annual accounts of akzo nobel sweden finance ….… · 3 1. administration report scope and type...
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ANNUAL ACCOUNTS OF AKZO NOBEL SWEDENFINANCE AB (publ) AND CONSOLIDATED
ACCOUNTS OF THE GROUP 2017
Akzo Nobel Sweden Finance AB (publ)Company identification number 556768-4062
January 1, 2017 – December 31, 2017
Akzo Nobel Sweden Finance AB (publ)556768 - 4062
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Contents
1.ADMINISTRATION REPORT 3
2.THE GROUP INCOME STATEMENT 9
3.THE GROUP BALANCE SHEET 10
4.THE GROUP CHANGE IN EQUITY 12
5.THE GROUP CASH FLOW STATEMENT 13
6.THE COMPANY INCOME STATEMENT 14
7.THE COMPANY BALANCE SHEET 15
8.THE COMPANY CHANGE IN EQUITY 17
9.THE COMPANY CASH FLOW STATEMENT 18
10. ADDITIONAL INFORMATION 19
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1. Administration report
Scope and type of operations
GeneralAkzo Nobel Sweden Finance AB (publ) (the Company) was incorporated as a public limited liability company under the laws of theKingdom of Sweden on October 30, 2008, with registration number 556768-4062. It is domiciled in the Kingdom of Sweden. Theregistered office of the Company is at c/o Akzo Nobel Decorative Coatings AB, SE-205 17 Malmö, Sweden and the telephone number ofits registered office is +46 40 35 53 16.
We have prepared the consolidated accounts of the Group in accordance with International Financial Reporting Standards (IFRS) asadopted by the European Union. The consolidated financial statements include the accounts of the Company and its subsidiaries (theGroup). Subsidiaries are companies over which the Company has directly and/or indirectly the power to control the financial and operatingpolicies so as to obtain benefits.
The Company has a Board of Directors consisting of seven members. The Board of Directors is responsible for managing the business ofthe Company in accordance with Swedish law and the Company’s Articles of Association. The Board of Directors also represents theCompany in its dealings with third parties and in court.
The members of the Board of Directors of the Company, their functions and their principal activities outside the Company and itssubsidiaries, where these are significant, are as follows:
Name Principal activitiesBenoit Cuignet, Chairman Director Financial Markets Treasury, Akzo Nobel N.V.
Jacq Derckx Director Specialist Accounting & Governance - Akzo Nobel N.V.
Jesper Salskov Jensen Managing director - Business unit Decorative Paints, Sweden
Bertrand Lerebourg Managing director – Business unit Industrial Coatings, Sweden
Elin Welin Senior Legal Counsel, Nordics
Johanna Fare Employee representative
Philip Maughan Employee representative
Donald Lindström Deputy employee representative
Thomas Larsson Deputy employee representative
The Managing Director of the Company is Jesper Salskov Jensen.
None of the members of the Board of Directors have any potential conflict of interests between duties to the Company or Akzo Nobel N.V.(Parent Company and the Guarantor) and their private interests or other duties.
ObjectiveThe object of the Company’s business is to carry on the business of a finance company, including lending, borrowing and the issuing ofguarantees; directly or indirectly to own and manage movable and immovable property; and any other activities compatible therewith, aswell as to provide administrative and other corporate services to companies in which the company directly or indirectly owns shares andcarry on any other activities compatible therewith. The Company shall, however, not carry on such business as is subject to regulatoryauthorization in accordance with the Swedish Act (2004:297) on Banking Business and Financing Operations.
Business reviewThe Company was incorporated on October 30, 2008, with Akzo Nobel N.V. being the sole shareholder. On July 27, 2012, a bond loanwith a nominal amount of €750 million bond loan was issued by the Company, at a 2.625 percent coupon rate. The €750 million bondmatures on July 27, 2022.
Interest on the bond is payable annually in arrears. The bond is listed on the Luxemburg stock exchange. The Parent Company has fullyguaranteed the Company’s completion of its payment obligations which follow from the bond terms.
In 2008, the Company entered into a contract (“Cross-Guarantee”) giving the creditors of the Company a guarantee from the ParentCompany of completion of the payment obligations in accordance with the bond’s contractual terms. The contract also involves the
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Company taking the correspondent obligation to complete the Parent Company’s payment obligations in accordance with certain bondprograms and external credit arrangements amounting to €2,478 million on December 31, 2017 (on December 31, 2016: €1,909 million).The purpose of this Cross-Guarantee is to ensure that creditors in respect of the debt guaranteed by the Cross-Guarantee are placed in asubstantially equivalent structural position to the holders of bonds issued by the Company.
The Parent Company has undertaken to make a capital contribution in order to ensure that the equity of the Company will at all timesamount to at least the registered share capital.
Significant events during and after the financial year 2017
Separation of Specialty Chemicals from Paints and CoatingsIn April 2017, AkzoNobel announced the decision to create two focused, high performing companies, Paints and Coatings, and SpecialtyChemicals – with separation due to take place during 2018. Pursuing this strategy will drive a step-change in growth and value creationand enable both businesses to become more agile, while accelerating profitability. On March 27, 2018, AkzoNobel announced to sell theSpecialty Chemicals business to Carlyle Group and GIC for an enterprise value of €10.1 billion.
This strategy also includes separating the chemicals companies in Sweden from the rest of the Group.In December 2017, an agreement was signed to transfer the shares in the Swedish Specialty Chemicals-companies from Akzo NobelSweden Finance AB (publ) to a holding company outside the Group, effective January 1, 2018. As from December 22, 2017, theSpecialty Chemicals business is classified as held for sale and discontinued operations.
The classification as held for sale and discontinued operations has a great impact on the presentation of Specialty Chemicals in thisreport.
Group income Statement: The Specialty Chemicals business is reported as discontinued operations. Therefore, the results of theSpecialty Chemicals business are included on the line "Profit for the year from discontinued operations" in the group income statement ofincome for 2017, as well as 2016.
Group statement of comprehensive income: The consolidated statement of comprehensive income includes both continuing anddiscontinued operations.
Group balance sheet: The assets and liabilities of the Specialty Chemicals business are classified as held for sale. As a result, the assetsand liabilities of the Specialty Chemicals business are reported on the line "Assets held for sale" and "Liabilities held for sale" in the groupbalance sheet as per December 31, 2017.
Group cash flow statement: The cash flow statement includes both continuing and discontinued operations. The impact from discontinuedoperations is presented separately in Note 2.
General development
Continuing operations (Paints and Coatings)Revenue was up 1% in the Paints and Coatings business, mainly due to favorable price/mix development. Average prices were up 4%,while there was a negative currency impact of 2%. Volumes were overall in line with previous year with variations in different segments.Total revenue amounted to €431 million (2016: €426million).Operating profit amounted to €2.5 million compared to €0.6 million in 2016. Higher raw material prices have been more than offset byincreased selling prices, continuous improvement, cost control and reduction in common cost within the AkzoNobel-group. The strongfocus on cost control and operating efficiency continues.
Discontinued operations (Specialty Chemicals)Revenue was up 2% in Specialty Chemicals in spite of currency headwind. Total revenue amounted to €1,133 million (2016: €1,109).Operating profit increased to €204 (2016: €169 million). The main factors driving the improved result were lower sales and administrationcost as a result of reduction of common cost in the AkzoNobel-group and positive identified items of €25 million in 2017.
Total operationsEarnings after tax amounted to €138 million (2016: €106 million).
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Acquisitions/divestmentsThere have been no acquisitions or divestments in the Group during 2017.
Identified itemsIn the continuing operations, a total of €1.6 million loss was incurred due to identified items in 2017 (2016: €5.6 million loss). Identifieditems mainly relate to restructuring measures.In discontinued operations, identified items amounted to a gain of €25 million in 2017 (2016; €6 million loss). The 2017 gain relates to apositive outcome of the settlement of legal claims, release of restructuring provisions related to the divestment of paper chemicals in 2015and a reassessment of environmental obligations.
Significant events after the financial yearOn January 1, 2018, the shares in the Specialty Chemicals companies were divested to Akzo Nobel Chemicals Holding B.V.The transfer was made to book value amounting to €750 million. From January 1, 2018, the Group only consists of the units withinBusiness Area Paints and Coatings, i.e. the continuing operations.
In April 2018, AkzoNobel N.V announced that Business Area Specialty Chemicals will be divested to the Carlyle group and GIC.The divestment is expected to take place before the end of 2018.
OwnershipThe Company is a wholly-owned subsidiary of the Akzo Nobel N.V., which is a public limited liability company (Naamloze Vennootschap)incorporated in the Netherlands, with registered office at Christiaan Neefestraat 2, 1070 AS Amsterdam (telephone number +31 88 9697555). Akzo Nobel N.V. together with its consolidated subsidiaries is referred to in this document as the AkzoNobel Group.
Since the Group is an integrated part of the AkzoNobel Group there is no separate management for units in the Group. Management andcontrol is carried out through the organizational structure in the AkzoNobel Group, therefore the same operational reporting structure isused. The AkzoNobel Group is organized in three segments:• Decorative Paints• Performance Coatings• Specialty Chemicals (included in discontinued operations)
Governance and complianceThe Group is an integrated part of the AkzoNobel Group, therefore the same corporate governance structure is used, where applicable.
Audit CommitteeThe Audit Committee consists of three members from the Board of Directors (Benoit Cuignet, Jacq Derckx and Jesper Salskov Jensen)and is chaired by Benoit Cuignet. Discussions regularly focus on financial statements, internal and external control procedures, riskmanagement, internal audit reports, planning, tax and the external auditor’s performance and independence. The Audit Committee alsodiscussed topics including:• Compliance within the Group• Environmental and legal liabilities• Treasury
Corporate governanceThe Company is a public limited liability company established under the laws of Sweden. The Board of Directors is responsible formanaging and supervision of the business of the Company. Our corporate governance structure is based on the requirements of theSwedish Company's Act, the Company’s Articles of Association and the rules and regulations applicable to companies listed on theLuxembourg stock exchange, complemented by several internal procedures. These procedures include a risk management and controlsystem, as well as a system of assurance of compliance with laws and regulations.
The Board of Directors is of the opinion that the Company’s corporate governance structure is the most appropriate for the Company atthis point in time.
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Board of DirectorsThe Board of Directors is entrusted with the management of the Company. Among other responsibilities, the members of the Boardestablish the policies and manage the Company’s day-to-day operations.
The members of the Board of Directors are appointed to, and removed from office by the Annual General Meeting of shareholders.
RemunerationNo remuneration has been paid by the Company to the members of the Board of Directors or to the Managing Director.The board members and Managing Director are remunerated for other positions within the Group but no separate compensation isreceived for the position in Akzo Nobel Sweden Finance AB (publ.).
Risk management and (financial) reportingInternal risk management and control systems are in place. We have strict procedures for internal and disclosure controls and auditorindependence. The Audit Committee monitors the procedures established by the Company to ensure adequate and timely disclosure ofmaterial financial and non-financial information. A separate internal control function is operational to secure compliance with theCompany’s internal control requirements. The AkzoNobel Group wide internal control self-assessment was strengthened and aligned witha number of other internal representation and compliance processes.
AuditorsThe external auditor is appointed at the Annual General Meeting of shareholders. The appointment is for the time until the end of the nextannual shareholders' meeting. The Audit Committee and the Board of Directors annually evaluate their dealings with the external auditorand discuss the auditor’s independence.
Insider information and insider trading, Code of Conduct, Code of Financial Ethics and complaints procedureMembers of the Board of Directors are subject to the AkzoNobel Group Code on Insider Trading, which limits their opportunities to trade inthe Parent Company – and in certain circumstances – other company shares. The AkzoNobel Group Code on Insider Trading states thatcarrying out transactions in the Parent Company securities – as well as securities other than the Parent Company's securities – isprohibited if the person concerned has inside information regarding such securities. Furthermore, the Compliance Officer may determinethat Board of Directors and certain designated employees may not carry out transactions in the Parent Company securities, or othersecurities, both during and outside a closed period.
A comprehensive Code of Conduct, followed by officers and employees committed to individual and corporate integrity, is one of thecritical foundations of good corporate governance. AkzoNobel Group's Code of Conduct, which incorporates our business principles, setsout the Company’s position.
We have established several procedures to arrange for company-wide dissemination of the Code of Conduct and training. We have alsoestablished procedures to monitor compliance with the code in general, and certain of its provisions in particular, and to provide for itsenforcement.
Information about risks and uncertaintiesThe Board of Directors is responsible for the internal control and the management of risks within the Company and for the assessment ofthe effectiveness of these control systems. Such control systems were set up in cooperation with the Parent Company to identify andsubsequently manage the credit and interest rate risks, which could endanger the realization of the objectives of the Company.
Our activities expose us to a variety of financial risks: market risk (including: currency risk, fair value interest rate risk and price risk), creditrisk and liquidity risk. Our overall risk management program seeks to identify, assess, and – if necessary – mitigate these financial risks inorder to minimize potential adverse effects on our financial performance. Our risk mitigating activities include the use of derivative financialinstruments to hedge certain risk exposures.
