Akzo Nobel
Annual Report 2020

Plain-text annual report

20 Delivered on our Winning together: 15 by 20 ambition Grow & Deliver strategy marks next phase of our journey We’re pioneering a world of possibilities to bring surfaces to life Leading the way in sustainability with People. Planet. Paint. Pioneering a world of possibilities to bring surfaces to life WHO WE ARE Look around you. Chances are you’re surrounded by surfaces. Flat ones, curved ones. Rough ones, smooth ones. They may look different, but they have something in common – they all need coating. We’ve been inventing the future of coatings since 1792. As pioneers in bringing surfaces to life, there’s a good chance you’re only ever a few meters away from one of our products. In fact, our world class portfolio of brands is trusted by customers around the globe. Our visionary approach means we constantly embrace new ideas to keep us at the forefront of the industry. It’s what you’d expect from the most sustainable coatings company (see page 29). WHAT WE DO since 1792 We’re experts in making coatings, although that hardly begins to tell the whole story. We use our passion for paint to make a difference – both big and small. So the things our products can do may surprise you, whether they’re applied to boats, buildings, cars, planes, phones, walls or wood. Our coatings can give a surface a personality – or even a superpower – like the ability to purify indoor air, harness solar energy and transform spaces with color. So we never stand still. Because there are industries to reinvent, environments to protect and boundaries to push. As global pioneers, it’s in our nature to keep learning, keep discovering and keep innovating (see page 15). Grow Grow & Deliver & Deliver OUR JOURNEY CONTINUES We’re on an exciting journey to become the frontrunner in our industry. Having delivered on our Winning together: 15 by 20 ambition (see page 6), we’ve now entered the next phase – Grow & Deliver – which is all about building on the strong foundation we’ve established (see page 13). We’ll be guided by the values and behaviors that underpin everything we do as we continue to accelerate towards truly becoming the reference in paints and coatings. www.akzonobel.com AkzoNobel Report 2020 1 2020 RESULTS AT A GLANCE Revenue by destination North America 12% Mature Europe* Emerging Europe** 37% 10% Financial summary €8.53 bln revenue €963 mln operating income €1,099 mln adjusted operating income €3.29 earnings per share 32,200 employees TARGETS (SET IN 2017) South America 8% Return on sales (ROS)1 2020 progress Return on investment (ROI)2 2020 progress 15% 15.0% >20%3 20.6% Achieve return on sales (adjusted operating income/ revenue) of 15% by 2020. 1 Excluding unallocated corporate center cost; assumes no signifi cant market disruption. Achieve return on investment (adjusted operating income/ average invested capital) of more than 20% by 2020. 2 Excluding unallocated corporate center cost and invested capital; assumes no signifi cant market disruption. 3 Our original 25% ambition was adjusted to 20% in 2020 as a result of lower growth assumptions and the implementation of IFRS 16 on leases. Return on sales development Adjusted operating income as % of revenue Return on investment development Adjusted operating income/average invested capital in % 10.6 12.0 15.0 16.6 17.2 20.6 2018 2019 2020 2018 2019 2020 2 AkzoNobel Report 2020 2020 RESULTS AT A GLANCE Revenue by destination North America 12% Mature Europe* Emerging Europe** 37% 10% Asia Pacific 29% CONTENTS About AkzoNobel 2020 results at a glance CEO statement How we delivered on 15 by 20 How we created value Strategy and operations Sustainability statements Leadership and governance Financial information Glossary Index Appendix Financial summary €8.53 bln revenue €963 mln operating income €1,099 mln adjusted operating income €3.29 earnings per share 32,200 employees TARGETS (SET IN 2017) South America 8% Case studies: Business as unusual Collaboration fuels our robotic revolution PRISM shines light on single ERP platform Making our sites more sustainable Bright future for solar capture Biomass breakthrough unlocks world of possibilities Art Foundation marks silver jubilee Other regions 4% * Mature Europe: Western Europe and Southern Europe, including Austria. ** Emerging Europe: Central and Eastern Europe (excluding Austria), the Baltic States and Turkey. Inside cover 2 4 6 7 12 29 55 86 144 146 147 10 19 28 40 45 49 54 Return on sales (ROS)1 2020 progress Return on investment (ROI)2 2020 progress Eco-premium solutions 2020 progress 15% 15.0% >20%3 20.6% 20% 21% Achieve return on sales (adjusted operating income/ revenue) of 15% by 2020. 1 Excluding unallocated corporate center cost; assumes no signifi cant market disruption. Achieve return on investment (adjusted operating income/ average invested capital) of more than 20% by 2020. 2 Excluding unallocated corporate center cost and invested capital; assumes no signifi cant market disruption. 3 Our original 25% ambition was adjusted to 20% in 2020 as a result of lower growth assumptions and the implementation of IFRS 16 on leases. Maintain at least 20% of revenue from eco-premium solutions by 2020 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 15.0 2 AkzoNobel Report 2020 2018 2019 2020 2018 2019 2020 22 22 21 2018 2019 2020 16.6 17.2 20.6 Case study videos This Report 2020 includes case studies that highlight some of our activities during the year. The videos are not covered by any procedures performed by the independent auditor and are not considered part of the management report. Alternative performance measures (APM) AkzoNobel uses APM adjustments to the IFRS measures to provide supplementary information on the reporting of the underlying developments of the business. APM include, but are not limited to, adjusted operating income, (adjusted) EBITDA, adjusted earnings per share, ROS and ROI. A reconciliation of the alternative performance measures to the most directly comparable IFRS measures can be found in the Glossary and Note 4 of the Consolidated financial statements. AkzoNobel Report 2020 3 “Despite the odds being stacked against us, I’m proud to say we reached a signifi cant milestone as a company and achieved our Winning together: 15 by 20 ambition.” 4 CEO statement | AkzoNobel Report 2020 CEO STATEMENT As 2020 began, we were all set for accelerating towards our Winning together: 15 by 20 ambition. However, like everybody else, it wasn’t long before we encountered unprecedented challenges due to the COVID-19 pandemic. The massive economic and social impacts were felt by everyone as the world came to a virtual standstill. Despite the odds being stacked against us, I’m proud to say we reacted fast and reached a significant milestone as a company. Our people and customers came first. That was always our priority. At the same time, as the global pandemic raged on, we mobilized the whole organization in response. We became more agile, changed our ways of working and focused on a handful of priorities to ensure we kept the company intact and continued to serve our customers – eventually deciding to pause key parts of our transformation and suspend our 2020 financial ambition. Over the last three years, we’ve made a series of targeted acquisitions. In 2020, we added Stahl’s powder coatings activities and New Nautical Coatings’ yacht business in North America, while a deal was also agreed for Titan decorative paints in Spain (to be completed in 2021) and we finalized the acquisition of Mauvilac Industries Limited in Mauritius. At the same time, we’ve clearly claimed the innovation space with our industry-first Paint the Future ecosystem. We’re now moving forward with our new Grow & Deliver strategy – the next stage of our transformation – building on what we’ve achieved to truly become the reference in our industry. It’s about outperforming our markets on growth and continuing to deliver to the bottom line – which we were already doing during the second half of 2020. By remaining customer focused and keeping our discipline on margins and costs, during the next three years, we aim to deliver an average 50 basis points improvement in return on sales each year. We saved costs, closely managed cash and leveraged the solid processes and systems we’ve been putting in place to set the company up for success. The fact that we weathered the storm so well demonstrates our new-found resilience and I’m extremely proud of how we continued to look after our customers and performed together as an organization. As we enter the newest phase of our journey in 2021, we continue to evolve, led by a new company purpose which demonstrates our passion for pioneering a world of possibilities to bring surfaces to life. And we continue to build on our leading track record when it comes to sustainability, through our “People. Planet. Paint.” approach and related ambitions. As the year came to an end, we almost overlooked the fact that all our hard work during the last three years paid off – we reached our Winning together: 15 by 20 ambition, despite the unparalleled headwinds. After this extraordinary phase of our ongoing journey, we’re now a significantly leaner paints and coatings company, with clear and short communication lines, and systems and processes in place that enable us to continue delivering value for all our stakeholders. We also continue to streamline our manufacturing and warehouse footprint. Of course, by far the real driving force is our people, who deserve all the credit. It’s been a tough journey at times, but everyone persevered and I’m really proud of what we’ve shown the world this year. Our improved organizational health score suggests that engagement is strong and there’s a good feeling within the company. So a huge thank you to the whole organization. For myself and the whole Executive Committee, it continues to be a privilege to be on this journey to become the frontrunner in our industry. Achieving this significant 15 by 20 milestone is very much the culmination of a determined push to get back to the forefront of our industry and we continue to see encouraging momentum in our business performance. Thierry Vanlancker, CEO and Chairman of the Board of Management and Executive Committee AkzoNobel Report 2020 | CEO statement 5 “Despite the odds being stacked against us, I’m proud to say we reached a signifi cant milestone as a company and achieved our Winning together: 15 by 20 ambition.” 4 CEO statement | AkzoNobel Report 2020 2020 HIGHLIGHT 2020 PROGRESS ROI2 20.6% ROS1 15.0% Return on sales (ROS)1 in % 15.0 15.5 14.5 10.6 10.6 12.0 2017 2018 2019 2020 2020 ambition Return on investment (ROI)2 in % 18.0 16.6 17.2 20.6 >203 2017 2018 2019 2020 2020 ambition 1 Excluding unallocated corporate center cost; assumes no signifi cant market disruption. 2 Excluding unallocated corporate center cost and invested capital; assumes no signifi cant market disruption. 3 Our original 25% ambition was adjusted to 20% in 2020 as a result of lower growth assumptions and the implementation of IFRS 16 on leases. 6 AkzoNobel Report 2020 How we delivered on 15 by 20 Since 2017, we’ve been keeping a laser- sharp focus on our Winning together: 15 by 20 ambition and the promises we made during what can only be described as turbulent times for the company. We had bold aspirations and few people believed it was possible to achieve them. Before looking at how the milestone was achieved, it’s worth refl ecting on where Winning together: 15 by 20 came from. Prior to 2015, AkzoNobel was at the bottom of the pack when benchmarking profi tability versus peers. And while we managed to make our way up into the middle, some players were still ahead of us by a signifi cant distance. Our 15 by 20 fi nancial ambition was all about closing that gap. Creating two focused companies was clearly the most logical step. We therefore separated our Specialty Chemicals business within 12 months, as planned, and returned €6.5 billion proceeds to shareholders before the end of 2019, as promised. Which saw us become a truly focused paints and coatings company. We took a conscious decision to scale down revenue growth aspirations and focus solely on return on sales (ROS). This would improve the quality of the business – shedding some structurally unprofi table volumes – while recognizing the relatively slow growth rate in end markets. Our single-minded focus on profi tability created a clear and simple message for the whole organization, which meant decisions became much simpler to make – do whatever action results in the largest increase in ROS, while respecting our core values of safety, integrity and sustainability. It became a mantra. Winning together: 15 by 20 relied on a signifi cant amount of self-help, improving systems and processes to create a stronger foundation for the future, with no support from end markets. So we were well prepared for the fi nal phase of the 15 by 20 journey, when COVID-19 forced us to pause key parts of our transformation and suspend our 2020 fi nancial ambition. We focused on taking care of our employees while protecting our business, minimizing all discretionary costs and carefully managing cash and working capital. The signifi cant market disruption meant we occasionally had challenges in keeping up with rapid changes in demand. We took all reasonable steps to maintain business operations and continue serving customers. The actions taken, together with our strong balance sheet, provided a solid platform for us to resume key parts of the transformation during the second half of 2020. Our strict focus has paid off, delivering a step-change in performance in just a few short years. ROS (excluding unallocated cost) increased from 10.6% in 2017 to 15.0% in 2020. At the same time, we continued to advance in other areas, such as our industry-leading Paint the Future innovation ecosystem and our People. Planet. Paint. approach to sustainable business. By the end of 2020, we'd reached a signifi cant milestone. We’ve reignited our passion for paint, caught up with the leading paints and coatings players and are well on our way to becoming the frontrunner in the industry – and we're just half-way through our transformation. Beyond 2020, our focus will now shift to growth and profi tability improvement, guided by our Grow & Deliver strategy. Ultimately, our goal is to be an industry leader in both size and performance. 2020 HIGHLIGHT 2020 PROGRESS ROS1 15.0% ROI2 20.6% How we delivered on 15 by 20 Since 2017, we’ve been keeping a laser- systems and processes to create a sharp focus on our Winning together: stronger foundation for the future, with made during what can only be described as turbulent times for the company. We So we were well prepared for the fi nal had bold aspirations and few people phase of the 15 by 20 journey, when believed it was possible to achieve them. COVID-19 forced us to pause key parts Before looking at how the milestone was 2020 fi nancial ambition. We focused achieved, it’s worth refl ecting on where on taking care of our employees while Winning together: 15 by 20 came from. protecting our business, minimizing Prior to 2015, AkzoNobel was at the all discretionary costs and carefully bottom of the pack when benchmarking managing cash and working capital. profi tability versus peers. And while we The signifi cant market disruption managed to make our way up into meant we occasionally had challenges the middle, some players were still in keeping up with rapid changes ahead of us by a signifi cant distance. in demand. We took all reasonable Our 15 by 20 fi nancial ambition was steps to maintain business operations all about closing that gap. and continue serving customers. The Creating two focused companies balance sheet, provided a solid platform was clearly the most logical step. We for us to resume key parts of the therefore separated our Specialty transformation during the second half actions taken, together with our strong Chemicals business within 12 months, of 2020. as planned, and returned €6.5 billion proceeds to shareholders before the Our strict focus has paid off, delivering Return on sales (ROS)1 in % end of 2019, as promised. Which saw a step-change in performance in just 10.6 10.6 12.0 15.0 15.5 14.5 coatings company. us become a truly focused paints and a few short years. ROS (excluding unallocated cost) increased from 10.6% in 2017 to 15.0% in 2020. At the same We took a conscious decision to scale time, we continued to advance in other Return on investment (ROI)2 in % recognizing the relatively slow growth By the end of 2020, we'd reached a 2017 2018 2019 2020 2020 ambition 18.0 16.6 17.2 20.6 >203 and focus solely on return on sales the Future innovation ecosystem and (ROS). This would improve the quality our People. Planet. Paint. approach to of the business – shedding some sustainable business. structurally unprofi table volumes – while rate in end markets. signifi cant milestone. We’ve reignited our passion for paint, caught up with Our single-minded focus on profi tability the leading paints and coatings players created a clear and simple message for and are well on our way to becoming the the whole organization, which meant frontrunner in the industry – and we're decisions became much simpler to just half-way through our transformation. largest increase in ROS, while respecting Beyond 2020, our focus will now shift our core values of safety, integrity and to growth and profi tability improvement, sustainability. It became a mantra. guided by our Grow & Deliver strategy. Winning together: 15 by 20 relied on a Ultimately, our goal is to be an industry signifi cant amount of self-help, improving leader in both size and performance. 2017 2018 2019 2020 make – do whatever action results in the 2020 ambition 1 Excluding unallocated corporate center cost; assumes no signifi cant market 2 Excluding unallocated corporate center cost and invested capital; assumes no disruption. signifi cant market disruption. 3 Our original 25% ambition was adjusted to 20% in 2020 as a result of lower growth assumptions and the implementation of IFRS 16 on leases. 6 AkzoNobel Report 2020 By delivering more value to our customers, shareholders, employees and society in general, we can better accelerate profi tability while positioning ourselves for growth. 15 by 20 ambition and the promises we no support from end markets. Summary of fi nancial outcomes of our transformation and suspend our Adjusted operating income* In € millions Revenue Adjusted EBITDA* EBITDA* Identifi ed items* Operating income ROS* OPI margin* Average invested capital* ROI* ROS excl. unallocated cost* ROI excl. unallocated cost* Capital expenditures Net debt Leverage ratio (net debt/EBITDA)* Number of employees Net cash from operating activities Net income from continuing operations Net income from discontinued operations Net income attributable to shareholders Weighted average number of shares Adjusted earnings per share from continuing opera- tions (in €)* Earnings per share from total operations (in €) 2019 9,276 1,341 1,201 991 (150) 841 10.7 9.1 7,026 14.1 12.0 17.2 214 802 0.7 33,800 33 517 22 539 213.1 3.10 2.53 2020* 8,530 1,442 1,324 1,099 (136) 963 12.9 11.3 6,834 16.1 15.0 20.6 258 1,034 0.8 32,200 1,220 637 (7) 630 191.4 3.88 3.29 ∆% (8%) 8% 10% 11% 15% 21% 23% 17% 25% 30% down revenue growth aspirations areas, such as our industry-leading Paint Revenue by destination in % * Alternative performance measures: Please refer to reconciliation to the most directly comparable IFRS measure in Note 4 of the Consolidated fi nancial statements, and refer to the Glossary for ROS excluding unallocated cost and ROI excluding unallocated cost. A Mature Europe B Asia Pacifi c C North America D Emerging Europe E South America F Other regions Capital expenditures 2020: total €258m A Decorative Paints B Performance Coatings C Corporate and other Capital expenditures are expected to be around €250 million per year 2021-23. 37 29 12 10 8 4 77 146 35 A A D C F E B C B HOW WE CREATED VALUE Financial overview Revenue was 8% lower, and 4% lower in constant currencies. Price/mix was up 1% overall. Volumes were 4% lower, mainly due to the impact of COVID-19 on end market demand. Adjusted operating income was up 11% at €1,099 million (2019: €991 million); driven by margin management and cost-saving programs. Continuous improvement initiatives successfully offset infl ation. ROS increased to 12.9% (2019: 10.7%). Operating income was up 15% at €963 million (2019: €841 million) and included negative identifi ed items of €136 million. Business revenue • Decorative Paints revenue was 3% lower and up 3% in constant currencies, with volumes up 2% and positive price/mix of 1%, more than offset by 6% adverse currency impact • Performance Coatings revenue was 11% lower and 8% lower in constant currencies. Revenue was positively impacted by 1% price/mix, while volumes were 9% lower, mainly due to the impact of COVID- 19 on end market demand, especially in the fi rst half of the year Revenue from third parties in € millions Decorative Paints Performance Coatings 5,563 5,549 4,957 4,957 3,667 3,670 3,670 3,558 2018 2019 2020 Innovation investment research and development expenses in € millions 271 262 238 2018 2019 2020 Research and development expenses expected to remain similar as % of revenue 2021-23. AkzoNobel Report 2020 7 HOW WE CREATED VALUE ECONOMIC VALUE Eco-premium solutions in % 22 22 21 ≥20 2018 2019 2020 2020 ambition 5 consecutive years of out- performing our 2020 ambition. ENVIRONMENTAL VALUE Total waste in kg/ton 21 21 ≤21.5 20 2018 2019 2020 2020 ambition % lower waste than our 2020 ambition. 7 VOC in kg/ton 0.49 0.49 ≤0.45 0.37 0.31 2018 2019 2020 2020 ambition 31 % lower VOC level than our 2020 ambition. Energy use in GJ/ton 1.91 1.88 1.83 ≤1.81 2018 2019 2020 2020 ambition % reduction in energy use 3 in 2020. 8 AkzoNobel Report 2020 Acquisitions The acquisition of Mauvilac Industries, announced on December 12, 2019, was closed on April 1, 2020. On September 2, 2020, the acquisition of Stahl's per-formance powder coatings activities was completed. On October 19, 2020, the acquisition of Titan Paints in Spain was announced, with completion expected in 2021. The acquisition of New Nautical Coatings in the US was completed in Q4 of 2020. Raw material price development Raw material and other variable costs were €135 million lower in 2020, compared with 2019. Adjusted operating income Adjusted operating income was up 11% at €1,099 million (2019: €991 million); driven by margin management and cost-saving programs. Continuous improvement initiatives successfully offset infl ation. ROS increased to 12.9% (2019: 10.7%). • Decorative Paints adjusted operating income increased 37% as a result of volume growth, supported by margin management and cost savings. ROS was up at 16.1% (2019: 11.4%) • Performance Coatings adjusted operating income increased by 2%, with positive price/mix, margin management and cost savings more than compensating for lower volumes due to the COVID-19 impact on end user demand. ROS increased to 14.1% (2019: 12.4%) • Other activities were negative €174 million (2019: negative €115 million); other activities in 2019 included higher royalty income and one-off gains on disposals For more about our Paints and Coatings businesses in 2020, see pages 16 to 27. Additional details about the performance of AkzoNobel and each business segment in 2020 can be found in the quarterly publications on our website. Operating income Operating income was up at €963 million (2019: €841 million) and included negative identifi ed items of €136 million (€22 million in Decorative Paints, €35 million in Performance Coatings and €79 million in Other activities), mainly related to transformation costs. In 2019, identifi ed items were negative €150 million, mainly related to transformation costs and non-cash impairments, partly offset by a gain on disposal of €54 million following asset network optimization. OPI margin increased to 11.3% (2019: 9.1%). Net fi nancing income and expenses Net fi nancing expenses decreased by €7 million, mainly due to lower interest on loans. Income tax The effective tax rate was 26.2% (2019: 29.3%). The decrease is mainy related to impairments of deferred tax assets in 2019. Excluding identifi ed items, the effective tax rate in 2020 was 25.6% (2019: 25.3%). Cash fl ows and net debt Operating activities in 2020 resulted in an infl ow of €1,220 million (2019: €33 million). This was mainly due to higher profi tability and changes in working capital, while 2019 was impacted by higher pension related payments. At December 31, 2020, net debt was €1,034 million versus €802 million at year-end 2019. The net debt/EBITDA leverage ratio at December 31, 2020, was 0.8x (December 31, 2019: 0.7x). Invested capital Invested capital at December 31, 2020, totaled €6.4 billion, €0.6 billion lower compared with year-end 2019, mainly due to a reduction in working capital and other non-current assets. Dividend Our dividend policy is to pay a stable to rising dividend. In 2020, an interim For more details about our environmental performance, see the Sustainability statements. HOW WE CREATED VALUE ECONOMIC VALUE Eco-premium solutions in % 22 22 21 ≥20 2018 2019 2020 2020 ambition 5 consecutive years of out- performing our 2020 ambition. ENVIRONMENTAL VALUE Total waste in kg/ton 21 21 ≤21.5 20 2018 2019 2020 2020 ambition % lower waste than our 2020 ambition. 7 VOC in kg/ton 0.49 0.49 0.37 0.31 2018 2019 2020 2020 ambition 31 % lower VOC level than our 2020 ambition. Energy use in GJ/ton 1.91 1.88 1.83 ≤1.81 2018 2019 2020 2020 ambition % reduction in energy use 3 in 2020. For more details about our environmental performance, see the Sustainability statements. 8 AkzoNobel Report 2020 per-formance powder coatings activities million in Performance Coatings and was completed. On October 19, 2020, €79 million in Other activities), mainly the acquisition of Titan Paints in Spain related to transformation costs. In 2019, was announced, with completion identifi ed items were negative €150 expected in 2021. The acquisition of million, mainly related to transformation New Nautical Coatings in the US was costs and non-cash impairments, completed in Q4 of 2020. partly offset by a gain on disposal of €54 million following asset network Raw material price development optimization. OPI margin increased to Raw material and other variable costs 11.3% (2019: 9.1%). were €135 million lower in 2020, compared with 2019. Net fi nancing income and expenses Adjusted operating income Net fi nancing expenses decreased by Adjusted operating income was up €7 million, mainly due to lower interest 11% at €1,099 million (2019: €991 on loans. million); driven by margin management and cost-saving programs. Continuous Income tax improvement initiatives successfully The effective tax rate was 26.2% (2019: offset infl ation. ROS increased to 12.9% 29.3%). The decrease is mainy related (2019: 10.7%). to impairments of deferred tax assets • Decorative Paints adjusted operating in 2019. Excluding identifi ed items, the income increased 37% as a result of effective tax rate in 2020 was 25.6% volume growth, supported by margin (2019: 25.3%). management and cost savings. ROS was up at 16.1% (2019: 11.4%) Cash fl ows and net debt operating income increased by an infl ow of €1,220 million (2019: €33 2%, with positive price/mix, margin million). This was mainly due to higher management and cost savings more profi tability and changes in working than compensating for lower volumes capital, while 2019 was impacted by due to the COVID-19 impact on end higher pension related payments. user demand. ROS increased to 14.1% (2019: 12.4%) At December 31, 2020, net debt was • Other activities were negative €1,034 million versus €802 million at €174 million (2019: negative year-end 2019. The net debt/EBITDA €115 million); other activities in 2019 leverage ratio at December 31, 2020, included higher royalty income and was 0.8x (December 31, 2019: 0.7x). one-off gains on disposals Invested capital For more about our Paints and Coatings Invested capital at December 31, 2020, businesses in 2020, see pages 16 to 27. totaled €6.4 billion, €0.6 billion lower Additional details about the performance compared with year-end 2019, mainly of AkzoNobel and each business due to a reduction in working capital and segment in 2020 can be found in the other non-current assets. quarterly publications on our website. ≤0.45 • Performance Coatings adjusted Operating activities in 2020 resulted in Acquisitions Operating income The acquisition of Mauvilac Industries, Operating income was up at €963 announced on December 12, 2019, was million (2019: €841 million) and included closed on April 1, 2020. On September negative identifi ed items of €136 million Dividend in € 2018 1.80 2019 1.90 2020 1.951 were €1.6 billion and fi nancial leverage (net debt/EBITDA) was 0.8x. AkzoNobel is committed to retain a strong investment grade credit rating. 2, 2020, the acquisition of Stahl's (€22 million in Decorative Paints, €35 1 Proposed SOCIAL VALUE Total reportable injury rate (TRR) 0.20 0.20 0.24 0.23 ≤0.20 Earnings per share total operations in € 2018 26.19 2019 2.53 2020 3.29 Adjusted earnings per share from continuing operations in € 2018 1.91 2019 3.10 2020 3.88 dividend of €0.43 per common share (2019: €0.41) was paid. We propose a 2020 fi nal dividend of €1.52 (2019: €1.49) per common share, which would equal a total 2020 dividend of €1.95 (2019: €1.90). In 2020, a total share buyback of €545 million was completed. Employees At December 31, 2020, the number of employees was 32,200 (December 31, 2019: 33,800). Acquisitions in 2020 added around 250 people. For details on our approach to developing our workforce, see pages 32 to 34. COVID-19 The pandemic situation is being closely monitored and appropriate measures are being taken to continue serving customers and save costs, while keeping the organization intact and able to respond quickly to changes in end market demand. Although demand trends differ per region and segment, the overall im- pact on AkzoNobel for the full-year 2020 was limited. An overall positive impact was noted for the Decorative Paints seg- ment, while there was an overall adverse impact in the Performance Coatings segment. The pandemic has not im- pacted our going concern assumption. In 2020, a detailed assessment was performed of potential valuation adjustments to the overall asset base, either due to the direct impact of COVID-19, or its impact on future profi tability. Goodwill and intangible asset impairment tests have been performed based on most recently updated forecasts; this has not revealed impairments. Recoverability of deferred tax assets has also been reassessed based on these forecasts, leading to immaterial adjustments only. Furthermore, while the allowance for impairment of trade receivables initially increased as a direct result of the additional risk associated with COVID- 19, impairment of trade receivables returned to normal levels at year-end. In 2020, a compensation of €33 million related to government support measures for COVID-19 was recognized as a reduction of employee benefi t costs, mainly in Q2 and Q3. No application was made for the "Noodmaatregel Overbrugging voor Werkgelegenheid (NOW)" in the Netherlands. In our 2020 fi gures, all COVID-19 related impacts have been treated as normal operations; none of these impacts have been included in identifi ed items. Outlook 2021 AkzoNobel targets to grow at least in line with its relevant markets. Although trends differ per region and segment with raw material infl ation expected, margin management and cost- saving programs are in place to deliver 50 basis points increase in return on sales. The company targets a leverage ratio of 1-2 times net debt/EBITDA and commits to retain a strong investment grade credit rating. 2018 2019 2020 2020 ambition Numbers include AkzoNobel employees and temporary workers 3 consecutive years of closing in on our ambition. Fatalities 2 0 0 0 2018 2019 2020 2020 ambition fatalities in 2020. 0 Female executives in % 20 18 21 ≥25 2018 2019 2020 2020 ambition 3 % point increase in 2020. Now have new program to further boost senior female leadership pipeline. Organizational health score (OHI) 58 61 69 ≥74 2018 2019 2020 2020 ambition 11 point increase since 2018. We’re striving to keep impro- ving by following up attention areas. AkzoNobel Report 2020 9 Dividend Our dividend policy is to pay a stable to rising dividend. In 2020, an interim AkzoNobel has a strong balance sheet and solid cash position. At December 31, 2020, cash and cash equivalents See Note 28 of the Consolidated fi nancial statements with regard to subsequent events. For more details about our social performance, see the Sustainability statements. CASE STUDY Business as unusual By any standards, 2020 was an extraordinary year. It therefore required an extraordinary response. As COVID-19 continued to tighten its grip on the world, our priority was to keep our employees, their families and our partners safe. At the same time, we did everything possible to continue supplying our customers, while giving whatever support we could to local communities. Here’s a brief round-up of some of the projects we were involved with, many of which resulted from the amazing efforts of our colleagues around the world. They also highlight the strong social aspect of our “People. Planet. Paint.” approach to sustainable business. Rapid response in China When Chinese authorities announced they were about to rapidly construct a hospital in Yinchuan – capital city of the Ningxia Hui Autonomous Region – the local AkzoNobel organization sprang into action. The facility was being built as an expansion project at the existing Fourth People’s Hospital of Ningxia. However, as the work was taking place during the Spring Festival in February, paint was in short supply. On hearing the news, we acted quickly to donate our Dulux Pro interior emulsion during the early days of the project. It helped to ensure that the new buildings could be completed on time (in just 15 days) as part of an urgent local response to the COVID-19 outbreak. The new buildings continued to be operational once the outbreak subsided. Keeping industry going As the pandemic raged, our customers con tinued to rely on us to supply products across a whole range of critical industries. So we had to prioritize our resources in certain areas to ensure production of essential items could continue. For example, our coatings are used on hospital beds and other metal equipment (including oxygen bottles and ventilators), which were in high demand during the fi rst half of the year. We also supply coatings used in food and beverage cans, and the industry was working fl at out at one point to keep up with increased demand. Many of our coatings products – including our decorative paints – are also a key part of the construction sector. So we were pulling out all the stops to ensure that crucial work could continue, such as building new hospitals. You can read about some of those projects elsewhere on these pages. Coping with challenges in India During a nationwide lockdown in India, the local AkzoNobel organization launched several initiatives to help communities cope with the food and healthcare challenges. Many of these were adaptations of existing projects launched as part of the company’s People. Planet. Paint. initiative. The focus was simply changed in response to the virus. For example, in several villages near Bangalore, an existing e-health program which we helped to set up was used to provide initial screening for COVID- 19. Around 1,000 people had received symptomatic screening within the fi rst month. We also provided essential food items to 6,000 people (mostly daily wage earners) in Gurgaon, Gwalior and Navi Mumbai, including underprivileged children studying at AkzoNobel supported education centers. Beating the isolation blues in Brazil One of the most heart-warming initiatives was organized in Brazil, where our colleagues made a big effort to help residents at a care home for elderly women, located in the southern state of Rio Grande do Sul. Known as Grandma’s House, it looks after nearly 200 elderly residents. However, due to the pandemic, visitors weren’t allowed for many months. So our Brazilian colleagues decided to give the residents a boost and cheer them up by arranging video chat sessions to help them feel less isolated and alone. Dozens of employees volunteered to take part during the initiative, when they could choose from a series of 30-minute time slots. “The conversation I had was such an important moment for the lady I spoke to that she even dressed up specially for the occasion,” said AkzoNobel Administrative Coordinator, Roseli Franchi. “It was very touching and made me realize that we can make a difference to people’s lives by doing the simplest of things.” As well as talking to the residents, employees were also given the opportunity to have donations sent from 10 CASE STUDY Business as unusual By any standards, 2020 was an extraordinary year. It therefore required an extraordinary response. As COVID-19 continued to tighten its grip on the world, our priority was to keep our employees, their families and our partners safe. At the same time, we did everything possible to continue supplying our customers, while giving whatever support we could to local communities. Here’s a brief round-up of some of the For example, our coatings are used We also provided essential food items to projects we were involved with, many of on hospital beds and other metal 6,000 people (mostly daily wage earners) which resulted from the amazing efforts equipment (including oxygen bottles and in Gurgaon, Gwalior and Navi Mumbai, of our colleagues around the world. They ventilators), which were in high demand including underprivileged children also highlight the strong social aspect of during the fi rst half of the year. We studying at AkzoNobel supported our “People. Planet. Paint.” approach to also supply coatings used in food and education centers. sustainable business. beverage cans, and the industry was working fl at out at one point to keep up Beating the isolation blues in Rapid response in China with increased demand. Brazil When Chinese authorities announced One of the most heart-warming they were about to rapidly construct Many of our coatings products – initiatives was organized in Brazil, where a hospital in Yinchuan – capital city of including our decorative paints – are also our colleagues made a big effort the Ningxia Hui Autonomous Region – a key part of the construction sector. to help residents at a care home for the local AkzoNobel organization sprang So we were pulling out all the stops to elderly women, located in the southern into action. ensure that crucial work could continue, state of Rio Grande do Sul. such as building new hospitals. You The facility was being built as an can read about some of those projects Known as Grandma’s House, it looks expansion project at the existing Fourth elsewhere on these pages. after nearly 200 elderly residents. People’s Hospital of Ningxia. However, However, due to the pandemic, visitors as the work was taking place during the Coping with challenges in India weren’t allowed for many months. So Spring Festival in February, paint was in During a nationwide lockdown in India, our Brazilian colleagues decided to give short supply. the local AkzoNobel organization the residents a boost and cheer them up launched several initiatives to help by arranging video chat sessions to help On hearing the news, we acted quickly communities cope with the food and them feel less isolated and alone. to donate our Dulux Pro interior emulsion healthcare challenges. during the early days of the project. It Dozens of employees volunteered to helped to ensure that the new buildings Many of these were adaptations of take part during the initiative, when they could be completed on time (in just 15 existing projects launched as part of could choose from a series of 30-minute days) as part of an urgent local response the company’s People. Planet. Paint. time slots. “The conversation I had to the COVID-19 outbreak. initiative. The focus was simply changed was such an important moment for the The new buildings continued to be in response to the virus. lady I spoke to that she even dressed up specially for the occasion,” said operational once the outbreak subsided. For example, in several villages near AkzoNobel Administrative Coordinator, Keeping industry going which we helped to set up was used made me realize that we can make a As the pandemic raged, our customers to provide initial screening for COVID- difference to people’s lives by doing the con tinued to rely on us to supply products 19. Around 1,000 people had received simplest of things.” Bangalore, an existing e-health program Roseli Franchi. “It was very touching and across a whole range of critical industries. symptomatic screening within the So we had to prioritize our resources fi rst month. in certain areas to ensure production of essential items could continue. As well as talking to the residents, employees were also given the opportunity to have donations sent from one of several local supermarkets that make deliveries to the home. More than 1,000 items were sent, including cleaning and personal care products and food. Supporting communities in Indonesia Many of the communities around our Cikarang site in Indonesia experienced the economic challenges that came with the large-scale social restrictions that resulted from the pandemic. Having noticed the hardships many people were facing, colleagues from our local Marine and Protective Coatings and Decorative Paints sites responded quickly to help out. In order to support the livelihoods of people in seven communities around Cikarang, several activities were organized under our AkzoNobel Cares umbrella, which included distributing basic food essentials to around 500 families in need. Caring with color in Switzerland With children often fi nding hospitals a bit scary, we worked with the Anouk Foundation in Switzerland to brighten things up and make one hospital in particular feel more comforting and colorful. The Anouk Foundation is a non-profi t organization dedicated to bringing color to the walls of all kinds of buildings. Our Sikkens paint business has been donating paint to them for many years, helping to create designs and murals that calm the fears and worries of residents and patients of all ages. One of their bigger projects in 2020 involved working on 22 treatment rooms and eight patient rooms at the Kinder Klinik Kantonsspital in the Swiss town of Aarau. Painting soft colors on the walls and introducing gentle humor helped create a comforting atmosphere, which proved especially important at a time of such global uncertainty. In fact, the therapeutic value of the murals has been so benefi cial, there are plans to create more murals in other parts of the hospital, including the pediatric emergency unit. 10 11 STRATEGY AND OPERATIONS An overview of our strategy, approach to innovation and the performance of our Paints and Coatings businesses during the year. Strategy Innovation Decorative Paints* 13 15 16-18 Our activities are reported in three regions: Asia; Europe, Middle East and Africa; South America Performance Coatings* 20-27 Our activities are organized into four main businesses: Automotive and Specialty Coatings, Industrial Coatings, Marine and Protective Coatings, Powder Coatings * The 2018 and 2019 fi gures are restated to represent revenue from third parties instead of group revenue. Rafaël Rozendaal | Into Time 13 09 12, 2013 | 2013 | lenticular print | 120 x 90 cm | photo credits Gert-Jan van Rooij | Collection AkzoNobel Art Foundation THE NEXT PHASE OF OUR TRANSFORMATION Grow Deliver & Deliver Deliver Deliver Deliver Deliver Deliver Deliver Deliver OUR STRATEGY Ambitions for 2021-2023 Revenue growth at least in line with our relevant markets Deliver an average 50 basis points ROS* (return on sales) improvement each year AkzoNobel is a truly global, high- performing paints and coatings company with a proud heritage which can be traced back to 1792. Our world class portfolio of established brands is trusted by customers around the globe and we continue to be guided by a strong set of core values – safety, integrity and sustainability. Since 2017, our strategic focus has been on delivering our Winning together: 15 by 20 ambition, which has positioned us among other leading players in the industry. Ultimately, our goal is to take our rightful place as a frontrunner, both in terms of size and performance. This ambition is refl ected in our new company purpose – Pioneering a world of possibilities to bring surfaces to life – which was developed with input from a broad range of employees and other stakeholders. As we look to accelerate on the next phase of our journey, our new Grow & Deliver strategy is all about building on the strong foundation we’ve now established. From 2021 onwards, we will pivot towards growth, while delivering further profi tability improvement. To help us deliver what we want to achieve, we’ve updated our behaviors framework to guide a new way of working. The fundamentals remain the same – passion for paint, precise processes, powerful performance and proud people. Our key behaviors have now been more clearly defi ned to help drive further success (see visual below). With sustainability as one of our core values, we strive to be the leader in our industry by empowering people, reducing our impact on the planet and consistently innovating to deliver the most sustainable solutions for our customers. That’s why we call our approach to sustainable business “People. Planet. Paint.” Growth drivers We're well placed in the €130 billion paints and coatings industry, with a balanced geographic presence and a strong portfolio of brands, with leading positions in most segments. This offers multiple opportunities for growth. For example, we have a signifi cant presence in Asia Pacifi c – where we currently generate around 29% of revenue – and all market segments. We’re the leader in the fast-growing powder coatings segment, which currently contributes around 13% of revenue. Other segments also offer exciting growth opportunities, such as our decorative paints in South America and – driven by a shift away from single use plastics – packaging coatings. Strategic mandates – assigned per segment and region – are used to provide clear direction for each of our businesses, including relative priorities for growth and profi tability improvement. These strategic mandates, which helped to drive a step-change in performance over the last three years, have been updated for 2021 onwards. * ROS is calculated as adjusted operating income (operating income excluding identifi ed items) as a percentage of revenue from third parties. Rafaël Rozendaal | Into Time 13 09 12, 2013 | 2013 | lenticular print | 120 x 90 cm | photo credits Gert-Jan van Rooij | Collection AkzoNobel Art Foundation Passion for paint Precise processes Powerful performance Be customer focused Execute with discipline Deliver on commitments Proud people Take ownership AkzoNobel Report 2020 | Strategy and operations 13 STRATEGY AND OPERATIONS An overview of our strategy, approach to innovation and the performance of our Paints and Coatings businesses during the year. Strategy Innovation Decorative Paints* 13 15 16-18 Our activities are reported in three regions: Asia; Europe, Middle East and Africa; South America Performance Coatings* 20-27 Our activities are organized into four main businesses: Automotive and Specialty Coatings, Industrial Coatings, Marine and Protective Coatings, Powder Coatings * The 2018 and 2019 fi gures are restated to represent revenue from third parties instead of group revenue. OUR STRATEGY INNOVATION We’re passionate about customer needs and have a customer service mindset. Commercial excellence is all about putting in place more customer focused, data-driven, commercial processes. This will help to fuel our growth. Innovation is also fundamental to our success (see page 15). Having been pioneers since 1792, we know what it means to go beyond when it comes to providing custo- mers with quality solutions – how to understand and anticipate their needs. Our industry-leading Paint the Future innovation ecosystem is a great example of how our pioneering spirit is helping us to continue pushing boundaries. We have a solid platform for adding to organic growth through targeted acquisitions. Clear capital allocation priorities, and a strong balance sheet, underpin a disciplined approach to conducting value creating acquisitions, aligned with our strategic mandates. Delivering performance improvement Several initiatives started during the Winning together: 15 by 20 phase of our journey will also continue in the future, including ERP and application integration, as well as improving end-to- end processes. These initiatives provide the strong foundation on which our Grow & Deliver strategy is built. The next phase of our strategy requires an evolution of our operating model, moving from functional excellence in silos to driving cross-functional collaboration and becoming even more customer focused. Margin management demands strong profi tability analysis, combined with predictive margin management and pricing excellence. This will ensure we maintain variable margins throughout the cycle. Creating a world class supply chain requires more effi ciency and effectiveness – also in planning Our CEO, Thierry Vanlancker (pictured center), joined a cross-industry collaboration to fi ght climate change and build economic resilience. The 12-strong European CEO Alliance believes a zero carbon future is possible – if we work together – and the fi rst step was to give their full support to the EU Green Deal. processes – to meet customer needs with superior service levels. Product management is necessary to deliver the right products to customers and win in the market, at the most competitive cost for the company, with less complexity and increased collaboration with our suppliers. Optimizing our manufacturing network will be organized around three models to serve customer needs – simple and effi cient; managed complexity; agile and adaptive. Seamless business processes will be effective and cost competitive, allowing greater focus on what matters most. It’s now time for AkzoNobel to become the frontrunner. Our strategy is to Grow & Deliver, as a high-performing organization, pioneering a world of possibilities to bring surfaces to life. Welcome to our future! Market growth Strategic mandates Strategic mandates World class supply chain oduct Product management management cial excellence Commercial excellence Margin management Innovation Acquisitions Strong foundation G ro w Network optimization Seamless Seamless business business ocesses processes D eliver Accelerating our innovation We’ve been innovating for more than 200 years. Our pioneering spirit and our passion for pushing the boundaries of our industry represent our past, present and future. For us, innovation means going beyond conventional expectations, going beyond the imagination of our customers and going beyond generations. So it represents both a challenge and a promise. Our innovation portfolio is influenced by four main drivers: productivity, surface enhancement, asset protection and environmental protection. They guide us on our journey to making a significant and long-lasting Our latest Paint the Future regional startup challenge is scheduled to take place in China in early 2021. It was officially announced by Mark Kwok, AkzoNobel’s President of China/North Asia. “Science and innovation drive our future and I’m proud this year’s solutions went beyond expectation to delive r value to us and our customers.” difference to our customers and the planet. To help build on its success, we welcomed several new Innovation in 2020 collaborations in 2020. This included launching our first regional startup challenge in Brazil, which resulted in During the year, we continued to introduce a range business proposals being awarded in four categories: of ground-breaking products to the market, while Sustainable lifecycle; Smart supply chain and logistics; expanding our digital capabilities. This included adding New functionalities; and Customer experience. A new antimicrobial properties to our Interpon D1000 and regional startup challenge will be staged in China 2000 range of architectural powder coatings, enabling in 2021. building interiors to be given increased protection against microbes such as bacteria and mold. Our Throughout the year, we also made good progress on Powder Coatings business also introduced a new 3D joint developments in the area of robotic application, to color tool to help architects and specifiers find exactly help painters work more safely and efficiently. Two of the right product for their needs. Meanwhile, Decorative these projects involve Qlayers and Apellix, both winners Paints introduced Dulux EasyCare+, which contains in our 2019 global startup challenge (see page 19). A Scuff Resist technology to help protect interior walls, third project is ongoing with French early stage startup and also launched Hammerite Ultima, a rust-busting Les Companions. This project is focused on developing water-based exterior paint which can be applied directly a paint robot for interior use on walls and ceilings. onto any metal surface, without the need for a primer. Collaborative innovation In addition, we advanced the work we’re doing with two other 2019 winners. Alucha’s circular filler is in We know great innovations happen when different the scale-up phase, while we’re continuing to design people work together in a win-win model. A great new polymers for low-bake applications with Interface example is our Operation Night Watch partnership with Polymers. Meanwhile, through our related Paint the Klaas Kruithof, the Rijksmuseum in Amsterdam, the Netherlands. We’re Future supplier program, we also selected five new Chief Technology using our color expertise to work together on three key projects in 2020 for further acceleration. At the end Officer projects which demonstrate that understanding history of the year, a fully virtual supplier event was staged, is essential to building our future. featuring 100 specially invited participants. Following its 2019 launch, we also made excellent Another successful project also emerged from a Paint progress with expanding our global Paint the Future the Future employee challenge. Two of the teams that collaborative innovation ecosystem – which is all about submitted promising proposals joined forces to develop connecting what we know with what we don’t yet know, a company-wide global standard for using augmented so we can bring new solutions to the market faster. reality in manufacturing. 14 Strategy and operations | AkzoNobel Report 2020 AkzoNobel Report 2020 | Strategy and operations 15 OUR STRATEGY INNOVATION Our CEO, Thierry Vanlancker (pictured center), joined a cross-industry collaboration to fi ght climate change and build economic resilience. The 12-strong European CEO Alliance believes a zero carbon future is possible – if we work together – and the fi rst step was to give their full support to the EU Green Deal. We’re passionate about customer Delivering performance processes – to meet customer needs needs and have a customer service improvement with superior service levels. mindset. Commercial excellence is all Several initiatives started during the about putting in place more customer Winning together: 15 by 20 phase of Product management is necessary to focused, data-driven, commercial our journey will also continue in the deliver the right products to customers processes. This will help to fuel future, including ERP and application and win in the market, at the most our growth. integration, as well as improving end-to- competitive cost for the company, end processes. These initiatives provide with less complexity and increased Innovation is also fundamental to our the strong foundation on which our collaboration with our suppliers. success (see page 15). Having Grow & Deliver strategy is built. been pioneers since 1792, we know Optimizing our manufacturing network what it means to go beyond The next phase of our strategy requires will be organized around three models when it comes to providing custo- an evolution of our operating model, to serve customer needs – simple and mers with quality solutions – how to moving from functional excellence effi cient; managed complexity; agile and understand and anticipate their in silos to driving cross-functional adaptive. needs. Our industry-leading Paint collaboration and becoming even more the Future innovation ecosystem is a customer focused. great example of how our pioneering Seamless business processes will be effective and cost competitive, allowing spirit is helping us to continue Margin management demands strong greater focus on what matters most. pushing boundaries. profi tability analysis, combined with predictive margin management and It’s now time for AkzoNobel to become We have a solid platform for adding pricing excellence. This will ensure we the frontrunner. Our strategy is to to organic growth through targeted maintain variable margins throughout Grow & Deliver, as a high-performing acquisitions. Clear capital allocation the cycle. priorities, and a strong balance sheet, underpin a disciplined approach to Creating a world class supply organization, pioneering a world of possibilities to bring surfaces to life. conducting value creating acquisitions, chain requires more effi ciency and Welcome to our future! aligned with our strategic mandates. effectiveness – also in planning World class supply chain Product oduct management management Commercial excellence cial excellence Margin management G ro w Network optimization Seamless Seamless business business processes ocesses D eliver Market growth Strategic mandates Strategic mandates Innovation Acquisitions Strong foundation Accelerating our innovation We’ve been innovating for more than 200 years. Our pioneering spirit and our passion for pushing the boundaries of our industry represent our past, present and future. For us, innovation means going beyond conventional expectations, going beyond the imagination of our customers and going beyond generations. So it represents both a challenge and a promise. Our innovation portfolio is influenced by four main drivers: productivity, surface enhancement, asset protection and environmental protection. They guide us on our journey to making a significant and long-lasting difference to our customers and the planet. Innovation in 2020 During the year, we continued to introduce a range of ground-breaking products to the market, while expanding our digital capabilities. This included adding antimicrobial properties to our Interpon D1000 and 2000 range of architectural powder coatings, enabling building interiors to be given increased protection against microbes such as bacteria and mold. Our Powder Coatings business also introduced a new 3D color tool to help architects and specifiers find exactly the right product for their needs. Meanwhile, Decorative Paints introduced Dulux EasyCare+, which contains Scuff Resist technology to help protect interior walls, and also launched Hammerite Ultima, a rust-busting water-based exterior paint which can be applied directly onto any metal surface, without the need for a primer. Collaborative innovation We know great innovations happen when different people work together in a win-win model. A great example is our Operation Night Watch partnership with the Rijksmuseum in Amsterdam, the Netherlands. We’re using our color expertise to work together on three key projects which demonstrate that understanding history is essential to building our future. Our latest Paint the Future regional startup challenge is scheduled to take place in China in early 2021. It was officially announced by Mark Kwok, AkzoNobel’s President of China/North Asia. To help build on its success, we welcomed several new collaborations in 2020. This included launching our first regional startup challenge in Brazil, which resulted in business proposals being awarded in four categories: Sustainable lifecycle; Smart supply chain and logistics; New functionalities; and Customer experience. A new regional startup challenge will be staged in China in 2021. Throughout the year, we also made good progress on joint developments in the area of robotic application, to help painters work more safely and efficiently. Two of these projects involve Qlayers and Apellix, both winners in our 2019 global startup challenge (see page 19). A third project is ongoing with French early stage startup Les Companions. This project is focused on developing a paint robot for interior use on walls and ceilings. In addition, we advanced the work we’re doing with two other 2019 winners. Alucha’s circular filler is in the scale-up phase, while we’re continuing to design new polymers for low-bake applications with Interface Polymers. Meanwhile, through our related Paint the Future supplier program, we also selected five new projects in 2020 for further acceleration. At the end of the year, a fully virtual supplier event was staged, featuring 100 specially invited participants. Following its 2019 launch, we also made excellent progress with expanding our global Paint the Future collaborative innovation ecosystem – which is all about connecting what we know with what we don’t yet know, so we can bring new solutions to the market faster. Another successful project also emerged from a Paint the Future employee challenge. Two of the teams that submitted promising proposals joined forces to develop a company-wide global standard for using augmented reality in manufacturing. “Science and innovation drive our future and I’m proud this year’s solutions went beyond expectation to delive r value to us and our customers.” Klaas Kruithof, Chief Technology Officer 14 Strategy and operations | AkzoNobel Report 2020 AkzoNobel Report 2020 | Strategy and operations 15 DECORATIVE PAINTS ASIA 2020 SUMMARY 2020 HIGHLIGHT It was a challenging year, but we quickly stabilized and saw a strong recovery throughout the region in Q3 and Q4. We adopted an agile approach in responding to changes in product mix, while focusing on operational costs, complexity reduction and margin management. South East and South Asia experienced headwinds most of the year due to COVID-19 related channel closures, but despite that, we achieved signifi cant improvement in return on sales. Revenue in € millions 1,144 1,084 916 2018 2019 2020 Key brands “The proac- tive support we offered was the basis for the strong recovery in results in the second half of the year.” Oscar Wezenbeek, Director of Decorative Paints South East and South Asia “Agile leader- ship and strong stakeholder partnerships were key to restoring our profi table business growth in Q3 and Q4.” Mark Kwok, Director of Decorative Paints North Asia Decorative Paints revenue by destination in % C B A A EMEA B Asia Pacifi c C South America 63 26 11 16 Strategy and operations | AkzoNobel Report 2020 We supplied an extensive range of products for the construction of Indonesia’s new Yogyakarta International Airport. Our decorative paints were used on the walls, pillar and ceilings, while the company also provided protective coatings and passive fi re protection. We supplied 130,000 liters of decorative paint from our Dulux Professional range for the interior walls, pillars and ceilings of Indonesia’s new Yogyakarta International Airport (pictured below). Offi cially inaugurated in August, the airport is equipped with a passenger terminal spanning 219,000m2 and has a total capacity of 20 million passengers a year. The company also provided over 300,000 liters of performance coatings for the structural steel. OTHER KEY DEVELOPMENTS • Strengthened our distribution network in Mainland China by expanding into 40 new cities and 1,000 additional stores. Also supplied products for more than 250 renovation projects in 80 cities • Dulux launched a fi rst-of-its-kind, bio-based interior paint in Vietnam which helps to improve indoor air quality • In India, we launched Dulux SuperClean, an interior water-based emulsion which makes walls easier to keep clean • Launched a digital platform for painters in China and signed up over 165,000 professionals in 344 cities • Supplied Dulux Professional range products for The Exchange 106 skyscraper in Malaysia. It’s currently South East Asia’s tallest building • In China, Dulux Forest Breath Biocare was upgraded with solvent-free technology • As part of our partnership with SOS Children’s Villages, we launched projects in Indonesia, Vietnam, Pakistan and Sri Lanka • Our premium Dulux Forest Breath emulsion was used to coat the Hong Kong Palace Museum • Supplied products for the interior and exterior walls of Taipei Arena in Taiwan DECORATIVE PAINTS ASIA DECORATIVE PAINTS EMEA 2020 SUMMARY 2020 HIGHLIGHT 2020 SUMMARY Revenue in € millions Financial performance was very strong across the region and we delivered signifi cant growth in revenue compared with the previous year. This was driven mainly by positive price/mix effects, complexity reduction and cost-saving programs. The business also benefi ted from share gains in key markets and the DIY (do-it-yourself) boom which resulted from the introduction of COVID-19 lockdown measures. 2020 HIGHLIGHT We announced two deals as we moved to boost our presence in the region. In October, we signed a deal to acquire the decorative paints business of Spain’s Industrias Titan S.A.U. (to be completed in 2021). Titan – also present in Portugal – is one of Spain’s best-known brands. The business shares our commitment to sustainable product innovation, with much of its portfolio recognized for its environmental performance. We also completed the acquisition of Mauvilac Industries Limited in Mauritius, strengthening our footprint in Sub-Saharan Africa and boosting our position in the African market. Key brands “This was a very strong year in which we achieved signifi cant growth in revenue.” Jan-Piet van Kesteren, Director of Decorative Paints Europe, Middle East and Africa 2,061 2,129 2,246 2018 2019 2020 OTHER KEY DEVELOPMENTS • Successfully launched Brave Ground, our 2021 Color of the Year, securing signifi cant media attention and driving brand awareness and sales across the region • Supported artist Sacha Jafri’s world record attempt to create the largest ever painting on canvas. His Humanity Inspired project aimed to raise $30 million for charitable causes around the world (pictured below) • Launched Dulux EasyCare+, a precision-engineered interior paint which uses Scuff Resist technology to protect walls and keep them looking better for longer • Hammerite Ultima was introduced in several markets. It’s a water-based exterior paint which can be applied directly to any metal surface without the need for a primer • Our Ashington plant in the UK won the Coatings Care Overall Best Performer Award. The site had zero waste sent to landfi ll, with the waste recycling rate above the sector average, while the remainder was incinerated for energy recovery. Solvent emissions per ton of production were also among the lowest in the industry • Simplifi ed and harmonized our business model to reduce the number of different packs and unique formulations • Accelerated our digital marketing and sales, which included the launch of a new web platform and fast scale up of our eCommerce activity, particularly in Western Europe We supplied an extensive range of products for the construction of Indonesia’s new Yogyakarta International Airport. Our decorative paints were used on the walls, pillar and ceilings, while the company also provided protective coatings and passive fi re protection. 16 Strategy and operations | AkzoNobel Report 2020 AkzoNobel Report 2020 | Strategy and operations 17 Oscar Wezenbeek, Mark Kwok, Director Key brands quality 2018 2019 2020 It was a challenging year, but we quickly We supplied 130,000 liters of decorative stabilized and saw a strong recovery paint from our Dulux Professional throughout the region in Q3 and Q4. range for the interior walls, pillars and We adopted an agile approach in ceilings of Indonesia’s new Yogyakarta responding to changes in product mix, International Airport (pictured below). while focusing on operational costs, Offi cially inaugurated in August, the complexity reduction and margin airport is equipped with a passenger management. South East and South terminal spanning 219,000m2 and has a Asia experienced headwinds most of total capacity of 20 million passengers the year due to COVID-19 related a year. The company also provided over channel closures, but despite that, we 300,000 liters of performance coatings achieved signifi cant improvement in for the structural steel. return on sales. OTHER KEY DEVELOPMENTS Revenue in € millions • Strengthened our distribution network 1,144 1,084 in Mainland China by expanding into 40 new cities and 1,000 additional 916 stores. Also supplied products for more than 250 renovation projects in 80 cities • Dulux launched a fi rst-of-its-kind, bio-based interior paint in Vietnam which helps to improve indoor air • In India, we launched Dulux SuperClean, an interior water-based emulsion which makes walls easier to keep clean • Launched a digital platform for painters in China and signed up over 165,000 professionals in 344 cities • Supplied Dulux Professional range products for The Exchange 106 skyscraper in Malaysia. It’s currently South East Asia’s tallest building • In China, Dulux Forest Breath Biocare was upgraded with solvent-free technology • As part of our partnership with SOS Children’s Villages, we launched projects in Indonesia, Vietnam, Pakistan and Sri Lanka • Our premium Dulux Forest Breath emulsion was used to coat the Hong Kong Palace Museum • Supplied products for the interior and exterior walls of Taipei Arena in Taiwan “The proac- tive support we offered was the basis for the strong recovery in results in the second half of the year.” “Agile leader- ship and strong stakeholder partnerships were key to restoring our profi table business growth in Q3 and Q4.” Director of Decorative of Decorative Paints Paints South East and North Asia South Asia Decorative Paints revenue by destination in % C B A A EMEA B Asia Pacifi c C South America 63 26 11 DECORATIVE PAINTS SOUTH AMERICA 2020 SUMMARY OTHER KEY DEVELOPMENTS We delivered signifi cant organic growth and achieved a very strong performance, despite the pandemic and exchange rate volatility. Results were driven by disciplined pricing, innovation focused on premium offerings, better and broader store execution (including digital store launches) and cost-saving programs. We also experienced a steep increase in demand as consumers chose to renovate their homes during lockdown, with the help of our wide- ranging DIY (do-it-yourself) solutions. • Introduced the Holding Hands program to support painters and consumers during COVID-19. It included partnerships with customers to help painters via training and food distribution • Launched our Coral and Pinturerias del Centro online stores • New Sparlack Cetol product lines for woodcare introduced in Brazil • Achieved our goal of 100% water reuse in Mauá, Brazil, where we installed a water treatment plant in 2017 Revenue in € millions 462 457 396 2018 2019 2020 “2020 was nothing like we had expected, and yet we accom- plished much more than we expected.” Daniel Campos, Director of Decorative Paints South America Key brands Spectacular aircraft takes fl ight Putting our Coral decorative paints logo on a plane might seem strange, but it was a creative way for us to highlight the fact that our products feature more technology than people may realize. It also helped us to stand out by letting customers know that as well as providing advanced solutions for planes, we also help to color and protect their homes. The project in question involved creating South America’s most colorful airplane. Our Coral brand partnered with Aerospace Coatings colleagues to work with Azul Airlines and Embraer to pay tribute to the Spix’s macaw, a national symbol in Brazil. The design features 58 colors, half of which were custom made. The Embraer paint team in São José dos Campos then applied our Aerodur 3001/3002 basecoat clearcoat system. Decorative Paints supported the project with a “Let’s Colour” initiative to restore a local church and theater in Curaçá city. More than 3,000 liters of Coral paint were used. 2020 HIGHLIGHT Four startups are collaborating with AkzoNobel after winning our Paint the Future Brazil startup challenge. We received 135 submissions, with 16 of the country’s best startups being selected to participate in the challenge’s fi nale held in São Paulo in early October. Awards were given to Aterra (Belo Horizonte); Getter (Curitiba) pictured left; nChemi (São Carlos); and Standout (São Paulo). Letters of intent have been signed, demon stra- ting our commitment to co-developing sustainable business opportunities. 