Akzo Nobel N : AkzoNobel grows revenue 26% and delivers €335 million adjusted operating income

Q2

21

Bringing color and inspiration to Port Moresby

The surface of a bland concrete wall in Port Moresby, Papua New Guinea, has been brought to life thanks to one of our latest "Let's Colour" projects. The 100-meter-long wall was transformed into something far more colorful and inspiring with the help of 212 liters of our Taubmans paint. The work was carried out by 13 AkzoNobel volunteers, who teamed up with 25 young people we trained in the local community. The project involved creating a colorful mural full of modern, traditional and cultural motifs.

AkzoNobel  I  Report for the second quarter and half-year 2021 2

Our results at a glance

Highlights Q2 2021

•	Revenue 26% higher than Q2 2020 (up 8% from Q2 2019, in constant currencies1) with 4.5% price increase
•	Adjusted operating income at €335 million (ROS2 at 13.3%), 41% higher than Q2 2020 and up 10% from Q2 2019
•	€1 billion share buyback started April 27, 2021; €223 million completed by end of Q2 2021
•	Acquisition Colombia-based Grupo Orbis announced, expected to be completed by the end of 2021 or early 2022

Q2 2021 (compared with Q2 2020)

•	Revenue up 26% and 29% higher in constant currencies, with volumes up 26%, mainly due to strong end market demand. Price/mix
	up 1%, while acquisitions added 2%
•	Operating income up 86% at €384 million (2020: €207 million); OPI margin improved to 15.3% (2020: 10.4%)
•	Adjusted operating income up 41% at €335 million (2020: €238 million); excludes €49 million net positive impact from identified items,
	mainly related to Brazil ICMS and UK pension gains3 (2020: €31 million negative identified items related to transformation initiatives)
•	Net cash from operating activities at €168 million (2020: €308 million)
•	Net income from total operations up 102% at €261 million (2020: €129 million)
•	EPS from total operations up 106% at €1.40 (2020: €0.68); adjusted EPS from continuing operations up 50% at €1.20 (2020: €0.80)

Half-year (compared with half-year 2020)

•	Revenue up 18% and 23% higher in constant currencies, with volumes up 22%, mainly due to strong end market demand. Price/mix
	flat. Compared with the first half-year of 20191, revenue was up 9% in constant currencies
•	Operating income up 74% at €687 million (2020: €394 million); OPI margin improved to 14.4% (2020: 9.7%)
•	Adjusted operating income up 42% at €642 million (2020: €452 million) and excludes €45 million net positive impact from identified
	items, mainly related to Brazil ICMS and UK pension gains3 (2020: €58 million negative identified items related to transformation
	initiatives)
•	Net cash from operating activities at €137 million (2020: €148 million)
•	ROI increased to 19.3% (2020: 13.8%)

1. The 2019 comparatives are included in this report to allow for proper comparison in light of the COVID-19 impact in 2020.
2. ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.
3. Refer to page 4 for further information on the Brazil ICMS and UK pension identified items.

Outlook 2021

AkzoNobel targets to grow at least in line with its relevant markets. Trends differ per region and segment with significant raw material inflation expected to continue in the second half of 2021. Margin management and cost discipline are in place to deliver an average annual

50 basis points increase in return on sales over the period 2021-2023. The company targets

a leverage ratio of 1-2 times net debt/EBITDA and commits to retain a strong investment grade credit rating.

Summary of financial	outcomes
Second quarter							January-June
2020	2021		∆% in € millions / %	2020	2021		∆%
1,987		2,511		26%		Revenue		4,045		4,774		18%
297		469		58%		EBITDA1	574	857	49%
321		419		31%		Adjusted EBITDA1	623	810	30%
207		384		86%		Operating income	394	687	74%
(31)		49				Identified items1	(58)	45
238		335		41%		Adjusted operating income1	452	642	42%
10.4		15.3				OPI margin (%)1	9.7	14.4
12.0		13.3				ROS (%)1,2	11.2	13.4
						Average invested capital1		7,060		6,673		(5%)
						ROI (%)1	13.8	19.3
46		62		35% Capital expenditures	92	119	29%
						Net debt		1,683		1,857
						Leverage ratio (net debt/	1.4	1.2
						EBITDA)1
						Number of employees	33,200	32,800
308		168				Net cash from operating	148	137
						activities
129		261		102%		Net income attributable to	243	478	97%
						shareholders
190.7		187.0				Weighted average number of	192.3	187.9
						shares (in millions)
0.68		1.40		106%		Earnings per share from total	1.26	2.54	102%
						operations (in €)
0.80		1.20		50%		Adjusted earnings per share from	1.51	2.38	58%
						continuing operations (in €)1

• Alternative performance measures; please refer to reconciliation to the most directly comparable IFRS measures on pages 16 and 17.

• ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.

Alternative performance measures (APM)

AkzoNobel uses APM adjustments to the IFRS measures to provide supplementary information on the reporting of the underlying developments of the business. A reconciliation of the alternative performance measures to the most directly comparable IFRS measures can be found in the tables on pages 16 and 17.

AkzoNobel  I  Report for the second quarter and half-year 2021 3

Financial highlights

Revenue

Q2 2021

Revenue was up 26% and 29% higher in constant currencies (com- pared with Q2 2019: up 8% in constant currencies) due to strong end market demand. Volumes were up 26%. Price was up 4%, while mix was 3% lower overall, mainly due to geographic mix in Decorative Paints EMEA.

• Decorative Paints revenue increased 21% and was up 23% in constant currencies, driven by 22% higher volumes, mainly due to continued strong demand. Price was up 3%, while mix was 5% lower due to geographic mix in EMEA. Acquisitions added 3%
• Performance Coatings revenue was up 31% and increased 35% in constant currencies. Revenue was positively impacted by 30% higher volumes. Price was up 5%, while mix was 1% lower due to geographic and segment mix. Acquisitions added 1%
• Other activities revenue mainly includes service revenue

Half-year 2021

Revenue was up 18% and 23% higher in constant currencies (com- pared with the first half-year of 2019: up 9% in constant currencies) due to strong end market demand. Volumes were 22% higher. Price was up 3%, while mix was 3% lower overall due to geographic and segment mix.

• Decorative Paints revenue increased 22% and was up 26% in constant currencies, driven by 25% higher volumes, mainly due to continued strong demand. Price was up 3%, while mix was 4% lower, mainly due to geographic mix. Acquisitions added 2%
• Performance Coatings revenue was up 16% and increased 21% in constant currencies. Revenue was positively impacted by 20% higher volumes. Price was up 3%, while mix was 2% lower due to geographic and segment mix
• Other activities revenue mainly includes service revenue

Cost of sales

Raw material and other variable costs in the second quarter of 2021 increased €128 million, in addition to the impact of higher volumes, compared with the second quarter of 2020. The increase was mainly driven by raw material inflation which continued to intensify.

Acquisitions

On June 29, 2021, the intention to acquire Colombia-based paints and coatings company Grupo Orbis was announced. The acquisition is expected to be completed by the end of 2021 or early 2022.

Revenue development Q2 2021

		Increase		Decrease
30	26%		1%	2%	29%	-3%	26%
25

20Price: 4.5%

Mix: -3.1%

15

10

5

0

Volume	Price/	Acq./	Total	Exch.	Total
	mix	div.	in CC	rates

Revenue development half-year 2021

		Increase		Decrease
25	22%	-%	1%	23%	-5%
20
					18%

15Price: 3%

1. Mix: -3%

Volume	Price/	Acq./	Total	Exch.	Total
	mix	div.	in CC	rates

AkzoNobel around the world

Revenue by destination

	%			E
A North Asia	18		A
D
B South Asia Pacific	11
C EMEA	51			B
D North America	13
E South America	7
	100

C (Based on the full-year 2020)

Revenue

Second quarter																										January-June
									∆%																												∆%
2020		2021			∆%			CC* in € millions			2020					2021		∆%		CC*
899		1,086			21%			23%		Decorative Paints		1,653			2,016		22%			26%
1,086	1,423			31%			35%		Performance			2,381			2,755	16%		21%
											Coatings
2	2								Other activities			11					3
1,987	2,511			26%			29%	Total			4,045			4,774	18%		23%
	* Change excluding currency impact.
																		Price/										Exchange
	in % versus Q2 2020							Volume		mix					Acq./div.			rates				Total
	Decorative Paints					22			(2)		3					(2)			21
	Performance Coatings		30			4		1				(4)			31
	Total											26			1		2					(3)			26
																		Price/										Exchange
	in % versus year-to-date 2020						Volume		mix					Acq./div.			rates		Total
	Decorative Paints							25			(1)		2					(4)			22
	Performance Coatings		20			1							-			(5)			16
	Total											22			-	1					(5)			18
	Volume development per quarter
	(year-on-year) in %										Q2 20			Q3 20				Q4 20				Q1 21				Q2 21
	Decorative Paints					(10)			14	12					28					22
	Performance Coatings		(23)			(5)	1					10					30
	Total									(18)			3		6					16					26
	Price/mix development per
	quarter (year-on-year) in %							Q2 20			Q3 20				Q4 20				Q1 21				Q2 21
	Decorative Paints					4			(4)	2					1					(2)
	Performance Coatings							-	1					-					(2)					4
	Total									2			(1)	1					(1)					1
	Currency development per quarter
	(year-on-year) in %										Q2 20			Q3 20				Q4 20				Q1 21				Q2 21
	Decorative Paints					(4)			(7)	(10)					(8)					(2)
	Performance Coatings		(1)			(5)	(5)					(5)					(4)
	Total									(2)			(6)	(7)					(6)					(3)

AkzoNobel  I  Report for the second quarter and half-year 2021 4

Financial highlights

Q2 2021

Operating income

Operating income increased 86% to €384 million (2020: €207 million), driven by significantly higher volumes and one-off gains from identified items. OPI margin improved to 15.3% (2020: 10.4%).

