Half-yearly report 2015

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Akzo Nobel Sweden Finance AB (publ)

Half-yearly report 2015 Akzo Nobel Sweden Finance AB (publ) Registration number 556768-4062

Half-yearly report 2015

02

Contents 1. 1.1.

General information The Company

3 3

1.2.

Bond loan and cross guarantee

3

1.3.

Capital guarantee

3

2. 2.1.

Financial highlights during the first 6 months of 2015 for the Akzo Nobel Sweden group Comments to the consolidated statement of income

4 6

2.2.

Comments to the consolidated balance sheet

8

2.3.

Comments to changes in equity

9

2.4.

Comments to the consolidated statement of cash flow

10

3. 3.1.

Notes to the condensed financial statements Principal risks and uncertainties

11 12

3.2.

Seasonality

12

3.3.

Transactions with related parties

12

3.4.

Accounting policies

12

3.5.

Safe Harbour statement

12

4. 4.1.

Condensed separate financial statements for Akzo Nobel Sweden Finance AB (publ) Comments to the statement of income

13 13

4.2.

Comments to the balance sheet

14

4.3.

Comments to the changes in equity

15

4.4.

Comments to the statement of cash flow

15

5.

Statement of affirmation

16

Half-yearly report 2015

1.

General information

1.1. The Company Akzo Nobel Sweden Finance AB (publ), referred to as “the company”, was incorporated on October 13, 2008. The company is a wholly-owned subsidiary of Akzo Nobel N.V, which is a public limited liability company (Naamloze Vennootschap) incorporated in the Netherlands, with registered office at Strawinskylaan 2555, 1077 ZZ Amsterdam (telephone number +31 20 502 7555). Akzo Nobel N.V. has subsidiaries in more than 80 countries and employs approximately 46,000 people through its various Decorative Paints, Performance Coatings and Specialty Chemicals businesses. Akzo Nobel N.V. and its subsidiaries together are referred to as “AkzoNobel” or the “AkzoNobel group”. Akzo Nobel Sweden Finance AB and its subsidiaries are referred to as the “AkzoNobel Sweden group”. The object of the company’s business is to carry on the business of a finance company, including lending, borrowing and the issuing of guarantees; directly or indirectly to own and manage movable and immovable property; and any other activities compatible therewith, as well as to provide administrative and other corporate services to companies in which the company directly or indirectly owns shares and carry on any other activities compatible therewith. The company shall, however, not carry on such business as is subject to regulatory authorization in accordance with the Swedish Act (2004:297) on Banking Business and Financing Operations.

1.2. Bond loan and cross guarantee On December 12, 2008, the company placed a 7.75% €1 billion bond with an issue price of 99.552% of the principal amount. In December 2011 the company bought back outstanding bonds with a nominal value of €175 million to a consideration of €207 million. The €825 million bond had annual interest payments and matured on January 31, 2014. In July 2012, the company placed a bond loan of €750 million with a 2.625% coupon rate paid annually in arrears. This bond loan matures on July 27, 2022. The company has entered into contracts (“Cross-guarantee”) pursuant to which it irrevocably and unconditionally guarantees parts of the payment obligations of Akzo Nobel N.V. relating to public debt and external credit and guarantee contracts. The amount of public debt and external credit arrangements covered by this guarantee outstanding at June 30, 2015 was €2,270 million (December 31, 2014: €2,396 million). At the same time Akzo Nobel N.V. has irrevocably and unconditionally guaranteed the payment obligations of the company relating to the €750 million bond loan. The purpose of this cross-guarantee is to ensure that the creditors of both the company and Akzo Nobel N.V. are placed in substantially equivalent structural position regarding the debt covered by the guarantee.

1.3. Capital guarantee Akzo Nobel N.V. has undertaken to make a capital contribution in order to ensure that the shareholders’ equity of Akzo Nobel Sweden Finance AB (publ) will at all times amount to at least the company’s registered share capital.

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Half-yearly report 2015

2.