18 Strategy and operations | AkzoNobel Report 2020 DECORATIVE PAINTS SOUTH AMERICA CASE STUDY watch video Collaboration fuels our robotic revolution When it comes to paint application, we’re waking up to the dawn of the robots. There’s been a surge in startups and scale-ups interested in deploying robotics to improve how coatings are currently applied. 18 Strategy and operations | AkzoNobel Report 2020 19 In 2020, we strengthened our strategic partnerships with Les Companions, Apellix and Qlayers. These startup collaborations are not only cool, but also represent leaps in effi ciency, data-driven quality, worker safety and sustainability. We fi rst established a connection with Qlayers when they submitted a winning solution to our Paint the Future 2019 global startup challenge in the “Smart application” category – a focus area which refl ects our belief in syncing our innovative products with innovative ways to apply them. Qlayers’ fully automated coating processes will help our customers coat large industrial surfaces in any weather, without overspray. We’re now supporting the development of robust solutions for storage tanks and wind turbine blades. The customers we’ve already introduced to Qlayers are really excited for what’s ahead. These collaborations are just a few examples of what we call “going beyond imagination and generations”. We see working together on new solutions as a way to push the boundaries of our industry faster and further towards a more sustainable future. Aligned with SDG 12 and 17 (see page 30). 2020 SUMMARY OTHER KEY DEVELOPMENTS We delivered signifi cant organic • Introduced the Holding Hands growth and achieved a very strong program to support painters and performance, despite the pandemic and consumers during COVID-19. It exchange rate volatility. Results were included partnerships with customers driven by disciplined pricing, innovation to help painters via training and focused on premium offerings, better food distribution and broader store execution (including • Launched our Coral and Pinturerias digital store launches) and cost-saving del Centro online stores programs. We also experienced a steep • New Sparlack Cetol product lines for increase in demand as consumers woodcare introduced in Brazil chose to renovate their homes during • Achieved our goal of 100% water lockdown, with the help of our wide- reuse in Mauá, Brazil, where we ranging DIY (do-it-yourself) solutions. installed a water treatment plant in 2017 Revenue in € millions 462 457 396 2018 2019 2020 “2020 was nothing like we had expected, and yet we accom- plished much more than we expected.” Daniel Campos, Director of Decorative Paints South America Key brands Spectacular aircraft takes fl ight Putting our Coral decorative paints logo on a plane might seem strange, but it was a creative way for us to highlight the fact that our products feature more technology than people may realize. It also helped us to stand out by letting customers know that as well as providing advanced solutions for planes, we also help to color and protect their homes. 2020 HIGHLIGHT Four startups are collaborating with The project in question involved creating South AkzoNobel after winning our Paint America’s most colorful airplane. Our Coral brand the Future Brazil startup challenge. partnered with Aerospace Coatings colleagues to We received 135 submissions, with 16 work with Azul Airlines and Embraer to pay tribute of the country’s best startups being to the Spix’s macaw, a national symbol in Brazil. selected to participate in the challenge’s The design features 58 colors, half of which were fi nale held in São Paulo in early custom made. The Embraer paint team in São José October. Awards were given to Aterra dos Campos then applied our Aerodur 3001/3002 (Belo Horizonte); Getter (Curitiba) basecoat clearcoat system. pictured left; nChemi (São Carlos); and Standout (São Paulo). Letters of Decorative Paints supported the project with a “Let’s intent have been signed, demon stra- Colour” initiative to restore a local church and theater ting our commitment to co-developing in Curaçá city. More than 3,000 liters of Coral paint sustainable business opportunities. were used. AUTOMOTIVE AND SPECIALTY COATINGS Revenue in € millions 2020 SUMMARY OTHER KEY DEVELOPMENTS 1,338 1,318 1,127 2018 2019 2020 Key brands Revenue by destination in % A C B A EMEA B Americas C Asia Pacifi c 42 31 27 20 Strategy and operations | AkzoNobel Report 2020 It was a challenging year for most of our markets due to the global pandemic. It had a signifi cant impact on the automotive and vehicle refi nish (VR) sectors, with national lockdowns, limited vehicles on the road and OEM (original equipment manufacturing) being put on hold. The recovery started in the second half of the year – fi rstly in VR – and then accelerated towards year-end. Aerospace was heavily impacted due to an almost complete stop in air traffi c. 2020 HIGHLIGHT Our facility in Pruszków, Poland (pictured left), was expanded to double its size and is now the company’s most advanced automotive training center in Europe. Featuring state-of-the-art equipment, it will serve as a hub of learning and collaboration, hosting more than 1,000 people a year. Customers will deepen their knowledge of coatings and application techniques through a variety of classes, while our experts will also work closely with them in the research and development of potential new products and services. • Secured a long-term agreement with American Airlines and won back business from Korean Airlines • Launched a new range of low VOC compliant clearcoats in China to meet new VOC regulations. Also introduced a new VOC compliant topcoat for the commercial vehicles and commercial trucks markets • Introduced a radar transparent bright fi lm for use on vehicles, which will enhance road safety systems • Chosen by BMW Group to be a trusted supplier of vehicle refi nish products and services to a large part of its distribution network around the world • Made major progress in the digital transformation of our VR color tools, with more than 2,000 new MIXIT licenses • Received Advanced Auto Parts’ award for New Vendor of the Year – North America • Mapaero integration progressed well, with product rebranding activities now complete We secured a supply deal with BMW Group which means our Sikkens and Lesonal vehicle refi nish brands are now approved for paint repairs of BMW and MINI passenger cars in 44 countries around the world. AUTOMOTIVE AND SPECIALTY COATINGS Revenue in € millions 2020 SUMMARY OTHER KEY DEVELOPMENTS 1,338 1,318 1,127 2018 2019 2020 vehicles on the road and OEM (original new VOC regulations. Also introduced Key brands second half of the year – fi rstly in VR – trucks markets It was a challenging year for most of our • Secured a long-term agreement with markets due to the global pandemic. American Airlines and won back It had a signifi cant impact on the business from Korean Airlines automotive and vehicle refi nish (VR) • Launched a new range of low VOC sectors, with national lockdowns, limited compliant clearcoats in China to meet equipment manufacturing) being put a new VOC compliant topcoat for the on hold. The recovery started in the commercial vehicles and commercial and then accelerated towards year-end. • Introduced a radar transparent bright Aerospace was heavily impacted due to fi lm for use on vehicles, which will an almost complete stop in air traffi c. enhance road safety systems 2020 HIGHLIGHT • Chosen by BMW Group to be a trusted supplier of vehicle refi nish products and services to a large part of its distribution network around Our facility in Pruszków, Poland (pictured the world left), was expanded to double its • Made major progress in the digital size and is now the company’s most transformation of our VR color tools, advanced automotive training center with more than 2,000 new MIXIT in Europe. Featuring state-of-the-art licenses equipment, it will serve as a hub of • Received Advanced Auto Parts’ learning and collaboration, hosting more award for New Vendor of the Year – than 1,000 people a year. North America • Mapaero integration progressed Customers will deepen their knowledge well, with product rebranding activities of coatings and application techniques now complete through a variety of classes, while our experts will also work closely with them in the research and development of potential new products and services. Revenue by destination in % A C B A EMEA B Americas C Asia Pacifi c 42 31 27 20 Strategy and operations | AkzoNobel Report 2020 We secured a supply deal with BMW Group which means our Sikkens and Lesonal vehicle refi nish brands are now approved for paint repairs of BMW and MINI passenger cars in 44 countries around the world. “It was a diffi cult year, but with cost measures, new busi- ness op- portunities and fast recovery, we achieved a more than acceptable year-end result.” Patrick Bourguignon, Director of Automotive and Specialty Coatings We supplied coatings for several unique liveries during the year, including a turtle design for All Nippon Airways and panda artwork for China Southern Airlines. Our products were used on a trio of All Nippon A380s, with 3,300 liters of Aerobase and Aviox CC UVR paint being used to apply the eye-catching turtle design. The panda was added to an A330-300 using 30 different shades, with more than 20 of them being new colors developed by experts at our lab in Bangalore, India. Boeing approval for color blending in China Our aerospace coatings facility in Dongguan, China, has been qualifi ed by aircraft manufacturer Boeing to color blend the company’s Aerodur 3001 basecoat. The certifi cation means the site has been certifi ed by Boeing to blend our industry-leading basecoat/clearcoat system, Aerodur 3001/3002, locally in China with OEM (original equipment manufacturer) approval. The Dongguan facility is now also listed on Boeing’s offi cial qualifi ed products list (QPL) for BMS10-72 specifi cation. QPL approval status is an important milestone for the facility, which opened in 2017 to specifi cally serve the North and South Asian aviation market and deliver cutting-edge technologies faster and more reliably. AkzoNobel Report 2020 | Strategy and operations 21 2020 SUMMARY Revenue in € millions Our customer markets experienced a varied impact from COVID-19 in the fi rst half of 2020, with Asia being affected fi rst and Europe and the Americas somewhat later. We then saw steady market recovery in the second half of the year. Despite the COVID-19 impact, full-year revenue for Packaging Coatings and Coil and Extrusion Coatings increased, while Wood Finishes and Wood Adhesives were only slightly lower. Underlying demand for packaging coatings continued its strong momentum in all regions. Construction and infrastructure initiatives designed to reignite economic growth also strengthened demand for Coil Coatings. Meanwhile, breakthroughs in technology, channel management and market positions set the scene for 2021. 2020 HIGHLIGHT We launched a fi rst-of-its-kind 100% UV cured exterior range of coatings for windows. The system consists of a putty, primer and topcoat for wood window frames and a topcoat for PVC window applications. By cutting out up to 16 hours of drying time, the RUBBOL range can signifi cantly save on production time and energy costs, while providing leading performance. It also produces zero emissions and requires no mixing, making the production process more sustainable. 1,726 1,707 1,634 2018 2019 2020 Key brands Revenue by destination in % A C B A EMEA B Americas C Asia Pacifi c 43 31 26 INDUSTRIAL COATINGS “In an un - precedented year, we focused on delivering exceptional value and quality to our global customer base, while completing a business transfor- mation and delivering strong per- formance.” Simon Parker, Director of Industrial Coatings 22 Strategy and operations | AkzoNobel Report 2020 INDUSTRIAL COATINGS “In an un - precedented year, we focused on delivering exceptional value and quality to our global customer base, while completing a business transfor- mation and delivering strong per- formance.” Simon Parker, Director of Industrial Coatings 2020 SUMMARY Revenue in € millions 1,726 1,707 1,634 2018 2019 2020 and Extrusion Coatings increased, while Key brands Our customer markets experienced a varied impact from COVID-19 in the fi rst half of 2020, with Asia being affected fi rst and Europe and the Americas somewhat later. We then saw steady market recovery in the second half of the year. Despite the COVID-19 impact, full-year revenue for Packaging Coatings and Coil Wood Finishes and Wood Adhesives were only slightly lower. Underlying demand for packaging coatings continued its strong momentum in all regions. Construction and infrastructure initiatives designed to reignite economic growth also strengthened demand for Coil Coatings. Meanwhile, breakthroughs in technology, channel management and 2020 HIGHLIGHT We launched a fi rst-of-its-kind 100% UV cured exterior range of coatings for windows. The system consists of a putty, primer and topcoat for wood window frames and a topcoat for PVC window applications. By cutting out up to 16 hours of drying time, the A C B market positions set the scene for 2021. Revenue by destination in % RUBBOL range can signifi cantly save on A EMEA production time and energy costs, while B Americas providing leading performance. It also C Asia Pacifi c produces zero emissions and requires no mixing, making the production process more sustainable. 43 31 26 OTHER KEY DEVELOPMENTS • As the market leader in wood finishes in North America, we continued to make excellent progress on transforming the manufacturing capability at our facility in High Point, North Carolina. The €50 million investment will help drive quality and performance improvement for our customers • Strong year for Packaging Coatings, with the societal shift away from single-use plastic to cans – a more sustainable solution compared with plastic bottles • Launched TRINAR A-CLAD, a new coil coating system for aluminum composite panels (see picture below). It’s a high-performance, 70% polyvinylidene fluoride system for commercial projects which enables coaters and specifiers to source consistent, high-performing coatings for entire building exteriors • Architects and designers can now instantly access our TRINAR color libraries and use them in design software to create new projects and specify AkzoNobel products as they become available on leading building information modeling (BIM) platforms • Introduced augmented reality in collaboration with our Integrated Supply Chain team for remote testing and line management in response to restricted travel • Successfully launched new LinkedIn and Facebook platforms for our North American Chemcraft brand and Coil and Extrusion Coatings business to help increase our online presence Color of the Year brings surfaces to life We introduced four on-trend palettes across all wood markets as part of the company’s 2021 Color of the Year launch. The Expressive, Trust, Time and Earth palettes each feature the Color of the Year – Brave Ground. “Homeowners and designers want to try new things and combine the old with the new, both in color and style,” explains Rob Haley, Color Trends Manager for our Wood Coatings business. “We want to inspire and empower our customers and help them to achieve a contemporary and personal aesthetic as they transform living spaces and working environments.” Our wood coatings color experts worked closely with AkzoNobel’s global color and design team to develop on-trend palettes for a variety of paints and coatings customers. 22 Strategy and operations | AkzoNobel Report 2020 AkzoNobel Report 2020 | Strategy and operations 23 TRINAR A-CLAD offers a smooth, uniform finish during application and comes in a broad range of color and aesthetic options. MARINE AND PROTECTIVE COATINGS 2020 SUMMARY Revenue in € millions It was a challenging year, due to the impact of COVID-19 and a very diffi cult oil and gas market. However, the fundamentals of the marine, protective and yacht industries are robust and we’re confi dent they’ll emerge from this crisis as an essential driver for the global recovery. We adapted quickly and effectively to keep facilities open and maintain the excellent levels of support that our customers expect globally. As the situation evolved, we remained proactive in supporting marine fl eet owners through their dry dock cycles; our technical and engineering service teams maintained their on-site presence with customers at ship and fabrication yards; and we helped oil and gas majors maintain service continuity on projects already underway. We’ll continue working closely with customers to avoid service disruption and deliver on the commercialization of our product innovation. 1,279 1,290 1,068 2018 2019 2020 2020 HIGHLIGHT We took great pride in supporting health authorities with their emergency response to COVID-19 in China, where early on in the year we contributed to the construction of emergency quarantine facilities (pictured below). We were able to make our advanced anti-corrosion coating systems available in real time for six two-story buildings in Hong Kong, which provided 120 single rooms. Made of steel as ready-to-use modules, they featured our trusted Interzinc/Interseal/ Interthane anti-corrosion coating system to help protect the steel structure. Although Mainland China was still in partial lockdown at the time, we reacted swiftly to supply essential products and services, enabling the Pak Heung emergency quarantine facility in Hong Kong to be completed as quickly as possible. 24 Strategy and operations | AkzoNobel Report 2020 “We adapted quickly and effectively to maintain the excellent levels of support our customers expect globally.” Jean Michel Gauthier, Director of Marine and Protective Coatings Key brands Revenue by destination in % C A B A EMEA B Americas C Asia Pacifi c 34 23 43 MARINE AND PROTECTIVE COATINGS 2020 SUMMARY Revenue in € millions It was a challenging year, due to the impact of COVID-19 and a very diffi cult 1,279 1,290 1,068 oil and gas market. However, the fundamentals of the marine, protective and yacht industries are robust and we’re confi dent they’ll emerge from this crisis as an essential driver for the global recovery. We adapted quickly and effectively 2018 2019 2020 2020 HIGHLIGHT to keep facilities open and maintain We took great pride in supporting the excellent levels of support that health authorities with their emergency our customers expect globally. As response to COVID-19 in China, the situation evolved, we remained where early on in the year we proactive in supporting marine fl eet contributed to the construction of owners through their dry dock cycles; emergency quarantine facilities (pictured our technical and engineering service below). We were able to make our teams maintained their on-site presence advanced anti-corrosion coating with customers at ship and fabrication systems available in real time for six yards; and we helped oil and gas majors two-story buildings in Hong Kong, which maintain service continuity on projects provided 120 single rooms. Made of already underway. steel as ready-to-use modules, they featured our trusted Interzinc/Interseal/ We’ll continue working closely with Interthane anti-corrosion coating system customers to avoid service disruption to help protect the steel structure. and deliver on the commercialization of our product innovation. Although Mainland China was still in partial lockdown at the time, we reacted swiftly to supply essential products and services, enabling the Pak Heung emergency quarantine facility in Hong Kong to be completed as quickly as possible. 24 Strategy and operations | AkzoNobel Report 2020 “We adapted quickly and effectively to maintain the excellent levels of support our customers expect globally.” Jean Michel Gauthier, Director of Marine and Protective Coatings Key brands Revenue by destination in % C A B A EMEA B Americas C Asia Pacifi c 34 23 43 We’ve got the power! Early in the year, we supplied our trusted solutions for the largest operational offshore wind farm in Asia. Located just off the coast of Rudong county in Jiangsu province, China, the Huaneng Rudong wind farm is made up of 70 turbines, capable of producing in excess of 900 million kWh of electricity a year. Many of the wind farm assets are protected with advanced anti-corrosion coatings from our International range, which are specially designed for offshore performance. The offshore wind farm’s booster stations (pictured below) are also protected with our coatings, including the use of our renowned Chartek passive fire protection. These stations collect, maximize and transmit power generated by the turbines to the onshore grid. AkzoNobel Report 2020 | Strategy and operations 25 Built in 1901, the Ester was a maritime marvel and won dozens of competitions before an onboard fire unfortunately sank her in 1939. Decades later she was found on the seabed outside Örnsköldsvik in Sweden. We supplied our world renowned yacht coatings for the painstaking restoration, which has enabled her to start winning silverware again. The yacht took part in the Monaco Yacht Classic and won the 2019 Restoration Prize. Not bad for a vessel which spent nearly 75 years at the bottom of the sea. OTHER KEY DEVELOPMENTS • Acquired New Nautical Coatings, owner of the premium Sea Hawk brand, to increase our presence in the North American yacht coatings market • Continued to grow in the wind energy market, where we provide a one- stop solution for onshore and offshore wind projects, from foundations to blades • We maintained our leading position on key global LNG new construction projects and remain the supplier of choice with unique value propositions for assets operating in Arctic climates • We continued to expand our sustainability credentials by introducing lower VOC and solvent-free product technologies for protective and marine coating applications (Interzinc 52E, Interthane 990E and Intergard 9700) • Commercialization of new technology for our customers in the yacht industry continued. Our Awlfair SF spray fillers deliver best-in-class productivity and continue to be broadly adopted in the superyacht market • Made further investments in obtaining Environmental Product Declarations (EPDs) for green building applications, helping customers to achieve better sustainability rankings for their buildings • Continued to respond to shipyard needs for low VOC, high solids coating schemes with the launch of Intersmooth 7200, a new high- performance silyl methacrylate technology • Scaled up our digital marketing deployment, reaching out to more customers and more industry experts to overcome COVID-19 travel restrictions. We published more than 40 learning programs and professional courses, reaching nearly four million people • Expanded our brand presence through social media globally and introduced specific channels in China to support local market growth in marine and protective coatings POWDER COATINGS 2020 SUMMARY Revenue by destination in % We started the year in a strong position, but were soon impacted by COVID-19. The automotive segment was the most affected. However, we repositioned our efforts and made gains in the architectural and industrial segments to compensate. We then recovered strongly in the second half of the year and delivered excellent results, driven by robust sales. We showed extreme resilience and an ability to adapt, turning adversity into opportunity while taking good care of all our people. Revenue in € millions 1,214 1,229 1,128 2018 2019 2020 Key brands “I’m really proud we showed resilience in a year of extremes and were able to deliver excellent results.” Daniela Vlad, Director of Powder Coatings C A B A EMEA B Americas C Asia Pacifi c 45 20 35 2020 HIGHLIGHT We completed the acquisition of Stahl Performance Powder Coatings and its range of products for heat sensitive substrates, which has opened up exciting new market opportunities. The commercially ready technology we acquired is the only one of its kind in the powder coatings industry. It includes both UV and thermally curing powders and will enable us to penetrate the ultra- low cure (80-100°C) domain, opening up new markets based on applying powder to temperature sensitive substrates such as MDF, plywood, thermoplastics and composites. Powder on wood is a rapidly growing area within the coatings industry as customers look to embrace the sustainability benefi ts that powder has to offer. The technology we’ve acquired from Stahl (which uses less energy) is mainly focused on the furniture, architectural and industrial markets. 26 Strategy and operations | AkzoNobel Report 2020 POWDER COATINGS 2020 SUMMARY Revenue by destination in % We started the year in a strong position, but were soon impacted by COVID-19. The automotive segment was the most affected. However, we repositioned our efforts and made gains in the architectural and industrial segments to compensate. We then recovered strongly in the second half of the year and delivered excellent results, driven by robust sales. We showed extreme resilience and an ability to adapt, turning adversity into opportunity while taking good care of all our people. Revenue in € millions 1,214 1,229 1,128 2018 2019 2020 Key brands “I’m really proud we showed resilience in a year of extremes and were able to deliver excellent results.” C A B A EMEA B Americas C Asia Pacifi c 45 20 35 2020 HIGHLIGHT We completed the acquisition of Stahl Performance Powder Coatings and its range of products for heat sensitive substrates, which has opened up exciting new market opportunities. both UV and thermally curing powders and will enable us to penetrate the ultra- low cure (80-100°C) domain, opening up new markets based on applying powder to temperature sensitive substrates such as MDF, plywood, thermoplastics and composites. The commercially ready technology we Daniela Vlad, Director of acquired is the only one of its kind in the Powder Coatings powder coatings industry. It includes Powder on wood is a rapidly growing area within the coatings industry as customers look to embrace the sustainability benefi ts that powder has to offer. The technology we’ve acquired from Stahl (which uses less energy) is mainly focused on the furniture, architectural and industrial markets. OTHER KEY DEVELOPMENTS • Achieved a signifi cant recovery overall for the business, particularly in China in the second half of the year, following the COVID-19 outbreak • Added antimicrobial properties to our Interpon D1000 and 2000 range of architectural powder coatings. It means building interiors can now be given increased protection against microbes such as bacteria and mold • Launched a unique 3D color tool to help architects and specifi ers fi nd exactly the right product for their needs. By allowing people to rotate samples digitally and view them in the context of different environments, we can deliver a truly realistic impression of what the powder fi nish would look like in real life • Through our strong Resicoat brand and technology, we’re opening up new markets in electric vehicles, renewable energy and drinking water, which will help us capture future trends and opportunities • Introduced additions to our Interpon D2525 Flex line of products, the fi rst and only powder coatings range to combine the weatherability of superdurable powder coatings with the fl exibility or mechanical performance advantages of standard durable systems • Strengthened all our digital channels, including e-commerce. For example, we partnered with Prismatic Powders to enable customers to place orders for less than a single box of selected Interpon Ready-to-Ship (RTS) powders and have them shipped within three business days • Continued to invest in our factory footprint to keep up with increasing global demand for powder coatings • Started building a €20 million facility at our multi-site in Chungli, Taiwan. The fully automated plant will help us meet growing demand in many markets Expansion brings sustainable new life to historic building In September, we announced a €20 million investment at our Como site in Italy. The facility – our biggest plant in Europe for producing powder coatings – will house a major capacity expansion for the production of automotive products. It will additionally provide strategic back-up for our Arnsberg site in Germany (where a new line is also being added), helping to secure customer supply. The extra capacity in Como is being installed in a renovated building, ensuring a sustainable reuse of an historic part of the site. As well as introducing advanced equipment and technology to deliver higher productivity rates and effi ciency gains, the new operation in Como will also use heat recovery to reduce energy consumption. 26 Strategy and operations | AkzoNobel Report 2020 AkzoNobel Report 2020 | Strategy and operations 27 CASE STUDY PRISM program shines light on single ERP platform When we introduced our new paints and coatings organizational structure back in 2017, it set the requirement for a new IT architecture within AkzoNobel. This heralded the start of a multi- year program (called PRISM) to redesign and implement standard processes and a single platform to support them. PRISM is regarded as an important enabler of the company’s vision and strategy, because it’s helping to eradicate unnecessary complexity while introducing consistent and precise processes across the company. It aims to reduce costs, enhance effi ciency and transform the way of working across the organization. Phase 1 was completed in 2020 and, following its success, Phase 2 started in 2021 and will continue through to 2023. Effective roll-out During the program’s initiation, all the processes across our business units (BUs) and functions were reviewed and harmonized, while a level of standardization and centralization was also defi ned. To help ensure an effective roll-out, we appointed Global Process Owners (GPOs) for the specifi c process areas to oversee standardization and optimization. The PRISM program formally started being introduced in 2018. It replaced the fragmented and BU-oriented application landscape with a single business platform. It’s set up on a multi-region basis, which involves projects being rolled out and implemented in parallel. The virtual program operates in several regions with a 200-strong team. The methodology from previous ERP implementations and acquisitions is further enhanced and industrialized and is a key asset in rolling out the process standardization. In light of the COVID-19 pandemic, the roll-outs have continued in a remote way. Following the completion of Phase 1, more than 85% of total revenue runs on SAP driven platforms, and 65% of revenue is covered by one single SAP platform, powered by HANA technology. The further consolidation of platforms into one single SAP platform enables us to standardize, integrate and harmonize processes and deliver additional digital initiatives, consistent customer interactions and a truly integrated supply chain. Phase 2 started in China, with further roll-outs planned in Asia, Europe, Africa and the Americas. This will add another 12% of total revenue on one single SAP platform with integrated solutions for formula management and product data sheets. 28 “PRISM is an important enabler for precise processes and un- locking value in the company.” Pabus Vos, PRISM Program Director PRISM program shines light on single ERP platform CASE STUDY When we introduced our new paints and coatings organizational structure back in 2017, it set the requirement for a new IT architecture within AkzoNobel. This heralded the start of a multi- year program (called PRISM) to redesign and implement standard processes and a single platform to support them. PRISM is regarded as an important enabler of the involves projects being rolled out and implemented company’s vision and strategy, because it’s in parallel. The virtual program operates in several helping to eradicate unnecessary complexity while regions with a 200-strong team. introducing consistent and precise processes across the company. It aims to reduce costs, enhance The methodology from previous ERP implementations effi ciency and transform the way of working across and acquisitions is further enhanced and industrialized Phase 1 was completed in 2020 and, following its the roll-outs have continued in a remote way. success, Phase 2 started in 2021 and will continue and is a key asset in rolling out the process standardization. In light of the COVID-19 pandemic, Following the completion of Phase 1, more than 85% of total revenue runs on SAP driven platforms, and 65% of revenue is covered by one single SAP the organization. through to 2023. Effective roll-out During the program’s initiation, all the processes across platform, powered by HANA technology. The further our business units (BUs) and functions were reviewed consolidation of platforms into one single SAP platform and harmonized, while a level of standardization and enables us to standardize, integrate and harmonize centralization was also defi ned. To help ensure an processes and deliver additional digital initiatives, effective roll-out, we appointed Global Process Owners consistent customer interactions and a truly integrated (GPOs) for the specifi c process areas to oversee supply chain. standardization and optimization. The PRISM program formally started being introduced in Asia, Europe, Africa and the Americas. This will in 2018. It replaced the fragmented and BU-oriented add another 12% of total revenue on one single application landscape with a single business SAP platform with integrated solutions for formula platform. It’s set up on a multi-region basis, which management and product data sheets. Phase 2 started in China, with further roll-outs planned “PRISM is an important enabler for precise processes and un- locking value in the company.” Pabus Vos, PRISM Program Director SUSTAINABILITY STATEMENTS This section explains our sustainability performance in more detail. It explains our ambitions, outlines our approach to creating shared value and shows our performance on key economic, environmental and social indicators. Our approach to sustainable business People Note 1: Employees Note 2: Health and safety Note 3: AkzoNobel Cares Note 4: Human rights Planet Note 5: Reducing carbon emissions Note 6: Towards a zero waste company Note 7: Responsible procurement Paint Note 8: Sustainable solutions and customer value Managing sustainability Sustainability performance summary 30 32 33 34 36 37 39 41 42 44 46 47 50 52 For additional information, visit: https://www. akzonobel.com/en/about-us/sustainability- The indicators that fall within the scope of limited assurance of our external auditor are marked with the following symbol: See page 138 for the Assurance report of the independent auditor, which includes details on scoping and outcomes. 28 29 Herbert Brandl | Untitled | 2000 | oil paint on canvas | 120 x 100 cm | Collection AkzoNobel Art Foundation SUSTAINABILITY Our approach to sustainable business PEOPLE Ambitions PLANET Ambitions PAINT Ambitions Moving towards zero waste Sustainability is one of our core values and is integrated in everything we do. We strive to lead our industry by pioneering a world of possibilities to empower people and reduce our impact on the planet, while consistently innovating to deliver the most sustainable solutions for our customers. That’s why we call our approach to sustainable business “People. Planet. Paint.” People: We act with integrity and respect human rights across our operations and value chain, embracing diversity and inclusion, to transform the communities in which we operate. Planet: We minimize our environmental footprint, reducing carbon emissions and moving towards zero waste by pioneering increasingly sustainable solutions and processes. Paint: We constantly innovate to bring surfaces to life by offering our customers the most sustainable solutions that go beyond generations. Our approach to sustainable business is also designed to contribute to the global agenda represented by the United Nations Sustainable Development Goals. We believe our products and ongoing innovation can have the biggest impact on the following goals: Top quartile in organizational health score >1,000 projects to help revitalize communities by 2025 >35,000 members of local communities trained by 2025 Zero injuries through operational excellence >30% Female executives by 2025 2020 performance 2020 performance 2020 performance Organizational health score 69 21% Female executives + Safety (TRR)* 0.23 + Community projects 170 + Community members trained 2,669 www.akzonobel.com/ en/about-us/sustainability- * Number includes AkzoNobel employees and temporary workers 30 Sustainability statements | AkzoNobel Report 2020 50% less carbon emissions by 2030* 100% renewable electricity by 2030 >30% energy reduction by 2030 100% reusable waste by 2030 100% of our most water intensive sites reusing water by 2030 ++ Carbon reduction* 19% ++ Renewable electricity 40% + Energy reduction* ++ Waste reuse 4% 58% * Reduction compared with 2018 baseline ++ Ahead of schedule + On schedule 50% recycled content to be used in its plastic packaging by Deco Europe by 2025 + Sustainable solutions 40% SUSTAINABILITY Our approach to sustainable business PEOPLE PEOPLE PEOPLE Ambitions Ambitions Ambitions Sustainability is one of our core values and is integrated in everything we do. We strive to lead our industry by pioneering a world of possibilities to empower people and reduce our impact on the planet, while consistently innovating to deliver the most sustainable solutions for our customers. That’s why we call our approach to sustainable business “People. Planet. Paint.” People: We act with integrity and respect human rights across our operations and value chain, embracing diversity and inclusion, to transform the communities in which we operate. Planet: We minimize our environmental footprint, reducing carbon emissions and moving towards zero waste by pioneering increasingly sustainable solutions and processes. Paint: We constantly innovate to bring surfaces to life by offering our customers the most sustainable solutions that go beyond generations. Our approach to sustainable business is also designed to contribute to the global agenda represented by the United Nations Sustainable Development Goals. We believe our products and ongoing innovation can have the biggest impact on the following goals: Top Top Top quartile quartile quartile in organizational in organizational in organizational health score health score health score >30% >30% >30% Female Female Female executives executives executives by 2025 by 2025 by 2025 >1,000 projects to help >1,000 projects to help >1,000 projects to help revitalize communities revitalize communities revitalize communities by 2025 by 2025 by 2025 >35,000 members of local >35,000 members of local >35,000 members of local communities trained by 2025 communities trained by 2025 communities trained by 2025 Zero injuries through Zero injuries through Zero injuries through operational excellence operational excellence operational excellence Organizational Organizational Organizational health score health score health score 69 69 69 Female executives Female executives Female executives 21% 21% 21% + Safety (TRR)* + Safety (TRR)* + Safety (TRR)* 0.23 0.23 0.23 + Community projects 170 + Community projects 170 + Community projects 170 + Community + Community + Community members trained members trained members trained 2,669 2,669 2,669 PLANET PLANET PLANET Ambitions Ambitions Ambitions Moving Moving Moving towards towards towards zero waste zero waste zero waste PAINT PAINT PAINT Ambitions Ambitions Ambitions >50% of revenue from sustainable solutions by 2030 50% 50% 50% less carbon less carbon less carbon emissions emissions emissions by 2030* by 2030* by 2030* 100% renewable 100% renewable 100% renewable electricity by 2030 electricity by 2030 electricity by 2030 >30% energy reduction >30% energy reduction >30% energy reduction by 2030 by 2030 by 2030 100% reusable waste by 2030 100% reusable waste by 2030 100% reusable waste by 2030 100% of our most water 100% of our most water 100% of our most water intensive sites reusing water intensive sites reusing water intensive sites reusing water by 2030 by 2030 by 2030 50% recycled content to be 50% recycled content to be 50% recycled content to be used in its plastic packaging used in its plastic packaging used in its plastic packaging by Deco Europe by 2025 by Deco Europe by 2025 by Deco Europe by 2025 2020 performance 2020 performance 2020 performance 2020 performance 2020 performance 2020 performance 2020 performance 2020 performance 2020 performance ++ ++ ++ Carbon reduction* Carbon reduction* Carbon reduction* 19% 19% 19% + Sustainable + Sustainable + Sustainable solutions 40% solutions 40% solutions 40% + + + Energy reduction* Energy reduction* Energy reduction* 4% 4% 4% Renewable electricity Renewable electricity Renewable electricity Waste reuse Waste reuse Waste reuse 40% 40% 40% 58% 58% 58% ++ ++ ++ ++ ++ ++ www.akzonobel.com/ en/about-us/sustainability- * Number includes AkzoNobel employees and * Number includes AkzoNobel employees and * Number includes AkzoNobel employees and temporary workers temporary workers temporary workers * Reduction compared with * Reduction compared with 2018 baseline 2018 baseline * Reduction compared with 2018 baseline ++ Ahead of schedule ++ Ahead of schedule ++ Ahead of schedule + On schedule + On schedule + On schedule 30 Sustainability statements | AkzoNobel Report 2020 AkzoNobel Report 2020 | Sustainability statements 31 PEOPLE Our approach to “People” covers many different aspects. It’s about ensuring a safe work environment, developing our talented workforce, embracing our values and our approach to human rights and diversity. It also includes the numerous local projects we carry out through our AkzoNobel Cares societal program, which offer signifi cant benefi ts to people and communities around the world. The external recognition we continue to receive indicates that we’re on the right track. We’ve been actively participating in several assessments for many years, with some of our main achievements and rankings outlined below: Rating agency Key achievement Sustainalytics We’re considered a “low risk” company, which is the best performance level in the chemical industry MSCI We’ve received the highest possible rating (AAA) for fi ve consecutive years FTSE4Good We’ve maintained our score and have been well above the industry average for fi ve consecutive years EcoVadis ISS Oekom ChemScore We were awarded a Platinum rating in the latest review, placing us in the top 1% in the industry We received a score of B- as of April 2020, which makes us part of the top 10% in the industry We’re the highest ranked paints and coatings company – and in third place overall. AkzoNobel was also one of only four companies to receive a special mention for being “ahead of the rest” when it comes to green chemistry and the development of safer chemicals Collaborations We’re aware that we can’t drive the sustainability agenda by ourselves. So we seek out collaborations, for example by being an active member of various associations and organizations. Mandate. As a member of the UN Global Alliance to Eliminate Lead in Paint, we were the fi rst major paint company to eliminate lead pigments and driers in all our paint products and continue to do so when we acquire new companies. Climate Group initiative), which aims to move towards 100% renewable energy. We report the progress on our RE100 target annually, which in turn is published in their annual report as part of an overview of progress by all members. World Green Building Council On a global level, we’re a member of the WGBC’s Corporate Advisory Board (CAB). We’re also a member of various local Green Building Councils (GBCs), for example in South East Asia and the Middle East. United Nations Global Compact We’ve been a signatory of the UN Global Compact since 2004 and communicate about our progress on an annual basis. We’re also a signatory to the Responsible Care® Global Charter and the CEO Water Together for Sustainability As a Together for Sustainability (TfS) member, we contribute to its development, growth and success, for example by actively participating in workstreams and decision- making bodies. We’ve been part of the third party audit workstream for many years and now contribute to the new greenhouse gas Scope 3 workstream, where we use the leverage of the industry initiative to create awareness and reach suppliers on a larger scale. RE100 Since 2017, we’ve been a member of the RE100 (a Dutch Sustainable Growth Coalition We’re part of a broad coalition of Dutch companies to continue focusing on sustainability while using the UN SDGs as a guiding compass to defi ne and measure our efforts. This will not only help us to mitigate climate risks, but will also enable us to create a more resilient economy and a more inclusive society. We endorse a strong focus on sustainability – such as the EU Green Deal – as one of the cornerstones of the COVID-19 recovery plan, while continuing to provide long-term certainty regarding the Dutch climate agreement and measurable commitments. 32 Sustainability statements | AkzoNobel Report 2020 Our approach to “People” covers many different aspects. It’s about ensuring a safe work environment, developing our talented workforce, embracing our values and our approach to human rights and diversity. It also includes the numerous local projects we carry out through our AkzoNobel Cares societal program, which offer signifi cant benefi ts to people and communities around the world. The external recognition we continue to assessments for many years, with some of receive indicates that we’re on the right track. our main achievements and rankings outlined PEOPLE We’ve been actively participating in several below: Rating agency Key achievement Sustainalytics We’re considered a “low risk” company, which is the best performance level in the chemical industry MSCI We’ve received the highest possible rating (AAA) for fi ve consecutive years FTSE4Good We’ve maintained our score and have been well above the industry average for fi ve consecutive years EcoVadis ISS Oekom ChemScore We were awarded a Platinum rating in the latest review, placing us in the top 1% in the industry We received a score of B- as of April 2020, which makes us part of the top 10% in the industry We’re the highest ranked paints and coatings company – and in third place overall. AkzoNobel was also one of only four companies to receive a special mention for being “ahead of the rest” when it comes to green chemistry and the development of safer chemicals Collaborations Mandate. As a member of Climate Group initiative), which We’re aware that we can’t the UN Global Alliance to aims to move towards 100% drive the sustainability agenda Eliminate Lead in Paint, we renewable energy. We report by ourselves. So we seek out were the fi rst major paint the progress on our RE100 collaborations, for example company to eliminate lead target annually, which in turn by being an active member pigments and driers in all our is published in their annual of various associations and paint products and continue report as part of an overview organizations. to do so when we acquire of progress by all members. new companies. Dutch Sustainable Growth Coalition World Green Building Together for Sustainability Council As a Together for Sustainability On a global level, we’re a (TfS) member, we contribute We’re part of a broad member of the WGBC’s to its development, growth coalition of Dutch companies Corporate Advisory Board and success, for example to continue focusing on (CAB). We’re also a member by actively participating in sustainability while using of various local Green Building workstreams and decision- the UN SDGs as a guiding Councils (GBCs), for example making bodies. We’ve been compass to defi ne and in South East Asia and the part of the third party audit measure our efforts. This will Middle East. workstream for many years not only help us to mitigate United Nations Global Compact and now contribute to the climate risks, but will also new greenhouse gas Scope enable us to create a more 3 workstream, where we use resilient economy and a the leverage of the industry more inclusive society. We initiative to create awareness endorse a strong focus on We’ve been and reach suppliers on a sustainability – such as the a signatory of the UN Global larger scale. Compact since 2004 and communicate about our progress on an annual basis. We’re also a signatory to the RE100 EU Green Deal – as one of the cornerstones of the COVID-19 recovery plan, while continuing to provide long-term certainty regarding the Dutch climate Responsible Care® Global Since 2017, we’ve been a agreement and measurable Charter and the CEO Water member of the RE100 (a commitments. Note 1 Employees As part of our 2025 ambitions, we want to be top quartile in our organizational health score (OHI) and have at least 30% female executives in the company. Attracting, developing and retaining talent In 2020, we continued to receive recognition as a leading employer in many of our key countries, including Brazil, China, France, the Netherlands, Poland, Sweden, the UK and the US. As part of our ongoing journey to build a sustainable and diverse leadership pipeline, we focused on identifying and planning development actions for our top talent. This included agile talent redeployment across businesses, roll- out of our “Grow to lead” talent program and succession planning at top levels of the company. Overall employee turnover in 2020 was 13% (2019: 14%); voluntary turnover was 5% (2019: 7%). As we continued our transformation journey, we also saw the impact of uncertainty caused by COVID-19, especially in lower voluntary turnover. Capability building to drive our 2020 ambitions To support our employees during the COVID-19 pandemic, we offered several educational resources around mental health, resilience and social and emotional skills. We also accelerated our ambition to future- proof all learning solutions by redesigning our classroom-based learning to include digital versions, as well as ensuring our internal trainers are skilled in virtual delivery. We continue to deploy our Leadership Essentials program across the company to provide people managers with the right tools to build a high-performing culture within their teams. Organizational health score (OHI) 2019 2020 Ambition 2025 Strong progress on diversity and inclusion We’re developing an increasingly engaged, diverse and capable workforce, with a focus on ensuring management teams refl ect the diversity of our employees. We made signifi cant progress in 2020 on our key diversity and inclusion (D&I) commitments. We completed the roll-out of our online D&I training curriculum – designed to increase awareness around unconscious bias in the workplace – and launched the “I Belong” inclusive leadership guide to help people managers lead in an inclusive way. We also introduced monthly D&I broadcasts covering gender diversity, race and ethnicity, people with diverse abilities and LGBTI+ inclusion. We don’t tolerate discrimination in any form, including racism. In 2020, events in the US and around the world stimulated even more self-refl ection from our side. We have held – and will continue to hold – people accountable. Taking a stand is a beginning, but we know it will require ongoing attention and dedication. Our global Women Inspired Network has grown signifi cantly since its launch in early 2020, with various local chapters being established. Meanwhile, our True Colors network – focused on leading inclusion for lesbian, gay, bisexual, transgender and intersex colleagues – continued to grow. We signed the Declaration of Amsterdam and also participated in the Workplace Pride Benchmark – in which we were recognized for notable performance in awareness and engagement. The launch of our program to strengthen the senior female leadership pipeline – an area where we’re still facing challenges to deliver meaningful improvements – was a substantial part of our commitment to increase the percentage of female leaders to 30% by 61 74 69 Female executives in % 2019 2020 Ambition 2025 18 21 30 2025. We introduced a D&I scorecard and action plan for all our business units and functional management teams, and launched different development options for women with leadership potential. We also collaborated with the European Round Table (ERT), having submitted a case study around Increasing Female Representation at Senior Executive levels. This was part of their #EmbraceDifference pledge, signed by our Chairman of the Supervisory Board, Nils Smedegaard Andersen. Our close link with the ERT opened up discussions around race and ethnicity in the workplace and we proactively took a stand, incorporating it in our D&I focus for 2021. Change management key to a healthy organization Our ambitious Winning together: 15 by 20 transformation was successfully realized by the end of the year, with some projects set to continue during 2021. We’re now preparing to embark on a new journey to support our Grow & Deliver strategy. The right balance between performance and organizational health will be an instrumental part of that journey to ensure that our transformation has a lasting impact. A more detailed account of how we achieved our Winning together: 15 by 20 ambition can be found on page 6. 32 Sustainability statements | AkzoNobel Report 2020 AkzoNobel Report 2020 | Sustainability statements 33 Note 2 Health and safety Our vision is to achieve zero injuries and harm through operational excellence. As one of our core values, health and safety underpins our tireless commitment to creating a safe workplace and delivering leading safety performance. We do this by consistently applying leading programs and processes in the areas of people, product and process safety. We report, analyze and learn from all our health and safety incidents to continuously improve our safety performance. In order to deliver leading and sustainable performance and strengthen our commitment-based safety culture, we also invest in visible safety leadership and employee engagement initiatives. Our strategic Health, Safety, Environment and Security (HSE&S) priorities are focused on driving: • Continuous improvement of standardized HSE&S processes to achieve leading maturity levels • The implementation of an integrated HSE&S management system • A commitment-based HSE&S culture embedding operational excellence to achieve our vision of zero injuries and harm Our leading HSE&S management system drives continuous improvement through operational excellence in all aspects of HSE&S. This includes company-wide standards, regular performance reviews, systematic data analysis, root cause analyses of incidents, training, self-assess- ments, annual improvement planning, independent internal audit and on-time action closure. It also incorporates promoting learning a cross the organization, including best practice sharing. Our corporate HSE&S management system is globally certifi ed to ISO 14001 and OHSAS 18001 standards, with ongoing transfer to ISO 45001. Compliance assurance is one of our key HSE&S priorities. It’s particularly relevant to ensuring our license to operate and our business continuity, considering the fast-changing regulatory environment we operate in. We take a proactive approach to implementing any necessary changes, from both a risk mitigation and advocacy perspective. In 2020, we confi gured and implemented a company-wide digital compliance assurance process. It includes a regulatory monitoring and alert system, along with a self-assessment tool which ensures we’re compliant with existing regulatory frameworks and up-to- date with the latest changes, as well as enabling proactive response to new requirements. Responding to COVID-19 When COVID-19 fi rst surfaced in China, we activated our North Asia regional crisis management, supported by the global organization, Integrated Supply Chain and the functional teams. As the pandemic began to spread worldwide, we set up a global crisis management team, as well as regional crisis teams. COVID-19 guidance and requirements regarding employee health and safety – including emergency escalation and response plans – were developed and deployed globally. Strong cross-functional and global/regional collaboration and alignment enabled successful management of our response to the pandemic. Our global COVID-19 health and safety guidelines included: • Workplace guidelines • Guidelines for commercial teams, including customer visits • Safe work from home • SAQ (self-assessment questionnaire) • Behavior-based safety (BBS) “adapted” to COVID-19 • Travel guidance Our organizational health continued to be surveyed in 2020, with all employees asked for their input. This resulted in an organizational health score (OHI) of 69 (2019: 61), taking the overall company score to the second quartile. In total, 87% of employees indicated they really care about the company, with 86% willing to go beyond what’s normally expected to help AkzoNobel be successful. Based on insights from 2019’s survey, we developed a program During the year, our CEO, Thierry Vanlancker, signed the Declaration of Amsterdam. Organized by Workplace Pride, signing the declaration is a visible and very positive way to show our support for LGBTI+ inclusion. for leadership teams to support their transformation journey in making us a high-performing organization. Due to COVID-19, we made a signifi cant part of this program virtual to make it easier to manage teams at a distance. Along with various initiatives, this led to an overall top decile OHI score for the executive group. The OHI scores for our middle management, individual contributors and frontline personnel also improved signifi cantly. However, the gap between these groups and the very high scoring executive population increased. We’ll address this in our future planning. As our journey continues, we’ve updated our behaviors to better refl ect and support our Grow & Deliver strategy and company purpose. An implementation plan is in place, providing a toolkit for managers. We’ll evaluate the adoption rate and progress at the end of 2021. 34 Sustainability statements | AkzoNobel Report 2020 Note 2 Health and safety Our organizational health continued to be surveyed in 2020, with all employees asked for their input. This resulted in an organizational health score (OHI) of 69 (2019: 61), taking the overall company score to the second quartile. In total, 87% of employees indicated Our vision is to achieve zero injuries and harm through operational excellence. globally certifi ed to ISO 14001 and OHSAS 18001 standards, with ongoing transfer to ISO 45001. Compliance assurance is one of our key HSE&S priorities. It’s particularly relevant to ensuring our license to operate and they really care about the company, As one of our core values, health and our business continuity, considering the with 86% willing to go beyond what’s safety underpins our tireless commitment fast-changing regulatory environment normally expected to help AkzoNobel to creating a safe workplace and we operate in. We take a proactive be successful. Based on insights from delivering leading safety performance. approach to implementing any necessary 2019’s survey, we developed a program changes, from both a risk mitigation and We do this by consistently applying advocacy perspective. leading programs and processes in the areas of people, product and process In 2020, we confi gured and implemented safety. We report, analyze and learn a company-wide digital compliance from all our health and safety incidents assurance process. It includes a to continuously improve our safety regulatory monitoring and alert system, performance. along with a self-assessment tool which ensures we’re compliant with existing In order to deliver leading and regulatory frameworks and up-to- sustainable performance and strengthen date with the latest changes, as well our commitment-based safety culture, as enabling proactive response to we also invest in visible safety leadership new requirements. and employee engagement initiatives. During the year, our CEO, Thierry Vanlancker, signed the Declaration of Amsterdam. Organized by Workplace Pride, signing the declaration is a visible and very positive way to show our support for LGBTI+ inclusion. Our strategic Health, Safety, Environment and Security (HSE&S) priorities are Responding to COVID-19 focused on driving: When COVID-19 fi rst surfaced in China, • Continuous improvement of we activated our North Asia regional crisis standardized HSE&S processes to management, supported by the global for leadership teams to support their achieve leading maturity levels organization, Integrated Supply Chain and the transformation journey in making us a • The implementation of an integrated functional teams. As the pandemic began high-performing organization. Due to HSE&S management system to spread worldwide, we set up a global COVID-19, we made a signifi cant part of • A commitment-based HSE&S culture crisis management team, as well as regional this program virtual to make it easier to embedding operational excellence to crisis teams. manage teams at a distance. Along with achieve our vision of zero injuries various initiatives, this led to an overall and harm top decile OHI score for the executive COVID-19 guidance and requirements regarding employee health and safety – including emergency group. The OHI scores for our middle Our leading HSE&S management escalation and response plans – were developed management, individual contributors system drives continuous improvement and deployed globally. Strong cross-functional and frontline personnel also improved through operational excellence in and global/regional collaboration and alignment signifi cantly. However, the gap between all aspects of HSE&S. This includes enabled successful management of our response these groups and the very high scoring company-wide standards, regular to the pandemic. Our global COVID-19 health and executive population increased. We’ll performance reviews, systematic safety guidelines included: address this in our future planning. data analysis, root cause analyses • Workplace guidelines of incidents, training, self-assess- • Guidelines for commercial teams, including As our journey continues, we’ve updated ments, annual improvement planning, customer visits our behaviors to better refl ect and independent internal audit and • Safe work from home support our Grow & Deliver strategy and on-time action closure. It also • SAQ (self-assessment questionnaire) company purpose. An implementation incorporates promoting learning a • Behavior-based safety (BBS) “adapted” to plan is in place, providing a toolkit for cross the organization, including COVID-19 managers. We’ll evaluate the adoption best practice sharing. Our corporate • Travel guidance rate and progress at the end of 2021. HSE&S management system is 34 Sustainability statements | AkzoNobel Report 2020 SUSTAINABILITY HSE&S audits are performed in three- year (high hazard sites) to fi ve-year (other sites) cycles. Despite COVID-19, the complete 2020 audit plan was performed, with most of the 28 audits being carried out remotely due to travel restrictions. People safety In 2020, the total reportable rate (TRR) improved to 0.23 (2019: 0.24), slightly above the target level set for 2020 (0.20). In total, 81% of our locations and 72% of our manufacturing sites have been reportable injury-free for over a year. The most frequent causes of reportable injuries are “slips, trips and falls”, “struck by or caught in-between objects” and “manual handling”. The most frequent injuries are strains/sprains, cuts/ lacerations and fractures. Although the TRR decreased, the severity of injuries increased slightly. This is refl ected in the lost time injury rate for employees including temporary workers (LTIR), which was 0.09 (2019: 0.08). Although safety is paramount within our company, a signifi cant safety incident occurred in Felling, UK, which triggered actions to further drive continuous improvement towards operational excellence. To help us achieve year-on-year improvement in safety performance, we’ve introduced a number of focused programs, in addition to our yearly HSE&S Common Platform program: • Top three injuries safety program, which has driven a 30% and 45% injury reduction • HSE&S dedicated country networks in the four countries that contributed 44% of the total reportable injuries (TRI) – achieved a 47% reduction in TRI compared with 2019 • Implementation of global and site specifi c leading performance indicators, moving the focus from lagging to leading KPIs. This has been critical in further driving visible leadership and employee involvement, leading to proactive injury prevention and a stronger commitment-based safety culture Total reportable injury rate employees/ temporary workers • Reinforcement of our “Learning from incidents” program to include early warning alerts • Tracking on-time action closure for critical HSE&S actions (as part of leading KPIs) • Safe driver program, with a focus on those using two and four wheels • Redesign of the self-assessment questionnaire (SAQ) – which assesses the maturity of HSE&S program implementation and specifi c requirements at sites – and a review of the framework for our global audit program. We’ve also invested in developing visible safety leadership and employee engagement initiatives The number of contractor reportable injuries was slightly lower in 2020, resulting in a reportable injury rate of 0.17 (2019: 0.19). The contractors lost time injury rate increased to 0.11 (2019: 0.09). 