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Annual Report 2011

“We have the willingness, the capabilities and the courage to realise the Hempel Group’s true potential for the benefit of our customers and stakeholders all over the world.”

Pierre-Yves Jullien Group President and CEO

Contents

What we do

Introduction to the Hempel Annual Report 2011 02

One Hempel – One Ambition 03 A strategy for growth

Hempel strengthens and expands global Decorative capabilities 04

Highlights from 2011 06

New offices and factories 07 Increasing our local presence around the globe

Decorative 08 High performance solutions for interiors and exteriors

Protective 10 Protecting customers’ investments

Marine 12 Products and services for the marine industry

Container 14 Advanced solutions for the container industry

Yacht 15 A full portfolio of products for sailing enthusiasts

R&D gets close to the business 17

About Hempel

CEO statement 18 A strong capacity for resilience

About Hempel 20

The Hempel Foundation 21

Corporate Responsibility 22

Hempel’s Management Team and Board of Directors of Hempel A/S 24

Financials

Performance in 2011 25

Introduction to the 2011 financial results 26

Key figures 2011 27

Profit & Loss account 28

Balance sheet 29 Assets as at 31 December 2011

Balance sheet 31 Liabilities and shareholders’ equity as at 31 December 2011

List of subsidiaries 32

Annual Report 2011

What We do | about hempel | Financials

Introduction to the Hempel Annual Report 2011

Amidst a turbulent economic climate, the strategic focus in 2011 was on implementing the five-year strategy One Hempel – One Ambition. Throughout the year, we initiated many new activities and investments that brought us closer to our customers around the world and built momentum towards achieving our strategic goals. A highlight was the acquisition of Crown Paints in June, which was a significant factor in the Hempel Group surpassing the milestone of EUR one billion in revenue and more than 5000 employees around the world.

Despite a global coatings market that was under significant pressure, a second half-year especially affected by the European debt crisis, and raw material prices that continue to rise, the Hempel Group returned its second highest EBITDA. Our Protective and Decorative segments in particular showed strong resilience in the market, with revenue growth in both segments out-performing their respective markets.

Hempel has continued expanding its product development and sales in local markets. In the past twelve months, we have opened or expanded regional offices, showrooms, manufacturing facilities and laboratories in several locations around the world, and plans for more facilities are underway.

From its 10 laboratories around the world, Hempel R&D continued developing innovative technologies across all segments. Our waterborne solutions for containers and biocide-free fouling release products in particular made an impact on the market, and we intensified our focus on intumescent technologies.

Based on a strong tradition of close dialogue with our stakeholders, customers, suppliers and employees, we increased the focus on our Corporate Responsibility work. Our efforts cover all aspects of our business and are structured according to six focus areas: ethical behaviour, our people, community engagement, procurement, health and safety, and the environment. This year sees the publication of a consolidated Corporate Responsibility Report.

We hope you enjoy reading this report about Hempel’s recent activities.

2 Annual Report 2011

By focusing on the Decorative, Protective and Marine Maintenance business segments, our strategy will propel us into the top ten leading

coatings suppliers in the world by 2015.

As the coatings industry continues to change, and with customers, suppliers and competitors becoming larger and operating costs on the rise, Hempel needs to grow if it is to continue delivering the most efficient coating solutions to customers. That is the purpose of our strategy, called One Hempel – One Ambition, which had its first full year in action in 2011.

For us, implementing our new strategy is a bit like building a house. Our previous strategy gave us the house’s foundation – based on the right skills and capabilities for the industry and standardised technology and operational systems. Five pillars sit firmly on top of the foundation, which represent a sequence of focused projects across five key organisational functions. The pillars provide solid support for the house’s roof structure comprising our company’s three core segments: Decorative, Protective and Marine Maintenance.

With the strategy now firmly in place, we’re seeing a galvanising effect on the entire company, which is helping us to achieve our growth targets and get closer to customers. We have already achieved significant milestones, including a major acquisition, a new and larger R&D organisation, and a more coordinated approach across the entire organisation. All of this is moving Hempel closer to a place among the world’s ten largest coating suppliers by 2015.

One Hempel – One Ambition A strategy for growth

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WhAt We do | About hempel | FinAnciAls

Hempel strengthens and expands global Decorative capabilities

A significant part of the global coatings industry, the Decorative segment has a bright future.

With the acquisition of Crown Paints, the second largest decorative coatings manufacturer in the UK,

Hempel took a great step towards achieving our One Hempel – One Ambition strategic goals – and

quadrupling our sales in Decorative.


Our largest ever acquisition, Crown Paints represents everything we were looking for: a solid position in the market, a sound financial situation, as well as innovative R&D and marketing.

“By bringing Crown Paints into the Hempel Group,” says Group President and CEO Pierre-Yves Jullien, “we not only enhanced our expertise in the Decorative market, but we also inherited a valuable brand asset. It was a win-win for both companies.”

With access to a broader portfolio of recipes, products and brands, Crown Paints has brought special competencies to Hempel that have boosted the entire Group’s decorative capabilities. This is particularly the case for product development, and Hempel’s decorative R&D has been reorganised such that the global decorative R&D organisation is now headed from Crown Paints’ headquarters in the UK. In addition, the procurement departments have been fully integrated to create synergies between the two entities.

Great teamwork gets synergies off the groundA selection of Hempel industrial products is now sold in Crown Decorating Centres, of which there are approximately 130 throughout the UK and Ireland. Because the industrial coatings products require specific technical and application knowledge, Hempel staff are currently working alongside Crown Paints retail staff to give them the skills needed to advise customers on how to use these products.

Lars Østerby, Group Director Decorative, is delighted with how the two teams are working together. “They came into this project with a common objective and they have formed a well-functioning team. They’re learning from one another, too, which is helping to strengthen the Hempel/Crown Paints partnership as well as the service we offer our customers.”

