (69). Theft and
vandalism at AkzoNobel stores represented the highest
event sub-type (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. This
includes procedures, regular performance reviews,
training, self-assessments, annual improvement planning,
independent internal audit and root cause analyses
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 temporary workers.
health program. Examples include industrial hygiene (IH)
programs and training at site level. During 2018, more
than 130 site and regional HSE&S managers were trained
on IH awareness.
The Wellness Checkpoint, our online health risk appraisal
tool, is being used by an increasing number of employees
and their families.
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
employees 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
We helped airBaltic fly the flag to celebrate Latvia’s 100th anniversary after one of its
new A220-300 aircraft was given a unique livery using our aerospace coatings. The
special project was carried out in Magnetic MRO’s paint hangar in Tallinn, Estonia,
before the eye-catching artwork was gifted to the nation during an official ceremony
at Riga Airport. It took 15 professional painters 1,000 hours to create the one-off
livery, which honors Latvia’s red and white flag.
170 Sustainability statements | AkzoNobel Report 2018
8
Human rights
At AkzoNobel, we understand that through our roles as
employer, manufacturer, business partner and member
of many communities, we can potentially both directly
and indirectly impact the lives of millions of people. While
we’re committed to making a positive impact through our
products and programs, we are also aware of the potential
negative impact we may cause, contribute to or be linked
to. We recognize our responsibility to respect the human
rights of all stakeholders across our value chain and
are committed to actively and systematically assessing
(potential) human rights impacts, taking action where
needed to ensure that any impact on people’s lives is as
positive as possible.
COMMITMENT
As part of our core principles of safety, integrity and
sustainability – and in line with the United Nations Guiding
Principles on Business and Human Rights (UNGPs) – we
are committed in our operations and across our value
chains to respecting all internationally recognized human
rights, as set out in the International Bill of Human
Rights (consisting of the Universal Declaration of Human
Rights, the International Covenant on Civil and Political
Rights and the International Covenant on Economic,
Social and Cultural Rights) and in the International Labour
Organization’s Declaration on Fundamental Principles and
Rights at Work.
We support the Organization for Economic Cooperation
and Development (OECD) Guidelines for Multinational
Enterprises and we are a member of the UN Global
Compact. We expect all our business partners to respect
human rights and apply equivalent principles, seeking
to support them actively in their implementation
where needed.
For full details and progress information
on our human rights framework, please visit:
www.akzonobel.com/humanrights
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 directly 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 and due diligence.
SALIENT HUMAN RIGHTS ISSUES
While we respect all human rights equally and take all
human rights impacts seriously, we have prioritized
(potential) human rights impacts in accordance with the
UNGPs. These are the so-called salient human rights
issues; the human rights that are potentially at risk of
the most severe negative impact through our activities
or business relationships. After an internal and external
stakeholder consultation process, we identified four
salient issues on which our human rights due diligence
is focused (listed below). Our salient human rights issues
have not changed following the sale of our Specialty
Chemicals business.
In 2017, we developed a “human rights indicator
dashboard”, which reflects multiple indicators – based on
data available internally – that are relevant to our salient
human rights issues. This dashboard helps us monitor
whether we are achieving our targets, or if we need to
make interventions.
1. Health and safety in our value chain and
connected communities
Being a manufacturing company, we have made the
health and safety of people one of our core principles.
We strive 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.
Based on our human rights risk assessment, we were
aware that we needed to conduct further due diligence
into our products. Due to the nature of our products,
we acknowledge there is an inherent risk of impacting
the human rights of end-users. In 2018, we reached
a milestone with our Priority Substance Program by
completing 100% of priority substances identified
(269 substances), screening thousands of raw materials
in the process. Our Priority Substance Program
has kept us ahead of chemical legislation and helped
us make our portfolios safer and more sustainable
(see Note 7). For example, we were the first major paint
company to stop adding lead-based pigments and
drying agents to paint.
We’ve also conducted due diligence into the possible
impact on communities surrounding our production
sites, as part of the audits and self-assessments
used in our HSE&S management system. We’ve
analyzed the results on community engagement of
our production sites and interviewed our regional
manufacturing directors. This information helped us
identify locations where we could run a higher risk
in terms of impacting surrounding communities.