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. Process safety The number of losses of primary containment (LOPC incidents) decreased in 2020. However, based on an analysis of the 2020 process safety events, and considering the nature of the processes and materials we use, we initiated a dedicated Process Safety Management (PSM) improvement project, designed to strengthen our PSM program and processes to achieve leading standards in process safety. Health We continue to actively manage occupational illness-related absente- eism, as part of our commitment to 0.20 0.20 0.24 0.23 2017 2018 2019 2020 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. Lost time injury rate employees/ temporary workers 0.09 0.08 0.09 0.06 2017 2018 2019 2020 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. Total reportable injury rate contractors 0.18 0.19 0.17 0.12 2017 2018 2019 2020 The total reportable injury rate contractors is the number of contractor injuries resulting in medical treatment cases, restricted work cases, lost time injuries or fatalities, per 200,000 hours worked. Lost time injury rate contractors 0.11 0.09 0.06 0.07 2017 2018 2019 2020 The contractors lost time injury rate (LTlR) is the number of contractor injuries resulting in a lost time case, per 200,000 hours worked. Process safety events Loss of primary containment – Level 1 Loss of primary containment – Level 2 Process safety event – Level 3 2019 2020 3 64 970 6 52 1,250 A loss of primary containment is an unplanned release of material, product, raw material or energy to the environment (including those resulting from human error). Loss of primary containment incidents are divided into three categories, dependent on severity, from small, on-site spill/near misses up to Level 1 – a signifi cant escape. AkzoNobel Report 2020 | Sustainability statements 35 Note 3 AkzoNobel Cares We aim to have more than 1,000 projects across our AkzoNobel Cares program and train more than 35,000 people in the community by 2025. For many years, our social programs have shown the world that AkzoNobel cares. As well as simply being the right thing to do, supporting people and communities and building employee pride also strengthens our reputation. It’s delivering shared value for everyone. Due to the global pandemic, during 2020 we shifted our attention to support local communities with their urgent needs (see Business as unusual on page 10). Our biggest community projects took place in India, Brazil and the UK. We distributed critical items such as food, hygiene kits and personal protective equipment (PPE) to various communities in need. For example, during lockdown in India, our employees distributed dry food kits to daily wage laborers and PPE to health workers and the frontline police force. Meanwhile, colleagues in the UK focused in particular on supporting the needs of the elderly and vulnerable, providing help for homeless shelters, foodbanks, hospices and children’s well- being groups. It’s ten years since we fi rst launched our global “Let’s Colour” program and we continue to transform lives by revitalizing communities and making spaces more liveable and inspiring. Projects that took place during 2020 saw us use more than 260,000 liters of paint to color communities in 27 countries – including Recife in Brazil and Bandung in Indonesia – while we also renovated an SOS Children’s Villages kindergarten in Ho Chi Minh City, Vietnam. To strengthen our focus on training future generations, we extended our partnership with SOS Children’s Villages for another three years. As a member of the global YouthCan! initiative, we have so far worked together in 18 countries to advance the employa- bility of young people without parental SUSTAINABILITY Process safety events (PSE) pyramid Levels 1 2 3 4 PSE PSE PSE PSE below threshold PSE below th (of Level 2) and (of Level 2) and near misses Operational discipline Operational discipline 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. providing a safe working environment and healthy work conditions for all our employees. Based on the analysis of the Industrial Hygiene (IH) baseline survey launched in 2019, a harmonized, company-wide carcinogenic, mutagenic and reprotoxic (CMR) chemical management guideline has been developed, to be launched in 2021. In order to continue building the IH competencies of our HSE&S professionals at local and regional level, a second edition of our IH awareness online training program was introduced. We also launched a global physical and mental well-being health campaign for managers and employees to help prevent the risk of increased occupational illness due to COVID-19. Employee health occupational illness rate 0.06 0.06 0.05 0.03 2017 2018 2019 2020 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. During the year, we extended our global partnership with SOS Children’s Villages for another three years. Part of our “Let’s Colour” initiative, the collaboration has already benefi ted more than 20,000 children and young people all over the world. It will now continue to offer more practical skills training and the renewal of living spaces to give vulnerable young people and families at risk greater hope for a brighter future. 36 Sustainability statements | AkzoNobel Report 2020 SUSTAINABILITY Process safety events (PSE) pyramid Levels 1 2 3 4 PSE PSE PSE PSE below threshold PSE below th (of Level 2) and (of Level 2) and near misses 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. We aim to have more than 1,000 projects across our AkzoNobel Cares program and train more than 35,000 people in the community by 2025. in India, our employees distributed dry food kits to daily wage laborers and PPE to health workers and the frontline police force. Meanwhile, colleagues in the UK focused in particular on supporting the needs of the elderly and vulnerable, providing help for homeless shelters, foodbanks, hospices and children’s well- being groups. It’s ten years since we fi rst launched our For many years, our social programs global “Let’s Colour” program and we have shown the world that AkzoNobel continue to transform lives by revitalizing thing to do, supporting people and liveable and inspiring. Projects that communities and building employee took place during 2020 saw us use pride also strengthens our reputation. more than 260,000 liters of paint to It’s delivering shared value for everyone. color communities in 27 countries – Due to the global pandemic, during Indonesia – while we also renovated an 2020 we shifted our attention to support SOS Children’s Villages kindergarten in including Recife in Brazil and Bandung in Operational discipline Operational discipline cares. As well as simply being the right communities and making spaces more providing a safe working environment local communities with their urgent Ho Chi Minh City, Vietnam. and healthy work conditions for all needs (see Business as unusual on our employees. page 10). To strengthen our focus on training future generations, we extended our Based on the analysis of the Industrial Our biggest community projects took partnership with SOS Children’s Villages Hygiene (IH) baseline survey launched place in India, Brazil and the UK. We for another three years. As a member in 2019, a harmonized, company-wide distributed critical items such as food, of the global YouthCan! initiative, carcinogenic, mutagenic and reprotoxic hygiene kits and personal protective we have so far worked together in (CMR) chemical management guideline equipment (PPE) to various communities 18 countries to advance the employa- has been developed, to be launched in need. For example, during lockdown bility of young people without parental in 2021. In order to continue building the IH competencies of our HSE&S professionals at local and regional level, a second edition of our IH awareness online training program was introduced. We also launched a global physical and mental well-being health campaign for managers and employees to help prevent the risk of increased occupational illness due to COVID-19. Employee health occupational illness rate 0.06 0.06 0.05 0.03 2017 2018 2019 2020 Occupational illness frequency rate (OIFR) is the total number of reportable Colour” initiative, the collaboration has already benefi ted more than 20,000 children and young people all over the world. It occupational illness cases for the reporting period, per 1,000,000 hours worked. will now continue to offer more practical skills training and the renewal of living spaces to give vulnerable young people and This parameter is reportable for employees. families at risk greater hope for a brighter future. During the year, we extended our global partnership with SOS Children’s Villages for another three years. Part of our “Let’s Note 3 AkzoNobel Cares Note 4 Human rights We understand that through our roles as employer, manufacturer, business partner and member of many communities, we can potentially both directly and indirectly impact the lives of millions of people. While we’re committed to making a positive impact through our products and programs, we’re also aware of the potential negative impact we may cause, contribute to, or be linked to. We recognize the responsibility we have to respect the human rights of people in our value chain and the infl uence we can have on bringing about improvements. As part of our core values of safety, integrity and sustainability, we’re 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 Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises. At the same time, we expect all our business partners to respect human rights and apply equivalent principles, seeking to support them actively in their implementation where needed. Salient human rights issues While we respect and treat all human rights equally, we’ve prioritized certain activities based on risk. These priorities were established following internal and external stakeholder engagement. They are: 1 Health and safety in our value chain 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 2. Through our priority substance program (see Note 8), we screen thousands of raw materials. We’ve also initiated due diligence on the impact we have on the communities around our sites. 2 Working conditions for our employees We’re committed to providing good working conditions for our employees and those working at, or visiting, our sites. We’ve conducted due diligence and issued company-wide standards for working hours, which are being implemented throughout the organization. We’ve also conducted due diligence on the compensation we offer our employees versus international living wage standards for the ten high risk countries. The initial results show 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 work is ongoing. EcoVadis recognition We’re proud to have been awarded the EcoVadis Platinum Medal in recognition of our commitment to acting responsibly by integra- ting social and environmental concerns into our business operations. The comprehensive methodology considers four key pillars that align with our People. Planet. Paint. approach to sustainable business: Environment; Labor and Human Rights; Ethics; and Sustainable Procurement. We further improved in Labor and Human Rights and scored highly in the other pillars. We also continue to demonstrate our leading position in other industry rankings, such as Sustainalytics and MSCI (see page 32). care, or those who are at risk of losing it. In 2020, we used online mentoring and training as a way to empower them with the employability skills they need for self-reliance. One example took place in Indonesia, where virtual mentoring sessions themed around dealing with life after COVID-19 reached hundreds of young people across nine SOS Children’s Villages. Through our Education Fund, we continued to support STEM (Science, Technology, Engineering and Mathematics) training in China and youth economic empowerment and entrepreneurship training in India. During the year, some activities were put on hold as schools were closed due to COVID-19. However, regular contact was maintained with the students through mobile and online sessions. We also conducted the fi rst online employee engagement program as part of the STEM project. Although we faced a number of challenges and limitations due to the pandemic, we carried out a total of 170 projects and trained 2,669 people in countries where we operate. AkzoNobel Cares Number of community people trained Number of projects 224 2,863 126 >97k 4,276 225 4,078 170 2,669 2017 2018 2019 2020 36 Sustainability statements | AkzoNobel Report 2020 AkzoNobel Report 2020 | Sustainability statements 37 3 Discrimination and harassment We’re committed to offering a working environment in which people feel treated with dignity and respect, and where we foster diversity and inclusion (see Note 1). We have clear rules and apply strict consequence management in case of violation of these rules. In 2019, we launched a global training program for all our employees on diversity and unconscious bias. In 2020, this roll-out continued. The e-learnings that are part of this program had a completion rate of 78% of all online employees (including contractors) in 2020. For offline employees, the roll-out of face- to-face workshops was unfortunately paused due to the pandemic. 4 Modern slavery We have zero tolerance for modern slavery, such as child labor or forced labor, and conduct relevant due diligence into our supply chain. We identified cobalt, mica minerals and tin as raw materials possibly impacting human rights in our supply chain – in particular regarding health and safety, working conditions and modern slavery. These materials are used in the manufacture of some additives, pigments, resins and tin packaging material we source. In the case of mica minerals, we continued to collaborate with suppliers to track their entire supply chain back to the mines of origin and monitored their value chain to ensure a responsible and sustainable mica supply chain. For cobalt and tin, we surveyed all 120 identified suppliers, using templates from the Responsible Minerals Initiative. Of those suppliers who confirmed using high risk materials necessary to the functionality of the product, 81% disclosed their smelters. In total, 57% of these smelters are either listed as active or conformant smelters in the Responsible Minerals Assurance Process (RMAP). Suppliers with a “conflict free statement”, but who didn’t disclose the smelters in their supply chain, have not been included in this percentage, since our due diligence is based on the Organization for Economic Cooperation and Development (OECD) Guidance for Responsible Mineral Supply Chains. See our website for more on conflict minerals: akzonobel.com/en/about-us/ position-statements/conflict-minerals Reprioritizing salient human rights issues COVID-19 had a major social impact across the globe. See page 10 for an overview of how our efforts to address the social effects of the pandemic were carried out in a responsible manner. The virus has introduced a new reality and potentially additional human rights risks that we need to address across our value chain. As a result, and in line with the United Nations Guiding Principles to continuously assess a company’s salient human rights issues, we have reassessed our current internal salient human rights issues this year. Multiple interviews, workshops and data analysis have been carried out to understand the current human rights risks from an internal perspective. We concluded that our salient human rights issues have remained the same, but we gained insight into which part(s) of the value chain the highest risks occur and should have our first focus. In the first quarter of 2021, we’ll validate our findings with external stakeholders and finalize our assessment of salient human rights issues from 2021 onwards. We’re proud to have extended our partnership with Plan International Nederland for another year. With our support, young people growing up in challenging circumstances can bridge the gap between overcoming the daily struggles they face and being able to realize their dreams. 38 Sustainability statements | AkzoNobel Report 2020 3 Discrimination and harassment additives, pigments, resins and Reprioritizing salient human We’re committed to offering a working tin packaging material we source. rights issues environment in which people feel In the case of mica minerals, we COVID-19 had a major social impact treated with dignity and respect, continued to collaborate with across the globe. See page 10 for and where we foster diversity and suppliers to track their entire supply an overview of how our efforts inclusion (see Note 1). We have clear chain back to the mines of origin to address the social effects of the rules and apply strict consequence and monitored their value chain to pandemic were carried out in a management in case of violation of ensure a responsible and sustainable responsible manner. these rules. In 2019, we launched mica supply chain. For cobalt and a global training program for all tin, we surveyed all 120 identified The virus has introduced a new reality our employees on diversity and suppliers, using templates from the and potentially additional human rights unconscious bias. In 2020, this roll-out Responsible Minerals Initiative. Of risks that we need to address across our continued. The e-learnings that are those suppliers who confirmed using value chain. As a result, and in line with part of this program had a completion high risk materials necessary to the the United Nations Guiding Principles rate of 78% of all online employees functionality of the product, 81% to continuously assess a company’s (including contractors) in 2020. For disclosed their smelters. In total, 57% salient human rights issues, we have offline employees, the roll-out of face- of these smelters are either listed reassessed our current internal salient to-face workshops was unfortunately as active or conformant smelters in human rights issues this year. Multiple paused due to the pandemic. the Responsible Minerals Assurance interviews, workshops and data analysis 4 Modern slavery Process (RMAP). Suppliers with a have been carried out to understand We have zero tolerance for modern “conflict free statement”, but who the current human rights risks from an slavery, such as child labor or forced didn’t disclose the smelters in their internal perspective. We concluded that labor, and conduct relevant due supply chain, have not been included our salient human rights issues have diligence into our supply chain. in this percentage, since our due remained the same, but we gained We identified cobalt, mica minerals diligence is based on the Organization insight into which part(s) of the value and tin as raw materials possibly for Economic Cooperation and chain the highest risks occur and should impacting human rights in our supply Development (OECD) Guidance for have our first focus. In the first quarter chain – in particular regarding health Responsible Mineral Supply Chains. of 2021, we’ll validate our findings with and safety, working conditions and See our website for more on conflict external stakeholders and finalize our modern slavery. These materials are minerals: akzonobel.com/en/about-us/ assessment of salient human rights used in the manufacture of some position-statements/conflict-minerals issues from 2021 onwards. We’re proud to have extended our partnership with Plan International Nederland for another year. With our support, young people growing up in challenging circumstances can bridge the gap between overcoming the daily struggles they face and being able to realize their dreams. 38 Sustainability statements | AkzoNobel Report 2020 PLANET Our 2030 ambitions are to reduce carbon emissions by 50% and move towards zero waste as a company. We want to achieve a 50% reduction in carbon emissions by cutting energy use by 30% and increasing our renewable electricity use to 100%. As we work towards zero waste, we aim to reach zero non-reusable waste and have 100% of our most water intensive sites reusing water. For many years, we’ve been working to operate in a more sustainable way, and we continue to take steps to reduce our environmental impact. We’re focusing in particular on reducing energy use, carbon and VOC emissions, waste generation and water intake, while increasing our use of renewable electricity and materials, and water reuse. Our ambitions are tangible, and will enable us to continue making an important contribution to addressing the sustainability challenges faced by our company, customers and broader society. We have programs in place and have identified projects that will contribute to achieving our ambitions. These include our Resource Productivity program, SUSTAINABILITY which is the main contributor to our current environmental performance and the key enabler for delivering on our ambitions. Currently, we have more than 500 projects underway at both global and local level which are helping to reduce carbon emissions, VOC, waste and water use. Progress is monitored on a monthly basis, focusing on environmental impact and financial benefits. During 2020, we saved more than €9 million from projects directly related to waste, energy reduction and water reuse. Climate As recommended by the Taskforce for Climate-related Financial Disclosures (TCFD), we continue to monitor our risks and opportunities related to climate change. As a company, we’re exposed to physical risks – such as those associated with water scarcity and flooding – and transitional risks. These risks are linked to society’s response to climate change and can lead to changes in technology, market dynamics and regulations. For the last five years, we’ve implemented an internal carbon price for investment decisions, making our future operations climate adapted, while anticipating the impact of any future carbon pricing. Despite the risks, climate change also presents business opportunities with potential to further strengthen our position. Our sustainable solutions (see Note 8) can help our customers to reduce carbon emissions and open up business opportunities. For example, we supply the construction industry – responsible for around 39% of global energy- related carbon emissions – with Cool chemistry technology, which combats the urban heat island effect, meaning less energy is needed for cooling. More than 98% of the carbon emissions in our value chain come from our suppliers and the use of our products by customers. In 2020, we further improved the methodology for determining our Scope 3 upstream and downstream emissions by better incorpo- rating the formulation of our raw materials into the calculations. More about the methodology can be found in Managing sustainability on page 50. Based on the new methodology, the overall cradle-to-grave carbon footprint was 7% lower than 2019, partly the result of volume and product mix impact due to COVID-19. Meanwhile, our “Planet” ambitions demonstrate our strong climate mitigation plans. We also implement circular principles to prepare our operations for the future while reducing costs. The importance of water management is recognized across our supply chain. We’ve taken a significant step towards water stewardship by endorsing the UN’s CEO Water Mandate and setting clear goals on water reuse (see Note 6). In 2020, we assessed the water-related risks at our manufacturing sites by using the Aqueduct tool and the WWF Water risk filter, supplied by the World Resource Institute. The results will help us develop water risk management plans accordingly. We’ve also included a water risk analysis as part of our Supplier Sustainability Balanced Scorecard. In 2020, we analyzed around 200 of our suppliers’ locations using the Aqueduct tool, assessing both water scarcity and flood risks. We ask suppliers with high risk to share their mitigation plans and, at the same time, are working with them to look for solutions to these challenges. AkzoNobel Report 2020 | Sustainability statements 39 CASE STUDY watch video Making our sites more sustainable After announcing the fi rst wave of our People. Planet. Paint. ambitions in early 2020, we continued to sharpen our focus on sustainability throughout the year. Particular progress was made in greener manufacturing, with notable developments taking place at locations across the world. Barcelona Garcia 1,600 solar panels 1,650 solar panels 15% of energy use 82% of energy use Malaysia + Thailand 7,818 solar panels Elsewhere, a total of 7,818 solar panels were also installed at three industrial coatings sites in Malaysia and Thailand. These installations are the latest in a series of solar projects around the globe designed to help us move to 100% renewable electricity and cut our carbon emissions in half by 2030. Aligned with SDG 3, 12 and 13 (see page 30). In China, we upgraded our Guangzhou site to switch over completely to water- based products. Once fully operational, the decorative paints facility will increase water reuse by 70% and reduce wastewater by 50% – helping us to achieve our ambition of water reuse at all our most water intensive sites by 2030. It also means that all four of our decorative paints plants in China now exclusively produce water-based paints. Over in Vietnam, a major plant expansion at our Amata Industrial Park facility has boosted capacity for marine and protective coatings and wood coatings. A wide range of sustainability features have been introduced, including solar power generation, rainwater harvesting and solvent recovery systems. Meanwhile, a combined total of more than 3,250 solar panels have been installed at our sites in Barcelona, Spain, and Garcia, Mexico. In Barcelona, 1,600 roof panels are now generating 15% of the site’s overall energy consumption. The Garcia installation of 1,650 panels is producing 82% of its energy requirements – making the plant almost self- suffi cient. 40 CASE STUDY watch video Note 5 Reducing carbon emissions Making our sites more sustainable After announcing the fi rst wave of our People. Planet. Paint. ambitions in early 2020, we continued to sharpen our focus on sustainability throughout the year. Particular progress was made in greener manufacturing, with notable developments taking place at locations across the world. Barcelona Garcia 1,600 1,650 solar panels 15% solar panels 82% of energy of energy use use Malaysia + Thailand 7,818 solar panels In China, we upgraded our Guangzhou Elsewhere, a total of 7,818 solar panels were site to switch over completely to water- also installed at three industrial coatings based products. Once fully operational, the sites in Malaysia and Thailand. decorative paints facility will increase water reuse by 70% and reduce wastewater by These installations are the latest in a 50% – helping us to achieve our ambition series of solar projects around the of water reuse at all our most water intensive globe designed to help us move sites by 2030. It also means that all four of to 100% renewable electricity and our decorative paints plants in China now cut our carbon emissions in half exclusively produce water-based paints. by 2030. In order to achieve our ambition of a 50% reduction in carbon emissions by 2030, we’re focusing on cutting our energy consumption by 30% and using 100% renewable electricity. In 2020, we reduced our carbon emissions by 4% (relative), mainly through energy reduction, conversion to renewable electricity and footprint optimization. Compared with the 2018 baseline, we have achieved a reduction of 19%. One of the key contributing factors to reducing carbon emissions is to lower energy consumption – we’re aiming to cut our energy use by 30% by 2030. As well as improving the energy effi ciency of equipment and installations – including LED and compressed air systems – we’re also putting a strong focus on behavior, such as monitoring leading to actions. Despite the reduction in volumes resulting from the COVID-19 pandemic, we’re close to our yearly energy reduction target (3%), with an overall reduction in energy consumption of 2.7% (relative) in 2020. The second contributing factor to halving our carbon emissions is converting to 100% renewable electricity. We’re therefore installing solar panels at a number of our locations and are actively looking to source renewable electricity. Currently, our total share of renewable electricity use is 40%, with 34 of our locations and 12 countries already using 100% renewable electricity. By the end of 2020, 17 sites had solar panels as their own renewable electricity source. We’re aiming to increase this number signifi cantly in the near future as part of a global program. We’re aware that the electricity generated by these solar panels will not be enough to cover our total electricity consumption needs, so we’ll also continue to purchase renewable electricity with certifi cates of origin. Greenhouse gas emissions in million tons Direct CO2(e) (Scope 1) Indirect CO2(e) (Scope 2) kg CO2(e) per ton of production 91 89 0.240.24 0.23 0.23 75 72 0.18 0.18 0.17 0.17 0.07 0.07 0.06 0.06 0.06 0.06 0.06 0.06 2017 2018 2019 2020 Total greenhouse gas emissions made up of direct emissions from processes and combustion at our facilities and indirect emissions from purchased energy. Energy use in 1000 TJ Energy use GJ per ton of production 1.88 6.4 1.91 6.2 1.88 6.0 1.83 5.7 2017 2018 2019 2020 Over in Vietnam, a major plant expansion at our Amata Industrial Park facility has boosted capacity for marine and protective coatings and wood coatings. A wide range of sustainability features have been introduced, including solar power generation, rainwater harvesting and solvent recovery systems. Meanwhile, a combined total of more than 3,250 solar panels have been installed at our sites in Barcelona, Spain, and Garcia, Mexico. In Barcelona, 1,600 roof panels are now generating 15% of the site’s overall energy consumption. The Garcia installation of 1,650 panels is producing 82% of its energy requirements – making the plant almost self- suffi cient. 40 Aligned with SDG 3, 12 and 13 (see page 30). Northern Illinois Foodbank was a recipient of our COVID-19 Matching Gifts program. It provided more than $85,000 to 15 non-profi ts in North America to help offset the impact of COVID-19 in the communities where our plants are located. Many of these organizations have seen a 50% increase in need for their services during the pandemic. AkzoNobel Report 2020 | Sustainability statements 41 Note 6 Towards a zero waste company Material flow in kilotons 9 By-product 3,103 Product Customer operations 32 Reusable 30 Non-reusable Raw materials Own operations 62 Waste By 2030, we’re aiming to move towards zero waste as a company. We’re committed to taking proactive steps to reuse all our waste and reuse water at all our most water intensive sites. Waste reduction remains one of our key environmental performance indicators. We focus on reducing waste generation in our manufacturing processes as part of our resource productivity program. We’re also committed to reusing and recycling obsolete materials and continue to promote a circular economy. To help increase our contribution to the circular economy, new outlets have been identifi ed for materials that would otherwise have been disposed of as waste. This has resulted in a waste avoidance of 8,500 tons. In total, our reusable waste in 2020 was 32 kilotons, with 58% of our obsolete materials being reused, enabling us to further contribute to the circular economy. During 2020, despite the volumes variation due to COVID-19, we reduced relative waste (kg/ton material produced) by 5%, achieving our 2020 goal. Most of our locations contributed through various programs introduced worldwide. Examples of some of our waste reduction projects include the installation of solvent recovery units; reducing packaging waste by moving from smaller paper bags or metal drums to bulk deliveries of raw materials; and reworking obsolete fi nished goods. Water Sustainable water supply is essential to our business. We rely on water for, among others, raw material production, product formulation and manufacturing, cooling, cleaning and transportation. A signifi cant number of our water intensive sites already reuse water.By focusing more and introducing the necessary technology, we’ll not only reduce our overall water intake and wastewater discharge, we’ll also be able to recover and reuse materials present in the process water, resulting in improved material effi ciency and less waste. Our most water intensive locations are often water- based paint production sites, where water is used 42 Sustainability statements | AkzoNobel Report 2020 Note 6 Towards a zero waste company Material flow in kilotons 9 By-product Customer operations 32 Reusable 3,103 Product Raw materials Own operations 62 Waste 30 Non-reusable By 2030, we’re aiming to move towards zero waste as a company. We’re committed to taking proactive steps to reuse all our waste and reuse water at all our most water intensive sites. During 2020, despite the volumes variation due to COVID-19, we reduced relative waste (kg/ton material produced) by 5%, achieving our 2020 goal. Most of our locations contributed through various programs introduced worldwide. Examples of some of our waste reduction projects include the installation of solvent recovery units; reducing packaging waste by moving from smaller paper bags or metal drums to bulk deliveries of raw materials; and reworking obsolete fi nished goods. Waste reduction remains one of our key environmental performance indicators. We focus on reducing waste Water generation in our manufacturing processes as part Sustainable water supply is essential to our business. of our resource productivity program. We’re also We rely on water for, among others, raw material committed to reusing and recycling obsolete materials production, product formulation and manufacturing, and continue to promote a circular economy. cooling, cleaning and transportation. To help increase our contribution to the circular A signifi cant number of our water intensive sites already economy, new outlets have been identifi ed for materials reuse water.By focusing more and introducing the that would otherwise have been disposed of as waste. necessary technology, we’ll not only reduce our overall This has resulted in a waste avoidance of 8,500 tons. water intake and wastewater discharge, we’ll also In total, our reusable waste in 2020 was 32 kilotons, process water, resulting in improved material effi ciency with 58% of our obsolete materials being reused, and less waste. be able to recover and reuse materials present in the enabling us to further contribute to the circular economy. Our most water intensive locations are often water- based paint production sites, where water is used SUSTAINABILITY Total waste in kilotons Total reusable waste reuse Total non-reusable waste Total kg per ton of production Fresh water use m3 per ton of production Fresh water use in million m3 22.7 40 37 21.0 21.0 33 34 34 33 20.0 32 30 2.8 10 2.9 9 2.5 8 2.9 9 2017 2018 2019 2020 2017 2018 2019 2020 Waste means any substance or object arising from our routine operations which we discard or intend to discard, or we are required to discard. Fresh water use is the sum of the intake of groundwater, surface water and potable water. total water intake is used for cooling purposes. In 2020, the cooling water use from surface water increased substantially, due to an issue at one location. This was resolved in the second half of the year, but still resulted in an increase in our total fresh water intake. Our water use excluding cooling water decreased by 9% in 2020. as both a raw material and to clean equipment. Wastewater can be processed at on-site treatment plants or via third parties. Adapting formulations and using adequate water treatment enables us to reuse the water at our plants. Our focus is mainly on recycling and reusing process water and driving a continuous reduction in freshwater intake and wastewater discharge. Currently, 19% of our water intake is from potable water, while the rest is mainly from surface water. Around 78% of the Water flow in million m3 1.7 Potable water 0.9 Groundwater Own operations 1.0 Product 0.9 Other 6.5 Surface water 7.2 42 Sustainability statements | AkzoNobel Report 2020 AkzoNobel Report 2020 | Sustainability statements 43 Note 7 Responsible procurement We continue to support our suppliers’ pursuit of continuous improvement and operational excellence. We work together closely to identify and minimize supply chain risks, creating value through continuous improvement and collaboration opportunities for a sustainable supply. Business Partner Code of Conduct Our business partners are expected to follow our core values of safety, integrity and sustainability, as specifi ed by our Business Partner Code of Conduct. 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 89% of the non-product related (NPR) spend. Supplier risk management We’ve continued to assess and improve our suppliers’ sustainability practices using programs provided by Together for Sustainability (TfS), of which we have been an active member since 2013. In 2019, we extended the scope of our multi-year supplier sustainability risk program by lowering our spend Suppliers in sustainability program in % In line with our expectations Under development 22 22 38 18 18 47 24 24 51 Our Coral paint brand was used to create a mural in front of a hospital in Bolivia to honor all the personnel who have been on the front line in the fi ght against COVID-19. Initiated by Citizens Volunteers in Action, the artwork is called Guardians of Life and was painted at the Viedma Hospital in Cochabamba. threshold to €250,000 and including country and industry risk. In 2020, we increased the number of suppliers participating in the program to 75%, and those meeting our expectation to 51%. These increases were achieved by performing 166 initial or reassessments. To meet our expectations, suppliers have to reach an EcoVadis total assessment score of 45 and a labor and human rights sub-scheme score of 50. Together with EcoVadis, we organized online trainings to help suppliers improve, with 107 attending across all regions. Most of our developmental suppliers are small or medium sized companies based in risk regions. They typically require multiple assessments to reach the target score. Suppliers who are in line with expectations must also renew their assessment at least every three years, which explains why continuous improvements can only be achieved in gradual steps. To complement the EcoVadis online assessment, we continue to carry out TfS audits on suppliers located in risk regions. In 2020, we optimized the TfS audit program and set up a dedicated cross-regional team to monitor the progress of corrective actions. This enabled us to close more than 60% of the previous year’s major audit fi ndings at our suppliers. storage, and occupational health and safety. Suppliers have applied simple and practical steps to help create a safer work environment for people in the supply chain, such as installing additional fi re exit doors, improving the availability and accessibility of fi refi ghting equipment and making evacuation signs more visible. Supplier performance management In 2020, we adjusted and aligned our existing Supplier Sustainability Balanced Scorecard (SSBS) with our People. Planet. Paint. approach. This will help ensure our suppliers are heading in the same direction to reduce their carbon emissions and move towards a circular economy. We’ve also asked our top 20 suppliers to share their ambitions on reducing greenhouse gas, waste and energy, and moving towards renewable electricity and a circular economy. Every year, we assess their achievements against these ambitions and score them accordingly. The SSBS results are part of our supplier performance management process. Capability building Building on our internal corporate social responsibility training for our buyers, we organized a global training on human rights with 112 buyers in 2020. The goal was to explain the United Nations Guiding Principles on Business and Human Rights and how to ensure that our business partners respect human rights in their value chains. 2018 2019 2020 Baseline of 885 suppliers (2019: 982). Reduction of baseline due to supplier consolidation and improvement of our risk criteria. Main areas for improvement from the 2019 audits include emergency preparedness, process safety and 44 Sustainability statements | AkzoNobel Report 2020 Note 7 Responsible procurement watch video CASE STUDY Bright future for solar capture Capturing solar heat from all parts of a building – not just the roof – is a highly effective way of making buildings more sustainable. But it’s not as easy as it might sound. During 2020, we worked together with TNO and Emergo in the Netherlands to develop an innovative facade system for a sports hall in the city of Almere. The venue is covered in colorful solar collectors that capture the thermal energy buildings would normally absorb. It’s then used to heat and cool the structure. One of the big challenges was how to avoid having to use black panels – not always aesthetically pleasing for a building exterior, even if darker colors do absorb heat better. That’s where our expertise came in. We’ve developed technology which can capture heat using the sort of lighter and brighter colors that traditionally reflect near- infrared light (NIR makes up 50% of the total solar energy). “It’s a practical and sustainable solution for making buildings energy positive,” explains senior AkzoNobel scientist Anthonie Stuiver. “It means we can harness sustainable energy via a system that looks good, as well as doing good.” The collaboration came about as a result of AkzoNobel’s involvement in the European ENVISION research project, which is made up of 13 partners. Aligned with SDG 11, 13 and 17 (see page 30). We continue to support our suppliers’ pursuit of continuous improvement and operational excellence. We work together closely to identify and minimize supply chain risks, creating value through continuous improvement Our Coral paint brand was used to create a mural in front of a hospital in Bolivia to honor all the personnel who have been on the front line in the fi ght against COVID-19. Initiated by Citizens Volunteers in Action, the artwork is called Guardians of Life and was painted at the Viedma Hospital in Cochabamba. and collaboration opportunities for a threshold to €250,000 and including storage, and occupational health and sustainable supply. country and industry risk. In 2020, safety. Suppliers have applied simple we increased the number of suppliers and practical steps to help create a Business Partner Code of participating in the program to 75%, safer work environment for people in Conduct and those meeting our expectation to the supply chain, such as installing Our business partners are expected to 51%. These increases were achieved by additional fi re exit doors, improving the follow our core values of safety, integrity performing 166 initial or reassessments. availability and accessibility of fi refi ghting and sustainability, as specifi ed by our To meet our expectations, suppliers have equipment and making evacuation signs Business Partner Code of Conduct. to reach an EcoVadis total assessment more visible. Suppliers sign the code to confi rm score of 45 and a labor and human their compliance with environmental, rights sub-scheme score of 50. Together Supplier performance social, human rights and governance with EcoVadis, we organized online management requirements. Signatories cover 98% of trainings to help suppliers improve, with In 2020, we adjusted and aligned our the product related (PR) spend and 89% 107 attending across all regions. existing Supplier Sustainability Balanced of the non-product related (NPR) spend. Scorecard (SSBS) with our People. Most of our developmental suppliers Planet. Paint. approach. This will help Supplier risk management are small or medium sized companies ensure our suppliers are heading in the We’ve continued to assess and improve based in risk regions. They typically same direction to reduce their carbon our suppliers’ sustainability practices require multiple assessments to reach emissions and move towards a circular using programs provided by Together the target score. Suppliers who are in economy. We’ve also asked our top 20 for Sustainability (TfS), of which we have line with expectations must also renew suppliers to share their ambitions on been an active member since 2013. their assessment at least every three reducing greenhouse gas, waste and years, which explains why continuous energy, and moving towards renewable In 2019, we extended the scope of improvements can only be achieved in electricity and a circular economy. Every our multi-year supplier sustainability gradual steps. risk program by lowering our spend year, we assess their achievements against these ambitions and score them To complement the EcoVadis online accordingly. The SSBS results are part of assessment, we continue to carry out our supplier performance management Suppliers in sustainability TfS audits on suppliers located in risk process. program in % regions. In 2020, we optimized the TfS In line with our expectations Under development audit program and set up a dedicated Capability building 22 22 38 18 18 47 24 24 51 cross-regional team to monitor the Building on our internal corporate social progress of corrective actions. This responsibility training for our buyers, we enabled us to close more than 60% of organized a global training on human the previous year’s major audit fi ndings rights with 112 buyers in 2020. The at our suppliers. goal was to explain the United Nations Guiding Principles on Business and 2018 2019 2020 Baseline of 885 suppliers (2019: 982). Reduction of baseline due to supplier consolidation and improvement of our risk criteria. Main areas for improvement from Human Rights and how to ensure that the 2019 audits include emergency our business partners respect human preparedness, process safety and rights in their value chains. 44 Sustainability statements | AkzoNobel Report 2020 45  Sustainable solutions – Products that provide sustainability advantages to our customers Performers – Products that have no immediate negative or positive sustainability impact Transitioners – Products that have known sustainability risks PAINT We aim to grow our sustainable solutions from around 40% of our revenue in 2020 to over 50% by 2030. Our sustainable solutions are comprised of products that bring sustainable benefi ts to our customers. Eco-premium solutions make up a signifi cant part of our sustainable solutions. They are considered signifi cantly better in one or more of our sustainability criteria and provide the same or better functionality than the mainstream product in the market. In 2020, we managed to exceed our target of 20% of revenue from this category (2020: 21%). As a member of the World Green Building Council, we fully support the ongoing transformation of the built environment, which aims to reduce the carbon footprint of buildings and make them healthier places to live and work. Many of our products are used in the construction industry and we’ve developed a wide range of products and solutions that are qualifi ed for green buildings certifi ed with labels such as LEED and BREEAM. In terms of our approach to circular solutions, we’ve set a 2025 ambition for all plastic packaging used by our Decorative Paints Europe business to contain at least 50% recycled content. We cemented our long-term relationship with the Kröller-Müller Museum in the Netherlands by entering into an offi cial partnership. As well as providing expertise and coatings for the conservation of the well-known and inspirational artwork Jardin d’émail, we’ll be supplying paint for the museum’s exhibition spaces for the next three years. 46 Sustainability statements | AkzoNobel Report 2020  Sustainable solutions – Products that provide sustainability advantages to our customers Performers – Products that have no immediate negative or positive sustainability impact Transitioners – Products that have known sustainability risks PAINT We aim to grow our sustainable solutions from around 40% of our revenue in 2020 to over 50% by 2030. Our sustainable solutions are comprised of products that bring sustainable benefi ts to our customers. Eco-premium solutions make up a make them healthier places to live and signifi cant part of our sustainable work. Many of our products are used solutions. They are considered in the construction industry and we’ve signifi cantly better in one or more of our developed a wide range of products sustainability criteria and provide the and solutions that are qualifi ed for green same or better functionality than the buildings certifi ed with labels such as mainstream product in the market. In LEED and BREEAM. 2020, we managed to exceed our target of 20% of revenue from this category In terms of our approach to circular (2020: 21%). solutions, we’ve set a 2025 ambition for all plastic packaging used by As a member of the World Green our Decorative Paints Europe business Building Council, we fully support the to contain at least 50% recycled ongoing transformation of the built content. environment, which aims to reduce the carbon footprint of buildings and We cemented our long-term relationship with the Kröller-Müller Museum in the Netherlands by entering into an offi cial partnership. As well as providing expertise and coatings for the conservation of the well-known and inspirational artwork Jardin d’émail, we’ll be supplying paint for the museum’s exhibition spaces for the next three years. 46 Sustainability statements | AkzoNobel Report 2020 Note 8 Sustainable solutions and customer value SUSTAINABLE PRODUCT PORTFOLIO ASSESSMENT Our sustainable solutions add value for our customers. They often show faster growth rates and command higher margins than more traditional products. We identify the value we bring to customers in terms of sustainability by using our Sustainable Product Portfolio Assessment (SPPA) framework in our portfolio management. In 2020, we combined our approach to sustainable solutions and our priority substance program into SPPA. This allows us to cover both the sustainability advantages and the legislative concerns on substances in our portfolio management. We’ve split our portfolio into three categories, as shown at the top of the opposite page. We now have a holistic view of the sustainability characteristics of our product portfolio. Together with our customer-focused product stewardship process, it enables value-selling strategies tailored to specifi c customer needs. It means we can take a harmonized approach in our portfolio management and have created a unique baseline for our future portfolio ambitions. Product stewardship Product stewardship is our approach to ensuring that product safety and its sustainability aspects 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 ourselves and our customers by not only ensuring regulatory compliance in every region where we operate, but also by committing to continually develop safer and more sustainable solutions for the market, while staying ahead of legislation through our proactive approach. SUSTAINABILITY Positivity was the driving force behind one of our 2020 “Let’s Colour” projects, which helped to spread cheer in homes across Indonesia. We teamed up with a local arts community in Bandung, West Java, to create a series of colorful murals as part of the nation’s 75th Independence Day anniversary celebrations. The project was also an opportunity for our Dulux brand to raise people’s spirits and spread a message of hope. We use our Product Stewardship Continuous Improvement Tool (PSCIT) to drive continuous improvement in product stewardship. Specifi c improvements in 2020 are particularly noticeable in the marketing teams where the SPPA process has been introduced and clear actions have been taken for the management of critical substances. Priority substance management Our industry-leading and multi-award- winning Priority Substance Program continues to conduct reviews as the regulatory status of substances change. Processes are also in place to prevent the introduction of hazardous substances in our businesses. Creating a direct link between the program and business processes ensures that substances are identifi ed and actions are managed within the business’ product portfolio in a timely and appropriate manner. Sustainable solutions and value for the customer We work closely with customers to deliver products and solutions that help their businesses to become 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 markets. AkzoNobel Report 2020 | Sustainability statements 47 SUSTAINABILITY We’ve grouped the sustainability benefits for our customers into six People. Planet. Paint. chapters that we use in our SPPA framework to define our sustainable solutions. People and communities Health and well-being We believe in the power of paints and coatings to transform lives by uplifting communities, changing behavior and making living spaces more fun, liveable and enjoyable. Through our “Let’s Colour” community transformation programs (see Note 3), we add color to people’s lives and aim to provide opportunities and environments for people in need to learn, grow and flourish. As a member of the World Green Building Council, we’re driving the development of healthier buildings for people to live and work in. The products and solutions we provide offer various health and well-being advantages, such as improving indoor air quality and helping to keep surfaces hygienically clean. We also aim to reduce both the use of any harmful substances ahead of legislation and the health risks for users and end-users of our products. Reduced carbon and energy Because the majority of our carbon footprint comes from Scope 3 in our value chain, we’re constantly developing new solutions to reduce the carbon in our products. Our customers are also increasingly focusing on reducing their own carbon footprint. We support them by offering solutions that can help to improve the energy efficiency of their manufacturing processes and end products. Reduced, reused and recycled material use Long-lasting performance As part of our efforts to deal with resource scarcity, we continue to develop products that improve productivity, for example by using less raw materials. For some of our coatings customers, we’ve developed high solids products that require less packaging and are easier to transport. For many years, we’ve been developing durable paints and coatings that protect substrates for longer against external influences such as the weather and wear and tear. This enables customers to reduce costs, save resources, prolong maintenance cycles and keep objects, infrastructure and buildings more colorful. Less waste Having set 2030 ambitions to reduce waste from our own operations, we’re also striving to reduce the waste in our value chain. A key area of focus is helping customers reduce waste in their own processes. One example is our partnership with Qlayers, set up through our Paint the Future innovation ecosystem. It involves developing automated spray application technology, which reduces overspray for industrial coatings. 48 Sustainability statements | AkzoNobel Report 2020 SUSTAINABILITY CASE STUDY CASE STUDY We’ve grouped the sustainability benefits for our customers into six People. Planet. Paint. chapters that we use in our SPPA framework to define our sustainable solutions. People and communities Health and well-being Reduced carbon and energy We believe in the power of paints As a member of the World Green and coatings to transform lives by Building Council, we’re driving Because the majority of our carbon uplifting communities, changing the development of healthier footprint comes from Scope 3 in behavior and making living spaces buildings for people to live and our value chain, we’re constantly more fun, liveable and enjoyable. work in. The products and solutions developing new solutions to reduce Through our “Let’s Colour” we provide offer various health and the carbon in our products. Our community transformation programs well-being advantages, such as customers are also increasingly (see Note 3), we add color to improving indoor air quality and focusing on reducing their own people’s lives and aim to provide helping to keep surfaces hygienically carbon footprint. We support them opportunities and environments clean. We also aim to reduce both by offering solutions that can help for people in need to learn, grow the use of any harmful substances to improve the energy efficiency and flourish. ahead of legislation and the health of their manufacturing processes risks for users and end-users of and end products. our products. Less waste Reduced, reused and recycled material use Long-lasting performance Having set 2030 ambitions to reduce For many years, we’ve been waste from our own operations, As part of our efforts to deal developing durable paints and we’re also striving to reduce the with resource scarcity, we continue coatings that protect substrates for waste in our value chain. A key area to develop products that improve longer against external influences of focus is helping customers productivity, for example by using such as the weather and wear reduce waste in their own processes. less raw materials. For some of and tear. This enables customers One example is our partnership with our coatings customers, we’ve to reduce costs, save resources, Qlayers, set up through our Paint developed high solids products prolong maintenance cycles and the Future innovation ecosystem. that require less packaging and are keep objects, infrastructure It involves developing automated easier to transport. and buildings more colorful. spray application technology, which reduces overspray for industrial coatings. 48 Sustainability statements | AkzoNobel Report 2020 watch video Biomass breakthrough unlocks world of possibilities More futuristic functionality could soon start to appear in our products thanks to a breakthrough innovation which involves a more sustainable method for making resins. It’s all down to research we’ve been conducting in collaboration with the Dutch Advanced Research Center Chemical Building Blocks Consortium (ARC CBBC). The new process uses bio-based monomers to make resins, which are traditionally oil-based. Requiring just UV light, oxygen and renewable raw materials, patent applications have already been fi led for resins and coatings made with monomers derived from sugar derivatives isolated from biomass. A coating from nature 02 Acid Alcohol Polymerization Biomass Biomass Biomass Biomass Biomass Coating Coating Coating Coating Coating Coating Coating Coating – where the team is led by professor in organic chemistry and Nobel Prize winner, Ben Feringa, and PhD student, George Hermens. “I’m extremely pleased with these game-changing results,” says Feringa (pictured right). “They show that a material for coatings can be produced from biomass using a sustainable chemical process.” “There’s no doubt we’re on the verge of progressing to the next level of coatings technology, thanks to this fantastic example of collaborative innovation in action,” explains Klaas Kruithof, AkzoNobel’s Chief Technology Offi cer. “We’re opening up a new future for paints and coatings by using sustainable building blocks that will enable us to explore and develop some really exciting functionalities for our customers.” Most of the research has been taking place at the University of Groningen Having started in 2018, the research project will now focus on optimizing the monomers so they can be made in a more effi cient way and on a larger scale. “We’ve still got a long way to go in terms of exploring the scope of the technology, but it will almost certainly defi ne the future of our products,” continues Kruithof. “By 2040 or 2050, there’s also a good chance we might only be using bio-based monomers in our resin production, which will help us to reduce the overall carbon footprint of our products.” Aligned with SDG 12, 13 and 17 (see page 30). AkzoNobel Report 2020 | Sustainability statements 49 49 SUSTAINABILITY Managing sustainability The Executive Committee is responsible for incorporating our sustainability agenda into the company strategy and monitoring the performance of each business through the Operational Control Cycle. Given our focus on sustainability, overall ownership of sustainability is with the CEO. Materiality assessment We use the principle of materiality to review strategic priorities and determine the most relevant and important sustainability topics material to our Materiality matrix People Planet Paint h g H i i m u d e M w o L l s r e d o h e k a t s r o f e c n a t r o p m I M F J K L B C A I H D E G Low Medium High Importance for AkzoNobel 50 Sustainability statements | AkzoNobel Report 2020 company. We focus on topics with the biggest impact in terms of accelerating our strategy and their importance for stakeholder decision- making. We review the topics based on input from internal and external stakeholders. The materiality assessment is based on key risks and opportunities, as they relate to the acceleration of our business agenda and approach to sustainable business. The key topics identified are validated annually and assessed on relative importance. Reporting principles We use our internally developed reporting principles to make our repor- ting more precise and better aligned with our business and operations. They are aligned with the Global Reporting Initiative (GRI) standards. The complete reporting principles are on our website, along with an index of the GRI indicators. Compared with 2019, the only signi- ficant change in our reporting methodology is in Scope 3 upstream and downstream. The preparation of our Sustainability statements requires management to make judgments, estimates and assumptions that affect amounts reported. The estimates and assumptions are based on experience and various other factors believed to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis. In general, Scope 3 upstream and downstream and eco-premium solutions have a higher degree of judgment and complexity, for which changes in the assumptions and estimates could result in different results than those recorded. The main and most important elements of these are highlighted below. More Topic Report 2020 A Employee development Note 1: Employees B Integrity C Human rights Integrity and compliance management Note 4: Human rights D Community involvement Note 3: AkzoNobel Cares E Fair taxes Consolidated financial statements (Note 9) F People/process safety Note 2: Health and safety G Circular economy Note 6: Towards a zero waste company H Supplier sustainability Note 7: Responsible procurement I Climate strategy Climate J Resource productivity Note 5: Reducing carbon emissions Note 6: Towards a zero waste company K Customer satisfaction Note 8: Sustainable solutions and customer value L Sustainable portfolios Note 8: Sustainable solutions and customer value M Product safety Note 8: Sustainable solutions and customer value SUSTAINABILITY Managing sustainability The Executive Committee is responsible for incorporating our sustainability agenda into the company strategy and monitoring the performance of each business through the Operational Control Cycle. Given our focus on sustainability, overall ownership of sustainability is with the CEO. Materiality matrix People Planet Paint company. We focus on topics with Compared with 2019, the only signi- the biggest impact in terms of ficant change in our reporting accelerating our strategy and their methodology is in Scope 3 upstream importance for stakeholder decision- and downstream. making. We review the topics based on input from internal and The preparation of our Sustainability external stakeholders. The materiality statements requires management assessment is based on key risks to make judgments, estimates and opportunities, as they relate to and assumptions that affect the acceleration of our business amounts reported. The estimates agenda and approach to sustainable and assumptions are based on business. The key topics identified experience and various other factors are validated annually and assessed believed to be reasonable under the on relative importance. Reporting principles circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis. In general, Scope We use our internally developed 3 upstream and downstream and reporting principles to make our repor- eco-premium solutions have a higher ting more precise and better aligned degree of judgment and complexity, for with our business and operations. which changes in the assumptions and Materiality assessment They are aligned with the Global estimates could result in different results We use the principle of materiality to Reporting Initiative (GRI) standards. than those recorded. review strategic priorities and determine The complete reporting principles the most relevant and important are on our website, along with an The main and most important elements sustainability topics material to our index of the GRI indicators. of these are highlighted below. More h g i H m u i d e M w o L s r e d l o h e k a t s r o f e c n a t r o p m I F J K L B C A I M H D E G Low Medium High Importance for AkzoNobel Topic Report 2020 A Employee development Note 1: Employees B Integrity C Human rights Integrity and compliance management Note 4: Human rights D Community involvement Note 3: AkzoNobel Cares E Fair taxes Consolidated financial statements (Note 9) F People/process safety Note 2: Health and safety G Circular economy Note 6: Towards a zero waste company H Supplier sustainability Note 7: Responsible procurement I Climate strategy Climate J Resource productivity Note 5: Reducing carbon emissions Note 6: Towards a zero waste company K Customer satisfaction Note 8: Sustainable solutions and customer value L Sustainable portfolios Note 8: Sustainable solutions and customer value M Product safety Note 8: Sustainable solutions and customer value A number of blue postboxes appeared in the UK during the year to say “thank you” to the NHS – and we’re proud to have donated our Cromadex products for the very special paint job. They were a visible expression of the Royal Mail’s support for all NHS staff who worked tirelessly to help those affected by COVID-19. The postboxes, coated in “NHS blue”, were located close to a handful of hospitals in England, Scotland, Wales and Northern Ireland. details on the methodology and significant assumptions can be found in the reporting principles on our website: akzonobel.com/en/about-us/ sustainability-/reporting-principles- Organizational health score The overall percentile score is used in external reports. In 2020, two quarterly surveys were conducted, with results in Q1 and Q3. For the annual report, the Q3 score is reported. Results from the organizational health score (OHI) are collected in the OHI database and reported by McKinsey. Due to anonymity, we have no access to these data, and the data review, authorization and audit are the responsibility of McKinsey. Cradle-to-grave carbon footprint (Scope 1, 2 and 3), Scope 3 upstream and downstream Cradle-to-grave carbon footprint – including Scope 1, 2 and 3 upstream and downstream – is calculated annually in accordance with the Greenhouse Gas Protocol Corporate Value Chain Accounting and Reporting standard, and the WBCSD Chemical Sector Working Group Guidelines. We include the climate change impact from VOCs in our measurements due to their impact within the paints and coatings industry. • Upstream: Category 1 – purchased on amount of power and heat (natural gas), typical VOC levels and percentage of VOCs incinerated. goods and services • Downstream: Category 10 – processing of sold products; Category 11 – use of sold products; Category 12 – end-of-life treatment of sold products and VOC in processing/use The methodology for calculating Scope 3 carbon emissions was further improved in 2020 on the following: • Impact of Category 12 and VOC are linked to raw material data where possible • Refinement of raw material impact by integrating the formulation data (upstream impact) The reporting period for Scope 3 upstream and downstream is October 1 to September 30. Scope 1 and 2 is reported for the calendar year. External data sources: CEPE and Ecoinvent databases for carbon footprint data of raw material; International Energy Association (IEA) world average electricity grid mix and DEFRA natural gas conversion factor. Internal data sources: We conduct lifecycle assessments which are used as input for the calculation and includes models Eco-premium solutions A measure of the sustainability of our products compared with competitive products, which have customer/ con sumer benefits, as a percentage of our actual revenue over the period November 1, 2019, to October 31, 2020. For Powder Coatings, segment growth to previous year revenue is applied. An eco-premium solution is significantly better than competing offers in the market in at least one eco-efficiency criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other. In determining the KPI, AkzoNobel product groups are reviewed against a mainstream product in the market which delivers the same function. This can be an AkzoNobel or competitor offering. The assessments are performed to the best of our abilities by internal experts, based on either quantitative or qualitative aspects, of which the latter is subject to inherent subjective considerations. 50 Sustainability statements | AkzoNobel Report 2020 AkzoNobel Report 2020 | Sustainability statements 51 SUSTAINABILITY PERFORMANCE SUMMARY Economic Area Product/service Eco-premium solutions Supplier management Unit 2016 2017 2018 2019 2020 Ambition 2020 % of revenue 21 21 Suppliers participating in CSR program Suppliers in line with our expectations % against baseline % against baseline Business Partner Code of Conduct product-related % of spend Business Partner Code of Conduct non product- related % of spend 99 86 97 86 22 60 38 98 83 22 65 47 98 84 21 75 51 98 89 20 – – Social Employees Organizational health score Female executives1 People, process and product safety Fatalities employees score % number Total reportable injury rate employees/ /200,000 hours temporary workers Lost time injury rate employees/ /200,000 hours temporary workers Occupational illness rate employees /1,000,000 hours Fatalities contractors (temporary workers plus independent) Total reportable injury rate contractors Lost time injury rate contractors Loss of primary containment – Level 1 Regulatory actions – Level 4 number /200,000 hours /200,000 hours number number HSE management Management audits plus reassurance audits number 2016 2017 2018 2019 2020 Ambition 2020 19 19 0 0.26 0.13 0.07 0 0.29 5 0 34 0 0.20 0.06 0.06 1 0.12 0.06 5 0 32 58 20 0 0.20 0.09 0.06 0 0.18 0.07 6 1 25 61 18 2 0.24 0.08 0.03 0 0.19 0.09 3 0 32 69 21 0 0.23 0.09 0.05 0 0.17 0.11 6 0 28 Top quartile 74 25 0 ≤0.20 – – 0 – – 0 – – – AkzoNobel Cares Community people trained Projects number number 2,041 157 2,863 224 4,276 126 4,078 225 2,669 170 The indicators that fall within the scope of limited assurance of our external auditor are marked with the following symbol: 1 2016-2017 data includes discontinued operations. 52 Sustainability statements | AkzoNobel Report 2020 Unit 2016 2017 2018 2019 2020 Ambition 2020 SUSTAINABILITY PERFORMANCE SUMMARY % of revenue 21 21 Suppliers participating in CSR program Suppliers in line with our expectations % against baseline % against baseline Business Partner Code of Conduct product-related % of spend Business Partner Code of Conduct non product- % of spend 99 86 97 86 Economic Area Product/service Eco-premium solutions Supplier management related Social Employees Organizational health score Female executives1 People, process and product safety Fatalities employees score % number Total reportable injury rate employees/ /200,000 hours temporary workers temporary workers Lost time injury rate employees/ /200,000 hours Occupational illness rate employees /1,000,000 hours Fatalities contractors (temporary workers plus independent) Total reportable injury rate contractors Lost time injury rate contractors Loss of primary containment – Level 1 Regulatory actions – Level 4 number /200,000 hours /200,000 hours number number HSE management Management audits plus reassurance audits number 19 19 0 0.26 0.13 0.07 0 0.29 5 0 34 0 0.20 0.06 0.06 1 0.12 0.06 5 0 32 2016 2017 2018 2019 2020 Ambition 2020 22 60 38 98 83 58 20 0 0.20 0.09 0.06 0 0.18 0.07 6 1 25 22 65 47 98 84 61 18 2 0.24 0.08 0.03 0 0.19 0.09 3 0 32 21 75 51 98 89 69 21 0 0.23 0.09 0.05 0 0.17 0.11 6 0 28 Top quartile 74 25 ≤0.20 20 – – 0 – – 0 – – 0 – – – AkzoNobel Cares Community people trained Projects number number 2,041 157 2,863 224 4,276 126 4,078 225 2,669 170 The indicators that fall within the scope of limited assurance of our external auditor are marked with the following symbol: Environmental Area Energy use and emissions Energy use per ton of production Renewable energy (own operations) Renewable electricity (own operations) Greenhouse gas emissions – Direct CO2(e) emissions (Scope 1) per ton of production Greenhouse gas emissions – Indirect CO2(e) emissions (Scope 2) per ton of production Volatile organic compounds per ton of production Raw material efficiency Fresh water use per ton of production Total waste per ton of production Total reusable waste 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 chain1 Cradle-to-grave carbon footprint (Scope 1, 2 and 3) Scope 3 upstream2 Scope 3 downstream3 Unit 2016 2017 2018 2019 2020 Ambition 2020 1000TJ GJ/ton % % kiloton kg/ton kiloton kg/ton kiloton kg/ton million m3 m3/ton kiloton kg/ton kiloton kiloton kg/ton kiloton kg/ton kiloton kg/ton kiloton kg/ton million tons million tons million tons 6.32 1.91 27 34 72.72 21.96 244.3 73.78 2.00 0.60 9.61 2.90 85 25.65 42 43 12.92 35 10.72 15 4.62 0.7 0.20 6.39 1.88 30 37 69.66 20.53 237.8 70.11 1.71 0.50 9.62 2.84 77 22.77 37 40 6.20 1.91 31 38 62.90 19.42 226.0 69.77 1.57 0.49 9.27 2.86 67 20.97 33 34 6.02 1.88 31 37 58.29 18.18 183.1 57.13 1.19 0.37 8.05 2.51 67 21.00 34 33 11.90 10.63 10.28 33 9.76 16 4.64 0.6 0.17 30 9.13 15 4.59 0.69 0.21 14.3 6.5 7.5 29 9.07 14 4.46 0.45 0.14 13.8 6.3 7.3 5.69 1.83 33 40 57.16 18.42 168.2 54.21 0.95 0.31 9.12 2.94 62 19.96 32 30 9.57 28 8.93 15 4.70 0.23 0.07 12.8 5.9 6.7 – 1.81 – – – – – – 0.45 – – – 21.50 – – – – – – – – – – – 1 2016-2017 data includes discontinued operations. 