Notes to the condensed financial statements

Invested capital

Invested capital at the end of Q2 2017 totaled €10.3 billion (Q2 2016: €10.3 billion). Operating working capital was €31 million lower than June 30, 2016, and improved to 12.2 percent of revenue (Q2 2016: 12.6 percent).

Invested capital

in € millions

June 30, 2016

December 31, 2016

June 30, 2017

Trade receivables

2,579

2,272

2,692

Inventories

1,585

1,532

1,629

Trade payables

(2,289)

(2,399)

(2,477)

Operating working capital

1,875

1,405

1,844

Other working capital items

(778)

(730)

(722)

Non-current assets

10,539

10,339

10,034

Less investments in associates and joint ventures

(156)

(161)

(172)

Less pension assets

(845)

(220)

(292)

Deferred tax liabilities

(348)

(367)

(358)

Invested capital

10,287

10,266

10,334

Operating working capital

In % of revenue

AkzoNobel – Operating working capital (bar chart)AkzoNobel – Operating working capital (bar chart)

Pensions

The net balance sheet position (IAS19) of the pension plans at the end of Q2 2017 was a deficit of €0.8 billion (year-end 2016: €1.0 billion). The development during the first half of 2017 was the net effect of:

  • Top-up payments of €268 million, predominantly into certain UK pension plans
  • Higher asset returns and lower inflation

Offset by:

  • Lower discount rates in the key countries
  • De-risking of pension liabilities through non-cash buy-in transactions of £262 million in Q1, related to the ICI Pension Fund, which led to a €49 million impact in Other comprehensive income

Workforce

At June 30, 2017, the number of people employed was 46,300. The increase compared with the 46,000 people employed at the end of December 2016, was mainly due to the hiring of temporary seasonal employees.

Accounting policies

This interim financial report is in compliance with IAS 34 “Interim Financial Reporting”. This report is unaudited. The IFRS changes applicable as from January 1, 2017 do not have any or only an immaterial effect on our Consolidated financial statements. Otherwise the accounting principles are as applied in the 2016 financial statements.

Our expectations regarding the potential impact of IFRS standards and interpretations thereof not yet in force, as mentioned in the 2016 financial statements are unchanged. For IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” we do not expect, based on the assessment performed so far, these new standards to have a significant impact on our Consolidated financial statements. Based on the results of our assessment so far with respect to IFRS 16 “Leases”, we expect total assets to increase between 5% and 10%. It should be noted that the actual impact will depend on the number, size and remaining duration of lease contracts and any expected renewals at the moment of implementation. We do not expect the impact on operating income to be significant.

Related parties

We purchased and sold goods and services to various related parties in which we hold a 50% or less equity interest (associates and joint ventures). Such transactions were conducted at arm’s length with terms comparable with transactions with third parties.

We considered the members of the Executive Committee and the Supervisory Board to be the key management personnel as defined in IAS 24 “Related parties”. In the ordinary course of business, we have transactions with various organizations with which certain of the members of the Supervisory Board and Executive Committee are associated.

Seasonality

Revenue and results in Decorative Paints are impacted by seasonal influences. Revenue and profitability tend to be higher in the second and third quarter of the year as weather conditions determine whether paints and coatings can be applied. In Performance Coatings, revenue and profitability vary with building patterns from original equipment manufacturers. In Specialty Chemicals, the Functional Chemicals and the Surface Chemistry businesses experience seasonal influences. Revenue and profitability are affected by developments in the agricultural season and tend to be higher in the first half of the year.

Other activities

In other activities, we report activities which are not allocated to a particular Business Area. Corporate costs are the unallocated costs of our head office and shared services center in the Netherlands and also include country holdings. Pensions reflects certain pension costs after the elimination of interest cost (reported as financing expenses). Insurances are the results from our captive insurance companies. Other costs include the cost of share-based compensation, the results of treasury and legacy operations.