We will continue this due diligence in 2019 and conduct
in-depth reviews of these locations.
2. Working conditions for our employees
As an employer, we believe that people are crucial
to the success of our company. We won’t achieve
leading performance unless employees believe
AkzoNobel is a great place to work, are engaged
and feel valued (see Note 4). We must therefore offer
decent working conditions, including fair working
hours, reasonable salaries and appropriate bathroom
and restaurant facilities.
AkzoNobel Report 2018 | Sustainability statements
171
Our annual Safety Day was a big success once again in 2018. An important event in
our calendar, it’s an opportunity to celebrate our achievements while reminding us to
stay focused and vigilant. The theme this year was “Beware the line of fire”. Our sites
around the world marked the event in various ways. In the Netherlands, for example, the
AkzoNobel Center in Amsterdam offered free bicycle safety checks to all employees.
there is an inherent risk of modern slavery in global
supply chains, including our own, particularly in the
case of indirect suppliers. Definitions of modern slavery
often vary, but at AkzoNobel, we have defined
modern slavery as child labor, debt bondage, forced
labor, human trafficking, servitude, slavery and slavery-
like practices.
In 2017, we initiated a due diligence program for several
raw materials in our supply chain identified as high risk
materials impacting human rights, and forms of modern
slavery in particular. These materials are prioritized
and brought in scope using information provided by
NGOs. We continue to work on this due diligence
program. In addition, we carried out awareness training
on sustainability including human rights for 60% of our
buyers, which will be completed in early 2019.
We also strengthened our Supplier Sustainability
Framework in terms of human rights due diligence by
including the EcoVadis sub-theme score on labor and
human rights in the determination of the risk levels
of our current suppliers. In addition, during 2018, we
improved the compliance element of the Supplier
Sustainability Balanced Scorecard by adding the
EcoVadis sub-score on labor and human rights, and
by monitoring the human rights controversies reported
by the EcoVadis 360° report. New suppliers also now
have to take part in an evaluation program, as described
in our Supplier Selection process under ALPS. This
program includes elements on labor and human rights
(see Note 6).
We carried this out as an initial analysis. In parallel,
we engaged with two organizations that are experts
in the field of living wages, to learn more about the
methodology behind the comparison between salaries
and living wages. This work will continue in 2019.
3. Discrimination and harassment in our operations
At AkzoNobel, we strive to foster a culture of dignity
and respect, free of any kind of harassment or
discrimination. Currently, 26.5% of the reports received
through our grievance mechanism (SpeakUp!) relate
to some form of discrimination and/or harassment.
While this category of case is typically large for other
companies, it is also a reason for us to do more.
In 2018, we took multiple actions, including the
improvement of our current anti-discrimination and anti-
harassment directive; development of new rules that
clarify what’s expected from employees and managers;
development and testing of a dilemma-based training;
and optimizing a coaching framework. This work will
continue in 2019.
4. Modern slavery in our supply chain
STAKEHOLDER ENGAGEMENT
We believe that modern slavery should be eradicated
from a moral, political, logical and economic point of
view. We therefore have zero tolerance for modern
slavery of any kind and feel highly motivated to combat
it. As an outcome of the human rights risk assessment
which resulted in our salient issues, we recognize
We understand that identifying salient human rights
issues is an ongoing process. While undertaking due
diligence – and providing remedies where needed – on the
salient human rights issues, we continue to analyze and
monitor our potential impact on human rights across our
To emphasize our commitment, we’ve signed the
Safe Water, Sanitation and Hygiene Pledge (WASH)
of the World Business Council for Sustainable
Development (WBCSD).
In 2018, we continued due diligence into the sanitary
conditions of our locations, using the WASH Pledge
implementation material. The results of our 2018
assessments showed an average satisfactory score of
1.8 out of a possible score of 2.0 – meaning that 90%
of the sites scored satisfactory. The 2018 assessment
results reflect the same score as 2017. This assessment
is now integrated into our processes and will be
monitored and acted upon accordingly.
With respect to working hours, we conducted an
International Labour Organization (ILO) gap analysis
of working hours in the countries where we’re active.
