report for the year 2011 and the fourth quarter…4 akzonobel i report for the year 2011 and fourth...

Report for the year 2011 and the fourth quarter

2 AkzoNobel I Report for the year 2011 and fourth quarter

•2011revenueup7percentdrivenbypricingactionstooffsetrawmaterialcostinflation

•Weakerendmarketsandcostinflationimpactedresults•2011EBITDA9percentlowerat€1,796million(2010:€1,964million)

•Netincomefromcontinuingoperations€469million(2010:€664million)

•AdjustedEPS€2.91(2010:€3.71)•Totaldividendfor2011increaseto€1.45proposed(2010:€1.40)

•Performanceimprovementprogramontrack•Theeconomicenvironmentandcertainrawmaterialsremainourprincipalsensitivitiesin2012

Our results ataglance

(40 percent in high growth markets)

A North America

B Emerging Europe

Mature Europe

Asia Pacific

C

D

E

F

Latin America Other regions

%

20

7

38

21

104

100

C

D

EF

A

B

(Based on the full year 2011)

AkzoNobel around the worldRevenue by destination

In € millions

Q3 11 Q4 11Q4 10 Q1 11 Q2 110

1000

2000

3000

4000

5000

4,097 4,0513,787

3,6203,762

0

100

200

300

400

500

600In € millions

437

377

551

507

301

Q3 11 Q4 11Q4 10 Q1 11 Q2 11

Revenue EBITDA

AkzoNobel I Report for the year 2011 and fourth quarter3

Operating ROI %Moving average ROI %

2010 20112009

9.2%10.8%

8.9%

27.7%

23.2%

22.3%

Returns on invested capital

Continuing operations before incidentals4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

3,620 3,787 5 Revenue 14,640 15,697 7

377 301 (20) EBITDA 1,964 1,796 (9)

10.4 7.9 EBITDAmargin(in%) 13.4 11.4

222 133 (40) EBIT 1,374 1,175 (14)

6.1 3.5 EBITmargin(in%) 9.4 7.5

MovingaverageROI(in%) 10.8 8.9

OperatingROI(in%) 27.7 22.3

0.82 0.17 Adjustedearningspershare(in€) 3.71 2.91

After incidentals4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

159 36 (77) Operatingincome 1,219 1,042 (15)

130 (62) Netincome/(loss)fromcontinuingoperations 664 469 (29)

32 (6) Netincome/(loss)fromdiscontinuedoperations 90 8

162 (68) Netincome/(loss)totaloperations 754 477 (37)

0.55 (0.26) Earningspersharefromcontinuingoperations(in€) 2.85 2.01

0.69 (0.29) Earningspersharefromtotaloperations(in€) 3.23 2.04

198 256 Capitalexpenditures 534 708

275 270 Netcashfromoperatingactivities 519 325

Interestcoverage 6.4 4.3

Investedcapital 12,718 13,708

Netdebt 936 1,895

Numberofemployees 55,590 57,240

Financialhighlights


Revenuefortheyear2011wasup7percent,mainlyduetopricingactionstooffsetrawmaterialcostinflation.However,weakerendmarketsandcostinflationadverselyimpactedourresultsin2011.Theperformanceimprovementprogramtodeliver€500millionEBITDAin2014isontrackandweareconfidentthatthiswillbringusinlinewithourmedium-termambitions.

Performance improvement programWehavelaunchedaperformanceimprovementprogram to strengthen our competitiveness,enhance our ability to grow, simplify oursupportstructuresandreduceourcostbase.This simplification and standardization of oursupportstructuresimpliesasignificantchangeinouroperatingmodelandbusinessculture.Theprogram,whichweannouncedinOctober2011, isacomprehensive three-yearplan toimprove our performance and deliver€500million EBITDAby 2014. The programincludesbusinessrestructuringandistodeliver€200 million EBITDA in 2012. This implieshigherrestructuringcost forthecomingyear.Theprogramisontrackandthefirstupdateonprogress and financial impact is due in our2012half-yearlyreport.

Revenue• InDecorativePaints,full-yearrevenue

growthwas7percentwithvolumesup5percent;priceincreases3percentandadverseimpactofcurrenciesof1percent.RevenueinAsiaandtheAmericasshoweddouble-digitgrowthin2011,mainlydrivenbypriceincreasesandthenewWalmartcontractintheUS.DemanddeclinedinEurope,whilstgrowthratesachievedinChinaandSouthEastAsiaoutpacedmarketgrowth;however,thepaceofmarketgrowthsloweddowninthesemarketsinthesecondhalfoftheyear.Q4revenuedevelopmentfollowedasimilarregionalpatterntotherestof2011.Revenueincreased6percent(7percentinconstantcurrencies),primarilydrivenbytheUS,LatinAmerica,ChinaandIndia,whileSouthEastAsiawasnegativelyimpactedbythefloodinginThailandandslowermarketdevelopmentsinVietnamandMalaysia.

• PerformanceCoatings2011revenuewasup8percent,supportedbyvolumes(2percent),acquisitions(2percent),andprice(5percent),andadverselyimpactedbycurrencies(1percent).IndustrialCoatingsshowedthelargestvolumeincrease,drivenbygoodperformancesinPackagingandCoilCoatings,whileWoodFinishesandAdhesiveshadlowervolumesduetoweakerdemandinthehousingmarket.

Financial highlights

+2%

+5% +1% -1% +7%810

0246

Revenue development 2011Increase Decrease

-2%

+6%+1% 0% +5%

810

02

-2

46

Revenue development Q4 2011Increase Decrease

InQ4,revenueendedup7percentoverlastyear,supportedbyprice(7percent)andacquisitions(2percent);volumeswerelowercomparedtothepreviousyear(2percent).SignsofareductionintherateofrawmaterialpriceincreaseswereevidentinQ4,althoughmarginswerestillimpactedbytheincreasedprices.

• SpecialtyChemicalshadasolidperformanceduring2011.Revenuegrewoverlastyearonpriceincreases,withlimitedoverallvolumegrowthduetotheeconomicslowdownandgrowthbeinghamperedinsomebusinessunitsduetocapacityconstraints.VolumegrowthwasevidentinmarketsectorsforSurface

Revenue

4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

1,139 1,204 6 DecorativePaints 4,968 5,296 7

1,238 1,326 7 PerformanceCoatings 4,786 5,170 8

1,259 1,285 2 SpecialtyChemicals 4,943 5,335 8

(16) (28) Otheractivities/eliminations (57) (104)

3,620 3,787 5 14,640 15,697 7

in % versus 2010Volume Price/mix Acquisitions Exchange

ratesTotal

DecorativePaints 5 3 – (1) 7

PerformanceCoatings 2 5 2 (1) 8

SpecialtyChemicals 1 7 – – 8

Total 2 5 1 (1) 7

in % versus Q4 2010Volume Price/mix Acquisitions Exchange

ratesTotal

DecorativePaints 2 4 1 (1) 6

PerformanceCoatings (2) 7 2 – 7

SpecialtyChemicals (4) 5 – 1 2

Total (2) 6 1 – 5


ChemistryandPulpandPaperChemicals,wherethedemandremainedstrong.DespitelowervolumesinQ4insomeofthebusinesses,revenueincreasedby2percentonthebackofpriceincreases,althoughtheywereoffsetbyareductioninEthyleneAminessalespricesduringthequarter.Salesvolumesdippedbelowpreviousyearastheeconomysloweddownandcustomerspostponedorderstoreduceinventorylevelstowardstheendoftheyear.

Acquisitions and investmentsIn 2011, we made several acquisitions andsignificantinvestments:• InDecorativePaintswehaveenteredintoa

partnershipinChinawithQuangxiCAVATitaniumIndustryCo.Ltd.tohelpensuresupplyoftitaniumdioxide(TiO2).Inaddition,weareinvesting€110millioninareplacementmanufacturingfacilityintheNorthEastofEngland.

• InPerformanceCoatings,theacquisitionofcoatingsmanufacturerSchrammHoldingAGclosedearlyOctober,2011.Thisacquisitionwillenableustostrengthenourgloballeadershippositioninspecialtyplasticcoatings.Wearealsoinvesting€60milliontoincreasetheproductioncapacityofourAutomotiveandAerospaceCoatingsbusinessinChinatomeetrisingdemand.

• InSpecialtyChemicals,wehaveacquiredBoxingOleochemicalsinJanuary2012.BoxingistheleadingsupplierofnitrileaminesandderivativesinChinaandthroughoutAsia.Weareinvesting€170millionintwonewfacilitiesbeingbuiltinBraziltosupplypulpmills,oneofthembeingtheworld’slargest.Wearealsoinvesting€45millioninNingbo,Chinaand€140milliontoconvertourchlorineplantinFrankfurt,Germany,tomembraneelectrolysistechnology.

