|
Revenue |
| |
|
2010 |
14,640 |
+7% |
|
2011 |
15,697 | |
|
|
|
|
|
EBITDA |
| |
|
2010 |
1,964 |
-9% |
|
2011 |
1,796 | |
|
|
|
|
|
EBITDA margin |
| |
|
2010 |
13.4 |
-2.0 |
|
2011 |
11.4 | |
|
|
|
|
|
EBIT |
| |
|
2010 |
1,374 |
-14% |
|
2011 |
1,175 | |
|
Adjusted earnings |
|
| |
|
2010 |
3.71 |
-22% | |
|
2011 |
2.91 | ||
|
|
|
|
|
|
Dividend per share |
|
| |
|
2010 |
1.40 |
+4% | |
|
2011 |
1.45 | ||
|
|
|
|
|
|
Net income attributable to |
| ||
|
2010 |
754 |
| |
|
2011 |
477 | ||
|
|
|
|
|
|
Earnings per share from |
| ||
|
2010 |
2.85 |
| |
|
2011 |
2.01 | ||
|
Net debt |
|
| |
|
2010 |
936 |
+102% | |
|
2011 |
1,895 | ||
|
|
|
|
|
|
Operating working capital |
|
| |
|
2010 |
13.9 |
+0.5 | |
|
2011 |
14.4 | ||
|
|
|
|
|
|
Net cash from operating activities |
| ||
|
2010 |
519 |
-37% | |
|
2011 |
325 | ||
|
|
|
|
|
|
Capital expenditures |
|
| |
|
2010 |
534 |
+33% | |
|
2011 |
708 | ||
|
Moving average ROI |
|
| |
|
2010 |
10.8 |
-1.9% | |
|
2011 |
8.9 | ||
|
|
|
|
|
|
Operating ROI |
|
| |
|
2010 |
27.7 |
-5.4% | |
|
2011 |
22.3 | ||
|
|
|
|
|
|
Research and development |
| ||
|
2010 |
334 |
+7% | |
|
2011 |
356 | ||
|
|
|
|
|
|
Research and development major |
| ||
|
2010 |
46 |
+3 | |
|
2011 |
49 | ||
|
Executives from high growth markets in % |
|
| |
|
2010 |
12 |
+1 | |
|
2011 |
13 | ||
|
|
|
|
|
|
Sustainable fresh water management in % sites |
|
| |
|
2010 |
48 |
+26 | |
|
2011 |
74 | ||
|
|
|
|
|
|
Key value chains carbon footprint |
| ||
|
2010 |
286 |
+15% | |
|
2011 |
330 | ||
|
|
|
|
|
|
Total waste |
|
| |
|
2010 |
258 |
-16% | |
|
2011 |
217 | ||
Revenue |
|
|
2010 |
4,943 |
+8% |
2011 |
5,335 |
|
|
|
|
EBITDA |
|
|
2010 |
939 |
-4% |
2011 |
906 |
|
|
|
|
EBITDA margin |
|
|
2010 |
19.0 |
-2.0 |
2011 |
17.0 |
|
|
|
|
EBIT |
|
|
2010 |
3.5 |
-0.7 |
2011 |
2.8 |
|
Revenue |
|
|
2010 |
4,786 |
+8% |
2011 |
5,170 |
|
|
|
|
EBITDA |
|
|
2010 |
647 |
-6% |
2011 |
611 |
|
|
|
|
EBITDA margin |
|
|
2010 |
13.5 |
-1.7 |
2011 |
11.8 |
|
|
|
|
Total reportable rate of |
|
|
2010 |
3.3 |
-0.5 |
2011 |
2.8 |
|
Revenue |
|
|
2010 |
4.968 |
+7% |
2011 |
5,296 |
|
|
|
|
EBITDA |
|
|
2010 |
548 |
-20% |
2011 |
440 |
|
|
|
|
EBITDA margin |
|
|
2010 |
11.0 |
-2.7 |
2011 |
8.3 |
|
|
|
|
Total reportable rate of |
|
|
2010 |
4.0 |
-0.5 |
2011 |
3.5 |
|
|
Revenue |
| |
|
2010 |
4,943 |
+8% |
|
2011 |
5,335 | |
|
|
|
|
|
EBITDA |
| |
|
2010 |
939 |
-4% |
|
2011 |
906 | |
|
|
|
|
|
EBITDA margin |
| |
|
2010 |
19.0 |
-2.0 |
|
2011 |
17.0 | |
|
|
|
|
|
Total reportable rate of |
| |
|
2010 |
3.5 |
-0.7 |
|
2011 |
2.8 | |
|
Revenue |
| |
|
2010 |
4,786 |
+8% |
|
2011 |
5,170 | |
|
|
|
|
|
EBITDA |
| |
|
2010 |
647 |
-6% |
|
2011 |
611 | |
|
|
|
|
|
EBITDA margin |
| |
|
2010 |
13.5 |
-1.7 |
|
2011 |
11.8 | |
|
|
|
|
|
Total reportable rate of |
| |
|
2010 |
3.3 |
-0.5 |
|
2011 |
2.8 | |
|
In € millions |
2002 |
20031 |
2004 |
20052 |
2006 |
2007 |
20083 |
2009 |
2010 |
2011 | ||||||||||||||||||||
| ||||||||||||||||||||||||||||||
|
Revenue |
14,059 |
13,106 |
12,833 |
13,000 |
10,023 |
10,217 |
15,415 |
13,028 |
14,640 |
15,697 | ||||||||||||||||||||
|
Operating income |
1,390 |
1,146 |
1,588 |
1,492 |
887 |
778 |
(577) |
855 |
1,219 |
1,042 | ||||||||||||||||||||
|
Financing income and expenses |
(232) |
(248) |
(205) |
(162) |
(134) |
(151) |
(232) |
(405) |
(327) |
(338) | ||||||||||||||||||||
|
Income tax |
(335) |
(254) |
(412) |
(338) |
(96) |
(166) |
(260) |
(141) |
(170) |
(194) | ||||||||||||||||||||
|
Results from associates and joint ventures |
30 |
7 |
10 |
6 |
87 |
(20) |
25 |
21 |
25 |
23 | ||||||||||||||||||||
|
Profit for the period from continuing operations |
853 |
651 |
981 |
998 |
744 |
441 |
(1,044) |
330 |
747 |
533 | ||||||||||||||||||||
|
Minority interests attributable to minority shareholders |
(35) |
(49) |
(36) |
(37) |
(29) |
(31) |
(65) |
(77) |
(83) |
(64) | ||||||||||||||||||||
|
Discontinued operations |
– |
– |
– |
– |
438 |
9 |
23 |
32 |
90 |
8 | ||||||||||||||||||||
|
Net income, attributable to shareholders |
818 |
602 |
945 |
961 |
1,153 |
419 |
(1,086) |
285 |
754 |
477 | ||||||||||||||||||||
|
Common shares, in millions at year-end |
285.7 |
285.7 |
285.8 |
285.8 |
287.0 |
262.3 |
231.7 |
232.3 |
233.5 |
234.7 | ||||||||||||||||||||
|
Dividend |
343 |
343 |
343 |
343 |
344 |
472 |
417 |
325 |
320 |
304 | ||||||||||||||||||||
|
Number of employees at year-end |
67,900 |
64,600 |
61,400 |
61,300 |
42,700 |
42,600 |
60,000 |
54,700 |
55,600 |
57,240 | ||||||||||||||||||||
|
Average number of employees |
67,000 |
66,400 |
63,600 |
61,400 |
61,900 |
42,600 |
61,300 |
56,300 |
55,100 |
56,400 | ||||||||||||||||||||
|
Employee benefits |
3,552 |
3,505 |
3,216 |
3,221 |
2,158 |
2,215 |
3,022 |
2,955 |
2,980 |
3,081 | ||||||||||||||||||||
|
Average revenue per employee |
210 |
197 |
202 |
212 |
162 |
240 |
252 |
231 |
266 |
278 | ||||||||||||||||||||
|
Average EBITDA per employee |
32 |
30 |
28 |
34 |
30 |
30 |
31 |
31 |
36 |
32 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
Ratios |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
Operating income in % of revenue |
9.9 |
8.7 |
12.4 |
11.5 |
8.8 |
7.6 |
(3.7) |
6.6 |
8.3 |
6.6 | ||||||||||||||||||||
|
Operating income in % of invested capital |
15.4 |
13.6 |
20.8 |
19.4 |
16.3 |
14.6 |
–4 |
7.3 |
9.6 |
7.6 | ||||||||||||||||||||
|
Net income in % of shareholders’ equity |
32.9 |
26.2 |
40.6 |
32.0 |
30.5 |
122.9 |
–4 |
3.7 |
8.4 |
5.2 | ||||||||||||||||||||
|
Employee benefits in % of revenue |
25.3 |
26.7 |
25.1 |
24.8 |
21.5 |
21.7 |
19.6 |
22.7 |
20.4 |
19.6 | ||||||||||||||||||||
|
Interest coverage5 |
6.0 |
4.6 |
7.7 |
9.2 |
6.6 |
5.2 |
–4 |
2.1 |
6.4 |
4.3 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
Per share information |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
Net income |
2.86 |
2.11 |
3.31 |
3.36 |
4.02 |
33.82 |
(4.38) |
1.23 |
3.23 |
2.04 | ||||||||||||||||||||
|
Adjusted earnings per share |
|
|
|
|
|
|
|
2.06 |
3.71 |
2.91 | ||||||||||||||||||||
|
Shareholders’ equity |
7.34 |
8.76 |
9.12 |
11.95 |
14.44 |
42.06 |
32.21 |
33.47 |
38.48 |
39.25 | ||||||||||||||||||||
|
Highest share price during the year |
54.50 |
32.44 |
33.79 |
40.18 |
49.41 |
65.56 |
57.11 |
46.52 |
47.70 |
53.74 | ||||||||||||||||||||
|
Lowest share price during the year |
27.25 |
16.00 |
24.87 |
30.82 |
38.30 |
44.41 |
22.85 |
26.01 |
37.18 |
29.25 | ||||||||||||||||||||
|
Year-end share price |
30.23 |
30.60 |
31.38 |
39.15 |
46.18 |
54.79 |
29.44 |
46.40 |
46.49 |
37.36 | ||||||||||||||||||||
|
In € millions |
2002 |
20031 |
2004 |
20052 |
2006 |
2007 |
20083 |
2009 |
2010 |
2011 | ||||||||||||||||
| ||||||||||||||||||||||||||
|
Intangible assets |
629 |
590 |
448 |
488 |
682 |
669 |
7,172 |
7,388 |
7,308 |
7,392 | ||||||||||||||||
|
Property, plant and equipment |
4,402 |
3,967 |
3,535 |
3,432 |
3,346 |
2,203 |
3,357 |
3,474 |
3,384 |
3,705 | ||||||||||||||||
|
Financial non-current assets |
2,217 |
1,866 |
1,418 |
1,800 |
1,706 |
1,402 |
1,848 |
1,783 |
1,977 |
2,198 | ||||||||||||||||
|
Total non-current assets |
7,248 |
6,423 |
5,401 |
5,720 |
5,734 |
4,274 |
12,377 |
12,645 |
12,669 |
13,295 | ||||||||||||||||
|
Inventories |
2,206 |
2,133 |
1,978 |
1,987 |
2,042 |
1,177 |
1,781 |
1,441 |
1,678 |
1,924 | ||||||||||||||||
|
Receivables |
2,815 |
2,671 |
2,761 |
2,910 |
2,919 |
2,164 |
2,977 |
2,666 |
2,896 |
3,015 | ||||||||||||||||
|
Cash and cash equivalents |
520 |
727 |
1,811 |
1,486 |
1,871 |
11,628 |
1,595 |
2,128 |
2,851 |
1,635 | ||||||||||||||||
|
Assets held for sale |
– |
– |
– |
322 |
219 |
– |
4 |
– |
– |
– | ||||||||||||||||
|
Total current assets |
5,541 |
5,531 |
6,550 |
6,705 |
7,051 |
14,969 |
6,357 |
6,235 |
7,425 |
6,574 | ||||||||||||||||
|
Shareholders’ equity |
2,098 |
2,502 |
2,605 |
3,415 |
4,144 |
11,032 |
7,463 |
7,775 |
8,984 |
9,212 | ||||||||||||||||
|
Minority interests |
137 |
140 |
140 |
161 |
119 |
97 |
450 |
470 |
525 |
531 | ||||||||||||||||
|
Total equity |
2,235 |
2,642 |
2,745 |
3,576 |
4,263 |
11,129 |
7,913 |
8,245 |
9,509 |
9,743 | ||||||||||||||||
|
Provisions |
3,855 |
3,333 |
2,877 |
2,210 |
2,132 |
1,598 |
2,072 |
1,919 |
1,855 |
1,717 | ||||||||||||||||
|
Long-term borrowings |
2,797 |
2,717 |
2,392 |
2,702 |
2,551 |
1,954 |
2,341 |
3,641 |
2,880 |
3,035 | ||||||||||||||||
|
Other non-current liabilities |
513 |
590 |
200 |
183 |
181 |
133 |
715 |
674 |
589 |
567 | ||||||||||||||||
|
Total non-current liabilities |
7,165 |
6,640 |
5,469 |
5,095 |
4,864 |
3,685 |
5,128 |
6,234 |
5,324 |
5,319 | ||||||||||||||||
|
Short-term borrowings |
979 |
441 |
560 |
357 |
410 |
1,635 |
1,338 |
384 |
907 |
494 | ||||||||||||||||
|
Current liabilities |
2,410 |
2,231 |
2,677 |
2,571 |
2,652 |
2,276 |
3,510 |
3,220 |
3,761 |
3,762 | ||||||||||||||||
|
Current portion of provisions |
– |
– |
500 |
766 |
571 |
518 |
845 |
797 |
593 |
551 | ||||||||||||||||
|
Liabilities held for sale |
– |
– |
– |
60 |
25 |
– |
– |
– |
– |
– | ||||||||||||||||
|
Total current liabilities |
3,389 |
2,672 |
3,737 |
3,754 |
3,658 |
4,429 |
5,693 |
4,401 |
5,261 |
4,807 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Invested capital |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Of consolidated companies |
8,692 |
8,117 |
7,145 |
8,007 |
8,060 |
5,197 |
13,424 |
11,732 |
12,718 |
13,708 | ||||||||||||||||
|
Of investments in associates and joint ventures |
491 |
353 |
318 |
301 |
177 |
142 |
201 |
176 |
175 |
198 | ||||||||||||||||
|
Operating working capital |
|
|
|
|
|
|
2,359 |
1,691 |
2,016 |
2,196 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Property, plant and equipment |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Capital expenditures |
689 |
581 |
551 |
514 |
371 |
359 |
534 |
513 |
534 |
708 | ||||||||||||||||
|
Depreciation |
622 |
599 |
540 |
528 |
349 |
330 |
453 |
424 |
435 |
451 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Ratios |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
Revenue/invested capital |
1.55 |
1.56 |
1.68 |
1.68 |
1.85 |
1.91 |
1.07 |
1.06 |
1.15 |
1.15 | ||||||||||||||||
|
Equity/non-current assets |
0.31 |
0.41 |
0.51 |
0.62 |
0.74 |
2.60 |
0.64 |
0.65 |
0.75 |
0.73 | ||||||||||||||||
|
Inventories and receivables/current liabilities |
2.08 |
2.15 |
1.77 |
1.90 |
1.87 |
1.47 |
1.36 |
1.28 |
1.22 |
1.31 | ||||||||||||||||
|
Operating working capital as % of revenue |
|
|
|
|
|
|
16.5 |
13.7 |
13.9 |
14.4 | ||||||||||||||||
|
In € millions |
2008 |
20091 |
2010 |
2011 | ||||||||||
| ||||||||||||||
|
|
|
|
|
| ||||||||||
|
Decorative Paints |
|
|
|
| ||||||||||
|
Revenue |
5,006 |
4,573 |
4,968 |
5,296 | ||||||||||
|
EBITDA2 |
598 |
487 |
548 |
440 | ||||||||||
|
EBIT2 |
401 |
298 |
343 |
230 | ||||||||||
|
Operating income |
(669) |
133 |
275 |
137 | ||||||||||
|
Invested capital3 |
6,187 |
6,206 |
6,404 |
6,749 | ||||||||||
|
EBIT margin2 (in %) |
8.0 |
6.5 |
6.9 |
4.3 | ||||||||||
|
Capital expenditures |
120 |
112 |
154 |
204 | ||||||||||
|
Average number of employees |
24,600 |
22,900 |
21,800 |
22,400 | ||||||||||
|
Average revenue per employee |
203 |
200 |
228 |
236 | ||||||||||
|
Average EBITDA per employee |
24 |
21 |
25 |
20 | ||||||||||
|
|
|
|
|
| ||||||||||
|
Performance Coatings |
|
|
|
| ||||||||||
|
Revenue |
4,575 |
4,112 |
4,786 |
5,170 | ||||||||||
|
EBITDA2 |
566 |
594 |
647 |
611 | ||||||||||
|
EBIT2 |
467 |
492 |
540 |
495 | ||||||||||
|
Operating income |
444 |
433 |
487 |
458 | ||||||||||
|
Invested capital3 |
2,004 |
1,817 |
2,122 |
2,351 | ||||||||||
|
EBIT margin2 (in %) |
10.2 |
12.0 |
11.3 |
9.6 | ||||||||||
|
Capital expenditures |
89 |
61 |
87 |
116 | ||||||||||
|
Average number of employees |
21,000 |
20,200 |
20,600 |
21,300 | ||||||||||
|
Average revenue per employee |
218 |
204 |
232 |
243 | ||||||||||
|
Average EBITDA per employee |
27 |
29 |
31 |
29 | ||||||||||
|
|
|
|
|
| ||||||||||
|
Specialty Chemicals |
|
|
|
| ||||||||||
|
Revenue |
5,687 |
4,359 |
4,943 |
5,335 | ||||||||||
|
EBITDA2 |
909 |
738 |
939 |
906 | ||||||||||
|
EBIT2 |
605 |
490 |
679 |
625 | ||||||||||
|
Operating income |
130 |
422 |
604 |
622 | ||||||||||
|
Invested capital3 |
4,055 |
3,106 |
3,457 |
3,620 | ||||||||||
|
EBIT margin2 (in %) |
10.6 |
11.2 |
13.7 |
11.7 | ||||||||||
|
Capital expenditures |
305 |
319 |
273 |
366 | ||||||||||
|
Average number of employees |
12,900 |
11,400 |
11,100 |
11,300 | ||||||||||
|
Average revenue per employee |
441 |
382 |
445 |
472 | ||||||||||
|
Average EBITDA per employee |
70 |
65 |
85 |
80 | ||||||||||
|
In € millions |
20081 |
2009 |
2010 |
2011 |
|
20081 |
2009 |
2010 |
2011 | |||||||||||||||
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
The Netherlands |
|
US and Canada | |||||||||||||||||||||
|
Revenue by destination |
867 |
792 |
803 |
694 |
|
333 |
2,600 |
2,954 |
3,141 | |||||||||||||||
|
Revenue by origin |
1,423 |
1,284 |
1,537 |
1,646 |
|
3,463 |
2,712 |
3,074 |
3,315 | |||||||||||||||
|
EBIT2 |
18 |
(49) |
(41) |
(107) |
|
154 |
123 |
226 |
228 | |||||||||||||||
|
Operating income |
(45) |
(69) |
(78) |
(162) |
|
(608) |
114 |
225 |
228 | |||||||||||||||
|
Capital expenditures |
86 |
104 |
84 |
144 |
|
94 |
55 |
63 |
117 | |||||||||||||||
|
Invested capital3 |
2,007 |
1,489 |
1,266 |
1,477 |
|
325 |
2,554 |
2,762 |
2,830 | |||||||||||||||
|
Number of employees3 |
5,000 |
4,800 |
5,000 |
5,200 |
|
12,000 |
10,100 |
10,300 |
10,300 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
Germany |
|
Latin America | |||||||||||||||||||||
|
Revenue by destination |
1,141 |
1,088 |
1,160 |
1,284 |
|
1,306 |
1,147 |
1,394 |
1,558 | |||||||||||||||
|
Revenue by origin |
1,179 |
1,089 |
1,096 |
1,228 |
|
1,103 |
959 |
1,168 |
1,282 | |||||||||||||||
|
EBIT2 |
115 |
90 |
102 |
128 |
|
135 |
121 |
121 |
121 | |||||||||||||||
|
Operating income |
(34) |
44 |
91 |
119 |
|
89 |
108 |
140 |
105 | |||||||||||||||
|
Capital expenditures |
25 |
19 |
22 |
31 |
|
49 |
30 |
30 |
66 | |||||||||||||||
|
Invested capital3 |
1,086 |
983 |
915 |
975 |
|
776 |
767 |
872 |
840 | |||||||||||||||
|
Number of employees3 |
3,600 |
3,700 |
3,500 |
3,800 |
|
4,800 |
4,300 |
4,300 |
4,500 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
Sweden |
|
China | |||||||||||||||||||||
|
Revenue by destination |
478 |
423 |
468 |
515 |
|
1,054 |
997 |
1,249 |
1,376 | |||||||||||||||
|
Revenue by origin |
1,457 |
1,284 |
1,475 |
1,481 |
|
968 |
929 |
1,177 |
1,361 | |||||||||||||||
|
EBIT2 |
157 |
124 |
200 |
128 |
|
144 |
159 |
161 |
124 | |||||||||||||||
|
Operating income |
126 |
59 |
162 |
125 |
|
(98) |
157 |
162 |
118 | |||||||||||||||
|
Capital expenditures |
50 |
37 |
19 |
54 |
|
67 |
143 |
147 |
96 | |||||||||||||||
|
Invested capital3 |
557 |
461 |
542 |
559 |
|
861 |
772 |
952 |
1,225 | |||||||||||||||
|
Number of employees3 |
3,800 |
3,500 |
3,400 |
3,300 |
|
6,300 |
6,100 |
6,700 |
7,400 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
UK |
|
Other Asian countries | |||||||||||||||||||||
|
Revenue by destination |
1,093 |
768 |
798 |
841 |
|
1,866 |
1,585 |
1,780 |
1,918 | |||||||||||||||
|
Revenue by origin |
1,206 |
830 |
854 |
879 |
|
1,682 |
1,389 |
1,514 |
1,627 | |||||||||||||||
|
EBIT2 |
153 |
82 |
67 |
100 |
|
199 |
224 |
212 |
175 | |||||||||||||||
|
Operating income |
(48) |
75 |
76 |
100 |
|
(110) |
220 |
217 |
174 | |||||||||||||||
|
Capital expenditures |
31 |
22 |
28 |
27 |
|
43 |
27 |
48 |
64 | |||||||||||||||
|
Invested capital3 |
1,324 |
1,562 |
1,782 |
2,117 |
|
103 |
610 |
766 |
806 | |||||||||||||||
|
Number of employees3 |
4,200 |
3,800 |
3,900 |
3,900 |
|
7,800 |
6,800 |
7,200 |
7,800 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
Other European countries |
|
Other regions | |||||||||||||||||||||
|
Revenue by destination |
3,666 |
3,095 |
3,398 |
3,702 |
|
614 |
533 |
636 |
668 | |||||||||||||||
|
Revenue by origin |
2,582 |
2,211 |
2,336 |
2,459 |
|
352 |
341 |
409 |
419 | |||||||||||||||
|
EBIT2 |
195 |
216 |
269 |
237 |
|
45 |
41 |
57 |
41 | |||||||||||||||
|
Operating income |
113 |
115 |
172 |
191 |
|
38 |
32 |
52 |
44 | |||||||||||||||
|
Capital expenditures |
81 |
69 |
83 |
98 |
|
8 |
7 |
10 |
11 | |||||||||||||||
|
Invested capital3 |
2,359 |
2,420 |
2,616 |
2,665 |
|
174 |
114 |
221 |
214 | |||||||||||||||
|
Number of employees3 |
10,100 |
9,400 |
9,100 |
8,900 |
|
2,400 |
2,200 |
2,200 |
2,100 | |||||||||||||||
How well do you know AkzoNobel? Our Decorative Paints, Performance Coatings and Specialty Chemicals businesses supply hundreds of trusted brands and products to industries and markets all over the world.
On this spread you will find just a small selection of the many brands we produce and supply across the globe. Some of them are household names, others are more specialist products. But everything we make is likely to play some part in your daily routine.
