19ReportAkzoNobel Report 2019 2019 PROGRESSTarget (set in 2017):2019 PROGRESS2019 SUMMARY1 Excluding unallocated corporate center costs; assumes no signifi cant market disruption.2 Excluding unallocated corporate center costs and invested capital; assumes no signifi cant market disruption.12.0%17.2%22%15%>25%20%Return on sales (ROS)1Achieve return on sales (adjusted operating income/revenue) of 15% by 2020Return on investment (ROI)2Achieve return on investment (adjusted operating income/average invested capital) of more than 25% by 2020Eco-premium solutionsMaintain at least 20% of revenue from eco-premium solutions by 20202019 PROGRESS 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 was flat, with positive price/mix of 4% and
acquisitions contributing 1%, offset by 5% lower
volumes due to our value over volume strategy
• Adjusted operating income up 24% at €991 million
driven by pricing initiatives and cost savings
• Progress towards delivering €200 million of savings
planned for 2020: €80 million delivered in 2019
• Progress towards delivering our Winning together:
15 by 20 ambition and continue creating a fit-for-
purpose organization for a focused paints and
coatings company
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 up 24% at €991 million,
driven by pricing initiatives and cost savings
• Invested capital totaled €7.0 billion, up €0.8 billion
from year-end 2018, mainly due to higher operating
working capital, the impact of the adoption of IFRS 16
and increased goodwill and other intangible assets
due to acquisitions
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.
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 sustain-
ability performance. It is therefore a moving target,
as the reference is constantly improving.
• In 2019, we achieved 22% of our sales from
eco-premium solutions for the second year running
• Initial assessments indicate that another estimated
20% of sales were from eco-performers, which
offer clear sustainability features and are overall on
a par with mainstream alternatives. Total sales of
sustainable solutions was therefore around 42%
Return on sales development
Adjusted operating income as % of revenue
Return on investment development
Adjusted operating income/average invested capital in %
Eco-premium solutions development
in % of revenue
10.6
12.0
14.5 - 15.5
16.6
17.2
>20.0
20
20
21
21
22
22
20
19
2018
2019
2018
2020
2018
2019
2020
2013
2014
2015
2016
2017
2018
2019
2020
Our Report 2019 is also available online.
To read the digital version (and view
all the case study videos) please visit:
https://report.akzonobel.com/2019
Report
1
Other regions 4%1 Mature Europe Western, Northern and Southern Europe, including Austria. 2 Emerging Europe Central and Eastern Europe (excluding Austria), Baltic States and Turkey.€9.28 bln revenue€991 mln adjusted operating income€841 mln operating income€2.53 earnings per share 33,800 employeesNorth America 12%Mature Europe1 35%Emerging Europe2 10%Asia Pacifi c30%South America 9%2019 facts and fi gures Our Report 2019 is also available online.
To read the digital version (and view
all the case study videos) please visit:
https://report.akzonobel.com/2019
Report
1
2FEATURED CONTENTAkzoNobel Report 201976”We sent a strong message about our ability to achieve our fi nancial ambitionCEO statement48“ 3CONTENTS2019 facts and figures Cover flap2019 summary Cover flapCEO statement 4Our strategy 11How we created value in 2019 14Business overview 19Our leadership 31Governance and compliance 45Financial information 69Sustainability statements 129Index 154AkzoNobel Report 201922138 4CEO statement | AkzoNobel Report 20194CEO STATEMENTwatch video on akzo.no/CEO2019 From the start, 2019
was all about delivering
a powerful performance
to help propel the
company towards its
Winning together: 15
by 20 ambition. It was
impressive to experience
our internal momentum
during the course of the
year as we intensified
our focus on dramatically
stepping up our return
on sales by 2020.
It’s always inspiring and energizing to meet our colleagues
around the world and I had the pleasure of speaking
to some amazing people during the year, like here in Nashville
in the US.
Right across the organization – from
salespeople in Brazil, to operators in
France and researchers in China –
everyone has been fully focused on
delivering for our customers, while helping
the company to become the reference in
paints and coatings.
We’re rightfully proud of our results,
especially because we received little help
from a sluggish growth environment and
uncertain global economy. Our value
over volume strategy helped us improve
our bottom line performance, and we
delivered on our promise to return the
proceeds from the sale of Specialty
Chemicals on time and in full within 2019.
Together, we sent a strong message that
our transformation is on track.
Behind the scenes, a tremendous amount
of work has been going on. Integrated
Business Planning is up and running
and is now very much the way we run
our business across the organization.
The deployment of one common ERP
(enterprise resource planning) system for
all businesses is progressing very well
and on schedule. We continue to roll
out initiatives focused on standardizing
global policies, increasing sales force
effectiveness, and improving margin
and portfolio management. At times, the
company feels like a big construction site,
although one where its future shape and
form is becoming more visible every day.
Future growth remains very much on the
agenda, be it investments or acquisitions.
Hence our pride in November’s announce-
ment that we had completed a deal
On a visit to India towards the end of the year, CFO Maarten de Vries and I had the honor of
officially opening our brand new offices in Gurgaon, near New Delhi.
to acquire French aerospace coatings
manufacturer Mapaero, which will
further strengthen our global position in
aerospace coatings and enable us to
provide our customers with a much wider
portfolio of innovative and sustainable
products. A month later, we announced
our intention to acquire 100% of the
shares of Mauvilac Industries – a leading
paints and coatings company in Mauritius.
Another key development was the
kickstart of a €50 million investment at our
North American wood coatings facility in
High Point, North Carolina (see page 6).
This will bring world class manufacturing
capability to the site, as well as the
construction of a new research lab and
technical application center. It’s all about
further strengthening our commitment to
our customers in North America, where
we’ve been part of the wood coatings
industry for 100 years. Earlier in the year,
we officially opened a new €13 million
research and innovation hub at our Felling
site in the UK. This brings the latest
research capabilities for testing our marine
and protective coatings in conditions
similar to those they face in the world’s
most extreme environments.
I’m particularly energized by the
revolutionary, forward-thinking approach
to product development which is also
at the heart of our Paint the Future
innovation ecosystem (see page 22).
Originally introduced as a startup
challenge, it quickly grew to incorporate
suppliers and academia. The initiative
brilliantly showcases the power of
partnerships, enabling us to combine
ground-breaking research happening
AkzoNobel Report 2019 | CEO statement
5
LANDMARK INVESTMENT
POINTS THE WAY
A milestone ground
breaking ceremony took
place at our North
American wood coatings
facility in High Point,
North Carolina, in
November – officially
kickstarting a €50 million
investment which will
transform the site’s
manufacturing capability.
The extensive upgrade will include
installing state-of-the-art production
technology, as well as building a new
raw materials warehouse, research lab
and technical application center. The
ceremony marked 100 years of our
company being in the wood coatings
industry in North America.
Known as the “Home Furnishings
Capital of the World,” High Point
has been home to AkzoNobel as a
manufacturer of wood coatings since
1955. The facility currently covers
37 acres and employs more than
250 people. It produces wood coatings
to serve the furniture, building products
and flooring market segments, as well
as our Chemcraft distributors.
Construction at the site is scheduled for
completion in 2021, with rolling projects
already underway.
Our value over volume
strategy helped us improve
our bottom line performance
and our share price reached
a record high
transformation. Despite all the changes,
they got on with the job and stuck to
our core values of safety, integrity and
sustainability. They deserve all the thanks
and credit for getting us into a position
where delivering our Winning together:
15 by 20 ambition is now in sight.
For myself and the Executive Committee,
it continues to be a humbling privilege to
be on this journey together with them.
Thierry Vanlancker, CEO and Chairman
of the Board of Management and Executive
Committee
outside the company with our own
technologies and in-depth application
knowledge.
We also refreshed our approach to
sustainability, with a view to making it
more relevant for a focused paints and
coatings company. We captured this
holistic, down-to-earth approach in what
we call “People. Planet. Paint.” It’s all
about reducing our impact and delivering
benefits for our customers, society and
the environment. It’s making sustainability
an integral part of the way we do business
and we’re excited and proud of the
path we’re on.
Of course, the real driving force behind all
the progress we’ve made has been our
dedicated and diverse team of colleagues
around the world. It remains deeply
impressive to witness the can-do attitude
and resilience of our teams during this
6
CEO statement | AkzoNobel Report 2019
REVEALING REMBRANDT’S SECRETS
watch video on
akzo.no/NightWatch2019
It’s not every day you
get to rock the world of
paintings conservation.
Yet that’s exactly what
Operation Night Watch is
all about. We’ve teamed
up with Amsterdam’s
Rijksmuseum to help
carry out one of the most
innovative restorations in
the history of art.
Now almost 380 years old, Rembrandt’s
monumental masterpiece has temporarily
been encased in a glass chamber. It
means visitors can still see The Night
Watch while the research and restoration
work takes place. It’s being carried out by
a dedicated team of scientists, curators
and conservators from the museum,
who are working in close collaboration
with museums and universities in the
Netherlands and abroad, as well as
specialists from AkzoNobel.
“We’re incredibly proud to be the main
partner for this amazing project,” says
AkzoNobel CEO Thierry Vanlancker.
“As a company, we believe in taking
our innovation beyond generations. So
we’re excited to be contributing our color
expertise and passion for paint to help
conserve a cultural icon.”
Adds Robert van Langh, the
Rijksmuseum’s Head of Conservation and
Science: “We’re going to be doing things
that have never been attempted before.
But first, we need to find out what we’re
up against. With a partner like AkzoNobel
on board, we’re confident we’ll take our
understanding of paint to the next level –
and I don’t just mean one level, I’m talking
three or four levels.”
Operation Night Watch is using a
glittering array of groundbreaking tools
and techniques to help determine
exactly what needs doing. As well as
taking thousands of ultrahigh resolution
photographs (courtesy of a purposebuilt
imaging frame), sophisticated scanners
and microscopes are also being used to
investigate the artwork at microscopic
levels. Once the research phase is over,
several terabytes of data will be carefully
analyzed to determine the best way to
proceed in terms of conserving The Night
Watch for generations to come.
The threeyear partnership continues a
long association between AkzoNobel
and the Rijksmuseum, with the company
having supplied around 8,000 liters of
paint during the museum’s decadelong
renovation. And Operation Night Watch
is also unfolding in full view of the
watching world.
You can take a look yourself by visiting
rijksmuseum.nl/en/nightwatch
“We’re incredibly
proud to be
the main partner
for this amazing
project”
AkzoNobel Report 2019 | Our strategy
7
watch video on
akzo.no/HudsonYards
“We’re extremely proud to be
part of this unprecedented
investment in the heart of one
of the world’s greatest cities”
Simon Parker
Managing Director of AkzoNobel’s
Industrial Coatings business
GOING THE EXTRA YARD
Big things are expected
of Hudson Yards.
The massive construction
project isn’t just changing
the iconic skyline of
New York City, it’s also
creating a blueprint for
the future of sustainable
urban living.
The ongoing project is already
attracting admiring glances, with the
first phase having been awarded LEED
Neighborhood Development Gold
(LEED-ND) certification, making it the first
neighborhood in Manhattan to receive the
prestigious recognition.
Green building on this scale requires
products and partners that can meet
the demands of the largest private real
estate development in US history. That’s
where we come in. Not only did we supply
coatings for two of the first towers to be
completed (10 and 30 Hudson Yards),
we’re also supplying products for several
other new buildings in various stages
of completion.
Taller than the Empire State Building, the
impressive glass and steel structure of
30 Hudson Yards uses the company’s
high-performance architectural powder
coatings, while 10 Hudson Yards also
features our products. A stand-out
feature of 30 Hudson Yards is an outdoor
observation deck which is the highest
in the western hemisphere. Expected to
open to the public in 2020, it’s 335 meters
(1,100 feet) in the air and extends 20
meters (65 feet) from the building.
“We’re extremely proud to be part of this
unprecedented investment in the heart
of one of the world’s greatest cities,”
says Simon Parker, Managing Director of
AkzoNobel’s Industrial Coatings business,
which provided liquid coatings for both
towers. “It underlines the trust that
customers have in our ability to deliver
coatings technology which can provide
modern buildings with extreme levels of
durability and sustainability.”
Adds Daniela Vlad, Managing Director of
AkzoNobel’s Powder Coatings business:
“We have a long track record of supplying
market-leading products for iconic
buildings all over the world and are very
excited to be involved in the Hudson
Yards development. Customers value
our unique ability to supply top quality
liquid and powder coatings and meet any
specification, no matter how demanding.”
Expected to contribute nearly $19 billion
to New York City’s annual GDP, Hudson
Yards will eventually encompass more
than 20 buildings, including residential and
office space, retail outlets, restaurants
and a luxury hotel.
Aligned with SDG 11
(see page 149)
8
AkzoNobel Report 2019
9
Strategy
Supporting the purge on plasticA new garbage-gathering system designed to extract plastic from rivers was launched by The Ocean Cleanup in late 2019 – and we’re providing the coatings technology for the fl oating devices.Known as the Interceptor™, the system will be placed in 1,000 rivers over the next fi ve years to help prevent plastic debris from adding to the build up in our oceans. Capable of extracting up to 50,000 kilos of trash per day, each Interceptor system has a storage capacity of 50m3. The devices feature protective coatings from our International product range, notably Intershield 300 – an industry-leading anti-corrosive universal primer with an extensive track record of 30 years. Our experts were also involved in the design of the Interceptor devices.To learn more about our protective coatings, visit www.international-pc.com 11AkzoNobel Report 2019 | Our strategyThis section provides an overview of the progress we’re making on our strategy and gives details about our value creation during 2019. Winning together: 15 by 20 ambition 12How we created value in 2019 14OUR STRATEGYOur strategy Our strategy | AkzoNobel Report 201912OUR WINNING TOGETHER: 15 BY 20 AMBITIONWe’re global experts in the proud craft of making paints and coatings, setting the standard in color and protection since 1792. Our passion for paint means our world class portfolio of established brands is trusted by customers around the globe. By investing in innovation, sustainable solutions, organic growth and bolt-on acquisitions, we intend to create long-term value for all our stakeholders and become the reference in paints and coatings.We’re building our future on solid foundations – our long and proud heritage, our core principles and our values. Our success will be driven by our passion for paint, precise processes, powerful performance and proud people.We have adopted a laser sharp focus towards delivering on our Winning together: 15 by 20 ambition as we continue our transformation into a focused paints and coatings company. Our commercial teams are organized into business units, reporting to the Chief Operating Offi cer. Each business unit has a clear mandate to deliver on our 15 by 20 ambition. The integration of all supply chain activities (including manufacturing and distribution)into a single, global Integrated Supply Chain (ISC) organization, has been a major transformation. We’re leveraging our scale and functional expertise more effectively, as well as accelerating continuous improvement through our AkzoNobel Leading Performance System (known as ALPS). PUTTING PRECISE PROCESSES IN PLACETo ensure people across our organization can effi ciently collaborate, we continue to invest in standardizing processes and aligned systems. Integrated Business Planning (IBP), a monthly decision-making process, results in a single operating plan and fi nancial forecast for the company.During 2019, we also put more focus on our key end-to-end processes, using reliable, real-time information for decision-making and hardwiring cost consciousness. This will enable us to drive further effi ciencies, improve transparency and lower the cost of getting products to our customers. Powerful performanceProud peoplePassion for paintPrecise processes 13AkzoNobel Report 2019 | Our strategypursue potential opportunities that offer a strong strategic fit with our portfolio.PROUD PEOPLE PUSHING THE BOUNDARIES OF INNOVATIONInnovation is fundamental to our success. Our innovation group is led by our Chief Technology Officer and brings together the combined know-how of global experts who work on one, unified innovation road map. For us, innovation means going beyond conventional expectations, going beyond the imagination of our customers and going beyond generations.A recent example of this is our Awlgrip HDT (high definition technology) topcoat, which combines protection, high performance and a stunning, long-lasting finish, all without sacrificing convenience during application.Digital innovation is a key component. A great example of this was the two digital color innovations we introduced to the industrial and professional paint markets during 2019. Handy and compact, both the new Color Sensor and ColorFinder interact with a mobile phone to enable painters to find a precise color match for their clients in just seconds. We’re also leading the paints and coatings industry through our Paint the Future innovation ecosystem. We began by launching an industry-first global startup challenge, which proved to be a big success. This was followed towards the end of the year by an open collaboration event with a wide range of selected suppliers. Encouraged by this success, we are now taking Paint the Future to the next level by staging a regional startup challenge in Brazil in early 2020. SUSTAINABILITY DRIVING BUSINESS SUCCESS Sustainability is a core principle and shapes what happens at AkzoNobel every day. Our new holistic approach to sustainability is called “People. Planet. Paint.” It’s designed to demonstrate the positive benefits of our products and services and how we can reduce the environmental impact of our own operations, along with those of our suppliers, customers and society in general. We continue to focus on actions aligned with the most relevant UN Sustainable Development Goals (SDGs).We aim to remain the sustainability leader in the paints and coatings industry, offering the most sustainable and best performing portfolio of products to our customers. For more details, see the Sustainability statements.FOCUSED ON POWERFUL PERFORMANCE In 2019, we again showed that we’re delivering on our promises. We demonstrated an impressive improve-ment in financial performance on the The deployment of one common ERP (enterprise resource planning) system across all businesses is progressing well, enabling further cost savings and better management of operations and performance.In addition, we continue to deliver significant cost savings by streamlining our support functions – for example by transferring activities to Global Business Services (GBS). Our Transformation Office is continuing to track all initiatives to ensure accountability of different teams for delivering cost savings and implementing new ways of working across the organization. BUILDING ON OUR PASSION FOR PAINTOur strategy is to build on our existing foundation by focusing on our strong brands, leading market positions, customer intimacy and innovation capabilities. We’re targeting acquisitions to boost our presence in key markets, generate synergies and give us access to new technologies. In 2019, we strengthened our global position in aerospace coatings – notably in the structural and cabin coatings sub-segments – with the acquisition of Mapaero. We also announced the intended acquisition of Mauvilac Industries, a leading paints and coatings company in Mauritius. We continue to actively manage a pipeline of acquisition targets to proactively previous year, despite a soft macro-economic environment. We completed the promised €2.5 billion share buyback plan and announced a new share buyback of €500 million, to be completed in the first half of 2020. Our cost discipline has delivered significant savings, while pricing initiatives also compensated for higher raw material costs. In September, we unveiled Tranquil Dawn as our 2020 Color of the Year. A delicate, fluid shade somewhere between green, blue and grey, it’s designed to capture the essence of what makes us human as a new decade arrives. HOW WE CREATED VALUE IN 2019
By delivering more value to our customers,
shareholders, employees and society in general, we can
better accelerate profitability while positioning ourselves
for growth.
Summary of financial outcomes
In € millions
Revenue
Adjusted operating income1
Operating income
ROS%1 2
ROS%, excluding unallocated costs1
OPI margin %1
Average invested capital1
ROI%1 3
ROI%, excluding unallocated costs1 3
Net cash from operating activities - continuing operations
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 €)
2018
9,256
798
605
8.6
10.6
6.5
2019*
9,276
991
841
10.7
12.0
9.1
∆%
–
24
39
12.6
16.6
162
184
(5,861)
34,500
410
6,264
6,674
26.19
1.91
14.1
17.2
33
214
802
33,800
517
22
539
2.53
3.10
16
26
62
* The Statement of income, Statement of cash flows and the Balance sheet for 2019 include the
impact from the adoption of IFRS 16 “Leases” (as per January 1, 2019). The 2018 comparative
figures have not been restated. Further details and a quantification of the impact are provided in
Note 1 of the Consolidated financial statements.
1 Alternative performance measures: please refer to reconciliation to the most directly comparable
IFRS measures in Note 3 of the Consolidated financial statements.
2 ROS% = Adjusted operating income/revenue.
3 ROI% = 12 months adjusted operating income/12 months average invested capital.
14
Our strategy | AkzoNobel Report 2019
ECONOMIC VALUE
Financial overview
Revenue was flat, with price/mix up
4% overall, mainly driven by pricing
initiatives. Acquisitions contributed 1%.
Volumes were 5% lower due to our
value over volume strategy. Adjusted
operating income was up 24% at €991
million (2018: €798 million), driven
by pricing initiatives and cost-saving
programs. Operating income was up
39% at €841 million and includes €150
million negative impact from identified
items (2018: €605 million, including
€193 million negative impact from
identified items).
Revenue
Revenue was flat. Continued focus on
pricing initiatives contributed to positive
price/mix of 4%, while volumes were 5%
lower, mainly due to our value over volume
strategy. Acquisitions contributed 1%
to revenues.
• In Decorative Paints, revenue was flat,
and up 1% in constant currencies.
Revenue development in % versus 2018
Revenue in € millions
-5%
4%
1%
0%
0%
5,775
5,587
5,563
Volume
Price/
mix
Acquisitions/
divestments
Exchange
rates
Total
2017
2018
2019
3,898
3,699
3,703
Revenue by destination in %
A Mature Europe
B Asia Pacific
C North America
D South America
E Emerging Europe
F Other regions
35
30
12
9
10
4
F
E
A
D
C
B
6,340
7,026
Increase
Decrease
Decorative Paints
Performance Coatings
15AkzoNobel Report 2019 | Our strategy201920182017688418629346669351Adjusted operating income in € millions Decorative Paints Performance Coatings• Performance Coatings improved as pricing initiatives and cost savings more than offset higher raw material costs and lower volumes. ROS was up at 12.4% (2018: 11.3%) • Other activities/eliminations improved €62 million to €115 million (2018: €177 million), mainly due to lower costs and one-off gains on disposals Operating incomeOperating income was up 39% at €841 million, and includes €150 million negative impact from identified items, mainly related to transformation costs and non-cash impairments, partly offset by a gain on disposal of €54 million following asset network optimization (2018: €605 million, including €193 million negative impact from identified items). OPI margin improved to 9.1% (2018: 6.5%).Net financing income and expensesNet financing expenses increased by €24 million to €76 million, mainly due to an interest benefit on a tax settlement in Positive price/mix (4%) was more than offset by lower volumes (5%). Acquisitions contributed 2% to revenues• In Performance Coatings, revenue was flat, and 1% lower in constant currencies. Price/mix (4%) was more than offset by lower volumes (5%), due to our value over volume strategyAcquisitions• The acquisition of Mapaero to further strengthen our global position in the steadily growing aerospace coatings industry was completed in Q4 • The intended acquisition of Mauvilac Industries to support our position in the African decorative paints market was also announced in Q4Raw material price development Raw materials continued to be a headwind in the first half of 2019 and turned moderately favorable towards the end of the year. In total, raw material costs were €64 million higher than in 2018.Adjusted operating incomeAdjusted operating income was up at €991 million (2018: €798 million), driven by pricing initiatives and cost-saving programs. ROS, excluding unallocated costs, increased to 12.0% (2018: 10.6%). ROS was up 2.1% at 10.7% (2018: 8.6%) and ROI was at 14.1% (2018: 12.6%).• Decorative Paints continued to improve. Price/mix effects and cost savings more than offset raw material inflation and lower volumes. ROS was up at 11.3% (2018: 9.4%) ABCAllocation of 2019 capital expenditures of €214 million (2.3% of revenue)cash outflow for acquisitions and divestments (€120 million).Invested capitalInvested capital at December 31, 2019, totaled €7.0 billion, up €0.8 billion from year-end 2018, mainly due to higher operating working capital, the impact of the adoption of IFRS 16 and increased goodwill and other intangible assets due to acquisitions.A Decorative Paints 62B Performance Coatings 113C Corporate and other 39 2018 and the inclusion in 2019 of interest on lease liabilities, following the adoption of IFRS 16 per January 1, 2019.Income taxThe effective tax rate was 29% (2018: 21%). Excluding identified items, the effective tax rate in 2019 was 25%. The 2018 income tax expenses were positively impacted by a re-recognition of deferred tax assets and a tax settlement.Cash flows and net debtOperating activities in 2019 resulted in an inflow of €33 million (2018: €162 million). This was mainly caused by higher profitability, more than offset by higher pension related payments and increased working capital.At December 31, 2019, net debt was positive €802 million versus negative €5,861 million at year-end 2018. This was mainly due to the share buyback (€2.5 billion), a capital repayment (€2.0 billion), a special cash dividend payment (€1.0 billion), pension related payment (€642 million), the final dividend 2018 (€315 million), captial expenditures (€214 million) and net Income tax paid in € millions201920182017164266184 Innovation investments
research and development expenses
in € millions
270
264
255
Dividend in €
2.501
1.80
1.902
2017
2018
2019
2017
2018
2019
Dividend
Our dividend policy is to pay a stable
to rising dividend. In 2019, an interim
dividend of €0.41 per common share
(2018: €0.37) was paid. We propose a
2019 final dividend of €1.49 (2018: €1.43)
per common share, which would
equal a total 2019 dividend of €1.90
(2018: €1.80).
In line with our announcement on
April 19, 2017, we returned 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.
1 Excludes special cash dividend of €4.00 per share paid as
advance proceeds related to the separation of Specialty
Chemicals.
2 Proposed; excludes special cash dividend of €4.10 per
share as part of the return of the Specialty Chemicals
divestment process.
Earnings per share total operations
in €
26.19
2018
3.31
2017
2.53
2019
We distributed €1.0 billion by means
of a special cash dividend of €4.50 per
common share (post consolidation) on
February 25, 2019.
Adjusted earnings per share from
continuing operations in €
2.35
1.91
3.10
2017
2018
2019
A share buyback program to repurchase
common shares up to the value of €2.5
billion was due to be completed at the
end of 2019, acquiring 31.2 million
common shares. On October 23, 2019,
a new €500 million share buyback was
announced, for which 0.4 million common
shares were acquired in 2019.
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 ambition.
Demand trends differ per region and
segment in an uncertain macro-economic
environment. Raw material costs are
expected to have a moderately favorable
impact for the first half of 2020. Continued
margin management and cost-saving
programs are in place to address the
current challenges. We continue executing
our transformation, incurring one-off
costs, to deliver the previously announced
€200 million cost savings. We target a
leverage ratio of 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 supply chain operations through our
multi-year resource productivity program.
We mainly focus on waste, energy, water
and VOC emissions.
Waste
Effective raw material management and
process efficiency in manufacturing
contributes to reducing generated waste,
reducing both our environmental foot-
print and costs. Since 2011, our waste
per ton of product has reduced by
more than 40%. As well as reducing
waste, we also aim to increase the share
of reusable waste. In 2019, over half
our waste was reusable, contributing to
a circular economy.
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.
Eco-premium solutions
We achieved 22% of our sales from
eco-premium solutions for the second
year in a row, well ahead of our 2020
target of 20%. 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.
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.
16
Our strategy | AkzoNobel Report 2019
We also aim to achieve zero waste to
landfi ll by the end of 2020. The fi rst
priority is to eliminate hazardous waste to
landfi ll. At the end of 2019, 117 sites
had no hazardous waste to landfi ll and
have plans in place for 2020 to further
drive to zero, taking into account legal
and technical limitations.
Energy and greenhouse gas
emissions
In 2019, energy per ton of product was
reduced by 2% compared with the
previous year. The energy reduction was
negatively impacted by product mix
and our value over volume strategy. Our
share of renewable energy was 31%
in 2019, with 33 locations using 100%
renewable electricity. We have also
increased the number of locations with
on-site solar energy production to 14 in
total. We expect this number to grow
signifi cantly in the future.
Electricity consumption and fuel
for heating are the main drivers for
greenhouse gas (GHG) emissions from
our facilities. GHG emissions per ton
of product and the total GHG emission
decreased by 16% compared with the
previous year. For more details, see
Note 4 of the Sustainability statements.
VOC emissions
Air emissions generated from our own
operations are primarily volatile organic
compounds (VOCs). We aim to reduce
emissions through product design, good
management practices and environ-
mental controls at our sites. In 2019, VOC
emissions per ton of product and our total
VOC emissions both decreased by 24%,
exceeding our target of 10%.
Cradle-to-grave carbon footprint
More than 98% of our value chain
carbon footprint comes from our
suppliers and the use of our products
by customers. Applying circular economy
principles across the value chain will
be our biggest contributor to the Paris
climate agreement.
As well as our internal initiatives on the
circular economy, we continue to work
with suppliers to 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 them
reduce their own emissions and material
use. Our 2019 value chain emissions were
14.6 million tons of CO2(e) in 2019, 3%
lower than the previous year. For more
details, see the Planet section 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 2019, our
organizational health score was 61. The
outcomes of the survey are refl ected in
action plans. We aim to be in the top
quartile in 2020 (currently 74).
At year-end 2019, the number of
employees decreased by 2% to 33,800
people (year-end 2018: 34,500 people).
For more details, see Note 6 of the
Consolidated fi nancial statements.
Safety
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.
Although the number of reportable injuries
was slightly higher in 2019 compared
with the previous year, the severity
of injuries decreased and we are still on
track to reach the injury rate target level
set for 2020 (0.20 per 200,000 hours
worked).
Employees by segment in %
at December 31, 2019
C
A
B
A Decorative Paints
B Performance Coatings
C Corporate and other
13,300
18,000
2,500
For more details, see Note 6 of the
Sustainability statements.
Programs
During 2019, we carried out
140 Community Program projects and
83 “Let’s Colour” projects.
For more details, see Note 9 of the
Sustainability statements.
Employees
33,800
at year-end
2019
Organizational Health Index score
at year-end
2019
61
AkzoNobel Report 2019 | Our strategy
17
Business performance
19This section provides information about our business segments and how they performed during 2019. Review of the year 20Launching new innovations together 22Key business developments 23BUSINESS OVERVIEWWinning designs take fl ightUnited Airlines used our aerospace coatings to bring to life two stunning designs created by the winners of their fi rst-of-its-kind Her Art Here contest. The competition was launched to fi nd and uplift underrepresented women artists by providing them with a chance to have their work painted on a Boeing 757 plane.San Francisco resident and artist Tsungwei Moo saw her design applied to a plane from United’s California fl eet. A tribute to the Golden State, the eye- catching livery uses ten colors, needed more than 250 gallons of paint and took 17 days to complete. Meanwhile, New Jersey native Corinne Antonelli’s tribute to the New York/New Jersey region graces a second United aircraft. Her design also features ten different colors, with the 250-plus gallons of paint being applied over the course of 17 days.To learn more about our aerospace coatings, visit aerospace.akzonobel.comBusiness overviewAkzoNobel Report 2019 | Business overview19 Business overview | AkzoNobel Report 201920Most of our business units realized a significant increase in return on sales during 2019. Results of our pricing discipline have been very strong, while our efficiency programs also made a major contribution. Despite the various macro-economic headwinds we faced, some business units performed extremely well. For example, our Powder Coatings business continued to strengthen its position as market leader, driven by a number of innovative new products, including Interpon Redox – a one-stop-shop offering the simplest route to maximum corrosion protection – and Interpon D X-Pro, a scratch-resistant powder coating for the architectural market which is available in both matt and satin finishes. It was also a strong year for the beverage can coatings activities of our Industrial Coatings business. Customers love our innovative products and they’re seeing increasing demand because consumers are turning away from single use plastic. So the drinks can manufacturers are working flat out to try and meet that demand, which in turn means there’s a huge demand for our coatings. Our Decorative Paints Europe, Middle East and Africa (EMEA) business also delivered a very good 2019. After many years of investment and finding the right balance of central management and local freedom – as well as setting up a single supply chain – the business is now performing really well.We also faced a few challenges as the year unfolded. Negative developments in the automotive sector impacted our Automotive and Specialty Coatings business, mainly due to the fact that around five million fewer cars were produced globally. It meant there was less demand for the products we supply for vehicle interiors, for example, despite us being less exposed to the automotive OEM (original equipment manufacturer) sector. The number of new ships being built also continued to hover around all-time low levels, which inevitably had an effect on our Marine and Protective Coatings business. In the marine sector, we’re continuing to develop our dry docking business, which is helping us to com- REVIEW OF THE YEAR by COO Ruud JoostenOur ongoing transformation into a focused paints and coatings company gathered considerable momentum during 2019. We achieved significant profit improvement, based on our clear value over volume strategy, and are making progress towards delivering on our Winning together: 15 by 20 ambition.We launched several new digital tools during the year to make color-matching easier for our customers. This included three new tools for users of our Salcomix system, one of which was the portable ColorFinder. 21AkzoNobel Report 2019 | Business overviewpensate somewhat for the lack of new- build demand. We did see more positive opportunities for our protective coatings activities during the year – in oil and gas projects, for example – where we are continuing to grow. We also remain very strong in the yacht coatings market.extreme environments. These invest-ments show just how committed we are to innovation and making our products even more sustainable. They will help us to continue making life better for our customers, just as we did during 2019 with new introductions such as Awlfair SF, And it was a special year for our Paint the Future innovation ecosystem, which launched with a collaborative startup challenge in May and has since expanded to include suppliers and academia. We’re making progress towards delivering our 15 by 20 ambition and we’re already We achieved significant profit improvement, based on our clear value over volume strategyEarly in the year, we officially opened a new €13 million R&D innovation campus at our Felling site in the UK. The lab complex enables our technical experts to test products for the marine, oil and gas industries in conditions that mimic the world’s most extreme environments.working on longer term projects. It means we asked a lot from our people in 2019 – and they all rose to the challenge. They displayed an infectious passion for paint to help us remain on track and realize our goals. Other major developments included the acquisition of French aerospace coatings manufacturer Mapaero in November. The deal will strengthen our global position in aerospace coatings – notably in the structural and cabin coating sub-segments – and demonstrates our commitment to continue investing in strategic growth opportunities.Another highlight was the official opening of a €13 million R&D innovation campus at our Felling site in the UK. The trailblazing lab complex can test new products in conditions that mimic the world’s most a high-performance filler for super- yachts, which can be applied by pressurized airless spray, rather than by hand. We were also very proud to become the first major manufacturer to launch recycled paint, thanks to a ground-breaking partnership in the UK with resource management experts Veolia. Developed by our Dulux Trade brand, the revolutionary Evolve matt emulsion is made from other people’s paint waste, with the final product containing 35% recycled paint (see page 138). LAUNCHING NEW INNOVATIONS TOGETHER
working closely with the winners on these
ongoing collaborations.
As Paint the Future grows, all programs
are being designed to offer new pathways
to connect with experts, accelerate ideas,
bring solutions to market and deliver
impact at scale.
“We want to be the launch pad for great
ideas and innovations in our industry, and
we see our Paint the Future ecosystem
as the way to do it,” says Klaas Kruithof,
AkzoNobel’s Chief Technology Officer. “As
our success will depend on working with
diverse partners from inside and outside
the industry, we really need to look along
the entire value chain. That’s why we’re
extending the invitation: let’s do amazing
things together.”
In November 2019, some key suppliers
were invited to explore and discuss
industry challenges. An online platform
will eventually open for all suppliers to
submit their ideas. Current and new
partnerships with academia and other
institutions are also joining the ecosystem.
And there’s more to come in 2020,
including our first regional startup
challenge in Brazil – at the very heart
of South America’s entrepreneurial
ecosystem.
For the latest updates and to learn
about innovation at AkzoNobel, visit
www.letspaintthefuture.com
Aligned with SDG 17
(see page 149)
The winning startups celebrate their success at the Paint the
Future accelerator event held in Amsterdam in May 2019.
watch video on
akzo.no/PTF2019
Collaborative innovation by
Paints and coatings are primed for the next revolution.
Covering almost everything you see around you,
they represent an unparalleled opportunity for growth
within a multitude of industries. Our Paint the Future
ecosystem is where we can all come together in
collaborative innovation.
Following the knockout success of our
global startup challenge in the first half
of 2019, our Paint the Future ecosystem
is expanding to engage suppliers,
academia and customers. Working
together will help us enhance our
products, develop groundbreaking
solutions and even safeguard our planet
for future generations.
The 2019 global startup challenge
exceeded expectations, attracting
160 quality submissions, from which
21 startups were selected to attend the
accelerator event in May. At the finale,
AkzoNobel awarded joint agreements
to five startups, while partner KPMG
presented one award. Since then, cross-
functional venture teams have been
22
Business overview | AkzoNobel Report 2019
KEY BUSINESS DEVELOPMENTS
DECORATIVE PAINTS ASIA
Revenue in € millions
1,289
1,144
1,084
2017
2018
2019
Key brands
• Following 2018’s deal to acquire
full ownership of the AkzoNobel
Swire Paints joint venture in China,
we secured a number of strategic
partnership agreements to provide
consumers with improved painting
solutions and stimulate the innovative
development of China’s decorative
paints market
• The Dulux Concept Store in Shanghai
– the fi rst of its kind in China – offi cially
opened. It uses art, technology and
personalized services to create an
interactive space where consumers
can better experience the brand’s color
expertise and sustainable products
• Dulux Forest Breath (an indoor
wall paint which can purify harmful
air pollutants) was upgraded with
breakthrough, solvent-free technology
and received several environmental
certifi cations
We’ve helped bring new life to a 400-year-old coastal village in Vietnam. As part of our global “Let’s Colour” initiative, 30 3D murals
were painted onto various homes and buildings in Canh Duong. Artists used our Dulux Weathershield products, which will help to
protect the structures from the elements.
• Sadolin wood protector and Dulux
• More than 4,500 liters of Dulux
Ambiance Velvet Touch were launched
in India, along with Dulux AquaTech,
a range of superior waterproofi ng
products
• In Vietnam, we strengthened our
leading position in the premium
paint segment with the launch of
Dulux Ambiance Superfl exx and
Dulux EasyClean
• Dulux Aura High Gloss was introduced
in Malaysia and Dulux Catylac High
Gloss was launched in Indonesia
Weathershield paint was donated to
recoat and protect Vietnam’s Vung Tau
lighthouse, which is one of the oldest
lighthouses in South East Asia
• Dulux became the fi rst paint brand in
Pakistan to venture into e-commerce
with the launch of Far Away Places
on Daraz.pk
• Colorful new homes were created
for children in Tianjin, China, as part
of the company’s partnership with SOS
Children’s Villages. The collaboration
was also extended to include Indonesia
and India, focused on employability,
skills training and mentoring
• Through partnerships with various
NGOs and government schools,
we helped provide education for
more than 10,000 underprivileged
children in fi ve states across India,
we raised road safety awareness
among 20,000 youngsters, and
provided skills development training
to 3,000 painters and underprivileged
young people
AkzoNobel Report 2019 | Business overview
23
DECORATIVE PAINTS
EUROPE, MIDDLE EAST
AND AFRICA (EMEA)
Revenue in € millions
2,095
2,093
2,161
2017
2018
2019
Key brands
24
Business overview | AkzoNobel Report 2019
Colleagues at our Ashington site in the UK hit a major milestone by producing one million liters of paint in a single week.
The plant, which was offi cially launched in September 2017, manufactures paint for a variety of brands, including Dulux, Cuprinol
and Hammerite.
• 2019 performance was driven by
positive price/mix effects, complexity
reduction and cost-saving programs
• Strong profi t growth was achieved,
with signifi cant improvement in return
on sales
• Profi table growth was supported by
recent acquisitions, such as Fabryo in
Romania and Xylazel in Spain
• In the UK, we strengthened our stores
footprint to improve our services for
professional painters
manufacturer to launch recycled paint
with the introduction of Dulux Trade
Evolve in the UK. The matt white
emulsion contains 35% recycled paint
(see page 138)
• A digital Color Sensor was launched
across ten markets. It can match
customers’ color choices in seconds
• The popular Easycare washable wall
paints concept was further rolled out to
more markets (see page 68)
• Innovative roller testers were introduced
• AkzoNobel became the fi rst major
to more countries across the region
• In collaboration with our Nordsjö brand,
a major Artscape event was staged
in Sweden. It involved artists creating
more than 30 large-scale outdoor
paintings in 12 municipalities in the
Gothenburg region
• Our partnership with SOS Children’s
Villages was activated in Poland and
Tunisia, using education and renovation
to have a positive impact on the issue
of youth unemployment
DECORATIVE PAINTS
SOUTH AMERICA
Revenue in € millions
520
468
463
2017
2018
2019
Key brands
• Another year of strong pricing
performance helped offset raw material
infl ation and currency devaluation,
leading to improved return on sales
• The Alabastine brand was introduced
in the fourth quarter to help lead the
development of the pre-deco category
in South America
• In Brazil, we launched the premium
Ambiance wall paint product line, which
is being positioned as the premium
range of solutions for interior design
• Digital is transforming the way we
engage our key stakeholders in Brazil,
so an ecosystem of digital solutions
was rolled out to support consumers,
customers and painters on each step of
their journey
• Our “Let’s Colour” initiative in Brazil
celebrated its tenth anniversary. So
far, we’ve donated more than one
million liters of paint to help revitalize
public spaces, preserve heritage and
positively impact people’s lives and
communities. This represents more
than 2,200 projects, the engagement
of over 45,000 volunteers and training
for more than 45,000 members of local
communities
• Our waste water treatment plant in
Mauá (Brazil) is now reusing 95% of its
waste water for production. We expect
to reach 100% in early 2020. We also
reduced CO2 emissions at the site
by more than 15,400 tons, thanks to
improvements in our water-based trim
and woodcare product lines
Decorative Paints revenue
by destination in %
C
B
A
A EMEA
B Americas
C Asia Pacifi c
58
12
30
Colleagues from our Coral brand in Brazil teamed up with young people who were taking part in our painter training program in Natal.
Colleagues from our Coral brand in Brazil teamed up with young people who were taking part in our painter training program in Natal.
The initiative is part of our long-standing partnership with Plan International Netherlands.
AkzoNobel Report 2019 | Business overview
25
AUTOMOTIVE AND
SPECIALTY COATINGS
Revenue in € millions
1,426
1,392
1,388
2017
2018
2019
Key brands
Revenue by destination in %
A
C
B
A EMEA
B Americas
C Asia Pacifi c
42
30
28
26
Business overview | AkzoNobel Report 2019
We helped Alaska Airlines to create a real buzz with special livery to celebrate the release of the movie Toy Story 4. We supplied our
high-performance aerospace coatings for the specially themed plane, which took 24 days to coat and features 44 primary colors.
• Maintained strong positions in
aerospace and vehicle refi nishes
(EMEA) thanks to new product and
service introductions
• Challenging year in automotive OEM
segments due to headwinds, in line
with overall market dynamics
• Acquired French coatings manufacturer
Mapaero, strengthening our position
in the aerospace coatings market,
particularly the cabin and structural
sub-segments
• Coatings were supplied for several
unique liveries and whole fl eet rebrands,
including United Airlines, American
Airlines, SAS, Alaska Airlines and JAL
• Airbus recognized our commitment
to sustainability with a prestigious
supplier award. We also launched a
new chromate-free exterior primer –
Aerodur HS 2121 – which was qualifi ed
by Airbus, and received Boeing
qualifi cation for our Aerodur 2111
chromate-free exterior primer
• Our color trends insight and expertise
was shared with automotive interior
and consumer electronics customers
in our new Color Surfaces Edition
15 report
• The 11th anniversary of our partnership
with McLaren was marked with
the livery on their latest F1 car being
voted best-looking for the second
year running
• Our vehicle refi nishes brand and
product assortment in China was
aligned with new VOC regulations
• We announced partnerships with
Advance Auto Parts and Carquest –
one of the largest aftermarket parts
providers in the world
• Our partnership with automotive artist
and TV star Dave Kindig continued
through our Modern Classikk vehicle
refi nishes range
• We celebrated the 85th birthday
of our global Wanda vehicle
refi nishes brand
MARINE AND PROTECTIVE
COATINGS
Revenue in € millions
1,424
1,291
1,306
2017
2018
2019
Key brands
Revenue by destination in %
We supplied coatings for China’s fi rst domestically built polar icebreaker, Xue Long 2. Purpose-built to cope with the extreme challenges of polar
exploration, the research vessel is coated with Intershield 163 Inerta 160 from our International product range. The tried and tested abrasion resistant
system has a proven 47-year track record of performing in temperatures as low as -50°C and has already been used on more than 1,600 ships and
icebreakers around the world.
A
• Our new €13 million Innovation
• Working with key oil and gas
C
B
A EMEA
B Americas
C Asia Pacifi c
36
23
41
Campus in Felling, UK, was opened to
expand our world-leading testing and
laboratory capabilities and strengthen
our commitment to the marine and
protective coatings industry
• Awlgrip HDT (high defi nition technology)
was launched and won the Innovation
Award at the 2019 International
Boatbuilders’ Exhibition and
Conference (IBEX)
• Awlfair SF, part of our Awlgrip range,
was introduced to the yacht industry.