ILO statistics on countries with long working hours
was included in this assessment. It identified several
countries where we run a higher risk of excessive
working hours, possibly impacting the health or safety
of our workforce. We also assessed the working hours
of our locations in those countries against the ILO
standards on working hours. Based on these results,
the Human Rights Committee has decided that global
guidance and rules on working hours are necessary to
ensure proper working hours at our sites. In 2019, these
will be developed.
We’ve conducted due diligence into fair wages in our
own operations. First, we assessed the legal minimum
wages – if in place – of the countries where we’re active
against the three international poverty lines of the World
Bank. We also took into account national poverty lines
and the percentage of the populations under the poverty
lines. This analysis has provided us a list of countries
we should take a closer look at. Human Resources
colleagues in those countries provided (anonymized)
salary information on the lowest paid employees and
assessed those against public available living wages.
172 Sustainability statements | AkzoNobel Report 2018
Twelve artists volunteered their talent to create a series of 3D frescoes in Vietnam as part of an event organized through our global “Let’s Colour” initiative. We teamed up with the
International Union for Conservation of Nature and the Ly Son Marine Reserve to stage the project on tiny Ly Son Island. The project – designed to highlight the importance of
preserving the marine environment around the island – used more than 7,000 liters of our Dulux Weathershield exterior paint.
value chain, paying extra attention to vulnerable groups.
We continuously engage with both internal and external
stakeholders, such as employees, human rights experts,
NGOs and society at large, and use feedback to align our
initiatives. Frank and open dialog with all our stakeholders
enables us to go further and faster than we could alone.
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).
AkzoNobel Report 2018 | Sustainability statements
173
174Sustainability statements | AkzoNobel Report 2018COMMUNITY PROGRAM Connecting with the communities close to our locations and supporting their development is an essential part of the identity of our company. We revitalized our Community Program during 2018 to better reflect our passion for paint and proud people. The new-look program works with common global criteria and guidance to make it easier to set up and run projects, which bring combined benefits to our communities, our employees and our brands. In 2018, 49 Community Program projects took place in 29 locations across 16 countries, with a 35% increase in employee participation and almost five times higher community outreach than in 2017. LET’S COLOURWe believe in the power of paint to transform lives by uplifting communities and making spaces more fun, liveable and enjoyable. Our global “Let’s Colour” program continues to develop and support projects which add color to people’s lives. In 2018, we carried out 65 “Let’s Colour” projects across 23 countries, which involved nearly 1,500 AkzoNobel volunteers. We donated 192,000 liters of paint for the renovation of community living spaces, benefiting millions of people.20182017201620151,4491,5571,1391,537>15k>20k>97k>17kCommunity Program Employees (number) Beneficiaries (number, estimated)Programs9We continued to be a strategic partner of SOS Children’s Villages and, as part of their YouthCan! platform, we helped to create more employment opportunities for young people at risk around the world. Through our “Let’s Colour” programs and professional painter academies, we gave training to almost 1,000 young people in various aspects of painting, entrepreneurship and soft skills. We also activated “Let’s Colour” SOS Children’s Villages programs across ten countries, and expect to include up to 15 countries in 2019.Our Coral brand in Brazil helped revitalize the lives of 100 families in Recife by painting their local neighborhood as part of the Mais Vida nos Morros project. It was just one of the many community activities we completed in 2018 through our global “Let’s Colour” program. A MEMORABLE
YEAR FOR OUR
ART FOUNDATION
In 2018, the AkzoNobel Art
Foundation and its Art Space
in Amsterdam became part of
the company’s heartbeat more
than ever before. Located at the
AkzoNobel Center, the Art Space
has welcomed over 120,000
visitors, celebrating its diversity
both internally and externally.
The year’s main highlight was the launch of the current
Common Ground exhibition, which was officially opened
by the Dutch Minister of Education, Culture and Science,
Ingrid van Engelshoven. The event was hosted by
AkzoNobel CEO and Chairman of the Art Foundation,
Thierry Vanlancker.
