Year of transformation ANNUAL REPORT 2007

Transcription

1 Year of transformation ANNUAL REPORT 2007

2 2007: Year of transformation 2007 has been an incredible year. One of the most eventful and exciting in the long, proud history of Akzo Nobel. The company has been transformed. Akzo Nobel divested its pharmaceutical activities (Organon BioSciences) to Schering-Plough and acquired Imperial Chemical Industries plc (ICI) to create one of the world s foremost industrial companies. We re bigger, stronger, more focused. We are now not only the largest global industrial coatings manufacturer, but also the number one in decorative paints, as well as being a major worldwide supplier of specialty chemicals. The company has significantly increased its presence in key emerging markets and has strategically positioned itself for sustainable growth. We are stronger, not only in terms of revenue, market share, and geographical presence, but also in terms of our ability to develop innovative products, to satisfy the growing needs of our customers, and to skillfully manage and invest in our business. We re evolving. We re progressing. We adapt to change and are prepared to successfully meet the challenges and exploit the opportunities that the future may bring. We re committed to making a better tomorrow.

3 2007: Key developments Transaction An offer of EUR 11 billion was accepted for the sale of Organon BioSciences (OBS). As a result, Akzo Nobel abandoned plans to proceed with a partial IPO of the OBS business. March Q1 January Relocation Akzo Nobel announced that it would be relocating its head office from Arnhem in the Netherlands to the Dutch capital, Amsterdam, in summer January Akzo Nobel Car Refinishes was awarded the privilege of becoming Hyundai Motor Company s first globally approved aftermarket supplier. February The company s Canadian Sico coatings brand launched an even greener range of its popular environmentally-friendly product line. April Akzo Nobel announced a EUR 250 million Chemicals investment in a new multi-site at Ningbo in China, with the first facilities to be constructed by the company s Functional Chemicals business. The company strengthened its leading position in the global protective coatings market after signing an agreement to acquire the worldwide Ceilcote business from the German-based KCH Group. The Marine & Protective Coatings business International Paint brand won the Queen s Award for Innovation in the UK for the success of its Intersleek 700 antifouling coating.

4 Expansion The company officially opened two sites in China. Decorative Coatings opened a facility in Langfang, while Functional Chemicals inaugurated a new polysulfides production plant in Taixing. Chairman Hans Wijers also announced new strategic targets for China including a revenue target of USD 2 billion by June Q2 Q3 August Acquisition Akzo Nobel announced that the company had made a recommended cash offer of EUR 11.5 billion (GBP 8.1 billion) for Imperial Chemical Industries plc (ICI). May Akzo Nobel significantly broadened its position in the North American wood coatings market after signing an agree ment to acquire Chemcraft Holdings Corporation, North America s largest privately-owned manufacturer of industrial wood coatings. The company s Pulp & Paper Chemicals business, Eka Chemicals, announced details of a EUR 50 million investment in Brazil to supply, store, and handle all chemicals for a greenfield pulp mill being built in Três Lagoas, Brazil. Akzo Nobel s first ever share buyback program commenced. July Powder Coatings officially opened its first production site in Russia, situated in the industrial belt surrounding Moscow at Orekhovo-Zuevo. The company announced its intention to delist from the NASDAQ stock exchange, and deregister from the U.S. Securities and Exchange Commission (SEC). The more simplified structure of a single listing in Amsterdam is expected to generate cost savings of around EUR 7 million per annum.

5 Recognition The company was ranked number one in the Chemicals sector on the prestigious Dow Jones Sustainability Indexes. September Q4 December Integration REVENUE BY SEGMENT IN PERCENTAGES Decorative Paints 36 Performance Coatings 32 Specialty Chemicals 32 Akzo Nobel finalized plans for new segments of the company. The integrated organization was set up to operate in three business areas Decorative Paints, Performance Coatings, and Specialty Chemicals. September Akzo Nobel s Polymer Chemicals site in Pasadena in the United States received prestigious Star recognition for its implementation of a comprehensive health and safety management system. October At Analyst Meetings held in London and New York, the company announced that a higher dividend payout ratio was being proposed a minimum of 45 percent of net income before incidentals. November At Extraordinary General Meetings held in Amsterdam and London, shareholders of Akzo Nobel and ICI approved Akzo Nobel s proposed acquisition of the UK-based company. The divestment of Organon BioSciences for EUR 11 billion was completed. December Akzo Nobel announced that the company had been selected to globally supply a full range of coatings products for application to Shell s worldwide retail network of service stations and business signage.