As a subsidiary to Akzo Nobel N.V. the Company has adopted the risk management system of the Parent Company. The Board ofManagement of the Parent Company is ultimately responsible for risk management. Day-to-day risk management activities are carried outby a central treasury department (Corporate Treasury) in line with clearly identified and formalized corporate policies and in line with theTreasury Statute. Corporate Treasury identifies, evaluates and hedges financial risks at a corporate level, and monitors compliance withthe corporate policies approved by the Parent Company, except for commodity risks, which are subject to identification, evaluation andhedging at business unit level rather than at corporate level. For further descriptions of financial risks, see Note 26.
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Environmental information which is important to assess the Company's financial position and results of operationsThe Company is confronted with substantial costs arising out of environmental laws and regulations, which include obligations to removeor limit the effects on the environment at various sites. Proceedings involving environmental matters, such as the emissions of chemicalsto water or soil, are pending against companies in the Group. An essential part of the companies in the Group conduct operations thatrequire environmental permits in accordance with the Swedish Environmental Code and, thus, hold environmental permits, which are aprerequisite for the operation of the companies. It is our policy to accrue and charge against earnings environmental clean-up costs whenit is probable that a liability has materialized and an amount is reasonably estimable. These accruals are reviewed periodically andadjusted, if necessary, as assessments and clean-ups/investigations proceed and additional information becomes available.Environmental liabilities can change substantially due to the emergence of additional information on the nature or extent of thecontamination, the necessity of employing particular methods of remediation, actions by governmental agencies or private parties, newliable parties, or other factors. Cash expenditures often lag behind the period in which an accrual is recorded by a number of years.
Most of the environmental remediation- and monitoring activities are related to the discontinued operations in Specialty Chemicals.The sites at Skoghall and Bohus are contaminated with e.g. mercury from previous chlor-alkali production. Remediation is ongoing inBohus. In Skoghall, the liability of different operators at the site, past and present, is currently being investigated by the CountyAdministrative Board. The provision made is based on the information available at the time being.Investigations are ongoing on the site in Alby to specify the extent of contamination in ground water and soil. The main contaminants arechromium, lead and dioxin. Soil risk assessment work ongoing ensures that AkzoNobel and legal requirements are covered.
The group does not publish a sustainability report in accordance with chapter 7 section 31 a§ in the Annual Accounts Act. The parentcompany, Akzo Nobel N.V. registered in Amsterdam, publishes a sustainability report in which the Swedish Group is included.
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Statement of the Board of Directors on the financial statements and the management reportThe Group applies the International Financial Reporting Standards, IFRS (formerly IAS), as adopted by the European Union (EU), theSwedish Financial Reporting Board’s 1 Supplementary accounting rules for groups, and the Swedish Annual Accounts Act. The ParentCompany’s financial statements are prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial ReportingBoard’s Standard RFR 2 Accounting for Legal Entities. The Parent Company thereby applies the same accounting principles as the Group(no exceptions exist).
To the best of our knowledge:1. The financial statements in this report give a true and fair view of our assets and liabilities, and financial position at December 31,
2017, and of the result for the period January 1 to December 31, 2017.2. The Business Review in this report includes a fair review of the development, performance and position of the Company and the
Group, and describes the principal risks and uncertainties the Company and the Group faces.
Proposal for the appropriation of reservesThe GroupThe Group's equity amounts to €9,850 thousand, of which €137,910 thousand are the profit of the year.
The CompanyThe following reserves are available for appropriation at the Annual General Meeting (in €):
Proposal for the treatment of the profitThe group continues to have a positive cash flow and a strong liquidity position. The equity / total assets ratio amount to 21%.A proposed dividend of €50 thousand per share is a result of this position.
We recommend that this report for 2017 is adopted at the coming Annual General Meeting. In accordance with § 11 p. 7 in the Articles ofAssociation, we recommend the Annual General Meeting to adopt the report, and to allocate the profit of the Company in accordance withthe proposal and to discharge the members of the Board from liability.
Please refer to the following income statements, balance sheets and additional information regarding the Company's and the Group'sprofits and financial position in general. All amounts are in thousands of euro unless otherwise indicated.
Profit brought forward from previous years - 113,076,054Capital injection 341,126,820Profit for the year -32,006,935
196,043,832
The Board and Managing Director propose that50 thousand per share is distributed to the owners 50,000,000the following be carried forward 146,043,832
196,043,832
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2. THE GROUP INCOME STATEMENT
The 2016 figures are represented to present the Specialty Chemicals business as discontinued operations.
THE GROUP INCOME STATEMENT Note January 1, 2017 January 1, 2016thousands € December 31, 2017 December 31, 2016
Revenue 1, 2, 3 430,785 425,977Cost of goods sold -318,778 -316,783
Gross profit 112,007 109,194
Selling expenses -55,288 -56,737Administrative expenses -45,005 -38,792Research and development costs -7,503 -7,993Other operating expenses -1,749 -5,113
Operating income 4, 5, 6, 7 2,462 559
Result from financial itemsOther interest income and similar profit/loss items 0 52Interest expense and similar profit/loss items -21,231 -20,978Interest expense to group companies and other -2,011 -1,957
Interest income / expense 9 -23,242 -22,883
Profit/ loss after financial items -20,780 -22,324
Tax on profit for the year 10 4,213 4,670
Profit for the year from continuing operations -16,567 -17,654Profit before tax from discontinued operations 201,619 162,039Tax related to discontinued operations -47,142 -38,198
Profit for the year from discontinued operations 2 154,477 123,841
NET PROFIT/ LOSS FOR THE YEAR 137,910 106,186
ATTRIBUTABLE TO:Shareholders of the company 137,910 106,186Non-controlling interests 0 0
137,910 106,186STATEMENT OF COMPREHENSIVE INCOMEthousands € January 1, 2017 January 1, 2016
December 31, 2017 December 31, 2016Net profit/loss for the period 137,910 106,186
Items that will never be reclassified to profit or lossActuarial gains/losses 1,140 -9,705Taxes related actuarial gains/losses -210 2,382Items that are or may be reclassified to profit or lossExchange differences arising on translation of foreign operations -20,006 -25,674Cash flow hedges 4,309 31,186Taxes related to comprehensive income -947 -6,861
Comprehensive income for the period 122,196 97,514
Comprehensive income attributable to:Shareholders of the company 122,196 97,514Non-controlling interests 0 0
Comprehensive income for the period 122,196 97,514
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3. THE GROUP BALANCE SHEET
THE GROUP BALANCE SHEET Note December 31, 2017 December 31, 2016thousands €
ASSETS
Fixed assets
Intangible assetsGoodwill 11 15,898 56,290Other intangible assets 11 863 81,731
16,761 138,021
Tangible assetsLand and buildings 12 12,480 42,399Plant and machinery 12 30,383 156,796Constructions in progress and advance payments for tangibleassets 12 7,976 82,928
50,839 282,123
Financial assetsParticipations in associated companies 14 - 117Loans to partners or other closely related parties - 680Other long-term receivables 15 1,319 5,057Deferred tax assets 10 - 913
1,319 6,767
Total fixed assets 68,919 426,911
Current assets
Inventories 17 32,313 146,280
Current receivablesAccounts receivable 18 30,385 155,416Receivables on group companies 30,675 97,343Other short-term receivables 4,391 21,777Prepaid expenses and accrued income 1,931 2,492Current tax assets 13,607 0
80,989 277,028
Assets held for sale 2 858,264 0
Cash and bank balances 20 129,815 353,989
Total current assets 1,101,381 777,297
TOTAL ASSETS 1,170,300 1,204,208
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THE GROUP BALANCE SHEET Note December 31, 2017 December 31, 2016thousands €
EQUITY AND LIABILITIES
EquityShare capital, 1000 shares 52 52Capital contribution 341,127 341,127Reserves 10,318 89,938Result carried forward -341,647 -479,557
Total equity related to majority owned interests 9,850 -48,440
Non-controlling interests - 182
Total equity 9,850 -48,258
Long-term liabilitiesBond loans 22 744,467 743,419Long-term portion of provisions 16, 21 1,103 56,915Liabilities to group companies 25,405 31,803Other long-term liabilities 160 1,284Deferred tax liabilities 10 1,516 31,381
772,651 864,802
Current liabilitiesLiabilities held for sale 2 283,146 0Accounts payable 44,686 150,743Current portion of provisions 21 2,114 72,256Current portion of long-term liabilities 160 160Liabilities to group companies 16,985 47,500Current tax liability - 24,135Other liabilities 23 23,799 77,183Accrued expenses and deferred income 24 16,909 15,687
387,799 387,664
TOTAL EQUITY AND LIABILITIES 1,170,300 1,204,208
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4. THE GROUP CHANGE IN EQUITY
The Company's issued share capital is €52,000 divided into 1,000 shares with a quota value of €52 each. Other paid-in capital comprisesshareholders’ contribution totaling €341 million.
The discontinued operations of the Group use energy forwards to secure the price level of electricity in the coming 3 to 5 years. SpecialtyChemicals also use exchange rate contracts to hedge up to 15 months of forecasted sales in foreign currency. The unrealized change infair value of these contracts is reported as a change in other comprehensive income in accordance with the rules for cash flow hedgeaccounting as included in IAS 39. At December 31, 2017, energy forwards with a pre-tax fair value of €8.6 million (December 31, 2016:€4.2 million), were included in the Group’s equity. A pre-tax fair value of foreign exchange contracts was included for €-0.4 million(December 31, 2016: €-0.2 million)
The functional currency of most companies in the Group is the Swedish krona and therefore the movement in the Swedish krona/euroexchange rate affects the Company's equity.
THE GROUP CHANGE IN EQUITYthousands €
The Group Share
capital
Additionalpaid incapital
Cash flowhedge
reserve
Cumulativetranslation
reserve
Otherreserves andundistributed
profitsShareholders'
equity
Non-controlling
interests Total equity52 341,127 4,027 115,612 -522,701 -61,883 1,366 -60,517
106,186 106,186 106,1866,192 6,192 6,192
24,994 -25,674 -9,705 -10,385 -10,385-6,861 2,382 -4,479 -4,479
Total comprehensive income 0 0 24,325 -25,674 98,863 97,514 0 97,514Reversal of share-based payments 850 850 850
-85,000 -85,000 -85,000Non-controlling interests of equity 79 79 -1,184 -1,105Amount carried forward December 31, 2016 52 341,127 28,352 89,938 -507,909 -48,440 182 -48,258
The Group Share
capital
Additionalpaid incapital
Cash flowhedge
reserve
Cumulativetranslation
reserve
Otherreserves andundistributed
profitsShareholders'
equity
Non-controlling
interests Total equity52 341,127 28,352 89,938 -507,909 -48,440 182 -48,258
137,910 137,910 137,910-1,127 -1,127 -1,127
Reclassification between categories -28,347 28,347 0 05,436 -20,006 1,140 -13,430 -13,430-947 -210 -1,157 -1,157
Total comprehensive income 0 0 -24,985 -20,006 167,187 122,196 0 122,196Reversal of share-based payments 912 912 912
-65,000 -65,000 -65,000Non-controlling interests of equity 182 182 -182 0Amount carried forward December 31, 2017 52 341,127 3,367 69,932 -404,628 9,850 0 9,850
Amount brought forward January 1, 2017
Capital contribution / dividend
Other comprehensive incomeTax on other comprehensive income
Net profit/loss for the yearReclassification into the statement of income
Amount brought forward January 1, 2016Net profit/loss for the yearReclassification into the statement of incomeOther comprehensive incomeTax on other comprehensive income
Capital contribution / dividend
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5. THE GROUP CASH FLOW STATEMENT
The cash flow statement shows the cash flows of continuing as well as discontinued operations.
THE GROUP CASH FLOW STATEMENT January 1, 2017 January 1, 2016December 31, 2017 December 31, 2016
thousands €
Operating activitiesOperating profit/ loss 206,381 169,841Adjustments for items excluded from cash flow statement, etc. -12,934 51,425
193,447 221,266Interest paid -21,890 -21,777Income taxes paid -62,310 -13,517
Cash flow from operating activities before changesin working capital 109,247 185,972
Cash flow from changes in working capitalDecrease/increase in inventories 6,843 -2,260Decrease/increase in accounts receivables 11,099 33,689Decrease/increase in accounts payable -11,621 -57,673Decrease/increase in other receivables and liabilities -1,142 -197
Cash flow from operating activities 114,426 159,531
Investing activitiesPurchase of tangible assets -57,242 -65,606Purchase of intangible assets -2,988 -2,427Investments/redemption of long-term receivables -4,833 1,389
Cash flow from investing activities -65,063 -66,644
Financing activitiesChanges in internal loans -5,794 55,904Increase/decrease in external loans -150 -135Dividends paid -65,000 -85,000
Cash flow from financing activities -70,944 -29,231
Net change in cash and cash equivalents -21,581 63,656Cash and cash equivalents beginning of the year 353,989 296,457Exchange rate difference in cash and cash equivalents -7,036 -6,124
Cash and cash equivalents end of the year 325,372 353,989
ADJUSTMENTS FOR ITEMS EXCLUDED FROM CASH FLOW STATEMENT
January 1, 2017 January 1, 2016December 31, 2017 December 31, 2016
Depreciations 44,329 44,077Fair value of FX contracts 516 1,968Change in provisions -71,605 -9,506Amortization intangible assets 13,826 14,886
Total adjustments for items excluded from cash flow statement -12,934 51,425
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6. THE COMPANY INCOME STATEMENT
There is no other comprehensive income included in the Company income statement.