Other memorable moments this year included the Oso
Couture Fashion Show, the premiere of the Common
Ground documentary and various sustainability and
educational programs for national and international
schools and universities – including the Gerrit Rietveld
Academie and the Barlaeus Gymnasium.
“We’re looking forward to 2019,” says Hester Alberdingk
Thijm, Director of the AkzoNobel Art Foundation.
“We plan to continue setting up exhibitions, contributing
to worthwhile multidisciplinary projects and, above all,
remaining a visible and inspiring presence for AkzoNobel
and the outside world. We are grateful for the opportunity
to let the art speak its universal language and show the
genuine passion for paint we’ve had at the Art Foundation
since 1995!”
Robert Zandvliet,
Untitled, 2007, tempera
on canvas
Guido van der Werve,
Nummer acht –
Everything is going
to be alright, 2007,
16mm film transferred
to video (color, sound).
Courtesy Rabobank Art
Collection
Photo:
Martin van Welzen
Damien Hirst, Untitled, 1992, eight-color silk
screen, matte varnish
Isaac Julien, Stones Against Diamonds, 2016,
premier photograph
Photo: Martin van Welzen
Hans Op de Beeck, Tatiana (Butterfly),
2017, polyester, polyamide, copper,
coating, wood
AkzoNobel Report 2018 | Sustainability statements
175
MANAGING SUSTAINABILITY
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 Chief Corporate Development Officer,
Chief Operating Officer, Chief Supply Chain Officer, Chief
Human Resources Officer and representative business
and functional directors. The Corporate Director of
Sustainability reports to the Executive Committee.
shared value, building on our core principles of sustainability,
safety and integrity, including respect for human rights.
The assessment focuses on four key areas of risk and
opportunity: operations, markets, remaining ahead of
legislation and identity.
The materiality assessment is based on key risks and
opportunities for the company as they relate to the
acceleration of our business strategy and the role of the
sustainability agenda. This leads to the key topics and
non-financial indicators that are most material for the
company. Results of the assessment are validated with
internal and external stakeholders.
MONITORING PROGRESS
Materiality matrix
1. Key risks and
opportunities
2. Acceleration
of 15 by 20
3. Sustainability
agenda
4. Key topics
and indicators
We use key indicators to track our progress in delivering
on the sustainable business imperatives and drive
continuous improvement processes in every function,
supported by external benchmarks.
We included sustainability in the personal objectives and
incentives of all employees from 2018 onwards, tailored to
each employee’s role in the organization and linked to our
sustainability value drivers. For employees in operations
and supply chain management, objectives are linked to
resource productivity. For those in innovation, marketing
and sales, they are linked to value selling.
MATERIALITY ASSESSMENT
Significant sustainability aspects material to the company
are reviewed annually, with input from internal and external
stakeholders. We focus on those topics that have the biggest
impact in terms of accelerating our strategy of creating
176 Sustainability statements | AkzoNobel Report 2018
Operations
Markets
Remaining ahead of regulation
Identity
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Topic
Section of the report
A Resource productivity
Resource productivity (p159)
Note 3: Operational excellence
B Employee development
Note 4: Employees
C Safety
Note 7: Safety
D Circular economy
Note 5: Circular economy and climate
E Supplier engagement
Note 6: Supplier engagement
F Customer satisfaction
Note 2: Customer value
G Innovation & sustainable
portfolios
Value selling (p155)
Note 1: Sustainable products
H Climate strategy
Note 5: Circular economy and climate
I Product safety
Note 7: Safety
J Integrity
Compliance and integrity management
K Human rights
Note 8: Human rights
L Community involvement
Note 9: Programs
Low
Medium
High
M Fair taxes
Financial information Note 8: Income tax
Importance for AkzoNobel
United Nations Sustainable Development Goals
Assessment of AkzoNobel contribution
l Main l Intermediate l Minor
Operations
Markets
Remain ahead of
legislation
STAKEHOLDER ENGAGEMENT
We engage proactively with our stakeholders to identify
opportunities to create shared value and collaborate. The
focus of the key external stakeholder groups assessed is
as follows.