6 Akzo Nobel at a glance Continued strong performance in transformational year 1 EBITDA up 15 percent to EUR 1,271 million 1 Net income up 29 percent to EUR 580 million Dividend up 50 percent to EUR 1.80 per share 1 Continuing operations before incidentals. Akzo Nobel is a Fortune Global 500 company and is listed on the Euronext Amsterdam stock exchange. The company is also the Chemicals industry leader on the Dow Jones Sustainability Indexes and is included on the FTSE4Good Index. Based in the Netherlands, we are a multi cultural organization serving customers throughout the world with coatings and chemicals products. We employ around 43,000 people and conduct our activities in these two segments, with operating subsidiaries in more than 80 countries. EMPLOYEES BY REGION NUMBER OF EMPLOYEES YEAR-END 2007 CONTRIBUTION TO REVENUE IN PERCENTAGES Akzo Nobel Coatings 64 Akzo Nobel Chemicals 36 U.S. and Canada 6,100 Latin America 2,700 Asia 8,400 The Netherlands 4,900 Germany 3,100 Sweden 3,700 UK 3,000 Other European countries 9,000 Other regions 1,700 TOTAL 42,600 2

7 OVERVIEW AKZO NOBEL AT A GLANCE REVENUE BY DESTINATION AND ORIGIN MILLIONS OF EUROS 1,855 1,871 U.S. AND CANADA 472 1,406 SWEDEN UK GERMANY 777 1,368 3,147 2,068 THE NETHERLANDS OTHER EUROPEAN COUNTRIES 1,471 1,225 ASIA OTHER REGIONS LATIN AMERICA Revenue by destination Revenue by origin REVENUE BY DESTINATION REVENUE BY ORIGIN MILLIONS OF EUROS U.S. and Canada 1,855 Latin America 606 Asia 1,471 The Netherlands 777 Germany 907 Sweden 472 UK 552 Other European countries 3,147 Other regions 430 TOTAL 10,217 MILLIONS OF EUROS U.S. and Canada 1,871 Latin America 475 Asia 1,225 The Netherlands 1,368 Germany 930 Sweden 1,406 UK 617 Other European countries 2,068 Other regions 257 TOTAL 10,217 AKZO NOBEL ANNUAL REPORT

8 Key figures ECONOMIC DATA MILLIONS OF EUROS % Information on the statement of income before incidentals Revenue 10,217 10,023 2 EBITDA 1,271 1, EBIT Net income from continuing operations After incidentals EBIT from continuing operations (13) Net income from discontinued operations 8, Net income, attributable to shareholders 9,330 1, Cash flows and research and development Net cash from operating activities Capital expenditures (3) Depreciation (5) Research and development expenses Ratios in percent EBITDA margin (before incidentals) EBIT margin (before incidentals) Research and development expenses as percentage of revenue Interest coverage (after incidentals) Net income as percentage of shareholders equity (after incidentals) Moving average ROI (before incidentals) People, health, safety, and environment Average number of employees during the year 43,000 42,600 1 Average revenue per employee (in thousands of euros) Volatile organic compound (VOC) emission to air (in metric kilotons) Number of serious incidents 2 3 Total reportable rate of injuries per million hours Number of lost time injuries of contractors Total illness absence rate (in percentage)

9 OVERVIEW KEY FIGURES REVENUE AUTONOMOUS GROWTH MILLIONS OF EUROS IN PERCENTAGES , , AUTONOMOUS GROWTH IN % EBITDA 1 EBIT 1 MILLIONS OF EUROS MILLIONS OF EUROS ,104 1, EBIT % NET INCOME 1 DIVIDEND PER SHARE MILLIONS OF EUROS IN EUROS DIVIDEND PER SHARE + 50% 1 Continuing operations before incidentals. AKZO NOBEL ANNUAL REPORT