The revolutionary, spray-applied
fi ller offers improved aesthetics and
drastically reduces application time
customers, we launched innovative
new products in the International range,
including Intershield 4000USP – a
zinc-free, high-performance primer
– and Intertherm 2205, a hot applied
temperature resistant coating
• We launched a new marine coatings
package specifi cally developed for
chemical and corrosion protection
of marine scrubbers, in support
of ship owners’ efforts to reduce
sulfur emissions in line with the new
International Maritime Organization
(IMO) requirements
• Our Intersleek 1100SR and Intershield
300 coatings technology were selected
by Knutsen OAS Shipping for their
newest LNG vessels, protecting both
the vessel hull and ballast tank areas
• We introduced Kaleidoscope – a new
approach to green buildings designed
to engage stakeholders and explore
the possibilities of a more responsible
and sustainable way of living by tackling
carbon emissions resulting from the
global construction industry
AkzoNobel Report 2019 | Business overview
27
INDUSTRIAL COATINGS
Revenue in € millions
1,805
1,738
1,731
2017
2018
2019
Key brands
Revenue by destination in %
A
C
B
A EMEA
B Americas
C Asia Pacifi c
43
32
25
28
Business overview | AkzoNobel Report 2019
• Strongly increased profi tability, driven
by successfully focusing on increasing
prices globally across all segments,
selectively winning new business and
sharpening our business focus
• Further growth of our BPANI (BPA
non-intent) coatings for metal
packaging was driven by high demand
from beer and beverage brands for our
sustainable and reliable coatings
• We broke ground for an investment
of €50 million in our North American
wood coatings site in High Point,
North Carolina, to upgrade the current
infrastructure, optimize our quality and
service levels and bring the facility to
the next level of operational excellence
• Our fast-drying Sikkens fi re retardant
wood coatings system was introduced
to meet the challenges set by the
world’s most extreme conditions and
offer improvements in production
effi ciency
• We launched the MaestroHue digital
color-matching system developed
by Chemcraft, our specialist wood
coatings brand, which will enable
distributors to fulfi ll more orders in
less time
• Our TRINAR liquid coatings were
supplied for the historic Hudson Yards
development in New York (see page 8)
• We celebrated our 100th year in
the wood coatings industry in
North America
Our specialist wood coatings brand, Chemcraft,
launched a digital color-matching system to make it
easier for distributors to fulfi ll their orders.
Trade names
• Aqualure
• Aquaprime
• Ceram-a-Star
• GripPro
• LignuPro
• Polydure
• Trinar
• Vitalac
• Vitalure
POWDER COATINGS
Revenue in € millions
1,173
1,218
1,234
2017
2018
2019
Key brands
Revenue by destination in %
A
C
B
A EMEA
B Americas
C Asia Pacifi c
45
21
34
• Continued to increase our share in key
market segments and developed new
market opportunities by focusing on
innovation and premium products
• Plans were announced to further invest
in our Changzhou site in China by
adding three new production lines
• Launched Interpon Structura Flex,
a market fi rst range of products
which combines the weatherability of
superdurable powder coatings with the
mechanical performance advantages of
standard durable systems
been specially engineered for curing
at lower temperatures
• Our antimicrobial Interpon AM range,
containing BioCote® antimicrobial
protection, was launched. It delivers
outstanding decorative characteristics
while combating the growth of
microbes, such as bacteria and mold
• We introduced Interpon D X-Pro,
an innovative scratch-resistant powder
coating for the architectural market,
which is available in both matt and
satin fi nishes
• We made our products even more
• We made it easier for customers to
sustainable by launching a full range of
Interpon Low-E products, which have
tackle complex corrosion challenges
with the launch of Interpon Redox,
a global range of high-performance
primers
• Launched three new state-of-the-art
digital color tools for customers in
the industrial sector. They all work
with the Salcomix system, an on-site
facility which enables customers
to mix paint on demand with superior
color accuracy
• Coatings were supplied for a series of
prestigious building projects, including
Hudson Yards in New York and the
Varso Tower in Warsaw, Poland
AkzoNobel Report 2019 | Business overview
29
Leadership
31AkzoNobel Report 2019 | Our leadershipOUR LEADERSHIPIn this section, we introduce our Board of Management and Executive Committee, along with our Supervisory Board. You will also fi nd the Report of the Supervisory Board and an overview of their activities during 2019. Our Board of Management and Executive Committee 32Statement of the Board of Management 34Supervisory Board Chairman’s statement 35Our Supervisory Board 36Report of the Supervisory Board 37From myth to urban reality Our passion for paint was proudly displayed as a key part of one of the world’s largest ever urban art projects, which was staged in Sweden.Artscape Saga covered 12 municipalities throughout the Gothenburg area and involved artists from all over the world creating large-scale outdoor murals, with each piece interpreting a classic folk tale.Around 400 liters of our Nordsjö paint brand was used to create the stunning designs. It was supplied to all 26 artists, who transformed various buildings of all shapes and sizes. Using contemporary street art to bring myths and folklore to life not only helped to brighten up scores of local neighborhoods, it also met with a hugely enthusiastic response. www.nordsjo.dk www.nordsjo.no www.nordsjo.se Our leadership 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. In April 2019, Thierry became
a non-executive member of the Board of
Directors of Sika AG.
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 Offi cer and Chief
Purchasing Offi cer at Group Management
Committee level.
32
Our leadership | AkzoNobel Report 2019
Isabelle Deschamps
General Counsel and member of the
Executive Committee
(1970, Canadian and British)
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 fi rm
after fi nishing 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.
Marten Booisma
Chief Human Resources Offi cer and
member of the Executive Committee
(1966, Dutch)
Marten Booisma joined AkzoNobel as
Chief Human Resources Offi cer 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.
Marten will be succeeded by Joëlle Boxus
as of March 9, 2020.
Ruud Joosten
Chief Operating Offi cer 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
our former Specialty Chemicals business,
including Manager of the Decorative
Paints North and East Europe business
and Managing Director of Pulp and
Performance Chemicals.
David Prinselaar
Chief Supply Chain Offi cer and
Member of the Executive Committee
(1974, French)
David Prinselaar joined AkzoNobel
in 2015, taking responsibility for the
Performance Coatings operations and
then manufacturing for AkzoNobel
as a whole from January 2018. In March
2019, David took over the role of Chief
Supply Chain Offi cer and became a
member of the Executive Committee.
Before joining AkzoNobel, David worked
for more than ten years for Reckitt
Benckiser after acting as a management
consultant for fi ve years.
Artworks by:
Robert Zandvliet, Untitled, 1994, egg tempera
on linen, 225 x 412 cm; Han Schuil, Untitled, 1996-
1998, alkyd on casted aluminum, 30 x 24 cm;
Prudencio Irazábal, Untitled, nr. 883, 1995, acrylic
paint on canvas, 91 x 91 cm. Courtesy of the
AkzoNobel Art Foundation.
For further information please visit our website:
akzonobel.com/management
From left to right:
Maarten de Vries, Thierry Vanlancker,
David Prinselaar, Isabelle Deschamps,
Marten Booisma, Ruud Joosten
AkzoNobel Report 2019 | Our leadership
3333
For a detailed description of the risk
management system and the principal
risks identifi ed, reference is made to
the Risk management and Integrity and
compliance management chapters in
the Governance and compliance section.
We have discussed the above opinion
and conclusions with the Audit com-
mittee, the Supervisory Board and the
external auditor.
Amsterdam, February 11, 2020
The Board of Management
STATEMENT OF THE
BOARD OF MANAGEMENT
The Board of Management’s statement on the
fi nancial statements, the management report and
internal controls.
We have prepared the Report 2019,
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 fi nancial statements in this Report
2019 give a true and fair view of our
assets and liabilities; our fi nancial
position at December 31, 2019; and the
result of our consolidated operations for
the fi nancial year 2019
• The management report in this Report
2019 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 specifi c
measures, such as a risk management
system, a system of controls and a
system of letters of fi nancial 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 identifi ed
and managed the signifi cant risks of
our company, and that we meet our
operational and fi nancial objectives in
compliance with applicable laws and
regulations. The individual components
of the above set of internal controls
are based on 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 Com-
pliance Committee has been established.
The Compliance function makes rules
available through the Directives Portal,
manages the online and face-to-face
compliance training program, provides
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 fi nancial
reporting, the Board of Management is of
the opinion that:
• The report provides insights into failings
of the internal risk management and
control systems in as far as such
failings occur and are considered to
have a material impact on the fi nancial
statements
• These systems provide reasonable
assurance that the fi nancial reporting
does not contain material inaccuracies
• Based on the current state of affairs, it
is justifi ed that the fi nancial 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
34
Our leadership | AkzoNobel Report 2019
SUPERVISORY BOARD
CHAIRMAN’S STATEMENT
In 2019, AkzoNobel
continued to make
progress on its trans-
formation as a focused
paints and coatings
company and remains
fully committed to further
strengthening its position
as a global leader in
our industry.
expert in fi nance and brings a wealth of
experience with her. Jolanda succeeded
Peggy Bruzelius, who retired after
serving for a maximum of 12 years.
Peggy brought signifi cant experience
to the Supervisory Board and the Audit
Committee and we thank her for her
excellent contribution.
Finally, I would like to thank the entire
Supervisory Board, the Board of
Management, the Executive Committee
and all AkzoNobel employees around
the world for their hard work and
commitment during another busy year
for the company.
Amsterdam, February 11, 2020
Nils Smedegaard Andersen
Chairman of the Supervisory Board
The company’s Winning together: 15 by
20 strategy – with its ambitious target –
gathered solid momentum. The focus on
value over volume played a key role in
driving progress. Signifi cant effort is being
put into strengthening company systems
and processes, as well as working on
operational excellence in the supply
chain organization and reinforcing our
customer intimacy. We are mid-journey,
although there are clear signs that
the reorganization and focus on cost
savings are starting to have an impact,
and this should gather momentum
during 2020. The Supervisory Board has
been impressed by the progress made,
with clear improvements in profi tability
achieved in every quarter during 2019.
We are closely monitoring the ongoing
transformation and focus on encouraging
management to seek the right balance
between delivering short-term results and
long-term sustainability. It’s reassuring
to see that management’s strategic
priorities address both the underlying
challenges and drive the necessary
immediate changes. This should deliver
the simplifi cation and operational
excellence required to build long-term
competitiveness. We are also pleased
to see that the company continues to
pay close attention to its core principles
of safety, integrity and sustainability,
despite the pressures being put on the
organization by its transformation.
to contribute to the company’s ambitious
targets. During these transformative
years, employee engagement remains
a key focus area, together with further
strengthening collaboration throughout
the organization.
As part of building passion for paint
inside and around the company, we were
particularly pleased with the success of
Paint the Future. Innovation is fundamental
to AkzoNobel’s future success and great
strides forward are being made in terms
of working with partners who share the
same pioneering vision. Strongly linked to
sustainability, innovation helps to ensure
that the company will continue to offer
customers the best performing portfolio of
products and services.
Throughout the year, the leadership team
– led by Thierry Vanlancker – displayed
admirable drive and ambition, constantly
focused on the improvement plans. The
challenges ahead remain substantial and
will require a determined effort by the
whole organization. During the coming
year, the Supervisory Board’s focus will
be to work with the management team
on the company strategy beyond 2020.
As we deliver on our margin improvement
strategy, we can raise our ambition level
and lay out plans for a compelling vision
to show how AkzoNobel, together with its
employees and partners, will become a
true global leader in our industry.
During the business reviews and visits to
various sites, I have been excited to see
the employees’ pride for AkzoNobel and
their passion for paint as they continue
During 2019, we welcomed Jolanda
Poots-Bijl to the Supervisory Board,
following approval at the Annual General
Meeting held in April. She is a recognized
AkzoNobel Report 2019 | Our leadership
35
36Our leadership | AkzoNobel Report 2019Michiel Jaski (1959, Dutch) Initial appointment: 2017 Current term of office: 2017-2021Chairman of the Supervisory Boards of UNICA Group B.V., Faber Halbertsma Group B.V. and Rhoon, Pendrecht & Cortgene B.V.; Former CEO of OFFICEFIRST Immobilien A.G. and Grontmij N.V.; Former member of the Executive Board of ARCADIS N.V.Byron E. Grote (1948, American and British) Vice-ChairmanInitial appointment: 2014Current term of office: 2018-2022Non-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.Dick Sluimers (1953, Dutch) Initial appointment: 2015 Current term of office: 2019-2023 Member of the Supervisory Boards of 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; Former member of the Supervisory Board of Atradius N.V.Jolanda Poots-Bijl (1969, Dutch) Initial appointment: 2019 Current term of office: 2019-2023CFO of Royal van Oord; Member of the Supervisory Board of Pon Holdings B.V.; Former member of the Supervisory Board of N.V. Nederlandse Gasunie; Former member of the Supervisory Board of Blokker Holding B.V. Sue Clark (1964, British) Initial appointment: 2017 Current term of office: 2017-2021Non-executive Director of Britvic plc., Bakkavor Group plc., Tulchan Communica-tions LLP and Imperial Brands plc.; Former Managing Director Europe SABMiller plc.; Former Director of Corporate Affairs Railtrack plc. and Scottish Power plc.Ben Verwaayen (1952, Dutch) Initial appointment: 2012 Current term of office: 2016-2020Non-executive Director of Ofcom; Former CEO of Alcatel-Lucent; Former Chief Executive/Chairman of the Board’s Operating Committee of BT Group; Former member of the Board of Directors of Bharti Airtel Ltd.Patrick Thomas (1957, British) Initial appointment: 2017 Current term of office: 2017-2021Chairman of Johnson Matthey plc.; Non-executive Director Aliaxis S.A.; 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.Pamela Kirby (1953, British) Initial appointment: 2016 Current term of office: 2016-2020Non-executive Director at Reckitt Benckiser plc., Hikma Pharmaceuticals plc. and DCC plc.; Senior Independent Director at Victrex plc. (until February 2020); Former CEO of Quintiles Transnational Corp.; Former senior executive at Astra Zeneca plc and F. Hoffman-La Roche.Nils Smedegaard Andersen (1958, Danish) ChairmanInitial appointment: 2018Current term of office: 2018-2022Chairman of the Board of Directors of Unilever N.V. and Unilever plc.; and member of the Board of Directors of BP plc. (until March 18, 2020); Former CEO of A.P. Moller-Maersk A/S; Former CEO and President of Carlsberg A/S.OUR SUPERVISORY BOARD REPORT OF THE
SUPERVISORY BOARD
Supervisory Board attendance record
Nils Smedegaard Andersen
Jolanda Poots-Bijl1
Peggy Bruzelius2
Sue Clark
Byron Grote
Michiel Jaski
Pamela Kirby
Dick Sluimers
Patrick Thomas
Ben Verwaayen
SB
10/10
5/7
3/3
9/10
9/10
10/10
9/10
7/10
10/10
9/10
AC
4/5
2/2
7/7
7/7
6/7
7/7
RC
5/6
5/6
6/6
6/6
5/6
NC
2/2
2/2
2/2
2/2
The table indicates the meeting attendance for the Supervisory Board (SB), the Audit Committee (AC), the Remuneration Committee
(RC) and the Nomination Committee (NC) for regular and additional meetings.
The attendance record shows the eight regular scheduled meetings and the two additional meetings of the Supervisory Board.
Additional meetings are scheduled ad hoc when needed.
1 Appointed at the AGM on April 25, 2019. Also appointed as an Audit Committee member on the same date.
2 Stepped down on April 25, 2019, after completing a 12-year term.
MEETINGS AND
ATTENDANCE
During 2019, the Supervisory Board held
eight regular, scheduled meetings and
two additional meetings. The additional
meetings were required to ensure the
Supervisory Board was sufficiently
informed and could make considered
decisions regarding transactions such
as the acquisition of French aerospace
coatings manufacturer Mapaero.
The table on the left provides an overview
of the attendance record of the individual
members of the Supervisory Board.
The Supervisory Board attaches great
value to the attendance of its meetings
by all members. However, if Supervisory
Board members are unable to attend a
Supervisory Board or committee meeting,
Supervisory Board activities 2019
Q1
Q2
Q3
Q4
• Review of Q4 2018 financials and
performance
• 2018 financial statements and profit
allocation
• Final 2018 dividend
• HR strategy update
• M&A strategy update
• Transformation Office update
• Risk Management: Risk session
outcomes
• HSE full-year report
• 2018 external audit report
• Review Q1 2019 financials and
performance
• Investor Relations update
• Review Winning together: 15 by 20
ambition
• Business updates
• Transformation Office update
• Nomination of Jolanda Poots-Bijl as
a Supervisory Board member
• M&A strategy update
• Acquisition of French aerospace
coatings manufacturer Mapaero
• ISC 2025
• Innovation strategy update
• HR strategy update
• Review Q2 2019 financials and
performance
• Investor Relations update
• Business updates
• Transformation Office update
• HR strategy update
• Enterprise Risk Management update
• Functional and business strategy review
• Raw materials strategy update
• Operational excellence
• Innovation strategy update
• M&A strategy update
• Review Q3 2019 financials and
performance
• Interim dividend 2019
• Share buyback program
• M&A strategy update
• Information Management update
• Transformation Office update
• Company strategy update
• Operational excellence
• HR strategy update
• Budget 2020
• Investor Relations update
The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2019.
they inform the relevant Chairman of
the reason. At all times, Supervisory
Board members receive the materials for
the specific meeting, enabling them to
provide input and have the opportunity
to discuss any agenda items with the
relevant Chairman and provide a proxy
to act on their behalf. They also have
the opportunity to discuss any agenda
items with the relevant Chairman prior to
the meeting. The Board of Management
attended all regular meetings. The CEO
attended all additional meetings, while the
CFO attended one of them. The Executive
Committee attended the majority of the
meetings. Almost all plenary sessions
of the Supervisory Board were preceded
or succeeded by executive sessions of
the Supervisory Board, with or without the
CEO in attendance.
Strategy reviews
During 2019, the Supervisory Board
continued to allocate adequate time to
discuss strategic activities, including
detailed business analyses and portfolio
reviews. In light of the continuous
implementation of the Winning together:
15 by 20 ambition – and forward planning
beyond 2020 – along with the related
transformation program, the company
renewed its efforts to achieve efficiencies
in operational and functional excellence.
The implementation of Integrated
Business Planning (IBP) and an integrated
Global Process Organization (GPO)
were considered key enablers for future
performance improvement. In addition,
functional updates were reviewed
and discussed, including Finance,
Information Management, Integrated
AkzoNobel Report 2019 | Our leadership
37
Supply Chain, Procurement, Human
Resources and Innovation.
The Supervisory Board received
comprehensive market updates and
advised, reviewed and approved the next
phase of the company’s transformation
through regular updates from the Trans-
formation Office.
Strategy beyond 2020
The Winning together: 15 by 20 strategy,
with its ambitious targets (set in 2017) and
a focus on achieving 15% ROS, has been
successful in focusing on a step-change
in profitability. Going forward, beyond
2020 AkzoNobel will rebalance growth
and margins.
Proceeds Specialty Chemicals
separation
Following the implementation of 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 in proceeds have
been returned using different distribution
methods. A capital repayment and share
consolidation of €2 billion was completed
in January 2019; a special cash dividend
of €1 billion was paid on February 25,
2019; and a share buyback of €2.5 billion
was completed in December 2019. The
capital repayment and share consolidation
was approved by shareholders at the
EGM in November 2018.
Sustainability
Sustainability is a core principle and is
integral to the company’s strategy, which
means delivering both short-term and
long-term value for shareholders and
other stakeholders, because today’s
profits are essential to invest in tomorrow.
Our “People. Planet. Paint.” approach
to sustainability is an investment in the
future success of the company. 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.
During 2019, the Supervisory Board
also assessed sustainability as part of
strategy and targets. The Supervisory
Board is confident that by making
sustainability an explicit differentiator –
part of the company’s brand – AkzoNobeI
has enhanced its value proposition
for stakeholders, including employees
and business partners. The company
also continues to develop business
opportunities in alignment with relevant UN
Sustainable Development Goals (SDGs).
Performance and management
planning
Individual Board of Management and
Executive Committee performance was
addressed in Supervisory Board meetings,
following recommendations from the
Remuneration Committee. For more
details, see the report of the Remuneration
Committee on page 41.
Discussions on corporate performance were
held at each regular Supervisory Board
meeting and included business reviews
and performance updates from corporate
functions. Forward-looking targets were
38
Our leadership | AkzoNobel Report 2019
Members of our Supervisory Board and Executive Committee visited the company’s sites in Barcelona, Spain, during 2019.
The schedule included business reviews and site tours, and enabled senior leadership to meet employees and get a better
understanding of our activities and operations.
also addressed in light of these reviews, and
both the proposed budget and operating
plan for 2020 were diligently reviewed by
the Supervisory Board in Q4, taking into
account prevailing market conditions.
Following this assessment, the Supervisory
Board has approved the proposed budget
and operating plan for 2020.
During the year, the Supervisory Board was
pleased to see the company continuing
to benefit from management’s strategic
initiatives, including cost savings. The nature
of this performance provided a basis for
the Supervisory Board’s approval of the
dividend proposal (further details on the
2019 dividend proposal can be found in the
Consolidated financial statements and
Profit allocation paragraph).
Risk management
The Supervisory Board views risk
management as an essential mechanism
for safeguarding the business and assets
of the company, as well as 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.
The Board of Management and Executive
Committee maintain the risk management
framework and system of internal
controls. Implementation of risk mitigating
measures for the key risks, as identified
by the Board of Management and the
Executive Committee, is monitored by
39AkzoNobel Report 2019 | Our leadershipthe 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 governanceThe Supervisory Board continuously reviews the company’s corporate governance and its compliance with the Dutch Corporate Governance Code. Talent management and succession planningIn 2019, the Supervisory Board, after discussing its own composition and succession plans, nominated Jolanda Poots-Bijl and re-appointed Dick Sluimers as members of the Supervisory Board. The appointment and re-appointment were approved at the AGM held on April 25, 2019. More information on the nomination process and the induction training of Supervisory Board members can be found in the Corporate governance statement.During 2019, the Supervisory Board also discussed and supported changes to the composition of the Executive Committee. This included the appointment of David Prinselaar as Chief Supply Chain Officer (after David Allen stepped down). With Maëlys Castella stepping down as Chief Corporate Development Officer, her responsibilities were divided between the CEO and the General Counsel. The Supervisory Board also discussed the succession of Marten Booisma as Chief Human Resources Officer by Joëlle Boxus as per March 9, 2020. The requirements of the Dutch Corporate Governance Code and the skills matrix, updated further upon recommendation by the Nomination Committee, were considered throughout the process. The updated matrix can be found later in this section.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, both the Supervisory Board and the company take steps to verify that:• No cross ties exist between Supervisory Board members and members of the Board of Management• No employment relationships were in place 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 companySupervisory Board evaluationTo 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, as well as its relationship with the Board of Management and the Executive Committee. The process consisted of Supervisory Board members completing a 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 Supervisory Board members to discuss individual impressions on the functioning of the Supervisory Board and items covered in 2019. During 2020, the Supervisory Board agreed to focus on an effective division of responsibilities between the different committees. Other focus areas include the governance and process on succession planning and talent management. Additional time will be spent on contributing to the development of the company strategy beyond 2020. Items addressed were overall performance and composition of the Supervisory Board, the Audit Committee and the other committees, strategic issues and key areas for 2020. 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 Board and its committees continue to operate proficiently. There is a dynamic and open atmosphere between the Supervisory Board and the Board of Management – as well as the other members of the Executive Committee – offering support and constructive challenge. It was agreed that more time will be spent on business deep dives, as well as focusing more on succession planning and company talent.Financial statements and profit allocationThe Board of Management submitted the report and financial statements, including the report of the Board of Management, to the Supervisory Board for review and approval. The financial statements of Akzo Nobel N.V. for the financial year 2019 were audited by PricewaterhouseCoopers Accountants N.V.. 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 Executive Committee. Based on these discussions,
the Supervisory Board is of the opinion
that the 2019 financial statements
of Akzo Nobel N.\/. form an adequate
basis to account for the supervision
provided (see the Consolidated financial
statements). The Audit Committee
monitors the follow-up by management
on the recommendations made by the
external auditors.
The Supervisory Board recommends that
the AGM adopts the financial statements
as presented in this Report 2019 and, as
proposed by the Board of Management,
the proposed total dividend for 2019
of €1.90 (2018: €1.80), including a final
dividend of €1.49 per share. An interim
dividend of €0.41 (2018: €0.37) per share
was paid in November 2019. This reflects
the continued commitment to 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 2019 and the
members of the Supervisory Board for
their supervision in 2019.
AUDIT COMMITTEE
Byron Grote has been Chairman of the
Audit Committee since his appointment
in 2015. The other members of the
Audit Committee in 2019 were Peggy
Bruzelius1, Michiel Jaski, Dick Sluimers,
Patrick Thomas and Jolanda Poots-Bijl2.
All members of the Audit Committee
40
Our leadership | AkzoNobel Report 2019
have extensive accounting and financial
management expertise. The Audit
Committee held seven meetings during
2019. The attendance record of the
members can be seen in the attendance
chart on page 37. Issues discussed in
Audit Committee meetings were reported
back to the full Supervisory Board in
subsequent meetings.
1 Until April 2019.
2 Appointed to the Audit Committee as of April 25, 2019.
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.
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.
Other topics discussed included:
• The “hard close”, which was discussed
with the intention of continuing the
improvement in 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, 2019
• Quality of the external audit
• Impact of new accounting rules
• Transformation of the Finance function
Risk management and internal
control systems
The Audit Committee reviewed
AkzoNobel’s overall approach to gover-
nance, 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
Audit Committee activities 2019
Q1
Q2
Q3
Q4
• Review Q2 2019 financial
statements
• Review external auditor performance
evaluation FY 2018
• Transformation to deliver towards the
15 by 20 ambition
• Review Q1 2019 financial
statements
• Review year-to-date audit findings
• Compliance and integrity update
• Follow-up on audit scope and
fee 2019
• Review evaluation external auditor
• Treasury update
• Review and approval PWC
audit plan
• Valuation of post-retirement benefit
provisions
• Transformation to deliver towards the
15 by 20 ambition
• Review Q4 2018 financial
statements and annual results
• Review 2018 annual report and
accounts
• External audit report
• Review risk management and
internal control
• Auditors’ management letter
• Final dividend 2018
• HSE audit findings
• Review full-year compliance report
• Pension funds update
• Finance transformation update
• Review accounting for Specialty
Chemicals separation
• Review transition from accounting
standard IAS 17-Leases to
IFRS 16-Leases
• Transformation to deliver towards the
15 by 20 ambition
• Review Q3 2019 financial statements
• Recommendation on interim
dividend 2019
• Share buyback program
• Compliance and integrity update
• Tax strategy review
• Review budget 2020 and outlook
• Review audit findings year-to-date
• Hard close audit report
• Internal Audit plan 2020
• Review of legal liability exposure report
• IFRS changes update
• Finance transformation update
• IM update
• Internal Control framework update
• Update to the PWC audit plan
• Valuation of deferred tax assessment
and uncertain tax position
• Transformation to deliver towards the
15 by 20 ambition
41AkzoNobel Report 2019 | Our leadershipcontrol 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, fraud and liability exposures. The Internal Auditor reported to the Audit Committee on their assessment of the status of the system of governance, risk management and internal controls throughout 2019. Business and function reviewsIn fulfilling its oversight responsibilities in relation to risk management and internal control systems, the Audit Com mittee received updates from functions throughout the year, informing its review of the annual operating plan, including budget. During the year, updates were provided from Finance, Treasury, Information Manage-ment 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 AkzoNobel into a focused paints and coatings company. The Audit Committee also met regularly with other senior executives.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 Internal Audit’s plan and strategy, and also 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 2019, the Audit Committee was satisfied with the effectiveness of the Internal Audit function. As the Corporate Director of Internal Audit left AkzoNobel as per January 1, 2020, the Audit Committee agreed on the appointment of the new Corporate Director of Internal Audit, who starts on March 1, 2020. The appointment of the new Corporate Director of Internal Audit was approved by the Supervisory Board. Results and financial statementsBefore 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 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 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 financial statements. In addition, the Audit Committee reviewed and assessed management assertions made in regard to relevant accounting treatments.Audit Committee evaluationThe Audit Committee carried out a self-assessment of its performance and concluded that it is performing effectively. Reference is made to the paragraph on the evaluation of the Supervisory Board in this chapter. REMUNERATION COMMITTEEThe Remuneration Committee consists of five members: Dick Sluimers (Chairman), Sue Clark, Ben Verwaayen, Pamela Kirby and Nils Smedegaard Andersen. General Counsel and Executive Committee member, Isabelle Deschamps, was named Gender Diversity Lawyer of the Year in the inaugural Chambers Diversity and Inclusion Awards: Europe 2019. She was recognized for fostering an inclusive culture throughout the company, facilitating a D&I network and strengthening AkzoNobel’s leadership diversity. Remuneration Committee main 2019 activities
Q1
Q2 & Q3
Q4
• Review of management performance 2018
• Target setting 2019
• Review of management base salaries for 2019
• 2018 Remuneration report
• Remuneration Policy review
• Review STI targets
• Implementation of Shareholder Rights Directive II
• Forward-looking 2020 target-setting
• 2019 STI and LTI performance review
• Review of the remuneration policies for the
Board of Management and Supervisory Board
in connection with the implementation of
Shareholder Rights Directive II
• Review of management base salaries for 2020
The Remuneration Committee held six
meetings in 2019. The attendance record
of the members can be seen in the
Supervisory Board attendance chart
on page 37.
Management performance review
The work of the Remuneration Committee
during the first quarter focused on
performance for the year 2019, the
individual performance reviews of
the Board of Management members
and of the Executive Committee. The
Remuneration Committee also assessed
the adequacy of the peer group used for
benchmarking purposes.
Remuneration Policy review
In 2019, the Remuneration Committee
reviewed the Remuneration Policy for
the Board of Management, to assess
whether it was still in line with the
company’s strategy and financial
targets. The Remuneration Committee
also considered the alignment of the
Remuneration Policy for the Board of
Management and the Remuneration
Policy of the Supervisory Board in
anticipation of the implementation of
42
Our leadership | AkzoNobel Report 2019
the Shareholder Rights Directive II. For
further details, reference is made to the
Remuneration report.
Management salary review
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
companies and performance. 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 were
reviewed and discussed with the CEO.
For further details, reference is made to
the Remuneration report and Note 25 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 2019, as
explained earlier in this section.
Nomination Committee main 2019 activities
Q1
Q2, Q3 and Q4
• Review (re)appointment scheme
• Supervisory Board succession planning
• Nomination Jolanda Poots-Bijl
• Supervisory Board succession planning
• Board of Management and Executive Committee
succession planning
• Update skills matrix
NOMINATION COMMITTEE
The Nomination Committee consists
of four members: Nils Smedegaard
Andersen (Chairman), Byron Grote,
Pamela Kirby and Ben Verwaayen. The
Nomination Committee held two meetings
in 2019. The attendance record of the
members of the Nomination Committee
can be seen in the chart on page 37.
Board of Management and
executive succession
During 2019, the Nomination
Committee was consulted and gave
its advice regarding the composition
of the Executive Committee and the
appointment of David Prinselaar as Chief
Supply Chain Officer, as well as dividing
the responsibilities of Chief Corporate
Development Officer Maëlys Castella (who
stepped down) between the CEO and
the General Counsel. The Nomination
Committee was also consulted and gave
its advice on the appointment of Joëlle
Boxus as Chief Human Resources Officer,
as per March 9, 2020.
Supervisory Board succession
During 2019, the Nomination Committee
continued to discuss the size, structure
and composition of the Supervisory
Board. Following a thorough internal and
external search – with the assistance
of an independent and well-reputed
search firm – the Nomination Committee
recommended the nomination of Jolanda
Poots-Bijl to the Supervisory Board for
consideration by the shareholders at the
AGM of April 25, 2019.
Supervisory Board skills and profiles
N.S.
Andersen
J.
Poots-Bijl
S.
Clark
B.
Grote
M.
Jaski
P.
Kirby
D.
Sluimers
P.
Thomas
B.
Verwaayen
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experience
Public sector experience
Management experience
Business strategy planning
Investor relations
Manufacturing experience
Supply chain/logistics experience
Social, environmental or
sustainability experience
Finance expert
Four or less external directorships
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Non-EU national
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Business-to-business sales
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R&D experience
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Industrial/employment relations
Risk management
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The Supervisory Board has updated its
skills matrix, as shown opposite. The
skills matrix, full details of the current
Supervisory Board composition, the
schedule of Supervisory Board succession
and the profiles of the Supervisory Board
members can also be found on our
website: www.akzonobel.com
The second term of Ben Verwaayen
ends in 2020. The members of the
Nomination Committee concluded that
the required expertise is sufficiently
reflected in the Supervisory Board. In
connection with the current size of the
company, it was deemed appropriate to
reduce the number of Supervisory Board
members to eight. Reducing the number
of Supervisory Board members to eight
following the retirement of Mr. Verywaayen
was approved by the Supervisory Board.
Nomination Committee evaluation
As with the Remuneration Committee,
the Nomination Committee’s evaluation
of performance and effectiveness formed
part of the overall Supervisory Board
evaluation undertaken during 2019.
ADDITIONAL REMARKS
All 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 2019.
Amsterdam, February 11, 2020
The Supervisory Board
AkzoNobel Report 2019 | Our leadership
43
Governance and compliance
4545AkzoNobel Report 2019 | Governance and complianceThis section explains our corporate governance structure and outlines the remuneration of our Board of Management. You will also fi nd information about risk management, compliance and integrity management, and AkzoNobel and the capital markets.Corporate governance statement 46Risk management 55 Integrity and compliance management 58Remuneration report 61AkzoNobel and the capital markets 66GOVERNANCE AND COMPLIANCEA colorful happily ever afterIt almost reads like a modern day beauty and the beast story – which ends with our passion for paint coming to the rescue.The rundown Hay Bouslama district in the city of Béja, Tunisia, was in such a bad state that Miss Tunisia approached our Astral brand for help. It was a perfect opportunity to add more color to people’s lives through our global “Let’s Colour” program. Within weeks, the drab, colorless area had been transformed with around 800 liters of paint, which is helping to preserve the architectural heritage of the old neighborhood. Dozens of residents and several AkzoNobel employees volunteered to help during the colorful renovation, which has positively impacted the daily lives of the delighted local community. www.astral.ma/fr www.astral.tn/fr www.letscolourproject.comGovernance and compliance Executive CommitteeBoard of ManagementShareholdersSupervisory BoardSupport functionsCommercialIntegrated Supply Chain46Governance and compliance | AkzoNobel Report 2019CORPORATE GOVERNANCE STATEMENTAkzoNobel aspires to the highest standards of corporate governance and seeks to consistently enhance and improve corporate governance performance, empha-sizing 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. For the full version of the Code, visit www.mccg.nl2019 organization structure 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 best interests 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.
BOARD OF MANAGEMENT
AND EXECUTIVE
COMMITTEE
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 and the Chief
Human Resources Officer. The Chief
Corporate Development Officer was also a
member of the Executive Committee until
stepping down as of October 1, 2019.
Reference is made to the paragraph
Board of Management and executive
succession in this chapter.
The composition of the Executive Com-
mittee ensures that 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.
The Board of Management and Executive
Committee promote openness and
engagement through a SpeakUp!
grievance mechanism and have
established a Code of Conduct, policies,
rules and procedures incorporated in the
company’s Policy 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 Supervisory Board,
and is fundamental to AkzoNobel’s
business strategy.
One of Southeast Asia’s oldest lighthouses is being protected by our Dulux Weathershield exterior paint. Vung Tau lighthouse,
located on the top of Nho mountain in Vung Tau province, Vietnam, was built by the French in 1862. The project to repaint the
historic structure was launched as part of Dulux’s Lighthouse Protection Campaign.
In order to ensure our transformation
has a sustainable impact on the whole
organization, our company culture forms
an important part of discussions involving
internal organizational changes and
Human Resources strategy updates.
In 2018, a quarterly Insight survey was
launched to all employees, focusing on
our wider organizational health, which
was continued during 2019 (see Note 7
of the Sustainability statements). The
Executive Committee and Supervisory
Board regularly discuss the results of
the survey, the targets and the actions
taken to achieve such targets.
The Board of Management takes
precedence; all Executive Committee
decisions require a majority of the
members of the Board of Management.
The Board of Management can at all times
decide to reserve decisions for the Board
of Management. The members of the
Board of Management remain accountable
for all decisions made by the Executive
Committee. The Board of Management
is accountable for its performance to the
Supervisory Board and is answerable to
the shareholders of the company at the
AGM. The Executive Committee members
who are not also members of the Board of
Management report to the CEO.
The Supervisory Board has regular,
direct interaction with all members of the
Executive Committee and all Executive
Committee members attend most
Supervisory Board meetings.
The CEO leads the Executive Committee
in its overall management of the company.
He is the main point of liaison with
the Supervisory Board. The CFO is
responsible for overseeing AkzoNobel’s
finances, its corporate control, investor
relations and information management.
The tasks, responsibilities and procedures
of the Board of Management and
Executive Committee are set out in their
Rules of Procedure. These rules have
been approved by the Supervisory Board
and are available on our website.
Authority to represent the company
is vested in the two members of the
AkzoNobel Report 2019 | Governance and compliance
47
Board of Management, acting jointly.
This includes the signing of documents.
The Board of Management has also
delegated a level of authority to corporate
agents, including the other members
of the Executive Committee. The list of
authorized signatories is filed with the
public registry and is available on request
from the Dutch Chamber of Commerce.
The Managing Directors of our 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 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).
Diversity
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 the
company’s goals and objectives. The
Diversity Policy addresses concrete
targets relating to diversity, including
nationality, age, gender, education
and work background. As part of our
commitment to fostering an inclusive
and respectful workplace, we introduced
training to increase awareness around
unconscious bias in the workplace.
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 Manage-
ment members. It is believed that due
to the size and scale of the Board of
Management (being only two members),
this divergence is justified and has
ensured the best candidates for the
roles were nominated by the Supervisory
Board and appointed by shareholders.
Following the appointment of Joëlle
Boxus as the new Chief Human
Resources Officer as per March 9, 2020,
AkzoNobel has a gender diversity of
33% female representatives at Executive
Committee level.
Outside directorships
Members of the Executive Committee
are not allowed to hold more than one
supervisory board membership or non -
executive directorship in another listed
company. This is more stringent than the
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 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. Further information
on any outside board positions of
the Executive Committee can be found
on page 32.
Acceptance of external supervisory
board memberships or non -executive
directorships in other listed companies
by members of the Executive Committee
is always subject to approval by the
Supervisory Board, for which authority has
been delegated to the Chairman of the
Supervisory Board.
Conflicts of interest
Members of the Board of Management
and the other members of the Executive
Committee shall not participate in the
discussions and decision -making on
a subject or transaction in relation to
which they have a conflict of interest
with the company. Supervisory Board
approval is required for decisions to enter
into transactions under which Board of
Management or Executive Committee
members have a conflict of interest of
material significance to the company
and to the relevant member. Any such
decisions involving members of the Board
of Management will be recorded in the
annual report for the relevant year, with
reference to the conflict of interest and
declaring that the relevant best practice
provisions of the Code have been
complied with.
48
Governance and compliance | AkzoNobel Report 2019
During 2019, 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 for
the Board of Management, which is
approved by the AGM. The Remuneration
Policy of the Board of Management
will be resubmitted to the 2020 AGM
in line with the implementation of the
Shareholder Rights Directive II. 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 of the Board
of Management, are described in the
Remuneration report.
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
Executive Committee meetings are
frequently held, at which the implemen-
tation of the company’s strategy is
discussed. Functional agendas are also
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.
Integrity and Compliance
Committee
This committee supports the Executive
Committee with its responsibility in
assuring and managing compliance,
and with its reporting to the Supervisory
Board. The Integrity and Compliance
Committee systematically identifies
discussed at these Executive Committee
meetings. Additional meetings are held to
discuss specific topics as required.
The Board of Management and Executive
Committee have delegated authorities to
individual Executive Committee members
and to certain committees and councils.
sustainability developments. The council
monitors the integration of sustainability
into management processes and oversees
the company’s sustainability targets and
sustainability performance. The council,
which meets quarterly, consists of
representative Business and Functional
Directors, as well as the CEO.
Significant sustainability aspects material
to the company are reviewed annually,
with input from internal and external
stakeholders. The Sustainability Council
focuses on topics with the biggest impact
on accelerating the AkzoNobel strategy
to create shared value, building on
our core principles of safety, integrity and
sustainability, including respect for
human rights.
To help plan for success and ensure
alignment within the entire AkzoNobel
organization on the strategic and
operational plan, the Board of
Management and Executive Committee
implemented an Integrated Business
Planning (IBP) process across the
company’s global businesses and
functions. IBP provides, on a monthly
basis, visibility on the long-term integrated
business and financial plan, which covers
the product portfolio, demand and supply.
It therefore ensures early attention and
remedial actions, where appropriate, on
any potential gaps. The monthly IBP
cycle ends with the Corporate Manage-
ment Business Review (CMBR), which
is chaired by the CEO. The Executive
Committee attends these meetings,
where it reviews the consolidated long-
term company perspective, including risks
and opportunities, decides on escalation
and possible scenarios and supervises the
key performance indicators with corrective
actions, if applicable.
COMMITTEES
Sustainability Council
The Executive Committee has established
a Sustainability Council to advise on
The McLaren Formula 1 team enjoyed a successful 2019 season, with young racing talents Lando Norris and Carlos Sainz steering them
to an admirable fourth place in the Constructors’ Championship. Scientists from our Sikkens brand once again worked with technicians at
McLaren to develop the dazzling Papaya Spark livery for the team’s MCL34s. The coatings system offered numerous benefits designed to
help reduce drag and contaminant adhesion, as well as improving surface slip and durability.
AkzoNobel Report 2019 | Governance and compliance
49
material compliance risks, assists in
assurance of compliance with laws,
regulations and ethical standards,
monitors compliance and report findings
and recommendations to the Executive
Committee. More details can be found
on page 58.
Executive Pensions Committee
The Executive Pensions Committee
oversees the general pension policies
of AkzoNobel’s various pension plans
and their financial consequences for the
company. The committee is chaired by
the CFO and includes the Chief Human
Resources Officer, the General Counsel
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.
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 internal
risk management and control systems
• The main financial parameters,
compliance with applicable laws and
regulations and risk factors
The Supervisory Board advises the
Board of Management and Executive
Committee, while taking into account
the interests of the company and
its stakeholders. Major investments,
acquisitions and functional initiatives are
subject to Supervisory Board approval.
The 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.
SUPERVISORY BOARD
This section provides an overview of the
responsibilities and governance of the
Supervisory Board. For an understanding
of the activities of the Supervisory Board
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
50
Governance and compliance | AkzoNobel Report 2019
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.
Composition
The 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
four 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 this policy is to ensure
a balanced composition, taking account
of nationality, age, gender, education
and work background. During 2019, the
Diversity Policy was implemented through
the Supervisory Board’s consistent and
structured approach to succession
planning. There are no divergences
to report. The policy is included in the
Supervisory Board’s Rules of Procedure,
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.
Appointment
Members of the Supervisory Board are
nominated, appointed and dismissed in
accordance with procedures identical to
those previously outlined for the members
of the Board of Management.
In accordance with the Code, the Rules
of Procedure of the Supervisory Board
have been updated such that Supervisory
Board members are eligible for re- election
once for a period not exceeding four years.
51AkzoNobel Report 2019 | Governance and complianceThereafter, 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 2019, 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 25, 2019.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.Conflict of interestMembers 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 2019, no transactions were reported under which a member had a conflict of interest which was of material significance to the company.Remuneration of the Supervisory BoardSupervisory Board members receive a fixed annual remuneration and attendance fee, which is determined by the AGM. According to the Code, it is not possible for members to be remunerated in shares. The Remuneration Policy for the Supervisory Board – which was adopted by the AGM in 2014 – will, with limited changes, be submitted for approval at the 2020 AGM, in line with the implementation of the Shareholder Rights Directive II.More information on the remuneration of the members of the Supervisory Board and the Remuneration Policy of the Supervisory Board can be found in the Remuneration Report and Note 25 of the Consolidated financial statements.SUPERVISORY BOARD COMMITTEESThe 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.Audit CommitteeThe 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 auditorThe Audit Committee has a role in assessing the quality and integrity of reporting on sustainability performance and takes an active role in reviewing the company’s sustainability performance data.As a rule, the CFO, the Group Controller, the Internal Auditor and the lead partner of the external auditor attend all regular meetings. After most Audit Committee meetings, members hold a separate meeting with only the Internal Auditor present, a separate meeting with only the external auditor present and sessions with only Audit Committee members in attendance.In addition, there are regular 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.
When selecting candidates for
appointment to the Supervisory Board,
account is taken of the Supervisory Board
profile, the diversity requirements of the
Dutch Civil Code and the Code, as well
as the need for knowledge of the markets
in which the company operates and
insights from other markets and non -
operational areas.
Remuneration Committee
The Remuneration Committee is
responsible for making proposals to the
Supervisory Board on the Remuneration
Policy for the Board of Management
and is involved in preparing the
Remuneration Policy for the Supervisory
Board, for overseeing remuneration of
the individual members of the Board of
Management and other members of the
Executive Committee, and for overseeing
the remuneration schemes for
AkzoNobel executives involving the
company’s shares.