Signatories and memberships
We have been a signatory of the UN Global Compact
since 2004 and annually disclose our “communication of
progress”. We subscribe to the UN Universal Declaration
of Human Rights, the key conventions of the International
Labour Organization and the OECD Guidelines for
Multinational Enterprises, and we adhere to Coatings
Care® Global and the CEO Water Mandate. We are a
member of organizations such as the World Business
Council for Sustainable Development (WBCSD) and the
World Green Building Council.
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. After the divestment of Specialty Chemicals,
we reassessed our impact. We focus mainly on SDGs
11, 12 and 17 (see page 158). Our sustainability agenda
remains built on our core principles of sustainability,
safety and integrity, including respect for human rights.
Within the WBCSD, we co-led the development of a
road map for the chemicals sector to contribute to the
realization of the SDGs.
Investors and benchmarks
Our sustainability performance is recognized by external
benchmarks, rating agencies and indices (see AkzoNobel
and the capital markets). We recognize that there’s an
increasing variety of indices, so we need to focus on those
that fit our type of business best and create the most
value for us and our stakeholders. We reviewed which
benchmarks are best suited for AkzoNobel as a focused
paints and coatings company.
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
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After more than a decade of top ten rankings on the
Dow Jones Sustainability Index (DJSI), we are now
focusing fully on further real-life sustainability performance
improvements. Going forward, we’ll prioritize our active
participation in benchmarks that help us drive continuous
improvement and rely mostly on publicly available
information. This means we will no longer actively
participate in benchmarks that put a significant additional
reporting need on the organization, above and beyond
what we already disclose externally, such as the DJSI.
We’ll continue to set our own ambitious targets on
topics material to our company, embed those targets
into the relevant functions and businesses, and
report transparently on progress. This approach will
allow us to focus on driving improvement, rather than
additional reporting.
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Reporting principles
Our reporting principles are based on the Global Reporting
Initiative (GRI) standards, complemented by internally
developed guidelines. Our complete reporting principles
can be found on our website, as well as an index of the
GRI indicators.
AkzoNobel Report 2018 | Sustainability statements
177
ASSURANCE REPORT OF THE
INDEPENDENT AUDITOR
To: Supervisory Board and Board of Management
of Akzo Nobel N.V.
Assurance report on the sustainability information
included in the Annual Report 2018
Our conclusion
Based on our review, nothing has come to our attention that
causes us to believe the sustainability information included
in the Report 2018 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
corporate social responsibility
• The thereto related events and achievements for the
year ended December 31, 2018, in accordance with the
Reporting Principles 2018, developed by the company
as included in the section “Reporting criteria”
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
We have reviewed the sustainability information included in
the annual report for the year ended 2018, as included in
the following sections in the Report 2018 (hereafter: “the
sustainability information”):
• Compliance and integrity management
• Sustainability statements
This review is aimed at obtaining a limited level of assu rance.
Additionally, we have audited the paragraphs “Monitoring
progress” and “Management accountability” in the section
“Managing sustainability”. The sustainability information
comprises a representation of the policy and business
operations of Akzo Nobel N.V. Amsterdam (hereafter:
“AkzoNobel”) with regard to corporate social responsibility
and the thereto related business operations, events and
achievements for the year ended December 31, 2018.
The basis for our conclusion and opinion
We conducted our assurance engagement in accordance
with Dutch law, which includes the Dutch Standard
3810N “Assurance-opdrachten inzake maatschappelijke
verslagen” (Assurance engagements on corporate social
responsibility reports), which is a specified Dutch Standard
based on the International Standard on Assurance
Engagements (ISAE) 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 review of the sustainability
information” of this assurance report. We believe that
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 ‘‘Verordening inzake de onafhankelijkheid van
accountants bij assurance-opdrachten” (ViO – Code
of Ethics for Professional Accountants, a regulation
with respect to independence) and other relevant
independence 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).
We apply the “Nadere voorschriften kwaliteitsystemen”
(NVKS – Detailed rules for quality systems) and
accordingly maintain a comprehensive system of quality
control, including documented policies and procedures
regarding compliance with ethical requirements,
professional standards and other applicable legal and
regulatory requirements.
Reporting criteria
The sustainability information in scope needs to be read
and understood in conjunction with the reporting criteria.