Visit Crown Paints on the Internet: www.crownpaints.co.uk

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Highlights from 2011

Waterborne coating system gains interest in the marketThe EcoBoxcoat full waterborne container coating system is making waves in the container industry with the largest order to date being placed in 2011. The order involved a total of 280,000 kilograms of the environmentally friendly coating being applied to almost 2,000 40-foot HC dry cargo containers.

Offering line speeds equivalent to the application of solventborne systems, zinc-based anticorrosion protection, and low volatile organic compound levels, EcoBoxcoat has been proven to perform on a par with, or better than, similar-aged solventborne container productions.

Another example of our One Hempel – One Ambition strategy in action, the order was secured through a multi-team effort involving people from different regions and departments. We anticipate that the EcoBoxcoat system will continue to attract significant market interest in 2012 and beyond.

Helping homeowners save energy and stay cool Launched in 2011 in the Middle East, Contex Thermoguard is an innovative insulation coating that saves building and homeowners money and energy, while improving comfort.

Contex Thermoguard’s insulating hollow vacuum microspheres form a tight, interlocking matrix that reduces radiated, conductive and convective heat through the painted surface. The high reflectivity of the coating also deflects nearly all of the sun’s rays, which drastically reduces the cost and energy required for cooling a home or a building.

Applied to exterior walls, Context Thermoguard reduces passive solar heating by lowering the indoor temperature by as much as five degrees Celsius, which reduces electricity consumption and helps regulate the indoor climate.

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New offices and factories increasing our local presence around the globe

More Decorative in the Middle EastIn Kuwait, a new state-of-the art showroom opened in April 2011.

An important part of Hempel’s expansion drive in the region,

the showroom occupies three floors and gives customers the

opportunity to see the latest in trends and special effects in

a wide variety of colours and finishes.

Scheduled to come on line in March 2013, the designs for a new

factory in Jeddah, Saudi Arabia are being finalised, with site work

to start in May 2012. The plant will produce waterborne products

for Decorative and will have a total maximum capacity of

24 million litres per year.

High-tech in RussiaApril 2011 saw the Hempel Group sign a EUR 23 million contract for

a turnkey project in Russia with the Ulyanovsk authorities. Scheduled

to start production in 2013, the plant will help meet growing demand

for Hempel coatings in the Russian market. It will feature the latest

environmentally friendly coating production equipment technology,

including a semi-automatic powder handling system, an automatic

liquid dosing system and a solvent recovery unit.

Growing Decorative in the UKHempel’s acquisition of Crown Paints saw the relocation of

Decorative R&D to England. And with 130 Crown Decorating Centres

throughout the UK and Ireland, the acquisition has significantly

boosted Hempel’s presence in the UK market.

Strengthening Protective in AfricaTo service the growing African market for protective coatings, a

Hempel office was opened in Johannesburg, South Africa in February

2011. It will provide coatings for the mining, petrochemical and

metal processing industries as well as for wind turbines, containers

and infrastructure. With tinting facilities and a storage capacity of

150,000 litres, the office will supply countries throughout Africa.

Indian subcontinent gets more supply capabilitiesWith the opening of a new manufacturing unit in Nashik,

Maharashtra in June 2011, Hempel strengthened its manufacturing

capabilities and presence in the Indian subcontinent. Designed to

house raw materials and the finished product under one roof,

the one-building factory is spread across a 1500 square metre

plot and can produce up to 2.4 million litres annually.

And, to further our presence in the Indian subcontinent, we plan to

invest approximately EUR 15-20 million in a greenfield project over a

period of three years. This will help build our presence in the Indian

subcontinent and enable us to supply India, Sri Lanka, Bangladesh,

the Maldives and Nepal.

Full coverage in the Americas Hempel opened a new office in Rio de Janeiro, Brazil in July 2011.

The office primarily concentrates on the marine and protective

coating segments, specifically in the areas of offshore Oil and Gas

and wind energy. It marks a significant strengthening of our network

in the Americas, where we can now say we offer full coverage.

Our new factory in Argentina will serve the Brazil office.

Meanwhile, in Argentina, construction began on our 24th factory –

our first in South America. Located north of Buenos Aires, the new

3000 square metre factory will manufacture paint for the Marine

and Protective coatings segments and will supply the entire South

American market. The new factory was completed and opened in

February 2012, and will help us better serve the rapidly growing

South American market.

Expanded R&D in EuropeHempel commenced development activities in France with the

opening of an R&D centre in March 2011. The centre’s main focus

is to provide high level technical support and develop customised

solutions for the Protective segment in the region.

The extensive expansion of our R&D facilities in Barcelona, Spain was

celebrated at the official opening in September 2011. The new state-

of-the-art centre is primarily focusing on bringing intumescent coating

solutions to the global market. The new fire protection laboratory

includes an advanced testing area with furnaces, pilot manufacturing

and application in an impressive 1000 square metre space.

New global headquarters in DenmarkPlanning started for our new Group headquarters in

Kgs. Lyngby, north of Copenhagen. The design was finalised,

and at a ground-breaking ceremony early in 2012, the first

soil was cut. Construction work on the three-story building

is now underway and the headquarters are scheduled

to open in 2013.

With a major acquisition, factory openings, new R&D centres as well as

new showrooms and office facilities, Hempel continues to expand its

presence around the world.

7Annual Report 2011


Our wide range of high-performance products protects and enhances the appearance of

homes and buildings around the world, inside and out.

Performance in 2011

Decorative was significant to Hempel Group’s growth in 2011, with the acquisition of Crown Paints playing a major part. Excluding the revenue from Crown Paints, Hempel’s Decorative sales grew by 13 per cent, which was above the expected market growth.