Akzo Nobel Sweden Finance AB (publ)556768-4062
THE COMPANY INCOME STATEMENT Note January 1, 2017 January 1, 2016December 31, 2017 December 31, 2016
thousands €
Cost recharges to other group companies - 57
Gross profit/ loss 0 57
Administrative expenses -124 -88Other operating income 625 1,235Other operating expenses -1,231 -269
Operating profit/ loss -730 935
Result from financial investmentsResult from participations in group companies 8 -58,105 -52,885Interest expense and similar profit/loss items -20,811 -21,179Guarantee fee bond loan -1,901 -1,906
Profit/ loss after financial items 9 -81,547 -75,035
Appropriations 7 57,108 104,577Tax on profit for the year 10 -7,568 -18,214
NET PROFIT/ LOSS FOR THE YEAR -32,007 11,328
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7. THE COMPANY BALANCE SHEET
THE COMPANY BALANCE SHEET Note December 31, 2017 December 31, 2016thousands €
ASSETS
Fixed assets
Tangible assetsProperty, plant and equipment 0 7
0 7
Financial assetsParticipations in group companies 13 846,034 904,139
846,034 904,139
Total fixed assets 846,034 904,146
Current assets
Current receivablesReceivables on group companies 0 104,480Other receivables 27 66Current tax assets 10,480 0
10,507 104,546
Cash and bank balances 20 97,542 62,353
Total current assets 108,049 166,899
TOTAL ASSETS 954,083 1,071,045
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THE COMPANY BALANCE SHEET Note December 31, 2017 December 31, 2016thousands €
EQUITY AND LIABILITIES
EquityRestricted equity
Share capital, 1000 shares 52 52
52 52
Non-restricted equityCapital contribution 341,127 341,127Profit or loss brought forward -113,076 -59,401Profit/loss for the year -32,007 11,328
196,044 293,054
Total equity 196,096 293,106
Long-term borrowingsBond loans 22 744,467 743,419
744,467 743,419
Current liabilitiesAccounts payable - trade 35 0Payables to group companies 4,518 0Current tax liability 0 25,284Other liabilities 20 249Accrued expenses and deferred income 24 8,947 8,987
13,520 34,520
TOTAL EQUITY AND LIABILITIES 954,083 1,071,045
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8. THE COMPANY CHANGE IN EQUITY
The company’s issued share capital is €52 thousand divided into 1,000 shares with a quota value of €52 each (SEK 500). Other paid-incapital comprises shareholders contributions totaling €341 million.
Group contributions between companies in the tax group are reported in the income statement as an appropriation.
THE COMPANY CHANGE IN EQUITYthousands €
The Company Share
capitalCapital
contributionProfit brought
forwardProfit/ lossfor the year Total equity
Amount brought forward January 1, 2016 52 341,127 -86,433 104,308 359,054
104,308 -104,308 0Dividend -85,000 -85,000Liquidation result subsidiary 7,724 7,724Net profit/ loss for the year 11,328 11,328
Amount carried forward December 31, 2016 52 341,127 -59,401 11,328 293,106
The Company Share
capitalCapital
contributionProfit brought
forwardProfit/ lossfor the year Total equity
Amount brought forward January 1, 2017 52 341,127 -59,401 11,328 293,106
11,328 -11,328 0Dividend -65,000 -65,000Net profit/ loss for the year -32,007 -32,007
Amount carried forward December 31, 2017 52 341,127 -113,076 -32,007 196,096
Appropriation of profits as resolved by the annualgeneral meeting
Appropriation of profits as resolved by the annualgeneral meeting
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9. THE COMPANY CASH FLOW STATEMENT
Shares and participations in Group companies include group contributions and dividend received.
THE COMPANY CASH FLOW STATEMENT January 1, 2017 January 1, 2016December 31, 2017 December 31, 2016
thousands €
Operating activitiesOperating profit/ loss -730 935Depreciations added back 7 4
-723 939
Interest paid -21,766 -21,563Income taxes paid -43,779 -10,313
Cash flow from operating activities before changesin working capital -66,268 -30,937Cash flow from changes in working capital
Decrease/increase in receivables 276 764Decrease/increase in payables -488 -4,594
Cash flow from operating activities -66,480 -34,767
Investing activitiesInvestments/redemption of long-term receivables - -
Cash flow from investing activities 0 0
Financing activitiesIncrease/decrease in external loans 0 0Shares and participations in Group companies 166,669 116,777Dividend paid -65,000 -85,000
Cash flow from financing activities 101,669 31,777
Net change in cash and cash equivalents 35,189 -2,990
Cash and cash equivalents beginning of the year 62,353 65,343
Cash and cash equivalents end of the year 97,542 62,353
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10. ADDITIONAL INFORMATION
Accounting principlesThe Group applies the International Financial Reporting Standards, IFRS (formerly IAS), as adopted by the European Union (EU), theSwedish Financial Reporting Board’s 1 Supplementary accounting rules for groups, and the Swedish Annual Accounts Act. The ParentCompany’s financial statements are prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial ReportingBoard’s Standard RFR 2 Accounting for Legal Entities. The Parent Company thereby applies the same accounting principles as the Group(no exceptions exist).
Shares in subsidiaries are valued to acquisition cost; if the value has been permanently impaired it is adjusted accordingly.
The following valuation and recalculation principles are applied to the annual accounts:
Consolidated accountsThe income statements and balance sheets of the Group include all subsidiaries. Subsidiaries are all entities (including structured entities)over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from itsinvolvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidatedfrom the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.
The consolidated accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by theEuropean Union (EU). All corporate acquisitions are accounted for using the acquisition method.
Untaxed reserves in the individual Group companies are separated on the consolidated balance sheet into a capital portion and a taxportion.
Non-controlling interests in equity and related results are presented separately. Transactions between consolidated companies andintercompany balances within the Group are eliminated. Accounting policies, as set out below, have been applied consistently for allperiods presented in these consolidated financial statements and by all subsidiaries.
Alternative Performance measuresUntil 2016, AkzoNobel used the term Incidental items to refer to material items of income or expense. As from 2017, AkzoNobel haschanged this term from Incidental items to Identified items. These Identified items (Alternative Performance Measures (APM) adjustments)relate to material items of income and expense arising from circumstances outside the normal course of business, such asacquisitions/divestments, realignment of strategy, restructuring, impairments and legal items.
Use of estimatesThe preparation of the financial statements in compliance with IFRS requires management to make judgments, estimates andassumptions that affect amounts reported in the financial statements. The estimates and assumptions are based on experience andvarious other factors that are believed to be reasonable under the circumstances and are used to judge the carrying values of assets andliabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognized in the period in which the estimate is revised or in the revision period and futureperiods, if the changed estimates affect both current and future periods.
Impairment of intangible assets and property, plant and equipmentWe assess whether the carrying values of intangible assets and of property, plant and equipment are recoverable. In this assessment, wemake significant judgments and estimates to determine if the future cash flows expected to be generated by those assets are less thantheir carrying value. The data necessary for the impairment tests are based on our strategic plans and our estimates of future cash flows,which require estimating revenue growth rates and profit margins. The estimated cash flows are discounted using a net present valuetechnique with business-specific discount rates.
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Accounting for income taxAs part of the process of preparing consolidated financial statements, we estimate income tax in each of the jurisdictions in which weoperate. This process involves estimating actual current tax expense and temporary differences between carrying amounts of assets andliabilities for tax and financial reporting purposes. Temporary differences result in deferred tax assets and liabilities, which are included inthe consolidated balance sheet. We assess the likelihood that deferred tax assets will be recovered from future taxable income.
ProvisionsBy their nature, provisions and contingent liabilities are dependent upon estimates and assessments as to whether the criteria forrecognition have been met, including estimates of the probability of cash outflows. Estimates related to provisions for environmentalmatters are based on the nature and seriousness of the contamination, as well as on the technology required for clean-up. The provisionsfor legal cases are based on an estimate of the costs, fines, and civil damages, taking into account legal advice and the current facts andcircumstances. Provisions for termination benefits and exit costs also involve management’s judgment in estimating the expected cashoutflows for severance payments and site closure or other exit costs.
Accounting for pensions and other post-retirement benefitsPost-retirement benefits represent obligations that will be settled in the future and require assumptions to project obligations and fairvalues of plan assets. The accounting requires us to make assumptions regarding variables such as discount rate, rate of compensationincrease, return on assets and mortality rates. Periodically, we consult with external actuaries regarding these assumptions. Changes inkey assumptions can have a significant impact on the projected benefit obligations, funding requirements and periodic costs incurred.
Statement of cash flowsWe have used the indirect method to prepare the statement of cash flows. Cash flows in foreign currencies have been translated attransaction rates. Exchange rate differences affecting cash items are presented separately in the statement of cash flows. Receipts andpayments with respect to income tax are included in cash from operating activities. Interest payments are included in cash from operatingactivities, while interest receipts are included in cash from investing activities. The costs of acquisition of subsidiaries, associates and jointventures, and other investments, as long as paid in cash, are included in cash from investing activities. Acquisitions or divestments ofsubsidiaries are presented net of cash and cash equivalents acquired or disposed of, respectively. Acquisitions of non-controlling interestsare reported in cash from financing activities. Cash flows from derivatives are recognized in the statement of cash flows in the samecategory as those of the hedged items.
Operating segmentsThe Group uses the same operational structure as the AkzoNobel Group. Therefore, we determine and present operating segments(Business Areas) on the information that internally is provided to the AkzoNobel's Executive Committee. A Business Area is a componentthat engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses that relate totransactions with other Business Areas within the Company. Operating results of a Business Area have been reviewed regularly by theExecutive Committee to make decisions about resources to be allocated to the Business Area and assess its performance, and for whichdiscrete financial information is available. Business Area results reported to the Executive Committee include items directly attributable toa Business Area as well as those items that can be allocated on a reasonable basis.The relevant segments for the 2017 report are Performance Coatings and Decorative Paints. Specialty Chemicals is reported as assetheld for sale and discontinued operations.
Functional and presentation currencyThese Financial Statements are presented in euro, which is the Company’s functional currency. All financial information presented in eurohas been rounded to the nearest thousand unless otherwise stated.
Transactions in foreign currencies are translated into the functional currency using the exchange rate at transaction date. Monetary assetsand liabilities denominated in foreign currencies are translated into the functional currency using the exchange rates at the balance sheetdate. Resulting foreign currency differences are included in the income statement. Non-monetary assets and liabilities denominated inforeign currencies are translated into the functional currency at the exchange rate at acquisition date. The assets and liabilities of entitieswith Other functional currencies are translated into the functional currency of the Company, using the exchange rates at the balance sheetdate. Foreign exchange differences resulting from translation into the functional currency of investments in subsidiaries and ofintercompany loans of a permanent nature with other functional currencies are recorded as a separate component (cumulative translationreserves) within Other comprehensive income. These cumulative translation adjustments are reclassified to the income statement (eitherfully or partly) upon disposal or liquidation of a foreign subsidiary to which the investment or the intercompany loan with a permanentnative relates to.
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Exchange rate effects on group contributions as an effect of the difference between the exchange rate per balance date and the exchangerate per payment date are booked directly to equity together with the underlying group contribution.
Revenue recognitionRevenue is defined as the revenue from the sale and delivery of goods and services and royalty income, net of rebates, discounts andsimilar allowances, and net of sales tax. Revenue is recognized when the significant risks and rewards have been transferred to a thirdparty, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and there isno continuing management involvement with the goods. For revenue from sales of goods these conditions are generally met at the timethe product is shipped and delivered to the customer, depending on the delivery conditions. Service revenue is generally recognized asservices are rendered.
Pensions and other post-retirement benefitsContributions to defined contribution plans are recognized in the income statement as incurred. Most of our defined benefit pension plansare funded with plan assets that have been segregated in a trust or foundation. Valuations of both funded and unfunded plans are carriedout by independent actuaries based on the projected unit credit method. Pension costs primarily represent the increase in the actuarialpresent value of the obligation for projected pension benefits based on employee service during the year and the interest on this obligationwith respect to employee service in previous years, net of the expected return on plan assets.
Actuarial gains and losses that arise in calculating our obligation with reference to a plan are recognized in other comprehensive income.When the benefits of a plan improve, the portion of the increased benefits related to past service by employees is recognized as anexpense in the income statement immediately. We recognize gains and losses on the curtailment or settlement of a defined benefit planwhen the curtailment or settlement occurs.
Net interest on the net defined benefit liability is included in interest expenses related to pensions. Other charges and benefits recognizedare reported in Operating income, unless recorded in Other comprehensive income.
Income taxAs part of the process of preparing consolidated financial statements, we estimate income tax in each of the jurisdictions in which weoperate. This process involves estimating actual current tax expense and temporary differences between carrying amounts of assets andliabilities for tax and financial reporting purposes. Temporary differences result in deferred tax assets and liabilities, which are included inthe consolidated balance sheet. We assess the likelihood that deferred tax assets will be recovered from future taxable income.