The Board of Management of AkzoNobel is responsible
for selecting and applying these reporting criteria, taking
into account applicable laws and regulations related to
reporting. The reporting criteria used for the preparation
of the sustainability information are the applied reporting
criteria developed by the company, as disclosed in the
Reporting Principles 2018. 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 and estimates and risk assessments. 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. The links to external
sources or websites in the sustainability information are
not part of the sustainability information reviewed by us.
We do not provide assurance over information outside
of this Report 2018.
Responsibilities for the sustainability information
and the assurance engagement
Responsibilities of the Board of Management and
Supervisory Board
The Board of Management of AkzoNobel is responsible
for the preparation of the sustainability information in
accordance with the reporting criteria as included in the
section “Reporting criteria”, including the identification of
stakeholders and the definition of material matters. The
choices made by the Board of Management regarding
the scope of the sustainability information and the
178 Sustainability statements | AkzoNobel Report 2018
reporting policy are summarized in the section “Managing
sustainability”. The Board of Directors is responsible
for determining that the applicable reporting criteria
are acceptable in the circumstances. The Board of
Management is also responsible for such internal control
as the Board of Management determines is necessary to
enable the preparation of the sustainability information
that is is free from material misstatement, whether due to
fraud or errors.
Our responsibilities for the review of the
sustainability information
Our responsibility is to plan and perform the review
engagement in a manner that allows us to obtain sufficient
and appropriate assurance information to provide a basis
for our conclusion and opinion.
Procedures performed to obtain a limited level of assurance
are aimed to determine the plausibility of information and
vary in nature and timing from, and are less in extent, than
for a reasonable assurance engagement. The level of
assurance obtained in review engagements is therefore
substantially less than the assurance obtained in audit
engagements. The procedures to support our opinion on
the “Monitoring progress” and “Management account-
ability” 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 can arise from fraud or errors and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the decisions of
users taken on the basis of the sustainability information.
The materiality affects the nature, timing and extent of
our review procedures and the evaluation of the effect of
identified misstatements on our conclusion and opinion.
Procedures performed
We have exercised professional judgement and have
maintained professional scepticism throughout the review,
in accordance with the Dutch Standard 3810N, ethical
requirements and independence requirements.
Our procedures included among others:
• Performing an analysis of the external environment and
obtaining insight into relevant social themes and issues
and the characteristics of the company
• Evaluating the appropriateness of the reporting
criteria used, their consistent application and
related disclosures in the sustainability information.
This includes the evaluation of the results of the
stakeholders’ dialog and the reasonableness of
estimates made by the Board of Management
• Obtaining and understanding of the reporting processes
for the sustainability information, including obtaining a
general understanding of internal control relevant to our
review
• Obtaining an understanding of the procedures
performed by the Internal Audit department
• Identifying areas of the sustainability information with a
higher risk of misleading or unbalanced information or
material misstatement, whether due to fraud or error.
Designing and performing further assurance procedures
aimed at determining the plausibility of the sustainability
information responsive to this risk analysis. These
procedures consisted, among others, of:
- Interviewing management (and/or relevant staff) at cor-
porate (and business/division/cluster/local) level respon-
sible for the sustainability strategy, policy and results
- Interviewing relevant staff responsible for providing
the information for, carrying out internal control
procedures on, and consolidating the data in, the
sustainability information
- Determining the nature and extent of the review
procedures for the group components and locations.
For this, the nature, extent and/or risk profile of these
components are decisive. Based thereon we selected
the components and locations to visit. The visit to
sites is aimed at, on a local level, validating source
data and evaluating the design and implementation of
internal controls and validation procedures
- Obtaining assurance information that the sustainability
information reconciles with underlying records of the
company
- Reviewing, on a limited test basis, relevant internal
and external documentation
- Performing an analytical review of the data and trends
in the information submitted for consolidation at
corporate level
• Reconciling the relevant financial information with the
financial statements
• Evaluating the consistency of the sustainability
information with the information in the annual report,
which is not included in the scope of our review
• Evaluating the presentation, structure and content of the
sustainability information
• To consider whether the sustainability information as a
whole, including the disclosures, reflects the purpose of
the reporting criteria used
• Joining internal audit of Health, Safety and Environment
management at the production site in Stowmarket, UK
• 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 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, February 12, 2019
PricewaterhouseCoopers Accountants N.V.
