Credit Opinion: Akzo Nobel N.V.

Credit Opinion: Akzo Nobel N.V. Global Credit Research - 25 Oct 2012 Amsterdam, Netherlands Ratings Category Outlook Senior Unsecured -Dom Curr Commercial Paper Bkd Other Short Term -Dom Curr Akzo Nobel Sweden Finance AB (publ) Outlook Bkd Senior Unsecured Bkd Other Short Term ICI Wilmington Inc. Outlook Bkd Senior Unsecured Moody's Rating Rating(s) Under Review *Baa1 *P-2 *(P)P-2 Rating(s) Under Review *Baa1 *(P)P-2 Rating(s) Under Review *Baa1 * Placed under review for possible downgrade on October 23, 2012 Contacts Analyst Phone Elena Nadtotchi/London 44.20.7772.5454 Olivier Beroud/London Key Indicators Akzo Nobel N.V. [1]LTM 30 Sept. 2012 2011 2010 2009 EBITDA Margin 10.6% 11.8% 14.7% 15.8% EBIT / Avg. Assets [2] 5.2% 6.2% 8.1% 7.5% Net Debt / EBITDA 2.3x 1.8x 1.4x 2.2x EBITDA / Interest Expense 5.5x 5.4x 5.6x 4.8x RCF / Net Debt 18.4% 29.1% 37.2% 18.6% FCF / Net Debt -3.7% -7.4% 8.7% 19.9% Ratios are consistent with Moody's Global Standard Analytical Adjustments [1] Last Twelve Months estimate based on information avialble in quarterly unaudited financial statements [2] Assets exclude cash and short-term investments Note: For definitions of Moody's most common ratio terms please see the accompanying User's Guide.

Opinion Corporate Profile AkzoNobel NV ("AkzoNobel") is a world-leading industrial company dedicated to coatings and specialty chemicals, generating total sales of c.eur 15.7 billion in 2011 (EUR 12.7 billion for the 9 months ending 30 September 2012). The group serves a widely diversified base of customers in all major production regions and enjoys an extensive international manufacturing footprint. Rating Rationale AkzoNobel is the leading producer of coatings and benefits from the significant size and leading global market positions. The company enjoys relatively stable revenue patterns, supported by a significant specialty business, and relatively lower capital requirements in coatings, compared to other chemicals businesses. In 2011/2012, however, one of the three core businesses, Decorative Paints, have come under pressure, first in the US and then in Europe, due to reduced levels of consumer demand. Peers include PPG Industries Inc (Baa1/stable) and Sherwin-Williams (A3/stable). The ratings were placed on review for downgrade following disappointing results recorded by AkzoNobel in the period to 30 September 2012, which came below Moody's expectations for the year. This was due in particular to a significant underperformance of the Decorative Paints division and was reflected by the announcement by AkzoNobel of a EUR 2.5 billion write off in that division pointing towards the company's expectation of continuous challenging operating conditions in this segment, particularly in Europe. This announcement follows the restructuring efforts initiated in the US Decorative Paints division in 2011. The Baa1 rating currently enjoyed by AkzoNobel was supported by the expectation of improvement in profitability and strong execution of the restructuring programme in 2012. AkzoNobel continues to execute its restructuring programme and expects to deliver c. EUR 200 m in cost savings in 2012. However, we deem the expected improvement in profitability and cash flow generation in 2012 unlikely to be sufficient to compensate for the issues encountered in its decorative business. The rating review, therefore, will focus on the assessment of the scope of the downturn in the segment, the degree to which the existing restructuring programme may have to be stepped up to address the challenge in the segment and the financial implications on the company's margins and operating cash flows in the near and medium term. Our central scenario is based on the assumption of an improvement in operating cash flows in 2013 on the back of modest growth and contained restructuring costs. However, risks associated with the slow-down in economic growth and the decline in consumer-led demand in Europe mean that there is also a degree of uncertainty around our base case assumptions for the operating performance in the next twelve months. As such, the rating review will also consider sensitivities to the potential slow-down and the likely resilience of AkzoNobel, if faced with such alternative scenario. DETAILED RATING CONSIDERATIONS Decorative Paints Face Strong Headwind With EUR 10.5 billion in (2011) revenues derived in the Performance Coatings and Decorative Paints segments, AkzoNobel is the global leader in coatings. Decorative Paints is one of the three core businesses contributing c. 1/3 of the company's revenues. At the end of 3Q 2012, AkzoNobel announced a EUR 2.5 billion write off in the Decorative Paints business related to the change in expectations for its European business. This announcement follows 2011 restructuring in the US Decorative Paints business, which we expect has stabilized at a lower level and returned to positive EBITDA in 3Q 2012 against a background of strong operating results reported by the company's US competitors in the sector. The profitability of the segment lags the performance of the other businesses, with reported segment EBITDA margin of 9.4% (before incidentals) in 9 months to September 2012 against 10.5% in the same period of 2011. Europe is the largest regional market for the Decorative Paints business (accounting for close to 16% of consolidated revenues of AkzoNobel in 2011). We are assessing the scope of the downturn in the segment, reflected in the capital write off to confirm the degree to which the existing restructuring programme may have to be stepped up to address the challenge in the segment, as well as the financial implications on the company's margins and operating cash flows in the near and medium term. We also note, that Akzo Nobel has the largest exposure to European Decorative Paints segment among its global peers and is likely to be more affected by the

