CEO statement

Dear stakeholder,

When I look back at 2014, I see an eventful year, full of economic and market challenges. It was also a year of many changes at AkzoNobel, all of which were designed to make the company an even better place than it already is.

The beginning of the year was very much dominated by unfavorable conditions with regard to currencies, while markets did seem to recover to a certain extent. That changed in the second half of the year when Europe again experienced a lack of growth and the recovery that everyone had hoped for didn’t materialize. At the same time, we saw some of the Asian economies and Latin America slow down. These were serious economic challenges that we needed to adapt to.

In terms of financial performance, we saw the first clear proof points that our strategy is working, despite the market headwinds. We achieved continuously improving return on sales and return on investment levels, while the introduction of several commercial excellence initiatives helped to prepare the company for organic growth. The cash position was slightly marred by an unfortunate isolated incident of external fraud in the US, but we remain on track to deliver on our 2015 targets.

During the course of the year, we focused a lot of attention on transforming AkzoNobel into a more simplified and customer focused organization. The changes we implemented also helped us adapt to the challenging market conditions we were facing. Within the functional areas, we introduced a Global Business Services concept, which is designed to standardize many of our functional processes and make us more agile. In addition, we actively reduced the number of management layers to further streamline our structure and help drive the creation of a high performance culture.

This process of transformation included the ongoing review of our manufacturing footprint and we continued to consolidate facilities during the course of the year. We also invested in a number of new facilities, and are continuing to do so. For example, an automotive and aerospace coatings factory was opened in Changzhou, China, and our new chlor-alkali plant was commissioned in Frankfurt, Germany. Elsewhere, Powder Coatings started operations at a new plant in Dubai in the Middle East and we broke ground at a new site for decorative paints in Chengdu, China. A number of other facilities are under construction which will give further momentum to our growth strategy.

A key influence on our growth ambitions is the fact that more than 50 percent of the world’s population currently lives in cities. This is significant, because 60 percent of our revenue is connected to cities. That’s why we’ve launched our Human Cities initiative, which was a major highlight for us in 2014. Introduced to the world in Venice, it explains how AkzoNobel can play an important role in helping the world’s cities to meet many of the key challenges of the 21st century. Shortly after the Venice launch, we made a commitment to the Clinton Global Initiative, which involved establishing a partnership with 100 Resilient Cities – pioneered by The Rockefeller Foundation. It will enable us to support these cities in becoming more liveable, more enjoyable and more exciting. We are therefore looking forward to enabling people all over the world to strenghten their emotional connection with the place, neighborhood and environment where they live.

Our strategy of organic growth and operational excellence includes embedding sustainability in everything we do. Sustainability is also one of the main pillars of the Human Cities initiative. It was therefore especially pleasing to be ranked first on the Dow Jones Sustainability Index (in the Materials industry group) for the third year in a row. It was also the ninth consecutive year that we have featured in the top three. This underlines how important sustainability is for AkzoNobel and how it has been fully integrated into the way we run our businesses.

Our innovation in particular is focused strongly on the sustainable benefits we can provide for our customers. Highlights during 2014 included the launch of a new barrier coating which made it possible to create the world’s first fully compostable and recyclable paper cup for cold drinks. Another exciting innovation was launched by our Decorative Paints business. The award-winning Visualizer app enables users to see in real time what a room will look like in a wide range of different colors – before any paint is applied to the wall – making it more fun to interact with the way you decorate your home.

During the course of the year, we welcomed Maëlys Castella as our new CFO, succeeding Keith Nichols. She brings a wealth of operational and financial experience and has been warmly welcomed as part of the Executive Committee. Antony Burgmans succeeded Karel Vuursteen as Chairman of our Supervisory Board. Karel brought a tremendous amount of energy, strategic thinking and support to AkzoNobel and we thank him for all his efforts. Towards the end of 2014, we were also saddened by the passing of Dolf van den Brink, a long-time Supervisory Board member who brought his wisdom and professional expertise to the company for many years. He leaves a big legacy and we will continue to draw on everything we learned from him.

Looking ahead at 2015, we do not expect significant positive changes in the markets. But while we do not anticipate the markets to turn in our favor, we’re confident that we have built the foundations to become more successful in 2015 and remain on track to deliver on our targets. We will continue to drive value creation in order to deliver leading performance.

All our employees around the world deserve a tremendous amount of credit for the energy and effort that they have put in amid all the changes that have been taking place. I also want to thank our customers, suppliers and our investors for their trust and cooperation. I’m sure that our leading market positions, products and brands will make it possible for us to continue being successful in 2015.

Ton Büchner – signature (handwriting)

Ton Büchner
CEO and Chairman of the Board of Management and Executive Committee