The trends in the overall market for decorative coatings showed considerable variation from region to region. The European markets where Hempel has a presence declined slightly during the year. In the UK, which is our most important decorative market, the total market fell by a couple of per cent. The total decorative market also fell in Southern Europe, but at a much lower rate than previous years.

Driven by growth in the construction industry, the Chinese decorative market continued its strong performance. The market showed double-digit percentage growth in 2011, and we expect this trend to continue. Similarly, the total market development in the Middle East increased. Growth in this region is highly dependent on government investments in construction projects. We expect Saudi Arabia, our most important market in this region, to continue its growth over the coming years.

Decorative: high performance solutions for interiors and exteriors


Urbanisation drives Decorative’s growth in ChinaThe Chinese market for decorative coating continues to grow as a result of the high activity level in the construction market. This is driven by demand for residential buildings, which continues to increase as more and more people choose to live in urban areas.

This is a strategic focus area for Hempel and in 2011 we launched further initiatives to develop our Decorative presence in China. With a strong foothold in the region already, we increased our supply of decorative coating solutions to construction projects, with a strong focus on exterior quality coatings. Our customers include many of China’s largest residential real estate developers who insist on high product quality and easy access to Hempel’s comprehensive technical service and knowhow.

Saving the stripes at Beachy Head lighthouse At 45 metres high and made of 3,660 tonnes of Cornish granite, Beachy Head Lighthouse, standing off the coast near Eastbourne in the UK, has been a famous landmark since 1834. It was painted with distinctive red and white bands in 1980. But the lighthouse owners, Trinity House, decided that because mariners now rely on electronic navigational aids, maintaining the red and white striped lighthouse was no longer critical, or affordable.

Local enthusiasts launched a campaign to keep its stripes in late 2011, and this was brought to the attention of Crown Paints and Hempel by Brewers, the UK’s largest independent decorators’ merchant and one of Crown Paints’ biggest customers.

Crown Paints and Hempel will work together to provide all the specialist coatings required to repaint the lighthouse. With extensive experience providing decorative and protective coatings, Hempel and Crown Paints are ideal suppliers for this renowned maritime landmark.

Passion for Colour in the Middle EastTo strengthen Decorative’s strong foothold in the Middle East, we launched a new identity in 2011 called Passion for Colour. The new identity will help differentiate Decorative from our Marine and Protective segments and strengthen our competitiveness as an established and innovative decorative coatings company.

The new visual identity will be rolled out in March 2012, with new signage and bright, modern interiors for all 120 retail showrooms in the Middle East region. The new identity will also see new packaging for the Decorative product ranges available in the region.

A comprehensive redesign process, Passion for Colour does not stop at the showroom door – it includes offering customers our expert knowledge to help them make the best colour choices. To support this, we have offered extensive colour training to our sales staff and external partners such as interior designers and architects to instruct them in the use and matching of colours.

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All over the world, our products protect man-made structures, including road bridges, power stations and wind turbines,

from the harmful effects of corrosion.

Performance 2011

The first half of 2011 saw careful optimism in the global market for protective coatings. In particular, Asia Pacific and other emerging growth markets appeared to be influenced by a brighter global economy. But with an increasing reluctance to invest, the situation changed in the second half of the year. Growth in the established markets became limited or negative, while the newer markets showed growth rates that were lower than expected.

Overall, however, Protective’s double-digit revenue growth out-performed the market, according to our One Hempel – One Ambition strategic goals. This was mainly fuelled by the segment’s performance in the Americas, China and the Middle East, but also generally positive developments in Europe, especially Russia. The Protective segment accounts for almost 40 per cent of the Group’s total revenue.

Protective: protecting customers’ investments


Oil and Gas Centre of Excellence To meet the unique challenges of the Oil and Gas industry, we opened a Global Centre of Excellence in Houston, Texas, USA. The new centre brings our technical consultants and Oil and Gas specialists closer to the industry’s major players, most of whom have their global headquarters in Houston.

Kunal Nadkarni, Hempel’s Group Oil and Gas Manager, explains, “One of the pillars of Hempel’s global Oil and Gas strategy is to be close to our customers. With this Centre of Excellence, we are bringing our technical expertise and market knowledge right to the doorstep of many of the world’s biggest players. We now have all the capabilities and agility we need to serve our customers to the best possible level.”

Hempel delivers coating solutions to the offshore market, as well as refineries, LNG, petrochemicals, storage tank terminals, transmission pipelines, deepwater exploration, unconventional gas, and oil sands.

Hempel gains Shell vendor approval Following the completion of a demanding prequalification programme, Hempel has become an approved vendor of protective coatings to the Shell Group. The approval applies to Shell’s global offshore and onshore facilities, and encompasses more than 40 Hempel systems that cover the vast majority of Oil and Gas applications, from FPSO hulls, LPG spheres and bullets to storage tanks.

With operations in more than 90 countries, Shell is behind some of the most impressive Oil and Gas projects currently under way, including the Prelude FLNG (the first floating liquefaction facility), the Athabasca Oil Sands (making synthetic crude oil from oil sands) and the Pearl GTL (the world’s largest plant to convert natural gas into liquid fuels).

A major factor in the prequalification success was the ongoing teamwork across borders and departments at Hempel, which is a cornerstone of our One Hempel – One Ambition strategy. This teamwork will continue as we look to add to our portfolio of approvals from other major companies within Oil and Gas and other industries.

Strengthening our global capabilitiesCross-border cooperation is an important component of the One Hempel – One Ambition strategy. Our Multinational Coordination (MCO) team, who focus on large complex multinational projects, was further strengthened in 2011. During the year, the MCO team provided support to our sales teams across the world and contributed to many different projects.