Raw materialsRawmaterialpriceincreaseswereasignificantconcern during 2011. Overall, the weightedaverageincreaseinourrawmaterialpricesforthe year was 16 percent. The increase year-on-yearforQ4wasjustover10percent,which

isatalowerlevelthaninQ3,primarilyduetoastabilizationinallrawmaterialgroupsexceptTiO2,wherewecontinuetoseesignificantpriceincreases. The absolute impact of increasedrawmaterialpricesfortheyearisapproximately€1billion(including2percentvolumeincrease),accounting for almost the entire increase incostofsales.

EBITDA• InDecorativePaints,EBITDAwas

20percentbehindlastyear(19percentinconstantcurrencies),mainlydrivenbytheincreasesinrawmaterialprices(specificallyTiO2)andunfavorableproductmixeffectsincludingdowntrading.EBITDAmarginendedat8.3percentin2011(2010:11.0percent).WestartedtorestructureoperationsinEuropeandannouncedrestructuringactivitiesintheUSin2012.MarginsinQ4werenegativelyimpactedbytheincreasedcostsofrawmaterialsandstockwrite-offs(€17million)intheUSresultinginanEBITDAof0.9percent(2010:5.5percent).

• InPerformanceCoatings,rawmaterialpriceincreaseshadanegativeimpactonthefull-yearresultsinallbusinesses.Marginmanagementprograms–includingsellingpriceincreasesandrestructuringeffortsinmaturemarkets–areongoingandcontinuetosupportperformance.Full-yearEBITDAendedat€611million(2010:647million),withanEBITDAmarginof11.8percent(2010:13.5percent).SignsofareductionintherateofrawmaterialpriceincreaseswereevidentinQ4,althoughmarginswerestillimpactedbytheincreasedprices.Asaresult,EBITDAinthequarterwas€141million(€147millionin2010).

• WhilemostbusinessesinSpecialtyChemicalsrecordedtheirbest-everprofitability,FunctionalChemicalssawitsearningsdecreaseafteraverystrong2010performance,dueprimarilytotheEthyleneAminesproductline.Witheffectivemarginmanagementandcostcontrol,unitmarginsremainedatthe2010leveloffsettingsignificantrawmaterialpriceincreasesand

Volume development per quarter (year-on-year)

Q410 Q111 Q211 Q311 Q4 11

DecorativePaints 1 9 6 4 2

PerformanceCoatings 5 7 2 1 (2)

SpecialtyChemicals 3 6 1 (1) (4)

Total 3 7 3 1 (2)

Price/mix development per quarter (year-on-year)

Q410 Q111 Q211 Q311 Q4 11

DecorativePaints 2 1 2 3 4

PerformanceCoatings 3 2 3 7 7

SpecialtyChemicals 8 6 8 8 5

Total 4 3 4 6 6

EBITDA4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

63 11 (83) DecorativePaints 548 440 (20)

147 141 (4) PerformanceCoatings 647 611 (6)

221 207 (6) SpecialtyChemicals 939 906 (4)

(54) (58) Otheractivities/eliminations (170) (161)

377 301 (20) Total 1,964 1,796 (9)


Incidentals included in operating income4thquarter January-December

2010 2011 in€ millions 2010 2011

(29) (55) Restructuringcosts (120) (131)

(48) (33) Resultsrelatedtomajorlegal,antitrustandenvironmentalcases

(49) (9)

16 (11) Resultsonacquisitionsanddivestments 33 10

(2) 2 Otherincidentalresults (19) (3)

(63) (97) Incidentals included in operating income

(155) (133)

EBIT in other4thquarter January-December

2010 2011 in€ millions 2010 2011

(29) (29) Corporatecosts (96) (98)

(12) (3) Pensions (7) (14)

4 (9) Insurances 2 1

(23) (21) Other (87) (64)

(60) (62) EBIT in “other” (188) (175)

adversecurrencyimpacts.TheenergymarketintheNetherlandsremainedunattractiveforenergyproducersas"sparkspreads"(thedifferencebetweengasinputcostsversuselectricitysalesprices)adverselyimpactedourresults.Theoverallportfolioshowsstrongprofitabilityinthesedifficulteconomiccircumstances,withEBITDAat€906million(2010:€939million)andEBITDAmarginat17.0percent(2010:19.0percent).Q4showedlowervolumesinmostsegments,duetolowerdemandandcustomerstockcontrol.EBITDAwas€207million(2010:€221million)andEBITDAmarginat16.1percent(2010:17.6percent).

Incidental itemsRestructuring is mainly related to Europeanbusinesses in Decorative Paints andPerformanceCoatings.

EBIT in "other"Corporatecostsended in linewithpreviousyear.Additionalcostsforfunctionalexcellenceactivities were offset by cost savings. Theresultofourcaptiveinsurancecompanieswasinlinewiththepreviousyear,althoughwehadahighernumberofclaimsinthefourthquarter.Othercostswere lowerdue tocostsavingsandfavorablenon-recurringitems.

Net financing expenses Netfinancingchargesfortheyearincreasedby€11millionfrom€327millionto€338million.Significantitemsincluded:• Netinterestondebtwhichincreasedby

€56millionto€245million(2010:€189million)duetotheloss(€67million)onthebuybackofcompanybondsinDecemberpartlyoffsetbyhigherfinancingincome.

• Financingexpensesonpensionswhichdecreasedby€41millionto€59million(2010:€100million)mainlyduetolowerdiscountrates.

• Adecreaseincostsof€16milliononforeigncurrencyresultsofhedgedfutureinterestcashflows.

InQ4,we incurred a gain of €8million as aresult of hedged future interest cash flows.Other main changes were related to lowerfinancing expenses on pensions (€8 million)and lower discount rates for provisions(€20million).Mid-December,weboughtbackatotalnominalamountof€528millionofour2014and2015bondsandreplacedthemwithbondswithlowerinterestrates.Thistransactionresulted ina lossof€67million in the fourthquarter,whichwillbesetoff in lateryearsbysignificantly lower interest costs. Thetransactionhasimprovedourmaturityprofile.

TaxTheyear-to-datetaxrate is27percent(2010:19percent).Thetaxratebenefitsfromseveraladjustmentstopreviousyearsandtax-exemptgains,themainonebeingareleaseofananti-trustprovision.Thetaxratein2010waslowbecause of several adjustments to previousyears, partly related to settlements with taxauthorities.

The Q4 tax is impacted positively by theinfluence of changes in tax rates on themeasurementof deferred tax andby severaladjustmentstopreviousyears.


Revenue development Q4 2011

-1%

+2%

+4%+1%

+6%

Volume AcquisitionsPrice/mix Exchange rates

Total

Increase Decrease

810

246

0

Revenue development 2011

-1%+5%

+3% 0% +7%


Total

Increase Decrease

810

246

0

Full-year revenuegrowthwas7percentwithvolumes up 5 percent, price increases3percentandadverseimpactofcurrenciesof1percent.RevenueinAsiaandtheAmericasshowed double-digit growth in 2011 inconstant currencies, mainly driven by priceincreases,volumegrowthinAsiaandthenewWalmart contract in the US. Growth ratesachieved in China and South East Asiaoutpacedmarketgrowth;however,thepaceofmarketgrowthsloweddowninthesecondhalfoftheyear.VolumesinEuropewerepositiveforthe year, however demand declined in the

secondhalfoftheyear.Continuousinvestmentinbrands,distributionandpeople,aswellasexpansion into mid-tier segments in highgrowthmarkets, isprogressing.Achange inthe management structure in Europe andNorthAmericawillallowforbetterleveragingofeconomiesofscaleandwillleadtofurthercostreductions. EBITDA was 20 percent behindlast year (19percent in constant currencies),mainly driven by increases in raw materialprices (specifically TiO2) and unfavorableproduct mix effects including down trading.TheEBITDAmarginwas8.3percentin2011.

Q4 revenue development followed a similarregionalpatterntotherestof2011.Revenueincreased 6 percent (7 percent in constantcurrencies),primarilydrivenby theUS,LatinAmerica, China and India, while South EastAsiawasnegatively impactedbythefloodinginThailandandslowermarketdevelopmentsin Vietnam and Malaysia. Margins werenegativelyimpactedbytheincreasedcostsofrawmaterials andstockwrite-offs in theUS(€17million),resultinginanEBITDAmargininQ4of0.9percent.