52 Sustainability statements | AkzoNobel Report 2020 1 We have restated 2018-2019 Scope 3 downstream and upstream due to improvement of methodology by better incorporating raw material formulation. 2 Category 1: purchased goods and services. 3 Category 10: processing of sold products; category 11: use of sold products; category 12: end-of-life treatment of sold products; VOC. AkzoNobel Report 2020 | Sustainability statements 53 CASE STUDY Art Foundation marks silver jubilee something to be proud of. Art is about being inclusive and being ready to be inspired, but also challenged. Art is pioneering, it’s about pushing boundaries.” A jubilee exhibition which was due to open in 2020 was postponed due to the COVID-19 pandemic. It has been rescheduled to open in September 2021 at the AkzoNobel Art Space in Amsterdam, the Netherlands. It was also a great honor and privilege to see the Art Foundation’s unceasing support for the international art world over the last 25 years recognized by His Majesty King Willem-Alexander of the Netherlands, who appointed Hester Alberdingk Thijm (pictured below) – Director of the AkzoNobel Art Foundation – as a Knight in the Order of Oranje-Nassau. When we established the AkzoNobel Art Foundation in 1995, the plan was to create an exciting corporate collection that would preserve the heritage of our future. Thanks to these pioneering efforts and the company’s continued dedication to supporting culture and the arts, the Art Foundation celebrated its 25th anniversary in 2020. True to its earliest motto to go beyond the surface, the Art Foundation had planned a year full of celebrations, but global events dictated otherwise. However, there were still several highlights, including the launch of the new AkzoNobel Art Foundation catalog – We Are the Collection. The magazine-style publication sheds light on the identity of the titular “We” and features contributions by artists, curators, photographers, art critics, writers and AkzoNobel colleagues. Speaking at the launch of the catalog, AkzoNobel’s Executive Committee member Isabelle Deschamps (pictured above) commented: “A corporate art collection is an act of commitment towards the societies and communities in which we live and operate. A commitment AkzoNobel has kept for the past 25 years. Now that is 54 CASE STUDY Art Foundation marks silver jubilee When we established the AkzoNobel Art Foundation in 1995, the plan was to create an exciting corporate collection that would preserve the heritage of our future. something to be proud of. Art is about being inclusive and being ready to be inspired, but also challenged. Art is pioneering, it’s about pushing boundaries.” A jubilee exhibition which was due to open in 2020 was postponed due to the COVID-19 pandemic. It has been rescheduled to open in September 2021 at the AkzoNobel Art Space in Amsterdam, Thanks to these pioneering efforts and the Netherlands. the company’s continued dedication to supporting culture and the arts, It was also a great the Art Foundation celebrated its 25th honor and privilege to see the Art anniversary in 2020. Foundation’s unceasing support for the international art world over the True to its earliest motto to go beyond last 25 years recognized by His the surface, the Art Foundation had Majesty King Willem-Alexander of planned a year full of celebrations, the Netherlands, who appointed but global events dictated otherwise. Hester Alberdingk Thijm However, there were still several (pictured below) – Director of highlights, including the launch of the the AkzoNobel Art Foundation new AkzoNobel Art Foundation catalog – as a Knight in the Order – We Are the Collection. of Oranje-Nassau. The magazine-style publication sheds light on the identity of the titular “We” and features contributions by artists, curators, photographers, art critics, writers and AkzoNobel colleagues. Speaking at the launch of the catalog, AkzoNobel’s Executive Committee member Isabelle Deschamps (pictured above) commented: “A corporate art collection is an act of commitment towards the societies and communities in which we live and operate. A commitment AkzoNobel has kept for the past 25 years. Now that is 54 LEADERSHIP AND GOVERNANCE An overview of our leadership and their activities during the year, along with details of our corporate governance structure, risk management, executive remuneration, compliance and integrity management, and AkzoNobel and the capital markets. Our Board of Management and Executive Committee Statement of the Board of Management Supervisory Board Chairman’s statement Our Supervisory Board Report of the Supervisory Board Corporate governance statement Risk management Integrity and compliance management Remuneration report AkzoNobel and the capital markets 56 57 58 59 60 66 74 76 78 84 Ian Davenport | Puddle Painting: Azo | 2020 | acrylic paint on aluminum | 77 x 77 cm | Collection AkzoNobel Art Foundation 55 OUR BOARD OF MANAGEMENT AND EXECUTIVE COMMITTEE From left to right: David Prinselaar, Joëlle Boxus, Thierry Vanlancker, Isabelle Deschamps, Maarten de Vries Thierry Vanlancker CEO and Chairman of the Board of Management and Executive Committee (1964, Belgian) Thierry 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. He’s also a non-executive member of the Board of Directors of Sika AG and in May 2020 joined the Board of Directors of Aliaxis S.A./N.V. as a non-executive director. Maarten de Vries CFO and member of the Board of Management and Executive Committee (1962, Dutch) Maarten joined AkzoNobel in 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. Joëlle Boxus Chief Human Resources Officer and member of the Executive Committee (1971, Belgian) Joëlle rejoined AkzoNobel as Chief Human Resources Officer in 2020. She had previously been global HR leader for AkzoNobel’s former Specialty Chemicals business. Joëlle managed the separation of Specialty Chemicals before becoming part of the Executive Committee of the newly established company. In 2018, she returned to Belgium to become Chief Human Resources Officer at Etex before rejoining AkzoNobel. Isabelle Deschamps General Counsel and member of the Executive Committee (1970, Canadian and British) Isabelle joined AkzoNobel in 2018. Before joining the company, she was responsible for legal and compliance at Unilever’s European businesses and its global Food and Refreshment division. She previously held various other positions at Unilever and Nestlé. Isabelle is admitted to the England and Wales Law Society and to the Quebec (Canada) Bar. David Prinselaar Chief Supply Chain Officer and Member of the Executive Committee (1974, French) David joined AkzoNobel in 2015 from Reckitt Benckiser, 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 Officer and became a member of the Executive Committee. 56 Leadership and governance | AkzoNobel Report 2020 OUR BOARD OF MANAGEMENT AND EXECUTIVE COMMITTEE STATEMENT OF THE BOARD OF MANAGEMENT The Board of Manage­ ment’s statement on the financial statements, the management report and internal controls. We have prepared the Report 2020 in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the financial reporting requirements included in Part 9 of Book 2 of the Dutch Civil Code. To the best of our knowledge: • The financial statements in this Report 2020 give a true and fair view of the assets and liabilities; financial position and profit or loss of our company and the undertakings included in the consolidation taken as a whole • The management report in this Report 2020 includes a fair review of the position at December 31, 2020, the development and performance during the financial year 2020 of AkzoNobel, and the undertakings included in the consolidation taken as a whole, and describes our principal risks The Board of Management is responsible for the establishment and adequate functioning of a system of governance, risk management and internal controls within our company. Consequently, a broad range of processes and procedures has been implemented, 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, policies and procedures and authority rules, as well as specific measures, such as a risk management system, a system of controls and a system of letters of financial representation by responsible management at various levels within our company. All these processes and procedures are aimed at providing a reasonable level of assurance that we have identified and managed the significant risks of our company, and that we meet our operational and financial objectives in compliance with applicable laws and regulations. For a detailed description of the company’s internal risk management, please refer to the Risk management section. With respect to supporting and monitoring of compliance with laws and regulations – including our Code of Conduct – an Integrity and Compliance Committee has been established. The Compliance function makes rules available through the Policy Portal, manages the online and face-to-face compliance training program, provides legal expert support and manages investigations related to our SpeakUp! corporate complaints procedure. The Internal Control function maintains AkzoNobel’s Internal Control Framework, monitors the compliance and includes updates regarding the emergence of new risks. They support the annual review of the effectiveness of the system of governance, risk management and internal controls of the Board of Management. Internal Audit provides comfort to the Board of Management, as well as the Supervisory Board, that our system of risk management and internal controls – as designed and represented by management – are adequate and effective. While we routinely work towards continuous improvement of our processes and procedures regarding financial reporting, the Board of Management is of the opinion that: • The report provides sufficient insights into any failings in the effectiveness of the internal risk management and control systems • These systems provide reasonable assurance that the financial reporting does not contain material inaccuracies • Based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis • The report states those material risks and uncertainties that are relevant to the expectation of the company’s continuity for the period of 12 months after report preparation For a detailed description of the risk management system and the principal risks identified, reference is made to the Risk management and Integrity and compliance management chapters in this section. We have discussed the above opinion and conclusions with the Audit Committee, the Supervisory Board and the external auditor. Amsterdam, February 16, 2021 The Board of Management Thierry Vanlancker, CEO and Chairman of the Board of Management Maarten de Vries, CFO and member of the Board of Management For further information please visit our website: www.akzonobel.com/en/about-us/governance-/ board-of-management-and-executive-committee From left to right: David Prinselaar, Joëlle Boxus, Thierry Vanlancker, Isabelle Deschamps, Maarten de Vries Thierry Vanlancker CEO Management and Executive the separation of Specialty previously held various other and Chairman of the Board of Committee (1962, Dutch) Chemicals before becoming part positions at Unilever and Nestlé. Management and Executive Maarten joined AkzoNobel in of the Executive Committee of Isabelle is admitted to the Committee (1964, Belgian) 2018. He spent the previous the newly established company. England and Wales Law Society Thierry joined AkzoNobel in 2016, three years as CFO at Intertrust In 2018, she returned to Belgium and to the Quebec (Canada) Bar. bringing more than 28 years Group and TNT Express. He was to become Chief Human of experience in the chemicals a member of the Management Resources Officer at Etex before industry. He led operations in Board of Intertrust Group and the rejoining AkzoNobel. polymers, performance coatings Executive Board of TNT Express. David Prinselaar Chief Supply Chain Officer and Member of the Executive and chemicals at DuPont and Isabelle Deschamps General Committee (1974, French) was President of Fluoroproducts Joëlle Boxus Chief Human Counsel and member of David joined AkzoNobel in 2015 at Chemours. He’s also a Resources Officer and the Executive Committee from Reckitt Benckiser, taking non-executive member of the member of the Executive (1970, Canadian and British) responsibility for the Performance Board of Directors of Sika AG and Committee (1971, Belgian) Isabelle joined AkzoNobel Coatings operations and then in May 2020 joined the Board of Joëlle rejoined AkzoNobel as in 2018. Before joining the manufacturing for AkzoNobel as Directors of Aliaxis S.A./N.V. as a Chief Human Resources Officer company, she was responsible a whole from January 2018. In non-executive director. in 2020. She had previously been for legal and compliance at March 2019, David took over the global HR leader for AkzoNobel’s Unilever’s European businesses role of Chief Supply Chain Officer Maarten de Vries CFO and former Specialty Chemicals and its global Food and and became a member of the member of the Board of business. Joëlle managed Refreshment division. She Executive Committee. 56 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 57 SUPERVISORY BOARD CHAIRMAN’S STATEMENT 2020 was a diffi cult year for the whole world due to the global pandemic, although it turned into a good year for AkzoNobel. With COVID-19 impacting the company’s revenue, Decorative Paints delivered a very strong performance, while Performance Coatings experienced more headwinds, especially during the fi rst half of the year. Profi tability increased further as a result of signifi cant efforts to reduce costs, improve product mix and margins, as well as strengthen and standardize the company’s processes and systems. The Supervisory Board has been impressed by the way AkzoNobel responded to the unprecedented challenges posed during the year and how the organization was able to generate positive momentum and deliver on its Winning together: 15 by 20 ambition, despite facing considerable hurdles due to the pandemic. As well as ensuring the safety and well-being of employees, the company continued to serve and support its customers around the world, while at the same time creating a stronger foundation for the future. It was a clear sign of AkzoNobel’s resilience and ability to adapt. Many employees had to change their ways of working – relying heavily on technology to stay connected – which worked surprisingly well. The sudden increase in demand for decorative paints, and declines in several other segments, put signifi cant pressure on the fl exibility of the company’s supply chain and employees had to put in extra effort to cope. So it was encouraging to see everyone’s pride in the organization as AkzoNobel rose to the challenge and took signifi cant strides forward. Through it all, the organization held fi rm on its core values, focusing on safety, acting with integrity and further improving sustainability. Extra special efforts were also made to support local communities in dealing with the global pandemic. The company’s People. Planet. Paint. approach to sustainable business will ensure that AkzoNobel continues to lead the way when it comes to environmental and social impact. The success and further expansion of the Paint the Future innovation ecosystem also caught the eye of many in the industry and beyond. Throughout much of 2020, many colleagues and key stakeholders were involved in uncovering a new purpose statement. The successful outcome – Pioneering a world of possibilities to bring surfaces to life – will help to further build engagement and drive the company’s continued transformation. Everyone at AkzoNobel is rightfully proud to have delivered on the 15 by 20 ambition launched in 2017, closing the year with return on sales – excluding unallocated cost – of 15%, despite the challenging business environment. The changes implemented throughout the organization have been signifi cant and successful. Both the management team and employees deserve sincere compliments and thanks. Having restored competitiveness and strengthened profi tability, AkzoNobel is now ready for the next stage of its journey, represented by the Grow & Deliver strategy. There are still multiple levers – such as increased commercial excellence and network optimization – for the company to save costs and enable increased investments in growth, paving the way for a future which can excite all stakeholders. Management has clearly shown they can balance delivering short-term results with achieving long-term sustainability. This ability to address today’s challenges while driving the changes necessary to thrive tomorrow will prove vital and the Supervisory Board is looking forward to the next chapter. I want to thank my Supervisory Board colleagues, the Board of Management and Executive Committee for all their efforts during an extraordinary year, when nearly all our contact took place by video calls. The frequency of meetings was high throughout the year, which allowed the Supervisory Board to be closely involved, including in the development of plans for the future. Most importantly, I want to thank AkzoNobel’s employees around the world for their continued passion and commitment, which helped to deliver an exceptional result during an unprecedented year. During a diffi cult year for us all, it was especially pleasing to see employee engagement improve. This remains a key focus area, with a clear ambition to become top quartile. Amsterdam, February 16, 2021 Nils Smedegaard Andersen Chairman of the Supervisory Board 58 Leadership and governance | AkzoNobel Report 2020 Nils Smedegaard Andersen (1958, DK) Chairman Initial appointment: 2018 Term of offi ce: 2018-2022 Chairman of the Board of Directors of Unilever plc.; Former non-executive Director of BP plc.; Former CEO of A.P. Moller-Maersk A/S; Former CEO and President of Carlsberg A/S. SUPERVISORY BOARD CHAIRMAN’S STATEMENT OUR SUPERVISORY BOARD 2020 was a diffi cult year for the whole world due to the global pandemic, although it turned into a good year for AkzoNobel. Throughout much of 2020, many colleagues and key stakeholders were involved in uncovering a new purpose statement. The successful outcome – Pioneering a world of possibilities to bring surfaces to life – will help to further build engagement and drive the company’s continued transformation. With COVID-19 impacting the company’s revenue, Decorative Paints delivered a very strong performance, Everyone at AkzoNobel is rightfully proud while Performance Coatings experienced more to have delivered on the 15 by 20 ambition headwinds, especially during the fi rst half of the year. launched in 2017, closing the year with return Profi tability increased further as a result of signifi cant on sales – excluding unallocated cost – of 15%, efforts to reduce costs, improve product mix and despite the challenging business environment. The margins, as well as strengthen and standardize the changes implemented throughout the organization company’s processes and systems. have been signifi cant and successful. Both the management team and employees deserve sincere The Supervisory Board has been impressed by the way compliments and thanks. AkzoNobel responded to the unprecedented challenges posed during the year and how the organization was Having restored competitiveness and strengthened able to generate positive momentum and deliver on its profi tability, AkzoNobel is now ready for the next Winning together: 15 by 20 ambition, despite facing stage of its journey, represented by the Grow & considerable hurdles due to the pandemic. As well as Deliver strategy. There are still multiple levers – such ensuring the safety and well-being of employees, the as increased commercial excellence and network Nils Smedegaard Andersen (1958, DK) Chairman Initial appointment: 2018 Term of offi ce: 2018-2022 company continued to serve and support its customers optimization – for the company to save costs and Chairman of the Board of around the world, while at the same time creating a enable increased investments in growth, paving the Directors of Unilever plc.; stronger foundation for the future. It was a clear sign of way for a future which can excite all stakeholders. Former non-executive AkzoNobel’s resilience and ability to adapt. Management has clearly shown they can balance Director of BP plc.; Former Many employees had to change their ways of working sustainability. This ability to address today’s challenges A/S; Former CEO and – relying heavily on technology to stay connected – while driving the changes necessary to thrive tomorrow President of Carlsberg A/S. which worked surprisingly well. The sudden increase in will prove vital and the Supervisory Board is looking delivering short-term results with achieving long-term CEO of A.P. Moller-Maersk demand for decorative paints, and declines in several forward to the next chapter. other segments, put signifi cant pressure on the fl exibility of the company’s supply chain and employees had to I want to thank my Supervisory Board colleagues, the put in extra effort to cope. So it was encouraging to see Board of Management and Executive Committee for all everyone’s pride in the organization as AkzoNobel rose their efforts during an extraordinary year, when nearly all to the challenge and took signifi cant strides forward. our contact took place by video calls. The frequency of Through it all, the organization held fi rm on its core the Supervisory Board to be closely involved, including values, focusing on safety, acting with integrity and in the development of plans for the future. meetings was high throughout the year, which allowed further improving sustainability. Extra special efforts were also made to support local communities in dealing Most importantly, I want to thank AkzoNobel’s with the global pandemic. The company’s People. employees around the world for their continued Planet. Paint. approach to sustainable business will passion and commitment, which helped to deliver an ensure that AkzoNobel continues to lead the way exceptional result during an unprecedented year. when it comes to environmental and social impact. The success and further expansion of the Paint the Future innovation ecosystem also caught the eye of many in the industry and beyond. During a diffi cult year for us all, it was especially pleasing to see employee engagement improve. This Amsterdam, February 16, 2021 remains a key focus area, with a clear ambition to Nils Smedegaard Andersen become top quartile. Chairman of the Supervisory Board 58 Leadership and governance | AkzoNobel Report 2020 Chairman of Johnson Matthey plc.; Member of the Supervisory Board of Covestro A.G.; Former Chairman and CEO of Bayer Material Science A.G.; Former non-executive Director of BG Group plc and Aliaxis S.A.; Former President of Specialties, Huntsman International LLC; Former CEO at Polyurethanes division of ICI plc. Patrick Thomas (1957, UK) Initial appointment: 2017 Term of offi ce: 2017-2021 Chairman of the Supervisory Boards of UNICA Group B.V., Faber Halbertsma Group B.V. and Rhoon, Pendrecht & Cortgene B.V.; Former CEO of OFFICEFIRST Former CEO of OFFICEFIRST Immobilien A.G. and Grontmij Immobilien A.G. and Grontmij N.V.; Former member of the Executive Board of ARCADIS Executive Board of ARCADIS N.V. Michiel Jaski (1959, NL) Initial appointment: 2017 Term of offi ce: 2017-2021 Non-executive Director at Reckitt Benckiser plc., Hikma Pharmaceuticals plc. and DCC plc.; Former Senior Independent Director at Victrex plc.; Former CEO of Quintiles Transnational Corp.; Former senior executive at Astra Zeneca plc. and F. Hoffman-La Roche. Pamela Kirby (1953, UK) Initial appointment: 2016 Term of offi ce: 2020-2024 Jolanda Poots-Bijl (1969, NL) Initial appointment: 2019 Term of offi ce: 2019-2023 CFO of Royal van Oord; CFO of Royal van Oord; Member of the Supervisory Board of Pon Holdings B.V.; Former member of the Supervisory Boards of N.V. Nederlandse Gasunie and Blokker Holding B.V. Dick Sluimers (1953, NL) Initial appointment: 2015 Term of offi ce: 2019-2023 Chairman 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. Byron Grote (1948, US and UK) Vice-Chairman Initial appointment: 2014 Term of offi ce: 2018-2022 Non-executive Director of Anglo-American plc., Standard Chartered plc. and Tesco plc.; Former non-executive Director of Unilever N.V. and Unilever plc.; Former Board member of BP plc. Sue Clark (1964, UK) Initial appointment: 2017 Term of offi ce: 2017-2021 Non-executive Director Non-executive Director of Britvic plc., Tulchan Communications LLP and Imperial Brands plc.; Former Imperial Brands plc.; Former Managing Director Europe SABMiller plc.; Former Director of Corporate Affairs Director of Corporate Affairs Railtrack plc. and Scottish Power plc. AkzoNobel Report 2020 | Leadership and governance 59 REPORT OF THE SUPERVISORY BOARD MEETINGS AND ATTENDANCE Supervisory Board attendance record The Supervisory Board values the attendance of its meetings by all members. If Supervisory Board members are unable to attend a Supervisory Board or committee meeting, they inform the relevant chair of their reasons. Supervisory Board members always receive the materials for each specific meeting, allowing them to offer input and discuss any agenda items with the relevant chair and provide a proxy to act on their behalf. In 2020, the Board of Management attended all regular and all additional meetings. 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. The Chairman had regular one-on-one calls with all Supervisory Board members to discuss individual impressions on the functioning of the Supervisory Board and items covered. The Supervisory Board aims for all (regular) meetings to be held physically. However, during 2020, most meetings were held virtually due to COVID-19 related measures. All virtual meetings were held with video conference capabilities, enabling the members of Nils Smedegaard Andersen Jolanda Poots-Bijl Sue Clark1 Byron Grote2 Michiel Jaski Pamela Kirby Dick Sluimers3 Patrick Thomas Ben Verwaayen4 SB 13/13 13/13 13/13 13/13 13/13 13/13 13/13 13/13 4/7 AC 7/7 7/7 7/7 1/1 7/7 RC 13/13 13/13 13/13 13/13 2/4 NC 2/2 1/1 1/1 2/2 1/1 1/1 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 five additional meetings of the Supervisory Board. Additional meetings were scheduled ad-hoc when needed to ensure the Supervisory Board was sufficently informed and could make considered descisions regarding the COVID-19 situation and M&A transactions. 1 Appointed to the Nomination Committee as per February 11, 2020. 2 Stepped down from the Nomination Committee as per February 11, 2020. 3 Resigned from the Audit Committee and appointed to the Nomination Committee as per February 11, 2020. 4 Retired on April 23, 2020, after completing a four-year term. the Supervisory Board to perform their role appropriately. Strategy reviews During 2020, the Supervisory Board continued to allocate adequate time to discuss strategic activities, including detailed business analyses and portfolio reviews. In addition, it reviewed and discussed functional updates including Finance, Information Management, Integrated Supply Chain, Procurement, Human Resources, Innovation and Health, Safety and Environment. The Supervisory Board received comprehensive market updates and advised on, reviewed and approved the business continuity and con- tingency plans. Strategy beyond 2020 During 2020, the Supervisory Board was closely involved in the development of the new Grow & Deliver strategy by the Board of Management together with the other members of the Executive Committee. In light of this new strategy, in-depth sessions were organized to discuss and review, among others, deep dives into the company’s businesses and topics such as sustainability, organizational health and culture, as well as the competitive landscape. Supervisory Board activities 2020 Q1 Q2 Q3 Q4 • Review of Q4 2019 financials and performance • 2019 financial statements and profit allocation • Final 2019 dividend • M&A strategy update • Transformation Office update • Risk management: Risk session outcomes • HSE full-year report • 2019 external audit report • Amendment of the Articles of Association • Strategy beyond 2020 update • COVID-19 update • Review Q1 2020 financials and performance • Investor relations update • COVID-19 update • HSE and safety update • Business updates and deep dives • M&A strategy update • Innovation strategy update • HR strategy update • Sustainability strategy update • Review Q2 2020 financials and performance • Investor relations update • Business updates and deep dives • Transformation Office update • HR strategy update • Enterprise risk management update • Functional and business strategy review • Operational excellence • Innovation strategy update • M&A strategy update • Integrated Supply Chain strategy • COVID-19 update • Review Q3 2020 financials and performance • Interim dividend 2020 • Share buyback program • M&A strategy update • Information Management update • Strategy update • Integrated Supply Chain update • HR strategy update • Budget 2021 • COVID-19 update • Investor relations update • Business updates and deep dives The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2020. 60 Leadership and governance | AkzoNobel Report 2020 REPORT OF THE SUPERVISORY BOARD MEETINGS AND ATTENDANCE Supervisory Board attendance record The Supervisory Board values the attendance of its meetings by all members. If Supervisory Board members are unable to attend a Supervisory Board or committee meeting, they inform the relevant chair of their reasons. Supervisory Board members always receive the materials for each specific meeting, allowing them to offer input and discuss any agenda items with the relevant chair and provide a proxy to act on their behalf. In 2020, the Board of Management attended all regular and all additional meetings. The Executive Committee attended the majority of the meetings. Almost all plenary sessions of the Nils Smedegaard Andersen Jolanda Poots-Bijl Sue Clark1 Byron Grote2 Michiel Jaski Pamela Kirby Dick Sluimers3 Patrick Thomas Ben Verwaayen4 SB 13/13 13/13 13/13 13/13 13/13 13/13 13/13 13/13 4/7 AC 7/7 7/7 7/7 1/1 7/7 RC 13/13 13/13 13/13 13/13 2/4 NC 2/2 1/1 1/1 2/2 1/1 1/1 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 five additional meetings of the Supervisory Board. Additional meetings were scheduled ad-hoc when needed to ensure the Supervisory Board was sufficently informed and could make considered descisions regarding the COVID-19 situation and M&A transactions. 1 Appointed to the Nomination Committee as per February 11, 2020. 2 Stepped down from the Nomination Committee as per February 11, 2020. 3 Resigned from the Audit Committee and appointed to the Nomination Committee as per February 11, 2020. 4 Retired on April 23, 2020, after completing a four-year term. Supervisory Board were preceded or the Supervisory Board to perform their advised on, reviewed and approved succeeded by executive sessions role appropriately. the business continuity and con- of the Supervisory Board, with or without the CEO in attendance. The Strategy reviews tingency plans. Chairman had regular one-on-one calls During 2020, the Supervisory Board Strategy beyond 2020 with all Supervisory Board members to continued to allocate adequate time to During 2020, the Supervisory Board was discuss individual impressions on the discuss strategic activities, including closely involved in the development of functioning of the Supervisory Board detailed business analyses and portfolio the new Grow & Deliver strategy by the and items covered. reviews. In addition, it reviewed and Board of Management together with discussed functional updates including the other members of the Executive The Supervisory Board aims for all Finance, Information Management, Committee. In light of this new strategy, (regular) meetings to be held physically. Integrated Supply Chain, Procurement, in-depth sessions were organized to However, during 2020, most meetings Human Resources, Innovation and discuss and review, among others, deep were held virtually due to COVID-19 Health, Safety and Environment. dives into the company’s businesses related measures. All virtual meetings and topics such as sustainability, were held with video conference The Supervisory Board received organizational health and culture, as capabilities, enabling the members of comprehensive market updates and well as the competitive landscape. Supervisory Board activities 2020 Q1 Q2 Q3 Q4 • Review of Q4 2019 financials and • Review Q1 2020 financials and • Review Q2 2020 financials and • Review Q3 2020 financials and performance performance • 2019 financial statements and profit • Investor relations update allocation • Final 2019 dividend • M&A strategy update • COVID-19 update • HSE and safety update performance • Investor relations update • Business updates and deep dives • Transformation Office update performance • Interim dividend 2020 • Share buyback program • M&A strategy update • Transformation Office update • M&A strategy update • Enterprise risk management update • Strategy update • Risk management: Risk session • Innovation strategy update • Functional and business strategy review • Integrated Supply Chain update • Business updates and deep dives • HR strategy update • Information Management update • HR strategy update • Sustainability strategy update • Operational excellence • Innovation strategy update • M&A strategy update • HR strategy update • Budget 2021 • COVID-19 update • Integrated Supply Chain strategy • Investor relations update • COVID-19 update • Business updates and deep dives outcomes • HSE full-year report • 2019 external audit report • Amendment of the Articles of Association • Strategy beyond 2020 update • COVID-19 update The table provides an overview of relevant topics discussed and reviewed in Supervisory Board meetings in 2020. 60 Leadership and governance | AkzoNobel Report 2020 The Supervisory Board was also involved in uncovering the new company purpose and developing the simplified leadership behavior framework. COVID-19 The Supervisory Board held additional meetings to discuss regular updates on the COVID-19 situation from a global pandemic response team. The team, which was led by the Executive Committee, consisted of various workstreams and regional response teams, with any key risks being identified. The Supervisory Board was regularly informed about the health of AkzoNobel employees and reviewed the related responses from various parts of the business, the risks identified and the measures taken. Sustainability The Supervisory Board views sustainability as an intrinsic value driver in the work of all businesses and The Supervisory Board is confident that by making sustainability an explicit differentiator – part of the company’s identity – AkzoNobel has enhanced its value proposition for stakeholders. functions. During 2020, the Supervisory Board continued to assess sustainability as part of strategy and targets. The Supervisory Board is confident that by making sustainability an explicit differentiator – part of the company’s identity – AkzoNobel has enhanced its value proposition for stakeholders, including employees and business partners. Further details are included in the Sustainability statements. 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 64. 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 also addressed in light of these reviews, and both the proposed budget and operating plan for 2021 were diligently reviewed by the Supervisory Board in Q4, taking into account the COVID-19 situation and other prevailing market conditions. Following this assessment, the Supervisory Board has approved the proposed budget and operating plan for 2021. 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, the company’s capital allocation priorities – as well as the significant market disruption resulting from the COVID-19 pandemic – were all considered in the Supervisory Board’s approval of the dividend proposal (further details on the 2020 dividend proposal can be found on page 131, in the Profit allocation paragraph). Risk management The Supervisory Board views risk management as an essential mechanism to safeguard the business and assets of the company, and to secure long-term performance and value creation. As the Supervisory Board sought to assure itself of the robustness of the company’s risk mitigation and internal controls, it received multiple risk management updates during the year. The Board of Management and Executive Committee maintain the risk management framework and system of internal controls. The Supervisory Board and the Audit Committee monitor the implementation of risk mitigating measures for the key risks, as identified by the Board of Management and the Executive Committee during the year by means of risk updates and reviews. Further details are included in the Risk management chapter. Corporate governance The Supervisory Board continuously reviews the company’s corporate governance and its compliance with the Dutch Corporate Governance Code. Talent management and succession planning In 2020, the Supervisory Board, after discussing its own composition and succession plans, proposed the reappointment of Dr. Pamela Kirby as member of the Supervisory Board. The reappointment was approved at the AGM held on April 23, 2020. Following the retirement of Ben Verwaayen as member of the Supervisory Board in April 2020, the number of members of the Supervisory Board was reduced to eight as of April 23, 2020. During 2020, the Supervisory Board also discussed and supported changes to the composition of the Executive Committee. With Ruud Joosten stepping down as Chief Operating Officer, his responsibilities were taken over by the CEO ad interim. Marten Booisma was succeeded as Chief Human Resources Officer by Joëlle Boxus as of 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. AkzoNobel Report 2020 | Leadership and governance 61 REPORT OF THE SUPERVISORY BOARD Independence of the Supervisory Board Supervisory Board members are requi- red 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 of the Code and completed the annual independence questionnaire addressing the relevant requirements for independence. Supervisory Board evaluation To assess its effectiveness, the Supervisory Board carried out an independent performance evaluation – facilitated by a third party – of itself, its individual members, its Audit, Remuneration and Nomination Committees, the Chairman, as well as the relationship with the Board of Management and the Executive Committee. The process consisted of Supervisory Board members completing a confidential questionnaire, while the third party held interviews with each of the members of the Supervisory Board, the Board of Management and the other members of the Executive Committee, the external auditor and the external advisor of the Remuneration Committee. In a separate meeting without the Board of Management, the 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 Supervisory Board is pleased to confirm the 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 Executive Committee and the Supervisory Board papers reflect this openness, although it was recommended that board papers be shared in a more timely manner in the future. With regard to Supervisory Board meetings, the Chairman and CEO will work together to review the current Supervisory Board agenda to ensure both the topics and the time allocation reflect the future strategic priorities for the company. In line with AkzoNobel embarking on its new Grow & Deliver strategy, the key recommendations included reviewing the composition of the Supervisory Board and the Committees to optimize their fit for the future. In addition, the Nomination Committee will ensure a strong executive development and succession management program is developed during 2021. AkzoNobel has a strong track record in ESG and will continue to focus on this across all countries in which it operates. The Supervisory Board will continue to actively support these initiatives. The impact of COVID- 19 meant that most of the interaction took place virtually in 2020. As soon as restrictions allow, spending more time in person will be prioritized. In the meantime, the use of virtual technology to enable the Supervisory Board to “meet” with AkzoNobel’s people around the world and deep dive into different areas of the business has been very helpful and will continue in 2021. Financial statements and profit allocation The Board of Management submitted the report and financial statements, including the report of the Board of Management, to the Supervisory Board for review and approval. The financial statements of Akzo Nobel N.V. for the financial year 2020 were audited by PricewaterhouseCoopers Accountants N.V. (PwC). The financial statements and the report 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 2020 financial statements of Akzo Nobel N.\/. form an adequate basis to account for the supervision provided (see the 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 2020 and, as proposed by the Board of Management, the proposed total dividend for 2020 of €1.95 (2019: €1.90), including a final dividend of €1.52 per share. An interim dividend of €0.43 (2019: €0.41) per share was paid in November 2020. 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 Committees of the Supervisory Board Audit Committee Remuneration Committee Nomination Committee Nils Smedgaard Andersen (Chairman) Byron Grote (Vice-Chairman) Chairman Sue Clark Michiel Jaski Dr. Pamela Kirby Jolanda Poots-Bijl Dick Sluimers Patrick Thomas Ben Verwaayen * Until February 11, 2020. ** From February 11, 2020. *** Until his retirement in April 2020. Member Member Member* Member Member Member Member Chairman Member* Member** Member Chairman Member Member*** Member*** 62 Leadership and governance | AkzoNobel Report 2020 REPORT OF THE SUPERVISORY BOARD Independence of the Supervisory Board to review the current Supervisory Board for review and approval. The financial agenda to ensure both the topics and statements of Akzo Nobel N.V. for the Supervisory Board members are requi- the time allocation reflect the future financial year 2020 were audited by red to act critically and independently of strategic priorities for the company. In PricewaterhouseCoopers Accountants one another, the Board of Management, line with AkzoNobel embarking on its N.V. (PwC). the Executive Committee and the new Grow & Deliver strategy, the key company’s stakeholders. Each member recommendations included reviewing the The financial statements and the of the Supervisory Board meets the composition of the Supervisory Board report were extensively discussed by independence requirements of the Code and the Committees to optimize their fit the Audit Committee with the external and completed the annual independence for the future. In addition, the Nomination auditors, in the presence of the CFO, questionnaire addressing the relevant Committee will ensure a strong and by the full Supervisory Board with requirements for independence. executive development and succession the Board of Management and the management program is developed Executive Committee. Based on these Supervisory Board evaluation during 2021. AkzoNobel has a strong discussions, the Supervisory Board is To assess its effectiveness, the track record in ESG and will continue of the opinion that the 2020 financial Supervisory Board carried out an to focus on this across all countries statements of Akzo Nobel N.\/. form independent performance evaluation in which it operates. The Supervisory an adequate basis to account for the – facilitated by a third party – of Board will continue to actively support supervision provided (see the financial itself, its individual members, its these initiatives. The impact of COVID- statements). The Audit Committee Audit, Remuneration and Nomination 19 meant that most of the interaction monitors the follow-up by management Committees, the Chairman, as well took place virtually in 2020. As soon on the recommendations made by the as the relationship with the Board as restrictions allow, spending more external auditors. The Supervisory Board of Management and the Executive time in person will be prioritized. In recommends that the AGM adopts the Committee. The process consisted of the meantime, the use of virtual financial statements as presented in this Supervisory Board members completing technology to enable the Supervisory Report 2020 and, as proposed by the a confidential questionnaire, while the Board to “meet” with AkzoNobel’s Board of Management, the proposed third party held interviews with each of people around the world and deep total dividend for 2020 of €1.95 (2019: the members of the Supervisory Board, dive into different areas of the business €1.90), including a final dividend of the Board of Management and the other has been very helpful and will continue €1.52 per share. An interim dividend members of the Executive Committee, in 2021. the external auditor and the external of €0.43 (2019: €0.41) per share was paid in November 2020. This reflects advisor of the Remuneration Committee. Financial statements and profit the continued commitment to providing allocation a stable to rising dividend. The dividend In a separate meeting without the Board The Board of Management submitted will be paid in cash. of Management, the Supervisory Board the report and financial statements, discussed the results of the evaluation including the report of the Board of In addition, it is requested that the AGM questionnaires. The Supervisory Management, to the Supervisory Board discharges the members of the Board of Board also discussed the functioning of the Board of Management and the performance of its individual members. The Supervisory Board is pleased to confirm the 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 Executive Committee and the Supervisory Board papers reflect this openness, although it was recommended Dick Sluimers that board papers be shared in a more timely manner in the future. With regard Patrick Thomas Ben Verwaayen to Supervisory Board meetings, the Chairman and CEO will work together * Until February 11, 2020. ** From February 11, 2020. *** Until his retirement in April 2020. 62 Leadership and governance | AkzoNobel Report 2020 Committees of the Supervisory Board Nils Smedgaard Andersen (Chairman) Byron Grote (Vice-Chairman) Chairman Sue Clark Michiel Jaski Dr. Pamela Kirby Jolanda Poots-Bijl Member Member Member* Member Audit Committee Remuneration Committee Nomination Committee Member Member Member Chairman Member* Member** Member Chairman Member Member*** Member*** Audit Committee activities 2020 Q1 Q2 Q3 Q4 • Review Q1 2020 financial statements • Review year-to-date audit findings • Compliance and integrity update • Review evaluation external auditor • Review and approval PwC audit plan • Internal controls framework update • IT security update • Review Q2 2020 financial statements • Audit fee 2020 • Review Q4 2019 financial statements and annual results • Review 2019 annual report and accounts • External audit report • Review risk management and internal control • Final dividend 2019 • HSE audit findings • Review full-year compliance report • Treasury update • Pension funds update • Finance transformation update • Valuation post-retirement benefits • Valuation of deferred tax assets and uncertain tax positions • Transformation to deliver towards the 15 by 20 ambition • Valuation post-retirement benefits • Review Q3 2020 financial statements • Treasury update • Recommendation on interim dividend 2020 • Share buyback program • Compliance and integrity update • Tax strategy review • Review budget 2021 and outlook • Review audit findings year-to-date • Hard close audit report • Internal Audit plan 2021 • Review of legal liability exposure report • Internal Control framework update • Update to the PwC audit plan • Transformation to deliver towards the 15 by 20 ambition • Valuation of deferred tax assets and uncertain tax positions Management from their responsibility for the conduct of business in 2020 and the members of the Supervisory Board for their supervision in 2020. status of the auditor’s independence. Further details on the external auditors can be found in the Corporate governance statement. AUDIT COMMITTEE All members of the Audit Committee have extensive accounting and financial management expertise. Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings. External audit PwC, 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. Risk management and internal control systems The Audit Committee reviewed AkzoNobel’s overall approach to governance, risk management and internal controls, its processes, outcomes, financial reporting and disclosures. It received regular updates from auditors and functions in this regard, and was provided with comprehensive risk and internal control reports during the year. In addition, the Audit Committee reviewed the annual operating plan (including budget) and AkzoNobel’s dividend proposals, as well as specifically reviewing cybersecurity in light of external COVID- 19 related trends. During 2020, the Audit Committee received and reviewed several updates on AkzoNobel’s Internal Control Framework. The Audit Committee also met regularly with senior executives. The Audit Committee performed an annual review of the services of the external auditor, and at each meeting it considered and assessed the The Executive Committee is responsible for ensuring an effective compliance control framework and has delegated part of the responsibilities to the Integrity and Compliance Committee. The Supervisory Board’s Audit Committee oversees this responsibility. Business and function reviews In fulfilling its oversight responsibilities in relation to risk management and internal control systems, the Audit Committee also received updates from functions such as Finance, Treasury, Information Management and Tax throughout the year. These updates also inform the Audit Committee’s review of the annual operational plan, including budget. Internal Audit The former Corporate Director of Internal Audit left AkzoNobel as of January 1, 2020, and was replaced by a new Corporate Director of Internal Audit, who started on March 1, 2020. 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 2020, the Audit Committee was satisfied with the effectiveness of the Internal Audit function. AkzoNobel Report 2020 | Leadership and governance 63 REPORT OF THE SUPERVISORY BOARD Results and financial statements Before each publication of the quarterly results and the financial statements, the Audit Committee reviewed the financial results. In addition, the Audit Committee reviewed and commented on the interim and final dividend proposals and on reports and press releases to be published. This was 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, the Audit Committee advised the Supervisory Board on the publications and disclosures, and on the interim and final dividends. All quarterly or annual releases of financial results were approved by the full Supervisory Board prior to publication and release. 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. REMUNERATION COMMITTEE Management performance review The work of the Remuneration Committee during Q1 focused on 2020 performance, the individual performance reviews of Board of Management members and of the Executive Committee. The Remune- ration Committee also reviewed various incentive plans in light of COVID-19, the economic circumstances and the relative performance compared with top peers. Remuneration Policy review In 2020, the Remuneration Committee and Supervisory Board reviewed the Remuneration Policies for the Board of Management and Supervisory Board to assess if they were still in line with the company’s strategy and financial targets, as well as considering the input received from stakeholders and the requirements of the Shareholder Rights Directive II and the Dutch provisions implementing the Shareholder Rights Directive II. The Remuneration Committee recommended the amendment of the Remuneration Policies for the Board of Management and the Supervisory Board for consideration by the shareholders at the AGM of April 23, 2020. During the year, the Remuneration Committee further evaluated the Remuneration Policies in line with AkzoNobel’s new Grow & Deliver strategy beyond 2020, while also considering the input received from stakeholders and the requirements of the Shareholder Rights Directive II and the Dutch provisions implementing the Shareholder Rights Directive II. As a result, new policies were prepared for consideration by the shareholders at the AGM in 2021. Management salary review The Remuneration Committee reviewed the base salaries and established 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. Related information Further details about the remuneration of members of the Board of Management and Executive Committee can be found in the Remuneration report and in Note 26 of the Consolidated financial statements. NOMINATION COMMITTEE Board of Management and executive succession During 2020, the Nomination Committee was consulted and gave its advice regarding the composition of the Exe cu- tive Committee and the position of COO, which became vacant during 2020. Supervisory Board succession During 2020, the Nomination Com mit tee continued to discuss the size, structure and composition of the Supervisory Remuneration Committee main 2020 activities Q1 Q2 & Q3 Q4 • Review of management performance 2019 • Approval of 2019 pay-out under Short-term Incentive Plan and vesting of shares under Long-term Incentive Plan • Review of Short-term Incentive Plan, Performance Incentive Plan and Long-term Incentive Plan • Review Remuneration Policy for Board of Management and Supervisory Board • Review of management base salaries for 2020 • Target setting 2020 • Review of preliminary grant of performance shares under Long-term Incentive Plan • 2019 Remuneration report 64 Leadership and governance | AkzoNobel Report 2020 • Review Remuneration Policy for Board of Management and Supervisory Board • Shareholder consultation sessions in light of the Remuneration Policy review • Review of 2020 (preliminary) performance outlook REPORT OF THE SUPERVISORY BOARD Results and financial statements incentive plans in light of COVID-19, the members and other members of Before each publication of the quarterly economic circumstances and the relative the Executive Committee. The base results and the financial statements, performance compared with top peers. salaries will continue to be assessed in the Audit Committee reviewed the light of market conditions, the reward financial results. In addition, the Audit Remuneration Policy review structures of peer group companies Committee reviewed and commented on In 2020, the Remuneration Committee and performance. The Remuneration the interim and final dividend proposals and Supervisory Board reviewed the Committee considered the pay ratios and on reports and press releases to Remuneration Policies for the Board of within the company and how these be published. This was in addition to Management and Supervisory Board to compare with peer group companies. the work undertaken by the company’s assess if they were still in line with the Forward-looking target ranges for Disclosure Committee in reviewing the company’s strategy and financial targets, variable remuneration of the Board company’s disclosure of potentially as well as considering the input received of Management were discussed and price sensitive information. Based on from stakeholders and the requirements proposals for the remuneration of other these discussions, the Audit Committee of the Shareholder Rights Directive II and Executive Committee members were advised the Supervisory Board on the Dutch provisions implementing the reviewed and discussed with the CEO. the publications and disclosures, and Shareholder Rights Directive II. on the interim and final dividends. All The Remuneration Committee quarterly or annual releases of financial recommended the amendment results were approved by the full of the Remuneration Policies Supervisory Board prior to publication for the Board of Management Related information and release. To ensure its effectiveness and the Supervisory Board for Further details about the remuneration of members of the and expertise, the Audit Committee consideration by the shareholders Board of Management and Executive Committee can be was provided with regular updates on at the AGM of April 23, 2020. found in the Remuneration report and in Note 26 of the IFRS developments and the anticipated During the year, the Remuneration Consolidated financial statements. impact of these developments on the Committee further evaluated the financial statements. In addition, the Remuneration Policies in line with Audit Committee reviewed and assessed AkzoNobel’s new Grow & Deliver strategy management assertions made in regard beyond 2020, while also considering the NOMINATION COMMITTEE to relevant accounting treatments. input received from stakeholders and the REMUNERATION COMMITTEE requirements of the Shareholder Rights Board of Management and Directive II and the Dutch provisions executive succession implementing the Shareholder Rights During 2020, the Nomination Committee Directive II. As a result, new policies was consulted and gave its advice Management performance were prepared for consideration by the regarding the composition of the Exe cu- review shareholders at the AGM in 2021. tive Committee and the position of COO, The work of the Remuneration Committee which became vacant during 2020. during Q1 focused on 2020 performance, Management salary review the individual performance reviews of The Remuneration Committee reviewed Supervisory Board succession Board of Management members and of the base salaries and established relevant During 2020, the Nomination Com mit tee the Executive Committee. The Remune- forward-looking target ranges for variable continued to discuss the size, structure ration Committee also reviewed various remuneration of Board of Management and composition of the Supervisory Remuneration Committee main 2020 activities Q1 Q2 & Q3 Q4 • Review of management performance 2019 • Review of Short-term Incentive Plan, Performance • Review Remuneration Policy for Board of Management • Approval of 2019 pay-out under Short-term Incentive Incentive Plan and Long-term Incentive Plan and Supervisory Board Plan and vesting of shares under Long-term • Review Remuneration Policy for Board of • Shareholder consultation sessions in light of the Incentive Plan Management and Supervisory Board Remuneration Policy review • Review of 2020 (preliminary) performance outlook • Review of management base salaries for 2020 • Target setting 2020 • Review of preliminary grant of performance shares under Long-term Incentive Plan • 2019 Remuneration report 64 Leadership and governance | AkzoNobel Report 2020 Supervisory Board skills and profiles N.S. Andersen (m) J. Poots-Bijl (f) S. Clark (f) B. Grote (m) M. Jaski (m) P. Kirby (f) D. Sluimers (m) P. Thomas (m) l l l l l l l l l l l l l Independent Consumer goods end-user segment Industrial end-user segment Buildings and infrastructure end-user segment Transportation end-user segment (International) business, commerce, finance/economics Scientific/information technology experience Public sector experience Management experience Business strategy planning Investor relations Manufacturing experience Supply chain/logistics experience Social, environmental or sustainability experience Finance expert Four or less external directorships Dutch/EU national Non-EU national Pensions experience Business-to-business sales experience R&D experience Legal experience Industrial/employment relations Risk management Consulting (f) = female (m) = male Board. Following thorough consideration, the Nomination Committee recommen- ded the reappointment of Pamela Kirby to the Supervisory Board for consideration by shareholders at the AGM of April 23, 2020. The Supervisory Board has updated its skills matrix, as shown above. 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. l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l l Nomination Committee main 2020 activities Q1 Q2, Q3 and Q4 • Supervisory Board succession planning • Review (re)appointment scheme • Update skills matrix • Board of Management and Executive Committee succession planning • Supervisory Board succession planning • Review (re)appointment scheme • Board of Management and Executive Committee succession planning With the second term of Ben Verwaayen having ended in 2020, the Nomination Committee concluded that it was deemed appropriate to reduce the number of Supervisory Board members to eight. This was approved by the Supervisory Board. ADDITIONAL REMARKS All Supervisory Board members would like to express their appreciation to the Board of Management and Executive Committee, and to all the company’s employees around the world, for their outstanding dedication and hard work during this exceptional year. AkzoNobel Report 2020 | Leadership and governance 65 CORPORATE GOVERNANCE STATEMENT AkzoNobel aspires to the highest standards of corporate governance and seeks to consistently enhance and improve corporate governance performance, emphasizing transparency and a sustainable culture of long- term value creation. Share- holders Supervisory Board Commercial Integrated Supply Chain Board of Management Executive Committee Support functions 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 and advises 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 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.nl 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 Offi cer (CEO) and the Chief Financial Offi cer (CFO)), the Chief Supply Chain Offi cer, the General Counsel and the Chief Human Resources Offi cer. The former Chief Operating Offi cer was also a member of the Executive Committee, until stepping down as of May 27, 2020. 66 Leadership and governance | AkzoNobel Report 2020 The composition of the Executive Committee ensures that functional, operational and commercial expertise is entrenched at the highest level of the organization. Among other responsibilities, the Board of Management defi nes the company’s 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 fi nancial targets, its sustainability performance and its pursuit of long-term value creation. In fulfi lling their duties, Board of Management members are assisted by the Executive Committee and guided by the interests of the company and its affi liated 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 CORPORATE GOVERNANCE STATEMENT AkzoNobel aspires to the highest standards of corporate governance and seeks to consistently enhance and improve corporate governance performance, emphasizing transparency and a sustainable culture of long- term value creation. Share- holders Supervisory Board Commercial Integrated Supply Chain Board of Management Executive Committee Support functions Akzo Nobel N.V. is a public limited in accordance with the Code’s “comply The composition of the Executive liability company (naamloze or explain” principle. For the full version Committee ensures that functional, vennootschap) established under the of the Code, visit www.mccg.nl operational and commercial expertise laws of the Netherlands, with common is entrenched at the highest level shares listed on Euronext Amsterdam. With the exception of those aspects of the organization. Among other AkzoNobel has a sponsored level 1 of our governance which can only responsibilities, the Board of American Depositary Receipt (ADR) be amended with the approval of the Management defi nes the company’s program and ADRs can be traded AGM, the Board of Management and strategic direction. It establishes on the international OTCQX platform the Supervisory Board may make and maintains internal policies in the US. adjustments to the way the Code is and procedures for effective risk applied, if this is considered to be in management and control, manages the The company’s management and the best interests of the company. realization of the company’s operational supervision are organized under Dutch Where changes are made, these and fi nancial targets, its sustainability law in a so-called two-tier system, will be reported and explained in the performance and its pursuit of long-term comprising a Board of Management annual report for the relevant year and value creation. In fulfi lling their duties, (solely composed of executive directors) discussed at the subsequent AGM. Board of Management members are and a Supervisory Board (solely composed of non-executive directors). The Supervisory Board supervises and advises the Board of Management and ensures a strong external presence in BOARD OF MANAGEMENT AND EXECUTIVE COMMITTEE assisted by the Executive Committee and guided by the interests of the company and its affi liated enterprises, taking into consideration the relevant interests of the company’s stakeholders. the governance of the company. The The Board of Management is entrusted two Boards are independent of each with the management of the company. The Board of Management and other and are accountable to the annual When it comes to the management Executive Committee promote openness meeting of shareholders (AGM) for the of our business, it operates in the and engagement through a SpeakUp! performance of their functions. context of an Executive Committee. grievance mechanism and have The Executive Committee comprises established a Code of Conduct, policies, Our corporate governance framework the members of the Board of rules and procedures incorporated in the is based on the company’s Articles of Management (currently the Chief company’s Policy framework, in order Association, the requirements of the Executive Offi cer (CEO) and the to drive a culture of good governance, Dutch Civil Code, the Dutch Corporate Chief Financial Offi cer (CFO)), the consistency and functional excellence. Governance Code (the “Code”) and Chief Supply Chain Offi cer, the The values of good governance, all applicable laws and regulations, General Counsel and the Chief Human sustainability and teamwork adopted including securities laws. The Code Resources Offi cer. The former Chief by the Board of Management are contains principles and best practices Operating Offi cer was also a member incorporated in these documents. The for Dutch companies with listed shares. of the Executive Committee, until Board of Management believes these Deviations from the Code are explained stepping down as of May 27, 2020. 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 strategy. 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. Since 2018, Insight surveys have been performed involving all employees, focused on our wider organizational health (see Note 1 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 decide to reserve decisions for itself. 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 accountable 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. 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 Board of Management, acting jointly. 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, and available from, the Dutch Chamber of Commerce. The Managing Directors of the company’s 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 current 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 term not exceeding four years, with the possibility of reappointment. 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 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 Our Chief Supply Chain Officer (and Executive Committee member), David Prinselaar, climbed an incredible 25 places to be ranked second in the 2020 edition of the Top 28 Supply Chain Executives in Europe. The methodology for the ranking – compiled from a longlist of 106 – is based on research into published company data and financial reports. Peer voting and an executive survey are also used to determine the final placing. 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 appointments 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 66 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 67 CORPORATE GOVERNANCE STATEMENT 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 Management members. which was of material significance to the company and to the relevant member. Remuneration The current Remuneration Policy for the Board of Management was lastly amended following approval by the AGM held on April 23, 2020, to implement the Shareholder Rights Directive II. The details of this policy can be found in the Remuneration report. The service contracts of the members of the Board of Management contain change of control provisions. Further details can be AkzoNobel has a gender diversity of 40% female representatives at Executive Committee level. found in the Remuneration report and Note 26 of the Consolidated financial statements. The service contracts of the Board of Management are compliant with the Code. The main elements of these contracts are available on our website. It is believed that due to the size 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 of March 9, 2020), and the steppng down of the Chief Operating Officer (as of May 27, 2020), AkzoNobel has a gender diversity of 40% female representatives at Executive Committee level. More information on AkzoNobel’s overall diversity and inclusion efforts can be found on page 33. Outside directorships Specific rules on outside board positions of members of the Executive Committee – which are more stringent than the requirements of the Dutch Civil Code – can be found in the Rules of Procedure. Conflicts of interest During 2020, no transactions were reported under which a member of the Board of Management or Executive Committee had a conflict of interest Operational Control Cycle The Executive Committee holds regular meetings to discuss the implementation of the company’s strategy and functional agendas. 