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CEO statement

2017 was an extraordinary year for AkzoNobel. Our people helped the company deliver volume and revenue growth while going through a time of unprecedented change. And as that period of transformation continues, our commitment to unlocking value, accelerating growth and contributing to the success of our customers – to becoming a world class, global market leader in the paints and coatings industry – becomes stronger by the day.

Thierry Vanlancker, CEO and Chairman of the Board of Management and Executive Committee (photo)

“As we forge ahead to build for the future and maximize the power of our brands, the company is sharpening its focus”

Thierry Vanlancker

CEO and Chairman of the Board of Management and Executive Committee

As we forge ahead to build for the future and maximize the power of our brands, the company is sharpening its focus. We have a new management team in place; have adopted a new structure to create a simpler, faster organization ready to adapt to new industry challenges; have committed to new financial guidance of 15% * by 2020 and remain as dedicated as ever to delivering for our customers. Thanks to the tireless effort of our hard-working colleagues around the world, AkzoNobel is entering an exciting new era.

There were many notable events during 2017, although the milestone development was the decision to separate our Specialty Chemicals business.

Another major change saw CEO Ton Büchner step down for health reasons. Ton’s contribution to the company was immense. He put in place a strong operational foundation, providing a solid platform for the future. I feel privileged to have worked with him and honored to have succeeded him.

CFO Maëlys Castella took a leave of absence, also for health reasons. She has been an integral part of establishing a solid financial foundation. We look forward to welcoming her back in a senior management role once she returns.

The improvements Ton and Maëlys brought about were crucial and helped pave the way for the new AkzoNobel. Thanks to their vision, leadership and expertise, we established a solid structure and put key processes in place which have enabled the company to move forward and take the next step. Our new strategy – which has powerful performance and precise processes as cornerstones – is therefore a natural progression. It will make us more agile and drive the streamlining of our core capabilities – making and selling paint and striving for the best efficiency and performance in what we do.

We gave full details of this new strategic direction when we officially announced our plans to create two focused, high performing companies – Paints and Coatings, and Specialty Chemicals. We have widespread shareholder support for the direction we are taking and our focus now is on ensuring a successful separation of Specialty Chemicals. As of January 1, 2018, we have been operating as two separate companies under the AkzoNobel umbrella, ready for formal separation in April. As well as enabling Specialty Chemicals to realize its full potential, this will create a leaner, stronger Paints and Coatings company to take AkzoNobel forward.

This is something we have been building up to for some time, driven by sustained operational and financial performance improvements. The company has solid financials and our single focus on the proud craft of making the finest paints and coatings will enable us to make a step-change in our performance and long-term value creation, with a clear commitment to achieving our 2020 financial guidance.

Our new CEO meeting employees and learning more about how we work with our customers (photo)

During 2017, our new CEO dedicated as much time as possible to visiting some of our sites around the world, meeting employees and learning more about how we work with our customers.

During 2017, we received unsolicited proposals from a competitor which undervalued AkzoNobel and raised a number of other concerns. We carefully and seriously considered each of these proposals, but concluded they were not in the best long-term interests of the company, its shareholders and other stakeholders. We also held constructive discussions about a possible merger with one of our peers, which ended without agreement. As the industry continues to consolidate, we will continue to strengthen our business model, with a singular focus on further improvement. However, we remain open to exploring relevant opportunities, including bolt-on acquisitions, illustrated by three acquisitions we made in 2017 – Flexcrete Technologies in the UK, Disa Technology in France and the business of V.Powdertech in Thailand (see Acquisitions show new strategy in action).

As a focused Paints and Coatings company, we have changed the structure of our Executive Committee and the way we operate and work with each other – underpinned by the roll-out of a world class Integrated Business Planning process. Designed to support a more efficient and faster way of working, we have reorganized the company by separating our commercial activities (led by Chief Operating Officer, Ruud Joosten) from those in our supply chain (led by Chief Supply Chain Officer, David Allen), while maintaining very close cooperation between the two. This means on the commercial side, we will have a clearer focus on customers, delivering on our new financial guidance and achieving profitable growth. And by centralizing all supply chain responsibilities – including manufacturing – into a single, global function with dedicated experts, we can serve our customers more efficiently by further driving standardization, building functional excellence, leveraging expertise and assets across our businesses and accelerating our AkzoNobel Leading Performance System () program. We expect to start seeing the benefits already in 2018. Due to this reorganization, the roles of Executive Committee members responsible for Business Areas became redundant. It was therefore mutually and amicably decided that Mr. Conrad Keijzer would step down in April 2017.

In the midst of these management changes, I was delighted to announce Maarten de Vries as our new CFO, to complete our Executive Committee. He started on January 1, 2018, and brings a wealth of expertise and international business experience. I look forward to working with him.

