Chairman’s statement

Dear stakeholder,

Akzo Nobel’s roots can be traced back as far as 1777 and there have been many milestones along the way which have helped our business to continuously develop and evolve. But there can be no doubt that 2007 will be remembered as one of the most momentous – and exciting – years in the long history of our company.

In the space of 12 months, we completed a strategic transformation which dramatically changed the focus of our operations. It began with the divestment of our pharmaceutical activities (Organon BioSciences) to Schering-Plough for EUR 11 billion. This was finalized in November 2007, and while it marked the end of an era for the company, it made sound business sense. This was followed by the acquisition of Imperial Chemical Industries plc (ICI), a deal which closed on January 2, 2008, and opened an historic new chapter for us all. I must admit that these major developments rather put the relocation of our corporate headquarters to Amsterdam in the Netherlands in the shade, which in itself was still an important event.

These major transactions transformed Akzo Nobel from a conglomerate into a focused industrial force; a true global leader in coatings and specialty chemicals. We have brought together two great companies with proud histories of sustained achievement. Together, our combined global presence, technologies, products, brands, and expertise will help our customers, and Akzo Nobel, to become even more successful. Through an on sale of certain ICI assets to Henkel AG, we expect the acquisition to be value enhancing within three years. This is fully in line with our strategic goal of medium-term value creation. The deal has also enabled the company to commit to a share buyback program totaling EUR 4.6 billion, with EUR 1.6 billion of that amount having already been repurchased during 2007.

Global leader

Akzo Nobel is the new global leader in decorative paints – in addition to already being the world’s largest industrial coatings manufacturer. We significantly strengthened our presence in China, India, Brazil, and other emerging markets in Asia Pacific and Latin America. Increasing our presence in these markets has long been one of the company’s strategic priorities and while we have made steady progress over recent years, the acquisition of ICI has elevated Akzo Nobel into key leadership positions in a number of attractive regions. The acquisition of ICI also gives us a leading position in North America, the world’s largest market for decorative coatings. Our Chemicals portfolio has been enhanced as well, following the addition of ICI’s Specialty Polymers and Regional and Industrial businesses. We now have a strong, well balanced specialty chemicals organization which is well positioned to exploit opportunities for growth and build on its worldwide leadership positions. We have created a strong platform for future growth and our scale and expertise will allow us to build strategic relationships with leading raw material producers and to invest in new technologies to meet the increasing challenges of higher performance and sustainability. Attracting talented, ambitious, and dynamic individuals from all over the world to our exciting new company will be another key factor as we move forward into the future.

Increased dividend

Of course, it’s only natural for shareholders to ask how we can best illustrate our confidence in the future of the new Akzo Nobel. The answer is simple. By announcing, as we did, our intention to raise future dividend payments, realizing a payout ratio of 45 percent of net income and before the fair value adjustment charge in respect of the ICI acquisition. This increased payout ratio, together with a cash return during the year by way of a share buyback, has allowed our shareholders to benefit from the strategic transformation of the company. Our Total Shareholder Return for the last three years was 96 percent, elevating the company from ninth position, in 2006, to fifth in its peer group in 2007.

Operational performance

I am proud of the fact that during a period of so much strategic activity, our employees kept their eye on the ball. This commitment to successful daily operations is underlined in the graphs above, which illustrate a very satisfying performance throughout our portfolio, both in top and bottom line. I am also very pleased with the impressive results of our specialty chemicals businesses – which delivered an unprecedented 22 percent moving average ROI. Indeed, the success of our Chemicals operations is very significant. Following an extensive realignment of the portfolio, the five growth platforms we established have performed extremely well. The focus has clearly shifted away from streamlining our activities and we are now concentrating on investing in expansion opportunities. I would also like to mention the significant improvement achieved by our Decorative Coatings activities, which – together with the excellent results at Marine & Protective Coatings – was one of the main drivers behind the overall bottom line improvement within the Coatings business. Given the ongoing consolidation in the coatings industry, our increased scale and solid financial footing bodes well as we look to further consolidate our leadership status.

New Akzo Nobel

It goes without saying that our strategic agenda, which accelerated greatly during 2007, has an impact on all areas of the organization. So as well as improving operationally, we have also been concentrating on other key areas in order to lay the foundations for the new Akzo Nobel. One of these is talent development. We have made major progress in rolling out our improved talent review system, with investments for management development programs having significantly increased in all regions. Furthermore, the coordination of Human Resource policies between our various businesses in key countries such as China has been significantly stepped up. A lot of time and effort has also been put into evaluating our corporate brand positioning and brand architecture in the context of our broader culture change program. You can expect to see the results of this extensive project rolled out during the course of 2008.

A sustainable future

We have also focused sharply on sustainability and social responsibility. For more than a decade now, Akzo Nobel has been at the forefront of investing in both of these vital business areas, long before it became more “fashionable”. A couple of years ago, we decided to become even more ambitious in measuring our performance in these areas and benchmarking ourselves against our peers. It was therefore a well deserved tribute to everyone in our company who has been seriously engaged in this field that in 2007 Akzo Nobel was ranked as the Chemicals sector leader on the prestigious Dow Jones Sustainability indexes. But it won’t stop there. We are determined to further accelerate our sustainability efforts because we are committed to excellence in all aspects of our global activities. Our success lies in the future, and Akzo Nobel is dedicated to continuing to identify sustainable solutions while building distinctive capabilities for customers and other stakeholders.

Building momentum

There are various signals which indicate that the macro economic conditions in 2008 will become more challenging. The ongoing pressure created by raw material prices, volatility in major currencies and a slowdown in overall growth in North America and Europe will make for a testing environment. However, we are confident that our strategic transformation has maneuvered the company into a position of strength. In the years to come we will deliver on our promise of outgrowing our markets and further improving the bottom line. Much of our energy during 2008 will be devoted to successfully integrating ICI’s businesses into our own organization and achieving the first round of synergies. We have dedicated teams in place working hard to ensure a fast and effective integration process, which is expected to realize annual cost synergies of around EUR 280 million by 2010. Our efforts are being channeled into building on the momentum we have already created and making sure that the enlarged Akzo Nobel delivers on the full potential that this combination offers.

It’s been an extremely eventful and exciting year and my colleagues on the Board of Management and I are extremely proud to be leading our talented and committed employees as we begin this new chapter in the history of Akzo Nobel. We have every confidence that the future will be both successful and full of opportunities.

Hans Wijers

CEO and Chairman of the Board of Management