This section provides an overview of our strategic priorities, highlights key performance areas and gives details of the medium-term ambitions to which we aspire. You will also find the Chairman’s statement and the Report of the Board of Management.
|
Without any doubt, 2011 has been a challenging year. After a satisfying first quarter, in which we continued to show profitable growth in line with 2010 trends, we began to experience increasing headwinds. Raw materials was chief among them. A massive wave of unprecedented price increases hit us which resulted in our total procurement bill for 2011 rocketing by approximately €1 billion, which we had mostly offset by the end of the year. Secondly, but no less significantly, the potent combination of the effects of the euro crisis, ongoing stagnation of the North American housing and construction markets and the gradual cooling off of the world economy had a negative impact on volumes and mix, particularly at – but not limited to – our Decorative Paints business. We were able to grow the company’s topline by 7 percent, but were disappointed that EBITDA fell 9 percent. While much of our energy was focused on combating the pressure on our margins, we stuck to our Value and Values strategy and did not lose sight of the importance of investing in the future. I’d like to begin by highlighting a number of significant deals and transactions which we made during the year. Let’s start in India, where we opened our new Industrial Coatings plant in Bangalore in early 2011. We also announced our biggest ever investment in Latin America. Work has already begun on the €90 million Chemical Island, which will supply the world’s largest pulp mill in Brazil. In addition, we committed €140 million to upgrade our chlorine plant in Frankfurt to the latest membrane technology. This will not only improve our competitive position, but also significantly reduce our carbon footprint. In China, we earmarked €60 million to expand our Asian Automotive and Aerospace Coatings business, and we also acquired Schramm Holding AG and the coatings activities of its related SSCP business in Korea, which gives us a global leadership position in specialty plastic coatings. As the year ended, we finalized the Boxing Oleochemicals deal (which was completed in January 2012), gaining a leading position in the specialty surfactant sector in Asia. But 2011 was not only about investing and acquiring. It was also about innovation, which is key to delivering Tomorrow’s Answers Today. There are a few examples I’d like to mention in particular. In Powder Coatings, we achieved an important breakthrough when Interpon became the first ever full body monocoat powder coating to be used on a passenger vehicle in Europe. Meanwhile, Decorative Paints launched their low cost, high quality Discovery tinting machine. This technology will allow us to build our distribution faster and in a more competitive way, especially in high growth regions. More great innovation took place at our Surface Chemistry business, where we developed a new, highly versatile hybrid polymer technology platform which can produce a range of sustainable, biodegradable polymers. Turning to the Values pillar of our strategic roadmap, we have made significant progress. We once again achieved a number two position in the SAM benchmark, illustrating that year-on- year we have a leading position in the chemicals industry when it comes to sustainability. Major advances have also been made with our Diversity and Inclusion program and we increased the proportion of executives who are either female or from the high growth markets. However, the satisfaction we can take from progress made on the Values side of our strategy does not make up for our disappointment regarding the drop in profitability and the limited progress we’ve made in terms of reducing operating working capital. We are determined to improve – even in a challenging world – our ability to generate more free cash and grow our profitability. We realize this is essential if we want to continue investing in growth. We have launched a performance improvement program to strengthen our competitiveness, enhance our ability to grow, simplify our support structures and reduce our cost base. This simplification and standardization of our support structures implies a significant change in our operating model and business culture. The program, which we announced in October 2011, is a comprehensive three-year plan to improve our performance and deliver €500 million EBITDA by 2014. We already expect to realize €200 million in 2012, when delivering on the program will be a central focus of our efforts. All signs indicate that 2012 will be another difficult and volatile year. The world economy continues to slow down, there is ongoing uncertainty in the eurozone and raw material prices are still increasing for titanium dioxide. However, we will face all these challenges from a position of strength. We have solid fundamentals and one of the strongest business portfolios in our industry. We also have one of the best regional spreads in our industry, a strong balance sheet and an ambitious performance improvement program. That is why our medium-term strategic ambitions are unchanged. I’d like to end by saying that it was almost ten years ago when I joined AkzoNobel, becoming CEO in 2003. At the 2012 Annual General Meeting of shareholders, I will be stepping down and, subject to shareholder approval, my successor will be Ton Büchner. It has been a fantastic privilege to lead this company through a period of major transformation. I would like to thank all my colleagues across the globe for their continued support and I wish them every success in the future, under the leadership of Ton and the other members of the Executive Committee.  Hans Wijers CEO and Chairman of the Boards of Management |
 Hans Wijers |
Leif Darner (1952, Swedish)
Board member responsible for Performance Coatings
Tex Gunning (1950, Dutch)
Board member responsible for Decorative Paints
Hans Wijers (1951, Dutch)
Chief Executive Officer and Chairman of the Board of Management
Keith Nichols (1960, British)
Chief Financial Officer
Rob Frohn (1960, Dutch)
Board member responsible for Specialty Chemicals
Leif Darner
Board member responsible for Performance Coatings
(1952, Swedish)
After graduating from Gothenburg University, Leif Darner held several management positions before being appointed General Manager of Powder Coatings Scandinavia at Courtaulds in 1985.
In 1993, he was appointed Chief Executive of Coatings Northern Europe. Then in 1997 he served as Worldwide Director of Yacht Paint and Protective Coatings. In 1998, Courtaulds became part of AkzoNobel and Darner was appointed Business Unit Manager of AkzoNobel Marine and Protective Coatings, a post he held from 1999 until 2004, when he was appointed to the Board of Management of AkzoNobel as the member responsible for Chemicals, a position he held until April 2008.
He is a Board member of the Swedish Chamber of Commerce in the Netherlands and CEPE (European Confederation of Paint and Inks) Brussels.
Tex Gunning
Board member responsible for Decorative Paints
(1950, Dutch)
Tex Gunning holds a degree in economics from the Erasmus University Rotterdam. His business career has included more than 25 years at Unilever, where his final position was as Business Group President Asia Foods.
In September 2007, he was appointed CEO of Vedior, a global company in HRM services. After a successful merger with Randstad, he joined AkzoNobel in 2008 as Managing Director of Decorative Paints. He is a Supervisory Board member at TNT Express and Friesland Campina.
Hans Wijers
Chief Executive Officer and Chairman of the Board of Management
(1951, Dutch)
Hans Wijers is a former Minister for Economic Affairs in the Dutch government—a position he held for four years—while prior to joining AkzoNobel in 2002 he was Senior Partner with the Boston Consulting Group and Chairman of BCG’s Dutch office.
He is a non-executive director at Royal Dutch Shell, a member of the European Roundtable of Industrialists and a Trustee of various charities.
Keith Nichols
Chief Financial Officer
(1960, British)
Keith Nichols joined AkzoNobel in December 2005 from Corus Group plc, where he held the position of Group Treasurer. Prior to joining Corus in 2004, he held a number of senior finance positions within TNT N.V.
Nichols played a key senior role in the sale of Organon BioSciences to Schering Plough and in the structuring, financing and completion of the acquisition of ICI. He is a member of the Association of Corporate Treasurers and holds the MCT Advanced Diploma.
Rob Frohn
Board member responsible for Specialty Chemicals
(1960, Dutch)
Rob Frohn joined AkzoNobel as a business analyst in 1984. Following several General Manager positions, in 2004 he was appointed CFO and member of the Board of Management of AkzoNobel. Frohn assumed responsibility within the Board of Management for Specialty Chemicals as of May 1, 2008.
He is a non-executive director at Nutreco N.V. and Delta N.V.; and a Board member of CEFIC (European Chemical Industry Council) and the Hogeschool van Arnhem en Nijmegen (HAN).
|
Financial highlights | ||||||
|
| ||||||
|
Continuing operations before incidentals | ||||||
|
|
|
|
| |||
|
In € millions |
2010 |
2011 |
Δ% | |||
|
Revenue |
14,640 |
15,697 |
7 | |||
|
EBITDA |
1,964 |
1,796 |
(9) | |||
|
EBITDA margin (in %) |
13.4 |
11.4 |
| |||
|
EBIT |
1,374 |
1,175 |
(14) | |||
|
EBIT margin (in %) |
9.4 |
7.5 |
| |||
|
Moving average ROI (in %) |
10.8 |
8.9 |
| |||
|
Operating ROI (in %) |
27.7 |
22.3 |
| |||
|
|
|
|
| |||
|
| ||||||
|
After incidentals | ||||||
|
|
|
|
| |||
|
In € millions |
2010 |
2011 |
Δ% | |||
|
Operating income |
1,219 |
1,042 |
(15) | |||
|
Net income from continuing operations |
664 |
469 |
| |||
|
Net income from discontinued operations |
90 |
8 |
| |||
|
Net income total operations |
754 |
477 |
| |||
|
Earnings per share from continuing operations (in €) |
2.85 |
2.01 |
| |||
|
Earnings per share from total operations (in €) |
3.23 |
2.04 |
| |||
|
Capital expenditures |
534 |
708 |
| |||
|
Net cash from operating activities |
519 |
325 |
| |||
|
Interest coverage |
6.4 |
4.3 |
| |||
|
Invested capital |
12,718 |
13,708 |
| |||
|
Net debt |
936 |
1,895 |
| |||
|
Number of employees |
55,590 |
57,240 |
| |||
We have launched a performance improvement program to strengthen our competitiveness, enhance our ability to grow, simplify our support structures and reduce our cost base. This simplification and standardization of our support structures implies a significant change in our operating model and business culture. The program, which we announced in October 2011, is a comprehensive three-year plan to improve our performance and deliver €500 million EBITDA by 2014. The program includes business restructuring and is to deliver €200 million EBITDA in 2012. This implies higher restructuring cost for the coming year. The program is on track and the first update on progress and financial impact is due in our 2012 half-yearly report.
Decorative PaintsIn Decorative Paints, full-year revenue growth was 7 percent, with volumes up 5 percent, price increases up 3 percent and an adverse impact of currencies of 1 percent. Revenue in Asia and the Americas showed double digit growth in 2011, mainly driven by price increases and the new Walmart contract in the US. Demand declined in Europe, while growth rates achieved in China and South East Asia outpaced market growth. However, the pace of market growth slowed down in these markets in the second half of the year. Performance CoatingsPerformance Coatings’ 2011 revenue was up 8 percent, supported by volumes (2 percent), acquisitions (2 percent) and price (5 percent). Adverse currency impact was 1 percent. Industrial Coatings showed the largest volume increase, driven by good performances in Packaging and Coil Coatings, while Wood Finishes and Adhesives had lower volumes due to weaker demand in the housing market. Specialty ChemicalsSpecialty Chemicals had a solid performance during 2011. Revenue grew over 2010 on price increases, with limited overall volume growth due to the economic slowdown and growth being hampered in some businesses due to capacity constraints. Volume growth was evident in market sectors for Surface Chemistry and Pulp and Paper Chemicals, where the demand remained strong. Acquisitions and investmentsIn 2011 we made several acquisitions and significant investments:
We expect that our capital expenditures in 2012 will be in line with 2011. |
Revenue in € millions  Revenue development  | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Decorative PaintsIn Decorative Paints, EBITDA was 20 percent behind 2010 (19 percent in constant currencies), mainly driven by the increases in raw material prices (specifically TiO2) and unfavorable product mix effects including down trading. EBITDA margin ended at 8.3 percent in 2011 (2010: 11.0 percent). We started to restructure operations in Europe and announced restructuring activities in the US in 2012. Performance CoatingsIn Performance Coatings, raw material price increases had a negative impact on the full-year results in all businesses. Margin management programs – including selling price increases and restructuring efforts in mature markets – are ongoing and continue to support performance. Full-year EBITDA ended at €611 million (2010: 647 million), with an EBITDA margin of 11.8 percent (2010: 13.5 percent). Specialty ChemicalsWhile most businesses in Specialty Chemicals recorded their best-ever profitability, Functional Chemicals saw its earnings decrease after a very strong 2010 performance, due primarily to the ethylene amines product line. With effective margin management and cost control, unit margins remained at the 2010 level, offsetting significant raw material price increases and adverse currency impacts. The energy market in the Netherlands remained unattractive for energy producers as the difference between gas input costs versus electricity sales prices adversely impacted our results. The overall portfolio shows strong profitability in these difficult economic circumstances, with EBITDA at €906 million (2010: €939 million) and EBITDA margin at 17.0 percent (2010: 19.0 percent). Costs for research and development in 2012 are expected to be in line with 2011, with 50 percent aimed at breakthrough innovations. Raw materialsRaw material price increases were a significant concern during 2011. Overall, the weighted average increase in our raw material prices for the year was 16 percent. The increase year-on-year for Q4 was just over 10 percent, which is at a lower level than in Q3, primarily due to a stabilization in all raw material groups, except TiO2, where we continue to see significant price increases. The absolute impact of increased raw material prices for the year is approximately €1 billion (including 2 percent volume increase), accounting for almost the entire increase in cost of sales. Incidental items included in operating incomeRestructuring is mainly related to European businesses in Decorative Paints and Performance Coatings.
EBIT in “other”Corporate costs ended in line with the previous year. Additional costs for functional excellence activities were offset by cost savings. The result of our captive insurance companies was in line with the previous year, although we had a higher number of claims in the fourth quarter. Other costs were lower due to cost savings and favorable non-recurring items.
TaxThe year-to-date tax rate is 27 percent (2010: 19 percent). The tax rate benefits from several adjustments to previous years and tax-exempt gains, the main one being a release of an antitrust provision. The tax rate in 2010 was low because of several adjustments to previous years, partly related to settlements with tax authorities. Net financing expensesNet financing charges for the year increased by €11 million from €327 million to €338 million. Significant items included:
In December, we bought back a total nominal amount of €528 million of our 2014 and 2015 bonds and replaced them with bonds with lower interest rates. This transaction resulted in a loss of €67 million in the fourth quarter, which will be set off in later years by significantly lower interest costs. The transaction has improved our maturity profile.
WorkforceAt year-end 2011, we employed 57,240 people (year-end 2010: 55,590). The net increase was due to:
In 2012, we will see the impact of restructuring in mature markets. In the context of the performance improvement program, restructurings have started in Decorative Paints in Europe and the US. |
EBITDA AkzoNobel 2009 – 2011  | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend proposalWe are aiming to pay a stable to rising dividend. We have introduced a stock dividend option with cash dividend as default. Given our strong fundamentals and as a signal of confidence in our ability to deliver the performance improvement program in challenging markets, we will propose a 2011 final dividend of €1.12 per share which would make a total 2011 dividend of €1.45 per share (2010: €1.40). Economic Value Added (EVA)EVA is calculated by deducting from net operating profit after tax (NOPAT) a capital charge representing the cost of capital calculated on the basis of an average return investors expect. EVA for 2011 totaled a negative amount of €251 million (2010: €142 million negative). Returns on invested capital in €  |
Earnings per share total operations  Dividend in €  |
Invested capitalInvested capital at year-end 2011 totaled €13.7 billion, €1.0 billion higher than at year-end 2010. Invested capital was impacted by the net effect of:
Operating working capital in € millions  Net debtNet debt increased from €936 million at year-end 2010 to €1,895 million at year-end 2011, mainly due to:
In December, we bought back high interest bonds for a total nominal amount of €528 million and a total consideration of €633 million. This transaction resulted in a loss of €67 million. However, going forward this loss will be offset by the significantly reduced coupon on a new €800 million sevenyear bond launched in the same month. As a result, our maturity profile has improved, with hardly any debt maturing in 2012. Shareholders’ equityShareholders’ equity at year-end 2011 increased to €9.2 billion, mainly due to the net effect of:
PensionsThe funded status of the pension plans at year-end 2011 was estimated to be a deficit of €0.5 billion (year-end 2010: €1.0 billion). The movement compared with year-end 2010 is due to:
In January 2012, we concluded the triennial actuarial funding review of the ICI Pension Fund. We expect to have top-up payments over the remaining six years of the recovery plan that are £198 million lower in total than the sum of the current schedule. In 2012 and 2013, they will be £62 million per annum lower and in the last four years £19 million per annum lower. In addition, we have agreed to terminate a contingent asset on our balance sheet in order to fund further de-risking activities and thereby reduce future demands on our cash flows. |
Invested capital in € millions  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Condensed consolidated cash flow statement | ||||
|
|
|
| ||
|
In € millions |
2010 |
2011 | ||
|
Cash and cash equivalents opening balance |
1,919 |
2,683 | ||
|
Profit for the period from continuing operations |
747 |
533 | ||
|
Amortization, depreciation and impairments |
640 |
633 | ||
|
Changes in working capital |
(124) |
(344) | ||
|
Changes in provisions |
(651) |
(498) | ||
|
Other changes |
(93) |
1 | ||
|
Net cash from operating activities |
519 |
325 | ||
|
Capital expenditures |
(534) |
(708) | ||
|
Acquisitions and divestments |
2 |
(138) | ||
|
Other changes |
53 |
(2) | ||
|
Net cash from investing activities |
(479) |
(848) | ||
|
Changes from borrowings |
(33) |
(470) | ||
|
Dividends |
(403) |
(362) | ||
|
Other changes |
(45) |
7 | ||
|
Net cash from financing activities |
(481) |
(825) | ||
|
Net cash used from continuing operations |
(441) |
(1,348) | ||
|
Cash flows from discontinued operations |
1,095 |
11 | ||
|
Net change in cash and cash equivalents of total operations |
654 |
(1,337) | ||
|
Effect of exchange rate changes on cash and cash equivalents |
110 |
(11) | ||
|
Cash and cash equivalents at December 31 |
2,683 |
1,335 | ||
Operating activities in 2011 resulted in a cash inflow of €325 million (2010: €519 million). The change is mainly due to a net effect of:
The Board of Management’s statement on the financial statements, the management report and internal controls
We have prepared the AkzoNobel Report 2011 and the undertakings included in the consolidation taken as a whole in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU and additional Dutch disclosure requirements for annual reports.
To the best of our knowledge:
The Board of Management is responsible for the establishment and adequate functioning of internal controls in our company. Consequently, the Board of Management has implemented a broad range of processes and procedures designed to provide control by the Board of Management over the company’s operations. These processes and procedures include measures regarding the general control environment, such as a Code of Conduct including business principles and a corporate complaints procedure (SpeakUp!), corporate directives and authority schedules, as well as specific measures, such as a risk management system, a system of controls and a system of letters of representation by responsible management at various levels within our company.
All these processes and procedures are aimed at 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. The individual components of the above set of internal controls are in line with the COSO Enterprise Risk Management Framework. With respect to support to, and monitoring of, compliance with laws and regulations including our Business Principles, a Compliance Committee has been established. Internal Audit provides assurance to the Board of Management whether our internal risk management and control systems, 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, as regards financial reporting risks, the internal risk management and control systems:
For a detailed description of the risk management system with regard to the strategic, operational and compliance risks and the principal risks identified, reference is made to the Risk management chapter in the Governance and compliance section. We have discussed the above opinion and conclusions with the Audit Committee, the Supervisory Board and the external auditor.
We have the aspiration to be the world’s leading coatings and specialty chemicals company. Our medium-term ambitions are to grow to €20 billion revenue, increase EBITDA each year while maintaining a 13-15 percent margin, reduce OWC percent of revenue year-on-year by 0.5 percent towards a 12 percent level, and pay a stable to rising dividend.
The sustainability ambitions are to remain a top three leader in our industry, to be top quartile in our peer group in terms of safety performance, diversity, employee engagement and development, and eco-efficiency improvement rates.
For the year ahead we expect to see the full-year benefit of the price rises that we have been able to achieve, and which now have offset most of the raw material price increases. Currently we are experiencing greater price stability in most raw materials, with the exception of TiO2, which we anticipate will continue to rise in price, and for which we have plans in place to pass through further price rises in the future. In addition, we are moving ahead with the implementation of our performance improvement program, which should bring significant benefits in 2012 and beyond, underpinning our margins.
The major uncertainty remains the economic environment. Our concerns are focused on the risk of recession in Europe, delayed recovery of the US property market and the potential for a slowdown in China. Each of these can have a significant impact on our customers in these regions, that would in turn impact our sales volumes. These, together with certain raw materials, remain our principal sensitivities in 2012.
AkzoNobel has a strong portfolio of complementary businesses, with many leading market positions and exposure to growth markets. This, combined with our ongoing management actions, means that we are confident that we can deliver medium-term growth in line with our strategic ambitions.
Amsterdam, February 15, 2012
The Board of Management
Hans Wijers
Leif Darner
Rob Frohn
Tex Gunning
Keith Nichols
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€20 billion in revenue
(Delivering)
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Growth in absolute EBITDA, in a 13–15 percent margin range (Improvement actions in progress)
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Revenue growth versus 2010 in %
 |
EBITDA  |
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Reduction in OWC of 0.5 p.a., towards a 12 percent target
(Facing headwinds)
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Stable to rising dividend
(Delivering)
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Operating working capital as a % of revenue
 |
Dividend paid in € per share  |
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Top quartile safety performance
(Continued improvement)
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Top quartile performance in diversity, employee engagement and talent development (Improving)
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Total reportable rate of injuries
per million hours  |
Employee engagement performance  |
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Top quartile eco-efficiency improvement rate
(Improving)
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Top three position in sustainability
(Delivering)
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Greenhouse gas emissions
in kg CO2(e) per ton of production  |
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When we set our medium-term strategic ambitions in September 2010, we also announced a revised strategic agenda designed to support delivery of these ambitions.
In creating this strategic agenda, we recognize that we must embed safety and sustainability in everything we do. For example, we recognize that one of the key drivers behind the first item on our agenda, innovation, is the need to develop products that make better use of the world’s resources, whether this is within our own production scope or in the scope of our suppliers, customers or end users. In addition, in our definition, driving functional and operational excellence has as much to do with improving our safety performance as it does with reducing our cost base.
The following sections describe each of these agenda items in turn.
We continue to develop an innovation portfolio which will deliver bigger and better innovations, faster. These projects are generally based on “solution promises” that address the global mega-trends of population growth, the need for improving the quality of life in the emerging economies, climate change and the increasing scarcity of natural resources.
Solution promises are conceptual responses to the challenges posed by these global mega-trends and they provide a framework which guides and energizes our innovation portfolio. We have defined five solution promises and each of these is described in more detail below.
As global population increases and new economies are beginning to drive economic development, the number of households forming the so-called mid-markets will increase dramatically. This is such an important trend that we have defined an entire strategic agenda item around it, which is described later in this section.
We all strive to enhance the quality of our lives in terms of our happiness, health and well-being. At the same time, we are increasingly seeking to create our own identities and take a pro-active approach to personalizing our homes, cars and even our personal appearances. AkzoNobel addresses these aspirations in diverse ways, but good examples are:
We aspire to achieve zero environmental footprint across the value chain with our products. To ensure that we move towards this goal, we are working hard to adopt lower footprint raw materials, develop cleaner manufacturing processes, produce products that have a better environmental footprint both inherently and in-use and ensure that there is an appropriate end-of-life. Five good examples of how we are doing this are:
Many of us have too much to do, and too little time in which to do it. This trend is only going to increase in the future, and as a company we see great opportunities to respond to the demands for time and effort-saving products and technologies. For example, we see the need for new and faster ways of applying coatings, as well as the development of self-cleaning and self-maintaining surfaces. In addition, there is a need for full-solution services in the area of color-matching paints within decorative paints applications, where we have recently launched Dulux Colour Click, a simple way of using your digital camera to achieve the perfect match. In the automotive refinish market, we have also introduced stickerfix as a quick and convenient way of repairing minor scratches using a color-matched, film-based system which takes just minutes to achieve a near-perfect repair.
Usually, products have one or two well-defined functions. For example, paints and coatings protect and/or beautify surfaces. But we also see great opportunities for products that do much more. For example, we have developed:
To maximize our innovation opportunities and fulfill our solution promises, we recognize that we need to work with others who complement our own capabilities and can enable us to deliver innovations to the market faster. We call this open innovation. Two recent examples of open innovation are highlighted below:
We continue to see growth opportunities in all segments in our business in both mature and high growth markets. To capture these opportunities, we continue to invest in both organic growth and acquisitions. Some examples include:
It is important to note that, regardless of the part of the world in which we are investing, we utilize the same standards for health, safety and the environment (HSE), as well as business principles, compliance and control. Furthermore, when we evaluate growth opportunities, we do so from a balanced perspective in terms of evaluating growth and synergy potential, as well as the impact on our portfolio in terms of eco-efficiency levels.
We also prioritize projects that have both market and sustainability impact. With this in mind, during 2011 we announced the conversion of our Frankfurt chlor-alkali plant to the use of membrane technology, which will allow us to improve our leadership positions in Europe in terms of the caustic lye and chloromethanes markets, while improving our environmental footprint.
We continue to see a significant opportunity beyond our normal premium product and service level positioning in the mid-market. This is the fast-growing segment that is looking for a different price-value trade-off than we find in the premium segment.
In China, for example, the mid-market is expected to expand from about 120 million to 190 million households over the next ten years, introducing many tens of millions of new consumers in search of affordable, high quality goods and services as shown in the graph.
Growing mid-market households in China in millions
In some cases, the approach to addressing the mid-markets successfully is through appropriate products. A good example of this is the introduction of the Dulux All Round Guard and Forest Breath ranges of “safe for me and my family” paints to the Chinese market. These ranges meet the needs of a growing population of discerning consumers entering the home decoration market. We also have locally appropriate decorative paints mid-market ranges in India (e.g. Dulux Promise) and Indonesia (e.g. Dulux Catylac), as well as in many other countries.
Differentiated product lines are not the only solution to the mid-markets. In some cases, the solution is to have different brands, distribution and/or sales force approaches. So, for example, we have a completely different business model for the mid-market in automotive refinishes than we have for our premium brands. This includes everything from brand name, to product formulation, to technical service levels to distribution channels, to price. Of course, both business models fully and completely adhere to the same standards and techniques in terms of business principles, safety and sustainability. It is also worth noting that, while mid-market business models are often initially developed for high growth markets, there are also mid-market opportunities in the more established markets.
A key factor in the recent creation of our Executive Committee was the idea that, to deliver the next level of performance and reach our vision of becoming the leader in coatings and specialty chemicals, we need to pursue excellence from a functional perspective. This new governance structure is providing the impetus that we need to develop plans to reach the next level of functional and operational excellence, resulting in our announcement in October 2011 of a performance improvement program to deliver €500 million EBITDA by 2014, as well as a step change in effectiveness.
This program is not optional; we must deliver higher levels of efficiency to ensure that, in future, we cover our cash requirements and generate free cash flow, while still investing in growth. In addition, higher efficiency levels are required to achieve our Values medium-term ambition of top quartile eco-efficiency improvement rate. Nor is the program optional from an effectiveness perspective. By improving our level of performance, we will be better positioned to achieve our medium-term ambitions regarding, for example, safety and employee engagement.
There are a number of workstreams included in this overall performance improvement program, which are outlined below.
We have a very ambitious program for functional and operational excellence in Integrated Supply Chain, which includes Sourcing/Procurement, Manufacturing/Operations and Distribution/Logistics. The program should generate substantial and simultaneous improvement in Value (e.g. in the form of cost and capital savings) and Values (e.g. in the form of improved people and process safety). In terms of activities, the program includes:
To take advantage of our scale and ensure that we maximize the use of our extensive technical knowledge and know-how, we have established six global RD&I Centers. These are located in Deventer and Sassenheim in the Netherlands; Felling and Slough in the UK; Strongsville, Ohio, in the US; and Songjiang, near Shanghai, China. The six facilities house one or more of the company’s Expert Capability Groups, all of which perform groundbreaking research. They are co-located with the principal RD&I laboratories of one or more AkzoNobel businesses, which develop the technology platforms for their respective activities. The global centers are complemented by around 140 smaller RD&I laboratories, which focus on the development and adaptation of products for local markets and technical support for manufacturing and customers. In addition to ensuring that we make best use of our people capabilities, we also need to ensure that we leverage opportunities to improve efficiencies in our formulations. We are doing this by developing product architectures which can be used around the globe for both Decorative Paints and Performance Coatings. This allows us to create and market products that are optimized in terms of price-value trade-offs, as well as eco-efficiency in product, manufacturing and use. This project is key within our VOC reduction program, which will help us to deliver on a 25 percent reduction in VOCs per unit of product sold by 2015.