Income tax expense comprises both current and deferred tax, including effects of changes in tax rates. Income tax is recognized in theincome statement, unless it relates to items recognized in other comprehensive income. In the balance sheet, current tax includes theexpected tax payable and receivable on the taxable income for the year, using tax rates enacted or substantially enacted at reportingdate, as well as any adjustments to tax payable and receivable with respect to previous years. Current tax assets and liabilities have beenoffset in cases where there is a legally enforceable right to set off current tax assets against current tax liabilities and when the intentionexists to settle on a net basis or to realize the assets and liabilities simultaneously.
Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assetsand liabilities for financial reporting and the amount used for taxation purposes. A deferred tax asset is recognized for unused tax losses,tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against whichthey can be utilized.
We do not recognize deferred tax for the following temporary differences: the initial recognition of goodwill; the initial recognition of assetsor liabilities that affect neither accounting nor taxable profit; nor differences related to investments in subsidiaries to the extent that theywill probably not reverse in the foreseeable future.
The income tax consequences of dividends are recognized when a liability to pay the dividend is recognized. Deferred tax assets areoffset only when there is a legally enforceable right to offset tax assets against tax liabilities and when the deferred tax assets andliabilities relate to the same tax authority. Measurement of deferred tax assets and liabilities is based upon the enacted or substantiallyenacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be reversed. Non-refundable dividend tax is taken into account in the determination of deferred tax liabilities to the extent of earnings expected to bedistributed by subsidiaries in the foreseeable future. If separate tax rates exist for distributed and undistributed profit, the current anddeferred taxes are measured at the tax rate applicable to undistributed profit. Deferred tax is not discounted.
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Intangible assetsIntangible assets are valued at cost less accumulated amortization and impairment charges. All intangibles assets are tested forimpairment whenever there is an indication that the intangible asset may be impaired. In addition, intangible assets with an indefiniteuseful life, such as goodwill and certain brands, are not amortized, but tested for impairment annually. In cases where the carrying valueof the intangibles exceeds the recoverable amount, an impairment charge is recognized in the income statement.
Goodwill in a business combination represents the excess of the consideration paid over the net fair value of the acquired identifiableassets, liabilities and contingent liabilities. The cost of an acquisition is measured as the fair value of the assets given, equity instrumentsissued and liabilities incurred or assumed at the date of exchange. If the cost of an acquisition is less than the fair value of the net assetsof the subsidiary acquired, the difference is recognized directly in the income statement. Goodwill related to an investment in associatesand joint ventures is included in the carrying value of that investment.
Intangible assets with a finite useful life, such as licenses, know-how and brands, customer relationships and intellectual property rights,are capitalized at historical cost and amortized on a straight-line basis over the estimated useful life, which generally ranges from 10 to 40years. Amortization methods, useful lives and residual values are reassessed annually.
Property, plant and equipmentProperty, plant and equipment are valued at cost less accumulated depreciation and impairment charges. Costs include expenditures thatare directly attributable to the acquisition of the asset, including financing expenses of capital investment projects under construction.Government grants to compensate for the cost of an asset are deducted from the cost of the related asset.
Depreciation is calculated using the straight-line method, based on the estimated useful life. In the majority of cases the useful life of plantequipment and machinery is ten years, and for buildings ranges from 20 to 30 years. Land is not depreciated. In the majority of casesresidual value is assumed to be insignificant. Depreciation methods, useful lives and residual values are reassessed annually.
Parts of property, plant and equipment that have different useful lives are accounted for as separate items of property, plant andequipment. Cost of major maintenance activities is capitalized as a separate component of property, plant and equipment, anddepreciated over the estimated useful life. Maintenance costs which cannot be separately defined as a component of property, plant andequipment are expensed in the period in which they occur. Gains and losses on the sale of property, plant and equipment are included inthe statement of income.
Impairment of intangible assets and property, plant and equipmentWe assess whether the carrying values of intangible assets and of property, plant and equipment are recoverable. In this assessment, wemake significant judgments and estimates to determine if the future cash flows expected to be generated by those assets are less thantheir carrying value. The data necessary for the impairment tests are based on our strategic plans and our estimates of future cash flows,which require estimating revenue growth rates and profit margins. The estimated cash flows are discounted using a net present valuetechnique with business-specific discount rates.
If any indication of impairment exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever thecarrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the income statement.
LeasesLease contracts in which we have substantially all the risks and rewards of ownership are classified as finance leases. During 2017 and2016 no lease agreements has been classified as financial leases.
Payments made under operating leases are recognized in the income statement on a straight line basis over the term of the lease. Leaseincentives received are recognized over the term of the lease.
InventoriesInventories are measured at the lower of cost and net realizable value. Costs of inventories comprise all cost of purchase, costs ofconversion and other costs incurred in bringing the inventories to the present location and condition. The cost of conversion of inventoriesincludes direct labor and fixed and variable production overheads, and takes into account the stage of completion. The cost of inventoriesis determined using the weighted average cost formula. Net realizable value is the estimated selling price in the ordinary course ofbusiness, less the estimated cost of completion and selling expenses.
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ProvisionsWe recognize provisions when a present legal or constructive obligation as a result of a past event exists, and it is probable that anoutflow of economic benefits is required to settle the obligation. Provisions are measured at net present value and take into accountanticipated legal fees. The expected future cash outflows are discounted at appropriate pre-tax interest rates, reflecting current marketassessments of the time value of money and, if applicable, the risks specific to the liability. The increase of provisions as a result of thepassage of time is recognized in the income statement under financing expenses.
Provisions for restructuring are recognized when a detailed and formal restructuring plan has been approved, and the restructuring haseither commenced or has been announced publicly. We do not provide for future operating costs. Termination benefits for voluntaryredundancy are recognized if we have made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted andthe number of acceptances can be estimated reliably.
In accordance with our environmental policy and applicable legal requirements, we recognize a provision for environmental clean-up costwhen it is probable that a liability has materialized and the amount of cash outflow can be reasonably estimated. In regards todecommissioning cost the sites are evaluated from a going-concern perspective; potential decommissioning cost for closure of a site isnot considered unless a decision to close has been communicated.
Financial instrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability of another entity. Financialassets mainly include cash and cash equivalents and receivables from group companies. Financial liabilities mainly comprise the bondissued.
Financial instruments are recognized on the balance sheet when a Group entity becomes a party to the contractual obligations of theinstrument. Receivables are recorded when revenue has been recognized. Trade receivables are recognized in the balance sheet at thetime the bill has been sent. Liabilities are recognized when the counterparty has delivered and a contractual obligation to pay exists, evenif the bill has not yet been received. Trade payables are recognized when the bill is received.
A financial asset is removed from the balance sheet when the contractual rights have been realized, expired or the Company loses controlof them. The same holds true for a part of a financial asset. A financial liability is removed from the balance sheet when the contractualobligation is fulfilled or in other way extinguished. The same holds true for a part of a financial liability. A financial asset and a financialliability are offset and recognized on a net basis in the balance sheet only when a legal right to offset them exists and the intent is to settlethe financial asset and financial liability on the net basis or to realize the asset and liability at the same time.
Initially, financial instruments are recognized at their fair value. Transaction costs directly attributable to the acquisition or issue of financialinstruments are only recognized in determining the carrying amount, if the financial instruments are not measured at fair value throughprofit or loss. Subsequently, financial instruments are recognized from the measurement and accounting policies which arise from theclassification into categories of financial instruments described below.
Regular purchases and sales of financial assets and liabilities are recognized on trade date, which is the date we commit to purchase orsell the asset. The initial measurement of all financial instruments is fair value adjusted for directly attributable transaction costs. Below,the accounting policies for financial instruments are explained.
Derivative financial instrumentsDerivative financial instruments include forward exchange contracts, interest rate derivatives and commodity contracts, as well asembedded derivatives included in normal business contracts. All derivative financial instruments are recognized at fair value on thebalance sheet. Fair values are derived from market prices and quotes from dealers and brokers, or are estimated using observable marketinputs. Forward exchange and commodity contracts are reported under trade and other receivables, or under trade and other payables.Changes in the fair value of forward exchange and commodity contracts are recognized in operating income, unless cash flow hedgeaccounting is applied. In that case, the effective part of the fair value changes is deferred in other comprehensive income (in equity) andreleased to the related specific lines in the income statement or balance sheet at the same time as the hedged item.
Other financial non-current assetsLoans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Long-termreceivables are discounted to their net present value. Interest receivable is included in financing income.
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Trade and other receivablesTrade and other receivables are measured at amortized cost, using the effective interest method, less any impairment loss. An allowancefor impairment of trade and other receivables is established if the collection of a receivable becomes doubtful. An impairment loss isrecognized in the income statement, as are subsequent recoveries of previous impairments.
Cash and cash equivalentsCash and cash equivalents include all cash balances and short-term highly liquid investments that are directly convertible into cash. Cashand cash equivalents are measured at fair value.
Financial liabilitiesThe financial liabilities of the Company comprise the issued bond and financial guarantees given. The issued bond of the Company isrecognized at amortized cost. This means that any premium or discount, as well as any transaction costs, are distributed over theexpected duration of the bonds, using the effective interest rate method.
Financial guaranteesThe guarantee contract where on one side the payment obligations of the Company arising from the issued bonds are guaranteed by theParent Company and on the other side the contracts where the Company guarantees the obligation to complete the Parent Company’spayment obligations in accordance with certain bond programs and external credit arrangements (Cross-Guarantee) is netted as afinancial cost in the income statement. The Company performs a test to see if the issued guarantees are probable to be realized, in whichcase a provision is recognized in accordance with IAS 37.
New IFRS accounting standardsAccounting pronouncements, which became effective for 2017, such as amendments to IAS 7 “Cash flow statement”, IAS 12 “Income tax”as well as IFRS 12 “Disclosure of interests in other entities”, had no material impact on our consolidated financial statements.
IFRS standards and interpretations thereof not yet in force which may apply to our consolidated financial statements for 2018 and beyondhave been assessed for their potential impact. The most important upcoming changes relate to IFRS 9 “Financial Instruments” and IFRS15 “Revenue from contracts with Customers” which will be adopted as per January 1, 2018. Another important upcoming change relatesto IFRS 16 “Leases” which will be implemented as per January 1, 2019.
IFRS 9 “Financial Instruments”IFRS 9 introduces new requirements for classifying and measuring financial assets and liabilities. This standard encompasses an overallchange of accounting principles for financial instruments and replaces IAS 39 – the current standard on financial instruments. Thestandard contains new requirements for impairment of financial assets and for hedge accounting. AkzoNobel has decided to implementand adopt IFRS 9 as from January 1, 2018, when it becomes effective. In 2017, we completed the assessment of the impact of thestandard, which is set out further below.
Transition methodAkzoNobel will adopt IFRS 9 as per January 1, 2018, and will not restate its 2017 comparative figures. The transition effect on equity asper January 1, 2018, is €0.03 million after tax.
Classification and measurementThe impact on the classification and measurement of financial assets is not significant. The vast majority of the Other financial non-currentassets as well as the Trade and other receivables were measured at amortized cost, using the effective interest method, less anyimpairment losses. In accordance with IFRS 9, these Other financial non-current assets and Trade and other receivables will continue tobe measured at amortized cost. An amount of €0.1 million of the Other financial non-current assets and Trade and other receivables isrecognized at fair value through profit and loss and relates to derivative financial instruments and securities. The classification andmeasurement of these financial assets will remain unchanged under IFRS 9. AkzoNobel has certain minor equity investments, which arecurrently measured at their historic cost price. In accordance with IFRS 9, these equity investments will be measured at fair value throughprofit and loss. The impact of this change is insignificant.
Impairment modelIFRS 9 introduces a new impairment model, whereby recognition of an allowance for expected credit losses on financial assets isrequired, which deviates from the recognition of incurred credit losses under IAS 39. The new impairment model is applicable for debtinstrument financial assets measured at amortized cost, for debt instrument financial assets measured at fair value through Othercomprehensive income, for lease receivables, contract assets, loan commitments and certain financial guarantee contracts.
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As the IFRS 9 impairment model accelerates the timing of recognizing impairment losses, the implementation of IFRS 9 will lead torecognition of an additional impairment loss of €0.04 million as per January 1, 2018, mainly relating to trade receivables. The after tax-effect is a charge of €0.03 million.
IFRS 15 “Revenue from Contracts with Customers”IFRS 15 replaces existing revenue recognition guidance in IFRS. It introduces a five-step model to determine when to recognize revenueand at what amount, based on transfer of control over goods or services to the customer. New qualitative and quantitative disclosures willalso be required.
Transition methodAkzoNobel will adopt IFRS 15 as per January 1, 2018 and will not restate its 2017 comparative figures. The transition effect on equity asper January 1, 2018, is €2 million after tax.
Sale of goodsThe vast majority of the company’s revenue is derived from delivery of goods, being paints, coatings and chemical products. Currently,revenue is recognized when the significant risks and rewards have been transferred to the customer, recovery of the consideration isprobable, the associated costs and possible return of goods can be estimated reliably and there is no continuing managementinvolvement with the goods. For revenue from sales of goods these conditions are generally met at the time the product is shipped anddelivered to the customer, depending on the delivery conditions. In accordance with IFRS 15, revenue should be recognized when thecustomer obtains control of the goods. Based on our assessment, we do not expect the application of IFRS 15 to result in a significantimpact on our consolidated financial statements. We came to the same conclusion for the accounting treatment of variable consideration,including among others rebates, bonuses, discounts and payments to customers.