EuropeInEurope,revenuewasup3percent(4percentin constant currencies). It was a mixedperformance across the region with a solidstarttotheyearbutasignificantslow-downinthe second half of 2011 in those countriesmostimpactedbytheeurocrisis.Revenueinthe more mature markets showed modestgrowth,mainlyonthebackofpriceincreasesunderweakmarket conditions,while Turkey,PloandandRussiadeliveredstrongerrevenuegrowth.Thereweresharegainsinsomeofourkeymarketsandastrongperformance fromourBuilding Adhesives business. All regionsreportedrevenuegrowth,withtheexceptionoftheSouthernregion.Marginsintheyearwereunder pressure due to raw material priceincreases and – in the non-euro markets –currencyeffects.Tomitigatetheseeffects,thebusiness implemented active marginmanagement.Costsfortheyearwereslightly

• Full-yearrevenueincreased7percentwith5percentvolumeincreaseand3percentpriceincrease

• EBITDA20percentbehindthepreviousyear• StrongestrevenuegrowthinChina,IndiaandLatinAmerica•ChallengingyearinEuropeandtheUSwithcontinuedrestructuring

•Marginsnegativelyimpactedbyhigherrawmaterialcostsandmixeffect

•Activemarginmanagementcontinues

Decorative Paints


In € millions

90

191

148

1163

Q1 11 Q2 11 Q3 11 Q4 11Q4 10

In € millions

Q2 11 Q3 11 Q4 11Q4 10 Q1 110

300

600

900

1200

15001,461 1,435

1,2041,139

1,196

Revenue

EBITDA

up on the back of some store relatedacquisitions,specificITERP-relatedcostsandbrandinvestmentssupportingsharegrowthinsomekeygrowthmarkets.

InQ4,revenuewasinlinewith2010.Revenuewas impacted by theworsening of the eurocrisis.Marginscontinuedtobeunderpressureduetorawmaterialcostsincreases,butwerepartlyoffsetbymarginmanagement.

AmericasRevenue in the US was 12 percent above2010(inconstantcurrencies:up17percent),whichwasprimarilydrivenbythenewbusinesswithWalmart. In 2011, theUS paintmarketwas essentially flat versus the prior year,primarily driven by weakness in the trademarket.In2011,wecontinuedourinvestmentintheGliddenbrandand introducedGliddenDuoandGliddenTrimandDoorproductsatTheHomeDepot.ProfitperformanceintheUSdeclined due to rawmaterial cost increasesoutpacing pricing actions, aweaker productmix, stock write-offs and investments inWalmart.InCanada,2011revenuewas5percentbelow2010(inconstantcurrencies:down4percent),mainlydrivenbyvolume.Demandforpaintin2011 was not as strong as it was in 2010,whena strong real estatemarketandhomerenovationtaxcreditsactedaskeycontributorsto economic growth. In addition, Canada’sgrowthwasimpactedbyslowrecoveryintheUSandrisinginflation,allofwhichunderminedtheconfidenceofconsumers.In Latin America, full-year revenue was15percentabove2010(inconstantcurrencies:17 percent). All countries contributed to theacceleratedgrowth in the regionbybuildingbrand equity through the activation of ourmission:AddingColourtoPeople’sLives.Thisbrandequitywasconvertedintomarketshareandprofitthroughpoint-of-salelocationsandthe innovative execution of the Tudo deCorMinha Casa (I want colors for my house)programinBrazil.

Q4 revenue in the Americas increased by16percent(inconstantcurrencies:17percent),mainly driven by Latin America and the US.Volume development in the US increasedsignificantlyduetotheWalmartcontract.

Keybrands

Revenue4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

543 535 (1) DecorativePaintsEurope 2,585 2,658 3

366 421 15 DecorativePaintsAmericas 1,547 1,690 9

231 250 8 DecorativePaintsAsia 841 952 13

(1) (2) Other/intragroupeliminations (5) (4)

1,139 1,204 6 Total 4,968 5,296 7

Before incidentals

63 11 (83) EBITDA 548 440 (20)

5.5 0.9 EBITDAmargin(in%) 11.0 8.3

8 (45) – EBIT 343 230 (33)

0.7 (3.7) EBITmargin(in%) 6.9 4.3


After incidentals

(26) (94) Operatingincome 275 137





AsiaIn 2011, our growth in Asiawas strong, butslowed down somewhat during the year.Revenue increased13percent from2010 (inconstantcurrencies:16percent),withallAsiancountriescontributingtothisgrowth.

Our full-year revenue growth (16 percent) inChinasignificantlyoutpacedmarketgrowthin2011(2percent).Investmentinbrandbuildinghasstartedtocometofruition,withincreasedbrand awareness across China. Wesuccessfully launched the Let’s Colourcampaign to build brand image and inspirecustomers to redecorate their houses. Weopenedorupgradedover900thirdpartyDuluxcustomer stores in 2011 to accelerate theexpansion of our “controlled” distributionfootprint. Major new product launches likeForestBreathandVOC-freeseriesgeneratedsignificantrevenue.Wecontinuedto invest inpeople, while at the same time builtorganizational and system capabilities forfuture growth. The sales organization wasrestructured to aggressively grow theprojectbusiness:wewelcomedmore than300newcolleaguestoourorganization,withthemajoritybeingdeployedinfieldsales.WecontinuedtobuildcapabilityinourDuluxEasyPaintservicein order to build a leading position in theredecorationmarket. Themarket outlook fornext year is still uncertain.We will, however,continuetoaccelerateourbrandbuildingandchannel development to fully capture thegrowthpotentialinthemedium-tolong-term.

TheSouthEastAsiabusinessgrewfasterthanthemarketandwe improvedourcompetitiveposition, cementing our overall number oneposition in the region. This was achievedthrough continued investment in the Duluxbrandacrosstheregion:particularlythelaunchoftheDuluxLet’sColourbrandidentity,aswellaskeyproductandinnovationlaunchessuchas DuluxWeathershield 2ndGeneration andournewDuluxInspireofferinginVietnamandThailand (designed for the mid-market). Themarkets have also been impacted by theeconomic slowdown, particularly IndonesiaandMalaysia,andourThailandbusinesshasbeen affected by the recent flooding. Wecontinuedto invest inourbusinesspartners–painters,architects,interiordesigners–andour

channelsandcustomers,alongwithcontinuedexpansionofour tintingmachine footprint. Inordertostayaheadofourgrowth,wemadeamajor transition in our distribution system inIndonesiaandcontinuedtobuildupoursupplychainfootprintandcapabilitiesaccordingly.

GrowthinIndiawasstrongin2011andaheadofthemarket.Werevisedourproductportfolioand re-established Dulux as a quality leader.Velvet Touch Trends launch doubled our“specialeffects”salesinlaunchmarkets.DuluxGuardianandDuluxWeatherShieldMaxwerelaunched intheretailchannel inDecember inthreeregions(North,SouthandEastIndia)withencouraging feedback from the market.Contractor engagement continued to rise,peakinginDecember,supportinga40percentvolumegrowthinthetradebusiness.Thesteepincrease in raw material prices was almostcompletelymitigatedwithpricingactionsandthe adverse effect of the high currency andprice inflation was mitigated by a tight costcontrolprogram.

TheoverallgrowthmomentuminAsiacontinuedinQ4.However,inChinameasuresintroducedby the central government to curb risingpropertypriceshaveledtosomesofteningofdemand in Q4. Asia revenue increased by8 percent in Q4 (in constant currencies9 percent) while maintaining healthy profitlevels. Continued strong revenue growth inChinaandIndiawasoffsetbyaslowdowninSouthEastAsiaasaresultof the flooding inThailandandweakerdemandinIndonesiaandMalaysia.



0%

-2%

+7%+2% +7%


Total

Increase Decrease

810

2

-2

46

0


-1%

+2%

+5%+2%

+8%


Total

Increase Decrease

810

246

0

Performance Coatings• Full-yearrevenueup8percent,withvolumesup2percent• EBITDA6percentbehindprioryear•Marginsimpactedbyhigherrawmaterialcost• Performanceimprovementprograminitiated• StronggrowthinIndustrialCoatingsbutweaknessinWoodFinishesandAdhesives

• Integrationofacquiredactivitiesdeliveringresults

PerformanceCoatings2011revenuewasup8percent,supportedbyvolumes(2percent),acquisitions(2percent),andprice(5percent),and adversely impacted by currencies(1 percent). Industrial Coatings showed thelargest volume increase, driven by goodperformancesinPackagingandCoilCoatings,whileWoodFinishesandAdhesiveshadlowervolumesduetoweakerdemandinthehousingmarket.PowderCoatingsvolumes,excludingacquisitions,wereimpactedinthesecondhalfoftheyearbytheweakeconomicenvironment.Rawmaterialprice increaseshadanegativeimpactonthefull-yearresultsinallbusinesses;the rate of increase began to soften in Q42011. Margin management programs –including selling price increases andrestructuring efforts inmaturemarkets – areongoingandcontinuetosupportperformance.

Full-yearEBITDAendedat€611million,withan EBITDA margin of 11.8 percent (2010:13.5percent).