Delivery of efficiency and effectiveness in our HR function is fundamental to delivery on our strategic ambitions. This includes, but is not limited to, delivery of our ambition to become top quartile in diversity, employee engagement and talent development. We are therefore stepping up our efforts to build a functionally excellent One HR organization.
Two important enabling initiatives to deliver a functionally excellent HR organization are country HR organizations and HR information systems. With regards to the former, we have made substantial progress. We have implemented HR organizations in most of our top ten countries, which provide shared services and recruitment expertise for all AkzoNobel businesses. With regard to the latter, we have now put in place a program to harmonize our IT systems in our top ten countries.
Similarly, we need to ensure that we improve efficiency in our Finance function and systems to both reduce costs through standardization and harmonization, while at the same time increasing our focus on business partnering and ensuring a continued high level of control. A series of specific projects in these workstreams will deliver simultaneous improvement, including implementing a global chart of accounts, consolidation of ERP systems and revamping several key processes such as purchase-to-pay. These initiatives will also support the creation of business shared service centers in the future.
We have not been generating sufficient free cash flow to ensure that we can sustainably invest in our growth plans. There are three options for how to change this situation – increasing our revenue stream, generating more earnings per unit of revenue and/or reducing capital requirements. Our first three strategic agenda items are aimed at increasing our revenue stream. Our performance improvement program is aimed at generating more earnings per unit of revenue. This strategic agenda item is aimed at controlling and/or reducing capital requirements.
First of all, we are managing underlying cash requirements created by pension costs, legacy payments and interest charges. To do this, we start from the perspective that we should employ conservative financial policies that safeguard a strong investment grade (BBB+/A-) credit rating profile throughout the business cycle. Within this framework, we manage cash in a manner which optimizes overall company value. Examples of how we do this are:
Secondly, we are prioritizing and controlling our capital expenditures. In doing this, we examine all aspects of our investments to ensure we look at the impact of investment on our Value and Values ambitions, including growth potential, productivity impact and safety and eco-efficiency implications.
Thirdly, we are managing our operating working capital. This is particularly relevant when raw material cost fluctuations are significant and credit availability for customers can be an issue. Therefore, operating working capital management is a key component of our Integrated Supply Chain and Finance/IM functional excellence work and is helping us to make progress towards our 12 percent operating working capital as a percent of revenue ambition. Specifically:
We will continue to make progress with regard to receivables and payables hrough:
We are also taking action to regain momentum on inventories going forward hrough:
It is worth noting that disciplined inventory management can also have important sustainability implications. For example, we have signed a contract with a process and distribution company which involves them purchasing, re-working and selling on our obsolete coatings and paints materials. These materials would otherwise be disposed of as waste. By selling them on instead, we reduce inventories, generate income and reduce waste (up to 1 percent of our total waste in 2012).
Going forward, we will further improve from a cash, costs and environmental footprint perspective by not manufacturing materials that will become obsolete and this is a clear objective in our Integrated Supply Chain work as part of functional and operational excellence efforts.
As a company, we have set ourselves a clear goal – to become the world’s leading coatings and specialty chemicals company. To do this, we need to build and leverage a Talent Factory because it is just as important for us to attract, develop and retain great people with strong leadership skills, as it is for us to develop, produce and distribute great products and services.
To support this, our HR function is striving to properly support our businesses with their activities by helping them to build a critical mass of the right people, from as wide a talent pool as possible. In a competitive market environment, we recognize the importance of being seen, internally and externally, as an employer of choice.
By differentiating our company from our competitors and clearly articulating the benefits of working for AkzoNobel, we will not only be in a stronger position to win the war for talent, but will also increase the engagement of current employees. A number of activities are ongoing to improve the perception of our employer brand, including the development of a clear employer value proposition, which will be rolled out in 2012. The employer value proposition activities will build on a number of key elements of the Talent Factory which are already in place.
To ensure consistent capability building across the company, employees are regularly appraised and supported with their development through a process that we call Performance and Development Dialog (P&D Dialog). In 2011, we continued to improve the professionalism and consistency of assessing our employees’ performance and potential, on an individual basis, through the P&D Dialog process.
These individual assessments are then aggregated by Business Area and function. This information forms the basis of our annual Leadership Talent Review process, which is designed to review the health of our talent pipeline and identify future leaders. Promising internal candidates can then be matched to available roles through “matching forums”.
To ensure that we develop a cadre of leaders appropriate for AkzoNobel in the future, including a balanced team which truly reflects the markets that we serve, we introduced our Global Management Trainee Program (GMTP) in 2011. The program lasts two years, during which participants receive comprehensive hands-on training and experience working in a variety of functions, locations and businesses. Under the guidance of a senior business manager, we expect the participants to be prepared to take on a management position early on in their career. In line with our accelerated growth and diversity and inclusion ambitions, recruitment for the GMTP is focused on high growth markets. In 2011, approximately 75 percent of our GMTP employees came from our high growth countries.
The GMTP is a new addition to our talent development curriculum. Two programs already in place are the Management Essentials Program (MEP) and the Advanced Management Program (AMP). The first is designed to give all managers the fundamental skills needed to manage their people properly. The AMP is designed to help more senior managers or middle managers become more proficient at leading larger or more complex organizations, develop leadership talent among their staff and create high-performing teams across various functional areas.
To underpin our operational and functional excellence ambitions and make a step change in capability across the company, we set up the AkzoNobel Academy in 2011. This ensures the availability of best-in-class courses, standards, processes and methodologies across the organization.
To deliver on our medium-term ambitions, we must work together in a different way. While business units will remain the core of who we are and will continue to be responsible for focusing on our customers’ future first (one of AkzoNobel’s five core values), both functions and countries/regions will have an important role to play in delivering on our strategic ambitions.
Specifically, functions will need to create centers of excellence, set targets and standards, transfer best practice and leverage our scale if we are to reach our EBITDA margin, operating working capital, safety, employee engagement and eco-efficiency ambitions. Countries/regions will need to help us deliver on our revenue targets, pursue synergies, represent AkzoNobel in the country/region to key stakeholders and be the “home” for all our employees.
Delivering simultaneously on business, functional and country/regional agendas will require us to behave differently. We must have confidence in the judgment and professionalism of others, both within and outside the company. Based on this confidence, we must cooperate to deliver on key initiatives. In some cases, we must go beyond this and actually work with others, again, both within and outside the company, to co-create better solutions. To do this, we are:
At a very basic level, we must continue to be clear and completely consistent in what we stand for from a business principle (or Code of Conduct) perspective, regardless of the market segment, function or country in which we operate. We continue to mandate training in this area, including focused modules for competition law and anti-bribery aspects. In 2011, we expanded the training to include a new manual for export control.
To realize our growth ambitions, it’s important that we draw from as wide a talent pool as possible and we create a working environment where differences are valued and everyone has the opportunity to develop their skills and talents. To achieve this, we have had a Diversity & Inclusion (D&I) program since 2008, which includes a dedicated global working team and steering committee. The goals of the program are to create awareness and engagement around diversity and inclusion issues to embed the concept in the organization, to establish company-wide metrics and to make AkzoNobel a true reflection of the markets in which we operate.
We have made good progress with D&I in recent years. We have improved the proportion of our executives who are either women or come from high growth markets, our key metric in D&I. Since the start of 2009, the proportion of women in executive positions has increased from 10 percent to 13 percent of the total population. The presence of women in executive positions has been particularly strengthened in functional roles. With regard to executives in high growth markets, we have made less progress, although the proportion of executives coming from these markets is now 13 percent.
We do, however, recognize that we still have a long way to go. In particular, in 2012 we will need to redouble our efforts with regard to our two key issue areas. These are appointing women to general management, sales and/or marketing roles and appointing individuals from high growth countries to roles based in more established markets.
We need to ensure that all employees are knowledgeable about and engaged in the business, as well as the functional and country/regional strategy that is relevant to them, so that they are able to contribute fully to strategy implementation. We measure our progress in this area using the Gallup Q12 survey, with additional specific AkzoNobel questions. The results of the survey provide a comparison against a database of approximately 500 organizations. We made progress during 2011 in terms of our employee engagement scores, but more is clearly required in 2012 as we are a long way from reaching our top quartile ambition.
As engagement is typically highly dependent on creating successful teams within the overall organization, we have different approaches to strategy engagement in different parts of the company. For example, in our Decorative Paints business – where the strategy is to move from a “multi-local” to a global approach based on repeatable models – we have a program that we call Ignite the Spirit. In the last two years, more than 10,000 of our Decorative Paints colleagues from all over the globe have participated in this initiative as a means of building a culture of confidence, cooperation and co-creation around achievement of the Decorative Paints strategy.
Beyond AkzoNobel, we need to work with our stakeholders to develop better solutions to business issues. This goes beyond the open innovation referred to earlier and encompasses involving stakeholders in setting and managing business targets and improvement processes. One area where we continue to proactively pursue stakeholder engagement is with the communities in which we are based. To do this, we continue to:
We are also developing partnerships with key non-governmental organizations. For example, following our partnership agreement in 2010 with the Forest Stewardship Council (FSC), we have set up a central fund to support the FSC’s work in increasing the supply of FSC-certified products. We are also rolling out local partnership agreements between our consumer woodcare brands (e.g. Cetabever, Cuprinol, Pinotex, Xyladecor and Sparlack) and FSC’s national offices to promote awareness of the FSC and the use of wood and paper from sustainably-managed forests. So far, we have seven active country-AkzoNobel partnerships in the Netherlands, UK, Germany, Switzerland, the Czech Republic, Brazil and the Nordics.
While we are clearly very excited about collaborative efforts with the FSC and relevant parts of our business, we are also aware that we need to do more across the whole of AkzoNobel. With this in mind, we are in the process of developing some key next level relationships and hope to announce some exciting developments in this area in 2012.
If we do all of this right, we will be able to create a virtuous cycle in terms of achievement of our ambitions. By making much better use of our knowledge and potential, we – together with our partners and stakeholders – will deliver better solutions to the market and the communities in which we are based.
As indicated earlier in this section, we continue to make progress in terms of developing one, unified strategic agenda incorporating both Value and Values ambitions. By developing one, unified approach, we avoid the trap of making false trade-offs. For this reason, all of the strategic agenda items described above embed safety and sustainability and there is not a separate agenda item on this point.
We do, however, recognize that, given the cross-business, cross-functional, cross-country/regional aspect of the sustainability agenda, we must go beyond our “normal” business processes, which have historically been associated solely with financial performance. As a result, we have a Sustainability Council which advises the Executive Committee on the definition and appropriate implementation of the sustainability aspects of the strategic agenda.
The Council is chaired by the CEO. He is joined by Business Unit Managing Director representatives from each Business Area and Executive Committee members or corporate directors from the main relevant functions. The Sustainabiilty Council meets quarterly.
The Council monitors our progress on our sustainability agenda through our strategy dashboard, which encompasses both leading and lagging indicators associated with each of our eight strategic ambitions. In addition, the Council oversees development of new initiatives to support further improvement in the existing agenda, such as our integrated reporting initiative aimed at ensuring that we remain at the leading edge in terms of integrated Value and Values reporting. Beyond this, the Sustainability Council also takes a leadership position in developing our next generation sustainability initiatives, for example, around sustainable construction.
On a day-to-day basis, the Corporate Director for Sustainability takes the lead on ensuring that we manage our existing agenda and develop an agenda for the future. The Managing Director of each business is responsible for delivering on expectations with regard to both Value and Values ambitions. Progress is monitored through the strategy dashboard mentioned earlier.
At the beginning of 2011, we broadened our leadership team and established a nine-strong Executive Committee in order to accelerate sustainable growth and help us deliver on our strategic ambitions.
Comprised of the five Board of Management members and these four leaders with functional expertise, having this organizational set-up at the very top of the company means that we can better deliver functional and operational excellence, drive common agendas, build capabilities and develop a culture of confidence, cooperation and co-creation.
All members of the Executive Committee work together to define our strategic direction, establish policies and manage the company’s day-to-day operations. The functions currently represented are HR & Organizational Development; Research, Development & Innovation; Supply Chain/Sourcing (including Health, Safety and Environment). In addition, our General Counsel is included to ensure strong governance and compliance.
Executive Committee member responsible for Research, Development & Innovation
(1962, British)
Mr. Armstrong joined AkzoNobel in 2008 following the acquisition of ICI, where he led the company’s Research, Development & Innovation function. Prior to joining ICI, he spent 19 years in the detergents industry working for Unilever and JohnsonDiversey. He also served as Regional President for JohnsonDiversey in EMEA. He is a Chartered Chemist, a Fellow of the Royal Society of Chemistry and a member of their Science Policy Board. Chairman of Chemistry Innovation PLC and Chairman of the Chemistry Innovation Knowledge Transfer Network, and a former non-executive director of the UK government Technology Strategy Board.
Member of the Executive Committee and AkzoNobel General Counsel
(1970, Dutch)
Mr. Dumoulin joined AkzoNobel as General Counsel in 2010 and is responsible for legal, compliance, intellectual property and legacy management. Previously he worked as a lawyer and then Group Secretary for Unilever. From 2003 to 2007, he held professorships in company law at the Universities of Groningen and Tilburg in the Netherlands. Outside AkzoNobel, he is a member of various Legal Professional Associations in both the Netherlands and abroad.
Executive Committee member responsible for HR and Organizational Development
(1958, Dutch)
Mrs. Oudeman joined AkzoNobel in October 2010 from Corus Group, where she was a member of the Executive Committee, as well as being Divisional Director of Strip Products and a Board member of Corus Nederland B.V. and Corus UK Ltd. Prior to joining Corus in 2000, she held various roles at Hoogovens Group, including that of Managing Director. Among others, she is also is a non-executive director of Nederlandse Spoorwegen and ABN Amro Group.
Executive Committee member responsible for Supply Chain/Sourcing
(1953, German)
After graduating from Johannes Gutenberg University Mainz in Germany in 1979, Mr. Fuhrmann held various roles within the AkzoNobel Fibers division, and was Business Area Controller Chemicals, before being appointed General Manager of Chelates & Sulfur Products in 2000. He became Managing Director of AkzoNobel Industrial Chemicals in 2005. He is Chairman of the Dutch Chemicals Industry Association (VNCI).
The following chapter gives a detailed summary of how each of our Business Areas performed during 2011. Information on market characteristics, key brands and revenue comparisons is also provided.
 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. |
“2011 was a year of solid achievement and we continued to make progress with our strategic ambitions” Rob Frohn |
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Revenue breakdown by business unit in %  Eco-premium solutions  Key value chains with carbon footprint assessment  Total reportable rate of injuries per million hours  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Geo-mix revenue by destination
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We are a major supplier of specialty chemicals with leading positions in selected market segments. Market and business characteristicsThe chemicals industry can be described as a value chain. Our businesses serve customers throughout the value chain with different products. Our Industrial Chemicals business, for example, mines salt through vacuum extraction. It’s used as a raw material for our own activities and the European chlorine industry, as well as being an end product found in grocery stores under brand names such as Jozo and Nezo (Functional Chemicals). Base chemicals are chemicals produced from raw materials. For us, this means products such as chlorine (Industrial Chemicals). Derived from these base chemicals are chemical intermediates, such as ethylene amines (Functional Chemicals) or chlorate (Pulp and Paper Chemicals). Performance chemicals offer specific functionality to a product or process, examples being the surfactants used in fabric care softeners (Surface Chemistry) and the Compozil retention systems (Pulp and Paper Chemicals) used to make paper. Few of the products we supply are actual end products, with salt being the most prominent. The strategy for each of our businesses varies depending on where they are in the value chain and which customers they serve. For example, in terms of geographic focus, Industrial Chemicals is mainly focused on Western Europe, with an emphasis on operational effectiveness. Pulp and Paper Chemicals is a global business, with a specific emphasis on serving one industry. Surface Chemistry and Functional Chemicals are also global businesses, and primarily pursue a customer intimacy model for each specific product group. Chemicals Pakistan, on the other hand, is a national business with a broad product offering within areas such as chemicals, coatings, fibers and pharmaceuticals.  CustomersOur products are used when producing a wide variety of everyday products such as ice cream, soups, disinfectants, plastics, soaps, detergents, cosmetics, paper and asphalt. There are more than 2,000 items in our portfolio. Global market drivers and developments
High growth marketsProjected industry growth is strong, particularly in Asia Pacific and Brazil. More than 35 percent of revenue is in high growth markets. Innovations
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Some key raw materials
Price driversEnergy, oil and other raw materials
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“Our Ningbo site in China was the focus of much activity” OverviewIt was a year of continued solid performance, despite the fact that our businesses experienced mixed fortunes. We were heavily impacted by raw material price increases across all of our activities and margins were affected. Volumes in Ethylene Amines and Chelates increased due to the start-up of our Ningbo plant in China, but there was limited volume growth in our other activities during 2011. AnalysisWhile a few of our businesses, notably Sulfur Derivatives and High Polymers, were solid for the whole year, some were not able to overcome the difficult market conditions or pass on raw material price increases quite so successfully. Ethylene Amines – our star performer of 2010 – found the going particularly tough – mainly because of additional production capacity becoming available in the market – but also due to steep raw material price rises. Our Chelates activities started slowly but recovered as the year progressed. The stand-out, though, was our High Purity Metal Organics business, which performed extremely well and achieved solid growth. It’s a great example of being a big fish in a small pond – having a strong position in clearly defined global markets – and we have high expectations for its continued success. HighlightsOur new plant in Ningbo, China, continues to go from strength to strength and was the focus of much activity during 2011. Ethylene amines production came fully on stream at the beginning of the year, while the Chelates facility was also completed, which means these activities are now fully operational and cost-competitive. In addition, a new organic peroxides plant started up in the fourth quarter and we announced two further investments in Ningbo. As well as committing €45 million to consolidate our organic peroxide production at the site, we broke ground on a new plant to add capacity for our Bermocoll cellulose derivatives (paint and building material thickeners). All of these activities will provide momentum for AkzoNobel’s accelerated growth strategy. DevelopmentsWe merged our Cellulosic Specialties and Elotex activities into one business. By combining our knowledge and expertise around cellulosics and polymer-based thickeners, we can now offer a unique concept to customers in the construction industry and present a joint offering to their markets. As part of the resulting efficiencies, we were able to effectively launch a new hydrophobically-modified thickener for paint, which was very well received and has quickly established itself as the benchmark quality for the industry. It was also a good year for our OneGrain lower sodium salt replacement (see case study A taste for innovation), which is growing well and has now been commercialized, while our high purity pharmaceutical salt activities grew substantially. A disappointing aspect of 2011 was the spills at our Stenungsund site in Sweden. Some product was accidentally released into the sea on two occasions, which fortunately resulted in very limited environmental impact and no injuries. We worked swiftly and diligently – in close collaboration with the authorities – following both incidents, which served to heighten our focus on safety improvement, both in terms of behavior based safety and process safety. |
 Jan Svärd Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“We were able to clearly outperform our 2010 revenue and results” OverviewWe had a very strong start to 2011, and although there was some slowdown in the final quarter, we were able to clearly outperform our 2010 revenue and results. Thanks to our market leadership positions in our key sectors, three of our four businesses achieved record results. AnalysisWe achieved top and bottom line growth, driven by our robust Salt, Chlor-Alkali and MCA activities, which more than compensated for the difficult conditions experienced by our Energy business – brought about by high gas prices. In terms of volumes, we were sold out until August, with occupation rates falling slightly during the final quarter due to somewhat softer demand, caused by a weak construction sector and overall market nervousness. We clearly benefited from our leadership positions in Europe for Salt and Chlor-Alkali and globally for MCA. The chloromethane business gained significant market share in Europe, we strengthened our caustic position and Salt benefited from a continuous flow of revenue from the secondary use of caverns. Good cost and margin management also contributed to our results, while we began to reap the benefits of recently implemented efficiency measures, such as MCA debottlenecking at Delfzijl and Taixing and last year’s Skoghall plant closure. The strong performance of the Chlor-Alkali business in Frankfurt – which we acquired in 2009 – was also important, along with the fact that we are at the beginning of the value chain, so we tend to feel less impact from raw material price increases. HighlightsIn June we announced a landmark €140 million investment at our Frankfurt site in Germany – the largest ever investment by AkzoNobel in Europe at a single site. The project involves switching our chlorine production from mercury to the very latest membrane electrolysis technology, as well as modernizing and significantly expanding the facility. Annual production of chlorine at the location is expected to increase to 250 kilotons, up from today’s 165 kilotons. It means that by the end of 2013, around 90 percent of Industrial Chemicals’ chlorine production will be based on membrane technology, which is 30 percent less energy intensive than current mercury technology. So it represents a huge step in terms of improving our eco footprint. We also secured the first license for our sustainable degreasing technology for the protein processing industry (see case study Putting customers first), while our European market share for chemical transformation salt increased quite significantly thanks to the success of the mTA (meso-Tartrate) next generation anti-caking agent which we launched last year. DevelopmentsThe Lean Six Sigma operational excellence methodology we introduced in 2010 became further embedded into the organization. The first phase has been completed and we now have around 50 Black Belts and Green Belts throughout the organization dedicated to ensuring a sustainable and successful efficiency drive. We are confident it will prove to be an extremely powerful tool. We also continued to develop new initiatives to improve our eco footprint and make our products more sustainable. CO2 reduction is a crucial issue for us and we will continue to launch significant projects in the near future, such as increasing our share of heat consumption from waste incineration. Another important development was the process safety pilot in Delfzijl, which we will roll out to other risk relevant areas of our activities. We will also be working harder to improve our overall safety performance. |
 Knut Schwalenberg Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“It was a year of growth and we achieved another record performance” OverviewIt was a year of growth both in terms of volume and value. We were able to defend margins – despite dramatic raw material price increases – and achieved another record performance, building on the momentum we have been gathering since 2009. AnalysisAlthough there was a lot of pressure from increased raw material prices – up to 30 percent in some of our paper chemicals activities – and a significant, negative currency exchange impact, we were able to manage our margins effectively and benefit from strong growth, notably in Asia and South America. Our bleaching business achieved growth in all sub-business units, driven in particular by a strong paper market in Asia, while we were also boosted by the continued growth of the packaging and board industry in Europe and the Americas. This kept our facilities running at a very high capacity throughout the year. It was a more diverse picture in the paper segment, although growth continued in Asia and we increased our market share in the South American paper chemicals market, driven by very strong growth in Brazil. Our specialty products also performed well. The silica business – which supplies the paper industry and other markets such as electronics, pharmaceuticals and the building sector – had a very strong 2011, while Expancel achieved another record year. So while we certainly faced challenging conditions and there was a slight slowdown towards the end of the year, the diversity of our portfolio and demand for certain products meant that we were a little less vulnerable to the economic volatility. HighlightsEarly in the year we announced an investment of close to €90 million in a new facility being built in Brazil which will supply the world’s largest pulp mill. The plant is being constructed in the northern part of Três Lagoas and is centered on further expanding Eka Chemicals’ sustainability-focused Chemical Island concept (see case study Building on our expertise). The mill, operated by Eldorado Celulose e Papel, is expected to come on stream in September 2012. Meanwhile, in April we started-up a new production plant for colloidal silica at our Guangzhou site in China. The facility will help meet rapidly growing local demand for our Compozil retention and dewatering system. These projects will consolidate our global market leadership positions and help to accelerate growth in key strategic regions. Another important investment – reflecting the success of Expancel – involved committing €32 million to increase production capacity in Sweden. DevelopmentsWe are continuously working to help customers increase their efficiency and we made very good progress on a high filler concept which looks extremely promising. Improving safety performance was another major priority and it was pleasing to see the business return to the very good trend we established a few years ago. Our zero incident mindset program is now in full swing and as the workshops and training continue and our employees around the world become more engaged, we’re hopeful that we can strive for an even better result next year. One other achievement of note was the finalization of a completely integrated global SAP system which includes all our sites in all countries. |
 Ruud Joosten Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“We had a strong 2011 and were sold out for most of the year” OverviewWe had a strong 2011 and were sold out for most of the year. We utilized our capacity in the most profitable way – supplying high value specialty niches – and combined this with robust margin management to offset major raw material price increases. As a result, we were able to improve on the previous year’s financial performance. Despite some softening in consumer-oriented sectors, we performed very well in industrial areas such as agrochemicals, mining and oilfield due to their dynamic, fast-growing markets and the demand for these types of specialty chemicals worldwide. AnalysisIt was a good year, particularly for our agrochemicals activities, while high oil prices supported an active drilling market for our oilfield chemicals products. Sales to the mining market were very strong, leading to an excellent year for our separation products, especially in Canada, where they are used by the major fertilizer producers. But the asphalt road paving market stalled, mainly because governments did not invest as much as expected in infrastructure. Personal Care, along with our fabric and cleaning activities, experienced some early softness, but recovered later. We also felt pressure from significant increases in raw materials costs – which rose almost 30 percent in some cases – and had problems sourcing some of them. However, demand for our products remained buoyant, notably in Asia and Brazil, while our European business bounced back as the year progressed and achieved the most significant improvement, leading to a strong end to 2011 overall. HighlightsIn July, we announced a major acquisition of Boxing Oleochemicals, the leading supplier of nitrile amines and derivatives in China and Asia (see case study Achieving our growth ambitions). The acquisition will consolidate our premier position in specialty surfactants and gives us a significant manufacturing base in Shandong Province, enabling us to source our products more effectively and cost efficiently. The deal also represents a fundamental milestone in our strategy, part of which is to expand capacity and increase our presence in Asia, while helping local customers to enhance and differentiate their products. In addition, we boosted our technology portfolio in sustainable chemistry by acquiring from Integrated Botanical Technologies its patented Zeta Fraction technology, which is transforming how plant-based chemistry is used. We are using the technology for personal care applications and investigating ways of using it elsewhere within AkzoNobel. In addition, our newest hybrid technology platform generated its first successful water-soluble bio-polymers: Alcoguard H 5240 (used in automatic dishwasher and laundry detergents) and BioStyle CGP (used in hair styling products). Based on more than 60 percent renewable resources, our hybrid polymers are unique, plant-based alternatives to petrochemical-based polymers. DevelopmentsSeveral other new products were launched, including Armid FPC, an environmentally-responsible solvent for water soluble agrochemical applications. We also introduced Armovis EHS, a thermally stable, self-breaking viscosity system for oilfield applications. Around 70 percent of our portfolio is based on products that provide eco-premium solutions and we continued to work hard on developing innovative, sustainable technologies to meet customers’ unmet needs. We also made significant progress toward our Diversity & Inclusion goals by increasing the number of female executives (17 percent) and high growth country executives (13 percent). |
 Bob Margevich Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“We achieved significant improvements in our environmental performance” OverviewThe business environment remained very tough due to severe energy shortages, devastating floods and security concerns. As a result, volumes were negatively affected in most businesses. However, we were still able to increase revenue by 8 percent over the previous year, mainly through better price management in all businesses and strong volume growth in our Life Sciences activities. AnalysisCustomer intimacy, product quality and innovation and supply chain efficiencies – along with a strong market footprint – helped to grow our underlying margins, particularly in the Coatings, Life Sciences, Soda Ash and Chemicals businesses. However, the additional cost of approximately €7 million incurred for using expensive alternative fuel in place of natural gas due to supply shortages dragged down both margins and EBITDA. HighlightsThanks to our continued commitment to sustainability we achieved significant improvements in our environmental performance. One of the most notable initiatives was the launch of a coke briquetting project at our Soda Ash business. Designed to reduce waste, it involves converting coke dust into usable briquettes. We also reduced water intake through a number of water reuse projects and improved farm economics through the introduction of new products in our Life Sciences business. Our safety performance remains one of the best in the Business Area, with one of our manufacturing sites completing 15 million man hours and another 15 years without a lost time incident. DevelopmentsOur employee engagement score for 2011 was the highest across the Business Area. This indicated a step change in employee engagement levels across all of our businesses in Pakistan. Extensive training was conducted to ensure that the employee engagement agenda is properly embedded throughout the organization. |
 Waqar A Malik Revenue in € millions  Main products