Equipment provided to customersAkzoNobel regularly provides mixing machines, store interior and other assets to its customers in Decorative Paints and PerformanceCoatings at the start of a paint delivery contract. Currently, such assets are not treated as a separate performance obligation and theircosts are expensed during the contract period. Under IFRS 15, the delivery of such assets would qualify as a separate performanceobligation. However, in most cases no revenue can be recognized at the moment of transfer of such assets. Although the paint deliverycontracts do include target quantities to be purchased by the customer, for nearly all of these contracts such clauses legally do not qualifyas a binding take-or-pay commitment for a minimum quantity to be acquired by the customer. Therefore, no revenue can be allocated tothese assets when they are transferred. The book value at December 31, 2017, of such assets amounted to €2 million and will be written-off in the January 1, 2018, opening balance sheet, which has an after-tax effect of €2 million.
Standard Published Implementationdate in thestandard
Endorsed bytheEuropeanUnion
Anticipated impact
IFRS 9,“FinancialInstruments”
2009-2014 Implementationdate of January 1,2018
November22, 2016
More details on impact are provided on the previous page.
IFRS 15,“Revenue fromContracts withCustomers”
May 28,2014
January 1, 2018 September22, 2016
More details on impact are provided on the previous page.
IFRS 16,“Leases”
January13, 2016
January 1, 2019 October 31,2017
IFRS 16 replaces existing guidance on lessee accounting forleases. It requires lessees to bring most leases on balance sheetin a single lease accounting model, recognizing a right-of-useasset and a lease liability. The actual impact will depend on thenumber, size and remaining duration of lease contracts and anyexpected renewals at the moment of implementation. We do notexpect the impact on operating income to be significant.
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Note 1 – Segment reporting
The segment information is presented according to AkzoNobel´ s business structure in 2017. The segment information includes itemsdirectly attributable to a business area, as well as those that can be allocated on a reasonable basis.
Decorative PaintsWhether our customers are professionals or DIY-ers, they want great paint that gives a great finish. We supply a variety of qualityproducts for every situation and surface, including paints, lacquers and varnishes. We also offer a range of mixing machines and colorconcepts for the building and renovation industry. Our specialty coatings for metal, wood and other building materials lead the market.
Performance CoatingsWe are a leading supplier of performance coatings with strong brands and technologies. Our high quality products are used to protect andenhance everything from ships, cars, aircraft, yachts and architectural components (structural steel, building products, flooring) toconsumer goods (mobile devices, appliances, beverage cans, furniture) and oil and gas facilities.
Specialty Chemicals (reported as discontinued operations)As a major producer of Specialty Chemicals with leadership positions in many markets, like surfactants, polymer chemistry, pulpprocessing and chlor-alkali, we make sure that industries worldwide are supplied with high quality ingredients and process aids for themanufacture of life’s essentials.
Capital expenditure includes investments in intangible assets.
In € thousands for the group 2017 2016 2017 2016Decorative Paints 100,310 103,407 6,396 1,105Performance Coatings 330,475 322,570 -3,934 -546Sum continued operations 430,785 425,977 2,462 559
Discontinued operations 1,134,248 1,111,538 203,919 169,282Elimination of intercompany sales -1,670 -2,269 - -Total 1,563,363 1,535,246 206,381 169,841
Net sales per destination
In € thousands for the group 2017 2016Europe 429,772 424,340Americas 816 991Asia, Oceania and Africa 197 646Total 430,785 425,977
In € thousands for the group 2017 2016 2017 2016Decorative Paints 2,349 2,655 2,864 2,259Performance Coatings 4,368 3,754 5,333 6,009Sum continued operations 6,717 6,409 8,197 8,268
Discontinued operations 51,438 52,554 52,255 59,765Total 58,155 58,963 60,452 68,033
Operating incomeRevenue
Amortization/Depreciation Capital expenditure
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Note 2 – Discontinued operations
Discontinued operations and assets held for saleA discontinued operation is a component of our business that represents a separate major line of business or geographical area ofoperations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Assets and liabilitiesare classified as held for sale if it is highly probable that the carrying value will be recovered through a sale transaction within one yearrather than through continuing use.
When reclassifying assets and liabilities as held for sale, we recognize the assets and liabilities at the lower of their carrying value or fairvalue less selling costs. Assets held for sale are not depreciated and amortized but tested for impairment.
In case of discontinued operations, the comparatives in the Income Statement are represented. The balance sheet comparatives are notrepresented. The Consolidated statement of cash flows is not represented for discontinued operations. The cash flow statement ofdiscontinued operations is separately disclosed below.
The results and cash flows from discontinued operations in 2016 as well as 2017 and the assets and liabilities held for sale at December31, 2017 completely relate to the Specialty Chemicals business.In April 2017, AkzoNobel officially announced its decision to separate the Specialty Chemicals business, thereby creating two focused,high performing businesses – Paints and Coatings, and Specialty Chemicals. At the Extraordinary General Meeting of November 30,2017, the shareholders approved the proposed separation of the Specialty Chemicals business from AkzoNobel through a private sale ora legal demerger. In the course of December non-binding offers were received in the private track. As from December 22, 2017, theSpecialty Chemicals business is classified as held for sale and discontinued operations; therefore the Group Income Statement shows theresults of the Specialty Chemicals business as discontinued. The Specialty Chemicals business presented as held for sale anddiscontinued operations consists of the Business Area Specialty Chemicals and income and expenses which are directly attributed to theSpecialty chemicals business from Corporate and Other which will not be recognized on an ongoing basis by AkzoNobel.The income and expenses from Corporate and Other included in discontinued operations mainly consist of:· Employee benefit expenses related to employees who were identified to be employees of the Specialty Chemicals business starting
in 2018 as part of the legal reorganization· Information management costs such as application services or infrastructure costs that relate directly to the Specialty Chemicals
business· Other contract costs that relate directly to the Specialty chemicals business
The assets and liabilities held for sale include the assets and liabilities previously reported as part of Specialty Chemicals combined withassets and liabilities of Corporate and Other that have directly been attributed to the Specialty Chemicals business and are expected to bepart of the disposal, consisting mainly of:
· Post-retirement provisions were allocated between the Specialty Chemicals business and the Paints and Coatings business basedon headcount for obligations in relation to active employees and post-separation retention of liabilities and obligations to finance thepostretirement plans for inactive employees
· Environmental and sundry provisions if related to historical Specialty Chemicals sites and activities and intended to be included in thedisposal
· Provisions for restructuring that relate to Specialty Chemicals employees
Cash and cash equivalents as well as debt positions of Specialty Chemicals are excluded from held for sale classification unless suchitems have been specifically designated as held for sale, e.g. in the case of specific local financing and debt related to finance leases heldin relation to the Specialty Chemicals assets.
Discontinued operations consist of the business area Specialty Chemicals.
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Note 3 - Information regarding intercompany purchases and sales
This includes purchases and sales with other parts of the AkzoNobel group.
In € thousands for the group 2017 2016Revenue 1,132,578 1,109,269Cost of sales -813,655 -783,493Gross profit 318,923 325,776Other expenses -115,004 -156,494Operating profit 203,919 169,282Net financial items -2,300 -7,243Profit before tax 201,619 162,039Income tax -47,142 -38,198Profit for the period after tax 154,477 123,841
Cash flow from discontinued operations
In € thousands for the group 2017 2016Net cash from operating activities 179,662 197,026Net cash from investing activities -57,452 -58,669Net cash from financing activities 3,127 45,260Cash flow from discontinued operations 125,337 183,617
Assets and liabilities held for sale
In € thousands for the group 2017Intangible assets 106,645Property, plant and equipment 235,514Financial non-current assets 10,805Inventories 103,010Receivables 402,290Assets held for sale 858,264Non current liabilities 80,580Current payables 202,566Liabilities held for sale 283,146
Purchases and sales betweenGroup companies 2017 2016Purchases 29% 29%Sales 38% 37%
The Group
29
Note 4 – Identified items (incidentals)
Restructuring charges mainly relate to closure of sites and functions. Transfer of business to other parts of Akzo Nobel represents thebook loss incurred due to adjustments of prices in 2016.Identified items within discontinued operations amounted to €25 million (2016: €6 million loss). The main items relate to releasedprovision in connection with settlements of claims, restructuring measures relating to divestments and reassessment of environmentalobligations.
Note 5 - Disclosure of audit fee and cost reimbursements
An audit assignment includes the audit of the annual accounts, the accounting records and the administration report of the Board ofDirectors and the Managing Director.
Identified items operating income/expenses 2017 2016
Cost for restructuring of operations -1,616 -1,530
Transfer of operations within AkzoNobel - -4,113Total incidental items -1,616 -5,643
The Group
2017 2016 2017 2016Öhrlings Pricew aterhouseCoopers ABAudit fees 133 133 39 35whereof to Öhrlings PricewaterhouseCoopers AB 133 133 39 35Audit related fees - - - - -whereof to Öhrlings PricewaterhouseCoopers AB - - - - -Tax advisory services - - - - -whereof to Öhrlings PricewaterhouseCoopers AB - - - - -Other fees 11 50 11 50whereof to Öhrlings PricewaterhouseCoopers AB 11 50 11 50Sum PwC 144 183 50 85
The Group The company
30
Note 6 - Average number of employees, salaries, other remunerations and social security chargesContinuing operations
No compensation has been paid to been paid by the Company to senior management for the financial year 2017 or 2016.The total remuneration to senior management from group companies amounted to €0.3 million (2016: €0.6 million) of which €0.03 millionvariable compensation (2016: €0.12 million). Pension cost related to senior management amounted to €0.07 million (2016: €0.04 million).
Senior management is defined as board members and the management director of the company. The board members of all consolidatedcompanies are included when calculating allocation of senior management.
Note 7- Depreciation and amortization of tangible and intangible assets
Average no. of employees No. of No. of
employees Men employees Men
Sweden 1,105 68% 1,148 68%
Group total 1,105 1,148
Salaries, remunerations, etc.Salaries Soc.costs Salaries Soc.costsand other (of which and other (of whichremun. pen. costs) remun. pen. costs)
The Company 1 99 36(8)
Subsidiary 51,074 22,760 52,537 22,682(4,934) (4,402)
Group total 51,074 22,761 52,636 22,718
(4,934) (4,410)
2017 2016
2017 2016
Allocation of senior management 2017 2016
Women 38% 33%Men 62% 67%
The Group
Depreciation and amortization of tangible and intangible assets 2017 2016Other intangible assets -436 -697Other operating assets -2,053 -1,890Land and buildings -676 -690Machinery, plant and equipment -3,552 -3,132
Total -6,717 -6,409
Depreciation charges included in: 2017 2016Production cost -3,865 -3,521Selling expenses -1,330 -1,327Administrative expenses -502 -516Research and development costs -584 -348
Total -6,281 -5,712
Amortization charges included in: 2017 2016Selling expenses -436 -697
Total -436 -697
The Group
31
Note 8 - Result from participations in Group companies
Group contributions received from Specialty Chemicals units amounted to €61 million (2016: €105 million).Group contributions given from the Company to units in the continuing operations amounted to €5 million (2016: € - million)
The shares of subsidiaries have been reviewed to assess if any permanent change in value has occurred. The resulting change in valueof €58 million loss (2016: €53 million loss) has been reported in the income statement of the holding company.The main change relate to the shares in AkzoNobel Industrial Coatings AB and AkzoNobel Car Refinishes AB that have been valued tonet asset value.Shares in Specialty Chemicals units have been valued to net realizable value. In December 2017, an agreement was made to transferthem to AkzoNobel Group at book value. This transfer was executed on January 1, 2018.
Note 9 - Interest income and expense
All interest income and expenses are attributable to instruments not belonging to the categories financial assets or liabilities at fair valuethrough profit or loss.