The Remuneration Committee conducts
periodic reviews of the performance of the
members of the Board of Management
and Executive Committee. The
Remuneration Committee also reviews
the remuneration of members of the
Supervisory Board and ensures alignment
with the Remuneration Policy of the
Supervisory Board.
SHAREHOLDERS AND THE
ANNUAL GENERAL MEETING
The Annual General Meeting of
shareholders (AGM) is an integral part of
the governance of the company and its
system of checks and balances. The AGM
reviews the annual report and decides on
the adoption of the financial statements
and the dividend proposal, as well as the
discharge of 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
• Advisory vote on Remuneration report
• 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.
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 online within six months
of the meeting date.
Share classes
AkzoNobel has three classes of shares:
common shares, cumulative preferred
shares and priority shares. Common
shares are traded on the Euronext
Amsterdam stock exchange. Common
shares are also traded over -the-
counter on OTCQX in the US in the
form of American Depositary Receipts
(each American Depositary Receipt
representing one- third of a common
share). On December 31, 2019, a total of
approximately 200 million common shares
and 48 priority shares had been issued.
This includes shares held in treasury
which cannot be voted on and which are
not eligible for dividend. The company
has been informed that by December
31, 2019, each of Capital Research and
Management Company, BlackRock Inc.,
and Massachusetts Financial Services
Company held more than 5% of the
company’s share capital.
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 submitted
in writing, or electronically, to the company
at least 60 calendar days in advance of
The majority of shares in Akzo Nobel N.V.
are included in a global certificate and
held through the system maintained by
the Dutch Central Securities Depository
(Euroclear Nederland). In the past,
Akzo Nobel N.V. also issued (physical)
bearer share certificates (Bearer
Certificates). A limited number of Bearer
Certificates has not yet been surrendered
to Akzo Nobel N.V., although holders
52
Governance and compliance | AkzoNobel Report 2019
of Bearer Certificates are entitled to a
corresponding number of shares in
Akzo Nobel N.V..
It is noted that, as a result of Dutch
legislation which became effective as
of July 2019, the relevant shares will be
registered in the name of Akzo Nobel N.V.
by operation of law as per January 1,
2021. Pursuant to this legislation, owners
of Bearer Certificates will continue to be
entitled to a corresponding number of
shares in Akzo Nobel N.V. until January 2,
2026. On that date, their entitlement
will expire by operation of law. For more
information, contact Investor Relations
(investor.relations@akzonobel.com).
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 the prevailing
quoted price for common shares.
The AGM held on April 25, 2019,
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 common
shares in the company’s share capital.
The maximum number of shares that the
company will hold in its own share capital
at any time shall not exceed 10% of its
issued share capital.
Anti-takeover provisions and control
According to the Code, the company
is required to provide an overview of its
actual or potential anti- takeover measures,
and to indicate in what circumstances it is
expected that they may be used.
The priority shares may be considered to
constitute a form of anti- takeover measure,
in relation to the right of the Meeting
of Holders of Priority Shares to make
binding nominations for appointments
to the Board of Management and the
Supervisory Board. The Foundation
Akzo Nobel has confirmed that it intends
to make use of such rights in exceptional
circumstances only. These circumstances
include situations where, in the opinion
of the Board of the Foundation, the
continuity of the company’s management
and policies is at stake.
This may be the case if a public bid for
the common shares of the company has
been announced, or has been made,
or the justified expectation exists that
such a bid will be made, without any
agreement having been reached in relation
to such a bid with the company. The
same shall apply if one shareholder, or
more shareholders acting in a concerted
way, hold a substantial percentage
of the issued common shares of the
company without making an offer. Or
if, in the opinion of the Board of the
Foundation Akzo Nobel, the exercise of
the voting rights by one shareholder or
more shareholders, acting in a concerted
way, is materially in conflict with the
interests of the company. In such cases,
the Supervisory Board and the Board of
Management, in accordance with their
statutory responsibility, will evaluate all
available options with a view to serving
the best interests of the company, its
shareholders and other stakeholders.
The Board of the Foundation Akzo Nobel
has reserved the right to make use
of its binding nomination rights for
the appointment of members of the
Supervisory Board and of the Board of
Management in such circumstances.
Although a deviation from provision 4.3.3
of the Code, the Supervisory Board
and the Board of Management are of
the opinion that these provisions will
enhance the continuity of the company’s
management and policies.
In the event of a hostile takeover bid,
or other action which the Board of
Management and Supervisory Board
consider adverse to the company’s
interests, the two Boards reserve the
right to use all available powers (including
the right to invoke a response time in
accordance with provisions 4.1.6 and
4.1.7 of the Code), while taking into
account the relevant interests of
the company and its affiliate enterprise
and stakeholders.
AUDITORS
The external auditor is appointed by the
AGM on proposal of the Supervisory
Board. The appointment is reviewed every
four years and the results of this review
and assessment are reported to the AGM.
The external auditor attends 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 whether the consolidated financial
statements give a true and fair view of
the financial position of the group (the
company together with its subsidiaries).
Auditor independence
The Audit Committee and Board of
Management report their dealings with
the external auditor to the Supervisory
AkzoNobel Report 2019 | Governance and compliance
53
Board annually and discuss the auditor’s
independence.
As the previous lead audit partner
retired in 2019, it was decided to appoint
the current lead audit partner as per
the start of the audit on the fi nancial
year 2019. In close co-operation 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.
Other services
One area of particular focus in corporate
governance is the independence of the
auditors. The Audit Committee has been
delegated direct responsibility for the
compensation and monitoring of the
auditors and the services they provide
to the company. Pursuant to the Audit
Profession Act, the auditors are prohibited
from providing the company with services
in the Netherlands other than “audit
services aimed at providing reliability
concerning the information supplied
by the audited client for the benefi t of
external users of this information and also
for the benefi t 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 AkzoNobeI Guidelines on
Auditor Independence. These documents
are available on our website.
Internal Audit
The 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 Internal Auditor 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 fi ndings
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).
SHARE DEALING RULES
AND RULES ON
DISCLOSURE CONTROL
In accordance with Dutch Iaw 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 AkzoNobeI shares carried out by
Board of Management, Executive
Committee and Supervisory Board
members (including their closely
associated persons) are, as and when
required, notifi ed 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
AkzoNobeI 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 AkzoNobeI
Rules on Disclosure Control.
INTERNAL CONTROLS AND
RISK MANAGEMENT
Internal controls
The company has strict procedures
for internal controls. The Board of
Management and Executive Committee
have established several Risk, Control
and Compliance Committees, which are
explained on page 58. As in previous
years, we continued to work on system
embedded controls, standard role design
and segregation of duty monitoring.
The AkzoNobel internal control
framework
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Monitoring activities
Control activities
Responding to risk
Setting objectives
Control environment
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.
An integrated Risk and Internal Control
department supports all businesses and
functions in their work.
Risk management
Our 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.
54
Governance and compliance | AkzoNobel Report 2019
55AkzoNobel Report 2019 | Governance and complianceEnterpriseRisk ManagementprocessRisk identificationand assessmentRisk profilesRisk responseper risk profileActionsRisk profiles andRisk responsesEnterpriseRisk ManagementreportingRisk consolidationRisk transparencySupervisoryBoardExecutive CommitteeTop 10 risks and risk responsesFunctions and business unitsTop 10 risks and risk responsesAreas of major risk exposure(projects)Top 10 risks and risk responsesDoing business involves risk. It’s our ambition to be a successful and respected company through managing risks as an essential element of our corporate governance and strategy.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 Executive Committee are responsible for managing the risks associated with our activities and 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 FRAMEWORKOur risk management framework is in line with the Enterprise Risk Management – Integrated Framework of COSO and the Dutch Corporate Governance Code. It provides reasonable assurance that our business objectives 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/risk-management-framework RISK MANAGEMENT RISK MANAGEMENT
IN 2019
Risk management is a company-wide
activity, under the responsibility of the
Board of Management and Executive
Committee, and we focus on the areas of
major risk exposure.
During 2019, we held a significant number
of enterprise risk workshops across the
organization. Risk scenarios identified are
prioritized by responsible management
teams and functional experts and
adequate mitigating actions are defined.
We consider risk assessment and
mitigation a continuous process which
is carried out against the background of
an evolving risk landscape that includes
short, medium and longer
term challenges.
The table below summarizes the major risk factors for the company in the foreseeable
future. The symbols represent management’s assessment of risk development compared
with the previous year.
External – Strategic
• Global economy and the geo-political
context
• Strategic moves in our value chain
Internal – Strategic
• Organic growth
• Innovation, identification and
successful implementation of major
transforming technologies
External – Operational
• Information technology and
cybersecurity
Internal – Operational
• Management of change
• Analytics and big data
External – Compliance
• Complying with laws and regulatory
developments
Risk has been assessed to increase.
Risk has been assessed to remain fairly stable.
External – Strategic
GLOBAL ECONOMY AND
THE GEO-POLITICAL
CONTEXT
The unpredictable world’s geo-political
situation and the highly competitive
markets in which we operate require our
ongoing attention to protect our financial
performance.
Mitigating actions
• Continued focus on operational cost
and complexity reduction
• Deployment of commercial and
procurement excellence programs
• Geo-political assessment as part of
investment decisions and medium-term
operational planning
External – Strategic
STRATEGIC MOVES IN OUR
VALUE CHAIN
An accumulation of strategic moves
(horizontally and/or vertically) could impact
our competitive position and/or increase
the vulnerability of operations.
Mitigating actions
• Competitive intelligence analysis of
(new) competitors, customers and
suppliers
• Secure freedom to invest through
strategic alignment with shareholders
and other stakeholders
• Identify opportunities for M&A, based
on strategic rationale
External – Operational
INFORMATION TECHNOLOGY
AND CYBERSECURITY
Our longer-term IT strategy means we
increasingly rely on fewer consolidated
critical applications. With the number
of digital business transactions on the
increase, the non-availability of IT systems
– or unauthorized access – could have a
direct impact on our business processes,
competitive position and reputation.
Mitigating actions
• System (ERP) consolidation to increase
robustness of digital landscape
• New security standards for industrial
control systems
• Lifecycle planning for key applications
• Embedding a cybersecurity culture
(training, awareness creation)
• KPI definition around vulnerability
management
• Deployment of information protection in
the new generation workplace
56
Governance and compliance | AkzoNobel Report 2019
Mitigating actions
• Set up a Transformation Offi ce to
support adoption of new organizational
model
• Global Process Owners to implement
standard solutions across the company
• Reward system to set desired
behavioral changes in motion and keep
momentum
• Launch of organizational health
initiatives and periodic tracking of
progress
• Range of programs to attract and retain
talent
• Updating internal authority procedures
and our control framework to refl ect
changes in roles and responsibilities
Internal – Operational
ANALYTICS AND BIG DATA
In order to utilize data analytics and “big
data” to support even better decision-
making, we recognize the need to invest
in an appropriate organizational structure
and governance framework with common
standards, methods and tools to deliver
insightful information across the company.
Mitigating actions
• Risk and mitigation ownership with
an empowered community of Global
Process Owners
• Defi ne master data quality standards
and priorities
• Extended set of key controls
External – Compliance
COMPLYING WITH
LAWS AND REGULATORY
DEVELOPMENT
• Digitally driven marketing
• Investment in sales capability
Internal – Strategic
As a global player, we are exposed to
increasingly stringent laws and regulations
covering a growing range of subjects
(such as environmental releases, human
rights, competition law).
INNOVATION, IDENTIFICA-
TION AND SUCCESSFUL
IMPLEMENTATION OF
MAJOR TRANSFORMING
TECHNOLOGIES
Mitigating actions
• Fostering an open and transparent
culture, continuously educating and
training
• Implementation of a Business Partner
Compliance Framework
• Defi ne ambitious standards in VOC/
dust emission/energy control systems
• Operate under state-of-the-art safety
requirements for our manufacturing and
R&D sitesr
Internal – Strategic
ORGANIC GROWTH
Market leadership in those parts of the
world where our markets are growing is
one of the cornerstones of our strategy.
A global presence, in combination
with locally tailored go-to-market models,
is an essential ingredient to success.
Mitigating actions
• Clear BU strategic mandates to deliver
on growth opportunities
• Deployment of commercial excellence
programs
Our leadership positions and future
success are underpinned by investment
in research, the adoption of major
transforming technologies and continuous
development of the talents and skills of
our people.
Mitigating actions
• Funding for technology road maps and
innovation strategies
• Investing in promising venture funds
• Partnering with innovative startups
(Paint the Future)
• IT resources to support the business in
new technology applications
Internal – Operational
MANAGEMENT OF CHANGE
Our Winning together: 15 by 20
ambition is transforming the company.
At the same time, we also recognize
the risks associated with change, as
well as the need to invest in building an
organization structure which encourages
and embraces change, while balancing
opportunity and managing risk.
AkzoNobel Report 2019 | Governance and compliance
57
INTEGRITY AND COMPLIANCE MANAGEMENT
We’re committed to
leading with integrity in
our industry. It’s one of
our three core principles
for doing business.
Our robust Integrity and
Compliance program
helps ensure compliance
with laws and regulations
and guides our
employees to make fair
and honest decisions
every day.
GOVERNANCE AND
ORGANIZATION
the following working committees (which
are further explained on our website):
The Executive Committee is responsible
for maintaining a culture of integrity and
ensuring an effective compliance control
framework. The Audit Committee of
the Supervisory Board supervises this
responsibility. The Executive Committee
has delegated certain responsibilities to
Integrity and Compliance
Committee
Reviews investigations into material
violations of laws, regulations and internal
rules and into SpeakUp! reports, and
decides on disciplinary measures and
control improvement actions. It also
Integrity and compliance framework
Governance and
organization
Policies and
controls
Risk
management
Reporting
Expert
services
Grievance and
investigation
Policy
management
Culture
Awareness and
education
Due diligence
Monitoring
58
Governance and compliance | AkzoNobel Report 2019
monitors and responds to trends in such
irregularities. In 2019, this committee
was installed to replace the numerous
BU and function compliance committees,
thus elevating the level at which integrity
and compliance irregularities are
decided, while improving consistency of
measures. This coincides with the initiative
of streamlining company-wide end-
to-end processes.
Risk, Control and Compliance
Committees (RCC)
Responsible for supervising the
effectiveness of the control environment
and for reviewing weaknesses in this
environment, as well as progress on
improvement actions.
Human Rights Committee
Responsible for supervising the
company’s human rights program (see
Note 8 of the Sustainability statements).
Privacy Committee
Responsible for supervising the
company’s privacy control framework.
Day-to-day management of the integrity
and compliance framework is delegated
to the Integrity and Compliance function,
which is led by the Director of Integrity
and Compliance. The Director of Integrity
and Compliance reports to the General
Counsel and, as necessary, has access
to the Chairman of the Audit Committee
of the Supervisory Board. This function
includes legal experts in the fi eld of
competition law, bribery and corruption,
export control and sanctions, fraud,
privacy and human rights, who are
59AkzoNobel Report 2019 | Governance and complianceresponsible for setting the rules and making training programs available for their area of expertise, and for providing day-to-day expert guidance and support. The function’s Integrity and Compliance Managers, located in major business hubs spread over six regions, are responsible for risk identification and response, training and awareness, support and monitoring. In 2019, the heads of the Integrity and Compliance, Internal Control and Internal Audit function met monthly to discuss findings and trends, and to align actions. RISK MANAGEMENTAnnually, each BU and major function identifies its key compliance risks and defines actions to mitigate these risks. These actions form part of the BU/function integrity and compliance plan, which in turn forms part of a larger BU/function legal plan. The top five inherent compliance risks relate to competition law, environmental law, anti-bribery, fraud and data protection. In 2019, key focus areas were competition, bribery and privacy.POLICY MANAGEMENTIn 2019, the company launched a new Policy Portal. This portal will become the one-stop-shop for key policies, rules and pro cedures relating to our Global Pro cesses. By reducing complexity and increasing transparency, it will become easier for employees to understand what rules apply to their job, and will increase our effectiveness in applying the rules. AWARENESS AND EDUCATIONWe employ several methods to inform and educate employees on integrity and compliance rules and controls, including communication campaigns, e-learnings and training sessions. Communication campaignsEmployees worldwide regularly receive communications to inform them of certain compliance risks and duties. For example, in 2019, two campaigns were run to alert employees to external fraud threats, with another two focusing on privacy requirements. We also share lessons from investigations on an anonymized basis. In November, a global Integrity Week was held with a focus on compliance in the field of gifts, hospitality and conflicts of interest. Senior leaders distributed messages and videos, articles were posted and discussions held on internal digital platforms, while teams took part in dilemma games and workshops.E-learningThe company operates a suite of integrity and compliance related e-learnings that is mandatory for employees. E-learnings include: Code of Conduct; Life-Saving Rules; competition law; anti-bribery, gifts and entertainment; export control and sanctions; fraud; information security; and privacy. In response to an increased number of harassment and discrimination-related SpeakUp! reports, we introduced a series of diversity and respectful treatment e-learnings in the second half of 2019. Training sessionsNumerous face-to-face and virtual trainings are provided on integrity and compliance related topics to dedicated audiences. In 2019, we provided more than 90 trainings on competition law and around 25 on privacy. DUE DILIGENCEWe have processes in place to perform due diligence screenings and investigations on business partners and other relevant third parties. As part of our export control and sanc tions framework, we screen customers for sanctions and screen transactions for export license requirements. In 2019, we further automated this process to increase assurance that all relevant restrictions are covered. During 2019, we continued our extensive due diligence on risks of impact on human rights in our supply chains of mica, cobalt and tin-based raw materials and improved the related supplier self-assessment framework (see Note 5 in the Sustainability statements). During Integrity Week, we launched a new gift and conflict of interest register, creating more transparency on gifts received and provided, and on potential conflicts between the company’s interests and one’s personal interests.We also introduced a comprehensive registration and assessment process for personal data processing activities. This will enable us to have better visibility on all relevant personal data processing activities and help us support businesses and functions to ensure that these activi-ties comply with applicable privacy rules. As part of our M&A program, we screen acquisition targets for past non-compliance and assess their integrity culture and compliance framework. For example, in 2019, extensive compliance due diligence was performed prior to closing the acquisition of Mapaero.MONITORINGWe have several processes to monitor compliance by employees and business partners with our rules. For example, every year we require employees to confirm that they have understood and complied with our Code of Conduct as part of the performance evaluation cycle. We also require managers to self-assess and confirm compliance by their units with our rules as part of the internal control self-assessment. We monitor supplier performance, including their control framework relating to bribery and human rights, as part of the EcoVadis self-assessment and Together for Sustainability audits. In 2019, we ran a poll among employees to seek their feedback on our integrity culture. The results show that employees feel we have high standards of integrity and they feel comfortable to
raise concerns.
Every year, we run a competition law
compliance declaration program,
whereby more than 14,000 employees
are reminded of our competition law
rules and asked to confirm compliance
or raise concerns or questions with
our competition law experts. In 2019,
preparations were made to integrate this
program with a learning program, to
be run in February 2020.
Our internal audit function performs
numerous audits on our operations. Their
audit plan is risk-based and takes account
of prior compliance and internal control
findings. In 2019, several internal audits
were held at the request of the Integrity
and Compliance function to validate
compliance with our rules in certain units.
GRIEVANCE AND
INVESTIGATION
Our SpeakUp! grievance mechanism
offers employees, business partners
and members of the public a means to
raise concerns relating to compliance
with our Code of Conduct. We apply
strict principles of confidentiality,
respect for anonymity, non- retaliation,
“Handle with care” was the theme of our 2019 Safety Day. The annual event is an opportunity for us to celebrate our achievements,
while reminding us to stay vigilant. This year, we focused on increasing awareness for the potential hazards associated with
chemicals and how to handle them safely.
60
Governance and compliance | AkzoNobel Report 2019
SpeakUp! reports
Total reports and alerts registered
Reports received through SpeakUp!
Safety
Integrity
Sustainability
Conclusions SpeakUp! reports:
(Partially) substantiated
Unsubstantiated
Other (e.g. referred)
Dismissals resulting from SpeakUp! reports
20171
2018
2019
261
129
23
53
53
17
80
32
4
238
104
6
50
48
14
42
48
5
222
164
5
59
100
28
82
54
4
1 2017 numbers include the Specialty Chemicals business.
• In 2019, we abandoned the distinction between category 1 and 2 matters. All matters are now decided by one Integrity
Compliance Committee
• “Referred” means that a matter does not relate to a Code of Conduct violation and is referred to another function for handling
• In 2019, we closed 41 SpeakUp! reports from previous years, ten of which were (partially) substantiated, leading to 0 dismissals
• In 2019, 58 reports and alerts were received outside our SpeakUp! mechanism. 28 thereof were (partially) substantiated, leading
to 21 dismissals
• “Sustainability” includes reports on harassment and discrimination and other Code of Conduct employment matters
objectivity and the right to be heard. In
2019, the investigation process was
further improved by introducing a strict
investigation protocol, which applies
to all investigations. Investigators must
follow certain planning, investigation and
reporting steps to safeguard the right
quality and speed.
As mentioned under Governance and
organization, all decisions are now
taken by one committee, increasing
efficiency and consistency. In 2019, the
total number of reports reduced slightly,
although the percentage received through
SpeakUp! was significantly higher. All
reports and alerts led to 25 dismissals
and numerous other disciplinary measures
and control improvements, confirming the
value of our grievance framework.
REPORTING
During 2019, the Director of Integrity
and Compliance twice reported to the
Executive Committee and the Audit
Committee of the Supervisory Board
on the material compliance matters,
the results from investigations and the
progress on the Integrity and Compliance
plan. We also introduced a monthly
reporting of investigation matters to the
Executive Committee.
Through the RCC meetings, material
compliance related internal control
weaknesses are addressed and reported.
We discuss material investigation matters
quarterly with our external auditor.
61AkzoNobel Report 2019 | Governance and complianceThis report describes the implementation of our Remuneration Policy in 2019 for members of the Board of Management and Supervisory Board. To realize our strategy and create the long-term value we aim for, it is essential that AkzoNobel can attract and retain high caliber members to its Board of Management and Supervisory Board. The remuneration policies for each of these boards support this essential condition to our success. The Remuneration Policy for the Board of Management (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. Details about its implementation in 2019 can be found below in chapter 1. The Remuneration Policy for the Super-visory Board was adopted by share-holders at the Annual General Meeting (AGM) in 2014 and will, with limited changes, be submitted for approval to the AGM in 2020. Details about the implementation of the current policy during 2019 are in chapter 2. The implementation of the remuneration of both the Board of Management and Supervisory Board has been fully compliant with the applicable policies. The revised European directive on the encouragement of long-term shareholder engagement (SRD II) and its codification in Dutch law have been taken into account in the disclosure presented in this report.For a full description of the Remuneration Policy for both the Board of Management and the Supervisory Board, please visit our website: www.akzonobel.com1. REMUNERATION FOR THE BOARD OF MANAGEMENT In implementing the Policy as set out above, 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.Variable remuneration provides an incentive to realize long-term value creation. For the short term, the Supervisory Board sets operational targets over a one-year period that are crucial to the company and are pre-conditions to value creation. The biggest portion of the remuneration packages of Board of Management members is directly aimed at strategic priorities that will contribute to building sustainable long-term value creation, with targets for the return for shareholders and the return on invested capital. For the period 2018 to 2020, following the separation of the Specialty Chemicals business, a one-off long-term incentive to reward bringing value creation at a higher level has been added.Prior to agreeing on incentives, the Remuneration Committee conducted 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.In 2019, the labor market peer group, as referred to in the policy, consisted of the following companies:• Ahold Delhaize • Randstad• Air Liquide • RELX Group• ASML • RPM International• DSM • Sherwin-Williams• Ferro Corporation • Signify• Henkel • Sika• KPN • The Linde Group• LafargeHolcim • Vopak• PPG Industries • Wolters KluwerThe table on page 62 gives an overview of the remuneration of the members of the Board of Management who were in office in 2019. Base salaryThe Remuneration Committee reviewed the salaries of members of the Board of Management during the year, considering 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 2.75% of base salary were agreed, effective as of January 1, 2019:REMUNERATION REPORT• Thierry Vanlancker, CEO: €1,006,000• Maarten de Vries, CFO: €677,000Short-term incentive (STI)In 2019, the financial objectives of the short-term incentive were return on sales (ROS) and operational cash flow (OCF). The individual and qualitative objectives reflect progress towards the achievement of long-term strategic objectives. The performance achieved is summarized in the table on page 62. In determining the outcome of the short-term incentive elements, 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.The Remuneration Committee subsequently determined that bonus payments for the Board of Management would be:• Thierry Vanlancker, CEO: €886,610 (88.1% of salary)• Maarten de Vries, CFO: €387,826 (57.3% of salary)No matching shares were granted to the CEO or CFO in 2019 and no investment in shares under the matching arrangement were made, as this arrangement has been suspended for the period 2018 to 2020. The value of the share-matching plan for these three years is invested in the newly-created 2020 Performance Incentive Plan. Remuneration Board of Managment for the reported financial year
Fixed
remuneration
Variable
remuneration
Post-contract
compensation2
Total
remuneration
Base
salary
Fringe
benefits1
One-year
variable
Multi-year
variable
Proportion of fixed
and variable
remuneration
Extraordinary
items3
1,006,000
10,106
886,610
1,488,096
170,400
3,561,212
0.33 /0.67
670,000
677,000
10,106
387,826
636,345
132,700
1,843,977
0.44 /0.56
450,504
Thierry Vanlancker
Chief Executive Officer
Maarten de Vries
Chief Financial Officer
1 Social security contributions
2 Compensation intended for build-up of retirement benefits instead of pension contributions
3 Accrued amounts for the 2020 Performance Incentive Plan
Performance Board of Managment on STI metrics financial year
Information on performance targets
Relative
Weighing
a) Minimum target/Threshold
b) Corresponding award
a) Maximum target/Threshold
b) Corresponding award
a) Measured performance
b) Actual award outcome
Metric
ROS1
35%
a) 8.8%
Thierry Vanlancker
Chief Executive Officer
OCF2
35%
Qualitative Targets 30%
b) 0%
a) 914
b) 0%
0%
Maarten de Vries
Chief Financial Officer
ROS1
OCF2
35%
a) 8.8%
35%
b) 0%
a) 914
b) 0%
0%
Qualitative Targets 30%
a) 12.9%
b) 150%
a) 1,341
b) 150%
150%
a) 12.9%
b) 150%
a) 1,341
b) 150%
150%
a) 10.7%
b 101.8%
a) 972
b) 30.1%
140%
a) 10.7%
b) 101.8%
a) 972
b) 30.1%
140%
1 ROS was calculated by determining the ratio of adjusted operating income over revenue.
2 OCF was calculated as adjusted EBITDA minus the change in operating working capital and minus capital expenditures, all in constant currencies and in millions.
total shareholder return (TSR), equally
weighted and independently determining
50% of the LTI vesting. The Supervisory
Board reviews ROI performance measure
and target each year and ensures that both
are directly linked to the strategic direction.
The performance level determines: (i) the
performance level below which no shares
vest; (ii) the performance level at which the
target number of shares vest; and (iii) the
performance level at which the maximum
number of shares vest.
TSR is measured relative to an industry
peer group, consisting of the following
nine companies:
• Asian Paints
• Kansai Paint
• Nippon Paint
• RPM
• Axalta
• Masco Corp
• PPG
• Sherwin Williams
• Tikkurilla
International
The vesting schedule that will apply to the
relative TSR metric is listed in the table
below. When making the performance
assessment, the TSR result of AkzoNobel
is included within the ranked peer group.
Relative TSR vesting scheme for the
conditional grants
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.
Conditional grant LTI share plan
2019-2021
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 2019, 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, 2019:
• 21,379 shares were conditionally
granted to Thierry Vanlancker, CEO
• 14,387 shares were conditionally
granted to Maarten de Vries, CFO
Vesting of the conditional grant is linked to
two performance metrics: ROI and relative
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
62
Governance and compliance | AkzoNobel Report 2019
Vesting of the LTI Share Plan
2017-2019
Under the LTI Share Plan 2017-2019, a
conditional grant of 27,300 shares was
made to the CEO. No grant was made
to the CFO, as the CFO started with the
company on January 1, 2018.
Vesting of the conditional grant was
linked to three metrics: ROI (35%); relative
TSR (35%); and the company’s average
position in the DJSI ranking (30%). These
targets were set by the Supervisory
Board prior to the divestment of Specialty
Chemicals. Following the completion of
the sale, these performance targets are
no longer relevant or applicable and the
Supervisory Board has decided to apply
the average historic performance of
85%. The final vesting percentage of the
2017 conditional grant – after including
the dividend yield of 11.37% during the
performance period – equaled 94.66%.
The Remuneration Committee determined
Performance range – 2020 Performance Incentive Plan
2020 ROS target
Award level
Below threshold
Threshold
<14%
0% of
base salary
14%
100% of
base salary
Target
15%
200% of
base salary
Maximum
≥17%
400% of
base salary
that Thierry Vanlancker will vest 25,842
shares, subject to a further two-year
holding requirement. At December 31,
2019, these shares had a market value
of €2,342,319. An overview of all shares
awarded or due to Board of Management
members is shown in the table below.
2020 Performance Incentive Plan
The 2020 Performance Incentive Plan is
an exceptional, one-off plan to incentivize
improvement of the company’s return
on sales (ROS), put in place and approved
by the AGM following the divestment of
Specialty Chemicals. It supports
achievement of 15% ROS (excluding
unallocated corporate center costs) by the
end of 2020, presented to shareholders
as financial guidance towards upper
quartile industry performance.
The 2020 Performance Incentive Plan
could award both members of the Board
of Management with a cash payment of
two times annual base salary, provided
that 15% ROS is achieved by the end of
2020. The performance ranges are set
out in the table on this page. If a change
of control event 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.
Claw back and value adjustment
In 2019, there was no cause for a
claw back or value adjustment by the
Remuneration Committee.
Loans
The company does not grant loans,
advance payments or guarantees to
members of the Supervisory Board,
members of the Executive Committee or
any family member of such persons.
Shareholding requirements and
share matching
As of December 31, 2019, CEO Thierry
Vanlancker held 19,181 shares, of which
1,924 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
2019 remuneration of the Board of Management –
Number of performance-related shares
Performance
period
Plan
Award Date
Vesting
Date
End of
holding period
Balance at
January 1, 2019
Awarded in
2019
Vested
in 2019
ANS2017
2017-2019
January 1, 2017
February 12,
2020
February 12,
2020
Thierry Vanlancker
Chief Executive Officer
ANS2018
2018-2020
January 1, 2018
ANS2019
2019-2021
January 1, 2019
Maarten de Vries
Chief Financial Officer
ANS2018
2018-2020
January 1, 2018
ANS2019
2019-2021
January 1, 2019
February
2021
February
2022
February
2021
February
2022
February
2023
February
2024
February
2023
February
2024
30,383
20,813
–
–
21,379
17,722
–
14,387
–
–
–
Forfeited
in 2019
(7,014)
Dividend
in 2019
2,473
Balance at
December 31,
2019
25,842
1,692
22,505
1,738
23,117
1,441
19,163
1,170
15,557
AkzoNobel Report 2019 | Governance and compliance
63
respectively, subject to the terms of the
Share-Matching Plan. Shares acquired in
2019 by the CEO contribute towards his
required shareholding in accordance with
the Remuneration Policy.
As of December 31, 2019, CFO
Maarten de Vries held 4,164 shares.
The shares acquired by the CFO during
2019 contribute towards his required
shareholding in accordance with the
Remuneration Policy.
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.
Comparative information
In compliance with point (b), paragraph 1
of Article 9b of the EU Directive on long-
term shareholder engagement, we present
below: the annual change of remuneration
of each individual member of the Board
of Management; the performance of the
company; and the average remuneration
on a full-time equivalent basis of company
employees over at least the five most
recent financial years.
Comparative table of remuneration and company performance over last five reported financial years (RFY)
Remuneration CEO
Fixed compensation
Total direct compensation
% change fixed compensation
% change total compensation
Remuneration CFO
Fixed compensation
Total direct compensation
% change fixed compensation
% change total compensation
Company performance
2014
2015
2016
2017
2018
2019
Divestment Specialty Chemicals
Ton Büchner
1,167,500
3,183,600
n.a.
n.a.
n.a.1
n.a.1
n.a.1
n.a.1
1,223,900
3,443,300
1,339,000
3,518,900
5%
8%
9%
2%
Maëlys Castella
681,000
710,300
1,322,700
1,586,400
n.a.
n.a.
4%
20%
Thierry Vanlancker
1,135,825
2,825,863
(15%)
(20%)
715,016
2,169,290
1%
37%
1,151,900
2,899,883
1,186,500
3,561,212
1%
3%
3%
23%
Maarten de Vries
797,600
819,800
1,515,816
1,843,977
12%
(30%)
3%
22%
Net income attributable to shareholders
546,000,000
979,000,000
970,000,000
832,000,000
6,674,000,000
539,000,000
Net income % change
ROI
ROI % change
(25)
10.9
21%
79
14.0
28%
(1)
14.4
3%
(14)
13.9
(3%)
702
12.6
(9%)
(92)
14.1
12%
Adjusted Operating Income (OPI)
1,072,000,000
1,462,000,000
928,000,000
905,000,000
798,000,000
991,000,000
Adjusted OPI % change
20%
36%
(37%)
(2%)
(12%)
24%
Average remuneration on a full-time equivalent basis of employees
Average salary per employee2
% change average remuneration
58,589
0%
59,176
1%
58,559
(1%)
53,453
(9%)
56,619
6%
54,825
(3%)
1 Maëlys Castella in service as of September 2014. 2014 remuneration excluded
• In years of transition, the compensation for the newly appointed Board of Management member
share based compensation, making an annualized figure noncomparable.
has been annualized
2 Calculated as employee benefits over average number of employees.
• The salary increase budgets for 2015 amounted to 3.4%, for 2016 to 3.8%, for 2017 to 4.1%,
for 2018 to 3.5% and for 2019 to 4.26% of total salaries
Over the last few years of transition,
the company’s performance fluctuated
sig nificantly, as the table shows. Net
income attributable to shareholders was
reduced in 2014 due to higher tax and
lower profit from discontinued operations
and recovered again in 2015 due to the
positive effects of process optimization,
lower costs, favorable currency develop-
ments and incidental items. In 2018, net
profit increased sharply, mainly due to the
divestment of Specialty Chemicals, with a
deal result of €5,811 million after tax.
The transition was also reflected in the
development of remuneration. Re struc-
turing due to discontinued operations,
for example, resulted in a reduction
of the average salary per employee,
followed by increases when operations
stabilized and profits increased again.
In 2018, the increase in average salary
was also influenced by the inclusion of
a one-off €57 million pension cost for
the UK Guaran teed Minimum Pension
equalizations.
The pay ratio between the total compen-
sation of the CEO in 2019 and the total
compensation of an AkzoNobel employee
(calculated as an average of all employees
as of December 31, 2019) is 65.0
(2018: 51.2).
Post-contract compensation
Board of Management members receive
contributions towards post-contract
benefits, which are defined as a percen-
tage of income, as determined by the
Supervisory Board. Currently, they are
based on age. Contributions are paid
64
Governance and compliance | AkzoNobel Report 2019
over the base salary in the current
year and vary depending on the Board
member’s age.
Board contracts
Agreements for members of the Board
of Management are concluded for a
period not exceeding four years. After the
initial term, re-appointments may take
place for consecutive periods of up to
four years each. The notice period by the
Board member, 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.
2. REMUNERATION FOR THE
SUPERVISORY BOARD
Members of the Supervisory Board
receive a fixed remuneration based on the
roles and responsibilities. Travel expenses
and facilities are borne by the company
and reviewed by the Audit Committee.
Implementation of the Remuneration
Policy for the Supervisory Board in 2019
resulted in the payout as presented in the
table on the right. According to the Code,
members are not remunerated in shares.
3. REMUNERATION POLICIES
FOR THE NEXT
FINANCIAL YEAR
The Supervisory Board has evaluated the
remuneration policies for the Board of
Management and Supervisory Board. We
have considered input from stakeholders
and the requirements of the EU Directive
on the encouragement of long-term
shareholder engagement (SRD II) and
the Dutch regulation implementing this
Directive. As a result, new policies were
prepared for both boards, to be sub mitted
for approval at the AGM in April 2020.
Remuneration Policy for the Board
of Management
The Supervisory Board has concluded
that the Remuneration Policy for the
Board of Management – approved by
the AGM in 2005 and since amended,
most recently in 2018 – is in line with
the objectives of the company. The
remuneration it provides is balanced and
adequate. The disclosure on the Policy
has been extended to provide additional
insight, in compliance with SRD II, and the
Remuneration Policy will be submitted to
the AGM with limited changes.
will then be submitted to shareholders
for approval
For implementation in 2020, the
Supervisory Board has decided that:
• The one-off Performance Incentive
Plan introduced in 2018 remains in
place, to be concluded this year.
The suspension of the matching shares
arrangement will be continued until
this conclusion
• Metrics applied for the STI in 2019 were
ROS and OCF, and are intended to
continue for the 2020 financial year, as
they remain relevant and aligned with
the company’s strategy
• Metrics applied for LTI will remain in
line with the strategic direction of
the company. Should there be any
changes to the current metrics, these
Remuneration Policy for the
Supervisory Board
The Supervisory Board has concluded that
the Remuneration Policy for the Super-
visory Board – approved by the AGM in
2014 – is in line with the objectives of the
company. The remuneration it provides is
balanced and adequate and will remain
unchanged. The disclosure on the Policy
has been extended to provide additional
insight, in compliance with SRD II, and
this revised Remuneration Policy will be
submitted to the AGM.
2019 remuneration of the Supervisory Board
in €
Smedegaard Andersen, Chairman1
Antony Burgmans2
Peggy Bruzelius3
Byron Grote, Deputy Chairman
Pamela Kirby
Louis Hughes2
Dick Sluimers
Ben Verwaayen
Sue Clark
Patrick Thomas
Michiel Jaski
Jolanda Poots-Bijl4
Total
1 As of May 1, 2018.
2 Until April 30, 2018.
3 Until April 30, 2019.
4 As of May 1, 2019.
2018 Total
remuneration
111,373
53,215
119,318
135,500
92,500
32,322
107,500
95,000
87,995
90,659
78,159
–
Remuneration
130,000
–
21,667
78,000
65,000
–
65,000
65,000
65,000
65,000
65,000
43,333
1,003,541
663,000
Attendance
fee
Committee
allowance fees
Employer’s
charges
2019 Total
remuneration
12,500
–
5,000
12,500
12,500
–
2,500
12,500
12,500
12,500
2,500
2,500
87,500
20,000
–
6,667
40,000
15,000
–
40,000
15,000
15,000
20,000
20,000
13,333
–
–
4,376
–
–
–
–
–
–
–
–
162,500
-
37,710
130,500
92,500
-
107,500
92,500
92,500
97,500
87,500
59,166
205,000
4,376
959,876
AkzoNobel Report 2019 | Governance and compliance
65
AKZONOBEL AND THE CAPITAL MARKETS
SHARES
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 2019, 229 million AkzoNobel
shares were traded on Euronext
Amsterdam (2018: 176 million).
AkzoNobel has a sponsored level 1 ADR
program and ADRs can be traded on the
international OTCQX platform in the US.
Please refer to the table below for stock
codes and ticker symbols.
Euronext ticker symbol
AKZA
ISIN common share
NL0013267909
OTC ticker symbol
AKZOY
ISIN ADR
US0101995035
AkzoNobel has 100% free float, and
a broad base of international
shareholders.
Based on an independent shareholder
analysis, the Distribution of shares
chart (see opposite page) shows the
geographical spread of AkzoNobel
shareholders.
Around 3% of the company’s share
capital is held by private investors, many
of whom are resident in the Netherlands.
Approximately 11% 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
Environmental, Social and Governance (ESG) approach
• Sustainable and responsible investor themed funds
managed by broad sustainable and responsible investors
Key share data1
Year-end (share price in €)
Year-high (share price in €)2
Year-low (share price in €)2
Number of shares outstanding at year-end (in millions)
Market capitalization at year-end (in € billions)
Dividend per share (in €)
Dividend yield (in %)3
2017
73.02
82.64
59.11
253
18.4
2.50
3.4
2018
70.40
82.7
68.82
256
17.8
1.80
2.6
2019
90.69
91.86
69.12
200
18.1
1.90
2.1
1 Based on Bloomberg share data.
2 Based on close value.
3 Based on year-end share price. Excluding special dividend of €4.00 in 2017 and €4.50 in 2019.
Share price performance 2019 AkzoNobel share price in €
AkzoNobel
AEX index
Bloomberg Global Chemicals Index
100
95
90
85
80
75
70
65
60
8
1
c
e
D
9
2
9
1
n
a
J
9
1
b
e
F
9
1
r
a
M
9
1
r
p
A
9
1
y
a
M
9
1
n
u
J
9
1
l
u
J
9
1
g
u
A
9
1
t
p
e
S
9
1
t
c
O
9
1
v
o
N
9
1
c
e
D
1
3
We were proud to receive recognition from the Top Employers Institute in Brazil, China, the UK, the Netherlands and the US during
the course of 2019. It was the seventh year AkzoNobel had received Top Employer status in the UK, the sixth year in China (pictured)
and the third year in Brazil.
66
Governance and compliance | AkzoNobel Report 2019
Following 2019 reviews, AkzoNobel
was included in a number of leading
sustainability indices and continues to be
the reference in the paints and coatings
industry. See “Managing sustainability”
in the Sustainability statements for a
complete overview.
The AkzoNobel share price was up 28.8%
at year-end 2019, compared with 2018,
out-performing both the Bloomberg
Global Chemicals and AEX indices (see
Share price performance graph above).
BB Global chem index
AEX
AkzoNobel
Analyst recommendations*
Distribution of shares 2019 in %
Dividend paid in € per share
BONDS
C
B
A
C
A
D
B
A Buy
B Hold
C Sell
* Figures indicate number of analysts.
11
9
6
A US
B UK
C Rest of Europe
D Rest of world
Interim dividend
Final dividend
Total
1.65
2.50
1.80
1.90
On November 8, 2019, a €500 million
Floating Note Rate reached maturity and
was repaid. The maturity schedule of
outstanding bonds is shown below.
1.94
0.56
2017
1.28
0.37
2016
1.43
1.49*
0.37
2018
0.41
2019
* Proposed. Excluding special dividend of €4.00 in 2017 and
€4.50 in 2019.
49
20
22
9
At year-end 2019, AkzoNobel was
covered by 26 equity brokers. An overview
of analyst recommendations is shown in
the graph above.
trading ex- dividend as of April 27, 2020.
In compliance with the listing requirements
of Euronext Amsterdam, the record date
for the final dividend will be April 28, 2020.
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
DIVIDEND
The dividend policy is to pay a stable
to rising dividend. In 2019, an interim
dividend of €0.41 per share (2018: €0.37)
was paid. The Board of Management
proposes a 2019 final dividend of €1.49
per share, which would equal a total 2019
dividend of €1.90 (2018: €1.80) per share.
The dividend proposed to the 2020
Annual General Meeting of shareholders,
following adoption, will be payable as of
May 7, 2020. AkzoNobel’s shares will be
CREDIT RATING AND
BONDS
Debt maturity1 in € millions (nominal amounts)
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 on the right
for the current credit ratings and outlook.