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 Coming off the back of a strong 2010, when growth kicked in following the earlier recession, 2011 proved to be more challenging than expected. The major hurdle we faced was an incredible increase in raw material costs, which had an impact on margins, even though we were able to push through price increases. Crucially, most of our businesses maintained good demand from customers – particularly in high growth regions – a positive reflection on the diversity of our portfolio, which sits in different cycles. As a result, we were able to continue growing, despite the volatility of the global economy. The majority of this growth was achieved by the Packaging Coatings and Coil Coatings activities, along with our Powder and Protective Coatings businesses. It was a more testing year for Wood Finishes – due mainly to the depressed North American housing market – while Marine Coatings also encountered difficulties following a downturn in ship newbuild activity. From a geographical perspective, it was very much a story of two-speed progress. We performed very well in high growth regions, notably China, where growth was achieved in all segments, with the exception of wood finishes. Turkey, where we have a strong footprint, was another highlight. We have been achieving excellent growth there and continued to invest, adding capacity for powder coatings while also benefiting from the Lindgens Metal Decorating Coatings and Inks acquisition we made in 2010. Our activities in Russia continued to do well and we are looking to further build our presence in the Middle East following the company’s strategic consolidation of its businesses in the region. Demand was weaker in North America and Europe – where we have had to respond with restructuring and cost reduction programs – but we are now able to look at where the pockets of opportunity do exist. By way of underlining our strategy to capture accelerated growth, our key M&A activity during the year involved the acquisition of Schramm Holding AG and the coatings activities operated by Schramm’s largest shareholder, Korean company SSCP. Focused on consumer electronics and automotive plastic interior coatings, this deal gives us important global leadership positions and in particular will strengthen our fast growing business in Asia. The year was also very much about integrating two of 2010’s major acquisitions – the Rohm & Haas powder coatings activities and the Changzhou Prime Automotive Paint Co. Ltd business, which opened up the Chinese market for refinish products. We set ourselves ambitious targets on synergies and growth and that has been going very well. Further to the Prime deal, in October we announced an investment of around €60 million which will include constructing a new production facility in Changzhou. This will give us an important base of operations, enabling us to meet growing local demand and boost our market share. Our efforts in the area of sustainable technology also intensified as we continued to invest in our research, development and innovation activities. Two new labs were opened in 2011, both in Felling in the UK. One is dedicated to developing and testing fire protection technology, while the other is a state-of-the-art powder resin polymer facility which has a special focus on resins for low temperature cure. Technology and performance is also at the heart of our successful partnership with the Vodafone McLaren Mercedes Formula 1™ team, which was further strengthened during the course of the year. Absolute EBITDA margins were down, so 2011 proved to be a more challenging trading environment compared with the previous year. The combination of the significant increase in raw material costs and weaker demand in specific geographies impacted our results. We have been actively addressing these challenges, using our scale to manage profitability, while continuing to make progress with our strategic agenda. |
“We continued to strengthen our market positions” Leif Darner |
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Our Performance Coatings business is represented in most market segments of this industry, holding many leading positions. Market and business characteristicsThe size of the global market for performance coatings is around €40 billion. General industrial coatingsMetal and plastic coatings for a wide range of applications – from huge industrial equipment to the latest mobile phones and music players, computers, espresso machines and sporting goods. Protective coatingsCorrosion and fire protection across a range of industries including upstream and downstream oil and gas, high value infrastructure such as airports and stadia, power generation, mining and minerals and water and waste water. Vehicle refinishesRecoating of automobile bodies when vehicles are repaired. Automotive OEMCoatings for commercial vehicles (trucks and buses) and automotive plastic components. Aerospace coatingsCoatings for small and large aircraft, including products for exterior and interior finishes. Primers for structural components and coatings for high performance exterior and interior finishes. Powder coatingsPowder technology involves a coating being applied electrostatically. It is sprayed and then subsequently cured by applying heat, either in an oven or by using infrared or UV light irradiation. Wood finishes and adhesivesWood coatings for home and office furniture, flooring, kitchen and bath cabinetry, windows and doors. Adhesives are the bonding agents for wood composites and laminates used in these applications. Marine coatingsCoatings for deep sea and inland marine vessels at new construction or for maintenance that protect against corrosion and abrasion and provide resistance to organic fouling. Yacht coatingsThe most advanced coatings systems to protect and beautify leisure craft, from the smallest dinghy to the largest and most luxurious super yacht. Coil and extrusion coatingsCoil coatings are applied to coiled steel for heating, ventilation, air conditioning and appliances, and in commercial and residential construction to protect metal roofs and building components. Extrusion coatings give aluminum lasting beauty when used on metal building fascias and window frames and provide protection from the elements. Packaging coatingsCoatings for packaging which are applied to internal and external surfaces for food and drink cans, caps and closures and cardboard and plastic packaging. CustomersWe serve a large range of customers including shipyards and yacht builders, architects, consumer electronics and appliance companies, can makers, steel manufacturers, the construction industry, furniture makers, aircraft, bus and truck producers and bodyshops. Global market drivers
High growth marketsProjected industry growth is strong, particularly in Asia Pacific. More than 45 percent of our Performance Coatings revenue is in high growth markets. Innovations
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“Conditions were difficult, but our results were very close to the previous year” OverviewIt was a year of mixed performance, dominated by the economic climate and unprecedented raw material price rises. Some of our key market sectors experienced very difficult business conditions, which put pressure on volume and margins. But we worked hard to tackle the financial headwinds and achieved a 2011 result very close to the previous year. AnalysisOur three main businesses had contrasting fortunes. It was an excellent year for Protective Coatings, with strong growth being achieved – notably in the oil and gas sector – while a number of high profile contracts were also secured. In Yacht, a strong performer over many years, the economic downturn had a negative impact, but the business put in a very good bottom line performance, even though there was a clear fall off in orders for new boats. Our Marine activities endured the most testing conditions, confirming the downward cycle in the industry. Over-capacity, combined with a drop in newbuilds, had a major impact, although the increased size of the fleet meant there were opportunities in maintenance and repair, an area we will continue to concentrate on. From a regional perspective, we performed very well in the US and benefited from a renewed focus on Latin America, while the dominance of the marine industry in Asia meant the business climate in that part of the world was difficult. HighlightsIn June we opened a new testing laboratory for fire protection products at our Felling site in the UK. It’s part of a major investment by our business in research, development and innovation at the location which has turned Felling into AkzoNobel’s biggest research center in the world. We also started supplying protective coatings for both the $40 billion Gorgon gas project off the north west coast of Australia, and the London Array in the UK, a 1,000-megawatt wind farm in the Thames Estuary which is expected to become the world’s largest offshore wind facility when it is completed in 2012. Another highlight was a partnership we formed with ship monitoring firm BMT ARGOSS which could play a major role in improving the operational efficiency of the global shipping fleet. It involves using advanced measuring systems to monitor the performance of vessels using our fouling control coatings. The data obtained will provide complete transparency and evidence to owners and operators of the performance improvements our advanced hull coatings technology can deliver. In addition, we completed the supply of coatings to four of the stadia that will be used for the UEFA Euro 2012 soccer championship in Poland and Ukraine. DevelopmentsWe achieved the 12,000th application of our Intershield 300 anti-corrosion coating, which was joined in our market-leading portfolio by Interline 9001, a new bimodal epoxy for chemical tankers which simplifies the carriage of a wide range of liquid cargoes, optimizing vessel earning potential and bringing significant financial benefits to owners. Our Korean business celebrated coating its 2,000th newbuild vessel, and we also played a role in India’s first Formula 1™ Grand Prix race in October, having supplied protective coatings for the grandstand at the Buddh International Circuit. Another important contract secured during 2011 involved supplying high performance protective coatings for the Chenab Bridge – the world’s highest arch bridge – which will be part of a new railway line linking the Kashmir region with the rest of India. |
 Rob Molenaar Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“We remain well positioned to further invest in building our business” OverviewOur strong growth across all regions and business segments continued during the first half of 2011, but we caught some headwind as the year progressed, mainly due to raw material price impact and macro economic issues. While this slowed our momentum, we were still able to improve on our 2010 revenue and remained well positioned to focus on our customers and further invest in building our business. AnalysisWe achieved good growth in the high growth markets, especially China, India and Latin America, where volume improvements ranged from mid-single digits to low teens. Volumes in Europe and North America were basically flat, however, largely due to a significant decline in miles driven, which dramatically impacts collision rates and subsequently our end vehicle refinish markets. Our Automotive Plastic Coatings business had a very good year, with much of the growth coming from Asia – particularly China – while our Commercial Vehicle activities also performed well, notably in North America and Europe. Aerospace, meanwhile, had a record year. The aircraft manufacturers were busy and their order books were extended more than they have been in recent times. As market leader, we benefited from this, with most of the growth being realized in the commercial aviation sector, driven mainly by the megatrends in the world. Market forces meant that there was some need to manage our pricing, but in general the strength of our product portfolio and strong customer focus ensured that we continued to grow. HighlightsIn October we announced an investment of around €60 million to increase production capacity in China. This will involve constructing a new production facility in Changzhou, as well as related warehousing, quality control laboratories, support facilities and offices. The new facility will build on last year’s acquisition of Changzhou Prime Automotive Paint Co. Ltd and will strengthen our leadership position in the country’s automotive refinishes market. We owe it to our customers to be able to produce locally and supply them locally, so this will give us an important base of operations. Another notable transaction was the divestment of our company-owned distribution outlets in the US to LKQ Corporation. We decided that this would be in the best interests of our customers and it will help us to improve the capability of our distribution footprint in the region. We also bought out the minority interest in the vehicle refinish segment of our joint venture partner, Comex, in Mexico to boost our growth strategy. It means we now have full responsibility there for the marketing and distribution of our Sikkens, Lesonal, U-Tech and Wanda brands. DevelopmentsLast year’s rollout of our Wanda waterborne basecoat into the trade segment in North America really took off in 2011. The product has been a great success and we are gradually launching it across the globe, most recently in Indonesia and Australia. As a result of the strength of our Process Centered Environment solution, we won approval to supply Toyota Motors Europe, while our Aerospace business clinched an important contract with Air France and launched a new interior cabin coating. We continued to learn from our exciting partnership with Vodafone McLaren Mercedes and invested further in our commitment to getting color right first time for our customers by upgrading our vehicle refinish paint systems and introducing advanced color tools. |
 Jim Rees Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“It was a year of record earnings, achieved through a combination of strong revenue growth, acquisitions and margin management” OverviewIt was a year of record earnings, achieved through a combination of strong revenue growth, acquisitions and margin management, which continued the momentum we picked up in the latter part of 2009. Both Coil and Packaging Coatings grew revenue at double digit levels and reached all-time sales records in all key regions. Unexpectedly steep raw material price increases posed a significant challenge towards the middle of 2011, but we successfully compensated for these through margin management and higher sales. AnalysisWe continued to recover well in Western Europe and North America and put in a strong performance in several high growth regions, particularly China. Most of the growth came through our Packaging and Coil Coatings businesses. Packaging in particular achieved solid results and gained market share in the beer and beverage segment, while Coil benefited from construction activity in Asia, Russia and Turkey and pockets of investment in North America. This highlighted the underlying strength of our core markets in metal packaging and steel coil coating. Specialty Plastics was essentially flat, due mainly to the impact of changes in end product mix in the wireless and IT segments, although the business had a good year in the automotive sector. We were able to pass on the bulk of the raw material price rises and we also offset their impact through higher revenue. HighlightsOur acquisitions of Schramm Holding AG and the coatings activities operated by Schramm’s largest shareholder, Korean company SSCP, were important deals. They not only gave us a global market leadership position in specialty plastic coatings, but also added key technologies, an excellent customer mix and brought recognized talent into our business, particularly in Asia. We now have a direct position in the Korean supply chain for plastics for consumer electronics and automotive components, and have reinforced our position in the automotive interior sector in Germany and China. The Korean mobile phone market is particularly exciting and we now have excellent capabilities to supply what is a dynamic, high profile industry. During 2011, we also completed the integration of the Lindgens Metal Decorating Coatings and Inks business acquired in 2010. Safety remained a priority and more than half our factories had an injury-free year, but we remain fully committed to achieving zero injuries. DevelopmentsWe are already a leading supplier of soft-feel liquid coating technology to the automotive and consumer electronics markets, but during 2011 we launched a solvent-free, soft-touch paint film for the consumer electronics sector. Good progress was also made on the use of our EvCote technology – based on R-PET and introduced into the paper packaging market in 2010 – where the prospects in quick serve restaurant packaging are encouraging. In a joint partnership with DSM, we are developing coatings using resins with significantly improved carbon footprint. Elsewhere, we inaugurated our new production facility in Bangalore, India, for coil coatings and specialty plastics, while in Russia we further invested in our Lipetsk plant to support our continued growth in the country’s coil coatings markets. We also expanded our Songjiang R&D campus in China to include development of coatings for the unique requirements posed by the local mid-tier coil and extrusion segments. In Damman, Saudi Arabia, we invested in local manufacturing for packaging coatings to support markets in the Middle East. |
 Conrad Keijzer Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“Our performance in Western Europe was excellent, Asia grew steadily and we had a strong year in North America” OverviewThe major focus was on integrating the Rohm & Haas powder coatings activities we acquired in 2010. The first full reporting year of the combined business demonstrated record performance in both sales and EBITDA, while the projected synergies were also fully realized. The performance exceeded forecasts made at the time of the acquisition, and although changing trends in the global economy meant that 2011 was a year of two halves, we were still able to grow the overall business. AnalysisWe had a good first six months, driven by a rebound in Western Europe and increased sales in high growth markets. The second half of 2011 told a different story. The worsening eurozone crisis sparked a slowdown and we experienced a drop in demand, particularly in Southern Europe. Rocketing raw material prices – notably for titanium dioxide and polyester resin – created severe pressure on margins. Despite these challenges, we were still able to make good progress. Our performance in Western Europe was excellent, Asia grew steadily and we had a strong year in North America. Much of this success was down to the additional market strength we derived from the Rohm & Haas deal, coupled with careful margin management. HighlightsIn April, we opened a state-of-the-art powder resin polymer lab at our Felling site in the UK. We are carrying out innovative work there to develop differentiated resins, with a special focus on resins for low temperature cure. The lab will feed our network of powder technology centers, which include facilities in China and the US, with another planned in Europe. This strategic investment in innovative research is designed to expand our market space and develop new platforms for future growth. We also opened a new factory in Monterrey, Mexico, and expanded our plant in Izmir, Turkey, where we are concentrating our expertise in special effects products. Towards the end of the year, AkzoNobel Powder Coatings became the first coatings manufacturer in the world to receive global SMaRT© (Sustainable Materials and Rating Technology) certification. This is a world-leading, third party, independent certification which verifies that our whole process is sustainable. We achieved a platinum rating, which is the highest possible. In addition, we became a preferred global supplier to agricultural machinery manufacturers John Deere. DevelopmentsOur Functional Powders business launched a new low temperature cure, single layer, pipeline product called Resicoat R-726LAT which can be used to coat joints in the field. It offers the same finish and performance as traditional three-layer systems, only it saves customers energy costs, as well as time and resources. We also introduced Interpon AM, which has been specifically designed for hygiene sensitive environments. It was developed in partnership with BioCote, a leading antimicrobial specialist, and is being used in facilities such as labs and hospitals. Another notable launch was our new low temperature cure primer for automotive wheels – Interpon A4700 – which enables customers to make energy savings, as well as offering line speed efficiencies. In India, we achieved a major breakthrough in automotive coatings with the use of an Interpon single layer powder topcoat on the Tata Iris mini-passenger vehicle (see case study In the driving seat). It was the first mainstream passenger vehicle production line in the world to use a powder monocoat. The Tata Iris is now in production and sales of powder coated vehicles are expected to rise to 50,000 per annum. |
 AB Ghosh Revenue in € millions  Geo-mix revenue by destination in %  Main products
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“Despite unfavorable market conditions, we continue to align ourselves for growth” OverviewIt was a challenging year of stark contrasts. On the one hand we identified new opportunities in the world’s high growth regions, while on the other we faced uncertainly stemming from the ongoing economic decline in the more mature markets. Lack of consumer confidence and weak housing markets adversely affected our business and rapidly increasing raw material prices caused an additional strain. Through a combination of stringent price increases and cost control methodologies, we were able to optimize revenue and profit outcomes for the year. AnalysisOur activities are closely linked to the world’s housing markets and historically a significant segment of our business has been dependent upon the mature, developed parts of the world, such as Western Europe and North America. Those economies were essentially flat during 2011, and with raw material prices increasing dramatically, we faced extremely challenging business conditions. This situation prompted decisive action to cut costs through headcount reduction and rationalization projects. Margin management was attained through price increases in a very difficult commercial environment on a global basis. However, we did achieve growth in the high growth regions of Eastern Europe, Latin America and parts of Asia in both our Finishes and Adhesives businesses. HighlightsDespite unfavorable market conditions, we continue to align ourselves for accelerated growth. In Asia, for example, we are investing in strengthening and expanding our local teams focused on driving growth in the domestic industrial wood segments. They have made rapid progress in launching into new domestic markets in Asia and are starting to supply a core range of products. We also teamed up with our Decorative Paints business in India to take advantage of their extensive distribution network to break into the country’s industrial wood market. Another significant development was the start-up of our new plant in Vietnam, which supports our growth strategy in the Asian export and domestic markets. We’ve identified a number of new business opportunities and have already developed a new range of products for this region. In Eastern Europe, we continue to expand our business with large OEM customers while increasing our distribution channels for the custom workshop sector. Despite the difficult economic environment, we’re very confident that these additional activities will provide us with a platform for accelerated growth moving forward. DevelopmentsThe key focus of our business is to successfully grow with large OEM customer groups and drive further market penetration into the custom workshop market by providing value-added products, services and solutions delivered locally to our chosen customer base. This focused approach led to a number of exciting developments during 2011, including new sustainable waterborne and UV cure products. Among a series of product launches, we introduced VOC compliant coatings into our European and North American distribution lines, while our Adhesives business launched several new product ranges, including the GripLine system for wood construction and the LignuLine system for interior components. These developments are focused on improving and enhancing the sustainability and competitiveness of our customers, which in turn will contribute to a more sustainable AkzoNobel. |
 John Wolff Revenue in € millions  Geo-mix revenue by destination in %  Main products
Key markets
Key brands |
 absent: Jaap Kuipers It has been a challenging year for our global Decorative Paints business. The worldwide financial crisis significantly impacted housing and construction markets, with newbuilds and sales of existing houses continuing to decline, particularly in Europe and North America. Market conditions were made even more severe in 2011 by a 100 percent increase in the cost of titanium dioxide, an essential ingredient in our high quality products. Since our contractors around the world are competing for share in a stagnant or declining market, we also experienced down trading to cheaper products. We were unable to pass on all raw material cost increases during the year. Despite these challenges, we continue to be optimistic about our industry and our ability to compete and grow our business. The successfully completed merger with ICI has created a global Decorative Paints business with a clear vision, strategy and an effective organizational model which allows scale and scope advantages where it matters, while creating powerful local profit and loss responsibilities. In both Europe and North America, we have established integrated businesses with the main purpose of improving productivity and margins, while also focusing on building our brands and penetration. The financial crisis had a significant adverse effect on our southern European businesses and resulted in minor growth in our north European countries. Our flagship businesses in the UK and Belgium weathered the storm well and we expect that this will be sustainable. In the US, we successfully completed the introduction of our products into Walmart, although revenue for the year was below expectations. Our business with The Home Depot continues to strengthen after the successful relaunch of Glidden and a strongly improved cooperation. In Canada, our activities suffered from a sluggish market, but we were able to consolidate our long-standing relationship with major retailer RONA. Overall, however, our North American trading result was significantly impacted by raw material cost increases and write-offs of slow moving stocks. Looking at the high growth markets of Asia, Latin America, Turkey and Eastern Europe, we continue to outpace our competitors and are strengthening our relative market share positions. Our strategy in China to extend penetration in the mass market and the western Tier 2 and Tier 3 cities is paying dividends, while our business in India started to gain momentum following investment in our flagship Dulux brand, as well as increased penetration into the mass markets and rural cities. This follows similar investments in markets such as Indonesia, which continues to outgrow competitors. In Turkey, Brazil and Argentina, we gained market share through great customer programs and the successful Let’s Colour brand activities. During 2011, we continued to invest in our people, brands and capabilities. Our Ignite the Spirit program has been attended by more than 15,000 employees, creating a global community which is fully aligned to achieve our ambition of adding color to people’s lives. We strengthened our top teams in Europe and the US and created a global brand identity which is currently being successfully rolled out, along with a brand campaign, under the Let’s Colour invitation. In addition, the introduction of a dedicated Innovation Director alongside our R&D teams has enabled us to benefit from the heightened focus and we now have a healthy pipeline of new propositions that are globally aligned, in particular in the ever more important area of sustainability. |
“We are firmly convinced of our ability to compete and grow our business” Tex Gunning |
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Revenue breakdown by business unit in %  Eco-premium solutions  Key value chains with carbon footprint assessment  Total reportable rate of injuries per million hours  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Geo-mix revenue by destination
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Our Decorative Paints business supplies a full range of interior and exterior decoration and protection products for both the professional and do-it-yourself (DIY) markets, including paints, lacquers and varnishes, as well as products for surface preparation (pre-deco products). Market and business characteristicsThe size of the global market for decorative paints is around €30 billion. Architectural coatingsInterior and exterior wall paints and trim paints (lacquers) for consumers and professionals. Woodcare and specialty products
Pre-deco productsFillers, wall treatments, sealants and putties for consumers and professionals Building adhesives
CustomersOur end-users can broadly be segmented into homeowners (either DIY or BIY – buy it yourself), professional painters serving homeowners and commercial contractors. They are served through a variety of outlets ranging from big box chains such as The Home Depot, Walmart, B&Q and Leroy Merlin (serving mainly homeowners) to independent dealers (serving both homeowners and professionals) and company-owned stores focused on serving professionals. Global market drivers and developments
Drivers for buying decisionRetailers
Trade customers
InnovationsConsumer market
Support professional painters with tailor-made products and services
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“In a difficult market environment, the business overall performed well” OverviewIt was a challenging year, particularly during the second half, when the economic environment was heavily impacted by the uncertainty around the euro, government austerity measures and associated weakening in consumer confidence around Europe, in particular in the south European countries. Despite this, overall revenue and volume were still up, but with a slowdown in momentum in the fourth quarter. In addition, margins were impacted by significant variable cost inflation with a lag in terms of the impact of implemented price increases. AnalysisIn a difficult market environment, the business overall performed well, with share gains in particular coming in key markets including Turkey, Russia and the Benelux. Gains were even achieved in areas impacted by the economic crisis, such as Greece. However, some parts of the business were impacted by weaker exterior paint sales due to weather conditions. We also saw adverse product and channel mix due to the weak economy in the more mature markets. Combined with higher variable cost inflation – in particular on the back of TiO2 – the business experienced pressure on contribution margins. In markets outside the eurozone, we experienced additional cost pressures due to weakening local currencies. As a result, despite continued restructuring benefits, profits for the year were down. HighlightsAt the end of 2010 we announced the merger of three Decorative Paints businesses in Europe into one Decorative Paints EMEA business and we made good progress during the year in creating strategic clarity and establishing the new organization. It was a busy year in terms of securing and implementing contracts. For example, we announced that Dulux paint is being used to help transform the Russian headquarters of the World Wildlife Fund, which will be a showcase for green construction. Our own sustainability efforts included an important breakthrough at our Prudhoe plant in the UK. An eco-efficient way of making paint – based on harvesting rain water – has been developed which could slash the site’s use of industrial water by 50 percent. Meanwhile, our Nordsjö and Sadolin brands became the first in the Nordic region to offer a filler accredited with the coveted Nordic Ecolabel. There were also positive improvements in safety performance and operational eco-efficiency metrics. DevelopmentsThere was a lot of brand activity throughout the region, including the rollout of the Herbol brand in Italy and the Vivechrom Express one coat concept in Greece, while Savdel Blue and Flasch were introduced in Morocco and Tunisia and the Dulux Let’s Colour campaign was launched in South Africa. Another important development was the launch of the Sikkens EcoSure range of interior and exterior wall paints, which offers the optimal balance between quality, low environmental impact and total lifecycle footprint. In addition, we relaunched our woodcare ranges in Poland (Sadolin) and Belgium (Xyladecor) with new livery, and in Germany we introduced Einflach Glatt, a ready mix filler with two unique tools to smooth walls quickly and easily. During 2011 we also sponsored the inaugural European Painting Skills Legacy workshop, in association with UNIEP. The prestigious event brought together experienced professionals with trainees from across the continent and was designed to allow trainee painting contractors to experience and learn from the latest developments in painting. |
 Richard Stuckes Revenue in € millions  Key brands |
OverviewWhile adverse economic conditions and raw material price rises negatively impacted the performance in North America, there was more resistance to the slowdown in Latin America, notably in Brazil, where sales, profit and market share all increased. AnalysisVolume and revenue gains were realized in the US – primarily due to the new incremental Walmart business – but profitability was affected, despite multiple pricing actions, aggressive margin and cost management and continuous improvement initiatives during the year. Even with these challenging trading conditions, investment in the US paint business continued to yield positive results in terms of market share, quality and product innovation. In Canada, the do-it-yourself segment was much weaker than in 2010, but the professional sector held up reasonably well thanks to a mild recovery in work on large construction and renovation projects. Our Latin American business combated the tough economic climate by reinforcing brands, focusing on customer intimacy and launching unique marketing campaigns. This proved to be particularly successful in Brazil, where sales grew 15 percent and profit leapt 25 percent. Significantly, more than 30 percent of the volume in Brazil came from eco-premium products. HighlightsThe launch of a comprehensive Walmart paint program was completed in the US, which means that all 3,500 stores have now been reset with the full range of AkzoNobel products. This is in addition to the 325 stores we already serve in Canada. Our sustained investment in the flagship US Glidden brand yielded a two-point year-on-year market share increase and it has now become the most widely available paint brand in the country. Meanwhile, our new Glidden Trim & Door product was launched within The Home Depot nationwide. It features innovative Gel-Flow technology which allows it to fill and cover wood grain and minor surface imperfections to provide an exceptional high gloss, no brush mark finish. As part of our global Decorative Paints marketing strategy, all 235 company-owned and franchise stores in Canada were rebranded with the Dulux identity. This included 17 new stores opened in 2011 to expand the business’ coverage for the professional market. In Brazil, Coral not only became the country’s leading paint brand, but was also named brand of the year by customers. Other accolades included recognition as Brazil’s green company of the year. DevelopmentsOur efforts to promote the proper disposal of paint intensified in Canada, where we further expanded our industry-leading recycling program to 21 collection points in Quebec and Ontario. The initiative is designed to encourage professional paint contractors to recycle their leftover products in a safe and environmentally responsible way. Also in Canada, we introduced a new line of low VOC paint using alkyd-in-water technology under the Sico brand, which was subsequently expanded to our Dulux and CIL brands. Another notable development occurred in the US, where Glidden earned several important “best buy” designations, while our Sikkens wood care brand was also ranked number one. In Latin America, the Tudo de Cor Para Você program (All the Colors For You - part of the Let’s Colour campaign) continued to be a huge success. The initiative – which involves painting deprived neighborhoods in order to add color to people’s lives – received a further boost during 2011 when former tennis star Gustavo Kuerten became an ambassador for a major event staged in Florianópolis. |
 Bob Taylor  Jaap Kuiper Revenue in € millions  Key brands |
OverviewOur Asian activities performed well during 2011 as the Decorative Paints business continued along its profitable growth path. Double digit revenue growth was achieved in South East Asia & Pacific – led by the Dulux brand – which further strengthened our leadership position in the region. India and South Asia grew by more than 20 percent to become the fastest-growing region globally. We grew ahead of the competition in Sri Lanka and gained two percentage points in market share, thus consolidating our strong leadership position. In China, we significantly outpaced a decelerating market, which was impacted by government measures to curb rising property prices. AnalysisContinued investment in our brands, such as the rollout of the new Dulux brand identity, was a key factor in helping to boost performance, in particular our mass market penetration. This resulted in underlying volume growth and market share increases. The major floods in Thailand and the slowdown in the Vietnam economy halted the momentum somewhat in South East Asia & Pacific towards the end of the year. Increasing raw material costs put a strain on margins at all businesses, but these were partly offset by pricing actions and, in some cases, long-term sourcing strategies with select vendors. HighlightsThe rollout of the new Dulux brand identity was a major highlight which will help to further extend our color leadership and boost awareness for our products. Our continued strategic investment in brand building also included opening and upgrading more than 720 stores in China to accelerate the expansion of our controlled distribution footprint. In India, signage was changed to the newly launched brand identity in more than 2,000 outlets. This coincided with the launch of the new Dulux campaign in India and the expanded availability of our product range, which involved entering over 200 new towns via a new distribution model. We also commissioned a state-of-the-art manufacturing facility at our Hyderabad site, which has enhanced capacity by nearly 30 percent. Meanwhile, in South East Asia and Pacific, we implemented our first production facility designed to produce zero waste to set a new standard for sustainable manufacturing. DevelopmentsSeveral new products were launched throughout Asia, including mass market offering Dulux Promise, an exterior emulsion paint, and ICI Magik – an economy paint for interiors – which is available across all geographies in India. Dulux Promise is growing twice as fast as its category and ICI Magik, priced at the equivalent of €1, is growing four times as fast as the economy interior paint sector. In China, the launches of Dulux Forest Breath and a range of zero-VOC products highlighted our strong commitment to introducing both innovative and sustainable products to Chinese consumers. Also significant in China was the fact that our mass market range enjoyed the highest growth among all product segments. The emphasis on offering innovative new products continued in South East Asia & Pacific, where we introduced the next generation Weathershield range for exteriors, along with interior air-cleansing paint Dulux Pure. Our focus on sustainability was further underlined by the Thane site in India achieving an overall reduction in specific power use of 15 percent. |
 Jeremy Rowe  Amit Jain  Lin Liangqi Revenue in € millions  Key brand |
In this section we introduce our Supervisory Board and present their Report for 2011, which provides a detailed overview of their activities during the year. Our corporate governance structure is also described, as well as our remuneration and risk management policies, along with information about compliance and integrity management and AkzoNobel in the capital market.