InQ4,revenueendedup7percentover lastyear, supported by price (7 percent) andacquisitions (2percent); volumeswere lowercomparedto thepreviousyearsamequarter(2percent).Signsofareductionintherateofrawmaterial price increaseswere evident inQ4,althoughmarginswere still impactedbytheincreasedprices.Asaresult,EBITDAinthequarterwas€141million(€147millionin2010).

Marine and Protective CoatingsRevenue forMarineandProtectiveCoatingswasup4percent.InMarine,volumefellshortof lastyear.Afterrecordactivity levels innewconstruction in China and Korea last year,

demandsoftenedinthesecondhalfof2011.Maintenance and repair markets have beenmixed, with some slow recovery over thecourseoftheyearindeepseamaintenance.InProtectiveCoatings,theyearhasseenstrongrevenuegrowth,withpositivedevelopmentinboth heavy industry as well as oil and gasmarkets, with increasing infrastructurerequirementsinChina,India,SouthEastAsia,SouthAmericaandtheMiddleEastregions.InYacht, it has been a tough year with weakdemand across all regions. Volume off-takewas lowwith our key distributors given theirlow retail activity in core European and USmarkets; likewise the number and scale ofsuper-yachtprojectswaslowerthanhadbeenanticipated. Raw material increases putpressureonmarginsinallsectors.Attheendofthefirstquarter,welaunchedInterline9001,our next-generation chemical tank coatingtechnology. The coating offers fewer cargorestrictions, reduced cleaning time and zeroabsorptionformanycargos.Theproductwaswell-received in the market, with positivefeedback from major operators. A new€7 million, state-of-the-art fire protectionlaboratorywasopenedattheFellingsiteintheUK,creatingaglobalcenterofexcellenceforfire protection development which willsignificantlyimproveourabilitytodevelopandbringnewproductstothemarket.

Thefinalquarterendedwithslowactivitylevels,causingvolumestoendlowerthanQ42010.Marine Deep Sea and Protective Coatingsgeneratedvolumesabovethelevelseenduringthe last quarter of previous year and newconstruction continued tobe lower than thesameperiodlastyear.


Revenue

EBITDA

Revenue4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

349 373 7 MarineandProtectiveCoatings 1,345 1,398 4

185 195 5 WoodFinishesandAdhesives 776 781 1

256 258 1 AutomotiveandAerospaceCoatings 994 1,030 4

230 235 2 PowderCoatings 804 940 17

222 273 23 IndustrialCoatings 882 1,049 19


1,238 1,326 7 Total 4,786 5,170 8

Before incidentals

147 141 (4) EBITDA 647 611 (6)

11.9 10.6 EBITDAmargin(in%) 13.5 11.8

119 109 (8) EBIT 540 495 (8)

9.6 8.2 EBITmargin(in%) 11.3 9.6


After incidentals

104 83 Operatingincome 487 458




In € millions

147 143

Q1 11

170157

Q2 11 Q3 11

141

Q4 11Q4 10

In € millions

Q1 11 Q2 11 Q3 11Q4 100

300

600

900

1200

1500

1,2371,312 1,295

Q4 11

1,3261,238

Wood Finishes and Adhesives2011revenuewas1percentabovetheprioryear, adversely impacted by lower volumes.Demand remained sluggish in the maturemarketsofNorthAmericaandEuropeformostof the year. We continue to strengthen ourposition in the high growth markets with afocus on the Asian domesticmarkets, LatinAmerica and Eastern Europe. In 2011, wecommissioned a new wood finishesmanufacturing facility inVietnam,andbeganconstruction of a new board resin facility inPeru.In2011,weintroducedVOC-compliantcoatings into our European and NorthAmerican distribution lines and wecommercializedanewgenerationofsuperiorscratch-resistant coatings for pre-finishedhardwoodflooring.

Revenueforthequarterwas5percentaboveprior year, drivenbypricingactions tooffsethigherrawmaterialcostswithvolumesalmostflat.Thedemanddriverswererelativelystableinthefourthquarter.TheUShousingmarketwasslightly improvedduring thequarter,butthe macroeconomic environment in Europebecamemorevolatile.ThestrongestregionalgrowthwasrealizedinLatinAmerica.

Automotive and Aerospace CoatingsRevenuein2011ended4percenthigherthanthepreviousyear.Revenuegrowthwasdrivenbyavolumeincreaseof4percentmainlyduetostronggrowthinAsia,recoveryofdemandin North and South America, and robustdemandintheAerospaceCoatingsmarket.In2011 we also successfully introduced theWandawaterbornebasecoatinNorthAmericaand Asia. Adverse currency translationimpacted revenue. Increases in rawmaterialpricesweremitigatedbysellingpriceincreases.Weexperiencedslowdownindemandmainlycomingfromcountriesmostimpactedbytheeurozone crisis. The expansion of our USautomotiverepairdistributionnetworkthroughthedivestmentofcompanyownedstores toLKQwaspartiallycompensatedbythePrimeacquisition.Weannouncedan investmentof€60milliontoincreaseproductioncapacityofourbusinesses inChinawhichbuildson lastyear'sacquisitionofPrimeAutomotive.

Keybrands


In Q4, revenues increased 1 percent. Thegrowth rate in Asia slowed down, but wascoveredbyincreasedvolumesinAmericasandAerospace coatings. Total volumes endedsimilartoQ42010.

Powder CoatingsRevenuein2011ended17percenthigherthanthepreviousyear,withacquisitionscontributing10 percent of this growth. Excludingacquisitions,volumesinthesecondhalfoftheyearwereadverselyimpactedbytheweakeningof theeconomicenvironment.Continuedrawmaterial price increases impacted marginsadversely,thoughwerepartiallyoffsetbysalesprice increases. The Americas and Europecontributed to strong volume growth. TheRohm and Haas integration process wascompleted as planned. A leading globalagricultural and construction customerselectedInterponACEHighTempBlackastheonly high temperature powder coatingapprovedfortheiruse.Ambitiousplansforthehighgrowthmarketswerealsohighlightedbyopening extended new facilities at themanufacturingplantinIzmir,Turkey.

RevenueinQ4wasaheadofthepreviousyearby2percentsupportedbygoodperformanceintheAutomotiveandAgriculturalconstructionequipmentactivities.However,volumesbeforeacquisitions were impacted by the weakeconomic environment. The Architecture,Furniture and Domestic Appliances activitiesshowed further weaknesses, mainly inSouthernEuropeandpartsofAsia.

Industrial CoatingsIndustrial Coatings had a good year withrevenue increasing19percent,mainlyduetohighervolumes,pricerealization,thesuccessfulintegrationoftheLindgensPackagingbusiness(acquiredin2010)andtheSchrammacquisition(Q42011).Thedriversforgrowthin2011camefromPackagingCoatings’beverageandfood-related businesses and Coil Coatings’construction and agriculture-relatedbusinesses. Packaging continued to grow inEurope and Asia, while Coil grew in theAmericas.SpecialtyPlasticshadlowerrevenuein2011duetoreduceddemandinthewirelessand IT segments in Asia. We saw a slightslowingdownofactivitiesduringQ4inEurope,

while North America continued to be strong.We opened a newCoil factory in Bangalore,India,inthebeginningof2011,tosupportourgrowingdemandforcoilproductsandweareaddingcapacityinSongjiang,China,tosupportthecontinuedgrowingdemandforpackagingcoatingsinChina.

Overall, Industrial Coatings showed strongrevenue growth of 23 percent in the fourthquarter,supportedbytheSchrammandSSCP.



+1%-4%

+5% 0% +2%


Total

Increase Decrease

810

2

-4-2

46

0


0%

+1%

+7% 0% +8%


Total

Increase Decrease

810

246

0

Afterastrong2010,theSpecialtyChemicalsportfoliodeliveredasolidperformanceduring2011. Most businesses, such as IndustrialChemicals,SurfaceChemistry,andPulpandPaperChemicals recordedgoodgrowthandtheir best-ever profitability. FunctionalChemicalssawitsearningsdecreaseafterastrong 2010 performance, especially in theEthyleneAminesproduct line.Revenuegrewoverlastyear,mainlyonpriceincreaseswithoverallvolumesshowinglimitedgrowthduetotheeconomicslowdown,whichbecamemorevisible insomesegmentsduring theyear,aswell as growth being hampered in some

businessunitsduetocapacityconstraints,forwhichsolutionsareunderway.Somespecificproduct lines captured substantial growth,especially in market sectors for SurfaceChemistry and Pulp and Paper Chemicals,wherethedemandremainedstrong.ChemicalsPakistancontinued tobeplaguedbydifficultbusinessconditions,amongthemapersistentnaturalgasshortageinthecountry,leadingtohigher costs for using alternative energysources as well as 6 percent lower off-takefrom our customers. Raw material pricesincreasedsignificantlyduringtheyear,despitestartingtoleveloffandstabilizebytheendof

2011. More headwind came from adversetransactional currency developmentsimpactingmarginsandalso from theenergymarket in the Netherlands, where sparkspreads (the difference between gas inputcosts versus electricity sales prices) areunattractive for energy producers. Witheffectivemarginmanagementtheseeffectsarecompensatedinourpricing,andoverallforourportfolio our unitmargins remained close tothe same level. The overall strong portfolioshowedadecentprofitability inthesedifficulteconomiccircumstances.