10 Shareholder information Share price increased in value by 19 percent Transformation completed Dividend: increased 50 percent to proposed EUR 1.80 per share In 2007, a lot of time was spent with investors in order to explain the rationale of the proposed acquisition of ICI. In October 2007, new targets were presented to the financial community at well attended analyst meetings in London and New York. An intention to return EUR 3 billion to shareholders upon completion of the Henkel on sale in 2008 was also presented. Akzo Nobel share price In 2007, Akzo Nobel shares again performed well, increasing in value by 19 percent. Total Shareholder Return (TSR) for the full year, including dividend, was 21 percent and Akzo Nobel ranked #2 compared with its new peer group. Trading volumes of our common shares increased by 50 percent compared with previous years. The Board of Management and the Supervisory Board are proposing a dividend of EUR 1.80, an increase of 50 percent compared with the dividend of the last five years, which was stable at EUR It is the company s policy to distribute at least 45 percent of net income before incidentals as dividend. In May 2007, Akzo Nobel launched its initial share buyback program of EUR 1.6 billion, which was concluded at the end of August. The company attaches 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 in meetings with investors and analysts. In addition to the Annual General Meeting (AGM) in April, there was an Extraordinary General Meeting (EGM) in November 2007, where the acquisition of ICI was approved. At the meetings, 40 to 50 percent of the capital was represented. In the Netherlands, Akzo Nobel uses the Shareholders Communication Channel to distribute the agenda of the AGM, and to allow shareholders who hold their shares through an associated bank, to participate in proxy voting at the AGM. During 2007, the company decided to deregister and terminate the reporting obligations under the U.S. Securities Act of 1934, and to delist from the NASDAQ stock exchange. Akzo Nobel will continue to provide a high standard of corporate governance, information and disclosure in line with the standard the company set itself during Akzo Nobel has a sponsored level 1 ADR program and ADRs can be traded at the OTCQX platform in the United States. Akzo Nobel s common shares are listed at Euronext Amsterdam. For the financial calendar and contact details with Investor Relations, reference is made to pages 156 and 160. SHARE INFORMATION Year-end (in euros) Year-high (in euros) Year-low (in euros) Year-average (in euros) Average daily trade in shares: In millions of euros In millions of shares Number of shares outstanding at year-end Market capitalization at year-end (in billions of euros) Net income per share (in euros) Dividend yield (%)

11 OVERVIEW SHAREHOLDER INFORMATION SHARE PRICE PERFORMANCE AND SHARE VOLUME IN 2007 IN BILLIONS OF EUROS Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Share volume (left axis) Share price (right axis) TOTAL SHAREHOLDER RETURN IN 2007 AKZO NOBEL VERSUS PEERS DURING PERIOD JAN 1, DECEMBER 31, 2007 (%) IN EUR GEO-MIX SHAREHOLDERS 2007 AT YEAR-END THE DISTRIBUTION OF AKZO NOBEL SHARES WAS: IN PERCENTAGES U.S UK The Netherlands Rest of world BASF Akzo Nobel PPG Arkema Hercules RPM International Kemira DuPont Sherwin-Williams Kansai Paint Dow Chemicals Valspar Ciba LEADING BROKER RECOMMENDATIONS NUMBER OF RECOMMENDATIONS YEAR-END 2007 TOTAL SHAREHOLDER RETURN OVER THE LAST THREE YEARS AKZO NOBEL VERSUS PEERS DURING PERIOD JAN 1, DECEMBER 31, 2007 (%) Buy 17 Hold 5 Sell ICI Bayer Novo Nordisk Merck KGaA Akzo Nobel DSM Sherwin-Williams Solvay Rohm & Haas PPG Valspar DuPont UCB Dow Chemicals Clariant Ciba INSTITUTIONS-RETAIL 2007 IN PERCENTAGES Institutions 90 Retail 10 AKZO NOBEL ANNUAL REPORT

12 Acquisition of ICI Transformational deal and a perfect strategic fit with Decorative Coatings Geographic expansion into high-growth markets Portfolio strengthened with leading brands and innovative technologies ICI KEY BRANDS Akzo Nobel and Imperial Chemical Industries (ICI) reached agreement on the terms of a recommended cash offer by Akzo Nobel for the entire issued and to be issued share capital of ICI in August The offer price valued the entire existing issued ordinary share capital of ICI at approximately EUR 11.5 billion (GBP 8.1 billion). In addition to the deal which included an extra 5p in dividend over the second half of 2007, on top of a 4.95p interim dividend already declared by ICI over the first half of 2007, valuing ICI at 679p a share Akzo Nobel also agreed a back-to-back sale of ICI s Adhesives and Electronic Materials activities to German company Henkel for EUR 4 billion (GBP 2.7 billion). The transaction, which was approved by Akzo Nobel and ICI shareholders in November 2007, consolidated Akzo Nobel s position as the world s largest maker of paints and coatings, as well as generating estimated pre-tax cost synergies of EUR 280 millions (broken down on page 9). Akzo Nobel s purchase of ICI finalized on January 2, 2008 was the second largest acquisition ever by a Dutch company. The combination provides well developed access to fast-growing markets in Asia and Latin America and adds an experienced and skilled workforce, as well as boosting the company s portfolio with new technologies and household brands such as Dulux and Glidden. 8