Note 10 - Income tax
2017 2016 2017 2016Guarantee fee on bond loan -1,901 -1,906 -1,901 -1,906Interest expense on bond loan -20,607 -20,882 -20,607 -20,882Interest income from Group companies 0 0 0 110Interest expense to Group companies -123 -45 0 -110Other interest expenses and income -611 -50 -204 -297
Total -23,242 -22,883 -22,712 -23,085
The Group The Company
Breakdown of deferred tax assets and liabilities The Group
Assets Liabilities Net tax liabilitiesIntangible assets 2,256 58 -2,198Property, plant and equipment 465 4,461 3,996Goodwill - 77 77Inventories 239 - -239Trade and other receivables 8 - -8Pensions and other post retirement benefits 673 626 -47Other provis ions 65 - -65
Tax assets/liabilities 3,706 5,222 1,516Recognized losses carried forward - - 0
Net deferred tax assets/liabilities 3,706 5,222 1,516
December 31, 2017
32
Breakdown of deferred tax assets and liabilities The Group
Assets Liabilities Net tax liabilitiesIntangible assets 3,502 3,898 396Property, plant and equipment 840 35,595 34,755Goodwill 0 797 797Inventories 699 0 -699Trade and other receivables 114 0 -114Other current assets 0 547 547Investments in companies 0 197 197Pensions and other post retirement benefits 693 18 -675Provisions for restructuring 851 0 -851Other provisions 3,056 84 -2,972
Tax assets/liabilities 9,755 41,136 31,381Recognized losses carried forward 913 0 -913
Net deferred tax assets/liabilities 10,668 41,136 30,468
December 31, 2016
Effective consolidated tax rate The Group The Group2017 2017 2016 2016
% thousands € % thousands €Profit before tax -20,780 -22,324Corporate tax rate at standard tax rate 22.0% 4,572 22.0% 4,911Actual effective tax rate 20.3% 4,213 20.9% 4,670Variance 1.7% 359 1.1% 241
Specification of variance in tax rateAdjustment in tax rate -0.2% 38 0.0% 0Non-deductible/non-taxable items 1.3% -267 0.4% -89Under/(over)-provided in prior years 0.6% -130 0.7% -152
Effective consolidated tax rate 1.7% -359 1.1% -241
The Company The Company2017 2017 2016 2016
% thousands € % thousands €Profit before tax -24,439 29,542Corporate tax rate at standard tax rate 22.0% 5,377 22.0% -6,499Actual effective tax rate -31.0% -7,568 61.7% -18,214Variance 53.0% 12,945 -39.7% 11,715
Specification of variance in tax rateNon-deductible/non-taxable items 53.2% -12,994 -40.3% -11,897
-0.2% 49 0.6% 182Effective consolidated tax rate 53.0% -12,945 -39.7% -11,715
Different FX valuation in tax return
33
Note 11 – Intangible assets
Goodwill and other intangibles with indefinite useful lives are tested for impairment per business unit (one level below segment level) inthe fourth quarter or whenever an impairment trigger exists. In the continuing operations the only cash generating unit (CGU) containinggoodwill is Performance Coatings. No impairment triggers were identified in 2017.
The impairment test is based on cash flow projections of the five-year plan. The key assumptions used in the projections are:· Revenue growth: based on actual experience, an analysis of market growth and the expected development of market share.· Average revenue growth rate for relevant CGUs in the period 2017-2022 is expected to be 3.2% (Performance Coatings).· Margin development: based on actual experience and management’s long-term projections.· The discount rate used is between the range of 6.0% and 8.0% depending on the nature of the business valuated.
Sensitivity tests were performed for growth assumptions (a 50 percent reduction of the growth rate), EBITDA-margin developmentassumptions (a one percentage point decrease) and for the weighted average cost of capital (a one percentage point increase).All sensitivity tests individually confirm sufficient headroom in all businesses.
No impairment charges were recognized in relation to the annual impairment test, both in 2016 and 2017.
No intangible assets were registered as security for bank loans.
Balance at January 1, 2016 GoodwillCustomer
lists Other TotalCost of acquisition 61,179 137,451 33,805 232,435Accumulated amortization/impairment 0 -76,141 2,924 -73,217Carrying value 2016-01-01 61,179 61,310 36,729 159,218
Movement 2016Investments incl. Internally developed 2,427 2,427Amortization -8,414 -6,472 -14,886Change in exchange rates -4,889 -2,402 -1,449 -8,740Total movements -4,889 -10,816 -5,494 -21,199
Balance at December 31, 2016Cost of acquisition 56,290 131,885 69,398 257,573Accumulated amortization/impairment 0 -81,391 -38,163 -119,554Carrying value 2016-12-31 56,290 50,494 31,235 138,019
Movement 2017Investments incl. Internally developed 42 209 2,737 2,988Amortization -8,235 -5,591 -13,826Classified as held for sale -38,790 -41,034 -26,821 -106,645Change in exchange rates -1,643 -1,293 -839 -3,775Total movements -40,391 -50,353 -30,514 -121,258
Balance at December 31, 2017Cost of acquisition 15,898 5,683 2,102 23,683Accumulated amortization/impairment 0 -5,542 -1,380 -6,922Carrying value 2017-12-31 15,898 141 722 16,761
34
Note 12 – Tangible assets
Balance at January 1, 2016Land andbuildings
Plantequipment
and machineryOther
equipmentConstruction in
progress TotalCost of acquisition 196,931 1,008,192 101,161 51,088 1,357,372Accumulated amortization/impairment -148,524 -842,396 -95,580 -1,086,500Carrying value 2016-01-01 48,407 165,796 5,581 51,088 270,872
Movement 2016Capital expenditures 112 17,344 165 47,985 65,606Depreciations -4,900 -37,145 -2,032 -44,077Disposals -15 -3 -18Transfer betw een categories 660 17,159 4,837 -22,656 0Change in exchange rates -1,881 -6,340 267 -2,305 -10,259Total movements -6,009 -8,997 3,234 23,024 11,252
Balance at December 31, 2016Cost of acquisition 190,041 1,001,830 91,007 74,112 1,356,990Accumulated amortization/impairment -147,643 -845,031 -82,192 0 -1,074,866Carrying value 2016-12-31 42,398 156,799 8,815 74,112 282,124
Movement 2017Capital expenditures 1,343 24,956 4,256 26,909 57,464Depreciations -4,336 -36,939 -3,054 -44,329Disposals -22 -90 -108 -220Transfer betw een categories 5,661 26,235 2,588 -34,484 0Classif ied as held for sale -31,251 -143,614 -4,092 -56,557 -235,514Change in exchange rates -1,313 -5,019 -350 -2,004 -8,686Total movements -29,918 -134,471 -760 -66,136 -231,285
Balance at December 31, 2017Cost of acquisition 37,925 112,187 35,871 7,976 193,959Accumulated amortization/impairment -25,445 -89,859 -27,816 -143,120Carrying value 2017-12-31 12,480 22,328 8,055 7,976 50,839
35
Note 13 - Shares in subsidiaries
The shares of subsidiaries have been reviewed to assess if any permanent change in value has occurred. The resulting change in valueof €58 million loss (2016: €53 million loss) has been reported in the income statement of the holding company.The main change relate to the shares in AkzoNobel Industrial Coatings AB and AkzoNobel Car Refinishes AB that have been valued tonet asset value.
Shares in Specialty Chemicals units have been valued to net realizable value. In December 2017, an agreement was made to transferthem to the AkzoNobel Group at book value. This transfer was executed on January 1, 2018.
The company's name Corp. ID No. DomicileAkzo Nobel Pulp and Performance Chemicals AB 556022-9972 BohusAkzo Nobel Car Ref inishes AB 556416-0975 TyresjöAkzo Nobel Surface Chemistry AB 556013-8983 StenungsundInternational Färg AB 556494-9666 GothenburgAkzo Nobel Industrial Finishes AB 556494-9641 GamlebyAkzo Nobel Adhesives AB 556004-5311 StockholmBygglim Sverige AB 556026-1876 BohusAkzo Nobel Industrial Coatings AB 556035-9993 MalmöAkzo Nobel Functional Chemicals AB 556234-9398 StenungsundAnholmen Fastighets AB 556235-2418 BohusAkzo Nobel Decorative Coatings AB 556142-8011 MalmöAkzo Nobel AB 556416-0967 BohusAkzo Nobel International AB 556000-1629 BohusFastighets AB Hammarö Vindö 556808-1607 Bohus
Shareholding of AkzoNobel Sweden finance AB (publ) Value of holding
Company's nameNo. of shares
(thousands)Share ofequity %
Bookvalue
Akzo Nobel Car Ref inishes AB 10 100% 5,863International Färg AB 201 100% 27,847Akzo Nobel Industrial Finishes AB 17 100% 8,655Akzo Nobel Adhesives AB 25 100% 12,413Akzo Nobel Industrial Coatings AB 150 100% 30,045Akzo Nobel Decorative Coatings AB 1.0 100% 11,167Continuing operations 95,990
Akzo Nobel Pulp and Performance Chemicals AB 80 100% 170,852Akzo Nobel Surface Chemistry AB 1.200 100% 152,050Bygglim Sverige AB 160 100% 2,583Akzo Nobel Functional Chemicals AB 1 100% 300,000Anholmen Fastighets AB 400 100% 14,554Akzo Nobel AB 1.000 100% 110,000Fastighets AB Hammarö Vindö 0.5 100% 5Discontinued operations 750,044
Total value of holding December 31, 2017 846,034
36
Note 14 - Participations in associated companies
All shares in associated companies are allocated to the discontinued operations and attributable to subsidiaries. Shares in VindIn AB,556713-5172, Bas El i Sverige AB (In liquidation) , 556672-5858 and Åhus stuveriintressenter AB 556039-8256 are reported as long-termreceivables.
Note 15 - Other long-term receivables
Note 16 - Pensions and other post retirement-benefits
The Group operates a Defined Benefit (DB) employee benefit plans in Sweden. The “Skandia Plan” covers opted-out pensionarrangements for high income earners (referred to as “tiotaggare”), funded through insurance company Skandia Liv.
The Plan(s) listed above includes participants from the following entities:Continuing operations(a) Akzo Nobel Decorative Coatings AB(b) Akzo Nobel Industrial Coatings AB(c) Akzo Nobel Sweden Finance AB (publ)(d) Akzo Nobel Adhesives AB
Discontinued operations(e) Akzo Nobel AB(f) Akzo Nobel Functional Chemicals AB(g) Akzo Nobel Surface Chemistry AB(h) Akzo Nobel Pulp and Performance Chemicals AB(i) Bygglim Sverige AB
The benefits are determined as a part of the salary and depend on different salary levels. Retirement pension up to 7.5 Income BaseAmounts (IBA) and disability pension is covered through insurance company Alecta and treated as Defined Contribution as this is a socalled multi-employer plan. Benefit levels for different portions of final salary (1 IBA is €6.2 thousand in 2017 (€6.2 thousand in 2016)).The benefit may be adjusted if the service time within the plan is less than 30 years. For the Skandia Plan, contributions are paid to apension fund within the insurance company Skandia Liv. The pension fund covers many companies and AkzoNobel cannot affect whatkind of asset classes are part of the portfolio. The pension fund is supposed to cover the local GAAP liability for the Skandia Plan, andcontributions are paid annually in order to match the liability. No special events occurred during fiscal year 2017. In the table below theassumptions as of 31 December 2017 and 2016 are illustrated. The table below shows the assumptions used in the valuation of thepension plans (on a consolidated level).In addition to the Swedish plan, there are defined benefit obligations in the subsidiaries in Norway. This plan in related to discontinuedoperations.
Company's name Corp. ID No. DomicileGANSCA Deponi AB 556431-3772 SundsvallEtenförsörjning Stenungsund AB 556258-6536 Stenungsund
Scope of ownership
Company's name No. of sharesShare ofequity % Book value
GANSCA Deponi AB 100 33% 10Etenförsörjning Stenungsund AB 1,000 20% 102
112
December 31, 2017 December 31, 20160 77
Shares in non-consolidated companies 0 2,449Prebates and deposits 69 1,022Other long-term receivables 1,250 1,509
Total 1,319 5,057
The Group
Pensions and other post retirement-benef its
37
Movements in provisions for pension obligations under the Swedish defined benefit plan
Economic assumptions
Discount rate 2.30% 2.40%Inf lation 1.75% 1.75%Rate of compensation increase 2.75% 2.75%Pension increases 1.75% 1.75%Total Return on assets 2.30% 2.40%Asset categories as a percentage of total plan assets
Equity securities 27.9% 28.1%Long-term earning interest investments 38.6% 38.8%Real Estate 11.3% 10.7%Other 22.2% 22.4%
Total 100.0% 100.0%
Demographic assumptions
Life expectancy for a male- currently aged 60 26.1 26.2- currently aged 45 (at age 60) 27.9 27.4Life expectancy for a female- currently aged 60 28.9 28.9- currently aged 45 (at age 60) 30.2 30.0
Assumptions in pension plans (weighted averages) December 31, 2017 December 31, 2016
Sw edish defined benefit plan 2016
Defined benefit obligationsContinuingoperations
Discontinuedoperations Total
Balance at beginnig of year 54,534 - 47,789Exchange rate adjustment opening balance -501 -1,088 -2,019Transferred to discontinued operations -45,490 45,490 -Service costs 50 366 335Interest costs 202 1,060 1,348Benef its paid -257 -3,030 -3,156Other changes 0 0 0Actuarial (gains)/losses -3,176 4,823 10,237Defined benefit obligations at year end 5,362 47,621 54,534
Movements in the fair value of plan assets 2016
Plan assetsContinuingoperations
Discontinuedoperations Total
Balance at beginnig of year -51,386 -53,880Exchange rate adjustment opening balance 476 1,058 2,179Transferred to discontinued operations 42,864 -42,864 -Expected return on plan assets -191 -1,005 -1,536Contribution by employer 0 -820 -757Benef its paid 257 3,030 3,156Actuarial (gains)/losses 2,830 -5,653 -548Plan assets at year end -5,150 -46,254 -51,386
2017
2017
38
The total expected benefit payments for the coming ten years amounts to €3 million and €28 million in discontinued operations.Pension cost in continuing operations related to defined contribution plans amounted to €5 million in 2017 (2016: €4 million).
