Chairman’s statement

For AkzoNobel, 2010 was something of a landmark year. We still faced many challenges due to the ongoing uncertainty surrounding the economic climate. But our financial vigilance and swift response to the global downturn enabled us to launch a new accelerated growth strategy soon after markets began to recover. Our aim all along had been to emerge from the crisis an even stronger company, and we succeeded.

I’ll come to our new growth ambitions in a moment, but the milestone nature of the year – and the essence of our strategic vision – was in many ways typified by November’s inauguration of our new multi-site in Ningbo, China. The €275 million facility is AkzoNobel’s largest ever investment outside of an acquisition and underlines the increasing importance of the world’s high growth markets as we look to establish ourselves as the world’s leading coatings and specialty chemicals company. Regions such as Asia and Latin America are fundamental to our future plans and Ningbo is representative of all our ambitions as we strive to push ahead and seize opportunities to accelerate profitable growth.

Value and Values

The announcement of our new Value and Values strategy was certainly one of the year’s most important developments. It was significant because it signaled the end of the transformation of our portfolio – a complex period of integration and restructuring – and the dawn of a new era. One of accelerated and sustainable growth. The details are explained elsewhere in this 2010 Report, but essentially our new strategy sets out a number of mid-term financial targets, including increasing revenue to €20 billion, growing EBITDA each year while maintaining a 13 to 15 percent margin and paying a stable to rising dividend. These “Value” ambitions are underpinned by strategic “Values”, which ensure that growth will be achieved responsibly and sustainably.

The foundations for our new strategic vision were completed during 2010, when we turned in a solid financial performance, with revenue growing 12 percent. Delivering on our 14 percent EBITDA target ahead of schedule was also a significant achievement and emphasized the success of our employees in focusing on customers, costs and cash. This disciplined approach enabled us to grow revenue across all businesses and paved the way for us to drive forward with fresh impetus and renewed energy. Our markets have not yet fully returned to pre-recessionary levels and raw material prices are still volatile, so discipline remains key. But we are financially robust and are committed to realizing further benefits from both our scale and our pipeline of innovative products.

In order to help us deliver on our new strategic ambitions, we decided that an important change was needed at the very top of the organization. We therefore broadened our leadership team and established a nine-strong Executive Committee (explained in further detail elsewhere), comprising the current Board of Management and four new leaders. I’m confident that this new set-up will help to better drive common agendas, build capabilities across the company and develop a leadership group, culture and structure that will bring AkzoNobel to the next level of substantially higher performance and growth.

During 2010, we continued with our strategy of consolidating our industries with a number of bolt-on acquisitions. Among the most significant was the finalization of the deal in which we took over the powder coatings activities of the former Rohm & Haas from the Dow Chemical Company. This saw us become market leader in the US and helped to significantly improve volumes. Another deal involved the purchase of Changzhou Prime Automotive Paint Co. Ltd. in China. This not only gives us strong representation in one of China’s most promising growth segments, but also gives our Car Refinishes business the opportunity to become the clear leader in the attractive vehicle refinish mid-market. Another important acquisition was that of Lindgens Metal Decorating Coatings and Inks by our Industrial Coatings business. It enables us to serve customers with a more complete range of inks and has improved our position in high growth areas of EMEA (such as Turkey and Russia), as well as in the Asia Pacific region, notably Australia. The key divestment during 2010 involved the sale of our National Starch activities to Corn Products International, which completed the final stage of our portfolio transformation. Aside from acquisitions, the year was also notable for a number of strategically important agreements. Perhaps the most significant was the deal signed by our Decorative Paints business to become the primary paint supplier to Walmart, which involves supplying multiple paint brands to the retailer’s 3,500-plus stores in the US.

Excellent performance

Sustainability continued to be a high priority during 2010, emphasized by the integral role it has to play in our new growth strategy. We maintained our excellent performance and were again ranked as one of the leaders in our industry, demonstrating our commitment not just to growing, but to growing in the right ways. Our innovative pipeline also continued to produce a wide range of eco-premium solutions that have made an immediate impact, such as Dulux Weathershield SunReflect, a paint which lowers the temperature of external walls and reduces the need for air conditioning.

We also realize that there are areas where we need to improve. For example, we know we can do even better when it comes to safety and are making a concerted effort to achieve a top quartile performance. Similarly, our employee programs are being stepped up to improve engagement and encourage talent development. Creating an engaged workforce is central to our new strategy and we are working hard to stimulate a climate of confidence, cooperation and co-creation.

I must stress that while not as severe as the previous year, 2010 did present its fair share of challenges. The fact that we made such solid progress and have entered a new era of accelerated and sustainable growth says much about our underlying strength and our firm financial footing. In line with our new strategy, we will therefore propose an increased dividend to shareholders at the forthcoming Annual General Meeting. In 2011, we expect to experience volume challenges in many established markets and will continue to face raw material price pressure. Although there is ongoing uncertainty about the overall economic conditions, particularly in the mature markets, for 2011 we are aiming for more than five percent revenue and EBITDA growth.

My colleagues on the Board of Management and Executive Committee are extremely proud to be leading our great company at such an exciting period in its long history and would like to express our gratitude to the many colleagues around the world who are helping to lead AkzoNobel into a future full of so many possibilities.