exposure to European Decorative Paints segment among its global peers and is likely to be more affected by the regional downturn in the segment. In 2012, the Performance Coatings and Specialty Chemicals businesses continue to show resilience and good profitability but are facing, alongside the market as a whole, slower volumes in 2012. AkzoNobel's overall strong business profile assessment continues to reflect the widespread geographic, operational, product and technology diversification of its operations, its relatively specialty product portfolio and leading global market positions in coatings. AkzoNobel's operations, however, are concentrated in coatings (deco & industrial), while the remaining businesses provide a relatively moderate degree of product diversification, mitigated by a broad customer endmarket diversification. Improvement in Margins and Operating Cash Flows is Delayed As part of the rating review, we are assessing the effect of the weaker conditions in the decorative business in Europe on the timing and scope of the targeted improvements in margins. Notwithstanding resilient margins reported by the Performance Coatings in Specialty Chemicals businesses in 2012, the improvement and its time line depend on the successful restructuring in the Decorative Paints segment. Back in 2011, AkzoNobel stated its targeted EBITDA margin range of 13%-15% (the company reports margins before incidentals). To support this target, the company initiated a restructuring programme that is expected to yield EUR 500 million in additional earnings by 2014. In the near term, the gains of the programme will be mitigated by significant costs, estimated by the company at EUR 425 million, with half of the gains and costs (c. EUR 200 million) expected to have been achieved in 2012. Overall, the business is exposed to volatility in raw materials costs, as seen in 2011, when its specialty nature and pricing mechanics did not immediately match the rapid rise in raw material prices. Notwithstanding the company's proactive pricing policies and good pricing power, the reported EBITDA margin fell to 11.4% in 2011 from 13.4% in 2010 (before incidentals). We expect AkzoNobel has caught up with the cost increases in early 2012, while growth in raw material prices has also abated in 2012, as it reported 12.3% margin in 9 months 2012 (before incidentals). Moody's includes restructuring costs in the calcualtion of margins. Balance Sheet De-Risking Supports Credit Profile but Additional Positive Effect is Limited AkzoNobel's has an uneven track record in Free Cash Flow (FCF) generation. The company has grown revenues, but its Funds from Operations (FFO), Retained Cash Flow (RCF) and FCF have not kept pace due to weaker margins. Other factors contributing to negative FCF include significant CAPEX and dividend payments. The company retains a degree of flexibility in managing its investment commitments, but its CAPEX budget, estimated at c. 4% of the revenues, will continue to weigh on FCF generation. AkzoNobel also maintains a sizeable dividend in line with the peers, which we assume to be maintained. It maintains an option to receive dividends in shares, which in the past reduced the cash dividend by c.30%. In 2012, the company's FCF/Net Debt position has improved due to lower working capital requirements, but remains negative on 3Q 2012 LTM basis. In this context, the decline in Net Adjusted Debt in 2010 and 2011 was an important supporting factor for the rating. Of some concern is the fact that, at the end of 3Q 2012, the company reported an increase to EUR 4.4 billion in Net Adjusted Debt (including the increase to EUR 0.9 billion in pension liabilities and stable EUR 1.0 billion adjustment for operating leases) up from EUR 3.4 billion in total reported at the end of 2011. The increase in debt largely relates to the accounting reassessment of the company's pension liabilities in the UK and is not expected, at this stage, to result in the immediate cash outflows. Akzo Nobel retains some flexibility to continue managing gross leverage through cash prepayments into the pension funds. In the recent past, the reduction in debt level through the deployment of accumulated cash reserves underpinned robust financial metrics, even as profitability has been under pressure since 2011, with RCF/Net Debt at 29% and Debt/EBITDA at 2.7x at the end of 2011 (37.2% and 2.7x at the end of 2010). At the end of 3Q, taking into account the increase in pension liabilities, RCF/Net debt has declined to below 20%. As the company has reduced its cash balances, we expect that further improvement in financial metrics will require a step up in the FFO generation. Liquidity Akzo Nobel maintains a strong liquidity position supported by EUR 1.5 billion worth of cash balances. The company maintains full availability under its new EUR 1.8 billion RCF facility, with 96% of the commitments maturing in 2017. The company faces USD 500 million bond maturity in 2013 and EUR 825 million bond maturity in 2014.

Rating Outlook The Baa1/P-2 ratings are under review for downgrade. The review follows the announcement by Akzo Nobel of a EUR 2.5 billion write off in its Decorative Paints division reflecting the company's expectation of continuous challenging operating conditions in this segment, particularly in Europe. Drivers of Rating Change We have previously stated that further pressure on the operating cash flow generation resulting in a weak or negative FCF generation, or a lack of improvement in the profitability in 2012/early 2013 would put a negative pressure on the ratings. Rating Factors Akzo Nobel N.V. Chemical Industry Aaa Aa A Baa Ba B Caa Factor 1: Business Profile a) Business Position Assessment X Factor 2: Size & Stability a) Revenue (Billions of US$) (LTM) $21.1 b) # of Divisions of Equal Size 3 c) Stability of EBITDA 15% Factor 3: Cost Position a) EBITDA Margin (3 Yr. Avg.) 14.0% b) ROA - EBIT / Assets (3 Yr. Avg.) [1] 7.3% Factor 4: Management Quality a) Net Debt / Capital (LTM) 38% b) Net Debt / EBITDA (3 Yr. Avg.) 1.8x Factor 5: Financial Strength a) EBITDA / Total Interest Expense (3 Yr. Avg.) 5.3x b) Retained Cash Flow / Net Debt (3 Yr. Avg.) 27.0% c) Free Cash Flow / Net Debt (3 Yr. Avg.) 8.5% Rating: a) Indicated Rating from Methodology Baa b) Actual Rating Assigned Baa1 [1] Assets exclude cash and short-term investments 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. ("MIS") AND ITS AFFILIATES ARE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY'S ("MOODY'S PUBLICATIONS") MAY INCLUDE MOODY'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY'S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND

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