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2011 was the year in which the Supervisory Board found a successor to Hans Wijers. It was also the year we launched our groundbreaking performance improvement program. Identifying Hans’ successor was challenging, given his significant contribution to transforming AkzoNobel into the largest coatings and specialty chemicals company. The Supervisory Board is, however, pleased to have identified Ton Büchner as his successor and is fully expecting his formal appointment as CEO to take place at the Annual General Meeting of shareholders in 2012. In common with every year, the Supervisory Board held a full day strategy review. This followed on from the more detailed and operational three-day Executive Committee strategy review to guide the overall strategy development of the company, consistent with the medium-term ambitions announced in September 2010. To deliver on the promise created by the appointment of the Executive Committee and its introduction in January 2011, AkzoNobel announced a major performance improvement program designed to improve efficiency (with targeted improvements of €500 million by 2014) and effectiveness. Given the expected change in CEO leadership in 2012, the Supervisory Board took a more active role in the development and implementation of this program to ensure continuity during the leadership change.  Karel Vuursteen Chairman of the Supervisory Board |
 Karel Vuursteen |
Karel Vuursteen
(1941, Dutch) Chairman
Initial appointment 2002
Current term of office 2010–2014
Former CEO of Heineken; Deputy Chairman and member of the Board of Directors of Heineken Holding N.V.; Chairman of the Supervisory Board of TOMTOM N.V.; member of the Supervisory Board of Henkel AG.
Virginia Bottomley
(1948, British)
Initial appointment 2000
Current term of office 2008–2012
Former Secretary of State for Health and member of the British Cabinet; former Secretary of State for National Heritage; non-executive director of BUPA; executive director of Odgers Berndtson.
Dolf van den Brink
(1948, Dutch)
Initial appointment 2004
Current term of office 2008–2012
Former member of the Managing Board of ABN AMRO Bank; Supervisory Director De Heus Nederland B.V.; Chairman of the Supervisory Boards of Arbo Unie B.V. and Nederlandse Waterschapsbank N.V.; Supervisory Director of Center Parcs Europe N.V. and Legal & General Nederland N.V.
Peggy Bruzelius
(1949, Swedish)
Initial appointment 2007
Current term of office 2011–2015
Former CEO ABB Financial Services; former Executive Vice-President SEB; Vice-Chairman AB Electrolux; non-executive director of Axfood AB, Husqvarna AB, Syngenta AG and Diageo plc; Chairman of Lancelot Holding AB.
Antony Burgmans
(1947, Dutch)
Initial appointment 2006
Current term of office 2010–2014
Former Chairman and CEO of Unilever N.V. and plc.; non-executive director of BP plc.; member of the Supervisory Boards of SHV Holdings N.V. and AEGON N.V.; Chairman of the Supervisory Board of TNT Express.
Louis Hughes
(1949, American)
Initial appointment 2006
Current term of office 2010–2014
Former President and COO of Lockheed Martin; Former Executive Vice-President of General Motors; Chairman and CEO of In ZeroSystems LLC; member of the Boards of Directors of ABB Group and Alcatel-Lucent SA; executive advisor of Wind Point Partners.
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Consistent with the two-tier Board structure of the company, the Supervisory Board’s role is differentiated from the role of the Board of Management. The Supervisory Board’s main responsibility is to supervise the general conduct of the business of the company and to provide advice to the Board of Management. In 2011, the oversight role of the Supervisory Board was equally applied to the policies and conduct of the Executive Committee, which was established in 2011. The Supervisory Board is also responsible for overseeing the strategic development of the company and ensuring high caliber succession to the Board of Management positions. Financial statements and profit allocationThe Board of Management has submitted the financial statements of Akzo Nobel N.V. for the financial year 2011, together with the report of the Board of Management and the report of the external auditor of Akzo Nobel N.V. to the Supervisory Board. The 2011 financial statements were audited by KPMG Accountants N.V. and the Auditor’s report appears in Other Information. The financial statements were discussed extensively with the auditors by the Audit Committee, and in the presence of the Chairman of the Board of Management (CEO) and the Chief Financial Officer (CFO). In addition, the 2011 financial statements were discussed by the full Supervisory Board with the full Board of Management, in the presence of the auditors. Based on these discussions, the Supervisory Board is of the opinion that the 2011 financial statements of Akzo Nobel N.V. meet all requirements for correctness and transparency, and that they form a good basis to account for the supervision provided. The Supervisory Board recommends that the Annual General Meeting of shareholders adopts the 2011 financial statements as presented in this 2011 Report, and, as proposed by the Board of Management, allocates €340 million for the payment of dividend. This is consistent with our aim to provide a stable to rising dividend that is in line with sustainable earnings. The proposed total dividend for 2011 on each of the common shares outstanding is €1.45, and this amount, less the interim dividend of €0.33 – which was paid in November 2011 – is proposed to be made payable on May 24, 2012. The dividend will, at the shareholder’s discretion, be paid either in cash or in shares. In addition, we request that the Annual General Meeting of shareholders discharges the members of the Board of Management of their responsibility for the conduct of business in 2011 and the members of the Supervisory Board for their supervision in 2011. Supervisory Board activitiesThe Supervisory Board held eight meetings during 2011, including a one-day meeting in June 2011 fully dedicated to the company’s strategy. Seven meetings were plenary sessions with the full Board of Management present and one meeting was held via a conference call. Supervisory Board attendance percentage in 2011 was on average 87.5 percent. The Chairman of the Supervisory Board prepared the meetings with the Secretary and discussed matters, such as the agendas, with the CEO. Regular agenda items included financial and operational performance, share price development, operational planning (budget) and the annual financing and investment plan. Business unit Managing Directors and Corporate Functional Directors were regularly invited to give presentations to the Supervisory Board. The Board of Management has kept the Supervisory Board regularly informed of intended organizational changes, appointments of senior managers and major contracts. One of the main activities of the Supervisory Board in 2011 was the CEO succession. The Supervisory Board is pleased to have identified Ton Büchner as successor to Mr. Wijers and is fully intending to formally appoint Mr. Büchner as CEO following his appointment to the Board of Management by the Annual General Meeting of shareholders on April 23, 2012. The Supervisory Board believes that Mr. Büchner’s international and operational experience will be a great asset to lead the company through the current volatile market conditions. For more details, see the Nomination Committee section in this report. Progress was also made in finding new candidates for appointment to the Supervisory Board and an announcement regarding two candidates is expected to be made when the agenda of the 2012 AGM is published on March 12. The Supervisory Board devoted considerable time to discussing the company’s strategy and reviewing strategic options with the Board of Management. In addition to the full day strategy review meeting held in June 2011, business unit and regional strategies were presented to the Supervisory Board following the strategic review sessions at company level with the Executive Committee. In September 2011, the full Supervisory Board and Board of Management visited some of the company’s businesses in the US. This included meetings with local management, customers and other stakeholders, as well as a visit to AkzoNobel’s Surface Chemistry site in Houston. The trip provided an excellent opportunity for the Supervisory Board to liaise and engage with local management and for a comprehensive review of the businesses in the US. The performance improvement program was discussed with the full Supervisory Board in three meetings. Three Supervisory Board members also held additional meetings with the CEO and program director. In these additional meetings, the program design, process and progress was reviewed and discussed in detail. The results of these meetings were reported back to the full Supervisory Board. The performance improvement program presents a next step in the evolution of our company. By leveraging our scale via operational and functional excellence at lower costs, we will ensure delivery of medium-term profitability ambitions in a challenging market environment. The activities related to the program included detailed discussions on functional and Business Area plans with objectives, associated risks and the mechanisms for controlling those (financial) risks. Furthermore, the Supervisory Board discussed sustainability on a number of occasions, in the broader sense, but also specifically in relation to the Values of the company’s medium-term strategy (for example process and people safety) and the significant effort being put into people and talent development. Other topics discussed and reviewed by the Supervisory Board included:
Independence of the Supervisory BoardEach member of the Supervisory Board meets the independence requirements as stated in Dutch Corporate Governance Code provisions III.2.1 and III.2.2 and has completed an annual independence questionnaire addressing the relevant requirements for independence. Audit CommitteeThe Audit Committee held six meetings during 2011. Discussions regularly focused on financial statements, internal control procedures, risk management, internal audit reports and planning, tax, pensions and the external auditor’s performance and independence. Before each announcement of the company’s quarterly results, the Audit Committee was informed of the figures and consulted on the reports and press releases to be published. The Audit Committee also discussed topics including:
Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings of this Board. The Audit Committee has performed the annual review of the adequacy of the Audit Committee charter. The Audit Committee also evaluated the services of the external auditor and an external fee benchmark has been performed. Both processes have been concluded and the Audit Committee has recommended to the Supervisory Board not to propose a change in the external auditor’s appointment. The Audit Committee has decided to reconsider undertaking an external auditor selection process (full tender) towards the end of 2013, for submission and decision at the Annual General Meeting of shareholders in 2014. Remuneration CommitteeThe Remuneration Committee held three meetings in 2011. Recommendations were made on the remuneration for members of the Board of Management and the other members of the Executive Committee, including personal targets. The remuneration of Mr. Büchner was also discussed. For a report of the committee work carried out in 2011, reference is made to the Remuneration report and Note 23 of the Financial statements, where information on the remuneration of the Board of Management and the Supervisory Board can also be found. Nomination CommitteeThe Nomination Committee held five meetings in 2011. After a thorough and confidential selection process – which included the help of an executive search firm to facilitate the process – a proposal was made for the succession of Mr. Wijers. Interviews and introduction meetings were held with the members of the Nomination Committee and the Supervisory Board. In addition, the Nomination Committee successfully identified a candidate to succeed Baroness Bottomley as a member of the Supervisory Board and made a proposal to expand the Supervisory Board to nine members instead of eight. An announcement regarding these two new appointments is expected to be made when the agenda of the 2012 Annual General Meeting of shareholders is published on March 12. Based on the advice of the Nomination Committee, the Supervisory Board recommends the reappointment of all members of the Supervisory Board and the Board of Management who are up for reappointment at the Annual General Meeting of shareholders in 2012. Board evaluationThe Supervisory Board carried out a performance evaluation of itself, its committees, the Chairman and the chairmen of the committees. The process consisted of Supervisory Board members and other participants of the meetings completing questionnaires designed by an external facilitator in conjunction with the Chairman and chairmen of the committees. The completed questionnaires were available to the facilitator only, who consequently prepared written reports for the Chairman, the Deputy Chairman and the chairmen of the Supervisory Board committees. In separate meetings without the Board of Management, the full Supervisory Board and the Audit Committee discuss the results of the evaluation of the Supervisory Board and its committees. These discussions are minuted and the conclusions and actions are discussed and confirmed at the next meeting of the Supervisory Board and the Audit Committee. The evaluation of the Chairman is discussed by the full Supervisory Board in the Chairman’s absence. It is the Supervisory Board’s intention to use an external facilitator in the evaluation process every third year. The Supervisory Board wishes to thank both Mr. Wijers and Baroness Bottomley in particular for their contributions to AkzoNobel during their time with the company. All members of the Supervisory Board also extend their gratitude to the Board of Management and the other members of the Executive Committee, as well as all employees around the world, for their dedication and hard work for the company in 2011. Amsterdam, February 15, 2012 |
Main 2011 activities
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Akzo Nobel N.V. is a public limited liability company (“Naamloze Vennootschap”) established under the laws of the Netherlands. Its common shares are listed on NYSE Euronext Amsterdam. The company’s management and supervision structure is organized 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 two Boards are independent of each other and are accountable to the Annual General Meeting of shareholders for the performance of their functions. Our corporate governance structure is based on the requirements of the Dutch Civil Code, the company’s Articles of Association and the rules and regulations applicable to companies listed on the NYSE Euronext Amsterdam stock exchange, complemented by several internal procedures. These procedures include a risk management and control system, as well as a system of assurance of compliance with laws and regulations. This chapter describes AkzoNobel’s corporate governance. Over the last decade, we have been consistently enhancing and improving our corporate governance standards in accordance with applicable laws and regulations. Most notable were the Dutch Corporate Governance Code adopted in 2003 and amended in 2008 (the “Code”) and the US Sarbanes-Oxley Act of 2002 and its implementation rules. Although we have delisted from NASDAQ and deregistered from the SEC in 2007, we continue to build on the improvements we have been making to our corporate governance. The Code contains principles and best practices for Dutch companies with listed shares. We agree with both the general approach and the vast majority of its principles and best practice provisions. Any deviations from the Code are explained, in accordance with the Code’s “apply or explain” principle. The Board of Management and the Supervisory Board are of the opinion that the company’s corporate governance structure, as described in this chapter and which includes the introduction of an Executive Committee as per January 1, 2011, is the most appropriate for AkzoNobel at this point in time. With the exception of those aspects of our governance structure which can only be amended with the approval of the Annual General Meeting of shareholders, the Board of Management and the Supervisory Board may make adjustments to the way the Code is applied as described below, if this is considered to be in the interest of the company. If adjustments are made, they will be published and reported in the annual report for the relevant year. |
Major external regulations
Major internal regulations
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The Board of Management is entrusted with the management of the company. As of January 1, 2011, the Board of Management has operated in the context of an Executive Committee. The company has broadened its leadership team in order to accelerate sustainable growth. An Executive Committee has been established, which comprises the members of the Board of Management and leaders with functional expertise, allowing both the functions and the Business Areas to be represented at the highest levels in the company. The functions currently represented in the Executive Committee are HR & Organizational Development, Research, Development & Innovation, Legal and Supply Chain/Sourcing (including Health, Safety and Environment).
In performing its duties, the Executive Committee is guided by the interests of the company and its affiliated enterprise, taking into consideration the relevant interests of the company’s stakeholders. Among other responsibilities, the members of the Executive Committee define the strategic direction, establish the policies and manage the company’s day-to-day operations. Including functional leadership in the Executive Committee means that the functions are in a stronger position to support the business units in achieving their growth targets.
The members of the Board of Management remain jointly and individually accountable for all decisions made by the Executive Committee. All Executive Committee decisions require a positive vote of a majority of the members of the Board of Management. The Board of Management can decide to reserve decisions for the Board of Management. The Board of Management is accountable for its performance to a separate and independent Supervisory Board. The Board of Management is also answerable to the shareholders of the company at the Annual General Meeting of shareholders. The Executive Committee members, who are not also a member of the Board of Management, report to the Chief Executive Officer (CEO). Executive Committee meetings are held once a fortnight.
The CEO leads the Executive Committee in its overall management of the company to achieve its performance goals and ambitions. He is the main point of liaison with the Supervisory Board. The Chief Financial Officer (CFO) is specifically responsible for the company’s financial affairs and information management.
The company has organized its business into three Business Areas: Decorative Paints, Performance Coatings and Specialty Chemicals. The other three members of the Board of Management (not being the CEO and the CFO) have specific responsibilities for these Business Areas. To effectively steer the strategy of our businesses and their operations, the Executive Committee has established Business Area Boards for each of the Business Areas. The Business Area Boards consist of the Board of Management member responsible for the Business Area, assisted by staff officers. The Business Area Board meetings are held once a fortnight. The Business Area Boards provide a forum for a more in-depth discussion on all possible subjects relevant to that Business Area. In addition, a Board Committee Pensions oversees the general pension policies (to be) implemented in the various pension plans of the company. The CFO chairs the Board Committee Pensions. The authority of the Business Area Boards and the Board Committee Pensions is laid down in an internal authority schedule.
The company has also established a Sustainability Council, which advises the Executive Committee on strategy developments, monitors the integration of sustainability into management process and oversees the company’s sustainability targets and overall performance.
The Managing Directors of our business units, and the Corporate Functional Directors in charge of the different functions, report to individual Executive Committee members with specific responsibility for their activities and performance. To safeguard consistency and coherence for the total organization, the Executive Committee has established corporate directives.
The company is strengthening its country and regional organizations, as they will be key in developing a more collaborative way of working across the company. They will play an important role in helping the company to achieve its growth ambitions. Country leadership teams have been introduced for, among others, Brazil, India and China, as well as the Middle East, under the directorship of an empowered Country Director. As well as being responsible for driving growth in these countries, the country leaderships teams will be responsible for selecting, prioritizing and aligning functional activities, establishing centers of excellence and, where appropriate, improving efficiency levels. All Country Directors report to an Executive Committee member.
Following the increased importance of the functions and countries to achieving our Value and Values strategic ambitions, the authority schedule for the company was revised in 2011. The functions and country leadership teams have been awarded a more prominent role in submitting and advising on business proposals, following which the Executive Committee is in a stronger position to drive common agendas across the company and have fully informed discussions on proposals – whether submitted by functions, countries or business units.
Representative authority, including the signing of documents, is vested in at least two members of the Board of Management jointly. The Board of Management may appoint corporate agents. The list of authorized signatories is publicly available. The tasks and responsibilities, as well as internal procedural matters for the Executive Committee, are addressed in the Rules of Procedure for the Board of Management and Executive Committee. These Rules of Procedure have been reviewed and approved by the Supervisory Board and are available on our corporate website.
Board of Management members are appointed to, and removed from, office by the Annual General Meeting of shareholders. The remaining members of the Executive Committee are appointed by the CEO subject to the approval of the Supervisory Board.
As of 2004, members of the Board of Management are appointed for four-year terms (or less), with the possibility of reappointment at the expiry of each term. This is in line with the Code’s provision II.1.1. However, the contract of Mr. Wijers – who was appointed before 2004 – was not renegotiated, as this was not felt to be in the interest of the company.
As Mr. Wijers will retire from his current role as member of the Board of Management and CEO of the company with effect from April 23, 2012, the Supervisory Board shall propose to the Annual General Meeting of shareholders to appoint Mr. Büchner as member of the Board of Management, with the Supervisory Board’s intention being to appoint Mr. Büchner as CEO with effect from April 23, 2012. Mr. Büchner joined the company on December 1, 2011, and was appointed as a member of the Executive Committee as of January 1, 2012.
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. The priority shares are held by the Foundation Akzo Nobel. The Board of the Foundation Akzo Nobel consists of members of the Supervisory Board who are not members of the Audit Committee. In deviation of the Code (provision IV.1.1), the Articles of Association state that the Annual General Meeting of shareholders cannot cancel the binding nature of a nomination by the holders of priority shares for the appointment of members of the Supervisory Board or the Board of Management.
As the company subscribes to the Code’s principles in general, members of the Supervisory Board and the Board of Management are, in normal circumstances, appointed on the basis of a non-binding nomination by the Supervisory Board.
The Board of the Foundation Akzo Nobel has confirmed its intention to use its binding nomination rights only in cases and circumstances it considers exceptional, such as in the event of a (threatened) hostile takeover. (Reference is made to the description of anti-takeover provisions and control). In normal circumstances, resolutions to appoint a member of the Supervisory Board or Board of Management will therefore require a simple majority of the votes cast by shareholders. Shareholders meeting the requirements laid down in the Articles of Association are also entitled to nominate Supervisory Board or Board of Management members. According to the Articles of Association, such appointments will require a two-thirds majority, representing at least 50 percent of the outstanding share capital.
Although a deviation from provision IV.1.1 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.
As of January 1, 2011, members of the Executive Committee are not allowed to hold more than one supervisory board membership or non-executive directorship in another listed company. This is more stringent than the Code (provision II.1.8), which allows members of a board of management two such supervisory board memberships or non-executive directorships. The exception to this rule is that in the 18 months prior to their retirement, Executive Committee members are allowed to hold more than one supervisory board membership or non-executive directorship in order to allow them to prepare for retirement. But only if this does not interfere with the performance of their tasks as members of the Executive Committee. Furthermore, an exception can be made for an executive joining the Executive Committee. However, a maximum of two supervisory board memberships or non-executive directorships will apply. Acceptance of external supervisory board memberships or non-executive directorships in other listed companies by members of the Executive Committee is subject to approval of the Supervisory Board, with authority having been delegated to the Chairman of the Supervisory Board. With respect to the members of the Board of Management, Mr. Wijers is a non-executive Board member of Royal Dutch Shell plc, while Mr. Frohn is a member of the Supervisory Board of Nutreco N.V. and Mr. Gunning is a member of the Supervisory Board of TNT Express N.V.