13 OVERVIEW ACQUISITION OF ICI INTEGRATION OF ICI PRO FORMA AKZO NOBEL - ICI 2007 FIGURES ICI Paints (integrated into Akzo Nobel) Regional & Industrial (integrated into Akzo Nobel) Specialty Starches (intended for new ownership) Specialty Polymers (integrated into Akzo Nobel) Electronic Materials (on sale to Henkel in 2008) Adhesives (on sale to Henkel in 2008) MILLIONS OF EUROS 2007 Revenue 14,442 EBITDA 1 1,870 EBITDA margin, in % 12.9 EBIT 1 1,410 EBIT margin, in % 9.8 Net income Net income Before incidentals, and EUR 146 million fair value adjustment charge. 2 Before incidentals. OTHER SYNERGIES WITH ESTIMATED POST-TAX NPV OF EUR 375 MILLION, OF WHICH 75 PERCENT IS CASH RELATED Opportunities to grow revenue faster ESTIMATED ANNUAL PRETAX COST SYNERGIES OF EUR 280 MILLION MILLIONS OF EUROS Raw materials 65 Streamlining operations 65 SG&A & corporate 150 Reduction in working capital Consolidation of manufacturing sites Opportunity costs of building position in Asia by Akzo Nobel AKZO NOBEL ANNUAL REPORT

14 A YEAR OF TRANSFORMATION THE IMAGE PRESENTED ON THE FRONT COVER WAS USED IN A GLOBAL ADVERTISING CAMPAIGN TITLED SOMETHING TO SHOUT ABOUT, CELEBRATING OUR COMBINED COMMITMENT FOR A BETTER TOMORROW. Safe harbor statement This Annual Report contains statements which address such key issues as Akzo Nobel s growth strategy, future financial results, market positions, product development, products in the pipeline, and product approvals. Such statements should be carefully considered, and it should be understood that many factors could cause forecasted and actual results to differ from these statements. These factors include, but are not limited to, price fluctuations, currency fluctuations, developments in raw material and personnel costs, pensions, physical and environmental risks, legal issues, and legislative, fiscal, and other regulatory measures. Stated competitive positions are based on management estimates supported by information provided by specialized external agencies. Disclaimer In this report, great care has been taken in drawing up the properties and qualifications of the product features. No rights can be derived from these descriptions. The reader is advised to consult the available product specifications themselves. These are available through the relevant business units. In this report the terms Akzo Nobel and the company refer to Akzo Nobel N.V. and its consolidated companies in general. The company is a holding company registered in the Netherlands. Business activities are conducted by operating subsidiaries throughout the world. The terms we, our, and us are used to describe the company; where they are used in the chapter Segment performance, they refer to the business concerned. This Annual Report is also available in Dutch. In the event of any discrepancies between the two versions, the English report will prevail. The symbol indicates trademarks registered in one or more countries.

15 OVERVIEW STRATEGY AND BUSINESS REVIEW SEGMENT PERFORMANCE CORPORATE MANAGEMENT AND RESPONSIBILITY GOVERNANCE AND COMPLIANCE FINANCIAL STATEMENTS ADDITIONAL INFORMATION Table of contents OVERVIEW Key developments Akzo Nobel at a glance Key figures Shareholder information Acquisition of ICI STRATEGY AND BUSINESS REVIEW Chairman s statement Report of the Board of Management Report of the Supervisory Board SEGMENT PERFORMANCE Akzo Nobel Coatings Akzo Nobel Chemicals CORPORATE MANAGEMENT AND RESPONSIBILITY Behind the scenes Sustainability at Akzo Nobel: Summary for Investors Business Principles Akzo Nobel Art Foundation GOVERNANCE AND COMPLIANCE Risk management Corporate governance Remuneration report FINANCIAL STATEMENTS Content Consolidated statement of income Consolidated balance sheet Consolidated statement of cash flows Consolidated statement of changes in equity Segment information Notes to the consolidated financial statements Company financial statements Notes to the company financial statements Other information ADDITIONAL INFORMATION Financial summary Financial calendar Index Glossary Overview business cases Contact details AKZO NOBEL ANNUAL REPORT