Q4showedlowervolumesinmostsegments,due to lower demand and customer stockcontrol. Despite these factors, revenueincreasedby2percenton thebackofpriceincreases.

Functional ChemicalsFollowingastrongyear in2010andagoodstart in Q1 2011, the performance of theFunctionalChemicals’businesswasimpactedby the economic downturn. For mostbusinesses, sales volumesendedbelow lastyear.ThenewEthyleneAmines’andChelates’plantsinNingbo–whichstartedupduringtheyear–kepttheportfolio’soverallsalesvolumesinlinewith2010.However, as a result of effective marginmanagement–onthebackofpriceincreases– revenue increased by 6 percent, seen atsomebusinesssegmentsinQ4.Performanceintheyearwasalsoimpactedbyyear-on-yearincreasesinrawmaterialcostsandunfavorabletransactionalcurrencyimpacts.

Specialty Chemicals• Full-yearrevenueincreased8percent,mainlydrivenbypriceincreases

•Weakeningdemandinsomesegmentsvisibleduringtheyear• Performanceimprovementprograminitiated• Full-yearEBITDAdecreased4percentto€906millionagainstastrong2010

• EBITDAmarginremainedsolidat17.0percent(2010:19.0percent)


In € millions

220

241

221

Q1 11 Q2 11

238

Q3 11

207

Q4 11Q4 10

In € millions

Q2 11 Q3 11Q4 10 Q1 110

300

600

900

1200

15001,351 1,350 1,349

Q4 11

1,2851,259

Revenue

EBITDA

In Q4, earnings declined compared to thepreviousquarter.Salesvolumesdippedbelowpreviousyearas theeconomysloweddownand customers postponed orders to reduceinventory levels towards the endof the year.Formanyproductlinesthisresultedinvolumesbeing below normal levels, however, marketshares were maintained in general. Thereductioninperformanceoverthelastquarterwas most visible in Functional Chemicals,which experienced sales price pressure insomesegmentstowardstheendof theyear,drivenbylowerdemandandimprovedproductavailability in themarket.Rawmaterial priceincreasescontinuedtohaveanimpact,thoughstabilized towards the end of the year. Themain driver for the increases was higher oilprices, resulting in higher prices for oilderivatives.

Industrial Chemicals IndustrialChemicalsperformedstronglyduringthe year. Chlor-Alkali and MonochloroaceticAcid (MCA)benefited fromhighercaustic lyepricesthan lastyear,withtheMCAbusinessrealizinghighvolumesinhigh-marginmarkets,especially in China. The Chlor-Alkaliperformance was also characterized by astrongchloro-methanesbusiness,aswellasfavorable results of electricity hedging andchanged electricity regulations in Germany.TheenergymarketintheNetherlandsremainedunattractive for energy producers as "sparkspreads" (the difference between gas inputcostsversuselectricitysalesprices)adverselyimpactedourresults.Saltalsoperformedwell,increasing its market share with its highestrecorded chemical transformation (CT) saltvolume. On the back of these strongperformances,revenueincreasedby9percent;howevertotalsalesvolumestayedflatexceptfor MCA, Dimethyl ether (DME) and chloro-methanes.Therewasalsoamajormaintenancestop earlier in the year for ElectrolysisRotterdam, which is done once every fouryears.

The fourth quarter saw revenue increase by1percent,butvolumesdeclinedby6percent– dominated by lower customer demand –except for MCA. Overall, salt volumes werestrong, except for the road salt business,whichwasimpactedbymildwinterconditions.

Keybrands

Revenue

4thquarter January-December

2010 2011 ∆% in€ millions 2010 2011 ∆%

461 457 (1) FunctionalChemicals 1,813 1,917 6

282 285 1 IndustrialChemicals 1,070 1,165 9

200 220 10 SurfaceChemistry 847 945 12

270 276 2 PulpandPaperChemicals 1,044 1,116 7

82 81 (1) ChemicalsPakistan 305 330 8


1,259 1,285 2 Total 4,943 5,335 8

Before incidentals

221 207 (6) EBITDA 939 906 (4)

17.6 16.1 EBITDAmargin(in%) 19.0 17.0

155 131 (15) EBIT 679 625 (8)

12.3 10.2 EBITmargin(in%) 13.7 11.7


After incidentals

119 133 Operatingincome 604 622





Transportation of chloro-methanes volumeswashamperedbylowwaterlevelsontheRhineRiver.

Surface ChemistrySurfaceChemistryperformedwell comparedto2010with revenuegrowingby12percentduetohighersalesprices,mainlydrivenbyrawmaterialpriceincreases.Allgeographicregionscontributed to the improvement, whichoccurred in most market sectors. Plantutilization was high and ran at full capacity,resultingintheproductsbeingsoldoutforthemajority of the year. Our industrial marketsperformedstrongly,especiallyinagrochemicalsandmining,whilehighoilpricescontributedtostronger demand for oilfield chemicals. Theconsumer-related markets, however,experiencedsomesofteningthisyear.Marginsweresqueezedasrawmaterialpricesescalatedduring the year and exhibited significantvolatility during Q3, however, they stabilizedduring the last quarter of the year. CurrencyimpactsweresignificantduetoaweakerUSdollar,impactingourmarginsandthestrongerSwedish krona, impacting our cost base inthose countries. The Boxing Oleochemicalsacquisition in China recently receivedgovernmentapproval,whichwillcontributetostrengthening the company’s position inspecialty surfactants within the region andprovideamanufacturingbaseinChina.Marginmanagement and effective cost controldeliveredastrongperformancefortheyear.

Revenue in Q4 increased by 10 percentcomparedto lastyear,mainlydrivenbypriceincreasesinallregions.However,volumewasslightly below last year. Traditionally thebusiness is seasonal and it experienced thenormaltrendforthistimeofyear,withsomeofthe largerPersonalCarecustomers reducingstocksduringthequarter.

Pulp and Paper Chemicals TheperformanceofPulpandPaperChemicalsendedtheyearstronglywithrevenueincreasingby 7 percent despite adverse transactionalcurrencyeffects.Demandstrengthwasdrivenby Bleaching Chemicals and the SpecialtyProductsportfolio,whilevolumessoftened inthePaperChemicals business. The increasewas supported by most businesses andregions,especiallyAmericasandAsiaPacific.

The overall performance was significantlyaffectedbytransactionalcurrency impactsaswellasrawmaterialpriceincreases.However,marginmanagementinitiativesremainedstrongwithpriceincreasestocountertheseimpacts,as well as a favorable regional/product mix,contributing to an overall strengthening inmarginsacrossallbusinesses.Pricesonrawmaterialsroseconsiderablyduringthefirsthalfof theyear, impactingPaperChemicalsmorethantheBleachingproducts.However,thelastquarter saw prices leveling out and evendecreasing in certain regions. Cost controlmeasures remained strong, despite theunfavorablecurrencyimpactsduetocostbaseinSweden.

VolumesinQ4increasedby2percentoverlastyear. Project activities inBrazil andourmostrecent investment in China supported thedevelopment, contributing to a robustconclusionof the year.Currency impactwasalso less adverse than in previous quarters,with favorable prices and decreasing rawmaterialcostsleadingtoastrongfinalquarter.

Chemicals PakistanBusiness conditions remained difficultthroughout 2011 for Chemicals Pakistan,resultinginaloweroutcomecomparedtolastyear.Domesticdownstreammarketconditionsremained subdued during the year as theenergy shortages persisted along with theongoing economic crisis creating uncertaintyandsuppressingoveralldemand.Throughoutthe year, the polyester market continued toexperience difficultmarket conditions due tothevolatility in feedstockandcottonmarkets.The continued shortage of gas and resultantusageofexpensivefurnaceoilintheSodaAshbusiness continued to impact margins.However,despitetheoverallvolumedecreasingin2011,pricesincreasedonthebackofhigherraw material prices, resulting in revenueincreasingby8percent.

InQ4,revenuedecreasedby1percent,ontheback of lower volumes in all businesses.PolyesterandSodaAshremainedparticularlyeffectedduetothelowerdownstreamdemanddrivenbythesevereenergyshortage,resultingfrom the persisting gap between supply anddemandofnaturalgas.