But with literally hundreds of projects requiring some degree of cross-border coordination every year, local Hempel sales teams regularly cooperate with their colleagues in other countries. A contract to supply 70,000 litres of coatings to the Tembusu Multi-Utilities Complex on Singapore’s Jurong Island is just one example of recent cross-border coordination.

A joint effort between Hempel Singapore and Hempel China, this cross-border solution required close cooperation. Hempel Singapore is supplying paint for the complex’s seawater intake facility, pipe and rack utilities, a piping reticulation system and tanks. Hempel China’s Qingdao office is supplying primer for the tanks and over 45,000 litres for the turbine generator structure.

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From large crude oil carriers to river-bound barges, almost every type of marine vessel uses Hempel products. Comprehensive technical service and training support our

extensive range of coatings, including the award-winning HEMPASIL X3 and all-purpose HEMPADUR Quattro.

Performance 2011

The marine coatings market was once again affected by the uncertainty in the global economy. Many newbuilding projects were delayed or cancelled, and more vessels were taken out of service. By the end of 2011, the number of newbuilding orders globally had fallen to 2006 levels. Our performance reflected the reduced output from yards to a certain degree, with newbuilding revenue falling slightly.

The shipping industry in general was affected by low freight rates throughout the year. One bright point was the total volume in the global marine transportation industry, which grew by more than five per cent. This had a positive effect on our maintenance revenue, which fully counter-balanced the drop in newbuilding.

Asia, the Americas, the Middle East and central Europe performed relatively strongly in our Marine segment, and Russia showed encouraging signs.

Marine: products and service for the marine industry


HEMPADUR EM 35740 protects against corrosion at seaFor ship owners and crews, monitoring and controlling corrosion while at sea is an on-going process. Ballast tanks in particular require close attention, as corrosion in the ballast tank can lead to structural failure and expensive drydock repair. Yet when they carry out their maintenance work, ship crews are usually faced with limited time and difficult conditions. So they need maintenance products that are easy to use and readily available.

Brought to market in 2011, HEMPADUR EM 35740 is specially developed to simplify on-board maintenance procedures in the narrow, confined spaces of ballast tanks. It is ideal for keeping the ballast tank coating in “GOOD” condition, as defined by the IMO guidelines for maintenance and repair of ballast tank coatings.

The product’s use extends beyond the confines of a ballast tank and can be applied on any corrosion spots. Low on volatile organic compounds, it can be safely applied in humid conditions and on marginally prepared or hard-to-reach surfaces, and its short drying time means that the treated areas can be quickly re-immersed and put back in service.

Fuel savings justify newbuild to drydock decisionWhen the United Arab Shipping Company (UASC) ordered nine of the world’s largest container vessels from Samsung’s newbuilding yard in Korea in 2011, the yard was contractually obligated to apply a conventional antifouling. However, in an effort to increase fuel savings, lower CO2 emissions and reduce maintenance costs, UASC wanted a more advanced antifouling solution. And its choice fell on the HEMPASIL X3 system – Hempel’s fully integrated, third generation fouling control solution.

By the beginning of 2012, two vessels had already sailed from the Korean shipyard directly to drydock in China, where the HEMPASIL X3 system is applied. Moving the newbuilds immediately to drydock may seem like a drastic step, but the return on investment and potential fuel savings completely justifies the application of the HEMAPSIL X3 system. Compared to similar vessels with conventional antifouling, UASC can expect an average fuel savings per vessel of two per cent over the 60-month drydock cycle, resulting in savings of approximately USD 4 million and a reduction in approximately 17,500 tonnes of CO2.

Mining giant looks to reduce CO2 emissionsHempel signed a contract in June 2011 with Brazilian mining giant Vale, the world’s largest iron ore producer, to supply coatings for a five-vessel conversion project. The vessels will be converted from Very Large Crude Carriers (VLCCs) to Very Large Ore Carriers (VLOCs) at the Yulian Shipyard in China.

The contract for the delivery of HEMPASIL X3, HEMPASIL NEXUS X-TEND – a special tiecoat for repair and touch-up – and advanced tin-free antifoulings is helping Vale reduce its vessel maintenance costs, fuel consumption and green house gas and biocide emissions.

“The shipping industry is facing increasing pressure from governments and legislative authorities to reduce greenhouse gas emissions,” says Torben Rasmussen, Group Product Manager at Hempel. “In response, many shipowners have set their own environmental targets in an effort to reduce CO2 emissions. But finding effective ways to meet these targets can be a challenge, and that’s where Hempel’s complete fouling control concept can help.”

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We are one of the leading suppliers of coating solutions to the container industry,

with most of our activity concentrated in the Asia Pacific region, particularly China.

Performance 2011

The market for container coatings followed the same trends as the global economy in 2011. With an increase of more than 2 million TEU (twenty-foot equivalent units) in the first half of the year, there were grounds for optimism, which resulted in an estimate of more than 4 million TEU for the year. However, the second half of the year slowed considerably. But despite recent estimates indicating a total for the year of 3.7 million TEU, this is significantly higher than the 2.9 million TEU achieved in 2010. This contributed to overall growth in Container of 18 per cent compared with 2010.

Container: advanced solutions for the container industry


Yacht: a full portfolio of products for sailing enthusiasts

Our Yacht segment covers all types of pleasure and racing boats, from small motor boats

to large racing yachts.

Performance 2011

Yacht grew in 2011, mainly due to the performance in Europe. In Northern Europe, our yacht maintenance business is showing signs of stabilisation. The Southern Europe market showed significant uncertainty and continued its slight negative trend in 2011. The coatings market for new yachts is still weak throughout Europe, primarily due to bankruptcies and boatyard closures.