16 Chairman s statement We have brought together two great companies with proud histories of sustained achievement Dear stakeholder, Akzo Nobel s roots can be traced back as far as 1777 and there have been many milestones along the way which have helped our business to continuously develop and evolve. But there can be no doubt that 2007 will be remembered as one of the most momentous and exciting years in the long history of our company. In the space of 12 months, we completed a strategic transformation which dramatically changed the focus of our operations. It began with the divestment of our pharmaceutical activities (Organon BioSciences) to Schering-Plough for EUR 11 billion. This was finalized in November 2007, and while it marked the end of an era for the company, it made sound business sense. This was followed by the acquisition of Imperial Chemical Industries plc (ICI), a deal which closed on January 2, 2008, and opened an historic new chapter for us all. I must admit that these major developments rather put the relocation of our corporate headquarters to Amsterdam in the Netherlands in the shade, which in itself was still an important event. These major transactions transformed Akzo Nobel from a conglomerate into a focused industrial force; a true global leader in coatings and specialty chemicals. We have brought together two great companies with proud histories of sustained achievement. Together, our combined global presence, technologies, products, brands, and expertise will help our customers, and Akzo Nobel, to become even more successful. Through an on sale of certain ICI assets to Henkel AG, we expect the acquisition to be value enhancing within three years. This is fully in line with our strategic goal of medium-term value creation. The deal has also enabled the company to commit to a share buyback program totaling EUR 4.6 billion, with EUR 1.6 billion of that amount having already been repurchased during Global leader Akzo Nobel is the new global leader in decorative paints in addition to already being the world s largest industrial coatings manufacturer. We significantly strengthened our presence in China, India, Brazil, and other emerging markets in Asia Pacific and Latin America. Increasing our presence in these markets has long been one of the company s strategic priorities and while we have made steady progress over recent years, the acquisition of ICI has elevated Akzo Nobel into key leadership positions in a number of attractive regions. The acquisition of ICI also gives us a leading position in North America, the world s largest market for decorative coatings. Our Chemicals portfolio has been enhanced as well, following the addition of ICI s Specialty Polymers and Regional and Industrial businesses. We now have a strong, well balanced specialty chemicals organization which is well positioned to exploit opportunities for growth and build on its worldwide leadership positions. We have created a strong platform for future growth and 12

17 STRATEGY AND BUSINESS REVIEW CHAIRMAN S STATEMENT ANNUAL PER HOUSEHOLD SPENT ON PAINTS AND COATINGS REVENUE EBITDA 1 COUNTRY IN EUROS MILLIONS OF EUROS MILLIONS OF EUROS 2006 India Indonesia China Brazil Argentina Thailand Mexico Russia Poland Western Europe U.S , ,217 1,104 1, Continuing operations before incidentals. our scale and expertise will allow us to build strategic relationships with leading raw material producers and to invest in new technologies to meet the increasing challenges of higher performance and sustainability. Attracting talented, ambitious, and dynamic individuals from all over the world to our exciting new company will be another key factor as we move forward into the future. Increased dividend Of course, it s only natural for shareholders to ask how we can best illustrate our confidence in the future of the new Akzo Nobel. The answer is simple. By announcing, as we did, our intention to raise future dividend payments, realizing a payout ratio of 45 percent of net income and before the fair value adjustment charge in respect of the ICI acquisition. This increased payout ratio, together with a cash return during the year by way of a share buyback, has allowed our shareholders to benefit from the strategic transformation of the company. Our Total Shareholder Return for the last three years was 96 percent, elevating the company from ninth position, in 2006, to fifth in its peer group in Operational performance I am proud of the fact that during a period of so much strategic activity, our employees kept their eye on the ball. This commitment to successful daily operations is underlined in the graphs above, which illustrate a very satisfying performance throughout our portfolio, both in top and bottom line. I am also very pleased with the impressive results of our specialty chemicals businesses which delivered an unprecedented 22 percent moving average ROI. Indeed, the success of our Chemicals operations is very significant. Following an extensive realignment of the portfolio, the five growth platforms we established have performed extremely well. The focus has clearly shifted away from streamlining our activities and we are now concentrating on investing in expansion opportunities. I would also like to mention the significant improvement achieved by our Decorative Coatings activities, which together with the excellent results at Marine & Protective Coatings was one of the main drivers behind the overall bottom line improvement within the Coatings business. Given the ongoing consolidation in the coatings industry, our increased scale and solid financial footing bodes well as we look to further consolidate our leadership status. New Akzo Nobel It goes without saying that our strategic agenda, which accelerated greatly during 2007, has an impact on all areas of the organization. So as well as improving operationally, we have also been concentrating on other key areas in order to lay the foundations for the new Akzo Nobel. One of these is talent development. We have made major progress in rolling out our improved talent review system, with investments for management development programs having significantly increased in all regions. Furthermore, the coordination of Human Resource policies between our various businesses in key countries such as China has been significantly stepped up. A lot of time and effort has also been put into evaluating our corporate brand positioning and brand architecture in the context of our broader culture change program. You can expect to see the results of this extensive project rolled out during the course of A sustainable future We have also focused sharply on sustainability and social responsibility. For more than a decade now, Akzo Nobel has been AKZO NOBEL ANNUAL REPORT