04

Financial highlights during the first 6 months of 2015 for the Akzo Nobel Sweden group

In € m illions

Revenue EBITDA EBITDA margin (in %) Operating income / EBIT EBIT margin (in %)

· · ·

· ·

Jan - Jun 2015

846.1 153.3 18.1% 125.8 14.9%

Jan - Jun 2014

846.1 96.1 11.4% 64.4 7.6%

Change in %

0% 60% 95%

Revenue was unchanged at €846.1 million (€846.1 million). EBIT almost doubled to €125.8 million (€64.4 million). EBIT includes one-off charges of €31.8 million (€13.7 million). This includes the gain of €31.2 million in respect of the divestment of the Paper Chemicals business in the Specialty Chemicals area. The remaining part mainly concerns cost related to restructuring and anti-trust settlements. Net income almost tripled to €94.0 million (€33.1 million). Earnings per share for the first half of 2015 were a gain of €94,012 (€32,856).

Half-yearly report 2015

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Consolidated statement of income AkzoNobel Sweden group In € millions 2015 Jan-Jun Revenue Cost of sales

2014 Jan-Jun

846.1

846.1

(613.3)

(643.5)

Gross profit

232.8

202.6

Selling expenses

(67.5)

(64.0)

Research and development expenses

(17.8)

(18.6)

General and administrative expenses

(49.4)

(50.1)

27.6

(5.5)

125.8

64.4

Other operating income/(expenses) Operating incom e Financing income

0.2

0.2

Financing expenses

(13.0)

(20.7)

Profit/(loss) before tax

113.0

43.9

Income tax

(19.0)

(10.8)

94.0

33.1

94.0

32.9

0.0

0.2

- Basic

94,012

32,856

- Diluted

94,012

32,856

1,000

1,000

2015 Jan-Jun

2014 Jan-Jun

Net income Attributable to: - Shareholders of the company - Non-controlling interest Earnings per share (in €):

Number of shares outstanding

Statement of comprehensive income/change in equity In € millions

Profit/(loss) for the period

94.0

33.1

Exchange differences arising on translation of operations

10.0

(22.2)

Cash flow hedges reported in equity

(4.7)

3.9

3.3

(0.1)

Post-retirement benefits Taxes relating to components of other comprehensive income Com prehensive incom e for the period

0.3

(0.8)

102.9

13.9

102.8

13.7

0.1

0.2

Attributable to: - Shareholders of the company - Non-controlling interest

Half-yearly report 2015

2.1. Comments to the consolidated statement of income General development Revenue was flat compared to the previous year. Negative effects from divestments were mainly compensated by favorable exchange rates on export sales in Specialty Chemicals. Operating income was considerably higher compared to previous year. A new operating model in the coatings business, effects from restructuring programs and continuous improvements have lowered the cost base. Raw material prices, including energy, have come down compared to the previous year with a positive effect on margins. There is a decrease in net financing expenses due to the redemption of a €825 million bond loan as per January 31, 2014. Acquisitions/divestments Beginning of May 2015, Pulp and Performance Chemicals finalized the sale of its Paper Chemicals portfolio impacting the Specialty Chemicals area within the Swedish group. This included the of Paper Chemicals activities in the European market, as well as a subsidiary in Indonesia. A €31.8 million gain was reported for this divestment including expenses related to restructuring related to the divestment. One-off items – restructuring measures Total one-off items of €31.2 million were included in the result. The main item relates to the divestment of Paper Chemicals, see above. The remaining part mainly concerns restructuring programs and antitrust settlement. Taxes The tax burden was 17%, which is lower than the nominal tax of 22%. The difference is mainly due to non-taxable income from divestments. Financing The AkzoNobel Sweden group’s major source of long-term financing is bond loans. Short-term financing is provided by internal bank arrangements. There is an internal loan structure set up within the Swedish group. Through this structure borrowing from other AkzoNobel companies has been minimized. Operating segments – management structure The AkzoNobel Sweden group is an integrated part of the AkzoNobel group. Management and control is carried out through the organizational structure in the AkzoNobel group, therefore the same operational reporting structure is used. AkzoNobel Sweden group is organized in three business areas: · Decorative Paints · Performance Coatings · Specialty Chemicals Workforce At the end of June 30, 2015, we employed 2,877 staff for ongoing activities (December 31, 2014: 3,015; June 30, 2014: 3,146). The changes when compared to year-end 2014 are detailed below: · An increase of seasonal employees of 90 · A net decrease of 37 of voluntary leaves and new hires · A decrease of 106 due to ongoing restructuring · A decrease of 83 due to divestments