800
Paid
500
750
500
500
For further information please visit
our website: akzonobel.com
1 At the end of 2019.
2018
2019
2020
2021
2022
2023
2024
2025
2026
AkzoNobel Report 2019 | Governance and compliance
67
Financial information
Cleaner walls made easyHow do you test the toughness and durability of interior wall paint? Ask a load of children to make a complete mess of it! That’s exactly what our Dulux brand did when introducing its Easycare stain-resistant paint range in South Africa during 2019. The youngsters were invited to run amok with everything from tomato sauce to mud. And then all the mess was washed off the walls with a simple cloth and water. Easy. www.dulux.com 69AkzoNobel Report 2019 | Financial informationFINANCIAL STATEMENTSFinancial statementsConsolidated statement of income 70Consolidated statement of comprehensive income 70Consolidated balance sheet 71Consolidated statement of cash flows 72Consolidated statement of changes in equity 73Segment information 74Notes to the Consolidated financial statements Note 1 Summary of significant accounting policies 75Note 2 Scope of consolidation 82Note 3 Alternative performance measures 84Note 4 Revenue 85Note 5 Operating income 87Note 6 Employee benefits 87Note 7 Financing income and expenses 89Note 8 Income tax 89Note 9 Earnings per share 91Note 10 Intangible assets 92Note 11 Property, plant and equipment 93Note 12 Leases 95Note 13 Investments in associates and joint ventures 95Note 14 Financial non-current assets 96Note 15 Inventories 96Note 16 Trade and other receivables 96Note 17 Group equity 96Note 18 Post-retirement benefit provisions 98Note 19 Other provisions and contingent liabilities 103Note 20 Net debt 104Note 21 Trade and other payables 105Note 22 Cash flow 106Note 23 Commitments 106Note 24 Related party transactions 106Note 25 Remuneration of the Supervisory Board 106 and the Board of Management Note 26 Financial risk management 107Note 27 Subsequent events 110Company financial statements Statement of income 111Balance sheet 111Movements in shareholders’ equity 112Note A General information 112Note B Other results 113Note C Financing income and expense 113Note D Financial non-current assets 113Note E Short-term receivables 114Note F Shareholders’ equity 114Note G Net debt 114Note H Other current liabilities 115Note I Financial instruments 115Note J Contingent liabilities 115Note K Auditor’s fees 116Other information Other information 116Independent auditor’s report 117Profit allocation and distributions 123 Financial summary 124Financial information CONSOLIDATED STATEMENT
OF INCOME
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
2018
6,729
(23)
24
1
(110)
(20)
22
(108)
(107)
6,622
6,578
44
6,622
2019
577
(249)
24
(225)
127
–
11
138
(87)
490
453
37
490
In € millions, for the year ended December 31
Note
2018
2019
In € millions, for the year ended December 31
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
9,276
(5,309)
(2,179)
(687)
(255)
(5)
(76)
20
9,256
(5,329)
(2,182)
(872)
(264)
(4)
(52)
20
4
5
5
5
5
5
7
13
8
2
9
9
9
9
9
9
3,927
(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
70
Financial statements | AkzoNobel Report 2019
Profit for the period
Other comprehensive income / (expense)
Items that will not be reclassified to the statement of income:
3,967
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
(3,126)
841
785
(230)
555
22
577
539
38
577
2.43
2.42
0.10
0.10
2.53
2.52
CONSOLIDATED BALANCE SHEET, BEFORE
ALLOCATION OF PROFIT
In € millions, at December 31
Note
2018
2019
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Investments in associates and joint ventures
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
Total current assets
Total assets
Equity and liabilities
Equity
Shareholders’ equity
Non-controlling interests
Group equity
Non-current liabilities
Post-retirement benefit provisions
Other provisions
Deferred tax liabilities
Long-term borrowings
Total non-current liabilities
Current liabilities
Short-term borrowings
Current tax liabilities
Trade and other payables
Current portion of provisions
Total current liabilities
Total equity and liabilities
10
11
12
8
13
14
15
8
16
20
20
17
17
18
19
8
20
20
8
21
18, 19
3,458
1,748
–
559
137
1,269
1,139
74
2,141
5,460
2,799
11,834
204
603
296
368
1,799
599
225
2,645
211
3,625
1,700
374
529
150
1,862
7,171
8,240
1,139
63
2,133
138
1,271
6,350
218
701
280
391
2,042
169
196
2,406
231
4,744
12,984
6,568
3,414
3,002
12,984
11,613
18,784
12,038
3,066
3,680
18,784
AkzoNobel Report 2019 | Financial statements
71
CONSOLIDATED STATEMENT OF CASH FLOWS
In € millions, for the year ended December 31
Profit for the period from continuing operations
Adjustments to reconcile earnings to net 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
Pension pre-funding
Changes in pension provisions
Changes in other provisions
Interest paid
Income tax paid
Other changes
Net cash generated 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 ) / generated from investing activities
Proceeds from borrowings
Borrowings repaid
Capital repayment
Share buyback
Dividends paid
Buy-out of non-controlling interests
Other changes
Net cash used for financing activities
Net cash used for continuing operations
Net cash generated from/(used for) discontinued operations
Net change in cash and cash equivalents from 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
72
Financial statements | AkzoNobel Report 2019
Note
2018
2019
455
239
1
52
(20)
(42)
118
(177)
–
(157)
(46)
(89)
(164)
(8)
(184)
47
7
(128)
(5,541)
80
54
(3)
607
(1,529)
–
–
(636)
(437)
5
10, 11, 12
10, 11, 12
7
13
2
8
22
18, 22
18
19, 22
10, 11
2
20
20
20
20
17
17
17
2
2
20
555
360
66
76
(20)
(83)
230
(244)
(161)
(509)
(15)
(66)
(184)
28
(214)
13
–
(224)
(2,325)
7,663
104
(5)
10
(623)
(2,000)
(2,520)
(1,446)
–
–
33
5,012
(6,579)
(1,534)
(10)
(1,544)
2,732
22
1,210
162
(5,668)
(1,990)
(7,496)
8,958
1,462
1,278
(8)
2,732
* Capital expenditures include investments
in intangible assets (refer to Note 10)
and investments in property, plant and
equipment (refer to Note 11).
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to shareholders of the company
Subscribed share
capital
Additional paid-in
capital
Cash flow hedge
reserve
Cumulative trans-
lation reserve
Other (legal)
reserves and
undistributed
profit
Shareholders’
equity
Non-controlling
interests
Group equity
505
–
–
–
505
–
–
–
–
–
5
–
2
–
512
–
–
–
–
–
–
(14)
(399)
–
1
100
769
–
–
–
769
–
–
–
–
–
191
–
(2)
–
958
–
–
–
–
–
–
–
(957)
–
(1)
–
15
–
–
–
15
–
(83)
63
5
(15)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(549)
5,125
5,865
–
–
23
(526)
–
52
(151)
17
(82)
–
–
–
–
(608)
–
–
128
11
139
–
–
–
–
–
(469)
(3)
(48)
–
5,074
6,674
–
(23)
24
6,675
(586)
32
–
(223)
10,972
539
–
(249)
24
314
(1,423)
(2,520)
(644)
20
–
6,719
(3)
(48)
23
5,837
6,674
(31)
(111)
46
6,578
(390)
32
–
(223)
11,834
539
–
(121)
35
453
(1,423)
(2,534)
(2,000)
20
–
6,350
442
–
(5)
–
437
55
–
(11)
–
44
(57)
–
–
(220)
204
38
–
(1)
–
37
(23)
–
–
–
–
218
6,307
(3)
(53)
23
6,274
6,729
(31)
(122)
46
6,622
(447)
32
–
(443)
12,038
577
–
(122)
35
490
(1,446)
(2,534)
(2,000)
20
–
6,568
In € millions
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 / (expense)
Tax on other comprehensive income
Comprehensive income for the period
Dividend
Equity-settled transactions*
Issue of common shares
Acquisitions and divestments
Balance at December 31, 2018
Profit for the period
Reclassification into the statement of income
Other comprehensive income / (expense)
Tax on other comprehensive income
Comprehensive income for the period
Dividend
Share buyback
Capital repayment and share consolidation
Equity-settled transactions*
Issue of common shares
Balance at December 31, 2019
* Includes a tax credit of €4 million (2018: €1 million tax charge).
AkzoNobel Report 2019 | Financial statements
73
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 is the reference to 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 business area
Revenue
from third parties
Group revenue
Amortization and
depreciation
Adjusted operating
income1
Identified items2
Operating income
ROS%3
OPI margin4
In € millions
Decorative Paints
Performance Coatings
Corporate and other
2018
3,667
5,563
26
2019
3,670
5,549
2018
3,699
5,587
57
(30)
2019
3,703
5,563
10
Total
9,256
9,276
9,256
9,276
2018
(92)
(138)
(9)
(239)
2019
(155)
(183)
(22)
(360)
2018
346
629
(177)
798
2019
418
688
(115)
991
2018
(38)
(52)
(103)
(193)
2019
7
(123)
(34)
(150)
2018
308
577
(280)
605
2019
425
565
(149)
841
2018
9.4
11.3
2019
11.3
12.4
2018
8.3
10.3
2019
11.5
10.2
8.6
10.7
6.5
9.1
1 Adjusted operating income is operating income excluding identified items.
2 ldentified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges,
3 ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of group revenue.
4 OPI margin is calculated as operating income as a percentage of group revenue.
and charges and benefits related to major legal, anti-trust, environmental and tax cases.
Information per business area
In € millions
Decorative Paints
Performance Coatings
Corporate and Other
Total
Invested capital
Total assets
Total liabilities
Capital expenditures1
2018
2,759
2,963
481
6,203
2019
2,992
3,401
621
7,014
2018
4,357
4,766
9,661
2019
5,569
6,794
621
18,784
12,984
2018
1,511
1,563
3,672
6,746
2019
3,249
2,774
393
6,416
2018
50
107
27
184
2019
62
113
39
214
2018
12.4
20.5
–
12.6
ROI%2
2019
13.4
20.7
–
14.1
1 Capital expenditures include investments in intangible assets (refer to Note 10) and investments in property, plant and equipment (refer to Note 11).
2 ROI% is calculated as adjusted operating income (operating income excluding identified items) of the last 12 months as a 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
US and Canada
South America
Asia
Other regions
Total
Revenue by region of destination
Intangible assets and property,
plant and equipment
Invested capital
Capital expenditures*
2018
318
3,726
1,134
815
2,704
559
9,256
2019
359
3,748
1,139
815
2,656
559
9,276
2018
1,198
1,469
485
255
1,698
101
5,206
2019
1,182
1,659
501
239
1,642
102
5,325
2018
1,639
2,023
636
332
1,386
187
6,203
2019
1,766
2,469
682
347
1,528
222
7,014
2018
25
81
18
13
35
12
184
2019
42
74
29
15
44
10
214
* Capital expenditures include investments in intangible assets (refer to Note 10) and investments in property, plant and equipment (refer to Note 11).
74
Financial statements | AkzoNobel Report 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Summary of signifi cant accounting policies
GENERAL INFORMATION
Akzo Nobel N.V. is a company headquartered in the Neth-
erlands. The address of our registered offi ce is Christian
Neefestraat 2, Amsterdam; the Chamber of Commerce
number is 09007809. We have fi led a list of subsidiar-
ies, 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 fi nancial 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 fi nancial reporting
requirements included in Title 9 of Book 2 of the Dutch
Civil Code, as far as applicable. The Consolidated fi nancial
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:
• 2019 facts and fi gures
• 2019 summary
• CEO statement
• Our strategy: how we created value in 2019
• Business overview
• Our 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 26 Financial risk
management
The section How we created value in 2019 provides
information on the developments during 2019 and the
results. This section also provides information on cash
fl ow and net debt, capital expenditures, innovation
activities and employees.
On February 11, 2020, the Board of Management autho-
rized the fi nancial statements for issue. The fi nancial
statements as presented in this report are subject to adop-
tion by the Annual General Meeting of shareholders on
April 23, 2020.
CONSOLIDATION
The Consolidated fi nancial statements include the
accounts of Akzo Nobel N.V. and its subsidiaries. Subsid-
iaries are companies over which Akzo Nobel N.V. has
control, because it is exposed, or has rights, to variable
returns from its involvement with the subsidiary and has
the ability to affect returns through its power over the
subsidiary. Non-controlling interests in equity and in results
are presented separately.
CHANGE IN ACCOUNTING POLICIES
AND FIRST TIME APPLICATION
In 2019, the most signifi cant change in accounting policies
relates to adoption of the new standard IFRS 16 “Leases”.
IFRS 16 Leases
IFRS 16 replaces the previous standard on lessee
accounting for leases. It requires lessees to bring most
leases on balance sheet in a single lease accounting
model, recognizing a right-of-use asset and a lease liability.
Compared with the previous standard for operating leases,
it also impacts the classifi cation and timing of expenses
and consequently the classifi cation between net cash from
operating activities and net cash from fi nancing activities.
AkzoNobel has adopted IFRS 16 as per January 1, 2019,
applying the modifi ed retrospective approach. All right-of-
use assets are measured at the amount of the lease
liability at transition, adjusted for any prepaid or accrued
lease expenses. Short-term and low-value leases are
exempted. AkzoNobel has not restated its 2018 compara-
tive fi gures. The adoption did not have an impact on group
equity. IFRS 16 requires the right-of-use asset and the
lease liability to be recognized at discounted value and
assumptions with regards to termination and renewal
options have been taken into consideration.
On transition to IFRS 16, we elected to apply the practi-
cal expedient to grandfather the prior assessment of
which transactions are leases. We applied IFRS 16 only
to contracts that were previously identifi ed as leases.
Contracts that were not identifi ed as leases under IAS 17
and IFRIC 4 were not reassessed for whether there is a
lease under IFRS 16. Therefore, the defi nition of a lease
under IFRS 16 was applied only to contracts entered
into or changed on or after January 1, 2019. We applied
judgement at the initial application of IFRS 16 and also
thereafter, when assessing whether payments to be made
in optional periods should be included in the calculation of
the right-of-use assets and lease liability. Such payments
are included in the calculations when we deem it reason-
ably certain to exercise an option to extend the lease, or
not to exercise an option to terminate the lease.
We used a number of practical expedients when applying
IFRS 16 to leases previously classifi ed as operating leases
under IAS 17, in particular:
• On a lease by lease basis we decided whether to
recognize right-of-use assets and liabilities for leases for
which the lease term ends within 12 months of the date
of initial application
• We did not recognize right-of-use assets and liabilities
for leases of low-value assets (e.g. certain IT equipment)
• We excluded initial direct costs from the measurement
of the right-of-use asset at the date of initial application
• We used hindsight when determining the lease terms
In respect of the implications of IFRS 16 for tax account-
ing, AkzoNobel has assessed that the right-of-use asset
and the lease liability are to be considered together as a
single transaction, because in the company’s view they
are integrally linked. As a result, at inception of a lease and
also at the IFRS 16 transition, the net lease asset or liability
(without taking into account any advance payments) is nil,
the tax base is nil and, therefore, the temporary difference
is nil. Hence, no deferred taxes have to be accounted for at
inception/IFRS 16 transition and going forward deferred tax
AkzoNobel Report 2019 | Financial statements
75
Impact of adoption of IFRS 16 on the consolidated balance sheet
Impact of adoption of IFRS 9 and IFRS 15 and application of IAS 29
In € millions
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Investments in associates and joint
ventures
Financial non-current assets
Inventories
Current tax assets
Trade and other receivables
Short-term investments
Cash and cash equivalents
Total assets
Shareholder’s equity
Non-controlling interest
Post-retirement benefit provisions
Other provisions
Deferred tax liabilities
Long-term borrowings
Short-term borrowings
Current tax liabilities
Trade and other payables
Current portion of provisions
Total equity and liabilities
As reported at
December 31, 2018
Restatement
due to adoption
of IFRS 16
Restated
opening balance at
January 1, 2019
3,458
1,748
–
559
137
1,269
1,139
74
2,141
5,460
2,799
18,784
11,834
204
603
296
368
1,799
599
225
2,645
211
18,784
(36)
(29)
432
–
–
–
–
–
(4)
–
–
363
–
–
–
–
–
270
93
–
–
–
363
3,422
1,719
432
559
137
1,269
1,139
74
2,137
5,460
2,799
19,147
11,834
204
603
296
368
2,069
692
225
2,645
211
19,147
In € millions
Depreciation and amortization
Adjusted operating income1 6
Identified items2
Operating income
Financing income and expenses
Income tax
Profit for the period
Net cash from operating activities
Net cash from financing activities
ROS%3 6
OPI margin4 6
ROI%5 6
2019 before
IFRS 16
(255)
983
(145)
838
(68)
(232)
580
75
(6,471)
10.6
9.0
14.7
Impact
(105)
8
(5)
3
(8)
2
(3)
108
(108)
0.1
0.1
(0.6)
2019 Including
IFRS 16
(360)
991
(150)
841
(76)
(230)
577
33
(6,579)
10.7
9.1
14.1
1 Adjusted operating income is operating income excluding identified items.
2 This identified item relates to a non-cash impairment of right-of-use assets following the implementation of our strategic
portfolio review.
3 ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of group revenue.
4 OPI margin is operating income as percentage of revenue.
5 ROI% is calculated as adjusted operating income (operating income excluding identified items) of the last 12 months as a
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.
6 Adjusted operating income, ROS%, OPI margin and ROI% are APM measures; a reconciilation of the alternative performance
measures to the most directly comparable IFRS measures refer to Note 3.
is recognized when temporary differences arise after initial
recognition, subject to the IAS 12 recognition principles.
The adoption of IFRS 16 as per January 1, 2019, has
resulted in the recognition of right-of-use assets of €367
million, and additional lease liabilities of €363 million. In
addition, assets with a book value of €65 million have
been reclassified to right-of-use assets, including among
others finance leases. In the Consolidated statement of
income, the operating lease expenses (€113 million), previ-
ously recorded in operating income, are replaced by the
depreciation charges on right-of-use assets (€105 million;
remains recorded in operating income) and by Interest
expenses for the lease liability (€8 million; recorded in
net financing expenses). In addition, we recorded a non-
cash impairment charge of right-of-use assets of
€5 million. On a net basis, the adoption of IFRS 16 has
led to an increase of operating income by €3 million and
an increase of net financing expenses by €8 million;
profit before tax was €5 million lower and profit for the
period was €3 million lower. The payments for the operat-
ing leases (€108 million), previously included in the net
cash from operating activities, are now included in the net
cash from financing activities.
The blended incremental borrowing rate applied to the
lease liabilities at January 1, 2019, was 2.2%. The follow-
ing table reflects the reconciliation of the operating lease
commitments as at December 31, 2018, and the lease
liabilities recognized as at January 1, 2019.
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Financial statements | AkzoNobel Report 2019
Changes in lease accounting
In € millions
Operating lease commitments as at December 31, 2018
Adjustments as a result of finalizing the lease portfolio
assessment
Low-value and short-term leases recognized on a
straight-line basis as expense
Total undiscounted lease commitments
Discounting of lease commitments
Lease liability recognized at January 1, 2019
2019
420
(7)
(10)
403
(40)
363
ALTERNATIVE PERFORMANCE
MEASURES (NOTE 3)
Our Alternative Performance Measures (APM) are based
on IFRS measures and exclude so-called identified items.
Identified items are special charges and benefits, results
on acquisitions and divestments, major restructuring and
impairment charges, and charges and benefits related to
major legal, anti-trust, environmental and tax cases, which
are generated outside the normal course of business.
Other changes in accounting policies
Accounting pronouncements, which became effective
for 2019 (among others IFRIC 23 ‘‘Uncertainty over
income tax treatments” and ‘‘Plan Amendment, Curtail-
ment and Settlement” (Amendments to IAS 19)) had no
material impact on our Consolidated financial statements
as to a large extent we already complied with these
pronouncements.
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. When reclassifying assets and liabilities as held for
sale, we recognize the assets and liabilities at the lower of
their carrying value or fair value less costs to sell. Assets
held for sale 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
represented. The balance sheet comparative figures are
not represented.
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, including uncertain
tax positions (Note 8)
• Impairment of intangible assets, property, plant and
equipment and right-of-use assets (Note 10, 11, 12)
• Post-retirement benefit provisions (Note 18)
• Provisions and contingent liabilities (Note 19)
STATEMENT OF CASH FLOWS
We have used the indirect method to prepare the statement
of cash flows. Cash flows in foreign currencies have been
translated at transaction rates. Acquisitions or divestments
of subsidiaries are presented net of cash and cash
equivalents acquired or disposed of, respectively. Cash
flows from derivatives are recognized in the statement
of cash flows in the same category as those of the
hedged items.
OPERATING SEGMENTS
We determine and present operating segments based on
the information that is provided to the Executive Commit-
tee, our chief operating decision-maker during 2019, to
make decisions about resources to be allocated to the
segments and assess their 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 of 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 denomi-
nated in foreign currencies are translated into the function-
al currency using the exchange rates at the balance sheet
date. Resulting foreign currency differences are included
in the statement of income, whereby interest-related
effects are included in financing income and expenses.
Non-monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency at the
exchange rate at acquisition date.
The assets and liabilities of entities with other functional
currencies are translated into euros, the functional
currency of the parent entity, using the exchange rates
at the balance sheet date. The income and expenses
of entities with other functional currencies are translated
into the functional currency, using the exchange rates at
transaction date.
AkzoNobel Report 2019 | Financial statements
77
When a subsidiary is operating in a hyperinflationary
country, the financial statements of this entity are restated
into the current purchasing power at the end of the report-
ing period. As of January 1, 2018, hyperinflation account-
ing is applied for Argentina.
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 inter-
company loan with a permanent nature relates to. Foreign
currency differences arising on the translation of a financial
liability designated as an effective hedge of a net invest-
ment in a foreign operation are recognized in the cumula-
tive translation reserve (in other comprehensive income).
EXCHANGE RATES OF KEY
CURRENCIES
The principal exchange rates against the euro used in
preparing the balance sheet and the statement of
income are:
Balance sheet
Statement of income
2018
2019
% 2018
2019
US dollar
1.143
1.121
Pound sterling
0.898
0.854
2.0
5.2
1.182
1.120
0.885
0.878
Swedish krona
10.245 10.473
(2.2) 10.257 10.589
Chinese yuan
7.863
7.808
0.7
7.812
7.742
Brazilian real
4.438
4.507
(1.5)
4.307
4.414
%
5.5
0.8
(3.1)
0.9
(2.4)
REVENUE RECOGNITION (NOTE 4)
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 these are 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
interior and other assets to its customers at the start of
a paint delivery contract. 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
quantity 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 related services are being provided.
When not separately invoiced, part of the sales price of
paints or coatings is allocated to such services.
POST-RETIREMENT BENEFITS
(NOTE 6, 18)
Contributions to defined contribution plans are recognized
in the statement of income as incurred.
Most of our defined benefit pension plans are funded
with plan assets that have been segregated in a trust or
foundation. We also provide post-retirement benefits other
than pensions to certain employees, which are gener-
ally not funded. Valuations of both funded and unfunded
plans are carried out by independent actuaries based on
the projected unit credit method. Post-retirement costs
primarily represent the increase in the actuarial present
value of the obligation for projected benefits based on
employee service during the year and interest on the net
defined benefit liability/asset. When the calculation results
in a benefit to AkzoNobel, the recognized asset is limited
to the present value of economic benefits available in the
form of any future refunds from the plan or reductions in
future contributions to the plan. An economic benefit is
available if it is realizable during the life of the plan, or on
the settlement of the plan liabilities. The effect of these
so-called asset ceiling restrictions and any changes therein
is recognized in other comprehensive income. Remeasure-
ment gains and losses, which arise in calculating our obli-
gations, are recognized in other comprehensive income.
When the benefits of a plan improve, the portion of the
increased benefits related to past service by employees
is recognized as an expense in the statement of income
immediately. We recognize gains and losses on the curtail-
ment or settlement of a defined benefit plan when the
curtailment or settlement occurs.
Interest on the net defined benefit liability/asset is in-
cluded in financing expenses related to post-retirement
benefits. Other charges and benefits recognized are
reported in operating income, unless recorded in other
comprehensive income.
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Financial statements | AkzoNobel Report 2019
OTHER EMPLOYEE BENEFITS
(NOTE 6, 19)
Provisions for other long-term employee benefits are
measured at present value, using actuarial assumptions
and methods. Any actuarial gains and losses are
recognized in the statement of income in the period
in which they arise.
SHARE-BASED COMPENSATION
(NOTE 6)
We have a performance-related and a 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 comprehen-
sive 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
it is probable that future taxable profits will be available
against which they can be utilized.
Measurement of deferred tax assets and liabilities is
based upon the enacted or substantially enacted tax
rates expected to apply to taxable income in the years in
which temporary differences are expected to be reversed.
Income tax consequences are taken into account in
the determination of deferred tax liabilities to the extent
earnings are expected to be distributed by subsidiaries
in the foreseeable 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 any repur-
chased shares. Diluted earnings per share is calculated
by adjusting the weighted average number of common
shares outstanding during the year for the diluting effect
of the shares of the performance-related share plan, the
restricted share plan and 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 (NOTE 10)
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.
AkzoNobel Report 2019 | Financial statements
79
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
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 available to reasonably estimate the
cash outflow.
IMPAIRMENTS (NOTE 10, 11, 12)
We assess the carrying value of intangible assets,
property, plant and equipment and right-of-use assets
whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recover-
able. In addition, for goodwill and other intangible assets
with an indefinite useful life, the carrying value is reviewed
at least annually or when circumstances indicate the
carrying amount may be impaired. 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 on the function level of the asset
impaired. The assessment for impairment is performed at
the lowest level of assets generating largely independent
cash inflows. For goodwill and other intangible assets with
an indefinite life, we have determined this to be at business
unit level (one level below segment).
Except for goodwill, we reverse impairment losses in the
statement of income if and to the extent we have
identified a change in estimates used to determine
the recoverable amount.
LEASES (NOTE 12, 20)
We applied IFRS 16 using the modified retrospective
approach and therefore the comparative information for
2018 has not been restated and continues to be reported
under IAS 17 and IFRIC 4. The details of accounting poli-
cies under IAS 17 and IFRIC 4 are disclosed separately.
Policy applicable from January 1, 2019
We assess whether a contract is, or contains, a lease at
inception. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for a consideration.
This policy is applied to contracts entered into, on or after
January 1, 2019.
As a lessee
At commencement or on modification of a contract that
contains a lease component, we allocate the consideration
in the contract to each lease component on the basis of its
relative stand-alone prices. However, for the leases of cars
we have elected not to separate non-lease components
and account for the lease and non-lease components as a
single lease component.
We recognize a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use
asset is initially measured at the present value of the lease
liability. The right-of-use asset value contains lease
prepayments, lease incentives received, the initial direct
costs and an estimate of restoration, removal and
dismantling costs.
The right-of-use assets are subsequently depreciated
using the straight-line method from the commencement
date to the end of the lease term or shorter economic life.
In addition, the right-of-use assets is reduced by impair-
ment losses, if any, and adjusted for certain remeasure-
ments of the lease liability.
The net present value of the lease liability is measured at
the discounted value of the lease payments. The liability
includes payments to be made in optional periods if
the lessee is reasonably certain to exercise an option to
extend the lease, or not to exercise an option to terminate
the lease. The lease payments comprise the following:
• Fixed payments (including in substance fixed payments),
less any lease incentives
• Variable lease payments that depend on an index
or a rate
• The exercise price of a purchase option if it is
reasonably certain that the option will be exercised
• Payments of penalties for terminating the lease, if the
lease term reflects the lessee exercising an option to
terminate the lease; and
• Amounts expected to be payable under residual value
guarantees.
These lease payments are discounted using the inter-
est rate implicit in the lease if that rate can be readily
determined. If that rate cannot be readily determined, the
incremental borrowing rate is used. We determine our
incremental borrowing rates by obtaining interest rates
from various external financing sources and make certain
adjustments to reflect the term of the lease and type
of the asset leased.
At the lease commencement dates, we assess whether it
is reasonably certain to exercise the extension options. We
reassess whether it is reasonably certain to exercise the
options if there is a significant event or significant change
in circumstances within our control.
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Financial statements | AkzoNobel Report 2019
At the commencement date, we assess whether it is
reasonably certain that:
• An option to extend is exercised; or
• An option to purchase is exercised; or
• An option to terminate the lease is not exercised
In making these assessments, all relevant facts and
circumstances that create an economic incentive for us
to exercise, or not to exercise, the option, including any
expected changes in facts and circumstances from
the commencement date until the exercise date of the
option are considered.
Short-term leases and leases of low-value assets
We elected not to recognize on the balance sheet right-
of-use assets and lease liabilities for leases of low-value
assets and short-term leases. We recognize the lease
payments associated with these leases as an expense on
a straight-line basis over the lease term.
Policy applicable before January 1, 2019
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.
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 15)
Inventories are measured at the lower of cost and net
realizable value. Costs of inventories comprise all costs of
purchase, costs of conversion and other costs incurred
in bringing the inventories to the present location and
condition. The costs of inventories are determined using
weighted average cost.
PROVISIONS (NOTE 19)
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 13)
FINANCIAL INSTRUMENTS
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,
Classification
All assets are measured at amortized cost, fair value
through profit or loss or fair value through other compre-
hensive income. 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.
3. Neither 1 or 2.
• Election of the fair value option in some specific cases in
order to eliminate an accounting mismatch
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 the 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
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.
AkzoNobel Report 2019 | Financial statements
81
cash. Changes in fair values are included in fi nancing
income and expenses.
Long-term and Short-term borrowings (Note 20,
26) and Trade and other payables (Note 21)
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 fi nancing income
and expenses. The fair value of borrowings, used for
disclosure purposes, is determined based on 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 fl ows, discounted at the
interest rate at the reporting date, considering
AkzoNobel’s credit risk.
NEW IFRS ACCOUNTING
STANDARDS
IFRS standards and interpretations thereof not yet in force
which may apply to our Consolidated fi nancial statements
for 2020 and beyond have been assessed for their poten-
tial impact.
These include among others amendments to IFRS 3
‘‘Defi nition of a Business”, amendments to IAS 1 and IAS 8
“Defi nition of Material”, ‘‘Amendments to References
to the Conceptual Framework in IFRS Standards” and
IFRS 17 ‘‘Insurance Contracts’’, all effective on or after
January 1, 2020. These changes are not expected
to have a material effect on AkzoNobel’s Consolidated
fi nancial statements.
The calculation of impairment under the simplifi ed
approach requires recognition of lifetime expected credit
loss (no tracking of changes in credit risk). The fi nancial
assets included in the simplifi ed impairment approach are
trade receivables and the remaining fi nancial assets.
Measurement
Regular purchases and sales of fi nancial assets and
liabilities are recognized on trade date. The initial measure-
ment of all fi nancial instruments is at fair value. Except
for derivatives and cash and cash equivalents, the initial
measurement of fi nancial instruments is adjusted for
directly attributable transaction costs.
Derivative fi nancial instruments (Note 26)
Derivative fi nancial 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 fl ow 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
specifi c lines in the statement of income or balance sheet
at the same time as the hedged item.
Financial non-current assets (Note 14) and
Trade and other receivables (Note 16)
Loans and receivables are measured at amortized cost,
using the effective interest method, less any impairment
losses.
Cash and cash equivalents and Short-term
investments (Note 20)
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 known amounts of
82
Financial statements | AkzoNobel Report 2019
Note 2 Scope of consolidation
Material subsidiaries
The Consolidated fi nancial statements comprise the
assets, liabilities, income and expenses of 283 legal
entities. We consider legal entities material when they
represent, for at least two subsequent years, more than
5% of either revenue or adjusted operating income
or based on qualitative aspects. Material subsidiaries
included in the following table are fully owned at
year-end 2019.
Material subsidiaries related to continuing
operations
Legal entity
Akzo Nobel Coatings Inc.
Akzo Nobel Paints (Shanghai) Co Ltd.
Imperial Chemical Industries Limited
International Paint LLC
Akzo Nobel Coatings SPA
Principal place of
business/country of
corporation
US
China
UK
US
Italy
Acquisitions
On November 8, 2019, we acquired Mapaero in France
to further strengthen our global position in the steadily
growing aerospace and coatings industry. Specializing
in sustainable water-based and advanced eco-friendly
products and a global player in the structural and
cabin coating sub-segments, Mapaero operates a
production facility in France and has 140 employees.
The business generated revenue of €34* million in 2018.
In 2019, we performed a preliminary purchase price
allocation, resulting in €83 million of goodwill, that has
been fully allocated to business unit Automotive and
Specialty Coatings.
* Revenue fi gures are unaudited.
On October 1, 2018, we acquired Fabryo Corporation
S.R.L. (Fabryo) in Romania. The transaction included
two production facilities and six distribution centers for
decorative paints, adhesives and mortars, including one
of the largest decorative paints factories in the region,
Recognized fair values at acquisition
In € millions
Other intangibles
Property, plant and equipment
Inventories
Trade and other receivables
Cash and cash equivalents
Investments in short-term
investments
Long-term debt
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 2020 and later
years
Net cash outflow
Mapaero
Aerospace
Coatings
155
13
4
19
17
16
(3)
(43)
(8)
170
83
253
(17)
(14)
222
Other*
(13)
(1)
–
–
–
–
1
2
–
(11)
18
7
–
(5)
2
* Mainly related to finalizing the purchase accounting for Fabryo.
Total
2019
142
12
4
19
17
16
(2)
(41)
(8)
159
101
260
(17)
(19)
224
with capacity for further expansion. The business gener-
ated revenue of €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.
* Revenue figures are unaudited.
In 2018, we performed a preliminary purchase price
allocation, which was completed in 2019. This resulted in
higher goodwill and lower intangibles for an amount of €13
million. The goodwill was fully allocated to business unit
Decorative Paints Europe, Middle East and Africa.
In 2018, other smaller acquisitions included Doves Deco-
rating Supplies in the UK, Xylazel S.A. in Spain and Colour-
land Paints Sdn Bhd and Colourland Paints (Marketing)
Sdn Bhd in Malaysia.
In December 2018, we also acquired the non-controlling
interest 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
shareholder’s equity.
Divestments
In 2018, the Specialty Chemicals business was 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 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 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.
In 2018, the divestment of the Specialty Chemicals busi-
ness resulted in a net gain of €5,811 million and a net cash
inflow of €9,321 million.
In 2019, the profit from discontinued operations includes
the final purchase price settlement of the sale of the
Specialty Chemicals business, as well as a true up of
related tax positions, which resulted in an after-tax gain
of €22 million.
In 2018 and 2019, otherwise no other significant divest-
ments occurred.
Discontinued operations and held for sale
The results and cash flows from discontinued operations
in 2018, as well as 2019, almost completely related to the
Specialty Chemicals business.
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
Deal result
In € millions
Consideration received for shares sold
Net assets and liabilities
Liabilities assumed and cost* allocated to
the deal, realization of cumulative transla-
tion and cash flow hedge reserves
Income tax on sale
Deal result after tax
* Excluding deal cost incurred in 2017.
2018
3,791
(3,158)
633
(168)
465
(2)
–
463
6,074
(263)
6,274
2018
8,284
(2,112)
(98)
(263)
5,811
Cash flows from discontinued operations
In € millions
Net cash from operating activities
Net cash from investing activities*
Results from financing activities
Cashflows from discontinued
operations
2018
351
8,723
(116)
8,958
* Including the cash inflow from the divestment of €9,321 million.
2019
–
–
–
–
–
–
–
–
21
1
22
2019
17
5
(1)
1
22
2019
(10)
–
–
(10)
AkzoNobel Report 2019 | Financial statements
83
Note 3 Alternative performance measures
In presenting and discussing AkzoNobel’s operating
results, management uses certain alternative perfor-
mance measures not defi ned by IFRS, which exclude the
so-called identifi ed items. 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-fi nancial measure is used to calculate an operational
or statistical ratio, this is also considered an alternative
performance measure.
Alternative performance measures
In € millions
Operating income
Continuing
operations
Discontinued
operations
605
656
APM adjustments to operating income
- Transformation costs1
- UK guaranteed minimum pension
equalization
- Gain on disposal
- Legal
Total APM adjustments
(identifi ed items)
130
57
–
6
193
29
–
–
–
29
2018
Total
1,261
159
57
–
6
222
Adjusted operating income
798
685
1,483
Profi t for the period attributable to
shareholders of the company
410
6,264
6,674
APM adjustments to operating income
APM adjustment Interest on tax
settlement
APM adjustments to income tax2
APM adjustment deal result on sale
Specialty Chemicals, net of tax
Total APM adjustments
Adjusted profi t for the period
attributable to shareholders of the
company
193
(30)
(86)
–
77
487
29
–
(6)
(5,811)
222
(30)
(92)
(5,811)
(5,788)
(5,711)
476
963
Continuing
operations
Discontinued
operations
–
–
–
–
–
–
–
22
_
–
–
(22)
(22)
841
204
(54)
–
150
991
517
150
–
(7)
–
143
660
1 Includes costs related to the strategy to create a focused high-performing Paints and Coatings business.
2 2019 includes the tax impact on APM adjustments and the net of re-recognition and derecognition of deferred tax assets. Further details are disclosed in Note 8.
84
Financial statements | AkzoNobel Report 2019
Alternative performance measures:
Adjusted OPI, OPI margin and ROS%
In € millions
2018
2019
Group revenue
Decorative Paints
Performance Coatings
Other
Total
Operating income
Decorative Paints
Performance Coatings
Other
Total
Total APM adjustments (identifi ed items)
Decorative Paints
Performance Coatings
Other
Total
Adjusted operating income1
Decorative Paints
Performance Coatings
Other
Total
OPI margin%2
Decorative Paints
Performance Coatings
Other4
Total
ROS%3
2019
Total
841
204
–
(54)
–
150
991
539
150
–
(7)
(22)
3,699
5,587
(30)
9,256
308
577
(280)
605
(38)
(52)
(103)
(193)
346
629
(177)
798
8.3
10.3
3,703
5,563
10
9,276
425
565
(149)
841
7
(123)
(34)
(150)
418
688
(115)
991
11.5
10.2
6.5
9.1
9.4
11.3
11.3
12.4
8.6
10.7
Decorative Paints
121
Performance Coatings
–
660
Other4
Total
1 For reconciliation to IFRS measures please refer to the table on the previous page.
2 OPI margin is calculated as operating income as a percentage of group revenue.
3 ROS% is calculated as adjusted operating income (operating income excluding
identifi ed items) as a percentage of group revenue.
4 OPI margin and ROS% for Other activities/eliminations is not shown, as this is
not meaningful.
Note 4 Revenue
AkzoNobel uses alternative performance measure adjust-
ments (APM adjustments) to the IFRS measures to provide
supplemetary information on reporting on the underlying
developments of the business. These APM adjustments
may affect the IFRS measures operating income, net profi t
and earnings per share. A reconciliation of the alternative
performance measures to the most directly comparable
IFRS measures can be found in the tables for adjusted
operating income and adjusted earnings from continuing
operations in this note.
Alternative performance measures:
ROI%
In € millions
2018
2019
Alternative performance measures:
Adjusted earnings per share
In € millions
Profi t for the period attributable to
shareholders of the company from
continuing operations
APM adjustments to operating income
APM adjustment to interest
APM adjustment to income tax
Adjusted profi t from continuing
operations attributable to share-
holders of the company*
Weighted average number of shares
Earnings per share from continuing
operations (in €)
Adjusted earnings per share from
continuing operations (in €)
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 on the next page.
For the receivables, which are included in Trade and other
receivables, reference is made to Note 16.
As at December 31, 2019, and at December 31, 2018, no
signifi cant contract assets were recognized.
2018
410
193
(30)
(86)
487
2019
517
150
–
(7)
660
254.9
1.61
213.1
2.43
1.91
3.10
As at December 31, 2019, the amount of contract liabilities
deferred to be recognized over time in 2020 is €3 million.
These contract liabilities primarily relate to shipping, train-
ing and certain technical services, for which revenue is
recognized over time.
* For the reconciliation to IFRS measures please refer to the table on
the previous page.
The implementation of IFRS 16 as per January 1, 2019,
has impacted the alternative performance measures as
presented in this note. Details on the impact of the imple-
mentation of IFRS 16 on these alternative performance
measures are disclosed in Note 1.
The amount of €3 million included in contract liabilities
at the beginning of the period has been recognized as
revenue during the year 2019 (December 31, 2018:
€3 million).
Average invested capital
Decorative Paints
Performance Coatings
Other
Total
Adjusted operating income1
Decorative Paints
Performance Coatings
Other
Total
ROI%2
Decorative Paints
Performance Coatings
Other3
Total
2,798
3,066
476
6,340
346
629
(177)
798
12.4
20.5
3,106
3,325
595
7,026
418
688
(115)
991
13.4
20.7
12.6
14.1
1 For reconciliation to IFRS measures please refer to the table on the previous page.
2 ROI% is calculated as adjusted operating income (operating income excluding
identifi ed items) of the last 12 months as a 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.
3 ROI% for Other activities/eliminations is not shown, as this is not meaningful.
AkzoNobel Report 2019 | Financial statements
85
Revenue disaggregation
In € millions
2018
2019
2018
2019
2018
Primary geographical markets - revenue from third parties
Decorative Paints
Performance Coatings
The Netherlands
Other European countries
US and Canada
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
202
1,684
–
461
1,136
184
3,667
2,093
468
1,144
–
–
–
–
(6)
202
1,747
–
456
1,075
190
3,670
2,161
463
1,084
–
–
–
–
(5)
3,699
3,703
3,638
29
3,667
3,621
49
3,670
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
100
2,001
1,139
359
1,581
369
5,549
–
–
–
1,234
1,306
1,388
1,731
(96)
5,563
5,311
238
5,549
25
–
–
1
–
–
26
–
–
–
–
–
–
–
(30)
(30)
–
26
26
Other
2019
57
–
–
–
–
–
57
–
–
–
–
–
–
–
10
10
–
57
57
2018
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
Total
2019
359
3,748
1,139
815
2,656
559
9,276
2,161
463
1,084
1,234
1,306
1,388
1,731
(91)
9,276
8,932
344
9,276
86
Financial statements | AkzoNobel Report 2019
Note 5 Operating income
Note 6 Employee benefi ts
Operating income
In 2019, operating income was up 39% at €841 million
(2018: €605 million). Price/mix effects, cost savings and
lower identifi ed items more than offset raw material infl a-
tion and lower volumes. Operating income as a percent-
age of revenue (OPI margin) improved to 9.1%
(2018: 6.5%). Operating income included €150 million
(2018: €193 million) negative impact from identifi ed items,
related to €204 million transformation costs to create
a focused high-performing Paints and Coatings busi-
ness (including €66 million non-cash impairments), partly
offset by a gain on disposal of €54 million following asset
network optimization.
In 2018, operating income decreased 27% to €605 million
(2017: €825 million). Adverse currencies, higher raw
material costs, lower volumes and higher identifi ed items
were partly compensated by positive price/mix effects.
OPI margin decreased to 6.5% (2017: 8.6%). Operating
income included €193 million (2017: €80 million) negative
impact from identifi ed items, mainly related to €130 million
transformation costs to create a focused high performing
Paints and Coatings business and an one-off non-cash
pension cost (€57 million) based on an UK legal prec-
edent set in October 2018 for the Guaranteed Minimum
Pensions (GMP) equalization regulations.
Costs by nature 2019
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Costs by nature 2018
In € millions
Cost of sales
Selling expenses
General and administrative expenses
Research and development expenses
Other results
Total
Employee
benefi ts
Amortization
Depreciation
Depreciation
right-of-use
assets
Purchases and
other costs
(536)
(858)
(305)
(176)
–
(1,875)
–
(54)
(10)
(3)
–
(67)
(136)
(21)
(20)
(11)
–
(188)
(12)
(65)
(27)
(1)
–
(4,625)
(1,181)
(325)
(64)
(5)
Total
(5,309)
(2,179)
(687)
(255)
(5)
(105)
(6,200)
(8,435)
Employee
benefi ts
(505)
(883)
(396)
(192)
–
(1,976)
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)
Total
(5,329)
(2,182)
(872)
(264)
(4)
(8,651)
Salaries, wages and other employee benefi ts in
operating income
In € millions
Salaries and wages
Post-retirement cost
Other social charges
Total
Average number of employees
Average number during the year
Decorative Paints
Performance Coatings
Corporate and other
Total
Employees
At year-end
Decorative Paints
Performance Coatings
Corporate and other
Total
2018
(1,497)
(201)
(278)
2019
(1,461)
(137)
(277)
(1,976)
(1,875)
2018
14,100
19,200
1,600
34,900
2018
14,300
18,600
1,600
34,500
2019
13,800
18,100
2,300
34,200
2019
13,300
18,000
2,500
33,800
The average number of employees working outside
the Netherlands was 31,900 (2018: 32,500).
In 2019, the number of employees decreased by 2% to
33,800 people (year-end 2018: 34,500 people). Acquisi-
tions of 2019 added around 150 people.
AkzoNobel Report 2019 | Financial statements
87
SHARE-BASED COMPENSATION
Fair value performance-related shares in €
Share-based compensation relates to the equity-settled
performance-related share plan and the restricted share
plan, as well as the share-matching plan. Charges recog-
nized in the 2019 statement of income for share-based
compensation amounted to €16 million and are included in
salaries and wages (2018: €19 million).
Performance-related and restricted share plan
Under the performance-related share plan and the restrict-
ed share plan, a number of conditional shares are granted
to the members of the Board of Management, members of
the Executive Committee and executives each year.
The number of participants of the performance-related
share plan and the restricted share plan at year-end 2019
was 294 (2018: 326). The shares of the performance-
related share plan series 2016-2018 have vested and were
delivered to the participants in 2019.
The original performance targets for the 2017 conditional
grant of performance shares have become not relevant
or applicable anymore after the sale of the Specialty
Chemicals business. Therefore, the Supervisory Board
decided to instead apply the average historic performance
Performance-related shares of AkzoNobel executives
Series
2016-2018
2016-20181
2016-20182
2017-2019
2017-20193
2017-20193
2018-20204
2019-2021
Opening share
price per:
January 4, 2016
March 7, 2018
July 3, 2018
January 2, 2017
May 9, 2017
July 28, 2017
April 26, 2018
January 2, 2019
Market
condition
(TSR)5
Fair Value
Non-market
based
performance
conditions6 Share price
Expected
volatility
Risk free
interest rate
53.69
5.13
12.34
52.42
76.34
77.16
71.65
61.09
40.20
60.96
62.02
Not applicable
37.10
Not applicable
40.14
75.63
78.88
67.51
52.57
59.03
76.72
76.23
75.78
69.60
60.96
78.22
73.56
59.03
76.72
76.23
75.78
69.60
23.82%
22.74%
22.12%
23.94%
24.13%
23.77%
22.66%
20.12%
-0.09%
-0.25%
-0.26%
-0.12%
-0.09%
-0.08%
-0.04%
-0.04%
1 Concerns the fair value step-up for the plan modification on the date of the
4 Date of the AGM at which the new LTI performance criteria for the Board of
Supervisory Board decision.