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. 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 Management Business Review (CMBR), which is chaired by the CEO. The Executive Committee attends the CMBR meetings, where 68 Leadership and governance | AkzoNobel Report 2020 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 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 We launched a new bio-based wall paint in Vietnam which actively improves indoor air. Dulux Better Living Air Clean BioBased is enhanced with Pure Air technology. It contains natural sustainable ingredients, such as bamboo charcoal, and continuously removes harmful air pollutants such as formaldehyde, benzene and other volatile organic compounds (VOC) in the home environment. CORPORATE GOVERNANCE STATEMENT to fostering an inclusive and respectful which was of material significance to the it reviews the consolidated long-term workplace, we introduced training to company and to the relevant member. company perspective, including risks increase awareness around unconscious bias in the workplace. Remuneration and opportunities, decides on escalation and possible scenarios and supervises The current Remuneration Policy for the key performance indicators with A consistent and structured approach the Board of Management was lastly corrective actions, if applicable. is applied to succession planning amended following approval by the AGM for the Board of Management and held on April 23, 2020, to implement Executive Committee, taking into the Shareholder Rights Directive II. The account the implementation of the details of this policy can be found in COMMITTEES Diversity Policy. AkzoNobel currently the Remuneration report. The service Sustainability Council diverges from the gender target of at contracts of the members of the Board The Executive Committee has least 30% female and at least 30% of Management contain change of established a Sustainability Council to male Board of Management members. control provisions. Further details can be advise on sustainability developments. AkzoNobel has a gender diversity of 40% female representatives at Executive Committee level. found in the Remuneration The council monitors the integration report and Note 26 of the of sustainability into management Consolidated financial processes and oversees the company’s statements. The service sustainability targets and sustainability contracts of the Board of performance. The council, which meets Management are compliant quarterly, consists of representative with the Code. The main business and functional directors, as elements of these contracts well as the CEO. are available on our website. Significant sustainability aspects material It is believed that due to the size of the Operational Control Cycle to the company are reviewed annually, Board of Management (being only two The Executive Committee holds regular with input from internal and external members), this divergence is justified meetings to discuss the implementation and has ensured the best candidates of the company’s strategy and functional for the roles were nominated by the agendas. Additional meetings are held Supervisory Board and appointed by to discuss specific topics as required. shareholders. Following the appointment The Board of Management and of Joëlle Boxus as the new Chief Human Executive Committee have delegated Resources Officer (as of March 9, 2020), authorities to individual Executive and the steppng down of the Chief Committee members and to certain Operating Officer (as of May 27, 2020), committees and councils. To help plan AkzoNobel has a gender diversity of for success and ensure alignment within 40% female representatives at Executive the entire AkzoNobel organization on Committee level. More information the strategic and operational plan, the on AkzoNobel’s overall diversity and Board of Management and Executive inclusion efforts can be found on Committee implemented an Integrated page 33. Outside directorships Business Planning (IBP) process across the company’s global businesses and functions. IBP provides, on a monthly Specific rules on outside board positions basis, visibility on the long-term of members of the Executive Committee integrated business and financial plan, – which are more stringent than the which covers the product portfolio, requirements of the Dutch Civil Code – demand and supply. It therefore ensures can be found in the Rules of Procedure. early attention and remedial actions, Conflicts of interest where appropriate, on any potential gaps. The monthly IBP cycle ends with During 2020, no transactions were the Corporate Management Business reported under which a member of the Review (CMBR), which is chaired by Board of Management or Executive the CEO. The Executive Committee Committee had a conflict of interest attends the CMBR meetings, where 68 Leadership and governance | AkzoNobel Report 2020 We launched a new bio-based wall paint in Vietnam which actively improves indoor air. Dulux Better Living Air Clean BioBased is enhanced with Pure Air technology. It contains natural sustainable ingredients, such as bamboo charcoal, and continuously removes harmful air pollutants such as formaldehyde, benzene and other volatile organic compounds (VOC) in the home environment. SUPERVISORY BOARD 62.5% stakeholders. The Sustainability Council focuses on topics with the biggest impact on accelerating AkzoNobel’s strategy to create shared value, building on our core values of safety, integrity and sustainability. Disclosure Committee is to establish and maintain disclosure controls and procedures, and to advise the CEO, CFO and General Counsel on the accurate and timely disclosure of material fi nancial and non-fi nancial information. 37.5% Progress regarding sustainability objectives, development, target setting and implementation is reviewed quarterly by the Executive Committee, and semi- annually by the Supervisory Board. The Audit Committee takes an active role in assessing the quality and reliability of sustainable performance reporting and PwC has been engaged to perform an assurance engagement on specifi c indicators included in the Sustainability statements. Their report can be found on page 138 of the Financial information. Integrity and Compliance Committee This committee reviews investigations into material violations of laws, regulations and internal rules, and SpeakUp! reports. It also decides on disciplinary measures and control improvement actions, as well as monitoring and responding to any trends or irregularities. By submitting these cases through a central Integrity and Compliance Committee, the company ensures transparency and consistency of measures throughout the organization. More details can be found on page 77. Executive Pensions Committee The Executive Pensions Committee oversees the general pension policies of AkzoNobel’s various pension plans and their fi nancial consequences for the company. The committee is chaired by the CFO and includes the Chief Human Resources Offi cer, 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, fi nance and investor relations. The task of the 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 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 fi nancial objectives • The design and effectiveness of internal risk management and control systems • The main fi nancial 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 profi le and the Charters of the Committees, which set out the tasks and responsibilities of the Supervisory Board, as well as its operational processes. Composition In compliance with the Dutch Civil Code, the Supervisory Board has a balanced DK 12.5% UK 37.5% 5-8 Y 0-4 Y US/UK 12.5% NL 37.5% Tenure in years composition refl ecting the nature and variety of the company’s businesses, their international spread and expertise in fi elds such as fi nance, economics, information technology (IT), societal, environmental and legal aspects of business, government and public administration. The Supervisory Board maintains a skills matrix, which provides an overview of the skills and experience of the individual members. The 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 in its Rules of Procedures. The objective of this policy is to ensure a balanced composition, taking account of nationality, age, gender, education and work background. For 2020, there are no divergences to report. When nominating and selecting new candidates for the Supervisory Board, account is taken of the Supervisory Board profi le and skills matrix, the requirements of the Act on Management AkzoNobel Report 2020 | Leadership and governance 69 CORPORATE GOVERNANCE STATEMENT and Supervision, and the principles and provisions of the Code. 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. 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 Residents of four cities in Sweden – Linköping, Motala, Mjölby and Åtvidaberg – had the chance to co-create street art and brighten up the streets during the winter season as part of the annual Artscape festival. Local people submitted proposals and then communities had the opportunity to paint the murals with experienced artists, all with the help of our Nordsjö brand. In accordance with the Code, Supervisory Board members are eligible for re-election once for a period not exceeding four years. 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 reappointment after an eight- year period, reasons must be given in the Report of the Supervisory Board. Terms of appointment are based on a reappointment scheme, available on our website. In 2020, one reappointment to the Supervisory Board was proposed to, and approved by, the AGM held on April 23, 2020. Induction and training Following appointment to the Supervisory Board, new members receive a comprehensive induction tailored to their individual needs. 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, attends business unit deep dives and ensures that the Supervisory Board undertakes training, for example in the area of compliance and ethics. Conflict of interest Members of the Supervisory Board shall not participate in the discussions and decision-making on a subject or transaction in relation to which they have a conflict of interest with the company. Decisions to enter into transactions under which Supervisory Board members have conflicts of 70 Leadership and governance | AkzoNobel Report 2020 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 2020, no transactions were reported under which a member had a conflict of interest which was of material significance to the company and to the relevant member. Remuneration of the Supervisory Board Supervisory 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. To implement the Shareholder Rights Directive II, an amendment to the Remuneration Policy for the Supervisory Board was approved at the AGM held on April 23, 2020. 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 26 of the Consolidated financial statements. SUPERVISORY BOARD COMMITTEES The Supervisory Board has established three permanent committees – Audit Committee, Nomination Committee and Remuneration Committee. Information on the activities, 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 CORPORATE GOVERNANCE STATEMENT and Supervision, and the principles and This includes extensive briefings interest that are of material significance provisions of the Code. about all major business and to the company, and to the relevant Appointment functional aspects of the company Supervisory Board member, require and its corporate governance and the approval of the Supervisory Board. Members of the Supervisory Board are compliance requirements. The induction Any such decisions will be recorded in nominated, appointed and dismissed in includes meetings with the CEO, the annual report for the relevant year, accordance with procedures identical CFO, all other Executive Committee with reference to the conflict of interest to those previously outlined for the members and relevant members of and a declaration that the relevant best members of the Board of Management. senior management, as well as site practice provisions of the Code have been complied with. During 2020, no transactions were reported under which a member had a conflict of interest which was of material significance to the company and to the relevant member. Remuneration of the Supervisory Board Supervisory 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. To implement the Shareholder Rights Directive II, an amendment to the Remuneration Policy for the Supervisory Board was approved at the AGM held on April 23, 2020. 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 26 of the Residents of four cities in Sweden – Linköping, Motala, Mjölby and Åtvidaberg – had the chance to co-create street art and brighten up the streets during the winter season as part of the annual Artscape festival. Local people submitted proposals and then communities had the opportunity to paint the murals with experienced artists, all with the help of our Nordsjö brand. In accordance with the Code, visits. This enables new Supervisory Consolidated financial statements. Supervisory Board members are eligible Board members to quickly build up for re-election once for a period not an understanding of AkzoNobel’s exceeding four years. Members may be businesses and strategy, as well as the re-elected a second time for a period of key risks and issues the company faces. two years. This period may be extended In addition, the Chairman ensures the SUPERVISORY BOARD COMMITTEES by two years at the most. In the event Supervisory Board is provided with The Supervisory Board has established of a reappointment after an eight- regular updates, attends business three permanent committees – Audit year period, reasons must be given in unit deep dives and ensures that the Committee, Nomination Committee and the Report of the Supervisory Board. Supervisory Board undertakes training, Remuneration Committee. Information Terms of appointment are based on a for example in the area of compliance on the activities, composition and reappointment scheme, available on our and ethics. website. In 2020, one reappointment to the Supervisory Board was proposed Conflict of interest attendance of the Supervisory Board members at the meetings of the committees during the year is set out in to, and approved by, the AGM held on Members of the Supervisory Board the Report of the Supervisory Board. April 23, 2020. shall not participate in the discussions Induction and training Following appointment to the and decision-making on a subject Each committee has a charter or transaction in relation to which describing its role and responsibilities, they have a conflict of interest with as well as the manner in which it Supervisory Board, new members the company. Decisions to enter into discharges its duties and reports to the receive a comprehensive induction transactions under which Supervisory full Supervisory Board. These charters tailored to their individual needs. Board members have conflicts of are included in the Supervisory Board Rules of Procedure. The committees report on their deliberations and findings to the full Supervisory Board. SHAREHOLDERS AND THE ANNUAL GENERAL MEETING The 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 (for more details see art. 57 of the Articles of Association available on our website) The company provides remote voting possibilities to its shareholders. Holding shares in the company on the record date determines the right to exercise voting rights and other rights relating to the AGM. All resolutions are made on the basis of the “one share, one vote” principle (assuming an equal par value for each class of shares). All resolutions are adopted by absolute majority, unless the law or the company’s Articles of Association stipulate otherwise. Holders of common shares in aggregate representing at least 1% of the total issued capital, or, according to the Official List of Euronext Amsterdam N.V., representing a value of at least €50 million, may submit proposals for the AGM agenda. Such proposals must be adequately substantiated and submitted in writing, or electronically, to the company at least 60 calendar days in advance of the meeting. Draft minutes of the AGM are made available on the company’s website within three months of the meeting date. The final minutes are made available online within six months of the meeting date. be found in the “Register of substantial holdings and gross short positions” at www.afm.nl 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 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 were 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. 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, 2020, a total of 190.6 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. Shareholders owning 3% or more of the issued capital and/or voting rights must report this to the Dutch Authority for the Financial Markets (AFM) as soon as the threshold is reached or exceeded. Relevant reporting by shareholders can Related information For more details about AkzoNobel shares and Bearer Certificates, contact Investor Relations: investor.relations@akzonobel.com The priority shares are held by the Foundation Akzo Nobel (Stichting Akzo Nobel). The priority shares are limited in transferability and profit entitlement (see Note F of the Company financial statements). 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 right 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. 70 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 71 CORPORATE GOVERNANCE STATEMENT 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 23, 2020, 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 preemptive rights, up to a maximum of 10% of the issued share capital. The Board of Management was also given a mandate to acquire, and to cancel held or acquired, 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 72 Leadership and governance | AkzoNobel Report 2020 Our new regional headquarters for South America was opened in Brazil. Known as the AkzoNobel House, it’s a great showcase for our passion for paint. 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 enterprises 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 CORPORATE GOVERNANCE STATEMENT 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 23, 2020, 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 preemptive rights, up to a maximum of 10% of the issued share capital. The Board of Management was also given a mandate to acquire, and to cancel held or acquired, 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. Our new regional headquarters for South America was opened in Brazil. Known as the AkzoNobel House, it’s a great showcase for our passion for paint. Anti-takeover provisions without any agreement having been the opinion that these provisions will and control reached in relation to such a bid with enhance the continuity of the company’s According to the Code, the company the company. The same shall apply if management and policies. exists that such a bid will be made, and the Board of Management are of is required to provide an overview of one shareholder, or more shareholders its actual or potential anti-takeover acting in a concerted way, hold a In the event of a hostile takeover bid, measures, and to indicate in what substantial percentage of the issued or other action which the Board of circumstances it is expected that they common shares of the company Management and Supervisory Board may be used. without making an offer. Or if, in the consider adverse to the company’s opinion of the Board of the Foundation interests, the two Boards reserve The priority shares may be considered Akzo Nobel, the exercise of the voting the right to use all available powers to constitute a form of anti-takeover rights by one shareholder or more (including the right to invoke a response measure, in relation to the right of shareholders, acting in a concerted way, time in accordance with provisions 4.1.6 the Meeting of Holders of Priority is materially in conflict with the interests and 4.1.7 of the Code), while taking into Shares to make binding nominations of the company. In such cases, the account the relevant interests of the for appointments to the Board of Supervisory Board and the Board of company and its affiliate enterprises Management and the Supervisory Management, in accordance with their and stakeholders. Board. The Foundation Akzo Nobel has statutory responsibility, will evaluate all confirmed that it intends to make use of available options with a view to serving such rights in exceptional circumstances the best interests of the company, its only. These circumstances include shareholders and other stakeholders. AUDITORS situations where, in the opinion of the The external auditor is appointed by the Board of the Foundation, the continuity The Board of the Foundation Akzo AGM on proposal of the Supervisory of the company’s management and Nobel has reserved the right to make Board. The appointment is reviewed policies is at stake. use of its binding nomination rights for every four years and the results of this the appointment of members of the review and assessment are reported to This may be the case if a public bid for Supervisory Board and of the Board of the AGM. The external auditor attends the common shares of the company Management in such circumstances. all regular Audit Committee meetings, has been announced, or has been Although a deviation from provision 4.3.3 as well as the majority of the additional made, or the justified expectation of the Code, the Supervisory Board meetings, and the meeting of the Supervisory Board at which the fi nancial statements are approved. During these meetings, the auditor discusses the outcome of the audit procedures and the refl ections thereof in the auditors’ report. In particular, the key audit matters are highlighted. The auditor receives the fi nancial information and underlying reports of the quarterly fi gures and can comment on and respond to this information. The external auditor is present at the AGM and shareholders may ask questions with regard to the audit. Auditor independence The Audit Committee and Board of Management report their dealings with the external auditor to the Supervisory Board annually, and also discuss the auditor’s independence. 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 chair. 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 quarterly 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. 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 68. In 2020, we invested in enhancing our Internal Control Framework and Process, alongside the continued work on system embedded controls, standard role design and segregation of duty monitoring. 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 later in the next chapter. Reference is made to the Statement of the Board of Management relating to internal risk management and control systems. The AkzoNobel internal control framework i n o i t a c n u m m o c d n a n o i t a m r o n f I Monitoring activities Control activities Responding to risk Setting objectives Control environment 72 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 73 RISK MANAGEMENT Doing business inherently involves taking risks. By seeking to take balanced risks, we strive to be a successful and respected company. Risk management is an essential element of our corporate governance and strategy development. We continuously strive to foster a high awareness of business risks and internal control to provide transparency in our processes and 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). RISK MANAGEMENT FRAMEWORK Our risk management framework is based on 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 the Risk management section on our website. RISK MANAGEMENT IN 2020 Risk management is a company-wide activity, under the responsibility of the Board of Management and Executive Committee, focused on the areas of major risk exposure. During 2020, we held a signifi cant number of enterprise risk workshops across the organization, including dedicated workshops on fraud risks in response to the rapidly changing environment due to COVID-19. Risk scenarios identifi ed are prioritized by responsible management teams Risk response per risk profile Actions Risk profiles Enterprise Risk Management process Risk identification and assessment Risk profiles and risk responses Risk consolidation Risk transparency Executive Committee Top 10 risks and risk responses Enterprise Risk Management reporting Functions and business units Top 10 risks and risk responses Supervisory Board Areas of major risk exposure (projects) Top 10 risks and risk responses and functional experts, and adequate mitigating actions are defi ned. We consider risk assessment and mitigation to be a continuous process, carried out against the background of an evolving risk landscape, which includes short, medium and longer term challenges. employee health and well-being and minimize business disruption. The symbols alongside the risk descriptions opposite represent management’s assessment of risk development, compared with 2019. The risk of a global pandemic materialized in 2020. By acting adequately and appointing a global COVID-19 response team, working with local response teams, we implemented mitigating actions to safeguard (For information related to fi nancial risk, see Note 27 of the Consolidated fi nancial statements). Symbols indicate the following: Risk assessed to increase. Risk assessed to remain fairly stable. 74 Leadership and governance | AkzoNobel Report 2020 RISK MANAGEMENT Doing business inherently involves taking risks. By seeking to take balanced risks, we strive to be a successful and respected company. Risk management is an essential element of our corporate governance and strategy development. We continuously strive to foster a high awareness of business risks and internal control to provide transparency in our processes and 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). RISK MANAGEMENT FRAMEWORK Our risk management framework is based on 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 the Risk management section on our website. RISK MANAGEMENT IN 2020 Risk response per risk profile Actions Risk profiles Enterprise Risk Management process Risk identification and assessment Risk profiles and risk responses consolidation Risk Risk transparency Executive Committee Top 10 risks and risk responses Enterprise Risk Management reporting Functions and business Supervisory Board units Top 10 risks and risk responses Areas of major risk exposure (projects) Top 10 risks and risk responses Risk management is a company-wide and functional experts, and adequate employee health and well-being and activity, under the responsibility of the mitigating actions are defi ned. We minimize business disruption. Board of Management and Executive consider risk assessment and mitigation Committee, focused on the areas of to be a continuous process, carried out The symbols alongside the risk major risk exposure. against the background of an evolving descriptions opposite represent During 2020, we held a signifi cant medium and longer term challenges. development, compared with 2019. risk landscape, which includes short, management’s assessment of risk number of enterprise risk workshops across the organization, including The risk of a global pandemic (For information related to fi nancial dedicated workshops on fraud risks materialized in 2020. By acting risk, see Note 27 of the Consolidated in response to the rapidly changing adequately and appointing a global fi nancial statements). environment due to COVID-19. Risk COVID-19 response team, working with scenarios identifi ed are prioritized local response teams, we implemented by responsible management teams mitigating actions to safeguard Symbols indicate the following: Risk assessed to increase. Risk assessed to remain fairly stable. External – Strategic Global economy and the geopolitical context The unpredictable world’s geo-political situation, with its impact on supply and demand and the highly competitive markets in which we operate, require ongoing attention to protect our financial performance. Mitigating actions • Continued focus on opera- tional 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 ver ti cally) could impact our compe titive position and/ or increase the vulnerability of operations. Mitigating actions • Maintain industry, market and competitive intelligence analysis of competitors, customers and suppliers, and the ability to respond rapidly • Identify opportunities for M&A, based on strong strategic and financial rationale • Secure freedom to invest through strategic alignment with shareholders and other stakeholders • External – Strategic Pandemic The risk of a global pandemic materialized in 2020. The company acted to safeguard employee health and well- being and minimize business disruption. as environmental, human rights and competition law). Mitigating actions • Safety guidelines for our staff, contractors and/or third-party suppliers working on our premises, updated in real time based on local regulations/ guidance • Well-being support to our staff • Agility of supply chain and distribution channels • Continuous monitoring of impact of pandemic, including updating of forecasts • Continued focus on opera- tional cost and complexity reduction 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 • Continuation of system (ERP) consolidation to increase robustness of digital landscape • Broaden lifecycle planning for key applications • Embedding a cybersecurity culture (intensified training, awareness creation) External – Compliance Complying with laws and regulatory develop- ment As a global player, we are exposed to increasingly stringent laws and regulations covering a growing range of subjects (such Mitigating actions • Fostering open and trans- parent culture, continuous education and training • Continuing implementation of Integrity and Compliance governance model • Operate under state-of-the- art safety and compliance requirements for our manufacturing and R&D sites Internal – Strategic Organic growth Market leadership in parts of the world where our markets are growing is a cornerstone of our strategy. A global presence, in combination with locally tailored go-to-market models, is an essential ingredient for success. Mitigating actions • Renewed BU strategic • Partnering with innovative startups (Paint the Future) • IT resources to support new technology applications Internal – Operational Management of change We recognize the risks associated with continuous change, as well as the need to invest in building an organization structure which encourages and embraces change, while balancing opportunity and managing risk. Mitigating actions • Global Process Owners continue implementation of standard solutions across the company • Reward system sets desired behavioral changes in motion and keeps momentum • Launch of organizational health initiatives and periodic tracking of progress mandates to underpin strategy • Range of programs to attract • Investment in sales capability and retain talent and deployment of commercial excellence programs • Further leverage digitally driven marketing • Driving demand sensing, product innovation and supply chain agility through Integrated Business Planning Internal – Strategic Innovation, identification and successful imple men- tation of major trans- forming technologies 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 • Improve product management lifecycle 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 organization 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 • Define and align master data definition, quality standards and priorities • Extended set of key controls 74 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 75 INTEGRITY AND COMPLIANCE MANAGEMENT We’re committed to leading with integrity in our industry. It’s one of our three core values. We continue to further advance and expand our Integrity and Compliance program to help ensure compliance with laws and regulations and guide our employees to make fair and honest decisions every day. Below is a summary of the 2020 priorities and activities, and the outcomes thereof, as required pursuant to the Dutch Decree on the publication of non-financial information. GOVERNANCE AND ORGANIZATION The Executive Committee is responsible for maintaining a culture of integrity and ensuring an effective compliance control framework. The Supervisory Board’s Audit Committee oversees this responsibility. The Executive Committee has delegated certain responsibilities to the following committees (for more details visit our website): Integrity and Compliance Committee Reviews investigations into material violations of laws, regulations and internal rules, and SpeakUp! reports. Also decides on disciplinary measures and control improvement actions, and monitoring and responding to any trends or irregularities. By submitting these cases through a central Integrity and Compliance Committee, we ensure transparency and consistency of measures throughout the organization. Risk, Control and Compliance Committees (RCC) Responsible for supervising the effectiveness of the control environment and reviewing weaknesses in this 76 Leadership and governance | AkzoNobel Report 2020 environment, as well as progress on improvement actions. There are eight Business Unit RCCs and four Functional RCCs, in addition to a Group RCC. They each met quarterly in 2020. Human Rights Committee Responsible for supervising our Human Rights Control Framework and driving further expansion of the human rights program. To learn more, including details of how our approach to human rights helped our EcoVadis rating improve, see Note 4 of the Sustainability statements. Privacy Committee Responsible for supervising the com- pany’s Privacy Control Framework and driving further expansion of the data privacy program. In 2020, several critical projects were delivered. These included the launch of a new tool for cookie compliance, which helps to ensure required consent is given by website visitors before cookies are used for analytics and other marketing purposes. We also introduced automated workflows for handling data subject requests to ensure they are handled in line with applicable privacy laws. Integrity and Compliance function Day-to-day management of our Integrity and Compliance Framework is delegated to the Integrity and Compliance team, led by the Director of Integrity and Compliance, who reports to the General Counsel. The team includes legal experts in competition law; anti-bribery and anti-corruption; export control and sanctions; data privacy; and human rights. The Integrity and Compliance managers contribute to further strengthening the culture of integrity by identifying and ad - dressing local risks and cooperating with other functions to monitor controls and follow up on SpeakUp! cases. In 2020, the heads of Integrity and Compliance, Internal Control and Internal Audit met monthly to discuss findings and actions. RISK MANAGEMENT Every year, each business unit (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. POLICY MANAGEMENT In 2020, we continued to expand our Policy Portal, a one-stop-shop for key policies, rules and procedures relating to our global processes. By reducing complexity and increasing transparency, it’s easier for employees to access and understand which rules apply to their job. For example, during the year we issued rules and procedures on who has authority to approve certain decisions, receiving or offering gifts, and hospitality events. We also distributed business- friendly do’s and don’ts, for example regarding parallel imports in Europe and e-commerce globally. Our policies and supporting tools increase awareness and knowledge across the company. No major risks or issues have been identified in these compliance fields. To ensure we maintain and strengthen our culture of integrity, the Integrity and Compliance team – together with various functions and stakeholders – focuses efforts on three key areas: • Help leaders to lead by example • Build capabilities through training • Build awareness through communication campaigns AWARENESS AND EDUCATION In 2020, we continued to counsel and educate employees on integrity and compliance rules and controls through e-learnings and in-person sessions. Business-friendly do’s and don’ts were also issued to designated employees in specific compliance fields. INTEGRITY AND COMPLIANCE MANAGEMENT We’re committed to leading with integrity in our industry. It’s one of our three core values. We continue to further advance and expand our Integrity and Compliance program to help ensure compliance with laws and regulations and guide our employees to make fair and honest decisions every day. Below is a summary of the 2020 priorities and activities, and the environment, as well as progress on The Integrity and Compliance managers improvement actions. There are eight contribute to further strengthening the Business Unit RCCs and four Functional culture of integrity by identifying and ad - RCCs, in addition to a Group RCC. They dressing local risks and cooperating with each met quarterly in 2020. Human Rights Committee other functions to monitor controls and follow up on SpeakUp! cases. In 2020, the heads of Integrity and Compliance, Responsible for supervising our Human Internal Control and Internal Audit met Rights Control Framework and monthly to discuss findings and actions. driving further expansion of the human rights program. To learn more, including details of how our approach to human rights helped our EcoVadis rating RISK MANAGEMENT improve, see Note 4 of the Sustainability Every year, each business unit (BU) statements. Privacy Committee and major function identifies its key compliance risks and defines actions to mitigate these risks. These actions form outcomes thereof, as required pursuant Responsible for supervising the com- part of the BU/function integrity and to the Dutch Decree on the publication pany’s Privacy Control Framework and compliance plan, which in turn forms of non-financial information. driving further expansion of the data part of a larger BU/function legal plan. GOVERNANCE AND ORGANIZATION privacy program. In 2020, several critical projects were delivered. These included the launch of a new tool for cookie compliance, which helps to ensure POLICY MANAGEMENT required consent is given by website In 2020, we continued to expand our The Executive Committee is responsible visitors before cookies are used for Policy Portal, a one-stop-shop for key for maintaining a culture of integrity analytics and other marketing purposes. policies, rules and procedures relating and ensuring an effective compliance We also introduced automated to our global processes. By reducing control framework. The Supervisory workflows for handling data subject complexity and increasing transparency, Board’s Audit Committee oversees this requests to ensure they are handled in it’s easier for employees to access and responsibility. The Executive Committee line with applicable privacy laws. understand which rules apply to their has delegated certain responsibilities job. For example, during the year we to the following committees (for more Integrity and Compliance issued rules and procedures on who has details visit our website): function authority to approve certain decisions, Day-to-day management of our receiving or offering gifts, and hospitality Integrity and Compliance Integrity and Compliance Framework events. We also distributed business- Committee is delegated to the Integrity and friendly do’s and don’ts, for example Reviews investigations into material Compliance team, led by the Director of regarding parallel imports in Europe and violations of laws, regulations and Integrity and Compliance, who reports e-commerce globally. Our policies and internal rules, and SpeakUp! reports. to the General Counsel. The team supporting tools increase awareness Also decides on disciplinary measures includes legal experts in competition law; and knowledge across the company. and control improvement actions, and anti-bribery and anti-corruption; export No major risks or issues have been monitoring and responding to any trends control and sanctions; data privacy; and identified in these compliance fields. or irregularities. By submitting these human rights. cases through a central Integrity and Compliance Committee, we ensure To ensure we maintain and strengthen transparency and consistency of our culture of integrity, the Integrity and AWARENESS AND EDUCATION measures throughout the organization. Compliance team – together with various In 2020, we continued to counsel and functions and stakeholders – focuses educate employees on integrity and Risk, Control and Compliance efforts on three key areas: compliance rules and controls through Committees (RCC) • Help leaders to lead by example e-learnings and in-person sessions. Responsible for supervising the • Build capabilities through training Business-friendly do’s and don’ts were effectiveness of the control environment • Build awareness through also issued to designated employees in and reviewing weaknesses in this communication campaigns specific compliance fields. Communication campaigns Employees are regularly informed about compliance risks and duties. For example, in 2020, we ran campaigns to educate employees about external fraud threats, hospitality and gifts compliance and our internal reporting system. We also focus on a different aspect of integrity every month to help employees make fair and honest decisions every day. In November, a global Integrity Week was held focused on protecting company data. E-learning Employees are required to follow mandatory e-learnings on various subjects, including our Code of Conduct, Life-Saving Rules, operating a diverse and respectful workplace, fraud, competition law, export control, information security and data privacy. Training sessions A number of face-to-face and virtual trainings are provided on integrity and compliance related topics. Due to the challenges posed by COVID-19, video conference trainings (including polls and Q&As) were offered to help increase employee engagement. DUE DILIGENCE We have processes in place to perform due diligence screenings on M&A targets and business partners. During 2020, we automated the screening of customers, suppliers and transactions in the area of export control and sanctions. MONITORING We have several processes to monitor compliance with our rules by employees and business partners. Managers are also required to self-assess and confirm compliance with company rules as part of the internal control self-assessment. Supplier performance is monitored through the EcoVadis self-assessment and Together for Sustainability audits. We also periodically screen high risk business partners registered in the third party compliance management tool. During 2020, we launched our annual Code of Conduct declaration to senior leadership, with a 100% completion rate in two weeks. All our employees were then asked to reconfirm compliance. Internal Audit performs numerous audits on our operations. Their audit plan is risk-based and takes account of prior compliance and internal control findings. In 2020, several internal audits were held to validate compliance with our rules in certain units; and we advanced our Gift, Hospitality and Conflict of Interest Register for more transparency on gifts received and provided, and on potential conflicts between the company’s interests and personal interests. GRIEVANCE AND INVESTIGATION Our whistleblowing framework was named #1 out of all top companies in the Netherlands by Transparency International NL. Our SpeakUp! grievance mechanism enables employees and third parties to raise concerns about compliance with our Code of Conduct. Strict principles of confidentiality, respect for anonymity, non-retaliation, objectivity and the right to be heard are applied. A strict protocol means investigators must follow certain planning, investigation and reporting steps to ensure the right quality and speed. In 2020, the total number of reports increased slightly, partly due to COVID- 19 related concerns. We continue to see higher levels of reporting through our SpeakUp! hotline and online (180 SpeakUp! vs 70 direct reporting). All reports and alerts led to 35 dismissals and various other disciplinary measures and control improvements, confirming the value of our grievance framework. For more details, visit https://akzo.no/SpeakUp REPORTING During 2020, the Director of Integrity and Compliance reported twice to the Executive Committee and the Audit Committee of the Supervisory Board on material developments of the Integrity and Compliance Program. Should there be any material investigation matters, these are discussed with our external auditor on a quarterly basis. No individual matters or disciplinary actions have been discussed with the Integrity and Compliance Committee that would warrant separate disclosure in this annual report. Should there be any material compliance matters or material internal control weaknesses or improvements in the future, these will be addressed through the RCCs and discussed with the Audit Committee and external auditor and, where appropriate, disclosed in accordance with the applicable legal requirements. SpeakUp! reports Total reports and alerts registered Reports received through SpeakUp! Integrity Safety Sustainability Dismissals resulting from SpeakUp! reports Conclusions SpeakUp! reports: Substantiated Unsubstantiated Other (e.g. referred) 2018 238 104 50 6 48 14 42 48 2019 222 164 59 5 100 28 82 54 2020 250 180 61 21 98 6 27 70 46 In 2020, 56 reports and alerts were received outside our SpeakUp! mechanism, 43 of which were unsubstantiated, leading to 29 dismissals. 76 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 77 REMUNERATION REPORT This report describes the imple- mentation of our Remuneration Policy in 2020 for members of the Board of Management and Supervisory Board. We have a clear strategic focus to be - come the reference in paints and coatings with strong global brands, leading market positions and a balanced geographic exposure across all regions. Our strategy is aimed at long-term value creation. To realize our strategy and create the long-term value we aim for, it’s essential that we can attract and retain high caliber members to our Board of Management and Supervisory Board. This is reflected in the remuneration policies for each of these boards. 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 – and was adopted by shareholders at the Annual General Meeting (AGM) in 2020 (with 92% of votes in favor). Details about its implementation in 2020 can be found below in chapter 1. The Remuneration Policy for the Supervisory Board was adopted by shareholders at the 2014 AGM, with some limited changes being approved at the AGM in 2020 (with 99% of votes in favor). Details about the implementation of the current policy in 2020 are in chapter 2. The execution of remuneration for 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 considered in the disclosure presented in this report. 78 Leadership and governance | AkzoNobel Report 2020 For a full description of the Remuneration Policy for both the Board of Management and the Supervisory Board, please visit our website. The remuneration for the financial year 2020, as described in this report, is subject to an advisory vote at the 2021 AGM. Questions raised in the 2020 AGM regarding remuneration items were addressed in the respective meeting, resulting in 94% votes in favor of the 2019 Remuneration report. 1. REMUNERATION FOR THE BOARD OF MANAGEMENT The Policy is designed to enable the Board of Management to achieve the company’s objectives, while balancing the perspectives of shareholders and other key stakeholders. The focus on performance is achieved by including both short- and long-term incentives, to ensure that the Board of Management reaches the annual expected level of performance, while bearing in mind the sustainability of the company. The remuneration principles that apply for the Board of Management are aligned with those applied more broadly in the company. This provides a shared sense of purpose and direction at different management levels and a shared reward when success is achieved. When implementing the Policy, the Remuneration Committee consults with external remuneration professionals to obtain appropriate benchmark data, and on other matters where it requires independent advice. Variable remuneration provides an incen- tive 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. Following the separation of Specialty Chemicals, a one-off long-term incentive to reward bringing value creation at a higher level has been added for the performance period 2018-2020. 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 2020, the labor market peer group, as referred to in the Policy, consisted of the following companies: • Ahold Delhaize • Air Liquide • ASML • DSM • Ferro Corporation • Signify • Henkel • KPN • LafargeHolcim • PPG Industries • Randstad • RELX Group • RPM International • Sherwin-Williams • Sika • The Linde Group • Vopak • Wolters Kluwer One table on page 79 specifies the elements of the Remuneration Policy, describing purpose, design and the link to our company strategy, as well as their (potential) value. The other table on page 79 gives an overview of the remuneration of the members of the Board of Management who were in office in 2020. Although we temporarily suspended our financial ambition as a result of COVID-19, no changes were made to the incentive plans of the Board of Management. Base salary The Remuneration Committee reviewed the salaries of members of the Board of Management during the year, considering market data, inflation data REMUNERATION REPORT This report describes the imple- mentation of our Remuneration Policy in 2020 for members of the Board of Management and Supervisory Board. For a full description of the members is directly aimed at strategic Remuneration Policy for both the Board priorities that will contribute to building of Management and the Supervisory sustainable long-term value creation, with Board, please visit our website. targets for the return for shareholders and the return on invested capital. Following The remuneration for the financial year the separation of Specialty Chemicals, 2020, as described in this report, is a one-off long-term incentive to reward subject to an advisory vote at the 2021 bringing value creation at a higher level AGM. Questions raised in the 2020 has been added for the performance We have a clear strategic focus to be - AGM regarding remuneration items were period 2018-2020. come the reference in paints and coatings addressed in the respective meeting, with strong global brands, leading market resulting in 94% votes in favor of the Prior to agreeing on incentives, the positions and a balanced geographic 2019 Remuneration report. Remuneration Committee conducted exposure across all regions. Our strategy is aimed at long-term value creation. To realize our strategy and create the long-term value we aim for, it’s 1. REMUNERATION FOR THE BOARD OF MANAGEMENT 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 essential that we can attract and retain The Policy is designed to enable the remuneration. high caliber members to our Board of Board of Management to achieve the Management and Supervisory Board. company’s objectives, while balancing In 2020, the labor market peer group, as This is reflected in the remuneration the perspectives of shareholders and referred to in the Policy, consisted of the policies for each of these boards. other key stakeholders. The focus on following companies: performance is achieved by including The Remuneration Policy for the Board both short- and long-term incentives, to • Ahold Delhaize • RELX Group of Management (the “Policy”) was first ensure that the Board of Management • Air Liquide • RPM adopted by shareholders at the Annual reaches the annual expected level of General Meeting (AGM) in 2005. It has performance, while bearing in mind the undergone several amendments since sustainability of the company. • Ferro Corporation • Signify • ASML • DSM • Henkel • KPN International • Sherwin-Williams • Sika • The Linde Group then – most recently in 2018 – and was adopted by shareholders at the Annual The remuneration principles that General Meeting (AGM) in 2020 (with apply for the Board of Management • LafargeHolcim • Vopak 92% of votes in favor). Details about its are aligned with those applied more • PPG Industries • Wolters Kluwer implementation in 2020 can be found broadly in the company. This provides a • Randstad below in chapter 1. shared sense of purpose and direction at different management levels and One table on page 79 specifies the The Remuneration Policy for the a shared reward when success is elements of the Remuneration Policy, Supervisory Board was adopted by achieved. shareholders at the 2014 AGM, with describing purpose, design and the link to our company strategy, as well as some limited changes being approved at When implementing the Policy, the their (potential) value. The other table the AGM in 2020 (with 99% of votes in Remuneration Committee consults with on page 79 gives an overview of the favor). Details about the implementation external remuneration professionals to remuneration of the members of the of the current policy in 2020 are in obtain appropriate benchmark data, Board of Management who were in The execution of remuneration for independent advice. suspended our financial ambition as a result of COVID-19, no changes were both the Board of Management and Variable remuneration provides an incen- made to the incentive plans of the Board Supervisory Board has been fully tive to realize long-term value creation. of Management. compliant with the applicable policies. For the short term, the Supervisory Board The revised European directive on the sets operational targets over a one-year Base salary encouragement of long-term shareholder period that are crucial to the company The Remuneration Committee reviewed engagement (SRD II), and its codification and are pre-conditions to value creation. the salaries of members of the Board in Dutch law, have been considered in The biggest portion of the remuneration of Management during the year, the disclosure presented in this report. packages of Board of Management considering market data, inflation data The elements of the Remuneration Policy strategy The goal of our Remuneration Policy for the Board of Management is to offer an on-target total remuneration package around the median of the labor market peer group. Purpose Strategy Total direct compensation Is the basis for benchmark efforts, i.e. the reference to the labor market peer group. Base salary and variable income. Variable income concerns the performance-related short-term incentive (STI) and the long-term incentive plan (LTI). In addition, Board of Management members are entitled to certain benefits. Value Value of each respective item is specified in more detail below. Base salary Basic pay for the job. Aims to provide a fair and competitive basis for the total pay level to attract high caliber leaders. Annual review based on the market movement in the Netherlands and peer companies. In-depth benchmark at least every three years. Base salaries at AkzoNobel target the median of the labor market peer group. Short-term incentive (STI) Incentive aligning short-term business objectives and business drivers toward long-term value creation. Driving pay for performance. The Supervisory Board sets operational targets for the respective performance year and determines the extent to which they have been achieved. By ensuring that long-term value creation is properly reflected in stretched yet achievable targets, the realization of strategic business objectives is addressed. In total, 70% of the at-target STI is linked to financial objectives and 30% is related to personal objectives. Long-term incentive (LTI) Encourage long-term, sustainable economic and shareholder value creation – both absolute and relative to competitors – and to align Board of Management interests with those of shareholders, as well as ensuring retention of the members of the Board of Management. Performance shares are awarded every year, to be converted into shares upon realization of predefined targets, observing a three-year vesting period. An additional two-year holding period after vesting applies. Performance targets are based on company strategy, driving long-term value creation. All LTI targets are linked to financial goals. Performance is measured over three financial years, starting with the year of grant. On-target performance: 100% of annual base salary for the CEO and 65% for the CFO. Maximum opportunity capped at 150% of on-target. Threshold: No STI pay-out below threshold level. The grant equals 150% of base salary. Maximum vesting oppor- tunity is 150% of the number of performance shares vested. Shareholding requirement Aligning reward to the interests of stakeholders, and emphasizing confidence in performance and strategy. Members of the Board of Management are expected to build up a shareholding in the company; the minimum shareholding requirement must be accrued in five years. Considered are shares privately purchased and vested shares granted under AkzoNobel share-based compensation plans. The minimum shareholding requirement is 300% of annual base salary for the CEO and 150% for the CFO. Pension and other benefits Post-retirement remuneration and other benefits, creates alignment with market practice. A company-paid contribution to allow participation in a private pension plan, as applicable to Netherlands-based employees. Other benefits include sick pay (aligned with Netherlands-based employees) and a company car. Goal setting Goal setting is crucial to driving pay for performance aligned with company strategy and to ensure that decisions made and results delivered are aligned with the interests of our stakeholders. Supervisory Board sets goals, their respective weight and targets (i.e. metric) for the respective performance year under the STI and LTI scheme, considering: (1) Company strategy (2) Focus on long-term value creation (3) Historical perfor- mance, business future outlook, and circumstances and priorities (4) Stakeholder expectations. Pension contributions aligned with plans in place for employees in the Netherlands. Other benefits aligned with market practice. Goals must be stretching yet achievable. 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, 2020: • Thierry Vanlancker, CEO: €1,033,500 • Maarten de Vries, CFO: €695,500 Short-term incentive (STI) In 2020, the financial objectives of the short-term incentive were return on sales (ROS) and operational cash flow (OCF), with each metric having a weighting of 35%. The individual and qualitative objectives reflect progress towards the achievement of long-term strategic objectives, with a weighting of 30%. The company does not disclose the exact actual targets, as these are con sidered commercially sensitive. In view of transparency, we categorize our target realization as follows: zero pay-out, below target, at target, above target or maximum pay-out. In 2020, the achievement on ROS was above target and the achieve ment on OCF was below target. chapter 2. and on other matters where it requires office in 2020. Although we temporarily Remuneration Board of Management for the reported financial year in € Thierry Vanlancker Chief Executive Officer Maarten de Vries Chief Financial Officer Fixed remuneration Variable remuneration Post-contract compensation3 Total remuneration Base salary Fringe benefits1 One-year variable Multi-year variable LTI2 PIP4 Proportion of fixed and variable remuneration 1,033,500 9,700 1,139,124 1,109,7655 2,067,000 202,600 5,561,689 0.22/0.78 695,500 33,700 498,256 804,9026 1,391,000 136,300 3,559,658 0.24/0.76 1 Social security contributions and car arrangement. 2 Amounts based on IFRS2 expenses. 3 Compensation intended for build-up of retirement benefits instead of pension contributions. 4 PIP is the one-off Special Incentive Plan for the 5 At December 31, 2020, these shares had a market value of 1,583,237. Total remuneration based on this value amounts to 6,035,161. performance period 2018-2020. 6 At December 31, 2020, these shares had a market value of 1,348,124. Total remuneration based on this value amounts to 4,102,880. 78 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 79 REMUNERATION REPORT In determining the outcome of the STI 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, taking into account the impact of COVID-19. 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: €1,139,124 (110.22% of salary) • Maarten de Vries, CFO: €498,256 (71.64% of salary) No matching shares were granted to the CEO or CFO in 2020, 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 2020 Performance Incentive Plan. LONG-TERM INCENTIVES (LTI) Conditional grant LTI share plan 2020-2022 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 2020, 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 determined based on the average share price of an AkzoNobel common share in the two weeks following publication of the annual results on February 12, 2020: • 18,747 shares were conditionally granted to Thierry Vanlancker, CEO • 12,616 shares were conditionally granted to Maarten de Vries, CFO Vesting of the conditional grant is linked to two performance metrics: return on investment (ROI) and relative 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 • Axalta • Kansai Paint • Masco Corp • Nippon Paint • PPG • RPM International • Sherwin-Williams • Tikkurilla This industry peer group is reviewed on a regular basis to ensure that the companies in the group remain appropriate peers. 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 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 Vesting of the LTI Share Plan 2018-2020 Under the LTI Share Plan 2018-2020, a conditional grant of 20,200 shares was 80 Leadership and governance | AkzoNobel Report 2020 made to the CEO and a conditional grant of 17,200 shares made to the CFO. In line with the Remuneration Policy, vesting of 50% of the shares conditionally granted is linked to AkzoNobel’s ROI performance. The company’s ROI performance at the end of the performance period was reviewed by the Supervisory Board. The Supervisory Board recognized that the initial ROI target was not fully in line with the company’s new strategy. They decided not to adjust the target, but to apply their discretionary power and to evaluate performance against the ROI target as defined and communicated at the beginning of 2020. This resulted in a vesting of 106% for this specific part of the long-term incentive. For the 2018 conditional grant, 50% was linked to AkzoNobel’s relative total shareholder return (TSR) performance compared with the companies in a defined industry peer group. Independent external experts conducted an analysis to calculate the number of shares that will vest according to the TSR ranking. In order to adjust for changes in exchange rates, all local currencies were converted into euros. AkzoNobel’s TSR performance during the period 2018 to 2020 resulted in the sixth position within the ranking of the peer group companies. This ranking resulted in a vesting of 50% for this part of the long-term incentive. Based on the company’s combined ROI and TSR performance, the final vesting percentage of the 2018 conditional grant – after including the dividend yield of 14.37% during the performance period – equaled 89.21%. The Remuneration Committee determined that: • Thierry Vanlancker would vest 18,020 shares, subject to a further two-year holding requirement. At December 31, 2020, these shares had a market value of €1,583,237 REMUNERATION REPORT In determining the outcome of the STI return on investment (ROI) and relative made to the CEO and a conditional grant elements, the Remuneration Committee total shareholder return (TSR), equally of 17,200 shares made to the CFO. applied a reasonableness test in which weighted and independently determining the actual level of the performance 50% of the LTI vesting. The Supervisory In line with the Remuneration was critically assessed in light of the Board reviews ROI performance Policy, vesting of 50% of the shares assumptions made at the beginning measure and target each year and conditionally granted is linked to of the year, taking into account the ensures that both are directly linked to AkzoNobel’s ROI performance. The impact of COVID-19. The test also the strategic direction. included an assessment of the progress company’s ROI performance at the end of the performance period was made with the strategic objectives under The performance level determines: (i) reviewed by the Supervisory Board. prevailing market conditions. the performance level below which no The Supervisory Board recognized that shares vest; (ii) the performance level at the initial ROI target was not fully in line The Remuneration Committee which the target number of shares vest; with the company’s new strategy. They subsequently determined that bonus and (iii) the performance level at which decided not to adjust the target, but to payments for the Board of Management the maximum number of shares vest. apply their discretionary power and to would be: evaluate performance against the ROI • Thierry Vanlancker, CEO: €1,139,124 TSR is measured relative to an industry target as defined and communicated at (110.22% of salary) peer group, consisting of the following the beginning of 2020. This resulted in a • Maarten de Vries, CFO: €498,256 (71.64% of salary) nine companies: • Asian Paints No matching shares were granted • Axalta • PPG • RPM vesting of 106% for this specific part of the long-term incentive. to the CEO or CFO in 2020, as this arrangement has been suspended for • Kansai Paint • Masco Corp International For the 2018 conditional grant, 50% • Sherwin-Williams was linked to AkzoNobel’s relative total the period 2018 to 2020. The value • Nippon Paint • Tikkurilla shareholder return (TSR) performance of the share-matching plan for these compared with the companies three years is invested in the 2020 This industry peer group is reviewed in a defined industry peer group. Performance Incentive Plan. on a regular basis to ensure that Independent external experts conducted LONG-TERM INCENTIVES (LTI) the companies in the group remain an analysis to calculate the number appropriate peers. of shares that will vest according to the TSR ranking. In order to adjust for The vesting schedule that will apply changes in exchange rates, all local Conditional grant LTI share plan to the relative TSR metric is listed in currencies were converted into euros. 2020-2022 the table below. When making the The Remuneration Committee performance assessment, the TSR result AkzoNobel’s TSR performance during determines the grant levels to be made of AkzoNobel is included within the the period 2018 to 2020 resulted in the in respect of members of the Board ranked peer group. of Management, within the limits and sixth position within the ranking of the peer group companies. This ranking plans that have been approved by Relative TSR vesting scheme for the resulted in a vesting of 50% for this part conditional grants of the long-term incentive. shareholders. In 2020, the CEO and CFO received a conditional grant of shares equivalent to the face value of Rank 150% of their annual base salaries. The grant price was determined based on the average share price of an AkzoNobel common share in the two weeks following publication of the annual results on February 12, 2020: • 18,747 shares were conditionally granted to Thierry Vanlancker, CEO • 12,616 shares were conditionally 1 2 3 4 5 6 7 8-10 Vesting (as % of 50% of conditional grant) 150 135 120 100 75 50 25 0 Based on the company’s combined ROI and TSR performance, the final vesting percentage of the 2018 conditional grant – after including the dividend yield of 14.37% during the performance period – equaled 89.21%. The Remuneration Committee determined that: • Thierry Vanlancker would vest 18,020 granted to Maarten de Vries, CFO Vesting of the LTI Share Plan shares, subject to a further two-year 2018-2020 holding requirement. At December 31, Vesting of the conditional grant is Under the LTI Share Plan 2018-2020, a 2020, these shares had a market linked to two performance metrics: conditional grant of 20,200 shares was value of €1,583,237 2020 remuneration of the Board of Management – Number of performance-related shares Performance Plan period Award Date Vesting Date End of holding period Balance at January 1, 2020 Awarded in 2020 Vested in 2020 Forfeited in 2020 Dividend in 2020 Balance at December 31, 2020 Thierry Vanlancker Chief Executive Officer ANS2017 2017-2019 ANS2018 2018-2020 ANS2019 2019-2021 ANS2020 2020-2022 Maarten de Vries Chief Financial Officer ANS2018 2018-2020 ANS2019 2019-2021 ANS2020 2020-2022 January 1 2017 January 1 2018 January 1 2019 January 1 2020 January 1 2018 January 1 2019 January 1 2020 February 12 2020 February 12 2022 February 17 2021 February 17 2023 February 2022 February 2023 February 2024 February 2025 February 17 2021 February 17 2023 February 2022 February 2023 February 2024 February 2025 25,842 – (25,842) – – – 22,505 23,117 – – – 18,747 19,163 15,557 – – – 12,616 – – – – – – (5,083) 598 18,020 – – 616 23,733 499 19,246 (4,328) 509 15,344 – – 414 15,971 336 12,952 • Maarten de Vries would vest 15,344 shares, subject to a further two-year holding requirement. At December 31, 2020, these shares had a market value of €1,348,124 the decision to pause and suspend the 15 by 20 ambition. The test also included an assessment of the progress made with the strategic objectives under prevailing market conditions. Actual ROS performance was 15.0% (excluding unallocated cost). The Remuneration Committee subsequently determined that payments for the Board of Management would be: • Thierry Vanlancker, CEO: €2,067,000 (200% of salary) • Maarten de Vries, CFO: €1,391,000 (200% of salary) Claw back and value adjustment In 2020, 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, 2020, CEO Thierry Vanlancker held 43,518 shares, of which 1,720 qualified for share-matching under the Share-Matching Plan on a ratio 1:1. The matching shares were conditionally granted in 2018 and will be released in 2021, subject to the terms of the Share-Matching Plan. Shares acquired in 2020 by the CEO contribute towards his required shareholding. On December 31, 2020, he fulfilled this requirement by holding the equivalent of 370% of his annual base salary in shares. As of December 31, 2020, CFO Maarten de Vries held 5,678 shares. The shares acquired by the CFO during 2020 contribute towards his required shareholding. On December 31, 2020, he did not yet fulfill the shareholding requirement of 150%, as the shares represented a value at that date of 72% of his annual base salary. Shares obtained by members of the Board of Management under the performance-related share plan are 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 An overview of all shares awarded, or due to, Board of Management members is shown on this page. 