Chairman’s statement

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.