• Decorative Paints performance improved mainly due to strong demand across all regions and one-off gains. Volumes up 22% compared with Q2 2020. OPI margin increased to 21.9% (2020: 18.8%)
• Performance Coatings operating income increased, mainly due to 30% higher volumes. OPI margin increased to 13.1% (2020: 8.2%)
• Other activities improved €11 million to €40 million negative (2020: €51 million negative), mainly resulting from lower negative identified items

Adjusted operating income

Adjusted operating income was 41% higher at €335 million (2020: €238 million) and excludes net positive identified items of €49 million (2020: €31 million negative identified items relating to transformation initiatives). ROS1 was up at 13.3% (2020: 12.0%).

Half-year 2021

Operating income

Operating income increased 74% to €687 million (2020: €394 million), driven by significant volume increases and one-off gains. OPI margin improved to 14.4% (2020: 9.7%).

• Decorative Paints performance improved mainly due to strong demand across all regions and one-off gains, with volumes up
  25% compared with Q2 2020. OPI margin was up at 19.1% (2020: 13.7%)
• Performance Coatings operating income increased, mainly due to 20% higher volumes. OPI margin improved to 13.8% (2020: 11.4%)
• Other activities improved €26 million to €78 million negative (2020: €104 million negative), mainly resulting from lower negative identified items

Adjusted operating income

Adjusted operating income was 42% higher at €642 million (2020: €452 million) and excludes net positive identified items of €45 million (2020: €58 million negative identified items, mainly relating to transformation initiatives). ROS1 was up at 13.4% (2020: 11.2%).

Net financing income/(expenses)

Net financing expenses decreased by €26 million, mainly due to one-off interest income from the Brazil ICMS case.

Income tax

The effective tax rate was 28.4% (2020: 29.1%). The decrease compared with previous year is mainly related to impairments of deferred tax assets in 2020. In 2021, the effective tax rate is impacted by the upcoming UK tax rate change from 19% to 25%. The change resulted in a one time tax charge of €18 million as a result of the remeasurement of (net) deferred tax liabilities which is included in identifieditems. Excluding identified items, the effective tax rate in 2021 was 25.1% (2020: 27.9%).

Net income

Net income attributable to shareholders was €478 million (2020: €243 million). Earnings per share from total operations increased to €2.54 (2020: €1.26), including the impact of share buyback programs.

Identified items: Brazil ICMS and UK pensions

Brazil state tax on goods and services (ICMS)

In May 2021, the Brazilian Supreme Court (STF) recognized the right to deduct state tax on goods and services (ICMS) from the calculation basis of the Social Integration Program-PIS (Programa de Integração Social) and the Financing of Social Security-COFINS (Contribuição para Financiamento da Seguridade Social).

This STF decision covers a multi-year period prior to 2018. As a result, in Q2 2021, a net gain of €42 million was recognized in net income, of which €36 million in Other results, €20 million in interest income, €5 million in discontinued operations and €19 million negative in income tax.

UK pensions curtailment

Following a court decision in April 2021, which allows the amendment of the scheme documentation of one of the company's UK pension funds, a curtailment gain of €23 million was recognized in Other results.

Operating income

Second quarter							January-June
2020		2021		∆% in € millions	2020		2021		∆%
169		238		41%		Decorative Paints		227		385		70%
89	186		109%		Performance Coatings	271		380	40%
(51)	(40)				Other activities	(104)		(78)
207	384		86%	Total	394		687	74%

Adjusted operating income

Second quarter							January-June
2020		2021		∆% in € millions	2020	2021		∆%
175		191		9%		Decorative Paints		239		339		42%
103		179		74%		Performance Coatings		293		375		28%
(40)	(35)				Other activities	(80)	(72)
238	335		41%	Total	452	642	42%

ROS1

Second quarter							January-June
2020		2021				in %		2020		2021
19.5	17.6				Decorative Paints	14.5		16.8
9.5	12.6				Performance Coatings	12.3		13.6
						Other activities2
12.0	13.3			Total	11.2		13.4

• ROS is adjusted operating income as percentage of revenue; ROS excluding unallocated cost was reported in relation to the Winning together: 15 by 20 strategy and is no longer reported.