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Half-yearly report 2015

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Condensed financial statement AkzoNobel Sweden group In € m illions Revenue Decorative Paints

2015 Jan-Jun

2014 Jan-Jun

53.0

74.0

Perf ormance Coatings

190.4

222.7

Specialty Chemicals

602.7

549.4

Other activities/eliminations Total

846.1

0.0 846.1

Operating incom e / EBIT Decorative Paints

4.2

6.7

Perf ormance Coatings

9.0

9.8

113.3

47.9

Specialty Chemicals Other activities/eliminations

(0.7)

0.0

125.8

64.4

One-off items included in EBIT Decorative Paints

(0.9)

(1.1)

Perf ormance Coatings

(2.2)

(8.8)

Specialty Chemicals

34.3

(3.8)

Total

Other activities/eliminations

-

Total

31.2

(13.7)

2,877

3,146

Num ber of em ployees

0.0

Half-yearly report 2015

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Condensed consolidated balance sheet AkzoNobel Sweden group June 30 2015

Decem ber 31 2014

June 30 2014

97.4

99.2

103.3

262.8

257.1

261.4

32.8

6.3

10.9

Total non-current assets

393.0

362.7

375.6

Inventories

154.4

150.1

145.6

Trade and other receivables

282.0

254.3

279.7

Cash and cash equivalents

In € m illions Intangible assets Property, plant and equipment Other financial non-current assets

293.1

254.9

179.9

Assets held for sale

0.0

0.0

29.3

Other current assets

9.4

14.9

20.0

738.9

674.1

654.5

1,131.9

1,036.8

1,030.1

(62.1)

(166.6)

(160.8)

1.4

2.4

4.8

(60.7)

(164.2)

(156.0)

Total current assets Total assets Shareholders' equity Non-controlling interest Total equity Provisions and deferred tax liabilities

91.8

91.3

99.0

Long-term borrow ings

743.4

759.0

745.2

Total non-current liabilities

835.2

850.4

844.2

0.0

0.0

13.3

221.3

208.5

222.8

0.0

0.0

2.9

Other short-term liabilities

136.1

142.1

102.9

Total current liabilities

357.4

350.7

341.9

1,131.9

1,036.8

1,030.1

Short-term borrow ings Trade and other payables Liabilities held for sale

Total equity and liabilities

2.2. Comments to the consolidated balance sheet Intangible assets Intangible assets mainly consist of goodwill relating to acquisitions made by the AkzoNobel group. Compared to year-end 2014, intangible assets decreased by €1.8 million. The decrease partly consists of amortization of intangible assets in the Decorative Paints and Specialty Chemicals segments. An additional €1.6 million has been capitalized due to investments in new IT-systems. Property plant and equipment The decrease in PP&E compared to year-end 2014, mainly consist of depreciation and exchange rate differences and effects of divestments. Cash and cash equivalents As of June 30, 2015, €282.6 million (June 30, 2014: €170.2 million) of the liquid funds is placed with the AkzoNobel group.

Half-yearly report 2015

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Assets/liabilities held for sale The divestment of the Paper Chemicals business in Specialty Chemicals has now been implemented and therefore no assets or liabilities were classified as held for sale at the end of June 2015.