Original has been signed by R. Dekkers RA
AkzoNobel Report 2018 | Sustainability statements
179
SUSTAINABILITY PERFORMANCE SUMMARY
Economic
Area
Product/service
Eco-premium solutions with customer benefits
Customer delivery efficiency index
Supplier management
PR6 suppliers signed Business Partner CoC1,7
NPR8 suppliers signed Business Partner CoC1,7
Third party online sustainability assessments (TfS)5
Third party on-site sustainability audits (TfS)6
SSBS3 improvement against baseline
Social
Employees
Organizational health score
Female executives1
Female executive potential pool1
Executive vacancies filled internally1
High potential turnover1
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 contractors
Distribution incidents
Loss of primary containment (Level 1)4
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
Social progams
Community Program, employees
Community Program, beneficiaries
180 Sustainability statements | AkzoNobel Report 2018
Unit
2014
2015
2016
2017
2018
Ambition 2020
% of revenue
% service
performance
% of spend
% of spend
number
number
%
score
%
%
%
%
number
/200,000 hours
/200,000 hours
/1,000,000 hours
%
number
/200,000 hours
number
number
number
%
number
number
number
number
number (estimated)
20
93
98
80
534
15
–
20
94
98
81
722
54
–
21
96
99
86
875
131
–
21
97
97
86
950
219
–
22
97
98
83
953
270
11
20
>95 (2018)
–
–
–
–
–
2014
2015
2016
2017
2018
Ambition 2020
17
24
68
–
0
0.34
0.18
0.22
1.07
0
0.47
33
2
0
82
0
11
41
–
–
19
25
58
6
0
0.30
0.15
0.07
1.90
0
0.50
25
1
0
100
0
8
27
19
30
61
4
0
0.26
0.13
0.07
1.84
0
0.29
23
5
0
33
0
0
34
19
28
74
5
0
0.20
0.06
0.06
1.92
1
0.12
16
5
0
67
1
2
32
58
20
31
54
8
0
0.20
0.09
0.06
1.98
0
0.18
21
6
1
100
0
3
25
1,577
>17,000
1,449
>15,000
1,139
>20,000
1,537
>97,000
Top quartile (77)
25
30
602
<5
0
≤0.20
–
–
–
0
–
–
–
0
100
–
–
–
–
–
Environmental
Area
Maintain natural resources/fresh air
Total energy consumption
per ton of production
Renewable energy (own operations)
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
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
Value chain
Total CO2(e) emissions (cradle-to-grave)
Renewable raw materials
Unit
1000TJ
GJ/ton
%
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
million m3
m3/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
kiloton
kg/ton
million tons
% organic RM
2014
2015
2016
2017
2018
Ambition 2020
6.37
1.86
22
83.99
24.51
269.1
78.54
2.14
0.63
0.07
0.02
0.03
0.01
10.69
3.12
0.20
0.06
89
25.89
39
11.52
37
10.72
11
3.29
1.3
0.39
17.5
7
6.29
1.91
22
80.45
24.47
258.9
78.73
2.18
0.66
0.07
0.02
0.04
0.01
10.09
3.07
0.20
0.06
87
26.38
39
11.88
35
10.74
12
3.68
1.5
0.46
15.9
6
6.32
1.91
27
72.72
21.96
244.3
73.78
2.00
0.60
0.07
0.02
0.03
0.01
9.61
2.90
0.04
0.01
85
25.65
43
12.92
35
10.72
15
4.62
0.7
0.20
15.3
6
6.39
1.88
30
69.66
20.53
237.8
70.11
1.71
0.50
0.07
0.02
0.03
0.01
9.62
2.84
0.03
0.01
77
22.77
40
11.90
33
9.76
16
4.64
0.6
0.17
16.3
5
6.20
1.91
31
70.16
21.66
226.0
69.77
1.57
0.49
0.06
0.02
0.02
0.01
9.27
2.86
0.03
0.01
67
20.97
34
10.63
30
9.13
15
4.59
0.69
0.21
15.5
5
–
1.81
–
–
–
–
–
–
0.45
–
–
–
–
–
–
–
–
–
21.50
–
–
–
–
–
–
–
–
–
–
1 2014-2017 data includes discontinued operations.