18 at the forefront of investing in both of these vital business areas, long before it became more fashionable. A couple of years ago, we decided to become even more ambitious in measuring our performance in these areas and benchmarking ourselves against our peers. It was therefore a well deserved tribute to everyone in our company who has been seriously engaged in this field that in 2007 Akzo Nobel was ranked as the Chemicals sector leader on the prestigious Dow Jones Sustainability Indexes. But it won t stop there. We are determined to further accelerate our sustainability efforts because we are committed to excellence in all aspects of our global activities. Our success lies in the future, and Akzo Nobel is dedicated to continuing to identify sustainable solutions while building distinctive capabilities for customers and other stakeholders. TOP TEN COATINGS COMPANIES 2007 REVENUE BILLIONS OF EUROS Akzo Nobel Coatings 1 PPG Coatings Sherwin-Williams DuPont Coatings BASF Coatings Valspar Kansai Paint Nippon Paint Comex Masco Building momentum There are various signals which indicate that the macro economic conditions in 2008 will become more challenging. The ongoing pressure created by raw material prices, volatility in major currencies and a slowdown in overall growth in North America and Europe will make for a testing environment. However, we are confident that our strategic transformation has maneuvered the company into a position of strength. In the years to come we will deliver on our promise of outgrowing our markets and further improving the bottom line. Much of our energy during 2008 will be devoted to successfully integrating ICI s businesses into our own organization and achieving the first round of synergies. We have dedicated teams in place working hard to ensure a fast and effective integration process, which is expected to realize annual cost synergies of around EUR 280 million by Our efforts are being channeled into building on the momentum we have already created and making sure that the enlarged Akzo Nobel delivers on the full potential that this combination offers. It s been an extremely eventful and exciting year and my colleagues on the Board of Management and I are extremely proud to be leading our talented and committed employees as we begin this new chapter in the history of Akzo Nobel. We have every confidence that the future will be both successful and full of opportunities. 1 Including ICI Paints. Hans Wijers CEO and Chairman of the Board of Management 14