Condensed financial statements

Consolidated statement of comprehensive income4thquarter January-December

2010 2011 in€ millions 2010 2011

179 (60) Profit/(loss) for the period 837 541

Other comprehensive income

198 316 Exchangedifferencesarisingontranslationofforeignoperations 827 55

(16) (22) Cashflowhedges 50 (55)

(16) (7) Incometaxrelatingtoothercomprehensiveincome (35) 9

166 287 Other comprehensive income for the period (net of tax) 842 9

345 227 Comprehensive income for the period 1,679 550

Comprehensive income attributable to

279 202 Shareholdersofthecompany 1,523 486

66 25 Non-controllinginterests 156 64

345 227 Comprehensive income for the period 1,679 550

Consolidated statement of income4thquarter January-December

2010 2011 in€ millions 2010 2011

Continuing operations

3,620 3,787 Revenue 14,640 15,697

(2,230) (2,423) Costofsales (8,672) (9,670)

1,390 1,364 Gross profit 5,968 6,027

(857) (868) Sellingexpenses (3,341) (3,407)

(314) (342) Generalandadministrativeexpenses (1,103) (1,229)

(83) (98) Researchanddevelopmentexpenses (334) (356)

23 (20) Otheroperatingincome/(expenses) 29 7

159 36 Operating income 1,219 1,042

(56) (141) Netfinancingexpenses (327) (338)

4 (1) Resultsfromassociatesandjointventures 25 23

107 (106) Profit/(loss) before tax 917 727

40 52 Incometax (170) (194)

147 (54) Profit/(loss) for the period from continuing operations 747 533

Discontinued operations

32 (6) Profit/(loss)fortheperiodfromdiscontinuedoperations 90 8


Attributable to

162 (68) Shareholdersofthecompany 754 477

17 8 Non-controllinginterests 83 64



Shareholders' equityShareholders'equityatyear-endof2011increasedto€9.2billion,mainlyduetotheneteffectof:• Netincomeof€477million.• Dividendpaymentsof€304million.

Dividend policy and final dividendWeareaimingtopayastabletorisingdividend.Wehaveintroducedastockdividendoptionwithcash dividend as default. Given our strongfundamentalsandasasignalofconfidenceinourability to deliver the performance improvementprograminchallengingmarkets,wewillproposea2011 final dividend of €1.12 per share, whichwouldmakeatotal2011dividendof€1.45(2010:€1.40)pershare.

Condensed consolidated balance sheetin€ millions December31,

2010December 31, 2011

Assets

Non-currentassets

Intangibleassets 7,308 7,392

Property,plantandequipment 3,384 3,705

Otherfinancialnon-currentassets 1,977 2,198

Total non-current assets 12,669 13,295

Currentassets

Inventories 1,678 1,924

Tradeandotherreceivables 2,788 2,917

Cashandcashequivalents 2,851 1,635

Othercurrentassets 108 98

Total current assets 7,425 6,574

Total assets 20,094 19,869

Equity and liabilities

Total equity 9,509 9,743

Non-currentliabilities

Provisionsanddeferredtaxliabilities 2,444 2,284

Long-termborrowings 2,880 3,035

Total non-current liabilities 5,324 5,319

Currentliabilities

Short-termborrowings 907 494

Tradeandotherpayables 3,305 3,349

Othershort-termliabilities 1,049 964

Total current liabilities 5,261 4,807

Total equity and liabilities 20,094 19,869

Changes in equity

in€ millions Subscribed share capital

Additional paid-in capital

Cashflow hedge

reserve

Cumulative translation

reserves

Other reserves

Shareholders’ equity

Non-controlling interests

Total equity

Balance at January 1, 2010 465 2 (6) (777) 8,091 7,775 470 8,245

Profitfortheperiod – – – – 754 754 83 837

Othercomprehensiveincome – – 35 734 – 769 73 842

Comprehensive income for the period – – 35 734 754 1,523 156 1,679

Dividendpaid – – – – (320) (320) (83) (403)

Equity-settledtransactions – – – – 27 27 – 27

Issueofcommonshares 2 7 – – – 9 – 9

Acquisitionsanddivestments – – – – (30) (30) (18) (48)

Balance at December 31, 2010 467 9 29 (43) 8,522 8,984 525 9,509

Profitfortheperiod – – – – 477 477 64 541

Othercomprehensiveincome – – (38) 47 – 9 – 9

Comprehensive income for the period – – (38) 47 477 486 64 550

Dividendpaid 1 24 – – (329) (304) (58) (362)

Equity-settledtransactions – – – – 32 32 – 32

Issueofcommonshares 1 14 – – – 15 – 15

Acquisitionsanddivestments – – – – (1) (1) – (1)

Balance at December 31, 2011 469 47 (9) 4 8,701 9,212 531 9,743


15.313.9

Operating working capitalIn % of revenue

Q1 11

14.5

Q2 11

14.9

Q3 11

14.4

Q4 11Q4 10

Invested capital Invested capital at year-end 2011 totaled€13.7 billion, €1.0 billion higher than atyear-end2010.Investedcapitalwasimpactedbytheneteffectof:• Anincreaseof€0.2billionbytheacquisition

ofcoatingsmanufacturerSchrammHoldingAGearlyOctober,2011

• Anincreaseof€0.3billionoflong-termreceivablesrelatedtopensionfundsinassetposition

• Anincreaseofoperatingworkingcapitalof€0.2billionduetomoreexpensiverawmaterialsandactionstoensuresupplyoftitaniumdioxide.Expressedasapercentageofrevenue,operatingworkingcapitalwas14.4percent(year-end2010:13.9percent)

• Paymentsofaccruedinterestof€0.2billion,including€31millionaccruedinterestonbondswhichwerepaidbackinDecember2011,withregularcoupondatesinthefirstquarter.

Pensions Thefundedstatusofthepensionplansatyear-end2011wasestimatedtobeadeficitof €0.5billion(year-end2010:€1.0 billion;Q32011:€0.7billion).Themovementcomparedtoyear-end2010isdueto:• Top-uppaymentsof€354millioninto

certaindefinedbenefitpensionplans• Lowerdiscountratesincreasingthe

pensionobligation• LowerinflationinUKdecreasingthe

pensionobligation• Higherassetreturns.

In January 2012,we concluded the triennialactuarial funding review of the ICI PensionFund.We expect to have top-up paymentsover the remaining six years of the recoveryplanthatare£198millionlowerintotalthanthesumofthecurrentschedule:• In2012and2013,theywillbe£62million

perannumlower• In2014,2015and2016,theywillbe

£19millionperannumlower.• In2017,theywillbe£16millionlower.In addition, we have agreed to terminate acontingentassetonourbalancesheetinordertofundfurtherde-riskingactivitiesandtherebyreducefuturedemandsonourcashflows.

WorkforceAt year-end 2011, we employed 57,240 staff(year-end 2010: 55,590 employees). The netincreasewasdueto:• Anincreaseof900duetoacquisitionsand

divestments,mainlyfromtheSchrammacquisition(790employees)

• Adecreaseof1,050employeesduetoongoingrestructuring

• Anincreaseof1,800employeesduetonewhiresinhighgrowthmarkets.

Cash flowsOperating activities in 2011 resultedin a cash inflow of €325 million (2010:€519 million). The change ismainly due to aneteffectof:• Lowerprofitfromcontinuingoperations• Higheroperatingworkingcapital

• Fairvaluechangesandcashsettlementsforforeigncurrencyhedgingactivities

• Lowerpaymentsrelatedtoprovisions• Lowerpaymentsfortaxandinterest.

Net debt Net debt increased from €936 million atyear-end 2010 to €1,895million at year-end2011,mainlydueto:• Operatingcashinflowof€325million• Capitalexpendituresof€708million• Netcashoutflowforacquisitionsand

divestmentsof€138million• Paymentsofdividendsof€362million.

Mid-December,weboughtbackhigh interestbonds for a total nominal amount of€528 million and a total consideration of€633million.Thistransactionresultedinaloss

Invested capital

in€ millions December31,2010 December 31, 2011

Tradereceivables 2,101 2,250

Inventories 1,678 1,924

Tradepayables (1,763) (1,978)

Operating working capital in Business Areas 2,016 2,196

Otherworkingcapitalitems (1,203) (1,018)

Non-currentassets 12,669 13,295

Lessinvestmentsinassociatesandjointventures (175) (198)

Deferredtaxliabilities (589) (567)

Invested capital 12,718 13,708

Operating working capital

in€ millions,%ofrevenue December31,2010 December 31, 2011

DecorativePaints 651 14.3 709 14.7

PerformanceCoatings 714 14.4 792 14.9

SpecialtyChemicals 651 12.9 695 13.5

Total 2,016 13.9 2,196 14.4


For theyearaheadweexpect tosee the fullyear benefit of the price rises that we havebeen able to achieve, and which now haveoffsetmostoftherawmaterialpriceincreases.Currently we are experiencing greater pricestability in most raw materials, with theexception of TiO2, which we anticipate willcontinue to rise in price, and for which wehave plans in place to pass through furtherprice rises in the future. In addition, we aremovingaheadwiththe implementationofourPerformance Improvement Program whichshould bring significant benefits in 2012 andbeyond,underpinningourmargins.