2 Previously communicated 70.
3 SSBS = Supplier Sustainability Balanced Scorecard.
Baseline is 2018 (new KPI).
4 Definition change 2016.
5 Includes TfS shared assessments, cumulative.
6 Includes TfS shared audits, cumulative.
7 CoC = Code of Conduct.
8 NPR = Non-product related.
9 PR = Product related (raw materials and packaging).
AkzoNobel Report 2018 | Sustainability statements
181
INDEX
2018 facts and figures
cover flap
Energy
160
Report of the Supervisory Board
Audit Committee
Auditor’s report
Automotive and Specialty Coatings
Board of Management
Borrowings
Business performance
52, 66
Executive Committee
178
Financial calendar
34
Financial guidance
42, 61
Financial instruments
126
Financial summary
26
How we create value
61
Resource productivity
184
Return on investment
4
Return on sales
139
148
Risk management
Safety
22
Segment information
48
159
5
5
71
168
94
Carbon footprint/Cradle-to-grave carbon footprint
25, 163
Human rights
70, 171
Shareholders’ equity
93, 117, 136, 138
Cash, cash flow and net debt
23, 128
Industrial Coatings
36
Stakeholder engagement
172, 177
6
Innovation
163
Intangible assets
76
Integrated supply chain
Internal controls
Invested capital
“Let’s Colour”
14, 19, 30
Strategy
113
Supervisory Board
18
69
23
Supplier management
Sustainable Development Goals (SDGs)
Sustainability statements
10, 174
Sustainability targets
Marine and Protective Coatings
35
Talent management
CEO statement
Circular economy
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
156
174
135
76
91
92
93
90
90
Net debt
Nomination Committee
Operating income
Outlook
Paint the Future startup challenge
18
64
164
158
152
5
162
155
159
161
Commitments
Continuous improvement
Core principles and values
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
Eco-premium solutions
Emissions
Employees
182
128
Pensions
18
19
60
Powder Coatings
Product stewardship
Profit allocation
31, 32, 33
Property, plant and equipment
24
Provisions
24, 112
Raw materials
24, 155
Regional statistics
160
162
Remuneration
Remuneration Committee
126
Value selling
55
Waste
107
Water
24
14
119
37
169
147
114
124
165
151
80, 129
54
FINANCIAL CALENDAR
2019
April 24
April 25
April 29
Report for Q1 2019
Annual General Meeting
of shareholders
Ex-dividend date of
2018 final dividend
April 30
May 6
July 24
October 23
Record date of 2018
final dividend
Payment date of 2018
final dividend
Report for Q2 2019
Report for Q3 2019
183
HEART WOOD
OCHRE GOLD
Color of the Year 2018
Color of the Year 2016
Integrated Report 2018
AkzoNobel’s annual financial report has been combined with
the sustainability report into one Report 2018. The Report
2018 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 2018, reference is made to brands and
trademarks owned by, or licensed to, AkzoNobel.
Unauthorized use of these is strictly prohibited.
Disclaimer
In this Report 2018, 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 2018 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 divestment 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
2018. 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
Rick Mandoeng
Joris Lugtigheid
Marije Kuipers
Printing
Drukkerij Tesink B.V.
Online report
nexxar gmbh
184
HEART WOOD
OCHRE GOLD
Color of the Year 2018
Color of the Year 2016
SPICED HONEY
Color of the Year 2019
www.akzonobel.com
AkzoNobel has a passion for paint. We’re
experts in the proud craft of making paints
and coatings, setting the standard in color and
protection since 1792. Our world class portfolio
of brands – including Dulux, International,
Sikkens and Interpon – is trusted by
customers around the globe. Headquartered
in the Netherlands, we are active in over 150
countries and employ around 35,000 talented
people who are passionate about delivering the
high performance products and services our
customers expect.
For more information please visit www.
akzonobel.com.
© 2019 Akzo Nobel N.V. All rights reserved.
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