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A solid R&D strategy is playing its part in Hempel’s global growth.

Research and Development received a significant boost in 2011. David Deters joined Hempel as Group Vice President – R&D in August 2011. This lead to the introduction of a new strategy and new organisation which were better aligned to support the Group’s strategic goals as set by One Hempel – One Ambition.

We continued developing innovative technologies across all our segments in 2011, with 16 new solutions delivered during the year. Two areas received special attention: waterborne solutions for containers and fouling release products. Our waterborne solutions for containers reduce volatile organic compound emissions by up to 90 per cent compared with solvent equivalents and deliver significant long-term savings. And our biocide-free fouling release product portfolio is designed to reduce fuel consumption, lower CO2 emissions, and reduce the amount of solvents released into the marine environment.

Closer to the customerBut Hempel R&D is not just about developing products. We are a customer-focused organisation that listens to the needs of the market. During 2011, our R&D staff made more than 400 customer visits – that’s more than one visit every day of the year – which help us to improve continually our understanding of customers’ requirements. With 10 R&D facilities located around the world, the weight of our development work is performed by people who understand local conditions, speak the local language and are part of the local culture.

And, as we get closer to our customers, we’re growing fast. In 2011, we opened laboratories in France for the Protective segment, expanded Protective’s R&D work in the US, gained significantly more technical expertise in the Decorative segment, and expanded in Spain.

With the expansion of our advanced R&D centre in Spain, we intensified our focus on fire prevention technologies. Demand for intumescent coatings is increasing, and we are leading the way in developing a range of highly competitive intumescent coatings and protective systems to give our customers more integrated solutions.

In addition to developing solutions that are based on our customers’ various needs, our work also involves constantly looking for new ways to optimise costs and increase efficiencies. For example, we collaborate with procurement to optimise our use of raw materials through tracing, testing and approval.

R&D gets close to the business

17Annual Report 2011


In 2011 we started implementing our new strategy One Hempel – One Ambition, and despite the ongoing economic turmoil worldwide and the drastic increase in raw material prices, we believe that our 2015 goals are still realistic, even if ambitious. We still have the capacity to further develop and improve the solutions and services we offer to our customers.

We need to adjust our path to account for these changes in external factors, as we do not expect them to dramatically improve in the coming year. Therefore, we have to become more efficient and work faster on new solutions that will create more value for our customers.

Hempel’s performanceWe were unable to mitigate the impact of the steep increase in raw material costs quickly enough, and this resulted in a decline in our financial performance. Achieving an EBITDA of 10 per cent, under these conditions, is not in line with our initial expectations, but our performance demonstrates Hempel’s new capacity of resilience.

However, we have chosen not to compromise our middle term objectives, by maintaining the level of investments planned to strengthen our organisation’s professionalism. 2011 was the year of the highest investment level for Hempel, with more than EUR 200 million invested in strategic projects. This is a clear indication of our continuing belief in a strong future for Hempel.

CEO statement:

A strong capacity of resilience“It is essential

to find the right balance between the growth

and earnings and critical to follow our plan of investments

in people and the business.”


One Hempel – One Ambition One of our most important and successful moves in 2011 was the acquisition of Crown Paints, one of the strongest decorative brands in the UK. This was a key milestone in our strategic plan as Crown Paints is a perfect fit in all aspects. The integration between Hempel and Crown Paints has been a great success and it will ensure the Group improves significantly in the Decorative segment.

I want to take this opportunity to thank all our new colleagues from Crown Paints for their loyalty, their trust in the new owner, their dedication, and their hard work.

As planned, we have inaugurated our new factory in Argentina. This will present many new opportunities to our strong team in South America, who have proven all these years the value of the Hempel brand.

Thanks to the strengthening of competencies in R&D, Production and Engineering, Supply Chain and key positions in the Asia Pacific region, the Hempel Group is well positioned to be a company that in a few years will be significantly larger than today.

The futureIt is essential to find the right balance between the growth and earnings and critical to follow our plan of investments in people and the business. This will be the main focus for 2012.

This involves everybody through sales pricing policy, formulations and solutions delivering quality service and by proving every day that we are a reliable and trustworthy partner.

We will continue our expansion plans. Investing in new manufacturing facilities in Russia, Saudi Arabia (our second in the country), Argentina and India; strengthening of our activity in Africa, following the establishment of a South African company, and in Brazil; and launching our new Joint Venture in Oman are the immediate focus areas. We are continuously open to new opportunities – either organic or acquisition – that support our ambitions in the Decorative, Protective or Marine segments.

Despite a difficult 2011, I am convinced that we have the willingness, the capabilities and the courage, to realise the Hempel Group’s true potential for the benefit of our customers and stakeholders all over the world.

I would like to extend my warmest thanks to everyone at Hempel for their efforts, and to the members of the Board of Directors of Hempel A/S and the Board of the Hempel Foundation who have shown their trust and confidence in everyone at Hempel by approving the Group’s biggest-ever investment: Crown Paints.

Finally, I want to express my gratitude to all our customers, business partners and other stakeholders, who, while remaining loyal, have challenged us and helped us to stay the course of our 2015 journey.

Pierre-Yves Jullien Group President and CEO

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Hempel – world-leading coatings supplier for decorative, protective, marine, container and yacht markets.

Hempel coatings help enhance and protect our customers’ valuable assets, from wind turbines, bridges and infrastructure, to ships, power stations and homes. With a strong focus on R&D, advanced production techniques and professional coating advice, we work around the globe to help keep our customers’ investments safe, attractive and corrosion-free for longer.

Low in solvents and biocides, big on value and sustainability, our high-performance waterborne coatings help customers hit their environmental targets; and our advanced marine coatings can help shipping companies save fuel and reduce the carbon footprint of their ocean-going vessels.