Themajor uncertainty remains the economicenvironment.Ourconcernsarefocusedontheriskof recession inEurope,delayed recoveryof the US property market and the potentialfor a slowdown in China. Each of these canhaveasignificantimpactonourcustomersinthese regions, that would in turn impact our

sales volumes. These, together with certainrawmaterials,remainourprincipalsensitivitiesin2012.

AkzoNobel has a strong portfolio ofcomplementary businesses, with manyleading market positions and exposure togrowth markets. This, combined with ourongoingmanagementactions,meansthatweareconfidentthatwecandelivermedium-termgrowthinlinewithourstrategicambitions.

Amsterdam, February 15, 2012The Board of management

of€67million.However,goingforwardthislosswill be off-set by the significantly reducedcoupon on a new €800 million seven yearbondlaunchedinthesamemonth.Asaresult,ourmaturityprofilehasimproved.

Medium-term ambitions and outlookWehavetheaspirationtobetheworld’sleadingCoatings and Specialty Chemicals company.Our medium-term ambitions are to grow to€20 billion revenue, increase EBITDA eachyear while maintaining a 13 to 15 percentmargin,reduceOWCpercentofrevenueyear-on-yearby0.5percenttowardsa12percentlevel,andpayastabletorisingdividend.

The sustainability ambitions are to remaina top three leader in our industry, to be topquartile in our peer group in terms of safetyperformance,diversity,employeeengagementand development, and eco-efficiencyimprovementrates.

Condensed consolidated statement of cash flows4thquarter January-December

2010 2011 in€ millions 2010 2011

1,630 1,453 Cash and cash equivalents at beginning of period 1,919 2,683

Adjustments to reconcile earnings to cash generated from operating activities

147 (54) Profit/(loss)fortheperiodfromcontinuingoperations 747 533

166 173 Amortization,depreciationandimpairments 640 633

58 209 Changesinworkingcapital (124) (344)

(20) (43) Changesinprovisions (651) (498)

(76) (15) Otherchanges (93) 1

275 270 Net cash from operating activities 519 325

(198) (256) Capitalexpenditures (534) (708)

6 (167) Acquisitionsanddivestmentsnetofcashacquired 2 (138)

(1) (8) Otherchanges 53 (2)

(193) (431) Net cash from investing activities (479) (848)

(4) 80 Changesfromborrowings (33) (470)

(97) (80) Dividends (403) (362)

(51) – Otherchanges (45) 7

(152) – Net cash from financing activities (481) (825)

(70) (161) Net cash used for continuing operations (441) (1,348)

1,095 7 Cashflowsfromdiscontinuedoperations 1,095 11

1,025 (154) Net change in cash and cash equivalents of total operations 654 (1,337)

28 36 Effectofexchangeratechangesoncashandcashequivalents 110 (11)

2,683 1,335 Cash and cash equivalents at December 31 2,683 1,335


Quarterly statistics

2010 2011

Q1 Q2 Q3 Q4 year in€ millions Q1 Q2 Q3 Q4 year

Revenue

1,056 1,401 1,372 1,139 4,968 DecorativePaints 1,196 1,461 1,435 1,204 5,296

1,049 1,260 1,239 1,238 4,786 PerformanceCoatings 1,237 1,312 1,295 1,326 5,170

1,154 1,258 1,272 1,259 4,943 SpecialtyChemicals 1,351 1,350 1,349 1,285 5,335

(13) (12) (16) (16) (57) Otheractivities/eliminations (22) (26) (28) (28) (104)

3,246 3,907 3,867 3,620 14,640 Total 3,762 4,097 4,051 3,787 15,697

EBITDA

82 205 198 63 548 DecorativePaints 90 191 148 11 440

143 191 166 147 647 PerformanceCoatings 143 170 157 141 611

207 257 254 221 939 SpecialtyChemicals 241 220 238 207 906


399 614 574 377 1,964 Total 437 551 507 301 1,796

12.3 15.7 14.8 10.4 13.4 EBITDA margin (in %) 11.6 13.4 12.5 7.9 11.4

Depreciation

(29) (32) (31) (32) (124) DecorativePaints (30) (30) (33) (33) (126)

(19) (21) (20) (21) (81) PerformanceCoatings (21) (21) (21) (24) (87)

(52) (53) (54) (55) (214) SpecialtyChemicals (55) (56) (56) (60) (227)


(105) (110) (107) (113) (435) Total (108) (110) (114) (119) (451)

Amortization


(6) (7) (6) (7) (26) PerformanceCoatings (7) (7) (7) (8) (29)

(11) (12) (12) (11) (46) SpecialtyChemicals (12) (13) (13) (16) (54)

– 1 (2) (1) (2) Otheractivities/eliminations – – (1) (2) (3)

(36) (38) (39) (42) (155) Total (40) (40) (41) (49) (170)

EBIT

34 153 148 8 343 DecorativePaints 39 141 95 (45) 230




258 466 428 222 1,374 Total 289 401 352 133 1,175

7.9 11.9 11.1 6.1 9.4 EBIT margin (in %) 7.7 9.8 8.7 3.5 7.5

Operating income

19 146 136 (26) 275 DecorativePaints 37 137 57 (94) 137




224 455 381 159 1,219 Total 277 428 301 36 1,042


20102011

Q1 Q2 Q3 Q4 year in€ millions Q1 Q2 Q3 Q4 year

Incidentals per Business Area


(17) (10) (11) (15) (53) PerformanceCoatings (9) 13 (15) (26) (37)

(18) 3 (24) (36) (75) SpecialtyChemicals (1) (4) – 2 (3)

16 3 – 22 41 Otheractivities/eliminations – 22 2 (24) –

(34) (11) (47) (63) (155) Total (12) 27 (51) (97) (133)

Incidentals included in operating income

(17) (21) (53) (29) (120) Restructuringcosts (9) (20) (47) (55) (131)

(9) 8 – (48) (49) Resultsrelatedtomajorlegal,antitrustandenvironmentalcases

1 21 2 (33) (9)

1 1 15 16 33 Resultsonacquisitionsanddivestments

– 26 (5) (11) 10

(9) 1 (9) (2) (19) Otherincidentalresults (4) – (1) 2 (3)

(34) (11) (47) (63) (155) Total (12) 27 (51) (97) (133)

Incidentals per cost category

(16) (20) (37) (53) (126) Costofsales (4) (5) (25) (18) (52)

(5) (3) (7) (28) (43) Sellingexpenses (3) (9) (20) (34) (66)

(7) 1 (3) (4) (13) Generalandadministrativeexpenses

(1) (4) (1) (18) (24)

– – (2) 1 (1) Researchanddevelopmentexpenses

– – (1) (8) (9)

(6) 11 2 21 28 Otheroperatingincome/(expenses) (4) 45 (4) (19) 18

(34) (11) (47) (63) (155) Total (12) 27 (51) (97) (133)

Reconciliation net financing expense

12 12 16 11 51 Financingincome 14 17 14 12 57

(67) (72) (53) (48) (240) Financingexpenses (61) (63) (49) (129) (302)

(55) (60) (37) (37) (189) Net interest on net debt (47) (46) (35) (117) (245)

Other interest movements

(25) (26) (26) (23) (100) Financingexpensesrelatedtopensions

(16) (13) (15) (15) (59)

(8) (29) (6) 4 (39) Interestonprovisions (5) (12) (13) (16) (46)

– 2 (1) - 1 Otheritems 5 7 (7) 7 12

(33) (53) (33) (19) (138) Net other financing charges (16) (18) (35) (24) (93)

(88) (113) (70) (56) (327) Net financing expenses (63) (64) (70) (141) (338)

Quarterly net income analysis

5 7 9 4 25 Resultsfromassociatesandjointventures

7 8 9 (1) 23

(18) (26) (22) (17) (83) Profitattributabletonon-controllinginterests

(16) (22) (18) (8) (64)

141 349 320 107 917 Profit/(loss)beforetax 221 372 240 (106) 727

(53) (76) (81) 40 (170) Incometax (73) (99) (74) 52 (194)

88 273 239 147 747 Profit/(loss)fortheperiodfromcontinuingoperations

148 273 166 (54) 533

38 22 25 (37) 19 Effectivetaxrate(in%) 33 27 31 49 27


2010 2011

Q1 Q2 Q3 Q4 year Q1 Q2 Q3 Q4 year

Earnings per share from continuing operations (in €)

0.30 1.06 0.93 0.55 2.85 Basic 0.57 1.07 0.63 (0.26) 2.01

0.30 1.05 0.92 0.55 2.83 Diluted 0.56 1.07 0.63 (0.26) 1.99

Earnings per share from discontinued operations (in €)