Changes in equity AkzoNobel Sweden group Subscribed share capital

Additional paid-in capital

Balance at Decem ber 31, 2013

0.1

341.1

Profit/loss for the period

0.0

Reclassification into the statement of income

0.0

Other comprehensive income

In € m illions

Other Cash f low reserves and hedge Translation undistributed Shareholder reserve reserve prof its s´equity

Noncontrolling interest Total equity

9.4

145.3

(670.0)

(174.1)

5.1

(169.0)

0.0

0.0

0.0

48.2

48.2

0.3

48.5

0.0

13.5

0.0

0.0

13.5

0.0

13.5

0.0

0.0

(7.4)

(38.5)

(9.0)

(54.9)

0.2

(54.7)

Tax on other comprehensive income

0.0

0.0

(1.4)

0.0

1.9

0.6

0.0

0.6

Total com prehensive incom e

0.0

0.0

4.8

(38.5)

41.1

7.4

0.5

7.9

Dividend paid to non controlling interests

0.0

0.0

0.0

0.0

0.0

0.0

(4.4)

(4.4)

Other changes in equity

0.0

0.0

0.0

0.0

0.1

0.1

1.2

1.3

Balance at Decem ber 31, 2014

0.1

341.1

14.2

106.8

(628.8)

(166.6)

2.4

(164.2)

Profit/loss for the period

0.0

0.0

0.0

0.0

94.0

94.0

0.0

94.0

Reclassification into the statement of income

0.0

0.0

3.9

0.0

0.0

3.9

0.0

3.9

Other comprehensive income

0.0

0.0

(8.6)

9.9

3.3

4.6

0.1

4.7

Tax on other comprehensive income

0.0

0.0

1.0

0.0

(0.7)

0.3

0.0

0.3

Total com prehensive incom e

0.0

0.0

(3.7)

9.9

96.5

102.8

0.1

102.9

Dividend paid to non controlling interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other changes in equity

0.0

0.0

0.0

0.0

1.7

1.7

(1.1)

0.6

Balance at June 30, 2015

0.1

341.1

10.6

116.7

(530.6)

(62.1)

1.4

(60.7)

2.3. Comments to changes in equity The AkzoNobel Sweden group uses energy forwards to secure the price level of electricity in the coming 3 to 5 years. The unrealized change in fair value of these contracts is reported as a change in equity in accordance with the rules for cash flow hedge accounting as included in IAS 39. At June 30, 2015, a positive value of €10.6 million (December 31, 2014: €14.2 million) net after tax was included in the AkzoNobel Sweden group’s equity. There has been an increase in the cumulative translation reserves by €9.9 million due to appreciation of the Swedish krona compared to the euro. The functional currency of most companies in the AkzoNobel Sweden group is the Swedish krona and therefore the movement in the Swedish krona/euro exchange rate affects equity.

Half-yearly report 2015

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Consolidated statement of cash flows AkzoNobel Sweden group 2015 Jan-Jun

2014 Jan-Dec

2014 Jan-Jun

Cash and cash equivalents opening balance

254.9

484.4

484.4

Operating income for the period

125.8

101.4

64.4

In € m illions

Amortization, depreciation and impairments

27.6

64.6

31.7

Paid financial items and paid taxes

(6.2)

(86.0)

(69.0)

(45.6)

11.0

(23.1)

(3.9)

(1.8)

(1.6)

(38.8)

11.5

(4.3)

58.9

100.6

(1.9)

(28.6)

(44.3)

(19.3)

Acquisitions and divestments

43.7

(8.7)

0.0

Other changes

(0.1)

0.9

(0.2)

Changes in w orking capital Changes in provisions Other changes Net cash from operating activities Capital expenditure

Net cash from investing activities Changes in borrow ings Other changes Net cash from financing activities Net change in cash and cash equivalents Effects of exchange rate changes Cash and cash equivalents at end of period

15.0

(52.1)

(19.5)

(40.1)

(258.6)

(271.3)

0.0

(4.4)

(0.6)

(40.1)

(263.1)

(271.9)

33.8

(214.5)

(293.3)

4.4

-14.9

-11.2

293.1

254.9

179.9

2.4. Comments to the consolidated statement of cash flow Cash flow from operating activities increased to €58.9 million (€-1.9 million). The main increase was related to improved earnings and lower interest payments compared to earlier periods. Working capital increased by €46 million in the first 6 months of 2015. This is a seasonal pattern especially in the coatings business. During the period, the payment of liabilities related to antitrust claims has affected the cash flow negatively with €18 million. The result for the divestment of Paper Chemical of €31.8 million has been reversed on the lines changes in provisions and other changes and reported under acquisitions and divestments. Change in borrowings mainly relates to short term borrowings to other companies in the AkzoNobel group.