The handling of (potential) conflicts of interest between the company and members of the Board of Management or Executive Committee is governed by the Rules of Procedure for the Board of Management and Executive Committee. Decisions to enter into transactions under which Board of Management members have conflicts of interest that are of material significance to the company, and/or to the relevant Board of Management member, require the approval of the Supervisory Board. Any such decisions will be mentioned in the annual report for the relevant year. In 2011, no transactions were reported under which a member of the Board of Management has had a conflict of interest that is of material significance to the company.
In line with the remuneration policy adopted by the Annual General Meeting of shareholders, the remuneration of the members of the Board of Management is determined by the Supervisory Board on the advice of its Remuneration Committee. The Supervisory Board will also decide on the remuneration of the remaining members of the Executive Committee on the proposal of the CEO. The composition of the remuneration of Board of Management members, and the remuneration policy itself, are described in the Remuneration report and the Financial statements (see Note 23). The main elements of the employment contracts of Board of Management members are available on the company’s corporate website. The maximum remuneration in the event of dismissal is in principle one year’s base salary. In the event of the dismissal of Mr. Wijers, who was appointed before 2004 (and who will retire with effect from April 23, 2012), the Supervisory Board will determine a severance payment upon the advice of the Remuneration Committee. The contracts of the members of the Board of Management do not contain change of control provisions. Mr. Büchner’s employment agreement is compliant with the Dutch Corporate Governance Code, the most important elements of which will be disclosed in accordance therewith.
The Supervisory Board’s overall responsibility is to supervise the policies adopted by the Board of Management and the Executive Committee and over the general conduct of the business of the company. This specifically includes supervision of the achievement of the company’s operational and financial objectives, the corporate strategy designed to achieve the objectives, the design and effectiveness of the internal risk management and control systems, the main financial parameters, compliance with applicable laws and regulations and risk factors. The Supervisory Board also provides the Board of Management and Executive Committee with advice. In fulfilling their duties, members of the Supervisory Board are guided by the interests of the company and its affiliated enterprise, taking into consideration the relevant interests of the company’s stakeholders. Major investments, acquisitions and functional initiatives are subject to Supervisory Board approval. The Supervisory Board is governed by its Rules of Procedure, which are available on the company’s corporate website. The Rules of Procedure include the profile and the Charters of the Committees and sets out the tasks and responsibilities of the Supervisory Board.
The composition of the Supervisory Board is such that the Supervisory Board members are able to act critically and independently of one another and of the Board of Management and the Executive Committee. Each Supervisory Board member is capable of assessing the broad outline of the overall strategy of the company and its businesses. The composition of the Supervisory Board is such that it is able to carry out its duties properly. The Supervisory Board – which currently consists of eight members – is constituted in a balanced manner to reflect the nature and variety of the company’s businesses, their international spread and the desirability to have available expertise in fields such as finance, economic, societal and legal aspects of international business, government and public administration. Consequently, the current members have a diverse and appropriate mix of knowledge and experience of the markets in which AkzoNobel operates, as well as insights from different markets and non-operational areas. A further aim of the Supervisory Board – which its members believe is currently being met – is that at least one-third of the members should meet the diversity criteria of gender (female) and/or nationality (outside of the European Union). This is in compliance with provision III.3.1 of the Dutch Corporate Governance Code, which ensures that its composition better reflects both society at large and the markets in which the company operates.
The Chairman of the Supervisory Board determines the agenda, chairs the meetings of the Supervisory Board, monitors the proper functioning of the Supervisory Board and its committees, arranges for the adequate provision of information to its members and acts on behalf of the Supervisory Board as the main contact for the Board of Management. He also initiates the evaluation of the functioning of the Supervisory Board and the Board of Management and chairs the Annual General Meeting of shareholders. The Chairman of the Supervisory Board is Mr. Vuursteen.
The Supervisory Board is assisted by the Secretary. All members have access to the advice and services of the Secretary, who is responsible for ensuring that procedures are followed and that the Supervisory Board acts in accordance with its statutory obligations under the Articles of Association.
Members of the Supervisory Board are nominated, appointed and dismissed in accordance with procedures which are the same as those previously outlined for the members of the Board of Management. As a general rule, based on the rotation schedule, a Supervisory Board member’s tenure is four years. In principle, members are eligible for re-election twice, each time for a period not to exceed four years. However, in deviation from the Code (provision III.3.5), a member can be nominated for re-election more often if, in specific circumstances, including but not limited to reasons of succession planning, this is considered to be in the company’s interest.
Members may be requested to step down prior to the end of their term.
Board appointments 2011:
The Rules of Procedure include detailed provisions on how to deal with conflicts of interest and potential conflicts of interest between members of the Supervisory Board and the company. In 2011, no transactions were reported under which a member had a conflict of interest which was of material significance to the company.
Supervisory Board members receive a fixed annual remuneration and attendance fee, which is determined by the Annual General Meeting of shareholders. More information on the remuneration of the members of the Supervisory Board can be found in Note 23 in the Financial statements.
The Supervisory Board has established three committees: the Audit Committee, the Nomination Committee and the Remuneration Committee. Each committee has a charter describing its role and responsibilities and the manner in which it discharges its duties and reports to the full Supervisory Board. These charters are included in the Supervisory Board Rules of Procedure, published on the company’s corporate website. The committees report on their deliberations and findings to the full Supervisory Board.
The Audit Committee assists the Supervisory Board in overseeing the quality and integrity of the accounting, auditing, reporting and risk management practices of the company, as well as the company’s compliance with legal and regulatory requirements, the qualifications, performance and independence of the external auditor and the performance of the internal audit function. The Chairman of the Audit Committee is Mr. Van den Brink. The Audit Committee consists of three members – Mr. Hughes, Mrs. Bruzelius and Mr. Van den Brink. As a rule, the CEO, the CFO, the Corporate Director Control, the internal auditor and the lead partner of the external auditor, KPMG, attend all regular meetings. After every Audit Committee meeting, the three members hold a separate meeting with only the internal auditor present, and a separate meeting with only the external auditor present.
The Nomination Committee focuses on drawing up selection criteria and appointment procedures for Supervisory Board and Board of Management members. The committee assesses the size and composition of both Boards, evaluates the functioning of the individual members, makes proposals for appointments and reappointments and supervises the Board of Management on the selection of senior management. The committee also considers nominations of Executive Committee members who are not also a member of the Board of Management. When selecting candidates for appointment to the Supervisory Board, account is taken of the need for a balanced representation of knowledge of the markets in which the company operates, as well as the need for insight from different markets and non-operational areas. Higher female and diversity representation are also actively being pursued. The Nomination Committee consists of four members and is chaired by Mr. Vuursteen. Baroness Bottomley and Messrs. Vuursteen, Burgmans and Ellwood are members of the Nomination Committee.
The Remuneration Committee is responsible for drafting proposals to the Supervisory Board on the remuneration policy for the Board of Management, for overseeing the remuneration of its individual members, the remaining members of the Executive Committee and for the remuneration schemes for AkzoNobel executives involving the company’s shares. The committee also prepares Supervisory Board proposals to the Annual General Meeting of shareholders concerning the remuneration of the members of the Supervisory Board. The Remuneration Committee consists of four members and is chaired by Mr. Burgmans. Baroness Bottomley and Messrs. Vuursteen, Burgmans and Ellwood are members of the Remuneration Committee.
The external auditor is appointed by the Annual General Meeting of shareholders on the proposal of the Supervisory Board. The appointment is for an indefinite period of time and is reviewed every four years by the Audit Committee. The same committee advises the Supervisory Board, which communicates the results of this assessment to the Annual General Meeting of shareholders. During 2011, besides the annual internal quality review on services provided by the external auditor, an external fee benchmark was performed. Both processes have been concluded and the Audit Committee has recommended to the Supervisory Board not to propose a change in the external auditor’s appointment. The Audit Committee and the Board of Management annually report their dealings with the external auditor to the Supervisory Board and discuss the auditor’s independence. The lead auditor in charge of the AkzoNobel account is changed every seven years. KPMG’s current lead partner, Mr. Weusten, has held this position since July 2007. The lead auditor is present at the Annual General Meeting of shareholders and may be questioned with regard to his statement on the fairness of the financial statements. The external auditor attends all meetings of the Audit Committee, as well as the meeting of the Supervisory Board at which the financial statements are approved. He receives the financial information and underlying reports of the quarterly figures and is given the opportunity to respond to this information.
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. The auditors are prohibited from providing the company with certain non-audit services. In order to anchor this in our procedures, the Supervisory Board adopted the “AkzoNobel Auditors Independence Policy” and the related “AkzoNobel Audit Committee Pre-approval Procedure on Audit, Audit-Related and Non-Audit Services”. All these documents and policies are available on the company’s corporate website.
Internal risk management and control systems are in place. Our risk management system is explained in more detail in the Risk management chapter in this section.
We have strict procedures for internal and disclosure controls and auditor independence. The Disclosure Committee monitors the procedures established by the company and advises the Executive Committee to ensure adequate and timely disclosure of material financial and non-financial information.
A separate internal control function is operational to secure compliance with the company’s internal control requirements. An area of special focus in 2011 has been to re-emphasize the control standards for our IT systems and to make more use of automated controls in these systems. The company-wide internal control self-assessment was strengthened and a new company-wide process was put in place to discuss and monitor progress with respect to compliance related issues.
Reference is made to the Report of the Board of Management in the Strategy section for the statements in respect of the internal risk management and control systems.
A comprehensive Code of Conduct, followed by officers and employees committed to individual and corporate integrity, is one of the critical foundations of good corporate governance. AkzoNobel’s Code of Conduct, which incorporates our Business Principles, sets out the company’s position. It guides all our employees in their daily work. We have established several procedures to arrange for company-wide dissemination of the Code of Conduct and training. We have also established procedures and a Compliance Committee to monitor compliance with the code in general, and certain of its provisions in particular, and to provide for its enforcement. A complaints procedure enables employees to file complaints concerning practices that violate any internal or external rules or regulations. This so-called SpeakUp! procedure ensures that employees have the opportunity to report alleged irregularities without jeopardizing their legal position. Our compliance and integrity management system is explained in more detail in the Compliance and integrity management chapter.
Members of the Board of Management, Executive Committee and Supervisory Board and certain designated employees are subject to the AkzoNobel Code on Insider Trading, which limits their opportunities to trade in AkzoNobel – and in certain circumstances – other company shares. Transactions in AkzoNobel shares carried out by Board of Management (and, as required, other members of the Executive Committee) and Supervisory Board members are notified to the Dutch Authority for Financial Markets in accordance with Dutch law and, if necessary, to other relevant authorities.
The AkzoNobel Code on Insider Trading states that carrying out transactions in AkzoNobel securities – as well as securities other than AkzoNobel securities – is prohibited if the person concerned has inside information regarding such securities. Furthermore, the Compliance Officer may determine that Board of Management, Executive Committee and Supervisory Board members, and certain designated employees, may not carry out transactions in AkzoNobel securities, or other securities, both during and outside a closed period. Shares in the company and the options of Board of Management and the other Executive Committee members, as well as certain senior executives, may be held in an account administered by the “Stichting Executive Management Beheer”. This foundation acts as an independent portfolio manager for the relevant AkzoNobel participants.
The company attaches great value to shareholder relations. In line with relevant laws and regulations, the company provides all shareholders and other parties in the financial markets with equal and simultaneous information about matters that could have a significant influence on the price of our listed securities, thereby taking into account possible exceptions permitted by those laws and regulations. This information can be found on the company’s corporate website, to the extent required by law.
The company actively communicates its strategy and the developments of its businesses to the financial markets. Members of the Board of Management and business managers regularly attend analyst meetings in Europe and the US. The quarterly results, press conferences and the analysts’ conference calls – as well as the presentations at analyst meetings organized by the company – are all announced in advance and are available as webcasts and accessible online. Presentations to (institutional) investors are held at regular intervals and, in principle, are announced on the company’s corporate website or via press releases. Other meetings with analysts or investors are not normally announced in advance, nor can they be followed by webcast or any other means. Discussions at such meetings are always limited to information which is already in the public domain. This is in line with the requirement to ensure that all shareholders and other parties in the financial market have equal and simultaneous access to information that may influence the share price. In this respect, the company complies with applicable laws and regulations. In principle, analyst meetings, presentations to (institutional) investors and direct meetings with investors are not held shortly before the publication of our quarterly or annual results. AkzoNobel’s outline policy on general and bilateral contacts with shareholders can be found on the company’s corporate website.
General Meetings of shareholders are held at least once a year. The Annual General Meeting of shareholders is convened by public notice. The agenda, the notes to the agenda and the procedure for attendance – including the record date and the procedure for granting a proxy to a third party – are published in advance and posted on the company’s corporate website. The company uses the Shareholders’ Communication Channel to distribute the agenda and to allow shareholders who hold their shares through an associated bank participation in the proxy voting at the meeting.
Holding shares in the company on the record date determines the right to exercise voting rights and other rights relating to the Annual General Meeting of shareholders, notwithstanding the subsequent sale of shares thereafter. The notes to the agenda contain all relevant information with respect to the proposed resolutions. All resolutions are made on the basis of the “one share, one vote” principle. All resolutions are adopted by absolute majority, unless the law or the company’s Articles of Association stipulate otherwise.
The Annual General Meeting of shareholders reviews the annual report and decides on adoption of the financial statements and the dividend proposal, as well as on the discharge of the members of the Supervisory Board and the Board of Management. Holders of common shares in aggregate representing at least 1 percent of the total issued capital may submit proposals for the agenda of the Annual General Meeting of shareholders. These proposals must be adequately substantiated and must be submitted in writing, or electronically, to the company’s head office in Amsterdam at least 60 calendar days in advance of the meeting. The minutes of the Annual General Meeting of shareholders (in Dutch) are made available on the company’s corporate website within three months of the meeting date.
The Annual General Meeting of shareholders approves or adopts, as the case may be, among other matters:
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 (organized by Pink Sheets) in the US in the form of American Depositary Receipts (each American Depositary Receipt representing one-third of a common share). On December 31, 2011, a total of 234,688,341 common shares and 48 priority shares had been issued. By December 31, 2011, AkzoNobel had been notified by Massachussetts Financial Services Company and Paulson & Co that their participation in the company’s share capital was more than 5 percent. The priority shares are held by the Foundation Akzo Nobel. The Foundation’s Board consists of members of AkzoNobel’s Supervisory Board who are not members of the Audit Committee. The Meeting of Holders of Priority Shares has the nomination rights for the appointments of members of the Board of Management and of the Supervisory Board and the right to approve amendments to the Articles of Association of the company. No cumulative preferred shares have been issued to date. It has been communicated that the cumulative preferred shares merely have a financing function, which means that if necessary, and possible, they will be issued at or near to the prevailing quoted price for common shares. The Annual General Meeting of shareholders held on April 27, 2011, authorized the Board of Management for a period of 18 months after that date – subject to approval from the Supervisory Board – to issue shares in the capital of the company up to a maximum of 10 percent of the issued share capital (or 20 percent in case of a merger or acquisition) and to restrict or exclude the pre-emption rights for existing shareholders for those shares. At the same meeting, the Board of Management was given a mandate to acquire up to a maximum of 10 percent of the issued share capital of the company.
According to provision IV.3.11 of the Code, the company is required to provide an overview of its actual or potential antitakeover measures, and to indicate in what circumstances it is expected that they may be used. The priority shares may be considered to constitute a form of anti-takeover measure. In relation to the right of the Meeting of Holders of Priority Shares to make binding nominations for appointments to the Board of Management and the Supervisory Board, the Foundation Akzo Nobel has confirmed that it intends to make use of such rights in exceptional circumstances only. These circumstances include situations where, in the opinion of the Board of the Foundation, the continuity of the company’s management and policies is at stake. This may be the case if a public bid for the common shares of the company has been announced, or has been made, or the justified expectation exists that such a bid will be made without any agreement having been reached in relation to such a bid with the company.
The same shall apply if one shareholder, or more shareholders acting in a concerted way, hold a substantial percentage of the issued common shares of the company without making an offer. Or if, in the opinion of the Board of the Foundation Akzo Nobel, the exercise of the voting rights by one shareholder or more shareholders, acting in a concerted way, is materially in conflict with the interests of the company. In such cases, the Supervisory Board and the Board of Management, in accordance with their statutory responsibility, will evaluate all available options with a view to serving the best interests of the company, its shareholders and other stakeholders.
The Board of the Foundation Akzo Nobel has reserved the right to make use of its binding nomination rights for the appointment of members of the Supervisory Board and of the Board of Management in such circumstances. In the event of a hostile takeover bid, or other action, which the Board of Management and Supervisory Board consider to be 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 IV.4.4 and II.1.9 of the Code), while taking into account the relevant interests of the company and its affiliate enterprise and stakeholders.
This report describes our remuneration policy and the remuneration paid to individual members of the Board of Management in 2011.
The remuneration policy and the individual contracts of the members of the Board of Management are determined by the Supervisory Board within the framework of the remuneration policy, as adopted by the Annual General Meeting of shareholders in 2005 and most recently amended in 2011. Our remuneration policy, including all structures and policies related to the remuneration and employment contracts of the Board of Management, is in line with the Dutch Corporate Governance Code. In valuing our incentive plans, we are assisted by independent external advisors.
Our remuneration policy has the objective to provide remuneration in a form which will attract, retain and motivate the members of the Board of Management as top managers of a major international company, while protecting and promoting the company’s objectives. The remuneration policy is aligned to the Value and Values strategy of the company (see the Strategy section of this Report 2011).
Both the policy itself, and the checks and balances that are applied in its execution, are designed to avoid incidents where members of the Board of Management – and senior executives for whom similar incentive plans apply – act in their own interest, take risks that are not in line with our strategy and risk appetite, or where remuneration levels cannot be justified in any given circumstance.
To ensure that remuneration is linked to performance, a significant proportion of the remuneration package is variable and dependent on the short and long-term performance of the individual Board member and the company. The Supervisory Board ensures that performance targets are realistic and sufficiently stretching and that – particularly in respect of the variable remuneration components – the relationship between the chosen performance criteria and the strategic objectives applied, as well as the relationship between remuneration and performance, are properly reviewed and accounted for, both ex-ante and ex-post.
In accordance with the requirements of the Dutch Corporate Governance Code, the Remuneration Committee, before setting the targets to be proposed for approval by the Supervisory Board, carried out a scenario analysis of the possible financial outcome of meeting target levels, as well as maximum performance levels.
It is our policy to maintain overall remuneration levels that are at the median level of the external market. For benchmarking purposes, the peer group consists of the following companies:
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Rhodia and TNT N.V. no longer feature in the peer group. Rhodia has been been acquired by Solvay, while TNT N.V. was removed following the split of the company. The peer group will be reviewed further during 2012.
The Remuneration Committee of the Supervisory Board consults professional independent remuneration experts to ensure an appropriate comparison. It further reviews the impact on pay differentials within the company when the overall remuneration is determined.
The total remuneration package of the members of the Board of Management consists of:
Furthermore, all members of the Board of Management are entitled to other benefits – such as a company car and representation allowance – which are needed for carrying out their duties and which are in line with market norms.
For communication purposes, the table presents a summarizing overview of the remuneration of the current members of the Board of Management. Reference is made to Note 23 of the Financial statements for more details.
In 2011, the value of fixed and variable cash components at target levels breaks down as indicated in the graphs.
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CEO in %  |
Board members in %  |
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Compensation overview members of the Board of Management 2009 – 2011 | ||||||||||||||||||||||||||||||||||||||||
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Hans Wijers |
Leif Darner |
Rob Frohn |
Tex Gunning4 |
Keith Nichols5 | |||||||||||||||||||||||||||||||||||
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in € |
2009 |
2010 |
2011 |
2009 |
2010 |
2011 |
2009 |
2010 |
2011 |
2009 |
2010 |
2011 |
2009 |
2010 |
2011 | |||||||||||||||||||||||||
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Base salary |
760,000 |
765,700 |
788,700 |
570,000 |
574,300 |
591,500 |
570,000 |
574,300 |
591,500 |
380,000 |
574,300 |
591,500 |
570,000 |
574,300 |
591,500 | |||||||||||||||||||||||||
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Short-term incentive1 |
464,000 |
1,284,200 |
423,500 |
339,300 |
513,000 |
206,400 |
339,300 |
513,000 |
206,400 |
226,200 |
513,000 |
206,400 |
339,300 |
513,000 |
206,400 | |||||||||||||||||||||||||
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Share awards2 |
678,400 |
981,900 |
1,132,100 |
481,500 |
724,500 |
848,500 |
481,500 |
724,500 |
848,500 |
277,600 |
628,700 |
848,500 |
382,500 |
704,200 |
848,500 | |||||||||||||||||||||||||
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Option awards2 |
99,200 |
25,100 |
– |
65,100 |
16,500 |
– |
65,100 |
16,500 |
– |
– |
– |
– |
18,200 |
4,800 |
– | |||||||||||||||||||||||||
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Pension premium paid |
458,400 |
722,500 |
482,900 |
208,600 |
272,200 |
217,900 |
146,000 |
206,900 |
185,800 |
88,900 |
277,200 |
240,800 |
124,700 |
204,400 |
198,200 | |||||||||||||||||||||||||
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Other emoluments |
4,100 |
4,400 |
4,900 |
4,100 |
4,400 |
4,900 |
6,900 |
7,100 |
7,400 |
2,700 |
4,400 |
4,900 |
112,700 |
162,200 |
187,800 | |||||||||||||||||||||||||
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Other compensation3 |
– |
– |
– |
147,800 |
147,400 |
149,300 |
47,500 |
– |
– |
– |
– |
– |
58,700 |
51,100 |
51,100 | |||||||||||||||||||||||||
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Total remuneration |
2,464,100 |
3,783,800 |
2,832,100 |
1,816,400 |
2,252,300 |
2,018,500 |
1,656,300 |
2,042,300 |
1,839,600 |
975,400 |
1,997,600 |
1,892,100 |
1,606,100 |
2,214,000 |
2,083,500 | |||||||||||||||||||||||||
The objective of the base salary is to enable recruitment and retention of top managers of a major international company.
The base salaries of members of the Board of Management increased by 3 percent in 2011.
The objectives of the short-term incentive are to reward economic value creation (EVA) and EBITDA growth for our shareholders and other stakeholders, to measure individual and collective performance and to encourage progress in the achievement of long-term strategic objectives.
The performance-related short-term incentive is linked to the company’s EVA and EBITDA and the individual and qualitative targets of the members of the Board of Management. More specifically, 35 percent of the short-term incentive opportunity is linked to EVA, 35 percent is linked to EBITDA and the remaining 30 percent is linked to individual and qualitative targets, including non-financial targets. EVA and EBITDA are based on the company’s financial results in constant currencies.
On the outcome of the three short-term incentive elements (EVA, EBITDA and personal targets), the Supervisory Board applies an overall rating based on the principles of the Performance and Development Dialog, AkzoNobel’s appraisal system. For the Board of Management, the rating includes a reasonableness test, in which the Supervisory Board critically assesses the actual ambition level of the performance targets in light of the assumptions made at the beginning of the year. It also includes an assessment of the progress made with the strategic objectives under current market conditions. This method for short-term incentive determination is also the basis of the compensation framework for other executives in the company.
The EVA performance measure is used in order to encourage the Board of Management to create long-term value for the company’s shareholders and other stakeholders. EVA is calculated by deducting from net operating profit after taxes (NOPAT) a capital charge representing the cost of capital calculated on the basis of an average return investors expect.
The EVA and EBITDA elements of the short-term incentive have a performance threshold level of 80 percent and a maximum performance level of 120 percent of the targeted EVA and EBITDA respectively. The target EVA and EBITDA are determined annually by the Supervisory Board. The pay-out of the short-term incentive will never exceed 100 percent of base salary for members of the Board of Management and 150 percent of base salary for the CEO. Qualitative targets are set in the context of the medium-term objectives of the company and qualify as commercially sensitive information. AkzoNobel will not disclose all the targets. However, the targets for 2011 included goals set with respect to operational and functional excellence, delivering on the strategic plans and talent development.
Please see the Report of the Board of Management chapter in the Strategy section for the actual 2011 EVA and EBITDA performance used in the short-term incentive. The EVA of the sum of the business units is used as the basis for calculating the EVA element of the short-term incentive for the Board of Management. In 2011, the minimum threshold for pay-out regarding the EVA target was not met, whereas for EBITDA the performance outcome was above the threshold. Upon its ex-post review of the relationship between the chosen performance criteria and the strategic objectives applied, and of the relationship between remuneration and performance, the Supervisory Board, given the importance of the link between the variable remuneration and the company’s strategic ambitions, decided not to make any upward correction and (hence) no payments were made to members of the Board of Management in respect of the EVA component of the short-term incentive, whereas the EBITDA component paid out at 68 percent of target.
In order to stimulate share ownership, the members of the Board of Management have the opportunity to invest part of the net pay-out of their short-term incentive in AkzoNobel shares. This is further addressed in the paragraph regarding share holding requirements and share matching.
The objectives of our long-term incentive plan are to encourage long-term sustainable economic and shareholder value creation – both absolute and relative to our competitors – to align the interests of the Board of Management with those of shareholders and to ensure retention of the members of the Board of Management.
The long-term incentive plan consists of performance-related shares. The stock option plan was discontinued as of January 1, 2008. Performance-related shares are considered to provide a stronger alignment with shareholders’ interests.
Stock options were conditionally granted for the last time in 2007 and vested for the last time in 2010. As the total option term is seven years, the last stock options that vested under the stock option plan can be exercised until 2014.
The exercise price of the stock options is the NYSE Euronext Amsterdam opening price on the first day after the Annual General Meeting of shareholders that the AkzoNobel share is quoted ex-dividend in the year in which the options were conditionally granted.
Under the performance share plan, shares are conditionally granted to the members of the Board of Management. Vesting of these shares is conditional on the achievement of certain performance targets during a three-year period and a continuation of employment. Achievement of the performance targets is determined by the Supervisory Board in the first quarter of the year following the three-year period. The number of vested shares is increased by the dividend paid over the three-year performance period (the so-called dividend shares). The retention period for the shares expires five years after the conditional grant.