2 Concerns the fair value step-up for the plan modification on the general
announcement date.
3 Concerns an additional share grant.
Management were approved.
5 35% for the 2016-2018 and 2017-2019 grants and 50% for grants thereafter.
6 65% for the 2016-2018 and 2017-2019 grants and 50% for grants thereafter.
of 85% for the 2017-2019 series. This plan modification
was accounted for in 2018.
As from 2018, the plan of the members of the Board of
Management and the Executive Committee has been
adjusted such that the conditional grant of shares is linked
for 50% to the relative TSR performance of the company
compared with the peer group and for 50% to the ROI
performance of the company, after which a two-year
holding restriction will apply.
Plan
2016-2018 Performance Share Plan
2016-2018 Performance Share Plan
2017-2019 Performance Share Plan
2017-2019 Performance Share Plan
2018-2020 Restricted Share Plan
2018-2020 Performance Share Plan
2019-2021 Restricted Share Plan
2019-2021 Performance Share Plan
Total
Performance/
Vesting
period
Award
date
Vesting
date
End of
holding
period
Balance at
January 1,
2019
Awarded
in 2019
Vested in
2019
Forfeited in
2019
Dividend in
2019
3 years
3 years
3 years
3 years
3 years
3 years
3 years
3 years
1/1/2016
1/1/2019
NA
244,616
1/1/2016
1/1/2019
1/1/2021
37,042
–
–
(244,616)
(37,042)
1/1/2017
1/1/2020
NA
270,756
1,875
1/1/2017
1/1/2020
1/1/2022
82,691
–
1/1/2018
1/1/2021
1/1/2022
192,962
8,876
1/1/2018
1/1/2021
1/1/2023
81,100
1/1/2019
1/1/2022
1/1/2023
1/1/2019
1/1/2022
1/1/2024
–
–
–
225,273
87,571
–
–
–
–
–
–
–
–
(78,738)
(19,088)
(31,682)
–
(31,283)
–
Subject
to per-
formance
condition
–
–
Unvested in
2019
Subject
to holding
period
Balance at
December
31, 2019
–
–
–
–
–
–
–
–
18,075
211,968
211,968
NA
211,968
6,729
9,529
9,254
10,863
7,120
70,332
70,332
70,332
70,332
NA
179,685
179,685
179,685
90,354
90,354
90,354
90,354
NA
204,853
204,853
204,853
94,691
94,691
94,691
94,691
909,167
323,595
(281,658)
(160,791)
61,570
467,345
851,883
639,915
851,883
88
Financial statements | AkzoNobel Report 2019
As from 2018, the plan 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 2017-2019 series for the
AkzoNobel participants vested for 85% (series 2016-2018:
85%), including extraordinary dividend shares of 11.37%
(series 2016-2018: 5.48%), the fi nal vesting percentage
amounted to 94.66% (series 2016-2018: 89.66%).
The share price of a common AkzoNobel share at year-
end 2019 amounted to €90.64 (2018: €70.40).
Fair value of restricted and performance-
related shares
The fair value of the restricted shares of the 2019-2021
grant, amounting to €63.48, is based on the share price
on January 2, 2019, of €69.60 and the expected dividend
yield of 3.02%. The fair value of the performance-related
shares of the 2019-2021 grant is for 50% based on
a market condition (TSR) and for 50% based on non-
market-based performance condition (ROI). The original
fair value of the performance-related shares of the 2017-
2019 grant was for 35% based on a market condition
(TSR) and for 65% based on nonmarket based perfor-
mance conditions (ROI and RobecoSAM). The fair value
of the 2017-2019 plans was not amended for the above-
mentioned plan modifi cation as this change was
not benefi cial.
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 fi rst 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. However, they will
not be eligible for matching shares for the years 2019,
2020 and 2021. 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 2019 resulted
in no granted potential matching shares. During 2019,
1,786 potential matching shares were matched and 862
were forfeited due to the share consolidation, leading to a
total of 5,081 potential matching shares on December 31,
2019. For an overview of the matching shares outstanding
for the members of the Board of Management per Decem-
ber 31, 2019, we refer to the Remuneration report.
Note 7 Financing income and expenses
Financing income and expenses
In € millions
Financing income
Financing expenses
Net interest on net debt
Other interest
Financing income related to post-
retirement benefi ts
Interest charges on provisions
Other items
Net other fi nancing credit/(charges)
Total fi nancing income and
expenses
2018
16
(92)
(76)
10
(3)
17
24
(52)
2019
17
(76)
(59)
21
(14)
(24)
(17)
(76)
Net fi nancing expenses for the year were €76 million
(2018: €52 million). Signifi cant variances are:
• Net interest on net debt decreased by €17 million to
€59 million (2018: €76 million), mainly due to lower
interest on bonds as a result of repayment of a bond
in December 2018, partially offset by interest on lease
liabilities resulting from the implementation of IFRS 16
in 2019
• Financing income related to post-retirement benefi ts
increased from €10 million in 2018 to €21 million due to
improved funding positions
• Interest charges on provisions increased from €3 million
in 2018 to €14 million due to changes in discount rates
• Other items in 2019 mainly include interest related
foreign currency results; in 2018, other items mainly
included a one-off interest benefi t related to a tax
settlement
The average interest rate used for capitalized interest was
1.5% (2018: 2.2%). Capitalized interest was negligible in
both 2019 and 2018.
The average interest rate on total debt was 2.8%
(2018: 2.6%).
Note 8
Income tax
Pre-tax income from continuing operations amounted to
a profi t of €785 million (2018: €573 million). The net tax
charges related to continuing operations are included in
the statement of income as shown on the next page.
The total deferred tax charge including discontinued
operations was €55 million (2018: €143 million). The total
tax charge including discontinued operations was
€229 million (2018: €549 million).
Effective tax rate reconciliation
In 2019, the effective income tax rate based on the state-
ment of income is 29.3% (2018: 20.6%).
For comparative reasons, the second table on the next
page presents the effective consolidated tax rate excluding
the impact of results on discontinued operations. Including
AkzoNobel Report 2019 | Financial statements
89
Classification of current and deferred tax result
Effective tax rate
Deferred tax assets and liabilities
In € millions
2018
2019
in %
Current tax expense for
The year
Adjustments for previous years
Separation of Specialty Chemicals
business
(121)
23
(4)
(171)
1
–
Total current tax expense
(102)
(170)
Deferred tax expense for
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
Total
44
(48)
(9)
(3)
(16)
(118)
–
(22)
(45)
7
(60)
(230)
these results, the effective consolidated tax rate is 28.4%
(2018: 7.5%) as the result on the sale of Specialty Chemi-
cals was largely tax exempted; refer to Note 2).
Following the divestment of the Specialty Chemicals
business in 2018, the company is reorganizing itself into
a focused Paints and Coatings company. As part of our
Winning together: 15 by 20 ambition, we are simplifying
our intercompany financing structure, enlarging the scope
of our global business support services, centralizing R&D
and supply chain functions and implementing other cost-
saving initiatives. This has substantially affected the income
generated and expenses incurred by subsidiaries in most
countries, because intercompany interest, cost sharing
and royalty flows, albeit all remaining at arm’s length, have
changed following these changes in the business set up.
For subsidiaries in several countries in Europe, changes
in future profitability have led to the derecognition or
re-recognition of deferred tax assets. In aggregate, the net
effect of the derecognition and re-recognition of deferred
tax assets was a charge of €47 million.
90
Financial statements | AkzoNobel Report 2019
Corporate tax rate in the Netherlands
Effect of tax rates in other countries
Weighted average statutory income
tax rate
Separation of Specialty Chemicals
business
Non-taxable (income)/expenses
(De)recognition of deferred tax assets
Non-refundable withholding taxes
Adjustment for prior years
Deferred tax adjustment due to changes
in tax rates
2018
25.0
(0.1)
24.9
(7.0)
2.4
1.6
2.3
(4.0)
0.4
2019
25.0
(2.2)
22.8
–
2.2
5.8
0.4
(0.2)
(1.7)
Effective tax rate
20.6
29.3
The impact of non-refundable withholding tax on the
tax rate is dependent on our relative share in the profit
of subsidiaries in countries that levy withholding tax on
dividends and on the timing of the remittance of such divi-
dends. Based on the Dutch tax system there is a limited
credit for such taxes.
Deferred tax assets and liabilities
In assessing the recognition of the deferred tax assets,
management considers whether it is probable that some
portion or all of the deferred tax assets will be realized. The
ultimate realization of the deferred tax assets is dependent
upon the generation of future taxable income during the
periods in which those temporary differences become
deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
The amount of deferred tax assets considered realizable,
however, could change in the near term if future estimates
of projected taxable income during the carryforward period
are revised.
From the total amount of recognized net deferred tax
assets, €345 million (2018: €393 million) is related to
entities that have suffered a loss in either 2019 or 2018
and where utilization is dependent on future taxable
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
Acquisitions
Balance at December 31
Deferred tax assets
Deferred tax liabilities
2018
575
(285)
290
16
1
(6)
301
9
(143)
40
(6)
(10)
191
559
(368)
2019
559
(368)
191
–
–
–
191
6
(55)
37
–
(41)
138
529
(391)
* Excluding discountinued operations charge of €1 million.
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 (2018: €30 million).
Unrecognized deferred tax assets
In € millions
Tax losses and tax credits
Deductible temporary differences*
Total
2018
167
137
304
2019
242
168
410
* Mainly related to post-retirement benefit provisions.
Expiration year of loss carryforwards
In € millions
Total loss carryforwards
Loss carryforwards not recognized in
deferred tax assets
Total recognized
2020
2021
2
(1)
1
2
(1)
1
2022
11
(8)
2023
134
(1)
2024
141
(2)
Later
Unlimited
2,995
Total
3,418
(1,221)
(1,249)
133
(15)
3
133
139
118
1,774
2,169
Deferred tax assets and liabilities per balance sheet item
In € millions
Intangible assets
Property, plant and equipment
Financial non-current assets
Post-retirement benefi t provisions
Other provisions
Other items
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, 2018
December 31, 2019
(363)
47
(158)
121
37
79
150
582
(304)
191
–
191
28
75
9
124
49
102
150
582
(304)
815
(256)
559
391
28
167
3
12
23
–
–
–
624
(256)
368
(410)
49
(200)
158
35
102
173
641
(410)
138
–
138
32
83
10
161
44
147
173
641
(410)
881
(352)
529
442
34
210
3
9
45
–
–
–
743
(352)
391
Income tax recognized in equity
In € millions
Currency exchange differences on
intercompany loans of a permanent
nature
Cash fl ow hedges
Share-based compensation
Post-retirement benefi ts
Impact of adoption IFRS 15
Impact of adoption IFRS 9
Impact of application IAS 29
Total
Current tax
Deferred tax
Total
2018
17
2019
11
Note 9 Earnings per share
5
(1)
24
16
1
(7)
55
5
50
55
–
4
24
–
–
–
39
2
37
39
Profi t for the period attributable to the shareholders of
the company was €539 million. In 2018, net profi t for the
period was €6,674 million, of which €6,264 million was
attributable to discontinued operations and related to the
divested Specialty Chemicals business.
The number of shares for the earnings per share calcula-
tion decreased as a result of the capital repayment and
share consolidation and the share buyback program.
Profi t for the period
In € millions
Profi t before tax from continuing
operations
Income tax
Profi t from continuing
operations
Profi t for the period attributable to
non-controlling interests
Profi t for the period from
continuing operations
attributable to shareholders
of the company
Profi t for the period from
discontinued operations
Discontinued operations attribut-
able to non-controlling interest
Profi t for the period attributable
to shareholders of the company
2018
573
(118)
455
(45)
410
6,274
(10)
2019
785
(230)
555
(38)
517
22
–
6,674
539
Weighted average number of common shares
Number of shares
Issued common shares at
January 1
Effect of issued common shares
during the year
Capital repayment and share
consolidation
2018
2019
252,620,585
256,219,301
2,252,713
249,936
–
(26,674,886)
Effect of share repurchase program
–
(16,720,349)
Shares for basic earnings per
share for the year
254,873,298
213,074,002
Effect of dilutive shares
For performance-related and
restricted shares
1,087,173
763,868
For share-matching plan
9,813
5,719
Shares for diluted earnings
per share
255,970,284
213,843,589
Earnings per share from continuing operations increased in
2019, mainly due to the impact of the share consolidation,
the share buyback program and increased profi t before
tax from continuing operations. Earnings per share from
AkzoNobel Report 2019 | Financial statements
91
total operations decreased in 2019, due to the result from
discontinued operations in 2018, related to the divested
Specialty Chemicals business partially offset by the impact
of the share consolidation, the share buyback program
and increased profi t before tax from continuing operations.
Adjusted earnings per share from continuing operations
increased in 2019, mainly due to the impact of the share
consolidation, the share buyback program and increased
profi t before tax from continuing operations.
Note 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 at December 31, 2017
Impact application of IAS 29
Balance at January 1, 2018
Movements in 2018
Acquisitions through business combinations
Earnings per share
in €
Continuing operations
Basic
Diluted
Discontinued operations
Basic
Diluted
Total operations
Basic
Diluted
Adjusted earnings per share from continuing
operations
In € millions
2018
Profi t before tax from continuing
operations
Identifi ed items reported in operating
income
Interest on tax settlement
Adjusted income tax
Non-controlling interests
Adjusted profi t from continuing
operations attributable to
shareholders of the company
Adjusted earnings per share from
continuing operations (in €)
92
Financial statements | AkzoNobel Report 2019
2018
2019
Investments – including internally developed intangibles
1.61
1.60
24.58
24.47
26.19
26.07
2.43
2.42
0.10
0.10
2.53
2.52
Amortization
Classifi ed 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
Impact adoption IFRS 16
Balance at January 1, 2019
Movements in 2019
Acquisitions through business combinations
Investments – including internally developed intangibles
2019
785
Amortization
Impairments
573
193
150
(30)
(204)
(45)
487
–
(237)
(38)
660
1.91
3.10
Changes in exchange rates
Total movements
Balance at December 31, 2019
Cost of acquisition
Cost of internally developed intangibles
Accumulated amortization/impairment
Carrying value at December 31, 2019
Goodwill
Brands
Customer
lists
Other
intangibles
991
–
(46)
945
1
946
42
–
–
–
2
44
2,189
–
(164)
2,025
8
2,033
38
–
(11)
–
(21)
6
1,013
2,216
–
(23)
990
–
990
101
–
–
(12)
14
103
–
(177)
2,039
–
2,039
(13)
–
(12)
–
9
(16)
1,121
2,208
–
(28)
1,093
–
(185)
2,023
754
–
(439)
315
–
315
19
2
(32)
–
–
(11)
810
–
(506)
304
–
304
144
–
(38)
(21)
6
91
940
–
(545)
395
192
160
(228)
124
–
124
2
22
(15)
(4)
(4)
1
221
158
(254)
125
(36)
89
11
35
(17)
(5)
1
25
175
191
(252)
114
Total
4,126
160
(877)
3,409
9
3,418
101
24
(58)
(4)
(23)
40
4,260
158
(960)
3,458
(36)
3,422
243
35
(67)
(38)
30
203
4,444
191
(1,010)
3,625
Goodwill and other intangibles per segment
Brands with indefi nite
useful lives
Other intangibles
with fi nite useful lives
Total intangibles
In € millions
Decorative Paints
Performance Coatings
Corporate and other
Total
2018
75
915
–
990
Goodwill
2019
92
1,001
–
2018
1,830
–
–
2019
1,838
–
–
1,093
1,830
1,838
2018
239
382
17
638
2019
193
452
49
694
2018
2,144
1,297
17
3,458
2019
2,123
1,453
49
3,625
Brands with indefi nite 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 property
rights, software and development cost. Both at year-end
2019 and 2018, there were no purchase commitments
for individual intangible assets. No intangible assets were
registered as security for bank loans.
Annual impairment testing
Goodwill and other intangibles with indefi nite useful lives
are tested for impairment per business unit (one level
below segment level) in the fourth quarter or whenever
an impairment trigger exists, applying the value-in-use
method. The impairment test is in principle based on cash
fl ow projections of the fi ve-year plan. Elements considered
to determine if a different approach would be more appro-
priate are, among others, high growth/emerging econo-
mies, geo expansion opportunities, introduction of new
product ranges and opportunities from market consolida-
tion. In 2019, the above exception was applied for Decora-
tive Paints Asia and Decorative Paints South America, for
which the revenue growth and adjusted EBITDA-margin
development projections were extrapolated beyond the
fi ve-year explicit forecast period for another fi ve 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 infl ation expectations of 1.0%.
The estimated pre-tax cash fl ows are discounted to
their present value using a pre-tax weighted average
cost of capital. The discount rates are determined
for each business unit and range from 8.8% to 12.7%
(2018: 8.6% to 12.0%), with a weighted average of 9.4%
(2018: 9.3%).
Sensitivity tests were performed for growth assumptions
(a 50% reduction of the revenue 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 sensitivity
tests confi rm suffi cient headroom in all businesses.
Both in 2018 and 2019, no impairment charges were
recognized in relation to the annual impairment test.
Specifi c asset impairments
In 2019, impairments were recorded for Performance
Coatings, following the implementation of our
Average revenue growth rates
In % per year
Decorative Paints
Performance Coatings
2020-2024
2.1
2.2
strategic portfolio review, which was determined to
be a triggering event.
As this portfolio review also included certain recently
acquired and not yet integrated businesses to be divested,
the goodwill related to these businesses was also included
in the impairment review and subsequently impaired.
Note 11 Property, plant and equipment
Investments in property, plant and equipment
Throughout 2019, we have continued to thoroughly
assess all investment proposals to ensure the right capital
and capacity allotment and have taken decisions accord-
ingly. With an aim to reinforce our capability to support
customers and enhance our manufacturing and supply
chain, we have invested in our Changzhou powder coat-
ings plant in China to add new production lines. Another
major investment started in High Point, North Carolina, to
transform our wood coatings facility into a best-in-class
manufacturing site, which is expected to further strengthen
our market position in the US.
As we strongly believe in the importance of innovation to
keep AkzoNobel at the forefront of the paints and coatings
industry, we have continued to invest in RD&I, an example
of which is our investment in the R&D innovation campus
located at our Felling site in the UK.
Impairments
In 2019, impairments were recognized in Performance
Coatings, following the implementation of our strategic
portfolio review. In 2018, no signifi cant impairments
were recognized.
AkzoNobel Report 2019 | Financial statements
93
Property, plant and equipment
In € millions
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
Investments
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
Impact adoption IFRS 16
Balance at January 1, 2019
Movements in 2019
Acquisitions
Divestments
Investments
Transfer between categories
Depreciation
Impairments, including reversals
Changes in exchange rates
Total movements
Balance at December 31, 2019
Cost of acquisition
Accumulated depreciation/impairment
Carrying value at December 31, 2019
94
Financial statements | AkzoNobel Report 2019
Buildings and land
Plant equipment and
machinery
Other equipment
Construction in progress
and prepayments on
projects
Assets not used
Total
1,488
(689)
799
–
11
810
18
(7)
6
22
(44)
(1)
(10)
(16)
1,505
(711)
794
(28)
766
8
(22)
6
44
(43)
(2)
13
4
1,528
(758)
770
1,901
(1,273)
628
–
2
630
4
(1)
31
48
(93)
–
(8)
(19)
1,894
(1,283)
611
(1)
610
4
(1)
24
57
(102)
(19)
12
(25)
1,974
(1,389)
585
925
(713)
212
(56)
–
156
2
(2)
13
46
(44)
–
(5)
10
888
(722)
166
–
166
–
(10)
13
19
(43)
(2)
6
(17)
906
(757)
149
193
(2)
191
(10)
1
182
1
(1)
111
(116)
–
–
(3)
(8)
178
(4)
174
–
174
–
–
136
(121)
–
–
3
18
193
(1)
192
7
(5)
2
–
–
2
2
–
(1)
–
–
–
–
1
10
(7)
3
–
3
–
–
–
1
–
–
–
1
11
(7)
4
4,514
(2,682)
1,832
(66)
14
1,780
27
(11)
160
–
(181)
(1)
(26)
(32)
4,475
(2,727)
1,748
(29)
1,719
12
(33)
179
–
(188)
(23)
34
(19)
4,612
(2,912)
1,700
Note 12 Leases
Right-of-use assets
In € millions
Balance at January 1, 2019
Cost of acquisition
Accumulated depreciation/impairment
Opening balance January 1, 2019
Movements in 2019
Additions
Modifi cations
Disposals
Depreciation
Impairments
Change in exchange rates
Total movements
Cost of acquisition
Accumulated depreciation/impairment
Balance at December 31, 2019
AkzoNobel mainly leases land, offi ce spaces, stores and
cars. Some leases provide for additional rent payments
that are based on changes in local price indices.
Some property leases contain extension options exercis-
able by AkzoNobel up to one year before the end of the
non-cancellable contract period.
We have estimated that the lease liability would increase
by less than 20%, if we would exercise the extension
options which are currently not included in the valuation of
the lease liability. This excludes so-called “evergreens” or
perpetual leases.
Total net cash outfl ow from fi nancing activities related to
leases recognized on the balance sheet was €108 million.
Land
Buildings
Other
Total
56
(10)
46
1
(1)
–
(4)
–
1
(3)
57
(14)
43
336
(20)
316
18
1
(3)
(63)
(5)
3
(49)
355
(88)
267
70
–
70
32
–
(1)
(38)
–
1
(6)
102
(38)
64
462
(30)
432
51
–
(4)
(105)
(5)
5
(58)
514
(140)
374
Income/(expenses) recognized in profi t and loss
In € millions
Sublease income
Depreciation right-of-use assets
Impairments for right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases
Expenses relating to low-value assets
Variable lease expenses
Total expenses
2019
6
(105)
(5)
(8)
(10)
(4)
(3)
(129)
Note 13 Investments in associates and
joint ventures
Balance sheet information of our share in associates
In € millions
Condensed balance sheet
Non-current assets
Current assets
Total assets
Shareholders’ equity
Non-current liabilities
Current liabilities
Total liabilities and equity
2018
Associates
2019
66
120
186
133
5
48
186
68
114
182
147
6
29
182
Profi t and loss of our share in associates
In € millions
Condensed statement of income
Revenue
Profi t before tax
Profi t from continuing operations
Other comprehensive income
Profi t for the period
2018
Associates
2019
135
27
20
–
20
154
29
20
–
20
At year-end 2019, the carrying value of equity invest-
ments in associates amounted to €147 million (2018:
€133 million). AkzoNobel has granted loans of €3 million
in total to certain associates (2018: €4 million). In 2019,
the results from associates amounted to a profi t of
€20 million (2018: €20 million).
No signifi cant contingent liabilities exist related to
associates.
The largest associate of AkzoNobel is Metlac S.p.a.,
incorporated in Italy. None of the associates are consid-
ered individually material to the group.
AkzoNobel Report 2019 | Financial statements
95
Note 14 Financial non-current assets
Financial non-current assets
In € millions
Pension assets
Loans and receivables
Other fi nancial non-current assets
Total
2018
947
130
192
2019
1,418
336
108
Inventories
In € millions
Raw materials and supplies
Work in progress
Finished products and goods for resale
2018
353
66
720
2019
342
71
726
1,269
1,862
Total
1,139
1,139
Pension assets (€1,418 million) relate to pension plans in
an asset position (2018: €947 million). For more informa-
tion on post-retirement benefi t provisions, see Note 18.
Loans and receivables include the subordinated loan of
€88 million (2018: €89 million) granted to the Pension
Fund APF in the Netherlands and the non-current part
of an escrow account related to the pre-funding of the
Akzo Nobel (CPS) Pension Scheme in the UK amounting
to €105 million (2018: nil), invested in corporate bonds.
Under certain conditions, the minimum annual funding of
this pension fund from the escrow account is €30 million
(£26 million). The current portion of the escrow account
is reported as other receivables within trade and other
receivables, refer to Note 16.
Loans and receivables are considered to have low credit
risk, and thus the impairment provision recognized during
the period was limited to 12 months expected losses.
Note 15 Inventories
Of the total carrying value of inventories at year-end 2019,
€36 million is measured at net realizable value (2018:
€45 million). In 2019, €70 million was recognized in the
statement of income for the write-down of inventories
(2018: €79 million), while €22 million of write-downs were
reversed (2018: €18 million). There are no inventories
subject to retention of title clauses.
Note 16 Trade and other receivables
Trade and other receivables
In € millions
Trade receivables
Prepaid expenses
Tax receivables other than income tax
FX contracts
Receivables from associates
Other receivables
Total
Ageing of trade receivables
In € millions
Performing trade receivables
Past due trade receivables
< 3 months
> 3 months
Allowance for impairment
Total trade receivables
2018
1,843
50
92
6
–
150
2,141
2019
1,812
33
116
9
8
155
2,133
2018
1,657
2019
1,625
167
88
(69)
162
83
(58)
1,843
1,812
Trade receivables are presented net of an allowance for
impairment of €58 million (2018: €69 million).
In 2019, €29 million of impairment losses were recognized
in the statement of income (2018: €38 million). An amount
of €24 million was reversed (2018: €35 million).
Allowance for impairment of trade receivables
In € millions
2018
2019
Balance at January 1 under IAS 39
Impact adoption IFRS 9
Balance at January 1 under IFRS 9
Additions charged to income
Release of unused amounts
Utilization
Acquisitions
Currency exchange differences
Balance at December 31
84
4
88
38
(35)
(22)
3
(3)
69
69
29
(24)
(16)
–
–
58
Since the total amount of impairment losses under IFRS 9
is not signifi cant, no separate disclosure was made in the
statement of income.
Other receivables include the current portion of €30 million
(£26 million) of the escrow account for the Akzo Nobel
(CPS) Pension Scheme in the UK.
Note 17 Group equity
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
96
Financial statements | AkzoNobel Report 2019
Composition of share capital at year-end 2019
Non-controlling interests
Authorized
share capital
Subscribed
share capital
Group entity
Partner at year-end 2018
19,200
19,200
Akzo Nobel India Limited, Kolkata, India
Privately held, India
In €
Priority shares (48 with nominal value
of €400)
Cumulative preferred shares (200
million with nominal value of €0.50)
Common shares (500 million with
nominal value of €0.50)
100,000,000
–
250,000,000
99,800,166
Total
350,019,200
99,819,366
Outstanding common shares
Number of shares
2018
2019
Outstanding at January 1
252,620,585
256,219,301
991,928
283,370
Issued in connection to
performance-related share plan and
share-matching plan
Capital repayment and share
consolidation
Stock dividend
Share repurchase
Add back of repurchased shares not
yet cancelled
PT ICI Paints Indonesia, Jakarta, Indonesia
PT DWI Satrya Utama, Indonesia
Akzo Nobel Paints (Malaysia) Sdn. Bhd.,
Kuala Lumpur, Malaysia
Privately held, Malaysia
Akzo Nobel Kemipol A.S., Izmir, Turkey
Privately held, Turkey
International Paint (Korea) Ltd, Busan, South-
Korea
Noroo Holdings, South Korea
International Paints Saudi Arabia, Saudi Arabia Yousuf Bin Ahmed Kanoo Co. Ltd, Saudi Arabia
Akzo Nobel Oman SAOC, Muscat, Oman
Omar Zawawi establishment LLC, Oman
International Paints of Shanghai Co. Ltd,
Shanghai, China
Huayi Fine Chemical Co. Ltd, China; China
National Shipbuilding Equipment & Materials Corp.
Akzo Nobel Pakistan Limited, Karachi,
Pakistan
Akzo Nobel UAE Paints LLC, United Arab
Emirates
Kanoo Group, United Arab Emirates
Privately held, Pakistan
24.19
10
24.19
2018
Equity stake
in € millions
49
22
24
16
16
15
11
%
25.24
45.00
40.05
49.00
40.00
40.00
50.00
6
49.00
%
25.24
45.00
40.05
49.00
40.00
40.00
50.00
49.00
40.00
10.00
9
40.00
6
10.00
20
204
2019
Equity stake
in € millions
53
25
23
17
16
15
11
10
9
9
5
25
218
–
(28,468,812)
Akzo Nobel Paints (Guangzhou) Limited,
Guangzhou, China
Industrial Development Co. Ltd of Guanzhou,
China
2,606,788
–
–
–
(31,599,495)
3,165,967
Others
Total
Balance at December 31
256,219,301
199,600,331
Weighted average number of common shares
Number of shares
Weighted average number of
common shares
2018
2019
254,873,298
213,074,002
For further details on weighted average number of shares,
refer to Note 9.
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 and restricted share plan and share-matching plan,
whereby shares are granted to the Board of Management,
Executive Committee and other executives. For details of
the share-based compensation, 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 2019, an interim dividend of €0.41 (2018: €0.37) per
common share was paid. We propose a 2019 final divi-
dend of €1.49 (2018: €1.43) per common share, which
would equal a total 2019 dividend of €1.90 (2018: €1.80).
In line with our announcement on April 19, 2017, we
have returned 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 repay-
ment and share consolidation, which was executed in
January 2019. A share consolidation ratio of 9:8
was applied.
We distributed €1.0 billion by means of a special cash
dividend of €4.50 per common share (post consolidation)
on February 25, 2019, in addition to the €1.0 billion special
cash dividend already distributed in December 2017.
AkzoNobel Report 2019 | Financial statements
97
The share buyback program to repurchase common
shares up to the value of €2.5 billion was completed at the
end of 2019, acquiring 31.2 million common shares.
On October 23, 2019, a new €500 million share buyback
program was announced, for which 0.4 million common
shares were acquired in 2019.
Note 18 Post-retirement benefi t provisions
Post-retirement benefi t provisions relate to defi ned benefi t
pension and other post-retirement benefi t plans, including
healthcare or welfare plans. The largest defi ned benefi t
pension plans are the ICI Pension Fund (ICIPF) and the
Akzo Nobel (CPS) Pension Scheme in the UK which
together account for 86% of defi ned benefi t obligations
(DBO) and 91% 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 benefi ts of these pension plans
are based primarily on years of service and employees’
compensation. The funding policy for the plans is
consistent with local requirements in the countries of
establishment. We also provide certain healthcare and
life insurance benefi ts to retired employees, mainly in
the US and the Netherlands.
Valuations of the obligations under the plans are carried
out regularly by independent qualifi ed actuaries. We
accrue for the expected costs of providing such post-
retirement benefi ts during the service years of the employ-
ees. Governance of the benefi t 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 fl ow, pension expenses and the
balance sheet. The committee develops and maintains
policies on benefi t design, funding, asset allocation and
assumption setting.
Pension plans
Almost all of the defi ned benefi t plans have been closed
to new members since the early to mid-2000s, although
in many plans long-serving employees continue to accrue
benefi ts. For plans in the US, benefi t accrual is frozen
and employees participate in defi ned contribution plans
for future service. In countries where plans are closed,
new employees are eligible to join a defi ned 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
defi ned contribution plans.
The most signifi cant risks that we run in relation to
defi ned benefi t plans are investment returns falling short
of expectations, low discount rates, infl ation exceeding
expectations, and retirees living 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 fi duciaries or trustees, depending
on the legal arrangements in the country concerned. The
primary objective with regards to the investment of pension
plan assets is to ensure that each individual plan has
suffi cient funds available to satisfy future benefi t obligations
in accordance with local legal and legislative requirements.
For this purpose, we work closely with plan trustees or fi du-
ciaries to develop investment 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 contribution schedules with plan fi duciaries.
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 effi cient 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 fl ow
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 defi cits.
Between 2014 and 2019, 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 2019, the Trustee of
the ICIPF entered into a further annuity buy-in agree-
ment with Legal and General Assurance Society Limited
which covers, in aggregate, £135 million (€156 million) of
pensioner liabilities (insurer valuation). The buy-in involved
the purchase of a bulk annuity policy under which the
insurer will pay to ICIPF amounts equivalent to the benefi ts
payable to members who have recently become pension-
ers. The pension liabilities remain with, and the matching
annuity policies are held within, ICIPF. The accounting
impact of the transaction is a lower valuation of the plan
assets giving a reduction in Other comprehensive income
of £26 million (€30 million).
By purchasing bulk annuities, the ICIPF and ISCPF Trust-
ees have both taken signifi cant steps in actively de-risking
liabilities and reducing the risk that AkzoNobel will be
required to contribute additional cash in the future.
The remaining pension plans primarily represent defi ned
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 fi nanced through
insurance with the Alecta insurance company and is
classifi ed as a multi-employer defi ned benefi t plan. As
AkzoNobel does not have access to suffi cient information
from Alecta to enable a defi ned benefi t accounting treat-
ment, it is accounted for as a defi ned contribution plan.
98
Financial statements | AkzoNobel Report 2019
Reconciliation balance sheet
In € millions
2018
DBO
Plan
assets
Total
DBO
Plan
assets
Balance at the beginning of the period
(14,444)
14,643
199
(13,354)
13,654
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 (loss)/gain due to liability experience
Actuarial gain/(loss) due to liability financial assumption changes
Actuarial gain due to liability demographic assumption changes
Actuarial loss due to buy-in
Return on plan assets (less)/greater than discount rate
(36)
(64)
–
(345)
(445)
(39)
430
74
–
–
Remeasurement effects recognized in Other comprehensive income
465
Cash flow
Employer contributions
Employee contributions
Benefits and administration costs paid from plan assets
Net cash flow
Other
Acquisitions/divestments/transfers
Changes in exchange rates
Total other
Balance at the end of the period
Asset restriction
Net balance sheet position
In the balance sheet under
Other financial non-current assets
Post-retirement benefit provisions
Current portion of provisions
Net balance sheet position
–
–
–
355
355
–
–
–
(31)
(479)
(510)
257
2
(927)
(668)
(2)
(164)
(166)
(36)
(64)
–
10
(90)
(39)
430
74
(31)
(479)
(30)
(2)
–
(361)
(393)
50
(1,368)
189
–
–
(45)
(1,129)
257
–
–
257
–
(21)
(21)
–
(2)
881
879
–
(619)
(619)
–
–
–
382
382
–
–
–
(30)
914
884
569
2
(881)
(310)
–
677
677
–
(2)
927
925
2
143
145
(13,354)
13,654
300
(14,616)
15,287
(3)
297
947
(603)
(47)
297
2019
Total
300
(30)
(2)
–
21
(11)
50
(1,368)
189
(30)
914
(245)
569
–
–
569
–
58
58
671
(3)
668
1,418
(701)
(49)
668
Contributions in 2019 were €1 million (2018: €2 million).
Alecta’s funding ratio in 2019 is normally allowed to vary
between 125% and 175%. The most recently quoted
ratio at September 2019 stood at 142%. The expenses
of all plans accounted for as defined contribution plans in
AkzoNobel totaled €86 million in 2019 (2018: €87 million).
Other post-retirement benefit plans
AkzoNobel provides certain healthcare and life insurance
benefits to retired employees, mainly in the US and the
Netherlands. The risks to which the US healthcare plans
expose AkzoNobel include the risk of future increases in
the cost of healthcare which would increase the cost of
maintaining the plans. The benefit payments to retirees
under the Dutch plan are frozen. Both plans expose
AkzoNobel to the risk of a further decline in discount rates,
which increases the plan obligations, and longevity risk as
the plans generally pay lifetime benefits.
Reconciliation balance sheet
The adjacent table details the annual movements for the
total post-retirement benefit provisions. The closing net
balance sheet position of €668 million (2018: €297 million)
includes the pension plans (€826 million net asset; 2018:
€442 million net asset) and other post-retirement plans
(€158 million liability; 2018: €145 million liability).
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 €19 million (2018: €14 million), which
are included in operating income. In addition, we directly
incurred asset management expenses of €4 million (2018:
€5 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 income related to
post-retirement benefits of €21 million (2018: €10 million),
see Note 7.
AkzoNobel Report 2019 | Financial statements
99
Pension plans in asset position
Pension balances recorded under Other financial non-
current assets totaled €1,418 million (2018: €947 million).
The increase in 2019 was primarily due to €507 million of
top-up pension contributions and €63 million of exchange
rate translation gains partially offset by €134 million of net
actuarial losses 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
adjacent table have quoted prices in active markets,
although most are held through funds comprised of such
instruments which are not actively traded themselves. The
total value of plan assets not quoted in active markets
is €8,812 million (2018: €8,534 million, including the
UK buy-in annuity policies totaling €8,018 million (2018:
€7,496 million), investments in real estate, totaling
€405 million (2018: €362 million) and other investments
in infrastructure, catastrophe bonds, insurance policies
and high-yield credit strategies. Plan assets did not directly
include any of AkzoNobel’s own transferable financial
instruments, nor any property occupied by or assets used
by the company.
Cash flows
In 2020, we expect to contribute €84 million (2019:
€557 million) to our defined benefit pension plans. We
expect to pay a further €13 million (2019: €12 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 fall in
expected contributions in 2020 compared to 2019
is mainly the result of no anticipated requirement to make
top-up payments to the ICIPF in 2020, whereas recovery
plan top-up payments were made in 2019 following
agreement on the ICIPF triennial funding valuation at
March 31, 2017.
100
Financial statements | AkzoNobel Report 2019
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
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
559
312
722
12.1
Total Percentage of total
Total Percentage of total
2018
2019
552
784
2,390
888
7,496
212
1,332
4
6
18
7
55
2
8
331
1,641
2,728
1,458
8,018
289
822
2
11
18
10
52
2
6
13,654
100
15,287
100
Pensions
Other post-retirement benefits
2019
45
512
557
2020
45
39
84
2019
12
–
12
CPS
UK
Other
pension plans
Other post-
retirement
benefits
294
88
115
16.3
146
78
72
16.1
6
–
8
2020
13
–
13
Total
1,005
478
917
10.2
13.6
* The sensitivity to price inflation assumption includes corresponding changes to all inflation-related compensation
increases, pensions in payment and pensions in deferment.
The sensitivity effect on DBO shown allows for an
alternative value for each assumption while the other
actuarial assumptions remain unchanged. While this
table illustrates the overall impact on DBO of the changes
shown, the significance of the impact and the range of
reasonably possible alternative assumptions may differ
between the different plans that comprise the total DBO.
In particular, the plans differ in benefit design, currency
and average term, meaning that different assumptions
have different levels of significance for each plan. The
sensitivity analysis is intended to illustrate the inherent
uncertainty in the valuation of the DBO under market
conditions at the measurement date. Its results cannot
be extrapolated due to non-linear effects that changes in
the key actuarial assumptions may have on the total
DBO. Furthermore, the analysis does not indicate a
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
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)
–%
–
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
ICIPF
UK
62%
(9,124)
9,939
815
–
815
11%
3
479
1.9%
1.5%
3.1%
2.9%
26.3
27.8
27.3
29.0
CPS
UK
Other pension
plans
Other post-
retirement
benefits
24%
13%
1%
(3,499)
4,032
533
–
533
25%
8
37
2.0%
1.4%
3.0%
2.3%
25.9
28.3
27.0
29.5
(1,835)
1,316
(519)
(3)
(522)
63%
19
41
1.9%
2.7%
2.1%
2.1%
25.9
28.4
27.3
29.7
(158)
–
(158)
–
(158)
1%
–
12
2.9%
–
–
–
26.1
27.8
27.2
29.0
2019
Total
(14,616)
15,287
671
(3)
668
30
569
1.9%
2.0%
2.9%
2.6%
26.2
28.0
27.2
29.2
probability of such changes occurring and it does not
necessarily represent our view of expected future changes
in DBO. Any management actions that may be taken to
mitigate the inherent risks in the post-retirement defined
benefit plans are not reflected in this analysis, as they
would normally be reflected in plan asset changes rather
than DBO changes.
The sensitivities in the table only apply to the DBO and
not to the net amounts recognized in the balance sheet.
Movements in the fair value of plan assets (which include
the de-risking instruments) would, to a significant extent,
be expected to offset movements in the DBO resulting
from changes in the given assumptions. At ICIPF, the
annuity buy-in contracts cover 99% of pensioner liabilities
(2018: 99%) and 84% of total liabilities (2018: 84%).
At CPS, the longevity hedge contract covers 58% of
pensioner liabilities (2018: 57%) and 35% of total liabilities
(2018: 35%).
AkzoNobel Report 2019 | Financial statements
101
Key plan details for the two largest pension plans1
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.
Type of plan
Benefits
Future benefit payments
In € millions
Pensions
Other post-
retirement
benefits
Pension increases (main benefit
section)
2020
2021
2022
2023
2024
2025-2029
901
899
905
915
921
4,721
13
12
12
11
11
46
Plan structure
Governance
Regulatory framework
Funding basis
DBO at funded and unfunded pension plans*
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
In € millions
Wholly or partly funded plans
Unfunded plans
Total
2018
13,032
177
2019
14,268
190
13,209
14,458
Frequency of funding reviews
Normally every three years
Latest completed valuation
March 31, 2017
Funding deficit2 at latest completed
valuation
£604 million (€707 million)
Normally every three years
March 31, 2017
£123 million (€144 million)
* Excludes other post-retirement benefit plans.
Recovery plan
£125 million (€146 million)3 in January 2019 and £290
million (€333 million)3 in March 2019, following experi-
ence gains since the March 31, 2017 valuation date
£26 million (€30 million) per annum in 2019 to 2022,
paid in March each year from an escrow account pre-
funded with £142 million (€181 million)3 in February 2019
Next funding review
March 31, 2020
March 31, 2020
Asset allocation at March 31, 2019
Matching:
Return seeking:
97%
3%
Buy-in annuity contracts cover 99% of pensioner
liabilities and 84% of total liabilities
82%
18%
The longevity hedge contract covers 58% of pensioner
liabilities and 35% of total liabilities
Membership at March 31, 2019
Active
Deferred
Pensioner
Total
155
6,801
39,847
46,803
361
6,767
17,857
24,985
1 Amounts in euro are a convenience translation using the December 31, 2019, exchange rate, unless indicated otherwise.
2 Based on local valuation regulations.
3 Actual rate at time of transfer.
102
Financial statements | AkzoNobel Report 2019
Note 19 Other provisions and contingent liabilities
Provisions for restructuring of activities
Provisions for restructuring of activities comprise of accru-
als for certain employee benefi ts and for costs which are
directly associated with plans to exit or cease specifi c
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 costs arising out of environmental
laws and regulations, which include obligations to eliminate
or limit the effects on the environment of the disposal or
release of certain wastes or substances at various sites.
Proceedings involving environmental matters, such as
the alleged discharge of chemicals or waste materials into
the air, water, or soil, are pending against us in various
countries. In some cases, this concerns sites divested in
prior years or derelict sites belonging to companies
acquired in the past.
Environmental liabilities can change substantially due to
the emergence of additional information on the nature or
extent of the contamination, the geological circumstances,
the necessity of employing particular methods of remedia-
tion, actions by governmental agencies or private parties,
or other factors.
The provisions for environmental costs amounted to €75
million at year-end 2019 (2018: €91 million). The provision
has been discounted using an average pre-tax discount
rate of 1.4% (2018: 1.9%). 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 fi nancial
position but could be material to the company’s results of
operations in any one accounting period.
Movements in other provisions
In € millions
Balance at January 1, 2019
Additions made during the year
Utilization
Amounts reversed during the year
Unwind of discount
Acquisitions
Changes in exchange rates
Balance at December 31, 2019
Non-current portion of provisions
Current portion of provisions
Balance at December 31, 2019
Restructuring
of activities Environmental costs
Sundry
86
89
(67)
(13)
–
–
1
96
–
96
96
91
3
(13)
(11)
3
–
2
75
63
12
75
283
60
(51)
(18)
11
1
5
291
217
74
291
Total
460
152
(131)
(42)
14
1
8
462
280
182
462
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 benefi ts, such as long-service leave
and jubilee payments. The majority of the cash outfl ows
related to sundry provisions is expected to be within
one to fi ve years. In calculating the sundry provisions, a
pre-tax discount rate of on average 1.3% (2018: 1.3%)
has been used.
A number of claims against AkzoNobel are pending, all
of which are contested. This includes a lawsuit fi led
in April 2019, by PT DWI Satrya Utama (PTDSU) against
Akzo Nobel N.V., certain subsidiaries as well as certain
subsidiary directors at the Tangerang District Court,
Indonesia. PTDSU owns a 45% interest in PT ICI Paints
Indonesia (PTICIPI), an indirect subsidiary of Akzo Nobel
N.V.. PTDSU alleges that it suffered damages as a result
of defendants improper management of PTICIPI. The
defendants seek to dismiss the lawsuit on the grounds
that the claims are without merit and because the court
does not have jurisdiction over the lawsuit.