And, with our stronger decorative capabilities, we also offer a broader portfolio of high-performance, low-solvent decorative coatings, so homeowners can bring colour to their homes safely.

Hempel’s more than 5,000 employees live and work in more than 80 countries around the world. And, with 24 factories, 48 sales offices and more than 150 stock points, we make sure our customers enjoy great service wherever they are.

About Hempel


The main purpose of the Hempel Foundation is to own, secure and provide a sound economic basis for the

continued existence and development of the business carried out by the Hempel Group worldwide.

The Hempel Foundation also supports charitable projects of a cultural, humanitarian and scientific nature around the world, especially if they help meet the world’s environmental and poverty challenges. To make this contribution as effective as possible, the Foundation focuses on two key issues: the education of children in need, and research into environmentally sustainable solutions for the coating industry.

You can read about other Hempel Foundation projects at www.hempelfoundation.com and in the Hempel Corporate Responsibility Report 2011.

Viggo Kragh-Hansen’s portrait of J.C. Hempel,

currently on display in the foyer of Hempel’s head office, Denmark.

The Hempel Foundation

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The Hempel Group is committed to conducting business in a socially responsible manner and with respect for the

environment. Our goal is to create a safe and inspiring workplace that also engages with the local community.

Our Corporate Responsibility work aims to foster a closer dialogue with our stakeholders, customers, suppliers and employees. By discussing our ambitions within Corporate Responsibility, we hope to build even stronger relationships based on exceptional business practices and ethics.

Our efforts in Corporate Responsibility cover all aspects of our business and are structured according to six focus areas: ethical behaviour, our people, community engagement, procurement, health and safety and the environment.

Hempel’s consolidated Corporate Responsibility report for 2011 highlights the values behind

our business and gives employees, customers and suppliers an opportunity to learn more about

our approach to Corporate Responsibility. You can download the report at www.hempel.com

Corporate Responsibility


Ethical behaviourConducting business in a responsible manner, with respect for our individual employees and the communities in which we operate, has always been a priority for Hempel.

Our Code of Conduct and other policies make certain our ethics standards are met in all areas of our business, and we ensure compliance with all relevant laws and regulations in the countries where we operate through our training programmes and internal audits.

Our peopleSuccess in our competitive global market hinges on providing an attractive work environment that enables our people to grow professionally while making a difference for our customers. We attract and retain the right people through our talent, leadership and training programmes and our performance reviews. These initiatives support our 5,000 employees as they realise their professional goals and reach their full potential.

Community engagementThrough the Hempel Foundation, we support cultural and humanitarian projects around the world, with a specific focus on the education of children in need. These education initiatives give disadvantaged children a chance to build a better future for themselves, their families and their communities.

We also encourage our employees to volunteer their time to the causes that mean the most to them. Volunteering not only helps out people in need, it is also a unique learning opportunity that fosters personal development and contributes to greater social awareness.

ProcurementEach Hempel product is made from raw materials sourced from around the globe through multiple suppliers. As we work with key raw material suppliers to develop and produce high quality products, we also strive to foster solid relationships built on outstanding business practices and similar business ethics.

Health & safetyHempel is committed to the health and safety of our employees and customers. Our Group Health, Safety and Environmental policy along with our training programmes establish a solid framework that enables us to improve working conditions and reduce the risk of accidents and incidents. We also promote the use of safer materials when developing new products and we are ahead of schedule in our efforts to implement a new international standard for safety labels on all products.

Environment At Hempel, we take responsibility for protecting the environment by complying with all relevant laws and regulations in the countries where we operate. We are always working to further improve our environmental performance, which is closely monitored by our Group Health, Safety and Environmental management system. We also we make every effort to optimise our resources through recycling and reduced consumption.

Through new innovations, Hempel’s R&D strives to meet our customers’ increasing demand for energy-efficient products that incorporate sustainable technologies. The Hempel Foundation also supports research into sustainable technologies.

23


Executive Group Management Team (EGMT)

Pierre-Yves JullienGroup President and CEO

Kim Junge AndersenGroup Executive Vice President and CFO

Jacob GulmannGroup Vice President, Europe

Peter KirkegaardGroup Vice President, HR, Communication and Compliance

Markus BurriGroup Vice President, Asia-Pacific

David DetersGroup Vice President, Research & Development

Group Management Team (GMT)

Lars JohansenGroup Vice President, Americas

Mark ReesGroup Vice President, Middle East East

Karsten PedersenGroup Vice President, Middle East West

Jesper BødtkjerGroup Vice President, IT

Klaus MøllerGroup Vice President, Marketing & Business Development

Joe Devitt CEO, Crown Paints

Plus members of the EGMT

Functional Management Team (FMT)

Gruska F. MusaeusGroup Compliance Management Director

Tom FrobergGroup General Counsel

Arne Bachmann OlesenGroup Procurement Director

Malte V. EggersGroup Communication Director

Michael Steen PetersenGroup Production and Engineering Director

Lillian B. StephensenGroup Tax Director

Alain GuntherGroup Treasury Director

Josep PalasiGroup Technology & Innovation Director

Martin Engelmand OlsenGroup Reporting Director

Lars ØsterbyGroup Decorative Director

Bente MølgaardGroup CSR Director

Umesh Chandra Singh Regional Director, South Asia

Plus the members of the EGMT and GMT

Richard Sand Chairman

Lars Aaen Vice Chairman

Ulf Lennart Holm

Leif Jensen

Anders Pettersson

Peder Holk Nielsen

Mads Juhl Employee Representative

Louise Krüger Kofoed Employee Representative

Henrik Bach Falkenberg Employee Representative

Hempel’s management teamsThe company has three main management teams: the Executive Group Management Team (EGMT), the Group Management Team (GMT) and the Functional Management Team (FMT). Here are the members and positions of each team member.