Continuing operations The Group The GroupDecember 31, 2017 December 31, 2017
Defined benefit obligation Annual service costIncrease/decrease Impact 0.5%
increaseImpact 0.5%
decreaseImpact 0.5%
increaseImpact 0.5%
decreaseDiscount rate -345 374 0 0Inflation 359 -333 0 0Rate of compensation increases 0 0 0 0Rate of pension increase for pensioners 359 -333 0 01 additional year in life expectancy 272 -270 0 0
The ITP2 plan in Sweden is financed through insurance with the Alecta insurance company and is classified as a multiemployer definedbenefit plan. The Group does not have access to sufficient information from Alecta to enable a defined benefit accounting treatment andhence it is accounted for as a defined contribution plan.
Reconciliation balance sheet position December 31, 2016
Sw edish defined benefit planContinuingoperations
Discontinuedoperations Total
Defined benef it obligation 5,362 47,621 54,534Fair value of plan asset -5,150 -46,254 -51,386Funded status 212 1,367 3,148
Plans in foreign subsidaries (discontinued operations)Defined benef it obligation - 1,756 1,778Fair value of plan asset - -1,714 -1,855Funded status 0 42 -77
Sw edish defined benefit plan December 31, 2016Continuingoperations
Discontinuedoperations Total
Actives - 6,563 6,198Deferred members 1,392 1,874 6,245Pensioners 3,970 39,184 42,091Total 5,362 47,621 54,534
Assets Swedish defined benefit plan December 31, 2016Continuingoperations
Discontinuedoperations Total
Readily marketable / quoted assetsEquities -1,437 -12,905 -14,440Fixed interest government bonds -1,988 -17,854 -19,938Other securities -299 -2,683 -2,518Non-marketable / unquoted assetsReal estate -582 -5,227 -5,498Other securities -844 -7,585 -8,992Total -5,150 -46,254 -51,386
December 31, 2017
December 31, 2017
December 31, 2017
39
Note 17 - Inventories
In 2017, €1.0 million was recognized as an expense in the income statement for the write-down of inventories while €0.8 million of write-down from earlier periods was reversed. €4.2 million was provided for obsolete stock. As of December 31, 2017, inventory of €0.5 millionwas valued to net realizable value. No inventory prepayments were made.In 2016, €3.5 million was recognized as an expense in the income statement for the write-down of inventories while €0.8 million of write-down from earlier periods was reversed. €4.6 million was provided for obsolete stock. As of December 31, 2016, inventory of €4.6 millionwas valued to net realizable value. No inventory prepayments were made.
Note 18 - Accounts receivable - trade
With respect to the accounts receivables that are neither impaired nor past due, there are no indications as of reporting date that thedebtors will not meet their payment obligations. The maximum exposure to credit risk at the reporting date is the carrying value of eachclass of receivable mentioned above. The Group does not hold any collateral for impaired trade receivables.
Note 19 - Credit risk
Hedged national amounts at year-endWe have subsidiaries with a functional currency other than the euro. Therefore our consolidated financial statements are exposed totranslation risk related to equity, intercompany loans of a permanent nature and earnings of foreign subsidiaries and investment inassociates and joint ventures. In principle, we do not use financial instruments to hedge this risk.We have hedging policies for energy contracts and have long-term purchase contracts in place. Derivatives used are reported as othershort-term assets or liabilities.
The table below presents a breakdown of the national amounts of outstanding foreign currency contracts for entities with other functionalcurrencies than the euro.
A change of 10% in the exchange rates for major currencies would change the result through revaluation of balance sheet items in thefollowing way:EUR +/- €0.1 million
December 31, 2017 December 31, 2016Raw materials and consumables 9,567 58,504Semi-finished products 4,390 6,646Finished products and goods for resale 18,356 81,130Total 32,313 146,280
The Group
Ageing of accounts receivables December 31, 2017 December 31, 2016Performing accounts receivable 26,201 143,140Past due accounts receivables and not impaired:< 3 month 1,481 11,6003-6 month 107 -2976-9 month 32 479-12 month 6 472> 12 month 80 10Impaired accounts receivable 1,163 3,402Allow ance for impairment -1,249 -2,958Total 27,821 155,416
The Group
€ million Buy Sell Net Buy Sell NetEuro 0 -10,755 -10,755 16,664 -171,594 -154,930US dollar 974 -338 636 9,049 -23,084 -14,035Pound sterling 189 -1,442 -1,253 836 -4,743 -3,907SEK - -30 -30 0 -237 -237Other 1,105 -3,141 -2,036 4,134 -4,772 -638
Total 2,268 -15,706 -13,438 30,683 -204,430 -173,747
2017 2016
40
Our subsidiaries operate in a large number of countries, and as such have clients and suppliers in many countries. Many of thesesubsidiaries have clients and suppliers that are outside of their functional currency environment. This creates currency exposure which ispartly netted out on consolidation. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventualfunctional currency net cash flows resulting from trade or financing transactions are adversely affected by changes in exchange rates. It isour policy to fully hedge our transactional foreign exchange rate exposures from recognized assets and liabilities.
Corporate Treasury enters into derivative transactions with external parties and is bound by overnight limits per currency. Where hedgingthrough Corporate Treasury is not feasible under local legislation, local hedging may take place. In general, forward exchange contractsthat we enter into have a maturity of less than one year. When necessary, forward exchange contracts are rolled over at maturity.Currency derivatives are not used for speculative purposes.
Note 20 - Cash and cash equivalents
At December 31, 2017, there were no restrictions to transfer cash in the Group. For information on credit risk management, see note 26.At December 31, 2017, an amount of €130 million (December 31, 2016: €343 million) in cash and cash equivalents was short-terminvested with the AkzoNobel group.
Note 21 - Provisions
A change in discount rate of 1%-unit would mean a change in provisions of +/- €0 million.
Environmental mattersWe are confronted with substantial costs arising out of environmental laws and regulations, which include obligations to eliminate or limitthe effects on the environment of the disposal or release of certain wastes or substances at various sites. Proceedings involvingenvironmental matters, such as the alleged discharge of chemicals or waste materials into the air, water, or soil, are pending against us invarious countries. As stated in the note, the provisions for environmental costs accounted for in accordance with the aforesaid policiesaggregated €0.3 million on December 31, 2017. The provision has been discounted.
Other provisionsOther provisions relate to a great variety of risks and commitments, including provisions for claims, other long-term employee benefitssuch as long-service leave and jubilee payments.
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016Cash pool account w ith Akzo Nobel 129,711 343,470 97,524 62,124Cash on hand and in banks 104 10,519 18 229
Total 129,815 353,989 97,542 62,353
The Group The Company
December 31, 2017 December 31, 2016Environmental provisions 300 66,831Provisions for restructuring measures 1,804 4,712Other provisions 901 54,478Provisions for pensions 212 3,148
Total 3,217 129,170
of w hich current portion 2,114 72,256
The Group
Movements in provisions (excl. Pensions)
TotalEnvironmental
costsRestructuring
measures OtherBalance at January 1, 2017 126,021 66,831 4,712 54,478Additions made during the year 2,988 330 1,996 662Withdraw als -49,164 -12,182 -1,095 -35,887Unw ind of discount 2,255 2,236 19 -Release of used amounts -25,111 -3,948 -3,502 -17,661Changes in exchange rates -1,780 -1,646 -57 -77Reclassified to liabilities held for sale -52,204 -51,321 -269 -614
Balance at December 31, 2017 3,005 300 1,804 901
The Group
41
Note 22 - Long-term liabilities and net debt
On July 27, 2012, the Company placed a new 2.625 percent €750 million bond with an issue price of 98.911 percent of the principleamount. The bond will mature on July 27, 2022. Interest on the bond is paid annually in arrears on July 27.
Other external debt includes current portion of long term debt of €160 thousand (2016: €160 thousand).
Note 23 - Other liabilities
Note 24 - Accrued expenses and deferred income
Note 25 - Contingent liabilities
In 2008, Akzo Nobel Sweden Finance AB (publ) entered into a contract (”Cross-Guarantee”) pursuant to which it irrevocably andunconditionally guarantees parts of the payment obligations of the Parent Company relating to public debt and external credit- andguarantee contracts.
Long-term liabilities December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016Bond loan 744,467 743,419 744,467 743,419
Total 744,467 743,419 744,467 743,419
The CompanyThe Group
Balance atDecember 31,
2016 Cash flowNon-cash
adjustmentsDiscontinued
operationsExchange rate
movements
Balance atDecember 31,
2017Bond loan 743,419 0 1,048 0 0 744,467Other external debt 1,444 -150 0 -957 -16 320Liabilities to group companies 31,803 -5,794 -23 0 -581 25,405Total interest bearing debt 776,666 -5,944 1,025 -957 -597 770,192
Liquid funds 353,989 -21,581 -195,557 -7,036 129,815Net debt 422,677 15,637 1,025 194,600 6,439 640,377
December 31, 2017 December 31, 2016
Compensated absences and vacations 7,734 23,293Wage taxes and social charges 4,680 12,130Amount payable to employees 2,982 11,579Invoices to be received from suppliers 4,744 12,018Future contracts 146 171Prepayment from customers 613 7,582Other current liabilities 2,900 10,410Total 23,799 77,183
The Group
December 31, 2017 December 31, 2016 December 31, 2017 December 31, 2016Current portion of bond loan (accrued interest) 8,468 8,468 8,468 8,468Accrued bonuses and discounts 7,962 6,489 - 40Other accrued expenses 479 730 479 479
Total 16,909 15,687 8,947 8,987
The Group The Company
December 31, 2017 December 31, 2016 December 31, 2016Operating lease commitments 12,838 24,118 0 0Other purchase obligations - 15,758 0 0Contingent liability relating to cross-guarantee 2,477,745 1,909,000 2,477,745 1,909,000Total 2,490,583 1,948,876 2,477,745 1,909,000
The Group The CompanyDecember 31, 2017
42
The total amount of public debt and external credit arrangements covered by this guarantee outstanding at December 31, 2017, amountedto €2,478 million (December 31, 2016: €1,909 million). In the same contract the Parent Company has irrevocably and unconditionallyguaranteed the payment obligations of the Company relating to the €750 million bond. The purpose of this “Cross-Guarantee” is to ensurethe creditors of both companies are placed in a substantially equivalent structural position regarding the debt covered by the guarantee.According to a contract between the Company and the Parent Company, the Company pays 0.25 percent yearly on the amount (€750million) guaranteed by the Parent Company as net settlement for the mutual guarantees in accordance with the Cross-Guaranteecontract.
Operating lease commitments
Note 26 - Additional disclosures on financial instruments and financial risk management
Market riskThe market risks of the Company comprise of the currency- and interest rate risks below.
Currency riskCurrency risk is the risk that the fair value of, or future cash flows from, a financial instrument varies due to changes in foreign currencyexchange rates. The Company manages its risks associated with fluctuations in foreign-currency denominated receivables and liabilities,if any, through forward exchange contracts.
Interest rate riskInterest rate risk is the risk that the fair value of, or future cash flows from, a financial instrument varies due to changes in market interestrates. The Company’s borrowings have fixed interest rates. Hence the Company does not have a cash flow interest rate risk. A change inmarket interest rate would not affect the income statement or equity since lending is measured at amortized cost.
Credit riskCredit risk arises from financial assets such as cash and cash equivalents, derivative financial instruments with a positive fair value,deposits with banks and financial institutions, and trade receivables. We have a credit risk management policy in place to limit creditlosses due to non-performance of financial counterparties and customers. We monitor our exposure to credit risk on an ongoing basis atvarious levels. We only deal with counterparties that have a sufficiently high credit rating. Generally, we do not require collateral in respectof financial assets. The Company’s borrowing has fixed interest rates; therefore the credit risk is limited. Akzo Nobel N.V's rating is at S&PA- and at Moody’s Baa1, and the loan does not have any overdue payments.
PensionsWe practice pro-active pension risk management. Our pension policy is to offer a defined contribution scheme where appropriate. We arecommitted to further de-risk over time. Our defined benefit schemes are closed to new entrants.
ImpairmentIn view of the current financial market conditions, asset value decline offers both opportunities and threats to our company. We performimpairment tests for intangibles with indefinite lives (goodwill, some brands) every year and whenever an impairment trigger exists. Fortangibles and other fixed assets, we do impairment tests whenever an impairment trigger exists.
Liquidity riskThe primary objective of liquidity management is to provide for sufficient cash and cash equivalents at all times and any place in the worldto enable us to meet our payment obligations. We aim for a well-spread maturity schedule of our long-term borrowings and a strongliquidity position. Liquidity risk results from the Company’s potential inability to meet its financial liabilities when they become due, atreasonable costs and in a timely manner. The €750 million matures in July 2022. The company will pay 2.625 percent (€ 19.7 million)interest yearly until the maturity of this bond.
December 31, 2017 December 31, 2016Paid in current year 5,564 14,907N+1 4,157 8,149N+2 3,479 6,413N+3 2,308 4,678N+4 1,774 2,766N+5 1,120 2,112Thereafter 0 0Total operating leases 12,838 24,118
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Fair value of financial instrumentsAt December 31, 217, the fair value of the €750 million 2.625 percent bond issued by the Company amounted to €825 million (December31, 2016: €842 million) based on price quotations at the balance sheet date. The carrying value as per that date was €744 million(December 31, 2016: €743 million).The fair values of cash and cash equivalents, current receivables, other current financial liabilities and approximate their carrying amountlargely due to the short-term maturities of these instruments.