² ROS for Other activities is not shown, as this is not meaningful.

Operating income to net income

Second quarter			January-June
2020		2021 in € millions	2020		2021
207		384		Operating income		394		687
(25)	(4)		Net financing income/(expenses)	(38)		(12)
5	8		Results from associates and joint ventures	12		15
187	388		Profit before tax	368		690
(53)	(123)		Income tax	(107)		(196)
134	265		Profit from continuing operations	261		494
	-	7		Profit from discontinued operations	(1)		5
134	272		Profit for the period	260		499
(5)	(11)		Non-controlling interests	(17)		(21)
129	261		Net income	243		478

AkzoNobel  I  Report for the second quarter and half-year 2021 5

Decorative Paints

Highlights Q2 2021

•  Revenue up 21% (compared with Q2 2019: up 18% in constant currencies), due to strong demand across all regions •  Pricing up 3% compared with Q2 2020

•  Adjusted operating income increased to €191 million (ROS at 17.6%), up 9% from Q2 2020 and 40% higher than Q2 2019

Q2 2021

•	Revenue up 21% and 23% higher in constant currencies (compared with Q2 2019: up 18% in constant currencies); 22% higher volumes
	and 3% price increase was offset by 5% adverse geographic mix impact for EMEA. Acquisitions added 3%
•	Operating income increased 41% to €238 million (2020: €169 million), driven by higher volumes, margin management, cost discipline and
	one-off gains

Half-year 2021

•	Revenue 22% higher and up 26% in constant currencies; 25% higher volumes and 3% price increase was offset by 4% adverse mix impact
•	Operating income increased 70% to €385 million (2020: €227 million), driven by higher volumes, margin management, cost discipline and
	one-off gains
•	Adjusted operating income increased 42% to €339 million (2020: €239 million)

Revenue

Second quarter												January-June
							∆%										∆%
	2020		2021		∆%		CC* in € millions	2020	2021		∆%		CC*
	638		720		13%		13%		Decorative Paints		1,129		1,316		17%		18%
									Europe, Middle East
									and Africa
58	101	74%		102%		Decorative Paints	143	198	38%	77%
									South America
203	265	31%		34%		Decorative Paints Asia	381	502	32%	37%
899	1,086	21%		23%		Total	1,653	2,016	22%	26%

* Change excluding currency impact.

Revenue development Q2 2021

Increase	Decrease
25	22%	-2%	3%	23%	-2%	21%
20
15

10Price: 3%

Mix: -5%

5

0

Volume	Price/	Acq./	Total	Exch.	Total
	mix	div.	in CC	rates

Revenue development half-year 2021

Increase	Decrease
30			2%	26%	-4%
25	25%	-1%
20					22%

Q2 2021

Revenue was up 21% and 23% higher in constant currencies, due to strong demand across all regions. Europe and South America delivered continued strong performance, while most parts of Asia returned to growth.

Operating income increased 41% to €238 million and was impacted by €47 million net positive identified items, mainly related to one-off gains (refer to page 4). In 2020, operating income of €169 million was adversely impacted by €6 million identified items related to transformation initiatives.

Adjusted operating income increased 9% to €191 million (2020: €175 million), mainly driven by higher volumes. ROS at 17.6% (2020: 19.5%) with price increases offset by geographic mix.

Half-year 2021

Revenue was 22% higher and up 26% in constant currencies, with positive volume developments of 25%. A positive price impact of 3% was more than offset by 4% adverse mix effect. Acquisitions added 2%.

Operating income increased 70% to €385 million and was impacted by €46 million net positive identified items, mainly related to one-off gains (refer to page 4). In 2020, operating income of €227 million was adversely impacted by €12 million identified items related to transformation initiatives.

Adjusted operating income increased 42% to €339 million (2020: €239 million). Margin management and cost discipline resulted in an increased ROS of 16.8% (2020: 14.5%).

15Price: 3%

Mix: -4%10

5

0

Volume	Price/	Acq./	Total	Exch.	Total
	mix	div.	in CC	rates

Key financial figures

Second quarter								January-June
2020		2021		∆% in € millions / %	2020	2021		∆%
169		238		41%		Operating income	227	385		70%
(6)	47				Identified items*	(12)	46
175	191	9%	Adjusted operating income*	239	339		42%
18.8	21.9				OPI margin (%)*	13.7	19.1
19.5	17.6				ROS (%)*	14.5	16.8
					Average invested capital*	2,959	2,734
						ROI (%)*		15.5		24.6

*Alternative performance measures; please refer to reconciliation to the most directly comparable IFRS measures on pages 16 and 17.