Board of Directors of Hempel A/S


Our One Hempel – One Ambition strategy established firm financial targets for 2015. A priority of this strategy was to ensure a powerful platform for our Decorative segment, and an important goal was to acquire a company with strong local presence and the right skills within R&D and retail sales of decorative coatings. We achieved this in early June 2011 when Hempel acquired 100 per cent of the shares in Crown Paints Group Ltd.

Hempel’s revenue grew by 21 per cent in 2011 compared with 2010. This growth was mainly due to the revenue gained following the strategic acquisition of Crown Paints. Excluding Crown Paints, Hempel’s revenue increased by seven per cent, largely because of strong growth in markets outside Europe.

Total revenues increased to EUR 1,077 million in 2011 from EUR 889 million in the previous year. The revenue generated by Crown Paints more than doubled Hempel’s revenue in the Decorative segment.

Raw material prices continued their rise throughout 2011 and put pressure on Hempel’s gross profit margins. Therefore, the key focus for 2012 is to restore profitability to acceptable levels through further efficiency projects and price increases.

The Hempel Group returned an operating profit of EUR 72 million, down from EUR 92 million in 2010. Major investments and new activities were launched during 2011 and this will continue through 2012 to support our strategic growth plans in the coming years.

The number of employees in the Hempel Group now exceeds 5,000, an increase of approximately 1400 since the end of 2010, primarily due to the acquisition of Crown Paints in 2011. Excluding Crown Paints, Hempel gained 73 new employees in 2011.

Performance 2011

25


The following financial data show a condensed release of the Danish statutory consolidated financial statements

of Hempel A/S for the year ended 31 December 2011 audited by PricewaterhouseCoopers.

Hempel’s consolidated financial statements have been significantly affected by the acquisition of Crown Paints Group Ltd. in 2011, which has been fully consolidated into the consolidated Hempel accounts as of June 2011. During 2011, Hempel has also established subsidiaries in South Africa and Ukraine.

The Hempel consolidated statements consist of financial statements of Hempel A/S and all the companies in which Hempel A/S directly or indirectly has either a controlling interest (subsidiaries) or a significant influence on the operational and financial management (associates).

Introduction to the 2011 financial results


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Key figures 2011

Net profit after tax (€ million)excluding non-recurring items

Net profit after tax (€ million)

External sales (million litres)External sales (€ million)

Employees

27


Group

EUR ‘000 2011 2010

NET SALES 1,077,324 889,144

Cost of goods sold, incl. production costs 707,959 569,442

GROSS PROFIT 369,365 319,702

Sales and distribution expenses 212,526 163,400

Administration expenses 85,338 64,691

OPERATING PROFIT 71,501 91,611

Part of net profit in associated companies 2,534 2,359

PROFIT BEFORE FINANCIAL ITEMS 74,035 93,970

Financial items, net 12,951 7,184

PROFIT BEFORE TAXES 61,084 86,786

Income taxes 18,251 25,756

NET PROFIT FOR THE YEAR 42,833 61,030

External shareholders 7,987 8,154

HEMPEL NET PROFIT FOR THE YEAR 34,846 52,876

Profit and Loss account

Annual Report 201128

Group

EUR ‘000 2011 2010

FIXED ASSETS

Goodwill 68,232 24,624

Software 5,002 2,332

Software under development 5,762 6,007

Customer relationships 49,834 21,737

Other intangible assets 47,683 7,202

Intangible fixed assets 176,513 61,902

Land and buildings 127,833 95,218

Technical plant and machinery 40,493 29,451

Other tangible assets 15,585 9,082

Tangible fixed assets 183,911 133,751

Deferred tax assets 10,108 6,185

Other financial fixed assets 19,104 12,947

Financial fixed assets 29,212 19,132

TOTAL FIXED ASSETS 389,636 214,785

Balance sheet as at 31.12.11 – Assets

29


Group

EUR ‘000 2011 2010

CURRENT ASSETS

Raw materials and consumables 63,664 59,982

Work in progress 2,464 1,198

Finished goods and commercial goods 118,260 92,749

Inventories 184,388 153,929

Trade receivables 341,799 283,706

Tax receivable 3,715 3,548

Other receivables 27,565 29,886

Prepayments 10,103 4,782

Receivables 383,182 321,922

Bonds 0 31

Cash at bank and on hand 106,288 72,764

TOTAL CURRENT ASSETS 673,858 548,646

TOTAL ASSETS 1,063,494 763,431

Balance sheet as at 31.12.11 – Assets (continued)