Throughout 2017, I am proud to say we never lost focus. We continued to deliver for our customers, develop new and exciting products, grow the business and increase our operational efficiency. We achieved another record year of (including discontinued operations), despite significant external headwinds, and delivered real organic growth, supplemented by the three acquisitions I referred to earlier. Specialty Chemicals achieved record results as it prepares to become a standalone business, led by Werner Fuhrmann. Meanwhile, the investments we are making to drive growth were evident throughout our portfolio, and throughout the world, as various new sites opened and several locations were expanded – including our research and development facilities in Houston, Texas.

Official opening of our new Ashington, UK, site (photo)

One of the highlights was the official opening of our new Ashington, UK, site (pictured on this page). The facility is the world’s most advanced and sustainable paint plant and is the new center of production for Dulux in the UK (see Setting new standards for more details). It’s physical proof of our strategy in action and I feel immensely proud of what our colleagues have achieved there. In addition, we opened a new €31 million plant for coatings in Chonburi, Thailand, a new Aerospace Color Center in Dongguan, China, and we are building the biggest powder coatings plant of its kind in Changzhou, China.

The Specialty Chemicals business also expanded several sites. As well as increasing capacity for sodium hydrosulfide in LeMoyne (US), a capacity expansion was inaugurated for producing organic peroxides in Los Reyes (Mexico). In China, an important expansion was completed at the Boxing plant, while production capacity for dicumyl peroxide (DCP) was boosted at the multi-site in Ningbo. And in Gujarat, India, work started on a world-scale plant for monochloroacetic acid (MCA) as part of a joint arrangement with Atul. All these developments underline our commitment to working more closely with our customers to deliver the brands, products and technologies they need to ensure their own success.

With all that happened during the year, we made sure we kept our eye on the ball, so it was very pleasing to be ranked number one on the 2017 Dow Jones Sustainability Index in the Chemicals industry. The fact we claimed top spot again (our fifth number one ranking in six years) says everything about the dedication and commitment of our employees. Our people take great pride in what they do and are always looking to deliver more by consuming less, so this was a notable achievement. We all believe putting sustainability at the heart of our business strategy leads to better long-term business results, both for ourselves and our business partners. During 2017, we put particular emphasis on increasing our energy efficiency, reducing material waste and continuing to deliver more eco-premium solutions and water-based products to our customers. Sustainability is clearly good for business.

Ton Büchner (left), former CEO together with Thierry Vanlancker, current CEO of AkzoNobel (photo)

Thierry Vanlancker pictured with former CEO Ton Büchner at the investor update held in London in April 2017.

Relevant cutting-edge innovation is also key to delivering on our strategy and we’re making great progress with our product development, especially in terms of providing customers with more sustainable solutions and greater functionality. For example, in China we introduced Dulux Biocare, an interior paint which will boost the sustainable development of the country’s eco-friendly residential repainting market. We also launched Sikkens Alpha Rezisto for the professional market in several European countries. Its hydrophobic coating creates a surface which repels many common household stains. In Specialty Chemicals, notable launches included six new product applications from the Pulp and Performance Chemicals business through its Levasil (colloidal silica), Expancel (expandable microspheres) and Kromasil brands.

I always like to see how people benefit from using our products, so I was very happy that our partnership with the MasterPeace organization achieved its goal of creating 100 Walls of Connection in cities around the world (in fact, the eventual total was 141). An extension of our global “Let’s Colour” initiative, we worked with artists and local residents to help create connections between groups of people who otherwise wouldn’t have come together (see Connecting people and places). I was also delighted with the success of the inaugural Imagine Chemistry innovation challenge, which attracted a lot of interest globally and is being staged for a second time in 2018 (see Turning great ideas into reality).

Our employees are our greatest asset and I want to thank the proud people of AkzoNobel for all their hard work during such a busy year. Their passion, resilience and commitment to delighting our customers has shone throughout 2017, whether they have been dealing with the challenges of Hurricane Harvey in the US, driving our continuous improvement agenda, developing new products or delivering on successfully carrying out the separation of Specialty Chemicals. Thanks to them, we now stand on the cusp of a new era.

It’s an honor to be the new CEO of AkzoNobel. We are building something very special, backed by two centuries of pride and experience. We have a new organization in place; we have a compelling strategy and clear financial ambitions; we have a world class portfolio of brands and products; we command strong leadership positions in our markets and are ready to hit the ground running as we look to continue our momentum in 2018 and beyond. I am in no doubt we have the brands, the products, the people – and the passion – to deliver.

Thierry Vanlancker, CEO and Chairman of the Board of Management and Executive Committee – signature (handwriting)

Thierry Vanlancker, CEO and Chairman
of the Board of Management and Executive Committee

* Excluding unallocated corporate center costs; assumes no significant market disruption.

ROS (return on sales)

This is a key profitability measure and is calculated as EBIT as a percentage of revenue.

ALPS

AkzoNobel Leading Performance System, a company-wide continuous improvement program.

EBIT

EBIT is operating income excluding identified items.