We are also involved in legal disputes and disputes with
tax authorities in several jurisdictions. 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. AkzoNobel has received various
claims under such indemnities and guarantees. In some
instances, AkzoNobel has been named as a direct defen-
dant despite the divestments.
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
following the procedures to terminate its residual liability
under those declarations under Article 404 of Book 2 of
the Dutch Civil Code. One objection against the termina-
tion of residual liability is still pending and Akzo Nobel N.V.
and Nouryon are cooperating to get this resolved.
Provisions are recognized when an outfl ow of economic
benefi ts for settlement is probable and the amount can
AkzoNobel Report 2019 | Financial statements
103
be reliably estimated. It should be understood that, in light
of possible future developments, such as: (a) potential
additional lawsuits; (b) possible future settlements; and (c)
rulings or judgments in pending lawsuits, certain cases
may result in additional liabilities and related costs.
At this point in time, we cannot estimate any additional
amount of loss or range of loss in excess of the recorded
amounts with suffi cient certainty to allow such amount or
range of amounts to be meaningful. While the outcome
of said cases, claims and disputes cannot be predicted
with certainty, we believe, based upon legal advice and
information received, that the fi nal outcome will not materi-
ally affect our consolidated fi nancial position but could be
material to our results of operations or cash fl ows in any
one accounting period.
Current portion of provisions
The current portion of post-retirement benefi t provisions
(€49 million) and the current portion of other provisions
(€182 million) add up to €231 million (2018: €211 million),
as refl ected in the balance sheet.
Discount rates
The discount rates used in calculating the provisions
recognized at December 31, 2019 are mentioned in the
paragraphs on environmental and sundry provisions.
Changes in the discount rate will affect our consolidated
fi nancial 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 €10 million
on the provisions recognized at December 31, 2019.
Note 20 Net debt
Net debt
in € millions
Net debt equivalents at January 1, 2018
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 bank overdrafts and short-term bank loans
Net cash from discontinued operations
Buy out of non-controlling interests
Changes in exchange rates
Other changes
Net debt at year-end 2018
Impact adoption IFRS 16
Net debt at January 1, 2019
Net cash from operating activities
Net cash from investing activities
Acquisitions
Unwind of discount and amortized cost
Proceeds from borrowings
Borrowings repaid
New/modifi cation of lease contracts
Transfers from long-term to short-term
Movement bankoverdrafts and short-term bank loans
Investments in short-term investments
Repayments of short-term investments
Dividends
Capital repayments
Share repurchase
Net cash from discontinued operations
Changes in exchange rates
Other changes
Net debt at year-end 2019
104
Financial statements | AkzoNobel Report 2019
(8,958)
(8,958)
Long-term
borrowings
Short-term
borrowings
Short-term
investments
Cash and cash
equivalents
2,300
–
–
7
–
(526)
–
–
–
–
–
–
–
18
1,799
270
2,069
–
–
7
10
3
–
34
(86)
–
–
–
–
–
–
–
3
2
973
–
–
600
(1,529)
526
–
–
–
33
–
–
(9)
5
599
93
692
–
–
–
(1)
7
(623)
18
86
2
–
–
–
–
–
–
(6)
(6)
–
–
–
–
–
(5,541)
80
–
–
–
–
–
1
(1,322)
(162)
207
(607)
1,529
–
5,541
(80)
636
(33)
437
17
(4)
(5,460)
(2,799)
–
–
(5,460)
(2,799)
–
–
(16)
–
–
–
–
–
–
(2,325)
7,663
–
–
–
–
–
–
(33)
102
224
–
(10)
623
–
–
(2)
2,325
(7,663)
1,446
2,000
2,520
10
(15)
1
2,042
169
(138)
(1,271)
Net debt
1,951
(162)
207
–
–
–
–
–
636
–
437
8
20
(5,861)
363
(5,498)
(33)
102
215
9
–
–
52
–
–
–
–
1,446
2,000
2,520
10
(18)
(3)
802
Analysis of net debt by category
Aggregated maturities of long-term borrowings
Short-term investments
In € millions
Bonds issued
Lease liabilities
Other borrowings
Long-term borrowings
Current portion of long-term borrowings
Current portion of lease liabilities
Debt to credit institutions
Other
Short-term borrowings
Total borrowings
Short-term investments
Cash and cash equivalents
Net debt
2018
1,739
32
28
1,799
511
5
67
16
599
2,398
(5,460)
(2,799)
(5,861)
2019
1,741
262
39
In € millions
Bonds issued
Lease liabilities
Other borrowings
2,042
Total
2021-2024
After 2024
In € millions
1,245
183
14
1,442
496
79
25
600
Short-term investments with life
between three and 12 months
Total
3
90
61
15
169
2,211
(138)
(1,271)
802
Long-term borrowings
We have a €1.8 billion multi-currency revolving credit
facility which runs until 2022. This facility does not contain
fi nancial covenants or acceleration provisions that are
based on adverse changes in ratings or material adverse
change. At year-end 2019 and 2018, this facility has not
been drawn.
Cash and cash equivalents
In € millions
Cash on hand and in banks
Deposits and money market funds with
a life up to three months
Included under cash and cash
equivalents in the balance sheet
Debt to credit institutions
Total per statement of cash fl ows
2018
5,460
5,460
2019
138
138
2018
896
1,903
2019
1,031
240
2,799
1,271
(67)
2,732
(61)
1,210
AkzoNobel’s net debt is mainly denominated in euro.
The blended incremental borrowing rate applied to the
lease liabilities at year-end 2019 was 2.2%.
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 26.
The average effective interest rate of the bonds outstand-
ing at year-end 2019 was 1.9% (year-end 2018: 1.9%).
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)
2018
746
498
495
2019
747
498
496
Total
1,739
1,741
At year-end 2019 and 2018, none of the borrowings was
secured by collateral.
Short-term borrowings
In November 2019, a bond of €500 million matured.
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 2019 and 2018.
Cash and cash equivalents
Deposits and money market funds within cash and cash
equivalents almost entirely consist of time deposits imme-
diately convertible into known amounts of cash and with a
maturity of three months or less from the date of purchase
and marketable securities that can be redeemed immedi-
ately when called.
At December 31, 2019, an amount of €21 million in cash
and cash equivalents was restricted (2018: €8 million).
Restricted cash is defi ned as cash that cannot be accessed
centrally due to regulatory or contractual restrictions.
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 26.
Note 21 Trade and other payables
Trade and other payables
In € millions
Trade payables to suppliers
Trade payables to customers
Taxes and social security contributions
Amounts payable to employees
FX and commodity contracts
Dividends
Other liabilities
Total
2018
1,815
269
175
225
8
5
148
2,645
2019
1,588
295
164
232
18
7
102
2,406
AkzoNobel Report 2019 | Financial statements
105
Note 22 Cash fl ow
Note 23 Commitments
Note 25 Remuneration of the Supervisory Board
and the Board of Management
Operating activities in 2019 resulted in a cash infl ow of
€33 million (2018: cash infl ow of €162 million).
Purchase commitments for property, plant and equipment
aggregated €3 million (2018: €8 million).
Pension pre-funding concerns the payment of €161 million
for the funding of the escrow account for Akzo Nobel
(CPS) Pension Scheme in the UK.
As from January 1, 2019, for lease liabilities refer to
Note 20. During 2018, lease payments amounted to
€124 million.
Changes in other provisions as per consolidated
statement of cash fl ows
Note 24 Related party transactions
In € millions
Restructuring provisions
Environmental and sundry provisions
Total
2018
(4)
(42)
(46)
Changes in working capital as per consolidated
statement of cash fl ows
In € millions
Trade and other receivables
Inventories
Trade and other payables
Total
2018
(199)
(49)
71
(177)
2019
9
(24)
(15)
2019
9
9
(262)
(244)
The above amounts cannot be reconciled directly to the
respective balance sheet positions. They refl ect changes
in balance sheet positions only to the extent they have a
cash fl ow impact, such as utilization, or they reverse the
non-cash impact as included in profi t 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 2019, we considered the members of the Execu-
tive Committee and the Supervisory Board to be the key
management personnel as defi ned 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 25. 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.
For related party transactions with pension funds, refer to
Note 14 and 18.
Total compensation for key management personnel
expensed during the period amounted to €20.9 million
(2018: €15.7 million). An amount of €7.9 million relates to
short-term employee benefi ts (2018: €7.3 million); €0.7
million relates to post-contract benefi ts and other post-
contract compensation (2018: €0.7 million); €5.9 million
relates to share-based compensation (2018: €6.0 million);
€3.1 million relates to other long-term incentives (2018:
€1.2 million); and €3.3 million relates to payments upon
termination of employment (2018: €0.5 million). Additional
charges of €2.9 million (2018: €1.7 million) were accrued
which relate to taxation on excessive pay (“Belastingheffi ng
excessieve beloningsbestanddelen”).
This compensation includes total remuneration for the
members of the Supervisory Board of €1.0 million (2018:
€1.0 million) and for the members of the Board of Manage-
ment of €6.5 million (2018: €5.0 million). For more details
on the remuneration of the individual members of the
Supervisory Board and the Board of Management refer-
ence is made to the Remuneration report.
In accordance with the Articles of Association and good
corporate governance practice, the remuneration of
Supervisory Board members is not dependent on the
results of the company. We do not grant share-based
compensation to our Supervisory Board members.
An overview of shares held by the Supervisory Board
members is provided on this page. A similar overview is
provided of the shares held by the Board of Management.
Loans
The company does not grant loans, advance payments
or guarantees to members of the Supervisory Board,
members of the Executive Committee or any family
members of such persons.
106
Financial statements | AkzoNobel Report 2019
Note 26 Financial risk management
Shares held by the members of the
Supervisory Board
Number of shares at year-end
Nils Smedegaard Andersen, Chairman
Byron Grote*
Pamela Kirby
Dick Sluimers
Ben Verwaayen
Sue Clark
Patrick Thomas
Michiel Jaski
Jolanda Poots-Bijl
* In the form of ADRs.
2018
3,300
4,833
–
–
–
–
–
500
–
2019
4,500
4,295
–
–
–
–
–
444
–
Shares held by the Board of Management
Number of shares at year-end
Thierry Vanlancker
Maarten de Vries
2018
13,682
2,562
2019
19,181
4,164
FINANCIAL RISK MANAGEMENT
FRAMEWORK
Our activities expose us to a variety of fi nancial 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 fi nancial risks in order
to minimize potential adverse effects on our fi nancial
performance.
Our risk mitigating activities include the use of derivative
fi nancial instruments to hedge certain risk exposures. The
Board of Management is ultimately responsible for risk
management. We centrally identify, evaluate and hedge
Maturity of liabilities and cash outfl ows
Less than
1 year
Between
1 and 5 years
Over 5
years
In € millions
At December 31, 2018
Borrowings
Interest on borrowings
Lease liabilities
594
43
5
Trade and other payables
2,637
FX contracts (hedges)
Outfl ow
Infl ow
Total
At December 31, 2019
Borrowings
Interest on borrowings
Lease liabilities
1,655
(1,653)
3,281
79
69
90
Trade and other payables
2,388
FX contracts (hedges)
Outfl ow
Infl ow
Total
2,468
(2,456)
2,638
755
124
18
–
–
–
1,012
22
14
–
–
–
897
1,048
1,259
521
182
183
–
–
–
8
79
–
–
–
1,624
608
fi nancial risks, and monitor compliance with the corporate
policies approved by the Board of Management, except
for commodity risks, which are subject to identifi cation,
evaluation, 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 fi nancing. We do not allow extensive
treasury operations at subsidiary level directly with
external parties.
LIQUIDITY RISK MANAGEMENT
The primary objective of liquidity management is to provide
for suffi cient 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 2019, we had €1.3 billion available as cash
and cash equivalents (2018: €2.8 billion) and €138 million
available as short-term investments (2018: €5.5 billion),
see Note 20.
In addition, we have a €1.8 billion multi-currency revolving
credit facility, which runs to 2022. This facility does not
contain fi nancial covenants or acceleration provisions that
are based on adverse changes in ratings or on other
material adverse changes. At year-end 2019 and 2018,
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 2019 and 2018. The table above shows our cash
outfl ows per maturity group. The amounts disclosed in the
table are the contractual undiscounted cash fl ows.
CREDIT RISK MANAGEMENT
Credit risk arises from fi nancial assets such as cash
and cash equivalents, deposits with fi nancial institu-
tions, money market funds, trade receivables and
AkzoNobel Report 2019 | Financial statements
107
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 counter-
parties 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
derivative financial instruments are entered into with
counterparties that have sound credit ratings and a good
reputation.Derivative transactions are concluded mostly
with parties with whom we have contractual netting agree-
ments and ISDA agreements in place. We set limits per
counterparty for the different types of financial instruments
we use. We closely monitor the acceptable financial
counterparty credit ratings and credit limits and revise
where required in line with the market circumstances.
We do not expect non-performance by the counterparties
for these financial instruments. Due to our geographical
spread and the diversity of our customers, we were
not subject to any significant concentration of credit risks
at balance sheet date.
The credit risk from trade receivables is measured and
analyzed at a local operating entity level, mainly by means
of ageing analysis, see Note 16. Additionally, trade receiv-
ables 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 approaches
per financial asset type, see Note 1.
Generally, the maximum exposure to credit risk is repre-
sented by the carrying value of financial assets in the
balance sheet.
At year-end 2019, the credit risk on consolidated level
was €3.7 billion (2018: €10.5 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
counterparty risk amounted to €380 million at year-end
2018 (2018: €999 million).
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 2018 and 2019, net investment hedge accoun-
ting was applied on hedges of certain net investments
in foreign operations, which were partly hedged.
The main net investments included were related to
Chinese yuan (2018 and 2019), Vietnamese dong
(2018 and 2019), Indian rupee (2019), 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 cumulative translation reserves. At year-end 2019
one hedge of net investments in Polish zloty was
outstanding. During 2018 and 2019, these hedges
were fully effective.
INTEREST RATE RISK MANAGEMENT
We are partly financed with debt in order to obtain more
efficient leverage. Fixed rate debt results in fair value inter-
est rate risk. Floating rate debt results in cash flow interest
rate risk. We treat fixed rate debt maturing within one year
as floating rate debt for debt portfolio purposes. The fixed/
floating rate of our outstanding bonds shifted from 78%
fixed at year-end 2018 to 100% fixed at year-end 2019.
During 2019 and 2018, we have not used any interest
rate derivatives.
Hedged notional amounts at year-end
CAPITAL RISK MANAGEMENT
In € millions
US dollar
Pound sterling
Swedish krona
Chinese yuan
Other
Total
Buy
2018
556
181
42
39
186
1,004
Sell
2018
138
112
31
26
469
776
Buy
2019
605
599
24
48
214
Sell
2019
739
136
9
–
565
1,490
1,449
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 amounts of dividends paid to sharehold-
ers, return capital to capital providers, or issue new debt
or shares. In November 2019, a bond of €500 million
matured. Consistent with other companies in the industry,
108
Financial statements | AkzoNobel Report 2019
we monitor capital headroom based on funds from
operations in relation to our net borrowings level (FFO/
NB-ratio). The FFO/NB-ratio at year-end 2019 was 0.71
(2018: was not measured given the proceeds from the
divestment of Specialty Chemicals). Funds from opera-
tions are based on net cash from operating activities after
tax, which is adjusted, among others, for the elimination of
changes in working capital, top-up payments for pensions
and for the effects of the underfunding of postretirement
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.
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 respec-
tive financial instruments per IFRS 9 category. The total
carrying 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 financial non-current assets,
cash and cash equivalents and short-term investments.
The remaining financial instruments are accounted for at
amortized cost.
The following valuation methods for financial instruments
carried at fair value through profit or loss are
distinguished:
• Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
• Level 2: inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices)
• Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable)
Fair value per financial instrument category
In € millions
2018 year-end
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
2019 year-end
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
1,269
2,141
5,460
2,799
1,093
142
–
–
158
1,993
–
–
11,669
1,235
2,151
1,799
599
2,645
5,043
1,862
2,133
138
1,271
5,404
2,042
169
2,406
4,617
–
–
400
400
1,526
149
–
–
1,799
599
2,237
4,635
210
1,975
–
–
1,675
2,185
–
–
396
396
2,042
169
1,992
4,203
18
6
5,460
2,799
8,283
–
–
8
8
126
9
138
1,271
1,544
–
–
18
18
Total
carrying value
Fair value
176
1,999
5,460
2,799
197
1,999
5,460
2,799
10,434
10,455
1,799
599
2,245
4,643
336
1,984
138
1,271
3,729
2,042
169
2,010
4,221
1,880
600
2,245
4,725
364
1,984
138
1,271
3,757
2,174
169
2,010
4,353
For the purpose of determining the fair value per financial
instrument category, shown in the column “fair value”, the
following valuation methods were used:
A level 1 valuation method was used to estimate the
fair value of the bonds issued included in our long-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
AkzoNobel Report 2019 | Financial statements
109
Note 27 Subsequent events
The impact of the decision of the United Kingdom to leave
the European Union (Brexit) was assessed. The impact on
our activities and fi nancial information is considered not to
be material.
On December 12, 2019, AkzoNobel has entered into an
agreement to acquire 100% of the shares of Mauvilac
Industries Limited, a leading paints and coatings company
in Mauritius. The transaction includes a local production
facility, four concept stores and access to a strong
distribution network. The planned transaction is expected
to be completed in the fi rst half of 2020, subject to
customary conditions.
Sensitivities on fi nancial instruments at year-end 2019
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 fi nancial instru-
ments) in a currency other than the functional
currency of the subsidiary in the 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% (2018: 10%) strengthening of the
euro versus US dollar
Profi t: €10 million (2018: profi t €7 million)
A 10% (2018: 10%) strengthening of the
euro versus the pound sterling
€nil (2018: €nil)
A 10% (2018: 10%) strengthening of the
euro versus Chinese yuan
€nil (2018: loss €1 million)
A 100 basis points increase of EURIBOR
interest rates
Profi t: €5 million (2018: profi t €27 million)
A 100 basis points increase of US LIBOR
interest rates
Profi t: €nil (2018: profi t €1mln)
A 100 basis points increase of GBP LIBOR
interest rates
Profi t: €1 million (2018: €nil)
respect of transactions outstanding in the same currency
may be aggregated into a single net amount that is
payable by one party to the other. In certain circumstances
– e.g. when a credit event such as a default occurs – all
outstanding transactions under the agreement may be
terminated, the termination value is assessed and a net
amount is payable in settlement of the transactions. We
have evaluated the potential effect of netting agreements,
including the effect of rights of set-off and concluded
the impact is immaterial. We did not offset any amounts
regarding derivative transactions.
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 €116 million of Other fi nancial non-current
assets a level 3 fair valuation method (discounted cash
fl ow) was used resulting in a deviation between the fair
value and the carrying value.
MASTER NETTING AGREEMENTS
We enter into derivative transactions under International
Swaps and Derivatives Association (ISDA) master netting
agreements. In general, under such agreements the
amounts owed by each counterparty on a single day in
110
Financial statements | AkzoNobel Report 2019
COMPANY FINANCIAL STATEMENTS
Statement of income
Balance sheet as of December 31, before allocation of profit
In € millions
Revenue
Other income
Gross profit
General and administrative expenses
Other results
Operating income
Financing income and expenses
Net income from subsidiaries, associates
and joint ventures
Profit before tax
Income tax
Net income
Note
B
C
30
78
(77)
5,126
(75)
1,599
2018
108
5,049
5,157
6,681
(7)
6,674
57
72
(68)
(28)
(80)
564
2019
In € millions
Note
2018
2019
Assets
129
Non-current assets
(96)
33
517
22
539
Deferred tax 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
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
11,299
30
11,540
11,299
11,570
E
G
G
F
G
G
H
373
5,460
1,996
512
958
248
(608)
(2,459)
6,604
6,579
160
120
458
7,829
19,128
738
12,308
100
–
211
(469)
(2,684)
8,735
457
11,834
6,350
6,471
5,682
6,471
5,682
526
297
36
240
823
19,128
276
12,308
AkzoNobel Report 2019 | Financial statements
111
Balance at December 31, 2018
512
958
Statement of changes in equity
In € millions
Balance at December 31, 2017
Impact adoption IFRS 9
Impact adoption IFRS 15
Impact application IAS 29
Balance at January 1, 2018
Changes in exchange rates in respect of
subsidiaries, associates and joint ventures
Changes in fair value of derivatives
Post-retirement benefi ts
Net income
Comprehensive income
Dividend
Equity-settled transactions
Issue of common shares
Acquisitions and divestments
Addition to other reserves
Changes in exchange rates in respect of
subsidiaries, associates and joint ventures
Post-retirement benefi ts
Net income
Comprehensive income
Dividend
Equity-settled transactions
Share buyback
Capital repayment and share consolidation
Issue of common shares
Addition to other reserves
Balance at December 31, 2019
Note A General information
The fi nancial statements of Akzo Nobel N.V. have
been prepared using the option of Article 362 of
112
Financial statements | AkzoNobel Report 2019
Subscribed
share capital
Additional
paid-in capital
Cash fl ow
hedge reserve
Other
legal reserves
Cumulative trans-
lation reserves
Actuarial
gains & losses
Other reserves
Undistributed
results
Shareholders'
equity
Legal reserves
(549)
(2,460)
6,655
698
5,865
505
–
–
–
505
–
–
–
–
–
5
–
2
–
–
769
–
–
–
769
–
–
–
–
–
191
–
(2)
–
–
–
–
–
–
–
–
(14)
(399)
1
–
100
–
–
–
–
–
–
–
(957)
(1)
–
–
15
–
–
–
15
–
(15)
–
–
(15)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
232
–
–
–
232
–
–
–
–
–
–
–
–
–
16
248
–
–
–
–
–
–
–
(61)
–
24
211
–
–
23
(526)
(82)
–
–
–
(82)
–
–
–
–
–
(608)
139
–
–
139
–
–
–
–
–
–
–
–
–
(3)
(48)
–
–
–
–
(2,460)
6,604
698
–
–
1
–
1
–
–
–
–
–
(2,459)
–
(225)
–
(225)
–
–
–
–
–
–
–
–
–
–
–
–
32
–
(223)
191
6,604
–
–
–
–
–
20
(2,520)
(583)
–
5,214
8,735
–
–
–
6,674
6,674
(586)
–
–
–
(207)
6,579
–
–
539
539
(1,423)
–
–
–
–
(5,238)
457
(3)
(48)
23
5,837
(82)
(15)
1
6,674
6,578
(390)
32
–
(223)
–
11,834
139
(225)
539
453
(1,423)
20
(2,534)
(2,000)
–
–
6,350
(469)
(2,684)
Book 2 of the Dutch Civil Code, meaning that the account-
ing principles used are the same as for the Consolidated
fi nancial statements. Foreign currency amounts have been
translated, assets and liabilities have been valued, and
net income has been determined in accordance with the
principles of valuation and determination of income
presented in Note 1 of the Consolidated fi nancial
statements. For the Company fi nancial statements,
revenue mainly concerns service contracts and royalty
related revenue from third parties; other income mainly
concerns intercompany royalty income. Subsidiaries
of Akzo Nobel N.V. are accounted for using the equity
Note D Financial non-current assets
method, based on the pronouncements of the Dutch
Accounting Standards Board.
Movements in non-current assets
The remuneration paragraph is included in Note 25 of the
Consolidated fi nancial statements.
Note B Other results
In 2018 and 2019, other results contain the part of the
deal result on the sale of the Specialty Chemicals business
directly attributable to Akzo Nobel N.V.. For details
on the sale refer to Note 2 of the Consolidated fi nancial
statements.
Note C Financing income and expenses
Included in the 2019 fi nancing expenses is a premium
paid of €71 million for transferred intercompany loans. For
information on this transfer see Note D Financial non-
current assets.
Financing income and expenses
In € millions
Financing income
Financing expenses
Total
2018
1
(76)
(75)
2019
31
(111)
(80)
In € millions
Balance at December 31, 2017
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
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
Investments/acquisitions/capital contributions
Divestments/capital repayments
Net income from subsidiaries
Equity-settled transactions
Loans granted
Repayment of loans
Changes in exchange rates
Post-retirement benefi ts
Other changes
Balance at December 31, 2019
Subsidiaries
Share in capital
10,169
(3)
(48)
23
10,141
–
(1,177)
1,599
26
(223)
–
–
(84)
(1,070)
34
9,246
179
(760)
564
14
–
–
139
(223)
–
9,159
Loans*
1,228
–
–
–
1,228
–
–
–
–
–
1,003
(279)
(3)
–
1,949
–
–
–
–
1,079
(779)
(4)
–
–
Other non-
current assets
99
–
–
–
99
11
(4)
–
–
–
–
–
–
–
(2)
104
34
–
–
–
–
–
–
–
(2)
Total
11,496
(3)
(48)
23
11,468
11
(1,181)
1,599
26
(223)
1,003
(279)
(87)
(1,070)
32
11,299
213
(760)
564
14
1,079
(779)
135
(223)
(2)
2,245
136
11,540
* Loans to these companies have no fi xed repayment schedule.
Due to an intra-group funding restructuring, several
intercompany loans were transferred in 2019 and will be
transferred in 2020 from certain foreign subsidiaries to
Akzo Nobel N.V..
AkzoNobel Report 2019 | Financial statements
113
Note E Short-term receivables
Short-term receivables
In € millions
Receivables from subsidiaries
FX contracts
Other receivables
Total
2018
309
6
58
373
2019
117
9
34
160
Note F Shareholders’ equity
Subscribed share capital
The holders of common shares are entitled to receive
dividends as declared from time to time and are entitled
to one vote per share at the Annual General Meeting of
shareholders. The holders of the priority shares are entitled
to a dividend of 6% per share or the statutory interest
in the Netherlands, whichever is lower, plus any accrued
and unpaid dividends. They are entitled to 800 votes per
share (in accordance with the 800 times higher nominal
value per share) at the Annual General Meeting of share-
holders. 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 Manage-
ment; amendments to the Articles of Association are
subject to the approval of the Meeting of Holders of
Priority Shares.
Priority shares may only be transferred to a transferee
designated by a Meeting of Holders of Priority Shares
and against payment of the par value of the shares, plus
interest at the rate of 6 percent per annum or the statutory
interest in the Netherlands, whichever is lower, for the
period between the beginning of the year and the date
of transfer. There are no restrictions on voting rights of
holders of common or priority shares. The Articles of
Association set out procedures for exercising voting rights.
The Annual General Meeting of shareholders has resolved
in 2019 to authorize the Board of Management for a
period of 18 months (i) to issue shares (or grant
Unrestricted reserves at year-end
In € millions
Shareholders' equity at year-end
Subscribed share capital
Subsidiaries' restrictions to transfer
funds
Statutory reserve due to capital
reduction
Reserve for development costs
Unrestricted reserves
2018
11,834
(512)
(145)
(61)
(42)
11,074
2019
6,350
(100)
(145)
–
(66)
6,039
rights to shares) in the capital of the company up to a
maximum of 10%, which in case of mergers or acquisi-
tions 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 3,165,967 common shares at year-end 2019
(year-end 2018: nil), which will be cancelled in 2020.
Of the shareholders’ equity of €6.4 billion, an amount of
€6.0 billion (2018: €11.1 billion) was unrestricted and avail-
able for distribution – subject to the relevant provisions of
our Articles of Association and Dutch law.
At year-end 2019, legal reserves include the €145 million
reserve relating to earnings retained by subsidiaries,
associates and joint ventures after 1983, to the extent
that there are limitations for AkzoNobel to arrange profi t
distributions; and the €66 million reserve for capitalized
development costs.
Dividend
Our dividend policy is to pay a stable to rising dividend.
In 2019, an interim dividend of €0.41 (2018: €0.37)
per common share was paid. We propose a 2019 fi nal
dividend of €1.49 (2018: €1.43) per common share,
which would equal a total 2019 dividend of €1.90
(2018: €1.80).
In line with our announcement on April 19, 2017, we
have returned 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 repay-
ment and share consolidation, which was executed
in January 2019. A share consolidation ratio of 9:8
was applied.
We distributed €1.0 billion by means of a special cash
dividend of €4.50 per common share (post consolidation)
on February 25, 2019, in addition to the €1.0 billion special
cash dividend already distributed in December 2017.
The share buyback program to repurchase common
shares up to the value of €2.5 billion has been completed
at the end of 2019, acquiring 31.2 million common shares,
of which 28.4 million shares were cancelled.
On October 23, 2019, a new €500 million share buyback
program was announced, of which 0.4 million shares were
acquired in 2019.
Note G Net debt
Long-term borrowings
For the fair value of the bonds issued, refer to Note 26 of
the Consolidated fi nancial 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.
At year-end 2019, the fair value of the bonds included in
long-term borrowings was €1,873 million.
114
Financial statements | AkzoNobel Report 2019
Analysis of net debt by category
Cash and cash equivalents
In € millions
Bonds issued
Debt from subsidiaries
Long-term borrowings
Current portion of long-term
borrowings
Short-term loans
Short-term borrowings
Total borrowings
Short-term investments
Cash and cash equivalents
Net debt
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)
Total
2018
1,739
4,732
6,471
500
26
526
6,997
(5,460)
(1,996)
(459)
2018
746
498
495
1,739
2019
1,741
3,941
5,682
–
36
36
5,718
(120)
(458)
5,140
2019
747
498
496
1,741
In € millions
Cash on hand and in banks
Deposits and money markets funds
with a life up to three months
Included under cash and cash
equivalents in the balance sheet
2018
296
1,700
1,996
2019
343
115
458
Short-term investments
Short-term investments of €120 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.
Cash and cash equivalents
Deposits and money market funds within cash and cash
equivalents almost entirely consist of time deposits imme-
diately convertible into known amounts of cash and with a
maturity of three months or less from the date of purchase
and marketable securities that can be redeemed immedi-
ately when called.
We have a €1.8 billion multi-currency revolving credit
facility which runs until 2022. This facility does not contain
fi nancial covenants or acceleration provisions that are
based on adverse changes in ratings or material adverse
change. At year-end 2019 and 2018, this facility has not
been drawn.
At year-end 2019 and 2018, none of the borrowings was
secured by collateral.
Short-term borrowings
In November 2019, a bond of €500 million matured. 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 2019 and 2018.
Note H Other current liabilities
Other current liabilities
In € millions
Payables to subsidiairies
FX contracts
Debt related to pensions
Other suppliers
Other liabilities
Total
2018
2019
26
8
3
54
206
297
53
19
3
26
139
240
Note I
Financial instruments
At year-end 2019, Akzo Nobel N.V. had outstanding
foreign exchange contracts to buy currencies for a total of
€1.5 billion (year-end 2018: €1.0 billion), while contracts to
sell currencies totaled €1.4 billion (year-end 2018:
€0.8 billion). The contracts mainly related to US dollars,
pound sterling and Chinese yuan and all have maturi-
ties within one year. These contracts offset the foreign
exchange contracts concluded by the subsidiaries, and
the fair value changes are recognized in the statement of
income to offset the fair value changes on the contracts
with the subsidiaries. For information on risk exposure
and risk management, see Note 26 of the Consolidated
fi nancial statements.
Note J Contingent liabilities
Akzo Nobel N.V. is parent of the group’s fi scal unity in the
Netherlands, and is therefore liable for the liabilities of said
fi scal 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 2019,
aggregating €0.4 billion (2018: €0.4 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. One objection against the termination
of residual liability is still pending and Akzo Nobel N.V. and
Nouryon are cooperating to get this resolved.
AkzoNobel Report 2019 | Financial statements
115
Additionally, at year-end 2019, guarantees were issued
on behalf of consolidated companies for an amount of
€0.3 billion (2018: €0.2 billion).
The debts and liabilities of the consolidated companies
underlying these guarantees are included in the Consoli-
dated balance sheet.
A number of claims against Akzo Nobel N.V. are pending,
all of which are contested. This includes a lawsuit fi led
in April 2019, by PT DWI Satrya Utama (PTDSU) against
Akzo Nobel N.V., certain subsidiaries as well as certain
subsidiary directors at the Tangerang District Court,
Indonesia. PTDSU owns a 45% interest in PT ICI Paints
Indonesia (PTICIPI), an indirect subsidiary of Akzo Nobel
N.V.. PTDSU alleges that it suffered damages as a
result of defendants improper management of PTICIPI.
The defendants seek to dismiss the lawsuit on the grounds
that the claims are without merit and because the court
does not have jurisdiction over the lawsuit.
Note K Auditor’s fees
OTHER INFORMATION
Our independent auditor, PwC the Netherlands, has
rendered, for the period to which the audit of the fi nancial
statements relates, in addition to the audit of the statutory
fi nancial statements, mainly stationary audits of
controlled entities.
For the fi nancial year 2018, PwC also performed audits
in relation to the sale of the Specialty Chemicals business
and audits in relation to the legal demerger.
Fees PricewaterhouseCoopers
In € millions
Audit of the fi nancial
statements
Other audit services
Tax services
Other non-audit
services
Total
In the
Netherlands
Network
outside the
Netherlands
3.9
2.0
–
–
5.9
5.3
0.1
–
–
5.4
Fees PricewaterhouseCoopers
In € millions
Audit of the fi nancial
statements
Other audit services
Tax services
Other non-audit
services
Total
In the
Netherlands
Network
outside the
Netherlands
4.5
0.3
–
–
4.8
6.0
0.1
–
–
6.1
2018
Total
9.2
2.1
–
–
11.3
2019
Total
10.5
0.4
–
–
10.9
PROPOSAL FOR PROFIT ALLOCATION
With due observance of Dutch law and the Articles of
Association, it is proposed that net income of €165 million
is carried to the other reserves. Furthermore, with due
observance of article 43, paragraph 7, it is proposed that
dividend on priority shares of €1,152 and on common
shares of €374 million (to be increased by dividend
on shares issued and reduced by dividend on shares
repurchased in 2020 before the ex-dividend date) will be
distributed. Following the acceptance of this proposal, the
holders of common shares will receive a total dividend of
€1.90 per share, of which €0.41 was paid earlier as an
interim dividend. The fi nal dividend of €1.49 per share will
be made available from May 7, 2020.
Amsterdam, February 11, 2020
The Board of Management
Thierry Vanlancker
Maarten de Vries
The Supervisory Board
Nils Smedegaard Andersen
Jolanda Poots-Bijl
Sue Clark
Byron Grote
Michiel Jaski
Pamela Kirby
Dick Sluimers
Patrick Thomas
Ben Verwaayen
116
Financial statements | AkzoNobel Report 2019
INDEPENDENT AUDITOR’S REPORT
To: the Annual General Meeting and the Supervisory
Board of Akzo Nobel N.V.
Report on the Financial statements 2019
Our opinion
In our opinion:
• The Consolidated financial statements of Akzo Nobel
N.V. (‘the Company’) give a true and fair view of the
financial position of the group (the Company together
with its subsidiaries) as at December 31, 2019, 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.
• The Company financial statements of Akzo Nobel N.V.
give a true and fair view of the financial position of the
Company as at December 31, 2019, 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
2019 of Akzo Nobel N.V., Amsterdam. The financial state-
ments include the Consolidated financial statements of the
group and the Company financial statements.
The Consolidated financial statements comprise:
• The Consolidated balance sheet as at December 31,
2019
• The following statements for 2019: the consolidated
statement of income, the consolidated statements
of comprehensive income, changes in equity and of
cash flows
• The notes, comprising the accounting policies and other
explanatory information
The Company financial statements comprise:
• The balance sheet as at December 31, 2019
• The statement of income for the year then ended
• The notes, comprising 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 financial
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 Union Regulation on specific require-
ments regarding statutory audit of public-interest entities,
the “Wet toezicht accountantsorganisaties” (Wta, Audit
firms supervision act), the “Verordening inzake de onafhan-
kelijkheid van accountants bij assuranceopdrachten”
(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, Dutch
Code of Ethics).
Our audit approach
Overview and context
Akzo Nobel N.V. is a global paints and coatings company
headquartered in the Netherlands. The group is comprised
of several components and therefore we considered our
group audit scope and approach as set out in the section
“The scope of our group audit”. We paid specific attention
to the areas of focus driven by the operations of the group,
as set out below.
After the completion of the sale of the Specialty Chemi-
cals business on October 1, 2018, the group is focused
to transform the company as part of management’s
‘‘Winning together: 15 by 20’’ strategy, which character-
ized the financial year 2019. The transformation programs
include centralization of finance activities in Global Busi-
ness Service hubs and simplification of the ERP envi-
ronment impacting the company’s systems, processes
and controls. Inherently transformation processes have
the potential to disrupt the organization, processes and
culture. We therefore extended our audit procedures
during the planning phase of our audit, in order to evaluate
the impact of the transformation. Due to the significance
of the transformation to the company and the extended
audit procedures, we included the transformation as a key
audit matter, as set out in the section “Key audit matters”
of this report.
As part of designing our audit, we determined material-
ity and assessed the risks of material misstatement in
the financial statements and we considered the business
generating activities, the operating assets as well as the
group’s global footprint. We also considered where the
Board of Management made important judgements, for
example, in respect of significant accounting estimates
that involved making assumptions and considering future
events that are inherently uncertain. In Note 1 of the
Consolidated financial statements the Company describes
the areas of judgement in applying accounting policies and
the key sources of estimation uncertainty. Of those, given
the significant estimation uncertainty and the related higher
inherent risks of material misstatement, we consider the
valuation of the post-retirement benefit provisions and the
accounting for and valuation of deferred tax assets and
uncertain tax positions as key audit matters, as set out in
the section “Key audit matters” of this report.
Other areas of focus, that were not considered as key
audit matters, were related to the impairment testing of
goodwill and other intangibles with indefinite useful lives,
the environmental, sundry, and legal provisions and infor-
mation technology general controls (ITGCs). The ITGC’s
are the policies and procedures used by the Company to
AkzoNobel Report 2019 | Financial statements
117
ensure information technology (IT) operates as intended
and provides reliable data for financial reporting purposes.
As in all our audits, we also addressed the risk of manage-
ment override of 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 specifically considered the impact of this risk of
the ambition included in the company’s stated target to
achieve 15% return on sales (ROS) by 2020.
We ensured that the audit teams at both group and
component level included the appropriate skills and
competences which are needed for the audit of a paints
and coatings company. In our team we also included
specialists in the areas of tax, IT and treasury and
experts in the areas of pensions, share based payments
and valuations.
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 judgement 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
evaluate the effect of identified misstatements, both
individually and in aggregate, on the financial statements
as a whole and on our opinion. In comparison to the 2019
materiality, the materiality in 2018 was €6 million higher
reflecting 5% of total profit before tax from the continued
operations and nine-month period result of the Specialty
The outlines of our audit approach was as follows:
Materiality
Materiality
Overall materiality: €39 million
Audit scope
We conducted audit work at 51
components in 18 countries.
Site reviews were conducted in
eight countries – United States,
Brazil, Germany, France, India,
Poland, South Africa and the
Netherlands. Audit coverage: 65%
of consolidated revenue, 73% of
consolidated total assets and 67%
of consolidated profit before tax.
Key audit matters
• Transformation to deliver
towards the “Winning together:
15 by 20” strategy
• Valuation of post-retirement
benefit provisions
• Valuation of deferred tax assets
and uncertain tax positions
Overall group materiality €39 million (2018: €45 million).
Basis for determining
materiality
We used our professional judgement to
determine overall materiality. As a basis for
our judgement we used 5% of total profit
before tax
Rationale for bench-
mark applied
Component materiality
We used profit before tax as the primary
benchmark, a generally accepted auditing
practice, based on our analysis of the
common information needs of users of
the financial statements. On this basis, we
believe that profit before tax is an important
metric for the financial performance of the
Company.
To each component in our audit scope,
based on our judgement, we allocate
materiality that is less than our overall
group materiality. The range of materiality
individually allocated across components was
between €5 million and €25 million. Certain
components were audited to a local statutory
audit materiality that was also less than our
overall group materiality.
Chemicals business discontinued operations combined,
excluding the deal result and excluding separation related
identified items.
We also take misstatements and/or possible misstate-
ments into account that, in our judgement, are material for
qualitative reasons.
We agreed with the Audit Committee of the Supervisory
Board that we would report to them misstatements
identified during our audit above €1.5 million (2018:
€2.25 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 group of enti-
ties managed by the Board of Management and Execu-
tive 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 it, in
aggregate, provides sufficient coverage of the financial
statements for us 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 opera-
tions 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 strat-
egy and plan, we determined the type of work required to
be performed at component level by the group engage-
ment team and by each component auditor.
The group audit included 23 components which
were subjected to audits of their complete financial infor-
mation, as those components are material to the group.
14 components were subjected to specific risk-focused
audit procedures as they include higher risk areas. Addi-
tionally, 14 components were selected for audit proce-
dures to achieve appropriate coverage on financial line
items in the Consolidated financial statements.
118
Financial statements | AkzoNobel Report 2019
In total, in performing these procedures, we achieved the
following coverage on the financial line items:
Revenue
Total assets
Profit before tax
2019
65%
73%
67%
None of the remaining components represented more
than 1.5% of total group revenue, total group assets
or profit before tax. For those remaining components
we performed, among others, analytical procedures to
corroborate our assessment that there were no significant
risks of material misstatements within those components.
For all components we used component auditors who
are familiar with the local laws and regulations to perform
the audit work. We collectively performed hard close audit
procedures on the interim October balance sheet positions
and results. These hard close audit procedures included
substantive audit work on certain material balances
and transactions.
Where component auditors performed the work, we deter-
mined our level of involvement in their audit work to be
able to conclude whether we had obtained sufficient and
appropriate audit evidence as a basis for our opinion on
the Consolidated financial statements as a whole.
We issued instructions to the component audit teams in
our group audit scope. These instructions included
an explanation of the structure of the group, the main
developments that are relevant for the component audi-
tors, the risks identified, the materiality levels to be applied
and our global audit approach. We had individual calls with
each of the in-scope component audit teams throughout
the audit. During these calls we discussed the instruc-
tions, the significant accounting and audit issues identified
by the component auditors, their reports, the findings of
their procedures, and other matters which could be of
relevance for the financial statements.
The group engagement team physically attended meet-
ings with a selection of the component teams and local
management. During these meetings we discussed the
strategy and financial performance of the local businesses,
as well as the audit plan and execution, significant risks
and other relevant audit topics. The most significant
components are visited every year and other components
are visited depending on specific considerations which
include, amongst other audit observations, specific risks
identified or other major events. In the current year, the
group audit team attended meetings in the United States,
Brazil, Germany, France, India, South Africa, Poland and
the Netherlands. Furthermore, we reviewed selected
working papers of four component teams.
The group engagement team performed the audit work on
the group consolidation, financial statement disclosures
and a number of complex items and processes controlled
and monitored centrally by Akzo Nobel N.V.. These include
impairment testing of goodwill and other intangible assets
with indefinite useful lives, valuation of post-retirement
benefit provisions, valuation of deferred tax assets and
uncertain tax positions, environmental, sundry and legal
provisions, share–based payments, treasury, ITGCs and
the Akzo Nobel N.V. standalone entity.
The group engagement team also performed central
procedures over controls performed by the business units
and other central functions, where relevant for our audit.
This included indirect entity level controls (e.g. to prevent
and detect fraud), including the code of conduct, corpo-
rate directives, whistleblower policy, internal representa-
tions, business partnering program and internal audits.
By performing the procedures above at components,
combined with additional procedures at group level,
we have been able to obtain sufficient and appropriate
audit evidence on the group’s financial information,
as a whole, to provide a basis for our opinion on the
financial statements.
Our focus on the risk of fraud and
non-compliance with laws and regulations
The primary responsibility for the prevention and detection
of fraud and non-compliance with laws and regulations lies
with the Board of Management and with the oversight of
the Supervisory Board.
Our risk assessment
As part of our process of identifying fraud risks, we evalu-
ated fraud risk factors with respect to financial reporting
fraud, misappropriation of assets and bribery and corrup-
tion. We, together with our forensic specialists, evaluated
the fraud risk factors to consider whether those factors
indicated a risk of material misstatement due to fraud.
In addition, we performed procedures to obtain an
understanding of the legal and regulatory frameworks that
are applicable for the group. We identified provisions of
those laws and regulations, generally recognized to have
a direct effect on the determination of material amounts
and disclosures in the financial statements, such as the
financial reporting framework and tax and pension laws
and regulations.
As in all of our audits, we addressed the risk of manage-
ment override of internal controls, including evaluating
whether there was evidence of bias by management that
may represent a risk of material misstatement due to fraud.
The audit procedures to respond to the assessed risks
include, amongst others, that we evaluated the design
and the implementation of internal controls that mitigate
fraud risks, retrospective review of prior year’s estimates,
procedures on unexpected journal entries with the support
of data-analytics and we incorporated elements of unpre-
dictability in our audit. In addition, we assessed matters
reported on the group’s whistleblowing and complaints
procedures and results of management’s investigation of
such matters if deemed applicable and discussed this with
the Audit Committee.