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 cost) by the end of 2020, presented to shareholders as financial guidance towards upper quartile industry performance. The Supervisory Board set the ROS to be achieved by the end of 2020 as shown in the table below. In determining the outcome of the Performance Incentive Plan, 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 and 80 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 81 REMUNERATION REPORT Comparative table of remuneration and company performance over last five reported financial years in € 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 2016 2017 2018 2019 2020 Divestment Specialty Chemicals Ton Büchner Thierry Vanlancker 1,339,000 3,518,900 9% 2% 1,135,825 2,825,863 (15%) (20%) 1,151,900 2,899,883 1,186,500 3,561,212 1.245.800 5,561,689 1% 3% 3% 23% 5% 56% Maëlys Castella Maarten de Vries 710,300 1,586,400 4% 20% 715,016 2,169,290 1% 37% 797,600 1,515,816 12% (30%) 819,800 865,500 1,843,977 3,559,658 3% 22% 6% 93% Net income attributable to shareholders 970,000,000 832,000,000 6,674,000,000 539,000,000 630,000,000 Net income % change ROI ROI % change (1) 14.4 3% (14) 13.9 (3%) 702 12.6 (9%) (92) 14.1 12% 17 16.1 14% Adjusted operating income (OPI) 928,000,000 905,000,000 798,000,000 991,000,000 1,099,000,000 Adjusted OPI % change (37%) (2%) (12%) 24% 11% Average remuneration on a full-time equivalent basis of employees Average salary per employee1 % change average remuneration 58,559 (1%) 53,453 (9%) 56,619 6% 54,825 (3%) 56,061 2% In years of transition, the compensation for the newly appointed Board of Management member has been annualized. 1 Calculated as employee benefits over average number of employees. taken into account for share ownership purposes as soon as they have become unconditional. This includes vested shares 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 on this page: • The annual change of remuneration of each individual member of the Board of Management • The performance of the company • The average remuneration on a full- time equivalent basis of company employees over at least the five most recent financial years Over the last few years of transition, the company’s performance fluctuated significantly as the table above shows. 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. Restructuring 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 guaranteed minimum pension equalizations. The pay ratio between the total com pensation of the CEO in 2020 and the total compensation of an AkzoNobel employee (calculated as an average of all employees as of December 31, 2020) is 99.2* (2019: 65.0). *The increase is mainly due to the 2020 Performance Incentive Plan payment. Without this one-off special payment the ratio would have been 62.3. year and vary de pending 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 legal retirement age. 2. REMUNERATION FOR THE SUPERVISORY BOARD Post-contract compensation Board of Management members receive contributions towards post- contract benefits, which are defined as a percentage of income, as deter mined by the Supervisory Board. Currently, they are based on age. Contributions are paid over the base salary in the current Members of the Supervisory Board receive a fixed remuneration based on 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 2020 82 Leadership and governance | AkzoNobel Report 2020 REMUNERATION REPORT Comparative table of remuneration and company performance over last five reported financial years in € 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 Net income % change ROI ROI % change Adjusted OPI % change 2016 2017 2018 2019 2020 Divestment Specialty Chemicals Ton Büchner Thierry Vanlancker 1,151,900 2,899,883 1,186,500 3,561,212 1.245.800 5,561,689 Maëlys Castella Maarten de Vries 819,800 865,500 1,843,977 3,559,658 1,339,000 3,518,900 9% 2% 710,300 1,586,400 4% 20% (1) 14.4 3% (37%) 1,135,825 2,825,863 (15%) (20%) 715,016 2,169,290 1% 37% (14) 13.9 (3%) (2%) 1% 3% 797,600 1,515,816 12% (30%) 702 12.6 (9%) (12%) 3% 23% 3% 22% (92) 14.1 12% 24% 5% 56% 6% 93% 17 16.1 14% 11% Adjusted operating income (OPI) 928,000,000 905,000,000 798,000,000 991,000,000 1,099,000,000 Average remuneration on a full-time equivalent basis of employees Average salary per employee1 % change average remuneration 58,559 (1%) 53,453 (9%) 56,619 6% 54,825 (3%) 56,061 2% In years of transition, the compensation for the newly appointed Board of Management member has been annualized. 1 Calculated as employee benefits over average number of employees. Net income attributable to shareholders 970,000,000 832,000,000 6,674,000,000 539,000,000 630,000,000 taken into account for share ownership discontinued operations, for example, year and vary de pending on the Board purposes as soon as they have become resulted in a reduction of the average member’s age. unconditional. This includes vested salary per employee, followed by shares to be retained during the blocking increases when operations stabilized Board contracts period of two years after vesting. and profits increased again. In 2018, Agreements for members of the Board the increase in average salary was of Management are concluded for a Comparative information also influenced by the inclusion of a period not exceeding four years. After In compliance with point (b), paragraph 1 one-off €57 million pension cost for the initial term, re-appointments may of Article 9b of the EU Directive on the UK guaranteed minimum pension take place for consecutive periods of up long-term shareholder engagement, we equalizations. present on this page: to four years each. The notice period by the Board member, and by the company, each individual member of the Board com pensation of the CEO in 2020 and Members of the Board of Management of Management the total compensation of an AkzoNobel normally retire in the year they reach • The performance of the company employee (calculated as an average legal retirement age. • The average remuneration on a full- of all employees as of December 31, time equivalent basis of company 2020) is 99.2* (2019: 65.0). employees over at least the five most recent financial years Over the last few years of transition, *The increase is mainly due to the 2020 Performance Incentive Plan payment. Without this one-off special payment the ratio would have been 62.3. 2. REMUNERATION FOR THE SUPERVISORY BOARD the company’s performance fluctuated Post-contract compensation Members of the Supervisory Board significantly as the table above shows. Board of Management members receive a fixed remuneration based on In 2018, net profit increased sharply, receive contributions towards post- roles and responsibilities. Travel expenses mainly due to the divestment of contract benefits, which are defined as and facilities are borne by the company Specialty Chemicals, with a deal result a percentage of income, as deter mined and reviewed by the Audit Committee. of €5,811 million after tax. The transition by the Supervisory Board. Currently, was also reflected in the development they are based on age. Contributions are Implementation of the Remuneration of remuneration. Restructuring due to paid over the base salary in the current Policy for the Supervisory Board in 2020 resulted in the payout presented in the table below. According to the Code, members are not remunerated in shares. 3. REMUNERATION POLICIES FOR THE NEXT FINANCIAL YEAR In 2020, the Supervisory Board evaluated the remuneration policies for the Board of Management and Supervisory Board. The Supervisory Board considered input from stakeholders, 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, a new policy was prepared for the remuneration of the Board of Management, to be submitted for approval at the AGM in April 2021. Remuneration Policy for the Board of Management Since 2017, AkzoNobel has been focused on its Winning together: 15 by 20 strategy to deliver 15% ROS (excluding unallocated cost) in 2020. The company’s new Grow & Deliver strategy, including ambitions for 2021- 23, balances growth (at least in line with relevant markets) and profitability improvement (an average 50 basis points increase in ROS per year). The As official paint and coatings partner of the McLaren Racing team through our Sikkens brand, we were delighted to see them finish third in the 2020 F1 constructor standings. As well as supplying products for all painted parts of the race car, we also provided heat-shielding via our International product range. Supervisory Board has concluded that the Remuneration Policy for the Board of Management should provide adequate and balanced remuneration in support of the new company strategy. For that purpose, a revised Remuneration Policy will be submitted to the AGM. The updated Remuneration Policy seeks to: • Attract and retain high caliber people to the Board of Management by offering competitive remuneration against a European peer group • Incentivize realization of the company’s Grow & Deliver strategy and the short- and long-term ambitions through aligning metrics and targets around growth and delivery in STI and LTI • Deliver sustainable value creation for shareholders and other stakeholders, by setting focused LTI metrics and simplifying share matching Remuneration Policy for the Supervisory Board The Supervisory Board has concluded that the Remuneration Policy for the Supervisory Board – adopted by the AGM in 2014 and approved with some limited changes in 2020 – is in line with the objectives of the company, but a proposal is made to use a European peer group going forward to benchmark the remuneration levels it provides. This change in the Remuneration Policy will be submitted to the AGM in April 2021. • The annual change of remuneration of The pay ratio between the total shall be subject to a six-month term. Comparative table of remuneration of the Supervisory Board over last five reported financial years in € Nils Smedegaard Andersen, Chairman5 Anthony Burgmans6 Peggy Bruzelius7 Byron Grote, Deputy Chairman2 Louis Hughes6 Pamela Kirby1 Dick Sluimers Ben Verwaayen9 Sue Clark4 Patrick Thomas4 Michiel Jaski4 Sari Baldauf3 Jolanda Poots-Bijl8 Total remuneration % change total remuneration 2016 - 165,000 113,800 105,800 116,200 57,050 87,500 91,200 - - - 2017 - 169,400 116,200 134,300 120,000 100,000 95,000 95,000 7,900 10,400 5,400 107,500 100,000 - 844,050 12.68 - 953,600 12.98 2018 111,373 53,215 119,318 135,500 32,322 92,500 107,500 95,000 87,995 90,659 78,159 - - 1,003,541 5.24 2019 162,500 - 37,710 130,500 - 92,500 107,500 92,500 92,500 97,500 87,500 - 59,166 959,876 (4.35) 2020 157,500 - - 114,250 - 87,500 90,000 32,775 87,500 92,500 85,000 - 85,000 832,025 (13.32) 1 As of May 1, 2016. 2 Deputy Chairman as of October 18, 2016. 3 From May 1, 2016, until December 1, 2017. 4 As of November 30, 2017. 5 As of May 1, 2018. 6 Until April 30, 2018. 7 Until April 30, 2019. 8 As of May 1, 2019. 9 Until April 24, 2020. 82 Leadership and governance | AkzoNobel Report 2020 AkzoNobel Report 2020 | Leadership and governance 83 CAPITAL MARKETS AkzoNobel and the capital markets 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 2020, 203 million AkzoNobel shares were traded on Euronext Amsterdam (2019: 229 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 institutional shareholders. 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 2018 70.40 82.70 68.82 256 17.8 1.80 2.6 2019 90.69 91.86 69.12 200 18.1 1.90 2.1 2020 87.86 91.60 48.50 191 16.7 1.95 2.2 1 Based on Bloomberg share data. 2 Based on close value. 3 Based on year-end share price. Excluding special dividend of €4.50 in 2019. Share price performance 2020 AkzoNobel share price in € AkzoNobel AEX index Bloomberg Europe Chemicals Index Bloomberg Global Chemicals Index 120 100 80 60 40 9 1 c e D 9 2 0 2 n a J 0 2 b e F 0 2 r a M 0 2 r p A 0 2 y a M 0 2 n u J 0 2 l u J 0 2 g u A 0 2 t p e S 0 2 t c O 0 2 v o N 0 2 c e D 1 3 Around 41% of the company’s share capital is held by socially responsible investing (SRI) shareholders. Around 4% of the company’s share capital is held by private investors, many of whom are resident in the Netherlands. Approximately 41% of the company’s share capital is held by socially responsible investing (SRI) shareholders*, compared with 11% in 2019. This increase has mainly been 84 Leadership and governance | AkzoNobel Report 2020 driven by the reclassification of several major shareholders, according to Nasdaq’s methodology. *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 a broad range of sustainable and responsible investors Following 2020 reviews, AkzoNobel was included in a number of leading sustainability indices and continues to be the reference in the paints and coatings industry. Please refer to our approach to sustainable business in the Sustainability statements for a complete overview. The AkzoNobel share price was 3.1% lower at year-end 2020, compared with 2019 year-end. For further information please visit our website: akzonobel.com CAPITAL MARKETS AkzoNobel and the capital markets AkzoNobel’s common shares are listed Key share data1 Number of shares outstanding at year-end (in millions) Market capitalization at year-end (in € billions) Year-end (share price in €) Year-high (share price in €)2 Year-low (share price in €)2 Dividend per share (in €) Dividend yield (in %)3 1 Based on Bloomberg share data. 2 Based on close value. 3 Based on year-end share price. Excluding special dividend of €4.50 in 2019. 2018 70.40 82.70 68.82 256 17.8 1.80 2.6 2019 90.69 91.86 69.12 200 18.1 1.90 2.1 2020 87.86 91.60 48.50 191 16.7 1.95 2.2 for stock codes and ticker symbols. Share price performance 2020 AkzoNobel share price in € AkzoNobel AEX index Bloomberg Europe Chemicals Index Bloomberg Global Chemicals Index 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 2020, 203 million AkzoNobel shares were traded on Euronext Amsterdam (2019: 229 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 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 institutional shareholders. 120 100 80 60 40 9 1 c e D 9 2 0 2 n a J 0 2 b e F 0 2 r a M 0 2 r p A 0 2 y a M 0 2 n u J 0 2 l u J 0 2 g u A 0 2 t p e S 0 2 t c O 0 2 v o N 0 2 c e D 1 3 Around 41% of the company’s share capital is held by socially responsible investing (SRI) shareholders. driven by the reclassification of several Following 2020 reviews, AkzoNobel major shareholders, according to was included in a number of leading Nasdaq’s methodology. sustainability indices and continues to Around 4% of the company’s share capital is held by private investors, many of whom are resident in the Netherlands. Approximately 41% of the company’s share capital is held by socially responsible investing (SRI) shareholders*, compared with 11% in 2019. This increase has mainly been *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 a broad range of sustainable and responsible investors For further information please visit our website: akzonobel.com be the reference in the paints and coatings industry. Please refer to our approach to sustainable business in the Sustainability statements for a complete overview. The AkzoNobel share price was 3.1% lower at year-end 2020, compared with 2019 year-end. 84 Leadership and governance | AkzoNobel Report 2020 Analyst recommendations Distribution of shares 2020 in % C B D C A A B A Buy B Hold C Sell 19 A US 5 2 B UK C Rest of Europe D Rest of world would equal a total 2020 dividend of €1.95 (2019: €1.90) per share. The dividend proposed to the 2021 Annual General Meeting of shareholders (April 22), following adoption, will be payable as of May 6, 2021. AkzoNobel’s shares will trade ex-dividend as of April 26, 2021. In compliance with the listing requirements of Euronext Amsterdam, the record date for the fi nal dividend will be April 27, 2021. Dividend paid in € per share Interim dividend Final dividend 46 19 27 8 Total 1.80 1.90 1.95 1.94 At year-end 2020, AkzoNobel was covered by 26 equity brokers. An overview of analyst recommendations is shown in the graph above. Credit rating AkzoNobel is committed to maintaining a strong investment grade credit rating. Regular review meetings are held between rating agencies and AkzoNobel senior management. See the table below for the current credit ratings and outlook. Bonds On April 7, 2020, AkzoNobel launched a €750 million bond, with a ten-year maturity and a coupon of 1.625%. The maturity schedule of outstanding bonds is shown below. Dividend The dividend policy is to pay a stable to rising dividend. In 2020, an interim dividend of €0.43 per share (2019: €0.41) was paid. The Board of Management proposes a 2020 fi nal dividend of €1.52 per share, which 1.43 0.37 0.37 2018 0.56 2017 * Proposed. 1.49 1.52* 0.41 0.41 2019 0.43 0.43 2020 Rating agency Moody’s* Standard & Poor’s* Long-term rating Baa1 BBB+ Outlook Stable Stable * Rating affi rmed December 2020. Debt maturity1 in € millions (nominal amounts) 750 750 500 500 500 2022 2023 2024 2025 2026 2027 2028 2029 2030 1 As of April 2020. In February 2020, CFO Maarten de Vries (pictured) and CEO Thierry Vanlancker hosted an investor event in London. Broadcast live by video webcast, it provided an update on the company’s Winning together: 15 by 20 strategy, including plans for 2020 and beyond. AkzoNobel Report 2020 | Leadership and governance 85 FINANCIAL INFORMATION Financial statements Consolidated statement of income Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in equity 87 87 88 89 90 Note 26 Remuneration of the Supervisory Board 121 and the Board of Management Note 27 Financial risk management Note 28 Subsequent events Company financial statements Statement of income Notes to the Consolidated financial statements Balance sheet Note 1 Summary of significant accounting policies 91 Note A General information Note 2 Scope of consolidation Note 3 Segment information Note 4 Alternative performance measures Note 5 Revenue Note 6 Operating income Note 7 Employee benefits Note 8 Financing income and expenses Note 9 Income tax Note 10 Earnings per share Note 11 Intangible assets Note 12 Property, plant and equipment Note 13 Leases 96 97 99 101 102 102 104 104 106 107 108 110 Note B Other results Note C Intangible assets Note D Financial non-current assets Note E Short-term receivables Note F Shareholders’ equity Note G Net debt Note H Other current liabilities Note I Financial instruments Note J Contingent liabilities Note K Auditor’s fees Other information Note 14 Investments in associates and joint ventures 110 Other information Note 15 Financial non-current assets Note 16 Inventories Note 17 Trade and other receivables Note 18 Group equity Note 19 Post-retirement benefit provisions Note 20 Other provisions and contingent liabilities Note 21 Net debt Note 22 Trade and other payables Note 23 Cash flow Note 24 Commitments Note 25 Related party transactions 111 111 111 111 113 117 119 120 120 120 120 Profit allocation and distributions Independent auditor’s report Assurance report of the independent auditor Financial summary Glossary Index Appendix 121 124 125 125 126 126 126 127 127 127 129 129 130 130 130 131 131 132 138 140 144 146 147 AkzoNobel Report 2020 | Financial statements 86 CONSOLIDATED STATEMENT OF INCOME CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2019 577 (249) 24 (225) 127 11 138 (87) 490 453 37 490 2020 671 115 (18) 97 (430) 5 (425) (328) 343 323 20 343 In € millions, for the year ended December 31 Note 2019* 2020 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/(loss) 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 8,530 (4,745) (1,916) (663) (238) (5) (69) 25 5 6 6 6 6 6 8 14 9 2 10 10 10 10 10 10 9,276 (5,314) (2,217) (637) (262) (5) (76) 20 3,962 (3,121) 841 785 (230) 555 22 577 539 38 577 2.43 2.42 0.10 0.10 2.53 2.52 * Costs by nature 2019 have been reclassified to align to our 2020 cost structure and allocations. This resulted in reclassifications between cost lines in our statement of income, which did not impact total operating income. Profit for the period Other comprehensive income/(expense) Items that will not be reclassified to the statement of income: 3,785 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 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 (2,822) 963 919 (241) 678 (7) 671 630 41 671 3.33 3.32 (0.04) (0.04) 3.29 3.28 AkzoNobel Report 2020 | Financial statements 87 CONSOLIDATED BALANCE SHEET, BEFORE ALLOCATION OF PROFIT In € millions, at December 31 Note 2019 2020 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 11 12 13 9 14 15 16 9 17 21 21 18 18 19 20 9 21 21 9 22 19, 20 3,625 1,700 374 529 150 1,862 1,139 63 2,133 138 1,271 6,350 218 701 280 391 2,042 169 196 2,406 231 3,554 1,621 324 497 166 1,951 1,159 55 1,994 250 1,606 5,746 204 664 232 467 2,771 119 162 2,580 232 8,113 5,064 13,177 5,950 4,134 3,093 13,177 8,240 4,744 12,984 6,568 3,414 3,002 12,984 AkzoNobel Report 2020 | Financial statements 88 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 post-retirement benefit provisions Changes in other provisions Interest paid Income tax paid Other changes Net cash generated from/(used for) 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 generated from/(used for) investing activities Proceeds from borrowings Borrowings repaid Capital repayment Share buyback Dividends paid Buy-out of non-controlling interests Net cash generated from/(used for) financing activities Net cash generated from/(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 Note 2019 2020 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) — 11, 12, 13 11, 12, 13 8 14 2 9 23 19, 23 19 20, 23 11, 12 2 21 21 21 21 18 18 18 2 2 21 33 5,012 (6,579) (1,534) (10) (1,544) 2,732 22 1,210 678 361 10 69 (25) (27) 241 184 – (46) (22) (47) (165) 9 (258) 8 17 (113) (248) 136 31 – 970 (339) – (555) (385) (44) 1,220 (427) (353) 440 (3) 437 1,210 (66) 1,581 * Capital expenditures include investments in intangible assets (refer to Note 11) and investments in property, plant and equipment (refer to Note 12). AkzoNobel Report 2020 | Financial statements 89 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to shareholders of the company In € millions Balance at January 1, 2019 Profit for the period 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 Profit for the period Other comprehensive income/(expense) Tax on other comprehensive income Comprehensive income for the period Dividend Share buyback* Equity-settled transactions** Acquisition of non-controlling interests Balance at December 31, 2020 * Includes a tax credit of €3 million (2019: €nil). ** Includes a tax charge of €1 million (2019: €4 million tax credit). Subscribed share capital Additional paid-in capital Cumulative translation reserve Other (legal) reserves and undis- tributed profit Shareholders’ equity Non-controlling interests Group equity 512 — — — — — (14) (399) — 1 100 — — — — — (5) — — 95 958 — — — — — — (957) — (1) — — — — — — — — — – (608) — 128 11 139 — — — — — (469) — (409) 5 (404) — — — — 10,972 539 (249) 24 314 (1,423) (2,520) (644) 20 — 6,719 630 115 (18) 727 (366) (540) 13 (29) 11,834 539 (121) 35 453 (1,423) (2,534) (2,000) 20 — 6,350 630 (294) (13) 323 (366) (545) 13 (29) (873) 6,524 5,746 204 38 (1) — 37 (23) — — — — 218 41 (21) — 20 (19) — — (15) 204 12,038 577 (122) 35 490 (1,446) (2,534) (2,000) 20 — 6,568 671 (315) (13) 343 (385) (545) 13 (44) 5,950 AkzoNobel Report 2020 | Financial statements 90 91AkzoNobel Report 2020 | Financial statementsNOTES TO THE CON­SOLIDATED FINANCIAL STATEMENTSGENERAL INFORMATIONAkzo Nobel N.V. is a company headquartered in the Neth-erlands.The address of our registered office is Christian Neefestraat 2, Amsterdam; the Chamber of Commerce number is 09007809. We have attached a list of subsidiar-ies, associated companies and joint ventures, drawn up in conformity with Articles 379 and 414 of Book 2 of the Dutch Civil Code, as an Appendix to our annual report.We have prepared the Consolidated financial statements of Akzo Nobel N.V. in accordance with International Finan-cial Reporting Standards (IFRS) as adopted by the Euro-pean Union. They also comply with the financial reporting requirements included in Title 9 of Book 2 of the Dutch Civil Code. The Consolidated financial statements have been prepared on a going concern basis. The Manage-ment report within the meaning of Article 391 of Book 2 of the Dutch Civil Code consists of the following parts of the annual report:• 2020 results at a glance• CEO statement• How we delivered on 15 by 20• How we created value• Strategy and operations• Leadership and governance: Our Board of Management and Executive Committee• Leadership and governance: Statement of the Board of Management• Leadership and governance: Corporate governance statement• Leadership and governance: Risk management• Leadership and governance: Integrity and compliance management• Leadership and governance: Remuneration report• Financial information: Note 6 Operating income• Financial information: Note 27 Financial risk managementThe section How we created value provides informa-tion on the developments during 2020 and the results. This section also provides information on cash flow and net debt, capital expenditures, innovation activities and employees.On February 16, 2021, the Board of Management authorized the financial statements for issue. The financial statements as presented in this report are subject to adop-tion by the Annual General Meeting of shareholders on April 22, 2021.CONSOLIDATIONThe Consolidated financial statements include the accounts of Akzo Nobel N.V. and its subsidiaries. Subsid-iaries are companies over which Akzo Nobel N.V. has control, because it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect returns through its power over the subsidiary. Non-controlling interests in equity and in results are presented separately.CHANGE IN ACCOUNTING POLICIES AND FIRST TIME APPLICATIONAccounting pronouncements, which became effective for 2020 (amendments to IFRS 3 “Definition of a Business”, amendments to IFRS 9, IAS 39 and IFRS 7 “Interest Rate Benchmark Reform – Phase 1”, amendments to IAS 1 and IAS 8 “Definition of Material”, “Amendments to References to the Conceptual Framework in IFRS Standards” and the amendment to IFRS 16 “COVID-19-Related Rent Conces-sions”) had no material impact on our Consolidated financial statements.DISCONTINUED OPERATIONS (NOTE 2)A discontinued operation is a component of our busi-ness that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Assets and liabilities are classified as held for sale if it is highly probable that the carrying value will be recovered through a sale transaction within one year rather than through continuing use. When 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.ALTERNATIVE PERFORMANCE MEASURES (NOTE 4) 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, environmental and tax cases.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 9)Note 1 Summary of significant accounting policies• Impairment of intangible assets, property, plant and equipment and right-of-use assets (Note 11, 12, 13) • Post-retirement benefit provisions (Note 19) • Provisions and contingent liabilities (Note 20) COVID-19 IMPACT ON FINANCIAL STATEMENTS • Intangible assets and the annual impairment testing process (Note 11) • Valuation of trade receivables (Note 17). In our 2020 figures, all COVID-19 related impacts have been treated as normal operations; none of these impacts have been included in identified items. 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. The pandemic situation in 2020 has been closely monitored and appropriate measures have been taken to continue serving our customers and save costs, while at the same time keeping the organization intact and able to respond quickly to changes in end market demand. The overall impact on AkzoNobel for the full-year 2020 was limited. An overall positive impact was noted for the Decorative Paints segment, whereas there was an overall adverse impact in the Performance Coatings segment. The pandemic has not impacted our going concern assumption. STATEMENT OF CASH FLOWS We have used the indirect method to prepare the state- ment of cash flows. Cash flows in foreign currencies have been translated at transaction rates. Acquisitions or divestments of subsidiaries are presented net of cash and cash equivalents acquired or disposed of, respectively. Cash flows from derivatives are recognized in the state- ment of cash flows in the same category as those of the hedged items. AkzoNobel has a strong balance sheet and solid cash position. At December 31, 2020, cash and cash equiva- lents were €1.6 billion and financial leverage (net debt/ EBITDA) was 0.8. AkzoNobel is committed to retain a strong investment grade credit rating. In 2020, a detailed assessment was performed of potential valuation adjustments to the overall asset base, either due to the direct impact of COVID-19 or due to its impact on future profitability. Goodwill and intangible asset impair- ment tests have been performed based on most recently updated forecasts. Recoverability of deferred tax assets has also been reassessed based on these forecasts. Furthermore, an assessment was performed with regard to the allowance for impairment of trade receivables, also taking into account potential additional risk associated with COVID-19. The impact of the pandemic on the Financial Statements has been considered for each of the relevant notes, and additional disclosures have been provided in case COVID-19 had a material impact on a specific Financial Statements section. The Financial Statements sections for which this is relevant include: • Government support received and recorded as credit to employee benefits (Note 7) • Income tax and the valuation of deferred tax assets (Note 9) 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 2020, 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 denominated in foreign currencies are translated into the functional currency using the exchange rates at the balance sheet date. Resulting foreign currency differ- ences are included in the statement of income 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. 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 reporting period. Hyperinflation accounting 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 2019 2020 % 2019 2020 US dollar 1.121 1.229 Pound sterling 0.854 0.900 Chinese yuan 7.808 7.992 9.6 5.4 2.4 1.120 1.143 0.878 0.889 7.742 7.875 % 2.1 1.3 1.7 Brazilian real 4.507 6.384 41.6 4.414 5.887 33.4 AkzoNobel Report 2020 | Financial statements 92 REVENUE RECOGNITION (NOTE 5) 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 underlying 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 paints or coatings 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 paints or coatings 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 7, 19) SHARE-BASED COMPENSATION (NOTE 7) 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 are recognized in other comprehensive income. Remea- surement gains and losses, which arise in calculating our obligations, are recognized in other comprehensive income. When the benefits of a plan improve, the portion of the increased benefits related to past service by employees is recognized as an expense in the statement of income immediately. We recognize gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. Interest on the net defined benefit liability/asset is included in financing expenses related to post-retirement benefits. Other charges and benefits recognized are reported in operating income, unless recorded in other comprehensive income. OTHER EMPLOYEE BENEFITS (NOTE 7, 20) 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. AkzoNobel has 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 corre- sponding increase in shareholders’ equity. Amortization is accelerated 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 9) Income tax expense comprises both current and deferred tax, including effects of changes in tax rates. In determining the amount of current and deferred tax we also take into account the impact of uncertain tax positions and whether additional taxes and interest may be due. Income tax is recognized in the statement of income, unless it relates to items recognized in other comprehensive income or equity. Current tax includes the expected tax payable and 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 and we can control the timing of the reversal of the temporary differ- ence. 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 AkzoNobel Report 2020 | Financial statements 93 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. 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. EARNINGS PER SHARE (NOTE 10) 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 repurchased 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 (which include grants related to COVID-19) are deducted from the relevant costs to be compensated in the same period. Govern- ment 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 11) Intangible assets are valued at cost less accumulated amortization and impairment charges. Intangible assets with an indefinite useful life, such as goodwill and certain brands, are not amortized, but tested for impairment annually using the value-in-use method. Goodwill in a business combination represents the excess of the Intangible assets with a finite useful life, such as licenses, know-how, certain brands, customer relationships, intellectual property rights, emission rights and capital- ized development and software costs, are capitalized at historical cost and amortized on a straight-line basis over the estimated useful life of the assets, which generally ranges from 5 to 40 years for brands with finite useful lives, 5 to 25 years for customer lists and 3 to 15 years for other intangibles. Amortization methods, useful lives and residual values are reassessed annually. Research expenditures are recognized as an expense as incurred. PROPERTY, PLANT AND EQUIPMENT (NOTE 12) 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 10 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. LEASES (NOTE 13, 21) 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. 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 value of right-of-use assets is reduced by impairment losses, if any, and adjusted for certain remea- surements 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 • Amounts expected to be payable under residual value guarantees AkzoNobel Report 2020 | Financial statements 94 These lease payments are discounted using the interest rate implicit in the lease contract, if that rate can be readily determined. If that rate cannot be readily deter- mined, 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 commence- ment 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. 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 do not record right-of-use assets and lease liabilities on the balance sheet for leases of low-value assets and short-term leases. We recognize the lease payments asso- ciated with these leases as an expense on a straight-line basis over the lease term. IMPAIRMENTS (NOTE 11, 12, 13) 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 recove- rable. 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 impair- ment is performed at the lowest level of assets generating largely independent cash inflows. For goodwill and other intangible assets with an indefinite life, we have determined this to be at business unit level (one level below segment). 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. 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. ASSOCIATES AND JOINT VENTURES (NOTE 14) Associates and joint ventures are accounted for using the equity method and are initially recognized at cost. The Consolidated financial statements include our share of the income and expenses of the associates and joint ventures, whereby the result is determined using our accounting principles. When the share of losses exceeds the interest in the investee, the carrying amount is reduced to nil and recognition of further losses is discontinued, unless we have legal or constructive obligations on behalf of the investee. INVENTORIES (NOTE 16) 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 20) 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. FINANCIAL INSTRUMENTS 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 accord- ing 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. AkzoNobel Report 2020 | Financial statements 95 96AkzoNobel Report 2020 | Financial statementsThe financial assets included in the general impairment approach are long-term loans and other long-term receivables.The calculation of impairment under the simplified approach requires recognition of lifetime expected credit loss (no tracking of changes in credit risk). The financial assets included in the simplified impairment approach are trade receivables and the remaining financial assets.MeasurementRegular purchases and sales of financial assets and liabilities are recognized on trade date. The initial measure-ment of all financial instruments is at fair value. Except for derivatives and cash and cash equivalents, the initial measurement of financial instruments is adjusted for directly attributable transaction costs.Derivative financial instruments (Note 27)Derivative financial instruments are recognized at fair value on the balance sheet. Fair values are derived from market prices and quotes from dealers and brokers or are esti-mated using observable market inputs. When determining fair values, credit risk for our contract party, as well as for AkzoNobel, is taken into account.Changes in the fair value are recognized in the statement of income, unless cash flow hedge accounting or net investment hedge accounting is applied. In those cases, the effective part of the fair value changes is deferred in other comprehensive income and released to the related specific lines in the statement of income or balance sheet at the same time as the hedged item.Financial non-current assets (Note 15) and Trade and other receivables (Note 17)Loans and receivables are measured at amortized cost, using the effective interest method, less any impair-ment losses.Cash and cash equivalents and Short-term investments (Note 21)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 cash. Changes in fair values are included in financing income and expenses.Long-term and Short-term borrowings (Note 21, 27) and Trade and other payables (Note 22)Long-term and short-term borrowings, as well as trade and other payables, are measured at amortized cost, using the effective interest rate method. The interest expense on borrowings is included in financing income and expenses. The fair value of borrowings, used for disclosure purposes, is determined based on listed market price, if available. If a listed market price is not available, the fair value is calcu-lated based on the present value of principal and interest cash flows, discounted at the interest rate at the reporting date, considering AkzoNobel’s credit risk.NEW IFRS ACCOUNTING STANDARDSIFRS standards and interpretations thereof not yet in force, which may apply to our Consolidated financial statements for 2021 and beyond, have been assessed for their poten-tial impact. These include among others amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 ‘Interest Rate Benchmark Reform – Phase 2’, amendments to in IFRS 3 ‘References to the Conceptual Framework’, amend-ments to IAS 16 ‘Property, Plant and Equipment: Proceeds before Intended Use’, amendments to IAS 37 ‘Onerous Contracts – Costs of Fulfilling a Contract’, AIP IFRS 9 ‘Financial instruments – Fees in the ‘10 percent’ test for derecognition of financial liabilities’, IFRS 17 ‘Insurance contracts’ and Amendments to IAS 1 ‘Classification of Liabilities as Current or Non-current’. These changes are not expected to have a material effect on AkzoNobel’s Consolidated financial statements.Material subsidiariesThe Consolidated financial statements comprise the assets, liabilities, income and expenses of 283 legal enti-ties. We consider legal entities material when they repre-sent, 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 table in this Note are fully owned at year-end 2020.AcquisitionsOn November 8, 2019, we acquired Mapaero in France to further strengthen our global position in the aerospace coatings industry. In 2019, we performed a preliminary purchase price allocation, resulting in €83 million of good-will, that has been fully allocated to business unit Automo-tive and Specialty Coatings. The purchase price allocation was completed in 2020, resulting in €6 million higher goodwill, €10 million lower intangibles and €4 million lower deferred tax liabilities.On April 1, 2020, we completed the acquisition of Mauvilac Industries Limited, a leading paints and coat-ings company on Mauritius, for €33 million. The business generated revenue of €17 million (unaudited) in 2019. This transaction resulted in €12 million goodwill and €19 million of intangibles, both fully allocated to business unit Decora-tive Paints Europe, Middle East and Africa.On December 23, 2020 we completed the acquisition of New Nautical Coatings Inc. in the US for €59 million. This company owns the globally and nationally recog-nized brands of Sea Hawk Paints, Flexdel and Blue Water Marine Paint. The business generated revenue of Note 2 Scope of consolidationMaterial subsidiaries related to continuing operationsLegal entityPrincipal place of business/country of incorporationAkzo Nobel Coatings Inc.USAkzo Nobel Paints (Shanghai) Co Ltd.ChinaImperial Chemical Industries LimitedUKAkzo Nobel Decorative Coatings B.V.NetherlandsAkzo Nobel Coatings SPAItaly97AkzoNobel Report 2020 | Financial statements€16 million (unaudited) in 2020. We performed a prelimi-nary purchase price allocation, resulting in €22 million of goodwill and €29 million of intangibles, both fully allocated to business unit Marine and Protective Coatings.In 2020, other smaller acquisitions include the Powder Coatings business of Poederlak Benelux B.V. and the Stahl Performance Powder Coatings activities.Payments in 2020 for acquisitions in previous years included an amount of €14 million for Mapaero.DivestmentsIn 2020 and 2019, no significant divestments occurred. Discontinued operations and held for saleThe results from discontinued operations in 2020 and 2019, mainly relate to the former Specialty Chemicals and Organon BioSciences businesses. The cash flows from discontinued operations in 2020 predominantly concerned the former Deco North America business (2019: Specialty Chemicals).* Related to PPA adjustments for the 2019 Mapaero acquisition and several small acquisitions in 2020.Note 3 Segment informationDecorative PaintsOur customers mainly consist of professionals and do-it-yourselfers. 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.Performance CoatingsWe are a supplier of performance coatings that are used to protect and enhance everything from ships, cars, aircraft, yachts and architectural components (structural steel, building products, flooring) to consumer goods (mobile devices, appliances, beverage cans, furniture) and oil and gas facilities.The tables in this Note include Alternative Performance Measures (APMs). Refer to Note 4 for further information on these APMs.Discontinued operationsIn € millions20192020Revenue——Expenses——Profit before tax——Income tax——Profit for the period after tax——Results related to discontinued operations in previous years211Tax related to discontinued operations in previous years1(8)Total profit/(loss) for the period from discontinued operations22(7)Cash flows from discontinued operationsIn € millions20192020Net cash from operating activities(10)(3)Net cash from investing activities – –Net cash from financing activities––Cash flows from discontinued operations(10)(3)Recognized fair values at acquisitionIn € millionsMauvilac Industries Ltd., MauritiusNew Nautical Coat-ings Inc., USAOther* Total 2020 Other intangibles1929(6)42Property. plant and equipment2215Inventories44—8Trade and other receivables32—5Cash and cash equivalents(1)1——Deferred tax assets/(liabilities)(3)—3—Trade and other payables(3)(1)—(4)Net identifiable assets and liabilities2137(2)56Goodwill12221448Purchase consideration335912104Cash and cash equivalents acquired1(1)——Paid in 2020 related to acquisitions in previous years——1616To be paid in 2021 and later years——(7)(7)Net cash outflow345821113Information per reportable segment In € millions Decorative Paints Performance Coatings Corporate and other Total Revenue third parties Amortization and depreciation 2019 3,670 5,549 57 9,276 2020 3,558 4,957 15 8,530 2019 (155) (183) (22) (360) 2020 (153) (159) (49) (361) Operating income Identified items1 2019 425 565 (149) 841 2020 551 665 (253) 963 2019 7 (123) (34) (150) 2020 (22) (35) (79) (136) Adjusted operating income2 2019 418 688 (115) 991 2020 573 700 (174) 1,099 ROS%3 OPI margin4 2019 11.4 12.4 2020 16.1 14.1 2019 11.6 10.2 2020 15.5 13.4 10.7 12.9 9.1 11.3 1 ldentified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges, and charges and benefits related to major legal, environmental and tax cases. The identified items exclude the items related to interest. 2 Adjusted operating income is operating income excluding identified items. 3 ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of revenues from third parties. Up to 2019, ROS% used to be based on group revenues which included intercompany revenues. Therefore, the 2019 figures have been restated for this change in definition. 4 OPI margin is calculated as operating income as a percentage of revenues from third parties. Up to 2019, OPI margin used to be based on group revenues which include intercompany revenues. Therefore, the 2019 figures have been restated for this change in definition. Information per reportable segment In € millions Decorative Paints Performance Coatings Corporate and other Total Invested capital Total assets Total liabilities Capital expenditures1 2019 2,992 3,401 621 7,014 2020 2,567 3,384 452 6,403 2019 5,569 6,794 621 2020 5,882 6,519 776 12,984 13,177 2019 3,249 2,774 393 6,416 2020 3,273 2,586 1,368 7,227 2019 62 113 39 214 2020 77 146 35 258 2019 13.5 20.7 14.1 ROI%2 2020 20.5 20.7 16.1 1 Capital expenditures include investments in intangible assets (refer to Note 11) and investments in property, plant and equipment (refer to Note 12). 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* 2019 359 3,748 1,139 815 2,656 559 9,276 2020 342 3,626 1,019 697 2,344 502 8,530 2019 1,182 1,659 501 239 1,642 102 5,325 2020 1,188 1,598 529 184 1,550 126 5,175 2019 1,766 2,469 682 347 1,528 222 7,014 2020 1,616 2,212 719 244 1,399 213 6,403 2019 42 74 29 15 44 10 214 2020 46 84 41 13 63 11 258 * Capital expenditures include investments in intangible assets (refer to Note 11) and investments in property, plant and equipment (refer to Note 12). AkzoNobel Report 2020 | Financial statements 98 99AkzoNobel Report 2020 | Financial statements1 Includes costs related to the strategy to create a focused high-performing Paints and Coatings business.2 Includes the tax impact on APM adjustments.1 The identified items exclude the items related to interest.2 Adjusted operating income is operating income excluding identified items.3 OPI margin is calculated as operating income as a percentage of revenues from third parties. Up to 2019, OPI margin used to be based on group revenues which include intercompany revenues. Therefore, the 2019 figures have been restated for this change in definition.4 ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of revenues from third parties. Up to 2019, ROS% used to be based on group revenues which include intercompany revenues. Therefore, the 2019 figures have been restated for this change in definition. 5 OPI margin and ROS% for Other activities/eliminations is not shown, as this is not meaningful.In presenting and discussing AkzoNobel’s operating results, management uses certain alternative perfor-mance measures not defined by IFRS, which exclude the so-called identified items. ldentified items are special charges and benefits, results on acquisitions and divest-ments, major restructuring and impairment charges, and charges and benefits related to major legal, environmental and tax cases. These alternative performance measures Note 4 Alternative performance measuresshould not be viewed in isolation as alternatives to the equivalent IFRS measures and should be used as supple-mentary information in conjunction with the most directly comparable IFRS measures. Alternative performance measures do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other companies. Where a non-financial measure is used to calculate an operational or statistical ratio, this is also considered an alternative performance measure.Adjusted OPI, OPI margin and ROS%In € millions20192020Revenue from third partiesDecorative Paints3,6703,558Performance Coatings5,5494,957Other5715Total9,2768,530Operating incomeDecorative Paints425551Performance Coatings565665Other(149)(253)Total841963Total APM adjustments (identified items)1Decorative Paints7(22)Performance Coatings(123)(35)Other(34)(79)Total(150)(136)Adjusted operating income2Decorative Paints418573Performance Coatings688700Other(115)(174)Total9911,099OPI margin%3Decorative Paints11.615.5Performance Coatings10.213.4Other5Total9.111.3ROS%4Decorative Paints11.416.1Performance Coatings12.414.1Other5Total10.712.9Alternative performance measures 2019 2020 In € millionsContinuing operationsDiscontinued operationsTotalContinuing operationsDiscontinued operationsTotalOperating income841—841963—963APM adjustments to operating income - Transformation costs1204—204121—121 - Gain on disposal(54)—(54)——— - Other———15—15Total APM adjustments (identified items)150—150136—136Adjusted operating income991—9911,099—1,099Profit/(loss) for the period attrib-utable to shareholders of the company51722539637(7)630APM adjustments to operating income150—150136—136APM adjustment interest on tax settlement———(3)—(3)APM adjustments to income tax2(7)—(7)(28)—(28)APM adjustment deal result on sale Specialty Chemicals, net of tax—(22)(22)———Total APM adjustments143(22)121105—105Adjusted profit/(loss) for the period attributable to shareholders of the company660—660742(7)735EBITDA1 In € millions Decorative Paints Performance Coatings Other Total Depreciation and amortization (155) (183) (22) (360) OPI 425 565 (149) 841 1 EBITDA is operating income excluding depreciation and amortization. OPI 551 665 (253) 963 2019 EBITDA 580 748 (127) 1,201 2019 2020 Alternative performance measures: ROI% Depreciation and amortization EBITDA In € millions 2019 2020 (153) (159) (49) (361) 704 824 (204) 1,324 Average invested capital Decorative Paints Performance Coatings Other Total Adjusted operating income1 Decorative Paints 2020 Performance Coatings Adjusted EBITDA 714 854 (126) 1,442 Other Total ROI%2 Decorative Paints Performance Coatings Other3 Total 3,106 3,325 595 7,026 418 688 (115) 991 13.5 20.7 2,799 3,388 647 6,834 573 700 (174) 1,099 20.5 20.7 14.1 16.1 Adjusted EBITDA2 In € millions Decorative Paints Performance Coatings Other Total Depreciation and amortization excluding identified items Adjusted OPI Adjusted EBITDA Adjusted OPI Depreciation and amortization excluding identified items 418 688 (115) 991 (155) (173) (22) (350) 573 861 (93) 1,341 573 700 (174) 1,099 (141) (154) (48) (343) 1 For reconciliation to IFRS measures please refer to the first table in this Note. 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. 3 ROI% for Other activities/eliminations is not shown, as this is not meaningful. 2 Adjusted EBITDA is operating income excluding depreciation, amortization and identified items. AkzoNobel uses alternative performance measure adjust- ments (APM adjustments) to the IFRS measures to provide supplementary information on reporting on the underlying developments of the business. These APM adjustments may affect the IFRS measures operating income, net profit 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: Adjusted earnings per share In € millions Profit 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 profit from continuing operations attributable to share- holders of the company* Weighted average number of shares (in millions) Earnings per share from continuing operations (in €) Adjusted earnings per share from continuing operations (in €) 2019 517 150 — (7) 660 2020 637 136 (3) (28) 742 213.1 191.4 2.43 3.10 3.33 3.88 * For the reconciliation to IFRS measures please refer to the first table in this Note. AkzoNobel Report 2020 | Financial statements 100 101AkzoNobel Report 2020 | Financial statements* The 2019 figures are restated to represent revenue from third parties instead of group revenue, as group revenue includes intercompany revenue.Note 5 RevenueAkzoNobel 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 in this Note. For the receivables, which are included in Trade and other receivables, reference is made to Note 17.As at December 31, 2020, and at December 31, 2019, no significant contract assets were recognized.As at December 31, 2020, the amount of contract liabilities deferred to be recognized over time in 2021 is €3 million. These contract liabilities primarily relate to shipping, training and certain technical services, for which revenue is recognized over time. The amount of €3 million included in contract liabilities at the beginning of the period has been recognized as revenue during the year 2020 (2019: €3 million).Revenue disaggregationDecorative PaintsPerformance CoatingsOtherTotalIn € millions20192020201920202019202020192020Primary geographical markets - revenue from third partiesThe Netherlands202233100945715359342Other European countries1,7471,8472,0011,779——3,7483,626US and Canada——1,1391,019——1,1391,019South America456396359301——815697Asia1,0759101,5811,434——2,6562,344Other regions190172369330——559502Total3,6703,5585,5494,95757159,2768,530Major goods/service lines - revenue from third parties*Decorative Paints Europe, Middle East and Africa2,1292,246————2,1292,246Decorative Paints South America457396————457396Decorative Paints Asia1,084916————1,084916Powder Coatings——1,2291,128——1,2291,128Marine and Protective Coatings——1,2901,068——1,2901,068Automotive and Specialty Coatings——1,3181,127——1,3181,127Industrial Coatings——1,7071,634——1,7071,634Other——5—57156215Total3,6703,5585,5494,95757159,2768,530Timing of revenue recognitionGoods transferred at a point in time3,6213,5125,3114,772——8,9328,284Services transferred over time49462381855715344246Total3,6703,5585,5494,95757159,2768,530102AkzoNobel Report 2020 | Financial statementsIn 2020, operating income was up 15% at €963 million (2019: €841 million). Margin management and cost savings more than offset lower volumes. Operating income as a percentage of revenue (OPI margin) improved to 11.3% (2019: 9.1%). Operating income included €136 million (2019: €150 million) negative impact from identified items, mainly related to €121 million transforma-tion costs to create a focused high-performing Paints and Coatings business.Note 6 Operating incomeNote 7 Employee benefitsIn 2019, operating income was up 39% at €841 million (2018: €605 million). Price/mix effects, cost savings and lower identified items more than offset raw mate-rial inflation and lower volumes. Operating income as a percentage of revenue (OPI margin) improved to 9.1% (2018: 6.5%). Operating income included €150 million (2018: €193 million) negative impact from identified 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.The average number of employees working outside the Netherlands was 30,700 (2019: 31,900).In 2020, the number of employees decreased by 5% to 32,200 people (year-end 2019: 33,800 people). Acquisi-tions in 2020 added around 250 people.Employee benefit costs in 2020 include an €33 million compensation related to government support measures for COVID-19, mainly in China and the UK. These grants * As a result of an organizational redesign completed in 2020, the 2019 employee numbers have been restated to reflect this change.* Costs by nature 2019 have been reclassified to align to our 2020 cost structure and allocations. This resulted in reclassifications between cost lines in our statement of income, which did not impact total operating income.Costs by nature 2020In € millions Employee benefits Amortization DepreciationPurchases and other costsTotalCost of sales(524)—(160)(4,061)(4,745)Selling expenses(832)(48)(83)(953)(1,916)General and administrative expenses(319)(12)(40)(292)(663)Research and development expenses(175)(4)(14)(45)(238)Other results———(5)(5)Total(1,850)(64)(297)(5,356)(7,567)Costs by nature 2019*In € millions Employee benefits Amortization DepreciationPurchases and other costsTotalCost of sales(537)—(149)(4,628)(5,314)Selling expenses(861)(54)(97)(1,205)(2,217)General and administrative expenses(300)(10)(33)(294)(637)Research and development expenses(177)(3)(14)(68)(262)Other results———(5)(5)Total(1,875)(67)(293)(6,200)(8,435)Salaries, wages and other employee benefits in operating incomeIn € millions20192020Salaries and wages(1,461)(1,449)Post-retirement cost(137)(138)Other social charges(277)(263)Total(1,875)(1,850)Average number of employees of total AkzoNobel*Average number during the year20192020Decorative Paints12,90012,100Performance Coatings18,00017,500Corporate and other3,3003,400Total34,20033,000Average number of employees in the Netherlands*Average number during the year20192020Decorative Paints600600Performance Coatings1,0001,000Corporate and other700700Total2,3002,300Employees*At year-end20192020Decorative Paints12,50011,900Performance Coatings18,00017,100Corporate and other3,3003,200Total33,80032,200were mainly provided in the form of (partial) compensations for costs of salaries and wages, waivers of social charges and postponement of payment of indirect and corporate income taxes. AkzoNobel did not submit any application for the ‘Noodmaatregel Overbrugging voor Werkgelegen- heid (NOW)’ in the Netherlands. SHARE-BASED COMPENSATION 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 2020 statement of income for share-based compensation amounted to €14 million and are included in salaries and wages (2019: €16 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 2020 was 289 (2019: 294). The shares of the performance-related share plan series 2017-2019 have vested and were deliv- ered to the participants in 2020. Fair value performance-related shares in € Series 2017-2019 2017-20191 2017-20191 2018-20202 2019-2021 2020-20223 Opening share price per: January 2, 2017 May 9, 2017 July 28, 2017 April 26, 2018 January 2, 2019 April 21, 2020 Market condition (TSR)4 Fair Value Non-market based performance conditions5 Share price 52.42 76.34 77.16 71.65 61.09 53.42 40.14 75.63 78.88 67.51 52.57 42.95 59.03 76.72 76.23 75.78 69.60 63.88 59.03 76.72 76.23 75.78 69.60 63.88 Expected volatility Risk free interest rate 23.94% 24.13% 23.77% 22.66% 20.12% 21.42% (0.12)% (0.09)% (0.08)% (0.04)% (0.04)% (0.33)% 1 Concerns an additional share grant. 2 Date of the AGM at which the new LTI performance criteria for the Board of Management were approved. 3 Date the Supervisory Board approved use of the average share price calculation method to determine the number of shares granted. 4 35% for the 2017-2019 grant and 50% for grants thereafter. 5 65% for the 2017-2019 grant and 50% for grants thereafter. Executive Committee 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. (series 2017-2019: 85%), including extraordinary dividend shares of 14.37% (series 2017-2019: 11.37%), the final vesting percentage amounted to 89.21% (series 2017- 2019: 94.66%). The plan for the executives is a restricted share plan without any performance conditions, whereby the condi- tional grant of shares will vest upon the condition that the executives remain in service with the company during the three-year vesting period, after which a one-year holding restriction applies. The share price of a common AkzoNobel share at year- end 2020 amounted to €87.86 (2019: €90.64). Fair value of restricted and performance- related shares The fair value of the restricted shares of the 2020-2022 grant, amounting to €64.83, is based on the share price on March 11, 2020 of €69.73 and the expected dividend yield of 2.40%. The fair value of the performance-related The performance targets for the conditional grant of per- formance shares for the Board of Management and the The conditional shares of the 2018-2020 performance share plan for the AkzoNobel participants vested for 78% Share plans of AkzoNobel executives Plan Performance/ Vesting period Award date End of perfor- mance period End of holding period Balance at January 1, 2020 Awarded in 2020 Vested in 2020 Forfeited in 2020 Dividend in 2020 2017-2019 Performance Share Plan 3 years Jan 1, 2017 Jan 1, 2020 NA 211,968 2017-2019 Performance Share Plan 3 years Jan 1, 2017 Jan 1, 2020 Feb 12, 2022 70,332 2018-2020 Restricted Share Plan 3 years Jan 1, 2018 Jan 1, 2021 Jan 1, 2022 179,685 2018-2020 Performance Share Plan 3 years Jan 1, 2018 Jan 1, 2021 Feb 17, 2023 90,354 2019-2021 Restricted Share Plan 3 years Jan 1, 2019 Jan 1, 2022 Jan 1, 2023 204,853 2019-2021 Performance Share Plan 3 years Jan 1, 2019 Jan 1, 2022 Feb 2024 94,691 — — 3,843 — 6,855 — 2020-2022 Restricted Share Plan 3 years Jan 1, 2020 Jan 1, 2023 Jan 1, 2024 2020-2022 Performance Share Plan 3 years Jan 1, 2020 Jan 1, 2023 Feb 2025 2020-2022 Restricted Share Plan 3 years Apr 1, 2020 Apr 1, 2023 NA — — — 190,973 73,393 6,590 (211,956) (70,332) (521) (8,600) (328) (9,135) (82) (6,676) — (12) — (15,987) (14,123) (24,510) (12,544) (14,205) (9,979) — Subject to per- formance condition — — NA Unvested in 2020 — Subject to holding period Balance at December 31, 2020 — 70,332 — — 167,020 167,020 167,020 70,034 70,034 70,034 70,034 NA 186,870 186,870 186,870 — — — 2,403 — 2,519 75,531 75,531 75,531 75,531 — NA 176,686 176,686 176,686 1,509 58,247 — — 58,247 6,590 58,247 — 58,247 6,590 Total 851,883 281,654 (307,630) (91,360) 6,431 203,812 740,978 804,720 740,978 AkzoNobel Report 2020 | Financial statements 103 104AkzoNobel Report 2020 | Financial statementsshares of the 2020-2022 grant is for 50% based on a market condition (TSR) and for 50% based on non-market-based performance condition (ROI). The TSR part of the award is valued applying a Monte Carlo simulation model and the other part is valued based on the share price at grant date. The parameters applied for the fair value calculations are: share price at grant date (opening of first trading date from grant date), expected volatility (based on the share price development over the past three years of AkzoNobel), and risk-free interest rate (based on a Dutch zero-coupon government bond). Share-matching planThe 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. During 2020, 3,361 potential matching shares were matched, leading to a total of 1,720 potential matching shares on December 31, 2020. For an overview of the matching shares outstanding for the members of the Board of Management per December 31, 2020, we refer to the Remuneration report.Note 8 Financing income and expensesNet financing expenses for the year were €69 million (2019: €76 million). Significant variances are:• Net interest on net debt decreased by €7 million to €52 million (2019: €59 million), mainly due to lower interest cost on debt• Financing income related to post-retirement benefits decreased from €21 million in 2019 to €14 million in 2020 mainly due to the impact of lower discount rates• Interest charges on provisions decreased from €14 million in 2019 to €10 million due to changes in discount rates• Other items in 2020 and 2019 mainly include foreign currency resultsThe average interest rate used for capitalized interest was 1.9% (2019: 1.5%). Capitalized interest was negligible in both 2020 and 2019. The average interest rate on total debt was 2.4% (2019: 2.8%).Note 9 Income taxPre-tax income from continuing operations amounted to a profit of €919 million (2019: €785 million). The net tax charges related to continuing operations are included in the statement of income as shown in this Note. The total deferred tax charge including discontinued operations was €108 million (2019: €55 million). The total tax charge including discontinued operations was €249 million (2019: €229 million). Effective tax rate reconciliationIn 2020, the effective income tax rate based on the state-ment of income is 26.2% (2019: 29.3%). The second table in this Note presents the effective consolidated tax rate excluding the impact of results on discontinued operations. Including these results, the effec-tive consolidated tax rate is 27.1% (2019: 28.4%).Non-deductible expenses are mainly related to base erosion, non-deductible interest and the effects of Argen-tina hyperinflation accounting. The non-taxable income is mainly related to the Innovation box in the Netherlands, R&D credits and the tax exemption for investments.