19 STRATEGY AND BUSINESS REVIEW REPORT OF THE BOARD OF MANAGEMENT BOARD OF MANAGEMENT Leif Darner (1952, Swedish) Board Member responsible for Chemicals Hans Wijers (1951, Dutch) Chief Executive Officer Board Member responsible for Coatings Rob Frohn (1960, Dutch) Chief Financial Officer Initial appointment 2004 Initial appointment 2002 Initial appointment 2004 Leif Darner joined the Board of Management of Akzo Nobel in 2004 as the member responsible for Chemicals. After graduating from Gothenburg University, he held several management positions before being appointed General Manager of Powder Coatings Scandinavia at Courtaulds in In 1993, Mr. Darner 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 Akzo Nobel and Mr. Darner was appointed Manager of Akzo Nobel Marine & Protective Coatings, a post he held from 1999 until 2004, when he was appointed to the Board of Management of Akzo Nobel. Subject to shareholder approval of his reappointment, Mr. Darner will take the responsibility within the Board of Management for Performance Coatings as of May 1, Hans Wijers joined Akzo Nobel in 2002 as a Board member, followed by his appointment as Chairman in May Mr. Wijers studied Economics at the University of Groningen. He obtained a Ph.D. in Economics while teaching at the Erasmus University Rotterdam in He was senior consultant/partner with various Dutch consulting firms including The Boston Consulting Group. He served as Dutch Minister for Economic Affairs (1994 to 1998), after which he returned to The Boston Consulting Group as Senior Vice-President until his appointment as Board member of Akzo Nobel in Outside Akzo Nobel, Mr. Wijers holds a number of prominent positions in society such as Chairman of the Oranje Fonds and Vice-President of the Young Pianist Foundation. He is a member of the European Roundtable of Industrialists. Rob Frohn joined the Board of Management of Akzo Nobel in 2004 as CFO. He graduated from the University of Groningen and joined Akzo Nobel as a business analyst in After several jobs in control and finance in the Netherlands and the United States, Mr. Frohn made the switch to a management position in Following several General Manager positions within Surface Chemistry, part of the company s chemicals operations, he was appointed in 2000 to lead the business unit, based in Sweden. He returned to the Netherlands in 2004 when he was appointed as CFO and member of the Board of Management of Akzo Nobel. Subject to shareholder approval of his reappointment, Mr. Frohn will take the responsibility within the Board of Management for Specialty Chemicals as of May 1, AKZO NOBEL ANNUAL REPORT

20 Report of the Board of Management 2007 strong operational focus during transformational year: ICI acquisition completed as of January 2, percent autonomous growth 1 EBIT up 25 percent; reaping the benefits from margin management and cost savings 1 EBITDA margin further improved to 12.4 percent EUR 8.5 billion profit on the divestment of Organon BioSciences Pension deficit significantly down from EUR 1.8 billion to EUR 1.1 billion Initial EUR 1.6 billion share buyback program completed Dividend increased 50 percent from EUR 1.20 to EUR 1.80 per common share Akzo Nobel tops DJSI sustainability ranking Strategy and growth factors Akzo Nobel is a Fortune Global 500 company and Chemicals industry leader on the Dow Jones Sustainability Indexes, with leading positions in the world s paints, coatings, and specialty chemicals markets. We supply well established brands and key products to industrial customers and consumers, from a global network of more than 80 countries. The company has been successful in implementing an ambitious strategic agenda designed to transform Akzo Nobel and enhance shareholder value. This long-term plan, initiated several years ago, culminated in 2007 with two major transactions. To lay the foundations for the new strategic focus, Akzo Nobel reached an agreement in March to divest its pharmaceutical business (Organon BioSciences). This was followed in August by an agreement to acquire Imperial Chemical Industries plc (ICI) which was completed on January 2, Prior to 2007, we had created the platform for this transformation by streamlining our portfolios particularly in Chemicals improving our operational results, enhancing our capital structure, and establishing a leadership position in creating value through sustainable business. The new organization (established in January 2008) operates in three business areas Decorative Paints, Performance Coatings, and Specialty Chemicals. We are now focused on maintaining momentum and leadership through accelerated growth (particularly in emerging markets), leveraging our global leadership positions and continuous improvement of profitability through operational excellence. In particular we are committed to capturing the full synergies of the ICI acquisition. Akzo Nobel is on track to create one of the world s leading industrial companies with a unique brand. We have a strong portfolio of businesses in attractive growth markets and we remain committed to financial discipline. Capital allocation is focused on building sustainable leadership positions, reflected in returns significantly above the cost of capital and substantial operational cash flows. PEER GROUP EBITDA PERFORMANCE PEER GROUP EBITDA MARGINS 2007 DuPont 19.5 Hercules 18.3 BASF 17.7 PPG Industries 14.7 Sherwin-Williams 14.3 Dow Chemical Company 13.7 Akzo Nobel 1, Kansai Paint 12.7 RPM International Inc Kemira OYI 12.4 CIBA Specialty Chemicals 12.1 Valspar Corporation 11.7 Arkema Group 9.1 Median Continuing operations before incidentals. 2 Akzo Nobel-ICI pro forma Consensus estimate. 16