Group

EUR ‘000 2011 2010

SHAREHOLDER’S EQUITY

Share capital 15,468 15,426

Retained earnings 311,385 300,842

TOTAL SHAREHOLDER’S EQUITY 326,853 316,268

EXTERNAL SHAREHOLDERS 37,005 32,561

PROVISIONS

Deferred taxes 28,602 6,964

Pension obligations 10,066 10,008

Other provisions 34,592 28,454

TOTAL PROVISIONS 73,260 45,426

LONG-TERM LIABILITIES

Bank loans 223,781 67,725

Other long-term liabilities 7,990 1,122

TOTAL LONG-TERM LIABILITIES 231,771 68,847

CURRENT LIABILITIES

Bank loans 100,629 70,082

Short-term part of mortgage and other loans 34,798 22,370

Short-term derivative instruments 1,107 0

Trade payables 142,806 115,448

Tax payable 10,316 10,560

Other current liabilities 104,949 81,869

TOTAL CURRENT LIABILITIES 394,605 300,329

TOTAL LIABILITIES 626,376 369,176

TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES 1,063,494 763,431

Balance sheet as at 31.12.11 – Liabilities and shareholder’s equity

31


Country Name Sales Production Others Holding

Argentina Hempel Argentina S.R.L. x x2 100%

Australia Hempel (Australia) Pty. Ltd. x 100%

Bahrain Hempel Paints (Bahrain) W.L.L. x x 51%

Bahrain Dahna Paint Middle East Holding B.S.C. (Closed) x 51%

Belgium Hempel (Belgium) N.V. x 100%

Brazil Hempel Tintas do Brasil Ltda. x1 100%

Canada Hempel (Canada) Inc. x 100%

Chile Hempel A/S (Chile) Ltda. x 100%

China Hempel (Kunshan) Coatings Co. Ltd. x x 100%

China Hempel (Yantai) Coatings Co. Ltd. x x 100%

China Hempel (Guangzhou) Coatings Co. Ltd. x x 100%

China Hempel-Hai Hong Coatings (Shenzhen) Co. Ltd. x3 x 100%

China Hempel (Seagull) Coatings Co. Ltd. x 100%

China, Hong Kong Hempel (China) Limited x 100%

Croatia Hempel Coatings (Croatia) Ltd. x x 98%

Cyprus Hempel (Cyprus) Ltd. x 100%

Cyprus Hempel Coatings (Cyprus) Limited x1 100%

Czech Republic Hempel (Czech Republic) s.r.o. x 100%

Denmark Hempel A/S x x 100%

Denmark Hempel Decorative Paints A/S x1 100%

Denmark Hempel Properties A/S x1 100%

Denmark HSA (Danmark) A/S x 100%

Ecuador Hempel (Ecuador) S.A. x 100%

Egypt Hempel Egypt L.L.C. x 100%

Finland OY Hempel (Finland) AB x 100%

France Hempel (France) S.A. x x 100%

Germany Hempel (Germany) GmbH x 100%

Greece Hempel Coatings (Hellas) S.A. x 100%

India Hempel Paints (India) Pvt. Ltd. x x 100%

Indonesia P.T. Hempel Indonesia x x 100%

Ireland Crown Paints Ireland Ltd. x5 100%

Ireland Hempel (Ireland) Ltd. x 100%

Italy Hempel (Italy) s.r.l. x 100%

Korea Hempel Korea Co. Ltd. x 100%

Kuwait Hempel Paints (Kuwait) K. S. C. C x x 51%

Malaysia Hempel (Malaysia) Sdn. Bhd. x 100%

Malaysia Hempel Manufacturing (Malaysia) Sdn. Bhd. x 100%

Malta Hempel (Malta) Ltd. x x 65%

Malta Hempel (Malta) Marketing Ltd. x 65%

Country Name Sales Production Others Holding

Mexico Hempel (Mexico) S.A. de C.V. x 100%

Mexico Pinturas Hempel de Mexico S.A. de C.V. x 100%

Morocco Hempel (Morocco) SARL x 99%

Norway Hempel (Norway) AS x 100%

Poland Hempel (Poland) Sp. z o.o. x 100%

Poland Hempel Manufacturing (Poland) Sp. z o.o. x 100%

Portugal Hempel (Portugal) Lda. x x 100%

Qatar Hempel Paints (Qatar) W.L.L. x x 29%

Republic of South Africa Hempel Paints (South Africa) Pty Ltd x1 100%

Romania Hempel (Romania) S.R.L. x 100%

Russia ZAO Hempel x 100%

Saudi Arabia Hempel Paints (Saudi Arabia) W.L.L. x x 51%

Saudi Arabia Saudi Arabian Packaging Industry W.L.L. x4 18%

Singapore Hempel (Singapore) Pte. Ltd. x x 100%

Spain Pinturas Hempel S.A. (Spain) x x 100%

Sweden Hempel (Sweden) AB x 100%

Syria Hempel Paints (Syria) L.L.C. x x 49%

Taiwan Hempel (Taiwan) Co. Ltd. x 100%

Thailand Hempel (Thailand) Ltd. x 100%

The Netherlands Hempel (The Netherlands) B.V. x 100%

Turkey Hempel Coatings San. Ve Tic Ltd. Sti. x 100%

Ukraine Hempel Ukraina LLC x1 100%

United Arab Emirates Hempel Paints (Abu Dhabi) L.L.C. x 23%

United Arab Emirates Hempel Paints (Emirates) L.L.C. x x 29%

United Arab Emirates Sapin United Arab Emirates L.L.C. x4 18%

United Kingdom Crown Brands Ltd. x5 100%

United Kingdom Crown Darwen Ltd. x5 100%

United Kingdom Crown Decorative Production Ltd. x5 100%

United Kingdom Crown Paints Ltd. x5 x5 100%

United Kingdom Grown Paints Group Ltd. x5 100%

United Kingdom Crown Paints Holding Ltd. x5 100%

United Kingdom Donald Macpherson And Company Ltd. x5 100%

United Kingdom Hempel Decorative Paints UK Ltd x1 100%

United Kingdom Hempel UK Ltd. x 100%

United Kingdom Reebor Ltd. x5 50%

Uruguay Hempel (Uruguay) S.A. x 100%

USA Hempel (USA) Inc. x x 100%

Vietnam Hempel Vietnam Company Limited x x 100%

1 Started operations in year 2011. 2 Under construction and plan to commence operations in year 2012. 3 Ceased operations in year 2011. 4 Associated company. 5 Acquired in 2011.

List of subsidiaries

Annual Report 201132

HEMPEL A/S Lundtoftevej 150 DK - 2800 Kgs. Lyngby Denmark

Tel: +45 4593 3800 Fax: +45 4588 5518 E-mail: [email protected] www.hempel.com

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