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.Financing income and expensesIn € millions20192020Financing income1714Financing expenses(76)(66)Net interest on net debt(59)(52)Other interestFinancing income related to post-retirement benefits2114Interest charges on provisions(14)(10)Other items(24)(21)Net other financing credit/(charge)(17)(17)Total financing income and expenses(76)(69)Classification of current and deferred tax resultIn € millions20192020Current tax (expense)/income forThe year(171)(131)Adjustments for previous years1(2)Total current tax expense(170)(133)Deferred tax (expense)/income forOrigination and reversal of temporary differences and tax losses(22)(106)(De)recognition of deferred tax assets(45)1Changes in tax rates7(3)Total deferred tax expense(60)(108)Total(230)(241)Effective tax ratein %20192020Corporate tax rate in the Netherlands25.025.0Effect of tax rates in other countries (2.2)(0.4)Weighted average statutory income tax rate22.824.6Non-taxable income (1.0)(1.2)Non-deductible expenses3.21.8(De)recognition of deferred tax assets5.8(0.1)Non-refundable withholding taxes 0.40.6Adjustment for prior years(0.2)0.2Deferred tax adjustment due to changes in tax rates(1.7)0.3Effective tax rate 29.326.2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. The majority of the amount of the non-current portion of deferred or current taxes will be recovered or settled after more than 12 months. In 2020, deferred tax asset recoverability has been assessed using taxable profit forecasts, which take the potential impact of the COVID-19 pandemic on future results into account. These assessments showed sufficient taxable profit to recover previously recognized deferred tax assets in most jurisdictions, whilst in some jurisdictions this resulted in minor derecognitions or re-recognitions, with a net effect of a re-recognition of deferred tax assets of €4 million. Deferred tax assets not recognized relate to tax loss carryforwards. Due to the divestment of the Specialty Chemicals business in 2018, the company has been reorganizing itself into a focused Paints and Coatings company. In 2019, this resulted in a simplification of the intercompany financ- ing structure, enlarging the scope of the 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, these changes in future profitability led to the derecognition or re-recogni- tion of deferred tax assets. In aggregate, the net effect of the derecognition and re-recognition of deferred tax assets in 2019 was a charge of €47 million. From the total amount of recognized net deferred tax assets, €196 million (2019: €345 million) is related to Deferred tax assets and liabilities 2020 In € millions Intangible assets Property, plant and equipment Financial non-current assets Post-retirement benefit provisions Other provisions Other items Tax credits Tax loss carryforwards Deferred tax assets not recognized Deferred tax assets (liabilities) Balance at January 1, 2020 Changes in exchange rate Recognized in income Recognized in equity/Other comprehensive income Acquisitions Balance at December 31, 2020 (410) 49 (200) 158 35 102 173 641 (410) 138 24 (6) 13 (9) (3) — — (25) 18 12 (31) 17 (79) 23 (3) (37) 11 27 (36) (108) — — (1) (16) — 3 — 2 — (12) — — — — — — — — — — (417) 60 (267) 156 29 68 184 645 (428) 30 Deferred tax assets and liabilities 2019 In € millions Intangible assets Property, plant and equipment Financial non-current assets Post-retirement benefit provisions Other provisions Other items Tax credits Tax loss carryforwards Deferred tax assets not recognized Deferred tax assets (liabilities) Balance at January 1, 2019 Changes in exchange rate Recognized in income Recognized in equity/Other comprehensive income Acquisitions Balance at December 31, 2019 (363) 47 (158) 121 37 79 150 582 (304) 191 — 4 (10) 2 1 1 — 20 (12) 6 (8) (1) (32) (21) (3) 8 23 37 (58) (55) — — — 56 — 15 — 2 (36) 37 (39) (1) — — — (1) — — — (41) (410) 49 (200) 158 35 102 173 641 (410) 138 remaining differences for which no deferred tax liabilities have been recognized is €33 million (2019: €30 million). Deferred tax assets not recognized fully relate to tax loss carryforwards in 2020. entities that have suffered a loss in either 2020 or 2019 and where utilization is dependent on future taxable profit in excess of the profit arising from the reversal of existing taxable temporary differences. This assessment is based on management’s long-term projections and tax planning strategies. A deferred tax liability is recognized for taxable temporary differences related to investments in subsidiaries, branches and associates and interests in joint arrangements, to the extent that it is probable that these will reverse in the foreseeable future. The expected net tax impact of the AkzoNobel Report 2020 | Financial statements 105 106AkzoNobel Report 2020 | Financial statementsNote 10 Earnings per shareProfit for the period attributable to the shareholders of the company was €630 million (in 2019: €539 million).The number of shares for the earnings per share calcula-tion decreased as a result of the capital repayment and share consolidation executed in 2019 and the share buyback programs of 2019 and 2020.The losses in the tables on tax losses carried forward are gross amounts, with the tax impact included in the last column of the table.Expiration year of loss carryforwards 2020In € millions20212022202320242025LaterUnlimitedTotalDeferred taxTotal loss carryforwards 261108—1242,8983,139645Loss carryforwards not recognized in deferred tax assets—(6)———(2)(2,134)(2,142)(428)Total loss carryforwards recog-nized2—1108—122764997217Expiration year of loss carryforwards 2019In € millions20202021202220232024LaterUnlimitedTotalDeferred taxTotal loss carryforwards 22111341411332,9953,418641Loss carryforwards not recognized in deferred tax assets(1)(1)(8)(1)(2)(15)(1,221)(1,249)(242)Total loss carryforwards recog-nized1131331391181,7742,169399Deferred tax assets and liabilities per balance sheet itemDecember 31, 2019December 31, 2020In € millionsNet balance AssetsLiabilitiesNet balance AssetsLiabilitiesIntangible assets(410)32442 (417) 18 435 Property, plant and equipment498334 60 85 25 Financial non-current assets(200)10210 (267) 36 303 Post-retirement benefit provisions1581613 156 157 1 Other provisions35449 29 37 8 Other items10214745 68 129 61 Tax credits173173— 184 184 —Tax loss carryforwards641641— 645 645 —Deferred tax assets not recognized(410)(410)— (428) (428)—Tax assets/liabilities138881743 30 863 833 Set-off of tax—(352)(352)— (366) (366)Net deferred taxes138529391 30 497 467 Income tax recognized in equityIn € millions20192020Currency exchange differences on inter-company loans of a permanent nature115Share-based compensation4(1)Share buyback—3Post-retirement benefits24(18)Total39(11)Current tax21Deferred tax37(12)Total39(11)Profit for the periodIn € millions20192020Profit before tax from continuing operations785919Income tax(230)(241)Profit from continuing opera-tions555678Profit for the period attributable to non-controlling interests(38)(41)Profit for the period from continuing operations attribut-able to shareholders of the company517637Profit for the period from discon-tinued operations attributable to shareholders of the company22(7)Profit for the period attributable to shareholders of the company539630Weighted average number of common sharesNumber of shares20192020Issued common shares at January 1256,219,301199,600,331Effect of issued common shares during the year249,936264,818Capital repayment and share consolidation(26,674,886)—Effect of share buyback program(16,720,349)(8,440,749)Shares for basic earnings per share for the year213,074,002191,424,400Effect of dilutive sharesFor performance-related and restricted shares763,868674,365For share-matching plan5,7193,039Shares for diluted earnings per share213,843,589192,101,804107AkzoNobel Report 2020 | Financial statementsEarnings per share (and adjusted earnings per share) from continuing operations increased in 2020, mainly due to the increased profit before tax from continuing operations and the impact of the share buyback program.Note 11 Intangible assetsBrands with indefinite useful lives are almost fully related to Dulux, which is the major brand, due to its global presence, high recognition and strategic nature. Other intangibles include licenses, know-how, intellectual prop-erty rights, software and development cost. Both at year-end 2020 and 2019, there were no material purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.Adjusted earnings per share from continuing operations In € millions20192020Profit before tax from continuing operations785919Identified items reported in operating income150136Interest on tax settlement—(3)Adjusted income tax(237)(269)Non-controlling interests(38)(41)Adjusted profit from continuing operations attributable to shareholders of the company660742Adjusted earnings per share from continuing operations (in €)3.103.88Earnings per sharein €20192020Continuing operationsBasic2.433.33Diluted2.423.32Discontinued operationsBasic0.10(0.04)Diluted 0.10(0.04)Total operationsBasic2.533.29Diluted2.523.28Intangible assetsIn € millionsGoodwillBrandsCustomer listsOther intangiblesTotalBalance at December 31, 2018Cost of acquisition1,0132,2168102214,260Cost of internally developed intangibles———158158Accumulated amortization/impairment(23)(177)(506)(254)(960)Carrying value at December 31, 20189902,0393041253,458Impact adoption IFRS16———(36)(36)Balance at January 1, 20199902,039304893,422Movements in 2019Acquisitions through business combinations101(13)14411243Investments - including internally developed intangibles———3535Amortization—(12)(38)(17)(67)Impairments(12)—(21)(5)(38)Changes in exchange rates1496130Total movements103(16)9125203Balance at December 31, 2019Cost of acquisition1,1212,2089401754,444Cost of internally developed intangibles———191191Accumulated amortization/impairment(28)(185)(545)(252)(1,010)Carrying value at December 31, 20191,0932,0233951143,625Movements in 2020Acquisitions through business combinations 48 8 23 11 90 Investments - including internally developed intangibles — — — 34 34 Amortization — (11) (33) (20) (64)Changes in exchange rates (45) (76) (10) — (131)Total movements 3 (79) (20) 25 (71)Balance at December 31, 2020Cost of acquisition 1,123 2,134 921 178 4,356 Cost of internally developed intangibles — — — 212 212 Accumulated amortization/impairment (27) (190) (546) (251) (1,014)Carrying value at December 31, 2020 1,096 1,944 375 139 3,554 108AkzoNobel Report 2020 | Financial statementsNote 12 Property, plant and equipmentInvestments in property, plant and equipmentThroughout 2020, AkzoNobel has continued to assess all investment opportunities to ensure the right capital and capacity allotment and have taken decisions accordingly. With an aim to reinforce capability to support custom-ers and enhance our manufacturing and supply chain, AkzoNobel has, among others, invested in the Powder Coatings site in Como, Italy, which is expected to enable further automatization and operational efficiency with automated and integrated production lines. Another major investment has been initiated in Turkey to increase the product range in decorative and wood care paints and unlock further value engineering opportunities.We continued to invest in High Point, North Carolina, to transform our wood coatings facility into a best-in-class manufacturing site.ImpairmentsIn 2020, no significant impairments were recognized. In 2019, impairments were recognized in Performance Coatings, following the implementation of our strategic portfolio review.Annual impairment testingGoodwill and other intangibles with indefinite useful lives are tested for impairment per business unit (one level below segment level) annually or whenever an impair-ment trigger exists, applying the value-in-use method. The impairment test is in principle based on cash flow projections of the five-year plan. Elements considered to determine if a different approach would be more appropri-ate are, among others, high growth/emerging economies, geo expansion opportunities, introduction of new product ranges and opportunities from market consolidation. In 2020, the above exception was applied for Decorative Paints Asia and Decorative Paints South America, for which the revenue growth and adjusted EBITDA-margin development projections were extrapolated beyond the five-year explicit forecast period for another five years, applying reduced average growth rates.The key assumptions used in the projections for annual impairment testing are:• Revenue growth per year: based on actual experience, analysis of markets and GDP growth and the expected market share developments • Adjusted EBITDA-margin development per year: based on actual experience and management’s long-term projections• Weighted average cost of capital per year: the pre-tax discount rate determined per business unit, reflecting current market assessments of the time value of money and the risks specifically associated with the business units For all business units, a terminal value was calculated based on the long-term inflation expectations of 1.0%. The estimated pre-tax cash flows are discounted to their present value using a pre-tax weighted average cost of capital. The discount rates are determined for each busi-ness unit and range from 8.9% to 14.5% (2019: 8.8% to 12.7%), with a weighted average of 9.6% (2019: 9.4%).Sensitivity tests were performed for growth assumptions, adjusted EBITDA margin development assumptions and for the weighted average cost of capital. These sensitivity tests show that reasonably possible changes in these key assumptions would not cause carrying amounts to exceed recoverable amounts for any of the business units.In 2020 and 2019, no impairment charges were recog-nized in relation to the annual impairment test.Impact COVID-19 on annual impairment testing processThe situation around COVID-19 is being closely monitored to ensure that the impact on estimated future cash flows is reflected in the models which are used to assess the valuation of the carrying value of AkzoNobel’s asset base. In addition to the beforementioned annual impair-ment testing process, AkzoNobel has made a detailed assessment in the second quarter, specifically focussing on the potential impact of the pandemic. The outcome of both assessments showed sufficient headroom in all business units.Specific asset impairmentsIn 2020, no impairment charges were recorded in rela-tion to specific assets. In 2019, impairment charges were recorded for Performance Coatings, following the implementation of our 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.Goodwill and other intangibles per business unitGoodwillBrands with indefinite useful lives Other intangibles with finite useful livesTotal intangiblesIn € millions20192020201920202019202020192020Decorative Paints Europe, Middle East and Africa81978388371431481,0621,082Decorative Paints South America——11683—111684Decorative Paints Asia11108848475038945895Powder Coatings156149——5348209197Marine and Protective Coatings147163——5878205241Automotive and Specialty Coatings279281——197180476461Industrial Coatings419396——144126563522Corporate and other————49724972Total1,0931,0961,8381,7676946913,6253,554Key assumptionsIn % per yearAverage revenue growth 2021-2025Pre-tax weighted average cost of capital 2021-2025Decorative Paints2.3-6.6%9.7-14.5%Performance Coatings2.2-3.6%8.9-9.5%Property, plant and equipment In € millions 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 Movements in 2020 Acquisitions Divestments Investments Transfer between categories Depreciation Impairments, including reversals Changes in exchange rates Total movements Balance at December 31, 2020 Cost of acquisition Accumulated depreciation/impairment Carrying value at December 31, 2020 Buildings and land Plant equipment and machinery Other equipment Construction in progress and prepayments on projects Assets not used Total 1,505 (711) 794 (28) 766 8 (22) 6 44 (43) (2) 13 4 1,528 (758) 770 3 (4) 8 28 (53) — (58) (76) 1,425 (731) 694 1,894 (1,283) 611 (1) 610 4 (1) 24 57 (102) (19) 12 (25) 1,974 (1,389) 585 1 (1) 23 83 (107) (2) (31) (34) 1,937 (1,386) 551 888 (722) 166 — 166 — (10) 13 19 (43) (2) 6 (17) 906 (757) 149 1 (1) 6 22 (38) (1) (5) (16) 890 (757) 133 178 (4) 174 — 174 — — 136 (121) — — 3 18 193 (1) 192 — (3) 187 (133) — — (3) 48 244 (4) 240 10 (7) 3 — 3 — — — 1 — — — 1 11 (7) 4 — — — — — — (1) (1) 10 (7) 3 4,475 (2,727) 1,748 (29) 1,719 12 (33) 179 — (188) (23) 34 (19) 4,612 (2,912) 1,700 5 (9) 224 — (198) (3) (98) (79) 4,506 (2,885) 1,621 AkzoNobel Report 2020 | Financial statements 109 110AkzoNobel Report 2020 | Financial statementsNote 13 LeasesNote 14 Investments in associates and joint venturesAt year-end 2020, the carrying value of equity investments in associates amounted to €164 million (2019: €147 million). AkzoNobel has granted loans of €2 million in total to certain associates (2019: €3 million). In 2020, the AkzoNobel mainly leases land, office 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 out flow from financing activities related to leases recognized on the balance sheet was €105 million (2019: €108 million). Net cash outflow for leases not recognized on the balance sheet was €17 million (2019: €17 million).Refer to Note 27 Financial risk management for the maturities of lease liabilities.Right-of-use assetsIn € millionsLandBuildingsOtherTotalBalance at January 1, 2019Cost of acquisition5633670462Accumulated depreciation/impairment(10)(20)—(30)Carrying value at January 1, 20194631670432Movements in 2019Additions1183251Modifications(1)1——Disposals—(3)(1)(4)Depreciation(4)(63)(38)(105)Impairments—(5)—(5)Changes in exchange rates1315Total movements(3)(49)(6)(58)Balance at December 31, 2019Cost of acquisition57355102514Accumulated depreciation/impairment(14)(88)(38)(140)Carrying value at December 31, 20194326764374Movements in 2020Additions 2 52 43 97 Modifications — (13) 1 (12)Disposals (1) (6) (9)(16)Depreciation (3) (60) (36)(99)Impairments — (7) — (7)Changes in exchange rates (2) (8) (3)(13)Total movements (4) (42) (4) (50)Balance at December 31, 2020Cost of acquisition 55 353 102 510 Accumulated depreciation/impairment (16) (128) (42)(186)Carrying value at December 31, 2020 39 225 60 324 Income/(expenses) recognized in profit and lossIn € millions20192020Sub lease income610Depreciation right-of-use assets(105)(99)Impairments for right-of-use assets(5)(7)Interest expense on lease liabilities(8)(6)Short-term lease expenses(10)(9)Expenses relating to low-value assets(4)(4)Variable lease expenses(3)(4)Total expenses(129)(119)Balance sheet information of our share in associatesIn € millions2019Associates 2020Condensed balance sheet Non-current assets6871Current assets114141Total assets182212Shareholders’ equity147164Non-current liabilities66Current liabilities2942Total liabilities and equity182212Profit and loss of our share in associatesIn € millions2019Associates 2020Condensed statement of incomeRevenue 154165Profit before tax2937Profit from continuing operations2025Other comprehensive income——Profit for the period2025111AkzoNobel Report 2020 | Financial statementsPension assets (€1,543 million) relate to pension plans in an asset position (2019: €1,418 million). For more information on post-retirement benefit provisions, refer to Note 19. Loans and receivables include the subordinated loan of €87 million (2019: €88 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 €71 million (2019: €105 million), invested in corporate bonds. Under certain conditions, the minimum annual funding of this pension fund from the escrow account is €29 million (£26 million). The current portion of the escrow account is reported as other receivables within trade and other receivables, refer to Note 17.Of the total carrying value of inventories at year-end 2020, €17 million is measured at net realizable value (2019: €36 million). In 2020, €59 million was recognized in the statement of income for the write-down of inventories (2019: €70 million), while €28 million of write-downs were Note 15 Financial non-current assetsNote 16 InventoriesNote 17 Trade and other receivablesNote 18 Group equityTrade receivables are presented net of an allowance for impairment of €58 million (2019: €58 million). The impact from the COVID-19 pandemic on the valuation of trade receivables has been evaluated as part of the regular process on determination of the allowance for impairment. Whilst the allowance for impairment of trade receivables initially increased as a direct result of the additional risk associated with COVID-19, impairment of trade receiv-ables returned to normal levels at year-end.results from associates amounted to a profit of €25 million (2019: €20 million). No significant contingent liabilities exist related to associates.The largest associate of AkzoNobel is Metlac S.p.a., incor-porated in Italy. None of the associates are considered individually material to the group.reversed (2019: €22 million). There are no inventories subject to retention of title clauses.In 2020, €22 million of impairment losses were recognized in the statement of income (2019: €29 million). An amount of €3 million was reversed (2019: €24 million).Since the total amount of impairment losses under IFRS 9 is not significant, no separate disclosure was made in the statement of income.Other receivables include the current portion of €29 million (£26 million) of the escrow account for the Akzo Nobel (CPS) Pension Scheme in the UK.During 2020, 9,331,481 common shares repurchased in 2019 and 2020 were cancelled (2019: 28,433,528 common shares). For further details on weighted average number of shares, refer to Note 10.Financial non-current assetsIn € millions20192020Pension assets1,4181,543Loans and receivables336331Other financial non-current assets10877Total1,8621,951Trade and other receivablesIn € millions20192020Trade receivables1,8121,751Prepaid expenses3330Tax receivables other than income tax11691FX contracts910Receivables from associates8—Other receivables155112Total2,1331,994InventoriesIn € millions20192020Raw materials and supplies342378Work in progress7170Finished products and goods for resale726711Total1,1391,159Ageing of trade receivablesIn € millions20192020Performing trade receivables1,6251,644Past due trade receivables< 3 months16299> 3 months8366Allowance for impairment (58)(58)Total trade receivables1,8121,751Allowance for impairment of trade receivablesIn € millions20192020Balance at January 16958Additions charged to income2922Release of unused amounts(24)(3)Utilization(16)(14)Acquisitions—1Currency exchange differences—(6)Balance at December 315858Composition of share capital at year-end 2019In €Authorized share capitalSubscribed share capitalPriority shares (48 with nominal value of €400)19,20019,200Cumulative preferred shares (200 million with nominal value of €0.50)100,000,000—Common shares (500 million with nominal value of €0.50)250,000,00099,800,166Total350,019,20099,819,366Composition of share capital at year-end 2020 Non-controlling interests 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) Authorized share capital Subscribed share capital 19,200 19,200 100,000,000 — 250,000,000 95,289,921 Total 350,019,200 95,309,121 Group entity Partner at year-end 2020 Akzo Nobel India Limited, Kolkata, India Privately held, India 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 2019 Equity stake in € millions 53 25 23 17 16 % 25.24 45.00 40.05 49.00 40.00 % 25.24 45.00 40.05 49.00 40.00 Outstanding common shares International Paints of Shanghai Co. Ltd, Shanghai, China Huayi Fine Chemical Co. Ltd, China: China National Shipbuilding Equipment & Materials Corp. 49.00 10 49.00 International Paints Saudi Arabia, Saudi Arabia Yousuf Bin Ahmed Kanoo Co. Ltd, Saudi Arabia 40.00 15 40.00 Number of shares 2019 2020 Akzo Nobel Oman SAOC, Muscat, Oman Omar Zawawi establishment LLC, Oman Akzo Nobel UAE Paints LLC, United Arab Emirates Kanoo Group, United Arab Emirates Akzo Nobel Paints (Guangzhou) Limited, Guangzhou, China Industrial Development Co. Ltd of Guanzhou, China Akzo Nobel Pakistan Limited, Karachi, Pakistan Privately held, Pakistan Others Total 50.00 40.00 10.00 24.19 11 9 50.00 40.00 5 9 10.00 2.99 25 218 2020 Equity stake in € millions 50 29 21 20 16 14 12 11 8 4 1 18 204 Outstanding at January 1 256,219,301 199,600,331 Issued in connection to perfor- mance-related share plan and share- matching plan Capital repayment and share consolidation Stock dividend Share buyback Shares bought back not yet cancelled 283,370 310,991 (28,468,812) — — — (31,599,495) (10,027,257) 3,165,967 695,776 Outstanding at December 31 199,600,331 190,579,841 Weighted average number of common shares Number of shares Weighted average number of common shares 2019 2020 213,074,002 191,424,400 Subscribed share capital For further details on subscribed share capital, refer to Note F in the Company financial statements. 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 7. January 2019. A share consolidation ratio of 9:8 was applied. 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 2020, an interim dividend of €0.43 (2019: €0.41) per common share was paid. We propose a 2020 final dividend of €1.52 (2019: €1.49) per common share, which would equal a total 2020 dividend of €1.95 (2019: €1.90). 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 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 was completed at the end of 2019, acquiring 31.2 million common shares, which all have been cancelled. On October 23, 2019, a €500 million share buyback program was announced, for which 0.4 million common shares were acquired in 2019 and 6.2 million shares in 2020, which have all been cancelled. On October 21, 2020, a new €300 million share buyback program was announced for which 0.7 million shares were acquired in 2020, that have not yet been cancelled. The share buyback program is to be completed in the first half of 2021. AkzoNobel Report 2020 | Financial statements 112 113AkzoNobel Report 2020 | Financial statementsPost-retirement benefit provisions relate to defined benefit pension and other post-retirement benefit plans, including healthcare or welfare plans. The largest defined benefit pension plans are the ICI Pension Fund (ICIPF) and the Akzo Nobel (CPS) Pension Scheme in the UK which together account for 86% of defined benefit 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 benefits of these pension plans are based primarily on years of service and employees’ compensation. The funding policy for the plans is consistent with local require-ments in the countries of establishment. We also provide certain healthcare and life insurance benefits to retired employees, mainly in the US and the Netherlands.Valuations of the obligations under the plans are carried out regularly by independent qualified actuaries. We accrue for the expected costs of providing such post-retirement benefits during the service years of the employ-ees. Governance of the benefit plans is the responsibility of the Executive Committee Pensions. This committee provides oversight of the costs and risks of the plans including oversight of the impact of the plans on the company in terms of cash flow, pension expenses and the balance sheet. The committee develops and maintains policies on benefit design, funding, asset allocation and assumption setting.Pension plansAlmost all of the defined benefit plans have been closed to new members since the early to mid-2000s, although in many plans long-serving employees continue to accrue benefits. For plans in the US, benefit accrual is frozen and employees participate in defined contribution plans for future service. In countries where plans are closed, new employees are eligible to join a defined contribution arrangement. In countries in high growth markets, pension schemes currently are not material. Unless mandated by law, it is our policy that any new plans are established as defined contribution plans.The most significant risks that we run in relation to defined benefit plans are investment returns falling short of expectations, low discount rates, inflation exceeding expectations, retirees living longer than expected and legislation changes. The assets and liabilities of each of the funded plans are held outside of the company in a trust or a foundation, which is governed by a board of fiduciaries or trustees, depending on the legal arrangements in the country concerned. The primary objective with regards to the investment of pension plan assets is to ensure that each individual plan has sufficient funds available to satisfy future benefit obligations in accordance with local legal and legislative requirements. For this purpose, we work closely with plan trustees or fiduciaries to develop 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 contri-bution schedules with plan fiduciaries.Plan assets principally consist of insurance (annuity) policies, long-term interest-earning investments and (investment funds with holdings primarily in) quoted equity securities. Our largest plans use derivatives (such as index futures, currency forward contracts and swaps) to reduce volatility of underlying variables, for efficient portfolio management and to improve the liability matching char-acteristics of the assets. Limits have been set on the use of derivatives which are periodically subject to review for compliance with the pension fund’s investment strategy.In line with our proactive pension risk management strategy, we seek to reduce risk in our pension plans over time. We continue to evaluate different potential de- risking strategies and opportunities on an ongoing basis. Some future de-risking transactions may have both cash flow and balance sheet impacts which may be substantial, as have some of the de-risking actions already taken. The cost of fully removing risk would exceed estimated funding deficits.Between 2014 and 2020, 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 2020, the Trustee of the ICIPF entered into a further annuity buy-in agreement with Legal and General Assurance Society Limited and the Trustee of the ISCPF entered into a further annuity buy-in agreement with Pension Insurance Corporation plc. Together they cover, in aggregate, £84 million (€94 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 and ISCPF amounts equiva-lent to the benefits payable to members who have recently become pensioners. The pension liabilities remain with, and the matching annuity policies are held within, ICIPF and ISCPF. The accounting impact of the transaction is a lower valuation of the plan assets giving a reduction in Other comprehensive income of £21 million (€23 million) of which £18 million (€20 million) relates to ICIPF and £3 million (€3 million) relates to ISCPF.By purchasing bulk annuities, the ICIPF and ISCPF Trust-ees have both taken significant steps in actively de-risking liabilities and reducing the risk that AkzoNobel will be required to contribute additional cash in the future.In October 2018, the UK High Court provided clarity for trustees and employers on providing equal pension benefits for men and women where they are in receipt of Guaranteed Minimum Pensions (GMPs) as a result of the Lloyds Banking Group judgment. According to this judg-ment, pension schemes were required to retrospectively equalize GMPs by uplifting pensions to the same level, as far as needed, for men and women. On November 20, 2020, the High Court ruled that pension schemes will need to revisit individual transfer payments made since May 17, 1990, to check if any additional value is due as a result of GMP equalization. As a result, a past service cost of £5 million (€6 million) has been charged across the AkzoNobel pension schemes in the UK in 2020.In setting the discount rate assumption for calculating the DBO of each plan, the so called Willis Towers Watson (WTW) RATE:Link model is used for the majority of the plans in the group. RATE:Link had previously been using a Bloomberg fixed income securities Bloomberg Industry Classification Standard (BICS) framework to provide the relevant inputs. However, due to a change in the Bloom-berg BICS framework in 2020, this framework is no longer deemed suitable and RATE:Link now uses the Bloomberg BCLASS framework. Although the curve-fitting methodol-ogy has not changed in 2020, the change in Bloomberg framework used by RATE:Link has resulted in an esti-mated net €170 million remeasurement gain included in Other comprehensive income. The impact of this change Note 19 Post-retirement benefit provisionsin accounting estimate in relation to bond inclusion is included in the reconciliation table as a €270 million gain within the overall actuarial loss due to liability financial assumption changes in the DBO, partially offset by a €100 million reduction in the experience gain in plan assets in respect of the UK buy-in annuity policies. On November 25, 2020, correspondence between the Chancellor of the Exchequer and the UK Statistics Author- ity (UKSA) was published regarding the future of the Retail Price Index (RPI) measurement of inflation. With effect from February 2030 onwards, increases in the RPI will be aligned with those under the Consumer Prices Index (CPI) Reconciliation balance sheet In € millions 2019 DBO Plan assets Total DBO Plan assets Balance at the beginning of the period (13,354) 13,654 300 (14,616) 15,287 Statement of income Current service cost Past service cost 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 (loss)/gain due to liability financial assumption changes Actuarial (loss)/gain due to liability demographic assumption changes Actuarial loss due to buy-in Return on plan assets (less)/greater than discount rate (30) (2) (361) (393) 50 (1,368) 189 — — Remeasurement effects recognized in Other comprehensive income (1,129) 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 — — 382 382 — — — (30) 914 884 569 2 (881) (310) — 677 677 (30) (2) 21 (11) 50 (1,368) 189 (30) 914 (245) 569 — — 569 — 58 58 (33) (5) (262) (300) 148 (915) (74) — — (841) — (2) 859 857 (2) 718 716 — — 276 276 — — — (23) 981 958 114 2 (859) (743) 2 (766) (764) — (2) 881 879 — (619) (619) (14,616) 15,287 671 (14,184) 15,014 (3) 668 1,418 (701) (49) 668 with owner occupiers’ housing costs (CPIH). Broadly this is expected to result in RPI inflation being 1% lower in the longer term than under the existing methodology. The infla- tion assumption continues to be calculated using a market breakeven inflation rate. However, the CPI inflation assump- tion, on which the benefits of some plans are based, is set with reference to RPI. Until 2030, the CPI inflation assump- tion is calculated as 1% below RPI and from 2030 onwards as 0.1% below RPI. The impact has been recognized within remeasurements in Other comprehensive income. The impact on the actuarial loss due to liability financial assumption changes in the DBO is partially offset by an impact on the experience gain in plan assets in respect of the UK buy-in annuity policies and is not material. The remaining pension plans primarily represent plans accounted for as defined contribution plans. This includes, among others, the Pension Fund APF in the Netherlands and the 401k Plan in the US. The ITP2 plan in Sweden is financed through insurance with the Alecta insurance company and is classified as a multi-employer defined benefit plan. As AkzoNobel does not have access to suffi- cient information from Alecta to enable a defined benefit accounting treatment, it is accounted for as a defined contribution plan. Contributions in 2020 were €1 million (2019: €1 million). Alecta’s funding ratio in 2020 is normally allowed to vary between 125% and 175%. The most recently quoted ratio at December 2020 stood at 148%. The expenses of all plans accounted for as defined contribution plans in AkzoNobel totaled €82 million in 2020 (2019: €86 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 closing net balance sheet position of €827 million (2019: €668 million) includes the pension plans AkzoNobel Report 2020 | Financial statements 114 2020 Total 671 (33) (5) 14 (24) 148 (915) (74) (23) 981 117 114 — — 114 — (48) (48) 830 (3) 827 1,543 (664) (52) 827 (€963 million net asset; 2019: €826 million net asset) and other post-retirement plans (€136 million liability; 2019: €158 million liability). Plan assets In € millions Equities Administrative expenses In addition to the expenses borne by the funds themselves, some expenses are borne directly by AkzoNobel. Adminis- trative expenses are incurred, especially for the UK pension funds, of €18 million (2019: €19 million), which are included in operating income. In addition, we directly incurred asset management expenses of €2 million (2019: €4 million), which have been included in other comprehensive income. 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 Total Percentage of total Total Percentage of total 2019 2020 331 1,641 2,728 1,458 8,018 289 822 2 11 18 10 52 2 5 366 1,315 3,121 1,798 7,595 215 604 15,287 100 15,014 2 9 21 12 51 1 4 100 Interest costs Interest costs on DBO for both pensions and other post- retirement benefits, together with the interest income on plan assets, comprise the net financing income related to post-retirement benefits of €14 million (2019: €21 million), refer to Note 8. Pension plans in asset position Pension balances recorded under Financial non-current assets totaled €1,543 million (2019: €1,418 million). The increase in 2020 was due to €145 million of net actu- arial gains, €45 million of employer contributions and net income of €7 million, partially offset by €72 million of exchange rate translation 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 contri- butions 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 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 €8,354 million (2019: €8,812 million, including the UK buy-in annuity policies totaling €7,595 million (2019: €8,018 million), investments in real estate, totaling €381 million (2019: €405 million) and other investments in infrastructure, catastrophe bonds, insurance policies and high-yield credit strategies. The UK buy-in annuity policies have a value that is equal to the DBO of the pensioners covered by the policies. Plan assets did not directly include any of AkzoNobel’s own transferable financial Cash flows In € millions Regular contributions Top-ups Total 2020 44 57 101 Pensions 2021 44 44 88 2020 13 — 13 Other post-retirement benefits 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 539 303 682 12.1 CPS UK Other pension plans Other post- retirement benefits 297 172 131 15.8 146 80 74 15.9 5 — 6 9.8 * The sensitivity to price inflation assumption includes corresponding changes to all inflation-related compensation increases, pensions in payment and pensions in deferment. 2021 11 — 11 Total 987 555 893 13.5 instruments, nor any property occupied by or assets used by the company. Cash flows In 2021, we expect to contribute €88 million (2020: €101 million) to our defined benefit pension plans, includ- ing £26 million (€29 million) of top-up contributions to the CPS plan, paid from an escrow account, in line with the agreed recovery plan following the March 31, 2017 trienni- al valuation. We expect to pay a further €11 million (2020: €13 million) to our 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 sensitivity effect on DBO shown allows for an alterna- tive value for each assumption while the other actuarial assumptions remain unchanged. While this table illustrates the overall impact on DBO of the changes shown, the significance of the impact and the range of reasonably possible alternative assumptions may differ between the different plans that comprise the total DBO. In particular, the plans differ in benefit design, currency and average term, meaning that different assumptions have different levels of significance for each plan. The sensitivity analysis is intended to illustrate the inher- ent uncertainty in the valuation of the DBO under market AkzoNobel Report 2020 | Financial statements 115 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 62% (9,124) 9,939 815 — 815 10% (3) 479 1.9% 1.5% 3.1% 2.9% 26.3 27.8 27.3 29.0 CPS UK Other pension plans 24% 13% (3,499) 4,032 533 — 533 27% (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 Other post- retirement benefits 1% (158) — (158) — (158) — — 12 2.9% — — — 26.1 27.8 27.2 29.0 2019 Total 100% (14,616) 15,287 671 (3) 668 100% (30) 569 1.9% 2.0% 2.9% 2.6% 26.2 28.0 27.2 29.2 ICIPF UK 61% (8,716) 9,579 863 — 863 9% (3) 4 1.3% 1.5% 2.9% 2.8% 26.4 28.0 27.5 29.2 CPS UK Other pension plans Other post- retirement benefits 25% 13% 1% (3,503) 4,101 598 — 598 24% (8) 37 1.4% 1.3% 2.9% 2.4% 26.2 29.0 27.3 30.1 (1,829) 1,334 (495) (3) (498) 67% (22) 60 1.4% 1.9% 2.0% 2.0% 26.1 28.5 27.4 29.9 (136) — (136) — (136) — — 13 2.6% — — — 25.7 27.6 26.8 28.6 2020 Total 100% (14,184) 15,014 830 (3) 827 100% (33) 114 1.3% 1.5% 2.8% 2.6% 26.3 28.3 27.4 29.5 conditions at the measurement date. Its results cannot be extrapolated due to non-linear effects that changes in the key actuarial assumptions may have on the total DBO. Furthermore, the analysis does not indicate a probability of such changes occurring and it does not necessarily represent our view of expected future changes in DBO. Any management actions that may be taken to mitigate the inherent risks in the post-retirement defined benefit plans are not reflected in this analysis, as they would normally be reflected in plan asset changes rather than DBO changes. The sensitivities in the table only apply to the DBO and not to the net amounts recognized in the balance sheet. Movements in the fair value of plan assets (which include the de-risking instruments) would, to a significant extent, DBO at funded and unfunded pension plans* In € millions Wholly or partly funded plans Unfunded plans Total 2019 14,268 190 14,458 2020 13,854 194 14,048 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. * Excludes other post-retirement benefit plans. Future benefit payments 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 (2019: 99%) and 83% of total liabilities (2019: 84%). At CPS, the longevity hedge contract covers 49% of pensioner liabilities (2019: 58%) and 30% of total liabilities (2019: 35%). In € millions 2021 2022 2023 2024 2025 2026 - 2030 Pensions Other post- retirement benefits 844 844 853 858 864 4,415 11 11 10 10 9 41 AkzoNobel Report 2020 | Financial statements 116 117AkzoNobel Report 2020 | Financial statementsNote 20 Other provisions and contingent liabilitiesGeneral Provisions are recognized when an outflow of economic benefits for settlement is probable and the amount can be reliably estimated. It should be understood that, in light of possible future developments, such as: (a) potential additional lawsuits; (b) possible future settlements; and (c) rulings or judgments in pending lawsuits, certain cases may result in additional liabilities and related costs. At this point in time, we cannot estimate any additional amount of loss or range of loss in excess of the recorded amounts with sufficient certainty to allow such amount or range of amounts to be meaningful. While the outcome of said cases, claims and disputes cannot be predicted with certainty, we believe, based upon legal advice and information received, that the final outcome will not materially affect our consolidated financial position but could be material to our results of operations or cash flows in any one accounting period.Provisions for restructuring of activitiesProvisions for restructuring of activities comprise of accru-als for certain employee benefits and for costs which are directly associated with plans to exit or cease specific activities and closing down of facilities. For all restructuring provisions, a detailed formal plan exists and the imple-mentation of the plan has started or the plan has been announced before the balance sheet date. Most restruc-turing plans are expected to be completed within one year from the balance sheet date.Environmental liabilitiesWe 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 coun-tries. In some cases, this concerns sites divested in prior years or derelict sites belonging to companies acquired in the past.The provision has been discounted using an average pre-tax discount rate of 0.3% (2019: 1.4%).Key plan details for the two largest pension plans1ICI Pension Fund, UKAkzo Nobel (CPS) Pension Scheme, UKType of planDefined benefit, based upon years of service and final salaryDefined benefit, based upon years of service and final salaryBenefitsRetirement pension for employee Dependents’ pensions on death of employee/pensionerOptions for ill health early retirement Retirement pension for employee Dependents’ pensions on death of employee/pensionerOptions for ill health early retirementPension increases (main benefit section)Annually linked to UK RPI with a maximum of 5%Annually linked to UK CPI with a maximum of 5%Plan structurePlans are set up under a trust and are tax approvedPlans are set up under a trust and are tax approvedGovernanceTrustee directors: Four member-nominated Five appointed with the agreement of Law Debenture One independent (Law Debenture)Trustee directors:Four member-nominatedThree company-nominatedOne independent (Law Debenture)Regulatory frameworkThe 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 companyFunding basisA 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 the 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 liabilitiesFrequency of funding reviewsNormally every three years Normally every three yearsLatest completed valuationMarch 31, 2017March 31, 2017Funding deficit at latest completed valuation1,2£604 million (€671 million)£123 million (€137 million)Recovery plan£125 million (€146 million)3 in January 2019 and £290 million (€333 million)3 in March 2019, following experience gains since the March 31, 2017, valuation date£26 million (€29 million) per annum in 2019 to 2022, paid in March each year from an escrow account pre-funded with £142 million (€181 million)3 in February 2019Next funding reviewMarch 31, 2020 (due to be completed before June 30, 2021)March 31, 2020 (due to be completed before June 30, 2021)Asset allocation at March 31, 2020Matching: Return seeking: 99%1%Buy-in annuity contracts cover 99% of pensioner liabili-ties and 83% of total liabilities85%15%The longevity hedge contract covers 49% of pensioner liabilities and 30% of total liabilitiesMembership at March 31, 2020ActiveDeferredPensionerTotal1166,24538,28644,6473226,33417,44224,0981 Amounts in euro are a convenience translation using the December 31, 2020, exchange rate, unless indicated otherwise.2 Based on local valuation regulations.3 Actual rate at time of transfer.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 continue to cooperate to get this resolved. Current portion of provisions The current portion of post-retirement benefit provisions (€52 million) and the current portion of other provisions (€180 million) add up to €232 million (2019: €231 million), as reflected in the balance sheet. Discount rates The discount rates used in calculating the provisions recognized at December 31, 2020, are mentioned in the paragraphs on provisions for environmental costs, liabilities to (former) employees and sundry provisions. Changes in the discount rate will affect our consolidated financial posi- tion. A sensitivity test showed that a one percentage point increase or decrease of discount rates will have an impact down or up, respectively, of €9 million on the provisions recognized at December 31, 2020. Movements in other provisions In € millions Balance at January 1, 2020 Additions made during the year Utilization Amounts reversed during the year Unwind of discount Divestments Changes in exchange rates Balance at December 31, 2020 Non-current portion of provisions Current portion of provisions Balance at December 31, 2020 Restructuring of activities Environmental costs Liabilities to (former) employees 96 77 (84) (14) — — (1) 74 13 61 74 75 6 (9) (7) 3 — (5) 63 53 10 63 169 30 (16) (3) 6 — (8) 178 114 64 178 Sundry 122 47 (44) (18) — (5) (5) 97 52 45 97 Total 462 160 (153) (42) 9 (5) (19) 412 232 180 412 Liabilities to (former) employees Liabilities to (former) employees consist of employer liability plans, jubilee plans and other long-term compensation plans, and exclude payables related to restructurings. The majority of the cash outflows related to liabilities to (former) employees is expected to occur after five years. In calculating the liabilities to (former) employees, a pre- tax discount rate of on average 0.6% (2019: 1.0%) has been used. Sundry provisions Sundry provisions relate to a variety of provisions, including provisions for (customer) claims, sales returns, guarantees and other operational provisions. The majority of the cash outflows related to sundry provisions is expected to occur within one to five years. In calculating the sundry provi- sions, a pre-tax discount rate of on average negative 0.2% (2019: 1.2%) has been used. Contingent liabilities Environmental liabilities can change substantially due to the emergence of additional information on the nature or extent of the contamination, the geological circum- stances, the necessity of employing particular methods of remediation, actions by governmental agencies or private parties, or other factors. While it is not feasible to predict the outcome of all pending environmental expo- sures, it is reasonably possible that there will be a need for future provisions for environmental costs which, in management’s opinion, based on information currently available, would not have a material effect on the company’s financial position but could be material to the company’s results of operations in any one accounting period. A number of claims against AkzoNobel are pending, all of which are contested. This includes a lawsuit filed 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. In March 2020, the District Court dismissed the case on the grounds that they do not have jurisdiction, against which the claimant appealed. In January 2021, the High Court of Indonesia rejected this appeal. 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 AkzoNobel Report 2020 | Financial statements 118 119AkzoNobel Report 2020 | Financial statementsNote 21 Net debtAkzoNobel’s net debt is mainly denominated in euro.The part of long-term borrowings that is due within one year is presented under short-term borrowings. For details on the exposure to interest rate and foreign currency risk, refer to Note 27.The average effective interest rate of the bonds outstand-ing at year-end 2020 was 1.9% (year-end 2019: 1.9%).Net debtin € millionsLong-term borrowingsShort-term borrowingsShort-term investmentsCash and cash equivalentsNet debtNet debt at January 1, 20192,069692(5,460)(2,799)(5,498)Net cash from operating activities———(33)(33)Net cash from investing activities———102102Acquisitions7—(16)224215Unwind of discount and amortized cost10(1)——9Proceeds from borrowings37—(10)—Borrowings repaid—(623)—623—New/modification of lease contracts3418——52Transfers from long-term to short-term(86)86———Movement bankoverdrafts and short-term bank loans—2—(2)—Investments in short-term investments——(2,325)2,325—Repayments of short-term investments——7,663(7,663)—Dividends———1,4461,446Capital repayments———2,0002,000Share buyback———2,5202,520Net cash from discontinued operations———1010Changes in exchange rates3(6)—(15)(18)Other changes2(6)—1(3)Net debt at December 31, 20192,042169(138)(1,271)802Net debt at January 1, 2020 2,042 169 (138) (1,271) 802 Net cash from operating activities——— (1,220) (1,220)Net cash from investing activities——— 202 202 Acquisitions 7 —— 112 119 Buy-out of non-controlling interests——— 44 44 Unwind of discount and amortized cost 12 ——— 12 Proceeds from borrowings 756 214 — (970)—Borrowings repaid— (339)— 339 —New/modification of lease contracts 82 ——— 82 Transfers from long-term to short-term (117) 117 ———Movement bank overdrafts and short-term bank loans— (29)— 29 —Investments in short-term investments—— (248) 248 —Repayments of short-term investments—— 136 (136)—Dividends——— 385 385 Share buyback——— 555 555 Net cash from discontinued operations——— 3 3 Changes in exchange rates (11) (13)— 74 50 Net debt at December 31, 2020 2,771 119 (250) (1,606) 1,034 Analysis of net debt by categoryIn € millions20192020Bonds issued1,741 2,486 Lease liabilities262 238 Other borrowings39 47 Long-term borrowings2,042 2,771 Current portion of long-term borrowings3 5 Current portion of lease liabilities90 86 Debt to credit institutions61 25 Other15 3 Short-term borrowings169 119 Total borrowings2,211 2,890 Short-term investments (138) (250)Cash and cash equivalents(1,271) (1,606)Net debt802 1,034 Bonds issuedIn € millions201920202 5/8% 2012/22 (€750million) 747 748 1 3/4% 2014/24 (€500million) 498 498 1 1/8% 2016/26 (€500million) 496 497 1 5/8% 2020/30 (€750million)— 743 Total 1,741 2,486 Aggregated maturities of long-term borrowingsIn € millions2022-2025After 2025Bonds issued1,2461,240Lease liabilities18058Other borrowings1334Total1,4391,332120AkzoNobel Report 2020 | Financial statementsNote 22 Trade and other payablesLong-term borrowingsWe have a multi-currency revolving credit facility, which was amended in 2020 from €1.8 billion to €1.3 billion and extended to 2025. This facility does not contain financial covenants or acceleration provisions that are based on adverse changes in ratings or material adverse change. At year-end 2020 and 2019, this facility has not been drawn.In April 2020, a bond was issued with a nominal value of €750 million maturing in 2030 at a coupon rate of 1.625%.The blended incremental borrowing rate applied to the lease liabilities at year-end 2020 was 1.9% (2019: 2.2%).At year-end 2020 and 2019, none of the borrowings was secured by collateral.Short-term borrowingsWe have US dollar and euro commercial paper programs in place, which can be used to the extent that the equiva-lent portion of the €1.3 billion multi-currency revolving credit facility is not used. We had no commercial paper outstanding at year-end 2020 and 2019.Short-term investmentsShort-term investments almost entirely consist of time deposits, money market funds and other marketable secu-rities with a life time at investment date longer than three months but shorter than twelve months. For more informa-tion on credit risk management, refer to Note 27.Cash and cash equivalentsDeposits 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, 2020, an amount of €14 million in cash and cash equivalents was restricted (2019: €21 million). Restricted cash is defined as cash that cannot be accessed centrally due to regulatory or contractual restrictions.Operating activities in 2020 resulted in a cash inflow of €1,220 million (2019: cash inflow of €33 million).The pension pre-funding in 2019 concerns the payment of €161 million for the funding of the escrow account for Akzo Nobel (CPS) Pension Scheme in the UK.Note 23 Cash flowThe above amounts cannot be reconciled directly to the respective balance sheet positions. They reflect changes in balance sheet positions only to the extent these have a cash flow impact, or they reverse the non-cash impact as included in profit for the period. These amounts exclude non-cash movements such as unwinding of discount, movements through other comprehensive income, acqui-sitions and divestments, and changes in exchange rates.Purchase commitments for property, plant and equipment aggregated €24 million (2019: €3 million).Note 24 CommitmentsWe 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 terms comparable with transactions with third parties.During 2020, we considered the members of the Execu-tive Committee and the Supervisory Board to be the key management personnel as defined in IAS 24 “Related parties”. For details on their remuneration, as well as on shares held by members of the Supervisory Board or Board of Management, refer to Note 26. In the ordinary course of business, we also have transactions with various organizations with which certain members of the Supervi-sory Board or Executive Committee are associated. For related party transactions with pension funds, refer to Notes 15 and 19.Note 25 Related party transactionsCash and cash equivalentsIn € millions20192020Cash on hand and in banks1,0311,103Deposits and money market funds with a life up to three months240503Included under cash and cash equivalents in the balance sheet1,2711,606Debt to credit institutions(61)(25)Total per statement of cash flows1,2101,581Short-term investmentsIn € millions20192020Short-term investments with life between three and 12 months138250Total138250Trade and other payablesIn € millions20192020Trade payables to suppliers1,588 1,703 Trade payables to customers295 329 Taxes and social security contributions164 186 Amounts payable to employees232 265 Interest41 53 FX contracts18 8 Dividends76 Other liabilities6130 Total2,406 2,580 Changes in working capital as per consolidated statement of cash flowsIn € millions20192020Trade and other receivables9(14)Inventories9(84)Trade and other payables(262)282Total(244)184121AkzoNobel Report 2020 | Financial statementsTotal compensation for key management personnel expensed during the period amounted to €21.7 million (2019: €20.9 million). An amount of €8.2 million relates to short-term employee benefits (2019: €7.9 million); €0.6 million relates to post contract benefits and other post contract compensation (2019: €0.7 million); €4.5 million relates to share-based compensation (2019: €5.9 million); €7.7 million relates to other long-term incentives (2019: €3.1 million); and €0.7 million relates to payments upon termination of employment (2019: €3.3 million). Additional charges of €1.4 million (2019: €2.9 million) were accrued which relate to taxation on excessive pay (“Belasting heffing excessieve beloningsbestanddelen”).This compensation includes total remuneration for the members of the Supervisory Board of €0.8 million (2019: €1.0 million) and for the members of the Board of Manage-ment of €9.1 million (2019: €6.5 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.Note 26 Remuneration of the Supervisory Board and the Board of Management* In the form of ADRs.Note 27 Financial risk managementFINANCIAL RISK MANAGEMENT FRAMEWORKOur activities expose us to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk and liquidity risk. These risks are inherent to the way we operate as a multinational with a large number of locally operating subsidiaries. Our overall risk management program seeks to identify, assess, and – if necessary – mitigate these financial risks in order to minimize potential adverse effects on our financial performance.Our risk mitigating activities include the use of derivative financial instruments to hedge certain risk exposures. The Board of Management is ultimately responsible for risk management. We centrally identify, evaluate and hedge financial risks, and monitor compliance with the corporate policies approved by the Board of Management, except for commodity risks, which are subject to identification, evalu-ation, hedging and monitoring in the businesses. We have treasury hubs located in Brazil and China that are primarily responsible for regional cash management and short-term financing. We do not allow extensive treasury operations at subsidiary level directly with external parties.LIQUIDITY RISK MANAGEMENT The primary objective of liquidity management is to provide for sufficient cash and cash equivalents at all times and any place in the world to enable us to meet our payment obligations. We aim for a well-spread maturity schedule of our long-term borrowings and a strong liquidity position. At year-end 2020, we had €1.6 billion available as cash and cash equivalents (2019: €1.3 billion) and €250 million available as short-term investments (2019: €138 million), refer to Note 21.In addition, we have a multi-currency revolving credit facility, which was amended in 2020 from €1.8 billion to €1.3 billion and extended to 2025. This facility does not contain financial covenants or acceleration provisions that are based on adverse changes in ratings or on other mate-rial adverse changes. At year-end 2020 and 2019, this Shares held by the members of the Supervisory BoardNumber of shares at year-end20192020Nils Smedegaard Andersen, Chairman4,5004,500Byron Grote*4,2956,667Pamela Kirby——Dick Sluimers——Sue Clark——Patrick Thomas——Michiel Jaski444444Jolanda Poots-Bijl——Shares held by the Board of ManagementNumber of shares at year-end20192020Thierry Vanlancker 19,18143,518Maarten de Vries 4,1645,678Maturity of liabilities and cash outflowsIn € millionsLess than 1 yearBetween 1 and 5 yearsOver 5 yearsAt December 31, 2019Borrowings791,259521Interest on borrowings691828Lease liabilities9018379Trade and other payables2,388——FX contracts (hedges)Outflow2,468——Inflow(2,456)——Total2,6381,624608At December 31, 2020Borrowings 33 1,259 1,274 Interest on borrowings 64 152 54 Lease liabilities 86 180 58 Trade and other payables 2,572 — — FX contracts (hedges)Outflow 1,570 — — Inflow (1,572) — — Total 2,753 1,591 1,386 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 €1.3 billion multi-currency revolving credit facility is not used. We had no commercial paper outstanding at year end 2020 and 2019. The table on maturity of liabilities and cash outflows in this Note shows our cash outflows per maturity group. The amounts disclosed in the table are the contractual undiscounted cash flows. CREDIT RISK MANAGEMENT Credit risk arises from financial assets such as cash and cash equivalents, deposits with financial institutions, money market funds, trade receivables and derivative financial instruments with a positive fair value. We have a credit risk management policy in place to limit credit losses due to non-performance of financial counterparties and customers. We monitor our exposure to credit risk on an ongoing basis at various levels. We only deal with financial counterparties that have a sufficiently high credit rating. Generally, we do not require collateral in respect of financial assets. Investments in cash and cash equivalents, short-term investments and transactions involving 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 agreements and ISDA agreements in place. We set limits per counterparty for the different types of financial instru- ments we use. We closely monitor the acceptable financial counterparty credit ratings and credit limits and revise where required in line with the market circumstances. We do not expect non-performance by the counterparties for these financial instruments. Due to our geographical spread and the diversity of our customers, we were not subject to any significant concentration of credit risks at balance sheet date. Generally, the maximum exposure to credit risk is repre- sented by the carrying value of financial assets in the balance sheet. At year-end 2020, the credit risk on consolidated level was €4.2 billion (2019: €3.7 billion) for cash and cash equiva- lents, 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 €450 million at year-end 2019 (2019: €380 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 currency exposure which is partly netted out on group level. The purpose of our foreign currency hedging activities is to protect us from the risk that the functional currency net cash flows resulting from trade or financ- ing transactions are adversely affected by changes in exchange rates. Our policy is to hedge our transactional foreign exchange rate exposures above predefined thresholds from recognized assets and liabilities. Cash flow hedge accounting on forecasted transactions is applied 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. Hedged notional amounts at year-end The credit risk from trade receivables is measured and analyzed at a local operating entity level, mainly by means of ageing analysis, refer to Note 17. Additionally, trade receivables and financial assets measured at amortized cost are subject to the expected credit loss impairment model either using the general or the simplified approach. For more information on the applied impairment approach- es per financial asset type, refer to Note 1. In € millions US dollar Pound sterling Chinese yuan Other Total Buy 2019 605 599 48 238 Sell 2019 739 136 — 574 1,490 1,449 Buy 2020 174 485 31 205 895 Sell 2020 379 31 — 493 903 Investments in foreign subsidiaries, associates and joint ventures During 2020 and 2019, net investment hedge account- ing 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 (2020 and 2019) and Vietnamese dong (2020 and 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 2020 one hedge of net investments in Polish zloty was outstanding. During 2020 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. At the end of 2020 and 2019, the fixed/floating ratio of our outstand- ing bonds was 100% fixed as we have no outstanding bonds maturing within one year. During 2020 and 2019, we have not used any interest rate derivatives. IBOR reform refers to the global reform of interest rate benchmarks, which includes the replacement of some interbank offered rates (IBOR) with alternative benchmark rates. Since our long-term borrowings have fixed interest rates and we currently do not have any interest related hedging instruments, the interest rate benchmark reform will not have a material impact on the company’s financial statements. Fallback language has been added to our contracts while preparing for the transition to new rates. CAPITAL RISK MANAGEMENT Our objectives when managing capital are to safeguard our ability to satisfy our capital providers and to maintain a capital structure that optimizes our cost of capital. For this we maintain a conservative financial strategy, with the objective to remain a strong investment grade company as rated by the rating agencies Moody’s and Standard & Poor’s. The capital structure can be altered, among others, AkzoNobel Report 2020 | Financial statements 122 by adjusting the amounts of dividends paid to sharehold- ers, return capital to capital providers, or issue new debt or shares. In April 2020, a bond was issued with a nominal value of €750 million maturing in 2030 at a coupon rate of 1.625%. Consistent with other companies in the indus- try, we monitor capital headroom based on the leverage ratio net debt/EBITDA, for which we have set a target range of 1 to 2. The ratio was 0.8 in 2020 (2019: 0.7). EBITDA is the sum of operating income, depreciation and amortization; for 2020 amounting to €1,324 million (2019: €1,201 million). Net debt is calculated as the total of long and short-term borrowings less cash and cash equiva- lents and short-term investments; for 2020 amounting to €1,034 million (2019: €802 million). 