We refer to the key audit matter ‘‘Transformation to deliver
towards the Winning together: 15 by 20” strategy for the
impact of the transformation on the risk of management
AkzoNobel Report 2019 | Financial statements
119
override of internal controls. We refer to the key audit
matters valuation of post-retirement benefit provisions
and valuations of deferred tax assets and uncertain tax
positions, that are examples of our approach related to
areas of higher risk due to significant accounting estimates
where management makes significant judgements.
Key audit matters
Key audit matters are those matters that, in our profession-
al judgement, were of most significance in the audit of the
financial statements. We have communicated the key audit
matters to the Supervisory Board. The key audit matters
are not a comprehensive reflection of all matters 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.
“Leases’’ to IFRS 16 - “Leases’’ – the transformation
impact was assessed in prior year as the new standard
is effective from January 1, 2019
The following key audit matters reported in 2018 are not
included in 2019:
• Accounting for the sale of the Specialty Chemicals
business - the transaction was completed on
October 1, 2018
• Impairment testing of goodwill and other intangibles with
indefinite useful lives - due to the historical high amount
of available headroom in the units tested for impairment
• Transition from the accounting standard IAS 17 –
Our new key audit matter was raised – ‘‘Transformation to
deliver towards the Winning together: 15 by 20” strategy.
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 comment or observation we made on the
results of our procedures should be read in this context.
Key audit matters
Key audit matter
Transformation to deliver towards the “Winning together: 15 by 20 strategy”
The group is focused on transforming the company as part of management’s “Winning together: 15 by 20”
strategy. The transformation programs include centralization of finance activities in global business service
hubs and simplification of the ERP environment, impacting the company’s systems, processes and controls.
Inherently, transformation processes have the potential to lead to a disruption of the organization, processes
and culture.
The specific and ambitious external target on 15% ROS by 2020 inherently increases pressure on management
to achieve such targets, and as such contributes to the risk of management override of internal controls risk,
which is a presumed audit risk in our audit.
In addition, the planned increase in profitability of the company is expected to be reflected in management
estimates, such as the forecasts used in the valuation of deferred tax assets and goodwill impairment analysis.
How our audit addressed the matter
We extended our audit procedures to evaluate the impact of the transformation on systems, processes and controls.
During the planning phase of our audit we obtained an understanding of the transformation programs. For the transition
of finance activities to global business service hubs we obtained an understanding of the project governance, detailed
timeline, scope of entities and processes. We used this information as part of our risk assessment procedures, determi-
nation of the scope of our audit and communication to our component teams. We visited the business service hubs in
Poland, India, Brazil and the United States to build our understanding. For the simplification of the ERP environment we
involved our IT specialists. We obtained an understanding of the project governance and the validation approach and
we tested the data migration. We used data analytics to identify unexpected journal entries. We increased the commu-
nication with our component teams, including joint calls with group and local management, and performed additional
substantive testing, for example testing of data migration. In addition, for the testing of management’s estimates, such
as forecasts used in the valuation of deferred tax assets and goodwill impairment analysis, we validated the planned
increase in profitability supported by, amongst others, approved plans and incurred costs savings.
We incorporated our understanding of the transformation in our audit plan. From the procedures performed, we did not
have material findings with respect to the balance sheet positions and results recorded and disclosed.
Valuation of post-retirement benefit provisions
Note 18
The post-retirement benefit provisions consist of defined benefit obligations (€14.6 billion) more than offset
by plan assets (€15.3 billion). The largest pension plans are the ICI Pension Fund (ICIPF) and the AkzoNobel
(CPS) Pension Scheme in the UK which together account for 86 percent of the defined benefit obligation (DBO)
and 91 percent of the 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 positions are significant to the company, the assessment process
is complex, involves significant management judgment and is based on actuarial assumptions. The actuarial
assumptions include discount rates, compensation increase, expected inflation rates, life expectancy and
indexation percentages, as disclosed in Note 18 of the Consolidated financial statements. Technical expertise is
required to determine the amounts and significant de-risking transactions that have occurred.
With the assistance of our actuarial experts, we evaluated actuarial assumptions, specifically the assumptions applied
in the UK based plans (given their significantce) the valuation methodologies applied and we assessed the objectivity
and competence of the company’s external pension experts used for the calculation of the Post-retirement benefit
positions. We have challenged management, primarily on their assumptions applied to which the post-retirement
benefit provisions are the most sensitive, by performing independent testing over the assumptions and methodolo-
gies used and comparing to the published actuarial tables, amongst others, with support of our 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). Furthermore, we tested the transactions in the UK plans,
the top-up payments in the UK, and we verified the appropriate accounting. We also assessed the adequacy of the
company’s disclosure in Note 18 to the Consolidated financial statements.
Our procedures did not result in material findings with respect to the valuation and disclosure of post-retirement benefit
provisions at December 31, 2019.
120
Financial statements | AkzoNobel Report 2019
Valuation of deferred tax assets and uncertain tax positions
Note 8
The group operates in various countries and is subject to income taxes in various tax jurisdictions. The assess-
ment of the valuation of deferred tax assets, resulting from net operating losses, tax credits and temporary
differences, and provisions for uncertain tax positions is significant to our audit as the positions are significant
to the company, calculations are complex and depend on sensitive and judgmental assumptions. The key
assumptions include long-term projected revenue growth, savings supported by the transformation plans and
programs, margin development and local fiscal regulations and new developments. The Company’s disclosures
concerning income taxes are included in Note 8 to the Consolidated financial statements.
With the assistance of our tax specialists, we tested the Board of Management’s assessment of the recoverability of
the deferred tax assets, by challenging the key assumptions included in the 2019 five-year outlook as approved by the
Board of Management and by evaluating the probability of future cash outflows related to the uncertain tax positions
identified by the company. We specifically focused on the actual and projected savings resulting from the transforma-
tion programs. We also assessed the applicable local fiscal regulations and developments, in particular those related
to changes in the statutory income tax rate and the statutes of limitation, since these are key assumptions underly-
ing the valuation of the deferred tax assets and uncertain tax positions. We analysed the tax positions and evaluated
the assumptions and methodologies used. In addition, we assessed the adequacy of the company’s disclosures on
deferred tax assets and uncertain tax positions and assumptions used.
Our procedures did not result in material findings with respect to the valuation of deferred tax assets, uncertain tax
positions recorded and related disclosures at December 31, 2019.
procedures was substantially less than the scope of those
performed in our audit of the financial statements.
period to which our statutory audit relates, are disclosed in
Note K to the Company financial statements.
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 (the “other information”) that consists of:
• The report of the Board of Management, as defined in
Note 1 of the Consolidated financial statements
• The other information pursuant to Part 9 of Book 2 of
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.
the Dutch Civil Code
Report on other legal and regulatory requirements
• Other parts of the annual report: Business overview,
Our leadership, Governance and compliance, Financial
summary and Sustainability statements.
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
knowledge and understanding obtained in our audit
of the financial statements or otherwise, we have consid-
ered whether the Other information contains material
misstatements.
Our appointment
We were appointed as auditors of Akzo Nobel N.V. on
April 29, 2014, by the Supervisory Board following the
passing of a resolution by the shareholders at the Annual
Meeting held on April 29, 2014, and effective January 1,
2016. Our appointment has been renewed annually by
shareholders representing a total period of uninterrupted
engagement appointment of 4 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
requirements regarding statutory audit of public-
interest entities.
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
Services rendered
The services, in addition to the audit, that we have
provided to the company and its controlled entities, for the
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 company’s ability to continue as a going
concern. Based on the financial reporting frame-
works mentioned, the Board of Management should
prepare the financial statements using the going-concern
basis of accounting unless the Board of Management
either intends to liquidate the company or to cease
operations, or has no realistic alternative but to do so.
The Board of Management should disclose events and
circumstances that may cast significant doubt on the
AkzoNobel Report 2019 | Financial statements
121
company’s ability to continue as a going concern in the
financial statements.
Appendix to our auditor’s report on the financial
statements 2019 of Akzo Nobel N.V.
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 objectives are to obtain reasonable assurance
about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error
and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high but not absolute level
of assurance, which makes it possible that we may not
detect all material misstatements. Misstatements may arise
due to fraud or error. They are considered to be material
if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users
taken on the basis of the financial statements.
Materiality affects the nature, timing and extent of our audit
procedures and the evaluation of the effect of identified
misstatements on our opinion.
A more detailed description of our responsibilities is set out
in the appendix to our report.
Amsterdam, February 12, 2020
PricewaterhouseCoopers Accountants N.V.
Original has been signed by F.P. Izeboud RA
In addition to what is included in our auditor’s report we
have further set out in this appendix our responsibilities for
the audit of the financial statements and explained what an
audit involves.
The auditor’s responsibilities for the audit of the
financial statements
We have exercised professional judgement and have
maintained professional scepticism throughout the audit
in accordance with Dutch Standards on Auditing, ethical
requirements and independence requirements. Our 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 respon-
sible 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.
We provide the Supervisory Board with a statement that
we have complied with relevant ethical requirements
regarding independence, and to communicate with them
122
Financial statements | AkzoNobel Report 2019
PROFIT ALLOCATION AND DISTRIBUTIONS
all relationships and other matters that may reasonably be
thought to bear on our independence, and where appli-
cable, related safeguards.
PROFIT ALLOCATION AND
DISTRIBUTIONS
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.
The following articles of our articles of association govern
profit allocation and distribution:
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.
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.
AkzoNobel Report 2019 | Financial statements
123
FINANCIAL SUMMARY
Consolidated statement of income
In € millions
Revenue
Adjusted operating income4
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
ROS5
OPI margin
ROI5
Net income in % of shareholders’ equity
Employee benefits in % of revenue
Interest coverage
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
20101
13,605
1,325
1,293
(329)
(176)
25
813
58
(83)
788
233.5
320
55,600
55,100
2,980
247
23
9.7
9.5
11.6
8.8
21.9
6.8
3.23
3.71
38.48
47.70
37.18
46.49
2011
2012
2013
14,604
15,390
14,590
1,154
1,157
(311)
(241)
24
629
(59)
(64)
506
234.7
304
52,020
51,100
2,765
286
23
7.9
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
(7.8)
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
6.6
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
6.9
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
10.6
14.0
15.1
18.4
16.2
3.95
4.02
26.04
74.81
55.65
61.68
20166 7
9,434
928
923
(91)
(234)
18
616
436
(82)
970
252.2
239
36,300
36,200
1,794
261
25
9.8
9.8
14.4
14.8
19.0
13.2
3.87
3.80
25.99
64.74
50.17
59.39
20177
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
8.6
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
6.5
12.6
56.4
21.3
8.0
26.19
1.91
46.19
82.70
68.82
70.40
20198
9,276
991
841
(76)
(230)
20
555
22
(38)
539
199.6
1,423
33,800
34,200
1,875
271
25
10.7
9.1
14.1
8.5
20.2
14.3
2.53
3.10
32.33
91.86
69.12
90.69
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 Adjusted operating income = operating income excluding identified items.
5 ROS and ROI have been restated and are based on adjusted operating income. ROS% is calculated as adjusted operating income
(operating income excluding identified items) as a percentage of group revenue. ROI% is calculated as adjusted operating income
(operating income excluding identified items) of the last 12 months as a 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. OPI margin is calculated as operating income as a percentage of group revenue.
6 Represented to present the Specialty Chemicals business as discontinued operations.
7 Represented to the new adjusted earnings per share definition, which no longer excludes post-tax amortization charges.
8 2019 includes the impact of the adoption of IFRS 16 “Leases”.
124
Financial statements | AkzoNobel Report 2019
Consolidated balance sheet
In € millions
Intangible assets
Property, plant and equipment
Right-of-use assets
Other 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 capital3
Capital expenditures6
Depreciation3
OWC5
Net debt
Ratios
Equity/non-current assets
Inventories and receivables/current liabilities
Operating working capital as % of revenue2
20101
6,568
3,191
–
2,105
11,864
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
2011
7,392
3,705
–
2,664
13,761
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
2012
4,454
3,739
–
2,628
10,821
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
10,125
1,545
2,831
–
1,732
66
6,174
5,790
477
6,267
2,143
2,527
412
5,082
811
3,634
494
11
4,950
2015
4,156
4,003
–
2,125
10,284
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
11,467
11,537
11,817
10,007
9,871
10,475
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
2016
4,413
4,190
–
1,736
10,339
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
–
20194
3,625
1,700
374
2,541
8,240
1,139
2,196
138
1,271
–
4,744
6,350
218
6,568
981
2,042
391
3,414
169
2,602
231
–
3,680
3,002
6,494
6,340
7,026
613
202
927
184
181
898
1,951
(5,861)
0.88
1.07
10.2
1.68
1.17
9.7
214
293
1,068
802
0.80
1.28
11.9
1 Restated to present Decorative Paints North America as a discontinued operation and for the revised IAS19.
2 Operating working capital is measured against four times fourth quarter revenue.
3 2016 is represented to present the Specialty Chemicals business as discontinued operations.
4 2019 includes the impact of the adoption of IFRS 16 “Leases”.
5 As from 2018 trade payables include certain other payables, which were previously classified as Other working capital.
Trade payables, Operating working capital and Other working capital items have been represented for this change of definition
for some €240 million.
6 Capital expenditures include investments in intangible assets as from 2018.
AkzoNobel Report 2019 | Financial statements
125
Business Area statistics
In € millions
Decorative Paints
Revenue
Adjusted operating income
Operating income
ROS3
OPI margin
Average invested capital 2
ROI3
Capital expenditures
2010
20111
2012
2013
2014
2015
2016
2017
2018
20194
4,968
4,201
336
275
6.8
5.5
4,908
6.8
154
237
235
5.6
5.6
5,032
4.7
155
4,297
108
(2,012)
2.5
(46.8)
4,701
2.3
206
4,174
3,909
4,007
3,835
3,898
3,699
3,703
199
398
4.8
9.5
2,896
6.9
171
248
248
6.3
6.3
2,824
8.8
143
345
345
8.6
8.6
2,959
11.7
158
357
366
9.3
9.5
2,783
12.8
107
351
334
9.0
8.6
2,803
12.5
112
346
308
9.4
8.3
418
425
11.3
11.5
2,798
3,106
12.4
50
13.4
62
Average number of employees
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
21,800
17,100
17,200
16,800
15,500
15,100
14,800
14,700
14,100
13,800
228
13
246
14
250
(117)
248
24
252
16
265
23
259
25
265
23
262
22
268
31
Performance Coatings
Revenue
Adjusted operating income
Operating income
ROS3
OPI margin
Average invested capital2
ROI3
Capital expenditures
Average number of employees
Average revenue per employee (in €1,000)
Average operating income per employee (in €1,000)
4,786
5,170
5,702
5,571
5,589
5,955
5,665
5,775
5,587
5,563
503
487
10.5
10.2
2,063
24.4
87
456
458
8.8
8.9
2,267
20.1
116
542
542
9.5
9.5
2,499
21.7
123
525
525
9.4
9.4
2,463
21.3
143
545
545
9.8
9.8
2,480
22.0
143
792
792
13.3
13.3
2,692
29.4
147
759
735
13.4
13.0
2,586
29.4
159
669
668
11.6
11.6
2,860
23.4
129
629
577
11.3
10.3
688
565
12.4
10.2
3,066
3,325
20.5
107
20.7
113
20,600
21,300
21,700
21,300
21,000
19,700
19,300
19,800
19,200
18,100
232
24
243
22
263
25
262
25
266
26
302
40
294
38
292
34
291
30
307
31
1 Restated to present Decorative Paints North America as a discontinued operation.
2 From 2010 restated to current definition.
3 ROS and ROI have been restated and are based on adjusted operating income. ROS% is calculated as adjusted operating income
(operating income excluding identified items) as a percentage of group revenue. ROI% is calculated as adjusted operating income
(operating income excluding identified items) of the last 12 months as a 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. OPI margin is
calculated as operating income as a percentage of group revenue.
4 2019 includes the impact of the adoption of IFRS 16 “Leases”.
126
Financial statements | AkzoNobel Report 2019
Regional statistics
In € millions
2015
20161
2017
2018
20193
2015
20161
2017
2018
20193
2015
20161
2017
2018
20193
The Netherlands
Other European countries
Other Asian countries
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
Number of employees2
693
1,563
102
2,154
4,900
Germany
Revenue by destination
1,036
Revenue by origin
Capital expenditures
Average invested capital
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
25
1,560
2,400
443
561
12
573
359
484
42
1,622
2,400
409
502
11
634
Number of employees2
2,100
1,400
1,500
1,500
1,400
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
414
1,329
55
542
164
389
9
60
162
408
9
104
146
372
7
94
Number of employees2
2,700
1,200
1,100
1,000
UK
Revenue by destination
Revenue by origin
Capital expenditures
Average invested capital
1,011
1,109
91
833
808
972
43
755
777
891
39
746
818
918
29
758
141
366
5
101
900
838
951
16
850
Number of employees2
3,500
3,300
3,200
3,200
3,200
Sweden
South America
3,226
2,062
60
1,024
7,300
2,225
1,739
39
675
2,332
1,823
47
700
2,319
1,846
33
732
2,360
1,903
42
918
1,968
1,613
31
671
1,521
1,442
53
561
1,443
1,392
41
625
1,375
1,323
22
656
1,388
1,334
29
718
6,700
6,600
6,900
7,000
6,700
6,600
6,800
6,600
6,400
US and Canada
Other regions
2,494
2,644
100
1,949
4,600
1,483
1,210
34
679
1,213
1,298
27
1,037
3,000
850
791
20
378
1,189
1,257
23
864
1,134
1,200
18
699
1,139
1,210
29
694
706
466
11
87
552
473
7
94
573
487
9
87
559
476
12
184
559
513
10
218
2,900
2,800
2,800
2,200
2,200
2,200
2,000
2,200
900
840
23
391
815
781
13
352
815
742
15
363
4,100
3,100
2,900
2,800
2,600
China
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
1,268
1,271
15
908
6,200
6,000
5,300
4,900
1 Represented to present the Specialty Chemicals business as discontinued operations.
2 At year-end.
3 2019 includes the impact of the adoption of IFRS 16 “Leases”.
AkzoNobel Report 2019 | Financial statements
127
Sustainability
129AkzoNobel Report 2019 | Sustainability statementsOur approach to sustainability 130PaintNote 1: Sustainable solutions 131Note 2: Customer value 132Note 3: Collaborative innovation 133PlanetNote 4: Resource productivity 135Note 5: Supplier sustainability 139Note 6: Health and safety 141PeopleNote 7: Employees 144Note 8: Human rights 146Note 9: AkzoNobel Cares 147Managing sustainability 148Independent assurance report 150Sustainability performance summary 152For additional information, visit:www.akzonobel.com/sustainabilityThe indicators that fall within the scope of limited assurance of our external auditor are marked with the following symbol: See page 150 for the Assurance report of the independent auditor, which includes details on scoping and outcomes.This Sustainability statements section of the Report 2019 is separate from, and does not in any way form part of, the company’s annual fi nancial reporting as defi ned in article 5:25c of the Dutch Financial Markets Super-vision Act. This section contains summarized key performance indicators (KPIs) relating to sustainability performance. SUSTAINABILITY STATEMENTSPeople. Planet. Paint. This 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. Russian artistry gets vote of approval Moscow’s new Rhythmic Gymnastics Center has a fl uttering ribbon as its roof. Genius. We were delighted to supply products for the eye-catching building, which features 7,000 liters of our decorative paints, as well as Interpon products from our Powder Coatings business.Only a few summersaults away is the futuristic, pyramid-shaped Matrex, which won a prestigious Architzer A+ Award from the global architectural community during 2019. The unique structure is coated in Black Onyx from Interpon’s D2525 Eco portfolio, a range of heat-refl ective coatings which can bounce the sun’s rays back off the exterior of a building. It’s one of many iconic green buildings around the world that benefi t from our extensive range of world class powder coatings. www.interpon.comSustainability statements OUR APPROACH
TO SUSTAINABILITY
At AkzoNobel, sustainability is
one of our core principles. That’s
why we take action every day by
empowering our people, reducing
our impact on the planet and
consistently inno vating to deliver
sustainable solutions to our
customers. It’s about focusing on
the things we can truly infl uence.
We call it People. Planet. Paint.
It’s our new down-to-earth approach to sustainability,
which will help us deliver tangible benefi ts for our
customers, society, the environment and our business.
It’s how we’re making sustainability a daily priority, which
we believe is the best commitment we can make if
we’re serious about being sustainable in the long term.
And every step we take to create a positive impact
on the world enables us to enhance our position as the
leader, when it comes to sustainability in the paints
and coatings industry.
Building on our strong legacy, we have further developed
our all inclusive, holistic sustainability approach. It high-
lights how sustainability is refl ected in our product
innovations with customer benefi ts, our supply chain,
the way we operate and how we behave as an employer
and member of society.
Phase three of a solar installation project at our powder coatings site in Thane, India, was completed during 2019. It means nearly
a third of the facility’s power is now generated through the use of renewable energy.
impact through our products, processes and partnerships.
By turning ambitions into actions, by innovating and
creating a better world for future generations, AkzoNobel
will remain at the forefront of sustainability in the paints and
coatings industry.
More details will be announced during the course of 2020.
Currently, our ambitions include the following:
focusing on, which includes zero waste to landfi ll by 2020.
We also aim to use 100% renewable energy by 2050 and
become carbon neutral, also by 2050.
Paint: Continue to maintain at least 20% of our sales
from eco-premium solutions by 2020. Together with our
eco-performers, we’re aiming to have more than 40%
of revenue from sustainable solutions that bring benefi ts
to our customers.
The future of sustainability at AkzoNobel is about further
integrating and enhancing the quality of our sustainable
solutions to ensure they have a positive impact on society
and the environment. It’s about taking both big and small
steps that truly make a difference.
Our challenging ambitions are realistic and deliverable,
having been developed collaboratively with our businesses
and functions. They’re also designed to contribute to
the global sustainability agenda represented by the United
Nations Sustainable Development Goals (SDGs).
We focus on the SDGs where we can have the biggest
People: Inspire and empower people and communities
through our passion for paint. We positively impacted
40 million people between 2015 and 2019.
Planet: Reducing waste, energy and greenhouse gas
emissions are the main environmental indicators we’re
130 Sustainability statements | AkzoNobel Report 2019
PEOPLE. PLANET. PAINT.
Note 1
INNOVATING TO SUPPLY SUSTAINABLE,
IMPACTFUL SOLUTIONS
SUSTAINABLE SOLUTIONS
We take great pride in ensuring that our innovation creates
value for our customers and society and will result in
more effective and sustainable solutions. That’s why we’re
always looking for ways to develop more sustainable
products that deliver clear benefi ts in terms of economic,
environmental and social performance. It’s an approach
which keeps us competitive and at the forefront of our
industry amid a changing world of legislation and societal
concern. Our sustainable solutions add value for our
customers, often show faster growth rates and command
higher margins than more traditional products.
More than 40% of our revenue comes from products with
a sustainability benefi t, and 22% of those are made up of
eco-premium solutions. We intend to use our innovation
strength and maintain our leadership position to further
grow these percentages. Eco-premium solutions deliver
clear benefi ts for our customers in terms of economic,
environmental and social performance, as well as keeping
us ahead of the competition.
Our product innovation is driven by sustainability. That
means many of the new products we bring to market have
sustainability benefi ts for the environment and society,
as well as our customers. By choosing AkzoNobel,
our customers are empowered to strengthen their own
sustainability agenda.
We are leading an exciting transformation of the paints and
coatings industry with our call for collaborative innovation
through our Paint the Future innovation ecosystem. We
believe the only way to safeguard our planet beyond
generations is by developing cross-industry solutions.
Our portfolio approach promotes the use of safer and
more sustainable products in all stages of the value chain.
We take action to manage the use of harmful substances
in advance of legislation, future-proofi ng our products
against changes in regulations and public concerns. We
also constantly review our existing offer in close alignment
with our strategic focus and our customers’ needs. This
helps to ensure the delivery of sustainable products and
solutions that are fi t-for-purpose in our key markets.
SUSTAINABLE PRODUCT PORTFOLIO
ASSESSMENT
We have measured the eco-premium part of our product
portfolio for seven years. These are solutions with clear
sustainability benefi ts that outperform the market and are
best-in-class.
Eco-premium solutions present a moving target, since we
measure our performance against the market reference,
which is continuously evolving. Since 2016, revenues
from eco-premium products have been in excess of
20%. In 2019, sales for this segment totaled 22% of our
revenue. By constantly innovating, our aim is to maintain
Eco-premium solutions
in % of revenue
Target
20
20
21
21
22
22
20
This is the Varso Tower in Warsaw, Poland – soon to be Europe’s tallest building –
which is being protected by our Interpon products. Standing 310 meters tall, the
offi ce building’s sleek black exterior has been created using Interpon D2525 super-
durable topcoat on the cladding and profi les, while Interpon 100 primer provides a
super tough core. The system will help the tower to withstand harsh conditions such
as bright sunshine, fi erce winds and driving rain.
2014
2015
2016
2017
2018
2019
2020
Data covers November 1, 2018, until October 31, 2019 sales data.
AkzoNobel Report 2019 | Sustainability statements
131
Portfolio assessment
VOC IN PRODUCTS
CUSTOMER VALUE
Note 2
Eco-premium
Best-in-class sustainable solution
Eco-performer
Solution with sustainable features
Performer
Solution with no positive or negative indicators
Transitioner
Solution where sustainability risks are
anticipated in future
Priority
Solution with known sustainability risks
eco-premium solutions at a sustainable 20% of revenue,
which underlines our sustainability leadership position.
Another signifi cant portion of our portfolio fi ts into the
Eco-performer category. These solutions also offer clear
sustainability benefi ts, similar to others available on the
market. Our initial assessment indicates eco-performers
represent approximately 20% of sales, making our total
sales of sustainable solutions more than 40%.
Having become the fi rst paints and coatings company to
launch a full Sustainable Product Portfolio Assessment
(SPPA), we continue our studies and intend to complete
our company-wide analysis in 2020. SPPA takes a holistic
view on the sustainability of our product portfolio, dividing
products into one of fi ve categories, depending on their
attributes (as shown above). The priority substance
program (see Note 6) plays a key role in helping us to
categorize products as Priority or Transitioner, depending
on the priority substance status of their ingredients. By
painting such a comprehensive picture of our portfolio,
we’ll be able to further increase our share of sustainable
solutions and proactively manage those products in the
Priority and Transitioner categories.
132 Sustainability statements | AkzoNobel Report 2019
Reducing VOC (volatile organic compound) emissions
helps us to improve air quality and human health,
while lessening the impact our products have on the
environment. It also enables us to stay ahead of legislation.
Our ambition to move towards zero VOCs in our products
remains unchanged, and while this is currently not possible
for all products, we continue to focus on developing
solutions with signifi cantly reduced VOC content.
One example of the progress we’re making is “Waterway”,
a multi-year strategic program designed to lead the
decorative paints market towards using more water-based
trim and woodcare product ranges. These two segments
were selected as they represent more than half of the VOC
emissions in our decorative paints portfolio. In 2019, the
initiative gained further momentum. The distinctive benefi ts
of water-based products have been successfully included
in several marketing campaigns. We also have innovation
plans in place that provide a solid foundation for us to
lower our VOC emissions year-on-year.
We work closely with customers to deliver products
and solutions that make their businesses more
sustainable, while delivering economic value to all parties
in the value chain.
By focusing on the benefi ts we can offer, we continue to
have a major infl uence on the growing acceptance of more
sustainable solutions in our various market segments.
This accelerated market penetration also contributes to
driving margin growth, which in turn supports our Winning
together: 15 by 20 ambition.
To support the commercial success of our sustainable
solutions, we translated the contribution of our
eco-premium and eco-performer solutions into clear
customer benefi ts. For example, we have developed the
following framework for our decorative paints markets:
• Doing good – products that promote health and
well-being, are longer lasting and have a positive impact
on society
• We care – products with reduced carbon and waste,
and that use materials more effi ciently
This framework helps to indicate the specifi c contribution
of each product to our customers. Nearly half our
decorative paints portfolio can be linked to one of the
above-mentioned product-related sustainability benefi ts.
Responding to customer demand, we launched a scratch-resistant powder coating
for the architectural market in both matt and satin fi nishes. The pioneering dual
functionality has been added to our Interpon D range. Known as Interpon D X-Pro,
it’s available in both standard and superdurable formulations. Customers have already
come to trust and rely on our Interpon D offering, which has been verifi ed by an
Environmental Product Declaration.
Note 3
COLLABORATIVE INNOVATION
We’re using collaborative innovation to push the
boundaries of the paints and coatings industry. Almost
everything we touch is painted or coated, so there are
huge opportunities to share our expertise and develop
products and solutions for customers that go beyond
expectation, imagination and generations.
Beyond expectation refers to the advanced functionalities
offered by our products, in addition to the color and
protection they provide. Beyond imagination is all about
our digital innovations, which are making increasing use
of robots, big data and artifi cial intelligence. Beyond
generations focuses on developing sustainable solutions
to safeguard our planet and create a circular value chain.
We know collaboration will help us innovate faster and
better. That’s why we have created a collaborative
innovation ecosystem: Paint the Future. It will enable us
to explore new opportunities with others, deliver impact at
scale and ensure a more sustainable future – together.
In 2019, Paint the Future launched a highly successful
global startup challenge – an industry fi rst. Suppliers,
academia and customers are also joining the expanding
ecosystem (see page 22). Through our platform and a
variety of related programs, innovators now have access to
resources that can help them commercialize their solutions.
Our work with Alucha – a 2019 startup challenge winner
in the circular solutions category – is a great example of
how innovative collaboration could help to create a more
sustainable future. We are investigating the development
of recycling solutions for complex waste streams. The
technology has the potential to turn the paper industry’s
biggest waste stream – paper sludge – into bio-oils and
minerals used in paint. These minerals will be unique,
as they’ll be circular and not mined from non-renewable
sources, potentially replacing the linear minerals currently
used by the paint industry.
Residents of the Sanga Funda neighborhood in Cascavel, Brazil, had their lives transformed through the power of paint thanks to
a project developed by the Beyond Art association and our Coral brand. Around 25 visual and graffi ti artists from different areas of
the country helped to create an open art gallery on the walls of various houses.
AkzoNobel Report 2019 | Sustainability statements
133
PEOPLE. PLANET. PAINT.
HOW WE LOOK AFTER THE
ENVIRONMENT
Doing more with less remains one of the most pressing
societal challenges. At AkzoNobel, we continue to
create more value from fewer resources, minimizing our
environmental impact across the value chain.
We strive to achieve leading performance in our operations
and manage the environmental impact of our sites through
our Resource Productivity program.
More than 98% of our value chain carbon footprint
comes from our suppliers and the use of our products
by customers. We have improved the measurement of
our Scope 3 value chain emissions – and tailored it to
a focused paints and coatings company. This provided
us with a new baseline for 2018. Our 2019 value chain
emissions (Scope 1, 2 and 3) were 14.6 million tons of
CO2(e) in 2019, 3% lower than the previous year.
We continue to work with our suppliers to minimize
the environmental impact of raw materials we source.
Environmental protection is one of the four innovation
priorities of our Paint the Future ecosystem, which
was launched in the first half of 2019 and was followed
a few months later by a dedicated supplier event.
Many of our sustainable solutions (see Note 1) deliver
customer benefits while having a positive impact on the
environment, such as water-based products with no VOC
emissions, paint that makes buildings more energy efficient
and coatings that can reduce a ship’s fuel consumption.
In addition, focusing across the value chain offers
many opportunities to optimize material use and limit
environmental impact. Circularity is more than only
promoting the recycling of paints and coatings. It means
finding alternative sources for our raw materials, as well
as extending the functionality of the materials in paints
and coatings after their use. One of the focus areas of our
134 Sustainability statements | AkzoNobel Report 2019
We’re using the power of art to enhance the education of children in remote areas of China. It’s all part of our latest
China Student Sustainability Awards program and involves student volunteers from 20 renowned universities connecting
with young people in 31 isolated communities.
Paint the Future initiative is circular solutions, allowing us
to benefit from the innovative ideas of startups to further
our ambitions towards a circular economy.
We continue to monitor risks and opportunities related
to climate change and the transition towards a circular
economy, as recommended by the Taskforce for Climate-
related Financial Disclosures (TCFD). We partnered
with industry peers and the World Business Council for
Sustainable Development (WBCSD) to develop guidelines
for TCFD implementation as they relate to our sector.
To clarify our adoption of these recommendations, we
provide an index table of the TCFD recommendations
on our website.
We’re aware that climate change may have a future
impact on our business, as it may lead to more frequent
and extreme weather events, resulting in supply chain
disruption and changing market dynamics. In addition,
it may also result in a global price on carbon and
increased prices for raw materials. We’re already taking
steps to address this, for example by adopting an
internal carbon price for large investment decisions,
introducing sustainable portfolio management to develop
low-carbon and more circular solutions and making
the circular economy a key element of our Paint the
Future startup challenge.
135AkzoNobel Report 2019 | Sustainability statementsRESOURCE PRODUCTIVITYWe launched our resource productivity program three years ago as a key accelerator to deliver on our sustainability objectives and contribute to the company’s Winning together: 15 by 20 ambition.The program aims to maximize raw material and process effi ciency, eliminate waste and drive reduced energy, carbon footprint and VOCs (volatile organic compounds) across the whole integrated supply chain (ISC).We use our company-wide continuous improvement program ALPS (AkzoNobel Leading Performance System) to drive the resource productivity agenda. We continuously measure and report our performance on a range of environmental and fi nancial indicators. The four key indicators are: waste, energy use, water use and VOC emissions, for which clear targets are set. Over the last few years, we’ve delivered 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), at global, regional and site levels, are monitored monthly to assess progress with regard to environmental impact and fi nancial benefi ts. The savings from projects directly related to waste and energy reduction alone totaled more than €9 million in 2019.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’ve increased our focus on material effi ciency and are maximizing the conversion of raw materials into fi nal product by optimizing raw material use and solving the root cause of material losses. This helps to cut down the amount of waste and waste water generated, as well as reducing the carbon footprint. It also contributes to lower manufacturing costs.REDUCING WASTEWaste reduction has been a focus area since 2010 and many improvements have been made at our sites which have led to signifi cant achievements. Since 2011, we have successfully reduced our waste per ton of product by nearly 40%.Waste reduction is one of our main environmental indicators, with zero waste to landfi ll being one of our key ambitions for 2020. In 2019, total waste volume and waste per ton of production generated were down by 0.9% and up by 0.1% respectively. Recent acquisitions had a detrimental effect of 1%. Own operationsCustomeroperationsRawmaterialsProductBy-productWaste34Reusable33Non-reusable67 63,206 Raw material fl ow in kilotons Total waste in kilotons Reusable Total kg per ton of production Non-reusable201920182017201622.821.021.025.73433333437404243Waste means any substance or object arising from our routine operations which we discard or intend to discard, or we are required to discard.Note 4 Hazardous waste in kilotons
Greenhouse gas emissions in million tons
Volatile organic compounds in kilotons
Reusable
Non-reusable not landfill
Non-reusable 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
9.8
15
17
9.1
14
15
9.1
14
15
96
91
89
0.24
0.24
0.23
75
0.18
0.60
2.0
0.50
1.7
0.49
1.6
0.37
1.2
0.6
0.7
0.4
0.07
0.07
0.06
0.06
2017
2018
2019
2016
2017
2018
2019
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 have restated our 2018 Scope 1 emissions due to a temporary database outage
in the prior year leading to misstated values.
Our objective is to have zero hazardous waste to landfill
at our locations in 2020.
Hazardous waste per ton of production decreased by
0.7% in 2019. The majority of our locations worldwide
contributed to the reduction in waste generation. Examples
of waste reduction projects include solvent recovery,
reducing packaging waste by moving from smaller paper
bags or metal drums to bulk deliveries of raw materials,
and reworking obsolete finished goods. To increase our
contribution to the circular economy, new outlets were
identified for materials which otherwise would have been
disposed of, resulting in over 6 ktons less waste. In total,
34 ktons of our waste in 2019 was reusable, making our
contribution to the circular economy 40 ktons.
Energy use in 1000 TJ
Energy use
GJ per ton of production
1.9
1.9
1.9
1.9
6.3
6.4
6.2
6.0
2016
2017
2018
2019
136 Sustainability statements | AkzoNobel Report 2019
REDUCING ENERGY AND GREENHOUSE
GAS EMISSIONS
Energy use is another key environmental indicator included
in our Resource Productivity program.
In 2019, our energy consumption per ton of production,
as well as absolute energy consumption, were down
3% (absolute) and 2% (relative) compared with 2018.
The improvement was negatively impacted by product
mix and our value over volume strategy. Our total
share of renewable energy use is 31%, with 33 of our
locations now using 100% renewable electricity.
2016
2017
2018
2019
We measure halogenated and non-halogenated organic compounds discharged to
air. We have improved the accuracy of our VOC modelling, which has been gradually
applied at our sites. This has an impact on the reported VOC emission numbers in
2018 and 2019. In addition a significant number of VOC reduction projects were
realized, therefore the reduction is a combination of both.
Since 2017, we have increased the number of locations
with solar panels. By the end of 2019, 14 sites had
solar panels as their own renewable energy source.
We have a global program in place to install solar panels
at more sites, which will significantly increase this number
in the near future.
Greenhouse gas (GHG) emissions from our facilities are
primarily related to electricity consumption and fuel
used for heating. Total GHG emissions per ton of product
and absolute GHG emissions both decreased by 16%.
DECREASING VOLATILE ORGANIC
COMPOUNDS (VOC)
Air emissions generated from our operations are primarily
volatile organic compounds (VOC). In 2019, we exceeded
our target by decreasing both our total VOC emissions,
and our VOC emissions per ton of product, by 24%
(target: 10%). This reduction was delivered via product
design, improved VOC modelling, driven by research and
development (see Note 1), good management practices
137AkzoNobel Report 2019 | Sustainability statementsand environmental controls at our manufacturing sites. In China, signifi cant investments were made on new VOC abatement systems at two sites, resulting in a reduction of more than 100 tons of VOC emissions in 2019. WATER AND WASTE WATER MANAGEMENT Sustainable water supply is essential to life and our business. We rely on water for, among others, raw material production, product formulation and manufacturing, cooling, cleaning and transportation. Currently, 63% of our fresh water intake is from surface water, from which 74% is used for cooling purposes. Our water use, excluding cooling water, decreased by 16% in 2019. We introduced recycling of wash water at 11 sites to reduce waste water and recover the paint included. Meanwhile, a signifi cant improvement in cooling water use was achieved at our Kristinehamn site in Sweden. Fresh water use in million m3 Fresh water use m3 per ton of production20192018201720168101092.82.92.52.9Fresh water use is the sum of the intake of groundwater, surface water and potable water.1.2Other1.0Product1.9Potable water1.1Groundwater5.15.9Surface waterOwn operationsOur locations process their waste water using an on-site waste water treatment plant, or via third party waste water treatment. SOIL AND GROUNDWATER REMEDIATIONMandatory 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 Water fl ow in million m3exposure. A 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 €75 million, which we believe is suffi cient for the sites where we have ownership or responsibility (see Note 19 of the Consolidated fi nancial statements). “We’re constantly striving to
deliver the most sustainable and
impactful solutions”
Rinske van Heiningen
AkzoNobel Director of Sustainability
Aligned with SDG 12
and 17 (see page 149)
NEW LIFE FOR OLD PAINT
We’re always looking to push the boundaries of what
paint can be and what it can do. Innovation is in our
DNA – it goes hand-in-hand with our unwavering
commitment to sustainability.
It’s a powerful combination, one
which saw us become the first major
manufacturer to launch recycled paint,
thanks to a groundbreaking partnership
in the UK with resource management
experts Veolia.
Developed by our Dulux Trade brand,
Evolve is a revolutionary matt emulsion
which contains 35% recycled paint.
It’s made from leftovers which would
otherwise most likely be destined
for landfill.
Once the unused white paint has been
reclaimed, it’s sorted, filtered and refined
by Veolia. It’s then re-engineered with new
paint by AkzoNobel and tested extensively
to make sure that every tin meets the high
standards expected from Dulux Trade.
“We’re always looking for new ways to
drive sustainable innovation, cut down
on waste and create a circular economy
for paint – while offering our customers
fresh solutions that don’t compromise
on quality,” explains AkzoNobel’s Chief
Operating Officer, Ruud Joosten. “
By introducing Evolve, we will reduce
the carbon footprint of our Dulux Trade
products, and help our customers
reach their own sustainability goals.”
138
Sustainability statements | AkzoNobel Report 2019
Adds the company’s Director of
Sustainability, Rinske van Heiningen:
“Sustainability is at the heart of our
business. That’s why we focus on
developing products and technologies
with the biggest positive impact.
We’re also well aware that people
expect more than just a product from
a brand, so we’re constantly striving
to deliver the most sustainable – and
impactful – solutions.”
Evolve was created after years of
investment, hard work and commitment
to improve our sustainable offering.
A particular achievement was reducing
the carbon footprint of each liter of
Evolve paint produced by more than
10% (compared with standard vinyl matt).
It’s another example of how we’re
setting the pace as the leader when it
comes to sustainability in the paints
and coatings industry.
watch video on
akzo.no/Evolve2019
Note 5
SUPPLIER SUSTAINABILITY
We work closely with our suppliers 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.
Business Partner Code of Conduct
Our business partners are expected to follow the
company’s core principles of safety, integrity and
sustainability, as specifi ed by our Business Partner Code
of Conduct (CoC). Suppliers sign the code to confi rm their
compliance with environmental, social, human rights and
governance requirements. Signatories cover 98% of the
product related (PR) spend and 84% of the non-product
related (NPR) spend.
Supplier risk management
As a member of Together for Sustainability (TfS) we have
been proactively managing the sustainability performance
and risk management of our suppliers for six years.
TfS, which now has 22 members, is a chemicals
sector initiative which aims to assess and improve the
sustainability practices in its members’ global supply
chains. We request our suppliers to perform online
assessments, which are conducted by TfS partner
EcoVadis, and TfS on-site audits.
Through this program, suppliers are assessed on the
overall score in their EcoVadis online assessment, as
well as their score on labor and human rights. To meet
our expectations, suppliers need to achieve an overall
EcoVadis score of at least 45 and a labor and human
rights score of at least 50. Suppliers not meeting our
expectations are requested to improve through annual
re-assessments.
During 2019, we were ranked as one of top 100 most sustainable businesses in Vietnam for the third consecutive year. Mr. Le Anh Dung,
National Sales Director at AkzoNobel Vietnam, received the award.
our threshold. We also verify our own activities against
industry best practices and achieved the EcoVadis Gold
rating in 2019 for the fi fth time, with an overall score of 75.
To bring this program to the next level, we started a
multi-year program in 2019 and have lowered our spend
threshold from €1 million to €250,000. By lowering
the threshold and looking at the suppliers’ country
and industry risk level, we have now identifi ed around
1,000 suppliers who are expected to participate in the
program. We focus our efforts by taking a risk-based
approach. A supplier’s risk level is determined by the
spend, country and industry, among other factors.
by risk. In the coming years, we aim to further increase
the number of suppliers in the program. Currently 460
(47%) suppliers meet our expectations. In 2020, we
aim to accelerate our program by continuing to request
improvements and inviting additional suppliers to take part
in the assessment.
Supplier performance management
Our supplier performance management process
includes suppliers who have a contractual relationship
with us and/or have an impact on our resource
productivity agenda. The sustainability performance of
suppliers in this group is measured using our Supplier
Sustainability Balanced Scorecard (SSBS). The SSBS
is designed to measure and improve our suppliers’
performance, focusing on those topics most material
for our agenda.
AkzoNobel Report 2019 | Sustainability statements
139
Depending on a supplier’s maturity level when joining our
program, it can take several years of improvement to reach
Close to 60% of the identifi ed suppliers already
participated in the 2018 EcoVadis assessments. In 2019,
we increased this to 65% by adding suppliers prioritized
Suppliers in sustainability program in %
In line with our expectations
Under development
22
38
18
47
2018
2019
Baseline of 982 suppliers across all
procurement spend categories who meet
our new risk criteria.
High risk raw materials
We further accelerated our due diligence program of
several high risk raw materials. Initiated in 2017, these
raw materials were identified as possibly impacting human
rights in our supply chain, in particular regarding health
and safety, working conditions and modern slavery.
After analysis and prioritization, materials in scope are
cobalt, mica minerals and tin, which are used in the
manufacture of some additives, pigments, resins and
tin packaging material that we source. In 2019, we
published a conflict mineral statement. Visit our website
for more information.
With regard to mica minerals, we collaborated with our
suppliers to map their entire supply chain back to the
mines of origin. For cobalt and tin, we have surveyed
all 188 identified suppliers, using templates supplied by
Supplier sustainability
Suppliers participating in CSR program1 in %
against baseline2
Suppliers in line with our expectations3 in %
against baseline3
2018
2019
60
38
65
47
1 Third party online assessment on our suppliers’ CSR (Corporate Social
Responsibility) performance.
2 Baseline includes suppliers across all procurement categories above €250,000 and
with specific country and category risks.