Half-yearly report 2015

3.

Notes to the condensed financial statements

In our 2014 Report we have extensively described our risk management framework and our major risk factors which may prevent full achievement of our objectives within the forthcoming five years. In respect of the principal risks, we consider the six risks assessed most likely to increase as communicated in the Annual Report of 2014 to be still valid

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Half-yearly report 2015

3.1. Principal risks and uncertainties 3.2. Seasonality Revenue and results in Decorative Paints are impacted by seasonal influences. Revenue and profitability tend to be higher in the second and third quarter of the year as weather conditions determine whether paints and coatings can be applied. In Performance Coatings, revenue and profitability vary with building patterns from original equipment manufacturers. In Specialty Chemicals, the Functional Chemicals business experiences seasonal influences. Revenue and profitability are affected by developments in the agricultural season and tend to be higher in the first half of the year.

3.3. Transactions with related parties The AkzoNobel Sweden group is an integrated part of the AkzoNobel group. A significant part of the turnover of the Swedish units is with other parts of the AkzoNobel group. Sales to other parts of the AkzoNobel group in the first half year amounted to €164.0 million (2014: €174.6 million). There are also a number of shared services within the AkzoNobel group for example sourcing, legal, human resources and financing for which the costs are shared.

3.4. Accounting policies This interim financial report is in compliance with IAS 34 "Interim Financial Reporting". This report is unaudited. The IFRS changes applicable as from January 1, 2015 do not have any or only an immaterial effect on our consolidated financial statements. Otherwise the accounting principles are as applied in the 2014 financial statements.

3.5. Safe Harbour statement This report contains statements which address such key issues as AkzoNobel’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 forecast 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. For a more comprehensive discussion on the risk factors affecting the business, please see the Akzo Nobel Sweden Finance AB (publ) 2014 Report, a copy of which can be found on www.akzonobel.com.

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Half-yearly report 2015

4.

13

Condensed separate financial statements for Akzo Nobel Sweden Finance AB (publ)

Condensed financial statement Statement of income - Akzo Nobel Sweden Finance AB (publ) In € m illions

2015 Jan-Jun

2014 Full year

0.1

(0.3)

(0.9)

(0.1)

0.0

0.0

Revenue General and administrative expenses Other results Operating incom e/(expenses)

2014 Jan-Jun

0.1

(0.1)

(0.2)

(0.9)

Net finance expenses

(11.3)

(39.5)

(17.0)

Profit/(loss) before tax

(11.4)

(39.7)

(17.9)

24.9

74.5

0.0

2.5

(12.4)

3.9

16.0

22.3

(14.0)

Appropriations (incl. Dividend received) Income tax Net incom e

Statement of comprehensive income - Akzo Nobel Sweden Finance AB (publ) In m illions € Earnings for the period

2015 Jan-Jun

2014 Full year

2014 Jan-Jun

16.0

22.3

(14.0)

16.0

22.3

(14.0)

Other changes in comprehensive income Com prehensive incom e for the period

4.1. Comments to the statement of income General and administrative expenses consist of costs for the supporting functions. These costs are charged to the Swedish subsidiaries. Financial expenses are significantly lower compared to both the periods ended June 30, 2014 and December 31, 2014. This is due to the repayment of a €825 million bond loan on January 31, 2014, generating significantly lower interest payments in 2015. In the first half of 2015, dividend has been received from subsidiaries amounting to €25 million; furthermore there was a write-down of shares in subsidiaries as per December 31, 2014 affecting the net finance expense negatively.