0.05 0.11 0.09 0.14 0.38 Basic (0.02) 0.07 – (0.03) 0.03

0.05 0.11 0.09 0.14 0.38 Diluted (0.02) 0.07 – (0.03) 0.03

Earnings per share from total operations (in €)

0.35 1.17 1.02 0.69 3.23 Basic 0.55 1.14 0.63 (0.29) 2.04

0.35 1.16 1.01 0.69 3.21 Diluted 0.54 1.14 0.63 (0.29) 2.02

Number of shares (in millions)

232.7 233.3 233.4 233.5 233.2 Weightedaveragenumberofshares

233.6 233.9 234.0 234.3 233.9

233.2 233.4 233.5 233.5 233.5 Numberofsharesatendofquarter 233.7 234.0 234.0 234.7 234.7

Adjusted earnings (in € millions)

141 349 320 107 917 Profit/(loss)beforetaxfromcontinuingoperations

221 372 240 (106) 727

34 11 47 63 155 Incidentalsreportedinoperatingincome

12 (27) 51 97 133

36 38 39 42 155 Amortizationofintangibleassets 40 40 41 49 170

(71) (97) (107) (4) (279) Adjustedincometax (88) (107) (100) 9 (286)

(18) (26) (22) (17) (83) Non-controllinginterests (16) (22) (18) (8) (64)

122 275 277 191 865 Adjusted net income for continuing operations

169 256 214 41 680

0.52 1.18 1.19 0.82 3.71 Adjusted earnings per share (in €)

0.72 1.09 0.91 0.17 2.91


Moving average ROI iscalculatedasEBITofthe last twelve months divided by averageinvestedcapital.

Net debt isdefinedas long-termborrowingsplus short-term borrowings less cash andcashequivalents.

Operating income isdefined inaccordancewith IFRS and includes the relevantincidentalresults.

Operating ROI iscalculatedasEBITbeforeamortizationofthelasttwelvemonthsdividedby average invested capital excludingintangibleassets.

Operating working capital is defined asthesumof inventories,tradereceivablesandtradepayables in theBusinessAreas.Whenexpressedasaratio,operatingworkingcapitalis measured against four times lastquarterrevenue.

Revenueconsistsofsalesofgoods,services,androyaltyincome.

Safe Harbor StatementThisreportcontainsstatementswhichaddresssuch key issues as AkzoNobel’s growthstrategy, future financial results, marketpositions, product development, products inthe pipeline and product approvals. Suchstatements should be carefully considered,anditshouldbeunderstoodthatmanyfactorscouldcauseforecastandactualresultstodifferfromthesestatements.Thesefactorsinclude,but are not limited to, price fluctuations,currency fluctuations, developments in rawmaterial and personnel costs, pensions,physicalandenvironmentalrisks,legalissues,and legislative, fiscal, and other regulatorymeasures. Stated competitive positions arebasedonmanagementestimatessupportedbyinformationprovidedbyspecializedexternalagencies. For a more comprehensivediscussion of the risk factors affecting ourbusiness,pleaseseeourlatestAnnualReport.

Brands and trademarksInthisreport,referenceismadetobrandsandtrademarks owned by, or licensed to,AkzoNobel. Unauthorized use of these isstrictlyprohibited.

Accounting policies Thefullyear2011financialfiguresofAkzoNobelincluded in the primary statements in thisreportarederivedfromthefinancialstatements2011. These financial statements havebeenauthorizedfor issue.Thefinancialstatementshavenotyetbeenpublishedby lawandstillhavetobeadoptedbythegeneralmeetingofshareholders. In accordance with section2:393BW,KPMGAccountantsN.V.hasissuedan unqualified auditor's opinion on thesefinancial statements,whichwill bepublishedon February 23, 2012. All quarterly figuresareunaudited.Comparedtothe2010financialstatementsthemajoraccountingprinciplesareunchanged.

SeasonalityRevenueand results inDecorativePaints areimpactedbyseasonalinfluences.Revenueandprofitabilitytendtobehigherinthesecondandthirdquarteroftheyearasweatherconditionsdeterminewhetherpaintsandcoatingscanbeapplied.InPerformanceCoatings,revenueandprofitability vary with building patterns fromoriginalequipmentmanufacturers.InSpecialtyChemicals, theFunctionalChemicalsand theSurface Chemistry businesses experienceseasonal influences.Revenue andprofitabilityare affectedbydevelopmentsintheagriculturalseasonandtendtobehigherinthefirsthalfoftheyear.

The "other" categoryIn the category "other" we report activitieswhicharenotallocatedtoaparticularbusinessarea. Corporate costs are the unallocatedcostsofourheadofficeandsharedservicescenter in the Netherlands. Pensions reflectspensioncostsafter theeliminationof interestcost (reported as financing expenses).Insurances are the results from our captiveinsurancecompanies.Otherincludesthecostof share-based compensation and companyprojects, the results of treasury and legacyoperationsaswellastheunallocatedcostofsomecountryorganizations.

GlossaryAdjusted earnings per share are the basicearningspersharefromcontinuingoperationsexcluding incidentals in operating income,amortization of intangible assets and tax ontheseadjustments.

Comprehensive income is the change inequity during a period resulting fromtransactionsandothereventsotherthanthosechanges resulting from transactions withshareholdersintheircapacityasshareholders.

Constant currencies information excludesforeigncurrency translationeffectsassumingforeign currency exchange rates have notchanged between the prior year period andthecurrentperiod.

EBIT isoperatingincomebeforeincidentals.

EBIT marginisEBITas percentageofrevenue.

EBITDA is EBIT before depreciation andamortization and refers to EBITDA beforeincidentals.

EBITDA margin isEBITDAas percentageofrevenue.

Emerging Europe: CzechRepublic,Estonia,Hungary, Poland, Romania, RussianFederation,Slovenia,TurkeyandUkraine.

Incidentalsarespecialchargesandbenefits,results on acquisitions and divestments,restructuring and impairment charges, andchargesrelatedtomajorlegal,anti-trust,andenvironmentalcases.EBITDAandEBITbeforeincidentalsarekey figuresweuse toassessourperformance,asthesefiguresbetterreflectthe underlying trends in the results of theactivities.

Interest coverage is operating incomedividedbynetinterestonnetdebt.In2010,weused thedefinitionoperating incomedividedby net financing expenses and includednon-cash itemssuchas interestonpensionsandprovisions.Wehavechangedthedefinitionstarting 2011. The 2010 figure has beenadjustedtoalignwiththe2011definition.

Invested capital is total assets (excludingcash and cash equivalents, investments inassociates, assetsheld for sale) lesscurrentincometaxpayable,deferredtaxliabilitiesandtradeandotherpayables.

Mature markets compriseofWesternEurope,theUS,Canada,JapanandOceania.

Notes to the condensed financial statements

0546

6_07

0212

www.akzonobel.com

AkzoNobelisthelargestglobalpaintsandcoatingscompanyandamajorproducerofspecialtychemicals.Wesupplyindustriesandconsumersworldwidewithinnovativeproductsandarepassionateaboutdevelopingsustainableanswersforourcustomers.OurportfolioincludeswellknownbrandssuchasDulux,Sikkens,InternationalandEka.HeadquarteredinAmsterdam,theNetherlands,weareaGlobalFortune500companyandareconsistentlyrankedasoneoftheleadersintheareaofsustainability.Withoperationsinmorethan80countries,our57,000peoplearoundtheworldarecommittedtoexcellenceanddeliveringTomorrow’sAnswersToday™.©2012AkzoNobelN.V.Allrightsreserved.“Tomorrow’sAnswersToday”isatrademarkofAkzoNobelN.V.

Akzo Nobel N.V.Strawinskylaan2555P.O.Box757301070ASAmsterdam,theNetherlandsTel:+31205027555Fax:+31205027666Internet:www.akzonobel.com

Formoreinformation:TheexplanatorysheetsusedduringthepressconferencecanbeviewedonAkzoNobel’scorporatewebsitewww.akzonobel.com

AkzoNobelCorporateCommunicationsTel:+31205027833Fax:+31205027604E-mail:[email protected]

AkzoNobelInvestorRelationsTel:+31205027854Fax:+31205027605E-mail:[email protected]

Financial calendarReportforthe1stquarter2012 April19,2012AnnualGeneralMeeting April23,2012Ex-dividenddateof2011finaldividend April25,2012Recorddateof2011finaldividend April27,2012ElectionperiodcashorstockfinaldividendApril30,2012– May18,2012Paymentdateofcashdividendanddeliveryofnewshares May24,2012Reportforthe2ndquarter2012 July19,2012Reportforthe3rdquarter2012 October18,2012

report for the year 2011 and the fourth quarter…4 akzonobel i report for the year 2011 and fourth...

Documents