3 Suppliers meet our expectations on their CSR performance if they achieve a total
score of 45 and a labor and human rights score of 50 in the online assessment.
140 Sustainability statements | AkzoNobel Report 2019
During 2019, we introduced Interpon Structura Flex, the first and only powder coatings range on the market to combine the weatherability of
superdurable powder coatings with the mechanical performance advantages of standard durable systems. Specifiers and architects are increasingly
moving towards superior durability, so we’ve developed a pioneering solution which sets a new standard in the market.
the Responsible Minerals Initiative. Of those suppliers
who confirmed using high risk materials necessary to the
functionality of the product, 83% disclosed their smelters.
A total of 38% of these smelters are conformant with the
Responsible Mineral Assurance Process (RMAP) standard,
or an equivalent standard. Suppliers with a “conflict free
statement”, but who did not disclose the smelters in their
supply chain, were not regarded as being conformant,
since our due diligence is based on the Organization
for Economic Cooperation and Development (OECD)
Guidance for Responsible Mineral Supply Chains. In 2020,
we will continue our due diligence process to ensure
our suppliers steer their supply chains towards using only
smelters validated via RMAP (or equivalent).
Capability building
Having started in December 2018, we continued to
train our procurement organization on our sustainability
programs and human rights. In total, 96% of our buyers
in scope have participated in the training.
Note 6
HEALTH AND SAFETY
At AkzoNobel, we strive to achieve leading performance
in health, safety, environment and security (HSE&S).
Our vision is to deliver zero injuries and harm through
operational excellence.
Our strategic HSE&S priorities are aligned with the
company’s Winning together: 15 by 20 ambition and are
focused on driving:
• Continuous improvement of HSE&S processes to
achieve leading maturity levels
• The implementation of an integrated HSE&S
Total reportable injury rate employees/
temporary workers
0.26
0.20
0.20
≤0.20
0.24
Total reportable rate contractors injury rate
0.29
0.18
0.19
0.12
2016
2017
2018
2019
2020
2016
2017
2018
2019
Target
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.
management system to drive continuous improvement
and maintain best-in-class performance
Lost time injury rate employees/
temporary workers
Lost time injuries contractors injury rate
• A commitment-based HSE&S culture and embedding
operational excellence to achieve our vision of zero
injuries and harm
0.13
PEOPLE SAFETY
In 2019, the total reportable rate (TRR) was 0.24, an
increase compared with 2018 (0.20). This is slightly above
the target level set for 2020 (0.20). In total, 65% of our
manufacturing locations have been reportable injury-free
for more than a year.
The most frequent causes for reportable injuries remain
“struck by/against” or “caught in between” objects, and
“slips, trips and falls”. The most frequent injuries sustained
are cuts/lacerations, fractures and strains/sprains.
Although the TRR was up in 2019, the severity of injuries
has decreased. The lost time injury rate for employees was
0.08 (2018: 0.09).
Some of the most severe incidents, including a fatality,
were related to off-site motorcycle incidents that occurred
in India. This prompted us to create a region-wide
motorcycle safety program. It aims to reduce the use
0.09
0.08
0.06
≤0.04
0.11
0.06
0.07
0.09
2016
2017
2018
2019
2020
2016
2017
2018
2019
Target
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.
of motorcycles for company business and ensure that
relevant safety measures, including training, are in place.
Investing in visible safety leadership and employee
involvement initiatives is critical to strengthen our safety
culture and deliver continuous improvement in safety
performance.
Additional measures are also being introduced. These
include the implementation of Life Critical Procedures,
forklift safety and machine safety “calls to action” (including
cross-site validation audits). The continued embedding
of injury and illness case management should also help
to further prevent injuries or reduce their severity. 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 number of contractor reportable injuries increased
slightly compared with 2018, leading to a reportable injury
rate of 0.19 (2018: 0.18). The contractors lost time injury
rate also went up from 0.07 in 2018 to 0.09 in 2019.
Analysis revealed that inadequate/poor adherence to
procedures were the main cause of contractor incidents.
To help counter this trend, a contractor safety procedure
and self-assessment process were introduced to target
the quality of (and adherence to) key procedures, with
benefi ts for our own employees, as well as contractors.
AkzoNobel Report 2019 | Sustainability statements
141
PROCESS SAFETY
We have developed and implemented a process safety
management (PSM) framework for all our operations,
which follows industry standards and best practices. A
new management of change (MOC) procedure has also
been introduced globally. This process has now been
digitized to allow an effi cient, 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.
Following the sale of our Specialty Chemicals business,
resin manufacturing represents the highest remaining PSM
Process safety events (PSE) pyramid
Levels
1
2
3
4
PSE
PSE
PSE below threshold (of Level 2)
and near misses
Operational discipline
142 Sustainability statements | AkzoNobel Report 2019
Process safety events
Loss of primary containment – Level 1
Loss of primary containment – Level 2
Process safety event – Level 3
2018
2019
6
63
1,583
3
64
970
risk in the company. To ensure these risks are properly
managed and mitigated to acceptable levels across
the company, a special project has been launched. It’s
designed to review the reliability and integrity of all safety
layers of protection and develop standards for minimum
layers of protection, in particular for all our resin plants.
In 2019, the number of LoPC Level 1 incidents (highest
severity) decreased to 3 (2018: 6). Reporting discipline
for PSE Level 3 incidents (minor spills and leaks, which
are readily controlled on site and have no regulatory
notifi cation requirement) remained at a high level, clearly
illustrating the drive for improvement at our manufacturing
sites. All incidents are investigated to increase our focus
on learning and continuous improvement.
PRODUCT STEWARDSHIP
Product stewardship is our approach to ensuring
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. We’re
also committed to continually developing safer and more
sustainable solutions for the market while staying ahead of
legislation through our proactive approach.
Continuous improvement
We use our Product Stewardship Continuous Improve-
ment Tool (PSCIT) to drive continuous improvement in
product stewardship through collaboration at all levels.
A research project which aims to harness the wasted solar energy absorbed
by buildings was launched in 2019 by a consortium of 13 partners – including
AkzoNobel. The ENVISION initiative is attempting to harvest energy from all building
surfaces, both transparent and opaque. A solution for absorbing near-infrared
light (NIR) via special panels already exists, but these panels are only available in
one color – black. So our coatings experts are developing technology which can
capture heat using lighter and brighter colors.
After realigning the PSCIT to better meet the needs
of a focused paints and coatings organization, a new
benchmark was introduced. It measures the maturity of
how product stewardship has been incorporated into
each of our businesses, and within AkzoNobel as a
whole. As expected, the results show that most
businesses and departments are continuously improving
on the key areas.
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 continues to
review substances as the regulatory status of substances
change, while processes are in place to prevent the
introduction of hazardous substances in our businesses.
A further fi ve substances were (re)assessed in 2019,
and the program has been embedded into a new
Sustainable Product Portfolio Assessment process
(See Note 1).
Employee health occupational illness rate
0.06
0.05
0.05
0.03
2016
2017
2018
2019
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
At AkzoNobel, we’re committed to providing a safe
working environment and healthy work conditions for
all our employees. Health and well-being are part of our
occupational health strategy and we actively manage
illness-related absenteeism. A new, company-wide
Industrial Hygiene (IH) framework was established
in 2018. Based on this framework, we launched an
IH baseline survey during the first quarter of 2019 at
144 locations. It aims to inventorize the current
status of IH program implementation at our work-
places. The established baseline will be the basis for
further improvement.
We continue to build the IH competencies of our HSE&S
professionals at local and regional level through online
training courses. In 2019, online training on chemical
exposure assessments and ergonomic assessments were
developed and delivered.
SECURITY
Security at AkzoNobel is focused on securing people,
information, assets and critical business processes against
Our Powder Coatings business extended its range of Interpon Low-E products during 2019. Having first introduced a selection of coarse texture products in 2018, a complete range
of smooth finishes in Interpon 610 was added to the Low-E portfolio. Specially engineered for curing at temperatures lower than the current standard of 180-190°C, the new offering
can save energy and help customers to improve their efficiency.
willful security risks on-site and while traveling. The level
of standardization of procedures, processes and training
for employees dealing with security at all our facilities will
continue to increase.
A central security committee with functional
representatives coordinates the main pillars of security:
personnel security, facilities, information management
security, travel security and intellectual property. The
readiness of our security processes is assured via internal
assessments, internal audits and security drills. In 2019,
184 security incidents were reported globally, broadly in
line with 2018 (177). Theft and vandalism at our stores
represented the highest event sub-type (similar to normal
society). Based on the incident trends and security
assessment analysis, the top three security priorities
to be resolved are: lone working arrangements; use
of CCTV; and training on how to deal with aggressive
members of the public.
HSE&S MANAGEMENT
Our leading HSE&S management system drives
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 of incidents. It also
incorporates 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 though a road map process.
During 2019, our state-of-the-art digitized platform
for supporting core HSE&S processes (known as the
HSE&S suite), was further developed and embedded. Our
corporate HSE&S management system was also globally
certified to ISO 14001 and OHSAS 18001 standards.
AkzoNobel Report 2019 | Sustainability statements
143
PEOPLE. PLANET. PAINT.
Note 7
HOW WE TREAT OUR PEOPLE AND
INSPIRE AND EMPOWER COMMUNITIES
EMPLOYEES
Our focus on people covers many different aspects.
It’s about ensuring a safe work environment, developing
our talented workforce, embracing our principles and our
approach to human rights and diversity. It also includes the
numerous local projects we carry out that bring signifi cant
benefi ts to people and communities around the world.
That’s why we’re committed to making and selling
paint that positively impacts the lives of our employees,
customers and communities. It’s an approach which
also attracts talented and like-minded employees to work
for – and remain with – the company.
By focusing on the success and sustainability of our
business, we’re able to attract, retain and motivate our
employees. Sustainability is one of our core principles,
it helps to defi ne who we are and what we stand for.
Our talent and development programs are a vital
investment in our human capital – the skills and know-
ledge of our employees. They’re key to ensuring
that we’re equipped to drive the company’s growth
and profi tability.
CULTURAL SHIFT AND SUPPORTING
INITIATIVES
In 2019, we continued the roll-out of our people agenda
and HR annual operating planning process across all
businesses and functions. As part of this process, we
introduced a set of strategic performance indicators for the
HR function which allows us to measure the progress and
impact of our key strategic initiatives.
including Brazil, China, France, the Netherlands, Poland,
Sweden, the UK and the US.
As part of our transition to growth-based talent
management, we put signifi cant effort into creating a
sustainable leadership pipeline for critical positions 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 fi lled 53% of our executive roles internally.
In 2019, overall employee turnover was 14% (2018: 14%),
while the voluntary turnover was 7% (2018: 8%). The
difference between our overall and voluntary turnover was
mainly caused by our continued transformation journey and
resulting restructuring. High potential employee turnover
totaled 4% (2018: 8%), a decrease from previous years, as
we expected.
CAPABILITY BUILDING TO DRIVE OUR
2020 AMBITIONS
We also implemented a new core HR system to deliver
an employee experience that is more simple, reliable,
engaging and empowering. In addition, to support our
HR practices across the globe, we rolled out a workforce
analytics tool which allows us to make better informed
decisions about AkzoNobel and its people. With this
foundation in place, we intend to build a data-driven
culture during the coming years.
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. In 2019,
we continued to build capabilities in our key functions
through Marketing Development Centers, Site Manager
Development Centers, our Emerging Leader Program and
a Top Leadership Development Program.
ATTRACTING, DEVELOPING AND
RETAINING TALENT
Our renewed employer branding campaign on social
media, along with our efforts to create an outstanding
candidate experience, resulted in continued recognition
as a leading employer in many of our key countries,
Our people managers play a pivotal role in building a
high-performance culture through effective onboarding,
continuous feedback, recognition and engagement of their
teams. We therefore continued our Manager Development
Program to provide them with the right tools to build high-
performing teams.
During a visit to the US, CEO Thierry Vanlancker congratulated US employee Archie Cotcher
on achieving an incredible 67 years of service with the company. Archie – who joined in
1952 – now works in Troy, Michigan, as a Senior Technician in our vehicle refi nishes product
development lab.
144 Sustainability statements | AkzoNobel Report 2019
Human capital ambitions
2016 2017 2018 2019
Ambition
2020
Organizational health score
Female executives (in %)1
19
19
58
20
61
18
742
25
In order to create strong and diverse high-performing
teams across the company, we implemented a global
recruitment guideline for an inclusive and unbiased hiring
practice of internal and external candidates.
1 2016-2017 data includes discontinued operations.
2 Top quartile.
To ensure our entire workforce is fit for the future, we
continued to update our competency frameworks for
research and development, information management,
sales and marketing, business services and finance, and
offer access to online programs across the organization.
INCREASED AWARENESS OF DIVERSITY
AND INCLUSION
We are 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 2019, we established the Diversity and Inclusion
(D&I) Sounding Board, with regional teams designed
to address local needs. It provides thought leadership
and recommendations on significant D&I issues and
ensures D&I priorities and actions support – and are
aligned with – the company’s overall strategy and values.
As part of our commitment to foster an inclusive and
respectful working environment, we launched training
to increase awareness around unconscious bias
in the workplace. We revitalized our efforts around
facilitating diversity and inclusion networks focusing on
women in the workplace and the lesbian, gay, bisexual,
transgender and intersex (LGBTI+) community.
We have also become a member of the Workplace
Pride organization.
This year, we also rolled out a global mentoring platform;
a virtual place for mentors and mentees to connect
and build professional relationships to advance talent in
our organization.
CHANGE MANAGEMENT IS KEY TO A
HEALTHY ORGANIZATION
The ambitious transformation journey we have embarked
on is well underway. The cultural shift we aspire to –
one that will make us the reference in our industry – is
substantial. The right balance between performance and
organizational health is an instrumental part of that journey
to ensure our transformation has a lasting impact. We
therefore continued to survey our organizational health in
2019 by asking all employees for their input on a quarterly
basis, resulting in an OHI score of 61 (2018: 58).
In total, 85% of our employees indicated they really care
about the company, while 88% are willing to put in a great
deal of effort – beyond what’s normally expected – in order
to help AkzoNobel be successful.
Based on insights from last year’s survey results, we
developed a program for our leadership teams to support
them in their transformation journey to make AkzoNobel
a high-performing organization. This, along with other
initiatives, has led to an increased understanding among
our top management (and their respective teams) of the
direction the organization has taken, which is reflected
in our increased organizational health scores. We also
notice a positive relation between leaders who are new in
their position and the health scores in their teams – the
teams of newly appointed leaders show higher health
scores. The insights gained from the survey also show a
Our COO, Ruud Joosten, helped to unveil a powerful new mural in Australia designed to inspire
young girls to use their voice. Located beside Melbourne Central Station, the artwork – created
by Daiana Ingleton – was also part of the celebrations to mark the 25-year partnership between
AkzoNobel and Plan International Netherlands.
need for continued focus in four specific areas: employee
involvement, inspirational leaders, rewards and recognition,
and talent development.
As part of our transformation journey, we need to check
our progress on a regular basis. It’s therefore vital that we
continue the organizational health checks. The outcomes
are reflected in action plans (overall, per business
and per function), and help us steer our culture and
organizational change management agenda. The culture
and transformation teams – supported by a network of
colleagues around the world who facilitate and drive our
culture and change programs in their respective areas –
will assist in the roll-out of the agenda.
AkzoNobel Report 2019 | Sustainability statements
145
Note 8
HUMAN RIGHTS
1. Health and safety in our value chain
4. Modern slavery in our supply chain
As an employer, manufacturer, business partner and
member of many communities, we recognize the
responsibility we have to respect human rights of people in
our value chain and the infl uence we have to contribute to
making improvements.
As part of our core principles of safety, integrity and
sustainability, we are committed to respecting human
rights as set out in the International Bill of Human Rights,
the International Labour Organization’s Declaration on
Fundamental Principles and Rights at Work, and the
OECD Guidelines for Multinational Enterprises.
We are also a member of UN Global Compact. Our
Code of Conduct explains what we expect from our
employees.
GOVERNANCE
The Executive Committee is responsible for our human
rights program. It has delegated management of the
program to a cross-function Human Rights Committee,
while day-to-day work on the program is handled by
the Integrity and Compliance function. Human rights-
related rules and procedures are embedded in our
policy framework and apply to all employees. Through
our Business Partner Code of Conduct, we require
our business partners to respect human rights in their
operations for us.
SALIENT HUMAN RIGHTS ISSUES
While we respect and treat all human rights equally, we
have prioritized certain activities based on risk. These
priorities were established following internal and external
stakeholder engagement. They are:
The health and safety of our people and those we
work with, or offer our products to, is our fi rst priority.
We have a robust health and safety program, which
is explained in Note 6. With our priority substance
program, we screen thousands of raw materials. We
have also initiated due diligence on the impact we have
on the communities around our sites. That work will
continue in 2020.
2. Working conditions for our employees
We are committed to providing good working conditions
for our employees and those working at, or visiting, our
sites. We have conducted due diligence and issued
company-wide standards for working hours. These
are being implemented throughout the company. In
addition, we have conducted due diligence on the
compensation we offer to our employees versus
international living wage standards for the ten high risk
countries. The initial results have shown us that while we
comply with legal requirements, there are certain gaps
between our compensation and international living wage
standards that merit further due diligence. This due
diligence work is ongoing.
3. Discrimination and harassment
We are committed to offering a working environment
in which people feel treated with dignity and respect,
and where we foster diversity and inclusion (see
Note 7). We have clear rules in place and apply strict
consequence management in case of violation of
these rules. In 2019, we started the implementation
of a global training program for all our employees on
diversity and unconscious bias. In addition, we started
the implementation of a global Trusted Person network,
offering employees a person to go to if they have
concerns about their work environment.
For full details and progress information on our human rights
framework, please visit: www.akzonobel.com/humanrights
146 Sustainability statements | AkzoNobel Report 2019
We have zero tolerance for modern slavery, such as
child labor or forced labor. We have conducted due
diligence into our supply chains, initially focusing on
mica, cobalt and tin (for more details, see Note 5).
As a result of this due diligence, we have greater
visibility of the risks and areas for improvement. We
strengthened the (EcoVadis) self-assessment process
for our suppliers in this area, have provided support to
certain suppliers on how to improve and have taken
steps to phase-out certain suppliers where necessary.
We have also introduced a balanced scorecard to
monitor the performance of key suppliers, of which
human rights is a component.
SPEAKUP! GRIEVANCE
MECHANISM
SpeakUp! offers employees and people from
outside the company a way of reporting any
concerns they have relating to compliance with our
Code of Conduct.
Reports are investigated objectively, confi dentially
and with a strict policy of non-retaliation. This helps
us improve controls and processes and correct
behavior where necessary.
For more details, visit
akzo.no/SpeakUp
Note 8
Note 9
HUMAN RIGHTS
1. Health and safety in our value chain
4. Modern slavery in our supply chain
The health and safety of our people and those we
We have zero tolerance for modern slavery, such as
As an employer, manufacturer, business partner and
work with, or offer our products to, is our fi rst priority.
child labor or forced labor. We have conducted due
member of many communities, we recognize the
We have a robust health and safety program, which
diligence into our supply chains, initially focusing on
responsibility we have to respect human rights of people in
is explained in Note 6. With our priority substance
mica, cobalt and tin (for more details, see Note 5).
our value chain and the infl uence we have to contribute to
program, we screen thousands of raw materials. We
As a result of this due diligence, we have greater
making improvements.
have also initiated due diligence on the impact we have
visibility of the risks and areas for improvement. We
on the communities around our sites. That work will
strengthened the (EcoVadis) self-assessment process
As part of our core principles of safety, integrity and
continue in 2020.
sustainability, we are committed to respecting human
rights as set out in the International Bill of Human Rights,
2. Working conditions for our employees
for our suppliers in this area, have provided support to
certain suppliers on how to improve and have taken
steps to phase-out certain suppliers where necessary.
the International Labour Organization’s Declaration on
We are committed to providing good working conditions
We have also introduced a balanced scorecard to
Fundamental Principles and Rights at Work, and the
for our employees and those working at, or visiting, our
monitor the performance of key suppliers, of which
OECD Guidelines for Multinational Enterprises.
sites. We have conducted due diligence and issued
human rights is a component.
We are also a member of UN Global Compact. Our
Code of Conduct explains what we expect from our
addition, we have conducted due diligence on the
company-wide standards for working hours. These
are being implemented throughout the company. In
employees.
GOVERNANCE
compensation we offer to our employees versus
international living wage standards for the ten high risk
countries. The initial results have shown us that while we
comply with legal requirements, there are certain gaps
SPEAKUP! GRIEVANCE
MECHANISM
between our compensation and international living wage
SpeakUp! offers employees and people from
The Executive Committee is responsible for our human
standards that merit further due diligence. This due
outside the company a way of reporting any
rights program. It has delegated management of the
diligence work is ongoing.
concerns they have relating to compliance with our
program to a cross-function Human Rights Committee,
while day-to-day work on the program is handled by
3. Discrimination and harassment
Code of Conduct.
the Integrity and Compliance function. Human rights-
We are committed to offering a working environment
Reports are investigated objectively, confi dentially
related rules and procedures are embedded in our
in which people feel treated with dignity and respect,
and with a strict policy of non-retaliation. This helps
policy framework and apply to all employees. Through
and where we foster diversity and inclusion (see
us improve controls and processes and correct
our Business Partner Code of Conduct, we require
Note 7). We have clear rules in place and apply strict
behavior where necessary.
our business partners to respect human rights in their
consequence management in case of violation of
operations for us.
SALIENT HUMAN RIGHTS ISSUES
these rules. In 2019, we started the implementation
of a global training program for all our employees on
diversity and unconscious bias. In addition, we started
the implementation of a global Trusted Person network,
offering employees a person to go to if they have
For more details, visit
akzo.no/SpeakUp
While we respect and treat all human rights equally, we
concerns about their work environment.
have prioritized certain activities based on risk. These
priorities were established following internal and external
stakeholder engagement. They are:
146 Sustainability statements | AkzoNobel Report 2019
For full details and progress information on our human rights
framework, please visit: www.akzonobel.com/humanrights
AKZONOBEL CARES
Caring for society and local communities is a vital part of
our global activities. As a responsible company, we run
various programs that show how highly we regard our role
in society. As well as helping people and their surrounding
neighborhoods, these programs also contribute to building
employee pride and strengthening our reputation.
Our societal contribution is organized under the
AkzoNobel Cares umbrella, which includes our Community
Program, “Let’s Colour” initiative and long-established
Education Fund.
Between 2015 and 2019, we positively impacted
40 million people by running over 900 projects in
120 countries and trained around 30,000 people.
Around 170 volunteers used 440 liters of our Dulux paint to renovate two primary schools in Hungary. Located in Nagykovács and Göd, the schools were
transformed as part of our global “Let’s Colour” initiative, helping 1,500 children to benefi t from a more inspiring learning environment.
Community Program
Connecting with the communities that are
close to our workplaces and supporting
their development has always been an
essential part of who we are.
Program projects all over the world. These projects create
a positive impact for our communities, our employees
and our brands.
During the year, 140 Community Program projects took
place in 14 countries, benefi ting 148,000 people. Around
4,300 AkzoNobel volunteers were involved.
painter academies and by offering soft skills programs,
mentoring and traineeships, we trained around
1,400 young people throughout the year. We also
refreshed 12 SOS Children’s Villages with paint to help
create happy homes. We intend to expand the partner-
ship over the next few years. For more details, visit:
www.letscolourproject.com
In 2019, we continued to demonstrate our passion for
paint and empower our people to initiate Community
Community Program
Employees (number)
Benefi ciaries (number, estimated)
>148k
4,300
2019
>97k
1,537
2018
>15k
1,449
2016
>20k
1,139
2017
Let’s Colour
The global “Let’s Colour” program
highlights our belief that paint
has the power to transform lives by
revitalizing communities and making living
spaces more liveable and inspiring. In 2019, we staged
83 “Let’s Colour” projects in 24 countries. Thanks to
the involvement of 1,115 AkzoNobel volunteers and the
donation of paint, we made a difference to countless
neighborhoods and living spaces, benefi ting more than
5.3 million people.
2019 also marked the third year of our global partnership
with SOS Children’s Villages. As a member of the Global
YouthCan! platform, we work together to advance the
employability of youth at risk in 15 countries. Through our
Education Fund
Together with partner Plan International Netherlands, we
set up the Education Fund in 1994, so 2019 was its 25th
anniversary. We aim to empower the next generation by
improving education in developing countries and offering
young people new skills, training and mentoring.
We’re proud of the tens of thousands of young people in
countries such as Bolivia, Brazil, China, Ecuador, India,
the Philippines and Vietnam who use our programs
to build a brighter future for themselves and their
communities. During 2019, the Education Fund started
supporting STEM (Science, Technology, Engineering and
Mathematics) training in China and continued to support
youth economic empowerment and entrepreneurship
training in India.
AkzoNobel Report 2019 | Sustainability statements
147
MANAGING SUSTAINABILITY
MANAGEMENT ACCOUNTABILITY
Our Executive Committee is responsible for incorporating
the sustainability agenda into the company strategy and
monitoring the performance of each business through the
Operational Control Cycle. Given our focus on sustai n-
ability, overall ownership of sustainability is with the CEO.
This approach builds on our core principles of safety,
integrity and sustainability including respect for human
rights. The materiality assessment is based on key risks
and opportunities for the company as they relate to the
acceleration of our business agenda and our approach
to sustainability. The key topics identifi ed are validated
annually and assessed on their relative importance.
The Sustainability Council advises and updates the
Executive Committee on new developments, performance
and the integration of sustainability into our management
processes. The Council, which meets quarterly, consists of
representative Business and Functional Directors, as well
as the CEO. The Director of Sustainability reports to the
Executive Committee on a regular basis.
MONITORING PROGRESS
STAKEHOLDER ENGAGEMENT
We engage and collaborate proactively with our
stakeholders to identify opportunities to create shared
value. Our key stakeholders are customers, employees,
suppliers and communities (see previous Notes), as
well as society, industry associations and investors (see
opposite page).
We use key indicators to track our progress in delivering
on our sustainable business imperatives and continue to
drive continuous value improvement processes in every
function, supported by external benchmarks.
Materiality matrix
People
Planet
Paint
During 2019, we continued to include our core principles
– including sustainability – in the personal objectives
and incentives of employees. This is tailored to each
employee’s role in the organization and linked to our
sustainability priorities. 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 product portfolios of more
sustainable solutions.
MATERIALITY ASSESSMENT
Sustainability topics material to our company are reviewed
based on input from internal and external stakeholders.
We focus on topics that have the biggest impact in terms
of accelerating our strategy of creating shared value.
h
g
H
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e
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o
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I
F
I
J L
B C
A K
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D E
G H
Low
Medium
High
Importance for AkzoNobel
148 Sustainability statements | AkzoNobel Report 2019
1. Key risks and
opportunities
2. Acceleration
of 15 by 20
3. Sustainability
agenda
4. Key topics
and indicators
Topic
Section of the report
A Employee development
Note 7: Employees
B Integrity
C Human rights
Compliance and integrity management
Note 8: Human rights
D Community involvement
Note 9: AkzoNobel Cares
E Fair taxes
Financial information Note 8
F People/process safety
Note 6: Health and safety
G Circular economy
Planet
H Supplier sustainability
Note 5: Supplier sustainability
I Climate strategy
Planet
J Resource productivity
Note 4: Resource productivity
K Customer satisfaction
Note 2: Customer value
L Sustainable solutions
Note 1: Sustainable solutions
M Product safety
Note 6: Health and safety
Associations and councils
We continued our memberships in 2019, including
our active membership of the World Business Council
for Sustainable Development (WBCSD) and the World
Green Building Council. 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 Labor Organization and
the OECD Guidelines for Multinational Enterprises. We are
also a signatory to the Responsible Care® Global Charter
and the CEO Water Mandate. Since 2017, we’ve been a
member of the RE100 (a Climate Group initiative), which
aims to move to 100% renewable energy. As a member of
the UN Global Alliance to Eliminate Lead in Paint, we were
the first major paint company to eliminate lead pigments
and driers in all our paint products and continue to do so
when we acquire new companies.
External benchmarks
We continue to set ambitious targets on topics most
material to our company and embed them in relevant
functions and businesses. This allows us to focus
on driving continuous improvement. In 2019, we reviewed
which benchmarks are best suited to us as a focused
paints and coatings company. We prioritize our active
participation in benchmarks that help drive continuous
improvement and rely mostly on publicly available
information. We continue to be recognized as an industry
leader by Sustainalytics, MSCI, Vigeo Eiris and ISS Oekom.
We also retained our EcoVadis Gold rating and are included
in the Ethibel Sustainability Index (ESI) Excellence Global.
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, along with an index of the
GRI indicators.
Society: UN Sustainable
Development Goals
Developed by the United Nations, the
Sustainable Development Goals (SDGs) are
a blueprint for achieving a better and more
sustainable future. All the SDGs inspire our
actions and decisions. As a company, we
continue to focus on those SDGs where
we can have the biggest impact and
integrate them into our sustainability agenda.
This agenda 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 what we do. Our commitment is also
reflected in the case studies included in this
Report 2019. They highlight in particular
how our products and ongoing innovation
contribute to those SDGs where we can
have the most positive impact.
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 providing interior wall paint which
can improve the health and well-being of
residents. See SDG 11 in action on page 8.
Responsible consumption
and production
We’re fully aware of the huge
opportunities that come
with applying the principles
of the circular economy across our entire
value chain (see Planet on page 134). We
also know it’s a way for us to improve the
performance, durability and long-term
protection that our products can bring to
underlying substrates. Coatings are an
enabler to prevent products becoming
waste. They enable furniture, transport and
building materials to be reused and recycled;
they can reflect heat; lower fuel use and
friction; and provide insulation. It’s also about
solutions being non-hazardous. See SDG 12
in action on page 138.
Partnerships for the goals
Collaboration is essential in
order to scale up actions
across the SDGs. We believe
in the impact innovation can
have in bringing the industry forward and
ultimately helping us to achieve the aims they
set out. This was one of the driving forces
behind us setting up our Paint the Future
ecosystem, which was launched in 2019
with a global startup challenge, followed by
a dedicated supplier event. See SDG 17 in
action on pages 22 and 138.
AkzoNobel Report 2019 | Sustainability statements
149
150Sustainability statements | AkzoNobel Report 2019ASSURANCE REPORT OF THE INDEPENDENT AUDITORTo: Supervisory Board and Board of Management of Akzo Nobel N.V.Assurance report on the selected non-financial indicators in the Sustainability statements 2019 Our conclusionWe have reviewed the selected non-financial indicators in the Sustainability statements 2019 of Akzo Nobel N.V. (“AkzoNobel” or “the company”). Based on the procedures performed and evidence obtained, nothing has come to our attention which causes us to believe that the selected non-financial indicators in the 2019 Sustainability statements are not prepared, in all material respects, in accordance with AkzoNobel’s reporting criteria.What we have reviewedThe object of our assurance engagement concerns selected non-financial indicators for the year ended December 31, 2019. Marked with the symbol, the “indicators” included in the Sustainability statements in the Report 2019 of Akzo Nobel N.V. are as follows: • Eco-premium solutions (in % of revenue)• Energy use (in 1000 TJ)• Energy use (GJ per ton of production)• Greenhouse gas emissions (kg CO2(e) per ton of production)• Greenhouse gas emissions – direct CO2(e) emissions (Scope 1) (in million tons)• Greenhouse gas emissions – indirect CO2(e) emissions (Scope 2) (in million tons)• Direct CO2(e) emissions (total kg per ton of production)• Indirect CO2(e) emissions (Scope 2) (total kg per ton of production)• Volatile organic compounds (in kilotons)• Volatile organic compounds (kg per ton of production)• Fresh water use (in million m3)• Fresh water use (m3 per ton of production)• Total waste (total kg per ton of production)• Total waste – reusable (in kilotons)• Total waste – non-reusable (in kilotons)• Total non-reusable waste (total kg per ton of production)• Hazardous waste (total kg per ton of production)• Hazardous waste – reusable (in kilotons)• Hazardous waste – non-reusable not landfill (in kilotons)• Hazardous waste – non-reusable to landfill (in kilotons)• Hazardous waste non-reusable (total kg per ton of production)• Hazardous waste to landfill (in kilotons)• Hazardous waste to landfill (total kg per ton of production)• Renewable energy – own operations (in %)• Scope 3 upstream (million tons) • Scope 3 downstream (million tons)• Cradle-to-grave carbon footprint (Scope 1, 2 and 3) (million tons)• Suppliers in sustainability program – in line with our expectations (in %)• Suppliers in sustainability program – under development (in %)• Suppliers participating in CSR program (in % against baseline)• Organizational health score• Female executives (in %)• Fatalities employees (number)• Total reportable injury rate employees/temporary workers (per 200,000 hours worked)• Lost time injury rate employees/temporary workers (per 200,000 hours worked)• Occupational illness rate employees (per 1,000,000 hours worked)• Fatalities contractors – temporary workers plus independent (number)• Loss of primary containment – Level 1 (number)• Loss of primary containment – Level 2 (number)• Process safety event – Level 3 (number)• Regulatory actions – Level 4 (number)• Management audits plus reassurance audits (number) We have reviewed these indicators included in the Sustainability statements in AkzoNobel’s Report 2019. All other information in the Sustainability statements and the rest of the Report 2019 is not in scope of this engagement. Therefore, we do not report or conclude on this other information.The basis for our conclusionWe conducted our review in accordance with Dutch law, including the Dutch Standard 3000A “Assurance engagements, other than audits or reviews of historical financial information (attestation-engagements).” This engagement is aimed to provide limited assurance. Our responsibilities under this standard are further described in the section “Our responsibilities for the review” of our report.We believe that the assurance information we have obtained is sufficient and appropriate to provide a basis for our conclusion.Independence and quality controlWe are independent of Akzo Nobel N.V. 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 kwaliteitssystemen” (NVKS, Regulations 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 criteriaThe indicators need to be read and understood in conjunction with the reporting criteria. The Board of Management of AkzoNobel is solely 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
indicators are AkzoNobel’s reporting criteria developed by
the company, as disclosed in the Managing sustainability
paragraph of the Sustainability statements, and further
elaborated in The Reporting Principles 2019, which were
made available online at www.akzonobel.com/en/about-
us/sustainability. 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.
Responsibilities for the indicators and the
review thereof
Responsibilities of the Board of Management and
Supervisory Board
The Board of Management of Akzo Nobel N.V. is
responsible for the preparation of the indicators in
accordance with AkzoNobel’s reporting criteria, including
the identification of the intended users and the criteria
being applicable for the purpose of these users.
Furthermore, the Board of Management is responsible
for such internal control as it determines is necessary to
enable the preparation of the indicators that are free from
material misstatement, whether due to fraud or error.
The Supervisory Board is responsible for overseeing the
company’s reporting process on the indicators.
Our responsibilities for the review
Our responsibility is to plan and perform our review in a
manner that allows us to obtain sufficient and appropriate
evidence to provide a basis for our conclusion.
Our conclusion aims to provide limited assurance. The
procedures performed in this context consisted primarily of
making inquiries with officers of the entity and determining
the plausibility of the indicators. The level of assurance
obtained in a limited assurance engagement is substantially
lower than the assurance that would have been obtained
had a reasonable assurance engagement been performed.
Misstatements may arise due to fraud or error. They are
considered to be material if, individually or in the aggregate,
they could reasonably be expected to influence the
decisions of users taken on the basis of the indicators.
Materiality affects the nature, timing and extent of our
assurance procedures and the evaluation of the effect of
identified misstatements on our conclusion.
Procedures performed
We have exercised professional judgement and have
maintained professional scepticism throughout the review
in accordance with the Dutch Standard 3000A, ethical
requirements and independence requirements.
- Interviewing relevant staff responsible for providing the
information for, carrying out internal control procedures
on, and consolidating the data in the indicators
- 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. We
have visited locations in Italy and Brazil to validate our
understanding of local processes. In addition, during
our visit to Italy, we also validated source data and
evaluated the design and implementation of internal
controls and validation procedures
- Obtaining assurance evidence that the indicators
reconcile 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
Our review consisted, among other things, of the following:
• Evaluating the appropriateness of the reporting
in the information submitted for consolidation at
corporate level
criteria used, their consistent application and related
disclosures in the indicators. This includes the evaluation
of the reasonableness of estimates made by the Board
of Management
• Evaluating the consistency of the indicators with the
information in the Report 2019, which is not included in
the scope of our review
• To consider whether the indicators as a whole, including
• Obtaining an understanding of internal control relevant
to the review in order to design assurance procedures
that are appropriate in the circumstances, but not
for the purpose of expressing a conclusion on the
effectiveness of the company’s internal control
• Identifying areas with a higher risk of material
misstatement within the indicators, whether due to
fraud or error, designing and performing assurance
procedures responsive to those risks, and obtaining
evidence that is sufficient and appropriate to provide a
basis for our conclusion. These procedures consisted,
among others, of:
- Interviewing management (and/or relevant staff)
responsible for the sustainability strategy, policy and
results
the disclosures, reflect the purpose of the reporting
criteria used
We communicated with the Supervisory Board and Board
of Management on the planned scope and timing of the
engagement and on the significant findings that result from
our engagement.
Amsterdam, February 12, 2020
PricewaterhouseCoopers Accountants N.V.
Original has been signed by F.P. Izeboud RA
AkzoNobel Report 2019 | Sustainability statements
151
SUSTAINABILITY PERFORMANCE SUMMARY
Economic
Area
Product/service
Eco-premium solutions
Supplier management
Suppliers participating in CSR program
Suppliers in line with our expectations
% against baseline
% against baseline
Unit
2015
2016
2017
2018
2019
Ambition 2020
% of revenue
20
21
21
22
60
38
22
65
47
20
–
–
Social
Employees
Organizational health score
Female executives1
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
Fatalities contractors (temporary workers plus independent)
Total reportable injury rate contractors
Loss of primary containment – Level 12
Regulatory actions – Level 4
HSE management
Management audits plus reassurance audits
Social progams
Community Program, employees
Community Program, beneficiaries
2015
2016
2017
2018
2019
Ambition 2020
score
%
number
/200,000 hours
/200,000 hours
/1,000,000 hours
number
/200,000 hours
number
number
number
19
0
0.30
0.15
0.07
0
0.50
1
0
27
19
0
0.26
0.13
0.07
0
0.29
5
0
34
19
0
0.20
0.06
0.06
1
0.12
5
0
32
58
20
0
0.20
0.09
0.06
0
0.18
6
1
25
61
18
2
0.24
0.08
0.03
0
0.19
3
0
32
number
number (estimated)
1,577
>17,000
1,449
>15,000
1,139
>20,000
1,537
>97,000
4,300
148,000
Top quartile 74
25
0
≤0.20
–
–
0
–
–
0
–
–
–
1 2015-2017 data includes discontinued operations.
2 Definition change 2016.
152 Sustainability statements | AkzoNobel Report 2019
Environmental
Area
Maintain natural resources/fresh air
Energy use
per ton of production
Renewable energy (own operations)
Direct CO2(e) emissions (Scope 1)1
per ton of production
Indirect CO2(e) emissions (Scope 2)
per ton of production
Volatile organic compounds
per ton of production
Fresh water use
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 chain2
Cradle-to-grave carbon footprint (Scope 1, 2 and 3)
Scope 3 upstream3
Scope 3 downstream4
Unit
1000TJ
GJ/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
million tons
million tons
million tons
2015
2016
2017
2018
2019
Ambition 2020
6.29
1.91
22
80.45
24.47
258.9
78.73
2.18
0.66
10.09
3.07
87
26.38
39
11.88
35
10.74
12
3.68
1.5
0.46
6.32
1.91
27
72.72
21.96
244.3
73.78
2.00
0.60
9.61
2.90
85
25.65
43
12.92
35
10.72
15
4.62
0.7
0.20
6.39
1.88
30
69.66
20.53
237.8
70.11
1.71
0.50
9.62
2.84
77
22.77
40
11.90
33
9.76
16
4.64
0.6
0.17
6.20
1.91
31
62.90
19.42
226.0
69.77
1.57
0.49
9.27
2.86
67
20.97
34
10.63
30
9.13
15
4.59
0.69
0.21
15.0
7.3
7.4
6.02
1.88
31
58.29
18.18
183.1
57.13
1.19
0.37
8.05
2.51
67
21.00
33
10.28
29
9.07
14
4.46
0.45
0.14
14.6
7.1
7.2
–
1.81
–
–
–
–
–
–
0.45
–
–
–
21.50
–
–
–
–
–
–
–
–
–
–
1 We have restated our 2018 Scope 1 emissions due to a temporary database outage in the prior year leading to misstated values.
2 Data covers October 1, 2018, until September 30, 2019. More details on the methodology and significant assumptions are provided in the reporting principles on our website.
The preparation of the Sustainability statements requires management to make judgements, estimates and assumptions that affect amounts reported. The estimates and
assumptions are based on experience and various other factors that are believed to be reasonable under the circumstances. The estimates and underlying assumptions are
reviewed on an ongoing basis. Mainly Scope 3 upstream and downstream have a higher degree of judgement and complexity for which changes in the assumptions and
estimates could result in different results than those recorded.
3 Category 1: purchased goods and services.
4 Category 10: processing of sold products; category 11: use of sold products; category 12: end-of-life treatment of sold products; VOC.
AkzoNobel Report 2019 | Sustainability statements
153
INDEX
2019 facts and figures
cover flap
Energy
17, 136
Report of the Supervisory Board
Audit Committee
Auditor’s report
40, 51
Executive Committee
117
Financial guidance
Automotive and Specialty Coatings
26
Financial instruments
Board of Management
Borrowings
Business overview
32, 47
Financial summary
104
How we created value
19
Human rights
Carbon footprint/Cradle-to-grave carbon footprint
17, 134
Industrial Coatings
32
Resource productivity
cover flap
Return on investment
115
124
Return on sales
Risk management
14
Safety
146
Segment information
28
Shareholders’ equity
Case studies
7, 8, 22, 138
Innovation
13, 22, 133
Stakeholder engagement
92
12
54
15
Strategy
Supervisory Board
Supervisory Board Chairman’s statement
Supplier sustainability
147
Sustainable Development Goals (SDGs)
13, 38, 130, 149
Marine and Protective Coatings
27
Sustainability statements
Cash, cash flow and net debt
72, 105, 106
Intangible assets
CEO statement
Circular economy
Code of Conduct
Commitments
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
4
Integrated supply chain
134
Internal controls
60, 146
Invested capital
106
“Let’s Colour”
147
111
58
71
72
73
70
70
12
Net debt
Nomination Committee
Operating income
Outlook
Paint the Future
People. Planet. Paint.
Pensions
Powder Coatings
Continuous improvement
Core principles and values
Corporate governance
Decorative Paints
Dividend proposal
Earnings per share
Eco-premium solutions
Emissions
Employees
154
12, 144
Product stewardship
46
Profit allocation
23, 24, 25
Property, plant and equipment
16, 67
Provisions
16, 91
Raw materials
16, 131
Regional statistics
17, 136
Remuneration
144
Remuneration Committee
104
Talent management
Waste
Water
42
87
16
13, 22, 133
130
98
29
142
123
93
103
15, 135
127
61, 106
41
37
135
cover flap
cover flap
55
17, 141
74
73, 96, 112
148
12
36
35
139
129
39, 144
16, 135
137
We welcome feedback on our Report
2019. You can contact us as follows:
Akzo Nobel N.V.
Christian Neefestraat 2
P.O. Box 75730
1070 AS Amsterdam, the Netherlands
T +31 88 969 7555
www.akzonobel.com
AkzoNobel Media Relations
T +31 88 969 7833
E media.relations@akzonobel.com
AkzoNobel Investor Relations
T +31 88 969 7856
E investor.relations@akzonobel.com
Editor
David Lichtneker
Art Director
Claire Jean Engelmann
Design and artwork
Annette Toeter
Photography
Joris Lugtigheid
Marije Kuipers
Printing
Drukkerij Tesink B.V.
Online report
nexxar gmbh
Integrated Report 2019
AkzoNobel’s annual financial report has been combined with
the sustainability report into one Report 2019. The Report
2019 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 2019, reference is made to brands and
trademarks owned by, or licensed to, AkzoNobel.
Unauthorized use of these is strictly prohibited.
Disclaimer
In this Report 2019, 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 2019 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.
Stated competitive positions are based on management
estimates, supported by information provided by specialized
external agencies.
155
SPICED HONEY
Color of the Year 2019
TRANQUIL DAWN
Color of the Year 2020
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 34,000 talented people
who are passionate about delivering the
high-performance products and services our
customers expect.
For more information please visit
www.akzonobel.com
© 2020 Akzo Nobel N.V. All rights reserved.
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TRANQUIL DAWN
Color of the Year 2020
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 34,000 talented people
who are passionate about delivering the
high-performance products and services our
customers expect.
For more information please visit
www.akzonobel.com
© 2020 Akzo Nobel N.V. All rights reserved.
A
k
z
o
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b
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l
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