Half-yearly report 2015

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Balance sheet - Akzo Nobel Sweden Finance AB (publ) In € millions Property, plant and equipment

Jun 30 2015

Dec 31 2014

Jun 30 2014

0.0

0.0

0.0

945.9

945.9

957.0

0.0

0.0

11.3

Total non current assets

945.9

945.9

968.4

Trade and other receivables

0.9

75.3

0.1

Cash and cash equivalents

86.0

0.2

8.1

0.4

0.0

5.0

87.3

75.6

13.2

1,033.3

1,021.5

981.5

Shareholders' equity

270.7

254.7

218.4

Total equity

270.7

254.7

218.4

Long-term borrow ings

741.7

741.1

740.7

Total non-current liabilities

741.7

741.1

740.7

Short term borrow ings

0.0

12.8

18.2

Trade and other payables

0.3

0.3

0.2

Other short-term liabilities

20.5

12.4

4.0

Total current liabilities

20.9

25.6

22.4

1,033.3

1,021.5

981.5

Shares in consolidated companies Deferred tax assets

Other current assets Total current assets Total assets

Total equity and liabilities

4.2. Comments to the balance sheet The main assets of the company are shares in subsidiaries. During the first 6 months of the year, a total of €100 million has been received in form of group contribution and dividend. Part of this has been used to repay loans to other companies in the AkzoNobel group.

Half-yearly report 2015

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Changes in equity - Akzo Nobel Sweden Finance AB (publ) In € m illions

Subscribed Additional Profit brought Shareholders share capital paid-in capital forw ard ´equity

Balance at January 1, 2014

0.1

341.1

(108.8)

232.4

Comprehensive income for the period

0.0

(0.0)

22.3

22.3

Balance at Decem ber 31, 2014

0.1

341.0

(86.4)

254.7

Comprehensive income for the period

0.0

0.0

16.0

16.0

Balance at June 30, 2014

0.1

341.0

(70.4)

270.7

4.3. Comments to the changes in equity Movements in Equity can be explained by the comprehensive income during the first 6 months.

Statement of cash flows - Akzo Nobel Sweden Finance AB (publ) In € m illions Cash and cash equivalents at begin of period Net cash from operating activities

2015 Jan-Jun

2014 Full year

2014 Jan-Jun

0.2

257.0

257.0

(2.3)

(82.9)

(65.5)

546.0

546.0

Aquisitions / divestments

0.0

Investment / redemption of financial receivables Net cash from investing activities

0.0

546.0

546.0

Changes in borrow ing

0.6

(825.0)

(824.1)

Changes in borrow ing AkzoNobel group

-12.7

12.7

2.4

Participations in Group companies (group contribution)

100.2

92.4

92.3

Net cash from financing activities

88.1

(719.8)

(729.3)

Net change in cash and cash equivalents

85.8

(256.8)

(248.9)

86.0

0.2

8.1

Effects of exchange rate changes Cash and cash equivalents at June 30

4.4. Comments to the statement of cash flow Net cash from operating activities is mainly attributable to interest payments on the bond loan. From 2015 the main interest payment period for the company is July. The main component of the cash flow is the receipt of €100 million from consolidated companies relating to group contributions and dividend.

Half-yearly report 2015

5.

Statement of affirmation

We have prepared the half-yearly financial report 2015 of Akzo Nobel Sweden Finance AB (publ) and the undertakings included in the consolidation taken as a whole in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Swedish disclosure requirements for half-yearly financial reports. To the best of our knowledge the condensed financial statements in this half-yearly financial report 2015 give a true and fair view of our assets and liabilities, financial position at June 30, 2015, and of the result of our consolidated operations for the first half year of 2015, and describes the principal risks and uncertainties that the company and the companies in the AkzoNobel Sweden group face. Gothenburg, August 31, 2015 The Board of Directors

Remko van de Peppel, Chairman Gijsberth De Ruiter, Board member Jacq Derckx, Board member Daniel Karlsson, Board member Anita Lindqvist, Board member Anna-Lena Palm, employee representative Rolf Eriksson, employee representative

Bjarne Kristiansson, Managing director

This report has not been the subject of review by the company’s auditors.

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