Because sustainability is considered key to our long-term future, 50 percent of the conditional share grant is linked to AkzoNobel’s relative sustainability performance. The 2011 Annual General Meeting of shareholders approved an amendment to the remuneration policy to change the basis on which the performance of the company is measured. For the 2011 grant and onwards, in order to increase transparency and robustness of the system applied, the sustainability performance is measured as AkzoNobel’s average score in the SAM ranking during the three-year performance period. SAM is an organization that annually assesses around 2,000 of the world’s largest companies covering the major indices and determines their respective sustainability scores. For the 2010 and 2009 grants, the average ranking of the company in the relevant Dow Jones Sustainability Index (DJSI) during the three-year performance period remains the sustainability performance measure. For all conditional grants, the vesting schedule has been determined by the Supervisory Board as follows:
|
Average position in DJSI/SAM1 during performance period | ||||||
|
|
|
| ||||
|
|
% |
Number of vested shares | ||||
| ||||||
|
1 |
150% |
(= 75% of total conditional grant) | ||||
|
2 |
125% |
(= 62.5% of total conditional grant) | ||||
|
3 |
100% |
(= 50% of total conditional grant) | ||||
|
4 – 6 |
75% |
(= 37.5% of total conditional grant) | ||||
|
7 – 10 |
50% |
(= 25% of total conditional grant) | ||||
|
11 – 15 |
25% |
(= 12.5% of total conditional grant) | ||||
|
Below 15 |
0% |
| ||||
AkzoNobel ranked second in the relevant SAM and DJSI indices in 2011. As a result, AkzoNobel’s sustainability performance over the period 2009 through 2011 resulted in an average second position within the ranking of the peer group companies. This results in a vesting of 125 percent for this part of the long-term incentive.
The remaining 50 percent of the conditional grant of shares is linked to AkzoNobel’s relative Total Shareholder Return (TSR) performance compared with the companies in our peer group. Independent external specialists conduct 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 are converted into euros.
The relative TSR performance is compared with the following peer group:
|
|
* This peer group is reviewed on a regular basis to ensure that the companies in the group remain appropriate peers. As Rhodia was acquired by Solvay, Rhodia was replaced by Solvay. Solvay (following the acquisition of Rhodia) seems the best comparable fit with the company. At the time of replacing Rhodia by Solvay, the replacement had no impact on our relative TSR ranking.
The following vesting scheme applies as of 2009 for the conditional grants:
|
Vesting scheme for the conditional grants | ||
|
|
| |
|
Rank |
Vesting (as % of half of | |
|
1 |
150% | |
|
2 |
135% | |
|
3 |
120% | |
|
4 |
100% | |
|
5 |
75% | |
|
6 |
50% | |
|
7 |
25% | |
|
8 – 11 |
0% | |
AkzoNobel’s TSR performance over the period 2009 through 2011 resulted in an 11th position within the ranking of the peer group companies. This ranking did not result in any vesting of shares for the TSR part of the share plan.
Based on AkzoNobel’s combined sustainability and TSR performance, the final vesting percentage of the 2009 conditional grant after including the dividend yield at December 31, 2011, which was determined to be 11.68 percent, equaled 69.8 percent. This results in the following definitive grants of shares: CEO 25,547, other Board members 19,125. Upon its ex-post review of the relationship between the chosen performance criteria and the strategic objectives applied, and of the relationship between remuneration and performance, the Supervisory Board, given the importance of the link between the variable remuneration and the company’s strategic ambitions, decided not to make any correction in respect of the definitive grant.
The number of performance-related shares conditionally granted in 2011 amounted to 24,800 for the CEO and 18,600 for the other members of the Board of Management.
In accordance with provision II.2.13d of the Dutch Corporate Governance Code, the schedule below sets out for 2006 onwards (i) the number of at target shares conditionally granted; (ii) the number of shares which have vested; (iii) the number of shares held by members of the Board of Management at the end of the lock up period; (iv) the face value at the conditional share grant, at vesting and at the end of the lock up period respectively.
In accordance with the company’s Articles of Association, the Dutch Corporate Governance Code and the rules of the performance share plan, the number of shares to be conditionally granted to members of the Board of Management is determined by the Supervisory Board, within the limits of the remuneration policy and the maximum number of shares as adopted and respectively approved by the Annual General Meeting of shareholders.
|
Valuation1 shares Board of Management | ||||||||||||||
|
| ||||||||||||||
|
Unconditional shares, vested | ||||||||||||||
| ||||||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2006 - 2008 |
Conditional share grant |
Number of vested shares |
End of lock up period (2011) | |||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Value at vesting in € |
Number |
Value | ||||||||
|
Hans Wijers |
23,000 |
900,450 |
17,536 |
516,260 |
8,656 |
402,417 | ||||||||
|
Leif Darner |
15,100 |
591,165 |
11,531 |
339,473 |
7,470 |
347,280 | ||||||||
|
Rob Frohn |
15,100 |
591,165 |
11,531 |
339,473 |
11,531 |
536,076 | ||||||||
|
Keith Nichols |
4,198 |
164,352 |
3,055 |
89,939 |
1,943 |
90,330 | ||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2007 - 2009 |
Conditional share grant |
Number of vested shares |
End of lock up period (2012) | |||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Value at vesting in € |
Number |
Value | ||||||||
|
Hans Wijers |
23,000 |
1,062,140 |
34,680 |
1,609,152 |
17,090 |
638,482 | ||||||||
|
Leif Darner |
15,100 |
697,318 |
22,768 |
1,056,435 |
14,689 |
548,781 | ||||||||
|
Rob Frohn |
15,100 |
697,318 |
22,768 |
1,056,435 |
11,220 |
419,179 | ||||||||
|
Keith Nichols |
4,250 |
196,265 |
6,408 |
297,331 |
3,626 |
135,467 | ||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2008 - 2010 |
Conditional share grant |
Number of vested shares |
| |||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Value at vesting in € |
|
| ||||||||
|
Hans Wijers |
16,800 |
920,472 |
– |
– |
| |||||||||
|
Leif Darner |
11,600 |
635,564 |
– |
– |
| |||||||||
|
Rob Frohn |
11,600 |
635,564 |
– |
– |
| |||||||||
|
Keith Nichols |
8,733 |
478,481 |
– |
– |
| |||||||||
|
Tex Gunning |
3,867 |
211,873 |
– |
– |
| |||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2009 - 2011 |
Conditional share grant |
Number of vested shares |
||||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Value at vesting in € |
|
| ||||||||
|
Hans Wijers |
36,600 |
1,077,504 |
25,547 |
954,436 |
| |||||||||
|
Leif Darner |
27,400 |
806,656 |
19,125 |
714,510 |
| |||||||||
|
Rob Frohn |
27,400 |
806,656 |
19,125 |
714,510 |
| |||||||||
|
Keith Nichols |
27,400 |
806,656 |
19,125 |
714,510 |
| |||||||||
|
Tex Gunning |
27,400 |
806,656 |
19,125 |
714,510 |
| |||||||||
|
|
|
|
|
|
|
| ||||||||
|
| ||||||||||||||
|
Conditional shares, not vested | ||||||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2010 - 2012 |
Conditional share grant at target |
Vesting at min |
Vesting at max |
| ||||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Number |
|
| ||||||||
|
Hans Wijers |
24,400 |
1,132,160 |
– |
36,600 |
| |||||||||
|
Leif Darner |
18,300 |
849,120 |
– |
27,450 |
| |||||||||
|
Rob Frohn |
18,300 |
849,120 |
– |
27,450 |
| |||||||||
|
Keith Nichols |
18,300 |
849,120 |
– |
27,450 |
| |||||||||
|
Tex Gunning |
18,300 |
849,120 |
– |
27,450 |
| |||||||||
|
|
|
|
|
|
|
| ||||||||
|
Series 2011 - 2013 |
Conditional share grant at target |
Vesting at min |
Vesting at max |
|
| |||||||||
|
|
|
|
|
|
|
| ||||||||
|
Number of shares |
Number |
Value at grant in € |
Number |
Number |
|
| ||||||||
|
Hans Wijers |
24,800 |
1,152,952 |
– |
37,200 |
| |||||||||
|
Leif Darner |
18,600 |
864,714 |
– |
27,900 |
| |||||||||
|
Rob Frohn |
18,600 |
864,714 |
– |
27,900 |
| |||||||||
|
Keith Nichols |
18,600 |
864,714 |
– |
27,900 |
| |||||||||
|
Tex Gunning |
18,600 |
864,714 |
– |
27,900 |
| |||||||||
The 2010 Annual General Meeting of shareholders approved a claw back provision in the remuneration policy for the Board of Management. This provision provides the Supervisory Board with the option to claw back variable pay components paid to members of the Board of Management in the event that such variable pay components were based on financial information which is shown within a certain period of time to be materially incorrect.
Pursuant to the rules of the performance share plan and provision II.2.10 of the Dutch Corporate Governance Code, the Supervisory Board has the power to adjust the vesting schedules if, given the circumstances, this would reflect a fairer measure of performance, provided that targets, in the opinion of the Supervisory Board, are not more easy or difficult to be satisfied.
The Supervisory Board has decided that where, in the event of a takeover, the pay-out under the performance share plan is between 100 percent and 150 percent, the Supervisory Board will, taking into account the performance of the company prior to the takeover bid, at its discretion decide whether the projected outcome is fair and may decide to adjust the pay upwards or downwards within the bandwidth mentioned. This does not affect the discretion the Supervisory Board has to correct the variable remuneration of the Board of Management upwards or downwards in exceptional circumstances. It is noted that a takeover would not influence the SAM or DJSI sustainability ranking of the company and therefore the Supervisory Board will in such event primarily take into account the company’s TSR performance.
The 2011 Annual General Meeting of shareholders approved a second amendment to the remuneration policy consisting of the introduction of a minimum shareholding requirement and related matching scheme. As of 2011, the CEO and other members of the Board of Management will be required to build up, over a five-year period from the date of appointment, and then hold, at least three times respectively one time their gross base salary in AkzoNobel shares for the duration of their tenure as member of the Board of Management.
The CEO and other Board members are expected, for these purposes, to use both their long-term incentive and their short-term incentive in the manner set out below.
Board members who have not yet achieved this minimum holding requirement are required to invest one third of the short-term incentive they receive (net after tax and other deductions) in AkzoNobel shares. As further encouragement to build up the minimum holding requirement, Board members who invest a second third of their short-term incentive in shares will have such shares matched by the company, one on one, after three years from the date of purchase of the shares (up to a maximum of one third of the short-term incentive), on the condition that the Board member still holds these shares and showed a sustained performance during the three-year period. The Supervisory Board will use its discretion to decide whether this last condition has been met.
Board members who continue to invest their short-term incentives in whole, or in part, in shares after the minimum holding requirement has been reached will have the opportunity to have such shares matched subject to the same conditions, except that such shares will be matched with one share to every two shares thus acquired, up to a maximum of two-thirds of the short-term incentive.
Shares under the performance share plan are taken into account for share ownership purposes as soon as they have become unconditional. This includes vested shares that are to be retained for another two years after vesting.
The pension plan for all members of the Board of Management is based on an income and age-related defined contribution plan. The available premium is invested with a pension fund. The pension payment at pension age depends on the premiums received and the investment results during the period. The premium percentages to be paid for the Board member concerned are determined by the Supervisory Board. The premiums are paid over the base salary in the current year and the short-term incentive of the previous year. The premiums will therefore vary depending on the performance during the previous year. External reference data can be used in determining market competitive levels of pension arrangements. If applicable, pension rights built up in the period preceding Board membership can be taken into account to limit the premiums to be paid to the relevant Board member.
Agreements for members of the Board of Management appointed in 2004 and subsequent years are concluded for a period not exceeding four years in accordance with the Dutch Corporate Governance Code. 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 is subject to a term of three months; notice by the company shall be subject to a six-month term.
In case of termination prior to the expiration of a Board member’s term, or if re-appointment does not take place and the agreement between the Board member concerned and Akzo Nobel N.V. is not continued, the Board member will be entitled to a severance payment, established in accordance with the Dutch Corporate Governance Code. The agreement for Mr. Wijers, who was appointed before 2004, has not been adjusted in this respect (see Supervisory Board). However, after Mr. Wijers has retired from his current role, all agreements between the Board members and Akzo Nobel N.V. will be in accordance with the relevant provisions of the Dutch Corporate Governance Code.
Members of the Board of Management normally retire in the year that they reach the age of 62. The employment agreements allow the Supervisory Board to request a Board member to resign between the age of 60 and the regular retirement age for effective succession planning within the Board. In such an exceptional situation, the Board member concerned will be entitled to fixed salary payments until the date of retirement.
As Mr. Wijers will retire from his current role of member of the Board of Management and CEO of the company with effect from April 23, 2012, it shall be proposed to the Annual General Meeting of shareholders to appoint Mr. Büchner as member of the Board Management. It is the Supervisory Board’s intention to appoint Mr. Büchner as CEO with effect from April 23, 2012. Mr. Büchner joined the company on December 1, 2011. Mr. Büchner’s employment agreement is compliant with the Dutch Corporate Governance Code, the most important elements of which will be disclosed in accordance therewith.
The company does not grant any personal loans to its Board members.
|
Doing business inherently involves taking risks, and by taking measured risks we strive to be a sustainable company. Risk management is a key strategic process and an essential element of our corporate governance. We foster a high awareness of business risks and internal control, geared to safeguarding our risk appetite and providing transparency in our operations. The Board of Management is responsible for managing the risks associated with our activities and, hence, for the establishment and adequate functioning of appropriate risk management and control systems (see Statement of the Board of Management in the Strategy section). AkzoNobel risk management frameworkThrough our risk management framework, we want to provide reasonable assurance that our business objectives can be achieved and our obligations to customers, shareholders, employees and society can be met. Our risk management framework is in line with the Enterprise Risk Management – Integrated Framework of COSO and the Dutch Corporate Governance Code. The Executive Committee reviews our risk management and control systems and our major business risks, which are also discussed by the Supervisory Board. Risk appetiteClarity on risk appetite and boundaries that determine the freedom of action or choice in terms of risk taking and risk acceptance is provided to all managers. Risk boundaries are set by our strategy, our Company Statement, Business Principles, Code of Conduct, company values, authority schedules, policies and corporate directives. Our risk appetite differs by objective area and type of risk:
Risk management in 2011The Enterprise Risk Management process provides top-down coverage of the organization and ensures that we focus on what we consider to be the areas of major risk exposure. Therefore, scoping of our 2011 risk management activities was performed by the Executive Committee, business unit Managing Directors and Corporate Directors, in association with the risk management function. Besides the focus on coverage of our organization, emphasis is put on organizational changes, key strategic projects and high growth regions. In 2011, a new process was introduced to identify emerging risks (high impact–low likelihood scenarios) and their risk mitigation actions. During 2011, we held more than 120 facilitated Enterprise Risk Management workshops. More than 5,000 risk scenarios were identified and prioritized by management teams and functional experts. In addition, in selected areas with low risk tolerance, dedicated risk assessments were performed to safeguard our risk appetite. All major risks were responded to by the unit that identified them. The outcome of all risk assessments was reported to the next higher management level as part of our Business Planning & Review cycle. Risk profiles and trends were shared by managers across the company. In the bottom-up consolidation process, the risks were taken to the next management level, where they were re-assessed, either because of the materiality of the risk exposure and/or because of the accumulated effect. The major risk factors for our company, identified through risk consolidation and the subsequent risk assessment by the Executive Committee, are presented in the following paragraph. One of the challenges we faced in 2011 was the weakening economic conditions. Raw material prices continued to rise and margin management efforts are ongoing. Principle uncertainties for our company are a further weakening of economic conditions and the threat of a European sovereign crisis, potentially affecting our growth ambitions. To adapt to these uncertain conditions, we are currently executing a comprehensive three-year plan to improve our performance, particularly in the areas of margin management, supply chain and sourcing. |
|
Under the explicit understanding that this is not an exhaustive list, the major risk factors that may prevent full achievement of our strategic ambitions are listed in detail from the next page onwards. There may be current risks that the company has not fully assessed, or that are currently identified as not having a significant impact on the business, but which could at a later stage develop a material impact on our business. The company’s risk management systems endeavor to ensure the timely discovery of such incidents.
An overview of our major risk factors is provided below. The five risks that we currently assess as the most significant for the forthcoming five years are indicated.
|
Major risk factors assessed by AkzoNobel (top five risks indicated) | ||||
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|
|
|
|
|
|
Internal |
|
External | ||
|
|
|
|
|
|
|
Strategic |
|
Strategic | ||
|
• |
Implementation of strategic agenda |
|
• |
Adapting to economic conditions |
|
• |
Identification of major transforming technologies |
|
• |
International operations |
|
|
|
|
• |
Ensuring stakeholder support |
|
Operational |
|
Operational | ||
|
• |
Attraction and retention of talent |
|
• |
Sourcing of raw materials |
|
• |
Management of change |
|
• |
Energy pricing and emission trading rights |
|
• |
Production process risks |
|
• |
Product liability |
|
|
|
|
• |
Environmental liabilities |
|
Financial |
|
Financial | ||
|
|
|
|
• |
Cash flow |
|
|
|
|
• |
Contribution to pension funds |
|
|
|
|
• |
Decline of asset values |
|
|
|
|
• |
Fluctuations in exchange rates |
|
Compliance |
|
Compliance | ||
|
|
|
|
• |
Complying with laws and regulations |
Internal StrategicImplementation of strategic agenda
A failure to properly and fully implement our strategic agenda could adversely affect our company and its businesses. Our ability to grasp future opportunities might be hampered by the speed of the implementation of organizational changes and performance improvement programs.
Risk corrective actionsThe appropriateness of our strategic agenda, our performance against this agenda and our governance structure is continuously monitored by the Executive Committee and the Supervisory Board. Specific attention is paid to areas such as macro-economic developments, general and financial market developments, competitive situation, performance improvement potential, sustainability, geographical spread, emerging markets, political risks and acquisition and divestment opportunities. Risks are minimized as we operate in attractive industries, have global leading positions and have strong executive leadership in place. As of January 2011, we strengthened our decision-making process and implementation monitoring by establishing an Executive Committee structure, which allows us to better manage the strategic agenda. Remuneration systems are tied to performance against key strategic agenda items. For example, our long-term executive remuneration is partly linked to the relevant Sustainable Asset Management (SAM) ranking (see Remuneration report in this section). |
Internal StrategicIdentification of major transforming technologiesOur success depends on the sustainable growth of our business through research, development and innovation. If we are not able to identify major transforming technologies in a timely manner, this may lead to the loss of our leadership positions and adversely affect our business and results.
Risk corrective actionsRisk of missing relevant technology developments is mitigated in four ways.
|
Internal Operational – Top five riskAttraction and retentionof talentOur ambitious growth plans may not be achieved if we fail to attract and retain the right people. We depend on the continued contribution of our employees.
Risk corrective actionsGrowing our business calls for the need to grow our people. Therefore, AkzoNobel puts emphasis, not only on attracting and retaining employees, but also on their motivation, development and building capability. To strengthen these efforts, we have a dedicated Executive Committee member for the Human Resources function and have implemented an employee engagement program. The Human Resources function is also part of the comprehensive three-year performance improvement plan, launched in October 2011. HR instruments such as performance appraisals, the employee survey and leadership identification and review, as well as leadership development, are used to optimize support to our business. We provide clarity in the working environment through information and communication programs. Special focus is dedicated to high growth markets. Remuneration packages may include long and short-term incentives. However, the Executive Committee ensures that employees are not encouraged to act in their own interest and take risks that are not in keeping with the company’s strategy and risk appetite. |
Internal OperationalManagement of changeWe undertake various restructuring, investment and performance improvement projects that require significant change management and project management expertise. Failure to manage these change projects appropriately, or to implement such projects, may lead to inability to achieve our strategic ambitions.
Risk corrective actionsRisk management is an integral part of project management excellence. Senior management is involved in all critical projects that are prioritized and supervised by the Executive Committee to ensure an aligned and integrated vision and thrust from the top for the company’s change agenda. Major initiatives, such as the performance improvement projects, are under the direct supervision of dedicated Executive Committee members. Furthermore, we are prioritizing inclusion of the project management and change management curricula in our AkzoNobel Academy.
|
Internal OperationalProduction process risksRisks in production processes can adversely affect our results. These risks concern areas such as personal health and safety, process safety, product safety and operational eco-efficiency. Unlikely scenarios can involve major incidents with a high impact for our organization, causing businesses continuing risks and reputational damage.
Risk corrective actionsWe mitigate production risks by spreading out production and operating an adequate inventory policy. This is combined with business continuity planning and appropriate risk transfer arrangements (for example insurance). To achieve our operational eco-efficiency (OEE) ambitions, we have initiated improvement activities based on our 2010 review of waste management, water consumption, volatile organic compounds (VOCs) and energy. The next stage is to stimulate continuous improvement on OEE and initiate process and technology changes which will deliver step change improvements. To help realize our safety ambitions, we have defined clear KPIs and increased management attention on people safety, as well as implementing enhanced process safety – such as asset integrity and occupational health standards – and improving the HSE audit process. |
|
External Strategic – Top five riskAdapting to economic conditionsOne of the principal uncertainties we face is the development of the global economy. Economic conditions remain weak and it is difficult to predict customer demand and raw material costs. Construction and housing markets may remain soft in mature markets and our Decorative Paints and Performance Coatings Business Areas in particular have been affected by market downturns. In addition, the European sovereign crisis continues to drive instability in the financial markets, which may further adversely impact the global, regional or national economies in markets where we operate. Failure to adapt adequately and in time can be harmful to our business and results.
Risk corrective actionsThe Executive Committee has defined a comprehensive performance improvement program to deliver €500 million EBITDA by 2014, based on funcational and operational excellence. Around 40 percent of the anticipated benefits will come from the Supply Chain and Sourcing programs, and a further 50 percent from margin management, research and development initiatives and business restructuring programs. These benefits will accrue across our Business Areas: more than 40 percent in Decorative Paints, over 30 percent in Performance Coatings and close to 25 percent in Specialty Chemicals. We continue to apply various scenarios for planning and budgeting to be best prepared for further changes in economic conditions. |
External Strategic – Top five riskInternational operationsWe are a global business with operations in more than 80 countries. Therefore, we are exposed to a variety of risks, many of them beyond our control. Unfavorable political, social or economic developments and developments in laws, regulations and standards could adversely affect our business and results of operations. Our aspirations to fuel growth in high growth markets – double revenue in China, create a significant footprint in India, outgrow competition in Brazil and expand in the Middle East and sub-Saharan Africa – will further expose us to these risks.
Risk corrective actionsWe spread our activities geographically and serve many sectors to benefit from opportunities and reduce the risk of instability. Political, economic and legislative conditions are carefully monitored. The Executive Committee decides on all significant investments and the countries and industry segments in which AkzoNobel conducts its business. |
External StrategicEnsuring stakeholder supportFailure to maintain the support of our stakeholders for our strategy and its execution could adversely affect our company and its businesses.
Risk corrective actionsWe endeavor to define and implement a clear strategy and continuously seek dialog with stakeholders. As an organization, we are committed to helping our customers make their business a success, enhancing relationships with our suppliers, providing competitive returns to our investors by paying a stable to rising dividend, creating an attractive working environment for our people and conducting all our activities in the most socially responsible manner. |
External Strategic – Top five riskSourcing of raw materialsWe use significant amounts of various raw materials in manufacturing our products. Prices for some key raw materials can be volatile and are affected by economic conditions. We are, to some extent, able to pass on higher input prices to our customers, but this is, to a large extent, dependent on market conditions. We may also be impacted by inability to access sufficient raw materials, business interruption or product discontinuation at some of our key suppliers. Inability to access sufficient raw materials, growth in cost and expenses for raw materials and energy and changes in product mix may adversely affect future results and growth.
Risk corrective actionsWe aim to use our purchasing power and long-term relationships with suppliers to acquire raw materials and safeguard their constant delivery in a sustainable manner, to secure volumes and to cooperate on innovation and sustainability. We have made an inventory of single and sole sourced raw materials and are actively pursuing plans to improve this situation. We have diversified contract length and our supplier base. Our strengthened global sourcing strategy enables us to bundle the purchasing power, both in product related and non-product related requirements. We continuously monitor the markets in which we operate for developments and opportunities and adapt our purchasing strategy accordingly. |
External OperationalEnergy pricing and emission trading rightsThe Specialty Chemicals business operates two energy-intensive businesses, Pulp and Paper Chemicals and Industrial Chemicals. A non-level playing field for energy and emission trading rights can affect the competitive position of these businesses.
Risk corrective actionsWe are pro-actively managing energy usage and costs. We operate several cogeneration units which enable us to make efficient use of combined heat and power. We are implementing our Carbon Policy, working on energy efficiency programs and investing in energy from waste and biomass. Carbon management plans are closely monitored and strategically managed. We have policies for energy contracts and have long-term purchase contracts in place (see Note 24 in the Financial statements).
|
External OperationalProduct liabilityProduct liability claims could adversely affect our company’s business and results of operations. Unlikely long-term implications with a high impact for our organization could follow from usage of new technologies and compounds.
Risk corrective actionsCurrently, we are involved in a number of product liability cases. However, we believe that any unexpected costs and liabilities will not have a material adverse effect on our consolidated financial position. We have a central policy to optimize insurance coverage.
|
External OperationalEnvironmental liabilitiesWe use, and have used in the past, hazardous materials and biological compounds in several product development programs and manufacturing processes, including waste thereof. We have been, and can be, exposed to risks of accidental contamination or past practices that give rise to current liabilities. We could be exposed to events of non-compliance with environmental laws, regulatory enforcement, property damage, possible personal injury and any resulting claims for damage. Regulations and standards are becoming increasingly stringent.
