AkzoNobel Specialty Chemicals

All things considered, 2011 turned out to be a good year, following on as it did from a record 2010. Economic volatility increased dramatically, so after a strong start our growth momentum was somewhat curtailed. The situation began to improve towards the end of the fourth quarter, but the slowdown had an impact on our performance and our overall results ended up slightly below the previous year. However, given the testing combination of lower visibility in customer demand patterns, currency headwinds and severe increases in raw material prices, we held up very well, maintained a good level of profitability and continued to grow in a number of key market segments and regions.

Industrial Chemicals was our strongest business in 2011, achieving a record performance. Apart from Energy, its activities had a very good year, with consistent demand ensuring that capacity utilization remained high. Surface Chemistry and Pulp and Paper Chemicals reported record earnings. Functional Chemicals dropped back from its 2010 level, but overall delivered sound top line and bottom line results. Market conditions in Europe were relatively weak, while we performed well in North America, due mainly to solid demand and more favorable energy prices. Strong demand also ensured good results in Latin America, and in Asia – despite the region generally slowing down – we were able to make progress and achieve above average returns.

It proved to be a particularly important year in terms of making a number of critical investment decisions. Several projects were announced which will create more room for us to grow and consolidate our market leadership positions. These included adding capacity for our Expancel business in Stockvik, Sweden, and committing around €140 million to switch our chlorine production in Frankfurt, Germany, to more sustainable membrane technology and add capacity. In Brazil, we unveiled plans to build a €90 million Chemical Island to supply the world’s largest pulp mill. In addition, we acquired Boxing Oleochemicals in China to help us expand our Surface Chemistry activities in Asia and give us a manufacturing foothold in one of the faster growing parts of the world. Meanwhile, further developments at our Ningbo multi-site in China underlined its growing status as an important hub for our Specialty Chemicals activities. This included the start-up of a Crosslinking Peroxides, Thermoset Chemicals and Polymer Additives plant, a groundbreaking ceremony for a newly announced facility to add capacity for our Bermocoll cellulose derivatives and an investment in a new factory for the production of dicumyl peroxide (DCP).

We also continued to invest in innovation and have a very interesting pipeline of products in various stages of development, some quite close to commercialization. As a technology and market leader in many of our segments, we invest to stay ahead of the competition and innovation is one way of achieving that. Looking at 2011’s other noteworthy events, we announced our intentions regarding our holding in Pakistan. We disentangled the coatings business, which will be retained, but intend to divest the remaining activities – which includes several chemicals businesses – in 2012. This will align the portfolio with our strategy. Safety received a lot of attention and while some progress was made, we are committed to improving further to achieve best-in-class performance.

So while our business results didn’t quite match what was a truly exceptional 2010 – there were too many headwinds for us to repeat that performance – 2011 was nevertheless a year of solid achievement and our employees deserve credit for their efforts. In a volatile environment, we were once again able to serve our customers well and we appreciate their business. We delivered a good level of profitability, continued to make progress with our strategic ambitions and made several important investments which will contribute to accelerated growth and new opportunities in all our businesses.