Fair value per financial instruments category
Loans and receivables and other liabilities are recognized at amortized cost, using the effective interest method. We estimated the fairvalue of our long-term borrowings based on the quoted market prices for the same or similar issues or on the current rates offered to usfor debt with similar maturities.The carrying amounts of cash and cash equivalents, receivables less allowance for impairment, short-term borrowings and other currentliabilities approximate fair value due to the short maturity period of those instruments.
€ thousand December 31, 2017 December 31, 2016Carrying amount Carrying amount
2.625% 2012/22 (€750 million) 744,467 743,419Debt issued
Debt maturity, external debt€ thousand Loan Interest paidN+1 160 19,688N+2 160 19,688N+3 0 19,688N+4 0 19,688N+5 744,467 19,688Total 744,787 98,440
2017 year-end:
Carryingamount
Out ofscope of
IFRS 7
Loans andreceivables/
other liabilities
At fair valuethrough
profitor loss Hedging
Totalcarrying
value Fair valueTrade and other receivables 61,060 61,060 61,060 61,060Other current receivables 6,322 6,322 6,322 6,322Cash and cash equivalents 129,815 129,815 129,815 129,815Total financial assets 197,197 0 67,382 129,815 0 197,197 197,197
Borrow ings 744,787 744,787 744,787 824,783Trade and other payables 102,096 101,950 146 102,096 102,096Total financial liabilities 846,883 0 846,737 146 0 846,883 926,879
Gross balance sheet exposure -649,686 0 -779,355 129,669 0 -649,686 -729,682
2016 year-end:
Carryingamount
Out ofscope of
IFRS 7
Loans andreceivables/
other liabilities
At fair valuethrough
profitor loss Hedging
Totalcarrying
value Fair valueTrade and other receivables 252,759 3,129 249,630 249,630 249,630Other current receivables 24,269 20,103 4,166 24,269 24,269Cash and cash equivalents 353,989 0 353,989 353,989 353,989Total financial assets 631,017 3,129 269,733 353,989 4,166 627,888 627,888
Borrow ings 744,703 744,703 744,703 841,880Trade and other payables 363,525 363,354 171 363,525 363,525Total financial liabilities 1,108,228 0 1,108,057 171 0 1,108,228 1,205,405
Gross balance sheet exposure -477,211 3,129 -838,324 353,818 4,166 -480,340 -577,517
Carrying value per IAS 39
Carrying value per IAS 39
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The only financial instruments accounted for at fair value through profit or loss is derivative financial instruments and the short-terminvestments included in cash. The fair value of foreign currency contracts, swap contracts, forward rate agreements, oil contracts and gasfutures was determined by valuation techniques using market observable input (such as foreign currency interest rates based on Reuters)and by obtaining quotes from dealers and brokers. The profit and loss effect of the fair value changes in FX contracts amounted to €486thousand loss (2016: €122 thousand loss).
The following valuation methods for financial instruments carried at fair value through profit or loss are distinguished:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.• Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices)or indirectly (i.e. derived from prices)• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
All fair values of financial instruments carried at fair value through profit or loss in the table above are level 2 valuation methods.
Note 27 - Significant events after the financial year
On March 9, 2017, the Parent Company, announced a review of strategic options for the separation of its Specialty Chemicals business.The separation will allow the Specialty Chemicals business to continue to build and accelerate its market-leading positions across a rangeof market segments.On January 1, 2018, the shares in the Specialty Chemicals companies were divested to AkzoNobel Chemicals Holding B.V. .The transfer was made to book value amounting to €750 million. From January 1, 2018 the Group only consists of the units withinBusiness Area Paints and Coatings i.e. the continuing operations.In April 2018 AkzoNobel N.V announced that Business Area Specialty Chemicals is to be divested to the Carlyle Group and GIC.The divestment is expected to take place before the end of 2018.
Note 28 - Appropriation of reserves
The group continues to have a positive cash flow and a strong liquidity position. The equity / total assets ratio amount to 21%.A proposed dividend of €50 thousand per share is a result of this position.
Profit brought forward from previous years - 113,076,054Capital injection 341,126,820Profit for the year -32,006,935
196,043,832
The Board and Managing Director propose that50 thousand per share is distributed to the owners 50,000,000the following be carried forward 146,043,832
196,043,832
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Note 29 - Related party transactions
The Akzo Nobel Sweden Group is an integrated part of the AkzoNobel Group. A significant part of the turnover of the Swedish units is withother parts of the AkzoNobel Group. The transactions of the Company comprise mainly transactions with Group companies and are pricedat an “arms’ length” basis. Certain administrative tasks and R&D have been performed by Group companies, for which the expenses in2017 amounted to €21.4 million (2016: €10.3 million). The Company also does transactions with the Parent Company, AkzoNobel N.V., inaccordance with the so called Cross-guarantee contract. An agreement has been entered into to transfer the shares in the SpecialtyChemicals companies to other units within the AkzoNobel-group, effective January 1, 2018. The transfer will be made at book value.
There have not been any transactions with members of the Board or Board of Management or any family member of such persons. Alsono loans have been extended to members of the Board of Directors or any family member of such persons.
Gothenburg 2018-04-23
Jesper Salskov Jensen Benoit Cuignet Jacq DerckxManaging Director Chairman
Bertrand Lerebourg Elin Welin
Johanna Fare Philip MaughanEmployee representative Employee representative
Our auditors’ report is submitted on 2018-04-27Öhrlings PricewaterhouseCoopers AB
Signature on the Swedishoriginal
Birgitta GranquistAuthorized Public Accountant
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Auditor’s reportUnofficial translation
To the general meeting of the shareholders of Akzo Nobel Sweden Finance AB (publ), corporateidentity number 556768 - 4062
Report on the annual accounts and consolidated accounts
OpinionsWe have audited the annual accounts and consolidated accounts of Akzo Nobel Sweden Finance AB (publ) for theyear 2017.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and presentfairly, in all material respects, the financial position of parent company as of 31 December 2017 and its financialperformance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidatedaccounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all materialrespects, the financial position of the group as of 31 December 2017 and their financial performance and cash flowfor the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by theEU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of theannual accounts and consolidated accounts.
We therefore recommend that the general meeting of shareholders adopts the income statement and balancesheet for the parent company and the group.
Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content ofthe additional report that has been submitted to the parent company's audit committee in accordance with theAudit Regulation (537/2014) Article 11.
Basis for OpinionsWe conducted our audit in accordance with International Standards on Auditing (ISA) and generally acceptedauditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’sResponsibilities section. We are independent of the parent company and the group in accordance withprofessional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities inaccordance with these requirements. This includes that, based on the best of our knowledge and belief, noprohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the auditedcompany or, where applicable, its parent company or its controlled companies within the EU.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinions.
Our audit approach
Audit scope
We designed our audit by determining materiality and assessing the risks of material misstatement in theconsolidated financial statements. In particular, we considered where management made subjective judgements;for example, in respect of significant accounting estimates that involved making assumptions and consideringfuture events that are inherently uncertain. As in all of our audits, we also addressed the risk of managementoverride of internal controls, including among other matters consideration of whether there was evidence of biasthat represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on theconsolidated financial statements as a whole, taking into account the structure of the Group, the accountingprocesses and controls, and the industry in which the group operates.
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Materiality
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonableassurance whether the financial statements are free from material misstatement. Misstatements may arise due tofraud or error. They are considered material if individually or in aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including theoverall group materiality for the consolidated financial statements as a whole. These, together with qualitativeconsiderations, helped us to determine the scope of our audit and the nature, timing and extent of our auditprocedures and to evaluate the effect of misstatements, both individually and in aggregate on the financialstatements as a whole.
Key audit mattersKey audit matters of the audit are those matters that, in our professional judgment, were of most significance inour audit of the annual accounts and consolidated accounts of the current period. These matters were addressedin the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accountsas a whole, but we do not provide a separate opinion on these matters.
Key audit matter How our audit addressed the key audit matter
Specialty Chemicals Business recorded asHeld for sale and Discontinued Operations(IFRS5)Note 2In April 2017 Akzo Nobel N.V. announced theirplans to separate the Specialty Chemicals Businessand received the approval of the EGM on November30, 2017 to proceed with the separation througheither demerger or private sale. Managementconcluded that the Specialty Chemicals Businesswill be reported in accordance with IFRS 5 – ‘Non-Current Assets Held for Sale and discontinuedoperations’ in the 2017 consolidated financialstatements. The application of IFRS 5 ‘Non-CurrentAsset Held for Sale and Discontinued operations’ issignificant to our audit because the assessment ofthe classification is complex, the transaction and itsaccounting is non-routine and involves significantmanagement judgements. These include, amongstothers, the date of classification of the non-currentassets as held for sale, the identification of thedisposal group and the presentation of its results asdiscontinued operations. As a result of theseconclusions, there are requirements around thevaluation of the assets of the disposal group andpresentation in the consolidated financialstatements and disclosure notes, the identificationof income and expenses allocated to the SpecialtyChemicals Business, assumptions and estimatesmade with regard to the allocations, andadjustments to be recorded (e.g. central costallocations, seizing of depreciation andamortization).
Our audit procedures included, among others, an evaluationof the client’s conclusions on the classification of the disposalgroup as held for sale and the results of the SpecialtyChemicals Business as discontinued operations.This included the following;
· evaluating whether the Specialty ChemicalsBusiness classifies as one disposal group,
· assessing the valuation of the assets of the disposalgroup as the lower of the carrying amount and fairvalue less cost to sell,
· the presentation of the assets in the financialstatements and the date as of which the SpecialtyChemicals Business is classified as held for sale.
In addition we evaluated the presentation of the results of theSpecialty Chemicals Business as discontinued operations, theallocated income and expenses including assumptions andestimates made with regard to the allocation, as well as theadjustments recorded relating to central cost allocations andreversal of depreciation and amortization.
Lastly, we have made use of technical accounting specialistsas part of our audit.
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Responsibilities of the Board of Directors and the Managing DirectorThe Board of Directors and the Managing Director are responsible for the preparation of the annual accounts andconsolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and,concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors andthe Managing Director are also responsible for such internal control as they determine is necessary to enable thepreparation of annual accounts and consolidated accounts that are free from material misstatement, whether dueto fraud or error.
In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Directorare responsible for the assessment of the company's and the group's ability to continue as a going concern. Theydisclose, as applicable, matters related to going concern and using the going concern basis of accounting. Thegoing concern basis of accounting is however not applied if the Board of Directors and the Managing Directorintend to liquidate the company, to cease operations, or has no realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general,among other things oversee the company’s financial reporting process.
Auditor’s responsibilityOur objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accountsas a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s reportthat includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an auditconducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect amaterial misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,individually or in the aggregate, they could reasonably be expected to influence the economic decisions of userstaken on the basis of these annual accounts and consolidated accounts.
A further description of our responsibility for the audit of the annual accounts and consolidated accounts isavailable on Revisorsinspektionen’s website: www.revisorsinspektionen.se/revisornsansvar. This description ispart of the auditor´s report.
Report on other legal and regulatory requirements
OpinionsIn addition to our audit of the annual accounts and consolidated accounts, we have also audited theadministration of the Board of Directors and the Managing Director of Akzo Nobel Sweden Finance AB (publ) forthe year 2017 and the proposed appropriations of the company’s profit or loss.
We recommend to the general meeting of shareholders that the profit be appropriated in accordance with theproposal in the statutory administration report and that the members of the Board of Directors and the ManagingDirector be discharged from liability for the financial year.
Basis for OpinionsWe conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilitiesunder those standards are further described in the Auditor’s Responsibilities section. We are independent of theparent company and the group in accordance with professional ethics for accountants in Sweden and haveotherwise fulfilled our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for ouropinions.
Responsibilities of the Board of Directors and the Managing DirectorThe Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At theproposal of a dividend, this includes an assessment of whether the dividend is justifiable considering therequirements which the company's and the group's type of operations, size and risks place on the size of theparent company's and the group’ equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company’s organization and the administration of the company’saffairs. This includes among other things continuous assessment of the company's and the group's financialsituation and ensuring that the company´s organization is designed so that the accounting, management of assetsand the company’s financial affairs otherwise are controlled in a reassuring manner. [The Managing Director shallmanage the ongoing administration according to the Board of Directors’ guidelines and instructions and among
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other matters take measures that are necessary to fulfill the company’s accounting in accordance with law andhandle the management of assets in a reassuring manner.]
Auditor’s responsibilityOur objective concerning the audit of the administration, and thereby our opinion about discharge from liability,is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board ofDirectors or the Managing Director in any material respect:
• has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles ofAssociation.
Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby ouropinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with theCompanies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordancewith generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise toliability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordancewith the Companies Act.
A further description of our responsibility for the audit of the administration is available onRevisorsinspektionen’s website: www.revisorsinspektionen.se/revisornsansvar. This description is part of theauditor’s report.
Öhrlings PricewaterhouseCoopers AB, Skånegatan 1, 405 32 Göteborg, was appointed auditor of Akzo NobelSweden Finance AB (publ) by the general meeting of the shareholders on April 28, 2017 and has been thecompany’s auditor since the April 29, 2016.
Gothenburg 27 April 2018
Öhrlings PricewaterhouseCoopers AB
Birgitta GranquistAuthorized Public Accountant