Risk corrective actionsWe are committed to conducting all our activities in the safest and most responsible manner. We have a specialist group managing these issues.Contingency plans and assignment arrangements are in place to mitigate known risks and regular reviews are conducted to monitor progress and assess financial and reputational exposure. Our policy is to accrue and charge against earnings environmental clean-up costs, damages or indemnifications when it is probable that a liability has materialized and an amount can be estimated (see Note 21 in the Financial statements). |
External Financial – Top five riskCash flowPotentially worsening economic conditions, the threat of a European sovereign crisis, potential raw material price increases and potential exposure to funding of pension schemes may lead to insufficient free cash flow generation to support funding for the implementation of our strategic agenda.
Risk corrective actionsOur balance sheet and debt profile are strong. We are committed to maintaining strong investment grade credit ratings. Ratings at year-end were Standard & Poor’s BBB+ (stable outlook) and Moody’s Baa1 (stable outlook). We have launched a comprehensive performance improvement program to deliver €500 million EBITDA by 2014. We have a prudent financing strategy and a strict cash management policy, which are managed by our centralized treasury function (see Note 24 in the Financial statements). |
External FinancialContributions to pension fundsVarious external developments may affect assets and liabilities of pension funds, causing higher post-retirement charges and pension premiums payable. We are at risk from potential shortfalls in the funding of defined benefit pension schemes.
Risk corrective actionsWe practice pro-active pension risk management. Our pension policy is to offer defined contribution schemes to new employees and, where appropriate, to existing employees. Our largest defined benefit schemes have been closed to new entrants since 2001 for ICI, and 2004 for AkzoNobel. We measure and monitor our pension risks frequently and adopt investment strategies designed to reduce financial risks. In 2011, cash pension top-ups were €354 million. In January 2012, we concluded the triennial actuarial funding review of the ICI Pension Fund. We expect to have top-up payments over the remaining six years of the recovery plan that are £198 million lower in total than the sum of the current schedule. We are committed to further de-risking over time. Pension activities are overseen by the Board Committee Pensions (see Note 17 and Note 22 in the Financial statements). |
External FinancialDecline of asset valuesImpairments and book losses could adversely affect our financial results. In view of the current financial market conditions, asset value decline offers both opportunities and threats to our company. We are actively participating in industry consolidation. As such, we may decide to make selective acquisitions and may hold assets for sale.
Risk corrective actionsAcquisition and divestment opportunities and the management of assets held for sale are continuously monitored by the Executive Committee. We do impairment tests for intangibles with indefinite lives (goodwill, some brands) every year and whenever an impairment trigger exists. For tangibles and other fixed assets, we do impairment tests whenever an impairment trigger exists (see Note 1 in the Financial statements). |
External FinancialFluctuations in exchange ratesExchange rate fluctuations can have a harmful impact on our financial results. We have operations in more than 80 countries and report in euros. We are particularly sensitive to the relation between the euro and US dollar, pound sterling, Swedish krona and Latin American and Asian currencies.
Risk corrective actionsWe have centralized treasury and a hedging policy is in place for certain currency exchange rate risks (see Note 24 in the Financial statements). At a more operational level, risks are reduced by the prevalence of local-for-local production, which is the norm in many of our businesses. |
External ComplianceComplying with laws and regulationsWe may be held responsible for any liabilities arising out of non-compliance with laws and regulations. For example, we are involved in investigations by antitrust authorities into alleged violations of the antitrust laws and we are engaged in court proceedings and civil litigation resulting from (alleged) involvement in anti-competitive behavior in the past (see Note 21 in the Financial statements).
Risk corrective actionsWe are monitoring and adapting to significant and rapid changes in the legal systems, regulatory controls and customs and practices in the countries in which we operate. These affect a wide range of areas. We are dedicated to minimizing such risks with special emphasis on the application of our Code of Conduct. We operate under a comprehensive competition Law Compliance program including training, monitoring and assessment. We advertise the use of our company-wide complaints procedure called SpeakUp!, which enables all our employees to report irregularities in relation to our Code of Conduct (see Compliance and integrity management in this section). |
Integrity and responsibility in our actions is one of the core values on which the AkzoNobel compliance framework is built. This framework helps us to remain successful as a company. We aim for the highest standards of performance and behavior in all our operations. There is also company-wide awareness on compliance.
Our values and Business Principles are reflected in our Code of Conduct. Compliance is embedded in our businesses and there are clear monitoring and reporting lines. We have an open dialog with employees worldwide and keep them updated on the latest standards through training programs and regular meetings on the focus areas.
|
Key performance indicators – integrity | ||||||
|
|
|
|
| |||
|
|
2009 |
2010 |
2011 | |||
|
Code of conduct trained |
95 |
95 |
95 | |||
|
Competition Law certification |
10,000 |
13,000 |
14,400 | |||
A Corporate Compliance Committee monitors the process and makes sure that compliance is embedded and enforced in our business processes. Members include the General Counsel, Secretary to the Executive Committee, and Corporate Directors of Compliance, Internal Audit, Control and HR. The Corporate Compliance Committee reports to the Executive Committee. The Executive Committee compliance reports are presented to the Audit Committee. In 2011, 24 cases were handled at the level of the Corporate Compliance Committee (2010: 23). Of these, five are still under review.
We have set up Compliance Committees in each of our businesses. Compliance is a responsibility of the business unit management team. A Compliance Officer assesses the main risks, improves and monitors compliance and its effectiveness, and trains employees. At the request of the Corporate Compliance function, the Compliance Officers investigate and report on alleged breaches of the Code of Conduct.
Within the compliance framework, specific compliance areas are addressed by specific programs. These include, among others, programs for export control, anti-bribery regulations and competition law. A new Export Control Directive and Manual were issued in 2011, supported by online training modules and face-to-face training. As part of this rollout, a Global Export Control Team was formed and each business has appointed an Export Control Officer. In addition, our Anti-Bribery Directive, Manual and detailed training materials for employees were reviewed and will be brought in line with the UK Anti-Bribery Act, which has been in force since July 2011. A full evaluation of our Competition Law program was performed and led to the conclusion that the program, including training for specifically targeted employees, is mature.
We are aware that effective communication and training is pivotal to strengthening our compliance framework. Communication on the Code of Conduct starts for new employees from the moment they join AkzoNobel and includes online or classroom training. By the end of 2011, we had invited all online employees to complete the Code of Conduct training module. Completion rates (at 95 percent in 2011) are monitored monthly and form an element of the annual Performance and Development Dialog discussion.
The compliance framework includes a declaration program overseen by the Corporate Compliance Committee. Those employees most exposed to competition law issues completed an annual declaration to confirm adherence to the Competition Law Compliance Manual. In 2011, 14,400 employees signed this declaration. Furthermore, each operational manager confirms adherence to the AkzoNobel standards at business unit level during the annual non-Financial Letter of Representation process (NFL). The outcome of the NFL process, in combination with the internal control self-assessment process, forms the basis for the Statement of the Board of Management in this Report 2011.
We introduced a whistle blower procedure in 2009 called SpeakUp!, an internal system which encourages employees to report alleged breaches of the Code of Conduct. An effective internal reporting system serves as the backbone for the Code of Conduct and assists in protecting the company and its employees against economic and reputational harm. An evaluation of the effectiveness of this procedure was undertaken in 2011 and led to recommendations for an improved SpeakUp! procedure. This is due to be introduced in 2012.
In 2011, a total of 245 alleged breaches of the Code of Conduct were reported. Most of the cases related to business integrity and treatment of employees. Company-wide, we had 99 dismissals on grounds related to breaches of the Code of Conduct (2010: 118). Although the issues reported were not material for AkzoNobel, we are conscious of the need to continue to conduct root cause analysis and take appropriate actions. The outcome of the reports and the root cause analysis are put in a broader perspective to determine what lessons can be learned. The results are addressed in the NFL process and in online training programs.
|
Code of conduct | ||||||
|
|
|
|
| |||
|
|
2009 |
2010 |
2011 | |||
|
Number of complaints reported |
198 |
260 |
245 | |||
|
Health & safety |
22 |
22 |
18 | |||
|
Business integrity |
72 |
122 |
112 | |||
|
Treatment of employees |
103 |
113 |
112 | |||
|
Other |
1 |
3 |
3 | |||
|
Number of dismissals |
69 |
118 |
99 | |||
Our share price decreased 19.6 percent in 2011, underperforming both the DJ Stoxx Chemicals and AEX indices. The share price performance relative to these indices for a one-year and a five-year period is shown in the graphs.
Share price performance 2011
AkzoNobel share price in €
Share price performance 2007 – 2011
AkzoNobel share price in €
|
Key share data | ||||||
|
|
|
|
| |||
|
|
2009 |
2010 |
2011 | |||
|
Year-end (share price in €) |
46.40 |
46.49 |
37.36 | |||
|
Year-high (share price in €) |
46.52 |
47.70 |
53.74 | |||
|
Year-low (share price in €) |
26.01 |
37.18 |
29.25 | |||
|
Year-average (share price in €) |
35.92 |
43.39 |
42.20 | |||
|
Average daily trade (in € millions) |
43.4 |
52.1 |
47.5 | |||
|
Average daily trade |
1.2 |
1.2 |
1.1 | |||
|
Number of shares outstanding |
232.2 |
233.5 |
234.7 | |||
|
Market capitalization |
10.8 |
10.9 |
8.8 | |||
|
Net income per share (in €) |
1.23 |
3.23 |
2.04 | |||
|
Dividend per share (in €) |
1.35 |
1.40 |
1.45 | |||
|
Dividend yield (in %) |
3.8 |
3.2 |
3.4 | |||
|
Price-earnings ratio (P/E ratio) |
37.7 |
14.4 |
18.3 | |||
AkzoNobel’s common shares are listed on the stock exchange of Euronext Amsterdam. AkzoNobel 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. The AkzoNobel weight in the AEX index was 3.42 percent at year-end 2011. In 2011, 290 million AkzoNobel shares were traded on Euronext Amsterdam (2010: 311 million). AkzoNobel has a sponsored level 1 ADR program and ADRs can be traded on the international OTCQX platform in the US. The 3:1 ratio (ADR:ORD) became effective from January 2, 2012 onwards.
See the table below for stock codes and ticker symbols:
|
Euronext ticker symbol |
AKZA | |
|
ISIN common share |
NL0000009132 | |
|
OTC ticker symbol |
AKZOY | |
|
ISIN ADR |
US0101993055 | |
|
Sedol code |
5458314 |
For the sixth year in succession, AkzoNobel was included in the Dow Jones Sustainability World Index (DJSI World). We received particular recognition for our risk and crisis management, Code of Conduct, innovation management and environmental policy and management system. We were also again represented in the Carbon Disclosure Project, with an improved rating for transparency of reporting and performance. The Carbon Disclosure Project represents more than 500 institutional investors, with over $60 trillion in assets under management.
AkzoNobel’s dividend policy is to pay a stable to rising dividend each year, following our expected growth in cash generation. Cash dividend is default, stock dividend is optional.
The Board of Management proposes a dividend of €1.45 per common share. AkzoNobel’s shares will be trading ex-dividend as of April 25, 2012. In compliance with the listing requirements of Euronext Amsterdam, the record date will be April 27, 2012. The dividend as proposed to the 2012 Annual General Meeting of shareholders will be payable as of May 24, 2012. The dividend paid over the last five years is shown in the graph.
Dividend paid in € per share
Broad base of international shareholdersAkzoNobel, which has a 100 percent free float, has a broad base of international shareholders. An analysis of the shareholder structure carried out in January 2011 showed that at 45 percent, the US and Canada make up the largest regional group of investors. Investors from the UK and Ireland held 13 percent. Shareholders from the Netherlands hold 15 percent of AkzoNobel shares, while a further 15 percent are held by investors from the rest of Europe. Around 9 percent of the company’s share capital is held by private investors, most of whom are resident in the Netherlands. Sustainability is becoming more important for our investors. Around 42 percent of our shares are held by institutions that are signatories of the UN PRI (United Nations Principles for Responsible Investment). The sum of holdings by institutions that focus on ESG (Environmental, Social & Governance) issues in some capacity is around 28 percent. Major shareholdersAccording to the Authority for the Financial Markets (AFM), both Paulson & Co. and Massachussetts Financial Services Company held more than 5 percent of the issued shares in Akzo Nobel N.V. by December 31, 2011. This information was provided in line with the Netherlands Financial Markets Supervision Act (“Wet op het financieel toezicht”). The most recent information can be found on the website of the AFM under notifications substantial holdings. The Financial Markets Supervision Act imposes a duty to disclose percentage holdings in the capital and/or voting rights in the company when such holding reaches, exceeds or falls below 5, 10, 15, 20, 25, 30, 40, 50, 60, 75 and 95 percent. Such disclosure must be made to the AFM without delay, who then notify the company. |
Distribution of shares 2010  Distribution of shares 2011  |
AkzoNobel is committed to maintaining a strong investment grade rating. Regular review meetings are held between rating agencies and AkzoNobel senior management. See table for present rating and outlook.
|
Rating agency |
Long-term rating |
Outlook | ||||||||||||||||
| ||||||||||||||||||
|
Moody’s1 |
Baa1 |
Stable | ||||||||||||||||
|
Standard & Poor’s2 |
BBB+ |
Stable | ||||||||||||||||
During 2011, we issued an €800 million bond and made a tender offer for €528 million. For a full overview of our bonds, please visit the Bond & Credit Information in the Investors section of our corporate website.
Debt maturity in millions
Close dialog with the capital marketsWe attach great value to maintaining an open dialog with the financial community in order to promote transparency. Management gave presentations at a number of industry conferences, as well as during meetings with investors and analysts. In 2011, we organized one Capital Market Day. In December, we held a Teach-in on Decorative Paints. In the Netherlands, AkzoNobel uses the Shareholders’ Communication Channel to distribute the agenda of the Annual General Meeting of shareholders and to allow shareholders who hold their shares through an associated bank to participate in proxy voting at the AGM. Investor relations policyWe provide shareholders and other parties in the financial markets with equal and simultaneous information about matters that may influence our share price. The contacts between the Board of Management on the one hand, and investors and analysts on the other, are carefully handled and structured, and the company will not engage in any acts that compromise the independence of analysts in relation to the company or vice-versa. AkzoNobel communicates with its investors and analysts by organizing or attending meetings such as the Annual General Meetings of shareholders, its Capital Market Days, roadshows and broker conferences. More information on these meetings, as well as the presentation materials, can be found on our corporate website. Furthermore, AkzoNobel publishes an annual report, quarterly reports, the AkzoNobel Fact File and press releases, which are also available on the company’s corporate website. Briefings are given to update the market after each quarterly announcement via group meetings or teleconferences, and are accessible by telephone or via the corporate website. Meetings with investors (bilateral and general) are held to ensure that the investment community receives a balanced and complete view of the company’s performance and the issues faced by the business, while always observing applicable rules concerning selective disclosure, equal treatment of shareholders and insider trading. In the period preceding the publication of the results of that quarter, AkzoNobel will be in a so-called “closed period”. During this time, we will not hold meetings with analysts or investors, make presentations at broker conferences, or hold discussions/conference calls with investors and analysts. These “closed periods” are published in our event calendar available on www.akzonobel.com/investor_relations Analysts’ reports and valuations are not assessed, commented upon or corrected, other than factually, by the company. AkzoNobel does not pay any fee(s) to parties for carrying out research for analysts’ reports, or for the production or publication of analysts’ reports, with the exception of credit rating agencies. Contacts with the capital markets are dealt with by the members of the Board of Management, AkzoNobel’s investor relations professionals and, from time to time, other AkzoNobel personnel specially mandated by the Board of Management. Contact informationIf you have questions or comments about investor relations matters, please contact us: AkzoNobel Investor Relations Holders of ADRs in the US can contact our Transfer and Register Agent: Deutsche Bank Shareholder Services |
Analyst recommendationsAt year-end 2011, AkzoNobel was covered by 32 equity brokers and the following analyst recommendations were applicable: Analyst recommendations in %  |
2012 |
April 19 Report for the |
April 23 Annual General |
April 25 Ex-dividend date of 2011 final dividend |
|
April 27 Record date of 2011 final dividend |
April 30 – May 18 Election period cash or stock final dividend |
May 24 Payment date cash dividend and delivery of new shares |
July 19 Report for the |
|
October 18 Report for the |
2013 |
February 14 Report for the |
|
In € millions |
Note |
|
2010 |
|
2011 | |||||
|
|
|
|
|
|
| |||||
|
Continuing operations |
|
|
|
|
| |||||
|
Revenue |
|
14,640 |
|
15,697 |
| |||||
|
Cost of sales |
|
(8,672) |
|
(9,670) |
| |||||
|
Gross profit |
|
|
5,968 |
|
6,027 | |||||
|
Selling expenses |
|
(3,341) |
|
(3,407) |
| |||||
|
General and administrative expenses |
|
(1,103) |
|
(1,229) |
| |||||
|
Research and development expenses |
|
(334) |
|
(356) |
| |||||
|
Other operating income/(expenses) |
29 |
|
7 |
| ||||||
|
|
|
|
(4,749) |
|
(4,985) | |||||
|
Operating income |
|
|
1,219 |
|
1,042 | |||||
|
Financing income |
51 |
|
57 |
| ||||||
|
Financing expenses related to pensions |
(100) |
|
(59) |
| ||||||
|
Other financing expenses |
(278) |
|
(336) |
| ||||||
|
Results from associates and joint ventures |
25 |
|
23 |
| ||||||
|
Profit before tax |
|
|
917 |
|
727 | |||||
|
Income tax |
|
(170) |
|
(194) | ||||||
|
Profit from continuing operations |
|
|
747 |
|
533 | |||||
|
|
|
|
|
|
| |||||
|
Discontinued operations |
|
|
|
|
| |||||
|
Profit for the period from discontinued operations |
|
90 |
|
8 | ||||||
|
Profit for the period |
|
|
837 |
|
541 | |||||
|
|
|
|
|
|
| |||||
|
Attributable to |
|
|
|
|
| |||||
|
Shareholders of the company |
|
|
754 |
|
477 | |||||
|
Non-controlling interests |
|
|
83 |
|
64 | |||||
|
Profit for the period |
|
|
837 |
|
541 | |||||
|
|
|
|
|
|
| |||||
|
Earnings per share, in € |
|
|
|
|
| |||||
|
Continuing operations |
|
|
|
|
| |||||
|
Basic |
|
2.85 |
|
2.01 | ||||||
|
Diluted |
|
2.83 |
|
1.99 | ||||||
|
Discontinued operations |
|
|
|
|
| |||||
|
Basic |
|
0.38 |
|
0.03 | ||||||
|
Diluted |
|
0.38 |
|
0.03 | ||||||
|
Total operations |
|
|
|
|
| |||||
|
Basic |
|
3.23 |
|
2.04 | ||||||
|
Diluted |
|
3.21 |
|
2.02 |
|
In € millions |
2010 |
2011 | ||
|
Profit for the period |
837 |
541 | ||
|
|
|
| ||
|
Other comprehensive income |
|
| ||
|
Exchange differences arising on translation of foreign operations |
827 |
55 | ||
|
Cash flow hedges |
50 |
(55) | ||
|
Income tax relating to other comprehensive income |
(35) |
9 | ||
|
Other comprehensive income for the period (net of tax) |
842 |
9 | ||
|
Comprehensive income for the period |
1,679 |
550 | ||
|
|
|
| ||
|
Comprehensive income attributable to |
|
| ||
|
Shareholders of the company |
1,523 |
486 | ||
|
Non-controlling interests |
156 |
64 | ||
|
Comprehensive income for the period |
1,679 |
550 |
|
In € millions |
Note |
|
2010 |
|
2011 | |||||
|
|
|
|
|
|
| |||||
|
Assets |
|
|
|
|
| |||||
|
Non-current assets |
|
|
|
|
| |||||
|
Intangible assets |
7,308 |
|
7,392 |
| ||||||
|
Property, plant and equipment |
3,384 |
|
3,705 |
| ||||||
|
Deferred tax assets |
794 |
|
813 |
| ||||||
|
Investment in associates and joint ventures |
175 |
|
198 |
| ||||||
|
Other financial non-current assets |
1,008 |
|
1,187 |
| ||||||
|
Total non-current assets |
|
|
12,669 |
|
13,295 | |||||
|
|
|
|
|
|
| |||||
|
Current assets |
|
|
|
|
| |||||
|
Inventories |
1,678 |
|
1,924 |
| ||||||
|
Current tax assets |
|
108 |
|
98 |
| |||||
|
Trade and other receivables |
2,788 |
|
2,917 |
| ||||||
|
Cash and cash equivalents |
2,851 |
|
1,635 |
| ||||||
|
Total current assets |
|
|
7,425 |
|
6,574 | |||||
|
Total assets |
|
|
20,094 |
|
19,869 | |||||
|
|
|
|
|
|
| |||||
|
Equity and liabilities |
|
|
|
|
| |||||
|
Equity |
|
|
|
|
| |||||
|
Shareholders’ equity |
8,984 |
|
9,212 |
| ||||||
|
Non-controlling interests |
|
525 |
|
531 |
| |||||
|
Total equity |
|
|
9,509 |
|
9,743 | |||||
|
|
|
|
|
|
| |||||
|
Non-current liabilities |
|
|
|
|
| |||||
|
Provisions |
1,855 |
|
1,717 |
| ||||||
|
Deferred tax liabilities |
589 |
|
567 |
| ||||||
|
Long-term borrowings |
2,880 |
|
3,035 |
| ||||||
|
Total non-current liabilities |
|
|
5,324 |
|
5,319 | |||||
|
|
|
|
|
|
| |||||
|
Current liabilities |
|
|
|
|
| |||||
|
Short-term borrowings |
907 |
|
494 |
| ||||||
|
Current tax liabilities |
|
456 |
|
413 |
| |||||
|
Trade and other payables |
3,305 |
|
3,349 |
| ||||||
|
Current portion of provisions |
593 |
|
551 |
| ||||||
|
Total current liabilities |
|
|
5,261 |
|
4,807 | |||||
|
Total equity and liabilities |
|
|
20,094 |
|
19,869 |
|
In € millions |
|
2010 |
|
2011 | ||||||||
| ||||||||||||
|
Profit for the period |
837 |
|
541 |
| ||||||||
|
Income from discontinued operations |
(90) |
|
(8) |
| ||||||||
|
|
|
|
|
| ||||||||
|
Adjustments to reconcile earnings to cash generated from operating activities |
|
|
|
| ||||||||
|
Amortization/depreciation |
590 |
|
621 |
| ||||||||
|
Impairment losses |
50 |
|
12 |
| ||||||||
|
Financing income and expenses |
327 |
|
338 |
| ||||||||
|
Results from associates and joint ventures |
(25) |
|
(23) |
| ||||||||
|
Pre-tax result on divestments |
(52) |
|
(23) |
| ||||||||
|
Income tax |
170 |
|
194 |
| ||||||||
|
Changes in working capital1 |
(124) |
|
(344) |
| ||||||||
|
Changes in provisions |
(651) |
|
(498) |
| ||||||||
|
Interest paid |
(265) |
|
(282) |
| ||||||||
|
Income tax paid |
(277) |
|
(227) |
| ||||||||
|
Other |
29 |
|
24 |
| ||||||||
|
Net cash from operating activities |
|
519 |
|
325 | ||||||||
|
Capital expenditures |
(534) |
|
(708) |
| ||||||||
|
Interest received |
81 |
|
39 |
| ||||||||
|
Dividends from associates and joint ventures |
19 |
|
10 |
| ||||||||
|
Acquisition of consolidated companies |
(143) |
|
(204) |
| ||||||||
|
Proceeds from sale of interests |
145 |
|
66 |
| ||||||||
|
Other changes |
(47) |
|
(51) |
| ||||||||
|
Net cash from investing activities |
|
(479) |
|
(848) | ||||||||
|
Proceeds from borrowings |
179 |
|
911 |
| ||||||||
|
Borrowings repaid |
(212) |
|
(1,381) |
| ||||||||
|
Acquisition of non-controlling interests |
(54) |
|
(8) |
| ||||||||
|
Issue of shares for stock option plan |
9 |
|
15 |
| ||||||||
|
Dividends |
(403) |
|
(362) |
| ||||||||
|
Net cash from financing activities |
|
(481) |
|
(825) | ||||||||
|
|
|
|
|
| ||||||||
|
Net cash used for continuing operations |
|
(441) |
|
(1,348) | ||||||||
|
Cash flows from discontinued operations |
|
1,095 |
|
11 | ||||||||
|
Net change in cash and cash equivalents of continued and discontinued operations |
|
654 |
|
(1,337) | ||||||||
|
|
|
|
|
| ||||||||
|
Cash and cash equivalents at January 1 |
|
1,919 |
|
2,683 | ||||||||
|
Effect of exchange rate changes on cash and cash equivalents |
|
110 |
|
(11) | ||||||||
|
Cash and cash equivalents2 |
|
2,683 |
|
1,335 | ||||||||
|
|
Attributable to shareholders of the company |
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
In € millions |
Sub- |
Additional paid-in capital |
Cash flow hedge reserve |
Cumulative translation reserve |
Other (statutory) reserves and undistributed profit |
Share- |
Non-con- |
Total equity | ||||||||
|
Balance at January 1, 2010 |
465 |
2 |
(6) |
(777) |
8,091 |
7,775 |
470 |
8,245 | ||||||||
|
Profit for the period |
– |
– |
– |
– |
754 |
754 |
83 |
837 | ||||||||
|
Other comprehensive income |
– |
– |
47 |
774 |
– |
821 |
73 |
894 | ||||||||
|
Tax on other comprehensive income |
– |
– |
(15) |
(20) |
– |
(35) |
– |
(35) | ||||||||
|
Reclassification into the statement of income |
– |
– |
3 |
(20) |
– |
(17) |
– |
(17) | ||||||||
|
Comprehensive income |
– |
– |
35 |
734 |
754 |
1,523 |
156 |
1,679 | ||||||||
|
Dividend paid |
– |
– |
– |
– |
(320) |
(320) |
(83) |
(403) | ||||||||
|
Equity-settled transactions |
– |
– |
– |
– |
27 |
27 |
– |
27 | ||||||||
|
Issue of common shares |
2 |
7 |
– |
– |
– |
9 |
– |
9 | ||||||||
|
Acquisitions and divestments |
– |
– |
– |
– |
(30) |
(30) |
||||||||||