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) 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 Fair value per financial instrument category In € millions 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 2020 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* Total carrying value Fair value 1,862 2,133 138 1,271 5,404 2,042 169 2,406 4,617 1,951 1,994 250 1,606 5,801 2,771 119 2,580 5,470 1,526 149 — — 210 1,975 — — 1,675 2,185 — — 396 396 1,669 121 — — 2,042 169 1,992 4,203 202 1,863 — — 1,790 2,065 — — 451 451 2,771 119 2,121 5,011 126 9 138 1,271 1,544 — — 18 18 80 10 250 1,606 1,946 — — 8 8 336 1,984 138 1,271 3,729 2,042 169 2,010 4,221 282 1,873 250 1,606 4,011 2,771 119 2,129 5,019 364 1,984 138 1,271 3,757 2,174 169 2,010 4,353 316 1,873 250 1,606 4,045 2,995 119 2,129 5,243 * Mainly includes pension assets (refer to Note 15), prepaid expenses and non income tax related receivables (refer to Note 17) and amounts payable to employees and payables for taxes and social security contributions (refer to Note 22). borrowings. The estimate is based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt with similar maturities. A level 2 valuation method was used to determine the fair value of marketable securities included in cash and cash equivalents and short-term investments by obtaining the market price at reporting date. The fair value of foreign currency contracts and swap contracts was determined by level 2 valuation techniques using market observ- able input (such as foreign currency interest rates based on Reuters) and by obtaining quotes from dealers and brokers. A level 2 valuation method was used to determine the fair value of time deposits included in cash and cash equivalents and short-term investments using the market interest rate. The carrying amounts of cash and banks, trade receivables less allowance for impairment, other short-term borrowings and other current liabilities approxi- mate fair value due to the short maturity period of those instruments and were determined using level 2 fair value methods. For €122 million of Financial non-current assets a level 3 fair valuation method (discounted cash flow) was used resulting in a deviation between the fair value and the carrying value. AkzoNobel Report 2020 | Financial statements 123 124AkzoNobel Report 2020 | Financial statementsThe impact of the decision of the United Kingdom to leave the European Union (Brexit) as per January 1, 2021, was assessed. The impact on our activities and financial infor-mation is considered not to be material.MASTER NETTING AGREEMENTSWe enter into derivative transactions under International Swaps and Derivatives Association (ISDA) master netting agreements. In general, under such agreements the amounts owed by each counterparty on a single day in respect of transactions outstanding in the same currency may be aggregated into a single net amount that is payable by one party to the other. In certain circumstances – e.g. when a credit event such as a default occurs – all outstanding transactions under the agreement may be terminated, the termination value is assessed and a net amount is payable in settlement of the transactions. We have evaluated the potential effect of netting agreements, including the effect of rights of set-off and concluded the impact is immaterial. We did not offset any amounts regarding derivative transactions.Note 28 Subsequent eventsSensitivities on financial instruments at year-end 2020Sensitivity object SensitivityHypothetical impactForeign currencies:We perform foreign currency sensitivity analysisby applying an adjustment to the spot ratesprevailing at year-end. This adjustment isbased on observed changes in the exchangerate in the past and management expectationfor possible future movements. We then applythe expected possible volatility to revalue allmonetary assets and liabilities (includingderivative financial instruments) in a currencyother than the functional currency of thesubsidiary in the balance sheet at year-end.A 10% (2019: 10%) strengthening of the euro versus US dollar A 10% (2019: 10%) strengthening of the euro versus the pound sterling A 10% (2019: 10%) strengthening of the euro versus Chinese yuanProfit: €8 million (2019: profit €10 million)€nil (2019: €nil)Loss: €1 million (2019: €nil)Interest rate: We perform interest rate sensitivity analysis byapplying an adjustment to the interest ratecurve prevailing at year-end. This adjustment isbased on observed changes in the interest ratein the past and management expectation forpossible future movements. We then apply theexpected possible volatility to revalue allinterest bearing assets and liabilities.A 100 basis points increase of EURIBOR interest ratesA 100 basis points increase of US LIBOR interest ratesA 100 basis points increase of GBP LIBOR interest ratesProfit: €8 million (2019: profit €5 million)Profit: €1 million (2019: €nil)Profit: €1 million (2019: profit €1million)COMPANY FINANCIAL STATEMENTS Statement of income for the year ended December 31 Balance sheet as of December 31, before allocation of profit In € millions Revenue Other income Gross profit Note A A General and administrative expenses Other results Operating income Financing income and expenses B Net income from subsidiaries, associates and joint ventures Profit before tax Income tax Net income 57 72 (68) (28) (80) 564 2019 2020 In € millions Note 2019 2020 15 58 (24) — 50 536 129 (96) 33 517 22 539 Assets 73 Non-current assets Intangible assets Deferred tax assets (24) 49 Financial non-current assets Total non-current assets 635 (5) 630 Current assets Short-term receivables Short-term investments Cash and cash equivalents Total current assets Total assets Equity and liabilities Equity Subscribed share capital Other legal reserves Cumulative translation reserves Actuarial gains and losses Other reserves Undistributed results Shareholders’ equity Provisions Non-current liabilities Long-term borrowings Total non-current liabilities Current liabilities Short-term borrowings Other current liabilities Total current liabilities Total equity and liabilities C D E G G F G G H 45 30 11,495 160 120 458 100 211 (469) (2,684) 8,735 457 71 31 12,225 11,570 12,327 182 245 736 738 12,308 1,163 13,490 95 246 (873) (2,587) 8,317 548 6,350 23 5,746 13 5,682 7,515 5,682 7,515 36 217 3 213 253 12,308 216 13,490 AkzoNobel Report 2020 | Financial statements 125 126AkzoNobel Report 2020 | Financial statementsAkzo Nobel N.V. is a company headquartered in the Neth-erlands.The address of our registered office is Christian Neefestraat 2, Amsterdam; the Chamber of Commerce number is 09007809. The financial statements of Akzo Nobel N.V. have been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code, making use of the option of Article 362 of the Code, meaning that the accounting principles used are the same as for the Consolidated financial statements. Foreign currency amounts have been translated, assets and liabilities have been valued, and net income has been determined in accordance with the principles of valuation and determination of income presented in Note 1 of the Consolidated financial statements. For the Company financial statements, revenue mainly concerns service contracts and royalty related revenue from third parties; other income mainly concerns inter-company royalty income. Subsidiaries of Akzo Nobel N.V. are accounted for using the equity method, based on the pronouncements of the Dutch Accounting Standards Board.The remuneration paragraph is included in Note 26 of the Consolidated financial statements. The number of employees having a contract with the Company at year-end 2020 was 6 (2019: 7). All employees are based in the Netherlands.Akzo Nobel N.V. is head of the Dutch fiscal unity. Members of the fiscal unity are taxed as if they are taxable on a standalone basis.Note A General informationNote B Financing income and expensesNote C Intangible assetsOther items in 2020 and 2019 mainly include foreign currency results related to financing activities.Financing income and expensesIn € millions20192020Financing income - third parties-2Financing income - subsidiaries2191Financing expense - third parties(41)(49)Financing expense - subsidiaries(93)(6)Net Interest on net debt(113)38Other items3312Net Other financing income/(expenses)3312Total(80)50Intangible assetsIn € millionsOther intangiblesBalance at January 1, 2020Cost of (internally developed) intangibles51Accumulated amortization(6)Carrying value at January 1, 202045Movements in 2020Additions31Amortization(5)Total movements26Balance at December 31, 2020Cost of (internally developed) intangibles82Accumulated amortization(11)Carrying value at December 31, 202071Intangible assets include (internally developed) software and licences. In 2019, intangible assets were included in non-current financial assets.127AkzoNobel Report 2020 | Financial statementsNote D Financial non-current assetsNote E Short-term receivablesNote F Shareholders’ equityThe 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 shareholders. In addition, the holders of priority shares have 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 the Meeting of Holders of Priority Shares.Priority shares may only be transferred to a transferee designated by a Meeting of Holders of Priority Shares and against payment of the par value of the shares, plus interest at the rate of 6% per annum or the statutory inter-est in the Netherlands, whichever is lower, for the period between the beginning of the year and the date of transfer. There are no restrictions on voting rights of holders of common or priority shares. The Articles of Association set out procedures for exercising voting rights. The Annual General Meeting of shareholders has resolved in 2020 to authorize the Board of Management for a period of 18 months (i) to issue shares (or grant rights to shares) in the capital of the company up to a maximum of 10%, which in case of mergers or acquisitions can be increased by up to a maximum of 10%, of the total number of shares outstanding (and to restrict or exclude the pre-emptive rights to those shares) and (ii) to acquire shares in the capital of the company, provided that the shares that will at any time be held will not exceed 10% of the issued share capital. The issue or repurchase of shares requires the approval of the Supervisory Board.During 2020, 9,331,481 common shares repurchased in 2019 and 2020 were cancelled (2019: 28,433,528 common shares). We held 695,776 common shares to be cancelled at year-end 2020 (year-end 2019: 3,165,967).Of the shareholders’ equity of €5.7 billion, an amount of €5.4 billion (2019: €6.0 billion) was unrestricted and Movements in non-current assetsSubsidiariesIn € millionsShare in capitalLoansOther non- current assetsTotalBalance at January 1, 20199,246 1,949 91 11,286 Investments/acquisitions/capital contributions179 ——179 Divestments/capital repayments(760)——(760)Net income from subsidiaries564 ——564 Equity-settled transactions14 ——14 Loans granted—1,079 —1,079 Repayment of loans—(779)—(779)Changes in exchange rates139 (4)—135 Post-retirement benefits(223)——(223)Balance at December 31, 20199,159 2,245 91 11,495 Investments/acquisitions/capital contributions——22Divestments/capital repayments(92)—(1)(93)Impairments— —(2)(2) Net income from subsidiaries536 ——536 Equity-settled transactions10 ——10 Loans granted—469 —469 Loans transferred—919 —919 Repayment of loans—(775)—(775)Changes in exchange rates(390)(7)—(397)Post-retirement benefits90 ——90 Acquisition of non-controlling interests(29)——(29)Balance at December 31, 20209,284 2,85190 12,225 Investments in subsidiaries are measured using the equity method of accounting. Due to an intra-group funding restructuring, several intercompany loans were transferred in 2019 and 2020 from certain foreign subsidiaries to Akzo Nobel N.V.. Intercompany loans are priced at fair value at the date of the transfer, taking factors like the credit quality of AkzoNobel, country and currency risks into consideration. Loans to subsidiaries that will mature in 2021 amounted to €705 million and the remaining amount of €2,015 million will mature between 2022 and 2025. The remainder of the loans to subsidiaries has no fixed repayment schedule.Short-term receivablesIn € millions20192020Receivables from subsidiaries117125FX contracts910Other receivables3447Total160182Short-term receivables are expected to be settled within a year. Receivables from subsidiaries include interest to be received on intercompany loans in the amount of €9 million (2019: €2 million).Statement of changes in equity In € millions Balance at January 1, 2019 Changes in exchange rates in respect of subsidiaries, associates and joint ventures Post-retirement benefits 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 Changes in exchange rates in respect of subsidiaries, associates and joint ventures Post-retirement benefits Net income Comprehensive income Dividend Equity-settled transactions Share buyback Acquisition of non-controlling interests Addition to other reserves Balance at December 31, 2020 Subscribed share capital Additional paid-in capital Cash flow hedge reserve Other legal reserves Cumulative trans- lation reserves Actuarial gains & losses Legal reserves 512 — — — — — — (14) (399) 1 — 100 — — — — — — (5) — — 95 958 — — — — — — — (957) (1) — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 248 — — — — — — — (61) — 24 211 — — — — — — — — 35 246 (608) 139 — — 139 — — — — — — (469) (404) — — (404) — — — — — (2,459) — (225) — (225) — — — — — — (2,684) — 97 — 97 — — — — — (873) (2,587) Other reserves 6,604 — — — — — 20 (2,520) (583) — 5,214 8,735 — — — — — 13 (540) (29) 138 8,317 Undistributed results Shareholders' equity 6,579 — — 539 539 (1,423) — — — — (5,238) 457 — — 630 630 (366) — — — (173) 548 11,834 139 (225) 539 453 (1,423) 20 (2,534) (2,000) — — 6,350 (404) 97 630 323 (366) 13 (545) (29) — 5,746 available for distribution – subject to the relevant provisions of our Articles of Association and Dutch law. At year-end 2020, legal reserves include the €163 million reserve relating to earnings retained by subsidiaries, asso- ciates and joint ventures after the year 1983, to the extent that there are limitations for AkzoNobel to arrange profit distributions; and the €83 million reserve for capitalized development costs. Dividend Our dividend policy is to pay a stable to rising dividend. On October 21, 2020, a new €300 million share buyback program was announced, which is to be completed in the first half of 2021. During 2020, 0.7 million common shares were repurchased under this program, that have not yet been cancelled. Unrestricted reserves at year-end In € millions Shareholders' equity at year-end Subscribed share capital Subsidiaries' restrictions to transfer funds Reserve for development costs Unrestricted reserves 2019 6,350 (100) (145) (66) 6,039 2020 5,746 (95) (163) (83) 5,405 In 2020, an interim dividend of €0.43 (2019: €0.41) per common share was paid. We propose a 2020 final divi- dend of €1.52 (2019: €1.49) per common share, which would equal a total 2020 dividend of €1.95 (2019: €1.90). On October 23, 2019, an €500 million share buyback program was announced, for which 0.4 million common shares were acquired in 2019. The plan was completed in April 2020, by acquiring a further 6.2 million shares in 2020. AkzoNobel Report 2020 | Financial statements 128 129AkzoNobel Report 2020 | Financial statementsLong-term borrowingsFor the fair value of the bonds issued, refer to Note 27 of the Consolidated financial statements. We estimated the fair value of the bonds issued based on the quoted market prices (level 1) for the same or similar issues or on the current rates offered to us for debt with similar maturities. At year-end 2020, the fair value of the bonds included in long-term borrowings was €2,710 million (2019: €1,873 million).Note G Net debtWe have a multi-currency revolving credit facility, which was amended in 2020 from €1.8 billion to €1.3 billion and extended to 2025. This facility does not contain financial covenants or acceleration provisions that are based on adverse changes in ratings or material adverse change. At year-end 2020 and 2019, this facility has not been drawn.In April 2020, a bond was issued with a nominal value of €750 million maturing in 2030 at a coupon rate of 1.625%.Note H Other current liabilitiesAt year-end 2020 and 2019, none of the borrowings was secured by collateral.In 2021, an amount of €227 million of debt from subsidiar-ies will mature and €51 million of debt from subsidiaries will mature between 2022 and 2025. The remainder of the loans from subsidiaries has no fixed repayment schedule.Short-term borrowingsWe have US dollar and euro commercial paper programs in place, which can be used to the extent that the equiva-lent portion of the €1.3 billion multi-currency revolving credit facility is not used. We had no commercial paper outstanding at year-end 2020 and 2019.Short-term investmentsShort-term investments of €245 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 equivalentsDeposits and money market funds within cash and cash equivalents almost entirely consist of time deposits immediately 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 immediately when called.Bonds issuedIn € millions201920202 5/8% 2012/22 (€750 million)7477481 3/4% 2014/24 (€500 million)4984981 1/8% 2016/26 (€500 million)4964971 5/8% 2020/30 (€750 million)—743Total1,7412,486Analysis of net debt by categoryIn € millions20192020Bonds issued1,7412,486Debt from subsidiaries3,9415,029Long-term borrowings5,6827,515Current portion of long-term borrowings——Short-term loans363Short-term borrowings363Total borrowings5,7187,518Short-term investments(120)(245)Cash and cash equivalents(458)(736)Net debt5,1406,537Cash and cash equivalentsIn € millions20192020Cash on hand and in banks343427Deposits and money markets funds with a maturity less than three months115309Included in cash and cash equiva-lents in the balance sheet458736Other current liabilitiesIn € millions20192020Payables to subsidiairies5363FX contracts197Debt related to pensions33Other suppliers6558Interest payable1322Other liabilities6460Total217213130AkzoNobel Report 2020 | Financial statementsNote I Financial instrumentsNote J Contingent liabilitiesAt year-end 2020, Akzo Nobel N.V. had outstanding foreign exchange contracts to buy currencies for a total of €0.9 billion (year-end 2019: €1.5 billion), while contracts to sell currencies totaled €0.9 billion (year-end 2019: €1.4 billion). The contracts mainly related to US dollars and pound sterling and all have maturities within one year. These contracts offset the foreign exchange contracts concluded by the subsidiaries, and the fair value changes are recognized in the statement of income to offset the fair value changes on the contracts with the subsidiaries. For information on risk exposure and risk management, see Note 27 of the Consolidated financial statements.Akzo Nobel N.V. is parent of the group’s fiscal unity in the Netherlands, and is therefore liable for the liabilities of said fiscal unity as a whole.Akzo Nobel N.V. has declared in writing that it accepts joint and several liability for contractual debts of certain Dutch consolidated companies (Article 403 of Book 2 of the Dutch Civil Code). These debts, at year-end 2020, aggregating €0.4 billion (2019: €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 continue to cooperate to get this resolved.Additionally, at year-end 2020, guarantees were issued on behalf of consolidated companies for an amount of €0.3 billion (2019: €0.3 billion).The debts and liabilities of the consolidated companies underlying these guarantees are included in the Consoli-dated balance sheet. Our independent auditor, PwC, has rendered, for the period to which the audit of the financial statements relates, in addition to the audit of the statutory financial statements, mainly statutory audits of controlled entities.Note K Auditor’s feesA number of claims against Akzo Nobel N.V. are pending, all of which are contested. This includes a lawsuit filed 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. In March 2020, the District Court dismissed the case on the grounds that they do not have jurisdiction, against which the claimant appealed. In January 2021, the High Court of Indonesia rejected this appeal.Amsterdam, February 16, 2021The Board of ManagementThierry VanlanckerMaarten de VriesThe Supervisory BoardNils Smedegaard AndersenJolanda Poots-BijlSue ClarkByron GroteMichiel JaskiPamela KirbyDick SluimersPatrick ThomasFees PricewaterhouseCoopers2020In € millionsIn the NetherlandsNetwork outside the NetherlandsTotalAudit of the financial statements4.35.39.6Other audit 0.10.20.3Tax services———Other non-audit services———Total4.45.59.9Fees PricewaterhouseCoopers2019In € millionsIn the NetherlandsNetwork outside the NetherlandsTotalAudit of the financial statements4.56.010.5Other audit services0.30.10.4Tax services———Other non-audit services———Total4.86.110.9OTHER INFORMATION PROFIT ALLOCATION AND DISTRIBUTIONS PROPOSAL FOR PROFIT ALLOCATION With due observance of Dutch law and the Articles of Association, it is proposed that net income of €259 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 €371 million (to be increased by dividend on shares issued and reduced by dividend on shares repurchased in 2021 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 €1.95 per share, of which €0.43 was paid earlier as an interim dividend. The final dividend of €1.52 per share will be made available from May 6, 2021. PROFIT ALLOCATION AND DISTRIBUTIONS 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 2020 | Financial statements 131 INDEPENDENT AUDITOR’S REPORT To: The Annual General Meeting and Supervisory Board of Akzo Nobel N.V. Report on the Financial statements 2020 Our opinion In our opinion: • The Consolidated financial statements of Akzo Nobel N.V. together with its subsidiaries (“the Group”) give a true and fair view of the financial position of the Group as at December 31, 2020 and of its result and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code • The Company financial statements of Akzo Nobel N.V. (“the Company”) give a true and fair view of the financial position of the Company as at December 31, 2020 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 2020 of Akzo Nobel N.V., Amsterdam, the Netherlands. The financial statements 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, 2020 • The following statements for 2020: the Consolidated statement of income, the Consolidated statements of comprehensive income, of changes in equity and of cash flows • The notes, comprising significant accounting policies and other explanatory information The Company financial statements comprise: • The balance sheet as at December 31, 2020 • The statement of income for the year then ended • The notes, comprising the accounting policies applied 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 and with operations in over 150 countries. Our group audit scope and approach are set out in the section “The scope of our group audit”. In our audit we paid specific attention to the areas of focus driven by the operations of the Group, as set out below. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the Board of Management made important judg- ments, for example, in respect of significant accounting estimates that involved making assumptions and consider- ing future events that are inherently uncertain. In Note 1 of the Consolidated financial statements, the Company describes areas of judgment in applying accounting policies and the key sources of estimation uncertainty. Given the significant estimation uncertainty and the related higher inherent risks of material misstatement in the valu- ation of the post-retirement benefit provisions and the accounting for and valuation of deferred tax assets and uncertain tax positions, we considered these matters as key audit matters as set out in the section “Key audit matters” of this report. The Company continued the transformation programs under the “Winning together: 15 by 20” strategy, which include centralization of finance activities in global busi- ness service hubs and simplification of the information technology (IT) environment, 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 transforma- tion as a key audit matter, as set out in the section “Key audit matters” of this report. The global COVID-19 pandemic and related government restriction measures affected the Company’s produc- tion and distribution, caused changes in sales volumes and product mix, and required staff to work from home. We considered the impact of the pandemic on our audit approach, including our scoping, materiality, and risk assessment. We concluded this to be an area of focus, that is not considered as a key audit matter. In particu- lar we assessed the impact on significant management accounting judgments, including future business and cash flow projections underpinning impairment assessments, deferred tax asset recoverability and the going concern assumption. We also considered the risk of fraud inherent to increased remote working. In terms of the execution of our audit, we considered the impact of the travel and other restrictions on our audit and on the review and supervision of our teams. Our teams globally largely worked remotely and digitally, supported by video-meetings and PwC’s digital tooling. We increased the frequency of communi- cation between the Group and component PwC teams, including additional joint meetings with Group and compo- AkzoNobel Report 2020 | Financial statements 132 nent management. While maintaining compliance with local health regulations, we performed sufficient physical checks of inventory and documents. “Our responsibilities for the audit of the financial statements”. 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, testing of valuation of the other provisions and information technology general controls (ITGCs). The ITGCs are the policies and procedures used by the Company to ensure IT operates as intended and provides reliable data for financial reporting purposes. 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 the Group. We therefore included in our team experts in the areas of pensions, share based payments and valuations and specialists in the areas of tax, IT and treasury. Materiality The scope of our audit is influenced by the application of materiality, which is further explained in the section Based on our professional judgment we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These, together with qualita- tive considerations, helped us to determine the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and to evalu- ate the effect of identified misstatements, both individually and in aggregate, on the financial statements as a whole and on our opinion. We also take misstatements and/or possible misstate- ments into account that, in our judgment, are material for qualitative reasons. We agreed with the Audit Committee and the Supervisory Board that we would report to them misstatements identi- fied during our audit above €2 million (2019: €1.5 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. The outline of our audit approach was as follows: Materiality Materiality Overall materiality: €45 million (2019: €39 million). Audit scope • We conducted audit work at 50 components in 18 countries. • Site reviews were virtually conducted to 9 countries (34 components). • Audit coverage: 65% of consolidated revenue, 72% of consolidated total assets and 68% 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 €45 million (2019: €39 million). Basis for determining materiality We used our professional judgment to determine overall materiality. As a basis for our judgment 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, we, based on our judgment, allocate materiality that is less than our overall group materiality. The range of materiality allocated across components was between €7 million and €38 million. The scope of our group audit Akzo Nobel N.V. is the parent company of a group of entities managed by the Board of Management and Executive Committee. The financial information of this Group is included in the Consolidated financial statements of Akzo Nobel N.V. We tailored the scope of our audit to ensure that we, in aggregate, provide 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 operations of its components, the accounting processes and controls, and the markets in which the components of the Group operate. In establishing the overall group audit strategy and plan, we determined the type of work required to be performed at component level by the group engagement team and by each component auditor. The group audit included 24 components which were subjected to audits of their complete financial information, selected on the basis of the relative size of their opera- tions. None of the components are individually significant to the group. We further subjected 13 components to specific risk-focused audit procedures as they include significant or higher risk areas. Additionally, we selected 13 components for audit procedures to achieve appropri- ate coverage on financial line items in the Consolidated financial statements. In total, in performing these procedures, we achieved the following coverage on the financial line items: Revenue Total assets Profit before tax 2020 65% 72% 68% None of the remaining components represented more than 2% of total group revenue, total group assets or profit before tax. For those remaining components we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of material misstatement within those components. For all components we used component auditors who are familiar with the local laws and regulations to perform AkzoNobel Report 2020 | Financial statements 133 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 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 judgments. 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. Roll-forward procedures and top-up testing were performed at year-end to cover the full year period. Where component auditors performed the work, we determined the level of involvement we needed to have 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 state- ments as a whole. We issued instructions to the component audit teams in our audit scope. These instructions included amongst others our risk analysis, materiality and scope of the work. We explained to the component audit teams the structure of the Group, the main developments that are relevant for the component auditors, the risks identified, the material- ity 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 significant accounting and audit matters identified by the component auditors, their reports, the findings of their procedures and other matters which could be of relevance for the Consolidated financial statements. The group engagement team virtually attended site review meetings with a selection of the component teams and local management. During these meetings we discussed the strategy and financial performance of the local busi- nesses, as well as the audit plan and execution, significant risks and other relevant audit topics. The most significant components are selected every year and other compo- nents are selected depending on specific considerations which include, amongst others audit observations, specific risks identified and other major events. In view of developing a broader understanding of the local impact of the pandemic we increased the number of compo- nents covered compared to prior year. In the current year components in the following countries were selected: United States, China, Germany, France, United Kingdom, Italy, South Korea, Turkey and the Netherlands. 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, share-based payments, trea- sury, 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, whistle-blower 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 with the oversight of the Supervisory Board. As part of our process of identifying fraud risks, we evalu- ated fraud risk factors with respect to financial report- ing fraud, misappropriation of assets and bribery and corruption. We, together with our forensics specialists, evaluated the risk of material misstatement due to fraud. We conducted interviews with both members of the Board of Management, and with members of the Executive Committee, the Supervisory board and of others within the company to obtain an understanding the Company’s fraud risk assessment and of the processes for identifying and responding to the risks of fraud and the internal control that management has established to mitigate these risks. 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. AkzoNobel Report 2020 | Financial statements 134 Key audit matters Key audit matters are those matters that, in our profes- sional judgment, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the Supervisory Board. The key audit matters are not a comprehensive reflection of all matters identified by our audit and that we discussed. In this section, we described the key audit matters and included a summary of the audit procedures we performed on those matters. We addressed the key audit matters in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comment or observation we Key audit matters Key audit matter Transformation to deliver towards the “Winning together: 15 by 20 strategy” In line with 2018 and 2019, the group continued its focus on transforming the company as part of manage- ment’s three-year strategy ‘Winning together: 15 by 20’. The transformation programs include further steps in centralization of finance activities in global business service hubs and simplification of the IT 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 of 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. This risk was partially mitigated by management’s announcement in April 2020 of suspension of the financial target as a result of the uncertainty of the impact of the pandemic on AkzoNobel. The remuneration targets remained in place. 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. Valuation of post-retirement benefit provisions Note 19 The post-retirement benefit provisions consist of defined benefit obligations (€14.2 billion) more than offset by plan assets (€15.0 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. We consider this to be a key audit matter because positions are significant to the company and the assess- ment process is complex and involves significant management judgment. The actuarial assumptions used include demographic assumptions (rates of employee turnover, disability, early retirement and mortality) and financial assumptions (discount rate, future salary, benefit increases/indexation and inflation), as disclosed in Note 19 of the Consolidated financial statements. Technical expertise is required to determine closing positions. Valuation of deferred tax assets and uncertain tax positions Note 9 The Group operates globally and is therefore 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 high estimation uncertainty and judgmental assump- tions. The key assumptions include long-term projected revenue growth, savings supported by the transforma- tion plans and programs, margin development and local fiscal regulations. The company’s disclosures concern- ing income taxes are included in note 9 to the Consolidated financial statements. Our audit work and observations 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 updated our understanding of the transformation programs, as well as our understanding of the project governance, detailed timeline, scope of entities and processes of the transition of finance activities to global business service hubs. We held discussions directly with the different business service hubs in Poland, India, China and United States, in order to understand the status of the transition, understand the processes and controls in place to address the changes in the internal controls and evaluate the maturity of the processes. In order to obtain further evidence of the effectiveness of the controls in place, we also performed walkthroughs on selected controls in the business service hub in India. We used this information as part of our risk assessment proce- dures, determination of the scope of our audit and communication to our component teams. For the simplification of the IT 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 unex- pected journal entries. 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. From the procedures performed, we did not have material findings with respect to the balance sheet positions and results recorded and disclosed. With the assistance of our actuarial experts, we evaluated management’s actuarial assumptions, the valuation method- ologies 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 provi- sions are the most sensitive, by performing independent testing over the assumptions and methodologies used and comparing to the published actuarial tables, amongst others, with support of our actuarial experts. We paid particular attention to the discount rate changes as described by the company in note 19, given the significance. 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 as described in note 19 and we verified the appropriate accounting. We also assessed the adequacy of the company’s disclosure in note 19 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, 2020. With respect to the valuation of deferred tax assets and uncertain tax positions we performed the following procedures with the assistance of our tax specialists: • We tested management’s assessment of the recoverability of the deferred tax assets, by challenging their key assumptions. We specifically focused on the development of the budget compared to the actual results, the impact of COVID-19 on the country results, the impact of the structural nature of (transformation) savings and the complete- ness of the future cost included in the forecasts compared to the current cost base. • We obtained an understanding and assessed completeness of the tax exposures and uncertain tax positions recog- nised, through discussions with group and local management. We evaluated the probability of future cash outflows related to the uncertain tax positions identified by the company. • 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 underlying the valuation of the deferred tax assets and uncertain tax positions. We analysed the tax positions and evaluated the assumptions and methodologies used. • In addition, we assessed the adequacy of the company’s disclosures on deferred tax assets and uncertain tax posi- tions and assumptions used. Our procedures did not result in material findings with respect to the valuation of deferred tax assets, the uncertain tax positions recorded and related disclosures at December 31, 2020. AkzoNobel Report 2020 | Financial statements 135 made on the results of our procedures should be read in this context. Report on other legal and regulatory requirements cant doubt on the company’s ability to continue as a going concern in the 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 Management report, as defined in Note 1 of the Consolidated financial statements • The remuneration report • The other information pursuant to Part 9 of Book 2 of the Dutch Civil Code • Other parts of the annual report: Sustainability statements, Leadership and governance other than as part of the Management Report, and Financial summary 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 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 engagement has been renewed annually. No prohibited non-audit services To the best of our knowledge and belief, we have not provided prohibited non-audit services as referred to in Article 5(1) of the European Regulation on specific require- ments regarding statutory audit of public-interest entities. Services rendered The services, in addition to the audit, that we have provided to the company and its controlled entities, for the period to which our statutory audit relates, are disclosed in note L to the financial statements. Book 2 and the sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code Responsibilities for the financial statements and the audit We have read the Other information. Based on our knowl- edge and understanding obtained in our audit of the finan- cial statements or otherwise, we have considered whether the other information contains material misstatements. By performing our procedures, we comply with the require- ments of Part 9 of Book 2 and section 2:135b subsection 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements. The Board of Management is responsible for the prepara- tion of the Other information, including the Management report (as defined in Note 1 of the Consolidated financial statements) and the other information in accordance with Part 9 of Book 2 of the Dutch Civil Code and the remu- neration report in accordance with the sections 2:135b and 2:145 subsection 2 of the Dutch Civil Code. 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 • Such internal control as the Board of Management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error As part of the preparation of the financial statements, the Board of Management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Board of Management should prepare the financial state- ments using the going-concern basis of accounting unless the Board of Management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. The Board of Management should disclose events and circumstances that may cast signifi- 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 16, 2021 PricewaterhouseCoopers Accountants N.V. Original has been signed by Fernand Izeboud RA AkzoNobel Report 2020 | Financial statements 136 Appendix to our auditor’s report on the financial statements 2020 of Akzo Nobel N.V. In addition to what is included in our auditor’s report, we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves. The auditor’s responsibilities for the audit of the financial statements We have exercised professional judgment and have maintained professional scepticism throughout the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our 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. regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest. • Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Considering our ultimate responsibility for the opinion on the Consolidated financial statements, we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the Group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic struc- ture of the Group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the Group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary. We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. In this respect, we also issue an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report. We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related actions taken to eliminate threats or safeguards applied. 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 AkzoNobel Report 2020 | Financial statements 137 ASSURANCE REPORT OF THE INDEPENDENT AUDITOR To: Supervisory Board and Board of Management of Akzo Nobel N.V. Assurance report on the selected non-financial indicators in the annual report 2020 Our conclusion We have reviewed the selected non-financial indicators in the annual report 2020 of Akzo Nobel N.V. Amsterdam (“AkzoNobel” or “the company”). Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the selected non-financial indicators in the annual report 2020 are not prepared, in all material respects, in accordance with AkzoNobel’s reporting criteria. What we have reviewed The object of our assurance engagement concerns selected non-financial indicators for the year ended December 31, 2020. The selected indicators are marked with the symbol (the “indicators”) in the annual report 2020 of Akzo Nobel N.V. (the “annual report”), and are as follows: • Organizational health score • Female executives (in %) • Fatalities employees (number) • Fatalities contractors – temporary workers plus • Volatile organic compounds (in kilotons) • Volatile organic compounds (kg per ton of production) • Energy use (in 1000 TJ) • Energy use (GJ per ton of production) • Total waste (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 %) • Renewable electricity – own operations (in %) • 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) • Greenhouse gas emissions – direct CO2(e) emissions (Scope 1) (total kg per ton of production) • Greenhouse gas emissions – indirect CO2(e) emissions (Scope 2) (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) • Fresh water use (in million M3) • Fresh water use (M3 per ton of production) • 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 expectation (in %) • Suppliers in sustainability program – under development (in %) independent (number) • Suppliers participating in CSR program (in % against • Lost time injury rate employees/temporary workers (per baseline) 200,000 hours worked) • Eco-premium solutions (in % of revenue) • Lost time injury rate contractors (per 200,000 hours worked) • Regulatory actions – Level 4 (number) • Total reportable injury rate employees/temporary workers (per 200,000 hours worked) • Total reportable injury rate contractors (per 200,000 hours worked) • Loss of primary containment – Level 1 (number) • Loss of primary containment – Level 2 (number) • Process safety event – Level 3 (number) • Occupational illness rate employees (per 1,000,000 hours worked) The basis for our conclusion We 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 control We 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. Applicable criteria The 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 law 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 annual report and further elaborated in The Reporting Principles 2020 which were made available online* www.akzonobel.com/en/about-us/sustainability-/ reporting-principles-. 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. * The maintenance and integrity of AkzoNobel’s website is the responsibility of the Board of Management; the work carried out by us does not involve consideration of these matters and, accordingly, we accept no responsibility for any changes that may have occurred to the Reporting Principles 2020 when presented on AkzoNobel’s website after the date of this assurance report. AkzoNobel Report 2020 138 • To consider whether the indicators as a whole, including 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 16, 2021 PricewaterhouseCoopers Accountants N.V. Original has been signed by Fernand Izeboud RA 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 information included in 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 judgment and have maintained professional scepticism throughout the review in accordance with the Dutch Standard 3000A, ethical requirements and independence requirements. Our review consisted, among other procedures, of the following: • Evaluating the appropriateness of the reporting 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 • 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 - 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 performed remote review procedures in Turkey to validate our understanding of local processes. In addition, during our procedures in Turkey 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 in the information submitted for consolidation at corporate level • Evaluating the consistency of the indicators with the information in the annual report, which is not included in the scope of our review AkzoNobel Report 2020 139 FINANCIAL SUMMARY Consolidated statement of income In € millions Revenue Adjusted operating income3 Operating income Financing income and expenses Results from associates and joint ventures Income tax Profit for the period from continuing operations Discontinued operations Non-controlling interests Net income, attributable to shareholders Common shares, in millions at year-end Dividend2 Number of employees at year-end Average number of employees Employee benefits Average revenue per employee (in €1,000) Average operating income per employee (in €1,000) Ratios ROS OPI margin ROI4 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 2011 2012 2013 14,604 15,390 14,590 1,154 1,157 (311) 24 (241) 629 (59) (64) 506 234.7 304 52,020 51,100 2,765 286 23 7.9 7.9 10.0 5.6 18.9 4.7 2.04 3.10 39.25 53.74 29.25 37.36 972 (1,198) (205) 13 (203) (1,593) (436) (63) (2,092) 239.0 214 50,610 52,200 3,018 295 (23) 6.3 (7.8) 8.2 –1 19.6 –1 (8.82) 2.55 24.12 49.75 35.16 49.75 897 958 (200) 14 (111) 661 131 (68) 724 242.6 210 49,600 50,200 2,950 291 19 6.1 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) 21 (252) 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) 17 (416) 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 20165 6 9,434 928 923 (91) 18 2017 9,612 905 825 (78) 17 (234) (253) 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 59.39 511 393 (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) 20 (118) 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 20197 9,276 991 841 (76) 20 (230) 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 2020 8,530 1,099 963 (69) 25 (241) 678 (7) (41) 630 190.6 366 32,200 33,000 1,850 258 29 12.9 11.3 16.1 11.0 21.7 18.5 3.29 3.88 30.26 91.60 48.50 87.86 ¹ Not meaningful as operating income and net income were losses. 2 Cash dividend paid to shareholders of AkzoNobel. 3 Adjusted operating income = operating income excluding identified items. 4 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 is calculated as operating income as percentage of revenues from third parties. 5 Represented to present the Specialty Chemicals business as discontinued operations. 6 Represented to the new adjusted earnings per share definition, which no longer excludes post-tax amortization charges. 7 2019 includes the impact of the adoption of IFRS 16 “Leases”. AkzoNobel Report 2020 140 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 capital2 Capital expenditures5 Depreciation2 OWC4 Net debt Ratios Equity/non-current assets Inventories and receivables/current liabilities Operating working capital as % of revenue1 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 11,537 11,817 10,007 9,871 10,475 658 419 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 – 20193 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 2020 3,554 1,621 324 2,614 8,113 1,159 2,049 250 1,606 – 5,064 5,746 204 5,950 896 2,771 467 4,134 119 2,742 232 – 3,093 6,494 6,340 7,026 6,834 613 202 927 184 181 898 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 11.9 258 297 878 1,034 0.73 1.17 9.9 ¹ Operating working capital is measured against four times fourth quarter revenue. 2 2016 is represented to present the Specialty Chemicals business as discontinued operations. 3 2019 includes the impact of the adoption of IFRS 16 “Leases”. 4 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. 5 Capital expenditures include investments in intangible assets as from 2018. AkzoNobel Report 2020 141 Segment statistics In € millions Decorative Paints Revenue2 Adjusted operating income Operating income ROS3 OPI margin3 Average invested capital ROI3 Capital expenditures 20111 2012 2013 2014 2015 2016 2017 2018 20194 2020 4,201 237 235 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 3,670 3,558 199 398 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 2,798 12.4 50 418 425 11.4 11.6 3,106 13.4 62 573 551 16.1 15.5 2,799 20.5 77 Average number of employees Average revenue per employee (in €1,000) Average operating income per employee (in €1,000) 17,100 17,200 16,800 15,500 15,100 14,800 14,700 14,100 12,900 12,100 246 14 250 (117) 248 24 252 16 265 23 259 25 265 23 262 22 284 33 294 46 Performance Coatings Revenue2 Adjusted operating income Operating income ROS3 OPI margin3 Average invested capital ROI3 Capital expenditures Average number of employees Average revenue per employee (in €1,000) Average operating income per employee (in €1,000) 5,170 5,702 5,571 5,589 5,955 5,665 5,775 5,587 5,549 4,957 456 458 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 3,066 20.5 107 688 565 12.4 10.2 3,325 20.7 113 700 665 14.1 13.4 3,388 20.7 146 21,300 21,700 21,300 21,000 19,700 19,300 19,800 19,200 18,000 17,500 243 22 263 25 262 25 266 26 302 40 294 38 292 34 291 30 308 31 283 38 1 Restated to present Decorative Paints North America as a discontinued operation. 2 The 2019 figures are restated to represent revenue from third parties instead of group revenue. 3 ROS% is calculated as adjusted operating income (operating income excluding identified items) as a percentage of revenues from third parties (as from 2019, before 2019 this was based on 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”. AkzoNobel Report 2020 142 Regional statistics In € millions 20161 2017 2018 20193 2020 20161 2017 2018 20193 2020 20161 2017 2018 20193 2020 The Netherlands Other European countries Other Asian countries Revenue by destination Revenue by origin Capital expenditures Average invested capital Number of employees2 267 404 15 1,497 2,600 Germany Revenue by destination Revenue by origin Capital expenditures Average invested capital 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 11 634 342 434 46 1,713 2,300 372 467 7 544 Number of employees2 1,400 1,500 1,500 1,400 1,200 2,225 1,739 39 675 2,332 1,823 47 700 2,319 1,846 33 732 2,360 1,903 42 918 6,700 6,600 6,900 7,000 US and Canada 1,213 1,298 27 1,037 3,000 1,189 1,257 23 864 1,134 1,200 18 699 1,139 1,210 29 694 2,276 1,882 59 1,081 7,100 1,019 1,065 41 645 1,521 1,442 53 561 1,443 1,392 41 625 1,375 1,323 22 656 1,388 1,334 29 718 1,139 1,067 39 703 6,600 6,800 6,600 6,400 5,800 Other regions 552 473 7 94 573 487 9 87 559 476 12 184 559 513 10 218 502 444 11 238 2,900 2,800 2,800 2,700 2,200 2,200 2,000 2,200 2,100 Sweden South America Revenue by destination Revenue by origin Capital expenditures Average invested capital 164 389 9 60 162 408 9 104 146 372 7 94 Number of employees2 1,200 1,100 1,000 UK Revenue by destination Revenue by origin Capital expenditures Average invested capital 808 972 43 755 777 891 39 746 818 918 29 758 141 366 5 101 900 838 951 16 850 140 349 3 100 900 838 975 15 623 850 791 20 378 900 840 23 391 815 781 13 352 815 742 15 363 697 649 13 335 3,100 2,900 2,800 2,600 2,600 China 1,435 1,456 53 897 1,494 1,493 32 787 1,329 1,321 13 732 1,268 1,271 15 908 1,205 1,198 24 852 Number of employees2 3,300 3,200 3,200 3,200 3,000 6,200 6,000 5,300 4,900 4,500 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 2020 143 GLOSSARY Adjusted EBITDA Adjusted EBITDA is operating income excluding depreciation, amortization and identified items. AGM or EGM Annual General Meeting of shareholders; Extraordinary General Meeting of shareholders. BBS Behavior-based safety. A global program run at all AkzoNobel locations. Business Partner Code of Conduct Explains what we stand for as a company, what we value and how we run our business. It brings our core values of safety, integrity and sustainability to life and shows what they mean in practice. Capital expenditures The total of investments in property, plant and equipment and investments in intangible assets. Carbon footprint The total amount of greenhouse gas (GHG) emissions caused during a defined period of a product’s lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted. Circular economy An economic system which is restorative and regenerative by design, and which aims to keep products, components and materials at their highest utility and value at all times, distinguishing between technical and biological cycles. Code of Conduct Defines our core principles and how we work. It incorporates fundamental principles on issues such as business integrity, labor relations, human rights, health, safety, environment and security and community involvement. Comprehensive income The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with shareholders in their capacity as shareholders. Constant currencies Calculations exclude the impact of changes in foreign exchange rates. Earnings per share Net income attributable to shareholders divided by the weighted average number of common shares outstanding during the year. Adjusted earnings per share are the basic earnings per share, excluding identified items and taxes thereon. EBITDA Operating income excluding depreciation and amortization. Eco-efficiency Using fewer resources and creating less waste and pollution in the creation of goods and services. Eco-premium solutions with downstream benefits A measure of the eco-efficiency of our products. An eco- premium solution is significantly better than competing offers in the market in at least one eco-efficiency criterion (toxicity, energy use, use of natural resources/raw materials, emissions and waste, land use, risks, health and well-being), and not significantly worse in any other criteria. Downstream benefits include a tangible sustainability benefit for our customers. EMEA Europe, Middle East and Africa. Emerging Europe Central and Eastern Europe (excluding Austria), the Baltic States and Turkey. Emissions and waste We report emissions to air, land and water for those substances which may have an impact on people or the environment: CO2, NOx and SOx, VOCs, chemical oxygen demand, hazardous and non-hazardous waste. Definitions are in the Sustainability statements. Greenhouse gases Greenhouse gases include CO2, CO, CH4, N2O and HFCs, which have a global warming impact. We also include the impact of VOCs in our targets. HSE&S Health, safety, environment and security. Identified items Identified items are special charges and benefits, results on acquisitions and divestments, major restructuring and impairment charges and charges related to major legal, environmental and tax cases. Invested capital Total assets (excluding cash and cash equivalents, short-term investments, investments in associates, the receivable from pension funds in an asset position, assets held for sale) less current income tax payable, deferred tax liabilities and trade and other payables. Lifecycle assessment Lifecycle assessments are the basis of our value chain sustainability programs. Eco-efficiency analysis (EEA) is our standard assessment method. Leverage ratio Calculated as net debt divided by EBITDA, which is calculated as the total of the last 12 months. Loss of primary containment A loss of primary containment is an unplanned release of material, product, raw material or energy to the environment (including those resulting from human error). Loss of primary containment incidents are divided into three categories, dependent on severity, from small, on-site spill/near misses up to Level 1 – a significant escape. Lost time injury rate (LTIR) The number of lost time injuries per 200,000 hours worked. Full definitions are in the Sustainability statements. AkzoNobel Report 2020 144 Mature Europe Comprised of Western, Northern and Southern Europe, including Austria. Mature markets Comprised of Mature Europe, the US, Canada, Japan and Oceania. Natural resource use We do not report specific natural resource use, except water. We do report our use of energy and raw materials. Net debt Defined as long-term borrowings plus short-term borrowings less cash, cash equivalents and short-term investments. Operating income Operating income is defined in accordance with IFRS and includes the relevant identified items. Adjusted operating income excludes identified items. Operational cash flow We use operational cash flow to monitor cash generation. It is defined as operating income excluding depreciation and amortization, adjusted for the change in operating working capital and capital expenditures. OPI margin Operating income as a percentage of revenue. R&D Research and development. Regulatory action We have defined four categories of regulatory action, from self-reported issues (Level 1) to formal legal notifications with fines above €100,000 (Level 4). REI Resource Efficiency Index is gross margin divided by cradle-to-grave carbon footprint. The index measures value created from use of raw materials and energy. ROI (return on investment) ROI is adjusted operating income of the last 12 months as a percentage of average invested capital. ROI excluding unallocated cost is adjusted operating income of the last 12 months as a percentage of average invested capital for Decorative Paints and Performance Coatings. It excludes unallocated corporate center cost and invested capital. damage totaling more than €25 million; inability to maintain business; or serious reputational damage to AkzoNobel stakeholders. Shareholders’ equity per share Akzo Nobel N.V. shareholders’ equity divided by the number of common shares outstanding at year-end. ROI% excluding unallocated cost January 2020 - December 2020 in € millions Average invested capital 2019 2020 7,026 6,834 Total reportable rate of injuries (TRR) The number of injuries per 200,000 hours worked. Full definitions are in the Sustainability statements. South America Includes Central America. TSR (total shareholder return) Compares the performance of different companies’ stocks and shares over time. Combines share price appreciation and dividends paid to show the total return to shareholders. The relative TSR position reflects the market perception of overall performance relative to a reference group. VOC Volatile organic compounds. Less: unallocated average invested capital (595) (647) Average invested capital excluding unallo- cated capital Adjusted operating income excluding unallocated cost Total 6,431 6,187 1,106 1,273 17.2 20.6 ROS (return on sales) ROS is adjusted operating income as a percentage of revenue. ROS excluding unallocated cost is adjusted operating income as a percentage of revenue for Decorative Paints and Performance Coatings. It excludes unallocated corporate center cost. ROS% excluding unallocated cost January 2020 - December 2020 in € millions Total revenue Less: revenue unallocated 2019 2020 9,276 8,530 (57) (15) Revenue excluding unallocated revenue 9,219 8,515 Adjusted operating income excluding unallocated cost 1,106 1,273 ROS% excluding unallocated cost 12.0 15.0 Relevant markets Segments and regions of the paints and coatings industry from which AkzoNobel generates revenue. Safety incident We have defined three levels of safety incidents. The highest category – Level 3 – involves: any loss of life; more than five severe injuries; environmental, asset or business AkzoNobel Report 2020 145 Energy Executive Committee Financial information Financial instruments Financial summary Grow & Deliver How we created value Human rights 8, 39, 41 Risk management 56, 66 Safety 86 95 Segment information Shareholders’ equity 140 Strategy 13 7 37 Supervisory Board Supervisory Board Chairman’s statement Supplier sustainability Independent auditor’s report 132 Sustainable Development Goals (SDGs) 74 34 97 127 12 59, 69 58 44 30 29 61 8, 31, 39, 42 31, 39, 42 5, 6, 58 INDEX 2020 results at a glance Acquisitions AkzoNobel Cares Assurance report of the independent auditor Audit Committee Automotive and Specialty Coatings Behaviors Board of Management Borrowings 2 8, 96 36 138 63 20 13, 34 56, 66 96, 119, 120 Innovation Industrial Coatings Intangible assets Internal controls Carbon footprint/Cradle-to-grave 41, 48, 51 carbon footprint Case studies 10, 19, 28, 40, 45, 49, 54 Invested capital Cash, cash flow and net debt 8, 89, 115,119 “Let’s Colour” CEO statement Circular economy Climate Code of Conduct 4 42 39 Marine and Protective Coatings Net debt Nomination Committee 66, 77 Operating income Company financial statements 125 Outlook Company purpose Compliance Inside cover, 5, 13 Paint the Future 69, 76 People. Planet. Paint. Consolidated balance sheet 141 Pensions Consolidated statement of cash flows Consolidated statement of changes in equity Consolidated statement of comprehensive income Consolidated statement of income 89 90 87 87 Powder Coatings Product stewardship Profit allocation Property, plant and equipment Core values Corporate governance COVID-19 Decorative Paints Dividend proposal Earnings per share 13, 37 Provisions 66 Raw materials 5, 9, 10, 34, 38, 61, 92 Regional statistics 16, 17, 18 Remuneration 8, 9, 85 Remuneration Committee 9, 100, 106 Report of the Supervisory Board Eco-premium solutions 3, 8, 46, 51 Resource productivity Emissions Employees 39, 41 Return on investment 9, 33, 37 Return on sales Sustainability statements Talent management Waste Water Winning together: 15 by 20 22 15 107 57, 63, 73 8 36 24 8, 119 64 8 9 15, 19 30, 48 113 26 47 62, 131 7, 94 117 37, 38, 42 143 78, 121 64 60 39, 42 2, 6 2, 6 AkzoNobel Report 2020 146 Appendix: List of affiliated legal entities and corporations List at December 31, 2020, of affiliated legal entities and corporations in conformity with articles 379 and 414, Book 2 of the Dutch Civil Code belonging to Akzo Nobel N.V., Amsterdam List of consolidated legal entities and corporations Argentina Akzo Nobel Argentina S.A. Australia Akzo Nobel Car Refinishes Australia Pty Ltd Akzo Nobel Coatings (Holdings) Pty Limited Akzo Nobel Pty. Limited Austria Akzo Nobel Coatings GmbH Akzo Nobel Holding Österreich GmbH Belgium Auto Body Services CV (ABS) International Paint (Belgium) NV Akzo Nobel Paints Belgium NV Cleming BVBA Bolivia Pinturas Coral De Bolívia Ltda Ownership %1 Buenos Aires 99.997 Port Melbourne Sunshine Sunshine Salzburg Vienna Vilvoorde Vilvoorde Vilvoorde Vilvoorde 100.000 100.000 100.000 100.000 100.000 84.615 100.000 100.000 100.000 Santa Cruz de la Sierra Gaborone Barueri Botswana Dulux Botswana (Pty) Limited Brazil Akzo Nobel Ltda Canada Akzo Nobel Coatings Ltd. Akzo Nobel Wood Coatings Ltd Cayman Islands Ichem Reinsurance Company Limited ICI International Investments Chile International Paint (Akzo Nobel Chile) Ltda China Akzo Nobel (Shanghai) Co. Ltd. Akzo Nobel Car Refinishes (Suzhou) Company Limited Santiago Shanghai Ontario Port Hope George Town George Town Akzo Nobel Coatings (Dongguan) Co. Ltd. Akzo Nobel Powder Coatings (Ningbo) Co., Ltd. Ningbo Tian Jin Akzo Nobel Coatings (Tianjin) Co., Ltd. Akzo Nobel Coatings (Jiaxing) Co. Ltd. Jiashan Akzo Nobel Powder Coatings (Langfang) Co. Ltd. Suzhou Dongguan Akzo Nobel (China) Investment Co., Ltd. Akzo Nobel Decorative Coatings (Langfang) Co., Ltd. Langfang Shanghai Langfang Akzo Nobel International Paint (Suzhou) Co. Ltd. Suzhou Akzo Nobel Industrial Finishes (Hong Kong) Limited 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Hong Kong 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 51.000 100.000 51.000 90.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Akzo Nobel Powder Coatings (Chengdu) Co., Ltd. Chengdu Akzo Nobel Powder Coatings (Wuhan) Co., Ltd Wuhan Akzo Nobel Performance Coatings (Shanghai) Co. Ltd. Shanghai Akzo Nobel Performance Coatings (Changzhou) Co., Ltd. Changzhou Chengdu Akzo Nobel Paints (Chengdu) Co. Ltd. Hong Kong International Paint (Hong Kong) Limited Hong Kong Akzo Nobel Chang Cheng Ltd Hong Kong International Paint (East Russia) Ltd Akzo Nobel Chang Cheng Coatings (Guangdong) Co., Ltd. Shenzhen Shanghai Guangzhou Shanghai International Paint of Shanghai Co Ltd Akzo Nobel Paints (Guangzhou) Co. Ltd Akzo Nobel Paints (Shanghai) Co. Ltd Shanghai ICI Research & Development & Management Co. Ltd Akzo Nobel Paints Limited Akzo Nobel HK (Holdings) Limited Akzo Nobel Decorative Coatings (China) Ltd (in liquidation) Shanghai Hong Kong Hong Kong Schramm Hong Kong Co., Limited Schramm SSCP (Tianjin) Ltd (in liquidation) Ultra Million Limited Uranus Limited Mapaero HK Ltd Colombia Interquim S.A. Czech Republic Akzo Nobel Coatings CZ, a.s. Denmark International Farvefabrik A/S Akzo Nobel Deco A/S Ecuador Interquimec S.A. Egypt Akzo Nobel Powder Coatings S.A.E. Akzo Nobel Egypt LLC Estonia Akzo Nobel Baltics AS Finland Oy International Paint (Finland) AB France Akzo Nobel Powder Coatings SAS Akzo Nobel Car Refinishes SAS International Peinture SAS Akzo Nobel Industrial Finishes S.A.S. Akzo Nobel Distribution SAS DISATECH SAS SCI Boucher Mapaero S.A.S. Akzo Nobel Packaging Coatings S.A.S. Akzo Nobel Decorative Paints France S.A. Akzo Nobel S.A.S. Germany Akzo Nobel GmbH Akzo Nobel Hilden GmbH Akzo Nobel Coatings GmbH Akzo Nobel Powder Coatings GmbH Akzo Nobel Deco GmbH Guangzhou Hong Kong Beizhakou Town Hong Kong Hong Kong Hong Kong Medellin 100.000 Prague Herlev Copenhagen Quito 100.000 100.000 100.000 100.000 Giza 6th of October City 100.000 100.000 Tallinn Vantaa Dourdan Montataire Le Havre Etréchy Corbas Limoges Pamiers Pamiers Montataire Thiverny Montataire Cologne Hilden Stuttgart Reutlingen Wunstorf 100.000 100.000 100.000 100.000 100.000 100.000 99.991 100.000 100.000 100.000 100.000 99.991 100.000 100.000 100.000 100.000 100.000 100.000 Schramm Holding GmbH Schramm Coatings GmbH Mapaero GmbH International Farbenwerke GmbH Greece Akzo Nobel Coatings S.A. International Paint (Hellas) S.A. Varnishes and Paints Industry Vivechrom Dr. Stefanos D. Pateras S.A. Offenbach am Main 100.000 Offenbach am Main 100.000 100.000 Norderstedt 100.000 Börnsen 100.000 100.000 Athens Piraeus Mandra Attica 79.184 St. Peter Port Guernsey Impkemix Trustee Limited Hungary Akzo Nobel Coatings Zrt India Akzo Nobel Global Business Services LLP Akzo Nobel India Limited ICI India Research & Technology Centre Indonesia PT Akzo Nobel Car Refinishes Indonesia Jakarta PT Akzo Nobel Wood Finishes and Adhesives Indonesia Pune Kolkata Mumbai Budapest PT International Paint Indonesia PT ICI Paints Indonesia PT ICI Indonesia Ireland Akzo Nobel Car Refinishes (Ireland) Ltd ICI Fertilisers (Ireland) Limited ICI Ireland Limited Dulux Paints Ireland Limited Akzo Nobel (CR9) Limited Italy Akzo Nobel Coatings S.P.A. Japan Akzo Nobel Coatings K.K. Kazakhstan Akzo Nobel Kazakhstan LLP Kenya Akzo Nobel Kenya Limited Korea (South) Akzo Nobel Powder Coatings Korea Co., Limited Jakarta Jakarta Jakarta Dublin Cork Cork Cork Dublin Tokyo Almaty Nairobi Akzo Nobel Industrial Coatings Korea Ltd. International Paint (Korea) Ltd International Paint (Research) Ltd Kuwait International Warba Coatings Paint Mfg Co. W.L.L. Ansan Ansan Busan Geoje City Cesano Boscone (MI) 100.000 100.000 100.000 100.000 74.756 25.000 100.000 Jakarta 100.000 100.000 55.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 60.000 100.000 49.000 100.000 100.000 Latvia Akzo Nobel Baltics SIA Lithuania Akzo Nobel Baltics, UAB Mauritius Mauvilac Industries Limited Malaysia Colourland Paints Sdn Bhd Akzo Nobel Paints Marketing Sdn Bhd International Paint Sdn Bhd Akzo Nobel Industrial Coatings Sdn Bhd Akzo Nobel Paints (Malaysia) Sdn. Bhd. Akzo Nobel Adhesives Sdn Bhd Akzo Nobel Coatings Sdn Bhd Kuwait Riga Vilnius Port Louis 100.000 Petaling Jaya Petaling Jaya Johor Darul Takzim Kuala Lumpur Kuala Lumpur Selangor Selangor 100.000 100.000 70.000 100.000 59.949 100.000 100.000 AkzoNobel Report 2020 | Appendix 147 Mexico Akzo Nobel Automotive and Aerospace Coatings México S.A. de C.V. Akzo Nobel Inda S.A. de C.V. Compania Mexicana de Pinturas International SA De CV Mexico City Monterrrey 100.000 100.000 Mexico City 100.000 Morocco Akzo Nobel Coatings S.A. (Morocco) Sadvel SA Distral Maroc S.A. Akzo Nobel Performance Coatings Morocco S.A.R.L. Casablanca Casablanca Rabat 59.569 99.655 99.967 Casablanca 100.000 Yangon 100.000 Amsterdam Amsterdam Arnhem Arnhem Arnhem Hoofddorp Arnhem Sassenheim Myanmar Akzo Nobel (M) Co. Ltd. Netherlands Akzo Nobel Coatings Chile Holding I B.V. Akzo Nobel Coatings Chile Holding II B.V. * Syncoflex B.V. * Akzo Nobel Nederland B.V. * Akzo Nobel China B.V. * Panter B.V. * Akzo Nobel Sourcing B.V. * Akzo Nobel Coatings B.V. * Akzo Nobel Decorative Coatings Turkey B.V. Arnhem Arnhem Akzo Nobel Assurantie N.V. Arnhem * Akzo Nobel Management B.V. Arnhem * Akzo Nobel Insurance Management B.V. Arnhem * Carelaa B.V. Arnhem * Akzo Nobel Coatings International B.V. Arnhem * Remmert Holland B.V. Weert * Sikkens Verkoop Nederland B.V. Sassenheim * Akzo Nobel Sino Coatings B.V. Arnhem * Akzo Nobel Holding Duitsland B.V. Sassenheim * Akzo Nobel Car Refinishes B.V. Sassenheim * Akzo Nobel Powder Coatings B.V. Sassenheim * Akzo Nobel Decorative Coatings B.V. Wormerveer * De Sikkens Grossier B.V. Hardinxveld-Giessendam * Van Noordenne Verf B.V. 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Rhoon Woerden Rotterdam Rotterdam Ammerzoden Sassenheim Avondale * International Paint (Nederland) B.V. * Akzo Nobel (C) Holdings B.V. * ICI Omicron B.V. ICI Theta B.V. * B.V. Alabastine (Holland) * Sikkens Verkoop B.V. New Zealand Akzo Nobel Coatings Ltd Norway Akzo Nobel Coatings AS Oman Akzo Nobel Oman SAOC Pakistan Akzo Nobel Pakistan Limited Panama International Paint (Panama) Inc. Papua New Guinea Akzo Nobel Limited Peru Akzo Nobel Peru S.A.C. Poland Akzo Nobel Car Refinishes Polska Sp. z o.o. Warsaw Karachi Muscat Geheru Lima Oslo Mercantil 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 50.000 97.011 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 68.340 49.000 100.000 100.000 100.000 100.000 100.000 100.000 60.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Popesti Leordeni Doha Carregado Setúbal Kostrzyn Wlkp. Gdansk Warsaw Akzo Nobel Industrial Coatings Sp. z o.o. International Paint Sp. z o.o. Akzo Nobel Decorative Paints Sp. z o.o. Portugal Akzo Nobel Tintas para Automoveis Lda International Paint Ibéria, Lda Qatar Akzo Nobel LLC Romania Fabryo Corporation S.r.l. Russian Federation “Akzo Nobel Dekor” CJSC OOO “Akzo Nobel Car Refinishes” OOO “Akzo Nobel Lakokraska” OOO “Akzo Nobel Coatings” International Paint (East Russia) LLC Saudi Arabia Akzo Nobel Saudi Arabia Ltd Singapore Akzo Nobel Car Refinishes (Singapore) Pte Ltd Singapore Singapore International Paint Singapore Pte Ltd Singapore Akzo Nobel Paints (Singapore) Pte Ltd Singapore Akzo Nobel Adhesives Pte Ltd Slovenia Akzo Nobel Adhezivi d.o.o. South Africa Akzo Nobel Powder Coatings South Africa (Proprietary) Limited Moscow Moscow Orehovo-Zuevo Lipetsk Vladivostok Dammam Ljubljana PJA (South Africa) (Proprietary) Limited Akzo Nobel South Africa (Pty) Ltd ICI Dulux (Pty) Limited Spain Akzo Nobel Coatings, S.L. Akzo Nobel Industrial Paints, S.L. Akzo Nobel Car Refinishes SL Akzo Nobel Packaging Coatings S.A. Sri Lanka Akzo Nobel Paints Lanka (Pvt) Ltd Swaziland Dulux Swaziland (Pty) Limited Sweden Akzo Nobel Car Refinishes AB Akzo Nobel Sweden Finance AB Akzo Nobel Industrial Finishes AB International Färg AB Akzo Nobel Adhesives AB Akzo Nobel Industrial Coatings AB Akzo Nobel Decorative Coatings AB Switzerland Akzo Nobel Coatings AG Akzo Nobel Car Refinishes AG Taiwan Akzo Nobel Chang Cheng (Taiwan) Ltd International Paint (Taiwan) Ltd Akzo Nobel Paints Taiwan Limited Thailand Akzo Nobel Coatings Ltd Schramm SSCP (Thailand) Co., Ltd. Akzo Nobel Paints (Thailand) Limited Tunisia Société Tunisienne de Peintures Astral S.A. Groterg Alberton Johannesburg Johannesburg 100.000 Barcelona 100.000 Barcelona Barcelona 100.000 Vilafranca del Penedes 100.000 Colombo 40.000 Matsapha 100.000 Tyresoe Göteborg Gamleby Göteborg Stockholm Malmö Malmö Neuenkirch Bäretswil Taipei Kaoshiung Chung Li Nakornprathom Rayong Amphur Pakkred 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Megrine 60.000 Dubai Jebel Ali Free Zone Dubai Kiev Istanbul Kampala Delaware Delaware Delaware Delaware Delaware New Castle New Castle Florida Delaware Turkey Izmir Akzo Nobel Kemipol A.S. Gebze Marshall Boya Ve Vernik Sanayii A.S. Dilovasi Tekyar Teknik Yardim A.S. Izmir Akzo Nobel Boya Sanayi ve Ticaret A.S. Akzo Nobel Server Boya Sanayi ve Ticaret A.S. Tuzla International Paint Pazarlama Limited Sirketi United States (US) Akzo Nobel Coatings Inc. Akzo Nobel Inc. Akzo Nobel Services Inc. Mapaero Inc. International Paint LLC Expert Management Inc ICI Americas Inc. New Nautical Coatings Inc. Blue Water Marine Paint LLC Uganda Akzo Nobel Uganda Limited Ukraine LLC “Akzo Nobel Holding Ukraine” United Arab Emirates Akzo Nobel Decorative Paints L.L.C. Akzo Nobel ME Coatings FZE Akzo Nobel UAE Paints L.L.C. United Kingdom Akzo Nobel Powder Coatings Limited Akzo Nobel Aerospace Coatings Limited Akzo Nobel Coatings Limited Akzo Nobel Limited Akzo Nobel Coatings (BLD) Limited Akzo Nobel ICI Holdings Akzo Nobel Finance Limited Mapaero UK Ltd Akzo Nobel UK Ltd International Paints (Holdings) Limited Akzo Nobel Industrial Finishes Limited International Paint Limited Imperial Chemical Industries Limited Ergon Investments International Limited Ergon Investments UK Limited Hammerite Products Limited Horseferry Investments Limited ICI Chemicals & Polymers Limited I C I Finance Limited ICI International Limited Akzo Nobel Packaging Coatings Limited ICI Paints (Trade Contract) Limited Intex Yarns (Manufacturing) Limited Mortar Investments International Limited Akzo Nobel (NASH) Limited Akzo Nobel (NSC) Limited Scottish Agricultural Industries Limited Stevenston Holdings Limited Dulux Limited J.P. Mcdougall & Co. Limited Sales Support Group Limited Akzo Nobel Holdings Limited Akzo Nobel Decorative Coatings Limited Akzo Nobel Industrial Coatings Limited Deeside Coatings Limited Slough Slough Slough Slough Slough Slough Slough Crawley Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Edinburgh Edinburgh Slough Slough Slough Slough Slough Slough Slough 51.000 92.974 100.000 100.000 55.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 49.000 100.000 48.979 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 99.902 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 AkzoNobel Report 2020 | Appendix 148 Slough Flexcrete Technologies Limited Cambrian SW Limited Slough Cambrian Decorator Supplies (C.D.S) Limited Slough Slough Akzo Nobel (CPS) Pension Trustee Limited Slough Akzo Nobel Finance (2) Limited Slough Akzo Nobel CIF Nominees Limited Slough Akzo Nobel Films (Holdings) Limited Fothergill and Harvey Limited Slough Holywell-Halkyn Mining and Tunnel Company Limited International Coatings Limited Cuprinol Limited ICI Limited ICI North America Limited Mortar Investments UK Limited Polycell Products Limited Resinous Chemicals Limited Akzo Nobel Properties Limited Akzo Nobel Coatings (Holdings) Limited Uruguay Pinturas Inca S.A. Vietnam Akzo Nobel Coatings Vietnam Limited Akzo Nobel Powder Coatings (Vietnam) Co., Ltd. Slough Slough Slough Slough Slough Slough Slough Slough Slough Slough Montevideo Bien Hoa 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 97.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 100.000 Schramm SSCP Hanoi Company Limited Dong Nai Phuong Lieu Commune 100.000 Akzo Nobel Paints Vietnam Ltd Zambia Dulux Zambia (2005) Limited Binh Duong Lusaka 100.000 100.000 100.000 List of non-consolidated legal entities and corporations Italy Metlac S.p.A. Metlac Holding S.r.l. Netherlands ZRVCS Holding B.V. Alessandria Alessandria 71.667 49.000 Amsterdam 49.000 1 The ownership percentage represents the interest Akzo Nobel N.V. or one or more of its majority subsidiaries singly or jointly have in the issued share capital of the participation. The list does not include entities that are of insignificant relevance in respect of the insight required by law, such as dormant companies and companies in liquidation. 2 With respect to the Dutch legal entities marked *, Akzo Nobel N.V. has declared in writing that it accepts joint and several liability for contractual debts of the relevant companies, in conformity with article 403, Book 2, of the Netherlands Civil Code. AkzoNobel Report 2020 | Appendix 149 

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